<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
CHECK ONE:
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 1996
---------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSACTION PERIOD FROM _________ TO _________.
COMMISSION FILE NO.: 1-12996
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ADVOCAT INC.
-----------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 62-1559667
- --------------------------------- ---------------------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
277 MALLORY STATION ROAD, SUITE 130, FRANKLIN, TN 37067
--------------------------------------------------------------
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(615) 771-7575
----------------------------------------------------
(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
---- -----
5,315,822
-----------------------------------------------------------------------
(OUTSTANDING SHARES OF THE ISSUER'S COMMON STOCK AS OF AUGUST 12, 1996)
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ADVOCAT INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,479 $ 1,076
Accounts receivable, less
allowance for contractual
adjustments and doubtful
accounts of $1,823 and
$2,082, respectively 22,447 19,566
Income taxes receivable 63 304
Inventories 541 508
Prepaid expenses and other 1,932 1,649
Deferred income taxes 1,169 974
------- -------
Total current assets 27,631 24,077
------- -------
PROPERTY AND EQUIPMENT, at cost 37,701 29,677
Less accumulated depreciation
and amortization (8,619) (7,659)
------- -------
Net property and equipment 29,082 22,018
------- -------
OTHER ASSETS:
Deferred tax benefit 7,572 8,224
Deferred financing and other costs, net 1,124 855
Other 2,083 1,922
------- -------
Total other assets 10,779 11,001
------- -------
$67,492 $57,096
======= =======
</TABLE>
(Continued)
2
<PAGE> 3
ADVOCAT INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 4,262 $ 3,926
Trade accounts payable 8,203 6,881
Accrued expenses:
Payroll and related benefits 3,904 3,754
Worker's compensation 1,329 1,225
Other 1,514 1,565
------- -------
Total current liabilities 19,212 17,351
------- -------
NONCURRENT LIABILITIES:
Long-term debt less current portion 18,592 11,063
Deferred gains with respect to leases, net 4,229 4,502
Advances from TDLP 111 859
Other 895 884
------- -------
Total noncurrent liabilities 23,827 17,308
------- -------
COMMITMENTS, CONTINGENCIES, AND
GUARANTEE
SHAREHOLDERS' EQUITY:
Preferred stock, authorized 1,000,000 shares,
$.10 par value, none issued and outstanding -0- -0-
Common stock, authorized 20,000,000 shares,
$.01 par value 5,295,000, and 5,288,000 shares
issued and outstanding at June 30, 1996 and
December 31, 1995, respectively 53 53
Paid-in capital 14,939 14,875
Retained earnings 9,461 7,509
------- -------
Total shareholders' equity 24,453 22,437
------- -------
$67,492 $57,096
======= =======
</TABLE>
The accompanying notes to interim combined financial statements are an integral
part of these interim consolidated balance sheets.
3
<PAGE> 4
ADVOCAT INC.
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, AND UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES:
Patient revenues $38,772 $32,565 $77,097 $64,102
Management fees 965 884 2,137 1,777
Interest 39 60 75 121
------- ------- ------- -------
Net revenues 39,776 33,509 79,309 66,000
------- ------- ------- -------
EXPENSES:
Operating 31,670 25,880 63,278 50,907
Lease 3,511 3,349 7,074 6,728
General and administrative 2,088 1,941 4,209 3,861
Depreciation and amortization 523 329 1,033 697
Interest 341 178 667 349
------- ------- ------- -------
Total expenses 38,133 31,677 76,261 62,542
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 1,643 1,832 3,048 3,458
PROVISION FOR INCOME TAXES 592 659 1,097 1,245
------- ------- ------- -------
NET INCOME 1,051 1,173 1,951 2,213
======= ======= ======= =======
AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING (Note 3)
5,338 5,322 5,331 5,317
======= ======= ======= =======
EARNINGS PER SHARE (Note 3)
$ .20 $ .22 $ .37 $ .42
======= ======= ======= =======
</TABLE>
The accompanying notes to interim financial statements are an integral part of
these interim consolidated financial statements.
4
<PAGE> 5
ADVOCAT INC.
INTERIM STATEMENTS OF CASH FLOWS
(IN THOUSANDS AND UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,951 $ 2,213
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 1,032 464
Provision for doubtful accounts 740 556
Equity earnings in joint ventures (20) (15)
Amortization of deferred credits (533) (378)
Deferred income taxes 457 267
Change in assets and liabilities:
Receivables, net (2,705) (2,258)
Inventories (32) (14)
Prepaid expenses and other (416) (893)
Trade accounts payable and accrued expenses 1,518 468
Current taxes 240 -0-
Other (110) (31)
------- -------
Net cash provided from operating activities 2,122 379
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (847) (1,351)
Issuance of mortgage receivable -0- (792)
Acquisitions, net (5,381) -0-
Pre-opening and other costs (384) (190)
Proceeds from TDLP transaction 47 42
Investment in joint venture -0- (264)
Distributions from joint ventures 8 2
------- -------
Net cash used in investing activities (6,557) (2,553)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt obligations 4,975 137
Repayment of debt obligations (274) (225)
Advances to TDLP (682) (151)
Financing costs (36) -0-
Net proceeds from bank line of credit 1,575 -0-
Proceeds from sale of common stock 63 143
Advances (to) from lessor (783) 612
------- -------
Net cash provided from financing activities $ 4,838 $ 516
------- -------
</TABLE>
(Continued)
5
<PAGE> 6
ADVOCAT INC.
INTERIM STATEMENTS OF CASH FLOWS
(IN THOUSANDS AND UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
------- ---------
<S> <C> <C>
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS $ 403 $ (1,658)
CASH AND CASH EQUIVALENTS, beginning of period 1,076 3,136
------- --------
CASH AND CASH EQUIVALENTS, end of period $ 1,479 $ 1,478
======= ========
SUPPLEMENTAL INFORMATION:
Cash payments of interest $ 587 $ 108
======= ========
Cash payments of income taxes $ 383 $ 1,261
======= ========
</TABLE>
Advocat received benefit plan deposits and recorded benefit plan liabilities of
$100,000 and $96,000 in the six month periods ended June 30, 1996 and 1995,
respectively.
In the period ended June 30, 1996, Advocat assumed debt of $1,592,000 in
connection with an acquisition.
The accompanying notes to interim financial statements are an integral part of
these interim consolidated financial statements.
6
<PAGE> 7
ADVOCAT INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
1. ORGANIZATION AND BACKGROUND:
Advocat Inc. (together with its subsidiaries, "Advocat" or the
"Company") commenced operations with an initial public offering of its
common stock on May 10, 1994. The Company is a provider of long-term
care services operating nursing homes and retirement centers in the
United States and Canada.
Advocat's operational history can be traced to February 1980 through
common senior management involved in different organizational
structures. As of June 30, 1996, the Company operates 86 facilities
comprised of 64 nursing homes containing 7,308 licensed beds and 22
retirement centers containing 2,446 units. The Company owns six
nursing homes, acts as lessee with respect to 38 of the nursing homes
it operates, and acts as manager with respect to the remaining 20
nursing homes. The Company owns one retirement center, acts as lessee
with respect to seven of the retirement centers that it operates, and
acts as manager of the remaining 14 retirement centers.
Geographically, 53 of the Company's nursing homes are located in the
United States and 11 are located in Canada, while 20 of the Company's
22 retirement centers are located in Canada. The foregoing facility
data includes two United States nursing homes acquired June 30, 1996,
totaling 216 licensed beds. The Company's facilities provide a range
of health care services to their residents. In addition to the nursing
and social services usually provided in the long-term care facilities,
the Company offers a variety of rehabilitative, nutritional,
respiratory, and other specialized ancillary services. The Company
operates facilities in Alabama, Arkansas, Florida, Kentucky, Ohio,
Tennessee, Texas, West Virginia, and the Canadian provinces of Ontario
and British Columbia.
2. BASIS OF FINANCIAL STATEMENTS
The interim financial statements for the three and six month periods
ended June 30, 1996 and 1995, 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 interim combined
financial statements reflect all adjustments (consisting of only
normally recurring accruals) necessary to present fairly the financial
position at June 30, 1996 and December 31, 1995 and the results of
operations for the three and six month periods ended June 30, 1996 and
1995, and the cash flows for the six month periods ended June 30, 1996
and 1995. Certain items have been reclassified in the 1995 financial
statements to conform to the 1996 presentation.
7
<PAGE> 8
The results of operations for the three and six month periods ended
June 30, 1996 and 1995 are not necessarily indicative of the operating
results for the entire respective years. These interim financial
statements should be read in connection with the financial statements
and notes thereto included in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995.
3. EARNINGS PER SHARE
Earnings per share is based on the weighted average number of the
Company's common and common equivalent shares outstanding that pertain
to the respective operations included in each period and is calculated
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average shares:
Average shares outstanding 5,294,000 5,256,000 5,292,000 5,253,000
Common stock equivalents --
Employee stock purchase plan 20,000 20,000 18,000 18,000
Options, conversion assumed
under the treasury stock
method 24,000 46,000 21,000 46,000
---------- ---------- --------- ----------
Common and common equivalent
shares outstanding 5,338,000 5,322,000 5,331,000 5,317,000
========== ========== ========== ==========
Net income $1,051,000 $1,173,000 $1,951,000 $2,213,000
========== ========== ========== ==========
Earnings per share $ .20 $ .22 $ .37 $ .42
========== ========== ========== ==========
</TABLE>
4. ACQUISITIONS
During the six months ended June 30, 1996, the Company completed the
acquisition of three nursing facilities totaling 276 licensed beds.
The aggregate purchase price of $7.0 million was financed with cash of
approximately $400,000, debt issued in the amount of $5.0 million, and
assumed indebtedness of $1.6 million. Two of the three facilities
totaling 216 licensed beds were acquired effective June 30, 1996.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Advocat Inc. (together with its subsidiaries, "Advocat" or the
"Company") commenced operations with an initial public offering of its common
stock on May 10, 1994. The Company is a provider of long- term care services
operating nursing homes and retirement centers in the United States and Canada.
Advocat's operational history can be traced to February 1980 through
common senior management involved in different organizational structures. As
of June 30, 1996, the Company operates 86 facilities comprised of 64 nursing
homes containing 7,308 licensed beds and 22 retirement centers containing 2,446
units. The Company owns six nursing homes, acts as lessee with respect to 38
of the nursing homes it operates, and acts as manager with respect to the
remaining 20 nursing homes. The Company owns one retirement center, acts as
lessee with respect to seven of the retirement centers that it operates, and
acts as manager of the remaining 14 retirement centers. Geographically, 53 of
the Company's nursing homes are located in the United States and 11 are located
in Canada, while 20 of the Company's 22 retirement centers are located in
Canada. The foregoing facility data includes two United States nursing homes
acquired June 30, 1996, totaling 216 licensed beds. The Company's facilities
provide a range of health care services to their residents. In addition to the
nursing and social services usually provided in the long-term care facilities,
the Company offers a variety of rehabilitative, nutritional, respiratory, and
other specialized ancillary services. The Company operates facilities in
Alabama, Arkansas, Florida, Kentucky, Ohio, Tennessee, Texas, West Virginia,
and the Canadian provinces of Ontario and British Columbia.
Basis of Financial Statements. The Company's patient revenues consist
of the fees charged to the residents of the Company's leased and owned nursing
homes and retirement centers. Management fee revenues consists of the fees
charged to the owners of the facilities managed by the Company. The management
fee revenues are based on the respective contractual terms, which generally
range from 3.5% to 6.0% of the net revenues of the managed facilities. As a
result, the level of management fees is affected positively or negatively by
the increase or decrease in the level of occupancy or rates per patient day of
the managed facilities. Management fees also include consulting and
development fee income. The Company's operating expenses include the costs
incurred in the nursing homes and retirement centers leased and owned by the
Company. The Company's general and administrative expenses consist of the
costs of the corporate office and regional support functions, including the
costs incurred in providing management services to the nursing homes and
retirement centers managed by the Company. The Company's financial statements
reflect the depreciation, amortization and interest expenses of the facilities
owned by the Company, and the depreciation expense associated with equipment
owned by the Company and used in its leased facilities.
9
<PAGE> 10
RESULTS OF OPERATIONS
The following tables present the unaudited interim statements of income
data for the three and six month periods ended June 30, 1996 and 1995, and set
forth this data as a percentage of revenues for the same periods.
<TABLE>
<CAPTION>
(IN THOUSANDS) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1996 1995 1996 1995
-------- ------- ------- --------
<S> <C> <C> <C> <C>
REVENUES:
Patient revenues $38,772 $32,565 $77,097 $64,102
Management fees 965 884 2,137 1,777
Interest 39 60 75 121
------- ------- ------- -------
Net revenues 39,776 33,509 79,309 66,000
------- ------- ------- -------
EXPENSES:
Operating 31,670 25,880 63,278 50,907
Lease 3,511 3,349 7,074 6,728
General and administrative 2,088 1,941 4,209 3,861
Depreciation and amortization 523 329 1,033 697
Interest 341 178 667 349
------- ------- ------- -------
Total expenses 38,133 31,677 76,261 62,542
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 1,643 1,832 3,048 3,458
PROVISION FOR INCOME TAXES 592 659 1,097 1,245
------- ------- ------- -------
NET INCOME $ 1,051 $ 1,173 $ 1,951 $ 2,213
======= ======== ======= =======
</TABLE>
PERCENTAGE OF NET REVENUES
<TABLE>
<CAPTION>
(IN THOUSANDS) THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1996 1995 1996 1995
-------- --------- --------- --------
<S> <C> <C> <C> <C>
REVENUES:
Patient revenues 97.5% 97.2% 97.2% 97.1%
Management fees 2.4 2.6 2.7 2.7
Interest 0.1 0.2 0.1 0.2
----- ----- ----- -----
Net revenues 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
EXPENSES:
Operating 79.7 77.2 79.8 77.1
Lease 8.8 10.0 8.9 10.2
General and administrative 5.2 5.8 5.3 5.9
Depreciation and amortization 1.3 1.0 1.3 1.1
Interest 0.9 0.5 0.8 0.5
----- ----- ----- -----
Total expenses 95.9 94.5 96.1 94.8
----- ----- ----- -----
INCOME BEFORE INCOME TAXES 4.1 5.5 3.9 5.2
PROVISION FOR INCOME TAXES 1.5 2.0 1.4 1.9
----- ----- ----- -----
NET INCOME 2.6% 3.5% 2.5% 3.3%
===== ===== ===== =====
</TABLE>
10
<PAGE> 11
As of June 30, 1996, the Company operates 86 facilities comprised of
64 nursing homes containing 7,308 licensed beds and 22 retirement centers
containing 2,446 units. In comparison, as of June 30, 1995, the Company
operated 66 nursing homes containing 7,425 licensed beds and 20 retirement
centers containing 2,335 units. Since January 1, 1995, the Company has begun
operating for its own account seven homes, three of which it previously
managed, totaling 556 nursing home beds and 109 retirement center units. The
operations of these facilities have a significant impact on the comparability
of the 1996 and 1995 periods. In the following discussion, these homes are
collectively referred to as the "New Homes." All but 169 of the New Home
beds/units were counted in the portfolio at June 30, 1995.
THREE MONTHS ENDED JUNE 30 - 1996 COMPARED WITH 1995
Revenues. Net revenues increased to $39.8 million in 1996 from $33.5
million in 1995, an increase of $6.3 million, or 19%. Patient revenues
increased to $38.8 million in 1996 from $32.6 million in 1995, an increase of
$6.2 million, or 19%. Of this increase, $2.8 million is attributable to the
New Homes. Ancillary service revenues, prior to contractual allowances,
increased to $14.5 million in 1996 from $8.3 million in 1995, an increase of
$6.2 million or 75%. The increase in patient revenues is also impacted by
normal inflationary increases and a small decrease in patient days of 0.5%
among the homes operating for at least one year. Management fee revenues
increased by $80,000, or 9%. The increase is primarily due to $100,000 in
consulting fees earned with respect to the development of one of the New Homes.
The Company anticipates an additional $100,000 in such revenues in the third
quarter after which time no further such revenues are anticipated. The
increase in ancillary revenues and the completion in 1995 of the certification
of all of the Company's beds for participation under the Medicare program have
resulted in continued improvement in the quality mix of the Company's revenues.
As a percent of net patient revenues, Medicare improved to 26.9% in 1996 from
19.2% in 1995 while Medicaid decreased to 55.4% in 1996 from 60.3% in 1995.
While Medicare utilization has increased, the Company has experienced rate
increases below historical norms in the Medicaid programs in the states of
Alabama and Florida. The Company anticipates that it is likely states will
continue to seek ways to depress the rate of growth in Medicaid program costs.
Operating Expense. Operating expense increased to $31.7 million in
1996 from $25.9 million in 1995, an increase of $5.8 million, or 22%. As a
percent of net revenues, operating expense increased to 79.7% in 1996 from
77.2% in 1995. Of this increase, $2.3 million is attributable to the New
Homes. The remaining increase is primarily attributable to an increase in the
provision of ancillary services to Medicare patients. As ancillary services
have increased, the supply costs related to the provision of such services have
increased correspondingly. In addition, the Company's operating margin has
declined due to reduced average census, cost containment measures in Medicaid
programs, difficulty in achieving expense reductions in certain homes, and
growth in the Company's medical supply distribution business, which generates a
lower operating margin. Wages increased to $14.2 million in 1996 from $12.4
million in 1995, an increase of $1.8 million, or 15%. Of this increase, $1.2
million is attributable to the New Homes. A portion of the remaining increase
in wages is offset by reduced costs associated with
11
<PAGE> 12
less utilization of temporary nursing services and reduced contracted
housekeeping and laundry services. The Company's wage increases are generally
in line with inflation. Among homes in operation for at least one year, the
Company has experienced increased general and other insurance costs of
$444,000. While the Company's operating margin has declined year to year, the
margin has improved from that of the fourth quarter of 1995. This is
reflective of benefits realized from expense control programs implemented in
the Company's various operating regions. Additionally, the Company has noted
an improvement in occupancy in the latter part of the second quarter and
continuing into the third quarter. The improvements are encouraging, but
neither their continuance nor their positive impact to the Company's operations
can be assured.
Lease Expense. Lease expense increased to $3.5 million in 1996 from
$3.3 million in 1995, an increase of $163,000, or 5%. Of this increase,
$122,000 is attributable to the New Homes, and the remainder is primarily
attributable to inflationary increases included in the terms of a majority of
the Company's operating leases.
General and Administrative Expense. General and administrative expense
increased to $2.1 million in 1996 from $1.9 million in 1995, an increase of
$138,000, or 7%. The increase is primarily attributable to the expense of new
positions added to service the Company's expanded operations. As a percent of
total net revenues, general and administrative expenses declined from 5.8% in
1995 to 5.2% in 1996, reflective of spreading the Company's overhead costs over
a wider base of operations.
Depreciation and Amortization. Depreciation and amortization expenses
increased to $523,000 in 1996 from $329,000 in 1995, an increase of $194,000,
or 59%. Approximately $105,000 of the increase is associated with the New
Homes.
Interest Expense. Interest expense increased to $341,000 in 1996 from
$178,000 in 1995, an increase of $163,000, or 92%. Approximately $126,000 of
the increase is attributable to indebtedness related to the New Homes with the
remainder of the increase primarily attributable to increased borrowings under
the Company's working capital line of credit.
Income Before Income Taxes; Net Income; Earnings Per Share. As a
result of the above, income before income taxes was $1.6 million in 1996 as
compared with $1.8 million in 1995, a decrease of $190,000, or 10%. The
effective combined federal, state and provincial income tax rate was 36% in
both 1996 and 1995. Net income was $1.1 million in 1996 as compared with $1.2
million in 1995, a decrease of $121,000, and earnings per share was $.20 was
compared with $.22.
SIX MONTHS ENDED JUNE 30 - 1996 COMPARED WITH 1995
Revenues. Net revenues increased to $79.3 million in 1996 from $66.0
million in 1995, an increase of $13.3 million, or 20%. Patient revenues
increased to $77.1 million in 1996 from $64.1 million in 1995, an increase of
$13.0 million, or 20%. Of this increase, $5.5 million is attributable to the
New Homes. Ancillary service revenues, prior to contractual allowances,
increased to $29.2 million in 1996
12
<PAGE> 13
from $15.8 million in 1995, an increase of $13.4 million or 85%. The increase
in patient revenues is also impacted by normal inflationary increases and a
small decrease in patient days of 0.6% among the homes operating for at least
one year. Management fee revenues increased by $361,000, or 20%. The
increase is primarily due to $400,000 in consulting fees earned with respect to
the development of three of the New Homes. The Company anticipates an
additional $100,000 in such revenues in the third quarter after which time no
further such revenues are anticipated. The increase in ancillary revenues and
the completion in 1995 of the certification of all of the Company's beds for
participation under the Medicare program have resulted in continued improvement
in the quality mix of the Company's revenues. As a percent of net patient
revenues, Medicare improved to 26.4% in 1996 from 18.4% in 1995 while Medicaid
decreased to 55.4% in 1996 from 60.5% in 1995. While Medicare utilization has
increased, the Company has experienced rate increases below historical norms in
the Medicaid programs in the states of Alabama and Florida. The Company
anticipates that it is likely states will continue to seek ways to depress the
rate of growth in Medicaid program costs.
Operating Expense. Operating expense increased to $63.3 million in
1996 from $50.9 million in 1995, an increase of $12.4 million, or 24%. As a
percent of net revenues, operating expense increased to 79.8% in 1996 from
77.1% in 1995. Of this increase, $4.6 million is attributable to the New
Homes. The remaining increase is primarily attributable to an increase in the
provision of ancillary services to Medicare patients. As ancillary services
have increased, the supply costs related to the provision of such services have
increased correspondingly. In addition, the Company's operating margin has
declined due to reduced average census, cost containment measures in Medicaid
programs, difficulty in achieving expense reductions in certain homes, and
growth in the Company's medical supply distribution business, which generates a
lower operating margin. Wages increased to $28.1 million in 1996 from $24.3
million in 1995, an increase of $3.8 million, or 16%. Of this increase, $2.1
million is attributable to the New Homes. A portion of the remaining increase
in wages is offset by reduced costs associated with less utilization of
temporary nursing services and reduced contracted housekeeping and laundry
services. The Company's wage increases are generally in line with inflation.
Among homes in operation for at least one year, the Company has experienced
increased general and employee health insurance costs of $643,000. This is
partially offset by a decrease in worker's compensation expense of $65,000.
Lease Expense. Lease expense increased to $7.1 million in 1996 from
$6.7 million in 1995, an increase of $346,000, or 5%. Of this increase,
$268,000 is attributable to the New Homes, and the remainder is primarily
attributable to inflationary increases included in the terms of a majority of
the Company's operating leases.
General and Administrative Expense. General and administrative expense
increased to $4.2 million in 1996 from $3.9 million in 1995, an increase of
$348,000, or 9%. The increase is primarily attributable to the expense of new
positions added to service the Company's expanded operations. As a percent of
total net revenues, general and administrative expenses declined from 5.9% in
1995 to 5.3% in 1996, reflective of spreading the Company's overhead costs over
a wider base of operations.
Depreciation and Amortization. Depreciation and amortization expenses
increased to $1,032,000 in 1996 from $697,000 in 1995, an increase of $335,000,
or 48%. Approximately $208,000 of the increase is associated with the New
Homes.
13
<PAGE> 14
Interest Expense. Interest expense increased to $667,000 in 1996 from
$349,000 in 1995, an increase of $318,000, or 91%. Approximately $251,000 of
the increase is attributable to indebtedness related to the New Homes with the
remainder of the increase primarily attributable to increased borrowings under
the Company's working capital line of credit.
Income Before Income Taxes; Net Income; Earnings Per Share. As a
result of the above, income before income taxes was $3.1 million in 1996 as
compared with $3.5 million in 1995, a decrease of $410,000, or 12%. The
effective combined federal, state and provincial income tax rate was 36% in
both 1996 and 1995. Net income was $2.0 million in 1996 as compared with $2.2
million in 1995, a decrease of $262,000, and earnings per share was $.36 was
compared with $.42.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company's working capital was $8.4 million as
compared with $6.7 million at December 31, 1995. The current ratio was 1.4 at
both dates.
Net cash provided from operating activities totaled $2.1 million and
$379,000 in 1996 and 1995, respectively. These amounts primarily represent the
cash flows from income plus depreciation and amortization along with the
changes in working capital components.
Net cash used in investing activities totaled $6.6 million and $2.6
million in 1996 and 1995, respectively. These amounts primarily represent
capital expenditures for equipment for and improvements to the Company's
existing facilities, acquisitions in 1996, and, in 1995, an investment in a
Canadian joint venture managed by the Company. The Company and its predecessor
business have used between $1.7 million and $3.0 million for capital
expenditures for facility improvements and equipment in each of the last three
calendar years. Such expenditures were financed through working capital. The
Company anticipates that such expenditures for its existing facility operations
will be approximately $2.0 million for the year ended December 31, 1996.
Net cash provided from financing activities totaled $4.8 million and
$516,000 in 1996 and 1995, respectively. The net cash used in financing
activities primarily represents proceeds from and repayment of long-term debt,
advances to TDLP, advances to and from a lessor, and, in 1996, net proceeds
under the Company's bank line of credit.
At June 30, 1996, the Company had total debt outstanding of $22.9
million of which $13.2 million was principally mortgage debt bearing interest
at rates currently ranging from 8.0% to 11.0%. The Company's remaining debt
was drawn under its $17.5 million credit line. The credit line had an
initial term through May 1, 1996 and has been extended through September 1,
1996. The credit line includes $10.0 million designated for use in making
acquisitions of long-term care facilities and $7.5 million for working capital
purposes. Through June 30, 1996, the Company had drawn $6.1 million under its
acquisition credit line. Amounts drawn under the acquisition credit line may
be converted to a three-year term loan effective with the end of the initial
term. At June 30, 1996, the Company had drawn $2.3 million and had $5.2
million in letters of credit outstanding under this working capital credit
line. Amounts drawn under the credit line bear interest, at the Company's
option, at either the lead bank's prime rate or 2% above the London Interbank
Offered Rate ("LIBOR"). Amounts drawn under the credit line are secured
generally by certain accounts
14
<PAGE> 15
receivable and substantially all other assets of the Company as well as by any
assets acquired with funds drawn under the acquisition credit line. The
Company has agreed to comply with certain covenants, including financial
covenants with respect to maintaining current ratio, net working capital,
coverage of fixed charges, tangible net worth, and earnings levels as defined
in the line of credit agreement. Additionally, the Company may not declare
dividends during the term of the agreement.
In December 1995, the Company received a temporary increase (the
"Overline") in the maximum amount available to be drawn under the line of
credit facility. The Company has the ability to draw additional working
capital up to $2.6 million through September 1, 1996. As of June 30, 1996, the
Company had drawn $1.3 million under the Overline; through August 12, 1996, the
amount drawn had increased to $2.0 million.
The Company has secured a commitment for a new credit facility and
plans to exercise its privileges thereunder to restructure and consolidate its
indebtedness during the third quarter. The new credit facility, which has a
term of three years, is for a total of $50 million and is divided into two
components: a $10 million revolving credit facility and a $40 million
acquisition line of credit. Funds drawn under the revolving credit facility
will be subject to a defined borrowing base and will bear interest (at the
Company's option) of either prime or LIBOR plus 2.5%. Funds drawn under the
acquisition line will have defined limits in relation to the appraised values
(generally 85%) and debt service ratios of the facilities financed thereunder.
These components will also determine the applicable interest rate, which will
vary (at the Company's option) in relation to either the prime rate or LIBOR.
Amounts drawn under the $50 million credit facility will be secured generally
by certain accounts receivable and substantially all other assets of the
Company as well as by any assets acquired with funds drawn under the
acquisition credit line. The Company has agreed to comply with certain
covenants, including financial covenants with respect to maintaining current
ratio, net working capital, coverage of fixed charges, tangible net worth, and
earnings levels as defined in the credit facility agreements.
The Company has received a commitment for permanent financing with
respect to a Canadian facility purchased in December 1995. The Company expects
to replace the $1.1 million short-term promissory note with the proceeds under
the anticipated mortgage during the latter part of 1996. The outstanding
balance has been classified as long-term as of June 30, 1996.
Based upon the operations of the Company, management believes that
available cash and funds generated from operations, as well as amounts
available through its banking relationships, will be sufficient for the Company
to satisfy its capital expenditures, working capital, and debt requirements for
the next 12 months. The Company intends to satisfy the capital requirements
for its acquisition activities from among various means, including borrowings
from commercial lenders, seller-financed debt, issuance of additional debt,
financing obtained from sale and leaseback transaction with real estate
investment trusts and, to the extent available, internally generated cash from
operations. On a longer-term basis, management believes the Company will be
able to satisfy the principal repayment requirements on its indebtedness with a
combination of funds generated from operations and from refinancings with
existing or new commercial lenders.
