<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): OCTOBER 31, 1997
CONTINUCARE CORPORATION
--------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
FLORIDA
(STATE OR OTHER JURISDICTION OF INCORPORATION)
0-21910 59-2716023
(COMMISSION FILE NUMBER) (IRS EMPLOYER IDENTIFICATION NO.)
CONTINUCARE CORPORATION
100 SOUTHEAST 2ND STREET, 36TH FLOOR
MIAMI, FLORIDA 33131
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (305) 350-7515
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Effective October 31, 1997, Continucare Corporation, a Florida
corporation (the "Registrant"), through a wholly-owned subsidiary, Continucare
Physician Practice Management, Inc., acquired certain of the assets of DHG
Enterprises, Inc. f/k/a Doctor's Health Group, Inc. and Doctor's Health
Partnership, Inc., both Florida corporations (collectively referred to as
"Doctors Health Group" or "DHG"). DHG is an office-based primary physician
practice group formed in 1985 that operates through six owned clinics and one
managed clinic. The aggregate purchase was $14.5 million, of which $1.5 million
was paid in Common Stock of the Registrant. The purchase price was funded from
a portion of the net proceeds from the sale of 8% Convertible Subordinated
Notes Due 2002, sold on October 30, 1997.
The foregoing summary is qualified in its entirety by a copy of the
Agreement attached hereto as an exhibit.
<TABLE>
<CAPTION>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
<S> <C>
(a) Financial Statements of Business Acquired.
The financial statements of Doctors Health Group for the
six-month period ended June 30, 1997 (unaudited) and for
the years ended December 31, 1996 and 1995 (audited)
are attached as Exhibit 7(a) and incorporated herein by
reference.
(b) Proforma Financial Information.
The unaudited pro forma consolidated balance sheet of the
Registrant as of June 30, 1997 and the unaudited pro forma
consolidated statement of income for the year ended June 30,
1997, are attached as Exhibit 7(b) and are incorporated herein
by reference.
(c) Exhibits
2.1 Purchase Agreement, dated as of September 4, 1997, by and
among Continucare Corporation, Continucare Physician Practice
Management, Inc., a wholly owned subsidiary of Continucare
Corporation, DHG Enterprises, Inc. f/k/a Doctor's Health
Group, Inc. and Doctor's Health Partnership, Inc., both
Florida corporations, and Claudio Alvarez and Yvonne Alvarez.
</TABLE>
<PAGE> 3
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 hereunto duly authorized.
CONTINUCARE CORPORATION
Date: November 13, 1997 By: /s/ Charles M. Fernandez
--------------------------------------
Charles M. Fernandez
Chairman, Chief Executive Officer
and President
<PAGE> 4
ATTACHMENT AND EXHIBIT INDEX
ATTACHMENT DESCRIPTION
7(a) Financial Statements of DHG Enterprises, Inc. d/b/a Doctor's Health
Group and Doctor's Health Partnership, Inc. for the six-month period
ended June 30, 1997 (unaudited) and for the years ended December 31,
1996 and 1995 (audited)
7(b) Unaudited Pro Forma Consolidated Balance Sheet of Continucare
Corporation as of June 30, 1997 and the unaudited Pro Forma
Consolidated Statement of Income for the year ended June 30, 1997.
EXHIBIT DESCRIPTION
2.1 Purchase Agreement, dated as of September 4, 1997, by and among
Continucare Corporation, Continucare Physician Practice Management,
Inc., a wholly owned subsidiary of Continucare Corporation, DHG
Enterprises, Inc. f/k/a Doctor's Health Group, Inc. and Doctor's
Health Partnership, Inc., both Florida corporations, and Claudio
Alvarez and Yvonne Alvarez.
<PAGE> 5
DOCTORS HEALTH GROUP
FINANCIAL STATEMENTS
1
<PAGE> 6
DHG ENTERPRISES, INC.
D/B/A DOCTOR'S HEALTH GROUP
AND DOCTOR'S HEALTH PARTNERSHIP, INC.
COMBINED BALANCE SHEET
AS OF JUNE 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 990,352
Foundation IBNR receivable................................ 1,191,060
Accounts receivable -- Foundation......................... 395,571
Accounts receivable....................................... 54,914
Prepaid expenses and other................................ 59,435
-----------
Total current assets.............................. 2,691,332
Medical Reserve Fund...................................... 240,814
Property and equipment, net............................... 298,286
Security deposits......................................... 24,477
-----------
Total assets...................................... $ 3,254,909
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other accrued expenses............... $ 132,938
Accrued medical claims, including amounts incurred but not
reported............................................... 1,306,684
Current installments of long-term debt.................... 8,669
-----------
Total current liabilities.............................. 1,448,291
DEFERRED INCOME TAXES....................................... 41,809
-----------
Total liabilities................................. 1,490,100
-----------
STOCKHOLDERS' EQUITY:
Capital stock............................................. 400
Retained earnings......................................... 6,096,296
Advances to stockholders.................................. (4,331,887)
-----------
Total stockholders' equity........................ 1,764,809
COMMITMENTS AND CONTINGENCIES (Notes 4, 7)
-----------
Total liabilities and stockholders' equity.................. $ 3,254,909
===========
</TABLE>
See accompanying notes to unaudited combined financial statements.
2
<PAGE> 7
DHG ENTERPRISES, INC. D/B/A DOCTOR'S HEALTH GROUP
AND DOCTOR'S HEALTH PARTNERSHIP, INC.
COMBINED STATEMENT OF INCOME
SIX-MONTH PERIOD ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<S> <C>
CAPITATION REVENUES......................................... $8,045,685
----------
MEDICAL EXPENSES:
Physician services........................................ 341,565
Hospital and other medical services....................... 4,754,402
Medical supplies.......................................... 27,177
----------
Total medical expenses............................ 5,123,144
----------
GROSS PROFIT................................................ 2,922,541
----------
OPERATING EXPENSES:
Salaries and related benefits............................. 1,089,239
Operating and administrative fees......................... 554,758
Depreciation and amortization............................. 59,500
----------
Total operating expenses.......................... 1,703,497
----------
OTHER INCOME................................................ 10,238
----------
NET INCOME.................................................. $1,229,282
==========
</TABLE>
See accompanying notes to unaudited combined financial statements.
3
<PAGE> 8
DHG ENTERPRISES, INC. D/B/A DOCTOR'S HEALTH GROUP
AND DOCTOR'S HEALTH PARTNERSHIP, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
SIX-MONTH PERIOD ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
RETAINED ADVANCES TO STOCKHOLDERS'
CAPITAL STOCK EARNINGS STOCKHOLDERS EQUITY
------------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996................... $400 $4,867,014 $(3,275,362) $ 1,592,052
NET INCOME................................... 1,229,282 1,229,282
ADVANCES TO STOCKHOLDERS .................... (1,056,525) (1,056,525)
---- ---------- ----------- -----------
BALANCE, JUNE 30, 1997....................... $400 $6,096,296 $(4,331,887) $ 1,764,809
==== ========== =========== ===========
</TABLE>
See accompanying notes to unaudited combined financial statements.
4
<PAGE> 9
DHG ENTERPRISES, INC. D/B/A DOCTOR'S HEALTH GROUP
AND DOCTOR'S HEALTH PARTNERSHIP, INC.
COMBINED STATEMENT OF CASH FLOWS
SIX-MONTH PERIOD ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 1,229,282
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization expense.................. 59,500
Gain on disposal of fixed assets....................... (4,370)
(Increase) decrease in assets:
Foundation IBNR receivable........................... (235,684)
Accounts receivable -- Foundation.................... 693,133
Accounts receivable.................................. 21,229
Prepaid expenses and other assets.................... (34,904)
Medical reserve fund................................. (2,820)
Increase (decrease) in liabilities:
Accounts payable and other accrued expenses.......... 11,573
Accrued medical claims, including amounts incurred
but not reported.................................... 235,684
-----------
Net cash flows provided by operating activities... 1,972,623
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (35,884)
Proceeds from disposal of fixed assets.................... 14,943
-----------
Net cash used in investing activities............. (20,941)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances to stockholder................................... (1,056,525)
Principal reduction of long-term debt..................... (16,677)
-----------
Net cash used in financing activities............. (1,073,202)
-----------
INCREASE IN CASH AND CASH EQUIVALENTS....................... 878,480
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 111,872
-----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 990,352
-----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest.................... $ 1,069
-----------
</TABLE>
See accompanying notes to unaudited combined financial statements.
5
<PAGE> 10
DHG ENTERPRISES, INC. D/B/A DOCTOR'S HEALTH GROUP
AND DOCTOR'S HEALTH PARTNERSHIP, INC.
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1997
1. ORGANIZATION AND OPERATIONS
Organization -- The accompanying combined financial statements are
comprised of the following entities, affiliated through common ownership and
management: DHG Enterprises, Inc. d/b/a Doctor's Health Group ("DHG") and
Doctors' Health Partnership, Inc. ("DHP") (collectively, the "Company").
DHG was incorporated under the laws of the state of Florida on November 30,
1987 and is headquartered in Miami, Florida. DHG changed its name to DHG
Enterprises, but is still d/b/a DHG. DHG owns and manages the DHG Northwest
center ("Northwest"), DHG Cutler Ridge center ("Cutler Ridge"), DHG Hialeah
center ("Hialeah"), DHG Douglas Center ("Douglas"), and the Flagler/Northwest
center ("Flagler"). (Note: these centers are d/b/a Doctor's Medical Centers.)
DHP was incorporated under the laws of the state of Florida on December 3,
1987. This company is a subprovider for members assigned to DHG. DHP contracts
with seven physicians and a medical center managed by an unaffiliated company
for capitated services.
Nature of Operations -- The Company operates in the state of Florida,
providing health care services subject to an affiliated provider agreement
entered into with Foundation Health Services, Inc., formerly known as Care
Florida, Inc. ("Foundation"), a health maintenance organization. For the
six-month period ended June 30, 1997, substantially all of the Company's revenue
was derived from the provider agreement with Foundation. DHG contracts with Dare
to Care, Inc. ("DTC"), another entity affiliated through common ownership and
management, which owns and manages the DHG Weschester Center. The DHG Weschester
Center is d/b/a Primecare Medical Center. Health services are provided to
Foundation members through DHG, DHP and DTC's primary care medical centers and
its network of physicians and health care specialists.
Affiliated Provider Agreements -- Effective July 1, 1995, DHG and DHP
entered into provider agreements with Foundation which will continue until June
30, 2002 unless the Company fails to meet certain provisions of the agreements.
Should the Company or Foundation fail to meet the provisions, either party gets
30-days' written notice to provide a program to correct any deficiency. Failure
to correct the deficiency within the allowed time may result in termination of
the agreement.
Services to be provided by the Company's centers include medical and minor
surgical services, including all procedures furnished in a physician's office
such as X-rays, blood work, drugs, medical supplies and other incidentals. The
Company is responsible for providing all such services and for directing and
authorizing all other care, including emergency and inpatient care for
Foundation members. The Company is financially responsible for all out-of-area
care rendered to a member and to provide direct care as soon as the member is
able to return to the designated medical center.
Foundation has agreed to pay the Company monthly for services provided to
members based upon a predetermined amount per member ("capitation") for primary
care and other services not provided in a Hospital facility as defined by the
contract. DHG shares equally in any profits or losses with Foundation.
Foundation has also agreed to share equally with the Company in income or loss
determined on a quarterly basis for services provided to members based upon a
capitation for hospital-based services and other services defined by the
contract.
Foundation IBNR Receivable and Claims Reserve Funds -- Foundation withholds
certain amounts each month from the Company's Part A and Part B funds in order
to cover claims incurred but not reported or paid. The amount is used by
Foundation to pay the Company's Part A and Part B claims. The amounts withheld
by Foundation to cover incurred but not reported or paid claims varies by center
based on the history of the respective center and is determined solely by
Foundation.
6
<PAGE> 11
DHG ENTERPRISES, INC. D/B/A DOCTOR'S HEALTH GROUP
AND DOCTOR'S HEALTH PARTNERSHIP, INC.
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Accounts Receivable Foundation -- This amount includes DHG's share of net
income for the quarters ended March 31 and June 30. In addition, Foundation
withholds certain amounts, referred to as the "Medical Reserve Fund." The amount
withheld is used to cover deficits for final settlement with DHG upon
termination of the Foundation agreement.
Independent Physician Contracts -- The Company has entered into contracts
with various independent physicians to provide primary care, specialty and other
referral services both on a prepaid and a negotiated fee-for-service basis.
Prepaid physicians-service costs are based upon a fixed fee per member payable
on a monthly basis. Such costs are presented in the accompanying unaudited
combined statements of income as hospital and other medical services.
Malpractice and Professional Liability Insurance -- The Company is
uninsured with respect to medical malpractice risk. The Company has not
identified any unasserted claims under its incident-reporting system as of June
30, 1997. No accrual for possible losses attributed to incidents that may have
accrued but that have not been identified under the incident-reporting system
have been made, because the amount, if any, is not reasonably estimable.
Reinsurance -- The Company participates in Foundation's pooled reinsurance
program. Under the terms of the program, the Company is reinsured for 80 percent
of eligible claims which exceed a $30,000 deductible per member per calendar
year. The per-member per month premium is $12.58 and $3.12 for each Medicare and
commercial member, respectively. In the event that the pooled catastrophic fund
is in a deficit at December 31, the deficit will be recovered through future
premium adjustments.
Membership -- Foundation members assigned to the Company's centers are
comprised of approximately 2,030 Medicare members and 592 commercial members,
respectively, at June 30, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination -- The accompanying combined financial statements
include the accounts of all the companies listed in Note 1 which are related
through common ownership and management. All significant intercompany balances
and transactions have been eliminated in the accompanying unaudited combined
financial statements.
Revenue and Medical Cost Recognition -- Revenue from Foundation for primary
care (Primary-Care Capitation) is recognized monthly on the basis of the number
of members assigned to each center at the contractually agreed-upon rates.
Revenue, as per Part A and Part B funds, is recorded quarterly. The Company
receives quarterly payments from Foundation after all expenses are paid by
Foundation on behalf of the Company, including estimated claims incurred but not
reported, and claims-reserve-fund balances have been determined. In addition to
Foundation payments, the Company receives copayments from commercial members for
each office visit depending upon the specific plan and options selected.
Services provided to non-Foundation members are on a fee-for-service basis as
patients are seen. Medical services are recorded as expenses in the period in
which they are incurred. Accrued medical claims are based on costs incurred for
services rendered prior to or on the balance sheet date. Included are services
incurred but not reported as of the balance sheet date based on a reasonable
estimate of such costs.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation on plant and equipment is calculated on the straight-line basis
over the estimated useful lives of the assets. Depreciation on leasehold
improvement is calculated on the straight-line basis over the lease term.
Income Taxes -- DHG has elected S corporation status, which passes the tax
effects of the corporations' operations directly to the stockholders. Therefore,
no provision for income taxes has been recorded for this corporation.
7
<PAGE> 12
DHG ENTERPRISES, INC. D/B/A DOCTOR'S HEALTH GROUP
AND DOCTOR'S HEALTH PARTNERSHIP, INC.
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DHP accounts for income taxes under the asset and liability method
according to the Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"). Under
the asset and liability method of SFAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Change in Accounting Standards -- Statement of Financial Accounting
Standards ("SFAS") No. 130, Reporting Comprehensive Income will be implemented
for the Company's 1998 fiscal year. This Statement establishes standards for the
reporting and displaying of comprehensive income and its components (revenue,
expenses, gains and losses) in a full set of financial statements.
In addition, the Company will implement SFAS 131, Disclosures About
Segments of an Enterprise and Related Information during the Company's 1998
fiscal year. This Statement establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also requires that public business enterprises report certain
information about their products and services, the geographic areas in which
they operate, and their major customers.
These statements are not expected to have a material impact on the
Company's financial position, operating results, or cash flows.
Cash and Cash Equivalents -- Cash and cash equivalents consist of cash on
deposit and money market funds with an initial term of less than three months.
Fair Value of Financial Instruments -- The carrying amount of cash and cash
equivalents, Foundation IBNR, accounts receivable -- Foundation, prepaid assets,
accounts payable and other accrued expenses, accrued medical claims, and debt
approximates fair value because of the short maturity of these instruments.
Use of Estimates -- Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare the
accompanying combined financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at June 30, 1997:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
------------
<S> <C> <C>
Medical and office equipment................................ $ 462,305 5-7 years
Leasehold improvements...................................... 302,667 5 years
Automobiles................................................. 292,331 5 years
----------
1,057,303
Less accumulated depreciation............................... (759,017)
----------
Property and equipment, net................................. $ 298,286
==========
</TABLE>
8
<PAGE> 13
DHG ENTERPRISES, INC. D/B/A DOCTOR'S HEALTH GROUP
AND DOCTOR'S HEALTH PARTNERSHIP, INC.
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. LEASES
Future minimum lease payments required under noncancelable operating leases
at June 30, 1997 for each of the five succeeding years and thereafter are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- --------------------
<S> <C>
1998................................................... $267,709
1999................................................... 214,962
2000................................................... 107,527
2001................................................... 14,286
--------
Total........................................ $604,484
========
</TABLE>
Rental expense incurred under operating leases for the six-month period
ended June 30, 1997 amounted to approximately $146,000. Included in rent expense
for the six-month period ended June 30, 1997 is approximately $76,000 of
payments made to an affiliated company for rent of the Company's corporate
headquarters and certain centers.
5. CAPITAL STOCK
The shares' authorized, issued, stock par value, and additional paid-in
capital for each of the combined companies as of June 30, 1997 is as follows:
<TABLE>
<CAPTION>
STOCK PAR VALUE STOCK TOTAL
AUTHORIZED ISSUED PER STOCK PAR VALUE
---------- ------ --------- -----------
<S> <C> <C> <C> <C>
DHG......................................... 50,000 20,000 .01 $200
DHP......................................... 50,000 20,000 .01 200
----
$400
====
</TABLE>
6. RELATED PARTY TRANSACTIONS
The Company paid management fees of $575,000 during the six-month period
ended June 30, 1997 to a stockholder. Such fees are included in the unaudited
combined statement of income as salaries expense.
Advances to stockholders at June 30, 1997 amounted to $4,331,887. Such
advances are a component of stockholders' equity and bear no interest.
The Company paid rent to an affiliated company (see Note 4).
7. COMMITMENTS AND CONTINGENCIES
Governmental Regulation -- The Company's operations have been and may
continue to be affected by various forms of governmental regulation and other
actions. It is presently not possible to predict the likelihood of any such
actions, the form which such actions may take, or the effect such actions may
have on the Company.
