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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
SEPTEMBER 1, 1997
Date of Report (Date of earliest event reported)
HORIZON HEALTH CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1-13626 75-2293354
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
</TABLE>
1500 WATERS RIDGE DRIVE
LEWISVILLE, TEXAS 75057-6011
(Address of principal executive offices and zip code)
(972) 420-8200
(Registrant's telephone number,
including area code)
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ITEM 5. OTHER EVENTS
(a) COMBINED FINANCIAL RESULTS
On August 11, 1997, the Registrant acquired all of the issued and
outstanding shares of capital stock of Specialty Healthcare Management, Inc., a
Delaware corporation ("Specialty"), pursuant to a Share Exchange Reorganization
Agreement dated as of April 25, 1997, by and among the Registrant, Specialty,
and the stockholders of Specialty, as amended by an amendment dated as of July
2, 1997. In the transaction, the Registrant issued 1,400,000 shares of its
Common Stock to the Speciality stockholders in exchange for the Speciality
shares. The issuance of the shares of the Registrant's Common Stock was approved
at a special meeting of stockholders of the Registrant held on August 11, 1997.
The Speciality transaction was reported by the Registrant in a Current Report on
Form 8-K dated August 11, 1997 filed with the Securities and Exchange
Commission.
The Speciality transaction was accounted for as a pooling of interests. Set
forth below is a Consolidated Statement of Income of the Registrant for the
month ended September 30, 1997 representing financial results for thirty days of
combined operations following the consummation of the Specialty transaction.
HORIZON HEALTH CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE
MONTH ENDED
SEPTEMBER 30,
1997
-------------
<S> <C>
REVENUES:
Contract management revenue............................... $8,891,547
Other..................................................... 663,093
----------
Total revenues.................................... 9,554,640
EXPENSES:
Salaries and benefits..................................... 5,016,265
Purchased services........................................ 1,563,344
Provision for bad debts................................... 61,165
Other..................................................... 1,311,981
Depreciation and amortization............................. 181,384
----------
Total operating expenses.......................... 8,134,139
Operating income............................................ 1,420,501
Other income (expense)
Interest income and other................................. 36,991
----------
Income before income taxes and minority interest............ 1,457,492
Income tax expense.......................................... 590,279
----------
Income before minority interest............................. 867,213
Minority interest........................................... (7,952)
----------
Net income.................................................. 875,165
==========
Earnings per common share:
Net income per common share............................... $ 0.11
==========
Weighted average common shares and common equivalent shares
outstanding............................................... 8,149,374
==========
</TABLE>
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(b) AGREEMENT FOR ACQUISITION OF ACORN BEHAVIORAL HEALTHCARE MANAGEMENT, INC.
On October 20, 1997, the Registrant entered into a Stock Purchase Agreement
to acquire all of the outstanding capital stock of Acorn Behavioral HealthCare
Management Corporation, a Pennsylvania corporation ("Acorn"), for approximately
$12.7 million in cash (the "Acorn Acquisition"). The Stock Purchase Agreement is
with Dr. Melvyn S. Goldsmith, Ph.D. and Barbara C. Goldsmith, the sole
stockholders of Acorn, and Acorn. The Registrant expects to fund the Acorn
acquisition out of its existing working capital and borrowings of approximately
$11.6 under its existing revolving credit facility.
Acorn provides employee assistance programs and other related services to
self-insured employers. At October 1, 1997, Acorn had approximately 122
contracts with employers covering approximately 246,000 employees and, under
most contracts, the dependents of the employees. The services under the
contracts are primarily provided by independent health care professionals that
have contracted with Acorn on a fee-for-service basis. At October 1, 1997,
Acorn's provider network was composed of over 7,000 individual providers located
throughout the United States. Acorn is headquartered in the Philadelphia
metropolitan area and employs 52 employees, all of which are located in its
corporate offices.
The Registrant presently expects to close the Acorn Acquisition on October
31, 1997. However, the transaction is subject to various conditions and there
can be no assurance as to whether or when such acquisition will be completed.
(c) AMENDMENT TO REVOLVING CREDIT LOAN FACILITY
On October 16, 1997, the Registrant entered into a Fifth Amendment to Loan
Agreement among Texas Commerce Bank National Association ("TCB"), the Registrant
and certain of its subsidiaries, pursuant to which the commitment under the
existing revolving credit facility of the Registrant was increased to $14.0
million and the borrowing base limitation was removed. On October 16, 1997, the
Registrant had no outstanding borrowings under the revolving credit facility
and, as a result, the entire $14.0 million commitment amount was available to
the Registrant at such date. The Registrant estimates that, after funding of the
Acorn Acquisition, availability under the revolving credit facility will be $2.4
million. See "Commitment for New Credit Facility" below.
(d) COMMITMENT FOR NEW CREDIT FACILITY
On October 13, 1997, the Registrant entered into a commitment letter dated
October 8, 1997 with TCB and Chase Securities Inc., under which Chase agreed to
act as exclusive advisor and arranger for a senior secured credit facility in an
aggregate amount of up to $50.0 million (the "New Credit Facility") and TCB
committed to provide up to $20.0 million of the facility and to act as
administrative agent. The New Credit Facility would consist of a $10.0 million
revolving credit facility to fund ongoing working capital requirements and a
$40.0 million advance term loan facility to finance future acquisitions by the
Registrant. The New Credit Facility will replace Registrant's existing $14.0
million revolving credit facility with TCB and it is currently anticipated that
the New Credit Facility will be put in place by early December, 1997.
The Registrant will be the borrower under the New Credit Facility which
will be unconditionally guaranteed by all material subsidiaries of the
Registrant. The $10.0 million revolving credit facility will have a term of
three years from closing and the $40.0 million advance term loan facility will
have a term of five years from closing, with drawdowns available for two years.
Once a drawdown is made under the advance term loan facility, the commitment
thereunder will be reduced by the amount funded. Each acquisition will require a
separate note (the "Acquisition Note") that will provide for quarterly principal
payments, beginning at the end of the two-year advance period, based upon a five
year amortization schedule. Principal outstanding under the New Credit Facility
will bear interest at the "Base Rate" (the greater of the Agent's "prime rate"
or the federal funds rate plus 1/2%) plus 0% to .50% (depending on the
Registrant's Indebtedness to EBITDA Ratio as defined in the Commitment Letter)
or the "Eurodollar Rate" plus .75% to 1.50% (depending on the Indebtedness to
EBITDA Ratio), as selected by the Registrant in accordance with the terms of the
facility. The Registrant will incur quarterly commitment fees ranging from .25%
to .375% per annum (depending on
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the Indebtedness to EBITDA Ratio) on the unused portion of the revolving credit
facility and unused portion of the advance term loan facility.
The Registrant will be subject to certain covenants under the agreements
which will govern the New Credit Facility, including prohibitions against (i)
incurring additional debt or liens, except specified permitted debt or permitted
liens, (ii) certain material acquisitions, other than specified permitted
acquisitions (including any single acquisition not greater than $10.0 million or
cumulative acquisitions not in excess of $20.0 million during any four
consecutive quarterly periods), (iii) certain mergers, consolidations or asset
dispositions by the Registrant or changes of control of the Registrant, (iv)
certain management vacancies at the Registrant, and (v) material change in the
nature of business conducted. In addition, the terms of the New Credit Facility
will require the Registrant to satisfy certain ongoing financial covenants. The
New Credit Facility will be secured by a first lien or first priority security
interest in and/or pledge of all of the assets of the Registrant and of all of
the present and future subsidiaries of the Registrant.
Because the terms, conditions and covenants of the New Credit Facility are
subject to the negotiation, execution and delivery of the definitive loan
documents, certain of the actual terms, conditions and covenants thereof may
differ from those described above.
(e) EXECUTIVE RETENTION AGREEMENT
Effective September 1, 1997, the Registrant entered into an Executive
Retention Agreement with James Ken Newman. Pursuant to the Executive Retention
Agreement, Mr. Newman agreed to continue to serve as Chairman and Chief
Executive Officer of the Company. Mr. Newman has served as President and Chief
Executive Officer of the Registrant since July 1989, and as Chairman since
February 1992. Effective September 1, 1997, Robert A. Lefton was elected
President of the Registrant.
The Executive Retention Agreement has a five year term, subject to
automatic renewal so that it maintains a three year term at all times until the
Registrant elects to terminate such automatic renewal provision which it can
elect to do at any time. Under the agreement, Mr. Newman receives an annual
salary of $280,000, subject to increase by the Registrant in its discretion, and
is to be provided with a bonus plan which, if performance criteria to be
established as a part of the plan are satisfied, will permit Mr. Newman to earn
a bonus up to 100% of his base salary. At any time during the term of the
agreement, Mr. Newman may elect to retire, in which case he will become a
consultant to the Registrant for the remaining term of the Agreement at a
compensatory level equal to seventy-five percent (75%) of his base salary at the
time of retirement. Any stock options granted to Mr. Newman during the term of
the Agreement are to have a ten year term and vest not less than 10% per year at
the end of each of the first eight years and be fully vested at the end of nine
years, subject, however, to acceleration upon the occurrence of certain events.
The agreement contains certain confidentiality and non-competition
provisions. The non-competition agreements stay in place so long as Mr. Newman
receives severance payments under the agreement which will be for the remaining
term of the agreement in the event of termination of the agreement under certain
conditions. Mr. Newman may limit the term of the non-competition agreement to 24
months by electing to forego any additional severance payments after such
period. In the event Mr. Newman voluntarily resigns, no severance payments are
payable but he will be subject to the non-competition agreement for 24 months
after the date of resignation.
The agreement has certain provisions which provide for the acceleration of
the vesting of stock options and the resignation of Mr. Newman for good reason
after the occurrence of a change of control of the Registrant.
(f) AMENDMENTS TO STOCK OPTION PLANS
At a regularly scheduled meeting of the Compensation Committee of the Board
of Directors of the Registrant held on July 31, 1997, the Committee unanimously
adopted amendments to both the 1989 Stock Option Plan and 1995 Stock Option Plan
of the Registrant which authorized that stock options outstanding under the
Plans may be amended to provide that the stock options will not terminate upon
the termination of
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employment or director status of the option holder with the Registrant or any of
its affiliates if the option holder continues to serve as a consultant to the
Registrant or any of its affiliates. Under such amendments, upon the subsequent
termination of the option holder's status as a consultant to the Registrant or
its affiliates, the stock options terminate and cease to be exercisable on the
same basis as would have otherwise been applicable upon termination of
employment or director status.
At a regularly scheduled meeting of the Board of Directors of the
Registrant held on August 1, 1997, the Board unanimously adopted amendments to
both the 1995 Stock Option Plan and the 1995 First Amended and Restated Stock
Option Plan For Eligible Outside Directors which, under certain circumstances,
allows option holders who are subject to the reporting provisions of Section 16
of the Securities Exchange Act of 1934 to have the Registrant withhold, upon
exercise of a stock option, from the number of shares otherwise issuable, a
number of shares having a fair market value sufficient to satisfy the option
holder's U.S. Federal, state, and local tax withholding requirements.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
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2.1 -- Stock Purchase Agreement, dated October 20, 1997, among
the Registrant, Dr. Melvyn S. Goldsmith, Ph.D., Barbara
C. Goldsmith and Acorn Behavioral HealthCare Management
Corporation (filed herewith). (Schedules to the Stock
Purchase Agreement are omitted but the Registrant will
furnish supplementally a copy of any omitted schedule to
the Commission upon request.)
10.1 -- Fifth Amendment to Loan Agreement, by and among Texas
Commerce Bank National Association ("TCB"), the
Registrant, Horizon Mental Health Management, Inc. and
Mental Health Outcomes, Inc., dated as of October 16,
1997 (filed herewith).
10.2 -- Amended and Restated Revolving Credit Note, dated October
16, 1997, made by the Registrant, Horizon Mental Health
Management, Inc. and Mental Health Outcomes, Inc. in the
principal sum of up to $14,000,000 and payable to TCB
(filed herewith).
10.3 -- Horizon Health Corporation Senior Secured Credit Facility
Commitment Letter, dated as of October 8, 1997, among the
Registrant, TCB and Chase Securities, Inc. (filed
herewith).
10.4 -- Executive Retention Agreement effective September 1,
1997, between Registrant and James Ken Newman (filed
herewith).
10.5 -- Amendments to 1989 Stock Option Plan and 1995 Stock
Option Plan (filed herewith).
10.6 -- Amendments to 1995 Stock Option Plan and 1995 First
Amended and Restated Stock Option Plan for Eligible
Outside Directors (filed herewith).
</TABLE>
5
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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.
HORIZON HEALTH CORPORATION
Date: October 21, 1997 By: /s/ JAMES W. MCATEE
----------------------------------
James W. McAtee
Executive Vice President, Finance
& Administration
(Principal Financial Officer)
6
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INDEX TO EXHIBITS
EXHIBITS
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<CAPTION>
EXHIBIT
NO. DESCRIPTION
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<C> <S>
2.1 -- Stock Purchase Agreement, dated October 20, 1997, among
the Registrant, Dr. Melvyn S. Goldsmith, Ph.D., Barbara
C. Goldsmith and Acorn Behavioral HealthCare Management
Corporation (filed herewith). (Schedule to the Stock
Purchase Agreement are omitted but the Registrant will
furnish supplementally a copy of any omitted schedule to
the Commission upon request.)
10.1 -- Fifth Amendment to Loan Agreement, by and among Texas
Commerce Bank National Association ("TCB"), the
Registrant, Horizon Mental Health Management, Inc. and
Mental Health Outcomes, Inc., dated as of October 16,
1997 (filed herewith).
10.2 -- Amended and Restated Revolving Credit Note, dated October
16, 1997, made by the Registrant, Horizon Mental Health
Management, Inc. and Mental Health Outcomes, Inc. in the
principal sum of up to $14,000,000 and payable to TCB
(filed herewith).
10.3 -- Horizon Health Corporation Senior Secured Credit Facility
Commitment Letter, dated as of October 8, 1997, among the
Registrant, TCB and Chase Securities, Inc. (filed
herewith).
10.4 -- Executive Retention Agreement effective September 1,
1997, between Registrant and James Ken Newman (filed
herewith).
10.5 -- Amendments to 1989 Stock Option Plan and 1995 Stock
Option Plan (filed herewith).
10.6 -- Amendments to 1995 Stock Option Plan and 1995 First
Amended and Restated Stock Option Plan for Eligible
Outside Directors (filed herewith).
</TABLE>
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EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
AMONG
HORIZON HEALTH CORPORATION,
DR. MELVYN S. GOLDSMITH, PH.D.
AND
BARBARA C. GOLDSMITH,
AND
ACORN BEHAVIORAL HEALTHCARE MANAGEMENT CORPORATION
DATED
OCTOBER 20, 1997
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TABLE OF CONTENTS
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PAGE
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ARTICLE I
PURCHASE AND SALE
1.1 Agreement to Sell and Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
2.1 Authority Relative to This Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Title to Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Absence of Breach; No Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Due Organization of Acorn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5 Subsidiaries/Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.6 Due Authorization/Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.7 Capitalization of Acorn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.8 Licenses/Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.9 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.10 No Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.11 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.12 Title to and Condition of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.13 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.14 Real Property Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.15 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.16 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.17 Employees, Et Cetera . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.18 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.19 Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.20 Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.21 Broker's and Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.22 Labor Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.23 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.24 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.25 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.26 Transactions With Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.27 Improper Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HORIZON
3.1 Due Organization of Horizon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.2 Due Authorization/Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
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3.3 Execution/Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.4 Broker's and Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE IV
CERTAIN AGREEMENTS APPLICABLE PRIOR TO THE CLOSING DATE
4.1 Access and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.2 Monthly Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.3 Operation of Businesses; Course of Conduct. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.4 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.5 Public Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.6 Solicitation of Inquiries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.7 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.8 Updating of Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.9 Preparation of Returns and Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.10 Payment of Bonuses and Shareholder Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.11 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to Obligations of Both the Shareholders and Horizon . . . . . . . . . . . . . . . . . . . 21
5.2 Conditions to Obligations of the Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.3 Conditions to the Obligations of Horizon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VI
CLOSING
6.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.2 Actions by the Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.3 Actions by Horizon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.4 Post-Closing Escrow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.5 Section 338(h)(10) Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY
POST-CLOSING AGREEMENTS
7.1 Representations and Warranties to Survive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.2 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.3 Indemnity Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.4 Limitations on Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.5 Remedies; Default; Notice and Cure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.6 Additional Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.7 Adjustment to Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
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<TABLE>
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ARTICLE VIII
TERMINATION
8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE IX
MISCELLANEOUS
9.1 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.2 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.3 Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.4 Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.5 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.8 Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.9 Attorney's Fees and Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.10 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.11 Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
LIST OF EXHIBITS
EXHIBIT A - Executive Services Agreement
EXHIBIT B - Lease Agreement
EXHIBIT C - Post-Closing Escrow Agreement
LIST OF SCHEDULES
Schedule 2.3 - Shareholder Consents, Etc.
Schedule 2.6 - Consents, Etc.
Schedule 2.8 - Licenses, Etc.
Schedule 2.9 - Financial Statements
Schedule 2.10 - Adverse Changes
Schedule 2.11 - Liabilities
Schedule 2.13 - Litigation
Schedule 2.14 - Real Property Leases
Schedule 2.15 - Intellectual Property
Schedule 2.16 - Material Contracts
Schedule 2.17 - Employees, Etc.
Schedule 2.18 - Employee Benefit Plans
Schedule 2.23 - Insurance
Schedule 2.26 - Affiliate Transactions
Schedule 6.5 - Purchase Price Allocation
<PAGE> 5
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of October 20,
1997 (the "Effective Date") by and among Horizon Health Corporation, a Delaware
corporation ("Horizon"); Dr. Melvyn S. Goldsmith, Ph.D. and Barbara C.
Goldsmith (individually, a "Shareholder" and collectively, the "Shareholders");
and Acorn Behavioral Healthcare Management Corporation, a Pennsylvania
corporation ("Acorn").
WHEREAS, the Shareholders as joint tenants own One Hundred (100)
shares of Common Stock, $1.00 par value per share, of Acorn (collectively the
"Shares") and the Shares constitute all the issued and outstanding capital
stock of Acorn on the Effective Date; and
WHEREAS, subject to the terms and conditions hereinafter set forth,
the Shareholders desire to sell to Horizon, and Horizon desires to purchase
from the Shareholders, the Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 Agreement to Sell and Purchase. Subject to the terms and
conditions of this Agreement and in reliance on the representations, warranties
and covenants herein set forth, at the Closing the Shareholders shall sell to
Horizon, and Horizon shall purchase from the Shareholders, the Shares, free and
clear of any and all liens, claims, options, charges, pledges, security
interests, voting agreements or trusts, proxies, preemptive rights, rights of
first refusal, encumbrances or other restrictions or interests of any kind or
nature whatsoever (collectively, "Claims").
1.2 Purchase Price. Subject to the terms and conditions of this
Agreement and in reliance on the representations, warranties and covenants
herein set froth, Horizon shall pay at the Closing, by wire transfer of same
day funds in accordance with wire transfer directions of the Shareholders, as
consideration for the Shares, an aggregate cash purchase price in the amount of
Twelve Million Seven Hundred Twenty-Seven Thousand Eight Hundred Forty-Eight
Dollars ($12,727,848.00) (the "Purchase Price"). The Shareholders shall
provide wire transfer directions to Horizon not less than two (2) days prior to
the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
The Shareholders, jointly and severally, represent and warrant to
Horizon that, as of the Effective Date and as of the Closing Date:
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2.1 Authority Relative to This Agreement. This Agreement has been
duly and validly executed and delivered by the Shareholders and constitutes a
valid and binding agreement of the Shareholders enforceable in accordance with
its terms. The other agreements to be executed and delivered by the
Shareholders pursuant to this Agreement will be valid and binding agreements of
the Shareholders enforceable in accordance with their respective terms when so
executed and delivered by the Shareholders.
2.2 Title to Stock. The Shareholders as joint tenants are the
unconditional sole legal, beneficial, record and equitable owners of the
Shares, free and clear of any and all Claims. The Shareholders have not
granted and are not a party to any agreement granting preemptive rights, rights
of first refusal or any similar or comparable rights with respect to the
Shares. At the Closing, the Shareholders will convey to Horizon valid and
marketable title to the Shares, free and clear of any and all Claims.
2.3 Absence of Breach; No Consent. Except as disclosed on
Schedule 2.3, the execution, delivery, and performance of this Agreement and
the other agreements to be executed and delivered pursuant to this Agreement by
the Shareholders does not and will not: (a) contravene any order, writ,
judgment, injunction, decree, determination, or award of any court or other
authority which affects or binds the Shareholders or the Shares, (b) conflict
with or result in a breach of or default under any indenture, loan or credit
agreement or any other agreement or instrument to which the Shareholders are a
party or by which the Shareholders or the Shares are bound, or (c) require the
authorization, consent, approval or license of any third party or entity.
2.4 Due Organization of Acorn. Acorn is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Pennsylvania with all requisite corporate power and authority to conduct its
business operations as being conducted on the Effective Date. Acorn has not
qualified as a foreign corporation authorized to do business in any other
state. To the knowledge of the Shareholders, Acorn has not failed to so
qualify in any jurisdiction where the failure to be so authorized would have a
material adverse effect on the business (financial or otherwise) or operations
of Acorn. The Shareholders have delivered to Horizon complete and correct
copies of the articles of incorporation and bylaws of Acorn as amended to and
in effect on the Effective Date. Acorn is not in violation of any term or
provision of its articles of incorporation or bylaws.
2.5 Subsidiaries/Investments. Acorn has no subsidiaries, whether
direct or indirect. Acorn has no equity interest or investment in, and does
not possesses any other right or obligation to purchase any equity or other
investment in, and is not a partner of or joint venturer with, any other person
or entity.
2.6 Due Authorization/Consents. Except as disclosed on Schedule
2.6 hereto, the execution and delivery of this Agreement and the performance of
the transactions contemplated by this Agreement and all other instruments,
agreements, certificates and documents contemplated hereby to which the
Shareholders or Acorn is or will be a party does not, on the Effective Date,
and will not, on the Closing Date, (a) violate any decree or judgment of any
court or governmental authority which may be applicable to Acorn; (b) violate
any law, rule or regulation applicable to Acorn or its business operations as
conducted on the Effective Date; (c) violate or conflict with, or result in a
breach of, or constitute a default (or an event which, with or without notice
or lapse of
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<PAGE> 7
time or both, would constitute a default) under, or permit cancellation of, or
result in the creation of any encumbrance upon any of the assets of Acorn under
any of the terms, conditions, or provisions of, any contract, lease, sales
order, purchase order, indenture, mortgage, note, bond, instrument, license or
other agreement to which Acorn is a party, or by which Acorn or its assets is
bound; (d) permit the acceleration of the maturity of any indebtedness of
Acorn; (e) violate or conflict with any provision of the articles of
incorporation or bylaws of Acorn; or (f) require the consent, approval or
authorization of any person, entity or governmental agency. The execution and
delivery of this Agreement by Acorn and the performance of this Agreement by
Acorn have been duly authorized by all requisite corporate action of Acorn.
This Agreement has been duly and validly executed and delivered by Acorn and
constitutes a valid and binding agreement of Acorn enforceable in accordance
with its terms.
2.7 Capitalization of Acorn. The authorized capital stock of
Acorn consists of One Thousand (1,000) shares of Common Stock, $1.00 par value
per share, of which One Hundred (100) shares are validly issued and
outstanding. All such outstanding shares of capital stock of Acorn are fully
paid and nonassessable. All of the issued and outstanding shares of capital
stock of Acorn are owned of record by the Shareholders. Acorn has provided to
Horizon a correct and complete copy of the stock registry and stock transfer
records of Acorn listing all shareholders of Acorn and the outstanding share
certificates and total number of shares issued to each stockholder of Acorn
since its inception. Acorn has no other capital stock authorized for issuance
and has no treasury shares. Acorn has not purchased any shares of its capital
stock from a shareholder within the three (3) year period prior to the
Effective Date. There are no outstanding options, warrants, convertible
instruments, or other rights, agreements, or commitments to issue or acquire
any shares of common stock or any other security constituting, or convertible
or exchangeable into, capital stock of Acorn. Since the date of the Acorn
Balance Sheet (as defined in Section 2.9 below), no shares of Acorn's capital
stock, no options, warrants, or other rights, agreements, or commitments
(contingent or otherwise) obligating Acorn to issue shares of capital stock of
Acorn, and no other securities or instruments convertible or exchangeable into
shares of capital stock of Acorn, have been executed or issued by Acorn. Acorn
has not granted and is not a party to any agreement granting preemptive rights,
rights of first refusal, or registration rights with respect to its outstanding
or authorized capital stock or any capital stock of Acorn to be issued in the
future. Acorn is not bound by any exclusive agency or indemnity agreement
applicable to the issuance of shares of its capital stock after the Effective
Date.
2.8 Licenses/Compliance with Law. Acorn has the lawful authority
and all governmental authorizations, certificates of authority, licenses or
permits necessary for or required to conduct its business operations as
presently conducted under the laws of the Commonwealth of Pennsylvania. To the
knowledge of the Shareholders, Acorn has the lawful authority and all federal,
state or local governmental authorizations, certificates of authority, licenses
or permits necessary for or required to conduct its business operations as such
are presently being conducted and the absence of which would have a material
adverse effect on Acorn. Schedule 2.8 lists all such authorizations,
certificates of authority, licenses and permits held by Acorn. There are no
pending or, to the knowledge of the Shareholders, threatened legal,
administrative, arbitration, or other proceedings of any kind nor any pending
or, to the knowledge of the Shareholders, threatened governmental
investigations by any federal, state or local government or any subdivision
thereof or by any public or private group, which assert or allege any violation
of or non-compliance with any governmental requirements or which
3
<PAGE> 8
would have the effect of limiting, prohibiting or changing the business
operations of Acorn as presently conducted. To the knowledge of the
Shareholders, Acorn has made all filings with governmental agencies required
for the conduct of its business operations as such are presented conducted.
There are no judgments, consent decrees or injunctions of any court,
governmental department, commission, agency or instrumentality by which Acorn
is bound or to which Acorn is subject. Acorn is not subject to and has not
received any request for information, notice, demand letter, administrative
inquiry or formal or informal complaint or claim from any governmental
department, commission, agency or instrumentality. To the knowledge of the
Shareholders, Acorn's business operations as presently conducted do not violate
or fail to comply in any material respect with any applicable federal, state or
local codes, laws, rules or regulations, and Acorn has not received any notices
alleging any such violation or non-compliance.
2.9 Financial Statements. Acorn has delivered to Horizon a copy
of (a) unaudited financial statements of Acorn as of December 31, 1994, 1995
and 1996 consisting in each case of an unaudited balance sheet at such
respective dates, and the related unaudited statements of income, changes in
stockholders' equity and cash flows for the applicable twelve (12) month period
then ended and (b) unaudited financial statements of Acorn as of September 30,
1997 (the "Acorn Balance Sheet Date") consisting of an unaudited balance sheet
of Acorn at such date (the "Acorn Balance Sheet") and the related statements of
income for the applicable month and year-to-date period then ended. Complete
and accurate copies of all such financial statements are included as Schedule
2.9 (the "Acorn Financial Statements"). Except as reflected in Schedule 2.9,
the Acorn Financial Statements present fairly in all material respects the
financial position of Acorn and the results of the operations, changes in
stockholders' equity and cash flows of Acorn, as of the respective dates
thereof and for the respective periods covered thereby. The Acorn Financial
Statements have been prepared in accordance with the usual and customary
historical accounting practices of Acorn and not in conformity with generally
accepted accounting principles ("GAAP"). Except as set forth in the Acorn
Balance Sheet included in the Acorn Financial Statements, and except as also
separately reflected in Schedule 2.9, as of the Acorn Balance Sheet Date, there
were no liabilities, debts, claims or obligations, whether accrued, absolute,
contingent or otherwise, whether due or to become due, which are required by
GAAP to be set forth in a balance sheet of Acorn which have not been so set
forth in the Acorn Balance Sheet. No dividends or distributions with respect
to the capital stock of Acorn had been declared but not paid prior to the Acorn
Balance Sheet Date. The Acorn Financial Statements were prepared from the
books and records of Acorn. At the Acorn Balance Sheet Date, Acorn owned each
of the assets included in Acorn Balance Sheet.
2.10 No Adverse Change. Since the Acorn Balance Sheet Date, the
business of Acorn has been conducted only in the ordinary and usual course and,
except as set forth in Schedule 2.10, there has not been (a) any material
adverse change in the financial condition, business, properties, assets, or
results of operations of Acorn (financial or otherwise); (b) any material loss
or damage (whether or not covered by insurance) to any of the assets of Acorn
which materially affects or impairs the ability of Acorn to conduct its
business as previously conducted or any other event or condition of any
character which has materially and adversely affected the business or
operations of Acorn; (c) the attaching, placing or granting of, or the
agreement to attach, place or grant, any encumbrance on any of the assets of
Acorn; (d) any sale or transfer of any material asset of Acorn; (e) any
material changes in the terms of, or defaults under, any material contract or
agreement of, or binding on, Acorn; (f) any material change in the accounting
systems, policies or practices of Acorn; (g) any waiver by or
4
<PAGE> 9
on behalf of Acorn of any rights which have any material value; (h) no taking
under condemnation or right of eminent domain of any of the assets of Acorn;
(i) any entry into or termination of any material contract or any other
material commitment, contract, agreement, or transaction (including, without
limitation, any material borrowing or capital expenditure or sale or other
disposition of any material assets) by Acorn; (j) any redemption, repurchase,
or other acquisition of any of its capital stock by Acorn; (k) any issuance of
capital stock of Acorn or of securities convertible into or rights to acquire
any such capital stock; (l) any dividend or distribution declared, set aside or
paid on capital stock of Acorn; (m) any transfer or right granted by Acorn of
or under any material lease, license, agreement, patent, trademark, trade name,
service mark or copyright; (n) any mortgage, pledge, or imposition of any lien
or other encumbrance on any material asset of Acorn, or any agreement relating
to or contemplating any of the foregoing not in the ordinary and usual course
of business; or (o) any default or breach by Acorn in any material respect
under any material contract, license, or permit. Since the Acorn Balance Sheet
Date, no changes have been made in (a) employee compensation levels, (b) the
manner in which employees of Acorn are compensated or (c) supplemental benefits
provided to any employees.
2.11 No Undisclosed Liabilities. True and correct copies of all
notes, agreements or other documents evidencing outstanding liabilities of
Acorn (as such term is determined pursuant to GAAP), as amended to and in
effect on the Effective Date, have been delivered to Horizon by Acorn. Acorn
has no material indebtedness or other liabilities which are not adequately
disclosed and reflected or reserved against on the Acorn Balance Sheet, except
liabilities incurred since the Acorn Balance Sheet Date in the ordinary course
of business consistent with past practice which, in the aggregate, would not
have a material adverse effect on the business (financial or otherwise), assets
or operations of Acorn and except as disclosed in Schedule 2.9. Schedule 2.11
hereto sets forth each liability of Acorn in an amount in excess of $10,000 and
each person to whom the aggregate amount of liabilities owed to such person by
Acorn exceeds $10,000.
2.12 Title to and Condition of Properties. Acorn has good,
marketable, and insurable title, or valid, effective and continuing leasehold
rights in the case of leased property, to all of the assets reflected on the
Acorn Balance Sheet and all personal property owned or leased by it or used by
it in the conduct of its business in such a manner as to create the appearance
or reasonable expectation that the same is owned or leased by it, free and
clear of all liens, security interests, restrictions, claims, encumbrances, and
charges of any kind whatsoever. The Shareholders do not know of any potential
action or assertion of rights, including condemnation, by any party,
governmental or other, and no proceedings with respect thereto have been
instituted of which the Shareholders or Acorn has notice, that would materially
affect the ability of Acorn to utilize each of such assets in its business
which are material to such business. Acorn has not received any notices of
default or other violations from any landlord regarding any properties leased
by Acorn. The assets now owned by Acorn constitute all assets reasonably
necessary to enable Horizon to permit the business and operations of Acorn to
be conducted on substantially the same terms as such business has been
conducted historically and is being conducted on the Effective Date. To the
knowledge of the Shareholders, none of the assets owned, leased or used by
Acorn in the operation of its business violates or fails to comply in any
material respect with any applicable federal, state or local health, fire,
environmental, safety, zoning, building or other codes, laws, rules or
regulations and Acorn has not received any notice of an alleged violation
thereof.
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<PAGE> 10
2.13 Litigation. Except as set forth in Schedule 2.13, no material
investigation or review by any governmental entity with respect to Acorn is
pending or, to the knowledge of the Shareholders, threatened, nor has any
governmental entity indicated to Acorn an intention to conduct the same; and
there is no action, suit, or administrative, arbitration or other proceeding
(including proceedings concerning labor disputes or grievances or union
recognition) pending or, to the knowledge of the Shareholders, threatened
against or affecting Acorn to which Acorn is a party, at law or in equity,
before any federal, state, or municipal court or other governmental department,
commission, board, bureau, agency, or instrumentality. Acorn is not now, and
has not been, a party to any agreement, injunction, order or decree restricting
the method or geographic area under which Acorn may conduct business operations
or the marketing of any of its products or services or the product or services
it may sell.
2.14 Real Property Leases. Schedule 2.14 lists all leases of real
property to which Acorn is a party (the "Real Property Leases"). Accurate and
complete copies of the Real Property Leases, as amended to the Effective Date,
have been made available or delivered to Horizon. Neither the Shareholders nor
Acorn is aware, and neither the Shareholders nor Acorn has received any
notices, that the land, buildings, facilities or other structures and
improvements subject to the Real Property Leases are not in compliance with any
applicable zoning, environmental or health laws and regulations or any other
similar law, statute, regulation or ordinance. Acorn is in peaceful and
undisturbed possession of the property subject to the Real Property Leases. To
the knowledge of the Shareholders, all covenants or other restrictions (if any)
to which any of the real property leased to Acorn pursuant to the Real Property
Leases are subject are being properly performed and observed in all material
respects by Acorn, and Acorn has not received any notice of violation (or
claimed violation) thereof which has not been resolved. Acorn has delivered to
Horizon true, correct and complete copies of all reports, surveys or audits of
any engineers, insurance companies, environmental consultants or other
consultants in the possession of Acorn relating to any of premises subject to
the Real Property Leases. There is no pending proceeding or governmental
action, and Acorn has not received notice of any threatened proceeding or
governmental action, to condemn or take by the power of eminent domain (or to
purchase in lieu thereof) all or any part of the property subject to the Real
Property Leases which is material to the operations of Acorn as presently
conducted. Acorn does not own any real property.
2.15 Intellectual Property. Schedule 2.15 is an accurate and
complete list of all copyrights, patents, trade names, trademarks, service
marks or other intellectual property that Acorn uses in its business
operations. Except as disclosed on Schedule 2.15, Acorn has no United States
or foreign patents, patent applications, patent licenses, trademarks or service
mark registrations (and applications therefor), and has no copyrights and
copyright registrations (and applications therefor), trade secrets, inventions,
processes, designs, know-how and formula which are owned or licensed for use by
Acorn and utilized by Acorn in the business operations of Acorn as presently
conducted. There is no adverse claim of infringement against Acorn, or to the
knowledge of the Shareholders, any threatened litigation or claim of
infringement. To the knowledge of the Shareholders, Acorn does not utilize any
intellectual property or proprietary trade secret information which infringes
any trademark, trade name, service mark, copyright or patent of another, and
Acorn has not received any notice contesting its right to use any trade name,
intellectual property or proprietary trade secret information now used by it in
connection with its business operations. Acorn has not granted any
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<PAGE> 11
license to a third party in respect of any of its intellectual property or
confidential proprietary information.
2.16 Contracts.
(a) Material Contracts. Schedule 2.16 lists all material
contracts or agreements of the following types to which Acorn is a
party or by which Acorn is bound:
(i) any contract pursuant to which Acorn owns,
manages, develops or operates an employee assistance program,
comprehensive managed care or any similar or related program
or service for any other person or entity (the "Acorn EAP
Contracts");
(ii) any contract or agreement with a physician,
psychiatrist, psychologist or other health care provider or
any partnership or professional association or corporation
owned by physicians, psychiatrists, psychologists or other
health care providers;
(iii) any contract or agreement which is not
terminable upon thirty (30) days or less notice or which
obligates Acorn to the payment of more than $10,000 including,
without limitation, loan agreements;
(iv) any contract or agreement for the
maintenance, purchase or sale of equipment or capital assets
having a contractual liability in excess of $10,000;
(v) any power of attorney (other than routine
powers given to governmental officials authorizing service of
process);
(vi) any lease of personal property;
(vii) any guaranty, suretyship agreement or other
agreement relating to any contingent liability or indebtedness
of a third party;
(viii) any contract with an independent agent or
broker acting on behalf of Acorn;
(ix) any contract or agreement with an independent
consultant;
(x) any contract or agreement restricting the
method by which Acorn conducts its business or the marketing
of any of its products or services; and
(xi) any contract or agreement between Acorn and
the Shareholders or any other affiliates of Acorn including,
without limitation, affiliates of the Shareholders.
(b) Copies/Status of Material Contracts. True, complete
and correct copies of all contracts listed in Schedule 2.16 have been
delivered or made available to Horizon. Except
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to the extent disclosed on Schedule 2.16 (i) all of the contracts
listed on Schedule 2.16 are in full force and effect, (ii) Acorn has
not received any notice of cancellation with respect to any such
contract or been advised that the other party thereto intends to
cancel any such agreement, (iii) there are no material outstanding
disputes under any of such contracts, (iv) each such contract is with
an unrelated third party entered into on an arms-length basis in the
ordinary course of business, (v) there are no material defaults under
any of such contracts, (vi) there are no verbal amendments,
modifications or other understandings relating to such contracts which
are legally binding on the parties thereto and are material, and (vii)
to the knowledge of the Shareholders, Acorn has no obligation that has
accrued to refund all or any portion of the fees that have been paid
under any Acorn EAP Contract.
(c) Acorn EAP Contracts. With respect to the Acorn EAP
Contracts, Schedule 2.16 also lists: (i) the termination date of each
contract; (ii) any rights to cancel prior to the termination date
contained in the contract; (iii) any renewal rights or obligations
under the contract; (iv) the fees payable to Acorn under the contract;
and (v) the number and location or locations of the employees covered
by the contract.
2.17 Employees, Et Cetera. Schedule 2.17 hereto lists in accurate
and complete detail all employees of Acorn as of the Effective Date, their job
titles, annual rates of compensation, accrued vacation, holiday and sick leave
as of the most recent regular payroll date of Acorn immediately preceding the
Effective Date, other fringe benefits, if any, a description of any severance
arrangements, if any, and the amounts payable with respect to such accrued
vacation, holiday and sick leave as of the most recent payroll date of Acorn
immediately preceding the Effective Date and the rate at which such vacation,
holiday and sick leave will accrue after the Effective Date. Except as shown
on Schedule 2.17, Acorn is not bound by any written contract of employment with
any of its employees and all oral employment contracts are terminable at will,
subject to applicable law, or by any consulting or similar agreements. Except
as set forth in Schedule 2.17, Acorn is not a party to any employment or other
agreement, whether written or oral, pursuant to which Acorn has agreed to make
a loan to, or guarantee any loan of, any employee or relating to any bonus,
deferred compensation, severance pay or similar plan, agreement, arrangement or
understanding. Except as listed on Schedule 2.17 or Schedule 2.18 hereof,
Acorn has no Welfare Plan (as defined in Section 3(1) of The Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), no Pension Plan
(as defined in Section 3(2) of ERISA), nor any other type of pension, profit
sharing, deferred compensation, retirement, stock option, bonus, severance,
medical, dental, life insurance, accident, or other employee benefit or
compensation plan, agreement, arrangement, practice or policy with respect to
employees. Acorn has complied with all requirements of Sections 6001 through
6008 of ERISA and Section 4980B of the Internal Revenue Code of 1986, as
amended (the "Code") with respect to itself and its employees. Acorn is not
bound, and following the Closing will not be bound, by any express or implied
contract or agreement to employ, directly or as a consultant or otherwise, any
person for any specific period of time or until any specific age except as
specified in the written agreements identified in Schedule 2.17.
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2.18 Employee Benefit Plans. Except as disclosed in Schedule 2.18:
(a) Acorn does not maintain or contribute to, and has not
in the past maintained or contributed to, any Pension Plan or Welfare
Plan, nor is Acorn presently, or has it ever been, a participating
employer in any Multiemployer Plan (as defined in ERISA Section 3(37)
or Section 414(f) of the Code).
(b) With respect to each Pension Plan and each Welfare
Plan listed on Schedule 2.18, to the knowledge of the Shareholders:
(i) there is no fact, including, without limitation, any reportable
event, that exists that would constitute grounds for termination of
such plan by The Pension Benefit Guaranty Corporation ("PBGC") or for
the appointment by the appropriate United States District Court of a
trustee to administer such plan, in each case as contemplated by
ERISA; (ii) neither Acorn nor any fiduciary, trustee, or administrator
of any such Pension Plan or Welfare Plan, has engaged in a prohibited
transaction that would subject Acorn to any material tax or any
material penalty imposed by ERISA or the Code; (iii) Acorn has not
incurred any material liability to the PBGC (other than for payment of
premiums); (iv) Acorn has contributed all amounts it is required to
contribute under the terms of the plan in question and applicable law,
and there is no accumulated funding deficiency with respect to any
Pension Plan, whether or not waived, other than routine, non-contested
claims for benefits. There is not pending or, to the knowledge of the
Shareholders, threatened any claim by or on behalf of or against any
Pension Plan or Welfare Plan, by any employee or former employee
covered or previously covered under any Pension Plan or Welfare Plan,
or otherwise involving any Pension Plan or Welfare Plan.
