<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Date of Report (Date of earliest event reported):
January 31, 1996
AMERICAN HOMEPATIENT, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 0-19532 62-1474680
- - --------------- ------------ ----------------
(State of other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification
incorporation) Number)
</TABLE>
5200 Maryland Way, Suite 400, Brentwood, Tennessee 37027
---------------------------------------------------------
(Address of principal executive offices)
(615) 221-8884
---------------------------------
(Registrant's telephone number, including area code)
Not applicable
---------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
- - -------------------------------------------------------------------------------
Exhibit Index on Page 28
Page 1 of ____
<PAGE> 2
Item 5. Other Events
The Registrant elects to report the following acquisitions, not required to be
reported pursuant to Item 2, to inform its security holders:
Pursuant to an Asset Purchase Agreement, the Registrant acquired on January 31,
1996, through arm's-length negotiations, certain assets of Delcrest Medical
Products, Inc., a Pennsylvania corporation ("Delcrest"). Delcrest operates a
home health care business in the Commonwealth of Pennsylvania. The acquisition
will be accounted for as a purchase. The purchase price was approximately
$6,725,000 consisting of approximately $5,740,000 in cash, $335,000 by delivery
of cash into escrow, and $650,000 by promissory note. The cash and escrow
portion of the purchase price was funded through an existing credit facility
with a consortium of financial institutions headed by Bankers Trust Company.
Pursuant to an Asset Purchase Agreement, the Registrant acquired on March 29,
1996, through arm's length negotiations, certain assets of William E. Adams,
Inc., a Pennsylvania corporation d/b/a Homecare USA ("HomeCare"). Homecare
operates a home health care business with sixteen branches in the United
States, eight of which were transferred to the Registrant. The acquisition
will be accounted for as a purchase. The purchase price was approximately
$6,320,000, consisting of approximately $5,920,000 in cash and $400,000 by
delivery of cash into escrow. The purchase price was funded through an
existing credit facility with a consortium of financial institutions headed by
Bankers Trust Company.
2
<PAGE> 3
Item 7. Financial Statements and Exhibits.
<TABLE>
<CAPTION>
Page
----
<S> <C>
a. Financial statements of Businesses Acquired
i. Audited statement of acquired assets and
assumed liabilities of the Delcrest Medical
Business as of December 31, 1995 and the
related statements of revenues and expenses
before income taxes and cash flows for the
year then ended. 4
ii. Audited statement of acquired assets and
assumed liabilities of the Homecare Business
as of September 30, 1995 and the related
statements of revenues and expenses before
income taxes and cash flows for the year
then ended. Unaudited statement of acquired
assets and assumed liabilities of the
Homecare Business as of February 29, 1996
and the related statements of revenues and
expenses before income taxes and cash flows
for the three month periods ended February
29, 1996 and February 28, 1995. 13
b. Pro Forma Financial Information
i. Introductory information 22
ii. Unaudited pro forma selected income
statement data of American HomePatient, Inc.
for the three months ended March 31, 1996
and the year ended December 31, 1995. 23
iii. Unaudited pro forma selected balance
sheet data of American HomePatient, Inc. as
of March 31, 1996. 25
c. Exhibits. The exhibits filed as a part
of this Report are listed in the Index to
Exhibits immediately following the signature
page.
</TABLE>
3
<PAGE> 4
THE DELCREST MEDICAL BUSINESS
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995
TOGETHER WITH
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
4
<PAGE> 5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Delcrest Medical Products, Inc.:
We have audited the accompanying statement of acquired assets and assumed
liabilities (see Note 1) of DELCREST MEDICAL BUSINESS as of December 31, 1995,
and the related statements of revenues and expenses before income taxes (see
Note 1) and cash flows for the year then ended. These financial statements are
the responsibility of Delcrest Medical Products, Inc.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the acquired assets and assumed liabilities of the
Delcrest Medical Business as of December 31, 1995, and its revenues and
expenses before income taxes and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Nashville, Tennessee
April 26, 1996
5
<PAGE> 6
DELCREST MEDICAL BUSINESS
STATEMENT OF ACQUIRED ASSETS AND ASSUMED LIABILITIES
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Accounts receivable, less allowance for doubtful accounts
of $176,364 $ 806,864
Inventory 519,494
Other current assets 17,480
----------
Total current assets 1,343,838
----------
PROPERTY AND EQUIPMENT, AT COST 1,261,590
Less accumulated depreciation and amortization (683,205)
----------
Net property and equipment 578,385
----------
Total assets $1,922,223
==========
LIABILITIES AND INVESTMENT
BY DELCREST MEDICAL PRODUCTS, INC.
CURRENT LIABILITIES:
Trade accounts payable 210,000
Accrued payroll and related benefits 65,000
----------
Total current liabilities 275,000
----------
INVESTMENT BY DELCREST MEDICAL PRODUCTS, INC. 1,647,223
----------
Total liabilities and investment by Delcrest Medical
Products, Inc. $1,922,223
==========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
6
<PAGE> 7
DELCREST MEDICAL BUSINESS
STATEMENT OF REVENUES AND EXPENSES BEFORE INCOME TAXES
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
REVENUES:
Rentals and other patient revenues $4,327,140
Sales and other related revenues 2,093,420
----------
Total revenues 6,420,560
----------
EXPENSES:
Cost of sales and related services, excluding
depreciation and amortization 2,291,872
Operating 2,329,040
General and administrative 1,101,528
Depreciation and amortization 220,000
----------
Total expenses 5,942,440
----------
NET INCOME BEFORE INCOME TAXES $ 478,120
</TABLE> ==========
The accompanying notes to financial statements are an integral part of this
statement.
7
<PAGE> 8
DELCREST MEDICAL BUSINESS
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income before income taxes $478,120
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 220,000
Provision for doubtful accounts 187,000
Change in assets and liabilities:
Receivables, net (244,926)
Other assets (2,480)
--------
Net cash provided by operating activities 637,714
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net (196,274)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Return in investment to Delcrest Medical Products, Inc. (487,324)
--------
NET DECREASE IN CASH (45,884)
CASH, beginning of period 68,848
--------
CASH, end of period 22,964
LESS: Cash not acquired by American HomePatient 22,964
--------
Cash per statement of acquired assets and
assumed liabilities $ -
========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
8
<PAGE> 9
DELCREST MEDICAL BUSINESS
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The accompanying financial statements include the Delcrest Medical
Products, Inc. ("DMP") assets acquired and liabilities assumed
(collectively the "Delcrest Medical Business") by American HomePatient,
Inc. ("AHP") in a purchase transaction, as more fully described in Note 6.
The Delcrest Medical Business consists of the operations of four home
health care locations purchased by AHP.
The Delcrest Medical Business is included in the consolidated tax return of
DMP. The accompanying statements of revenues and expenses are presented
before income taxes. Accordingly, no provision or allocation for taxes on
income has been provided in these statements.
OPERATIONS
A portion of net revenues in the year ended December 31, 1995 are from
participation in Medicare and state Medicaid programs. Amounts paid under
these programs are generally based on a fixed rate. Revenues are recorded
at the expected reimbursement rates when the services are provided,
merchandise delivered or equipment rented to patients. Amounts earned
under the Medicare and Medicaid programs are subject to review by third
party payors. In the opinion of management, adequate provision has been
made for any adjustment that may result from such reviews.
Rentals and other patient revenues are derived from the rental of durable
medical equipment and the provision of respiratory therapies. Sales and
other related service revenues are derived from the sale of home health
care equipment and supplies and services related to the delivery of these
products.
The Delcrest Medical Business's home health care operations are located in
the southeast region of Pennsylvania.
9
<PAGE> 10
ACCOUNTS RECEIVABLE
The Delcrest Medical Business's accounts receivable, before allowance for
doubtful accounts, consists of the following components:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Medicare $521,111
Medicaid 68,826
Commercial insurance 226,142
Private pay, other 167,149
--------
$983,228
========
</TABLE>
The Delcrest Medical Business provides credit for a substantial portion of
its non-third party reimbursed revenues and continually monitors the credit
worthiness of its clients and the collectibility of its receivables. The
Delcrest Medical Business is subject to accounting losses from
uncollectible receivables in excess of its reserves. Management believes
that all appropriate reserves or valuation allowances have been recorded as
of December 31, 1995.
PROVISION FOR DOUBTFUL ACCOUNTS
The Delcrest Medical Business includes a provision for doubtful accounts in
operating expenses in the accompanying statement of revenues and expenses
before income taxes. The provision for doubtful accounts was $187,000 for
the year ended December 31, 1995.
INVENTORIES
All inventories represent goods or supplies and are priced at the lower of
cost (on a first-in, first-out basis) or net realizable value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CORPORATE GENERAL AND ADMINISTRATIVE CHARGES
DMP provides payroll, accounting, management, purchasing, and certain
distribution functions for the Delcrest Medical Business, as well as
various other administrative functions. Corporate general and
administrative expenses incurred have been allocated to the Delcrest
Medical Business based on sales, costs of goods sold, and personnel costs
of the Delcrest Medical Business compared to total sales, costs of goods
sold, and personnel costs of DMP.
10
<PAGE> 11
PROPERTY AND EQUIPMENT
Property and equipment are depreciated primarily using the straight-line
method over the estimated useful lives of the assets. The estimated useful
lives of all property and equipment are as follows: rental equipment, 5
years; furniture and fixtures, 5 years; office equipment, 5 years; and
delivery equipment, 3 years.
Maintenance and repairs are charged against income as incurred, and major
betterments and improvements are capitalized. The cost and accumulated
depreciation of assets sold or otherwise disposed of are removed from the
accounts and the resulting gain or loss is reflected in the accompanying
statement of revenues and expenses before income taxes.
INVESTMENT BY DMP
This investment represents the investment in the Delcrest Medical Business
by DMP, the historical accumulated earnings of the Business's operations,
the effect of unpaid tax allocations and charges to DMP and advances of
cash to and from DMP and the Business for working capital requirements.
For purposes of presentation in the accompanying combined statements of
investment by DMP, the significant transactions in the investment accounts
are indicated and the investment is reflected as equity in the respective
combined balance sheets.
2. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Rental equipment $1,054,067
Office equipment 105,951
Delivery vehicles 101,572
----------
$1,261,590
==========
</TABLE>
The rental equipment primarily consists of durable medical equipment that
is rented to home health care patients under cancelable month-to-month
leases. Patients renting certain types of durable medical equipment from
the Delcrest Medical Business have the option to purchase the equipment
after an initial rental period.
11
<PAGE> 12
3. LEASE COMMITMENTS
The Delcrest Medical Business has noncancelable operating leases on certain
office and storage space and cancelable month-to-month leases for
equipment. Rental expense for all operating leases was approximately
$167,000 for the year ended December 31, 1995 and is included in operating
expenses in the accompanying statement of revenues and expenses before
income taxes. Future minimum lease payments under the noncancelable leases
in effect at December 31, 1995 are $136,000 and $117,000 in 1996 and 1997,
respectively.
4. EMPLOYEE BENEFIT PLAN
DMP has a 401(k) employee deferred compensation plan covering all eligible
employees who elect to participate. To the extent permitted by law, the
employee contributions and related earnings of employees of the Delcrest
Medical Business who become employees of AHP may be transferred into AHP's
401(k) plan subsequent to the purchase transaction discussed in Note 6.
5. PROFESSIONAL LIABILITY INSURANCE
DMP currently maintains professional and general liability insurance with a
per claim coverage limit of $1,000,000 and an annual aggregate coverage
limit of $3,000,000. DMP is fully insured for workmen's compensation
claims up to $1,000,000 per claim by accident and disease, and a $1,000,000
policy limit for injury by disease. These liability policies are on a
occurrence basis and are renewable annually.
6. EVENTS SUBSEQUENT TO DECEMBER 31, 1995 (UNAUDITED)
Effective January 1, 1996, the Delcrest Medical Business was sold to a
subsidiary of AHP. The assets sold by DMP include durable medical and
other equipment, supplies, furniture and vehicles; computer hardware and
software; leases, operating contracts and other agreements; receivables;
business records; and certain other tangible and intangible assets. AHP
assumed liabilities of $275,000. The sales price received by DMP was
approximately $5,740,000 in cash, $335,000 by delivery of cash into escrow
and $650,000 in a promissory note receivable, less standard closing
adjustments.
12
<PAGE> 13
THE HOMECARE BUSINESS
FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(WITH INDEPENDENT AUDITOR'S REPORT THEREON)
13
<PAGE> 14
1600 Market Street
Philadelphia, PA 19103-7212
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
William E. Adams, II, Inc.:
We have audited the accompanying statement of acquired assets and assumed
liabilities of The HomeCare Business of William E. Adams II, Inc. as of
September 30, 1995, and the related statements of revenues and expenses before
income taxes and cash flows for the year then ended (see note 1). These
financial statements are the responsibility of William E. Adams II, Inc.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statements were prepared to present the acquired assets and
assumed liabilities of the HomeCare Business of William E. Adams II, Inc. sold
to American HomePatient, Inc. (the HomeCare Business) pursuant to the purchase
agreement described in note 1, and is not intended to be a complete presentation
of William E. Adams II, Inc.'s assets and liabilities or results of its
operations.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the acquired assets and assumed liabilities of The
HomeCare Business of William E. Adams II, Inc. as of September 30, 1995 and the
revenues and expenses before income taxes and cash flows for the year then ended
in conformity with generally accepted accounting principles.
May 1, 1996
KPMG Peat Marwick LLP
14
<PAGE> 15
THE HOMECARE BUSINESS
Statements of Acquired Assets and Assumed Liabilities
<TABLE>
- - --------------------------------------------------------------------------------
September 30, February 29,
1995 1996
- - --------------------------------------------------------------------------------
<S> <C> <C>
ACQUIRED ASSETS
(unaudited)
Inventories $ 205,278 165,277
Income producing rental equipment, net (note 2) 1,974,930 1,806,782
Property and equipment, net (note 2) 242,534 193,498
Other assets 23,551 23,551
- - --------------------------------------------------------------------------------
Total acquired assets 2,446,293 2,189,108
- - --------------------------------------------------------------------------------
ASSUMED LIABILITIES
Assumed liabilities:
Accounts payable, trade 844,948 790,344
Accrued expenses and other liabilities 34,920 89,524
- - --------------------------------------------------------------------------------
Total assumed liabilities 879,868 879,868
- - --------------------------------------------------------------------------------
Total acquired assets less assumed liabilities $ 1,566,425 1,309,240
- - --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
15
<PAGE> 16
THE HOMECARE BUSINESS
Statements of Revenues and Expenses Before Income Taxes
<TABLE>
- - ------------------------------------------------------------------------------------------------------------------
Five months ended
Year ended ---------------------------------
September 30, February 28, February 29,
1995 1995 1996
- - -------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Net revenues $ 7,365,526 2,962,593 3,242,304
Cost of net revenues 839,427 319,900 436,783
- - -------------------------------------------------------------------------------------------------------------------
Gross profit 6,526,099 2,642,693 2,805,521
Operating expenses:
Wages and employee benefits 2,052,555 807,665 895,172
Selling, general, and administrative 3,565,641 1,454,578 1,573,462
Provision for doubtful accounts 543,896 229,078 216,820
- - -------------------------------------------------------------------------------------------------------------------
Excess of revenues over expenses before income taxes $ 364,007 151,372 120,067
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
16
<PAGE> 17
THE HOMECARE BUSINESS
Statements of Cash Flows
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
Five months ended
Year ended ------------------------------------
September 30, February 28, February 29,
1995 1995 1996
- - -------------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Excess of revenues over expenses before income taxes $ 364,007 151,372 120,067
Adjustments to reconcile excess of revenues over
expenses before income taxes to net cash provided
by (used in) operating activities:
Depreciation and amortization 658,577 209,081 330,264
Changes in assets and liabilities:
(Increase) decrease in inventories (65,278) 9,181 40,001
(Increase) decrease in other assets 4,489 - 2,518
Increase (decrease) in accounts payable, trade 199,883 113,930 (54,604)
(Increase) decrease in accrued expenses and
other current liabilities (176,874) (116,390) 54,604
- - -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 984,804 367,174 492,850
- - -------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of rental equipment (580,777) (241,990) (113,080)
Acquisition of property, plant, and equipment (129,761) (9,161) -
Proceeds from sale of property, plant, and equipment - - -
- - -------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (710,538) (251,151) (113,080)
- - -------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Investment by William E. Adams II, Inc. (274,266) (116,023) (379,770)
- - -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities (274,266) (116,023) (379,770)
- - -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash - - -
Cash, beginning of period - - -
- - -------------------------------------------------------------------------------------------------------------------------------
Cash, end of period $ - - -
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
17
<PAGE> 18
THE HOMECARE BUSINESS
Notes to Financial Statements
September 30, 1995
- - --------------------------------------------------------------------------------
(1) FINANCIAL STATEMENT PRESENTATION
Effective March 1, 1996, William E. Adams II, Inc., trading as
HomeCare USA, sold its HomeCare Business to American HomePatient, Inc.
(AHP) for $6,320,000 in cash and AHP's assumption of working capital
liabilities not to exceed $879,868. The HomeCare Business sold
consisted of branches located in Virginia Beach, Winston-Salem,
Charlotte, St. Louis, Kansas City, Louisville, Tulsa, and Oklahoma
City which provide durable medical equipment (DME), respiratory and
infusion products and other supplies and services to patients in the
home. Approximately 60% of the HomeCare Business' revenues are
derived from sales to Medicare patients. The assets sold principally
consisted of the durable medical and other equipment, inventory,
furniture, and vehicles.
The accompanying financial statements present the acquired assets and
liabilities assumed by AHP as of February 29, 1996 and September 30,
1995 and the revenues and expenses of the business acquired for the
year ended September 30, 1995 and the five months ended February 29,
1996 and February 28, 1995.
The financial statements as of February 29, 1996 and for the five
months ended February 29, 1996 and February 28, 1995 are unaudited and
have been prepared by HomeCare's management. In the opinion of
management, the unaudited financial statements reflect all adjustments
necessary to present fairly such statements in accordance with
generally accepted accounting principles.
The HomeCare Business sold was included in the consolidated tax
returns of HomeCare USA. The accompanying statements of revenues and
expenses are presented before income taxes and, accordingly, no
provision or allocation for income taxes has been included therein.
Income taxes on a pro forma basis are $136,100, $45,400, and $56,200
for the year ended September 30, 1995 and for the five months ended
February 29, 1996 and February 28, 1995, respectively. Pro forma
income taxes are calculated using a 34% federal tax rate and the
respective state income tax rates applicable to each sold branch.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting principles followed in the preparation of
the accompanying financial statements follows:
INVENTORIES
Inventories principally consisting of medical supplies held for
sale are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
(Continued)
18
<PAGE> 19
THE HOMECARE BUSINESS
Notes to Financial Statements
- - --------------------------------------------------------------------------------
(2) CONTINUED
INCOME PRODUCING RENTAL EQUIPMENT
Products held for rental are included in income producing
rental equipment and are depreciated using the straight-line
method over three to seven years.
Capital leases are recorded at the present value of the future
rentals at lease inception and are amortized on a
straight-line basis over the shorter of the applicable lease
term or the useful life.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is provided using the
straight-line method over the estimated useful lives of the
assets which range from 3 to 7 years. Maintenance and repairs
are charged to expense and major renewals and betterments are
capitalized.
Capital leases are recorded at the present value of the future
rentals at lease inception and are amortized on a
straight-line basis over the shorter of the applicable lease
term or the useful life.
USE OF ESTIMATES
The management of HomeCare has made a number of estimates and
assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements in
conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue is recognized upon sale of inventory or equipment or
over the rental period for rental of equipment, net of
contractual allowances with regard to third-party payers
(insurance companies, Medicare, and Medicaid).
(Continued)
19
<PAGE> 20
THE HOMECARE BUSINESS
Notes to Financial Statements
================================================================================
(2) CONTINUED
CORPORATE GENERAL AND ADMINISTRATIVE CHARGES
HomeCare provides billing, payroll, accounting, management an
purchasing services for the HomeCare Business, as well as various
other administrative functions. Corporate general and administrative
expenses incurred have been allocated to the HomeCare Business based on
net operating revenues of the HomeCare Business compared to total net
revenues of HomeCare's home healthcare business. This allocation is
included in selling, general and administrative expenses and amounted
to $1,637,485 for the year ended September 30, 1995 and $704,935 and
$713,798 for the five months ended February 29, 1996 and February 28,
1995, respectively.
(3) INCOME PRODUCING RENTAL EQUIPMENT AND PROPERTY AND EQUIPMENT
The following is a summary of income producing rental equipment and
property and equipment, at cost, less accumulated depreciation and
amortization:
<TABLE>
<CAPTION>
February 29,
1996 September 30,
(unaudited) 1995
---------------------------------------------------------------------------
<S> <C> <C>
Income producing rental equipment $ 3,156,420 3,043,340
Accumulated depreciation (1,349,638) (1,068,410)
---------------------------------------------------------------------------
$ 1,806,782 1,974,930
===========================================================================
Furniture and fixtures $ 235,996 235,996
Automobiles 71,203 71,203
Equipment and machinery 225,733 225,733
---------------------------------------------------------------------------
532,932 532,932
Accumulated depreciation and amortization (339,434) (290,398)
---------------------------------------------------------------------------
$ 193,498 242,534
===========================================================================
</TABLE>
(Continued)
20
<PAGE> 21
THE HOMECARE BUSINESS
Notes to Financial Statements
================================================================================
(4) LEASES
The Company leases property and certain equipment under noncancelable
operating leases expiring in various years through 1999. Amounts
charged to operations under noncancelable operating leases were $358,995
for the year ended September 30, 1995 and $157,830 and $130,240 for the
five months ended February 29, 1996 and February 28, 1995, respectively.
Minimum future payments under noncancelable operating leases as of
September 30, 1995 are as follows:
Year Amount
--------------------------------------------
1996 $ 297,070
1997 107,144
1998 40,704
1999 3,011
============================================
Depreciation and amortization of $534,275 was charged to operations at
September 30, 1995 for income producing rental equipment held under
capital lease. The related capital lease debt was extinguished and the
rental equipment purchased subsequent to September 30, 1995 in connection
with the purchase transaction more fully described in note 4. As such,
the capital lease debt was not assumed by AHP and is not reflected in the
statement of acquired assets and assumed liabilities.
================================================================================
21
<PAGE> 22
AMERICAN HOMEPATIENT, INC.
PRO FORMA SELECTED FINANCIAL DATA
(unaudited)
On January 31, 1996, the Registrant closed on the acquisition of certain assets
(the "Delcrest Medical Business") of Delcrest Medical Products, Inc., a
Pennsylvania corporation. The purchase price was approximately $6,725,000,
consisting of approximately $5,740,000 in cash, $335,000 by delivery of cash
into escrow and $650,000 by promissory note. The Company assumed
responsibility for the operations effective January 1, 1996.
On March 29, 1996, the Registrant closed on the acquisition of certain assets
(the "Homecare Business") of William E. Adams II, Inc., a Pennsylvania
corporation d/b/a Homecare USA. The purchase price was approximately
$6,320,000, consisting of approximately $5,920,000 in cash and $400,000 by
delivery of cash into escrow. The Company assumed responsibility for the
operations effective March 1, 1996.
In addition, effective during 1995 and 1996, American Home Patient has acquired
assets and assumed liabilities of other home care businesses (the "Other
Acquired Operations"). The Other Acquired Operations include acquisitions
deemed to be significant under federal security laws (i.e., ConPharma Home
Health Care, Inc., Life Support Products, The Illinois Home Health Business,
The Mobile Medical Services Business and the Homehealth Center Business). The
Company has previously filed audited financial statements for these significant
acquisitions. None of the other acquisitions effective in 1995 or 1996 have
been significant acquisitions under Regulation S-X of the Securities and
Exchange Commission.
The unaudited pro forma income statement data for the year ended December 31,
1995 and the three months ended March 31, 1996 have been prepared based on the
historical income statements of the Company, as adjusted to reflect the
acquisitions of the Delcrest Medical Business, the Homecare Business and the
Other Acquired Operations as if such agreements had been effective as of
January 1 of each respective year, if applicable. The unaudited pro forma
balance sheet data as of March 31, 1996 has been prepared based on the
historical balance sheet of the Company, as adjusted to reflect the acquisition
of the Other Acquired Operations which were acquired subsequent to March 31,
1996 (the "Subsequent Acquired Operations"). The pro forma income statement
data may not be indicative of the future results of operations and what the
actual results of operations would have been had the acquisitions described
above been effective January 1 of each respective period.
22
<PAGE> 23
AMERICAN HOMEPATIENT, INC.
PRO FORMA INCOME STATEMENT DATA
YEAR ENDED DECEMBER 31, 1995
(unaudited, in thousands, except share amounts)
<TABLE>
<CAPTION>
AMERICAN DELCREST OTHER
HOMEPATIENT, MEDICAL HOMECARE ACQUIRED TOTAL
INC. PRODUCTS BUSINESS OPERATIONS ADJUSTMENTS COMPANY
------------- -------- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET REVENUES $ 162,371 $6,421 $7,552 $51,384 $ - $ 227,728
---------- ------ ------ ------- ------- ----------
EXPENSES:
Cost of sales and related services,
excluding depreciation and
amortization 34,031 2,292 953 14,462 - 51,738
Operating 81,718 2,329 3,933 22,356 569 (a,b) 110,905
General and administrative 12,594 1,102 1,651 4,112 (4,891)(a,b) 14,568
Depreciation and amortization 14,081 220 681 3,386 1,255 (c) 19,623
Interest 4,829 - - 689 4,730 (d) 10,248
---------- ------ ------ ------- ------- ----------
147,253 5,943 7,218 45,005 1,663 207,082
---------- ------ ------ ------- ------- ----------
Income (loss) before taxes 15,118 478 334 6,379 (1,663) 20,646
Provision for income taxes 6,029 - - 244 2,130 (e) 8,403
---------- ------ ------ ------- ------- ----------
Net income (loss) $ 9,089 $ 478 $ 334 $ 6,135 $(3,793) $ 12,243
========== ====== ====== ======= ======= ==========
Weighted average number of common shares 7,228,000 7,228,000
========== ==========
Net income per share $ 1.26 $ 1.69
========== ==========
</TABLE>
23
<PAGE> 24
AMERICAN HOMEPATIENT, INC.
PRO FORMA INCOME STATEMENT DATA
THREE MONTHS ENDED MARCH 31, 1996
(unaudited, in thousands, except share amounts)
<TABLE>
<CAPTION>
AMERICAN DELCREST OTHER
HOMEPATIENT, MEDICAL HOMECARE ACQUIRED TOTAL
INC. BUSINESS BUSINESS OPERATIONS ADJUSTMENTS COMPANY
------------ -------- -------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
NET REVENUES $ 55,053 $- $1,336 $1,742 $ - $ 58,131
---------- -- ------ ------ ----- ----------
EXPENSES:
Cost of sales and related services,
excluding depreciation and
amortization 12,297 - 35 524 - 12,856
Operating 27,935 - 604 693 31 (A,B) 29,263
General and administrative 3,249 - 282 172 (273)(A,B) 3,430
Depreciation and amortization 4,945 - 350 85 69 (C) 5,449
Interest 1,855 - - 7 229 (D) 2,091
---------- -- ------ ------ ----- ----------
50,281 - 1,271 1,481 56 53,089
---------- -- ------ ------ ----- ----------
Income (loss) before taxes 4,772 - 65 261 (56) 5,042
Provision for income taxes 1,842 - - 11 113 (E) 1,966
---------- -- ------ ------ ----- ----------
Net income (loss) $ 2,930 $- $ 65 $ 250 $(169) $ 3,076
========== == ====== ====== ===== ==========
Weighted average number of
common shares 7,995,000 7,995,000
========== ==========
Net income per share $ 0.37 $ 0.38
========== ==========
</TABLE>
24
<PAGE> 25
AMERICAN HOMEPATIENT, INC.
