<PAGE> 1
================================================================================
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
JUNE 2, 1998
Date of Report (Date of earliest event reported)
HORIZON HEALTH CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 1-13626 75-2293354
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
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)
================================================================================
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 2, 1998, the Registrant acquired all of the issued and
outstanding shares of capital stock of FPM Behavioral Health, Inc., a Delaware
corporation ("FPM"), pursuant to that certain Stock Purchase Agreement dated as
of May 1, 1998, by and among the Registrant, Ramsay Managed Care, Inc., a
Delaware corporation ("RMCI"), and Ramsay Health Care, Inc., a Delaware
corporation ("RHCI"). The shares of FPM capital stock were acquired from
Ramsay Managed Care, Inc., the sole stockholder of FPM. Ramsay Managed Care,
Inc. is a wholly-owned subsidiary of Ramsay Health Care, Inc.
FPM provides managed behavioral health care services, employee
assistance programs and other related behavioral health care services to health
maintenance organizations and self-insured employers. At February 28, 1998,
FPM had 46 contracts covering approximately 1,135,000 lives in 9 states. FPM
provides its services both through health care professionals employed by FPM
and through independent health care professionals that have contracted with FPM
on a fee-for-service basis. At April 1998, the FPM provider network was
composed of over 2,000 providers. For the nine months ended March 31, 1998,
FPM revenues were approximately $19.0 million and pre-tax income was
approximately $2.0 million.
The purchase price was $20,000,000 in cash which the Registrant funded
from a term loan advance under its existing credit facility with Chase Bank of
Texas, N.A. The Registrant will account for the transaction as a purchase.
* * *
(REMAINDER OF PAGE LEFT BLANK INTENTIONALLY)
-2-
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of FPM Behavioral Health
The financial statements required by this item are not included in
this report and such financial statements will be filed by an amendment to this
report filed within sixty days after the date of the filing of this report.
(b) Pro Forma Financial Information
The pro forma financial information required by this item are not
included in this report and such pro forma financial information will be filed
by an amendment to this report filed within sixty days after the date of the
filing of this report.
(c) Exhibits
Exhibit No. Description
----------- -----------
10.1 Stock Purchase Agreement, dated as of May 1,
1998, among the Registrant, Ramsay Managed
Care, Inc. and Ramsay Health Care, Inc.
(filed herewith).
10.2 Escrow Agreement dated June 2, 1998 by and
among Registrant, Ramsay Managed Care, Inc.,
Ramsay Health Care, Inc. and Haythe & Curley
(filed herewith).
* * *
(REMAINDER OF PAGE LEFT BLANK INTENTIONALLY)
-3-
<PAGE> 4
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: June 17, 1998 By: /s/ James W. McAtee
------------------------------------------
James W. McAtee
Executive Vice President,
Finance & Administration
(Principal Financial Officer)
-4-
<PAGE> 5
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibits
- - --------
Exhibit No. Description
----------- -----------
<S> <C>
10.1 Stock Purchase Agreement, dated May 1, 1998, by and among the Registrant, Ramsay
Managed Care, Inc. and Ramsay Health Care, Inc. (filed herewith).
10.2 Escrow Agreement, dated June 2, 1998, by and among the Registrant, Ramsay Managed
Care, Inc. and Ramsay Health Care, Inc. (filed herewith).
</TABLE>
<PAGE> 1
EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
By and Among
RAMSAY MANAGED CARE, INC.,
RAMSAY HEALTH CARE, INC.
and
HORIZON HEALTH CORPORATION
As of May 1, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION> PAGE
----
<S> <C>
Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION I.
PURCHASE AND SALE OF THE SHARES
1.01 Purchase and Sale of the Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 The Indemnity Escrow Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.03 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.04 Purchase Price Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.05 Delivery of the Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.06 Intercompany Account Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION II.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
A. Representations and Warranties of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.01 Organization and Qualification; Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.02 Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.03 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.04 Financial Statements; No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.05 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.06 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.07 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.08 Real Property Owned or Leased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.09 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.10 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.11 Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.12 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.13 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.14 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.15 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.16 Permits; Compliance with Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.17 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.18 Trademarks, Patents and Copyrights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.19 Transactions with Certain Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.20 Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.21 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.22 Ownership of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
2.23 Accounts Payable IBNR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.24 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.25 Foreign Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.26 Improper Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.27 Status as Eligible Common Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
B. Representations and Warranties of RHCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.28 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.29 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.30 Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.31 Litigation; Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.32 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
C. Agreement by the Purchaser Regarding No Other Representations or
Warranties by the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION III.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
A. Representations and Warranties of the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.01 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.02 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.03 Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.04 Litigation; Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.05 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.06 Investment Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.07 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
B. Agreement by the Seller Regarding No Other Representations or Warrants
by the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION IV.
THE CLOSING
4.01 Time and Place of the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.02 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.03 Effect on Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.04 Return of Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.05 Sole and Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION V.
CONDITIONS TO THE SELLER'S OBLIGATIONS TO CLOSE
5.01 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.02 Opinion of the Purchaser's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.03 Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
5.04 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.05 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.06 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.07 HSR Act Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.08 Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.09 PsychTrac License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.10 Release of Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION VI.
CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE
6.01 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.02 Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.03 Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.04 Corporate Minute Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.05 Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.06 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.07 Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.08 Opinion of the Seller's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.09 Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.10 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.11 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.12 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.13 HSR Act Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.14 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.15 Tax Sharing Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.16 Certification of Non-Foreign Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.17 Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.18 Welfare Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.19 Non-Competition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION VII.
CONDUCT OF THE BUSINESS
7.01 Access and Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.02 Monthly Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.03 Operation of Businesses; Course of Conduct. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.04 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.05 Solicitation of Inquiries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.06 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
SECTION VIII.
OTHER AGREEMENTS OF THE PARTIES
<S> <C>
8.01 Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.02 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.03 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.04 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.05 HSR Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.06 Certain Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION IX.
INDEMNIFICATION
9.01 Indemnification by the Seller and RHCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.02 Indemnification by the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.03 Procedure for Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.04 Limits on the Liability of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.05 Other Limits on Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.06 Losses Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.07 Sole and Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION X
BROKERS AND FINDERS
10.01 The Seller's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.02 The Purchaser's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION XI.
NON-COMPETITION AGREEMENT
11.01 Noncompete Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.02 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.03 Reasonableness; Reformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION XII.
POST-CLOSING ADJUSTMENT
12.01 Post-Closing Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.02 Access by Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.03 Guaranty of RHCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
-iv-
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
SECTION XIII.
MISCELLANEOUS
<S> <C>
13.01 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
13.02 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
13.03 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
13.04 Further Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
13.05 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
13.06 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
13.07 Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
13.08 Invalidity, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
13.09 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
13.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
13.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
13.12 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION XIV.
DEFINITIONS
14.01 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION XV.
ARBITRATION
15.01 Arbitration Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
15.02 Self-Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15.03 Arbitrator's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
15.04 Rules Governing Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
15.05 Entry of Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
15.06 Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
-v-
<PAGE> 7
SCHEDULES
<TABLE>
<S> <C>
Schedule 2.01 Subsidiaries Partnerships, Etc.
Schedule 2.02 Conflicts
Schedule 2.03 Capitalization
Schedule 2.04 Financial Statements/Liabilities
Schedule 2.06 Certain Changes
Schedule 2.07 Taxes
Schedule 2.08 Real Property Leases
Schedule 2.09 Title; Liens
Schedule 2.10 Contracts
Schedule 2.11 Employees
Schedule 2.12 Benefit Plans
Schedule 2.13 Labor Relations
Schedule 2.14 Insurance
Schedule 2.15 Litigation
Schedule 2.16 Permits; Environmental
Schedule 2.17 Bank Accounts
Schedule 2.18 Intellectual Property
Schedule 2.19 Transactions with Certain Persons
Schedule 2.20 Customers
Schedule 2.22 Ownership of Shares
Schedule 2.24 Consents
Schedule 2.29 RHCI Conflicts
Schedule 2.31 RHCI Consents
Schedule 7.03 Certain Changes After Effective Date
Schedule 12.01 Development Contracts
EXHIBITS
Exhibit A Escrow Agreement
Exhibit B Form of Director and Officer Release
</TABLE>
-vi-
<PAGE> 8
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the 1st
day of May 1998 (the "Effective Date") by and among Ramsay Managed Care, Inc.,
a Delaware corporation (the "Seller"), Ramsay Health Care, Inc., a Delaware
corporation ("RHCI"), and Horizon Health Corporation, a Delaware corporation
(the "Purchaser"). Capitalized terms used herein and not defined in the
specific Section in which they are used, shall have the meanings assigned to
such terms in Section XIV hereof.
W I T N E S S E T H:
WHEREAS, the Seller is the holder of all of the issued and outstanding
shares of common stock, par value $0.01 per share (the "Common Stock") of FPM
Behavioral Health, Inc., a Delaware corporation ("FPM"); and
WHEREAS, the Purchaser desires to acquire from the Seller, and the
Seller desires to sell to the Purchaser, for the consideration hereinafter
provided, all of the issued and outstanding shares of the FPM Common Stock
(collectively, the "Shares");
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto, intending
to be legally bound, hereby agree as follows:
SECTION I.
PURCHASE AND SALE OF THE SHARES
1.1 Purchase and Sale of the Shares. Subject to the terms and
conditions of this Agreement and on the basis of the representations,
warranties, covenants and agreements herein contained, at the Closing, the
Seller agrees to sell, assign and convey the Shares to the Purchaser, and the
Purchaser agrees to purchase, acquire and accept the Shares from the Seller.
1.2 The Indemnity Escrow Deposit. At the Closing, the
Purchaser shall deposit $1,000,000 of the Purchase Price with Haythe & Curley,
as escrow agent (the "Escrow Agent"), by certified or official bank check
payable to the order of the Escrow Agent or by wire transfer of immediately
available funds (the "Indemnity Escrow Amount" and, together with all earnings
thereon, collectively, the "Indemnity Escrow Deposit"). The Indemnity Escrow
Deposit will be held,
1
<PAGE> 9
invested and disbursed as specified in and pursuant to the terms and conditions
of an Escrow Agreement substantially in the form attached hereto as Exhibit A.
1.3 Purchase Price. The aggregate purchase price for the
Shares shall be equal to Twenty Million Dollars ($20,000,000) (the "Closing
Purchase Price"), as adjusted pursuant to Section 1.04 below (the Closing
Purchase Price as adjusted pursuant to Section 1.04, the "Purchase Price").
The Closing Purchase Price, less the Indemnity Escrow Amount, which shall be
deposited with the Escrow Agent as provided in Section 1.02 above, shall be
paid by the Purchaser to the Seller at the Closing by bank wire transfer of
immediately available funds to an account designated by the Seller.
1.4 Purchase Price Adjustment. (a) As promptly as practicable
following the Closing Date, but in no event later than 60 days thereafter (the
"60-Day Period"), the Purchaser shall prepare and deliver to the Seller (i) an
unaudited consolidated balance sheet of the Group (the "Closing Balance Sheet")
as of the Closing Date (immediately prior to the Closing and without giving
effect to Section 1.06 hereof) and (ii) a certificate setting forth the Closing
Net Worth as of the Closing Date (immediately prior to the Closing and without
giving effect to Section 1.06 hereof) computed in accordance with the terms of
this Agreement, and setting forth the computation and components thereof in
reasonable detail (the "Statement of Closing Net Worth"). The Closing Balance
Sheet shall be prepared in accordance with GAAP, as if the Closing Date were
the last day of the Group's fiscal year.
(b) During the 60-Day Period, the 45-Day Period and the
30-Day Period, the Purchaser shall afford the Seller and RHCI and their
representatives access to the books and records of the Group and, upon
reasonable prior notice and without unreasonable disruption, to the employees
of the Purchaser and the Group, and afford the Seller and RHCI and their
representatives with the opportunity to participate in and consult with the
Purchaser in connection with the preparation by the Purchaser of the Closing
Balance Sheet and the Statement of Closing Net Worth.
(c) On the forty-fifth day after the date on which the
Closing Balance Sheet and the Statement of Closing Net Worth have been
delivered to the Seller (or such earlier date as the Seller notifies the
Purchaser in writing), if the Closing Net Worth shown on the Statement of
Closing Net Worth is not disputed by the Seller pursuant to Section 1.04(d)
hereof, then (i) in the event that the Closing Net Worth exceeds the Base Net
Worth, the Purchaser shall pay to the Seller by bank wire transfer the amount
by which the Closing Net Worth exceeds the Base Net Worth, (ii) in the event
that the Closing Net Worth equals the Base Net Worth, the Purchase Price shall
equal the Closing Purchase Price and no adjustment shall be made pursuant to
this Section 1.04, and (iii) in the event that the Base Net Worth exceeds the
Closing Net Worth, the Seller shall pay to the Purchaser by bank wire transfer
the amount by which the Base Net Worth exceeds the Closing Net Worth. It is
expressly understood that any payment by the Seller pursuant to subsection
(iii) of the immediately preceding sentence shall not be made with any funds
constituting the Indemnity Escrow Deposit. In addition, it is understood and
agreed that if the Seller does not deliver a Dispute Notice to the Purchaser
within 45 days after the receipt by the Seller of the Closing Balance Sheet
and the Statement of Closing Net Worth (the "45-Day Period"), then the Closing
Balance Sheet and the Statement of Closing Net Worth shall be deemed accepted
in all respects by the Seller and the Purchaser and shall be final and binding
upon the parties hereto.