(c) There has been no termination of any Pension Plan or
Welfare Plan by Acorn during the five-year period prior to the
Effective Date.
(d) No material liability has been incurred under Title
IV of ERISA by Acorn with respect to any Pension Plan maintained by a
trade or business (whether or not incorporated) which is under common
control with, or part of a controlled group of corporations with,
Acorn within the meaning of Sections 414(b) or (c) of the Code.
(e) No Welfare Plan listed on Schedule 2.18 is funded
with a trust or other funding vehicle, other than insurance policies.
(f) Each Welfare Plan, Pension Plan, and any other type
of pension, profit sharing, deferred compensation, retirement, stock
option, bonus, severance, medical, dental, life insurance, accident,
or other employee benefit or compensation plan, agreement,
arrangement, practice, or policy with respect to employees maintained
by or contributed to by Acorn is maintained, administered, and
operated in accordance with all applicable laws, including but not
limited to, ERISA and the Code. All governmental reports and returns
(including, but not limited to, annual IRS/DOL 5500-series information
returns/reports) required to be filed in connection with each Welfare
Plan and Pension Plan have been timely filed, and were true and
complete when filed.
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(g) Each Pension Plan listed on Schedule 2.18 which is
intended to be qualified under Section 401(a) of the Code, has
received a favorable determination letter from the Internal Revenue
Service (the "Service") as to the qualification under the Code of each
such Pension Plan as amended to comply with the Tax Reform Act of 1986
and all applicable subsequent legislation, and, to the knowledge of
the Shareholders, no event has occurred since the date of such
favorable determination letter that would adversely affect such
qualification. No Pension Plan is or has at any time subject to ERISA
Section 302 or Code Section 412.
(h) Except as expressly contemplated by this Agreement or
as disclosed on Schedule 2.18, no bonus, severance pay, or any other
employee benefit under any Welfare Plan, Pension Plan, or any other
type of pension, profit sharing, deferred compensation, retirement,
stock option, bonus, severance, or other employee benefit or
compensation plan, agreement, arrangement, practice, or policy with
respect to employees maintained by or contributed to by Acorn is
payable or exercisable as a result of the transaction contemplated by
this Agreement, and the payment, exercise, or vesting of any such
bonus, severance pay, or employee benefit will not be accelerated or
otherwise enhanced by such transaction.
(i) The Shareholders have delivered to Horizon true,
correct, and complete copies of all of the following items with
respect to any and all Welfare Plan or Pension Plan: (i) the current
plan document, including any and all current amendments thereto; (ii)
the current trust agreement, and all current amendments thereto, and
all other current agreements between the Company and the trustee or
any other plan fiduciary; (iii) the current Summary Plan Description
and all Summaries of Material Modifications; (iv) written summaries of
any and all unwritten agreements, policies, or understandings between
Acorn and any employee or group of employees (including an
indeterminate group of employees, and all employees generally)
concerning any Acorn Plan, whether or not Acorn considers such written
agreements, policies, or understandings to be binding on it; (v) all
individual or group insurance or annuity contracts, including any
"stop loss," "excess loss," or similar insurance contract currently in
force; (vi) all agreements with health maintenance organizations
("HMO's"), preferred provider organizations ("PPO's"), or other
providers of healthcare services currently in force; (vii) all
agreements with all persons for the provision of administrative,
record keeping, claims handling or review, consulting, and/or
investment management services currently in force; the last filed
IRS/DOL 5500-series form currently in force.
(j) All required contributions to all Welfare Plan or
Pension Plan and all premiums, fees, or other payments required to be
made in connection with any Plan have either been timely made or are
reflected on an accrual basis in the Acorn Balance Sheet, whether or
not presented on an accrual basis. Prorated portions of any and all
contributions or premiums, fees, or other payments that are not yet
required to be made to or in connection with any Plan, but that, in
the normal course, will be required to be made at any time during the
next twelve months, have been included in the financial statements as
if accrued.
(k) No Welfare Plan provides benefits to any employee
after termination of employment, or to a director or independent
contractor after he or she ceases to be a director
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or to perform services for the Company, except on a basis that will at
all times require that the former employee, director, or independent
contractor pay and bear all costs of his or her coverage.
(l) No Plan is currently under audit by the Internal
Revenue Service ("IRS") or the U.S. Department of Labor ("DOL"), nor
to the best of the Shareholder's knowledge is any Plan likely to
become the subject of an IRS or DOL audit within the next twelve
months.
(m) No Plan holds any "employer securities" within the
meaning of ERISA Section 407(d)(1) or any "employer real property"
within the meaning of ERISA Section 407(d)(2). Except to the extent
that any Pension Plan is an "ERISA Section 404(c) Plan" within the
meaning of 29 C.F.R. Section 2550.404c-1(b)(1), no Pension Plan has
any investment that:
(i) Except in the case of any contract issued by
an insurance company, is not publicly traded;
(ii) In the case of any contract issued by an
insurance company, is not issued by a carrier rated AAA by
Standard & Poor's Corporation or the equivalent by another
nationally recognized agency.
(n) None of the transactions contemplated by, or incident
to, this Agreement, or any combination of any such transactions,
including all such transactions, will result in any cancellation or
loss of, or a reduction in coverage under, any insurance policy
including any "stop loss" or "excess loss" policy, any obligation to
provide conversion coverage, or any HMO, PPO, or other healthcare
contract in connection with any Welfare Plan.
(o) Acorn does not receive significant services from
leased employees within the meaning of Section 414(n)(2) of the Code
or from independent contractors who work, on average, more than ten
hours per week for Acorn, or who as of the date of this Agreement have
worked for Acorn for more than six months, except for health care
providers that contracted with Acorn to provide services to employees
of its customers.
True, correct and complete copies of each Pension Plan and Welfare Plan listed
on Schedule 2.18 as amended to and in effect on the date hereof; any agreements
entered into in connection with each such Pension Plan and Welfare Plan; the
most recent annual report filed with the Service for each such Pension Plan and
Welfare Plan; the most recent actuarial report, if any, for each such Pension
Plan and Welfare Plan; the most recent summary plan description, together with
each summary of material modifications; and any other communication generally
disseminated to employees or former employees of Acorn describing benefits
provided under each such Pension Plan and Welfare Plan, have been delivered or
made available to Horizon.
2.19 Receivables. All accounts receivable, notes receivable and
other receivables (the "Receivables") of Acorn, whether or not reflected in the
Acorn Balance Sheet, arise out of transactions in the ordinary course of
business. An aged accounts receivable report of Acorn as of September 30, 1997
has been delivered or made available to Horizon.
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2.20 Accounts Payable. The accounts payable and accrued expenses
reflected on the Acorn Balance Sheet and in Schedule 2.9 and those reflected on
the books of Acorn at the time of the Closing will reflect all material amounts
owed by Acorn in respect of trade accounts due and other payables required by
GAAP to be identified on such Acorn Balance Sheet or in the books of Acorn. No
account payable or accrued expenses of Acorn is past due or otherwise in
default by Acorn.
2.21 Broker's and Finder's Fees. Except for a fee payable by the
Shareholders to Howard, Lawson & Co., no agent, broker, employee, officer,
stockholder or other person or entity acting on behalf of, or under the
authority of, Acorn or the Shareholders is or will be entitled to any
commission or broker's or finder's fee from any of the parties hereto in
connection with this Agreement or any of the transactions contemplated hereby.
2.22 Labor Practices. Acorn has no collective bargaining or other
labor union agreements. There is no unfair labor practice complaint against
Acorn pending before the National Labor Relations Board, there is no pending
or, to the knowledge of the Shareholders, threatened labor dispute, strike or
work stoppage affecting Acorn's business, nor has there been any of the same or
any labor union organizing activity relating to Acorn employees within the last
three (3) years.
2.23 Insurance. Schedule 2.23 lists all insurance policies and
coverages maintained by or for Acorn including but not limited to real and
personal property insurance, comprehensive liability insurance, automobile
liability insurance, workers' compensation insurance, medical malpractice
insurance and professional liability insurance. Schedule 2.23 lists all
insurance claims submitted in connection with property damage or in connection
with liability, medical or professional malpractice claims involving Acorn or
any of its employees since January 1, 1994.
2.24 Environmental Matters. Acorn has not received any notice from
any governmental authority or private person or entity advising it that Acorn,
its assets, any real property it occupies or leases or its business operations
is or has been in violation of any environmental law or any applicable
environmental permit or that Acorn is responsible (or potentially responsible)
for the cleanup of any pollutants, contaminants, hazardous or toxic wastes,
substances or materials at, on or beneath the property subject to the Real
Property Leases or otherwise. Acorn is not the subject of federal, state,
local or private litigation or proceedings involving a demand for damages or
other potential liability with respect to violations of environmental laws.
2.25 Taxes. All reports, estimates, declarations of estimated tax,
information statements and returns relating to, or required to be filed in
connection with, any Taxes (defined below), including information returns or
reports with respect to backup withholding and other payments to third parties,
(collectively, "Returns") of Acorn required by law to be filed on or prior to
the Effective Date have been prepared and properly filed or valid extensions
obtained, and all Taxes imposed upon Acorn or any of its properties, assets or
income which are due and payable or claimed by any federal, territorial, state,
local or foreign government or any agency or political subdivision of any such
government ("Taxing Authority") to be due and payable have been paid. The term
"Taxes" shall mean all taxes, however, denominated, including any interest,
penalties or other additions to tax that may become payable in respect thereof,
imposed by any Taxing Authority including, without limiting the generality of
the foregoing, all income or profits taxes (including, but not limited to,
federal income taxes and state income taxes), real property taxes, payroll and
employee withholding taxes,
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<PAGE> 17
unemployment insurance taxes, social security taxes, sales and use taxes, ad
valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business
license taxes, occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation, Pension Benefit
Guaranty Corporation premiums and other governmental charges, and other
obligations of the same or of a similar nature to any of the foregoing, which
(i) Acorn and (ii) any individual, trust, corporation, partnership or any other
entity as to which Acorn is liable for Taxes incurred by such individual or
entity either as a transferee, or pursuant to Treasury Regulations Section
1.1502-6, or pursuant to any other provision of federal, territorial, state,
local or foreign law or regulations is required to pay, withhold or collect.
The liability for accrued taxes as shown in the Acorn Balance Sheet (net of
amounts reserved for deferred taxes) is sufficient for the payment of all
unpaid Taxes of Acorn accrued for or applicable to all years and periods prior
to the Acorn Balance Sheet Date and for which Acorn may at that date have been
liable in its own right or by reason of its being a member of any group of
corporations filing consolidated tax returns (including any such amounts
payable as a result of an audit of any tax return for any such period). Acorn
utilizes the accrual method of accounting for tax purposes.
There are no claims for Taxes pending against Acorn nor any tax liens
(other than for current Taxes not yet due and payable) upon the assets of
Acorn, and Acorn does not know of any threatened claim for tax deficiencies or
any basis for such claims, and there are not now in force any waivers or
agreements by Acorn for the extension of time for the assessment of any tax,
nor has any such waiver or agreement been requested by the Service or any other
Taxing Authority.
The Federal income tax returns of Acorn have not been examined or
audited by the Service. No material issues have been raised in any examination
by any Taxing Authority with respect to the businesses and operations of Acorn
which could be expected to result in a proposed adjustment to the liability of
Acorn for Taxes for any period.
Acorn has paid or is withholding and has or will pay when due to the
proper Taxing Authorities all withholding amounts and taxes required to be
withheld or paid for all income, unemployment, social security, Medicare or
other similar Taxes, programs or benefits with respect to wages, salary and
other compensation of directors, officers and employees of Acorn.
Acorn has made an election under Section 1362 of the Code and
Pennsylvania law to be an "S Corporation" as defined in Section 1361 of the
Code for federal and state income tax purposes which elections were duly made
in accordance with all applicable rules and regulations under the Code and
Pennsylvania law. Such elections have been in effect during the entire period
of the existence of Acorn and, during the period of existence from its
inception to the Effective Date, the Company has satisfied all the requirements
under Section 1361 of the Code and under Pennsylvania law necessary to have the
status as an S Corporation for federal and state income tax purposes.
Acorn has not filed a consent under Section 341(f) of the Code (or any
corresponding provision of state, local or foreign income tax law) concerning
collapsible corporations or agreed to have Section 341(f)(2) of the Code (or
any corresponding provision of state, local or foreign income tax law) apply to
any disposition of any asset owned by it.
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Acorn has not made any payments, is not obligated to make any
payments, and is not a party to any agreement that under any circumstances
could obligate it to make any payments that will not be deductible under
Section 280G of the Code.
Acorn has not been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Code. No shareholder of
Acorn is a person other than a United States person within the meaning of the
Code. Acorn has not participated in an international boycott as defined in
Code Section 999.
Acorn has disclosed on its federal income tax returns all positions
taken therein that could give rise to a substantial understatement of federal
income tax within the meaning of Section 6662 of the Code. Acorn is not a
party to any tax allocation or sharing agreement. Acorn (a) has never been a
member of an affiliated group filing a consolidated federal income tax return
and (b) has no liability for the taxes of any person (other than any of Acorn)
under Treas. Reg. Section 1.1502-6 (or any similar provision of state, local,
or foreign law), as a transferee or successor, by contract, or otherwise.
Acorn has not agreed, nor is it required to make, any adjustment under Code
Section 481(a) by reason of a change in accounting method or otherwise.
Horizon has been furnished by the Shareholders or Acorn true and
complete copies of (i) relevant portions of income tax audit reports,
statements of deficiencies, closing or other agreements received by Acorn or on
behalf of Acorn relating to Taxes, and (ii) all federal and state income or
franchise tax returns for Acorn for all periods ending on and after December
31, 1990.
Acorn has filed all reports and has created and/or retained all
records required under Section 6038A of the Code with respect to its ownership
by and transactions with related foreign parties. Each related foreign person
required to maintain records under Section 6038A with respect to transactions
between Acorn and the related foreign person has maintained such records. All
documents that are required to be created and/or preserved by the related
foreign person with respect to transactions with Acorn are either maintained in
the United States, or Acorn is exempt from the record maintenance requirements
of Section 6038A with respect to such transactions under Treasury Regulation
section 1.6038A-1. Acorn is not a party to any record maintenance agreement
with the Internal Revenue Service with respect to Section 6038A. Each related
foreign person that has engaged in transactions with Acorn has authorized Acorn
to act as its limited agent solely for purposes of Sections 7602, 7603, and
7604 of the Code with respect to any request by the Internal Revenue Service to
examine records or produce testimony related to any transaction with Acorn, and
each such authorization remains in full force and effect.
None of the assets of Acorn is property which Acorn is required to
treat as being owned by any other person pursuant to the so-called "safe harbor
lease" provisions of former Section 168(f)(8) of the Code.
Acorn is not a party to any joint venture, partnership, or other
arrangement or contract which could be treated as a partnership for federal
income tax purposes.
All material elections with respect to Taxes affecting Acorn as of the
date hereof are set forth in Schedule 2.25. After the date hereof, no election
with respect to Taxes will be made without the
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written consent of Horizon. Schedule 2.25 contains accurate and complete
description of Acorn's basis in its assets, Acorn's current and accumulated
earnings and profits, Acorn's tax carryovers, and tax elections made by any
Shareholder affecting Acorn. Acorn has no net operating losses or other tax
attributes presently subject to limitation under Code Sections 382, 383, or
384, or the federal consolidated return regulations.
None of the assets of Acorn directly or indirectly secures any debt
the interest on which is tax exempt under Section 103(a) of the Code.
None of the assets of Acorn is "tax-exempt use property" within the
meaning of Section 168(h) of the Code.
The transaction contemplated herein is not subject to the tax
withholding provisions of Code Section 3406, or of subchapter A of Chapter 3 of
the Code or of any other provision of law.
Acorn does not have and has not had a permanent establishment in any
foreign country, as defined in any applicable Tax treaty or convention between
the United States of America and a foreign country.
2.26 Transactions With Affiliates. Except as disclosed on Schedule
2.26, there are no loans, leases, agreements, contracts or other transactions
between Acorn and any present or former stockholder, director or officer of
Acorn, or any member of such stockholder's, director's or officer's immediate
family, or any entity controlled by any such person. No Shareholder, director
or officer of Acorn nor any of their respective spouses or family members owns
directly or indirectly on an individual or joint basis any material interest
in, or serves as an officer or director of, or in any representative or agent
capacity for, any competitor, customer, provider or supplier of Acorn or any
organization which has a material contract or arrangement with Acorn.
2.27 Improper Payments. Neither Acorn, nor any shareholder,
director, officer, employee or agent of Acorn has made any improper bribes,
kickbacks or other payments to, or received any such payments from, customers,
vendors, suppliers or other persons contracting with Acorn and has not proposed
or offered to make or receive any such payments.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HORIZON
Horizon represents and warrants to the Shareholders that, as of the
Effective Date hereof and as of the Closing Date:
3.1 Due Organization of Horizon. Horizon is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with all requisite corporate power and authority to conduct its
business operations as being conducted on the Effective Date.
3.2 Due Authorization/Consents. The execution and delivery of
this Agreement and the performance of the transactions contemplated by this
Agreement and all other instruments, agreements, certificates and documents
contemplated hereby to which Horizon is or will be a party
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has been duly authorized by all requisite corporate action of Horizon and does
not, on the Effective Date, and will not, on the Closing Date, (i) violate any
decree or judgment of any court or governmental authority which may be
applicable to Horizon; (ii) to the knowledge of Horizon, violate any law, rule
or regulation binding on Horizon; (iii) violate or conflict with, or result in
a breach of, or constitute a default (or an event which, with or without notice
or lapse of time or both, would constitute a default) under, or permit
cancellation of, or result in the creation of any encumbrance upon, any of the
assets of Horizon under any of the terms, conditions, or provisions of any
contract, lease, sales order, purchase order, indenture, mortgage, note, bond,
instrument, license or other agreement to which Horizon is a party, or by which
Horizon or its assets are bound; (iv) permit the acceleration of the maturity
of any indebtedness of Horizon; (v) violate or conflict with any provision of
the certificate of incorporation or bylaws of Horizon; or (vi) require the
consent, approval or authorization or any person, entity or governmental
agency.
3.3 Execution/Enforceability. This Agreement has been duly and
validly executed and delivered by Horizon and constitutes a valid and binding
agreement of Horizon enforceable in accordance with its terms. The other
agreements to be executed and delivered by Horizon pursuant to this Agreement
will be valid and binding agreements of Horizon enforceable in accordance with
their respective terms when so executed and delivered by Horizon.
3.4 Broker's and Finder's Fees. No agent, broker, employee,
officer, stockholder or other person or entity acting on behalf of, or under
the authority of, Horizon is or will be entitled to any commission or broker's
or finder's fee from any of the parties hereto in connection with this
Agreement or any of the transactions contemplated hereby.
ARTICLE IV
CERTAIN AGREEMENTS APPLICABLE PRIOR TO THE CLOSING DATE
4.1 Access and Information. The Shareholders and Acorn shall give
to Horizon and its accountants, counsel and other representatives full access
during normal business hours upon reasonable notice throughout the period prior
to the Closing Date to all properties, books, contracts and records (including
tax returns and insurance policies) of or relating to Acorn and all other
information pertaining to Acorn as may be reasonably requested by Horizon.
Except as consented to by Horizon or the Shareholders, all information obtained
hereunder which is not otherwise public shall be held confidential and, in the
event of termination of this Agreement, except to the extent required because
of any pending or threatened litigation or governmental proceeding, all
documents (including copies thereof) obtained hereunder containing such
information shall be destroyed or returned to the party from which they were
obtained.
4.2 Monthly Financial Statements. From the Effective Date through
the Closing Date, Acorn will prepare monthly and year-to-date unaudited
financial statements consistent with GAAP and will promptly deliver the same to
Horizon. The representations contained in Section 2.9 with respect to the
Acorn Financial Statements will be applicable to all such monthly unaudited
financial statements so prepared and delivered; provided, however, that such
unaudited financial statements shall be subject to normal year-end adjustments,
none of which will be material.
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4.3 Operation of Businesses; Course of Conduct.
(a) The Shareholders and Acorn agree that from the
Effective Date to the Closing Date, except as otherwise consented to
or approved by Horizon in writing, and except as provided in Section
4.10 and Section 4.11, below, Acorn will operate its business as
presently operated in the ordinary course and, consistent with such
operation, Acorn will substantially comply with all applicable legal
and contractual obligations, and will use its best efforts consistent
with past practice to preserve its business organization intact and to
preserve the goodwill of its suppliers, customers and others with whom
it has business relationships; and neither the Shareholders nor Acorn
will take any action (or omit to take any action) which action or
omission would cause any representation or warranty contained in
Article II hereof to be untrue at any time at or prior to or on the
Closing Date as if such representation or warranty were made at and as
of such time, or make any change in any method of reporting income or
expenses for federal or state income tax purposes or state franchise
tax purposes. In addition, Acorn and the Shareholders agree that,
from the date hereof through the Closing Date, Acorn shall not,
without the prior written consent of Horizon, and the Shareholders
shall not allow Acorn to:
(i) incur any expense, obligation, or liability
(whether capital, contingent, absolute or otherwise), except
in the ordinary course of business with respect to performance
of the Acorn EAP Contracts in accordance with their respective
terms, in excess of $5,000;
(ii) make (1) any change, except in the ordinary
course of business, in the assets (including, but not limited
to, any change in the composition of such assets so as to
materially alter the proportion of cash thereof) or
liabilities of Acorn, or (2) any commitment for any capital
expenditures including, without limitation, replacements of
equipment in the ordinary course of business, involving, in
the aggregate, more than $5,000, except with respect to
performance of the Acorn EAP Contracts in accordance with
their respective terms;
(iii) make any change in the articles of
incorporation or bylaws of Acorn;
(iv) (1) authorize any shares of the capital stock
of Acorn for issuance, (2) issue or agree to issue any shares
of any authorized but unissued shares of the capital stock of
Acorn, (3) grant, issue, or make any option or commitment
relating to the capital stock of Acorn, or any other security
constituting, or convertible or exchangeable for, capital
stock of Acorn, or (4) purchase or otherwise acquire any
outstanding shares of the capital stock of Acorn;
(v) (1) declare or pay any dividend, make any
other distribution or payment, or set aside any amount for
payment, with respect to any shares of the capital stock of
Acorn, except as expressly contemplated in Sections 4.10 and
4.11 or (2) directly or indirectly, redeem, purchase or
otherwise acquire any shares of the capital stock of Acorn or
make any commitment relating thereto;
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(vi) (1) make any material increase in the
compensation payable or to become payable to any of the
officers, employees or agents of Acorn (including any bonus or
incentive payment or arrangement), other than normal yearly
salary increases and scheduled increases under presently
existing compensation plans and currently anticipated bonuses
pursuant to existing bonus arrangements and except as
expressly contemplated by Section 4.10 hereof, or (2) make,
amend, or enter into any written employment or consulting
contract or any bonus, stock option, profit sharing, pension,
retirement or other similar payment or arrangement;
(vii) make, enter into, modify or extend any
employee assistance program contract;
(viii) enter into any agreement resulting in the
imposition of any mortgage or pledge of any assets of Acorn or
the creation of any mortgages, liens, pledges, charges,
security interests, encumbrances, options, rights of third
parties or restrictions (collectively, "Liens") on any of such
assets, except Liens incurred in the ordinary course of
business (not securing borrowed money or obligations of
others) in respect of obligations not overdue, Liens for
taxes, governmental charges, or claims not then required to be
paid, and encumbrances on real property which do not
materially and adversely affect the operations of such
properties;
(ix) take any action which would prevent
compliance with any of the conditions in Article V of this
Agreement;
(x) enter into or engage in any transaction with
any officer, director, shareholder or affiliate of Acorn
except for the payment of salaries in the ordinary course of
business;
(xi) (1) carry on any negotiations with other
parties relating to the acquisition of capital stock or any
material assets of Acorn or (2) merge or consolidate with or
into any entity or sell or otherwise dispose of, or purchase,
any material assets or properties (other than sales of
obsolete inventory or equipment and purchases of items of
inventory or equipment in replacement therefor, in the
ordinary course of business consistent with past business
practice) or enter into any agreement in respect of such
merger, consolidation, purchases, sales, and dispositions; and
(xii) cancel or surrender any insurance policies
issued to Acorn.
(b) Notwithstanding any provision of this Agreement to
the contrary, Acorn and the Shareholders covenant and agree that from
the Effective Date to the Closing Date:
(i) Horizon shall be permitted access to the
Acorn EAP Contract clients and shall have the right to discuss
with such clients all aspects of the Acorn EAP Contract with
such client;
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(ii) Acorn shall not make or implement any
employee or officer hiring or termination decision without the
prior written consent of Horizon which shall not be
unreasonably withheld or delayed; and
(iii) Acorn shall involve Horizon and allow Horizon
to participate in all discussions, correspondence or
negotiations relating to any existing or proposed new Acorn
EAP Contract and shall not modify, amend or renew any Acorn
EAP Contract and shall not enter into any new employee
assistance program contract without the prior written consent
of Horizon which shall not be unreasonably withheld or
delayed.
4.4 Consents. The Shareholders, Acorn and Horizon shall take all
steps reasonably necessary to obtain the written consent or approval of each
and every governmental agency whose consent or approval shall be required in
order to permit the consummation of the transactions contemplated by this
Agreement.
4.5 Public Communications. All press releases or other public
communications of any sort relating to this Agreement, and the method of the
release for publication thereof, shall be subject to the prior approval of both
Horizon and the Shareholders, which approval shall not be unreasonably withheld
by either of such parties, except to the extent that disclosure is otherwise
required by law or judicial process.
4.6 Solicitation of Inquiries. From the Effective Date to the
Closing Date, neither the Shareholders nor Acorn shall solicit from any other
person, firm, corporation or other entity any inquiries or proposals relating
to the disposition of any substantial portion of Acorn's business or assets
(other than in the ordinary course of business) or to the acquisition of all or
a substantial portion of its capital stock (whether issued and outstanding or
authorized but not issued) or to the merger, reorganization or consolidation of
Acorn. Until the Closing Date, each of the Shareholders and Acorn additionally
agree that, without the prior written consent of Horizon, it will not furnish
to any person or entity (other than Horizon and its directors, employees,
agents and representatives) any non-public information concerning Acorn or its
business, financial affairs or prospects for the purpose or with the intent of
permitting such person or entity to evaluate a possible acquisition of Acorn or
any of its capital stock or (other than in the ordinary course of business)
assets.
4.7 Cooperation. The parties will fully cooperate each with the
other and their respective counsel and accountants in connection with any steps
required to be taken as part of their obligations under this Agreement. The
Shareholders, Acorn and Horizon each agrees to use its best efforts to make all
necessary filings and to obtain all necessary consents to the transactions
contemplated by this Agreement, including without limitation all consents of
parties to any contracts or agreements requiring such consents, and all
necessary consents of governmental authorities.
4.8 Updating of Schedules. The Shareholders and Acorn shall
notify Horizon of any changes, additions, or events which may cause any change
in or addition to the Schedules delivered by the Shareholders under this
Agreement promptly after the occurrence of the same and again at the Closing by
delivery of appropriate updates to all such Schedules. No notification of a
change or addition to a Schedule made pursuant to this Section shall be deemed
to cure any breach of any representation or warranty resulting from such change
or addition unless Horizon specifically agrees
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thereto in writing or consummates the Closing under this Agreement after
receipt of such written notification, nor shall any such notification be
considered to constitute or give rise to a waiver by Horizon of any condition
set forth in this Agreement, unless Horizon specifically agrees thereto in
writing or consummates the Closing under this Agreement after receipt of such
written notification. Nothing contained herein shall be deemed to create or
impose on Horizon any duty to examine or investigate any matter or thing for
the purposes of verifying the representations and warranties made by the
Shareholders herein.
4.9 Preparation of Returns and Payment of Taxes. Acorn shall
prepare and timely file, subject to Horizon's review and approval, all federal
and Pennsylvania Returns and amendments thereto required to be filed by it on
or before the Closing Date. Acorn shall pay and discharge all federal and
Pennsylvania Taxes, assessments and governmental charges upon or against it or
any of its properties or assets, and all liabilities at any time existing,
before the same shall become delinquent and before penalties accrue thereon,
except to the extent and as long as: (a) the same are being contested in good
faith and by appropriate proceedings pursued diligently and in such a manner as
not to cause any material adverse effect upon the condition (financial or
otherwise) or operations of Acorn; and (b) Acorn shall have set aside on its
books reserves (segregated to the extent required by sound accounting practice)
in the amount of the demanded principal imposition (together with interest and
penalties relating thereto, if any).
4.10 Payment of Bonuses and Shareholder Distribution.
Notwithstanding any other provision of this Agreement to the contrary, Horizon
agrees that:
(a) On or before the Closing Date, Acorn may pay a cash
bonus to Dr. Melvyn S. Goldsmith in the amount of Nine Hundred
Thousand Dollars ($900,000);
(b) On or before the Closing Date, Acorn may pay cash
bonuses to certain employees of Acorn as set forth in the Employee
Bonus Schedule included in Schedule 2.17 in the aggregate amount of
One Hundred Eighty Thousand Dollars ($180,000); and
(c) On the Closing Date, Acorn may pay a distribution to
the Shareholders in an amount equal to all Cash and Cash Equivalents
held by Acorn on the Closing Date after the payment of the
above-described bonuses and reserving cash for (or paying) the payment
of all employer payroll or other taxes (i.e. Social Security and
Medicare payroll taxes) owed with respect to such bonuses.
4.11 Excluded Assets. Horizon agrees that, on or prior to the
Closing Date, Acorn and the Shareholders may cause Acorn to distribute to the
Shareholders the corporate assets listed on Schedule 4.11 (the "Excluded
Assets").
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to Obligations of Both the Shareholders and
Horizon. The respective obligations of the Shareholders and Horizon shall be
subject to the fulfillment at or prior to
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the Closing Date of the following conditions:
(a) All necessary federal, state and local governmental
permits and approvals required to carry out the transactions
contemplated by this Agreement, and all other required consents,
waivers or approvals of other third parties shall have been obtained.
(b) No inquiry by any governmental agency or
instrumentality shall have been made which would or could, and no
action or proceeding of any kind shall have been asserted, threatened
or instituted to restrain or prohibit the carrying out of the
transactions or any part thereof contemplated by this Agreement, or
which, if such transactions are consummated, seeks to recover damages
or other relief which would materially and adversely affect the
business, properties or assets of Acorn or Horizon.
5.2 Conditions to Obligations of the Shareholders. The
obligations of the Shareholders shall be subject to the fulfillment at or
prior to the Closing Date of the following conditions:
(a) The representations and warranties of Horizon set
forth in this Agreement shall be true and correct at and as of the
Effective Date and shall also be true and correct at and as of the
Closing Date as though made at and as of the Closing Date, except to
the extent such representations and warranties are not true and
correct by reason of actions permitted or authorized by this Agreement
or consented to in writing by the Shareholders. The Shareholders
shall have received a certificate of Horizon, dated the Closing Date
and duly executed by an authorized officer, to such effect.
(b) Horizon shall have performed all covenants and
agreements required to be performed by it under this Agreement at or
prior to the Closing Date.
(c) The Shareholders shall have received an opinion dated
the Closing Date of Strasburger & Price, L.L.P., counsel to Horizon,
in form and substance reasonably satisfactory to the Shareholders to
the effect that (i) Horizon is a corporation organized, validly
existing and in good standing under the laws of the State of Delaware,
and has the corporate power to own or lease its properties and to
carry on its business as now conducted; (ii) Horizon has the corporate
power to execute, deliver and perform this Agreement and the other
agreements contemplated by this Agreement, and all corporate action of
Horizon necessary for such execution, delivery and performance has
been duly taken; (iii) neither the execution or delivery of this
Agreement, nor the performance thereof, will conflict with or result
in a breach of any term of, or constitute a default under, the
certificate of incorporation or bylaws of Horizon or any statute, rule
or regulation applicable to Horizon, or, to the knowledge of such
counsel (A) violates or will violate any provision of, or constitutes
or will constitute a default under any material note, bond, mortgage,
indenture, lease, license, franchise, agreement or other instrument or
obligation to which Horizon is bound, or (B) violate in any material
respect any order, writ, injunction or decree applicable to Horizon;
(iv) this Agreement and the agreements contemplated by this Agreement
have been validly executed by Horizon, and each such agreement
constitutes legal, valid, and binding agreements of Horizon
enforceable in accordance with their respective terms (which opinion
shall be based on the assumption that, notwithstanding the choice of
law provision of the
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Agreement, a court applies Texas law) except to the extent that
enforceability may be limited by applicable liquidation,
conservatorship, bankruptcy, insolvency, reorganization, moratorium,
or other similar laws affecting the enforcement of creditors' rights
from time to time in effect, and general principles of equity; and (v)
to such counsel's knowledge (A) there is no order, judgment or decree
of any court or regulatory authority which would prohibit the
consummation of the transactions contemplated hereby, and (B) no
action or proceeding has been instituted in, with or by any court or
regulatory authority which has as one of its purposes or may have as
one of its effects the prohibition of any of such transactions. In
giving such opinion, such counsel may limit its opinion solely to the
laws of the State of Texas and the United States of America and the
Delaware General Corporation Law and rely upon certificates of public
officials and officers of Horizon. All such opinions may include
assumptions, qualifications, and comments as are generally contained
in legal opinions given in transactions similar to the transaction
contemplated by this Agreement.
(d) All consents, waivers or approvals from any third
party (including any federal, state or local governmental agency or
instrumentality) as may be necessary or appropriate in connection with
the Shareholders' execution and delivery of this Agreement or to the
consummation of the transactions contemplated hereby shall have been
obtained.
(e) On the Closing Date, Horizon shall have executed and
delivered the Executive Services Agreement with Dr. Melvyn S.
Goldsmith in the form of Exhibit A (the "Executive Services
Agreement").
(f) On the Closing Date, Horizon shall have executed and
delivered the Lease Agreement with M&B Goldsmith, a Pennsylvania
general partnership of which Dr. Melvyn S. Goldsmith is a general
partner, in the form of Exhibit B (the "Lease Agreement").
(g) On the Closing Date Horizon shall have executed and
delivered the Post-Closing Escrow Agreement with the Shareholders in
the form of Exhibit C (the "Post-Closing Escrow Agreement").
(h) On the Closing Dated, Acorn shall have paid to Dr.
Melvyn S. Goldsmith the cash bonus and paid to the Shareholders the
distribution as specified in Section 4.10 of this Agreement.
(i) On or prior to the Closing Date, Acorn shall have
executed and delivered such bills of sale, assignments and other
transfer documents as may be necessary to assign and convey the
Excluded Assets to the Shareholders.
5.3 Conditions to the Obligations of Horizon. The obligations of
Horizon shall be subject to the fulfillment at or prior to the Closing Date of
the following conditions:
(a) The representations and warranties of the
Shareholders set forth in this Agreement shall be true and correct at and as of
the Effective Date and shall also be true and correct at and as of the Closing
Date as though made at and as of the Closing Date, except to the extent such
representations and warranties are not true and correct by reason of
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actions permitted or authorized by this Agreement or consented to in writing by
Horizon. Horizon shall have received a certificate of the Shareholders, dated
the Closing Date and duly executed by each of the Shareholders, to such effect.
(b) The Shareholders shall have performed all covenants
and agreements required to be performed by them under this Agreement at or
prior to the Closing Date.
(c) Horizon shall have received an opinion dated the
Closing Date of Fox & Rothschild, O'Brien and Frankel, counsel to the
Shareholders, in form and substance reasonably satisfactory to Horizon to the
effect that (i) Acorn is a corporation organized, validly existing and
subsisting under the laws of its state of incorporation and has the corporate
power to own or lease its properties and carry on its business as now
conducted; (ii) the capitalization of Acorn is as set forth in Section 2.7,
and, to such counsel's knowledge, there are no outstanding options, warrants or
rights to purchase or acquire any capital stock of Acorn by conversion,
exercise or exchange of securities or otherwise; (iii) to the knowledge of such
counsel, the Shares constitute all the outstanding shares of Acorn and the
Shares are owned of record and beneficially by the Shareholders; (iv) the
Shares are duly authorized, validly issued, fully paid and nonassessable, (v)
assuming that Horizon acts in good faith and without actual notice of any
adverse claim against the Shareholders, upon the payment of the Purchase Price
and delivery of the stock certificates evidencing the Shares duly assigned by
the Shareholders to Horizon, Horizon will acquire good and marketable title to
the Shares free of any adverse claim (vi) Acorn has full corporate power to
execute, deliver and perform this Agreement and the agreements contemplated by
this Agreement to which it is a party, and all corporate action of Acorn
necessary for such execution, delivery and performance has been duly taken;
(vii) to the knowledge of counsel, Acorn holds all governmental authorizations,
certificates of authority or licenses required under the laws of the
Commonwealth of Pennsylvania for its business operations as presently
conducted; (viii) neither the execution or delivery of this Agreement and the
agreements contemplated by this Agreement nor the performance hereof or thereof
by Acorn or a Shareholder will conflict with or result in the breach of any
term of, or constitute a default under, the articles of incorporation or bylaws
of Acorn or to the such counsel's knowledge, any statute, rule or regulation
applicable to Acorn, or, to the knowledge of such counsel (A) violate or will
violate any provision of or constitutes or will constitute a default under, any
material note, bond, mortgage, indenture, lease, license, franchise, agreement
or other instrument or obligation to which Acorn or the Shareholders is a party
or by which Acorn, the Shareholders or the Shares are bound, or (B) violate in
any material respect any order, writ, injunction, decree, statute, rule or
regulation applicable to Acorn or the Shareholders; (ix) this Agreement and
the agreements contemplated by this Agreement have been validly executed by
Acorn and the Shareholders and each such agreement constitutes legal, valid and
binding obligations of such parties, enforceable in accordance with their
respective terms except to the extent that enforceability may be limited by
applicable liquidation, conservatorship, bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting the enforcement of
creditors' rights from time to time in effect, and general principles of
equity; (x) to such counsel's knowledge (A) there is no order, judgment or
decree of any court or regulatory authority which would prohibit the
consummation of the transactions contemplated hereby, and (B) no action or
proceeding has been instituted in, with or by any court or
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regulatory authority which has as one of its purposes or may have as one of its
effects the prohibition of any of such transactions. In giving such opinion,
such counsel may limit their opinion to the laws of the Commonwealth of
Pennsylvania and the United States of America and rely upon opinions of other
counsel and certificates of public officials, the Shareholders and officers of
Acorn provided that with respect to opinions of other counsel such other
counsel states that Horizon is entitled to rely thereon. All such opinions may
include assumptions, qualifications, and comments as are generally contained in
legal opinions given in transactions similar to the transaction contemplated by
this Agreement.
(d) All consents, waivers or approvals from any third
party (including any federal, state or local governmental agency or
instrumentality) as may be necessary or appropriate in connection with
Horizon's execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby shall have been obtained.
(e) Since the Effective Date, there shall not have
occurred any material adverse change in, or other event or condition of any
character which in any one case or in the aggregate has materially adversely
affected, or can be reasonably expected in any one case or in the aggregate to
materially adversely affect in the future, the condition (financial or
otherwise), assets, liabilities, results of operations, business or prospects
of Acorn. For the purposes hereof, the cancellation of Acorn EAP Contracts or
the receipt of notice of cancellation of Acorn EAP Contracts (irrespective of
the actual date of cancellations) representing in excess of $100,000 in
revenues per year, either singularly or in the aggregate, shall be deemed to be
a material adverse change in the condition of Acorn.
(f) Horizon shall have received such other certificates,
opinions, and documents as it or its counsel may reasonably require in order to
consummate the transactions contemplated hereby all of which shall be in form
and substance satisfactory to Horizon and its counsel.
(g) At or prior to Closing, Acorn shall have received
(and delivered copies thereof to Horizon) duly executed resignation letters
from all directors and officers of Acorn pursuant to which such individuals
resign as directors and officers of Acorn. Each such resignation shall be
effective on or prior to the Closing Date and shall acknowledge that there are
no obligations, liabilities or amounts due from Acorn to such respective
individuals except as otherwise expressly set forth in this Agreement.
(h) On the Closing Date, Dr. Melvyn S. Goldsmith shall
have executed and delivered the Executive Services Agreement.
(i) On the Closing Date, M&B Goldsmith shall have
executed and delivered the Lease Agreement to Horizon, and M&B Partnership and
Acorn shall have terminated and canceled with no further liability of any kind,
that certain lease agreement between such parties, dated September 14, 1990,
relating to the premises subject to the Lease Agreement.
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(j) On the Closing Date, the Shareholders shall have
executed and delivered the Post-Closing Escrow Agreement and deposited the sum
of $1,000,000 with the escrow agent under the Post-Closing Escrow Agreement.