PRO FORMA BALANCE SHEET DATA
AS OF MARCH 31, 1996
(unaudited, in thousands)
<TABLE>
<CAPTION>
AMERICAN SUBSEQUENT
HOMEPATIENT, ACQUIRED
INC. OPERATIONS ADJUSTMENTS PRO FORMA
------------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 7,570 $ 686 $ (441)(F) $ 7,815
Accounts receivable, net 54,332 751 55 (F) 55,138
Other current assets 22,172 138 - 22,310
-------- ------ ------- --------
Total current assets 84,074 1,575 (386) 85,263
Property and equipment, net 44,916 406 - 45,322
Goodwill 124,415 20 4,543 (F) 128,978
Other assets 14,603 - - 14,603
-------- ------ ------- --------
$268,008 $2,001 $ 4,157 $274,166
======== ====== ======= ========
Current portion of debt and leases $ 17,178 $ 136 $ (136)(F) $ 17,178
Trade accounts payable 5,268 165 (23)(F) 5,410
Accrued expenses and other 12,077 148 (1)(F) 12,224
-------- ------ ------- --------
Total current liabilities 34,523 449 (160) 34,812
-------- ------ ------- --------
Long-term debt and leases 106,187 466 5,403 (F) 112,056
Other noncurrent liabilities 2,921 - - 2,921
-------- ------ ------- --------
Total noncurrent liabilities 109,108 466 5,403 114,977
-------- ------ ------- --------
Shareholders' equity 124,377 1,086 (1,086)(F) 124,377
-------- ------ ------- --------
Total liabilities and shareholders' equity $268,008 $2,001 $ 4,157 $274,166
======== ====== ======= ========
</TABLE>
25
<PAGE> 26
AMERICAN HOMEPATIENT, INC.
NOTES TO PROFORMA SELECTED FINANCIAL DATA
(UNAUDITED)
(a) Reflects additional general and administrative and operating expenses as
a result of integrating acquired operations. This adjustment includes
additional salaries and personnel expenses for certain acquisitions,
interim operating agreement management fees and other corporate expenses
expected to be incurred in connection with the acquisitions.
(b) Reflects the elimination of corporate overhead charges allocated to
ConPharma, the Medserv Business, the Clasen Companies, the Delcrest
Business, and the HomeCare Business by each company's respective parent and
the elimination of expenses related to the officers of certain of the
Acquired Operations. The Company did not acquire the parent's operations
and therefore did not assume these liabilities and expenditures. In
addition, the Company did not hire certain officers of certain of the
acquired operations.
(c) Reflects the incremental depreciation and amortization resulting from the
step-up of property and equipment in accordance with purchase accounting
for the Acquired Operations and the adjustment of depreciation methods
associated with certain of the Acquired Operations.
(d) Reflects additional interest expense as a result of seller notes payable
and borrowings under the Line of Credit in order to fund the cash portion
of the acquisitions and the elimination of interest expenses of certain of
the Acquired Operations upon the repayment of debt by the Company
immediately following the acquisition where applicable.
(e) Reflects adjustment to income taxes related to pro forma adjustments.
(f) Reflects the purchase price (including acquisition related expenses) paid
or to be paid for the Subsequent Acquired Operations, the refinancing of
certain assumed debt and the estimated allocation for the purchase price
to the fair value of assets acquired.
26
<PAGE> 27
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN HOMEPATIENT, INC.
By: /s/ Robert L. Fringer
----------------------------------------
Name: Robert L. Fringer
Title: Vice President--Controller and
Assistant Secretary
Date: May 16, 1996
27
<PAGE> 28
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No.
- - -----------
<S> <C>
2.1 Asset Purchase Agreement dated March 29, 1996 among William E.
Adams, II, Inc. d/b/a/ HomeCare USA and American HomePatient, Inc.
2.2 Asset Purchase Agreement dated January 31, 1996 among Delcrest
Medical Products, Inc. and American HomePatient, Inc.
</TABLE>
A copy of the exhibit index to each Asset Purchase Agreement has been included.
The exhibits have been omitted but Registrant shall furnish supplementally a
copy of any omitted exhibit to the Commission upon request.
28
<PAGE> 1
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
between
WILLIAM E. ADAMS, INC., d/b/a
HomeCare USA
as Seller
and
AMERICAN HOMEPATIENT, INC.
as Buyer
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Excluded Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Assumed Contracts, Leases and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II. RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Transfer of Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Application of Collections; Collection of Receivables and Retained Receivables . . . . . . . . . . . 5
ARTICLE III. PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Interest on Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Allocation of Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . 7
4.1 Organization, Qualification and Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Absence of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.3 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.4 Operations Since September 30, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.5 Employment Discrimination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.6 Licenses and Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.7 Medicare, Medicaid and Other Third-Party Payors. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.8 Compliance with Zoning, Land Use and Other Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.9 Title to Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.10 Leases and Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.11 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.12 Miscellaneous Representations Relating to Real Estate. . . . . . . . . . . . . . . . . . . . . . . . 14
4.13 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.14 Seller's Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.15 Labor Relations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.16 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.17 Broker's or Finder's Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.18 Conflicts of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.19 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
4.20 Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.21 Motor Vehicles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.22 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.23 Compliance with Healthcare and Other Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.24 Condition of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.25 WARN Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.26 Tax Returns; Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.1 Organization, Qualification and Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.2 Absence of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.3 Broker's or Finder's Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VI. COVENANTS OF PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.1 Access to Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.2 Insurance Coverage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.3 Current Return Filing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.4 Terminations and Offers of Employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.5 License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.6 Bulk Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VII. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.1 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.2 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.3 Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VIII. SELLER'S CONDITIONS TO CLOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.1 Compliance with Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.2 Transitional Assistance Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.3 Third Party Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE IX. BUYER'S CONDITIONS TO CLOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.1 Compliance with Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.2 Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.3 Inspection of Assets; UCC Searches, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.4 Confidentiality and Non-Compete Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9.5 Transitional Assistance Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.6 Operating Targets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
9.7 Value of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.8 Third Party Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.9 Approval of Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE X. OBLIGATIONS OF SELLER AT CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.1 Documents Relating to Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.2 Possession. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.3 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.4 Corporate Good Standing and Corporate Resolutions. . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.5 Third Party Consents and Releases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.6 Taxes and Other Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.7 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.8 Confidentiality, Non-Compete and Transitional Assistance Agreements. . . . . . . . . . . . . . . . . 25
10.9 Additionally Requested Documents; Post-Closing Assistance . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE XI. OBLIGATIONS OF BUYER AT CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.1 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.2 Assumption of Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.3 Opinion of Buyer's Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.4 Corporate Good Standing and Certified Board Resolutions. . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE XII. OPINION OF BUYER'S COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE XIII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
13.1 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
13.2 Indemnification by Seller and Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
13.3 Indemnification by Buyer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
13.4 Rules Regarding Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
13.5 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE XIV. PRESERVATION OF BUSINESS AND NONCOMPETE RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 29
14.1 Covenant Not to Compete. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
14.2 Enforceability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE XV. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
15.1 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
15.2 Other Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
15.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15.4 Confidentiality; Prohibition on Trading. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.5 Controlling Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.6 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.7 Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.8 Partial Invalidity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.9 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.10 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.11 Interpretation; Knowledge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.12 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.13 Legal Fees and Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
iv
<PAGE> 6
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is entered into on March __,
1996, by and between WILLIAM E. ADAMS, II, INC., a Pennsylvania corporation
("SELLER") doing business as HomeCare USA and AMERICAN HOMEPATIENT, INC., a
Delaware corporation ("BUYER").
R E C I T A L S:
WHEREAS, Seller owns and operates a respiratory and home medical
equipment business (the "BUSINESS"); and
WHEREAS, Seller currently operates the Business at sixteen (16)
locations, eight (8) of which locations are being transferred to Buyer
hereunder (collectively, the "TRANSFERRED LOCATIONS" and the portion of the
Business being operated at and from such Transferred Locations being called,
collectively, the "TRANSFERRED BUSINESS"); and
WHEREAS, listed on Exhibit A attached hereto is each Transferred
Location's address and the types of services and products provided by Seller at
each such location; and
WHEREAS, Seller is retaining those eight (8) locations listed by
address on Exhibit B attached hereto (collectively, the "RETAINED LOCATIONS"
and the portion of the Business being operated at and from such locations being
called, collectively, the "RETAINED BUSINESS"); and
WHEREAS, Seller's principal office (the "CORPORATE OFFICE") is located
at 4667 Somerton Road, Trevose, Pennsylvania; and
WHEREAS, the individuals and entities identified on Exhibit C attached
hereto (collectively, the "SHAREHOLDERS") legally and beneficially own all of
the issued and outstanding securities of Seller in the amounts and percentages
set forth on Exhibit C; and
WHEREAS, except for the Excluded Assets (as such term is defined
herein), Seller and Shareholders desire that Seller sell and transfer the
Assets (as such term is defined herein) to Buyer, and Buyer desires to purchase
the same from Seller, subject to the terms and conditions set forth in this
Agreement; and
WHEREAS, following the sale and transfer of the Assets, Seller intends
to continue to operate and/or endeavor to sell the Retained Business at the
Retained Locations and otherwise to continue its operations except as
specifically precluded under the provisions of this Agreement.
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NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties,
intending to be legally bound hereby, agree as follows:
ARTICLE
I. PURCHASE AND SALE
1.1 Purchase and Sale. Seller agrees to sell, transfer, assign,
convey and deliver to Buyer, and Buyer agrees to purchase from Seller, all
right, title and interest in all assets (except the Excluded Assets) of Seller
of every kind and type, tangible or intangible, real and personal, that are
either (i) used in the operation of the Transferred Business or (ii) constitute
the "CORPORATE OFFICE ASSETS" (as such term is defined in paragraph 1.1(2)), in
either event, free and clear of all encumbrances, mortgages, pledges, liens,
security interests, obligations and liabilities other than the Assumed
Liabilities (as defined in paragraph 1.3), which assets shall include, without
limitation, the following (collectively, the "ASSETS"):
(1) All right, title and interest of Seller in and to all
of the land and real estate leased by Seller and used in connection with the
Transferred Business as listed in Exhibit 1.1(1) attached hereto and in and to
all structures, improvements, fixed assets and fixtures including fixed
machinery and fixed equipment situated thereon or forming a part thereof and
all appurtenances, easements and rights-of-way related thereto (collectively,
such land, real estate and other related enumerated assets, and the leasehold
interest therein, are referred to herein as the "REAL ESTATE");
(2) All tangible personal property, medical and other
equipment, machinery, data processing hardware and software, furniture,
furnishings, appliances, vehicles and other tangible personal property of every
description and kind and all replacement parts therefor owned by Seller and
either located at a Transferred Location or used in connection with the
Transferred Business including, without limitation, the items listed on Exhibit
1.1(2) attached hereto, or (ii) owned by Seller and located at the Corporate
Office (the "CORPORATE OFFICE ASSETS"), including, without limitation, the
items listed as Corporate Office Assets on Exhibit 1.1(2) (collectively, the
"EQUIPMENT AND FURNISHINGS");
(3) All inventory of goods and supplies owned by Seller
and either located at a Transferred Location or used or maintained in
connection with the Transferred Business (collectively, the "INVENTORY");
(4) All accounts and notes receivables generated in
connection with the operation of the Transferred Business and billed on or
after the Effective Date (as such term is defined in paragraph 7.2) which
relate to services rendered and/or products sold
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on or after the Effective Date, and the proceeds thereof, but exclusive of
receivables underlying any first bill generated after the Effective Date
related to the Transferred Business' rental of durable medical equipment the
monthly anniversary date (including an original service date in the month of
February 1996) of which precedes the Effective Date (collectively, the
"RECEIVABLES");
(5) All cash generated in connection with services
rendered and/or products sold on or after the Effective Date in the operation
of the Transferred Business, exclusive of the proceeds of Retained Receivables
(as such term is defined in paragraph 1.2(3)), and all interest earned thereon,
if any (collectively, the "CASH AND CASH EQUIVALENTS");
(6) All patient, medical, personnel and other records
related to the Transferred Business (including both hard and microfiche
copies), and all manuals, books and records used in operating the Transferred
Business, including, without limitation, personnel policies and files and
manuals, accounting records, and computer software; provided, Seller may retain
copies of any such items necessary to permit it to perform all obligations it
may have or may subsequently incur in respect of any Retained Liability (as
such term is defined in paragraph 1.3(2)) and may retain copies of any such
items which are currently used in operating both the Retained Business and the
Transferred Business.
(7) To the full extent transferable, all federal, state
and local licenses, permits, registrations, certificates, consents,
accreditations, approvals and franchises necessary and used exclusively to
operate and conduct the Transferred Business, together with assignments
thereof, if required, and all waivers which Seller currently has, if any, of
any requirements pertaining to such licenses, permits, registrations,
certificates, consents, accreditations, approvals and franchises (collectively,
the "LICENSES");
(8) All goodwill, and, to the extent assignable by
Seller, all warranties (express or implied) and rights and claims related to
the Assets or the operation of the Transferred Business;
(9) All prepaid expenses which related to the Transferred
Business (the "PREPAID EXPENSES");
(10) Contract and leasehold rights and interests pursuant
to contracts for purchase or lease of Equipment and Furnishings, Inventory,
comparable or other personal property, construction contracts, contracts for
purchase, sale or lease of equipment, goods or services currently furnished or
to be furnished in connection with the Business which are Assumed Liabilities
pursuant to paragraph 1.3(1)(b); and
(11) All intangible or intellectual property owned,
leased, licensed or possessed by Seller and utilized in connection with the
Transferred Business;
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1.2 Excluded Assets. Seller is not selling and Buyer is
not purchasing or assuming obligations with respect to the following
(collectively, the "EXCLUDED ASSETS"):
(1) Seller's corporate, financial and tax records, all
patient, medical, personnel and other records related to the Retained Business
(including both hard and microfiche copies) and all manuals, books and records
used in operating the Retained Business, including, without limitation,
personnel policies and files and manuals, as well as the copies identified in
the proviso to paragraph 1.1(6);
(2) Seller's cash and cash equivalents which are either
unrelated to the Transferred Business or, if related, were generated in
connection with services rendered and/or products sold in the operation of the
Transferred Business prior to the Effective Date, exclusive of Receivables
proceeds, and all interest earned thereon, if any (collectively, "RETAINED
CASH");
(3) Seller's accounts and notes receivable which are not
Receivables as defined in paragraph 1.1(4), and the proceeds thereof
(collectively, the "RETAINED RECEIVABLES");
(4) The Mainframe of the DEC computer system located at
the Corporate Office; and
(5) All of Seller's leasehold interest in land and real
estate leased by Seller exclusively in connection with the Retained Locations
and in and to all structures, improvements, fixed assets and fixtures including
fixed machinery and fixed equipment situated thereon or forming a part thereof
and all appurtenances, easements and rights-of-way related thereto; all
tangible personal property, medical and other equipment, machinery, data
processing hardware and software, furniture, furnishings, appliances, vehicles
and other tangible personal property of every description and kind, and all
replacement parts therefor owned by Seller and located at a Retained Location;
and all licenses, permits, registrations, certificates, consents,
accreditations, approvals and franchises pertaining exclusively to the Retained
Business and all waivers pertaining exclusively thereto;
(6) All goodwill, warranties, rights and claims related
to the Excluded Assets or the operation of the Retained Business;
(7) All prepaid expenses which do not constitute Prepaid
Expenses;
(8) All intangible or intellectual property owned,
leased, licensed or possessed by Seller and utilized exclusively in connection
with the Retained Business;
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(9) All of Seller's right, title and interest in the name
"HOMECARE USA" and derivatives thereof, subject expressly to the right and
license to utilize the name HomeCare USA pursuant to paragraphs 1.1(11) and
6.5; and
(10) Any of Seller's other assets that have consistently
over the past two years not been used in the operation of the Transferred
Business including those assets enumerated on Exhibit 1.2(10) attached hereto.
The parties acknowledge and agree that Seller is not conveying to
Buyer any of the Excluded Assets and that, following Closing, Buyer will not
have any right, title, interest or obligation with respect to the Excluded
Assets.
1.3 Assumed Contracts, Leases and Liabilities.
(1) At Closing, Buyer will assume and agree to pay or
perform, as the case may be, only (a) those obligations existing at the
Effective Date constituting working capital liabilities incurred in the
ordinary course of operating the Business, other than long-term capital leases,
notes payable and other interest bearing debt, which Buyer expressly elects to
assume, which obligations are specifically identified on Exhibit 1.3 attached
hereto (collectively, the "ASSUMED PAYABLES"), (b) those working capital
obligations arising on and after the Effective Date in the ordinary course of
operating the Transferred Business and incurred in a manner consistent with
past practice, exclusive of obligations caused or arising out of the gross
negligence or the willful acts or omissions of Seller and/or its employees,
representatives or agents, (c) those obligations arising on and after the
Effective Date under the Assumed Contracts (as such term is defined in
paragraph 4.10) pertaining to the Transferred Locations; and (d) those
obligations arising on and after May 1, 1996 under the Assumed Contracts
pertaining solely to the Corporate Office, including the Corporate Office Lease
(as such term is defined in paragraph 4.10) (collectively, those items referred
to in clauses (a), (b), (c) and (d) in this paragraph 1.3 (1) are referred to
as the "ASSUMED LIABILITIES").
(2) Except for the Assumed Liabilities, it is expressly
agreed and understood by each of the parties to this Agreement that Buyer does
not assume, and shall not be liable for, any debt, liability or obligation of
Seller or Shareholders of any type or description whatsoever, whether related
or unrelated to the Assets, the Transferred Business, the Retained Business,
the Corporate Office or the transactions contemplated within this Agreement and
that Seller and/or Shareholders shall remain liable and responsible for the
payment or performance, as the case may be, of all debts, liabilities,
obligations, contracts, leases, notes payable, accounts payable, commitments,
agreements, suits, claims, indemnities, mortgages, taxes, contingent
liabilities and other obligations of Seller and/or Shareholders including,
without limitation, any and all investment tax credit recapture, depreciation
recapture, recapture or prior period adjustments under Medicare, Medicaid and
Blue Cross, all impositions of income tax and
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other taxes and related penalties and assessments including but not limited to
taxes and fines associated with the failure to be duly qualified as a foreign
corporation in those jurisdictions in which the Transferred Business operates;
damages arising out of insurance claims, judgment liens and/or tax liens; all
employee wages, salaries and benefits including, without limitation, COBRA and
WARN obligations, accrued vacation and sick pay not expressly Assumed
Liabilities, and other accrued employee benefits including rights of Seller's
retirees to participate in Seller's medical plans (collectively, the "RETAINED
LIABILITIES"). Notwithstanding any statement contained in this Agreement or
otherwise seemingly to the contrary, the Assumed Payables shall not exceed, in
the aggregate, an amount equal to Eight Hundred Seventy-Nine Thousand Eight
Hundred Sixty-Eight and No/100 Dollars ($879,868.00) (the "ASSUMED PAYABLES
CAP").
(3) For purposes of calculating the amount of the Assumed
Payables Cap, the present value of payments to be made on and after the
Effective Date with respect to any Assumed Payable that is a capitalized
obligation under generally accepted accounting principles shall be considered
part of the amount of such Assumed Payable. In the event the Assumed Payables,
in the aggregate, exceed the Assumed Payables Cap, then the cash portion of the
Purchase Price (as such term is defined herein) payable at Closing shall be
reduced on a dollar-per-dollar basis to the full extent of such excess.
ARTICLE II. RECEIVABLES
2.1 Transfer of Receivables. At Closing, Seller and Shareholders
will take all appropriate action necessary to vest in Buyer all right, title
and interest in the Receivables, and Buyer will proceed to collect the
Receivables following Closing. In the event that any Receivable cannot be
transferred to Buyer, then Seller and Shareholders shall collect the
Receivable in compliance with all applicable laws, as Buyer's agent for the
limited purpose of such collection, and shall immediately deliver to Buyer the
gross proceeds of such collection.
2.2 Application of Collections; Collection of Receivables and
Retained Receivables. Seller and Buyer shall each apply collections from
patients and third party payors according to the invoice to which each such
collection relates. Seller shall be responsible for the collection of the
Retained Receivables and, following cessation of the Transitional Assistance
Agreement and subject to the provisions of paragraph 2.1 above, Buyer shall be
responsible for the collection of the Receivables. In the event that Seller or
Shareholders receive a payment which should be applied to a Receivable based on
the date of invoice standard set forth above, Seller shall immediately transmit
such amount to Buyer. Likewise, in the event Buyer receives any payment that
should be applied to a Retained Receivable based on the date of invoice
standard set forth above, Buyer shall immediately transmit such payment to
Seller. Each party will, upon request of the other, provide written
documentation regarding payments it has received with respect to the other
party's Receivables or Retained Receivables, as the case may be. In the event
Buyer
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receives a written objection from a third party to the payment of a Retained
Receivable, Buyer will promptly notify Seller and cooperate with Seller, at
Seller's expense, in Seller's attempts to resolve any such written objection
and secure payment of the Retained Receivable. Subject to Seller's obligations
under the Transitional Assistance Agreement, in the event Seller receives any
written objection from a third party to the payment of a Receivable, Seller
shall promptly notify Buyer and cooperate with Buyer at Buyer's expense in
Buyer's attempts to resolve any such written objection and secure payment of
the Receivable.
ARTICLE III. PURCHASE PRICE
3.1 Purchase Price. The purchase price payable by Buyer to Seller
for the Assets and in consideration for the agreements contained herein,
including the agreements contained in Article XIV hereof, will be Six Million
Three Hundred Twenty Thousand and No/100 Dollars ($6,320,000.00) (the "PURCHASE
PRICE"). The Purchase Price shall be subject to adjustment as set forth in this
Agreement and shall be payable in the following manner:
(1) Five Million Nine Hundred Twenty Thousand and No/100
Dollars ($5,920,000.00), subject to the foregoing adjustments, by wire of
immediately available funds at Closing at the wiring instructions set forth in
Exhibit 3.1(1) attached hereto;
(2) Two Hundred Fifty Thousand and No/100 Dollars
($250,000.00) by deposit of good funds into escrow pursuant to an escrow
agreement, the form of which is attached hereto as Exhibit 3.1(2) (the "ESCROW
AGREEMENT"); and
(3) One Hundred Fifty Thousand and No/100 Dollars
($150,000.00) by deposit of good funds into escrow pursuant to an escrow
agreement, the form of which is attached hereto as Exhibit 3.1(3) (the "OXYGEN
ESCROW AGREEMENT").
3.2 Interest on Purchase Price. In addition to the Purchase Price
described in paragraph 3.1, Buyer shall deliver to Seller by wire of
immediately available funds at Closing interest on that portion of the Purchase
Price noted in paragraph 3.1(1) at the rate of seven percent (7.0%) per annum
from the Effective Date until Closing. Likewise, Buyer shall deliver into the
respective escrow accounts established pursuant to the Escrow Agreement and the
Oxygen Escrow Agreement interest on that portion of the Purchase Price noted in
paragraphs 3.1(2) and 3.1(3), respectively, at the rate of seven percent (7.0%)
per annum from the Effective Date until Closing.
3.3 Allocation of Purchase Price. The Purchase Price shall be
allocated among the Assets in the manner set forth in Exhibit 3.3 attached
hereto (the "ALLOCATION"). The parties to this Agreement expressly agree that
the Allocation shall be used by them for all
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purposes including tax, reimbursement and other purposes. Each party to this
Agreement agrees that it will report the transaction completed pursuant to this
Agreement in accordance with the Allocation, including any report made under
Section 1060 of the Internal Revenue Code of 1986, as amended (the "CODE"), and
that no such party will take a position inconsistent with the Allocation except
with the prior written consent of the other parties hereto.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS
As a material inducement to Buyer to enter into this Agreement and to
consummate the transactions contemplated herein, Seller hereby represents and
warrants to Buyer, as follows:
4.1 Organization, Qualification and Authority. Seller is a
corporation duly organized and validly existing in the Commonwealth of
Pennsylvania, and is in good standing and duly qualified to do business as a
foreign corporation in Virginia, Colorado and Oklahoma. Seller has full
corporate power and corporate authority to own, lease and operate its
facilities and assets as presently owned, leased and operated; to carry on its
operations as now conducted; and is duly qualified to do business and is in
good standing in each of the jurisdictions where its operations are conducted.
Except for Shareholders, no other person or entity owns or holds, has any
interest in, whether legal, equitable or beneficial, or has the right to
purchase, any capital stock or other security of Seller. Seller owns no
capital stock, security, interest or other right, or any option or warrant
convertible into the same, of any corporation, partnership, joint venture or
other business enterprise. Seller has the full right, power and authority to
execute, deliver and carry out the terms of this Agreement and all documents
and agreements necessary to give effect to the provisions of this Agreement and
to consummate the transactions contemplated on the part of Seller hereunder.
Shareholders have the full right, power and authority to execute, deliver and
carry out the terms of that certain Joinder to this Agreement of even date
herewith, and those certain Confidentiality and Non-Compete Agreements and the
Non-Compete Agreement of William Adams referenced in paragraph 9.6, to
consummate the transactions contemplated on the part of Shareholders hereunder,
and to take all actions necessary, in their capacity as the stockholders of
Seller, to permit or approve the actions of Seller taken in connection with
this Agreement. The execution, delivery and consummation of this Agreement,
and all other agreements and documents executed in connection herewith by
Seller, have been duly authorized by all necessary action on the part of
Seller. No other action, consent or approval on the part of Seller,
Shareholders or any other person or entity, is necessary to authorize Seller's
due and valid execution, delivery and consummation of this Agreement and all
other agreements and documents executed in connection hereto. This Agreement
and all other agreements and documents executed in connection herewith by
Seller, as to Seller, and the Joinder, Confidentiality and
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Non-Compete Agreement and Non-Compete Agreements, as to Shareholders, upon due
execution and delivery thereof, shall constitute the valid and binding
obligations of each of Seller and Shareholders, as applicable, enforceable in
accordance with their respective terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally and by general principles of equity.
4.2 Absence of Default. The execution, delivery and consummation
of this Agreement, and all other agreements and documents executed in
connection herewith by Seller and, as described in paragraph 4.1, the
Shareholders will not constitute a violation of, or be in conflict with, will
not, with or without the giving of notice or the passage of time, or both,
result in a breach of, constitute a default under, or create (or cause the
acceleration of the maturity of) any debt, indenture, obligation or liability
affecting the Assets or the Transferred Business pursuant to, result in the
creation or imposition of any security interest, lien, charge or other
encumbrance upon any of the Assets under: (a) any term or provision of the
Charter or Bylaws of Seller; (b) any Assumed Contract and any other material
contract, lease, purchase order, agreement, document, instrument, indenture,
mortgage, pledge, assignment, permit, license, approval or other commitment to
which Seller and/or Shareholders are a party or by which Seller and/or
Shareholders or the Assets are bound; (c) any judgment, decree, order,
regulation or rule of any court or regulatory authority applicable to Seller,
Shareholders, the Transferred Business or the Assets; or (d) any law, statute,
rule, regulation, order, writ, injunction, judgment or decree of any court or
governmental authority or arbitration tribunal to which Seller and/or
Shareholders and/or the Assets are subject.
4.3 Financial Statements.
(1) Attached hereto as Exhibit 4.3 are true and correct
copies of Transferred Business' unaudited balance sheet as of September 30,
1995 and its unaudited income statement for the year then ending (the "FISCAL
YEAR FINANCIAL STATEMENTS"), and the interim unaudited balance sheet and income
statement of the Transferred Business for the five (5) month period ended
February 29, 1996 (the "INTERIM FINANCIAL STATEMENTS" which, with the Fiscal
Year Financial Statements, shall be the "FINANCIAL STATEMENTS"). The Financial
Statements are based on the books and records of the Transferred Business,
respectively, and present fairly the financial position of the Transferred
Business as of, and the results of operations of the Transferred Business for,
the periods specified, except that the Financial Statements do not have
footnotes and do not reflect certain items of corporate overhead, and the
Interim Financial Statements are subject to ordinary course year-end
adjustments.
(2) Seller shall use its best efforts to cooperate with
Buyer in Buyer's attempt to perform an audit of the Transferred Business for
any period prior to Closing not already audited, and Buyer shall reimburse
Seller for its reasonable and documented out-of-pocket expenses incurred in
providing such cooperation.
