<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark one) FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF l934
For the transition period from to
------------- --------------
Commission File Number 0-16162
CHILDREN'S COMPREHENSIVE SERVICES, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Tennessee 62-1240866
- ------------------------------ ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
805 South Church Street, Murfreesboro, Tennessee 37130
- ------------------------------------------------ --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (615) 896-3100
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Common Stock, $ .01 Par Value, outstanding at May 12, 1997 - 7,126,678 shares.
- -------------------------------------------------------------------------------
Page 1 of 21
Index to Exhibits is on Page 20
<PAGE> 2
INDEX
CHILDREN'S COMPREHENSIVE SERVICES, INC.
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets--March 31, 1997
and June 30, 1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Consolidated Statements of Income--
Three months ended March 31, 1997 and 1996;
Nine months ended March 31, 1997 and 1996. . . . . . . . . . . . . . . . .5
Consolidated Statements of Cash Flows--
Nine months ended March 31, 1997 and 1996. . . . . . . . . . . . . . . . .6
Notes to Consolidated Financial Statements--
March 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Item 2. Management's Discussion and
Analysis of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . .18
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
</TABLE>
-2-
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHILDREN'S COMPREHENSIVE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
March 31, June 30,
(dollars in thousands) 1997 1996
------------ ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash (including cash equivalents of
$17,613 at March 31 and $-0-
at June 30) $ 20,245 $ 3,318
Short-term investments 1,974 -0-
Accounts receivable, net of allowance
for doubtful accounts of $77 at
March 31 and $143 at June 30 5,170 4,025
Prepaid expenses 212 300
Other current assets 570 404
------------ ----------
TOTAL CURRENT ASSETS 28,171 8,047
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $5,605 at March 31
and $4,994 at June 30 14,921 14,183
DEFERRED TAX ASSETS, net of valuation allowance
of $150 at March 31 and $2,391 at
June 30 1,630 -0-
NOTE RECEIVABLE 217 217
OTHER ASSETS AND DEFERRED CHARGES, at cost,
net of accumulated amortization of
$544 at March 31 and $346 at June 30 451 135
------------ ----------
TOTAL ASSETS $ 45,390 $ 22,582
============ ==========
</TABLE>
-3-
<PAGE> 4
CHILDREN'S COMPREHENSIVE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Continued)
<TABLE>
<CAPTION>
March 31, June 30,
(dollars in thousands) 1997 1996
------------ ----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 733 $ 540
Current maturities-long term debt -0- 206
Accrued employee compensation 1,845 997
Income taxes payable 775 492
Accrued other expenses 720 595
Deferred revenue 180 160
------------ ----------
TOTAL CURRENT LIABILITIES 4,253 2,990
DEFERRED TAXES PAYABLE 125 125
LONG TERM DEBT -0- 6,000
OTHER LIABILITIES 265 365
------------ ----------
TOTAL LIABILITIES 4,643 9,480
SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00 per
share--10,000,000 shares authorized -0- -0-
Common stock, par value $ .01 per share
--50,000,000 shares authorized; issued
and outstanding 7,126,444 shares at
March 31 and 5,494,785 shares at
June 30 71 55
Additional paid-in capital 49,037 25,638
Accumulated (deficit) (8,361) (12,591)
------------ ----------
TOTAL SHAREHOLDERS' EQUITY 40,747 13,102
------------ ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 45,390 $ 22,582
============ ==========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE> 5
CHILDREN'S COMPREHENSIVE SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------- ---------------------
(in thousands, except per share amounts) 1997 1996 1997 1996
------ ------ ------- -------
<S> <C> <C> <C> <C>
Revenues:
Operating revenues $8,405 $6,959 $22,401 $18,112
Management fee income 342 309 958 930
------ ------ ------- -------
TOTAL REVENUES 8,747 7,268 23,359 19,042
Operating expenses:
Employee compensation
and benefits 5,434 4,436 14,564 11,595
Purchased services and
other expenses 1,435 1,134 4,454 3,542
Depreciation and amortization 247 251 685 761
Related party rent 25 25 76 76
------ ------ ------- -------
TOTAL OPERATING EXPENSES 7,141 5,846 19,779 15,974
------ ------ ------- -------
Income from operations 1,606 1,422 3,580 3,068
Other (income) expense:
Interest expense:
Banks and other 14 199 225 609
Related parties -0- -0- -0- 20
Interest income (267) (23) (720) (34)
Other income -0- -0- (7) -0-
------ ------ ------- -------
TOTAL OTHER (INCOME) EXPENSE, NET (253) 176 (502) 595
------ ------ ------- -------
Income before income taxes and
extraordinary item 1,859 1,246 4,082 2,473
Provision for income taxes 592 199 (596) 402
------ ------ ------- -------
Income before extraordinary item 1,267 1,047 4,678 2,071
Extraordinary item:
Loss on early extinguishment of
debt, net of income tax benefit
of $164 in 1997 and $10 in 1996 -0- -0- 448 54
------ ------ ------- -------
NET INCOME $1,267 $1,047 $ 4,230 $ 2,017
====== ====== ======= =======
Earnings per common share:
Income before extraordinary item $ .17 $ .18 $ .66 $ .37
Extraordinary item -0- -0- (.06) (.01)
------ ------ ------- -------
NET INCOME $ .17 $ .18 $ .60 $ .36
====== ====== ======= =======
Earnings per common share--
assuming full dilution:
Income before extraordinary item $ .17 $ .18 $ .66 $ .36
Extraordinary item -0- -0- (.06) (.01)
------ ------ ------- -------
NET INCOME $ .17 $ .18 $ .60 $ .35
====== ====== ======= =======
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE> 6
CHILDREN'S COMPREHENSIVE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
----------------------
(in thousands) 1997 1996
------- ------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,230 $2,017
Adjustments to reconcile net income
to net cash provided by operating
activities:
Increase in deferred tax assets (1,630) -0-
Depreciation 632 573
Amortization 53 188
Amortization of deferred loan costs 26 50
Provision for bad debts (67) 38
Loss on early extinguishment of debt 119 64
Other (7) 19
Changes in operating assets and liabilities:
(Increase) in accounts receivable (1,078) (1,463)
(Increase) decrease in prepaid expenses 88 (50)
(Increase) in other current assets (166) (70)
Increase in accounts payable 193 262
Increase in accrued employee
compensation 848 1,113
Increase (decrease) in accrued other expenses 125 (90)
Increase (decrease) in deferred revenue 20 (38)
Increase in income taxes payable 283 203
(Decrease) in other liabilities (100) (100)
------- ------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 3,569 2,716
------- ------
INVESTING ACTIVITIES
Purchase of short-term investments (3,941) -0-
Sale of short-term investments 1,967 -0-
Purchase of property and equipment (1,375) (206)
Proceeds from sale of property and equipment 12 38
(Increase) in other assets (514) (18)
------- ------
NET CASH (USED) BY
INVESTING ACTIVITIES $(3,851) $ (186)
------- ------
</TABLE>
-6-
<PAGE> 7
CHILDREN'S COMPREHENSIVE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-------------------------
(in thousands) 1997 1996
-------- --------
<S> <C> <C>
FINANCING ACTIVITIES
Proceeds from revolving lines of credit
and long-term borrowings $ -0- $ 2,019
Principal payments on revolving lines of
credit and long-term borrowings (6,206) (2,154)
Principal payments on notes payable and
long-term borrowings--related parties -0- (717)
Proceeds from issuance of Common Stock, net 23,415 59
-------- --------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 17,209 (793)
-------- --------
INCREASE IN CASH AND CASH
EQUIVALENTS 16,927 1,737
Cash and cash equivalents at
beginning of period 3,318 690
-------- --------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 20,245 $ 2,427
======== ========
SUPPLEMENTAL INFORMATION
Income taxes paid $492,000 $189,000
Interest paid 259,000 574,000
</TABLE>
See notes to consolidated financial statements.
-7-
<PAGE> 8
CHILDREN'S COMPREHENSIVE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Certain reclassifications have been made in the consolidated
financial statements for the three and nine month periods ended March 31, 1996,
to conform to the presentation of the financial statements for the three and
nine month periods ended March 31, 1997. Operating results for the three and
nine month periods ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the fiscal year ending June 30, 1997. For
further information, refer to the financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996, the Company's prior fiscal year end.
On March 21, 1997, the Company changed its fiscal year from March 31 to June 30,
retroactive to June 30, 1996. Accordingly, this Quarterly Report on Form 10-Q
for the three and nine month periods ended March 31, 1997 is hereby filed for
the third quarter of the new fiscal year ending June 30, 1997.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
NOTE B -- EARNINGS PER COMMON SHARE
The computation of net income per common share is based on the weighted average
number of shares outstanding and common stock equivalents, consisting of
dilutive stock options and warrants.
NOTE C -- ASSET PURCHASE AGREEMENT
On February 27, 1997, the Company entered into a definitive agreement to
purchase substantially all the assets and assume certain identified liabilities
of Vendell Healthcare, Inc. and its consolidated subsidiaries (collectively
"Vendell") for $20 million. The purchase price includes approximately $12
million in cash and $8 million in the Company's Common Stock. The Company has
also agreed to purchase for cash Vendell's net working capital, estimated to be
approximately $5 million at closing. The number of shares of Company Common
Stock issuable in the transaction will be based on a 45-day trading average
prior to closing, subject to a maximum of 761,905 shares and a minimum of
470,588 shares. While substantial conditions remain relating to regulatory
approval of the transfer of Vendell's assets to the Company, the Company hopes
to close the Vendell asset purchase during the quarter ending June 30, 1997.
-8-
<PAGE> 9
CHILDREN'S COMPREHENSIVE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1997
NOTE D -- ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement 128 on the calculation
of primary and fully diluted earnings per share is not expected to be material.
-9-
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On February 27, 1997, the Company entered into a definitive agreement to
purchase substantially all the assets and assume certain identified liabilities
of Vendell for $20 million. The purchase price includes approximately $12
million in cash and $8 million in the Company's Common Stock. The Company has
also agreed to purchase for cash Vendell's net working capital, estimated to be
approximately $5 million at closing. The number of shares of Company Common
Stock issuable in the transaction will be based on a 45-day trading average
prior to closing, subject to a maximum of 761,905 shares and a minimum of
470,588 shares. While substantial conditions remain relating to regulatory
approval of its transfer of Vendell's assets to the Company, the Company hopes
to close the Vendell asset purchase during the quarter ending June 30, 1997.
On March 21, 1997, the Company changed its fiscal year from March 31 to June
30, retroactive to June 30, 1996. Accordingly, this Quarterly Report on Form
10-Q for the three and nine month periods ended March 31, 1997 is hereby filed
for the third quarter of the new fiscal year ending June 30, 1997.
The following discussion and this Quarterly Report on Form 10-Q contain
forward-looking statements and should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere herein.
For this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. There are a
number of important factors that could cause the Company's actual results to
differ materially from those indicated by such forward-looking statements. These
factors include, without limitation, those set forth under "Business - Risk
Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996. These factors also include certain risks associated with the
Vendell transaction such as the ability of the Company to close the
transaction, the timing of the closing, the Company's ability to promptly
obtain Medicare and Medicaid provider agreements, the ability of the Company to
integrate and manage the operations of Vendell and the occurrence of
unanticipated problems associated with Vendell's operations prior to or after
closing. The Company undertakes no obligation to publicly release any
revisions to any forward-looking statements contained herein to reflect events
or circumstances occurring after the date hereof or to reflect the occurrence
of unanticipated events.
General
As of March 31, 1997, the Company was providing education and treatment
services to approximately 2,300 at risk and troubled youth pursuant to contracts
with governmental agencies to manage 45 programs in 6 states. These services
were provided directly or through the Company's management contract with
Helicon, Incorporated ("Helicon"), a Section 501(c)(3) not-for-profit
corporation. Revenues under these contracts are recognized as services are
rendered. The Company's programs are delivered in both non-residential and
residential settings, with the majority of the Company's revenues (under
services provided directly) currently generated by non-residential programs. The
Company's non-residential programs, which historically have generated higher
operating margins than the Company's residential facilities, generally receive
revenues based on per diem rates. The Company's residential facilities generally
receive revenues under either fixed fee contracts or at per diem rates.
-10-
<PAGE> 11
The Company receives management fee income from Helicon for consulting,
management and marketing services rendered pursuant to a Consulting and
Marketing Agreement, effective as of August 1992, by and between Helicon and the
Company (the "Helicon Agreement"). As of March 31, 1997, the Company was
providing consulting, management and marketing services to Helicon at 12
programs. In addition, Helicon also leases three facilities owned by the Company
to operate its programs. Pursuant to the Helicon Agreement, the Company is
entitled to receive for these services management fee income in an amount equal
to 6% of the monthly gross revenues of Helicon's programs. The payment of these
management fees, however, is subordinated in right of payment to amounts payable
by Helicon to fund its programs. During the three and nine month periods ended
March 31, 1997 and during the three month period ended March 31, 1996, the
Company recognized all of the management fee income to which it was entitled.
However, for the nine month period ended March 31, 1996, the Company did not
recognize all of the management fee income to which it was entitled due to the
inability of Helicon to pay these amounts, and there can be no assurance that
the Company will recognize any management fee income in the future. As of March
31, 1997, unpaid management fees, lease payments and advances, plus interest,
due the Company from Helicon totaled approximately $7,026,000. Based on the
current level of operations being maintained by Helicon, the Company does not
anticipate collecting any of this amount. The Company has fully reserved this
amount, and future payments received from Helicon on this amount, if any, will
be recognized by the Company on the cash basis. The Helicon Agreement expires
September 1, 1999. The Company has also guaranteed Helicon's obligations under
a bank line of credit in the amount of $1,000,000. See "-Liquidity and Capital
Resources."
Employee compensation and benefits include facility and program payrolls and
related taxes, as well as employee benefits, including insurance and worker's
compensation coverage. Employee compensation and benefits also includes general
and administrative payroll and related benefit costs, including salaries and
supplemental compensation of officers.
Purchased services and other expenses include all expenses not otherwise
presented separately in the Company's statements of income. Significant
components of these expenses at the operating level include items such as food,
utilities, supplies, rent and insurance. Significant components of these
expenses at the administrative level include legal, accounting, investor
relations, marketing, consulting and travel expense.
The Company's effective tax rate is less than the statutory tax rate primarily
because of the utilization of tax net operating loss carryforwards for which
no tax benefit had been recognized prior to the quarterly period ended December
31, 1996. At March 31, 1996, the Company's prior fiscal and tax year end, the
Company had net operating loss carryforwards of $5,741,000, utilization of
which is subject to annual limitations pursuant to the provisions of Internal
Revenue Code Section 382.
The Company's quarterly results may fluctuate significantly as a result of
a variety of factors, including the timing of the opening of new programs. When
the Company opens a new program, the program may be unprofitable until the
program population, and net revenues contributed by the program, approach
intended levels, primarily because the Company staffs its programs in advance of
achieving such levels. The Company's quarterly results may also be impacted by
seasonality, as revenues generated by youth education services are generally
seasonal in nature, fluctuating with the academic school year.
-11-
<PAGE> 12
Results of Operations
The following table sets forth, for the periods indicated, the percentage
relationship to the Company's total revenues of certain items in the Company's
statements of income:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------- -------------------
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Operating revenues 96.1% 95.8% 95.9% 95.1%
Management fee income 3.9 4.2 4.1 4.9
----- ----- ----- -----
TOTAL REVENUES 100.0 100.0 100.0 100.0
----- ----- ----- -----
Employee compensation and
benefits 62.1 61.0 62.4 60.9
Purchased services and
other expenses 16.4 15.6 19.1 18.6
Depreciation and amortization 2.8 3.5 2.9 4.0
Related party rent .3 .3 .3 .4
----- ----- ----- -----
TOTAL OPERATING EXPENSES 81.6 80.4 84.7 83.9
----- ----- ----- -----
Income from operations 18.4 19.6 15.3 16.1
Other (income) expense:
Interest expense .2 2.7 1.0 3.3
Interest income (3.0) -- (3.1) (.2)
Other income -- (.2) -- --
Provision for income taxes 6.8 2.7 (2.6) 2.1
Extraordinary item, net of
income tax benefit -- -- 1.9 .3
----- ----- ----- -----
NET INCOME 14.4% 14.4% 18.1% 10.6%
----- ----- ----- -----
</TABLE>
Three Months Ended March 31, 1997 and March 31, 1996
Operating revenues for the three months ended March 31, 1997 increased
$1,446,000, or 20.8%, to $8,405,000 as compared to $6,959,000 for the three
months ended March 31, 1996. The increase in operating revenues results
primarily from the opening of seven new programs during fiscal 1997.
Management fee income recognized under the Helicon Agreement for the three
months ended March 31, 1997 increased $33,000 to $342,000 from $309,000 for the
three months ended March 31, 1996.
Total revenues for the three months ended March 31, 1997 increased
$1,479,000, or 20.4%, to $8,747,000 as compared to $7,268,000 for the three
months ended March 31, 1996 as a result of the factors described above.
-12-
<PAGE> 13
Employee compensation and benefits for the three months ended March 31,
1997 increased $998,000, or 22.5%, to $5,434,000, as compared to $4,436,000 for
the three months ended March 31, 1996. As a percentage of total revenues,
employee compensation and benefits increased from 61.0% for the three months
ended March 31, 1996 to 62.1% for the three months ended March 31, 1997. The
increase in employee compensation and benefits over the same period in the prior
year results primarily from the addition of employees to support the growth in
the number and scope of the Company's programs, as well as from inefficiencies
experienced during the early stages of certain programs.
Purchased services and other expenses for the three months ended March 31,
1997 increased $301,000, or 26.5%, to $1,435,000, as compared to $1,134,000 for
the three months ended March 31, 1996. As a percentage of total revenues,
purchased services and other expenses increased to 16.4% for the three months
ended March 31, 1997 from 15.6% for the three months ended March 31, 1996. The
increase in purchased services and other expenses over the same period in the
prior year is attributed primarily to the Company's growth, including an
increase in legal expense associated with the Company's expansion activities.
Depreciation and amortization for the three months ended March 31, 1997
decreased $4,000, or 1.6%, to $247,000 as compared to $251,000 for the three
months ended March 31, 1996. The decrease in depreciation and amortization
compared to the same period in the prior year is attributable primarily to the
reduction in amortization of non-competition agreements from approximately
$62,000 for the three months ended March 31, 1996 to $-0- for the three months
ended March 31, 1997, net of increases in depreciation and amortization at one
of the Company's programs opened during fiscal 1997.
Income from operations for the three months ended March 31, 1997 increased
$184,000, or 12.9%, to $1,606,000 as compared to $1,422,000 for the three months
ended March 31, 1996, and decreased as a percentage of total revenues to 18.4%
for the three months ended March 31, 1997 from 19.6% for the three months ended
March 31, 1996, as a result of the factors described above.
Interest expense for the three months ended March 31, 1997 decreased
$185,000, or 93.0%, to $14,000 as compared to $199,000 for the three months
ended March 31, 1996. The decrease in interest expense over the same period in
the prior year is attributed principally to the prepayment of the Company's
long-term debt on October 1, 1996 and the related elimination of deferred loan
cost amortization.
Interest income increased $244,000 to $267,000 for the three months ended
March 31, 1997 as compared to $23,000 for the three months ended March 31, 1996.
The increase in interest income over the same period in the prior year is
attributable primarily to the increase in cash available for investment from
operations and from the Company's public offering completed in August 1996.
-13-
<PAGE> 14
Provision for income tax expense for the three months ended March 31, 1997
increased $393,000 to $592,000 from $199,000 for the three months ended March
31, 1996. The increase in provision for income tax expense compared to the same
period in the prior year results primarily from the increase in the Company's
effective tax rate due to the reversal, during the period ended December 31,
1996, of a portion of the valuation allowance against the Company's deferred tax
assets.
Nine Months Ended March 31, 1997 and March 31, 1996
Operating revenues for the nine months ended March 31, 1997 increased by
$4,289,000, or 23.7%, to $22,401,000 as compared to $18,112,000 for the same
period in the prior fiscal year. The increase in operating revenues results
primarily from the opening of seven new programs during fiscal 1997, the
opening of one new program in 1996 which was in operation throughout the entire
nine months ended March 31, 1997, and from significant increases in student
enrollment at five of the Company's programs.
Management fee income recognized under the Helicon Agreement for the nine
months ended March 31, 1997 increased $28,000 to $958,000 as compared to
$930,000 for the nine months ended March 31, 1996.
Total revenues for the nine months ended March 31, 1997 increased
$4,317,000, or 22.7%, to $23,359,000 as compared to $19,042,000 for the nine
months ended March 31, 1996 as a result of the factors described above.
Employee compensation and benefits for the nine months ended March 31, 1997
increased $2,969,000, or 25.6%, to $14,564,000, as compared to $11,595,000 for
the nine months ended March 31, 1996. As a percentage of total revenues,
employee compensation and benefits increased from 60.9% for the nine months
ended March 31, 1996 to 62.4% for the nine months ended March 31, 1997. The
increase in employee compensation and benefits over the same period in the prior
year results primarily from the addition of employees to support the growth in
the number and scope of the Company's programs, as well as from inefficiencies
experienced during the early stages of certain programs.
Purchased services and other expenses for the nine months ended March 31,
1997 increased $912,000, or 25.8%, to $4,454,000 as compared to $3,542,000 for
the nine months ended March 31, 1996. As a percentage of total revenues,
purchased services and other expenses increased from 18.6% for the nine months
ended March 31, 1996 to 19.1% for the nine months ended March 31, 1997. The
increase in purchased services and other expenses over the same period in the
prior year is attributed primarily to the Company's growth including increases
in consulting, legal, audit, investor relations, and travel expense.