Receivables
The Company's operations could be adversely affected if it experiences
significant delays in reimbursement of its labor and other costs from Medicare
and other third-party revenue sources. The Company's future liquidity will
continue to be dependent upon the relative amounts of current assets
15
<PAGE> 16
(principally cash, accounts receivable and inventories) and current liabilities
(principally accounts payable and accrued expense). In that regard, accounts
receivable can have a significant impact on the Company's liquidity. Continued
efforts by governmental and third-party payors to contain or reduce the
acceleration of costs by monitoring reimbursement rates, increasing medical
review of bills for services or negotiating reduced contract rates, as well as
any significant increase in the Company's proportion of Medicare and Medicaid
patients, could adversely affect the Company's liquidity and results of
operations.
Accounts receivable attributable to the provision of patient and
resident services at June 30, 1996 and December 31, 1995, totaled $22.3 million
and $20.2 million, respectively, representing approximately 52 and 51 days,
respectively, in accounts receivable. Accounts receivable from the provision
of management services at June 30, 1996 and December 31, 1995, totaled $1.0
million and $0.7 million, respectively, representing approximately 74 and 69
days, respectively, in accounts receivable.
Accounts receivable at June 30, 1996, includes approximately $800,000
expended in 1996 towards expansions of certain of the Company's leased
facilities. The Company funded the improvements as agent for the lessor who
reimbursed the advances in July 1996.
The Company continually evaluates the adequacy of its bad debt reserves
based on patient mix trends, agings of older balances, payment terms and delays
with regard to third-party payors, collateral and deposit resources, as well as
other factors. The Company has implemented additional procedures to strengthen
its collection efforts and reduce the incidence of uncollectible accounts.
Foreign Currency Translation
The Company has obtained its financing primarily in U.S. dollars;
however, it will incur revenues and expenses in Canadian dollars with respect
to Canadian management activities and operations of the Company's Canadian
facilities. Therefore, if the currency exchange rate fluctuates, the Company
may experience currency translation gains and losses with respect to the
operations of these activities and the capital resources dedicated to their
support. While such currency exchange rate fluctuations have not been material
to the Company in the past, there can be no assurance that the Company will not
be adversely affected by shifts in the currency exchange rates in the future.
Inflation
Management does not believe that the operations of the Company have
been materially affected by inflation. The Company expects salary and wage
increases for its skilled staff to continue to be higher than average salary
and wage increases, as is common in the health care industry. To date, these
increases as well as normal inflationary increases in other operating expenses
have been adequately covered by revenue increases. However, it is likely that
states will continue to seek ways to control the growth in Medicaid program
rates.
16
<PAGE> 17
Recent Accounting Pronouncements
In 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." The Company adopted SFAS No. 121 in the first quarter of 1996 and the
adoption did not have a material effect on the Company's financial position.
Two facilities noted as receiving special attention in the Company's Annual
Report on Form 10-K showed improvement in operations in the six months ended
June 30, 1996 as compared to the three months ended December 31, 1995.
The FASB also issued SFAS No. 123, "Accounting for Stock-Based
Compensation" in 1995. This statement requires new disclosures in the notes to
the financial statements about stock-based compensation plans based on the fair
value of equity instruments granted. Companies may also base the recognition
of compensation cost for instruments issued under stock-based compensation
plans on these fair values. The Company will adopt the disclosure requirements
of SFAS No. 123 in 1996.
Risk Factors
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company hereby makes reference to
items set forth under the heading "Risk Factors" in the Company's Registration
Statement on Form S-1, as amended (Registration No. 33-76150). Such cautionary
statements identify important facts that could cause the Company's actual
results to differ materially from those projected in forward looking statements
made by or on behalf of the Company.
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareholders was held on May 30, 1996.
(c) Matters voted upon at the meeting:
- Election of Directors:
<TABLE>
<CAPTION>
Mary Margaret Hamlett William H. Lomicka Allan C. Silber
--------------------- ------------------ ---------------
<S> <C> <C> <C>
For 4,074,582 4,075,582 4,074,518
Against -0- -0- -0-
Withheld 225,344 224,344 225,408
Abstentions -0- -0- -0-
Non-Voting(1) 993,824 993,824 993,824
--------- --------- ---------
Eligible Shares 5,293,750 5,293,750 5,293,750
========= ========= =========
</TABLE>
---------
(1) Including broker non-votes.
- Proposals (a) to amend the Company's 1994 Nonqualified Stock Option
Plan for Directors to increase the number of shares of Common
Stock reserved for issuance from 140,000 shares to 190,000 shares
("Proposal A") and (b) to amend the Company's 1994 Incentive and
Nonqualified Stock Option Plan for Key Personnel to increase the
number of shares of Common Stock reserved for issuance from 460,000
shares to 610,000 shares ("Proposal B").
<TABLE>
<CAPTION>
Proposal A Proposal B
---------- ----------
<S> <C> <C>
For 3,730,356 3,561,739
Against 562,687 728,754
Withheld -0- -0-
Abstentions 6,883 9,433
Non-Voting(1) 993,824 993,824
--------- ---------
Eligible Shares 5,293,750 5,293,750
========= =========
</TABLE>
---------
(1) Including broker non-votes.
Item 6. Exhibits and Reports on Form 8-K.
The Registrant has not filed any reports on Form 8-K during the
quarter for which this report is filed.
The exhibits filed as part of the report on Form 10-Q are listed in
the Exhibit Index immediately following the signature page.
17
<PAGE> 18
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.
ADVOCAT INC.
August 12, 1996 By: /s/ Mary Margaret Hamlett
----------------------------------------------
Mary Margaret Hamlett
Principal Financial Officer and Chief Accounting
Officer and An Officer Duly Authorized to Sign
on Behalf of the Registrant
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C>
2.1 -- Asset Purchase Agreement dated November 30, 1995, among Williams
Nursing Homes Inc., d/b/a Afton Oaks Nursing Center, Lynn Mayers,
Thomas E. Mayers, and Diversicare Leasing Corp. (incorporated
by reference to Exhibit 2.1 to the Company's Current Report on
Form 8-K dated November 30, 1995).*
2.2 -- Purchase Agreement between Diversicare Leasing Corporation and
Americare Corporation dated February 20, 1996 (incorporated by
reference to Exhibit 2.2 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995).*
2.3 -- Asset Purchase Agreement among Pinedale Associates, Inc.,
Jean May, Carolyn S. Thompson and Diversicare Leasing
Corp. dated May 31, 1996.*
2.4 -- Asset Purchase Agreement between Hartford Health Care,
Inc. and Diversicare Leasing Corp. dated May 23, 1996.*
3.1 -- Certificate of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement
No. 33-76150 on Form S-1).
3.2 -- Bylaws of the Company (incorporated by reference to Exhibit 3.2
to the Company's Registration Statement No. 33-76150 on Form S-
1).
3.2 -- Amendment to Articles of Incorporate dated March 23, 1995
(incorporated by reference to Exhibit A of Exhibit 1 to Form 8-A
filed March 30, 1995).
4.1 -- Form of Common Stock Certificate (incorporated by reference to
Exhibit 4 to the Company's Registration Statement No. 33-76150 on
Form S-1).
4.2 -- Rights Agreement dated March 13, 1995, between the Company and
Third National Bank in Nashville (incorporated by reference to
Exhibit 1 to the Company's Current Report on Form 8-K dated March
13, 1995).
4.3 -- Summary of Shareholder Rights Plan adopted March 13, 1995
(incorporated by reference to Exhibit B of Exhibit 1 to Form 8-A
filed March 30, 1995).
4.4 -- Rights Agreement of Advocat Inc. dated March 23, 1995
(incorporated by reference to Exhibit 1 to Form 8-A filed March
30, 1995).
</TABLE>
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C>
10.1 -- Asset Contribution Agreement among Counsel Corporation and
Certain of its Direct and Indirect Subsidiaries dated May 10,
1994 (incorporated by reference to Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994).
10.2 -- Asset Contribution Agreement among Diversicare Inc. and Certain
of its Direct and Indirect Subsidiaries dated May 10, 1994
(incorporated by reference to Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994).
10.3 -- 1994 Incentive and Non-Qualified Stock Plan for Key Personnel
(incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement No. 33-76150 on Form S-1).
10.4 -- 1994 Non-Qualified Stock Option Plan for Directors (incorporated
by reference to Exhibit 10.4 to the Company's Registration
Statement No. 33-76150 on Form S-1).
10.5 -- Master Agreement and Supplemental Executive Retirement Plan
(incorporated by reference to Exhibit 10.6 to the Company's
Registration Statement No. 33-76150 on Form S-1).
10.6 -- 1994 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.7 to the Company's Registration Statement No. 33-76150
on Form S-1).
10.7 -- Form of Employment Agreements dated May 10, 1994, between the
Registrant and Dr. Birkett, Mr. Richardson and Ms. Hamlett
(incorporated by reference to Exhibit 10.8 to the Company's
Registration Statement No. 33-76150 on Form S-1).
10.8 -- Form of Director Indemnification Agreement (incorporated by
reference to Exhibit 10.8 to the Company's Registration Statement
No. 33-76150 on Form S-1).
10.9 -- Master Lease Agreement dated August 14, 1992, between Diversicare
Corporation of America and Omega Healthcare Investors, Inc.
(incorporated by reference to Exhibit 10.12 to the Company's
Registration Statement No. 33-76150 on Form S-1).
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C>
10.10 -- Consent, Assignment and Amendment Agreement between Diversicare
Corporation of America, Counsel Nursing Properties, Inc., Advocat
Inc., Diversicare Leasing Corporation and Omega Healthcare
Investors, Inc. dated May 10, 1994 (incorporated by reference to
Exhibit 10.10 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).
10.11 -- Advocat Inc. Guaranty in favor of Omega Healthcare Investors,
Inc. dated May 10, 1994 (incorporated by reference to Exhibit
10.11 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994).
10.12 -- Consolidation, Modification and Renewal Note dated August 30,
1991, by Diversicare Nursing Centers, Inc. to the order of Sovran
Bank/Tennessee (incorporated by reference to Exhibit 10.19 to the
Company's Registration Statement No. 33-76150 on Form S-1).
10.13 -- Wraparound Promissory Note dated August 30, 1991, by Texas
Diversicare Limited Partnership and Diversicare Nursing Centers,
Inc. (incorporated by reference to Exhibit 10.20 to the Company's
Registration Statement No. 33-76150 on Form S-1).
10.14 -- Management Agreement dated August 30, 1991, between Texas
Diversicare Limited Partnership and Diversicare Corporation of
America, as assigned effective October 1, 1991, to Diversicare
Management, with consent of Texas Diversicare Limited
Partnership, as amended (incorporated by reference to Exhibit
10.21 to the Company's Registration Statement No. 33-76150 on
Form S-1).
10.15 -- Amended and Restated Limited Partnership Agreement dated August
30, 1991, among Diversicare General Partner, Inc., J. Scott
Jackson and each Limited Partner (incorporated by reference to
Exhibit 10.22 to the Company's Registration Statement No. 33-
76150 on Form S-1).
10.16 -- Participation Agreement dated August 30, 1991, between Texas
Diversicare Limited Partnership and Diversicare Corporation of
America (incorporated by reference to Exhibit 10.23 to the
Company's Registration Statement No. 33-76150 on Form S-1).
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C>
10.17 -- Agreement of Purchase and Sale entered into August 30, 1991,
among Diversicare Corporation of America, Texas Diversicare
Limited Partnership' and Diversicare Corporation of America
(incorporated by reference to Exhibit 10.25 to the Company's
Registration Statement No. 33-76150 on Form S-1).
10.18 -- Partnership Services Agreement entered into August 30, 1991,
among Texas Diversicare Limited Partnership, Diversicare Incorporated
and Counsel Property Corporation (incorporated by reference to
Exhibit 10.26 to the Company's Registration Statement No. 33-76150
on Form S-1).
10.19 -- Guaranteed Return Loan Security Agreement entered into August 30,
1991, between Texas Diversicare Limited Partnership and
Diversicare Incorporated (incorporated by reference to Exhibit
10.27 to the Company's Registration Statement No. 33-76150 on
Form S-1).
10.20 -- Credit and Security Agreement dated October 12, 1994, between
NationsBank of Tennessee, N.A., the Company and the Company's
subsidiaries (incorporated by reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994).
10.21 -- Promissory Note by Advocat Inc. to the order of Diversicare Inc.
dated May 10, 1994 (incorporated by reference to Exhibit 10.21 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994).
10.22 -- Promissory Note by Advocat Inc. to the order of Counsel Nursing
Properties, Inc. dated May 10, 1994 (incorporated by reference to
Exhibit 10.22 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).
10.23 -- Demand Master Promissory Note by Advocat Inc. to the order of
Diversicare Corporation of America dated May 10, 1994
(incorporated by reference to Exhibit 10.23 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994).
10.24 -- Lease Agreement between Counsel Healthcare Assets Inc. and
Counsel Nursing Properties, Inc. dated May 10, 1994 (incorporated
by reference to Exhibit 10.24 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994).
</TABLE>
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C>
10.25 -- Lease Agreement between Counsel Healthcare Assets Inc. and
Counsel Nursing Properties, Inc. dated May 10, 1994 (incorporated
by reference to Exhibit 10.25 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994).
10.26 -- Management and Guaranteed Return Loan Agreement dated as of
November 30, 1985, between Diversicare VI Limited Partnership and
Diversicare Incorporated, an Ontario corporation, as amended, as
assigned effective October 1, 1991, to Diversicare Management
Services Co., with consent of Diversicare VI Limited Partnership
(incorporated by reference to Exhibit 10.34 to the Company's
Registration Statement No. 33-76150 on Form S-1).
10.27 -- Management Agreement dated August 24, 1981, between Americare
Corporation and Diversicare Corporation of America, as assigned
to Diversicare Management Services Co., with consent of Americare
Corporation (incorporated by reference to Exhibit 10.36 to the
Company's Registration Statement No. 33-76150 on Form S-1).
10.28 -- Management Agreement between Counsel Healthcare Assets, Inc., an
Ontario corporation and Counsel Nursing Properties, Inc. dated
April 30, 1994, as assigned effective May 10, 1994, to
Diversicare Canada Management Services Co., Inc (incorporated by
reference to Exhibit 10.28 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994).
10.29 -- Lease Agreement between Spring Hill Medical, Inc. and First
American HealthCare, Inc. dated February 1, 1994 (incorporated by
reference to Exhibit 10.38 to the Company's Registration
Statement No. 33-76150 on Form S-1).
10.30 -- Lease Agreement, as amended, between Bryson Hill Associates of
Alabama, Inc. and Estates Nursing Homes, Inc. dated June 15,
1984, as assigned effective May 10, 1994, to Diversicare Leasing
Corp. (incorporated by reference to Exhibit 10.39 to the
Company's Registration Statement No. 33-76150 on Form S-1).
10.31 -- Lease Agreement between HealthCare Ventures and Wessex Care
Corporation dated October 23, 1989, as assigned effective May 10,
1994, to Diversicare Leasing Corp. (incorporated by reference to
Exhibit 10.40 to the Company's Registration Statement No. 33-
76150 on Form S-1).
</TABLE>
<PAGE> 24
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C>
10.32 -- Lease Agreement between Osborne & Wilson Development Corp., Inc.
and Diversicare Corporation of America dated July 7, 1989, as
assigned effective May 10, 1994, to Diversicare Leasing Corp.
(incorporated by reference to Exhibit 10.41 to the Company's
Registration Statement No. 33-76150 on Form S-1).
10.33 -- Florida Lease Agreement between Counsel Nursing Properties, Inc.
and Diversicare Leasing Corp. dated May 10, 1994 (incorporated by
reference to Exhibit 10.33 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994).
10.34 -- Lease Agreement between Counsel Nursing Properties, Inc. and
Diversicare Leasing Corp. dated May 10, 1994 (incorporated by
reference to Exhibit 10.34 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994).
10.35 -- Underwriting Agreement dated May 10, 1994, by and among NatWest
Securities Limited, J.C. Bradford & Co., Raymond James &
Associates, Inc., Advocat Inc., Counsel Nursing Properties, Inc.,
Diversicare Inc. and Counsel Healthcare Assets Inc. regarding
4,750,000 shares of Common Stock of Advocat Inc. (incorporated
by reference to Exhibit 1 to the Company's Registration Statement
No. 33-76150 on Form S-1).
10.36 -- Letter Agreement dated November 23, 1994, among Advocat Inc.,
Omega Healthcare Investors, Inc., Sterling Health Care Centers,
Inc. and E.B. Lowman, II (incorporated by reference to Exhibit
10.36 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994).
10.37 -- Assignment and Assumption Agreement of Master Lease dated
September 1, 1995, between Sterling Health Care Management, Inc.,
Diversicare Leasing Corp. and Sterling Acquisition Corp
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1995).
10.38 -- Master Lease dated December 1, 1994, between Sterling Health Care
Management, Inc. and Sterling Acquisition Corp (incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1995).
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C>
10.39 -- Assignment and Assumption Agreement of Master Sublease dated
September 1, 1995, between Sterling Health Care Management, Inc.,
Diversicare Leasing Corp. and O S Leasing Company (incorporated
by reference to Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1995).
10.40 -- Master Sublease dated December 1, 1994, between Sterling Health
Care Management, Inc. and O S Leasing Company (incorporated by
reference to Exhibit 10.4 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1995).
10.41 -- Letter of Credit Agreement dated September 1, 1995, between Omega
Health Care Investors, Inc., Sterling Acquisition Corp., Sterling
Acquisition Corp II, O S Leasing Company and Diversicare Leasing
Corp (incorporated by reference to Exhibit 10.5 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1995).
10.42 -- Advocat Inc. Guaranty dated September 1, 1995, in favor of Omega
Health Care Investors, Inc., Sterling Acquisition Corp., Sterling
Acquisition Corp. II and O S Leasing Company (incorporated by
reference to Exhibit 10.6 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1995).
10.43 -- Management Agreement between Diversicare Management Services Co.
and Emerald-Cedar Hill, Inc. dated February 20, 1996
(incorporated by reference to Exhibit 10.43 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995).
10.44 -- Management Agreement between Diversicare Management Services Co.
and Emerald-Golfcrest, Inc. dated February 20, 1996
(incorporated by reference to Exhibit 10.44 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995).
10.45 -- Management Agreement between Diversicare Management Services Co.
and Emerald-Golfview, Inc. dated February 20, 1996 (incorporated
by reference to Exhibit 10.45 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995).
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C>
10.46 -- Management Agreement between Diversicare Management Services Co.
and Emerald-Southern Pines, Inc. dated February 20, 1996
(incorporated by reference to Exhibit 10.46 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995).
10.47 -- Loan Agreement between Omega Healthcare Investors, Inc. and
Diversicare Leasing Corp., d/b/a Good Samaritan Nursing Home,
dated February 20, 1996 (incorporated by reference to Exhibit
10.47 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995).
10.48 -- Short Term Note by Diversicare Leasing Corp. to Omega Healthcare
Investors, Inc. dated February 20, 1996 (incorporated by
reference to Exhibit 10.48 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995).
10.49 -- Advocat Inc. Guaranty in favor of Omega Healthcare Investors,
Inc. dated February 20, 1996 (incorporated by reference to
Exhibit 10.49 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995).
10.50 -- First Amendment to Credit and Security Agreement dated November
28, 1995, between NationsBank of Tennessee, N.A., Advocat Inc.
and the Subsidiaries (as defined) (incorporated by reference to
Exhibit 10.50 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995).
10.51 -- Second Amendment to Credit and Security Agreement dated December
1, 1995, between NationsBank of Tennessee, N.A., Advocat Inc. and
the Subsidiaries (as defined) (incorporated by reference to
Exhibit 10.51 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995).
10.52 -- Third Amendment to Credit and Security Agreement dated December
1, 1995, between NationsBank of Tennessee, N.A., Advocat Inc. and
the Subsidiaries (as defined) (incorporated by reference to
Exhibit 10.52 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995).
10.53 -- Fourth Amendment to Credit and Security Agreement dated April 1,
1996, between NationsBank of Tennessee, N.A., Advocat Inc. and
the Subsidiaries (as defined) (incorporated by reference
to Exhibit 10.53 to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1996).
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C>
10.54 -- Fifth Amendment to Credit and Security Agreement dated May 1,
1996, between NationsBank of Tennessee, N.A., Advocat Inc. and
the Subsidiaries (as defined) (incorporated by reference
to Exhibit 10.54 to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1996).
10.55 -- Sixth Amendment to Credit and Security Agreement dated
June 28, 1996, between NationsBank of Tennessee, N.A.,
Advocat Inc. and the Subsidiaries (as defined).
21 -- Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994).
27 -- Financial Data Schedule (for SEC use only).
</TABLE>
* This exhibit contains a list of the schedules thereto, which have been
omitted. The Company agrees to furnish supplementally a copy of any such
omitted schedule to the Commission upon request.
<PAGE> 1
EXHIBIT 2.3
ASSET PURCHASE AGREEMENT
among
PINEDALE ASSOCIATES, INC.
Seller
JEAN MAY
CAROLYN S. THOMPSON
Shareholders
and
DIVERSICARE LEASING CORP.
Buyer
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <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
ARTICLE II. RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Collection of Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III. PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Apportionable Income and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLERAND SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Organization, Qualification and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.3 Absence of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.5 Operations Since May 1, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.6 Absence of Certain Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.7 Employment Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.8 Licenses and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.9 Medicaid, Medicare and Other Third-Party Payors . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.10 Cost Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.11 Compliance with Zoning, Land Use and Other Laws; Easements . . . . . . . . . . . . . . . . . . . . . 11
4.12 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.13 Leases and Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.14 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.15 Miscellaneous Representations Relating to Real Estate . . . . . . . . . . . . . . . . . . . . . . . 16
4.16 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.17 Seller's Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.18 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.20 Broker's or Finder's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.21 Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.22 Experimental Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.23 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.24 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
4.25 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.26 Compliance with Healthcare Laws and Other Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.27 Condition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.28 WARN Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.29 Tax Returns; Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.30 Bankruptcy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.31 Resident Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.32 Resident Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.33 Prepayments and Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.35 No Omissions or Misstatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.1 Organization, Qualification and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.2 Absence of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.3 Broker's or Finder's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE VI. COVENANTS OF PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.1 Preservation of Business and Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.2 Absence of Material Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.3 Access to Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.4 Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.5 Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.7 Maintain Books and Accounting Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.8 Indebtedness; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.9 Compliance with Laws and Regulatory Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.10 Maintain Insurance Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.11 Medicaid Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.12 Current Return Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.13 Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.14 WARN Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.15 No Sale, Merger or Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.16 Title Report and Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.17 Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.18 Defects and Cure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.19 Environmental Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VII. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE VIII. SELLER'S AND SHAREHOLDERS'
<S> <C>
CONDITIONS TO CLOSE . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . 31
8.1 Representations and Warranties True at Closing; Compliance with Agreement . . . . . . . . . . . . . 31
8.2 No Action/Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.3 Order Prohibiting Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE IX. BUYER'S CONDITIONS TO CLOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.1 Representations and Warranties True at Closing; Compliance with Agreement . . . . . . . . . . . . . 32
9.2 No Loss, Damage of Destruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.3 No Adverse Material Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.4 Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.5 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.6 No Action/Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.7 Inspection of Assets; UCC Searches, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.8 Confidentiality and Noncompete Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.9 Approval of Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.10 Commitment and Policy; Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE X. OBLIGATIONS OF SELLER AND SHAREHOLDERS AT CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.1 Documents Relating to Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.2 Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.3 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.4 Corporate Good Standing and Corporate Resolutions . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.5 Closing Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.6 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.7 Taxes and Other Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.8 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.9 Confidentiality and Noncompete Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.10 Additionally Requested Documents; Post Closing Assistance . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE XI. OBLIGATIONS OF BUYER AT CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.2 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.3 Corporate Good Standing and Board Resolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.4 Closing Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.5 Assumption of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.6 Documents Relating to Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE XII. OPINION OF BUYER'S CO UNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE XIII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
13.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
13.2 Indemnification by Seller and . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
13.3 Indemnification by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
13.4 Rules Regarding Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
13.5 Assignment by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE XIV. PRESERVATION OF BUSINESSAND NONCOMPETE RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 40
14.1 Covenant Not to Compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
14.2 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE XV. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
15.1 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
15.2 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
15.3 Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
15.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
15.5 Confidentiality; Prohibition on Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15.6 Controlling Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15.7 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15.8 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15.9 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15.11 Interpretation; Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15.12 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
15.13 Further Assurance of Seller and Shareholders After Closing . . . . . . . . . . . . . . . . . . . . . 44
15.14 Legal Fees and Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
15.15 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
iv
<PAGE> 6
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("AGREEMENT"), is made on May
__, 1996, by and among PINEDALE ASSOCIATES, INC. a C corporation doing business
as Pinedale Nursing Home ("SELLER"), JEAN MAY and CAROLYN S. THOMPSON,
residents of the State of Arkansas ("SHAREHOLDERS"), and DIVERSICARE LEASING
CORP., a Tennessee corporation ("BUYER").
A. Seller and Shareholders own and operate a nursing home and
provide related services at 1311 North Pecan Street, Newport, Arkansas (the
"BUSINESS").
B. Shareholders own, beneficially and of record, all of the
issued and outstanding securities of Seller.
C. Seller and Shareholders desire to sell and transfer the assets
of the Business, including the real estate, to Buyer and Buyer desires to
purchase the same from Seller and Shareholders subject to the terms and
conditions of this Agreement.
In consideration of the 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. Except for the Excluded Assets (as defined
herein), Seller and Shareholders agree, at Closing (as defined herein), to
sell, transfer, assign, convey and deliver to Buyer, and Buyer agrees to
purchase, acquire and accept from Seller and Shareholders all right, title and
interest in and to all assets of Seller and the Business of every kind and
type, except as excluded in Exhibit 1.2, tangible and intangible, real and
personal (collectively, the "ASSETS"), free and clear of all encumbrances,
mortgages, pledges, liens, security interests, obligations and liabilities
which Assets include, without limitation, the following:
(1) All right, title and interest of Seller and
Shareholders in and to all of the land and real estate owned or leased by
Seller and Shareholders and used in connection with the Business as listed on
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 including, without limitation, all sewer and
wastewater discharge
<PAGE> 7
capacity allocated or reserved thereto and all development rights with respect
thereto (collectively, the "REAL ESTATE");
(2) All tangible personal property, medical and other
equipment, machinery, data processing and computer hardware and software,
furniture, furnishings, appliances and other tangible personal property of
every description and kind and all replacement parts therefor including 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 including, but not limited to, food,
cleaning materials, disposables, linens, consumables, office supplies, drugs
and medical supplies (collectively, the "INVENTORY") which Inventory will not
be less than that maintained by Seller in the ordinary course of its business
consistent with past practice or the amount reflected on the Financial
Statements (as defined herein);
(4) All resident, medical, clinical, 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 and computer
files;
(5) To the full extent transferable, all licenses,
permits, registrations, certificates, consents, accreditations, approvals and
franchises necessary to operate and conduct the Business, together with
assignments thereof, if required, and all waivers that Seller currently has, of
any requirements pertaining to such licenses, permits, registrations,
certificates, consents, accreditations, approvals and franchises;
(6) All plans and surveys, including "as-built" plans,
those relating to utilities, easements and roads, and plats, specifications,
engineers' drawings, architectural renderings and similar items in Seller's
possession or obtainable by Seller;
(7) All goodwill and, to the extent assignable by Seller,
all warranties (express or implied) and rights and claims related to the Assets
or the operation of the Business;
(8) All contract and leasehold rights and interests
pursuant to contracts for purchase or lease of personal property, construction
contracts, contracts for purchase, sale or lease of equipment, goods or
services currently furnished or to be furnished in connection with the Business
and that are expressly assumed by Buyer; and
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(9) All prepaid expenses (except prepaid insurance
premiums) and utility deposits; and
(10) All intangible and intellectual property owned,
leased, licensed or possessed by either Seller or Shareholders and utilized in
connection with the Business, including without limitation, the names "Pinedale
Nursing Home", and all derivatives thereof.
1.2 Excluded Assets. Seller is not selling and Buyer is not
purchasing or assuming obligations with respect to the following (collectively,
the "EXCLUDED ASSETS"):
(1) Seller's corporate and fiscal records and other
records that Seller is required by law to retain in its possession, as
described on Exhibit 1.2 attached hereto;
(2) All accounts, notes and other receivables for periods
prior to Closing (the "RECEIVABLES");
(3) All cash, cash equivalents, cash deposits and
escrows, bank accounts, money market accounts, other accounts, certificates of
deposit and other investments of Seller.
(4) Those other assets which are not necessary for the
operation of the Business, as approved by Buyer, as set forth on Exhibit 1.2.
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 those obligations constituting working
capital liabilities incurred in the ordinary course of business, other than
long-term and interest bearing debt, which Buyer expressly elects to assume as
specifically set forth on Exhibit 1.3 attached hereto, and (b) those
obligations arising on and after the Closing under those Leases and Contracts
(as such term is defined in paragraph 4.13) which Buyer expressly elects to
assume (collectively, the "ASSUMED LIABILITIES").