Distributions -- Florida statutes permit a corporation to make
distributions to its stockholders, provided that after giving effect to the
distribution, the value of the corporation's assets equals or exceeds the value
of its liabilities and the corporation is able to pay its debts as they become
due in the usual course of business. If any portion of the distributions were
determined to have been not in accordance with the statutes, the directors of
the corporation would be liable to pay the corporation the amount of such
portion, and the directors in turn would be entitled to contributions from any
stockholder who accepted the distribution knowing that it was not made in
accordance with the statutes.
9
<PAGE> 14
INDEPENDENT AUDITORS' REPORT
The Board of Directors
DHG Enterprises, Inc.
d/b/a Doctor's Health Group;
Doctor's Health Partnership, Inc.; and
Managed Group Care, Inc. and subsidiary:
We have audited the combined balance sheets of DHG Enterprises, Inc. d/b/a
Doctor's Health Group; Doctor's Health Partnership, Inc.; and Managed Group
Care, Inc. and subsidiary (collectively, the "Company") as of December 31, 1996
and 1995, and the related combined statements of income, stockholders' equity,
and cash flows for the years then ended. These combined financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statements presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1996
and 1995, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Miami, Florida
August 4, 1997
1
<PAGE> 15
DHG ENTERPRISES, INC.
D/B/A DOCTOR'S HEALTH GROUP;
DOCTOR'S HEALTH PARTNERSHIP, INC.; AND
MANAGED GROUP CARE, INC.
AND SUBSIDIARY
COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 96,639 $ 473,819
Foundation IBNR receivable................................ 955,376 838,665
Accounts receivable -- Foundation......................... 1,088,703 984,937
Accounts receivable....................................... 76,144 20,624
Prepaid expenses and other................................ 25,874 81,278
----------- -----------
Total current assets.............................. 2,242,736 2,399,323
Medical Reserve Fund........................................ 237,994 232,970
Property and equipment, net (Note 3)........................ 350,023 437,242
Security deposits........................................... 24,477 31,418
----------- -----------
Total assets...................................... $ 2,855,230 $ 3,100,953
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other accrued expenses............... $ 124,209 $ 193,311
Accrued medical claims, including amounts incurred but not
reported............................................... 1,071,000 1,050,000
Current installments of long-term debt (Note 4)........... 21,201 7,702
----------- -----------
Total current liabilities......................... 1,216,410 1,251,013
Long-term debt, excluding current installments (Note 4)..... 22,341 10,878
Deferred income taxes (Note 8).............................. 13,321 41,809
----------- -----------
Total liabilities................................. 1,252,072 1,303,700
----------- -----------
STOCKHOLDERS' EQUITY (NOTES 6 AND 7):
Capital stock............................................. 500 500
Additional paid-in capital................................ 40,000 40,000
Retained earnings......................................... 4,838,020 4,431,868
Advances to stockholders.................................. (3,275,362) (2,675,115)
----------- -----------
Total stockholders' equity........................ 1,603,158 1,797,253
Commitments and contingencies (Notes 5 and 9)
----------- -----------
Total liabilities and stockholders' equity........ $ 2,855,230 $ 3,100,953
=========== ===========
</TABLE>
See accompanying notes to combined financial statements.
2
<PAGE> 16
DHG ENTERPRISES, INC.
D/B/A DOCTOR'S HEALTH GROUP;
DOCTOR'S HEALTH PARTNERSHIP, INC.; AND
MANAGED GROUP CARE, INC.
AND SUBSIDIARY
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Revenue..................................................... $14,906,569 $13,468,449
----------- -----------
MEDICAL EXPENSES:
Physician services........................................ 701,768 717,101
Hospital and other medical services....................... 8,449,267 8,194,701
Medical supplies.......................................... 67,342 68,501
----------- -----------
Total medical expenses............................ 9,218,377 8,980,303
----------- -----------
Gross profit................................................ 5,688,192 4,488,146
----------- -----------
OPERATING EXPENSES:
Salaries and related benefits............................. 1,746,881 1,349,905
Operating and administrative fees......................... 1,293,387 1,219,413
Depreciation and amortization............................. 173,181 174,660
----------- -----------
Total operating expenses.......................... 3,213,449 2,743,978
----------- -----------
OTHER INCOME (EXPENSE):
Interest income........................................... 10,726 6,398
Interest expense.......................................... (793) (191)
Other..................................................... 14,817 36,634
----------- -----------
Income before income tax benefit............................ 2,499,493 1,787,009
Income tax benefit (Note 8)................................. 28,488 121,841
----------- -----------
Net income........................................ $ 2,527,981 $ 1,908,850
=========== ===========
</TABLE>
See accompanying notes to combined financial statements.
3
<PAGE> 17
DHG ENTERPRISES, INC.
D/B/A DOCTOR'S HEALTH GROUP;
DOCTOR'S HEALTH PARTNERSHIP, INC.; AND
MANAGED GROUP CARE, INC.
AND SUBSIDIARY
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL RETAINED ADVANCES TO STOCKHOLDERS'
CAPITAL STOCK PAID-IN CAPITAL EARNINGS STOCKHOLDERS EQUITY
------------- --------------- ----------- ------------ -------------
(NOTE 6) (NOTE 6) (NOTE 7)
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994....... $500 $40,000 $ 3,439,396 $(1,951,147) $ 1,528,749
Net income..................... -- -- 1,908,850 -- 1,908,850
Dividend distributions
(Note 9).................... -- -- (916,378) -- (916,378)
Advances to stockholders....... -- -- -- (723,968) (723,968)
---- ------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995....... 500 40,000 4,431,868 (2,675,115) 1,797,253
Net income..................... -- -- 2,527,981 -- 2,527,981
Dividend distributions
(Note 9).................... -- -- (2,121,829) -- (2,121,829)
Advances to stockholders....... -- -- -- (600,247) (600,247)
---- ------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1996....... $500 $40,000 $ 4,838,020 $(3,275,362) $ 1,603,158
==== ======= =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
4
<PAGE> 18
DHG ENTERPRISES, INC.
D/B/A DOCTOR'S HEALTH GROUP;
DOCTOR'S HEALTH PARTNERSHIP, INC.; AND
MANAGED GROUP CARE, INC.
AND SUBSIDIARY
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 2,527,981 $ 1,908,850
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 173,181 174,660
Decrease in deferred income taxes...................... (28,488) (121,841)
(Increase) decrease in assets:
Foundation IBNR receivable........................... (116,711) 664,669
Accounts receivable -- Foundation.................... (103,766) (338,077)
Accounts receivable.................................. (55,520) (18,401)
Prepaid expenses and other assets.................... 55,404 (6,123)
Security deposits.................................... 6,941 3,060
Medical reserve fund................................. (5,024) --
Increase (decrease) in liabilities:
Accounts payable and other accrued expenses.......... (69,102) (13,235)
Accrued medical claims, including amounts incurred
but not reported.................................... 21,000 (429,000)
----------- -----------
Net cash provided by operating activities......... 2,405,896 1,824,562
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (85,962) (85,074)
----------- -----------
Net cash used in investing activities............. (85,962) (85,074)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend distributions.................................... (2,121,829) (916,378)
Advances to stockholder................................... (600,247) (723,968)
Principal reduction of long-term debt..................... (13,658) (38,946)
Proceeds from issuance of debt............................ 38,620 17,061
----------- -----------
Net cash used in financing activities............. (2,697,114) (1,662,231)
----------- -----------
(Decrease) increase in cash and cash equivalents............ (377,180) 77,257
Cash and cash equivalents at beginning of year.............. 473,819 396,562
----------- -----------
Cash and cash equivalents at end of year.................... $ 96,639 $ 473,819
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.................. $ 793 $ 607
=========== ===========
Income tax paid during the year........................... $ -- $ --
=========== ===========
</TABLE>
See accompanying notes to combined financial statements.
5
<PAGE> 19
DHG ENTERPRISES, INC.
D/B/A DOCTOR'S HEALTH GROUP;
DOCTOR'S HEALTH PARTNERSHIP, INC.; AND
MANAGED GROUP CARE, INC.
AND SUBSIDIARY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. ORGANIZATION AND OPERATIONS
(a) Organization
The accompanying combined financial statements are comprised of the
following entities, affiliated through common ownership and management: DHG
Enterprises, Inc. d/b/a Doctor's Health Group ("DHG"); Doctor's Health
Partnership, Inc. ("DHP"); and Managed Group Care, Inc. and subsidiary ("MGC")
(collectively, the "Company").
DHG was incorporated under the laws of the state of Florida on November 30,
1987 and is headquartered in Miami, Florida. DHG changed its name to DHG
Enterprises, but is still d/b/a DHG. DHG owns and manages the DHG Northwest
center ("Northwest"), DHG Cutler Ridge center ("Cutler Ridge"), DHG Hialeah
center ("Hialeah"), DHG Douglas center ("Douglas"), and the Flagler/Northwest
center ("Flagler"). (Note: these centers are d/b/a Doctor's Medical Centers.)
DHP was incorporated under the laws of the state of Florida on December 3,
1987. This company is a subprovider for members assigned to DHG. DHP contracts
with seven physicians and a medical center managed by an unaffiliated company
for capitated services.
MGC was incorporated under the laws of the state of Florida on February 3,
1992. MGC owns 100 percent of Dare to Care, Inc. ("DTC"). This company became
inactive January 1, 1995 and has remained dormant as of and for the period ended
December 31, 1996.
DTC was incorporated under the laws of the state of Florida on July 23,
1992. Although DTC's parent company, MGC, remains dormant, DTC owns and manages
the DGC Westchester center ("Westchester"). The DHG Westchester center is d/b/a
Primecare Medical Center.
(b) Nature of Operations
The Company operates in the state of Florida, providing health care
services subject to an affiliated provider agreement entered into with
Foundation Health Services, Inc., formerly known as CareFlorida, Inc.,
("Foundation"), a health maintenance organization. For the years ended December
31, 1996 and 1995, substantially all of the Company's revenue is derived from
the provider agreement with Foundation. Health services are provided to
Foundation members through DHG, DHP and DTC's primary care medical centers and
its network of physicians and health care specialists.
(c) Affiliated Provider Agreements
Effective July 1, 1995, DHG and DHP entered into provider agreements with
Foundation which will continue until June 30, 2002 unless the Company fails to
meet certain provisions of the agreements. Should the Company or Foundation fail
to meet the provisions, either party gets 30-days' written notice to provide a
program to correct any deficiency. Failure to correct the deficiency within the
allowed time may result in termination of the agreement.
Services to be provided by the Company's centers include medical and minor
surgical services, including all procedures furnished in a physician's office
such as X rays, blood work, drugs, medical supplies and other incidentals. The
Company is responsible for providing all such services and for directing and
authorizing all other care, including emergency and inpatient care for
Foundation members. The Company is financially
6
<PAGE> 20
DHG ENTERPRISES, INC.
D/B/A DOCTOR'S HEALTH GROUP;
DOCTOR'S HEALTH PARTNERSHIP, INC.; AND
MANAGED GROUP CARE, INC.
AND SUBSIDIARY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
responsible for all out-of-area care rendered to a member and to provide direct
care as soon as the member is able to return to the designated medical center.
Foundation has agreed to pay the Company monthly for services provided to
members based upon a predetermined amount per member ("capitation") for primary
care and other services not provided in a Hospital facility as defined by the
contract. DHG shares equally in any profits or losses with the HMO. Foundation
has also agreed to share equally with the Company in income or loss determined
on a quarterly basis for services provided to members based upon a capitation
for hospital-based services and other services defined by the contract.
(d) Foundation IBNR Receivable and Claims Reserve Funds
Foundation withholds certain amounts each month from the Company's Part A
and Part B funds in order to cover claims incurred but not reported or paid. The
amount is used by Foundation to pay the Company's Part A and Part B funds. The
amounts withheld by Foundation to cover incurred-but-not-reported-or-paid claims
varies by center based on the history of the respective center and is determined
solely by Foundation.
(e) Accounts Receivable -- Foundation
Accounts receivable -- Foundation includes DHG's share of net income for
the quarters ended September 30 and December 31 and the Primary-Care Capitation
for the month of December. In addition, Foundation withholds certain amounts,
referred to as the "Medical Reserve Fund." The amount withheld is used to cover
deficits for final settlement with DHG upon termination of the Foundation
agreement.
(f) Independent Physician Contracts
The Company has entered into contracts with various independent physicians
to provide primary care, specialty and other referral services both on a prepaid
and a negotiated fee-for-service basis. Prepaid physicians-service costs are
based upon a fixed fee per member payable on a monthly basis. Such costs are
presented in the accompanying combined statements of income as hospital and
other medical services.
(g) Malpractice and Professional Liability Insurance
The Company is uninsured with respect to medical malpractice risk. At
December 31, 1995, the Company has one asserted claim against it which was
settled for $50,000. This amount is included in accounts payable and other
accrued expenses as of December 31, 1995. The Company has not identified any
unasserted claims under its incident-reporting system as of December 31, 1996.
No accrual for possible losses attributed to incidents that may have accrued but
that have not been identified under the incident-reporting system have been
made, because the amount, if any, is not reasonably estimable.
(h) Reinsurance
The Company participates in Foundation's pooled reinsurance program. Under
the terms of the program, the Company is reinsured for 80 percent of eligible
claims which exceed a $30,000 deductible per member per calendar year. The
per-member per month premium is $12.58 and $3.12 for each Medicare and
commercial member, respectively. In the event that the pooled catastrophic fund
is in a deficit at December 31, the deficit will be recovered through future
premium adjustments.
7
<PAGE> 21
DHG ENTERPRISES, INC.
D/B/A DOCTOR'S HEALTH GROUP;
DOCTOR'S HEALTH PARTNERSHIP, INC.; AND
MANAGED GROUP CARE, INC.
AND SUBSIDIARY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(i) Membership
Foundation members assigned to the Company's centers are comprised of
approximately 2,221 and 2,220 Medicare members and 655 and 552 commercial
members, respectively, at December 31, 1996 and 1995.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Combination
The accompanying combined financial statements include the accounts of all
the companies listed in note 1(a) which are related through common ownership and
management. All significant intercompany balances and transactions have been
eliminated in the accompanying combined financial statements.
(b) Revenue and Medical Cost Recognition
Revenue from Foundation for primary care (Primary-Care Capitation) is
recognized monthly on the basis of the number of members assigned to each center
at the contractually agreed-upon rates. Revenue, as per Part A and Part B funds,
is recorded quarterly. The Company receives quarterly payments from Foundation
after all expenses are paid by Foundation on behalf of the Company, including
estimated claims incurred but not reported, and claims-reserve-fund balances
have been determined. In addition to Foundation payments, the Company receives
copayments from commercial members for each office visit depending upon the
specific plan and options selected. Services provided to non-Foundation members
are on a fee-for-service basis as patients are seen.
Medical services are recorded as expenses in the period in which they are
incurred. Accrued medical claims are based on costs incurred for services
rendered prior to or on the balance sheet date. Included are services incurred
but not reported as of the balance-sheet date based on actual costs reported
subsequent to the balance-sheet date and a reasonable estimate of additional
costs.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation on plant and
equipment is calculated on the straight-line basis over the estimated useful
lives of the assets. Depreciation on leasehold improvements is calculated on the
straight-line basis over the lease term.
(d) Income Taxes
DHG and MGC have elected S corporation status, which passes the tax effects
of the corporations' operations directly to the stockholders. Therefore, no
provision for income taxes has been recorded for these corporations.
The companies not electing S corporation status, DHP and DTC, account for
income taxes under the asset and liability method according to the Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). Under the asset and liability method
of SFAS 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or
8
<PAGE> 22
DHG ENTERPRISES, INC.
D/B/A DOCTOR'S HEALTH GROUP;
DOCTOR'S HEALTH PARTNERSHIP, INC.; AND
MANAGED GROUP CARE, INC.
AND SUBSIDIARY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(e) Impairment of Long-Lived Assets
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," on
January 1, 1996. This Statement required that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events change in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of an asset to be held and used is measured by a
comparison of the carrying amount of the asset to future net cash flows expected
to be generated by the asset. If such an asset is considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed
of are reported at the lower of the carrying amount or fair values less costs to
sell. Adoption of this Statement did not have a material impact of the Company's
financial position, results of operations, or liquidity at December 31, 1996.
(f) Change in Accounting Standards
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" will be implemented for the Company's 1998 fiscal year.
This Statement establishes standards for the reporting and displaying of
comprehensive income and its components (revenue, expenses, gains and losses) in
a full set of financial statements.
In addition, the Company will implement SFAS 131, "Disclosures About
Segments of an Enterprise and Related Information" during the Company's 1998
fiscal year. This Statement establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also requires that public business enterprises report certain
information about their products and services, the geographic areas in which
they operate, and their major customers.
These statements are not expected to have a material impact on the
Company's financial position, operating results, or cash flows.
(g) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on deposit and money market funds
with an initial term of less than three months.
(h) Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, Foundation IBNR, accounts
receivable -- Foundation, prepaid assets, accounts payable and other accrued
expenses, accrued medical claims, and debt approximates fair value because of
the short maturity of these instruments.
(i) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare the accompanying
9
<PAGE> 23
DHG ENTERPRISES, INC.
D/B/A DOCTOR'S HEALTH GROUP;
DOCTOR'S HEALTH PARTNERSHIP, INC.; AND
MANAGED GROUP CARE, INC.
AND SUBSIDIARY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
combined financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(j) Reclassifications
Certain reclassifications have been made to the 1995 financial statements
in order to conform to the 1996 presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
ESTIMATED
1996 1995 USEFUL LIVES
---------- ---------- -------------
<S> <C> <C> <C>
Medical and office equipment...................... $ 475,776 $ 426,416 5-7 years
Leasehold improvements............................ 322,158 322,158 5 years
Automobiles....................................... 356,595 326,393 5 years
---------- ----------
1,154,529 1,074,967
Less accumulated depreciation..................... (804,506) (637,725)
---------- ----------
Property and equipment, net....................... $ 350,023 $ 437,242
========== ==========
</TABLE>
4. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Installment note payable in monthly installments of $2,800
including interest at 2%; due February 3, 1996; guaranteed
by a stockholder.......................................... $ -- $ 2,791
Installment note payable in monthly installments of $549,
including principal and interest of 9.7%; due October
1998...................................................... 10,550 15,789
Installment note payable in monthly installments of $1,126
including principal and interest of 10.2%; secured by
automobile; due February 1998............................. 14,796 --
Installment note payable in monthly installments of $409
including principal and interest of 9.5%; secured by
automobile; due July 2001................................. 18,196 --
------- -------
Total long-term debt.............................. 43,542 18,580
Less current installments................................... 21,201 7,702
------- -------
Long-term debt, excluding current installments.... $22,341 $10,878
======= =======
</TABLE>
10
<PAGE> 24
DHG ENTERPRISES, INC.