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4.4 Operations Since September 30, 1995. Since September 30,
1995, there has been no:
(1) material change in the condition, financial or
otherwise, which has, or could reasonably be expected to have, an adverse
effect on any of the Assets, the Transferred Business or future prospects of
the Transferred Business, or in the results of the operations of the
Transferred Business;
(2) loss, damage or destruction of or to any of the
Assets, whether or not covered by insurance;
(3) sale, lease, transfer or other disposition by Seller
of, or mortgages or pledges of or the imposition of any lien, charge or
encumbrance on, any portion of the Assets, other than those made in the
ordinary course of business;
(4) other than normal adjustments in conjunction with
periodic compensation reviews, increase in the compensation payable by Seller
to any of its Shareholders, employees, directors, independent contractors or
agents, or any increase in, or institution of, any bonus, insurance, pension,
profit-sharing or other employee benefit plan or arrangements made to, for or
with the employees, directors, Shareholders or independent contractors of the
Seller;
(5) cumulative net operating loss incurred in the
operation of the Transferred Business;
(6) change in the accounting methods or practices
employed by Seller or change in depreciation or amortization policies;
(7) issuance or sale by Seller or Shareholders, or
contract or other commitment entered into by Seller or Shareholders, for the
issuance or sale of any shares of capital stock or securities convertible into
or exchangeable for capital stock of Seller except for the convertible demand
notes listed on Exhibit C;
(8) payment by Seller of any dividend, distribution or
extraordinary or unusual disbursement or expenditure or intercompany payable
which in any way depletes the Assets or otherwise relates in any way to the
Transferred Business;
(9) sale, transfer, pledge, mortgage or other disposition
of any of the Assets (except inventory and equipment held for rent in the
ordinary course of business);
(10) merger, consolidation or similar transaction;
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(11) federal, state or local statutes, rule, regulation,
order or case adopted, promulgated or decided which, to the best knowledge of
Seller, adversely affects the Transferred Business or Assets;
(12) strike, work stoppage or other labor dispute
adversely affecting the Business; or
(13) termination, waiver or cancellation of any rights or
claims of Seller, under contract or otherwise, other than by reason of the
scheduled termination of the term thereof and excluding rights and claims
related exclusively to the Retained Business which, singly or in the aggregate,
are no material.
Further, since the Effective Date, neither Shareholders nor any of
their respective Affiliates (as such term is defined in paragraph 4.11) have
received any compensation, benefits or distributions from Seller, whether as
salary, bonus, fees, dividends or any other form of compensation except for
payments to the Board of Directors and William Adams in the ordinary course of
business consistent with past practice.
4.5 Employment Discrimination. No person or party (including,
without limitation, any governmental agency) has asserted to Seller, or, to the
knowledge of Seller, has asserted to a third party or have threatened to
assert, any claim for any action or proceeding, against Seller (or any officer,
director, employee, agent or shareholders of Seller) arising out of any
statute, ordinance or regulation relating to wages, collective bargaining,
discrimination in employment or employment practices or occupational safety and
health standards (including, without limitation, the Fair Labor Standards Act,
Title VII of the Civil Rights Act of 1964, as amended, the Occupational Safety
and Health Act, the Age Discrimination in Employment Act of 1967, the Americans
with Disabilities Act or the Family and Medical Leave Act). Any such claims
will not result in any liability to or obligation of Buyer, and will not cause
or lead to any lien or encumbrance being placed, created or filed against or
upon any of the Assets.
4.6 Licenses and Permits.
(1) Seller has all material Licenses necessary for Seller
to occupy, operate and conduct the Transferred Business, and there does not
exist any waivers or exemptions relating thereto. There is no default on the
part of Seller or, to the knowledge of Seller, any other party under any of the
Licenses. To the knowledge of Seller, there exist no grounds for revocation,
suspension or limitation of any of the Licenses. Copies of each of the
Licenses are attached to and listed on Exhibit 4.6(1) attached hereto. The
most recent licensure surveys, deficiency reports and plans of correction
related to each of these items has also been included in Exhibit 4.6(1).
Seller is licensed by the regulatory bodies listed on Exhibit 4.6(1). No
notices have been received by Seller with respect to any threatened, pending,
or possible revocation, termination, suspension or limitation of the Licenses.
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(2) Seller is not required to have any certificates of
need or similar authorization in order to operate the Business.
(3) Each employee of Seller employed in connection with
the operation of the Transferred Business has all Licenses required for each
such employee to perform such employees' designated functions and duties for
Seller in connection with conducting the Transferred Business, and there exists
no waivers or exemptions relating thereto. To the knowledge of Seller, there
is no default under, nor does there exist any grounds for revocation,
suspension or limitation of, any such Licenses and Permits.
(4) Seller is duly accredited by the Joint Commission on
Accreditation of Healthcare Organizations ("JCAHO") to operate and conduct the
Transferred Business. Included in Exhibit 4.6(4) attached hereto are the
certificates of accreditation issued by the JCAHO, and copies of the most
recent JCAHO accreditation survey report with respect to the Transferred
Business, including a list of deficiencies, if any.
4.7 Medicare, Medicaid and Other Third-Party Payors.
(1) The Transferred Business participates in the Medicare
and Medicaid Programs (the "PROGRAMS"). A list of and copies of Seller's
existing Medicare and Medicaid contracts with respect to the Transferred
Business or, if such contracts do not exist, other documentation evidencing
such participation (collectively, the "PROGRAM AGREEMENTS") are included in
Exhibit 4.10 attached hereto. Seller is in full compliance with all of the
terms, conditions and provisions of the Program Agreements.
(2) No notice of any offsets against future
reimbursements under or pursuant to the Programs has been received by Seller,
nor, to the knowledge of Seller, is there any basis therefor. There are no
pending appeals, adjustments, challenges, audits, litigation, notices of intent
to recoup past or present reimbursements with respect to the Programs. Seller
has not been subject to or, to the knowledge of Seller, threatened with loss of
waiver of liability for utilization review denials with respect to the Programs
during the past twelve (12) months, nor has Seller received notice of any
pending, threatened or possible decertification or other loss of participation
in, any of the Programs.
(3) Seller currently has contractual arrangements with
Blue Cross and other third party payors with respect to the Transferred
Business. Seller is in full compliance with all of the material terms,
conditions and provisions of such contracts. A list of and copies of Seller's
existing Blue Cross contracts and other third party payor contract(s) used in
connection with the Transferred Business are included in Exhibit 4.10 attached
hereto.
(4) All liabilities and contractual adjustments of
Seller under any third party payor or reimbursement programs with respect to
the Transferred Business have
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been properly reflected and adequately reserved for in the Financial
Statements. In the event that, following Closing, Buyer suffers any offsets
against any reimbursement under any third-party payor or reimbursement programs
due to Buyer relating to the periods on or prior to the Closing, relating to
amounts owing under any such programs by Seller, then Seller shall immediately
pay to Buyer the amounts so offset; provided, however that Buyer shall bear the
risk of offset as to operations beginning as of the Effective Date so long as
such offsets are not caused by the willful acts or omissions, or gross
negligence, of Shareholders, Seller and/or its employees, representatives or
agents. In addition, Seller shall pay Buyer interest at the rate of seven
percent (7.0%) per annum from the date of offset by the third party until the
date full requisite payment is paid by Seller to Buyer. Seller shall be
entitled to receive any refund under any third party payor or reimbursement
program related to Retained Cash, Retained Receivables or underlying products
or services rendered in the operation of the Transferred Business, and Buyer
shall likewise be so entitled to retain any refund under any third party payor
or reimbursement program related to Cash and Cash Equivalents, Receivables or
underlying products or services rendered in the operation of the Transferred
Business.
4.8 Compliance with Zoning, Land Use and Other Laws. To the
knowledge of Seller, none of the Real Estate is in material violation of any
zoning, public health, building code or other similar laws applicable thereto
or to the ownership, occupancy and/or operation thereof, nor does there exist
any waivers or exemptions relating to the Real Estate with respect to any
non-conforming use or other zoning or building codes matters.
4.9 Title to Assets.
(1) Seller is the sole legal and beneficial owner of the
personal property included in the Assets, free and clear of all mortgages,
security interests, liens, reservations, defects in the title, encroachments,
and other encumbrances, except as set forth in Exhibit 4.9 attached hereto.
The Assets are all the assets set forth on the Interim Financial Statements
and, together with any assets leased by Seller pursuant to the Assumed
Contracts, are all of the assets used in the operation of the Transferred
Business.
(2) The Real Estate described in Exhibit 1.1(1) includes
all real property leased by Seller and used in connection with the Transferred
Business. Seller owns no real estate. Seller is in lawful possession of all
of the leased Real Estate including, without limitation, the buildings,
structures and improvements situated thereon and appurtenances thereto, in each
case free and clear of all mortgages, liens and other encumbrances or
restrictions that are related to or impair the Assets or the Transferred
Business except as set forth on Exhibit 4.9 attached hereto. Additionally,
subject to receipt of requisite third party consents which Seller shall obtain
by Closing, Seller has the right and authority to assign to Buyer the Assumed
Contracts which pertain to leased Real Estate, including the Corporate Office
Lease, as contemplated under the terms of this Agreement, and such
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assignment, once effected as contemplated hereunder, will vest in the Buyer the
lawful right to possess and use the leased Real Estate.
4.10 Leases and Contracts.
(1) Exhibit 4.10 attached hereto sets forth a complete
and accurate list of all contracts, including the Program Agreements,
agreements, purchase orders, leases, subleases, options and commitments, oral
or written, and all assignments, amendments, schedules, exhibits and appendices
thereof, which affect or relate to the Transferred Business or any Asset or any
interest therein, to which Seller is a party or by which Seller, the Assets or
the Transferred Business is bound or affected (collectively, the "CONTRACTS"),
including, without limitation, service and maintenance contracts, management
agreements, equipment leases, and building leases pertaining to any part of the
Real Estate including the lease agreement pertaining to the Corporate Office
(the "Corporate Office Lease"). Attached to Exhibit 4.10 are accurate and
complete copies of all written Contracts and written summaries of key terms of
all oral Contracts. Except for those Contracts which Buyer expressly elects to
assume (collectively, the "ASSUMED CONTRACTS") as evidenced by that certain
Assignment and Assumption of Contracts Agreement and those certain Assignment
of Lease Agreements to be delivered at Closing, all Contracts and all other
obligations and liabilities thereunder shall be retained by Seller. Further,
in the event Seller is not able to obtain any third party consent necessary or
advisable to assign an Assumed Contract to Buyer, Buyer may render null and
void assignment of the applicable Assumed Contract, in which case Buyer will
deliver documentation reasonably satisfactory to Seller confirming that all
right, title and duties under the applicable Assumed Contract, including any
related Assumed Liability, remain with Seller and were never held or assumed by
Buyer, and Seller and Buyer shall cooperate to put Seller in immediate
possession of any underlying leased property.
(2) No Assumed Contract has been modified, amended,
assigned or transferred, and each Contract is in full force and effect and is
valid, binding and enforceable in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally and by general principles of equity.
(3) No event or condition has happened or presently
exists which constitutes a default or breach or, after notice or lapse of time
or both, would constitute a default or breach by Seller or, to the knowledge of
Seller, any other party under any of the Assumed Contracts. To the knowledge
of Seller, there are no unresolved or unsatisfied counterclaims or offsets
under any of the Assumed Contracts.
(4) There does not exist any security interest, lien,
encumbrance or claim of others created or suffered to exist on any interest
created under any of the Leases and Contracts (except for those that result
from or relate to leased Assets).
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(5) No purchase commitment by Seller pertaining to the
Transferred Business is in excess of Seller's ordinary business requirements
for the Transferred Business.
(6) Assignment to Buyer of the Assumed Contracts will not
default, alter or terminate any such Assumed Contracts, and such assignment
will confer and convey all of Seller's rights thereunder to Buyer except with
respect to all third party consents related to the Assumed Contracts to be
obtained in accordance with paragraph 9.8.
4.11 Environmental Matters.
(1) Hazardous Substances. As used in this Section, the
term "HAZARDOUS SUBSTANCES" means any hazardous or toxic substances, materials
or wastes, including but not limited to those substances, materials, and wastes
defined in Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), listed in the
United States Department of Transportation Table (49 CFR 172.101) or by the
Environmental Protection Agency as hazardous substances pursuant to 40 CFR Part
302, or which are regulated under any other Environmental Law (as such term is
defined below), and any of the following: hydrocarbons, petroleum and
petroleum products, asbestos, polychlorinated biphenyls, formaldehyde,
radioactive substances (other than naturally occurring materials in place),
flammables and explosives.
(2) Compliance with Laws and Regulations. All operations
or activities upon, or any use of occupancy of the Real Estate, or any portion
thereof, by Seller, any Affiliates of Seller (wherein the term "AFFILIATES"
shall mean any person or entity controlling, controlled by or under common
control at any time with Seller, and the term "CONTROL" shall mean the power,
directly or indirectly to direct the management or policies of such person or
entity), and, to the knowledge of Seller, any agent, contractor or employee of
any agent or contractor of Seller or its Affiliates ("AGENTS"), or any tenant
or subtenant of Seller of any part of the Real Estate is and has been in
material compliance with any and all laws, licenses, permits, regulations,
orders, codes, judicial decisions, decrees and other applicable requirements of
governmental authorities with respect to Hazardous Substances, pollution or
protection of human health and safety (collectively, "ENVIRONMENTAL LAW"),
including but not limited to the release, emission, discharge, storage and
removal of Hazardous Substances. Seller, Affiliates and, to the knowledge of
Seller, Agents have kept the Real Estate free of any lien imposed pursuant to
Environmental Law. Seller knows of no action or omission by any prior owner,
operator or occupant of the Real Estate which fails to comply with
Environmental Law.
(a) Neither Seller, Affiliates nor, to the
knowledge of Seller, Agents have used, generated, treated, handled,
manufactured, voluntarily transmitted or stored any Hazardous Substances over,
in or upon the Real Estate, nor, to knowledge of Seller, has the Real Estate
ever been used for any of the foregoing.
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(b) Neither Seller, Affiliates nor, to knowledge
of Seller, Agents have installed or permitted to be installed, in or on the
Real Estate friable asbestos or any substance containing asbestos in condition
or amount deemed hazardous by Environmental Law.
(c) Seller has not at any time engaged in or
permitted, nor to knowledge of Seller, has any tenant or subtenant of Seller,
Agent, Affiliate or any other occupant of the Real Estate, or any portion
thereof, engaged in or permitted any dumping, discharge, disposal, spillage or
leakage (whether legal or illegal, accidental or intentional) of such Hazardous
Substances, at, on, in or about the Real Estate, or any portion thereof that
would subject the Real Estate or Buyer to clean-up obligations imposed by
environmental governmental authorities. Seller has not voluntarily assumed any
liability of a third party for clean up under, or noncompliance with,
Environmental Law.
(d) Seller has not, and to the knowledge of
Seller, none of the Real Estate, nor any part thereof, nor any present owner or
operator of the Real Estate (i) has either received or been issued a notice,
demand, request for information, citation, summons or complaint regarding an
alleged failure to comply with Environmental Law, or (ii) is subject to any
existing, pending, or, to the knowledge of Seller, threatened investigation or
inquiry by any governmental authority for noncompliance with, or any remedial
obligations under Environmental Law; and there are no circumstances known to
Seller which could serve as a basis therefor.
(e) Neither Seller, its Affiliates nor, to the
knowledge of Seller, its Agents have transported or arranged for the
transportation of any Hazardous Substances to any location which is listed or,
to the knowledge of Seller, proposed for listing under Environmental Law or the
subject of any enforcement action, investigation or other inquiry under
Environmental Law.
Seller shall promptly notify Buyer in writing of any order of which it
is aware, receipt of any notice of violation or noncompliance with
Environmental Law, any threatened or pending action of which it is aware by any
regulatory agency or governmental authority, or any claims made by any third
party of which it is aware relating to Hazardous Substances on, emanations on
or from, releases on or from, any of the Real Estate which relate to the period
prior to Closing; and shall promptly furnish Buyer with copies of any written
correspondence, notices or legal pleadings and written summaries of any oral
communications or notices in connection therewith. If, and only if, required
by law or the failure to do so would impose liabilities on Buyer or the Assets,
Buyer shall have the right, but shall not be obligated, to notify any
governmental authority of any state of facts which may come to its attention
with respect to Hazardous Substances on, released from or emanating from any
part of the Real Estate. Buyer shall give Seller prior or simultaneous notice
of such notification.
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(3) Other Environmental Matters. To the knowledge of
Seller, there are no underground storage tanks on any portion of the Real
Estate, and the Real Estate is free of dangerous levels of naturally-emitted
radon. To the knowledge of Seller, no portion of the Real Estate has ever been
used as a landfill. Seller has furnished to Buyer a copy of any environmental
audit or report on the Real Estate, which Seller or its Affiliates obtained or
was furnished.
4.12 Miscellaneous Representations Relating to Real Estate.
(1) To the knowledge of Seller, no part of the Real
Estate is currently subject to condemnation proceedings, and no condemnation or
taking is threatened or contemplated. There are no facts known to Seller that
would adversely affect the possession, use or occupancy of the Real Estate.
(2) Attached as Exhibit 4.12(2) are complete copies of
all appraisals, mechanical and structural studies or reports or assessments,
engineering plans, architectural drawings, soil studies and surveys which have
been prepared by or at the direction of Seller within the last five years
relating to any of the Assets.
(3) To the knowledge of Seller, there are no
encroachments upon the Real Estate, no encroachment of any improvements to the
Real Estate onto adjacent property, and none of the improvements to the Real
Estate violate set-back, building or side lines, nor do they encroach on any
easements located on the Real Estate.
4.13 Litigation. Seller has not received notice of any violation
of any law, rule, regulation, ordinance or order of any court or federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality (including, without limitation, legislation and
regulations applicable to the Medicare and Medicaid programs, environmental
protection, civil rights, public health and safety and occupational health)
which either (i) arises out of or otherwise relates to the operation of the
Transferred Business, or (ii) if unrelated to the Transferred Business,
involves claims, costs, damages and/or obligations in excess of, singly or in
the aggregate, One Million and No/100 Dollars ($1,000,000.00). There are no
lawsuits, proceedings, actions, arbitrations, governmental investigations,
claims, inquiries or proceedings pending or, to the knowledge of Seller,
threatened involving Seller, any of the Assets or the Transferred Business.
4.14 Seller's Employees. Exhibit 4.14 attached hereto sets forth:
(a) a complete list of all of Seller's employees who are employed at the
Transferred Locations, (b) their rates of pay, (c) the employment dates and job
titles of each such person, and (d) categorization of each such person as a
full-time or part-time employee of Seller. True and correct copies of any and
all applicable fringe benefits and personnel policies relating to such
employees have been delivered by Seller. For purposes of this paragraph,
"PART-TIME EMPLOYEE" means an employee who is employed for an average of fewer
than twenty (20)
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hours per week or who has been employed for fewer than six of the twelve (12)
months preceding the date on which notice is required pursuant to the "WORKER
ADJUSTMENT AND RETRAINING NOTIFICATION ACT" ("WARN"), 29 U.S.C. Section 2102 et
seq. Except as provided in Exhibit 4.10, Seller has no employment agreements
with its employees and all such employees are employed on an at "at will"
basis. Exhibit 4.14 lists all ex-employees of Seller previously employed at
the Transferred Locations who utilize or are eligible to utilize COBRA (health
insurance).
4.15 Labor Relations. Seller is not a party to any labor contract,
collective bargaining agreement, contract, letter of understanding, or any
other arrangement, formal or informal, with any labor union or organization
which obligates Seller to compensate Seller's employees at prevailing rates or
union scale, nor are any of its employees represented by any labor union or
organization. There is no pending or, to the knowledge of Seller, threatened
labor dispute, work stoppage, unfair labor practice complaint or strike between
Seller and any present or former employee(s) of Seller; and there is no pending
or, to the knowledge of Seller, threatened administrative or court proceeding
between Seller and any present or former employee of Seller who was or is
engaged in the operation of the Transferred Business or at the Corporate
Office. There is no pending or, to the knowledge of Seller, threatened suit,
action, investigation or claim between Seller and any present or former
employee(s) of Seller. There has not been any labor union organizing activity
at any location of Seller, or elsewhere, with respect to the Seller's employees
within the last three years.
4.16 Insurance. Seller has in effect and has continuously
maintained "occurrence basis" insurance coverage for all of its operations,
personnel and assets, and for the Assets and the Transferred Business in such
amounts, with such carriers and of such types as determined by Seller's
management to be appropriate based on industry standards. Exhibit 4.16
attached hereto sets forth a summary of the Seller's current insurance coverage
which relates, directly or indirectly, to the Transferred Business (listing
type, carrier and limits), and includes a list of any pending insurance claims
relating to Seller which either (i) arise out of or otherwise relate, directly
or indirectly, singly or in the aggregate, to the Transferred Business, or (ii)
if unrelated to the Transferred Business, are, singly or in the aggregate, in
excess of One Million and No/100 Dollars ($1,000,000.00). Seller is not in
default or breach with respect to any provision contained in any of its
insurance policies which default or breach would adversely affect Seller's
coverage thereunder, nor has Seller failed to give any notice or to present any
claim thereunder in due and timely fashion.
4.17 Broker's or Finder's Fee. Seller has not employed, and is not
liable for the payment of any fee to, any finder, broker, consultant or similar
person in connection with the transactions contemplated under this Agreement
other than Needham & Company, Inc. Seller shall be solely responsible for the
payment of all fees and expenses of Needham & Company, Inc. in connection with
such transactions.
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4.18 Conflicts of Interest. None of the following is either a
supplier of goods or services to Seller, or directly or indirectly controls or
is a director, officer, employee or agent of any corporation, firm,
association, partnership or other business entity that is a supplier of goods
or services to Seller: (a) Shareholders, (b) any director or officer of
Seller or any Shareholder, or (c) any entity under common control with Seller
or any Shareholder or, to the knowledge of Seller, controlled by, under common
control with or related to any Shareholder.
4.19 Intellectual Property. All trademarks, service marks, trade
names, patents, inventions, processes, copyrights and applications therefore,
whether registered or common law (collectively, the "INTELLECTUAL PROPERTY"),
used in connection with the Transferred Business are listed and described in
Exhibit 4.19 attached hereto. No proceedings have been instituted or are
pending or, to the knowledge of Seller, threatened which challenge the validity
of the ownership by Seller of any such Intellectual Property. Seller has not
licensed anyone to use any such Intellectual Property, and Seller has no any
knowledge of the use or the infringement of any of such Intellectual Property
by any other person. Seller owns or possesses adequate and enforceable
licenses or other rights to use all Intellectual Property now used in the
conduct of its Transferred Business.
4.20 Inventories. The Inventory is of a quality and quantity
presently used by Seller in the ordinary course of business determined and
valued consistent with Seller's past practice. The Inventory is properly
valued on a consistent basis at the lower of cost or market value on a
first-in/first-out basis. Since the date of the Interim Financial Statements,
Seller has not decreased or substituted its items of Inventory other than in
the ordinary course of business.
4.21 Motor Vehicles. All motor vehicles used in the Transferred
Business, whether owned or leased, are listed in Exhibit 1.1(2) attached
hereto. All such vehicles are properly licensed and registered in accordance
with applicable law.
4.22 Employee Benefit Plans.
(1) Welfare Benefit Plans. Exhibit 4.22(1) attached
hereto contains a true, accurate and complete list of each "employee welfare
benefit plan" (as defined in Section 3(1) of the Employee Retirement Income
Security Act of 1974 as amended ("ERISA")) maintained by Seller or to which
Seller contributes or is required to contribute (such employee welfare benefit
plans being hereinafter collectively referred to as the "WELFARE BENEFIT
PLANS"). Copies of all Welfare Benefit Plans have previously been provided to
Buyer.
(2) Pension Benefit Plans. Exhibit 4.22(2) attached
hereto contains a true and complete list of each "employee pension benefit
plan" (as defined in Section 3(2) of ERISA) maintained by Seller, to which
Seller contributes or is required to contribute, or
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which covered any employees of Seller listed on Exhibit 4.14 during the period
of their employment with any predecessor of Seller, including any
multi-employer pension plan as defined under Internal Revenue Code of 1986,
Section 414(f) (such employee pension benefit plans being hereinafter
collectively referred to as the "PENSION BENEFIT PLANS"). Copies of all
Pension Benefit Plans have previously been provided to Buyer.
(3) Liabilities. There are no unfunded liabilities under
any Welfare Benefit Plans or Pension Benefit Plans. Buyer shall not be liable
and not be responsible for any debt, obligation, responsibility or liability of
Seller under any such plans. Seller shall be liable under its Welfare Benefit
Plans and Pension Benefit Plans for all claims due and unpaid at Closing and
for all claims incurred before Closing, whether or not paid or presented before
Closing.
4.23 Compliance with Healthcare and Other Laws. Seller has not
made any kickback, bribe or payment to any person or entity, directly or
indirectly, for referring, recommending or arranging business or patients with,
to or for Seller which action could have a material adverse effect on the
Transferred Business. None of the Assumed Contracts and no activity of Seller
violates (i) Section 1877 of the Social Security Act or any similar provision
of applicable state law in any material respect, or (ii) provisions of
applicable state law relating to the corporate practice of medicine in any
material respect. The Seller is in compliance (without obtaining waivers,
variances or extensions) with, all federal, state and local laws, rules and
regulations which relate to the operations of the Transferred Business, except
where the failure to be in compliance could not have a material adverse effect
on the Transferred Business. All healthcare, tax and other returns, reports,
plans and filings of any nature required to be filed by Seller with any
federal, state or local governmental authorities and any third party payors
with respect to the Transferred Business have been properly completed, except
where the failure to be so completed or filed could not have a material adverse
effect on the Transferred Business, and timely filed in compliance with all
applicable requirements. Each such return, report, plan and filing contains no
materially untrue or misleading statements and does not omit anything which
would cause it to be misleading or inaccurate in any material respect. Seller
shall retain and be responsible, for any liability incurred, and Seller shall
be entitled to receive any refund or other benefit which may result from the
same in connection with any such return, report, plan and filing.
4.24 Condition of Assets. The Equipment and Furnishings are all of
the "EQUIPMENT" reflected on the Interim Financial Statements, other than those
items sold and replaced in the ordinary course of business. The Assets
together with the Excluded Assets comprise all of the assets used in connection
with the Transferred Business. All components of all of the Equipment and
Furnishings (a) perform the functions they are supposed to perform, and (b) are
otherwise, except for reasonable wear and tear, in good working order. Seller
has received no written recommendation from any insurer to repair or replace
any of the Assets with which Seller has not complied.
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4.25 WARN Act. Since ninety (90) days prior to the Effective Date,
Seller has not temporarily or permanently closed or shut down any single site
of employment or any facility or any operating unit, department or service
within a single site of employment which relates to the Transferred Business
and would require the giving of prior notice under WARN, as such terms are used
in WARN.
4.26 Tax Returns; Taxes. Seller has filed all federal, state and
local tax returns and tax reports required by such authorities to be filed or
has properly requested and been granted an extension with respect thereto.
Other than as permissible under such extensions, Seller has paid all taxes,
assessments, governmental charges, penalties, interest and fines due or claimed
to be due (including, without limitation, taxes on properties, income,
franchises, licenses, sales and payrolls) by any federal, state or local
authority. There is no pending tax examination or audit of, nor any action,
suit, investigation or claim asserted or, to the knowledge of Seller,
threatened against Seller by any federal, state or local authority; and, other
than as set forth in Exhibit 4.26, Seller has not been granted any extension of
the limitation period applicable to any tax claims.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Seller to enter into this Agreement and to
consummate the transactions contemplated hereunder, Buyer hereby represents and
warrants to Seller as follows:
5.1 Organization, Qualification and Authority. Buyer is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Buyer has the full corporate power and
corporate authority to own, lease and operate its properties and assets as
presently owned, leased and operated and to carry on its business as it is now
being conducted. Buyer has the full right, power and authority to execute,
deliver and carry out the terms of this Agreement and all documents and
agreements necessary to give effect to the provisions of this Agreement and to
consummate the transactions contemplated on the part of Buyer hereunder. The
execution, delivery and consummation of this Agreement and all other agreements
and documents executed in connection herewith by Buyer has been duly authorized
by all necessary corporate action on the part of Buyer. No other action on the
part of Buyer or any other person or entity is necessary to authorize the
execution, delivery and consummation of this Agreement and all other agreements
and documents executed in connection herewith. This Agreement, and all other
agreements and documents executed in connection herewith by Buyer, upon due
execution and delivery thereof, shall constitute the valid binding obligations
of Buyer, enforceable in accordance with their respective terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally and by general principles of equity.
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5.2 Absence of Default. The execution, delivery and consummation
of this Agreement and all other agreements and documents executed in connection
herewith by Buyer will not constitute a violation of, be in conflict with, or,
with or without the giving of notice or the passage of time, or both, result in
a breach of, constitute a default under, or create (or cause the acceleration
of the maturity of) any debt, indenture, obligation or liability or result in
the creation or imposition of any security interest, lien, charge or other
encumbrance upon any of the Assets (except in the ordinary course pursuant to
Buyer's existing credit agreement) under: (a) any term or provision of the
Certificate of Incorporation or Bylaws of Buyer; (b) any contract, lease,
agreement, indenture, mortgage, pledge, assignment, permit, license, approval
or other commitment to which Buyer is a party or by which Buyer is bound; (c)
any judgment, decree, order, regulation or rule of any court or regulatory
authority, or (d) any law, statute, rule, regulation, order, writ, injunction,
judgment or decree of any court or governmental authority or arbitration
tribunal to which Buyer is subject.