(2) Except for the Assumed Liabilities, it is expressly
agreed and understood by the parties to this Agreement that Buyer does not
assume, and shall not be liable for, any debt, liability or obligation of
Seller or Shareholders of any type or description whatsoever, whether related
or unrelated to the Assets, the Business or the transactions contemplated
within this Agreement and that Seller and Shareholders shall remain liable and
responsible for the payment or performance of, respectively, each of their own
debts, liabilities, obligations, contracts, leases, notes payable, accounts
payable, commitments,
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agreements, suits, claims, indemnities, mortgages, taxes, contingent
liabilities and other obligations including, without limitation, any and all
investment tax credit recapture, depreciation recapture, recapture or prior
period adjustments under Medicaid, all impositions of income tax and other
taxes, all employee wages, salaries and benefits including, without limitation,
COBRA and WARN obligations (as defined herein), accrued vacation and sick pay
not expressly assumed by Buyer pursuant to Section 1.3(1), and other accrued
employee benefits including rights of Seller's retirees to participate in
Seller's medical plans.
ARTICLE II. RECEIVABLES
2.1 Collection of Receivables. Following Closing, Buyer shall
collect the Receivables (except for the Medicaid receivables for the month
prior to Closing) relating to periods prior to Closing as Seller's agent for
the limited purpose of such collection. Seller and Shareholders shall
reimburse Buyer for its reasonable costs and expenses incurred in connection
with such collections on behalf of Seller. Seller and Shareholders shall each
provide such reasonable assistance in the collection process as Buyer may
request. Buyer shall remit to Seller the gross proceeds of such collection
every two (2) weeks during the first thirty (30) days following Closing and
within fifteen (15) days following the end of each month thereafter for a
maximum of six (6) months. Seller shall be responsible for collecting any
Receivable thereafter. Buyer will provide Seller any information in its
possession with respect thereto. Buyer shall have no liability to Seller or
any third party for any act or omission in connection with the collection of
the Receivables and Seller shall indemnify and hold harmless Buyer with respect
to any liabilities thereunder.
ARTICLE III. PURCHASE PRICE
3.1 Purchase Price. The purchase price payable by Buyer to Seller
and Shareholders for the Assets and in consideration for the agreements
contained herein, including the agreements contained in Article XIV hereof,
will be payable as provided in Section 7.1 hereof and shall be Three Million
Two Hundred Fifty Thousand and No/100 Dollars ($3,250,000.00), subject to
adjustment pursuant to the terms of this Agreement (the "PURCHASE PRICE"). The
Purchase Price shall be payable in the following manner:
(1) Three Million Two Hundred Fifty Thousand and No/100
Dollars ($3,250,000.00), in cash in immediately available funds at Closing; and
(2) Assumption of the Assumed Liabilities at Closing.
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3.2 Apportionable Income and Expenses. All income and expense
attributable to the operation of the Business (measured on an accrual basis)
through 11:59 p.m. on the date of Closing shall be for the account of Seller
and Shareholders. Thereafter, such income and expense shall be for the account
of Buyer. Such apportionable income will include, but shall not be limited to,
all Medicaid reimbursements, payments or advances from private pay residents
and all federal social security payments or advances received before, on or
after Closing. All apportionable items of operating income and expense
applicable to any periods commencing before Closing and continuing after
Closing shall be prorated between Seller and Shareholders and, to the extent
they are included within the Assumed Liabilities, Buyer. Apportionable
operating income and expenses shall include, but shall not be limited to, such
items as prepaid income, power and utility charges, personal property taxes,
real estate taxes, insurance premiums and rents. The adjustments specified in
the preceding sentence shall, to the extent not known, be estimated by the
parties hereto in good faith at Closing to the extent reasonably possible based
on the most recent Financial Statements with provisional adjustments as shall
be mutually agreed at Closing and shall be called the "PRELIMINARY CLOSING
STATEMENT." No later than thirty (30) days after Closing, the parties hereto
shall prepare, if necessary, the "FINAL CLOSING STATEMENT" reflecting the
adjustments listed above in accordance with generally accepted accounting
principles on an accrual basis applied consistently. Adjustments made after
Closing based on the Final Closing Statement shall be payable in cash on or
before the tenth (10th) day following the date that the Final Closing Statement
is agreed upon, with interest at five percent (5%) per annum commencing at
Closing. If the parties are unable to agree on the Final Closing Statement
within thirty (30) days after Closing, they shall appoint a firm of independent
certified public accountants of recognized national standing (the "ACCOUNTANT")
to make such determination which determination shall be final and binding on
the parties hereto. Seller and Buyer shall each pay one-half ( 1/2) of the
entire cost of the Accountant.
3.3 Allocation of Purchase Price. The Purchase Price shall be
allocated among the Assets in the manner set forth in Exhibit 3.3 attached
hereto (the "ALLOCATION"). The parties to this Agreement agree that the
Allocation shall be used by them for all purposes including tax, reimbursement
and other purposes. Each party to this Agreement agrees that it will report
the transaction completed pursuant to this Agreement in accordance with the
Allocation, including any report made under Section 1060 of the Internal
Revenue Code of 1986, as amended (the "CODE"), and that no party will take a
position inconsistent with the Allocation except with the prior written consent
of the other parties hereto.
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLER
AND SHAREHOLDERS
As a material inducement to Buyer to enter into this Agreement and to
consummate the transactions contemplated herein, Seller and Shareholders hereby
jointly and severally represent and warrant to Buyer, which representations and
warranties shall be true and correct on the date hereof and as of the date of
Closing, as follows:
4.1 Organization, Qualification and Authority. Seller is a
corporation duly organized, validly existing and in good standing in the State
of Arkansas. Since the date of its organization and incorporation, Seller has
consistently observed, operated within and complied with the corporate
formalities and general corporation law of its state of incorporation. Seller
has full power and authority to own, lease and operate its facilities and
assets as presently owned, leased and operated and to carry on its business as
it is now being conducted. Except for Shareholders, no other person or entity
owns or holds, has any interest in, whether legal, equitable or beneficial, or
has the right to purchase, any capital stock or other security of Seller.
Neither Seller nor Shareholders are a party to, and there exists no voting
trust, shareholders' agreement, pledge agreement or other agreement relating to
the stock or equity interests of Seller. Seller has the full right, power and
authority to execute, deliver and carry out the terms of this Agreement and all
documents and agreements necessary to give effect to the provisions of this
Agreement and to consummate the transactions contemplated on the part of Seller
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 sole stockholders
of Seller, to permit or approve the actions of Seller taken in connection with
this Agreement. The execution, delivery and consummation of this Agreement,
and all other agreements and documents executed in connection herewith by
Seller, have been duly authorized by all necessary action on the part of
Seller. No other action, consent or approval on the part of Seller and
Shareholders or any other person or entity is necessary to authorize Seller's
due and valid execution, delivery and consummation of this Agreement and all
other agreements and documents executed in connection herewith. This Agreement
and all other agreements and documents executed in connection herewith by
Seller and/or Shareholders upon execution and delivery thereof, constitute the
valid and binding obligations of each of Seller and Shareholders as the case
may be, enforceable in accordance with their respective terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally and by general principles of equity.
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4.2 Subsidiaries. Seller has no interest, direct or indirect, in
any corporation, limited liability company, joint venture, general or limited
partnership or any other entity or business and the business carried on by
Seller has not been conducted, directly or indirectly, through any such entity.
Seller has no interest, direct or indirect, and has no commitment to purchase
any interest, direct or indirect, in any corporation, limited liability
company, general or limited partnership, joint venture or other entity.
4.3 Absence of Default. The execution, delivery and consummation
of this Agreement and all other agreements and documents executed in connection
herewith by Seller and/or Shareholders will not constitute a violation of, or
be in conflict with, and will not, with or without the giving of notice or the
passage of time, or both, result in a breach of, constitute a default under, or
create or cause the acceleration of the maturity of any debt, indenture,
obligation or liability affecting the Assets or the Business pursuant to, or
result in the creation or imposition of any security interest, lien, charge or
other encumbrance upon any of the Assets under: (1) any term or provision of
the Certificate of Incorporation or corporate Bylaws of Seller; (2) any
contract, lease, purchase order, agreement, document, instrument, indenture,
mortgage, pledge, assignment, permit, license, approval or other commitment to
which Seller and/or Shareholders are a party or by which Seller, Shareholders
and/or the Assets are bound; (3) any judgment, decree, order, regulation or
rule of any court or regulatory authority; or (4) any law, statute, rule,
regulation, order, writ, injunction, judgment or decree of any court or
governmental authority or arbitration tribunal to which Seller, Shareholders
and/or the Assets are subject or that would have an adverse effect on Buyer,
the Business or the Assets.
4.4 Financial Statements.
(1) Attached hereto as Exhibit 4.4 are true and correct
copies of Seller's audited balance sheets and income statements for the period
ended December 31, 1994 and December 31, 1995, and the interim unaudited
balance sheet and income statement of Seller for the three (3) month period
ended March 31, 1996 (the "FINANCIAL STATEMENTS"). The Financial Statements
are based on the books and records of Seller and present fairly and accurately,
in compliance with generally accepted accounting principles on an accrual
basis, the financial position of Seller as of, the results of its operations,
and all costs and expenses for the periods specified. The Financial Statements
disclose all liabilities, whether absolute, accrued, contingent, liquidated or
unliquidated, matured or not yet due, or otherwise existing as of their
respective dates. There exists no basis for the assertion of any liability or
obligation not adequately reflected in the Financial Statements. The Financial
Statements are true, complete and correct and contain no untrue or misleading
statements and do not omit anything which would cause them to be misleading or
inaccurate in any respect.
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(2) The books and records of Seller are in such order and
completeness that an unqualified audit may be performed for any period prior to
Closing not already audited. Seller and Shareholders shall fully and readily
cooperate with Buyer in Buyer's attempt to perform an audit of Seller for any
period prior to Closing not already audited.
4.5 Operations Since May 1, 1996. Since May 1, 1996, there has
been no:
(1) Material change in the condition, financial or
otherwise, of Seller, the Business or the Assets that has, or could reasonably
be expected to have, an adverse effect on any of the Assets, the Business or
future prospects of the Business, or the results of the operations of Seller;
(2) Loss, damage or destruction of or to any of the
Assets, whether or not covered by insurance;
(3) Sale, lease, transfer or other disposition by Seller
of, or mortgages or pledges of or the imposition of any lien, charge or
encumbrance on, any portion of the Assets, other than those made in the
ordinary course of business consistent with past practice;
(4) Increase in the compensation payable by Seller to any
of its 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,
officers, directors, independent contractors or agents of Seller;
(5) Adjustment or write-off of Receivables or reduction
in reserves for Receivables outside of the ordinary course of business
consistent with past practice;
(6) Change in Seller's accounting methods or practices or
depreciation or amortization policies;
(7) Issuance or sale by Seller or Shareholders, or
contract or other commitment entered into by Seller or Shareholders, for the
issuance or sale of any shares of capital stock or securities convertible into
or exchangeable for capital stock of Seller;
(8) Payment by Seller of any dividend, distribution or
extraordinary or unusual disbursement or expenditure or intercompany payable;
(9) Merger, consolidation or similar transaction, or
solicitation therefor;
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(10) Federal, state or local statute, rule, regulation,
order or case adopted, promulgated or decided which, to the best knowledge of
Seller and Shareholders, adversely affects the Business or Assets;
(11) Strike, work stoppage or other labor dispute;
(12) Material amendment to or change in the terms of any
contract or agreement binding Seller, the Business or the Assets;
(13) Termination, waiver or cancellation of any rights or
claims of Seller, under contract or otherwise;
4.6 Absence of Certain Liabilities. Except as set forth in
Exhibit 4.6, Seller has, and as of Closing will have, no contingent liabilities
or obligations.
4.7 Employment Discrimination. Except as disclosed in Exhibit 4.7
attached hereto, no person or party (including, without limitation, any
governmental agency) has asserted, or to the best knowledge of Seller and
Shareholders have threatened to assert, any claim for any action or proceeding
against Seller (or any officer, director, employee, agent or Shareholders of
Seller) arising out of any statute, ordinance or regulation relating to wages,
collective bargaining, discrimination in employment or employment practices or
occupational safety and health standards including, without limitation, the
Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, as
amended, the Occupational Safety and Health Act, the Age Discrimination in
Employment Act of 1967, the Americans With Disabilities Act and the Family and
Medical Leave Act. The claims disclosed in Exhibit 4.7 will not result in any
liability to or obligation of Buyer and will not cause or lead to any lien or
encumbrance being placed, created or filed against or upon any of the Assets.
4.8 Licenses and Permits.
(1) Seller has all local, state, federal and other licenses,
permits, registrations, certificates, contracts, consents, accreditations and
approvals (collectively, the "LICENSES AND PERMITS") necessary for Seller to
occupy, operate and conduct the Business, and there exists no waiver or
exemption relating thereto, except with respect to certain oral waivers
regarding the ceiling and return air systems. There is no default under any of
the Licenses and Permits. There exists no ground for revocation, suspension or
limitation of any of the Licenses or Permits. Copies of each of the Licenses
and Permits are attached to and listed on Exhibit 4.8(1) attached hereto. The
most recent licensure surveys and deficiency reports related to each of these
items has also been included in Exhibit 4.8(1). Seller is, and at the time of
Closing will be, licensed by the regulatory
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bodies listed on Exhibit 4.8(1). No notices have been received by Seller or
Shareholders with respect to any threatened, pending, or possible revocation,
termination, suspension or limitation of any of the Licenses and Permits.
(2) Seller has all certificates of need or non-review
letters from the State of Arkansas necessary to operate the Business. Seller
has complied fully with the requirements, and conditions thereof. Exhibit
4.8(2) attached hereto lists and contains copies of all implemented and
unimplemented certificates of need and non-review letters issued to the
Business or to Seller. All unimplemented certificates of need and non-review
letters have been implemented in accordance with their terms. All
unimplemented certificates of need are marked with an asterisk.
(3) Each employee of Seller has all Licenses and Permits
required for each such employee to perform such employee's designated functions
and duties for Seller in connection with the Business, and there exists no
waiver or exemption relating thereto. There is no default under, nor does
there exist any ground for revocation, suspension or limitation of any such
Licenses and Permits.
4.9 Medicaid, Medicare and Other Third-Party Payors.
(1) Seller participates in the Medicaid Program (the
"PROGRAM"). A list of and copies of Seller's Medicaid contract and provider
number (or if such contracts do not exist other documentation evidencing such
participation)(collectively, the "PROGRAM AGREEMENTS") are included in Exhibit
4.9(1) attached hereto. Seller is, and will be at the time of Closing, in full
compliance with the terms, conditions and provisions of the Program Agreements.
(2) Exhibit 4.9(2) attached hereto contains a copy of
Seller's most recent Statement of Deficiencies and Plan of Correction, if any.
(3) No notice of any offset against future reimbursements
under or pursuant to the Program has been received by either Seller or
Shareholders nor is there any basis therefor. There are no pending appeals,
adjustments, challenges, audits, litigation, or notices of intent to recoup
past or present reimbursements with respect to the Program. Seller has not
been subject to or threatened with loss of waiver of liability for utilization
review denials with respect to the Program nor have either Seller or
Shareholders received notice of any pending, threatened or possible
decertification or other loss of participation in any of the Program.
(5) In the event that Buyer suffers any offsets against
any reimbursement due to Buyer under any third-party payor or reimbursement
programs, including but not
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limited to the Programs, relating to the periods on or prior to Closing, then
Seller and Shareholders shall immediately pay to Buyer the amounts so offset
with interest at a rate equal to five percent (5%) per annum accruing from the
date of offset by the third party until the date paid by Seller and
Shareholders to Buyer.
4.10 Cost Reports. Seller has previously furnished Buyer true,
correct and complete copies of Seller's Medicaid cost reports for Seller's last
three (3) fiscal years. The cost reports are complete and accurate for the
periods indicated. All liabilities and contractual adjustments of the Business
under any third party payor or reimbursement programs have been properly
reflected and reserved for in the Financial Statements.
4.11 Compliance with Zoning, Land Use and Other Laws; Easements.
(1) None of the Real Estate is in violation of any zoning
public health, building code or other similar law, ordinance or regulation
applicable thereto or to the ownership, occupancy and/or operation thereof, nor
does there exist any waiver or exemption relating to the Real Estate with
respect to any zoning building codes matters. The Real Estate is not subject
to any zoning ordinances or regulations.
(2) None of the Real Estate is in violation of any
restrictive covenants or other restriction of any nature, or Seller or
Shareholders, as appropriate, have obtained all necessary and appropriate
waivers and exemptions with respect thereto for any such noncompliance.
(3) No person or entity is a lessee of any portion of the
Real Estate and no persons other than Seller and residents of the Business has
any right to possess or occupy the Real Estate.
(4) There are presently located on the Real Estate an
adequate number of parking spaces for use and operation of the Business as it
is presently conducted. Seller or Shareholders have all easements and rights
necessary to continue operation of the Business, copies of which are set forth
in Exhibit 4.11 attached hereto.
4.12 Title to Assets.
(1) Seller is the sole legal and beneficial owner of, or
has the exclusive, unrestricted right and authority to use and transfer to
Buyer, the personal property included in the Assets, free and clear of all
mortgages, security interests, liens, leases, covenants, assessments,
easements, options, rights of refusal, restrictions, reservations, defects in
the title, encroachments and other encumbrances, except as set forth in Exhibit
4.12(1) attached hereto. The Assets are all the assets used in the operation
of the Business.
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(2) Except as specified in Exhibit 1.2, the descriptions
of the Real Estate contained in Exhibit 1.1(1) hereto and in each of the deeds,
assignments and other documents of transfer or conveyance required to be
delivered by Seller to Buyer pursuant to this Agreement are accurate, complete
and sufficient for their intended purposes and such descriptions include all
real property leased or owned by Seller and/or Shareholders and used in
connection with the Business or set forth on the Financial Statements. Seller
is, and at Closing will be, the sole and exclusive record, legal and equitable
owner of all right, title and interest in and has, and at Closing will have,
good, marketable and insurable title in fee simple to, and is and will be, in
possession of, all of the Real Estate used in connection with the Business
including the buildings, structures and improvements situated thereon and all
appurtenances thereto, in each case free and clear of all mortgages, liens,
leases, assessments, easements, covenants, options, rights of refusal,
restrictions, reservations, defects in title, encroachments and other
encumbrances or claims of any other person or party, whether or not the same
render the title to such Real Estate uninsurable or unmarketable, except for
the items agreed to by Buyer and listed on Exhibit 4.12(2) attached hereto (the
"PERMITTED EXCEPTIONS"). Seller is in lawful possession of and has good,
marketable and insurable leasehold title to all of the Real Estate that is
leased to Seller rather than owned by Seller (the "LEASED REAL ESTATE")
including, without limitation, the buildings, structures and improvements
situated thereon and appurtenances thereto, in each case free and clear of all
mortgages, liens, restrictions, and other encumbrances or claims of any other
person or party except for the items agreed to by Buyer and listed on Exhibit
4.12(2) attached hereto as Permitted Exceptions. Additionally, Seller and
Shareholders have, and will at Closing have, the full right and authority to
transfer and convey the 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 Buyer good, marketable and insurable fee simple or
leasehold title, as the case may be, and the lawful right to possess and use
the Real Estate superior in right to all others.
4.13 Leases and Contracts.
(1) Exhibit 4.13 attached hereto sets forth a complete
and accurate list of all contracts, agreements, purchase orders, leases,
subleases, options and commitments, oral or written, and all assignments,
amendments, schedules, exhibits and appendices thereof, affecting or relating
to the Business or any Asset or any interest therein, to which either Seller
and Shareholders are a party or by which Seller, the Assets or the Business is
bound or affected, including, without limitation, service contracts, management
agreements, equipment leases, office leases and ground or building leases
pertaining to any part of the Real Estate (collectively, the "LEASES AND
CONTRACTS"). Attached to Exhibit 4.13 are accurate and complete copies of all
Leases and Contracts and detailed descriptions of all oral Leases and
Contracts. Except for the Assumed Liabilities, all
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Leases and Contracts and all other obligations and liabilities relating to the
Assets and the Business shall be retained by Seller.
(2) None of the Leases and Contracts have been modified,
amended, assigned or transferred and each is in full force and effect and is
valid, binding and enforceable in accordance with its respective terms except
as enforcement may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally and by general principles of
equity.
(3) No event or condition has happened or presently
exists that constitutes a default or breach or, after notice or lapse of time
or both, would constitute a default or breach by any party under any of the
Leases and Contracts. There are no counterclaims or offsets under any of the
Leases and Contracts.
(4) There does not exist any security interest, lien,
encumbrance or claim of others created or suffered to exist on any interest
created under any of the Leases and Contracts (except for those that result
from or relate to leased Assets).
(5) No purchase commitment by Seller is in excess of
Seller's ordinary business requirements consistent with past practice.
(6) Seller's assignment to Buyer of those Leases and
Contracts constituting part of the Assumed Liabilities will not default, alter
or terminate any such Leases and Contracts and such assignment will confer and
convey all of Seller's rights thereunder to Buyer.
(7) None of the Leases and Contracts shall be amended
between the date hereof and Closing without the prior written consent of Buyer.
(8) Except as specifically identified on Exhibit 4.13
attached hereto, none of the Leases and Contracts is: (a) a capitalized lease
within the meaning of generally accepted accounting principles; (b) a lease
with a remaining term of one (1) year or more from Closing and which cannot be
canceled within thirty (30) days at the option of Seller without penalty; or
(c) a lease containing an option to purchase.
4.14 Environmental Matters.
(1) Hazardous Substances. As used in this Section, the
term "HAZARDOUS SUBSTANCES" means any hazardous or toxic substance, material or
waste including, but not limited to, those substances, materials, and wastes
defined in Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as
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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 defined herein), or any hydrocarbons, petroleum,
petroleum products, asbestos, polychlorinated biphenyls, formaldehyde,
radioactive substances, flammables or explosives.
(2) Compliance with Laws and Regulations. All operations
or activities upon, or any use of occupancy of the Real Estate, or any portion
thereof, by Seller any Affiliates of Seller (the term "AFFILIATES" shall mean
any person or entity controlling, controlled by or under common control with
Seller, and the term "CONTROL" shall mean the power, direct or indirect, to
direct the management or policies of such person or entity), and any agent,
contractor or employee of any agent or contractor of Seller or its Affiliates
(collectively, "AGENTS"), or any tenant or subtenant of Seller of any part of
the Real Estate, have been in compliance with any and all laws, regulations,
orders, codes, judicial decisions, decrees, licenses, permits and other
applicable requirements of governmental authorities with respect to Hazardous
Substances, pollution or protection of human health and safety (collectively,
"ENVIRONMENTAL LAW") including, but not limited to, the release, emission,
discharge, storage and removal of Hazardous Substances. Seller, Affiliates and
Agents have kept the Real Estate free of any lien imposed pursuant to
Environmental Law. To the best knowledge of Seller and Shareholders, all prior
owners, operators and occupants of the Real Estate complied with Environmental
Law. Except for uses and storage or presence of Hazardous Substances
reasonably necessary or incidental to the customary operation of a business
similar to the Business, as appropriate, which if required, was duly licensed
or authorized by appropriate governmental authorities or otherwise permitted by
Environmental Law, and which complies with Environmental Law:
(a) Neither Seller, Affiliates nor, to the best
knowledge of Seller and Shareholders, the Agents have allowed the use,
generation, treatment, handling, manufacture, voluntary transmission or storage
of any Hazardous Substances over, in or upon the Real Estate, nor, to the best
knowledge of Seller and Shareholders, has the Real Estate ever been used for
any of the foregoing.
(b) Neither Seller, Affiliates nor, to the best
knowledge of Seller and Shareholders, the Agents have installed or permitted to
be installed in or on the Real Estate friable asbestos or any substance
containing asbestos in condition or amount deemed hazardous by Environmental
Law respecting such material.
(c) Seller has not at any time engaged in or
permitted, nor to the best knowledge of Seller and Shareholders, has any tenant
of Seller, Agent, Affiliate or any other occupant of the Real Estate, or any
portion thereof, engaged in or permitted any
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dumping, discharge, disposal, spillage, or leakage (whether legal or illegal,
accidental or intentional) of Hazardous Substances at, on, in or about the Real
Estate or any portion thereof that would subject the Real Estate, Seller or
Buyer to clean-up obligations imposed by governmental authorities.
(d) None of the Real Estate, nor any part
thereof, nor Seller nor any present owner or operator of the Real Estate: (i)
has either received or been issued a notice, demand, request for information,
citation, summons or complaint regarding an alleged failure to comply with
Environmental Law; or (ii) is subject to any existing, pending, or threatened
investigation or inquiry by any governmental authority for failure to comply
with, or any remedial obligations under, Environmental Law, and there are no
circumstances known to Seller or Shareholders which could serve as a basis
therefor. Seller has not assumed any liability of any third party for clean up
under, or noncompliance with, Environmental Law.
(e) Neither Seller, its Affiliates nor, to the best
knowledge of Seller and Shareholders, the Agents have transported or arranged
for the transportation of any Hazardous Substances to any location which is
listed or, to the best knowledge of Seller and Shareholders, proposed for
listing under Environmental Law, or is the subject of any enforcement action,
investigation or other inquiry under Environmental Law.
Seller and Shareholders shall promptly notify Buyer in writing of any
order of which any of them is aware, receipt of any notice of violation or
noncompliance with any Environmental Law, any threatened or pending action of
which either is aware by any regulatory agency or governmental authority, or
any claims made by any third party of which it is aware relating to Hazardous
Substances on, emanations on or from, releases on or from, any of the Real
Estate which relate to the period prior to Closing; and shall promptly furnish
Buyer with copies of any written correspondence, notices or legal pleadings and
written summaries of any oral communications or notices in connection
therewith. If, and only if, required by law or the failure to do so would
impose liabilities on Buyer or the Assets, Buyer shall have the right, but
shall not be obligated, to notify any governmental authority of any facts which
may come to its attention with respect to Hazardous Substances on, released
from or emanating from any part of the Real Estate. Buyer shall give Seller
prior or simultaneous notice of such notification.
(3) Other Environmental Matters. There are no
underground storage tanks on any portion of the Real Estate and the Real Estate
is free of dangerous levels of naturally-emitted radon. To the best knowledge
of Seller and Shareholders, no portion of the Real Estate has ever been used as
a landfill. Seller has furnished to Buyer a copy of any environmental audit,
study, report or other analysis on the Real Estate which Seller or its
Affiliates obtained or were furnished.
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4.15 Miscellaneous Representations Relating to Real Estate.
(1) No part of the Real Estate is currently subject to
condemnation proceedings and no condemnation or taking is threatened or
contemplated. There are no public improvements which may result in special
assessments against or otherwise affect the Real Estate. The Real Estate is
not located in any water, sewer or other utility district that could impose any
special assessment against the Real Estate or the improvements located thereon.
There are no facts known to Seller or Shareholders that would adversely affect
the possession, use or occupancy of the Real Estate.
(2) Set forth on Exhibit 4.15 attached hereto is a
complete and accurate list of all appraisals, mechanical and structural studies
or reports or assessments, engineering plans, architectural drawings, soil
studies, surveys and other documents which have been prepared by or at the
direction of Seller or Shareholders relating to any of the Assets, true,
complete and accurate copies of each of which have been delivered to Buyer.
(3) All utilities serving the Real Estate are adequate to
operate the Real Estate in the manner it is currently operated and all utility
lines, pipes, hook-ups, wires and other utility facilities serving the Real
Estate are located within recorded easements for the benefit of the Real
Estate. There are no encroachments upon the Real Estate and no encroachment of
any improvements located on the Real Estate onto adjacent property. None of
the improvements located on the Real Estate violate any building or other
set-back lines, whether front, side or rear, nor do they encroach on any
easements located on the Real Estate.
(4) All potable and industrial water and all gas,
electrical, steam, compressed air, telecommunication, sanitary and storm sewage
lines and systems and other similar systems serving the Real Estate and the
facilities of the Business are installed and operating and are sufficient to
enable the Real Estate and the facilities of the Business to continue to be
used and operated in the manner currently being used and operated, and any
so-called tap-fees, hook-up fees, connection fees or other associated charges
accrued have been fully paid.
(5) Seller has received no written recommendation from
any insurer to repair or replace any of the improvements or other facilities
located on the Real Estate with which Seller has not complied.
4.16 Litigation. There is no suit, claim, action, or legal,
administrative, arbitration, or other proceeding or governmental investigation
pending or threatened (and no fact or facts exist which could result in any
such claim, action, proceeding or investigation) by or against Seller, and no
event or condition of any character pertaining to Seller, the Business
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or the Assets, exists which could: (1) prevent the consummation of the
transactions contemplated by this Agreement; (2) either individually or in the
aggregate adversely affect Buyer's ownership or operation of the Business or
the Assets; or (3) either individually or in the aggregate diminish the value
of the Business or the Assets as a going concern. Neither Seller nor
Shareholders have received notice of any violation of any law, rule,
regulation, ordinance or order of any court or federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality (including, without limitation, legislation and regulations
applicable to the Medicaid program, environmental protection, civil rights,
public health and safety and occupational health). Except as set forth in
Exhibit 4.16 attached hereto (for which Seller and Shareholders shall jointly
and severally indemnify and hold harmless Buyer), there are no lawsuits,
proceedings, actions, arbitrations, governmental investigations, claims,
inquiries or proceedings pending or threatened involving Seller, Shareholders,
any of the Assets or the Business and Seller and Shareholders know of no basis
therefor.
