<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the quarterly period ended March 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Transition period from __________________ to _________________
Commission file Number 0-13849
RAMSAY HEALTH CARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 63-0857352
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
COLUMBUS CENTER
ONE ALHAMBRA PLAZA SUITE 750
CORAL GABLES, FLORIDA 33134
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (305) 569-6993
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___.
-
The number of shares of the Registrant's Common Stock outstanding as of May
20, 1998, follows:
Common Stock, par value $0.01 per share - 10,871,850 shares
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements............................................. 1
Consolidated balance sheets -- March 31, 1998 and June 30, 1997
(unaudited)...................................................... 1
Consolidated statements of operations - three and nine months ended
March 31, 1998 and 1997 (unaudited).............................. 3
Consolidated statements of cash flows - nine months ended March 31,
1998 and 1997 (unaudited)........................................ 4
Notes to consolidated financial statements - March 31, 1998............... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 11
PART II. OTHER INFORMATION
Item 5. Other Information................................................ 19
Item 6. Exhibits and Current Reports on Form 8-K......................... 20
SIGNATURES................................................................ 21
<PAGE>
PART I. FINANCIAL INFORMATION
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 JUNE 30
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.............................................. $ 4,751,000 $ 1,723,000
Patient accounts receivable, less allowances for doubtful accounts of
$4,521,000 and $4,386,000 at March 31, 1998 and June 30, 1997,
respectively.......................................................... 24,109,000 25,802,000
Amounts due from third-party contractual agencies...................... 5,552,000 5,653,000
Other receivables...................................................... 2,894,000 3,139,000
Other current assets................................................... 1,979,000 1,699,000
------------ ------------
Total current assets................................................. 39,285,000 38,016,000
Other assets
Cash held in trust..................................................... 830,000 827,000
Cost in excess of net asset value of purchased businesses.............. 3,799,000 19,281,000
Other intangible assets................................................ --- 4,680,000
Unamortized preopening and loan costs.................................. 3,440,000 1,837,000
Deferred income taxes.................................................. --- 9,411,000
Other noncurrent assets................................................ 328,000 1,155,000
------------ ------------
Total other assets................................................... 8,397,000 37,191,000
Assets held for sale
Cost in excess of net asset value of purchased businesses.............. 15,209,000 ---
Other noncurrent assets................................................ 1,188,000 ---
Property and equipment................................................. 46,577,000 ---
Less: Accumulated depreciation......................................... (16,495,000) ---
Less: Valuation allowance on property and equipment.................... (4,655,000) ---
------------ ------------
Total assets held for sale........................................... 41,824,000 ---
Property and equipment
Land................................................................... 3,687,000 5,025,000
Buildings and improvements............................................. 38,375,000 71,190,000
Equipment, furniture and fixtures...................................... 12,539,000 22,294,000
------------ ------------
54,601,000 98,509,000
Less: Accumulated depreciation......................................... (19,020,000) (32,527,000)
------------ ------------
35,581,000 65,982,000
------------ ------------
$125,087,000 $141,189,000
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 JUNE 30
1998 1997
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable........................................................... $ 5,353,000 $ 7,284,000
Accrued salaries and wages................................................. 6,331,000 6,282,000
Hospital and medical claims payable........................................ 2,880,000 1,975,000
Other accrued liabilities.................................................. 8,751,000 5,218,000
Amounts due to third-party contractual agencies............................ 9,153,000 7,075,000
Current portion of long-term debt.......................................... 1,752,000 222,000
------------ ------------
Total current liabilities............................................... 34,220,000 28,056,000
Noncurrent liabilities
Other accrued liabilities.................................................. 13,928,000 6,617,000
Long-term debt, less current portion....................................... 52,250,000 35,632,000
Short-term debt expected to be refinanced.................................. --- 11,622,000
Minority interests......................................................... 145,000 80,000
------------ ------------
Total noncurrent liabilities............................................ 66,323,000 53,951,000
Commitments and contingencies
Class B convertible redeemable preferred stock, Series 1997,
$1 par value -- authorized 100,000 shares; issued 100,000
shares (liquidation value of $2,500,000), net of issuance
costs of $100,000 and including accrued dividends of $55,000................ 2,455,000 ---
Class B redeemable preferred stock, Series 1997-A,
$1 par value--authorized 4,000 shares; issued 4,000 shares
(liquidation value of $4,000,000) including accrued dividends
of $181,000................................................................. 4,181,000 ---
Stockholders' equity
Class B convertible preferred stock, Series C, $1 par
value--authorized 152,321 shares; issued 142,486 shares
(liquidation value of $7,244,000) including accrued dividends............. 324,000 504,000
Class B convertible preferred stock, Series 1996, $1 par
value--authorized 100,000 shares; issued 100,000 shares
(liquidation value of $3,000,000) including accrued dividends............. 3,075,000 3,121,000
Common Stock, $.01 par value--authorized 30,000,000 shares;
issued 11,453,400 shares at March 31, 1998 and 11,150,640
shares at June 30, 1997................................................... 115,000 112,000
Additional paid-in capital................................................. 108,923,000 106,332,000
Retained earnings (deficit)................................................ (90,630,000) (46,988,000)
Treasury stock, 581,550 common shares at March 31, 1998
and June 30, 1997, at cost................................................ (3,899,000) (3,899,000)
------------ ------------
Total stockholders' equity.............................................. 17,908,000 59,182,000
------------ ------------
$125,087,000 $141,189,000
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
---------------------------- --------------------------
1998 1997 1998 1997
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Provider - based operations................. $ 30,370,000 $31,732,000 $ 94,698,000 $98,137,000
Managed care operations..................... 6,652,000 --- 19,859,000 ---
Investment income and other................. 24,000 69,000 221,000 271,000
------------ ----------- ------------ -----------
TOTAL REVENUES................................. 37,046,000 31,801,000 114,778,000 98,408,000
Expenses:
Salaries, wages and benefits................. 21,358,000 16,473,000 60,962,000 49,736,000
Managed care provider expenses............... 2,409,000 --- 7,805,000 ---
Other operating expenses..................... 17,401,000 10,257,000 40,714,000 32,613,000
Provision for doubtful accounts.............. 2,840,000 1,183,000 5,033,000 3,332,000
Depreciation and amortization................ 1,648,000 1,376,000 4,929,000 3,969,000
Interest and other financing charges......... 2,749,000 1,429,000 5,540,000 4,463,000
Restructuring charges........................ 3,927,000 --- 3,927,000 ---
Asset impairment charges..................... 16,525,000 --- 16,525,000 ---
------------ ----------- ------------ -----------
TOTAL EXPENSES................................. 68,857,000 30,718,000 145,435,000 94,113,000
INCOME (LOSS) BEFORE INCOME
TAXES AND EXTRAORDINARY
ITEM........................................... (31,811,000) 1,083,000 (30,657,000) 4,295,000
Income taxes................................... 9,411,000 411,000 9,411,000 1,632,000
------------ ----------- ------------ -----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM............................. (41,222,000) 672,000 (40,068,000) 2,663,000
Extraordinary item:
Loss from early extinguishment of debt....... --- --- (3,574,000) ---
------------ ----------- ------------ -----------
NET INCOME (LOSS).............................. $(41,222,000) $ 672,000 $(43,642,000) $ 2,663,000
============ =========== ============ ===========
Income (loss) per common and dilutive
common equivalent share:
Basic:
Before extraordinary item.................... $ (3.82) $ 0.07 $ (3.79) $ 0.29
Extraordinary item........................... --- --- (0.33) ---
------------ ----------- ------------ -----------
$ (3.82) $ 0.07 $ (4.12) $ 0.29
============ =========== ============ ===========
Diluted:
Before extraordinary item.................... $ (3.82) $ 0.06 $ (3.79) $ 0.27
Extraordinary item........................... --- --- (0.33) ---
------------ ----------- ------------ -----------
$ (3.82) $ 0.06 $ (4.12) $ 0.27
============ =========== ============ ===========
Weighted average number of shares
outstanding:
Basic........................................ 10,867,000 8,426,000 10,755,000 8,329,000
Diluted...................................... 10,867,000 10,514,000 10,755,000 10,012,000
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31
-----------------------------
1998 1997
------------ --------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss)................................................... $(43,642,000) $ 2,663,000
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization, including loan costs............... 5,221,000 4,202,000
Asset impairment charges.......................................... 16,525,000 ---
Restructuring charges............................................. 3,927,000 ---
Loss from early extinguishment of debt............................ 3,574,000 ---
Provision for deferred income taxes............................... 9,411,000 1,272,000
Provision for doubtful accounts................................... 5,033,000 3,332,000
Management and director fees paid in common stock................. --- 692,000
Cash flows from (increase) decrease in operating assets:
Patient accounts receivable..................................... (3,340,000) (5,847,000)
Amounts due from third-party contractual agencies............... 101,000 2,615,000
Other current assets............................................ (344,000) (783,000)
Receivable from affiliated company.............................. --- 408,000
Other noncurrent assets......................................... (361,000) (432,000)
Cash flows from increase (decrease) in operating liabilities:
Accounts payable................................................ (1,931,000) (1,209,000)
Accrued salaries, wages and other liabilities................... 282,000 408,000
Hospital and medical claims payable............................. 905,000 ---
Amounts due to third-party contractual agencies................. 2,078,000 (998,000)
Other noncurrent liabilities.................................... 4,511,000 323,000
------------ ------------
Total adjustments............................................. 45,592,000 3,983,000
------------ ------------
Net cash provided by operating activities................... 1,950,000 6,646,000
------------ ------------
Cash flows from investing activities
Expenditures for property and equipment, net...................... (5,272,000) (2,622,000)
Preopening and other costs........................................ (78,000) (401,000)
Acquisition of business........................................... (300,000) ---
Cash held in trust................................................ (3,000) 485,000
------------ ------------
Net cash used in investing activities........................... (5,653,000) (2,538,000)
------------ ------------
Cash flows from financing activities
Loan costs........................................................ (3,101,000) (302,000)
Proceeds from forward interest rate agreement..................... --- 1,284,000
Proceeds from issuance of debt.................................... 57,625,000 ---
Proceeds from exercise of options and stock purchases............. 158,000 40,000
Distributions to minority interests............................... --- (900,000)
Payments on debt.................................................. (50,849,000) (10,872,000)
Payments related to early extinguishment of debt.................. (2,229,000) ---
Cost of issuance of Series 1997 preferred stock................... (100,000) ---
Proceeds from preferred stock issues.............................. 5,284,000 ---
Payment of preferred stock dividends.............................. (57,000) (91,000)
------------ ------------
Net cash provided by (used in) financing activities............. 6,731,000 (10,841,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents................ 3,028,000 (6,733,000)
Cash and cash equivalents at beginning of period.................... 1,723,000 7,605,000
------------ ------------
Cash and cash equivalents at end of period.......................... $ 4,751,000 $ 872,000
============ ============
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest.......................................................... $ 3,299,000 $ 2,702,000
Income taxes...................................................... 566,000 79,000
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
NOTE 1 -- GENERAL
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation of the interim information are, unless
otherwise discussed in this report (including in connection with the Company's
change in strategic direction discussed in Note 2 below), of a normal recurring
nature and have been included. The Company's business is seasonal in nature and
subject to general economic conditions and other factors. Accordingly,
operating results for the quarter and nine months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year. For
further information, refer to the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
June 30, 1997.
NOTE 2 -- CHANGE IN STRATEGIC DIRECTION AND ASSET SALES
During the quarter ended March 31, 1998, the Company determined to change
its strategic direction from an organization which provides and manages a full
range of behavioral healthcare services to an organization engaged in providing
services for at-risk and adjudicated youth with special needs. In connection
with its revised strategic initiative, the Company has identified for
divestiture certain of its inpatient facilities, its managed care operations and
other non-youth service businesses. These assets are reflected in the
accompanying balance sheet as assets held for sale. There can be no assurance
that the Company will be successful in selling these assets and, except as
discussed below, the Company cannot predict the net proceeds of these sales, if
any.
On May 1, 1998, the Company signed a definitive agreement with an unrelated
third party to sell its managed care business for a cash purchase price of
$20,000,000, subject to certain future potential purchase price adjustments. On
May 4, 1998, the Company sold its Three Rivers Hospital, which had been closed
since June 30, 1995, for $2,000,000. Proceeds from the sale of Three Rivers
Hospital included a $500,000 cash payment at closing and a $1,500,000, 12%
promissory note, due and payable on May 1, 1999. On May 15, 1998, the Company
signed a definitive agreement with an unrelated third party to sell its
Greenbrier Hospital for a cash purchase price of $1,600,000. For the quarter
and nine months ended March 31, 1998, net income before taxes of the managed
care business totalled $854,000 and $2,000,000, respectively, and Greenbrier
Hospital incurred a net loss before taxes of $(122,000) and $(569,000),
respectively. The sales of Greenbrier Hospital and the managed care business
are expected to close in June 1998 and have received the consent of the
Company's financial institution lenders, provided the sales take place on or
before June 15, 1998. Proceeds from the sales of the above assets, costs of
sale and amounts placed in escrow, are expected to approximate $19,200,000 and
will be used to partially prepay the Senior Credit Facility. In connection with
this prepayment, the Company expects to incur a loss on extinguishment of debt
of approximately $1,000,000, which will be recorded in the fourth quarter.
Statement of Financial Accounting Standards (SFAS) No. 121 addresses the
accounting for the impairment of long-lived assets and long-lived assets to be
disposed of, certain identifiable intangible assets and goodwill relating to
those assets, and provides guidance for recognizing and measuring impairment
losses. The statement requires that the carrying amount of impaired assets be
reduced to fair value.
5
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
During the third quarter of fiscal 1998, in connection with the Company's
change in strategic direction, the Company decided to close or sell certain
operations, including the operations and assets discussed above, that were
identified as not compatible with the Company's future operating plans.
Accordingly, the carrying values of these facilities/operations were compared to
selling values or, if selling values were not available, to discounted future
cash flows, resulting in an aggregate non-cash asset impairment charge of $14.6
million. The Company expects to complete these sales or closures during the
fourth quarter of fiscal 1998 and fiscal year 1999.
During the third quarter of fiscal 1998, the Company recorded an impairment
loss of approximately $1.9 million related to other long-lived assets of a
facility which is not held for sale, given that the recorded asset value was
not considered fully recoverable based upon projected discounted future cash
flows.
NOTE 3 -- REFINANCING
On September 30, 1997, the Company refinanced its then existing senior and
subordinated secured notes, its variable rate demand revenue bonds and its
demand note to a corporate affiliate of Paul J. Ramsay, the Company's Chairman
of the Board and a significant shareholder of the Company, with proceeds from a
credit facility consisting of term and revolving credit debt of $38,500,000 (the
"Senior Credit Facility") and the sale of $2,500,000 of Class B Preferred Stock,
Series 1997 (the "Series 1997 Preferred Stock") to a financial institution. In
addition, on September 30, 1997, the Company issued a $17,500,000 subordinated
bridge facility, of which $15,000,000 was purchased by the financial institution
(the "Series A Bridge Notes") and $2,500,000 was purchased by a corporate
affiliate of Mr. Ramsay (the "Bridge Facility").
Under the terms of the Senior Credit Facility, which is secured by
substantially all of the Company's real property, receivables and other assets,
the Company was provided (i) a $12,500,000 term loan, (ii) a $10,000,000 term
loan and (iii) a revolving credit facility (the "Revolver") for an amount up to
the lesser of $16,000,000 or the borrowing base of the Company's receivables
(defined as 70% of the Company's net patient accounts receivable, receivables
due from managed care customers and receivables due from customers whose
behavioral health operations are managed by the Company). The borrowing base of
the Company's receivables may be further reduced by the financial institution
based on a material deterioration in the collectibility or value of the
Company's receivables or with respect to contingent or known material
liabilities (see Note 4).
In addition, on September 30, 1997, the Company entered into an agreement
with a corporate affiliate of Mr. Ramsay pursuant to which the corporate
affiliate purchased 4,000 shares of non-convertible, non-voting Class B
Preferred Stock, Series 1997-A (the "Series 1997-A Preferred Stock"), $1.00 par
value, at $1,000 per share. The shares are entitled to cumulative dividends at
a rate of 9% per annum ($360,000 per year) and to a liquidation preference of
$1,000 per share under certain circumstances. The Series 1997-A Preferred Stock
shall be redeemed at a price of $1,000 per share and dividends on the Series C
Preferred Stock, Series 1996 Preferred Stock and Series 1997-A Preferred Stock
(all of which are held by corporate affiliates of Mr. Ramsay) shall be paid
provided (i) the Company's EBITDA (as defined in the Company's credit
documentation) for its fiscal year ending June 30, 1998 is equal to or greater
than $16,500,000, (ii) the Company has availability under the Revolver in excess
of $4,000,000, (iii) the financial institution syndicates a portion of the
Revolver and (iv) the Bridge Facility is refinanced or paid. The Company does
not expect to meet these conditions for its fiscal year ending June 30, 1998.
As mentioned above, in connection with the refinancing of the Company's
debt on September 30, 1997, the Company sold to the financial institution, which
effected the refinancing, $2,500,000 of Series 1997 Preferred Stock. The Series
1997 Preferred Stock is (i) non-voting, (ii) senior to the Series C Preferred
Stock, the Series 1996 Preferred Stock and the Series 1997-A Preferred Stock in
liquidation and as to dividends, (iii) initially convertible, at the option of
the holder, into 394,945 shares of Common Stock, (iv) optionally redeemable by
the
6
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
Company at a premium beginning in September 2000, and (v) mandatorily redeemable
at the earlier to occur of a change in control of the Company or September 2007.
Dividends on the Series 1997 Preferred Stock are payable quarterly at 9% per
annum, or $56,250 per quarter, unless the Company is unable to meet a fixed
charge ratio provided in the Senior Credit Facility, at which time dividends
accrue at 11% per annum. The Company anticipates accruing such dividends
effective with the quarterly dividend payment payable July 1, 1998 (see Note 4).
NOTE 4 -- LONG-TERM DEBT
The Company's long-term debt at March 31, 1998 is as follows:
<TABLE>
<S> <C>
Variable rate Term Loan A,
due in quarterly installments
through 9/30/2002 $12,500,000
Variable rate Term Loan B,
due in quarterly installments
through 9/30/2004 9,938,000
Revolver, due 9/30/2002 12,500,000
Bridge Facility to financial
institution, due 9/30/2005 15,000,000
Bridge Facility to affiliate,
due 9/30/2005 2,500,000
Junior Subordinated Note
Agreement to affiliate, due
9/30/2006 1,475,000
Other notes payable 89,000
-----------
54,002,000
1,752,000
-----------
$52,250,000
===========
</TABLE>
Interest on the term loans and the Revolver varies and, at the option of
the Company, equals (i) a function of the prime lending rate plus a margin
ranging from 1.25% to 1.75%, based on the Company's leverage ratio (as defined
in the credit agreement) or (ii) the LIBOR rate plus a margin ranging from 2.75%
to 3.25%, based on the Company's leverage ratio. Effective May 20, 1998, the
Company may only elect LIBOR rate loans upon the written consent of the
financial institution lenders.
The Bridge Facility bears interest at rates ranging from 11.0% to 12.5%
through September 1998, at which time the interest rate increases to 13%. The
Bridge Facility also provides that the Company will incur a contingent payment
obligation (the "CPO") to the holders of the Series A Bridge Notes. The CPO is
payable upon the earlier to occur of certain events (each, an "Event"),
including a change of control involving the Company, a public offering by the
Company of Common Stock, the repayment of the Series A Bridge Notes and
September 30, 2002. On March 27, 1998, pursuant to a First Amendment to the
Bridge Facility (the "First Amendment"), the terms of the CPO were modified
which resulted in the Company agreeing to pay a $1.0 million nonrefundable fee
which has been accrued at March 31, 1998. If the Bridge Facility remains
outstanding as of October 1, 1998, the CPO will change to the greater of
$1,000,000 or 14% of the then existing aggregate market value of the Company's
Common Stock, calculated on a fully-diluted basis (as defined). In this event,
the first $1,000,000 shall be payable in cash and the balance, if any, shall be
payable in cash or Common Stock, at the option of the Company.
7
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
Amounts related to any future potential change related to the CPO and any
resulting payments were not recorded in the March 31, 1998 financial statements
given that they are not estimable at this time.
The Senior Credit Facility and the Series A Bridge Notes prohibit the
payment of cash dividends to the common shareholders of the Company and require
that the Company meet certain financial covenants, including (i) the maintenance
of certain fixed charge, interest coverage and leverage ratios, (ii) the
maintenance of a minimum level of EBITDA and tangible net worth (as defined in
the credit agreement) and (iii) a limitation on capital expenditures. The
Company is also required to meet an adjusted minimum fixed charge ratio
("Modified Fixed Charge Coverage Ratio"), which includes preferred dividends
payable in the calculation thereof, in order to pay dividends on the Series 1997
Preferred Stock. As of March 31, 1998, the Company did not meet these financial
covenant requirements. The financial institution lenders have agreed to waive
these requirements at March 31, 1998. In addition, the credit documentation
governing the Senior Credit Facility and the Series A Bridge Notes was amended
to provide for (i) a lower principal amount available under the Revolver from
the lesser of $16,000,000 or the borrowing base of the Company's receivables to
the lesser of $8,000,000 (increased by an amount equal to the Company's fiscal
1998 income tax liability, if any) or the borrowing base of the Company's
receivables, (ii) an agreement to secure the Series A Bridge Notes with second
liens on the Company's assets, (iii) monthly financial covenants, (iv)
limitations on certain payments by the Company and (v) the payment to the
financial institution lenders of a fee, the substantial portion of which is
payable on September 30, 1998.
On March 25, 1998, the Company entered into a Junior Subordinated Note
Purchase Agreement (the "Note"), with a corporate affiliate of Mr. Ramsay in an
aggregate principal amount of $5,000,000, plus accrued interest. Proceeds from
any borrowings made under the Note are restricted, and may be used by the
Company solely to (i) acquire and renovate a youth services facility in Dothan,
Alabama, (ii) acquire and renovate a youth services facility in Palm Bay,
Florida and (iii) meet the working capital needs of these facilities. On March
31, 1998, the Company borrowed $1,475,000 under the Note to fund the purchase
price ($1,400,000) and sales commission ($75,000) of the facility in Palm Bay,
Florida. On April 1, 1998, the Company borrowed an additional $1,916,000 under
the Note to fund the purchase price ($1,900,000) and closing costs ($16,000) of
the facility in Dothan, Alabama.
The Note is unsecured and is subordinated and junior in right of payment to
the Senior Credit Facility and the Bridge Facility or to any refinancing
thereof. Borrowings under the Note bear interest at a rate per annum equal to
50 basis points greater than the interest rate then in effect on the Bridge
Facility, provided that if the Bridge Facility is paid in full, the interest
rate is fixed at 12.5%. Interest due under the Note will be accrued and added
to the unpaid principal balance until March 25, 1999 or repayment of the Series
A Bridge Notes, whichever occurs later. Thereafter, interest is payable
quarterly in arrears provided there are no defaults under the Senior Credit
Facility. Provided the Senior Credit Facility, the Bridge Facility and any
other future indebtedness senior to the Note are repaid in full, or in the event
any future lender consents, outstanding principal and accrued interest due under
the Note must be prepaid by the Company prior to its September 30, 2006 maturity
date with proceeds from any asset sales.
NOTE 5 -- LEASES
In April 1995, the Company sold and leased back the land, buildings and
fixed equipment of two of its inpatient facilities. The leases have a primary
term of 15 years (with three successive renewal options of 5 years each) and
currently require an aggregate annual minimum rental of approximately
$1,650,000, payable monthly. Effective April 1 of each year, the lease payments
are subject to any upward adjustment (not to exceed 3%
8
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
annually) in the consumer price index over the preceding twelve months.
Effective April 1995, the Company agreed to lease an 80-bed facility near Salt
Lake City, Utah for four years, with an option to renew for an additional three
years. The lease requires annual base rental payments of $456,000, payable
monthly, and percentage rental payments equal to 2% of the net revenues of the
facility, payable quarterly. The Company leases office space for various other
purposes over terms ranging from one to five years. Annual rent expense related
to noncancellable operating leases totals approximately $4,000,000.
NOTE 6 -- INCOME TAXES
Income taxes are accounted for in accordance with SFAS No. 109. SFAS No.
109 requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. At March 31, 1998, net operating loss carryovers of
approximately $26,800,000 (of which approximately $14,300,000 expires from 2001
to 2002, $5,700,000 expires in 2010 and $6,800,000 expires from 2011 to 2012)
and alternative minimum tax credit carryovers of approximately $1,100,000 are
available to reduce future federal income taxes, subject to certain annual
limitations.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Previously, the Company evaluated the
realizability of its deferred tax assets and the need for a valuation allowance
by considering the effects of implementing tax planning strategies that
contemplated the sales of certain appreciated property. In connection with the
Company's change in strategic direction, announced on February 19, 1998, the
Company re-evaluated its tax planning strategies and determined that such
strategies will not be realized. Consequently, the Company's net operating loss
carryforwards were no longer considered realizable, pursuant to the provisions
of SFAS No. 109, and a valuation allowance of $9,411,000 was recorded in the
quarter ended March 31, 1998.
NOTE 7 -- EARNINGS PER SHARE
Basic and diluted net loss per share for the quarter and nine months ended
March 31, 1998 are calculated using the weighted average number of shares of
Common Stock outstanding during the respective periods. Common Stock
equivalents are not included in the computation of diluted net loss per share as
their effect is antidilutive. Basic net income per share for the quarter and
nine months ended March 31, 1997 is calculated using the weighted average number
of shares of Common Stock outstanding. Diluted net income per share for the
quarter and nine months ended March 31, 1997 is calculated using the weighted
average number of shares of Common Stock outstanding and, if their effect is
dilutive, common stock equivalents outstanding.
In February 1997, the FASB issued SFAS No. 128, Earnings per Share. SFAS
No. 128, which applies to entities with publicly held common stock, simplifies
and replaces the standards for computing earnings per share previously required
in APB Opinion No. 15, Earnings per Share, and makes them comparable to
international earnings per share standards. SFAS No. 128, which is effective
for financial statements issued for periods ending after December 15, 1997,
requires a restatement of prior year earnings (loss) per share calculations.
The adoption of the provisions of SFAS No. 128 did not have a material impact on
the calculation of earnings (loss) per share.
The following table summarizes the amounts used in deriving the earnings
(loss) per share figures included in the accompanying financial statements:
9
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
-------------------------- ---------------------------
1998 1997 1998 1997
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
BASIC:
Shares Outstanding:
Weighted average common shares outstanding 10,866,576 8,425,953 10,755,482 8,329,001
============ =========== ============ ===========
Net Income (Loss):
Net income (loss) before extraordinary
item, as reported $(41,222,000) $ 672,000 $(40,068,000) $ 2,663,000
Dividends, Class B convertible preferred
stock, Series C (91,000) (91,000) (272,000) (272,000)
Dividends, Class B convertible preferred
stock, Series 1996 (38,000) n/a (113,000) n/a
Dividends, Class B convertible preferred
stock, Series 1997 (56,000) n/a (113,000) n/a
Dividends, Class B convertible preferred
stock, Series 1997-A (90,000) n/a (181,000) n/a
------------ ----------- ------------ -----------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS-BEFORE
EXTRAORDINARY ITEM (41,497,000) 581,000 (40,747,000) 2,391,000
Extraordinary item --- --- (3,574,000) ---
------------ ----------- ------------ -----------
NET INCOME (LOSS) $(41,497,000) $ 581,000 $(44,321,000) $ 2,391,000
============ =========== ============ ===========
Net Income (Loss) Per Share:
Before extraordinary item $ (3.82) 0.07 $ (3.79) $ 0.29
Extraordinary item --- --- (0.33) ---
------------ ----------- ------------ -----------
Net income (loss) per share $ (3.82) 0.07 $ (4.12) 0.29
============ =========== ============ ===========
DILUTED:
Shares Outstanding:
Weighted average common shares outstanding 10,866,576 8,425,953 10,755,482 8,329,001
Class B convertible preferred stock, Series C --- 1,424,860 --- 1,424,860
Dilutive effect of stock options and warrants --- 662,739 --- 257,978
------------ ----------- ------------ -----------
TOTAL COMMON AND DILUTIVE
COMMON EQUIVALENT SHARES 10,866,576 10,513,552 10,755,482 10,011,839
============ =========== ============ ===========
Net Income (Loss):
Net income (loss) before extraordinary item,
basic calculation $(41,497,000) $ 581,000 $(40,747,000) $ 2,391,000
Dividends, Class B convertible preferred
stock, Series C --- 91,000 --- 272,000
------------ ----------- ------------ -----------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS-BEFORE
EXTRAORDINARY ITEM (41,497,000) 672,000 (40,747,000) 2,663,000
Extraordinary item --- --- (3,574,000) ---
------------ ----------- ------------ -----------
NET INCOME (LOSS) $(41,497,000) $ 672,000 $(44,321,000) $ 2,663,000
============ =========== ============ ===========
Net Income (Loss) Per Share:
Before extraordinary item $ (3.82) $ 0.06 $ (3.79) $ 0.27
Extraordinary item --- --- (0.33) ---
------------ ----------- ------------ -----------
Net income (loss) per share $ (3.82) $ 0.06 $ (4.12) $ 0.27
============ =========== ============ ===========
</TABLE>
10
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On February 19, 1998, the Company announced a change in strategic direction
in order to focus on becoming a leader in the youth services industry. The
Company's strategic plan is now focused on repositioning the Company for growth
in the at-risk youth services industry and strengthening the Company's financial
position. The Company has engaged an investment banking firm to assist in the
execution of this growth strategy. The firm will advise the Company in
connection with acquisitions and other strategic initiatives necessary to expand
the Company's existing youth services business. In addition, the investment
banking firm will render advisory services in association with the divestiture
of the Company's non-youth services businesses, with proceeds to be used to
repay outstanding indebtedness. See Item 1. Financial Statements, Notes 2 and
6.
In connection with the "safe-harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company notes that this Quarterly Report on
Form 10-Q contains forward-looking statements about the Company. The Company is
hereby setting forth cautionary statements identifying important factors that
may cause the Company's actual results to differ materially from those set forth
in any forward-looking statements or information made by or on behalf of or
concerning the Company. Some of the most significant factors include (i) the
inability of the Company to effect its strategic plan, including the sale of
assets, (ii) accelerating changes occurring in the healthcare industry,
including competition from consolidating and integrated healthcare provider
systems and managers of healthcare, the imposition of more stringent admission
criteria by payors, increased payor pressures to limit lengths of stay,
limitations on reimbursement rates and limitations on annual and lifetime
patient health benefits, (iii) federal and state governmental budgetary
constraints which could have the effect of limiting the amount of funds
available to support governmental healthcare programs, including Medicare and
Medicaid, (iv) statutory, regulatory and administrative changes or
interpretations of existing statutory and regulatory provisions affecting the
conduct of the Company's business and affecting current and prior reimbursement
for the Company's services and (v) the loss of major managed care customers or
the loss of a significant number of members from the Company's provider network.
There can be no assurance that any anticipated future results would be achieved.
As a result of the factors identified above and other factors, the Company's
actual results or financial or other condition could vary significantly from the
performance or financial or other condition set forth in any forward-looking
statements or information.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1998 COMPARED TO
QUARTER ENDED MARCH 31, 1997
Revenues from provider-based operations in the quarter ended March 31, 1998
were $30.4 million, compared to $31.7 million in the comparable quarter of the
prior fiscal year. Revenues from provider-based operations include revenues
related to the Company's youth services facilities (the "Retained Facilities")
as well as revenues associated with assets held for sale (the "Sale
Facilities"). Revenues of the Retained Facilities for the quarter ended March
31, 1998 totalled $12.8 million, which represents a 20% increase over the
comparable quarter of the prior year. Of this total, revenues related to
adolescents in residential treatment settings totalled $6.1 million, or 47%, and
revenues in intensive inpatient and outpatient treatment settings totalled $6.0
million and $0.7 million, respectively. For the comparable quarter of the prior
fiscal year, revenues related to adolescents in residential treatment settings
totalled $4.0 million, or 38% of total revenues of the Retained Facilities.
Residential treatment days for the Retained Facilities increased 58% between
quarters, from 17,879
11
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
(or 59% of total treatment days of the Retained Facilities) in the March 1997
quarter to 28,200 (or 65% of total treatment days of the Retained Facilities) in
the March 1998 quarter.
Revenues associated with the Sale Facilities totalled $19.7 million, of
which $2.0 million (approximately 10%) relates to adolescents in residential
treatment settings. The remainder, or $17.7 million, includes primarily
revenues in intensive inpatient and outpatient treatment settings and medical
subacute services. In the comparable quarter of the prior fiscal year, revenues
associated with the Sale Facilities totalled $20.7 million.
In connection with the Company's change in strategic direction and the
proposed divestiture of certain of its facility operations, the Company recorded
a $2.1 million reserve in the quarter ended March 31, 1998 related to possible
future adjustments of its March 31, 1998 cost report estimates by
intermediaries. Management believes adequate provision has been made for any
adjustments that may result from future intermediary reviews and audits.
Revenues associated with the Company's managed care operations, which
commenced in June 1997, totalled $6.7 million in the quarter ended March 31,
1998 and approximated management's expectations. As previously discussed, on
May 1, 1998, the Company entered into a definitive agreement to sell its managed
care operations to an unrelated third party for $20.0 million, subject to
certain future potential purchase price adjustments. See Item 1. Financial
Statements, Note 2.
Salaries, wages and benefits in the quarter ended March 31, 1998 totalled
$21.4 million, compared to $16.5 million in the comparable quarter of the prior
year. This increase is primarily related to salaries, wages and benefits of the
Company's managed care operations ($1.9 million in the current year quarter),
and a $1.9 million increase attributable to an increase in patient census
between periods at the Retained Facilities and the Company's medical subacute
units. Additionally, salaries, wages and benefits associated with the Company's
corporate office increased approximately $1.0 million between periods.
Managed care provider expenses relate to the provider costs, including
medical professionals, inpatient facilities and outpatient centers, associated
with managing and providing the delivery of behavioral healthcare services on
behalf of the Company's managed care customers. The Company provides for claims
incurred but not yet reported based on its past experience, adjusted for current
factors. The overall ratio of managed care provider expenses to the related
revenues was consistent with management's expectations in the quarter ended
March 31, 1998.
Other operating expenses increased from $10.3 million in the prior year
comparable quarter to $17.4 million in the quarter ended March 31, 1998. During
the current year quarter, the Company increased its reserve for professional and
general liability claims by approximately $1.5 million due primarily to the
settlement or pending settlement of three significant claims. In addition, the
Company (i) increased its reserves on other legal matters (including the matter
described in Part II-Other Information, "Item 5. Other Information"), (ii)
incurred $0.8 million of other operating expenses related to its managed care
operations acquired in June 1997 and (iii) due to increased census levels and an
increased corporate overhead structure, incurred increases in other operating
expenses of its provider-based operations and corporate office of approximately
$2.0 million.
The provision for doubtful accounts increased from $1.2 million in the
prior year comparable quarter to $2.8 million in the current year quarter.
During the quarter ended March 31, 1998, one of the Sale Facilities recorded a
$1.0 million bad debt provision associated with accounts that are greater than
six months old and owed by certain state agencies with which this facility does
business. The Company has engaged the services of local counsel to pursue this
matter. However, given the age of these accounts and continued payment denials
by the
12
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
payors, management determined that a $1.0 million reserve for uncollectibility
was necessary on these accounts at this time. In addition, the Company
identified approximately $0.3 million of bad debts associated with accounts
receivable on facilities previously closed and $0.2 million of bad debts
associated with the Company's subacute facilities.
Depreciation and amortization increased from $1.4 million in the comparable
prior year quarter to $1.6 million in the quarter ended March 31, 1998 primarily
due to the current period amortization of intangible assets recorded in
connection with the managed care acquisition in June 1997 and the acquisition of
Summa Healthcare Group, Inc. ("Summa") in October 1997.
Interest and other financing charges increased from $1.4 million in the
prior year comparable quarter to $2.7 million in the current year quarter. On
March 27, 1998, pursuant to the First Amendment the Company incurred a $1.0
million nonrefundable fee which has been accrued at March 31, 1998. Additional
amounts which may be owed based on the Company's future aggregate market value
are not estimable at this time and, therefore, have not been recorded in the
accompanying financial statements. Excluding the impact of the amounts above,
interest and other financing charges increased approximately $0.3 million
between quarters as the impact of the increase in the Company's average
outstanding borrowings between quarters (as a result of its refinancing on
September 30, 1997) was greater than the decrease in the overall interest and
financing cost yield on its borrowings between quarters. See Item 1. Financial
Statements, Note 4.
The Company recorded a provision for income taxes in the current year
quarter of $9.4 million, which represented a full valuation allowance on its
previously recorded deferred tax assets. The realizability of these assets was
previously based on the implementation of tax planning strategies that
contemplated the sales of certain appreciated property. In connection with the
Company's change in strategic direction in the quarter ended March 31, 1998, the
Company determined that its tax planning strategies will not be realized and a
full valuation allowance was considered necessary. See Item 1. Financial
Statements, Note 6.
In connection with the Company's change in strategic direction, and in
accordance with the accounting guidance available in Emerging Issues Task Force
("EITF") No. 94-3, the Company (i) initiated a restructuring of personnel at its
corporate headquarters, including the identification and communication of
severance arrangements with individual personnel, (ii) wrote off certain assets
located within its corporate headquarters which were considered to have no
future economic benefit and (iii) initiated the termination of certain
contractual commitments which require future payments. These amounts, which in
the aggregate totalled $3.9 million, are reflected as restructuring charges in
the quarter ended March 31, 1998.
On May 1, 1998, the Company signed a definitive agreement with an unrelated
third party to sell its managed behavioral care division for a cash purchase
price of $20,000,000, subject to certain future potential purchase price
adjustments. On May 4, 1998, the Company sold its Three Rivers Hospital for
$2,000,000. On May 15, 1998, the Company signed a definitive agreement with an
unrelated third party to sell its Greenbrier Hospital for a cash purchase price
of $1,600,000. The sales of Greenbrier Hospital and the managed care division
are expected to close in June 1998. See Item 1. Financial Statements, Note 2.
13
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO
NINE MONTHS ENDED MARCH 31, 1997
Revenues from provider-based operations in the nine months ended March 31,
1998 were $94.7 million, compared to $98.1 million in the comparable period of
the prior fiscal year. Revenues from provider-based operations include revenues
related to the Retained Facilities as well as revenues associated with the Sale
Facilities. Revenues of the Retained Facilities for the nine months ended March
31, 1998 totalled $36.6 million, which represents a 14% increase over the
comparable period of the prior year. Of this total, revenues related to
adolescents in residential treatment settings totalled $16.8 million, or 46%,
and revenues in intensive inpatient and outpatient treatment settings totalled
$17.3 million and $2.5 million, respectively. For the comparable period of the
prior fiscal year, revenues related to adolescents in residential treatment
settings totalled $11.5 million, or 36% of total revenues of the Retained
Facilities. Residential treatment days for the Retained Facilities increased
52% between periods, from 50,408 (or 56% of total days of the Retained
Facilities) in the prior year nine-month period to 76,851 (or 65% of total days
of the Retained Facilities) in the current year nine-month period.
Revenues associated with the Sale Facilities in the nine months ended March
31, 1998 totalled $60.1 million, of which $5.8 million (approximately 10%)
relates to adolescents in residential treatment settings. The remainder, or
$54.3 million, includes primarily revenues in intensive inpatient and outpatient
settings and medical subacute services. In the comparable period of the prior
fiscal year, revenues associated with the Sale Facilities totalled $61.9
million.
In connection with the Company's change in strategic direction and the
proposed divestiture of certain of its facility operations, the Company recorded
a $2.1 million reserve in the quarter ended March 31, 1998 related to possible
future adjustments of its March 31, 1998 cost report estimates by
intermediaries. Management believes adequate provision has been made for any
adjustments that may result from future intermediary reviews and audits. In
addition, provider-based revenues in the prior year period include the impact of
a favorable cash judgment awarded the Company by the courts of the State of
Missouri. In this matter, the courts ruled that the Company's Retained Facility
in Nevada, Missouri had received insufficient reimbursement from the Missouri
Department of Social Services for the provision of behavioral healthcare to
Medicaid patients from 1990 to 1996. This judgment, net of related costs,
increased provider-based revenues in the nine months ended March 31, 1997 by
$2.9 million.
Revenues associated with the Company's managed care operations, which
commenced in June 1997, totalled $19.9 million in the nine months ended March
31, 1998 and approximated management's expectations. As previously discussed,
on May 1, 1998, the Company entered into a definitive agreement to sell its
managed care operations to an unrelated third party for $20.0 million, subject
to certain future potential purchase price adjustments.
Salaries, wages and benefits in the nine months ended March 31, 1998
totalled $61.1 million, compared to $49.7 million in the comparable quarter of
the prior year. This increase is primarily related to salaries, wages and
benefits of the Company's managed care operations ($6.5 million in the current
year period), and a $3.1 million increase attributable to an increase in patient
census between periods at the Company's medical subacute units. Additionally,
salaries, wages and benefits associated with the Company's corporate office
increased approximately $1.6 million between periods. Salaries, wages and
benefits at the Retained Facilities and Sale Facilities remained relatively
stable between periods.
Managed care provider expenses for the nine months ended March 31, 1998
were $7.8 million, or 39% of revenues from managed care operations. The overall
ratio of managed care provider expenses to the related revenues was consistent
with management's expectations in the nine months ended March 31, 1998.
14
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
Other operating expenses increased from $32.6 million in the prior year
comparable period to $40.7 million in the nine months ended March 31, 1998.
Other operating expenses related to the Company's provider-based operations
remained stable between periods, whereas other operating expenses related to the
Company's managed care operations acquired in June 1997 totalled $2.7 million in
the current year nine-month period. During the third quarter, the Company
increased its reserve for professional and general liability claims by
approximately $1.5 million due primarily to the settlement or pending settlement
of three significant claims. In addition, the Company increased its reserve on
other legal matters (including the matter described in Part II-Other
Information, "Item 5. Other Information") and incurred additional corporate
overhead costs of $1.0 million between periods.
The provision for doubtful accounts increased from $3.3 million in the
prior year period to $5.0 million in the current year period. During the
current year third quarter, one of the Company's Sale Facilities recorded a $1.0
million bad debt provision associated with accounts that are greater than six
months old and owed by certain state agencies with which this facility does
business. The Company has engaged the services of local counsel to pursue this
matter. However, given the age of these accounts and continued payment denials
by the payors, management determined that a $1.0 million reserve for
uncollectibility was necessary on these accounts at this time. In addition, the
Company identified approximately $0.3 million of bad debts associated with
accounts receivable on facilities previously closed and $0.2 million of bad
debts associated with the Company's subacute facilities.
Depreciation and amortization increased from $4.0 million in the comparable
prior year nine-month period to $4.9 million in the nine months ended March 31,
1998 primarily due to the current period amortization of intangible assets
recorded in connection with the managed care acquisition in June 1997 and the
acquisition of Summa in October 1997.
Interest and other financing charges increased from $4.5 million in the
prior year comparable period to $5.5 million in the current year period. On
March 27, 1998, pursuant to the First Amendment the Company incurred a $1.0
million nonrefundable fee which has been accrued at March 31, 1998. Additional
amounts which may be owed based on the Company's future aggregate market value
are not estimable at this time and, therefore, have not been recorded in the
accompanying financial statements. Excluding the impact of the amounts above,
interest and other financing charges remained stable between periods as the
increase in the Company's average outstanding borrowings between periods (as a
result of its refinancing on September 30, 1997) was offset by a decrease in the
overall interest and financing cost yield on its borrowings between periods.
The Company recorded a provision for income taxes in the current year nine-
month period of $9.4 million, which represented a full valuation allowance on
its previously recorded deferred tax assets. The realizability of these assets
was previously based on the implementation of tax planning strategies that
contemplated the sales of certain appreciated property. In connection with the
Company's change in strategic direction in the quarter ended March 31, 1998, the
Company determined that its tax planning strategies will not be realized and a
full valuation allowance was considered necessary.
In connection with the Company's change in strategic direction, and in
accordance with the accounting guidance available in EITF No. 94-3, the Company
(i) initiated a restructuring of personnel at its corporate
15
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
headquarters, including the identification and communication of severance
arrangements with individual personnel, (ii) wrote off certain assets located
within its corporate headquarters which were considered to have no future
economic benefit and (iii) initiated the termination of certain contractual
commitments which require future payments. These amounts, which in the
aggregate totalled $3.9 million, are reflected as restructuring charges in the
nine months ended March 31, 1998.
On May 1, 1998, the Company signed a definitive agreement with an unrelated
third party to sell its managed behavioral care division for a cash purchase
price of $20,000,000, subject to certain future potential purchase price
adjustments. On May 4, 1998, the Company sold its Three Rivers Hospital for
$2,000,000. On May 15, 1998, the Company signed a definitive agreement with an
unrelated third party to sell its Greenbrier Hospital for a cash purchase price
of $1,600,000. See Item 1. Financial Statements, Note 2.
FINANCIAL CONDITION
The Company records amounts due to or from third-party contractual agencies
(Medicare, Medicaid and Blue Cross) based on its best estimate, using the
principles of cost reimbursement, of amounts to be ultimately received or paid
under current and prior years' cost reports filed (or to be filed) with the
appropriate intermediaries. Ultimate settlements and other lump sum adjustments
due from and paid to these intermediaries occur at various times during the
fiscal year. At March 31, 1998, amounts due from Medicare, Medicaid and Blue
Cross totalled approximately $3.4 million, $1.0 million and $1.2 million,
respectively. Also, at March 31, 1998, amounts due to Medicare, Medicaid and
Blue Cross totalled approximately $7.9 million, $0.7 million and $0.6 million,
respectively. Changes in these amounts since June 30, 1997 are the result of
fiscal intermediary lump sum adjustments, prior year cost report settlements and
current year estimated settlements recorded during the nine months ended March
31, 1998.
In connection with the merger of Ramsay Managed Care, Inc. ("RMCI") in June
1997, the Company recorded cost in excess of net asset value of purchased
businesses of approximately $18.8 million and identifiable intangible assets of
approximately $4.7 million, which included the value of RMCI's established
clinical protocols and existing managed care contracts. The cost in excess of
net asset value of purchased businesses recorded in connection with RMCI was
increased during the quarter ended March 31, 1998 based on changes (during the
one year period after the RMCI merger) to a litigation matter concerning RMCI.
This litigation concerns the sale of a former subsidiary of RMCI (prior to its
merger with the Company) in which the purchaser seeks damages of approximately
$5.8 million. The Company believes this litigation may be settled for an amount
significantly less then the amount sought, and believes that adequate provision
has been made at March 31, 1998 for amounts which may be paid in connection with
this matter.
In connection with the previously discussed sale of the Company's managed
care business, which is expected to close in June 1998 and which includes all
operating entities of RMCI, the Company recorded a full valuation allowance on
identifiable intangible assets recorded in connection with the RMCI merger and a
valuation allowance of approximately $5.8 million on cost in excess of net asset
value of purchased businesses recorded in connection with the RMCI merger. The
remaining balance of cost in excess of net asset value of purchased businesses
is stated at fair value, based on the sale price per the May 1, 1998 definitive
agreement, and is classified as assets held for sale in the March 31, 1998
balance sheet.
Based on the net sale proceeds derived (and expected to be derived) from
the sales of Greenbrier Hospital and Three Rivers Hospital, as well as the
Company's assessment that the recorded book value of long-lived assets
(associated with one of the Company's additional assets held for sale) is
greater than expected net sale proceeds,
16
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
the Company recorded a valuation allowance on assets held for sale of $4.9
million in the accompanying March 31, 1998 balance sheet.
On October 9, 1997, the Company acquired Summa and recorded cost in excess
of net asset value of purchased businesses of approximately $3.4 million, which
included (i) cash consideration of $300,000, (ii) the issuance of Common Stock,
which had a market value on October 9, 1997 of $1.2 million and (iii) the
issuance of warrants, which had an estimated fair value on October 9, 1997 of
approximately $1.9 million (using a Black-Scholes pricing model). The issuance
of Common Stock and warrants increased the Company's additional paid-in capital
by $3.1 million on the date of the acquisition.
The Company determined that its previous tax planning strategies, which
strategies served as the basis for the recordation of its deferred tax assets,
would not be realized given the Company's change in strategic direction.
Accordingly, a full valuation allowance was recorded on its deferred tax assets
in the quarter ended March 31, 1998. Also in connection with the Company's
change in strategic direction, the Company has identified certain of its
operations, including its managed care operations, for divestiture. The
property and equipment, other noncurrent assets and cost in excess of net asset
value of purchased businesses associated with these operations has been
classified as assets held for sale in the accompanying March 31, 1998 balance
sheet.
Other current accrued liabilities increased from $5.2 million at June 30,
1997 to $8.5 million at March 31, 1998 primarily as a result of restructuring
accruals recorded in connection with the Company's change in strategic direction
and the $1.0 million CPO assessed by the holders of the Series A Bridge Notes.
Other noncurrent accrued liabilities increased since June 30, 1997 primarily as
a result of the litigation mentioned above and the matter discussed in Part II -
Other Information "Item 5. Other Information", which matters management believes
will be protracted and will not result in cash payments (other than attorneys
fees, which have been classified as current liabilities) until after April 1,
1999.
As mentioned previously, on September 30, 1997, the Company refinanced its
then existing credit facilities through borrowings totalling $50.0 million.
Consequently, the amounts which were due within one year at June 30, 1997 under
the Company's former credit facilities, totaling $11.6 million, were excluded
from current liabilities at June 30, 1997 since the refinancing resulted in this
amount being outstanding for an uninterrupted period extending beyond one year
from June 30, 1997. In connection with this refinancing, the Company (i) issued
the Series 1997 Preferred Stock and the Series 1997-A Preferred Stock which,
based on the redemption features of these issues, are not reflected as
stockholders' equity in the accompanying balance sheet, (ii) wrote off
unamortized loan costs and letter of credit fees related to its former credit
facilities of approximately $1.3 million, (iii) incurred loan costs of
approximately $3.6 million and (iv) created a cash collateral account which was
used to redeem, by December 1, 1997, $12.3 million of principal (and related
accrued interest) due on the Company's previously outstanding variable rate
demand revenue bonds.
LIQUIDITY AND CAPITAL RESOURCES
Under the terms of the Senior Credit Facility, the Company was provided (i)
a $12.5 million term loan, payable in 18 quarterly installments ranging from
approximately $0.4 million to $0.9 million, beginning July 1, 1998, (ii) a $10
million term loan, payable in 20 quarterly installments of $62,500, beginning
January 1, 1998, and eight quarterly installments of approximately $1.0 million,
beginning January 1, 2003, (iii) the Revolver and (iv) a $17.5 million Bridge
Facility, of which $15.0 million was purchased by the financial institution and
$2.5 million was purchased by a corporate affiliate of Mr. Ramsay. At March 31,
1998 and May 15, 1998, drawings under the Revolver totalled $12.5 million and
$10.5 million, respectively. Amounts drawn under the Revolver will be further
reduced by $5.0 million from proceeds from the expected sale of the managed care
business in June 1998.
17
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
Given that the Bridge Facility was not refinanced prior to March 30, 1998,
the financial institution which holds the Series A Bridge Notes is entitled to a
$1.0 million CPO, payable in cash upon the occurrence of an Event (see Item I.
Financial Statements, Note 4). Provided the Bridge Facility is not refinanced
before September 30, 1998, the CPO amount becomes the greater of $1.0 million or
14% of the then existing aggregate market value of the Company's Common Stock,
calculated on a fully-diluted basis (as defined). The Company does not believe
that the CPO will have a material adverse effect on its liquidity, given its
ability to satisfy any amounts which may become due under the CPO greater than
$1.0 million through the issuance of additional shares of Common Stock.
Also, on September 30, 1997, a corporate affiliate of Mr. Ramsay purchased
additional preferred shares in the Company upon closing and, under certain
limited circumstances related to the matter discussed in Part II. Other
Information, "Item 5. Other Information", agreed to purchase Common Stock at a
price of $5.17 per share (the 30-day average stock price prior to the closing).
The Company entered into an agreement with this corporate affiliate pursuant to
which the corporate affiliate purchased 4,000 shares of Series 1997-A Preferred
Stock at $1,000 per share. The purchase price, which totalled $4.0 million, was
paid by (i) offset against approximately $0.6 million in dividends accrued
through September 30, 1997 on the Series C Preferred Stock and the Series 1996
Preferred Stock, (ii) offset against approximately $0.4 million in unpaid
accrued interest and commitment fees on the former demand note owed to a
corporate affiliate of Mr. Ramsay, (iii) $0.25 million in principal due on the
former demand note which was not refinanced with proceeds of the Bridge Facility
and (iv) approximately $2.8 million in cash.
Proceeds of the refinancing were used as follows: (i) principal repayments
of $27.5 million of 11.6% senior secured notes and $1.4 million of 15.6%
subordinated secured notes held by a group of insurance companies, (ii)
repayment of $3.4 million of bank debt created on September 2, 1997 upon the
redemption of one of the Company's variable rate demand revenue bonds, (iii)
repayment of approximately $0.9 million of accrued interest on the above
obligations, (iv) creation of a cash collateral account which was used to redeem
$12.3 million of principal due on outstanding variable rate revenue bonds and to
pay accrued interest thereon on their redemption dates of November 3, 1997 and
December 1, 1997, (v) repayment of $2.5 million of the $2.75 million loan to a
corporate affiliate of Mr. Ramsay, (vi) payment of a $2.2 million prepayment
penalty to the group of insurance companies holding the senior and subordinated
secured notes and (vii) transaction costs totaling approximately $2.8 million.
As previously discussed, in May 1998 the Company signed definitive
agreements with respect to the sale of its managed care business and its
Greenbrier Hospital, both of which are expected to close in June 1998. The
Company also sold its Three Rivers Hospital in May 1998. Net proceeds from
these sales will be applied to the Senior Credit Facility, reducing the
Company's financial institution indebtedness by approximately $19.2 million to
approximately $29.0 million. The Company expects to reduce its financial
institution indebtedness significantly through proceeds of all other assets
which are held for sale. As a result, funds generated from the sale of assets
will not be available for operating purposes. There can be no assurance that
the Company will be successful in selling these assets and, except as described
above, the Company cannot predict the net proceeds of these sales, if any.
As of March 31, 1998, the Company did not meet the financial covenant
ratios required in its credit agreements. The financial institution lenders
have agreed to waive these requirements at March 31, 1998. In addition, the
credit documentation governing the Senior Credit Facility and the Series A
Bridge Notes was amended to provide for (i) a lower principal amount available
under the Revolver from the lesser of $16.0 million or the borrowing base of the
Company's receivables to the lesser of $8.0 million (increased by an amount
equal to the Company's fiscal 1998 income tax liability, if any) or the
borrowing base of the Company's receivables, (ii) an agreement to secure the
Series A Bridge Notes with second liens on the Company's assets, (iii) monthly
financial covenants, (iv) limitations on certain payments by the Company
18
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
Company and (v) the payment to the financial institution lenders of a fee, the
substantial portion of which is payable on September 30, 1998.
During the nine months ended March 31, 1998, net cash provided by the
operating activities of the Company decreased approximately $4.7 million.
In the prior year, the Company received a favorable cash judgment from the State
of Missouri totalling $2.9 million (see "Nine Months Ended March 31, 1998
Compared to Nine Months Ended March 31, 1997"). The remaining difference is
related to decreases in operating performance at certain of the Sale Facilities
and changes in working capital between periods.
The Company's current primary cash requirements relate to its normal
operating expenses, debt service (including the previously mentioned $1.0
million CPO payment), lease payments on the Company's leased facilities, working
capital needs, routine capital improvements at its facilities and payments made
in connection with the Company's corporate restructuring. Also, although not
anticipated within the next twelve months, certain of the Company's litigation
matters could require cash payments in the future. See "Financial Condition"
above and Part II. - Other Information, "Item 5. Other Information" below.