-14-
<PAGE> 15
Depreciation and amortization for the nine months ended March 31, 1997
decreased $76,000, or 10.0%, to $685,000 as compared to $761,000 for the nine
months ended March 31, 1996. The decrease in depreciation and amortization
compared to the same period in the prior year is attributable primarily to the
reduction in amortization of non-competition agreements from approximately
$188,000 for the nine months ended March 31, 1996 to $-0- for the nine months
ended March 31, 1997, net of increases in depreciation and amortization at one
of the Company's programs opened during fiscal 1997.
Income from operations for the nine months ended March 31, 1997 increased
$512,000, or 16.7%, to $3,580,000 as compared to $3,068,000 for the nine months
ended March 31, 1996, and decreased as a percentage of total revenues to 15.3%
for the nine months ended March 31, 1997 from 16.1% for the nine months ended
March 31, 1996, as a result of the factors described above.
Interest expense for the nine months ended March 31, 1997 decreased
$404,000, or 64.2%, to $225,000 as compared to $629,000 for the nine months
ended March 31, 1996. The decrease in interest expense is attributed principally
to the prepayment of the Company's long-term debt on October 1, 1996 and the
related elimination of deferred loan cost amortization.
Interest income increased $686,000 to $720,000 for the nine months ended
March 31, 1997 as compared to $34,000 for the nine months ended March 31, 1996.
The increase in interest income over the same period in the prior year is
attributable primarily to the increase in cash available for investment from
operations and from the Company's public offering completed in August 1996.
Provision for income tax expense for the nine months ended March 31, 1997
decreased $998,000 to ($596,000) from $402,000 for the nine months ended March
31, 1996. The decrease in provision for income tax expense compared to the same
period in the prior year results primarily from a nonrecurring credit to income
tax expense of $1,783,000, related to the reversal of a portion of the valuation
allowance against the Company's deferred tax assets during the period ended
December 31, 1996, net of the impact of an increase in the Company's effective
tax rate.
Loss on early extinguishment of debt for the nine months ended March 31,
1997 of $612,000, before the related income tax benefit of $164,000, resulted
from the prepayment of the Company's outstanding indebtedness to National Health
Investors, Inc. As a result of the prepayment of this debt, the Company incurred
a prepayment penalty of approximately $493,000, and wrote off deferred loan
costs totalling $119,000. Loss on early extinguishment of debt for the nine
months ended March 31, 1996 of $64,000, before the related income tax benefit of
$10,000, resulted from the write off of deferred loan costs associated with the
Company's term loan with T. Rowe Price Strategic Partners Fund II, L.P. which
was repaid.
-15-
<PAGE> 16
Liquidity and Capital Resources
Cash provided by operating activities for the nine months ended March 31,
1997 was $3,569,000 on net income of $4,230,000 as compared to $2,716,000 on net
income of $2,017,000 for the nine months ended March 31, 1996. Working capital
at March 31, 1997 was $23,918,000, as compared to $5,057,000 at June 30, 1996.
Cash used by investing activities was $3,851,000 for the nine months ended
March 31, 1997 as compared to $186,000 for the nine months ended March 31, 1996,
due primarily to an increase in cash outlays for the purchase of property and
equipment, for the incurrence of acquisition costs related to the purchase of
Vendell's assets, and for the purchase of short-term investments. Cash of
$17,209,000 was provided by financing activities for the nine months ended March
31, 1997 as compared to a use of $793,000 for the nine months ended March 31,
1996, due primarily to the receipt of net proceeds of $23,641,000 from the
issuance of shares of the Company's Common Stock in the public offering
completed in August 1996, net of the use of approximately $6,158,000 of such
proceeds to prepay the Company's long-term debt with NHI in October, 1996.
In September 1994, the Company obtained a $2.5 million one-year revolving
line of credit from First American National Bank ("FANB"). In January 1996, the
Company's line of credit was reduced to $2.0 million, in order to facilitate
Helicon's obtaining a $500,000 line of credit from FANB. As a further condition
to Helicon's line of credit, the Company agreed to guarantee Helicon's
performance under such line of credit. In November 1996, Helicon's line of
credit with FANB, and the Company's guarantee, was increased to $1 million. At
March 31, 1997, there were no amounts outstanding under Helicon's line of
credit.
The Company's $2.0 million line of credit matured on September 30, 1996,
and, on November 8, 1996, the Company entered into a new loan and security
agreement with FANB. Under the terms of this agreement, FANB has made available
to the Company, for acquisition financing and working capital requirements, a
revolving line of credit for up to $13,000,000. The initial term of the
agreement extends through November 1, 1999. The credit facility bears interest
at either (i) the one, two or three month LIBOR rate plus an applicable margin,
which ranges between 1.35% and 2.10% and is dependent on the ratio of funded
debt to operating earnings or (ii) FANB's index rate, at the Company's option.
The line of credit is secured primarily by the Company's accounts receivable and
equipment.
The Company's line of credit with FANB requires the Company to comply with
certain restrictive covenants with respect to its business and operations and to
maintain certain financial ratios. The restrictive covenants under this
agreement prohibit the Company, without the prior consent of its lender, from
entering into major corporate transactions, such as a merger, tender offer or
sale of its assets, and from incurring additional indebtedness in excess of
$1,000,000. The agreement also prohibits the Company from declaring dividends in
excess of 25% of the Company's net income during any fiscal year.
-16-
<PAGE> 17
The Company has entered into a definitive agreement to purchase
substantially all the assets and assume certain identified liabilities of
Vendell for $20 million. The purchase price includes approximately $12
million in cash and $8 million in the Company's Common Stock. The Company has
also agreed to purchase for cash Vendell's net working capital, estimated to be
approximately $5 million at closing. In conjunction with the transaction,
Vendell filed for bankruptcy in the United States Bankruptcy Court for the
Middle District of Tennessee. On May 6, 1997, the Bankruptcy Court approved the
sale of Vendell's assets to the Company. While substantial conditions remain
relating to regulatory approval of the transfer of Vendell's assets to the
Company, the Company hopes to close the Vendell asset purchase during the
quarter ending June 30, 1997.
Capital expenditures during fiscal 1997 are expected to include the
replacement of existing capital assets as necessary, as well as the costs
associated with the opening of new programs and facilities, including the
possible purchase of certain real estate and improvements, and the consummation
of the Vendell asset purchase. The Company also may consider other possible
strategic acquisitions, including acquisitions of existing programs and other
companies engaged in youth services or related businesses.
Current obligations, typically due within thirty days or less, are expected
to be funded with cash flow from operations and borrowings under the Company's
line of credit. Management believes that operations, remaining proceeds from the
August 1996 public offering, and amounts available under its line of credit will
provide sufficient cash flow for the foreseeable future, including the cash
required to consummate the Vendell asset purchase.
Inflation
Inflation has not had a significant impact on the Company's results of
operation since inception. Certain of the Company's existing contracts
provide for annual price increases based upon changes in the Consumer Price
Index.
-17-
<PAGE> 18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
(2) Asset Purchase Agreement By and Among Vendell
Healthcare, Inc., the Subsidiaries of Vendell
Healthcare, Inc. and the Company.
(11) Statement re: computation of earnings per share.
(27) Financial Data Schedule. (SEC use only)
(b) Reports on Form 8-K:
Form 8-K Reporting Date -- March 21, 1997
Items Reported -- Item 8. Change in Fiscal Year. The Company reported
a change in the date of its fiscal year end from March 31 to June 30,
retroactive to June 30, 1996. A transition report covering the
period from April 1, 1996 to June 30, 1996 was filed on Form 10-Q.
-18-
<PAGE> 19
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 thereunto duly authorized.
CHILDREN'S COMPREHENSIVE SERVICES, INC.
(Registrant)
Date: May 14, 1997 /s/ WILLIAM J BALLARD
------------------------------------
William J Ballard
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 1997 /s/ DONALD B. WHITFIELD
------------------------------------
Donald B. Whitfield
Vice President of Finance, Secretary
and Treasurer (Principal Financial
and Accounting Officer)
-19-
<PAGE> 20
Exhibit Index
Exhibit No.
- ----------
2* Asset Purchase Agreement By and Among Vendell Healthcare, Inc.,
the Subsidiaries of Vendell Healthcare, Inc. and the Company.
11 Computation of Per Share Earnings
27 Financial Data Schedule (for SEC use only)
- -----------
* As directed by Item 601(b)(2) of Regulation S-K, certain schedules and
exhibits to this agreement are omitted from this filing. The Company
agrees to furnish supplementally a copy of any omitted schedules or
exhibit to the Commission upon request.
-20-
<PAGE> 1
Exhibit 10
ASSET PURCHASE AGREEMENT
BY AND AMONG
VENDELL HEALTHCARE, INC.,
THE SUBSIDIARIES OF VENDELL HEALTHCARE, INC.
LISTED ON EXHIBIT A HERETO,
AND
CHILDREN'S COMPREHENSIVE SERVICES, INC.
FEBRUARY 27, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
ARTICLE 1. DEFINITIONS..........................................................................1
1.1. "Adjustment Time"..........................................................1
1.2. "Affiliate"................................................................1
1.3. "Agreement"................................................................2
1.4. "Assets"...................................................................2
1.5. "Assumed Liabilities"......................................................2
1.6. "Bankruptcy Code"..........................................................2
1.7. "Bankruptcy Court".........................................................2
1.8. "Benefit Plans"............................................................2
1.9. "Books and Records"........................................................2
1.10. "Business".................................................................3
1.11. "Business Day".............................................................3
1.12. "CCS Common Stock".........................................................3
1.13. "CCS Public Documents".....................................................3
1.14. "CCS Subsidiaries".........................................................3
1.15. "Closing"..................................................................3
1.16. "Closing Date".............................................................3
1.17. "Closing Documents"........................................................3
1.18. "Code".....................................................................3
1.19. "Contract".................................................................3
1.20. "Current Assets"...........................................................3
1.21. "Current Liabilities"......................................................3
1.22. "Damages"..................................................................3
1.23. "Disclosure Statement".....................................................4
1.24. "Employee Benefit Plan"....................................................4
1.25. "Employee Pension Benefit Plan"............................................4
1.26. "Employee Welfare Benefit Plan"............................................4
1.27. "Environmental Claim"......................................................4
1.28. "Environmental Laws".......................................................5
1.29. "ERISA"....................................................................5
1.30. "ERISA Affiliate"..........................................................5
1.31. "ERISA Plan"...............................................................5
1.32. "Escrow Agent," "Escrow Agreement," and "Escrow Amount"....................5
1.33. "Exchange Act".............................................................5
1.34. "Excluded Assets"..........................................................5
1.35. "Excluded Liabilities".....................................................5
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1.36. "GAAP".....................................................................5
1.37. "Governmental or Regulatory Authority".....................................6
1.38. "Hospitals"................................................................6
1.39. "Indebtedness".............................................................6
1.40. "Indemnified Party"........................................................6
1.41. "Indemnifying Party".......................................................6
1.42. "Intellectual Property"....................................................6
1.43. "Inventory"................................................................6
1.44. "IRS"......................................................................6
1.45. "Laws".....................................................................6
1.46. "Lease Documents"..........................................................7
1.47. "Leased Property"..........................................................7
1.48. "Liabilities"..............................................................7
1.49. "Licenses".................................................................7
1.50. "Liens"....................................................................7
1.51. "Marketed Hospitals".......................................................7
1.52. "Material Adverse".........................................................7
1.53. "Materials of Environmental Concern".......................................7
1.54. "Medical Waste"............................................................7
1.55. "Medical Waste Laws".......................................................7
1.56. "Noteholders"..............................................................8
1.57. "Order"....................................................................8
1.58. "Permitted Encumbrances"...................................................8
1.59. "Permitted Lien"...........................................................8
1.60. "Person"...................................................................8
1.61. "Personal Property"........................................................8
1.62. "Plan of Reorganization"...................................................9
1.63. "Prepaid Expenses".........................................................9
1.64. "Prime Rate"...............................................................9
1.65. "Purchase Price"...........................................................9
1.66. "Real Property"............................................................9
1.67. "Receivables"..............................................................9
1.68. "Rivendell - Michigan".....................................................9
1.69. "Rivendell - Montana"......................................................9
1.71. "Rights to Government Proceeds"...........................................10
1.72. "Securities Act"..........................................................10
1.73. "Senior Notes"............................................................10
1.74. "Stockholders"............................................................10
1.75. "Subsidiaries"............................................................10
1.76. "Subsidiary Shares".......................................................10
1.77. "Taxes"...................................................................10
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
1.78. "Tax Returns".............................................................10
1.79. "Tenant Leases"...........................................................11
1.80. "Third Party Acquisition Event"...........................................11
1.81. "Vendell Common Stock"....................................................11
1.82. "Vendell Financial Statements"............................................11
1.83. "Vendell Public Documents"................................................11
1.84. "Vendell Subsidiaries"....................................................11
1.85. "Vendell Subsidiary Shares"...............................................11
1.86. "WARN Act"................................................................11
1.87. Interpretation............................................................11
ARTICLE 2. SALE AND TRANSFER OF ASSETS; CLOSING................................................12
2.1. Purchase of Assets........................................................12
2.2. Excluded Assets...........................................................14
2.3. Closing...................................................................15
ARTICLE 3. CONSIDERATION.......................................................................15
3.1. Purchase Price............................................................15
3.2. Cash Purchase Price Adjustments...........................................16
3.3. Preliminary and Final Settlements.........................................17
3.4. Stock Purchase Price......................................................18
3.5. Allocations of Purchase Price.............................................19
3.6. Assumption of Liabilities.................................................19
3.7. Proceeds from Sale of Marketed Hospitals..................................20
3.8. Assets and Assumed Liabilities of Rivendell-Michigan and Rivendell-
Montana...................................................................21
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF VENDELL AND VENDELL SUBSIDIARIES..................21
4.1. Organization, Standing, and Foreign Qualification.........................21
4.2. Power and Authority.......................................................21
4.3. Vendell Financial Statements..............................................22
4.4. Absence of Undisclosed Liability..........................................22
4.5. Absence of Changes........................................................22
4.6. Indebtedness..............................................................24
4.7. Tax Matters...............................................................24
4.8. Real Property, Leasehold Interests and Tenant Leases......................24
4.9. Personal Property.........................................................27
4.10. Intellectual Property.....................................................27
4.11. Receivable................................................................27
4.12. Inventories...............................................................27
4.13. Insurance.................................................................28
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
4.14. Compliance with Laws......................................................28
4.15. Environmental.............................................................29
4.16. Litigation and Claims.....................................................30
4.17. Contracts and Commitments.................................................30
4.18. Powers of Attorney........................................................31
4.19. Benefit Plans.............................................................31
4.20. Employees and Employee Relations..........................................32
4.21. Vendell Public Documents..................................................33
4.22. Pending Transactions......................................................33
4.23. Brokers and Finders.......................................................33
4.24. Statements True and Correct...............................................33
4.25. Certain Limitations.......................................................34
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF CCS AND THE CCS SUBSIDIARIES......................34
5.1. Organization, Standing, and Foreign Qualification.........................34
5.2. Power and Authority.......................................................34
5.3. Authorization of CCS Common Stock.........................................35
5.4. Capitalization............................................................35
5.5. CCS Public Documents......................................................35
5.6. Exemption from Registration...............................................36
5.7. No Material Adverse Change................................................36
5.8. Brokers and Finders.......................................................36
5.9. Statements True and Correct...............................................36
5.10. Certain Limitations.......................................................36
ARTICLE 6. ACCESS TO INFORMATION AND DOCUMENTS.................................................36
6.1. Access to Information.....................................................36
6.2. Return of Records.........................................................37
6.3. Effect of Access..........................................................37
ARTICLE 7. COVENANTS...........................................................................37
7.1. Conduct of Business.......................................................37
7.2. Relationship with Employees, Suppliers, and Patients......................39
7.3. Exclusive Dealings........................................................39
7.4. Filing of Bankruptcy Petition(s); Confirmation of Plan of Reorganization..39
7.5. CCS Efforts to Obtain Bankruptcy Court Approval...........................40
7.6. Supplying of Financial Statements.........................................41
7.7. Issuance or Purchase of Securities........................................41
7.8. Amendment to Certificate of Incorporation or Bylaws.......................41
7.9. Meeting of Stockholders...................................................41
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
<S> <C> <C> <C>
7.10. Exemption from State Takeover Laws........................................41
7.11. Public Disclosures........................................................41
7.12. Notice of Subsequent Events...............................................42
7.13. Other Actions.............................................................42
7.14. Cooperation...............................................................42
7.15. Title Matters.............................................................43
7.16. Opinions of Counsel.......................................................43
7.17. Survival of Representations and Warranties; Indemnification...............43
7.18. Employees.................................................................45
7.19. Winding Up................................................................46
7.20. Reserves and Payment of Governmental Third Payor Claims...................46
7.21. Assignment of Contracts, Licenses, Rights, Etc............................47
ARTICLE 8. TERMINATION, AMENDMENT, AND WAIVER..................................................47
8.1. Termination...............................................................47
8.2. Effect of Termination.....................................................48
8.3. Amendment.................................................................48
8.4. Extension; Waiver.........................................................48
8.5. Procedure for Termination, Amendment, Extension, or Waiver................48
8.6. Expenses; Break-up Fees...................................................48
ARTICLE 9. CONDITIONS TO CLOSING...............................................................49
9.1. Mutual Conditions.........................................................49
9.2. Conditions to Obligations of CCS..........................................50
9.3. Conditions to Obligations of Vendell......................................52
ARTICLE 10. MISCELLANEOUS.......................................................................52
10.1. Notices...................................................................52
10.2. Further Assurances........................................................53
10.3. Governing Law.............................................................54
10.4. Captions..................................................................54
10.5. Integration of Exhibits...................................................54
10.6. Entire Agreement..........................................................54
10.7. Counterparts..............................................................54
10.8. Binding Effect............................................................54
10.9. Legal Fees and Costs......................................................54
10.10. Remedies Exclusive........................................................55
10.11. Sales Taxes...............................................................55
</TABLE>
v
<PAGE> 7
<TABLE>
<CAPTION>
Exhibits and Schedules
- ----------------------
<S> <C> <C>
Exhibit 1.23 -- Disclosure Statement
Exhibit 1.62 -- Plan of Reorganization
Exhibit 1.70 -- Form of Sale Motion
Exhibit 2.3(ii)(A) -- Form of Bill of Sale, Assignment, and Assumption
Exhibit 3.1(a)(ii) -- Form of Escrow Agreement
Exhibit 7.16(A) -- Form of Opinion of Bass, Berry & Sims PLC
Exhibit 7.16(B) -- Form of Opinion of Katten Muchin & Zavis
Schedule 1.58 -- Permitted Encumbrances
Schedule 1.59 -- Permitted Liens
Schedule 2.1(a) -- Real Property
Schedule 2.1(b) -- Licenses
Schedule 2.1(c) -- Lease Documents
Schedule 2.1(d) -- Contracts
Schedule 2.1(k) -- Intellectual Property
Schedule 2.2(c) -- Excluded Books and Records
Schedule 2.2(d) -- Excluded Lease Documents, Nonassignable Contracts, Licenses, and
Intellectual Property
Schedule 3.5(b) -- Allocation of Purchase Price Among Vendell and Vendell Subsidiaries
Schedule 4.2 -- Required Consents
Schedule 4.3 -- Vendell Financial Statements
Schedule 4.4 -- Liabilities
Schedule 4.5 -- Changes
Schedule 4.6 -- Indebtedness
Schedule 4.8.1 -- Property Condition
Schedule 4.8.3 -- Compliance
Schedule 4.8.4 -- Leases Affecting Real Property
Schedule 4.11 -- Receivables Subject to Adjustment
Schedule 4.13 -- Insurance
Schedule 4.14(a) -- Compliance with Laws
Schedule 4.14(c) -- Fraudulent Claims
Schedule 4.14(d) -- Investigations by Federal or State Governmental Regulatory Authority
Schedule 4.15 -- Environmental Matters
Schedule 4.16 -- Litigation
Schedule 4.18 -- Powers of Attorney
Schedule 4.19(a) -- Employee Benefit Plans
Schedule 4.19(c) -- Benefit Plan Compliance
</TABLE>
vi
<PAGE> 8
<TABLE>
<S> <C> <C>
Schedule 4.19(g) -- Employee Benefit Plan Providing Welfare Benefit
Schedule 4.19(h) -- Severance Issues
Schedule 4.20 -- Employees
Schedule 5.4 -- Obligations Regarding CCS Common Stock
</TABLE>
vii
<PAGE> 9
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into to
be effective as of February 27, 1997 by and among Vendell Healthcare, Inc., a
Delaware corporation ("Vendell"), the Subsidiaries of Vendell listed on the
signature pages hereto (the "Vendell Subsidiaries") (Vendell and the Vendell
Subsidiaries are referred to herein collectively and, when the context so
requires, individually, as "Seller"), and Children's Comprehensive Services,
Inc., a Tennessee corporation ("CCS") (CCS and the subsidiaries formed to
acquire assets hereunder (the "CCS Subsidiaries") are referred to herein
collectively and, when the context so requires, individually, as "Buyer").
RECITALS
WHEREAS, Seller owns and operates the Hospitals (as hereinafter defined)
and related behavioral care businesses;
WHEREAS, Seller desires to sell substantially all of the assets
constituting the Business (as hereinafter defined) owned by Seller to Buyer, and
Buyer desires to purchase such assets and assume certain liabilities and
obligations of Seller in conformity with the terms and conditions hereof; and
WHEREAS, Seller and Buyer agree that the sale of the Business will be
accomplished pursuant to the Plan of Reorganization or the Sale Motion (as
hereinafter defined) of Vendell;
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual representations, warranties, covenants, and agreements of the parties
hereinafter set forth, the parties hereby agree as follows:
ARTICLE 1. DEFINITIONS
As used in this Agreement, the following defined terms shall have the
meanings indicated below:
1.1. "Adjustment Time" shall have the meaning ascribed to it in Section 3.2
of the Agreement.
