<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission file number: 000-26740
AMERICAN HEALTHCHOICE, INC.
(Exact name of small business issuer as specified in its charter)
New York 11-2931252
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1300 W. Walnut Hill Lane Suite 275, Irving, TX 75038
(Address of principal executive offices) (Zip Code)
(972) 751-1900
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of March 31, 1999, there were outstanding 23,801,964 shares of the
issuer's Common Stock, par value $.001 per share.
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
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AMERICAN HEALTHCHOICE, INC.
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1999
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet........................................................ 2
Consolidated Statement of Operations.............................................. 3
Consolidated Statement of Cash Flows.............................................. 4
Notes to Consolidated Financial Statements........................................ 5
Item 2. Management's Discussion and Analysis or Plan of Operation..................... 6
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................................. 8
Item 2. Changes in Securities and Use of Proceeds..................................... 9
Item 3. Defaults upon Senior Securities............................................... 9
Item 4. Submission of Matters to a Vote of Security Holders........................... 9
Item 5. Other Information............................................................. 9
Item 6. Exhibits and Reports on Form 8-K.............................................. 9
Signatures ................................................................................. 10
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
MARCH 31, 1999
ASSETS
<TABLE>
<S> <C>
Current Assets:
Cash $ 34,135
Accounts receivable, less allowance for doubtful accounts of $ 8,878,931 7,157,586
Advances and notes receivable 355,612
Other current assets 26,867
------------
Total current assets 7,574,200
Property and equipment, net 889,196
Goodwill, net 194,627
Other assets 23,868
------------
Total assets $ 8,681,891
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable $ 515,412
Current portion of capital lease obligations 293,483
Accrued payroll and payroll taxes 191,441
Accounts payable and accrued expenses 1,140,422
------------
Total current liabilities 2,140,758
Convertible debentures 3,425,594
Notes payable, less current portion 227,699
Capital lease obligations, less current portion 81,580
------------
Total liabilities 5,875,631
Commitments
Stockholders' Equity:
Preferred stock, $.001 par value; 5,000,000 shares authorized; none issued
Common stock, $.001 par value; 115,000,000 shares authorized;
23,801,964 shares issued and outstanding 23,802
Options to acquire common stock 685,664
Additional paid-in capital 13,069,850
Accumulated deficit (10,973,056)
------------
Total stockholders' equity 2,806,260
------------
Total liabilities and stockholders' equity $ 8,681,891
============
</TABLE>
See accompanying notes to these consolidated financial statements.
2
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AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
------------------------------ ------------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Patient Revenues $ 1,863,742 $ 1,167,634 $ 3,781,704 $ 2,698,681
Operating Expenses:
Compensation and benefits 1,502,905 836,074 3,103,246 2,037,139
Allowance for doubtful accounts at closed clinics -- 380,000 -- 380,000
Depreciation and amortization 61,777 55,390 128,996 111,162
General and administrative 645,395 323,587 1,333,696 732,225
Rent expense 282,801 91,390 541,145 247,646
------------ ------------ ------------ ------------
Total operating expenses 2,492,878 1,686,441 5,107,083 3,508,172
Other Income (Expense):
Gain on sale of clinic -- 272,350 -- 272,350
Interest expense (90,478) (8,936) (135,668) (23,449)
Other income (expense) 5,211 (9,564) 12,144 (6,333)
------------ ------------ ------------ ------------
Total other income (expense) (85,267) 253,850 (123,524) 242,568
============ ============ ============ ============
Net Loss $ (714,403) $ (264,957) $ (1,448,903) $ (566,923)
============ ============ ============ ============
Basic and Diluted Net Loss Per Share $ (0.07) $ (0.01) $ (0.14) $ (0.03)
Weighted Average Common Shares Outstanding 10,158,935 23,801,964 10,013,190 19,160,798
</TABLE>
See accompanying notes to these consolidated financial statements.
3
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AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
----------------------------
1998 1999
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $(1,448,903) $ (566,923)
Adjustments to reconcile net loss to
net cash used in operating activities:
Allowance for doubtful accounts 891,399 1,456,590
Depreciation and amortization 128,997 111,162
Gain on sale of Norcross clinic assets -- (272,350)
Change in operating assets and liabilities, net:
Accounts receivable-trade (354,242) (1,054,239)
Other current assets (5,557) 383
Accounts payable and accrued expenses (19,152) (125,163)
Income taxes payable (31,629) --
Other, net 104,791 --
----------- -----------
Net cash used in operating activities (734,296) (450,540)
Cash Flows From Investing Activities:
Advances and notes receivable, net (3,844) 53,091
Property and equipment, net 10,930 (1,986)
Proceeds from sale of Norcross clinic assets -- 950,000
----------- -----------
Net cash provided by investing activities 7,086 1,001,105
Cash Flows From Financing Activities:
Proceeds from notes payable -- 32,500
Payment on debentures -- (665,000)
Payments on notes payable and capital leases (144,806) (53,825)
----------- -----------
Net cash used in financing activities (144,806) (686,325)
----------- -----------
Net Decrease In Cash (872,016) (135,760)
Cash At Beginning Of Year 1,123,001 169,895
----------- -----------
Cash At End Of Period $ 250,985 $ 34,135
=========== ===========
Supplemental Disclosure Of Cash Flow Information:
Income taxes paid $ -- $ --
Interest paid 23,100 23,400
Supplemental Disclosure Of Non-Cash Transactions:
Conversion of debenture and accrued interest into stock -- 16,523
Note received from purchaser of Norcross clinic assets -- 125,000
Issuance of stock as partial payment on notes payable to directors -- 187,570
</TABLE>
See accompanying notes to these consolidated financial statements.
4
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AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
American HealthChoice, Inc. and subsidiaries (the Company) consists of a parent
company and sixteen clinics providing medical, physical therapy, and
chiropractic services in San Antonio, McAllen, and Houston, Texas, New Orleans,
Louisiana and in the metro area of Atlanta, Georgia. Four of the physical
therapy clinics are strategically located next to a corresponding chiropractic
clinic. Substantially all of the Company's revenues are derived from
chiropractic, physical therapy and medical services provided to individuals
living in the vicinity of the clinics.
2. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements of the
Company have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information in footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to these
rules and regulations. The accompanying unaudited interim consolidated financial
statements reflect all adjustments which the Company considers necessary for a
fair presentation of the results of operations for the interim periods covered
and for the financial condition of the Company at the date of the interim
balance sheet. All such adjustments (except as otherwise disclosed herein) are
of a normal recurring nature.
The results of operations for the six months ended March 31, 1999 are not
necessarily indicative of the results to be expected for the full year. It is
suggested that the March 31, 1999 financial information be read in conjunction
with the financial statements and notes thereto included in the Company's Form
10-KSB dated September 30, 1998.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation policy - The accompanying condensed consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All material inter-company accounts and transactions have been
eliminated in consolidation.
Net patient revenues - Revenue is recognized upon performance of services.
Substantially all of the Company's revenues are derived from patient insurance
settlements, claims filed on major medical policies, worker's compensation
policies, Medicare, and Medicaid. Allowances for discounts on services provided
are recognized in the periods the related revenue is earned. Allowances are
maintained at levels considered appropriate by management based upon historical
charge-off experience and other factors deemed pertinent by management.
Property and equipment, net - Property and equipment are stated at cost less
accumulated depreciation. Depreciation is provided over the estimated useful
lives of the related assets, primarily using the straight-line method. Leasehold
improvements are amortized over the shorter of the lease term or the estimated
useful lives of the improvements.
Earnings per share - Basic earnings per share are computed using the
weighted-average number of common shares outstanding. Diluted earnings per share
are computed using the weighted-average common shares outstanding after giving
effect to potential common stock from stock options based on the treasury stock
method, plus other potentially dilutive securities outstanding. If the result of
assumed conversions is dilutive, net earnings are adjusted for the interest
expense on the convertible debt, while the average shares of common stock
outstanding are increased.
5
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4. SALE OF NORCROSS CLINIC
On February 12, 1999, the Company executed an asset purchase agreement to sell
substantially all the assets of the Norcross, Georgia clinic for $1,075,000;
payable $950,000 in cash and a note for $125,000. The Company used $665,000 of
the cash proceeds to redeem 8% Cumulative Convertible Debentures issued
September 1997 in a Regulation S offering.
