<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CHECK ONE FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 1998
----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSACTION PERIOD FROM _________ TO _________.
AMERICAN HOMEPATIENT, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-19532 62-1474680
------------------------------ ------------ -------------------
(STATE OR OTHER JURISDICTION OF (COMMISSION (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) FILE NUMBER) IDENTIFICATION NO.)
5200 MARYLAND WAY, SUITE 400, BRENTWOOD, TENNESSEE 37027
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(615) 221-8884
- --------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
- --------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF
CHANGED SINCE LAST REPORT.)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
---- ----
14,959,659
- --------------------------------------------------------------------------------
(OUTSTANDING SHARES OF THE ISSUER'S COMMON STOCK AS OF MAY 8, 1998)
TOTAL NUMBER OF SEQUENTIALLY
NUMBERED PAGES IS 23
1
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AMERICAN HOMEPATIENT, INC.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 12,050,000 $ 6,411,000
Restricted cash 50,000 50,000
Accounts receivable, less allowance for doubtful accounts of
$43,862,000 and $44,293,000 respectively 114,386,000 118,415,000
Inventories 25,824,000 23,792,000
Prepaid expenses and other assets 1,423,000 2,665,000
Income tax receivable 8,099,000 5,184,000
Deferred tax asset 8,998,000 8,998,000
------------- -------------
Total current assets 170,830,000 165,515,000
------------- -------------
PROPERTY AND EQUIPMENT, at cost 146,803,000 151,630,000
Less accumulated depreciation and amortization (66,729,000) (73,631,000)
------------- -------------
Net property and equipment 80,074,000 77,999,000
------------- -------------
OTHER ASSETS
Excess of cost over fair value of net assets acquired, net 262,294,000 274,854,000
Investment in unconsolidated joint ventures 14,974,000 16,018,000
Deferred costs, net 3,967,000 3,789,000
Other assets 26,227,000 26,184,000
------------- -------------
Total other assets 307,462,000 320,845,000
------------- -------------
$ 558,366,000 $ 564,359,000
============= =============
</TABLE>
(Continued)
2
<PAGE> 3
AMERICAN HOMEPATIENT, INC.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt and capital leases $ 9,361,000 $ 10,519,000
Trade accounts payable 13,484,000 12,170,000
Other payables 1,343,000 1,237,000
Accrued expenses:
Payroll and related benefits 9,553,000 5,615,000
Restructuring accruals 13,604,000 9,985,000
Other 10,764,000 11,718,000
------------- -------------
Total current liabilities 58,109,000 51,244,000
------------- -------------
NONCURRENT LIABILITIES
Long-term debt and capital leases, less current portion 291,963,000 300,870,000
Deferred income taxes 2,046,000 1,798,000
Other noncurrent liabilities 12,159,000 12,167,000
------------- -------------
Total noncurrent liabilities 306,168,000 314,835,000
------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized 5,000,000
shares; none issued and outstanding -- --
Common stock, $.01 par value; authorized 35,000,000
shares; issued and outstanding, 14,901,000 and 14,960,000
shares, respectively 149,000 150,000
Paid-in capital 171,133,000 172,334,000
Retained earnings 22,807,000 25,796,000
------------- -------------
Total shareholders' equity 194,089,000 198,280,000
------------- -------------
$ 558,366,000 $ 564,359,000
============= =============
</TABLE>
The accompanying notes to interim condensed consolidated financial statements
are an integral part of these statements.
3
<PAGE> 4
AMERICAN HOMEPATIENT, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1997 1998
----------- ------------
<S> <C> <C>
REVENUES:
Sales and related service revenues $39,033,000 $ 48,180,000
Rentals and other revenues 43,807,000 52,623,000
Earnings from joint ventures 1,746,000 1,990,000
----------- ------------
Total revenues 84,586,000 102,793,000
----------- ------------
EXPENSES:
Cost of sales and related services 19,004,000 24,523,000
Operating 43,965,000 54,348,000
General and administrative 3,852,000 3,504,000
Depreciation and amortization 7,229,000 10,038,000
Interest 2,908,000 5,398,000
----------- ------------
Total expenses 76,958,000 97,811,000
----------- ------------
INCOME FROM OPERATIONS BEFORE INCOME TAX 7,628,000 4,982,000
PROVISION FOR INCOME TAXES 2,990,000 1,993,000
----------- ------------
NET INCOME $ 4,638,000 $ 2,989,000
=========== ============
NET INCOME PER COMMON SHARE -
BASIC $ .31 $ .20
=========== ============
DILUTED $ .31 $ .20
=========== ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
BASIC 14,731,000 14,953,000
=========== ============
DILUTED 15,065,000 15,181,000
=========== ============
</TABLE>
The accompanying notes to interim condensed consolidated financial statements
are an integral part of these statements.
4
<PAGE> 5
AMERICAN HOMEPATIENT, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
-----------------------------
1997 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from operations $ 4,638,000 $ 2,989,000
Adjustments to reconcile net income from operations
to net cash provided from operating activities:
Depreciation and amortization 7,229,000 10,038,000
Equity in earnings of unconsolidated joint ventures (938,000) (326,000)
Minority interest 49,000 43,000
Change in assets and liabilities, net of effects from acquisitions:
Restricted cash 375,000 --
Accounts receivables, net (8,249,000) (2,689,000)
Inventories (487,000) 2,146,000
Prepaid expenses and other (901,000) (1,241,000)
Income taxes receivable 1,804,000 3,050,000
Trade accounts payable, accrued expenses
and other current liabilities (6,810,000) (6,063,000)
Restructuring accrual -- (3,619,000)
Other assets (508,000) (792,000)
------------ ------------
Net cash provided from (used in) operating activities (3,798,000) 3,536,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (29,426,000) (43,729,000)
Additions to property and equipment, net (7,704,000) (7,263,000)
Distributions from (advances to)
unconsolidated joint ventures, net (695,000) (507,000)
Distributions to minority interest owners (41,000) --
------------ ------------
Net cash used in investing activities (37,866,000) (51,499,000)
------------ ------------
</TABLE>
(Continued)
5
<PAGE> 6
AMERICAN HOMEPATIENT, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Continued)
<TABLE>
<CAPTION>
Three Months Ended March 31
-----------------------------
1997 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt and capital leases (3,176,000) (1,537,000)
Proceeds from issuance of debt 39,600,000 43,500,000
Proceeds from exercise of stock options 995,000 385,000
Deferred financing costs (29,000) (24,000)
------------ ------------
Net cash provided from financing activities 37,390,000 42,324,000
------------ ------------
DECREASE IN CASH AND CASH
EQUIVALENTS (4,274,000) (5,639,000)
CASH AND CASH EQUIVALENTS, beginning of period 7,299,000 12,050,000
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 3,025,000 $ 6,411,000
============ ============
SUPPLEMENTAL INFORMATION:
Cash payments of interest $ 2,777,000 $ 5,119,000
============ ============
Cash payments of income taxes $ 1,786,000 $ 619,000
============ ============
</TABLE>
The accompanying notes to interim condensed consolidated financial statements
are an integral part of these statements.
6
<PAGE> 7
AMERICAN HOMEPATIENT, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
1. ORGANIZATION AND BACKGROUND
The registrant is a health care services company engaged in the
provision of home health care services. The Company's home health care
services consist primarily of the provision of respiratory and infusion
therapies and the rental and sale of home medical equipment and home
health care supplies. For the three months ended March 31, 1998, such
services represented 48%, 20% and 32%, respectively, of net revenues. As
of March 31, 1998, the Company provided these services to patients
primarily in the home through 336 centers in Alabama, Arizona, Arkansas,
California, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois,
Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota,
Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New
York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode
Island, South Carolina, Tennessee, Texas, Virginia, Washington and
Wisconsin.
2. MEDICARE OXYGEN REIMBURSEMENT REDUCTIONS AND RELATED RESTRUCTURING
In August 1997, Congress enacted and President Clinton signed the
Balanced Budget Act of 1997 which reduced the Medicare reimbursement
rate for oxygen related services by 25 percent and drugs and biologicals
by 5 percent on January 1, 1998, and will reduce the Medicare
reimbursement rate for oxygen related services by another five percent
in 1999. In addition, Consumer Price Index increases in oxygen
reimbursement rates will not resume until the year 2003. American
HomePatient is one of the nation's largest providers of home oxygen
services to patients, many of whom are Medicare recipients, and is
therefore significantly affected by this legislation. Medicare oxygen
reimbursements account for approximately 23.5 percent of the Company's
revenues.
On September 25, 1997, the Company announced initiatives to aggressively
respond to planned Medicare oxygen reimbursement reductions by
fundamentally reshaping the Company for long-term growth. More than 100
of the Company's total operating and billing locations were impacted by
the planned activities. The specific actions resulted in pre-tax
accounting charges in the third quarter of 1997 of $65.0 million due to
the closure, consolidation, or scaling back of approximately 20 percent
of the Company's total operating centers, the closure or scaling back of
nine billing centers, the reduction of operating regions, the scaling
back or elimination of marginal products and services at numerous
locations, and the related termination of approximately 375 employees in
the affected locations. These activities are expected to be
substantially completed by June 1998.
7
<PAGE> 8
The following actions have occurred related to the restructuring:
<TABLE>
<CAPTION>
For the Quarters Ended
----------------------
Mar. 31, Dec. 31,
1998 1997 Total
---- ---- -----
<S> <C> <C> <C>
Employees terminated 47 323 370
Operating centers closed 4 47 51
Billing locations closed 4 5 9
Operating centers consolidated, scaled back or had
marginal products and services eliminated 3 44 47
</TABLE>
The expected cash payments related to the restructuring charge accrued
on September 25, 1997 were approximately $17.7 million. As costs were
incurred and payments were made, $4.1 million and $3.6 million were
charged against the related accruals during the fourth quarter of 1997
and first quarter of 1998, respectively. The remaining accrual at March
31, 1998 primarily represents estimated employee severance and related
exit costs ($2.1 million), estimated facility exit costs ($4.0 million),
termination of management contracts ($3.0 million) and other exit costs
($0.9 million).
For the quarter ended March 31, 1998, the Company estimates the Medicare
oxygen reimbursement reductions decreased net revenue and pre-tax income
by approximately $6.1 million.
3. ACQUISITIONS
During 1998 and effective through March 31, 1998, the Company acquired 2
home health care businesses with combined annualized revenue of
approximately $17 million for total consideration of approximately $16.5
million, including cash, satisfaction of certain liabilities, and notes
payable issued to sellers.
Since January 1, 1997 and effective through March 31, 1998, American
HomePatient has acquired 30 home health care companies.
The terms of the 1997 and 1998 acquisitions, including the consideration
paid, were the result of arm's-length negotiations. The acquisitions
were funded via a combination of cash from Company reserves,
seller-financed notes, and draws on the Company's Bank Credit Facility
(see below).
On December 19, 1997, the Company entered into a Fourth Amended and
Restated Credit Agreement ("Bank Credit Facility") to increase
commitments thereunder to $400.0 million. This Bank Credit Facility
includes a $75.0 million five-year term loan and a $325.0 million
five-year revolving line of credit. The various financial and operating
covenants are substantially similar to those under the first amended and
restated Bank Credit Facility. Borrowings under the Bank Credit Facility
may be used for acquisitions and other general corporate purposes,
subject to the terms and conditions of the respective credit and
security agreements. Most of the Company's operating assets have been
pledged as security for borrowings under the Bank Credit Facility. The
Bank Credit Facility contains various
8
<PAGE> 9
financial covenants, the most restrictive of which relate to
measurements of shareholders' equity, leverage ratios, debt to equity
ratios and interest coverage ratios.
4. EARNINGS PER SHARE
In the fourth quarter of 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"). SFAS 128 establishes standards for computing
and presenting earnings per share. Under the standards established by
SFAS 128, earnings per share is measured at two levels: basic earnings
per share and diluted earnings per share. Basic earnings per share is
computed by dividing net income by the weighted average number of common
shares outstanding during the year. Diluted earnings per share is
computed by dividing net income by the weighted average number of common
shares after considering the additional dilution related to convertible
preferred stock, convertible debt, options and warrants. Net income per
common share for prior periods have been restated to comply with SFAS
128. In computing diluted earnings per share, the outstanding stock
warrants and stock options are considered dilutive using the treasury
stock method. The following table information is necessary to calculate
earnings per share for the periods presented:
<TABLE>
<CAPTION>
(unaudited)
-------------------------------
Three Months ended March 31,
-------------------------------
1997 1998
----------- -----------
<S> <C> <C>
Net Income $ 4,638,000 $ 2,989,000
=========== ===========
Weighted average common shares
outstanding 14,731,000 14,953,000
Effect of dilutive options and
warrants 334,000 228,000
----------- -----------
Adjusted diluted common shares
outstanding 15,065,000 15,181,000
=========== ===========
Net income per common share
- Basic $ 0.31 $ 0.20
=========== ===========
- Diluted $ 0.31 $ 0.20
=========== ===========
</TABLE>
9
<PAGE> 10
5. BASIS OF FINANCIAL STATEMENTS
The interim condensed consolidated financial statements of the Company
for the three months ended March 31, 1998 and 1997 included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management of the Company, the
accompanying unaudited interim consolidated financial statements reflect
all adjustments (consisting of only normally recurring accruals)
necessary to present fairly the financial position at March 31, 1998 and
the results of operations and the cash flows for the three months ended
March 31, 1998 and 1997.
The results of operations for the three months ended March 31, 1998 and
1997 are not necessarily indicative of the operating results for the
entire respective years. These interim consolidated financial statements
should be read in conjunction with the audited financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
6. IMPLEMENTATION OF FINANCIAL ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130") has been issued effective for fiscal
years beginning after December 15, 1997. SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in
a full set of general purpose financial statements. The Company adopted
the provisions of SFAS 130 which resulted in no material effect on the
Company's financial position or results of operations.
Statement of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131") has been
issued effective for fiscal years beginning after December 15, 1997.
SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual
financial statements and require that these enterprises report selected
information about operating segments in interim financial reports issued
to shareholders. The Company is required to adopt the provisions of SFAS
131 in the fourth quarter of 1998 and does not expect adoption thereof
to have a material effect on the Company's financial position or results
of operations.
10
<PAGE> 11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-Q INCLUDES FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS
"BELIEVES," "ANTICIPATES," "INTENDS," "EXPECTS," "ESTIMATES," "MAY,"
"WILL" AND WORDS OF SIMILAR IMPORT. SUCH STATEMENTS INCLUDE STATEMENTS
CONCERNING THE COMPANY'S BUSINESS STRATEGY, ACQUISITION STRATEGY,
OPERATIONS, COST SAVINGS INITIATIVES, INDUSTRY, ECONOMIC PERFORMANCE,
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES, EXISTING
GOVERNMENT REGULATIONS AND CHANGES IN, OR THE FAILURE TO COMPLY WITH,
GOVERNMENTAL REGULATIONS, LEGISLATIVE PROPOSALS FOR HEALTHCARE REFORM,
THE ABILITY TO ENTER INTO JOINT VENTURES, STRATEGIC ALLIANCES AND
ARRANGEMENTS WITH MANAGED CARE PROVIDERS ON AN ACCEPTABLE BASIS AND
CHANGES IN REIMBURSEMENT POLICIES. SUCH STATEMENTS ARE SUBJECT TO
VARIOUS RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THE RESULTS DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS
BECAUSE OF A NUMBER OF FACTORS, INCLUDING THOSE IDENTIFIED IN THE "RISK
FACTORS" SECTION AND ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q.
THE FORWARD-LOOKING STATEMENTS ARE MADE AS OF THE DATE OF THIS QUARTERLY
REPORT ON FORM 10-Q AND THE COMPANY DOES NOT UNDERTAKE TO UPDATE THE
FORWARD-LOOKING STATEMENTS OR TO UPDATE THE REASONS THAT ACTUAL RESULTS
COULD DIFFER FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS.
GENERAL
The Company has three principal services or product lines: home
respiratory services, home infusion services and home medical equipment
and supplies. Home respiratory services include oxygen systems,
nebulizers and home ventilators and are provided primarily to patients
with severe and chronic pulmonary diseases. Home infusion services are
used to administer nutrients, antibiotics and other medications to
patients with medical conditions such as neurological impairments,
infectious diseases or cancer. The Company also sells and rents a
variety of home medical equipment and supplies, including wheelchairs,
hospital beds and ambulatory aids. The following table sets forth the
percentage of the Company's net revenues represented by each line of
business for the periods presented:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1998
---- ----
<S> <C> <C>
Home respiratory therapy services 48% 48%
Home infusion therapy services 18 20
Home medical equipment and medical supplies 34 32
--- ---
Total 100% 100%
=== ===
</TABLE>
The Company reports its net revenues as follows: (i) sales and related
services; (ii) rentals and other; and (iii) earnings from hospital joint
ventures. Sales and related services revenues are derived from the
provision of infusion therapies, the sale of home medical equipment and
supplies, the sale of aerosol and respiratory therapy equipment and
supplies and services
11
<PAGE> 12
related to the delivery of these products. Rentals and other revenues
are derived from the rental of home health care equipment, enteral pumps
and equipment related to the provision of respiratory therapies. The
majority of the Company's hospital joint ventures are not consolidated
for financial statement reporting purposes. Earnings from hospital joint
ventures represent the Company's equity in earnings from unconsolidated
hospital joint ventures and management and administrative fees for
unconsolidated hospital joint ventures. Cost of sales and related
services includes the cost of equipment, drugs and related supplies sold
to patients. Operating expenses include center labor costs, delivery
expenses, selling costs, occupancy costs, costs related to rentals other
than depreciation, billing center costs, provision for doubtful
accounts, area management and other operating costs. General and
administrative expenses include corporate and senior management expenses
and costs.
Since its inception, the Company has experienced substantial growth.
This growth is primarily attributable to the Company's pursuit of an
acquisition strategy targeting successful, operating home health care
businesses and forming joint venture partnerships with hospitals and
hospital systems. Since the Company's initial public offering in
November 1991, the Company has expanded operations from 24 home health
care centers in four states to 336 home health care centers in 37 states
as of March 31, 1998. The Company acquired 28 home health care companies
during 1997 and 2 companies during the three months ended March 31,
1998. The Company continues its integration of recently acquired home
health care centers. The Company's experience and management expertise
is applied wherever possible to improve the operating efficiency of the
new centers. Quality methods and ideas from the acquired centers become
part of the systems and procedures of the combined Company. Profitable
services that were not formerly provided are being added where such
opportunities exist. As the Company grows, economies of scale are
realized in purchasing goods and services used in the Company's business
and, to some extent, its management of overhead expenses.
The Office of the Inspector General of the Department of Health and
Human Services ("OIG") has expanded its auditing of the healthcare
industry in an effort to better detect and remedy fraud and abuse and
irregularities in Medicare and Medicaid billing. On February 12, 1998, a
subpoena from the OIG was served on the Company at its Pineville,
Kentucky center in connection with an investigation relating to possible
improper claims for Medicare payment. The Company has retained
experienced health care counsel to represent it in this connection and
intends to fully cooperate. Although the Company's counsel has conducted
initial meetings with governmental officials and governmental officials
have interviewed Company officers, this matter is still in its
preliminary stages. In addition the Company from time to time receives
notices and subpoenas from various governmental agencies concerning
their plans to audit the Company or requesting information regarding
certain aspects of the Company's business, and the Company cooperates
with the various agencies in responding to such requests. While the
government has broad authority to enforce applicable laws and
regulations, and therefore the scope and outcome of these investigations
and inquiries cannot be predicted with certainty, management does not
believe at the present time that any pending investigations or inquiries
will have a material adverse impact on the Company.