5.3 Broker's or Finder's Fee. Buyer has not employed and is not
liable for the payment of any fee to any finder, broker, government official,
consultant or similar person in connection with the transactions contemplated
under this Agreement.
ARTICLE VI. COVENANTS OF PARTIES
6.1 Access to Books and Records.
(1) Following the Closing, Buyer shall permit Seller's
representatives (including, without limitation, their counsel and auditors),
during normal business hours, to have reasonable access to, and examine and
make copies of, all books and records of the Transferred Business which relate
to transactions or events occurring prior to the Closing, copies of which have
not been retained by Seller. All documented and reasonable out-of-pocket costs
associated with the delivery of the requested documents shall be paid by
Seller.
(2) Following the Closing, Seller shall permit Buyer and
its representatives (including, without limitation, their counsel and
auditors), to have access to, and examine and make copies of, all books and
records of Seller relating to the Transferred Business or Assets, which books
and records are retained by Seller and which relate to transactions or events
occurring prior to the Closing. For a period of five years after the Closing,
Seller agrees that, prior to the destruction or disposition of any such books
or records, Seller shall provide not less than forty-five (45) days', nor more
than ninety (90) days', prior written notice to Buyer of such proposed
destruction or disposal. If Buyer desires to obtain any such documents or
records, it may do so by notifying Seller in writing at any time prior to the
date scheduled for such destruction or disposal. In such event, Seller shall
not destroy such documents or records and the parties shall then promptly
arrange for the delivery of
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such documents or records to Buyer, its successors or assigns. All reasonable
and documented out-of-pocket costs associated with the delivery of the
requested documents or records shall be paid by Buyer.
(3) Seller shall use its best commercially reasonable
efforts to cause its accounting firm to consent to the inclusion of the
Financial Statements in any registration statements, private placement
memoranda, and periodic reports, if any, necessary or appropriate in order to
enable Buyer or its affiliates to comply with any applicable registration or
reporting requirements of federal or state securities laws, and Buyer shall
reimburse Seller its reasonable and documented out-of-pocket expenses in
connection therewith.
(4) After Closing, Seller shall make the books and
records of Seller available to the Buyer (and, without limitation, to Buyer's
auditors and other agents) and shall otherwise use its best commercially
reasonable efforts to cooperate with Buyer in order to permit Buyer to conduct
an audit of the Seller's financial statements for any period prior to Closing
not already audited. Seller agrees to use its best commercially reasonable
efforts to cooperate with Buyer in Buyer's preparation of financial statements
relating to such periods and Buyer's filing in a timely manner registration
statements, private placement memoranda and periodic reports, if any, pursuant
to any applicable federal or state securities law. Buyer shall reimburse
Seller all reasonable and documented out-of-pocket expenses incurred as a
direct result of Seller's compliance with its obligations under this clause
(4).
6.2 Insurance Coverage. At Closing, Seller shall provide Buyer
evidence satisfactory to Buyer that Buyer has been named additional insured
since the Effective Date on those insurance policies summarized on Exhibit
4.16.
6.3 Current Return Filing. Seller shall be responsible for the
preparation and filing of the federal, state and local income tax and gross
receipts and use tax returns for all the tax periods of Seller ending on or
before the Closing, and, subject to reimbursement by Buyer pursuant to the
adjustments reflected on the Closing Statement, the payment of all such taxes
when due.
6.4 Terminations and Offers of Employment. Seller will terminate
at Closing all of its employees identified on Exhibit 4.14. As may be
mutually determined by Seller and Buyer, Seller will terminate certain
employees currently employed at the Corporate Office (the "Corporate
Employees") upon cessation of the Transitional Assistance Agreement. The
parties acknowledge and agree that the determination of who is to be deemed a
Corporate Employee for purposes of this paragraph 6.4 will be made mutually by
Seller and Buyer at a later date. Seller agrees to indemnify and hold Buyer
harmless, from and against any and all claims of all of Seller's employees
relating to their employment by Seller and such termination, whenever made.
Other than the Assumed Liabilities, Seller shall
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retain responsibility for and fully and timely pay all salaries and wages,
related payroll taxes and all sick leave, holiday, vacation benefits,
retirement and other fringe benefits that have accrued to all of its employees
through the date of Closing, including related payroll taxes. Buyer shall
offer employment at will to all employees identified on Exhibit 4.14 who are
employed at the Transferred Locations at Closing and the Corporate Employees
upon cessation of the Transitional Assistance Agreement. Buyer shall use its
best commercially reasonable efforts to make offers of employment pursuant to
this paragraph 6.4 which offers will include compensation which, in the
aggregate taking into account all aspects of compensation, shall be
substantially similar, in the aggregate, to the compensation provided by Seller
to the applicable employee immediately prior to Closing; provided, however,
that in no event will Buyer be required to make any offer of employment which
is inconsistent with Buyer's standard compensation levels, benefits, policies
and practices for employees of Buyer of similar rank or responsibility; and
provided further, that Buyer and Seller acknowledge that those individuals
identified on Exhibit 6.4 attached hereto will not receive offers of employment
at compensation levels similar to that paid to them by Seller prior to Closing.
Buyer acknowledges and agrees that the acceptance by such employees of offers
of employment shall not constitute a condition to Buyer's obligations to
purchase the Assets under this Agreement.
6.5 License. Seller hereby grants Buyer an exclusive, irrevocable
license to use the mark "HomeCare USA" (United States Patent and Trademark
Office Serial No 73/704794) and derivatives thereof exclusively in connection
with the operation of the Transferred Business. Seller will neither use, nor
authorize any other party to use, such mark or any mark confusingly similar
thereto within a fifty (50) mile radius of each Transferred Location. Seller
hereby represents that it has full right and authority to grant this license to
Buyer. This license will expire on December 31, 1996.
6.6 Bulk Sales. Jurisdictions in which the Transferred Locations
are located have adopted bulk sales statutes (collectively, the "Bulk Sales
Law") which apply to the transactions contemplated hereunder. Seller hereby
agrees that it will remain responsible for the Retained Liabilities and any
other obligations for which Buyer may otherwise be liable under the Bulk Sales
Law, other than the Assumed Liabilities. Seller will indemnify Buyer with
respect to all such liabilities. Based on such indemnification, Buyer and
Seller agree not to comply with notice provisions of the Bulk Sales Law.
ARTICLE VII. CLOSING
7.1 Closing. If all of the conditions to Closing set forth in
Articles VIII and IX hereof are satisfied, then the Closing shall occur on or
by March 31, 1996, at the offices of Pepper Hamilton & Scheetz, Philadelphia,
Pennsylvania, or at such other time or place as the parties may mutually agree
(the "CLOSING"). If all of the conditions to Closing set
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forth in Articles VIII and IX hereof are not satisfied by or by March 31, 1996,
the Closing shall occur at such other time as the parties may mutually agree.
7.2 Effectiveness. Upon consummation, the Closing shall be deemed
to be effective as of 12:01 a.m. local time on March 1, 1996 (the "EFFECTIVE
DATE"). Seller shall be deemed to have sold and conveyed to Buyer all of the
Assets, and Buyer shall be deemed to have assumed the Assumed Liabilities, as
of the Effective Date; provided, however, that the Seller shall not be deemed
to have sold and conveyed to Buyer the Corporate Office Assets or any Assumed
Contracts pertaining solely to operations at the Corporate Office, including
the Corporate Office Lease, and Buyer shall not be deemed to have assumed the
corresponding Assumed Contracts and other Assumed Liabilities, until 12:01 a.m.
May 1, 1996.
7.3 Settlement. The parties will execute and deliver a closing
statement (the "CLOSING STATEMENT") at Closing. The Closing Statement will
reflect all adjustments to the Purchase Price known at Closing and all other
settlement items known at Closing. As applicable, the settlement items will
include, but not be limited to, (i) Assumed Payables in excess of the Assumed
Payables Cap, (ii) adjustments for any Assumed Payables and for any taxes
related exclusively to operation of the Transferred Business on and after the
Effective Date properly paid by Seller on behalf of Buyer before Closing with
funds other than the Cash and Cash Equivalents, and (iii) other adjustments
pertaining to Assumed Liabilities and Retained Liabilities arising out of
operation of the Transferred Business prior to Closing.
ARTICLE VIII. SELLER'S CONDITIONS TO CLOSE
The obligations of Seller under this Agreement are subject to the
satisfaction on or prior to Closing, of the following conditions (which may be
waived in writing by Seller in whole or in part):
8.1 Compliance with Agreement. Buyer shall have performed and
complied with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by it prior to or at Closing.
8.2 Transitional Assistance Agreement. Buyer and Seller shall
have entered into the Transitional Assistance Agreement in the form attached
hereto as Exhibit 8.2 (the "TRANSITIONAL ASSISTANCE AGREEMENT").
8.3 Third Party Consents. Seller shall have obtained all third
party consents, releases and authorizations believed by it to be necessary or
advisable for the legal and proper consummation of all agreements and
transactions contemplated under this Agreement.
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ARTICLE IX. BUYER'S CONDITIONS TO CLOSE
The obligations of Buyer under this Agreement are subject to the
satisfaction, on or prior to Closing, of the following conditions (which may be
waived in writing by Buyer in whole or in part):
9.1 Compliance with Agreement. Seller and Shareholders shall have
performed and complied with all covenants, agreements and conditions required
by this Agreement to be performed or complied with by them prior to or at
Closing.
9.2 Regulatory Approvals. Buyer shall have obtained (a)
certification for participation in the Medicaid Programs of the states where
the Business is conducted, (b) certification from the appropriate agency of the
federal government for participation in the federal Medicare Program, and (c)
all other consents, licenses, permits, approvals, provider contracts,
determinations or certificates of need necessary in the judgment of Buyer to
acquire and operate the Assets and Business as contemplated hereunder.
9.3 Inspection of Assets; UCC Searches, etc. Buyer and its
representatives shall have had and continue to have reasonable rights of
inspection of the Assets in connection with Buyer's due diligence review, and
the results of Buyer's inspection and due diligence review shall be acceptable
to it in its sole discretion. Seller shall have delivered to Buyer all UCC
financing statements and title searches, local and central, including fixtures,
and federal and state pending litigation, tax lien and judgment searches, with
respect to Seller, the Assets and the Transferred Business including all
"DBA's," tradenames and fictitious names of Seller, dated no more than ten (10)
days prior to Closing, with results satisfactory to Buyer.
9.4 Confidentiality and Non-Compete Agreements. Each of Seller
and William E. Adams shall execute and deliver to Buyer Confidentiality and
Non-Compete Agreements in the respective forms attached hereto as Exhibit
9.4(a). Each of the Shareholders other than Mr. Adams shall execute and
deliver to Buyer Non-Compete Agreements in the form attached hereto as Exhibit
9.4(b).
9.5 Transitional Assistance Agreement. Buyer and Seller shall
have entered into Transitional Assistance Agreement.
9.6 Operating Targets. As of the date of Closing, the Transferred
Business shall meet the following minimum operating thresholds: (i) for the
twelve (12) month period ended January 31, 1996, the Transferred Business shall
have achieved aggregate net operating income of no less than One Million Nine
Hundred Forty-Three Thousand and No/100 Dollars ($1,943,000.00); (ii) for the
twelve (12) month period ended January 31,
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1996, the Transferred Business shall have achieved aggregate net revenues
(being gross revenues less contractual adjustments and revenue related
adjustments for items such as debit and credit memos, but excluding bad debt
expense) of no less than Seven Million Five Hundred and Fifty Thousand and
No/100 Dollars ($7,550,000.00), such net revenues to be calculated in the
manner illustrated in Exhibit 9.6 attached hereto; (iii) for the twelve (12)
month period ending January 31, 1996, the aggregate net revenues of the
Transferred Business generated from Medicare stationary oxygen reimbursements
will not exceed One Million One Hundred Thousand and No/100 Dollars
($1,100,000.00); and (iv) that since September 30, 1995 and except as required
in the ordinary and usual course of the Transferred Business, no Assets have
been removed, distributed, assigned or paid by or from Seller.
9.7 Value of Assets. As of the date of Closing, the Assets shall
have an aggregate "NET VALUE" of no less than Two Million Two Hundred
Fifty-Seven Thousand and No/100 Dollars ($2,257,000.00). For purposes of this
paragraph 9.7, "Net Value" shall equal the sum of the book value of Assets,
less the book value of the DEC computer system located at the Corporate Office
(which is estimated to be $73,525), and plus depreciation of those Assets
located at the Corporate Office for the period from January 31, 1996 through
Closing. At Closing the Assets will be free and clear of all mortgages,
security interests, liens, reservations, defects in title, encroachments or
other encumbrances, except as set forth in the Assumed Contracts. Seller shall
deliver to Buyer at Closing payoff letters in form and substance satisfactory
to Buyer regarding satisfaction of liens on the Assets and such releases, UCC
termination statements and other documents as Buyer may reasonably request to
evidence the same within ten (10) days of Closing.
9.8 Third Party Consents. Seller shall use its best efforts to
provide Buyer all third party consents, releases and authorizations believed by
Buyer to be necessary or advisable for the legal and proper consummation of all
agreements and transactions contemplated under this Agreement, each in form and
substance acceptable to Buyer, within thirty (30) days of Closing. If Seller
is unable to deliver such consent with regard to any of the Contracts listed on
Exhibit 9.8 attached hereto to Buyer within thirty (30) days of Closing, or
with respect to that certain VA contract listed on Exhibit 9.8, ninety (90)
days of Closing, Seller shall immediately pay to Buyer, as liquidated damages,
the amount or amounts, as the case may be, set forth opposite each such
Contract on Exhibit 9.8; provided, however, that such liquidated damage amounts
will be subject to mitigation if Buyer elects to accept assignment of any such
Contract and receives revenue as a result of performing thereunder after it is
determined that such third party consent will not be obtained.
9.9 Approval of Board of Directors. This Agreement and
consummation of the transactions contemplated hereunder shall have been
approved by the Board of Directors of Buyer.
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ARTICLE X. OBLIGATIONS OF SELLER AT CLOSING
At Closing, Seller shall deliver or cause to be delivered to Buyer the
following in form and substance reasonably satisfactory to Buyer:
10.1 Documents Relating to Title. Seller shall execute,
acknowledge, deliver and cause to be executed, acknowledged and delivered to
Buyer:
(1) An Assignment and Assumption of Lease Agreement for
each Assumed Contract which is a lease pertaining to Real Estate, each in form
and substance satisfactory to Buyer, with all recording, stamp tax or other
transfer fees paid by Seller, and conveying to Buyer the legal right to possess
and use the leased Real Estate free and clear of all liens, mortgages, superior
rights of possession or use, except for those expressly acceptable to Buyer.
The Assignment and Assumption of Lease Agreement pertaining to the Corporate
Office Lease will specify that, although Buyer will have rights of occupancy at
the Corporate Office beginning at Closing, as specified in the Transitional
Assistance Agreement, Buyer will be subject to no obligations as tenant until
expiration of the Transitional Assistance Agreement.
(2) A Bill of Sale, in form and substance satisfactory to
Buyer, warranting and conveying to Buyer good, valid and marketable title to
all Assets, free and clear of all liens, mortgages, pledges, encumbrances,
security interests, options, rights of first refusal restrictions, defects in
title and other burdens, except for the Assumed Liabilities.
(3) Certificates of title to all vehicles that constitute
Assets endorsed by Seller together with completed originals of any forms
required by all applicable states to transfer the same, free and clear of all
liens, except for the Assumed Liabilities.
(4) A wire transfer (or other payment method acceptable
to Buyer) of all Cash and Cash Equivalents included in the Assets to an account
designated by Buyer.
(5) An Assignment and Assumption of Contracts Agreement
for the Assumed Contracts in form and substance satisfactory to Buyer, with all
transfer fees paid by Seller, and conveying to Buyer all Seller's right, title
and interest in the Assumed Contracts free and clear of all liens and
encumbrances other than the Assumed Liabilities.
10.2 Possession. Seller shall deliver to Buyer possession and
control of the Business and Assets.
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10.3 Opinion of Counsel. Seller shall deliver to Buyer the
favorable opinion of counsel for Seller and Shareholders, dated as of Closing,
in the form attached hereto as Exhibit 10.3.
10.4 Corporate Good Standing and Corporate Resolutions. Seller
shall deliver to Buyer certificates of good standing of Seller from the
Secretary of State of the Commonwealth of Pennsylvania, and from each
jurisdiction in which Seller is qualified to do business, certified copies of
the Bylaws and Charter of Seller, and certified copies of the resolutions of
the Board of Directors and Shareholders of Seller, and of the Board of
Directors of each corporate Shareholder, authorizing the execution, delivery
and consummation of this Agreement and the execution, delivery and consummation
of all other agreements and documents executed in connection herewith by them,
including all deeds, bills of sale and other instruments required hereunder,
sufficient in form and content to meet the requirements of the law of
applicable state law relevant to such transactions and certified by officers of
Seller and the corporate Shareholders to be validly adopted and in full force
and effect and unamended as of Closing.
10.5 Third Party Consents and Releases. Seller shall deliver to
Buyer all consents, estoppels, approvals, releases, filings and authorizations
of third parties that Buyer believes are necessary or advisable for the legal
and proper execution, delivery and consummation of this Agreement, and the
transactions contemplated hereunder, including but not limited to, those
consents necessary for the assignment of all Assumed Contracts and any UCC
termination statements regarding the Assets.
10.6 Taxes and Other Payments. Seller shall deliver to Buyer:
(1) A certificate of non-foreign status signed by the
appropriate party and sufficient in form and substance to relieve Buyer of all
withholding obligations under Section 1445 of the Code.
(2) Executed releases of all mortgages, security
interests, liens, pledges, restrictions or other encumbrances on or applicable
to the Assets, other than the Assumed Liabilities.
10.7 Insurance. Seller shall deliver evidence of insurance
coverage as required by paragraph 6.2.
10.8 Confidentiality, Non-Compete and Transitional Assistance
Agreements. Seller shall deliver to Buyer each of the agreements described in
paragraphs 8.2 and 9.4.
10.9 Additionally Requested Documents; Post-Closing Assistance. At
the reasonable request of Buyer at Closing and at any time or from time to time
thereafter, Seller and Shareholders shall use their commercially reasonable
best efforts to cooperate
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with Buyer to put Buyer in actual possession and operating control of the
Assets and Transferred Business, execute and deliver such further instruments
of sale, conveyance, transfer and assignment, as Buyer may reasonably request
in order to effectively sell, convey, transfer and assign the Assets and
Transferred Business to Buyer, to execute and deliver such further instruments
and to take such other actions as Buyer may reasonably request to release Buyer
from all obligation and liability with regard to any Retained Liability and to
execute and deliver such further instruments and to cooperate with Buyer as
Buyer may reasonably request to enable Buyer to obtain all necessary health
care or regulatory certifications, approvals, consents and licenses,
accreditations or permits.
ARTICLE XI. OBLIGATIONS OF BUYER AT CLOSING
At Closing, Buyer shall deliver or cause to be delivered to Seller the
following in a form and substance reasonably satisfactory to Seller and
Shareholders:
11.1 Purchase Price. Buyer shall make available to the Seller the
Purchase Price upon the terms specified in this Agreement.
11.2 Assumption of Liabilities. Buyer shall deliver the Assignment
and Assumption of Lease Agreements referred to in paragraph 10.1(1) and the
Assignment and Assumption of Contracts Agreement referred to in paragraph
10.1(5), in form and substance satisfactory to Seller, evidencing Buyer's
assumption and covenant to perform and comply with all of the Assumed
Liabilities, subject to the provisions of this Agreement.
11.3 Opinion of Buyer's Counsel. Buyer shall deliver to Seller a
favorable opinion of counsel for Buyer, dated as of Closing, in the form
specified in Article XII hereof.
11.4 Corporate Good Standing and Certified Board Resolutions.
Buyer shall deliver to Seller a certificate of good standing from the Secretary
of State of Delaware, together with a certified copy of the resolutions of the
Board of Directors of Buyer approving this Agreement and the consummation of
the transactions hereunder contemplated.
ARTICLE XII. OPINION OF BUYER'S COUNSEL
At the Closing, Buyer shall deliver to Seller an opinion of Harwell
Howard Hyne Gabbert & Manner, P.C. dated the date of the Closing and pursuant
to the Legal Opinion Accord of the ABA Section of Business Law (1991), in form
and substance satisfactory to Seller and their counsel to the effect that:
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(1) Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and corporate authority to own, operate and lease
its properties and assets and to carry on its business as now conducted.
(2) Buyer has the corporate power and corporate authority
to execute, deliver and carry out the terms of this Agreement and all documents
and agreements delivered by Buyer at Closing and to consummate the transactions
contemplated on the part of Buyer hereby and thereby; Buyer has taken all
action required by law, and its Certificate of Incorporation and Bylaws, to
authorize such execution, delivery and consummation of this Agreement, and this
Agreement and all other agreements delivered by Buyer at Closing constitute the
valid and binding obligations of Buyer enforceable in accordance with their
respective terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally and by general principles of equity.
ARTICLE XIII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION
13.1 Survival. The covenants, obligations, representations and
warranties of Buyer, Seller and Shareholders contained in this Agreement, or in
any certificate or document delivered pursuant to this Agreement, shall be
deemed to be material and to have been relied upon by the parties hereto
notwithstanding any investigation prior to the Closing, and shall survive the
date of Closing and shall not be merged into any documents delivered in
connection with the Closing for a period of twelve (12) months from the
Closing. Notwithstanding the twelve (12) month limitation set forth above,
those representations, warranties, covenants and obligations set forth in
paragraphs 4.5, 4.7, 4.15 (as such paragraph pertains to healthcare matters),
4.26, 6.3, 6.4 and 6.6 (collectively, the "Excluded Items") shall each survive
for a period equal to the applicable statute of limitations.
13.2 Indemnification by Seller and Shareholders. Subject to the
provisions of paragraphs 13.1 and 13.4, Seller and Shareholders shall, jointly
and severally, promptly indemnify, defend, and hold harmless Buyer and the
directors, officers, stockholders, employees and agents of Buyer and the Assets
against any and all losses, costs, and expenses (including reasonable cost of
investigation, court costs and legal fees actually incurred) and other damages
resulting from, arising out of or based upon (i) any breach by either Seller or
Shareholders of any of the covenants, obligations, representations or
warranties or breach or untruth of any representation, warranty, fact or
conclusion contained in this Agreement or any certificate or document of Seller
and/or Shareholders delivered pursuant to this Agreement, (ii) any Retained
Liability, whether or not related to a breach as described in clause (i) above,
and (iii) any claim (whether or not disclosed herein) that is brought or
asserted by any third party(ies) against Buyer arising out of the
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ownership, licensing, operation or conduct of the Transferred Business or
Assets relating to all periods of time prior to Effective Date. Any
indemnification payment made pursuant to this Article shall include interest at
a floating rate equal to two points over the prime rate of Bankers Trust
Company established from time to time (the "RATE") payable for the period
measured from the date that the loss, cost, expense or damage was incurred
until the date of payment. The liability created under this paragraph shall be
joint and several among and between each of Seller and Shareholders.
13.3 Indemnification by Buyer. Subject to the provisions of
paragraphs 13.1 and 13.4, Buyer shall promptly indemnify, defend, and hold
harmless Seller and the directors, officers, stockholders, employees and agents
of Seller against any and all losses, costs, and expenses (including reasonable
cost of investigation, court costs and legal fees actually incurred) and other
damages resulting from, arising out of or based upon (i) any breach by Buyer of
any of its covenants, obligations, representations or warranties or breach or
untruth of any representation, warranty, fact or conclusion contained in this
Agreement or any certificate or document of Buyer delivered pursuant to this
Agreement, (ii) subject to the last sentence of paragraph 4.10, any Assumed
Liability, whether or not related to a breach as described in clause (i) above;
and (iii) subject to the other provisions of this Agreement, any claim that is
brought or asserted by any third party(ies) against Seller arising out of the
ownership, licensing, operation or conduct of the Transferred Business or
Assets relating to all periods of time subsequent to the Effective Date. Any
indemnification payment pursuant to the foregoing shall include interest at the
Rate from the date that the loss, cost, expense or damage was incurred until
the date of payment.
13.4 Rules Regarding Indemnification. The obligations and
liabilities of each party which may be subject to indemnification liability
hereunder (the "INDEMNIFYING PARTY") to the other party (the "INDEMNIFIED
PARTY") shall be subject to the following terms and conditions:
(1) Claims by Non-parties. The indemnified party shall
give written notice within a reasonably prompt period of time to the
indemnifying party of any written claim by a third party which is likely to
give rise to a claim by the indemnified party against the indemnifying party
based on the indemnity agreements contained in this Article, stating the nature
of said claim and the amount thereof, to the extent known. The indemnified
party shall give notice to the indemnifying party that pursuant to the
indemnity, the indemnified party is asserting against the indemnifying party a
claim with respect to a potential loss from the third party claim, and such
notice shall constitute the assertion of a claim for indemnity by the
indemnified party. If, within thirty (30) days after receiving such notice,
the indemnifying party advises the indemnified party that it will provide
indemnification and assume the defense at its expense, then so long as such
defense is being conducted, the indemnified party shall not settle or admit
liability with respect to the claim and shall afford to the indemnifying party
and defending counsel reasonable assistance in defending against the claim. If
the indemnifying party assumes the defense, counsel shall be
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selected by such party and if the indemnified party then retains its own
counsel, it shall do so at its own expense. If the indemnified party does not
receive a written objection to the notice from the indemnifying party within
thirty (30) days after the indemnifying party's receipt of such notice, the
claim for indemnity shall be conclusively presumed to have been assented to and
approved, and in such case the indemnified party may control the defense of the
matter or case and, at its sole discretion, settle or admit liability. If
within the aforesaid thirty (30) day period the indemnified party shall have
received written objection to a claim (which written objection shall briefly
describe the basis of the objection to the claim or the amount thereof, all in
good faith), then for a period of ten (10) days after receipt of such objection
the parties shall attempt to settle the dispute as between the indemnified and
indemnifying parties. If they are unable to settle the dispute, the unresolved
issue or issues shall be settled by arbitration in Philadelphia, Pennsylvania
in accordance with the rules and procedures of the American Arbitration
Association.
(2) Claims by a Party. The determination of a claim
asserted by a party hereunder (other than as set forth in subparagraph (1)
above) pursuant to this Article shall be made as follows: The indemnified party
shall give written notice within a reasonably prompt period of time to the
indemnifying party of any claim by the indemnified party which has not been
made pursuant to subsection (1) above, stating the nature of such claim and the
amount thereof, to the extent known. The claim shall be deemed to have
resulted in a determination in favor of the indemnified party and to have
resulted in a liability of the indemnifying party in an amount equal to the
amount of such claim estimated pursuant to this paragraph if within forty-five
(45) days after the indemnifying party's receipt of the claim the indemnified
party shall not have received written objection to the claim. In such event,
the claim shall be conclusively presumed to have been assented to and approved.
If within the aforesaid forty-five (45) day period the indemnified party shall
have received written objection to a claim (which written objection shall
briefly describe the basis of the objection to the claim or the amount thereof,
all in good faith), then for a period of sixty (60) days after receipt of such
objection the parties shall attempt to settle the disputed claim as between the
indemnified and indemnifying parties. If they are unable to settle the
disputed claim, the unresolved issue or issues shall be settled by arbitration
in Philadelphia, Pennsylvania in accordance with the rules and procedures of
the American Arbitration Association.
(3) Claims by a Straddle Patient. Any claim by a patient
relating to professional negligence or similar matters involving a patient
served both prior to the Effective Date and subsequent to the Effective Date
will be the responsibility of either Buyer, on the one hand, or Seller and
Shareholders, jointly and severally, on the other hand, in accordance with the
following guidelines: (i) if it is a claim in which the incident giving rise to
liability clearly arose on or after the Effective Date, Seller and Shareholders
shall respond to the loss and defense expenses; (ii) if it is a claim in which
the incident giving rise to liability clearly arose on or after the Effective
Date, Buyer shall respond to the loss and defense expenses; and (iii) in the
event that the incident giving rise to liability as
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to time is not clear, Seller, Shareholders and Buyer will jointly defend the
case and each will fully cooperate with the other in such defense. Once the
case is closed, if Buyer and Seller and Shareholders cannot agree to the
allocation of both indemnity and expenses, then the matter shall be submitted
to binding arbitration in Philadelphia, Pennsylvania in accordance with the
rules and procedures of the American Arbitration Association.