1.2. "Affiliate" shall mean any Person that directly, or indirectly through
one or more intermediaries, controls or is controlled by or is under common
control with the Person specified. For purposes of this definition, control of a
Person means the power, direct or indirect, to direct or cause the direction of
the management and policies of such Person whether by contract or otherwise and,
in any event and without limitation of the previous sentence, any Person owning
<PAGE> 10
fifty percent (50%) or more of the voting securities of a second Person shall be
deemed to control that second Person.
1.3. "Agreement" shall mean this Asset Purchase Agreement, as the same
shall be amended from time to time.
1.4. "Assets" shall have the meaning ascribed to it in Section 2.1 of this
Agreement.
1.5. "Assumed Liabilities" shall have the meaning ascribed to it in Section
3.6 of this Agreement.
1.6. "Bankruptcy Code" shall mean Title 11 of the United States Code.
1.7. "Bankruptcy Court" shall mean the United States Bankruptcy Court for
the Middle District of Tennessee.
1.8. "Benefit Plans" shall mean all Employee Benefit Plans, all Employee
Pension Benefit Plans, all Employee Welfare Benefit Plans, all plans established
pursuant to Section 125 of the Code and all stock bonus, stock ownership, stock
option, stock purchase, stock appreciation rights, phantom stock and other stock
plans (whether qualified or nonqualified) and all other pension, welfare,
severance, retirement, bonus, deferred compensation, incentive compensation,
insurance (whether life, accident and health or other and whether key man, group
or other), profit sharing, disability, thrift, day care, legal services, leave
of absence, layoff, vacation and supplemental or excess benefit plans and all
other benefit Contracts, arrangements or procedures having the effect of a plan,
in each case existing on or before the Closing Date under which a Person or any
of its Subsidiaries is or may hereafter become obligated in any manner
(including, without limitation, obligations to make contributions or other
payments) and which cover or have covered some or all of the present or former
officers, directors, employees, agents, consultants or other similar
representatives providing services to or for Seller; provided, however, that
such term shall not include (a) workers' compensation insurance and (b)
directors and officers' liability insurance.
1.9. "Books and Records" shall mean all accounting, actuarial, audit,
financial reporting, Tax, business, marketing, corporate and other files,
documents, instruments, papers, books and records of a Person and its
Subsidiaries, including without limitation financial statements, budgets,
pricing guidelines, ledgers, journals, deeds, title policies, underwriting and
other manuals, minute books, stock certificates and books, stock transfer
ledgers, agent lists, policyholder lists, customer lists, provider lists,
reports, computer files and programs, retrieval programs, operating data or
plans and environmental studies or plans.
2
<PAGE> 11
1.10. "Business" shall mean the behavioral care business of Seller
conducted through the Hospitals, outpatient clinics, and otherwise.
1.11. "Business Day" shall mean a day other than Saturday, Sunday or any
day on which banks located in Nashville, Tennessee are authorized or obligated
to close.
1.12. "CCS Common Stock" shall mean the common stock, par value $.01 per
share, of CCS.
1.13. "CCS Public Documents" shall mean CCS's Annual Report on Form 10-K
for the fiscal year ended March 31, 1996 (including any documents incorporated
by reference therein), Quarterly Reports on Form 10-Q for the fiscal quarters
ended June 30, September 30, and December 31, 1996, and CCS's Registration
Statement on Form S-2 (Registration No. 333-8387).
1.14. "CCS Subsidiaries" shall have the meaning set forth in the
introductory paragraph of this Agreement.
1.15. "Closing" shall mean the closing of the sale and purchase of the
Assets contemplated by this Agreement.
1.16. "Closing Date" shall mean the date on which the Closing occurs.
1.17. "Closing Documents" shall have the meaning ascribed to it in Section
2.3 of this Agreement.
1.18. "Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.
1.19. "Contract" shall mean any agreement, lease, sublease, promissory
note, evidence of indebtedness, mortgage, indenture (other than with respect to
the Senior Notes), security agreement, insurance policy, annuity, or other
contract (whether written or oral).
1.20. "Current Assets" shall have the meaning ascribed to it in Section 3.2
of this Agreement.
1.21. "Current Liabilities" shall have the meaning ascribed to it in
Section 3.2 of this Agreement.
1.22. "Damages" shall mean any and all liabilities, losses, damages,
demands, claims, suits, actions, judgments, causes of action, assessments, costs
and expenses, including, without limitation, interest, penalties, reasonable
attorneys' fees, any and all expenses incurred in
3
<PAGE> 12
investigating, preparing, and defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation, asserted against, resulting to, imposed upon, or
incurred or suffered by any party to this Agreement.
1.23. "Disclosure Statement" shall mean the disclosure statement
substantially in the form of Exhibit 1.23 hereto, whereby Vendell will seek
approval of the Plan of Reorganization, and where appropriate shall also mean
the disclosure statement(s) of Rivendell-Michigan and Rivendell-Montana in the
event either or both file a Chapter 11 bankruptcy petition pursuant to Section
7.4 of this Agreement, which disclosure statement(s) shall be reasonably
satisfactory to CCS prior to filing.
1.24. "Employee Benefit Plan" shall mean each employee benefit plan
(whether or not insured), as defined in Section 3(3) of ERISA, which is or was
in existence on or before the Closing Date, under which Seller is or may
hereafter become obligated in any manner (including, without limitation,
obligations to make contributions or other payments) and which cover or have
covered some or all of the present or former officers, directors, employees,
agents, consultants or other similar representations providing services to or
for Seller.
1.25. "Employee Pension Benefit Plan" shall mean each employee pension
benefit plan (whether or not insured), as defined in Section 3(2) of ERISA,
which is or was in existence on or before the Closing Date, under which Seller
is or may hereafter become obligated in any manner (including, without
limitation, obligations to make contributions or other payments) and which cover
or have covered some or all of the present or former officers, directors,
employees, agents, consultants or other similar representatives providing
services to or for Seller.
1.26. "Employee Welfare Benefit Plan" shall mean each employee welfare
benefit plan (whether or not insured), as defined in Section 3(1) of ERISA,
which is or was in existence on or before the Closing Date, under which Seller
is or may hereafter become obligated in any manner (including, without
limitation, obligations to make contributions or other payments) and which cover
or have covered some or all of the present or former officers, directors,
employees, agents, consultants or other similar representatives providing
services to or for Seller.
1.27. "Environmental Claim" shall mean any claim, action, cause of action,
investigation or notice by any person or entity alleging potential liability
(including, without limitation, potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of, based on or resulting
from, in part or in whole, (a) the presence, or release into the environment, of
any Materials of Environmental Concern at any location, whether or not owned or
operated by Vendell or (b) circumstances forming the basis of any material
violation, or alleged material violation, of the Environmental Laws or the
Medical Waste Laws.
4
<PAGE> 13
1.28. "Environmental Laws" shall mean the Laws of any Governmental or
Regulatory Authority (including, without limitation, any state wherein Vendell
conducts business) relating to the use, refinement, recycling, handling,
treatment, removal, storage, production, manufacture, transportation, disposal,
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to protection of the environment
(including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata), as the same may be amended or modified until the
date of closing, including, without limitation, the following statutes: Federal
Resources Conservation and Recovery Act of 1976, 42 U.S.C. ss. 6901, et seq.;
Federal Comprehensive Environmental Response, Compensation, and Liability Act of
1980, 42 U.S.C. ss. 9601, et seq.; Federal Clean Air Act, 42 U.S.C. ss. 7401, et
seq.; Federal Water Pollution Control Act, Federal Clean Water Act of 1977, 33
U.S.C. ss. 1251, et seq.; Federal Insecticide, Fungicide, and Rodenticide Act,
Federal Pesticide Act of 1978, 7 U.S.C. ss. 136, et seq.; Federal Hazardous
Materials Transportation Act, 48 U.S.C. ss. 1801, et seq.; Federal Toxic
Substances Control Act, 15 U.S.C. ss. 2601, et seq.; and Federal Safe Drinking
Water Act, 42 U.S.C. ss. 300f, et seq.
1.29. "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
1.30. "ERISA Affiliate" shall mean any Person who is in the same controlled
group of corporations or who, before the Closing, is under common control with
Seller (within the meaning of Section 414 of the Code).
1.31. "ERISA Plan" shall mean any Employee Pension Benefit Plan or Employee
Welfare Benefit Plan.
1.32. "Escrow Agent," "Escrow Agreement," and "Escrow Amount" shall have
the meanings ascribed to such terms in Section 3.1 of this Agreement.
1.33. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
1.34. "Excluded Assets" shall have the meaning ascribed to it in Section
2.2 of this Agreement.
1.35. "Excluded Liabilities" shall have the meaning ascribed to it in
Section 3.6 of this Agreement.
1.36. "GAAP" shall mean generally accepted accounting principles,
consistently applied throughout the specified period and in the immediately
prior comparable period, except, in the case of unaudited interim financial
statements, for the absence of footnote disclosure and for
5
<PAGE> 14
normal recurring year-end adjustments that individually or in the aggregate
would not have a Material Adverse effect on the financial statements to which
such adjustments relate.
1.37. "Governmental or Regulatory Authority" shall mean any court,
tribunal, arbitrator, authority, agency, commission, board, bureau, body,
exchange, official, association, or other instrumentality or organization of the
United States, any foreign country, or any domestic or foreign state, city,
county, municipality, territory, province, commonwealth, protectorate,
possession or other political subdivision, including without limitation the
Federal Trade Commission, the United States Department of Justice, and state
attorneys general.
1.38. "Hospitals" shall mean Rivendell of Arkansas, Rivendell of Kentucky,
Rivendell of Michigan, Rivendell of Montana, Rivendell of Panama City, Rivendell
of Utah, Gulf Pines Hospital and Red River Hospital.
1.39. "Indebtedness" of any Person shall mean all obligations of such
Person (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or
similar instruments, (iii) for the deferred purchase price of goods or services
(other than trade payables or accruals incurred in the ordinary course of
business), (iv) under capital leases or (v) in the nature of guarantees of the
obligations described in clauses (i) through (iv) above of any other Person.
1.40. "Indemnified Party" shall have the meaning ascribed to it in Section
7.17 of this Agreement.
1.41. "Indemnifying Party" shall have the meaning ascribed to it in Section
7.17 of this Agreement.
1.42. "Intellectual Property" shall mean all names, marks, trademarks,
service marks, patents, patent rights, assumed names, slogans, trade secrets,
copyrights, trade names and all registrations with respect to the foregoing used
in the Business of Seller.
1.43. "Inventory" shall mean all inventories of supplies, drugs, foods,
janitorial and office supplies and other disposables and consumables of Seller
located at the Hospitals or used in connection with the Business.
1.44. "IRS" shall mean the United States Internal Revenue Service.
1.45. "Laws" shall mean all laws, statutes, rules, regulations, ordinances
and other pronouncements having the effect of law of the United States, any
foreign country or any domestic or foreign state, province, commonwealth, city,
county, municipality, territory, protectorate, possession or other political
subdivision or of any Governmental or Regulatory Authority.
6
<PAGE> 15
1.46. "Lease Documents" shall mean the documents enumerating the rights of
Seller in the Leased Property.
1.47. "Leased Property" shall mean that portion of the Real Property leased
by Seller.
1.48. "Liabilities" shall mean all Indebtedness, obligations and other
liabilities of a Person (whether absolute, accrued, contingent, fixed or
otherwise, or whether due or to become due).
1.49. "Licenses" shall mean all licenses, sublicenses, permits,
certificates of authority, exemptions, classifications, authorizations,
approvals, registrations, franchises, and similar documents, instruments, or
consents granted or issued by any Governmental or Regulatory Authority.
1.50. "Liens" shall mean any mortgage, pledge, assessment, security
interest, lease, sublease, lien, adverse claim, levy, charge or other
encumbrance of any kind, or any conditional sale Contract, title retention
Contract or other Contract to give any of the foregoing.
1.51. "Marketed Hospitals" shall mean the Hospitals located in Wichita
Falls, Texas, and West Jordan, Utah.
1.52. "Material Adverse" in the context of an effect on the Business shall
mean any effect as to which there is a reasonable likelihood that a prudent
investor would consider such effect important in deciding whether or not to
purchase or invest in a Person.
1.53. "Materials of Environmental Concern" shall mean any toxic or
hazardous waste, pollutants or substances, including, without limitation,
asbestos, PCBs, petroleum products and byproducts, substances defined or listed
as "hazardous substances," "hazardous waste," "toxic substances," "toxic
pollutant," "medical waste" or similarly identified substances or mixtures, in
or pursuant to the Environmental Laws or the Medical Waste Laws.
1.54. "Medical Waste" shall mean any substance, pollutant, materials or
containment listed or regulated under either the Medical Waste Tracking Act of
1988, 42 U.S.C. ss.ss.6992, et seq. ("MWTA"), 42 Part 72 and 49 CFR ss.173, 386
or the Medical Waste Laws.
1.55. "Medical Waste Laws" shall mean the following, including, without
limitation, regulations promulgated and orders issued thereunder, to the extent
such Medical Waste Laws regulate Medical Waste, all as may be amended or
modified until the date of closing: the MWTA, the Resource Conservation and
Recovery Act, 42 USCA ss.6901 et seq.; the Air Pollution Prevention and Control
Act, 42 USCA ss.7401 et seq.; the Federal Water Pollution Control Act, 33 USCA
ss.ss.1251 et seq.; the Marine Protection, Research, and Sanctuaries Act of
1972,
7
<PAGE> 16
33 USCA ss.ss.1401 et seq.; Nuclear Regulatory Commission regulations contained
in 10 CFR Part 20; and 10 CFR Part 61, Occupational Health Act, 29 USCA 651 et
seq.; Public Health Service regulations contained in 42 CFR Part 72; Food and
Drug Administration regulations contained in 21 CFR Parts 58 and 211; U.S.
Department of Transportation regulations contained in 49 CFR Parts 171-179; the
Act to Prevent Pollution from Ships, 33 U.S.C.A. ss.1901 et seq.; United States
Department of Agriculture regulations contained in 9 CFR Parts 50 through 56;
United States Postal Service regulations contained in 39 CFR Part 111; and local
environmental and safety laws, rules, regulations, and other legally binding
requirements, and any other federal, state, regional, county, municipal, or
other local laws, regulations, and ordinances insofar as they purport to
regulate Medical Waste, or impose requirements relating to Medical Waste.
1.56. "Noteholders" shall mean the holders of record of the Senior Notes as
of the "Record Date" (as defined in the Plan of Reorganization).
1.57. "Order" shall mean any writ, judgment, decree, injunction or similar
order of, or any stipulation, agreement or understanding with, any Governmental
or Regulatory Authority (in each such case whether preliminary or final, formal
or informal or public or nonpublic).
1.58. "Permitted Encumbrances" shall mean (i) liens for current ad valorem
taxes and assessments not yet due and payable, (ii) all existing utility, access
or other easements and rights of way of record, (iii) laws regulating the use or
enjoyment of the Real Property, (iv) all Tenant Leases, (v) all encumbrances
described on Schedule 1.58, and (vi) any other matters approved by CCS in
writing; provided that none of the matters described in clauses (ii) or (iii),
either individually or in the aggregate, materially interfere with or impair the
present use or operation of the Real Property or any part thereof, or materially
impair either the value of or marketability of title to the Real Property.
1.59. "Permitted Lien" shall mean (i) any statutory Lien arising out of the
operation of Law with respect to a liability that is not delinquent, (ii) any
minor imperfection of title or similar Lien which individually or in the
aggregate with other such Liens does not materially impair the value of the
property subject to such Lien or the use of such property in the conduct of the
Business of Seller, (iii) Permitted Encumbrances, and (iv) all liens described
on Schedule 1.59.
1.60. "Person" shall mean any natural person, corporation, general
partnership, limited partnership, proprietorship, trust, union, association,
Governmental or Regulatory Authority, or other entity, enterprise, authority or
business organization.
1.61. "Personal Property" shall mean all of the tangible personal property
owned by Seller in respect of the Business including, without limitation, all
equipment, furniture, fixtures, machinery, vehicles, office furnishings,
instruments, leasehold improvements, spare parts, and,
8
<PAGE> 17
to the extent assignable by Seller, all rights in all warranties of any
manufacturer or vendor with respect thereto.
1.62. "Plan of Reorganization" shall mean the plan of reorganization
reflecting the terms of this Agreement that shall be filed by Vendell in the
Bankruptcy Court. The Plan of Reorganization shall be substantially in the form
attached as Exhibit 1.62 hereto and where appropriate shall also mean the
plan(s) of reorganization of Rivendell-Michigan and Rivendell-Montana in the
event either or both file a Chapter 11 bankruptcy petition pursuant to Section
7.4 of this Agreement, which plan(s) shall be reasonably satisfactory to CCS
prior to filing.
1.63. "Prepaid Expenses" shall mean all deposits, escrows, security
deposits, or other advance payments in conformance with GAAP as listed on the
balance sheets of the Vendell Financial Statements or as arising in the ordinary
course of business of Seller subsequent to the date thereof; provided, however,
that, notwithstanding the foregoing, "Prepaid Expenses" shall not include
prepaid taxes.
1.64. "Prime Rate" shall mean the rate of interest publicly announced from
time to time by First American National Bank of Nashville, Tennessee, as its
prime rate.
1.65. "Purchase Price" shall have the meaning ascribed to it in Section 3.1
of this Agreement.
1.66. "Real Property" shall mean all parcels of land, leasehold, and other
real property interests, all buildings, improvements, and fixtures thereon, and
all rights, privileges, and easements appurtenant thereto owned or leased by
Seller that are associated with or used in the operation of the Business.
1.67. "Receivables" shall mean all accounts, notes, interest and other
receivables with respect to the Business and all claims, rights, interests, and
proceeds related thereto, including, without limitation, all accounts and other
receivables arising from the rendering of services to inpatients and outpatients
at the Hospitals, billed and, recorded or unrecorded, accrued and existing in
respect of services up to the Closing Date, including those from private pay
patients, private insurance, third party payors, including Medicare and Medicaid
programs or any other source.
1.68. "Rivendell - Michigan" shall mean Rivendell of Michigan, Inc.
1.69. "Rivendell - Montana" shall mean Rivendell of Montana, Inc.
1.70. "Sale Motion" shall mean collectively (i) the motion or motions for
an order (a) authorizing sale of Vendell's (and Rivendell-Montana's and
Rivendell-Michigan's in the event that
9
<PAGE> 18
either or both file a Chapter 11 petition pursuant to Section 7.4 of this
Agreement) assets free and clear of liens, claims and encumbrances, and (b)
authorizing the assumption and assignment of unexpired leases and executory
contracts, and (ii) the motion or motions for an order (a) approving competitive
bidding and sale procedures, (b) approving those portions of this Agreement
providing for a break-up fee arrangement and a topping bid provision, and (c)
scheduling date, time and place for, and approving form and manner of notice of
hearing, and (d) shortening notice. The Sale Motion shall be in substantially
the form of Exhibit 1.70 hereto.
1.71. "Rights to Government Proceeds" shall have the meaning ascribed to it
in Section 2.1(f) of this Agreement.
1.72. "Securities Act" shall mean the Securities Act of 1933, as amended
from time to time.
1.73. "Senior Notes" shall mean the $75,000,000 principal amount of 12%
Senior Notes due 2000 of Vendell.
1.74. "Stockholders" shall mean the holders of the Vendell Common Stock.
1.75. "Subsidiaries" shall mean any Person in which another Person,
directly or indirectly through its Subsidiaries or otherwise, beneficially owns
fifty percent (50%) or more of either the equity interests in, or the voting
control of, such Person.
1.76. "Subsidiary Shares" means the issued and outstanding capital stock of
any Subsidiary.
1.77. "Taxes" shall mean all taxes, charges, fees, levies or other like
assessments, including without limitation any federal, state, local, or foreign
income, sales, use, transfer, gross receipts, ad valorem, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Section 59A), customs duties, capital
stock, net worth, franchise, profits, withholding, social security (or similar),
unemployment, disability, registration, value added, workers compensation,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever
imposed by an federal, state, local or foreign governmental, or any Governmental
or Regulatory Authority; and such term shall include any interest, fines,
penalties, assessments or additions to tax resulting from, attributable to or
incurred in connection with any such tax or Tax Returns or any contest or
dispute thereof.
1.78. "Tax Returns" shall mean any report, return or other information
required to be supplied to a taxing authority, including all reports, elections,
declarations, claims for refund, estimates, information statements and returns
(including any schedules and attachments thereto)
10
<PAGE> 19
relating to, or required to be filed in connection with, any Taxes pursuant to
the statutes, rules and regulations of any federal, state, local or foreign
government taxing authority.
1.79. "Tenant Leases" shall mean all leases and subleases to third party
tenants of space in or portions of the Real Property.
1.80. "Third Party Acquisition Event" shall mean that any Person (other
than a party hereto or its affiliates) shall have acquired (whether such
acquisition occurs pursuant to a stock acquisition, merger, consolidation, share
exchange, or otherwise) either (i) one or more Hospitals (excluding one or more
of the Marketed Hospitals but including either Rivendell-Michigan or
Rivendell-Montana) or (ii) beneficial ownership (as such term is defined in Rule
13d-3 under the Exchange Act) or the right to acquire beneficial ownership of,
or a new group has been formed which beneficially owns or has the right to
acquire beneficial ownership of, 50% or more of the outstanding principal amount
of the Senior Notes or of the outstanding shares of Vendell Common Stock or 50%
or more of any Vendell Subsidiary Shares (other than an acquisition of Vendell
Subsidiary Shares to effect the purchase of one or more of the Marketed
Hospitals).
1.81. "Vendell Common Stock" shall mean the common stock, $.01 par value
per share, of Vendell.
1.82. "Vendell Financial Statements" shall have the meaning ascribed to it
in Section 4.3 of this Agreement.