The book value of the assets sold was $802,650 as of December 31, 1998 comprised
of $227,750 in accounts receivable less than six months old, $355,400 in
inventory and equipment, and $219,500 of unamortized goodwill attributable to
the purchase of the clinic in 1996. The Company will retain $227,750 in accounts
receivable less than six months old and all accounts receivable older than six
months. Proceeds from collection of the retained accounts receivable are
estimated to be approximately $350,000.
5. STOCKHOLDERS' EQUITY
On December 17, 1998, the president and CEO, and a principal shareholder and
board member, agreed to exchange $132,012 and $55,558, respectively, of notes
payable for common stock. On January 1, 1999, the Company issued 6,000,523 and
2,525,341 shares of common stock, respectively, at $0.022 per share, which was
the market price at the date of election.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto, and is qualified in its
entirety by the foregoing and by other more detailed financial information
appearing elsewhere.
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Net Patient Revenues. For the three months ended March 31, 1999, net
patient revenues decreased 37% from $1,864,000 for the same period in 1998 to
$1,168,000 in 1999. The decrease was a result of the closure or sale of five
clinics in fiscal 1998 and the sale of the Norcross clinic. Approximately
$547,000 of the decrease was attributable to net patient revenue from the
Norcross clinic for the three months ended March 31, 1998.
Compensation and Benefits. For the three months ended March 31, 1999,
compensation and benefits decreased 44% from $1,503,000 in 1998 to $836,000 in
1999. The decrease, which exceeded the comparable percentage decrease in
revenues, was due primarily to personnel reductions related to closure of
unprofitable clinics in fiscal 1998 and the sale of the Norcross clinic.
Approximately $450,000 of the decrease was attributable to compensation and
benefits at the Norcross clinic for the three months ended March 31, 1998.
Allowance for Doubtful Accounts at Closed Clinics. The Company closed
five clinics in fiscal 1998 and established allowances for doubtful accounts at
September 30, 1998 based on historical collection experience. However, actual
collections during the six months ended March 31, 1999 have been less than
projected. The $380,000 additional allowance reflects this shortfall in
collections on accounts receivable at these closed clinics and, in addition,
less than anticipated collections of certain one-year and older accounts
receivable for the Norcross clinic. The allowance for doubtful accounts will be
reviewed again at June 30, 1999.
General and Administrative. For the three months ended March 31, 1999,
general and administrative decreased 50% from $645,000 in 1998 to $324,000 in
1999. Approximately $88,000 of the decrease was attributable to reduced legal
and professional expenses due to fewer pending suits and more legal projects
assigned to in-house counsel. The remainder is due to clinic closures and sale
of the Norcross clinic.
Rent. For the three months ended March 31, 1999, rent decreased
$190,000 from $283,000 in 1998 to $93,000 in 1999. The decrease was due to
clinic closures in 1998 and the sale of the Norcross clinic, which accounts for
approximately $80,000 of the decrease.
6
<PAGE> 8
Six Months Ended March 31, 1999 Compared to Six Months Ended March 31, 1998
Net Patient Revenues. For the six months ended March 31, 1999, net
patient revenues decreased 29% from $3,782,000 for the same period in 1998 to
$2,699,000 in 1999. The decrease was a result of the closure or sale of five
clinics in fiscal 1998 and the sale of the Norcross clinic.
Compensation and Benefits. For the six months ended March 31, 1999,
compensation and benefits decreased 34% from $3,103,000 in 1998 to $2,037,000 in
1999. The decrease, which exceeded the comparable percentage decrease in
revenues, was due primarily to personnel reductions related to closure of
unprofitable clinics in fiscal 1998 and the sale of the Norcross clinic.
General and Administrative. For the six months ended March 31, 1999,
general and administrative decreased 45% from $1,334,000 in 1998 to $732,000 in
1999. Approximately $148,000 of the decrease was attributable to reduced legal
and professional expenses due to fewer pending suits and more legal projects
assigned to in-house counsel. The remainder is due to clinic closures and sale
of the Norcross clinic.
Rent. For the six months ended March 31, 1999, rent decreased $293,000
from $541,000 in 1998 to $248,000 in 1999. The decrease was due to clinic
closures and the sale of the Norcross clinic.
Through the closure of unprofitable clinics in early 1998, the sale of the
Norcross clinic in February 1999, and an overall reduction in operating
expenses, the Company reduced the net loss for the six months ended March 31,
1999 by approximately $900,000 compared to the six months ended March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended March 31, 1999, net cash used in operating activities
was $450,000 as compared to $734,000 for the six months ended March 31, 1998.
The decrease of $284,000 is primarily attributable to the reduction in net loss
to $567,000 in 1999 compared to $1,449,000 in the 1998 period. The positive
impact from the sale of the Norcross clinic and planned decreases in accounts
receivable should result in improved cash flow from operations in future
periods. The anticipated cash flow will be used to reduce accounts payable and
fund marketing programs.
After the sale of the Norcross clinic and planned improvements in the profits
from chiropractic clinics, operating profits from the clinics will not cover
planned corporate expenses, debt service and working capital requirements.
Management of the Company is actively searching for acquisitions that are
currently profitable and have minimal working capital requirements. The Company
will attempt to fund new acquisitions through the issuance of common stock and
proceeds from new convertible debentures.
Management will attempt to complete at least one acquisition and obtain new debt
financing by June 30, 1999. Future profitability and growth are dependent on the
successful completion of these transactions.
FORWARD-LOOKING INFORMATION
This report contains certain forward-looking statements and information relating
to the Company that are based on the beliefs of the Company's management as well
as assumptions made by and information currently available to the Company's
management. When used in the report, words such as "anticipate," "believe,"
"estimate," "expect," "intend," "should," and similar expressions, as they
relate to the Company or its management, identify forward-looking statements.
Such statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties, and assumptions relating
to the operations, results of operations, liquidity, and growth strategy of the
Company, including competitive factors and pricing pressures, changes in legal
and regulatory requirements, interest rate fluctuations, and general economic
conditions, as well as other factors described in this report. Should one or
more of the risks materialize, or should underlying assumptions prove incorrect,
actual results or outcomes may vary materially from those described herein as
anticipated, believed, estimated, expected, or intended.
7
<PAGE> 9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The following matters have new developments since the 1998 Form 10-KSB was filed
January 14, 1999.
The Company settled its litigation with a service supplier over unpaid invoices.
There were two suits filed November 1997 and September 1997, respectively. The
cases were: SmithKline Beecham Clinical Labs v. American HealthChoice, Inc.,
filed in the County Court of Bexar County at Law No. 5, San Antonio, Texas, and
State District Court, 162nd Judicial District, Dallas County, Texas. On February
3, 1999, the Company executed a settlement agreement with the supplier on the
San Antonio, Texas case. On May 12, 1999, the Company executed a settlement
agreement with the supplier on the Dallas, Texas case. The amount of the
settlement for both cases was less than the liability recorded as of September
30,1998.
The Company settled its litigation with a service supplier over unpaid invoices.
The suit was filed April 1, 1998. The case was: McKesson General Medical v.
American HealthChoice, Inc., filed in the County Court of Dallas County at Law
No. 2, Dallas, Texas. On January 25, 1999, the Company executed a settlement
agreement with the supplier. The amount of the settlement was less than the
liability recorded as of September 30,1998.
The Company is engaged in litigation with an equipment lessor. The suit was
filed October 14, 1998. The plaintiff alleges that the Company is the guarantor
for a company called Corrective Vision Center that went out of business. The
case is: Advanta Business Services Corp., v. American HealthChoice, Inc., filed
in the County Civil Court of Harris County at Law No. 4, Harris County, Texas.
Advanta won a decision for the full amount of the suit at a summary judgement
hearing on January 20, 1999. The Company appealed the ruling. If the Company
does not prevail on appeal, the judgment is not a material amount.
The Company is engaged in litigation with the doctor who managed the Norcross,
Georgia clinic. The Company found it necessary to terminate the managing doctor.
The managing doctor then filed a claim against the Company in July 1997 for
breach of contract and sought an injunction to prevent the Company from
enforcing its non-compete clause. The Court declined to enter a temporary
restraining order against enforcement of the non-compete clause. The Company
filed a counter claim against the doctor, primarily for losses the Company
sustained while he managed the clinic. The case is Malcolm P. Dulock v. AHC
Physicians Corporation, Inc., filed in the Superior Court of Gwinnett County,
Georgia. The doctor filed a Chapter 13 Bankruptcy Petition on January 29, 1999
in the United States Bankruptcy Court for the Northern District of Georgia.