(k) At or prior to the Closing, the Shareholders shall
have performed their obligations under Section 6.5 of this Agreement.
(l) At or prior to the Closing, Acorn shall have obtained
the release of its guaranty of any and all indebtedness of the Shareholders or
any other third party, including, without limitation, its guaranty of the real
estate mortgage loan on the Premises subject to the Lease Agreement.
ARTICLE VI
CLOSING
6.1 Closing. Subject to the provisions of Article V and
Article VIII hereof, on October 31, 1997 or, if later, within five business
days after all the conditions to the obligations of the parties hereunder have
been satisfied or waived or will at such Closing be satisfied or waived (the
date and time of Closing is herein referred to as the "Closing Date"), the
Shareholders and Horizon will conduct a closing (the "Closing") at such
location as the parties may mutually agree.
6.2 Actions by the Shareholders. At the Closing:
(a) The Shares. The Shareholders shall deliver
to Horizon the original certificates representing the Shares
duly endorsed for transfer or with appropriate stock powers
with respect thereto duly endorsed in blank by the
Shareholders.
(b) Executive Services Agreement. Dr. Melvyn S.
Goldsmith shall execute and deliver to Horizon the Executive
Services Agreement.
(c) Lease Agreement. M&B Goldsmith, a
Pennsylvania general partnership of which Dr. Melvyn S.
Goldsmith is a general partner, shall execute and deliver to
Horizon the Lease Agreement.
(d) Post-Closing Escrow Agreement. The
Shareholders shall execute and deliver the Post-Closing
Escrow Agreement and the Shareholders shall deposit the sum of
$1,000,000 out of the Purchase Price paid to the Shareholders
at the Closing with the escrow agent under the Post-Closing
Escrow Agreement.
6.3 Actions by Horizon. At the Closing, Horizon shall:
(a) Executive Services Agreement. Execute and
deliver to Dr. Melvyn S. Goldsmith the Executive Services
Agreement.
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(b) Lease Agreement. Execute and deliver to M&B
Goldsmith the Lease Agreement.
(c) Post-Closing Escrow Agreement. Execute and
deliver to the Shareholders the Post- Closing Escrow
Agreement.
6.4 Post-Closing Escrow. The Shareholders expressly
agree that, at the Closing, the sum of One Million Dollars ($1,000,000) shall
be retained out of the Purchase Price paid to the Shareholders and such
$1,000,000 shall be deposited in an escrow account to be maintained pursuant to
the Post-Closing Escrow Agreement. The funds in the escrow account shall be
used solely for the satisfaction of the liabilities of the Shareholders as
specified under Article VII of this Agreement.
6.5 Section 338(h)(10) Election.
(a) At the Closing, the Shareholders, Acorn and
Horizon shall join in executing irrevocable elections under
Section 338(h)(10) of the Code (the "Elections") with respect
to the acquisition of all the outstanding capital stock of
Acorn by Horizon and, if permissible, similar Elections under
any applicable state or local income tax laws. The
Shareholders, Acorn and Horizon shall report the transaction
consistent with such Elections under Section 338(h)(10) of the
Code or any similar state or local tax provision and agree not
to take any action that could cause such Elections to be
invalid, and shall take no position contrary thereto. To the
extent possible, the Shareholders, Acorn and Horizon shall
execute as of the Closing Date any and all forms necessary to
effectuate the Elections (including, without limitation,
Internal Revenue Service Form 8023 and any similar forms under
applicable state and local income tax laws (the "Section 338
Forms")). To the extent, however, that any Section 338 Forms
are not executed by the Closing Date, the Shareholders, Acorn
and Horizon shall prepare and complete each such Section 338
Form no later than 15 days prior to the date such Section 338
Form is required to be filed. The Shareholders, Acorn and
Horizon each agree to cause the Section 338 Forms to be duly
executed by an authorized person for such entity and each
shall duly and timely file the Section 338 Forms in accordance
with applicable tax laws and the terms of this Agreement.
(b) The allocation of purchase price among the
assets of Acorn shall be made in accordance with Code Section
338 and 1060 and any comparable provisions of state, local or
foreign law, as appropriate. Schedule 6.5 hereto sets forth
the Purchase Price Allocation Agreement as agreed between the
Shareholders and Horizon. The Shareholders shall deliver to
Horizon at Closing, a fully completed Internal Revenue Service
Form 8023-A, executed by the Shareholders, and including all
additional data and materials required to be attached to such
Form 8023-A pursuant to Treas. Regs. Sections 1.338. The
Shareholders shall report, act, file in all respects and for
all purposes consistent with such purchase price allocation
and shall file all Returns consistently with the Section 338
purchase price allocation. The Shareholders shall cause a
copy of such Form 8023-A to be attached to the final
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Federal income tax return of Acorn as an S Corporation on Form
1120S. The Shareholders acknowledge that, by virtue of the
Elections, Acorn shall recognize gain or loss with respect to
the transaction as if it sold all of its assets in the
transaction and such "sale" shall have occurred in the tax
period covered by the final tax return of the Company as an S
Corporation. The Shareholders shall be responsible for and
shall pay any income, franchise or similar Taxes arising as a
result of the Elections.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY
POST-CLOSING AGREEMENTS
7.1 Representations and Warranties to Survive. All
statements contained in any agreement, certificate, instrument, schedule, or
document delivered by or on behalf of any of the parties pursuant to this
Agreement and the transactions contemplated hereby shall be deemed
representations and warranties by the delivering party hereunder. All
representations and warranties made by the parties in this Agreement shall be
true at the Closing and shall survive the consummation of this Agreement and
the Closing hereunder for a period of one year, ending at midnight on the first
anniversary of the Closing Date; provided, however, that with respect to the
indemnity of the Shareholders under Section 7.2(a)(ii) of this Agreement, such
indemnification obligation shall survive for a period of six years, ending at
midnight on the sixth anniversary of the Closing Date; and provided further,
however, if, prior to the expiration of such one or six year period, as
applicable, a state of facts shall have become known which threatens to give
rise to a liability against which any party hereto would be entitled to
indemnification hereunder and the indemnified party shall have given notice of
such facts to the indemnifying party, then the rights of the indemnified party
to indemnification with respect to such liability shall continue until such
liability shall have been finally determined and disposed of (including
disposition by the expiration of the applicable statute of limitations with
respect to such liability); and provided further, however, that if a claim for
indemnification is made pursuant to this Article VII, then such claim for
indemnification or any claim arising out of the wrongful failure to comply with
the provisions of this Article VII shall survive until the expiration of the
applicable period of limitations with respect to such claim for
indemnification. With respect to the representations and warranties of the
parties, nothing contained herein shall be deemed to require or imply that the
accuracy of such representations and warranties shall apply on a continuing
basis as to facts existing after the date of the Closing. No investigation or
examination made by any party hereto shall constitute a waiver of any
representation or warranty and no representation or warranty shall be merged
into the Closing hereunder.
7.2 Indemnity. Subject to the limitations set forth in
Section 7.4 below,
(a) Shareholders.
(i) The Shareholders, jointly and
severally, shall indemnify and hold harmless Acorn,
Horizon and the subsidiaries, shareholders, partners,
directors, officers, employees and agents of Acorn
and Horizon, from, against, and in respect of, any
loss, liability, claim, demand, or expense, including
but
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not limited to reasonable attorney, investigation and
consultant fees and costs, of any other kind
whatsoever arising out of or resulting from any of
the following:
(1) Any misrepresentation, breach
of warranty, or failure to fulfill any
agreement or covenant of any of the
Shareholders and Acorn under this Agreement
or under any other agreement or document
delivered by the Shareholders at Closing
hereunder; and
(2) Any fines or penalties,
including interest thereon, arising out of or
resulting from the failure of Acorn to be
qualified as a foreign corporation authorized
to do business in a jurisdiction other than
the Commonwealth of Pennsylvania or the
failure of Acorn to have a license,
certificate of authority, permit or other
governmental authorization necessary or
required for the conduct of the business
operations of Acorn in any jurisdiction other
than the commonwealth of Pennsylvania;
provided, however, that such indemnity shall
only apply to the extent that such fines or
penalties relate to any such failure in a
period on or prior to the Closing Date; and
(3) Any and all actions, suits,
proceedings, demands, assessments, judgments,
costs and legal and other expenses incident
to any of the foregoing.
Horizon shall use reasonable efforts to keep
the Shareholders advised as to the status of any
matters which may give rise to a liability of the
Shareholders under Section 7.2(a)(2) above and shall
promptly furnish to the Shareholders copies of any
inquiries or information requests with respect to any
such matters. Horizon shall use all reasonable
efforts to minimize any potential exposure of Acorn
with respect to such matters.
(ii) From and after the Closing Date, the
Shareholders shall protect, defend, indemnify and
hold harmless Horizon and Acorn from any and all
Taxes (whether federal, state or local) imposed on
Acorn in respect of its income, business, property or
operations or for which Acorn may otherwise be liable
(1) for any taxable period ending on or prior to the
Closing Date, (2) in respect of any period after the
Closing Date, attributable to events, transactions,
sales, deposits, services or rentals occurring,
received or performed in a period on or prior to the
Closing Date, (C) in respect of any period after the
Closing Date, attributable to any change in
accounting method employed by Acorn during any of its
four previous taxable years, (4) in respect of any
period after the Closing Date, attributable to any
items of income or gain of a partnership reporting
Acorn as a partner, to the extent such items are
properly attributable to periods of the partnership
ending on or before the Closing Date, (5)
attributable to any discharge of indebtedness that
may result from any capital contributions by the
Shareholders to Acorn of any
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intercompany indebtedness owed by Acorn to the
Shareholders, and (6) resulting from the making of a
Code Section 338 election (or analogous provision of
state, local or territorial law); provided, however,
that the Shareholders' liability under the foregoing
provisions of this paragraph shall be reduced as to
any item to the extent that such item was
specifically and fully reserved for in the Acorn
Balance Sheet.
Horizon shall use reasonable efforts to keep
the Shareholders advised as to the status of Tax
audits and litigation involving any Taxes which could
give rise to a liability of the Shareholders to
Horizon under this Agreement (a "Tax Liability
Issue"). Horizon shall promptly furnish to the
Shareholders copies of any inquiries or requests for
information from any Taxing Authority concerning any
Tax Liability Issue. Horizon shall notify the
Shareholders as to which inquiries or information
requests it desires to monitor and, with respect to
such matters, the Shareholders will submit for
Horizon approval (which shall not be unreasonably
withheld) the information to be provided to a Taxing
Authority in response to inquiries or requests. The
Shareholders agree to timely notify Horizon regarding
any proposed written communication (i.e.,
communications not relating to inquiries or requests
for information) by the Shareholders to any such
Taxing Authority with respect to such Tax Liability
Issue and Horizon shall subsequently notify the
Shareholders as to which Tax Liability Issues Horizon
desires to monitor. Upon request by Horizon, the
Shareholders shall provide copies of such written
communications and documents to be submitted
therewith and receive approval from Horizon (which
approval shall not be unreasonably withheld and shall
be given on a timely basis) prior to submission to
the Taxing Authority. Horizon shall have the right
to consult with the Shareholders regarding any
response to such requests. Horizon and the
Shareholders, as the case may be, shall each promptly
furnish to the other upon receipt a copy of
information or document requests, a notice of
proposed adjustment, revenue agent's report or
similar report or notice of deficiency together with
all relevant documents and memos related to the
foregoing documents, notices or reports, relating to
any Tax Liability Issue.
Subject to the foregoing cooperation
provisions, Horizon shall have full responsibility
for and discretion in handling any Tax controversy
concerning Acorn, including, without limitation, an
audit, a protest to the Appeals Division of the IRS,
and litigation in Tax Court or any other court of
competent jurisdiction involving Acorn.
(b) Horizon. Horizon shall indemnify and hold
harmless the Shareholders from, against, and in respect of,
any loss, liability, claim, demand, or expense, including but
not limited to reasonable attorney, investigation and
consultant fees and costs, of any kind whatsoever, arising out
of or resulting from any of the following:
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(i) Any misrepresentations, breach of
warranty, or failure to fulfill any agreement or
covenant of Horizon under this Agreement or under any
other agreement or document delivered by Horizon to
the Shareholders at Closing hereunder; and
(ii) Any and all actions, suits,
proceedings, demands, assessments, judgments, costs,
and legal and other expenses incident to any of the
foregoing.
7.3 Indemnity Procedures.
(a) Third Party Claims. In case any claim,
demand or action shall be brought by any third party
including, without limitation, any governmental authority,
against a party entitled to indemnity under Section 7.2(a) or
7.2(b) above, such party shall promptly notify the other party
or parties, as the case may be, from whom indemnity is or may
be sought in writing and the indemnifying party or parties
shall assume the defense thereof, including the employment of
counsel. In addition, in case a party hereto shall become
aware of any facts which might result in any such claim,
demand or action, such party shall promptly notify the other
party or parties who would be obligated to provide indemnity
hereunder with respect to such claim, demand or action, and
such other party or parties shall have the right to take such
action as it or they may deem appropriate to resolve such
matter. The indemnified party or parties shall have the right
to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such indemnified
party or parties, unless the employment of such counsel has
been specifically authorized by the indemnifying party or
parties. Any settlement of any action subject to indemnity
hereunder shall require the consent of the indemnified and the
indemnifying party which consent shall not be unreasonably
withheld and shall be given within five (5) days following the
giving of notice thereof. The indemnifying party or parties
shall not be liable for any settlement of any action effected
without its or their consent, but if settled with the consent
of the indemnifying party or parties or if there be a final
judgment for the plaintiff in any such action, the
indemnifying party or parties shall indemnify and hold
harmless the indemnified party from and against any loss or
liability by reason of such settlement or judgment. If
requested by the indemnifying party, the indemnified party
shall cooperate with the indemnifying party and its counsel
and use its best efforts in contesting any such claim or, if
appropriate, in making any counter-claim or cross-complaint
against the party asserting the claim, provided that the
indemnifying party will reimburse the indemnified party for
reasonable expenses incurred in so cooperating upon
presentation of receipts or other evidence of such expense.
The indemnifying party and its representatives shall have full
and complete access during reasonable hours to all books,
records and files of the indemnified party expressly related
to the defense of any claim for indemnification undertaken by
the indemnifying party pursuant to this Article VII, or for
any other purpose in connection therewith; provided that the
indemnifying party shall safeguard and maintain the
confidentiality of all such books, records and files.
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(b) Other Claims. With respect to any other
claim as to which a party shall seek indemnity from the other
party, such party shall promptly notify the other party from
whom indemnity is or may be sought in writing of the claim.
The notice of claim (i) shall state in reasonable detail the
nature of the alleged liability (ii) shall state the amount of
the loss that the party claims it is entitled to be
indemnified including, if appropriate, the estimate of the
potential loss, and (iii) shall further provide a particular
statement explaining the basis of the claim and of the amount
or estimate of the loss. The indemnifying party shall have
the right to take such action as it may deem appropriate to
resolve such matter; provided, however, that the indemnified
party shall have the right to participate in such matter. In
the event that the parties are ultimately unable to resolve in
good faith the claim or the amount of the loss, then the
parties will arbitrate the claim. Either party may initiate
arbitration by giving written notice to the other party of an
intention to arbitrate and by filing with the regional office
of the American Arbitration Association located in
Philadelphia, Pennsylvania, three copies of such notice and
three copies of this Agreement together with the appropriate
filing fee. Such notice shall contain a statement setting
forth the nature of the dispute and the remedies sought. The
arbitration shall be conducted before a single arbitrator
selected by the parties from the panel of arbitrators
submitted to the parties by the American Arbitration
Association. The arbitration shall be conducted in
Philadelphia, Pennsylvania in accordance with the rules of the
American Arbitration Association in effect at the time the
notice to arbitrate is served. The arbitrators decision will
be final and binding on the parties. The arbitrator may grant
a legal and/or equitable relief to which a party may be
entitled under the law or legal theory under which a party
seeks relief; provided; however, that no claim may be made for
any punitive damages in respect of any theory of liability
arising out of or related to this Agreement or any act,
omission or event occurring in connection therewith unless the
claim is based on wilful or wanton misconduct. The
arbitration award shall not serve as precedent or authority in
any subsequent proceeding provided that, if the losing party
shall fail to comply with the award, the prevailing party may
apply to any court having jurisdiction for an order confirming
the award in accordance with applicable law. Unless otherwise
required by law or court order, the substance of any
arbitration proceedings shall be kept confidential by all
parties and by the arbitrator; however, the fact that such a
proceeding exists or that an award has been rendered need not
be kept confidential. The cost of the proceeding, including
the fees and costs of attorneys, accountants and witnesses and
the compensation of the arbitrator shall be assessed by the
arbitrator against the parties according to the arbitrator's
determination of fault.
7.4 Limitations on Indemnification.
(a) Maximum Liability. In no event shall the
liability of the Shareholders under this Article VII exceed
the total consideration received by the Shareholders for the
Shares.
(b) Initial Threshold. Neither the Shareholders
nor Horizon shall be obligated to indemnify the other party
except to the extent that the cumulative amount
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of all indemnifiable losses exceeds Thirty-Five Thousand
Dollars ($35,000.00) (the "Threshold"), which excess amount
shall be recoverable in accordance with the terms hereof.
(c) Time Limits for Claims. No claim for
indemnification may be made by any indemnified party in
respect of indemnifiable losses unless written notice thereof
shall have been received by the indemnifying party on or prior
to one year after the date hereof (or six years after the date
hereof with respect to matters subject to Section 7.2(a)(ii));
provided, however, that in each case if, prior to the
applicable date of expiration, a specific state of facts shall
have become known which is reasonably likely to constitute or
give rise to any indemnifiable loss as to which indemnity may
be payable and the indemnified party shall have given notice
of such facts to the indemnifying party and made a claim for
indemnification within such one-year or six-year period, as
the case may be, then the right to indemnification with
respect thereto shall remain in effect until such matter shall
have been finally determined and disposed of and any
indemnification due in respect thereof shall have been paid.
7.5 Remedies; Default; Notice and Cure. If the Closing
occurs, indemnification pursuant to this Article VII is the sole and exclusive
remedy of the parties after the Closing for matters arising out of the
representations, warranties, covenants and agreements of the Shareholders and
Horizon set forth in this Agreement (without limiting the rights of the parties
under any other agreement), except as otherwise expressly provided in this
Agreement. No party shall be deemed in breach of its obligations hereunder
unless it has received written notice from the other party of noncompliance
with a term or provision of this Agreement specifying the specific item of
noncompliance and the defaulting party has failed to cure such noncompliance
within ten (10) days after receipt of such notice; provided, however, that if
the nature of such default is such that it cannot be cured solely by the
payment of money and that more than 10 days may be reasonably required to
effect a cure, then the defaulting party shall not be deemed to be in default
if such party shall commence such cure within such 10 day period and thereafter
diligently and in good faith prosecutes such cure to successful completion.
7.6 Additional Tax Matters. Horizon and the Shareholders
agree that, so long as any books, records and files retained by the
Shareholders relating to the business of Acorn, or any books, records and files
delivered to the control of Horizon relating to the operations of Acorn prior
to the Closing Date, remain in existence and available, each party (at its
expense) shall have the right upon reasonable prior notice to inspect and to
make copies of the same at any time during business hours for any proper
purpose. The Shareholders, Acorn and Horizon shall provide access to the books
and records of Acorn to each other to the extent necessary for the preparation
of the final tax return of Acorn as an S Corporation and for the purposes of
any audit, claims for refund or other proceeding relating to Taxes for any
period ending on or before the date of Closing. Horizon shall have the right
to approve the final tax return of the Company as an S Corporation. For the
purposes of such return, Acorn shall not make any elections or change its
method of accounting for any items for income tax purposes without the prior
approval of Horizon. No claim for refund or amended return shall
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<PAGE> 37
be filed by Acorn for a period ending on or prior to the date of Closing
without the prior written approval of Horizon. The Shareholders shall be
responsible for any penalties, interest or increase in taxes applicable to
periods prior to the Closing and Acorn shall be responsible for any penalties,
interest or increase in taxes for any periods subsequent to the Closing;
including the impact of any subsequent adjustment to the allocated values for
the assets acquired; provided, however that neither Horizon nor Acorn shall
have any obligations arising out of matters which involve any misrepresentation
or breach of warranty by the Shareholders in this Agreement. The Shareholders
agree that they will cooperate with Horizon and Acorn and their respective
representatives, in a prompt and timely manner, in connection with the
preparation and filing of, and any administrative or judicial proceedings
involving, any tax or information return filed or required to be filed by or
for Acorn or Horizon.
7.7 Adjustment to Purchase Price. Horizon and the Shareholders agree
that, on or before thirty (30) days after the Closing Date, Horizon shall cause
Acorn to prepare and submit to the Shareholders an unaudited balance sheet of
Acorn as of the Closing Date prepared after and to take into account the bonuses
and the distribution paid pursuant to Section 4.10 of this Agreement. Such
unaudited balance sheet shall be prepared in a manner consistent with GAAP on an
accrual basis. The Shareholders shall have the right to review and examine the
books and records of Acorn for the purposes of verifying such unaudited balance
sheet for a period of twenty (20) days after receipt of such unaudited balance
sheet. To the extent that (a) the sum of the amounts of "Cash," "Cash
Equivalents," and "Accounts Receivable" as reflected on such unaudited balance
sheet exceeds (b) the sum of the amounts of "Accounts Payable" and "Accrued
Expenses" as reflected on such unaudited balance sheet by more than $50,000,
then Horizon shall and hereby promises to pay the Shareholders the amount of
such excess as an adjustment to the Purchase Price; provided, however, that such
payment shall be limited in amount to the amount of Cash and Cash Equivalents
held by Acorn on October 31, 1997 and in no event shall Horizon be obligated to
make a payment to the Shareholders under this sentence in excess of the total
amount of Cash and Cash Equivalents held on such date. For the purposes of the
Section 7.7, Cash and Cash Equivalents held by Acorn on October 31, 1997 for the
purposes of paying employer taxes on the bonuses paid pursuant to Section 4.10,
if not already paid on such date, shall be excluded from such calculation and
shall not be considered to be held by Acorn on such date; provided, however,
that, in such event, such tax liability shall also not be considered a liability
of Acorn for the purposes of such calculation. To the extent that the
calculation set forth in the preceding sentence results in an amount less than
$50,000, then the Shareholders shall refund and hereby promises to pay to
Horizon an amount equal to such deficiency as an adjustment to the Purchase
Price. Such payment by Horizon or the Shareholders, as the case may be, shall
be made within three (3) business days after the earlier of the date the
Shareholders notify Horizon that the unaudited balance sheet is satisfactory and
the date which is twenty (20) days after receipt of such unaudited balance sheet
by the Shareholders. For the purposes of such unaudited balance sheet, the terms
"Cash," "Cash Equivalents," "Accounts Receivable," "Accounts Payable" and
"Accrued Expenses" shall have the meaning ascribed to such terms by GAAP. It is
expressly understood that any asset included in accordance with GAAP on the
Acorn October 31, 1997, Balance Sheet relating to the "Additional Assets" listed
on Schedule 2.9 shall be considered an "Account Receivable" for the purposes of
the calculation under this Section 7.7.
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<PAGE> 38
ARTICLE VIII
TERMINATION
8.1 Termination. This Agreement may be terminated prior
to the Closing Date:
(a) by the Shareholders at any time after
December 31, 1997, if the Closing has not occurred on or
before such date; provided that neither the Shareholders nor
Acorn is in default under, or breach or violation of, any
material covenant, agreement, representation or warranty made
by it in this Agreement;
(b) by Horizon at any time after December 31,
1997, if the Closing has not occurred on or before such date;
provided that Horizon is not in default under, or breach or
violation of, any material covenant, agreement, representation
or warranty made by it in this Agreement;
(c) by the Shareholders or Horizon at any time if
an order is entered by any court or governmental agency having
jurisdiction enjoining Horizon or the Shareholders,
respectively, from consummating the transaction contemplated
by this Agreement and such order shall not have been vacated,
reversed or withdrawn on or before the earlier of (i) the
sixtieth day after the date on which such order was first
issued or (ii) December 31, 1997;
(d) by the Shareholders or Horizon if (i) any
material representation or warranty of the other hereunder
shall not have been true and correct as of the time at which
made, or (ii) material default shall be made by the other
hereunder in the due and timely observance or performance of
any of its covenants and agreements herein contained, in
either event only if such representation or warranty cannot be
made true and correct or such default cannot be cured on or
prior to the earlier of (1) the 15th day after the
non-defaulting or non-breaching party notifies the other in
writing of such default or breach, specifying the nature
thereof, or (2) December 31, 1997. The Shareholders and Acorn
shall be considered a single party for purposes of this
Section 8.1(d).
In the event of the termination of this Agreement by
the Shareholders pursuant to Section 8.1(a) or (d) above or by
Horizon pursuant to Sections 8.1(b) or (d) above and such
termination is a result of the other party having engaged in a
willful failure to perform any of its or their obligations
under this Agreement or a willful and material misstatement of
any representation or warranty contained in this Agreement,
then the Shareholders or Horizon, as the case may be, shall be
entitled to recover from the other party the full amount of
all costs and expenses, including without limitation attorneys
and accountants fees and expenses, incurred in connection with
this Agreement and the transaction contemplated by this
Agreement as damages in addition to any and all other relief
and remedies to which such party may be entitled.
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<PAGE> 39
ARTICLE IX
MISCELLANEOUS
9.1 Entire Agreement. This Agreement, together with the Exhibits
and Schedules hereto and the documents referred to herein, constitute the
entire and complete agreement among the parties, and supersedes all prior
arrangements or understandings, whether written or oral, with respect to the
subject matter of this Agreement.
9.2 Waiver and Amendment. Any term or provision of this Agreement
may be waived in writing at any time by the party which is entitled to the
benefits thereof, and any term or provision of this Agreement may be amended or
supplemented at any time by a writing signed by the parties.
9.3 Schedules. References to a Schedule shall include any
applicable disclosure expressly set forth on the face of any other Schedule
even if not specifically cross-referenced to such other Schedule; provided,
however, that the representations and warranties of a party set forth in this
Agreement shall not be affected or deemed modified, waived or limited in any
respect by the information contained in any agreement or document listed or
referenced in the Schedules unless the reference on the face of the Schedule
expressly by its terms indicates that it limits the scope of a representation
or warranty. Horizon acknowledges that certain agreements and documents listed
on the Schedules are not attached to the Schedules, but were previously
delivered or made available to Horizon by the Shareholders in connection with
the due diligence investigation conducted by Horizon prior to the Closing. The
Shareholders represent and warrant to Horizon that such agreements and
documents listed on the Schedules which were made available or delivered to
Horizon were originals or true and complete copies of the originals of all such
agreements and documents. The Schedules delivered pursuant to this Agreement
shall not be attached hereto but shall be delivered separately accompanied by a
certificate executed by the Shareholders to the effect that such constitutes
the Schedules to this Agreement and constitute a part hereof.
9.4 Descriptive Headings. Descriptive headings contained in this
Agreement are for convenience of reference only and shall not control or affect
the meaning or construction of any provision of this Agreement.
9.5 Defined Terms. As used in this Agreement, capitalized terms
shall have the meanings expressly set forth herein for such terms, and variants
and derivatives of such defined terms shall have correlative meanings. To the
extent that certain of the defined terms set forth herein express agreements
between or among parties to this Agreement, the parties agree to the same by
execution of this Agreement.
9.6 Notices. Any notices, claims or demands which any party is
required or may desire to give to another under or in conjunction with this
Agreement shall be in writing, and shall be given by addressing the same to
such other party(ies) at the address set forth below, and by (i) depositing the
same so addressed, postage prepaid, first class, certified or registered, in
the United States mail (herein referred to as "Mailing"), (ii) overnight
delivery by a nationally recognized overnight courier service (e.g. UPS,
Federal Express), (iii) delivering the same personally to such other
party(ies), or (iv) transmitting by facsimile and Mailing the original. Any
notice shall be deemed to have been given five (5) U.S. Post Office delivery
days following the date of Mailing; one business day after timely
35
<PAGE> 40
delivery to an overnight courier; if by personal delivery, upon such delivery;
or if by facsimile, the day of transmission if made within customary business
hours, or if not transmitted within customary business hours, the following
business day.
If to Horizon:
Horizon Health Corporation
1500 Waters Ridge Drive
Lewisville, Texas 75057-6011
Attention: James W. McAtee, Executive Vice President
Facsimile Number: (972) 420-8282
With a copy to:
Strasburger & Price, L.L.P.
901 Main Street, Suite 4300
Dallas, Texas 75202
Attention: David K. Meyercord, Esq.
Facsimile Number: (214) 651-4330
If to the Shareholders or Acorn:
Acorn Behavioral HealthCare Management Corporation
134 N. Narberth Avenue
Narberth, PA 19072-2299
Attention: Dr. Mervyn S. Goldsmith, Ph.D.
Facsimile Number: (610) 664-8373
With a copy to:
Fox, Rothschild, O'Brien & Frankel
10th Floor
2000 Market Street
Philadelphia, PA 19103-3291
Attention: Theodore A. Young, Esq.
Facsimile Number: (215) 299-2150
Any party may change the address or facsimile telephone number for notices to
be sent to it by written notice delivered pursuant to the terms of this Section
9.6.
9.7 Expenses. If the transactions provided for herein are
consummated, each party to this Agreement will pay its respective expenses
incurred in connection with the preparation and performance of this Agreement.
Acorn shall not pay any fees and expenses for the Shareholders.
9.8 Invalid Provisions. If any provision of this Agreement is
deemed or held to be illegal, invalid, or unenforceable, this Agreement shall
be considered divisible and inoperative as to such
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<PAGE> 41
provision to the extent it is deemed to be illegal, invalid or unenforceable,
and in all other respects this Agreement shall remain in full force and effect;
provided, however, that if any provision of this Agreement is deemed or held to
be illegal, invalid or unenforceable there shall be added hereto automatically
a provision as similar as possible to such illegal, invalid or unenforceable
provision and be legal, valid and enforceable. Further, should any provision
contained in this Agreement ever be reformed or rewritten by any judicial body
of competent jurisdiction, such provision as so reformed or rewritten shall be
binding upon all parties hereto.
9.9 Attorney's Fees and Costs. In the event of a breach by any
party to this Agreement and commencement of a subsequent legal action in a
court of law or forum of arbitration, the prevailing party in any such dispute
shall be entitled to reimbursement of reasonable attorney's fees and court
costs, including, but not limited to, the costs of expert witnesses,
transportation, lodging and meal costs of the parties and witnesses, costs of
transcript preparation and other reasonable and necessary direct and incidental
costs of such dispute.
9.10 Assignment. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, successors and
assigns, but shall not be assigned by any party without the prior written
consent of the other parties hereto.
9.11 Choice of Law. This Agreement is being executed and
delivered, and is intended to be performed, in the State of Pennsylvania, and
the laws of such state and of the United States of America shall govern the
rights, duties and obligations of the parties and the validity, construction,
enforcement, and interpretation of this Agreement.
9.12 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(Remainder of Page Intentionally Left Blank)
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IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement as of the day and year first written above.
HORIZON HEALTH CORPORATION THE SHAREHOLDERS:
By: /s/ JAMES W. McATEE /s/ MEL S. GOLDSMITH
-------------------------------- --------------------------------------
Name: James W. McAtee Dr. Melvyn S. Goldsmith, Ph.D.
Title: Executive Vice President
/s/ BARBARA C. GOLDSMITH
--------------------------------------
Barbara C. Goldsmith
ACORN BEHAVIORAL HEALTHCARE MANAGEMENT
CORPORATION
By: /s/ MEL S. GOLDSMITH
-----------------------------------
Name: Dr. Melvyn S. Goldsmith, Ph. D.
Title: President
38
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EXHIBIT A
EXECUTIVE SERVICES AGREEMENT
THIS EXECUTIVE SERVICES AGREEMENT (the "Agreement") is effective this
1st day of November, 1997, between Acorn Behavioral Healthcare Management
Corporation, a Pennsylvania corporation (the "Acorn"), and Dr. Melvyn S.
Goldsmith, Ph.D., an individual ("Executive").
PREMISES:
A. Acorn is in the business of providing employee assistance
programs and managed mental health care services throughout the United States.
B. Pursuant to a Stock Purchase Agreement, dated October 20,
1997, Horizon Health Corporation, a Delaware corporation ("Horizon"), acquired
one hundred percent (100%) of the outstanding capital stock of Acorn from its
stockholders.
C. Executive is a party to the Stock Purchase Agreement and sold
all of his stock ownership interest in Acorn to Horizon pursuant to the Stock
Purchase Agreement and also is the former president of Acorn.
D. Acorn and Executive have agreed to enter into this Agreement
pursuant to the terms and conditions outlined below as a part of the
transactions contemplated by the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the promises herein contained and
other good and valuable consideration, the receipt and legal sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
ARTICLE I.
EXECUTIVE SERVICES; TERM AND TERMINATION
1.1 Employment. Acorn hereby employs Executive, and Executive hereby
accepts employment with Acorn, upon the terms and conditions set forth herein.
The term of employment hereunder (the "Employment Term") shall commence on the
date hereof and shall continue for a period of three (3) months, up to and
including January 31, 1998, unless sooner terminated as provided in this
Agreement.
1.2 Consulting Services. Effective February 1, 1998 upon the
expiration of the Employment Term, Acorn hereby retains Executive for, and
Executive hereby agrees to provide to Acorn, his services as a consultant (and
not as an employee) providing independent consulting services with respect to
such business matters of Acorn as may be reasonably requested by Acorn from
time to time. Executive shall be retained by Acorn as a consultant for an
twenty-one (21)
<PAGE> 44
month period commencing upon the date of expiration of the Employment Term and
continuing until the second (2nd) annual anniversary date of this Agreement,
subject to earlier termination as provided in this Agreement (the "Consulting
Term").
1.3 Termination. This Agreement may be terminated at any time upon
the mutual agreement of the parties. Either party may terminate this Agreement
upon not less than thirty (30) days prior written notice to the other party. In
the event that Acorn terminates this Agreement for any reason other than for
cause, then Acorn shall pay to Executive the full amount of the remaining fees
due under this Agreement. Such fees shall be payable in the same monthly
installments as would have been payable if this Agreement had not been
terminated. However, Acorn shall have no other obligations to Executive under
this Agreement in such event including, without limitation, any obligation to
permit participation by Executive in the medical and disability plans of Acorn,
except as required by law. For the purposes of this Agreement, "cause" shall
mean (i) conviction of a felony, (ii) an intentional or willful breach of or
default under this Agreement by Executive, (iii) the willful failure by
Executive to provide the services contemplated by this Agreement, or (iv) any
act of dishonesty to or fraud on Acorn; provided, however, that the items
listed under subparagraphs (ii) and (iii) above shall only constitute "cause"
for termination if such event continues for more than fifteen (15) days after
written notice to Executive describing in reasonable detail the default under
this Agreement. Any termination of this Agreement for cause by Acorn during the
Employment Term shall also be deemed a termination for cause of the Consulting
Term.
ARTICLE II.
COMPENSATION AND BENEFITS
2.1 Compensation.
(a) Employment Compensation. During the Employment Term,
Executive shall be paid semi-monthly compensation of Eight Thousand Three
Hundred Thirty-Three and 33/100 Dollars ($8,333.33), payable in accordance with
the regular payroll schedule of Acorn. All such payments are subject to
applicable withholding and other taxes.
(b) Consulting Compensation. During the Consulting Term of
this Agreement, Executive shall be paid monthly compensation of Eight Thousand
Three Hundred Thirty-Three and 33/100 Dollars ($8,333.33), payable on the 1st
day of each month during the Consulting Term.
2.2 Reimbursement of Expenses. In addition to the foregoing, Acorn
shall reimburse Executive on a monthly basis for his reasonable expenses,
including travel expenses, necessarily incurred in rendering his services under
this Agreement and approved in advance by Acorn. Executive shall submit to
Acorn such information and documentation relating to expenditures for which
reimbursement is sought as Acorn may reasonably request. Acorn shall make such
reimbursement within thirty (30) days of each such monthly submission by
Executive.
2.3 Fringe Benefits. Except as otherwise limited herein, during
the Employment Term Executive may participate in all employee benefit plans of
Acorn, so long as Executive is otherwise
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<PAGE> 45
eligible to participate pursuant to the terms of any such benefit plan and
desires to be covered and so participate. Executive understands and agrees that
the employee benefit plans of Acorn are subject to modification and termination
from time-to-time and at any time by Acorn in its sole discretion.
ARTICLE III.
DUTIES AND RESPONSIBILITIES
3.1 Executive Duties. During the Employment Term, Executive shall
provide services to assist in matters relating to the transition resulting from
the change of ownership of Acorn pursuant to the Stock Purchase Agreement
subject to such limitations, directives and other instructions, including
without limitation, specific guidelines as to authority, as may be specified by
the Board of Directors of Acorn from time to time. Such services shall be
performed primarily at the offices of Acorn within the State of Pennsylvania.
Executive acknowledges that certain rules and regulations must be established
and maintained by Acorn from time to time for the efficient provision of
quality mental health services. Executive therefore agrees that:
(a) Executive shall comply with all resolutions, directives,
rules and regulations as may be established and modified by Acorn from time to
time pertaining to the business of Acorn. Acorn shall have the sole authority
to negotiate and accept any and all contracts with providers, employers,
insurance companies, health maintenance organizations, and other third-party
payors.
(b) Executive shall adhere faithfully to all professional
ethics and customs, shall avoid all acts, habits and usages which might injure
in any way, directly or indirectly, the professional reputation of Acorn or any
of the other employees of Acorn, and shall follow and abide by all federal,
state and municipal ordinances and laws relating to or regulating the business
operations of Acorn.
3.2 Exclusive Services. Unless prior written approval of Acorn is
obtained, during the Employment Term, Executive shall devote such working time
and attention to Acorn as may be reasonably requested from time to time in
connection with facilitating matters relating to the change of control of
ownership of Acorn; provided, however, that the Executive shall be entitled to
take one (1) week of vacation in November and two (2) weeks of vacation in
December. During the Consulting Term, the Executive shall provide his services
to Acorn as and when the same are reasonably requested from time to time;
provided, however, that the Executive shall not be required to devote more than
an average of two (2) days per calendar month of his working time and attention
to the rendering of such consulting services to Acorn.
3.3 Relationship of Parties Following Employment. Upon commencement
of the Consulting Term, Executive shall render his services to Acorn in the
capacity of an independent contractor and he shall not be deemed or considered
to be an employee, partner or joint venturer of Acorn in any respect. Executive
acknowledges that as an independent contractor Executive is responsible for
reporting any payments made to Executive by Acorn on Executive's income tax
return and that Acorn will be supplying both Executive and the Internal Revenue
Service with a Form 1099 covering payments made under this Agreement. Executive
agrees to indemnify and
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<PAGE> 46
hold Acorn harmless from any and all claims, damages, fines, penalties and
expenses, including attorney fees, arising out of or resulting from the failure
of Executive for any reason whatsoever to report such payments for income tax
purposes to the extent required by law.
ARTICLE IV.
CONFIDENTIALITY AND NON-COMPETITION
4.1 Confidentiality. Executive acknowledges that, in connection with
his former ownership of Acorn and in rendering his services under this
Agreement, he has had and shall have access to and contact with the trade
secrets and confidential and proprietary business information of Acorn. Both
during the term of this Agreement and thereafter, Executive covenants and
agrees as follows:
(a) that he shall use his best efforts and exercise
utmost diligence to protect and safeguard the trade secrets and confidential
and proprietary information of Acorn;
(b) that he shall not disclose any of such trade secrets and
confidential and proprietary information, except as may be required in the
course of performing his services under this Agreement; and
(c) that he shall not use, directly or indirectly, for his
own benefit or for the benefit of another, any of such trade secrets and
confidential and proprietary information.
All files, records, documents, memoranda, notes or other documents
relating to the business of Acorn, whether prepared by Executive or otherwise
coming into its possession in the course of the performance of his services
under this Agreement, shall be the exclusive property of Acorn and shall be
delivered to Acorn and not retained by Executive upon termination of this
Agreement for any reason whatsoever.
It is expressly understood, however, that the foregoing shall not
apply to any information that was generally available to the public on a
non-confidential basis prior to the date of this Agreement or was or becomes
generally available to the public on a non-confidential basis from a third
party who is not bound to keep such information confidential.