MEDICARE - REIMBURSEMENT FOR OXYGEN THERAPY SERVICES
The Balanced Budget Act of 1997 reduced Medicare oxygen reimbursement
rates by 25 percent and drugs and biologicals by 5 percent beginning
January 1, 1998, and will reduce Medicare oxygen reimbursement rates
by another five percent beginning January 1, 1999. In addition, Consumer
Price Index increases in Medicare oxygen reimbursement rates will
12
<PAGE> 13
not resume until the year 2003. The Company is one of the nation's
largest providers of home oxygen services to patients, many of whom are
Medicare recipients, and is therefore significantly affected by this
legislation. Medicare oxygen reimbursements account for approximately
23.5 percent of the Company's revenues.
For the quarter ended March 31, 1998, the Company estimates the Medicare
oxygen reimbursement reductions decreased net revenue and pre-tax income
by approximately $6.1 million.
On September 25, 1997, the Company announced initiatives to respond to
the Medicare oxygen reimbursement reductions by fundamentally reshaping
the Company for long-term growth. The restructuring impacted more than
100 of the Company's total operating and billing centers. Specific
actions resulted in pre-tax accounting charges of $65.0 million in the
third quarter of 1997 due to the closure, consolidation, or scaling down
of approximately 20 percent of the Company's operating centers, the
closure or scaling back of nine billing centers, the reduction of
operating regions, the scaling back or elimination of marginal products
and services at numerous locations, and the related termination of
approximately 375 employees.
RESULTS OF OPERATIONS
The following table and discussion set forth, for the periods indicated,
the percentage of net revenues represented by the respective financial
items:
PERCENTAGE OF NET REVENUES
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1998
------ ------
<S> <C> <C>
Net revenues 100.0% 100.0%
Costs and expenses:
Cost of sales and related services 22.5 23.9
Operating expenses 52.0 52.9
General and administrative 4.6 3.4
Depreciation and amortization 8.5 9.8
Interest 3.4 5.2
------ ------
Total costs and expenses 91.0 95.2
------ ------
Income from operations before income taxes 9.0 4.8
Provision for income taxes 3.5 1.9
------ ------
Income from operations 5.5% 2.9%
====== ======
OTHER DATA:
EBITDA 20.9% 19.8%
====== ======
</TABLE>
Historically, the Company reported same-store growth. Due to the
restructuring activity that occurred during the fourth quarter of 1997,
the Company determined that internal growth is a
13
<PAGE> 14
more meaningful representation of revenue growth than same-store growth.
The Company has moved to an internal growth calculation which still
reflects the strength of operations excluding acquired revenues. The
internal growth calculation includes the net revenues of hospital joint
ventures managed by the Company and accounted for under the equity
method.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH
31, 1997
The operations of acquired centers are included in the operations of the
Company from the effective date of each acquisition. Because of the
substantial acquisition activity, the comparison of the results of
operations between 1998 and 1997 is materially impacted by the
operations of these acquired businesses. Also, the comparison of the
results of operations between 1998 and 1997 is materially impacted by
the Medicare oxygen reimbursement reductions.
NET REVENUES. Net revenues increased from $84.6 million for the quarter
ended March 31, 1997 to $102.8 million for the same period in 1998, an
increase of $18.2 million, or 22%. For the quarter ended March 31, 1998,
the Company estimates the Medicare oxygen reimbursement reductions
decreased net revenue by approximately $6.1 million. Excluding the
Medicare oxygen reimbursement reductions, net revenues increased from
$84.6 million to $108.9 million for the quarters ended March 31, 1997
and 1998, respectively, an increase of $24.3 million, or 29%. The
Company estimates that $17.6 million of this increase is attributable to
the acquired businesses net of dissolutions. The remainder of the
increase is primarily attributable to internal revenue growth generated
through the Company's sales and marketing efforts. Internal revenue
growth, excluding the Medicare oxygen reimbursement reductions, was 10%
for the quarter ended March 31, 1998. Following is a discussion of the
components of net revenues:
Sales and Related Services Revenues. Sales and related services
revenues increased from $39.0 million for the quarter ended March
31, 1997 to $48.2 million for the same period in 1998, an increase
of $9.2 million, or 24%. This increase is primarily attributable to
the acquisition of home health care businesses and internal revenue
growth.
Rentals and Other Revenue. Rentals and other revenues increased
from $43.8 million for the quarter ended March 31, 1997 to $52.6
million for the same period in 1998, an increase of $8.8 million,
or 20%. This increase is primarily attributable to the acquisition
of home health care businesses and internal revenue growth net of
the estimated $6.1 million impact of the Medicare oxygen
reimbursement reductions.
Earnings from Hospital Joint Ventures. Earnings from hospital joint
ventures increased from $1.7 million for the quarter ended March
31, 1997 to $2.0 million for the same period in 1998, an increase
of $300,000, or 18%, which was primarily attributable to internal
growth and newly formed joint ventures. Internal revenue growth of
joint ventures, excluding the Medicare oxygen reimbursement
reductions, was 26% for the quarter ended March 31, 1998 compared
to the same period in 1997, increasing the Company's total internal
revenue growth by 2%.
COST OF SALES AND RELATED SERVICES. Cost of sales and related services
increased from $19.0 million for the quarter ended March 31, 1997 to
$24.5 million for the same period in 1998,
14
<PAGE> 15
an increase of $5.5 million, or 29%. As a percentage of sales and
related services revenues, cost of sales and related services increased
from 49% to 51%. This increase is attributable to the changes in the mix
of sales and related service revenues.
OPERATING EXPENSES. Operating expenses increased from $44.0 million for
the quarter ended March 31, 1997 to $54.3 million for the same period in
1998, an increase of $10.3 million, or 23%. This increase was primarily
attributable to increased costs associated with the Company's increased
revenues. As a percentage of net revenues, operating expenses increased
from 52% to 52.9%. Excluding the estimated $6.1 million impact of the
Medicare oxygen reimbursement reductions, operating expenses as a
percentage of net revenues decreased from 52% to 50%. This decrease is
primarily attributable to a lower bad debt expense as a percentage of
net revenues and an overall reduction in operating expenses due to cost
saving initiatives.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
decreased from $3.9 million for the quarter ended March 31, 1997 to $3.5
million for the same period in 1998, a decrease of $400,000, or 10%. As
a percentage of net revenues, general and administrative expenses have
decreased from 4.6% to 3.4% as a result of a larger base of revenues to
which to allocate the general and administrative expenses. The larger
base of revenues is due to internal growth and acquisitions. Excluding
the estimated $6.1 million impact of the Medicare oxygen reimbursement
reductions, general and administrative expenses as a percentage of net
revenue decreased from 4.6% to 3.2%. This decrease is primarily
attributable to lower personnel expenses resulting from the Company's
restructuring activities and other cost savings initiatives.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased from $7.2 million for the quarter ended March 31, 1997 to
$10.0 million for the same period in 1998, an increase of $2.8 million,
or 39%. This increase is primarily attributable to depreciation expense
and the amortization of goodwill recorded in connection with
acquisitions.
INTEREST. Interest expense increased from $2.9 million for the quarter
ended March 31, 1997 to $5.4 million for the same period in 1998, an
increase of $2.5 million, or 86%. The increase was attributable to
interest expense on increased borrowings under the Bank Credit Facility
to fund acquisitions of home healthcare businesses.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company's working capital was $114.3 million and
the current ratio was 3.2x as compared to working capital of $112.7
million and a current ratio of 2.9x at December 31, 1997. The Company
had current maturities of long-term debt and capital leases of
approximately $10.5 million at March 31, 1998.
The Company's future liquidity will continue to be dependent upon the
relative amounts of current assets (principally cash, accounts
receivable and inventories) and current liabilities (principally
accounts payable, and accrued expenses). In that regard, accounts
receivable can have a significant impact on the Company's liquidity.
Accounts receivable are generally outstanding for longer periods of time
in the health care industry than many other industries because of
requirements to provide third party payors with additional information
subsequent to billing and the time required by such payors to process
claims. Certain accounts
15
<PAGE> 16
receivable frequently are outstanding for more than 90 days,
particularly where the account receivable relates to services for a
patient (i) receiving a new medical therapy or (ii) covered by Medicare
or Medicaid. Net patient accounts receivable were $102.4 million and
$107.4 million at December 31, 1997 and March 31, 1998, respectively.
This increase was primarily attributable to the acquisition of home
health care businesses in the first quarter of 1998 and internal revenue
growth. This represented an average of approximately 88 and 97 days'
sales in accounts receivable at December 31, 1997 and March 31, 1998,
respectively. The Company estimates that three days of the increase is
attributable to the Medicare oxygen reimbursement reductions and one day
is related to operating centers closed in the fourth quarter of 1997.
Net cash used in operating activities was $3.8 million and net cash
provided from operating activities was $3.5 million for the three months
ended March 31, 1997 and 1998, respectively. These amounts primarily
represent net income plus depreciation and amortization and provisions
for doubtful accounts and changes in the various components of working
capital. Net cash used in investing activities was $37.9 million and
$51.5 million for the three months ended March 31, 1997 and 1998,
respectively. Acquisition expenditures increased from $29.4 million for
the three months ended March 31, 1997 to $43.7 million for the same
period in 1998, an increase of $14.3 million. Capital expenditures
decreased from $7.7 million for the three months ended March 31, 1997 to
$7.3 million for the same period in 1998, a decrease of $400,000. Net
cash provided from financing activities was $37.4 million and $42.3
million for the three months ended March 31, 1997 and 1998,
respectively. The cash provided from financing activities for the three
months ended March 31, 1997 and 1998 primarily related to proceeds from
the Bank Credit Facility.
The Company's principal capital requirements are for acquisitions of
additional home health care companies and expansion of the services
provided through its existing home health care centers. The Company has
financed and intends to continue to finance these requirements, its net
revenue growth, and working capital needs with net cash provided by
operations and with borrowings under the Bank Credit Facility. On
December 19, 1997 the Company amended and restated the Bank Credit
Facility to increase commitments thereunder to $400.0 million. The Bank
Credit Facility includes a $75.0 million five-year term loan and a
$325.0 million five-year revolving line of credit. Borrowings under the
Bank Credit Facility may be used to finance acquisitions and for other
general corporate purposes, subject to the terms and conditions of the
credit and security agreements. Most of the Company's operating assets
have been pledged as security for borrowings under the Bank Credit
Facility. Interest is payable on borrowings under the Bank Credit
Facility, at the election of the Company, at either a "Base Lending
Rate" or an "Adjusted Eurodollar Rate" (each as defined in the Bank
Credit Facility), plus a margin from 0% to 0.625% and from 0.375% to
1.375%, respectively. The Company's ability to borrow under the Bank
Credit Facility terminates on December 16, 2002, subject to exceptions
set forth therein. As of March 31, 1998 the weighted average borrowing
rate was 6.80%. A commitment fee of up to .375% per annum (.375% as of
March 31, 1998) is payable by the Company on the undrawn balance. The
interest rate and commitment fee vary depending on the Company's ratio
of total debt to adjusted pro forma earnings before interest, taxes,
depreciation and amortization, as such ratio is defined in the Bank
Credit Facility.
16
<PAGE> 17
The Bank Credit Facility contains various financial covenants, the most
restrictive of which relate to measurements of stockholders' equity,
leverage ratios, debt to equity ratios and interest coverage ratios. The
Bank Credit Facility also contains certain covenants which, among other
things, impose certain limitations or prohibitions on the Company with
respect to the incurrence of certain indebtedness, the creation of
security interest on the assets of the Company, the payment of dividends
on and the redemption or repurchase of securities of the Company,
investments, acquisitions, investments in joint ventures, capital
expenditures and sales of Company assets. The Company must generally
obtain bank consent for any single acquisition with an aggregate
purchase price of $30.0 million or more, and any acquisition which, when
combined with all acquisitions completed in the prior 12 months, exceeds
$100.0 million and certain other transactions. The Company was in
compliance with these covenants at March 31, 1998.
During 1997, the Company installed a new general ledger system to
provide expanded capacity and functionality. In so doing, Year 2000
compliance was also accomplished. Remaining actions for Year 2000
involve primarily upgrading field support software and desktop computers
as part of an overall Year 2000 plan. The remaining costs are not
material to the Company.
RISK FACTORS
This section summarizes certain risks, among others, that should be
considered by stockholders and prospective investors in the Company.
Medicare Reimbursement for Oxygen Therapy Services. In 1997
oxygen therapy services reimbursement from Medicare accounted for
approximately 23.5% of the Company's revenues. The Balanced Budget Act
of 1997, as amended, reduced Medicare reimbursement rates for oxygen and
certain oxygen equipment to 75% of their 1997 levels beginning January
1, 1998 and to 70% of their 1997 levels beginning January 1, 1999.
Reimbursement for drugs and biologicals was reduced by 5% beginning
January 1, 1998. In addition, Consumer Price Index increases in Medicare
oxygen reimbursement rates will not resume until the year 2003 and the
Company cannot be certain that additional reimbursement reductions for
oxygen therapy services or other services and products provided by the
Company will not occur. Any such reductions could have a material
adverse effect on the Company's net revenues and net income. See
"Medicare Oxygen Reimbursement Reductions and Related Restructuring" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations - Medicare Reimbursement for Oxygen Therapy Services."
Dependence on Reimbursement by Third-Party Payors. For the
quarter ending March 31, 1998, the percentage of the Company's net
revenues derived from Medicare, Medicaid and private pay was 41%, 9% and
50%, respectively. The net revenues and profitability of the Company are
affected by the continuing efforts of all payors to contain or reduce
the costs of health care by lowering reimbursement rates, narrowing the
scope of covered services, increasing case management review of services
and negotiating reduced contract pricing. Any changes in reimbursement
levels under Medicare, Medicaid or private pay programs and any changes
in applicable government regulations could have a material adverse
effect on the Company's net revenues. Changes in the mix of the
Company's patients among Medicare, Medicaid and private pay categories
and among different types of private
17
<PAGE> 18
pay sources, may also affect the Company's net revenues and
profitability. There can be no assurance that the Company will continue
to maintain its current payor or revenue mix. Also, many payors are
dependent upon their computer systems for determining and paying
reimbursements to the Company. If such payors computer systems are
adversely impacted by the Year 2000 it could have a material adverse
impact on the Company's revenues.
Role of Managed Care. As managed care assumes an increasingly
significant role in markets in which the Company operates, the Company's
success will, in part, depend on retaining and obtaining profitable
managed care contracts. There can be no assurance that the Company will
retain or continue to obtain such managed care contracts. In addition,
reimbursement rates under managed care contracts are likely to continue
experiencing downward pressure as a result of payors' efforts to contain
or reduce the costs of health care by increasing case management review
of services and negotiating reduced contract pricing. Therefore, even if
the Company is successful in retaining and obtaining managed care
contracts, unless the Company also decreases its cost for providing
services and increases higher margin services, it will experience
declining profit margins.
Government Regulation. The Company is subject to extensive and
frequently changing federal, state and local regulation. In addition,
new laws and regulations are adopted periodically to regulate new and
existing products and services in the health care industry. Changes in
laws or regulations or new interpretations of existing laws or
regulations can have a dramatic effect on operating methods, costs and
reimbursement amounts provided by government and other third-party
payors. Federal laws governing the Company's activities include
regulation of the repackaging and dispensing of drugs, Medicare
reimbursement and certification and certain financial relationships with
physicians and other health care providers. Although the Company intends
to comply with all applicable fraud and abuse laws, there can be no
assurance that administrative or judicial interpretation of existing
laws or regulations or enactments of new laws or regulations will not
have a material adverse effect on the Company's business. In addition,
the OIG has expanded its auditing of the healthcare industry in an
effort to better detect and remedy fraud and abuse and irregularities in
Medicare and Medicaid billing. The Company and many other healthcare
providers have received subpoenas and other requests for information in
connection with such activities. There can be no assurance such
activities will not have a material adverse effect on the Company's
results of operations, financial condition or prospects. The Company is
subject to state laws governing Medicaid, professional training,
certificates of need, licensure, financial relationships with physicians
and the dispensing and storage of pharmaceuticals. The facilities
operated by the Company must comply with all applicable laws,
regulations and licensing standards. In addition, many of the Company's
employees must maintain licenses to provide some of the services offered
by the Company. There can be no assurance that federal, state or local
governments will not change existing standards or impose additional
standards. Any failure to comply with existing or future standards could
have a material adverse effect on the Company's results of operations,
financial condition or prospects.
No Assurance of Successful Integration of Acquisitions or
Continued Growth. The Company intends to continue to expand its business
through acquisitions of home health care companies, growth in same-store
net revenues and the formation of additional hospital joint ventures and
strategic alliances. There can be no assurance that suitable
acquisitions will be identified, that consent from the Company's
lenders, where required, will be obtained or that acquisitions will be
consummated on acceptable terms. In addition, there can be no assurance
that these companies, once acquired, will be integrated successfully
into the Company's operations or that any acquisition will not have a
material adverse effect upon the Company's results of operations,
financial condition or prospects, especially in the fiscal quarters
immediately following such transactions. In addition, although the
Company intends to expand its business through hospital joint ventures
and strategic alliances, there can be no assurance that the Company will
be able to maintain such relationships. Finally, there can be no
assurance that the Company can increase or maintain growth in net
revenues, enter into
18
<PAGE> 19
additional hospital joint ventures and strategic alliances or increase
net revenues at existing hospital joint ventures and strategic
alliances. The price of the Company's common stock may fluctuate
substantially in response to quarterly variations in the Company's
operating and financial results, announcements by the Company or other
developments affecting the Company, as well as general economic and
other external factors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
Management of Growth. As the Company's business develops and
expands, the Company may need to implement enhanced operational and
financial systems and may require additional employees and management,
operational and financial resources. There can be no assurance that the
Company will successfully (i) implement and maintain any such
operational and financial systems, or (ii) apply the human, operational
and financial resources needed to manage a developing and expanding
business. Failure to implement such systems successfully and use such
resources effectively could have a material adverse effect on the
Company's results of operations, financial condition or prospects.
Competition. The home health care market is highly fragmented
and competition varies significantly from market to market. In the small
and mid-size markets in which the Company primarily operates, the
majority of its competition comes from local independent operators or
hospital-based facilities, whose primary competitive advantage is market
familiarity. In the larger markets, regional and national providers
account for a significant portion of competition. Some of the Company's
present and potential competitors are significantly larger than the
Company and have, or may obtain, greater financial and marketing
resources than the Company. In addition, there are relatively few
barriers to entry in the local markets served by the Company, and it may
encounter substantial competition from new market entrants. As the
industry consolidates, the Company also faces competition for
acquisitions from current and new market participants that could
increase acquisition prices or inhibit the Company's acquisition
strategy.