D/B/A DOCTOR'S HEALTH GROUP;
DOCTOR'S HEALTH PARTNERSHIP, INC.; AND
MANAGED GROUP CARE, INC.
AND SUBSIDIARY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Annual maturities of long-term debt as of December 31, 1996 for each of the
five succeeding years and thereafter are as follows:
<TABLE>
<S> <C>
1997........................................................ $21,201
1998........................................................ 11,125
1999........................................................ 4,019
2000........................................................ 4,419
2001........................................................ 2,778
Thereafter.................................................. --
-------
Total............................................. $43,542
=======
</TABLE>
5. LEASES
Future minimum lease payments required under noncancelable operating leases
at December 31, 1996 for each of the five succeeding years and thereafter are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1997........................................................ $319,552
1998........................................................ 243,441
1999........................................................ 186,482
2000........................................................ 28,572
2001........................................................ --
Thereafter.................................................. --
--------
Total minimum lease payments...................... $778,047
========
</TABLE>
Rental expense incurred under operating leases for the years ended December
31, 1996 and 1995 amounted to approximately $385,000 and $311,000, respectively.
Included in rent expense for the years ended December 31, 1996 and 1995,
respectively, is approximately $162,000 and $151,000 for payments made to an
affiliated company for rent of the Company's corporate headquarters and certain
centers.
6. CAPITAL STOCK
The shares' authorized, issued, stock par value, and additional paid-in
capital for each of the combined companies as of December 31, 1996 and 1995 is
as follows:
<TABLE>
<CAPTION>
ADDITIONAL
STOCK PAR VALUE STOCK TOTAL PAID-IN
AUTHORIZED ISSUED PER STOCK PAR VALUE CAPITAL
---------- ------ --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
DHG................................... 50,000 20,000 $ .01 $200 $ --
DHP................................... 50,000 20,000 .01 200 --
MGC................................... 7,500 100 1.00 100 40,000
---- -------
$500 $40,000
==== =======
</TABLE>
11
<PAGE> 25
DHG ENTERPRISES, INC.
D/B/A DOCTOR'S HEALTH GROUP;
DOCTOR'S HEALTH PARTNERSHIP, INC.; AND
MANAGED GROUP CARE, INC.
AND SUBSIDIARY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED-PARTY TRANSACTIONS
The Company paid management fees of $820,000 and $542,000 during the years
ended December 31, 1996 and 1995, respectively, to a stockholder. Such fees are
included in the combined statements of income as operating and administrative
fees.
Advances to stockholders at December 31, 1996 and 1995 amounted to
$3,275,362 and $2,675,115, respectively. Such advances are a component of
stockholders' equity and bear no interest.
The Company paid rent to an affiliated company (see note 5).
8. INCOME TAXES
The components of income tax benefit for the years ended December 31, 1996
and 1995 for DHP and DTC, the entities for which no Subchapter S election is in
effect, are as follows:
<TABLE>
<CAPTION>
1996
----------------------------
CURRENT DEFERRED TOTAL
------- -------- -------
<S> <C> <C> <C>
U.S. federal............................................... $ -- $24,324 $24,324
State and local............................................ -- 4,164 4,164
---- ------- -------
$ -- $28,488 $28,488
==== ======= =======
</TABLE>
<TABLE>
<CAPTION>
1995
-----------------------------
CURRENT DEFERRED TOTAL
------- -------- --------
<S> <C> <C> <C>
U.S. federal............................................. $ -- $102,863 $102,863
State and local.......................................... -- 18,978 18,978
---- -------- --------
$ -- $121,841 $121,841
==== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities for DHP and DTC
for the years ended December 31, 1996 and 1995, are presented as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS:
Federal and state loss carryforward....................... $172,453 $140,874
Less valuation allowance.................................. -- --
-------- --------
Net deferred tax assets........................... 172,453 140,874
-------- --------
DEFERRED TAX LIABILITIES:
Differences arising from accrual to cash conversion for
tax purposes........................................... 185,774 182,683
-------- --------
Total gross deferred tax liabilities.............. 185,774 182,683
-------- --------
Net deferred tax liabilities...................... $ 13,321 $ 41,809
======== ========
</TABLE>
The valuation allowance for deferred tax assets for the years ended
December 31, 1996 and 1995 was zero. There was no change in the valuation
allowance. Management considers it more likely than not that all deferred tax
assets will be realized in the future.
12
<PAGE> 26
DHG ENTERPRISES, INC.
D/B/A DOCTOR'S HEALTH GROUP;
DOCTOR'S HEALTH PARTNERSHIP, INC.; AND
MANAGED GROUP CARE, INC.
AND SUBSIDIARY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax benefit differs from the amounts computed by applying the U.S.
federal income tax rate of 34 percent to pretax income as a result of the
following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Computed "expected" tax expense............................. $ 854,961 $ 659,134
Income tax receivable....................................... -- 8,000
Decrease due to entities having Subchapter S elections in
effect.................................................... (883,449) (788,975)
--------- ---------
Total tax benefit................................. $ (28,488) $(121,841)
========= =========
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
(a) Governmental Regulation
The Company's operations have been and may continue to be affected by
various forms of governmental regulation and other actions. It is presently not
possible to predict the likelihood of any such actions, the form which such
actions may take, or the effect such actions may have on the Company.
(b) Distributions
During the years ended December 31, 1996 and 1995, the Company made
distributions to stockholders. Florida statutes permit a corporation to make
distributions to its stockholders, provided that after giving effect to the
distribution, the value of the corporation's assets equals or exceeds the value
of its liabilities and the corporation is able to pay its debts as they become
due in the usual course of business. If any portion of the distributions were
determined to have been not in accordance with the statutes, the directors of
the corporation would be liable to pay the corporation the amount of such
portion, and the directors in turn would be entitled to contributions from any
stockholder who accepted the distribution knowing that it was not made in
accordance with the statutes.
13
<PAGE> 27
Attachment 7(b)
INTRODUCTION TO
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
GENERAL
The following unaudited pro forma consolidated balance sheet as of June 30, 1997
and the unaudited pro forma consolidated statement of income for the year ended
June 30, 1997 include the Company's historical financial position and results of
operations, adjusted to reflect the Acquisitions discussed as if all such events
and transactions had occurred as of June 30, 1997 in the case of the
consolidated balance sheet, and as of July 1, 1996 in the case of the
consolidated statement of income.
The unaudited pro forma consolidated financial information has been prepared by
the Company based, in part, on the audited financial statements of the
businesses acquired as required under the Securities Exchange Act of 1934,
adjusted where necessary, with respect to pre-acquisition periods, to the basis
of accounting used in the Company's consolidated financial statements. These
unaudited financial statements are not intended to be indicative of the results
that would have occurred if the transactions had occurred on the dates indicated
or which may be realized in the future.
ACQUISITIONS
On October 31, 1997, the Company acquired certain assets of Doctors Health
Group, Inc. ("DHG") for an aggregate purchase price of approximately $14.5
million of which $13.0 million was paid in cash. The remainder of the purchase
price was in Continucare common stock. The cash portion of the purchase price
was funded from a portion of the proceeds of the sale of $46.0 million of
Convertible Subordinated Notes in October 1997 (the "Notes").
This acquisition generated approximately $8.8 million of goodwill, which will be
amortized over 20 years and $5.6 in intangible assets which will be amortized
over a range of 4 to 28 years. There can be no assurance that this acquisition
will be consummated or, if consummated, that it will be beneficial to the
Company.
-1-
<PAGE> 28
CONTINUCARE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Historical
-------------------------------------
Acquired Business
Continucare ----------------- Acquisition Pro
Corporation DHG (1) Adjustments Forma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,989,580 $ -- $ -- $ 6,989,580
Accounts receivable, net 2,829,426 -- -- 2,829,426
Prepaid expenses and other assets 401,814 -- -- 401,814
------------ ------------ ------------ ------------
Total current assets 10,220,820 -- -- 10,220,820
Other receivables 5,000,000 -- -- 5,000,000
Property and equipment, net 1,176,049 100,000 -- 1,276,049
Goodwill, net 1,452,557 -- 8,763,637(2) 10,216,194
Other intangible assets, net 980,910 -- 5,636,363(2) 6,617,273
Other assets, net 515,274 -- -- 515,274
Deferred tax asset, net 505,699 -- -- 505,699
------------ ------------ ------------ ------------
Total assets $ 19,851,309 $ 100,000 $ 14,400,000 $ 34,351,309
============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 285,518 $ -- $ -- $ 285,518
Accrued expenses 924,018 -- -- 924,018
Accrued interest payable 37,295 -- -- 37,295
Current portion of capital lease obligation 44,055 -- -- 44,055
Current portion of notes payable 811,133 -- -- 811,133
Income and other taxes payable 619,445 -- -- 619,445
------------ ------------ ------------ ------------
Total current liabilities 2,721,464 -- -- 2,721,464
Notes payable 2,330,367 -- 13,000,000(3) 15,330,367
Other long-term debt 181,551 -- -- 181,551
------------ ------------ ------------ ------------
Total liabilities 5,233,382 -- 13,000,000 18,233,382
------------ ------------ ------------ ------------
Commitments and contingencies
Shareholders' equity
Common stock 1,089 -- 24(4) 1,113
Additional paid-in capital 14,549,884 -- 1,499,976(4) 16,049,860
Retained earnings 2,351,284 -- -- 2,351,284
Treasury stock (2,284,330) -- -- (2,284,330)
------------ ------------ ------------ ------------
Total shareholders' equity 14,617,927 -- 1,500,000 16,117,927
------------ ------------ ------------ ------------
Total liabilities and shareholders' equity $ 19,851,309 $ -- $ 14,500,000 $ 34,351,309
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
consolidated financial statements.
-2-
<PAGE> 29
CONTINUCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
The acquisition adjustments reflected on the unaudited pro forma consolidated
balance sheet are as follows:
1) Represents the historical value of the assets acquired.
2) The aggregate purchase price has been allocated, on a preliminary basis, to
the net assets acquired based on their estimated fair market value. The
allocation of the purchase price is preliminary, while the Company
continues to obtain the information to determine the fair value of the
assets acquired and the liabilities assumed. Therefore, an uncertainty
exists with respect to the effects of the amortization periods assigned as
any adjustment could result in a change to estimated annual amortization
expense.
Total purchase price $14,500,000
Net tangible assets acquired (100,000)
Identifiable intangible assets acquired (5,636,363)
-----------
Goodwill $ 8,763,637
===========
Goodwill will be amortized over 20 years.
The preliminary allocation of the identifiable intangible assets acquired
and the related amortization periods are as follows:
<TABLE>
<CAPTION>
AMORTIZATION
ALLOCATED VALUE PERIOD
--------------- ------------
<S> <C> <C>
Patient list $3,981,000 4
Assembled workforce 248,000 28
Non-compete agreement 23,363 7
Internally developed software 24,000 7
Trade name 1,360,000 28
----------
Total identifiable intangible assets $5,636,363
==========
</TABLE>
3) Cash paid of $13,000,000 was obtained from the issuance of the Notes.
-3-
<PAGE> 30
4) Represents the elimination of the equity accounts of Maxicare and the
issuance of stock to effect the purchase of DHG as follows:
Common stock $ 24
Additional paid-in capital 1,499,976
Retained earnings --
----------
Goodwill $1,500,000
==========
-4-
<PAGE> 31
CONTINUCARE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1997
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Historical
------------------------------------
Continucare Acquisition Pro
Corporation DHG Adjustments Forma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Capitation revenues $ -- $ 15,466,087 $ -- $ 15,466,087
Net patient service revenues 1,041,793 -- -- 1,041,793
Management fees 12,874,592 -- -- 12,874,592
------------ ------------ ------------ ------------
Total revenues 13,916,385 15,466,087 -- 29,382,472
------------ ------------ ------------ ------------
Expenses:
Physician, hospital and other -- 9,552,748 -- 9,552,748
Payroll and employee benefits 6,348,195 2,104,895 (955,000)(1) 7,498,090
Provision for bad debt 1,818,293 -- -- 1,818,293
Professional fees 1,450,790 -- -- 1,450,790
General and administrative 1,176,516 1,310,617 -- 2,487,133
Depreciation and amortization 208,936 134,456 1,497,627(2) 1,841,019
------------ ------------ ------------ ------------
Total expenses 11,002,730 13,102,716 542,627 24,648,073
------------ ------------ ------------ ------------
Income from operations 2,913,655 2,363,371 (542,627) 4,734,399
------------ ------------ ------------ ------------
Other income (expense):
Interest income, net 165,253 16,564 (1,040,000)(3) (858,183)
Minority interest (162,235) -- -- (162,235)
Other (9,081) 22,738 -- 13,657
------------ ------------ ------------ ------------
Total other income (expense) (6,063) 39,302 (1,040,000) (1,006,761)
------------ ------------ ------------ ------------
Income (loss) before income taxes 2,907,592 2,402,673 (1,582,627) 3,727,638
Provision for income taxes 1,200,917 -- 308,583(4) 1,509,500
------------ ------------ ------------ ------------
Net income (loss) $ 1,706,675 $ 2,402,673 $ (1,891,210) $ 2,218,138
============ ============ ============ ============
Weighted average shares of common
stock outstanding 10,921,991 11,162,761
============ ============
Earnings (loss) per common share of common
stock outstanding $ 0.16 $ 0.20
============ ============
Weighted average shares of common
stock outstanding 10,875,785 11,116,555
============ ============
Earnings (loss) per common share and common
equivalent share assuming full dilution $ 0.16 $ 0.20
============ ============
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
consolidated financial statements.
-5-
<PAGE> 32
CONTINUCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1997
The acquisition adjustments reflected on the unaudited pro forma consolidated
statement of income are as follows:
1) Represents the elimination of management fees paid to a DHG shareholder of
$1,055,000 offset by consulting fees of $100,000 to be paid to the same
shareholder under a new consulting agreement.
2) Represents the amortization of goodwill and other intangible assets related
to the acquisitions as follows:
Goodwill $ 438,182
Patient list 995,250
Assembled workforce 8,857
Non-compete agreement 3,338
Internally developed software 3,429
Trade name 48,571
----------
Total $1,497,627
==========
3) Represents the net effect on interest income (expense) of the issuance of
the Notes.
4) Represents the income tax effect of certain acquisition adjustments and of
DHG's historical income before taxes (as DHG is a subchapter S corporation)
at an assumed tax rate of 37.63%.
-6-
<PAGE> 1
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT, entered into as of September 4, 1997 (the
"Execution Date"), is by and among CONTINUCARE CORPORATION, a Florida
corporation ("Continucare"), CONTINUCARE PHYSICIAN PRACTICE MANAGEMENT, INC., a
Florida corporation (the "Buyer"), a wholly owned subsidiary of Continucare; DHG
ENTERPRISES, INC., f/k/a DOCTOR'S HEALTH GROUP, INC. and DOCTOR'S HEALTH
PARTNERSHIP, INC., both Florida corporations (hereinafter collectively referred
to as the "DHG Entities"); and CLAUDIO ALVAREZ and YVONNE ALVAREZ, the holders
of all of the DHG Entities' capital stock (hereinafter referred to individually
as a "Stockholder" and collectively referred to as the "Stockholders").
PRELIMINARY STATEMENTS
The Stockholders desire to cause the DHG Entities to sell all or
substantially all of the assets of the DHG Entities to Buyer, or a wholly owned
subsidiary of Buyer, and Buyer desires to acquire all or substantially all of
the DHG Entities' Assets as more fully described below.
NOW, THEREFORE, in order to consummate the purchase and sale of the DHG
Entities' Assets and in consideration of the mutual agreements contained in this
Agreement, the parties agree as follows:
AGREEMENT
SECTION 1
SALE OF ASSETS AND PURCHASE PRICE
1.1 Assets to be Purchased. On the Closing Date, the DHG Entities shall
sell to Buyer, and Buyer shall purchase from the DHG Entities, all of the assets
of the DHG Entities constituting the health care business (collectively, the
"DHG Entities' Assets"), other than the Excluded Assets (as defined in Section
1.2 below), in accordance with the provisions of this Agreement. Generally, the
DHG Entities' Assets consist of all of the following located at the leased
properties.
a. All inventory of medical supplies, office supplies, forms,
office materials and clerical supplies.
b. All medical equipment.
c. All of the DHG Entities' patient medical records, supplier
lists, and mailing
<PAGE> 2
lists.
d. All of the DHG Entities' furniture, fixtures, equipment,
leasehold
e. All transferable licenses, permits, certificates, and the
like issued by any state or local governmental entity for use in the operation
of the DHG Entities, including, but not limited to, the workers' compensation
and unemployment compensation history of the DHG Entities.
f. All rights to the telephone number(s) listed in Schedule
1.1(f).
g. An assignment of the Existing Office Leases and the
equipment leases described in Schedule 1.1(g).
h. All inventories maintained by the DHG Entities at the
Closing Date.
i. All contracts to which the DHG Entities are a party,
including, but not limited to, all contracts identified on Schedule 2.13.
j. The books and records of the DHG Entities relating to the
DHG Entities' Assets, all of which shall be delivered to Buyer, or such person
as Buyer may designate, on the Closing Date.
k. All customer lists, clinical and administrative policy and
procedure manuals, trade secrets, marketing and promotional materials (including
audiotapes, videotapes and printed materials) and all other property rights
required for or incident to the marketing of the products and services of the
DHG Entities, and all books and records relating thereto.
l. All of the property (excluding any real property), if any,
used in connection with the operation, maintenance, promotion and/or advertising
of the DHG Entities, except for the Excluded Assets.
m. Any and all rights to the names Doctor's Health Group,
Doctor's Medical Centers, DHG, any logos regarding the same, and any licensing
rights or trademarks associated with DHG, Doctor's Health Group or Doctor's
Medical Centers.
1.2 Excluded Assets. There shall be excluded from the Assets to be
transferred and conveyed hereunder, and the DHG Entities shall retain all of its
right, title and interest in and to, the following assets:
a. All cash and cash equivalents of the DHG Entities in
existence on the Closing Date.
b. The minute books of the DHG Entities and similar corporate
records of the DHG Entities.