4.17 Seller's Employees. Exhibit 4.17 attached hereto sets forth:
(1) a complete list of all of Seller's employees and rates of pay; (2)
categorization of each such person as a full-time or part-time employee of
Seller; (3) the employment dates and job titles of each such person; (4) true
and complete copies of any and all fringe benefits and personnel policies; and
(5) a list of all ex-employees of Seller utilizing or eligible to utilize COBRA
(health insurance). For purposes of this Section, "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 (6) of the twelve (12) months
preceding the date on which notice is required pursuant to the Worker
Adjustment and Retraining Notification Act ("WARN"), 29 U.S.C. Section 2102 et
seq. Except as provided in Exhibit 4.13, Seller has no employment agreements
with its employees and all such employees are employed on an "at will" basis.
Seller will terminate all of its employees at Closing and each of Seller and
Shareholders agree, jointly and severally, to indemnify and hold Buyer harmless
from and against any and all claims of Seller's employees relating to their
employment by Seller through Closing and such termination, whenever made.
Other than Assumed Liabilities, the parties expressly agree that Seller shall
retain responsibility for and fully and timely pay all salaries and wages,
related payroll taxes and all sick leave, holiday, vacation benefits,
retirement and other fringe benefits that have accrued to its employees through
Closing. Seller shall use its best efforts to retain its employees in their
current positions up to Closing.
4.18 Labor Relations. Seller is not a party to any labor contract,
collective bargaining agreement, contract, Letter of Understanding, or any
other arrangement, formal or informal, with any labor union or organization
which obligates Seller to compensate Seller's employees at prevailing rates or
union scale nor are any of its employees represented by any labor union or
organization. There is no pending or threatened labor
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dispute, work stoppage, unfair labor practice complaint, strike, administrative
or court proceeding or order between Seller and any present or former
employee(s) of Seller. There is no pending or threatened suit, action,
investigation or claim between Seller and any present or former employee(s) of
Seller. There has not been any labor union organizing activity at any location
of Seller, or elsewhere, with respect to Seller's employees within the last
three (3) years.
4.19 Insurance. Seller has in effect and has continuously
maintained insurance coverage for its operations, personnel and assets, and for
the Assets and the Business. A complete and accurate list of all such
insurance policies is set forth on Exhibit 4.19 attached hereto. True and
complete copies of such policies have previously been provided to Buyer.
Exhibit 4.19 also sets forth a summary of Seller's current insurance coverage
(listing type, carrier and limits), and includes a list of any pending
insurance claims relating to Seller. Seller and Shareholders agree, jointly
and severally, to indemnify and hold harmless Buyer from and against such
pending insurance claims. Seller is not in default or breach with respect to
any provision of any such insurance policies nor has Seller failed to give any
notice or to present any claim thereunder in due and timely fashion. Such
insurance is adequate to cover all business risks normally insured against by
owners and operators of healthcare facilities. Seller will continue to
maintain all insurance policies and coverage amounts in full force and effect
through Closing.
4.20 Broker's or Finder's Fee. Neither Seller nor Shareholders
have employed or are liable for the payment of any fee to any finder, broker,
consultant or similar person in connection with the transactions contemplated
by this Agreement.
4.21 Conflicts of Interest. None of the following is either a
supplier of goods or services to Seller, or directly or indirectly controls or
is a director, officer, employee or agent of any corporation, firm,
association, partnership, limited liability company or other business entity
that is a supplier of goods or services to Seller: (1) Shareholders; (2) any
director or officer of Seller; or (3) any entity under common control with
Seller or controlled by or related to Shareholders.
4.22 Experimental Procedures. Seller has not performed or
permitted the performance of any experimental or research procedures or studies
involving residents of the Business.
4.23 Intellectual Property. All trademarks, service marks, trade
names, patents, inventions, processes, copyrights and applications therefor,
whether registered or at common law (collectively, the "INTELLECTUAL
PROPERTY"), used in or related to the Business are listed and described on
Exhibit 4.23 attached hereto. No proceedings have been instituted or are
pending or threatened which challenge the validity of the ownership by
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Seller of any such Intellectual Property. Seller has not licensed anyone to
use any such Intellectual Property and neither Seller nor Shareholders have any
knowledge of the use or the infringement of any of such Intellectual Property
by any other person. Seller owns or possesses adequate and enforceable
licenses or other rights to use all Intellectual Property now used in the
conduct of the Business. No present or former employee of Seller and no other
person owns or has any proprietary, financial or other interest, direct or
indirect, in whole or in part, in any of the Intellectual Property. Seller
does not have any obligation to compensate any person, organization or entity
for use of any of the Intellectual Property.
4.24 Inventories. The Inventory is, and at Closing will be, of a
quality and quantity presently used by Seller in the ordinary course of its
business consistent with past practice. The Inventory is, and at Closing will
be, properly valued at the lower of cost or market value on a
first-in/first-out basis in accordance with generally accepted accounting
principles consistently applied. Since the date of the Unaudited Financial
Statements, Seller has not decreased or substituted items of Inventory other
than in the ordinary course of its business consistent with past practice. The
Inventory is not recorded on the Financial Statements.
4.25 Employee Benefit Plans.
(1) Welfare Benefit Plans. Exhibit 4.25(1) attached
hereto contains a true, accurate and complete list of each "EMPLOYEE WELFARE
BENEFIT PLAN" (as defined in Section 3(1) of the Employee Retirement Income
Security Act of 1974 as amended ("ERISA")) maintained by Seller or to which
Seller contributes or is required to contribute (such employee welfare benefit
plans being hereinafter collectively referred to as the "WELFARE BENEFIT
PLANS"). Complete and accurate copies of all Welfare Benefit Plans have
previously been provided to Buyer.
(2) Pension Benefit Plans. Exhibit 4.25(2) attached
hereto contains a true and complete list of each "EMPLOYEE PENSION BENEFIT
PLAN" (as defined in Section 3(2) of ERISA) maintained by Seller, to which
Seller contributes or is required to contribute, or which covered any employee
of Seller during the period of their employment with any predecessor of Seller,
including any multi-employer pension plan as defined under Section 414(f) of
the Code (such employee pension benefit plans being hereinafter collectively
referred to as the "PENSION BENEFIT PLANS"). Complete and accurate copies of
all Pension Benefit Plans have previously been provided to Buyer.
(3) Liabilities. Unfunded liabilities under any Welfare
Benefits Plans or Pension Benefit Plans are described on Exhibit 4.25(3)
attached hereto. Buyer shall not be liable or responsible for any debt,
obligation, responsibility or liability of Seller under any
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such plans. Seller shall be liable under its Welfare Benefit Plans and Pension
Benefit Plans for all claims due and unpaid at Closing and for all claims
incurred before Closing, whether or not paid or presented before Closing and
Seller and Shareholders shall jointly and severally indemnify and hold Buyer
harmless therefrom.
(4) Termination of Participation. Upon Closing, Seller
shall cease to be a participating employer under all Pension Benefit Plans and
Welfare Benefit Plans maintained by Seller, and any such action by Seller shall
in no way diminish its obligations to Buyer.
(5) COBRA Coverage. Seller has provided or caused to be
provided notice of the availability of continuation coverage within the meaning
of Section 4980B of the Code ("COBRA COVERAGE") for all of its present and
former employees and their dependents entitled to such notice because of a
qualifying event occurring before Closing, and for providing COBRA coverage as
required by law for all such employees, or their dependents, who elect or have
elected such coverage. All COBRA coverage has been and will through Closing
be fully insured.
4.26 Compliance with Healthcare Laws and Other Laws. Neither
Seller nor Shareholders have made any kickback, bribe or payment to any person
or entity, directly or indirectly, for referring, recommending or arranging
business or residents with, to or for Seller. The Business does not violate any
statute, law, rule, ordinance or regulation which would prohibit a corporation
from conducting the business or practice of operating nursing homes and
providing related services and/or prohibits the receipt by a corporation of
fees (or portions thereof) generated by employees or agents who are licensed
physicians or other health care professionals. None of the Leases and
Contracts and no activity of Seller violates Section 1877 of the Social
Security Act or any similar provision of applicable state law. None of the
Leases and Contracts and no activity of Seller violates provisions of
applicable state law relating to the corporate practice of medicine. Seller is
in compliance (without obtaining waivers, variances or extensions) with all
federal, state and local laws, rules and regulations which relate to the
operations of the Business. No bulk sales or similar statute applies to the
transactions contemplated under this Agreement. All healthcare cost reports,
tax and other returns, reports, plans, claims and filings of any nature
required to be filed by Seller with any federal, state or local governmental
authorities and any third party payors have been properly completed and timely
filed in compliance with all applicable requirements and each return, report,
plan and filling contains no untrue or misleading statements and does not omit
anything which would cause it to be misleading or inaccurate. Seller shall
retain and be responsible for any liability incurred in connection with any
such return, report, plan and filing.
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4.27 Condition of Assets. The Assets, together with the Excluded
Assets, comprise all of the assets owned by Seller and all assets used in
connection with the Business. All of the Assets, including all components of
all of the Equipment and Furnishings: (1) operate in accordance with their
respective specifications; (2) perform the functions they are supposed to
perform; (3) are free of structural, installation, engineering, or mechanical
defects or problems; and (4) are otherwise in good working order. Seller has
received no written recommendation from any insurer to repair or replace any of
the Assets with which Seller has not complied.
4.28 WARN Act. Within the period ninety (90) days prior to
Closing, Seller has not temporarily or permanently closed or shut down any
single site of employment or any facility or any operating unit, department or
service within a single site of employment, as such terms are used in WARN.
4.29 Tax Returns; Taxes. Seller has filed all federal, state and
local tax returns and tax reports required by such authorities to be filed.
Seller has paid all taxes, assessments, governmental charges, penalties,
interest and fines due or claimed to be due (including, without limitation,
taxes on properties, income, franchises, licenses, sales and payrolls) by any
federal, state or local authority. There is no pending tax examination or
audit of, nor any action, suit, investigation or claim asserted or, to the best
knowledge of Seller and Shareholders threatened against Seller by any federal,
state or local authority. Seller has not been granted any extension of the
limitation period applicable to any tax claims. All tax returns are (and with
respect to the final returns will be) at the time of filing complete and
accurate and in accordance with the tax laws applicable thereto and disclose
all taxes required to be paid for the periods covered thereby. No extensions
of time in which to file any such return, report or declaration is in effect.
All taxes shown to be due on such returns, reports and declarations and any
deficiencies, assessments, penalties and interest have been paid or will be
paid on their due dates. Seller has not committed any violation of any
federal, state or local tax laws. Proper amounts have been collected or
withheld by Seller for all income, franchise, property, sales, employment or
other taxes payable or anticipated to be payable and for the payment of all
other taxes (including without limitation all employment, sales or use taxes).
Proper amounts have been withheld or collected from each payment made or to be
made to each employee of Seller for all taxes required to be withheld
therefrom. Seller is not required by law to notify any federal, state or local
taxing authority or any creditor or other person or entity of the intended sale
of the Assets to Buyer.
4.30 Bankruptcy. Seller is not involved in any proceedings in any
court under any bankruptcy law or any other insolvency or debtors' relief law,
whether federal or state, or for the appointment of a trustee, receiver,
liquidator, assignee, sequestrator or other similar official of Seller or any
of Seller's property.
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4.31 Resident Agreements. There are no resident care agreements
with residents of the Business or with any other persons or organizations that
deviate from the standard form customarily used by Seller. Except as
specifically summarized and set forth on Exhibit 4.31 attached hereto, Seller
has no agreements with any payors, residents or prospective residents which
obligate or would obligate Seller to provide services at rates below Seller's
current and standard rates for similar services for terms longer than one (1)
month.
4.32 Resident Trust Funds. All resident trust funds held for the
benefit of residents of the Business are in balance and will be in balance at
Closing. Any deficiencies in resident trust funds revealed by audits of Buyer
or state agencies relating to operations of the Business prior to Closing shall
be paid or refunded by Seller and Shareholders.
4.33 Prepayments and Deposits. The prepayments of room charges and
resident security deposits received by Seller are listed on Exhibit 4.33
attached hereto. Exhibit 4.33 will be updated to Closing by Seller for
purposes of crediting such prepayments and deposits to Buyer's account.
4.34 Occupancy Rate. For the twelve (12) months ending April 30,
1996 the average occupancy at the Business, the number of private pay patients,
the average rate per diem for such private patients, the number of patients for
which Seller received Medicaid funds and the average rate per diem for such
Medicaid supported patients are set forth on Exhibit 4.34(a) attached hereto.
Seller shall use its best efforts to maintain occupancy rates at the same
levels through Closing. For each of the periods of: (1) one (1) month before
Closing; and (2) five (5) days before Closing, the average total and private
pay occupancy shall not have substantially decreased from the averages for the
month ending April 30, 1996, and the average rates shall not have decreased. A
substantial decrease shall be defined as five percent (5%) of licensed beds or
more. Attached hereto as Exhibit 4.34(b) is a true and accurate list
identifying all patients, their method of payment, their addresses, the name
and address of the persons financially responsible for paying the amounts due
from such patients, the rates payable by such patients, and the date they first
became patients of the Business and whether (and for how long) they are in
arrears in payments. Exhibit 4.34(b) will be supplied at Closing.
4.35 No Omissions or Misstatements. There is no fact material to
the Assets, liabilities, Business or prospects of Seller or the Business which
has not been set forth or described in this Agreement or in the Exhibits hereto
and that is material to the conduct, prospects, operations or financial
condition of Seller, the Business or the Assets. None of the information
included in this Agreement and Exhibits hereto, or other documents furnished or
to be furnished by Shareholders or Seller, or any of their representatives,
contains any untrue statement of a material fact or is misleading in any
material respect
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or omits to state any material fact necessary in order to make any of the
statements herein or therein not misleading in light of the circumstances in
which they were made. Copies of all documents referred to in any Exhibit
hereto have been delivered or made available to Buyer and constitute true,
correct and complete copies thereof and include all amendments, exhibits,
schedules, appendices, supplements or modifications thereto or waivers
thereunder. The representations and warranties of Seller and Shareholders in
this Agreement or in any document delivered pursuant to this Agreement shall
not be affected or deemed waived by reason of the fact that Buyer knew or
should have known that any representation or warranty is or might be inaccurate
in any respect.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Seller and Shareholders to enter into this
Agreement and to consummate the transactions contemplated herein, Buyer hereby
represents and warrants to Seller and Shareholders which representations and
warranties shall be true and correct on the date hereof and on the date of
Closing, as follows:
5.1 Organization, Qualification and Authority. Buyer is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Tennessee. Buyer has the full corporate power and
authority to own, lease and operate its properties and assets as presently
owned, leased and operated and to carry on its business as it is now being
conducted. Buyer has the full right, power and authority to execute, deliver
and carry out the terms of this Agreement and all documents and agreements
necessary to give effect to the provisions of this Agreement and to consummate
the transactions contemplated on the part of Buyer hereby. The execution,
delivery and consummation of this Agreement and all other agreements and
documents executed in connection herewith by Buyer has been duly authorized by
all necessary corporate action on the part of Buyer. No other action on the
part of Buyer or any other person or entity is necessary to authorize the
execution, delivery and consummation of this Agreement and all other agreements
and documents executed in connection herewith. This Agreement, and all other
agreements and documents executed in connection herewith by Buyer, upon due
execution and delivery thereof, shall constitute the valid binding obligations
of Buyer, enforceable in accordance with their respective terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally and by general principles of equity.
5.2 Absence of Default. The execution, delivery and consummation
of this Agreement and all other agreements and documents executed in connection
herewith by Buyer will not constitute a violation of, be in conflict with, or,
with or without the giving of notice or the passage of time, or both, result in
a breach of, constitute a default under, or
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create (or cause the acceleration of the maturity of) any debt, indenture,
obligation or liability or result in the creation or imposition of any security
interest, lien, charge or other encumbrance upon any of the Assets (except in
the ordinary course pursuant to Buyer's existing credit agreements) under: (1)
any term or provision of the Charter or Bylaws of Buyer; (2) 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; (3) any judgment, decree, order, regulation or rule of any court or
regulatory authority; or (4) any law, statute, rule, regulation, order, writ,
injunction, judgment or decree of any court or governmental authority or
arbitration tribunal to which Buyer is subject.
5.3 Broker's or Finder's Fee. Buyer has employed Paul Thomason of
Diversified Health Properties and is liable for the payment of fees to Mr.
Thomason in connection with the transactions contemplated by this Agreement.
ARTICLE VI. COVENANTS OF PARTIES
6.1 Preservation of Business and Assets. From the date hereof
through Closing, each of Seller and Shareholders shall use their best efforts
and shall do or cause to be done all such acts and things as may be necessary
to preserve, protect and maintain intact the operation of the Business and
Assets as a going concern consistent with prior practice and not other than in
the ordinary course of business and to preserve, protect and maintain for Buyer
the good will of the medical staff, suppliers, employees, clientele, residents
and others having business relations with Seller or the Business. Each of
Seller and Shareholders shall use their best efforts to obtain all documents
called for by this Agreement. Buyer, Seller and Shareholders shall use their
best efforts to facilitate the consummation of the transactions contemplated
under this Agreement. Until termination of this Agreement, Seller and
Shareholders agree that they will not sell or transfer, or negotiate the sale
or transfer of, either the Assets or any stock of Seller. From the date hereof
until Closing, Seller shall pay no dividend, and shall make no distribution or
extraordinary payment to Shareholders or any third party or pay any
intercompany payable and, other than in the ordinary course of business
consistent with past practice, Seller will not sell, discard or dispose of any
of the Assets. None of the Leases and Contracts shall be amended between the
date hereof and Closing without the prior written consent of Buyer. From the
date hereof through Closing, Seller and any party in possession of all or any
part of the Real Estate will not perform any material grading or excavation,
construction or removal of any improvement, or make any material other change
or improvement upon or about the Real Estate. From the date hereof through
Closing, Seller and any party in possession of all or any part of the Assets
will maintain and keep the Assets in a sanitary, well-maintained condition and
in good order and repair.
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6.2 Absence of Material Change. From the date hereof through
Closing, neither Seller nor Shareholders shall make any change in the Business
or and in the utilization of the Assets and shall not enter jointly or
separately into any other material contract or commitment or any other
transaction with respect to the Business or the Assets without the prior
written consent of Buyer.
6.3 Access to Books and Records.
(1) From the date hereof through Closing, Seller and
Shareholders shall give to Buyer and to Buyer's counsel, accountants and other
representatives full access to all of Seller's and Shareholders' offices,
properties, books, contracts, commitments, records and affairs relating to the
Assets or the Business so that Buyer may inspect and audit them and shall
furnish to Buyer a copy of all documents and information concerning the
properties and affairs of Seller, the Business or the Assets as Buyer may
request. If any such books, records and materials are in the custody of third
parties, Seller shall direct such third parties to promptly provide them to
Buyer. Copies of documents furnished to Buyer by Seller will be returned by
Buyer upon request if the transaction is not consummated. Seller shall provide
Buyer promptly with interim financial statements of Seller and any other
management reports, as and when they are available.
(2) Following Closing, Buyer shall permit Seller's
representatives (including, without limitation, its counsel and auditors),
during normal business hours, to have reasonable access to, and examine and
make copies of, all books and records of the Business which relate to
transactions or events occurring through Closing. Seller's reasonable
out-of-pocket costs associated with the delivery of the requested documents
shall be paid by Seller.
(3) After Closing, Seller and Shareholders shall make the
books and records of Seller available to Buyer (and, without limitation, to
Buyer's auditors and other agents) and shall otherwise cooperate with Buyer in
order to permit Buyer to conduct an audit of Seller's financial statements for
any period prior to Closing not already audited. Seller agrees to cooperate
with Buyer in Buyer's preparation of financial statements relating to such
periods and Buyer's filing in a timely manner of registration statements,
private placement memoranda and periodic reports, if any, pursuant to any
applicable federal or state securities law.
6.4 Risk of Loss. In the event there is any damage to or loss of
any of the Assets (whether by fire, theft, vandalism, terrorism, act of God or
other cause or casualty, damage or loss) between the date hereof and Closing,
the Purchase Price shall be reduced by the amount necessary to repair the
damage, which reduction shall be offset by any amounts paid by Seller's
insurance company and assigned to Buyer; provided, however, that in the
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event of a casualty that in Buyer's judgment adversely affects the Business or
the Assets, Buyer, in its sole discretion, may elect either: (1) to terminate
this Agreement without obligation or penalty; or (2) to terminate this
Agreement with respect to the damaged property only with a reduction in the
Purchase Price determined as follows. The reduction in Purchase Price shall be
determined, based on the value on the date of this Agreement of the Assets
damaged or lost, by an MAI appraiser to be mutually selected and paid equally
by Seller and Buyer. If Seller and Buyer are unable to mutually select an
appraiser, then one appraiser shall be selected and paid by Buyer and one
appraiser shall be selected and paid by Seller. If a party does not select an
appraiser as provided in the preceding sentence within ten (10) days after the
other party has given notice of the name of its appraiser, such party shall
lose its right to appoint an appraiser. The appraisers shall meet promptly to
determine the reduction in Purchase Price. If they are unable to agree within
fifteen (15) days after the second appraiser, if any, has been selected, they
shall jointly select a third appraiser. The reduction in Purchase Price shall
be set by agreement of any two of the three appraisers. Seller and Buyer shall
each bear one-half ( 1/2) of the cost of selecting the third appraiser and of
paying the third appraiser's fee. The third appraiser, however selected, shall
be a person who has not previously acted in any capacity for either party. If
any two appraisers are unable to determine the reduction in Purchase Price
within fifteen (15) days after the third appraiser has been selected, then the
three appraisals shall be added together and their total divided by three; the
resulting quotient shall be the reduction in Purchase Price. In determining
the reduction in Purchase Price, each appraiser shall take into consideration,
understand, and correctly employ those recognized techniques that are necessary
to produce a credible appraisal.
6.5 Condemnation. From the date hereof through Closing, in the
event that any portion of the Assets become subject to or are threatened with
any condemnation or eminent domain proceedings, then Buyer, in its sole
discretion, may elect either: (1) to terminate this Agreement in its entirety
without penalty or obligation; or (2) to terminate this Agreement with respect
only to that portion of the Assets that are condemned or threatened to be
condemned with a reduction in the Purchase Price determined as provided in
Section 6.4.
6.6 Preserve Accuracy of Representations and Warranties. Each of
Seller, Shareholders and Buyer shall refrain from taking any action which would
render any representation and warranty contained in Article IV or Article V
hereof, respectively, untrue, inaccurate or misleading as of Closing. Seller
will promptly notify Buyer of any lawsuit, claim, administrative action or
other proceeding asserted or commenced against Seller, its directors, officers
or Shareholders that may involve or relate in any way to Seller, the Assets,
Shareholders or the operation of the Business. Seller, Shareholders and Buyer
each shall promptly notify one another of any facts or circumstances that come
to either's attention and that cause, or through the passage of time or the
giving of notice or either,
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may cause any of Seller's, Shareholders' or Buyer's representations and
warranties, respectively, to be untrue or misleading at any time from the date
hereof through Closing.
6.7 Maintain Books and Accounting Practices. From the date hereof
through Closing, Seller shall maintain its books of account in the usual,
regular and ordinary manner on a basis consistent with prior years and shall
make no change in its accounting methods or practices.
6.8 Indebtedness; Liens. Other than in the ordinary course of
Seller's business consistent with past practice, from the date hereof through
Closing, with respect to the Assets, including the Business and operations
conducted with the Assets, Seller shall not create, incur, assume, guarantee or
otherwise become liable or obligated with respect to any indebtedness for
borrowed money, nor make any loan or advance to, or any investment in, any
person or entity, nor create any lien, security interest, mortgage, right or
other encumbrance in any of the Assets, without Buyer's prior written approval.
6.9 Compliance with Laws and Regulatory Consents. From the date
hereof through Closing: (1) Seller shall comply with all applicable statutes,
laws, ordinances and regulations; (2) Seller shall keep, hold and maintain all
certificates, certificates of need, certificates of exemption, accreditations,
participations, licenses, and other permits necessary for the Business and
operation of the Assets; (3) Seller and Shareholders shall use their best
efforts and shall 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 by this
Agreement; and (4) Seller and Shareholders shall 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 by this
Agreement.
6.10 Maintain Insurance Coverage. From the date hereof through
Closing, Seller shall maintain and cause to be maintained in full force and
effect the existing insurance on the Assets and the operations of the Business
and shall provide at Closing evidence satisfactory to Buyer that such insurance
continues to be in effect and that all premiums due have been paid.
6.11 Medicaid Reporting. Through Closing, Seller shall timely
file or cause to be filed all reports 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,
Medicaid. Seller has paid or will pay all liabilities for contractual
adjustments, discounts, refunds and other offsets in connection with the filing
of such reports for all periods prior to Closing.
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6.12 Current Return Filing. Seller shall be responsible for: (1)
the preparation and filing of the federal, state and local income tax and gross
receipts, use tax and other tax returns for all the tax periods of Seller
ending on or before Closing; and (2) the payment of all such taxes when due.
Seller shall prepare and timely file all federal, state and/or local income and
other tax returns and shall pay such taxes when due.
6.13 Performance. Seller, Shareholders and Buyer shall take all
appropriate steps to satisfy their respective obligations, and the conditions
to Closing, including without limitation the obtaining of necessary contracts
and application for necessary licenses and permits.
6.14 WARN Act. Prior to Closing, Seller will not temporarily or
permanently close or shut down any "single" site of "employment" or any
"facility" or any "operating unit," department or service within a single site
of employment, as such terms are used in WARN.
6.15 No Sale, Merger or Consolidation. From the date hereof
through Closing, Shareholders shall not sell, pledge or transfer any of their
capital stock in Seller, and Seller shall not sell all or substantially all of
its assets, or merge or consolidate with any other entity; neither Seller nor
Shareholders shall solicit any inquiries, proposals or offers relating to any
such transactions; and Shareholders shall promptly notify Buyer orally, and
confirm in writing, of all relevant details relating to inquiries, proposals or
offers which either may receive relating to any of the matters referred to in
this Section.
6.16 Title Report and Policy. At least thirty (30) days prior to
Closing Seller shall deliver to Buyer, at Seller's expense, a current
commitment for title insurance issued by Chicago Title Insurance Company or
another company acceptable to Buyer with respect to the condition of title to
each tract of Real Estate (collectively, the "COMMITMENT") and committing to
issue for each tract of Real Estate an owner's or leasehold, as the case may
be, title insurance policy, (collectively, the "TITLE POLICY") insuring good
and marketable fee simple title or leasehold title to the Real Estate in the
amount of the Purchase Price allocated to the Real Estate and the improvements
thereon with the standard survey exception deleted. The Commitment and Title
Policy shall show that good, marketable and insurable fee simple title or
leasehold title, as the case may be, to the Real Estate is owned in fee simple
by Seller, free from all liens, restrictions, encumbrances, easements and
exceptions to title whatsoever, except the Permitted Exceptions. The
Commitment and Title Policy will also contain, if available: (1) a so-called
"tax parcel endorsement" listing all of the tax parcel identification numbers
affecting the Real Estate covered by the policy and that no other property is
included in the Real Estate and that no other tax parcel identification numbers
affect such Real Estate; (2) a contiguity endorsement; (3) a 3.1 zoning
endorsement or its equivalent as then in use by the title company in form and
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substance acceptable to Buyer; (4) extended coverage deleting all standard and
general exceptions; and (5) any additional endorsements or insurance as Buyer
may reasonably require. The Title Policy shall be in form acceptable to
Buyer's lender and shall permit a simultaneous issue rate for the lender's
mortgage title policy. The title company shall provide to Buyer when
delivering the Commitment one (1) copy of all recorded documents shown on the
Commitment or otherwise affecting title of the Real Estate to Buyer. At
Closing, there shall be issued to Buyer, at Seller's expense, the Title Policy
in the amount of the Purchase Price. In the event Buyer requests, the title
company shall issue a mortgage title policy in an amount up to the Purchase
Price at simultaneous issue rates at Buyer's expense.
6.17 Survey. At least thirty (30) days prior to Closing, Seller
shall furnish to Buyer, at Seller's expense, current as-built survey(s) of the
Real Estate accompanied by a certificate of a registered surveyor licensed in
the State of Arkansas, sufficient to cause the title company to delete the
standard printed survey exceptions and to issue the Title Policy free from any
survey objections or exceptions whatsoever (the "SURVEY"). The Survey shall
show the boundaries of the Real Estate, separate legal descriptions and
boundaries for the tracts and the location of all streets, highways, alleys and
public ways crossing or abutting said Real Estate, all dominant and servient
easements identified by recording information, all building lines and all
buildings and structures as are situated thereon as of said date. Such
certificate shall state that the improvements situated on the Real Estate lie
wholly within the boundaries thereof and that no part thereof encroach upon or
overhang any easement or rights-of-way or upon the land of others; that such
improvements are wholly within the building restriction lines however
established and will not violate any use or other restriction contained in
prior conveyances, zoning ordinances or regulations; that no adjoining
structure encroaches upon the Real Estate or upon any dominant easement
appurtenant thereto; and that as of said date there were no visible
encroachments, overlaps, overhangs, easements, improvements, utility lines or
rights-of-way on, above or below the ground except as shown on the survey plat.