1.83. "Vendell Public Documents" shall mean the (i) Registration Statement
on Form S-1 (Registration No. 33-63780) relating to the offer and sale of the
Senior Notes, including all pre-effective and post-effective amendments thereto
and all exhibits thereto, (ii) Vendell's Annual Report on Form 10-K for the
fiscal year ended June 30, 1995, and (iii) Vendell's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996.
1.84. "Vendell Subsidiaries" shall mean the Subsidiaries of Vendell
identified on Exhibit A hereto.
1.85. "Vendell Subsidiary Shares" shall mean the issued and outstanding
common stock of any Vendell Subsidiary.
1.86. "WARN Act" shall mean the Federal Worker Adjustment and Retraining
Notification Act.
1.87. Interpretation. Unless the context of this Agreement otherwise
requires:
(a) words of any gender will be deemed to include each other gender;
11
<PAGE> 20
(b) words using the singular or plural number will also include the
plural or singular number, respectively;
(c) the terms "hereof," "herein," "hereby," and derivative or similar
words will refer to this entire Agreement;
(d) the term "or" means and/or;
(e) the phrase "ordinary course of business and consistent with past
practice" will refer to the Business and practice of Vendell and its
Subsidiaries, as applicable;
(f) references to any document (including this Agreement) are
references to that document as amended, consolidated, supplemented, novated or
replaced by the parties from time to time;
(g) references to this Agreement are references to this Agreement, the
Schedules and the Exhibits;
(h) references to Articles, Sections, Schedules and Exhibits are
references to articles and sections of, and schedules and exhibits to, this
Agreement;
(i) references to any party to this Agreement shall include references
to its respective successors and permitted assigns;
(j) references to any Law are references to that law as amended,
consolidated, supplemented or replaced from time to time;
(k) references to a judgment shall include references to any order,
injunction, decree, determination or award of any court or tribunal;
(l) references to time, unless otherwise provided, are references to
Nashville, Tennessee time; and
(m) references to "knowledge of the Seller," the "best knowledge of
the Seller," or "known to the Seller" mean the actual knowledge of the H. Neil
Campbell, Bill Vickers, and John Edmunds, and the Administrator and the
Controller of each Hospital.
12
<PAGE> 21
ARTICLE 2. SALE AND TRANSFER OF ASSETS; CLOSING
2.1. Purchase of Assets. At the Closing, Vendell and each Vendell
Subsidiary (including Rivendell-Michigan and Rivendell-Montana) agrees to sell,
transfer, convey, assign, and deliver to Buyer, and Buyer agrees to purchase
from Vendell and each Vendell Subsidiary, all of Vendell's and each Vendell
Subsidiary's assets, properties (both real and personal), and rights of every
type and description, tangible and intangible, existing as of the Closing,
excluding only the assets described in Section 2.2 below (herein collectively
referred to as the "Assets"), including without limitation:
(a) all Real Property, including that described on Schedule 2.1(a);
(b) all rights, to the extent assignable, to the Licenses, including
those described on Schedule 2.1(b);
(c) all interest in and to all Lease Documents, including those
described on Schedule 2.1(c);
(d) all Contracts described on Schedule 2.1(d) and all Contracts
entered into in the ordinary course of business and consistent with past
practice which involve an aggregate amount payable of $50,000 or less or which
terminate or can be canceled by Buyer within one year from the Closing Date
without penalty;
(e) all Personal Property;
(f) all of Seller's rights and interests in all proceeds received by
Seller after Closing from Medicare and Medicaid for services rendered prior to
the Closing Date, whether or not submitted to such governmental payors as of the
Closing Date (collectively, "Rights to Government Proceeds");
(g) all Receivables (other than Receivables relating to Rights to
Government Proceeds);
(h) all Prepaid Expenses;
(i) all Inventory;
(j) all Books and Records, except as provided in Section 2.2;
(k) all Intellectual Property, including that described on Schedule
2.1(k);
13
<PAGE> 22
(l) all insurance proceeds arising in connection with damage to or
loss of the Assets occurring prior to the Closing to the extent not expended on
the repair or restoration of such Assets; and
(m) all other assets and properties of any nature whatsoever owned by
Vendell or the Vendell Subsidiaries and utilized in the Business, whether real,
personal, or mixed, tangible or intangible.
2.2. Excluded Assets. Notwithstanding anything else contained herein, the
following assets are excluded from the Assets being acquired by or transferred
to Buyer at the Closing (collectively, the "Excluded Assets"):
(a) cash and cash equivalents (including marketable securities and
short-term investments);
(b) all Sellers' rights, assets, and properties of any nature
whatsoever used to operate or otherwise associated primarily with the operation
of Rivendell of Nebraska, whether real, personal, or mixed, tangible or
intangible;
(c) all Books and Records described on Schedule 2.2(c);
(d) Lease Documents, Contracts, Licenses, and Intellectual Property
which are listed on Schedule 2.2(d);
(e) all shares of capital stock of the Vendell Subsidiaries and any
shares of the capital stock of Vendell held in its treasury;
(f) all prepaid taxes and claims for refunds of Taxes relating to
periods ended on or prior to the Closing Date and refunds of overpayments
(including refunds based on cost report adjustments or settlements) to
Government Authorities relating to periods ended on or prior to the Closing
Date;
(g) all rights and funds in connection with Seller's Benefit Plans;
(h) all claims, counterclaims, and set-offs against third parties
relating to any Liabilities of Seller that are not Assumed Liabilities and any
rights of Seller under Sections 329, 510, 544, 545, 546, 547, 548, 549 and 550
of the Bankruptcy Code; and
(i) insurance policies and proceeds therefrom to the extent not
covered by Section 2.1(l);
14
<PAGE> 23
(j) all Medicare, Medicaid, CHAMPUS, FEHBA and RRRB provider
agreements and provider numbers; and
(k) all rights of Seller arising under this Agreement.
2.3. Closing.
(a) The Closing shall take place at 10:00 a.m., Nashville time, at the
offices of Bass, Berry & Sims PLC, 2700 First American Center, Nashville,
Tennessee, on the Closing Date. The Closing shall occur as soon as practicable
after the satisfaction or waiver of all the conditions to Closing contained in
Article 9 hereto. At the Closing:
(i) Seller shall deliver or cause to be delivered to Buyer
documents in form and substance satisfactory to Seller and Buyer necessary to
transfer title to the Assets (with the Real Property conveyed by means of
separate deeds sufficient to obtain the Title Policies as set forth in Section
7.15);
(ii) Seller and Buyer shall execute and deliver to each other:
(A) separate Bills of Sale, Assignments, and Assumptions,
substantially in the form set forth as Exhibit
2.3(ii)(A); and
(B) any other closing documents set forth in Article 9 of
this Agreement.
The documents described in Sections 2.3(i) and (ii) above are hereinafter
collectively referred to as the "Closing Documents."
(b) Notwithstanding anything to the contrary set forth herein, there
shall be no transfer of ownership or control of the "controlled substances" in
respect of the Business until such time as Buyer has obtained the appropriate
Controlled Substance Registration Certificate from the United States Drug
Enforcement Agency, and any necessary state law counterpart, in respect of each
Hospital's pharmacy. Until such time, Seller (or a liquidation trust established
by Seller) shall continue to operate the Hospital pharmacy or pharmacies
utilizing such employee or employees of Buyer after the Closing as shall be
reasonably necessary to continue the operation of such pharmacy or pharmacies
after the Closing in the manner as it had been theretofore operated. Buyer shall
indemnify and hold harmless Seller, upon and after the Closing, from and against
any Damages arising out of or relating to the operation of each such Hospital
pharmacy after the Closing, including, without limitation, the dispensing of
controlled substances.
15
<PAGE> 24
ARTICLE 3. CONSIDERATION
3.1. Purchase Price. Subject to adjustment as set forth in this Article 3,
the aggregate consideration for the Assets payable to Vendell and the Vendell
Subsidiaries shall consist of the following:
(a) $12,000,000 (the "Cash Purchase Price"), (i) $11,500,000 of which
will be subject to adjustment as set forth in Sections 3.2, 3.3, and 3.7, and
payable to Vendell and the Vendell Subsidiaries (or as directed by Vendell and
the Vendell Subsidiaries) at the Closing by means of federal funds wire or
interbank transfer in immediately available funds, and (ii) $500,000 (the
"Escrow Amount") of which will be deposited in an escrow account maintained by
SunTrust Bank, N.A., Nashville, or such other Nashville, Tennessee financial
institution as the parties may mutually agree upon, as escrow agent (the "Escrow
Agent"), which Escrow Amount shall be held for six months following the Closing
Date pursuant to the terms of an Escrow Agreement (the "Escrow Agreement")
substantially in the form of Exhibit 3.1(a)(ii) attached hereto;
(b) $8,000,000 in shares of CCS Common Stock, determined pursuant to
Section 3.4, and subject to the adjustment as set forth in Section 3.7, which
shares will, at Closing, be distributed to Vendell, and then distributed by
Vendell to the Holders of Allowed Class 3 Claims (which include the
Noteholders), as such phrase is defined in the Plan of Reorganization (which
include the Noteholders) in accordance with the Plan of Reorganization; and
(c) the assumption by Buyer of the Assumed Liabilities.
3.2. Cash Purchase Price Adjustments. The Cash Purchase Price will be
increased or decreased, as applicable, in accordance with, at the times, and in
the manner set forth in Section 3.3, as follows:
(a) If the aggregate amount of the Current Liabilities exceeds the
aggregate amount of the Current Assets as of 12:01 a.m. on the day after Closing
Date (the "Adjustment Time"), the Cash Purchase Price shall be decreased by an
amount equal to that excess.
(b) If the aggregate amount of the Current Assets exceeds the
aggregate amount of the Current Liabilities as of the Adjustment Time, the Cash
Purchase Price shall be increased by an amount equal to that excess.
As used in this Agreement, "Current Assets" means the Sellers'
Receivables and Rights to Government Proceeds (net of allowances for
uncollectibility), Prepaid Expenses, and other current assets included within
the Assets of each of the Sellers determined in accordance
16
<PAGE> 25
with GAAP consistently applied; provided, however, that, for purposes of this
Article 3, Current Assets shall not include cash or cash equivalents or any
other assets that constitute Excluded Assets. "Current Liabilities" means
current liabilities of each of the Sellers determined in accordance with GAAP
consistently applied (including, without limitation, appropriate accruals for
vacation pay, sick pay, paid time off and unpaid health insurance claims);
provided, however, that no (i) amounts payable with respect to the Senior Notes,
(ii) amounts due or payable to third party payors (whether private insurers,
private pay patients, governmental payors including Medicare and Medicaid or
other third party payors) including cost report reimbursements or settlements,
repayments, fines or otherwise, (iii) professional fees or expenses relating to
or arising out of Vendell's bankruptcy filing or administration, (iv) accrued
expenses associated with the closing or sale of one or more of the Marketed
Hospitals and related facilities, (v) reserves for malpractice or other tort
liabilities; (vi) deferred revenue amounts; (vii) income taxes payable; (viii)
bonus and severance accruals; and (ix) fines and settlements with governmental
agencies shall be considered to be Current Liabilities or Assumed Liabilities
for any purposes under this Agreement.
3.3. Preliminary and Final Settlements. Preliminary and final adjustments
to the Cash Purchase Price will be determined as follows:
(a) At least three Business Days prior to the Closing Date, Vendell
will deliver to Buyer a report (the "Preliminary Adjustments Report"), prepared
by Vendell in good faith and on a reasonable basis, setting forth in reasonable
detail a pro forma determination as of the Adjustment Time of the Current Assets
and Current Liabilities and the corresponding adjustments to the Cash Purchase
Price pursuant to Section 3.2. The compliance of the Preliminary Adjustments
Report with the provisions of the first sentence of this Section 3.3(a) shall be
certified by an authorized officer of Vendell as of the date it is delivered.
Based on the Preliminary Adjustments Report, the Cash Purchase Price will be
adjusted on the Closing Date in accordance with the provisions of Section 3.2.
(b) Within 60 days after the Closing Date, Buyer will deliver to
Vendell a report (the "Final Adjustments Report"), prepared by Buyer in good
faith and on a reasonable basis, setting forth in reasonable detail the final
determination of the adjustments set forth in Section 3.2. The Final Adjustments
Report shall make such changes to the Preliminary Adjustments Report as are
necessary to cover those adjustments which (i) were estimated or were not
calculable as of the Adjustment Time in the Preliminary Adjustments Report, or
(ii) were adjusted in the Preliminary Adjustments Report and that require
subsequent adjustment. The compliance of the Final Adjustments Report with the
provisions of this Section 3.3(b) shall be certified by an authorized officer of
Buyer as of the date it is delivered.
(c) Within 30 days after receipt of the Final Adjustments Report,
Vendell shall review the Final Adjustments Report and notify Buyer in writing
whether or not Vendell accepts
17
<PAGE> 26
all or any of the adjustments set forth on the Final Adjustments Report. If
Vendell accepts the Final Adjustments Report with respect to all adjustments
contained therein, Buyer or Seller, as appropriate, shall, within five Business
Days of such acceptance, make the following adjustments: (i) if the Cash
Purchase Price calculated based on the Final Adjustments Report is greater than
the Cash Purchase Price calculated based on the Preliminary Adjustments Report,
Buyer shall pay to Seller in cash (by means of federal funds wire or interbank
transfer in immediately available funds) the amount of such difference, or (ii)
if the Cash Purchase Price calculated based on the Final Adjustments Report is
less than the Cash Purchase Price calculated based on the Preliminary
Adjustments Report, Seller shall pay to Buyer in cash (by means of federal funds
wire or interbank transfer in immediately available funds) the amount of such
difference. In the event any payment required by this Section 3.3(c) is not made
by the appropriate party when due pursuant to the terms of this Section 3.3(c),
such payment shall accrue interest from the date such payment was due at the
lesser of the Prime Rate plus 4% or the maximum rate permitted by applicable
law.
(d) If Vendell in good faith objects to any adjustments set forth on
the Final Adjustments Report, Vendell shall give notice thereof to Buyer in
writing within 30 days after receipt of the Final Adjustments Report, specifying
in reasonable detail the nature and extent of such disagreement and Buyer and
Vendell shall have a period of 30 days from Buyer's receipt of such notice in
which to resolve such disagreement. If such notice of objection is not received
by Buyer within 30 days after receipt of the Final Adjustments Report, it shall
be deemed that Seller has accepted the Final Adjustments Report with respect to
all items set forth therein and within three Business Days after the expiration
of such 30 day period Buyer or Seller, as appropriate, shall make the payments
described in Section 3.3(c). Any disputed amounts which cannot be agreed to by
the parties within 30 days from Buyer's receipt of Vendell's notice of objection
to any of the adjustments set forth in the Final Adjustments Report shall be
determined by the Chicago office of the accounting firm of Arthur Andersen LLP.
The engagement of and the determination by Arthur Andersen LLP (or any other
accounting firm designated by Arthur Andersen LLP as set forth below) shall be
completed within 60 days after such assignment is given to Arthur Andersen LLP
and shall be binding on and shall be nonappealable by Seller and Buyer. If for
any reason Arthur Andersen LLP is unable to act in such capacity, such
determination will be made by any other nationally recognized accounting firm
selected by the Chicago office of Arthur Andersen LLP. The fees and expenses
payable to Arthur Andersen LLP (or any other accounting firm designated by
Arthur Andersen LLP) in connection with such determination will be borne 50% by
Seller and 50% by Buyer, unless (i) the determination of Arthur Andersen LLP (or
any other accounting firm designated by Arthur Anderson LLP) with respect to the
disputed amounts results in a payment by Seller in an amount which exceeds by
more than $100,000 the amount Seller shall have claimed it owes hereunder in
which case the fees and expenses payable to Arthur Andersen LLP (or any other
accounting firm designated by Arthur Andersen LLP) shall be paid by Seller, or
(ii) the determination of Arthur Andersen LLP (or any other accounting firm
designated by Arthur Anderson LLP) with respect to the disputed amounts results
in a payment by Buyer in an amount which exceeds by more than $100,000 the
amount
18
<PAGE> 27
Buyer shall have claimed it owed hereunder, in which case the fees and expenses
payable to Arthur Andersen LLP (or any other accounting firm designated by
Arthur Andersen LLP) shall be paid by Buyer.
3.4. Stock Purchase Price. The aggregate number of shares of CCS Common
Stock issuable to Vendell for distribution to the Holders of Allowed Class 3
Claims (which include the Noteholders), pursuant to Section 3.1(b) shall equal
that number of whole shares of CCS Common Stock equal to the quotient of (a)
$8,000,000, subject to adjustment as set forth in Section 3.7, divided by (b)
the average of the closing sales prices of CCS Common Stock as reported on The
Nasdaq Stock Market ("Nasdaq") for the 45 trading days ending on the date that
is three Business Days prior to the Closing Date (the "Average Price");
provided, however, if the Average Price is less than $10.50 the calculation
shall be made as if the Average Price were $10.50 and if the Average Price is
greater than $17.00, the calculation shall be made as if the Average Price were
$17.00. Fractional shares, if any, resulting from the foregoing calculation and
the application of the allocations set forth in Section 3.1(b), will be
eliminated and no adjustment to the Purchase Price will be made with respect
thereto.
3.5. Allocations of Purchase Price.
(a) The Purchase Price will be allocated among the classes of assets
as set forth in Section 1060 of the Code and the regulations thereunder in the
manner agreed to by the parties prior to the Closing. After the Closing, Seller
will cooperate, at Buyer's expense, with Buyer in the preparation, execution,
and filing with the IRS of all information returns and supplements thereto
required to be filed by the parties under Section 1060 of the Code relating to
the allocation of such consideration, and Seller and Buyer agree to file Form
8594 (or any substitute therefor) when required by applicable law.
(b) Consistent with the provisions of (a) above, Vendell shall, prior
to Closing, in good faith and in accordance with its Books and Records, allocate
the Purchase Price among Vendell and each of the Vendell Subsidiaries (including
Rivendell-Michigan and Rivendell-Montana) in a manner that shall enable Vendell
and the Vendell Subsidiaries (other than Rivendell-Michigan and
Rivendell-Montana) to meet their obligations under Section 7.20. Such allocation
will be set forth on a Schedule 3.5(b) to be delivered by Seller to Buyer at
least three Business Days prior to Closing or at such earlier date as the
allocation may be needed for approval of the Sale Motion by the Bankruptcy
Court.
3.6. Assumption of Liabilities.
(a) On the Closing Date, Buyer will assume and agree to discharge the
following liabilities and obligations of Seller (the "Assumed Liabilities"):
19
<PAGE> 28
(i) the Lease obligations arising on or after the Closing Date
(specifically excluding any obligations necessary to cure defaults existing as
of the date of the filing of the petition with the Bankruptcy Court) arising
under the Lease Documents and Tenant Leases described on Schedule 2.1(c);
(ii) the obligations arising on or after the Closing Date
(specifically excluding any obligations necessary to cure defaults existing as
of the date of the filing of the petition with the Bankruptcy Court, any
obligations under Medicare, Medicaid, CHAMPUS, FEHBA, and RRRB provider
agreements or provider numbers and any Contracts described as an Excluded Asset)
arising under the Contracts listed on Schedule 2.1(d) and under all other
Contracts entered into in the ordinary course of business and consistent with
past practice which involve an aggregate amount payable of $50,000 or less or
which terminate or can be canceled by Buyer within one year from the Closing
Date without penalty; and
(iii) Current Liabilities, to the extent included in or reserved
against in the Final Adjustment Report pursuant to Section 3.3 hereof.
(b) Buyer will not assume, and will not be liable for, any Liabilities
of Seller other than the Assumed Liabilities. Without limiting the generality of
the foregoing, Buyer will not assume (i) any Liabilities due to third party
payors, including without limitation, private insurers, private pay patients,
governmental payors including Medicare, Medicaid, CHAMPUS, FEHBA, RRRB or other
third party payors, including cost report reimbursements and settlements,
repayments, fines or other liabilities or obligations, to the extent such
Liabilities relate to the period prior to the Closing Date; (ii) any Liabilities
with respect to curing defaults under any assumed Contracts or Lease Documents
pursuant to 11 U.S.C. ss. 365; (iii) any Liabilities resulting from the
rejection of any Contracts or Lease Documents pursuant to 11 U.S.C. ss. 365;
(iv) any Liabilities of Seller to the Noteholders, pursuant to the Senior Notes
or otherwise, to the holders of Vendell Common Stock or other capital stock, or
to the holders of options to purchase Vendell Common Stock; (v) any Liabilities
under any Contracts pursuant to which the performance by Buyer or Seller
thereunder would be in violation of Law; (vi) any Liabilities associated with
the administration of the bankruptcy estate of Vendell; (vii) any Liabilities to
employees of Seller, whether pursuant to employee benefit plans, employment
contracts, bonus plans or otherwise except for accrued vacation pay, sick pay,
paid time off and unpaid health insurance claims to the extent included in the
Final Adjustment Report pursuant to Section 3.3 hereof; (viii) any Liabilities
associated with the closing or sale of one or more of the Marketed Hospitals or
associated with facilities closed prior to the date hereof; or (ix) any
Liabilities with respect to any Employee Benefit Plans. Buyer will accept no
assignment of any Medicare, Medicaid, CHAMPUS, FEHBA or RRRB provider agreements
or provider numbers. Liabilities described in this Section 3.6(b) are referred
to herein as the "Excluded Liabilities."