2
<PAGE> 3
c. All considerations to be delivered by Buyer on the Closing
Date.
d. The real property owned by affiliates of the DHG Entities
and from which (the "business") is operated.
e. Any and all accounts receivable of the DHG Entities in
existence on the Closing Date.
f. Any deposits of the DHG Entities.
g. Any asset which is unrelated to the health care business of
DHG and is disclosed on Schedule 1.2(g).
1.3 Liabilities. Buyer shall not assume any debts, obligations,
warranties or liabilities of the DHG Entities, express or implied, contingent or
otherwise, unless such debts, obligations, warranties or liabilities are
disclosed on Schedule 1.3.
1.4 Purchase Price and Payment. In consideration of the sale by the DHG
Entities to Buyer, in reliance upon the representations and warranties of the
DHG Entities and the Stockholders contained in this Agreement and made at the
Closing and subject to the satisfaction of all of the conditions in this
Agreement, Buyer agrees that it will deliver to the DHG Entities the amount
specified in Exhibit 1.4 by bank cashier check or by wire transfer of
immediately available funds (the "Cash Consideration") plus:
a. A number of shares of Continucare's common stock, which
shall constitute the Stock Consideration. The Stock Consideration shall be
determined by dividing One Million Five Hundred Thousand Dollars ($1,500,000.00)
by the Base Period Trading Price of Continucare's Common Stock. For purposes of
this Section 1.4, the "Base Period Trading Price" shall mean the average last
daily closing price for the shares of Continucare's common stock for the 30
consecutive trading days on which such shares are actually traded (as reported
to Continucare by the Amex or as reported in The Wall Street Journal, Eastern
Edition, or if not reported thereby, any other authoritative source, ending at
the close of trading on the second trading day immediately preceding the
Execution Date. The number of shares of Continucare common stock to be received
by the Stockholders shall be listed on Schedule 1.4(a) prior to Closing.
b. The shares of Continucare common stock have not been
registered under the Securities Act and are subject to a Registration Rights
Agreement by and among the Buyer and the Stockholders.
c. It is agreed and understood that the Stock Consideration
received by the Stockholders is in exchange for all or substantially all of the
assets of Doctor's Health Partnership, Inc., and Buyer, Continucare, Doctor's
Health Partnership, Inc. and the Stockholders shall, for federal income tax
purposes, report such exchange in accordance with section 368(a)(1)(C) of the
3
<PAGE> 4
Internal Revenue Code of 1986, as amended and the regulations promulgated
thereunder.
1.5 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Assets solely for federal income tax return and accounting purposes as
follows:
<TABLE>
<CAPTION>
Assets Portion of Purchase Price
------ -------------------------
<S> <C>
Furniture and Equipment
(including signs), Medical
and Office Supplies, and
Patient List and Records $ 266,415
Goodwill $14,233,585
TOTAL $14,500,000
</TABLE>
a. Reports: The parties agree that:
i. the allocations of the Purchase Price are
made solely for federal income tax return and accounting purposes;
ii. they will adopt and utilize the amounts
allocated for the purpose of all federal, state and other income and property
tax returns filed by them; and
iii. they will not voluntarily take any position
inconsistent with those allocations on examination or audit of any tax return of
any of the parties, and/or any claim with respect to such tax returns.
b. Form 8594: Both Buyer and the DHG Entities shall:
i. promptly file with the Internal Revenue
Service when due the asset acquisition statements on Form 8594 (or its
successor) with their income tax returns; and
ii. consult and cooperate with each other in the
preparation of the Form 8594 and all supplements and amendments.
iii. Buyer and the DHG Entities shall prepare and
file Form 8594 on the basis of the allocations described above, unless all
parties consent in writing otherwise.
1.6 Prorations. The parties shall pay to each other as appropriate the
amount of the prorations (in accordance with the bills received and for the
estimated accrued vacation, salaries, deposits and other mutually agreeable
items) within ten (10) days of notice as such estimated prorations are disclosed
on the attached Schedule 1.6. To the extent applicable, the DHG Entities shall
pay all their expenses items accrued through the Closing Date. At the Closing,
the Purchase
4
<PAGE> 5
Price shall be adjusted by an amount in cash equal to the total of the expenses
to be prorated. To the extent that the prorations are inaccurate at the Closing,
the parties shall make such payments to the other party to correct the
inaccuracy as soon as the statements, invoices and bills relating to the
prorated items are received by either party. The provisions of this Section 1.6
shall survive the Closing for a period of ninety (90) days after the Closing
Date. In addition to the provisions of this Section 1.6, the parties agree that
the quarterly distribution from Foundation Health Systems ("Foundation") to the
DHG Entities for the Surplus/Deficit from the Net Revenues allocated to the Part
A Fund and the Part B Fund for the quarters ended June 30, 1997 and September
30, 1997 shall be credited to the DHG Entities by Buyer and upon receipt of such
amounts by Buyer, remitted by Buyer to the DHG Entities within five (5) days. It
is understood and agreed by the DHG Entities and Alvarez that in lieu of a
working capital requirement, the monthly primary care capitation amount due the
DHG Entities for the month that the transaction closes shall be the sole
property of Buyer.
1.7 Time and Place of Closing. The closing of the purchase and sale
provided for in this Agreement (the "Closing") shall be held at the offices of
Buyer at 100 SE Second Street, 36th Floor, Miami, Florida on or after October 1,
1997 and no later than October 10, 1997, or at another place or an earlier or
later date or time as may be mutually agreed upon by the parties. In the event
the transaction does not close on or prior to October 10, 1997, the parties
agree that all the terms of this Agreement, other than the terms of Sections 6.2
and 6.4 shall be null and void and no party to this Agreement shall have any
liability to any other party to this Agreement.
1.8 Further Assurances. The DHG Entities, the Stockholders and Buyer
agree that from time to time after the Closing and without further
consideration, the DHG Entities, the Stockholders and Buyer shall execute and
deliver further instruments of transfer and assignment and take all other
actions as may be reasonably required to more effectively transfer and assign
to, and vest in Buyer the DHG Entities' Assets and all rights to the DHG
Entities' Assets, and to fully implement the provisions of this Agreement.
SECTION 2
REPRESENTATIONS AND WARRANTIES
OF THE DHG ENTITIES AND STOCKHOLDERS
2.1 Making of Representations and Warranties. As a material inducement
to Buyer to enter into this Agreement and consummate the contemplated
transactions, the DHG Entities and each of the Stockholders jointly and
severally make to Buyer the representations and warranties contained in this
Section 2.
2.2 Organization and Qualifications of the DHG Entities. The DHG
Entities are for profit corporations duly organized, validly existing and in
good standing under the laws of Florida with full corporate power and authority
to own or lease their properties and to conduct their businesses in the manner
and in the places where those properties are owned or leased or that business is
currently conducted or proposed to be conducted. Copies of the DHG Entities'
5
<PAGE> 6
Articles of Incorporation as amended to date, certified by Florida's Secretary
of State and delivered to Buyer's counsel, are complete and correct, and no
amendments to them are pending. The DHG Entities are not in violation of any
term of their Articles of Incorporation or By-laws. The DHG Entities are not
required to be licensed or qualified to conduct their business or own their
property in any other jurisdiction.
2.3 Capital Stock of the Company; Beneficial Ownership.
a. The authorized capital stock of the DHG Entities consists
of fifty thousand (50,000) shares of Common Stock, one cent ($0.01) par value
per share of DHG Enterprises, Inc. f/k/a Doctor's Health Group, Inc., of which
twenty thousand (20,000) shares are duly and validly issued, outstanding, fully
paid and non-assessable and fifty thousand (50,000) shares of Common Stock, one
cent ($0.01) par value per share of Doctors Health Partnership, Inc., of which
twenty thousand (20,000) shares are duly and validly issued, outstanding, fully
paid and non-assessable. There are no outstanding options, warrants, rights,
commitments, preemptive rights or agreements of any kind for the issuance or
sale of, or outstanding securities convertible into, any additional shares of
capital stock of any class of the DHG Entities. None of the DHG Entities'
capital stock has been issued in violation of any federal or state law.
b. Each of the Stockholders owns beneficially and of record
the DHG Entities' Shares listed opposite that Stockholders' name on Exhibit
2.3(b) free and clear of any liens, restrictions or encumbrances.
2.4 Authority of the DHG Entities and the Stockholders. The DHG
Entities and the Stockholders have the full right, authority and power to enter
into this Agreement and each agreement, document and instrument to be executed
and delivered by the DHG Entities and the Stockholders pursuant to this
Agreement and to carry out the contemplated transactions. The execution,
delivery and performance by the DHG Entities and the Stockholders of this
Agreement and each other agreement, document and instrument have been duly
authorized by all necessary action of the DHG Entities and no other action on
the part of the DHG Entities or the Stockholders is required. This Agreement and
each agreement, document and instrument executed and delivered by the DHG
Entities and the Stockholders pursuant to this Agreement constitutes, or when
executed and delivered will constitute, valid and binding obligations of the DHG
Entities and the Stockholders and are enforceable in accordance with their
terms. The execution, delivery and performance by the DHG Entities of this
Agreement and each agreement, document and instrument:
a. does not and will not violate any provision of any of the
Articles of Incorporation or by-laws of the DHG Entities;
b. does not and will not violate any laws of the United
States, or any state or other jurisdiction applicable to the DHG Entities or
require the DHG Entities to obtain any approval, consent or waiver of, or make
any filing with, any person or entity (governmental or otherwise) that has not
been obtained or made; and
6
<PAGE> 7
c. does not and will not result in a breach of, constitute a
default under, accelerate any obligation under, or give rise to a right of
termination of any indenture or loan or credit agreement or any other agreement,
contract, instrument, mortgage, lien, lease, permit, authorization, order, writ,
judgment, injunction, decree, determination or arbitration award to which the
DHG Entities are a party or by which the property of the DHG Entities is bound
or affected, or result in the creation or imposition of any mortgage, pledge,
lien, security interest or other charge or encumbrance on any of the DHG
Entities' Assets or the DHG Entities' Shares, except as specifically identified
on Schedule 2.4(c).
2.5 Real and Personal Property.
a. Leased Real Property. All of the real property leased by
the DHG Entities are identified on Schedule 2.5(a) (referred to as the "Leased
Real Property").
i. Status of Leases. True and complete copies
of all Leased Real Property have been delivered to Buyer. Each of those leases
has been duly authorized and executed by the parties and is in full force and
effect. The DHG Entities are not in default under any of those leases, nor has
any event occurred which, with notice or the passage of time, or both, would
give rise to a default. To the DHG Entities' and Stockholders' knowledge, the
other party to each of the leases is not in default under any of the leases and
there is no event which, with notice or the passage of time, or both, would give
rise to a default.
ii. Consents. Except as described in Schedule
2.5(a)(ii), no consent or approval is required with respect to the transactions
contemplated by this Agreement from the other parties to any lease of Leased
Real Property, or from any regulatory authority, no filing with any regulatory
authority is required in connection therewith, and to the extent that any
consents, approvals or filings are required, the DHG Entities or the
Stockholders will obtain or complete them before the Closing.
iii. Condition of Leased Real Property. Except as
described in Schedule 2.5(a)(iii), to the best of the DHG Entities and
Stockholders' knowledge, there are no material defects in the physical condition
of any land, buildings or improvements constituting part of the Leased Real
Property, including without limitation, structural elements, mechanical systems,
parking and loading areas, and all those buildings and improvements are in good
operating condition and repair, have been well maintained and are free from
infestation by rodents or insects. Access to the Leased Real Property is by a
public way or public street. To the best of the DHG Entities' and the
Stockholders' knowledge, all water, sewer, gas, electric, telephone, drainage
and other utilities required by law or necessary for the current or planned
operation of the Leased Real Property have been connected under valid permits
and pursuant to valid easements where required, and are sufficient to service
the Leased Real Property and are in good operating condition.
iv. Compliance with the Law. The DHG Entities or
the Stockholders
7
<PAGE> 8
have not received any notice from any governmental authority of any violation of
any law, ordinance, regulation, license, permit or authorization issued with
respect to any Leased Real Property that has not been corrected and to the best
of the DHG Entities and the Stockholders' knowledge, no violation exists which
could have an adverse affect on the operation or value of any Leased Real
Property. To the best of the DHG Entities and the Stockholders knowledge, all
improvements located on or constituting part of the Leased Real Property and
their use and operation by the DHG Entities were and are now in compliance in
all respects with all applicable laws, ordinances, regulations, licenses,
permits and authorizations except as described in Schedule 2.5(a)(iv). No
approval or consent to the transactions contemplated by this Agreement is
required of any governmental authority with jurisdiction over any aspect of the
Leased Real Property or its use or operations.
b. Personal Property. Buyer and the DHG Entities shall
complete a full description of the machinery, furniture, personalty and
equipment of the DHG Entities is contained in Schedule 2.5(b). Except as
specifically disclosed in that Schedule or in the Base Balance Sheet (as defined
below), the DHG Entities have good and marketable title to all of their personal
property. None of the DHG Entities' personal property or assets is subject to
any mortgage, pledge, lien, conditional sale agreement, security title,
encumbrance or other charge except as specifically disclosed in that Schedule or
in the Base Balance Sheet. The Base Balance Sheet reflects all personal property
of the DHG Entities. Except as otherwise specified in Schedule 2.5(b), all
leasehold improvements, furnishings, machinery, personalty and equipment of the
DHG Entities are in good repair, have been well maintained, and substantially
comply with all applicable laws, ordinances and regulations, and those
furnishings, personalty, machinery and equipment are in good working order.
2.6 Financial Statements.
a. The DHG Entities have delivered to Buyer the following
financial statements, copies of which are attached as Schedule 2.6: a balance
sheet of each of the DHG Entities dated as of December 31, 1996 and statements
of income, retained earnings and cash flows for the year then ended, which have
been audited by KPMG Peat Marwick, independent certified public accountants. To
the best of the DHG Entities and Shareholder's knowledge, these financial
statements have been prepared in accordance with generally accepted accounting
principles ("GAAP") applied among all periods covered thereby, are complete and
correct in all material respects and present fairly in all material respects the
financial condition of each of the DHG Entities at the dates of those statements
and the results of their operations for the periods covered thereby.
b. As of the date of the Base Balance Sheet, the DHG Entities
had no liabilities (which liabilities, when taken individually or in the
aggregate, were material) of any nature, whether accrued, absolute, contingent
or otherwise, asserted or unasserted, known or unknown (including without
limitation, liabilities as guarantor or otherwise with respect to obligations of
others, liabilities for taxes due or then accrued or to become due, or
contingent or potential liabilities relating to activities of the DHG Entities
or the conduct of its business prior to the date
8
<PAGE> 9
of the Base Balance Sheet, regardless of whether claims had been asserted as of
that date), except liabilities stated or adequately reserved against on the Base
Balance Sheet, or reflected in the schedules furnished to Buyer pursuant to this
Agreement as of the Execution Date.
c. As of the Execution Date and as of the date of the Closing,
the DHG Entities have not had and will not have any liabilities of any nature,
whether accrued, absolute, contingent or otherwise, asserted or unasserted,
known or unknown (including without limitation, liabilities as guarantor or
otherwise with respect to obligations of others, or liabilities for taxes due or
then accrued or to become due or contingent or potential liabilities relating to
activities of the DHG Entities or the conduct of their businesses prior to
Execution Date or the date of the Closing, as the case may be, regardless of
whether claims had been asserted as of those dates), except liabilities: (i)
stated or adequately reserved against on the Base Balance Sheet or the notes to
it; (ii) reflected in Schedules furnished to Buyer under this Agreement on the
Execution Date; or, (iii) incurred after the date of the Base Balance Sheet in
the ordinary course of business of the DHG Entities consistent with the terms of
this Agreement.
2.7 Taxes.
a. To the best of the DHG Entities and the Stockholder's
knowledge, the DHG Entities have paid or caused to be paid all federal, state,
local, foreign, and other taxes, including without limitation, income taxes,
estimated taxes, alternative minimum taxes, excise taxes, sales taxes, use
taxes, value-added taxes, gross receipts taxes, franchise taxes, capital stock
taxes, employment and payroll-related taxes, withholding taxes, stamp taxes,
transfer taxes, windfall profit taxes, environmental taxes and property taxes,
whether or not measured in whole or in part by net income, and all deficiencies,
or other addition to tax, interest, fines and penalties owed by them
(collectively, "Taxes"), required to be paid by them through the Execution Date,
whether disputed or not.
b. To the best of the DHG Entities and the Stockholder's
knowledge, the DHG Entities have, in accordance with applicable law filed all
federal, state, local and foreign tax returns required to be filed by them
through the Execution Date, and all these returns correctly and accurately
contain the amount of any Taxes relating to the applicable period. A list of all
federal, state, local and foreign income tax returns filed with respect to the
DHG Entities for taxable periods ended on or after December 31, 1992 is provided
in Schedule 2.7(b), and that Schedule indicates those returns that have been
audited or currently are the subject of an audit. For each taxable period of the
DHG Entities ended on or after December 31, 1992 the DHG Entities have delivered
to Buyer correct and complete copies of all federal, state, local and foreign
income tax returns, examination reports and statements of deficiencies assessed
against or agreed to by the DHG Entities.
c. Neither the Internal Revenue Service nor any other
governmental authority is now asserting or, to the knowledge of the DHG Entities
or any Stockholder, threatening to assert against the DHG Entities any
deficiency or claim for additional Taxes. No claim has ever been made by an
authority in a jurisdiction where the DHG Entities does not file reports and
returns
9
<PAGE> 10
that the DHG Entities are or may be subject to taxation by that jurisdiction.
There are no security interests on any of the assets of the DHG Entities that
arose in connection with any failure (or alleged failure) to pay any Taxes. The
DHG Entities have never entered into a closing agreement pursuant to Section
7121 of the Internal Revenue Code of 1986, as amended (the "Code").
d. Except as described in Schedule 2.7(d), there have not been
any audits of any tax return filed by the DHG Entities, no audit is in progress,
and the DHG Entities have not been notified by any tax authority that any audit
is contemplated or pending. Except as described in Schedule 2.7(d): (i) no
extension of time with respect to any date on which a tax return was or is to be
filed by the DHG Entities is in force; (ii) no waiver or agreement by the DHG
Entities is in force for the extension of time for the assessment or payment of
any Taxes; and, (iii) no agreement with any taxing authority is in force for an
extension of the statute of limitations for an audit.
e. The DHG Entities have never been (or has never had any
liability for unpaid Taxes because it once was) a member of an "affiliated
group" (as defined in Section 1504(a) of the Code). Except as described in
Schedule 2.7(e), the DHG Entities have never filed, and have never been required
to file, a consolidated, combined or unitary tax return with any other entity.