(4) Limitations on Liability. Notwithstanding anything
to the contrary set forth in this Article XIII, the respective liability of
Buyer and Seller hereunder shall be limited to the amount of the Purchase
Price; provided, however, that Seller's obligations under paragraph 9.8 shall
neither be subject to the limitation set forth above in this sentence nor
applied in calculating whether Seller's other indemnification obligations under
this Article XIII have reached such limitation. Likewise, notwithstanding
anything to the contrary set forth in this Article XIII, the liability of each
Shareholder shall be limited to an amount equal to the Purchase Price
multiplied by that Shareholder's percentage of equity interest in the Seller as
of Closing, which percentages are set forth on Exhibit C ("Shareholder's
Percentage") and the liability of each Shareholder with respect to each
entitlement to indemnification under paragraph 13.2 will be limited to an
amount equal to the amount of such aggregate liability multiplied by that
Shareholder's Percentage. Further, notwithstanding the provisions of
paragraphs 13.2 and 13.3, no party shall have liability under this Article XIII
until the aggregate amount of liability under either paragraph 13.2 or 13.3, as
the case may be, exceeds Twenty-Five Thousand and No/100 Dollars ($25,000.00)
(the "Threshold Amount"). Once the Threshold Amount is reached, the
obligations of the indemnifying party(ies) shall apply to all claims of the
indemnified party(ies), whether such claims are above or below the Threshold
Amount. Notwithstanding anything to the contrary contained herein, the
Threshold Amount limitation will not apply to any Excluded Item and will not
apply to Seller's obligations under paragraph 9.8. No indemnified party shall
be entitled to indemnification under Sections 13.2 or 13.3 (other than with
respect to an Excluded Item) unless the written notice described in the first
sentence of paragraph 13.4(1) or 13.4(2), as the case may be, is delivered to
the indemnifying party(ies) not later than March 31, 1997. Any claim for
indemnification pursuant to Sections 13.2 or 13.3 not made prior to March 31,
1997 (other than with respect to an Excluded Item) shall be extinguished, and
all corresponding representations, warranties, agreements or obligations (other
than those related to the Excluded Items noted in paragraph 13.1) with respect
to which no claim is made prior to March 31, 1997 shall expire and be of no
further force and effect.
13.5 Exclusivity. Neither Buyer nor Seller shall have any
liability to any indemnified party for breach or default under this Agreement
except pursuant to this Article XIII.
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ARTICLE XIV. PRESERVATION OF BUSINESS
AND NONCOMPETE RESTRICTIONS
14.1 Covenant Not to Compete. Seller hereby covenants and agrees
with Buyer that, during the "NONCOMPETE PERIOD" (as such term is defined
herein) and within the "NONCOMPETE AREA" (as such term is defined herein),
Seller shall not directly or indirectly, (a) acquire, lease, manage, consult
for, serve as agent or subcontractor for, finance, invest in, own any part of
or exercise management control over any health care operation or business which
provides any goods or services competitive with the goods and services provided
by the Transferred Business as of the Closing; (b) solicit for employment or
employ any person who at Closing or thereafter became an employee of Buyer or
an Affiliate of Buyer unless such person is not so employed for at least six
months; or (c) with respect to any customer, patient, physician, physician
group, or healthcare provider with whom Buyer or an Affiliate of Buyer
contracts with in connection with operation of the Transferred Business on or
after Closing, either solicit the same in a manner which could adversely affect
Buyer or an Affiliate of Buyer or make statements to the same which disparage
Buyer, an Affiliate, the Transferred Business or their respective operations in
any way. The "NONCOMPETE PERIOD" shall commence at the Closing and terminate
on the fifth anniversary thereof. The "NONCOMPETE AREA" shall mean the area
within a fifty (50) mile radius of each Transferred Location. Performance of
Seller's obligations under the Transitional Assistance Agreement and ownership
of less than five percent (5%) of the stock of a publicly held company shall
not be deemed a breach of this covenant.
14.2 Enforceability. In the event of a breach of paragraph 14.1,
Seller recognizes that monetary damages shall be inadequate to compensate Buyer
and Buyer shall be entitled, without the posting of a bond or similar security,
to an injunction restraining such breach, with the costs (including attorneys
fees) of securing such injunction to be borne by Seller. Nothing contained
herein shall be construed as prohibiting Buyer from pursuing any other remedy
available to it for such breach or threatened breach.
All parties hereby acknowledge the necessity of protection against the
competition of Seller and that the nature and scope of such protection has been
carefully considered by the parties. The period provided and the area covered
are expressly represented and agreed to be fair, reasonable and necessary. The
consideration provided for herein is deemed to be sufficient and adequate to
compensate Seller for agreeing to the restrictions contained in paragraph 14.1.
If, however, any court determines that the forgoing restrictions are not
reasonable, such restrictions shall be modified, rewritten or interpreted to
include as much of their nature and scope as will render them enforceable.
35
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ARTICLE XV. MISCELLANEOUS
15.1 Assignment. Following Closing, Buyer may freely assign any or
all of its rights or delegate any or all of its obligations under this
Agreement without the express written consent of Seller; provided, however,
that no such assignment shall relieve Buyer of any of its obligations hereunder
without Seller's prior written consent. Seller may not assign any rights or
delegate any obligations under this Agreement without the prior written consent
of Buyer, and any prohibited assignment or delegation will be null and void.
15.2 Other Expenses. Except as otherwise provided in this
Agreement, Seller shall pay all of its expenses in connection with the
negotiation, execution, and implementation of the transactions contemplated
under this Agreement, and Buyer shall pay all of its expenses in connection
with the negotiation, execution, and implementation of the transactions
contemplated under this Agreement. All state and local sales and use taxes,
recording fees and transfer taxes incurred in connection with the transactions
contemplated within this Agreement shall be borne and timely paid by Seller.
Buyer shall bear one-half of the out-of-pocket cost of procuring the searches
to be delivered by Seller pursuant to paragraph 9.3; provided, however, that
Buyer's obligation with respect to such searches will in no event exceed
$5,000.00. Seller shall bear all remaining costs associated with such
searches. All ad valorem taxes incurred in connection with the transactions
contemplated within this Agreement shall be shared by Seller and Buyer and
shall be prorated as of the Effective Date. The Purchase Price shall be
reduced, on a dollar-per-dollar basis, to the extent and in an amount equal to
any taxes that are accrued but unpaid by Seller as of the date of Closing.
15.3 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given: (a) if delivered
personally or sent by facsimile, on the date received, (b) if delivered by
overnight courier, on the day after mailing, and (c) if mailed, five days
after mailing with postage prepaid. Any such notice shall be sent as follows:
To Seller and Shareholders:
William E. Adams, II, Inc.
4667 Somerton Road
Trevose, PA 19053
Attn: William E. Adams
Telecopy No.: 215-322-3737
36
<PAGE> 42
with a copy to:
Meridian Venture Partners
Fidelity Court Building
259 Radnor-Chester Road
Radnor, PA 19087
Attn: Robert E. Brown, Jr., Esq.
Telecopy No.: (610) 254-2996
Elam M. Hitchner
Pepper, Hamilton & Scheetz
3000 Two Logan Square
18th & Arch Street
Philadelphia, PA 19103-2799
Telecopy No.: (215) 981-4750
To the Buyer:
American HomePatient, Inc.
5200 Maryland Way
Suite 400
Brentwood, Tennessee 37027
Attn: Edward K. Wissing
Telecopy No.: (615) 373-1947
with a copy to:
Lauren W. Anderson
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
Nashville, Tennessee 37238-1800
Telecopy No.: (615) 251-1057
15.4 Confidentiality; Prohibition on Trading. All parties agree to
maintain the confidentiality of the existence of this Agreement and the
transactions contemplated hereunder, unless disclosure is required by law or as
may be required to obtain any third party consents required hereunder. In the
event disclosure is required by law, the disclosing party will give all other
parties to this Agreement advance notice of such disclosure and an opportunity
to review such disclosure, all to the extent reasonable possible. Seller,
Shareholders and their affiliates agree not to trade in the securities of Buyer
or its affiliates based upon any nonpublic information.
37
<PAGE> 43
15.5 Controlling Law. This Agreement shall be construed,
interpreted and enforced in accordance with the laws of the State of Tennessee.
15.6 Headings. Any table of contents and paragraph headings in
this Agreement are for convenience of reference only and shall not be
considered or referred to in resolving questions of interpretation.
15.7 Benefit. Subject to paragraph 15.1, this Agreement shall be
binding upon and shall inure to the exclusive benefit of the parties hereto and
their respective heirs, legal representatives, successors and assigns. This
Agreement is not intended to, nor shall it, create any rights in any other
party, other than as expressly set forth in Article XIII.
15.8 Partial Invalidity. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such
invalid or unenforceable provisions were omitted. Further, there shall be
automatically substituted for such invalid or unenforceable provision a
provision as similar as possible which is valid and enforceable.
15.9 Waiver. Neither the failure nor any delay on the part of any
party hereto in exercising any rights, power or remedy hereunder shall operate
as a waiver thereof, or of any other right, power or remedy; nor shall any
single or partial exercise of any right, power or remedy preclude any further
or other exercise thereof, or the exercise of any other right, power or remedy.
No waiver of any of the provisions of this Agreement shall be valid unless it
is in writing and signed by the party against which it is sought to be
enforced.
15.10 Counterparts. This Agreement may be executed simultaneously
in two or more counterparts each of which shall be deemed an original and all
of which together shall constitute but one and the same instrument.
15.11 Interpretation; Knowledge. All pronouns and any variation
thereof shall be deemed to refer to the masculine, feminine, neuter, singular
or plural as the identity of the person or entity, or the context, may require.
Further, it is acknowledged by the parties that this Agreement has undergone
several drafts with the negotiated suggestions of both; and, therefore, no
presumptions shall arise favoring either party by virtue of the authorship of
any of its provisions or the changes made through revisions. Whenever in this
Agreement the term "TO THE KNOWLEDGE OF SELLER" or the like is used, Seller
shall be deemed to have the knowledge of Shareholders, and Seller's executive
officers, directors and branch managers; and Seller shall be under a duty of
due inquiry.
15.12 Entire Agreement. This Agreement, including the Exhibits and
attachments hereto, constitutes the entire agreement between the parties hereto
with regard to the matters contained herein and it is understood and agreed
that all previous undertakings,
38
<PAGE> 44
negotiations and agreements between the parties are merged herein. This
Agreement may not be modified orally, but only by an agreement in writing
signed by Buyer and Seller.
15.13 Legal Fees and Costs. In the event any party incurs legal
expenses to enforce or interpret any provision of this Agreement, the
prevailing party will be entitled to recover such legal expenses, including,
without limitation, attorney's fees, costs and disbursements, in addition to
any other relief to which such party shall be entitled.
39
<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
"SELLER":
WILLIAM E. ADAMS II, INC.
By:
--------------------------------
Title:
--------------------------------
"BUYER":
AMERICAN HOMEPATIENT, INC.
By:
--------------------------------
Title:
--------------------------------
40
<PAGE> 1
EXHIBIT 2.2
ASSET PURCHASE AGREEMENT
among
DELCREST MEDICAL PRODUCTS, INC.
as Seller,
RICHARD KREIDER,
TRUST U/W CATHERINE KREIDER, DECEASED,
Earl Kreider, Elaine Arnold and Joseph R. Kempter, Trustees
and
EARL KREIDER IRREVOCABLE INTER VIVOS TRUST
dated November 1, 1990, Richard Kreider, Trustee
as Shareholders,
and
AMERICAN HOMEPATIENT, INC.
as Buyer
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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ARTICLE I. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Assumed Contracts, Leases and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II. RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Collection of Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III. PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Interest on Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Organization, Qualification and Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Absence of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.3 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.4 Operations Since December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.5 Absence of Certain Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.6 Employment Discrimination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.7 Licenses and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.8 Medicare, Medicaid and Other Third-Party Payors. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.9 Miscellaneous Representations Relating to Real Estate. . . . . . . . . . . . . . . . . . . . . . . . 12
4.10 Title to Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.11 Leases and Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.12 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.13 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.14 Seller's Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.15 Labor Relations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.16 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.17 Broker's or Finder's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.18 Conflicts of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.19 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.20 Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.21 Motor Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.22 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.23 Compliance with Healthcare and Other Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.24 Condition of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.25 WARN Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.26 Tax Returns; Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.27 No Omissions or Misstatements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
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ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.1 Organization, Qualification and Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.2 Absence of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.3 Broker's or Finder's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VI. COVENANTS OF PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.1 Preservation of Business and Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.2 Absence of Material Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.3 Access to Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.4 Preserve Accuracy of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . 23
6.5 Maintain Books and Accounting Practices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.6 Indebtedness; Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.7 Compliance with Laws and Regulatory Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.8 Maintain Insurance Coverage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.9 Medicare and Medicaid Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.10 Current Return Filing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.11 WARN Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.12 No Sale, Merger or Consolidation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VII. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.1 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VIII. SELLER'S AND SHAREHOLDERS' CONDITIONS TO CLOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.1 Representations and Warranties True at Closing; Compliance with Agreement. . . . . . . . . . . . . . 26
8.2 No Action/Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.3 Order Prohibiting Transaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE IX. BUYER'S CONDITIONS TO CLOSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.1 Representations and Warranties True at Closing; Compliance with Agreement. . . . . . . . . . . . . . 27
9.2 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.3 No Action/Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.4 Inspection of Assets; UCC Searches, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.5 Order Prohibiting Transaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.6 Confidentiality and Non-Compete Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.7 Consulting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.8 Operating Targets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.9 Value of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.10 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.11 Approval of Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.12 Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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ARTICLE X. OBLIGATIONS OF SELLER AND SHAREHOLDERS AT CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.1 Documents Relating to Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.2 Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.3 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.4 Corporate Good Standing and Corporate Resolutions. . . . . . . . . . . . . . . . . . . . . . . . . . 30
10.5 Closing Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.6 Third Party Consents and Releases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.7 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.8 Confidentiality, and Consulting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
10.9 Additionally Requested Documents; Post-Closing Assistance. . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE XI. OBLIGATIONS OF BUYER AT CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.2 Assumption of Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.3 Opinion of Buyer's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.4 Corporate Good Standing and Certified Board Resolutions. . . . . . . . . . . . . . . . . . . . . . . 32
11.5 Closing Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE XII. OPINION OF BUYER'S COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE XIII. TRANSITIONAL OPERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13.1 Transition Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
13.2 Maintenance of Operation; Expenses; Inventory; Rental Equipment; Fixed Assets . . . . . . . . . . . 33
13.3 Cash Account; Operating Fee; Inventory Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . 34
13.4 Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
13.5 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE XIV. SURVIVAL OF PROVISIONS AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
14.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
14.2 Indemnification by Seller and Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
14.3 Indemnification by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
14.4 Rules Regarding Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
14.5 Limitation on Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE XV. PRESERVATION OF BUSINESSAND NONCOMPETE RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
15.1 Covenant Not to Compete. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
15.2 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XVI. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
16.1 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
16.2 Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
16.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
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16.4 Confidentiality; Prohibition on Trading. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
16.5 Controlling Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
16.6 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
16.7 Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
16.8 Partial Invalidity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
16.9 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
16.10 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
16.11 Interpretation; Knowledge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
16.12 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
16.13 Legal Fees and Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
iv
<PAGE> 6
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made on January 31, 1996 to
be effective as of January 1, 1996, by and among DELCREST MEDICAL PRODUCTS,
INC., a Pennsylvania corporation (the "Seller"), RICHARD KREIDER, a resident of
Pennsylvania, Earl Kreider, Elaine Arnold and Joseph R. Kempter, as trustees of
TRUST U/W CATHERINE KREIDER, DECEASED, and Richard Kreider, as trustee of EARL
KREIDER IRREVOCABLE INTER VIVOS TRUST dated November 1, 1990 (collectively,
"Shareholders"), and AMERICAN HOMEPATIENT, INC., a Delaware corporation
("Buyer").
R E C I T A L S:
WHEREAS, Seller owns and operate a home health care business, the
non-institutional division (the "Business") of which is particularly described
on Exhibit A hereto, which Exhibit sets forth the type of services and products
provided by Seller with respect to the Business at each location; and
WHEREAS, the Seller also owns and operates an institutional division
(the "Institutional Division") of its health care business, which Institutional
Division is not the focus of the transactions contemplated under this
Agreement; and
WHEREAS, Shareholders own all of the issued and outstanding stock of
Seller; and
WHEREAS, except for the Excluded Assets (as such term is defined
herein), Seller and Shareholders desire to sell and transfer the Assets (as
such term is defined herein) of the Business to Buyer, and Buyer desires to
purchase the same from Seller and Shareholders, subject to the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties,
intending to be legally bound hereby, agree as follows:
ARTICLE I. PURCHASE AND SALE
1.1 Purchase and Sale. Seller and Shareholders agree to sell,
transfer, assign, convey and deliver to Buyer, and Buyer agrees to purchase
from Seller and Shareholders, all right, title and interest in all assets
(except the Excluded Assets) of Seller of every kind and type, tangible or
intangible, real and personal, that are used in the operation of the Business,
free and clear of all encumbrances, mortgages, pledges, liens, security
interests, obligations and liabilities other than the Assumed Liabilities (as
defined in paragraph
<PAGE> 7
1.3(1)), which assets shall include, without limitation, the following
(collectively, the "Assets"):
(1) All tangible personal property, medical and other
equipment, machinery, data processing hardware and software, furniture,
furnishings, appliances, vehicles and other tangible personal property of every
description and kind and all replacement parts therefor used in connection with
the Business (collectively, the "Equipment and Furnishings") including, without
limitation, the items listed on the "Schedule of Assets" attached hereto as
Exhibit 1.1 but specifically excluding all equipment and furnishings described
in paragraph 1.2(1);
(2) All inventory of goods and supplies used or
maintained in connection with the Business (collectively, the "Inventory")
having a book value on the Effective Date of $519,494.00.
(3) All accounts and notes receivables of the Business,
and proceeds thereof (collectively, the "Receivables");
(4) All income generated from operation of the Business
on and after the Effective Date in the manner contemplated by Article XIII;
(5) All patient, medical, personnel and other records
related to the Business (including both hard and microfiche copies), and all
manuals, books and records used in operating the Business, including, without
limitation, personnel policies and files and manuals, accounting records, and
computer software;
(6) To the full extent transferable, all licenses,
permits, registrations, certificates, consents, accreditations, approvals and
franchises necessary to operate and conduct the Business, together with
assignments thereof, if required, and all waivers which Seller currently has,
if any, of any requirements pertaining to such licenses, permits,
registrations, certificates, consents, accreditations, approvals and
franchises;
(7) All goodwill, and, to the extent assignable by
Seller, all warranties (express or implied) and rights and claims related to
the Assets or the operation of the Business;
(8) All prepaid expenses and deposits of the Business;
(9) Contract and leasehold rights and interests pursuant
to contracts for purchase or lease of personal property, construction
contracts, contracts for purchase, sale or lease of equipment, goods or
services currently furnished or to be furnished in connection with the Business
and that are Assumed Liabilities (as such term is defined herein);
2
<PAGE> 8
(10) All intangible or intellectual property owned,
leased, licensed or possessed by either Seller or Shareholders and utilized in
connection with the Business, including without limitation, the names "Delcrest
Medical Products, Inc." and derivatives thereof (it being understood, however,
that Seller shall also retain the right to continue using the name in the
context of its Institutional Division as currently operated).
1.2 Excluded Assets. Seller is not selling and Buyer is not
purchasing or assuming obligations with respect to the assets or operation of
the Institutional Division and certain specific assets of the Business, as
specified below (collectively, the "Excluded Assets"):
(1) All of Seller's tangible personal property, medical
and other equipment, machinery, data processing hardware and software,
furniture, furnishings, appliances, vehicles and other tangible personal
property in connection with the Institutional Division, including those items
listed on Exhibit 1.2(1) attached hereto;
(2) All of Seller's inventory of goods and supplies used
in connection with the Institutional Division not included in the Inventory;
(3) All accounts receivable of the Institutional
Division;
(4) Subject to paragraph 1.1(4), all of Seller's cash,
cash equivalents and bank and other comparable accounts;
(5) Prepaid expenses and deposits in connection with the
Institutional Division;
(6) All life insurance policies owned by Seller; and
(7) Seller's corporate and financial records;
The parties acknowledge and agree that Seller is not conveying to Buyer any of
the Excluded Assets and that, following Closing, Buyer will not have any right,
title, interest or obligation with respect to the Excluded Assets.
1.3 Assumed Contracts, Leases and Liabilities.
(1) Buyer will assume and agree to pay or perform, as the
case may be, only the following (collectively, the "Assumed Liabilities"):
(a) At the end of the Transition Period (as
defined herein) those obligations under those
Leases and Contracts (as such term is defined
in paragraph 4.11) arising after such date
which Buyer expressly elects to assume other
than claims arising
3
<PAGE> 9
thereunder as a result of acts or omissions
by or on behalf of Seller occurring outside
of the ordinary course of business prior to
the end of the Transition Period; and
(b) At the end of the Transition Period, those
employee liabilities that Buyer expressly
elects to assume, the categories and amounts
of which are set forth on Exhibit 1.3
attached hereto. If, at the end of the
Transition Period, Buyer agrees to assume
employee liabilities in excess of the limits
set forth on Exhibit 1.3, Seller shall, by
June 10, 1996, remit to Buyer cash in an
amount equal to such excess. If, at the end
of the Transition Period, Buyer agrees to
assume employee liabilities less than the
limits set forth on Exhibit 1.3, Buyer shall,
by June 10, 1996, remit to Seller cash in an
amount equal to such deficiency.
(2) Except for the Assumed Liabilities, it is expressly
agreed and understood by each of the parties to this Agreement that Buyer does
not assume, and shall not be liable for, any debt, liability or obligation of
Seller or Shareholders of any type or description whatsoever, whether related
or unrelated to the Assets, the Business or the transactions contemplated under
this Agreement, or the Institutional Division and that Seller and/or
Shareholders shall remain liable and responsible for the payment or
performance, as the case may be, of all debts, liabilities, obligations,
contracts, leases, notes payable, accounts payable, commitments, agreements,
suits, claims, indemnities, mortgages, taxes, contingent liabilities and other
obligations of Seller and/or Shareholders including, without limitation, any
and all investment tax credit recapture, depreciation recapture, recapture or
prior period adjustments under Medicare, Medicaid and Blue Cross, all
impositions of income tax and other taxes; all employee wages, salaries and
benefits including, without limitation, COBRA and WARN obligations, accrued
vacation and sick pay not expressly assumed by Buyer pursuant to paragraph
1.3(1)(b), and other accrued employee benefits including rights of Seller's
retirees to participate in Seller's medical plans.
ARTICLE III. RECEIVABLES
2.1 Collection of Receivables. At Closing, Seller and
Shareholders will take all appropriate action necessary to vest in Buyer all
right, title and interest in the Receivables, and Buyer will proceed to collect
the Receivables following Closing. In the event that any Receivable cannot be
transferred to Buyer, then Seller and Shareholders shall collect the
Receivable in compliance with all applicable laws, as Buyer's agent for the
limited purpose of such collection, and shall immediately deliver to Buyer the
gross proceeds of such collection. Seller and Shareholders shall also provide
such additional assistance in the collection process as Buyer may reasonably
request. Seller and Shareholders represent
4
<PAGE> 10
and warrant that the amount of collectible Receivables outstanding as of
December 31, 1995, is not less than $806,864.00. If, within 365 days following
Closing, less than Eight Hundred Six Thousand Eight Hundred Sixty-Four and
No/100 Dollars ($806,864.00) has been collected on account of such Receivables,
(a) Seller and Shareholders shall pay to Buyer the amount of the shortfall,
(b) Buyer, upon receipt of Seller's payment of the shortfall, will convey the
uncollected Receivables back to Seller, and (c) Shareholders agree to prepare,
at their cost, revised historical financial statements for the Seller
reflecting the impact of the less-than-anticipated collections.
ARTICLE IV. PURCHASE PRICE
3.1 Purchase Price. The purchase price payable by Buyer to Seller
for the Assets and in consideration for the agreements contained herein,
including the agreements contained in Article XV hereof, will be Six Million
Seven Hundred Twenty-Five Thousand and No/100 Dollars ($6,725,000.00) (the
"Purchase Price"). The Purchase Price shall be subject to adjustment as set
forth in this Agreement and shall be payable at Closing in the following
manner:
(1) Six Hundred Fifty Thousand and No/100 Dollars
($650,000.00) by a purchase price note (the "Note"), the form of which is
attached hereto as Exhibit 3.1(1);
(2) Three Hundred Thirty-Five Thousand Four Hundred and
No/100 Dollars ($335,400.00) by deposit of good funds into an interest bearing
escrow account pursuant to the terms of an escrow agreement (the "Escrow
Agreement"), the form of which is attached hereto as Exhibit 3.1(2);
(3) Assumption of Assumed Liabilities in the manner
contemplated by paragraph 1.3(1)(b);
(4) Satisfaction of such liens or other obligations that
encumber the Assets and, to the extent fund are available, certain other
obligations of Seller as mutually satisfactory to the parties in their
discretion; and
(5) The remainder, subject to the adjustments noted in
this Agreement, in immediately available funds at Closing.
3.2 Interest on Purchase Price. In addition to the Purchase Price
described in paragraph 3.1, Buyer shall deliver to Shareholders, in immediately
available funds at Closing, interest on Purchase Price described in paragraphs
3.1(1) and 3.1(5) at the rate of seven percent (7.0%) per annum for the
Effective Date through Closing. Comparable interest on that portion of the
Purchase Price referenced in paragraph 3.1(2) will be deposited in escrow
pursuant to the Escrow Agreement. No interest will be payable with respect to
those items referenced in paragraphs 3.1(3) and 3.1(4).
5
<PAGE> 11
3.3 Allocation of Purchase Price. The Purchase Price shall be
allocated among the Assets in the manner set forth in Exhibit 3.3 attached
hereto (the "Allocation"). The parties to this Agreement expressly agree that
the Allocation shall be used by them for all purposes including tax,
reimbursement and other purposes. Each party to this Agreement agrees that it
will report the transaction completed pursuant to this Agreement in accordance
with the Allocation, including any report made under Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"), and that no such party
will take a position inconsistent with the Allocation except with the prior
written consent of the other parties hereto.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF
SELLER AND SHAREHOLDERS
As a material inducement to Buyer to enter into this Agreement and to
consummate the transactions contemplated herein, Seller and Shareholders hereby
jointly and severally represent and warrant to Buyer, which representations and
warranties shall be true and correct on the date hereof, as of the date of
Closing and as of cessation of the Transition Period, as follows:
4.1 Organization, Qualification and Authority. Seller is a
corporation duly organized and validly existing in the Commonwealth of
Pennsylvania, and is in good standing and duly qualified to do business as a
foreign corporation in the State of New Jersey. Since the date of its
organization and incorporation, Seller has consistently observed and operated
within the corporate formalities of the jurisdictions in which it is
incorporated and/or conducts its business, and has consistently observed and
complied with the general corporation law of such jurisdictions. Seller has
full power and authority to own, lease and operate its facilities and assets as
presently owned, leased and operated; to carry on its business as it is now
being conducted; and is duly qualified to do business and is in good standing
in each of the jurisdictions where the Business is conducted. Except for
Shareholders, no other person or entity owns or holds, has any interest in,
whether legal, equitable or beneficial, or has the right to purchase, any
capital stock or other security of Seller. Seller owns no capital stock,
security, interest or other right, or any option or warrant convertible into
the same, of any corporation, partnership, joint venture or other business
enterprise. Seller has the full right, power and authority to execute, deliver
and carry out the terms of this Agreement and all documents and agreements
necessary to give effect to the provisions of this Agreement and to consummate
the transactions contemplated on the part of Seller hereunder. Shareholders
have the full right, power and authority to execute, deliver and carry out the
terms of this Agreement and all documents and agreements necessary to give
effect to the provisions of this Agreement, to consummate the transactions
contemplated on the part of Shareholders hereunder, and to take all actions
necessary, in their capacity as the stockholders of Seller, to permit or
approve the actions of Seller taken in connection with this Agreement. The
execution, delivery and consummation of this Agreement, and all other
6
<PAGE> 12
agreements and documents executed in connection herewith by Seller, have been
duly authorized by all necessary action on the part of Seller. No other
action, consent or approval on the part of Seller, Shareholders or any other
person or entity, is necessary to authorize Seller's due and valid execution,
delivery and consummation of this Agreement and all other agreements and
documents executed in connection hereto. This Agreement and all other
agreements and documents executed in connection herewith by Seller and/or
Shareholders, upon due execution and delivery thereof, shall constitute the
valid and binding obligations of each of Seller and Shareholders, enforceable
in accordance with their respective terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally and by general principles of equity.