20
<PAGE> 29
3.7. Proceeds from Sale of Marketed Hospitals. Seller is authorized to
contact one or more Persons with respect to the sale of, or to close and shut
down the operations of, any one or more of the Marketed Hospitals; provided,
however, that Seller is not authorized to consummate the sale, assignment,
transfer, or closure of any of the Marketed Hospitals without the prior written
consent of CCS. Notwithstanding the foregoing, Seller is authorized to
consummate the sale of the Marketed Hospital located in Wichita Falls, Texas
without the prior consent of CCS if the net cash proceeds therefrom to Seller
are not less than $900,000. In the event that, prior to the Closing Date, Seller
sells, assigns, or otherwise transfers (by sale of assets, sale of stock,
merger, or otherwise) one or more of the Marketed Hospitals, the net cash
proceeds therefrom (after payment of expenses directly related to the sale) will
be applied, dollar for dollar, to reduce the Purchase Price payable at Closing,
pro rata, such that 60% of such proceeds will be applied to reduce the Cash
Purchase Price otherwise payable at Closing, and 40% of such proceeds will be
applied to reduce the aggregate dollar amount of shares of CCS Common Stock
issuable at Closing.
3.8. Assets and Assumed Liabilities of Rivendell-Michigan and
Rivendell-Montana. Seller will deliver to Buyer, on or before March 21, 1997, a
list of the Assets and Assumed Liabilities of Rivendell-Michigan and
Rivendell-Montana being assigned by Seller to Buyer pursuant to this Agreement.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF VENDELL AND VENDELL SUBSIDIARIES
Vendell and the Vendell Subsidiaries hereby represent and warrant to CCS
and the CCS Subsidiaries as follows (provided, however, that Vendell and the
Vendell Subsidiaries make no representation as to the hospital which was located
in Seward, Nebraska):
4.1. Organization, Standing, and Foreign Qualification. Each of Vendell and
the Vendell Subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of its state of incorporation and has the power
and authority to carry on the Business in the places as it has been and is now
being conducted and to own and lease the Assets. Each of Vendell and the Vendell
Subsidiaries is duly qualified and licensed to transact the Business and is in
good standing as a foreign corporation in all jurisdictions in which the conduct
of the Business and the ownership or leasing of the Assets makes such
qualification and licensing necessary, except to the extent such failure to
qualify would not have a Material Adverse effect on the Business of such Seller.
Copies of (i) the articles or certificate of incorporation and all amendments
thereto, (ii) the bylaws, as amended, and (iii) the corporate minutes of each of
Vendell and the Vendell Subsidiaries, all of which have been made available to
CCS for review, are true and complete and in effect on the date of this
Agreement, and accurately reflect all material proceedings of the Stockholders
and Board of Directors and all committees thereof of each of Vendell and the
Vendell Subsidiaries.
21
<PAGE> 30
4.2. Power and Authority. The execution, delivery, and performance of this
Agreement has been or, as of the Closing with respect to stockholder action,
will be duly authorized by all necessary corporate action, including all
necessary Stockholder and Noteholder action, of the Seller and all necessary
action of the Bankruptcy Court. This Agreement constitutes, and all agreements
and other instruments and documents to be executed and delivered by Seller
pursuant to this Agreement will constitute, legal, valid, and binding
obligations of Seller enforceable against Seller in accordance with their
respective terms. The execution, delivery, and performance of this Agreement and
the agreements and other documents and instruments to be executed and delivered
by Seller pursuant to this Agreement and the consummation of the transactions
contemplated hereby and thereby will not, subject to receiving required
regulatory approvals and obtaining the consents identified on Schedules 4.2 and
4.14(a), (i) violate or result in a breach of or default under the articles or
certificate of incorporation or bylaws of Vendell or any Vendell Subsidiary or
other material instrument or agreement (not including the indenture with respect
to the Senior Notes) to which Vendell or any Vendell Subsidiary is a party or is
bound; (ii) violate any Law, administrative decision or award of any court,
arbitrator, mediator, tribunal, administrative agency or governmental body
applicable to or binding upon Seller or the Business; (iii) conflict with or
constitute a default under any Lease Document or Contract listed on Schedule
2.1(d) to which Vendell or any Vendell Subsidiary is a party or by which Vendell
or any Vendell Subsidiary is bound; or (iv) create a Lien upon the property or
business of Vendell or any Vendell Subsidiary, which if not removed would have a
Material Adverse effect.
4.3. Vendell Financial Statements. Schedule 4.3 contains true and correct
copies of (i) the audited consolidated balance sheets of Vendell as of June 30,
1994, 1995 and 1996 (the June 30, 1996 audited consolidated balance sheet shall
herein be referred to as the "June 30, 1996 Balance Sheet") and the unaudited
consolidated balance sheets of Vendell as of December 31, 1996; (ii) the audited
consolidated statements of income and audited consolidated statements of cash
flows for the years ended June 30, 1994, 1995 and 1996 and the unaudited
consolidated statements of income and unaudited consolidated statements of cash
flows for the six months ended December 31, 1996, together with the notes
thereto (collectively, the "Vendell Financial Statements"). The Vendell
Financial Statements (i) are in accordance with the Books and Records of Vendell
and the Vendell Subsidiaries, which books and records have been maintained in
accordance with prior practices of Seller; and (ii) reflect adequate reserves
for all known material Liabilities and reasonably anticipated losses required to
be recorded under GAAP. The balance sheets included in the Vendell Financial
Statements present fairly the financial condition of Seller as of the respective
dates thereof, and the consolidated statements of income and consolidated
statements of cash flows included therein present fairly the results of
operations for the periods indicated, in each case in conformity with GAAP
subject, in the case of interim financial statements, to normal recurring
year-end adjustments (the effect of which will not, individually or in the
aggregate, be materially adverse) and the absence of notes (that, if presented,
would not differ materially from those included in the balance sheets included
in the Vendell Financial Statements).
22
<PAGE> 31
4.4. Absence of Undisclosed Liability. Except as disclosed on Schedule 4.4,
as of the date hereof neither Vendell nor any of the Vendell Subsidiaries has,
and at the Closing Date neither will have, any undisclosed Liabilities known to
Seller in excess of $100,000 in the aggregate, except Current Liabilities
incurred in the ordinary course of business.
4.5. Absence of Changes. Except as disclosed on Schedule 4.5 and in the
Disclosure Statement and except for changes relating to the closure of the Fort
Walton, Florida facility, since June 30, 1996, there has not been any material
transaction or material occurrence (or, in the case of subparagraphs (i) and (n)
below, any transaction or occurrence) in which Vendell or any Vendell Subsidiary
has:
(a) suffered any Material Adverse change in the financial condition,
Assets, Liabilities, working capital reserves, income or Business of Seller or
the Hospitals;
(b) incurred or knowingly become subject to any material Liability
other than in the ordinary course of business and consistent with past practice;
(c) discharged or satisfied any material Lien or paid any material
Liability other than (i) Current Liabilities shown on the balance sheet as of
June 30, 1996 included in the Financial Statements, or (ii) Current Liabilities
incurred since that date in the ordinary course of business;
(d) mortgaged, pledged, or subjected any of the Assets, tangible or
intangible, to any Lien, except for any Permitted Liens or Permitted
Encumbrances;
(e) sold, assigned, or transferred any tangible Assets, or canceled
any debts or claims, except, in each case, in the ordinary course of business
and consistent with past practice;
(f) suffered any material damage, destruction, or loss, whether or not
covered by insurance, which Materially Adversely affected the properties or
business thereof, or suffered any extraordinary losses or waived any rights of
substantial value, whether or not in the ordinary course of business;
(g) terminated or amended any material Contract, License, or other
instrument to which it is a party or suffered any loss or termination or
threatened loss or termination of any existing business arrangement or material
supplier, the termination or loss of which would have a Material Adverse effect
on any such entity;
(h) through negotiation or otherwise, made any commitment or incurred
any Liability, whether or not enforceable, to any labor organization;
23
<PAGE> 32
(i) except for normal annual bonuses to persons other than officers of
Seller, made any accrual or arrangement for or payment of any bonus or special
compensation of any kind to any officer, director, employee or agent;
(j) changed any accounting, pricing, actuarial, financial reporting
or Tax practice or policy, or any assumption underlying such a practice or
policy, or any method of calculating any bad debt, contingency or other reserve
for financial reporting, Tax or other accounting purposes, except as required
by law or GAAP;
(k) offered or extended more favorable prices, discounts or other
allowances except in the ordinary course of business and consistent with past
practice;
(l) made or approved the making of any capital expenditure exceeding
the amount of $25,000 in any instance;
(m) made any provisions for write-downs or decrease in the value of
inventories or fixed assets, other than in the ordinary course of business and
consistent with past practice;
(n) become aware or been notified of any circumstances that would
indicate that Vendell or any Vendell Subsidiary has incurred any obligations or
liabilities to any governmental or third party reimbursement program, including,
without limitation, Medicare and Medicaid, materially in excess of the amounts
indicated as contractual allowances or otherwise in the Vendell Financial
Statements; or
(o) entered into any agreement or Contract to do any of the foregoing.
4.6. Indebtedness. Schedule 4.6 lists all Indebtedness of Vendell and the
Vendell Subsidiaries, setting forth the principal amounts outstanding as of
January 31, 1997, per annum interest rates, and maturity dates for all such
Indebtedness. All of the Indebtedness of Vendell and the Vendell Subsidiaries as
of June 30, 1996 is accurately reflected in the June 30, 1996 Balance Sheet,
and, except with regard to the Senior Notes, neither Vendell nor any Vendell
Subsidiary is in breach or default under any of the terms or conditions set
forth in the loan documents or any other document or instrument related thereto.
Except as disclosed on Schedule 4.6, all of the Indebtedness of Vendell and the
Vendell Subsidiaries is prepayable at any time without penalty or premium at the
option of the obligor. Except as disclosed on Schedule 4.6, the transactions
contemplated in this Agreement will not result in any penalty or incurrence of
any additional obligation or change of any terms with respect to any
Indebtedness which would have a Material Adverse effect on the Business.
24
<PAGE> 33
4.7. Tax Matters. Seller has made available to CCS true and complete copies
of each of the federal, state and local Tax Returns filed by or on behalf of
Seller since January 1, 1992.
4.8. Real Property, Leasehold Interests and Tenant Leases. Schedules 2.1(a)
and 2.2(d) set forth the Real Property. Seller now owns, and at the Closing will
own, good, record and marketable, indefeasible fee simple or leasehold title to
the Real Property set forth on Schedule 2.1(a), all free and clear of all title
defects, deeds of trust, mortgages, liens, claims, charges, encumbrances,
leases, tenancies, licenses, security interests, covenants, agreements,
conditions, restrictions, reservations, judgments, rights of way, easements,
encroachments, rights of first refusal and other matters affecting title,
excepting, however, Permitted Liens and Permitted Encumbrances and such other
Liens as may exist (none of which liens or encumbrances materially interferes
with the use or impairs the value of the Real Property). In addition:
4.8.1 Except as disclosed on Schedule 4.8.1, to the knowledge of
Seller, all buildings, structures, and improvements which are located on or a
part of the Real Property are in good operating condition and repair and are
structurally sound, there are no deferred maintenance items in excess of $25,000
per item, and none of such buildings, structures or improvements are in need of
any maintenance, repair or replacements, except for ordinary routine periodic
maintenance of the kind usually required from time to time at similar hospital
facilities which have been maintained in accordance with prevailing industry
standards;
4.8.2 Seller has not received written notice of a violation of any
applicable ordinance or other law, order, regulation or requirement or any
covenant, condition, restriction or easement affecting the Real Property or the
use or occupancy thereof, which has not been complied with or remedied, and has
not received written notice of any condemnation, lien, assessment or the like,
relating to any part of the Real Property or the operation thereof, in each case
which would have a Material Adverse effect on the Real Property, except for
Permitted Encumbrances or Permitted Liens and such other Liens as may exist
(none of which liens or encumbrances materially interferes with the use or
impairs the value of the Real Property);
4.8.3 Except as disclosed on Schedule 4.8.3, to Seller's knowledge
the Real Property and all of Seller's operations thereon and therein are in
compliance with all applicable zoning ordinances, local building codes and
ordinances; Seller has received no written notice that the Real Property is in
violation of local building codes, ordinances or zoning laws, which violation or
noncompliance would have any Material Adverse effect on the Real Property; and
to Seller's knowledge, the consummation of the transactions contemplated herein
will not result in a violation of any applicable zoning ordinance or the
termination of any applicable zoning variance now existing;
4.8.4 Except for the Tenant Leases and the Lease Documents and as
disclosed on Schedule 4.8.4, there are no leases affecting all or any part of
the Real Property and there are no
25
<PAGE> 34
material promises, understandings, agreements or commitments, either written or
oral, between Seller and any tenant or other occupant of the Real Property; the
Tenant Leases constitute all of the leases, amendments, agreements or other
material correspondence relating to the lease or occupancy of the Real Property
and are true, correct and complete in all material respects, and there are no
tenants or other persons or entities occupying any space in the Real Property,
other than pursuant to the Tenant Leases.
4.8.5 As of the date of this Agreement, to the best of Seller's
knowledge, no proceedings are presently pending, nor, to the best of Seller's
knowledge, are threatened, for the taking by exercise of the power of eminent
domain, or in any other manner, for public or quasi-public purpose, of all or
any part of the Real Property.
4.8.6 To the best of Seller's knowledge there is no plan, study, or
effort by any governmental authority or any non-governmental person or agency
which would Materially Adversely affect the current or planned use of any of the
Real Property.
4.8.7 To the best of Seller's knowledge, there is no existing,
proposed or contemplated plan to modify or realign any street or highway or any
existing, proposed or contemplated eminent domain proceeding that would result
in the taking of all or any part of the Real Property or that would Materially
Adversely affect the current or any planned use of any part of the Real
Property.
4.8.8 Neither Seller nor the Real Property is subject to any
commitment, obligation or agreement including, but not limited to, any right of
first refusal or option to purchase granted to a third party, which would
prevent Seller from completing or impair Seller's ability to complete the
transfer or conveyance of the Real Property to CCS or the consummation of the
transactions as contemplated by this Agreement or which would bind CCS
subsequent to the completion of the transactions.
4.8.9 With respect to the Lease Documents set forth on Schedule
2.1(c), Seller hereby represents, warrants and agrees to and with CCS and each
of the CCS Subsidiaries as follows:
(a) the Lease Documents are unmodified and in full force and effect,
and there are no other agreements, written or oral, between Seller and any third
parties claiming an interest in Seller's interest in the Leased Property or
otherwise relating to Seller's use and occupancy thereof, which would have a
Material Adverse effect on the Seller's use of the Leased Property;
(b) Seller has not received written notice that it is in default under
the Lease Documents;
26
<PAGE> 35
(c) to Seller's knowledge, no landlord named in any of the Lease
Documents is in default thereunder, and no defaults (whether or not subsequently
cured) by such landlord have been alleged thereunder; and
(d) Schedule 2.1(c) sets forth any and all advances, deposits and
prepayments made under the Lease Documents as of December 31, 1996.
4.9. Personal Property. True and correct copies of all leases for personal
property (except miscellaneous leases of office machinery, medical equipment, or
any leases having future minimum annual lease payments of less than $25,000)
used or employed by Vendell or any of the Vendell Subsidiaries have been
provided or made available to CCS.
4.10. Intellectual Property.
(a) Schedules 2.1(k) and 2.2(d) contains a true and complete list of
all Intellectual Property owned by, registered in the name of, or used by Seller
in the Business on the date hereof, or for which application has been made.
Either Vendell or one of the Vendell Subsidiaries owns or is a valid licensee of
all Intellectual Property rights listed on Schedule 2.1(k). Seller has not
received written notice that (i) any other entity claims the right to use the
Intellectual Property listed on Schedule 2.1(k); (ii) any other entity asserts
ownership rights in the Intellectual Property listed on Schedule 2.1(k); (iii)
Seller's use of the Intellectual Property listed on Schedule 2.1(k) may infringe
any rights of any third party; or (iv) any third party is infringing any of
Seller's rights in the Intellectual Property listed on Schedule 2.1(k).
(b) Except as described on Schedule 2.2(d), to the knowledge of
Vendell, no officer, director or employee of Vendell or any of the Vendell
Subsidiaries has entered into any Contract which requires such officer, director
or employee to assign any interest in any Intellectual Property or keep
confidential any trade secrets, proprietary data, patient lists or other
business information of Vendell or the Vendell Subsidiaries or which restricts
or prohibits such officer, director or employee from engaging in activities
competitive with Vendell or the Vendell Subsidiaries.
4.11. Receivables. The Receivables (including the Right to Government
Proceeds) as reflected in the June 30, 1996 Balance Sheet (net of reserves
reflected in such balance sheet) and the Receivables (including the Right to
Government Proceeds) arising in the ordinary course of business since the date
thereof, to the extent uncollected on the date hereof, and the Receivables from
Affiliates reflected on the books of Vendell and the Vendell Subsidiaries on the
date hereof, are validly existing and represent monies due for goods sold and
delivered or services performed. To Seller's knowledge, except as set forth on
Schedule 4.11, there are no refunds, discounts, or other adjustments payable
with respect to such Receivables (including the Right to Government
27
<PAGE> 36
Proceeds), and there are no defenses, written notices of set-off, assignments,
restrictions, encumbrances, or conditions enforceable by third parties on or
affecting any of the foregoing.
4.12. Inventories. Inventory taken as a whole reflected on the December 31,
1996 unaudited consolidated balance sheet contained in the Vendell Financial
Statements consisted, and all such items on hand on the date of this Agreement
consist, and at the Closing Date will consist, of items of a quality and
quantity usable and saleable in the ordinary course of business.
4.13. Insurance. A complete and accurate list of all insurance policies
held by Seller and now in force (including, without limitation, property damage,
public liability, medical malpractice liability, worker's compensation, fidelity
bonds, errors and omissions, theft, forgery and other coverage), as well as true
and correct copies of all such policies, is attached as Schedule 4.13. All such
policies are in full force and effect, and the premiums due thereon have been
timely paid. Seller is not, to its knowledge, in default regarding the
provisions of any such policy and has not failed to give any notice or present
any material claim thereunder in due and timely fashion.
4.14. Compliance with Laws.
(a) Except as set forth on Schedule 4.14(a), since January 1, 1995,
Seller has, to its knowledge, complied with all Laws applicable to it or the
Business, the violation of which would have a Material Adverse effect on any
Hospital, the Business or the Assets, and has obtained all Licenses of any
Governmental or Regulatory Authority material to the ownership, maintenance and
operation of its premises and facilities including, without limitation, the
right to receive Medicare and Medicaid reimbursements; and, to Seller's
knowledge, there is no pending threat of cancellation, modification or
nonrenewal of any such License nor any basis for such cancellation, modification
or nonrenewal which would have a Material Adverse effect on any Hospital or the
Business. All such Licenses have been made available to CCS for its review.
Seller is not, to its knowledge, presently in violation or default of any such
License, and the present uses of the Assets do not violate any Law where such
violation or default would have a Material Adverse effect on the consolidated
financial position or operations of Seller. Except as set forth on Schedule
4.14(a), since January 1, 1995, no written notice or warning from any
Governmental or Regulatory Authority with respect to any failure or alleged
failure of Seller to comply with any Law, which failure to comply would have a
Material Adverse effect on Seller, has been issued or given, nor, to Seller's
knowledge, is any such notice or warning proposed or threatened. Except as set
forth on Schedules 4.14(a) and 4.2, no consent or approval of, prior filing with
or notice to, or other action by, any Governmental or Regulatory Authority is
required in connection with the execution and delivery of this Agreement or any
assignment, agreement or other instrument to be executed and delivered pursuant
to this Agreement by Seller or the consummation of the transactions provided for
herein or therein except for such consents and approvals that have been obtained
and filings, notices and other actions that have been taken or made.
28
<PAGE> 37
(b) To the knowledge of Seller, neither Vendell nor any of the
Vendell Subsidiaries nor any officer, director, employee, agent or other
representative thereof acting or purporting to act on behalf of any such entity
or any business enterprise with which Seller has been associated or affiliated
has, directly or indirectly, made or authorized any payment, contribution or
gift of money, property or services, in violation of applicable law (i) as a
kickback or bribe to any person, or (ii) to any political organization or the
holder of, or any aspirant to, any elective or appointive office of any nation,
state, political subdivision thereof, or other governmental body or
instrumentality in violation of Law.
(c) Except as set forth on Schedule 4.14(c), to the knowledge of
Seller, neither Vendell nor any of the Vendell Subsidiaries nor any officer,
director, employee, agent or other representative thereof acting or purporting
to act on behalf of any such entity or any business enterprise with which Seller
has been associated or affiliated has, directly or indirectly, submitted or
caused to be submitted a false or fraudulent claim for payment to any state or
the federal government which is related to the Business.
(d) Except as set forth on Schedule 4.14(d), the rights of Vendell,
the Vendell Subsidiaries, and to Seller's knowledge, any licensed professional
or other individual affiliated with any such entity, to receive Medicare or
Medicaid reimbursements have not been terminated or otherwise adversely affected
as a result of any investigation or action by any federal or state governmental
regulatory authority. Except as set forth on Schedule 4.14(d), neither Vendell
nor any of the Vendell Subsidiaries nor, to Seller's knowledge, any licensed
professional or other individual affiliated therewith, has, during the past
three (3) years, been the subject of any inspection, known investigation,
survey, audit or known monitoring by any governmental regulatory entity, trade
association, professional review organization, accrediting organization or
certifying agency, which has resulted in an outstanding deficiency which would
have a Material Adverse effect on such entity, nor has any such entity received
any notice of deficiency in connection with the operation thereof which would
have a Material Adverse effect on such entity. Except as set forth on Schedule
4.14(d), copies of all material reports, correspondence, notices and other
documents relating to any such inspection, investigation, survey, audit,
monitoring or other form of review by a Governmental or Regulatory Authority to
which any of the foregoing has been subject and to which Seller has access have
been made available to CCS.