Except as described in Schedule 2.7(e), the DHG Entities do not own and have
never owned a direct or indirect interest in any trust, partnership, corporation
or other entity. Except as described in Schedule 2.7(e), the DHG Entities are
not a party to any tax sharing agreement.
f. For purposes of this Agreement, all references to Sections
of the Code shall include any predecessor provisions to those Sections and any
similar provisions of federal, state, local or foreign law.
2.8 This Section not used.
2.9 Intellectual Property.
a. Except as described in Schedule 2.9(a), the DHG Entities
have exclusive ownership of, or exclusive license to use, all patent, copyright,
trade secret, trademark, or other proprietary rights (collectively,
"Intellectual Property") used or to be used in the businesses of the DHG
Entities as presently conducted or contemplated. All of the rights of the DHG
Entities in the Intellectual Property are freely transferable. There are no
claims or demands of any other person pertaining to any of the Intellectual
Property and no proceedings have been instituted, or are pending or threatened,
which challenge the rights of the DHG Entities. The DHG Entities have the right
to use, free and clear of claims or rights of other persons, all patient lists,
processes, computer software, systems, data compilations, research results and
other information required for or incident to their services or their businesses
as presently conducted or contemplated.
b. All patents, patent applications, trademarks, trademark
applications and registrations and registered copyrights which are owned by or
licensed to the DHG Entities or used or to be used by the DHG Entities in their
businesses as presently conducted or
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contemplated, and all other items of Intellectual Property which are material to
the business or operations of the DHG Entities, are listed in Schedule 2.9(b).
c. All licenses or other agreements under which the DHG
Entities are granted rights in Intellectual Property are listed in Schedule
2.9(c). All these licenses or other agreements are in full force and effect,
there is no material default by any party to those licenses or agreements, and,
except as described in Schedule 2.9(c), all of the rights of the DHG Entities
under those licenses and agreements are freely assignable. To the knowledge of
the DHG Entities and the Stockholders, the licensors under these licenses and
other agreements have and had all requisite power and authority to grant the
rights purported to be conferred thereby. True and complete copies of all these
licenses or other agreements, and any amendments to them, have been provided to
Buyer.
d. All licenses or other agreements under which the DHG
Entities have granted rights to others in Intellectual Property owned or
licensed by the DHG Entities are listed in Schedule 2.9(d). All of these
licenses or other agreements are in full force and effect, there is no material
default by any party to them, and, except as described on Schedule 2.9(d), all
of the rights of the DHG Entities under those licenses and agreements are freely
assignable. True and complete copies of all licenses or other agreements, and
any amendments to them, have been provided to Buyer.
e. The DHG Entities have taken all steps required in
accordance with sound business practice to establish and preserve their
ownership of all Intellectual Property rights with respect to their services and
technology.
f. The present and contemplated businesses, activities and
products of the DHG Entities do not infringe any Intellectual Property of any
other person. No proceeding charging the DHG Entities with infringement of any
adversely held Intellectual Property has been filed or is threatened to be
filed. The DHG Entities are not making unauthorized use of any confidential
information or trade secrets of any person, including without limitation, any
former employer of any past or present employee of the DHG Entities.
2.10 Contracts. There are no contracts between the DHG Entities and any
of the physicians, nurses, technicians and allied health care professionals
employed or engaged by the DHG Entities (those individuals shall be
collectively, the "Health Care Providers"). Except for contracts, commitments,
plans, agreements and licenses described in Schedule 2.10 (true and complete
copies of which have been delivered to Buyer), neither the DHG Entities nor the
Stockholders (as to the DHG Entities' Assets) are a party to or subject to:
a. any written plan or contract providing for bonuses,
pensions, options, stock purchases, deferred compensation, retirement payments,
profit sharing, collective bargaining or the like, or any contract or agreement
with any labor union;
b. any employment contract or contract for services which
requires the payment
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of more than One Thousand Dollars ($1,000.00) annually or which is not
terminable within thirty (30) days by the DHG Entities without liability for any
penalty or severance payment;
c. any contract or agreement for the purchase of any service,
commodity, material or equipment, except as otherwise disclosed in another
schedule to this Agreement;
d. any other contracts or agreements creating any obligations
of the DHG Entities not specifically disclosed elsewhere under this Agreement;
e. any contract or agreement which by its terms does not
terminate or is not terminable without penalty by the DHG Entities or their
successors within one year after the Execution Date;
f. any contract containing covenants limiting the freedom of
the DHG Entities to compete in any line of business or with any person or
entity;
g. any contract or agreement for the purchase of any fixed
asset whether or not that purchase is in the ordinary course of business;
h. any license agreement (as licensor or licensee);
i. any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for the borrowing of money which
directly or indirectly may affect the DHG Entities;
j. any contract or agreement with any officer, employee,
director or stockholder of the DHG Entities or with any persons or organizations
controlled by or affiliated with any of them; or
k. any contracts, agreements and understandings (collectively,
the "Provider Agreements") with any party regarding the provision of medical
services to patients, including without limitation, any Provider Agreements with
HMOs, PPOS, third party payors, IPAS, PHOS, MSOS, employers, labor unions,
hospitals, clinics, ambulatory surgery centers, Medicare intermediaries and
Medicaid intermediaries.
2.11 Litigation, Investigations, Orders and Decrees. Except as listed
on Schedule 2.11, there are no actions, suits, claims, governmental
investigations or arbitration proceedings pending or, to the best of the DHG
Entities and the Stockholders' knowledge, threatened against or affecting the
Stockholders, the DHG Entities' employed or engaged physicians, nurses,
technicians and allied health care professional (individually, a "Health Care
Provider" and collectively, the "Health Care Providers"), the DHG Entities or
the business, assets, prospects or financial condition of the DHG Entities or
the Stockholders that may have an adverse effect on the DHG Entities, the Health
Care Providers or the Stockholders or any of the DHG Entities' Assets, and to
the best of the DHG Entities and Stockholders' knowledge, there are no facts or
circumstances
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which are reasonably likely to create a basis for any of the foregoing. Except
as listed on Schedule 2.11, there are no outstanding orders, decrees or
stipulations issued by any local, state or federal judicial authority in any
proceeding to which the DHG Entities or the Stockholders are or were a party
which may have an adverse effect on any of them. Except as set forth on Schedule
2.11, neither the DHG Entities nor any of its Affiliates (as defined in Section
2.18) have any claims against any of the Health Care Providers or the
Stockholders and none of the Health Care Providers or the Stockholders have any
claims against the DHG Entities or any of their Affiliates, and to the best of
the DHG Entities and the Stockholders' knowledge, there are no facts or
circumstances which are reasonably likely to create a basis for any of the
foregoing.
2.12 Medical Malpractice. Except as set forth on Schedule 2.12, there
are no pending, and to the best of the DHG Entities and the Stockholders'
knowledge and belief, there are no threatened litigation, arbitration, claim or
governmental, administrative or other proceedings (formal or informal),
including, without limitation, any malpractice claims, Health Care Financing
Administration, Agency for Health Care Administration, Office of the Inspector
General, Department of Insurance, Department of Professional Regulation or Board
of Medicine investigations, suits, notices of intent to institute, arbitration
or proceedings, either administrative or judicial, involving the DHG Entities,
the Stockholders or any of the Health Care Providers.
2.13 Insurance. The physical properties and assets of the DHG Entities
are insured to the extent disclosed in Schedule 2.13 (including all professional
liability insurance policies) and all those insurance policies and arrangements
are disclosed in that Schedule. Those insurance policies and arrangements are in
full force and effect, all premiums with respect to those policies and
arrangements are currently paid, and the DHG Entities are in compliance in all
material respects with their terms. To the best of the DHG Entities and the
Stockholders' knowledge, the above insurance coverage is adequate and customary
for the business engaged in by the DHG Entities and is sufficient for compliance
by the DHG Entities with all requirements of law and all agreements and leases
to which the DHG Entities is a party.
2.14 Equity Investments. Except as set forth on Schedule 2.14, neither
the DHG Entities nor any of the Stockholders own, directly or indirectly, of
record or beneficially, either directly or indirectly, any capital stock, other
equity, ownership or proprietary interest in any corporation, partnership,
association, trust, joint venture or other entity engaged in any business
related to the health care industry.
2.15 Powers of Attorney. Neither the DHG Entities nor any Stockholder
have any outstanding power of attorney.
2.16 Finder's Fee. Except as provided in Schedule 2.16, the DHG
Entities have not incurred or become liable for any broker's commission or
finder's fee relating to or in connection with the transactions contemplated by
this Agreement.
2.17 Not Used in this Agreement.
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2.18 Transactions with Interested Persons. Except as disclosed on
Schedule 2.18, neither the DHG Entities nor any of their "Affiliates" (such term
shall hereinafter have the meaning set forth in Rule 405 promulgated by the SEC
under the Securities Act of 1933, as amended), nor the Stockholders nor any of
the Stockholders, Affiliates have any direct or indirect material interest or
familial or business relationship in any of the Stockholders, or the DHG
Entities' customers, patients, suppliers, vendors, payors or landlords. All of
the DHG Entities rights with respect to the Assets are based upon and derived
from arms length transactions unrelated to any of their Affiliates and all of
the Assumed Obligations do not exceed the fair market value of the products,
services or rights being received in exchange for the discharge of those
obligations.
2.19 Employee Benefit Programs.
Schedule 2.19 to this Agreement sets forth a list of every Employee
Program (as defined below) that has been maintained (as that term is further
defined below) by the DHG Entities since its inception.
Each Employee Program which has been maintained by the DHG Entities and
which has at any time been intended to qualify under Section 401(a) or 501(c)(9)
of the Internal Revenue Code of 1986, as amended (the "Code"), has received a
favorable determination or approval letter from the IRS regarding its
qualification under that section and has, in fact, been qualified under the
applicable section of the Code from the effective date of that Employee Program
through and including the Closing (or, if earlier, the date that all of such
Employee Program's assets were distributed). No event or omission has occurred
which would cause any Employee Program to lose its Qualification under the
applicable Code section.
There has not been any failure of any party to comply with any laws
applicable with respect to the Employee Programs that have been maintained by
the DHG Entities. With respect to any Employee Program now or heretofore
maintained by the DHG Entities, there has occurred no "prohibited transaction,"
as defined in Section 406 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975 of the Code, or breach of any duty
under ERISA or other applicable law (including, without limitation, any health
care continuation requirements or any other tax law requirements, or conditions
to favorable tax treatment, applicable to such plan), which could result,
directly or indirectly (including without limitation through any obligation of
indemnification or contribution), in any taxes, penalties or other liability to
the DHG Entities or any Affiliate (as defined below). No litigation,
arbitration, or governmental administrative proceeding (or investigation) or
other proceeding (other than those relating to routine claims for benefits) is
pending or, to the best knowledge of the DHG Entities and the Stockholders,
threatened with respect to any Employee Program.
The DHG Entities have not incurred any liability under Title IV of
ERISA which has not been paid in full prior to the Closing. There has been no
"accumulated funding deficiency" (whether or not waived) with respect to any
Employee Program ever maintained by the DHG Entities and subject to Code Section
412 or ERISA Section 302. With respect to any Employee
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Program maintained by the DHG Entities and subject to Title IV of ERISA, there
has been no (nor will be any as a result of the transaction contemplated by this
Agreement) (i) "reportable event," within the meaning of ERISA Section 4043, or
the regulations thereunder (for which notice the notice requirement is not
waived under 29 C.F.R. Part 2615); or, (ii) event or condition which presents a
material risk of plan termination or any other event that may cause the DHG
Entities to incur liability or have a lien imposed on its assets under Title IV
of ERISA. All payments and/or contributions required to have been made (under
the provisions of any agreements or other governing documents or applicable law)
with respect to all Employee Programs ever maintained by the DHG Entities, for
all periods prior to the Closing, either have been made or have been accrued. No
Employee Program maintained by the DHG Entities and subject to Title IV of ERISA
(other than a Multiemployer Plan) has any "unfunded benefit liabilities" within
the meaning of ERISA Section 4001(a)(18), as of the Closing Date. The DHG
Entities have not ever maintained a Multiemployer Plan. None of the Employee
Programs ever maintained by the DHG Entities have ever provided health care or
any other non-pension benefits to any employees after their employment was
terminated (other than as required by part 6 of subtitle B of title I of ERISA)
or has ever promised to provide those post-termination benefits.
The DHG Entities and each Employee Program that is a welfare plan
subject to Part 6 of Title I of ERISA and Code Section 4980B, as applicable,
have complied in all material respects with their respective requirements of
such statutes in each and every case. There is no provision in any of DHG
Entities's Employee Programs or in any other agreement that would preclude the
DHG Entities from amending or terminating any of its Employee Programs.
With respect to each Employee Program maintained by the DHG Entities
within the past five years, complete and correct copies of the following
documents (if applicable to that Employee Program) have previously been
delivered to Buyer: (i) all documents embodying or governing that Employee
Program, and any funding medium for the Employee Program (including, without
limitation, trust agreements) as they may have been amended to the date hereof;
(ii) the most recent IRS determination or approval letter with respect to such
Employee Program under Code Section 401 or 501(c)(9), and any applications for
determination or approval subsequently filed with the IRS; (iii) the three most
recently filed IRS Forms 5500, with all applicable schedules and accountants'
opinions attached thereto; (iv) the summary plan description for such Employee
Program (or other descriptions of such Employee Program provided to employees)
and all modifications thereto; (v) any insurance policy (including any fiduciary
liability insurance policy) related to such Employee Program; (vi) any documents
evidencing any loan to an Employee Program that is a leveraged employee stock
ownership plan; and (vii) with respect to any Multiemployer Plan, any
participation or adoption agreement relating to the DHG Entities's participation
in or contributions under such plan.
Each Employee Program maintained by the DHG Entities as of the date of
this Agreement is subject to termination by the Board of Directors of the DHG
Entities without any further liability or obligation on the part of the DHG
Entities to make further contributions to any trust maintained under any such
Employee Program following such termination.
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For purposes of this Section 2.19:
i. "Employee Program" means (A) all employee
benefit plans within the meaning of ERISA Section 3(3), including, but not
limited to, multiple employer welfare arrangements (within the meaning of ERISA
Section 3(40)), plans to which more than one unaffiliated employer contributes
and employee benefit plans (such as foreign or excess benefit plans) which are
not subject to ERISA; and (B) all stock option plans, bonus or incentive award
plans, severance pay policies or agreements, deferred compensation agreements,
supplemental income arrangements, vacation plans, and all other employee benefit
plans, agreements, and arrangements not described in (A) above. In the case of
an Employee Program funded through an organization described in Code Section
501(c)(9), each reference to such Employee Program shall include a reference to
such organization;
ii. an entity "maintains" an Employee Program if
such entity sponsors, contributes to, or provides (or has promised to provide)
benefits under such Employee Program, or has any obligation (by agreement or
under applicable law) to contribute to or provide benefits under such Employee
Program, or if such Employee Program provides benefits to or otherwise covers
employees of such entity (or their spouses, dependents, or beneficiaries);
iii. An entity is an "Affiliate" of the DHG
Entities for purposes of this Section 2.19 if it would have ever been considered
a single employer with the DHG Entities under ERISA Section 4001(b) or part of
the same "controlled group" as the DHG Entities for purposes of ERISA Section
302(d)(8)(C); and,
iv. "Multiemployer Plan" means a (pension or
non-pension) employee benefit plan to which more than one employer contributes
and which is maintained pursuant to one or more collective bargaining
agreements.
2.20 Environmental Matters. Except as provided in Schedule 2.20 and
except for biohazardous materials which have been disposed of in compliance with
all applicable laws and regulations, the DHG Entities have never generated,
transported, used, stored, treated, disposed of, or managed any Hazardous Waste
(as defined below); and (i) no Hazardous Material (as defined below) has ever
been or is threatened to be spilled, released, or disposed of at any site
presently or formerly owned, operated, leased, or used by the DHG Entities, or
has come to be located in the soil or groundwater at any such site; (ii) no
Hazardous Material has ever been transported from any site presently or formerly
owned, operated, leased, or used by the DHG Entities for treatment, storage, or
disposal at any-other place; (iii) the DHG Entities do not presently own,
operate, lease, or use, nor have the DHG Entities ever owned, operated, leased,
or used any site on which underground storage tanks are or were located; and,
(iv) no lien ever has been imposed by any governmental agency or any property,
facility, machinery, or equipment owned, operated, leased, or used by the DHG
Entities in connection with the presence of any Hazardous Material.
The DHG Entities do not have any liability under, nor has the DHG
Entities ever violated
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in any material respect, any Environmental Law (as defined below); and: (i) the
DHG Entities and any property owned, operated, leased, or used by the DHG
Entities and any facilities and operations on that property, are presently in
compliance in all respects with all applicable Environmental Laws; (ii) the DHG
Entities have never entered into or been subject to any judgment, consent,
decree, compliance order, or administrative order with respect to any
environmental or health and safety matter or received any request for
information, notice, demand letter, administrative inquiry, or formal or
informal compliant or claim with respect to any environmental or health and
safety matter or the enforcement of any Environmental Law; and, (iii) the DHG
Entities have no reason to believe that any of the items enumerated in clause
(ii) of this paragraph will be forthcoming.
To the best of the DHG Entities and the Stockholders' knowledge, no
site owned, operated, leased, or used by the DHG Entities contains any asbestos
or asbestos-containing material, any polychlorinated biphenyls (PCBS) or
equipment containing PCBS, or any urea formaldehyde foam insulation.
The DHG Entities and the Stockholders have provided to Buyer copies of
all documents, records, and information available to the DHG Entities or the
Stockholders concerning any environmental or health or safety matter relevant to
the DHG Entities, whether generated by others or by the DHG Entities, including,
without limitation, environmental audits, environmental risk assessments, site
assessments, documentation regarding off-site disposal of Hazardous Materials,
spill control is plans, and reports, correspondence, permits, licenses,
approvals, consents, and other authorizations related to environmental or health
or safety matters issued by any governmental agency.