The Company believes that its cash resources, including the current
availability of additional funds under the Revolver, the availability under the
Junior Subordinated Note Purchase Agreement to fund the working capital needs of
the facilities in Dothan, Alabama and Palm Bay, Florida and internally-generated
funds from future operations, will be sufficient to fund its current operations,
provided certain of the contingent matters discussed elsewhere herein do not
result in significant payments by the Company. In the event that the Company is
required to make such payments, or in the event the Company's financial
institution lenders further restrict availability under the Revolver, the
Company may be required to seek consents from its lenders to make such payments
or may be required to seek additional financing and/or a refinancing of its
existing indebtedness. There can be no assurance that the Company will be
successful in obtaining such consents or such alternative financing
arrangements.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
During fiscal year 1996, the State of Louisiana requested repayment of
disproportionate share payments received by two of the Company's Louisiana
facilities in fiscal years 1995 and 1994 totaling approximately $5.0 million.
The repayment requests related to a) alleged overpayments made to the Company's
former Three Rivers Hospital, which was closed on June 30, 1995, because the
State of Louisiana believed Three Rivers' actual annual inpatient volume was
less than its projection of annual inpatient volume made at the beginning of its
1994 cost reporting year and b) alleged improper teaching hospital payments made
to Three River Hospital and Bayou Oaks Hospital because the State believed these
facilities were not qualifying teaching hospitals at the time these payments
were made. The Company believes that certain of the calculations which support
the State's calculation have not been considered. Further, the Company believes
that, based on its understanding of the rules and regulations in place at the
time the teaching hospital payments were made, payments received as a result of
the teaching classification were appropriate.
Over the last two years, the Company has had extensive discussions with
officials in the Louisiana Department of Health and Hospitals with respect to
these matters. These discussions have included a possible settlement at an
amount considerably less than the State's initial requests. The Company notes
that during the
19
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
course of its negotiations with the State, the State's demands have varied
significantly and that, during the third quarter, the State's demands increased.
Although the Company intends to vigorously contest any position by the State of
Louisiana which the Company considers adverse, the Company has been advised by
counsel that this matter is closer to litigation than the Company previously
believed and that the costs to litigate, as well as any settlement, could exceed
the amount which the Company previously reserved for on this matter.
Accordingly, the Company increased its reserve for this matter in the quarter
ended March 31, 1998. Notwithstanding this increase, the Company believes that
the resolution of this matter will not have a material adverse effect on its
liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The Exhibits required to be filed as part of this Quarterly Report on
Form 10-Q are as follows:
Exhibit 2.6 Agreement of Purchase and Sale dated as of March 18,
1998 by and between Ramsay Louisiana, Inc. and Health-
One Properties, LLC. Pursuant to Reg. S-K, Item
601(b)(2), the Company agrees to furnish a copy of the
Disclosure Schedules and attachments to such Agreement
to the Commission upon request
Exhibit 2.7 Stock Purchase Agreement dated as of May 1, 1998 by
and among the Company, Ramsay Managed Care, Inc. and
Horizon Health Corporation. Pursuant to Reg. S-K, Item
601(b)(2), the Company agrees to furnish a copy of the
Disclosure Schedules and attachments to such Agreement
to the Commission upon request
Exhibit 2.8 Asset Purchase Agreement dated as of May 15, 1998 by
and among Greenbrier Hospital, Inc., the Company and
Provider Options Holdings, L.L.C. Pursuant to Reg. S-
K, Item 601(b)(2), the Company agrees to furnish a
copy of the Disclosure Schedules and attachments to
such Agreement to the Commission upon request
Exhibit 10.113 First Amendment to Credit Agreement dated as of March
27, 1998 by and among the Company, certain
subsidiaries of the Company on the signature pages
thereto, General Electric Capital Corporation, as
Administrative Agent and Lender, and The ING Capital
Senior Secured High Income Fund, L.P., as Lender
Exhibit 10.114 First Amendment to Subordinated Note Purchase
Agreement dated as of March 27, 1998 by and among the
Company, General Electric Capital Corporation and Paul
Ramsay Holdings Pty. Limited
Exhibit 10.115 Junior Subordinated Note Purchase Agreement dated as
of March 25, 1998 by and between the Company and Paul
Ramsay Holdings Pty. Limited
Exhibit 27 Financial Data Schedule
(b) Current Reports on Form 8-K
20
<PAGE>
RAMSAY HEALTH CARE, INC. AND SUBSIDIARIES
The Company did not file any Current Reports on Form 8-K during the
quarter ended March 31, 1998.
SIGNATURES
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 thereupon duly authorized.
RAMSAY HEALTH CARE, INC.
Registrant
/s/ Carol C. Lang
-------------------------
Carol C. Lang
Chief Financial Officer
Date: May 20, 1998
21
<PAGE>
Exhibit 2.6
AGREEMENT OF PURCHASE AND SALE
------------------------------
THIS AGREEMENT OF PURCHASE AND SALE (this "Agreement") is made and entered
into as of the 18th day of March, 1998 (the "Effective Date"), by and among
Ramsay Louisiana, Inc., a Delaware corporation ("Seller"), and Health-One
Properties, LLC, a Utah limited liability company ("Purchaser").
In consideration of the agreements herein contained, the parties agree as
follows:
1. CONVEYANCE. Seller agrees to sell and convey and Purchaser agrees to
----------
purchase and take title to that certain parcel of real estate lying and being in
the Parish of St. Tammany, State of Louisiana, and being more particularly
described on Schedule A attached hereto, including all right, title and interest
----------
of Seller in and to all improvements, fixtures, rights, privileges, easements,
hereditaments and appurtenances thereto, and together with all right, title and
interest of Seller in and to the land lying in the bed of any street, road,
avenue or alley, open or proposed, public or private, in front of or adjoining
said property to the center line thereof, and all right, title and interest of
Seller in all personal property owned by Seller and located on said parcel of
real estate (the "Property").
2. PURCHASE PRICE. The purchase price (the "Purchase Price") for the Property
--------------
shall be the sum of Two Million and No/100 Dollars ($2,000,000.00).
(a) Purchaser shall deliver to Haythe & Curley, as escrowee (the
"Escrowee"), on the Effective Date, a deposit in the amount of One
Hundred Thousand and No/100 Dollars ($100,000.00) (the "Deposit"),
payable by check in the amount of Ten Thousand and No/100 Dollars
($10,000.00), subject to collection, and by Promissory Note (the
"Deposit Note") delivered simultaneously herewith in the amount of
Ninety Thousand and No/100 Dollars ($90,000.00), payable upon the
earlier to occur of the Closing Date or upon a default by Purchaser in
the payment or performance of any of its obligations under this
Agreement. The Deposit shall be held by Escrowee in escrow (the
"Escrow") as provided in Section 20 of this Agreement.
(b) The Purchase Price payable by Purchaser to Seller at the Closing for
the Property shall be payable as follows:
(i) Escrowee shall disburse the Ten Thousand and No/100 Dollars
($10,000.00) portion of the Deposit, together with
<PAGE>
2
interest earned thereon, to Seller in accordance with Section 20
of this Agreement; and
(ii) Purchaser shall pay to Seller the sum of Ninety Thousand and
No/100 Dollars ($90,000.00) from the proceeds of the Deposit Note
and Four Hundred Thousand and No/100 Dollars ($400,000.00) in
cash; and
(iii) Purchaser shall deliver to Seller a Note in the amount of
One Million Five Hundred Thousand and No/100 Dollars
($1,500,000.00), payable in one year with interest at the rate of
twelve percent (12%) per annum (the "Note"), and Mortgage (the
"Mortgage"), in the forms attached hereto as "Exhibit A" and
"Exhibit B", respectively.
(c) All amounts payable under this Agreement, unless otherwise specified,
shall be paid as follows:
(i) by direct bank transfer, or by other wire transfer of
immediately available funds and payable to Seller, directly or
through the Escrow, unless otherwise directed as payable to
another person or entity by Seller; or
(ii) by check of Purchaser, which need not be certified, up to the
amount of $1,000.00; or
(iii) as otherwise agreed to in writing by Seller or Seller's
attorney.
3. CLOSING; DEED. The consummation of the transactions contemplated by this
-------------
Agreement (the "Closing") shall occur by delivery by Seller to Purchaser of a
properly executed special or limited warranty deed (the "Deed") conveying the
Property to Purchaser, in consideration of the payment by Purchaser to Seller of
the Purchase Price and upon performance of all of the other obligations incurred
under this Agreement, at such location as may be agreed upon by Purchaser and
Seller, at 10:00 A.M. on the 1st day of May, 1998, or such earlier date as may
be mutually agreed upon between Seller and Purchaser (the "Closing Date"),
subject to adjournment pursuant to paragraph 7 hereof. Time shall be of the
essence as to Purchaser's obligation to close on or before the 1st day of May,
1998.
4. TITLE. At Closing, Seller shall convey (and if Purchaser does not cancel
-----
this Agreement pursuant to Section 7 hereof, Purchaser agrees to accept) fee
simple title
<PAGE>
3
to the Property to Purchaser, subject to the following exceptions (hereinafter
referred to as the "Permitted Exceptions"):
(a) Liens for ad valorem taxes not yet due and payable;
(b) Those exceptions shown on Schedule B attached hereto and by this
----------
reference made a part hereof;
(c) All matters that would be shown by an accurate survey or inspection of
the Property, including, but not limited to, easements, encroachments,
overlaps, riparian rights, and boundary disputes;
(d) All building, zoning, environmental, and other state, county or
Federal laws, codes, and regulations (whether existing or proposed),
affecting the Property, including any and all special exceptions,
conditions, site plan approvals, proffers, and other similar matters,
if any, related to the zoning of the Property or otherwise; and
(e) Any other title exceptions discovered and waived by Purchaser as
hereinafter provided.
5. SELLER'S REPRESENTATIONS AND WARRANTIES. To induce the Purchaser to enter
---------------------------------------
into this Agreement, Seller hereby represents and warrants to Purchaser, as
follows:
(a) POWER. Seller has the legal power, right and authority to enter into
-----
this Agreement and the instruments referenced herein, and to consummate the
transactions contemplated hereby and this Agreement constitutes a valid and
legally binding obligation of Seller, enforceable against Seller in accordance
with its terms.
(b) REQUISITE ACTION. Except for Seller's lender's consent referred to in
----------------
Section 13 hereof, all requisite action (corporate, trust, partnership or
otherwise) has been taken by Seller in connection with its entering into this
Agreement, the instruments referenced herein, and the consummation of the
transactions contemplated hereby.
(c) AUTHORITY. The individuals executing this Agreement and the
---------
instruments referenced herein on behalf of Seller have the legal power, right
and actual authority to bind Seller to the terms and conditions herein and
thereof.
6. PURCHASER'S REPRESENTATIONS AND WARRANTIES. To induce the Seller to enter
------------------------------------------
into this Agreement, Purchaser hereby represents and warrants to Seller, as
follows:
<PAGE>
4
(a) POWER. Purchaser has the legal power, right and authority to enter
-----
into this Agreement and the instruments referenced herein, and to consummate the
transactions contemplated hereby and this Agreement constitutes a valid and
legally binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms.
(b) REQUISITE ACTION. All requisite action (corporate, trust, partnership
----------------
or otherwise) has been taken by Purchaser in connection with entering into this
Agreement, the instruments referenced herein, and the consummation of the
transactions contemplated herein and thereof.
(c) AUTHORITY. The individuals executing this Agreement and the
---------
instruments referenced herein on behalf of Purchaser have the legal power, right
and actual authority to bind Purchaser to the terms and conditions herein and
thereof.
7. TITLE OBJECTIONS. Purchaser shall have twenty (20) days after the
----------------
Effective Date in which to search title to the Property and in which to furnish
Seller with a copy of Purchaser's title commitment and a written statement of
any title objections adversely affecting the marketability of said title other
than the Permitted Exceptions. Should Purchaser fail to notify Seller of any
such title objections within the aforesaid time period, Purchaser shall be
deemed to have waived all objections to the title of the Property. Seller shall
have twenty (20) days after receipt of any such written objections (hereinafter
referred to as the "Title Cure Period") in which Seller shall in good faith
endeavor to satisfy or correct (but shall not be obligated to cure) all such
valid title objections. In the event Seller fails to satisfy or correct all
valid title objections within the Title Cure Period, Purchaser shall, by written
notice to Seller given within five (5) days after the expiration of the Title
Cure Period, elect one of the following: (a) to waive such title objections and
to close the transaction on or before the later of (i) the Closing Date, or (ii)
three (3) days following such notice, accepting the Deed subject to such title
objections and without reduction of the Purchase Price; or (b) to terminate this
Agreement and receive a refund of the Deposit, in which event neither Seller nor
Purchaser shall have any rights, duties or obligations under this Agreement,
except for any rights or obligations hereunder which, by their terms, survive
any termination, cancellation, rescission, expiration or consummation of this
Agreement, and the lien or right, if any of Purchaser against or to the Property
shall wholly cease. Seller shall not be required and is not obligated hereby to
bring any action or proceeding, or otherwise to incur any expense, to render the
title to the Property free of any matters objected to by Purchaser. The
acceptance of the Deed by Purchaser shall be deemed to be full performance of
and discharge of any agreement and obligation on the part of Seller to be
performed pursuant to the provisions of this Agreement, except for any rights or
obligations hereunder which, by their terms, survive any termination,
cancellation, rescission, expiration or consummation of this Agreement.
Mortgages encumbering the Property
<PAGE>
5
which are to be paid by Seller from the Purchase Price at the Closing shall not
constitute valid title objections.
8. SURVEY; FEASIBILITY STUDIES. Purchaser or its agents shall have the
---------------------------
privilege of going on the Property prior to Closing to make surveys and perform
engineering studies with regard to the Property. In addition, Purchaser shall
have the right, at Purchaser's sole cost and risk, to perform cleanup work and
make minor repairs to the Property, provided that Purchaser provides Seller with
advance notice of the nature of such cleanup and repair work. Purchaser shall
give Seller advance notice of any entry onto the Property and the opportunity to
accompany Purchaser or its agent. Any such survey shall be performed by a
surveyor registered and licensed in the State in which the property is located
and selected by Purchaser, at Purchaser's sole expense (hereinafter referred to
as the "Survey"). Purchaser hereby covenants and agrees to indemnify, defend
and hold Seller and its employees, officers, directors, representatives and
affiliates harmless from any loss, liability, cost, claims, damages, demands,
actions, causes of action, liens, claims of lien and suits resulting from
Purchaser's or its agents' activities under this paragraph. The preceding
indemnity shall survive the termination, cancellation, rescission, expiration or
consummation of this Agreement. In addition, Purchaser shall, at Purchaser's
cost, name Seller as Additional Insured on a general liability policy covering
the Property in form and substance satisfactory to Seller and provide written
evidence thereof to Seller prior to Purchaser's entry onto the Property. The
Purchaser shall promptly following the completion of any survey and engineering
studies with regard to the Property restore the Property to its condition
existing on the date hereof, and Purchaser's obligations so to restore shall
survive any termination, cancellation, rescission, expiration or consummation of
this Agreement. The legal description to be used in the Deed shall be the legal
description attached hereto as Schedule A.
----------
9. CLOSING COSTS. Purchaser shall pay at Closing all recording costs,
-------------
including, without limitation, the cost of recording the Deed. Purchaser shall
pay the cost of its title search and all owner and mortgagee title insurance
premiums, any and all documentary, transfer or mortgage taxes, the cost, if any,
of the title company for conducting the Closing, the cost of the survey, and the
cost of all engineering and other inspections of the Property. Each party shall
pay is own attorneys' fees and expenses.
10. APPORTIONMENT OF TAXES. All city, state and county ad valorem taxes (the
----------------------
"Taxes") for the period including Closing shall be prorated and accounted for
between Seller and Purchaser as of 12:01 A.M. on the Closing Date based on the
latest millage rate and assessment available. Should such proration be
inaccurate based on the actual bills when received, either party shall be
entitled to receive on demand, a payment from the other correcting such
inaccuracy. The provisions of this paragraph shall survive the Closing.
<PAGE>
6
11. CASUALTY LOSS. In the event of material damage to or material destruction
-------------
of the Property by fire or other casualty prior to the Closing, which material
damage or material destruction has not been repaired or restored by the Closing
Date, Purchaser may, at its option, elect, (i) not to consummate the transaction
contemplated hereby, in which event the Deposit shall be refunded to Purchaser
and neither party shall have any rights or obligations hereunder, except for any
rights or obligations hereunder which, by their terms, survive any termination,
cancellation, rescission, expiration or consummation of this Agreement, or (ii)
to consummate the transaction contemplated hereby, irrespective of such damage
or destruction and without reduction of the purchase Price, but with a credit to
Purchaser in the amount of any insurance proceeds received to date and an
assignment to Purchaser of Seller's right to applicable insurance proceeds
received to date and an assignment to Purchaser of Seller's right to applicable
insurance proceeds to be received thereafter, if any. Damage or destruction in
an amount in excess of Five Hundred Thousand Dollars ($500,000) shall be deemed
"material" for the purposes of this paragraph. In the event of any non-material
damage to or destruction of the Property by fire or other casualty prior to the
Closing, Closing shall occur as provided for in this Agreement with no
adjustments to the Purchase Price, but with a credit to Purchaser in the amount
of any insurance proceeds received to date and an assignment to Purchaser of
Seller's right to applicable insurance proceeds to be received thereafter, if
any.
12. CONDEMNATION. Seller agrees to give Purchaser written notice of any action
------------
or proceeding for condemnation of any part of the Property, which may result in
the taking of all or any part of the Property. Upon such notification,
Purchaser shall have the right to be exercised within ten (10) days after
receipt of such notice, to terminate this Agreement and receive a refund of the
Deposit. If Purchaser does not elect to terminate this Agreement, then this
Agreement shall remain in full force and effect and Seller will credit to
Purchaser at Closing the amount of any monies received by Seller to date by
reason of such taking, and will assign to Purchaser at Closing the amount of any
monies received by Seller to date by reason of such taking, and will assign to
Purchaser the right to any condemnation awards or proceeds received after such
date relating to the Property.
13. CONDITIONS TO CLOSING.
---------------------
13.1 FEASIBILITY STUDY PERIOD. (a) Purchaser's obligations hereunder are
------------------------
subject to Purchaser's satisfactory engineering study of the
improvements at the Property and Purchaser's receipt of all
applicable Federal, State and local governmental approvals for
occupancy and use of the Property as a rehabilitation hospital.
Purchaser shall use reasonable efforts to secure all necessary
licenses, permits and approvals within fifteen (15) days of the
Effective Date and agrees to give Seller prompt written notice of the
results of all requests for said licenses, permits and approvals. In
<PAGE>
7
the event the foregoing conditions are not satisfied in Purchaser's
reasonable discretion, then Purchaser shall have the right to give
written notice to Seller not later than May 25, 1998, terminating this
Agreement, and in such event, Purchaser shall be entitled to a refund
of all of the Deposit, less the sum of $100.00 which shall be paid to
Seller as consideration for entering into this Agreement, and neither
party shall have any right, duty or obligation pursuant to this
Agreement, except for any rights or obligations hereunder which, by
their terms, survive any termination, cancellation, rescission,
expiration or consummation of this Agreement.
(b) INSPECTION OF PROPERTY; AS-IS CONVEYANCE. Purchaser represents
----------------------------------------
and warrants that Purchaser has fully inspected or will fully inspect
the Property before Closing, and has been or is being given full
opportunity to conduct any studies and investigations requested of
Seller, including the opportunity to conduct its own physical and
environmental inspections and other inspections described in paragraph
8. NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THIS
AGREEMENT, THE PROPERTY, INCLUDING, WITHOUT LIMITATION, THE ROOF, ALL
STRUCTURAL COMPONENTS (SUCH AS ITS FOUNDATION, SLAB, BEARING WALLS,
AND COLUMNS), ALL HEATING, VENTILATING, AIR CONDITIONING, MECHANICAL,
PLUMBING AND ELECTRICAL SYSTEMS, AND ALL OTHER PARTS OF THE
BUILDING(S) LOCATED ON THE PROPERTY, WILL BE CONVEYED IN "AS-IS"
"WHERE-IS" CONDITION ON THE CLOSING DATE. PURCHASER ACKNOWLEDGES THAT
THE PRICE OF THE PROPERTY WAS NEGOTIATED BASED UPON THE PROPERTY'S
PRESENT CONDITION; ACCORDINGLY, SELLER IS NOT OBLIGATED TO MAKE
REPAIRS TO THE PROPERTY, UNLESS OTHERWISE STATED HEREIN, AND PURCHASER
HAS NO RIGHT TO DEMAND ANY REPAIRS. It is agreed that Purchaser is
not relying on any representation or warranty of Seller, its
representatives, agents or employees, whatsoever pertaining to the
Property, the condition thereof, including, without limitation, the
presence or non-presence of wetlands as may be determined by the U.S.
Army Corps of Engineers or other governmental authority, the value
thereof, the physical environmental or other conditions of the
Property, or any other matter with respect to the Property, and Seller
specifically disclaims making any such representation or warranty.
<PAGE>
8
13.2 OTHER CONDITIONS.
----------------
(a) Purchaser shall have delivered the Purchase Price to Seller at
Closing;
(b) All of Seller's and Purchaser's representations and warranties
contained in this Agreement shall be true and correct in all
material respects as of the Closing;
(c) Seller and Purchaser shall have satisfied and performed all
conditions and obligations to be satisfied and performed by
Seller or Purchaser, as applicable, hereunder prior to or at
Closing;
(d) Seller shall have received all required consents from its lender
in connection with the transactions contemplated hereunder at or
prior to the Closing Date.
13.3 TERMINATION. In the event all of the conditions set forth in Section
-----------
13.2 are not satisfied (or otherwise waived by the applicable party)
by the Closing Date for any reason other than the default of
Purchaser or Seller hereunder, this Agreement shall terminate,
Purchaser shall be entitled to a refund of the entire Deposit, and
neither party shall have any further right, duty or obligation
pursuant to this Agreement, except for any rights or obligations
which, by their terms, survive any termination, cancellation,
rescission, expiration or consummation of this Agreement.
13.4 DELIVERY OF STUDY MATERIALS. Purchaser and Seller agree that, if
---------------------------
Purchaser shall cancel this Agreement pursuant to this paragraph 13,
then at Seller's request, Purchaser shall deliver to Seller copies of
any surveys, tests, reports, studies, plans and development data
prepared by third parties which Purchaser may have in Purchaser's
possession or available to it. Purchaser and Seller agree that the
time, effort, costs and expenses which will be expended by Purchaser
in performing the studies and investigations contemplated by this
Agreement, the $100.00 sum to be paid to Seller from the Deposit in
the event Purchaser terminates this Agreement in accordance with this
paragraph, and the furnishing of such surveys, tests, studies and
development data to Seller are of substantial benefit and value to
Seller and constitute good and valuable consideration for the
execution of this Agreement by Seller.
14. CLOSING DOCUMENTS. At Closing, the following documents shall be executed
-----------------
and/or delivered:
<PAGE>
9
14.1 AFFIDAVIT OF SELLER. At Closing, Seller shall provide to Purchaser
--------------------
and its title company a standard form title affidavit (but excluding
any indemnity obligations), in form and substance acceptable to
Seller's counsel, sufficient to induce such title company to issue a
title policy without exception for mechanics' and materialmen's liens
or the rights of parties in possession.
14.2 AUTHORITY OF SELLER. Seller shall deliver to Purchaser satisfactory
-------------------
evidence of its due and proper authority and power to perform its
obligations hereunder and to execute and deliver all documents
required hereby.
14.3 AUTHORITY OF PURCHASER. Purchaser shall deliver to Seller
----------------------
satisfactory evidence of its due and proper authority and power to
perform its obligations hereunder and to execute and deliver all
documents required hereby.
14.4 DEED. Seller shall execute and deliver to Purchaser the Deed
----
conveying the Property to Purchaser.
14.5 BILL OF SALE. Seller shall execute and deliver to Purchaser a bill of
------------
sale conveying all right, title and interest of Seller, without
warranty, in and to any personal property owned by Seller and located
on the Property, in the form attached hereto as "Exhibit C".
14.6 FIRPTA AFFIDAVIT. A certificate certifying that Seller is not a
----------------
foreign person, corporation or partnership or state within the meaning
Section 1445 of the Internal Revenue Code of 1986, as amended.
15. ASSIGNMENT. Purchaser shall not assign any or all of its rights and
----------
obligations pursuant to this Agreement (whether by direct or indirect transfer
or assignment) without Seller's prior written consent, which consent may be
withheld or granted in Seller's sole and absolute discretion.
16. BROKERAGE COMMISSION. Seller and Purchaser hereby represent and warrant
--------------------
that no party is entitled, as a result of the actions of Seller or Purchaser, to
a real estate commission or other fee resulting from the execution of this
Agreement or the transaction contemplated hereby, other than Stirling
Properties, Inc. ("Stirling") and Gertrude Gardner Real Estate ("Gardner").
Seller shall be responsible for the payment of the brokerage fee of 5% of the
Purchase Price, in the total amount of $100,000.00, which commission shall be
split equally between Stirling and Gardner. Seller and Purchaser hereby agree
to indemnify, defend and hold each other harmless from and against any and all
costs, damages and expenses (including reasonable
<PAGE>
10
attorneys' fees) resulting directly or indirectly from any such claim arising
out of the actions of or contract with Seller or Purchaser, as the case may be,
other than the Exclusive Listing Contract for Sale of Property between Seller
and Stirling for which Seller shall be responsible for any liability arising
therefrom. The representations, warranties and indemnities contained in this
paragraph shall survive the rescission, cancellation, termination or
consummation of this Agreement.
17. NOTICES. Any notice or communication shall be in writing and shall be sent
-------
either by: (a) personal delivery service with charges therefor billed to
shipper; (b) overnight or expedited delivery service with charged therefor
billed to shipper; (c) facsimile transmission provided a confirmation copy is
mailed pursuant to subparagraph (d) below; or (d) United States mill, postage
prepaid, registered or certified mail, return receipt requested. Any notice or
communication sent as above provided shall be deemed given or delivered: (a)
upon receipt if personally delivered (provided that such delivery is confirmed
by the courier delivery service); (b) if sent by United States Mail, on the date
of the postmark appearing on such return receipt; or (c) on the date of actual
delivery by any overnight or expedited delivery service or actual receipt if
sent by facsimile transmission (provided receipt is confirmed as provided
above). Any notice or communication required or permitted hereunder shall be
addressed as follows:
To Purchaser: Health-One Properties, LLC
5785 S. Meadowcrest Drive
Murray, Utah 84107
Attn: Mr. William Clark
with a copy to:
R. Scott McQuarrie
3331 N. Cottonwood Lane
Provo, Utah 84107
To Seller: Ramsay Louisiana, Inc.,
c/o Ramsay Health Care, Inc.
One Alhambra Plaza, Suite 750
Coral Gables, Florida 33134
Attn: Mr. Daniel A. Simms
<PAGE>
11
With a copy to:
Haythe & Curley
237 Park Avenue
New York, NY 10017
Attn: Adam A. Veltri, Esq.
18. REMEDIES.
--------
18.1 REMEDIES OF SELLER. In the event of Purchaser's default under this
------------------
Agreement, the Deposit shall be paid to and/or retained by Seller as
full liquidated damages, this Agreement shall be null and void, and
none of the parties hereto shall have any further rights or
obligations hereunder, except for any rights or obligations hereunder
which, by their terms, survive any termination of this Agreement. It
is hereby agreed that, without resale, Seller's damages will be
difficult to ascertain and the Deposit constitutes a reasonable
liquidation thereof and is intended not as a penalty, but as full
liquidated damages. Seller agrees that in the event of a default by
Purchaser, it shall not initiate any proceeding to recover damages
from Purchaser in excess of the Deposit, and Purchaser agrees that in
the event of its default, it shall not initiate any proceeding
challenging Seller's right to retain and/or receive the full amount of
the Deposit as liquidated damages. Nothing contained in this
paragraph shall limit Purchaser's restoration and indemnification
obligations set forth in paragraphs 8 and 16 hereof.
18.2 REMEDIES OF PURCHASER. In the event of Seller's default under this
---------------------
Agreement, Purchaser agrees to provide Seller with written notice of
such default specifying the nature of such default. Seller shall have
ten (10) days from the date of receipt of said notice to cure such
default. In the event Seller does not cure such default within such
ten (10) day period, Purchaser's sole remedies shall be (i) to obtain
specific performance of Seller's obligation to sell the Property to
Purchaser pursuant to this Agreement, or (ii) to terminate this
Agreement, in which event Purchaser shall be entitled to the return of
the Deposit, this Agreement shall terminate and the parties hereto
shall have no further rights or obligations hereunder, except for any
rights or obligations hereunder which, by their terms, survive any
termination, cancellation, rescission or expiration of this Agreement.
No other remedy shall be available for Seller's breach of this
Agreement.
<PAGE>
12
19. MISCELLANEOUS.
-------------
19.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
----------------
between the parties. No representation, promise or inducement not set
forth herein shall be binding upon any party.
19.2 NO ORAL MODIFICATIONS. This Agreement shall not be modified or
---------------------
amended except by an instrument in writing executed by or on behalf of
Purchaser and Seller.
19.3 BINDING EFFECT. The provisions of this Agreement shall inure to the
--------------
benefit of and shall be binding upon the parties and their respective
heirs, successor and assigns and the legal representatives of their
estates, subject to the provisions of paragraphs 15 of this Agreement.
19.4 TIME OF ESSENCE. TIME IS OF THE ESSENCE OF THIS AGREEMENT.
---------------
19.5 CALCULATION OF TIME. If the time period by which any right, option or
-------------------
election provided under this Agreement must be exercised, or by which
any act required must be performed, or by which the Closing must be
held, expires on a Saturday, Sunday or legal holiday, then such time
period shall be automatically extended through the close of business
on the next regular business day.
19.6 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, and all of
which shall constitute one and the same Agreement.
19.7 GOVERNING LAW. This Agreement shall be governed by and construed
-------------
under the laws of the State in which the Property is located.
19.8 NO RECORDATION. Purchaser shall not have the right to record this
--------------
Agreement. It is expressly agreed and understood that upon the filing
for record of this Agreement by or through the act or effort of
Purchaser, or its successors, in any manner whatsoever, as an exhibit
or attachment to any other instrument so filed, or otherwise, in the
Parish of St. Tammany in which the Property lies or any other public
records, then, and in such event, at the option of Seller, Purchaser
shall be in default hereunder and Seller shall be entitled to receive
from Purchaser the sum provided in Paragraph 18.1 as liquidated
damages by reason of such default, and this Agreement shall be null
and void and of no further force and effect.
<PAGE>
13
19.9 NO WAIVER. No failure of any party to exercise any power given such
---------
party hereunder or to insist upon strict compliance by any other
party with its obligations hereunder, and no custom or practice of
the parties at variance with the terms hereof shall constitute a
waiver of any party's right to demand exact compliance with the
terms hereof.
19.10 CONSTRUCTION OF AGREEMENT. The parties acknowledge and agree that
-------------------------
they have been represented by counsel and that each of the parties
has participated in the drafting of this Agreement. Accordingly, it
is the intention and agreement of the parties that the language,
terms and conditions of this Agreement are not to be construed in
any way against or in favor of any party hereto by reason of the
responsibilities in connection with the preparation of this
Agreement.
19.11 PURCHASER'S AGREEMENTS. Prior to Closing, Purchaser shall not enter
----------------------
into any agreements with any governmental or quasi-governmental
authorities or with any other person or entity that would bind
Seller or the Property or run with the Property without Seller's
prior written consent, which consent may be withheld in Seller's
sole discretion.
20. ESCROW. (a) The Ten Thousand and No/100 Dollars ($10,000.00) portion of
------
the Deposit payable by the Purchaser pursuant to Section 2 hereof shall be held
in Escrow by the Escrowee in an interest bearing account selected by Escrowee,
pending the Closing hereunder. At Closing, the Escrowee shall release the Ten
Thousand and No/100 Dollars ($10,000.00) portion of the Deposit together with
any interest earned thereon (collectively, the "Escrow Fund") in accordance with
this Section 20. At Closing, the Escrowee shall release the Escrow Fund to
Seller. In the event the Closing shall not occur by reason of a default by
Seller hereunder, or by reason of the exercise by either party hereto of its
right to cancel or terminate this Agreement pursuant to the terms set forth
herein (other than by reason of Purchaser's default hereunder), the Escrowee
shall deliver the Escrow Fund to Purchaser upon the occurrence of such default
or upon such cancellation of this Agreement. In the event that Closing does not
occur by reason of a default by Purchaser hereunder, the Escrowee shall deliver
the Escrow Fund to Seller.
(b) Any claim for the disbursement of the Escrow Fund pursuant to
Subparagraph 20(a) above or otherwise pursuant to this Agreement, shall be made
by either the Purchaser or the Seller (the "Claiming Party") by written notice
(the "Claim Notice") given to the other party (the "Notified Party"), and the
Escrowee. Such notice shall state in reasonable detail the basis for such
claim. In the event that the Notified Party shall not object to the Claim
Notice within 10 days after receipt thereof by written notice given to the
Escrowee and the Claiming Party, the Escrowee shall disburse the Escrow Fund
pursuant to the Claim Notice. In the event that the
<PAGE>
14
Notified Party shall object to the Claim Notice as aforesaid, the Escrowee shall
refrain from disbursing the Escrow Fund until the dispute between the Purchaser
and the Seller is resolved, and, in addition, the Escrowee shall have the rights
and options set forth in subsection (e) below. This procedure is not intended
to extend the Closing or to create a grace period for performance.
(c) The Escrowee may rely and shall be protected in acting or refraining
from acting upon any written notice, instruction or request furnished to it
hereunder and believed by it to be genuine and to have been signed or presented
by the proper party or parties, in which case it is agreed that the Escrowee is
under no duty to make any further inquiry.
(d) The Escrowee shall not be liable for any action taken by it in good
faith and believed by it to be authorized or within the rights or powers
conferred upon it by this Agreement, and may consult with counsel of its own
choice and shall have full and complete authorization and protection for any
action taken or suffered by it hereunder in good faith and in accordance with
the opinion of counsel.
(e) If conflicting demands are made or notices are served upon the Escrowee
with respect to this Agreement, including any Claim Notice, the parties hereto
agree that the Escrowee shall be entitled to refuse to comply with any such
claim or demand and to withhold and stop all further proceedings in the
performance of this Agreement so long as such disagreement shall continue. In
so doing, the Escrowee shall not be or become liable for damages or interest to
either of the parties hereto or to any other person for its failure to comply
with such conflicting or adverse demands or notices. The Escrowee shall be
entitled to continue to so refrain and so refuse to act until (i) the rights of
the adverse claimants have been finally adjudicated in a court having and
assuming jurisdiction of the parties, and the Escrowee shall have received
satisfactory evidence thereof (including, at its option, an opinion of counsel
selected by it), or (ii) all differences shall have been adjusted by mutual
agreement of the parties and the Escrowee shall have been notified thereof in
writing signed by all said parties. In the alternative, the Escrowee may, but
shall not be obligated to, file a suit in interpleader for a declaratory
judgment for the purpose of having the respective rights of the claimants
adjudicated, and may deposit with the court the amount of the Escrow Fund held
by it, in which event Seller and Purchaser, jointly and severally, agree to pay
all costs, expenses and attorneys' fees incurred by the Escrowee in connection
therewith, the amount thereof to be fixed and such judgment therefor to be
rendered by the court in such suit.
(f) Seller and Purchaser each releases the Escrowee from any act done or
omitted to be done by the Escrowee in good faith in the performance of its
duties hereunder, and they hereby agree to indemnify the Escrowee for, and to
hold it harmless against, any loss, liability or expense incurred by the
Escrowee, arising out
<PAGE>
15
of or in connection with its entering into this Agreement and carrying out its
duties hereunder, including the costs and expenses of defending itself against
any claim or liability in the premises.
* * * *
<PAGE>
16
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year indicated below.
PURCHASER:
Health-One Properties, LLC
By: /s/ William H. Clark
-------------------------------------------
Name: William H. Clark
Title: Manager
Date Executed: March 13, 1998
--------------------------------
SELLER:
Ramsay Louisiana, Inc.,
By: /s/ Carol C. Lang
-------------------------------------------
Name: Carol C. Lang
Title: Vice President
Date Executed: March 18, 1998
--------------------------------
FOR VALUE RECEIVED, the undersigned hereby, jointly and severally,
unconditionally, absolutely and irrevocably guarantee to Ramsay Louisiana, Inc.,
its successors, endorsees and assigns the full and timely payment and
performance of all present and future obligations and liabilities of all kinds
of Health-One Properties, LLC to Ramsay Louisiana, Inc. under this Agreement of
Purchase and Sale on account of a breach by Health-One Properties, LLC of any of
its representations or warranties contained in this Agreement of Purchase and
Sale (collectively, the "Obligations"). Each of the undersigned's obligations
hereunder shall not be affected by the genuineness, validity, regularity or
enforceability of the Obligations, the Agreement or any instrument evidencing
any Obligations, or by the existence, validity, invalidity, enforceability,
perfection, non-perfection, release or extent of any direct or indirect
collateral therefor or by any other circumstance relating to the Obligations
which might otherwise constitute a defense to this guaranty. Ramsay Louisiana,
Inc. makes no representation or warranty in respect to any such circumstance and
has no duty or responsibility whatsoever to either of the
<PAGE>
17
undersigned in respect to the management and maintenance of the Obligations or
any collateral therefor. In the event that any payment to Ramsay Louisiana,
Inc. in respect to any of the Obligations is rescinded or must otherwise be
returned for any reason whatsoever, each of the undersigned shall remain liable
hereunder in respect to such Obligations as if such payment had not been made.
This guaranty is intended to be and shall constitute a guaranty of payment and
not just of performance.
This is a continuing guaranty and agreement and this guaranty and the
rights and obligations of the parties hereto shall remain in full force and
effect and be binding upon the undersigned and their respective successors and
assigns from and after the date hereof until all the Obligations have been paid
and performed in full and the expiration of any further period within which a
trustee or other similar official in a bankruptcy, insolvency, reorganization or
similar proceeding may avoid, rescind or set aside any payment of any of the
Obligations made within such period. The provisions of this guaranty shall
survive the expiration or earlier termination of the term of the Agreement. It
is expressly acknowledged and agreed that the Obligations of the undersigned
hereunder are and shall be absolute and unconditional under any and all
circumstances, without regard to the validity, regularity or enforceability of
the Agreement.
/s/ R. Scott McQuarrie
----------------------------------------------
R. Scott McQuarrie
/s/ William H. Clark
----------------------------------------------
William H. Clark
<PAGE>
18
EXHIBIT "A"
PROMISSORY NOTE
$1,500,000.00 Covington, Louisiana
May 1, 1998
FOR VALUE RECEIVED, the undersigned, maker, endorser and surety,
Health-One Properties, LLC, having an address at _______________________ (the
"Borrower"), promises to pay to the order of Ramsay Louisiana, Inc., at c/o
Ramsay Health Care, Inc., One Alhambra Plaza, Suite 750, Coral Gables, Florida
33134 (the "Bearer"), or at such other place as the holder hereof may from time
to time designate in writing, the principal sum of One Million Five Hundred
Thousand and No/100 Dollars $1,500,000.00 (the "Principal") on May 1, 1999 (the
"Maturity Date"), together with interest thereon from and after the date hereof
on the outstanding Principal amount at the rate of twelve (12%) percent per
annum. Interest accrued on this Note shall be payable monthly, commencing on
June 1, 1998, and on the first day of each month thereafter, until the Principal
and all accrued interest thereon is paid in full.
Any amounts of interest or Principal or other sums owed under this
Note which are not paid when due shall bear interest at a rate equal to the
lesser of fifteen (15%) percent per annum or the maximum rate of interest
allowed by applicable law ("Default Interest"). All payments hereunder shall be
in lawful money of the United States of America which are available for
immediate use by Bearer not later than the due date of such payment, and without
set-off or counterclaim or deduction of any nature whatsoever.
This Note is and shall be subject to the following additional terms
and conditions:
1. Definitions. Unless otherwise defined herein, capitalized
-----------
terms used in this Note shall have the respective meanings ascribed to such
terms in that certain Mortgage dated as of the date hereof made by Borrower in
favor of Bearer (the "Mortgage").
2. Prepayment. The indebtedness evidenced by this Note may be
----------
prepaid at any time in whole or in part prior to the Maturity Date without
penalty or premium.
3. Acceleration of Maturity Date/Remedies. Time shall be of the
--------------------------------------
essence as to all of Borrower's obligations under this Note. In the event that
(a)
<PAGE>
19
Borrower shall fail to make timely payment of interest and/or Principal or of
any other amount due and payable hereunder; or (b) Borrower shall fail to make
timely payment of real estate taxes assessed against the mortgaged premises; or
(c) the Maturity Date shall have occurred; or (d) a court having jurisdiction
enters a decree or order for relief in respect of Borrower in an involuntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect; or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator or other similar official (hereinafter collectively
referred to as "receiver or trustee") of Borrower or for any substantial part of
the property of Borrower or ordering the winding-up or liquidation of the
affairs of Borrower and such decree or order shall remain unstayed and in effect
for a period of 30 consecutive days, or should Borrower commence a voluntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consent to the entry of an order for relief in an
involuntary case under any such law, or consent to the appointment of or taking
possession by a receiver or trustee of Borrower or for any substantial part of
the property of Borrower, or make any general assignment for the benefit of
creditors, or fail generally to pay the debts of Borrower as they become due, or
take action in furtherance of any of the foregoing; or (e) any other default or
Event of Default under the Mortgage shall have occurred, then in any such event,
and in addition to any other remedies Bearer may have at law or in equity, at
Bearer's option the entire Principal, together with all accrued interest
thereon, all other sums evidenced and/or secured hereby or by the Mortgage, and
all other expenses, including, without limitation, attorneys' fees and expenses
for legal services incurred by or on behalf of Bearer in collecting or enforcing
the payment hereof or thereof, and any insurance premiums due in keeping the
mortgaged premises insured against casualty loss, fire or other damage, shall
immediately become due and payable without regard to the scheduled Maturity Date
set forth herein. Notice of the exercise of such option by Bearer is hereby
waived by Borrower. If a default under this Note or an Event of Default under
the Mortgage shall occur, it shall be lawful for the mortgaged property, as
described in the Mortgage, to be seized and sold under executory process issued
by any court of competent jurisdiction, without appraisement, to the highest
bidder, payable in cash; the said Borrower hereby confessing judgment in favor
of said Bearer and such person or persons who may be the owner or owners of said
indebtedness for the full amount thereof, capital and interest, together with
all costs, including the attorney's fees herein stipulated. The said Borrower
further expressly waives the citation and all notices and delays, including the
three (3) day notice provided by Article 2639 of the Code of Civil Procedure;
the said Borrower further waives and renounces all and every appraisement and
the benefit of appraisement and all laws relating to appraisement of property
seized and sold under executory or any other legal process.
4. Late Charge. In the event that any payment due hereunder shall
-----------
not be made by Borrower when such payment is due and payable, in addition to any
<PAGE>
20
other remedies Bearer may have at law or in equity, a late charge of five cents
($0.05) for each dollar ($1.00) so overdue for the purpose of defraying the
expense incident to handling such delinquent payment shall be immediately due
payable to Bearer.
5. Due on Transfer. Bearer shall have the right and option to
---------------
accelerate the Maturity Date upon certain transfers or other dispositions of
interests in the mortgaged premises, all as set forth in the Mortgage.
6. Costs of Collection. In the event this Note or any part of the
-------------------
indebtedness evidenced hereby be collected by law or through or under advice
from an attorney at law, the Bearer shall be entitled to collect all costs of
collection, including, without limitation, attorneys' fees and expenses, which
are hereby fixed at twenty five (25%) percent on the amount owing, with or
without suit, all of which Borrower agrees to pay upon demand therefor.
7. Mortgage. This Note is the Note referred to in and secured by
--------
the Mortgage and the holder hereof is entitled to all of the benefits of the
Mortgage. All of the terms and conditions of the Mortgage are incorporated
herein by reference as if fully set forth herein.
8. Waiver. Borrower waives (i) presentment for payment, demand,
------
protest, notice of non-payment or dishonor and of protest, valuation and
appraisement and any and all other notices and demands whatsoever, and agrees to
remain bound until the Principal and interest and any other sums owed are paid
in full notwithstanding any extensions of time for payment which may be granted,
even though the period of extension be indefinite, and notwithstanding any
inaction by, or failure to assert any legal right available to, the holder of
this Note, and (ii) any right it may have to demand a trial by jury with respect
to the enforcement of, any controversy arising under or in any way relating to,
this Note or the Mortgage.
9. Assignment. This Note and every covenant and agreement herein
----------
contained shall be binding upon Borrower and its successors and permitted
assigns, and shall inure to the benefit of Bearer and its successors and
assigns.
10. Modification. No provisions of this Note shall be modified,
------------
waived or terminated, except by an instrument in writing, signed by the party
against whom enforcement of such modification, waiver or termination is to be
enforced.
11. Governing Law. This Note shall be construed in accordance
-------------
with, and governed by, the laws of the State of Louisiana, without regard to the
principles of conflicts of laws.
<PAGE>
21
12. Notices. All notices and other communications required or
-------
permitted hereunder shall be given and deemed received as provided in the
Mortgage.
13. Relationship. Borrower and Bearer intend that the
------------
relationship created under this Note be solely that of debtor and creditor.
Nothing herein is intended to create, nor shall it create, nor shall it be
deemed to create, a joint venture, partnership, tenancy-in-common, or joint
tenancy relationship between Borrower and Bearer, nor grant Bearer any interest
in the mortgaged premises other than that of creditor or mortgagee.
* * *
IN WITNESS WHEREOF, the Borrower has executed and delivered this Note
as of the date first above written.
HEALTH-ONE PROPERTIES, LLC
By:___________________________
Name:
Title:
"NE VARIETUR" for identification
with an act of mortgage this day passed
before me, on May ___, 1998.
___________________________________
NOTARY PUBLIC
<PAGE>
22
EXHIBIT "B"
MORTGAGE UNITED STATES OF AMERICA
BY: HEALTH-ONE PROPERTIES, LLC STATE OF LOUISIANA
TO: RAMSAY LOUISIANA, INC. PARISH OF ST. TAMMANY
BE IT KNOWN, that on this ____ day of May, in the year of Our Lord, one
thousand nine hundred and ninety eight:
BEFORE ME, _____________________, a Notary Public, duly commissioned and
qualified in and for the Parish and State aforesaid, therein residing, and in
the presence of the witnesses hereinafter named and undersigned:
PERSONALLY CAME AND APPEARED:
_________________, as __________________ of and on behalf Health-One Properties,
LLC,
domiciled in ____________________, State of Louisiana, and whose permanent
mailing address is declared to be ____________________, hereinafter designated
as "Mortgagor", who declared and acknowledged that mortgagor is justly and truly
indebted unto
_________________, as ____________________ of and on behalf of Ramsay Louisiana,
Inc.,
domiciled in ____________________, State of ____________________, and whose
mailing address is declared to be c/o Ramsay Health Care, Inc., One Alhambra
Plaza, Suite 750, Coral Gables, Florida 33134, hereinafter referred to as
"Mortgagee",
in the full and true sum of ONE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($1,500,000.00) in representation whereof, said Mortgagor has made and
subscribed one (1) certain promissory note dated this day to the order of
"Bearer" and by them signed and endorsed and payable in one (1) lump sum of ONE
MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($1,500,000.00), to be paid on
May 1, 1999 (the "Maturity Date"), and which said note stipulated to bear
interest at the rate of twelve percent (12%) per annum from the date thereof
until paid, payable on the first (1st) day of June, 1998, and on the first (1st)
day of each month thereafter until the principal sum is paid in full. The
makers of the herein referred to note reserve the right to prepay the said note
at any time, without penalty, upon payment of interest to date, which note after
having been duly paraphed "Ne Varietur" by me, said Notary, for identification
herewith has been
<PAGE>
23
delivered to said vendor, here present acknowledging receipt thereof, and
accepting these presents.
And the said Mortgagor further declared that said Mortgagor does by these
presents bind and obligate said Mortgagor to pay and reimburse all such lawyer's
and attorney's fees, together with all such costs, charges and expenses as the
present or any future holder or holders of said indebtedness, represented as
aforesaid, shall or may incur or pay in the event of the nonpayment of said
indebtedness or any part thereof, at maturity, or in case it should become
necessary to place said indebtedness, or any part thereof, in the hands of an
attorney at law for collection, suit or otherwise, said attorney's fees, however
to be fixed at twenty five percent (25%) on the amount due or so in suit.
NOW, THEREFORE, in order to secure the full and final payment of said
indebtedness, represented as aforesaid, in capital and interest, together with
all costs, including the attorney's fees herein stipulated the Mortgagor does by
these presents specially mortgage and hypothecate unto the said Mortgagee and
such person or persons who may eventually be the holder or holders of said
indebtedness, represented as aforesaid, the property described on Exhibit "A"
attached hereto.
TOGETHER with all buildings and improvements located thereon and all right,
title and interest of the mortgagor in and to the land lying in the streets and
roads in front of and adjoining said premises;
TOGETHER with all fixtures, chattels and articles of personal property now
or hereafter attached to or used in connection with said premises, including but
not limited to furnaces, boilers, oil burners, radiators and piping, coal
stokers, plumbing and bathroom fixtures, refrigeration, air conditioning and
sprinkler systems, wash-tubs, sinks, gas and electric fixtures, stoves, ranges,
awnings, screens, window shades, elevators, motors, dynamos, refrigerators,
cabinets, incinerators, plants and shrubbery and all other equipment and
machinery, appliances, fittings and fixtures of every kind in or used in the
operation of the buildings standing on said premises, together with any and all
replacements thereof and additions thereto;
TOGETHER with all awards heretofore and hereafter made to the Mortgagor for
taking by eminent domain the whole or any part of said premises or any easement
therein, including any awards for changes of grade of streets, which said awards
are hereby assigned to the mortgagee, who is hereby authorized to collect and
receive the proceeds of such awards and to give proper receipts and acquittances
therefor, and to apply the same toward the payment of the mortgage debt,
notwithstanding the fact that the amount owing thereon may not then be due and
payable; and the said Mortgagor hereby agrees, upon request, to make, execute
and deliver any and all assignments and other instruments sufficient for the
purpose of assigning said awards to the
<PAGE>
24
mortgagee, free, clear and discharged of any encumbrances of any kind or nature
whatsoever.
It is agreed that the occurrence of any or all of the following shall be
deemed to be an event of default ("Event of Default") under this Mortgage: the
Mortgagor shall fail to make timely payment of interest and/or principal or of
any other amount due and payable under the Note; or Mortgagor shall sell,
alienate or encumber the mortgaged property to the prejudice of these presents;
or Mortgagor shall fail to make timely payment of real estate taxes assessed
against the mortgaged premises or to effect and keep in force said insurance or
to transfer and deliver said policies, as herein provided; or the Maturity Date
shall have occurred; or Mortgagor structurally alters, removes or demolishes any
building on the premises without the consent of the Mortgagee; or a court having
jurisdiction enters a decree or order for relief in respect of Mortgagor in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator or other similar official (hereinafter
collectively referred to as "receiver or trustee") of Mortgagor or for any
substantial part of the property of Mortgagor or ordering the winding-up or
liquidation of the affairs of Mortgagor and such decree or order shall remain
unstayed and in effect for a period of 30 consecutive days; or should Mortgagor
commence a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consent to the entry of an order for
relief in an involuntary case under any such law, or consent to the appointment
of or taking possession by a receiver or trustee of Mortgagor or for any
substantial part of the property of Mortgagor, or make any general assignment
for the benefit of creditors, or fail generally to pay the debts of Mortgagor as
they become due, or take action in furtherance of any of the foregoing; or
Mortgagor fails to maintain the buildings on the premises in reasonably good
repair, or fails to comply with any requirement or order or notice of violation
of law or ordinance issued by any governmental department claiming jurisdiction
over the premises within three months from the issuance thereof.
The said property so to remain mortgaged and hypothecated until the full
and final payment of the aforesaid indebtedness in capital and eventual
interest, it being agreed and stipulated that if an Event of Default under this
Mortgage shall occur, it shall be lawful for the property hereinbefore described
and herein mortgaged to be seized and sold under executory process issued by any
court of competent jurisdiction, without appraisement, to the highest bidder,
payable in cash; the said Mortgagor hereby confessing judgment in favor of said
Mortgagee and such person or persons who may be the owner or owners of said
indebtedness for the full amount thereof, capital and interest, together with
all costs, including the attorney's fees herein stipulated. The said Mortgagor
further expressly waives the citation and all notices and delays, including the
three (3) day notice provided by Article 2639 of the Code of Civil Procedure;
the said Mortgagor further waives and renounces all and every
<PAGE>
25
appraisement and the benefit of appraisement and all laws relating to
appraisement of property seized and sold under executory or any other legal
process.
That Mortgagor will pay taxes, assessments, and other governmental or
municipal charges, fines or impositions, for which provisions have not been made
heretofore, and in default thereof the Mortgagee may pay the same, as in his
discretion may be necessary, and the sum so paid shall be a further lien on said
premises under this mortgage, payable forthwith; and that the Mortgagor will
promptly deliver the official receipts therefor to the said Mortgagee.
That Mortgagor will keep the improvements now existing or hereafter erected
on the mortgaged property insured as may be required from time to time by the
Mortgagee against loss by fire and for such periods as may be required by the
Mortgagee and will pay promptly, when due, any premiums on such insurance,
provision for payment of which has not been made hereinbefore. All insurance
shall be carried in companies approved by the Mortgagee and the policies and
renewals thereof shall be held by the Mortgagee and have attached thereto loss
payable clauses in favor and in form acceptable to the Mortgagee. In event of
loss, Mortgagor will give immediate notice by mail to the Mortgagee, who may
make proof of loss if not made promptly by Mortgagor, and each insurance company
concerned is hereby authorized and directed to make payment for such loss
directly to the Mortgagee instead of to the Mortgagor and the Mortgagee jointly,
and the insurance proceeds or any part thereof, may be applied by the Mortgagee
at its option either to the reduction of the indebtedness hereby secured or to
the restoration or repair of the property damaged. In the event of foreclosure
of this mortgage or other transfer of title to the mortgaged property in
extinguishment of the indebtedness secured hereby, all right, title and interest
of the Mortgagor in and to any insurance policies then in force shall pass to
the purchaser or grantee.
That no building on the premises shall be structurally altered, removed or
demolished without the consent of the Mortgagee.
That the Mortgagor warrants the title to the premises.
That in case of a foreclosure sale, said premises, or so much thereof as
may be affected by this Mortgage, may be sold in one parcel.
That if any action or proceeding be commenced (except an action to
foreclose this Mortgage or to collect the debt secured thereby), to which action
or proceeding the Mortgagee is made a party, or in which it becomes necessary to
defend or uphold the lien of this Mortgage, all sums paid by the Mortgagee for
the expense of any litigation to prosecute or defend the rights and lien created
by this Mortgage (including reasonable counsel fees), shall be paid by the
Mortgagor, together with
<PAGE>
26
interest thereon at the rate of six percent per annum, and any such sum and the
interest thereon shall be a lien on said premises, prior to any right, or title
to, interest in or claim upon said premises attaching or accruing subsequent to
the lien of this Mortgage, and shall be deemed to be secured by this Mortgage.
In any action or proceeding to foreclose this Mortgage, or to recover and
collect the debt secured thereby, the provisions of law respecting the covering
of costs, disbursements and allowances shall prevail unaffected by this
covenant.