2
<PAGE> 10
(d) If the Seller disputes the Closing Net Worth shown
on the Statement of Closing Net Worth, the Seller shall give written notice
(the "Dispute Notice") to the Purchaser within the 45-Day Period, which
Dispute Notice shall specify in reasonable detail the reasons for such
disagreement and the amount in dispute. If the Seller and the Purchaser are
unable to resolve the disputed matters within 30 days after receipt by the
Purchaser of the Dispute Notice (the "30-Day Period"), all disputed matters
raised in the Dispute Notice and not so resolved shall be submitted to (i) the
Atlanta office of the "Big-Six" nationally recognized accounting firm
(excluding, however, both Price Waterhouse L.L.P. and Ernst & Young L.L.P.)
which is listed first on an alphabetical basis, and if such firm refuses to
accept such engagement, then (ii) the Atlanta office of the next such
nationally recognized independent accounting firm in alphabetical order;
provided, however, that in the event of a merger of any such firms with either
Price Waterhouse L.L.P. or Ernst & Young L.L.P., the merged firm shall not be
eligible (such firm which accepts the engagement, the "Independent Auditor"),
for final resolution in accordance with the terms and provisions of this
Agreement. Each party shall be permitted to submit to the Independent Auditor
a written statement in support of its position with respect to the disputed
matters raised in the Dispute Notice and not resolved. The Independent
Auditor's resolution of any such dispute shall be reflected in a written report
which the Purchaser and the Seller shall use their respective best efforts to
cause to be delivered promptly to the Seller and the Purchaser, which written
report shall, in addition to setting forth the resolution of the disputed
matters, set forth the Closing Net Worth determined in accordance with the
terms hereof (and after giving effect to such resolution) and shall set forth,
after giving effect to the foregoing determinations, which of clauses (i), (ii)
or (iii) of subsection (c) above is applicable in the circumstances (all of
the foregoing, the "Independent Auditor's Determination"). The Seller and the
Purchaser shall use their respective best efforts to cause the Independent
Auditor to make the Independent Auditor's Determination as soon as possible,
but in no event later than 45 days after receipt of the disputed matters. The
Independent Auditor's Determination shall be final and binding upon the parties
hereto. The Independent Auditor's resolution of disputed matters shall be
limited to matters of dispute which are raised in the Dispute Notice and not
resolved by the Seller and the Purchaser. One-half of all fees and
disbursements of the Independent Auditor shall be paid by the Seller and
one-half of such fees and disbursements shall be paid by the Purchaser. Any
payment to be made as a consequence of the decision of the Independent Auditor
shall be made, free and clear of any deductions or set-off, not later than
three business days after the receipt of such written report by the Seller and
the Purchaser, in accordance with the provisions of clauses (i) through (iii)
of Section 1.04(c), as applicable.
(e) All amounts paid pursuant to this Section 1.04 shall
be paid by bank wire transfer of immediately available funds and shall bear
interest from and after the end of the 45-Day Period (as defined in Section 1.0
4(c)), until paid, at the per annum rate equal to the prime rate of Chase
Manhattan Bank (or its successors), as in effect from time to time, on the
basis of a 365-day year and the actual number of days elapsed.
1.5 Delivery of the Shares. At the Closing, the Seller shall
deliver the Shares to the Purchaser by delivering certificates duly endorsed in
blank representing the Shares, each certificate to be accompanied by any
requisite stock transfer tax stamps.
1.6 Intercompany Account Obligations. As of the Closing, all
then outstanding intercompany obligations of any Group Member to the Seller or
any of its Affiliates (other than any Group Member), shall be cancelled by
being considered as a capital contribution by Seller to FPM and no Group Member
shall have any further liability or obligation in respect of any such
3
<PAGE> 11
intercompany obligations; provided that nothing in this Section 1.06 shall
affect any and all of the covenants, agreements, obligations and other
provisions of this Agreement applicable to the Seller, RHCI, the Purchaser or
any Group Member set forth in this Agreement, including, without limitation,
the provisions of Section VIII.
SECTION II.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
A. Representations and Warranties of the Seller. In connection
with the purchase and sale of the Shares hereunder, the Seller hereby
represents and warrants to the Purchaser as of the Effective Date that:
2.1 Organization and Qualification; Subsidiaries. FPM and each of
its subsidiaries listed on Schedule 2.01 hereto (each a "Subsidiary" and
collectively, the "Subsidiaries") is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization, as the case may be, and has all requisite corporate (or, in the
case of each subsidiary which is a limited liability company or limited
partnership, limited liability company or limited partnership) power, authority
and legal right to own, operate and lease its assets and properties and to
conduct the businesses in which it is now engaged. Each Group Member is duly
qualified to transact business as a foreign corporation, limited liability
company or limited partnership in all jurisdictions wherein it is required to
be so qualified except where the failure to be so qualified would not have a
Material Adverse Effect. FPM does not have any subsidiaries, whether direct or
indirect, other than the Subsidiaries. Other than the Subsidiaries and other
than as set forth on Schedule 2.01 hereto, no Group Member owns any capital
stock or other equity or proprietary interest, directly or indirectly through
any Subsidiary or otherwise, in any corporation, association, trust,
partnership, joint venture, limited liability company or other entity or has
any agreement, right or obligation to acquire any such capital stock or other
equity or proprietary interest and is not a partner or joint venturer with any
other person or entity or a member of any other entity. Copies of the
certificate or articles of incorporation and by-laws, or limited liability
company operating agreement or limited partnership agreement, as the case may
be, of each Group Member and each other entity listed on Schedule 2.01 have
been delivered to the Purchaser on or prior to the Effective Date, which copies
are complete and correct and include all amendments, modifications or
supplements thereto as of the Effective Date. No Group Member is in violation
of any material term or provision of its certificate or articles of
incorporation or by-laws or limited liability operating agreement or limited
partnership agreement or in violation of any material term or provision of the
organizational documents of any of the other entities listed in Schedule 2.01.
Schedule 2.01 lists the state of incorporation or organization of each entity
shown thereon and each state where such entity is qualified to transact
business as a foreign corporation, limited liability company or limited
partnership, as the case may be.
2.2 Conflicts. Neither the execution and delivery of this
Agreement by the Seller, nor the performance of the transactions contemplated
hereby to be performed by the Seller, (a) violates any provision of the
certificate or articles of incorporation or by-laws in the case of
corporations, or limited liability company operating agreement or limited
partnership agreement in the case of limited liability companies or limited
partnerships, as the case may be, of the Seller or any Group Member or (b)
constitutes a violation of any Applicable Law. Except as set forth on Schedule
2.02 hereto,
4
<PAGE> 12
neither the execution and delivery of this Agreement by the Seller nor the
performance of the transactions contemplated hereby to be performed by the
Seller violates, or conflicts with, or results in any breach of any of the
terms of, or results in the termination of, or the creation of any material
Lien pursuant to, or with respect to, the terms of any contract, commitment,
agreement or lease of any kind to which the Seller or any Group Member is a
party or by which the Seller or any Group Member or any of their respective
assets are bound, except where such violation, conflict, breach, termination or
creation would not have a Material Adverse Effect.
2.3 Capitalization. The authorized, issued and outstanding
capital stock of each Group Member that is a corporation is as set forth on
Schedule 2.03 hereto. The limited partnership interests of each Group Member
that is a limited partnership is as set forth on Schedule 2.03 hereto. The
membership interests of each Group Member that is a limited liability company
is as set forth on Schedule 2.03 hereto. All of the outstanding shares of the
Common Stock and all of the outstanding shares of capital stock of each
Subsidiary that is a corporation have been duly and validly authorized and
issued and are fully paid and non-assessable and are owned of record and
beneficially by the Seller or a Group Member, as the case may be, as shown on
Schedule 2.03. The limited liability company membership interests and limited
partnership interests held by the Seller or a Group Member, as the case may be,
have been fully paid and are owned of record by the Seller or a Group Member,
as the case may be, as shown on Schedule 2.03. Except as set forth on Schedule
2.03 hereto, there are no outstanding subscriptions, warrants, options, calls,
commitments, convertible or exchangeable securities, or other rights or
agreements to purchase or acquire shares of capital stock, membership interests
or limited partnership interests, as the case may be, of any Group Member to
which any Group Member or the Seller is a party or by which any Group Member or
the Seller is bound. Except as set forth on Schedule 2.03 hereto, there are no
agreements concerning the issuance, voting, transfer, acquisition or
disposition of shares of capital stock, membership interests or limited
partnership interests, as the case may be, of any Group Member to which any
Group Member or the Seller is a party or by which any Group Member or the
Seller is bound. As of the Closing Date, each of the matters set forth in
Schedule 2.03 as exceptions to the two immediately preceding sentences, and not
indicated on Schedule 2.03 as surviving the Closing, shall have been fully
satisfied or waived, if applicable, and shall have been terminated and
cancelled in all respects.
2.4 Financial Statements; No Undisclosed Liabilities.
(a) The Seller has delivered to the Purchaser a copy of (i)
unaudited financial statements of FPM as of June 30, 1996 and 1997 consisting in
each case of an unaudited consolidated balance sheet at such respective date and
the related unaudited consolidated statement of income for the applicable twelve
(12) month period then ended and (ii) an unaudited consolidated balance sheet of
FPM as at February 28, 1998 (the "FPM Balance Sheet") and the related unaudited
consolidated statement of income for the eight (8) month period then ended
(collectively, the "Financial Statements"). The Financial Statements are
included as a part of Schedule 2.04. The Financial Statements (but only to the
knowledge of the Seller with respect to the Financial Statements described in
Section 2.04(a)(i) above) present fairly in all material respects the financial
position of FPM and the results of operations of FPM, in each case on a
consolidated basis, as at the respective dates and for the respective periods
covered thereby. The Financial Statements (but only to the knowledge of the
Seller with respect to the Financial Statements described in Section 2.04(a)(i)
above) have been prepared in accordance with GAAP (except for the absence of (i)
a statement of cash flows, (ii) footnotes and (iii) in the case of the February
28, 1998 Financial
5
<PAGE> 13
Statements, year-end adjustments) and were prepared from the books and records
of FPM. As of February 28, 1998, FPM owned, directly or indirectly all of the
assets included in the FPM Balance Sheet.
(b) Except as set forth in Schedule 2.04 hereto, no
Group Member has any liabilities or obligations of any nature, whether accrued,
absolute, contingent or otherwise, whether due or to become due, required under
GAAP (except for the absence of (i) a statement of cash flows, (ii) footnotes
and (iii) in the case of the February 28, 1998 Financial Statements, year-end
adjustments) to be set forth or reserved against on a consolidated balance
sheet of FPM, except for:
(i) liabilities or obligations set forth or reserved
against in the FPM Balance Sheet; and
(ii) liabilities or obligations incurred in the ordinary
course of business since February 28, 1998.
(c) Except for the intercompany obligations to be
cancelled and eliminated as set forth in Section 1.06 hereof and except for
indebtedness for borrowed money among Group Members, as of the Closing no Group
Member will have any indebtedness for borrowed money.
(d) Schedule 2.04 expressly itemizes all "one-time"
adjustments that have been made in the period covered by the February 28, 1998
Financial Statements.
(e) The February 28, 1998 Financial Statements do not
include any revenues or expenses attributable to the operations of the clinics
in the State of Utah formerly operated by the Group Members or any revenues or
expenses since January 1, 1998 attributable to the operation of certain clinics
in the State of Florida formerly operated by the Group Members. The February
28, 1998 Financial Statements do include the revenues and expenses attributable
to the operation of clinics in the State of Arizona by the Group Members which
operations have been discontinued and such clinics closed prior to the
Effective Date.
2.5 Accounts Receivable. All receivables of the Group Members
reflected on the FPM Balance Sheet and all accounts receivables, notes
receivables and other receivables which have arisen since February 28, 1998 are
valid and have arisen only from bona fide arm's-length transactions in the
ordinary course of the business of the Group Members.
2.6 Absence of Certain Changes. Except as set forth in
Schedule 2.06, since February 28, 1998 the business of the Group has been
conducted only in the ordinary and usual course and there has not been any (a)
adverse change in the assets, properties, results of operations, business or
financial condition of the Group which has resulted in a Material Adverse
Effect, (b) material damage or destruction, whether or not insured, affecting
the assets or properties of the Group, (c) material changes in the Group's
customary methods of operations or the manner in which their business is
conducted or (d) except in the ordinary course of business, sale or transfer of
material tangible or intangible assets of the Group, or mortgage, pledge or
imposition of any Lien on such assets except for Permitted Liens.
6
<PAGE> 14
2.7 Taxes. Except as set forth in Schedule 2.07 hereto:
(a) 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, "Tax Returns") of each Group Member required by law have been
prepared and properly filed or valid extensions obtained, and such Tax Returns
are true, correct and complete in all material respects. All Taxes imposed
upon each Group Member or any of its properties, assets or income which are due
and payable to any federal, territorial, state, local or foreign government or
any agency or political subdivision of any such government ("Taxing Authority")
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, state and local income taxes), real
property taxes, payroll and employee withholding taxes, 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) a Group
Member and (ii) any individual, trust, corporation, partnership or any other
entity as to which a Group Member 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. Each Group Member utilizes the accrual method of
accounting for tax purposes.
(b) Except as described in Schedule 2.07, no Group
Member has been a member of any affiliated group within the meaning of Section
1504(a) of the Code, or any similar affiliated, consolidated, combined or
unitary group for tax purposes under state, local or foreign law (other than a
group the common parent of which is FPM), or has any liability for the Taxes of
any person (other than other Group Members) under Treasury Regulations Section
1.1502-6 or any similar provision of state, local or foreign law as a
transferee or successor, by contract or otherwise.
(c) With respect to any Taxes of any Group Member not
yet due and payable, adequate reserves and accruals in accordance with GAAP for
such Taxes have been made in the Financial Statements or in the books and
records of the applicable Group Member.
(i) The amount of the Group Members' aggregate
liability for unpaid income Taxes for all periods ending on or before
February 28, 1998 does not, in the aggregate, exceed the amount of the
liability accruals for income Taxes (excluding reserves for deferred
income Taxes) reflected on the FPM Balance Sheet solely with respect
to FPM and Subsidiaries, and the amount of the Group Members'
aggregate liability for unpaid income Taxes for all periods ending on
or before the Closing Date will not, in the aggregate, exceed the
amount of the liability accruals for income Taxes (excluding reserves
for deferred income Taxes) reflected on the Closing Balance Sheet.
7
<PAGE> 15
(ii) The amount of the Group Members' aggregate
liability for unpaid Taxes, other than income Taxes, for all periods
ending on or before February 28, 1998 does not, in the aggregate,
exceed the amount of the liability accruals for such Taxes (excluding
reserves for deferred Taxes, other than income Taxes) reflected on the
FPM Balance Sheet solely with respect to FPM and Subsidiaries, and the
amount of the Group Members' aggregate liability for unpaid Taxes,
other than income Taxes, for all periods ending on or before the
Closing Date shall not, in the aggregate, exceed the amount of the
liability accruals for such Taxes (excluding reserves for deferred
Taxes, other than income Taxes) reflected on the Closing Balance Sheet.