Impact of Health Care Reform. The health care industry continues
to undergo dramatic changes. There can be no assurance that federal
health care legislation to impose greater control on health care
spending will not be adopted in the future. Some states are adopting
health care programs and initiatives as a replacement for Medicaid. It
is also possible that proposed federal legislation will include language
which provides incentives to further encourage Medicare recipients to
shift to Medicare at-risk managed care programs. There can be no
assurance that the adoption of such legislation or other changes in the
administration or interpretation of governmental health care programs or
initiatives will not have a material adverse effect on the Company.
Liability and Adequacy of Insurance. The provision of health
care services entails an inherent risk of liability. Certain
participants in the home health care industry may be subject to lawsuits
which may involve large claims and significant defense costs. It is
expected that the Company periodically will be subject to such suits as
a result of the nature of its business. The Company currently maintains
product and professional liability insurance intended to cover such
claims in amounts which management believes are in keeping with industry
standards. There can be no assurance that the Company will be able to
obtain liability
19
<PAGE> 20
insurance coverage in the future on acceptable terms, if at all. There
can be no assurance that claims in excess of the Company's insurance
coverage or claims not covered by the Company's insurance coverage will
not arise. A successful claim against the Company in excess of the
Company's insurance coverage could have a material adverse effect upon
the results of operations, financial condition or prospects of the
Company. Claims against the Company, regardless of their merit or
eventual outcome, may also have a material adverse effect upon the
Company's ability to attract patients or to expand its business.
Influence of Executive Officers, Directors and Principal
Stockholder. On May 8, 1998, the Company's executive officers, directors
and principal stockholder, Counsel Corporation ("Counsel"), in the
aggregate, beneficially owned approximately 36% of the outstanding
shares of the common stock of the Company. As a result of such equity
ownership and their positions in the Company, if the executive officers,
directors and principal stockholder were to vote all or substantially
all of their shares in the same manner, they could significantly
influence the management and policies of the Company, including the
election of the Company's directors and the outcome of matters submitted
to stockholders of the Company for approval. The Company is highly
dependent upon its senior management, and competition for qualified
management personnel is intense. The inability to attract and retain
qualified personnel could adversely affect the Company's business.
20
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits. The exhibits filed as part of this Report are listed on
the Index to Exhibits immediately following the signature page.
(B) Reports on Form 8-K. A report on Form 8-K was filed on February
17, 1998 with respect to the acquisition of National Medical
Systems, Inc. and a related Form 8-K/A was filed on April 15, 1998
with respect to such transaction and related financial statements.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN HOMEPATIENT, INC.
May 15, 1998 By: /s/Mary Ellen Rodgers
---------------------
Mary Ellen Rodgers
Chief Financial Officer and An Officer
Duly Authorized to Sign on Behalf of the
registrant
22
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
<C> <C>
10.1 Amendment No. 7 to 1991 Non-qualified Stock Option Plan
10.2 Asset Purchase Agreement dated February 27, 1998 among American HomePatient, Inc.
and Evocare, Inc., Evocare Home Health Care Services, Inc., Chester Black,
Bernard Lambrese and Kelly Lambrese.
10.3 Amendment to Asset Purchase Agreement dated March 12, 1998 among America
HomePatient, Inc. and Evocare, Inc., Evocare Home Health Services, Inc.,
Chester Black, Bernard Lambrese and Kelly Lambrese.
10.4 Confidentiality, Non-Competition and Severance Pay Agreement dated June 16, 1996
between David R. Gnass and American HomePatient, Inc.
10.5 Confidentiality, Non-Competition and Severance Pay Agreement dated April 1, 1996
between Mary Ellen Rodgers and American HomePatient, Inc.
10.6 Confidentiality, Non-Competition and Severance Pay Agreement dated December 23,
1997 between Kathey S. Palmer and American HomePatient, Inc.
27 Financial Data Schedule (for SEC use only)
</TABLE>
23
<PAGE> 1
AMENDMENT OF 1991 NONQUALIFIED STOCK OPTION PLAN
AMENDMENT NO. 7 TO
1991 NONQUALIFIED STOCK OPTION PLAN OF
AMERICAN HOMEPATIENT, INC.
Amendment No. 7 to 1991 Nonqualified Stock Option Plan (the "Plan") of
American HomePatient, Inc. (the "Corporation") as approved by the Board of
Directors of the Corporation on March 20, 1998.
The Plan shall be amended by deleting paragraph 3 thereof and replacing
it with a new number 3 so that, as amended, said paragraph 3 shall be and read
as follows:
3. Stock Subject to the Plan. There will be reserved for
issuance upon the exercise of Options 3,500,000 shares of Common Stock,
which will be authorized and unissued Common Stock. If an Option
expires or terminates for any reason without being exercised in full,
the shares subject thereto which have not been purchased will again be
available for purposes of the Plan. The number of shares as to which
Options may be granted under the Plan will be proportionately adjusted,
to the nearest whole share, in the event of any stock dividend, stock
split, share combination or similar recapitalization involving the
Common Stock or any spin-off, spin-out or other significant
distribution of assets of stockholders for which the Corporation
receives no consideration. In the event that there is an insufficient
number of authorized shares of Common Stock available to allow exercise
of the Options on the date of any grant hereunder, such Options will
not be exercisable until there are sufficient shares of Common Stock
authorized for issuance.
-End of Amendment-
<PAGE> 1
ASSET PURCHASE AGREEMENT
AMONG
EVOCARE, INC.
AND
EVOCARE HOME HEALTH CARE SERVICES, INC.
AS SELLERS,
CHESTER BLACK
BERNARD F. LAMBRESE
KELLY LAMBRESE
AS SHAREHOLDERS,
AND
AMERICAN HOMEPATIENT, INC.
AS BUYER
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
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
1.4 Collection of Receivables.......................................................................4
1.5 Closing.........................................................................................4
ARTICLE II. PURCHASE PRICE.......................................................................................5
2.1 Purchase Price..................................................................................5
2.2 Interest on Purchase Price......................................................................5
2.3 Allocation of Purchase Price....................................................................5
2.4 Referrals.......................................................................................6
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLERS...........................................................6
3.1 Organization, Qualification and Authority.......................................................6
3.2 Absence of Default..............................................................................7
3.3 Financial Statements............................................................................7
3.4 Operations Since December 31, 1997 .............................................................8
3.5 Litigation......................................................................................9
3.6 Licenses........................................................................................9
3.7 Medicare, Medicaid and Other Third-Party Payors................................................10
3.8 Title to and Condition of Assets...............................................................11
3.9 Contracts......................................................................................12
3.10 Environmental Matters..........................................................................13
3.11 Miscellaneous Representations Relating to Real Estate..........................................14
3.12 Sellers' Employees.............................................................................15
3.13 Employee Benefit Plans.........................................................................16
3.14 Insurance......................................................................................18
3.15 Conflicts of Interest..........................................................................18
3.16 Compliance with Healthcare and Other Laws......................................................19
3.17 WARN Act.......................................................................................19
3.18 Tax Returns; Taxes.............................................................................19
3.19 No Omissions or Misstatements..................................................................20
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER..............................................................20
4.1 Organization, Qualification and Authority......................................................20
4.2 Absence of Default.............................................................................20
4.3 SEC Reports. ..................................................................................21
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE V. COVENANTS OF PARTIES..................................................................................21
5.1 Preservation of Business and Assets............................................................21
5.2 Books and Records..............................................................................22
5.3 Preserve Accuracy of Representations and Warranties............................................23
5.4 Employees......................................................................................23
5.5 Broker's or Finder's Fee.......................................................................23
5.6 Indebtedness; Liens............................................................................23
5.7 Compliance with Laws and Regulatory Consents...................................................24
5.8 Maintain Insurance Coverage....................................................................24
5.9 Medicare and Medicaid Reporting................................................................24
5.10 Current Return Filing..........................................................................25
5.11 Financial Analysis.............................................................................25
5.12 Removal of Certain Conditions to Closing.......................................................25
5.13 Third Party Consent............................................................................25
5.14 Hart-Scott-Rodino Filing.......................................................................25
ARTICLE VI. SELLERS' AND SHAREHOLDERS' CONDITIONS TO CLOSE.......................................................26
6.1 Representations and Warranties True at Closing;
Compliance with Agreement......................................................................26
6.2 No Action/Proceeding...........................................................................26
6.3 Order Prohibiting Transaction..................................................................26
6.4 Exhibits.......................................................................................26
ARTICLE VII. BUYER'S CONDITIONS TO CLOSE.........................................................................27
7.1 Representations and Warranties True at Closing;
Compliance with Agreement......................................................................27
7.2 Regulatory Approvals...........................................................................27
7.3 No Action/Proceeding...........................................................................27
7.4 Inspection of Assets; U.C.C. Searches, etc.....................................................27
7.5 Order Prohibiting Transaction..................................................................27
7.6 Confidentiality and Non-Compete Agreements.....................................................28
7.7 Employment Agreements..........................................................................28
7.8 Approval of Board of Directors.................................................................28
7.9 Exhibits.......................................................................................28
ARTICLE VIII. OBLIGATIONS OF SELLERS AND SHAREHOLDERS
AT CLOSING...................................................................................28
8.1 Documents Relating to Title....................................................................28
8.2 Possession.....................................................................................29
8.3 Opinion of Counsel.............................................................................29
8.4 Corporate Good Standing and Corporate Resolutions..............................................29
8.5 Closing Certificate............................................................................29
8.6 Third Party Consents and Releases..............................................................29
8.7 Non-Foreign Tax Certificate; Power of Attorney.................................................29
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
8.8 Insurance......................................................................................30
8.9 Confidentiality, Employment and Lease Agreements...............................................30
8.10 Closing Statement..............................................................................30
8.11 Additionally Requested Documents; Post-Closing Assistance......................................30
ARTICLE IX. OBLIGATIONS OF BUYER AT CLOSING......................................................................30
9.1 Purchase Price.................................................................................30
9.2 Assumption of Liabilities......................................................................30
9.3 Opinion of Buyer's Counsel.....................................................................30
9.4 Corporate Good Standing and Certified Board Resolutions........................................31
9.5 Closing Certificate............................................................................31
ARTICLE X. SURVIVAL OF PROVISIONS AND INDEMNIFICATION...........................................................31
10.1 Survival.......................................................................................31
10.2 Indemnification by Sellers and Shareholders....................................................31
10.3 Indemnification by Buyer.......................................................................32
10.4 Rules Regarding Indemnification................................................................32
ARTICLE XI. PRESERVATION OF BUSINESS
AND NONCOMPETE RESTRICTIONS....................................................................34
11.1 Covenant Not to Compete........................................................................34
11.2 Enforceability.................................................................................35
ARTICLE XII. MISCELLANEOUS......................................................................................35
12.1 Assignment.....................................................................................35
12.2 Other Expenses.................................................................................35
12.3 Notices. ......................................................................................36
12.4 Confidentiality; Prohibition on Trading........................................................37
12.5 Partial Invalidity; Waiver.....................................................................37
12.6 Interpretation; Knowledge......................................................................37
12.7 Entire Agreement; Counterparts.................................................................37
12.8 Legal Fees and Costs...........................................................................38
12.9 Controlling Law................................................................................38
</TABLE>
iii
<PAGE> 5
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is entered into on February 27,
1998 by and among EVOCARE, INC., a Delaware corporation ("Evocare"), EVOCARE
HOME HEALTH SERVICES, INC., a Rhode Island corporation ("Home Health" and,
together with Evocare, collectively the "Sellers"), CHESTER BLACK, a resident of
Massachusetts, and BERNARD F. LAMBRESE, and KELLY LAMBRESE, residents of the
State of Rhode Island (collectively, "Shareholders"), and AMERICAN HOMEPATIENT,
INC., a Delaware corporation ("Buyer").
R E C I T A L S:
WHEREAS, Sellers own and operate a home health care business as more
particularly described on Exhibit A hereto, which Exhibit sets forth the type of
services and products provided by Sellers at each location (the "Business"); and
WHEREAS, Shareholders own all of the issued and outstanding securities
of Sellers; and
WHEREAS, except for the Excluded Assets (as such term is defined
herein), Sellers 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 Sellers, 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. Sellers agree to sell, transfer, assign, convey
and deliver to Buyer, and Buyer agrees to purchase from Sellers, all right,
title and interest in all assets (except the Excluded Assets) of Sellers of
every kind and type, tangible or intangible, real and personal, that are or have
been used to operate 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 1.3), which assets will
include, without limitation, the following (collectively, the "Assets"):
(1) All right, title and interest in and to all of the real
property owned or leased by Sellers or Shareholders and used in connection with
the Business as listed in
1
<PAGE> 6
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, the "Real Estate");
(2) All medical and other equipment, machinery, data
processing hardware and software, furniture, furnishings, appliances, vehicles
and other tangible personal property and all replacement parts therefor used in
connection with the Business including, without limitation, the items listed on
Exhibit 1.1(2) attached hereto (collectively, the "Equipment and Furnishings");
(3) All inventory of goods and supplies used or maintained in
connection with the Business (collectively, the "Inventory");
(4) All accounts and notes receivable (the "Receivables");
(5) All cash generated from operation of the Business on and
after the Effective Date, and all related bank accounts (as listed by name and
address of banking institution, account name and account and routing numbers on
Exhibit 1.1(5) attached hereto), money market accounts, other accounts,
certificates of deposit and other investments of Sellers (the "Cash and Cash
Equivalents");
(6) 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;
(7) To the full extent transferable, all federal, state and
local licenses, permits, registrations, certificates, consents, accreditations,
approvals and franchises necessary or advisable to operate and conduct the
Business (collectively, the "Licenses"), together with assignments thereof, if
required, and all waivers which Sellers currently have, if any, of any
requirements pertaining to the Licenses;
(8) All goodwill, and, to the extent assignable by Sellers,
all warranties (express or implied) and rights and claims related to the Assets
or the operation of the Business;
(9) Contract and leasehold rights and interests arising out of
or related to the Business and that are Assumed Liabilities; and
(10) All intangible or intellectual property owned, leased,
licensed or possessed by either Sellers or Shareholders and utilized in
connection with the Business,
2
<PAGE> 7
including without limitation, the names "Evocare, Inc.," "Evocare Home Health
Care Services, Inc." and derivatives thereof.
1.2 Excluded Assets. Sellers are not selling and Buyer is not
purchasing or assuming obligations with respect to the following (collectively,
the "Excluded Assets"): (a) Sellers' corporate and fiscal records and other
records that Sellers are required by law to retain in its possession; (b)
Sellers's cash and cash equivalents as of the day immediately prior to the
Effective Date (as defined herein); (c) those extraordinary notes receivable of
the Sellers existing as of the Effective Date set forth on Exhibit 1.2 attached
hereto; (d) all prepaid expenses and security deposits of the Sellers existing
as of the Effective Date set forth on Exhibit 1.2 attached hereto; and (e) any
tax refunds or insurance recoveries related to periods prior to the Effective
Date except to the extent any insurance recovery is related to an asset
reflected on the Interim Financial Statements.
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) Two Million Seven Hundred Fifty Thousand and No/100
Dollars ($2,750,000.00) of those obligations existing at February 1, 1998,
constituting working capital liabilities incurred in the ordinary course of
business which Buyer expressly elects to assume, as specifically set forth on
Exhibit 1.3(a) attached hereto, (b) those obligations constituting working
capital liabilities incurred in the ordinary course of business on and after the
Effective Date (as such term is defined in paragraph 1.5), including
indebtedness for borrowed money incurred to purchase Inventory in an amount not
to exceed that set forth on Exhibit 1.3(b) hereto, but excluding all other
long-term and interest bearing debt and other than obligations and costs
associated with the "Sellers Plans" described in paragraph 3.13, and (c) those
obligations arising on and after the Effective Date under those Contracts (as
such term is defined in paragraph 3.9) which Buyer expressly elects to assume
(collectively, 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 will not be liable for, any debt, liability or obligation of Sellers
or Shareholders of any type or description whatsoever, whether related or
unrelated to the Assets, the Business or the transactions contemplated under
this Agreement and that Sellers and/or Shareholders will 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 Sellers 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
3
<PAGE> 8
Buyer pursuant to this paragraph, and other accrued employee benefits including
rights of Sellers' retirees to participate in Sellers' medical plans.
(3) Buyer will assume aggregate liabilities pursuant to clause
(a) of paragraph 1.3(1) of Two Million Seven Hundred Fifty Thousand and No/100
Dollars ($2,750,000.00) (the "Pre-Effective Date Assumed Liabilities Cap"). The
liabilities assumed pursuant to Clause (a) of Paragraph 1.3 (1) will consist
first of ordinary course working capital liabilities other than long term and
interest bearing debt and second of long term and interest bearing debt so that,
in the aggregate, such assumed liabilities do not exceed the Pre-Effective Date
Assumed Liabilities Cap. For purposes of calculating the amount of the Assumed
Liabilities, the present value of payments to be made on and after the Effective
Date with respect to any Assumed Liability that is a capitalized obligation
under generally accepted accounting principles will be considered part of the
amount of such Assumed Liabilities. In the event that Buyer elects to assume
Assumed Liabilities pursuant to paragraph 1.3(1)(a) in excess of the
Pre-Effective Date Assumed Liabilities Cap, then the cash portion of the
Purchase Price (as such term is defined herein) payable at Closing will be
reduced on a dollar-for-dollar basis to the full extent of such excess.
1.4 Collection of Receivables. At Closing, Sellers 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 Sellers and Shareholders will collect the Receivable in compliance
with all applicable laws, as Buyer's agents for the limited purpose of such
collection, and will immediately deliver to Buyer the gross proceeds of such
collection. Sellers and Shareholders will also provide such additional
assistance in the collection process as Buyer may reasonably request. If, within
240 days following the Effective Date, Buyer has collected proceeds of
Receivables generated prior to the Effective Date in an aggregate amount less
than Three Million and No/100 Dollars ($3,000,000), (a) Sellers and, on a
several but not joint basis as more fully described in Article X, Shareholders
will pay to Buyer the amount of the shortfall (such amount shall be funded first
by offset against the Note (as defined herein)), and (b) Shareholders agree to
prepare, at Buyer's cost, revised historical financial statements reflecting the
impact of the less-than-anticipated collections. Buyer shall remit to Sellers
gross proceeds in excess of Three Million and No/100 Dollars ($3,000,000.00)
collected by Buyer with respect to Receivables created prior to the Effective
Date on a monthly basis for a period of two (2) years following the Effective
Date. Buyer agrees that during such two year period it will use commercially
reasonable efforts to collect such Receivables. If two (2) years following the
Effective Date both: (i) any such Receivables remain uncollected and (ii) either
$3,000,000.00 in proceeds of such Receivables have been collected by Buyer or
all Sellers and Shareholders have fully satisfied their obligations under
clauses (a) and (b) of this paragraph 1.4, then Buyer will assign back to
Sellers for no consideration all such uncollected Receivables related to periods
prior to the Effective Date.
4
<PAGE> 9
1.5 Closing. If all of the conditions to Closing set forth in Articles
VI and VII are satisfied, the parties will use good faith efforts to close the
contemplated transactions by March 31, 1998, 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"). Upon consummation,
Closing will be deemed to be effective, and the transfer of the Assets will be
deemed to have occurred, for accounting purposes as of 12:01 a.m. local time on
February 1, 1998 (the "Effective Date"). Accordingly, all income generated from
operation of the Business on and after the Effective Date will belong to Buyer,
and adjustments to reflect the distribution of income and liabilities with
respect to the Business as contemplated under this Agreement will be made in
accordance with the procedures outlined in Exhibit 1.5 attached hereto. If
Closing has not occurred by April 15, 1998, then any party not in default
hereunder may terminate this Agreement, with or without cause and without
further obligation, by so notifying the other party(ies) in writing.