That the Mortgagor hereby assigns to the Mortgagee the rents, issues and
profits of the premises as further security for the payment of said
indebtedness, and the Mortgagor grants to the Mortgagee the right to enter upon
and take possession of the premises for the purpose of collecting the same and
to let the premises or any part thereof, and to apply the rents, issues and
profits, after payment of all necessary charges and expenses, on account of said
indebtedness. This assignment and grant shall continue in effect until the
Mortgage is paid. The Mortgagee hereby waives the right to enter upon and to
take possession of said premises for the purpose of collecting said rents,
issues and profits, and the Mortgagor shall be entitled to collect and receive
said rents, issues and profits until the occurrence of an Event of Default or
any other default under any of the covenants, conditions or agreements contained
in this Mortgage, and agrees to use such rents, issues and profits in payment of
principal and interest becoming due on this Mortgage and in payment of taxes,
assessments, sewer rents, water rates and carrying charges becoming due on this
Mortgage and in payment of taxes, assessments, sewer rents, water rates and
carrying charges becoming due against said premises, but such right of the
Mortgagor may be revoked by the Mortgagee upon any default, on five days'
written notice. Mortgagor shall not enter into or permit any leases or
subleases of all or any part of the premises, without Mortgagee's prior written
consent in its sole discretion.
That the execution of this Mortgage has been duly authorized by the
appropriate individual(s) on the part of the Mortgagor.
It is agreed that if an Event of Default shall occur under this Mortgage,
then all said indebtedness, on demand by Mortgagee, shall ipso facto become
immediately due and exigible.
The said ____________________ declared that in favor of said note secured
hereby, as regards the property herein mortgaged, Mortgagor waives any and all
homestead exemptions to which it is or may be entitled under the constitution
and laws of the State of Louisiana.
Whenever the word "Mortgagor" is used in this act, it shall be construed to
include "Mortgagors", and whenever the word "Mortgagee" is used, it shall be
construed to include "Mortgagees".
<PAGE>
27
All the agreements and stipulations herein contained, and all the
obligations herein assumed, shall inure to the benefit and be binding upon the
heirs, successors, and assigns of the respective parties hereunto.
The certificates of mortgage and conveyance as required by Article 3364 of
the revised Civil Code of Louisiana are ____________________.
* * *
<PAGE>
28
THUS DONE AND PASSED in Covington, Parish and State aforesaid, in the
presence of the undersigned competent witnesses, who have hereunto signed their
names with the parties, and me, said Notary, the day, month and year first above
written.
WITNESSES: Health-One Properties, LLC
________________________ By:_____________________
Name:
Title:
________________________
________________________
NOTARY PUBLIC
<PAGE>
EXHIBIT "C"
Bill of Sale
------------
KNOW ALL MEN BY THESE PRESENTS that RAMSAY LOUISIANA, INC., a Delaware
corporation (the "Seller"), the owner of that certain real property located in
------
the City of Covington, Parish of St. Tammany, Louisiana as more particularly
described on Exhibit A attached hereto (the "Real Property") in accordance with
-------------
the terms of that certain Agreement of Purchase and Sale, dated as of
__________, 1998 (the "Agreement"), between Seller and HEALTH-ONE PROPERTIES,
---------
LLC, a __________ limited liability company (the "Buyer"), and for good and
-----
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, does by these presents, grant, bargain, sell, deliver and transfer
unto Buyer, all moveable and attached furnishings, furniture, equipment,
fixtures, trade fixtures and other tangible personal property owned by Seller
(the "Personal Property") and located on the Real Property as of the date
-----------------
hereof.
TO HAVE AND TO HOLD the Personal Property hereby transferred and
conveyed upon Buyer, its successor and assigns, for its and their own use
forever.
This Bill of Sale and the covenants and agreements herein contained
shall be binding upon Seller, its successors and assigns, and shall inure to the
benefit of Buyer and its successors and assigns.
IN WITNESS WHEREOF, Seller has made and executed this Bill of Sale as
of the ____ day of _________, 1998.
SELLER:
RAMSAY LOUISIANA, INC.
By:_________________________
Name:_______________________
Title:______________________
<PAGE>
Exhibit 2.7
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the 1st day
of May 1998 (the "Effective Date") by and among Ramsay Managed Care, Inc., a
Delaware corporation (the "Seller"), Ramsay Health Care, Inc., a Delaware
corporation ("RHCI"), and Horizon Health Corporation, a Delaware corporation
(the "Purchaser"). Capitalized terms used herein and not defined in the specific
Section in which they are used, shall have the meanings assigned to such terms
in Section XIV hereof.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Seller is the holder of all of the issued and outstanding
shares of common stock, par value $0.01 per share (the "Common Stock") of FPM
Behavioral Health, Inc., a Delaware corporation ("FPM"); and
WHEREAS, the Purchaser desires to acquire from the Seller, and the Seller
desires to sell to the Purchaser, for the consideration hereinafter provided,
all of the issued and outstanding shares of the FPM Common Stock (collectively,
the "Shares");
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties hereto, intending to be
legally bound, hereby agree as follows:
SECTION I.
PURCHASE AND SALE OF THE SHARES
-------------------------------
1.1 Purchase and Sale of the Shares. Subject to the terms and conditions
-------------------------------
of this Agreement and on the basis of the representations, warranties, covenants
and agreements herein contained, at the Closing, the Seller agrees to sell,
assign and convey the Shares to the Purchaser, and the Purchaser agrees to
purchase, acquire and accept the Shares from the Seller.
1.2 The Indemnity Escrow Deposit. At the Closing, the Purchaser shall
----------------------------
deposit $1,000,000 of the Purchase Price with Haythe & Curley, as escrow agent
(the "Escrow Agent"), by certified or official bank check payable to the order
of the Escrow Agent or by wire transfer of immediately available funds (the
"Indemnity Escrow Amount" and, together with all earnings thereon, collectively,
the "Indemnity
<PAGE>
2
Escrow Deposit"). The Indemnity Escrow Deposit will be held, invested and
disbursed as specified in and pursuant to the terms and conditions of an Escrow
Agreement substantially in the form attached hereto as Exhibit A.
---------
1.3 Purchase Price. The aggregate purchase price for the Shares shall be
--------------
equal to Twenty Million Dollars ($20,000,000) (the "Closing Purchase Price"), as
adjusted pursuant to Section 1.04 below (the Closing Purchase Price as adjusted
pursuant to Section 1.04, the "Purchase Price"). The Closing Purchase Price,
less the Indemnity Escrow Amount, which shall be deposited with the Escrow Agent
as provided in Section 1.02 above, shall be paid by the Purchaser to the Seller
at the Closing by bank wire transfer of immediately available funds to an
account designated by the Seller.
1.4 Purchase Price Adjustment. (a) As promptly as practicable following
-------------------------
the Closing Date, but in no event later than 60 days thereafter (the "60-Day
Period"), the Purchaser shall prepare and deliver to the Seller (i) an unaudited
consolidated balance sheet of the Group (the "Closing Balance Sheet") as of the
Closing Date (immediately prior to the Closing and without giving effect to
Section 1.06 hereof) and (ii) a certificate setting forth the Closing Net Worth
as of the Closing Date (immediately prior to the Closing and without giving
effect to Section 1.06 hereof) computed in accordance with the terms of this
Agreement, and setting forth the computation and components thereof in
reasonable detail (the "Statement of Closing Net Worth"). The Closing Balance
Sheet shall be prepared in accordance with GAAP, as if the Closing Date were the
last day of the Group's fiscal year.
(b) During the 60-Day Period, the 45-Day Period and the 30-Day
Period, the Purchaser shall afford the Seller and RHCI and their representatives
access to the books and records of the Group and, upon reasonable prior notice
and without unreasonable disruption, to the employees of the Purchaser and the
Group, and afford the Seller and RHCI and their representatives with the
opportunity to participate in and consult with the Purchaser in connection with
the preparation by the Purchaser of the Closing Balance Sheet and the Statement
of Closing Net Worth.
(c) On the forty-fifth day after the date on which the Closing
Balance Sheet and the Statement of Closing Net Worth have been delivered to the
Seller (or such earlier date as the Seller notifies the Purchaser in writing),
if the Closing Net Worth shown on the Statement of Closing Net Worth is not
disputed by the Seller pursuant to Section 1.04(d) hereof, then (i) in the event
that the Closing Net Worth exceeds the Base Net Worth, the Purchaser shall pay
to the Seller by bank wire transfer the amount by which the Closing Net Worth
exceeds the Base Net Worth, (ii) in the event that the Closing Net Worth equals
the Base Net Worth, the Purchase Price shall equal the Closing Purchase Price
and no adjustment shall be made pursuant to this Section 1.04, and (iii) in the
event that the Base Net Worth
<PAGE>
3
exceeds the Closing Net Worth, the Seller shall pay to the Purchaser by bank
wire transfer the amount by which the Base Net Worth exceeds the Closing Net
Worth. It is expressly understood that any payment by the Seller pursuant to
subsection (iii) of the immediately preceding sentence shall not be made with
any funds constituting the Indemnity Escrow Deposit. In addition, it is
understood and agreed that if the Seller does not deliver a Dispute Notice to
the Purchaser within 45 days after the receipt by the Seller of the Closing
Balance Sheet and the Statement of Closing Net Worth (the "45-Day Period"), then
the Closing Balance Sheet and the Statement of Closing Net Worth shall be deemed
accepted in all respects by the Seller and the Purchaser and shall be final and
binding upon the parties hereto.
(d) If the Seller disputes the Closing Net Worth shown on the
Statement of Closing Net Worth, the Seller shall give written notice (the
"Dispute Notice") to the Purchaser within the 45-Day Period, which Dispute
Notice shall specify in reasonable detail the reasons for such disagreement and
the amount in dispute. If the Seller and the Purchaser are unable to resolve
the disputed matters within 30 days after receipt by the Purchaser of the
Dispute Notice (the "30-Day Period"), all disputed matters raised in the Dispute
Notice and not so resolved shall be submitted to (i) the Atlanta office of the
"Big-Six" nationally recognized accounting firm (excluding, however, both Price
Waterhouse L.L.P. and Ernst & Young L.L.P.) which is listed first on an
alphabetical basis, and if such firm refuses to accept such engagement, then
(ii) the Atlanta office of the next such nationally recognized independent
accounting firm in alphabetical order; provided, however, that in the event of a
merger of any such firms with either Price Waterhouse L.L.P. or Ernst & Young
L.L.P., the merged firm shall not be eligible (such firm which accepts the
engagement, the "Independent Auditor"), for final resolution in accordance with
the terms and provisions of this Agreement. Each party shall be permitted to
submit to the Independent Auditor a written statement in support of its position
with respect to the disputed matters raised in the Dispute Notice and not
resolved. The Independent Auditor's resolution of any such dispute shall be
reflected in a written report which the Purchaser and the Seller shall use their
respective best efforts to cause to be delivered promptly to the Seller and the
Purchaser, which written report shall, in addition to setting forth the
resolution of the disputed matters, set forth the Closing Net Worth determined
in accordance with the terms hereof (and after giving effect to such resolution)
and shall set forth, after giving effect to the foregoing determinations, which
of clauses (i), (ii) or (iii) of subsection (c) above is applicable in the
circumstances (all of the foregoing, the "Independent Auditor's Determination").
The Seller and the Purchaser shall use their respective best efforts to cause
the Independent Auditor to make the Independent Auditor's Determination as soon
as possible, but in no event later than 45 days after receipt of the disputed
matters. The Independent Auditor's Determination shall be final and binding
upon the parties hereto. The Independent Auditor's resolution of disputed
matters shall be limited to matters of dispute which are raised in the Dispute
Notice and not resolved
<PAGE>
4
by the Seller and the Purchaser. One-half of all fees and disbursements of the
Independent Auditor shall be paid by the Seller and one-half of such fees and
disbursements shall be paid by the Purchaser. Any payment to be made as a
consequence of the decision of the Independent Auditor shall be made, free and
clear of any deductions or set-off, not later than three business days after the
receipt of such written report by the Seller and the Purchaser, in accordance
with the provisions of clauses (i) through (iii) of Section 1.04(c), as
applicable.
(e) All amounts paid pursuant to this Section 1.04 shall be paid by
bank wire transfer of immediately available funds and shall bear interest from
and after the end of the 45-Day Period (as defined in Section 1.04(c)), until
paid, at the per annum rate equal to the prime rate of Chase Manhattan Bank (or
its successors), as in effect from time to time, on the basis of a 365-day year
and the actual number of days elapsed.
1.5 Delivery of the Shares. At the Closing, the Seller shall deliver the
----------------------
Shares to the Purchaser by delivering certificates duly endorsed in blank
representing the Shares, each certificate to be accompanied by any requisite
stock transfer tax stamps.
1.6 Intercompany Account Obligations. As of the Closing, all then
--------------------------------
outstanding intercompany obligations of any Group Member to the Seller or any of
its Affiliates (other than any Group Member), shall be cancelled by being
considered as a capital contribution by Seller to FPM and no Group Member shall
have any further liability or obligation in respect of any such intercompany
obligations; provided that nothing in this Section 1.06 shall affect any and all
of the covenants, agreements, obligations and other provisions of this Agreement
applicable to the Seller, RHCI, the Purchaser or any Group Member set forth in
this Agreement, including, without limitation, the provisions of Section VIII.
SECTION II.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
--------------------------------------------
A. Representations and Warranties of the Seller. In connection with the
--------------------------------------------
purchase and sale of the Shares hereunder, the Seller hereby represents and
warrants to the Purchaser as of the Effective Date that:
2.1 Organization and Qualification; Subsidiaries. FPM and each of its
--------------------------------------------
subsidiaries listed on Schedule 2.01 hereto (each a "Subsidiary" and
-------------
collectively, the "Subsidiaries") is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization, as the case may be, and has all
<PAGE>
5
requisite corporate (or, in the case of each subsidiary which is a limited
liability company or limited partnership, limited liability company or limited
partnership) power, authority and legal right to own, operate and lease its
assets and properties and to conduct the businesses in which it is now engaged.
Each Group Member is duly qualified to transact business as a foreign
corporation, limited liability company or limited partnership in all
jurisdictions wherein it is required to be so qualified except where the failure
to be so qualified would not have a Material Adverse Effect. FPM does not have
any subsidiaries, whether direct or indirect, other than the Subsidiaries. Other
than the Subsidiaries and other than as set forth on Schedule 2.01 hereto, no
-------------
Group Member owns any capital stock or other equity or proprietary interest,
directly or indirectly through any Subsidiary or otherwise, in any corporation,
association, trust, partnership, joint venture, limited liability company or
other entity or has any agreement, right or obligation to acquire any such
capital stock or other equity or proprietary interest and is not a partner or
joint venturer with any other person or entity or a member of any other entity.
Copies of the certificate or articles of incorporation and by-laws, or limited
liability company operating agreement or limited partnership agreement, as the
case may be, of each Group Member and each other entity listed on Schedule 2.01
-------------
have been delivered to the Purchaser on or prior to the Effective Date, which
copies are complete and correct and include all amendments, modifications or
supplements thereto as of the Effective Date. No Group Member is in violation
of any material term or provision of its certificate or articles of
incorporation or by-laws or limited liability operating agreement or limited
partnership agreement or in violation of any material term or provision of the
organizational documents of any of the other entities listed in Schedule 2.01.
-------------
Schedule 2.01 lists the state of incorporation or organization of each entity
- -------------
shown thereon and each state where such entity is qualified to transact business
as a foreign corporation, limited liability company or limited partnership, as
the case may be.
2.2 Conflicts. Neither the execution and delivery of this Agreement by
---------
the Seller, nor the performance of the transactions contemplated hereby to be
performed by the Seller, (a) violates any provision of the certificate or
articles of incorporation or by-laws in the case of corporations, or limited
liability company operating agreement or limited partnership agreement in the
case of limited liability companies or limited partnerships, as the case may be,
of the Seller or any Group Member or (b) constitutes a violation of any
Applicable Law. Except as set forth on Schedule 2.02 hereto, neither the
-------------
execution and delivery of this Agreement by the Seller nor the performance of
the transactions contemplated hereby to be performed by the Seller violates, or
conflicts with, or results in any breach of any of the terms of, or results in
the termination of, or the creation of any material Lien pursuant to, or with
respect to, the terms of any contract, commitment, agreement or lease of any
kind to which the Seller or any Group Member is a party or by which the Seller
or any Group
<PAGE>
6
Member or any of their respective assets are bound, except where such violation,
conflict, breach, termination or creation would not have a Material Adverse
Effect.
2.3 Capitalization. The authorized, issued and outstanding capital stock
--------------
of each Group Member that is a corporation is as set forth on Schedule 2.03
-------------
hereto. The limited partnership interests of each Group Member that is a
limited partnership is as set forth on Schedule 2.03 hereto. The membership
-------------
interests of each Group Member that is a limited liability company is as set
forth on Schedule 2.03 hereto. All of the outstanding shares of the Common
-------------
Stock and all of the outstanding shares of capital stock of each Subsidiary that
is a corporation have been duly and validly authorized and issued and are fully
paid and non-assessable and are owned of record and beneficially by the Seller
or a Group Member, as the case may be, as shown on Schedule 2.03. The limited
-------------
liability company membership interests and limited partnership interests held by
the Seller or a Group Member, as the case may be, have been fully paid and are
owned of record by the Seller or a Group Member, as the case may be, as shown on
Schedule 2.03. Except as set forth on Schedule 2.03 hereto, there are no
- ------------- -------------
outstanding subscriptions, warrants, options, calls, commitments, convertible or
exchangeable securities, or other rights or agreements to purchase or acquire
shares of capital stock, membership interests or limited partnership interests,
as the case may be, of any Group Member to which any Group Member or the Seller
is a party or by which any Group Member or the Seller is bound. Except as set
forth on Schedule 2.03 hereto, there are no agreements concerning the issuance,
-------------
voting, transfer, acquisition or disposition of shares of capital stock,
membership interests or limited partnership interests, as the case may be, of
any Group Member to which any Group Member or the Seller is a party or by which
any Group Member or the Seller is bound. As of the Closing Date, each of the
matters set forth in Schedule 2.03 as exceptions to the two immediately
-------------
preceding sentences, and not indicated on Schedule 2.03 as surviving the
-------------
Closing, shall have been fully satisfied or waived, if applicable, and shall
have been terminated and cancelled in all respects.
2.4 Financial Statements; No Undisclosed Liabilities.
------------------------------------------------
(a) The Seller has delivered to the Purchaser a copy of (i) unaudited
financial statements of FPM as of June 30, 1996 and 1997 consisting in each case
of an unaudited consolidated balance sheet at such respective date and the
related unaudited consolidated statement of income for the applicable twelve
(12) month period then ended and (ii) an unaudited consolidated balance sheet of
FPM as at February 28, 1998 (the "FPM Balance Sheet") and the related unaudited
consolidated statement of income for the eight (8) month period then ended
(collectively, the "Financial Statements"). The Financial Statements are
included as a part of Schedule 2.04. The Financial Statements (but only to the
-------------
knowledge of the Seller with respect to the Financial Statements described in
Section 2.04(a)(i) above) present fairly in all material respects the financial
position of FPM and the results of
<PAGE>
7
operations of FPM, in each case on a consolidated basis, as at the respective
dates and for the respective periods covered thereby. The Financial Statements
(but only to the knowledge of the Seller with respect to the Financial
Statements described in Section 2.04(a)(i) above) have been prepared in
accordance with GAAP (except for the absence of (i) a statement of cash flows,
(ii) footnotes and (iii) in the case of the February 28, 1998 Financial
Statements, year-end adjustments) and were prepared from the books and records
of FPM. As of February 28, 1998, FPM owned, directly or indirectly all of the
assets included in the FPM Balance Sheet.
(b) Except as set forth in Schedule 2.04 hereto, no Group Member has
-------------
any liabilities or obligations of any nature, whether accrued, absolute,
contingent or otherwise, whether due or to become due, required under GAAP
(except for the absence of (i) a statement of cash flows, (ii) footnotes and
(iii) in the case of the February 28, 1998 Financial Statements, year-end
adjustments) to be set forth or reserved against on a consolidated balance sheet
of FPM, except for:
(i) liabilities or obligations set forth or reserved against in the
FPM Balance Sheet; and
(ii) liabilities or obligations incurred in the ordinary course of
business since February 28, 1998.
(c) Except for the intercompany obligations to be cancelled and
eliminated as set forth in Section 1.06 hereof and except for indebtedness for
borrowed money among Group Members, as of the Closing no Group Member will have
any indebtedness for borrowed money.
(d) Schedule 2.04 expressly itemizes all "one-time" adjustments that
-------------
have been made in the period covered by the February 28, 1998 Financial
Statements.
(e) The February 28, 1998 Financial Statements do not include any
revenues or expenses attributable to the operations of the clinics in the State
of Utah formerly operated by the Group Members or any revenues or expenses since
January 1, 1998 attributable to the operation of certain clinics in the State of
Florida formerly operated by the Group Members. The February 28, 1998 Financial
Statements do include the revenues and expenses attributable to the operation of
clinics in the State of Arizona by the Group Members which operations have been
discontinued and such clinics closed prior to the Effective Date.
2.5 Accounts Receivable. All receivables of the Group Members reflected
-------------------
on the FPM Balance Sheet and all accounts receivables, notes receivables and
other receivables which have arisen since February 28, 1998 are valid and have
arisen only
<PAGE>
8
from bona fide arm's-length transactions in the ordinary course of the business
of the Group Members.
2.6 Absence of Certain Changes. Except as set forth in Schedule 2.06,
-------------------------- -------------
since February 28, 1998 the business of the Group has been conducted only in the
ordinary and usual course and there has not been any (a) adverse change in the
assets, properties, results of operations, business or financial condition of
the Group which has resulted in a Material Adverse Effect, (b) material damage
or destruction, whether or not insured, affecting the assets or properties of
the Group, (c) material changes in the Group's customary methods of operations
or the manner in which their business is conducted or (d) except in the ordinary
course of business, sale or transfer of material tangible or intangible assets
of the Group, or mortgage, pledge or imposition of any Lien on such assets
except for Permitted Liens.
2.7 Taxes. Except as set forth in Schedule 2.07 hereto:
----- -------------
(a) All reports, estimates, declarations of estimated tax,
information statements and returns relating to, or required to be filed in
connection with, any Taxes (defined below), including information returns or
reports with respect to backup withholding and other payments to third parties,
(collectively, "Tax Returns") of each Group Member required by law have been
prepared and properly filed or valid extensions obtained, and such Tax Returns
are true, correct and complete in all material respects. All Taxes imposed upon
each Group Member or any of its properties, assets or income which are due and
payable to any federal, territorial, state, local or foreign government or any
agency or political subdivision of any such government ("Taxing Authority") have
been paid. The term "Taxes" shall mean all taxes, however, denominated,
including any interest, penalties or other additions to tax that may become
payable in respect thereof, imposed by any Taxing Authority including, without
limiting the generality of the foregoing, all income or profits taxes
(including, but not limited to, federal, state and local income taxes), real
property taxes, payroll and employee withholding taxes, unemployment insurance
taxes, social security taxes, sales and use taxes, ad valorem taxes, excise
taxes, franchise taxes, gross receipts taxes, business license taxes, occupation
taxes, real and personal property taxes, stamp taxes, environmental taxes,
transfer taxes, workers' compensation, Pension Benefit Guaranty Corporation
premiums and other governmental charges, and other obligations of the same or of
a similar nature to any of the foregoing, which (i) a Group Member and (ii) any
individual, trust, corporation, partnership or any other entity as to which a
Group Member is liable for Taxes incurred by such individual or entity either as
a transferee, or pursuant to Treasury Regulations Section 1.1502-6, or pursuant
to any other provision of federal, territorial, state, local or foreign law or
regulations is required to pay, withhold or collect. Each Group Member utilizes
the accrual method of accounting for tax purposes.
<PAGE>
9
(b) Except as described in Schedule 2.07, no Group Member has been a
-------------
member of any affiliated group within the meaning of Section 1504(a) of the
Code, or any similar affiliated, consolidated, combined or unitary group for tax
purposes under state, local or foreign law (other than a group the common parent
of which is FPM), or has any liability for the Taxes of any person (other than
other Group Members) under Treasury Regulations Section 1.1502-6 or any similar
provision of state, local or foreign law as a transferee or successor, by
contract or otherwise.
(c) With respect to any Taxes of any Group Member not yet due and
payable, adequate reserves and accruals in accordance with GAAP for such Taxes
have been made in the Financial Statements or in the books and records of the
applicable Group Member.
(i) The amount of the Group Members' aggregate liability for unpaid
income Taxes for all periods ending on or before February 28, 1998 does
not, in the aggregate, exceed the amount of the liability accruals for
income Taxes (excluding reserves for deferred income Taxes) reflected on
the FPM Balance Sheet solely with respect to FPM and Subsidiaries, and the
amount of the Group Members' aggregate liability for unpaid income Taxes
for all periods ending on or before the Closing Date will not, in the
aggregate, exceed the amount of the liability accruals for income Taxes
(excluding reserves for deferred income Taxes) reflected on the Closing
Balance Sheet.
(ii) The amount of the Group Members' aggregate liability for unpaid
Taxes, other than income Taxes, for all periods ending on or before
February 28, 1998 does not, in the aggregate, exceed the amount of the
liability accruals for such Taxes (excluding reserves for deferred Taxes,
other than income Taxes) reflected on the FPM Balance Sheet solely with
respect to FPM and Subsidiaries, and the amount of the Group Members'
aggregate liability for unpaid Taxes, other than income Taxes, for all
periods ending on or before the Closing Date shall not, in the aggregate,
exceed the amount of the liability accruals for such Taxes (excluding
reserves for deferred Taxes, other than income Taxes) reflected on the
Closing Balance Sheet.
(d) Purchaser or its counsel has been furnished by Seller or FPM true
and complete copies of (i) relevant portions of income tax audit reports,
statements of deficiencies, closing or other agreements received by the Group or
on behalf of the Group relating to Taxes, and (ii) all federal, state and local
income or franchise tax returns that include one or more Group Members for all
periods ending on and after June 30, 1993.
<PAGE>
10
(e) No federal, state, local or foreign audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of any Group Member. Neither the Seller, nor
RHCI, nor any Group Member has received written notice from any taxing authority
of any deficiency, claim or other dispute relating to the payment or assessment
of any Taxes for any period which remains unsettled at the date hereof, and the
Seller has no reasonable basis to believe that any such deficiency exists in
excess of the reserves and accruals set forth in the Financial Statements or in
the books and records of the applicable Group Member.
(f) None of the federal income Tax Returns of any Group Member has
been examined by the Internal Revenue Service for any period. Neither the
Seller, RHCI nor any Group Member has executed with respect to any Group Member
any waiver of any statute of limitations on the assessment or collection of
Taxes or executed with respect to any Group Member any agreement now in effect
extending the period of time to assess or collect any Taxes.
(g) There are no Liens for Taxes (other than Permitted Liens) upon,
pending against or, to the knowledge of the Seller, threatened against any
assets of the Group which in the aggregate would have a Material Adverse Effect.
(h) Neither the Seller, RHCI nor any Group Member is a party to any
pending or, to the knowledge of the Seller, threatened action or proceeding, by
any Taxing Authority, foreign or domestic, relating to the business and
operations of any Group Member.
(i) Except for the Tax Sharing Agreement, no Group Member is a party
to any tax sharing agreement or any tax indemnity (including without limitation
a tax indemnification provision of any acquisition or disposition agreement) or
other agreement or arrangement with respect to Taxes.
(j) No Group Member has, with regard to any assets or property held,
acquired or to be acquired by any of them, filed a consent to the application of
Section 341(f) of the Code, or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as such term is defined in
Section 341(f)(4) of the Code) owned by FPM or any of its Subsidiaries.
(k) Each Group Member has paid or is withholding and has or will pay
when due to the proper Taxing Authorities all withholding amounts and taxes
required to be withheld or paid for all income, unemployment, social security,
Medicare or other similar Taxes, programs or benefits with respect to wages,
salary and other compensation of directors, officers and employees of the Group
Member.
<PAGE>
11
(l) No Group Member has entered into any compensatory agreements with
respect to the performance of services which payment thereunder would result in
a nondeductible expense to such Group Member pursuant to Section 28OG of the
Code or an excise tax to the recipient of such payment pursuant to Section 4999
of the Code. No Group Member has participated in an international boycott as
defined in Code Section 999.
(m) No Group Member is a party to any safe harbor lease within the
meaning of Section 168(f)(8) of the Code, as in effect prior to amendment by the
Tax Equity and Fiscal Responsibility Act of 1982. Seller is not a "foreign
person" (as that term is defined in Section 1445 of the Code).
(n) No Group Member has made any change in accounting methods,
received a ruling from any Taxing Authority or signed an agreement with any
Taxing Authority which is reasonably likely to have a Material Adverse Effect;
(o) Each Group Member has filed all reports and has created and/or
retained all records required under Section 6038A of the Code with respect to
its ownership by and transactions with related parties. Each related foreign
person required to maintain records under Section 6038A with respect to
transactions between each Group Member and the related foreign person has
maintained such records. All documents that are required to be created and/or
preserved by the related foreign person with respect to transactions with each
Group Member are either maintained in the United States, or each Group Member is
exempt from the record maintenance requirements of Section 6038A with respect to
such transactions under Treasury Regulations Section 1.6038A-1. No Group Member
is a party to any record maintenance agreement with the Internal Revenue Service
with respect to Section 6038A of the Code. Each related foreign person that has
engaged in transactions with a Group Member has authorized such Group Member to
act as its limited agent solely for purposes of Sections 7602, 7603, and 7604 of
the Code with respect to any request by the Internal Revenue Service to examine
records or produce testimony related to any transaction with a Group Member, and
each such authorization remains in full force and effect.
(p) Seller represents that Seller, FPM and the Subsidiaries were
included in the consolidated federal income Tax Return filed by RHCI for the
taxable year ended June 30, 1997 and that as of the Effective Date and as of the
Closing Date, RHCI (i) is the common parent of the consolidated group for
federal income tax purposes that includes the Seller, FPM and the Subsidiaries
and (ii) is eligible to make an election under Section 338(h)(10) of the Code
with respect to a qualified stock purchase of the Shares of FPM by the Purchaser
as described in Section 338(d)(3) of the Code.
<PAGE>
12
2.8 Real Property Owned or Leased. A list of all real property leased by
-----------------------------
each Group Member (the "Real Property Leases") is set forth in Schedule 2.08
-------------
hereto. Except as set forth in Schedule 2.08 hereto, all such leased real
-------------
property is held subject to written leases under which the applicable Group
Member has not received a written notice of any existing defaults or events of
default or events which with notice or lapse of time or both would constitute
defaults on the part of the applicable Group Member. Accurate and complete
copies of the Real Property Leases, as amended to the Effective Date, have been
delivered to the Purchaser or its counsel. Neither the Seller nor any Group
Member is aware or has received any written notice, that the land, buildings,
facilities or other structures and improvements subject to the real property
leases are not in compliance with any applicable zoning, environmental or health
laws and regulations or any other similar law, statute, regulation or ordinance.
Each respective Group Member is in all material respects in undisturbed
possession of the property subject to the Real Property Leases to which it is a
party. Neither the Seller, nor any Group Member has received any written notice
of violation (or claimed violation) of any covenant or other restriction (if
any) to which any of the real property leased to a Group Member pursuant to the
Real Property Leases is not being properly performed and observed in all
material respects by the Group Member, which notice has not been resolved.
Seller has delivered or made available to the Purchaser true, correct and
complete copies of all material reports, surveys or audits of any engineers,
insurance companies, environmental consultants or other consultants in the
possession of a Group Member relating to any of the premises subject to the Real
Property Leases. To the knowledge of the Seller, there is no pending proceeding
or governmental action, and no Group Member has received written notice of any
threatened proceeding or governmental action, to condemn or take by the power of
eminent domain (or to purchase in lieu thereof) all or any part of the property
subject to the Real Property Leases which is material to the operations of the
Group as presently conducted. No Group Member owns any real property.
2.9 Title to Assets. Except as set forth in Schedule 2.09 hereto, each
--------------- -------------
Group Member has good and valid title to all of the properties and assets owned
by it, including, without limitation, the assets reflected on the FPM Balance
Sheet free and clear of all Liens except for Permitted Liens. Each Group Member
leases, owns or has the right to use all properties and assets used in the
operation of its business as currently conducted. To the knowledge of the
Seller, except for the clinics which have been closed, the assets now owned by
the Group Members constitute all the assets reasonably necessary to enable
Purchaser after the Closing to permit the business of the Group Members to be
conducted on substantially the same basis as such business has been conducted in
the twelve month period immediately preceding the Effective Date and is being
conducted on the Effective Date. Except as set forth in Schedule 2.09, all the
-------------
assets of the Group are located on the premises of the Group.
<PAGE>
13
2.10 Contracts.
---------
(a) Material Contracts. Schedule 2.10 lists all material contracts
------------------ -------------
or agreements of the following types to which a Group Member is a party or by
which a Group Member is bound (collectively, the "Contracts"):
(i) any contract pursuant to which a Group Member owns, manages,
develops or operates employee assistance program services, comprehensive
managed care services, utilization review or any similar or related program
or service for any other person or entity or pursuant to which a Group
Member arranges for or provides behavioral health care services excluding,
however, any contract with a health care provider that provides health care
services to members of a program operated by a Group Member (the "FPM
Customer Contracts");
(ii) any contract or agreement with a physician, psychiatrist,
psychologist or other health care provider or any partnership or
professional association or corporation owned by physicians, psychiatrists,
psychologists or other health care providers (the "FPM Provider Contracts")
which is not terminable upon sixty (60) days or less notice and which
provides for obligatory payments by a Group Member to a provider which are
not in consideration of health care services actually rendered;
(iii) any contract or agreement (excluding the FPM Customer Contracts
and the FPM Provider Contracts) which is not terminable upon thirty (30)
days or less notice and which obligates a Group Member to the payment of
more than $20,000 including, without limitation, loan agreements;
(iv) any contract or agreement for the maintenance, purchase or sale
of equipment or capital assets having a contractual liability in excess of
$20,000;
(v) any power of attorney (other than routine powers given to
governmental officials authorizing service of process);
(vi) any guaranty, suretyship agreement or other agreement relating
to any contingent liability or indebtedness of a third party;
(vii) any contract with an independent agent or broker acting on
behalf of a Group Member;
(viii) any contract or agreement with an independent consultant which
obligates a Group Member to the payment of more than $20,000;
<PAGE>
14
(ix) any contract or agreement materially restricting the method by
which a Group Member conducts its business or the marketing of any of its
products or services; and
(x) any contract or agreement between a Group Member and any other
Affiliates of the Seller.
(b) Copies/Status of Material Contracts. True, complete and correct
-----------------------------------
copies of all contracts listed in Schedule 2.10 as amended and in effect on the
-------------
Effective Date have been delivered to the Purchaser or its counsel. Except to
the extent disclosed on Schedule 2.10 (i) all of the contracts listed on
-------------
Schedule 2.10 are in full force and effect, (ii) no Group Member has received
- -------------
any notice of cancellation with respect to any such contract or been advised
that the other party thereto intends to cancel any such agreement, (iii) there
are no outstanding disputes relating to the fees or the services of a Group
Member under any of such contracts, (iv) each such contract is with an unrelated
third party entered into on an arms-length basis in the ordinary course of
business, (v) there are no defaults under any of such contracts which
individually or in the aggregate would have a Material Adverse Effect, and (vi)
there are no verbal amendments, modifications or other understandings relating
to such contracts which are legally binding on the parties thereto.
(c) FPM Customer Contracts. With respect to the FPM Customer
----------------------
Contracts, each FPM Customer Contract expressly sets forth on its face or
Schedule 2.10 sets forth: (i) the termination date of such contract; (ii) any
- ------------------------
rights to cancel prior to the termination date of such contract; (iii) the
current rates payable to the Group Member under such contract; and (iv) any
covenants restricting competition contained in such contract. Except as set
forth in Schedule 2.10 and except for changes in membership or number of
-------------
employees or other persons covered, to the knowledge of the Seller, there is no
fact or occurrence in existence that has or will result, either singularly or in
the aggregate, in a material reduction in the revenue to a Group Member under an
FPM Customer Contract even though such fact or occurrence may not result in, or
constitute the termination of or a default under, the FPM Customer Contract.
(d) Providers. Schedule 2.10 also lists by state the number of
--------- -------------
behavioral health care providers and institutions that have contracted with the
Group Members to provide services to employees or members of customers of the
Group Members.
(e) Non-Competition. To the knowledge of the Seller, the business
---------------
operation of the Group on the Effective Date have not violated and will not
violate any non-competition or similar provision of any of the contracts listed
in Schedule 2.10.
-------------
<PAGE>
15
2.11 Employees. Schedule 2.11 hereto lists all employees of the Group as
--------- -------------
of the Effective Date, their job titles, annual rates of compensation, accrued
vacation, holiday and sick leave as of the most recent regular payroll date of
the Group immediately preceding the Effective Date, other written fringe
benefits, if any, a description of any severance arrangements, if any, and the
amounts payable with respect to such accrued vacation, holiday and sick leave as
of the most recent payroll date of the Group immediately preceding the Effective
Date and the rate at which such vacation, holiday and sick leave will accrue
after the Effective Date and prior to the Closing Date. Except as shown on
Schedule 2.11, no Group Member is bound by any written contract of employment
- -------------
with any of its employees, or by any written consulting or similar agreements,
and all oral employment or oral consulting contracts are terminable at will,
subject to applicable law. No Group Member has any written or oral policy of
granting or providing compensatory time and has no obligation to provide
compensatory time to any employee. Except as set forth in Schedule 2.11, no
-------------
Group Member is a party to any employment or other agreement, whether written
or oral, pursuant to which the Group Member has agreed to make a loan to, or
guarantee any loan of, any employee or relating to any compensation, bonus,
commission, deferred compensation, incentive, stock option, stock purchase,
severance pay or similar plan, agreement, arrangement or understanding. Except
as listed on Schedule 2.11 or Schedule 2.12 hereof, no Group Member has any
------------- -------------
Welfare Plan (as defined in Section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), no Pension Plan (as defined in
Section 3(2) of ERISA), or any other type of pension, profit sharing, deferred
compensation, retirement, stock option, bonus, severance, medical, dental, life
insurance, accident, or other employee benefit or compensation plan, agreement
or arrangement with respect to employees. Each Group Member has complied in all
material respects with the requirements of Sections 601 through 608 of ERISA and
Section 4980B of the Code with respect to itself and its employees. No Group
Member is bound, or following the Closing will be bound, by any express or
implied contract or agreement to employ, directly or as a consultant or
otherwise, any person for any specific period of time or until any specific age
except as specified in the written agreements identified in Schedule 2.10 or
----------------
2.11 or except as may be required by law. True, complete and correct copies of
- ----
all contracts listed in Schedule 2.11 as amended and in effect on the Effective
-------------
Date have been delivered to the Purchaser or its counsel.
2.12 Employee Benefit Plans. Except as disclosed in Schedule 2.12:
---------------------- -------------
(a) No Group Member maintains or contributes to, or has in the past
five (5) years maintained or contributed to, any Pension Plan or Welfare Plan,
nor has a Group Member presently, or has it ever had any obligation to
contribute to or pay withdrawal liability with respect to any Multiemployer
Plan (as defined in ERISA Section 3(37) or Section 414(f) of the Code).
<PAGE>
16
(b) With respect to each Pension Plan and each Welfare Plan listed on
Schedule 2.12, to the knowledge of the Seller: (i) there is no fact,
- -------------
including, without limitation, any reportable event, that exists that would
constitute grounds for termination of a Pension Plan, which is a defined benefit
plan within the meaning of Section 3(35) of ERISA by The Pension Benefit
Guaranty Corporation ("PBGC") or for the appointment by the appropriate United
States District Court of a trustee to administer such plan, in each case as
contemplated by ERISA; (ii) neither Seller nor any Group Member nor any
fiduciary, trustee, or administrator of any such Pension Plan or Welfare Plan,
has engaged in a prohibited transaction that would subject a Group Member to any
material tax or any material penalty imposed by ERISA or the Code; and (iii) no
Group Member has incurred any material liability to the PBGC (other than for
payment of premiums) which remains unpaid; (iv) there is no accumulated funding
deficiency with respect to any Pension Plan, whether or not waived, other than
routine, non-contested claims for benefits. There is not pending or, to the
knowledge of the Seller, threatened any claim by or on behalf of or against any
Pension Plan or Welfare Plan, by any employee or former employee covered or
previously covered under any Pension Plan or Welfare Plan, or otherwise
involving any Pension Plan or Welfare Plan.
(c) Except as expressly disclosed on Schedule 2.12, there has been no
-------------
termination of any Pension Plan by a Group Member during the five-year period
prior to the Effective Date.
(d) No material liability has been incurred under Title IV of ERISA by
a Group Member with respect to any Pension Plan covered by Title IV of ERISA
maintained by a trade or business (whether or not incorporated) which is under
common control with, or part of a controlled group of corporations with, the
Group Member within the meaning of Sections 414(b) or (c) of the Code which
remains unpaid.
(e) No Welfare Plan listed on Schedule 2.12 is funded with a trust or
-------------
other funding vehicle, other than insurance policies.
(f) Each Welfare Plan, Pension Plan, and any other type of pension,
profit sharing, deferred compensation, retirement, stock option, bonus,
severance, medical, dental, life insurance, accident, or other employee benefit
or compensation plan, agreement or arrangement with respect to employees
maintained by or contributed to by a Group Member is maintained, administered,
and operated in all material respects in accordance with all applicable laws,
including but not limited to, ERISA and the Code. All governmental reports and
returns (including, but not limited to, annual IRS/DOL 5500-series information
returns/reports) required to be filed in connection with each Welfare Plan and
Pension Plan have been timely filed, and were true and complete in all material
respects when filed.
<PAGE>
17
(g) Each Pension Plan listed on Schedule 2.12 which is intended to be
-------------
qualified under Section 401(a) of the Code, has by virtue of the Seller's
adoption thereof has become effective for FPM and for each other Group Member
whose employees have participated in it, has received a favorable determination
letter from the Service as to the qualification under the Code of each such
Pension Plan as amended to comply with the Tax Reform Act of 1986 and all
applicable subsequent legislation including the Omnibus Budget Reconciliation
Act of 1993, and, to the knowledge of the Seller, no event (including any
material failure to administer the plan in accordance with its terms) or
amendment has occurred since the date of such favorable determination letter
that would adversely affect such qualification. Except as set forth in Schedule
--------
2.12, no Pension Plan is or has been at any time subject to ERISA Section 302 or
- ----
Code Section 412.
(h) Except as expressly disclosed on Schedule 2.12, no bonus,
-------------
severance pay, or any other employee benefit under any Welfare Plan, Pension
Plan, or any other type of pension, profit sharing, deferred compensation,
retirement, stock option, bonus, severance, or other employee benefit or
compensation plan, agreement or arrangement with respect to employees maintained
by or contributed to by a Group Member is payable or exercisable because of the
transaction contemplated by this Agreement, and the payment, exercise, or
vesting of any such bonus, severance pay, or employee benefit will not be
accelerated by such transaction.
(i) The Seller has delivered to the Purchaser true, correct, and
complete copies of all of the following items with respect to any and all
Welfare Plans or Pension Plans: (i) the current plan document, including any and
all current amendments thereto; (ii) the current trust agreement, and all
current amendments thereto, and all other current agreements between the Group
Member and the trustee or any other plan fiduciary; (iii) the current summary
plan description and all current summaries of material modifications; (iv)
written summaries of any and all material unwritten agreements, policies, or
understandings between any Group Member and any employee or group of employees
(including an indeterminate group of employees, and all employees generally)
concerning any Group Member Plan, whether or not the Group Member considers such
written agreements, policies, or understandings to be binding on it; (v) all
individual or group insurance or annuity contracts, including any "stop loss,"
"excess loss," or similar insurance contract currently in force; (vi) all
agreements with health maintenance organizations ("HMO's"), preferred provider
organizations ("PPO's"), or other providers of healthcare services currently in
force; (vii) all agreements with all persons for the provision of
administrative, record keeping, claims handling or review, consulting, and/or
investment management services currently in force; the last filed IRS/DOL 5500-
series form.
(j) All required contributions to all Welfare Plans or Pension Plans
and all premiums, fees, or other payments required to be made in connection with
any
<PAGE>
18
Plan have either been timely made or, if due or accrued, are reflected on an
accrual basis in the FPM Balance Sheet, whether or not the FPM Balance Sheet is
performed generally on an accrual basis. Prorated portions of any and all
contributions or premiums, fees, or other payments that are not yet required to
be made to or in connection with any Plan, but that, in the normal course, will
be required to be made at any time during the next twelve months, have been
included in the Financial Statements as if accrued.
(k) No Welfare Plan provides benefits to any employee after
termination of employment, or to a director or consultant or independent
contractor after he or she ceases to be a director or to perform services for
the Company, except on a basis that will at all times require that the former
employee, director, or independent contractor pay and bear all direct costs of
his or her benefits or coverage.
(l) To the knowledge of the Seller, no Plan is currently under audit
by the Service or the U.S. Department of Labor ("DOL"), nor to the best of
Seller's knowledge is any Plan likely to become the subject of an IRS or DOL
audit within the next twelve months.
(m) No Plan holds any "employer securities" within the meaning of
ERISA (S) 407(d)(1) or any "employer real property" within the meaning of ERISA
(S) 407(d)(2). No Pension Plan has any investment that:
(i) Except in the case of any contract issued by an insurance
company, is not publicly traded;
(ii) In the case of any contract issued by an insurance company, is
not issued by a carrier rated AAA by Standard & Poor's Corporation or the
equivalent by another nationally recognized agency.
(n) No Group Member receives significant services from leased
employees within the meaning of Section 414(n)(2) of the Code or from
independent contractors who work, on average, more than ten hours per week for a
Group Member, or who as of the date of this Agreement have worked for a Group
Member for more than six months, except for health care providers that
contracted with a Group Member to provide services to employees of a Group
Member's customers.
(o) Except as disclosed in writing to the Purchaser prior to the
Closing, the sale of the Shares contemplated by this Agreement will not cause or
permit any insurer, health maintenance organization, preferred provider
organization, or any other provider of insurance or services under or in
connection with any Welfare Plan to terminate or reduce its provision of
insurance or services, or increase
<PAGE>
19
its charges, in any way, under any contract to provide insurance or services to
FPM or any employee or former employee of FPM, or to any spouse or dependent of
any employee or former employee of FPM.
2.13 Labor Relations. Except as set forth on Schedule 2.13 hereto, no
--------------- -------------
Group Member is subject to any labor strikes, stoppages or lockouts and none of
them is a party to any collective bargaining or other labor union contract or
agreement with any labor organization or other representative of their
employees. There is no unfair labor practice complaint against the Seller or
any Group Member pending before the National Labor Relations Board. There is no
pending or, to the knowledge of the Seller, threatened labor, strike or work
stoppage adversely affecting the business of a Group Member, nor has there been
any of the same or any labor union organizing activity relating to the employees
of a Group Member within the last three (3) years.
2.14 Insurance. Set forth on Schedule 2.14 hereto is a list as of the
--------- -------------
Effective Date of all insurance policies and coverages (other than health and
life insurance covered by Section 2.12 hereof) maintained by or for each Group
Member including, but not limited to, real and personal property insurance,
comprehensive liability insurance, automobile liability insurance, workers'
compensation insurance, professional liability insurance, medical malpractice
insurance, excess insurance and umbrella insurance.
2.15 Litigation. Except as set forth in Schedule 2.15, no material
---------- -------------
investigation or proceeding of which the Seller is aware by any governmental
entity with respect to a Group Member is pending or, to the knowledge of the
Seller, threatened, nor has any governmental entity notified the Seller or a
Group Member in writing of an intention to conduct the same; and there is no
material action, suit, or administrative, arbitration or other proceeding
(including proceedings concerning labor disputes or grievances or union
recognition) pending or, to the knowledge of the Seller, threatened against a
Group Member to which a Group Member is a party, at law or in equity, before any
federal, state, or municipal court or other governmental department, commission,
board, bureau, agency, or instrumentality. Except as set forth in Schedule
--------
2.15, no Group Member is a party to any agreement, injunction, order or decree
- ----
restricting the geographic area under which a Group Member may conduct business
operations or the marketing of any of its products or services or the product or
services it may sell.
2.16 Permits; Compliance with Applicable Law.
---------------------------------------
(a) General. Except as set forth in Schedule 2.16 hereto, each Group
------- -------------
Member is in compliance with Applicable Law relating to such Group Member and
its respective assets and properties and business operations, except where the
failure to be in compliance would not have a Material Adverse Effect.
<PAGE>
20
(b) Permits. Except as set forth in Schedule 2.16 hereto, the
------- -------------
permits, licenses, certificates of authority, approvals, franchises and
authorizations (collectively, but excluding Environmental Permits, the
"Permits") possessed by the Group Members are all the Permits required for the
ownership, operation and use by the Group Members of their properties and assets
and for the conduct of the business in which the Group Members are presently
engaged, except for such Permits which the failure to have would not have a
Material Adverse Effect. Schedule 2.16 lists all material Permits held by the
-------------
Group Members on the Effective Date. All the Permits are in full force and
effect. Except as set forth in Schedule 2.16, there are no pending or, to the
-------------
knowledge of the Seller, threatened legal, administrative, arbitration, or other
proceedings of any kind or any pending or to the knowledge of the Seller,
threatened governmental investigations by any federal, state or local
government, which assert or allege any material violation of or non-compliance
with any governmental requirements or which would have the effect of materially
limiting, prohibiting or materially and adversely changing the business
operations of any Group Member as conducted on the Effective Date. Except as
set forth in Schedule 2.16, no Group Member is subject to or has received any
-------------
request for information, notice, demand letter, administrative inquiry or formal
or informal complaint or claim from any governmental authority.
(c) Environmental. Except as set forth in Schedule 2.16 hereto:
------------- -------------
(i) Each Group Member is in compliance with the provisions of all
federal, state and local environmental laws, codes and ordinances and all
rules and regulations promulgated thereunder (the "Environmental Laws"),
including with respect to the real property leased by Group Members listed
on Schedule 2.08 hereto and the improvements thereon (all such leased real
-------------
property and improvements thereon hereinafter referred to collectively as
the "Premises"), except where the failure to be in compliance would not
have a Material Adverse Effect.
(ii) Each Group Member has obtained all required federal, state and
local permits, licenses, certificates and approvals (the "Environmental
Permits") relating to (A) air emissions, (B) discharges to surface water or
ground water, (C) noise emissions, (D) solid or liquid waste disposal, and
(E) the use, generation, storage, transportation or disposal of toxic or
hazardous substances or wastes (intended hereby and hereafter to include
any and all such materials listed in any Environmental Law, as hazardous or
potentially hazardous (including, without limitation, (1) any chemical,
compound, material or substance that is defined, listed in, or otherwise
classified pursuant to, any of the Environmental Laws as a "hazardous
substance", "hazardous material", "hazardous waste", "toxic substance" or
"toxic pollutant" and (2) petroleum, natural gas, natural gas liquids,
liquefied natural gas, and synthetic gas)
<PAGE>
21
(collectively, "Hazardous Substances")), except where the failure to have
obtained or maintained any such Environmental Permit would not have a
Material Adverse Effect.
(iii) No Group Member has received any written notice of violations of
any Environmental Law which have not been cured, relating to the use,
ownership or occupancy of any of the Premises, except for any violations
referred to in any such notice which would not have a Material Adverse
Effect.
(iv) No Group Member has engaged in the generation, storage,
treatment, recycling, transportation or disposal of any Hazardous
Substance, except in compliance with applicable Environmental Laws
(including, without limitation, any generation, storage, treatment,
recycling, transportation or disposal of any Hazardous Substance at or in
respect of any real property previously owned or leased by any Group Member
and the real property leased by the Group Members listed on Schedule 2.08),
-------------
except where the failure to be in compliance would not have a Material
Adverse Effect.
(v) None of the Premises, nor, to the Seller's knowledge, any real
property to which any Group Member has, directly or indirectly, transported
or arranged for the transportation of any Hazardous Substances, is listed
on the National Priorities List promulgated pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), on CERCLIS (as defined in CERCLA) or on any similar federal,
state or foreign list of sites requiring investigation or clean-up.
2.17 Bank Accounts. Set forth in Schedule 2.17 hereto is a list as of the
------------- -------------
date hereof of all bank and securities accounts maintained by or on behalf of
any Group Member, and a list of persons authorized to sign on behalf of each
Group Member with respect to each such account.
2.18 Trademarks, Patents and Copyrights. Schedule 2.18 hereto sets forth a
---------------------------------- -------------
list as of the date hereof of all registrations of patents and pending
applications therefor, all registrations of trademarks, trade names and services
marks and all pending applications therefor, all registrations of copyrights and
all pending applications therefor and all licenses or other agreements with
respect to each of the foregoing (collectively, "Intellectual Property"), all to
the extent that the foregoing items are used in the business of the Group
Members and are owned in whole or in part by any Group Member or, in the case of
such licenses or other agreements, to the extent any Group Member has rights
thereunder. To the Seller's knowledge, all of the patents, trademarks, trade
names, service marks, copyrights and licenses or other agreements listed in the
Schedule 2.18 hereto are valid and in full force and
- -------------
<PAGE>
22
effect, except as otherwise noted on Schedule 2.18 hereto. To the Seller's
-------------
knowledge, no Group Member is infringing upon, or otherwise violating, the
rights of any third party with respect to any Intellectual Property.
2.19 Transactions with Certain Persons. Except with respect to insurance
---------------------------------
arrangements referred to in Schedule 2.14 hereto and except as set forth on
-------------
Schedule 2.19 hereto, no stockholder, executive officer, director or other
- -------------
Affiliate of any Group Member, no stockholder, executive officer, director or
other Affiliate of the Seller or RHCI, no member of the immediate family of a
stockholder, executive officer, director or other Affiliate of a Group Member,
Seller or RHCI, and no entity controlled by any such person is presently a party
to any agreement, contract or other transaction with any Group Member which will
survive the Closing. Except as set forth in Schedule 2.19, to the knowledge of
-------------
the Seller no stockholder, executive officer, director or other Affiliate of a
Group Member, Seller or RHCI owns, directly or indirectly, on an individual or
joint basis any material interest in, or serves as an officer or director of, or
in any representative or agent capacity for, any competitor, customer, provider
or supplier of a Group Member or any organization which has a material contract
or arrangement with a Group Member, provided that the investment of not more
than five percent (5%) in the stock or equity of a publicly traded corporation
shall not be considered a material interest for the purposes of this Section
2.19.
2.20 Customers. Set forth in Schedule 2.20 hereto is a list of the Group's
--------- -------------
top ten customers (measured by net revenues) for the 12-month period ended
December 31, 1997.
2.21 Authority. The Seller has the corporate power and authority to
---------
execute and deliver this Agreement and to perform the Seller's covenants and
agreements hereunder. The execution and delivery of this Agreement by the
Seller, the performance by the Seller of its covenants and agreements hereunder
and the consummation by the Seller of the transactions contemplated hereby have
been duly authorized by all necessary corporate action. This Agreement has been
duly and validly executed and delivered by the Seller and constitutes a valid
and legally binding obligation of the Seller, enforceable against the Seller in
accordance with its terms.
2.22 Ownership of Shares. Except as disclosed on Schedule 2.22, the Seller
------------------- -------------
is the unconditional sole legal, beneficial, record and equitable owner of the
Shares, free and clear of any and all Liens and claims, options, voting
agreements or trusts, proxies, preemptive rights, rights of first refusal or
other restrictions or interests of any kind or nature whatsoever except
restrictions on transfer under applicable securities laws (collectively,
"Claims"). As of the Closing Date, the Seller will own all of the Shares, free
and clear of any and all Liens and Claims except restrictions on transfer under
applicable securities laws and the Seller will have the unrestricted right
<PAGE>
23
and power to sell and transfer the Shares to the Purchaser except restrictions
on transfer under applicable securities laws. Upon transfer of the Shares by
the Seller to the Purchaser at the Closing in accordance with the terms hereof,
the Purchaser will acquire good and valid title to such Shares, free and clear
of any Lien and Claim, except for the Liens created by the Purchaser or its
Affiliates in connection with the acquisition by the Purchaser of the Shares and
except restrictions on transfer under applicable securities laws. As of the
Closing Date, the Seller will not own any shares of capital stock of FPM other
than the Shares and will not have any option or other right to acquire from any
person or any obligation or commitment to sell or otherwise transfer to any
person any shares of capital stock of FPM owned by the Seller. As of the
Closing Date, FPM or another Group Member will own all the shares, membership
interests or partnership interests of the Group Members, other than FPM, free
and clear of any and all Liens and Claims.