4.2 Absence of Default. Except as provided on Exhibit 4.2
attached hereto, the execution, delivery and consummation of this Agreement,
and all other agreements and documents executed in connection herewith by
Seller and/or Shareholders will not constitute a violation of, or be in
conflict with, will not, with or without the giving of notice or the passage of
time, or both, result in a breach of, constitute a default under, create (or
cause the acceleration of the maturity of) any debt, indenture, obligation or
liability affecting the Assets or the Business pursuant to, result in the
creation or imposition of any security interest, lien, charge or other
encumbrance upon any of the Assets, or otherwise adversely affect Buyer, Seller
or Business under: (a) any term or provision of the Charter or Bylaws of Seller
or any trust or comparable agreement of any Shareholder; (b) any contract,
lease, purchase order, agreement, document, instrument, indenture, mortgage,
pledge, assignment, permit, license, approval or other commitment to which
Seller and/or Shareholders are a party or by which Seller and/or Shareholders
or the Assets are bound; (c) any judgment, decree, order, regulation or rule of
any court or regulatory authority; or (d) any law, statute, rule, regulation,
order, writ, injunction, judgment or decree of any court or governmental
authority or arbitration tribunal to which Seller and/or Shareholders and/or
the Assets are subject.
4.3 Financial Statements.
(1) Attached hereto as Exhibit 4.3 are true and correct
copies of Seller's reviewed balance sheets as of December 31, 1995 and 1994,
and its reviewed income statements for the fiscal years then ending (the
"Financial Statements"). The Financial Statements are based on the books and
records of Seller and present fairly, in compliance with generally accepted
accounting principles, the financial position of Seller and the Business as of,
and the results of operation of the Business for, the periods specified.
(2) The books and records of Seller are in such order and
completeness so that an unqualified audit of the Business may be performed for
any period prior to Closing not already audited. Seller and Shareholders shall
fully and readily cooperate with Buyer in Buyer's attempt to perform an audit
of the Seller for any period prior to Closing not already audited.
7
<PAGE> 13
4.4 Operations Since December 31, 1995. Since December 31, 1995,
there has been no:
(a) material change in the condition, financial
or otherwise, which has, or could reasonably be expected to have, an adverse
effect on any of the Assets, the Business or future prospects of the Business,
or in the results of the operations of Seller;
(b) loss, damage or destruction of or to any of
the Assets, whether or not covered by insurance;
(c) sale, lease, transfer or other disposition by
Seller of, or mortgages or pledges of or the imposition of any lien, charge or
encumbrance on, any portion of the Assets, other than those made in the
ordinary course of business;
(d) increase in the compensation payable by
Seller to any of its Shareholders, employees, directors, independent
contractors or agents, or any increase in, or institution of, any bonus,
insurance, pension, profit-sharing or other employee benefit plan or
arrangements made to, for or with the employees, directors, Shareholders or
independent contractors of the Seller;
(e) cumulative net operating loss incurred in the
operation of the Business;
(f) adjustment or write-off of Receivables or
reduction in reserves for Receivables outside of the ordinary course of
business;
(g) change in the accounting methods or practices
employed by Seller or change in depreciation or amortization policies;
(h) issuance or sale by Seller or Shareholders,
or contract or other commitment entered into by Seller or Shareholders, for the
issuance or sale of any shares of capital stock or securities convertible into
or exchangeable for capital stock of Seller;
(i) payment by Seller of any dividend,
distribution or extraordinary or unusual disbursement or expenditure or
intercompany payable;
(j) sale, transfer, pledge, mortgage or other
disposition of any of the Assets (except inventory and equipment held for rent
in the ordinary course of business);
(k) merger, consolidation or similar transaction;
or solicitations therefor;
8
<PAGE> 14
(l) federal, state or local statutes, rule,
regulation, order or case adopted, promulgated or decided which, to the best
knowledge of Seller and Shareholders, adversely affects the Business or Assets;
(m) strike, work stoppage or other labor dispute
adversely affecting the Business; or
(n) termination, waiver or cancellation of any
rights or claims of Seller, under contract or otherwise.
Further, since the Effective Date, neither Shareholders nor any
trustees, beneficiaries or Affiliates (as defined in paragraph 4.12(2)) of any
Shareholder have received any compensation, benefits or distributions from
either the income of the Business since the Effective Date or the Assets,
whether as salary, bonus, fees, dividends or any other form of compensation,
which is greater than the amount of compensation and benefits contemplated for
each pursuant to either of the agreements referenced in paragraph 9.7 or the
provisions of paragraph 13.3.
Notwithstanding the foregoing, Buyer acknowledges and agrees that the
representations and warranties of Seller and Shareholders as specified in
paragraphs 4.4(d), 4.4(e) and 4.4(i) do not apply to any periods subsequent to
the Effective Date so long as Seller's obligations under Article XIII are fully
performed.
4.5 Absence of Certain Liabilities. Except as set forth in the
December 31, 1995 Financial Statements, Seller has, and as of the Closing will
have, no contingent liabilities or obligations with respect to the Assets or
Business.
4.6 Employment Discrimination. Except as disclosed in Exhibit 4.6
attached hereto, no person or party (including, without limitation, any
governmental agency) has asserted, or to the knowledge of Seller or
Shareholders have threatened to assert, any claim for any action or proceeding,
against Seller (or any officer, director, employee, agent or shareholders of
Seller) arising out of any statute, ordinance or regulation relating to wages,
collective bargaining, discrimination in employment or employment practices or
occupational safety and health standards (including, without limitation, the
Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, as
amended, the Occupational Safety and Health Act, the Age Discrimination in
Employment Act of 1967, the Americans with Disabilities Act or the Family and
Medical Leave Act). The claims disclosed in Exhibit 4.6 will not result in any
liability to or obligation of Buyer, and will not cause or lead to any lien or
encumbrance being placed, created or filed against or upon any of the Assets.
9
<PAGE> 15
4.7 Licenses and Permits.
(1) Seller has all local, state and federal licenses,
permits, registrations, certificates, contracts, consents, accreditations and
approvals (collectively, the "Licenses and Permits") necessary for Seller to
occupy, operate and conduct the Business, and there does not exist any waivers
or exemptions relating thereto. There is no default on the part of Seller or
any other party under any of the Licenses and Permits. There exist no grounds
for revocation, suspension or limitation of any of the Licenses or Permits.
Copies of each of the Licenses and Permits are attached to and listed on
Exhibit 4.7(1) attached hereto. The most recent licensure surveys and
deficiency reports related to each of these items has also been included in
Exhibit 4.7(1). Seller is, and at the time of Closing will be, licensed by the
regulatory bodies listed on Exhibit 4.7(1). No notices have been received by
Seller or Shareholders with respect to any threatened, pending, or possible
revocation, termination, suspension or limitation of the Licenses and Permits.
(2) Seller is not required to have any certificates of
need or similar authorization in order to operate the Business.
(3) Each employee of Seller has all Licenses and Permits
required for each such employee to perform such employees' designated functions
and duties for Seller in connection with conducting the Business, and there
exists no waivers or exemptions relating thereto. There is no default under,
nor does there exist any grounds for revocation, suspension or limitation of,
any such Licenses and Permits.
(4) Seller is duly accredited by the Joint Commission on
Accreditation of Healthcare Organizations ("JCAHO") to operate and conduct the
Business. Included in Exhibit 4.7(4) attached hereto are the certificates of
accreditation issued by the JCAHO, and copies of the most recent JCAHO
accreditation survey report, including a list of deficiencies, if any.
4.8 Medicare, Medicaid and Other Third-Party Payors.
(1) Seller participates in the Medicare and Medicaid
Programs (the "Programs"). A list of and copies of its existing Medicare and
Medicaid contracts pertaining to the Business or, if such contracts do not
exist, other documentation evidencing such participation (collectively, the
"Program Agreements") are included in Exhibit 4.11 attached hereto. Seller is,
and will be at the time of Closing, in full compliance with all of the terms,
conditions and provisions of the Program Agreements and any and all comparable
agreements pertaining to the Institutional Division.
(2) Exhibit 4.8(2) attached hereto contains a copy of
Seller's most recent Statement of Deficiencies and Plan of Correction, if any.
10
<PAGE> 16
(3) No notice of any offsets against future
reimbursements under or pursuant to the Programs has been received by either
Seller or Shareholders, nor is there any basis therefor. There are no pending
appeals, adjustments, challenges, audits, litigation, notices of intent to
recoup past or present reimbursements with respect to the Programs. Seller has
not been subject to or threatened with loss of waiver of liability for
utilization review denials with respect to the Programs during the past twelve
(12) months, nor have either Seller or Shareholders received notice of any
pending, threatened or possible decertification or other loss of participation
in, any of the Programs.
(4) Seller currently has contractual arrangements with
Blue Cross and other third party payors. A list of and copies of its existing
Blue Cross contracts and other third party payor contract(s) pertaining to the
Business are included in Exhibit 4.11 attached hereto. Seller is, and will be
at the time of Closing, in full compliance with all of the material terms,
conditions and provisions of such contracts and any and all comparable
contracts pertaining to the Institutional Division.
(5) All liabilities and contractual adjustments of
Seller under any third party payor or reimbursement programs have been properly
reflected and adequately reserved for in the Financial Statements. In the
event that, following Closing, Buyer suffers any offsets against any
reimbursement under any third-party payor or reimbursement programs due to
Buyer relating to the periods on or prior to the cessation of the Transition
Period, relating to amounts owing under any such programs by Seller, then
Seller shall immediately pay to Buyer the amounts so offset, with interest at a
rate equal to seven percent (7.0%) per annum; provided, however that Buyer
shall bear the risk of offset as to operations beginning as of the Effective
Date so long as such offsets are not caused by the willful acts or omissions,
or gross negligence, of Shareholders, Seller and/or its employees,
representatives or agents. The interest shall accrue from the date of offset
by the third party until the date paid by Seller to Buyer.
4.9 Miscellaneous Representations Relating to Real Estate. None
of the real estate used in connection with the operation of the Business (the
"Real Estate") is in violation of any zoning, public health, building code or
other similar laws applicable thereto or to the ownership, occupancy and/or
operation thereof, nor does there exist any waivers or exemptions relating to
the Real Estate with respect to any non-conforming use or other zoning or
building codes matters. All utilities serving the Real Estate are adequate to
operate the Real Estate in the manner it is currently operated and all utility
lines, pipes, hook-ups and wires serving the Real Estate are located within
recorded easements for the benefit of the Real Estate. There are no facts
known to either the Seller or the Shareholders that would adversely affect the
possession, use or occupancy of the Real Estate.
11
<PAGE> 17
4.10 Title to Assets.
(1) Seller is the sole legal and beneficial owner of, or
has the exclusive, unrestricted right and authority to use and transfer to
Buyer, the personal property included in the Assets, free and clear of all
mortgages, security interests, liens, leases, covenants, assessments,
easements, options, rights of refusal, restrictions, reservations, defects in
the title, encroachments, and other encumbrances, except as set forth in
Exhibit 4.11 attached hereto. The Assets are all the assets set forth on the
Schedule of Assets or used in the operation of the Business.
(2) Seller owns no real estate. Seller is in lawful
possession of all of the Real Estate that is leased rather than owned,
including, without limitation, the buildings, structures and improvements
situated thereon and appurtenances thereto. Except as set forth in Exhibit
4.10(2) attached hereto, Seller's possessory rights in each case are free and
clear of all mortgages, liens and other encumbrances or restrictions that are
related to or impair the Assets or the Business.
4.11 Leases and Contracts.
(1) Exhibit 4.11(1) attached hereto sets forth a complete
and accurate list of all contracts, including the Program Agreements,
agreements, purchase orders, leases, subleases, options and commitments, oral
or written, and all assignments, amendments, schedules, exhibits and appendices
thereof, affecting or relating to the Business or any Asset or any interest
therein, to which either Seller and/or Shareholders are a party or by which
Seller, the Assets or the Business is bound or affected, including, without
limitation, service, contracts, management agreements, equipment leases and
building leases pertaining to any part of the Real Estate (collectively, the
"Leases and Contracts"). Attached to Exhibit 4.11(1) are accurate and complete
copies of all written Leases and Contracts and written summaries of key terms
of all oral Leases and Contracts. Except for the Assumed Liabilities, all
Leases and Contracts and all other obligations and liabilities relating to the
Assets and the Business shall be retained by Seller.
(2) None of the Leases and Contracts have been modified,
amended, assigned or transferred and each is in full force and effect and is
valid, binding and enforceable in accordance with its respective terms, except
as enforcement may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally and by general principles of
equity.
(3) No event or condition has happened or presently
exists which constitutes a default or breach or, after notice or lapse of time
or both, would constitute a default or breach by any party under any of the
Leases and Contracts. There are no counterclaims or offsets under any of the
Leases and Contracts.
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(4) There does not exist any security interest, lien,
encumbrance or claim of others created or suffered to exist on any interest
created under any of the Leases and Contracts (except for those that result
from or relate to leased Assets).
(5) No purchase commitment by Seller is in excess of
Seller's ordinary business requirements.
(6) Except as set forth on Exhibit 4.2 attached hereto,
assignment to Buyer of those Leases and Contracts constituting part of the
Assumed Liabilities will not default, alter or terminate any such Leases and
Contracts, and such assignment will confer and convey all of Seller's rights
thereunder to Buyer.
4.12 Environmental Matters.
(1) Hazardous Substances. As used in this Section, the
term "Hazardous Substances" means any hazardous or toxic substances, materials
or wastes, including but not limited to those substances, materials, and wastes
defined in Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), listed in the
United States Department of Transportation Table (49 CFR 172.101) or by the
Environmental Protection Agency as hazardous substances pursuant to 40 CFR Part
302, or which are regulated under any other Environmental Law (as such term is
defined below), and any of the following: hydrocarbons, petroleum and
petroleum products, asbestos, polychlorinated biphenyls, formaldehyde,
radioactive substances (other than naturally occurring materials in place),
flammables and explosives.
(2) Compliance with Laws and Regulations. All operations
or activities upon, or any use of occupancy of the Real Estate, or any portion
thereof, by Seller, any Affiliates of Seller (wherein the term "Affiliates"
shall mean any person or entity controlling, controlled by or under common
control at any time with Seller, and the term "control" shall mean the power,
directly or indirectly to direct the management or policies of such person or
entity), and any agent, contractor or employee of any agent or contractor of
Seller or its Affiliates ("Agents"), or any tenant or subtenant of Seller of
any part of the Real Estate is and has been in compliance with any and all
laws, licenses, permits, regulations, orders, codes, judicial decisions,
decrees and other applicable requirements of governmental authorities with
respect to Hazardous Substances, pollution or protection of human health and
safety (collectively, "Environmental Law"), including but not limited to the
release, emission, discharge, storage and removal of Hazardous Substances.
Seller, Affiliates and Agents have kept the Real Estate free of any lien
imposed pursuant to Environmental Law. To the best knowledge of Seller and
Shareholders, all prior owners, operators and occupants of the Real Estate
complied with Environmental Law. Except for uses and storage or presence of
Hazardous Substances reasonably necessary or incidental to the customary
operation of a business similar to the Business, as appropriate which, if
required, was duly licensed or authorized by appropriate governmental
authorities or otherwise permitted by and complies with Environmental Law:
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(a) Except as provided on Exhibit 4.12 attached
hereto, neither Seller, Affiliates nor, to the best knowledge of Seller and
Shareholders, Agents have allowed the use, generation, treatment, handling,
manufacture, voluntary transmission or storage of any Hazardous Substances
over, in or upon the Real Estate, nor, to Seller's or Shareholders' best
knowledge, has the Real Estate ever been used for any of the foregoing.
(b) Neither Seller, Affiliates nor, to Seller's
or Shareholders' best knowledge, Agents have installed or permitted to be
installed, in or on the Real Estate friable asbestos or any substance
containing asbestos in condition or amount deemed hazardous by Environmental
Law.
(c) Seller has not at any time engaged in or
permitted, nor to Seller's or Shareholders' best knowledge, has any tenant or
subtenant of Seller, Agent, Affiliate or any other occupant of the Real Estate,
or any portion thereof, engaged in or permitted any dumping, discharge,
disposal, spillage or leakage (whether legal or illegal, accidental or
intentional) of such Hazardous Substances, at, on, in or about the Real Estate,
or any portion thereof that would subject the Real Estate or Buyer to clean-up
obligations imposed by environmental governmental authorities. Seller has not
assumed any liability of a third party for clean up under, or noncompliance
with, Environmental Law.
(d) None of the Real Estate, nor any part
thereof, nor Seller nor any present owner or operator of the Real Estate (i)
has either received or been issued a notice, demand, request for information,
citation, summons or complaint regarding an alleged failure to comply with
Environmental Law, or (ii) is subject to any existing, pending, or, to the best
knowledge of the Seller and Shareholders, threatened investigation or inquiry
by any governmental authority for noncompliance with, or any remedial
obligations under Environmental Law; and there are no circumstances known to
Seller or Shareholders which could serve as a basis therefor.
(e) Neither Seller, its Affiliates nor, to the
best knowledge of Seller or Shareholder, its Agents have transported or
arranged for the transportation of any Hazardous Substances to any location
which is listed or, to the best knowledge of Seller and Shareholder, proposed
for listing under Environmental Law or is the subject of any enforcement
action, investigation or other inquiry under Environmental Law.
Seller and Shareholders shall promptly notify Buyer in writing of any
order of which it is aware, receipt of any notice of violation or noncompliance
with Environmental Law, any threatened or pending action of which it is aware
by any regulatory agency or governmental authority, or any claims made by any
third party of which it is aware relating to Hazardous Substances on,
emanations on or from, releases on or from, any of the Real Estate which relate
to the period prior to cessation of the Transition Period; and shall promptly
furnish Buyer with copies of any written correspondence, notices or legal
pleadings and written summaries of any oral communications or notices in
connection therewith. If, and only if,
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required by law or the failure to do so would impose liabilities on Buyer or
the Assets, Buyer shall have the right, but shall not be obligated, to notify
any governmental authority of any state of facts which may come to its
attention with respect to Hazardous Substances on, released from or emanating
from any part of the Real Estate. Buyer shall give Seller prior or
simultaneous notice of such notification.
(3) Other Environmental Matters. To the best knowledge
of Seller and Shareholders, there are no underground storage tanks on any
portion of the Real Estate, except an in-ground tank at the Levitown,
Pennsylvania, facility which is in full compliance with Environmental Law and
which Seller shall remove at Seller's expense in compliance with Environmental
Law prior to the end of the Transition Period. Seller shall replace such tank
with an above ground tank reasonably satisfactory to Buyer and in compliance
with Environmental Law. To the best knowledge of Seller and Shareholders, no
portion of the Real Estate has ever been used as a landfill. Seller has
furnished to Buyer a copy of any environmental audit or report on the Real
Estate, which Seller or its Affiliates obtained or was furnished.
4.13 Litigation. Neither Seller nor Shareholders have received
notice of any violation of any law, rule, regulation, ordinance or order of any
court or federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality (including, without
limitation, legislation and regulations applicable to the Medicare and Medicaid
programs, environmental protection, civil rights, public health and safety and
occupational health). Except as set forth in Exhibit 4.13 attached hereto (for
which Buyer assumes no liability), there are no lawsuits, proceedings, actions,
arbitrations, governmental investigations, claims, inquiries or proceedings
pending or, to the best knowledge of Seller and Shareholders, threatened
involving Seller, Shareholders, any of the Assets or the Business.
4.14 Seller's Employees. Exhibit 4.14 attached hereto sets forth:
(a) a complete list of all of Seller's employees, and rates of pay, (b) true
and correct copies of any and all fringe benefits and personnel policies, (c)
the employment dates and job titles of each such person, and (d) categorization
of each such person as a full-time or part-time employee of Seller. For
purposes of this paragraph, "part-time employee" means an employee who is
employed for an average of fewer than twenty (20) hours per week or who has
been employed for fewer than six of the twelve (12) months preceding the date
on which notice is required pursuant to the "Worker Adjustment and Retraining
Notification Act" ("WARN"), 29 U.S.C. Section 2102 et seq. Except as provided
in Exhibit 4.11, Seller has no employment agreements with its employees and all
such employees are employed on an at "at will" basis. Exhibit 4.14 lists all
ex-employees of Seller utilizing or eligible to utilize COBRA (health
insurance). Seller will terminate those of its employees engaged in the
Business whom Buyer wishes to retain upon conclusion of the Transition Period,
and each of Seller and Shareholders agree, jointly and severally, to indemnify
and hold Buyer harmless, from and against any and all claims of all of Seller's
employees relating to their employment by Seller through the Transition Period
described in Article XIII, including any claims resulting
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from termination of employment. Other than Assumed Liabilities, the parties to
this Agreement expressly agree that Seller shall retain responsibility for and
fully and timely pay all salaries and wages, related payroll taxes and all sick
leave, holiday, vacation benefits, retirement and other fringe benefits that
have accrued to its employees through the date of cessation of the Transition
Period, including related payroll taxes.
4.15 Labor Relations. Seller is not a party to any labor contract,
collective bargaining agreement, contract, Letter of Understanding, or any
other arrangement, formal or informal, with any labor union or organization
which obligates Seller to compensate Seller's employees at prevailing rates or
union scale, nor are any of its employees represented by any labor union or
organization. There is no pending or, to the best knowledge of Seller and
Shareholders, threatened labor dispute, work stoppage, unfair labor practice
complaint, strike, administrative or court proceeding or order between Seller
and any present or former employee(s) of Seller. There is no pending or, to
the best knowledge of Seller and Shareholders, threatened suit, action,
investigation or claim between Seller and any present or former employee(s) of
Seller. Other than a petition dated June 29, 1995 (a copy of which has been
provided to Buyer), which petition was withdrawn with prejudice on August 21,
1995, there has not been any labor union organizing activity at any location of
Seller, or elsewhere, with respect to the Seller's employees within the last
three years.
4.16 Insurance. Seller has in effect and has continuously
maintained insurance coverage for all of its operations, personnel and assets,
and for the Assets and the Business. A complete and accurate list of all such
insurance policies is set forth in Exhibit 4.16 attached hereto, which policies
have previously been provided to Buyer. Exhibit 4.16 also sets forth a summary
of the Seller's current insurance coverage (listing type, carrier and limits),
and includes a list of any pending insurance claims relating to Seller. Seller
and Shareholders agree, jointly and severally, to indemnify and hold harmless
Buyer from and against any damages or costs (including attorney fees) arising
out of such insurance claims. Seller is not in default or breach with respect
to any provision contained in any such insurance policies, nor has Seller
failed to give any notice or to present any claim thereunder in due and timely
fashion.
4.17 Broker's or Finder's Fee. Other than the retention of Paragon
Ventures, neither Seller nor Shareholders have employed, or are liable for the
payment of any fee to, any finder, broker, consultant or similar person in
connection with the transactions contemplated under this Agreement. Seller and
Shareholders shall timely pay all fees and expenses due to Paragon Ventures and
its Affiliates.
4.18 Conflicts of Interest. Except as provided on Exhibit 4.18
attached hereto, none of the following is either a supplier of goods or
services to Seller, or directly or indirectly controls or is a director,
officer, employee or agent of any corporation, firm, association, partnership
or other business entity that is a supplier of goods or services to Seller:
(a) Shareholders, (b) any trustee or beneficiary of any Shareholder; (c) any
director
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or officer of Seller, or (d) any entity under common control with Seller or
controlled by or related to Shareholders.
4.19 Intellectual Property. All trademarks, service marks, trade
names, patents, inventions, processes, copyrights and applications therefore,
whether registered or common law (collectively, the "Intellectual Property"),
owned by Seller and used in connection with the Business are listed and
described in Exhibit 4.19 attached hereto. No proceedings have been instituted
or are pending or, to the best knowledge of Seller and Shareholders, threatened
which challenge the validity of the ownership by Seller of any such
Intellectual Property. Seller has not licensed anyone to use any such
Intellectual Property, and neither Seller nor Shareholders have any knowledge
of the use or the infringement of any of such Intellectual Property by any
other person. Seller owns or possesses adequate and enforceable licenses or
other rights to use all Intellectual Property.
4.20 Inventories. The Inventory is, and on Closing will be, of a
quality and quantity presently used by Seller in the ordinary course of the
Business determined and valued consistent with Seller's past practice. The
Inventory is, and at Closing will be, properly valued at the lower of cost or
market value on a first-in/first-out basis in accordance with generally
accepted accounting principles consistently applied. Since the date of the
December 31, 1995 Financial Statements, Seller has not decreased or substituted
its items of Inventory other than in the ordinary course of business. Seller
has fairly represented the nature and extent of the Inventory to its outside
auditors and accountants on a consistent basis and in the exercise of good
faith.
4.21 Motor Vehicles. All motor vehicles used in the Business,
whether owned or leased, are listed in Exhibit 1.1(1) attached hereto. All
such vehicles are properly licensed and registered in accordance with
applicable law.
4.22 Employee Benefit Plans.
(1) Welfare Benefit Plans. Exhibit 4.22(1) attached
hereto contains a true, accurate and complete list of each "employee welfare
benefit plan" (as defined in Section 3(1) of the Employee Retirement Income
Security Act of 1974 as amended ("ERISA")) maintained by Seller or to which
Seller contributes or is required to contribute (such employee welfare benefit
plans being hereinafter collectively referred to as the "Welfare Benefit
Plans"). Copies of all Welfare Benefit Plans have previously been provided to
Buyer.
(2) Pension Benefit Plans. Exhibit 4.22(2) attached
hereto contains a true and complete list of each "employee pension benefit
plan" (as defined in Section 3(2) of ERISA) maintained by Seller, to which
Seller contributes or is required to contribute, or which covered employee of
Seller during the period of their employment with any predecessor of Seller,
including any multi-employer pension plan as defined under Internal
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Revenue Code of 1986, Section 414(f) (such employee pension benefit plans being
hereinafter collectively referred to as the "Pension Benefit Plans"). Copies
of all Pension Benefit Plans have previously been provided to Buyer.
(3) Liabilities. There are no unfunded liabilities under
any Welfare Benefit Plans or Pension Benefit Plans. Buyer shall not be liable
and not be responsible for any debt, obligation, responsibility or liability of
Seller under any such plans. Seller shall be liable under its Welfare Benefit
Plans and Pension Benefit Plans for all claims due and unpaid upon cessation of
the Transition Period and for all claims incurred before such time, whether or
not paid or presented before cessation of the Transition Period.
4.23 Compliance with Healthcare and Other Laws. Seller has not
made any kickback, bribe or payment to any person or entity, directly or
indirectly, for referring, recommending or arranging business or patients with,
to or for Seller which action could have a material adverse effect on the
Business. None of the Leases and Contracts and no activity of Seller violates
Section 1877 of the Social Security Act or any similar provision of applicable
state law in any material respect. None of the Leases and Contracts and no
activity of Seller violates provisions of applicable state law relating to the
corporate practice of medicine in any material respect. The Seller is in
compliance (without obtaining waivers, variances or extensions) with, all
federal, state and local laws, rules and regulations which relate to the
operations of the Business, except where the failure to be in compliance could
not have a material adverse effect on the Business. No bulk sales or similar
statute applies to the transactions contemplated under this Agreement. The
transactions contemplated under this Agreement comply with any applicable state
antitrust or similar laws. All healthcare, tax and other returns, reports,
plans and filings of any nature required to be filed by Seller with any
federal, state or local governmental authorities and any third party payors
have been properly completed, except where the failure to be so completed or
filed could not have a material adverse effect on the Business, and timely
filed in compliance with all applicable requirements. Each return, report,
plan and filing contains no materially untrue or misleading statements and does
not omit anything which would cause it to be misleading or inaccurate in any
material respect. Seller shall retain and be responsible, for any liability
incurred, and Seller shall be entitled to receive any refund or other benefit
which may result from the same in connection with any such return, report, plan
and filing.
4.24 Condition of Assets. The Equipment and Furnishings are all of
the "Equipment" used in the Business and reflected on the Schedule of Assets,
other than those items sold and replaced in the ordinary course of business.