ARTICLE II. PURCHASE PRICE
2.1 Purchase Price. The purchase price payable by Buyer to Sellers for
the Assets and in consideration for the agreements contained herein, including
the agreements contained in Article XI, will be Fourteen Million Seven Hundred
Fifty Thousand and No/100 Dollars ($14,750,000.00) (the "Purchase Price"). The
Purchase Price will be subject to adjustment as set forth in this Agreement and
will be payable at Closing in the following manner:
(1) Nine Million Five Hundred Thousand and No/100
Dollars($9,500,000.00), subject to the foregoing adjustments, in immediately
available funds by wire transfer at Closing;
(2) One Million and No/100 Dollars ($1,000,000.00) by a
purchase price note (the "Note"), the form of which is attached hereto as
Exhibit 2.1(2), subject to offset as provided in paragraph 1.3(1) to the extent
that less than Three Million Dollars of pre- Effective Date Receivable are
collected within the time period set forth in such paragraph, and subject to
offset to fund indemnification claims as provided in Article X; and
(3) Up to One Million Five Hundred Thousand and No/100 Dollars
($1,500,000.00) pursuant to an incentive based earn out, the terms of which are
contained in Exhibit 2.1(3) which is attached hereto.
(4) Assumption of the Assumed liabilities in the amount of Two
Million Seven Hundred Fifty Thousand and No/100 Dollars ($2,750,000).
2.2 Interest on Purchase Price. In addition to the Purchase Price
described in paragraph 2.1, Buyer will deliver to Sellers, in immediately
available funds by wire transfer
5
<PAGE> 10
at Closing, interest on that portion of the Purchase Price noted in paragraphs
2.1(1), and 2.1(2) at the rate of seven percent (7%) per annum for the Effective
Date until Closing.
2.3 Allocation of Purchase Price. The Purchase Price will be allocated
among the Assets in the manner set forth in Exhibit 2.3 attached hereto (the
"Allocation"). The parties to this Agreement expressly agree that the Allocation
will be used by them for tax, reimbursement and all other purposes. Each party
to this Agreement agrees that it will report the transaction completed under
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.
2.4 Referrals. No part of the Purchase Price is a payment to the
Sellers or the Stockholders for the recommending or arranging for the referral
of business or the ordering of items or services offered by Buyer; nor are the
payments intended to induce referrals of business to Buyer. All parties hereto
acknowledge and agree that neither Sellers nor Stockholders have any obligation
(and there is no representation, implied or otherwise) to refer business to, or
otherwise utilize the services or facilities, of Buyer or any Affiliate of
Buyer.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLERS
As a material inducement to Buyer to enter into this Agreement and to
consummate the transactions contemplated hereunder, each of the Sellers hereby
jointly and severally represents and warrants to Buyer, which representations
and warranties will be true and correct on the date hereof and as of the date of
Closing, as follows:
3.1 Organization, Qualification and Authority. Evocare and Home Health
are corporations duly organized and validly existing in the States of Delaware
and Rhode Island, respectively. Since the date of its organization and
incorporation, each 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. Each 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. No 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 Sellers other than
the Shareholders and those persons who hold the options described on Exhibit 3.1
hereto. Sellers own 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. Sellers each have the full right,
power and authority to execute,
6
<PAGE> 11
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 Sellers hereby.
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 hereby, and to take all
actions necessary, in their capacity as the stockholders of Sellers, to permit
or approve the actions of Sellers 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 Sellers, have been duly
authorized by all necessary action on the part of Sellers. Except for the third
party consents and waivers identified on Exhibit 3.1 hereto, no other action,
consent or approval on the part of Sellers, Shareholders or any other person or
entity is necessary to authorize due and valid 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 Sellers and/or Shareholders, upon due
execution and delivery thereof, will constitute the valid and binding
obligations of each of Sellers 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.
3.2 Absence of Default. The execution, delivery and consummation of
this Agreement, and all other agreements and documents executed in connection
herewith by Sellers 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, Sellers
or Business under: (a) any term or provision of the Charter or Bylaws of
Sellers; (b) any contract, lease, purchase order, agreement, document,
instrument, indenture, mortgage, pledge, assignment, permit, license, approval
or other commitment to which Sellers and/or Shareholders are a party or by which
Sellers 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 Sellers,
Shareholders and/or the Assets are subject.
3.3 Financial Statements.
(1) Attached hereto as Exhibit 3.3 are true and correct copies
of Sellers' combined, reviewed balance sheets as of December 31, 1997, and their
combined, reviewed income statements for the year then ending (the "Fiscal Year
Financial
7
<PAGE> 12
Statements"), and the combined interim unaudited balance sheets and income
statements of Sellers for the one (1) month period ended January 31, 1998 (the
"Interim Financial Statements" which, with the Fiscal Year Financial Statements,
will be referred to as the "Financial Statements"). The Financial Statements are
based on the books and records of Sellers and present fairly, in compliance with
generally accepted accounting principles, the financial position of Sellers as
of, and the results of its operations for, the periods specified, except for the
absence of footnotes otherwise required under generally accepted accounting
principles ("GAAP") and, in the case of the Interim Financial Statements, normal
year-end adjustments. Except as set forth in the Interim Financial Statements,
Sellers have, and as of Closing will have, no contingent liabilities or
obligations which are required to be disclosed therein in accordance with GAAP.
(2) The books and records of Sellers are in such order and
completeness so that, except as set forth on Exhibit 3.3(2) hereto, an
unqualified audit may be performed for any period prior to Closing not already
audited. Sellers and Shareholders will fully and readily cooperate with Buyer,
at Buyer's cost, in Buyer's attempt to perform an audit of the Sellers for any
period prior to Closing not already audited.
3.4 Operations Since December 31, 1997 . Except as set forth on Exhibit
3.4 hereto, since December 31, 1997, there has been no:
(1) material change in the condition, financial or otherwise,
which has had a material and adverse effect on the Business or in the results of
the operations of Sellers;
(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 Sellers of,
or mortgages or pledges of or the imposition of any lien, charge or encumbrance
on, any portion of the Assets, except inventory and equipment held for rent in
the ordinary course of business;
(4) increase in the compensation payable by Sellers to any
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 Sellers;
(5) cumulative net operating loss incurred in the operation of
the Business, adjustment or write-off of Receivables or reduction in reserves
for Receivables, in each case outside of the ordinary course of business, or
change in the accounting methods or practices employed by Sellers or change in
depreciation or amortization policies;
8
<PAGE> 13
(6) issuance or sale by Sellers or Shareholders, or contract
or other commitment entered into by Sellers or Shareholders, for the issuance or
sale of any shares of capital stock or securities convertible into or
exchangeable for capital stock of Sellers, except upon exercise of outstanding
options;
(7) payment by Sellers of any dividend, distribution or
extraordinary or unusual disbursement or expenditure or intercompany payable;
(8) merger, consolidation or similar transaction involving the
Sellers;
(9) strike, work stoppage or other labor dispute adversely
affecting the Business; or
(10) termination, waiver or cancellation of any material
rights or claims of Sellers, under contract or otherwise.
Further, since the Effective Date, neither Shareholders nor any of
their family members or affiliates have received any compensation, benefits or
distributions from Sellers, whether as salary, bonus, fees, dividends or any
other form of compensation, which, in the case of Bernard and Kelly Lambrese, is
greater than the amount of compensation and benefits contemplated for each
pursuant to the agreements referenced in paragraph 7.7 except such amounts as
have been repaid and adjusted for at Closing, and except for distributions to
fund tax obligations as Shareholders of S corporations shown on Exhibit 3.4 that
will be repaid and adjusted for at Closing.
3.5 Litigation. Except as disclosed in Exhibit 3.5 attached hereto, no
person or party (including, without limitation, any governmental agency) has
asserted, or to the best knowledge of Sellers or Shareholders has threatened to
assert, any claim for any action or proceeding, against Sellers (or any officer,
director, employee, agent or shareholders of Sellers in their capacity as such)
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
of 1993). Neither of the Sellers nor any Shareholder 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 3.5, there are no lawsuits, proceedings, actions,
arbitrations, governmental investigations, claims, inquiries or proceedings
pending or, to the best knowledge of Sellers and Shareholders, threatened
involving Sellers, any
9
<PAGE> 14
Shareholder in his or her capacity as such, any of the Assets or the Business.
The claims disclosed in Exhibit 3.5 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.
3.6 Licenses.
(1) Sellers have all Licenses necessary to occupy, operate and
conduct the Business, and no waivers or exemptions exist relating thereto. There
is no default on the part of either of the Sellers or any other party under any
of the Licenses, and 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 3.6(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 3.6(1). Sellers are, and at the time of
Closing will be, licensed by the regulatory bodies listed on Exhibit 3.6(1). No
notices have been received by Sellers or Shareholders with respect to any
threatened, pending, or possible revocation, termination, suspension or
limitation of the Licenses.
(2) Sellers have all certificates of need, certificates of
exemption or non- review letters (collectively referred to as "CON's") necessary
to operate the Business as it has been historically and currently conducted.
Copies of all implemented and unimplemented CON's issued to Sellers in the past
five (5) years have been previously provided to Buyer. Sellers are in compliance
with the terms of all current CON's.
(3) Each employee of Sellers has all Licenses required for
each such employee to perform such employees' designated functions and duties
for Sellers in connection with conducting the Business, and no waivers or
exemptions exist relating thereto. There is no default under, nor does there
exist any grounds for revocation, suspension or limitation of, any such
Licenses.
(4) Sellers' infusion services businesses are accredited by
the Joint Commission on Accreditation of Healthcare Organizations ("JCAHO") to
operate and conduct the Business. Included in Exhibit 3.6(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.
3.7 Medicare, Medicaid and Other Third-Party Payors.
(1) Sellers participate in the Medicare and Medicaid Programs
(the "Programs"). A list of and copies of its existing Medicare and Medicaid
contracts or, if such contracts do not exist, other documentation evidencing
such participation (collectively, the "Program Agreements") are included in
Exhibit 3.9 attached hereto. Sellers are, and will
10
<PAGE> 15
be at the time of Closing, 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 either Sellers or
Shareholders, nor to their knowledge 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. Sellers
have 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 Sellers or Shareholders received notice of any
pending, threatened or possible decertification or other loss of participation
in, any of the Programs.
(3) Sellers currently have 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) are included in Exhibit
3.9. Sellers are, and will be at the time of Closing, in full compliance with
all of the material terms, conditions and provisions of such contracts.
(4) All liabilities and contractual adjustments of Sellers
under any third party payor or reimbursement programs have been properly
reflected and adequately reserved for in the Financial Statements. If, 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 Closing, relating to amounts owing under any such programs by
Sellers, then Sellers will immediately pay to Buyer the amounts so offset, with
interest at a rate equal to six percent (6%) per annum; provided, however that
Buyer will bear the risk of offset as to operations from the Effective Date
through Closing so long as such offsets are not caused by the willful acts or
omissions, or gross negligence, of Shareholders, Sellers and/or its employees,
representatives or agents. The interest will accrue from the date of offset by
the third party until the date paid by Sellers to Buyer.
3.8 Title to and Condition of Assets.
(1) One of the Sellers 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 the Assumed Liabilities, and
except for liens which will be discharged at Closing. The Assets are all the
assets set forth on the Interim Financial Statements or used in the operation of
the Business.
11
<PAGE> 16
(2) The descriptions of the Real Estate contained in Exhibit
1.1(1) are accurate and include all real property leased or owned by Sellers or
Shareholders and used in connection with the Business or set forth on the
Interim Financial Statements. Neither of the Sellers owns any real property.
Sellers are in lawful possession of all of the Real Estate that is leased rather
than owned, 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
Business. Additionally, Sellers have the right and authority to transfer and
convey the leased Real Estate to Buyer as contemplated by the terms of this
Agreement, and such transfer and conveyance, once effected as contemplated
hereunder, will vest in the Buyer the lawful right to possess and use the leased
Real Estate, superior in right to all others.
(3) 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 assets owned by Sellers and all assets used in
connection with the Business. All components of all of the Equipment and
Furnishings (a) operate in accordance with their respective specifications, (b)
perform the functions they are supposed to perform, (c) are free of structural,
installation, engineering, or mechanical defects or problems, and (d) are
otherwise in good working order, normal wear and tear excepted. Neither of the
Sellers has received no written recommendation from any insurer to repair or
replace any of the Assets with which Sellers has not complied.
(4) The Inventory is, and on Closing will be, of a quality and
quantity presently used by Sellers in the ordinary course of business determined
and valued consistent with Sellers' 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. Seller has in place adequate controls to track
all Inventory and, along with Shareholders pursuant to the terms of Article X,
will indemnify Buyer for any missing infusion pumps or other Inventory which, in
the aggregate, would cost Ten Thousand Dollars ($10,000.00) or more to replace.
Since the date of the Interim Financial Statements, neither of the Sellers has
decreased or substituted its items of Inventory other than in the ordinary
course of business.
(5) All vehicles used in the Business, whether owned or
leased, are listed in Exhibit 1.1(2) attached hereto, are properly licensed, and
are registered in accordance with applicable law.
(6) All trademarks, service marks, trade names, patents,
inventions, processes, copyrights and applications therefor, whether registered
or at common law (collectively, the "Intellectual Property"), owned by Sellers
are listed and described in Exhibit 3.8 attached hereto. No proceedings have
been instituted or are pending or, to the best knowledge of Sellers and
Shareholders, threatened which challenge the validity of the ownership by
Sellers of any such Intellectual Property. Neither of the Sellers has licensed
12
<PAGE> 17
anyone to use any such Intellectual Property, and neither Sellers nor
Shareholders have any knowledge of the use or the infringement of any of such
Intellectual Property by any other person. Each of the Sellers owns or possesses
adequate and enforceable licenses or other rights to use all Intellectual
Property now used in the conduct of its Business.
3.9 Contracts.
(1) Exhibit 3.9 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 Sellers and/or Shareholders are a party or by which Sellers, the
Assets or the Business is bound or affected (collectively, the "Contracts").
Accurate and complete copies of all written Contracts and written summaries of
key terms of all oral Contracts have been previously delivered to Buyer. Except
for the Assumed Liabilities, all Contracts and all other obligations and
liabilities relating to the Assets and the Business will be retained by Sellers.
(2) None of the Contracts has 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. 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 Contracts. There are no counterclaims or offsets
under any of the Contracts.
(3) 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 Contracts, except for those that result from or relate
to leased Assets. No purchase commitment by Sellers is in excess of Sellers'
ordinary business requirements.
(4) Following receipt of the consents and waivers identified
on Exhibit 3.9, assignment to Buyer of those Contracts constituting part of the
Assumed Liabilities will not default, alter or terminate any such Contracts, and
such assignment will confer and convey all of Sellers' rights thereunder to
Buyer.
3.10 Environmental Matters.
(1) Hazardous Substances. As used in this paragraph 3.10, 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,
13
<PAGE> 18
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), flammable and explosives.
(2) Compliance with Laws and Regulations. All operations or
activities on, and any use or occupancy of, the Real Estate by Sellers, any
Affiliates of Sellers (wherein the term "Affiliates" will mean any person or
entity controlling, controlled by or under common control at any time with
Sellers, and the term "control" will 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 Sellers or its Affiliates
("Agents"), or any tenant or subtenant of Sellers 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.
Sellers, Affiliates and Agents have kept the Real Estate free of any lien
imposed pursuant to 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:
(a) Neither Sellers nor their Affiliates or Agents
have allowed the use, generation, treatment, handling, manufacture, voluntary
transmission or storage of any Hazardous Substances on the Real Estate (except
in compliance with applicable law) nor, to the best knowledge of Sellers or
Shareholders, has the Real Estate ever been used for any of the foregoing.
(b) Neither of the Sellers nor their Affiliates or
Agents have installed on the Real Estate friable asbestos or any substance
containing asbestos in condition or amount deemed hazardous by Environmental
Law.
(c) Neither of the Sellers has at any time engaged in
or permitted any dumping, discharge, disposal, spillage or leakage (whether
legal or illegal, accidental or intentional) of such Hazardous Substances on the
Real Estate that would subject the Real Estate or Buyer to clean-up obligations
imposed by environmental governmental authorities. Neither of the Sellers has
assumed any liability of a third party for clean up under, or noncompliance
with, Environmental Law.
14
<PAGE> 19
(d) Neither of the Sellers (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 Sellers
and Shareholders, threatened investigation or inquiry by any governmental
authority for noncompliance with, or any remedial obligations under
Environmental Law.
(e) Neither of the Sellers nor their Affiliates or
Agents have transported or arranged for the transportation of any Hazardous
Substances to any location which is listed or, to the best knowledge of Sellers
and Shareholders, proposed for listing under Environmental Law or is the subject
of any enforcement action, investigation or other inquiry under Environmental
Law.
(3) Other Environmental Matters. To the best knowledge of
Sellers and Shareholders, there are no underground storage tanks on any portion
of the Real Estate, the Real Estate is free of dangerous levels of
naturally-emitted radon, and no portion of the Real Estate has ever been used as
a landfill. Sellers have furnished to Buyer a copy of any environmental audit or
report on the Real Estate which Sellers or their Affiliates obtained or was
furnished. All utilities serving the Real Estate are adequate to operate the
Real Estate in the manner it is currently operated.
3.11 Sellers' Employees.
(1) Exhibit 3.11 attached hereto sets forth: (a) a complete
list of all of each Seller's employees, (b) their respective 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 Sellers. 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. ss.2102 et seq. Except as provided in
Exhibit 3.9, Sellers have no employment agreements with its employees and all
such employees are employed on an at "at will" basis. Exhibit 3.11 also (a)
lists, and has attached copies of, all employee fringe benefits and personnel
policies, and (b) lists all ex-employees of Sellers utilizing or eligible to
utilize COBRA (health insurance). Sellers will terminate all of their employees
at Closing, and Sellers and Shareholders agree, pursuant to the terms of Article
X, to indemnify and hold Buyer harmless from and against any and all claims of
Sellers' employees relating to their employment by Sellers through Closing and
such termination, whenever made. Other than the Assumed Liabilities, the parties
to this Agreement expressly agree that Sellers will 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 Closing, including
related payroll taxes.
15
<PAGE> 20
(2) Neither of the Sellers is 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 Sellers to compensate 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 Sellers and Shareholders,
threatened labor dispute, work stoppage, unfair labor practice complaint,
strike, administrative or court proceeding or order between Sellers and any
present or former employee(s) of Sellers. There is no pending or, to the best
knowledge of Sellers and Shareholders, threatened suit, action, investigation or
claim between Sellers and any present or former employee(s) of Sellers. There
has not been any labor union organizing activity at any location of either of
the Sellers, or elsewhere, with respect to the Sellers' employees.
3.12 Employee Benefit Plans.
(1) Except as described on Exhibit 3.12, Sellers do not
maintain any bonus, deferred compensation, pension, retirement, stock option,
stock appreciation, restricted stock, profit sharing, severance, medical or life
insurance, employee stock ownership or stock purchase plans or other "employee
pension benefit plan", as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") or other "employee welfare
benefit plan", as defined in Section 3(1) of ERISA (collectively the "Sellers
Plans"). All of the Sellers Plans described in Exhibit 3.12 have been operated
in all respects in compliance with all applicable laws, including without
limitation, the applicable provisions of ERISA and the Internal Revenue Code of
1986 ("Code"), and regulations thereunder (collectively the "Employee Benefit
Laws"). Copies of all Sellers Plans have previously been provided to Buyer.