The Company settled its litigation with an equipment lessor. The suit was filed
October 6, 1998. The plaintiff alleged default for nonpayment of a lease and was
claiming rights under the lease. The case was: CIT Group/Equipment Financing,
Inc., v. American HealthChoice, Inc., filed in the State District Court, 68th
Judicial District, Dallas County, Texas. On April 15, 1999, the Company executed
a settlement agreement with the lessor. The amount of the settlement
approximates the liability recorded as of September 30,1998.
The Company settled its litigation with an equipment lessor for a prefab trailer
used as an office at a clinic in San Antonio, Texas. The suit was filed December
3, 1998. The plaintiff alleged default for nonpayment of a lease and was
claiming rights under the lease. The case was: Sanwa Business Credit Corp., v.
American HealthChoice, Inc., filed in the State District Court, 125th Judicial
District, Harris County, Texas. On February 11, 1999, the Company executed a
settlement agreement with the lessor.
The amount of the settlement approximates the liability recorded as of September
30,1998.
The Company settled its litigation with the group that the Company purchased
four Atlanta Georgia area clinics. The claim alleged failure to pay on the
promissory note for the purchase of the clinics and to enforce stock pledge
obligations. The suit was filed April 14, 1998. The case was Metropolitan Health
Care v. American HealthChoice, Inc. filed in the United States Bankruptcy Court,
Northern District of Georgia, Atlanta Division. The claim was dismissed on April
20, 1999 with the consent of all parties.
The Company was served a Complaint on January 26, 1998 alleging unspecified
damages arising from trademark infringement and related claims. The case was:
Unihealth v. American HealthChoice, Inc., filed in the United States District
Court, Southern District of Texas, Houston Division. The claim was settled on
February 12, 1999 for an immaterial amount.
8
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On November 9, 1998, an Involuntary Bankruptcy Petition was filed against AHC
Physicians Georgia, Inc., a wholly owned subsidiary of the Company, in the
United States Bankruptcy Court for the Northern District of Georgia. The
petition was filed by three trade creditors and two former employees, one of
which is the doctor who managed the Norcross, Georgia clinic that the Company is
engaged in litigation. At a December 15, 1998 hearing in the Bankruptcy Court,
the petition was dismissed based on evidence presented by the Company, which
showed an insufficient number of qualified creditors and that the Company was
paying its obligations in a timely manner. The Company is seeking damages for
wrongful filing of the petition. A hearing on this matter commenced on May 11,
1999 and is scheduled to reconvene on May 17, 1999.
On May 3, 1999, the Company and Georgia Clinic, LLC (purchaser of the Norcross
clinic), filed a lawsuit against Dr. William Barry Smith, MD and Barry Smith,
M.D., P.C., together with a Temporary Restraining Order and appointment of a
receiver. The plaintiffs allege that the defendants breached numerous contracts,
committed fraud, conversion, violated the Georgia "Rico" Act, and other related
causes of actions. On May 4, 1999 Dr. William Barry Smith signed a consent order
for receivership and interlocutory injunction. The case is: AHC Physicians
Corporation and Georgia Clinic, LLC, v. Dr. William Barry Smith, MD and Barry
Smith, M.D., P.C., filed in the Superior Court of Fulton County, Georgia.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.14- Asset Purchase Agreement dated February 12, 1999 between
AHC Physicians Corporation, Inc. and Georgia Clinic, L.L.C.
(b) Exhibit 27- Financial data schedule
(b) No reports on Form 8-K were filed during the quarter ended March 31,
1999.
9
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN HEALTHCHOICE, INC.
Date: May 17, 1999 By: /s/ Dr. J.W. Stucki
Dr. J.W. Stucki, Chief Executive
Officer and President
Date: May 17, 1999 By: /s/John C. Stuecheli
John C. Stuecheli, Chief Financial
Officer and Vice President - Finance
(Principal Financial and Accounting
Officer)
10
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
10.14 Asset Purchase Agreement
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.14
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of, February 12, 1999, by and
between AHC PHYSICIANS CORPORATION, INC., a Georgia corporation (the "SELLER"),
and GEORGIA CLINIC, L.L.C. (the "PURCHASER").
WITNESSETH:
WHEREAS, Seller owns and operates a medical clinic at 6920 Jimmy Carter
Blvd., Suite 100, Norcross, GA 30071 (the "Clinic" or "Practice"); and
WHEREAS, Seller desires to sell to Purchaser the Clinic Assets, and
Purchaser desires to purchase such Assets, all on the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound, the parties hereby agree as
follows:
ARTICLE I - DEFINITIONS
1.1 Definitions. For purposes of this Agreement, the following terms
shall have the meanings set forth below:
"ACQUISITION DOCUMENTS" shall mean the documents described under
SECTION 2.4 herein.
"ACTION" shall mean any action, suit, litigation, complaint,
counterclaim, claim, petition, mediation contest, or administrative proceeding,
whether at law, in equity, in arbitration or otherwise, and whether conducted by
or before any Government or other Person.
"ASSETS" shall mean the Assets listed on SCHEDULE 1.1 attached as part
of EXHIBIT "A" and shall not include any asset not so identified.
"ASSUMED LIABILITIES" shall mean (i) all obligations of Seller that
accrue after the Closing under the terms of the Contracts, (ii) obligations
arising after the Closing under any Permits which are assigned to Purchaser,
(iii) all Property Taxes and all other obligations with respect to the Assets
that accrue after the Closing, (iv) all accounts payable as of January 1, 1999,
except as provided for herein, (v) all contracts or leases for equipment and
premises as set forth in SCHEDULE 2.2, 3.5 and employees in SCHEDULE 3.13 AND
3.15.
"BILL OF SALE AND ASSIGNMENT AGREEMENT" shall mean an instrument in
substantially the form of EXHIBIT A hereto pursuant to which the Assets (except
for the Real Property, if any) will be transferred and assigned to Purchaser at
the Closing and pursuant to which Purchaser will assume the Assumed Liabilities.
"BUSINESS" shall mean the business of owning and operating the Clinic
as conducted prior to the Closing by Seller.
"CLOSING" shall have the meaning set forth in SECTION 2.6 hereof.
"CLOSING DATE" shall mean the time and date that the Closing occurs,
contemporaneous with the execution hereof.
"CODE" shall mean the United States Internal Revenue Code of 1986, as
amended, and all regulations thereunder. Any reference herein to a specific
section or sections of the Code shall be deemed to include a reference to any
corresponding provision of future law.
"CONSENTS" shall mean all consents, approvals, and estoppels of others
which are required to be obtained in order to effect the valid assignment,
transfer, and conveyance to Purchaser of the Material Contracts without
resulting in any default thereunder.
11
<PAGE> 2
"CONTRACTS" shall mean all contracts, agreements, real estate leases,
and leases of equipment or other personal property that relate exclusively to
the Business.
"DEFAULT" shall mean an event of default as defined in any contract or
other agreement or instrument, or any event which, with the passage of time or
giving of notice or both, would constitute an event of default or other breach
under such document or instrument.
"EFFECTIVE TIME" shall have the meaning set forth in SECTION 2.5
hereof.
"ENVIRONMENTAL LAWS" shall mean all federal, state, municipal, and
local laws, statutes, ordinances, rules, regulations, conventions, and decrees
relating to the environment, including without limitation, those relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants chemicals, or industrial, toxic, or Hazardous Materials or wastes
of every kind and nature into the environment (including without limitation
ambient air, surface water, ground water, soil, and subsoil), or otherwise
relating to the manufacture, generation, processing, distribution, application,
use, treatment, storage, disposal, transport, or handling of pollutants,
contaminants, chemicals, or industrial, toxic, or hazardous substances or
wastes, and any and all laws, rules, regulations, codes, directives, orders,
decrees, judgments, injunctions, consent agreements, stipulations, provisions,
and conditions of Environmental Permits, licenses, injunctions, consent
agreements, stipulations, certificates of authorization, and other operating
authorizations, entered, promulgated, or approved thereunder.
"ENVIRONMENTAL PERMITS" shall mean all permits, licenses, certificates,
approvals, authorizations, regulatory plans or compliance schedules required by
applicable Environmental Laws, or issued by a Government pursuant to applicable
Environmental Laws, or entered into by agreement of the party to be bound,
relating to activities that affect the environment, including without
limitation, permits, licenses, certificates, approvals, authorizations,
regulatory plans and compliance schedules for air emissions, water discharges,
pesticide and herbicide or other agricultural chemical storage, use or
application, and Hazardous Material or Solid Waste generation, use, storage,
treatment and disposal.
"FINANCIAL STATEMENTS" shall mean the year-end financial statements or
any interim financial statements that the Seller keeps in its normal course of
business.