For purposes of this Section 2.20: (i) "Hazardous Material" shall mean
and include any hazardous material, hazardous substance, petroleum product, oil,
toxic substance, pollutant, or contaminant, as defined or regulated under any
Environmental Law, or any other substance which may pose a threat to the
environmental or to human health or safety, including without limitation,
bio-hazardous materials; (ii) "Hazardous Waste" shall mean and include any
hazardous waste as defined or regulated under any Environmental Law; (iii)
"Environmental Law" shall mean any environmental or health and safety-related
law, regulation, rule, ordinance, or by-law at the foreign, federal, state, or
local level, whether existing as of the date of this Agreement, previously
enforced, or subsequently enacted; and (iv) for this Section 2.20 only, the DHG
Entities shall mean only the health care related assets acquired by Buyer at
their existing locations and include the DHG Entities, their respective
predecessors and all other entities for whose conduct the DHG Entities are or
may be held responsible under any Environmental Law. This Agreement specifically
excludes any environmental matters at the CNC Ranch.
2.21 List of Directors and Officers. Schedule 2.21 contains a true and
complete list of all current directors and officers of the DHG Entities. In
addition, Schedule 2.21 contains a list of all managers, employees and
consultants of the DHG Entities who, individually, have received or are
scheduled to receive compensation from the DHG Entities for the period ending
December 31, 1997. In each case that Schedule shall include the current job
title and aggregate annual compensation of each individual.
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2.22 Disclosure; Accuracy of Documents and Exhibits. The
representations, warranties and statements contained in this Agreement and in
the certificates, exhibits and schedules delivered by the DHG Entities and the
Stockholders pursuant to this Agreement to Buyer do not contain any untrue
statement of a material fact, and, when taken together, do not omit to state a
material fact required to be stated therein or necessary in order to make those
representations, warranties or statements not misleading in light of the
circumstances under which they were made. There are no facts known to the DHG
Entities or the Stockholders which presently or may in the future have a
material adverse affect on the business, properties, prospects, operations or
condition of the DHG Entities which have not been specifically disclosed in this
Agreement or in a Schedule furnished with this Agreement, other than general
economic conditions affecting the health care industry.
All contracts, instruments, agreements and other documents delivered by
the DHG Entities and the Stockholders to Buyer or its agents for Buyer's or its
agents, review in connection with this Agreement and the contemplated
transactions, including articles of incorporation, by-laws, corporate minutes,
stock record books and tax returns, are true, correct and complete copies of all
those contracts, instruments, agreements and other documents. All Exhibits and
Schedules to this Agreement are true, correct and complete as of the Closing.
2.23 Non-Foreign Status. The DHG Entities are not a "foreign person"
within the meaning of Section 1445 of the Code and Treasury Regulations Section
1.1445-2.
2.24 Employees; Labor Matters; Regulatory Compliance The DHG Entities
generally enjoys good employer-employee relationships. The DHG Entities are not
delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed for
it through the Execution Date or amounts required to be reimbursed to those
employees. Upon termination of the employment of any of those employees, neither
the DHG Entities, nor Buyer will by reason of the transactions contemplated
under this Agreement or anything done prior to the Closing be liable to any of
those employees for so-called "severance pay" or any other payments, except as
described in Schedule 2.24. The DHG Entities have no policy, practice, plan or
program of paying severance pay or any form of severance compensation in
connection with the termination of employment, except as described in that
Schedule. The DHG Entities are in compliance with all applicable laws and
regulations including, without limitation, labor laws, employment laws, fair
employment practice laws, occupational health and safety laws, disabilities
laws, sexual harassment laws, work place safety and health laws, terms and
conditions of employment and wage and hours laws and environmental laws. There
are no charges of employment discrimination or unfair labor practices, nor are
there any strikes, slowdowns, stoppages of work, or any other concerted
interference with normal operations which are existing, pending or threatened
against or involving the DHG Entities. No question concerning labor
representation exists respecting any employees of the DHG Entities. There are no
grievances, complaints or charges that have been filed against the DHG Entities
under any dispute resolution procedure (including, but not limited to, any
proceedings under any
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dispute resolution procedure under any collective bargaining agreement) that
might have an adverse effect on the DHG Entities or the conduct of its business,
and there is no arbitration or similar proceeding pending and no claim therefor
has been asserted. No collective bargaining agreement is in effect or is
currently being or is about to be negotiated by the DHG Entities. The DHG
Entities have not received any information indicating that any of their
employment policies or practices is currently being audited or investigated by
any federal, state or local government agency. The DHG Entities are, and at all
times since November 6, 1986 has been, in compliance with the requirements of
the Immigration Reform Control Act of 1986.
2.25 Provider Agreements; Suppliers; Changes. Schedule 2.25 sets forth
any third party payor arrangement or agreement or Provider Agreement which
accounts for more than five percent (5%) of the collections of the DHG Entities
for the twelve months ended December 31, 1996 (collectively, the "TPAs"). The
relationships of the DHG Entities with its TPAs are good commercial working
relationships. None of the TPAs have canceled, materially modified, or otherwise
terminated its relationship with the DHG Entities, or has during the last twelve
months decreased materially its use of the services of the DHG Entities, nor to
the knowledge of DHG Entities, do any TPAs have any plan or intention to do any
of the foregoing. Further, the DHG Entities have not received notice that any
health plan, insurance DHG Entities, employer or any other TPA which has done
business with the DHG Entities since January 1, 1997 intends to terminate, limit
or restrict its relationship with the DHG Entities.
2.26 Licensing and Credential Information. Attached as Schedule 2.26 to
this Agreement is a list of all licenses and all credentialing documents and
correspondence relating to or about the DHG Entities and the Health Care
Providers, copies of which have been previously provided to Buyer. The Health
Care Providers are duly licensed under the laws of the State of Florida and are
in compliance with all laws, rules and regulations relating to the rendering of
services in their respective specialty areas.
2.27 Health Care Facilities. The Health Care Providers maintain in good
standing staff memberships or similar affiliations with the health care
facilities (the "Health Care Facilities") as described on Schedule 2.27.
2.28 Health Care Providers. To the best of the DHG Entities' and
Stockholders' knowledge, all of the employed and or engaged Health Care
Providers are in good physical and mental health and do not suffer from any
illnesses or disabilities which could prevent any of them from fulfilling their
responsibilities under the respective contracts, agreements or understandings
with the DHG Entities. To the best of the DHG Entities' and the Stockholders'
knowledge, none of the employed and engaged Health Care Providers use or abuse
any controlled substances or are under the influence of alcohol or are affected
by the use of alcohol during the time period required to perform their duties
and obligations under any contracts, agreements or understandings with the DHG
Entities.
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SECTION 3
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
As a material inducement to Buyer to enter into this Agreement and
consummate the contemplated transactions, each Stockholder jointly and severally
makes to Buyer each of the representations and warranties in this Section 3 with
respect to that Stockholder.
3.1 DHG Entities' Shares. Each Stockholder owns of record and
beneficially the number of the DHG Entities' Shares set forth opposite that
Stockholders' name in Exhibit A. Those DHG Entities' Shares are duly authorized,
validly issued, fully paid, non-assessable and free and clear of any and all
liens, encumbrances, charges or claims, under Article 8 of the Florida Uniform
Commercial Code or otherwise.
3.2 Authority. Each Stockholder has full right, authority, power and
capacity to enter into this Agreement and each agreement, document and
instrument to be executed and delivered by or on behalf of that Stockholder
pursuant to this Agreement and to carry out the contemplated transactions. This
Agreement and each agreement, document and instrument executed and delivered by
each Stockholder pursuant to this Agreement constitutes a valid and binding
obligation of that Stockholder, enforceable in accordance with their respective
terms. The execution, delivery and performance of this Agreement and each
agreement, document and instrument:
a. does not and will not violate any laws of the United States
or any state or other jurisdiction applicable to that Stockholder, or require
any Stockholder to obtain any approval, consent or waiver from, or make any
filing with, any person or entity (governmental or otherwise) that has not been
obtained or made; and
b. does not and will not result in a breach of, constitute a
default under, accelerate any obligation under or give rise to a right of
termination of, any indenture or loan or credit agreement or any other
agreement, contract, instrument, mortgage, lien, lease, permit, authorization,
order, writ, judgment, injunction, decree, determination or arbitration award to
which a Stockholder is a party or by which the property of a Stockholder is
bound or affected, or result in the creation or imposition of any mortgage,
pledge, lien, security interest or other charge or encumbrance on any assets of
the DHG Entities.
3.3 Finder's Fee. Any finder's fee incurred by the DHG Entities or the
Stockholders in relation to this Agreement and the transaction contemplated
herein shall be the exclusive responsibility of the DHG Entities or the
Stockholders and neither Continucare, or any of its affiliates shall not become
liable for any broker's commission or finder's fee incurred by the DHG Entities
or the Stockholders relating to or in connection with the transactions
contemplated by this Agreement.
3.4 Agreements. Except as disclosed on Schedule 3.4, each Stockholder
who is employed by the DHG Entities is not a party to any non-competition, trade
secret or
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confidentiality agreement with any party other than the DHG Entities. There are
no agreements or arrangements not contained in this Agreement or disclosed in a
Schedule, to which any Stockholder is a party relating to the businesses of the
DHG Entities or to any Stockholders' rights and obligations as a stockholder,
director or officer of the DHG Entities. No Stockholder owns, directly or
indirectly, on an individual or joint basis, any material interest in, or serve
as an officer or director of, any TPAs, customer, competitor or supplier of the
DHG Entities, or any organization which has a contract or arrangement with the
DHG Entities. No Stockholder has at any time transferred any of the stock of the
DHG Entities held by or for that holder to any employee of the DHG Entities,
which transfer constituted or could be viewed as compensation for services
rendered to the DHG Entities by that employee. The execution, delivery and
performance of this Agreement will not violate or result in a default or
acceleration of any obligation under any contract, agreement, indenture or other
instrument involving the DHG Entities to which any Stockholder is a party.
SECTION 4
COVENANTS OF THE DHG ENTITIES AND THE STOCKHOLDERS
4.1 Making of Covenants and Agreements. The DHG Entities and the
Stockholders jointly and severally hereby make the covenants and agreements in
this Section 4 and the Stockholders agree to cause the DHG Entities to comply
with those agreements and covenants.
4.2 Conduct of Business. Between the date of this Agreement and the
Closing Date, the DHG Entities will:
a. conduct its businesses only in the ordinary course and
refrain from changing or introducing any method of management or operations
except in the ordinary course of business and consistent with prior practices;
b. refrain from making any purchase, sale or disposition of
any asset or property other than in the ordinary course of business, from
purchasing any capital asset costing more than One Thousand Dollars ($10,000.00)
and from mortgaging, pledging, subjecting to a lien or otherwise encumbering any
of its properties or assets;
c. refrain from incurring any contingent liability as a
guarantor or otherwise with respect to the obligations of others, and from
incurring any other contingent or fixed obligations or liabilities;
d. refrain from making any change or incurring any obligation
to make a change in its Articles of Incorporation (except as provided in Section
4), by-laws or authorized or issued capital stock;
e. Not used in this Agreement;
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f. refrain from making any change in the compensation payable
or to become payable to any of its officers, employees, agents or independent
contractors;
g. refrain from prepaying any loans (if any) from its
stockholders, officers or directors or making any change in its borrowing
arrangements;
h. use its best efforts to prevent any change with respect to
its management and supervisory personnel and banking arrangements;
i. use its best efforts to keep intact its business
organization, to keep available its present officers and employees and to
preserve the goodwill of all suppliers, customers, independent contractors and
others having business relations with it;
j. have in effect and maintain at all times all insurance of
the kind, in the amount and with the insurers listed in Schedule 2.13 or
equivalent insurance with any substitute insurers approved in writing by Buyer;
k. furnish Buyer with unaudited monthly balance sheets and
statements of income and retained earnings and cash flows of the DHG Entities on
a cash basis within ten (10) days after each month end for each month ending
more than ten (10) days before the Closing;
l. permit Buyer and its authorized representatives to have
full access to all of their properties, assets, records, tax returns, contracts
and documents and furnish to Buyer or its authorized representatives all
financial and other information with respect to its business or properties as
Buyer may from time to time reasonably request; and
4.3 Authorization from Others. Prior to the Closing Date, the
Stockholders and the DHG Entities will use their best efforts to obtain all
authorizations, consents and permits of others required to permit the
consummation by the Stockholders and the DHG Entities of the transactions
contemplated by this Agreement.
4.4 Notice of Default. Promptly upon the occurrence of, or promptly
upon the DHG Entities or a Stockholder becoming aware of the impending or
threatened occurrence of, any event which would cause or constitute a breach or
default, or would have caused or constituted a breach or default had that event
occurred or been known to the DHG Entities or that Stockholder prior to the
Execution Date, of any of the representations, warranties or covenants of the
DHG Entities or the Stockholders contained in or referred to in this Agreement
or in any Schedule or Exhibit referred to in this Agreement, the DHG Entities or
the Stockholders shall give detailed written notice to Buyer and the DHG
Entities and the Stockholders shall use their best efforts to prevent or
promptly remedy the same.
4.5 Consummation of Agreement. The DHG Entities and each of the
Stockholders shall use their best efforts to perform and fulfill all conditions
and obligations on their parts to be performed and fulfilled under this
Agreement, to the end that the transactions contemplated by this Agreement shall
be fully carried out. To this end the DHG Entities will obtain prior to the
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Closing all necessary authorizations or approvals of its stockholders and Board
of Directors.
4.6 Cooperation of the DHG Entities and Stockholders. The DHG Entities
and each of the Stockholders shall cooperate with all reasonable requests of
Buyer and Buyer's counsel in connection with the consummation of the
contemplated transactions.
4.7 Restrictive Covenants - Stockholders. The Stockholders recognize
that to assure the Buyer that it will realize the value inherent in the
transactions contemplated in connection with this Agreement (including, but not
limited to, the acquisition of the DHG Entities' businesses on a "going concern"
basis), it is necessary for the Stockholders to enter into this Agreement. The
Stockholders also acknowledge that the terms of this Agreement are inherently
reasonable in all respects, notwithstanding the fact that the terms of this
Agreement could restrict them from earning income in the field in which they
currently practice. Accordingly, each of the Stockholders agrees with the Buyer
that for a five-year period following the Closing Date anywhere within the State
of Florida (the "Restricted Area"); each Stockholder, either on their own behalf
or as a principal, partner, stockholder, officer, employee, agent, consultant,
independent contractor, investor, director or trustee of any person,
partnership, entity, firm or corporation or otherwise:
a. except in their capacity as an employee or consultant of
the Buyer, will not own, manage, operate, control or otherwise engage in a
Competing Business (as defined below), or receive any compensation in any
capacity from any Competing Business. It is understood, however, that the
Stockholders may enter into a joint venture arrangement with Buyer, or its
affiliates, in a competing business in the event that Buyer, or its affiliates,
in their sole and absolute discretion, determines that such joint venture, or
other similar entity, is beneficial to Buyer, or its affiliates;
b. other than as a patient himself or as the Buyer directs,
have any business relationship, in any capacity whatsoever, with any IPA, PHO,
Managed Care Company, any business associated in any manner with a Managed Care
Company or any other form of an integrated delivery system, competing medical
services delivery system which is operated in or affiliated in any manner with
medical practices in the Restricted Area;
c. attempt to solicit or solicit the patients or facilities
serviced by the Buyer to terminate, curtail or restrict their relationship with
the Buyer or attempt to provide or provide those patients or facilities with
services previously furnished to them by any of the Stockholders;
d. otherwise divert or attempt to divert from the Buyer any
business or business opportunity whatsoever; or,
e. attempt to solicit or solicit any person employed or
contracted by the Buyer, or any of their affiliates, to leave their employment
or not fulfill their contractual responsibility, whether or not the employment
or contracting is full-time or temporary, pursuant to a written or oral
agreement, or for a determined period or at will.
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f. The term "Competing Business" shall mean any business which
is competitive with the DHG Entities, which is specifically agreed to by the
parties to be the management, provision and operation of medical or business
services for hospitals, ambulatory surgical facilities and similar
organizations; the management and organization of any medical networks; the
operation and management of a management services organization ("MSO") available
for contract to physicians, hospitals, healthcare facilities, integrated
delivery systems, PHOs, IPAs and physician networks; and, the acquisition and
operation of primary care and specialty physician offices.
g. Nothing contained in this Section 4.8 shall prohibit any
Stockholder from owning a beneficial interest of up to five percent (5%) of the
securities of any company subject to the reporting requirements of Section 13 or
Section 15(d) of the Security Exchange Act of 1934, as amended.
h. Nothing contained in this Section 4.8 shall prohibit
Claudio Alvarez, M.D. from practicing medicine within the State of Florida,
provided however, Claudio Alvarez, M.D. shall be prohibited from entering into
any managed care risk contract for a period of five (5) years.
4.8 Restrictive Covenants - Alexander Fuster. Alexander Fuster
("Fuster"), vice president and Chief Operations Officer of the DHG Entities,
recognizes that to assure the Buyer that it will realize the value inherent in
the transactions contemplated in connection with this Agreement (including, but
not limited to, the acquisition of the DHG Entities' businesses on a "going
concern" basis), it is necessary for Fuster to enter into this Restrictive
Covenant as part of this Agreement. Fuster also acknowledges that the terms of
this Restrictive Covenant are inherently reasonable in all respects,
notwithstanding the fact that the terms of this Restrictive Covenant could
restrict Fuster from earning income in the field in which he currently
practices. Accordingly, Fuster agrees with the Buyer that for a five-year period
following the Closing Date, Fuster will not attempt to solicit or solicit the
patients serviced by the Buyer to terminate, curtail or restrict their
relationship with the Buyer or attempt to provide or provide those patients or
facilities with services previously furnished to them, otherwise divert or
attempt to divert from the Buyer any business, or attempt to solicit or solicit
any person employed or contracted by the Buyer, or any of their affiliates, to
leave their employment or not fulfill their contractual responsibility, whether
or not the employment or contracting is full-time or temporary, pursuant to a
written or oral agreement, or for a determined period or at will. In addition,
Fuster agrees with the Buyer that for a one-year period following the Closing
Date, Fuster, other than as a patient himself, will not have any business
relationship, in any capacity whatsoever, with Foundation Health, a health
maintenance organization, or any affiliate, subsidiary, joint venture or other
entity which Foundation Health has a controlling ownership interest.