4.15. Environmental. Except as set forth on Schedule 4.15, to Seller's
knowledge,
(a) Vendell and each Vendell Subsidiary is currently in material
compliance with all Environmental Laws which compliance includes, but is not
limited to, the possession by Vendell of all permits and other governmental
authorization required under the Environmental Laws, and compliance in all
material respects with the terms and conditions thereof;
29
<PAGE> 38
(b) Neither Vendell nor any Vendell Subsidiary has stored, disposed of
or arranged for disposal of any Materials of Environmental Concern, except in
material compliance with the Environmental Laws;
(c) Since January 1, 1995, neither Vendell nor any Vendell Subsidiary
has received any communication, whether from a governmental authority, citizens
group, employee or otherwise, that alleges that either Vendell or any Vendell
Subsidiary is not in material compliance with the Environmental Laws or the
Medical Waste Laws, and there are no circumstances that may prevent or interfere
with material compliance in the future. There are no Environmental Claims
pending or threatened against either Vendell or any Vendell Subsidiary; and
(d) There have been no actions, activities, circumstances, conditions,
events or incidents, including, without limitation, the generation, handling,
transportation, treatment, storage, release, emission, discharge, presence or
disposal of any Materials of Environmental Concern, that could reasonably form
the basis of any Environmental Claims against either Vendell or any Vendell
Subsidiary which would have a Material Adverse effect on either Vendell or any
Vendell Subsidiary.
4.16. Litigation and Claims. There are no outstanding Orders to which
Seller is subject, and, except as disclosed on Schedule 4.16, there is no
litigation or investigation pending or, to the knowledge of Seller, threatened
against or relating to Seller or the Assets, and to Seller's knowledge, there is
no basis for any such action or any state of facts or occurrence of any event
which might give rise to the foregoing, in any case, which would have a Material
Adverse effect on Seller. Except as disclosed on Schedule 4.16, neither Vendell
nor any of the Vendell Subsidiaries has been advised by any attorney
representing any such entity that there are any "loss contingencies" (as defined
in Statement of Financing Accounting Standards No. 5 issued by the Financial
Accounting Standards Board ("FASB 5")), which would be required by FASB 5 to be
disclosed or accrued in the Vendell Financial Statements.
4.17. Contracts and Commitments.
(a) Schedule 2.1(d) and Schedule 2.2(d) set forth a complete list of
each written Contract to which Vendell or any of the Vendell Subsidiaries is a
party, which (i) involves the payment or receipt of payment by Seller of any
amount or an aggregate amount in excess of $50,000 and (ii) extends for more
than one year after the date hereof, other than the Senior Notes and items
excluded pursuant to Sections 2.2(g), (i), and (j), copies of which have been
made available to CCS for review (except as otherwise stated on Schedule
2.2(d)).
(b) Except as set forth on Schedule 2.1(d), each of the Contracts
listed on Schedule 2.1(d) is in full force and effect on the date hereof. No
Contract listed on Schedule
30
<PAGE> 39
2.1(d), management fee, or billings and collections fee is based on the previous
or expected volume of referrals, items or services finished or the amount of
business otherwise generated or expected to be generated by any Person that is a
party to a Contract listed on Schedule 2.1(d). Except as disclosed on Schedule
2.1(d), no default under any of the terms or conditions set forth in any of the
Contracts listed on Schedule 2.1(d), has, to Seller's knowledge, occurred or
been asserted in writing by any party. Except as described on Schedule 2.1(d),
the continuation, validity and effectiveness of such Contracts, and all other
material terms thereof, will not be affected by the transactions contemplated by
this Agreement.
4.18. Powers of Attorney. Except as disclosed on Schedule 4.18, neither
Vendell nor any of the Vendell Subsidiaries has given or granted any power of
attorney, whether limited or general, to any person, firm, corporation or
otherwise that is continuing in effect.
4.19. Benefit Plans.
(a) Schedule 4.19(a) lists all Benefit Plans. Neither Vendell nor any
of the Vendell Subsidiaries or any entity aggregated therewith under Code
Section 414(b) or 414(c) has had an "obligation to contribute" (as defined in
ERISA Section 4212) to a "multiemployer plan" (as defined in ERISA Sections 400
1(a)(3) and 3(37)(A)) ("Multiemployer Plan"). Neither Vendell nor any of the
Vendell Subsidiaries has incurred, nor is reasonably expected to incur prior to
the Closing Date, any liability under Title I or Title IV of ERISA or under Code
Section 412 other than routine funding obligations and routine claims for
benefits. Except as set forth on Schedule 4.19(a), all Liabilities arising out
of or related to Benefit Plans and ERISA Plans of Vendell and of its ERISA
Affiliates are reflected in the Financial Statements in accordance with GAAP.
(b) True, correct and complete copies of all written Benefit Plans,
as currently in effect (or as otherwise requested by CCS), listed on Schedule
4.19(a) and all trust agreements or other funding arrangements, including
insurance contracts, all amendments thereto and, where applicable, with respect
to any such plans or plan amendments, the most recent determination letters
issued by the IRS, the annual reports or returns, audited or unaudited financial
statements, actuarial valuations, and summary annual reports for the most recent
three plan years, the most recent summary plan descriptions and any material
modifications thereto have been provided or made available to CCS.
(c) Except as listed on Schedule 4.19(c), all the Benefit Plans and
the related trusts subject to ERISA comply with and have been administered in
material compliance with, the provisions of ERISA, all provisions of the Code
relating to qualification and tax exemption under Code Section 401(a) and 501(a)
or otherwise applicable to secure intended tax consequences, and all other
applicable laws, rules and regulations and collective bargaining agreements.
Except as listed on Schedule 4.19(c), all material governmental approvals for
the Benefit Plans have been
31
<PAGE> 40
obtained, timely determination letters have been obtained or sought on a timely
basis on the qualification of any ERISA Plans intended to qualify under Section
401(a) of the Code and on the tax exemption of related trusts, and no such
governmental approvals have been revoked. Neither Seller nor, to Seller's
knowledge, any administrator or fiduciary of any such Benefit Plan (or agent of
any of the foregoing) has engaged in any transaction or acted or failed to act
in any manner which could subject any such entity to any material liability (by
indemnity or otherwise) for a breach of any fiduciary, co-fiduciary or other
duty under ERISA. Except as set forth on Schedule 4.19(c), no oral or written
representation or communication with respect to any material aspect of the
Benefit Plans has been made to employees of Seller or any of its predecessors
prior to or on the Closing Date that is not in accordance with the written terms
and provisions of such Benefit Plans in effect immediately prior to the Closing
Date. To Seller's knowledge, there are no unresolved claims or disputes (other
than routine claims for benefits) under the terms of, or in connection with, the
Benefit Plans, and to Seller's knowledge, no action, legal or otherwise, has
been commenced with respect to any claim.
(d) To Seller's knowledge, all annual reports or returns, audited or
unaudited financial statements, actuarial valuations, summary annual reports and
summary plan descriptions issued with respect to the Benefit Plans are correct
and accurate in all material respects.
(e) To Seller's knowledge, since January 1, 1995, no "party in
interest" (as defined in Section 3(14) of ERISA) or "disqualified person" (as
defined in Section 4975(e)(2) of the Code) of any ERISA Plan has engaged in any
"prohibited transaction" (within the meaning of Section 4975(c) of the Code or
Section 406 of ERISA) that could have a Material Adverse effect on Seller.
(f) To Seller's knowledge, no Liability exists, and no event that
could result in a Liability has occurred, with respect to any Benefit Plan that
individually or in the aggregate could have a Material Adverse effect on Vendell
or any of the Vendell Subsidiaries.
(g) Except as set forth on Schedule 4.19(g), neither Vendell nor any
of the Vendell Subsidiaries has maintained, or currently maintains, a Benefit
Plan providing welfare benefits (as defined in ERISA Section 3(I)) to employees
after retirement or other separation of service except to the extent required
under Part 6 of Title I of ERISA and Code Section 4980B(f).
(h) Except as set forth on Schedule 4.19(h), the consummation of the
transactions contemplated by this Agreement will not entitle any current or
former employee of either Vendell or any of the Vendell Subsidiaries to
severance pay or any similar payment, and will not accelerate the time of
payment or vesting, or increase the amount, of compensation due any such
employee or former employee.
32
<PAGE> 41
(i) To Seller's knowledge, all Benefit Plans subject to Section 4980B
of the Code or Part 6 of Title I of ERISA, or both, have been maintained in
material compliance with the requirements of such laws and any regulations
(proposed or otherwise) issued thereunder.
4.20. Employees and Employee Relations. Schedule 4.20 sets forth a complete
list of names, positions, and current annual salaries or wage rates and bonus
and other compensation arrangements as of the date thereof of all full-time and
part-time employees of Seller employed in the Hospitals or any other portion of
the Business who receive annual compensation in excess of $50,000 and indicating
whether such employee is a part-time or full-time employee. There is no pending
or, to the best of Seller's knowledge, threatened employee strike, work stoppage
or labor dispute. Except as set forth on Schedule 4.20, (i) Seller is unaware of
any union representation activity involving any employees of Seller; (ii) no
collective bargaining agreement exists or is currently being negotiated by
Seller; (iii) no demand has been made for recognition by a labor organization by
or with respect to any employees of Seller; (iv) no union organizing activities
by or with respect to any employees of Seller are taking place; and (v) none of
the employees of Seller is represented by any labor union or organization. There
is no unfair practice claim against Seller before the National Labor Relations
Board. No strike, slowdown, or stoppage is pending or, to Seller's best
knowledge, threatened against or involving the Hospitals or any other portion of
the Business, and none has occurred. Seller is, to its knowledge, in compliance
in all material respects with all federal and state laws respecting employment
and employment practices, terms and conditions of employment, and wages and
hours. Vendell is not engaged in any unfair labor practices. Except as set forth
on Schedule 4.20, there are no pending or, to the best of Seller's knowledge,
threatened EEOC claims, wage and hour claims, unemployment compensation claims,
workers' compensation claims or the like against Seller, the Hospitals or any
other portion of the Business.
4.21. Vendell Public Documents. On or prior to March 31, 1996, Vendell
filed all reports, schedules, forms, statements, and other documents required to
be filed with the Securities and Exchange Commission pursuant to the federal
securities laws and the rules and regulations promulgated thereunder. As of
their respective dates, each of the Vendell Public Documents complied in all
material respects with the requirements of the Securities Act and Exchange Act
and the rules and regulations promulgated thereunder, and none of the Vendell
Public Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
4.22. Pending Transactions. Except with respect to the Marketed Hospitals,
except with respect to the Michigan development project and except as set forth
on Schedule 4.5, there are no (i) pending acquisitions or sales by Vendell or
the Vendell Subsidiaries which is subject to a written letter of intent or other
agreement in principle, (ii) pending behavioral hospital
33
<PAGE> 42
development projects; or (iii) pending private placements of any security of
Vendell or any of the Vendell Subsidiaries.
4.23. Brokers and Finders. No broker, agent, finder or consultant or other
person has been retained by or on behalf of Vendell (other than legal or
accounting advisors) or is entitled to be paid based upon any agreements or
understandings made by Vendell in connection with the transactions contemplated
hereby.
4.24. Statements True and Correct. To the best of Seller's knowledge, no
representation or warranty made herein (including any Schedule with respect to
such representation or warranty), in the Plan of Reorganization, or in the
Disclosure Statement, nor any statement or certificate furnished or to be
furnished pursuant to this Agreement, contains or will contain any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained therein not misleading.
4.25. Certain Limitations. Except as expressly set forth in this Agreement,
or in a document, exhibit, schedule or certificate attached hereto or
contemplated hereby, Seller is not making any representations or warranties
regarding itself, the Business, the Assets, the Assumed Liabilities, or any
other matter whatsoever, and Seller expressly disclaims any other
representations or warranties.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF CCS AND THE CCS SUBSIDIARIES
CCS and the CCS Subsidiaries hereby represent and warrant to Vendell and
the Vendell Subsidiaries as follows:
5.1. Organization, Standing, and Foreign Qualification. Each of CCS and the
CCS Subsidiaries is, or with respect to the CCS Subsidiaries will be on the
Closing Date, a corporation duly organized and validly existing and is in good
standing under the laws of the state of its incorporation and has all necessary
corporate power to own its properties and assets and to carry on its business as
presently conducted. Each of CCS and the CCS Subsidiaries is, or with respect to
the CCS Subsidiaries will be on the Closing Date, duly qualified and licensed to
transact business and is in good standing as a foreign corporation in all
jurisdictions in which the conduct of its business and the ownership or leasing
of assets or properties makes such qualification and licensing necessary. Copies
of (i) the articles or certificate of incorporation and all amendments thereto,
(ii) the bylaws, as amended, and (iii) the corporate minutes of each of CCS and
the CCS Subsidiaries, which have been made available to Vendell for review, are
true and complete and in effect on the date of this Agreement and accurately
reflect all proceedings of the shareholders and Board of Directors and all
committees thereof of each of CCS and the CCS Subsidiaries.
34
<PAGE> 43
5.2. Power and Authority. CCS has, and on the Closing Date each CCS
Subsidiary will have, corporate power to execute, deliver and perform this
Agreement and all agreements and other documents executed and delivered, or to
be executed and delivered, by it pursuant to this Agreement and, subject to the
satisfaction of the conditions precedent set forth herein, has taken all actions
required by law, its articles or certificate of incorporation, its bylaws or
otherwise, to authorize the execution and delivery of this Agreement and such
related documents. This Agreement constitutes, and all agreements and other
instruments and documents to be executed and delivered by Buyer pursuant to this
Agreement will constitute, legal, valid and binding obligations of Buyer
enforceable against Buyer in accordance with their respective terms. The
execution and delivery of this Agreement does not and, subject to the receipt of
required regulatory approvals and any other required third-party consents or
approvals, the consummation of the transactions contemplated hereby will not,
violate any provisions of the charter or articles or certificate of
incorporation or bylaws of either CCS or any CCS Subsidiary, or any provision
of, or result in the acceleration of any obligation under, any mortgage, lien,
lease, agreement, instrument, order, arbitration award, judgment or decree to
which either CCS or any CCS Subsidiary is a party or by which it is bound, or
violate any restrictions of any kind to which either CCS or any CCS Subsidiary
is subject.
5.3. Authorization of CCS Common Stock. The issuance and delivery by CCS of
shares of CCS Common Stock pursuant to this Agreement have been duly and validly
authorized by all necessary corporate action on the part of CCS. The shares of
CCS Common Stock to be issued in connection with this Agreement, when issued in
accordance with the terms of this Agreement, will be validly issued, fully paid,
and nonassessable.
5.4. Capitalization. The authorized capital stock of CCS consists of
10,000,000 shares of preferred stock, none of which is issued and outstanding,
and 50,000,000 shares of CCS Common Stock, of which 7,126,444 shares were issued
and outstanding as of January 31, 1997. CCS has no outstanding bonds,
debentures, notes, or other obligations the holders of which have the right to
vote (or which are convertible into or exercisable for securities having the
right to vote) with the stockholders of CCS on any matter. All issued and
outstanding shares of CCS Common Stock are duly authorized, validly issued,
fully paid, and nonassessable. Except as set forth on Schedule 5.4 and other
than pursuant to this Agreement, there are no options, warrants, calls,
subscriptions, convertible securities, or other rights, agreements, or
commitments that obligate CCS to issue, transfer, or sell any shares of capital
stock of CCS.
5.5. CCS Public Documents. Since January l, 1995, CCS has filed and,
through the Closing will file, all forms, reports, and documents required to be
filed with the Securities and Exchange Commission pursuant to the federal
securities laws and the rules and regulations promulgated thereunder. Prior to
the date hereof, CCS has delivered to Vendell copies of the CCS Public
Documents. As of their respective dates, the CCS Public Documents complied, and
all CCS Public Documents filed through the Closing will comply, in all material
respects with the
35
<PAGE> 44
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations promulgated thereunder. As of their respective dates,
the CCS Public Documents did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading. The consolidated balance sheets included in the
CCS Public Documents (including the related notes and schedules) fairly present,
in all material respects, the consolidated financial position of CCS as of their
respective dates and each of the consolidated statements of income,
stockholders' equity, and cash flows included in the CCS Public Documents
(including any related notes and schedules) fairly present, in all material
respects, the results of operations, stockholders' equity, and cash flows of CCS
for the periods set forth therein, in each case in accordance with GAAP, except
as may be noted therein.
5.6. Exemption from Registration. The shares of CCS Common Stock to be
distributed to Vendell, and subsequently to the Holders of Allowed Class 3
Claims (which includes the Noteholders) under this Agreement and pursuant to the
Plan of Reorganization will, assuming approval of the Plan of Reorganization by
the Bankruptcy Court, be issued in a transaction exempt from registration under
the Securities Act in accordance with 11 U.S.C. ss.1145, and will not require
registration under any state or local securities laws, and such distribution
will be deemed to be a public offering of such CCS Common Stock. Such shares of
CCS Common Stock can be resold by the holders thereof, without registration of
such shares under the Securities Act or under state or local securities laws, in
reliance upon Section 1145 of the Bankruptcy Code, provided that the recipient
of the securities is not an "underwriter" as that term is defined by Section
1145(b) and is not an "affiliate" (as such term is defined in the Securities
Act) or does not become an "affiliate" of CCS after the transaction. The
certificates representing the shares of CCS Common Stock will not bear any
restrictive legends.
5.7. No Material Adverse Change. Since the date of the CCS Latest Balance
Sheet, there has not been any material adverse change in the business,
operations, properties, assets or financial condition of CCS or its
subsidiaries.
5.8. Brokers and Finders. No broker, agent, finder, or consultant or other
person has been retained by or on behalf of CCS (other than legal or accounting
advisors) or is entitled to be paid based upon any agreements or understandings
made by CCS in connection with the transactions contemplated hereby, except that
J.C. Bradford & Co. has been retained by CCS, at CCS's expense.
5.9. Statements True and Correct. To the best of CCS's knowledge, no
representation or warranty made by CCS herein, nor any statement or certificate
furnished or to be furnished pursuant to this Agreement, contains or will
contain any untrue statement of material fact or omits or will omit to state a
material fact necessary to make the statements contained therein not misleading.
36
<PAGE> 45
5.10. Certain Limitations. Except as expressly set forth in this Agreement,
or in a document, exhibit, schedule or certificate attached hereto or
contemplated hereby, Buyer is not making any representation or warranty
regarding itself, the CCS Common Stock, or any other matter whatsoever, and
Buyer expressly disclaims any other representations or warranties.
ARTICLE 6. ACCESS TO INFORMATION AND DOCUMENTS
6.1. Access to Information. Between the date hereof and the Closing Date,
each of Vendell and CCS will give to the other party and its counsel,
accountants and other representatives full access to all the Assets and Books or
Records of such party and shall furnish the other party with copies of such
documents and with such information with respect to the affairs of such party as
the other party may from time to time reasonably request. In addition, Vendell
will permit CCS and its representatives to visit the Hospitals and discuss with
the employees and medical staffs of the Hospitals such matters as such
representatives deem appropriate. In addition, Vendell shall make available to
CCS all such banking, investment and financial information as shall be necessary
to allow for the efficient integration of Vendell's banking, investment, and
financial arrangements with those of CCS on the Closing Date.
6.2. Return of Records. If the transactions contemplated hereby are not
consummated and this Agreement terminates, each party agrees to promptly return
all documents, contracts, records or properties of the other party and all
copies thereof furnished pursuant to this Article 6 or otherwise. All
information disclosed by any party or any affiliate or such party shall be
deemed to be confidential information, unless and until such information becomes
public otherwise than through the act or omission of the other party. Each party
agrees that it will not cause any confidential information to be disclosed to
unauthorized persons and that it will not, without the prior written consent of
the affected person, disclose or make use of such confidential information
except in connection with the transactions contemplated by this Agreement or as
otherwise required by applicable law.
6.3. Effect of Access.
(a) Nothing contained in this Article 6 shall be deemed to create any
duty or responsibility on the part of either party to investigate or evaluate
the value, validity or enforceability of any contract, lease or other asset
included in the assets of the other party.
(b) With respect to matters to which any party has made express
representations or warranties herein, the parties shall be entitled to rely upon
such express representations and warranties irrespective of any investigations
made by such parties, except to the extent that such investigations result in
actual knowledge of the inaccuracy or falsehood of particular representations
and warranties.
37
<PAGE> 46
ARTICLE 7. COVENANTS
7.1. Conduct of Business. Prior to the Closing Date, except pursuant to an
order of the Bankruptcy Court or with the prior written consent of CCS, Seller
shall:
(a) conduct the Business in substantially the same manner as presently
being conducted, refrain from entering into any transaction or Contract other
than in the ordinary course of business and consistent with past practice, and
not make any material change in its methods of management, marketing,
accounting, or operations, except as required by Law or GAAP;
(b) consult with CCS prior to undertaking any new business opportunity
outside the ordinary course of business and inconsistent with past practice;
(c) confer on a regular and frequent basis with one or more designated
representatives of CCS to report material operational matters and to report the
general status of ongoing business operations;
(d) notify CCS of any unexpected change in the normal course of
business or in the operation of its properties, and of any governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated), adjudicatory proceedings, budget meetings or
submissions involving any material property;
(e) not enter into any new employment Contract with any employee whose
salary is more than $50,000 per annum or, except in the ordinary course of
business and consistent with past practice, any commitment to employees
(including any commitment to pay retirement or other benefits);
(f) not increase the compensation (including fringe benefits) payable
or to become payable to any officer, director, employee, agent or independent
contractor of the Seller, whose gross compensation is in excess of $50,000,
except general hourly rate increases and normal merit increases for employees
made in the ordinary course of business and consistent with past practice;
(g) except in the ordinary course of business and consistent with past
practice, not (i) create or incur any Indebtedness, (ii) enter into or terminate
any Lease Documents, or (iii) release or create any Liens of any nature
whatsoever, except the Permitted Liens;
(h) except in the ordinary course of business and consistent with past
practice, make or commit to make any nonbudgeted capital expenditure in excess
of $25,000, or enter into any lease of capital equipment as lessee or lessor;
38
<PAGE> 47
(i) except with respect to the Marketed Hospitals, not sell any Assets
or make any commitment to sell the Assets other than in the ordinary course of
business and consistent with past practice;
(j) not make any changes in its accounting methods or practices,
except for changes in its Tax accounting methods or practices that may be
necessitated by changes in applicable Tax Laws or changes in its financial
reporting practices necessitated by GAAP;
(k) not take any action, or omit to take any action, which would cause
the representations and warranties contained in Article 4 to be untrue or
incorrect in any material respect;
(l) not make any loan to any Person or increase the aggregate amount
of any loan currently outstanding to any Person other than in the ordinary
course of business and consistent with past practice; and
(m) not make any agreement or commitment which will result in or cause
to occur a violation of any of the items contained in paragraphs (a) through
(m).