4.2 Non-Competition. Executive covenants and agrees that he shall
not, directly or indirectly, as an employee, employer, consultant, creditor,
investor, owner, agent, principal, partner, shareholder, member, corporate
officer, director, manager or through any other kind of ownership (other than
of securities of any publicly held entity in which Executive, directly or
indirectly, owns less than one percent (1%) of any class of outstanding
securities) or in any other representative or individual capacity, do any of
the following:
(a) during the Employment Term and the Consulting Term and
for a period until the expiration of five (5) years after the earlier of the
expiration of the Consulting Term or the termination date of this Agreement for
any reason whatsoever, compete with Acorn in the continental United States (the
"Territory"). To compete with Acorn means either individually or
4
<PAGE> 47
in cooperation with any person or business, directly or indirectly or in any
capacity whatsoever to engage in (i) the marketing or operation of mental
health programs in the Territory, (ii) the marketing or operation of employee
assistance programs or services in the Territory, or (iii) the offering of
employee assistance or mental health care services or programs to employers,
insurance companies, health maintenance organizations, or other third party
payors in the Territory;
(b) during the Employment Term and the Consulting Term and
for a period until the expiration of five (5) years after the earlier of the
expiration of the Consulting Term or termination of this Agreement for any
reason whatsoever, engage in any business which calls upon, solicits, diverts
or takes away any customer or customers of Acorn in the Territory for the
purpose of selling or attempting to sell to any of said customers any products
or services similar to any products or services sold or provided to any of such
customers by Acorn; and
(c) during the Employment Term and the Consulting Term and
for a period until the expiration of five (5) years after the earlier of the
expiration of the Consulting Term or termination date of this Agreement, for
any reason whatsoever, engage in any business which solicits any present or
future employee of Acorn or initiates discussions with any such employee
regarding his or her termination or resignation from employment with Acorn, so
that such employee may accept employment with, or engagement as a partner,
investor, shareholder, employee, agent or consultant with Executive, directly
or indirectly, as specified above.
4.3 Consideration for Restrictive Covenants. Acorn hereby agrees to
pay Executive, during the five year term of Executive's covenants in Section
4.2 above, after the expiration of the Consulting Term or, if earlier, the
termination date of this Agreement for any reason, monthly payments of One
Hundred and No/100 Dollars ($100.00), payable on the 1st day of each month
during such term.
4.4 Remedies. If Executive has failed to satisfactorily cure any
breach or threatened breach of any covenant or agreement contained in Section
4.1 or 4.2 hereof within ten (10) days after written notice of such breach or
threatened breach given by Acorn to Executive, any one or more of the following
remedies, as selected by Acorn in its sole discretion, shall be available to
Acorn in the event of a breach of this Agreement by Executive hereunder:
(a) In the event of a breach or threatened breach of any
covenant or agreement of Executive contained in this Article IV, Executive
acknowledges that it would cause irreparable harm to Acorn and that remedies at
law will not adequately compensate Acorn for its injuries incurred as a result
thereof. Accordingly, injunctive and/or equitable relief shall be available to
Acorn to specifically enforce this Agreement and prevent such breach and any
continued breach of any covenant and agreement herein. Executive agrees that a
bond of no more than $5,000 in the aggregate will provide adequate protection
to Executive and therefore no more than $5,000 in bond or other security shall
be required to be posted by Acorn by any court in any proceeding to obtain such
injunctive or equitable relief. The existence of any claim or cause of action
on the part of Executive against Acorn not arising out of or resulting from a
breach or violation of this Agreement by Acorn, shall not constitute a defense
to the granting or enforcement of injunctive relief.
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<PAGE> 48
(b) In addition to the remedies stated in Section 4.4(a)
above, in the event of any breach of any covenant or agreement of Executive
herein, Acorn may sue for damages arising out of such breach and otherwise
enforce this Agreement and obtain all other remedies available to Acorn under
applicable law.
(c) In its sole discretion, Acorn shall have the right at any
time and from time to time, evidenced solely by the written approval of the
Board of Directors of Acorn, to waive all or any portion of the rights of Acorn
under the restrictive covenants contained in Section 4.2 of this Agreement as
applicable to Executive, including, without limitation, reducing the scope of
the restrictions applicable to Executive or reducing the time period or the
geographical area of the restrictive covenant applicable to Executive; provided
that as so amended by waiver such restrictive covenant shall remain fully in
effect. In order to be effective, any such waiver must be in writing, approved
by the Board of Directors of Acorn as provided above, and executed by an
authorized officer of Acorn.
(d) The provisions of this Article IV shall survive the
expiration or termination of this Agreement for any reason.
4.5 Acknowledgment of Reasonableness. Executive has carefully read
and considered the provisions of this Agreement and agrees that the
restrictions set forth herein, particularly those in this Article IV, are fair
and reasonably required for the protection of Acorn. If any provision of
Section 4.2 relating to the restrictive period, scope of activity restricted
and/or the territory described therein shall be declared by a court of
competent jurisdiction to exceed the maximum time period, scope of activity
restricted or geographical area such court deems reasonable and enforceable
under applicable law, the time period, scope of activity restricted and/or area
of restriction held reasonable and enforceable by the court shall thereafter be
the restrictive period, scope of activity restricted and/or the territory
applicable to the restrictive covenant provisions in this Agreement.
ARTICLE V.
GENERAL PROVISIONS
5.1 Notices. Any notices, claims or demands which any party is
required or may desire to give to another under or in conjunction with this
Agreement shall be in writing, and shall be given by addressing the same to
such other party(ies) at the address set forth below, and by (i) depositing the
same so addressed, postage prepaid, first class, certified or registered, in
the United States mail (herein referred to as "Mailing"), (ii) overnight
delivery by a nationally recognized overnight courier service (e.g. UPS,
Federal Express), (iii) delivery the same personally to such other party(ies),
or (iv) transmitting by facsimile and Mailing the original. Any notice shall be
deemed to have been given five (5) U.S. Post Office delivery days following the
date of Mailing; one day after timely delivery to an overnight courier; if by
personal delivery, upon such delivery; or if by facsimile, the day of
transmission if made within customary business hours, or if not transmitted
within customary business hours, the following business day.
6
<PAGE> 49
(a) If to Executive:
Dr. Melvyn S. Goldsmith, Ph.D.
-----------------------
-----------------------
(b) If to Acorn:
Acorn Behavioral Healthcare Management Corporation
1500 Waters Ridge Drive
Lewisville, Texas 75075
Attn: James W. McAtee,
Executive Vice President
Facsimile: 214-459-5005
With a copy to:
Strasburger & Price, L.L.P.
901 Main Street, Suite 4300
Dallas, Texas 75202
Attn: David K. Meyercord, Esq.
Facsimile: (214) 651-4330
Any party may change the address or facsimile telephone number for
notices to be sent to it by written notice delivered pursuant to the terms of
this Section 5.1.
5.2 Severability. The provisions of this Agreement are deemed by the
parties to be severable and the invalidity or unenforceability of any one or
more of the provisions of this Agreement shall not affect the validity or
enforceability of any other provision.
5.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Pennsylvania.
5.4 Entire Agreement. This Agreement sets forth the entire
understanding between the parties with respect to the subject matter hereof and
cannot be amended except by a writing signed by both parties. No waiver of any
term or provision of this Agreement shall be deemed to be a waiver of any
subsequent breach of such term or provision of this Agreement. This Agreement
supersedes and replaces in their entirety any and all other employment
agreements, whether oral or written, if any, between the parties hereto.
5.5 Assignment. Executive acknowledges that the services to be
rendered by Executive are unique and personal. Accordingly, Executive may not
assign any of Executive's rights or delegate any of Executive's duties or
obligations under this Agreement. Any assignment or attempted assignment,
transfer or pledge of this Agreement or of the interest of Executive herein by
Executive shall be null and void, and in such event, at the option of Acorn,
this Agreement may be
7
<PAGE> 50
terminated immediately with cause. Upon written consent of Executive, which
consent shall not be unreasonably withheld, Acorn may assign its rights, duties
and obligations under this Agreement to an affiliate of Acorn. Subject to the
foregoing limitations on assignment, this Agreement shall inure to the benefit
of and shall be binding upon the successors, heirs and assigns of the parties
hereto.
5.6 Headings/Captions. The captions to sections and subsections of
this Agreement have been inserted solely for convenience and reference, and
shall not control or effect the meaning or construction of any of the
provisions of this Agreement.
5.7 Waiver; Remedies. Waiver by either party hereto of any breach of
or exercise of any rights under this Agreement shall not be deemed to be a
waiver of similar or other breaches or rights or a future breach of the same
duty. The failure of a party to take any action by reason of any such breach or
to exercise any such right shall not deprive any party of the right to take any
action at any time while such breach or condition giving rise to such right
continues. The parties shall have any and all remedies available to them,
whether at law or in equity, and all remedies expressly available under the
terms of this Agreement shall be cumulative.
5.8 Attorney's Fees. In the event of a breach by any party to this
Agreement and commencement of a subsequent legal action in a court of law or
forum of arbitration, or in the event legal counsel is consulted in the event
of any such breach or in anticipation of any such prospective legal action, the
prevailing party in any such dispute shall be entitled to reimbursement of
reasonable attorney's fees and court costs, including, but not limited to, the
costs of expert witnesses, transportation, lodging and meals of the parties and
witnesses, costs of transcript preparation and other reasonable and necessary
direct and incidental costs of such dispute. "Prevailing party" is the party in
whose favor final judgment is rendered.
5.9 Contract Modifications for Prospective Legal Events. In the
event any state or federal laws or regulations, now existing or enacted or
promulgated after the effective date of this Agreement, are interpreted by
judicial decision, a regulatory agency or legal counsel to Acorn in such a
manner as to indicate that the structure of this Agreement may be in violation
of such laws or regulations, Acorn and Executive shall amend this Agreement as
necessary. To the maximum extent possible, any such amendment shall preserve
the underlying economic and financial arrangements between Acorn and Executive.
5.10 Arbitration. Except as provided in Section 4.4 hereof, the
parties will arbitrate any dispute, claim or controversy relating to or arising
out of this Agreement and Executive's employment or engagement hereunder. Any
party may initiate arbitration by giving written notice to the other party of
an intention to arbitrate and by filing with the regional office of the
American Arbitration Association located in Philadelphia, Pennsylvania, three
copies of such notice and three copies of the Agreement together with the
appropriate filing fee. Such notice shall contain a statement setting forth the
nature of the dispute and the remedy sought. The arbitration shall be conducted
before a single arbitrator selected by the parties from the Panel of
Arbitrators submitted to the parties by the American Arbitration Association.
The arbitration shall be conducted in Philadelphia, Pennsylvania, in accordance
with the rules of the American Arbitration Association in effect at the time
the notice to arbitrate is served. The arbitrator's decision will be final and
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<PAGE> 51
binding on the parties. The arbitrator may grant any legal and/or equitable
relief to which a party may be entitled under the law or legal theory under
which the party seeks relief; provided, however, that no claim may be made for
any punitive damages in respect of any theory of liability arising out of or
related to this Agreement, or any act, omission or event occurring in
connection therewith, except for willful or wanton misconduct. The award shall
not serve as precedent or authority in any subsequent proceeding, provided that
if the losing party should fail to comply with the award, the prevailing party
may apply to any court having jurisdiction for an order confirming the award in
accordance with applicable law. Unless otherwise required by law or court
orders, the substance of any arbitration proceedings shall be kept confidential
by all parties and by the arbitrator; however, the fact that such a proceeding
exists, or that an award has been rendered, need not be kept confidential. The
costs of the proceeding, including the fees and costs of attorneys, accountants
and witnesses and the compensation of the arbitrator shall be assessed by the
arbitrator against the parties according to arbitrator's determination of
fault.
5.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, Acorn has caused this Agreement to be executed by
its duly authorized officer, and Executive has executed this Agreement as of
the day and year first above written.
ACORN BEHAVIORAL HEALTHCARE EXECUTIVE:
MANAGEMENT CORPORATION
By:
------------------------------- --------------------------------
James W. McAtee Dr. Melvyn S. Goldsmith, Ph.D.
Executive Vice President
<PAGE> 52
EXHIBIT B
LEASE AGREEMENT
BETWEEN
M & B GOLDSMITH
LANDLORD
AND
ACORN BEHAVIORAL HEALTHCARE MANAGEMENT CORPORATION
TENANT
<PAGE> 53
INDENTURE OF LEASE
THIS INDENTURE OF LEASE is made on the __________ day of ___________,
19____, by and between M & B GOLDSMITH, a Pennsylvania general partnership,
having an address of 287 North Bowman Avenue, Merion Station, Pennsylvania
19066 (hereinafter called "Landlord"), and ACORN BEHAVIORAL HEALTHCARE
MANAGEMENT CORPORATION, a Pennsylvania corporation, having an address of 1500
Waters Ridge Drive, Lewisville, Texas 75057, Attention: Mr. James W. McAtee
(hereinafter called "Tenant")
Background
A. Landlord is the owner of that certain parcel of land (the "Land"),
located at 134 North Narberth Avenue, in the Borough of Narberth, County of
Montgomery and Commonwealth of Pennsylvania, as more particularly described on
Exhibit A hereto, on which there is located a building, comprising
approximately 12,835 square feet, known as the "Acorn Building" (the
"Building") and other improvements appurtenant thereto.
B. Landlord desires to lease to Tenant and Tenant desires to lease from
Landlord the Land and the Building and the other improvements appurtenant
thereto (collectively, the "premises", "leased premises" or "demised
premises").
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, the parties hereto agree as follows:
I. LEASED PREMISES. Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord, the premises, subject however to the terms and conditions
of this Indenture of Lease and the Lease Agreement attached hereto and made a
part hereof (hereinafter collectively referred to as the "Lease"), and to
reasonable rules and regulations for the use thereof as prescribed from time to
time by Landlord.
II. LENGTH OF TERM. The term of this Lease shall be for two (2) years,
commencing on November 1, 1997 (the "Commencement Date") and ending on October
1, 1999 (the "Termination Date").
III. FIXED MINIMUM RENT. Subject to the adjustment set forth in Section
3.2 of the Lease Agreement, Tenant shall pay to Landlord, in accordance with
the terms and conditions of this Lease (including, without limitation, Article
III of the Lease Agreement), a guaranteed annual minimum rent ("fixed minimum
rent") in the amount of Two Hundred Fifty-six Thousand Seven Hundred Dollars
($256,700) per year for each year or portion of a year of the term hereof,
payable in equal monthly installments of Twenty-one Thousand Three Hundred
Ninety-one and 67/100 ($21,391.67) each.
IV. USE OF PREMISES. Tenant shall use the premises, subject to the
provisions of the Lease, solely for general office purposes and for no other
use.
<PAGE> 54
V. GUARANTY AND SURETYSHIP AGREEMENT. Tenant shall cause Tenant's affiliate,
Horizon Health Corporation, to execute and deliver to Landlord, as of the date
hereof, a Guaranty and Suretyship Agreement in the form attached hereto as
Exhibit B.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have hereunto set their hands and seals the day and year first above
written.
<TABLE>
<S> <C>
TENANT:
WITNESS/ATTEST: ACORN BEHAVIORAL HEALTHCARE
MANAGEMENT CORPORATION, a
Pennsylvania corporation
By:
- ------------------------------ ------------------------------
(Assistant) Secretary (Vice) President
LANDLORD:
M & B GOLDSMITH, a Pennsylvania
general partnership
By:
- ------------------------------ ------------------------------
, General Partner
</TABLE>
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<PAGE> 55
LEASE AGREEMENT
ARTICLE I
TERM
SECTION 1.1 Confirmation of the Term. The term of this Lease shall
commence on the Commencement Date, as defined in the Indenture of Lease, and
continue for a period of two (2) years thereafter (the "Original Term"). From
and after the Termination Date, as defined in the Indenture of Lease, the term
of this Lease shall continue on a month to month basis. Either party may
terminate the term of this Lease, at the end of the Original Term or any month
thereafter upon six (6) months prior written notice to the other party. The
words "term of this Lease" and "term hereof" shall be deemed to mean the period
from the Commencement Date to the Termination Date or the last day of any
monthly renewal and extension hereof, if any. The words "original term of this
Lease" or "initial term of this Lease" shall be deemed to mean the period from
the Commencement Date to the Termination Date, excluding any monthly renewals
and extensions thereof.
ARTICLE II
CONDUCT OF BUSINESS BY TENANT
SECTION 2.1 Use of Premises. Tenant shall use and occupy the premises
solely for the conduct of the business herein set forth. Tenant will not use
or permit or suffer the use of the premises for any other business or purpose.
Without limiting the generality of the foregoing, Tenant shall not use the
premises, the Land or the Building for the generation, manufacture, refining,
transportation, treatment, storage or disposal of any hazardous substance or
waste or for any purpose which poses a substantial risk of damage to the
environment and shall not engage in any activity which would subject Tenant to
the provisions of the Federal Comprehensive Environmental Response, Liability
and Clean-Up Act (42 U.S.C. Section 9601 et seq.), the Federal Water Pollution
Control Act (33 U.S.C.A. Section 1151 et seq.), the Clean Water Act of 1977 (33
U.S.C.A. Section 1251 et seq.), or any other federal, state or local
environmental law, regulation or ordinance.
SECTION 2.2 Injurious Acts. Tenant shall not commit any waste upon the
premises or perform any other acts which may injure the Land or the Building or
be a nuisance to or disturb the quiet possession of the general public in the
Land or the Building.
ARTICLE III
FIXED MINIMUM RENT; SECURITY DEPOSIT
SECTION 3.1 Fixed Minimum Rent. Tenant shall pay to Landlord the fixed
minimum rent herein reserved, payable in advance in equal monthly installments
without any prior demand therefor and without deduction or set-off whatsoever,
on the first day of each calendar month during the term hereof, commencing upon
the Commencement Date. In the event that the
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<PAGE> 56
Commencement Date shall be a day other than the first day of a month, Tenant
shall pay the fixed minimum rent in advance for the fractional month on a per
diem basis calculated on the basis of a thirty (30) day month. Tenant shall
pay to Landlord the fixed minimum rent for the first full calendar month of the
term hereof upon Tenant's execution of this Lease.
SECTION 3.2 Time and Place of Payment; Late Charges. Tenant shall
promptly pay all rent and other charges and render all statements herein
prescribed to Goldsmith Management, 287 North Bowman Avenue, Merion Station,
Pennsylvania 19066, or at such other place as Landlord shall notify Tenant.
All sums of money or charges required to be paid by Tenant under this Lease,
whether or not the same are designated "additional rent", shall for all
purposes hereunder be deemed and shall be paid by Tenant as rent. In the event
that Tenant shall fail to pay any installment of fixed minimum rent or any
other money or charges required to be paid by Tenant within ten (10) days after
the date the same is due and payable, then Landlord shall have, in addition to
all other remedies to which Landlord may otherwise be entitled, the right to
receive from Tenant, in addition to such amount due and owing, an additional
sum of five cents (5c.) per dollar of each such installment, as and for a late
charge, which sum shall inure to the sole benefit of Landlord, to defray
Landlord's costs and expenses in collecting such delinquent rental. Said late
charge shall be payable by Tenant to Landlord upon demand.
ARTICLE IV
CHANGES TO BUILDING
SECTION 4.1 Roof, Walls, Changes and Additions to Building. Landlord
reserves the exclusive right at any time and from time to time, provided the
same does not unreasonably interfere with Tenant's use and enjoyment of the
premises, to use all or any part of the roof, exterior walls and air space
above the finished ceiling of the premises to install or affix equipment,
signs, antennae or other objects or structures, to erect scaffolds, protective
barriers or other aids to construction and for other purposes; to enter the
premises to shore the foundations and walls thereof and to install, maintain
and repair pipes, ducts, conduits and wires in and adjacent to the premises and
serving the Building. Landlord shall not be liable for any inconvenience,
disturbance, loss of business or any other damage to Tenant, and Tenant shall
not be entitled to compensation or diminution or abatement of rent, and there
shall be no constructive or actual eviction, arising from the exercise of any
or all of the rights of Landlord in this Section 4.1, Article XII or elsewhere
in this Lease.
SECTION 4.2 Condition of Premises. Tenant acknowledges that Tenant has
inspected the premises, is fully familiar with the physical condition thereof
and has agreed to lease the premises as a result of such inspection and not in
reliance upon any representation made by Landlord or any of its officers,
employees, salespeople or agents, except solely as expressly set forth in this
Lease. Subject to the express representations and warranties of the Landlord
contained herein, Tenant shall lease the premises in "as is, where is"
condition and Tenant acknowledges and agrees that Landlord is making no
representation as to the condition of the Building or the premises, including,
without limitation, the environmental condition thereof.
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<PAGE> 57
ARTICLE V
LANDLORD'S REPRESENTATIONS AND WARRANTIES
SECTION 5.1 Landlord's Representations and Warranties. Landlord hereby
warrants and represents to Tenant, as of the date hereof, that: (i) to the best
of Landlord's knowledge, the structural support elements of the premises and
the nonstructural components of the premises, including, without limitation,
the mechanical systems, plumbing, lighting, heating, air conditioning,
ventilation, electricity, walls (interior and exterior), foundation, ceilings,
roofs (interior and exterior), floors, windows and doors of the premises shall,
on the Commencement Date, be in good repair and operating condition; and (ii)
applicable laws, ordinances, regulations and restrictive covenants permit the
premises to be used for general office purposes. Landlord shall deliver, to
the extent available, copies of certificates of occupancy permitting the use of
the premises for general office purposes. Landlord further warrants and
represents to Tenant that the current zoning of the Property will permit Tenant
to use the premises for general office purposes.
SECTION 5.2 Landlord's Environmental Representations. Landlord hereby
represents, to the best of Landlord's knowledge, that the premises is currently
in compliance with all federal, state and local environmental laws, rules,
regulations and orders. Landlord further represents that Landlord has received
no notice from any governmental agency of any violation of any such law, rule,
regulation or order.
ARTICLE VI
TAXES
SECTION 6.1 Definition of Taxes. The word "taxes" shall include all taxes
attributable to the Land or any improvements now or hereafter made to the Land
or the Building or any part thereof or attributable to the present or future
installation in the Land or the Building or any part thereof of fixtures,
machinery or equipment, all real estate taxes, assessments, water and sewer
fees, rents or charges, and other governmental impositions and charges of any
kind whatsoever, nonrecurring as well as recurring, special or extraordinary as
well as ordinary, foreseen and unforeseen, and each and every installment
thereof, which shall be levied, assessed or imposed, or become due and payable
or become liens upon, or arise in connection with the use, occupancy or
possession of, or any interest in, the Land or the Building or any part
thereof, and all costs and expenses incurred by Landlord, including attorneys
fees, expert fees and appraisal costs, in Landlord's efforts, if any, to reduce
the amount of the taxes or the assessment therefor. The word "taxes" shall not
include any charge, such as water meter charge and sewer rent based thereon,
which is measured by the consumption by the actual user of the item or service
for which the charge is made.
SECTION 6.2 Payment of Taxes. Subject to Tenant's obligations set forth
in Section 6.3 below, Landlord shall be responsible for the payment of all
Taxes imposed upon the premises.
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<PAGE> 58
SECTION 6.3 Taxes on Leasehold. Notwithstanding the provisions of Section
6.2 above, Tenant shall pay all taxes assessed against any leasehold interest
or personal property owned by Tenant or placed in or about the premises by
Tenant.
ARTICLE VII
UTILITIES
SECTION 7.1 Utilities. Landlord shall furnish the Premises with
electricity, heating and air conditioning, water and sewer for the normal use
and occupancy of the Premises as general offices. If Tenant shall require
electricity or install electrical equipment, including but not limited to
electrical heating, refrigeration equipment, electronic data processing
machines, or machines or equipment which will in any way increase the amount of
the electricity furnished to the premises materially in excess of the
electrical usage during the prior twelve (12) months of Tenant's occupancy,
Tenant will obtain prior written approval therefor from Landlord and will pay
for the resulting additional direct expense, including the expense resulting
from the installation of such equipment as additional rent promptly upon being
billed therefor. For the purposes of the foregoing sentence "materially in
excess" shall mean more than twenty percent (20%) in excess of the usage for
the prior 12-month period. During the first 12-month period of Tenant's
occupancy of the premises, such usage shall be measured against Landlord's
usage for the prior 12-month period. At Tenant's request, Landlord shall
provide evidence of such usage by Landlord during such 12-month period.
Landlord shall not be liable for any damages to Tenant resulting from
Landlord's failure to deliver services as stated herein, provided that the same
does not result from any intentional or willful act of Landlord.
ARTICLE VIII
REPAIRS AND ALTERATIONS
SECTION 7.2 Tenant's Repairs Tenant, at its sole cost and expense and
throughout the term of this lease, shall keep and maintain the Premises in a
neat, orderly and secure condition. Tenant shall be responsible, at Tenant's
sole cost and expense, for all interior and exterior janitorial services and
for replacing all glass broken by Tenant, its agents, employees or invitees,
with glass of the same quality as that broken. Tenant shall, at Tenant's sole
cost and expense, keep and maintain all sidewalks, parking areas, curbs and
access ways serving the premises in a clean and orderly condition, free of
accumulation of dirt, rubbish, snow and ice, and shall keep and maintain all
landscaped areas in a neat and orderly condition. Tenant shall commit no waste
in the premises and shall not use or permit the use of any portion of the
premises for other than their intended use. Tenant shall further be
responsible, at Tenant's sole cost and expense, for arranging for weekly
removal of trash from the premises.
SECTION 7.3 Landlord's Repairs Landlord, throughout the term of this
lease, shall make all necessary repairs to the Building and the premises and
other improvements located on the Property, including, without limitation, the
roof and other structural members of the Building, the plumbing, electrical,
HVAC and other mechanical systems of the Building, and the parking
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<PAGE> 59
areas on the Land; provided, however, that Landlord shall have no
responsibility to make any repairs unless and until Landlord receives written
notice of the need for such repair.
SECTION 7.4 Other Repairs and replacements to the premises arising out
of or caused by Tenant's use, manner of use or occupancy of the premises or by
Tenant's installation in or upon the premises or by any act or omission of
Tenant or any employee, agent, contractor, or invitee of Tenant shall be made
at the sole cost and expense of Tenant.
SECTION 7.5 Tenant's Right to Make Alterations. Tenant shall not make any
alterations, improvements or additions to the premises without the prior
written consent of Landlord. Tenant shall supply Landlord with a list of
contractors and subcontractors and with plans and specifications for all such
alterations, improvements and additions prior to requesting such consent. All
alterations, improvements or additions by Tenant shall be performed in a good
and workmanlike manner, coordinated with any work being performed by Landlord
and performed in such a manner and by such contractor(s) so as not to damage
the premises or interfere with its operations or with the activities of other
tenants. Tenant shall secure all necessary licenses, permits, and approvals
required by all federal, state and local laws, regulations, statutes,
ordinances and rules in connection with such work, and shall carry and cause
the contractors and subcontractors to carry Workers' Compensation Insurance in
statutory amounts, comprehensive public liability insurance, property damage
insurance and such other insurance with such limits and upon such terms as
Landlord, in Landlord's sole discretion, shall require, and shall deliver to
Landlord certificates of all such insurance. All alterations, improvements and
additions made by Tenant shall remain upon the premises at the expiration or
earlier termination of this Lease and shall become the property of Landlord
unless Landlord shall, prior to or after the termination of this Lease, have
given written notice to Tenant to remove same, in which event Tenant shall
remove such alterations, improvements and additions and restore the premises to
the same good order and condition in which it was at the commencement of this
Lease. Should Tenant fail so to do, Landlord may do so, and Tenant shall
reimburse Landlord for Landlord's expenses, on demand. All of such
alterations, improvements or additions shall be made solely at Tenant's
expense; and Tenant agrees to indemnify, defend and save harmless Landlord (a)
on account of any injury to third persons or property by reason of any such
improvements, additions or alterations and (b) from the payment of any claim on
account of bills for labor or materials furnished or claimed to have been
furnished in connection therewith. Tenant agrees to procure all necessary
licenses, permits and approvals before undertaking such work and to do all such
work in a good and workmanlike manner, employing materials of first class
quality and complying with all applicable governmental requirements.
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ARTICLE IX
MECHANICS LIENS
SECTION 9.1 Tenant Shall Discharge All Liens. Tenant shall promptly pay
all contractors and materialmen performing work for Tenant so as to minimize
the possibility of a mechanic's or materialman's lien attaching to the
premises, the building of which it forms a part or the Building. Should any
such lien be made or filed, Tenant shall bond against or discharge the same
within ten (10) days after written request by Landlord and, in the event that
Tenant shall fail to do so, Landlord, in addition to its other remedies, may
discharge the lien by payment of the amount secured thereby, or otherwise as
provided by law, and any amount so paid by Landlord, together with any
attorney's fees or other costs relating to the discharge of such lien, shall be
immediately payable by Tenant to Landlord. Prior to the commencement of any
work or the delivery of any material to the premises by any contractor,
subcontractor or materialman ("Contractor"), Tenant shall deliver to Landlord a
recordable waiver of liens from each such Contractor in form and content
acceptable to Landlord.
ARTICLE XI
SIGNS
SECTION 11.1 Landlord's Approval. Tenant shall not erect or maintain any
sign, awning, canopy, advertisement, notice, lettering or decoration ("Sign")
on any part of the outside of the premises or of the building of which the
premises is a part, or inside the premises if visible from the outside, without
first submitting to Landlord a plan or sketch of the proposed Sign and without
first obtaining Landlord's written approval thereof.
SECTION 11.2 Permits. Tenant, at Tenant's sole expense, shall obtain all
permits and approvals required in connection with such Signs, and shall comply
with all laws, statutes, ordinances, orders, rules and regulations of
governmental authorities relative to the erection, location, size, type of
material, appearance, maintenance and repair of such Signs.
SECTION 11.3 Maintenance and Removal. Tenant shall maintain such Signs as
may be approved in good condition and repair at all times. Tenant shall remove
such Signs at the expiration or earlier termination of the Lease and shall
restore the premises to the premises' condition prior to the erection of such
Signs.
ARTICLE XII
INSPECTION OF PREMISES AND ACCESS THERETO
SECTION 12.1 Inspection of Premises; Repairs. Landlord reserves the right
at all reasonable times, by itself or its duly authorized agents, to go upon,
by force if necessary, and inspect the premises and, at Landlord's option, to
make repairs, alterations and additions to the premises or the building of
which the premises are a part, provided, however, that nothing herein contained
shall be deemed or construed as an obligation of Landlord to undertake or
effect any
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such repairs, alterations or additions other than as herein specifically set
forth, and any performance thereof by Landlord shall not constitute a waiver of
Tenant's default in failing to perform the same.
SECTION 12.2 Displaying "For Sale" and "For Rent" Signs. Landlord reserves
the right to display a "For Sale" sign at any time, and, after notice from
either party of intention to terminate this Lease, or at any time within one
(1) year prior to the expiration of this Lease, a "For Rent" sign, or both "For
Rent" and "For Sale" signs, and all of said signs shall be placed upon said
part of the premises as Landlord shall require, except on door or doors leading
into the premises. Prospective purchasers or tenants authorized by Landlord
may inspect the premises at reasonable hours at any time.
ARTICLE XIII
INDEMNIFICATION
SECTION 13.1 Indemnification by Tenant. Tenant shall indemnify, defend and
save harmless Landlord from suits, actions, damages, liabilities and expenses
(including court costs and reasonable attorney's fees) arising out of any
occurrence in, at or on the premises or the occupancy or use by Tenant of the
premises, or caused wholly or in part by any act or omission of Tenant, its
agents, contractors, employees, servants, invitees, licensees or
concessionaires on the premises.
SECTION 13.2 Release of Liability. Unless such claims, loss or damage were
caused in whole or in part by the negligence of Landlord or Landlord's agents,
servants or employees, Landlord shall not be liable for, and Tenant waives all
claims for, loss or damage to Tenant's business or damage to person or property
sustained by Tenant or any person claiming through Tenant resulting from any
accident or occurrence in or upon the premises, the Land or the Building, but
not limited to, claims for damage resulting from: (i) any equipment or
appurtenances being out of repair; (ii) any defect in or failure of plumbing,
heating or air conditioning equipment, electric wiring or the installation
thereof, gas, water and steam pipes, stairs, porches, railings or walks; (iii)
fire, explosion, collapse or broken glass; (iv) the backing up of any sewer
pipe or downspout; (v) the bursting, leaking or running of any tank, tub,
washstand, water closet, waste pipe, drain or any other pipe or tank in, upon
or about the premises or the Building; (vi) the escape of steam or hot water;
(vii) water, snow, or ice being upon or coming through the roof, skylight, trap
door, stairs, doorways, show windows, walks or any other place upon or near the
premises, the Land or the Building, or otherwise; and (viii) the falling of any
fixture, plaster, tile or stucco.
SECTION 13.3 Litigation Involving Landlord. Unless caused in whole or in
part by the negligence of Landlord or the Landlord's agents, servants or
employees, in the event that Landlord shall be made a party to any litigation
commenced by or against Tenant, Tenant shall indemnify, defend and hold
Landlord harmless from and against any liability arising therefrom, and shall
pay all costs, expenses and reasonable attorneys' fees in connection therewith.
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ARTICLE XIV
INSURANCE
SECTION 14.1 Required Coverages. Tenant, at Tenant's sole expense, shall
obtain and maintain in full force and effect during the term of this Lease, the
following policies of insurance:
(i) Fire and extended coverage, vandalism and
malicious mischief insurance covering all of Tenant's stock in trade, fixtures,
furniture, furnishings, removable floor coverings, trade equipment, signs, and
all other improvements and decorations placed by Tenant in or upon the
premises, to the extent of 100% of their full insurable value and replacement
cost without deduction for depreciation;
(ii) Commercial general liability insurance on an
occurrence basis with minimum limits of liability in an amount of not less than
$1,000,000.00 for bodily injury, personal injury or death to any one person,
not less than $3,000,000.00 for bodily injury, personal injury or death to more
than one person and not less than $250,000.00 with respect to damage to
property including water damage and sprinkler leakage legal liability;
(iii) Steam boiler, air conditioning and machinery
insurance to the limit of $300,000.00 with respect to any one accident, if
there is a boiler or pressure object or other similar equipment installed by
Tenant in the premises;
(iv) Plate glass insurance covering all plate
glass in the premises;
(v) Such other types of insurance and such
additional amounts of insurance as, in Landlord's judgment, are necessitated by
good business practice.
SECTION 14.2 Designated Insureds; Endorsements; Evidence of Insurance. All
insurance policies to be obtained by Tenant hereunder shall be in the name of
Landlord and Tenant, as their respective interests may appear, together with
such other party or parties as may be designated by Landlord, including,
without limitation, Landlord's mortgagees, as their interests may appear. All
such policies of insurance shall be issued by financially responsible
companies, acceptable to Landlord, authorized to issue such policies, and
licensed to do business in the state where the Building is located, and shall
provide that any such insurance shall not be subject to cancellation,
termination or change except after thirty (30) days' prior written notice by
registered or certified mail to Landlord and such party or parties as may be
designated by Landlord (collectively "Landlord's Group") by the insurance
company. All commercial general liability and property damage policies of
Tenant shall contain an endorsement that Landlord, although named as an
insured, shall nevertheless be entitled to recover under said policies for any
loss or damage occasioned to them, their servants, agents and employees by
reason of the negligence of Tenant. All policies of Tenant shall contain a
provision substantially as follows: "The insurance afforded by this policy for
more than one named insured shall not operate to increase the limits of the
company's liability, but otherwise shall not operate to limit or void the
coverage of any one named insured as respects claims against the same name
insured by any other named insured or the employees of such other named
insured". The original policy or policies, or duly executed certificates for
the same, together with satisfactory evidence of payment of the premium thereof
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shall be delivered to Landlord's Group upon the execution of this Lease, and
upon renewals of such policies, not less than fifteen (15) days prior to the
expiration of the term of any such coverage. It is understood that Tenant may
provide such insurance coverages under "blanket" insurance policies maintained
by Tenant.
SECTION 14.3 Subrogation. In the event the premises or its contents are
damaged or destroyed by fire or other insured casualty, (a) Landlord, to the
extent of the coverage of Landlord's policies of fire insurance with extended
coverage endorsements, hereby waives its rights, if any, against Tenant with
respect to such damage or destruction, even if said fire or other casualty
shall have been caused, in whole or in part, by the negligence of Tenant, its
agents, servants or employees, and (b) Tenant, to the extent of the coverage of
Tenant's policies of fire insurance with extended coverage endorsements, hereby
waives its rights, if any, against Landlord with respect to such damage or
destruction, even if said fire or other casualty shall have been caused, in
whole or in part, by the negligence of Landlord, its agents, servants or
employees; provided, however, such waivers of subrogation shall only be
effective with respect to loss or damage occurring during such time as
Landlord's or Tenant's policies of fire insurance with extended coverage
endorsements (as the case may be) shall contain a clause or endorsement
providing in substance that the aforesaid waiver of subrogation shall not
prejudice the type and amount of coverage under such policies or the right of
Landlord or Tenant (as the case may be) to recover thereunder. If, at any
time, Landlord's or Tenant's insurance carrier refuses to write insurance which
contains a consent to the foregoing waiver of subrogation, Landlord or Tenant,
as the case may be, shall notify the other party thereof in writing, and upon
the giving of such notice, the provisions of this Section 14.3 shall be null
and void as to any casualty which occurs after such notice. If Landlord's or
Tenant's insurance carrier shall make a charge for the incorporation of the
aforesaid waiver of subrogation in its policies, then the party requesting the
waiver shall promptly pay such charge to the other party, upon demand. In the
event the party requesting the waiver fails to pay such charge upon demand, the
other party shall be released of its obligation to supply such waiver.
SECTION 14.4 No Injurious Acts. Tenant shall not do or keep anything in or
about the premises which will violate the provisions of Landlord's insurance
policies, or which will adversely affect Landlord's fire or liability insurance
premium rating or which will prevent Landlord from procuring and maintaining
such policies in companies acceptable to Landlord. If anything is done,
omitted to be done or kept by Tenant in or about the premises which causes the
rate of any insurance on the premises or other property of Landlord in
companies acceptable to Landlord to be increased, Tenant will pay the amount of
such increase promptly upon Landlord's demand.
SECTION 14.5 Failure to Maintain Required Coverage. In the event that
Tenant shall fail to obtain or maintain in full force and effect the insurance
policies and coverages required of it hereunder, Landlord may obtain such
insurance or coverage, pay the premiums thereon, and take such other steps as
may be necessary to meet the requirements of this Article and upon demand,
obtain reimbursement of the costs so expended from Tenant, or Landlord may, at
its sole option, terminate this Lease upon thirty (30) days' written notice.
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ARTICLE XV
TRADE FIXTURES
SECTION 15.1 Title to Property and Removal. All trade fixtures installed
by Tenant in the premises shall remain the property of Tenant and shall be
removable at the expiration or earlier termination of this Lease; provided
Tenant shall not at such time be in default under this Lease; and provided
further, that in the event of such removal, Tenant shall repair any damage
caused by the installation and/or removal of such trade fixtures. Any such
trade fixture not removed at or prior to such termination shall be and become
the property of Landlord. Lighting fixtures and air conditioning equipment,
whether or not installed by Tenant, shall not be removable at the expiration or
earlier termination of this Lease and shall become the property of Landlord.
SECTION 15.2 Failure to Remove. In the event that, at the expiration or
earlier termination of this Lease, Tenant fails to remove any trade fixtures
installed by Tenant, then Landlord may remove such fixtures and recover all
costs incidental to such removal from Tenant, and Landlord may dispose of such
fixtures in any manner Landlord deems fit without the necessity of accounting
to Tenant for the proceeds of same.
ARTICLE XVI
ASSIGNMENT AND SUBLETTING
SECTION 16.1 Landlord's Consent. Tenant shall not voluntarily,
involuntarily or by operation of law assign, mortgage, pledge or encumber
(collectively "assignment") this Lease, in whole or in part, or sublet the
whole or any part of the premises, or permit the use or occupancy of the whole
or any part of the premises by others, including, without limitation, the
operation of all or any part of the premises by a licensee or concessionaire,
without first obtaining in each and every instance the prior written consent of
Landlord, which consent shall not be unreasonably withheld, conditioned or
delayed. Notwithstanding the foregoing, however, Tenant may assign this Lease
to its parent corporation or another subsidiary of its parent corporation
without consent, but upon providing written notice of such assignment to
Landlord. Any consent by Landlord to an assignment or subletting or use or
occupancy by others shall be held to apply only to the specific transaction
thereby authorized and shall not constitute a waiver of the necessity for such
consent to any subsequent assignment or subletting or use or occupancy by
others. If this Lease or any interest herein be assigned or if the premises or
any part thereof be sublet or used or occupied by anyone other than Tenant with
Landlord's prior written consent, Tenant shall pay to Landlord monthly the
excess of the consideration received or to be received during such month for
such assignment, sublease, or occupancy (whether or not denoted as rent) over
the rent reserved for such month in this Lease applicable to such portion of
the premises so assigned, sublet or occupied. If this Lease or any interest of
Tenant herein be assigned or if the whole or any part of the premises be sublet
or used or occupied by others, after having obtained Landlord's prior written
consent thereto, Tenant shall nevertheless remain fully liable for the full
performance of all obligations under this Lease to be performed by Tenant and
Tenant shall not be released therefrom in any manner. Whether or not Landlord
consents to any proposed
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assignment, subletting or occupancy, Tenant shall reimburse Landlord, upon
Landlord's demand, for all legal, administrative and other fees incurred by
Landlord in connection therewith.
ARTICLE XVII
SUBORDINATION AND ATTORNMENT
SECTION 17.1 Mortgages. This Lease and the Tenant's interest hereunder
shall be subject and subordinate at all times to any and all mortgages, deeds
of trust, ground leases pursuant to which Landlord has derived Landlord's
interest in the Land and/or the Building and other security instruments,
including all renewals, extensions, consolidations, assignments and
refinancings of the same (collectively "Mortgage") as well as all advances made
upon the security thereof, which now or hereafter become liens upon the
Landlord's interest in the premises, the Land and/or the Building. In case
Landlord's interest under the Mortgage shall terminate for any reason and if
the holder of any such Mortgage ("Mortgagee") or if the grantee of a deed in
lieu of foreclosure, or if the purchaser at any foreclosure sale or at any sale
under a power of sale contained in any such Mortgage shall at its sole option
so request, Tenant shall attorn to, and recognize such Mortgagee, grantee or
purchaser, as the case may be, as Landlord under this Lease for the balance
then remaining of the term of this Lease, subject to all terms of this Lease.