"FORUM" shall mean any federal, state, local, municipal, or foreign
court, governmental agency, administrative body or agency, tribunal, private
alternative dispute resolution system, or arbitration panel.
"GOVERNMENT" shall mean any federal, state, local, municipal, or
foreign government or any department, commission, board, bureau, agency,
instrumentality, unit, or taxing authority thereof.
"HAZARDOUS MATERIAL" shall mean all substances and materials designated
as hazardous or toxic as of the date hereof pursuant to any applicable
Environmental Law.
"KNOWLEDGE OF SELLER" (or words of like effect) when used to qualify a
representation, warranty, or other statement shall mean the actual knowledge of
Seller's executive officers.
"LEASES" shall mean all of the existing leases as set forth on SCHEDULE
3.5.
"MANAGED CARE CONTRACT" shall mean any agreement, contract or
commitment of or with (directly or indirectly through an independent practice
association or other health care provider network) a third party payor,
including a federal or state government program (e.g. Medicare or Medicaid),
insurance company, self-insured employer, healthcare service plan, non-profit
hospital insurance plan or health maintenance organization, for the provision of
health care services to any person or persons or for reimbursement of health
care services rendered to such person or persons.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" shall mean with
respect to the Purchased Assets any material adverse effect or change in the
condition (financial or otherwise), of the business, results of operations,
prospects, liabilities or the Purchased Assets, not of the Purchaser's fault,
that would prevent the Seller from completing the transactions contemplated by
this Agreement, or any event or condition which would, with the passage of time,
constitute a Material Adverse Effect or Material Adverse Change.
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"MATERIAL CONTRACTS" shall mean all Contracts that involve monetary
obligations of Seller of more than $20,000 per year and that are not cancelable
by Seller upon thirty days notice or less without penalty, a list of which are
set forth on SCHEDULE 3.11.
"MINOR CONTRACTS" shall mean all Contracts that are not Material
Contracts.
"ORDERS" shall mean all applicable orders, writs, judgments, decrees,
rulings, consent agreements, and awards of or by any Forum or entered by consent
of the party to be bound.
"PERMITS" shall mean all rights of Seller under any license,
certificates of occupancy, and permits or approvals of any nature, from any
Government which relate exclusively to the Business, the Clinic, or the Assets.
"PERSON" shall include an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an unincorporated
organization, a government, and any other legal entity.
"PERSONNEL" shall mean all of the Physician and non-Physician employees
of Seller employed at the Clinic, however in no way shall this definition limit
the assignment of the employment contracts assumed and assigned under SCHEDULE
3.13 and the Acquisition Documents.
"PHYSICIAN" shall mean any individual who is licensed to practice
medicine in the state of Georgia.
"PRACTICE" shall mean the professional medical practice owned by Seller
located at 6920 Jimmy Carter Blvd., Suite 100, Norcross, GA 30071.
"PROPERTY TAXES" shall mean all ad valorem, real property, and personal
property taxes, all general and special private and public assessments, all
other property taxes, and all similar obligations pertaining to the Assets.
"SCHEDULES" shall mean the numbered sections of the Schedule Section.
"SOLID WASTE" shall mean any garbage, refuse, sludge from a waste
treatment plant, water supply treatment plant, or air pollution control
facility, and other discarded material, including solid, liquid, semisolid, or
contained gaseous material resulting from industrial, mining, and agricultural
operations.
"TERMINATION DATE" shall mean February 15, 1999.
ARTICLE II - PURCHASE AND SALE
2.1 Purchase and Sale. Upon the terms and subject to the conditions set
forth in this Agreement, at the Closing Seller shall sell, transfer, and assign
to Purchaser all of Seller's right, title, and interest in and to the Assets
free and clear of any mortgage, security interest, lien, charge, claim, or other
encumbrance of any nature except the Assumed Liabilities, and Purchaser shall
purchase the Assets from Seller for the Purchase Price set forth in SECTION 2.3.
2.2 Assumption of Liabilities. As of the Effective Time, Purchaser shall
assume all of the Assumed Liabilities. Except for the Assumed Liabilities,
Purchaser does not hereby assume or agree to assume or pay any obligations,
liabilities, indebtedness, duties, responsibilities, or commitments of Seller or
any other Person, of any nature whatsoever, whether known or unknown, absolute
or contingent, due or to become due. Assumed Liabilities are set forth in
SCHEDULE 2.2.
2.3 Purchase Price. The purchase price for the Assets (the "PURCHASE
PRICE") shall be as follows:
(a) The Purchase Price for the Assets shall be $950,000 cash, of which
(i) $150,000 has been previously paid to Seller as a non-refundable deposit,
(ii) $40,000 has previously been paid to Seller as an advance on the Purchase
Price, (iii) $760,000 shall be paid in cash at closing by means of wire transfer
to the bank account set forth in SCHEDULE 2.3(a), and (iv) $125,000 shall be
paid in the form of Purchaser's promissory note in the form of EXHIBIT B (the
"NOTE"), secured by a first lien security interest in the Assets pursuant to the
Security Agreement and Financing Statement attached hereto as EXHIBIT C (the
"SECURITY AGREEMENT"). Not
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withstanding the above, of the amount paid from SECTION 2.3(a)(iii), $665,000
will be paid in accordance with SECTION 10.3(A) below, and SECTION 2.3(a)(iv)
when due will be paid in accordance with the Note.
(b) All accounts receivables of Seller for services performed for the
prior six (6) months before December 31, 1998, (July 1, 1998 through December
31, 1998) and excluding the Barry Smith receivables for services performed prior
to the said six months regardless of when collected (the "RECEIVABLES"), a
schedule of which is attached as SCHEDULE 2.3(b), shall be owned equally by
Seller and Purchaser. Purchaser shall use its best efforts to collect the
Receivables and shall retain the right to settle and compromise any said
Receivables. To the extent Purchaser utilizes an outside agency to collect
Receivables, Purchaser and Seller shall share the cost thereof. Purchaser may
retain up to $7,000 per month of Seller's share of collected Receivables for a
maximum of six months, provided that all such retained Receivables shall be paid
in full to Seller, without interest, at the end of six months (i.e. maximum of
$42,000) and is secured in a separate note and security agreement attached
hereto as EXHIBIT B-1 and C-1 respectively. Receivables older than 180 days at
the Closing Date shall remain the property of Seller.
2.4 Deliveries at the Closing. (a) At the Closing, Seller shall deliver
to Purchaser the following:
(i) The Bill of Sale and Assignment Agreement, duly executed by
Seller;
(ii) Any other documents that Purchaser may reasonably request
prior to the Closing in order to effectuate the transactions
contemplated hereby.
(b) At the Closing Purchaser shall deliver to Seller the
following:
(i) The funds constituting the Asset Purchase Price;
(ii) The Bill of Sale and Assignment Agreement, duly executed by
Purchaser;
(iii) the Note;
(iv) the Security Agreement; and
(v) Any other documents that Seller may reasonably request prior
to the Closing; and
2.5 Transfer of Operations. Purchaser shall be entitled to immediate
possession of, and to exercise all rights arising under, the Assets from 12:01
on February 1, 1999, and operation of the Clinic shall transfer at such time,
except as otherwise provided herein. The risk of loss or damage by fire, storm,
flood, or other acts of God shall be in all respects upon Seller prior to the
Effective Time and upon the Purchaser thereafter.
2.6 Closing. The closing of the transactions described in this ARTICLE
II (the "CLOSING") shall take place at the Clinic or other location that the
Parties may mutually agree upon contemporaneous with the execution hereof.
2.7 Allocation of Purchase Price. The Purchase Price shall be allocated
among the various Assets as set forth on EXHIBIT D hereof, which Exhibit shall
be prepared by the parties and attached hereto at Closing. Each party hereby
agrees that it will not take a position on any income tax return, before any
governmental agency charged with the collection of any income tax, or in any
judicial proceeding that is inconsistent with the terms of this SECTION 2.7. The
parties shall complete a Form 8594 as of the Closing based upon EXHIBIT D.
2.8 Further Assurances. From time to time after the Closing at
Purchaser's request and expense, Seller shall execute, acknowledge, and deliver
to Purchaser such other instruments of conveyance and transfer and shall take
such other actions and execute and deliver such other documents, certifications,
and further assurances as Purchaser may reasonably require to vest more
effectively in Purchaser, or to put Purchaser more fully in possession of, any
of the Assets, or to better enable Purchaser to complete, perform and discharge
the Assumed Liabilities. Each party hereto will cooperate with the other and
execute and deliver to the other party hereto such other instruments and
documents and take such other actions as may be reasonably requested from time
to time by any other party hereto as necessary to carry out, evidence, and
confirm the intended purpose of this Agreement.