7.2. Relationship with Employees, Suppliers, and Patients. At all times
prior to the consummation of the transactions contemplated by this Agreement,
Seller shall use its reasonable efforts consistent with past practice (without
making any commitments other than in the ordinary course of business and
consistent with past practice), to (i) preserve the Business intact, (ii) keep
available its present key officers and employees, (iii) preserve the present
relationships of each with its suppliers, physicians, advisers, patients, and
payors and others having business relationships therewith, and (iv) take all
steps reasonably necessary to maintain its intangible assets and Intellectual
Property.
7.3. Exclusive Dealings. Except with respect to the Marketed Hospitals, and
except to the extent of the procedures set forth in the Sale Motion regarding
notice and competitive bidding, to the extent such Sale Motion is approved by
the Bankruptcy Court, Vendell agrees that neither it nor any of the Vendell
Subsidiaries will, directly or indirectly, through any representative or
otherwise, solicit or entertain offers from, negotiate with, or in any manner
encourage, discuss, accept, or consider any proposal of any other person
relating to the acquisition of Vendell, a Vendell Subsidiary, or a Hospital, in
whole or in part, whether through a purchase of assets or stock, merger,
consolidation, or otherwise. Vendell agrees to immediately notify CCS of any
contact between Vendell, the Vendell Subsidiaries or any of their
representatives and any other person regarding any such offer or proposal or any
related inquiry, describing the identity of the party making the contact and all
terms of the proposal or offer.
39
<PAGE> 48
7.4. Filing of Bankruptcy Petition(s); Confirmation of Plan of
Reorganization. Within five Business Days of the date hereof, Vendell shall file
a bankruptcy petition under Chapter 11 of the Bankruptcy Code in the Bankruptcy
Court. At the time of such filing, Vendell shall file the Disclosure Statement,
Plan of Reorganization, and Sale Motion, substantially in the form of the
exhibits attached hereto, and use its commercially reasonable efforts to obtain
Bankruptcy Court approval of this Agreement, the Sale Motion and the Disclosure
Statement and confirmation of the Plan of Reorganization. Unless on or before
March 21, 1997, Rivendell-Michigan and Rivendell-Montana have entered into final
settlement agreements with the governmental third party payors in Michigan and
Montana, as applicable, which settlement agreements provide that Buyer will not
have any obligation with respect to Liabilities of Rivendell-Michigan and
Rivendell-Montana, as applicable, under the Medicare and Medicaid programs as
administered in those states arising or relating to the period prior to Closing
Date. Rivendell-Michigan and/or Rivendell-Montana, as the case may be, shall
commence Chapter 11 bankruptcy proceedings and file a Sale Motion, Plan of
Reorganization, and Disclosure Statement. To the extent there are conflicts or
inconsistencies between this Agreement on the one hand and the Disclosure
Statement, Plan of Reorganization, the Sale Motion or other bankruptcy motions,
pleadings or proceedings, on the other hand, the terms of this Agreement shall
govern as between Buyer and Seller. Without limiting the generality of the
foregoing,
(a) Vendell (and Rivendell-Montana and/or Rivendell-Michigan in the
event either files a Chapter 11 bankruptcy petition as provided above) shall
deliver to CCS copies of all documents filed with the Bankruptcy Court
simultaneously upon their filing;
(b) Vendell shall use its commercially reasonable efforts to obtain
expedited approval by the Bankruptcy Court of the provisions of Section 8.6(b)
of this Agreement within fifteen Business Days of the filing of the bankruptcy
petition;
(c) Vendell shall use its commercially reasonable efforts to obtain
expedited approval by the Bankruptcy Court of that portion of the Sale Motion
that provides that Vendell shall not accept a higher offer for the sale of the
Hospitals or the Business (whether by way of a sale of assets or stock, merger,
consolidation, or other similar transaction) unless the aggregate value of the
consideration to be received by Seller pursuant to such offer is at least
$750,000 greater than the aggregate Purchase Price (which shall include the
assumption of the Assumed Liabilities);
(d) Vendell (and Rivendell-Montana and/or Rivendell-Michigan in the
event either files a Chapter 11 bankruptcy petition as provided above) shall not
modify or amend the Plan of Reorganization in any material manner without the
prior written consent of CCS, which consent will not be unreasonably withheld;
(e) Vendell (and Rivendell-Montana and/or Rivendell-Michigan in the
event either files a Chapter 11 bankruptcy petition as provided above) shall to
the extent necessary or
40
<PAGE> 49
reasonably requested by CCS (notwithstanding confirmation of the Plan of
Reorganization by the Bankruptcy Court), use its or their commercially
reasonable efforts for a period not to exceed one year from the Closing Date to
obtain the waiver, consent, and approval of all Persons (including any lenders)
whose waiver, consent or approval (i) is required in order to consummate the
transactions contemplated by this Agreement, or (ii) is required by any Lease
Document, Contract, Order, or License to which either is a party or is subject.
7.5. CCS Efforts to Obtain Bankruptcy Court Approval. CCS shall assist
Vendell (and Rivendell-Montana and/or Rivendell-Michigan in the event either
files a Chapter 11 petition) as reasonably requested by Vendell, in obtaining
Bankruptcy Court approval of this Agreement, the Sale Motion, and the Disclosure
Statement and confirmation of the Plan of Reorganization.
7.6. Supplying of Financial Statements. As soon as reasonably practicable
after they become available, but in no event more than thirty days following the
end of each calendar month, Vendell shall deliver to CCS true and complete
copies of its consolidated unaudited monthly financial statements for each
calendar month ending subsequent to the date hereof in the format historically
utilized by it.
7.7. Issuance or Purchase of Securities. Between the date of this Agreement
and the Closing Date, Vendell shall not (i) issue any additional capital stock
or other security to any Person; (ii) declare, set aside or pay any dividend or
make any other distribution in respect of its capital stock; (iii) directly or
indirectly redeem, purchase or otherwise acquire any shares of its capital
stock; or (iv) issue to any Person options, warrants or other rights to acquire
any securities of Vendell.
7.8. Amendment to Certificate of Incorporation or Bylaws. Vendell shall not
amend its Certificate of Incorporation or Bylaws or those of the Vendell
Subsidiaries between the date of this Agreement and the Closing Date without the
prior written consent of CCS.
7.9. Meeting of Stockholders. Vendell will take all steps necessary in
accordance with its Certificate of Incorporation and Bylaws and applicable law
to call, give notice of, convene and hold a meeting of its Stockholders for the
purpose of approving this Agreement and for such other purposes as may be
necessary. Unless this Agreement shall have been validly terminated as provided
herein, the Board of Directors of Vendell will (i) recommend to its Stockholders
the approval of this Agreement and the transactions contemplated hereby and any
other matters to be submitted to the Stockholders in connection therewith, to
the extent that such approval is required by applicable law in order to
consummate the transactions contemplated hereby, and (ii) use its reasonable,
good faith efforts to obtain the approval by its Stockholders of this Agreement
and the transactions contemplated hereby. Nothing contained herein shall affect
the right of Vendell to take action by written consent in lieu of meeting to the
extent permitted by applicable law and its Certificate of Incorporation and
Bylaws.
41
<PAGE> 50
7.10. Exemption from State Takeover Laws. Seller shall use its reasonable
efforts to exempt Vendell from the requirements of any state takeover Laws which
would prevent or impede the consummation of the transactions contemplated
hereby, by action of Vendell's Board of Directors or otherwise.
7.11. Public Disclosures. CCS and Vendell will consult with each other
before issuing any press release or otherwise making any public statement with
respect to the transactions contemplated by this Agreement, and shall not issue
any such press release or make any such public statement prior to such
consultation, except as may be required by applicable law. The parties shall
issue a joint press release, mutually acceptable to CCS and Vendell, promptly
upon execution and delivery of this Agreement.
7.12. Notice of Subsequent Events. Each party hereto shall notify the other
parties of any changes, additions or events which would cause any material
change in or material addition to any Exhibit delivered by the notifying party
under this Agreement promptly after the occurrence of the same.
7.13. Other Actions. Between the date hereof and the Closing Date, neither
Vendell nor CCS shall take any action that would, or reasonably might be
expected to, result in any of its respective representations and warranties set
forth herein being or becoming untrue in any material respect, or in any of the
conditions set forth in this Agreement not being satisfied, or (unless such
action is required by applicable law) which would have a Material Adverse effect
on the ability of Vendell or CCS to obtain any consents or approvals required
for the consummation of the transactions contemplated hereby.
7.14. Cooperation.
(a) CCS and Vendell shall together, or pursuant to an allocation of
responsibility agreed to between them, (i) cooperate with one another in
determining whether any filings are required to be made or consents required to
be obtained in any jurisdiction prior to the Closing Date in connection with the
consummation of the transactions contemplated hereby and cooperate in making any
such filings promptly and in seeking to obtain timely any such consents, (ii)
use their respective reasonable efforts to cause to be lifted any injunction
prohibiting the transactions contemplated hereby, and (iii) furnish to one
another and to one another's counsel all such information as may be required to
effect the foregoing actions.
(b) Subject to the terms and conditions herein provided, and unless
this Agreement shall have been validly terminated as provided herein, each of
CCS and Vendell shall use all reasonable efforts (i) to take, or cause to be
taken, all actions necessary to comply promptly with all legal requirements
which may be imposed on such party (or any Subsidiaries or Affiliates of such
party) with respect to this Agreement and to consummate the transactions
42
<PAGE> 51
contemplated hereby, subject to the conditions herein, and (ii) to obtain (and
to cooperate with the other party to obtain) any consent, authorization, order
or approval of, or any exemption by, any governmental entity and/or any other
public or private third party which is required to be obtained or made by such
party or any of its subsidiaries or affiliates in connection with this Agreement
and the transactions contemplated hereby. Each of CCS and Vendell will promptly
cooperate with and furnish information to the other in connection with any such
burden suffered by, or requirement imposed upon, either of them or any of their
Subsidiaries or Affiliates in connection with the foregoing.
7.15. Title Matters. At the Closing, Vendell or one of the Vendell
Subsidiaries shall own (i) good, marketable and insurable fee simple title to
all of the Real Property, and (ii) good, marketable and insurable leasehold
title to the Leased Property. Evidence of such good, marketable and insurable
title shall be the issuance of one or more ALTA Owner's Policies of Title
Insurance (10-17-92) or ALTA Leasehold Owner's Policies (10-17-92), in an
aggregate amount equal to the portion of the Purchase Price allocated to the
Real Property (collectively, the "Title Policies") which Vendell shall deliver,
at CCS's sole cost and expense, to CCS at the Closing. The Title Policies (a)
will be issued by a title insurance company or companies satisfactory to CCS
(such company or companies hereinafter collectively called the "Title Company"),
(b) shall insure fee simple or leasehold (as applicable) title to the Real
Property, in CCS, subject only to Permitted Encumbrances, that do not materially
interfere with the use or impair the value of the Real Property, and such other
exceptions that do not materially interfere with the use or impair the value of
the Real Property, and (c) shall include such reinsurance pursuant to
reinsurance agreements with direct access to the reinsurors as CCS may
reasonably require. Such policies shall provide full coverage against mechanics'
or materialmen's liens arising out of any work, labor, materials or services
furnished or claimed to have been furnished to the Real Property or any part
thereof prior to the Closing, and shall contain endorsements insuring over all
other printed or standard general exceptions, a 3.1 zoning endorsement,
contiguity endorsements (if the Real Property consists of more than one adjacent
separately described parcel), affirmative coverage for specific existing access
and such other endorsements as specified herein or as CCS may reasonably require
to the extent available in the jurisdiction in which such Real Property is
located.
7.16. Opinions of Counsel. Buyer shall cause its counsel to render an
opinion as to the transactions contemplated hereby similar in form and substance
to Exhibit 7.16(A) attached hereto. Seller shall cause its counsel to render an
opinion as to the transactions contemplated hereby similar in form and substance
to Exhibit 7.16(B) attached hereto.
7.17. Survival of Representations and Warranties; Indemnification.
(a) The representations and warranties of the parties contained in
Articles 4 and 5 of this Agreement shall survive for a period of six months from
the effective date hereof,
43
<PAGE> 52
provided, however, that the representation in Section 5.6 hereof shall survive
for a period of two years from the effective date hereof.
(b) Vendell and each Vendell Subsidiary jointly and severally, in
accordance with the Escrow Agreement, agree to indemnify and hold harmless
Buyer, and each officer, director, employee, shareholder or other agent thereof
and their respective estates (each being a "Buyer Indemnified Party"), from and
against any and all claims, losses, damages, liabilities, and expenses
(including without limitation, settlement costs and any legal or other fees or
expenses for investigating or defending any actions or threatened actions)
reasonably incurred by such Buyer Indemnified Party in connection with each and
all of the following:
(i) any misrepresentation or breach of any warranty made by
Seller in this Agreement;
(ii) the nonfulfillment or breach of any covenant, agreement, or
obligation of Seller contained in or contemplated by this Agreement;
(iii) any misrepresentation or breach of any warranty contained
in any statement, certificate, or other document executed by Seller pursuant to
this Agreement or in connection with the transaction contemplated by this
Agreement;
(iv) any misrepresentation or breach of the warranties of Seller
made in Section 4.14 hereof, with such representations and warranties being
construed as if they were not qualified by the knowledge of Seller, to the
extent such misrepresentation or breach is based upon alleged breach of or
noncompliance with healthcare regulatory Laws and are alleged in a third party
claim, whether brought by a Governmental or Regulatory Authority or any other
Person; and
(v) any attempt (whether or not successful) by any person to
cause or require such Buyer Indemnified Party to pay or discharge any Liability
other than an Assumed Liability.
(c) CCS shall, indemnify, defend, and hold harmless, Vendell, each
Vendell Subsidiary and each officer, director, employee, shareholder, or other
agent thereof and their respective estates (each being a "Seller Indemnified
Party"), from and against any and all claims, losses, damages, liabilities, and
expenses (including, without limitation, settlement costs and any legal or other
fees or expenses for investigating or defending any actions or threatened
actions) reasonably incurred by such Seller Indemnified Party in connection with
each and all of the following:
44
<PAGE> 53
(i) any misrepresentation or breach of any warranty made by
Seller in this Agreement;
(ii) the nonfulfillment or breach of any covenant, agreement, or
obligation of Seller contained in or contemplated by this Agreement;
(iii) any misrepresentation or breach of any warranty contained
in any statement, certificate, or other document executed by Seller pursuant to
this Agreement or in connection with the transactions contemplated by this
Agreement; and
(iv) any attempt (whether or not successful) by any person to
cause or require such Seller Indemnified Party to pay or discharge any Assumed
Liabilities.
(d) Subject to the provisions of the Escrow Agreement, if in effect,
an indemnified party shall promptly notify the indemnifying party of any claim,
demand, action, or proceeding for which indemnification will be sought under
this Section 7.17 of this Agreement, and, if such claim, demand, action, or
proceeding is a third party claim, demand, action, or proceeding, the
indemnifying party will have the right at its expense to assume the defense
thereof using counsel reasonably acceptable to the indemnified party. The
indemnified party shall have the right to participate, at its own expense, with
respect to any such third party claim, demand, action, or proceeding. In
connection with any such third party claim, demand, action, or proceeding, Buyer
and Seller shall cooperate with each other and provide each other with access to
relevant books and records in their possession. No such third party claim,
demand, action, or proceeding shall be settled without the prior written consent
of the indemnified party. If a firm written offer is made to settle any such
third party claim, demand, action, or proceeding and the indemnifying party
proposes to accept such settlement, and the indemnified party refuses to consent
to such settlement, then: (i) the indemnifying party shall be excused from, and
the indemnified party shall be solely responsible for, all further defense of
such third party claim, demand, action, or proceeding; and (ii) the maximum
liability of the indemnifying party relating to such third party claim, demand,
action, or proceeding shall be the amount of the proposed settlement if the
amount thereafter recovered from the indemnified party on such third party
claim, demand, action, or proceeding is greater than the amount of the proposed
settlement.
(e) Until all Buyer Indemnified Parties have incurred losses
aggregating $100,000, no amounts shall be paid to the Buyer Indemnified Party
seeking indemnification from the Escrow Fund or otherwise. In the event such
losses exceed $100,000 in the aggregate, the Buyer Indemnified Parties shall be
entitled to payment from the Escrow Fund for all losses suffered which exceed
$100,000, but shall not be authorized to otherwise seek monetary recourse from
Vendell or the Vendell Subsidiaries. The aggregate monetary Damages of Vendell
and the Vendell Subsidiaries to Buyer hereunder shall not exceed $500,000.
45
<PAGE> 54
(f) Buyer shall assert all claims for indemnification pursuant to
Section 7.17(b), if at all, on or before the date which is six months from the
Closing Date. Seller shall assert all claims for indemnification pursuant to
Section 7.17(c), if at all, on or before the date which is six months from the
Closing Date, except for a claim based on the breach of the representations of
Section 5.6 hereof, which claim shall be asserted on or before the date which is
two years from the Closing Date.
7.18. Employees. At the Closing, CCS covenants that it will hire all
employees of Vendell and the Vendell Subsidiaries who are engaged in the
Business other than employees of the Marketed Hospitals that are closed or sold
prior to the Closing; provided, however, that such covenant shall not include
any obligation to retain such employees for any period of time or to compensate
such employees at any level. Buyer agrees to give credit to Vendell's employees
for past service rendered to Vendell for purposes of determining eligibility to
participate in Buyer's employee benefit plans. Vendell shall be responsible for
all payments to employees which accrue because of this transaction, including
severance payments or other similar payments. Notwithstanding anything herein to
the contrary, Buyer shall be responsible for accrued vacation, sick pay, paid
time off and unpaid health insurance claims to the extent included in the Final
Adjustment Report pursuant to Section 3.3 hereof.
7.19. Winding Up. Buyer acknowledges that it is the intention of Vendell
and the Vendell Subsidiaries to dissolve, wind-up, and terminate as soon after
the Closing Date as is practicable. As an accommodation to Vendell, without
charge to Vendell, Buyer agrees that Vendell and the Vendell Subsidiaries shall
be entitled to utilize the services of employees of Buyer to facilitate the
winding up and liquidation of Vendell and the Vendell Subsidiaries so long as
such utilization does not interfere in any material respect with the
responsibilities of such employees to CCS. After the Closing, Buyer and Seller
agree to provide each other with reasonable access to the other's Book and
Records as they relate to the Business during normal business hours and upon
reasonable notice. Vendell agrees that it shall engage the services of outside
firms to handle tax return preparations, accounting, cost reports, litigation
and disputes. Any reasonable out-of-pocket expenses incurred by Buyer or its
employees in connection with the winding up and liquidation of Vendell shall be
promptly reimbursed by Vendell. If at any time Buyer determines in its
reasonable discretion that the accommodation contemplated by this Section 7.19
interferes in any material respect with the responsibilities of employees to
Buyer or causes a material conflict of interest for Buyer, it shall be entitled
to cease such accommodation.
7.20. Reserves and Payment of Governmental Third Payor Claims. Vendell and
each of the Vendell Subsidiaries (other than Rivendell-Michigan and
Rivendell-Montana) covenant that they will satisfy, or make reasonable provision
for the satisfaction of, all Liabilities of the Vendell Subsidiaries (other than
Rivendell-Michigan and Rivendell-Montana) known to Seller as of the Closing
Date, other than the Assumed Liabilities and the Senior Notes, prior to the
disbursement of any portion of the Purchase Price by Vendell to the Holders of
Allowed Class 3 Claims (which
46
<PAGE> 55
include the Noteholders). Without limiting the generality of the preceding
sentence, on the Closing Date, Vendell shall cause each Vendell Subsidiary
(other than Rivendell - Michigan and Rivendell - Montana), and each Vendell
Subsidiary (other than Rivendell - Michigan and Rivendell - Montana) agrees, to
fund an escrow, to be maintained by an independent third party and to be in such
form as is reasonably and mutually agreeable to the Buyer and Seller, in cash in
an amount that equals or exceeds such Vendell Subsidiary's "due to government"
account reflected on its Books and Records as of the Closing Date. Such escrow
shall be maintained until the earlier of (a) payment in full of the "due to
government" account, or (b) settlement with the appropriate Governmental or
Regulatory Authority with respect to the "due to government" account, which
settlement shall provide that Buyer shall have no liability to such Governmental
or Regulatory Authority with regard to such "due to government" account.
7.21. Assignment of Contracts, Licenses, Rights, Etc. Anything in this
Agreement to the contrary notwithstanding, this Agreement shall not constitute
an agreement to assign any Contract, License, or any claim or any right or
benefit arising thereunder or resulting therefrom if an attempted assignment
thereof, without the consent or waiver of a third party thereto, would
constitute a breach or violation thereof. Seller shall use its commercially
reasonable efforts to obtain the consent or waiver of the other party to any of
the foregoing to the assignment thereof to Buyer in all cases in which such
consent or waiver is required for assignment or transfer. If such consent or
waiver is not obtained, Seller agrees to use its commercially reasonable efforts
to provide for Buyer the benefits thereunder.