4.9 Restrictive Covenant Remedies. Each of the Stockholders and Fuster
acknowledge that: (i) a breach by the DHG Entities, any of the Stockholders or
Fuster of the provisions of Section 4.7 or Section 4.8 would cause the Buyer
irreparable harm; and, (ii) monetary damages in an action at law would not
provide an adequate remedy in the event of a breach. Accordingly, the
Stockholders, jointly and severally, and Fuster agree that, in addition to any
other remedies (legal, equitable or otherwise) available to the Buyer, Buyer may
seek and obtain injunctive relief against
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the breach or threatened breach of the provisions of Section 4.7 and Section 4.8
(without the necessity of any bond or other security being posted) as well as
all other rights and remedies available at law and equity including, without
limitation, the right to be indemnified by the Stockholders or Fuster, as the
case may be, for all claims, damages, actions, suits whatsoever for a breach of
Section 4.7 or Section 4.8 and if the Buyer prevails in that action, its
reasonable attorneys' fees, expenses and costs incurred in enforcing any
provisions of Section 4.7 or Section 4.8 at pretrial, trial and appellate
levels. Nothing contained in this Section 4.9 shall be construed as prohibiting
the Buyer and all other injured parties from pursuing all other remedies
available to them for a breach or threatened breach of the provisions of Section
4.7 or Section 4.8. The Stockholders and Fuster further acknowledge and agree
that the covenants contained in this Article are necessary for the protection of
the Buyer's legitimate business and professional duties, ethical obligations and
interests, and are reasonable in scope and content. In the event of any breach
or violation by the Stockholders or Fuster of any of the provisions of Section
4.7 or Section 4.8, the running of the term of the restrictive covenant (but not
the DHG Entities' and any of the Stockholders, obligations thereunder) shall be
tolled during the continuation of any breach or violation.
4.10 No Solicitation of Other Offers. Neither the DHG Entities, the
Stockholders, nor any of their representatives will, directly or indirectly,
solicit, encourage, assist, initiate discussions or engage in negotiations with,
provide any information to, or enter into any agreement or transaction with, any
person, other than Buyer, relating to the possible acquisition of the DHG
Entities, or any of its assets.
4.11 Confidentiality. The DHG Entities and the Stockholders agree that,
unless and until the Closing has been consummated, each of the DHG Entities, the
Stockholders and their officers, directors, agents and representatives will hold
in strict confidence, and will not use, any confidential or proprietary data or
information obtained from Buyer with respect to its business or financial
condition except for the purpose of evaluating, negotiating and completing the
transaction contemplated hereby. Information generally known in Buyer's industry
or which has been disclosed to the DHG Entities, or the Stockholders by third
parties which have a right to do so shall not be deemed confidential or
proprietary information for purposes of this agreement. If the transaction
contemplated by this Agreement is not consummated, the DHG Entities, and the
Stockholders will return to Buyer (or certify that they have destroyed) all
copies of data and information, including but not limited to financial
information, customer lists, business and corporate records, worksheets, test
reports, tax returns, lists memoranda, and other documents prepared by or made
available to the DHG Entities or the Stockholders in connection with the
transaction.
4.12 Tax Returns. The DHG Entities and the Stockholders shall cooperate
with Buyer to permit the DHG Entities in accordance with applicable law to
promptly prepare and file on or before the due date or any extension of all
federal, state and local tax returns required to be filed by the DHG Entities
with respect to taxable periods ending on or before the Closing.
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SECTION 5
REPRESENTATIONS AND WARRANTIES OF BUYER
5.1 Making of Representations and Warranties. As a material inducement
to the DHG Entities and the Stockholders to enter into this Agreement and
consummate the contemplated transactions, Continucare and Buyer hereby makes the
representations and warranties to the DHG Entities and the Stockholders
contained in this Section 5.
5.2 Organization of Continucare and Buyer. Both Continucare and Buyer
are corporations duly organized, validly existing and in good standing under the
laws of Florida with full corporate power to own or lease their properties and
to conduct their business in the manner and in the places where those properties
are owned or leased or that business is conducted by it.
5.3 Authority of Continucare and Buyer. Continucare and Buyer have the
full right, authority and power to enter into this Agreement, and each
agreement, document and instrument to be executed and delivered by Continucare
or Buyer pursuant to this Agreement and to carry out the contemplated
transactions. The execution, delivery and performance by Continucare and Buyer
of this Agreement, and each other agreement, document and instrument have been
duly authorized by all necessary corporate actions of Continucare and Buyer and
no other action on the part of Continucare or Buyer is required in connection
therewith. This Agreement, and each other agreement, document and instrument
executed and delivered by Continucare and Buyer pursuant to this Agreement
constitute, or when executed and delivered will constitute, valid and binding
obligations of Continucare and Buyer enforceable in accordance with their terms.
The execution, delivery and performance by Continucare and Buyer of this
Agreement, and each agreement, document and instrument, including those
delivered at Closing:
a. does not and will not violate any provision of the Articles
of incorporation or by-laws of Continucare and Buyer;
b. does not and will not violate any laws of the United States
or of any state or any other jurisdiction applicable to Continucare or Buyer or
require Continucare or Buyer to obtain any approval, consent or waiver of, or
make any filing with, any person or entity (governmental or otherwise) which has
not been obtained or made; and,
c. does not and will not result in a breach of, constitute a
default under, accelerate any obligation under, or give rise to a right of
termination of any indenture, loan or credit agreement, or other agreement
mortgage, lease, permit, order, judgment or decree to which Continucare or Buyer
is a party and which is material to the business and financial condition of
Continucare, Buyer or their parent and affiliated organizations on a
consolidated basis.
5.4 Litigation. There is no litigation pending or, to its knowledge,
threatened against Continucare or Buyer which would prevent or hinder the
consummation of the transactions contemplated by this Agreement.
5.5 Finder's Fee. Continucare or Buyer has not incurred or become
liable for any broker's commission or finder's fee relating to or in connection
with the transactions contemplated
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by this Agreement.
5.6 Disclosure; Accuracy of Documents and Exhibits. The
representations, warranties and statements contained in this Agreement and in
the certificates, exhibits and schedules delivered by Continucare and Buyer
pursuant to this Agreement to the DHG Entities and the Stockholders do not
contain any untrue statement of a material fact, and, when taken together, do
not omit to state a material fact required to be stated therein or necessary in
order to make those representations, warranties or statements not misleading in
light of the circumstances under which they were made.
All contracts, instruments, agreements and other documents delivered by
Continucare or Buyer to the DHG Entities, the Stockholders or their agents, in
connection with this Agreement and the contemplated transactions, including
articles of incorporation, by-laws, corporate minutes, stock record books and
tax returns, are true, correct and complete copies of all those contracts,
instruments, agreements and other documents. All Exhibits and Schedules to this
Agreement are true, correct and complete as of the Closing.
5.7 Buyer's Employment of the DHG Entities' Employees. Buyer agrees, at
the time of closing. To employ all of the DHG Entities' employees upon the same
terms and conditions as they were employed by the DHG Entities prior to closing;
provided, however, except as provided herein, Buyer shall have the right to
terminate any employee who was otherwise terminable at will, or any employee
under contract at the termination of the contract or in the event of a breach of
the contract.
SECTION 6
COVENANTS OF BUYER
6.1 Making of Covenants and Agreement. Buyer hereby makes the covenants
and agreements in this Section 6.
6.2 Confidentiality. Buyer agrees that, unless and until the Closing
has been consummated, Buyer and its officers, directors, agents and
representatives will hold in strict confidence, and will not use any
confidential or proprietary data or information obtained from the DHG Entities
or the Stockholders with respect to the business or financial condition of the
DHG Entities except for the purpose of evaluating, negotiating and completing
the transaction contemplated hereby. Information generally known in the
industries of the DHG Entities or which has been disclosed to Buyer by third
parties which have a right to do so shall not be deemed confidential or
proprietary information for purposes of this agreement. If the transaction
contemplated by this Agreement is not consummated, Buyer will return to the DHG
Entities (or certify that it has destroyed) all copies of data and information,
including but not limited to financial information, Customer lists, business and
corporate records, worksheets, test reports, tax returns, lists, memoranda, and
other documents prepared by or made available to Buyer in connection with the
transaction.
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6.3 Consummation of Agreement. Buyer shall use its best efforts to
perform and fulfill all conditions and obligations on its part to be performed
and fulfilled under this agreement, to the end that the transactions
contemplated by this agreement shall be fully carried out. To this end, Buyer
will obtain prior to the Closing all necessary authorizations or approvals of
its Board of Directors.
6.4 Non-Solicitation. In the event that the transaction does not close,
Buyer and Continucare agree that for a period of one (1) year following the date
of the termination of this Agreement, they will not individually or
collectively, directly or indirectly, or through an affiliate or subsidiary: (i)
attempt to solicit the patients serviced by the DHG Entities or to terminate,
curtail or restrict their relationship with the DHG Entities or attempt to
provide those patients with services previously furnished to them; or (ii)
otherwise divert or attempt to divert from the DHG Entities any business or
attempt to solicit or solicit any person employed or contracted by the DHG
Entities to leave their employment or not fulfill their contractual
responsibility, whether or not the employment or contracting is full-time or
temporary, pursuant to a written or oral agreement, or for a determined period
or at will. Buyer and Continucare further agree that for a period of one (1)
year following the date of the termination of this Agreement they will not enter
into a full risk capitated contract for Medicare patients with Foundation Health
Systems or CareFlorida, Inc., or any affiliate, joint venturer or other entity
in which Foundation Health Systems has a controlling interest. Nothing contained
in this Section 6.4, however, shall prohibit Buyer, Continucare or any of their
affiliates from continuing any preexisting relationships or acquiring any entity
which may have preexisting relationships with Foundation Health Systems or
CareFlorida, Inc., or any affiliate, joint venturer or other entity in which
Foundation Health Systems has a controlling interest.
SECTION 7
CONDITIONS FOR CLOSING AND
PROCEDURE FOR CLOSING
7.1 Conditions to the obligations of Buyer. The obligation of Buyer to
consummate this Agreement and the contemplated transactions are subject to the
fulfillment, prior to or at the Closing, of the following conditions precedent:
a. Representations; Warranties; Covenants. Each of the
representations and warranties of the DHG Entities and the Stockholders
contained in this Agreement shall be true and correct as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing;
and the DHG Entities and each of the Stockholders shall, on or before the
Closing, have performed all of their obligations under this Agreement which by
the terms are to be performed on or before the Closing.
b. No Material Change. There shall have been no material
adverse change in the financial condition, prospects, properties, assets,
liabilities, business or operations of the DHG Entities since the Execution
Date, whether or not in the ordinary course of business.
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c. Approval of Buyer's Counsel. All actions, proceedings,
instruments and documents required to carry out this Agreement and the
contemplated transactions and all related legal matters contemplated in this
Agreement shall be reasonably satisfactory in form and substance to counsel for
Buyer and that counsel shall have received on behalf of Buyer all other
certificates, opinions, and documents in form satisfactory to counsel, as Buyer
may reasonably require from the DHG Entities and the Stockholders to evidence
compliance with the terms and conditions of this Agreement as of the Closing and
the correctness as of the Closing of the representations and warranties of the
Stockholders and the DHG Entities and the fulfillment of their respective
covenants.
d. No Litigation. There shall have been no determination by
Buyer, acting in good faith, that the consummation of the transactions
contemplated by this Agreement have become inadvisable or impracticable by
reason of the institution or threat by any person or any federal, state or other
governmental authority of litigation, proceedings or other action against Buyer,
the DHG Entities or Stockholder or any material adverse change in the laws or
regulations applicable to the DHG Entities.
e. Consents. The DHG Entities or the Stockholders shall have
made all filings with and notifications of governmental authorities, regulatory
agencies and other entities required to be made by the DHG Entities or the
Stockholders in connection with the execution and delivery of this Agreement,
the performance of the contemplated transactions and the continued operation of
the business of the DHG Entities by Buyer subsequent to the Closing; and the DHG
Entities, the Stockholders and Buyer shall have received all authorizations,
waivers, consents and permits, in form and substance reasonably satisfactory to
Buyer, from all third parties, including, without limitation, applicable
governmental authorities, regulatory agencies, lessors, lenders and contract
parties, required to permit the continuation of the business of the DHG Entities
and the consummation of the transactions contemplated by this Agreement, and to
avoid a breach, default, termination, acceleration or modification of any
material indenture, loan or credit agreement or any other material agreement,
contract, instrument, mortgage, lien, lease, permit, authorization, order, writ,
judgment, injunction, decree, determination or arbitration award as a result of,
or in connection with, the execution and performance of this Agreement.
f. Financial Performance. In the event that the sum of
Earnings before interest, taxes, depreciation and amortization ("EBITDA") of the
DHG Entities for the year ended December 31, 1996 plus the addbacks listed on
Schedule 7.1(f) (the "Addbacks") is less than Three Million One Hundred Thousand
Dollars ($3,100,000.00), Buyer, in its sole and absolute discretion, may elect
not to proceed with the Closing and Buyer, the DHG Entities and the Stockholders
shall have no further obligation or liability to each other.
7.2 Conditions to Obligations of the DHG Entities and the Stockholders.
The obligation of the DHG Entities and the Stockholders to consummate this
Agreement and the contemplated transactions is subject to the fulfillment, prior
to or at the Closing, of the following conditions precedent:
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a. Representations; Warranties; Covenants. Each of the
representations and warranties of Buyer contained in Section 5 shall be true and
correct in all material respects as though made on and as of the Closing and
Buyer shall, on or before the Closing, have performed all of its obligations
under this Agreement which by the terms are to be performed on or before the
Closing.
b. Approval of the Company's Counsel. All actions,
proceedings, instruments and documents required to carry out this Agreement and
the contemplated transactions and all related legal matters contemplated by this
agreement shall have been reasonably satisfactory in form and substance to Gary
Matzner, Esq., in his capacity as counsel for the DHG Entities and the
Stockholders, and that counsel shall have received on behalf of the DHG Entities
and the Stockholders all other certificates, opinions and documents in form
satisfactory to that counsel as the DHG Entities may reasonably require from
Buyer to evidence compliance with the terms and conditions of this Agreement as
of the Closing and the correctness as of the Closing of the representations and
warranties of Buyer and the fulfillment of its covenants.
c. No Litigation. There shall have been no determination by
the DHG Entities, acting in good faith, that the consummation of the
transactions contemplated by this Agreement has become inadvisable or
impracticable by reason of the institution or threat by any person or any
federal, state or other governmental authority of material litigation,
proceedings or other action against Buyer, the DHG Entities, or any Stockholder.
7.3 Procedure at the Closing. At the Closing, the parties agree to take
the following steps in the order listed below (provided, however, that upon
their completion all of these steps shall be deemed to have occurred
simultaneously):
a. legal counsel for the DHG Entities and the Stockholders
shall deliver a legal opinion to the Buyer in substantially the form of Exhibit
7.3(a) attached to this Agreement;
b. legal counsel for the Buyer shall deliver a legal opinion
to the DHG Entities and the Stockholders in substantially the form of Exhibit
7.3(b) attached to this Agreement;
c. the DHG Entities shall execute and deliver resolutions
adopted by the board of directors of the DHG Entities approving the transactions
contemplated by this Agreement, in substantially the form of Exhibit 7.3(c)
attached to this Agreement, certified by the corporate secretary of the DHG
Entities;
d. the Buyer shall execute and deliver resolutions adopted by
the board of directors of the Buyer approving the transactions contemplated by
this Agreement, in substantially the form of Exhibit 7.3(d) attached to this
Agreement, certified by the corporate secretary of the Buyer;
e. the DHG Entities shall deliver to the Buyer a Certificate
of the DHG Entities's President, in substantially the form of Exhibit 7.3(e)
attached to this Agreement, dated as of the Closing to the effect that the
statements contained in Sections 7.1(a) and (b) are true and correct;
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f. the Buyer shall deliver to the DHG Entities a Certificate
of the Buyer's President, in substantially the form of Exhibit 7.3(f) attached
to this Agreement, dated as of the Closing Date to the effect that the
statements contained in Section 7.2(a) are true and correct;
g. the Buyer shall deliver the Closing Funds to the DHG
Entities;
h. Claudio Alvarez, M.D. and Alexander Fuster shall execute
and deliver to Buyer a Consulting Agreement, in substantially the form of
Exhibit 7.3(h) and Exhibit 7.3(h)-1 attached to this Agreement;
i. the Stockholders shall execute and deliver to Continucare a
Registration Rights Agreement, in substantially the form of Exhibit 7.3(i)
attached to this Agreement. Such Registration Rights Agreement shall include: at
the Stockholders' option, up to a twenty percent (20%) collar on the price of
the common stock received by the Stockholders; piggyback registration rights
with all costs incurred with such regstration to be borne by Buyer or
Continucare; and the right for the Stockholders to sell up to thirty three and
one third percent (33 1/3%) of the common stock received after six months from
the Closing Date, to sell up to an additional thirty three and one third percent
(33 1/3%) of the common stock received after one year from the Closing Date and
to sell up to an additonal thirty three and one third percent (33 1/3%) of the
common stock received after eighteen months from the Closing Date. In the event
that the Stockholders desire to sell the common stock they have received on the
dates specfied above, and for any reason whatsoever that portion of the common
stock they have received remains unregistered, then at the Stockholders' option,
Buyer or Continucare shall be required to purchase such unregistered shares of
common stock. The purchase price shall be the closing price on the American
Stock Exchange on the date (s) that the Stockholders' request a sale, however,
the Stockholders shall not sell less than ten thousand (10,000) shares of the
common stock they received at any one time;
j. the DHG Entities and each of the Stockholders shall execute
and deliver to the Buyer general releases of all claims which any of them may
have against the DHG Entities in the form of Exhibit 7.3(j) attached to this
Agreement;
k. the Buyer shall deliver to the DHG Entities a Certificate
of Good Standing issued by the Secretary of State of Florida in the form of
Exhibit 7.3(k) attached to this Agreement; and,
l. the DHG Entities shall deliver to the Buyer a Certificate
of Good Standing issued by the Secretary of State of Florida in the form of
Exhibit 7.3(l) attached to this Agreement.
m. the key employees of the DHG Entities listed on Exhibit
7.3(m) shall have executed and delivered to Buyer Employment Agreements, in
substantially the form of Exhibit 7.3(m)(1) attached to this Agreement and shall
have been granted Three Hundred Thousand Dollars ($300,000.00) worth of
Continucare Stock Options, as such Stock Options are valued by Continucare in
accordance with the Continucare Stock Option Agreement dated December 2,
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1996. The options received shall vest evenly over a three (3) year period in
accordance with the Stock Option Agreement entered into between Continucare and
the key employees, in substantially the same form as Exhibit 7.3(m)(2) attached
to this Agreement.
SECTION 8
RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING
8.1 Survival of Warranties. Each of the representations, warranties,
agreements, covenants and obligations in this Agreement or in any schedule,
exhibit, certificate or financial statement delivered by any party to the other
party incident to the contemplated transactions are material, shall be deemed to
have been relied upon by the other party and shall survive the Closing
regardless of any investigation and shall not merge in the performance of any
obligation by either party to this Agreement for a period of one (1) year.