2.23 Accounts Payable IBNR.
---------------------
(a) The accounts payable and accrued expenses reflected on the FPM
Balance Sheet and in Schedule 2.04 reflect in all material respects all amounts
-------------
owed by the Group Members in respect of all accounts and other payables required
by GAAP to be identified on the FPM Balance Sheet and those reflected on the
books of the Group on the Closing Date will reflect all such amounts in all
material respects. No account payable or accrued expense of a Group Member is
past due or otherwise in default which would have a Material Adverse Effect.
(b) The reserves accrued and reflected on the FPM Balance Sheet for
expenses incurred but not yet reported for services provided by behavioral
health care providers to employees or members of customers of the Group Members
reflect in all material respects reserves in respect thereof as required by GAAP
to be identified in the FPM Balance Sheet.
2.24 Consents. Except as may be required under The Hart-Scott-Rodino
--------
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and except as
set forth on Schedule 2.24 hereto, no consents, approvals or authorizations of,
-------------
or filings with, any Governmental Authority or any other person or entity are
required in connection with the execution and delivery of this Agreement by the
Seller and the performance of the transactions contemplated hereby to be
performed by the Seller.
2.25 Foreign Person. The Seller is not a foreign person within the meaning
--------------
of Section 1445(f)(3) of the Code.
2.26 Improper Payments. To the knowledge of Seller, neither a Group
-----------------
Member, the Seller nor any shareholder, director, officer, employee or agent of
a Group Member or the Seller has made any illegal bribes, kickbacks or other
illegal
<PAGE>
24
payments to, or received any such illegal payments from, customers, vendors,
suppliers or other persons contracting with a Group Member and has not proposed
or offered to make or receive any such illegal payments.
2.27 Status as Eligible Common Parent. As of the Effective Date and as of
--------------------------------
the Closing, RHCI (i) is the common parent of the consolidated group for federal
income tax purposes that includes the Seller, FPM and the Subsidiaries, and (ii)
is eligible to make an election under Section 338(h)(10) of the Code with
respect to FPM and the Subsidiaries on the basis of a qualified stock purchase
of the Shares by the Purchaser as described in Section 338(d)(3) of the Code.
B. Representations and Warranties of RHCI. In connection with the
--------------------------------------
purchase and sale of the shares hereunder, RHCI hereby represents and warrants
to the Purchaser as of the Effective Date that:
2.28 Organization. RHCI is duly organized, validly existing and in good
------------
standing under the laws of the jurisdiction of its incorporation.
2.29 Authority. RHCI has the requisite corporate power and authority to
---------
execute and deliver this Agreement and to perform RHCI's covenants and
agreements hereunder. The execution and delivery of this Agreement by RHCI, the
performance by RHCI of its covenants and agreements hereunder and the
consummation by RHCI of the transactions contemplated hereby have been duly
authorized by all necessary corporate action. This Agreement constitutes a
valid and legally binding obligation of RHCI, enforceable against RHCI in
accordance with its terms.
2.30 Conflicts. Except as set forth on Schedule 2.29, neither the
--------- -------------
execution and delivery of this Agreement by RHCI, nor the consummation of the
transactions contemplated hereby to be consummated by RHCI, (a) violates any
provision of the certificate of incorporation or by-laws of RHCI or (b)
constitutes a violation of any Applicable Law. Except as set forth on Schedule
--------
2.29 hereto, neither the execution and delivery of this Agreement by RHCI nor
- ----
the consummation of the transactions contemplated hereby to be consummated by
RHCI violates, or conflicts with, or results in any breach of any of the terms
of, or results in the termination of or the creation of any material Lien
pursuant to, or with respect to, the terms of any material contract, commitment,
agreement, or lease of any kind to which RHCI is a party or by which RHCI or any
of its assets are bound.
2.31 Litigation; Disputes. There are no Actions pending or, to the
--------------------
knowledge of RHCI or its Affiliates, threatened, against or affecting RHCI which
challenge the validity of this Agreement, or which if adversely determined,
would adversely affect the ability of RHCI to consummate the transactions
contemplated by this Agreement or to perform its covenants and agreements under
this Agreement.
<PAGE>
25
2.32 Consents. Except as may be required under the HSR Act and except as
--------
set forth on Schedule 2.31, no consents, approvals or authorizations of, or
-------------
filings with, any Governmental Authority or any other person or entity are
required in connection with the execution and delivery of this Agreement by RHCI
and the performance of the transactions contemplated hereby to be performed by
it.
C. Agreement by the Purchaser Regarding No Other Representations or
----------------------------------------------------------------
Warranties by the Seller. The Purchaser agrees that except for the
- ------------------------
representations and warranties (including the Schedules with respect thereto)
made by the Seller and RHCI and expressly set forth in Sections II(A) and (B) of
this Agreement, neither the Seller, RHCI nor any Affiliate, agent or
representative of the Seller or RHCI has made or shall be construed as having
made to the Purchaser or to any representative or Affiliate of the Purchaser,
and neither the Purchaser nor any Affiliate, agent or representative of the
Purchaser has relied upon, any representation or warranty of any kind. Without
limiting the generality of the foregoing, and notwithstanding any otherwise
express representations and warranties made by the Seller or RHCI in Sections
II(A) and (B) hereof, the Purchaser agrees that neither the Seller, RHCI nor any
Affiliate, agent or representative of the Seller or RHCI makes or has made any
representation or warranty to the Purchaser or to any Affiliate or
representative of the Purchaser with respect to:
(i) any projections, estimates or budgets relating to the Group
Members otherwise heretofore or hereafter delivered to or made available
to the Purchaser or its counsel, accountants, advisors, lenders,
representatives or Affiliates of future revenues, expenses or expenditures,
future results of operations (or any component thereof), future cash flows
(or any component thereof) or future financial condition (or any component
thereof) of the Group or any Group Member or the future business,
operations or affairs of the Group or any Group Member; and
(ii) any other information, statement or documents heretofore or
hereafter delivered to or made available to the Purchaser or its counsel,
accountants, advisors, lenders, representatives or Affiliates with respect
to the Group or any Group Member or the business, operations or affairs of
the Group or any Group Member, except to the extent and as expressly
covered by a representation and warranty (including the Schedules with
respect thereto) contained in Sections II(A) and (B) hereof.
<PAGE>
26
SECTION III.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
-----------------------------------------------
A. Representations and Warranties of the Purchaser. In connection with
-----------------------------------------------
the purchase and sale of the Shares hereunder, the Purchaser hereby represents
and warrants to the Seller as of the Effective Date that:
3.1 Organization. The Purchaser is duly organized, validly existing and
------------
in good standing under the laws of the jurisdiction of its incorporation.
3.2 Authority. The Purchaser has the requisite corporate power and
---------
authority to execute and deliver this Agreement and to perform the Purchaser's
covenants and agreements hereunder. The execution and delivery of this
Agreement by the Purchaser. The performance by the Purchaser of its covenants
and agreements hereunder and the consummation by the Purchaser of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action. This Agreement constitutes a valid and legally binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with its terms.
3.3 Conflicts. Neither the execution and delivery of this Agreement by
---------
the Purchaser, nor the consummation of the transactions contemplated hereby to
be consummated by the Purchaser, (a) violates any provision of the certificate
of incorporation or by-laws of the Purchaser or (b) constitutes a violation of
any Applicable Law. Neither the execution and delivery of this Agreement by the
Purchaser nor the consummation of the transactions contemplated hereby to be
consummated by the Purchaser violates, or conflicts with, or results in any
breach of any of the terms of, or results in the termination of or the creation
of any material Lien pursuant to, or with respect to, the terms of any material
contract, commitment, agreement, or lease of any kind to which the Purchaser is
a party or by which the Purchaser or any of its assets are bound.
3.4 Litigation; Disputes. There are no Actions pending or, to the
--------------------
knowledge of Purchaser or its Affiliates, threatened, against or affecting the
Purchaser which challenge the validity of this Agreement, or which if adversely
determined, would adversely affect its ability to consummate the transactions
contemplated by this Agreement or to perform its covenants and agreements under
this Agreement.
3.5 Consents. Except as may be required under the HSR Act, no consents,
--------
approvals or authorizations of, or filings with, any Governmental Authority or
any other person or entity are required in connection with the execution and
delivery of this Agreement by the Purchaser and the performance of the
transactions contemplated hereby to be performed by it.
<PAGE>
27
3.6 Investment Purpose. The Purchaser is purchasing the Shares pursuant
------------------
to this Agreement for investment for its own account and not with a view to the
distribution of all or any part thereof as such term is used in Section 2(11) of
the Securities Act of 1933, as amended (the "Securities Act"). The Purchaser is
a sophisticated investor and capable of evaluating the merits and the risks of
acquiring the Shares. The Purchaser is an "accredited investor" as such term is
defined in Rule 501 under the Securities Act. The Purchaser acknowledges that:
the Shares are "restricted securities" (as defined under the rules and
regulations promulgated under the Securities Act); that the Shares have not been
issued or sold pursuant to any registration or similar filing, listing,
prospectus or document, or pursuant to any delivery requirements under the laws
of any Governmental Authority or the rules, regulations or guidelines of any
stock exchange or quotation system; and that it and its Affiliates and
representatives has each had access to all information which it considers
necessary or advisable to enable it to make a decision concerning the purchase
of the Shares.
3.7 Financing. The Purchaser has available all funds, or has written
---------
binding commitments from financial institutions or other sources (heretofore
delivered to, and satisfactory to, the Seller) to obtain all funds on or prior
to the Closing Date, necessary to pay the Purchase Price provided herein and
otherwise to consummate the transactions contemplated hereby in accordance with
the terms and conditions hereof.
B. Agreement by the Seller Regarding No Other Representations or Warrants
----------------------------------------------------------------------
by the Purchaser. The Seller agrees that except for the representations and
- ----------------
warranties (including the Schedules with respect thereto) made by the Purchaser
and expressly set forth in Section III(A) of this Agreement, neither the
Purchaser nor any Affiliate, agent or representative of the Purchaser has made
or shall be construed as having made to the Seller or to any representative or
affiliate of the Seller, neither the Seller nor any Affiliate, agent or
representative of the Seller has relied upon, any representation or warranty of
any kind.
SECTION IV.
THE CLOSING
-----------
4.1 Time and Place of the Closing. The closing of the purchase and sale
-----------------------------
of the Shares as set forth herein (herein referred to as the "Closing") shall be
held at the offices of Purchaser, 1500 Waters Ridge Drive, Lewisville, Texas
75057 at 10:00 a.m., local time, on the later of June 2, 1998 (effective 12:01
a.m. on June 1, 1998) or the fifth business day after the later of the
termination or expiration of the applicable waiting period (and any extension
thereof) under the HSR Act or the satisfaction or waiver of all other conditions
precedent set forth in Sections V and VI
<PAGE>
28
hereof, or such other time, place and date as the Purchaser and the Seller may
agree in writing (such date upon which the Closing occurs is herein referred to
as the "Closing Date").
4.2 Termination. This Agreement may be terminated, and the transactions
-----------
contemplated hereby may be abandoned:
(a) at any time before the Closing, by written agreement of the Seller
and the Purchaser;
(b) unless extended by written agreement of the Seller and the
Purchaser, at any time after July 1, 1998 (the "Termination Date"), by either
the Seller or the Purchaser in writing, if the transactions contemplated by this
Agreement have not been consummated on or before such date and such terminating
party is not then in material breach of this Agreement;
(c) at any time before the Closing, by the Purchaser or the Seller in
writing, in the event that any Governmental Authority shall have issued an
order, decree, ruling or taken any other action restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and nonappealable;
and
(d) at any time before the Closing, by either the Purchaser or the
Seller in writing, without liability to the terminating party on account of such
termination, if such terminating party is not then in material breach of this
Agreement and the nonterminating party shall (i) fail to perform in any material
respect its agreements contained herein required to be performed on or prior to
the Closing Date and such nonterminating party has not cured in all material
respects such breach on or prior to the date which is 60 days after such
nonterminating party has received written notice from the terminating party of
such failure to perform or such longer period in the event that such breach
cannot reasonably be expected to be cured within such 60-day period and such
nonterminating party is diligently pursuing such cure, but in no event later
than the Termination Date or (ii) breach in any material respect any of its
representations or warranties contained herein and such nonterminating party has
not cured in all material respects such breach on or prior to the date which is
60 days after such nonterminating party has received written notice from the
terminating party of such breach or such longer period in the event that such
breach cannot reasonably be expected to be cured within such 60-day period and
such nonterminating party is diligently pursuing such cure, but in no event
later than the Termination Date.
4.3 Effect on Obligations. Termination of this Agreement pursuant to
---------------------
Section 4.02 shall terminate all obligations and liabilities of the parties to
each other hereunder, except for the obligations under Sections 4.04, 8.01,
10.01, 10.02 and
<PAGE>
29
13.06, provided that (a) in the event of a termination of this Agreement
pursuant to subsection 4.02(d) above under circumstances where the
nonterminating party's breach consists of its refusal to close the transactions
contemplated hereby in accordance with and subject to the terms and conditions
hereof (notwithstanding that the nonterminating party's conditions to close
contained in Sections V or VI, as the case may be, have been satisfied or that
the terminating party stands ready, willing and able to satisfy such conditions
but for such breach) and (b) in the event of the termination of this Agreement
pursuant to subsection 4.02(b) or 4.02(d) above and such termination is a result
of the other party having engaged in a willful failure to perform any of its
obligations under this Agreement or a willful and material misstatement of any
representation and warranty contained in this Agreement, the terminating party
may exercise all available rights and remedies at law or in equity to which such
party may be entitled including, without limitation, the recovery of the full
amount of all costs and expenses incurred by the terminating party in connection
with the preparation, negotiation and execution of this Agreement, its due
diligence review, and all other activities relating to the transaction
contemplated by this Agreement.
4.4 Return of Documentation. Following a termination in accordance with
-----------------------
Section 4.02, the Purchaser shall return all agreements, documents, contracts,
instruments, books, records, materials and all other information of the Group,
any Group Member or any Affiliate thereof provided by any Group Member, the
Seller or by any representative of any Group Member or the Seller to the
Purchaser or any representatives of the Purchaser in connection with the
transactions contemplated by this Agreement, and the Seller shall return all
agreements, documents, contracts, instruments, books, records, materials and all
other information of the Purchaser provided by the Purchaser or any
representative of the Purchaser to the Seller in connection with the
transactions contemplated by this Agreement.
4.5 Sole and Exclusive Remedy. Prior to the Closing, each party hereto
-------------------------
acknowledges and agrees that such party's sole and exclusive remedy with respect
to Damages and any and all claims for any breach or liability under this
Agreement or otherwise relating to the subject matter of this Agreement and the
transactions contemplated hereby shall be solely in accordance with, and limited
by, Sections 4.02 and 4.03 hereof.
SECTION V.
CONDITIONS TO THE SELLER'S OBLIGATIONS TO CLOSE
-----------------------------------------------
The obligation of the Seller to sell the Shares and otherwise to consummate
the transactions contemplated by this Agreement at the Closing is subject to the
following
<PAGE>
30
conditions precedent, any or all of which may be waived by the Seller in the
Seller's sole discretion, and each of which the Purchaser hereby agrees to use
its best efforts to satisfy at or prior to the Closing:
5.1 Certificates. The Seller shall have received:
------------
(a) Certificates as to the existence and good standing of the
Purchaser from its jurisdiction of incorporation, as of a date not more than 30
days before the Closing;
(b) A true and correct copy of the certificate of incorporation of the
Purchaser certified as true and correct by the Secretary of State of its
jurisdiction of incorporation and a copy of the by-laws of the Purchaser
certified as true and correct by the Secretary of the Purchaser;
(c) Certificates of incumbency executed by the Secretary of the
Purchaser in form and substance reasonably acceptable to the Seller;
(d) Certificate of the Secretary of the Purchaser certifying as to a
true and correct copy of the duly adopted resolutions of the board of directors
of the Purchaser, in form and substance reasonably acceptable to the Seller,
with respect to the consummation of the transactions contemplated by this
Agreement and that such resolutions continue in full force and effect, without
amendment, as of the Closing Date;
(e) A receipt executed by the Purchaser acknowledging delivery of the
Shares; and
(f) Such other certificates, instruments and other documents, in form
and substance reasonably satisfactory to the Seller and counsel for the Seller,
as the Seller shall have reasonably requested in connection with the
transactions contemplated hereby.
5.2 Opinion of the Purchaser's Counsel. The Seller shall have received an
----------------------------------
opinion of Strasburger & Price, L.L.P., counsel for the Purchaser, dated the
Closing Date and covering the matters set forth in Sections 3.01, 3.02 and 3.03
hereof.
5.3 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of the Purchaser contained herein shall be true and correct at and as
of the Closing Date with the same effect as though all such representations and
warranties were made at and as of the Closing Date, except to the extent that
any of such representations and warranties are, by their terms, made expressly
as of the date of this Agreement or another date, and the Purchaser shall have
complied in all material
<PAGE>
31
respects with all of its covenants and agreements contained herein required to
be complied with on or prior to the Closing Date, and on the Closing Date, the
Purchaser shall deliver to the Seller a certificate dated the Closing Date to
such effect.
5.4 No Litigation. No action, suit, proceeding, writ, judgment,
-------------
injunction, decree or similar order of any Governmental Authority restraining,
enjoining or otherwise preventing the consummation of any of the transactions
contemplated by this Agreement, or seeking any Damages or seeking to obtain any
other relief as a result of this Agreement or any of the transactions
contemplated hereby shall be pending.
5.5 Approvals. All governmental and corporate filings, authorizations and
---------
approvals (if any) that are required for the consummation of the transactions
contemplated hereby shall have been duly made and obtained in form and substance
reasonably satisfactory to the Seller and the Seller's counsel.
5.6 Third Party Consents. All consents of third parties set forth on
--------------------
Schedules 2.24 and 2.31 hereto which are indicated by an asterisk shall have
- -----------------------
been obtained.
5.7 HSR Act Approval. All waiting periods applicable to this Agreement
----------------
and the transactions contemplated hereby under the HSR Act shall have expired or
been terminated.
5.8 Releases. The Seller shall have received releases in the form of
--------
Exhibit B attached hereto executed by the Group Members and the Purchaser of all
- ---------
officers and directors of each Group Member with respect to certain acts and
omissions occurring on or prior to the Closing Date.
5.9 PsychTrac License. The Seller shall have received a non-exclusive,
-----------------
non-assignable perpetual royalty-free license, in form and substance
satisfactory to Seller and Purchaser with respect to the Intellectual Property
identified by an asterisk on Schedule 2.18 hereto and any enhancements thereto
-------------
known as PsychTrac II (the "PsychTrac Property"), which license shall give to
Seller, RHCI and other respective subsidiaries the non-exclusive right to use
the PsychTrac Property solely in the conduct of its respective business
operations now or hereafter conducted and shall expressly prohibit the use of
the PsychTrac Property to engage in competition, directly or indirectly, with
the Managed Services (as defined in Section 11.01 hereof) of the Group Member,
Purchaser, or any Affiliate or subsidiary of Purchaser. The license will
provide that neither party shall have any obligations with respect to the
PsychTrac Property, or any obligation to notify the other party with respect to
any betterments, improvements, upgrades, changes or modifications with respect
to the PsychTrac Property.
<PAGE>
32
5.10 Release of Guaranty. RHCI shall have received a release of its
-------------------
guaranty of the obligations of the applicable Group Member under that certain
Agreement, dated as of January 1, 1995, with The Health Plan of the Upper Ohio
Valley, Inc.
SECTION VI.
CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE
-------------------------------------------------
The obligation of the Purchaser to purchase the Shares and otherwise to
consummate the transactions contemplated by this Agreement at the Closing is
subject to the following conditions precedent, any or all of which may be waived
by the Purchaser in its sole discretion, and each of which the Seller hereby
agrees to use its best efforts to satisfy at or prior to the Closing:
6.1 Certificates. The Purchaser shall have received:
------------
(a) Certificates as to the existence and good standing (or other
appropriate certificates) of Seller, RHCI and each Group Member from its
jurisdiction of incorporation or organization, as the case may be, and, as to
each Group Member, in each jurisdiction in which it is qualified to transact
business as a foreign corporation, as of a date not more than 30 days before the
Closing;
(b) A true and correct copy of the certificate of incorporation or
articles of organization, as the case may be, of Seller, RHCI and each Group
Member certified as true and correct by the Secretary of State or other
appropriate governmental official of Seller's, RHCI's and each Group Member's
jurisdiction of organization, and a copy of (i) the by-laws of Seller, RHCI and
each Group Member that is a corporation (ii) the limited liability company
operating agreement of each Group Member that is a limited liability company and
the limited partnership agreement of each Group Member that is a limited
partnership certified as true and correct by the Secretary of the applicable
Group Member;
(c) Certificates of incumbency executed by the Secretary of the Seller
and RHCI in form and substance reasonably acceptable to the Purchaser;
(d) Certificates of the Secretary of the Seller and RHCI certifying as
to a true and correct copy of the duly adopted resolutions of the board of
directors of the Seller and RHCI, and the sole stockholder of Seller, in form
and substance reasonably acceptable to the Purchaser, with respect to the
consummation of the transactions contemplated by this Agreement and that such
resolutions continue in full force and effect, without amendment, as of the
Closing Date;
<PAGE>
33
(e) A receipt executed by the Seller acknowledging payment of the
Closing Purchase Price;
(f) A certificate executed by the controller of FPM (in such corporate
capacity and not in a personal capacity) certifying (i) that the February 28,
1998 Financial Statements present fairly in all material respects the financial
position of FPM and the results of operations of FPM in each case on a
consolidated basis, as of the respective dates and for the respective periods
covered thereby, (ii) that such financial statements have been prepared in
accordance with GAAP (except for the absence of a statement of cash flows,
footnotes and year-end adjustments) and were prepared from the books and records
of FPM and (iii) listing all one-time adjustments that have been made or
included in the period covered by the February 28, 1998 Financial Statements;
and
(g) Such other certificates, instruments and other documents, in form
and substance reasonably satisfactory to the Purchaser and counsel for the
Purchaser, as the Purchaser shall have reasonably requested in connection with
the transactions contemplated hereby.
6.2 Stock Certificates. The Purchasers shall have received the
------------------
certificates evidencing the Shares as required by Section 1.05 and the Purchaser
shall have been delivered the stock certificates evidencing all the issued and
outstanding capital stock of the Subsidiaries.
6.3 Releases. The Purchaser shall have received UCC searches of all
--------
financing statements of record performed under the name of the Seller and each
Group Member in the state of its incorporation or formation and each state where
it is qualified to do business as a foreign entity. The Purchaser shall have
received duly executed releases, UCC-3 termination statements and all other
documents necessary to fully release all Liens against the Shares and the assets
of each Group Member, including without limitation, the Liens listed on Schedule
--------
2.09 and Schedule 2.22, other than Permitted Liens in each case in recordable
- ---- -------------
form if required to fully effect such release.
6.4 Corporate Minute Book. The Purchaser shall have received the
---------------------
corporate minute books, or comparable records, containing minutes of
proceedings of the shareholders or members or partners of each Group Member and
of the board of directors or other governing body of each Group Member.
6.5 Resignations. The Purchaser shall have received the written
------------
resignation of each director and officer of each Group Member which resignations
shall be effective as of the Closing Date and shall acknowledge that no monetary
or other obligations are due and owing or payable by such Group Member to such
respective
<PAGE>
34
director or officer except for obligations with respect to (i) compensation,
benefits and expense reimbursement as an employee of a Group Member, (ii)
indemnification under the charter or bylaws of a Group Member or (iii) matters
otherwise required under applicable law.
6.6 Escrow Agreement. The Purchaser, Seller and the Escrow Agent shall
----------------
have executed and delivered the Escrow Agreement and the Indemnity Escrow Amount
shall have been delivered to the Escrow Agent.
6.7 Material Adverse Change. Since the Effective Date, there shall not
-----------------------
have occurred any Material Adverse Change in the condition (financial or
otherwise), assets, liabilities, results of operations or business of the Group.
For the purposes of this Section 6.07, the cancellation after the Effective Date
of an FPM Customer Contract or FPM Customer Contracts (irrespective of the date
of cancellation) or the non-renewal of an FPM Customer Contract having an
expiration or termination date that is after the Effective Date and on or prior
to the Closing Date or the occurrence of any event that will materially reduce
the revenues under the FPM Customer Contracts (irrespective of whether such
event constitutes a default or breach under, or a termination of, any FPM
Customer Contract), in any of such cases, representing a reduction in revenues
in excess of $750,000, either singularly or in the aggregate, shall be deemed to
be a Material Adverse Change in the condition of the Group; provided, however,
that for the purposes of this sentence a reduction in the revenues or
cancellation of the PacifiCare Contract (defined in Section 12.01 hereof) and
the FPM Customer Contracts expressly identified in Schedule 2.10 as terminated
-------------
or to be terminated or to be non-renewed on expiration shall be disregarded.
6.8 Opinion of the Seller's Counsel. The Purchaser shall have received an
-------------------------------
opinion of Haythe & Curley, counsel for the Seller, dated the Closing Date and
covering certain matters set forth in Sections 2.01, 2.02, 2.03, 2.15 (to the
knowledge of such counsel without independent investigation), 2.21, 2.22, 2.27,
2.28 and 2.29 hereof (provided that, with respect to the matters set forth in
Section 2.22 hereof, in rendering such opinion such counsel may assume that the
Purchaser does not have knowledge of any adverse claim in respect of the
Shares).
6.9 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of the Seller and RHCI contained herein shall be true and correct at
and as of the Closing Date, except to the extent that any of such
representations and warranties are, by their terms, made expressly as of the
date of this Agreement or another date, and the Seller shall have complied in
all material respects with all its covenants and agreements contained herein
required to be complied with on or prior to the Closing Date, and on the Closing
Date, the Seller shall deliver to the Purchaser a certificate dated the Closing
Date to such effect.
<PAGE>
35
6.10 No Litigation. No action, suit, proceeding, writ, judgment,
-------------
injunction, decree or similar order of any Governmental Authority restraining,
enjoining or otherwise preventing the consummation of any of the transactions
contemplated by this Agreement, or seeking any Damages or seeking to obtain any
other relief as a result of this Agreement or any of the transactions
contemplated hereby shall be pending.
6.11 Approvals. All governmental filings, authorizations and approvals (if
---------
any) that are required for the consummation of the transactions contemplated
hereby will have been duly made and obtained in form and substance reasonably
satisfactory to the Purchaser and the Purchaser's counsel.
6.12 Third Party Consents. All consents of third parties set forth on
--------------------
Schedules 2.24 and 2.31 hereto which are indicated by an asterisk shall have
- -----------------------
been obtained.
6.13 HSR Act Approval. All waiting periods applicable to this Agreement
----------------
and the transactions contemplated hereby under the HSR Act shall have expired or
been terminated.
6.14 Release. RHCI shall have executed and delivered to the Purchaser a
-------
release of all its rights, if any, under Section 10 of that certain Agreement
dated August 8, 1994 between RHCI, Geriatric Medical Care, Inc. and James F.
Greene, M.D., as amended by a Modification Agreement dated January 26, 1996.
6.15 Tax Sharing Agreements. Seller and the Group Members shall, as of the
----------------------
Closing Date, terminate all tax allocation agreements or tax sharing agreements
with respect to all Group Members including, without limitation, the Tax Sharing
Agreement, and shall ensure that such agreements are of no further force or
effect as to the Group Members on and after the Closing Date and there shall be
no further liability of any Group Member under any such agreement.
6.16 Certification of Non-Foreign Status. The Seller shall furnish to the
-----------------------------------
Purchaser on or before the Closing Date a certification of Seller's non-foreign
status as set forth in Treasury Regulation (S) 1.1445-2(b).
6.17 Pension Plan. Seller shall take whatever actions are necessary to
------------
ensure that, effective as of the Closing Date, the 401(k) plan in which FPM's
employees participate shall not have any adopting employer other than FPM, and
shall not permit or require contributions to be made by, or hold any account or
assets payable to or with respect to, any individuals other than active or
former employees of FPM or their beneficiaries except for a deminimus number.
<PAGE>
36
6.18 Welfare Plans. The Purchaser and the Seller agree that the Seller
-------------
will use its reasonable best efforts to transfer any Welfare Plan not
exclusively sponsored by the Group to the Group (with respect to employees of
the Group) prior to the Closing Date. In the event the Seller cannot transfer
any such Welfare Plan, or the Purchaser notifies the Seller not to transfer any
such Welfare Plan, the Purchaser agrees to cover employees of the Group under
its Welfare Plans, to waive any pre-existing condition, waiting period
limitations or any other eligibility requirements and to provide reimbursement
to the Seller of any pre-Closing costs of coverage under the Seller's Welfare
Plans to the extent such expense is accrued or reserved on the Closing Balance
Sheet.
6.19 Non-Competition Agreements.
--------------------------
(a) The Seller shall use its best efforts to deliver to Purchaser on
or prior to the Closing a release or waiver executed by the other partner of
University Behavioral Health at the University of South Florida, Ltd., in form
reasonably satisfactory to the Purchaser, providing that the non-competition
agreements contained in the partnership agreement of such entity will not be
violated by (i) the consummation of the transactions contemplated by this
Agreement, (ii) the business conducted by the Purchaser or its subsidiaries
prior to the Closing Date and (iii) the performance and renewal of contracts
between the Purchaser or its subsidiaries in existence prior to the Closing
Date, provided that such release or waiver may expressly require the non-
competition agreements contained in such organizational documents shall apply to
any new contracts after the Closing Date. Subject to the remaining provisions
of this Section 6.19(a) below, the delivery of such release or waiver on or
prior to the Closing shall be a condition precedent to the obligations of the
Purchaser under this Agreement. In the event that the Seller is unable to
deliver such release or waiver on or prior to the Closing, Purchaser, in its
sole discretion, shall elect either to waive the receipt of such waiver or
release as a condition precedent to its obligations under this Agreement and
proceed with the Closing or to require that, on or prior to the Closing, the
partnership interest in University Behavioral Health at the University of South
Florida, Ltd. held by a Group Member and the membership interest in U.B.H.
Holdings, L.C., a Florida limited liability company and the general partner of
such partnership, held by a Group Member shall have been transferred and
assigned to RHCI or an Affiliate of RHCI (other than a Group Member) with all
obligations and liabilities of the Group Member under the respective partnership
agreement and limited liability company operating agreement of such entities
being assumed by RHCI or the Affiliate of RHCI (other than a Group Member).
With the consent of Purchaser, which shall not be unreasonably withheld, Seller
may effect such transfer and assignment by the transfer of the ownership of a
Group Member to RHCI or an Affiliate of RHCI (other than a Group Member) that
has as its sole material asset the ownership interest in such third party
entities that Purchaser has elected to be transferred to RHCI or an Affiliate of
RHCI (other than a
<PAGE>
37
Group Member). In addition, in the event Purchaser requires that such
partnership and membership interest be assigned to RHCI or an Affiliate or RHCI
(other than a Group Member) on or prior to the Closing, the Closing Purchase
Price shall be reduced by the amount of $150,000.
(b) The Seller shall use its best efforts to cause the dissolution of
FPM Behavioral Health of Ohio, Ltd. and the assignment to a Group Member of the
FPM Customer Contracts held by such entity on or prior to the Closing Date.
Subject to the remaining provisions of this Section 6.19(b) below the
dissolution of such entity and assignment of such FPM Customer Contracts shall
be a condition precedent to the obligation of the Purchaser under this
Agreement. In the event the Seller is unable to cause the dissolution of such
entity and the assignment of such FPM Customer Contracts held by such entity to
a Group Member on or before the Closing Date, then Purchaser, in its sole
discretion, shall elect to either waive such requirement as a condition
precedent to its obligations under this Agreement and proceed with the Closing
or may require that the membership interest of the Group Member in FPM
Behavioral Health of Ohio, Ltd. be transferred and assigned on or prior to the
Closing Date to RHCI or an Affiliate of RHCI (other than a Group Member) with
all obligations and liabilities of the Group Member under the limited liability
company operating agreement of such entity assumed by RHCI or an Affiliate or
RHCI (other than a Group Member). With the consent of Purchaser, which shall
not be unreasonably withheld, Seller may effect such transfer and assignment by
the transfer of the ownership of a Group Member to RHCI or an Affiliate of RHCI
(other than a Group Member) that has as its sole material asset the ownership
interest in such third party entity that Purchaser has elected to be transferred
to RHCI or an Affiliate of RHCI (other than a Group Member). In the event
Purchaser elects to require the assignment of such membership interest to RHCI
or an Affiliate of RHCI (other than a Group Member) on or prior to the Closing,
the Closing Purchase Price shall be reduced by the amount of $250,000.
(c) In the event of a transfer of an interest or entity to RHCI or an
Affiliate of RHCI pursuant to subsection (a) or (b), the provisions of Section
XI relating to non-competition shall not apply to the ownership of such
partnership or member interest and the business conducted by such partnership or
limited liability company.
<PAGE>
38
SECTION VII.
CONDUCT OF THE BUSINESS
-----------------------
7.1 Access and Information. The Seller shall give to the Purchaser and
----------------------
its accountants, counsel and other representatives reasonable access during
normal business hours upon reasonable notice and without undue interruption to
the operations of the Group, Seller or RHCI and subject to the prior written
consent of the Vice Chairman or President of RHCI in the case of any contact
with any customer, supplier or provider of the Group, throughout the period
prior to the Closing Date to all properties, books, contracts and records
(including tax returns and insurance policies) of or relating to the Group and
all other information pertaining to the Group as may be reasonably requested by
the Purchaser. Except as consented to by the Seller, all information obtained
hereunder which is not otherwise public shall be held confidential and subject
to the Confidentiality Agreement and, in the event of termination of this
Agreement, except to the extent required because of any pending or threatened
litigation or governmental proceeding, all documents (including copies thereof)
obtained hereunder containing such information shall be destroyed or returned to
the Seller.
7.2 Monthly Financial Statements. From the Effective Date through the
----------------------------
Closing Date, Seller will deliver to the Purchaser within thirty (30) days after
the end of each calendar month copies of the monthly and year-to-date unaudited
financial statements of the Group prepared in the normal course of its business.
The representations contained in Section 2.04 with respect to the Financial
Statements will be applicable to all such monthly unaudited financial statements
so prepared and delivered; provided, however, that such unaudited financial
statements shall be subject to normal year-end adjustments, none of which will
be material and shall not contain footnotes.
7.3 Operation of Businesses; Course of Conduct.
-------------------------------------------
(a) The Seller agrees that from the Effective Date to the Closing
Date, except as otherwise consented to or approved by the Purchaser in writing,
the Group Members will operate their respective businesses in the ordinary
course and will use their best efforts consistent with past practice to preserve
their respective business organizations intact and to preserve the goodwill of
their respective suppliers, customers and others with whom such Group Member has
business relationships; and neither the Seller nor the Group Members will take
any action (or omit to take any action) which action or omission would cause any
representation or warranty contained in Article II hereof to be untrue on the
Closing Date as if such representation or warranty were made at and as of such
time, or make any material
<PAGE>
39
change in any method of reporting income or expenses for federal or state income
tax purposes or state franchise tax purposes. In addition, the Seller agrees
that, from the date hereof through the Closing Date, each Group Member shall
not, without the prior written consent of Purchaser, and the Seller shall not
permit or cause a Group Member to:
(i) incur any expense, obligation, or liability in excess of $10,000
(whether capital, contingent, absolute or otherwise), except in the
ordinary course of business or except with respect to performance of the
FPM Customer Contracts in accordance with their respective terms;
(ii) make (1) any change, except in the ordinary course of business
or except as set forth in Schedule 7.03, in the assets or liabilities of
-------------
the Group Member, or (2) any commitment for any capital expenditures
including, without limitation, replacements of equipment in the ordinary
course of business, involving, in the aggregate, more than $10,000, except
with respect to performance of the FPM Customer Contracts in accordance
with their respective terms;
(iii) make any change in the certificate or articles of incorporation
or bylaws or limited liability company operating agreement or limited
partnership agreement of a Group Member;
(iv) (1) authorize any shares of the capital stock of a Group Member
for issuance, (2) issue or agree to issue any shares of any authorized but
unissued shares of the capital stock of a Group Member, (3) grant, issue,
or make any option or commitment relating to the capital stock of a Group
Member, or any other security constituting, or convertible or exchangeable
for, capital stock of a Group Member, or (4) purchase or otherwise acquire
any outstanding shares of the capital stock of a Group Member;
(v) (1) make any material increase in the compensation payable or to
become payable to any of the officers, employees or agents of a Group
Member (including any bonus or incentive payment or arrangement), other
than normal yearly salary increases and scheduled increases under presently
existing compensation plans and currently anticipated bonuses pursuant to
existing bonus arrangements, (2) make, amend, or enter into any written
employment or consulting contract or (3) make, amend or enter into any
bonus, stock option, profit sharing, pension, retirement or other similar
payment or arrangement which in the aggregate exceeds $10,000;
(vi) make, enter into, modify or extend any customer contract;
<PAGE>
40
(vii) enter into any agreement resulting in the imposition of any
mortgage or pledge of any assets of a Group Member or the creation of any
mortgages, liens, pledges, charges, security interests, encumbrances,
options, rights of third parties or restrictions on any of such assets,
except Permitted Liens;
(viii) take any action which is intended to prevent compliance with
any of the conditions in Sections V or VI of this Agreement;
(ix) enter into or engage in any transaction with any officer,
director, shareholder or affiliate of a Group Member except for the payment
of salaries or other benefits and reimbursement of expenses in the ordinary
course of business;
(x) (1) carry on any negotiations with other parties relating to
the acquisition of capital stock or any material assets of a Group Member
or the Seller or (2) merge or consolidate with or into any entity or sell
or otherwise dispose of, or purchase, any material assets or properties
(other than sales of obsolete inventory or equipment and purchases of items
of inventory or equipment in replacement therefor, in the ordinary course
of business consistent with past business practice) or enter into any
agreement in respect of such merger, consolidation, purchases, sales, and
dispositions;
(xi) fail to maintain, cancel or surrender any insurance policies
providing coverage to a Group Member on the Effective Date.
(b) Notwithstanding any provision of this Agreement to the
contrary, the Seller covenants and agrees that from the Effective Date to the
Closing Date the Group Members shall involve Purchaser and allow Purchaser to
participate in all material discussions, material correspondence or material
negotiations relating to any existing or proposed new FPM Customer Contract and
shall not modify, amend or renew any FPM Customer Contract and shall not enter
into any new customer contract without the prior written consent of Purchaser
which shall not be unreasonably withheld or delayed.
7.4 Consents. Each of the parties shall take all steps reasonably
--------
necessary to obtain the written consent or approval of each and every
governmental agency whose consent or approval shall be required in order to
permit such party to consummate the transactions contemplated by this Agreement.
7.5 Solicitation of Inquiries. From the Effective Date to the Closing
-------------------------
Date, the Seller, RHCI and the Group Members shall not solicit from any other
person, firm, corporation or other entity any inquiries or proposals relating to
the disposition
<PAGE>
41
of any substantial portion of the Group's business or assets (other than in the
ordinary course of business) or to the acquisition of all or a substantial
portion of the capital stock (whether issued and outstanding or authorized but
not issued) or to the merger, reorganization or consolidation of a Group Member.
Until the Closing Date, each of the Seller and RHCI additionally agree that,
without the prior written consent of Purchaser, it will not furnish, and will
not permit any Group Member to furnish to any person or entity (other than
Purchaser and its directors, employees, agents and representatives) any non-
public information concerning the Group or its business, financial affairs or
prospects for the purpose or with the intent of permitting such person or entity
to evaluate a possible acquisition of the Group.
7.6 Cooperation. The parties will reasonably cooperate each with the
-----------
other and their respective counsel and accountants in connection with any steps
required to be taken as part of their obligations under this Agreement. The
parties each agree to use its reasonable best efforts to make all necessary
filings and to obtain all necessary consents to the transactions contemplated by
this Agreement, including without limitation all consents of parties to any
contracts or agreements requiring such consents, and all necessary consents of
governmental authorities.
SECTION VIII.
OTHER AGREEMENTS OF THE PARTIES
-------------------------------
The Purchaser and the Seller agree as follows:
8.1 Announcements. From and after the date hereof, neither the Seller nor
-------------
the Purchaser shall issue any media, newspaper, wire service, trade journal or
any other public statement concerning the transactions contemplated hereby,
without the approval of the other party, except as may be required by law or
applicable disclosure obligations and after consultations between the parties.
In addition, the Purchaser shall comply with the Confidentiality Agreement.
8.2 Labor Relations. The Purchaser hereby agrees to defend and indemnify
---------------
the Seller Indemnified Parties, and to hold each Seller Indemnified Party
harmless, from and against all Damages, which are sustained or incurred by any
Seller Indemnified Parties by reason of or in connection with any claim,
proceeding or suit brought against any Seller Indemnified Parties under the
Worker Adjustment Retraining and Notification Act, or any local, state, federal
or foreign law, which relates to actions taken by the Purchaser or any Group
Member at any time on or after the Closing with regard to any site of employment
or one or more facilities or operating units within any site of employment of
any Group Member.
<PAGE>
42
8.3 Access to Information. (a) For a period of six years from the Closing
---------------------
Date, the Purchaser shall (and shall cause each of the Group Members to), during
normal business hours and upon reasonable notice, make available and provide the
Seller and its representatives (including, without limitation, counsel and
independent auditors) with access to the facilities and properties of each of
the Group Members and to all information, files, documents and records (written
and computer) relating to any Group Member or any of its businesses or
operations for any and all periods prior to or including the Closing Date which
the Seller (or any Affiliate) requires with respect to any reasonable business
purpose, including, without limitation, disputes under this Agreement, and shall
(and shall cause each of the Group Members to) cooperate fully with the Seller
and its representatives (including, without limitation, its counsel and
independent auditors) in connection with the foregoing, including, without
limitation, by making tax, accounting and financial personnel and other
appropriate employees and officers of each Group Member available to the Seller
and its representatives (including, without limitation, counsel and independent
auditors), with regard to any reasonable business purpose, including, without
limitation, disputes under this Agreement.
(b) Without limiting the generality of Section 8.03(a), from and
after the Closing Date, the Purchaser shall (and shall cause each of the Group
Members to) fully cooperate with and assist, and shall cause its officers and
employees (and the officers and employees of the Group Members) to cooperate
fully with and assist, the Seller and its representatives (including, without
limitation, its counsel and independent auditors), in connection with:
(i) the preparation of any financial statements of the Group Members
(or any Group Member) for (or including) any period (or portion thereof)
ending on or before the Effective Time and to that end the Purchaser shall
cause the officers and employees of any Group Member to cooperate fully and
assist the Seller in its review and verification of the same; or
(ii) the investigation, prosecution or defense of or response to any
Actions, claims or inquiries commenced by any Purchaser Indemnified Party,
or by any Governmental Authority or any other person or entity, against the
Seller (or any other Seller Indemnified Party or any Affiliate thereof) or
against the Purchaser (or any other Purchaser Indemnified Party.
(c) The cooperation and assistance of the Purchaser and the Group
Members and their respective officers and employees under this Section 8.03
shall be rendered during normal business hours and in a manner which does not
materially disrupt the business and operations of the applicable Group Member.
The Seller shall reimburse the Group Members for any extraordinary actual out-
of-pocket expenses (including, without limitation, the fees of its independent
accountants) incurred by
<PAGE>
43
them in rendering such cooperation and assistance (however, such obligation
shall not extend to any reimbursement of any cost or expense for time spent by
officers or employees of the Group Members or the Purchaser in the assistance
thereof, any administrative overhead of any Group Members or the Purchaser or
any ordinary course fees and expenses).
(d) Without limiting the generality of subsection (a) of this Section
8.03, following the Closing, the Purchaser shall not (and shall cause the Group
Members not to) destroy any information, files, documents or records (written
and computer) relating to any Group Member or any of its businesses or
operations without giving at least 30 days' prior written notice to the Seller
and shall (and shall cause the Group Members to) permit the Seller to examine,
duplicate (at the Seller's expense) and/or transfer (at the Seller's expense) to
the Seller or its representatives any of such information, files, documents or
records (written and computer).
8.4 Tax Matters. (a) The Seller and the Purchaser acknowledge and agree
-----------
that, pursuant to any 338(h)(10) Election made in accordance with Section
8.04(d) hereof, FPM and the other Group Members will be treated for income tax
purposes as having sold all of their respective assets on the Closing Date while
still members of the consolidated or affiliated group that includes the Seller,
and as having liquidated into the Seller on the Closing Date. The Seller and
the Purchaser further acknowledge and agree that, for Federal income tax
purposes, the taxable year of each Group Member will close on the Closing Date
and that, for certain state and local income tax purposes, in cases in which an
election under Section 338(h)(10) is not effective or is not made, the taxable
year of some or all of the Group Members may close on the Closing Date. The
Seller shall be responsible for preparing and filing any and all Tax Returns
that include the Group Members for the periods ending on or before the Closing
Date, and shall be responsible for and shall pay all Taxes payable by the Group
Members with respect to such Tax Returns. The Purchaser shall have a reasonable
opportunity to review, comment upon and suggest changes or corrections to all
such Tax Returns and amendments thereto prior to the filing thereof. From and
after the Closing Date, the Purchaser shall (and shall cause each of the Group
Members to) fully cooperate with and assist, and shall cause its officers and
employees (and the officers and employees of the Group Members) to cooperate
fully with and assist, the Seller and its representatives (including, without
limitation, allowing access by the Seller and its representatives (including its
counsel and independent auditors) to the books and records (written and
computer) of the Group Members and allowing the Seller to make copies thereof),
in connection with the preparation by the Seller of any Tax Returns required to
be prepared by the Seller hereunder. The cooperation and assistance of the
Purchaser and the Group Members and their respective officers and employees
under this Section 8.04 shall be rendered during normal business hours and in a
manner which does not materially disrupt the business and operations of the
applicable Group Member. The Seller shall reimburse
<PAGE>
44
the Group Members for any extraordinary actual out-of-pocket expenses incurred
by them in rendering such assistance and cooperation (however, such obligation
shall not extend to any reimbursement of any cost or expense for time spent by
officers or employees of the Group Members or the Purchaser or any
administrative overhead of any Group Members or the Purchaser or any ordinary
course fees and expenses). Except as provided in the immediately preceding
sentence, the Seller shall not be charged with any cost or expense for the
assistance rendered by the Purchaser or any of the Group Members in connection
therewith.
(b) Except as provided in clause (a) of this Section 8.04, the
Purchaser agrees to cause the Group Members to file all Tax Returns required to
be filed by any of them after the Closing Date and to pay all Taxes due and
payable by any of them after the Closing Date, including any Taxes that accrued
prior to the Closing Date or that are otherwise allocable to any Seller Tax
Period that does not end on or before the Closing Date. The Seller shall be
given the opportunity to review, comment upon and suggest changes or corrections
to, any Tax Returns covered by this Section 8.04(b) which include any Seller Tax
Period (and the work papers of the Group Members and their accountants used in
the preparation thereof), in each case prior to the filing thereof (but in no
event less than 30 days prior to such filing). In the event of any dispute
regarding the matters set forth in the immediately preceding sentence, the
Independent Auditor shall be requested to make a determination resolving such
dispute and the determination of the Independent Auditor of any such dispute
shall be final and binding on the parties hereto. The fees and expenses of the
Independent Auditor in resolving such dispute shall be borne 50% by the Seller
and 50% by the Purchaser.
(c) Any refunds or credits of Taxes of any Group Member for any Seller
Tax Period shall be for the account of the Seller. Applications for refunds of
Taxes, and the filing of amended tax returns, reports and declarations, with
respect to any Seller Tax Period shall be made and prosecuted only by the
Seller. The Purchaser shall provide and shall cause each Group Member to
provide to the Seller full cooperation and assistance in connection with any
application for refund or amendment made or proposed to be made by the Seller as
shall be requested by the Seller, including by causing each Group Member to
authorize by appropriate powers of attorney such person as the Seller shall
designate to represent such Group Member with respect to such refund claim,
without charge for any cost or expense for assistance rendered by officers and
employees of the Group Members in connection therewith. The Seller shall not
seek any Tax refund, or amend any Tax Return, which would have the effect of
increasing the Taxes of any Group Member for any taxable period (or portion
thereof) beginning after the Closing Date; however, the foregoing shall not
apply to any amended Tax Return which may be required by law following
resolution of a Tax dispute. The Purchaser shall or shall cause each Group
Member to forward to the Seller any refund of Taxes of any Group Member
allocable
<PAGE>
45
to any Seller Tax Period within five days after such refund is received (or
reimburse the Seller for any credit within five days after the credit is allowed
or applied against other Tax liability). Notwithstanding the foregoing, the
control of the prosection of a claim for refund of Taxes paid pursuant to a
deficiency assessed subsequent to the Closing Date as a result of an audit shall
be governed by the provisions of Section 9.03(d) hereof.
(d) Section 338(h)(10)Election.
--------------------------
(i) If requested by Purchaser, Purchaser and RHCI shall join in an
election (the "338(h)(10) Election") to have the provisions of Section
338(h)(10) of the Code apply to the acquisition of FPM and Subsidiaries.
Purchaser shall be responsible for, and control, the preparation and filing
of such election. RHCI and Seller shall execute and deliver to Purchaser
such documents or forms (including Section 338 Forms, as defined below) as
Purchaser shall request or as are required by applicable law for an
effective 338(h)(10) Election. "Section 338 Forms" shall mean all returns,
documents, statements, and other forms that are required to be submitted to
any federal, state, or other local Taxing Authority in connection with a
338(h)(10) Election, including, without limitation, any "statement of
Section 338 election" and IRS Form 8023 (together with any schedules or
attachments thereto), that are required pursuant to Treasury Regulations.
To the extent an election similar to the 338(h)(10) Election is available
under any applicable state or local income Tax laws (which is not mandatory
in the event of an election made under Section 338(h)(10) of the Code), and
if such election will not give rise to double taxation of the Seller and/or
any one or more Group Members, RHCI, Seller and Purchaser agree to join in
making each such election (a "Non-Federal Election"). RHCI, the Seller,
the Purchaser and FPM shall report the transaction consistent with such
elections under Section 338(h)(10) of the Code or any similar state or
local tax provision, as applicable, and agree not to take any action that
could cause such elections to be invalid, and shall take no position
contrary thereto on any Tax Return involving a jurisdiction for which such
an election has been made.
(ii) The allocation of the adjusted deemed sales price among the
assets of FPM and Subsidiaries shall be made in accordance with Code
Sections 338 and 1060 and any comparable provisions of state, local or
foreign law, as appropriate. Unless it would be unreasonable to do so,
RHCI and the Seller shall accept Purchaser's determination of such purchase
price allocations, and shall report, act, file in all respects and for all
purposes consistent with such determination of Purchaser. The Seller shall
cause a copy of a Form 8023-A to be attached to the Federal income tax
return of that includes the Group Members for the periods ending on the
Closing Date. The
<PAGE>
46
Seller acknowledges that, by virtue of the Election, FPM and the
Subsidiaries shall recognize gain or loss with respect to the transaction
as if they had sold all of their assets in the tax period covered by the
Tax Return of the Seller that includes the Group Members for the period
ending on the Closing Date. The Seller shall be responsible for and shall
pay any income, franchise or similar Taxes arising as a result of the
338(h)(10) Election and any Non-Federal Elections made pursuant to the
provisions of this Section 8.04(d).
(e) Neither the Purchaser nor any Group Member shall amend, or take
any similar action with respect to, any Tax Return filed by the Seller or by any
Group Member with respect to any Seller Tax Period without the prior written
consent of the Seller; provided that the foregoing shall not apply to any
amended Tax Return which may be required by law following resolution of a Tax
dispute conducted in accordance with this Agreement. Except as required by law,
without the Seller's prior written consent, neither the Purchaser nor any Group
Member shall take any position on any Tax Return, report or other declaration
for any taxable period which might result in any:
(i) increase in Tax (over accruals therefor on the books and records
of the Group Members as of the Effective Time) for any Seller Tax Period
in:
A) the liability of the Seller or any Group Member in respect
of the consolidated Federal income tax liabilities, or any state
consolidated, combined or unitary income tax liabilities, of the
Seller's (or RHCI's) tax group, as applicable, for periods while any
Group Member was part thereof; or
B) the liability of the Seller or any Group Member in respect
of any separate state, local or foreign Tax of any Group Member; or
(ii) reduction in any Tax attributes to which the Seller, its
corporate parent or any Group Member may be entitled with respect to any
Seller Tax Period.
8.5 HSR Filing. The parties hereto recognize that a pre-merger
----------
notification must be filed with the Federal Trade Commission (the "FTC") and the
Department of Justice (the "DOJ") pursuant to the HSR Act and the Seller and the
Purchaser hereby agree to fully cooperate with each other to supply and file the
required documentation. The parties hereto agree that, promptly following the
execution of this Agreement by all parties (but in no event later than five (5)
business days following such execution), the Purchaser and the Seller will
prepare and file with the FTC and the DOJ all required documents under the HSR
Act, including a complete
<PAGE>
47
notification and report form, will seek early termination of the HSR Act waiting
period in connection with such filing, will fully cooperate with each other in
connection with the preparation and filing of such documents, and will use their
respective best efforts to promptly comply with all formal or informal requests
for additional information by the FTC or the DOJ in respect of such filing.
8.6 Certain Assets. Seller acknowledges that the assets shown on Schedule
-------------- --------
2.09 located at the corporate offices of Seller, consisting of certain computer
- ----
equipment are assets of FPM used solely in its business operations. Seller
agrees that Purchaser shall have the right to access to such assets and to
continue the use of such assets at such location for a period of sixty (60) days
after the Closing Date. Purchaser agrees that it shall relocate such assets on
or before the expiration of such sixty (60) day period.
SECTION IX.
INDEMNIFICATION
---------------
9.1 Indemnification by the Seller and RHCI.
--------------------------------------
(a) After the Closing Date, the Seller and RHCI shall, jointly and
severally, indemnify and hold harmless the Purchaser (and its employees,
officers, partners, directors, shareholders, agents and representatives and all
Affiliates thereof) and the Group Members (collectively, the "Purchaser
Indemnified Parties") from and against all Damages which are sustained or
incurred by any of the Purchaser Indemnified Parties, to the extent that the
Damages are sustained or incurred by reason of (i) the breach by the Seller or
RHCI of any of their respective covenants or agreements hereunder (other than
the provisions of Section 7.03 as to which this Section IX shall not be
applicable), (ii) the breach of any of the representations or warranties made by
the Seller in Section II(A) or RHCI in Section II(B) hereof provided, however,
that for the purposes of the indemnification obligations of the Seller and RHCI
under this Section 9.01(a)(ii) any materiality standard contained in any such
representation or warranty shall be disregarded, (iii) any liability (as a
result of Treasury Regulation (S) 1.1502-6(a) or otherwise) for Taxes of the
Seller or any other corporation which is or has been affiliated with the Seller
(other than any of the Group Members) except to the extent that any such
liability is sustained or incurred by reason of any breach by the Purchaser of
any of its covenants or agreements under Section 8.04 hereof, or (iv) any of the
matters disclosed on Schedule 2.15 marked with an asterisk, including without
-------------
limitation, defense costs.
(b) From and after the Closing Date, the Seller and RHCI, jointly and
severally, shall indemnify and hold harmless the Purchaser and the Group
<PAGE>
48
Members from any and all federal, state and local income Taxes (including,
without limitation, any obligation to contribute to the payment of any income
Taxes determined on a consolidated, combined or unitary basis with respect to a
group of corporations that includes or included Group Members) which are imposed
on any Group Member, or for which any Group Member may otherwise be liable,
resulting from the making of the 338(h)(10) Election (or analogous provision of
state or local law), except to the extent that any such liability is sustained
or incurred by reason of any breach by the Purchaser of any of its covenants or
agreements under Section 8.04 hereof.