The aforesaid provisions shall be self operative and no further instrument or
document shall be necessary unless required by any such Mortgagee, grantee or
purchaser. Tenant agrees to execute such documents as may be required by
Landlord or any such Mortgagee, grantee or purchaser for the purpose of
confirming such subordination or attornment.
SECTION 17.2 Building Agreements. This Lease and Tenant's interest
hereunder shall be subject and subordinate to, and Tenant shall comply with and
observe, any and all utility easements or grants, construction, operating and
reciprocal easement agreements and any other development and operating
agreements which may now or hereafter affect all or any portion of the Land
and/or the Building (collectively "Building Agreements"); provided, however,
that no such Building Agreement shall materially adversely affect Tenant's use
and occupancy of the premises for the use contemplated hereunder.
ARTICLE XIX
SURRENDER AND HOLDOVER
SECTION 19.1 Tenant's Obligation to Surrender Premises. Tenant, upon
expiration or earlier termination of this Lease, shall peaceably surrender to
Landlord the premises in broom-clean condition and in good repair as required
by the terms of this Lease subject to reasonable wear and tear. Tenant shall
surrender all keys for the premises to Landlord. Tenant shall remove all trade
fixtures before surrendering the premises as aforesaid and shall repair any
damage to the premises caused thereby.
SECTION 19.2 Consensual Holdover. In the event Tenant shall remain in
possession of the premises with Landlord's consent but without having executed
a new lease or an extension or
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renewal of the within lease, then Tenant shall be deemed to be in occupancy and
possession of the premises as a tenant from month to month, subject to all the
other terms and conditions of this lease insofar as the same are applicable to
a month to month tenancy. In the event that there occurs such consensual
holdover, either party may terminate said occupancy at the end of any one month
period following the expiration date of the term of this lease upon at least
thirty (30) days' written notice to the other party.
SECTION 19.3 Tenant's Liability for Failure to Surrender. If Tenant fails
to so surrender the premises upon the expiration or earlier termination of this
Lease, Tenant shall pay, for the period Tenant retains possession of the
premises, an amount equal to twice the minimum rent and other charges payable
immediately prior to the expiration or earlier termination of the Lease, and
Tenant shall indemnify, defend and hold Landlord harmless from loss or
liability resulting from such failure including, without limitation, any claims
made by any succeeding tenant founded on such failure. Nothing contained in
this section shall be deemed or construed as conferring upon Tenant a right to
remain in possession of the premises beyond the expiration or termination of
this Lease or any extension or renewal hereof.
ARTICLE XX
DAMAGE OR DESTRUCTION OF PREMISES
SECTION 20.1 Total or Partial Destruction. If the premises shall be
damaged by fire or other casualty covered by Landlord's policies of fire and
broad form extended coverage insurance but are not thereby rendered
untenantable in whole or in part, Landlord shall at its own expense cause such
damage to be repaired, and the rent shall not be abated. If by reason of such
occurrence, the premises shall be rendered untenantable in whole or in part,
Landlord shall at its own expense cause the damage to be repaired and the fixed
minimum rent meanwhile shall be abated proportionately as to the portion of the
premises rendered untenantable until Landlord has restored the premises. If
the premises shall be damaged or destroyed by a fire or casualty not covered by
Landlord's policies of fire and broad form extended coverage insurance and the
Landlord decides not to repair and restore the premises, Landlord shall have
the right, to be exercised by notice in writing delivered to Tenant within
ninety (90) days from and after the occurrence of such damage or destruction,
to elect to terminate this Lease. Notwithstanding the previous terms of this
Section 20.1 to the contrary, Landlord shall have the right, to be exercised by
notice in writing, delivered to Tenant within thirty (30) days after any
occurrence which renders the premises wholly or partially untenantable, to
terminate this Lease if (a) said destruction of the premises occurs within the
last two (2) years of the original term or the last two (2) years of any
renewal term hereof, or (b) the Landlord's mortgagee requires Landlord to pay
said mortgagee all or a portion of the insurance proceeds and the remainder of
such proceeds is not sufficient to repair the damages to the premises. In any
of said events, the termination shall take effect thirty (30) days after the
receipt of such notice by Tenant and the rent and other charges shall be
payable through such date. In no event shall Landlord be obligated to expend
for any repairs or reconstruction in an amount in excess of the insurance
proceeds recovered by it and allocable to the damage of the premises after
deduction therefrom of any amounts required to be paid to Landlord's mortgagee.
Landlord shall not be liable for delays occasioned by adjustment of losses with
insurance carriers or by any other cause so long as Landlord shall
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proceed in good faith. Tenant, at Tenant's expense, shall submit to Landlord
for Landlord's approval, plans and specifications for all other work not
required to be done by Landlord and upon approval of such plans and
specifications and, within fifteen (15) days after the Tenant has been notified
that the Landlord has completed its work on the premises, Tenant shall re-enter
the premises and therein diligently pursue to completion such work at Tenant's
expense and thereafter commence doing business all in accordance with the
provisions of this Lease upon such completion.
SECTION 20.2 Partial Destruction of Building. Notwithstanding anything in
this Lease to the contrary, in the event that more than fifty percent (50%) of
the gross leasable area of the Building shall be damaged or destroyed by fire
or other cause, notwithstanding that the premises may be unaffected by such
fire or other cause, Landlord shall have the right, to be exercised by notice
in writing delivered to Tenant within sixty (60) days after said occurrence, to
terminate this Lease. Upon the giving of such notice, the term of this Lease
shall expire fifteen (15) days after such notice is given, the rent and other
charges shall be payable through such date, and Tenant shall vacate the
premises and surrender the same to Landlord.
SECTION 20.3 Notice by Tenant. Tenant shall immediately notify Landlord of
any damage by fire or other casualty to the premises or to the Building.
ARTICLE XXI
EMINENT DOMAIN
SECTION 21.1 Total Condemnation. If the whole of the premises shall be
taken by any public or quasi-public authority under the power of eminent
domain, condemnation or expropriation or in the event of a conveyance in lieu
thereof, then the term of this Lease shall terminate as of the date of which
possession of the premises is required to be surrendered to the condemning
authority, all rent and other charges shall be paid up to that date, and Tenant
shall have no claim against Landlord or the condemning authority for the value
of any unexpired term of this Lease.
SECTION 21.2 Partial Condemnation. If any part of the premises shall be so
taken or conveyed, and in the event that such partial taking or conveyance
shall render the premises unsuitable for the business of Tenant, as mutually
determined by the parties hereto, then the term of this Lease shall terminate
as of the date on which possession of the premises is required to be
surrendered to the condemning authority, all rent and other charges shall be
paid up to that date, and Tenant shall have no claim against Landlord or the
condemning authority for the value of any unexpired term of this Lease. In the
event of a partial taking or conveyance which is not extensive enough to render
the premises unsuitable for the business of Tenant, then Landlord shall
promptly restore the premises to the extent of condemnation proceeds available
for such purpose to a condition as comparable as possible to their condition at
the time of such condemnation less the portion lost in the taking, Tenant shall
promptly make all necessary repairs, restoration and alterations of Tenant's
fixtures, equipment and furnishings and shall promptly re-enter the premises
and commence doing business in accordance with the provisions of this Lease and
this Lease shall continue in full force and effect. In such event, the fixed
minimum rent shall
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be reduced in the same proportion that the floor area of the premises so taken
or conveyed bears to the floor area of the premises immediately prior to such
taking or conveyance, such reduction commencing as of the date Tenant is
required to surrender possession of such portion. For purposes of determining
the amount of funds available for restoration of the premises from the
condemnation award, said amount shall be deemed to be that part of the award
which remains after payment of Landlord's reasonable expenses incurred in
recovering same and any amounts due to any mortgagee of Landlord, and which
represents a portion of the total sum so available (excluding any award or
other compensation for land) which is equitably allocable to the premises.
SECTION 21.3 Partial Condemnation of Building. If (a) more than ten
percent (10%) of the floor area of the Building or more than ten percent (10%)
of the Common Areas shall be so taken or conveyed, or (b) any part of the
parking area serving the Building shall be so taken or conveyed and if, as the
result of such partial taking or conveyance of the parking area, the size,
layout or location of the remaining parking facilities shall violate the
requirements of the applicable zoning or similar laws, then Landlord shall have
the right to terminate this Lease as of the date on which possession of the
property is required to be surrendered to the condemning authority, and all
rent and other charges shall be paid up to that date. Tenant shall have no
claim against Landlord or the condemning authority for the value of any
unexpired term of this Lease or any leasehold improvements.
SECTION 21.4 Landlord's Damages. In the event of any taking or conveyance
as herein provided, Tenant shall not be entitled to any part of the award for
such taking or conveyance, and Landlord and any mortgagee of Landlord shall
receive the full amount of such award as their respective interests may appear.
Tenant expressly waives any right or claim to any part thereof and assigns to
Landlord any such right or claim to which Tenant might become entitled.
SECTION 21.5 Tenant's Damages. Although all damages in the event of any
condemnation shall belong to Landlord and any mortgagee of Landlord, Tenant
shall have the right, to the extent that same shall not diminish Landlord's or
such mortgagee's award, to claim and recover from the condemning authority, but
not from Landlord or such mortgagee, such compensation as may be separately
awarded or recoverable by Tenant in Tenant's own right for or on account of,
and limited solely to, any cost to which Tenant might be put in removing
Tenant's merchandise, furniture, fixtures, leasehold improvements and
equipment.
ARTICLE XXII
TENANT'S DEFAULT
SECTION 22.1 Events of Default. Each of the following shall constitute an
Event of Default ("Event of Default"):
(a) Tenant defaults in the payment of any installment of fixed
minimum rent and does not cure such default within ten (10) days after written
notice of such default from Landlord; or
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(b) Tenant defaults in the payment of any installment of, or on
account of, any other charge or payment due or payable by Tenant under this
Lease and does not cure such default within ten (10) days after written notice
of such default by Landlord; or
(c) Tenant defaults in the performance of any obligation, covenant
or agreement of Tenant to be performed or observed under this Lease, other than
those specifically set forth elsewhere in this Section 22.1, and such default
continues and is not cured by Tenant within thirty (30) days after Landlord has
given to Tenant a notice specifying the same, or, in the case of a default
which cannot with due diligence be cured within a period of thirty (30) days
and the continuance of which for the period required for cure will not subject
Landlord to the risk of criminal liability or termination of any superior lease
or foreclosure of any mortgage, if Tenant does not in good faith duly institute
within such thirty (30) day period all steps necessary to cure the same and
promptly and diligently prosecute to completion such cure within forty-five
(45) days after said Landlord's notice; or
(d) Any execution or attachment is issued against Tenant or any of
Tenant's property and is not discharged or vacated within ten (10) days after
the issuance thereof; or
(e) Tenant is in breach of the terms of Article XVI of this Lease;
or
(f) Tenant or any guarantor of Tenant makes an assignment for the
benefit of creditors or becomes a party or subject to any liquidation or
dissolution action or proceeding, or the institution of any bankruptcy,
reorganization, insolvency or other proceeding for the relief of financially
distressed debtors with respect to Tenant or said guarantor, or a receiver,
liquidator, custodian or trustee being appointed for Tenant or said guarantor
or a substantial part of Tenant's or said guarantor's assets and, if any of the
same occur involuntarily, the same is not dismissed or discharged within 30
days; or the entry of an order or relief against Tenant or said guarantor under
Title II of the United States Code entitled "Bankruptcy"; or Tenant or said
guarantor taking any action to effect, or which indicates Tenant's or said
guarantor's acquiescence in, any of the foregoing.
ARTICLE XXIII
REMEDIES OF LANDLORD UPON TENANT'S DEFAULT
SECTION 23.1 Right to Re-Enter. Upon the occurrence of an Event of
Default, Landlord may terminate all services (including, without limitation,
the furnishing of utilities) and may re-enter the premises, either by force or
otherwise, and/or by summary proceeding or otherwise, and may remove all
persons and property from the premises, using as much force as necessary, and
such property may be removed and stored in public warehouse at the cost of and
for the account of Tenant, all without service of notice or resort to legal
process and without being deemed guilty of trespass or becoming liable for any
loss or damage which may be occasioned thereby. Landlord, without further
demand or notice, may proceed to distress and sale of the goods there found and
to levy the rent and all other charges herein, and Tenant shall pay all costs
and officers' commissions, including watchmen's wage, and further including a
sum equal to five percent (5%) of the amount of the levy chargeable as
commissions to the constable or other
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person making the levy and, in such cases, all costs, officers' commissions and
other charges shall immediately attach and become a part of the claim of
Landlord for rent, and any tender of rent without said costs, commissions and
charges made after the issue of a warrant of distress shall not be sufficient
to satisfy the claim of Landlord.
SECTION 23.2 Right to Relet; Damages for Breach. Should Landlord elect to
re-enter the premises as herein provided, or should Landlord take possession
pursuant to legal proceedings or pursuant to any notice provided for by law,
Landlord may relet the premises or any part thereof for such term or terms
(which may be for a term extending beyond the term of this Lease) and at such
rental or rentals and upon such other terms and conditions as Landlord in its
sole discretion may deem advisable; Landlord may make such alterations and
repairs as Landlord deems necessary in order to relet the premises; upon each
such reletting all rentals received by Landlord from such reletting shall be
applied, first, to the payment of any costs and expenses of such reletting,
including brokerage fees, attorneys' fees and costs of such alterations and
repairs; second, to the payment of any indebtedness other than rent due
hereunder from Tenant to Landlord; third, to the payment of rent due and unpaid
hereunder; and the residue, if any, shall be held by Landlord and applied in
payment of future rent as the same may become due and payable hereunder. If
such rents received from such reletting during any month are less than that to
be paid during that month by Tenant hereunder, Tenant shall pay any such
deficiency to Landlord. Such deficiency shall be calculated and paid monthly.
No such re-entry or taking possession of the premises by Landlord shall be
construed as an election on its part to terminate this Lease unless a written
notice of such intention be given to Tenant or unless the termination thereof
be decreed by a court of competent jurisdiction. Notwithstanding any such
reletting without termination, Landlord may at any time thereafter elect to
terminate this lease for such previous breach.
SECTION 23.3 Right to Terminate. Upon the occurrence of an Event of
Default, Landlord may give Tenant a notice of intention to end the term of this
Lease at the expiration of five (5) days from the service of such notice of
intention, and upon the expiration of said five (5) day period, this Lease
(whether or not the term hereof shall theretofore have commenced), as well as
all of the right, title and interest of Tenant hereunder, shall wholly cease
and expire and become void (except as to Tenant's liability) in the same manner
and with the same force and effect as if the date fixed in such notice were the
date herein originally specified for the expiration of the term hereof; and
Tenant shall then immediately quit and surrender to Landlord the premises, and
Landlord may enter into and repossess the premises by summary proceedings,
detainer, ejectment or otherwise and remove all occupants thereof and, at
Landlord's option, any property thereon, without being liable to indictment,
prosecution or damage therefor. Tenant shall not have the right to prevent
said termination by payment of any sum due or the performance of any other
obligations under the Lease.
SECTION 23.4 Additional Remedies. Upon the occurrence of an Event of
Default, Tenant shall pay Landlord, at Landlord's option, upon demand, an
amount equal to the sum of the aggregate of the fixed minimum rent reserved
for the balance of the term of this Lease then discounted at the rate of five
percent (5%) per annum to present worth, minus the fair and reasonable net
rental value of the premises for said unexpired term or portion, also
discounted at the rate of five percent (5%) per annum to present worth.
Alternatively, upon the occurrence of
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an Event of Default, Tenant shall pay Landlord, at Landlord's option, for each
month of the period which would otherwise have constituted the balance of the
term, the excess, if any, of the fixed minimum rent for such month over the net
amount, if any, of the rents actually collected on account of the leasing of
the premises for such month. In computing such damages, there shall be added
to the said deficiency such expenses as Landlord may incur in connection with
reletting, including, without limitation, court costs, attorney's fees,
brokerage fees, management fees, repair costs and costs of preparing the
premises for reletting. The damages in the second sentence of this Section
23.4 shall be paid in monthly installments by Tenant on the day specified in
this Lease for the payment of fixed minimum rent and any action brought to
collect the amount of deficiency for any month shall not prejudice in any way
either the rights of Landlord to collect the deficiency for any subsequent
month by a similar proceeding, or the rights of Landlord to elect to collect
damages in accordance with the first sentence of this Section 23.4. Landlord
shall not be liable, and Tenant shall not be released from any liability, due
to Landlord's failure or refusal to relet the premises or, in the event that
the premises are relet, due to Landlord's failure or refusal to collect the
rent thereof under such reletting.
SECTION 23.5 Acceleration of Rent. Upon the occurrence of an Event of
Default, the entire fixed minimum rent reserved for the balance of the term of
this Lease and all other sums payable hereunder for the balance of the term
shall immediately become due and payable as if by terms of this lease they were
payable in advance, and Landlord may immediately proceed to distrain, collect,
confess judgment or bring action for said rent and other sums, as being in
arrears, or may enter judgment therefor by confession as herein provided for in
case of rent and other sums in arrears, or may file a proof of claim in any
bankruptcy or insolvency proceedings for such rent and other sums, or Landlord
may institute any other proceedings to enforce payment thereof.
SECTION 23.6 CONFESSION OF JUDGMENT. THE FOLLOWING PARAGRAPH SETS FORTH A
WARRANT OF AUTHORITY FOR AN ATTORNEY TO CONFESS JUDGMENTS AGAINST TENANT OR TO
SIGN AND FILE AN ANSWER ON TENANT'S BEHALF FOR POSSESSION OF THE PREMISES. IN
GRANTING THIS WARRANT OF ATTORNEY TO CONFESS JUDGMENTS AGAINST TENANT AND TO
SIGN AND FILE AN ANSWER ON TENANT'S BEHALF, TENANT HEREBY KNOWINGLY,
INTENTIONALLY AND VOLUNTARILY, AND, ON THE ADVICE OF THE SEPARATE COUNSEL OF
TENANT, UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS TENANT HAS OR MAY HAVE WITH
RESPECT TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING UNDER THE RESPECTIVE
CONSTITUTIONS AND LAWS OF THE UNITED STATES AND THE LAWS OF THE STATE IN WHICH
THE BUILDING IS LOCATED.
(a) Upon the occurrence of an Event of Default, or upon the
termination of this Lease, the original term hereof or any renewal or extension
thereof on account of any default by Tenant hereunder, or upon the expiration
of the original term of this Lease or any renewal or extension thereof, it
shall be lawful for any Prothonotary or attorney of any court of record to
appear for Tenant, as well as for all persons claiming by, through or under
Tenant, and to (i) confess judgment against Tenant for recovery of possession
of the premises, and/or (ii) sign and file for Tenant an answer in response to
any action instituted by Landlord against Tenant in any
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competent Court for the recovery of possession of the premises, wherein Tenant
admits all allegations set forth in such action (for either of which this Lease
or a true and correct copy thereof shall be a sufficient warrant); whereupon,
if Landlord so desires, a writ of possession may issue forthwith, without any
prior writ or proceedings whatsoever. If for any reason after judgment has
been confessed or an answer signed and filed as provided above, the same shall
be determined and the possession of the premises remain in or be restored to
Tenant, Landlord shall have the right upon any subsequent Event(s) of Default,
or upon the termination or expiration of this Lease or Tenant's right of
possession as herein set forth, to proceed against Tenant in the manner herein
set forth to recover possession of the premises. No such determination or
recovery of possession of premises shall deprive Landlord of any remedies or
action against Tenant for damages due or to become due for Tenant's breach of
this Lease nor shall the resort to any other remedy provided for the recovery
of damages for such breach be construed as a waiver of Landlord's right to
obtain possession of the premises in the manner herein provided.
(b) In any action instituted by Landlord pursuant to subparagraph (a)
above, Landlord shall first cause to be filed in such action an affidavit made
by it or some person acting for it setting forth the facts necessary to
authorize the entry of judgment, of which facts such affidavit shall be
conclusive evidence, and, if a true copy of this Lease is filed in such action,
it shall not be necessary to file the original as a warrant of attorney, any
rule of court, custom or practice to the contrary notwithstanding.
(c) The right to enter judgment against Tenant by confession, sign and
file an answer for Tenant and to enforce all of the other provisions of this
Lease, may be exercised by any assignee or Landlord's right, title and interest
in this Lease in said assignee's name, any statute, rule of court, custom or
practice to the contrary notwithstanding.
SECTION 23.7 Finality of Judgment. Tenant expressly agrees that any
judgment, order or decree entered against it by or in any Court or Magistrate
by virtue of the powers of attorney contained in this Lease or otherwise shall
be final, and that Tenant shall not take an appeal, certiorari, writ or error,
exception or objection to same nor file a motion or rule to strike off or open
or stay execution of the same, and that Tenant hereby releases to Landlord and
to any and all attorneys who may appear for Tenant all errors in the said
proceedings. Tenant waives all errors, defects and imperfections in entering
any judgment, order or decree or in any writ, or process, or proceeding
thereon. Tenant further waives the right to inquisition on any real estate
that may be levied upon to collect any amount which may become due under the
terms and conditions of this Lease, and does hereby voluntarily condemn the
same and authorize the Prothonotary to enter a writ of execution or other
process upon Tenant's voluntary condemnation, and further agrees that the said
real estate may be sold on a writ of execution or other process.
SECTION 23.8 Default Prior to Possession. In the event Tenant breaches or
threatens to breach this Lease prior to possession, in addition to any other
rights accruing to Landlord, Landlord may terminate this Lease by giving Tenant
five (5) days written notice of its intent to do so, whereupon all security
deposits shall be retained by Landlord and Landlord, at its option, may proceed
to relet the premises with no liability or obligation to Tenant whatsoever.
This section shall be self-operative and no further instruments of termination
shall be required.
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SECTION 23.9 Waiver. Tenant expressly waives the service of notice of
intention to re-enter or to institute legal proceedings to that end or any
other notice which may be required to be given prior to any re-entry by
Landlord and any and all rights of redemption granted by or under any present
or future laws in the event of Tenant being evicted or dispossessed for any
cause, or in any event of Landlord obtaining possession of the premises by
reason of the violation by Tenant of any of the terms of this Lease or
otherwise. The words "re-enter" and "re-entry" as used in this Lease are not
restricted to their technical legal meaning.
SECTION 23.10 Recovery of Legal Expenses. In the event Landlord shall
engage the services of an attorney for recovery of possession of the premises,
for the recovery of rent or any other amount due under this Lease, or because
of Tenant's breach of any of the terms hereof, regardless of whether suit shall
be brought, and a breach shall be established, Tenant shall pay to Landlord all
expenses incurred therefor, including all court costs and reasonable attorneys'
fees.
SECTION 23.11 All Remedies Cumulative. Each right and remedy of Landlord
provided for in this Lease shall be cumulative and shall be in addition to
every other right or remedy provided for in this Lease or now or hereafter
existing at law, in equity, by statute or otherwise, and the exercise of any
one or more of such rights and remedies shall not preclude the simultaneous or
later exercise of any or all other such rights and remedies.
ARTICLE XXIV
FORCE MAJEURE
SECTION 24.1 Delay or Non-Performance Excused. Notwithstanding anything to
the contrary contained in this Lease, in the event that Landlord or Tenant
shall be delayed, hindered or prevented from the performance of any of
Landlord's obligations hereunder by reason of strikes, lock-outs, labor
troubles, riots, insurrection, war, governmental restrictions, scarcity of
labor or materials, or any other reasons beyond their respective control, then
the performance of such obligation shall be excused for the period of delay,
and the period for the performance of any such act shall be extended for a
period equivalent to the period of such delay.
ARTICLE XXV
ESTOPPEL STATEMENT
SECTION 25.1 Estoppel Statement. At any time and from time to time, within
ten (10) days after request therefor by Landlord, Landlord's mortgagee or
purchaser ("Requesting Party"), Tenant shall execute and deliver to Requesting
Party, without charge and in a form satisfactory to Requesting Party, a written
statement in recordable form, certifying that this Lease is in full force and
effect and has not been amended except by such writings as shall be stated;
certifying that Landlord is not in default under this Lease and there are no
defenses or offsets thereto or stating those claimed by Tenant; certifying the
commencement and expiration dates of the term of this Lease; certifying that
Tenant is in occupancy of the premises, certifying the advance rent and
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security paid to or deposited with Landlord and the date to which rent and
other charges have been paid; and such additional information as may be
reasonably requested by Requesting Party.
ARTICLE XXVI
NOTICES
SECTION 26.1 Manner and Place of Service. Wherever in this Lease it shall
be required or permitted that notice, demand or consent be given or served by
either party to this Lease to or on the other, such notice, demand or consent
shall not be deemed to have been duly given or served unless in writing and
either personally delivered, sent by certified mail, return receipt requested,
postage prepaid, or by private delivery service guaranteeing overnight delivery
(such as Federal Express), addressed to Landlord at Landlord's address set
forth in the Indenture of Lease, and addressed to Tenant at Tenant's address
set forth in the Indenture of Lease. Each party hereto may change its address
for receipt of notices upon notification to the other parties in conformance
herewith. All notices shall be deemed given on the date personally delivered,
two (2) business days after deposited in the United States mail, or one (1)
business day after deposited with said private delivery service.
ARTICLE XXVII
BROKERS
SECTION 27.1 Tenant's Warranty. Each party hereto represents and warrants
to the other that there are no fees, commissions or other payments due for
bringing about the execution and delivery of this Lease. In the event of
breach of such representation and warranty, each party hereby indemnifies and
holds harmless the other of and from each and every claim for fees, commissions
or other payments made against such other party, which claim is based on the
agreement or undertaking of the indemnifying party.
ARTICLE XXVIII
ENVIRONMENTAL CONSIDERATIONS
SECTION 28.1 Environmental Considerations.
(a) Subject to the provisions of Section 28.2 below, Tenant agrees
that it shall, at its sole cost and expense, promptly fulfill and comply with
all laws, ordinances, regulations and requirements of the municipal, county,
state and federal governments and any and all departments thereof having
jurisdiction over the Building, and of the National Board of Fire Underwriters
or any other similar body now or hereafter constituted, affecting the Tenant's
use or occupancy of the Premises or the business conducted therein.
(b) For purposes of this Section 28, the following definitions shall
apply:
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(i) "Environmental Release": The term Environmental Release
shall mean any intentional or unintentional releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing, abandoning, discarding or dumping of any Toxic Substance
(hereinafter defined) from, on, into or about the land, water or air of the
Premises, the Building, the common areas in the Building or the real property
surrounding the Building.
(ii) "Toxic Substance": The term Toxic Substance shall mean a
hazardous substance, hazardous waste, pollutant or contaminant, such as terms
are now or hereafter defined in all applicable federal, state, and local laws,
ordinances or regulations now or hereafter enacted or amended, and any and all
other terms which are or may be used in any or all applicable laws now or
hereafter enacted to define prohibited or regulated substances.
(c) Tenant shall not use the Premises, the Building, the common areas
in the Building or the real property surrounding the Building (or any part of
the Premises, the Building, the common areas or real property) for the purpose
of treating, producing, handling, transferring, processing, transporting,
disposing, using or storing a Toxic Substance.
(d) Tenant and its agents, employees, contractors, licensees and
invitees shall not cause or permit to exist, as the result of an action or
omission by one or more of them, an Environmental Release. The occurrence of
an Environmental Release, or a violation of any covenant, representation or
warranty of this Section 28, shall be deemed an Event of Default under this
Lease.
(e) Notwithstanding the foregoing, Tenant may use cleaning materials
and office supplies in the ordinary course of Tenant's business, in reasonable
quantities and provided that such materials and supplies are used, stored and
disposed of in compliance with any and all applicable laws, ordinances and
regulations, as now or hereafter enacted.
(f) Tenant shall dispose, remove and/or arrange for the disposal
and/or removal of its trash by a trash disposal company, approved by Landlord,
which shall be operated in accordance with applicable laws, ordinances and
regulations. Tenant and its agents, employees, contractors, licensees and
invitees shall not place or permit the placement of any Toxic Substance in any
waste receptacle located in the Premises, the Building, the common areas in the
Building, the plumbing or sewer systems of the Building or the real property
surrounding the Building.
(g) Tenant shall comply with all applicable laws, ordinances and
regulations of all governmental authorities, as now or hereafter enacted,
including, without limitation, all laws, ordinances and regulations governing a
Toxic Substance.
(h) The covenants, representations and warranties provided in this
Section shall survive the expiration or earlier termination of this Lease.
(i) Tenant shall pay, defend, indemnify, and hold harmless Landlord
from and against any and all claims, losses, costs, damages, liabilities and
fines arising from or relating to Environmental Releases by Tenant or Tenant's
agents, employees, contractors, licensees or
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invitees or the failure of Tenant, or its agents, employees, contractors,
licensees or invitees to comply with the provisions of this Section.
SECTION 28.2 Landlord's Indemnification. Landlord shall pay, defend,
indemnify, and hold harmless Tenant from and against any and all claims,
losses, costs, damages, liabilities and fines arising from or relating to
Environmental Releases or Toxic Substances existing on the premises on or
before the Commencement Date.
ARTICLE XXIX
MISCELLANEOUS
29
SECTION 29.1 Binding Effect. All rights, obligations and liabilities
herein given to or imposed upon the respective parties hereto shall extend to
and bind the several respective heirs, personal representatives, successors and
assigns of the said parties; and if there shall be more than one tenant, they
shall all be bound jointly and severally by the terms, covenants and agreements
herein. No rights, however, shall inure to the benefit of any assignee of
Tenant unless the assignment to such party has been approved by Landlord in
writing as provided herein. Landlord shall have the unrestricted right to
assign this Lease and upon any such assignment, Landlord shall automatically be
released from all liability hereunder from and after the date of such
assignment. All of Tenant's obligations under this Lease which by their nature
or terms apply to the period after the expiration or earlier termination of
this Lease shall survive the expiration or earlier termination of this Lease.
SECTION 29.2 Quiet Enjoyment. So long as Tenant shall pay the rents and
other charges herein provided within the respective times provided therefor,
and provided and so long as Tenant observes and performs all the covenants,
terms and conditions on Tenant's part to be observed and performed, Tenant
shall peaceably and quietly hold and enjoy the premises for the term of this
Lease without hindrance or interruption by Landlord or any other person or
persons lawfully claiming by, through or under Landlord, subject, nevertheless,
to the terms and conditions of this Lease.
SECTION 29.3 Waiver. The waiver by Landlord of any breach of any term,
covenant or condition herein contained shall not be deemed to be a waiver of
any subsequent breach of the same or a waiver of any other term, covenant or
condition herein contained. No covenant, term or condition of this Lease shall
be deemed to have been waived by Landlord, unless such waiver be in writing and
executed by Landlord.
SECTION 29.4 Custom and Usage. Landlord shall have the right at all times
to enforce the covenants and conditions of this Lease in strict accordance with
the terms hereof, notwithstanding any conduct or custom on the part of the
Landlord in refraining from so doing at any time or times with respect to the
Tenant hereunder or with respect to other tenants of the Building. The failure
of Landlord at any time or times to enforce its rights under said covenants and
provisions strictly in accordance with the same shall not be construed as
having created a
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custom in any way or manner contrary to the specific terms, provisions and
covenants of this Lease or as having in any way or manner modified the same.
SECTION 29.5 Accord and Satisfaction. No payment by Tenant or receipt by
Landlord of a lesser amount than any payment of rent or other charges herein
stipulated shall be deemed to be other than on account of the earliest
stipulated rent or other charges then due and payable. Landlord shall not be
bound by any endorsement or statement on any check or any letter accompanying
any check or payment and no such endorsement, statement or letter shall be
deemed an accord and satisfaction. Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of such rent or
other charges or pursue any other remedy.
SECTION 29.6 Performance of Tenant's Obligations. Tenant shall perform all
of its obligations under this Lease. If Tenant shall not perform any of its
obligations under this Lease, Landlord, in addition to, and not in lieu of or
in limitation of any other remedy, may, but shall not be obligated to, enter
upon the premises, if necessary, and perform such obligation. Landlord shall
have no liability to Tenant for any loss or damage resulting in any way from
such action and Tenant agrees to pay, upon demand, any sums or costs incurred
by Landlord in taking such action, plus administrative costs of Landlord in a
sum equal to twenty percent (20%) of such sums and/or costs. Notwithstanding
the foregoing, Landlord's performance of any or all of Tenant's obligations
shall not release Tenant from liability for non- performance.
SECTION 29.7 Entire Agreement. The Indenture of Lease, this Lease
Agreement and the Exhibits set forth all the agreements and understandings
between Landlord and Tenant concerning the premises and there are no agreements
or understandings, either oral or written, between them other than as herein
set forth. All prior arrangements and understandings, whether oral or written,
between the parties hereto are merged herein and extinguished, this Lease
superseding and cancelling the same. No amendment to this Lease shall be
binding upon Landlord or Tenant unless reduced to writing and executed by the
party against which such amendment is to be enforced.
SECTION 29.8 No Partnership. Landlord does not become a partner of Tenant
in the conduct of its business, or otherwise, or joint venturer or a member of
a joint enterprise with Tenant.
SECTION 29.9 Negation of Personal Liability. Notwithstanding anything
contained herein to the contrary, Tenant agrees that Landlord shall have no
personal liability with respect to this Lease and Tenant shall look solely to
the estate and property of Landlord in the Land and the Building for the
satisfaction of Tenant's remedies. No other assets of Landlord or any
principal of Landlord shall be subject to levy, execution or other judicial
process for the satisfaction of Tenant's claim and, in the event Tenant obtains
a judgment against Landlord, the judgment docket shall be so noted. This
Section shall inure to the benefit of Landlord and Landlord's successors and
assigns and their respective principals.
SECTION 29.10 Partial Invalidity; Separate Covenants. If any portion of
this Lease or the application thereof to any person or circumstances shall be
invalid or unenforceable, the
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remainder of this Lease and the application of such portion to persons or
circumstances other than those as to which it is held invalid or unenforceable
shall not be affected thereby, and each term, covenant and condition of this
Lease shall be valid and be enforced to the fullest extent permitted by law.
Furthermore, each covenant, agreement, obligation and other provision contained
in this Lease is, and shall be deemed and construed as, a separate and
independent covenant of the party bound by, undertaking or making the same, and
not dependent on any other provision of this Lease.
SECTION 29.11 Recording. This Lease shall not be recorded. If Landlord
requests, the parties shall execute and acknowledge a short form of lease for
recording purposes which shall be recorded at Landlord's expense.
SECTION 29.12 Controlling Law. This Lease shall be interpreted and
construed in accordance with the laws of the state in which the Building is
located.
SECTION 29.13 Construction. If any term of this Lease is capable of two or
more constructions, one or more of which would render the provision void, and
the other(s) of which would render the provision valid, then the provision
shall have the meaning or meanings which would render it valid. Landlord and
Tenant agree that time is of the essence with respect to the performance of the
respective obligations set forth in this Lease.
SECTION 29.14 WAIVER OF JURY TRIAL. LANDLORD AND TENANT HEREBY EACH WAIVE
THE RIGHT TO A JURY TRIAL IN CONNECTION WITH ANY LITIGATION INSTITUTED BY
EITHER PARTY AGAINST THE OTHER CONCERNING THIS LEASE OR THE TENANCY CREATED
HEREUNDER.
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SECTION 29.15 Submission of Lease to Tenant. The submission by Landlord to
Tenant of this Lease shall have no binding force or effect, shall not
constitute an option for the leasing of the premises, and shall not confer any
rights or impose any obligations upon either party until the execution thereof
by Landlord and the delivery of an executed original copy thereof to Tenant or
Tenant's representative.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have hereunto set their hands and seals the day and year first above
written.
WITNESS/ATTEST: ACORN BEHAVIORAL HEALTHCARE
MANAGEMENT CORPORATION, a
Pennsylvania corporation
By:
- ------------------------------ ------------------------------
(Assistant) Secretary (Vice) President
LANDLORD:
M & B GOLDSMITH, a Pennsylvania
general partnership
By:
- ------------------------------ ------------------------------
, General Partner
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EXHIBIT A
SITE PLAN
<PAGE> 81
EXHIBIT B
GUARANTY AND SURETYSHIP AGREEMENT
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GUARANTY AND SURETYSHIP AGREEMENT
THIS GUARANTY AND SURETYSHIP AGREEMENT is made this ____ day of
____________, 1997, by HORIZON HEALTH CORPORATION, a Texas corporation, with an
address at ____________________________________________________ ("Guarantor"),
to M & B GOLDSMITH, a Pennsylvania general partnership, with an address at 301
Carnegie Center, CN 5316, Princeton, NJ 08543-5316 ("Landlord").
BACKGROUND
Landlord is the owner of that certain parcel of land, with the
improvements thereon, located at 134 North Narberth Avenue, in the Borough of
Narberth, Montgomery County, Pennsylvania ("Property"). Pursuant to that
certain Lease Agreement, dated as of the date hereof ("Lease"), Acorn
Behavioral Healthcare Management Corporation ("Acorn"), an affiliate of
Guarantor, has agreed to lease from landlord, and Landlord has agreed to lease,
the Property.
As a condition to entering into the Lease with Acorn, Landlord has
required Acorn to obtain this Guaranty and Suretyship Agreement from Guarantor.
Guarantor acknowledges that Acorn is an affiliate of Guarantor, that Acorn will
directly and materially benefit from the making of the Lease as described
above, and that therefore Guarantor will directly and materially benefit from
the making of the Lease as described above.
NOW, THEREFORE, for good and valuable consideration, and intending to be
legally bound hereby, Guarantor agrees as follows:
1. Guarantor hereby unconditionally and absolutely guarantees and
acts as surety for the due and punctual payment and performance of all of
Acorn's obligations, monetary and non-monetary, as tenant under the Lease
(collectively, the "Obligations"). The Recitals to this Guaranty are
incorporated herein.
2. Guarantor hereby waives any right to notice of acceptance of or
reliance upon this Guaranty by Landlord. Guarantor expressly understands and
agrees that Guarantor's liability hereunder shall be unaffected by (a) any
modification of the Lease, (b) any extension of time for performance required
thereby, or (c) the release of Acorn from performance or observance of any of
the agreements, covenants, terms or conditions contained in the Lease by
operation of law, whether made with or without notice to Guarantor.
3. This agreement shall be an agreement of suretyship as well as of
guaranty, and Landlord may proceed directly against Guarantor without being
required to first proceed against Acorn or any other person or entity, and
without first resorting to or exhausting any other security or collateral, or
any other remedy or remedies to enforce the performance or payment of the
Obligations.
4. Guarantor's liability for the Obligations hereunder shall not be
impaired, modified, changed, released, or limited in any manner whatsoever by
any impairment,
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modification, change, release, or limitation of the liability of Acorn or its
estate in bankruptcy resulting from the operation of any present or future
provision of the Federal Bankruptcy Code or other similar statute, or from the
decision of any court; or any insolvency, reorganization, arrangement,
readjustment, composition, liquidation, or similar proceeding relating to Acorn
or its properties or creditors; or any presently existing or hereafter enacted
law, ordinance, regulation, judicial decision or administrative decision of any
type or nature, including, without limitation, any law, ordinance, regulation,
judicial decision or administrative decision which limits or impairs Acorn's
ability to perform its obligations pursuant to the Lease. Guarantor further
expressly waives any defense against the Obligations hereunder arising from any
alleged lack or failure of consideration. The obligations of Guarantor
hereunder shall be unconditional and irrevocable, irrespective of either (a)
the genuineness, validity or enforceability of Lease, (b) the sale or other
transfer of all or any portion of the Property, (e) any defense that may arise
by reason of the incapacity or lack of authority of Acorn or the undersigned or
the failure of Landlord to file or enforce a claim against the estate of Acorn
in any bankruptcy or other proceeding, or (f) any other circumstances which
might otherwise constitute a legal or equitable discharge or release of a
guarantor or surety.
5. If any clause or provision herein contained shall operate to
invalidate this Guaranty, in whole or in part, then such clause or provision
only shall be held for nought as though not herein contained and the remainder
of this Guaranty shall remain operative and in full force and effect.
6. To further induce Landlord to enter into the Lease with Acorn,
Guarantor represents and warrants to Landlord as follows:
(a) Guarantor has the full legal authority and capacity to
enter into and perform this Guaranty, and to incur the obligations herein
provided for;
(b) The making and performance of this Guaranty will not
immediately, or with the passage of time, the giving of notice, or both:
(i) Violate any laws or result in a default under any
contract, agreement, or instrument to which Guarantor is a party or by which
Guarantor or its property is bound; or
(ii) Terminate or give any party the right to terminate
any contract, agreement or instrument to which Guarantor is a party or by which
its properties may be bound or affected.