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ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLER
Subject to the limitations and exceptions set forth in this Agreement
and in the Schedules attached hereto, To the best of Seller's knowledge, Seller
hereby represents and warrants to Purchaser as follows:
3.1 Organization and Good Standing. Seller is a duly organized validly
existing and in good standing under the laws of the State of Georgia. Seller has
the corporate power to execute, deliver and perform this Agreement and all other
agreements, instruments and documents to be delivered herewith or pursuant
hereto and the consummation of the transactions provided for herein and all such
agreements, documents and instruments are the valid and binding obligation of
Seller enforceable in accordance with their respective terms.
3.2 Authorization. The execution, delivery and performance by Seller of
this Agreement and the documents described in SECTION 2.4 to which Seller is or
will become a party (collectively with this Agreement, the "Acquisition
Documents") will not violate any provision of law or result in the breach of, or
constitute a default under, or result in the creation of any lien, charge or
encumberance upon any of the Assets being sold. The Acquisition Documents to
which Seller is a party have been or at Closing will have been duly authorized
by the required corporate action and will be duly executed and delivered by
Seller and constitute or will constitute the legal, valid and binding
obligations of Seller, enforceable in accordance with their respective terms.
3.3 Litigation. There are no non-disclosed actions, suits, litigation,
claims, administrative or other proceedings ("Action") or governmental
investigations pending or, to Seller's knowledge, which would prevent the
transaction contemplated by this Agreement. The consummation of the transactions
contemplated by this Agreement will not require the consent, approval,
authorization or order of any court or governmental authority.
3.4 Assets. Seller will convey to Purchaser at Closing, good and
marketable title to all of the Assets, free and clear of all claims, liens,
agreements, security interests and encumbrances of any nature whatsoever, except
as otherwise permitted as described in SCHEDULE 3.4. The equipment and machinery
of Seller are in good repair and operating condition and have been maintained in
the ordinary course of business. Assets are sold as is where is.
3.5 Leases. SCHEDULE 3.5 contains a complete and accurate description of
the terms of all Leases pursuant to which Seller leases real or personal
property, including a general description of the leased property or items, the
term, the monthly rent, any and all renewal options, and any requirements for
the consent of third parties to assignments of the Leases. All the Leases are
valid, binding and enforceable in accordance with their terms and in full force
and effect. Seller has no knowledge of the occurrence of any event of default by
Seller under the Leases which (which with or without notice, lapse of time or
both or the happening or occurrence of any other event) would constitute a
default thereunder on the part of Seller. With respect to the Clinic building
Lease, Seller has, and will transfer to Purchaser, the leasehold estate, except
Seller retains any deposits and all rights and causes of actions against Lessor
that arose prior to the closing date. Seller enjoys peaceful and undisturbed
possession of the leased real property, and Seller has in all material respects
performed all the obligations required to be performed by it under the Clinic
Lease. Seller will obtain and present at Closing the Owner/Landlord's Permission
and consent to the assignment of the Clinic building Lease to the Purchaser.
3.6 Compliance with Laws. To the Seller's knowledge, the Seller has not violated
and is in compliance with all laws, statutes, ordinances, regulations, rules and
orders of any foreign, federal, state or local government and any other
governmental department or agency, and any judgment, decision, decree or order
of any court or governmental agency, department or authority, relating to the
Assets or the Practice, including, without limitation, Environmental Laws and
the Medicare and Medicaid self-referral ("Stark"), fraud and abuse provisions of
the Social Security Act or any similar provisions of any other federal, state
and local laws relating to kickbacks, illegal referrals, illegal billings or the
like. Seller has not received notice that, or otherwise been advised that, it is
not in compliance with any governmental or regulatory requirements.
3.7 Medicare and Medicaid Claims. All Medicare and Medicaid bills and claims
(collectively, "Bills") submitted by or on behalf of Seller for items, services
and goods provided to beneficiaries of the Medicare and Medicaid programs (the
"Programs") represent bona fide claims for items, services or goods provided to
Program beneficiaries in accordance with applicable laws, rules and regulations,
and were submitted by or on behalf of Seller in accordance with applicable laws,
rules and regulations. The Bills and all other information submitted in
connection therewith, to Sellers knowledge are true, accurate and complete and
do not contain any untrue statement of any material fact, or omit to state any
material fact necessary to make the statements or facts contained therein not
misleading. There are no pending or, to the best of Seller's knowledge,
threatened audits, investigations or claims for or
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relating to any material liability with respect to the Bills, and there are no
facts or information which would give rise to any such material liability. Not
withstanding the Survival Period limitation set forth in SECTION 7.1(c), Seller
shall remain liable and will hold Purchaser harmless for the refund or
repayment, proportionate to the amount received by Seller, of any Bills
determined to have been improperly paid and the payment of any fine and all
fines or penalties imposed as the result of any Bills improperly filed by
Seller.
3.8 Financial Information. SCHEDULE 3.8 contains the financial
information pertaining to the Clinic, all of which is accurate and complete in
all material respects as management tools. Such financial information in
SCHEDULE 3.8 have been prepared by Seller's in-house accountant and each such
financial information represents fairly in all material respects as of its date
the financial position of the Seller.
3.9 No Adverse Change. Since the date of the financial information
described in SECTION 3.8, there has been no Material Adverse Change in the
Assets, nor has there been any conducting of the Clinic other than in the
ordinary course.
3.10 Permits, Licenses, Certifications, and Authorizations. Seller has
all necessary licenses, permits, certificates, authorizations, consents, and
approvals required by law or any governmental authority or agency for the
conduct of the Practice as and where presently conducted.
3.11 Contracts. (a) Each Material Contract is a valid agreement, without
any material default of Seller thereunder, and to the knowledge of Seller,
without any default on the part of any other party thereto. If an event of
default has occurred Seller agrees to remedy any default. To the knowledge of
Seller, no event or occurrence has transpired which with the passage of time or
giving of notice or both will constitute a default under any Material Contract.
A list of each Material Contract and every amendment thereto or other agreement
or document relating thereto is set forth as SCHEDULE 3.11 to this Agreement.
True and correct copies of the Material Contracts (and any amendments thereto)
have been or will be provided to Purchaser at least five days prior to Closing.
(b) Except as set forth in SCHEDULE 3.11, no material Contract
has been assigned by Seller or any interest granted therein by Seller to any
third party, or is subject to any mortgage, pledge, hypothecation, security
interest, lien, or other encumbrance or claim, except the security interests and
liens in favor of the granting party, all of which shall be released or assumed
at or prior to Closing.
3.12 Non-Contravention. Subject to obtaining the consents to assignment
of the Material Contracts set forth on SCHEDULE 3.11, the execution, delivery
and performance of this Agreement will not violate or result in a breach of any
term of Seller's Articles of Incorporation or Bylaws, result in a breach of any
agreement or other instrument to which Seller is a party (except for defaults
under Minor Contracts where the consent of the other party or parties to such
contract to the assignment thereof will not be obtained) or violate any law or
any order, rule, or regulation applicable to Seller of any Forum having
jurisdiction over Seller; and will not result in the creation or imposition of
any lien, charge, or encumbrance of any nature whatsoever upon any of the
Assets. Except as set forth on SCHEDULE 3.12 and except for consents required
under Minor Contracts, the execution, delivery and performance of this Agreement
and the other Acquisition Documents executed in connection herewith, and the
consummation of the transactions contemplated hereby and thereby do not require
any filing with, notice to or consent, waiver or approval of any third party,
including but not limited to, any Forum.
3.13 Employment Contracts, Etc. Except as listed on SCHEDULE 3.13,
Seller is not a party to any written employment agreements related to the
employees at the Clinic (or any oral agreements providing for employment other
than employment "at will") or any deferred compensation agreements.
3.14 Employee Benefits. (a) SCHEDULE 3.14 hereto contains a true and
complete list of all the following agreements or plans of Seller which are in
effect and which pertain to any of the Personnel:
(i) "employee welfare benefit plans" and "employee
pension benefit plans," as defined in Sections 3(l) and 3(2),
respectively, of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA");
(ii) any other pension, profit sharing, retirement,
deferred compensation, stock purchase, stock option, incentive, bonus,
vacation, severance, disability, health, hospitalization, medical, life
insurance, vision, dental, prescription drug, supplemental
unemployment, layoff, automobile, apprenticeship and training, day
care, scholarship, group legal benefits, fringe benefits, or other
employee benefit plan, program, policy, or arrangement, whether written
or unwritten, formal or informal, which Seller maintains or to which
Seller has any outstanding, present, or future obligation
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to contribute to or make payments under, whether voluntary, contingent,
or otherwise (the plans, programs, policies, or arrangements described
in clauses (i) or (ii) are herein collectively referred to as the
"SELLER PLANS").