(c) The Seller and RHCI, jointly and severally, shall indemnify and
hold harmless the Purchaser and the Group Members of and from any and all
liabilities or obligations of any kind arising out of or resulting from the
closing of the clinics referenced in Schedule 2.06 including, without
limitation, the two Lease Agreements and the Termination and Settlement
Agreement referenced on Schedule 2.06 as resulting from the closing of the
clinical offices.
9.2 Indemnification by the Purchaser. After the Closing Date, the
--------------------------------
Purchaser and the Group Members shall indemnify and hold harmless the Seller and
its employees, officers, partners, directors, shareholders, agents and
representatives and all affiliates thereof (collectively, the "Seller
Indemnified Parties") from and against all Damages which are sustained or
incurred by any of the Seller Indemnified Parties, to the extent that such
Damages are sustained or incurred by reason of (a) the breach by the Purchaser
or any Group Member of any of their respective covenants or agreements hereunder
or (b) the breach of any of the representations or warranties made by the
Purchaser in Section III(A) hereof.
9.3 Procedure for Indemnification.
-----------------------------
(a) Except as provided in clause (d) of this Section 9.03 (relating to
Taxes), in the event that any party hereto or other Purchaser Indemnified Party
or Seller Indemnified Party reasonably believes that such party has a claim for
Damages in respect of which indemnity may be sought by such party pursuant to
this Section IX (each, an "Indemnification Matter"), the party indemnified
hereunder (the "Indemnitee") shall notify the party(s) providing indemnification
(collectively, the "Indemnitor") by sending written notice to the Indemnitor (an
"Indemnity Notice"). Notwithstanding any provision of this Agreement to the
contrary, no Purchaser Indemnified Party and no Seller Indemnified Party shall
be entitled to assert a claim for indemnification unless the Damages which are
the subject of an individual claim or the subject of one or more claims in the
aggregate asserted simultaneously exceed $25,000. An indemnitee shall be
entitled to assert one or more unrelated claims for indemnification
simultaneously so long as the aggregate amount of all such claims exceed
$25,000. In the case of third party claims, which, if successful, could result
<PAGE>
49
in an indemnity payment hereunder, an Indemnity Notice shall be given within 30
days after the discovery by the Indemnitee of the filing or assertion of any
claim against the Indemnitee stating the nature and basis of such claim;
provided, however, that any delay or failure to notify any Indemnitor of any
claim shall not relieve it from any liability except to the extent that the
Indemnitor demonstrates that the defense of such action is prejudiced by such
delay or failure to notify. Any Indemnity Notice shall (i) state (with
reasonable specificity) the basis on which indemnification is being asserted,
(ii) set forth the amount of Damages for which indemnification is being asserted
and (iii) in the case of third party claims, be accompanied by copies of all
relevant pleadings, demands and other papers served on the Indemnitee.
(b) In the case of third party claims the Indemnitee shall give the
Indemnitor the right (i) to control and conduct any proceedings or negotiations
in connection therewith and necessary or appropriate to defend the Indemnitee
(provided such are pursued in a professional manner), (ii) to take all other
reasonable steps or proceedings to settle or defend any such claims, provided
that the Indemnitor shall not settle any such claim without the prior written
consent of the Indemnitee, which consent will not be unreasonably withheld or
delayed, unless, in the case the Seller is the Indemnitor, such settlement only
involves the payment of money, in which event the Seller shall have the right to
settle any such claim without the consent of the Indemnitee, and (iii) to employ
counsel selected by the Indemnitor, after reasonable consultation with the
Indemnitee, to contest any such claim or liability in the name of the Indemnitee
or otherwise. The Indemnitor shall, within 30 days of receipt of an Indemnity
Notice in respect of such claim (the "Indemnity Notice Period"), notify the
Indemnitee in writing of its intention to assume the defense of such claim. In
the event that the Indemnitor does assume the defense as provided above, the
Indemnitee shall have the right to participate fully in such defense (including,
without limitation, with counsel of its choice), at its sole expense, and the
Indemnitor shall fully cooperate with the Indemnitee in connection with such
participation. If the Indemnitor does not deliver to the Indemnitee within the
Indemnity Notice Period written notice that the Indemnitor will assume the
defense of any such claim or litigation resulting therefrom, the Indemnitee may
defend against any such claim or litigation in such manner as it may deem
appropriate and the Indemnitee may settle such claim or litigation on such terms
as it may deem appropriate, provided that the Indemnitee shall not settle any
such claim without the prior written consent of the Indemnitor, which consent
will not be unreasonably withheld or delayed. In the event that the Indemnitor
does not assume the defense as provided above, the Indemnitor shall have the
right to participate fully in such defense (including, without limitation, with
counsel of its choice), at its sole expense, and the Indemnitee shall fully
cooperate with the Indemnitor in connection with such participation, and in all
cases the Indemnitee shall keep the Indemnitor fully informed as to all matters
concerning such third party claim and shall promptly notify the Indemnitor in
writing of any and
<PAGE>
50
all significant developments relating thereto. Within 30 days after the
Determination Date with respect to a third party claim, the Indemnitor shall pay
the Indemnitee the amount of Damages sustained or incurred by the Indemnitee.
(c) In the event that liability hereunder does not involve a third
party claim, the Indemnitor shall within 30 days after the date of receipt of an
Indemnity Notice respond in writing to the Indemnitee (the "Indemnity Response")
and set forth with reasonable specificity those items in the Indemnity Notice to
which the Indemnitor does not agree as well as the summary basis upon which such
disagreement is founded. Within 30 days following the receipt of the Indemnity
Response by the Indemnitee, representatives of the Indemnitor and Indemnitee
shall meet to attempt to resolve through good faith negotiations the applicable
indemnification claims. The parties shall negotiate in good faith for up to 60
days in an attempt to reach a settlement of any disputed matter. In the event
that such good faith negotiations are unsuccessful or in the event of any other
dispute under this Section IX, the parties shall proceed in accordance with
Section XV of this Agreement.
(d) In the case of any audit, examination or other proceeding
("Proceeding") with respect to Taxes for which Seller is or may be liable
pursuant to this Agreement, Purchaser shall promptly inform Seller of the nature
of such proceeding, and shall afford Seller, at Seller's expense, the
opportunity to control the conduct of such Proceedings. If notice is not given
to the Seller within a sufficient period of time to allow the Seller effectively
to contest such proceeding, the Seller shall not be liable to indemnify any
Purchaser Indemnified Party to the extent that the Seller's position or defense
is prejudiced as a result thereof. Purchaser shall execute or cause to be
executed powers of attorney or other documents necessary to enable Seller to
take all actions desired by Seller with respect to such Proceeding to the extent
such Proceeding may affect either the amount of Taxes for which Seller is liable
pursuant to this Agreement. Seller shall have the right to control any such
Proceedings, and, if there is substantial authority therefor, to initiate any
claim for refund, file any amended return or take any other action which it
deems appropriate with respect to such Taxes. If reasonably requested by
Purchaser, Seller shall provide to Purchaser an opinion in form and content
reasonably acceptable to Purchaser from counsel that there is substantial
authority for the position that Seller is taking with respect to such action,
and Purchaser need not and Seller shall not take such action until such opinion
is delivered to Purchaser. Any Proceeding with respect to Taxes for a period
which includes but does not end on the Closing Date shall be controlled jointly
by Seller and Purchaser. Notwithstanding any provision of this Section 9.03(d)
to the contrary, Seller shall not have the right to enter into any settlement of
any Proceeding if, as a result of such settlement, the Taxes payable by
Purchaser or any Group Member for a taxable period for which Seller is not
obligated to indemnify Purchaser or such Group Member pursuant to Article IX
would be likely
<PAGE>
51
to be increased unless Seller agrees to indemnify the affected party (the
Purchaser or the affected Group Member, as the case may be) for all such
increases in Taxes. By written notice to Seller, Purchaser shall have the right
to instruct Seller to forego Proceedings with respect to one or more items for
which Seller may be liable to indemnify Purchaser. Such notice shall constitute
a waiver of the right of Purchaser to indemnification for any Taxes arising out
of such item for the period or periods involved, but shall not otherwise waive
any rights of Seller under this section.
9.4 Limits on the Liability of the Seller. Subject to the terms hereof
-------------------------------------
(including Sections 4.05 and 9.07 hereof), the aggregate liability of the Seller
for Damages or otherwise with respect to the subject matter of this Agreement
and the transactions contemplated hereby is, and shall be, limited to an
aggregate amount (the "Seller's Liability Amount") equal to the Purchase Price,
and the Purchaser, on behalf of itself, its Affiliates and all Purchaser
Indemnified Parties, agrees not to seek any Damages in excess of the Seller's
Liability Amount for any and all Damages sustained or incurred by any Purchaser
Indemnified Party for any breach or liability under this Agreement or otherwise
with respect to the subject matter of this Agreement and the transactions
contemplated hereby or otherwise.
9.5 Other Limits on Indemnification.
-------------------------------
(a) Notwithstanding anything in this Section IX to the contrary, no
Purchaser Indemnified Party shall be entitled to indemnification pursuant to
Section 9.01 hereof and no Seller Indemnified Party shall be entitled to
indemnification pursuant to Section 9.02 hereof, in each case, unless and until
the aggregate amount of all Damages to which such indemnification relates
exceeds an aggregate amount (the "Basket Amount") equal to $200,000 and then the
Seller's, RHCI's, and the Purchaser's liability for indemnification under this
Section IX shall be limited to the amount that the Damages sustained or incurred
by the party seeking indemnification exceed the Basket Amount; provided that
such limitation and the Basket Amount shall not apply to claims (i) arising
under Section 9.01(a)(i) out of the failure of Seller to perform its obligations
under Section 8.04 with respect to the payment of income Taxes, Section
9.01(a)(iv), Section 9.01(b), Section 9.01(c) or Section 10.01, (ii) arising
under Section 8.02, Section 9.02 out of a breach by the Purchaser of its
obligations under Section 8.04 or Section 10.02, or (iii) relating to the
payment of the Post-Closing Adjustment Amount under Section XII of this
Agreement.
(b) The representations and warranties contained in or made pursuant
to this Agreement shall survive the consummation of this Agreement and the
Closing hereunder for a period of two (2) years from the Closing Date and shall
expire at midnight on the second anniversary of the Closing Date, provided that
the representations and warranties contained in Sections 2.07 and 2.22 shall
survive for
<PAGE>
52
the applicable statute of limitations, and provided further that if written
notice is properly given under this Section IX with respect to any alleged
breach of a representation or warranty to which such party is entitled to be
indemnified hereunder prior to the applicable expiration date, such
representation or warranty with respect to such specified matter only shall
continue indefinitely until the applicable claim is finally resolved.
9.6 Losses Net. The amount of any Damages for which indemnification is
----------
provided under this Section IX shall be net of Tax benefits to be received by
the Indemnitee, and net of any amounts recoverable by the Indemnitee under
insurance policies with respect to such Damages.
9.7 Sole and Exclusive Remedy. After the Closing Date, each party hereto
-------------------------
acknowledges and agrees that such party's sole and exclusive remedy with respect
to Damages and any and all other claims relating to the subject matter of this
Agreement and the transactions contemplated hereby (other than disputes arising
under Section 1.04, 8.04(b) and Article XII which disputes shall be resolved as
set forth in such sections) shall be in accordance with, and limited by, the
applicable provisions set forth in Section 8.02, in this Section IX, in Section
X and in Section XII.
SECTION X.
BROKERS AND FINDERS
-------------------
10.1 The Seller's Obligations. Neither the Purchaser nor any Group Member
------------------------
shall have any obligation to pay any financial advisory, finder's fee or other
compensation to any person, firm or corporation claiming by, through or under
the Seller or any Group Member in connection with the sale of the Shares
contemplated by this Agreement and the transactions contemplated herein, and the
Seller hereby agrees to defend, indemnify and hold the Purchaser harmless from
any Damage sustained or incurred by the Purchaser by reason of any such claim
for any such fee or other compensation.
10.2 The Purchaser's Obligations. The Seller shall not have any obligation
---------------------------
to pay any financial advisory, finder's fee or other compensation to any person,
firm or corporation claiming by, through or under the Purchaser (or any
Affiliate thereof) in connection with this Agreement and the transactions
contemplated herein, and the Purchaser hereby agrees to defend, indemnify and
hold the Seller harmless from any Damage sustained or incurred by the Seller by
reason of any such claim for any such fee or other compensation.
<PAGE>
53
SECTION XI.
NON-COMPETITION AGREEMENT
-------------------------
11.1 Noncompete Agreement. (a) Following the consummation of the
--------------------
transactions contemplated hereby, and in consideration thereof, neither RHCI,
Seller or any other subsidiary of RHCI (collectively, the "Section XI Persons")
shall (a) subsequent to the date of the Closing and until two years after the
date of the Closing (the "Noncompete Period"), (x) engage, directly or
indirectly, whether as employer, consultant, principal, agent, distributor,
representative, consultant, partner, stockholder, limited partner or other
investor (other than an investment of not more than five percent (5%) of the
stock or equity of any corporation the capital stock of which is publicly
traded), in any activity or business venture involving the provision of Managed
Services (as hereinafter defined) which is in competition in the geographic
region where the Purchaser, the Group Members or any other subsidiary of the
Purchaser (hereinafter referred to collectively as the "Purchaser Group") then
conduct Managed Services or (y) solicit any then current employee of Purchaser,
any Group Member, or any other subsidiary of Purchaser engaged in Managed
Services (provided, however, that no Section XI Person shall be deemed to have
breached this covenant if the contact with any such person referred to in this
clause (y) is initiated by such person or if such contact was initiated by any
Section XI Person after such person was no longer employed by Purchaser, any
Group Member or any other subsidiary of Purchaser engaged in Managed Services),
or (z) solicit away from any Group Member or any other subsidiary of Purchaser
any third party payor or other customer or client of any Group Member as of the
Closing Date, either for its own account or for any person, firm or corporation
(it being understood and agreed that soliciting any such third party payor,
customer or client with respect to services or products other than those Managed
Services being provided by the Group Members as of the Closing Date is not
prohibited by this clause (z) or soliciting any third party payor, customer or
client who at the time of such solicitation is no longer a third party payor,
customer or client of the Purchaser Group is not prohibited by this clause (z)).
Because the remedy at law for any breach of the foregoing provisions of this
Section XI would be inadequate, each of the Seller and RHCI hereby consents, in
case of any such breach, to the granting of specific enforcement, including, but
not limited to, pre-judgment injunctive relief, of such provisions provided that
Purchaser shall not be limited to equitable relief as its sole and exclusive
remedy for a breach of this Section XI but shall be entitled to exercise any and
all remedies which may be available to it under applicable law.
(b) Notwithstanding anything in Section 11.01(a) to the contrary,
nothing in Section 11.01(a) shall prohibit or be deemed to prohibit the Seller,
RHCI or any other Section XI Person from engaging, directly or indirectly,
whether as principal, agent, distributor, representative, consultant, partner,
stockholder, limited
<PAGE>
54
partner or other investor or otherwise in any activity or business venture
involving the provision of Ramsay Services (as hereinafter defined).
11.2 Certain Definitions. For purposes hereof, (a) Managed Services shall
-------------------
mean: (i) arranging for the provision of mental health and/or substance abuse
treatment for members, beneficiaries, clients, or employees, as the case may be,
of any health insurance companies, health maintenance organizations, self-
insured employers, health cooperatives, health care alliances, or other third-
party (each, a "Third-Party Payor") pursuant to contracts, agreements or
arrangements with such Third Party Payor; (ii) providing mental health and/or
substance abuse administrative services (e.g. utilization review and case
management) to or on behalf of such Third-Party Payor pursuant to contracts,
agreements or arrangements with such Third Party Payor; or (iii) providing
(other than as a direct provider of medical services) an employee assistance
program to or on behalf of such Third-Party Payor and (b) Ramsay Services shall
mean: the provision and management of programs and services for at-risk,
troubled youth and adolescents and the operation and management of psychiatric
health care facilities and units and the related provision and management of
behavioral health care services.
11.3 Reasonableness; Reformation. Seller and RHCI each severally
---------------------------
acknowledge and agree that (i) the provisions of this Section XI are ancillary
to the transaction pursuant to which Seller sold and Purchaser acquired the
Shares, (ii) the provisions of this Agreement contain reasonable limitations as
to time, geographical area and scope of activities to be restrained and do not
impose a greater restraint than is necessary to protect goodwill and other
business interests of Purchaser and its subsidiaries, (iii) if any portion of
the covenants and agreements set forth in this Section XI are held to be
invalid, unreasonable, arbitrary or against public policy, then such portion of
such covenants shall be considered divisible as to time, scope of activities
covered, and geographical area, and (iv) if any court of competent jurisdiction
determines the specified time period, scope of activities covered, or the
specified geographical area applicable to any provision of this Agreement to be
invalid, unreasonable, arbitrary or against public policy, a lesser time period,
scope of activities covered, and/or geographical area which is determined to be
reasonable, non-arbitrary and not against public policy may be enforced against
him.
SECTION XII.
POST-CLOSING ADJUSTMENT
-----------------------
12.1 Post-Closing Adjustment. The Seller and the Purchaser covenant and
-----------------------
agree that certain post-closing payments shall be payable based on the following
terms and conditions:
<PAGE>
55
(a) In the event that one or more contracts are executed and
delivered prior to July 1, 1999 between a customer listed on Schedule 12.01 and
--------------
a Group Member, Purchaser or any subsidiary or Affiliate of Purchaser (a
"Development Contract"), then the Purchaser shall, subject to the terms and
conditions of this Article XII, pay to the Seller an amount equal to the product
of (i) the aggregate number of covered lives covered by all such Development
Contracts on July 1, 1999 in excess of 70,000 lives times (ii) $16.91. In the
event that a Development Contract is executed by an Affiliate of FPM which is
not wholly-owned by a Group Member, then for the purposes of this Section XII
the number of covered lives covered by such Development Contract shall be
determined by multiplying such covered lives by a percentage equal to the
membership or partnership equity percentage interest that a Group Member owns in
such Affiliate. Additionally, in the event that Purchaser elects to withdraw the
notice of intent to terminate the FPM Customer Contract with Apex Health Care of
Alabama, Inc. and the FPM Customer Contract with Apex Health Care of
Mississippi, Inc. and such parties accept the withdrawal of the notice of
intention to terminate such FPM Customer Contracts with the effect that on June
30, 1998 both such FPM Customer Contracts do not terminate but remain in full
force and effect, then for the purposes of this Section 12.01(a) the payment to
the Seller shall be calculated by utilizing the aggregate number of cover lives
covered by all such Development Contracts on July 1, 1999 in excess of 26,000
lives, representing a reduction of the 70,000 lives set forth in Section
12.01(a)(i) above by 44,000 as a result of the continuation and non-termination
on June 30, 1998 of such two FPM Customer Contracts. Purchaser shall notify
Seller in writing on or before July 15, 1998 of the status of such FPM Customer
Contracts on June 30, 1998 for the purposes hereof.
(b) In the event that the aggregate number of lives covered by the
FPM Customer Contracts with PacifiCare of Utah, a division of PacifiCare Health
System, Inc. and Talbert Medical Group listed on Schedule 2.10 (collectively,
-------------
the "PacifiCare Contract") on July 1, 1999 is less than 149,000, then the Seller
shall, subject to the terms and conditions of this Article XII, pay to the
Purchaser an amount equal to the product of (i) the number by which the
aggregate number of lives covered by the PacifiCare Contract on July 1, 1999 is
less than 149,000 times (ii) $16.91.
(c) The amounts payable under Subsection (a) and (b) above shall be
determined as of July 1, 1999 and offset against each other and the net amount
shall be payable by Seller or Purchaser, as the case may be. The net amount
payable shall be the "Post-Closing Adjustment Amount;" provided, however, that
the Post-Closing Adjustment Amount payable by either Seller or Purchaser shall
be limited to a maximum of $2,000,000.
<PAGE>
56
(d) The Purchaser shall furnish to the Seller on or before July 15,
1999 a certificate signed by the chief financial officer of the Purchaser
setting forth (i) each Development Contract that has been signed prior to July
1, 1999, (ii) the total number of lives covered by each Development Contract on
July 1, 1999, (iii) the total number of covered lives covered by the PacifiCare
Contract on July 1, 1999, (iv) a calculation of the Post-Closing Adjustment
Amount based thereon, and (v) copies of all the customer censuses. The
determination of the total number of lives covered by the Development Contracts
and the PacifiCare Contract shall be determined by the census under such
contract as of July 1, 1999, as submitted in writing by the customer to the
Group Member for the purpose of determining the fee due under such respective
contract. The Seller shall have until on or before July 30, 1999 to dispute the
calculation of the Post-Closing Adjustment Amount by Purchaser. If Seller
disputes any aspect of the calculation of the Post-Closing Adjustment Amount by
Purchaser, whether relating to the existence of a Development Contract, number
of lives covered by a Development Contract or the PacifiCare Contract, or the
calculation of the Post-Closing Adjustment Amount, then the Seller shall deliver
a written notice of such dispute to Purchaser on or before July 30, 1999. Such
written notice shall specify in reasonable detail the specific aspect of the
calculation of the Post-Closing Adjustment Amount or otherwise that Seller
disputes.
(e) In the event that the Seller does not dispute the calculation of
the Post-Closing Adjustment Amount by Purchaser then the Post-Closing Adjustment
Amount shall be payable by Purchaser or Seller, as the case may be, on July 31,
1999 by wire transfer of immediately available funds in such amount, subject to
the proviso set forth in subsection (c) above. In the event that the Seller
disputes the calculation of the Post-Closing Adjustment Amount, then the
determination thereof shall be made by arbitration pursuant to Article XV
hereof; provided that such arbitration shall be limited to the specific aspects
of such calculation that Seller specified as being in dispute in its written
notice and provided further that the Post-Closing Adjustment Amount shall be
payable on or before three (3) business days after the entry of such
determination by the arbitrators and shall bear interest from and after July 31,
1999 at the rate per annum equal to the prime rate of Chase Manhattan Bank (or
its successors), as in effect from time to time, on the basis of a 365-day year
and the actual number of days elapsed from such date to the date of payment.
(f) Any Post-Closing Adjustment Amount payable by Seller shall not
be paid out of the Indemnity Escrow Deposit.
12.2 Access by Seller. For the purposes of reviewing the calculation of
----------------
the Post-Closing Adjustment Amount, the Purchaser shall (and shall cause each of
the Group Members to), during normal business hours and upon reasonable notice,
make available to Seller and its representatives (including, without limitation,
counsel and independent auditor) provide access to the offices of the Group
Members and
<PAGE>
57
Purchaser and to all information, files, documents and records of the Group
Members and Purchaser relating to the calculation of the Post-Closing Adjustment
Amount.
12.3 Guaranty of RHCI. RHCI unconditionally and absolutely guarantees the
----------------
performance by Seller of its obligations under this Article XII including,
without limitation, payment of the Post-Closing Adjustment Amount.
SECTION XIII.
MISCELLANEOUS
-------------
13.1 Notices. All notices, requests or instructions hereunder shall be in
-------
writing and delivered personally or sent by telecopy or registered or certified
mail, postage prepaid, return receipt requested, or by overnight courier as
follows:
(a) if to the Seller:
Ramsay Managed Care, Inc.
Columbus Center
One Alhambra Plaza, Suite 750
Coral Gables, Florida 33134
Attention: President
Telecopy: (305) 569-4647
with a copy to:
Haythe & Curley
237 Park Avenue
New York, New York 10017
Attention: Bradley P. Cost, Esq.
Telecopy: (212) 682-0200
(b) if to the Purchaser:
Horizon Health Corporation
National Support Center
1500 Waters Ridge Drive
Lewisville, Texas 75057-6011
Attention: Mr. James W. McAtee
Executive Vice President
Telecopy: (972) 420-8282
<PAGE>
58
with a copy to:
Strasburger & Price, L.L.P.
901 Main Street, Suite 4300
Dallas, Texas 75202
Attention: David K. Meyercord, Esq.
Telecopy: (214) 651-4330
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered, on the date of receipt, if telecopied, three business days
after the date of mailing, if mailed by registered or certified mail, return
receipt requested, and one business day after the date of sending, if sent by
Federal Express or other recognized overnight courier.
13.2 Entire Agreement. This Agreement, the Schedules and the Exhibits
----------------
hereto contain the entire agreement between the parties hereto with respect to
the transactions contemplated hereby, and, except for that certain
Confidentiality Agreement dated February 18, 1998 between RHCI and the Purchaser
(the "Confidentiality Agreement"), which shall remain in full force and effect,
supersedes all prior agreements, understandings, negotiations and discussions,
whether written or oral, of the parties, and no modification hereof shall be
effective unless in writing and signed by the party against which it is sought
to be enforced.
13.3 Assignment. This Agreement shall not be assignable by any of the
----------
parties hereto except pursuant to a writing executed by all of the parties
hereto; provided that Purchaser may assign this Agreement to a wholly-owned
subsidiary but any such assignment shall not release Purchaser from any of its
obligations under this Agreement or delay the Closing.
13.4 Further Action. Each of the parties hereto shall use such party's
--------------
best efforts to take such actions as may be necessary or reasonably requested by
the other parties hereto to carry out and consummate the transactions
contemplated by this Agreement.
13.5 Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto and their respective successors and permitted
assigns.
13.6 Expenses. Each of the parties hereto shall bear such party's own
--------
expenses in connection with this Agreement and the transactions contemplated
hereby whether or not the Closing occurs. In the event that there are any
direct or indirect
<PAGE>
59
real property transfer, personal property transfer or other similar transfer
taxes payable in connection with the transactions contemplated hereby, such
taxes shall be paid one-half by the Purchaser and one-half by the Seller.
13.7 Schedules and Exhibits. All Schedules and Exhibits to this Agreement
----------------------
are integral parts of this Agreement. Any item disclosed hereunder (including
on any Schedule hereto) shall be deemed disclosed for all purposes hereof
irrespective of the specific representation or warranty to which it is
explicitly referenced. Without limiting the generality of the foregoing, the
fact that any disclosure on any of the Schedules is not required to be disclosed
in order to render the applicable representation or warranty to which it relates
true, or that the absence of such disclosure on the Schedule would not
constitute a breach of such representation or warranty, shall not be deemed or
construed to expand the scope of any representation or warranty hereunder or to
establish a standard of disclosure in respect of any representation or warranty.
Notwithstanding anything contained herein to the contrary, the representations
and warranties of a party set forth in this Agreement shall not be affected or
deemed modified, waived or limited in any respect by the information contained
in any agreement or document listed or referenced in the Schedules unless the
reference on the face of the Schedule expressly by its terms indicates that it
limits the scope of a representation or warranty. Purchaser acknowledges that
certain agreements and documents listed on the Schedules are not attached to the
Schedules, but were previously delivered or made available to Purchaser by the
Seller in connection with the due diligence investigation conducted by Purchaser
prior to the Closing. The Schedules delivered pursuant to this Agreement shall
not be attached hereto but shall be delivered separately accompanied by a
certificate executed by the Seller or the Purchaser, as the case may be to the
effect that such constitutes the Schedules to this Agreement and constitute a
part hereof. Nothing contained in this Agreement shall be deemed to create or
impose on Purchaser any duty to examine or investigate any matter or thing for
the purposes of verifying the representations and warranties made by the Seller
and RHCI herein.
13.8 Invalidity, Etc. Should any provision of this Agreement be held by a
----------------
court or arbitration panel of competent jurisdiction to be enforceable only if
modified, such holding shall not affect the validity of the remainder of this
Agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification to become a part hereof and treated as though
originally set forth in this Agreement. The parties further agree that any such
court or arbitration panel is expressly authorized to modify any such
unenforceable provision of this Agreement in lieu of severing such unenforceable
provision from this Agreement in its entirety, whether by rewriting the
offending provision, deleting any or all of the offending provision, adding
additional language to this Agreement, or by making such other modifications as
it deems warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law. The parties
<PAGE>
60
expressly agree that this Agreement as so modified by a court or arbitration
panel shall be binding upon and enforceable against each of them. In any event,
should one or more of the provisions of this Agreement be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions hereof, and if such
provision or provisions are not modified as provided above, this Agreement shall
be construed as if such invalid, illegal or unenforceable provisions had never
been set forth herein.
13.9 Headings. The headings of this Agreement are for convenience of
--------
reference only and are not part of the substance of this Agreement.
13.10 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware without giving effect to the
conflicts of laws provisions and principles thereof.
13.11 Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
13.12 Construction. The parties hereto agree that this Agreement is the
------------
product of negotiations between sophisticated parties and individuals, all of
whom were represented by counsel, and each of whom had an opportunity to
participate in, and did participate in, the drafting of each provision hereof.
Accordingly, ambiguities in this Agreement, if any, shall not be construed
strictly or in favor of or against any party hereto but rather shall be given a
fair and reasonable construction without regard to the rule of contra
------
proferentum.
- -----------
SECTION XIV.
DEFINITIONS
-----------
14.1 Certain Definitions. The following terms when used herein shall have
-------------------
the meanings assigned to them below (certain other terms are defined elsewhere
herein):
"Actions" shall have the meaning set forth in Section 2.15 hereof.
"Affiliate" means a person or entity who directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, another person.
<PAGE>
61
"Applicable Law" shall mean the collective reference to any law, rule,
regulation, ordinance, writ, judgment, injunction, decree, determination, award
or other order of any Governmental Authority, in each case excluding any and all
Environmental Laws.
"Base Net Worth" shall mean $7,312,904 representing the amount determined
from the FPM Balance Sheet by deducting the liabilities of the Group on a
consolidated basis from the assets of the Group on a consolidated basis but
disregarding for the purposes of such calculation all intercompany accounts and
payables reflected on the FPM Balance Sheet whether in the asset or the
liability sections thereof.
"Basket Amount" shall have the meaning set forth in Section 9.05 hereof.
"Beneficiary" shall mean the person(s) or entity designated by an Employee,
Former Employee, by operation of law or otherwise, as the party entitled to
compensation, benefits, damages, insurance coverage, payments, indemnification
or any other goods or services as a result of any liability or claim under any
applicable welfare or benefit plan or program.
"Best Efforts" or "best efforts" shall mean diligently, promptly and in
good faith taking all actions which are reasonable, necessary and appropriate to
accomplish the objective requiring the use of best efforts, but shall not
include any obligation (a) to make any payment, incur any costs, commit
available resources, or forego the receipt of any payment, which in any case is
material in amount in light of the required objective, (b) to initiate any
lawsuit or other proceeding to achieve the required objective, or (c) to take
any action which is unlawful.
"Claims" shall have the meaning set forth in Section 2.22 hereof.
"Closing" and "Closing Date" shall have the meanings set forth in Section
4.01 hereof.
"Closing Balance Sheet" shall have the meaning set forth in Section 1.04(a)
hereof.
"Closing Net Worth" shall mean the consolidated assets of the Group minus
the consolidated liabilities of the Group as of the Closing Date excluding,
however, for all purposes of such calculation all intercompany accounts and
payables (whether reflected in either the asset or liability sections of the
Closing Balance Sheet) (immediately prior to the Closing and without giving
effect to Section 1.06 hereof), all determined in accordance with GAAP, and in a
manner consistent with the
<PAGE>
62
preparation of the February 28, 1998 balance sheet included in the Financial
Statements, but only to the extent not contrary to GAAP.
"Closing Purchase Price" shall have the meaning set forth in Section 1.03
hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall have the meaning set forth in the recitals hereof.
"Confidentiality Agreement" shall have the meaning set forth in Section
13.02 hereof.
"Contracts" shall have the meaning set forth in Section 2.10 hereof.
"Control" (including the terms "controlling", "controlled by" and "under
common control with") means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of the person,
whether through stock ownership, voting rights, governing boards or otherwise.
"Damages" shall mean any and all losses, claims, demands, damages,
liabilities, obligations, costs and expenses, including without limitation,
reasonable fees and disbursements of counsel sustained or incurred by the
Purchaser Indemnified Parties (or any of them) or the Seller Indemnified Parties
(or any of them), as the case may be, and other reasonable out-of-pocket costs
and expenses incurred in connection with investigating or defending any action,
suit or proceeding, commenced or threatened, but excluding punitive or
consequential losses or damages.
"Determination" shall mean (a) the final non-appealable judgment by a court
of competent jurisdiction or arbitrator with respect to any claim covered by
Section IX hereof or (b) a compromise and settlement agreement executed and
delivered by both Indemnitor and Indemnitee with respect to any claim covered by
Section IX.
"Determination Date" shall mean the date the Determination is final,
legally binding, and non-appealable.
"Development Contract" shall have the meaning set forth in Section 12.01(a)
hereof.
"Dispute Notice" shall have the meaning set forth in Section 1.04(d)
hereof.
"DOJ" shall have the meaning set forth in Section 8.05 hereof.
<PAGE>
63
"DOL" shall have the meaning set forth in Section 2.12(l) hereof.
"Effective Time" shall mean the close of business Eastern Standard Time on
the Closing Date.
"Elections" shall have the meaning set forth in Section 8.04(d) hereof.
"Employees" shall mean all individuals with whom a Group Member maintains,
on the Closing Date, an employer-employee relationship, including any
individuals on lay-off, disability or leave of absence, whether paid or unpaid.
"Environmental Laws" shall have the meaning set forth in Section 2.16(c)
hereof.
"Environmental Permits" shall have the meaning set forth in Section 2.16(c)
hereof.
"ERISA" shall have the meaning set forth in Section 2.11 hereof.
"Escrow Agent" shall have the meaning set forth in Section 1.02 hereof.
"Escrow Agreement" shall have the meaning set forth in Section 1.02 hereof.
"Financial Statements" shall have the meaning set forth in Section 2.04
hereof.
"Former Employees" shall mean all individuals as to whom an employer-
employee relationship with any Group Member existed prior to the Closing Date,
but does not exist on the Closing Date, who remain entitled to benefits under
any applicable welfare or benefit plan or program.
"FTC" shall have the meaning set forth in Section 8.05.
"45-Day Period" shall have the meaning set forth in Section 1.04(c) hereof.
"FPM" shall have the meaning set forth in the recitals hereof.
"FPM Balance Sheet" shall have the meaning set forth in Section 2.04
hereof.
"FPM Customer Contracts" shall have the meaning set forth in Section 2.10
hereof.
"GAAP" shall mean generally accepted accounting principles.
<PAGE>
64
"Governmental Authority" shall mean the collective reference to any court,
tribunal, government, or governmental agency, authority or instrumentality,
domestic or foreign.
"Group" shall mean FPM and the Subsidiaries, taken as a whole.
"Group Member" shall mean, individually, FPM and each of the Subsidiaries.
"Hazardous Substances" shall have the meaning set forth in Section 2.16(c)
hereof.
"HMO" shall have the meaning set forth in Section 2.12(i) hereof
"HSR Act" shall have the meaning set forth in Section 2.24 hereof.
"Indemnification Matter" shall have the meaning set forth in Section
9.03(a) hereof.
"Indemnitee" shall have the meaning set forth in Section 9.03(a) hereof.
"Indemnitor" shall have the meaning set forth in Section 9.03(a) hereof.
"Indemnity Escrow Amount" shall have the meaning set forth in Section 1.02
hereof.
"Indemnity Escrow Deposit" shall have the meaning set forth in Section 1.02
hereof.
"Indemnity Notice" shall have the meaning set forth in Section 9.03(a)
hereof.
"Indemnity Notice Period" shall have the meaning set forth in Section
9.03(b) hereof.
"Indemnity Response" shall have the meaning set forth in Section 9.03(c)
hereof.
"Independent Auditor" shall have the meaning set forth in Section 1.04(d)
hereof.
"Independent Auditor's Determination" shall have the meaning set forth in
Section 1.04(d) hereof.
"Intellectual Property" shall have the meaning set forth in Section 2.18
hereof.
<PAGE>
65
"Interim Period" shall have the meaning set forth in Section 8.04 hereof.
"Lien" shall mean any mortgage, pledge, encumbrance, charge or other
security interest of any kind or nature whatsoever.
"Managed Services" shall have the meaning set forth in Section 11.02
hereof.
"Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, businesses, results of operations or financial condition of
the Group, taken as a whole, and in any case after application of the proceeds
of any insurance or indemnity under any contract or agreement to which any Group
Member, the Seller or the Purchaser (or any Affiliate thereof) is a party;
provided that the term "Material Adverse Effect" as used herein shall not
include any effect attributable to changes in the economy (of the United States
or any other country) generally, changes in the industries in which any Group
Member engages, or seasonality of the businesses of any Group Member. Material
Adverse Change shall also have the meaning set forth in Section 6.07 hereof for
the purposes of Section 6.07.
"Multiemployer Plans" shall have the meaning set forth in Section 2.12(a)
hereof.
"Noncompete Period" shall have the meaning set forth in Section 11.01
hereof.
"PacifiCare Contract" shall have the meaning set forth in Section 12.01(b)
hereof.
"PBGC" shall have the meaning set forth in Section 2.12(b).
"Pension Plan" shall have the meaning set forth in Section 2.11 hereof.
"Permits" shall have the meaning set forth in Section 2.16(b) hereof.
"Permitted Liens" shall mean:
(a) Liens for Taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with respect
to contested taxes are maintained on the books of any Group Member;
(b) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other social
security legislation;
<PAGE>
66
(c) easements, rights-of-way, restrictions and other similar
encumbrances previously incurred in the ordinary course of business which, in
respect of properties or assets of Group are not material, and which, in the
case of such encumbrances on the assets or properties of any Group Member, do
not materially detract from the value of any such properties or assets or
materially interfere with any present use of such properties or assets;
(d) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are not
overdue for a period of more than 90 days or which are being contested in good
faith by appropriate proceedings;
(e) deposits to secure the performance of bids, contracts (other than
for borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business; and
(f) statutory and contractual Liens on the property of any Group
Member in favor of landlords securing leases.
"Premises" shall have the meaning set forth in Section 2.16(c) hereof.
"PsychTrac Property" shall have the meaning set forth in Section 5.09
hereof.
"PPO" shall have the meaning set forth in Section 9.03(d) hereof.
"Post-Closing Adjustment Amount" shall have the meaning set forth in
Section 12.01 hereof.
"Purchaser Indemnified Parties" shall have the meaning set forth in Section
9.01 hereof.
"Purchase Price" shall have the meaning set forth in Section 1.03 hereof.
"Purchaser Group" shall have the meaning set forth in Section 11.01 hereof.
"Ramsay Services" shall have the meaning set forth in Section 11.02 hereof.
"Real Property Leases" shall have the meaning set forth in Section 2.08
hereof.
"Schedules" shall mean the Schedules attached hereto and made a part of
this Agreement.
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67
"Section XI Persons" shall have the meaning set forth in Section 11.01
hereof.
"Section 338 Forms" shall have the meaning set forth in Section 8.04(d).
"Securities Act" shall have the meaning set forth in Section 3.06 hereof.
"Seller Indemnified Parties" shall have the meaning set forth in Section
9.02 hereof.
"Seller Tax Period" shall mean and include any and all periods ending on or
before the Closing Date, and in addition, the portion of any taxable period that
includes, but does not end on or before, the Closing Date that consists of a
partial period deemed to end on the Closing Date; provided that in the case of
any Seller Tax Period that does not end on or before the Closing Date, for
purposes hereof the books and records of the relevant Group Member(s) shall be
deemed to have been closed at and as of the Closing Date.
"Seller's Health Plan" shall have the meaning set forth in Section 8.05
hereof.
"Seller's Liability Amount" shall have the meaning set forth in Section
9.04 hereof.
"Service" shall mean the Internal Revenue Service.
"Shares" shall have the meaning set forth in the recitals hereof.
"60-Day Period" shall have the meaning set forth in Section 1.04(a) hereof.
"Statement of Closing Net Worth" shall have the meaning set forth in
Section 1.04(a) hereof.
"Subsidiary" and "Subsidiaries" shall have the meanings set forth in
Section 2.01 hereof.
"Taxes" shall have the meaning set forth in Section 2.07 hereof.
"Tax Claim" shall have the meaning set forth in Section 9.03 hereof.
"Tax Notice" shall have the meaning set forth in Section 9.03(d) hereof.
"Tax Notice Period" shall have the meaning set forth in Section 9.03(d)
hereof.
<PAGE>
68
"Tax Returns" shall have the meaning set forth in Section 2.07 hereof.
"Tax Sharing Agreement" shall mean that certain Tax Sharing Agreement,
dated as of October 25, 1994, by and between the Seller and RHCI.
"Termination Date" shall have the meaning set forth in Section 4.02(b)
hereof.
"Third Party Payor" shall have the meaning set forth in Section 11.02
hereof.
"30-Day Period" shall have the meaning set forth in Section 1.04(d) hereof.
"Welfare Plan" shall have the meaning set forth in Section 2.11 hereof.
SECTION XV.
ARBITRATION
-----------
15.1 Arbitration Procedure. In the event of a dispute regarding any
---------------------
matters arising out of or relating to this Agreement, except as set forth in
Section 1.04(d) (including, but not limited to, actions for injunctive or
declaratory relief) (hereinafter collectively "arbitrable issues") that cannot
be settled by agreement between the parties, such controversy or dispute shall
be submitted for arbitration in Atlanta, Georgia, and for this purpose each
party hereby expressly consents to such arbitration in such forum. The
arbitration process shall proceed as follows:
(a) Step One. In the event of a dispute, the disputing party
--------
(herein so called) may at any time notify the other party ("answering party") in
writing that the disputing party demands to pursue arbitration as provided in
Step Two below, setting forth in specific terms the disputing party's proposed
statement of the matters in dispute to be submitted to arbitration and the name
and address of the arbitrator selected by the disputing party. Within ten (10)
business days following receipt of the disputing party's written arbitration
demand complying with the requirements of this Step One, the answering party
shall notify the disputing party in writing, setting forth in specific terms the
answering party's proposed statement of the matter in dispute and identifying
the name and address of the arbitrator selected by such answering party.
(b) Step Two. The two (2) arbitrators so selected shall meet and
--------
confer within twenty (20) business days after receipt by the disputing party of
the answering party's written notice as called for under Step One above, and if
they are unable within said twenty (20) day period to reach a decision on the
matters in dispute, they shall, at the expiration of said twenty (20) day
period, jointly select a
<PAGE>
69
neutral third arbitrator. If said arbitrators are unable to choose a neutral
third arbitrator, any party may request the American Arbitration Association
("AAA") to appoint an additional arbitrator from its National Panel of
Commercial Arbitrators. Any party to this Agreement may advise the AAA that
time is of the essence and that the parties to this Agreement would like such
selection as soon as is reasonably possible, it being expressly understood that
in such AAA selection process the selection is in the sole discretion of the
AAA, and that the AAA shall not be required by reason of this Agreement to
consult with the parties to this Agreement in said selection process; provided
--------
that all arbitrators, including the additional arbitrator selected by the AAA,
shall be disinterested individuals knowledgeable in commercial transactions.
Upon selection of the additional arbitrator, all arbitrators shall within ten
(10) business days thereafter convene an arbitration proceeding at a date, time
and place (in metropolitan Dallas, Texas) designated by said arbitrators by a
majority vote, written notice of which shall be given to the parties not later
than seven (7) calendar days prior to said hearing date. At the hearing, each
party may be represented by counsel and present testimony and evidence. If at
the commencement of the hearing the parties cannot agree on a joint statement of
the matters in dispute to be submitted to the arbitrators, the arbitrators shall
be empowered to frame the submission issue(s). A Certified Court Reporter's
transcript may be demanded by any party or by the arbitrators and said official
transcript shall be prepared, completed, and delivered to the arbitrators with
copies to each party within ten (10) business days following the conclusion of
the hearing. Arbitration sessions following the initial session, if necessary,
shall be scheduled by the arbitrators so that the arbitration proceedings (i.e.,
----
presentation of evidence and/or oral arguments) are completed within twenty (20)
days of the initial session. Each party shall be given the opportunity to file
with the arbitrators simultaneous written briefs five (5) business days
following receipt by the arbitrators of the official transcript but, if no
transcript is demanded as provided in this Agreement, said briefs shall be filed
simultaneously five (5) business days following conclusion of the hearing.
Copies of any such briefs shall be provided to the other party concurrently upon
filing with the arbitrators.
(c) Step Three. Within ten (10) business days following the receipt
----------
by the arbitrators of the brief(s) (or within ten (10) business days following
conclusion of the hearing if all parties waive briefs), the arbitrators shall
make and deliver to the parties their decision and award in writing. The
arbitrators shall have the authority to enter any award or to grant any relief
which could be obtained in a court of competent jurisdiction and reasonable
attorneys', arbitrators' and experts' fees and expenses of arbitration may be
awarded as the arbitrators see fit, consistent with the provisions of this
Agreement. The arbitrators shall have no authority to modify, amend or alter
the provisions of this Agreement and shall base their decision and award on
applicable law, the language contained in this Agreement and the facts giving
rise to the dispute as presented on the record at the hearing. The arbitrators
shall issue a written opinion explaining the basis for their findings.
<PAGE>
70
15.2 Self-Execution. It is expressly understood between the parties that
--------------
this Section XV is a self-executing arbitration provision and that any party may
unilaterally select an arbitrator if the other party refuses to arbitrate. It
is further expressly agreed that said unilaterally-selected arbitrator may
proceed to arbitrate the issue(s) and the arbitration and decision shall be
self-executing and therefore shall not require the order of any Court to
proceed. The parties may, however, mutually stipulate in writing to extend or
to shorten the prescribed time periods (including a stipulation to expedite the
referral and submission to arbitration). All provisions of this Agreement not
in dispute shall be observed and performed without interruption during the
pendency of any proceeding called for under this Section XV.
15.3 Arbitrator's Fees. If an additional arbitrator is required pursuant
-----------------
to Step Two under Section 15.01 above, each party shall pay its pro rata share
of any required retainer or other payments required by such arbitrator upon such
arbitrator's demand, with the ultimate responsibility for the arbitrators' fees
to be determined by the arbitrators in the final arbitration award pursuant to
Step Three of Section 15.01 above; otherwise, each party shall bear its own
costs and expenses in connection with any proceedings under this Section XV and,
in any event, each party shall pay the fees of the arbitrator it selects.
15.4 Rules Governing Arbitration. In all other respects, the arbitration
---------------------------
shall be conducted pursuant to the then-existing Commercial Rules of the AAA to
the extent such rules are not inconsistent with any provision of this Agreement.
Subject to the foregoing, the arbitrators shall determine the scope and extent
of permissible discovery, if any.
15.5 Entry of Award. Entry of Award. The award of the arbitrators may be
--------------
entered as a final judgment by any court of competent jurisdiction.
15.6 Injunctive Relief. Notwithstanding the provisions of this Section XV
-----------------
to the contrary, each party shall be entitled to seek temporary or preliminary
injunctive relief from a court of competent jurisdiction if the failure to
immediately obtain injunctive relief will result in irreparable harm to that
party. The jurisdiction of the court shall extend only to such relief and any
request for permanent injunctive relief shall remain subject to the arbitration
provisions of this Agreement.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
71
IN WITNESS WHEREOF, this Stock Purchase Agreement has been duly executed by
the parties hereto as of the date first above written.
SELLER:
RAMSAY MANAGED CARE, INC.
By:/s/ Luis E. Lamela
----------------------------------
Name: Luis E. Lamela
Title: Chief Executive Officer
PURCHASER:
HORIZON HEALTH CORPORATION
By:/s/ James A. McAtee
----------------------------------------
Name: James W. McAtee
Title: Executive Vice President
Acknowledged and, solely
for purposes of Sections II(B)
IX, X, XI XII, XIII and XV hereof,
Agreed to:
RAMSAY HEALTH CARE, INC.
By:/s/ Luis E. Lamela
-------------------------------
Name: Luis E. Lamela
Title: Chief Executive Officer
<PAGE>
STOCK PURCHASE AGREEMENT
By and Among
RAMSAY MANAGED CARE, INC.,
RAMSAY HEALTH CARE, INC.
and
HORIZON HEALTH CORPORATION
As of May 1, 1998
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Recitals................................................................ 1
SECTION I.PURCHASE AND SALE OF THE SHARES
1.01 Purchase and Sale of the Shares................................... 1
1.02 The Indemnity Escrow Deposit...................................... 1
1.03 Purchase Price.................................................... 2
1.04 Purchase Price Adjustment......................................... 2
1.05 Delivery of the Shares............................................ 3
1.06 Intercompany Account Obligations.................................. 3
SECTION II.REPRESENTATIONS AND WARRANTIES OF THE SELLER
A. Representations and Warranties of the Seller...................... 4
2.01 Organization and Qualification; Subsidiaries...................... 4
2.02 Conflicts......................................................... 4
2.03 Capitalization.................................................... 5
2.04 Financial Statements; No Undisclosed Liabilities.................. 5
2.05 Accounts Receivable............................................... 6
2.06 Absence of Certain Changes........................................ 6
2.07 Taxes............................................................. 7
2.08 Real Property Owned or Leased..................................... 10
2.09 Title to Assets................................................... 10
2.10 Contracts......................................................... 10
2.11 Employees......................................................... 12
2.12 Employee Benefit Plans............................................ 13
2.13 Labor Relations................................................... 15
2.14 Insurance......................................................... 16
2.15 Litigation........................................................ 16
2.16 Permits; Compliance with Applicable Law........................... 16
2.17 Bank Accounts..................................................... 18
2.18 Trademarks, Patents and Copyrights................................ 18
2.19 Transactions with Certain Persons................................. 18
2.20 Customers......................................................... 18
2.21 Authority......................................................... 18
2.22 Ownership of Shares............................................... 19
2.23 Accounts Payable IBNR............................................. 19
2.24 Consents.......................................................... 19
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2.25 Foreign Person...................................................... 19
2.26 Improper Payments................................................... 19
2.27 Status as Eligible Common Parent.................................... 20
B. Representations and Warranties of RHCI.............................. 20
2.28 Organization........................................................ 20
2.29 Authority........................................................... 20
2.30 Conflicts........................................................... 20
2.31 Litigation; Disputes................................................ 20
2.32 Consents............................................................ 20
C. Agreement by the Purchaser Regarding No Other Representations or
Warranties by the Seller............................................ 21
SECTION III.REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
A. Representations and Warranties of the Purchaser..................... 21
3.01 Organization........................................................ 21
3.02 Authority........................................................... 21
3.03 Conflicts........................................................... 22
3.04 Litigation; Disputes................................................ 22
3.05 Consents............................................................ 22
3.06 Investment Purpose.................................................. 22
3.07 Financing........................................................... 22
B. Agreement by the Seller Regarding No Other Representations or Warrants
by the Purchaser.................................................... 22
SECTION IV.THE CLOSING
4.01 Time and Place of the Closing....................................... 23
4.02 Termination......................................................... 23
4.03 Effect on Obligations............................................... 24
4.04 Return of Documentation............................................. 24
4.05 Sole and Exclusive Remedy........................................... 24
SECTION V.CONDITIONS TO THE SELLER'S OBLIGATIONS TO CLOSE
5.01 Certificates........................................................ 25
5.02 Opinion of the Purchaser's Counsel.................................. 25
5.03 Representations, Warranties and Covenants........................... 25
5.04 No Litigation....................................................... 26
5.05 Approvals........................................................... 26
5.06 Third Party Consents................................................ 26
5.07 HSR Act Approval.................................................... 26
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5.08 Releases............................................................ 26
5.09 PsychTrac License................................................... 26
5.10 Release of Guaranty................................................. 26
SECTION VI.CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE
6.01 Certificates........................................................ 27
6.02 Stock Certificates.................................................. 28
6.03 Releases............................................................ 28
6.04 Corporate Minute Book............................................... 28
6.05 Resignations........................................................ 28
6.06 Escrow Agreement.................................................... 28
6.07 Material Adverse Change............................................. 28
6.08 Opinion of the Seller's Counsel..................................... 28
6.09 Representations, Warranties and Covenants........................... 29
6.10 No Litigation....................................................... 29
6.11 Approvals........................................................... 29
6.12 Third Party Consents................................................ 29
6.13 HSR Act Approval.................................................... 29
6.14 Release............................................................. 29
6.15 Tax Sharing Agreements.............................................. 29
6.16 Certification of Non-Foreign Status................................. 29
6.17 Pension Plan........................................................ 30
6.18 Welfare Plans....................................................... 30
6.19 Non-Competition Agreements.......................................... 30
SECTION VII.CONDUCT OF THE BUSINESS
7.01 Access and Information.............................................. 31
7.02 Monthly Financial Statements........................................ 32
7.03 Operation of Businesses; Course of Conduct.......................... 32
7.04 Consents............................................................ 33
7.05 Solicitation of Inquiries........................................... 34
7.06 Cooperation......................................................... 34
SECTION VIII.OTHER AGREEMENTS OF THE PARTIES
8.01 Announcements....................................................... 34
8.02 Labor Relations..................................................... 34
8.03 Access to Information............................................... 34
8.04 Tax Matters......................................................... 36
8.05 HSR Filing.......................................................... 38
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8.06 Certain Assets..................................................... 39
SECTION IX.INDEMNIFICATION
9.01 Indemnification by the Seller and RHCI............................. 39
9.02 Indemnification by the Purchaser................................... 40
9.03 Procedure for Indemnification...................................... 40
9.04 Limits on the Liability of the Seller.............................. 42
9.05 Other Limits on Indemnification.................................... 42
9.06 Losses Net......................................................... 43
9.07 Sole and Exclusive Remedy.......................................... 43
SECTION X.BROKERS AND FINDERS
10.01 The Seller's Obligations........................................... 43
10.02 The Purchaser's Obligations........................................ 43
SECTION XI. NON-COMPETITION AGREEMENT
11.01 Noncompete Agreement............................................... 43
11.02 Certain Definitions................................................ 44
11.03 Reasonableness; Reformation........................................ 44
SECTION XII.POST-CLOSING ADJUSTMENT
12.01 Post-Closing Adjustment............................................ 45
12.02 Access by Seller................................................... 46
12.03 Guaranty of RHCI................................................... 47
SECTION XIII.MISCELLANEOUS
13.01 Notices............................................................ 47
13.02 Entire Agreement................................................... 48
13.03 Assignment......................................................... 48
13.04 Further Action..................................................... 48
13.05 Binding Effect..................................................... 48
13.06 Expenses........................................................... 48
13.07 Schedules and Exhibits............................................. 48
13.08 Invalidity, Etc.................................................... 49
13.09 Headings........................................................... 49
13.10 Governing Law...................................................... 49
13.11 Counterparts....................................................... 50
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13.12 Construction....................................................... 50
SECTION XIV.DEFINITIONS
14.01 Certain Definitions................................................. 50
SECTION XV.ARBITRATION
15.01 Arbitration Procedure.............................................. 56
15.02 Self-Execution..................................................... 57
15.03 Arbitrator's Fees.................................................. 58
15.04 Rules Governing Arbitration........................................ 58
15.05 Entry of Award..................................................... 58
15.06 Injunctive Relief.................................................. 58
</TABLE>
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<PAGE>
SCHEDULES
- ---------
Schedule 2.01 Subsidiaries Partnerships, Etc.