Such certificate shall also state whether or not the Real Estate or any part
thereof lies within the boundaries of a local, state or federal flood plain
designation.
6.18 Defects and Cure. The Title Commitment and Policy and Survey
described in this Article are collectively referred to as "TITLE EVIDENCE."
Buyer shall notify Seller before Closing and as soon as reasonably possible of
any liens, claims, encroachments exceptions or defects disclosed in the Title
Evidence which either: (1) do not constitute Permitted Exceptions; or (2) even
if they constitute Permitted Exceptions, if such matter adversely impacts any
of the Assets or the financeability thereof in the reasonable opinion of Buyer
(collectively, "DEFECTS"). Seller, at its sole cost and expense, may elect to
not cure the objection and shall give written notice to Buyer of its decision
whereupon Buyer may waive such objection and close or may terminate this
Agreement. If Seller fails to
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timely give such notice, Seller shall be deemed to have elected not to cure the
objection, whereupon Buyer may waive such objection and close or may terminate
this Agreement. Upon termination of this Agreement under the terms of this
Section 6.18, no party to this Agreement shall have any further claims under
this Agreement against any other party.
6.19 Environmental Inspection. Buyer may, at its sole cost and
expense, obtain a current environmental report issued by an engineer duly
licensed in the State of Arkansas or other recognized environmental testing
company, acceptable to Buyer (the "ENVIRONMENTAL REPORT") showing no presence
of any toxic or hazardous waste or substance in, on or around the Real Estate,
or any part thereof, or being discharged, leaked or released from or onto the
Real Estate, or any part thereof and that no part of the Real Estate
constitutes or contains wetlands. Buyer shall notify Seller before Closing in
writing of any objections with respect to any matters shown by the
Environmental Report. Seller may take such action (at its expense) which will
result in the removal or cure, in a manner acceptable to Buyer, of such
objections with respect to the Real Estate. Buyer's failure to deliver notice
of any objections to the matters shown by the Environmental Report shall be
deemed to establish Buyer's satisfaction with the Environmental Report, except
for matters shown by the Environmental Report which are to be satisfied under
other provisions of this Agreement. If Seller has not corrected to Buyer's
satisfaction the objections to the Environmental Report within a reasonable
time, Buyer may: (1) waive its objections and consummate the within
transaction with a reduction in the Purchase Price determined between Seller
and Buyer; or (2) terminate this Agreement by written notice to Seller, in
which event this Agreement shall be void and neither party shall have any
further obligation hereunder or liabilities to the other.
ARTICLE VII. CLOSING
7.1 Closing. If all of the conditions to Closing set forth in
Articles VIII and IX hereof are satisfied, then the Closing shall occur on or
by June 30, 1996, or at such time or place as the parties may mutually agree
(the "CLOSING"). Upon consummation, the Closing shall be deemed to be
effective, and the transfer of the Assets shall be deemed to have occurred, as
of 11:59 p.m. local time on the date of Closing. On the day of Closing, Buyer
shall make available to Seller (pursuant to wire instructions given to Buyer by
Seller) funds in an amount equal to the adjusted cash portion of the Purchase
Price, as determined pursuant to Section 3.1 of this Agreement. Notwithstanding
any statement contained herein seemingly to the contrary, Buyer shall not be
liable for any obligations or liabilities of Seller and Shareholders other than
the Assumed Liabilities.
7.2 Termination. Notwithstanding anything in this Agreement to
the contrary, this Agreement and the obligations of the parties hereunder may
be terminated at or prior to Closing as follows:
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(1) By Seller: (a) in the event the transactions
contemplated by this Agreement have been prohibited or enjoined by reason of
any final judgment, decree or order entered or issued by a court of competent
jurisdiction in litigation or proceedings involving either Buyer or Seller; or
(b) in the event Buyer breaches or violates any material provision of this
Agreement or fails to perform any material covenant or agreement to be
performed by Buyer under the terms of this Agreement and such breach, violation
or failure is not cured prior to Closing or waived by Seller at or prior to
Closing.
(2) By Buyer: (1) in the event the transactions
contemplated by this Agreement have been prohibited or enjoined by reason of
any final judgment, decree or order entered or issued by a court of competent
jurisdiction in litigation or proceedings involving either Buyer or Seller; (2)
pursuant to Section 6.4, 6.5, 6.18 or 6.19; or (3) in the event Seller or
Shareholders breach or violate any material provision of this Agreement or fail
to perform any material covenant or agreement to be performed by either under
the terms of this Agreement and such breach, violation or failure is not cured
prior to Closing or waived by Buyer at or prior to Closing.
(3) By Buyer or Seller if Closing hereunder shall not
have taken place by June 30, 1996, or by such later date as shall be agreed
upon by an appropriate amendment to this Agreement if the parties agree in
writing to an extension, provided that a party shall not have the right to
terminate under this Section 7.2(3) if the conditions precedent to such party's
obligation to close have been fully satisfied and such party has failed or
refused to close after being requested in writing to close by the other party.
ARTICLE VIII. SELLER'S AND SHAREHOLDERS'
CONDITIONS TO CLOSE
The obligations of Seller and Shareholders under this Agreement are
subject to the satisfaction on or prior to Closing, of the following conditions
(which may be waived in writing by Seller and Shareholders in whole or in
part):
8.1 Representations and Warranties True at Closing; Compliance
with Agreement. The representations and warranties of Buyer contained in this
Agreement (including the Exhibits hereto) or in any certificate or document
delivered by Buyer to Seller pursuant hereto shall be deemed to have been made
again at Closing and shall then be true in all respects; and Buyer shall have
performed and complied with all covenants, agreements and conditions required
by this Agreement to be performed or complied with by it prior to or at
Closing.
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8.2 No Action/Proceeding. No action or proceeding before a court
or any other governmental agency or body shall have been instituted to restrain
or prohibit the transaction herein contemplated, and no governmental agency or
body or other entity shall have taken any other action as a result of which to
proceed with the transactions hereunder will 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.
8.3 Order Prohibiting Transaction. No order shall have been
entered in any action or proceeding before any court or governmental agency,
and no preliminary or permanent injunction by any court shall have been issued
which would have the effect of: (1) making the transactions contemplated by
this Agreement illegal; or (2) otherwise preventing consummation of such
transactions. There shall have been no United States federal or state statute,
rule or regulations enacted or promulgated after the date of this Agreement
that results in any of the consequences referred to in this Section.
ARTICLE IX. BUYER'S CONDITIONS TO CLOSE
The obligations of Buyer under this Agreement are subject to the
satisfaction, on or prior to Closing, of the following conditions (which may be
waived in writing by Buyer in whole or in part):
9.1 Representations and Warranties True at Closing; Compliance
with Agreement. The representations and warranties of Seller and Shareholders
contained in this Agreement (including the Exhibits hereto) or in any
certificate or document delivered to Buyer in connection herewith, shall be
deemed to have been made again at Closing and shall then be true in all
respects; and Seller and Shareholders shall have performed and complied with
all covenants, agreements and conditions required by this Agreement to be
performed or complied with by them prior to or at Closing.
9.2 No Loss, Damage of Destruction. In the event there is any
damage to or loss of any of the Assets (whether by fire, theft, vandalism or
other cause or casualty), the terms of Sections 6.4 and 6.5 shall have been
complied with to the satisfaction of Buyer.
9.3 No Adverse Material Change. There shall have been no material
adverse change in the condition, financial or otherwise, of Seller or the
Assets. There shall not be any claims, litigation or governmental proceedings
pending or threatened against Seller or their directors, officers,
Shareholders, trustees, members or affiliates which would adversely affect the
Assets or the consummation of the transactions contemplated hereby at Closing.
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9.4 Consent. Buyer's obligations set forth in this Agreement are
conditioned on it obtaining consent from its primary lenders.
9.5 Regulatory Approvals. Buyer shall have obtained: (1)
certification for participation in the Medicaid and Medicare Programs in the
states where the Business is conducted; and (2) all other consents, licenses,
permits, approvals, provider contracts, determinations or certificates of need
necessary to acquire and operate the Assets and Business as contemplated
hereunder.
9.6 No Action/Proceeding. No action or proceeding before a court
or any other governmental agency or body shall have been instituted to restrain
or prohibit the transaction herein contemplated, and no governmental agency or
body or other entity shall have taken any other action as a result of which to
proceed with the transactions hereunder constitute a violation of law.
9.7 Inspection of Assets; UCC Searches, etc. Buyer and its
representatives shall have had and continue to have reasonable rights of
inspection of the Assets in connection with Buyer's due diligence review, and
the results of Buyer's inspection and due diligence review shall be acceptable
to Buyer. Buyer shall have obtained UCC financing statements and title
searches, local and central, including fixtures, and federal and state pending
litigation, tax lien and judgment searches, with respect to Seller, including
all "DBA's," tradenames and fictitious names of Seller, dated no more than ten
(10) days prior to Closing, with results satisfactory to Buyer, at the expense
of Seller.
9.8 Confidentiality and Noncompete Agreements. Each of Seller and
the Shareholders shall execute and deliver to Buyer a Confidentiality and
Noncompete Agreement in the form attached hereto as Exhibit 9.8.
9.9 Approval of Board of Directors. This Agreement and
consummation of the transactions contemplated hereunder shall have been
approved by the Board of Directors of Advocat Inc. and Buyer.
9.10 Commitment and Policy; Survey. Seller shall have delivered to
Buyer the Commitment, Title Policy and Survey as required by Sections 6.16 and
6.17 hereof.
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ARTICLE X. OBLIGATIONS OF SELLER AND SHAREHOLDERS
AT CLOSING
At Closing, Seller and Shareholders shall deliver or cause to be
delivered to Buyer the following in form and substance reasonably satisfactory
to Buyer:
10.1 Documents Relating to Title. Seller and Shareholders shall
execute, acknowledge, deliver and cause to be executed, acknowledged and
delivered to Buyer:
(1) General warranty deeds from Seller and Shareholders
in form satisfactory to Buyer and the title insurer, with 50% of cost for all
recording, stamp tax, deed tax or other transfer fees equally paid by Seller,
and conveying to Buyer good, valid and marketable title in fee simple to the
owned Real Estate 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 exceptions
to title, except for Permitted Exceptions.
(2) The Title Commitment and Title Policy called for in
Section 6.16 hereof.
(3) The Survey of the Real Estate pursuant to Section
6.17 hereof.
(4) An Assignment and Assumption of Lease Agreement for
each location of the Leased Real Estate, each in form and substance
satisfactory to Buyer, with all recording, stamp tax or other transfer fees
paid by Seller, and conveying to Buyer the legal right to possess and use the
Leased Real Estate free and clear of all liens, mortgages, superior rights of
possession or use, except for those expressly acceptable to Buyer.
(5) A Bill of Sale and Assignment Agreement, in form and
substance satisfactory to Buyer, warranting and conveying to Buyer good, valid
and marketable title to all Assets, free and clear of all liens, mortgages,
pledges, encumbrances, security interests, covenants, easements, rights of way,
equities, options, rights of first refusal restrictions, special tax or
governmental assessments, defects in title, encroachments and other burdens,
except for those expressly acceptable to Buyer.
(6) An effective and enforceable assignment to Buyer of
each Lease and Contract which Buyer has agreed to assume.
10.2 Possession. Seller shall deliver to Buyer full possession and
control of the Business and Assets, free and clear of all liens, mortgages,
pledges, security interests,
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restrictions, encumbrances and burdens of any kind whatsoever, including,
without limitation, limitations on use and rights of reclamation by donees.
10.3 Opinion of Counsel. Seller and Shareholders shall deliver to
Buyer the favorable opinion of counsel for Seller and Shareholders dated as of
Closing, in the form attached hereto as Exhibit 10.3.
10.4 Corporate Good Standing and Corporate Resolutions. Seller
shall deliver to Buyer certified copies of the resolutions of the Board of
Directors and Shareholders of Seller authorizing the execution, delivery and
consummation of this Agreement and the execution, delivery and consummation of
all other agreements and documents executed in connection herewith by them,
including all deeds, bills of sale and other instruments required hereunder, by
officers of Seller to be validly adopted and in full force and effect and
unamended as of Closing.
10.5 Closing Certificate. Seller and Shareholders shall deliver to
Buyer certificates of officers of Seller and of Shareholders, dated as of
Closing, certifying that: (1) each covenant and obligation of Seller and
Shareholders has been complied with by Seller and Shareholders; and (2) each
representation and warranty of Seller and Shareholders is true and correct at
Closing as if made on and as of Closing.
10.6 Third Party Consents. Seller shall deliver to Buyer, all
consents, estoppels, approvals and authorizations of third parties necessary
for the legal and proper execution, delivery and consummation of this
Agreement, and the transactions contemplated hereby, including, without
limitation, those consents necessary for the assignment of Leases and
Contracts.
10.7 Taxes and Other Payments. Seller shall deliver to Buyer:
(1) Proof of cash payment directly to the tax authorities
or cash payment (or credit on the Purchase Price) to Buyer in the amount of all
real estate taxes and assessments which are a lien on the date of Closing,
general and special.
(2) Proof of cash payment directly to services or
suppliers or cash payment (or credit on the Purchase Price) to Buyer in the
amount of all sums due in connection with any service contracts, agreements or
contracts relating to the Assets, including, without limitation, all utility
charges, for the period prior to Closing.
(3) 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. In the event that
Seller cannot furnish such a certificate or
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Buyer is not entitled to rely upon such a certificate under the provisions of
Section 1445 and the regulations thereunder, Seller shall take and/or permit
Buyer or Buyer's nominee to take any and all steps necessary to allow Buyer or
Buyer's nominee to satisfy the requirements or Section 1445.
(4) Executed releases of all mortgages, security
interests, liens, pledges, restrictions or other encumbrances on or applicable
to the Assets.
10.8 Insurance. Seller shall deliver evidence of its insurance
coverage required by Section 6.10.
10.9 Confidentiality and Noncompete Agreements. Seller and
Shareholders shall deliver to Buyer each of the agreements described in Section
9.8.
10.10 Additionally Requested Documents; Post Closing Assistance. At
the request of Buyer at Closing and at any time or from time to time
thereafter, Seller and Shareholders shall cooperate with Buyer to put Buyer in
actual possession and operating control of the Assets and Business, execute and
deliver such further instruments of sale, conveyance, transfer and assignment,
as Buyer may request in order to effectively sell, convey, transfer and assign
the Assets and Business to Buyer, to execute and deliver such further
instruments and to take such other actions as Buyer may request to release
Buyer from all obligation and liability with regard to any obligation or
liability retained by Seller and to execute and deliver such further
instruments and to cooperate with Buyer as Buyer may request or to enable Buyer
to obtain all necessary health care or regulatory certifications, approvals,
consents and licenses, accreditations or permits.
ARTICLE XI. OBLIGATIONS OF BUYER AT CLOSING
At Closing, Buyer shall deliver or cause to be delivered to Seller the
following in a form and substance reasonably satisfactory to Seller:
11.1 Purchase Price. Buyer shall make available to Seller the
Purchase Price upon the terms specified in Section 3.1 hereof.
11.2 Opinion of Counsel. Buyer shall deliver to Seller a favorable
opinion of counsel for Buyer, dated as of Closing, in the form specified in
Article XII hereof.
11.3 Corporate Good Standing and Board Resolutions. Buyer shall
deliver to Seller a certificate of good standing from the Secretary of State of
Tennessee, dated the most recent practical date prior to Closing, together with
a certified copy of the resolutions
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of the Board of Directors of Buyer approving this Agreement and the
consummation of the transactions intended hereby.
11.4 Closing Certificate. Buyer shall deliver to Seller a
certificate of officers of Buyer, dated as of Closing, certifying that: (1)
each covenant and obligation of Buyer has been complied with by Buyer; and (2)
each representation and warranty of Buyer is true and correct at Closing as if
made on and as of Closing.
11.5 Assumption of Liabilities. Buyer shall covenant to fully
perform and comply with all of the Assumed Liabilities, subject to the
provisions of this Agreement, from and after Closing.
11.6 Documents Relating to Title. Buyer shall be liable for 50% of
cost of all recording, stamp tax, deed tax or other transfer fees.
ARTICLE XII. OPINION OF BUYER'S COUNSEL
At Closing, Buyer shall deliver to Seller an opinion of Harwell Howard
Hyne Gabbert & Manner, P.C. dated the date of Closing and pursuant to the Legal
Opinion Accord of the ABA Section of Business Law (1991), in form and substance
reasonably satisfactory to Seller and its counsel to the effect that:
(a) Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Tennessee and has
all requisite corporate power and corporate authority to own, operate and lease
its properties and assets and to carry on its business as now conducted.
(b) Buyer has the corporate power and corporate authority
to execute, deliver and carry out the terms of this Agreement and all documents
and agreements necessary to give effect to the provisions of this Agreement and
to consummate the transactions contemplated on the part of Buyer hereby and
thereby; Buyer has taken all action required by law, and its Charter and
Bylaws, to authorize such execution, delivery and consummation of this
Agreement, and this Agreement, and all other agreements delivered by Buyer at
Closing constitute the valid and binding obligations of Buyer enforceable in
accordance with their respective terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally and by general principles of equity.
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ARTICLE XIII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION
13.1 Survival. The covenants, obligations, representations and
warranties of Seller and Shareholders contained in this Agreement, or in any
certificate or document delivered pursuant to this Agreement, shall be deemed
to be material and to have been relied upon by the parties hereto
notwithstanding any investigation prior to Closing, and shall survive Closing
and shall not be merged into any documents delivered in connection with
Closing.
13.2 Indemnification by Seller and Shareholders. Subject to
Section 13.4, Seller and Shareholders jointly and severally, shall promptly
indemnify, defend, and hold harmless Buyer, the directors, officers,
Shareholders, employees and agents of Buyer, and the Assets against any and all
losses, costs, and expenses (including reasonable costs of investigation, court
costs and legal fees) and other damages resulting from: (1) any breach by
either Seller or Shareholders of any of the covenants, obligations,
representations or warranties or breach or untruth of any representation,
warranty, fact or conclusion contained in this Agreement or any certificate or
document of Seller and/or Shareholders delivered pursuant to this Agreement;
(2) any liability of Seller not expressly assumed by Buyer pursuant to Section
1.3 hereof; and (3) 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 Seller's employees, agents or independent contractors, relating to all
periods of time through Closing. Any indemnification payment made pursuant to
this Article shall include interest at a floating rate equal to two (2) points
over the prime rate of NationsBank, N.A. established from time to time (the
"RATE"), payable for the period measured from the date that the loss, cost,
expense or damage was incurred until the date of payment. The liability
created under this Section shall be joint and several between Seller and
Shareholders.
13.3 Indemnification by Buyer. Subject to Section 13.4, Buyer
shall promptly indemnify, defend, and hold Seller and Shareholders harmless
against any and all losses, costs, and expenses (including reasonable cost of
investigation, court costs and legal fees) and other damages resulting from:
(1) 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; (2) any claim which is brought or
asserted by any third party(ies) against Seller for failure to pay or perform
any of the Assumed Liabilities; and (3) subject to the other provisions of this
Agreement, any claim that is brought or asserted by any third party(ies)
against Seller arising out of the ownership, licensing, operation or conduct of
the Business or Assets or the conduct of any of Buyer's employees, agents or
independent contractors, relating to all periods of time subsequent to Closing.
Any indemnification payment pursuant to the foregoing shall include interest
38
<PAGE> 44
at the Rate from the date that the loss, cost, expense or damage was incurred
until the date of payment.
13.4 Rules Regarding Indemnification. The obligations and
liabilities of each party which may be subject to indemnification liability
hereunder (the "INDEMNIFYING PARTY") to the other party (the "INDEMNIFIED
PARTY") shall be subject to the following terms and conditions:
(1) Claims by Non-parties. The indemnified party shall
give written notice within a reasonably prompt period of time to the
indemnifying party of any written claim by a third party which is likely to
give rise to a claim by the indemnified party against the indemnifying party
based on the indemnity agreements contained in this Article, stating the nature
of said claim and the amount thereof, to the extent known. The indemnified
party shall give notice to the indemnifying party that pursuant to the
indemnity, the indemnified party is asserting against the indemnifying party a
claim with respect to a potential loss from the third party claim, and such
notice shall constitute the assertion of a claim for indemnity by the
indemnified party. If, within thirty (30) days after receiving such notice,
the indemnifying party advises the indemnified party that it will provide
indemnification and assume the defense at its expense, then so long as such
defense is being conducted, the indemnified party shall not settle or admit
liability with respect to the claim and shall afford to the indemnifying party
and defending counsel all reasonable assistance in defending against the claim.
If the indemnifying party assumes the defense, counsel shall be selected by
such party and if the indemnified party then retains its own counsel, it shall
do so at its own expense. If the indemnified party does not receive a written
objection to the notice from the indemnifying party within thirty (30) days
after the indemnifying party's receipt of such notice, the claim for indemnity
shall be conclusively presumed to have been assented to and approved, and in
such case the indemnified party may control the defense of the matter or case
and, at its sole discretion, settle or admit liability. If within the
aforesaid thirty (30) day period the indemnified party shall have received
written objection to a claim (which written objection shall briefly describe
the basis of the objection to the claim or the amount thereof, all in good
faith), then for a period of ten (10) days after receipt of such objection the
parties shall attempt to settle the dispute as between the indemnified and
indemnifying parties.
(2) Claims by a Party. The determination of a claim
asserted by a party hereunder (other than as set forth in subsection (1) above)
pursuant to this Article shall be made as follows: The indemnified party shall
give written notice within a reasonably prompt period of time to the
indemnifying party of any claim by the indemnified party which has not been
made pursuant to subsection (1) above, stating the nature and basis of such
claim and the amount thereof, to the extent known. The claim shall be deemed
to have resulted in a determination in favor of the indemnified party and to
have resulted in a liability of the
39
<PAGE> 45
indemnifying party in an amount equal to the amount of such claim estimated
pursuant to this Section if within forty- five (45) days after the indemnifying
party's receipt of the claim the indemnified party shall not have received
written objection to the claim. In such event, the claim shall be conclusively
presumed to have been assented to and approved. If within the aforesaid
forty-five (45) day period the indemnified party shall have received written
objection to a claim (which written objection shall briefly describe the basis
of the objection to the claim or the amount thereof, all in good faith), then
for a period of sixty (60) days after receipt of such objection the parties
shall attempt to settle the disputed claim as between the indemnified and
indemnifying parties.
(3) Claims by a Straddle Resident. Any claim by a
resident relating to professional negligence or similar matters involving a
resident served both prior to Closing and subsequent to Closing will be the
responsibility of either Buyer or Seller (and, jointly and severally,
Shareholders) in accordance with the following guidelines: (1) if it is a claim
in which the incident giving rise to liability clearly arose through Closing,
Seller (including Shareholders) shall be liable for the loss and defense
expenses; (2) if it is a claim in which the incident giving rise to liability
clearly arose subsequent to Closing, Buyer shall be liable for the loss and
defense expenses; and (3) in the event that the time the incident giving rise
to liability occurred is not clear, Seller (including Shareholders) and Buyer
will jointly defend the case and each will fully cooperate with the other in
such defense. Once the case is closed, Buyer and Seller (including
Shareholders) shall attempt to allocate both indemnity and expenses among Buyer
and Seller (including Shareholders).
13.5 Assignment by Buyer. No consent by Seller or Shareholders
shall be required for any assignment or reassignment of the rights of Buyer
under this Article XIII following Closing.
ARTICLE XIV. PRESERVATION OF BUSINESS
AND NONCOMPETE RESTRICTIONS
14.1 Covenant Not to Compete. Seller and Shareholders hereby
covenant and agree with Buyer that, during the Noncompete Period (as defined
herein) and within the Noncompete Area (as defined herein), neither Seller nor
Shareholders shall directly or indirectly: (1) acquire, lease, manage, consult
for, serve as agent or subcontractor for, finance, invest in, own any part of
or exercise management control over any health care operation or business which
provides any services competitive with the services provided by the Business at
Closing; (2) solicit for employment or employ any person who at Closing or
thereafter became an employee of Buyer or an Affiliate unless such person is
not so employed for at least six (6) months; or (3) disrupt or attempt to
disrupt any past, present or reasonably foreseeable future relationship,
contractual or otherwise between Buyer, on
40
<PAGE> 46
the one hand, and any customer, resident, physician, physician group, or
healthcare provider with whom Buyer contracts with in connection with the
Business, on the other hand. The "NONCOMPETE PERIOD" shall commence at Closing
and terminate on the fifth (5th) anniversary thereof. The "NONCOMPETE AREA"
shall mean the area within a fifty (50) mile radius of each location from which
the Business is operated or conducted as of Closing. Ownership of less than
five percent (5%) of the stock of a publicly held company shall not be deemed a
breach of this covenant.
14.2 Enforceability. In the event of a breach of Section 14.1
hereof, Seller and Shareholders recognize that monetary damages shall be
inadequate to compensate Buyer and Buyer shall be entitled, without the posting
of a bond, to an injunction restraining such breach, with the costs (including
attorney's fees) of securing such injunction to be jointly and severally borne
by Seller and Shareholders. Nothing contained herein shall be construed as
prohibiting Buyer from pursuing any other remedy available to it for such
breach or threatened breach.
All parties hereto hereby acknowledge the necessity of protection
against the competition of Seller and Shareholders and that the nature and
scope of such protection has been carefully considered by the parties. The
period provided and the area covered are expressly represented and agreed to be
fair, reasonable and necessary. The consideration provided for herein is
deemed to be sufficient and adequate to compensate Seller and Shareholders for
agreeing to the restrictions contained in Section 14.1 hereof. If, however,
any court determines that the forgoing restrictions are not reasonable, such
restrictions shall be modified, rewritten or interpreted to include as much of
their nature and scope as will render them enforceable.
ARTICLE XV. MISCELLANEOUS
15.1 Dispute Resolution . Any dispute arising among the parties to
this Agreement for which a dispute resolution mechanism is not expressly
provided herein shall be determined by a court of competent jurisdiction.
15.2 Assignment. Following Closing, Buyer may freely assign its
rights or delegate its obligations under this Agreement without the express
written consent of Seller or Shareholders. Neither Seller nor Shareholders may
assign any rights or delegate any obligations under this Agreement without the
prior written consent of Buyer, and any prohibited assignment or delegation
will be null and void. This Agreement shall be binding upon and shall inure to
the exclusive benefit of the parties hereto and their respective permitted
heirs, legal representatives, successors and assigns.
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15.3 Other Expenses. Except as otherwise provided in this
Agreement, Seller and Shareholders shall pay all of their expenses in
connection with the negotiation, execution, and implementation of the
transactions contemplated by this Agreement and Buyer shall pay all of its
expenses in connection with the negotiation, execution, and implementation of
the transactions contemplated by this Agreement. All state and local sales and
use taxes, recording fees and transfer taxes incurred in connection with the
transactions contemplated within this Agreement shall be borne by Seller and
paid by Closing. All ad valorem taxes incurred in connection with the
transactions contemplated within this Agreement shall be shared equally by
Seller and Buyer and shall be prorated at Closing. The Purchase Price shall be
reduced, on a dollar-per-dollar basis, to the extent and in an amount equal to
any taxes or other obligations that are accrued but unpaid by Seller as of the
date of Closing.
15.4 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given: (1) if delivered
personally or sent by facsimile, on the date received; (2) if delivered by
overnight courier, on the day after mailing; and (3) if mailed, five (5) days
after mailing with postage prepaid. Any such notice shall be sent as follows:
To Seller or Shareholders:
--------------------------
Carolyn S. Thompson
5209 Stratford Road
North Little Rock, Arkansas 72116
To Buyer:
--------
Advocat Inc.
277 Mallory Station Road, Suite 130
Franklin, Tennessee 37067
Attn: Mary Margaret Hamlett
with a copy to:
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
Nashville, Tennessee 37238-1800
Attn: Mark Manner
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15.5 Confidentiality; Prohibition on Trading. All parties agree to
maintain the confidentiality of the existence of this Agreement and the
transactions contemplated hereunder, unless disclosure is required by law.
Seller, Shareholders and their Affiliates agree not to trade in the securities
of Buyer or its Affiliates based upon any nonpublic information.
15.6 Controlling Law. This Agreement shall be construed,
interpreted and enforced in accordance with the laws of the State of Arkansas
without regard to its choice or conflicts of law provisions.
15.7 Headings. Table of contents and Section headings in this
Agreement are for convenience of reference only and shall not be considered or
referred to in resolving questions of interpretation.
15.8 Partial Invalidity. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such
invalid or unenforceable provisions were omitted.
15.9 Waiver. Neither the failure nor any delay on the part of any
party hereto in exercising any rights, power or remedy hereunder shall operate
as a waiver thereof, or of any other right, power or remedy; nor shall any
single or partial exercise of any right, power or remedy preclude any further
or other exercise thereof, or the exercise of any other right, power or remedy.
No waiver of any of the provisions of this Agreement shall be valid unless it
is in writing and signed by the party against which it is sought to be
enforced.
15.10 Counterparts. This Agreement may be executed simultaneously
in two or more counterparts each of which shall be deemed an original and all
of which together shall constitute but one and the same instrument.
15.11 Interpretation; Knowledge. All pronouns and any variation
thereof shall be deemed to refer to the masculine, feminine, neuter, singular
or plural as the identity of the person or entity, or the context, may require.