(b) No Seller Plan has been terminated nor has any
accumulated funding deficiency (as defined in Code Section 412(a)) been
incurred, nor has any waiver from the Internal Revenue Service been received or
requested.
3.15 Employees. SCHEDULE 3.15 sets forth a list of the Seller's
Personnel, stating with respect to each, the name, date of hire and rate of
compensation. Except as described in SCHEDULE 3.15, to the knowledge of Seller,
there are no claims or disputes pending with any employee constituting Personnel
regarding workers' compensation, unemployment benefits, discrimination
(including discrimination based on any disability).
3.16 No Other Agreements to Sell Assets. Neither Seller nor any of
Seller's employees have any commitment or legal obligation, absolute or
contingent, to any other person or firm other than Purchaser to sell, assign or
transfer any of the Assets or to enter into or cause the entering into of any
agreement with respect to any of the foregoing.
3.17 Utilities. The Clinic is supplied with utilities (including water,
sewage, disposal, electricity, gas and telephone) and other utility services
necessary for the operation of the Clinic as currently operated. Seller will
consent to the transfer and assignment of the utility bill and deposits for the
utilities.
3.18 Accounts Receivable. The Accounts Receivable, to the best of
Seller's knowledge represent bona fide claims of Seller against debtors for
gross sales and services performed or other charges, on a accrual basis, arising
on, or before the date of this Agreement and only include the Accounts
Receivable for the prior six (6) months before December 31, 1998 (July 1, 1998
through December 31, 1998), and excluding the Barry Smith receivables for
services performed prior to the said six months regardless of when collected,
and said Accounts Receivable are subject to no defenses, counterclaims or rights
of setoff, except for contractual adjustments, bad debt reserve and adjustments
done in the ordinary course of Seller's business.
3.19 Material Misstatements Or Omissions. No representations or
warranties by Seller in this Agreement, nor any document, exhibit, statement,
certificate or schedule furnished to Purchaser pursuant of this Agreement, or in
connection with the transactions contemplated by this Agreement, to the best of
Seller's knowledge, contains or will contain any untrue statement of material
fact, or omits to state any material fact necessary to make the statements or
facts contained therein not misleading. To the best of Seller's knowledge,
Seller has disclosed all events or conditions materially affecting the Assets.
3.20 Taxes. Seller hereby warrants that it shall remain full liable for
any and all federal, state, and local taxes, together with any penalties,
interest, and other amounts pertaining to the Sold Assets prior to and including
the Closing Date. There are no known disputes as to taxes payable by Seller that
might affect the sold Assets except as it relates to Personal Property Tax and
Seller specifically acknowledges that it will be responsible for this tax, and
if need be, pay any disputed Personal Property Tax so as not to affect the
Assets.
3.21 Medical Records. Seller has maintained the confidentiality of all
the Medical Records as required by and in conformance with all applicable
federal and state laws and regulations. Seller has not transferred any Medical
Records to any individual or entity against the request of any patient
prohibiting Seller from transferring his or her patient information or records.
ARTICLE IV - COVENANTS OF SELLER
4.1 Transfer of Licenses and Permits. Seller shall use commercially
reasonable efforts to assist Purchaser with the assumption, transfer, or
reissuance of any and all Permits required for the operation of the Clinic,
which in good faith it was not able to obtain prior to the Date of Closing.
4.2 Liabilities of Seller. All liabilities of Seller related to the
Assets that are not Assumed Liabilities will be paid by Seller as they come due,
which due date may be extended if the liability is contested by Seller in good
faith or does not effect the transferability of the Asset. In the event
liability affects the Asset and is contested, Seller shall immediately notify
Purchaser in writing as to the reason for the contest.
4.3 Agreements Respecting Employees of Seller. Seller and Purchaser
shall cooperate in the transition of coverage of retained Personnel from
Seller's health, medical, life insurance, and other welfare plans to plans
maintained by Purchaser. Seller shall handle all
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matters concerning the health, medical, life insurance, and other welfare plans
of any Personnel not retained by Purchaser, including but not limited to Cobra
notification. Purchaser agrees to provide Seller a list within one week of
Closing of any Personnel it does not retain.
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows:
5.1 Prior Occupancy. Purchaser represents that it has completed its due
diligence and acknowledges that it has had management of the Clinic since
November 20, 1998.
5.2 Authority. Purchaser has the corporate power to execute, deliver and
perform this Agreement and all other agreements, instruments and documents to be
delivered herewith or pursuant hereto and the consummation of the transactions
provided for herein and all such Agreements, documents and instruments are the
valid and binding obligation of Purchaser enforceable in accordance with their
respective terms. All requisite corporate action has been taken by Purchaser to
authorize (i) the execution, delivery and performance of this Agreement and all
other agreements, instruments and documents to be delivered herewith or pursuant
hereto and (ii) the consummation of the transactions provided for herein.
5.3 Adverse Claims. There are no actions, suits, claims, administrative
or other proceedings, or governmental investigations pending or, to Purchaser's
knowledge, threatened against Purchaser which question or seek to prevent
consummation of the transaction herein contemplated, whether at law or in
equity, or before any federal, state, local, foreign or other governmental
department, agency or instrumentality.
5.4 Governmental and Other Consents. No consent, authorization, or
approval of, or exemption by, or filing with, any court or governmental body or
authority is required in connection with the execution, delivery and performance
by Purchaser of this Agreement or of any of the instruments or agreements herein
referred to, or the taking of any action herein contemplated, except as set
forth in SCHEDULE 3.12.
5.5 Disclosure. No representation or warranty made in this Agreement or
as provided herein contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein not
misleading.
5.6 Non-Contravention. The execution and delivery of this Agreement and
the Bill of Sale and Assignment Agreement by Purchaser do not and the
consummation by Purchaser of the transactions contemplated hereby and thereby
will not violate any law or agreement applicable to it.
5.7 Validity. This Agreement has been duly executed and delivered by
Purchaser, and constitutes the legal, valid, and binding obligation of
Purchaser, enforceable against it in accordance with its terms, subject to
general equity principles and to applicable bankruptcy, insolvency,
reorganization, moratorium, and similar laws from time to time in effect
affecting the enforcement of creditors' rights. When the Bill of Sale and
Assignment Agreement has been executed and delivered in accordance with this
Agreement, it will constitute the legal, valid, and binding obligation of
Purchaser, enforceable in accordance with its terms, subject to general equity
principles and to applicable bankruptcy, insolvency, reorganization, moratorium,
and similar laws from time to time in effect affecting the enforcement of
creditors' rights.
ARTICLE VI - COVENANTS OF PURCHASER
6.1 Purchaser Performance. After the Closing Date, Purchaser shall
promptly pay as they become due and otherwise perform all obligations under the
Assumed Liabilities and otherwise perform and fulfill all other obligations with
respect to the Assets pertaining to the period after the Closing Date.
6.2 Confidentiality. In connection with the negotiation of this
Agreement, Seller may disclose Confidential Information, as defined below to
Purchaser. Purchaser further agrees to maintain the confidentiality of any and
all Confidential Information of Seller and not disclose any Confidential
Information to any Person other than such Person to whom Confidential
Information must be disclosed to effect the transactions and who are bound by
appropriate non-disclosure agreements or obligations. Purchaser shall not use
such Confidential Information for financial gain or in any manner adverse to
Seller, except that Purchaser may use such Confidential Information in
connection with the ordinary course of operation of the Clinic after Closing.
The
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foregoing obligations shall not apply to (i) any information which was known
by Purchaser prior to its disclosure by Seller; (ii) any information which was
in the public domain prior to the disclosure thereof, (iii) any information
which comes into the public domain through no fault of Purchaser; (iv) any
information which is disclosed to Purchaser by a third party, other than an
affiliate, having the legal right to make such disclosure; or (iv) any
information which is required to be disclosed by Order of any Forum. For
purposes of this Section, "Confidential Information" shall mean any and all
technical, business, and other information which is (a) possessed or hereafter
acquired by Seller and disclosed to Purchaser and (b) derives economic value,
actual or potential, from not being generally known to Persons other than
Seller, including, without limitation, technical or non-technical data,
compositions, devices, methods, techniques, drawings, inventions, processes,
financial data, financial plans, product plans, lists of actual or potential
customers or suppliers, information regarding the business plans and operations
of Seller, and the existence of discussions and negotiations between the parties
hereto relating to the terms hereof The restrictions of this Section shall
expire three years from the date hereof with respect to any confidential
business information that does not constitute a trade secret under applicable
law.