(c) This Guaranty is the valid and binding obligation of
Guarantor, and fully enforceable in accordance with its terms, subject as to
enforcement of remedies only to any applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditor's rights
generally;
(d) Guarantor is not a party to or, to Guarantor's best
knowledge, threatened with, any litigation, suit, action, investigation,
proceedings or controversy before any court,
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administrative agency or other governmental authority which might result in any
materially adverse change in Guarantor's business operations, properties or
assets or in Guarantor's condition, financial or otherwise, or in any way
involving this Guaranty, or the transaction contemplated hereby, and Guarantor
is not in violation of or in default with respect to any judgment, order, writ,
injunction, decree or rule to which Guarantor is a party of any court,
administrative agency or governmental instrumentality or under any regulation
of any administrative agency or governmental instrumentality.
7. All notices, requests and demands upon the respective parties
hereto shall be effective when hand delivered to such party at the address set
forth above, or if sent by overnight delivery service, on the next business
day, or if sent by United States mail, postage prepaid, registered or certified
mail, on the second business day after the day on which mailed or sent,
addressed to such party at its address first set forth above or at such other
address as such party may hereafter designate by a notice given in like
fashion.
8. This Guaranty shall automatically become null and void one year
and one day after the Lease has expired by its own terms or been earlier
terminated by mutual agreement of the parties thereto.
9. IN ANY ACTION OR PROCEEDING BROUGHT ON, UNDER OR BY VIRTUE OF
THIS GUARANTY, THE UNDERSIGNED HEREBY WAIVES TRIAL BY JURY.
10. An Event of Default shall occur hereunder if (a) Guarantor
violates any provision, covenant or agreement contained herein, or (b) any
representation or warranty of Guarantor proves to be materially false or
incorrect, or (c) an Event of Default occurs under the Lease, or (d) upon the
appointment of a receiver, liquidator or trustee of Guarantor or of any of the
property of Guarantor, insolvency of Guarantor or the adjudication of Guarantor
as a bankrupt or the filing by Guarantor (or against Guarantor if the same
shall not be discharged within 30 days) of any case or petition for the
bankruptcy, reorganization or arrangement of Acorn pursuant to the Federal
Bankruptcy Code or any similar statute. Guarantor agrees to pay to Landlord on
demand all costs and expenses, including attorneys' fees and legal expenses,
which may be incurred in the enforcement of Guarantor's obligations or the
liability of Guarantor hereunder, whether or not suit is instituted.
11. Guarantor hereby authorizes any attorney of any Court of Record
in Pennsylvania or elsewhere to appear for Guarantor in any action brought on
this Guaranty, and to confess judgment against Guarantor for all of Acorn's
obligations then due pursuant to the terms of the Lease, and for costs of suit
and a reasonable attorney's commission, together with interest thereon at the
then highest judicial rate, and for so doing this shall be a good and
sufficient warrant. Guarantor waives and relinquishes all errors, defects and
imperfections in the entry of judgment as aforesaid, or in any proceeding
pursuant thereto, and all benefits that may accrue to Guarantor by virtue of
any law or rule of court relating to a stay of execution or exempting any
property from levy or sale under execution. The authority herein granted to
confess judgment shall not be exhausted by any exercise thereof but shall
continue from time to time and at all times until all of Guarantor's
Obligations to Landlord have been fully discharged.
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12. No agreement unless in writing and signed by Landlord and no
course of dealing between Guarantor or Acorn and Landlord shall be effective to
change or modify or to discharge in whole or in part this Guaranty. No waiver
of any rights, or powers of Landlord or consent by it shall be valid unless in
writing, signed by an authorized officer. Any failure by Landlord to exercise
any right hereunder shall not be construed as a waiver of the right to exercise
the same or any other right at any time and from time to time thereafter.
13. This Agreement shall be binding upon Guarantor, its successors
and assigns, and shall inure to the benefit of Landlord and its successors and
assigns.
14. Guarantor irrevocably consents to the jurisdiction of the State
and federal courts in Pennsylvania, in any and all actions and proceedings
whether arising hereunder or under any other agreement. Guarantor waives any
objection, now or hereafter, to the laying of venue of any such action, suit or
proceeding, and irrevocably submits to the jurisdiction of either of said
courts in any action, suit or proceeding. Any service of process and other
notice in any action, suit or proceeding shall be effective against Guarantor
if given by registered or certified mail, return receipt requested, or by any
other means of mail which requires a signed receipt, postage prepaid, mailed to
Guarantor as herein provided for notice purposes. Nothing herein contained
shall be deemed to affect the right of Landlord to serve process in any other
manner permitted by law or to bring proceedings against Guarantor in any other
jurisdiction where such proceedings might also be lawfully brought.
15. This Guaranty shall be construed in accordance with and governed
as to its validity, interpretation and effect by the laws of the Commonwealth
of Pennsylvania.
16. Guarantor hereby confirms full knowledge and acceptance of the
terms and provisions of the Lease and this Guaranty, as to all of which
Guarantor further acknowledges that Guarantor has received the advice of
counsel.
17. If any clause or provision herein contained shall operate to
invalidate this Guaranty, in whole or in part, then such clause or provision
only shall be held for nought as though not herein contained and the remainder
of this Guaranty shall remain operative and in full force and effect.
18. THIS GUARANTY CONTAINS A WAIVER OF TRIAL BY JURY (PARAGRAPH 9).
IN WAIVING TRIAL BY JURY, GUARANTOR HEREBY KNOWINGLY, INTENTIONALLY, AND
VOLUNTARILY, AND (ON THE ADVICE OF THE SEPARATE COUNSEL) UNCONDITIONALLY WAIVES
ANY AND ALL RIGHTS GUARANTORS HAVE OR MAY HAVE TO TRIAL BY JURY UNDER THE
CONSTITUTIONS AND LAWS OF THE UNITED STATES AND THE COMMONWEALTH OF
PENNSYLVANIA. GUARANTOR ACKNOWLEDGES THAT THIS GUARANTY CONTAINS A CONFESSION
OF JUDGMENT (PARAGRAPH 11) AND A WAIVER BY GUARANTOR OF ANY RIGHT TO NOTICE OR
AN OPPORTUNITY TO BE HEARD PRIOR TO ENTRY OF JUDGMENT ON THIS JUDGMENT AGAINST
GUARANTOR.
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IN WITNESS WHEREOF, Guarantor has executed, sealed and delivered
this Guaranty the day and year first above written.
HORIZON HEALTH CORPORATION, a Texas
corporation
Attest: By: (SEAL)
------------------------ ------------------------
, (Vice) President
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EXHIBIT C
POST-CLOSING ESCROW AGREEMENT
This Post-Closing Escrow Agreement (the "Agreement") is made as of
October 31, 1997 by and among Horizon Health Corporation, a Delaware
corporation ("Horizon"); Dr. Melvyn S. Goldsmith, Ph.D. and Barbara C.
Goldsmith (collectively, the "Shareholders") and Fox, Rothschild, O'Brien & &
Frankel, LLP ("Escrow Agent").
WHEREAS, Horizon, the Shareholders and Acorn Behavioral HealthCare
Management Corporation, a Pennsylvania corporation ("Acorn"), entered into that
certain Stock Purchase Agreement, dated as of October 20, 1997 (the "Stock
Purchase Agreement"), providing for the sale of all the outstanding shares of
capital stock of Acorn by the Shareholders to Horizon;
WHEREAS, pursuant to the Stock Purchase Agreement, the Shareholders
agreed to collectively deposit the sum of One Million Dollars ($1,000,000),
representing a portion of the Purchase Price paid to the Shareholders under the
Stock Purchase Agreement, in escrow for the purposes and on and subject to the
terms and conditions hereinafter set forth; and
WHEREAS, the transactions contemplated by the Stock Purchase Agreement
have been consummated on the date hereof and the parties desire to effectuate
the provisions of the Stock Purchase Agreement with respect to such
post-closing escrow fund;
NOW, THEREFORE, in consideration of the premises and the mutual terms
and conditions hereof, the parties hereby agree as follows:
1. Escrow Money. Simultaneously with the execution of this
Agreement, the Shareholders have deposited with the Escrow Agent the sum of One
Million Dollars ($1,000,000) (the "Escrow Money") which constitutes a portion
of the purchase price paid to the Shareholders pursuant to the Stock Purchase
Agreement. The receipt of the deposit of the Escrow Money is hereby
acknowledged by the Escrow Agent by its execution hereof.
2. Escrow Account. The Escrow Money shall be held in escrow by
the Escrow Agent pursuant and subject to the terms and conditions of this
Agreement. Upon receipt of the Escrow Money, the Escrow Agent shall place the
Escrow Money into any money market mutual fund rated AAA or higher by Standard
and Poor's or Moody's, United States treasury bills or other financial
instruments having comparable rating and security as directed in writing by the
Shareholders with a maturity date not in excess of ninety (90) days under the
respective social security numbers of the Shareholders. It is understood and
agreed that the depository will be issuing a 1099 INT Statement to the
Shareholders and the Internal Revenue Service. The Shareholders shall have the
responsibility as to any 1099 INT reporting thereof. The Escrow Agent shall
invest the Escrow Money in financial investments as described above as the
Shareholders may direct from time to time pursuant to reasonable instructions
of the Shareholders which in each case may be given verbally and confirmed
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in writing and sent to the Escrow Agent no later than the next business day.
The Escrow Money shall at all times be held in a separate account and shall
only be disbursed and delivered pursuant to the terms and conditions of this
Agreement.
3. Terms of Escrow. The Escrow Money shall be held as a fund
available to satisfy any obligations of Shareholders to Horizon which may arise
under Section 7.2(a) of the Stock Purchase Agreement in the manner set forth
below:
(a) In the event that Horizon shall assert a claim or
claims against the Shareholders arising out of or relating to any
matter with respect to which Horizon asserts that it is entitled to be
indemnified by the Shareholders pursuant to Section 7.2(a) of the
Stock Purchase Agreement (collectively, the "Claims"; singularly a
"Claim"), Horizon shall furnish written notice of the Claim (the
"Notice of Claim") to the Shareholders and the Escrow Agent. The
Notice of Claim: (i) shall state in reasonable detail the nature of
the alleged liability; (ii) shall state the amount of the payment that
Horizon claims it is entitled to receive from the Escrow Money based
upon Horizon's estimate of the potential loss; and (iii) shall further
provide a particularized statement explaining the basis for such
estimate. The Shareholders shall have thirty (30) days after receipt
of the Notice of Claim in which to advise the Escrow Agent and Horizon
that the Shareholders dispute the Claim by delivering written notice
of the Shareholders' dispute ("the Notice of Dispute") to the Escrow
Agent and Horizon. The Notice of Dispute may contest all or any
portion of the Notice of Claim based on a dispute concerning the
existence of a Claim, the Shareholders' liability, the estimated
amount of the alleged loss or any other related matter. The amount of
any Claim that is disputed by the Shareholders shall be held by the
Escrow Agent until the Claim is resolved in accordance with the
provisions of the Stock Purchase Agreement.
(b) If the Shareholders shall not deliver a Notice of
Dispute within such thirty (30) day period, the Shareholders shall be
deemed to have acknowledged that Horizon is entitled to payment as set
forth in the Notice of Claim and shall be deemed to have directed the
Escrow Agent to disburse such payment (the "Claim Payment") to
Horizon. In the event a Notice of Dispute is timely delivered but
only a portion of a Claim is disputed, then the undisputed portion of
the Claim (the "Undisputed Claim Payment") shall be promptly disbursed
to Horizon and only the sum that is subject to a dispute shall be held
by the Escrow Agent.
(c) Subject to the Shareholders' right to dispute a
Claim, once a Notice of Claim is delivered to the Escrow Agent, the
Escrow Agent shall not permit the Escrow Money to be reduced by
disbursement to the Shareholders to an amount which is less than the
difference between the aggregate dollar amount of all Claims for which
a Notice of Claim has delivered in accordance with the terms of
Section 3(a) above less the amount of $35,000. Furthermore, if the
amount of any Claim or the aggregate amount of all Claims should ever
exceed the sum of $35,000 plus the amount of the Escrow Money, then no
portion of the Escrow Money shall be disbursed pursuant to Section
3(d) below.
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(d) On the date which is one (1) year after the date of
this Agreement (the "Release Date"), the Escrow Agent after payment of
all fees and expenses due to Escrow Agent shall irrevocably and
unconditionally disburse to the Shareholders the Escrow Money (less
the aggregate dollar amount of each Claim previously paid to or for
Horizon pursuant to the terms of this Agreement) to the extent it
exceeds the aggregate dollar amount of any then existing Claim or
Claims for which a Notice of Claim was delivered by Horizon on or
prior to the Release Date in accordance with the terms of Section 3(a)
above less the amount of $35,000. The portion of the Escrow Money, if
any, retained after the Release Date shall be disbursed to the
Shareholders or Horizon, as appropriate, in one or more disbursements,
from time to time, as and when there is a final resolution of each
such Claim; provided, however, that no disbursement will be made to
the Shareholders upon final resolution of a Claim if the aggregate
amount of the remaining unresolved Claims exceeds the amount of the
Escrow Money then on deposit in the Escrow Account.
(e) Unless delivery is made in person at the Escrow
Agent's office or unless the Escrow Agent is properly instructed in
writing by Horizon or the Shareholders, as the case may be, to make
delivery in such other manner, the Escrow Agent shall be deemed to
have properly delivered to Horizon or the Shareholders, as the case
may be, such funds as Horizon or the Shareholders are entitled to
receive, upon placing the same in United States Mail in a suitable
package or envelope, registered or certified mail, return receipt
requested, postage prepaid, addressed to the address listed in Section
7 hereof or such other address as may be furnished to the Escrow Agent
in writing.
(f) Without any notice to or consent by Horizon, interest
or other earnings on the Escrow Money shall be disbursed to the
Shareholders by the Escrow Agent on a monthly basis pursuant to the
instructions of the Shareholders, both before and after the Release
Date.
(g) Notwithstanding any other provision hereof which
shall direct the release of all or a part of the Escrow Money on a
particular date, without the prior written consent of Horizon and the
Shareholders as to any withdrawal before the Release Date, and without
the prior written consent of the Shareholders as to any withdrawal on
or after the Release Date, the Escrow Agent shall not withdraw any
investment of the Escrow Money prior to the maturity date of such
investment to make a payment to Horizon or the Shareholders hereunder
if such withdrawal will cause an early withdrawal penalty to be
imposed or any loss of income from such withdrawal to occur. If such
a penalty would be imposed or any loss of income would occur if the
investment were to be withdrawn, the payment of any amounts of the
Escrow Money due to the Shareholders or to Horizon shall be made as
soon as practicable after the maturity date of the investment.
(h) Notwithstanding any of the foregoing provisions of
this Section 3 to the contrary, the Shareholders shall be entitled to
utilize the Escrow Money to defend any third party claim against
Horizon or Acorn which is the basis of a Notice of Claim given by
Horizon under this Agreement and which claim has been disputed by the
Shareholders. The costs and expenses of such defense shall be
reasonable. The Escrow Agent shall disburse the
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<PAGE> 90
Escrow Money for such purpose upon the joint directions of Horizon
and the Shareholders as to which Horizon shall not unreasonably
withhold its consent; provided, however, that no portion of the Escrow
Money shall be disbursed for such purposes to the extent that such
disbursement would reduce the Escrow Money below the aggregate of all
outstanding Claims for which a Notice of Claim has been given by
Horizon other than the Claim to which such costs and expenses relate.
4. Liability of Escrow Agent. The Shareholders and Horizon agree
that the following provisions shall control with respect to the rights, duties,
liabilities, privileges and amenities of the Escrow Agent:
(a) The Escrow Agent is not a party to, and is not bound
by, or charged with notice of, any agreement out of which this escrow
may arise.
(b) The Escrow Agent acts hereunder as a depository only,
and is not responsible or liable in any manner whatsoever for the
sufficiency, correctness, genuineness or validity of the subject
matter of the escrow, or any part thereof, or for the form or
execution thereof, or for the identity or authority of any person
executing or depositing the escrow.
(c) The Escrow Agent shall be protected in acting upon
any written notice, request, waiver, consent, certificate, receipt,
authorization, power of attorney, or other paper or document which the
Escrow Agent in good faith believes to be genuine and what it purports
to be.
(d) The Shareholders and Horizon, jointly and severally,
agree to indemnify and hold the Escrow Agent harmless against any and
all losses, claims, demands, liabilities and expenses, including
attorney's fees and costs, which may be incurred by the Escrow Agent
in connection with the acceptance and performance or non- performance
of its duties hereunder, excluding, however, any such liability
resulting from its negligence, misconduct or breach of its
instructions under this Agreement. In the event the Escrow Agent
becomes involved in litigation in connection with this escrow, the
Shareholders and Horizon, jointly and severally, agree to indemnify
and save the Escrow Agent harmless from any and all losses, claims,
damages, liabilities and expenses, including attorney's fees and
costs, which may be incurred or suffered by Escrow Agent as a result
thereof, excluding, however, any such liability resulting from its
negligence, misconduct, or breach of its instructions under this
Agreement.
(e) In the event of any disagreement between any of the
parties to this Agreement resulting in adverse claims or demands being
made in connection with the Escrow Money, or in the event the Escrow
Agent in good faith is in doubt as to what action it should take
hereunder, the Escrow Agent may, at its option, refuse to comply with
any claims or demands on it, or refuse to take any other action
hereunder, so long as such disagreement continues or doubt exists, and
in such event, the Escrow Agent shall not be or become liable in any
way or to any person for its failure or refusal to act, and the Escrow
Agent shall be entitled to continue to so refrain from acting until
(i) the rights of all the parties shall have been fully and
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finally adjudicated by a court of competent jurisdiction, or (ii) all
differences shall have been adjudicated and all doubt resolved by
agreement among all the interested parties and the Escrow Agent shall
have been notified thereof pursuant to written directions duly
executed by all such persons.
5. Compensation of Escrow Agent. The services of the Escrow
Agent under this Agreement shall be provided at no costs and no fees shall be
due to the Escrow Agent for its services; provided, however, that Horizon shall
reimburse the Escrow Agent for any out-of-pocket expenses it incurs in
performing its services hereunder.
6. Non-Waiver. Nothing contained in this Agreement shall be
deemed or construed to release or waive any of the rights or obligations of
Horizon or the Shareholders under the Stock Purchase Agreement, and all rights
and remedies of Horizon and the Shareholders under this Agreement are
cumulative of all other rights which either of them may have under the Stock
Purchase Agreement, by law or otherwise.
7. Notices. Any notices, claims or demands which any party is
required or may desire to give to another under or in conjunction with this
Agreement shall be in writing, and shall be given by addressing the same to
such other party(ies) at the address set forth below, and by: (i) depositing
the same so addressed, postage prepaid, first class, certified or registered,
in United States mail, return receipt requested, (herein referred to as
"Mailing"); (ii) overnight delivery by a nationally recognized overnight
courier service (e.g. UPS, Federal Express); (iii) delivering the same
personally to such other party(ies); or (iv) transmitting by facsimile and
Mailing the original. Any notice shall be deemed to have been given five (5)
U.S. Post Office delivery days following the date of Mailing; one day after
timely delivery to an overnight courier; if by personal delivery, upon such
delivery; or if by facsimile, the day of transmission if made within customary
business hours, or if not transmitted within customary business hours the
following business day.
(a) If to the Shareholders:
Dr. Melvyn S. Goldsmith, Ph.D.
and Barbara C. Goldsmith
______________________________
______________________________
Facsimile: _____________
(b) If to Purchaser:
Horizon Health Corporation
1500 Waters Ridge Drive
Lewisville, Texas 75057
Attn: Mr. James W. McAtee, Executive Vice President
Facsimile: (972) 420-8282
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<PAGE> 92
(c) If to the Escrow Agent:
Fox, Rothschild, O'Brien & Frankel, LLP
2000 Market Street
Tenth Floor
Philadelphia, PA 19103-3291
Attn: Theodore A. Young, Esq.
Facsimile: (215-299-2150)
Any of the parties hereto may change the address for notices to be sent to it
by written notice delivered pursuant to the terms of this section.
8. Entire Agreement; Amendments. This Agreement, together with
the Stock Purchase Agreement, sets forth the entire understanding of the
parties and supersedes all prior agreements or understandings, whether written
or oral, with respect to the subject matter hereof. No terms, conditions or
agreements other than those contained herein, and no amendments or
modifications hereto shall be valid unless made in writing and signed by the
parties hereto.
9. Capitalized Terms. Capitalized terms in this Agreement which
are not otherwise defined herein shall have the same meanings as are provided
for such terms in the Stock Purchase Agreement.
10. Binding Effect. This Agreement shall extend to and be binding
upon and inure to the benefit of the parties hereto, their respective
successors and assigns.
11. Waiver; Remedies. Waiver by any party hereto of any breach of
or exercise of any rights under this Agreement shall not be deemed to be a
waiver of similar or other breaches or rights or a future breach of the same
duty. The failure of a party to take any action by reason of any such breach
or to exercise any such right shall not deprive any party of the right to take
any action at any time while such breach or condition giving rise to such right
continues. The parties shall have all remedies permitted to them by this
Agreement or law, and all such remedies shall be cumulative.
12. Attorney's Fees and Costs. In the event of a breach by any
party to this Agreement and commencement of a subsequent legal action in a
court of law or forum of arbitration, the prevailing party in any such dispute
shall be entitled to reimbursement of reasonable attorney's fees and court
costs, including, but not limited to, the costs of expert witnesses,
transportation, lodging and meal costs of the parties and witnesses, costs of
transcript preparation and other reasonable and necessary direct and incidental
costs of such dispute. "Prevailing party" is the party in whose favor final
judgment is rendered if, but only if, such judgment is in excess of any amounts
offered in settlement by the adverse party or parties.
13. Termination. This Agreement shall terminate at such time as
all of the Escrow Money shall have been released in accordance with the terms
and conditions of this Agreement.
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14. Notification. Escrow Agent by Escrow Agent's execution hereof
acknowledges that Escrow Agent has received notification of Horizon's interest
in the Escrow Money.
15. Resignation and Termination. The Escrow Agent may resign as
such by delivering written notice to that effect at least sixty (60) days prior
to the effective date of such resignation to the Shareholders and Horizon.
Upon expiration of such sixty (60) day notice period, the Escrow Agent may
deliver the portion of the Escrow Money remaining in its possession to any
successor Escrow Agent appointed by the Shareholders and pursuant to this
Section 15 or, if no successor Escrow Agent has been appointed, to any court of
competent jurisdiction in Philadelphia, Pennsylvania, or in accordance with the
joint written instructions of the Shareholders and Horizon. The Shareholders
and Horizon, acting jointly, may terminate the Escrow Agent from its position
as such by delivering to the Escrow Agent written notice to that effect
executed by the Shareholders and Horizon at least thirty (30) days prior to the
effective date of such termination. In the event of such resignation or
termination of the Escrow Agent, a successor Escrow Agent shall be appointed by
mutual agreement between the Shareholders and Horizon, and the Escrow Agent
shall deliver the Escrow Money remaining in its possession to such successor
Escrow Agent. From and after the appointment of a successor Escrow Agent
pursuant to this Section 15, all references herein to the Escrow Agent shall be
deemed to be to such successor Escrow Agent. The delivery by the Escrow Agent
of the Escrow Money hereunder in accordance with the provisions of this Section
15 shall constitute a full and sufficient discharge and acquittance of the
Escrow Agent in respect to such sums delivered, and the Escrow Agent shall be
entitled to receive releases and discharges therefor. The indemnities in favor
of the Escrow Agent contained in this Agreement and the obligations of the
Shareholders and Horizon under Section 4 hereof shall survive for the benefit
of the Escrow Agent after any resignation or termination.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same agreement.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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<PAGE> 94
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
SHAREHOLDERS:
--------------------------------------------
Dr. Melvyn S. Goldsmith, Ph.D.
--------------------------------------------
Barbara C. Goldsmith
PURCHASER:
HORIZON HEALTH CORPORATION
By:
-----------------------------------------
James W. McAtee
Executive Vice President
ESCROW AGENT:
FOX, ROTHSCHILD, O'BRIEN & FRANKEL, LLP
By:
-----------------------------------------
Its:
------------------------------------
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<PAGE> 1
EXHIBIT 10.1
FIFTH AMENDMENT TO LOAN AGREEMENT
This Fifth Amendment to Loan Agreement (this "Amendment") is
made and entered into as of October 16, 1997, by and among TEXAS COMMERCE BANK
NATIONAL ASSOCIATION, a national banking association, with an office located at
12875 Josey Lane, Dallas, Texas 75266-0197 ("Lender"), and HORIZON HEALTH
CORPORATION, formerly known as HORIZON MENTAL HEALTH MANAGEMENT, INC., a
Delaware corporation ("Parent"), HORIZON MENTAL HEALTH MANAGEMENT, INC., a
Texas corporation ("Management"), and MENTAL HEALTH OUTCOMES, INC., a Delaware
corporation ("Outcomes"), each of which has 1500 Water's Ridge Drive,
Lewisville, Texas 75057 as its principal business address (Parent, Management
and Outcomes are individually, each a "Borrower" and collectively, the
"Borrowers").
R E C I T A L S:
A. On September 29, 1995, Lender and Borrowers entered into that
certain Loan Agreement (the "Loan Agreement") pursuant to which Lender agreed
to make loans and advances (collectively the "Loans") to Borrowers in
accordance with the terms thereof. The Loans are evidenced by that certain
Revolving Credit Note of even date with the Loan Agreement, in the stated
principal amount of $11,000,000.00, bearing interest and being payable to the
order of Lender as therein provided (as amended, the "Note").
B. On December 20, 1995, Lender and Borrowers entered into that
certain First Amendment to Loan Agreement (the "First Amendment"), pursuant to
which Borrowers and Lender made certain amendments to the Loan Agreement. In
May, 1996, Lender and Borrowers entered into that certain Second Amendment to
Loan Agreement (the "Second Amendment"), pursuant to which Borrowers and Lender
made certain additional amendments to the Loan Agreement. On July 12, 1996,
Lender and Borrowers entered into that certain Third Amendment to Loan
Agreement (the "Third Amendment"), pursuant to which Borrowers and Lender made
certain additional amendments to the Loan Agreement. On May 23, 1997, Lender
and Borrowers entered into that certain Fourth Amendment to Loan Agreement (the
"Fourth Amendment"), pursuant to which Borrowers and Lender made certain
additional amendments to the Loan Agreement. The Loan Agreement, the First
Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the
Note and the documents, instruments and agreements executed in connection
therewith are collectively referred to herein as the "Loan Documents".
C. Borrowers have requested Lender to modify the Loan Agreement,
and Lender, as the legal and equitable owner and holder of the Loan Agreement,
at the request of Borrowers, for good and valuable consideration, is willing to
enter into this Amendment upon the terms and conditions set forth below.
FIFTH AMENDMENT - Page 1
<PAGE> 2
A G R E E M E N T:
NOW, THEREFORE, for and in consideration of Ten and No/100 Dollars
($10.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Borrowers and Lender hereby covenant and
agree as follows:
1. Definitions. Capitalized terms used but not otherwise defined
herein shall have the meanings given to them in the Loan Agreement.
2. Change of Name. Parent amended its Certificate of
Incorporation to change its name to Horizon Health Corporation. A copy of the
amendment to Parent's Certificate of Incorporation is attached to this
Amendment as Exhibit A. From and after the date of this Amendment, all
references in the Loan Agreement and the Loan Documents to Parent shall be
deemed references to Parent after giving effect to the amendment to Parent's
Certificate of Incorporation.
3. Increase of Commitment. The definition of "Commitment" is
amended to read as follows:
Commitment means the commitment of Lender to make Revolving Credit
Loans to Borrowers pursuant to Section 2.1 hereof in an aggregate
principal amount at any one time outstanding not to exceed
$14,000,000, or such lower amount as may be provided for pursuant to
the terms of this Agreement.
4. Maximum Amount of Revolving Credit Loans. Section 2.1(a) to
the Loan Agreement is amended and restated in its entirety to read as follows:
(a) Subject to and in reliance upon the terms,
conditions, representations and warrants contained in this Agreement,
Lender agrees to make revolving credit loans to Borrowers in one or
more advances ("Revolving Credit Loans") up to the Revolving
Commitment Termination Date so long as the aggregate of the Revolving
Credit Loans outstanding never exceeds the Commitment. Lender shall
have no obligation to make any Revolving Credit Loan (x) on a
non-Business Day, or (y) after, and Lender's commitment to lend on a
revolving basis shall expire on, the Revolving Commitment Termination
Date. During the Revolving Commitment Period, Borrowers may borrow,
repay and re-borrow the Revolving Credit Loans in whole or part, all
in accordance with terms and conditions of this Agreement.
5. Removal of Borrowing Base Limitation. Section 2.7 to the Loan
Agreement is amended and restated in its entirety to read as follows:
2.7 Mandatory Payment of Revolving Credit Loans. If, at
any time during the Revolving Commitment Period, the unpaid principal
balance of the Revolving Credit Note shall exceed the Commitment,
then, Borrowers shall
FIFTH AMENDMENT - Page 2
<PAGE> 3
immediately repay, without premium or penalty, Revolving Credit Loans
in an amount equal to such excess, along with accrued unpaid interest
on the amount so repaid to the date of such repayment.
6. Borrowing Base Report. Section 5.3(c) of the Loan Agreement,
which requires monthly Borrowing Base Reports, is hereby deleted in its
entirety.
7. Subsidiaries. Schedule 4.17 to the Loan Agreement is amended
and restated in its entirety by replacing it with Schedule 4.17 to this
Amendment, in order to reflect three additional subsidiaries of Parent,
specifically, Clay Care, Inc., a Texas corporation, Geriatric Medical Care,
Inc., a Tennessee corporation, and Specialty Healthcare Management, Inc., a
Delaware corporation.
8. Notices. Schedule 8.1 to the Loan Agreement is amended and
restated in its entirety by replacing it with Schedule 8.1 to this Amendment,
in order to reflect a change in address of the Borrowers.
9. Revolving Credit Note. Exhibit B to the Loan Agreement,
setting forth the form of the Revolving Credit Note, is hereby deleted and
replaced in its entirety by Exhibit B to this Amendment.
10. Acorn Acquisition. In accordance with Section 5.2 (c) of the
Loan Agreement, Lender hereby consents to the acquisition by Borrowers of all
of the outstanding capital stock of Acorn Behavioral HealthCare Management
Corporation, a Pennsylvania corporation, for approximately $12.7 million in
cash.
11. Performance of Obligations. Borrowers hereby expressly
promise to perform all of their obligations under the Loan Agreement and other
Loan Documents, as modified by this Amendment.
12. Costs and Expenses. Borrowers hereby agree to reimburse
Lender for Lender's costs and expenses, including, but not limited to,
attorney's fees and legal expenses, incurred by Lender in connection with (a)
the preparation of this Amendment and the Loan Documents executed in connection
herewith and in connection with the negotiation and consummation of the
transaction contemplated hereby; and (b) the enforcement of the Loan Documents
(including reasonable, actual attorneys fees if collected by or through an
attorney) and all such expense incurred in the defense of legal proceedings
involving any claim made against Lender arising out of the Loan Documents. The
obligations of Borrowers hereunder shall survive the final payment of all
Obligations of Borrowers and the resulting termination of this Amendment.
13. Loan Documents. All references to the Loan Agreement in the
Loan Documents shall be deemed to be the Loan Agreement, as modified hereby.
14. No Counter-claims. Borrowers hereby acknowledge and agree
that (a) Lender is not in default in the performance of its obligations under
the Loan Documents; (b) Borrowers
FIFTH AMENDMENT - Page 3
<PAGE> 4
have no claims, counterclaims, offsets, credits or defenses to the Loan
Documents and the performance of its obligations thereunder, or if Borrowers
have any such claims, counterclaims, offsets, credits or defenses to the Loan
Documents or any transaction related to the Loans and/or the Loan Documents,
same are hereby waived, relinquished and released in consideration of Lender's
execution and delivery of this Amendment; (c) all of the provisions of the Loan
Documents, except as amended hereby, are in full force and effect; and (d) upon
the execution hereof, the Loan Agreement, the Note, and the other Loan
Documents are not in default.
15. Force and Effect. Except as expressly modified and amended in
this Amendment, all of the terms, provisions and conditions of the Loan
Agreement, the Note, and all other Loan Documents are and shall remain in full
force and effect and are incorporated herein by reference.
16. No Waiver. Borrowers acknowledge that the execution of
this Amendment by Lender is not intended nor shall it be construed as (a) an
actual or implied waiver of any default under the Loan Agreement, the Note or
any other Loan Documents or (b) an actual or implied waiver of any condition or
obligation imposed upon Borrowers pursuant to the Loan Agreement, the Note or
any other Loan Documents, except to the extent expressly set forth herein.
17. Counterparts. This Amendment may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original, and all
of which taken together shall constitute but one and the same instrument.
18. Final Agreement. THIS AMENDMENT AND THE OTHER LOAN
DOCUMENTS EMBODY THE ENTIRE AGREEMENT BETWEEN THE PARTIES AND SUPERSEDE ALL
PRIOR AGREEMENTS AND UNDERSTANDINGS, IF ANY, RELATING TO THE SUBJECT MATTER
HEREOF. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS
BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties have executed this Fifth Amendment to
Loan Agreement as of the day and year first above written.
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, a national banking association
By: /s/ JORGE L. CALDERON
----------------------------------
Jorge L. Calderon
Vice President
FIFTH AMENDMENT - Page 4
<PAGE> 5
HORIZON HEALTH CORPORATION,
formerly known as
HORIZON MENTAL HEALTH MANAGEMENT,
INC., a Delaware corporation
By: /s/ JAMES W. MCATEE
----------------------------
James W. McAtee
Executive Vice President
and Secretary
HORIZON MENTAL HEALTH MANAGEMENT,
INC., a Texas corporation
By: /s/ JAMES W. MCATEE
----------------------------
James W. McAtee
Senior Vice President
and Secretary
MENTAL HEALTH OUTCOMES, INC.,
a Delaware corporation
By: /s/ JAMES W. MCATEE
----------------------------
James W. McAtee
Executive Vice President,
Secretary and Treasurer
FIFTH AMENDMENT - Page 5
<PAGE> 6
By their execution below, each of HHMC Partners, Inc., a Delaware
corporation ("Partners") and HHG Colorado, Inc., a Colorado corporation
("Colorado") (Partners and Colorado are individually each a "Guarantor" and
collectively the "Guarantors") acknowledge and consent to all of the terms and
conditions of this Amendment, and ratify and confirm their respective Guaranty
to and for the benefit of Lender. Guarantors acknowledge that Guarantors have
no claims, counterclaims, offsets, credits or defenses to the Loan Documents
and the performance of their obligations thereunder, or if Guarantors do have
any such claims, counterclaims, offsets, credits or defenses to the Loan
Documents or any transaction related to the Loans and/or the Loan Documents,
same are hereby waived, relinquished and released in consideration of Lender's
execution and delivery of this Amendment. Further, Guarantors agree that
nothing contained in this Amendment shall adversely affect any right or remedy
of Lender under the Guaranties and that with respect to the Guaranties, all
references in the Guaranties to the "Obligations" shall mean the "Obligations",
as amended by this Amendment; that the execution and delivery of this Amendment
shall in no way change or modify their obligations as Guarantors pursuant to
their respective Guaranty; and that the execution and delivery of any
agreements by Borrowers and Lender in connection with this Amendment shall not
constitute a waiver by Lender of any of Lender's rights against Guarantors.
Guarantors guarantee the full and faithful performance by Borrowers of all of
its duties and obligations under this Amendment, the Loan Agreement and the
other Loan Documents.
HHMC PARTNERS, INC.,
a Delaware corporation
By: /s/ JAMES W. MCATEE
---------------------------------
James W. McAtee
Executive Vice President,
Secretary and Treasurer
HHG COLORADO, INC.,
a Colorado corporation
By: /s/ JAMES W. MCATEE
---------------------------------
James W. McAtee
Vice President, Secretary
and Treasurer
FIFTH AMENDMENT - Page 6
<PAGE> 7
SCHEDULE 4.17
SUBSIDIARIES
1. Subsidiaries of Horizon Health Corporation, a Delaware corporation
Horizon Mental Health Management, Inc., a Texas corporation
Mental Health Outcomes, Inc., a Delaware corporation
HHG Colorado, Inc., a Colorado corporation
Clay Care, Inc., a Texas corporation
Geriatric Medical Care, Inc., a Tennessee corporation
Specialty Healthcare Management, Inc., a Delaware corporation
2. Subsidiaries of Horizon Mental Health Management, Inc., a Texas corporation
HHMC Partners, Inc., a Delaware corporation
SCHEDULE 4.17 - Page 1
<PAGE> 8
SCHEDULE 8.1
NOTICES
BORROWERS: Horizon Health Corporation
1500 Water's Ridge Drive
Lewisville, Texas 75057
Telecopy No.: 972-420-8282
Attention: Mr. James W. McAtee
COPY TO: Strasburger & Price, L.L.P.
NationsBank Plaza
Main Street, Suite 4300
Dallas, Texas 75202
Telecopy No.: 214-651-4330
Attention: David K. Meyercord, Esq.
LENDER: Texas Commerce Bank National Association
12875 Josey Lane
P. O. Box 660197
Dallas, Texas 75266-0197
Telecopy No.: (214) 888-7837
Attention: Mr. Jorge L. Calderon
COPY TO: Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Telecopy No.: (214) 939-6100
Attention: James W. Sargent
SCHEDULE 8.1 - Page 1
<PAGE> 9
EXHIBIT A
Amendment to Certificate of Incorporation
[Omitted; Previously filed as Exhibit 4.1
to the Company's Current Report on
Form 8-K dated August 11, 1997]
EXHIBIT A - Page 1
<PAGE> 10
EXHIBIT B TO LOAN AGREEMENT
AMENDED AND RESTATED
REVOLVING CREDIT NOTE
[Omitted; Filed as Exhibit 10.2 herewith]
<PAGE> 1
EXHIBIT 10.2
AMENDED AND RESTATED
REVOLVING CREDIT NOTE
$14,000,000 October 16, 1997
FOR VALUE RECEIVED, the undersigned, Horizon Health Corporation,
formerly known as Horizon Mental Health Management, Inc. ("Parent"), a Delaware
corporation, Horizon Mental Health Management, Inc. ("Management"), a Texas
corporation, and Mental Health Outcomes, Inc. ("Outcomes"), a Delaware
corporation (Parent, Management and Outcomes are hereinafter individually and
collectively referred to as the "Maker"), hereby unconditionally promise to pay
to the order of TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("Payee"), at its
office at 2200 Ross Avenue, Dallas, Texas 75201, the principal sum of FOURTEEN
MILLION AND NO/100 DOLLARS ($14,000,000.00), or so much thereof as may be
advanced and outstanding hereunder, in lawful money of the United States of
America, together with interest from the date hereof until maturity at the
rates per annum provided below.
1. Definitions. For purposes of this Note, unless the context
otherwise requires, the following terms shall have the definitions assigned to
such terms as follows:
"Amortized Payment Amount" is defined in PARAGRAPH 2 hereto.
"Applicable LIBOR Margin" means the following per annum percentages,
applicable in the following situations:
<TABLE>
<CAPTION>
Applicable
LIBOR Margin
------------
<S> <C>
(a) Debt Coverage Ratio is less than 1.0 to 1.0 0.75%
(b) Debt Coverage Ratio is greater than or equal to 1.0
to 1.0 and less than or equal to 1.50 to 1.0 1.00%
(c) Debt Coverage Ratio is greater than 1.50 to 1.0
1.25%
</TABLE>
"Business Day" means any day other than a Saturday, Sunday or other
day on which Payee is authorized to be closed under the laws of the United
States and the State of Texas.
"Consequential Loss" means, with respect to Maker's payment, or
conversion to a different Interest Option, of all or any portion of the
then-outstanding principal amount of any LIBOR Balance on a day other than the
last day of the Interest Period related thereto, any loss, cost or expense
incurred by Payee in redepositing such principal amount, including the sum of
(i) the interest which, but for such payment, Payee would have earned in
respect of such principal amount so paid, for the remainder of the Interest
Period applicable to such sum, reduced, if Payee is able to redeposit such
principal amount so paid for the balance of such Interest Period, by the
REVOLVING CREDIT NOTE - Page 1
<PAGE> 2
interest earned by Payee as a result of so redepositing such principal amount
plus (ii) any expense or penalty incurred by Payee on redepositing such
principal amount.
"Consolidated Entities" is defined in the Loan Agreement.
"Contract Rate" means a rate of interest based upon the LIBOR Rate or
the Floating Base Rate in effect at any time pursuant to an Interest Notice.
"Debt Coverage Ratio" is as defined in the Loan Agreement.
"Dollars" and the sign "US$" mean lawful currency of the United States
of America.
"Eligible Accounts" is defined in the Loan Agreement.
"Event of Default" is defined in the Loan Agreement.
"Excess Interest Amount" means, on any date, the amount by which (i)
the amount of all interest which would have accrued prior to such date on the
principal of this Note (had the applicable Contract Rate at all times been in
effect without limitation by the Maximum Rate) exceeds (ii) the aggregate
amount of interest actually received by Payee on this Note on or prior to such
date.
"Extended Maturity Date" means December 15, 2000.