(2) With respect to any Sellers Plan which is intended to
qualify under Section 401(a) of the Code (collectively, the "Sellers Pension
Plans"), a favorable determination letter as to the qualification of the plan
under Section 401(a) of the Code has been issued and the related trust has been
determined to be exempt from taxation under Section 501(a) of the Code and no
amendment made (or the failure to make such amendment) to any Sellers Pension
Plan subsequent to the date of such determination letter has adversely affected
the qualified status of any such Sellers Pension Plan.
(3) Each of the Sellers has performed all obligations required
to be performed by it under, and is not in default or in violation of, the terms
of any of the Sellers Plans in any respect. No "disqualified person" (as defined
in Section 4975 of the Code) or "party in interest" (as defined in Section 3(14)
of ERISA) has engaged in any "prohibited transaction" (as such term is defined
in Section 4975 of the Code or Section 406 of ERISA), or breach of fiduciary
duties (as described in Section 404 of ERISA) and no "reportable event" within
the meaning of Section 4043 of ERISA has occurred with respect to any Sellers
Plan. Sellers have not incurred and does not reasonably expect to incur, any
16
<PAGE> 21
liability to the Pension Benefit Guaranty Corporation (except for required
premium payments, which payments have been made when due). No "accumulated
funding deficiency", as such term is defined in Section 302 of ERISA and Section
412 of the Code (whether or not waived), exist with respect to any of the
Sellers Plans. No "unfunded current liability" as determined under Section
412(1) of the Code exists with respect to any Sellers Plan subject to the
minimum funding requirements of Code Section 412, and, if applicable, Title IV
of ERISA. Sellers have no liability for any delinquent contributions within the
meaning of Section 515 of ERISA (including, without limitation, related
attorneys' fees, costs, liquidated damages and interest) or for any arrearages
of wages.
(4) Sellers are not required to contribute to, and during the
five-year period ending on the date of Closing will not have been required to
contribute to, any "multi-employer plan" as such term is defined in Section
4001(a)(3) of ERISA covering Sellers' employees and Sellers will not be subject
to any withdrawal liability (whether partial or complete) within the
contemplation of Section 4001 et seq. of ERISA as a result of the Transactions.
Sellers have never contributed to, withdrawn from, or had any employee covered
by a multi-employer plan.
(5) Neither of the Sellers has any unpaid obligations and
liabilities to provide benefits or contributions with respect to any Sellers
Plan (including, without limitation, liabilities and obligations currently due
and those not yet due that are attributable to the current plan year or
otherwise will become due at a later date for benefits previously earned). With
respect to each Sellers Plan subject to Title IV of ERISA, as of the date of
Closing, the assets of each such Plan are at least equal in value to the greater
of (1) the present value of the accrued benefits (determined as of the date of
Closing) of the participants in such Plans, based on actuarial methods, tables
and assumptions satisfactory to Buyer which present value is not less than the
projected benefit obligation for such Plan under FASB 87, or (2) such amount as
may be determined pursuant to Sections 411 and 417 of the Code (or such other
provision of the Code or ERISA as may be applicable) as necessary to fund
required benefits upon termination of such Sellers Plan.
(6) Each of the Sellers has made all contributions and other
payments required by and due under the terms of each Sellers Plan.
(7) No asset of either of the Sellers is subject to any lien
under Code Section 401(a)(29), ERISA Section 302(f) or Code Section 412(n),
ERISA Section 4068 or arising out of any action filed under ERISA Section
4301(b).
(8) Neither of the Sellers nor any affiliated company that is,
or was at any time after September 2, 1974, together with Sellers, treated as a
"single employer" under Section 414(b), 414(c), 414(m), or 414(o) of the Code,
has incurred any liability which
17
<PAGE> 22
could subject any of the parties to this Agreement to any liability under
Section 4062, 4063, or 4064 of ERISA.
(9) There are no negotiations, demands or proposals which are
pending which affect matters now covered, or that would be covered, by the types
of plans or agreements listed in Exhibit 3.12. There has been no failure to
comply with any applicable reporting and disclosure requirements under Title I
or Title IV of ERISA that could subject Sellers to any civil or criminal
sanction. There are no actions, suits or claims (other than routine claims for
benefits) pending or threatened against Sellers or the Sellers Plans, and no
facts are known to exist which could reasonably be expected to give rise to any
actions, suits or claims (other than routine claims for benefits) pending or
threatened against Sellers or the Sellers Plans, and no facts are known to exist
which could reasonably be expected to give rise to any actions, suits or claims
(other than routine claims for benefits) against Sellers or against the Sellers
Plans.
(10) Sellers have each complied in all respects with the
requirements of the Consolidated Omnibus Budget Reconciliation Act as it relates
to employee benefits provided to Sellers' employees.
(11) Prior to the Closing, Sellers have each taken the
necessary official actions to terminate the Sellers Plans. Sellers will handle
the termination of the Sellers Plans, including (1) adoption of the necessary
amendments to the Sellers Plans to bring each into full compliance with the
current laws, (2) request for a favorable determination letter from the Internal
Revenue Service on the termination of each such plan, (3) preparation and
distribution of benefit distribution forms to participants and (4) preparation
of remaining forms to be filed with the government agencies. If one of the
Sellers' Plans includes the features described in Section 401(k) of the Code,
then such actions to terminate the Plan prior to the date of Closing will be
handled in such a manner so that distributions may be made to the participants
in such Plan as provided in Section 401(k)(2)(B)(i)(II) of the Code and the
restrictions under Section 401(k)(10)(A)(i) of the Code and 1.401(k)-1(d)(3) of
the Treasury Regulations on distributions do not apply upon Plan termination
because of the maintaining of a defined contribution plan maintained by the
Buyer. All costs associated with the termination of the Sellers Plans and any
other liabilities related thereto shall remain with and be assumed by the
Sellers.
3.13 Insurance. Each of the Sellers has in effect and has since its
inception continuously maintained insurance coverage for its operations,
personnel and assets, and for the Assets and the Business. A complete and
accurate list of all current insurance policies is included in Exhibit 3.9.
Exhibit 3.13 attached hereto sets forth a summary of the Sellers' current
insurance coverage (listing type, carrier and limits), includes a list of any
pending insurance claims relating to either of the Sellers and the Business, and
includes a recent three-year claims history relating to Sellers and the Business
as prepared by the applicable insurance carrier(s). Sellers and Shareholders
agree, pursuant to the terms of
18
<PAGE> 23
Article X, to indemnify and hold harmless Buyer from and against any damages or
costs (including attorney fees) arising out of such insurance claims to the
extent not covered by insurance proceeds. Sellers are not in default or breach
with respect to any provision contained in any such insurance policies, nor has
either of the Sellers failed to give any notice or to present any claim
thereunder in due and timely fashion.
3.14 Conflicts of Interest. Except as described in detail on Exhibit
3.14 hereto, none of the following is either a supplier of goods or services to
Sellers, 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 Sellers: (a) any Shareholder,
(b) any director or officer of Sellers, or (c) any entity under common control
with Sellers or controlled by or related to Shareholders.
3.15 Compliance with Healthcare and Other Laws. Neither of the Sellers
has 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 Sellers which action could have a material adverse effect on the
Business. Neither WARN nor any similar state law applies to such transactions,
and such transactions comply with applicable state antitrust and similar laws.
None of the Contracts and no activity of Sellers violates (a) Section 1877 of
the Social Security Act or any similar provision of applicable state law in any
material respect or (b) provisions of applicable state law relating to the
corporate practice of medicine in any material respect. The Sellers are 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. All Certificates of Medical
Necessity filed by Sellers have been properly completed, executed and filed in
compliance with all applicable laws, rules and regulations. All healthcare, tax
and other returns, reports, plans and filings of any nature required to be or
otherwise filed by Sellers with any governmental authorities or 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. Sellers will retain and be responsible for any liability
incurred in connection with any such return, report, plan and filing.
3.16 WARN Act. Since ninety (90) days prior to the Effective Date,
Sellers have 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.
3.17 Tax Returns; Taxes. Sellers have filed all federal, state and
local tax returns and tax reports required by such authorities to be filed.
Sellers have paid all taxes,
19
<PAGE> 24
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 governmental 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 Sellers and
Shareholders, threatened against Sellers by any governmental authority; and
Sellers have not been granted any extension of the limitation period applicable
to any tax claims.
3.18 No Omissions or Misstatements. The information included in this
Agreement and the Exhibits hereto does not contain any untrue statement of a
material fact and does not omit 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.
3.19 Sole Representations. The representations and warranties contained
herein constitute the sole representations and warranties which are being
extended by the Sellers with respect to the transaction contemplated herein.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Sellers and Shareholders to enter into this
Agreement and to consummate the transactions contemplated hereunder, Buyer
hereby represents and warrants to Sellers and Shareholders, which
representations and warranties will be true and correct on the date hereof and
on the date of Closing, as follows:
4.1 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, will
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.
20
<PAGE> 25
4.2 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
the existing credit agreement of Buyer) 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.
4.3 SEC Reports. Prior to Closing, Buyer will furnish to Shareholders
true and complete copies of its Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, its Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1997 and its proxy materials for the most recently
held annual meeting of shareholders (collectively, the "SEC Reports") as such
reports were filed with the Securities and Exchange Commission. The SEC Reports,
at the time they were filed, did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. Since September 30, 1997, there has been
no material adverse change in the operation of the business of the Buyer, taken
as a whole, which would necessitate any filings with the Securities and Exchange
Commission modifying the SEC Reports, other than in the ordinary course of
business.
ARTICLE V. COVENANTS OF PARTIES
5.1 Preservation of Business and Assets. Except as set forth on Exhibit
5.1 hereto, from the Effective Date until Closing, each of the Sellers and the
Shareholders will use their reasonable efforts and will 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 Sellers
or the Business. Until termination of this Agreement, Sellers and Shareholders
agree that they will not sell, transfer or pledge, or negotiate the sale,
transfer or pledge of, either any of the Assets or any stock or other security
of Sellers, nor merge or consolidate with any other entity; neither of the
Sellers nor the Shareholders will solicit any inquiries,
21
<PAGE> 26
proposals or offers relating to any such transactions. From the Effective Date
until Closing, Sellers will pay no dividend (other than those needed to fund tax
obligations as shareholders of S Corporations as shown on Exhibit 3.4 and that
will be repaid and adjusted for at Closing), and will 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, Sellers
will not sell, discard or dispose of any of the Assets, except in the ordinary
course of business consistent with past practices. None of the Contracts will be
amended between the date hereof and Closing without the prior written consent of
Buyer, and Sellers will not enter into any new material contract or commitment
or any other transaction with respect to the Business or the Assets without the
prior written consent of Buyer. From the Effective Date until Closing, Sellers
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. Buyer, Sellers and Shareholders will use their reasonable efforts to
facilitate the consummation of the transactions contemplated under this
Agreement.
5.2 Books and Records.
(1) From the date hereof until Closing, each of the Sellers
will maintain its books of account in the usual, regular and ordinary manner on
a basis consistent with prior years and will make no change in its accounting
methods or practices.
(2) Until Closing, Sellers will give to Buyer full access, by
appointment at mutually agreed times, to all of Sellers' offices, properties,
books, contracts, commitments, records and affairs relating to the Assets or the
Business so that Buyer may inspect and audit them and will furnish to Buyer a
copy of all documents and information concerning the properties and affairs of
the Sellers, the Business or the Assets as Buyer may request. If any such books,
records and materials are in the custody of third parties, Sellers will direct
such third parties to promptly provide them to Buyer.
(3) Following Closing, Buyer will permit Sellers, 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 Closing. All out-of-pocket costs associated with the delivery
of the requested documents will be paid by Sellers.
(4) Following Closing, Sellers will permit Buyer to have
access to, and examine and make copies of, all books and records of Sellers and
its Affiliates relating to the Business or Assets, which books and records are
retained by Sellers and which relate to transactions or events occurring prior
to Closing. For a period of seven (7) years after Closing, Sellers agree that,
prior to the destruction or disposition of any such books or records, Sellers
will 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
22
<PAGE> 27
desires to obtain any such documents or records, it may do so by notifying
Sellers in writing at any time prior to the date scheduled for such destruction
or disposal. In such event, Sellers will not destroy such documents or records
and the parties will 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 will be paid by Buyer.
(5) Sellers will cause its accounting firm and prior
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 to enable Buyer or its Affiliates to comply with
any applicable registration or reporting requirements of federal or state
securities laws. After Closing, Sellers and Shareholders will make the books and
records of Sellers available to the Buyer and will otherwise cooperate with
Buyer in order to permit Buyer, at its expense, to conduct an audit of the
Sellers' financial statements for any period prior to Closing not already
audited. Sellers agree 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.
5.3 Preserve Accuracy of Representations and Warranties. Each of the
Sellers and the Shareholders will refrain from taking any action which would
render any representation and warranty contained in Article III untrue,
inaccurate or misleading as of Closing. Sellers and each Shareholder will
promptly notify Buyer of any lawsuit, claim, audit, investigations,
administrative action or other proceeding asserted or commenced against Sellers
or its directors, officers, or Shareholders, that may involve or relate in any
way to Sellers, the Assets, Shareholders or the operation of the Business.
Sellers and Shareholders will 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 Sellers' and Shareholders' representations and
warranties to be untrue or misleading at any time from the date hereof through
Closing.
5.4 Employees. Sellers will use their reasonable efforts to retain
their employees in their current positions up to Closing. At Closing Sellers
will terminate those employees listed on Exhibit 3.12, and Buyer (or one of its
Affiliates) will offer employment to such employees on terms and conditions
substantially equivalent to those in place at Closing except as otherwise
provided in paragraph 7.7. Sellers, Shareholders and Buyer acknowledge and agree
that such employees will remain on Sellers' payroll system during transition of
the Business to the control of Buyer until integration of payroll is possible.
During this interim period Sellers will timely pay all taxes related to the
payroll of such employees and file and maintain all reports and documentation
related to such payroll, including employee 941 and W-2 forms. Buyer agrees to
use its best efforts to assume, either directly or through an Affiliate, such
payroll responsibilities as promptly as possible and, during the transition
period, will promptly reimburse Sellers for documented, out-of-
23
<PAGE> 28
pocket costs directly associated with maintaining such payroll, including but
not limited to payment of payroll taxes. Sellers need not continue their
worker's compensation coverage following Closing with regard to individuals who
become employees of Buyer. Buyer will obtain worker's compensation for such
employees beginning as of Closing.
5.5 Broker's or Finder's Fee. Neither Buyer, Sellers nor any
Shareholder has employed or is liable for the payment of any fee to any finder,
broker or similar person in connection with the transactions contemplated under
this Agreement, other than Ultimate Resource, Inc., whose fees and expenses
shall be borne by the Shareholders.
5.6 Indebtedness; Liens. Other than in the ordinary course of business
from the Effective Date through Closing, Sellers will 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. At Closing 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, except as set forth in those Contracts
which Buyer expressly elects to assume, and Sellers will deliver to Buyer by
Closing such pay-off letters, releases, U.C.C. termination statements and other
documents as Buyer may request to evidence the same.
5.7 Compliance with Laws and Regulatory Consents. From the date hereof
through Closing, (a) Sellers will comply with all applicable laws and
regulations; (b) Sellers will keep, hold and maintain all Licenses necessary or
advisable for the Business and operation of the Assets; (c) Sellers and
Shareholders will use their reasonable efforts and will cooperate fully with
Buyer to obtain all consents, approvals, exemptions and authorizations of third
parties, whether governmental or private, necessary to consummate the
transactions contemplated under this Agreement; and (d) Sellers and Shareholders
will make and cause to be made 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. The parties waive compliance
with any applicable bulk sales statute.
5.8 Maintain Insurance Coverage. From the date hereof through Closing,
Sellers will maintain and cause to be maintained in full force and effect the
existing insurance on the Assets and the operations of the Business and will
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 named insured since the Effective Date. If
Sellers' existing product and professional liability insurance is on an
"occurrence" basis, Sellers will maintain such insurance through "discontinued
24
<PAGE> 29
operations" coverage for at least one year after Closing. If Sellers' existing
product and professional liability insurance is on a "claims made" basis,
Sellers will maintain such insurance through both "discontinued operations"
coverage for at least one year after Closing and "tail" coverage for at least
five (5) years after Closing.
5.9 Medicare and Medicaid Reporting. Through Closing, Sellers will
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. Sellers have 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 on or after Effective Date are the result of the wilful acts or
omissions, or gross negligence, of Sellers, Shareholders or Sellers' employees,
representatives or agents, Sellers and Shareholders will also be responsible for
such adjustments and offsets as contemplated under paragraph 3.7. Sellers will
be entitled to receive any refund or other benefit which may result from the
filing of said reports and claims for operations up to the Effective Date, and
Buyer will likewise be so entitled beginning on the Effective Date.
5.10 Current Return Filing. Sellers will be responsible for (a) 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 Sellers ending on or
before Closing, and (b) the payment of all such taxes when due. Buyer will
reimburse Sellers for all income taxes (but no penalties or assessments)
properly paid by Sellers which relate to operations of the Business from the
Effective Date through Closing.
5.11 Financial Analysis. Buyer covenants to provide Sellers and
Shareholders all information which Sellers and Shareholders feel relevant to
their decision to accept the form of Purchase Price stipulated in paragraph 2.1,
exclusive of confidential and/or proprietary information which Buyer in good
faith determines is not relevant to the Sellers and Shareholders' determination.
Sellers and Shareholders represent that they possess, with their financial
advisors (if any), the financial and business experience to make an informed
decision regarding the form of the Purchase Price and the financial means to
bear the economic risk of the same. The representations, warranties and
covenants contained in this Agreement are not to be deemed acknowledgments by
any party that any portion of the Purchase Price constitutes a "security" as
defined in either the Security Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended.
5.12 Removal of Certain Conditions to Closing. In furtherance of the
parties' agreement and obligation to use their respective best efforts to
facilitate consummation of the contemplated transactions, the parties hereby
expressly agree to use their best efforts to satisfy fully certain conditions to
Closing stipulated on Articles VI and VII of this Agreement as follows: the
conditions itemized in paragraphs 6.4, 7.4, 7.6, 7.7, 7.8 and 7.9
25
<PAGE> 30
will be fully satisfied by March 11, 1998. If any condition is not fully and
timely satisfied, the non-breaching party or parties shall have the right, upon
written notice to the other parties hereto, to terminate this Agreement without
further liability or obligation by any party. Failure to provide requested due
diligence items, including but not limited to UCC and other lien searches, by
March 9, 1998 will be deemed a breach of this paragraph 5.12. Upon completion of
all conditions stipulated in paragraphs 6.4, 7.4, 7.6, 7.7, 7.8 and 7.9, the
parties will execute and deliver a binding letter agreement confirming the same.