(d) Purchaser or its counsel has been furnished by
Seller or FPM true and complete copies of (i) relevant portions of income tax
audit reports, statements of deficiencies, closing or other agreements received
by the Group or on behalf of the Group relating to Taxes, and (ii) all federal,
state and local income or franchise tax returns that include one or more Group
Members for all periods ending on and after June 30, 1993.
(e) No federal, state, local or foreign audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of any Group Member. Neither the Seller, nor
RHCI, nor any Group Member has received written notice from any taxing
authority of any deficiency, claim or other dispute relating to the payment or
assessment of any Taxes for any period which remains unsettled at the date
hereof, and the Seller has no reasonable basis to believe that any such
deficiency exists in excess of the reserves and accruals set forth in the
Financial Statements or in the books and records of the applicable Group
Member.
(f) None of the federal income Tax Returns of any Group
Member has been examined by the Internal Revenue Service for any period.
Neither the Seller, RHCI nor any Group Member has executed with respect to any
Group Member any waiver of any statute of limitations on the assessment or
collection of Taxes or executed with respect to any Group Member any agreement
now in effect extending the period of time to assess or collect any Taxes.
(g) There are no Liens for Taxes (other than Permitted
Liens) upon, pending against or, to the knowledge of the Seller, threatened
against any assets of the Group which in the aggregate would have a Material
Adverse Effect.
(h) Neither the Seller, RHCI nor any Group Member is a
party to any pending or, to the knowledge of the Seller, threatened action or
proceeding, by any Taxing Authority, foreign or domestic, relating to the
business and operations of any Group Member.
(i) Except for the Tax Sharing Agreement, no Group
Member is a party to any tax sharing agreement or any tax indemnity (including
without limitation a tax indemnification provision of any acquisition or
disposition agreement) or other agreement or arrangement with respect to Taxes.
(j) No Group Member has, with regard to any assets or
property held, acquired or to be acquired by any of them, filed a consent to
the application of Section 341(f) of the Code, or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
such term is defined in Section 341(f)(4) of the Code) owned by FPM or any of
its Subsidiaries.
8
<PAGE> 16
(k) Each Group Member 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 the Group Member.
(l) No Group Member has entered into any compensatory
agreements with respect to the performance of services which payment thereunder
would result in a nondeductible expense to such Group Member pursuant to
Section 28OG of the Code or an excise tax to the recipient of such payment
pursuant to Section 4999 of the Code. No Group Member has participated in an
international boycott as defined in Code Section 999.
(m) No Group Member is a party to any safe harbor lease
within the meaning of Section 168(f)(8) of the Code, as in effect prior to
amendment by the Tax Equity and Fiscal Responsibility Act of 1982. Seller is
not a "foreign person" (as that term is defined in Section 1445 of the Code).
(n) No Group Member has made any change in accounting
methods, received a ruling from any Taxing Authority or signed an agreement
with any Taxing Authority which is reasonably likely to have a Material Adverse
Effect;
(o) Each Group Member 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 parties. Each
related foreign person required to maintain records under Section 6038A with
respect to transactions between each Group Member 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 each Group Member are either maintained in the United States,
or each Group Member is exempt from the record maintenance requirements of
Section 6038A with respect to such transactions under Treasury Regulations
Section 1.6038A-1. No Group Member is a party to any record maintenance
agreement with the Internal Revenue Service with respect to Section 6038A of
the Code. Each related foreign person that has engaged in transactions with a
Group Member has authorized such Group Member 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 a Group Member, and each such
authorization remains in full force and effect.
(p) Seller represents that Seller, FPM and the
Subsidiaries were included in the consolidated federal income Tax Return filed
by RHCI for the taxable year ended June 30, 1997 and that as of the Effective
Date and as of the Closing Date, RHCI (i) is the common parent of the
consolidated group for federal income tax purposes that includes the Seller,
FPM and the Subsidiaries and (ii) is eligible to make an election under Section
338(h)(10) of the Code with respect to a qualified stock purchase of the Shares
of FPM by the Purchaser as described in Section 338(d)(3) of the Code.
2.8 Real Property Owned or Leased. A list of all real property
leased by each Group Member (the "Real Property Leases") is set forth in
Schedule 2.08 hereto. Except as set forth in Schedule 2.08 hereto, all such
leased real property is held subject to written leases under which the
applicable Group Member has not received a written notice of any existing
defaults or events of
9
<PAGE> 17
default or events which with notice or lapse of time or both would constitute
defaults on the part of the applicable Group Member. Accurate and complete
copies of the Real Property Leases, as amended to the Effective Date, have been
delivered to the Purchaser or its counsel. Neither the Seller nor any Group
Member is aware or has received any written notice, 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. Each respective Group Member is in all material respects in
undisturbed possession of the property subject to the Real Property Leases to
which it is a party. Neither the Seller, nor any Group Member has received any
written notice of violation (or claimed violation) of any covenant or other
restriction (if any) to which any of the real property leased to a Group Member
pursuant to the Real Property Leases is not being properly performed and
observed in all material respects by the Group Member, which notice has not
been resolved. Seller has delivered or made available to the Purchaser true,
correct and complete copies of all material reports, surveys or audits of any
engineers, insurance companies, environmental consultants or other consultants
in the possession of a Group Member relating to any of the premises subject to
the Real Property Leases. To the knowledge of the Seller, there is no pending
proceeding or governmental action, and no Group Member has received written
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 the Group as presently conducted. No Group Member owns any real
property.
2.9 Title to Assets. Except as set forth in Schedule 2.09 hereto,
each Group Member has good and valid title to all of the properties and assets
owned by it, including, without limitation, the assets reflected on the FPM
Balance Sheet free and clear of all Liens except for Permitted Liens. Each
Group Member leases, owns or has the right to use all properties and assets
used in the operation of its business as currently conducted. To the knowledge
of the Seller, except for the clinics which have been closed, the assets now
owned by the Group Members constitute all the assets reasonably necessary to
enable Purchaser after the Closing to permit the business of the Group Members
to be conducted on substantially the same basis as such business has been
conducted in the twelve month period immediately preceding the Effective Date
and is being conducted on the Effective Date. Except as set forth in Schedule
2.09, all the assets of the Group are located on the premises of the Group.
2.10 Contracts.
(a) Material Contracts. Schedule 2.10 lists all material
contracts or agreements of the following types to which a Group Member is a
party or by which a Group Member is bound (collectively, the "Contracts"):
(i) any contract pursuant to which a Group Member owns,
manages, develops or operates employee assistance program services,
comprehensive managed care services, utilization review or any similar
or related program or service for any other person or entity or
pursuant to which a Group Member arranges for or provides behavioral
health care services excluding, however, any contract with a health
care provider that provides health care services to members of a
program operated by a Group Member (the "FPM Customer Contracts");
10
<PAGE> 18
(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 (the "FPM Provider Contracts") which is not terminable upon
sixty (60) days or less notice and which provides for obligatory
payments by a Group Member to a provider which are not in
consideration of health care services actually rendered;
(iii) any contract or agreement (excluding the FPM Customer
Contracts and the FPM Provider Contracts) which is not terminable upon
thirty (30) days or less notice and which obligates a Group Member to
the payment of more than $20,000 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 $20,000;
(v) any power of attorney (other than routine powers given
to governmental officials authorizing service of process);
(vi) any guaranty, suretyship agreement or other agreement
relating to any contingent liability or indebtedness of a third party;
(vii) any contract with an independent agent or broker acting
on behalf of a Group Member;
(viii) any contract or agreement with an independent consultant
which obligates a Group Member to the payment of more than $20,000;
(ix) any contract or agreement materially restricting the
method by which a Group Member conducts its business or the marketing
of any of its products or services; and
(x) any contract or agreement between a Group Member and
any other Affiliates of the Seller.
(b) Copies/Status of Material Contracts. True, complete and
correct copies of all contracts listed in Schedule 2.10 as amended and in
effect on the Effective Date have been delivered to the Purchaser or its
counsel. Except to the extent disclosed on Schedule 2.10 (i) all of the
contracts listed on Schedule 2.10 are in full force and effect, (ii) no Group
Member has 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 outstanding disputes relating to the fees or
the services of a Group Member 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 defaults under any of such
contracts which individually or in the aggregate would have a Material Adverse
Effect, and (vi) there are no verbal amendments, modifications or other
understandings relating to such contracts which are legally binding on the
parties thereto.
(c) FPM Customer Contracts. With respect to the FPM Customer
Contracts, each FPM Customer Contract expressly sets forth on its face or
Schedule 2.10 sets forth: (i) the termination date of such contract; (ii) any
rights to cancel prior to the termination date of such
11
<PAGE> 19
contract; (iii) the current rates payable to the Group Member under such
contract; and (iv) any covenants restricting competition contained in such
contract. Except as set forth in Schedule 2.10 and except for changes in
membership or number of employees or other persons covered, to the knowledge of
the Seller, there is no fact or occurrence in existence that has or will result,
either singularly or in the aggregate, in a material reduction in the revenue to
a Group Member under an FPM Customer Contract even though such fact or
occurrence may not result in, or constitute the termination of or a default
under, the FPM Customer Contract.
(d) Providers. Schedule 2.10 also lists by state the number
of behavioral health care providers and institutions that have contracted with
the Group Members to provide services to employees or members of customers of
the Group Members.
(e) Non-Competition. To the knowledge of the Seller, the
business operation of the Group on the Effective Date have not violated and
will not violate any non-competition or similar provision of any of the
contracts listed in Schedule 2.10.
2.11 Employees. Schedule 2.11 hereto lists all employees of the
Group 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 the Group immediately preceding the Effective Date, other written
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 the Group immediately preceding the
Effective Date and the rate at which such vacation, holiday and sick leave will
accrue after the Effective Date and prior to the Closing Date. Except as shown
on Schedule 2.11, no Group Member is bound by any written contract of
employment with any of its employees, or by any written consulting or similar
agreements, and all oral employment or oral consulting contracts are terminable
at will, subject to applicable law. No Group Member has any written or oral
policy of granting or providing compensatory time and has no obligation to
provide compensatory time to any employee. Except as set forth in Schedule
2.11, no Group Member is a party to any employment or other agreement, whether
written or oral, pursuant to which the Group Member has agreed to make a loan
to, or guarantee any loan of, any employee or relating to any compensation,
bonus, commission, deferred compensation, incentive, stock option, stock
purchase, severance pay or similar plan, agreement, arrangement or
understanding. Except as listed on Schedule 2.11 or Schedule 2.12 hereof, no
Group Member has any 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), or 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 or arrangement with respect to employees. Each
Group Member has complied in all material respects with the requirements of
Sections 601 through 608 of ERISA and Section 4980B of the Code with respect to
itself and its employees. No Group Member is bound, or following the Closing
will 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 2.10 or 2.11 or except as may be required by law. True,
complete and correct copies of all contracts listed in Schedule 2.11 as amended
and in effect on the Effective Date have been delivered to the Purchaser or its
counsel.
2.12 Employee Benefit Plans. Except as disclosed in Schedule 2.12:
12
<PAGE> 20
(a) No Group Member maintains or contributes to, or has in
the past five (5) years maintained or contributed to, any Pension Plan or
Welfare Plan, nor has a Group Member presently, or has it ever had any
obligation to contribute to or pay withdrawal liability with respect to 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 2.12, to the knowledge of the Seller: (i) there is no
fact, including, without limitation, any reportable event, that exists that
would constitute grounds for termination of a Pension Plan, which is a defined
benefit plan within the meaning of Section 3(35) of ERISA 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 Seller nor any Group Member nor any
fiduciary, trustee, or administrator of any such Pension Plan or Welfare Plan,
has engaged in a prohibited transaction that would subject a Group Member to
any material tax or any material penalty imposed by ERISA or the Code; and
(iii) no Group Member has incurred any material liability to the PBGC (other
than for payment of premiums) which remains unpaid; (iv) 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 Seller, 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) Except as expressly disclosed on Schedule 2.12, there
has been no termination of any Pension Plan by a Group Member during the
five-year period prior to the Effective Date.
(d) No material liability has been incurred under Title IV
of ERISA by a Group Member with respect to any Pension Plan covered by Title IV
of ERISA 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, the Group Member within the meaning of Sections 414(b) or (c) of the Code
which remains unpaid.
(e) No Welfare Plan listed on Schedule 2.12 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 or arrangement with respect to
employees maintained by or contributed to by a Group Member is maintained,
administered, and operated in all material respects 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 in all material respects when filed.
(g) Each Pension Plan listed on Schedule 2.12 which is
intended to be qualified under Section 401(a) of the Code, has by virtue of the
Seller's adoption thereof has become effective for FPM and for each other Group
Member whose employees have participated in it, has received a favorable
determination letter from 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
13
<PAGE> 21
legislation including the Omnibus Budget Reconciliation Act of 1993, and, to
the knowledge of the Seller, no event (including any material failure to
administer the plan in accordance with its terms) or amendment has occurred
since the date of such favorable determination letter that would adversely
affect such qualification. Except as set forth in Schedule 2.12, no Pension
Plan is or has been at any time subject to ERISA Section 302 or Code Section
412.
(h) Except as expressly disclosed on Schedule 2.12, 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 or arrangement with respect to
employees maintained by or contributed to by a Group Member is payable or
exercisable because 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 by such transaction.
(i) The Seller has delivered to the Purchaser true, correct,
and complete copies of all of the following items with respect to any and all
Welfare Plans or Pension Plans: (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 Group
Member and the trustee or any other plan fiduciary; (iii) the current summary
plan description and all current summaries of material modifications; (iv)
written summaries of any and all material unwritten agreements, policies, or
understandings between any Group Member and any employee or group of employees
(including an indeterminate group of employees, and all employees generally)
concerning any Group Member Plan, whether or not the Group Member 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.