"Federal Funds Effective Rate" means, for any day, the weighted
average of the rates on overnight federal funds transactions with members of
the Federal Reserve System arranged by federal funds brokers, as published on
the next succeeding Business Day by the Federal Reserve Bank of New York, and
if such rate is not so published for any Business Day, the average of the
quotations for the day of such transactions received by Payee from three (3)
federal funds brokers of recognized standing selected by Payee.
"Floating Base Rate" means the greater of (i) the rate of interest
publicly announced by Payee from time to time as its prime rate of interest or
(ii) the Federal Funds Effective Rate plus one-half of one percent (.5%). Such
rate of interest is a fluctuating rate and may or may not at any time be the
best or lowest rate charged by Payee on any loan.
"Floating Base Rate Balance" means that portion of the principal
balance of this Note bearing interest at a rate based upon the Floating Base
Rate.
"Interbank Offered Rate" means, with respect to each LIBOR Interest
Period, the rate of interest per annum determined by Payee (in accordance with
its customary general practice) to be the per annum rate at which deposits in
immediately available funds in Dollars are offered (at approximately 9:00 A.M.
Dallas, Texas time) two (2) LIBOR Business Days prior to the first day of such
LIBOR Interest Period) by Payee to first class banks in the interbank LIBOR
market for delivery on the first day of such LIBOR Interest Period, such
deposits being for a period of time
REVOLVING CREDIT NOTE - Page 2
<PAGE> 3
equal or comparable to such LIBOR Interest Period and in an amount equal to or
comparable to the principal amount of the LIBOR Balance to which such LIBOR
Interest Period relates.
"Interest Notice" means the written notice given by Maker to Payee of
the Interest Options selected hereunder, the form of which is attached as
EXHIBIT G to the Loan Agreement. Each Interest Notice shall specify the
Interest Option selected, the amount of the unpaid principal balance of this
Note to bear interest at the rate selected and, if the LIBOR Rate is specified,
the length of the LIBOR Interest Period.
"Interest Option" is defined in PARAGRAPH 6 hereof.
"Interest Payment Date" means, (i) in the case of any Floating Base
Rate Balance, (a) (I) on or before the Revolving Commitment Termination Date,
the last day of each calendar month of Maker during the term hereof, commencing
October 30, 1997 and (II) after the Revolving Commitment Termination Date, the
last day of each calendar quarter of Maker during the term hereof, commencing
December 31, 1998, and (b) at the Maturity Date, unless sooner matured or
terminated pursuant to the terms hereof, and (ii) in the case of any LIBOR
Balance, (a) (I) on or before the Revolving Commitment Termination Date, the
last day of each calendar month of Maker during the term hereof, commencing
October 30, 1997, and (II) after the Revolving Commitment Termination Date, the
last day of each calendar quarter of Maker during the term hereof, commencing
December 31, 1998, (b) the last day of the corresponding LIBOR Interest Period
with respect to such LIBOR Balance and (c) at the Maturity Date, unless sooner
matured or terminated pursuant to the terms hereof.
"LIBOR Balance" means any principal balance of this Note which,
pursuant to an Interest Notice, bears interest at a rate based upon the LIBOR
Rate for the LIBOR Interest Period specified in such Interest Notice.
"LIBOR Business Day" means a day on which dealings in Dollars are
carried out in the LIBOR interbank market.
"LIBOR Interest Period" means, with respect to any LIBOR Balance, a
period commencing: (i) on any date upon which, pursuant to an Interest Notice,
the principal amount of such LIBOR Balance begins to accrue interest at the
LIBOR Rate, or (ii) on the last day of the immediately preceding LIBOR Interest
Period in the case of a rollover to a successive LIBOR Interest Period and
ending 30, 60, 90 or 180 days thereafter as Maker shall elect in accordance
with the provisions hereof; provided, that: (A) any LIBOR Interest Period which
would otherwise end on a day which is not a LIBOR Business Day shall be
extended to the next succeeding LIBOR Business Day unless such LIBOR Business
Day falls in another calendar month, in which case such LIBOR Interest Period
shall end on the next preceding LIBOR Business Day; and (B) any LIBOR Interest
Period which begins on the last LIBOR Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the calendar month
at the end of such LIBOR Interest Period) shall, subject to clauses (C) below
and (A) above, end on the last LIBOR Business Day of a calendar month; (C) any
LIBOR Interest Period which would otherwise end after the Maturity Date, shall
end on the Maturity Date and
REVOLVING CREDIT NOTE - Page 3
<PAGE> 4
(D) no LIBOR Interest Period may extend beyond a date on which Borrower is
required to make a scheduled payment of principal of this Note unless the
aggregate Floating Base Rate Balance equals or exceeds the principal amount
required to be paid on this Note on such date.
"LIBOR Rate" means, with respect to each LIBOR Interest Period, on any
day thereof the quotient of (i) the Interbank Offered Rate with respect to such
LIBOR Interest Period, divided by (ii) the remainder of 1.0 minus the LIBOR
Reserve Requirement in effect on such day.
"LIBOR Reserve Requirement" means, on any day, that percentage
(expressed as a decimal fraction) which is in effect on such day, as provided
by the Board of Governors of the Federal Reserve System (or any successor
governmental body) for determining the reserve requirements (including without
limitation, basic, supplemental, marginal and emergency reserves) under
Regulation D with respect to "Eurocurrency liabilities" as currently defined in
Regulation D, or under any similar or successor regulation.
"Loan Agreement" means that certain Loan Agreement dated September 29,
1995 between Maker and Payee, as amended by various amendments to the Loan
Agreement, including specifically, but without limitation, that certain Fifth
Amendment to Loan Agreement, dated the date hereof between Maker and Payee as
the same may be further amended, restated or supplemented from time to time.
"Loan Documents" is defined in the Loan Agreement.
"Maturity Date" means the Original Maturity Date and the Extended
Maturity Date, as applicable.
"Maximum Rate", as used herein, means, with respect to the holder
hereof, the maximum nonusurious interest rate, if any, that at any time, or
from time to time, may be contracted for, taken, reserved, charged, or received
on the indebtedness evidenced by this Note under the laws which are presently
in effect of the United States and the State of Texas applicable to such holder
and such indebtedness or, to the extent permitted by law, under such applicable
laws of the United States and the State of Texas which may hereafter be in
effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow. To the extent that the TEXAS FINANCE CODE, Chapter
303, as amended (the "Act"), is relevant to any holder of this Note for the
purposes of determining the Maximum Rate, each such holder elects to determine
such applicable legal rate under the Act pursuant to the "applicable weekly
ceiling," from time to time in effect, as referred to and defined in Section
303.301 of the Act; subject, however, to the limitations on such applicable
ceiling referred to and defined in Section 303.305 of the Act, and further
subject to any right such holder may have subsequently, under applicable law,
to change the method of determining the Maximum Rate. Chapter 346 of the TEXAS
FINANCE CODE, shall not apply to the loans evidenced hereby.
"Original Maturity Date" means December 15, 1998.
REVOLVING CREDIT NOTE - Page 4
<PAGE> 5
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System from time to time in effect and shall include any
successor or other regulation relating to reserve requirements applicable to
member banks of the Federal Reserve System.
"Revolving Commitment Termination Date" is defined in the Loan
Agreement.
"Term Balance" means the lesser of (i) the amount of principal
outstanding under this Note as of the Revolving Commitment Termination Date, or
(ii) eighty percent (80%) of the Maker's Eligible Accounts existing on the
Revolving Commitment Termination Date.
2. Payments of Interest, Principal. Interest on the unpaid
principal balance of this Note shall be due and payable on each Interest
Payment Date as it accrues. If on the Revolving Commitment Termination Date,
the Debt Coverage Ratio for the quarter ending on the last day of the calendar
quarter of the Consolidated Entities immediately preceding the Revolving
Commitment Termination Date is greater than or equal to 1.50 to 1.00, the
unpaid principal balance of this Note, together with any outstanding interest,
shall be due and payable on the Original Maturity Date. If on the Revolving
Commitment Termination Date, the Debt Coverage Ratio for the quarter ending on
the last day of the calendar quarter of the Consolidated Entities immediately
preceding the Revolving Commitment Termination Date, is less than 1.50 to 1.00,
(a) the Term Balance shall be divided by eight (8) (the quotient obtained by
such computation is herein referred to as the "Amortized Payment Amount") and
beginning the first December 31 immediately following the Revolving Commitment
Termination Date, Maker shall make equal quarterly installments of principal on
the last day of each calendar quarter in an amount equal to the Amortized
Payment Amount, (b) the amount of principal outstanding in excess of the Term
Balance, together with any outstanding interest thereon, shall be due and
payable on the Revolving Commitment Termination Date, and (c) the remaining
unpaid principal balance of this Note, together with any outstanding interest
shall be due and payable on the Extended Maturity Date.
3. Rates of Interest.
Until maturity of this Note, (a) the unpaid principal of the Floating
Base Rate Balance shall bear interest at a rate per annum which shall from day
to day be equal to the lesser of (i) the Floating Base Rate in effect from day
to day or (ii) the Maximum Rate, and (b) the unpaid principal of each LIBOR
Balance shall bear interest at a rate per annum which shall from day to day be
equal to the lesser of (i) the LIBOR Rate for the LIBOR Interest Period in
effect with respect to such LIBOR Balance, plus the Applicable LIBOR Margin, or
(ii) the Maximum Rate. Each change in the interest rate applicable to a
Floating Base Rate Balance shall become effective without prior notice to Maker
automatically as of the opening of business on the date of such change in the
Floating Base Rate. Each determination by Payee of the LIBOR Rate shall, in
the absence of manifest error, be conclusive and binding. Interest on this Note
with respect to Floating Base Rate Balance shall be calculated on the basis of
the actual days elapsed in a year consisting of 365 days. Interest on this
Note with respect to each LIBOR Balance shall be calculated on the basis of the
actual days elapsed in a year consisting of 360 days, unless such calculation
shall cause the interest on this Note to exceed the Maximum Rate, in which case
the
REVOLVING CREDIT NOTE - Page 5
<PAGE> 6
interest on this Note shall be calculated on the basis of the actual days
elapsed in a year consisting of 365 days.
4. Interest Recapture. If on each Interest Payment Date or any
other date on which interest payments are required hereunder, Payee does not
receive interest on this Note computed at the Contract Rate because such
Contract Rate exceeds or has exceeded the Maximum Rate, then Maker shall, upon
the written demand of Payee, pay to Payee in addition to the interest otherwise
required to be paid hereunder, on each Interest Payment Date thereafter, the
Excess Interest Amount (calculated as of such later Interest Payment Date),
provided that Maker shall not be required to pay any interest in excess of the
Maximum Rate.
5. Interest on Past Due Amounts. All past due principal and, to
the extent permitted by applicable law, interest upon this Note shall bear
interest at the Maximum Rate, or if no Maximum Rate is established by
applicable law, then at the rate per annum which shall from day-to-day be equal
to four percent (4.0%) in excess of the Floating Base Rate.
6. Interest Option. Subject to the provisions hereof, Maker
shall have the option (an "Interest Option") of having designated portions of
the unpaid principal balance hereof bear interest at a rate based upon the
LIBOR Rate or Floating Base Rate as provided in PARAGRAPH 3 hereof; provided,
however, that in the case of the selection of the LIBOR Rate, (i) the LIBOR
Balance for a particular LIBOR Interest Period shall not be less than $100,000,
and (ii) only three (3) LIBOR Interest Periods shall be in effect at any one
time. The option of Maker to have designated portions of the principal of this
Note bear interest at a rate based upon either the LIBOR Rate or Floating Base
Rate shall be exercised in the manner provided below:
(a) At Time of Borrowing. On the date of any advance
hereunder (or in the case of a designation of a portion of the principal
balance to bear interest at a LIBOR Rate, three (3) Business Days prior to the
date of any advance hereunder), Maker shall give Payee an Interest Notice
indicating the initial Interest Option selected with respect to the principal
balance of this Note.
(b) At Expiration of Interest Periods. At least three
(3) Business Days prior to the termination of any LIBOR Interest Period, Maker
shall give Payee an Interest Notice indicating the Interest Option to be
applicable to the corresponding LIBOR Balance upon the expiration of such LIBOR
Interest Period. If the required Interest Notice shall not have been timely
received by Payee prior to the expiration of the then-relevant LIBOR Interest
Period, Maker shall be deemed to have selected a rate based upon the Floating
Base Rate to be applicable to such LIBOR Balance upon the expiration of such
LIBOR Interest Period and to have given Payee notice of such selection.
(c) Conversion From Floating Base Rate. During any
period in which any portion of the principal balance hereof bears interest at a
rate based upon the Floating Base Rate, Maker shall have the right, on any
Business Day (the "Conversion Date"), to convert all or a portion of such
principal amount from the Floating Base Rate Balance to a LIBOR Balance by
REVOLVING CREDIT NOTE - Page 6
<PAGE> 7
giving Payee an Interest Notice of such selection at least three (3) Business
Days prior to such Conversion Date.
7. Special Provisions For LIBOR Pricing
(a) Inadequacy of LIBOR Loan Pricing. If Payee
determines that, by reason of circumstances affecting the interbank LIBOR
market generally, deposits in Dollars (in the applicable amounts) are not being
offered to Payee in the interbank LIBOR market for such LIBOR Interest Period,
or that the rate at which such Dollar deposits are being offered will not
adequately and fairly reflect the cost to Payee of making or maintaining a
LIBOR Balance for the applicable LIBOR Interest Period, Payee shall forthwith
give notice thereof to Maker, whereupon until Payee notifies Maker that the
circumstances giving rise to such suspension no longer exist, (i) the right of
Maker to select an Interest Option based upon the LIBOR Rate shall be
suspended, and (ii) Maker shall covert each LIBOR Balance into the Floating
Base Rate Balance in accordance with the provisions hereof on the last day of
the then-current LIBOR Interest Period applicable to such LIBOR Balance.
(b) Illegality. If the adoption of any applicable law,
rule or regulation, or any change therein, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by Payee with any request or directive (whether or not having the
force of law) of any such authority, central bank or comparable agency shall
make it unlawful or impossible for Payee to make or maintain a LIBOR Balance,
Payee shall so notify Maker. Upon receipt of such notice, Maker shall convert
such LIBOR Balance into the Floating Base Rate Balance, on either (i) the last
day of the then-current LIBOR Interest Period applicable to such LIBOR Balance
if Payee may lawfully continue to maintain and fund such LIBOR Balance to such
day, or (ii) immediately, if Payee may not lawfully continue to maintain such
LIBOR Balance to such day.
(c) Increased Costs for LIBOR Balances. If
(i) (A) the adoption of any applicable law, rule
or regulation, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by Payee with any request or directive (whether or not having the
force of law) of any such authority, central bank or comparable agency shall
subject Payee to any tax (including without limitation any United States
interest equalization or similar tax, however named), duty or other charge with
respect to the LIBOR Balances, this Note or Payee's obligation to compute
interest on the principal balance of this Note at a rate based upon the LIBOR
Rate, or shall change the basis of taxation of payments to Payee of the
principal of or interest on the LIBOR Balances or any other amounts due under
this Note in respect of the LIBOR Balances or Payee's obligation to compute the
interest on the balance of this Note at a rate based upon the LIBOR Rate
(except for changes in the rate of the tax on the overall net income of Payee
imposed by the jurisdiction in which Payee's principal executive office is
located); or
REVOLVING CREDIT NOTE - Page 7
<PAGE> 8
(B) any governmental authority, central bank or
other comparable authority shall at any time impose, modify or deem applicable
any reserve (including, without limitation, any imposed by the Board of
Governors of the Federal Reserve System but excluding any reserve requirement
included in the LIBOR Reserve Requirement of Payee), special deposit or similar
requirement against assets of, deposits with or for the account of, or credit
extended by, Payee, or shall impose on Payee (or its LIBOR lending office) or
the interbank LIBOR market any other condition affecting a LIBOR Balance, this
Note or Payee's obligation to compute the interest on the balance of this Note
at a rate based upon the LIBOR Rate; and
(ii) the result of any of the foregoing is to
increase the cost to Payee of maintaining a LIBOR Balance, or to reduce the
amount of any sum received or receivable by Payee under this Note by an amount
deemed by Payee to be material, then upon demand by Payee, Maker shall pay to
Payee such additional amount or amounts as will compensate Payee for such
increased cost or reduction. Payee will promptly notify Maker of any event of
which it has knowledge, occurring after the date hereof, which will entitle
Payee to compensation pursuant to this paragraph. A certificate of Payee
claiming compensation under this paragraph and setting forth the additional
amount or amounts to be paid to Payee hereunder shall be conclusive in the
absence of manifest error.
(d) Effect on Balances. If notice has been given
requiring a LIBOR Balance to be repaid or converted, then unless and until
Payee notifies Maker that the circumstances giving rise to such repayment no
longer apply, the Interest Option shall be a rate based upon the Floating Base
Rate. If Payee notifies Maker that the circumstances giving rise to such
repayment no longer apply, Maker may thereafter select a rate based upon the
LIBOR Rate in accordance with the terms of this Note.
8. Extension, Place and Application of Payments. Subject to the
terms of the definition of LIBOR Interest Period, should the principal of, or
any interest on, this Note become due and payable on any day other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day, and interest shall be payable with respect to such extension,
provided, however, that if the maturity of this Note on the Maturity Date or on
an earlier date due to an acceleration pursuant to PARAGRAPH 13 hereof is on a
day other than a Business Day, all outstanding principal and interest shall be
due and payable on the immediately preceding Business Day. All payments of
principal of, and interest on, this Note shall be made by Maker to Payee at
Payee's principal banking office in Dallas, Texas in federal or other
immediately available funds. Payments made to Payee by Maker hereunder shall
be applied first to accrued interest and then to principal.
9. Prepayments; Consequential Loss. Any prepayment made
hereunder shall be made together with interest accrued through the date of such
prepayment. Prepayments shall be applied first, to the Floating Base Rate
Balance together with interest accrued thereon, and second to LIBOR Balances,
together with the interest accrued thereon and Consequential Loss, if any. If
any portion of the principal hereof is bearing interest at a rate based upon
the LIBOR Rate and Maker makes any payment of principal on this Note in an
amount in excess of the Floating Base
REVOLVING CREDIT NOTE - Page 8
<PAGE> 9
Rate Balance, Maker shall reimburse Payee on demand for the Consequential Loss
incurred by Payee as a result of the timing of such payment. Reference is made
to the Loan Agreement which, among other things, contains provisions regarding
optional and mandatory prepayments.
10. Notices. All notices required or permitted hereunder shall be
in writing, and given in the manner and addressed to the Maker and Payee at the
addresses set forth in the Loan Agreement, or at such other address as such
party may from time to time designate by written notice to the other.
11. Legal Fees. If this Note is placed in the hands of any
attorney for collection, or if it is collected through any legal proceeding at
law or in equity or in bankruptcy, receivership or other court proceedings,
Maker agrees to pay all costs of collection including, but not limited to,
court costs and attorneys' fees.
12. Waivers. Maker and each surety, endorser, guarantor and other
party ever liable for payment of any sums of money payable on this Note,
jointly and severally waive presentment and demand for payment, protest, notice
of protest, intention to accelerate, acceleration and non-payment, or other
notice of default, and agree that their liability under this Note shall not be
affected by any renewal or extension in the time of payment hereof, or in any
indulgences, or by any release or change in any security for the payment of
this Note, and hereby consent to any and all renewals, extensions, indulgences,
releases or changes, regardless of the number of such renewals, extensions,
indulgences, releases or changes.
No waiver by Payee of any of its rights or remedies hereunder or under
any other document evidencing or securing this Note or otherwise shall be
considered a waiver of any other subsequent right or remedy of Payee; no delay
or omission in the exercise or enforcement by Payee of any rights or remedies
shall ever be construed as a waiver of any right or remedy of Payee; and no
exercise or enforcement of any such rights or remedies shall ever be held to
exhaust any right or remedy of Payee.
13. Acceleration. Upon the occurrence of any Event of Default,
the holder hereof may, at its option, declare the entire unpaid balance of
principal and accrued interest on this Note to be immediately due and payable,
without notice of any kind as provided in PARAGRAPH 12 hereof.
14. Spreading. Any provision herein, or in any document securing
this Note, or any other document executed or delivered in connection herewith,
or in any other agreement or commitment, whether written or oral, expressed or
implied, to the contrary notwithstanding, neither Payee nor any holder hereof
shall in any event be entitled to receive or collect, nor shall or may amounts
received hereunder be credited, so that Payee or any holder hereof shall be
paid, as interest, a sum greater than the maximum amount permitted by
applicable law to be charged to the person, partnership, firm or corporation
primarily obligated to pay this Note at the time in question. If any
construction of this Note or any document securing this Note, or any and all
other papers, agreements or commitments, indicate a different right given to
Payee or any holder hereof to ask for, demand or receive any larger sum as
interest, such is a mistake in calculation or
REVOLVING CREDIT NOTE - Page 9
<PAGE> 10
wording which this clause shall override and control, it being the intention of
the parties that this Note, and all other instruments securing the payment of
this Note or executed or delivered in connection herewith shall in all things
comply with applicable law and proper adjustments shall automatically be made
accordingly. In the event that Payee or any holder hereof ever receives,
collects or applies as interest, any sum in excess of the Maximum Rate, if any,
such excess amount shall be applied to the reduction of the unpaid principal
balance of this Note, and if this Note is paid in full, any remaining excess
shall be paid to Maker. In determining whether or not the interest paid or
payable, under any specific contingency, exceeds the Maximum Rate, if any,
Maker and Payee or any holder hereof shall, to the maximum extent permitted
under applicable law: (i) characterize any nonprincipal payment as an expense
or fee rather than as interest, (ii) exclude voluntary prepayments and the
effects thereof, (iii) "spread" the total amount of interest throughout the
entire term of this Note; provided that if this Note is paid and performed in
full prior to the end of the full contemplated term hereof, and if the interest
received for the actual period of existence thereof exceeds the Maximum Rate,
if any, Payee or any holder hereof shall refund to Maker the amount of such
excess, or credit the amount of such excess against the aggregate unpaid
principal balance of all advances made by the Payee or any holder hereof under
this Note at the time in question.
15. CHOICE OF LAW. THIS NOTE IS BEING EXECUTED AND DELIVERED, AND
IS INTENDED TO BE PERFORMED IN THE STATE OF TEXAS. EXCEPT TO THE EXTENT THAT
THE LAWS OF THE UNITED STATES MAY APPLY TO THE TERMS HEREOF, THE SUBSTANTIVE
LAWS OF THE STATE OF TEXAS SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT
AND INTERPRETATION OF THIS NOTE, WITHOUT REGARDS TO THE PRINCIPLES OF CONFLICTS
OF LAW. IN THE EVENT OF A DISPUTE INVOLVING THIS NOTE OR ANY OTHER INSTRUMENTS
EXECUTED IN CONNECTION HEREWITH, THE UNDERSIGNED IRREVOCABLY AGREES THAT VENUE
FOR SUCH DISPUTE SHALL LIE IN ANY COURT OF COMPETENT JURISDICTION IN DALLAS
COUNTY, TEXAS.
16. Loan Agreement. This Note is executed in connection with the
Loan Agreement, and the holder hereof is entitled to all the benefits provided
therein and in the other Loan Documents.
17. Amendment and Restatement. This Note is a modification,
amendment and restatement, and not a novation or extinguishment, of that
certain Revolving Credit Note (the "Prior Note") dated September 29, 1995,
executed by Maker and payable to the order of Payee, in the original principal
amount of $11,000,000. All rights, titles, liens and security interests
securing the Prior Note are preserved, maintained and carried forward to secure
this Note.
18. NOTICE OF FINAL AGREEMENT. THIS WRITTEN REVOLVING CREDIT NOTE
AND ANY OTHER DOCUMENTS EXECUTED IN CONNECTION HEREWITH REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
REVOLVING CREDIT NOTE - Page 10
<PAGE> 11
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
HORIZON HEALTH CORPORATION,
formerly known as
HORIZON MENTAL HEALTH
MANAGEMENT, INC., a Delaware
corporation
By: /s/ JAMES W. MCATEE
-----------------------------------
James W. McAtee
Executive Vice President and Secretary
HORIZON MENTAL HEALTH
MANAGEMENT, INC., a Texas
corporation
By: /s/ JAMES W. MCATEE
-----------------------------------
James W. McAtee
Senior Vice President and Secretary
MENTAL HEALTH OUTCOMES, INC., a
Delaware corporation
By: /s/ JAMES W. MCATEE
-----------------------------------
James W. McAtee
Executive Vice President, Secretary
and Treasurer
REVOLVING CREDIT NOTE - Page 11
<PAGE> 1
EXHIBIT 10.3
[CHASE SECURITIES INC. LETTERHEAD]
Horizon Health Corporation
Senior Secured Credit Facility
Commitment Letter
October 8, 1997
Mr. Jim McAtee
Executive Vice President
Horizon Health Corporation
1500 Water Ridge
Lewisville, Texas 75057
Dear Jim:
You have advised Texas Commerce Bank National Association ("TCB") and
Chase Securities Inc. ("CSI") that Horizon Health Corporation, (the "Borrower"
or "you"), intends to put in place new credit facilities to finance ongoing
working capital expenditures and future acquisitions. In that connection, you
have requested that CSI agree to structure, arrange and syndicate a senior
secured credit facility in an aggregate amount of up to $50,000,000 (the
"Facility"), consisting of a $10,000,000 Revolving Credit Facility and a
$40,000,000 Advance Term Loan Facility (as defined in the attached Summary of
Terms and Conditions attached hereto as Exhibit A (the "Term Sheet")) and that
TCB commit to provide a portion of the Facility and to serve as administrative
agent for the Facility.
CSI is pleased to advise you that it is willing to act as exclusive
advisor and arranger for the Facility.
Furthermore, TCB is pleased to advise you of (a) its commitment to
provide up to $20,000,000 of the Facility, and (b) its agreement to use
commercially reasonable efforts to assemble a syndicate of financial
institutions identified by CSI and TCB in consultation with you, to provide the
balance of the necessary commitments for the Facility, in each case upon the
terms and subject to the conditions set forth or referred to in this commitment
letter (this "Commitment Letter") and in the Term Sheet. It is a condition to
TCB's commitment hereunder that the portion of the Facility not being provided
by TCB shall be provided by the other Banks referred to below.
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<PAGE> 2
HORIZON HEALTH CORPORATION CONFIDENTIAL
- --------------------------------------------------------------------------------
It is agreed that TCB will act as the sole and exclusive
Administrative Agent and Collateral Agent, and that CSI will act as the sole
and exclusive advisor and arranger, for the Facility, and each will, in such
capacities, perform the duties and exercise the authority customarily performed
and exercised by it in such roles. You agree that no other agents, co-agents or
arrangers will be appointed, no other titles will be awarded and no
compensation (other than that expressly contemplated by the Term Sheet and the
Fee Letter referred to below) will be paid in connection with the Facility
unless you and we shall so agree.
CSI intends to syndicate the Facility to a group of financial
institutions (together with TCB, the "Banks") identified by us in consultation
with you. CSI intends to commence syndication efforts promptly upon the
execution of this Commitment Letter, and you agree actively to assist CSI in
completing a syndication satisfactory to it. Such assistance shall include (a)
your using commercially reasonable efforts to ensure that the syndication
efforts benefit materially from your existing lending relationships, (b) direct
contact between senior management and advisors of the Borrower and the proposed
Banks, (c) assistance in the preparation of a Confidential Information
Memorandum and other marketing materials to be used in connection with the
syndication and (d) the hosting, with CSI, of one or more meetings of
prospective Banks.
CSI will manage all aspects of the syndication, including decisions as
to the selection of institutions to be approached and when they will be
approached, when their commitments will be accepted, which institutions will
participate, the allocations of the commitments among the Banks and the amount
and distribution of fees among the Banks. To assist CSI in its syndication
efforts, you agree promptly to prepare and provide to CSI and TCB all
information with respect to the Borrower and the other transactions
contemplated hereby and by the Term Sheet and the Fee Letter referred to below,
including all financial information and projections (the "Projections"), as we
may reasonably request in connection with the arrangement and syndication of
the Facility. You hereby represent and covenant that (a) all information other
than the Projections (the "Information") that has been or will be made
available to TCB or CSI by you or any of your representatives is or will be,
when furnished, complete and correct in all material respects and does not or
will not, when furnished, contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained therein not materially misleading in light of the circumstances under
which such statements are made and (b) the Projections that have been or will
be made available to TCB or CSI by you or any of your representatives have been
or will be prepared in good faith based upon reasonable assumptions. You
understand that in arranging and syndicating the Facility we may use and rely
on the Information and Projections without independent verification thereof. You
hereby acknowledge and consent that CSI may share the Confidential Information
Memorandum, the Information and any other information or matters relating to
the Borrower or the transactions contemplated hereby with affiliates of CSI,
including The Chase Manhattan Bank, and TCB, and that such affiliates may
likewise share information relating to the Borrower or such transactions with
CSI.
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2
<PAGE> 3
HORIZON HEALTH CORPORATION CONFIDENTIAL
- --------------------------------------------------------------------------------
As consideration for TCB's commitment hereunder and CSI's agreement to
perform the services described herein, you agree to pay to TCB the
nonrefundable fees set forth in Schedule A to the Term Sheet and in the Fee
Letter dated the date hereof and delivered herewith (the "Fee Letter").
TCB's commitment hereunder and CSI's agreement to perform the services
described herein are subject to (a) there not occurring or becoming known to us
any material adverse condition or material adverse change in or affecting the
business, operations, property, condition (financial or otherwise) or prospects
of the Borrower and its subsidiaries, taken as a whole, (b) our completion of
and satisfaction in all respects with a due diligence investigation of the
Borrower, (c) our not becoming aware after the date hereof of any information
or other matter affecting the Borrower or the transactions contemplated hereby
which is inconsistent in a material and adverse manner with any such
information or other matter disclosed to us prior to the date hereof, (d) there
not having occurred a material disruption of or material adverse change in
financial, banking or capital market conditions that, in our judgment, could
materially impair the syndication of the Facility, (e) our satisfaction that
prior to and during the syndication of the Facility there shall be no competing
offering, placement or arrangement of any debt securities or bank financing by
or on behalf of the Borrower or any affiliate thereof, (f) the negotiation,
execution and delivery on or before December 31, 1997 of definitive
documentation with respect to the Facility satisfactory to TCB and its counsel
and (g) the other conditions set forth or referred to in the Term Sheet. The
terms and conditions of TCB's commitment hereunder and of the Facility are not
limited to those set forth herein and in the Term Sheet. Those matters that are
not covered by the provisions hereof and of the Term Sheet are subject to the
approval and agreement of TCB, CSI and the Borrower.
You agree to indemnify and hold harmless TCB, CSI, their affiliates
and their respective officers, directors, employees, advisors, and agents
(each, an "Indemnified Person") from and against any and all losses, claims,
damages and liabilities to which any such Indemnified Person may become subject
arising out of or in connection with this Commitment Letter, the Facility, the
use of the proceeds thereof, or any related transaction or any claim,
litigation, investigation or proceeding relating to any of the foregoing,
regardless of whether any Indemnified Person is a party thereto, and to
reimburse each Indemnified Person upon demand for any legal or other expenses
incurred in connection with investigating or defending any of the foregoing,
provided that the foregoing indemnity will not, as to any Indemnified Person,
apply to Losses or related expenses to the extent they are found by a final,
non-appealable judgment of a court to arise from the willful misconduct or
gross negligence of such Indemnified Person. YOU AGREE THAT THE INDEMNITY
CONTAINED IN THE PRECEDING SENTENCE EXTENDS TO AND IS INTENDED TO COVER LOSSES
AND RELATED EXPENSES ARISING OUT OF THE ORDINARY, SOLE OR CONTRIBUTORY
NEGLIGENCE OF AN INDEMNIFIED PERSON. In addition, you agree to reimburse TCB,
CSI and their affiliates on demand for all out-of-pocket expenses (including
due diligence expenses, syndication expenses, travel expenses, and
- --------------------------------------------------------------------------------
3
<PAGE> 4
HORIZON HEALTH CORPORATION CONFIDENTIAL
- --------------------------------------------------------------------------------
reasonable fees, charges and disbursements of counsel) incurred in connection
with the Facility and any related documentation (including this Commitment
Letter, the Term Sheet, the Fee Letter and the definitive financing
documentation) or the administration, amendment, modification or waiver thereof.
No Indemnified Person shall be liable for any indirect or consequential damages
in connection with its activities related to the Facility.
This Commitment Letter shall not be assignable by you without the
prior written consent of TCB and CSI (and any purported assignment without such
consent shall be null and void), is intended to be solely for the benefit of
the parties hereto and is not intended to confer any benefits upon, or create
any rights in favor of, any person other than the parties hereto. This
Commitment Letter may not be amended or waived except by an instrument in
writing signed by you, TCB and CSI. This Commitment Letter may be executed in
any number of counterparts, each of which shall be an original, and all of
which, when taken together, shall constitute one agreement. Delivery of an
executed signature page of this Commitment Letter by facsimile transmission
shall be effective as delivery of a manually executed counterpart hereof. This
Commitment Letter (together with the Term Sheet) and the Fee Letter are the
only agreements that have been entered into among us with respect to the
Facility and set forth the entire understanding of the parties with respect
thereto. THIS COMMITMENT LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
This Commitment Letter is delivered to you on the understanding that
neither this Commitment Letter, the Term Sheet or the Fee Letter nor any of
their terms or substance shall be disclosed, directly or indirectly, to any
other person except (a) to your officers, agents and advisors who are directly
involved in the consideration of this matter or (b) as may be compelled in a
judicial or administrative proceeding or as otherwise required by law (in which
case you agree to inform us promptly thereof).
The compensation, reimbursement, indemnification and confidentiality
provisions contained herein and in the Fee Letter shall remain in full force
and effect regardless of whether definitive financing documentation shall be
executed and delivered and notwithstanding the, termination of this Commitment
Letter or TCB's commitment hereunder.
THIS COMMITMENT LETTER, THE ATTACHED TERM SHEET, THE FEE LETTER AND
ALL EXHIBITS, SCHEDULES AND OTHER ATTACHMENTS HERETO AND THERETO CONSTITUTE A
"LOAN AGREEMENT" FOR PURPOSES OF SECTION 26.02 OF THE TEXAS BUSINESS AND
COMMERCE CODE AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
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4
<PAGE> 5
HORIZON HEALTH CORPORATION CONFIDENTIAL
- --------------------------------------------------------------------------------
If the foregoing correctly sets forth our agreement, please indicate
your acceptance of the terms hereof and of the Term Sheet and the Fee Letter by
returning to us executed counterparts hereof and of the Fee Letter not later
than 5:00 p.m., Houston, Texas time, on October 17, 1997. TCB's commitment and
CSI's agreements herein will expire at such time in the event TCB has not
received such executed counterparts in accordance with the immediately
preceding sentence.
TCB and CSI are pleased to have been given the opportunity to assist
you in connection with this important financing.
Very truly yours,
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
By: /s/ JORGE CALDERON
----------------------------------
Name: Jorge Calderon
Title: Vice President
CHASE SECURITIES INC.
By: /s/ RAY M. MEYER
----------------------------------
Name: Ray M. Meyer
Title: Vice President
Accepted and agreed to as of
the date first above written by:
HORIZON HEALTH CORPORATION
By: /s/ JIM MCATEE
----------------------------------
Name: Jim McAtee
Title: Executive Vice President
- --------------------------------------------------------------------------------
5
<PAGE> 6
EXHIBIT A
SUMMARY OF TERMS AND CONDITIONS
FOR
HORIZON HEALTH CORPORATION
OCTOBER 8, 1997
BORROWER: Horizon Health Corporation (the "Borrower" or "Company").
GUARANTORS: All material domestic subsidiaries of the Borrower will
unconditionally guarantee the obligations of the Borrower
under the Facilities.
ARRANGER: Chase Securities, Inc. ("CSI")
AGENT: Texas Commerce Bank National Association ("TCB") as
Administrative Agent (in such capacity, the "Agent") for a
syndicate of banks (the "Banks") as determined by CSI.
FACILITIES: Facility A: $10,000,000 senior secured revolving credit
facility (the "Revolving Credit Facility").
Facility B: $40,000,000 senior secured advance term loan
(the "Advance Term Loan").
PURPOSE: Facility A: To fund ongoing working capital requirements,
and for general corporate purposes.
Facility B: To finance future acquisitions.
No proceeds of the Facilities will be used for any purpose
which would violate any applicable law, rule, or
regulation.
FINAL MATURITY: Facility A: Three years from closing.
Facility B: Five years from closing (see Scheduled
Amortization-Facility B below).
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[CHASE LOGO]
<PAGE> 7
Summary of Term and Conditions
Horizon Health Corporation
October 8, 1997 Page 2
- --------------------------------------------------------------------------------
SCHEDULED
AMORTIZATION: Facility A: None.
Facility B: Drawdowns under the Advance Term Loan will be
available for two years. Once a drawdown is made, the
commitment under the Advance Term Loan will be reduced by
the amount funded. Each acquisition will require a separate
note (the "Acquisition Note"). The Acquisition Note will
require quarterly principal payments, beginning at the end
of the two-year advance period, based upon a five year
amortization schedule. Any Acquisition Note balance that is
outstanding five years from Closing shall be due and
payable at Maturity.
SECURITY: The Facilities will be secured by a first lien or first
priority security interest in and/or pledge of all of the
Borrower's and all of the present and future Subsidiaries
of the Borrower's assets, including: (i) accounts
receivable, (ii) inventory, (iii) furniture and equipment,
(iv) intangibles, (v) material real property, and (vi) 100%
of the stock of domestic subsidiaries and 65% of the stock
of foreign subsidiaries, if any.
INTEREST RATES
AND FEES: See Schedule A attached.
INTEREST
PERIODS: Alternate Base Rate Loans: Up to 90 days.
Eurodollar Rate Loans: 1, 2, 3 or 6 months.
Interest on Eurodollar Rate loans and advances will be
payable on the last day of each Interest Period (and at the
end of each three months, in the case of Interest Periods
of longer than three months), and upon prepayment if
permitted. In respect of Eurodollar Rate loans and
advances, interest shall be payable in arrears on the basis
of a 360-day year (calculated on the basis of actual days
elapsed). Interest on Alternate Base Rate loans will be
payable quarterly in arrears, and upon prepayment, on the
basis of a 365/366-day year for loans when based on the
Prime Rate and a 360-day year for loans when based on the
Federal Funds Effective Rate (in either case calculated on
the basis of actual days elapsed).
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[CHASE LOGO]
<PAGE> 8
Summary of Terms and Conditions
Horizon Health Corporation
October 8, 1997 Page 3
- --------------------------------------------------------------------------------
NOTIFICATION
SCHEDULE: The Borrower must provide notice prior to the proposed date
of borrowing, in accordance with the following schedule:
Eurodollar Rate Loans: 3 business days.
Alternate Base Rate Loans: Same business day.
Letters of Credit: 3 business days.
OPTIONAL
PREPAYMENTS
AND COMMITMENT
REDUCTIONS: Borrower may irrevocably reduce the Revolving Credit
Facility commitment and the unused portion of the Advance
Term Loan commitment at any time upon 5 days' notice in
integral multiples of $3,000,000; however, prepayments of
Eurodollar borrowings on any other day other than the last
day of an interest period must be accompanied by payment of
all breakage costs and funding losses, if any. The Advance
Term Loan Acquisition Notes may be prepaid at any time
without premium or penalty upon 5 business days' notice in
integral multiples of $3,000,000; however, prepayments of
Eurodollar borrowings on any other day other than the last
day of an interest period must be accompanied by payment of
all breakage costs and funding losses, if any. Any
prepayments on the Advance Term Loan Acquisition Notes
shall be applied to the remaining installments of the
Advance Term Loan Acquisition Notes in inverse order of
maturity.
MANDATORY
PREPAYMENT FROM
PROCEEDS OF
ASSET SALES: The net proceeds of any sale of any material assets of the
Company or its subsidiaries other than in the ordinary
course of business, or any condemnation or casualty
proceeds not reinvested (within certain period and in
amounts to be negotiated) in assets that may be
productively used in the Company's or such subsidiary's
business, shall be applied to prepay the remaining
installments of the Advance Term Loan Acquisition Notes in
inverse order of maturity.
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[CHASE LOGO]
<PAGE> 9
Summary of Terms and Conditions
Horizon Health Corporation
October 8, 1997 Page 4
MANDATORY
PREPAYMENT FROM
EXCESS CASH FLOW: Facility A: None.
Facility B: In the event that outstandings under the
Advance Term Loan Acquisition Notes exceed $15,000,000, 50%
of Excess Cash Flow ("ECF") shall be applied annually to
the remaining principal installments of the Advance Term
Loan Acquisition Notes in inverse order of maturity.
"ECF" shall be defined as net income plus depreciation,
amortization, non-cash taxes and other non-cash charges,
minus other non-cash gains, scheduled principal
installments, optional prepayments on the Advance Term Loan
Acquisition Notes, cash interest expense, nonfinanced
capital expenditures permitted under the Loan Agreement and
scheduled capital lease payments.