6.3 Seller's Employees. (a) Purchaser shall, in its sole discretion,
offer employment to all Personnel upon terms and conditions substantially
similar to those provided by Seller; however, Purchaser shall not be required to
provide any employee benefit provided by Seller and shall be free to initiate
its own program of employee benefits.
(b) Purchaser shall maintain employee records transferred to Purchaser
hereunder for a period of not less than four years and during that period will
afford Seller reasonable access to such records during Purchaser's normal
business hours. Purchaser shall maintain the confidentiality of such records and
limit access thereto in accordance with the law in a manner consistent with
Purchaser's treatment of its employee records.
(c) Purchaser agrees with respect to Personnel hired by Purchaser: (i)
to give such employees credit under Purchaser's benefits plans, programs, and
arrangements for such employees' period of service with Seller, provided that
such credit shall only be taken into account under any tax-qualified plan
maintained by Purchaser for purposes of determining such employees' eligibility
for participation and eligibility to satisfy any hours of service requirement in
order to receive an allocation of an employer contribution; (ii) to provide
coverage to such employees who are eligible under Purchaser's health, medical,
life insurance, and other welfare plans (A) without the need to undergo a
physical examination or otherwise provide evidence of insurability; (B) any
pre-existing condition or similar limitations or exclusions will be applied by
taking into account the period of coverage under Seller's plan; (C) by applying
and giving credit for amounts paid for the plan year in which the Closing Date
occurs as deductibles, out of pocket expenses, and similar amounts paid by
individuals and their beneficiaries.
ARTICLE VII - INDEMNIFICATION
7.1 Purchaser Claims. (a) Seller shall indemnify and hold
harmless Purchaser, its officers, directors, agents, successors, assigns or
affiliates, from and against any and all demands, claims, actions or causes of
action, assessments, losses, diminution in value, damages, but shall not include
punitive, special or consequential damages or attorney fees, except for claims
arising under SECTION 7.1(A)(IV), suffered or incurred by any such party by
reason of or arising out of any of the following:
(i) the breach by such Seller of any representation or warranty
contained herein;
(ii) the non-fulfillment of any covenant or agreement of such Seller
contained herein; and
(iii) any liability or obligation of the Seller not included in the
Assumed Liabilities; and
(iv) the operation and conduct of the business of the Company prior to
the Effective Time, so long as such claim was not a result of any
claim arising out of the operation of the Clinic that was caused
by the Purchaser; and
(v) any claim by any Person for any brokerage or finder's fee or
commission in respect of the transactions contemplated herein as a
sole result of Seller's dealings, agreement, or arrangement with
such Person. Purchaser represents they have not retained any such
broker or person.
(b) The amount of any liability of Seller under this SECTION 7.1 shall
be computed net of any tax benefit to Purchaser from the matter giving rise to
the claim for indemnification hereunder and net of any insurance proceeds
received by Purchaser with respect to the matter out of which such liability
arose.
19
<PAGE> 10
(c) The representations and warranties of Seller contained in this
Agreement, the Schedules, or any certificate delivered by or on behalf of Seller
pursuant to this Agreement or in connection with the transactions contemplated
herein shall survive the consummation of the transactions contemplated herein
and shall continue in full force and effect for a period of one year ("SURVIVAL
PERIOD"). Anything to the contrary notwithstanding, the Survival Period shall be
extended automatically to include any time period necessary to resolve a written
claim for indemnification which was made in reasonable detail before expiration
of the Survival Period but not resolved prior to its expiration, and any such
extension shall apply only as to the claims so asserted and not so resolved
within the Survival Period. Liability for any such item shall continue until
such claim shall have been finally settled, decided, or adjudicated.
(d) Purchaser shall provide written notice to Seller of any claim for
indemnification under this Article as soon as practicable. Purchaser shall make
commercially reasonable efforts to mitigate any damages, expenses, etc.
resulting from any matter giving rise to liability of Seller under this Article.
(e) Notwithstanding any other provision of this ARTICLE VII, the
aggregate principal amount of the obligation of Seller under this ARTICLE VII
shall not exceed the purchase price, unless the obligation was a direct result
from any activities concerning Medicaid/Medicare.
7.2 Defense of Third Party Claims. With respect to any claim by
Purchaser under SECTION 7. 1, relating to a third party claim, Purchaser shall
provide Seller with prompt written notice thereof in accordance with SECTION
13.4 and Seller may defend, in good faith and at its expense, by legal counsel
chosen by it, and Purchaser, at its expense, shall have the right to participate
in the defense of any such third party claim. So long as Seller is defending in
good faith any such third party claim, Purchaser shall not settle or compromise
such third party claim. In any event Purchaser shall cooperate in the settlement
or compromise of, or defense against, any such asserted claim.
7.3 Seller Claims. Purchaser shall indemnify and hold harmless Seller
against, and in respect of, any and all damages, claims, losses, liabilities,
and expenses, not including punitive, special or consequential damages or
attorney fees, which may arise out of: (i) any breach or violation by Purchaser
of any covenant set forth herein or any failure to fulfill any obligation set
forth herein, including, but not limited to the obligation to satisfy the
Assumed Liabilities; (ii) any breach of any of the representations or warranties
made in this Agreement by Purchaser; or (iii) any claim by any Person for any
brokerage or finder's fee or commission in respect of the transactions
contemplated hereby as a result of Purchaser's dealings, agreement, or
arrangement with such Person.
ARTICLE VIII - SETTLEMENTS OF DISPUTES
8.1 Settlement of Disputes. (a) Arbitration. All disputes with respect
to any claim for indemnification under this ARTICLE VIII and all other disputes
and controversies of every kind and nature between the parties hereto arising
out of or in connection with this Agreement shall be submitted to arbitration
pursuant to the following procedures:
(i) After a dispute or controversy arises, either
party may, in a written notice delivered to the other party, demand
such arbitration in accordance with the rules of the American
Arbitration Association ("AAA").
(ii) The arbitration hearing shall be held in
Atlanta, Georgia at a location designated by the AAA. The Commercial
Arbitration Rules of the AAA shall be used and the substantive laws of
the State of Georgia (excluding conflict of laws provisions) shall
apply;
(iii) An award rendered by the AAA pursuant to this
Agreement shall be final and binding on all parties to the proceeding,
shall deal with the question of costs of the arbitration and all
related matters, shall not award punitive or consequential damages, and
judgment on such award may be entered by either party in a court of
competent Jurisdiction; and
(iv) Except as set forth in subsection (b) below, the
parties stipulate that the provisions of this SECTION 8.1 shall be a
complete defense to any suit, action or proceeding instituted in any
federal, state, or local court or before any administrative tribunal
with respect to any controversy or dispute arising out of this
Agreement. The arbitration provisions hereof shall, with respect to
such controversy or dispute, survive the termination or expiration of
this Agreement.
20
<PAGE> 11
(b) Emergency Relief. Notwithstanding anything in this SECTION 8.1 to
the contrary, either party may seek from a court any provisional remedy that may
be necessary to protect any rights or property of such party pending the
establishment of the arbitral tribunal or its determination of the merits of the
controversy.
8.2 Exclusive Remedies. The rights and remedies of the parties under
this ARTICLE VIII shall be the sole and exclusive rights and remedies that
either party may seek for any misrepresentation, breach of warranty, or failure
to fulfill any covenant or agreement under this Agreement, except that either
party may seek specific performance or injunctive relief.
ARTICLE IX - CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
The obligations of Seller at the Closing shall be subject to the
satisfaction of the following conditions precedent at Closing (each of which may
be waived by Seller):
9.1 All representations and warranties of Purchaser contained herein
shall be true and correct in all material respects on the Closing Date as if
made on such date. All agreements of Purchaser contained herein shall have been
complied with in all material respects.
9.2 Purchaser shall execute, and deliver to Seller the Note (in the form
of EXHIBIT B) and the Security Agreement (in the form of EXHIBIT C) and a like
note and security agreement for the Receivables listed under SECTION 2.3(B).