(j) All required contributions to all Welfare Plans or
Pension Plans and all premiums, fees, or other payments required to be made in
connection with any Plan have either been timely made or, if due or accrued,
are reflected on an accrual basis in the FPM Balance Sheet, whether or not the
FPM Balance Sheet is performed generally 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 consultant or independent
contractor after he or she ceases to be a director 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 direct costs of
his or her benefits or coverage.
(l) To the knowledge of the Seller, no Plan is currently
under audit by the Service or the U.S. Department of Labor ("DOL"), nor to the
best of Seller's knowledge is any Plan likely to become the subject of an IRS
or DOL audit within the next twelve months.
14
<PAGE> 22
(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). 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) No Group Member receives 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
a Group Member, or who as of the date of this Agreement have worked for a Group
Member for more than six months, except for health care providers that
contracted with a Group Member to provide services to employees of a Group
Member's customers.
(o) Except as disclosed in writing to the Purchaser prior to
the Closing, the sale of the Shares contemplated by this Agreement will not
cause or permit any insurer, health maintenance organization, preferred
provider organization, or any other provider of insurance or services under or
in connection with any Welfare Plan to terminate or reduce its provision of
insurance or services, or increase its charges, in any way, under any contract
to provide insurance or services to FPM or any employee or former employee of
FPM, or to any spouse or dependent of any employee or former employee of FPM.
2.13 Labor Relations. Except as set forth on Schedule 2.13 hereto,
no Group Member is subject to any labor strikes, stoppages or lockouts and none
of them is a party to any collective bargaining or other labor union contract
or agreement with any labor organization or other representative of their
employees. There is no unfair labor practice complaint against the Seller or
any Group Member pending before the National Labor Relations Board. There is no
pending or, to the knowledge of the Seller, threatened labor, strike or work
stoppage adversely affecting the business of a Group Member, nor has there been
any of the same or any labor union organizing activity relating to the
employees of a Group Member within the last three (3) years.
2.14 Insurance. Set forth on Schedule 2.14 hereto is a list as of
the Effective Date of all insurance policies and coverages (other than health
and life insurance covered by Section 2.12 hereof) maintained by or for each
Group Member including, but not limited to, real and personal property
insurance, comprehensive liability insurance, automobile liability insurance,
workers' compensation insurance, professional liability insurance, medical
malpractice insurance, excess insurance and umbrella insurance.
2.15 Litigation. Except as set forth in Schedule 2.15, no material
investigation or proceeding of which the Seller is aware by any governmental
entity with respect to a Group Member is pending or, to the knowledge of the
Seller, threatened, nor has any governmental entity notified the Seller or a
Group Member in writing of an intention to conduct the same; and there is no
material 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
15
<PAGE> 23
Seller, threatened against a Group Member to which a Group Member 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.
Except as set forth in Schedule 2.15, no Group Member is a party to any
agreement, injunction, order or decree restricting the geographic area under
which a Group Member may conduct business operations or the marketing of any of
its products or services or the product or services it may sell.
2.16 Permits; Compliance with Applicable Law.
(a) General. Except as set forth in Schedule 2.16 hereto,
each Group Member is in compliance with Applicable Law relating to such Group
Member and its respective assets and properties and business operations, except
where the failure to be in compliance would not have a Material Adverse Effect.
(b) Permits. Except as set forth in Schedule 2.16 hereto,
the permits, licenses, certificates of authority, approvals, franchises and
authorizations (collectively, but excluding Environmental Permits, the
"Permits") possessed by the Group Members are all the Permits required for the
ownership, operation and use by the Group Members of their properties and
assets and for the conduct of the business in which the Group Members are
presently engaged, except for such Permits which the failure to have would not
have a Material Adverse Effect. Schedule 2.16 lists all material Permits held
by the Group Members on the Effective Date. All the Permits are in full force
and effect. Except as set forth in Schedule 2.16, there are no pending or, to
the knowledge of the Seller, threatened legal, administrative, arbitration, or
other proceedings of any kind or any pending or to the knowledge of the Seller,
threatened governmental investigations by any federal, state or local
government, which assert or allege any material violation of or non-compliance
with any governmental requirements or which would have the effect of materially
limiting, prohibiting or materially and adversely changing the business
operations of any Group Member as conducted on the Effective Date. Except as
set forth in Schedule 2.16, no Group Member is subject to or has received any
request for information, notice, demand letter, administrative inquiry or
formal or informal complaint or claim from any governmental authority.
(c) Environmental. Except as set forth in Schedule 2.16
hereto:
(i) Each Group Member is in compliance with the provisions
of all federal, state and local environmental laws, codes and
ordinances and all rules and regulations promulgated thereunder (the
"Environmental Laws"), including with respect to the real property
leased by Group Members listed on Schedule 2.08 hereto and the
improvements thereon (all such leased real property and improvements
thereon hereinafter referred to collectively as the "Premises"),
except where the failure to be in compliance would not have a Material
Adverse Effect.
(ii) Each Group Member has obtained all required federal,
state and local permits, licenses, certificates and approvals (the
"Environmental Permits") relating to (A) air emissions, (B) discharges
to surface water or ground water, (C) noise emissions, (D) solid or
liquid waste disposal, and (E) the use, generation, storage,
transportation or disposal of toxic or hazardous substances or wastes
(intended hereby and hereafter to include any and all such materials
listed in any Environmental Law, as hazardous or potentially hazardous
(including, without limitation, (1) any chemical, compound, material
or substance that is
16
<PAGE> 24
defined, listed in, or otherwise classified pursuant to, any
of the Environmental Laws as a "hazardous substance", "hazardous
material", "hazardous waste", "toxic substance" or "toxic pollutant"
and (2) petroleum, natural gas, natural gas liquids, liquefied natural
gas, and synthetic gas) (collectively, "Hazardous Substances")),
except where the failure to have obtained or maintained any such
Environmental Permit would not have a Material Adverse Effect.
(iii) No Group Member has received any written notice of
violations of any Environmental Law which have not been cured,
relating to the use, ownership or occupancy of any of the Premises,
except for any violations referred to in any such notice which would
not have a Material Adverse Effect.
(iv) No Group Member has engaged in the generation, storage,
treatment, recycling, transportation or disposal of any Hazardous
Substance, except in compliance with applicable Environmental Laws
(including, without limitation, any generation, storage, treatment,
recycling, transportation or disposal of any Hazardous Substance at or
in respect of any real property previously owned or leased by any
Group Member and the real property leased by the Group Members listed
on Schedule 2.08), except where the failure to be in compliance would
not have a Material Adverse Effect.
(v) None of the Premises, nor, to the Seller's knowledge,
any real property to which any Group Member has, directly or
indirectly, transported or arranged for the transportation of any
Hazardous Substances, is listed on the National Priorities List
promulgated pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), on
CERCLIS (as defined in CERCLA) or on any similar federal, state or
foreign list of sites requiring investigation or clean-up.
2.17 Bank Accounts. Set forth in Schedule 2.17 hereto is a list as
of the date hereof of all bank and securities accounts maintained by or on
behalf of any Group Member, and a list of persons authorized to sign on behalf
of each Group Member with respect to each such account.
2.18 Trademarks, Patents and Copyrights. Schedule 2.18 hereto sets
forth a list as of the date hereof of all registrations of patents and pending
applications therefor, all registrations of trademarks, trade names and
services marks and all pending applications therefor, all registrations of
copyrights and all pending applications therefor and all licenses or other
agreements with respect to each of the foregoing (collectively, "Intellectual
Property"), all to the extent that the foregoing items are used in the business
of the Group Members and are owned in whole or in part by any Group Member or,
in the case of such licenses or other agreements, to the extent any Group
Member has rights thereunder. To the Seller's knowledge, all of the patents,
trademarks, trade names, service marks, copyrights and licenses or other
agreements listed in the Schedule 2.18 hereto are valid and in full force and
effect, except as otherwise noted on Schedule 2.18 hereto. To the Seller's
knowledge, no Group Member is infringing upon, or otherwise violating, the
rights of any third party with respect to any Intellectual Property.
2.19 Transactions with Certain Persons. Except with respect to
insurance arrangements referred to in Schedule 2.14 hereto and except as set
forth on Schedule 2.19 hereto, no stockholder, executive officer, director or
other Affiliate of any Group Member, no stockholder, executive officer,
director or other Affiliate of the Seller or RHCI, no member of the immediate
family of a
17
<PAGE> 25
stockholder, executive officer, director or other Affiliate of a Group Member,
Seller or RHCI, and no entity controlled by any such person is presently a
party to any agreement, contract or other transaction with any Group Member
which will survive the Closing. Except as set forth in Schedule 2.19, to the
knowledge of the Seller no stockholder, executive officer, director or other
Affiliate of a Group Member, Seller or RHCI 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 a Group Member or any organization which has
a material contract or arrangement with a Group Member, provided that the
investment of not more than five percent (5%) in the stock or equity of a
publicly traded corporation shall not be considered a material interest for the
purposes of this Section 2.19.
2.20 Customers. Set forth in Schedule 2.20 hereto is a list of the
Group's top ten customers (measured by net revenues) for the 12-month period
ended December 31, 1997.
2.21 Authority. The Seller has the corporate power and authority to
execute and deliver this Agreement and to perform the Seller's covenants and
agreements hereunder. The execution and delivery of this Agreement by the
Seller, the performance by the Seller of its covenants and agreements hereunder
and the consummation by the Seller of the transactions contemplated hereby have
been duly authorized by all necessary corporate action. This Agreement has
been duly and validly executed and delivered by the Seller and constitutes a
valid and legally binding obligation of the Seller, enforceable against the
Seller in accordance with its terms.
2.22 Ownership of Shares. Except as disclosed on Schedule 2.22,
the Seller is the unconditional sole legal, beneficial, record and equitable
owner of the Shares, free and clear of any and all Liens and claims, options,
voting agreements or trusts, proxies, preemptive rights, rights of first
refusal or other restrictions or interests of any kind or nature whatsoever
except restrictions on transfer under applicable securities laws
(collectively, "Claims"). As of the Closing Date, the Seller will own all of
the Shares, free and clear of any and all Liens and Claims except restrictions
on transfer under applicable securities laws and the Seller will have the
unrestricted right and power to sell and transfer the Shares to the Purchaser
except restrictions on transfer under applicable securities laws. Upon
transfer of the Shares by the Seller to the Purchaser at the Closing in
accordance with the terms hereof, the Purchaser will acquire good and valid
title to such Shares, free and clear of any Lien and Claim, except for the
Liens created by the Purchaser or its Affiliates in connection with the
acquisition by the Purchaser of the Shares and except restrictions on transfer
under applicable securities laws. As of the Closing Date, the Seller will not
own any shares of capital stock of FPM other than the Shares and will not have
any option or other right to acquire from any person or any obligation or
commitment to sell or otherwise transfer to any person any shares of capital
stock of FPM owned by the Seller. As of the Closing Date, FPM or another Group
Member will own all the shares, membership interests or partnership interests
of the Group Members, other than FPM, free and clear of any and all Liens and
Claims.
2.23 Accounts Payable IBNR.
(a) The accounts payable and accrued expenses reflected on
the FPM Balance Sheet and in Schedule 2.04 reflect in all material respects all
amounts owed by the Group Members in respect of all accounts and other payables
required by GAAP to be identified on the FPM Balance Sheet and those reflected
on the books of the Group on the Closing Date will reflect all such amounts
18
<PAGE> 26
in all material respects. No account payable or accrued expense of a Group
Member is past due or otherwise in default which would have a Material Adverse
Effect.
(b) The reserves accrued and reflected on the FPM Balance
Sheet for expenses incurred but not yet reported for services provided by
behavioral health care providers to employees or members of customers of the
Group Members reflect in all material respects reserves in respect thereof as
required by GAAP to be identified in the FPM Balance Sheet.
2.24 Consents. Except as may be required under The Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and
except as set forth on Schedule 2.24 hereto, no consents, approvals or
authorizations of, or filings with, any Governmental Authority or any other
person or entity are required in connection with the execution and delivery of
this Agreement by the Seller and the performance of the transactions
contemplated hereby to be performed by the Seller.
2.25 Foreign Person. The Seller is not a foreign person within the
meaning of Section 1445(f)(3) of the Code.
2.26 Improper Payments. To the knowledge of Seller, neither a Group
Member, the Seller nor any shareholder, director, officer, employee or agent of
a Group Member or the Seller has made any illegal bribes, kickbacks or other
illegal payments to, or received any such illegal payments from, customers,
vendors, suppliers or other persons contracting with a Group Member and has not
proposed or offered to make or receive any such illegal payments.
2.27 Status as Eligible Common Parent. As of the Effective Date and
as of the Closing, RHCI (i) is the common parent of the consolidated group for
federal income tax purposes that includes the Seller, FPM and the Subsidiaries,
and (ii) is eligible to make an election under Section 338(h)(10) of the Code
with respect to FPM and the Subsidiaries on the basis of a qualified stock
purchase of the Shares by the Purchaser as described in Section 338(d)(3) of
the Code.
B. Representations and Warranties of RHCI. In connection with the
purchase and sale of the shares hereunder, RHCI hereby represents and warrants
to the Purchaser as of the Effective Date that:
2.28 Organization. RHCI is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation.
2.29 Authority. RHCI has the requisite corporate power and
authority to execute and deliver this Agreement and to perform RHCI's covenants
and agreements hereunder. The execution and delivery of this Agreement by
RHCI, the performance by RHCI of its covenants and agreements hereunder and the
consummation by RHCI of the transactions contemplated hereby have been duly
authorized by all necessary corporate action. This Agreement constitutes a
valid and legally binding obligation of RHCI, enforceable against RHCI in
accordance with its terms.
2.30 Conflicts. Except as set forth on Schedule 2.29, neither the
execution and delivery of this Agreement by RHCI, nor the consummation of the
transactions contemplated hereby to be consummated by RHCI, (a) violates any
provision of the certificate of incorporation or by-laws of RHCI or (b)
constitutes a violation of any Applicable Law. Except as set forth on Schedule
2.29
19
<PAGE> 27
hereto, neither the execution and delivery of this Agreement by RHCI nor the
consummation of the transactions contemplated hereby to be consummated by RHCI
violates, or conflicts with, or results in any breach of any of the terms of,
or results in the termination of or the creation of any material Lien pursuant
to, or with respect to, the terms of any material contract, commitment,
agreement, or lease of any kind to which RHCI is a party or by which RHCI or
any of its assets are bound.