5.13 Third Party Consent. Buyer acknowledges the difficulties
associated with Sellers and Shareholders obtaining all third party consents
pertaining to assignment of Contracts as required under paragraph 8.6, and
Sellers and Shareholders acknowledge that Buyer cannot properly assess this
matter prior to completing its due diligence. Accordingly, the parties agree to
use their best efforts to enter into a binding letter agreement by March 11,
1998 modifying paragraph 8.6 with the expectation that certain third party
consents otherwise required by Closing will instead be delivered subsequent to
Closing. If the parties fail to agree upon such letter by such date, either
Buyer or Seller may terminate this Agreement with no further liability
hereunder.
5.14 Hart-Scott-Rodino Filing. Shareholders and Sellers will (with the
assistance of the Buyer if and when required) timely and promptly make, and
Buyer will or, if Buyer is not the "ultimate parent" it will cause its "ultimate
parent" (with the assistance of Shareholders and Sellers if and when required),
to timely and promptly make, all filings which are required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "Antitrust
Improvements Act"). The parties will use their best efforts to obtain the
approval of the United States Federal Trade Commission or the Antitrust Division
of the United States Department of Justice, as the case may be, to the purchase
of the Assets by Buyer or the lapse prior to Closing of the waiting period under
the Antitrust Improvements Act without the commencement of litigation, or threat
thereof, by the appropriate governmental enforcement agency to restrain the
transactions contemplated under this Agreement.
ARTICLE VI. SELLERS' AND SHAREHOLDERS' CONDITIONS TO CLOSE
The obligations of Sellers 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 Sellers in whole or in part):
6.1 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 Sellers and/or Shareholders pursuant hereto, will be
deemed to have been made again at Closing and will then be true in all material
respects; and Buyer will have performed and
26
<PAGE> 31
complied with all covenants, agreements and conditions required under this
Agreement to be in all material respects performed or complied with by it prior
to or at Closing.
6.2 No Action/Proceeding. No action or proceeding before a court or any
other governmental agencies or body will have been instituted or threatened to
restrain or prohibit the transactions here under contemplated, and no
governmental agency or body or other entity will have taken any other action or
made any request of Sellers or Buyer as a result of which Sellers reasonably and
in good faith deems that to proceed with the transactions hereunder may
constitute a violation of law. The waiting periods specified under the Antitrust
Improvements Act with respect to the transactions contemplated under this
Agreement will have lapsed or been terminated.
6.3 Order Prohibiting Transaction. No order will have been entered in
any action or proceeding before any court or governmental agency, and no
preliminary or permanent injunction by any court will 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 will have been no 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.
6.4 Exhibits. The Exhibits to this Agreement will be completed to the
mutual satisfaction of the parties.
ARTICLE VII. 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):
7.1 Representations and Warranties True at Closing; Compliance with
Agreement. The representations and warranties of Sellers and Shareholders
contained in this Agreement (including the Exhibits and attachments hereto) or
in any certificate or document delivered to Buyer in connection herewith, will
be deemed to have been made again at Closing and will then be true in all
material respects, and Sellers and Shareholders will have performed and complied
in all material respects with all covenants, agreements and conditions required
by this Agreement to be performed or complied with by them prior to or at
Closing.
7.2 Regulatory Approvals. Buyer will have obtained (a) a temporary
power of attorney with respect to the Controlled Substances Act or the
Controlled Substances Import and Export Act in the form attached hereto as
Exhibit 7.2, (b) certification for participation in the Medicaid Programs of the
states where the Business is conducted, (c) certification
27
<PAGE> 32
from the appropriate agency of the federal government for participation in the
federal Medicare Program, and (d) all other consents, licenses, permits,
approvals, provider contracts, determinations or certificates of need necessary
or reasonably advisable in the judgment of Buyer to acquire and operate the
Assets and Business as contemplated hereunder.
7.3 No Action/Proceeding. No action or proceeding before a court or any
other governmental agency or body will have been instituted or threatened to
restrain or prohibit the transaction hereunder contemplated, and no governmental
agency or body or other entity will have taken any other action or made any
request of Sellers 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. The waiting periods specified under the Antitrust Improvements
Act with respect to the transactions contemplated by this Agreement will have
lapsed or been terminated.
7.4 Inspection of Assets; U.C.C. Searches, etc. Buyer and its
representatives will 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 will be acceptable to
it. Sellers will have delivered to Buyer, at Sellers' expense, all U.C.C.
financing statements and title searches, local and central, including fixtures,
and federal and state pending litigation, tax lien and judgment searches, with
respect to Sellers, the Assets and the Business including all "DBA's," trade
names and fictitious names of Sellers, dated no more than ten (10) days prior to
Closing, with results satisfactory to Buyer in its sole discretion.
7.5 Order Prohibiting Transaction. No order will have been entered in
any action or proceeding before any court or governmental agency, and no
preliminary or permanent injunction by any court will 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 will have been no 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.
7.6 Confidentiality and Non-Compete Agreements. Each of Chester Black,
the key employees, officers and directors of each of the Sellers will execute
and deliver to Buyer a Confidentiality and Non-Compete Agreement in form
attached hereto as Exhibit 7.6.
7.7 Employment Agreements. An affiliate of Buyer will have entered into
an employment agreement (containing non-compete and confidentiality covenants)
with each
28
<PAGE> 33
of Bernard Lambrese and Kelly Lambrese. Such employment agreements will be in
the form attached hereto as Exhibit 7.7.
7.8 Approval of Board of Directors. This Agreement and consummation of
the transactions contemplated hereunder will have been approved by the Board of
Directors of Buyer.
7.9 Exhibits. The Exhibits to this Agreement will be completed to the
mutual satisfaction of the parties.
ARTICLE VIII. OBLIGATIONS OF SELLERS AND SHAREHOLDERS AT CLOSING
At Closing, Sellers and Shareholders will deliver or cause to be
delivered to Buyer the following in form and substance satisfactory to Buyer:
8.1 Documents Relating to Title. Sellers will execute, acknowledge,
deliver and cause to be executed, acknowledged and delivered to Buyer:
(1) Unless otherwise agreed by Buyer, an Assignment and
Assumption of Lease Agreement for each location of the leased Real Estate, with
all recording, stamp tax or other transfer fees paid by Sellers, 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.
(2) A Bill of Sale 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.
(3) Certificates of title to all vehicles that constitute
Assets endorsed by Sellers and evidencing current odometer readings, together
with completed originals of any forms required by applicable state authorities
to transfer the titles and register each vehicle, free and clear of all liens
except for the Assumed Liabilities, and a written statement of the book value of
each vehicle.
(4) An effective and enforceable assignment and Assumption
Agreement for those Contracts Buyer has agreed to assume.
8.2 Possession. Sellers will deliver to Buyer full possession and
control of the Business and Assets, including but not limited to the Cash and
Cash Equivalents.
29
<PAGE> 34
8.3 Opinion of Counsel. Sellers and Shareholders will deliver to Buyer
a favorable opinion of counsel, dated as of Closing, in the form attached hereto
as Exhibit 8.3.
8.4 Corporate Good Standing and Corporate Resolutions. Sellers and
Shareholders will deliver to Buyer certificates of good standing from the
Secretary of State of its state of organization and from each jurisdiction in
which Sellers are qualified to do business, certified copies of the Bylaws and
Charter of Sellers, and a certified copy of the resolutions of the Board of
Directors and Shareholders of Sellers 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 State
of Sellers' incorporation relevant to such transactions and certified by
officers of Sellers to be validly adopted and in full force and effect and
unamended as of Closing.
8.5 Closing Certificate. Sellers will deliver to Buyer a certificate of
an officer of each of the Sellers, dated as of Closing, certifying that (a) each
covenant and obligation of Sellers has been complied with and (b) each
representation and warranty of Sellers is true and correct at Closing in all
material respects as if made on and as of Closing provided that the provisions
of Article X shall apply to any breach of such representations and warranties
whether material or immaterial.
8.6 Third Party Consents and Releases. Sellers will deliver to Buyer by
Closing, all consents, estoppels, approvals, releases, pay-off letters, 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 Contracts pursuant to
paragraph 8.1(4), for release of any and all mortgages, security interests,
liens, pledges, restrictions or other encumbrances on or applicable to the
Assets, and any U.C.C. termination statements regarding the Assets.
8.7 Non-Foreign Tax Certificate; Power of Attorney. Sellers will
deliver to Buyer 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. Sellers will also deliver to Buyer
the power of attorney described in paragraph 7.2.
8.8 Insurance. Sellers will deliver evidence of insurance coverage as
required by paragraph 5.8.
8.9 Confidentiality, Employment and Lease Agreements. Sellers and
Shareholders will deliver to Buyer each of the agreements described in
paragraphs 7.6, and 7.7.
30
<PAGE> 35
8.10 Closing Statement. Sellers will, along with Buyer, execute a
Closing Statement setting forth the Purchase Price and various adjustments
thereto.
8.11 Additionally Requested Documents; Post-Closing Assistance. At the
reasonable request of Buyer at Closing and at any time or from time to time
thereafter, Sellers and Shareholders, as Buyer may reasonably request, will (a)
cooperate with Buyer to put Buyer in actual possession and operating control of
the Assets and Business, (b) execute and deliver such further instruments of
sale, conveyance, transfer and assignment effectively to sell, convey, transfer
and assign the Assets and Business to Buyer, (c) 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 Sellers and/or Shareholders, and (d) execute
and deliver such further instruments and to cooperate with Buyer to enable Buyer
to obtain all necessary health care or regulatory certifications, approvals,
consents and licenses, accreditations or permits.
ARTICLE IX. OBLIGATIONS OF BUYER AT CLOSING
At closing, Buyer will deliver or cause to be delivered to Sellers the
following in a form and substance reasonably satisfactory to Sellers and
Shareholders:
9.1 Purchase Price. Buyer will make available to the Sellers the
Purchase Price upon the terms specified in this Agreement.
9.2 Assumption of Liabilities. Buyer will covenant to fully perform and
comply with all of the Assumed Liabilities, subject to the provisions of this
Agreement.
9.3 Opinion of Buyer's Counsel. Buyer will deliver to Sellers a
favorable opinion of counsel for Buyer, dated as of Closing and pursuant to the
Legal Opinion Accord of the ABA Section of Business Law (1991), in form and
substance reasonably satisfactory to Sellers and their counsel to the effect
that:
(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
31
<PAGE> 36
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.
9.4 Corporate Good Standing and Certified Board Resolutions. Buyer will
deliver to Sellers 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 contemplated hereunder.
9.5 Closing Certificate. Buyer will deliver to Sellers 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 Closing as if made
on and as of Closing.
ARTICLE X. SURVIVAL OF PROVISIONS AND INDEMNIFICATION
10.1 Survival. The covenants, obligations, representations and
warranties of Buyer, Sellers and Shareholders contained in this Agreement, or in
any certificate or document delivered pursuant to this Agreement, will be deemed
to be material and to have been relied upon by the parties hereto
notwithstanding any investigation prior to Closing, will not be merged into any
documents delivered in connection with Closing, and will survive the date of
Closing for a period of eighteen (18) months; provided, however, that the
representations, warranties and covenants set forth in paragraphs 3.7, 3.10,
3.16 (as such paragraph pertains to health care matters), 3.18, 5.9 and 5.10
will each survive for the applicable statute of limitations (the "Unrestricted
Items").
10.2 Indemnification by Sellers and Shareholders. Subject to the
provisions of paragraph 10.4, Sellers and Shareholders will 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 (i) any breach by
either Sellers 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 Sellers and/or Shareholders delivered pursuant to this Agreement,
(ii) any liability of Sellers not expressly assumed by Buyer pursuant to
paragraph 1.3, 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
ownership, licensing, operation or conduct of the Business or Assets or the
conduct of any of Sellers' employees, agents or independent contractors relating
to all periods of time prior to Effective Date. Any indemnification payment made
pursuant to this Article will
32
<PAGE> 37
include interest at a rate of six percent (6%) per annum (the "Rate") payable
for the period measured from the date that the claim for indemnification for the
loss, cost, expense or damage was asserted until the date of payment. Any claim
for indemnification pursuant to this paragraph 10.2 shall first be made against
the Note. The liability created under this paragraph 10.2 shall be joint and
several between the Sellers and the liability created by this paragraph 10.2 and
the obligations of Shareholders pursuant to paragraph 1.4 and shall be borne by
the Shareholders in the following proportions: forty percent (40%) by Chester
Black and sixty percent (60%) jointly and severally by Bernard F. Lambrese and
Kelly Lambrese.
10.3 Indemnification by Buyer. Subject to the provisions of paragraph
10.4, Buyer will promptly indemnify, defend, and hold Sellers 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 Sellers for failure to pay
or perform any of the Assumed Liabilities; and (iii) subject to the other
provisions of this Agreement, any claim that is brought or asserted by any third
party(ies) against Sellers arising out of the ownership, licensing, operation or
conduct of the Business or Assets or the conduct of any of Buyer's employees,
agents or independent contractors, relating to all periods of time subsequent to
the Effective Date. Any indemnification payment pursuant to the foregoing will
include interest at the Rate from the date that the claim for indemnification
for the loss, cost, expense or damage was asserted until the date of payment.
10.4 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") will be
subject to the following terms and conditions:
(1) Claims by Non-parties. The indemnified party will give
written notice to the indemnifying party, within such time as not to prejudice
unduly the indemnifying party's ability to defend against the underlying claim,
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 will 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 will constitute the assertion
of a claim for indemnity by the indemnified party. If, within twenty (20) 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
will not settle or admit liability with respect to the claim and will afford to
the
33
<PAGE> 38
indemnifying party and defending counsel reasonable assistance in defending
against the claim. If the indemnifying party assumes the defense, counsel will
be selected by such party and if the indemnified party then retains its own
counsel, it will do so at its own expense. If the indemnified party does not
receive a written objection to the notice from the indemnifying party within
twenty (20) days after the indemnifying party's receipt of such notice, the
claim for indemnity will 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 twenty (20) day period the indemnified party will have received
written objection to a claim (which written objection will 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
will 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 will be settled by arbitration in Wilmington, Delaware 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 will be made as follows: The indemnified party will
give written notice to the indemnifying party, within such time as not to
prejudice unduly the indemnifying party's ability to defend against the
underlying claim, 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 will 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 thirty (30) days after the
indemnifying party's receipt of the claim the indemnified party will not have
received written objection to the claim. In such event, the claim will be
conclusively presumed to have been assented to and approved. If within the
aforesaid thirty (30) day period the indemnified party will have received
written objection to a claim (which written objection will 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
will 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 will be settled by arbitration in Wilmington,
Delaware in accordance with the rules and procedures of the American Arbitration
Association. Notwithstanding the provisions of this clause (2), the enforcement
provisions set forth in paragraph 11.2 will be available in the event of a
breach of paragraph 11.1.
(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 Sellers 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
34
<PAGE> 39
giving rise to liability clearly arose prior to the Effective Date, Sellers and
Shareholders will 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 will 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, Sellers, 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 Sellers and Shareholders cannot agree to the allocation of both
indemnity and expenses, then the matter will be submitted to binding arbitration
in Wilmington, Delaware in accordance with the rules and procedures of the
American Arbitration Association.
(4) Limitations. The obligations of Seller and Shareholders, on the one
hand, or the Buyer, on the other hand, under this Article X will not begin until
the indemnified party incurs one or more claims that equal, in the aggregate,
One Hundred Forty Seven Thousand Five Hundred and No/100 Dollars ($147,500.00)
(the "Basket"); provided, however, that such Basket will not apply to
obligations under paragraph 1.4 regarding the collection of Receivables, any
working capital liabilities which are the responsibility of either Seller,
Shareholders or Buyer, as the case may be, or the Unrestricted Items. Once the
Basket is reached, the obligations of indemnifying party under this Agreement
will apply only to all claims of an indemnified party in excess of the Basket.
The parties acknowledge and agree that the materiality and knowledge caveats set
forth elsewhere in this Agreement will provide no limitation on obligations of
an indemnifying party in excess of or in addition to the Basket. Further, the
indemnification obligations of the Seller and Shareholders, one the one hand,
and the Buyer, on the other hand, will not exceed, in the aggregate, Six Million
and No/100 Dollars ($6,000,000.00) (the "Cap"); provided, however, that
obligations arising with respect to the Unrestricted Items will not be subject
to the Cap or considered when calculating the Cap. Any claim for indemnification
shall be net of insurance recoveries and tax benefits.
ARTICLE XI. [OMITTED]
ARTICLE XII. MISCELLANEOUS
12.1 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 Sellers or Shareholders. Neither Sellers
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. Subject to the foregoing, this
Agreement will be binding upon and will 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 will it, create any rights in
any other party.
35
<PAGE> 40
12.2 Other Expenses. Except as otherwise provided in this Agreement,
Sellers and Shareholders will pay all of their expenses in connection with the
negotiation, execution, and implementation of the transactions contemplated
under this Agreement, and Buyer will 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 fees and taxes incurred in connection with the transactions
contemplated under this Agreement will be borne and timely paid as set forth on
Exhibit 12.2 hereto. All ad valorem taxes incurred and related to the Real
Estate will be shared by Sellers and Buyer and will be prorated as of the
Effective Date. The Purchase Price will 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 Sellers as of the date of Closing.
12.3 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement will be in
writing and will 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 so long as the sending party retains a receipt
thereof, and (c) if mailed, five (5) days after mailing with postage prepaid.
Any such notice will be sent as follows:
To Sellers and Shareholders:
Bernard and Kelly Lambrese
90 Ruffstone Road
Greenville, RI 02828
or
Chester Black
10 Linn Lane
Wayland, MA 01378
with a courtesy copy to:
James Westra
Hutchins Wheeler & Dittmar
101 Federal Street
Boston, Massachusetts 02110
To the Buyer:
American HomePatient, Inc.
5200 Maryland Way
Suite 400
36
<PAGE> 41
Brentwood, Tennessee 37027
Attn: Edward K. Wissing
with a courtesy copy to:
Lauren W. Anderson
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
Nashville, Tennessee 37238-1800
12.4 Confidentiality; Prohibition on Trading. Sellers, Shareholders and
their Affiliates agree to maintain the confidentiality of the existence of this
Agreement and the transactions contemplated hereunder, unless disclosure is
required by law. Sellers, Shareholders and their Affiliates agree not to trade
in the securities of Buyer or its Affiliates based upon any nonpublic
information.
12.5 Partial Invalidity; Waiver. The invalidity or unenforceability of
any particular provision of this Agreement will not affect the other provisions
hereof, and this Agreement will be construed in all respects as if such invalid
or unenforceable provisions were omitted. Further, there will be automatically
substituted for such invalid or unenforceable provision a provision as similar
as possible which is valid and enforceable. Neither the failure nor any delay on
the part of any party hereto in exercising any rights, power or remedy hereunder
will operate as a waiver thereof, or of any other right, power or remedy; nor
will 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 will be valid
unless it is in writing and signed by the party against which it is sought to be
enforced.
12.6 Interpretation; Knowledge. All pronouns and any variation thereof
will 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
will arise favoring either party by virtue of the authorship of any of its
provisions or the changes made through revisions. Any table of contents and
paragraph headings in this Agreement are for convenience of reference only and
will not be considered or referred to in resolving questions of interpretation.
Whenever in this Agreement the term "to the best knowledge of Sellers or
Shareholders" or the like is used, Sellers and Shareholders will each be deemed
to have the knowledge of Shareholders, and Sellers' officers, directors and key
employees; and Sellers and Shareholders will each be under a duty of due
inquiry.