8.2 The DHG Entities and the Stockholders' Individual Guarantee and
Transition Period. In order to maintain operation efficiencies and assure a
smooth transition subsequent to closing, the parties agree that:
a. Claudio Alvarez, M.D., pursuant to his Consulting Agreement
(Exhibit "7.3(h)") shall manage the day-to-day business operations of the
acquired DHG Entities from the Closing Date through December 31, 1997. He shall
make no material changes in the operations without the prior approval of Buyer.
Buyer may terminate Alvarez' management, at any time, without cause upon written
notice to Alvarez; provided, however, that in the event of such termination, any
obligations of Alvarez under this Section 8.2(a) or Section 8.2(b) below, shall
be null and void, and of no effect.
b. In the event that the sum of: (i) earnings before interest,
taxes, depreciation and amortization ("EBITDA"); and (ii) the add backs set
forth on Exhibit 8.2(b) (collectively referred to as "Adjusted EBITDA") of the
acquired DHG Entities' business for the period ended December 31, 1997 is less
than Two Million Eight Hundred Thousand Dollars ($2,800,000.00), then the DHG
Entities and the Stockholders, jointly and severally, shall be required to pay
to Buyer the sum of Two Hundred Fifty Thousand Dollars ($250,000.00). For the
purposes of this Section 8 only, the calculation of the Adjusted EBITDA for the
acquired DHG Entities' business for the period ending December 31, 1997, means
the sum of the financial results of: (i) the DHG Entities for the period January
1, 1997 through the Closing Date and (ii) those operations of Buyer which
consist of the acquired DHG Entities' business for the period from the Closing
Date through December 31, 1997. These combined operations shall be referred to
as the "DHG/Buyer 1997 Business." Buyer and Continucare agree that from the
Closing Date through December 31, 1997, no corporate overhead of Buyer or
Continucare or the cost of any additional management personnel or additional
employees (unless engaged by Claudio Alvarez, M.D.) shall be allocated to the
DHG/Buyer 1997 Business in computing the Adjusted EBITDA. Furthermore, Buyer and
Continucare agree that any additional expenses incurred by the acquired DHG
Entities' business as a result of Buyer or Continucare's decision to expand the
business of the acquired DHG Entities' business shall not be included in the
computation of the Adjusted EBITDA.
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<PAGE> 33
c. In the event that the Buyer or Continucare determine that
the Adjusted EBITDA is less than Two Million Eight Hundred Thousand Dollars
($2,800,000.00) then, Stockholders shall have the right to engage the services
of KPMG to perform an audit of the DHG/Buyer 1997 Business for the year ended
December 31, 1997. If the results of the KPMG audit indicate that the Adjusted
EBITDA is less than $2,800,000 then the Stockholders shall pay the Two Hundred
Fifty Thousand Dollars ($250,000.00) to Buyer. If the results indicate that the
Adjusted EBITDA is greater than $2,800,000 then the Stockholders shall not be
required to pay any sum to Buyer, and Buyer and Continucare shall be responsible
and shall pay the audit expense incurred by the Stockholders upon receipt of the
audit report.
8.3 Financial Statements. The DHG Entities and the Stockholders shall
utilize their best efforts to deliver to Buyer within seventy five (75) days
after the Closing Date a balance sheet of the DHG Entities dated as of June 30,
1997 and statements of income, retained earnings and cash flows for the six
month period then ended, which have been audited by Deloitte & Touche, LLP,
independent certified public accountants. The DHG Entities and the Stockholders,
jointly and severally, shall be responsible for the first twenty five thousand
dollars ($25,000.00) of the cost of such audit and Buyer or Continucare shall be
responsible for the balance, if any.
8.4 General and Professional Liability Insurance. For a period of four
(4) years from the Closing Date, Buyer shall, at its cost, maintain
continuously, in full force and effect, without a gap or loss of coverage,
either:
a. The DHG Entities' current general and professional
liability policies, underwritten by American Internaltional Specialty Lines
Insurance Company (the DHG Entities' Insurance) in the amount of $1,000,000 for
each occurrence, $3,000,000 general aggregate, and umbrella coverage of
$5,000,000 in the aggregate; or
b. Buyer may provide coverage with a comparable company,
provided, that such coverage provides; (i) coverage limits of not less than the
DHG Entities' Insurance, as specified above; (ii) the DHG Entities and each of
their current employees and Health Care Providers, including Claudio Alvarez,
M.D., are named as insureds and covered by such insurance policy(ies); and (iii)
there is no gap in coverage from the Closing Date through a date four (4) years
from the Closing Date, by purchasing: (A) continuing the continuous claims made
professional liability insurance policy; (B) purchasing a replacement continuous
claims made professional liability insurance policy with retroactive coverage
which does not create any lapse in coverage; or, (C) purchasing appropriate tail
coverage to meet its obligation under this subparagraph.
Additionally, upon request by the DHG Entities or the
Stockholders, Buyer or Continucare, as the case may be, shall provide the DHG
Entities or the Stockholders with copies of such insurance policies.
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SECTION 9
INDEMNIFICATION
9.1 Indemnification by the Stockholders. The DHG Entities and the
Stockholders jointly and severally agree subsequent to the Closing to indemnify
and hold the Buyer and its subsidiaries and affiliates and persons serving as
officers, directors, partners or employees of the DHG Entities or Buyer
(individually a "Buyer Indemnified Party" and collectively the "Buyer
Indemnified Parties") harmless from and against any damages, liabilities,
losses, taxes, fines, penalties, costs, and expenses (including, without
limitation, reasonable fees of counsel) of any kind or nature whatsoever
(whether or not arising out of third-party claims and including all amounts paid
in investigation, defense or settlement of the foregoing) which may be sustained
or suffered by any of them arising out of or based upon any of the following
matters:
a. fraud, intentional misrepresentation or a deliberate or
wilful breach by the DHG Entities or any Stockholder of any of their
representations, warranties or covenants under this Agreement or in any
certificate, schedule or exhibit delivered pursuant to this Agreement;
b. any other material breach of any representation, warranty
or covenant of the DHG Entities or any Stockholder under this Agreement or in
any certificate, schedule or exhibit delivered pursuant to this Agreement, or by
reason of any claim, action or proceeding asserted or instituted growing out of
any matter or thing constituting a breach of those representations, warranties
or covenants; and
c. any liability of the DHG Entities for Taxes arising from an
event or transaction prior to the Closing or as a result of the Closing which
have not been paid or provided for by the DHG Entities, including without
limitation, any increase in Taxes due to the unavailability of any loss or
deduction claimed by the DHG Entities.
9.2 Limitations on Indemnification by the Stockholders. No
indemnification shall be payable pursuant to Subsection 9.1(b) above to any
Buyer Indemnified Party, unless the total of all claims for indemnification
pursuant to Section 9.1 shall exceed Five Thousand Dollars ($5,000.00) in the
aggregate, whereupon the full amount of claims shall be recoverable in
accordance with the terms of this Agreement.
9.3 Indemnification by Buyer. Buyer and Continucare agree to indemnify
and hold the DHG Entities and the Stockholders (individually a "Stockholder
Indemnified Party" and collectively the "Stockholder Indemnified Parties")
harmless from and against any damages, liabilities, losses and expenses
(including, without limitation, reasonable fees of counsel) of any kind or
nature whatsoever (whether or not arising out of third-party claims and
including all amounts paid in investigation, defense or settlement of the
foregoing) which may be sustained or suffered by any of them arising out of or
based upon any breach of any representation, warranty or covenant made by Buyer
in this Agreement or in any certificate delivered by Buyer under this Agreement,
or by reason of any claim, action or proceeding asserted or instituted growing
out of any matter or thing constituting that breach arising out of the business
subsequent to Closing.
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9.4 Limitation on Indemnification by Buyer. No indemnification
pursuant to Section 9.3 shall be payable to the Stockholders, unless the total
of all claims for indemnification pursuant to Section 9.3 shall exceed Five
Thousand Dollars ($5,000.00) in the aggregate, whereupon the full amount of all
claims shall be recoverable in accordance with the terms of this Agreement.
9.5 Notice; Defense of Claims. An indemnified party may make claims
for indemnification under this Agreement by giving written notice of the claim
to the indemnifying party within the period in which indemnification claims can
be made under this Agreement. If indemnification is sought for a claim or
liability asserted by a third party, the indemnified party shall also give
written notice of the claim to the indemnifying party promptly after it receives
notice of the claim or liability being asserted, but the failure to do so shall
not relieve the indemnifying party from any liability except to the extent that
it is prejudiced by the failure or delay in giving that notice. The notice shall
summarize the bases for the claim for indemnification and any claim or liability
being asserted by a third party. Within twenty (20) days after receiving any
notice, the indemnifying party shall give written notice to the indemnified
party stating whether it disputes the claim for indemnification and whether it
will defend against any third party claim or liability at its own cost and
expense. If the indemnifying party fails to give notice that it disputes an
indemnification claim within twenty (20) days after receipt of notice of the
claim, it shall be deemed to have accepted and agreed to the claim, which shall
become immediately due and payable. The indemnifying party shall be entitled to
direct the defense against a third party claim or liability with counsel
selected by it (subject to the consent of the indemnified party, which consent
shall not be unreasonably withheld) as long as the indemnifying party is
conducting a good faith and diligent defense. The indemnified party shall at all
times have the right to fully participate in the defense of a third party claim
or liability at its own expense directly or through counsel; provided, however,
that if the named parties to the action or proceeding include both the
indemnifying party and the indemnified party and the indemnified party is
advised that representation of both parties by the same counsel would be
inappropriate under applicable standards of professional conduct, the
indemnified party may engage separate counsel at the expense of the indemnifying
party. If no notice of intent to dispute and defend a third party claim or
liability is given by the indemnifying party, or if that good faith and diligent
defense is not being or ceases to be conducted by the indemnifying party, the
indemnified party shall have the right, at the expense of the indemnifying
party, to undertake the defense of that claim or liability (with counsel
selected by the indemnified party), and to compromise or settle it, exercising
reasonable business judgment. If the third party claim or liability is one that
by its nature cannot be defended solely by the indemnifying party, then the
indemnified party shall make available all information and assistance as the
indemnifying party may reasonably request and shall cooperate with the
indemnifying party in that defense, at the expense of the indemnifying party.
SECTION 10
MISCELLANEOUS
10.1 Fees and Expenses. Each of the parties will bear its own expenses
in connection with the negotiation and the consummation of the transactions
contemplated by this
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Agreement. In the event that the transaction does not close and this Agreement
terminates in accordance Section 1.7, each party shall be responsible for its
own expenses which were incurred.
10.2 Governing Law. This Agreement shall be construed under and
governed by the internal laws of the State of Florida without regard to its
conflict of laws provisions.
10.3 Notices. Any notice, request, demand or other communication
required or permitted under this Agreement shall be in writing and shall be
deemed to have been given if delivered or sent by facsimile transmission, upon
receipt, or if sent by registered or certified mail, upon the sooner of the date
on which receipt is acknowledged or the expiration of three days after deposit
in United States post office facilities properly addressed with postage prepaid.
All notices to a party will be sent to the addresses listed below or to any
other address or person as a party may designate by notice to each other party
under this Agreement:
if to the Buyer: Continucare Physician Practice Management,
Inc.
100 SE Second Street
36th Floor
Miami, Florida 33131
Attention: Susan Tarbe, Esq., Vice President and
General Counsel
if to Continucare: Continucare Corporation
100 SE Second Street
36th Floor
Miami, Florida 33131
Attention: Susan Tarbe, Esq., Vice President and
General Counsel
if to the DHG Entities: Doctor's Health Group, Inc.
c/o Claudio Alvarez, M.D.
1205 SW 37th Avenue
Miami, FL 33135
With a copy to: Gary Matzner, Esq.
2400 S. Dixie Highway
Suite 200
Miami, FL 33133
if to the Stockholders: Claudio Alvarez, M.D.
Yvonne Alvarez
1205 SW 37th Avenue
Miami, Florida 33135
with a copy to: Gary Matzner, Esq.
2400 S. Dixie Highway
Suite 200
Miami, FL 33131
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Any notice given under this Agreement may be given on behalf of any party by his
counsel or other authorized representatives.
10.4 Entire Agreement. This Agreement, including the Schedules and
Exhibits referred to in this Agreement and the other writings specifically
identified in this Agreement or contemplated by this Agreement, is complete,
reflects the entire agreement of the parties with respect to its subject matter,
and supersedes all previous written or oral negotiations, commitments and
writings. No promises, representations, understandings, warranties and
agreements have been made by any of the parties to this Agreement except as
referred to in this Agreement or in its Schedules and Exhibits or in other
writings; and all inducements to the making of this Agreement relied upon by
either party to this Agreement have been expressed in this Agreement or in the
Schedules or Exhibits or in other writings.
10.5 Assignability; Binding Effect. This Agreement shall only be
assignable by Buyer to a corporation or partnership controlling, controlled by
or under common control with Buyer or Continucare upon written notice to the DHG
Entities and the Stockholders. This Agreement may not be assigned by the
Stockholders or the DHG Entities without the prior written consent of Buyer.
This Agreement shall be binding upon and enforceable by, and shall inure to the
benefit of, the parties to this Agreement and their respective successors and
permitted assigns.
10.6 Captions and Gender. The captions in this Agreement are for
convenience only and shall not affect the construction or interpretation of any
term or provision of this Agreement. The use in this Agreement of the masculine
pronoun in reference to a party to this Agreement shall be deemed to include the
feminine or neuter, as the context may require.
10.7 Execution in Counterparts. For the convenience of the parties and
to facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
10.8 Amendments. This Agreement may not be amended or modified, nor
may compliance with any condition or covenant contained in this Agreement be
waived, except by a writing duly and validly executed by each party to this
Agreement, or in the case of a waiver, the party waiving compliance.
10.9 This Section not used.
10.10 Severability. The invalidity or unenforceability of any one or
more of the words, phrases, sentences, clauses, or sections contained in this
Agreement shall not affect the validity or enforceability of the remaining
provisions of this Agreement or any part of any provision, all of which are
inserted conditionally on their being valid in law, and in the event that any
one or more of the words, phrases, sentences, clauses or sections contained in
this Agreement shall be declared invalid or unenforceable, this Agreement shall
be construed as if the invalid or unenforceable word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
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not been inserted or shall be enforced as nearly as possible according to their
original terms and intent to eliminate any invalidity or unenforceability. If
any invalidity or . unenforceability is caused by the length of any period of
time or the size of any area contained in any part of this Agreement, the period
of time or area, or both, shall be considered to be reduced to a period or area
which would cure the invalidity or unenforceability.
10.11 Litigation; Prevailing Party. Except as otherwise required by
applicable law or as expressly provided in this Agreement, in the event of any
litigation, including appeals, with regard to this Agreement, the prevailing
party shall be entitled to recover from the non-prevailing party all reasonable
fees, Costs, and expenses of counsel (at pre-trial, trial and appellate levels).
10.12 Publicity. Subject to applicable law, all press releases and
other publicity, except as required by applicable law, concerning the
transactions contemplated by this Agreement will be subject to the review and
approval of the DHG Entities, the Stockholders and the Buyer, provided that the
approval shall not be unreasonably withheld or delayed.
10.13 No Breach. The parties agree that the execution of this Agreement
shall not be deemed to be an assignment of any contract where consent to that
assignment is required by the terms of that contract provided that the foregoing
shall not affect the DHG Entities's and the Stockholders' respective obligations
to obtain all consents as provided in this Agreement.
10.14 Construction. This Agreement shall be construed without regard to
any presumption or other rule requiring construction against the party causing
this Agreement to be drafted, including any presumption of superior knowledge or
responsibility based upon a party's business or profession or any professional
training, experience, education or degrees of any member, agent, officer of
employee of any party. If any words in this Agreement have been stricken out or
otherwise eliminated (whether or not any other words or phrases have been added)
and the stricken words initialed by the party against whom the words are
construed, then this Agreement shall be construed as if the words so stricken
out or otherwise eliminated were never included in this Agreement and no
implication or inference shall be drawn from the fact that those words were
stricken out or otherwise eliminated.
10.15 Jurisdiction; Venue; Inconvenient Forum; Jury Trial. ANY SUIT,
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED BY
ANY COURT IN RESPECT TO THIS AGREEMENT SHALL BE BROUGHT IN THE COURTS OF THE
STATE OF FLORIDA OR IN THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
FLORIDA IN DADE COUNTY, AND THE PARTIES ACCEPT THE EXCLUSIVE PERSONAL
JURISDICTION OF THOSE COURTS FOR THE PURPOSE OF ANY SUIT, ACTION OR PROCEEDING.
IN ADDITION, THE PARTIES KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY NOW OR LATER HAVE
TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED BY ANY COURT BROUGHT IN THE
STATE OF FLORIDA, AND FURTHER, KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE
ANY CLAIM THAT
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ANY SUIT, ACTION OR PROCEEDING BROUGHT IN THE STATE OF FLORIDA HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM. EACH PARTY WAIVES ALL RIGHTS TO ANY TRIAL BY JURY IN
ALL LITIGATION RELATING TO OR ARISING OUT OF THIS AGREEMENT.
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<PAGE> 40
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be duly executed as of the Execution Date.
BUYER:
CONTINUCARE PHYSICIAN PRACTICE
MANAGEMENT, INC., a Florida
corporation
By: /s/ Charles M. Fernandez
-----------------------------------------
Its: C.E.O.
----------------------------------------
CONTINUCARE:
CONTINUCARE CORPORATION., a
Florida corporation
By: /s/ Charles M. Fernandez
-----------------------------------------
Its: C.E.O.
-----------------------------------------
DHG ENTITIES:
DHG ENTERPRISES, INC., f/k/a Doctor's
Health Group, Inc., a Florida corporation
By: /s/ Claudio Alvarez, M.D.
-----------------------------------------
Its: President
-----------------------------------------
DOCTOR'S HEALTH PARTNERSHIP,
INC., a Florida corporation
By: /s/ Claudio Alvarez, M.D.
-----------------------------------------
Its: President
-----------------------------------------
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STOCKHOLDERS:
/s/ Claudio Alvarez, M.D.
--------------------------------------------
Claudio Alvarez, M.D.
/s/ Yvonne Alvarez
--------------------------------------------
Yvonne Alvarez
ALEXANDER FUSTER, an individual, as
to only Section 4.8 and Section 4.9
/s/ Alexander Fuster
--------------------------------------------
Alexander Fuster
41