The Assets together with the Excluded Assets comprise all assets owned by
Seller and used in connection with the Business. Except for Equipment and
Furnishings removed from service for repair or replacement in the ordinary
course of Seller's Business consistent with past practice, the extent of which
will not materially adversely affect the ability to operate the Business on an
ongoing basis as it has been operated in the past, all components of all of the
Equipment and Furnishings (a) to the best Seller's and Shareholder's knowledge,
operate in accordance with their respective specifications, (b) perform the
functions they are
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supposed to perform, (c) are free of structural, installation, engineering, or
mechanical defects or problems, and (d) are otherwise in good working order.
Seller has received no written recommendation from any insurer to repair or
replace any of the Assets with which Seller has not complied. Since December
31, 1995, the Business has been operated in conformity with the methods and
procedures observed and utilized during the two year period immediately
preceding December 31, 1995, and that since December 31, 1995, and except as
required in the ordinary and usual course of the Business, no funds, monies or
accounts receivable have been removed, distributed, assigned or paid by or from
the Seller.
4.25 WARN Act. Within the period ninety (90) days prior to the
Effective Date, Seller has not temporarily or permanently closed or shut down
any single site of employment or any facility or any operating unit, department
or service within a single site of employment, as such terms are used in WARN.
4.26 Tax Returns; Taxes. Seller has filed or will timely file all
federal, state and local tax returns and tax reports required by such
authorities to be filed. Seller has paid all taxes, assessments, governmental
charges, penalties, interest and fines due or claimed to be due (including,
without limitation, taxes on properties, income, franchises, licenses, sales
and payrolls) by any federal, state or local authority. Additionally, the
reserves for taxes reflected in the Financial Statements are adequate to cover
all tax liabilities accrued as of the respective dates thereof. There is no
pending tax examination or audit of, nor any action, suit, investigation or
claim asserted or, to the best knowledge of Seller and Shareholders, threatened
against Seller by any federal, state or local authority; and Seller has not
been granted any extension of the limitation period applicable to any tax
claims.
4.27 No Omissions or Misstatements. There is no fact material to
the Assets, liabilities, operations or prospects of Seller or the Business
which has not been set forth or described in this Agreement or in the Exhibits
hereto and that is material to the conduct, prospects, operations or financial
condition of the Seller, the Business or the Assets. None of the information
included in this Agreement and Exhibits hereto, or other documents furnished or
to be furnished by Shareholders or Seller, or any of its representatives,
contains any untrue statement of a material fact or is misleading in any
material respect or omits to state any material fact necessary in order to
make any of the statements herein or therein not misleading in light of the
circumstances in which they were made. Copies of all documents referred to in
any Exhibit hereto have been delivered or made available to Buyer and
constitute true, correct and complete copies thereof and include all
amendments, exhibits, schedules, appendices, supplements or modifications
thereto or waivers thereunder.
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ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Seller and Shareholders to enter into this
Agreement and to consummate the transactions contemplated hereunder, Buyer
hereby represents and warrants to Seller and Shareholders, which
representations and warranties shall be true and correct on the date hereof and
on the date of Closing, as follows:
5.1 Organization, Qualification and Authority. Buyer is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Buyer has the full corporate power and
corporate authority to own, lease and operate its properties and assets as
presently owned, leased and operated and to carry on its business as it is now
being conducted. Buyer has the full right, power and authority to execute,
deliver and carry out the terms of this Agreement and all documents and
agreements necessary to give effect to the provisions of this Agreement and to
consummate the transactions contemplated on the part of Buyer hereby. The
execution, delivery and consummation of this Agreement and all other agreements
and documents executed in connection herewith by Buyer has been duly authorized
by all necessary corporate action on the part of Buyer. No other action on the
part of Buyer or any other person or entity is necessary to authorize the
execution, delivery and consummation of this Agreement and all other agreements
and documents executed in connection herewith. This Agreement, and all other
agreements and documents executed in connection herewith by Buyer, upon due
execution and delivery thereof, shall constitute the valid binding obligations
of Buyer, enforceable in accordance with their respective terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally and by general principles of equity.
5.2 Absence of Default. The execution, delivery and consummation
of this Agreement and all other agreements and documents executed in connection
herewith by Buyer will not constitute a violation of, be in conflict with, or,
with or without the giving of notice or the passage of time, or both, result in
a breach of, constitute a default under, or create (or cause the acceleration
of the maturity of) any debt, indenture, obligation or liability or result in
the creation or imposition of any security interest, lien, charge or other
encumbrance upon any of the Assets (except in the ordinary course pursuant to
Buyer's existing credit agreement) under: (a) any term or provision of the
Certificate of Incorporation or Bylaws of Buyer; (b) any contract, lease,
agreement, indenture, mortgage, pledge, assignment, permit, license, approval
or other commitment to which Buyer is a party or by which Buyer is bound; (c)
any judgment, decree, order, regulation or rule of any court or regulatory
authority, or (d) any law, statute, rule, regulation, order, writ, injunction,
judgment or decree of any court or governmental authority or arbitration
tribunal to which Buyer is subject.
5.3 Broker's or Finder's Fee. Buyer has not employed and is not
liable for the payment of any fee to any finder, broker, government official,
consultant or similar person in connection with the transactions contemplated
by this Agreement.
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ARTICLE VII. COVENANTS OF PARTIES
6.1 Preservation of Business and Assets. From the Effective Date
until the cessation of the Transition Period, each of Seller and Shareholders
shall use their best efforts and shall do or cause to be done all such acts and
things as may be necessary to preserve, protect and maintain intact the
operation of the Business and Assets as a going concern consistent with prior
practice and not other than in the ordinary course of business, and to
preserve, protect and maintain for Buyer the goodwill of the suppliers,
employees, clientele, patients and others having business relations with Seller
or the Business. Buyer, Seller and Shareholders shall use their best efforts
to facilitate the consummation of the transactions contemplated under this
Agreement. Seller shall use its best efforts to retain its employees as are
reasonably necessary for the conduct of the Business in their current positions
until cessation of the Transition Period. Notwithstanding the foregoing
sentence, Seller intends to terminate certain of its employees during the
Transition Period. Seller will obtain Buyer's consent for any such termination
which consent will not be unreasonably withheld. Unless and until this
Agreement is terminated, Seller and Shareholders agree that they will not sell
or transfer, or negotiate the sale or transfer of, either the Assets, the
Business or any capital stock of Seller. From the Effective Date until the
Closing, Seller shall pay no dividend, and shall make no distribution or
extraordinary payment to the Shareholders or any third party or pay any
intercompany payable and, other than in the ordinary course of business. From
the Effective Date until cessation of the Transition Period, Seller will not
sell, discard or dispose of any of the Assets except for inventory in the
ordinary course of business consistent with past practice which Inventory shall
be replaced with inventory of equivalent value and quality pursuant to Article
XIII. None of the Leases and Contracts shall be amended between the date
hereof and Closing without the prior written consent of Buyer. From the
Effective Date until cessation of the Transition Period, Seller and any party
in possession of all or any part of the Assets will maintain and keep the
Assets in a sanitary, well-maintained condition and in good order and repair.
6.2 Absence of Material Change. From the Effective Date until
cessation of the Transition Period, neither Seller nor Shareholders shall make
any material change in the Business or in the utilization of the Assets and
shall not enter into any other material contract or commitment or any other
transaction with respect to the Business or the Assets without the prior
written consent of Buyer.
6.3 Access to Books and Records.
(a) From the date hereof until the Closing, Seller shall
give to Buyer and to Buyer's counsel, accountants and other representatives,
full access to all of Seller's offices, properties, books, contracts,
commitments, records and affairs relating to the Assets or the Business so that
Buyer may inspect and audit them and shall furnish to Buyer a copy of all
documents and information concerning the properties and affairs of the Seller,
the Business or the Assets as Buyer may request. If any such books, records
and
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materials are in the custody of third parties, Seller shall direct such third
parties to promptly provide them to Buyer. Copies of documents furnished to
Buyer by Seller will be returned by Buyer upon request if the transaction(s)
contemplated hereunder are not consummated. Seller shall provide Buyer
promptly with interim financial statements of Seller and any other management
reports, as and when they are available.
(b) Following the Closing, Buyer shall permit Seller's
representatives (including, without limitation, their counsel and auditors),
during normal business hours, to have reasonable access to, and examine and
make copies of, all books and records of the Business which relate to
transactions or events occurring prior to cessation of the Transition Period.
All out-of-pocket costs associated with the delivery of the requested documents
shall be paid by Seller.
(c) Following the Closing, Seller shall permit Buyer and
its representatives (including, without limitation, their counsel and
auditors), to have access to, and examine and make copies of, all books and
records of Seller and its affiliates relating to the Business or Assets, which
books and records are retained by Seller and which relate to transactions or
events occurring prior to cessation of the Transition Period. For a period of
five years after the Closing, Seller agrees that, prior to the destruction or
disposition of any such books or records, Seller shall provide not less than
forty-five (45) days', nor more than ninety (90) days', prior written notice to
Buyer of such proposed destruction or disposal. If Buyer desires to obtain any
such documents or records, it may do so by notifying Seller in writing at any
time prior to the date scheduled for such destruction or disposal. In such
event, Seller shall not destroy such documents or records and the parties shall
then promptly arrange for the delivery of such documents or records to Buyer,
its successors or assigns. All out-of-pocket costs associated with the
delivery of the requested documents or records shall be paid by Buyer.
(d) Seller shall cause its accounting firm to consent to
the inclusion of the Financial Statements in any registration statements,
private placement memoranda, and periodic reports, if any, necessary or
appropriate in order to enable Buyer or its affiliates to comply with any
applicable registration or reporting requirements of federal or state
securities laws.
(e) After Closing, Seller and Shareholders shall make the
books and records of Seller pertaining to the Business available to the Buyer
(and, without limitation, to Buyer's auditors and other agents) and shall
otherwise cooperate with Buyer in order to permit Buyer to conduct an audit of
the Business' financial statements for any period prior to Closing not already
audited. Seller agrees to cooperate, with Buyer in Buyer's preparation of
financial statements relating to such periods and Buyer's filing in a timely
manner registration statements, private placement memoranda and periodic
reports, if any, pursuant to any applicable federal or state securities law.
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6.4 Preserve Accuracy of Representations and Warranties. Each of
Seller and Shareholders shall refrain from taking any action which would render
any representation and warranty contained in Article IV hereof untrue,
inaccurate or misleading as of Closing and as of cessation of the Transition
Period. Seller and each Shareholder will promptly notify Buyer of any lawsuit,
claim, audit, investigation, administrative action or other proceeding asserted
or commenced against Seller or its directors, officers, or Shareholders, that
may involve or relate in any way to Seller, the Assets, Shareholders or the
operation of the Business. Seller and Shareholders shall promptly notify Buyer
of any facts or circumstances that come to either's attention and that cause,
or through the passage of time may cause, any of Seller's and Shareholder's
representations and warranties to be untrue or misleading at any time from the
date hereof through cessation of the Transition Period.
6.5 Maintain Books and Accounting Practices. From the date hereof
until the Closing, Seller shall maintain its books of account in the usual,
regular and ordinary manner on a basis consistent with prior years and shall
make no change in its accounting methods or practices.
6.6 Indebtedness; Liens. From the Effective Date until the
cessation of the Transition Period, with respect to the Assets, including the
Business and operations conducted with the Assets, Seller shall not create,
incur, assume, guarantee or otherwise become liable or obligated with respect
to any indebtedness for borrowed money, nor make any loan or advance to, or any
investment in, any person or entity, nor create any lien, security interest,
mortgage, right or other encumbrance in any of the Assets, without Buyer's
prior written approval. Notwithstanding the foregoing sentence, Seller may
borrow amounts in its ordinary course of business consistent with past practice
under its existing line of credit with MidAtlantic Bank (the "Line of Credit").
At Closing and upon cessation of the Transition Period, the Assets will be free
and clear of all mortgages, security interests, liens, leases, covenants,
assessments, easements, options, rights of first refusal, restrictions,
reservations, defects in title, encroachments or other encumbrances, including
but not limited to those existing or created under the Line of Credit, except
as set forth in those Leases and Contracts which Buyer expressly elects to
assume, and Seller shall deliver to Buyer at Closing such releases, UCC
termination statements and other documents as Buyer may request to evidence the
same.
6.7 Compliance with Laws and Regulatory Consents. From the date
hereof through cessation of the Transition Period, (a) Seller shall comply with
all applicable statutes, laws, ordinances and regulations; (b) Seller shall
keep, hold and maintain all certificates, certificates of need, certificates of
exemption, accreditations, participations, licenses, and other permits
necessary for the business and operation of the Assets; (c) Seller and
Shareholders shall use their best efforts and shall cooperate fully with Buyer
to obtain timely all consents, approvals, exemptions and authorizations of
third parties, whether governmental or private, necessary to consummate the
transactions contemplated under this Agreement; and (d) Seller and Shareholder
shall make and cause to be made
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all filings and give and cause to be given all notices which may be necessary
or desirable under all applicable laws and under applicable contracts,
agreements and commitments in order to consummate the transactions contemplated
under this Agreement.
6.8 Maintain Insurance Coverage. From the date hereof through
cessation of the Transition Period, Seller shall maintain and cause to be
maintained in full force and effect the existing insurance on the Assets and
the operations of the Business and shall provide, upon request by Buyer,
evidence satisfactory to Buyer that such insurance continues to be in effect,
that all premiums due have been paid, and that Buyer has been named additional
insured since the Effective Date. Seller will maintain its existing product
and professional liability insurance on an "occurrence" basis policy or other
policy satisfactory to Buyer, in its sole discretion, and covering at least
five years after cessation of the Transition Period.
6.9 Medicare and Medicaid Reporting. Through cessation of the
Transition Period, Seller shall timely file or cause to be filed all reports
and claims of every kind, nature or description, required by law or by written
or oral contract to be filed with respect to the purchase of services by third
party payors, including, but not limited to, Medicare, Medicaid and Blue Cross.
Seller has paid or will pay all liabilities for contracted adjustments,
discounts, refunds and other offsets in connection with the filing of such
reports and claims up to the Effective Date; provided, however, that if any
adverse adjustments or offsets regarding operations from the Effective Date
through cessation of the Transition Period are the result of the wilful acts or
omissions, or gross negligence, of Seller and/or its employees, representatives
and agents, Seller and Shareholders shall be jointly and severally responsible
for such adjustments and offsets. Seller shall be entitled to receive any
refund or other benefit which may result for the filing of said reports and
claims for operations up to the Effective Date, and Buyer shall likewise be so
entitled beginning on the Effective Date.
6.10 Current Return Filing. Buyer shall be deemed owner of the
Business as of the Effective Date for accounting and tax purposes and shall
correspondingly include all operations of the Business on Buyer's federal,
state and local income tax returns, and pay Buyer's resulting taxes. Buyer
will not indemnify Seller or Shareholder for any tax liability of Seller or
Shareholder imposed by any government agency.
6.11 WARN Act. Prior to cessation of the Transition Period, Seller
will not temporarily or permanently close or shut down any "single site of
employment" or any "facility" or any "operating unit," department or service
within a single site of employment, as such terms are used in WARN.
6.12 No Sale, Merger or Consolidation. From the date hereof
through cessation of the Transition Period, Shareholders shall not sell, pledge
or transfer any of their capital stock in Seller, and Seller shall not sell all
or substantially all of its assets, or merge or consolidate with any other
entity; neither shall solicit any inquiries, proposals or offers relating to
any such transactions except with prior written notice to Buyer; and both shall
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promptly notify the Buyer orally, and confirm in writing, of all relevant
details relating to inquiries, proposals or offers which either may receive
relating to any of the matters referred to in this paragraph. Seller shall not
consummate a sale, in any manner or by any means, of its Institutional Division
on or prior to December 31, 1996 unless: (i) Buyer has given its written
consent which consent may be withheld in Buyer's sole discretion; or (ii) the
acquiror of the Institutional Division enters into a noncompete agreement
extending until December 31, 1996 with Buyer covering the Business' accounts,
customers and referral sources in form and substance satisfactory to Buyer. In
the event of a breach of this paragraph 6.12, Seller and Shareholders recognize
that monetary damages shall be inadequate to compensate Buyer and Buyer shall
be entitled, without the posting of a bond or similar security, to an
injunction restraining such breach, with the costs (including attorneys fees)
of securing such injunction to be borne, jointly and severally, by Seller and
Shareholders. Nothing contained herein shall be construed as prohibiting Buyer
from pursuing any other remedy available to it for such breach or threatened
breach.
ARTICLE VIII. CLOSING
7.1 Closing. If all of the conditions to Closing set forth in
Articles VIII and IX hereof are satisfied, then the Closing shall occur on or
by February 16, 1996, at the offices of Harwell Howard Hyne Gabbert & Manner,
P.C., Nashville, Tennessee, or at such other time or place as the parties may
mutually agree (the "Closing"). If all of the conditions to Closing set forth
in Articles VIII and IX hereof are not satisfied by or by February 16, 1996,
the Closing shall occur at such other time as the parties may mutually agree.
Upon consummation, the Closing shall be deemed to be effective and the transfer
of the Assets shall be deemed to have occurred, as of 12:01 a.m. local time on
January 1, 1996 (the "Effective Date"). Accordingly, income generated from
operation of the Business on and after the Effective Date will be the property
of Buyer. In the event that Closing has not occurred by March 15, 1996, then
any party not in default hereunder may terminate this Agreement without further
obligation.
ARTICLE IX. SELLER'S AND SHAREHOLDERS' CONDITIONS TO CLOSE
The obligations of Seller and Shareholders under this Agreement are
subject to the satisfaction on or prior to Closing, of the following conditions
(which may be waived in writing by Seller in whole or in part):
8.1 Representations and Warranties True at Closing; Compliance
with Agreement. The representations and warranties of Buyer contained in this
Agreement (including the Exhibits and attachments hereto) or in any certificate
or document delivered to Seller and/or Shareholders pursuant hereto, shall be
deemed to have been made again at the Closing and shall then be true in all
respects; and Buyer shall have performed and
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complied with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by it prior to or at Closing.
8.2 No Action/Proceeding. No action or proceeding before a court
or any other governmental agencies or body shall have been instituted or
threatened to restrain or prohibit the transactions here under contemplated,
and no governmental agency or body or other entity shall have taken any other
action or made any request of Seller or Buyer as a result of which Seller
reasonably and in good faith deems that to proceed with the transactions
hereunder may constitute a violation of law.
8.3 Order Prohibiting Transaction. No order shall have been
entered in any action or proceeding before any court or governmental agency,
and no preliminary or permanent injunction by any court shall have been issued
which would have the effect of (a) making the transactions contemplated under
this Agreement illegal, or (b) otherwise preventing consummation of such
transactions. There shall have been no United States federal or state statute,
rule or regulations enacted or promulgated after the date of this Agreement
that would reasonably, directly or indirectly, result in any of the
consequences referred to in this paragraph.
8.4 Exhibits. Exhibits to this Agreement shall be finalized to
the satisfaction of Buyer, Seller and Shareholders by Closing.
ARTICLE X. BUYER'S CONDITIONS TO CLOSE
The obligations of Buyer under this Agreement are subject to the
satisfaction, on or prior to Closing, of the following conditions (which may be
waived in writing by Buyer in whole or in part):
9.1 Representations and Warranties True at Closing; Compliance
with Agreement. The representations and warranties of Seller and Shareholders
contained in this Agreement (including the Exhibits and attachments hereto) or
in any certificate or document delivered to Buyer in connection herewith, shall
be deemed to have been made again at the Closing and shall then be true in all
respects, and Seller and Shareholders shall have performed and complied with
all covenants, agreements and conditions required by this Agreement to be
performed or complied with by them prior to or at Closing.
9.2 Regulatory Approvals. Buyer shall have obtained (a)
certification for participation in the Medicaid Programs of the states where
the Business is conducted, (b) certification from the appropriate agency of the
federal government for participation in the federal Medicare Program, and (c)
all other consents, licenses, permits, approvals, provider contracts,
determinations or certificates of need necessary in the judgment of Buyer to
acquire and operate the Assets and Business as contemplated hereunder.
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9.3 No Action/Proceeding. No action or proceeding before a court
or any other governmental agency or body shall have been instituted or
threatened to restrain or prohibit the transaction hereunder contemplated, and
no governmental agency or body or other entity shall have taken any other
action or made any request of Seller or Buyer as a result of which Buyer
reasonably and in good faith deems that to proceed with the transactions
hereunder may constitute a violation of law.
9.4 Inspection of Assets; UCC Searches, etc. Buyer and its
representatives shall have had and continue to have reasonable rights of
inspection of the Assets in connection with Buyer's due diligence review, and
the results of Buyer's inspection and due diligence review shall be acceptable
to it. Seller shall have delivered to Buyer, at Seller's expense, all UCC
financing statements and title searches, local and central, including fixtures,
and federal and state pending litigation, tax lien and judgment searches, with
respect to Seller, the Assets and the Business including all "DBA's,"
tradenames and fictitious names of Seller, dated no more than ten (10) days
prior to Closing, with results satisfactory to Buyer.
9.5 Order Prohibiting Transaction. No order shall have been
entered in any action or proceeding before any court or governmental agency,
and no preliminary or permanent injunction by any court shall have been issued
which would have the effect of (a) making the transactions contemplated under
this Agreement illegal, (b) otherwise preventing consummation of such
transactions, or (c) imposing material limitations on the ability of Buyer
effectively to acquire and hold Assets, to operate the Business or, in any
case, to exercise rights of ownership pursuant thereto. There shall have been
no federal or state statute, rule or regulations enacted or promulgated after
the date of this Agreement that would reasonably result, directly or
indirectly, in any of the consequences referred to in this paragraph.
9.6 Confidentiality and Non-Compete Agreements. Each of Seller
and Shareholders shall execute and deliver to Buyer a Confidentiality and
Non-Compete Agreement in form and substance acceptable to Buyer.
9.7 Consulting Agreement. Buyer and Richard Kreider shall have
entered into a consulting agreement in the form attached hereto as Exhibit 9.7.
9.8 Operating Targets. As of the date of Closing, Seller and the
Business shall meet the following minimum operating thresholds: (i) for the
12-month period ended at December 31, 1995, the Business shall have achieved
gross profits of no less than Three Million Seven Hundred Twenty Thousand and
No/100 Dollars ($3,720,000.00); (ii) for the 12-month period ended at December
31, 1995, Seller shall have achieved net revenues of no less than Six Million
Two Hundred Thirty-Eight Thousand and No/100 Dollars ($6,238,000.00); and (iii)
that since December 31, 1995 and except as required in the ordinary and usual
course of the Business, no assets have been removed, distributed, 29 assigned
or paid by or from Seller or Shareholders. Further, just prior to the time of
Closing, Shareholder shall provide to Buyer interim, unaudited financial
statements
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evidencing that no material change has occurred in connection with the Business
or the Assets since the date of the Interim Financial Statements. For purposes
of this paragraph 9.8, the term "gross profits" shall mean net revenues of the
Business less the total cost of revenues for the Business. The total cost of
revenues shall be the sum of the Business' sales cost of goods sold; rentals
cost of goods sold-depreciation; and rentals cost of goods sold-other
calculated in a manner consistent with the Financial Statements including but
not limited to the write-off directly to net sales of Receivables over 150 days
old. For purposes of this paragraph 9.8 and paragraph 13.3, the term "net
revenues" shall mean the sum of the Business' sales revenues; rental revenues;
returns and allowances; and revenue adjustments calculated in a manner
consistent with the Financial Statements including but not limited to the
write-off directly to net sales of Receivables over 150 days old.
9.9 Value of Assets. As of the date of Closing, the Assets shall
have an aggregate book value of no less than One Million Seven Hundred Fifty
Thousand and No/100 Dollars ($1,750,000.00). In the event the aggregate book
value of the Assets is less than One Million Seven Hundred Fifty Thousand and
No/100 Dollars ($1,750,000.00) but greater than One Million Seven Hundred
Thousand and No/100 Dollars ($1,700,000.00), the transactions contemplated
hereunder shall nevertheless be consummated, but the Purchase Price shall be
reduced by the amount of the shortfall in the book value of the Assets.
Further, in the event the aggregate book value of the Assets is One Million
Seven Hundred Thousand and No/100 Dollars ($1,700,000.00) or less, AHP shall
have the option, without liability, not to consummate the transactions
contemplated hereunder.
9.10 Third Party Consents. Seller shall provide to the Buyer all
third party consents or third party authorizations believed by Buyer to be
necessary or advisable for the legal and proper consummation of all agreements
and transactions contemplated within this Agreement, including but not limited
to those consents referenced in Exhibit 4.2 each in form and substance
acceptable to Buyer.
9.11 Approval of Board of Directors. This Agreement and
consummation of the transactions contemplated hereunder shall have been
approved by the Board of Directors of Buyer.
9.12 Exhibits. The Exhibits to this Agreement shall be finalized
to the satisfaction of Buyer, Seller and Shareholders by Closing.
ARTICLE XI. OBLIGATIONS OF SELLER AND SHAREHOLDERS AT CLOSING
At Closing, Seller and Shareholders shall deliver or cause to be
delivered to Buyer the following in form and substance reasonably satisfactory
to Buyer:
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10.1 Documents Relating to Title. Seller shall execute,
acknowledge, deliver and cause to be executed, acknowledged and delivered to
Buyer:
(1) A Bill of Sale, in form and substance satisfactory to
Buyer, warranting and conveying to Buyer good, valid and marketable title to
all Assets, free and clear of all liens, mortgages, pledges, encumbrances,
security interests, covenants, easements, rights of way, equities, options,
rights of first refusal restrictions, special tax or governmental assessments,
defects in title, encroachments and other burdens, except for the Assumed
Liabilities.
(2) Certificates of title to all vehicles that constitute
Assets endorsed by Seller together with completed originals of any forms
required by all applicable states to transfer the same, free and clear of all
liens, except for the Assumed Liabilities.
(3) An effective and enforceable assignment to Buyer of
each Lease and Contract which Buyer has agreed to assume.
10.2 Possession. Seller shall deliver to Buyer full possession and
control of the Business and Assets subject to the provisions of Article XIII
hereof.
10.3 Opinion of Counsel. Seller shall deliver to Buyer the
favorable opinion of counsel for Seller and Shareholders, dated as of Closing,
in the form attached hereto as Exhibit 10.3.
10.4 Corporate Good Standing and Corporate Resolutions. Seller
shall deliver to Buyer certificates of good standing from the Secretary of
State of its state of organization, and from each jurisdiction in which Seller
is qualified to do business, certified copies of the Bylaws and Charter of
Seller, and a certified copy of the resolutions of the Board of Directors and
Shareholders of Seller authorizing the execution, delivery and consummation of
this Agreement and the execution, delivery and consummation of all other
agreements and documents executed in connection herewith by them, including all
deeds, bills of sale and other instruments required hereunder, sufficient in
form and content to meet the requirements of the law of the Commonwealth of
Pennsylvania relevant to such transactions and certified by officers of Seller
to be validly adopted and in full force and effect and unamended as of Closing.
10.5 Closing Certificate. Seller shall deliver to Buyer a
certificate of an officer of Seller and of Shareholders, dated as of Closing,
certifying that (a) each covenant and obligation of Seller and/or Shareholders
have been complied with by such parties, and (b) each representation and
warranty of Seller and Shareholders are true and correct at the Closing as if
made on and as of the Closing.
10.6 Third Party Consents and Releases. Seller shall deliver to
Buyer, all consents, estoppels, approvals and authorizations of third parties
that Buyer believes are
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necessary or advisable for the legal and proper execution, delivery and
consummation of this Agreement, and the transactions contemplated hereunder,
including, but not limited to, those consents necessary for the assignment of
Leases and Contracts pursuant to paragraph 10.1(4). Buyer shall also deliver
to Buyer executed releases of all mortgages, security interests, liens,
pledges, restrictions or other encumbrances on or applicable to the Assets, in
form and substance satisfactory to Buyer in its sole discretion.
10.7 Insurance. Seller shall deliver evidence of insurance
coverage as required by paragraph 6.8.
10.8 Confidentiality, and Consulting Agreements. Seller shall
deliver to Buyer each of the agreements described in paragraphs 9.6 and 97.