Schedule 2.02 Conflicts
Schedule 2.03 Capitalization
Schedule 2.04 Financial Statements/Liabilities
Schedule 2.06 Certain Changes
Schedule 2.07 Taxes
Schedule 2.08 Real Property Leases
Schedule 2.09 Title; Liens
Schedule 2.10 Contracts
Schedule 2.11 Employees
Schedule 2.12 Benefit Plans
Schedule 2.13 Labor Relations
Schedule 2.14 Insurance
Schedule 2.15 Litigation
Schedule 2.16 Permits; Environmental
Schedule 2.17 Bank Accounts
Schedule 2.18 Intellectual Property
Schedule 2.19 Transactions with Certain Persons
Schedule 2.20 Customers
Schedule 2.22 Ownership of Shares
Schedule 2.24 Consents
Schedule 2.29 RHCI Conflicts
Schedule 2.31 RHCI Consents
Schedule 7.03 Certain Changes After Effective Date
Schedule 12.01 Development Contracts
EXHIBITS
- --------
Exhibit A Escrow Agreement
Exhibit B Form of Director and Officer Release
-vi-
<PAGE>
Exhibit 2.8
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT ("Agreement"), dated as of May 15, 1998,
between PROVIDER OPTIONS HOLDINGS, L.L.C., a limited liability company organized
and existing under the laws of the State of Louisiana ("Buyer"), and GREENBRIER
HOSPITAL, INC., a Louisiana corporation ("Seller"), and, solely for purposes of
Section 9.6 hereof, Ramsay Health Care, Inc., a Delaware corporation ("Parent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Seller owns certain assets which are employed in the
operation of Seller's Greenbrier Hospital located at 201 Greenbrier Boulevard,
Covington, Louisiana 70433 (the "Hospital"); and
WHEREAS, Buyer wishes to purchase from Seller the Hospital and certain
assets relating to the operation of the Hospital.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, and intending to be legally
bound, the parties hereto hereby agree as follows:
SECTION 1.
SALE AND TRANSFER OF ASSETS
1.1 Sale and Transfer of Assets. Subject to the terms and conditions
---------------------------
of this Agreement, at the Closing (as hereinafter defined), Buyer agrees to
purchase from Seller, and Seller agrees to sell to Buyer, to the extent legally
transferable, all of Seller's right, title and interest in and to the following
assets (the "Assets"):
(a) The real property described on Schedule 1 hereto, including,
----------
without limitation, all structures, buildings, fixtures and
improvements located on said real property and together with all
easements, privileges, rights of way and appurtenances pertaining
to
<PAGE>
2
or accruing to the benefit of such real property (the "Real
Property");
(b) All furniture and equipment owned by Seller and located at the
Hospital and which are listed on Schedule 1(b) hereto (except for
-------------
all management information systems and related equipment,
including all peripheral and other devices of the Meditech System
(collectively, "Meditech Equipment") and except for the other
furniture and equipment described in Section 1.2 (k) and (l)
hereof);
(c) The contracts, leases, commitments, purchase orders, agreements
and other instruments to which Seller is a party and which are
listed on Schedule 2 hereto (the "Assumed Contracts");
----------
(d) All licenses and permits, to the extent such licenses and permits
are used in the business or operations of the Hospital or are
used by Seller in connection therewith and to the extent such
licenses and permits are legally transferable;
(e) Except as set forth in Section 1.2, all documents, records,
operating manuals and files, including, without limitation, all
patient records, medical records, equipment records and medical
and administrative libraries, of Seller that pertain to the
Hospital;
(f) All prepaid expenses of Seller listed on Schedule 3 hereto and
----------
existing on the Closing Date (as hereinafter defined);
(g) All inventory and supplies owned by Seller and (i) located at the
Hospital on the Closing Date or (ii) which have been ordered by
Seller pursuant to open purchase orders or other agreements or
commitments, including, without limitation, all medicines and
other pharmaceuticals and the inventory and supplies set forth on
Schedule 4 hereto as updated on the Closing Date; and
----------
<PAGE>
3
(h) The non-exclusive right to use the name "Greenbrier" in
connection with the operation of the Hospital.
1.2 Assets Excluded. The following assets of Seller (the "Excluded
---------------
Assets") are specifically excluded from the Assets:
(a) All assets not used in the operation of or in connection with the
Hospital and, except as listed on Schedule 5 hereto, not located
----------
at the Hospital;
(b) All cash (including all cash held in trust), certificates of
deposit, money market instruments, securities, repurchase
agreements, deposits and other cash-equivalents;
(c) Agency Receivables (as defined below), regardless of whether the
cost and other reports related thereto are filed on, prior to or
after the Closing Date;
(d) Patient and other accounts and notes receivable (collectively,
the "Patient Accounts");
(e) All income tax, property tax and other tax refunds;
(f) All amounts due to Seller from affiliates of Seller;
(g) All trademarks, trademark registrations and trademark
applications, trade names, copyrights, patents and patent
applications, processes, formulae, trade secrets, inventions,
proprietary manuals and other proprietary information and
royalties, including all rights to sue for past infringement;
(h) Minute books, stock record books, tax returns, general ledgers
and related corporate and financial documents and records,
incident reports and all other books, records, documents and
other writings not specifically included in Section 1.1(e)
hereof;
<PAGE>
4
(i) All Assets sold, disposed of or otherwise consumed in the
ordinary course of business;
(j) Prepaid insurance and workers' compensation and any other
insurance refunds (collectively, the "Prepaid Insurance");
(k) All Meditech Equipment and all computers and related equipment
and software used for patient billing;
(l) St. Gabriel's Home Health Agency ("Home Health") and all
furniture, equipment, inventory, supplies, books, medical and
other records and all other assets used in the operation of Home
Health, including, without limitation, all assets listed on
Attachment 5-C to Schedule 5 hereto;
----------
(m) All furniture and equipment used by certain corporate office
staff of Parent located in five offices in the Hospital's
professional office building and certain other furniture and
equipment, in each case as listed on Schedule 5 hereto; and
----------
(n) All rights and entitlements under all contracts, leases,
agreements and other instruments to which Seller is a party which
are not Assumed Contracts, all rights and entitlements arising
prior to the Closing Date under all Assumed Contracts, and all
other assets which are not specifically included in the Assets,
including without limitation amounts designated as Excluded
Assets pursuant to Sections 1.9(b) and (c) hereof.
Without limiting the foregoing, Seller shall be entitled to, and shall
be responsible for, any and all receivables, claims or amounts due (or which may
become due) to Seller as reimbursement or other payments from the United States
government, the State of Louisiana or any fiscal intermediary or other third
party payor and any and all rights relating thereto (collectively, the "Agency
Receivables"), including, without limitation, in connection with cost reports
filed with the United States government under the Medicare program, the State of
Louisiana under any State programs or with any fiscal intermediary, in relation
to operations of the Hospital at any time prior to or on the Closing Date,
whether or not such cost reports were filed
<PAGE>
5
prior to, on or after the Closing Date. Seller shall be responsible for filing
the Medicare provider, State provider and fiscal intermediary cost reports for
the Hospital for cost reporting periods ending before or on the Closing Date
(the "Seller Cost Reports"), including any terminating cost reports due as a
result of the transactions contemplated hereby, and Seller shall accept full
responsibility and entitlement under such Seller Cost Reports, including without
limitation, responsibility for and entitlement to the Agency Receivables,
recapture, if any, and audit and other liability for overpayment or recoupment
in connection with such Seller Cost Reports. Seller shall be responsible for
Medicare and any State provider appeals relating to the Hospital for all periods
ended on or before the Closing Date, both individual as well as group appeals,
as those terms are defined in Part I, Section 2920 of the Provider Reimbursement
Manual published by the Health Care Financing Administration. Seller shall be
entitled to receive all amounts due from the Medicare and any State programs in
respect of all such appeals. Buyer agrees that it shall not file or cause to be
filed any amended cost reports in Seller's name or otherwise with respect to the
Hospital for any period ending on or prior to the Closing Date; it being
understood and agreed that Seller shall have the sole discretion as to the
filing of such amended cost reports. Buyer shall forward to Seller any and all
correspondence relating to any and all of the Seller Cost Reports, the Agency
Receivables, the Patient Accounts and the other Excluded Assets promptly
following receipt thereof by Buyer. Buyer agrees to remit to Seller any checks
or other receipts included in or relating to the Agency Receivables, the Patient
Accounts, the Prepaid Insurance and any other item which is an Excluded Asset
immediately upon receipt by Buyer.
1.3 Liabilities Assumed by Buyer. On and as of the Closing, in
----------------------------
addition to its other agreements set forth herein, Buyer shall assume and,
subject to the right of Buyer to contest any such obligation in good faith and
by appropriate proceedings, Buyer shall fully and timely pay, perform and
discharge any and all debts, liabilities and obligations of and claims against
Seller (i) under the Assumed Contracts, (ii) relating to all employee
liabilities and obligations arising on or after the Closing Date, including
without limitation all liabilities and obligations relating to medical
conditions or treatments of the Hired Employees (as defined in Section 4.3)
arising on or after the Closing Date, including liabilities relating to workers
compensation, health insurance and other medical related liabilities
(notwithstanding that, in any such case, the date of injury, initial medical
treatment or other
<PAGE>
6
occurrence may have occurred or existed prior to the Closing, except with
respect to liabilities relating to workers compensation) and (iii) under all
open purchase orders and other agreements for the provision of inventory,
supplies, materials and other services on order as of the Closing Date for
delivery and use in the ordinary course of business at the Hospital after the
Closing Date (collectively, the "Assumed Liabilities").
1.4 Liabilities Excluded. The term "Assumed Liabilities" shall not
--------------------
include any debts, obligations and liabilities of Seller which are not expressly
described in Section 1.3 hereof (the "Excluded Liabilities"), including any
debts, liabilities and obligations of Seller arising out of workers
compensation, health insurance and other liabilities relating to medical
treatment of employees for the period prior to and ending on the Closing Date.
Subject to Buyer's obligations pursuant to Sections 1.9, 1.10, 4.3, 9.1 and 9.6,
Buyer shall assume only the Assumed Liabilities expressly described in Section
1.3 hereof and no others; and any and all other debts, liabilities and
obligations of Seller (by contract or otherwise, fixed or contingent) are
Excluded Liabilities, which are specifically excluded and excepted from the
Assumed Liabilities and are to be retained by Seller.
1.5 Escrow Deposit; Consideration for Sale and Transfer.
---------------------------------------------------
(a) The Escrow Deposit. Contemporaneously with the execution of this
------------------
Agreement, Buyer, Seller and Haythe & Curley (the "Escrow Agent"), will enter
into an escrow agreement (the "Escrow Agreement"), substantially in the form of
Exhibit A attached hereto, and Buyer will deposit with the Escrow Agent by wire
transfer of immediately available funds $50,000 (the "Escrow Amount;" and,
together with all earnings thereon, collectively, the "Escrow Deposit"). The
Escrow Deposit will be held, invested and disbursed as provided herein and in
the Escrow Agreement. If the transactions contemplated by this Agreement are
consummated at the Closing, then in connection with such Closing, Buyer and
Seller will jointly instruct the Escrow Agent in writing to disburse the Escrow
Amount to Seller and all earnings thereon to Buyer on the Closing Date by wire
transfer of immediately available funds, and such distribution to Seller will be
credited against, and constitute partial payment of, the Purchase Price by Buyer
to Seller. If the Closing of all transactions contemplated by this Agreement is
not consummated in accordance with this Agreement, Seller's and Buyer's rights
with respect to the Escrow Deposit will be as provided in Section 8.2 hereof.
<PAGE>
7
The fees and expenses of the Escrow Agent shall be paid as provided in the
Escrow Agreement.
(b) The Consideration. At the Closing, subject to the terms and
-----------------
conditions of this Agreement, Buyer shall pay to Seller in cash the aggregate
consideration set forth in this Section 1.5 (the "Purchase Price") by wire
transfer of immediately available funds to an account designated by Seller. The
Purchase Price to be paid to Seller at Closing shall equal (i) one million six
hundred thousand dollars ($1,600,000) (the "Base Purchase Price"), plus (ii) the
book value of all prepaid expenses as set forth on Schedule 3 hereto (as updated
----------
on the Closing Date), plus (iii) the book value of all inventory and supplies of
Seller as of the Closing Date as set forth on Schedule 4 hereto (as updated on
----------
the Closing Date).
(c) Allocation of Purchase Price. The Purchase Price for the Assets
----------------------------
(including the Assumed Liabilities) shall be allocated by the Buyer and Seller
in accordance with Schedule 16 hereto. The parties hereto agree that the
-----------
allocation of the total Purchase Price is intended to comply with the allocation
method required by Section 1060 of the Internal Revenue Code of 1986, as amended
(the "Code"), and the Treasury regulations issued thereunder (the
"Regulations"). The parties shall reasonably cooperate to comply with all
substantive and procedural requirements of Section 1060 of the Code and the
Regulations, and the allocation shall be adjusted if, and to the extent,
necessary to comply with the requirements of Section 1060 of the Code and the
Regulations. Neither the Buyer nor the Seller will take, nor permit any
affiliated person to take, for federal, state or local income tax purposes, any
position inconsistent with the allocation method set forth in Schedule 16
-----------
hereto, or, if applicable, such adjusted allocation. Each of the Seller and the
Buyer agrees that it shall attach to its tax returns for the tax year in which
the Closing shall occur an information statement on Form 8594, which shall be
completed in accordance with the allocation method set forth in Schedule 16
-----------
hereto.
1.6 Further Acts and Assurances. Seller shall, at any time and from
---------------------------
time to time at and after the Closing, upon request of Buyer, take any and all
reasonable steps necessary to place Buyer in possession of the Assets and will
do, execute, acknowledge and deliver or will cause to be done, executed,
acknowledged and delivered, all such further acts, deeds, assignments,
transfers, conveyances and assurances as may be reasonably required for
transferring to Buyer, or for reducing to Buyer's possession, the Assets. Buyer
shall, at any time and from time to time at and after
<PAGE>
8
the Closing, upon the request of Seller, take any and all reasonable steps
necessary to evidence the assumption of the Assumed Liabilities by Buyer, and
will do, execute, acknowledge and deliver or will cause to be done, executed,
acknowledged and delivered, all such further documents, acts and assurances as
may be reasonably required for the assumption of the Assumed Liabilities by
Buyer.
1.7 Instruments of Conveyance and Assumption. At the Closing, (a)
----------------------------------------
Seller shall convey the Assets to Buyer by delivering to Buyer deeds,
assignments and bills of sale in form and substance reasonably acceptable to
Buyer pursuant to which Seller shall sell, assign, transfer and deliver to
Buyer, as provided in Section 1.1 hereof, all its right, title and interest in
and to the Assets, free and clear of all liens, pledges, minority interests and
other encumbrances, except for (i) liens for taxes, assessments, governmental
charges and other taxes or levies not yet due and payable, (ii) zoning
ordinances, matters of record, permits and other restrictions or limitations
which do not materially interfere with the present use of any such property by
Seller and (iii) the matters disclosed on Schedule 6 hereto (collectively, the
----------
"Permitted Liens") and such other instruments or documents as may be reasonably
necessary to effectuate the transfer contemplated herein and (b) Seller shall
assign and Buyer shall assume the Assumed Liabilities by delivering to Seller an
assignment and assumption agreement in form and substance reasonably acceptable
to Seller.
1.8 Closing. The sale, purchase and other activities provided for
-------
herein (the "Closing") shall occur at 10:00 a.m. on June 2, 1998, unless the
closing conditions set forth in Sections 6 and 7 hereof shall not have been
satisfied (or waived) on or prior to such date, at such reasonable time or place
as may be mutually agreeable. The date of Closing is referred to in this
Agreement as the "Closing Date."
1.9 Prorations on and after Closing Date. (a) All county and local
------------------------------------
ad valorem and property taxes and similar impositions levied or imposed upon or
assessed against the Assets, hereinafter called the "Property Taxes," for the
fiscal year or period in which the Closing Date occurs shall be prorated as of
the Closing Date. In the event the Property Taxes for such year are not
determinable as of the Closing Date, said Property Taxes shall be prorated and
paid on the Closing Date on the basis of the best available information. In the
event any of the Property Taxes are due and payable at the Closing, the same
shall be paid at such time in accordance with the proration
<PAGE>
9
as hereinabove provided. Buyer shall be responsible for the payment of the
Property Taxes within the time fixed for payment thereof and before the same
shall become delinquent.
(b) As of the close of business on the Closing Date, Seller shall
prepare cut-off billings for all patients admitted to or treated at the Hospital
(whether on an inpatient, outpatient or other basis) for which reimbursement is
payable either on a per diem or cost-based basis (the "Cost-based Patients").
Reimbursement payments received after the Closing Date from or in respect of
such Cost-based Patients, including without limitation, payments in respect of
operational and capital cost components ("Cost-based Reimbursement Payments"),
will be prorated between Buyer and Seller through the Closing Date with
Seller's portion to be Excluded Assets. This proration will apply to such Cost-
based Patients admitted to or treated at the Hospital through 12:01 a.m. on the
day after the Closing Date and will be prorated in the following manner:
Seller Patient Days X Cost-based Reimbursement Payments = Seller's
-------------------
Total Patient Days Cost-based
Portion
For purposes hereof (i) "Seller Patient Days" shall mean the whole
number of patient service days from and including the date of admittance to or
treatment at the Hospital through and including the Closing Date, and (ii)
"Total Patient Days" shall mean the whole number of patient service days from
and including the date of admittance to or treatment at the Hospital through and
including the date of discharge or cessation of treatment. Buyer shall pay to
Seller, Seller's Cost-based Portion (as above defined) within five business days
of receipt of Cost-based Reimbursement Payments.
(c) As of the close of business on the Closing Date, Seller shall
prepare cut-off billings for all patients admitted to or treated at the Hospital
(whether on an inpatient, outpatient or other basis) for which reimbursement is
payable on a charge-based or other basis not covered by subsection (b) of this
Section 1.9 (the "Charge-based Patients"). Reimbursement payments received
after the Closing Date from or in respect of such Charge-based Patients
("Charged-based Reimbursement Payments") will be prorated between Buyer and
Seller through the Closing Date with Seller's portion to be Excluded Assets.
This proration will apply to such Charge-based Patients admitted to or treated
at the Hospital through 12:01 a.m. on the day after the Closing Date and will be
prorated in the following manner:
<PAGE>
10
Seller Total Charges X Charged-based Reimbursement Payments = Seller's
--------------------
Total Charges Charged-based
Portion
For purposes hereof (i) "Seller Total Charges" shall mean the total
charges for the services provided to such Charge-based Patients at the Hospital
by Seller through and including the Closing Date, and (ii) "Total Charges" shall
mean the sum of Seller Total Charges plus the total charges for the services
provided to such Patients by Buyer after the Closing Date. Buyer shall pay to
Seller, Seller's Charged-based Portion (as defined above) within five business
days of receipt of Charged-based Reimbursement Payments.
(d) If either Buyer or Seller receives any reimbursement or other
payment amount in respect of per diem, cost-based, charge-based or any other
patients which relate to services rendered by the other party at the Hospital,
the party receiving such amount shall immediately remit said full amount to the
other party.
(e) Any other relevant items, including without limitation (i) lease
payments under the leases and payments under any other agreements which are
Assumed Contracts and deposits under Assumed Contracts and (ii) utilities
(including water, sewer, telephone, gas, electricity and cable television
service), that are customarily prorated in connection with the purchase and sale
of properties similar to the Assets in Covington, Louisiana shall be prorated
and paid by the appropriate party on the Closing Date.
1.10 Licensure of Hospital. Each of the parties hereto acknowledges
---------------------
and agrees that Buyer shall apply to the State of Louisiana, Department of
Health and Hospitals ("Agency"), to seek approval for a license for the
Hospital, effective as of the Closing Date, as a specialty psychiatric hospital
(the "License"). Buyer assumes total responsibility for and all obligations and
risks associated with all aspects of the License and Buyer shall have no
recourse against Seller with respect to any matter relating to the License,
including, without limitation, in the event that the Agency refuses, for any
reason, to approve the License or if it cannot be obtained by the Closing Date.
SECTION 2.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as of the date hereof
as follows:
<PAGE>
11
2.1 Organization; Corporate Power and Qualification of Seller.
---------------------------------------------------------
Seller is a corporation duly organized, validly existing and in good standing
under the laws of the State of Louisiana. Seller has full corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business as and where it is now being conducted, to enter into this
Agreement and to consummate the transactions contemplated hereby. Seller is duly
qualified to do business in each jurisdiction in which the nature of the
properties owned or leased or the nature of the business conducted by it
requires such qualification, except where failure to be so qualified would not
have a material adverse effect on the business, properties and assets of Seller.
A copy of Seller's Articles of Incorporation and all amendments thereto as of
the date hereof and a copy of Seller's by-laws, as amended to the date hereof,
have been delivered to Buyer.
2.2 Title to Assets. Except for the Permitted Liens, and subject to
---------------
obtaining the consents and releases set forth on Schedule 8 hereto, on the
----------
Closing Date Seller shall have good and insurable title to the Real Property and
good and valid title to all of its personal property included in the Assets,
subject to no mortgage, pledge, lien, lease, conditional sales agreement,
option, right of first refusal or to any other encumbrance or charge. All of
the real property which is owned by Seller is described in Schedule 1 hereto and
----------
all leases of real property under which Seller is the tenant and which are being
assumed by Buyer are described in Schedule 7 hereto.
----------
2.3 Contracts. Schedule 2 hereto lists each Assumed Contract and a
--------- ----------
complete copy of each such written Assumed Contract will be delivered to Buyer
prior to the Closing Date. Except as noted in such Schedule, to the knowledge
of Seller there has been no threatened cancellation thereof and no outstanding
disputes thereunder, and Seller has duly performed all of its obligations
thereunder (except where the failure to perform would not have a material
adverse effect on the business, properties and assets of Seller) and, subject to
the receipt of any required consents and releases listed on Schedule 8 hereto,
----------
consummation by Seller of the transactions contemplated by this Agreement will
not (and will not give any person a right to) terminate or modify any rights of,
or accelerate or augment any obligation of, Seller thereunder.
2.4 Defaults. Except as disclosed in Schedule 9 hereto, the
-------- ----------
execution, delivery and performance of this Agreement by Seller and the
consummation of the transactions
<PAGE>
12
contemplated by this Agreement to be consummated by Seller will not:
(a) violate any provision of, or result in the breach of, or
constitute a default under, any law or any order, writ, injunction or decree of
any court, arbitration tribunal or Governmental Authority binding on Seller or
to which Seller is subject (for purposes hereof, "Governmental Authority" means
any government or any agency, bureau, board, commission, court, department,
official, political subdivision, tribunal, licensing agency or other
instrumentality of any government, whether federal, state or local, domestic or
foreign); or
(b) constitute a violation of or a default under, or conflict
with, or result in the creation or imposition of any lien upon any of the Assets
pursuant to, any term or provision of the Articles of Incorporation or by-laws
of Seller or any material contract, indenture, mortgage or agreement to which
Seller is a party (subject in each case to obtaining any necessary consents and
releases as listed on Schedule 8 hereto).
----------
2.5 Court Orders, Decrees and Laws. Except as set forth on Schedule
------------------------------ --------
10 hereto, (a) there is not out standing nor, to the knowledge of Seller,
- --
threatened, any order, writ, injunction or decree of any Governmental Authority
against or affecting the Assets; (b) Seller has not received any written notice
that it is not in compliance in all material respects with all applicable
federal, state and local laws; and (c) Seller has not received any written
notice of any investigation or proceeding by a Governmental Authority which is
pending or being threatened against the Assets; except in each case for ordinary
regulatory reviews and tax inquiries conducted in the regular course.
2.6 Litigation. To the knowledge of Seller, except as set forth in
----------
Schedule 10 hereto, there is no litigation, arbitration, investigation or
- -----------
proceeding pending or, to the knowledge of Seller, threatened against Seller or
the Hospital at law or in equity, before any Governmental Authority, except, in
any case, where an adverse judgment in respect thereof would not have a material
adverse effect on the business, properties and assets of Seller.
2.7 Taxes. Except as set forth on Schedule 11 hereto, Seller has
----- -----------
withheld from each payment made to employees of Seller the amount of all
employment taxes (including, but not limited to, federal, state and local income
and employment taxes) required to be withheld therefrom pursuant to applicable
law and has set aside all
<PAGE>
13
other employee contributions or payments required to be set aside pursuant to
applicable law with respect to such wages and has paid or will pay when due the
same to, or has deposited or will deposit when due such payment with, the proper
tax receiving officers or other appropriate authorities. Seller has timely filed
or will file when due all required tax returns to be filed by it and has paid or
will pay when due all taxes and assessments due from it for all periods ending
on or before the Closing Date.
2.8 Authority; Binding Effect. Seller has taken all corporate action
-------------------------
required by law or otherwise and by its Articles of Incorporation and by-laws to
authorize the execution, delivery and performance of this Agreement by it and
the consummation by it of the transactions contemplated hereby to be consummated
by it. This Agreement constitutes the valid and binding agreement of Seller,
enforceable against Seller in accordance with its terms (except as
enforceability may be restricted, limited or delayed by bankruptcy, insolvency,
moratorium or similar laws affecting or relating to the enforcement of
creditors' rights in general and by general principles of equity).
2.9 Consents and Approvals. Except as indicated in Schedule 8
---------------------- ----------
hereto, no consent, approval or authorization of, or declaration, filing or
registration with any Governmental Authority or other person or entity is
required to be obtained by Seller in connection with the execution, delivery and
performance of this Agreement by Seller or the consummation of the transactions
contemplated hereby by Seller.
2.10 No Finders or Brokers. Except as indicated in Schedule 12
--------------------- -----------
hereto, neither Seller nor any officer or director of Seller has engaged any
finder or broker in connection with the transactions contemplated hereunder.
2.11 Permits and Licenses. Seller has heretofore made available to
--------------------
Buyer copies of all material permits and licenses held by it regarding the
operation of the Hospital as a psychiatric hospital. Except as set forth on
Schedule 13 hereto, the Hospital is qualified for participation in the Medicare
- -----------
program, has a current and valid provider contract with the Medicare program,
and is in compliance in all material respects with the conditions of
participation in such program. The Hospital is duly accredited by the Joint
Commission on Accreditation of Healthcare Organizations for the three-year
period ending October 1999.
2.12 Cost Reports. Seller has heretofore made available to Buyer all
------------
Blue Cross, Medicare and all other
<PAGE>
14
third-party payor program cost reports relating to the business and operations
of the Hospital by Seller for the one-year period ended on June 30, 1997.
2.13 Condition of Property. To Seller's knowledge, except as set
---------------------
forth in Schedule 14 hereto, the tangible personal property and the improvements
-----------
on the Real Property included in the Assets, taken as a whole, are in good
operating condition and repair in all material respects, except for (i) normal
wear and tear, (ii) any condition or repair required which is cosmetic or
decorative in nature and (iii) any other condition which does not materially
adversely affect the present use of such tangible personal property and
improvements on the Real Property.
SECTION 3.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as of the date hereof
as follows:
3.1 Organization; Corporate Power and Qualification. Buyer is a
-----------------------------------------------
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Louisiana. Buyer has full limited liability
company power and authority to own, lease and operate its properties and assets
and to carry on its business as and where it is now being conducted, to enter
into this Agreement and to consummate the transactions contemplated hereby.
Buyer is duly qualified to do business in each jurisdiction in which the nature
of the properties owned or leased or the nature of the business conducted by it
requires such qualification, except where failure to be so qualified would not
have a material adverse effect on its business, properties and assets. A copy
of Buyer's limited liability company Operating Agreement (the "Operating
Agreement") and all amendments thereto as of the date hereof and a copy of
Buyer's Articles of Organization and by-laws, each as amended to the date
hereof, have been delivered to Seller.
3.2 Authority; Binding Effect. Buyer has taken all action required
-------------------------
by law or otherwise and by its Operating Agreement, Articles of Organization and
by-laws to authorize the execution, delivery and performance of this Agreement
by Buyer and the consummation by Buyer of the transactions contemplated hereby
to be consummated by Buyer. This Agreement constitutes the valid and binding
agreement of Buyer, enforceable in accordance with its terms (except as
<PAGE>
15
enforceability may be restricted, limited or delayed by bankruptcy, insolvency,
moratorium or similar laws affecting or relating to the enforcement of
creditors' rights in general and by general principles of equity).
3.3 Defaults. The execution, delivery and performance of this
--------
Agreement by Buyer and the consummation of the transactions contemplated by this
Agreement to be consummated by it will not (i) violate any provision of, result
in a breach of, or constitute a default under, any law or any order, writ,
injunction or decree of any Governmental Authority binding on Buyer or to which
Buyer is subject; or (ii) constitute a violation of or a default under, or be in
conflict with, any term or provision of the Operating Agreement, Articles of
Organization or by-laws of Buyer or any material contract, commitment,
indenture, mortgage, lease or other agreement, or any other restriction of any
kind, to which Buyer is a party or by which it or any of its assets are bound.
3.4 No Finders or Brokers. Neither Buyer nor any officer or director
---------------------
of Buyer has engaged any finder or broker in connection with the transactions
contemplated hereunder.
3.5 Consents and Approvals. Except as indicated in Schedule 15, no
---------------------- -----------
consent, approval or authorization of, or declaration, filing or registration
with, any Governmental Authority or other person or entity is required to be
obtained by Buyer in connection with the execution, delivery and performance of
this Agreement by Buyer or the consummation of the transactions contemplated
hereby by Buyer.
3.6 Access to Information; Investigation. Buyer and its affiliates
------------------------------------
are engaged in the business of managing and operating health care facilities and
are experienced in the risks associated with the operation of health care
facilities such as the Hospital. Buyer has not relied on any representation or
warranty (express or implied, written or oral) except as expressly set forth in
Section 2 hereof and, to Buyer's knowledge, none of the representations or
warranties of Seller in Section 2 hereof is inaccurate or false in any material
respect. Without limiting the generality of the foregoing, in connection with
the Closure (as defined in Section 4.3 below), Seller has notified its
employees, vendors, suppliers, providers, customers, doctors and other health
care professionals and persons and entities with whom Seller has commercial
dealings of the Closure, and, notwithstanding any otherwise express
representations and warranties made by Seller in Section 2 hereof, Buyer
<PAGE>
16
acknowledges and agrees that neither Seller nor any affiliate, agent or
representative thereof makes or has made any representation or warranty to Buyer
or to any affiliate or representative thereof with respect to the Closure or any
event, matter or circumstance which may result therefrom or in connection
therewith and that neither Buyer nor any of its affiliates shall have any claim
against Seller, Parent or any other affiliates or persons arising as a result of
or in connection with the Closure or any matter relating thereto.
3.7 Financing. Buyer has available all funds, or has written binding
---------
commitments from financial institutions or other sources (heretofore delivered
to, and satisfactory to, Seller) to obtain all funds on or prior to the Closing
Date, necessary to pay the Purchase Price in full in cash as provided herein
and otherwise to consummate the transactions contemplated hereby in accordance
with the terms and conditions hereof.
SECTION 4.
COVENANTS OF BUYER
Buyer hereby covenants and agrees with Seller as follows:
4.1 Best Efforts to Secure Consents. Buyer shall take all necessary
-------------------------------
limited liability company and other action required to consummate the
transactions contemplated by this Agreement to be consummated by it, and shall
use its best efforts to secure before the Closing all necessary consents and
approvals required to satisfy the conditions precedent to the obligations of
Seller and Buyer specified herein.
4.2 Confidentiality. (a) Buyer shall hold in strict confidence all
---------------
non-public documents, materials and other information (collectively, the
"Confidential Information") made available to it or received by it from Seller,
Parent, or any other party in connection with the transactions contemplated
herein, whether received before or after the date hereof, including, without
limitation, all Confidential Information made available to or received by Buyer
under Sections 5.1 and 5.5 hereof; provided, however, that any of such
Confidential Information may be disclosed to directors, managers, members,
officers, employees, counsel, agents and representatives of Buyer who need to
know such Confidential Information for the purpose of evaluating and
consummating the transactions contemplated
<PAGE>
17
herein (it being understood that such directors, managers, members, officers,
employees, agents and representatives shall be informed by Buyer of the
confidential nature of such Confidential Information, shall be directed by Buyer
to treat such Confidential Information confidentially and that Buyer shall be
responsible for any disclosure made by any such person in violation of this
Section 4.2); and provided further, however, that in the event that the Closing
occurs, this Section 4.2 shall not apply to Confidential Information to the
extent it is included in the Assets or otherwise relates solely to the
operations of the Hospital (notwithstanding the foregoing, however, all
information made available to or received by Buyer pursuant to Section 5.5 or
which relates to Parent or its other subsidiaries or their respective operations
shall be deemed Confidential Information).
(b) Such Confidential Information including all documents, materials
and agreements relating thereto and not otherwise known to the public are
confidential and proprietary and are not to be disclosed to third persons
without the prior written consent of Parent, except: (i) to the extent
necessary to comply with law or the valid order or requirement of a governmental
agency or court of competent jurisdiction or otherwise in connection with any
court action or administrative proceeding, provided, however, that Buyer shall
make all reasonable efforts to seek confidential treatment of said Confidential
Information; (ii) as part of Buyer's normal reporting or review procedure to its
auditors and its attorneys; or (iii) in order to enforce or exercise its rights
and perform its obligations in connection with the transactions contemplated
herein; and
(c) Except as otherwise required by law (as reasonably determined by
Buyer) Buyer shall not, without the prior consent of the Chief Executive
Officer, the President or Senior Vice President of Parent, (i) contact any
employee, customer, provider or supplier (whether of goods or services) or any
other Person with whom Parent, Seller or their affiliates have commercial
dealings to discuss the transactions contemplated by this Agreement or the
business, operations or affairs of either Parent or Seller or otherwise or (ii)
make any announcement of the transactions contemplated herein to the employees
of Buyer, Seller or Parent (other than key management of Buyer and other persons
whose knowledge thereof is required in connection herewith), news or wire
services or otherwise.
4.3 Employees. Buyer acknowledges that Seller has notified all of
---------
its employees (the "Employees") that (a)
<PAGE>
18
Seller will be closing the Hospital and Home Health on June 2, 1998 (the
"Closure"), and (b) in connection with the Closure, Seller will be terminating
all Employees effective as of such date. On and as of the Closing Date, Buyer
may, in its sole discretion, offer employment to any of the Employees (except
for any billing and collection staff designated by Seller) and, to the extent
that Buyer hires any of the Employees (the "Hired Employees"), Buyer agrees that
it shall use its best efforts to cause its insurance carriers to waive all
applicable waiting periods and limitations as to pre-existing conditions with
respect to participation and coverage requirements applicable to Hired Employees
under any medical and health plan maintained by Buyer for Hired Employees after
the Closing. Buyer shall promptly after the date hereof, but in no event later
than 7 days after the date hereof, provide Seller with a list of Seller's
Employees that Buyer shall offer employment to as of the Closing Date.
Notwithstanding the foregoing, nothing herein shall be deemed to create any
rights (including continued employment with the Buyer) in favor of, or to
constitute an employment agreement for, any employee of Seller or Buyer.
4.4 Access. After the Closing, Buyer will during normal business
------
hours and on reasonable notice provide Seller (and its representatives including
counsel, independent auditors and governmental agencies) with access to all
information, files, documents and records in Buyer's possession or under Buyer's
control relating to the Hospital, its employees or any of the Assets which
Seller reasonably requires with respect to, and will cooperate with Seller at
Seller's expense with regard to, any reasonable business purpose, including,
without limitation, the preparation, filing, handling and appeal of any tax
returns or other reports for periods ending on or prior to the Closing Date and
the Seller Cost Reports and any amendments thereto, compliance with governmental
requirements and regulations, and the prosecution or defense of third party
claims. In addition, during the period from the Closing Date through the date
which is six months thereafter (the "Period"), Buyer will provide and make
available to Seller and Parent for their exclusive use, the 5 offices (the
"Offices") currently used by certain corporate office staff of Parent as well as
additional office space in the professional office building of the Hospital for
use by certain of Seller's billing and collection staff, which Space shall
comprise approximately 1900 square feet (the "Additional Space" and
collectively, with the Offices, the "Space") and any common areas necessary for
use in connection with Seller's or Parent's use of the Space, which Space shall
include access to Meditech computer terminal
<PAGE>
19
lines and telephone and telecopy access and be occupied exclusively by corporate
office staff and billing and collection staff or other staff or representatives
of Parent, in each case, as may be designated by Parent from time to time for
their continued use during the Period. In exchange for the above described
exclusive right to occupy and use the Space, Seller shall pay Buyer an aggregate
amount equal to $1,900 per month, payable monthly in advance on the first
business day of each month and prorated for any partial months, which amount
represents all fees, costs, and expenses to be paid by Seller pursuant to this
Section 4.4 in connection with Seller's and Parent's use of the Space,
including, without limitation, all charges for utilities and janitorial
services, except that Seller shall be responsible for and shall pay to Buyer
promptly after receipt of proper invoices therefor, out-of-pocket long distance
telephone and telecopy charges incurred by Seller, Parent or their employees,
agents or representatives at the Space. In the event that at any time during the
Period through the date which is 15 days prior to the last day of the Period,
Seller shall provide Buyer with written notice of its intent to extend its use
of the Space beyond the end of the Period, Buyer shall provide and make
available the Space to Seller and Parent for one additional period of six months
on the same terms and conditions contained in this Section 4.4
4.5 Preservation and Access to 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 Hospital existing
as of the Closing and which constitute a part of the Assets delivered to Buyer
at Closing. Buyer acknowledges that as a result of entering into this Agreement
and operating the Hospital 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 Hospital after Closing in accordance with applicable
law (including, if applicable, 42 U.S.C. (S) 1395x(v)(1)(I) and requirements of
relevant insurance carriers, all in a manner consistent with the maintenance of
patient records generated at the Hospital after the Closing. In addition to
Buyer's obligations under Section 4.4 above, upon reasonable notice, during
normal business hours, Buyer will afford to the representatives of Seller,
including its counsel and accountants, full and complete access to, and copies
of (at the sole cost and expense of Seller), the patient medical records
transferred to Buyer at the Closing. Upon reasonable notice and during normal
business hours, Buyer
<PAGE>
20
shall also make its officers and employees available to Seller at reasonable
times and places after the Closing for reasonable business purposes relating to
such patient medical and other records. In addition, Seller shall be entitled,
at Seller's sole expense, to remove from the Hospital any such patient medical
records, but only for purposes of pending litigation involving a patient to whom
such records refer, as attested to in writing prior to removal by counsel
retained by Seller in connection with such litigation. Any patient medical
records so removed from the Hospital shall be promptly returned to Buyer
following their use by Seller. Any access to the Hospital, its records or
Buyer's personnel granted to Seller in this Agreement shall be upon the
condition that any such access not materially interfere with the normal business
operations of Buyer.
4.6 Licenses. Promptly after the execution hereof, Buyer shall use
--------
its best efforts to secure before the Closing the License and all other material
licenses, permits, certifications and other approvals required to own, lease or
operate the Hospital as presently operated in accordance with applicable law,
whether by transfer of existing licenses, permits, certifications or other
approvals held by Seller (to the extent legally transferrable) or otherwise.
Buyer understands and agrees that obtaining the License and all other licenses
and other approvals set forth on Schedule 15 are Buyer's (and not Seller's)
-----------
responsibility and obligation and failure to timely obtain such License shall
not delay or prevent the Closing.
4.7 Agreement by Buyer Regarding No Other Representations or
--------------------------------------------------------
Warranties by Seller. Buyer agrees that except for the representations and
- --------------------
warranties (including the Schedules with respect thereto) made by Seller and
expressly set forth in Section 2 of this Agreement, neither Seller nor any
affiliate, agent or representative thereof has made and shall not be construed
as having made to Buyer or to any representative or affiliate thereof, and
neither Buyer nor any affiliate, agent or representative thereof has relied
upon, any representation or warranty of any kind. Without limiting the
generality of the foregoing, and notwithstanding any otherwise express
representations and warranties made by Seller in Section 2 hereof, Buyer agrees
that neither Seller nor any affiliate, agent or representative thereof makes or
has made any representation or warranty to Buyer or to any affiliate or
representative thereof with respect to:
<PAGE>
21
(i) any projections, estimates or budgets relating to Seller or
the Hospital or its businesses or otherwise heretofore or hereafter
delivered to or made available to Buyer or its counsel, accountants,
advisors, lenders, representatives or affiliates of future revenues,
expenses or expenditures, future results of operations (or any component
thereof), future cash flows (or any component thereof) or future financial
condition (or any component thereof) of Seller or the Hospital or its
businesses or the future business, operations or affairs of Seller or the
Hospital; and
(ii) any other information, statement or documents heretofore or
hereafter delivered to or made available to Buyer or its counsel,
accountants, advisors, lenders, representatives or affiliates with respect
to Seller or the Hospital or the business, operations or affairs of Seller
or the Hospital or other Assets, except to the extent and as expressly
covered by a representation and warranty (including the Schedules with
respect thereto) contained in Section 2 hereof.
SECTION 5.
COVENANTS OF SELLER
Seller hereby covenants and agrees with Buyer as follows:
5.1 Access and Information. Prior to the Closing Date, Seller shall
----------------------
give to representatives of Buyer reasonable access during normal business hours
to the Hospital and to Seller's records as they relate to the Assets and the
Assumed Liabilities, and will make available copies of all such documents and
information with respect to the Assets and the Assumed Liabilities as
representatives of Buyer may from time to time reasonably request, all at
Buyer's expense (including any such review or other due diligence activities of
Buyer prior to the execution hereof) and in such a manner as not unduly to
disrupt Seller's normal business activities. All requests for such access or
consultation with employees shall be made through an officer of Parent
designated by Parent in writing.
5.2 Best Efforts to Secure Consents. Seller shall take all necessary
-------------------------------
corporate and other action required to consummate the transactions contemplated
by this Agreement to be consummated by it, and shall use its best
<PAGE>
22
efforts to secure before the Closing all necessary consents and approvals
required to satisfy all conditions precedent to the obligations of Seller
specified herein.
5.3 Confidentiality. (a) Seller shall hold in strict confidence all
---------------
Confidential Information received from either Buyer or any other party in
connection with the transactions contemplated herein, whether received before or
after the date hereof; provided, however, that any of such Confidential
Information may be disclosed to directors, officers, employees, counsel,
lenders, agents and representatives of Seller or Parent who need to know such
Confidential Information for the purpose of evaluating and consummating the
transactions contemplated herein (it being understood that such directors,
officers, employees, counsel, lenders, agents and representatives shall be
informed by Seller or Parent of the confidential nature of such Confidential
Information and shall be directed by Seller or Parent to treat such Confidential
Information confidentially and that Seller and Parent shall be responsible for
any disclosure made by any such person in violation of this Section 5.3);
(b) Such Confidential Information including all documents, materials
and agreements relating thereto and not otherwise known to the public are
confidential and proprietary and are not to be disclosed to third persons
without the prior written consent of Buyer, except: (i) to the extent necessary
to comply with law or the valid order or requirement of a governmental agency or
court of competent jurisdiction or otherwise in connection with any court action
or administrative proceeding, provided, however, that Seller and Parent shall
make all reasonable efforts to seek confidential treatment of said Confidential
Information; (ii) as part of Seller's or Parent's normal reporting or review
procedure to its auditors and its attorneys; or (iii) in order to enforce or
exercise Seller's or Parent's rights and perform Seller's obligations in
connection with the transactions contemplated herein; and
(c) Except as otherwise required by law (as reasonably determined by
Seller or Parent), Seller and Parent shall not make any announcement of the
transactions contemplated herein to the employees of Buyer, Seller or Parent
(other than key management and other persons whose knowledge thereof is required
in connection herewith), news or wire services or otherwise except with the
consent and approval of Buyer.
<PAGE>
23
5.4 Licenses. Promptly after the execution hereof, Seller shall use
--------
its best efforts to assist Buyer if and as requested by Buyer in securing before
the Closing the License and all other material licenses, certificates of need,
permits, certifications and other approvals required to own, lease or operate
the Hospital as presently operated in accordance with all applicable law,
whether by transfer of existing licenses, certificates of need, permits,
certifications or other approvals held by Seller (to the extent legally
transferable) or otherwise (it being understood and agreed that securing the
License and all other licenses and other approvals referred to above is the sole
obligation and responsibility of Buyer).
5.5 Cost Reports. After Closing, Seller shall, within the time
------------
period required by applicable law, prepare and file the Medicare terminating
Seller Cost Reports due as a result of the transactions contemplated hereby, and
Seller shall thereafter promptly forward a copy of such terminating Seller Cost
Reports to Buyer.
SECTION 6.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
All obligations of Seller which are to be discharged under this
Agreement at the Closing are subject to the fulfillment at or prior to the
Closing, of each of the following conditions (unless waived by Seller at any
time at or prior to the Closing):
6.1 Representations and Warranties True. All of the representations
-----------------------------------
and warranties made by Buyer contained in Section 3 of this Agreement shall be
true in all material respects as of the Closing Date; Buyer shall have performed
and complied in all material respects with all covenants and conditions required
by this Agreement to be performed or complied with by it prior to or at the
Closing; and Seller shall have been furnished with a certificate of the Chief
Executive Officer or the Chief Financial Officer of Buyer, dated the Closing
Date, in their corporate capacities, certifying to the foregoing.
6.2 Regulatory Approvals and Other Consents. The consummation of the
---------------------------------------
transactions contemplated by this Agreement shall have been approved by and
consented to by the Governmental Authorities and other persons and entities set
forth on Schedule 8.
----------
<PAGE>
24
6.3 No Obstructive Proceeding. No action or proceedings shall have
-------------------------
been instituted, and no order, decree or judgment of any Governmental Authority
shall be subsisting, which seeks to, or would, prevent the consummation of, or
render it unlawful as of the Closing to effect, the transactions contemplated
hereby in accordance with the terms hereof, or seeks damages in a material
amount by reason of the transactions contemplated hereby. No legal objection to
the transactions contemplated by this Agreement shall have been received from or
threatened by any Governmental Authority which has not been subsequently
withdrawn.
6.4 Delivery of Certified Documents. At the Closing, Buyer shall
-------------------------------
deliver to Seller copies of the certified Articles of Organization of Buyer (not
more than 30 days prior to the Closing Date) by the appropriate governmental
authorities and copies of Buyer's Operating Agreement, by-laws and resolutions
of the Directors or Members of Buyer, approving and authorizing the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby, in each case certified by its Secretary or Assistant
Secretary.
6.5 Proceedings and Documents Satisfactory. All corporate and other
--------------------------------------
proceedings in connection with the transactions contemplated hereby and all
certificates and documents delivered to Seller at Closing pursuant to this
Agreement shall be satisfactory in form and substance to Seller and its counsel
acting reasonably and in good faith.
SECTION 7.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
All obligations of Buyer which are to be discharged under this
Agreement at the Closing are subject to the fulfillment at or prior to the
Closing of each of the following conditions (unless waived by Buyer at any time
at or prior to the Closing):
7.1 Representations and Warranties True. All of the representations
-----------------------------------
and warranties of Seller contained in Section 2 of this Agreement shall be true
in all material respects as of the Closing Date; Seller shall have performed or
complied in all material respects with all covenants and conditions required by
this Agreement to be performed or complied with by it prior to or at the
Closing; and Buyer shall be furnished with a certificate of the President or
<PAGE>
25
any Vice President of Seller, dated the Closing Date, in his corporate capacity,
certifying to the foregoing.
7.2 Regulatory Approvals and Other Consents. The consummation of the
---------------------------------------
transactions contemplated by this Agreement shall have been approved by and
consented to by the Governmental Authorities and other persons and entities set
forth on Schedule 15 hereto; provided, however, it is understood and agreed that
-----------
neither receipt of the License nor notification by the Agency that Buyer will
receive the License at the Closing or at any time thereafter shall be a
condition precedent to Buyer's obligation to purchase the Assets and otherwise
consummate the transactions contemplated hereunder.
7.3 No Obstructive Proceeding. No action or proceedings shall have
-------------------------
been instituted, and no order, decree or judgment of any Governmental Authority
shall be subsisting, which seeks to, or would, prevent the consummation of, or
render it unlawful as of the Closing to effect, the transactions contemplated
hereby in accordance with the terms hereof, or seeks damages in a material
amount by reason of the transactions contemplated hereby. No legal objection to
the transactions contemplated by this Agreement shall have been received from or
threatened by any Governmental Authority which has not been subsequently
withdrawn.
7.4 Proceedings and Documents Satisfactory. All corporate and other
--------------------------------------
proceedings in connection with the transactions contemplated hereby and all
certificates and documents delivered to Buyer at Closing pursuant to this
Agreement shall be satisfactory in form and substance to Buyer and its counsel
acting reasonably and in good faith.
7.5 Delivery of Certified Documents. At the Closing, Seller shall
-------------------------------
deliver to Buyer copies of its charter certified (not more than 30 days prior to
the Closing Date) by the appropriate governmental authorities and copies of its
by-laws and resolutions of the Board of Directors of Seller, approving and
authorizing the execution and delivery of this Agreement by Seller, and the
consummation of the transactions contemplated hereby by Seller, in each case
certified by its Secretary or Assistant Secretary.
7.6 Title to Real Property. Buyer shall have received, at Buyer's
----------------------
sole cost and expense, from a title insurance company licensed to do business in
Louisiana, a written commitment to issue a title insurance policy (the "Title
Policy"), naming Buyer as the insured and insuring that as of the Closing Date
Buyer is vested with fee title
<PAGE>
26
to the Real Property, subject only to non-delinquent real property taxes and
assessment, the Permitted Liens and standard preprinted exceptions. Consistent
with the foregoing, Buyer shall notify Seller in writing within fifteen (15)
days of the date hereof of any material objections to title which are not
otherwise permitted pursuant to the terms of this Agreement. Buyer shall be
deemed to have waived its right to object to any such title matters and the
contingencies to Closing set forth in this Section 7.6 shall be deemed satisfied
if Buyer shall fail to timely notify Seller as aforesaid. In the event that at
Closing Seller's title to the Real Property shall be subject to exceptions other
than those permitted by this Agreement and as to which Buyer shall have timely
notified Seller pursuant to the preceding sentence, Seller shall have the
option, in its sole discretion, to either (x) take no action with respect to
such exceptions, in which event Buyer shall have the right to either terminate
this Agreement in accordance with Section 8.1 hereof or to close this
transaction without any abatement or other reduction in the Purchase Price, (y)
take such action as Seller shall deem to be reasonably necessary to transfer
title to the Real Property subject only to the exceptions provided for in this
Agreement, in which event Seller shall be entitled to a reasonable adjournment
of the date of Closing, not to exceed thirty (30) days, to eliminate such
exceptions, but if Seller shall be unsuccessful in eliminating such exceptions
as of such adjourned date and if Buyer is not willing to close, this Agreement
shall automatically be terminated, or (z) abate the Purchase Price in the amount
reasonably required by the title company to eliminate the exceptions not
provided for in this Agreement. No action taken by Seller to cure or remove any
purported title exception shall be an admission that such purported title
exception is not among the title exceptions subject to which Buyer has agreed to
accept title.
7.7 Title to Certain Assets. Seller shall have good and valid title
-----------------------
to all of its personal property included in the Assets, subject to no pledge,
lien, or other encumbrance or charge other than Permitted Liens.
7.8 Environmental Matters. Buyer, at its sole cost and expense, may
---------------------
commission an environmental firm (the "Environmental Firm") to conduct a Phase I
study of the Real Property. Consistent with the foregoing, Buyer shall notify
Seller in writing within fifteen (15) days of the date hereof of any
Environmental Violation (as such term is hereinafter defined); Buyer shall be
deemed to have waived its right to object to any such Environmental Violation
and the contingencies to Closing set forth in this Section 7.8
<PAGE>
27
shall be deemed satisfied if Buyer shall fail to timely notify Seller as
aforesaid. In the event that at Closing there shall exist an Environmental
Violation as to which Buyer shall have timely notified Seller pursuant to the
preceding sentence, Seller shall have the option, in its sole discretion, to (x)
take no action with respect to the Environmental Violation, in which event Buyer
shall the right to either terminate this Agreement in accordance with Section
8.1 hereof or to close this transaction without any abatement or other reduction
in the Purchase Price, (y) take such action as Seller shall deem to be
reasonably necessary to cure such Environmental Violation, in which event Seller
shall be entitled to a reasonable adjournment of the date of Closing, not to
exceed, thirty (30) days, to cure such Environmental Violation, but if Seller
shall be unsuccessful in curing such Environmental Violation as of such
adjourned date and if Buyer is not willing to close, this Agreement shall
automatically be terminated, or (z) abate the Purchase Price in the amount
reasonably estimated by the Environmental Firm to be necessary to cure the
Environmental Violation. Solely for purposes of this Section 7.8, the term
"Environmental Violation" shall mean any existing environmental violation or
damage located on or pertaining to the Real Property which if not cured would
have a material adverse effect on the Real Property.
SECTION 8.
TERMINATION
8.1 Termination. This Agreement may be terminated and the
-----------
transactions contemplated hereby abandoned at any time prior to the Closing (i)
by the mutual written consent of Buyer and Seller, (ii) by any party by notice
in writing to the other party if there is a material breach by the other party
of a material representation, warranty, covenant or agreement herein not cured
following written notice thereof to such other party within a reasonable period
of time following such notice and provided such party is diligently and in good
faith taking actions to cure such breach (it being understood and agreed that
upon any such termination, the sole remedy for any such material breach shall be
termination of this Agreement as provided in and subject to the terms of this
Section 8), (iii) by Buyer as expressly provided in either of Section 7.6(x) or
7.8(x) hereof, or automatically as provided in either of Section 7.6(y) or
7.8(y) hereof, (iv) by either Buyer or Seller by notice in writing to the other
party if, prior to Closing, all or substantially all of the Assets or the
improvements on the Real Property are destroyed or materially damaged, or
<PAGE>
28
if condemnation proceedings are commenced against the Assets or the improvements
on the Real Property (it being agreed that under no circumstances shall Seller
have any obligation to repair or restore any Assets or improvements upon any
such occurrence) or (v) by Seller by notice in writing to Buyer if the Closing
has not occurred on or before June 15, 1998.
8.2 Disposition of Escrow Deposit upon Termination. (a) In the
----------------------------------------------
event this Agreement is terminated by either Buyer or Seller pursuant to clauses
(i), (iii), (iv) or (v) of Section 8.1, or in the event this Agreement is
terminated by Buyer pursuant to clause (ii) of Section 8.1, then in each such
case the Escrow Amount and all interest thereon and other earnings in respect
thereof shall be promptly returned to Buyer, and Buyer and Seller shall promptly
deliver written instructions to the Escrow Agent to such effect (subject to
Seller's right to object thereto in accordance with, and with the effect set
forth in, the Escrow Agreement). In the event this Agreement is terminated by
Seller pursuant to clause (ii) of Section 8.1, the Escrow Amount and all
interest on and other earnings in respect of the Escrow Amount shall be promptly
disbursed to and become the property of Seller, and Buyer and Seller shall
promptly deliver written instructions to the Escrow Agent to such effect
(subject to Buyer's right to object thereto in accordance with, and with the
effect set forth in, the Escrow Agreement).
(b) It is understood and agreed that in the event that Buyer is in
material breach of this Agreement as described in clause (ii) of Section 8.1 and
this Agreement is terminated by Seller pursuant to clause (ii) of Section 8.1 as
a result of such breach, the parties recognize that the extent of Seller's
damages would be extremely difficult and impractical to ascertain and, to avoid
this problem, the parties hereto agree that Seller's sole and exclusive remedy
in such event shall be to terminate this Agreement pursuant to Section 8.1(ii)
and to receive the Escrow Deposit as contemplated by Section 8.2(a) above.
8.3 Effect of Termination. In the event this Agreement is terminated
---------------------
as provided in this Section 8, (i) Buyer shall deliver to Seller all
Confidential Information (and copies thereof in its or its counsels', agents' or
representatives' possession) concerning Seller, its business or the Assets
previously delivered or made available to Buyer or its counsel, agents or
representatives; and (ii) except as provided in Section 8.2 above, none of the
parties nor any of their respective shareholders, directors, officers, agents or
representatives shall have any liability
<PAGE>
29
to the other party for costs, expenses, loss of anticipated profit,
consequential damages, or otherwise, except for any deliberate and material
breach of any of the provisions of this Agreement, provided that the provisions
of Sections 4.2, 5.3, 8.2 and 9.1 hereof shall survive any such termination.
SECTION 9.