12.7 Entire Agreement; Counterparts. This Agreement, including the
Exhibits and attachments hereto, constitutes the entire agreement between the
parties hereto with
37
<PAGE> 42
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, Sellers and Shareholders. This Agreement
may be executed simultaneously in two or more counterparts each of which will be
deemed an original and all of which together will constitute but one and the
same instrument.
12.8 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 will be entitled.
12.9 Controlling Law. This Agreement will be construed, interpreted and
enforced in accordance with the substantive laws of the State of Tennessee,
without giving effect to its conflict of laws provisions.
38
<PAGE> 43
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"SELLERS":
EVOCARE, INC.
By:
----------------------------------------
Title:
-------------------------------------
EVOCARE HOME HEALTH CARE
SERVICES, INC.
By:
----------------------------------------
Title:
-------------------------------------
"SHAREHOLDERS":
-------------------------------------------
CHESTER BLACK
-------------------------------------------
BERNARD F. LAMBRESE
-------------------------------------------
KELLY LAMBRESE
"BUYER":
AMERICAN HOMEPATIENT, INC.
By:
----------------------------------------
Title:
-------------------------------------
<PAGE> 1
AMENDMENT TO ASSET PURCHASE AGREEMENT
THIS AMENDMENT TO ASSET PURCHASE AGREEMENT ("Agreement") is
entered into on March 12, 1998 by and among EVOCARE, INC., a Delaware
corporation ("Evocare"), EVOCARE HOME HEALTH SERVICES, INC., a Rhode Island
corporation ("Home Health" and, together with Evocare, collectively the
"Sellers"), CHESTER BLACK, a resident of Massachusetts, and BERNARD F. LAMBRESE,
and KELLY LAMBRESE, residents of the State of Rhode Island (collectively,
"Shareholders"), and AMERICAN HOMEPATIENT, INC., a Delaware corporation
("Buyer").
R E C I T A L S:
WHEREAS, the parties hereto are party to an Asset Purchase Agreement
dated February 27, 1998 ("Purchase Agreement") and desire to amend the Purchase
Agreement as set forth herein.
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:
1. Amendments. The Purchase Agreement is hereby amended as follows:
a. Paragraph 3.3(1) is deleted in its entirety and replaced
with the following:
"(1) Attached hereto as Exhibit 3.3 are true and correct
copies of Sellers' combined interim, unaudited balance sheets and
income statements of Sellers for the one (1) month period ended January
31, 1998 (the "Interim Financial Statements"). Promptly following
Closing Sellers shall deliver to Buyer copies of their combined,
reviewed balance sheets as of December 31, 1997, and their combined,
reviewed income statements for the year then ending (the "Fiscal Year
Financial Statements", which, with the Interim Financial Statements,
will be referred to as the "Financial Statements"). Upon delivery to
Buyer, the Fiscal Year Financial Statements shall be attached to
Exhibit 3.3 as though delivered and attached thereto at Closing. The
Financial Statements are based on the books and records of Sellers and
present fairly, in compliance with generally accepted accounting
principles, the financial position of Sellers as of, and the results of
its operations for, the periods specified, except for the absence of
footnotes otherwise required under generally accepted accounting
principles ("GAAP") and, in the case of the Interim Financial
Statements, normal year-end adjustments. Except as set forth in the
Interim Financial Statements, Sellers have, and as of Closing will
have, no contingent liabilities or obligations which are required to be
disclosed therein in accordance with GAAP."
<PAGE> 2
b. The last grammatical paragraph of paragraph 3.4 is hereby
deleted in its entirety and replaced with the following:
"Further since the Effective Date, neither Shareholders nor
any of their family members or affiliates have received any
compensation, benefits or distributions from Sellers, whether as
salary, bonus, fees, dividends or any other form of compensation,
except such amounts as have been repaid and adjusted for at Closing,
and except for distributions to fund tax obligations as Shareholders of
S corporations shown on Exhibit 3.4 that will be repaid and adjusted
for at Closing, and except for salary payments made to Bernard and
Kelly Lambrese in the ordinary course of Sellers' business consistent
with past practice."
c. Paragraph 5.7 is hereby amended by striking the word
"through" where first used in that paragraph and replacing it with "and
following".
d. Paragraphs 5.12 and 5.13 are hereby deleted in their
entirety and replaced with the following:
"Buyer acknowledges that the only third party consent or
waiver being obtained prior to Closing is the consent of Dr. Ahmed
which has been previously provided to Buyer. Sellers and Shareholders
shall assist Buyer in obtaining all consents, licenses, permits,
approvals, provider contracts, determinations or certificates of need
necessary or reasonably advisable in the judgment of Buyer to acquire
and operate the Assets and Business as contemplated hereunder. Sellers
shall, promptly following Closing, deliver to Buyer, at Sellers'
expense, all U.C.C. financing statement searches, local and central,
and federal and state pending litigation, tax lien and judgment
searches, with respect to Sellers, the Assets and the Business
including all "DBAs," trade names and fictitious names of Sellers.
Following Closing Sellers shall promptly deliver to Buyer evidence of
the "tail" insurance coverage required by paragraph 5.8. Promptly
following Closing, Sellers will use their best efforts to deliver to
Buyer all consents, estoppels, approvals, releases, pay-off letters,
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 Contracts pursuant to paragraph 8.1(4), for release
of any and all mortgages, security interests, liens, pledges,
restrictions or other encumbrances on or applicable to the Assets, and
any U.C.C. termination statements regarding the Assets not specifically
related to Contracts assumed by Buyer."
e. Clause (d) of paragraph 7.2 is hereby deleted in its
entirety.
f. Paragraph 7.4 is hereby deleted in its entirety.
2
<PAGE> 3
g. Paragraph 7.6 is hereby deleted in its entirety and
replaced with the following:
"7.6 Confidentiality and Noncompete Agreement. Chester Black
shall execute and deliver to Buyer a Confidentiality and Noncompete
Agreement in the form attached hereto as Exhibit 7.6."
h. Paragraph 8.6 is hereby deleted in its entirety.
i. The heading of paragraph 8.9 is hereby amended to read
"Confidentiality and Employment Agreements".
2. No Other Amendment. Except as amended hereby, the Purchase Agreement
shall remain in full force and effect and unamended.
3. 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 Sellers or Shareholders. Neither Sellers
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. Subject to the foregoing, this
Agreement will be binding upon and will 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 will it, create any rights in
any other party.
4. Partial Invalidity; Waiver. The invalidity or unenforceability of
any particular provision of this Agreement will not affect the other provisions
hereof, and this Agreement will be construed in all respects as if such invalid
or unenforceable provisions were omitted. Further, there will be automatically
substituted for such invalid or unenforceable provision a provision as similar
as possible which is valid and enforceable. Neither the failure nor any delay on
the part of any party hereto in exercising any rights, power or remedy hereunder
will operate as a waiver thereof, or of any other right, power or remedy; nor
will 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 will be valid
unless it is in writing and signed by the party against which it is sought to be
enforced.
5. Interpretation; Knowledge. All pronouns and any variation thereof
will 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
will arise favoring either party by virtue of the authorship of any of its
provisions or the changes made through revisions. Any paragraph headings in this
Agreement are for convenience of reference only and will not be considered or
referred to in resolving questions of interpretation.
3
<PAGE> 4
6. Entire Agreement; Counterparts. This Agreement 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, Sellers and Shareholders. This Agreement may be executed
simultaneously in two or more counterparts each of which will be deemed an
original and all of which together will constitute but one and the same
instrument.
7. Controlling Law. This Agreement will be construed, interpreted and
enforced in accordance with the substantive laws of the State of Tennessee,
without giving effect to its conflict of laws provisions.
[Remainder of page intentionally left blank]
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
Purchase Agreement as of the date first above written.
"SELLERS":
EVOCARE, INC.
By:
----------------------------------------
Title:
-------------------------------------
EVOCARE HOME HEALTH CARE
SERVICES, INC.
By:
----------------------------------------
Title:
-------------------------------------
"SHAREHOLDERS":
-------------------------------------------
CHESTER BLACK
-------------------------------------------
BERNARD F. LAMBRESE
-------------------------------------------
KELLY LAMBRESE
"BUYER":
AMERICAN HOMEPATIENT, INC.
By:
----------------------------------------
Title:
-------------------------------------
<PAGE> 1
CONFIDENTIALITY, NON-COMPETITION AND SEVERANCE PAY AGREEMENT
This CONFIDENTIALITY, NON-COMPETITION AND SEVERANCE PAY AGREEMENT (this
"Agreement") is made as of June 16, 1996, by and between AMERICAN HOMEPATIENT,
INC., a Delaware corporation (hereinafter the "Company"), and DAVID R. GNASS, a
resident of the State of Indiana (the "Employee").
WHEREAS, the Company has agreed to employ the Employee; and
WHEREAS, a condition of the Employee's employment with the Company is
his execution of a confidentiality, non-competition and severance pay agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements made herein, the parties agree as follows:
1. Non-Compete and Confidentiality.
A. The Employee will, with reasonable notice during or after
his employment with the Company, furnish information as may be in his possession
and cooperate with the Company as may reasonably be requested in connection with
any claims or legal actions in which the Company is or may become a party.
B. The Employee recognizes and acknowledges that all
information pertaining to the affairs, business, clients, customers or other
relationships of the Company is confidential and is a unique and valuable asset
of the Company. Access to and knowledge of this information are essential to the
performance of the Employee's duties. The Employee will not during his
employment with the Company (the "Period of Employment") or after except to the
extent reasonably necessary in the performance of his duties, give to any
person, firm, association, corporation or governmental agency any information
concerning the affairs, business, clients, customers or other relationships of
the Company except as required by law. The Employee will not make use of this
type of information for his own purposes or for the benefit of any person or
organization other than the Company. The Employee will also use his best efforts
to prevent the disclosure of this information by others. All records, memoranda,
etc. relating to the business of the Company whether made by the Employee or
otherwise coming into his possession are confidential and will remain the
property of the Company.
C. Employee will not, either during the Period of Employment
or at any time thereafter, use (except for the sole benefit of Company) or
disclose to others any proprietary, secret or confidential information,
knowledge or data of the Company or its affiliates.
<PAGE> 2
D. During the Period of Employment and thereafter, the
Employee will not use his status with the Company to obtain loans, goods or
services from another organization on terms that would not be available to him
in the absence of his relationship to the Company. During the Period of
Employment and for a twelve (12) month period following termination of such
employment for any reason, (i) the Employee will not make any statements or
perform any acts intended to advance the interest of any existing or prospective
competitor of the Company in any way that will injure the interests of the
Company; and (ii) the Employee will not directly or indirectly own or hold any
"Proprietary Interest" in or be employed by or receive compensation from any
party engaged in the same or any similar business in the same geographic areas
the Company does business upon the date of termination of employment. During the
Period of Employment and for a twenty-four (24) month period following
termination of such employment for any reason, (i) the Employee will not solicit
any client of the Company or discuss with any client of the Company or any
employee of the Company any information or the operation of any business
intended to compete with the Company; and (ii) the Employee will not directly or
indirectly hire any employee of the Company or solicit or encourage any such
employee to leave the employ of the Company. For the purposes of this Agreement,
"Proprietary Interest" means legal or equitable ownership, whether through stock
holdings or otherwise, of a debt or equity interest (including options,
warrants, rights and convertible interests) in a business firm or entity, or
ownership of more than 5% of any class of equity interest in a publicly-held
company. The Employee acknowledges that the covenants contained herein are
reasonable as to geographic and temporal scope.
E. The Employee acknowledges that his breach or threatened or
attempted breach of any provision of this Agreement would cause irreparable harm
to the Company not compensable in monetary damages and that the Company shall be
entitled, in addition to all other applicable remedies, to a temporary and
permanent injunction and a decree for specific performance of the terms of this
Agreement without being required to prove damages or furnish any bond or other
security.
F. The Employee represents and warrants to Company that he is
under no prohibition against entering into the employment with the Company, and
he will indemnify the Company for any loss or damage the Company may incur as a
result of his employment by Company.
2. Severance Pay in the Event of Termination.
2.1 Following a Change of Control.
A. In the event there is a "Change in Control" of the
ownership of the Company, and the Employee's employment with the Company is
terminated as a result of such Change in Control, the Employee shall be entitled
to receive as a severance payment in a lump sum upon such termination an amount
equal to 100% of his annual base salary (not including incentive compensation)
as in effect at the time of such termination. In addition, any earned but unpaid
base
2
<PAGE> 3
salary will be paid. Further, any stock options granted to the Employee will be
fully vested upon a Change of Control, whether or not the Employee is
terminated, notwithstanding any previously stated vesting restrictions but
subject to expiration or termination pursuant to the governing stock option
plan. A termination shall be deemed to be a result of a Change in Control if it
occurs within six months following the Change in Control.
B. A "Change in Control" shall be deemed to have occurred if
(i) a tender offer shall be made and consummated for the ownership of more than
50% of the outstanding voting securities of the Company, (ii) the Company shall
be merged or consolidated with another corporation and as a result of such
merger or consolidation less than 50% of the outstanding voting securities of
the surviving or resulting corporation shall be owned in the aggregate by the
former shareholders of the Company, as the same shall have existed immediately
prior to such merger or consolidation, (iii) the Company shall sell all or
substantially all of its assets to another corporation that is not a
wholly-owned subsidiary, or (iv) a person, within the meaning of Section 3(a)(9)
or of Section 13 (d)(3) (as in effect on the date hereof) of the Securities and
Exchange Act of 1934 ("Exchange Act"), shall acquire more than 50% of the
outstanding voting securities of the Company (whether directly, indirectly,
beneficially or of record). For purposes hereof, ownership of voting securities
shall take into account and shall include ownership as determined by applying
the provisions of Rule 13d- 3(d)(1)(i) (as in effect on the date hereof)
pursuant to the Exchange Act. For purposes hereof, a "Change in Control" shall
not include any transaction of the type described above with or undertaken by
Counsel Corporation or its affiliates, within the meaning of Exchange Act Rule
12b-2 (as in effect on the date hereof).
2.2 Termination Not Accompanied by a Change of Control.
In the event that Employee is terminated without cause during
the first twelve (12) months of the term of his employment, and there has been
no Change of Control, the Employee shall be entitled to receive a severance
payment in a lump sum upon such termination in an amount equal to his monthly
base salary (not including incentive compensation) as in effect at the time of
such termination multiplied by the greater of six (6) months or the remaining
number of months in such twelve month period. In addition, any earned but unpaid
base salary will be paid. Further, any stock options granted to the Employee
will be fully vested upon such a termination without cause, notwithstanding any
previously stated vesting restrictions but subject to expiration or termination
pursuant to the governing stock option plan. Termination without cause shall not
include termination as a result of the following: termination for cause,
resignation by Employee or Employee's death or disability. "Cause" shall mean
(i) if Employee engages in insubordination, malfeasance or misconduct, (ii)
being charged with a felony offense or conviction of a misdemeanor involving
moral turpitude, and (iii) material breach by Employee of his obligations under
this agreement. Notwithstanding the above, it is the intent of the Company at
all times to comply with the Americans With Disabilities Act, the Family and
Medical Leave Act and any other applicable federal and state employment laws.
3
<PAGE> 4
3. Successors and Assigns. The provisions hereof shall inure to the
benefit of and be binding upon the permitted successors and assigns of the
parties hereto.
4. Non-Assignability by the Employee. Notwithstanding Section 3 hereof,
the rights and obligations of the Employee hereunder are not assignable.
5. Governing Law. This Agreement shall be interpreted under, subject to
and governed by the laws of the State of Tennessee and all questions concerning
its validity, construction, and administration shall be determined in accordance
thereby.
6. Waivers. The waiver of a breach by either party of a term or
provision of this Agreement, at any time or times, shall not be deemed or
construed to be a waiver of any subsequent breach or breaches of the same or of
any other terms or provisions of this Agreement at any time or times.
7. Invalidity. The invalidity or unenforceability of any provision of
this Agreement shall not affect any other provision hereof, and this Agreement
shall be construed in all respects as if such invalid or unenforceable provision
was omitted. Furthermore, in lieu of such illegal, invalid or unenforceable
provision there shall be added automatically as a part of this Agreement a
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
8. Exclusiveness. This Agreement constitutes the entire understanding
and agreement between the parties with respect to the employment of the Employee
and supersedes any and all other agreements, oral or written, between the
parties. No waiver, modification, or amendment to this Agreement shall be valid
unless the same be reduced to writing and signed by the parties hereto.
9. Modification. This Agreement may not be modified or amended except
in writing signed by the parties. No term or condition of this Agreement will be
deemed to have been waived except in writing by the party charged with waiver. A
waiver shall operate only as to the specific term or condition waived and will
not constitute a waiver for the future or act on anything other than that which
is specifically waived.
10. Arbitration. Any dispute among the parties hereto shall be settled
by arbitration in Nashville, Tennessee, in accordance with the rules then in
effect of the American Arbitration Association and judgment upon the award
rendered may be entered in any court having jurisdiction thereof.
11. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when mailed
first-class postage prepaid by registered mail, return receipt requested, or
when delivered by hand, overnight delivery service or confirmed facsimile
transmission, to the following:
4
<PAGE> 5
(a) If to the Company, at Suite 400, 5200 Maryland Way,
Brentwood, Tennessee 37027, Attention: President and Chief Executive Officer, or
at such other address as may have been furnished to the Employee by the Company
in writing; or
(b) If to the Employee, at 512 Dorset Blvd., Carmel, IN 46032,
or such other address as may have been furnished to the Company by the Employee
in writing.
12. Consolidation, Merger or Sale of Assets. Nothing in this Agreement
shall preclude the Company from consolidating or merging into or with, or
transferring all or substantially all of its assets to, another individual,
entity or business.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"COMPANY"
AMERICAN HOMEPATIENT , INC.
By: ______________________________
Its: ______________________________
"EMPLOYEE"
----------------------------------------
DAVID R. GNASS
5
<PAGE> 1
CONFIDENTIALITY, NON-COMPETITION AND SEVERANCE PAY AGREEMENT
This CONFIDENTIALITY, NON-COMPETITION AND SEVERANCE PAY AGREEMENT (this
"Agreement") is made as of April 1, 1996, by and between AMERICAN HOMEPATIENT,
INC., a Delaware corporation (hereinafter the "Company"), and MARY ELLEN
RODGERS, a resident of the State of Indiana (the "Employee").
WHEREAS, the Company has agreed to employ the Employee; and
WHEREAS, a condition of the Employee's employment with the Company is
her execution of a confidentiality, non-competition and severance pay agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements made herein, the parties agree as follows:
1. Non-Compete and Confidentiality.
A. The Employee will, with reasonable notice during or after
her employment with the Company, furnish information as may be in her possession
and cooperate with the Company as may reasonably be requested in connection with
any claims or legal actions in which the Company is or may become a party.
B. The Employee recognizes and acknowledges that all
information pertaining to the affairs, business, clients, customers or other
relationships of the Company is confidential and is a unique and valuable asset
of the Company. Access to and knowledge of this information are essential to the
performance of the Employee's duties. The Employee will not during her
employment with the Company (the "Period of Employment") or after except to the
extent reasonably necessary in the performance of her duties, give to any
person, firm, association, corporation or governmental agency any information
concerning the affairs, business, clients, customers or other relationships of
the Company except as required by law. The Employee will not make use of this
type of information for her own purposes or for the benefit of any person or
organization other than the Company. The Employee will also use her best efforts
to prevent the disclosure of this information by others. All records, memoranda,
etc. relating to the business of the Company whether made by the Employee or
otherwise coming into her possession are confidential and will remain the
property of the Company.