Further, it is acknowledged by the parties that this Agreement has undergone
several drafts with the negotiated suggestions of both; and, therefore, no
presumptions shall arise favoring either party by virtue of the authorship of
any of its provisions or the changes made through revisions. Whenever in this
Agreement the term "to the knowledge of Seller or Shareholders" or the like is
used, Seller and Shareholders shall each be deemed to have the knowledge of
Seller's officers, directors and employees, and of its Affiliates; and Seller
and Shareholders shall be under a duty of due inquiry.
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15.12 Entire Agreement. This Agreement, including the Exhibits
hereto, constitutes the entire agreement between the parties hereto with regard
to the matters contained herein and it is understood and agreed that all
previous undertakings, negotiations, letters of intent and agreements between
the parties are merged herein. This Agreement may not be modified orally, but
only by an agreement in writing signed by Buyer, Seller and Shareholders.
15.13 Further Assurance of Seller and Shareholders After Closing.
Subsequent to Closing, Seller and Shareholders shall from time to time, at
Buyer's request, execute and deliver such other instruments of conveyance and
transfer, and take such other action as Buyer may request, in order to more
effectively sell, transfer, assign and deliver and vest in Buyer the benefits
of, title to and possession of the Assets.
15.14 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 necessary disbursements, in
addition to any other relief to which such party shall be entitled.
15.15 No Third Party Beneficiaries. The provisions of this
Agreement are solely for the benefit of the parties hereto, and with respect to
Buyer, its parent and any of their directors, officers, Shareholders, employees
and agents. It shall create no rights in any persons other than as set forth
in the immediately preceding sentence.
44
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The parties hereto have executed this Agreement as of the date first above
written.
"SELLER"
PINEDALE ASSOCIATES, INC.
By: /s/ Carolyn S. Thompson
----------------------------------
Its: Corporate Secretary
----------------------------------
"SHAREHOLDERS"
/s/ Jean Craig May
------------------------------------
JEAN MAY
/s/ Carolyn S. Thompson
------------------------------------
CAROLYN S. THOMPSON
"BUYER"
DIVERSICARE LEASING CORP.
By: /s/ May Margaret Hamlett
----------------------------------
Its: Executive Vice President
---------------------------------
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<PAGE> 51
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Matter
----------- --------------
<S> <C>
1.1(1) Real Estate
1.1(2) Equipment and Furnishings
1.2 Excluded Assets
1.3 Assumed Liabilities
3.3 Purchase Price Allocation
4.4 Financial Statements
4.6 Absence of Liabilities
4.7 Employment Discrimination
4.8(1) Licenses and Permits
4.8(2) Certificates of Need
4.9(1) Program Agreements
4.9(2) Statement of Deficiencies and Plan of Correction
4.11 Easements
4.12(1) Encumbrances
4.12(2) Permitted Exceptions
4.13 Leases and Contracts
4.15 Appraisals, Mechanical and Structural Studies, etc.
4.16 Litigation
4.17 Employees, Fringe Benefits and Personnel Policies
4.19 Insurance
4.23 Intellectual Property
4.25(1) Welfare Benefit Plans
4.25(2) Pension Benefit Plans
4.25(3) Unfunded Liabilities
4.31 Resident Agreements
4.33 Prepayments and Deposits
4.34(a) Resident Statistics
4.34(b) Resident Information
9.8 Form of Noncompete and Confidentiality
Agreement
10.3 Form of Opinion of Counsel for Seller and Shareholder
</TABLE>
v
<PAGE> 1
EXHIBIT 2.4
ASSET PURCHASE AGREEMENT
between
HARTFORD HEALTH CARE, INC.
the Seller
H. MAX HUIE
the Shareholder
and
DIVERSICARE LEASING CORP.
the Buyer
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <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
ARTICLE II. RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Collection of Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III. PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Apportionable Income and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Organization, Qualification and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Absence of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.3 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.5 Operations Since June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.6 Absence of Certain Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.7 Employment Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.8 Licenses and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.9 Medicare, Medicaid and Other Third-Party Payors . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.10 Cost Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.11 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.12 Leases and Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.13 Intentionally Deleted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.14 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.15 Miscellaneous Representations Relating to Real Estate . . . . . . . . . . . . . . . . . . . . . . . 12
4.16 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.17 Seller's Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.18 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.20 Broker's or Finder's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.21 Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.22 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.23 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
4.24 Motor Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.25 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.26 Compliance with Healthcare Laws and Other Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.27 Condition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.28 WARN Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.29 Tax Returns; Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.30 Bankruptcy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.31 Patient Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.32 Patient Trust Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.33 Occupancy Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.34 Prepayments and Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.35 Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.1 Organization, Qualification and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.2 Absence of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.3 Broker's or Finder's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VI. COVENANTS OF PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.1 Preservation of Business and Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.2 Absence of Material Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.3 Access to Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.4 Preserve Accuracy of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . 20
6.5 Maintain Books and Accounting Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.6 Indebtedness; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.7 Compliance with Laws and Regulatory Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.8 Maintain Insurance Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.9 Medicare and Medicaid Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.10 Current Return Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.11 WARN Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.12 No Sale, Merger or Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.13 Title Report and Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.14 Survey. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.15 Defects and Cure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.16 Environmental Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VII. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VIII. SELLER'S CONDITIONS TO CLOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
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<TABLE>
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8.1 Representations and Warranties True at Closing; Compliance with Agreement . . . . . . . . . . . . . 23
8.2 No Action/Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.3 Order Prohibiting Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE IX. BUYER'S CONDITIONS TO CLOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.1 Representations and Warranties True at Closing; Compliance with Agreement . . . . . . . . . . . . . 24
9.2 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.3 No Action/Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.4 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.5 Inspection of Assets; UCC Searches, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.6 Order Prohibiting Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.7 Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.8 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.9 Approval of Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.10 Commitment and Policy; Survey. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.11 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.12 Condition of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.13 Occupancy Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE X. OBLIGATIONS OF SELLER AT CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.1 Documents Relating to Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.2 Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.3 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.4 Corporate Good Standing and Corporate Resolutions . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.5 Closing Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.6 Third Party Consents and Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.7 Taxes and Other Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.10 Additionally Requested Documents; Post Closing Assistance . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE XI. OBLIGATIONS OF BUYER AT CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.2 Assumption of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.3 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.4 Corporate Good Standing and Board Resolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.5 Closing Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE XII. OPINION OF BUYER'S COUNSEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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ARTICLE XIII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.2 Indemnification by Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.3 Indemnification by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
13.4 Rules Regarding Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE XIV. ABSENCE OF CERTIFICATE OF NEED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
14.1 Absence of Certificate of Need . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE XV. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.1 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.2 Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
15.4 Confidentiality; Prohibition on Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.5 Controlling Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.6 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.7 Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.8 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.9 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.11 Interpretation; Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.12 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
15.13 Legal Fees and Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), is made
effective on May 23, 1996, by and between HARTFORD HEALTH CARE, INC., an
Alabama corporation (the "Seller"), and DIVERSICARE LEASING CORP., a Tennessee
corporation (the "Buyer"). H. MAX HUIE, a resident of the State of Alabama
("Shareholder") executes this Agreement only for the purpose of agreeing to
Article XIII.
R E C I T A L S:
WHEREAS, Seller owns or leases and operates a nursing home and
provides related services at Toro Road, Hartford, Alabama (the "Business"); and
WHEREAS, Shareholder owns all issued and outstanding capital stock of
the Seller; and
WHEREAS, except for the Excluded Assets (as such term is defined
herein), Seller desires to sell and transfer the Assets (as such term is
defined herein) of the Business to Buyer, and Buyer desires to purchase the
same from Seller, subject to the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties,
intending to be legally bound hereby, agree as follows:
ARTICLE I. PURCHASE AND SALE
1.1 Purchase and Sale. Seller agrees to sell, transfer, assign,
convey and deliver to Buyer, and Buyer agrees to purchase from Seller, all
right, title and interest in all assets (except the Excluded Assets (as defined
herein)) of Seller of every kind and type, tangible or intangible, real and
personal, that are necessary or reasonably desirable to operate the Business
(collectively, the "Assets"), free and clear of all encumbrances, mortgages,
pledges, liens, security interests, obligations and liabilities other than the
Assumed Liabilities (as defined in Section 1.3), or otherwise accepted by
Buyer, which Assets are described as follows:
(1) All right, title and interest of Seller in and to all
of the land and real estate leased by Seller and used in connection with the
Business as listed in Exhibit 1.1(1)
<PAGE> 7
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 tangible personal property, medical and other
equipment, machinery, data processing hardware, furniture, furnishings,
appliances, vehicles and other tangible personal property of every description
and kind and all replacement parts therefor owned or leased by Seller and used
in connection with the Business (collectively, the "Equipment and
Furnishings"). Prior to Closing, Seller shall provide a complete and accurate
list of all Equipment and Furnishings;
(3) All inventory of goods and supplies used or
maintained in connection with the Business (collectively, the "Inventory");
(4) 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 and copies of accounting
records;
(5) To the full extent transferable, all licenses,
permits, registrations, certificates, consents, accreditations, approvals and
franchises necessary to operate and conduct the Business, together with
assignments thereof, if required, and all waivers which Seller currently has,
if any, of any requirements pertaining to such licenses, permits,
registrations, certificates, consents, accreditations, approvals and franchises;
(6) All goodwill, and, to the extent assignable by
Seller, all warranties (express or implied) and rights and claims related to
the Assets or the operation of the Business;
(7) Contract and leasehold rights and interests pursuant
to contracts for purchase or lease of personal property, construction
contracts, contracts for purchase, sale or lease of equipment, goods or
services currently furnished or to be furnished in connection with the Business
and that are Assumed Liabilities (as such term is defined herein); and
(8) All intangible or intellectual property owned,
leased, licensed or possessed by either Seller and utilized in connection with
the Business, including, without limitation, the name "Hartford Health Care,"
and derivatives thereof.
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<PAGE> 8
1.2 Excluded Assets. Seller is not selling and Buyer is not
purchasing or assuming obligations with respect to the following (collectively,
the "Excluded Assets"):
(1) Seller's corporate and fiscal records and other
records that Seller is required by law to retain in its possession, as
described on Exhibit 1.2 attached hereto.
(2) All cash, cash equivalents, cash deposits and
escrows, bank accounts, money market accounts, other cash accounts,
certificates of deposit and other investments of Seller;
(3) All accounts, notes and other receivables for periods
prior to Closing (the "Receivables");
(4) All prepaid expenses listed on Exhibit 1.2 hereto; and
(5) Those other assets to be retained listed on Exhibit
1.2.
The parties agree that Seller is not conveying to Buyer any of the Excluded
Assets and that, following Closing, Buyer will not have any right, title,
interest or obligation with respect to the Excluded Assets.
1.3 Assumed Contracts, Leases and Liabilities.
(1) At Closing, Buyer will assume and agree to pay or
perform, as the case may be, only (a) those obligations existing at Closing
constituting working capital liabilities incurred in the ordinary course of
business, other than long-term and interest bearing debt, which Buyer expressly
elects to assume as specifically set forth on Exhibit 1.3 attached hereto, and
(b) those obligations arising on and after the Closing under those Leases and
Contracts (as such term is defined in paragraph 4.12) (collectively, the
"Assumed Liabilities").
(2) Except for the Assumed Liabilities, it is agreed by
each of the parties that Buyer does not assume, and shall not be liable for,
any debt, liability or obligation of Seller, of any type or description
whatsoever, whether related or unrelated to the Assets, the Business or the
transactions contemplated within this Agreement and that Seller shall remain
liable and responsible for the payment or performance, as the case may be, of
all debts, liabilities, obligations, contracts, leases, notes payable, accounts
payable, commitments, agreements, suits, claims, indemnities, mortgages, taxes,
contingent liabilities and other obligations of Seller, to the extent any
exist, including, without limitation, any investment tax credit recapture,
depreciation recapture, recapture or prior period adjustments under Medicare
and Medicaid, all impositions of income tax and other taxes; all employee
wages, salaries and benefits including, without limitation, COBRA and WARN
obligations, accrued vacation and sick pay not expressly assumed by Buyer
pursuant to
3
<PAGE> 9
this paragraph, and other accrued employee benefits including rights of
Seller's retirees to participate in Seller's medical plans.
ARTICLE II. RECEIVABLES
2.1 Collection of Receivables. Following Closing, Buyer shall
collect the Receivables relating to periods prior to Closing as Seller's agent
for the limited purpose of such collection. Seller shall reimburse Buyer for
its reasonable costs and expenses incurred in connection with such collections
on behalf of Seller. Seller shall provide such reasonable assistance in the
collection process as Buyer may request. Buyer shall remit to Seller the gross
proceeds of such collection every two (2) weeks during the first sixty (60)
days following Closing and within fifteen (15) days following the end of each
month thereafter for a maximum of nine (9) months. Seller shall be responsible
for collecting any Receivable thereafter. Buyer will provide Seller any
information in its possession with respect thereto. Collections of amounts due
from patients and sponsors under the above-mentioned period shall be applied on
a first in, first out basis, except in the case of third party payors which
payments shall be applied as indicated on the third party remittance.
ARTICLE III. PURCHASE PRICE
3.1 Purchase Price. The purchase price payable by Buyer to Seller
for the Assets and in consideration for the agreements contained herein,
including the agreements contained in Article XIV hereof, shall be Two Million
Nine Hundred Thousand Dollars ($2,900,000), subject to certain adjustments
pursuant to the terms of this Agreement (the "Purchase Price"). The Purchase
Price shall be payable at Closing in the following manner:
(1) Two Million Nine Hundred Thousand Dollars
($2,900,000.00), subject to the foregoing adjustments, in cash at Closing; and
(2) Assumption of the Assumed Liabilities.
3.2 Apportionable Income and Expenses. All income and expenses
attributable to the operation of the Business (measured on an accrual basis)
through 11:59 p.m. on the date of Closing shall be for the account of Seller.
Thereafter, such income and expense shall be for the account of Buyer. Such
apportionable income will include, but shall not be limited to, all
Medicare/Medicaid reimbursements, insurance payments or advances, payments or
advances from private pay patients and all federal social security payments or
advances received before, on or after Closing. All apportionable items of
operating income and expense applicable to any periods commencing before
Closing and continuing after Closing shall be prorated between Seller and, to
the extent they are included within the Assumed Liabilities, Buyer.
Apportionable operating income and expenses shall include, but shall not be
limited to, such items as prepaid income, power and utility
4
<PAGE> 10
charges, personal property taxes, real estate taxes, insurance premiums and
rents. The adjustments specified in the preceding sentence shall, to the
extent not known, be estimated by the parties hereto in good faith at Closing
to the extent reasonably possible based on the most current Financial
Statements (as defined herein) with provisional adjustments as shall be
mutually agreed at Closing and shall be called the "Preliminary Closing
Statement." No later than thirty (30) days after Closing, the parties hereto
shall prepare, if necessary, the "Final Closing Statement" reflecting the
adjustments listed above in accordance with generally accepted accounting
principles on an accrual basis applied consistently. Adjustments made after
Closing based on the Final Closing Statement shall be payable in cash on or
before the tenth (10th) day following the date that the Final Closing Statement
is agreed upon, with interest at eight percent (8%) per annum commencing at
Closing. If the parties are unable to agree on the Final Closing Statement
within thirty (30) days after Closing, they shall appoint a firm of independent
certified public accountants (the "Accountant") to make such determination
which determination shall be final and binding on the parties hereto. Seller
and Buyer each shall pay one-half (1/2) of the entire cost of the Accountant.
3.3 Allocation of Purchase Price. The Purchase Price shall be
allocated among the Assets in the manner set forth in Exhibit 3.3 attached
hereto (the "Allocation"). Seller and Buyer agree that the Allocation shall be
used by them for all purposes including tax, reimbursement and other purposes.
Seller and Buyer agree that each of them will report the transaction completed
pursuant to this Agreement in accordance with the Allocation, including any
report made under Section 1060 of the Internal Revenue Code of 1986, as amended
(the "Code"), and that no such party will take a position inconsistent with the
Allocation except with the prior written consent of the other parties hereto.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF SELLER
As a material inducement to Buyer to enter into this Agreement and to
consummate the transactions contemplated herein, Seller represents and warrants
to Buyer, which representations and warranties shall be true and correct on the
date hereof and, as a condition to Closing, as of the date of Closing, as
follows:
4.1 Organization, Qualification and Authority. Seller is a
corporation duly organized and validly existing in the State of Alabama.
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. Seller
has the full right, power and authority to execute, deliver and carry out the
terms of this Agreement and all documents and agreements necessary to give
effect to the provisions of this Agreement and to consummate the transactions
contemplated on the part of Seller hereby. The execution, delivery and
consummation of this Agreement,
5
<PAGE> 11
and all other agreements and documents executed in connection herewith by
Seller, have been duly authorized by all necessary action on the part of
Seller. No other action, consent or approval on the part of Seller or any
other person or entity, is necessary to authorize Seller's due and valid
execution, delivery and consummation of this Agreement and all other agreements
and documents executed in connection hereto. This Agreement and all other
agreements and documents executed in connection herewith by Seller, upon due
execution and delivery thereof, shall constitute the valid and binding
obligations of Seller, enforceable in accordance with their respective terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally and by general principles
of equity.
4.2 Absence of Default. Except as set forth on Exhibit 4.2, the
execution, delivery and consummation of this Agreement, and all other
agreements and documents executed in connection herewith by Seller 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, result in the creation or imposition of any security interest, lien,
charge or other encumbrance upon any of the Assets, or otherwise adversely
affect Buyer, Seller or Business under: (a) any term or provision of the
Charter or Bylaws of Seller; (b) any contract, lease, purchase order,
agreement, document, instrument, indenture, mortgage, pledge, assignment,
permit, license, approval or other commitment to which Seller is a party or by
which Seller or the Assets are bound; (c) any judgment, decree, order,
regulation or rule of any court or regulatory authority; or (d) any law,
statute, rule, regulation, order, writ, injunction, judgment or decree of any
court or governmental authority or arbitration tribunal to which Seller and/or
the Assets are subject.
4.3 Subsidiaries. Seller has no interest, direct or indirect, in
any corporation, limited liability company, joint venture, general or limited
partnership or any other entity or business and the business carried on by
Seller has not been conducted, directly or indirectly, through any such entity.
Seller has no interest, direct or indirect, and has no commitment to purchase
any interest, direct or indirect, in any corporation, limited liability
company, general or limited partnership, joint venture or other entity.
4.4 Financial Statements. Attached hereto as Exhibit 4.4 are true
and correct copies of Seller's unaudited balance sheets as of June 30, 1995 and
June 30, 1994 and its unaudited income statements for the years then ending
(the "Fiscal Year Financial Statements"), and the interim unaudited balance
sheet and income statement of Seller for the 6 month period ended December 31,
1995 (the "Interim Financial Statements" which with the Fiscal Year Financial
Statements shall be called the "Financial Statements"). The Financial
Statements are based on the books and records of Seller and present fairly, in
compliance with generally accepted accounting principles, the financial
position of Seller as of, and the results of its operations for, the periods
specified. To Seller's knowledge
6
<PAGE> 12
there exists no basis for the assertion of any liability or obligation not
adequately reflected in the Financial Statements. The Financial Statements,
including all footnotes thereto in the case of Fiscal Year Financial
Statements, are materially true, complete and correct and contain no untrue or
misleading statements and do not omit anything which would cause them to be
misleading or inaccurate in any respect.
4.5 Operations Since June 30, 1995. Except as set forth on
Exhibit 4.5 since June 30, 1995, there has been no:
(1) Material change in the condition, financial or
otherwise, of the Business which has, or which Seller reasonably expects to
have, an adverse effect on any of the Assets, the Business or future prospects
of the Business, or in the results of the operations of Seller;
(2) Loss, damage or destruction of or to any of the
Assets, whether or not covered by insurance;
(3) Sale, lease, transfer or other disposition by Seller
of, or mortgages or pledges of or the imposition of any lien, charge or
encumbrance on, any portion of the Assets, other than those made in the
ordinary course of business consistent with past practice;
(4) Increase in the compensation payable by Seller to any
of its 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, independent contractors or agents of Seller;
(5) Cumulative net operating loss incurred in the
operation of the Business;
(6) Adjustment or write-off of Receivables or reduction
in reserves for Receivables outside of the ordinary course of business;
(7) Change in the accounting methods or practices
employed by Seller or change in depreciation or amortization policies;
(8) Intentionally deleted;
(9) Payment by Seller of any noncash dividend,
distribution or extraordinary or unusual disbursement or expenditure or
intercompany payable;
7
<PAGE> 13
(10) Sale, transfer, pledge, mortgage or other disposition
of any of the Assets (except inventory and equipment in the ordinary course of
business);
(11) Merger, consolidation or similar transaction; or
(12) Strike, work stoppage or other labor dispute against
Seller adversely affecting the Business; or
(13) Termination, waiver or cancellation of any rights or
claims of Seller, under any material contract.
4.6 Absence of Certain Liabilities. Except as disclosed in this
Agreement or in the Exhibits to this Agreement including Exhibit 4.6, Seller
has and, as a condition to Closing, as of the Closing will have, no contingent
liabilities or obligations to Seller's knowledge.
4.7 Employment Discrimination. Except as disclosed in Exhibit 4.7
attached hereto, no person or party (including, without limitation, any
governmental agency) has asserted, or to the Seller's knowledge, has threatened
to assert, any claim for any action or proceeding, against Seller (or any
officer, director, employee, or agent of Seller) arising out of any statute,
ordinance or regulation relating to wages, collective bargaining,
discrimination in employment or employment practices or occupational safety and
health standards (including, without limitation, the Fair Labor Standards Act,
Title VII of the Civil Rights Act of 1964, as amended, the Occupational Safety
and Health Act, the Age Discrimination in Employment Act of 1967, the Americans
With Disabilities Act or the Family and Medical Leave Act). The claims
disclosed in Exhibit 4.7 shall remain the responsibility of Seller, and Buyer
shall have no responsibility for these claims.
4.8 Licenses and Permits.
(1) To Seller's knowledge, Seller has all local, state
and federal licenses, permits, registrations, certificates, contracts,
consents, accreditations and approvals (collectively, the "Licenses and
Permits") necessary for Seller to occupy, operate and conduct the Business as
an 86-bed facility, and there does not exist any waivers or exemptions relating
thereto. To Seller's knowledge there is no default on the part of Seller or
any other party under any of the Licenses and Permits. To Seller's knowledge,
there exist no grounds for revocation, suspension or limitation of any of the
Licenses or Permits. Copies of each of the Licenses and Permits are attached
to and listed on Exhibit 4.8(1) attached hereto. Seller is, and, as a
condition to Closing, will be at the time of Closing, licensed by the
regulatory bodies listed on Exhibit 4.8(1). No notices have been received by
Seller with respect to any threatened, pending, or possible revocation,
termination, suspension or limitation of the Licenses and Permits.
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(2) Seller has all certificates of need or non-review
letters from the State of Alabama necessary to operate the Business. Seller
has complied with the material requirements and conditions thereof. Exhibit
4.8(2) attached hereto lists and contains copies of all implemented and
unimplemented certificates of need and non-review letters issued to the
Business of the Seller since January 1, 1992. All unimplemented certificates
of need and non-review letters have been implemented in accordance with their
terms. All unimplemented certificates of need are marked with an asterisk.
(3) Intentionally deleted.
4.9 Medicare, Medicaid and Other Third-Party Payors.
(1) 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") for the
Medicare and Medicaid Programs (the "Programs") in which Seller participates,
will be provided to Buyer prior to Closing. Seller is, and, as a condition to
Closing, will be at the time of Closing, in full compliance with all material
terms, conditions and provisions of the Program Agreements.
(2) Exhibit 4.9(2) attached hereto contains a copy of
Seller's most recent Statement of Deficiencies and Plan of Correction, if any.
(3) No notice of any offsets against future
reimbursements under or pursuant to the Programs has been received by Seller,
nor, to Seller's knowledge, is there any basis therefor. There are no pending
appeals, adjustments, challenges, audits, litigation, or notices of intent to
recoup past or present reimbursements with respect to the Programs. Seller has
not been subject to or, to Seller's knowledge, threatened with loss of waiver
of liability for utilization review denials with respect to the Programs during
the past twelve (12) months, nor has Seller received notice of any pending,
threatened or possible decertification or other loss of participation in, any
of the Programs.
(4) All liabilities and contractual adjustments of Seller
under any third party payor or reimbursement programs have been properly
reflected and adequately reserved for in the Financial Statements. In the
event that, following Closing, Buyer suffers any offsets against any
reimbursement under any third-party payor or reimbursement programs due to
Buyer relating to the periods on or prior to the Closing, then Seller shall
immediately pay to Buyer the amounts so offset.
4.10 Cost Reports. Seller has previously furnished Buyer true,
correct and complete copies of Seller's Medicare and Medicaid cost reports for
Seller's last three (3) fiscal years. The cost reports are complete and
accurate in all material respects for the periods indicated. All liabilities
and contractual adjustments of the Business under any
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third party payor or reimbursement programs have been properly reflected and
adequately reserved for in the Financial Statements.
4.11 Title to Assets.
(1) Seller is the sole legal and beneficial owner of, or
has the exclusive, unrestricted right and authority to use and transfer to
Buyer, the personal property included in the Assets, free and clear of all
mortgages, security interests, liens, leases, covenants, assessments, options,
rights of refusal, restrictions, reservations, defects in the title, and other
encumbrances, except as set forth in Exhibit 4.11(1) attached hereto or
otherwise approved in writing by Buyer. The personal property Assets are all
the assets set forth on the Interim Financial Statements and all the personal
property assets used in the operation of the Business.
(2) Except (a) as set forth on the title policy to be
furnished to Buyer pursuant to Section 6.13, (b) easements granted to public
utilities or governmental entities for utilities and access serving the Real
Estate that do not materially interfere with or adversely affect the use of the
Real Estate as a nursing home, and (c) as otherwise agreed to in writing by
Buyer, the Real Estate is, and will be conveyed, to Buyer free from
encumbrances created by Buyer.
4.12 Leases and Contracts.
(1) Exhibit 4.12 attached hereto sets forth a complete
and accurate list of all material contracts, including the Program Agreements,
agreements, unfilled 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 Seller is a party or by which Seller,
the Assets or the Business is bound or affected, including, without limitation,
service contracts, management agreements, equipment leases, office leases and
ground or building leases pertaining to any part of the Real Estate
(collectively, the "Leases and Contracts"). Prior to Closing Seller shall
furnish to Buyer accurate and complete copies of all written Leases and
Contracts and detailed summaries of all oral Leases and Contracts. Except for
the Assumed Liabilities, all Leases and Contracts and all other obligations and
liabilities relating to the Assets and the Business shall be retained by Seller.
(2) None of the material Leases and Contracts have been
modified, amended, assigned or transferred and, to Seller's knowledge, 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.
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(3) To Seller's knowledge, 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 material Leases and Contracts. To Seller's knowledge,
there are no counterclaims or offsets under any of the Leases and Contracts.
(4) Except as disclosed in this Agreement, there does not
exist any security interest, lien, encumbrance or claim of others created or
suffered to exist on any interest created under any of the Leases and Contracts
(except for those that result from or relate to leased Assets).
(5) No purchase commitment by Seller is in excess of
Seller's ordinary business requirements.
(6) Intentionally deleted.
4.13 Intentionally Deleted.
4.14 Environmental Matters. (a) Definitions. As used in this
Section, the term "Hazardous Substances" means any hazardous or toxic
substances, pollutants, contaminants, materials or wastes including any of the
following: hydrocarbons, petroleum and petroleum products, asbestos,
polychlorinated biphenyls, formaldehyde, radioactive substances, flammables and
explosives which are regulated under any federal, state or environmental laws
and regulations in effect prior to or at Closing. The term "Environmental
Laws" means all federal, state and local laws and regulations in effect prior
to or at Closing relating to emissions, discharges, releases of Hazardous
Substances.
(b) Compliance with Environmental Laws. To Seller's knowledge,
all operations or activities upon, or any use of occupancy of the Real Estate,
or any portion thereof, by Seller are and have been in all material respects in
compliance with all Environmental Laws. To Seller's knowledge, the Real Estate
is free of any lien, charge or assessment imposed pursuant to all Environmental
Laws. To Seller's knowledge, none of the Real Estate, nor any part thereof,
nor Seller, is subject to any existing, pending, or threatened investigation or
inquiry by any governmental authority, or any remedial or removal obligations
under any applicable, rules, regulations or orders pertaining to any
Environmental Laws.
4.15 Miscellaneous Representations Relating to Real Estate.
(1) No part of the Real Estate is currently subject to
condemnation proceedings, and, to Seller's knowledge, no condemnation or taking
is threatened. To Seller's knowledge, there are no public improvements which
may result in special assessments against or otherwise affect the Real Estate.
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(2) Attached as Exhibit 4.15 is a complete list of all
appraisals, mechanical and structural studies or reports or assessments,
engineering plans, architectural drawings, soil studies, surveys and other
documents currently in Seller's possession which have been prepared by or at
the direction of Seller within the last five years relating to any of the
Assets all of which have been furnished to Buyer.
(3) Intentionally deleted.