CONDITIONS
PRECEDENT: Usual and customary for financings of this type, including,
but not limited to:
o Acceptable corporate, subsidiary and capital
structure;
o Receipt of opinion letters from counsel;
o Credit Agreement, promissory notes, security
agreements, guaranties, pledge agreements, and other
documents executed in connection therewith (the "Loan
Documents") shall be satisfactory to the Agent;
o Evidence of existence, good standing, authority and
authorization of the Company and their permitted
subsidiaries;
o Evidence of perfection and priority of the Agent's
liens and security interests;
o Receipt of independent auditor's most recent
unqualified report and opinion on the Company's
financial statements;
o Absence of defaults or material adverse litigation;
- --------------------------------------------------------------------------------
[CHASE LOGO]
<PAGE> 10
Summary of Term and Conditions
Horizon Health Corporation
October 8, 1997 Page 5
- --------------------------------------------------------------------------------
o Endorsement and delivery of certificates for all
pledged stock;
o No material adverse change in the assets, business,
financial condition or prospects of the Company or
any of its permitted subsidiaries;
o [Mortgagee title insurance, flood insurance, landlord
waivers and other real estate matters satisfactory to
the Agent];
o All material contractual obligations of the Company
and its permitted subsidiaries satisfactory to the
Agent;
o All agreements (including, without limitation, all
Collective bargaining agreements) covering, and all
employee savings retirement and benefit plans
relating to the employees of the Borrower and its
subsidiaries satisfactory to the Agent;
o Payment of all fees and expenses;
o Receipt of all necessary consents; and
o No violation of law.
REPRESENTATIONS
& WARRANTIES: Usual and customary for financings of this type, including,
but not limited to:
o Due organization and authorization for contemplated
transactions;
o No provision of organizational documents and no
provision of any existing indentures, contracts or
agreements and no law or regulations, judgment decree
or order of any court or regulatory authority shall
be violated by the provisions of the documents
contemplated by this transaction;
o The Company and permitted subsidiaries are in
substantial compliance with all ERISA provisions;
o Absence of material adverse litigation or arbitration
with respect to the Company or any of its permitted
subsidiaries;
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Summary of Term and Conditions
Horizon Health Corporation
October 8, 1997 Page 6
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o Absence of material adverse environmental event or
circumstance with respect to the Company and any of
its permitted subsidiaries;
o Possession of all material permits, licenses,
patents, trademarks and other intangibles necessary
to conduct business;
o Absence of defaults;
o No material adverse change in financial condition,
business, affairs, prospects or properties of the
Company and its permitted subsidiaries; and
o Fair presentation of financial statements of the
Company and all its permitted subsidiaries.
COVENANTS: Usual and customary for financings of this type, including,
but not limited to:
o (a) Maintain existence and qualifications; (b) comply
in all material respects with all applicable legal
requirements (including but not limited to those
related to the environment, ERISA, the issuance and
sale of securities and the payment of taxes); (c)
maintain material privileges, permits, licenses and
other rights necessary to conduct business as
presently conducted;
o Deliver quarterly unaudited and annual audited
consolidated and quarterly unaudited consolidating
financial statements of the Company and all its
permitted subsidiaries together with an officer's
certificate demonstrating compliance with the
financial covenants and a certificate of no default;
o Deliver, promptly upon request, information related
to the Company and all its permitted subsidiaries as
may from time to time be reasonably requested by the
Agent;
o Deliver financial projections and budgets as mutually
agreed;
o Maintain insurance for the Company and all its
permitted subsidiaries in such amounts and for such
coverage (including business interruption insurance)
and with such deductibles as is customary for other
similar companies engaged in similar businesses
[which shall name the Agent as loss payee];
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Summary of Term and Conditions
Horizon Health Corporation
October 8, 1997 Page 7
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o Give immediate notice to the Banks of: any default
under the Loan Documents; any material adverse change
or material litigation or arbitration affecting the
Company or any of its permitted subsidiaries; any
governmental, regulatory or environmental notice
received by the Company or any of its permitted
subsidiaries of any alleged material violation of any
law, regulation, license or permit or any material
alleged environmental claim or liability; any sale of
assets outside the ordinary course of business in
excess of a de minimis amount to be negotiated;
o Give prompt notice of certain ERISA events such as
reportable events, withdrawal liabilities, notice of
Plan insolvency or termination and PBGC intent to
terminate or impose liability with respect to any
Title IV Plan;
o Permit each Bank to inspect the books, records and
properties of the Company and its permitted
subsidiaries after notice and during reasonable
business hours, and furnish to the Agent such
information with respect to the Company and its
permitted subsidiaries as may be requested from time
to time;
o No additional indebtedness or contractual contingent
obligations; except for mutually agreed upon baskets
of certain indebtedness secured by purchase money
security interests and other indebtedness incurred in
the ordinary course of business;
o Limitations on additional liens and other
encumbrances, including negative pledges;
o Limitations on transfer of assets outside the Company
and its permitted subsidiaries;
o Limitations on mergers, consolidations and asset
dispositions;
o Limitations on acquisitions - majority bank group
approval required for acquisitions with
consideration, other than common stock, as follows:
(a) any single acquisition greater than $10,000,000,
and (b) cumulative acquisitions in excess of
$20,000,000 during any four consecutive quarterly
period.;
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Summary of Term and Conditions
Horizon Health Corporation
October 8, 1997 Page 8
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o Limitations on loans and investments; limitations on
extensions of credit to any entity other than the
Company and its permitted subsidiaries;
o No sale transfer or other disposition of the stock
interests or of voting rights with respect to any of
its permitted subsidiaries;
o No transactions with related parties other than on an
arm's-length basis on terms no less favorable to the
Company or any of its permitted subsidiaries than
those available from third parties;
o No amendment to certain scheduled agreements to the
material detriment of the Banks;
o No material change in the nature of business
conducted;
o No subsidiaries without prior bank approval;
o Subordination of any inter-company debt of the
Company or any of its permitted subsidiaries;
o Departure of both Ken Newman and Jim McAtee;
o No payment of dividends or distributions; and
o Limitations on redemption of common stock;
FINANCIAL
COVENANTS: Usual and customary for financings of this type, including,
but not limited to:
o MINIMUM TANGIBLE NET WORTH - Borrower will maintain
at all times a Tangible Net Worth of not less than an
amount to be determined at closing plus (i) 50% of
cumulative net income (if positive) after closing,
plus (ii) 100% of any equity issued.
"Tangible Net Worth" shall mean without duplication
in accordance with GAAP the sum of (i) the total
amount of capital stock of the Borrower, (ii)
preferred stock, (iii) paid-in capital, and (iv)
retained earnings minus the sum of (i) patents,
patent applications, trademarks, service marks,
copyrights, and trade names and (ii) goodwill and all
other intangibles;
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Summary of Term and Conditions
Horizon Health Corporation
October 8, 1997 Page 9
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o MAXIMUM INDEBTEDNESS TO CAPITALIZATION RATIO -
Borrower will maintain at all times an Indebtedness
to Capitalization Ratio of not greater than 50%.
"Capitalization Ratio" shall mean the ratio of (i)
Indebtedness at such time of the Borrower and its
subsidiaries determined on a consolidated basis, to
(ii) the sum of the indebtedness at such time of the
Borrower and its subsidiaries determined on a
consolidated basis plus Consolidated Net Worth at
such time.
"Indebtedness" shall mean (i) all liabilities for
borrowed money, (ii) all obligations evidenced by
bonds, debentures, notes or other similar
instruments, (iii) all capitalized lease obligations,
(iv) all obligations to reimburse the issuer of any
Letter of Credit for amounts drawn or drawable, and
(v) all outstanding debt related to synthetic leases.
"Consolidated Net Worth" shall mean without
duplication in accordance with GAAP the sum of (i)
the total amount of capital stock of the Borrower,
(ii) preferred stock, (iii) paid-in capital, and
(iv) retained earnings.
o MINIMUM FIXED CHARGE COVERAGE RATIO - Borrower will
maintain at all times a Fixed Charge Coverage Ratio
of not less than 1.20x.
"Fixed Charge Coverage Ratio" shall mean, for the
preceding four quarter period, the ratio of (a)
EBITDA less cash taxes to (b) cash interest expense
plus current maturities of long term debt plus
capital lease payments plus capital expenditures.
"EBITDA" means existing EBITDA and acquired GAAP
EBITDA without adjustment and without discount.
o MAXIMUM INDEBTEDNESS TO EBITDA RATIO - Borrower will
maintain at all times an Indebtedness to EBITDA Ratio
less than 2.50x.
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Summary of Term and Conditions
Horizon Health Corporation
October 8, 1997 Page 10
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EVENTS OF DEFAULT. Usual and customary for financings of this type, including,
but not limited to:
o Failure to pay or prepay any principal, interest, fee
or other amount under the Facilities when due;
o Default in connection with any other borrowed money
debt in excess of an amount to be negotiated and
expiration of any applicable grace period; or the
occurrence of any event or condition which enables
the holder of such debt to accelerate the maturity
thereof and such event or condition shall not be
cured within any applicable grace period;
o Misrepresentation by the Company in any material
respect;
o Breach of covenants in any of the Loan Documents;
o Commencement by the Company of voluntary or
involuntary bankruptcy or similar proceeding;
insolvency; failure to pay debts generally as they
become due; attachment of any substantial portion of
its property; dissolution;
o Material defaults related to employee benefit plans
subject to Title IV of ERISA;
o Any final judgment on the Company in an amount to be
determined remains undischarged and unstayed for a
period longer than the appeal time provided by
applicable law; or any uninsured or unindemnified
loss in excess of an amount to be determined;
o Change of control of the Company; and
o Unenforceability of any Loan Document.
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Summary of Term and Conditions
Horizon Health Corporation
October 8, 1997 Page 11
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REMEDY UPON
DEFAULT: As required by the Agent, including, but not limited to
acceleration, termination of commitments, cash
collateralization of outstanding letters of credit
obligations, and full exercise of rights under security
documents.
ASSIGNMENTS AND
PARTICIPATIONS: The Banks will be permitted to assign loans, notes, and
commitments in a minimum amount of $5,000,000, with the
prior consent of the Borrower, which consent shall not be
unreasonably withheld. Participations shall be without
restriction, provided that voting rights of participants
shall be limited to changes in provisions relating to
amount, rate, fees, collateral, guaranties, and maturity.
VOTING: Amendments and waivers of the Credit Agreement and other
definitive credit documentation will require approval of
the Banks holding loans and commitments representing at
least 66 2/3% of the aggregate amount of the loans and
commitments under the Facility ("Majority Banks"), except
that consent of all the Banks shall be required with
respect to: (i) increases in commitments, (ii) reductions
in principal, interest or fees, (iii) extension of any date
for any payment, and (iv) releases of collateral, if any.
INDEMNIFICATION: THE BORROWER WILL INDEMNIFY THE AGENT AND THE BANKS AND
THEIR RESPECTIVE OFFICERS, DIRECTORS, SHAREHOLDERS,
EMPLOYEES, AGENTS, AND ATTORNEYS (THE "INDEMNITEES")
AGAINST ALL COSTS, EXPENSES (INCLUDING FEES AND
DISBURSEMENTS OF COUNSEL) AND LIABILITIES ARISING OUT OF OR
RELATING TO THE FACILITIES, AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING CONSEQUENCES OF THEIR OWN
NEGLIGENCE, PROVIDED THAT NONE OF THE INDEMNITEES WILL BE
INDEMNIFIED FOR THE CONSEQUENCES OF ITS GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT.
CAPITAL ADEQUACY/
YIELD PROTECTION: The Loan Documents will contain yield protection provisions
appropriate for transactions of this type, including
provisions relating to increased reserve requirements,
changes in law and circumstances, possible future
illegality of interest options, taxes (other than on gross
receipts or income), possible inability to determine market
rate, capital adequacy, redeployment costs, and
consequential loss.
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Summary of Term and Conditions
Horizon Health Corporation
October 8, 1997 Page 12
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EXPENSES: The Borrower will pay all reasonable out-of-pocket expenses
the Agent incurred in the preparation, documentation,
syndication, and administration of the Facilities and all
reasonable out-of-pocket expenses of the Banks in
connection with the enforcement of their rights after
default.
AGENT'S COUNSEL: To be determined.
GOVERNING LAW: Texas.
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Summary of Term and Conditions
Horizon Health Corporation
October 8, 1997 Page 13
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SCHEDULE A
INTEREST RATES: Facility A & B at Borrower's option: (i) the Base Rate
(greater of (a) Agent's "prime rate" or (b) the federal
funds rate plus 1/2%) plus the Base Rate Margin, or (ii)
the Eurodollar Rate (the reserve adjusted rate quoted for
the offering to the Agent by prime banks selected by the
Agent, of deposits in U.S. dollars for delivery on the
first day of the applicable interest period and having a
maturity of one, two, three or six months, as specified by
the Borrower) plus the Eurodollar Margin. The Base Rate
Margin and the Eurodollar Margin will be determined by the
Indebtedness to EBITDA Ratio as shown in the matrix below.
COMMITMENT FEE: A per annum fee paid on the unused portion of the Revolving
Credit Facility and the unused portion of the Advance Term
Loan payable quarterly in arrears. The fee will be
determined by the Indebtedness to EBITDA Ratio shown in the
matrix below.
<TABLE>
<CAPTION>
============================================================================================
PRICING LEVEL LEVEL I LEVEL II LEVEL III LEVEL
(BASIS POINTS) LEV < 1.0x 1.0x < LEV < 1.5x < LEV < 2.Ox < LEV
1.5x 2.Ox
============================================================================================
<S> <C> <C> <C> <C>
Eurodollar Margin 75.0 100.0 125.0 150.0
--------------------------------------------------------------------------------------------
Base Rate Margin 0.0 0.0 25.0 50.0
--------------------------------------------------------------------------------------------
Commitment Fee 25.0 25.0 25.0 37.5
============================================================================================
</TABLE>
LEV is the abbreviation for Indebtedness to EBITDA as
defined herein.
POST DEFAULT
INTEREST RATE: Interest on any amount not paid when due on the loans will
accrue at a rate of 2.0% in excess of the rate otherwise
applicable on such amount and will be payable on demand.
UPFRONT FEE: (25) basis points, payable at closing to each Bank on its
final allocated commitment amount.
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<PAGE> 1
Exhibit 10.4
EXECUTIVE RETENTION AGREEMENT
This Executive Retention Agreement (the "Agreement") is made the 1st
day of September, 1997 (the "Effective Date"), by and between Horizon Health
Corporation, a Delaware corporation acting by and through its hereunto duly
authorized officer (the "Company"), and James Ken Newman (the "Executive").
WHEREAS, the Executive is presently in the employ of the Company in
the capacity of Chairman and Chief Executive Officer, and the Company desires
to retain the services of the Executive on a basis which will provide for a
continuity of management for the Company according to the terms and conditions
hereinafter set forth; and
WHEREAS, the Executive is willing to remain in the employ of the
Company in the capacity of Chairman and Chief Executive Officer and, after his
retirement, to provide consulting services to the Company for such management
continuity on such terms and conditions;
NOW, THEREFORE, in consideration of the premises and the mutual terms
and conditions herein contained, the Company and the Executive hereby agree as
follows:
1. Employment.
(a) Retention. Subject to the provisions of Section 7 of
this Agreement, in consideration of the compensation and benefits
hereinafter specified, the Executive hereby agrees to continue his
employment with the Company in the capacity of Chairman and Chief
Executive Officer and to discharge his duties in such capacity. The
Company hereby employs the Executive upon the terms and conditions
hereinafter set forth.
(b) Exclusive Services. During the term of his
employment, the Executive shall devote his full working time, ability
and attention to the business of the Company during the term of this
Agreement and shall not, directly or indirectly, render any services
of a business, commercial or professional nature to any other person,
corporation or organization, whether for compensation or otherwise,
without the prior knowledge and consent of the Board of Directors (the
"Board") of the Company; provided, however, that the provisions of
this Agreement shall not be construed as preventing the Executive from
investing in other non-competitive businesses or enterprises if such
investments do not require substantial services on the part of the
Executive in the affairs or operations of any such business or
enterprise so as to significantly diminish the performance by the
Executive of his duties, functions and responsibilities under this
Agreement.
(c) Authority and Duties. During the term of his
employment, the Executive shall have such authority and shall perform
such duties, functions and responsibilities as are specified by the
Bylaws of the Company and as are necessary or appropriate for the
office of the Chairman and Chief Executive Officer of the Company and
shall serve with
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<PAGE> 2
the necessary power and authority commensurate with such position and consistent
with the manner with which the Executive has carried out the responsibilities of
such office in the past.
2. Term.
(a) Term. This Agreement shall have a term of five (5)
years commencing on the Effective Date; subject, however, to automatic
renewal and to earlier termination as hereinafter provided.
(b) Automatic Renewal. Commencing on August 31, 1999,
and continuing each and every day thereafter, the then remaining three
year term of this Agreement shall be automatically extended for an
additional day so that on each and every day after the first two years
of the term of this Agreement there shall always be a remaining term
of three (3) years unless and until the Company gives written notice
to the Executive that the term of this Agreement shall not be further
so extended, in which case the term of this Agreement shall not be
further automatically extended after the date of receipt of such
notice by the Executive.
3. Compensation. As compensation for his services rendered under
this Agreement as the Chairman and Chief Executive Officer of the Company, the
Executive shall be entitled to receive for his employment services the
following:
(a) Base Salary. The Executive shall be paid an annual
base salary of $280,000 per year, payable in equal monthly
installments during the term of his employment, which shall be
prorated for any partial employment month. Such base salary shall be
subject to increase, but not decrease, by the Compensation Committee
of the Board in its sole discretion.
(b) Bonuses. For each fiscal year of the Company or
portion thereof that expires during the term of the employment of the
Executive after the fiscal year ended August 31, 1997, the
Compensation Committee shall adopt a bonus plan under which the
Executive shall have the ability to earn a bonus in an amount up to
one hundred percent (100%) of his base salary for each such respective
fiscal year. The terms, conditions and performance criteria
applicable to such bonuses shall be determined by the Compensation
Committee of the Board. Any bonus payable with respect to any partial
fiscal year of the Company that occurs during the term of the
employment of the Executive shall be prorated based on the number of
days of such fiscal year that occurred prior to the termination date
of employment or retirement to consultant status, whichever is
applicable. Each bonus payment due under this Section 3(b) shall be
made to the Executive within 90 days after the end of the fiscal year
with respect to which such bonus payment is due, regardless of whether
or not the employment of the Executive or the term of this Agreement
terminated prior to the due date of such payment.
(c) Stock Options. The Executive shall be granted stock
options to purchase shares of Common Stock of the Company in such
amounts, at such exercise prices and
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<PAGE> 3
upon such terms and conditions as may be determined by the
Compensation Committee of the Board in its sole discretion; provided,
however, that
i) Vesting. Any stock options granted in the
fiscal year ending August 31, 1998 shall have a term of ten
(10) years and shall vest not less than ten percent (10%) per
year at the end of each of the first eight years after the
date of the grant of the option and the remaining twenty
percent (20%) shall vest no later than at the end of the ninth
year after the date of the grant. Additionally, options
granted in each fiscal year thereafter shall fully vest over a
total period being one year less than the total vesting period
of stock options granted in the prior fiscal year (i.e., stock
options granted in the fiscal year ending August 31, 1999
shall fully vest over eight years, etc.) until the total
vesting period is reduced to three years where it shall remain
for any stock options thereafter granted during the term of
this Agreement and the percentage of the stock options that
vest each year shall be not less than ten percent (10%) per
year until the final year of vesting when all such stock
options shall vest.
ii) Acceleration of Vesting. All stock options
granted to the Executive on or after the Effective Date shall
contain a provision that, upon termination of this Agreement
(including as a result of a resignation with good reason as
defined herein after the occurrence of a change of control as
defined herein), except when such termination of this
Agreement is by the Company with cause (as defined herein),
all unvested stock options shall be accelerated and shall
become immediately vested and exercisable irrespective of when
such stock options otherwise would have vested.
iii) Termination. All stock options granted to
the Executive shall not terminate upon the retirement of the
Executive so long as the Executive continues as a consultant
to the Company.
All stock options previously granted to the Executive by the Company
prior to the Effective Date shall not be amended to incorporate the
foregoing provisions of Sections 3(c)(ii) and (iii) above but such
provisions shall be incorporated as a part of any stock options
granted on or after the Effective Date.
(d) Additional Compensation. The Executive shall be paid
such additional compensation and bonuses, if any, as may be determined
by the Compensation Committee of the Board from time to time, in its
sole and absolute discretion.
4. Benefits. During the term of this Agreement, in addition to
the compensation to be paid to the Executive pursuant to Section 3 or Section 7
hereof, the Executive shall be included and entitled to participate in any
hospital, surgical, and medical benefit plan, any group term life insurance
policy, any disability insurance policy, any pension or profit sharing plan, or
any other fringe benefits which may be extended generally to senior executive
officers of the Company by the Board of Directors from time to time. The
Company agrees that it shall provide such benefits
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<PAGE> 4
to the Executive on the same basis as the Company makes such benefits available
to its senior executive officers from time to time.
5. Reimbursement of Expenses. Subject to such reasonable rules
and procedures as from time to time are specified by the Company or the Board,
the Company shall reimburse the Executive on a timely basis for reasonable
business expenses necessarily incurred in the performance of his duties under
this Agreement.
6. Place of Performance. During the term hereof, the principal
executive offices of the Company and the principal place for performance by the
Executive of his duties, functions and responsibilities under this Agreement
shall be in the Dallas, Ft. Worth, Denton, Texas metropolitan area.
7. Consulting Services. At any time during the term of this
Agreement, the Executive may elect at his sole discretion to retire as the
Chief Executive Officer of the Company. In such event, the Executive shall
become a consultant to the Company and provide consulting services to the
Company, and the Company shall retain the Executive as an independent
consultant, on the following terms and conditions, to-wit:
(a) Consulting Services. The Executive shall provide
consulting services as an independent consultant and not as an
employee with respect to such business and other matters pertaining to
the Company as may be reasonably requested by the Company from time to
time and shall be willing to serve as the Chairman of the Board of
Directors of the Company.
(b) Term. The term of this Agreement shall remain in
effect without change notwithstanding such retirement and shall
continue to be automatically renewed, subject to the provisions of
Section 2(b) until terminated in accordance with the express terms of
this Agreement.
(c) Consulting Fees. The Company shall pay to the
Executive an annual consultant fee for his consulting services in an
amount equal to seventy-five percent (75%) of the annual base salary
of the Executive in effect immediately prior to the date of retirement
payable in equal monthly installments.
(d) Bonuses. After the date of retirement, the Executive
shall not be entitled to any bonuses under Section 3(b) of this
Agreement except for any bonus earned up to the date of retirement
even if payable at a later date.
(e) Stock Options. All stock options granted to the
Executive prior to the date of retirement shall not be modified,
accelerated, terminated or otherwise changed in any respect solely as
a result of the retirement of the Executive to consultant status and
shall continue in full force and effect. All stock options granted to
the Executive shall expressly provide that such stock options shall
not terminate as a result of the termination of employment of the
Executive as a result of his retirement and that such stock options
shall
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<PAGE> 5
continue in full force and effect after the retirement of the
Executive so long as he continues to be a consultant to the Company
under this Agreement.
(f) Benefits/Expenses. The Executive shall continue to
receive the benefits as specified under Section 4 of this Agreement
and to be reimbursed expenses as specified under Section 5 of this
Agreement.
(g) Office. The Executive shall be provided an office at
the principal executive offices of the Company for performing his
consulting services and shall be provided secretarial assistance for
up to twenty (20) hours of secretarial time per week.
(h) Other Terms. Except as expressly set forth above in
this Section 7, all of the terms and provisions of this Agreement
shall continue in full force and effect notwithstanding the change in
status of the Executive under this Agreement from that of an executive
officer to that of a consultant.
8. Confidentiality/Trade Secrets. The Executive acknowledges
that his position with the Company is one of trust and confidence both by
reason of his position and by reason of his access to and contact with the
trade secrets and confidential and proprietary business information of the
Company. Both during the term of this Agreement and thereafter, the Executive
covenants and agrees as follows:
(a) that he will exercise diligence to protect and
safeguard the trade secrets and confidential and proprietary
information of the Company including but not limited to the identity
of its patients, customers and suppliers, the identity of its officers
and other key employees and their areas of expertise, its arrangements
with patients, customers and suppliers, and its technical data,
records, compilations of information, processes, and specifications
relating to its patients, customers, suppliers, products and services;
(b) that he shall not disclose any of such trade secrets
and confidential and proprietary information, except as may be
required in the course of his employment; and
(c) that he shall not use, directly or indirectly, for
his own benefit or for the benefit of another, any of such trade
secrets and confidential and proprietary information.
All files, records, documents, drawings, specifications, memoranda, notes, or
other documents relating to the business of the Company, whether prepared by
the Executive or otherwise coming into his possession shall be the exclusive
property of the Company and shall be delivered to the Company and not retained
by the Executive upon termination of this Agreement for any reason whatsoever.
The Executive shall not be required to keep confidential or restrict
the use of any trade secrets or confidential and proprietary data and
information of the Company (i) which he may be required to disclose at the
express direction of any authorized government agency, pursuant to a subpoena
or other court process, or as otherwise required by any law, rule, regulation
or order
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<PAGE> 6
of any regulatory body, (ii) which has become generally available to the public
by means other than a breach of this Agreement by the Executive, or (iii) as to
which disclosure or use the Board consents in writing in its sole and absolute
discretion.
9. Non-Competition. The Executive covenants and agrees that
during the term of this Agreement and after termination of this Agreement for
the period that the Executive continues to receive payments under Section 15(c)
of this Agreement, if at all, (1) he shall not without the prior written
consent of the Board, in its sole discretion, directly or indirectly, as an
employee, employer, consultant, agent, principal, partner, shareholder,
corporate officer, director or through any kind of ownership or investment
(other than ownership of securities of publicly held corporations of which the
Executive owns less than five percent (5%) of any class of outstanding
securities) or in any other representative or individual capacity, engage in
any business or render any services to any business that is in competition with
the business of the Company and (2) he shall not encourage, solicit or induce,
directly or indirectly, any employee, manager, supervisor, officer or director
of the Company to terminate his or her employment with the Company or any
affiliate of the Company.
Notwithstanding any provision of this Section 9 to the contrary, the
Executive in his sole discretion may elect at any time twenty-four (24) months
or more after the date of termination of this Agreement to not receive any
further payments under Section 15(c) of this Agreement and, in such event, the
provisions of this Section 9 shall not apply from and after the last day of the
month with respect to which a payment is made under Section 15(c) of this
Agreement.
As provided in Section 15(f) of this Agreement in the event that the
Executive resigns without cause at any time during the term of this Agreement,
the Executive shall be subject to the provisions of this Section 9 for a period
of twenty-four (24) months after the date of such resignation in consideration
of the payment of $1,000 per month by the Company to the Executive during such
period.
10. Remedies for Breach of Covenants of the Executive. The
covenants set forth in Sections 8 and 9 of this Agreement shall continue to be
binding upon the Executive, notwithstanding the termination of this Agreement.
It is expressly agreed that the remedy at law for the breach of any such
covenant is inadequate and that injunctive relief, in addition to any other
remedies that may be available to the Company at law or in equity, shall be
available to the Company to prevent to the breach or any threatened breach
thereof.
11. Definition of Change of Control. For purposes of this
Agreement, "change of control" shall mean:
(a) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (an "Acquiring
Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 50% or more of either (i) the
then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power
of the then outstanding voting
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securities of the Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a change of control: (i) any
acquisition directly from the Company, (ii) any acquisition by the
Company, (iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any
corporation controlled by the Company.
(b) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose
election or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of an
Acquiring Person other than the Board; or
(c) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
12. Discharge with Cause. For the purposes of this Agreement, the
Company shall be deemed to have terminated the Executive for cause only if any
one of the following conditions existed:
(a) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one
of its affiliates (other than any such failure resulting from
incapacity due to physical or mental illness), after a written demand
for substantial performance is delivered to the Executive by the Board
of Directors which specifically identifies the manner in which the
Board of Directors believes the Executive has not substantially
performed the Executive's duties; or
(b) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably
injurious to the Company.
Any termination with cause by the Company under subsections (a) and
(b) above shall be made in good faith at the sole discretion of the Board of
Directors of the Company.
13. Resignation for Good Reason. For the purposes of this
Agreement, the Executive shall be deemed to have resigned for good reason if
the Company assigns to the Executive any duties inconsistent in any material
respect with the Executive's position (including status, office, title, and
reporting requirements), authority, duties or responsibilities or any other
action by the Company which results in material diminution in such position,
authority, duties or responsibilities of the Executive.
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14. Termination.
(a) Termination by the Executive with Cause. The
Executive may, upon written notice effective immediately, terminate
this Agreement "with cause" if any one of the following conditions
exist:
(1) If the Company breaches any material
provision of this Agreement or fails to perform any of its
obligations hereunder, and such breach or failure continues
for at least ten days after the Executive provides written
notice to the Company specifying in reasonable detail the
nature of such breach or failure. It is expressly understood
that (i) during the term of the employment of the Executive as
an officer of the Company, a relocation of the principal
corporate offices of the Company outside of Dallas, Ft. Worth,
Denton, Texas metropolitan area without the prior consent of
the Executive and (ii) the failure to timely pay any amounts
due hereunder each shall constitute a material breach of this
Agreement by the Company.
The resignation of the Executive at any time during the term of this
Agreement when none of the foregoing conditions exist shall be deemed
a resignation without cause by the Executive.
(2) If the Executive resigns for good reason as
defined in Section 13 of this Agreement.
(b) Termination by Company with Cause. The Board may,
upon written notice effective immediately, terminate this Agreement if
any one of the following conditions exist:
(1) If "cause" exists as defined in Section 12 of
this Agreement.
(2) If the Executive should die (effective on the
date of death);
The termination of the Executive by the Company when none of the
foregoing conditions exist shall be deemed to be a termination without
cause.
15. Post-Termination Matters
(a) Salary and Employee Benefits. In the event of the
termination of this Agreement by either party for any reason
whatsoever, the Executive shall be entitled to his salary pursuant to
Section 5(a) or his consulting fees pursuant to Section 7(c), as
applicable, computed on a pro rata basis to and including such date of
termination.
(b) Bonus. During the term of his employment, in the
event that this Agreement is terminated by the Company (other than
with cause as described in Section 12 of this Agreement) or by the
Executive with cause as described in Section 14 of this
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<PAGE> 9
Agreement, the Executive shall be entitled to receive any bonus
specified in Section 3(b) hereof calculated on a pro rata basis to the
date of termination and payable at the same time when such bonus would
have otherwise been payable.
(c) Severance Payment. In the event that this Agreement
is terminated by the Company (other than with cause as described in
Section 12 of this Agreement) or by the Executive with cause as
described in Section 14 of this Agreement, the Executive shall be
entitled to receive as a severance cash payment the full amount of the
base salary if such termination occurs while the Executive is an
employee or the full amount of the consulting fees if such termination
occurs while the Executive is a consultant which would have been paid
to the Executive over the then remaining unexpired term of this
Agreement, payable in equal consecutive monthly installments
commencing on the first day of the month after the date of termination
and continuing for the then unexpired term of this Agreement.
Notwithstanding the foregoing, the Executive may
elect in his sole discretion at any time twenty-four (24) months or
more after the date of termination of this Agreement to not receive
any further payments under this Section 15(c) and, in such event, the
provisions of Section 9 of this Agreement shall not be applicable and
shall have no further force or effect.
(d) Vesting of Benefits. In the event that this
Agreement is terminated by the Company (other than with cause as
described in Section 12 of this Agreement) or by the Executive with
cause as described in Section 14 of this Agreement (but only after a
change of control has occurred in the event of a resignation for good
reason), all stock options granted by the Company to the Executive
(whether prior to or after the Effective Date), all contributions made
by the Company for the account of the Executive to any pension, thrift
or any other benefit plan, and all other benefits or bonuses which
contain vesting or exercisability provisions conditioned upon or
subject to the continued employment of the Executive, shall become
fully vested and exercisable; provided, however, that if any such
amount, benefit, or payment cannot become fully vested pursuant to
such plan or arrangement on account of limitations imposed by law, the
Executive shall be entitled, to the extent permitted by law, to
receive from the Company an amount in cash payable within 30 days of
the date of termination equal to the total amount of benefits or
payments which the Executive will have to forfeit pursuant to such
plan or arrangement on account of such termination of employment.
(e) Continuation of Benefits. In the event that this
Agreement is terminated by the Company (other than with cause as
described in Section 12 of this Agreement) or by the Executive with
cause as described in Section 14 of this Agreement, the Company shall
continue the participation of the Executive on the same basis as
extended to senior executive officers of the Company from time to time
in all life, accident, disability, medical, dental and all other
health plans maintained by the Company for its senior executives for
the period equal to the unexpired term of this Agreement.
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<PAGE> 10
(f) Resignation Without Cause by the Executive. In the
event that the Executive resigns without cause during the term of this
Agreement, then the Executive shall not be entitled to any of the
benefits under Sections 15(b)(c)(d) or (e) above, but shall be
obligated to comply with the provisions of Section 9 of this Agreement
for a period of twenty-four (24) months in consideration of the
payment of $1,000 per month by the Company to the Executive during
such period.
16. Tax Matters. If the Executive is a disqualified individual
(as the term "disqualified individual" is defined in Section 280G of the
Internal Revenue Code) and if any portion of the severance benefits under this
Agreement would be an excess parachute payment (as the term "excess parachute
payment" is defined in Section 280G of the Code) but for the application of
this sentence, then the amount of the severance benefits otherwise payable to
the Executive pursuant to this Agreement will be reduced to the minimum extent
necessary (but in no event to less than zero) so that no portion of the
severance benefits, as so reduced, constitutes an excess parachute payment.
The determination of whether any reduction in the amount of the severance
benefits is required pursuant to this Section 17(a) will be made by the
Company's independent accountants. The fact that the Executive has his
Severance Benefits reduced as a result of the limitations set forth in this
Section 17(a) will not of itself limit or otherwise affect any rights of the
Executive arising other than pursuant to this Agreement.
Notwithstanding the foregoing, in the event that the Company
terminates this Agreement without cause (as defined in Section 12 of this
Agreement) and any portion of the severance benefits payable hereunder in such
event would be an excess parachute payment, then the foregoing limitation
specified in this Section 16 shall not apply and, instead, the Company will
also pay to the Executive an additional amount in cash equal to the amount
necessary to cause the aggregate amount payable under this Agreement including
such additional cash payment (net of all taxes payable as a result of the
application of Sections 280G and 4999 of the Code and net of all federal income
taxes payable with respect to such additional payment), to be equal to the
aggregate amount payable under this Agreement as if Sections 280G and 4999 of
the Code (and any successor provisions thereto) had not been enacted into law.
17. General Provisions.
(a) Notices. Any notices to be given hereunder by either
party to the other may be effected either by personal delivery or by
fax in writing or by mail, registered or certified, postage prepaid,
with return receipt requested. Personal delivery to the Board shall
be to any member of the Board of Directors other than the Executive.
Mailed notices shall be addressed as follows:
(1) If to the Company:
Horizon Health Corporation
1500 Waters Ridge Drive
Lewisville, Texas 75057-6011
Attn: Board of Directors
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<PAGE> 11
(2) If to the Executive:
James Ken Newman
700 El Paso
Denton, Texas 76205
Either party may change its address for notice by giving notice in
accordance with the terms of this Section 17(a) of this Agreement.
(b) Law Governing. This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas.
(c) Invalid Provisions. If any provision of this
Agreement is held to be illegal, invalid or unenforceable under
present or future laws effective during the term hereof, such
provision shall be fully severable and this Agreement shall be
construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not
be affected by the illegal, invalid or unenforceable provision or by
its severance therefrom. Furthermore, in lieu of such illegal,
invalid or unenforceable provision there shall be added automatically
as part of this Agreement a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and
still be legal, valid or enforceable.
(d) Entire Agreement. This Agreement sets forth the
entire understanding of the parties and supersedes all prior
agreements or understandings, whether written or oral, with respect to
the subject matter hereof. No terms, conditions or warranties, other
than those contained herein, and no amendments or modifications hereto
shall be binding unless made in writing and signed by the parties
hereto.
(e) Binding Effect. This Agreement shall extend to and
be binding upon and inure to the benefit of the parties hereto, their
respective heirs, representatives, successors and assigns. All of the
provisions of this Agreement shall be fully applicable to any
successor to the Company resulting from a change of control. The
Company agrees that in the event of a tender or exchange offer,
merger, consolidation or liquidation or any such similar event
involving the Company, its securities or assets, it shall reveal the
existence of this Agreement to the acquiring person or entity. The
Company further agrees that if such action is not inconsistent with
the best interests of the Company, it shall condition approval of any
transactions proposed by the acquiror upon obtaining the consent, in
writing, of the potential successor to the Company to be bound by this
Agreement. In the event the Executive dies prior to the termination
of this Agreement, any compensation or other payment due and owing to
the Executive on or before the date of the Executive's death shall be
paid to his estate, executors, administrators, heirs or legal
representatives. Since the duties and services of the Executive
hereunder are special, personal and unique in nature, the Executive
may not transfer, sell or otherwise assign his rights, obligations or
benefits under this Agreement.
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<PAGE> 12
(f) Remedies. If the Executive or the Company shall file
any judicial action for enforcement of this Agreement and successfully
recover compensation or damages, the successful party shall be
entitled to recover in such proceeding an additional amount equal to
interest at ten percent (10%) per annum on the amount recovered from
the date such amount was due and payable together with all expenses
and reasonable attorneys' fees incurred in obtaining legal advice and
counseling respecting his or its rights under this Agreement and in
prosecuting and disposing of such action. The provisions of this
Section shall be cumulative and without prejudice to any other right
or remedy to which the Executive or the Company may be entitled either
at law, in equity or under this Agreement and shall not constitute the
exclusive remedy of the Executive or the Company for breach of this
Agreement.
(g) Waiver. The waiver by either party hereto of a
breach of any term or provision of this Agreement shall not operate or
be construed as a waiver of a subsequent breach of the same provisions
by either party or of the breach of any other term or provision of
this Agreement.
(h) Titles. Titles of the paragraphs herein are used
solely for convenience and shall not be used for interpretation or
construing any word, clause, paragraph or provision of this Agreement.
(i) Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be an original, but which
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Executive Retention Agreement as of the day and year first written above.
COMPANY:
HORIZON HEALTH CORPORATION
By: /s/ JAMES W. MCATEE
------------------------------------
Its: Executive Vice President
-----------------------------------
EXECUTIVE:
/s/ JAMES KEN NEWMAN
----------------------------------------
JAMES KEN NEWMAN
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Exhibit 10.5
AMENDMENT TO 1989 STOCK OPTION PLAN
RESOLVED, that pursuant to the authority granted to the Committee in
Sections 3.4 and 6.4 of the 1989 Stock Option Plan, as amended, of the Company
(the "1989 Plan"), stock options outstanding under the 1989 Plan are authorized
to be amended (with the written consent of the holders thereof) to provide that
such stock options shall not terminate upon the termination of employment and
director status of such option holder with the Company or any of its affiliates
if such option holder continues to serve as a consultant to the Company or such
affiliates, and that instead, in such event, upon the subsequent termination of
such holder's status as a consultant to the Company and its affiliates, such
options shall terminate and cease to be exercisable on the same basis as would
have been applicable under such options upon termination of employment and
director status prior to such amendment.
AMENDMENT TO 1995 STOCK OPTION PLAN
RESOLVED, that pursuant to the authority granted to the Committee in
Section 12 of the 1995 Stock Option Plan of the Company (the "1995 Plan"),
stock options outstanding under the 1995 Plan are authorized to be amended
(with the written consent of the holders thereof) to provide that such stock
options shall not terminate upon the termination of employment of such option
holder with the Company of any of its affiliates if such option holder
continues to serve as a director of or consultant to the Company or such
affiliates, and that instead, in such event, upon the subsequent termination of
such holder's status as a director of and consultant to the Company and its
affiliates, such options shall terminate and cease to be exercisable on the
same basis as would have been applicable under such options upon termination of
employment and director status prior to such amendment.
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<PAGE> 1
Exhibit 10.6
AMENDMENTS TO 1995 STOCK OPTION PLAN AND 1995 STOCK OPTION PLAN FOR ELIGIBLE
OUTSIDE DIRECTORS
RESOLVED, that Section 8(e) of the 1995 Plan, and Section 6(e) of the
Amended and Restated 1995 Stock Option Plan for Eligible Outside Directors of
the Company, shall each be amended to read as follows so that such amended
provisions shall apply to all stock options under such plans:
"(e) Payment of Withholding. Upon exercise of an Option by an
Optionee who is then subject to the reporting and other provisions of
Section 16 of the Act, such number of shares otherwise issuable shall,
if requested in writing by the Optionee, be reduced by the amount
necessary to satisfy the Optionee's U.S. federal and, where
applicable, state and local tax withholding requirements. The number
of shares so withheld shall have an aggregate Fair Market Value as of
the date of exercise sufficient to satisfy the applicable withholding
taxes. The Options for such number of shares withheld shall be deemed
to have been exercised for all purposes hereunder. Otherwise, the
Committee may, in its discretion, require an Optionee to pay to the
Company at the time of exercise of an Option or portion thereof the
amount that the Company deems necessary to satisfy its obligations to
withhold Federal, state or local income or other taxes incurred by
reason of the exercise."
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