2.31 Litigation; Disputes. There are no Actions pending or, to the
knowledge of RHCI or its Affiliates, threatened, against or affecting RHCI
which challenge the validity of this Agreement, or which if adversely
determined, would adversely affect the ability of RHCI to consummate the
transactions contemplated by this Agreement or to perform its covenants and
agreements under this Agreement.
2.32 Consents. Except as may be required under the HSR Act and
except as set forth on Schedule 2.31, no consents, approvals or authorizations
of, or filings with, any Governmental Authority or any other person or entity
are required in connection with the execution and delivery of this Agreement by
RHCI and the performance of the transactions contemplated hereby to be
performed by it.
C. Agreement by the Purchaser Regarding No Other Representations
or Warranties by the Seller. The Purchaser agrees that except for the
representations and warranties (including the Schedules with respect thereto)
made by the Seller and RHCI and expressly set forth in Sections II(A) and (B)
of this Agreement, neither the Seller, RHCI nor any Affiliate, agent or
representative of the Seller or RHCI has made or shall be construed as having
made to the Purchaser or to any representative or Affiliate of the Purchaser,
and neither the Purchaser nor any Affiliate, agent or representative of the
Purchaser has relied upon, any representation or warranty of any kind. Without
limiting the generality of the foregoing, and notwithstanding any otherwise
express representations and warranties made by the Seller or RHCI in Sections
II(A) and (B) hereof, the Purchaser agrees that neither the Seller, RHCI nor
any Affiliate, agent or representative of the Seller or RHCI makes or has made
any representation or warranty to the Purchaser or to any Affiliate or
representative of the Purchaser with respect to:
(i) any projections, estimates or budgets relating to the
Group Members otherwise heretofore or hereafter delivered to or made
available to the Purchaser or its counsel, accountants, advisors,
lenders, representatives or Affiliates of future revenues, expenses or
expenditures, future results of operations (or any component thereof),
future cash flows (or any component thereof) or future financial
condition (or any component thereof) of the Group or any Group Member
or the future business, operations or affairs of the Group or any
Group Member; and
(ii) any other information, statement or documents heretofore
or hereafter delivered to or made available to the Purchaser or its
counsel, accountants, advisors, lenders, representatives or Affiliates
with respect to the Group or any Group Member or the business,
operations or affairs of the Group or any Group Member, except to the
extent and as expressly covered by a representation and warranty
(including the Schedules with respect thereto) contained in Sections
II(A) and (B) hereof.
20
<PAGE> 28
SECTION III.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
A. Representations and Warranties of the Purchaser. In
connection with the purchase and sale of the Shares hereunder, the Purchaser
hereby represents and warrants to the Seller as of the Effective Date that:
3.1 Organization. The Purchaser is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation.
3.2 Authority. The Purchaser has the requisite corporate power
and authority to execute and deliver this Agreement and to perform the
Purchaser's covenants and agreements hereunder. The execution and delivery of
this Agreement by the Purchaser. The performance by the Purchaser of its
covenants and agreements hereunder and the consummation by the Purchaser of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action. This Agreement constitutes a valid and legally binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with its terms.
3.3 Conflicts. Neither the execution and delivery of this
Agreement by the Purchaser, nor the consummation of the transactions
contemplated hereby to be consummated by the Purchaser, (a) violates any
provision of the certificate of incorporation or by-laws of the Purchaser or
(b) constitutes a violation of any Applicable Law. Neither the execution and
delivery of this Agreement by the Purchaser nor the consummation of the
transactions contemplated hereby to be consummated by the Purchaser violates,
or conflicts with, or results in any breach of any of the terms of, or results
in the termination of or the creation of any material Lien pursuant to, or with
respect to, the terms of any material contract, commitment, agreement, or lease
of any kind to which the Purchaser is a party or by which the Purchaser or any
of its assets are bound.
3.4 Litigation; Disputes. There are no Actions pending or, to the
knowledge of Purchaser or its Affiliates, threatened, against or affecting the
Purchaser which challenge the validity of this Agreement, or which if adversely
determined, would adversely affect its ability to consummate the transactions
contemplated by this Agreement or to perform its covenants and agreements under
this Agreement.
3.5 Consents. Except as may be required under the HSR Act, no
consents, approvals or authorizations of, or filings with, any Governmental
Authority or any other person or entity are required in connection with the
execution and delivery of this Agreement by the Purchaser and the performance
of the transactions contemplated hereby to be performed by it.
3.6 Investment Purpose. The Purchaser is purchasing the Shares
pursuant to this Agreement for investment for its own account and not with a
view to the distribution of all or any part thereof as such term is used in
Section 2(11) of the Securities Act of 1933, as amended (the "Securities Act").
The Purchaser is a sophisticated investor and capable of evaluating the merits
and the risks of acquiring the Shares. The Purchaser is an "accredited
investor" as such term is defined in Rule 501 under the Securities Act. The
Purchaser acknowledges that: the Shares are "restricted securities" (as defined
under the rules and regulations promulgated under the Securities Act); that the
Shares have not been issued or sold pursuant to any registration or similar
filing, listing,
21
<PAGE> 29
prospectus or document, or pursuant to any delivery requirements under the laws
of any Governmental Authority or the rules, regulations or guidelines of any
stock exchange or quotation system; and that it and its Affiliates and
representatives has each had access to all information which it considers
necessary or advisable to enable it to make a decision concerning the purchase
of the Shares.
3.7 Financing. The Purchaser has available all funds, or has
written binding commitments from financial institutions or other sources
(heretofore delivered to, and satisfactory to, the Seller) to obtain all funds
on or prior to the Closing Date, necessary to pay the Purchase Price provided
herein and otherwise to consummate the transactions contemplated hereby in
accordance with the terms and conditions hereof.
B. Agreement by the Seller Regarding No Other Representations or
Warrants by the Purchaser. The Seller agrees that except for the
representations and warranties (including the Schedules with respect thereto)
made by the Purchaser and expressly set forth in Section III(A) of this
Agreement, neither the Purchaser nor any Affiliate, agent or representative of
the Purchaser has made or shall be construed as having made to the Seller or to
any representative or affiliate of the Seller, neither the Seller nor any
Affiliate, agent or representative of the Seller has relied upon, any
representation or warranty of any kind.
SECTION IV.
THE CLOSING
4.1 Time and Place of the Closing. The closing of the purchase
and sale of the Shares as set forth herein (herein referred to as the
"Closing") shall be held at the offices of Purchaser, 1500 Waters Ridge Drive,
Lewisville, Texas 75057 at 10:00 a.m., local time, on the later of June 2, 1998
(effective 12:01 a.m. on June 1, 1998) or the fifth business day after the
later of the termination or expiration of the applicable waiting period (and
any extension thereof) under the HSR Act or the satisfaction or waiver of all
other conditions precedent set forth in Sections V and VI hereof, or such other
time, place and date as the Purchaser and the Seller may agree in writing (such
date upon which the Closing occurs is herein referred to as the "Closing
Date").
4.2 Termination. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned:
(a) at any time before the Closing, by written agreement
of the Seller and the Purchaser;
(b) unless extended by written agreement of the Seller
and the Purchaser, at any time after July 1, 1998 (the "Termination Date"), by
either the Seller or the Purchaser in writing, if the transactions contemplated
by this Agreement have not been consummated on or before such date and such
terminating party is not then in material breach of this Agreement;
(c) at any time before the Closing, by the Purchaser or
the Seller in writing, in the event that any Governmental Authority shall have
issued an order, decree, ruling or taken any other action restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
22
<PAGE> 30
Agreement and such order, decree, ruling or other action shall have become
final and nonappealable; and
(d) at any time before the Closing, by either the
Purchaser or the Seller in writing, without liability to the terminating party
on account of such termination, if such terminating party is not then in
material breach of this Agreement and the nonterminating party shall (i) fail
to perform in any material respect its agreements contained herein required to
be performed on or prior to the Closing Date and such nonterminating party has
not cured in all material respects such breach on or prior to the date which is
60 days after such nonterminating party has received written notice from the
terminating party of such failure to perform or such longer period in the event
that such breach cannot reasonably be expected to be cured within such 60-day
period and such nonterminating party is diligently pursuing such cure, but in
no event later than the Termination Date or (ii) breach in any material respect
any of its representations or warranties contained herein and such
nonterminating party has not cured in all material respects such breach on or
prior to the date which is 60 days after such nonterminating party has received
written notice from the terminating party of such breach or such longer period
in the event that such breach cannot reasonably be expected to be cured within
such 60-day period and such nonterminating party is diligently pursuing such
cure, but in no event later than the Termination Date.
4.3 Effect on Obligations. Termination of this Agreement pursuant
to Section 4.02 shall terminate all obligations and liabilities of the parties
to each other hereunder, except for the obligations under Sections 4.04, 8.01,
10.01, 10.02 and 13.06, provided that (a) in the event of a termination of this
Agreement pursuant to subsection 4.02(d) above under circumstances where the
nonterminating party's breach consists of its refusal to close the transactions
contemplated hereby in accordance with and subject to the terms and conditions
hereof (notwithstanding that the nonterminating party's conditions to close
contained in Sections V or VI, as the case may be, have been satisfied or that
the terminating party stands ready, willing and able to satisfy such conditions
but for such breach) and (b) in the event of the termination of this Agreement
pursuant to subsection 4.02(b) or 4.02(d) above and such termination is a
result of the other party having engaged in a willful failure to perform any of
its obligations under this Agreement or a willful and material misstatement of
any representation and warranty contained in this Agreement, the terminating
party may exercise all available rights and remedies at law or in equity to
which such party may be entitled including, without limitation, the recovery of
the full amount of all costs and expenses incurred by the terminating party in
connection with the preparation, negotiation and execution of this Agreement,
its due diligence review, and all other activities relating to the transaction
contemplated by this Agreement.
4.4 Return of Documentation. Following a termination in
accordance with Section 4.02, the Purchaser shall return all agreements,
documents, contracts, instruments, books, records, materials and all other
information of the Group, any Group Member or any Affiliate thereof provided by
any Group Member, the Seller or by any representative of any Group Member or
the Seller to the Purchaser or any representatives of the Purchaser in
connection with the transactions contemplated by this Agreement, and the Seller
shall return all agreements, documents, contracts, instruments, books, records,
materials and all other information of the Purchaser provided by the Purchaser
or any representative of the Purchaser to the Seller in connection with the
transactions contemplated by this Agreement.
23
<PAGE> 31
4.5 Sole and Exclusive Remedy. Prior to the Closing, each party
hereto acknowledges and agrees that such party's sole and exclusive remedy with
respect to Damages and any and all claims for any breach or liability under
this Agreement or otherwise relating to the subject matter of this Agreement
and the transactions contemplated hereby shall be solely in accordance with,
and limited by, Sections 4.02 and 4.03 hereof.
SECTION V.
CONDITIONS TO THE SELLER'S OBLIGATIONS TO CLOSE
The obligation of the Seller to sell the Shares and otherwise to
consummate the transactions contemplated by this Agreement at the Closing is
subject to the following conditions precedent, any or all of which may be
waived by the Seller in the Seller's sole discretion, and each of which the
Purchaser hereby agrees to use its best efforts to satisfy at or prior to the
Closing:
5.1 Certificates. The Seller shall have received:
(a) Certificates as to the existence and good standing of
the Purchaser from its jurisdiction of incorporation, as of a date not more
than 30 days before the Closing;
(b) A true and correct copy of the certificate of
incorporation of the Purchaser certified as true and correct by the Secretary
of State of its jurisdiction of incorporation and a copy of the by-laws of the
Purchaser certified as true and correct by the Secretary of the Purchaser;
(c) Certificates of incumbency executed by the Secretary
of the Purchaser in form and substance reasonably acceptable to the Seller;
(d) Certificate of the Secretary of the Purchaser
certifying as to a true and correct copy of the duly adopted resolutions of the
board of directors of the Purchaser, in form and substance reasonably
acceptable to the Seller, with respect to the consummation of the transactions
contemplated by this Agreement and that such resolutions continue in full force
and effect, without amendment, as of the Closing Date;
(e) A receipt executed by the Purchaser acknowledging
delivery of the Shares; and
(f) Such other certificates, instruments and other
documents, in form and substance reasonably satisfactory to the Seller and
counsel for the Seller, as the Seller shall have reasonably requested in
connection with the transactions contemplated hereby.
5.2 Opinion of the Purchaser's Counsel. The Seller shall have
received an opinion of Strasburger & Price, L.L.P., counsel for the Purchaser,
dated the Closing Date and covering the matters set forth in Sections 3.01,
3.02 and 3.03 hereof.
5.3 Representations, Warranties and Covenants. The
representations and warranties of the Purchaser contained herein shall be true
and correct at and as of the Closing Date with the same effect as though all
such representations and warranties were made at and as of the Closing Date,
24
<PAGE> 32
except to the extent that any of such representations and warranties are, by
their terms, made expressly as of the date of this Agreement or another date,
and the Purchaser shall have complied in all material respects with all of its
covenants and agreements contained herein required to be complied with on or
prior to the Closing Date, and on the Closing Date, the Purchaser shall deliver
to the Seller a certificate dated the Closing Date to such effect.
5.4 No Litigation. No action, suit, proceeding, writ, judgment,
injunction, decree or similar order of any Governmental Authority restraining,
enjoining or otherwise preventing the consummation of any of the transactions
contemplated by this Agreement, or seeking any Damages or seeking to obtain any
other relief as a result of this Agreement or any of the transactions
contemplated hereby shall be pending.
5.5 Approvals. All governmental and corporate filings,
authorizations and approvals (if any) that are required for the consummation of
the transactions contemplated hereby shall have been duly made and obtained in
form and substance reasonably satisfactory to the Seller and the Seller's
counsel.