MISCELLANEOUS
9.1 Expenses. All expenses of the preparation of this Agreement and
--------
of the transactions contemplated hereby, including, without limitation, counsel
fees, accounting fees, investment adviser's fees and disbursements and taxes
(except as set forth herein) shall be borne by the respec tive parties incurring
such expense, whether or not such transactions are consummated, and, without
limiting the generality of the foregoing, all environmental audit costs and
expenses, all engineering studies, costs and expenses, the costs of title
insurance covering the Real Property, the cost of obtaining any survey of the
Real Property, and all fees and expenses associated with any other due diligence
activities conducted by or on behalf of Buyer shall be borne by Buyer; provided,
however, that Buyer and Seller shall each pay one-half of any realty transfer
taxes, and Buyer shall pay all recording costs and sales and use taxes payable
in connection with or arising out of the transactions contemplated hereby
regardless of which party has the legal obligation for such taxes and costs
under state law or whether such party would be exempt from such taxes and costs
under state law.
9.2 Notices. All notices, demands and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if delivered in
person, by telecopy or three business days after mailed by certified mail,
postage prepaid, return receipt requested:
To Seller: c/o Ramsay Health Care, Inc.
Columbus Center
One Alhambra Plaza
Suite 750
Coral Gables, Florida 33134
Attention: President
Telecopy: (305) 569-4647
With a copy to: Haythe & Curley
237 Park Avenue
New York, New York 10017
Attention: Joseph J. Romagnoli, Esq.
Telecopy: (212) 682-0200
<PAGE>
30
To Buyer: Provider Options Holdings, L.L.C.
605 East Worthy Road
Gonzales, Louisiana 70707
Attention: Mr. William Mohon
Telecopy: (504) 621-2783
With a copy to: McGlinchey Stafford
One American Place, Ninth Floor
Baton Rouge, Louisiana 70825-0001
Attn: Rodolfo J. Aguilar, Jr., Esq.
Telecopy: (504) 343-3076
or to such other address as any of the parties may designate by notice to the
others in accordance with this Section 9.2.
9.3 Entire Agreement. This Agreement and the Schedules, Exhibits and
----------------
documents delivered pursuant hereto constitute the entire contract between the
parties hereto pertaining to the subject matter hereof and supersede all prior
and contemporaneous agreements, understandings, negotiations and discussions,
whether written or oral, of the parties, and there are no representations,
warranties or other agreements (express or implied) between the parties in
connection with the subject matter hereof, except as specifically set forth in
Sections 2 and 3 hereof. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by the parties to be bound
thereby.
9.4 Governing Law. The validity and construction of this Agreement
-------------
shall be governed by the laws of the State of Louisiana without regard to the
conflict of laws principles of such State.
9.5 Section Headings. The Section headings are for reference only
----------------
and shall not limit or control the meaning of any provision of this Agreement.
9.6 Indemnification.
---------------
(a) Indemnification of Buyer. Seller and Parent will indemnify and
------------------------
hold harmless Buyer and its employees, officers, directors, agents,
representatives, successors and assigns (collectively, "Buyer Indemnified
Parties") from and after the Closing Date, from and against any Loss (as defined
in Section 9.6(c) hereof) arising out of or resulting from (i) any inaccuracy or
inaccuracies in, or any breach of, any of the representations, warranties,
covenants or agreements of Seller contained in this Agreement, (ii) all third
party claims and litigations against Buyer or any other Buyer Indemnified Party
(including, without limitation, those which involve allegations of medical
malpractice) arising out of incidents or other matters which occurred prior to
the Closing Date (other than with respect to any Assumed Liabilities) in
connection with the operation
<PAGE>
31
or ownership of the Hospital or relating to any of the Assets, and (iii) any
Excluded Liability.
(b) Indemnification of Seller and Parent. Buyer will indemnify and
------------------------------------
hold harmless Seller and Parent and each of their respective employees,
officers, directors, shareholders, agents, representatives, successors and
assigns (collectively, "Seller Indemnified Parties") from and after the Closing
Date, from and against any Loss arising out of or resulting from (i) any
inaccuracy or inaccuracies in, or any breach of, any of the representa tions,
warranties, covenants or agreements of Buyer contained in this Agreement, (ii)
all third party claims and litigations against Seller, Parent or any other
Seller Indemnified Party (including, without limitation, those which involve
allegations of medical malpractice) arising out of incidents or other matters
occurring or arising on or after the Closing Date (other than with respect to
any Excluded Liability) in connection with the operation or ownership of the
Hospital or relating to any of the Assets, (iii) any Assumed Liability and (iv)
workers compensation claims of Hired Employees arising on or after the Closing
Date.
(c) Definition. As used herein, "Loss" or "Losses" shall mean any
----------
damage, liability or loss (including reasonable attorneys' fees and other costs
and expenses incident to, and amounts paid by the indemnified party in
settlement of (in accordance with the terms and conditions hereof), any claim,
suit, action or proceeding) sustained, incurred or paid or required to be paid
by the indemnified party, less (i) any payments by insurance companies received
by the indemnified party less any premiums paid in the year in which such claims
are made with respect to such insurance and (ii) any tax savings realized by the
indemnified party, in each case directly resulting from such claim, suit, action
or proceeding.
(d) Limits on Indemnification.
-------------------------
(i) Notwithstanding anything in this Section 9.6 to the contrary, no
party shall be entitled to indemnification pursuant to Section 9.6(a)(i) or
9.6(b)(i) unless and until the aggregate amount of Losses to which the indemnity
relates sustained by such party exceeds $20,000, and then only for the amount by
which such Losses exceed $20,000.
(ii) The representations and warranties contained in or made pursuant
to this Agreement shall expire on the first anniversary of the Closing Date,
provided that if written notice is properly given under this Section 9.6 with
respect to any alleged breach of a representation or warranty to which such
party is entitled to be indemnified hereunder prior to the applicable expiration
date, such
<PAGE>
32
representation or warranty shall continue indefinitely until the applicable
claim is finally resolved.
(iii) Seller's aggregate liability with respect to matters described
in Section 9.6(a) shall be limited to the Base Purchase Price. Buyer's aggregate
liability with respect to matters described in Section 9.6(b) shall be limited
to the Base Purchase Price.
(e) Notice of Claim. In the event that any party hereunder (the
---------------
"Indemnitee") shall receive any notice of claim or proceeding against said party
that, if successful, might result in a claim under this Section 9.6 by the
Indemnitee, or shall otherwise make a claim under this Section 9.6, the
Indemnitee shall give the party upon whom a claim could be made under this
Section 9.6 (the "Indemnitor") written notice of Loss together with a statement
setting forth in reasonable detail the facts giving rise to such Loss. The
Indemnitor shall have the right to contest and defend any action brought against
the Indemnitee based thereon, and shall have the right to contest and defend any
such action in the name of the Indemnitee at the Indemnitor's own expense, all
with counsel reasonably acceptable to the Indemnitee; provided that the
Indemnitor shall not settle or compromise any action, claim or litigation
without the prior written consent of the Indemnitee, which consent shall not be
unreasonably withheld or delayed. If the Indemnitor shall fail to notify the
Indemnitee of the assumption of the defense of any such action within 30 days of
the giving of such notice by the Indemnitee, then the Indemnitee shall have the
right to take any such action as it deems reasonable and appropriate to defend,
contest, settle or compromise any such action or assessment and claim
indemnification as provided herein; provided that the Indemnitee shall not
settle or compromise any action, claim or litigation without the prior written
consent of the Indemnitor, which consent shall not be unreasonably withheld or
delayed. If the Indemnitor does defend any action for which indemnification is
claimed, the Indemnitee shall be entitled to participate at its own expense in
the defense of such action. Failure of the Indemnitee to notify the Indemnitor
of any claim for which it is entitled to indemnity hereunder shall not impair,
limit or affect the indemnification provided herein except to the extent that
the ability of the Indemnitor to contest, defend or dispute such claim has been
materially and adversely affected, subject in all cases to subsection (d) of
this Section 9.6.
9.7 Schedules and Exhibits. All Schedules and Exhibits to this
----------------------
Agreement are integral parts of this Agreement as if fully set forth herein.
Any item disclosed hereunder shall be deemed disclosed for all purposes hereof
irrespective of the specific representation to which it is explicitly
referenced. The parties hereby agree that the
<PAGE>
33
Schedules hereto may be updated and revised by Seller upon written notice to
Buyer on or prior to the Closing Date to the extent necessary to update the
information contained therein or otherwise reflect new information which Seller
becomes aware of after the date hereof.
9.8 Binding on Successors and Assigns. This Agreement shall inure to
---------------------------------
the benefit of and bind the respective successors and permitted assigns of the
parties hereto. Except as provided in Section 9.6 hereof, nothing expressed or
referred to in this Agreement is intended or shall be construed to give any
person or entity other than the parties to this Agreement or their respective
successors or permitted assigns any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained herein, it
being the intention of the parties to this Agreement that this Agreement shall
be for the sole and exclusive benefit of such parties or such successors and
permitted assigns and not for the benefit of any other person. This Agreement
shall not be assigned by any party hereto without the prior written consent of
the other party hereto; provided, however, on or prior to the Closing, Buyer may
assign its rights (but not its obligations) hereunder (including its right to
purchase the Assets or any of them) to any of Buyer's Subsidiaries (as
hereinafter defined) pursuant to an assignment agreement in form and substance
reasonably satisfactory to Seller. Solely for purposes of this Section 9.8, the
term "Subsidiaries" shall mean corporations, limited liability companies or
other entities a majority of whose stock, limited liability company interests or
other ownership interests having ordinary voting power (other than stock,
limited liability company interests or other ownership interests having such
power only by reason of the happening of a contingency) to elect a majority of
the directors of such corporation, or other persons performing similar functions
for such other entities, are owned, directly or indirectly, by Buyer.
9.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall comprise one and the same instrument.
9.10 Definition of "Best Efforts." For purposes of this Agreement,
-----------------------------
the term "best efforts" shall mean diligently, promptly and in good faith taking
all actions which are reasonable, necessary and appropriate to accomplish the
objective requiring the use of best efforts, but shall not include any
obligation (i) to make any payment, incur any costs, commit available resources,
or forego the receipt of any payment, which in any case is material in amount in
light of the required objective, (ii) to initiate any lawsuit to achieve the
required objective, or (iii) to take any action which is unlawful.
<PAGE>
34
9.11 Definition of "Knowledge." Whenever used in this Agreement, the
--------------------------
words "to Seller's knowledge" or "to the knowledge of Seller" or similar words
shall mean the actual knowledge or awareness of the executive officers of Parent
or Seller or the chief executive officers of the Hospital.
9.12 Severability. Should any part of this Agreement for any reason
------------
be declared invalid, such decision shall not affect the validity of any
remaining portion, which remaining portion shall remain in force and effect as
if this Agreement had been executed with the invalid portion thereof eliminated,
and it is hereby declared the intention of the parties hereto that they would
have executed the remaining portion of this Agreement without including therein
any such part, parts, or portion that may, for any reason, hereafter be declared
invalid.
9.13 Interpretation. No provisions of this Agreement or any related
--------------
document shall be construed against or interpreted to the disadvantage of any
party hereto by any court or other governmental or judicial authority by reason
of such party's having or being deemed to have structured or drafted such
provision.
9.14 Consents. To the extent that any consent relating to an Assumed
--------
Contract and listed on Schedule 8 hereto is not obtained on or before the
----------
Closing Date, and the Closing occurs, the parties will use their respective best
efforts to obtain such consent as soon as reasonably practicable following the
Closing Date. In the event that any or all of such consents on Schedule 8 are
----------
not obtained or are rejected within 100 days after the Closing Date, then the
applicable contracts to which such consents relate shall be automatically
deleted from Schedule 2 hereto and no longer be deemed Assumed Contracts for
----------
purposes of this Agreement; provided, however, that during such period beginning
on the Closing Date and ending 100 days after the Closing Date (or ending on
such earlier date with respect to any such contract the consent to which is
rejected), such contracts shall in all respects be deemed Assumed Contracts for
purposes of this Agreement and Buyer shall abide by the terms and conditions of
each such contract as if it were an Assumed Contract.
* * *
<PAGE>
35
IN WITNESS WHEREOF, the parties hereto have duly executed this Asset
Purchase Agreement as of the day and year first above written.
GREENBRIER HOSPITAL, INC.
By /s/ Remberto G. Cibran
----------------------------
Name: Remberto G. Cibran
Title: President
PROVIDER OPTIONS HOLDINGS, L.L.C.
By /s/ E. Keith Rush
----------------------------
Name: E. Keith Rush
Title: C.E.O.
Solely for purposes of
Section 9.6 hereof:
RAMSAY HEALTH CARE, INC.
By /s/ Remberto G. Cibran
----------------------
Name: Remberto G. Cibran
Title: President
<PAGE>
================================================================================
ASSET PURCHASE AGREEMENT
BETWEEN
PROVIDER OPTIONS HOLDINGS, L.L.C.
AND
GREENBRIER HOSPITAL, INC.
================================================================================
As of May 15, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1.
SALE AND TRANSFER OF ASSETS................................................. 1
1.1 Sale and Transfer of Assets....................................... 1
1.2 Assets Excluded................................................... 3
1.3 Liabilities Assumed by Buyer...................................... 5
1.4 Liabilities Excluded.............................................. 6
1.5 Escrow Deposit; Consideration for Sale and Transfer............... 6
1.6 Further Acts and Assurances....................................... 7
1.7 Instruments of Conveyance and Assumption.......................... 8
1.8 Closing........................................................... 8
1.9 Prorations on and after Closing Date.............................. 8
1.10 Licensure of Hospital............................................. 10
SECTION 2.
REPRESENTATIONS AND WARRANTIES OF SELLER.................................... 10
2.1 Organization; Corporate Power and Qualification of Seller......... 10
2.2 Title to Assets................................................... 11
2.3 Contracts......................................................... 11
2.4 Defaults.......................................................... 11
2.5 Court Orders, Decrees and Laws.................................... 12
2.6 Litigation........................................................ 12
2.7 Taxes............................................................. 12
2.8 Authority; Binding Effect......................................... 13
2.9 Consents and Approvals............................................ 13
2.10 No Finders or Brokers............................................. 13
2.11 Permits and Licenses.............................................. 13
2.12 Cost Reports...................................................... 13
2.13 Condition of Property............................................. 14
SECTION 3.
REPRESENTATIONS AND WARRANTIES OF BUYER..................................... 14
3.1 Organization; Corporate Power and Qualification................... 14
3.2 Authority; Binding Effect......................................... 14
3.3 Defaults.......................................................... 15
3.4 No Finders or Brokers............................................. 15
3.5 Consents and Approvals............................................ 15
3.6 Access to Information; Investigation.............................. 15
3.7 Financing......................................................... 16
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
SECTION 4.
COVENANTS OF BUYER....................................................................... 16
4.1 Best Efforts to Secure Consents................................................ 16
4.2 Confidentiality................................................................ 16
4.3 Employees...................................................................... 17
4.4 Access......................................................................... 18
4.5 Preservation and Access to Records After the Closing........................... 19
4.6 Licenses....................................................................... 20
4.7 Agreement by Buyer Regarding No Other Representations or Warranties by Seller.. 20
SECTION 5.
COVENANTS OF SELLER...................................................................... 21
5.1 Access and Information......................................................... 21
5.2 Best Efforts to Secure Consents................................................ 21
5.3 Confidentiality................................................................ 21
5.4 Licenses....................................................................... 22
5.5 Cost Reports................................................................... 23
SECTION 6.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER........................................ 23
6.1 Representations and Warranties True............................................ 23
6.2 Regulatory Approvals and Other Consents........................................ 23
6.3 No Obstructive Proceeding...................................................... 23
6.4 Delivery of Certified Documents................................................ 24
6.5 Proceedings and Documents Satisfactory......................................... 24
SECTION 7.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER......................................... 24
7.1 Representations and Warranties True............................................ 24
7.2 Regulatory Approvals and Other Consents........................................ 24
7.3 No Obstructive Proceeding...................................................... 25
7.4 Proceedings and Documents Satisfactory......................................... 25
7.5 Delivery of Certified Documents................................................ 25
7.6 Title to Real Property......................................................... 25
7.7 Title to Certain Assets........................................................ 26
SECTION 8.
TERMINATION.............................................................................. 27
8.1 Termination.................................................................... 27
8.2 Disposition of Escrow Deposit upon Termination................................. 28
8.3 Effect of Termination.......................................................... 28
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
SECTION 9.
MISCELLANEOUS............................................................. 29
9.1 Expenses........................................................ 29
9.2 Notices......................................................... 29
9.3 Entire Agreement................................................ 30
9.4 Governing Law................................................... 30
9.5 Section Headings................................................ 30
9.6 Indemnification................................................. 30
9.7 Schedules and Exhibits.......................................... 32
9.8 Binding on Successors and Assigns............................... 33
9.9 Counterparts.................................................... 33
9.10 Definition of "Best Efforts..................................... 33
9.11 Definition of "Knowledge."...................................... 33
9.12 Severability.................................................... 34
9.13 Interpretation.................................................. 34
9.14 Consents........................................................ 34
</TABLE>
LIST OF SCHEDULES
Number Description
1 Real Property
1(b) Furniture and Equipment
2 Assumed Contracts
3 Prepaid Expenses
4 Inventory
5 Excluded Furniture and Equipment
6 Permitted Liens
7 Leased Real Property
8 List of Consents and Approvals (Seller)
9 Defaults
10 Litigation
11 Taxes
12 Finders or Brokers
13 Exceptions to Participation in Reimbursement Programs
14 Defects Known to Seller
15 List of Consents and Approvals (Buyer)
16 Purchase Price Allocation
EXHIBITS
Exhibit A Escrow Agreement
-iii-
<PAGE>
Exhibit 10.113
FIRST AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS FIRST AMENDMENT TO CREDIT AGREEMENT ("Amendment") is entered into as
---------
of March 27, 1998 by and among RAMSAY HEALTH CARE, INC., a Delaware corporation
("Borrower"), certain subsidiaries of Borrower listed on the signature pages
--------
hereto (the "Guarantors"), GENERAL ELECTRIC CAPITAL CORPORATION, a New York
----------
corporation ("GE Capital"), and THE ING CAPITAL SENIOR SECURED HIGH INCOME
----------
FUND, L.P., a Delaware limited partnership ("ING;" GE Capital and ING are
----
hereinafter each individually referred to as a "Lender", and collectively, as
------
"Lenders"), and GENERAL ELECTRIC CAPITAL CORPORATION, as administrative agent
-------
(in such capacity, the "Administrative Agent").
--------------------
RECITALS
--------
A. Borrower, Guarantors, Lenders, Administrative Agent and Syndication
Agent are parties to a certain Credit Agreement dated as of September 30, 1997
(the "Credit Agreement;" capitalized terms used herein and not defined herein
----------------
have the meanings assigned to them in the Credit Agreement).
B. Borrower, Guarantors, Lenders, Administrative Agent and Syndication
Agent desire to amend the Credit Agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, and intending to be legally bound, the parties hereto
agree as follows:
A. AMENDMENTS
----------
1. Amendment to Section 3.22. The Credit Agreement is hereby amended by
-------------------------
deleting Section 3.22 thereof in its entirety and by substituting in lieu
thereof the following Section 3.22:
SECTION 3.22 Subordination of Subordinated Indebtedness. This
------------------------------------------
Agreement, and all amendments, modifications, extensions, renewals,
refinancings and refundings hereof, constitute the "Senior Credit
Agreement" within the meaning of the Bridge Note Purchase Agreement
and the Ramsay Subordinated Note Purchase Agreement; this Agreement,
together with each of the other Loan Documents and all amendments,
modifications, extensions, renewals, refinancings and refundings
hereof and thereof, constitute "Senior Credit Documents" within the
meaning of the Bridge Note Purchase Agreement and the Ramsay
Subordinated Note Purchase Agreement; and the Term Loans, the
Revolving Credit Loan, the Letter of Credit Obligations and all other
Obligations of Borrower to the Lenders and the Agents under this
Agreement, the Term Notes, the Revolving Credit Notes and any of the
other Loan Documents, and all amendments, modifications, extensions,
renewals, refundings or refinancings of any of the foregoing
constitute "Senior
<PAGE>
Indebtedness" of Borrower within the meaning of the Bridge Note
Purchase Agreement and the Ramsay Subordinated Note Purchase
Agreement, and the holders of the Bridge Notes and the holders of the
Ramsay Subordinated Note from time to time shall be entitled to all of
the rights of a holder of "Senior Indebtedness" pursuant to Article 9
of the Bridge Note Purchase Agreement and pursuant to Section 4 of the
Ramsay Subordinated Note Purchase Agreement, respectively.
2. Amendment to Section 6.01(g). The Credit Agreement is hereby further
----------------------------
amended by deleting subsection (g) of Section 6.01 thereof in its entirety and
by substituting in lieu thereof the following subsection (g):
(g) such Permitted Acquisition shall be permitted under the terms
of the Bridge Note Purchase Agreement or the Senior Subordinated Note
Agreement, whichever is then outstanding, and the Ramsay Subordinated
Note Purchase Agreement;
3. Amendment to Section 6.04. The Credit Agreement is hereby further
-------------------------
amended by deleting the word "and" appearing immediately prior to clause (m) of
Section 6.04 thereof and by replacing the "." after clause (m) of Section 6.04
thereof with the following:
; and (n) the Ramsay Subordinated Note, provided that the proceeds
from the issuance of the Ramsay Subordinated Note are applied as
follows: (1) $1,400,000 to pay the purchase price of the Palm Bay
Acquisition in full, plus an amount sufficient to pay all related
transaction costs, (2) $1,900,000 to pay the purchase price of the
Dothan Alabama Acquisition in full, plus an amount sufficient to pay
all related transaction costs, and (3) the remainder to be applied to
costs and expenses incurred in preparing the facilities for operation
and working capital for the facilities.
4. Amendment to Section 6.15. The Credit Agreement is hereby further
-------------------------
amended by deleting clauses (c) and (d) of Section 6.15 thereof in their
entirety, by substituting in lieu thereof the following clauses (c), (d), (e)
and (f), and by relettering the existing clauses (e) and (f) of Section 6.15 to
clauses (g) and (h), respectively:
(c) Borrower may make payments of interest, fees and expenses under
the Bridge Notes, the Senior Subordinated Notes and other Subordinated
Indebtedness permitted under clauses (l) and (m) of Section 6.04 in
------------
accordance with their terms (including, without limitation, their
respective subordination provisions) and may repay the principal
amount of the Bridge Notes or any other Subordinated Indebtedness
permitted under clauses (l) and (m) of Section 6.04 utilizing the
------------
proceeds of other Subordinated Indebtedness permitted under clauses
(l) and (m) of Section 6.04; (d) Borrower may pay
------------
2
<PAGE>
its obligations under Article 3 of the Bridge Note Purchase Agreement
solely by the delivery of Stock of Borrower on the basis contemplated
by Section 3.04 thereof; (e) Borrower may make payments of interest
------------
under the Ramsay Subordinated Note in kind for the first twelve months
after the issuance of the Ramsay Subordinated Note and thereafter in
cash in accordance with the terms of the Ramsay Subordinated Note
(including, without limitation, the subordination provisions set forth
in Section 4 of the Ramsay Subordinated Note Purchase Agreement),
provided that cash interest payments may only be made if (i)
Borrower's Fixed Charge Coverage Ratio would not be less than
1.35:1.00, determined on a pro forma basis for the most recent Rolling
---------
Four-Quarter Period for which Borrower is required to deliver a
Compliance Certificate to the Administrative Agent pursuant to Annex F
-------
hereof, based on Borrower's actual Fixed Charge Coverage Ratio as set
forth therein, but calculated as if such interest was included in
Fixed Charges for such period for the purpose of such computation (or,
if Borrower has delivered to the Administrative Agent a pro forma
---------
Compliance Certificate for such period pursuant to Section
-------
6.01(l)(iii), based on Borrower's pro forma Fixed Charge Coverage
------------
Ratio as set forth therein, but calculated as if such interest was
included in pro forma Fixed Charges for such period for the purpose of
---------
such computation), (ii) Borrower would be in compliance with the
financial covenants set forth in Section 1(b) (Leverage Ratio) and
Section 1(c) (Interest Coverage Ratio) of Annex G, determined on a pro
------- ---
forma basis for the most recent Rolling Four-Quarter Period for which
-----
Borrower is required to deliver a Compliance Certificate to the
Administrative Agent pursuant to Annex F hereof, based on Borrower's
-------
actual Leverage Ratio and Interest Coverage Ratio as set forth
therein, but calculated as if the Ramsay Subordinated Note was
included as Funded Debt and interest on the Ramsay Subordinated Note
was included in Interest Expense for such period for the purpose of
such computation (or, if Borrower has delivered to the Administrative
Agent a pro forma Compliance Certificate for such period pursuant to
---------
Section 6.01(l)(iii), based on Borrower's pro forma Leverage Ratio and
---------
Interest Coverage Ratio as set forth therein, but calculated as if the
Ramsay Subordinated Note was included in pro forma Funded Debt and
---------
interest on the Ramsay Subordinated Note was included in pro forma
---------
Interest Expense for such period for the purpose of such computation),
(iii) the Bridge Notes and all amounts owed by Borrower to the holders
of the Bridge Notes under the Bridge Note Purchase Agreement have been
paid in full, and (iv) no Default or Event of Default exists or would
be caused by such payment, (f) with the consent of the Required
Lenders and the Administrative Agent, Borrower may prepay the Ramsay
Subordinated Note in full;
3
<PAGE>
5. Amendment to Section 6.20. The Credit Agreement is hereby further
-------------------------
amended by deleting Section 6.20 thereof in its entirety and by substituting the
following in lieu thereof as Section 6.20:
SECTION 6.20 Changes Relating to Subordinated Debt. Neither
-------------------------------------
Borrower nor any other Credit Party shall change or amend the terms of
the Bridge Notes, the Senior Subordinated Notes, the Ramsay
Subordinated Note, the Bridge Note Purchase Agreement, the Senior
Subordinated Note Agreement, the Ramsay Subordinated Note Purchase
Agreement or any other Subordinated Indebtedness (or any indenture or
agreement in connection therewith) if the effect of such amendment is
to: (a) increase the interest rate on such Subordinated Indebtedness;
(b) change the dates upon which payments of principal or interest are
due on such Subordinated Indebtedness other than to extend such dates;
(c) change any default or event of default other than to delete or
make less restrictive any default provision therein; (d) change or add
any covenant with respect to such Subordinated Indebtedness other than
to make less restrictive any such covenant; (d) change the redemption
or prepayment provisions of such Subordinated Indebtedness other than
to extend the dates therefor or to reduce the premiums payable in
connection therewith; (e) grant any security or collateral to secure
payment of such Subordinated Indebtedness; or (f) change or amend any
other term if such change or amendment would materially increase the
obligations of the obligor or confer additional material rights to the
holder of such Subordinated Indebtedness in a manner adverse to any
Credit Party, the Administrative Agent or any Lender.
6. Amendment to Annex A. The Credit Agreement is hereby further amended
--------------------
by (a) deleting the definitions of "Net Cash Proceeds" and "Subordinated
Indebtedness" in Annex A of the Credit Agreement and by substituting in lieu
thereof the following definitions:
"Net Cash Proceeds" shall mean (a) in respect of any casualty or
-----------------
condemnation described in Section 5.12 and any sale or other
------------
disposition of assets permitted by Section 6.08, all cash proceeds
------------
received in respect thereof and any principal payments on any
promissory notes received as part of the purchase price for any assets
so sold or disposed of, net of (i) commissions and other reasonable
and customary transaction costs, fees and expenses properly
attributable to such transaction and payable by Borrower in connection
therewith (in each case paid to non-Affiliates, other than reasonable
legal fees and expenses paid to Haythe & Curley), (ii) transfer and
other taxes payable in connection therewith, (iii) amounts payable to
holders of senior Liens (to the extent such Liens constitute Permitted
Liens hereunder), if any, and (iv) an appropriate reserve for income
taxes payable in accordance with GAAP in connection therewith, and (b)
in respect of the
4
<PAGE>
issuance of Stock or debt securities described in Section 1.04(f)(ii)
-------------------
and (iii), all cash proceeds received in respect thereof, net of (i)
-----
underwriting discounts and commissions and (ii) other reasonable
costs, fees and expenses properly attributable to such transaction and
payable by Borrower in connection therewith (in each case paid to non-
Affiliates, other than reasonable legal fees and expenses paid to
Haythe & Curley).
"Subordinated Indebtedness" shall mean the Indebtedness evidenced
-------------------------
by or in respect of (a) the Bridge Notes, (b) any of (i) the Senior
Subordinated Notes, (ii) any Indebtedness (other than the Senior
Subordinated Notes) refinancing the Bridge Notes, (iii) any
refinancing of the Senior Subordinated Notes or any Indebtedness
permitted by clause (ii), and (iv) any refinancing of any Indebtedness
permitted by clause (iii), and (c) the Ramsay Subordinated Note;
and (b) adding the following to Annex A as new definitions, in proper
alphabetical order:
"Dothan Alabama Acquisition" shall mean the acquisition by Ramsay
--------------------------
Youth Services of Alabama, Inc. of certain land and personal property
located in Dothan, Houston County, Alabama from Crescent Real Estate
Funding VII, L.P. pursuant to the terms and conditions set forth in
the Dothan Alabama Acquisition Agreement.
"Dothan Alabama Acquisition Agreement" shall mean that certain
------------------------------------
Agreement of Purchase and Sale, dated as of the 30th day of January,
1998, by and among Crescent Real Estate Funding VII, L.P. and Ramsay
Youth Services of Alabama, Inc.
"Palm Bay Acquisition" shall mean the acquisition by Ramsay Youth
--------------------
Services of Florida, Inc. of certain land and personal property
located in Palm Bay, Brevard County, Florida from BHC Properties, Inc.
pursuant to the terms and conditions set forth in the Palm Bay
Acquisition Agreement.
"Palm Bay Acquisition Agreement" shall mean that certain Real
------------------------------
Estate Purchase and Sale Agreement, dated as of March 6, 1998, by and
between BHC Properties, Inc. and Ramsay Youth Services of Florida,
Inc.
"Ramsay Subordinated Note Purchase Agreement" shall mean the
-------------------------------------------
Subordinated Note Purchase Agreement, dated as of March 25, 1998,
among Borrower, as issuer, and Paul Ramsay Holdings Pty. Ltd., as
purchaser, as the same may be amended, modified or supplemented with
the consent of the Administrative Agent and the Required Lenders.
5
<PAGE>
"Ramsay Subordinated Note" shall mean Borrower's Junior
------------------------
Subordinated Note due September 30, 2006, issued pursuant to the
Ramsay Subordinated Note Purchase Agreement in the principal amount of
$5,000,000 plus Capitalized Interest (as defined therein).
"Three Rivers Hospital Sale" shall mean the sale of Three Rivers
--------------------------
Hospital to Health-One Properties, LLC for a purchase price of
$2,000,000 comprised of $500,000 in cash and the Three Rivers Seller
Note pursuant to the Three Rivers Sale Agreement.
"Three Rivers Sale Agreement" shall mean the Agreement of
---------------------------
Purchase and Sale, dated as of March 18, 1998, by and among Ramsay
Louisiana, Inc. and Health-One Properties, LLC.
"Three Rivers Seller Mortgage" shall mean the mortgage to be
----------------------------
executed by Health-One Properties, LLC in favor of Borrower securing
Health-One Properties, LLC's obligations under the Three Rivers Seller
Note.
"Three Rivers Seller Note" shall mean the promissory note in the
------------------------
principal amount of $1,500,000 to be issued by Health-One Properties,
LLC to Borrower as partial payment of the purchase price in the Three
Rivers Hospital Sale.
7. Amendment to Annex F. The Credit Agreement is hereby further amended
--------------------
by deleting Section 16 of Annex F thereof in its entirety and by substituting in
lieu thereof the following Section 16:
16. Upon receipt thereof, copies of (i) any material notice or
other material communication delivered by or on behalf of Borrower to
any Person in connection with the Bridge Note Purchase Agreement, the
Senior Subordinated Note Agreement, the Ramsay Subordinated Note
Purchase Agreement or any other agreement or other document relating
to Subordinated Indebtedness at the same time and by the same means as
such notice or other communication is delivered to such Person, and
(ii) any material notice or other material communication received by
Borrower from any Person in connection with the Bridge Note Purchase
Agreement, the Senior Subordinated Note Agreement, the Ramsay
Subordinated Note Purchase Agreement or any other agreement, document
or instrument relating to Subordinated Indebtedness promptly after
such notice or other communication is received by Borrower.
8. Amendment to Annex G. The Credit Agreement is hereby further amended
--------------------
by deleting the definition of "Funded Debt" in Annex G of the Credit Agreement
and by substituting in lieu thereof the following definition of "Funded Debt":
6
<PAGE>
"Funded Debt" shall mean all of Borrower's consolidated
-----------
Indebtedness which by the terms of the agreement governing or
instrument evidencing such Indebtedness matures more than one year
from or is directly or indirectly renewable or extendible at its
option under a revolving credit or similar agreement obligating the
lender or lenders to extend credit over a period of more than one year
from the date of creation thereof, including in each instance current
maturities of long-term debt (and the current portion of long-term
debt in the last year of its term), revolving credit and short-term
debt extendible beyond one year at the option of the debtor, and shall
also include, without limitation, (i) Indebtedness arising under or in
connection with any interest rate swap agreement or arrangements, (ii)
the Revolving Credit Loan, the Term Loans, the Letter of Credit
Obligations and the other Obligations, (iii) Subordinated
Indebtedness, but excluding the Ramsay Subordinated Note so long as
Borrower is not permitted to pay interest on the Ramsay Subordinated
Note in cash. and (iv) without duplication, any "earn out" or other
contingent payment obligations permitted by Section 6.01(e).
---------------
B. CONSENTS
1. The Lenders consent to the Palm Bay Acquisition and waive any Default
that would arise therefrom under Section 6.01 of the Credit Agreement, provided
--------
that (i) the Palm Bay Acquisition and the initial loan contemplated by the
Ramsay Subordinated Note Purchase Agreement are consummated no later than March
31, 1998, (ii) Borrower receives an initial loan under the Ramsay Subordinated
Note Purchase Agreement in the principal amount of $1,475,000, of which $100,000
shall be applied to reimburse the Borrower for the cash deposit it previously
made under the Palm Bay Acquisition Agreement and $1,300,000, together with such
cash deposit, shall be applied to pay the entire purchase price of the Palm Bay
Acquisition in full and $75,000 shall be applied to pay certain transaction
costs incurred in connection therewith, and (iii) Borrower complies with Section
5.14 of the Credit Agreement within the time periods set forth therein.
2. The Lenders consent to the Dothan Alabama Acquisition and waive any
Default that would arise therefrom under Section 6.01 of the Credit Agreement,
provided that (i) the Dothan Alabama Acquisition is consummated no later than
- --------
May 15, 1998 on the terms and conditions set forth in the Dothan Alabama
Acquisition Agreement, (ii) Borrower receives a loan under the Ramsay
Subordinated Note Purchase Agreement in the principal amount of $1,900,000, of
which $50,000 shall be applied to reimburse the Borrower for the cash deposit it
previously made under the Dothan Alabama Acquisition Agreement and $1,850,000,
together with such cash deposit, shall be applied to pay the entire purchase
price of the Dothan Alabama Acquisition in full, and (iii) Borrower complies
with Section 5.14 of the Credit Agreement within the time periods set forth
therein.
3. Notwithstanding anything set forth in Section 5.13 and Section 6.08(b)
of the Credit Agreement to the contrary, the Lenders hereby consent to the Three
Rivers Hospital Sale, provided
--------
7
<PAGE>
that (i) the Three Rivers Hospital Sale is consummated no later than May 15,
1998 on the terms and conditions set forth in the Three Rivers Sale Agreement,
(ii) net cash proceeds in the amount of $400,000 arising from the Three Rivers
Hospital Sale are immediately remitted to the Administrative Agent, who shall
apply such proceeds to the prepayment of the Loans in accordance with Section
1.04(f)(i) and (g) of the Credit Agreement, (iii) the Three Rivers Seller Note
is promptly pledged and delivered to the Administrative Agent with appropriate
endorsements executed in blank, and (iv) the Three Rivers Seller Mortgage and
all other guaranties and collateral securing the Three Rivers Seller Note are
assigned to the Administrative Agent, pursuant to assignments in form and
substance satisfactory to the Administrative Agent.
C. CONDITIONS PRECEDENT
Notwithstanding any other provision of this Amendment and without affecting
in any manner the rights of the Lenders hereunder, it is understood and agreed
that this Amendment shall not become effective, and the Credit Agreement shall
remain in full force and effect in its unamended form, Borrower shall have no
rights under this Amendment and the Lenders shall not be obligated to take,
fulfill or perform any action hereunder, until the following conditions have
been fulfilled to the satisfaction of the Lenders:
1. The Administrative Agent shall have received the following, each dated
as of the date of this Amendment, in form and substance reasonably satisfactory
to the Administrative Agent and its counsel:
a. This Amendment, duly executed by all parties hereto;
b. A certificate of the Secretary or an Assistant Secretary and each
Credit Party certifying true and correct copies of (1) the
articles or certificate of incorporation and by-laws of such
Credit Party, (2) the resolutions adopted by the Board of
Directors of such Credit Party approving this Amendment and all
documents, certificates and instruments being executed in
connection herewith and the transactions contemplated hereby, (3)
all documents evidencing other necessary corporate action by such
Credit Party and required governmental and third party approvals
with respect to each of the foregoing and (4) the names and true
signatures of the authorized officers of such Credit Party;
c. Opinion of Haythe & Curley, special counsel to the Credit
Parties, in substantially the form of Exhibit I to the Credit
---------
Agreement (excluding the opinions set forth in paragraphs 7(ii),
8, 9, 12 and 13 thereof) with appropriate changes to address this
Amendment; and
d. A certificate from a Responsible Financial Officer of Borrower as
to the Ramsay Subordinated Note Purchase Agreement and the Ramsay
8
<PAGE>
Subordinated Note certifying true and correct copies of the
Ramsay Subordinated Note Purchase Agreement and the Ramsay
Subordinated Note, each of which shall be in form and substance
satisfactory to Lenders; and
2. Ramsay Subordinated Note Purchase Agreement is executed and delivered
by all parties thereto, and all conditions precedent to the effectiveness
thereof have been satisfied.
D. REPRESENTATIONS
Each Credit Party hereby represents and warrants to the Lenders and the
Agent that:
1. The execution, delivery and performance by such Credit Party of this
Amendment (a) are within such Credit Party's corporate power; (b) have been duly
authorized by all necessary corporate and shareholder action; (c) are not in
contravention of any provision of such Credit Party's certificate of
incorporation or bylaws or other organizational documents; (d) do not violate
any law or regulation, or any order or decree of any Governmental Authority; (e)
do not conflict with or result in the breach or termination of, constitute a
default under or accelerate any performance required by, any indenture,
mortgage, deed of trust, lease, agreement or other instrument to which such
Credit Party or any of its Subsidiaries is a party or by which such Credit Party
or any such Subsidiary or any of their respective property is bound; (f) do not
result in the creation or imposition of any Lien upon any of the property of
such Credit Party or any of its Subsidiaries; and (g) do not require the consent
or approval of any Governmental Authority or any other person;
2. This Amendment has been duly executed and delivered for the benefit of
or on behalf of each Credit Party and constitutes a legal, valid and binding
obligation of each Credit Party, enforceable against such Credit Party in
accordance with its terms except as the enforceability hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
creditors' rights and remedies in general; and
3. After giving effect to this Amendment, no Default or Event of Default
has occurred and is continuing as of the date hereof.
E. OTHER AGREEMENTS
1. Each Credit Party hereby restates, ratifies and reaffirms each and
every term and condition set forth in the Credit Agreement, as modified by this
Amendment, effective as of the date hereof.
2. Each Guarantor hereby reaffirms and ratifies its unconditional and
irrevocable, joint and several guarantee to Administrative Agent, Syndication
Agent, Lenders and their respective successors, endorsees, transferees and
assigns, of the prompt payment (whether at stated maturity, by acceleration or
otherwise) and performance when due of the Obligations of Borrower arising under
the Credit Agreement, as amended and affirmed hereby, and reaffirms and ratifies
all of its
9
<PAGE>
other obligations under the Subsidiary Guaranty. Each Guarantor hereby consents
to the execution and delivery of this Amendment by the Borrower, and each
Guarantor acknowledges that it has received and reviewed a copy of the
Amendment.
3. Each Credit Party acknowledges and reaffirms that (i) all Liens
granted to the Administrative Agent for the benefit of the Lenders under the
Collateral Documents remain in full force and effect and shall continue to
secure the Obligations and (ii) the validity, perfection or priority of the
Liens will not be impaired by the execution and delivery of this Amendment.
4. Borrower agrees to pay on demand all costs and expenses of GE Capital
in connection with the preparation, execution, delivery and enforcement of this
Amendment, including the reasonable fees and out-of-pocket expenses of counsel
to GE Capital.
5. This Amendment shall be governed by, and construed in accordance with,
the internal laws (and not the laws of conflicts), of the State of New York and
all applicable laws of the United States of America.
6. This Amendment may be executed in any number of separate counterparts,
each of which shall, collectively and separately, constitute one agreement.
10
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed as of the date
first written above.
RAMSAY HEALTH CARE, INC.
By: /s/ Remberto G. Cibran
-----------------------------------------
Remberto G. Cibran
President
GENERAL ELECTRIC CAPITAL
CORPORATION, as Administrative Agent
and as a Lender
By: /s/ Cheryl P. Boyd
-----------------------------------------
Cheryl P. Boyd
Authorized Signatory
THE ING CAPITAL SENIOR SECURED
HIGH INCOME FUND, L.P., as a Lender
By: /s/ Michael D. Hatley
-----------------------------------------
Name: Michael D. Hatley
Title: Vice President and Portfolio
Manager
11
<PAGE>
AMERICARE OF GALAX, INC.
BETHANY PSYCHIATRIC HOSPITAL, INC.
BOUNTIFUL PSYCHIATRIC HOSPITAL, INC.
CAROLINA TREATMENT CENTER, INC.
EAST CAROLINA PSYCHIATRIC SERVICES
CORPORATION
GREAT PLAINS HOSPITAL, INC.
GREENBRIER HOSPITAL, INC.
GULF COAST TREATMENT CENTER, INC.
HAVENWYCK HOSPITAL, INC.
H. C. CORPORATION
HOUMA PSYCHIATRIC HOSPITAL, INC.
HSA HILL CREST CORPORATION
HSA OF OKLAHOMA, INC.
INTEGRATED BEHAVORIAL SERVICES,
INC.
MESA PSYCHIATRIC HOSPITAL, INC.
MICHIGAN PSYCHIATRIC SERVICES, INC.
PSYCHIATRIC INSTITUTE OF WEST
VIRGINIA
RAMSAY ACQUISITION CORP.
RAMSAY CORRECTIONAL SERVICES, INC.
RAMSAY LOUISIANA, INC.
RAMSAY MANAGEMENT SERVICES OF
WEST VIRGINIA, INC.
RAMSAY NEW ORLEANS, INC.
RAMSAY YOUTH SERVICES, INC.
RHCI SAN ANTONIO, INC.
THE HAVEN HOSPITAL, INC.
By: /s/ Carol C. Lang
-------------------------------------------
Carol C. Lang
Vice President of each of
the foregoing Guarantors
Attest: /s/ Daniel A. Sims
---------------------------------------
Daniel A. Sims
Secretary of each of the foregoing
Guarantors
12
<PAGE>
H. C. PARTNERSHIP
By: HSA HILL CREST CORPORATION,
its General Partner
By: /s/ Carol C. Lang
-------------------------------------------
Carol C. Lang
Vice President
RAMSAY MANAGED CARE, INC.
ARIZONA PSYCHIATRIC AFFILIATES, INC.
FLORIDA PSYCHIATRIC ASSOCIATES, INC.
FLORIDA PSYCHIATRIC MANAGEMENT,
INC.
FPM BEHAVIORAL HEALTH, INC.
FPM MANAGEMENT, INC.
FPM OF LOUISIANA, INC.
FPM OF OHIO, INC.
FPM OF UTAH, INC.
FPM OF WEST VIRGINIA, INC.
FPM/HAWAII, INC.
FPM/SOUTHEAST, INC.
FPMBH OF ARIZONA, INC.
FPMBH CLINICAL SERVICES, INC.
FPMBH OF TEXAS, INC.
UTAH PSYCHIATRIC AFFILIATES, INC.
By: /s/ Carol C. Lang
-------------------------------------------
Carol C. Lang
Executive Vice President of each of
the foregoing Guarantors
13
<PAGE>
Exhibit 10.114
FIRST AMENDMENT TO
SUBORDINATED NOTE PURCHASE AGREEMENT
------------------------------------
THIS FIRST AMENDMENT TO SUBORDINATED NOTE PURCHASE AGREEMENT ("Amendment")
---------
is entered into as of March 27, 1998 by and among RAMSAY HEALTH CARE, INC., a
Delaware corporation (the "Company"), GENERAL ELECTRIC CAPITAL CORPORATION, a
-------
New York corporation ("GE Capital"), and PAUL RAMSAY HOLDINGS PTY. LIMITED ACN
----------
008 446 151, an Australian corporation ("Ramsay Holdings;" GE Capital and Ramsay
----------------
Holdings are hereinafter each individually referred to as a "Purchaser", and
---------
collectively, as "Purchasers"), for the benefit of the parties and each of the
----------
Holders.
RECITALS
--------
A. The Company and Purchasers are parties to a certain Subordinated Note
Purchase Agreement dated as of September 30, 1997 (the "Purchase Agreement;"
------------------
capitalized terms used herein and not defined herein have the meanings assigned
to them in the Purchase Agreement).
B. Purchasers are all of the Holders of the Bridge Notes.
C. The Company and Purchasers desire to amend the Purchase Agreement as
hereinafter set forth.
1. AMENDMENTS
----------
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, and intending to be legally bound, the parties hereto
agree as follows:
1. Amendment to Article 3. The Purchase Agreement is hereby amended by
----------------------
deleting Article 3 thereof in its entirety and by substituting in lieu thereof
the following Article 3:
ARTICLE 3
CONTINGENT PAYMENT OBLIGATION
-----------------------------
Section 3.01. Contingent Payment Obligation. In the event
-----------------------------
that the Series A Bridge Notes have not been repaid in full on or
before March 30, 1998, then, in addition to interest payable at
the rates specified in Section 2.01 hereof, the Company shall pay
------------
to the Holders of the Series A Bridge Notes, concurrently with
the Exit Event, an amount (the "Contingent Payment Amount") equal
-------------------------
to (a) if the Series A Bridge Notes have not been repaid in full
on or before March 30, 1998, but are repaid
<PAGE>
in full on or before September 30, 1998, $1,000,000; or (b) if
the Series A Bridge Notes have not been repaid in full on or
before September 30, 1998, the greater of (1) $1,000,000 or (2)
an amount equal to fourteen percent (14%) of the product of (i)
the number of Outstanding Shares of Common Stock as of the
Determination Date, multiplied by (ii) the Current Market Price
-------------
per Share of Common Stock as of the Determination Date. If Series
A Bridge Notes are held by more than one Holder at such time, the
Contingent Payment Amount shall be paid to the Holders of Series
A Bridge Notes pro rata, based on the proportion that the
--------
principal amount of the Series A Bridge Note held by each such
Holder bears to the aggregate principal amount of all Series A
Bridge Notes.
Section 3.02. Notice of Exit Event. As soon as is reasonably
--------------------
practicable after the Company has knowledge that an Exit Event
will or is reasonably likely to occur, but in no event later than
the Determination Date with respect thereto, it shall provide
written notice thereof (an "Exit Event Notice") to all of the
-----------------
Holders of the Series A Bridge Notes, setting forth the nature of
the Exit Event and the actual or proposed date thereof. Promptly
after giving an Exit Event Notice pursuant to this Section 3.02,
------------
the Company shall cause the Contingent Payment Amount to be
determined on the basis set forth in Section 3.03, if applicable,
------------
as soon as is reasonably practicable, but in any event within
five Business Days following the Determination Date.
Section 3.03. Determination of Contingent Payment Amount. If
------------------------------------------
the Contingent Payment Amount is determined pursuant to clause
(c) of Section 3.01:
------------
(a) The determination of the Current Market Price
per Share of Common Stock as of the Determination Date, the
number of Outstanding Shares of Common Stock as of the
Determination Date and the resulting Contingent Payment Amount
shall be made by the firm of independent accountants of
recognized national standing then retained by the Company, at the
sole expense of the Company. Concurrently with the determination
of the Contingent Payment Amount pursuant to this Section
-------
3.03(a), but in any event within five Business Days following the
-------
Determination Date, the Company shall provide written notice to
each Series A Holder (a "Contingent Payment Amount Notice"),
--------------------------------
setting forth the Contingent Payment Amount as so determined, and
attaching thereto a schedule prepared by its independent public
accountants showing in reasonable detail the calculation thereof.
(b) The Required Series A Holders shall have the
right to object to the Current Market Price per Share of Common
Stock as of the Determination Date, the number of Outstanding
Shares of Common Stock as of the Determination Date or the
Contingent Payment Amount as so determined and set forth in the
Contingent Payment Amount Notice (including, without limitation,
any determination of the Current Market Price per Share of Common
Stock made
2
<PAGE>
pursuant to the second sentence of the definition thereof), by
giving written notice (an "Objection Notice") to the Company
----------------
specifying the nature of their objection, within three Business
Days following receipt of the Contingent Payment Amount Notice
pursuant to paragraph (a) hereof and, unless such objection is
resolved by agreement of the Company and the Required Series A
Holders on or before the date of the Exit Event, the Company and
the Required Series A Holders shall each have the right to
subject the disputed determination to separate firms of
independent accountants of recognized national standing (or, in
the case of a determination of the Current Market Price per Share
of Common Stock made by an independent brokerage firm, to
separate independent brokerage firms) for a joint resolution of
such objection (neither of which shall be the firm of independent
accountants regularly retained by the Company or the independent
brokerage firm determining the Current Market Price per Share of
Common Stock pursuant to the second sentence of the definition
thereof). If such firms cannot jointly resolve such objection,
then, unless otherwise directed by agreement of the Company and
the Required Series A Holders, such firms shall choose another
firm of independent accountants of recognized national standing,
which firm shall resolve such objection. In such case, the
Current Market Price per Share of Common Stock as of the
Determination Date, the number of Outstanding Shares as of the
Determination Date and the Contingent Payment Amount so
determined shall be conclusive and binding on the Company, all of
the Holders of Series A Bridge Notes and all Persons claiming
under or through any of them.
(c) In the event that an Objection Notice is given
pursuant to paragraph (b), the cost of the independent
accountants selected by the Company shall be borne solely by the
Company, the cost of the independent accountants selected by the
Required Series A Holders shall be borne solely by the Required
Series A Holders, and the cost of any independent accountants
chosen by the Company's and the Required Series A Holders'
independent accountants to resolve any objection shall be borne
one-half each by the Required Series A Holders and the Company.
Section 3.04. Payment of Contingent Payment Amount. On the
------------------------------------
date of and concurrently with the Exit Event, the Company shall
pay to each Holder of Series A Bridge Notes the ratable portion
of the Contingent Payment Amount payable to such Holder pursuant
to Section 3.01. If the Contingent Payment Amount is determined
------------
pursuant to clauses (a) or (b) of Section 3.01, the amount
------------
thereof shall be payable to the Holders of Series A Bridge Notes
by wire transfer to an account in a bank located in the United
States designated by each such Holder for such purpose (a "Cash
----
Payment"). If the Contingent Payment Amount is determined
-------
pursuant to clause (c) of Section 3.01, the first $1,000,000
------------
thereof shall be payable to the Holders of Series A Bridge Notes
by a Cash Payment and the balance thereof, if any, shall be
payable to the Holders of Series A Bridge Notes, at the option of
the Company, either by (i) a Cash Payment, or (ii) delivery to
each such Holder of that number of fully paid and
3
<PAGE>
non-assessable shares of Common Stock, duly registered under the
Securities Act (if such registration is required to sell such
shares to the public) and listed on the securities exchange on
which the Common Stock is then listed or, if not so listed,
listed on the NASDAQ automated quotation system, and having a
value that is most nearly equal to the Contingent Payment Amount,
or ratable portion thereof payable to such Holder, based on the
Current Market Value per Share of Common Stock as of the
Determination Date together with either (x) an amount of cash
equal to the aggregate par value of such Common Stock, which
shall be used by such Holder to pay to the Company such amount
(not to exceed the par value of such Common Stock) as shall, in
the written opinion of counsel to the Company, be necessary so
that such Common Stock will be fully paid and non-assessable, or
(y) a written opinion of counsel to the Company to the effect
that such Common Stock will be fully paid and non-assessable as
issued, without the payment by the Holder to the Company of an
amount equal to the par value of such Common Stock as of the time
of issuance (a "Stock Payment"). Notwithstanding anything to the
-------------
contrary set forth in this Section 3.04, if at the time the
------------
Contingent Payment Amount is due and payable hereunder, the
Company is then prohibited by the terms of the Senior Credit
Agreement from paying all or any portion of the Contingent
Payment Amount by a Cash Payment, the Company shall pay such
amount (or portion thereof) by a Stock Payment.
Section 3.05. Notices. Each Exit Event Notice, Contingent
-------
Payment Amount Notice and Objection Notice given pursuant to this
Article 3 shall be given by telecopier, with a copy thereof by
hand delivery or by reputable overnight courier, and otherwise in
compliance with Section 12.09.
-------------
2. Amendment to Article 5. The Purchase Agreement is hereby further
----------------------
amended by adding to the end of Article 5 thereof the following new Section
5.31:
SECTION 5.31 Subordination of Subordinated
-----------------------------
Indebtedness. This Agreement, and all amendments,
------------
modifications, extensions, renewals, refinancings and
refundings hereof, constitute the "Bridge Note Purchase
Agreement" within the meaning of the Ramsay Subordinated
Note Purchase Agreement; this Agreement, together with each
of the other Bridge Note Documents and all amendments,
modifications, extensions, renewals, refinancings and
refundings hereof and thereof, constitute "Senior Credit
Documents" within the meaning of the Subordinated Note
Purchase Agreement; and all of the Bridge Note Obligations,
and all amendments, modifications, extensions, renewals,
refundings or refinancings thereof constitute "Senior
Indebtedness" of the Company within the meaning of the
Ramsay Subordinated Note Purchase Agreement, and the Holders
of the Bridge Notes from time to time constitute "Senior
Lenders" entitled to all of
4
<PAGE>
the rights of a holder of "Senior Obligations" pursuant to
Article 4 of the Ramsay Subordinated Note Purchase
Agreement.
3. Amendment to Section 7.12. The Purchase Agreement is hereby further
-------------------------
amended by adding the following as new clauses (e) and (f) to Section 7.12
thereof:
, (e) Borrower may make payments of interest under the
Ramsay Subordinated Note in kind and (f) with the consent of
the Required Holders, Borrower may prepay the Ramsay
Subordinated Notes in full.
4. Amendment to Article 7. The Purchase Agreement is hereby further
----------------------
amended by adding to the end of Article 7 thereof the following new Section
7.17:
SECTION 7.17 Changes Relating to Subordinated Debt.
-------------------------------------
The Company shall not change or amend the terms of the
Ramsay Subordinated Note, the Ramsay Subordinated Note
Purchase Agreement or any other Subordinated Indebtedness
(or any indenture or agreement in connection therewith) if
the effect of such amendment is to: (a) increase the
interest rate on such Subordinated Indebtedness; (b) change
the dates upon which payments of principal or interest are
due on such Subordinated Indebtedness other than to extend
such dates; (c) change any default or event of default other
than to delete or make less restrictive any default
provision therein; (d) change or add any covenant with
respect to such Subordinated Indebtedness other than to make
less restrictive any such covenant; (d) change the
redemption or prepayment provisions of such Subordinated
Indebtedness other than to extend the dates therefor or to
reduce the premiums payable in connection therewith; (e)
grant any security or collateral to secure payment of such
Subordinated Indebtedness; or (f) change or amend any other
term if such change or amendment would materially increase
the obligations of the obligor or confer additional material
rights to the holder of such Subordinated Indebtedness in a
manner adverse to any Holder.