C. Employee will not, either during the Period of Employment
or at any time thereafter, use (except for the sole benefit of Company) or
disclose to others any proprietary, secret or confidential information,
knowledge or data of the Company or its affiliates.
<PAGE> 2
D. During the Period of Employment and thereafter, the
Employee will not use her status with the Company to obtain loans, goods or
services from another organization on terms that would not be available to her
in the absence of her relationship to the Company. During the Period of
Employment and for a twelve (12) month period following termination of such
employment for any reason, (i) the Employee will not make any statements or
perform any acts intended to advance the interest of any existing or prospective
competitor of the Company in any way that will injure the interests of the
Company; and (ii) the Employee will not directly or indirectly own or hold any
"Proprietary Interest" in or be employed by or receive compensation from any
party engaged in the same or any similar business in the same geographic areas
the Company does business upon the date of termination of employment. During the
Period of Employment and for a twenty-four (24) month period following
termination of such employment for any reason, (i) the Employee will not solicit
any client of the Company or discuss with any client of the Company or any
employee of the Company any information or the operation of any business
intended to compete with the Company; and (ii) the Employee will not directly or
indirectly hire any employee of the Company or solicit or encourage any such
employee to leave the employ of the Company. For the purposes of this Agreement,
"Proprietary Interest" means legal or equitable ownership, whether through stock
holdings or otherwise, of a debt or equity interest (including options,
warrants, rights and convertible interests) in a business firm or entity, or
ownership of more than 5% of any class of equity interest in a publicly-held
company. The Employee acknowledges that the covenants contained herein are
reasonable as to geographic and temporal scope.
E. The Employee acknowledges that her breach or threatened or
attempted breach of any provision of this Agreement would cause irreparable harm
to the Company not compensable in monetary damages and that the Company shall be
entitled, in addition to all other applicable remedies, to a temporary and
permanent injunction and a decree for specific performance of the terms of this
Agreement without being required to prove damages or furnish any bond or other
security.
2. Severance Pay in the Event of Termination.
2.1 Following a Change of Control.
A. In the event there is a "Change in Control" of the
ownership of the Company, and the Employee's employment with the Company is
terminated as a result of such Change in Control, the Employee shall be entitled
to receive as a severance payment in a lump sum upon such termination an amount
equal to 100% of her annual base salary (not including incentive compensation)
as in effect at the time of such termination. In addition, any earned but unpaid
base salary will be paid. Further, any stock options granted to the Employee
will be fully vested upon a Change of Control, whether or not the Employee is
terminated, notwithstanding any previously stated vesting restrictions but
subject to expiration or termination pursuant to the governing stock option
plan. A termination shall be deemed to be a result of a Change in Control if it
occurs within six months following the Change in Control.
2
<PAGE> 3
B. A "Change in Control" shall be deemed to have occurred if
(i) a tender offer shall be made and consummated for the ownership of more than
50% of the outstanding voting securities of the Company, (ii) the Company shall
be merged or consolidated with another corporation and as a result of such
merger or consolidation less than 50% of the outstanding voting securities of
the surviving or resulting corporation shall be owned in the aggregate by the
former shareholders of the Company, as the same shall have existed immediately
prior to such merger or consolidation, (iii) the Company shall sell all or
substantially all of its assets to another corporation that is not a
wholly-owned subsidiary, or (iv) a person, within the meaning of Section 3(a)(9)
or of Section 13 (d)(3) (as in effect on the date hereof) of the Securities and
Exchange Act of 1934 ("Exchange Act"), shall acquire more than 50% of the
outstanding voting securities of the Company (whether directly, indirectly,
beneficially or of record). For purposes hereof, ownership of voting securities
shall take into account and shall include ownership as determined by applying
the provisions of Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant
to the Exchange Act. For purposes hereof, a "Change in Control" shall not
include any transaction of the type described above with or undertaken by
Counsel Corporation or its affiliates, within the meaning of Exchange Act Rule
12b-2 (as in effect on the date hereof).
2.2 Termination Not Accompanied by a Change of Control.
In the event that Employee is terminated without cause during
the first twelve (12) months of the term of her employment, and there has been
no Change of Control, the Employee shall be entitled to receive a severance
payment in a lump sum upon such termination in an amount equal to her monthly
base salary (not including incentive compensation) as in effect at the time of
such termination multiplied by the greater of six (6) months or the remaining
number of months in such twelve month period. In addition, any earned but unpaid
base salary will be paid. Further, any stock options granted to the Employee
will be fully vested upon such a termination without cause, notwithstanding any
previously stated vesting restrictions but subject to expiration or termination
pursuant to the governing stock option plan. Termination without cause shall not
include termination as a result of the following: termination for cause,
resignation by Employee or Employee's death or disability. "Cause" shall mean
(i) if Employee engages in insubordination, malfeasance or misconduct, (ii)
being charged with a felony offense or conviction of a misdemeanor involving
moral turpitude, and (iii) material breach by Employee of her obligations under
this agreement. Notwithstanding the above, it is the intent of the Company at
all times to comply with the Americans With Disabilities Act, the Family and
Medical Leave Act and any other applicable federal and state employment laws.
3. Successors and Assigns. The provisions hereof shall inure to the
benefit of and be binding upon the permitted successors and assigns of the
parties hereto.
4. Non-Assignability by the Employee. Notwithstanding Section 3 hereof,
the rights and obligations of the Employee hereunder are not assignable.
3
<PAGE> 4
5. Governing Law. This Agreement shall be interpreted under, subject to
and governed by the laws of the State of Tennessee and all questions concerning
its validity, construction, and administration shall be determined in accordance
thereby.
6. Waivers. The waiver of a breach by either party of a term or
provision of this Agreement, at any time or times, shall not be deemed or
construed to be a waiver of any subsequent breach or breaches of the same or of
any other terms or provisions of this Agreement at any time or times.
7. Invalidity. The invalidity or unenforceability of any provision of
this Agreement shall not affect any other provision hereof, and this Agreement
shall be construed in all respects as if such invalid or unenforceable provision
was omitted. Furthermore, in lieu of such illegal, invalid or unenforceable
provision there shall be added automatically as a part of this Agreement a
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
8. Exclusiveness. This Agreement constitutes the entire understanding
and agreement between the parties with respect to the employment of the Employee
and supersedes any and all other agreements, oral or written, between the
parties. No waiver, modification, or amendment to this Agreement shall be valid
unless the same be reduced to writing and signed by the parties hereto.
9. Modification. This Agreement may not be modified or amended except
in writing signed by the parties. No term or condition of this Agreement will be
deemed to have been waived except in writing by the party charged with waiver. A
waiver shall operate only as to the specific term or condition waived and will
not constitute a waiver for the future or act on anything other than that which
is specifically waived.
10. Arbitration. Any dispute among the parties hereto shall be settled
by arbitration in Nashville, Tennessee, in accordance with the rules then in
effect of the American Arbitration Association and judgment upon the award
rendered may be entered in any court having jurisdiction thereof.
11. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when mailed
first-class postage prepaid by registered mail, return receipt requested, or
when delivered by hand, overnight delivery service or confirmed facsimile
transmission, to the following:
(a) If to the Company, at Suite 400, 5200 Maryland Way,
Brentwood, Tennessee 37027, Attention: President and Chief Executive Officer, or
at such other address as may have been furnished to the Employee by the Company
in writing; or
4
<PAGE> 5
(b) If to the Employee, at ___________________ or such other
address as may have been furnished to the Company by the Employee in writing.
12. Consolidation, Merger or Sale of Assets. Nothing in this Agreement
shall preclude the Company from consolidating or merging into or with, or
transferring all or substantially all of its assets to, another individual,
entity or business that assumes this Agreement and all obligations of the
Company hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"COMPANY"
AMERICAN HOMEPATIENT , INC.
By: ______________________________
Its: ______________________________
"EMPLOYEE"
----------------------------------------
MARY ELLEN RODGERS
5
<PAGE> 1
CONFIDENTIALITY, NON-COMPETITION AND SEVERANCE PAY AGREEMENT
THIS CONFIDENTIALITY, NON-COMPETITION AND SEVERANCE PAY AGREEMENT is
made as of December 23, 1997, by and between AMERICAN HOMEPATIENT, INC., a
Delaware corporation (hereinafter the "Company"), and KATHEY PALMER, a resident
of the State of Tennessee (the "Employee").
WHEREAS, the Company has agreed to continue to employ the Employee,
either directly or through a wholly owned subsidiary; and
WHEREAS, a condition of the Employee's continued employment with the
Company is her execution of a confidentiality, non-competition and severance pay
agreement.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements made herein, the parties, intending to be legally bound hereby, agree
as follows:
1. NON-COMPETE AND CONFIDENTIALITY.
A. The Employee will, with reasonable notice during or after
her employment with the Company, furnish information as may be in her possession
and cooperate with the Company as may reasonably be requested in connection with
any claims or legal actions in which the Company is or may become a party.
B. The Employee recognizes and acknowledges that all
information pertaining to the affairs, business, clients, customers or other
relationships of the Company is confidential and is a unique and valuable asset
of the Company. Access to and knowledge of this information are essential to the
performance of the Employee's duties. The Employee will not during her
employment with the Company (the "Period of Employment") or after, except to the
extent reasonably necessary in the performance of her duties, give to any
person, firm, association, corporation or governmental agency any information
concerning the affairs, business, clients, customers or other relationships of
the Company except as required by law. The Employee will not make use of this
type of information for her own purposes or for the benefit of any person or
organization other than the Company. The Employee will also use her best efforts
to prevent the disclosure of this information by others. All records, memoranda,
etc. relating to the business of the Company whether made by the Employee or
otherwise coming into her possession are confidential and will remain the
property of the Company.
C. Employee will not, either during the Period of Employment
or at any time thereafter, use (except for the sole benefit of Company) or
disclose to others any proprietary, secret or confidential information,
knowledge or data of the Company or its affiliates.
<PAGE> 2
D. During the Period of Employment and thereafter, the
Employee will not use her status with the Company to obtain loans, goods or
services from another organization on terms that would not be available to her
in the absence of her relationship to the Company. During the Period of
Employment and for a twelve (12) month period following termination of such
employment for any reason, (i) the Employee will not make any statements or
perform any acts intended to advance the interest of any existing or prospective
competitor of the Company in any way that will injure the interests of the
Company; and (ii) the Employee will not directly or indirectly own or hold any
"Proprietary Interest" in or be employed by or receive compensation from any
party engaged in the same or any similar business within fifty (50) miles of any
location of the Company upon the date of termination of employment. During the
Period of Employment and for a twelve (12) month period following termination of
such employment for any reason, (i) the Employee will not solicit any client of
the Company or discuss with any client of the Company or any employee of the
Company any information or the operation of any business intended to compete
with the Company; and (ii) the Employee will not, directly or indirectly, hire
any current or future employee of the Company, even if such individual is no
longer employed by the Company, or solicit or encourage any such employee to
leave the employ of the Company. Notwithstanding the foregoing, beginning twelve
(12) months after her termination of employment with the Company for any reason,
Employee may hire a past employee of the Company so long as such past employee
has not been so employed for at least six (6) months. For the purposes of this
Agreement, "Proprietary Interest" means legal or equitable ownership, whether
through stock holdings or otherwise, of a debt or equity interest (including
options, warrants, rights and convertible interests) in a business firm or
entity, or ownership of more than 5% of any class of equity interest in a
publicly-held company. The Employee acknowledges that the covenants contained
herein are reasonable as to geographic and temporal scope.
E. The Employee acknowledges that her breach or threatened or
attempted breach of any provision of this Agreement would cause irreparable harm
to the Company not compensable in monetary damages and that the Company shall be
entitled, in addition to all other applicable remedies, to a temporary and
permanent injunction and a decree for specific performance of the terms of this
Agreement without being required to prove damages or furnish any bond or other
security.
F. For purposes of Section 1 of this Agreement, the term
"Company" refers to American HomePatient, Inc., a Delaware corporation, and each
corporation, limited liability company, partnership joint venture or other
business entity in which American HomePatient, Inc.
directly or indirectly has an ownership interest.
2. SEVERANCE PAY IN THE EVENT OF TERMINATION.
2.1 Termination by Company Following a Change in Control. In
the event there is a "Change in Control" of the ownership of the Company, and
the Company terminates Employee's employment within twelve (12) months following
such Change in Control, the Employee shall be entitled to receive as a severance
payment in a lump sum upon such termination an amount equal
2
<PAGE> 3
to the sum of (i) her monthly base salary (not including incentive compensation
or benefits) as in effect at the time of such termination multiplied by twelve
(12) plus (ii) the annual incentive compensation Employee received for
performance during the Company's immediately preceding fiscal year, multiplied
by a fraction, the numerator of which is the total number of full calendar
months during which the Employee was employed by the Company during the
Company's current fiscal year prior to termination and the denominator of which
is twelve (12); provided, however, that if such termination occurs within six
(6) months following such Change in Control, that portion of the severance
payment referenced in clause (ii) will be reduced by twenty percent (20%) to
eighty percent (80%) thereof. For example, if Employee's incentive compensation
for the prior fiscal year was Thirty Thousand and No/100 Dollars ($30,000.00)
and her employment with the Company was terminated five and one-half (5-1/2)
months after a Change in Control, that portion of the severance payment due to
Employee pursuant to clause (ii) above would be Ten Thousand and No/100 Dollars
($10,000.00), calculated as follows: 80% x $30,000.00 x 5/12 = $10,000.00. In
addition, any earned but unpaid base salary and accrued vacation will be paid,
and Company will continue for twelve (12) months following termination all
employee benefits to which Employee was entitled immediately prior to
termination, including without limitation, health insurance and participation in
the Company's Supplemental Executive Retirement Plan. Further, any stock options
granted to the Employee will be fully vested upon a Change of Control, whether
or not the Employee is terminated, notwithstanding any previously stated vesting
restrictions but subject to expiration or termination pursuant to the governing
stock option plan.
2.2 "Change in Control". A "Change in Control" shall be deemed
to have occurred if (i) a tender offer shall be made and consummated for the
ownership of more than 50% of the outstanding voting securities of the Company,
(ii) the Company shall be merged or consolidated with another corporation and as
a result of such merger or consolidation less than 50% of the outstanding voting
securities of the surviving or resulting corporation shall be owned in the
aggregate by the former shareholders of the Company, as the same shall have
existed immediately prior to such merger or consolidation, (iii) the Company
shall sell all or substantially all of its assets to another corporation that is
not a wholly-owned subsidiary, or (iv) a person, within the meaning of Section
3(a)(9) or of Section 13 (d)(3) (as in effect on the date hereof) of the
Securities and Exchange Act of 1934 ("Exchange Act"), shall acquire more than
50% of the outstanding voting securities of the Company (whether directly,
indirectly, beneficially or of record). For purposes hereof, ownership of voting
securities shall take into account and shall include ownership as determined by
applying the provisions of Rule 13d-3(d)(1)(i) (as in effect on the date hereof)
pursuant to the Exchange Act. For purposes hereof, a "Change in Control" shall
not include any transaction of the type described above with or undertaken by
Counsel Corporation or its affiliates, within the meaning of Exchange Act Rule
12b-2 (as in effect on the date hereof).
3. SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to the
benefit of and be binding upon the permitted successors and assigns of the
parties hereto.
4. NON-ASSIGNABILITY BY THE EMPLOYEE. Notwithstanding Section 3 hereof,
the rights and obligations of the Employee hereunder are not assignable.
3
<PAGE> 4
5. GOVERNING LAW. This Agreement shall be interpreted under, subject to
and governed by the laws of the State of Tennessee and all questions concerning
its validity, construction, and administration shall be determined in accordance
thereby.
6. WAIVERS. The waiver of a breach by either party of a term or
provision of this Agreement, at any time or times, shall not be deemed or
construed to be a waiver of any subsequent breach or breaches of the same or of
any other terms or provisions of this Agreement at any time or times.
7. INVALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect any other provision hereof, and this Agreement
shall be construed in all respects as if such invalid or unenforceable provision
was omitted. Furthermore, in lieu of such illegal, invalid or unenforceable
provision there shall be added automatically as a part of this Agreement a
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
8. EXCLUSIVENESS. This Agreement constitutes the entire understanding
and agreement between the parties with respect to the employment or severance
arrangements of the Employee and supersedes any and all other agreements, oral
or written, between the parties. No waiver, modification, or amendment to this
Agreement shall be valid unless the same be reduced to writing and signed by the
parties hereto.
9. MODIFICATION. This Agreement may not be modified or amended except
in writing signed by the parties. No term or condition of this Agreement will be
deemed to have been waived except in writing by the party charged with waiver. A
waiver shall operate only as to the specific term or condition waived and will
not constitute a waiver for the future or act on anything other than that which
is specifically waived.
10. ARBITRATION. Any dispute among the parties hereto shall be settled
by arbitration in Nashville, Tennessee, in accordance with the rules then in
effect of the American Arbitration Association and judgment upon the award
rendered may be entered in any court having jurisdiction thereof.
11. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when mailed
first-class postage prepaid by registered mail, return receipt requested, or
when delivered by hand, overnight delivery service or confirmed facsimile
transmission, to the following:
A. If to the Company, at Suite 400, 5200 Maryland Way,
Brentwood, Tennessee 37027, Attention: President and Chief Executive Officer, or
at such other address as may have been furnished to the Employee by the Company
in writing; or
4
<PAGE> 5
B. If to the Employee, at ____________________________________
________________________________________________ or such other address as may
have been furnished to the Company by the Employee in writing.
12. CONSOLIDATION, MERGER OR SALE OF ASSETS. Nothing in this Agreement
shall preclude the Company from consolidating or merging into or with, or
transferring all or substantially all of its assets to, another individual,
entity or business that assumes this Agreement and all obligations of the
Company hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"COMPANY"
AMERICAN HOMEPATIENT , INC.
By: ___________________________________
Its: __________________________________
"EMPLOYEE"
---------------------------------------
KATHEY PALMER
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMERICAN HOMEPATIENT INC FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,461,000
<SECURITIES> 0
<RECEIVABLES> 162,708,000
<ALLOWANCES> 44,293,000
<INVENTORY> 23,792,000
<CURRENT-ASSETS> 165,515,000
<PP&E> 151,630,000
<DEPRECIATION> 73,631,000
<TOTAL-ASSETS> 564,359,000
<CURRENT-LIABILITIES> 51,244,000
<BONDS> 311,389,000
0
0
<COMMON> 150,000
<OTHER-SE> 198,130,000
<TOTAL-LIABILITY-AND-EQUITY> 564,359,000
<SALES> 48,180,000
<TOTAL-REVENUES> 102,793,000
<CGS> 24,523,000
<TOTAL-COSTS> 24,523,000
<OTHER-EXPENSES> 64,374,000
<LOSS-PROVISION> 3,516,000
<INTEREST-EXPENSE> 5,398,000
<INCOME-PRETAX> 4,982,000
<INCOME-TAX> 1,993,000
<INCOME-CONTINUING> 2,989,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,989,000
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