10.9 Additionally Requested Documents; Post-Closing Assistance. At
the reasonable request of Buyer at Closing and at any time or from time to time
thereafter, Seller and Shareholders shall cooperate with Buyer to put Buyer in
actual possession and operating control of the Assets and Business, execute and
deliver such further instruments of sale, conveyance, transfer and assignment,
as Buyer may reasonably request in order to effectively sell, convey, transfer
and assign the Assets and Business to Buyer, to execute and deliver such
further instruments and to take such other actions as Buyer may reasonably
request to release Buyer from all obligation and liability with regard to any
obligation or liability retained by Seller and/or Shareholder and to execute
and deliver such further instruments and to cooperate with Buyer as Buyer may
reasonably request or to enable Buyer to obtain all necessary health care or
regulatory certifications, approvals, consents and licenses, accreditations or
permits.
ARTICLE XII. OBLIGATIONS OF BUYER AT CLOSING
At closing, Buyer shall deliver or cause to be delivered to Seller the
following in a form and substance reasonably satisfactory to Seller and
Shareholders:
11.1 Purchase Price. Buyer shall make available to the Seller the
Purchase Price upon the terms specified in this Agreement.
11.2 Assumption of Liabilities. Buyer shall covenant to fully
perform and comply with all of the Assumed Liabilities, subject to the
provisions of this Agreement, from and after Closing.
11.3 Opinion of Buyer's Counsel. Buyer shall deliver to Seller a
favorable opinion of counsel for Buyer, dated as of Closing, in the form
specified in Article XII hereof.
11.4 Corporate Good Standing and Certified Board Resolutions.
Buyer shall deliver to Seller a certificate of good standing from the Secretary
of State of Delaware,
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together with a certified copy of the resolutions of the Board of Directors of
Buyer approving this Agreement and the consummation of the transactions
hereunder contemplated.
11.5 Closing Certificate. Buyer shall deliver to Seller a
certificate of an officer of the Buyer, dated as of Closing, certifying that
(a) each covenant and obligation of Buyer has been complied with by Buyer, and
(b) each representation and warranty of Buyer is true and correct on the
Closing as if made on and as of the Closing.
ARTICLE XIII. OPINION OF BUYER'S COUNSEL
At the Closing, Buyer shall deliver to Seller an opinion of Harwell
Howard Hyne Gabbert & Manner, P.C. dated the date of the Closing and pursuant
to the Legal Opinion Accord of the ABA Section of Business Law (1991), in form
and substance satisfactory to Seller and their counsel to the effect that:
(a) Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and corporate authority to own, operate and lease
its properties and assets and to carry on its business as now conducted.
(b) Buyer has the corporate power and corporate authority
to execute, deliver and carry out the terms of this Agreement and all documents
and agreements delivered by Buyer at Closing and to consummate the transactions
contemplated on the part of Buyer hereby and thereby; Buyer has taken all
action required by law, and its Certificate of Incorporation and Bylaws, to
authorize such execution, delivery and consummation of this Agreement, and this
Agreement, and all other agreements delivered by Buyer at Closing constitute
the valid and binding obligations of Buyer enforceable in accordance with their
respective terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally and by general principles of equity.
ARTICLE XIV. TRANSITIONAL OPERATION
13.1 Transition Period. Seller will continue to operate the
Business at its current location during the "Transition Period," which, for
purposes of this Agreement is defined as that period commencing on the
Effective Date and terminating on the earlier of (a) Buyer's transfer of the
operation of the Business from its current location to a new location, or (b)
May 31, 1996. During the Transition Period, Seller shall operate the Business
and maintain its accounting procedures with respect to the Business in a manner
consistent with its operation of the Business as of December 31, 1995, and,
subject to the relevant provisions of paragraph 6.1, Seller will retain its
same employees to so operate the Business. Upon cessation of the Transition
Period, Seller and Shareholders shall deliver to Buyer a
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certificate of an officer of the Seller and of the Shareholders, dated as of
the cessation of the Transition Period, certifying that (a) each covenant and
obligation of Seller and/or Shareholders as stipulated under this Agreement has
been complied with by such parties, and (b) subject to the last provision of
paragraph 4.4, each representation and warranty of Seller and Shareholders is
true and correct as if made on such date.
13.2 Maintenance of Operation; Expenses; Inventory; Rental
Equipment; Fixed Assets. During the Transition Period, Seller will, under the
direction of Buyer to the extent Buyer deems such direction necessary, continue
to operate the Business in the ordinary course consistent with past practice.
During the Transition Period, Seller will pay for all liabilities, obligations,
costs and expenses (including but not limited to gross receipts and use taxes
and property taxes) of the Business and its operation, tangible and intangible,
contingent or otherwise, incurred during the Transition Period, whether or not
payment is due during the Transition Period. During the Transition Period,
Seller shall acquire as necessary for the Business all inventory as defined by
generally accepted accounting principals and as historically applied by Seller.
Buyer shall reimburse Seller for the cost of such inventory (including
freight-in) and other costs consisting of cost of rented equipment and oxygen
used in the operation of the Business during the Transition Period pursuant to
paragraph 13.3. Buyer and Seller agree and acknowledge that, as of the
Effective Date, the Inventory had the aggregate book value shown on the
Schedule of Assets (the "Value"). During the Transition Period, Seller shall
use its best efforts to maintain the value, quantity, type and quality of the
Inventory as it existed at the Effective Date. Immediately upon cessation of
the Transition Period, a representative of Seller and a representative of Buyer
shall meet to coordinate separation of inventory of the Business from inventory
of the Institutional Division. Immediately thereafter Seller shall deliver to
Buyer inventory acceptable to Buyer and suitable for use in connection with the
Business with an aggregate book value (determined in a manner consistent with
Seller's past practices and acceptable to Buyer and its independent auditors)
equal to the Value. Such inventory shall be of a quantity, quality and type
used by Seller as of December 31, 1995 in the ordinary course of the Business.
In the event the aggregate book value of the inventory at the end of the
Transition Period is less than the Value, Seller shall immediately remit to
Buyer cash in an amount equal to the shortfall. In the event the aggregate
book value of the inventory at the end of the Transition Period is greater than
the Value, Buyer shall immediately remit to Seller cash in an amount equal to
the excess. During the Transition Period Seller shall timely inform Buyer of
the need to acquire any rental equipment or fixed assets (each as defined by
generally accepted accounting principals and as historically applied by Seller)
and, upon Buyer's prior consent, shall take all steps necessary to make such
purchases. Buyer shall reimburse Seller for such purchases pursuant to
paragraph 13.3. In the event the aggregate book value (ignoring depreciation
accumulated from the Effective Date through the end of the Transition Period)
of either the rental equipment and/or the fixed assets (after subtracting all
amounts retained by Seller pursuant to paragraph 13.3 for purchases of rental
equipment and fixed assets) at the end of the Transition Period is less than
the respective aggregate book values thereof as reflected on the Schedule of
Assets, Seller shall immediately remit to Buyer cash in an amount equal to the
shortfall (the
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calculation of the book value of the rental equipment and fixed assets will not
take into account disposals in the ordinary course of business during the
Transition Period). In the event the aggregate book value (ignoring
depreciation accumulated from the Effective Date through the end of the
Transition Period) of either the rental equipment and/or the fixed assets
(after subtracting all amounts retained by Seller pursuant to paragraph 13.3
for purchases of rental equipment and fixed assets) at the end of the
Transition Period is greater than the respective aggregate book value thereof
reflected on the Schedule of Assets, Buyer shall immediately remit to Seller
cash in an amount equal to the excess (the calculation of the book value of the
rental equipment and fixed assets will not take into account disposals in the
ordinary course of business during the Transition Period). Upon cessation of
the Transition Period, the Assets, exclusive of Inventory and Receivables
(ignoring depreciation accumulated from the Effective Date through the end of
the Transition Period) and adjusting for depreciation in a manner consistent
with Seller's past accounting practices, shall have an aggregate book value
equal to or in excess of the aggregate book value of such Assets at the
Effective Date. Seller shall take such steps as reasonably directed by Buyer
to itemize all Assets other than Inventory and keep them separate from the
assets of the Institutional Division. Upon cessation of the Transition Period,
all Assets (including but not limited to Inventory, Rental Equipment and Fixed
Assets) shall be placed in the sole possession and control of Buyer, and shall
free and clear of all liabilities and encumbrances whatsoever, Seller and
Shareholders having previously delivered to Buyer at Closing all releases,
consents, and other authorizations deemed necessary or advisable by Buyer in
its sole discretion to so deliver the Assets.
13.3 Cash Account; Operating Fee; Inventory Purchases. Seller will
deposit all cash generated from collection of Receivables and operation of the
Business during the Transition Period into an account (the "Account") under the
control of Seller in a manner reasonably acceptable to Buyer. From such sums
Seller shall be entitled to retain an amount equal to the cost of inventory
(including freight-in) used in the operation of the Business for the applicable
month, other costs consisting of the cost of rented equipment and oxygen for
the applicable month, plus an amount equal to the sum expended to make
purchases for the Business of rental equipment and fixed assets during the
applicable month pursuant to the terms of paragraph 13.2. In addition, for
services the Seller provides pursuant to this Article XIII, Seller will retain
from such Account a monthly fee equal to Thirty-Five and 4/10 percent (35.4%)
of the applicable monthly "net revenues" (as defined in paragraph 9.8) of the
operations of the Business. Seller may not withdraw any other funds from the
Account. Seller will remit to Buyer, on or before the 15th day of the next
preceding calendar month, all amounts collected during the applicable calendar
month net of reimbursements and the monthly fee retained pursuant to this
paragraph 13.3. All funds in such Account will be delivered to Buyer upon
termination of the Transition Period. Seller may not use any funds in such
Account for any purpose other than as expressly set forth herein, including but
not limited to any costs associated with the operation of the Business during
the Transition Period. In addition, in consideration for such services and
predicated upon the Seller's performance of its obligations during the
Transition Period in accordance with this Article XIII, Buyer will pay Seller
Forty Thousand and No/100 Dollars ($40,000.00)
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in immediately available funds at Closing and Fifty Thousand and No/100 Dollars
($50,000.00) in immediately available funds within thirty (30) days of final
settlement of all adjustments to be made at the end of the Transition Period.
Seller shall provide to Buyer the following information on a monthly basis, in
a form reasonably acceptable to Buyer: (i) detail of cash sales of the
Business; (ii) roll forward of Receivable balances including but not limited to
Receivable agings as of the beginning and end of the calendar month, sales and
rental revenues net of adjustments and write-offs, and cash receipts; and (iii)
such other information pertaining to the operating of the Business as
reasonably requested by Buyer. In the event liabilities of the Business
accrued during the Transition Period have not been satisfied by Seller prior to
expiration of the Transition Period, Buyer shall assume such liabilities as are
acceptable to Buyer in its sole discretion and Seller shall immediately remit
to Buyer cash in an amount equal to such liabilities.
13.4 Examples. Attached hereto as Exhibit 13.4 are examples of the
operation paragraphs 13.2 and 13.3.
13.5 Employees. Seller shall use its best efforts to retain in its
employ all employees involved in the operation of the Business through the
Transition Period. Notwithstanding the foregoing sentence, Seller intends to
terminate certain of its employees during the Transition Period. Seller will
obtain Buyer's prior consent for any such termination which consent will not be
unreasonably withheld. Upon cessation of the Transition Period, Buyer shall
offer employment to those individuals then employed by Seller who are primarily
involved in the operation of the Business, and not involved in the operation of
the Institutional Division. Such individuals shall be employed by Buyer on
terms and conditions which are comparable to those applicable to similarly
situated current employees of Buyer.
ARTICLE XV. SURVIVAL OF PROVISIONS AND INDEMNIFICATION
14.1 Survival. The covenants, obligations, representations and
warranties of Buyer, Seller and Shareholders contained in this Agreement, or in
any certificate or document delivered pursuant to this Agreement, shall be
deemed to be material and to have been relied upon by the parties hereto
notwithstanding any investigation prior to the Closing, and shall survive the
cessation of the Transition Period and shall not be merged into any documents
delivered in connection with the Closing or cessation of the Transition Period
for a period of three (3) years. Notwithstanding the three (3) year limitation
set forth above, those representations, warranties, covenants and obligations
set forth in paragraphs 4.8, 4.12, 4.23 (as such paragraph pertains to
healthcare matters), 4.26, 6.9 and 6.10 shall each survive for a period equal
to the applicable statute of limitations.
14.2 Indemnification by Seller and Shareholders. Subject to the
provisions of paragraph 14.4, Seller and Shareholders shall, jointly and
severally, promptly indemnify, defend, and hold harmless Buyer and the
directors, officers, stockholders, employees and
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agents of Buyer and the Assets against any and all losses, costs, and expenses
(including reasonable cost of investigation, court costs and legal fees
actually incurred) and other damages resulting from (i) any breach by either
Seller or Shareholders of any of the covenants, obligations, representations or
warranties or breach or untruth of any representation, warranty, fact or
conclusion contained in this Agreement or any certificate or document of Seller
and/or Shareholders delivered pursuant to this Agreement; (ii) any liability of
Seller not expressly assumed by Buyer pursuant to paragraph 1.3(1); (iii) any
claim (whether or not disclosed herein) that is brought or asserted by any
third party(ies) against Buyer arising out of the ownership of the Business or
Assets relating to all periods of time prior to Effective Date; and (iv) any
claim (whether or not disclosed herein) that is brought or asserted by any
third party(ies) against Buyer arising out of the licensing, operation or
conduct of the Business or Assets or the conduct of any of Seller's employees,
agents or independent contractors relating to all periods of time prior to the
cessation of the Transition Period. Any indemnification payment made pursuant
to this Article shall include interest at a floating rate equal to two points
over the prime rate of Bankers Trust Company established from time to time (the
"Rate") payable for the period measured from the date that the loss, cost,
expense or damage was incurred until the date of payment. The liability
created under this paragraph shall be joint and several among and between each
of Seller and Shareholders.
14.3 Indemnification by Buyer. Subject to the provisions of
paragraph 14.4, Buyer shall promptly indemnify, defend, and hold Seller
harmless against any and all losses, costs, and expenses (including reasonable
cost of investigation, court costs and legal fees actually incurred) and other
damages resulting from (i) any breach by Buyer of any of its covenants,
obligations, representations or warranties or breach or untruth of any
representation, warranty, fact or conclusion contained in this Agreement or any
certificate or document of Buyer delivered pursuant to this Agreement, (ii) any
claim which is brought or asserted by any third party(ies) against Seller for
failure to pay or perform any of the Assumed Liabilities; (iii) subject to the
other provisions of this Agreement, any claim that is brought or asserted by
any third party(ies) against Seller arising out of the ownership of the
Business or Assets relating to all periods of time subsequent to the Effective
Date; and (iv) subject to the other provisions of this Agreement, any claim
that is brought or asserted by any third party(ies) against Seller arising out
of the licensing, operation or conduct of the Business or Assets relating to
all periods of time subsequent to the Transition Period. Any indemnification
payment pursuant to the foregoing shall include interest at the Rate from the
date that the loss, cost, expense or damage was incurred until the date of
payment.
14.4 Rules Regarding Indemnification. The obligations and
liabilities of each party which may be subject to indemnification liability
hereunder (the "indemnifying party") to the other party (the "indemnified
party") shall be subject to the following terms and conditions:
(1) Claims by Non-parties. The indemnified party shall
give written notice within a reasonably prompt period of time to the
indemnifying party of any written claim by a third party which is likely to
give rise to a claim by the indemnified party against the
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indemnifying party based on the indemnity agreements contained in this Article,
stating the nature of said claim and the amount thereof, to the extent known.
The indemnified party shall give notice to the indemnifying party that pursuant
to the indemnity, the indemnified party is asserting against the indemnifying
party a claim with respect to a potential loss from the third party claim, and
such notice shall constitute the assertion of a claim for indemnity by the
indemnified party. If, within thirty (30) days after receiving such notice,
the indemnifying party advises the indemnified party that it will provide
indemnification and assume the defense at its expense, then so long as such
defense is being conducted, the indemnified party shall not settle or admit
liability with respect to the claim and shall afford to the indemnifying party
and defending counsel reasonable assistance in defending against the claim. If
the indemnifying party assumes the defense, counsel shall be selected by such
party and if the indemnified party then retains its own counsel, it shall do so
at its own expense. If the indemnified party does not receive a written
objection to the notice from the indemnifying party within thirty (30) days
after the indemnifying party's receipt of such notice, the claim for indemnity
shall be conclusively presumed to have been assented to and approved, and in
such case the indemnified party may control the defense of the matter or case
and, at its sole discretion, settle or admit liability. If within the
aforesaid thirty (30) day period the indemnified party shall have received
written objection to a claim (which written objection shall briefly describe
the basis of the objection to the claim or the amount thereof, all in good
faith), then for a period of ten (10) days after receipt of such objection the
parties shall attempt to settle the dispute as between the indemnified and
indemnifying parties. If they are unable to settle the dispute, the unresolved
issue or issues shall be settled by arbitration in Nashville, Tennessee in
accordance with the rules and procedures of the American Arbitration
Association.
(2) Claims by a Party. The determination of a claim
asserted by a party hereunder (other than as set forth in subparagraph (1)
above) pursuant to this Article shall be made as follows: The indemnified party
shall give written notice within a reasonably prompt period of time to the
indemnifying party of any claim by the indemnified party which has not been
made pursuant to subsection (1) above, stating the nature of such claim and the
amount thereof, to the extent known. The claim shall be deemed to have
resulted in a determination in favor of the indemnified party and to have
resulted in a liability of the indemnifying party in an amount equal to the
amount of such claim estimated pursuant to this paragraph if within forty-five
(45) days after the indemnifying party's receipt of the claim the indemnified
party shall not have received written objection to the claim. In such event,
the claim shall be conclusively presumed to have been assented to and approved.
If within the aforesaid forty-five (45) day period the indemnified party shall
have received written objection to a claim (which written objection shall
briefly describe the basis of the objection to the claim or the amount thereof,
all in good faith), then for a period of sixty (60) days after receipt of such
objection the parties shall attempt to settle the disputed claim as between the
indemnified and indemnifying parties. If they are unable to settle the
disputed claim, the unresolved issue or issues shall be settled by arbitration
in Nashville, Tennessee in accordance with the rules and procedures of the
American Arbitration Association.
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(3) Claims by a Straddle Patient. Any claim by a patient
relating to professional negligence or similar matters involving a patient
served both before and after cessation of the Transition Period will be the
responsibility of either Seller and Shareholders, jointly and severally, on the
one hand, or Buyer on the other hand, in accordance with the following
guidelines: (i) if it is a claim in which the incident giving rise to liability
clearly arose prior to cessation of the Transition Period, Seller and
Shareholders shall respond to the loss and defense expenses; (ii) if it is a
claim in which the incident giving rise to liability clearly arose subsequent
to cessation of the Transition Period, Buyer shall respond to the loss and
defense expenses; and (iii) in the event that the incident giving rise to
liability as to time is not clear, Seller, Shareholders and Buyer will jointly
defend the case and each will fully cooperate with the other in such defense.
Once the case is closed, if Buyer and Seller and Shareholders cannot agree to
the allocation of both indemnity and expenses, then the matter shall be
submitted to binding arbitration in Nashville, Tennessee in accordance with the
rules and procedures of the American Arbitration Association.
14.5 Limitation on Claims. The obligations of an indemnifying party
under this Agreement shall not begin until the indemnified party incurs one or
more claims which equal Ten Thousand and No/100 Dollars ($10,000.00) (the
"Basket"). Sums paid to Buyer by Seller pursuant to paragraph 2.1 or 4.8(5)
shall not be counted as a claim which is contributed to the Basket. Once the
Basket is reached, the obligations of an indemnifying party under this
Agreement shall apply to all claims of the indemnified party, whether such
claims are part of the Basket or in excess thereof. Further, other than with
respect to the representations, warranties and covenants set forth in
paragraphs 4.8, 4.12, 4.23 (as such paragraphs pertain to healthcare matters),
4.26, 6.9 and 6.10, for which no such limitations shall apply, the obligations
of the indemnifying party under this Agreement shall not exceed, in the
aggregate, Six Million Seven Hundred Twenty-Five Thousand and No/100 Dollars
($6,725,000.00)
ARTICLE XVI. PRESERVATION OF BUSINESS
AND NONCOMPETE RESTRICTIONS
15.1 Covenant Not to Compete. Seller and Shareholders hereby,
jointly and severally, covenant and agree with Buyer that, during the
"NONCOMPETE PERIOD" (as such term is defined herein) and within the "NONCOMPETE
AREA" (as such term is defined herein), neither Seller, Shareholders nor
Shareholders' trustees or beneficiaries shall directly or indirectly, (a)
acquire, lease, manage, consult for, serve as agent or subcontractor for,
finance, invest in, own any part of or exercise management control over any
health care operation or business which provides any goods or services
competitive with the goods and services provided by the Business as of the
Closing; (b) solicit for employment or employ any person who upon cessation of
the Transition Period or thereafter became an employee of Buyer or an Affiliate
unless such person is not so employed for at least six months; or (c) with
respect to any customer, patient, physician,
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physician group, or healthcare provider with whom Buyer or an Affiliate
contracts with in connection with the Business, either solicit the same in a
manner which could adversely affect Buyer or an Affiliate or make statements to
the same which disparage Buyer, an Affiliate, the Business or their respective
operations in any way. The "NONCOMPETE PERIOD" shall commence at the Closing
and terminate on the fifth anniversary thereof. The "NONCOMPETE AREA" shall
mean the area within a fifty (50) mile radius of each location from which the
Business is operated or conducted as of the Closing. Neither ownership of less
than five percent (5%) of the stock of a publicly held company, nor ownership
and/or operation of the Institutional Division in a manner consistent with past
operations shall be deemed a breach of this covenant.
15.2 Enforceability. In the event of a breach of paragraph 15.1,
Seller and Shareholders recognize that monetary damages shall be inadequate to
compensate Buyer and Buyer shall be entitled, without the posting of a bond or
similar security, to an injunction restraining such breach, with the costs
(including attorneys fees) of securing such injunction to be borne, jointly and
severally, by Seller and Shareholders. Nothing contained herein shall be
construed as prohibiting Buyer from pursuing any other remedy available to it
for such breach or threatened breach.
All parties hereby acknowledge the necessity of protection against the
competition of Seller and Shareholders and that the nature and scope of such
protection has been carefully considered by the parties. The period provided
and the area covered are expressly represented and agreed to be fair,
reasonable and necessary. The consideration provided for herein is deemed to
be sufficient and adequate to compensate Seller and Shareholders for agreeing
to the restrictions contained in paragraph 15.1. If, however, any court
determines that the forgoing restrictions are not reasonable, such restrictions
shall be modified, rewritten or interpreted to include as much of their nature
and scope as will render them enforceable.
ARTICLE XVII. MISCELLANEOUS
16.1 Assignment. Following Closing, Buyer may freely assign any or
all of its rights or delegate any or all of its obligations under this
Agreement without the express written consent of Seller or Shareholders.
Neither Seller nor Shareholders may assign any rights or delegate any
obligations under this Agreement without the prior written consent of Buyer,
and any prohibited assignment or delegation will be null and void.
16.2 Other Expenses. Except as otherwise provided in this
Agreement, Seller and Shareholders shall pay all of their expenses in
connection with the negotiation, execution, and implementation of the
transactions contemplated by this Agreement, and Buyer shall pay all of its
expenses in connection with the negotiation, execution, and implementation of
the transactions contemplated by this Agreement. All state and local sales and
use taxes, ad valorem taxes, recording fees and transfer taxes incurred in
connection with
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either the transactions contemplated within this Agreement or the operation of
the Business through cessation of the Transition Period shall be borne and
timely paid by Seller; provided, however, that Buyer shall pay up to one-half
of any transfer tax associated with conveyance of vehicles pursuant to this
Agreement so long as Buyer's expense does not exceed Five Thousand and No/100
Dollars ($5,000.00). The Purchase Price shall be reduced, on a
dollar-per-dollar basis, to the extent and in an amount equal to any taxes that
are accrued but unpaid by Seller as of the date of Closing.
16.3 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given: (a) if delivered
personally or sent by facsimile, on the date received, (b) if delivered by
overnight courier, on the day after mailing, and (c) if mailed, five days
after mailing with postage prepaid. Any such notice shall be sent as follows:
To Seller and Shareholders:
4255 Erica Drive
Doylestown, Pennsylvania 18901
Attn: Richard Kreider
with a copy to:
Rod Eastburn
Eastburn & Gray, P.C.
60 E. Court Street
Doylestown, Pennsylvania 18901
To the Buyer:
American HomePatient, Inc.
5200 Maryland Way, Suite 400
Brentwood, Tennessee 37027
Attn: Edward K. Wissing
with a copy to:
Lauren W. Anderson
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
Nashville, Tennessee 37238-1800
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16.4 Confidentiality; Prohibition on Trading. All parties agree to
maintain the confidentiality of the existence of this Agreement and the
transactions contemplated hereunder, unless disclosure is required by law.
Seller, Shareholders and their affiliates agree not to trade in the securities
of Buyer or its affiliates based upon any nonpublic information.
16.5 Controlling Law. This Agreement shall be construed,
interpreted and enforced in accordance with the laws of the State of Tennessee.
16.6 Headings. Any table of contents and paragraph headings in
this Agreement are for convenience of reference only and shall not be
considered or referred to in resolving questions of interpretation.
16.7 Benefit. Subject to paragraph 16.1, this Agreement shall be
binding upon and shall inure to the exclusive benefit of the parties hereto and
their respective heirs, legal representatives, successors and assigns. This
Agreement is not intended to, nor shall it, create any rights in any other
party.
16.8 Partial Invalidity. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such
invalid or unenforceable provisions were omitted. Further, there shall be
automatically substituted for such invalid or unenforceable provision a
provision as similar as possible which is valid and enforceable.
16.9 Waiver. Neither the failure nor any delay on the part of any
party hereto in exercising any rights, power or remedy hereunder shall operate
as a waiver thereof, or of any other right, power or remedy; nor shall any
single or partial exercise of any right, power or remedy preclude any further
or other exercise thereof, or the exercise of any other right, power or remedy.
No waiver of any of the provisions of this Agreement shall be valid unless it
is in writing and signed by the party against which it is sought to be
enforced.
16.10 Counterparts. This Agreement may be executed simultaneously
in two or more counterparts each of which shall be deemed an original and all
of which together shall constitute but one and the same instrument.
16.11 Interpretation; Knowledge. All pronouns and any variation
thereof shall be deemed to refer to the masculine, feminine, neuter, singular
or plural as the identity of the person or entity, or the context, may require.
Further, it is acknowledged by the parties that this Agreement has undergone
several drafts with the negotiated suggestions of both; and, therefore, no
presumptions shall arise favoring either party by virtue of the authorship of
any of its provisions or the changes made through revisions. Whenever in this
Agreement the term "to the best knowledge of Seller or Shareholders" or the
like is used, Seller and Shareholders shall each be deemed to have the
knowledge of Shareholders, their
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respective trustees and beneficiaries, and Seller's officers, directors and key
employees; and Seller and Shareholders shall each be under a duty of due
inquiry.
16.12 Entire Agreement. This Agreement, including the Exhibits and
attachments hereto, constitutes the entire agreement between the parties hereto
with regard to the matters contained herein and it is understood and agreed
that all previous undertakings, negotiations and agreements between the parties
are merged herein. This Agreement may not be modified orally, but only by an
agreement in writing signed by Buyer, Seller and Shareholders.
16.13 Legal Fees and Costs. In the event any party incurs legal
expenses to enforce or interpret any provision of this Agreement, the
prevailing party will be entitled to recover such legal expenses, including,
without limitation, attorney's fees, costs and disbursements, in addition to
any other relief to which such party shall be entitled.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
<TABLE>
<S> <C>
"SELLER": "BUYER":
DELCREST MEDICAL PRODUCTS, INC. AMERICAN HOMEPATIENT, INC.
By: Richard Kreider By:
----------------------------- ----------------------------
Its: President Its:
---------------------------- ---------------------------
"SHAREHOLDERS"
/s/ Richard Kreider
--------------------------------
RICHARD KREIDER
TRUST U/W CATHERINE KREIDER,
DECEASED, Earl Kreider
and Elaine Arnold, Trustees
By: /s/ Earl Kreider
-----------------------------
Earl Kreider, Trustee
By: /s/ Elaine Arnold
-----------------------------
Elaine Arnold, Trustee
By: /s/ Joseph R. Kempter
-----------------------------
Joseph R. Kempter, Trustee
EARL KREIDER IRREVOCABLE INTER
VIVOS TRUST, dated November 1,
1990, Richard Kreider, Trustee
By: /s/ Richard Kreider
-----------------------------
Richard Kreider, Trustee
</TABLE>
42