5.6 Third Party Consents. All consents of third parties set forth
on Schedules 2.24 and 2.31 hereto which are indicated by an asterisk shall have
been obtained.
5.7 HSR Act Approval. All waiting periods applicable to this
Agreement and the transactions contemplated hereby under the HSR Act shall have
expired or been terminated.
5.8 Releases. The Seller shall have received releases in the form
of Exhibit B attached hereto executed by the Group Members and the Purchaser of
all officers and directors of each Group Member with respect to certain acts
and omissions occurring on or prior to the Closing Date.
5.9 PsychTrac License. The Seller shall have received a
non-exclusive, non-assignable perpetual royalty-free license, in form and
substance satisfactory to Seller and Purchaser with respect to the Intellectual
Property identified by an asterisk on Schedule 2.18 hereto and any enhancements
thereto known as PsychTrac II (the "PsychTrac Property"), which license shall
give to Seller, RHCI and other respective subsidiaries the non-exclusive right
to use the PsychTrac Property solely in the conduct of its respective business
operations now or hereafter conducted and shall expressly prohibit the use of
the PsychTrac Property to engage in competition, directly or indirectly, with
the Managed Services (as defined in Section 11.01 hereof) of the Group Member,
Purchaser, or any Affiliate or subsidiary of Purchaser. The license will
provide that neither party shall have any obligations with respect to the
PsychTrac Property, or any obligation to notify the other party with respect to
any betterments, improvements, upgrades, changes or modifications with respect
to the PsychTrac Property.
5.10 Release of Guaranty. RHCI shall have received a release of
its guaranty of the obligations of the applicable Group Member under that
certain Agreement, dated as of January 1, 1995, with The Health Plan of the
Upper Ohio Valley, Inc.
25
<PAGE> 33
SECTION VI.
CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE
The obligation of the Purchaser to purchase the Shares and otherwise
to consummate the transactions contemplated by this Agreement at the Closing is
subject to the following conditions precedent, any or all of which may be
waived by the Purchaser in its sole discretion, and each of which the Seller
hereby agrees to use its best efforts to satisfy at or prior to the Closing:
6.1 Certificates. The Purchaser shall have received:
(a) Certificates as to the existence and good standing
(or other appropriate certificates) of Seller, RHCI and each Group Member from
its jurisdiction of incorporation or organization, as the case may be, and, as
to each Group Member, in each jurisdiction in which it is qualified to transact
business as a foreign corporation, as of a date not more than 30 days before
the Closing;
(b) A true and correct copy of the certificate of
incorporation or articles of organization, as the case may be, of Seller, RHCI
and each Group Member certified as true and correct by the Secretary of State
or other appropriate governmental official of Seller's, RHCI's and each Group
Member's jurisdiction of organization, and a copy of (i) the by-laws of Seller,
RHCI and each Group Member that is a corporation (ii) the limited liability
company operating agreement of each Group Member that is a limited liability
company and the limited partnership agreement of each Group Member that is a
limited partnership certified as true and correct by the Secretary of the
applicable Group Member;
(c) Certificates of incumbency executed by the Secretary
of the Seller and RHCI in form and substance reasonably acceptable to the
Purchaser;
(d) Certificates of the Secretary of the Seller and RHCI
certifying as to a true and correct copy of the duly adopted resolutions of the
board of directors of the Seller and RHCI, and the sole stockholder of Seller,
in form and substance reasonably acceptable to the Purchaser, with respect to
the consummation of the transactions contemplated by this Agreement and that
such resolutions continue in full force and effect, without amendment, as of
the Closing Date;
(e) A receipt executed by the Seller acknowledging
payment of the Closing Purchase Price;
(f) A certificate executed by the controller of FPM (in
such corporate capacity and not in a personal capacity) certifying (i) that the
February 28, 1998 Financial Statements present fairly in all material respects
the financial position of FPM and the results of operations of FPM in each case
on a consolidated basis, as of the respective dates and for the respective
periods covered thereby, (ii) that such financial statements have been prepared
in accordance with GAAP (except for the absence of a statement of cash flows,
footnotes and year-end adjustments) and were prepared from the books and
records of FPM and (iii) listing all one-time adjustments that have been made
or included in the period covered by the February 28, 1998 Financial
Statements; and
(g) Such other certificates, instruments and other
documents, in form and substance reasonably satisfactory to the Purchaser and
counsel for the Purchaser, as the Purchaser shall have reasonably requested in
connection with the transactions contemplated hereby.
26
<PAGE> 34
6.2 Stock Certificates. The Purchasers shall have received the
certificates evidencing the Shares as required by Section 1.05 and the
Purchaser shall have been delivered the stock certificates evidencing all the
issued and outstanding capital stock of the Subsidiaries.
6.3 Releases. The Purchaser shall have received UCC searches of
all financing statements of record performed under the name of the Seller and
each Group Member in the state of its incorporation or formation and each state
where it is qualified to do business as a foreign entity. The Purchaser shall
have received duly executed releases, UCC-3 termination statements and all
other documents necessary to fully release all Liens against the Shares and the
assets of each Group Member, including without limitation, the Liens listed on
Schedule 2.09 and Schedule 2.22, other than Permitted Liens in each case in
recordable form if required to fully effect such release.
6.4 Corporate Minute Book. The Purchaser shall have received the
corporate minute books, or comparable records, containing minutes of
proceedings of the shareholders or members or partners of each Group Member and
of the board of directors or other governing body of each Group Member.
6.5 Resignations. The Purchaser shall have received the written
resignation of each director and officer of each Group Member which
resignations shall be effective as of the Closing Date and shall acknowledge
that no monetary or other obligations are due and owing or payable by such
Group Member to such respective director or officer except for obligations with
respect to (i) compensation, benefits and expense reimbursement as an employee
of a Group Member, (ii) indemnification under the charter or bylaws of a Group
Member or (iii) matters otherwise required under applicable law.
6.6 Escrow Agreement. The Purchaser, Seller and the Escrow Agent
shall have executed and delivered the Escrow Agreement and the Indemnity Escrow
Amount shall have been delivered to the Escrow Agent.
6.7 Material Adverse Change. Since the Effective Date, there
shall not have occurred any Material Adverse Change in the condition (financial
or otherwise), assets, liabilities, results of operations or business of the
Group. For the purposes of this Section 6.07, the cancellation after the
Effective Date of an FPM Customer Contract or FPM Customer Contracts
(irrespective of the date of cancellation) or the non-renewal of an FPM
Customer Contract having an expiration or termination date that is after the
Effective Date and on or prior to the Closing Date or the occurrence of any
event that will materially reduce the revenues under the FPM Customer Contracts
(irrespective of whether such event constitutes a default or breach under, or a
termination of, any FPM Customer Contract), in any of such cases, representing
a reduction in revenues in excess of $750,000, either singularly or in the
aggregate, shall be deemed to be a Material Adverse Change in the condition of
the Group; provided, however, that for the purposes of this sentence a
reduction in the revenues or cancellation of the PacifiCare Contract (defined
in Section 12.01 hereof) and the FPM Customer Contracts expressly identified in
Schedule 2.10 as terminated or to be terminated or to be non-renewed on
expiration shall be disregarded.
6.8 Opinion of the Seller's Counsel. The Purchaser shall have
received an opinion of Haythe & Curley, counsel for the Seller, dated the
Closing Date and covering certain matters set forth in Sections 2.01, 2.02,
2.03, 2.15 (to the knowledge of such counsel without independent
investigation), 2.21, 2.22, 2.27, 2.28 and 2.29 hereof (provided that, with
respect to the matters set
27
<PAGE> 35
forth in Section 2.22 hereof, in rendering such opinion such counsel may assume
that the Purchaser does not have knowledge of any adverse claim in respect of
the Shares).
6.9 Representations, Warranties and Covenants. The
representations and warranties of the Seller and RHCI contained herein shall be
true and correct at and as of the Closing Date, except to the extent that any
of such representations and warranties are, by their terms, made expressly as
of the date of this Agreement or another date, and the Seller shall have
complied in all material respects with all its covenants and agreements
contained herein required to be complied with on or prior to the Closing Date,
and on the Closing Date, the Seller shall deliver to the Purchaser a
certificate dated the Closing Date to such effect.
6.10 No Litigation. No action, suit, proceeding, writ, judgment,
injunction, decree or similar order of any Governmental Authority restraining,
enjoining or otherwise preventing the consummation of any of the transactions
contemplated by this Agreement, or seeking any Damages or seeking to obtain any
other relief as a result of this Agreement or any of the transactions
contemplated hereby shall be pending.
6.11 Approvals. All governmental filings, authorizations and
approvals (if any) that are required for the consummation of the transactions
contemplated hereby will have been duly made and obtained in form and substance
reasonably satisfactory to the Purchaser and the Purchaser's counsel.
6.12 Third Party Consents. All consents of third parties set forth
on Schedules 2.24 and 2.31 hereto which are indicated by an asterisk shall have
been obtained.
6.13 HSR Act Approval. All waiting periods applicable to this
Agreement and the transactions contemplated hereby under the HSR Act shall have
expired or been terminated.
6.14 Release. RHCI shall have executed and delivered to the
Purchaser a release of all its rights, if any, under Section 10 of that certain
Agreement dated August 8, 1994 between RHCI, Geriatric Medical Care, Inc. and
James F. Greene, M.D., as amended by a Modification Agreement dated January
26, 1996.
6.15 Tax Sharing Agreements. Seller and the Group Members shall,
as of the Closing Date, terminate all tax allocation agreements or tax sharing
agreements with respect to all Group Members including, without limitation, the
Tax Sharing Agreement, and shall ensure that such agreements are of no further
force or effect as to the Group Members on and after the Closing Date and there
shall be no further liability of any Group Member under any such agreement.
6.16 Certification of Non-Foreign Status. The Seller shall furnish
to the Purchaser on or before the Closing Date a certification of Seller's
non-foreign status as set forth in Treasury Regulation Section 1.1445-2(b).
6.17 Pension Plan. Seller shall take whatever actions are
necessary to ensure that, effective as of the Closing Date, the 401(k) plan in
which FPM's employees participate shall not have any adopting employer other
than FPM, and shall not permit or require contributions to be made by, or hold
any account or assets payable to or with respect to, any individuals other than
active or former employees of FPM or their beneficiaries except for a deminimus
number.
28
<PAGE> 36
6.18 Welfare Plans. The Purchaser and the Seller agree that the
Seller will use its reasonable best efforts to transfer any Welfare Plan not
exclusively sponsored by the Group to the Group (with respect to employees of
the Group) prior to the Closing Date. In the event the Seller cannot transfer
any such Welfare Plan, or the Purchaser notifies the Seller not to transfer any
such Welfare Plan, the Purchaser agrees to cover employees of the Group under
its Welfare Plans, to waive any pre-existing condition, waiting period
limitations or any other eligibility requirements and to provide reimbursement
to the Seller of any pre-Closing costs of coverage under the Seller's Welfare
Plans to the extent such expense is accrued or reserved on the Closing Balance
Sheet.
6.19 Non-Competition Agreements.
(a) The Seller shall use its best efforts to deliver to
Purchaser on or prior to the Closing a release or waiver executed by the other
partner of University Behavioral Health at the University of South Florida,
Ltd., in form reasonably satisfactory to the Purchaser, providing that the
non-competition agreements contained in the partnership agreement of such
entity will not be violated by (i) the consummation of the transactions
contemplated by this Agreement, (ii) the business conducted by the Purchaser or
its subsidiaries prior to the Closing Date and (iii) the performance and
renewal of contracts between the Purchaser or its subsidiaries in existence
prior to the Closing Date, provided that such release or waiver may expressly
require the non-competition agreements contained in such organizational
documents shall apply to any new contracts after the Closing Date. Subject to
the remaining provisions of this Section 6.19(a) below, the delivery of such
release or waiver on or prior to the Closing shall be a condition precedent to
the obligations of the Purchaser under this Agreement. In the event that the
Seller is unable to deliver such release or waiver on or prior to the Closing,
Purchaser, in its sole discretion, shall elect either to waive the receipt of
such waiver or release as a condition precedent to its obligations under this
Agreement and proceed with the Closing or to require that, on or prior to the
Closing, the partnership interest in University Behavioral Health at the
University of South Florida, Ltd. held by a Group Member and the membership
interest in U.B.H. Holdings, L.C., a Florida limited liability company and the
general partner of such partnership, held by a Group Member shall have been
transferred and assigned to RHCI or an Affiliate of RHCI (other than a Group
Member) with all obligations and liabilities of the Group Member under the
respective partnership agreement and limited liability company operating
agreement of such entities being assumed by RHCI or the Affiliate of RHCI
(other than a Group Member). With the consent of Purchaser, which shall not be
unreasonably withheld, Seller may effect such transfer and assignment by the
transfer of the ownership of a Group Member to RHCI or an Affiliate of RHCI
(other than a Group Member) that has as its sole material asset the ownership
interest in such third party entities that Purchaser has elected to be
transferred to RHCI or an Affiliate of RHCI (other than a Group Member). In
addition, in the event Purchaser requires that such partnership and membership
interest be assigned to RHCI or an Affiliate or RHCI (other than a Group
Member) on or prior to the Closing, the Closing Purchase Price shall be reduced
by the amount of $150,000.
(b) The Seller shall use its best efforts to cause the
dissolution of FPM Behavioral Health of Ohio, Ltd. and the assignment to a
Group Member of the FPM Customer Contracts held by such entity on or prior to
the Closing Date. Subject to the remaining provisions of this Section 6.19(b)
below the dissolution of such entity and assignment of such FPM Customer
Contracts shall be a condition precedent to the obligation of the Purchaser
under this Agreement. In the event the Seller is unable to cause the
dissolution of such entity and the assignment of such FPM Customer Contracts
held by such entity to a Group Member on or before the Closing Date, then
29
<PAGE> 37
Purchaser, in its sole discretion, shall elect to either waive such requirement
as a condition precedent to its obligations under this Agreement and proceed
with the Closing or may require that the membership interest of the Group
Member in FPM Behavioral Health of Ohio, Ltd. be transferred and assigned on or
prior to the Closing Date to RHCI or an Affiliate of RHCI (other than a Group
Member) with all obligations and liabilities of the Group Member under the
limited liability company operating agreement of such entity assumed by RHCI or
an Affiliate or RHCI (other than a Group Member). With the consent of
Purchaser, which shall not be unreasonably withheld, Seller may effect such
transfer and assignment by the transfer of the ownership of a Group Member to
RHCI or an Affiliate of RHCI (other than a Group Member) that has as its sole
material asset the ownership interest in such third party entity that Purchaser
has elected to be transferred to RHCI or an Affiliate of RHCI (other than a
Group Member). In the event Purchaser elects to require the assignment of such
membership interest to RHCI or an Affiliate of RHCI (other than a Group Member)
on or prior to the Closing, the Closing Purchase Price shall be reduced by the
amount of $250,000.