4.16 Litigation. Except as set forth in Exhibit 4.16, Seller has
not received notice of any violation of any law, rule, regulation, ordinance or
order of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality (including,
without limitation, legislation and regulations applicable to the Medicare and
Medicaid programs, environmental protection, civil rights, public health and
safety and occupational health). Except as set forth in Exhibit 4.16 attached
hereto (for which Buyer assumes no liability), there are no lawsuits,
proceedings, actions, arbitrations, governmental investigations, claims,
inquiries or proceedings pending or, to Seller's knowledge, threatened
involving Seller, any of the Assets or the Business and, to Seller's knowledge,
there is no basis therefor.
4.17 Seller's Employees. Exhibit 4.17 attached hereto sets forth:
(a) a complete list of all of Seller's employees, and rates of pay as of
January 1, 1996, previously delivered to Buyer, (b) true and correct copies of
any and all fringe benefits and personnel policies, (c) the employment dates
and job titles of each such person, and (d) categorization of each such person
as a full-time or part-time employee of Seller. For purposes of this
paragraph, "part-time employee" means an employee who is employed for an
average of fewer than twenty hours (20) per week or who has been employed for
fewer than six of the twelve (12) months preceding the date on which notice, if
any, is required pursuant to the "Worker Adjustment and Retraining Notification
Act" ("WARN"), 29 U.S.C. Section 2102 et seq. Except as provided in Exhibit
4.12, Seller has no employment agreements with its employees and all such
employees are employed on an "at will" basis. Exhibit 4.17 lists all
ex-employees of Seller utilizing or eligible to utilize COBRA (health
insurance). Seller will terminate all of its employees at Closing, and Seller
agrees to indemnify and hold Buyer harmless, from and against any and all
claims of Seller's employees relating to their employment by Seller through
Closing and such termination, by Seller, whenever made. Other than Assumed
Liabilities, the parties expressly agree that Seller shall retain
responsibility for and fully and timely pay all salaries and wages, related
payroll taxes and all sick leave, holiday, vacation benefits, retirement and
other fringe benefits that have accrued to its employees through the date of
Closing. Seller shall use its reasonable efforts to retain its employees in
their current positions up to Closing. Buyer intends to employ the Seller's
employees on an at will basis.
4.18 Labor Relations. Seller is not a party to any labor contract,
collective bargaining agreement, contract, Letter of Understanding, or any
other arrangement, formal
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or informal, with any labor union or organization which obligates Seller to
compensate Seller's employees at prevailing rates or union scale, nor, to
Seller's knowledge, are any of its employees represented by any labor union or
organization. There is no pending or, to Seller's knowledge, threatened labor
dispute, work stoppage, unfair labor practice complaint, strike, administrative
or court proceeding or order between Seller and any present or former
employee(s) of Seller. Except as set forth on Exhibit 4.18, there is no
pending or, to Seller's knowledge, threatened suit, action, investigation or
claim between Seller and any present or former employee(s) of Seller. To
Seller's knowledge, there has not been any labor union organizing activity at
any location of Seller with respect to Seller's employees within the last three
years.
4.19 Insurance. Seller has in effect and has continuously
maintained insurance coverage for all of its operations, personnel and assets,
and for the Assets and the Business as set forth on Exhibit 4.19 which sets
forth a summary of Seller's current insurance coverage (listing type, carrier
and limits), and includes a list of any pending insurance claims relating to
Seller other than workmen's compensation litigation set forth on Exhibit 4.18.
Seller agrees to indemnify and hold harmless Buyer from and against such
pending insurance claims. To Seller's knowledge, Seller is not in default or
breach with respect to any provision contained in any such insurance policies,
nor has Seller failed to give any notice or to present any claim thereunder in
due and timely fashion.
4.20 Broker's or Finder's Fee. Seller has not employed, and is not
liable for the payment of any fee to, any finder, broker, consultant or similar
person in connection with the transactions contemplated under this Agreement.
4.21 Conflicts of Interest. Except as set forth on Exhibit 4.21,
none of the following is either a supplier of goods or services to Seller, or
directly or indirectly controls or is a director, officer, employee or agent of
any corporation, firm, association, partnership or other business entity that
is a supplier of goods or services to Seller: (a) any shareholder of Seller,
(b) any director or officer of Seller, or (c) any entity under common control
with Seller or controlled by or related to Seller's shareholders.
4.22 Intellectual Property. All trademarks, service marks, trade
names, patents, inventions, processes, copyrights and applications therefor, if
any, whether registered or at common law (collectively, the "Intellectual
Property"), owned by Seller are listed and described in Exhibit 4.22 attached
hereto. No proceedings have been instituted or are pending or, to Seller's
knowledge, threatened which challenge the validity of the ownership by Seller
of any such Intellectual Property. Seller has not licensed anyone to use any
such Intellectual Property, and Seller has no knowledge of the use or the
infringement of any of such Intellectual Property by any other person.
4.23 Inventories. The Inventory is, and, as a condition to
Closing, on Closing will be, in all material respects, of a quality and
quantity presently used by Seller in the ordinary
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course of business determined and valued consistent with Seller's past
practice. The Inventory is, and at Closing will be, properly valued at the
lower of cost or market value on a first-in/first-out basis in accordance with
generally accepted accounting principles consistently applied. Since the date
of the Interim Financial Statements, Seller has not decreased or substituted
its items of Inventory other than in the ordinary course of business. Seller
has fairly represented the nature and extent of the Inventory to its outside
auditors and accountants on a consistent basis and in the exercise of good
faith.
4.24 Motor Vehicles. Seller neither owns or leases any motor
vehicles for use in the Business.
4.25 Employee Benefit Plans.
(1) Welfare Benefit Plans. Exhibit 4.25(1) attached
hereto contains a true, accurate and complete list of each "employee welfare
benefit plan" (as defined in Section 3(1) of the Employee Retirement Income
Security Act of 1974 as amended ("ERISA")) maintained by Seller or to which
Seller contributes or is required to contribute (such employee welfare benefit
plans being hereinafter collectively referred to as the "Welfare Benefit
Plans"). Copies of all Welfare Benefit Plans have previously been provided to
Buyer.
(2) Pension Benefit Plans. Exhibit 4.25(2) attached
hereto contains a true and complete list of each "employee pension benefit
plan" (as defined in Section 3(2) of ERISA) maintained by Seller, to which
Seller contributes or is required to contribute, or which covered any employee
of Seller during the period of their employment with a predecessor of Seller,
including any multi-employer pension plan as defined under Internal Revenue
Code of 1986, Section 414(f) (such employee pension benefit plans being
hereinafter collectively referred to as the "Pension Benefit Plans").
(3) Liabilities. Unfunded liabilities under any Welfare
Benefit Plans or Pension Benefit Plans are described on Exhibit 4.25(3)
attached hereto. Buyer shall not be liable and not be responsible for any
debt, obligation, responsibility or liability of Seller under any such plans.
Seller shall be liable under its Welfare Benefit Plans and Pension Benefit
Plans for all claims due and unpaid at Closing and for all claims incurred
before Closing, whether or not paid or presented before Closing.
(4) Termination of Participation. Upon Closing, Seller
shall cease to be a participating employer under all Pension Benefit Plans and
Welfare Benefit Plans maintained by Seller, and any such action by Seller shall
in no way diminish its obligations to Buyer.
4.26 Compliance with Healthcare Laws and Other Laws. To Seller's
knowledge, Seller has not made any kickback, bribe or payment to any person or
entity, directly or
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indirectly, for referring, recommending or arranging business or patients with,
to or for Seller which action could have a material adverse effect on the
Business. To Seller's knowledge, none of the Leases and Contracts and no
activity of Seller violates Section 1877 of the Social Security Act or any
similar provision of applicable state law in any material respect.
4.27 Condition of Assets. The Equipment and Furnishings are all of
the "Equipment" reflected on the Interim Financial Statements, other than those
items sold and replaced in the ordinary course of business. The Assets,
together with the Excluded Assets, comprise all of the following: all assets
owned by Seller used in connection with the Business. Since June 30, 1995, the
Business has been operated in substantial conformity with the methods and
procedures observed and utilized during the two year period immediately
preceding June 30, 1995, and that since June 30, 1995 and except in the
ordinary and usual course of the Business, no Assets have been removed,
distributed or assigned.
4.28 WARN Act. Within the period ninety (90) days prior to the
Closing, Seller has not temporarily or permanently closed or shut down any
single site of employment or any facility or any operating unit, department or
service within a single site of employment, as such terms are used in WARN.
4.29 Tax Returns; Taxes. Seller has filed all federal, state and
local tax returns and tax reports required by such authorities to be filed.
Seller has paid all taxes, assessments, governmental charges, penalties,
interest and fines due, or to Seller's knowledge, claimed to be due (including,
without limitation, taxes on properties, income, franchises, licenses, sales
and payrolls) by any federal, state or local authority. There is no pending
tax examination or audit of, nor any action, suit, investigation or claim
asserted or, to Seller's knowledge, threatened against Seller by any federal,
state or local authority; and Seller has not been granted any extension of the
limitation period applicable to any tax claims.
4.30 Bankruptcy. Seller is not involved in any proceedings in any
court under any bankruptcy law or any other insolvency or debtors' relief law,
whether federal or state, or for the appointment of a trustee, receiver,
liquidator, assignee, sequestrator or other similar official of Seller or any
of Seller's property.
4.31 Patient Agreements. There are no patient care agreements with
patients of the Business or with any other persons or organizations that
deviate from the standard form customarily used by Seller. Seller has no
agreements with any payors, patients or prospective patients which obligate or
would obligate Seller to provide services at rates below Seller's current and
standard rates for similar services for terms longer than one (1) month.
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4.32 Patient Trust Funds. All patient trust funds held for the
benefit of patients of the Business are in balance and will be in balance at
Closing. Any deficiencies in patient trust funds revealed by audits of Buyer
or state agencies relating to operations of the Business prior to Closing shall
be paid or refunded by Seller.
4.33 Occupancy Rate. For the twelve (12) months ending December 31,
1995, the average occupancy at the Business, the number of private pay
patients, the average rate per diem for such private patients, the number of
patients for which Seller received Medicaid or Medicare funds and the average
rate per diem for such Medicaid or Medicare supported patients are set forth on
Exhibit 4.33(a) attached hereto (which Exhibit does not include the impact of
the eighteen (18) new beds which are anticipated to be licensed). Seller shall
use its reasonable efforts to maintain occupancy rates without a material
decrease through Closing. A substantial decrease shall be defined as five
percent (5%) of licensed beds or more at Closing. Prior to Closing, Seller
shall provide a true and accurate list identifying all patients, their method
of payment, their addresses, the name and address of the persons financially
responsible for paying the amounts due from such patients, the rates payable by
such patients, and the date they first became patients of the Business and
whether (and for how long) they are in arrears in payments.
4.34 Prepayments and Deposits. The prepayments of room charges and
patient security deposits received by Seller are listed on Exhibit 4.34
attached hereto. Exhibit 4.34 will be updated to Closing by Seller for
purposes of crediting such prepayments and deposits to Buyer's account.
4.35 Documents. Copies of all documents referred to in any Exhibit
hereto will be delivered or made available to Buyer prior to Closing and
constitute true, correct and complete copies thereof and include all
amendments, exhibits, schedules, appendices, supplements or modifications
thereto or waivers thereunder.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Seller to enter into this Agreement and to
consummate the transactions contemplated herein, Buyer hereby represents and
warrants to Seller, which representations and warranties shall be true and
correct on the date hereof and on the date of Closing, as follows:
5.1 Organization, Qualification and Authority. Buyer is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Tennessee. 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
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agreements necessary to give effect to the provisions of this Agreement and to
consummate the transactions contemplated on the part of Buyer hereby. The
execution, delivery and consummation of this Agreement and all other agreements
and documents executed in connection herewith by Buyer has been duly authorized
by all necessary corporate action on the part of Buyer. No other action on the
part of Buyer or any other person or entity is necessary to authorize the
execution, delivery and consummation of this Agreement and all other agreements
and documents executed in connection herewith. This Agreement, and all other
agreements and documents executed in connection herewith by Buyer, upon due
execution and delivery thereof, shall constitute the valid binding obligations
of Buyer, enforceable in accordance with their respective terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally and by general principles of equity.
5.2 Absence of Default. The execution, delivery and consummation
of this Agreement and all other agreements and documents executed in connection
herewith by Buyer will not constitute a violation of, be in conflict with, or,
with or without the giving of notice or the passage of time, or both, result in
a breach of, constitute a default under, or create (or cause the acceleration
of the maturity of) any debt, indenture, obligation or liability or result in
the creation or imposition of any security interest, lien, charge or other
encumbrance upon any of the Assets (except in the ordinary course pursuant to
Buyer's existing credit agreements) under: (a) any term or provision of the
Charter or Bylaws of Buyer; (b) any contract, lease, agreement, indenture,
mortgage, pledge, assignment, permit, license, approval or other commitment to
which Buyer is a party or by which Buyer is bound; (c) any judgment, decree,
order, regulation or rule of any court or regulatory authority, or (d) any law,
statute, rule, regulation, order, writ, injunction, judgment or decree of any
court or governmental authority or arbitration tribunal to which Buyer is
subject.
5.3 Broker's or Finder's Fee. Buyer has employed Paul G. Thomason
of Diversified Health Properties and is liable for the payment of fees to Mr.
Thomason in connection with the transactions contemplated by this Agreement.
ARTICLE VI. COVENANTS OF PARTIES
6.1 Preservation of Business and Assets. From the date hereof
until the Closing, Seller shall use its reasonable efforts to preserve, protect
and maintain intact the operation of the Business and Assets as a going concern
consistent with prior practice and not other than in the ordinary course of
business, and to preserve, protect and maintain for Buyer the goodwill of the
suppliers, employees, clientele, patients and others having business relations
with Seller or the Business. Seller shall use its reasonable efforts to retain
its employees in their current positions up to Closing. Buyer and Seller shall
use their reasonable efforts to facilitate the consummation of the transactions
contemplated under this Agreement. Until termination of this Agreement, Seller
agrees that it will not sell or
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transfer, or negotiate the sale or transfer of, the Assets. From the date
hereof until the Closing, Seller shall pay no non-cash dividend, and shall make
no noncash distribution or extraordinary payment to its shareholders or any
third party or pay any intercompany payable and, other than in the ordinary
course of business, Seller will not sell, discard or dispose of any of the
Assets. None of the material Leases and Contracts shall be amended between the
date hereof and Closing without the prior written consent of Buyer. From the
date hereof until Closing, Seller will not perform any material grading or
excavation, construction or removal of any improvement, or make any material
other change or improvement upon or about the Real Estate other than with
respect to construction currently underway. From the date hereof until
Closing, Seller will use its reasonable efforts to maintain and keep the Assets
in a sanitary, well-maintained condition and in good order and repair, except
for reasonable wear and tear.
6.2 Absence of Material Change. From the date hereof until the
Closing, Seller shall not make any material change in the Business or in the
utilization of the Assets and shall not enter into any other material contract
or commitment or any other material transaction with respect to the Business or
the Assets without the prior written consent of Buyer.
6.3 Access to Books and Records.
(1) From the date hereof until the Closing, Seller shall
give to Buyer and to Buyer's counsel, accountants and other representatives,
full access to all of Seller's offices, properties, books, contracts,
commitments, records and affairs relating to the Assets or the Business so that
Buyer may inspect and audit them and shall furnish to Buyer a copy of all
documents and information concerning the properties and affairs of Seller, the
Business or the Assets as Buyer may request. If any such books, records and
materials are in the custody of third parties, Seller shall direct such third
parties to promptly provide them to Buyer. Copies of documents furnished to
Buyer by Seller will be returned by Buyer upon request if the transactions
contemplated hereunder are not consummated. Seller shall provide Buyer
promptly with interim financial statements of Seller and any other management
reports, as and when they are available.
(2) Following the Closing, Buyer shall permit Seller's
representatives (including, without limitation, their counsel and auditors),
during normal business hours, to have reasonable access to, and examine and
make copies of, all books and records of the Business which relate to
transactions or events occurring prior to the Closing. All out-of-pocket costs
associated with the delivery of the requested documents shall be paid by Seller.
(3) Following the Closing, Seller shall permit Buyer and
its representatives (including, without limitation, their counsel and
auditors), to have access to, and examine and make copies of, all books and
records of Seller and its affiliates relating to the
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Business or Assets, which books and records are retained by Seller and which
relate to transactions or events occurring prior to the Closing. For a period
of five years after the Closing, Seller agrees that, prior to the destruction
or disposition of any such books or records, Seller shall provide not less than
forty-five (45) days', nor more than ninety (90) days', prior written notice to
Buyer of such proposed destruction or disposal. If Buyer desires to obtain any
such documents or records, it may do so by notifying Seller in writing at any
time prior to the date scheduled for such destruction or disposal. In such
event, Seller shall not destroy such documents or records and the parties shall
then promptly arrange for the delivery of such documents or records to Buyer,
its successors or assigns. All out-of-pocket costs associated with the
delivery of the requested documents or records shall be paid by Buyer.
(4) Upon request of Buyer, Seller shall use its
reasonable efforts to cause its accounting firm to consent to the inclusion of
the Fiscal Year Financial Statements in any registration statements, private
placement memoranda, and periodic reports, if any, necessary or appropriate in
order to enable Buyer or its affiliates to comply with any applicable
registration or reporting requirements of federal or state securities laws.
(5) For a period of one (1) year after Closing, Seller
shall make the books and records of Seller available to Buyer (and, without
limitation, to Buyer's auditors and other agents) and shall otherwise cooperate
with Buyer in order to permit Buyer to conduct an audit of Seller's financial
statements for any period prior to Closing not already audited. Seller agrees
to cooperate, at no cost to Seller, with Buyer in Buyer's preparation of
financial statements relating to such periods and Buyer's filing in a timely
manner of registration statements, private placement memoranda and periodic
reports, if any, pursuant to any applicable federal or state securities law.
6.4 Preserve Accuracy of Representations and Warranties. Seller
shall refrain from taking any action which would render any representation and
warranty contained in Article IV hereof untrue, inaccurate or misleading as of
Closing. Seller will promptly notify Buyer of any lawsuit, claim, audit,
investigation, administrative action or other proceeding asserted or commenced
against Seller, its directors, officers or shareholders, that involves or
relates in any way to Seller, the Assets or the operation of the Business.
Seller shall promptly notify Buyer of any facts or circumstances that come to
its attention and that cause, or through the passage of time would cause, any
of Seller's representations and warranties to be untrue or misleading at any
time from the date hereof to Closing.
6.5 Maintain Books and Accounting Practices. From the date hereof
until the Closing, Seller shall maintain its books of account in the usual,
regular and ordinary manner on a basis consistent with prior years and shall
make no change in its accounting methods or practices.
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6.6 Indebtedness; Liens. Other than in the ordinary course of
business or construction currently underway, from the date hereof until the
Closing, with respect to the Assets, including the Business and operations
conducted with the Assets, Seller shall not create, incur, assume, guarantee or
otherwise become liable or obligated with respect to any indebtedness for
borrowed money, nor make any loan or advance to, or any investment in, any
person or entity, nor create any lien, security interest, mortgage, right or
other encumbrance in any of the Assets, without Buyer's prior written approval.
6.7 Compliance with Laws and Regulatory Consents. From the date
hereof until the Closing, (a) Seller shall comply with all applicable statutes,
laws, ordinances and regulations, (b) Seller shall keep, hold and maintain all
certificates, certificates of need, certificates of exemption, accreditations,
participation, licenses, and other permits necessary for the business and
operation of the Assets, and (c) Seller shall use its best efforts and shall
cooperate at no cost to Seller 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.
6.8 Maintain Insurance Coverage. From the date hereof until the
Closing, Seller shall maintain and cause to be maintained in full force and
effect the existing insurance on the Assets and the operations of the Business.
6.9 Medicare and Medicaid Reporting. Through Closing, Seller
shall timely file or cause to be filed all reports and claims of every kind,
nature or description, required by law or by written or oral contract to be
filed with respect to the purchase of services by third party payors,
including, but not limited to, Medicare and Medicaid. Seller has paid or will
pay all liabilities for contracted adjustments, discounts, refunds and other
offsets in connection with the filing of such reports.
6.10 Current Return Filing. Seller shall 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 Seller ending on or
before the Closing; and (b) the payment of all such taxes when due. Seller
shall prepare and timely file all federal, state and/or local income and other
tax returns of Seller and shall pay such taxes when due.
6.11 WARN Act. Prior to Closing, Seller will not temporarily or
permanently close or shut down any "single site of employment" or any
"facility" or any "operating unit," department or service within a single site
of employment, as such terms are used in WARN in violations of WARN, if
applicable.
6.12 No Sale, Merger or Consolidation. From the date hereof until
the Closing, Seller shall not sell all or substantially all of its assets, or
merge or consolidate with any other entity and shall not solicit any inquiries,
proposals or offers relating to any such transactions.
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6.13 Title Report and Policy. At least twenty (20) days prior to
Closing Seller shall deliver to Buyer, at Seller's expense, a current
commitment for title insurance issued by Lawyers Title Insurance Corporation
with respect to the condition of title to each tract of Real Estate
(collectively, the "Commitment") and committing to issue for each tract of Real
Estate an owner's or leasehold, as the case may be, title insurance policy,
(collectively, the "Title Policy") insuring the title or leasehold title to the
Real Estate in the amount of the Purchase Price allocated to the Real Estate
and the improvements thereon with the standard survey exception deleted. As a
condition to Buyer's obligation to close, the title to the Real Estate is in
all respects subject to the approval of the Buyer, including without limitation
that the Commitment and Title Policy shall show that good, marketable and
insurable fee simple title or leasehold title, as the case may be, to the Real
Estate is owned in fee simple by Seller, free from all liens, restrictions,
encumbrances, easements and exceptions to title whatsoever, except the
Permitted Exceptions. The Commitment and Title Policy will also contain, if
available: (1) a so-called "tax parcel endorsement" listing all of the tax
parcel identification numbers affecting the Real Estate covered by the policy
and that no other property is included in the Real Estate and that no other tax
parcel identification numbers affect such Real Estate; (2) a contiguity
endorsement; (3) a 3.1 zoning endorsement or its equivalent as then in use by
the title company in form and substance acceptable to Buyer; (4) extended
coverage deleting all standard and general exceptions; and (5) any additional
endorsements or insurance as Buyer may reasonably require. The Title Policy
shall be in form acceptable to Buyer and Buyer's lender and shall permit a
simultaneous issue rate for the lender's mortgage title policy. The title
company shall provide to Buyer when delivering the Commitment one (1) copy of
all recorded documents shown on the Commitment or otherwise affecting title of
the Real Estate to Buyer. At Closing, there shall be issued to Buyer, at
Seller's expense, the Title Policy in the amount of the Purchase Price. In the
event Buyer requests, the title company shall issue a mortgage title policy in
an amount up to the Purchase Price at simultaneous issue rates at Buyer's
expense.
6.14 Survey. Prior to Closing, Buyer, at Buyer's expense, shall
obtain a current as-built survey(s) of the Real Estate accompanied by a
certificate of a registered surveyor licensed in the State of Alabama,
6.15 Defects and Cure. The Title Commitment and Policy and Survey
described in this Article are collectively referred to as "Title Evidence."
Buyer shall notify Seller before Closing and as soon as reasonably possible of
any liens, claims, encroachments exceptions or defects disclosed in the Title
Evidence which either: (1) do not constitute Permitted Exceptions; or (2) even
if they constitute Permitted Exceptions, if such matter adversely impacts any
of the Assets or the financeability thereof in the reasonable opinion of Buyer
(collectively, "Defects"). Seller, at its sole cost and expense, may elect to
cure or not cure the objection and shall give written notice to Buyer of its
decision whereupon Buyer may waive such objection and close or may terminate
this Agreement. If Seller fails to timely give such notice, Seller shall be
deemed to have elected not to cure the objection,
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whereupon Buyer may waive such objection and close or may terminate this
Agreement. Upon termination of this Agreement under the terms of this Section
6.15, in which event this Agreement shall be void, and no party to this
Agreement shall have any further obligations, liabilities or claims under this
Agreement against any other party.
6.16 Environmental Inspection. Buyer, at its sole cost and
expense, will obtain a current environmental report issued by an engineer duly
licensed in the State of Alabama or other recognized environmental testing
company, acceptable to Buyer (the "Environmental Report") showing no presence
of any toxic or hazardous waste or substance in, on or around the Real Estate,
or any part thereof, or being discharged, leaked or released from or onto the
Real Estate, or any part thereof and that no part of the Real Estate
constitutes or contains wetlands. Buyer shall notify Seller before Closing in
writing of any objections with respect to any matters shown by the
Environmental Report. Seller, in its discretion and option, may take or not
take such action (at its expense) which will result in the removal or cure, in
a manner acceptable to Buyer, of such objections with respect to the Real
Estate. Buyer's failure to deliver notice of any objections to the matters
shown by the Environmental Report shall be deemed to establish Buyer's
satisfaction with the Environmental Report. If Seller has not corrected to
Buyer's satisfaction the objections to the Environmental Report within a
reasonable time, Buyer may: (1) waive its objections and consummate the
transaction; or (2) terminate this Agreement by written notice to Seller, in
which event this Agreement shall be void and neither party shall have any
further obligation or claim hereunder or liabilities to the other.
ARTICLE VII. CLOSING
7.1 Closing. If all of the conditions to Closing set forth in
Articles VIII and IX hereof are satisfied, then the Closing shall occur on or
prior to June 30, 1996, at the offices of Harwell Howard Hyne Gabbert & Manner,
P.C., Nashville, Tennessee, or at such other time or place as the parties may
mutually agree (the "Closing"). Upon consummation, the Closing shall be deemed
to be effective, and the transfer of the Assets shall be deemed to have
occurred, as of 11:59 p.m. local time on the day of Closing.
ARTICLE VIII. SELLER'S CONDITIONS TO CLOSE
The obligations of Seller under this Agreement are subject to the
satisfaction on or prior to Closing, of the following conditions (which may be
waived in writing by Seller in whole or in part):
8.1 Representations and Warranties True at Closing; Compliance
with Agreement. The representations and warranties of Buyer contained in this
Agreement (including the Exhibits and attachments hereto) or in any certificate
or document delivered to Seller pursuant hereto, shall be deemed to have been
made again at the Closing and
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shall then be true in all respects; and Buyer shall have performed and complied
with all covenants, agreements and conditions required by this Agreement to be
performed or complied with by it prior to or at Closing.
8.2 No Action/Proceeding. No action or proceeding before a court
or any other governmental agency or body shall have been instituted or
threatened to restrain or prohibit the transactions hereunder contemplated, and
no governmental agency or body or other entity shall have taken any other
action or made any request of Seller or Buyer as a result of which Seller
reasonably and in good faith deems that to proceed with the transactions
hereunder may constitute a violation of law.
8.3 Order Prohibiting Transaction. No order shall have been
entered in any action or proceeding before any court or governmental agency,
and no preliminary or permanent injunction by any court shall have been issued
which would have the effect of (a) making the transactions contemplated under
this Agreement illegal, or (b) otherwise preventing consummation of such
transactions. There shall have been no United States federal or state statute,
rule or regulations enacted or promulgated after the date of this Agreement
that would reasonably, directly or indirectly, result in any of the
consequences referred to in this paragraph.
ARTICLE IX. BUYER'S CONDITIONS TO CLOSE
The obligations of Buyer under this Agreement are subject to the
satisfaction, on or prior to Closing, of the following conditions (which may be
waived in writing by Buyer in whole or in part):
9.1 Representations and Warranties True at Closing; Compliance
with Agreement. The representations and warranties of Seller contained in this
Agreement (including the Exhibits and attachments hereto) or in any certificate
or document delivered to Buyer in connection herewith, shall be deemed to have
been made again at the Closing and shall then be true in all material respects;
and Seller shall have performed and complied with all covenants, agreements and
conditions required by this Agreement to be performed or complied with by them
prior to or at Closing.
9.2 Regulatory Approvals. Buyer shall have obtained (a)
certification for participation in the Medicaid Programs of the states where
the Business is conducted, (b) certification from the appropriate agency of the
federal government for participation in the federal Medicare Program, and (c)
all other consents, licenses, permits, approvals, provider contracts,
determinations or certificates of need necessary in the judgment of Buyer to
acquire and operate the Assets and Business as contemplated hereunder.
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9.3 No Action/Proceeding. No action or proceeding before a court
or any other governmental agency or body shall have been instituted or
threatened to restrain or prohibit the transaction hereunder contemplated, and
no governmental agency or body or other entity shall have taken any other
action or made any request of Seller or Buyer as a result of which Buyer
reasonably and in good faith deems that to proceed with the transactions
hereunder may constitute a violation of law.
9.4 No Material Adverse Change. There shall have been no material
adverse change in the condition, financial or otherwise, of Seller or the
Assets. There shall not be any claims, litigation or governmental proceedings
pending or threatened against Seller or its directors, officers, or affiliates
which would adversely affect the Assets or the consummation of the transaction
contemplated hereby at Closing.