ARTICLE 8. TERMINATION, AMENDMENT, AND WAIVER
8.1. Termination. This Agreement may be terminated at any time prior to the
Closing:
(a) by mutual written consent of CCS and Vendell;
(b) by either CCS or Vendell:
(i) if the Closing shall not have been consummated on or before
150 days from the date hereof, unless the failure to consummate the Closing is
the result of a willful and material breach of this Agreement by the party
seeking to terminate this Agreement; provided, however, that the passage of such
period shall be tolled for any part thereof (but not exceeding 60 days in the
aggregate) during which any party shall be subject to a non-final order, decree,
ruling, or action restraining, enjoining, or otherwise prohibiting the
consummation of the Closing or the calling or holding of a meeting of
Stockholders; or
(ii) if any court of competent jurisdiction or other governmental
entity shall have issued an order, decree or ruling or taken any other action
permanently enjoining,
47
<PAGE> 56
restraining or otherwise prohibiting the Closing and such order, decree, ruling
or other action shall have become final and non-appealable.
(c) by either CCS or Vendell in the event that (i) all of the
conditions to the obligations of such party to effect the transactions
contemplated hereby set forth in Section 9.1 shall have been satisfied and (ii)
any condition to the obligation of such party to effect the transactions
contemplated hereby set forth in Section 9.2 (in the case of CCS) or Section 9.3
(in the case of Vendell) is not capable of being satisfied prior to the end of
the period referred to in Section 8.1(b)(i);
(d) by either CCS or Vendell in the event of a Third Party Acquisition
Event; or
(e) by CCS in the event either (i) the $500,000 fee described in
Section 8.6(b) of this Agreement or (ii) the $750,000 minimum Purchase Price
increase referred to in Section 7.4(c) of this Agreement are not approved by the
Bankruptcy Court within 15 Business Days of the filing of the bankruptcy
petition provided that CCS must give Vendell notice of its election to terminate
this Agreement within three (3) Business Days of the Bankruptcy Court's
disapproval or failure to approve within such fifteen (15) Business Day period,
as the case may be, or CCS shall be deemed to have waived its right to terminate
under this Section 8.1(e) and the provisions of Section 8.6(d) shall apply.
8.2. Effect of Termination. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall forthwith become void and have
no effect, without any liability or obligation on the part of any party, other
than the provisions of Sections 6.2, this Section 8.2 and Section 8.6, and
except to the extent that such termination results from the breach by a party of
any of its representations, warranties, covenants, or other agreements set forth
in this Agreement.
8.3. Amendment. This Agreement may be amended by the parties at any time,
but only by an instrument in writing signed on behalf of each of the parties.
8.4. Extension; Waiver. At any time prior to the Closing, the parties may
(i) extend the time for the performance of any of the obligations or other acts
of the other parties, (ii) waive any inaccuracies in the representations and
warranties contained in this Agreement or in any document delivered pursuant to
this Agreement or (iii) subject to the provisions of Section 8.4, waive
compliance with any of the agreements or conditions contained in this Agreement.
Any agreement on the part of a party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of such rights,
except as otherwise provided in the Agreement.
48
<PAGE> 57
8.5. Procedure for Termination, Amendment, Extension, or Waiver. A
termination of this Agreement pursuant to Section 8.1, an amendment of this
Agreement pursuant to Section 8.3, or an extension or waiver pursuant to Section
8.4 shall, in order to be effective, require in the case of CCS or Vendell,
action by its respective Board of Directors or the duly authorized designee of
such Board of Directors.
8.6. Expenses; Break-up Fees.
(a) All costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expense and such costs of Seller shall not be Current Liabilities for any
purpose under this Agreement. Notwithstanding anything to the contrary herein,
costs and fees of Vendell and any Vendell Subsidiary related to the
administration of the bankruptcy proceeding shall not be an Assumed Liability or
Current Liability for any purpose of this Agreement.
(b) In the event this Agreement is terminated pursuant to Section
8.1(d), Seller shall pay to CCS a fee of $500,000 in immediately available
funds, which fee represents the parties' best estimates of the out-of-pocket
costs incurred by CCS and the value of management time, overhead, opportunity
costs, and other unallocated costs of CCS incurred by or on behalf of CCS in
connection with this Agreement. Seller shall not enter into any agreement with
respect to any Third Party Acquisition Event which does not, as a condition
precedent to the consummation of such Third Party Acquisition Event, require
such fee to be paid to CCS upon such consummation. Vendell shall use
commercially reasonable efforts to ensure that Payment of the fee provided by
this Section 8.6(b) shall be treated and paid as an administrative expense of
Vendell's bankruptcy estate or estates, whether in the Bankruptcy Court or in
any other United States Bankruptcy Court, by voluntary or involuntary petition,
or under Chapter 7 or Chapter 11 of the Bankruptcy Code.
(c) Each party acknowledges that the provisions for the payment of
fees and allocation of expenses contained in Section 8.6(b) are an integral part
of the transactions contemplated by this Agreement and that, without these
provisions, the other parties would not have entered into this Agreement.
Accordingly, if such fee shall become due and payable by any party, and such
party shall fail to pay such amount when due pursuant to this Section 8.6, and,
in order to obtain such payment, suit is commenced which results in a judgment
against such party therefor, such party shall pay the other party's reasonable
costs and expenses (including reasonable attorneys' fees) in connection with
such suit, together with interest computed on an any amounts determined to be
due pursuant to this Section (computed from the date upon which such amounts
were due and payable pursuant to this Section) and such costs (computed from the
date incurred) at the Prime Rate. The obligation of the parties under this
Section 8.6 shall survive any termination of this Agreement.
49
<PAGE> 58
(d) In the event that a Bankruptcy Court order or orders provide for
a fee different in amount (including no provision for any fee) than that
provided for in Section 8.6(b) or a minimum Purchase Price increase different
than the minimum Purchase Price increase referred to in Section 7.4(c), Sections
8.6(b) and 7.4(c) shall be automatically modified to reflect those modified
amounts, if any; provided, however, that such modification shall not affect
CCS's right to terminate this Agreement pursuant to Section 8.1(e) hereof.
ARTICLE 9. CONDITIONS TO CLOSING
9.1. Mutual Conditions. The respective obligations of each party to effect
the Closing shall be subject to the satisfaction, at or prior to the Closing
Date, of the following conditions (any of which may be waived in writing by CCS
and Vendell):
(a) none of CCS or Vendell nor any of their respective Subsidiaries
shall be subject to any Order by a court of competent jurisdiction which (i)
prevents or materially delays the consummation of the transactions contemplated
hereby or (ii) would impose any material limitation on the ability of CCS
effectively to exercise full rights of ownership of any material portion of the
Assets or Business of Seller;
(b) no Law shall have been enacted by any Governmental or Regulatory
Authority that makes the consummation of any transaction contemplated hereby
illegal; and
(c) Vendell (and Rivendell-Michigan, and/or Rivendell-Montana if
either files a Chapter 11 bankruptcy petition pursuant to Section 7.4 of this
Agreement) shall have obtained a final nonappealable order or orders from the
Bankruptcy Court confirming the Plan of Reorganization or approving the Sale
Motion, which order or orders approve all terms and conditions of this
Agreement, including, without limitation, the sale of the Assets, free and clear
of all Liens, except the Permitted Liens.
9.2. Conditions to Obligations of CCS. The obligations of CCS to be
discharged under this Agreement at the Closing shall be subject to the
satisfaction, at or prior to the Closing Date, of the following conditions (any
of which may be waived by CCS):
(a) Each of the agreements of Seller to be performed at or prior to
the Closing Date pursuant to the terms hereof shall have been duly performed in
all material respects, and Seller shall have performed, in all material
respects, all of the acts required to be performed by it at or prior to the
Closing Date by the terms hereof, unless such nonperformance (or such
nonperformance and all other instances of nonperformance under this Section
9.2(a) plus inaccuracies under Section 9.2(b)) results in a Material Adverse
change of $750,000 or less;
50
<PAGE> 59
(b) Each of the representations and warranties of Vendell and the
Vendell Subsidiaries set forth 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 Date, except to the extent that such representations and
warranties expressly relate to an earlier date (in which case such
representations and warranties shall be true and correct on and as of such
earlier date), or such inaccuracies (or such inaccuracy and all other
innaccuracies under this Section 9.2(b) plus all instances of nonperformance
under Section 9.2(a)) result in a Material Adverse change of $750,000 or less.
CCS and each of the CCS Subsidiaries shall have been furnished with a
certificate, executed by a duly authorized officer of Vendell, dated the Closing
Date, certifying in such detail as CCS may reasonably request as to the
fulfillment of the foregoing conditions;
(c) CCS shall have obtained, or obtained the transfer of, any Licenses
necessary to allow the CCS Subsidiaries to operate the Business (other than the
Marketed Hospitals), unless the failure to obtain such transfer or approval
would not have a Material Adverse effect on CCS;
(d) Assumption and assignment of all Leases, Contracts, and other
executory contracts that CCS desires to assume shall have been approved by the
Bankruptcy Court pursuant to the Sale Motion or the Plan of Reorganization,
pursuant to a final, non-appealable order of the Bankruptcy Court, unless CCS,
at its sole option, waives the requirement that any order approving this
transaction pursuant to 11 U.S.C. ss.363(b)(f) and (m) not be final (the option
of waiver of the finality requirement shall be for the sole benefit of CCS);
(e) Buyer shall not have become aware of any reason why it should not
reasonably expect to receive within a reasonable time after the Closing,
Medicare and Medicaid provider contracts (on terms substantially similar to
existing provider contracts) and numbers for each of the Hospitals transferred
to Buyer hereunder (except the facility in Utah), and Seller shall have assisted
Buyer, in Buyer's reasonable satisfaction, in preparing each Hospital to pass
any surveys or inspections required by such third party payor as a condition of
obtaining new provider agreements and provider numbers.
(f) Seller shall have made such arrangements to pay or provide payment
assurances to Florida Governmental or Regulatory Authorities as may be required
to cause the issuance of Florida licenses as contemplated by Fla. Stat.
ss.395.003;
(g) The Hospital operated as Rivendell of Utah shall be closed, with
all patients discharged;
(h) With respect to each Vendell Subsidiary, except Rivendell-Michigan
or Rivendell-Montana in the event that either files a Chapter 11 bankruptcy
petition pursuant to Section 7.4, Seller shall at its expense provide to Buyer
one of the following: (i) a certificate of the chief financial officer of
Vendell and of such Vendell Subsidiary certifying that, immediately
51
<PAGE> 60
prior to the Closing and again after the consummation of the transactions
contemplated hereby, (y) the book value of the assets of such Vendell Subsidiary
exceeds the book value of such Vendell Subsidiary's total liabilities (including
contingent liabilities), with such assets and liabilities being calculated in
accordance with GAAP, consistently applied, and (z) such Vendell Subsidiary is
in a condition to pay its debts as they mature and as they become due; or (ii) a
valuation of such Vendell Subsidiary's Assets and Assumed Liabilities by an
independent third party acceptable to Buyer that is an expert in the field of
valuations establishes the fair consideration to be received by such Vendell
Subsidiary in exchange for the Assets and Assumed Liabilities of such Vendell
Subsidiary and Seller certifies to Buyer that such fair consideration will be
paid to such Vendell Subsidiary and applied to the Liabilities of such Vendell
Subsidiary;
(i) Either (i) Rivendell-Michigan and Rivendell-Montana shall have
entered into final settlement agreements with the governmental third party
payors in Michigan or Montana that provide, or (ii) appropriate final order(s)
shall have been entered by the Bankruptcy Court approving the Sale Motion or the
Plan of Reorganization that provide, in either case, that Buyer will not have
any obligation for Liabilities of Rivendell-Montana or Rivendell-Michigan for
obligations under the Medicare and Medicaid programs as administered in those
states arising or relating to the period prior to Closing Date; and
(j) Seller shall have entered into a written settlement agreement with
Governmental or Regulatory Authorities with respect to Seller's Florida
operations, which agreement shall release all successors of Seller, including
Buyer, from any liability arising out of any matter which is within the scope of
the Governmental Authority's review of Seller's Florida operations and shall not
impose any material limitations on the ability of CCS or the CCS Subsidiaries to
provide services in Florida or elsewhere or to Persons receiving benefits from
any Governmental Authority, and a plea agreement shall have been negotiated and
signed covering all pending criminal charges against Seller in Florida.
9.3. Conditions to Obligations of Vendell. The obligations of Vendell to be
discharged under this Agreement at the Closing shall be subject to the
satisfaction, at or prior to the Closing Date, of the following conditions (any
of which may be waived by Vendell):
(a) Each of the agreements of Buyer to be performed at or prior to the
Closing Date pursuant to the terms hereof shall have been duly performed, in all
material respects, and Buyer shall have performed, in all material respects, all
of the acts required to be performed by it at or prior to the Closing Date by
the terms hereof; and
(b) The representations and warranties of each of CCS and the CCS
Subsidiaries set forth 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 Date except to the extent that such representations and warranties
expressly relate to an earlier date (in which case such
52
<PAGE> 61
representations and warranties shall be true and correct on and as of such
earlier date) or such inaccuracies result in a Material Adverse change of
$750,000 or less. Vendell shall have been furnished with a certificate, executed
by duly authorized officers of CCS and the CCS Subsidiaries, dated the Closing
Date, certifying in such detail as Vendell may reasonably request as to the
fulfillment of the foregoing conditions.
ARTICLE 10. MISCELLANEOUS
10.1. Notices. Any communications required or desired to be given hereunder
shall be deemed to have been properly given if sent by hand delivery or by
facsimile and overnight courier to the parties hereto at the following
addresses, or at such other address as either party may advise the other in
writing from time to time.
If to CCS:
Children's Comprehensive Services, Inc.
805 South Church Street
Murfreesboro, Tennessee 37103
Attention: Chief Executive Officer
Facsimile: 615/896-5068
With a copy to:
Leigh Walton, Esq.
Bass, Berry & Sims PLC
2700 First American Center
Nashville, Tennessee 37238-2700
Facsimile: 615/742-6298
If to Vendell:
Vendell Healthcare, Inc.
3401 West End Avenue, Suite 500
Nashville, Tennessee 37203-1070
Attention: Chief Executive Officer
Facsimile: 615/269-7525
53
<PAGE> 62
With a copy to:
David A. Bronner, Esq.
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Facsimile: 312/902-1061
All such communications shall be deemed to have been delivered on the date of
hand delivery or facsimile or on the next business day following the deposit of
such communications with an overnight courier.
10.2. Further Assurances. Each party hereby agrees to perform any further
acts, including providing reasonable access to such other party's Books and
Records and facilities and properties, and to execute and deliver any documents
which may be reasonably necessary to carry out the provisions of this Agreement.
10.3. Governing Law. This Agreement shall be interpreted, construed and
enforced in accordance with the laws of the State of Tennessee, applied without
giving effect to any conflicts-of-law principles.
10.4. Captions. The captions or headings in this Agreement are made for
convenience and general reference only and shall not be construed to describe,
define or limit the scope or intent of the provisions of this Agreement.
10.5. Integration of Exhibits. All Exhibits attached to this Agreement are
integral parts of this Agreement as if fully set forth herein, and all
statements appearing therein shall be deemed disclosed for all purposes and not
only in connection with the specific representation in which they are explicitly
referenced.
10.6. Entire Agreement. This instrument, including all Exhibits attached
hereto and that certain Confidentiality Agreement between the parties hereto,
contains the entire agreement of the parties and supersedes any and all prior or
contemporaneous agreements between the parties, written or oral, with respect to
the transactions contemplated hereby, including that certain Amended and
Restated Exclusivity Agreement. This Agreement may not be changed or terminated
orally, but may only be changed by an agreement in writing signed by the party
or parties against whom enforcement of any waiver, change, modification,
extension, discharge, or termination is sought.
54
<PAGE> 63
10.7. Counterparts. This Agreement may be executed in several counterparts,
each of which, when so executed, shall be deemed to be an original, and such
counterparts shall, together, constitute and be one and the same instrument.
10.8. Binding Effect. This Agreement shall be binding on, and shall inure
to the benefit of, the parties hereto, and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement. Notwithstanding the foregoing, it is intended that the
Noteholders shall be considered third party beneficiaries of this Agreement so
long as such Noteholders act by and through an agent appointed by at least 51%
of the outstanding balance of the Senior Notes as of the Record Date of the Plan
of Reorganization. No party may assign any right or obligation hereunder without
the prior written consent of the other parties.
10.9. Legal Fees and Costs. In the event either Buyer or Seller elects to
incur legal expenses to remedy a failure to perform by the other party when all
conditions to Closing set forth in Article 9 have been satisfied, the prevailing
party will be entitled to recover such legal expenses, including, without
limitation, reasonable attorney's fees, costs and necessary disbursements, in
addition to any other relief to which such party shall be entitled.
10.10. Remedies Exclusive. The remedies provided for in this Agreement
shall constitute the exclusive remedies of the parties for money Damages
resulting from or arising out of the provisions of this Agreement which may be
asserted after the Closing.
10.11. Sales Taxes. Each of Vendell and CCS agrees to pay one-half of the
sales taxes and other similar state transfer taxes which become due as a result
of the consummation of the transactions herein contemplated.
[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]
55
<PAGE> 64
IN WITNESS WHEREOF, CCS, Vendell and the Vendell Subsidiaries have caused
this Asset Purchase Agreement to be executed by their respective duly authorized
officers, and have caused their respective corporate seals to be hereunto
affixed, all as of the day and year first above written.
CHILDREN'S COMPREHENSIVE SERVICES, INC.
By:____________________________________
Chief Executive Officer
VENDELL HEALTHCARE, INC.
By:____________________________________
Chief Executive Officer
VENDELL SUBSIDIARIES:
RIVENDELL OF ARKANSAS, INC.
By:____________________________________
Chief Executive Officer
RIVENDELL OF KENTUCKY, INC.
By:____________________________________
Chief Executive Officer
RIVENDELL OF MICHIGAN, INC.
By:____________________________________
Chief Executive Officer
56
<PAGE> 65
RIVENDELL OF MONTANA, INC.
By:____________________________________
Chief Executive Officer
RIVENDELL OF BAY COUNTY, INC.
By:____________________________________
Chief Executive Officer
RIVENDELL OF UTAH, INC.
By:____________________________________
Chief Executive Officer
RIVENDELL HOUSTON PSYCHIATRIC
CENTER, INC.
By:____________________________________
Chief Executive Officer
RIVENDELL WICHITA FALLS PSYCHIATRIC
CENTER, INC.
By:____________________________________
Chief Executive Officer
57
<PAGE> 66
VENDELL MANAGEMENT COMPANY
By:____________________________________
Chief Executive Officer
ALTACARE OF ALABAMA, INC.
By:____________________________________
Chief Executive Officer
ALTACARE OF ARKANSAS, INC.
By:____________________________________
Chief Executive Officer
ALTACARE OF DELAWARE, INC.
By:____________________________________
Chief Executive Officer
ALTACARE OF FLORIDA, INC.
By:____________________________________
Chief Executive Officer
ALTACARE OF KENTUCKY, INC.
By:____________________________________
Chief Executive Officer
58
<PAGE> 67
ALTACARE OF MICHIGAN, INC.
By:____________________________________
Chief Executive Officer
BEHAVIORAL CARE MANAGEMENT, INC.
By:____________________________________
Chief Executive Officer
EMERALD COAST ADVANTAGE, INC.
By:____________________________________
Chief Executive Officer
BEHAVIORAL HEALTH SERVICES OF MICHIGAN
By:____________________________________
Chief Executive Officer
VENDELL OF FLORIDA, INC.
By:____________________________________
Chief Executive Officer
59
<PAGE> 1
EXHIBIT 11--STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------ --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY:
Average shares outstanding 7,126,444 5,378,766 6,823,108 5,372,418
Net effect of dilutive stock
options and warrants--based
on the treasury stock method
using average market price 173,262 306,364 221,627 250,070
----------- ----------- ----------- -----------
TOTAL 7,299,706 5,685,130 7,044,734 5,622,488
=========== =========== =========== ===========
Net income $ 1,267,000 $ 1,047,000 $ 4,230,000 $ 2,017,000
=========== =========== =========== ===========
Per share amount $ .17 $ .18 $ .60 $ .36
=========== =========== =========== ===========
FULLY DILUTED:
Average shares outstanding 7,126,444 5,378,766 6,823,108 5,372,418
Net effect of dilutive stock
options and warrants--based
on the treasury stock method
using the higher of ending
or average market price 173,262 329,522 221,627 322,872
----------- ----------- ----------- -----------
TOTAL 7,299,706 5,708,288 7,044,734 5,695,290
=========== =========== =========== ===========
Net income $ 1,267,000 $ 1,047,000 $ 4,230,000 $ 2,017,000
=========== =========== =========== ===========
Per share amount $ .17 $ .18 $ .60 $ .35
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CHILDREN'S COMPREHENSIVE SERVICES, INC. FOR THE NINE
MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 20,245
<SECURITIES> 1,974
<RECEIVABLES> 5,247
<ALLOWANCES> 77
<INVENTORY> 0
<CURRENT-ASSETS> 28,171
<PP&E> 20,526
<DEPRECIATION> 5,605
<TOTAL-ASSETS> 45,390
<CURRENT-LIABILITIES> 4,253
<BONDS> 0
0
0
<COMMON> 71
<OTHER-SE> 40,676
<TOTAL-LIABILITY-AND-EQUITY> 45,390
<SALES> 0
<TOTAL-REVENUES> 23,359
<CGS> 0
<TOTAL-COSTS> 19,779
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 225
<INCOME-PRETAX> 4,082
<INCOME-TAX> (596)
<INCOME-CONTINUING> 4,678
<DISCONTINUED> 0
<EXTRAORDINARY> 448
<CHANGES> 0
<NET-INCOME> 4,230
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
</TABLE>