(c) In the event of a transfer of an interest or entity to
RHCI or an Affiliate of RHCI pursuant to subsection (a) or (b), the provisions
of Section XI relating to non-competition shall not apply to the ownership of
such partnership or member interest and the business conducted by such
partnership or limited liability company.
SECTION VII.
CONDUCT OF THE BUSINESS
7.1 Access and Information. The Seller shall give to the
Purchaser and its accountants, counsel and other representatives reasonable
access during normal business hours upon reasonable notice and without undue
interruption to the operations of the Group, Seller or RHCI and subject to the
prior written consent of the Vice Chairman or President of RHCI in the case of
any contact with any customer, supplier or provider of the Group, 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 the
Group and all other information pertaining to the Group as may be reasonably
requested by the Purchaser. Except as consented to by the Seller, all
information obtained hereunder which is not otherwise public shall be held
confidential and subject to the Confidentiality Agreement 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 Seller.
7.2 Monthly Financial Statements. From the Effective Date through
the Closing Date, Seller will deliver to the Purchaser within thirty (30) days
after the end of each calendar month copies of the monthly and year-to-date
unaudited financial statements of the Group prepared in the normal course of
its business. The representations contained in Section 2.04 with respect to
the 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 and shall not contain footnotes.
30
<PAGE> 38
7.3 Operation of Businesses; Course of Conduct.
(a) The Seller agrees that from the Effective Date to the
Closing Date, except as otherwise consented to or approved by the Purchaser in
writing, the Group Members will operate their respective businesses in the
ordinary course and will use their best efforts consistent with past practice
to preserve their respective business organizations intact and to preserve the
goodwill of their respective suppliers, customers and others with whom such
Group Member has business relationships; and neither the Seller nor the Group
Members 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 on the Closing Date as if such representation or warranty
were made at and as of such time, or make any material change in any method of
reporting income or expenses for federal or state income tax purposes or state
franchise tax purposes. In addition, the Seller agrees that, from the date
hereof through the Closing Date, each Group Member shall not, without the prior
written consent of Purchaser, and the Seller shall not permit or cause a Group
Member to:
(i) incur any expense, obligation, or liability in excess
of $10,000 (whether capital, contingent, absolute or otherwise),
except in the ordinary course of business or except with respect to
performance of the FPM Customer Contracts in accordance with their
respective terms;
(ii) make (1) any change, except in the ordinary course of
business or except as set forth in Schedule 7.03, in the assets or
liabilities of the Group Member, 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 $10,000, except with respect to performance of the FPM Customer
Contracts in accordance with their respective terms;
(iii) make any change in the certificate or articles of
incorporation or bylaws or limited liability company operating
agreement or limited partnership agreement of a Group Member;
(iv) (1) authorize any shares of the capital stock of a
Group Member for issuance, (2) issue or agree to issue any shares of
any authorized but unissued shares of the capital stock of a Group
Member, (3) grant, issue, or make any option or commitment relating to
the capital stock of a Group Member, or any other security
constituting, or convertible or exchangeable for, capital stock of a
Group Member, or (4) purchase or otherwise acquire any outstanding
shares of the capital stock of a Group Member;
(v) (1) make any material increase in the compensation
payable or to become payable to any of the officers, employees or
agents of a Group Member (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, (2)
make, amend, or enter into any written employment or consulting
contract or (3) make, amend or enter into any bonus, stock option,
profit sharing, pension, retirement or other similar payment or
arrangement which in the aggregate exceeds $10,000;
(vi) make, enter into, modify or extend any customer
contract;
31
<PAGE> 39
(vii) enter into any agreement resulting in the imposition
of any mortgage or pledge of any assets of a Group Member or the
creation of any mortgages, liens, pledges, charges, security
interests, encumbrances, options, rights of third parties or
restrictions on any of such assets, except Permitted Liens;
(viii) take any action which is intended to prevent
compliance with any of the conditions in Sections V or VI of this
Agreement;
(ix) enter into or engage in any transaction with any
officer, director, shareholder or affiliate of a Group Member except for the
payment of salaries or other benefits and reimbursement of expenses in the
ordinary course of business;
(x) (1) carry on any negotiations with other parties
relating to the acquisition of capital stock or any material assets of a Group
Member or the Seller 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;
(xi) fail to maintain, cancel or surrender any insurance
policies providing coverage to a Group Member on the Effective Date.
(b) Notwithstanding any provision of this Agreement to
the contrary, the Seller covenants and agrees that from the Effective Date to
the Closing Date the Group Members shall involve Purchaser and allow Purchaser
to participate in all material discussions, material correspondence or material
negotiations relating to any existing or proposed new FPM Customer Contract and
shall not modify, amend or renew any FPM Customer Contract and shall not enter
into any new customer contract without the prior written consent of Purchaser
which shall not be unreasonably withheld or delayed.
7.4 Consents. Each of the parties 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 such party to consummate the transactions contemplated by this
Agreement.
7.5 Solicitation of Inquiries. From the Effective Date to the
Closing Date, the Seller, RHCI and the Group Members shall not solicit from any
other person, firm, corporation or other entity any inquiries or proposals
relating to the disposition of any substantial portion of the Group's business
or assets (other than in the ordinary course of business) or to the acquisition
of all or a substantial portion of the capital stock (whether issued and
outstanding or authorized but not issued) or to the merger, reorganization or
consolidation of a Group Member. Until the Closing Date, each of the Seller
and RHCI additionally agree that, without the prior written consent of
Purchaser, it will not furnish, and will not permit any Group Member to furnish
to any person or entity (other than Purchaser and its directors, employees,
agents and representatives) any non-public information concerning the Group 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 the
Group.
32
<PAGE> 40
7.6 Cooperation. The parties will reasonably 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 parties each agree to use its reasonable best efforts to makeall 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.
SECTION VIII.
OTHER AGREEMENTS OF THE PARTIES
The Purchaser and the Seller agree as follows:
8.1 Announcements. From and after the date hereof, neither the
Seller nor the Purchaser shall issue any media, newspaper, wire service, trade
journal or any other public statement concerning the transactions contemplated
hereby, without the approval of the other party, except as may be required by
law or applicable disclosure obligations and after consultations between the
parties. In addition, the Purchaser shall comply with the Confidentiality
Agreement.
8.2 Labor Relations. The Purchaser hereby agrees to defend and
indemnify the Seller Indemnified Parties, and to hold each Seller Indemnified
Party harmless, from and against all Damages, which are sustained or incurred
by any Seller Indemnified Parties by reason of or in connection with any claim,
proceeding or suit brought against any Seller Indemnified Parties under the
Worker Adjustment Retraining and Notification Act, or any local, state, federal
or foreign law, which relates to actions taken by the Purchaser or any Group
Member at any time on or after the Closing with regard to any site of
employment or one or more facilities or operating units within any site of
employment of any Group Member.
8.3 Access to Information. (a) For a period of six years from the
Closing Date, the Purchaser shall (and shall cause each of the Group Members
to), during normal business hours and upon reasonable notice, make available
and provide the Seller and its representatives (including, without limitation,
counsel and independent auditors) with access to the facilities and properties
of each of the Group Members and to all information, files, documents and
records (written and computer) relating to any Group Member or any of its
businesses or operations for any and all periods prior to or including the
Closing Date which the Seller (or any Affiliate) requires with respect to any
reasonable business purpose, including, without limitation, disputes under this
Agreement, and shall (and shall cause each of the Group Members to) cooperate
fully with the Seller and its representatives (including, without limitation,
its counsel and independent auditors) in connection with the foregoing,
including, without limitation, by making tax, accounting and financial
personnel and other appropriate employees and officers of each Group Member
available to the Seller and its representatives (including, without limitation,
counsel and independent auditors), with regard to any reasonable business
purpose, including, without limitation, disputes under this Agreement.
(b) Without limiting the generality of Section 8.03(a),
from and after the Closing Date, the Purchaser shall (and shall cause each of
the Group Members to) fully cooperate with and assist, and shall cause its
officers and employees (and the officers and employees of the Group
33
<PAGE> 41
Members) to cooperate fully with and assist, the Seller and its representatives
(including, without limitation, its counsel and independent auditors), in
connection with:
(i) the preparation of any financial statements of the
Group Members (or any Group Member) for (or including) any period (or
portion thereof) ending on or before the Effective Time and to that
end the Purchaser shall cause the officers and employees of any Group
Member to cooperate fully and assist the Seller in its review and
verification of the same; or
(ii) the investigation, prosecution or defense of or
response to any Actions, claims or inquiries commenced by any
Purchaser Indemnified Party, or by any Governmental Authority or any
other person or entity, against the Seller (or any other Seller
Indemnified Party or any Affiliate thereof) or against the Purchaser
(or any other Purchaser Indemnified Party.
(c) The cooperation and assistance of the Purchaser and
the Group Members and their respective officers and employees under this
Section 8.03 shall be rendered during normal business hours and in a manner
which does not materially disrupt the business and operations of the applicable
Group Member. The Seller shall reimburse the Group Members for any
extraordinary actual out-of-pocket expenses (including, without limitation, the
fees of its independent accountants) incurred by them in rendering such
cooperation and assistance (however, such obligation shall not extend to any
reimbursement of any cost or expense for time spent by officers or employees of
the Group Members or the Purchaser in the assistance thereof, any
administrative overhead of any Group Members or the Purchaser or any ordinary
course fees and expenses).
(d) Without limiting the generality of subsection (a) of
this Section 8.03, following the Closing, the Purchaser shall not (and shall
cause the Group Members not to) destroy any information, files, documents or
records (written and computer) relating to any Group Member or any of its
businesses or operations without giving at least 30 days' prior written notice
to the Seller and shall (and shall cause the Group Members to) permit the
Seller to examine, duplicate (at the Seller's expense) and/or transfer (at the
Seller's expense) to the Seller or its representatives any of such information,
files, documents or records (written and computer).
8.4 Tax Matters. (a) The Seller and the Purchaser acknowledge and
agree that, pursuant to any 338(h)(10) Election made in accordance with Section
8.04(d) hereof, FPM and the other Group Members will be treated for income tax
purposes as having sold all of their respective assets on the Closing Date
while still members of the consolidated or affiliated group that includes the
Seller, and as having liquidated into the Seller on the Closing Date. The
Seller and the Purchaser further acknowledge and agree that, for Federal income
tax purposes, the taxable year of each Group Member will close on the Closing
Date and that, for certain state and local income tax purposes, in cases in
which an election under Section 338(h)(10) is not effective or is not made, the
taxable year of some or all of the Group Members may close on the Closing Date.
The Seller shall be responsible for preparing and filing any and all Tax
Returns that include the Group Members for the periods ending on or before the
Closing Date, and shall be responsible for and shall pay all Taxes payable by
the Group Members with respect to such Tax Returns. The Purchaser shall have a
reasonable opportunity to review, comment upon and suggest changes or
corrections to all such Tax Returns and amendments thereto prior to the filing
thereof. From and after the Closing Date, the Purchaser shall (and shall cause
each of the Group Members to) fully cooperate with and assist, and shall cause
34
<PAGE> 42
its officers and employees (and the officers and employees of the Group
Members) to cooperate fully with and assist, the Seller and its representatives
(including, without limitation, allowing access by the Seller and its
representatives (including its counsel and independent auditors) to the books
and records (written and computer) of the Group Members and allowing the Seller
to make copies thereof), in connection with the preparation by the Seller of
any Tax Returns required to be prepared by the Seller hereunder. The
cooperation and assistance of the Purchaser and the Group Members and their
respective officers and employees under this Section 8.04 shall be rendered
during normal business hours and in a manner which does not materially disrupt
the business and operations of the applicable Group Member. The Seller shall
reimburse the Group Members for any extraordinary actual out-of-pocket expenses
incurred by them in rendering such assistance and cooperation (however, such
obligation shall not extend to any reimbursement of any cost or expense for
time spent by officers or employees of the Group Members or the Purchaser or
any administrative overhead of any Group Members or the Purchaser or any
ordinary course fees and expenses). Except as provided in the immediately
preceding sentence, the Seller shall not be charged with any cost or expense
for the assistance rendered by the Purchaser or any of the Group Members in
connection therewith.
(b) Except as provided in clause (a) of this Section
8.04, the Purchaser agrees to cause the Group Members to file all Tax Returns
required to be filed by any of them after the Closing Date and to pay all Taxes
due and payable by any of them after the Closing Date, including any Taxes that
accrued prior to the Closing Date or that are otherwise allocable to any Seller
Tax Period that does not end on or before the Closing Date. The Seller shall
be given the opportunity to review, comment upon and suggest changes or
corrections to, any Tax Returns covered by this Section 8.04(b) which include
any Seller Tax Period (and the work papers of the Group Members and their
accountants used in the preparation thereof), in each case prior to the filing
thereof (but in no event less than 30 days prior to such filing). In the event
of any dispute regarding the matters set forth in the immediately preceding
sentence, the Independent Auditor shall be requested to make a determination
resolving such dispute and the determination of the Independent Auditor of any
such dispute shall be final and binding on the parties hereto. The fees and
expenses of the Independent Auditor in resolving such dispute shall be borne
50% by the Seller and 50% by the Purchaser.