ARTICLE X - CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS
The obligations Of Purchaser at the Closing shall be subject to the
satisfaction of the following conditions precedent at Closing (each of which may
be waived by Purchaser):
10.1 Representations. All representations and warranties of Seller
contained Closing Date as if made on such date.
10.2 Instruments of Conveyance and Transfer: Purchaser shall receive
from Seller such bills of sale, endorsements, assignments, and other good and
sufficient instruments of conveyance and transfer as are effective to transfer
Seller's title to the Assets to Purchaser as provided for in this Agreement and
immediately following the Closing, Seller shall take or cause to be taken all
such steps as are necessary to put Purchaser in actual possession and operating
control of the Assets free and clear of all liens and encumbrances.
10.3 Prior Secured Parties. Parties hereby acknowledge that there is a
current perfected security interest against the Assets of the Clinic by BLH,
Inc., as agent for certain debenture holders (collectively Meridian). Parties
agree, contemporaneous with the Closing to:
(a) Purchaser represents and warrants that they have obtained all
necessary authorizations and releases directly from Meridian and
based on these representations by Purchaser, Seller authorizes
Purchaser to pay Meridian under SECTION 2.3(A)(iii) above, 70% or
$665,000.00 directly to facilitate Purchaser's satisfaction of
clear title to the Assets.
(b) [Intentionally Omitted - changes incorporated on Note]
10.4 Third Party Approvals. All required consents, authorizations or
approvals, or exemptions by any governmental authority or third party shall have
been obtained or made.
10.5 Accrued Vacation and Sick Pay. Evidence satisfactory to Purchaser
that all vacation and sick pay and other employee benefits ("Benefits") for
non-contract employees or "at will" employees, which Seller employed and are
entitled to Benefits as a result of services provided to Seller for the period
ending on December 31, 1998, have been paid or otherwise satisfied in full.
Rest of Page Intentionally Left Blank
21
<PAGE> 12
ARTICLE XI - JOINT OBLIGATIONS
The parties further agree as follows:
11.1 Further Assurances. Seller and Purchaser agree that they will, upon
request of the other at any time after the Closing Date and without further
consideration, execute and deliver such other documents and instruments and take
such other action as may reasonably be requested to carry out more effectively
the purpose and intent of this Agreement.
11.2 Bulk Sales Law. For the purpose of this sale the Purchaser does
hereby wave the provisions of Georgia Uniform Commercial Code Bulk Transfers,
O.C.G.A, Section 11-6-1 01, et. seq.
11.3 Transition. Seller agrees to take any reasonable action requested
by Purchaser in order to promote the smooth transition of the Asset sale.
ARTICLE XII - TERMINATION
12.1 Termination. (a) This Agreement may be terminated as follows:
(i) At any time by the mutual consent of Seller and
Purchaser; or
(ii) By either Seller or Purchaser, at its sole election, at
any time after the Termination Date if the Closing shall
not have occurred on or prior to such date through no
fault of the party seeking the termination.
(b) In the event of the termination of this Agreement pursuant to
subparagraph (a)(ii) above because Seller or Purchaser, as the case may be,
shall have willingly failed to fulfill its obligations hereunder, the other
party shall, subject to ARTICLE VIII, be entitled to pursue, exercise, and
enforce any and all remedies, rights, powers, and privileges available to it at
law or in equity.
ARTICLE XIII - MISCELLANEOUS
13.1 Expenses. (a) Each party hereto shall pay its own legal,
accounting, and similar expenses incidental to the preparation of this
Agreement, the carrying out of the provisions of this Agreement, and the
consummation of the transactions contemplated hereby.
13.2 Contents of Agreement, Parties in Interest, etc. This Agreement
sets forth the entire understanding of the parties hereto with respect to the
transactions contemplated hereby and constitutes a complete statement of the
terms of such transaction. This Agreement shall not be amended or modified
except by written instrument duly executed by each of the parties hereto. Any
and all previous agreements and understandings between the parties regarding the
subject matter hereof, whether written or oral, are superseded by this
Agreement. Neither party has been induced to enter into this Agreement in
reliance on, and has not relied upon, any statement, representation, or warranty
of the other party not set forth in this Agreement, the Disclosure Memorandum,
or any certificate delivered pursuant to this Agreement.
13.3 Assignment and Binding Effect. Purchaser may assign the right to
receive any of the Assets at Closing to any affiliate or other third party
reasonably acceptable to Seller, provided that no such assignment shall affect
Purchaser's liability hereunder. Subject to the foregoing, all of the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the successors and assigns of Seller and Purchaser. Seller
acknowledges that it is the intent of Purchaser to assign the Assets to a
management services company of which Dr. Naresh K. Parikh will be majority owner
and Seller consents to the said assignment so long as the Seller's secured
rights are not diminished.
13.4 Notices. Any notice, request, demand, waiver, consent, approval,
or other communication which is required or permitted hereunder shall be in
writing and shall be deemed given only if delivered personally or sent by
telecopy or by first class registered or certified United States Mail, with
proper postage prepaid, as follows:
22
<PAGE> 13
IF TO SELLER, TO:
AHC Physicians Corporation, Inc.
1300 W. Walnut Hill Lane, Suite 275
Irving, Texas 75038
IF TO PURCHASER, TO:
Georgia Clinic, L.L.C.
% Naresh K. Parikh, M.D.
1861 Peeler Road
Dunwoody, Georgia 30338
WITH COPY TO:
William C. Tinsley, II
100 North Point Center East
Suite 440
Alpharetta, Georgia, 30022
or to such other address or person as the addressee may have specified in a
notice duly given to the sender as provided herein. Such notice, request,
demand, waiver, consent, approval or other communication will be deemed to have
been given as of the date actually delivered, or if mailed, four days after
deposit in the U. S. Mail properly addressed with adequate postage affixed.
13.5 GEORGIA LAW TO GOVERN. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA
WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.
13.6 Headings. All section headings contained in this Agreement are for
convenience of reference only, do not form a part of this Agreement, and shall
not affect in any way the meaning or interpretation of this Agreement.
13.7 Schedules and Exhibits. All Exhibits and Schedules referred to
herein are intended to be and hereby are specifically made a part of this
Agreement.
13.8 Severability. Any provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall be ineffective to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
the remaining provisions hereof, and any such invalidity or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
13.9 Public Announcements. Purchaser and Seller will coordinate with
each other all press releases relating to the transactions contemplated by this
Agreement and, except to the extent required by law, refrain from issuing any
press release, publicity statement, or other public notice relating to this
Agreement or the transactions contemplated hereby without providing the other
party reasonable opportunity to review and comment thereon.
13.10 Construction. The parties hereto have participated jointly in the
negotiation and drafting of this Agreement. In the event that any ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party hereto by virtue of the
authorship of any of the provisions of this Agreement.
13.11 Time. Time is and shall be of the essence of this Agreement.
13.12 Fax Signatures. This Agreement and any agreement or document
contemplated hereby may be signed and delivered by a party by facsimile, such
facsimile shall be deemed to be an original signature.
SIGNATURES NEXT PAGE
23
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement the date
first above written.
AHC PHYSICIANS CORPORATION, INC.
-----------------------------------
Dr. J.W. Stucki, Chairman and CEO
SELLER
GEORGIA CLINIC, LLC
------------------------------
NARESH K. PARIKH, M.D.,
President and Member
PURCHASER
24
<PAGE> 15
EXHIBIT TABLE OF CONTENTS
EXHIBIT TITLE
- ------- -----
A Bill of Sale and Assignment Agreement with Asset
List and Assumed Liabilities
B Promissory Note
C Security Agreement
D Allocation of Purchase Price
E Joint letter to at-will employees terminating
employment with AHC Physicians' Corporation and
hired by Georgia Clinic, L.L.C..
F Assignment and Assumption Agreements with landlord
and equipment leases.
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 34,135
<SECURITIES> 0
<RECEIVABLES> 16,036,517
<ALLOWANCES> 8,878,931
<INVENTORY> 40,000
<CURRENT-ASSETS> 7,574,200
<PP&E> 889,196
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,681,891
<CURRENT-LIABILITIES> 2,140,758
<BONDS> 0
0
0
<COMMON> 23,802
<OTHER-SE> 2,782,458
<TOTAL-LIABILITY-AND-EQUITY> 8,681,891
<SALES> 2,698,681
<TOTAL-REVENUES> 2,698,681
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,508,172
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,449
<INCOME-PRETAX> (566,923)
<INCOME-TAX> 0
<INCOME-CONTINUING> (566,923)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (566,923)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