5. Amendment to Section 10.02. The Purchase Agreement is hereby further
--------------------------
amended by (a) deleting in its entirety from Section 10.02 thereof the defined
-------------
term "Base Amount;" and (b) adding the following to Section 10.02 as new
-------------
definitions, in proper alphabetical order:
"Dothan Alabama Acquisition" shall mean the acquisition
--------------------------
by Ramsay Youth Services of Alabama, Inc. of certain land
and personal property located in Dothan, Houston County,
Alabama from Crescent Real Estate Funding VII, L.P. pursuant
to the terms and conditions set forth in the Dothan Alabama
Acquisition Agreement.
5
<PAGE>
"Dothan Alabama Acquisition Agreement" shall mean that
------------------------------------
certain Agreement of Purchase and Sale, dated as of the 30th
day of January, 1998, by and among Crescent Real Estate
Funding VII, L.P. and Ramsay Youth Services of Alabama, Inc.
"Palm Bay Acquisition" shall mean the acquisition by
--------------------
Ramsay Youth Services of Florida, Inc. of certain land and
personal property located in Palm Bay, Brevard County,
Florida from BHC Properties, Inc. pursuant to the terms and
conditions set forth in the Palm Bay Acquisition Agreement.
"Palm Bay Acquisition Agreement" shall mean that
------------------------------
certain Real Estate Purchase and Sale Agreement, dated as of
March 6, 1998, by and between BHC Properties, Inc. and
Ramsay Youth Services of Florida, Inc.
"Ramsay Subordinated Note Purchase Agreement" shall
-------------------------------------------
mean the Subordinated Note Purchase Agreement, dated as of
March 25, 1998, among the Company, as issuer, and Ramsay
Holdings, as purchaser, as the same may be amended, modified
or supplemented with the consent of the Holders.
"Ramsay Subordinated Note" shall mean the Company's
------------------------
Junior Subordinated Note due September 30, 2006, issued
pursuant to the Ramsay Subordinated Note Purchase Agreement
in the principal amount of $5,000,000 plus Capitalized
Interest (as defined therein).
"Subordinated Indebtedness" shall mean the Indebtedness
-------------------------
evidenced by or in respect of the Ramsay Subordinated Note.
6. Amendment to Annex B. The Purchase Agreement is hereby further amended
--------------------
by renumbering paragraph 11 of Annex B thereof as paragraph 12 and by adding
immediately prior thereto the following new paragraph 11:
11. Upon receipt thereof, copies of (i) any material
notice or other material communication delivered by or on
behalf of the Company to any Person in connection with the
Ramsay Subordinated Note Purchase Agreement or any other
agreement or other document relating to Subordinated
Indebtedness at the same time and by the same means as such
notice or other communication is delivered to such Person,
and (ii) any material notice or other material communication
received by the Company from any Person in connection with
the Ramsay Subordinated Note Purchase Agreement or any other
agreement, document or instrument relating to Subordinated
Indebtedness promptly after such notice or other
communication is received by the Company.
6
<PAGE>
2. CONSENTS
--------
1. The Holders consent to the Palm Bay Acquisition and waive any Default
that would arise therefrom under Section 8.01 of the Purchase Agreement,
provided that (i) the Palm Bay Acquisition and the initial loan contemplated by
- --------
the Ramsay Subordinated Note Purchase Agreement are consummated no later than
March 31, 1998, and (ii) the Company receives an initial loan under the Ramsay
Subordinated Note Purchase Agreement in the principal amount of $1,475,000, of
which $100,000 shall be applied to reimburse the Company for the cash deposit it
previously made under the Palm Bay Acquisition Agreement, $1,300,000, together
with such cash deposit, shall be applied to pay the entire purchase price of the
Palm Bay Acquisition in full and $75,000 shall be applied to pay certain
transaction costs incurred in connection therewith
2. The Holders consent to the Dothan Alabama Acquisition and waive any
Default that would arise therefrom under Section 8.01 of the Purchase Agreement,
provided that (i) the Dothan Alabama Acquisition is consummated no later than
- --------
May 15, 1998 on the terms and conditions set forth in the Dothan Alabama
Acquisition Agreement, and (ii) the Company receives a loan under the Ramsay
Subordinated Note Purchase Agreement in the principal amount of $1,900,000, of
which $50,000 shall be applied to reimburse the Company for the cash deposit it
previously made under the Dothan Alabama Acquisition Agreement and $1,850,000,
together with such cash deposit, shall be applied to pay the entire purchase
price of the Dothan Alabama Acquisition in full
3. CONDITIONS PRECEDENT
--------------------
Notwithstanding any other provision of this Amendment and without affecting
in any manner the rights of the Holders hereunder, it is understood and agreed
that this Amendment shall not become effective, and the Purchase Agreement shall
remain in full force and effect in its unamended form, the Company shall have no
rights under this Amendment and the Holders shall not be obligated to take,
fulfill or perform any action hereunder, until the following conditions have
been fulfilled to the satisfaction of the Holders:
1. The Holders shall have received the following, each dated as of the
date of this Amendment, in form and substance reasonably satisfactory to the
Holders and their respective counsel:
(1) This Amendment, duly executed by all parties hereto;
(2) A certificate of the Secretary or an Assistant Secretary of the
Company certifying true and correct copies of (1) the articles or certificate of
incorporation and by-laws of the Company, (2) the resolutions adopted by the
Board of Directors of the Company approving this Amendment and all documents,
certificates and instruments being executed in connection herewith and the
transactions contemplated hereby, (3) all documents evidencing other necessary
corporate action by the Company and required governmental and third party
approvals with respect to each of the foregoing and (4) the names and true
signatures of the authorized officers of the Company;
7
<PAGE>
(3) An opinion of Haythe & Curley, special counsel to the Company, in
substantially the form of Exhibit C to the Purchase Agreement with appropriate
---------
changes to address this Amendment; and
(4) A certificate from a Responsible Financial Officer of Borrower as
to the Ramsay Subordinated Note Purchase Agreement and the Ramsay Subordinated
Note certifying true and correct copies of the Ramsay Subordinated Note Purchase
Agreement and the Ramsay Subordinated Note, each of which shall be in form and
substance satisfactory to the Holders.
2. Ramsay Subordinated Note Purchase Agreement is executed and delivered
by all parties thereto, and all conditions precedent thereto are satisfied.
4. REPRESENTATIONS
---------------
The Company hereby represents and warrants to Purchasers that:
1. The execution, delivery and performance by the Company of this
Amendment (i) are within the Company's corporate power; (ii) have been duly
authorized by all necessary corporate and shareholder action; (iii) are not in
contravention of any provision of the Company's certificate of incorporation or
bylaws or other organizational documents; (iv) do not violate any law or
regulation, or any order or decree of any Governmental Authority; (v) do not
conflict with or result in the breach or termination of, constitute a default
under or accelerate any performance required by, any indenture, mortgage, deed
of trust, lease, agreement or other instrument to which the Company or any of
its Subsidiaries is a party or by which the Company or any such Subsidiary or
any of their respective property is bound; (vi) do not result in the creation or
imposition of any Lien upon any of the property of the Company or any of its
Subsidiaries; and (vii) do not require the consent or approval of any
Governmental Authority or any other person other than the consent of the Senior
Lenders set forth below;
2. This Amendment has been duly executed and delivered for the benefit of
or on behalf of the Company and constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms except as the enforceability hereof may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws affecting creditors'
rights and remedies in general; and
3. After giving effect to this Amendment, no Default or Event of Default
has occurred and is continuing as of the date hereof.
5. MISCELLANEOUS
-------------
8
<PAGE>
1. The Company hereby restates, ratifies and reaffirms each and every
term and condition set forth in the Purchase Agreement, as modified by this
Amendment, effective as of the date hereof.
2. The Company agrees to pay on demand all costs and expenses of GE
Capital in connection with the preparation, execution, delivery and enforcement
of this Amendment, including the reasonable fees and out-of-pocket expenses of
counsel to GE Capital.
3. This Amendment shall be governed by, and construed in accordance with,
the internal laws (and not the laws of conflicts), of the State of New York and
all applicable laws of the United States of America.
4. This Amendment may be executed in any number of separate counterparts,
each of which shall, collectively and separately, constitute one agreement.
IN WITNESS WHEREOF, this Amendment has been duly executed as of the date
first written above.
RAMSAY HEALTH CARE, INC.
By: /s/ Remberto G. Cibran
--------------------------------------
Remberto G. Cibran
President
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Cheryl P. Boyd
--------------------------------------
Cheryl P. Boyd
Authorized Signatory
PAUL RAMSAY HOLDINGS PTY.
LIMITED
By: /s/ Peter Evans
--------------------------------------
Peter Evans
Director
9
<PAGE>
The undersigned, being the Senior Agent and all of the Senior Lenders under
the Senior Credit Agreement, hereby consent to the foregoing Second Amendment as
of the date first written above.
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Cheryl P. Boyd
-------------------------------------
Cheryl P. Boyd
Authorized Signatory
THE ING CAPITAL SENIOR SECURED
HIGH INCOME FUND, L.P.
By: /s/ Michael D. Hatley
--------------------------------------
Name: Michael D. Hatley
Title: Vice President and Portfolio
Manager
10
<PAGE>
Exhibit 10.115
JUNIOR SUBORDINATED NOTE PURCHASE AGREEMENT
-------------------------------------------
JUNIOR SUBORDINATED NOTE PURCHASE AGREEMENT dated as of March 25, 1998
by and between Paul Ramsay Holdings Pty. Limited, an Australian corporation (the
"Purchaser"), and Ramsay Health Care, Inc., a Delaware corporation (the "Seller"
or "RHCI").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Seller desires to issue its Junior Subordinated
Promissory Note due September 30, 2006 (the "Note") in the aggregate principal
amount of $5,000,000 plus Capitalized Interest (as defined in the Note);
WHEREAS, the Purchaser is willing, on the terms and conditions set
forth herein, to purchase such Note; and
WHEREAS, the proceeds of the Note will be used in the manner set forth
in Section 1.06 below.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto hereby agree
as follows:
SECTION I.
PURCHASE AND SALE OF THE NOTE
-----------------------------
1.01 Purchase and Sale of the Note. Subject to the terms and
-----------------------------
conditions of this Agreement and on the basis of the representations,
warranties, covenants and agreements herein contained, the Seller does hereby
issue and convey to the Purchaser on the Closing Date, and the Purchaser hereby
acquires and accepts from the Seller on the Closing Date, the Note.
1.02 Commitment. Subject to and upon the terms and conditions herein
----------
set forth, the Purchaser agrees to make a loan or loans (each, a "Loan" and,
collectively, the "Loans") to the Seller, which Loans shall be drawn under the
Initial Closing Facility (as defined below) and the Subsequent Loan Facility (as
defined below), as set forth below:
(a) Loans under the Initial Closing Facility (the "Initial Closing
Facility") shall be made pursuant to a single drawing on the Closing Date
(as defined below),
<PAGE>
2
in an aggregate principal amount equal to $1,475,000. Once repaid, Loans
borrowed under the Initial Closing Facility may not be reborrowed.
(b) Loans under the Subsequent Loan Facility (the "Subsequent Loan
Facility") (i) shall be made at any time and from time to time on or after
the Closing Date and prior to the Maturity Date (as defined below), (ii)
may be repaid prior to the Maturity Date, but may not be reborrowed and
(iii) shall not exceed (giving effect to any incurrence thereof and the use
of the proceeds of such incurrence) an aggregate principal amount which,
when combined with the Initial Closing Facility, equals $5,000,000.
1.03 Notice of Borrowing. (a) Whenever the Seller desires to incur
-------------------
the initial Loan under the Initial Closing Facility or additional Loans under
the Subsequent Loan Facility (each a "Borrowing"), it shall give the Purchaser
at its address set forth in Section 5.01 hereof, prior to 10:00 A.M. (New York
time), two (2) Business Days prior written notice with respect to the Initial
Closing Facility and at least five (5) Business Days' prior written notice in
the case of the Subsequent Loan Facility, which written notice may be by
confirmed facsimile or telephonic notice promptly confirmed in writing, of each
Borrowing to be made hereunder. Each such notice (each, a "Notice of
Borrowing") shall be irrevocable and shall specify (i) the aggregate principal
amount of the Loans to be made pursuant to such Borrowing and (ii) the date of
Borrowing (which shall be a Business Day). The date that the initial Loan under
the Initial Closing Facility is made is herein referred to as the "Closing
Date".
(b) Without in any way limiting the obligation of the Seller to
confirm in writing any telephonic notice permitted to be given hereunder, the
Purchaser may, prior to receipt of written confirmation, act without liability
upon the basis of such telephonic notice believed by the Purchaser in good faith
to be from an authorized officer of the Seller. In each such case, the Seller
hereby waives the right to dispute the Purchaser's record of the terms of such
telephonic notice, unless such record reflects gross negligence or willful
misconduct on the part of the Purchaser.
1.04 Disbursement of Funds. (a) No later than 1:00 P.M. (New York
---------------------
time) on the date specified in each Notice of Borrowing, the Purchaser will make
available the amount of such Loan requested to be made on such date in the
manner provided below. All such amounts shall be made
<PAGE>
3
available to the Seller in United States Dollars and immediately available
funds. For purposes hereof, "Business Day" shall mean any day that is not a
Saturday, a Sunday or a day on which banks generally are required or permitted
to be closed in the State of New York.
1.05 Note. (a) The Seller's obligation to pay the principal of, and
----
interest on, the Loans made by the Purchaser shall be evidenced by the Note,
substantially in the form of Exhibit A.
(b) The Note issued to the Purchaser shall (i) be executed by the
Seller, (ii) be payable to the order of the Purchaser and be dated the date
hereof, (iii) be in a stated principal amount equal to $5,000,000 plus
Capitalized Interest, (iv) mature on September 30, 2006 (the "Maturity Date")
and (v) bear interest as provided in Section 2 of the Note from the Closing Date
until the principal plus Capitalized Interest shall have been paid in full, and
(vi) be entitled to the benefits of this Agreement.
(c) The Seller's obligation hereunder and under the Note shall be
evidenced by this Agreement and the Note. The records of the Purchaser shall be
prima facie evidence of each Loan, the interest accrued thereon and all payments
- ----- -----
made with respect thereto, absent manifest error.
1.06 Use of Proceeds. The proceeds from the sale of the Note shall be
---------------
used by the Seller (i) for the payment of the purchase price, costs and expenses
of the transactions contemplated by the Agreement of Purchase and Sale dated as
of January 30, 1998 by and between Crescent Real Estate Funding VII, L.P. and
Ramsay Youth Services of Alabama, Inc., a Delaware corporation (the "Dothan
Agreement"), (ii) for the payment of the purchase price, costs and expenses of
the transactions contemplated by the Real Estate Purchase and Sale Agreement
dated as of March 6, 1998 by and between BHC Properties, Inc. and Ramsay Youth
Services of Florida, Inc., a Delaware corporation (the "Palm Bay Agreement") and
(iii) for working capital and other general corporate purposes with respect to
the business and operations of the facilities being purchased by the Youth
Services Subsidiaries pursuant to the Dothan Agreement and the Palm Bay
Agreement.
1.07 Voluntary and Mandatory Prepayments. (a) Subject to Section 4
-----------------------------------
hereof, the Seller shall have the right to prepay Loans made pursuant to the
Initial Closing Facility and the Subsequent Loan Facility in whole or in part,
without premium or penalty, at any time and from time to time.
<PAGE>
4
(b) The entire outstanding principal amount of the Note, together
with accrued and unpaid interest thereon, must be prepaid in full by the Seller
prior to the Maturity Date (A) on the date which is the later to occur of the
date upon which (x) all commitments by the Senior Lenders (as defined in Section
4 of this Agreement) to make any additional loans or advances, or to issue any
letters of credit, to the Seller under the Senior Credit Agreement and the
Bridge Note Purchase Agreement are terminated and (y) the Senior Indebtedness
(as defined in Section 4 of this Agreement) is repaid in full in cash (solely
from the proceeds of the sale of assets but not from the proceeds derived from
any refinancing of the Senior Indebtedness) or (B) in the event that and solely
to the extent and on such terms and conditions that the Senior Lenders consent
to any such prepayment.
1.08 Method and Place of Payment. Except as otherwise specifically
---------------------------
provided herein, all payments under this Agreement shall be made to the
Purchaser as directed by the Purchaser, in writing, to the Seller not later than
1:00 P.M. (New York time) on the date when due and shall be made in immediately
available funds and in lawful money of the United States of America by bank wire
transfer to an account designated by the Purchaser. Any payments under this
Agreement which are made later than 1:00 P.M. (New York time) shall be deemed to
have been made on the next succeeding Business Day. Whenever any payment to be
made hereunder shall be stated to be due on a day which is not a Business Day,
the due date thereof shall be extended to the next succeeding Business Day and,
with respect to payments of principal, interest shall be payable during such
extension at the applicable rate in effect immediately prior to such extension.
SECTION II.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
--------------------------------------------
The Seller hereby represents and warrants to the Purchaser, as of the
date hereof and as of the date of each Loan, that:
2.01 Organization; Good Standing. The Seller is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has full corporate power and authority to own
its properties and to conduct the businesses in which it is now engaged.
<PAGE>
5
2.02 Authority. The Seller has full corporate power and authority to
---------
execute and deliver this Agreement and to perform all of its obligations
hereunder, and no consent or approval of any other person or governmental
authority is required therefor. The execution and delivery of this Agreement by
the Seller, the performance by it of its covenants and agreements hereunder and
the consummation by the Seller of the transactions contemplated hereby have been
duly authorized by all necessary corporate action. This Agreement constitutes a
valid and legally binding obligation of the Seller, enforceable against it in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency or other similar laws of general application relating to
or affecting the enforcement of creditors' rights or by general principles of
equity.
2.03 No Legal Bar; Conflicts. Neither the execution and delivery of
-----------------------
this Agreement, nor the consummation of the transactions contemplated hereby,
violates any provision of the Certificate of Incorporation or By-Laws of the
Seller or any law, statute, ordinance, regulation, order, judgment or decree of
any court or governmental agency, or conflicts with or results in any breach of
any of the terms of or constitutes a default under or results in the termination
of or the creation of any lien pursuant to the terms of any contract or
agreement to which the Seller is a party or by which the Seller or any of its
assets is bound.
2.04 Authorization of the Note. The Note being purchased by the
-------------------------
Purchaser hereunder has been duly and validly authorized, on the terms and
subject to the conditions set forth herein and the Note.
SECTION III.
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
------------------
The Purchaser hereby represents and warrants to the Seller, as of the
date hereof, that:
3.01 Authority. It has full corporate power and authority to execute
---------
and deliver this Agreement and to perform all of its obligations hereunder, and
no consent or approval of any other person or governmental authority is required
therefor. The execution and delivery of this Agreement by it, the performance
by it of its covenants and agreements hereunder and the consummation by it of
the transactions contemplated hereby have been duly authorized
<PAGE>
6
by all necessary corporate action. This Agreement constitutes a valid and
legally binding obligation of it, enforceable against it in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency or
other similar laws of general application relating to or affecting the
enforcement of creditors' rights or by general principles of equity.
3.02 No Legal Bar; Conflicts. Neither the execution and delivery of
-----------------------
this Agreement, nor the consummation of the transactions contemplated hereby,
violates any law, statute, ordinance, regulation, order, judgment or decree of
any court or governmental agency, or conflicts with or results in any breach of
any of the terms of or constitutes a default under or results in the termination
of or the creation of any lien pursuant to the terms of any contract or
agreement to which it is a party or by which it or any of its assets is bound.
3.03 Investment in the Seller.
------------------------
(i) It understands that the Seller proposes to issue and
deliver to the Purchaser the Note pursuant to this Agreement without compliance
with the registration requirements of the Securities Act of 1933, as amended
(the "Securities Act"); that for such purpose the Seller will rely upon its
representations and warranties contained herein; and that such non-compliance
with registration is not permissible unless such representations and warranties
are correct.
(ii) It understands that, under existing rules of the Securities
and Exchange Commission (the "SEC"), the Purchaser may be unable to sell the
Note except to the extent that the Note may be sold (i) pursuant to an effective
registration statement covering such sale pursuant to the Securities Act and
applicable state securities laws or an applicable exemption therefrom or (ii) in
a bona fide private placement to a purchaser who shall be subject to the same
restrictions on any resale or (iii) subject to the restrictions contained in
Rule 144 under the Securities Act ("Rule 144").
(iii) It is not relying on the Seller respecting the financial,
tax and other economic considerations of an investment in the Note, and it has
relied on the advice of, or has consulted with, only its own advisors.
<PAGE>
7
(iv) It is familiar with the provisions of Rule 144 and the
limitations upon the availability and applicability of such rule.
(v) It is a sophisticated investor familiar with the type of risks
inherent in the acquisition of restricted securities such as the Note and its
financial position is such that it can afford to retain the Note for an
indefinite period of time without realizing any direct or indirect cash return
on its investment.
(vi) It has such knowledge and experience in financial, tax and
business matters so as to enable it to utilize the information made available to
it in connection with the issuance of the Note to the Purchaser and to evaluate
the merits and risks of an investment in the Note and to make an informed
investment decision with respect thereto.
(vii) The Purchaser is purchasing the Note as an investment for
its sole account, and without any present view towards the resale or other
distribution thereof.
SECTION IV.
SUBORDINATION PROVISIONS
------------------------
4.01 Subordination. Notwithstanding any other provision of this
-------------
Agreement or the Note to the contrary, the Purchaser covenants and agrees, and
each subsequent holder of a Note by its acceptance thereof, shall be deemed to
have covenanted and agreed, that the payment and performance of all Subordinated
Obligations shall be subordinate and subject in right of payment, to the extent
and in the manner hereinafter set forth, to the prior payment in full in cash of
all Senior Indebtedness. The provisions of this Section 4 shall constitute a
---------
continuing offer to all Persons who, in reliance upon such provisions, become
holders of, or continue to hold, Senior Indebtedness, and each holder of Senior
Indebtedness shall be deemed to have acquired Senior Indebtedness in reliance
upon the provisions of this Section 4.
----------
4.02 Subordination Upon Default in Senior Indebtedness. Until the
-------------------------------------------------
Senior Indebtedness has been paid in full in cash, no direct or indirect payment
or prepayment (by set-off or otherwise), whether in cash, securities or other
property or in any other manner, shall be made or agreed to be made on account
of the Subordinated
<PAGE>
8
Obligations, or in respect of any redemption, retirement, purchase or other
acquisition by Seller of the Subordinated Obligations; provided, however, that
-------- -------
Seller shall pay interest on the Notes (i) in cash at any time after March 31,
1999 if Seller complies with the requirements set forth in clauses (i) through
(iv) of Section 6.15(e) of the Senior Credit Agreement as in effect on the date
hereof and so long as no Senior Default has occurred and is continuing and (ii)
otherwise in kind. The provisions of this Section 4.02 shall not modify or
------------
limit in any way the application of Section 4.03.
------------
4.03 Subordination Upon Bankruptcy, Etc.
----------------------------------
(a) In the event of (x) any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relative to the Seller
or to its creditors, as such, or to its assets, (y) any liquidation,
dissolution or other winding up of the Seller, whether voluntary or
involuntary and whether or not involving insolvency or bankruptcy or (z)
any assignment for the benefit of creditors or any other marshaling of
assets and liabilities of the Seller (each, an "Insolvency Proceeding"),
---------------------
then and in any such event:
(1) Upon any payment or distribution of assets of the Seller to
creditors of the Seller, the Senior Lenders shall be entitled to receive
payment in full in cash of all obligations with respect to the Senior
Indebtedness before any holder of any Note shall be entitled to receive any
payment in respect of the Subordinated Obligations.
(2) Until all Senior Indebtedness is paid in full in cash, any
distribution to which any holder of any Note would be entitled but for this
Section 4 shall be made to the Senior Lenders, as their interests may
---------
appear.
(3) For purposes of this Section 4, a distribution may consist of
---------
cash, securities or other property, by set-off or otherwise.
(4) Upon any distribution of assets of the Seller, the holders of
the Notes shall be entitled to rely upon any order or decree made by any
court of competent jurisdiction in which such Insolvency Proceeding is
pending, or a certificate of the liquidating trustee, the Senior Agent or
other Person
<PAGE>
9
making any distribution to such holders, for the purpose of ascertaining
the Persons entitled to participate in such distribution (subject in all
events in the case of the holders of the Notes to the provisions of this
Section 4.03), the holders of the Senior Indebtedness, the amount thereof
------------
or payable thereon, the amount or amounts paid or distributed thereon and
all other facts pertinent thereto or to this Section 4.
---------
(b) If any holder of Subordinated Obligations does not file a proper
claim or proof of debt as shall be necessary in order to have the claims of
such holder allowed in any Insolvency Proceeding commenced by or against
the Seller or involving the Seller's assets, in the form required in such
Insolvency Proceeding, at least 10 days prior to the expiration of the time
to file such claim or proof of debt, the Senior Credit Agreement Lenders
(or the Senior Agent on their behalf) are hereby irrevocably authorized and
shall have the right (but not the obligation) to file an appropriate claim
or proof of debt in such Insolvency Proceeding for and on behalf of such
holder of Subordinated Obligations, and if the Senior Credit Agreement
Lenders and the Senior Agent elect not to exercise such right, the Bridge
Note Holders may do so. The holders of Subordinated Obligations shall
retain all rights to vote and otherwise act in any Insolvency Proceeding in
their capacity as such holders (including the right to vote to accept or
reject any Plan) to the extent provided by applicable law, except that such
holders shall not be empowered to vote in any such Insolvency Proceeding
with respect to any Plan that contains provisions that are inconsistent
with the priority of the Senior Indebtedness over the Subordinated
Obligations.
4.04 Standstill. Until the Senior Indebtedness has been paid in full
----------
in cash, the holders of the Notes agree not to (i) secure, demand or sue for any
payment or distribution in respect of the Subordinated Obligations, (ii)
commence, or join with any other creditor in commencing, any Insolvency
Proceeding, or (iii) declare any amount of the Subordinated Obligations to be
due and payable or exercise any other remedy in respect of the Subordinated
Obligations; provided, however, that the restriction on declaring any amount of
-------- -------
the Subordinated Obligations to be due and payable shall terminate automatically
upon the earlier of (x) the commencement of an Insolvency Proceeding and (y) the
acceleration of the Senior Indebtedness, and the
<PAGE>
10
holders shall not be prohibited from filing or making claims in any such
Insolvency Proceeding.
4.05 Payments and Distributions Received. If any holder of a Note
-----------------------------------
shall have received any payment from or distribution of assets of the Seller in
respect of the Subordinated Obligations in contravention of the terms of this
Section 4 before all Senior Indebtedness is paid in full in cash, then and in
- ---------
such event such payment or distribution shall be received and held in trust for
and shall be paid over or delivered to the holders of the Senior Indebtedness
(pro rata on the basis of the respective amounts of such Senior Indebtedness
- ---------
held by them) remaining unpaid, to the extent necessary to pay all such Senior
Indebtedness in full in cash after giving effect to any concurrent payment or
distribution to the holders of the Senior Indebtedness, for application to the
payment in full of such Senior Indebtedness.
4.06 Subrogation. Upon the indefeasible payment and discharge in full
-----------
of the Senior Indebtedness and the termination of all commitments by the Senior
Lenders to make additional Senior Indebtedness available to the Seller, the
holders of the Notes shall be subrogated to the rights of the Senior Lenders to
receive payments or distributions of cash, property or securities of the Seller
applicable to Senior Indebtedness until the principal of, and interest on, the
Subordinated Obligations shall be paid in full, and no payments or distributions
(direct or indirect) to the Senior Lenders of cash, property or securities to
which the holders of the Notes would be entitled except for the provisions
herein shall, as among the Seller, its creditors (other than the Senior Lenders)
and the holders of the Notes, be deemed to be a payment or distribution by the
Seller to or on account of the Senior Indebtedness. In no event, however, shall
any holders of the Notes have any rights or claims against the Senior Lenders
for any impairment of any holder's subrogation rights that might result from any
Senior Lender's or the Senior Agent's release of any lien upon any collateral
securing the Senior Obligations, forgiveness, compromise, extension or discharge
of any Senior Obligations, release of any the Seller or any guarantor, or vote
to accept or reject any Plan.
4.07 Relative Rights. This Section 4 defines the relative rights of
--------------- ---------
the holders of the Notes and the Senior Lenders. Nothing in this Section 4
---------
shall: (i) impair, as among the Seller and the holders of the Notes, the
obligation of the Seller, which is absolute and unconditional, to pay principal
of and interest (including any interest payable at the rate set forth in the
second
<PAGE>
11
paragraph of Section 2 of the Notes) on the Notes and other items constituting
Subordinated Obligations in accordance with their terms; (ii) affect the
relative rights of the holders of the Notes and creditors of the Seller other
than Senior Lenders; or (iii) prevent any holder of a Note from exercising its
available remedies upon a default or Event of Default, subject to the rights, if
any, under this Section 4 of Senior Lenders. The holders of the Notes
---------
acknowledge that the holders of the Senior Indebtedness and the holders of the
Notes are entitled to exercise certain rights and powers with respect to the
Seller from time to time, whether before or after the occurrence of a default,
and the exercise of a similar power or right by one creditor may preclude the
exercise of a similar power or right by one or more other creditors.
4.08 Subordination May Not Be Impaired by the Seller. No right of any
-----------------------------------------------
holder of any Senior Indebtedness to enforce the subordination of the
Subordinated Obligations shall be impaired by any failure to act by the Seller
or such holder of Senior Indebtedness or by the failure of the Seller or such
holder to comply herewith.
4.09 Section Not to Prevent Events of Default. The failure to make a
----------------------------------------
payment on account of principal of or interest on or other amounts constituting
Subordinated Obligations by reason of any provision of this Section 4 shall not
---------
be construed as preventing the occurrence of an Event of Default hereunder or a
default or event of default under or in respect of the Notes or any other
document or instrument evidencing any of the Subordinated Obligations.
4.10 Holders of Subordinated Obligations Entitled to Assume Payments
---------------------------------------------------------------
Not Prohibited in Absence of Notice.
- -----------------------------------
(a) No holder of a Note shall at any time be charged with knowledge of
the existence of any facts which would prohibit the making of any payment
to it, unless and until such holder shall have received written notice
thereof at its principal office from the Seller or from any Senior Lender
(or the Senior Agent on its behalf); and prior to the receipt of any such
written notice each such holder shall be entitled to assume conclusively
that no such facts exist.
(b) Each holder of a Note shall be entitled to rely on the delivery to
it of a written notice by a Person representing himself to be a Senior
Lender (or an agent on such Senior Lender's behalf) to establish that such
notice has been given. In the event that such holder determines in good
faith that further
<PAGE>
12
evidence is required with respect to the right of any holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Section 4, such holder may request such Person to furnish evidence to the
---------
reasonable satisfaction of such holder as to the amount of Senior
Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Section 4, and if such
---------
evidence is not furnished such holder may defer any payment to such Person
pending judicial determination as to the right of such Person to receive
such payment.
4.11 Amendments to Documents.
-----------------------
(a) The Senior Lenders, the Senior Agent and the Seller shall be
authorized to amend any of the Senior Credit Documents to which they are a
party in accordance with the terms thereof, and without prior notice to or
the consent of any of the holders of the Subordinated Obligations.
(b) Without the prior written consent of the required Senior Lenders,
no provision of this Agreement or any Note shall be amended, modified or
supplemented if the effect thereof would be to (i) increase the interest
rate on the Notes; (ii) change the dates upon which payments of principal
or interest are due on the Notes other than to extend such dates; (iii)
change any default or event of default other than to delete or make less
restrictive any default provision therein; (iv) change or add any covenant
with respect thereto other than to make less restrictive any such covenant;
(v) change the redemption or prepayment provisions thereof other than to
extend the dates therefor or to reduce the premiums payable in connection
therewith; (vi) grant any security or collateral to secure payment thereof;
or (vii) change or amend any other term if such change or amendment would
materially increase the obligations of the Seller or confer additional
material rights to the holders of the Notes in a manner adverse to the
Seller, any of its Subsidiaries, the Senior Agent or any Senior Lender;
provided, however, that nothing contained in this Section 4 or elsewhere in
-------- ------- ---------
this Agreement shall be construed to require the consent of the Senior
Lenders to any waiver by the holders of the Notes of any default or Event
of Default, or of any of the rights and remedies of the holders of the
Notes hereunder.
<PAGE>
13
4.12 Waivers. The Seller and the holders of the Notes each hereby
-------
waives any defense based on the adequacy of a remedy at law which might be
asserted as a bar to the remedy of specific performance of this Agreement in any
action brought therefor by the Senior Lenders (or the Senior Agent on their
behalf). To the fullest extent permitted by applicable law, the Seller and the
holders of the Notes each hereby further waives: presentment, demand, protest,
notice of protest, notice of default or dishonor, notice of payment or
nonpayment and any and all other notices and demands of any kind in connection
with all negotiable instruments evidencing all or any portion of the Senior
Indebtedness; the right to require the Senior Lenders to marshall any
securities, or to enforce any lien that the Senior Lenders may now or hereafter
have in any collateral securing the Senior Obligations or to pursue any claim it
may have against any guarantor of the Senior Obligations, as a condition to the
Senior Lenders' entitlement to receive any payment on account of the Senior
Obligations; notice of the acceptance of this Agreement by the Senior Lenders;
and notice of any loans, letters of credit, guaranties, or other credit made
available to the Seller, extensions of time granted, amendments to the Senior
Credit Agreement or the other Senior Credit Documents, or other action taken in
reliance hereon. Without limiting the provisions of Section 4.11(a) hereof,
---------------
each holder of a Note hereby consents and agrees that the Senior Lenders may,
without in any manner impairing, releasing or otherwise affecting the
subordination provided for in this Agreement or any of the Senior Lenders'
rights hereunder and without prior notice to or the consent of any holder of a
Note; release, renew, extend, compromise or postpone the time of payment of any
of the Senior Indebtedness; substitute, exchange or release any or all of the
collateral securing the Senior Obligations or decline or neglect to perfect the
Senior Lenders' lien upon any of such collateral; add or release any Person
primarily or secondarily liable from any of the Senior Indebtedness; amend or
modify any of the Senior Credit Documents or waive any default or event of
default under the Senior Credit Documents; and increase or decrease the amount
of the Senior Indebtedness, the rates of interest, or the amount of any other
charges payable in connection therewith.
4.13 Agreement Not to Contest Liens. In no event shall any holder of
------------------------------
any Note institute, or join as a party in the institution of, or assist in the
prosecution of, any action, suit or proceeding seeking a determination that any
of the liens granted to the Senior Agent for the benefit of the Senior Lenders
under any of the Senior Credit Documents is invalid, unperfected or avoidable,
or is or should be subordinated to the interests of any other Person.
<PAGE>
14
4.14 Reinstatement. The provisions of this Section 4 shall continue
------------- ---------
to be effective or reinstated, as the case may be, if at any time any payment of
the Senior Indebtedness is rescinded or returned by the Senior Lenders or the
Senior Agent upon the insolvency, bankruptcy or reorganization of the Seller or
otherwise, all as though such payment had not been made.
4.15 Definitions. For purposes of this Section 4, the following terms
----------- ---------
shall have the following meanings:
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended,
---------------
and the rules promulgated thereunder.
"Bridge Note Holders" shall mean all of the "Holders" that become
-------------------
registered holders of Bridge Notes from time to time pursuant to the terms
of the Bridge Note Purchase Agreement.
"Bridge Note Purchase Agreement" shall mean the Subordinated Note
------------------------------
Purchase Agreement dated as of September 30, 1997 among Seller, as issuer,
and GE Capital and Paul Ramsay Holdings Pty. Ltd., as purchasers, as
amended, restated, refinanced, supplemented or otherwise modified from time
to time.
"Bridge Notes" shall mean the $17,500,000 in aggregate principal
------------
amount of Seller's Increasing Rate Senior Subordinated Bridge Notes due
September 30, 2005, issued and purchased pursuant to the Bridge Note
Purchase Agreement, as amended, restated, refinanced, supplemented or
otherwise modified from time to time.
"Senior Agent" shall mean General Electric Capital Corporation, in its
------------
capacity as Administrative Agent for the Senior Credit Agreement Lenders
under the Senior Credit Agreement, and its successors in such capacity
under the Senior Credit Agreement.
"Senior Credit Agreement" shall mean that certain Credit Agreement,
-----------------------
dated as of September 30, 1997, by and among the Seller, the Senior Credit
Agreement Lenders, the Senior Agent and GECC Capital Markets Group, Inc.,
as Syndication Agent, as amended, restated, refinanced, supplemented or
otherwise modified from time to time.
"Senior Credit Agreement Lenders" shall mean, collectively, General
-------------------------------
Electric Capital Corporation, The
<PAGE>
15
ING Capital Senior Secured High Income Fund, L.P. and all other parties
that hereafter become parties to the Senior Credit Agreement as lenders.
"Senior Credit Documents" shall mean and include (i) the Senior Credit
-----------------------
Agreement, the other "Loan Documents" (as defined in the Senior Credit
Agreement), the Bridge Note Purchase Agreement, the other "Bridge Note
Documents" (as defined in the Bridge Note Purchase Agreement), and all
other instruments or agreements now or hereafter evidencing or securing the
payment of the whole or any part of the Senior Indebtedness and (ii) all
renewals, extensions, substitutions, refundings, refinancings,
restructurings or replacements thereof (including all successive renewals,
extensions, substitutions, refundings, refinancings, restructurings or
replacements of any Senior Credit Documents, whether or not with the same
lenders or holders, and whether or not with the same entity as the Seller
so long as such borrower is a successor or assign of the Seller).
"Senior Default" shall mean any default under any Senior Indebtedness
--------------
that permits any of the Senior Lenders or the Senior Agent to accelerate
the maturity of the Senior Indebtedness or that has been the basis for the
acceleration of the maturity of the Senior Indebtedness.
"Senior Indebtedness" shall mean (i) all Senior Obligations now or
-------------------
hereafter existing under or with respect to any of the Senior Credit
Documents, whether such Senior Obligations are now or hereafter existing
and however and whenever made or incurred, and whether direct or indirect,
absolute or contingent, due or to become due, or secured or unsecured,
including all principal, interest and premium on, and all other amounts
payable in respect of, any of such Senior Obligations, and all commitment
or other fees, indemnity amounts, reimbursement obligations and other
amounts owed by the Seller or any of its Subsidiaries to the Senior Lenders
thereunder, (ii) any and all loans now or hereafter made or other credit
extended by the Senior Lenders to the Seller, including, without
limitation, during the pendency of any Insolvency Proceeding of the Seller,
(iii) all interest at any time accrued with respect to the foregoing
(including any interest that accrues during the pendency of any bankruptcy
case of the Seller, whether or not the Senior Lenders are authorized by
Section 506 of the Bankruptcy Code to collect such interest from the
Seller), and (iv) all reasonable costs and expenses
<PAGE>
16
incurred by the Senior Agent or the Senior Lenders in connection with its
or their enforcement of any rights or remedies under the Senior Credit
Documents, the collection of any of the Senior Indebtedness or the
protection of, or realization upon, any collateral securing the Senior
Obligations after the occurrence and during the continuance of an "Event of
Default" (as defined in the Senior Credit Agreement or in the Bridge Note
Purchase Agreement), including, without limitation, attorneys' fees, court
costs, appraisal and consulting fees, auctioneer's fees, rent, storage,
insurance premiums and like items and whether or not such amounts are
allowed as a claim against the Seller under the Bankruptcy Code, in each
case to the extent that the Seller is now or hereafter becomes liable to
pay any such amounts to the Senior Lenders or the Senior Agent in
connection with any of the foregoing items (i)-(iii) under any agreement or
by applicable law.
"Senior Lenders" shall mean, collectively, (i) all Senior Credit
--------------
Agreement Lenders from time to time, (ii) all Bridge Note Holders and (iii)
all other parties hereafter holding Senior Obligations.
"Senior Obligations" shall mean, collectively, (i) all "Obligations"
------------------
(as defined in the Senior Credit Agreement) now or hereafter existing under
or with respect to any of the "Loan Documents" (as defined in the Senior
Credit Agreement), (ii) all "Bridge Note Obligations" (as defined in the
Bridge Note Purchase Agreement) now or hereafter existing under or with
respect to any of the "Bridge Note Documents" (as defined in the Bridge
Note Purchase Agreement) and (iii) all other indebtedness and obligations
refinancing or replacing Senior Obligations.
"Subordinated Obligations" shall mean of all obligations of the Seller
------------------------
(monetary or otherwise) arising under or in connection with this Agreement
and the Notes (including without limitation all principal and interest).
SECTION V.
MISCELLANEOUS
-------------
5.01 Notices. All notices, requests or instructions hereunder shall
-------
be in writing and delivered personally, by telecopy or sent by registered or
certified mail, postage prepaid, as follows:
<PAGE>
17
(1) if to the Purchaser:
154 Pacific Highway, 9th Floor
St. Leonards NSW 2065
Australia
Attention: Secretary
Telecopy: 011-612-94-333-462
(2) if to the Seller:
Columbus Center
One Alhambra Plaza,
Suite 750
Coral Gables, Florida 33134
Attention: President
Telecopy No.: (305) 569-4647
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered or delivered by telecopy, and five days after the date of
mailing, if mailed.
5.02 Events of Default. The occurrence of any one or more of the
-----------------
following events (regardless of the reason therefor) shall constitute an "Event
of Default" hereunder:
(a) Bankruptcy. (i) RHCI or any of its wholly-owned subsidiaries
----------
shall commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under
any bankruptcy, insolvency or similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, or
shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding
commenced against it, or shall make a general assignment for the benefit of
creditors, or shall fail generally to pay its debts as they become due, or
shall take any corporate or partnership action to authorize any of the
foregoing; or (ii) an involuntary case or other proceeding shall be
commenced against RHCI or any of its wholly-owned subsidiaries seeking
liquidation, reorganization or other relief with respect to it or its debts
under any bankruptcy, insolvency or other
<PAGE>
18
similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or
any substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 90 days;
or an order for relief shall be entered against RHCI or any of its wholly-
owned subsidiaries under the federal bankruptcy laws as now or hereafter in
effect;
(b) Failure to Pay. The Seller shall fail to pay any amount owing
--------------
hereunder when due and such failure shall continue for a period of five (5)
business days after receipt of written notice thereof from the Purchaser;
(c) Representations. Any representation, warranty or statement made
---------------
by any party herein or in the Note or in any statement or certificate
delivered or required to be delivered pursuant hereto or thereto shall
prove to be untrue in any material respect on the date as of which it was
made or deemed made;
provided, however, that upon the occurrence of any Event of Default described in
- -------- -------
clause (a) above, the entire unpaid balance hereof and the obligations evidenced
hereby shall automatically become due and payable without any declaration or
other action being made or taken by the Purchaser.
5.03 Taxes. The Purchaser is not a United States person (as such term
-----
is defined in Section 7701(a)(30) of the Internal Revenue Code of 1986, as
amended) for U.S. Federal income tax purposes and agrees to deliver to the
Seller on or prior to the Closing Date two accurate and complete original signed
copies of (i) Internal Revenue Service Form W-8 (or successor form) certifying
that the Purchaser is not a United States person, and (ii) Internal Revenue
Service Form 1001 (or any successor form) certifying that the Purchaser is
entitled to benefits under an income tax treaty to which the United States is a
party which reduces the rate of withholding tax on payments of interest, and
(iii) any other form or certificate required by any taxing authority certifying
that the Purchaser is entitled to an exemption from or reduced rate of tax on
payments pursuant to this Agreement. In addition, the Purchaser agrees that
from time to time after the Closing Date, when a lapse in time or change in
circumstances renders the previous certification obsolete or inaccurate in any
material respect, it will deliver to the Seller two new accurate and complete
original signed copies of Internal
<PAGE>
19
Revenue Service Form W-8, Internal Revenue Service Form 1001 (or any successor
form), or such other forms as may be required in order to confirm or establish
the entitlement of the Purchaser to a continued exemption from or reduction in
United States withholding tax with respect to payments under this Agreement and
the Note, or it shall immediately notify the Seller of its inability to deliver
any such Form in which case the Purchaser shall not be required to deliver any
such Form.
5.04 Survival of Representations. Each representation, warranty,
---------------------------
covenant and agreement of the parties hereto herein contained shall survive the
execution of this Agreement, notwithstanding any investigation at any time made
by or on behalf of any party hereto.
5.05 Entire Agreement. This Agreement and the documents referred to
----------------
herein contain the entire agreement between the parties hereto with respect to
the transactions contemplated hereby. No modification hereof shall be effective
unless in writing and signed by the party against which it is sought to be
enforced.
5.06 Assignment. This Agreement shall not be assignable by the
----------
parties hereto except pursuant to a writing executed by each of the parties
hereto; provided that the Purchaser may assign all (but not less than all) of
its rights hereunder to any affiliate of the Purchaser which agrees to be bound
by all of the obligations of the Purchaser hereunder or to any lender in
connection with any financing transaction entered into by the Purchaser or any
of its affiliates.
5.07 Invalidity, Etc. If any provision of this Agreement, or the
----------------
application of any such provision to any person or circumstance, shall be held
invalid by a court of competent jurisdiction, the remainder of this Agreement,
or the application of such provision to persons or circumstances other than
those as to which it is held invalid, shall not be affected thereby.
5.08 Expenses. The Seller shall pay and be responsible for all
--------
expenses of each of the parties hereto in connection with the negotiation,
execution and delivery of this Agreement and the Note and the transactions
contemplated hereby and thereby and the enforcement of the Purchaser's rights
hereunder and thereunder.
5.09 Headings. The headings of this Agreement are for convenience of
--------
reference only and are not part of the substance of this Agreement.
<PAGE>
20
5.10 Binding Effect. This Agreement shall be binding upon and inure
--------------
to the benefit of the parties hereto and their respective successors and
assigns.
5.11 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York applicable in the case of
agreements made and to be performed entirely within such State.
5.12 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
5.13 Third Party Beneficiary. This Agreement shall not create any
-----------------------
rights in favor of any person not a party hereto.
* * *
<PAGE>
21
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first above written.
PAUL RAMSAY HOLDINGS PTY. LIMITED
By: /s/ Peter J. Evans
---------------------------
Name: Peter J. Evans
Title: Director
RAMSAY HEALTH CARE, INC.
By: /s/ Carol C. Lang
---------------------------
Name: Carol C. Lang
Title: Executive Vice President
<PAGE>
EXHIBIT A
THIS NOTE IS SUBORDINATED PURSUANT TO, AND SUBJECT TO THE TERMS AND CONDITIONS
SET FORTH IN, SECTION 4 OF THAT CERTAIN JUNIOR SUBORDINATED NOTE PURCHASE
AGREEMENT, DATED AS OF MARCH 25, 1997, BETWEEN RAMSAY HEALTH CARE, INC. AND PAUL
RAMSAY HOSPITALS PTY. LIMITED, AS AMENDED OR MODIFIED FROM TIME TO TIME.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT").
THIS NOTE MAY NOT BE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT OR AN OPINION OF COUNSEL TO THE MAKER OR THE PAYEE OF
THIS NOTE THAT SUCH REGISTRATION IS NOT REQUIRED.
RAMSAY HEALTH CARE, INC.
Junior Subordinated Promissory Note Due September 30, 2006
$5,000,000 plus Capitalized Interest March 25, 1998
FOR VALUE RECEIVED, RAMSAY HEALTH CARE, INC., a Delaware corporation
("RHCI" or the "Maker"), hereby promises to pay to the order of PAUL RAMSAY
HOLDINGS PTY. LIMITED, an Australian corporation (as the payee hereof and
together with its successors and all other holder or holders hereof, the
"Payee"), at the offices of the Payee (or at such other place as may be
designated by the Payee), a principal amount of the sum of (i) FIVE MILLION
DOLLARS ($5,000,000) or, if less, the unpaid principal amount of all Loans (as
defined in the Junior Subordinated Note Purchase Agreement dated as of the date
hereof among the Maker and the Payee (as amended, modified or supplemented from
time to time, the "Note Purchase Agreement")) made pursuant to the Note Purchase
Agreement, in lawful money of the United States of America and (ii) all
Capitalized Interest (as defined below). Any principal amount repaid hereunder
may not be reborrowed.
This Junior Subordinated Promissory Note (this "Note") is the
promissory note referred to in the Note Purchase Agreement, and is entitled to
all of the benefits thereof.
(a) Maturity. The entire unpaid principal amount of this Note,
--------
together with any outstanding accrued and
<PAGE>
2
unpaid interest thereon, shall be due and payable on September 30, 2006 (the
"Maturity Date").
(b) Interest. The Maker hereby promises to pay interest on the unpaid
--------
principal amount hereof in lawful money of the United States of America at the
offices of the Payee (or at such other place as may be designated by the Payee),
from the date hereof until paid, at a rate equal to the Interest Rate (as
defined below). Such interest shall be capitalized and added to the unpaid
principal balance of this Note (such interest being herein referred to as
"Capitalized Interest"), and the amount of Capitalized Interest attributable to
such unpaid interest shall be due on the Maturity Date, but shall otherwise bear
interest at the foregoing rate per annum until paid and be payable quarterly in
arrears on the first Business Day of each March, June, September and December;
provided, however, that from and after the date which is the later to occur of
- -------- -------
(x) the date of the repayment in full of all indebtedness and other amounts due
under the Bridge Note Purchase Agreement and under the Bridge Notes and (y) the
date which is twelve (12) months from the date hereof, such interest shall not
be capitalized and added to the unpaid principal balance of this Note, but shall
be payable in arrears on the first Business Day of each March, June September
and December so long as Maker complies with the requirements set forth in
clauses (i) through (iv) of the Senior Credit Agreement as in effect on the date
hereof and so long as no Senior Default has occurred and is continuing, provided
further that if the foregoing conditions are not met, such interest shall be
capitalized and added to the unpaid principal balance as Capitalized Interest.
For purposes hereof, "Interest Rate" shall mean the sum of (a) the interest
rate, then in effect, as set forth in Section 2.01(a) of the Bridge Note
Purchase Agreement plus (b) one-half of one percent (1/2%); provided, however,
-------- -------
that if the Bridge Notes are paid in full, "Interest Rate" shall mean twelve and
one-half percent (12 1/2%).
The Maker hereby also promises to pay on demand interest on any
amounts of overdue principal and (to the extent permitted by law) on any amounts
of overdue interest (exclusive of Capitalized Interest) from the due date
thereof until the obligations of the Maker with respect to the payment thereof
shall be discharged, at a rate of fourteen percent (14%) per annum.
(c) Events of Default. Subject to Section 4 of the Note Purchase
-----------------
Agreement, the Payee shall have the right, without demand or notice, to
accelerate this Note and to declare the entire unpaid balance hereof and the
obligations
<PAGE>
3
evidenced hereby immediately due and payable and to seek and obtain payment of
this Note if any of the following events (each an "Event of Default") shall
occur: (a) RHCI or any of its wholly-owned subsidiaries shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate or partnership action to authorize any
of the foregoing; (b) an involuntary case or other proceeding shall be commenced
against RHCI or any of its wholly-owned subsidiaries seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for a
period of 90 days; or an order for relief shall be entered against RHCI or any
of its wholly-owned subsidiaries under the federal bankruptcy laws as now or
hereafter in effect; (c) the Maker shall fail to pay any amount owing hereunder
when due and such failure shall continue for a period of five (5) business days
after receipt of written notice thereof from the Payee, (d) any representation,
warranty or statement made by any party herein or in the Note Purchase Agreement
or in any statement or certificate delivered or required to be delivered
pursuant hereto or thereto shall prove to be untrue in any material respect on
the date as of which it was made or deemed made or (e) the acceleration of the
maturity of the Senior Indebtedness (as defined in Section 4 of the Note
Purchase Agreement); provided, however, that upon the occurrence of any Event of
-------- -------
Default described in clauses (a) or (b) above, the entire unpaid balance hereof
and the obligations evidenced hereby shall automatically become due and payable
without any declaration or other action being made or taken by the Payee; and
provided further that any acceleration of the maturity of this Note pursuant to
- -------- -------
this Section 3 as a result of the acceleration of the maturity of the Senior
Indebtedness shall be automatically rescinded and annulled if all defaults on
the Senior Indebtedness are cured or waived or such acceleration of the maturity
of the Senior Indebtedness is otherwise rescinded or annulled.
<PAGE>
4
(d) Voluntary and Mandatory Prepayments. Subject to Section 4 of the
-----------------------------------
Note Purchase Agreement, the Maker shall have the right to prepay the Loans made
pursuant to the Note Purchase Agreement in whole or in part, without premium or
penalty, pursuant to Section 1.07(a) of the Note Purchase Agreement. In
addition, this Note is subject to mandatory prepayment as provided in Section
1.07(b) of the Note Purchase Agreement.
(e) Miscellaneous. This Note shall be governed by and construed in
-------------
accordance with the laws of the State of New York, without regard to any
conflict of laws principles which would apply the laws of any other
jurisdiction, and shall be binding upon the successors of the Maker and inure to
the benefit of the Payee, its successors, endorsees and assigns. If any term or
provision of this Note shall be held invalid, illegal or unenforceable, the
validity of all other terms and provisions hereof shall in no way be affected
thereby. No delay or failure by the Payee in exercising any right, power or
remedy hereunder shall affect or operate as a waiver thereof, nor shall any
single or partial exercise thereof or any abandonment or discontinuance of steps
to enforce such a right, power or remedy preclude any further exercise thereof
or of any other right, power or remedy. The rights and remedies hereunder of
the Payee are cumulative and not exclusive of any rights or remedies which it
would otherwise have. Any waiver, permit, consent or approval of any kind or
character on the part of the Payee of any breach or default under this Note or
any such waiver of any provision or condition of this Note must be in writing
and shall be effective only to the extent in such writing specifically set
forth. The Maker agrees to pay to the Payee all expenses, including, without
limitation, reasonable fees and disbursements of counsel, incurred by the Payee
in the administration, enforcement and collection of this Note. Whenever any
payment or action to be made or taken under this Note shall be stated to be due
on a day which is not a business day, such payment or action shall be made or
taken on the next following business day, and such extension of time shall be
included in computing interest or fees, if any, in connection with such payment
or action.
(f) Notices. All communications provided for hereunder shall be in
-------
writing and shall be delivered or sent by telex or facsimile to the respective
parties at the addresses and numbers set forth below:
<PAGE>
5
If to the Maker:
Columbus Center
One Alhambra Plaza,
Suite 750
Coral Gables, Florida 33134
Attention: President
Telecopy No.: (305) 569-4647
If to the Payee:
154 Pacific Highway, 9th Floor
St. Leonards NSW 2065
Australia
Attention: Secretary
Telecopy: 011-612-94-333-462
* * *
<PAGE>
6
IN WITNESS WHEREOF, the Maker has caused this instrument to be duly executed
and delivered as of the date first above written.
RAMSAY HEALTH CARE, INC.
By: /s/ Carol C. Lang
---------------------------
Name: Carol C. Lang
Title: Executive Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000773136
<NAME> RAMSAY HEALTH CARE, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,751,000
<SECURITIES> 0
<RECEIVABLES> 28,630,000
<ALLOWANCES> 4,521,000
<INVENTORY> 0
<CURRENT-ASSETS> 39,285,000
<PP&E> 54,601,000
<DEPRECIATION> 19,020,000
<TOTAL-ASSETS> 125,087,000
<CURRENT-LIABILITIES> 34,220,000
<BONDS> 52,250,000
6,636,000
3,399,000
<COMMON> 115,000
<OTHER-SE> 14,394,000
<TOTAL-LIABILITY-AND-EQUITY> 125,087,000
<SALES> 0
<TOTAL-REVENUES> 37,046,000
<CGS> 0
<TOTAL-COSTS> 61,620,000
<OTHER-EXPENSES> 1,648,000
<LOSS-PROVISION> 2,840,000
<INTEREST-EXPENSE> 2,749,000
<INCOME-PRETAX> (31,811,000)
<INCOME-TAX> 9,411,000
<INCOME-CONTINUING> (41,222,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (41,222,000)
<EPS-PRIMARY> (3.82)
<EPS-DILUTED> (3.82)
</TABLE>