9.5 Inspection of Assets; UCC Searches, etc. Buyer and its
representatives shall have had and continue to have reasonable rights of
inspection of the Assets in connection with Buyer's due diligence review, and
the results of Buyer's inspection and due diligence review shall be acceptable
to it. Buyer shall have obtained, at Buyer's expense, all UCC financing
statements and title searches, local and central, including fixtures, and
federal and state pending litigation, tax lien and judgment searches, with
respect to Seller, the Assets and the Business, including all "DBA's,"
tradenames and fictitious names of Seller, dated no more than ten (10) days
prior to Closing, with results satisfactory to Buyer.
9.6 Order Prohibiting Transaction. No order shall have been
entered in any action or proceeding before any court or governmental agency,
and no preliminary or permanent injunction by any court shall have been issued
which would have the effect of (a) making the transactions contemplated under
this Agreement illegal, (b) otherwise preventing consummation of such
transactions, or (c) imposing material limitations on the ability of Buyer
effectively to acquire and hold Assets, to operate the Business, or, in any
case, to exercise rights of ownership pursuant thereto. There shall have been
no federal or state statute, rule or regulations enacted or promulgated after
the date of this Agreement that would reasonably result, directly or
indirectly, in any of the consequences referred to in this paragraph.
9.7 Lease. Buyer shall have entered into a satisfactory Lease for
the Real Estate.
9.8 Third Party Consents. Buyer, with Seller's assistance, shall
have obtained all third party consents or third party authorizations believed
by Buyer to be necessary or advisable for the legal and proper consummation of
all agreements and transactions contemplated within this Agreement, each in
form and substance acceptable to Buyer.
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9.9 Approval of Board of Directors. This Agreement and
consummation of the transactions contemplated hereunder shall have been
approved by the Board of Directors of Advocat, Inc. and Buyer.
9.10 Commitment and Policy; Survey. Seller shall have delivered to
Buyer the title commitment and Title Policy, and Buyer shall have obtained the
Survey and Environmental Report, as required by Sections 6.13, 6.14 and 6.16,
which shall be satisfactory to Buyer in its sole discretion.
9.11 Financial Statements. Buyer shall be satisfied that the books
and records of Seller are in such order and completeness so that an unqualified
audit may be performed for any period prior to Closing not already audited.
9.12 Condition of Assets. Buyer shall be satisfied that 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 in good working order.
9.13 Occupancy Rate. For each of the periods of: (1) one (1) month
before Closing; and (2) five (5) days before Closing, the average total and
private pay occupancy of the Business shall not have substantially decreased
from the averages for the month ending March 30, 1996.
9.14 Zoning. Seller shall be satisfied that the Assets and
Business comply in all respects with all applicable zoning, public health,
building code, and similar laws, ordinances and regulations.
9.15 Utilities. Buyer shall be satisfied with the availability and
sufficiency of all utilities affecting the Assets or the Business.
If any condition to Closing stated in this Article or other provision
of this Agreement is not satisfied in the discretion of Buyer, Buyer may (1)
waive its objections and consummate the transaction; or (2) terminate this
Agreement by written notice to Seller, in which event this Agreement shall be
void and neither party shall have any further obligation or claim hereunder or
liabilities to the other.
ARTICLE X. OBLIGATIONS OF SELLER AT CLOSING
At Closing, Seller shall deliver or cause to be delivered to Buyer the
following in form and substance reasonably satisfactory to Buyer:
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10.1 Documents Relating to Title. Seller shall, as applicable,
execute, acknowledge, deliver or cause to be executed, acknowledged and
delivered to Buyer:
(1) Statutory warranty deeds from Seller in form
satisfactory to Buyer and the title insurer, with all recording, stamp tax,
deed tax or other transfer fees paid by Buyer.
(2) The Title Commitment and Title Policy called for in
Section 6.13 hereof.
(3) Intentionally deleted.
(4) A statutory warranty Assignment and Assumption of
Lease agreement for each location of the leased Real Estate, each in form and
substance satisfactory to Buyer, with all recording, stamp tax or other
transfer fees paid by Buyer, and conveying to Buyer good, valid and marketable
leasehold title and 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.
(5) A Bill of Sale and Assignment Agreement, in form and
substance satisfactory to Buyer, warranting and conveying to Buyer good, valid
and marketable title to all personal property Assets, free and clear of all
liens, mortgages, pledges, encumbrances, security interests, covenants,
options, rights of first refusal restrictions, special tax or governmental
assessments, defects in title, and other burdens, except for the Assumed
Liabilities.
(6) An effective and enforceable assignment to Buyer of
each Lease and Contract which Buyer has agreed to assume.
10.2 Possession. Seller shall deliver to Buyer full possession and
control of the Business and Assets.
10.3 Opinion of Counsel. Seller shall deliver to Buyer the
favorable opinion of counsel for Seller, dated as of Closing, in the form
reasonably satisfactory to Buyer.
10.4 Corporate Good Standing and Corporate Resolutions. Seller
shall deliver to Buyer certificates of good standing from the Secretary of
State of its state of organization, and from each jurisdiction in which Seller
is qualified to do business, certified copies of the Bylaws and Charter of
Seller (all dated the most recent practical date prior to Closing), certified
copies of the resolutions of the Board of Directors and shareholder of Seller
authorizing the execution, delivery and consummation of this Agreement and the
execution, delivery and consummation of all other agreements and documents
executed in connection herewith by them, including all deeds, bills of sale and
other instruments required hereunder, sufficient in form and content to meet
the requirements of the law of
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the state of Seller's incorporation relevant to such transactions and certified
by officers of Seller to be validly adopted and in full force and effect and
unamended as of Closing.
10.5 Closing Certificate. Seller shall deliver to Buyer a
certificate of an officer of Seller, dated as of Closing, certifying that (a)
to Seller's knowledge, each material covenant and obligation of Seller has been
complied with by Seller, and (b) to Seller's knowledge each material
representation and warranty of Seller is true and correct at the Closing as if
made on and as of the Closing.
10.6 Third Party Consents and Releases. Seller shall deliver to
Buyer, all consents, estoppels, approvals, releases, filings and authorizations
of third parties that Buyer believes are necessary or advisable for the legal
and proper execution, delivery and consummation of this Agreement, and the
transactions contemplated hereunder, including but not limited to, those
consents necessary for the assignment of Leases and Contracts pursuant to
paragraph 10.1(7) and any UCC termination statements regarding the Assets.
10.7 Taxes and Other Payments. (1) Seller shall deliver to Buyer
executed releases of all mortgages, liens, pledges, encumbrances, restrictions,
security interests, charges, easements of any kind in favor of any taxing
authority and evidence of proration of customary charges.
(2) Executed releases of all mortgages, security
interests, liens, pledges, restrictions or other encumbrances on or applicable
to the Assets, except for the Assumed Liabilities.
10.8 Intentionally deleted.
10.9 Intentionally deleted.
10.10 Additionally Requested Documents; Post Closing Assistance. At
the reasonable request of Buyer at Closing and at any time or from time to time
thereafter, Seller shall cooperate with Buyer, at no cost to Seller, to put
Buyer in actual possession and operating control of the Assets and Business,
execute and deliver such further instruments of sale, conveyance, transfer and
assignment, as Buyer may reasonably request in order to effectively sell,
convey, transfer and assign the Assets and Business to Buyer as contemplated by
this Agreement, to execute and deliver such further instruments and to take
such other actions as Buyer may reasonably request to release Buyer from all
obligation and liability with regard to any obligation or liability retained by
Seller and to execute and deliver such further instruments and to cooperate
with Buyer, at no cost to Seller, as Buyer may reasonably request or to enable
Buyer to obtain all necessary health care or regulatory certifications,
approvals, consents and licenses, accreditations or permits.
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ARTICLE XI. OBLIGATIONS OF BUYER AT CLOSING
At Closing, Buyer shall deliver or cause to be delivered to Seller the
following in a form and substance reasonably satisfactory to Seller:
11.1 Purchase Price. Buyer shall make available to Seller the
Purchase Price upon the terms specified in this Agreement.
11.2 Assumption of Liabilities. Buyer shall covenant to fully
perform and comply with all of the Assumed Liabilities, subject to the
provisions of this Agreement, from and after Closing.
11.3 Opinion of Counsel. Buyer shall deliver to Seller a favorable
opinion of counsel for Buyer, dated as of Closing, in the form specified in
Article XII hereof.
11.4 Corporate Good Standing and Board Resolutions. Buyer shall
deliver to Seller a certificate of good standing from the Secretary of State of
Tennessee, dated the most recent practical date prior to Closing, together with
a certified copy of the resolutions of the Board of Directors of Buyer
approving this Agreement and the consummation of the transactions hereunder
contemplated.
11.5 Closing Certificate. Buyer shall deliver to Seller a
certificate of an officer of Buyer, dated as of Closing, certifying that (a)
each covenant and obligation of Buyer has been complied with by Buyer, and (b)
each representation and warranty of Buyer is true and correct on the Closing as
if made on and as of the Closing.
ARTICLE XII. OPINION OF BUYER'S COUNSEL
At the Closing, Buyer shall deliver to Seller an opinion of Harwell
Howard Hyne Gabbert & Manner, P.C. dated the date of the Closing and pursuant
to the Legal Opinion Accord of the ABA Section of Business Law (1991), in form
and substance reasonably satisfactory to Seller and its 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 Tennessee 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
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Certificate of Incorporation and Bylaws, to authorize such execution, delivery
and consummation of this Agreement, and this Agreement, and all other
agreements delivered by Buyer at Closing constitute the valid and binding
obligations of Buyer enforceable in accordance with their respective terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally and by general principles
of equity.
ARTICLE XIII. SURVIVAL OF PROVISIONS AND INDEMNIFICATION
13.1 Survival. The covenants, obligations, representations and
warranties of Buyer and Seller contained in this Agreement, or in any
certificate or other document signed by Seller or Buyer, as applicable,
delivered pursuant to this Agreement, shall survive the date of Closing for a
period of eighteen (18) months and shall not be merged into any documents
delivered in connection with the Closing. Notwithstanding the eighteen (18)
month limitation set forth above, those representations, warranties, covenants
and obligations set forth in paragraphs 4.9, 4.29, 6.9 and 6.10 shall each
survive for a period equal to the applicable statute of limitations, but in no
event greater than six (6) years. Notwithstanding any other provision of this
Agreement, except for the obligation of Buyer pursuant to paragraphs 2.1, 11.1
and 11.2, neither Seller and Shareholder, on the one hand, and Buyer on the
other, shall have any liability or obligations under this Article XIII except
and unless any claim for indemnification made hereunder exceeds Five Thousand
Dollars and No/100 ($5,000). The indemnification rights and remedies available
to each party (including Seller, Buyer and Shareholder) under this Article XIII
shall be the sole and exclusive rights and remedies of the parties with respect
to any losses, costs and expenses relating in any way to any breach of this
Agreement or the consummation of the transactions contemplated by this
Agreement.
13.2 Indemnification by Seller. Subject to provisions of paragraph
13.4, Seller and Shareholder shall jointly and severally promptly indemnify,
defend, and hold harmless Buyer, the directors, officers, shareholders,
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 Seller of any of the covenants, obligations, representations or
warranties contained in this Agreement or any certificate or document executed
by Seller and delivered pursuant to this Agreement, (ii) any liability of
Seller 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
Seller's employees, agents or independent contractors, relating to all periods
of time prior to the Closing. Any indemnification payment made pursuant to
this Article shall include interest at a floating rate equal to two points over
the prime rate of NationsBank, N.A. established from time to time (the "Rate"),
payable for the period measured from the
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date that the loss, cost, expense or damage was paid until the date of payment.
The aggregate liability of Seller and Shareholder under this Article shall not
exceed $300,000.00.
13.3 Indemnification by Buyer. Subject to the provisions of
paragraph 13.4, Buyer shall promptly indemnify, defend, and hold Seller
harmless against any and all losses, costs, and expenses (including reasonable
cost of investigation, court costs and legal fees actually incurred) and other
damages resulting from (i) any breach by Buyer of any of its covenants,
obligations, representations or warranties or breach or untruth of any
representation, warranty, fact or conclusion contained in this Agreement or any
certificate or document of Buyer delivered pursuant to this Agreement,(ii) any
claim which is brought or asserted by any third party(ies) against Seller for
failure to pay or perform any of the Assumed Liabilities, and (iii) any claim
that is brought or asserted by any third party(s) against Seller 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 Closing. Any indemnification
payment pursuant to the foregoing shall include interest at the Rate from the
date that the loss, cost, expense or damage was incurred until the date of
payment. The aggregate liabilities of Buyer under this Article shall not
exceed $300,000, except that this limitation shall not apply to the obligations
of Buyer pursuant to paragraphs 2.1, 11.1 and 11.2.
13.4 Rules Regarding Indemnification. The obligations and
liabilities of each party which may be subject to indemnification liability
hereunder (the "indemnifying party") to the other party (the "indemnified
party") shall be subject to the following terms and conditions:
(1) Claims by Non-parties. The indemnified party shall
give written notice within a reasonably prompt period of time to the
indemnifying party of any written claim by a third party which is likely to
give rise to a claim by the indemnified party against the indemnifying party
based on the indemnity agreements contained in this Article, stating the nature
of said claim and the amount thereof, to the extent known. The indemnified
party shall give notice to the indemnifying party that pursuant to the
indemnity, the indemnified party is asserting against the indemnifying party a
claim with respect to a potential loss from the third party claim, and such
notice shall constitute the assertion of a claim for indemnity by the
indemnified party. If, within thirty (30) days after receiving such notice,
the indemnifying party advises the indemnified party that it will provide
indemnification and assume the defense at its expense, then so long as such
defense is being conducted, the indemnified party shall not settle or admit
liability with respect to the claim and shall afford to the indemnifying party
and defending counsel reasonable assistance in defending against the claim. If
the indemnifying party assumes the defense, counsel shall be selected by such
party and if the indemnified party then retains its own counsel, it shall do so
at its own expense. If the indemnified party does not receive a written
objection to the notice from the indemnifying party within thirty (30) days
after the indemnifying party's receipt of such notice, the claim for indemnity
shall be conclusively presumed to have been
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assented to and approved, and in such case the indemnified party may control
the defense of the matter or case and, at its sole discretion, settle or admit
liability. If within the aforesaid thirty (30) day period the indemnified
party shall have received written objection to a claim (which written objection
shall briefly describe the basis of the objection to the claim or the amount
thereof, all in good faith), then for a period of ten (10) days after receipt
of such objection the parties shall attempt to settle the dispute as between
the indemnified and indemnifying parties.
(2) Claims by a Party. The determination of a claim
asserted by a party hereunder (other than as set forth in subparagraph (1)
above) pursuant to this Article shall be made as follows: The indemnified party
shall give written notice within a reasonably prompt period of time to the
indemnifying party of any claim by the indemnified party which has not been
made pursuant to subparagraph (1) above, stating the nature of such claim and
the amount thereof, to the extent known. The claim shall be deemed to have
been objected to by the indemnifying party if within forty-five (45) days after
the indemnifying party's receipt of the claim the indemnified party shall not
have received written consent to and approval of the claim. In such event, the
claim shall be conclusively presumed to have been assented to and approved. If
within the aforesaid forty-five (45) day period the indemnified party shall
have received written objection to a claim (which written objection shall
briefly describe the basis of the objection to the claim or the amount thereof,
all in good faith), or has not received written consent to and approval of the
claim, then for a period of sixty (60) days after receipt of such objection the
parties shall attempt to settle the disputed claim as between the indemnified
and indemnifying parties.
(3) Intentionally deleted.
ARTICLE XIV. ABSENCE OF CERTIFICATE OF NEED
14.1 Absence of Certificate of Need. Neither Seller, Shareholder
nor any of their Affiliates is currently in possession of or has applied for a
Certificate of Need to operate a nursing home within a 25 mile radius of each
location where the Business is currently operated.
ARTICLE XV. MISCELLANEOUS
15.1 Assignment. Following Closing, Buyer may freely assign any or
all of its rights or delegate any or all of its obligations under this
Agreement without the express written consent of Seller. Seller may not assign
any rights or delegate any obligations under this Agreement without the prior
written consent of Buyer, and any prohibited assignment or delegation will be
null and void.
15.2 Other Expenses. Except as otherwise provided in this
Agreement, Seller shall pay all of its expenses in connection with the
negotiation, execution and
31
<PAGE> 37
implementation of the transactions contemplated by this Agreement and Buyer
shall pay all of its expenses in connection with the negotiation, execution,
and implementation of the transactions contemplated by this Agreement. All
state and local sales and use taxes, recording fees and transfer taxes incurred
in connection with the transactions contemplated within this Agreement shall be
borne and timely paid by Buyer. All ad valorem taxes incurred in connection
with the transactions contemplated within this Agreement shall be prorated
between Seller and Buyer and shall be adjusted as of Closing. The Purchase
Price shall be reduced, on a dollar-per-dollar basis, to the extent and in an
amount equal to any taxes that are accrued but unpaid by Seller as of the date
of Closing.
15.3 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given: (a) if delivered
personally or sent by facsimile, on the date received, (b) if delivered by
overnight courier, on the day after mailing, and (c) if mailed, five days
after mailing with postage prepaid. Any such notice shall be sent as follows:
To Seller:
Hartford Health Care, Inc.
P.O. Box 98
110 Second Avenue
Oneonta, Alabama 35121
Attn: H. Max Huie
with a copy to:
Balch & Bingham
1901 6th Avenue North
Suite 2600
Birmingham, Alabama 35203
Attn: H. Hampton Boles
To Buyer:
Advocat, Inc.
227 Mallory Station Road
Suite 130
Franklin, Tennessee 37067
Attn: Mary Margaret Hamlett
32
<PAGE> 38
with a copy to:
Mark Manner
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
Nashville, Tennessee 37238-1800
15.4 Confidentiality; Prohibition on Trading. All parties agree to
use their reasonable efforts to maintain the confidentiality of the existence
of this Agreement and the transactions contemplated hereunder until Closing,
unless disclosure is required by law. Seller and its Affiliates agree not to
trade in the securities of Buyer or its Affiliates based upon any nonpublic
information.
15.5 Controlling Law. This Agreement shall be construed,
interpreted and enforced in accordance with the laws of the State of Alabama.
15.6 Headings. Any table of contents and paragraph headings in
this Agreement are for convenience of reference only and shall not be
considered or referred to in resolving questions of interpretation.
15.7 Benefit. Subject to paragraph 15.1, this Agreement shall be
binding upon and shall inure to the exclusive benefit of the parties hereto and
their respective heirs, legal representatives, successors and assigns. This
Agreement is not intended to, nor shall it, create any rights in any other
party.
15.8 Partial Invalidity. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such
invalid or unenforceable provisions were omitted.
15.9 Waiver. Neither the failure nor any delay on the part of any
party hereto in exercising any rights, power or remedy hereunder shall operate
as a waiver thereof, or of any other right, power or remedy; nor shall any
single or partial exercise of any right, power or remedy preclude any further
or other exercise thereof, or the exercise of any other right, power or remedy.
No waiver of any of the provisions of this Agreement shall be valid unless it
is in writing and signed by the party against which it is sought to be enforced.
15.10 Counterparts. This Agreement may be executed simultaneously
in two or more counterparts each of which shall be deemed an original and all
of which together shall constitute but one and the same instrument.
15.11 Interpretation; Knowledge. All pronouns and any variation
thereof shall be deemed to refer to the masculine, feminine, neuter, singular
or plural as the identity of the person or entity, or the context, may require.
Further, it is acknowledged by the parties that
33
<PAGE> 39
this Agreement has undergone several drafts with the negotiated suggestions of
both; and, therefore, no presumptions shall arise favoring either party by
virtue of the authorship of any of its provisions or the changes made through
revisions. Whenever in this Agreement the term "to Seller's knowledge" or the
like is used, Seller shall have no knowledge contrary to the facts set forth
and Seller shall be deemed to have the knowledge of Seller's shareholder,
officer and directors.
15.12 Entire Agreement. This Agreement, including the Exhibits and
attachments hereto, constitutes the entire agreement between the parties hereto
with regard to the matters contained herein and it is understood and agreed
that all previous undertakings, negotiations, letters of intent and agreements
between the parties are merged herein. This Agreement may not be modified
orally, but only by an agreement in writing signed by Buyer and Seller.
15.13 Legal Fees and Costs. In the event any party incurs legal
expenses to enforce or interpret any provision of this Agreement, the
prevailing party will be entitled to recover such legal expenses, including,
without limitation, attorney's fees, costs and disbursements, in addition to
any other relief to which such party shall be entitled.
34
<PAGE> 40
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"SELLER":
HARTFORD HEALTH CARE, INC.
By: /s/ H. Max Huie
--------------------------------
Title: President
--------------------------------
"SHAREHOLDER":
/s/ H. Max Huie
---------------------------------------
H. MAX HUIE
"BUYER":
DIVERSICARE LEASING CORP.
/s/ Mary Margaret Hamlett
---------------------------------------
Mary Margaret Hamlett
Executive Vice President
35
<PAGE> 1
EXHIBIT 10.55
SIXTH AMENDMENT TO CREDIT
AND SECURITY AGREEMENT
This Sixth Amendment to Credit and Security Agreement, made and entered
into as of the 28th day of June, 1996, by and between NationsBank of Tennessee,
N.A., a national banking association (the "Bank"), Advocate Inc., a Delaware
corporation ("Borrower"), and the Subsidiaries, as defined in the Credit and
Security Agreement by and between the Bank, the Borrower and the Subsidiaries,
dated as of October 12, 1994, as amended from time to time (the "Loan
Agreement"). Capitalized terms not otherwise described herein shall have the
meanings ascribed to such terms in the Loan Agreement.
W I T N E S S E T H:
WHEREAS, pursuant to the term of the Loan Agreement, the Bank
committed to loan to the Borrower and the Subsidiaries amounts not to exceed
$17,500,000, including the $7,500,000 Line, which matures on July 1, 1996, and
the $10,000,000 Line which converts to a term facility on July 1, 1996; and,
WHEREAS, by Fifth Amendment to Credit and Security Agreement dated as
of May 1, 1996 (the "Fifth Amendment"), Bank agreed to permit Borrower to
continue to request and receive funds under the Credit Facility in excess of the
amount available under the Credit Facility, calculated in accordance with the
Borrowing Base, pending the closing of the refinancing of the TDLP First
Mortgage Indebtedness; and,
WHEREAS, Bank agreed to permit such overadvances under the Credit
Facility through July 1, 1996, subject to the terms and conditions contained in
the Fifth Amendment; and,
WHEREAS, Borrower has represented to Bank that Borrower intends to
close on or before September 1, 1996, (i) the refinancing of the TDLP First
Mortgage Indebtedness with Bank, and (ii) a credit facility with First American
National Bank and GMAC - Health Care which will pay off the Credit Facility
(the "First American Financing"); and
WHEREAS, the Borrower has requested (i) that the maturity date of the
$7,500,000 Line be extended from July 1, 1996, to September 1, 1996, (ii) that
the date on which the right of Borrower to request funds under the $10,000,000
Line be extended from July 1, 1996 to September 1, 1996 and (iii) that the
Termination Date, as defined in Section 2 of the Third Amendment to Credit and
Security Agreement dated of December 1, 1995 (the "Third Amendment") be
extended through September 1, 1996; and,
WHEREAS, based on the representations of Borrower regarding the
refinancing of the TDLP First Mortgage Indebtedness and the First American
Financing, Bank has agreed to extend the Credit Facility through September 1,
1996; and
WHEREAS, the parties desire to execute this Sixth Amendment to extend
the maturity date of the $7,500,000 Line and the Termination Date through
September 1, 1996, and to set forth certain other agreements between the
parties, as more particularly described herein.
-1-
<PAGE> 2
NOW, THEREFORE, in consideration of the foregoing premises, and other
good and valuable consideration, the receipt and legal sufficiency of which is
hereby acknowledged, the Bank, the Borrower and the Subsidiaries hereby agree
as follows:
1. Extension of Maturity Date - $7,500,000 Line. The maturity
date of the $7,500,000 Line is hereby extended from July 1, 1996, to September
1, 1996. Borrower agrees to execute a renewal note and such other documents as
Bank may reasonably request to evidence such extension of the maturity date.
2. Extension of Revolving Period - $10,000,000 Line. The date
through which the Borrower may request funds under the $10,000,000 Line, as set
forth in Section 2.1(b) of the Loan Agreement, is hereby extended from July 1,
1996, to September 1, 1996. In addition, the date on which the monthly
amortization payments due under the $10,000,000 Line commence is hereby extended
from August 1, 1996, to October 1, 1996.
3. Extension of Termination Date. Section 2 of the Third
Amendment (as amended) is hereby modified to delete the reference to July 1,
1996, and substitute in its place, September 1, 1996, it being the intent of
the parties that the Termination Date shall be the earlier of (i) the date on
which the refinancing of the TDLP First Mortgage Indebtedness is completed, or
(ii) September 1, 1996. Overadvances, if any, shall continue to be available
under the $10,000,000 Line, subject to the provisions of Section 2 of the Third
Amendment.
4. Acquisitions. Bank acknowledges that Borrower has acquired
interests in (i) the nursing home facility located in Hartford, Alabama
utilizing bond financing coordinated by Colonial Bank, and (ii) the Pine Dale
nursing home facility located in Arkansas, which was financed by First
American Bank, to the extent required by the Loan Agreement, consents to such
acquisitions.
5. First American Financing. Borrower represents to Bank that
Borrower has received a commitment from First American for the First American
Financing and anticipates closing the facility on or before September 1, 1996.
6. Joinder of Guarantors. The Guarantors, by executing this
Amendment, hereby confirm that the terms and conditions of the Guaranty
Agreements executed by each of the Guarantors dated as of October 12, 1994,
continue in full force and effect, and the Obligations (as defined in the
Guaranty Agreements) shall include any amounts advanced as an Overadvance,
pursuant to the terms of the Loan Agreement. This Amendment shall be deemed to
be an amendment to the Guaranty Agreements, to the extent required, to confirm
that the Guarantors' obligations under the Guaranty Agreements include, without
limitation, any Overadvance funded pursuant to the terms of the Loan
Agreement.
7. No Default. The Borrower and the Subsidiaries hereby confirm
that no Event of Default currently exists, and, to the best of the Borrower's
and the Subsidiaries' knowledge, no condition presently exists or is
anticipated which, with the passage of time, the giving of notice, or both,
would constitute an Event of Default.
-2-
<PAGE> 3
8. Ratification. The Borrower and the Subsidiaries hereby restate
and ratify the terms and conditions of the Loan Agreement as of the date
hereof, and each acknowledge that the terms and conditions of the Loan
Agreement, as amended hereby, remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Sixth
Amendment as of the day and date first above written.
NATIONSBANK OF TENNESSEE ADVOCATE INC., a Delaware
N.A. corporation
BY: /s/ Roy Haisley BY: /s/ Mary Margaret Hamlett
---------------------------- -----------------------------
Roy Haisley TITLE: Executive Vice President
Vice President ---------------------------
"BANK" "BORROWER"
DIVERSICARE LEASING CORP.,
a Tennessee corporation
By: /s/ Mary Margaret Hamlett
-----------------------------
Title: Executive Vice President
-------------------------
DIVERSICARE MANAGEMENT
SERVICES CO., a Tennessee corporation
BY: /s/ Mary Margaret Hamlett
-----------------------------
TITLE: Executive Vice President
-------------------------
-3-
<PAGE> 4
ADVOCAT ANCILLARY SERVICES,
INC., a Tennessee corporation
BY: /s/ Mary Margaret Hamlett
-----------------------------
TITLE: Executive Vice President
---------------------------
DIVERSICARE CANADA
MANAGEMENT SERVICES CO., a
Canada corporation
BY: /s/ Mary Margaret Hamlett
-----------------------------
TITLE: Executive Vice President
--------------------------
DIVERSICARE GENERAL
PARTNER, INC., a Texas corporation
BY: /s/ Mary Margaret Hamlett
-----------------------------
TITLE: Executive Vice President
-------------------------
FIRST AMERICAN HEALTH CARE.
INC., an Alabama corporation
BY: /s/ Mary Margaret Hamlett
----------------------------
TITLE: Executive Vice President
------------------------
-4-
<PAGE> 5
DAUPHIN HEALTH CARE FACILITY,
INC., an Alabama corporation
BY: /s/ Mary Margaret Hamlett
----------------------------
TITLE: Executive Vice President
------------------------
-5-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ADVOCAT INC., FOR THE SIX MONTHS ENDED JUNE 30, 1996,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCLUDED IN THE FORM 10-Q OF ADVOCAT INC. FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,479
<SECURITIES> 0
<RECEIVABLES> 24,270
<ALLOWANCES> 1,823
<INVENTORY> 541
<CURRENT-ASSETS> 27,631
<PP&E> 37,701
<DEPRECIATION> 8,619
<TOTAL-ASSETS> 67,492
<CURRENT-LIABILITIES> 19,212
<BONDS> 0
0
0
<COMMON> 53
<OTHER-SE> 24,400
<TOTAL-LIABILITY-AND-EQUITY> 67,492
<SALES> 0
<TOTAL-REVENUES> 79,309
<CGS> 0
<TOTAL-COSTS> 75,054
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 740
<INTEREST-EXPENSE> 667
<INCOME-PRETAX> 3,048
<INCOME-TAX> 1,097
<INCOME-CONTINUING> 1,951
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,951
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