(c) Any refunds or credits of Taxes of any Group Member
for any Seller Tax Period shall be for the account of the Seller. Applications
for refunds of Taxes, and the filing of amended tax returns, reports and
declarations, with respect to any Seller Tax Period shall be made and
prosecuted only by the Seller. The Purchaser shall provide and shall cause
each Group Member to provide to the Seller full cooperation and assistance in
connection with any application for refund or amendment made or proposed to be
made by the Seller as shall be requested by the Seller, including by causing
each Group Member to authorize by appropriate powers of attorney such person as
the Seller shall designate to represent such Group Member with respect to such
refund claim, without charge for any cost or expense for assistance rendered by
officers and employees of the Group Members in connection therewith. The
Seller shall not seek any Tax refund, or amend any Tax Return, which would have
the effect of increasing the Taxes of any Group Member for any taxable period
(or portion thereof) beginning after the Closing Date; however, the foregoing
shall not apply to any amended Tax Return which may be required by law
following resolution of a Tax dispute. The Purchaser shall or shall cause each
Group Member to forward to the Seller any refund of Taxes of any Group Member
allocable to any Seller Tax Period within five days after such refund is
received (or reimburse the Seller for any credit within five days after the
credit is allowed or applied against other Tax liability). Notwithstanding the
foregoing, the control of the prosection of
35
<PAGE> 43
a claim for refund of Taxes paid pursuant to a deficiency assessed subsequent
to the Closing Date as a result of an audit shall be governed by the provisions
of Section 9.03(d) hereof.
(d) Section 338(h)(10)Election.
(i) If requested by Purchaser, Purchaser and RHCI shall
join in an election (the "338(h)(10) Election") to have the provisions
of Section 338(h)(10) of the Code apply to the acquisition of FPM and
Subsidiaries. Purchaser shall be responsible for, and control, the
preparation and filing of such election. RHCI and Seller shall
execute and deliver to Purchaser such documents or forms (including
Section 338 Forms, as defined below) as Purchaser shall request or as
are required by applicable law for an effective 338(h)(10) Election.
"Section 338 Forms" shall mean all returns, documents, statements, and
other forms that are required to be submitted to any federal, state,
or other local Taxing Authority in connection with a 338(h)(10)
Election, including, without limitation, any "statement of Section 338
election" and IRS Form 8023 (together with any schedules or
attachments thereto), that are required pursuant to Treasury
Regulations. To the extent an election similar to the 338(h)(10)
Election is available under any applicable state or local income Tax
laws (which is not mandatory in the event of an election made under
Section 338(h)(10) of the Code), and if such election will not give
rise to double taxation of the Seller and/or any one or more Group
Members, RHCI, Seller and Purchaser agree to join in making each such
election (a "Non-Federal Election"). RHCI, the Seller, the Purchaser
and FPM shall report the transaction consistent with such elections
under Section 338(h)(10) of the Code or any similar state or local tax
provision, as applicable, and agree not to take any action that could
cause such elections to be invalid, and shall take no position
contrary thereto on any Tax Return involving a jurisdiction for which
such an election has been made.
(ii) The allocation of the adjusted deemed sales price
among the assets of FPM and Subsidiaries shall be made in accordance
with Code Sections 338 and 1060 and any comparable provisions of
state, local or foreign law, as appropriate. Unless it would be
unreasonable to do so, RHCI and the Seller shall accept Purchaser's
determination of such purchase price allocations, and shall report,
act, file in all respects and for all purposes consistent with such
determination of Purchaser. The Seller shall cause a copy of a Form
8023-A to be attached to the Federal income tax return of that
includes the Group Members for the periods ending on the Closing Date.
The Seller acknowledges that, by virtue of the Election, FPM and the
Subsidiaries shall recognize gain or loss with respect to the
transaction as if they had sold all of their assets in the tax period
covered by the Tax Return of the Seller that includes the Group
Members for the period ending on the Closing Date. The Seller shall
be responsible for and shall pay any income, franchise or similar
Taxes arising as a result of the 338(h)(10) Election and any
Non-Federal Elections made pursuant to the provisions of this Section
8.04(d).
(e) Neither the Purchaser nor any Group Member shall
amend, or take any similar action with respect to, any Tax Return filed by the
Seller or by any Group Member with respect to any Seller Tax Period without the
prior written consent of the Seller; provided that the foregoing shall not
apply to any amended Tax Return which may be required by law following
resolution of a Tax dispute conducted in accordance with this Agreement.
Except as required by law, without the Seller's prior written consent, neither
the Purchaser nor any Group Member shall take any position on any Tax Return,
report or other declaration for any taxable period which might result in any:
36
<PAGE> 44
(i) increase in Tax (over accruals therefor on the books
and records of the Group Members as of the Effective Time) for any
Seller Tax Period in:
A) the liability of the Seller or any Group
Member in respect of the consolidated Federal income tax
liabilities, or any state consolidated, combined or unitary
income tax liabilities, of the Seller's (or RHCI's) tax group,
as applicable, for periods while any Group Member was part
thereof; or
B) the liability of the Seller or any Group
Member in respect of any separate state, local or foreign Tax
of any Group Member; or
(ii) reduction in any Tax attributes to which the Seller,
its corporate parent or any Group Member may be entitled with respect
to any Seller Tax Period.
8.5 HSR Filing. The parties hereto recognize that a pre-merger
notification must be filed with the Federal Trade Commission (the "FTC") and
the Department of Justice (the "DOJ") pursuant to the HSR Act and the Seller
and the Purchaser hereby agree to fully cooperate with each other to supply and
file the required documentation. The parties hereto agree that, promptly
following the execution of this Agreement by all parties (but in no event later
than five (5) business days following such execution), the Purchaser and the
Seller will prepare and file with the FTC and the DOJ all required documents
under the HSR Act, including a complete notification and report form, will seek
early termination of the HSR Act waiting period in connection with such filing,
will fully cooperate with each other in connection with the preparation and
filing of such documents, and will use their respective best efforts to
promptly comply with all formal or informal requests for additional information
by the FTC or the DOJ in respect of such filing.
8.6 Certain Assets. Seller acknowledges that the assets shown on
Schedule 2.09 located at the corporate offices of Seller, consisting of certain
computer equipment are assets of FPM used solely in its business operations.
Seller agrees that Purchaser shall have the right to access to such assets and
to continue the use of such assets at such location for a period of sixty (60)
days after the Closing Date. Purchaser agrees that it shall relocate such
assets on or before the expiration of such sixty (60) day period.
SECTION IX.
INDEMNIFICATION
9.1 Indemnification by the Seller and RHCI.
(a) After the Closing Date, the Seller and RHCI shall,
jointly and severally, indemnify and hold harmless the Purchaser (and its
employees, officers, partners, directors, shareholders, agents and
representatives and all Affiliates thereof) and the Group Members
(collectively, the "Purchaser Indemnified Parties") from and against all
Damages which are sustained or incurred by any of the Purchaser Indemnified
Parties, to the extent that the Damages are sustained or incurred by reason of
(i) the breach by the Seller or RHCI of any of their respective covenants or
agreements hereunder (other than the provisions of Section 7.03 as to which
this Section IX shall not be applicable), (ii) the breach of any of the
representations or warranties made by the Seller in
37
<PAGE> 45
Section II(A) or RHCI in Section II(B) hereof provided, however, that for the
purposes of the indemnification obligations of the Seller and RHCI under this
Section 9.01(a)(ii) any materiality standard contained in any such
representation or warranty shall be disregarded, (iii) any liability (as a
result of Treasury Regulation Section
1.1502-6(a) or otherwise) for Taxes of the Seller or any other corporation
which is or has been affiliated with the Seller (other than any of the Group
Members) except to the extent that any such liability is sustained or incurred
by reason of any breach by the Purchaser of any of its covenants or agreements
under Section 8.04 hereof, or (iv) any of the matters disclosed on Schedule
2.15 marked with an asterisk, including without limitation, defense costs.
(b) From and after the Closing Date, the Seller and RHCI,
jointly and severally, shall indemnify and hold harmless the Purchaser and the
Group Members from any and all federal, state and local income Taxes
(including, without limitation, any obligation to contribute to the payment of
any income Taxes determined on a consolidated, combined or unitary basis with
respect to a group of corporations that includes or included Group Members)
which are imposed on any Group Member, or for which any Group Member may
otherwise be liable, resulting from the making of the 338(h)(10) Election (or
analogous provision of state or local law), except to the extent that any such
liability is sustained or incurred by reason of any breach by the Purchaser of
any of its covenants or agreements under Section 8.04 hereof.
(c) The Seller and RHCI, jointly and severally, shall
indemnify and hold harmless the Purchaser and the Group Members of and from any
and all liabilities or obligations of any kind arising out of or resulting from
the closing of the clinics referenced in Schedule 2.06 including, without
limitation, the two Lease Agreements and the Termination and Settlement
Agreement referenced on Schedule 2.06 as resulting from the closing of the
clinical offices.
9.2 Indemnification by the Purchaser. After the Closing Date, the
Purchaser and the Group Members shall indemnify and hold harmless the Seller
and its employees, officers, partners, directors, shareholders, agents and
representatives and all affiliates thereof (collectively, the "Seller
Indemnified Parties") from and against all Damages which are sustained or
incurred by any of the Seller Indemnified Parties, to the extent that such
Damages are sustained or incurred by reason of (a) the breach by the Purchaser
or any Group Member of any of their respective covenants or agreements
hereunder or (b) the breach of any of the representations or warranties made by
the Purchaser in Section III(A) hereof.
9.3 Procedure for Indemnification.
(a) Except as provided in clause (d) of this Section 9.03
(relating to Taxes), in the event that any party hereto or other Purchaser
Indemnified Party or Seller Indemnified Party reasonably believes that such
party has a claim for Damages in respect of which indemnity may be sought by
such party pursuant to this Section IX (each, an "Indemnification Matter"), the
party indemnified hereunder (the "Indemnitee") shall notify the party(s)
providing indemnification (collectively, the "Indemnitor") by sending written
notice to the Indemnitor (an "Indemnity Notice"). Notwithstanding any
provision of this Agreement to the contrary, no Purchaser Indemnified Party and
no Seller Indemnified Party shall be entitled to assert a claim for
indemnification unless the Damages which are the subject of an individual claim
or the subject of one or more claims in the aggregate asserted simultaneously
exceed $25,000. An indemnitee shall be entitled to assert one or more
unrelated claims for indemnification simultaneously so long as the aggregate
amount of all such claims exceed $25,000. In the case of third party claims,
which, if successful, could result in
38
<PAGE> 46
an indemnity payment hereunder, an Indemnity Notice shall be given within 30
days after the discovery by the Indemnitee of the filing or assertion of any
claim against the Indemnitee stating the nature and basis of such claim;
provided, however, that any delay or failure to notify any Indemnitor of any
claim shall not relieve it from any liability except to the extent that the
Indemnitor demonstrates that the defense of such action is prejudiced by such
delay or failure to notify. Any Indemnity Notice shall (i) state (with
reasonable specificity) the basis on which indemnification is being asserted,
(ii) set forth the amount of Damages for which indemnification is being
asserted and (iii) in the case of third party claims, be accompanied by copies
of all relevant pleadings, demands and other papers served on the Indemnitee.
(b) In the case of third party claims the Indemnitee shall
give the Indemnitor the right (i) to control and conduct any proceedings or
negotiations in connection therewith and necessary or appropriate to defend the
Indemnitee (provided such are pursued in a professional manner), (ii) to take
all other reasonable steps or proceedings to settle or defend any such claims,
provided that the Indemnitor shall not settle any such claim without the prior
written consent of the Indemnitee, which consent will not be unreasonably
withheld or delayed, unless, in the case the Seller is the Indemnitor, such
settlement only involves the payment of money, in which event the Seller shall
have the right to settle any such claim without the consent of the Indemnitee,
and (iii) to employ counsel selected by the Indemnitor, after reasonable
consultation with the Indemnitee, to contest any such claim or liability in the
name of the Indemnitee or otherwise. The Indemnitor shall, within 30 days of
receipt of an Indemnity Notice in respect of such claim (the "Indemnity Notice
Period"), notify the Indemnitee in writing of its intention to assume the
defense of such claim. In the event that the Indemnitor does assume the
defense as provided above, the Indemnitee shall have the right to participate
fully in such defense (including, without limitation, with counsel of its
choice), at its sole expense, and the Indemnitor shall fully cooperate with the
Indemnitee in connection with such participation. If the Indemnitor does not
deliver to the Indemnitee within the Indemnity Notice Period written notice
that the Indemnitor will assume the defense of any such claim or litigation
resulting therefrom, the Indemnitee may defend against any such claim or
litigation in such manner as it may deem appropriate and the Indemnitee may
settle such claim or litigation on such terms as it may deem appropriate,
provided that the Indemnitee shall not settle any such claim without the prior
written consent of the Indemnitor, which consent will not be unreasonably
withheld or delayed. In the event that the Indemnitor does not assume the
defense as provided above, the Indemnitor shall have the right to participate
fully in such defense (including, without limitation, with counsel of its
choice), at its sole expense, and the Indemnitee shall fully cooperate with the
Indemnitor in connection with such participation, and in all cases the
Indemnitee shall keep the Indemnitor fully informed as to all matters
concerning such third party claim and shall promptly notify the Indemnitor in
writing of any and all significant developments relating thereto. Within 30
days after the Determination Date with respect to a third party claim, the
Indemnitor shall pay the Indemnitee the amount of Damages sustained or incurred
by the Indemnitee.
(c) In the event that liability hereunder does not involve a
third party claim, the Indemnitor shall within 30 days after the date of
receipt of an Indemnity Notice respond in writing to the Indemnitee (the
"Indemnity Response") and set forth with reasonable specificity those items in
the Indemnity Notice to which the Indemnitor does not agree as well as the
summary basis upon which such disagreement is founded. Within 30 days
following the receipt of the Indemnity Response by the Indemnitee,
representatives of the Indemnitor and Indemnitee shall meet to attempt to
resolve through good faith negotiations the applicable indemnification claims.
The parties shall negotiate in good faith for up to 60 days in an attempt to
reach a settlement of any disputed matter.
39
<PAGE> 47
In the event that such good faith negotiations are unsuccessful or in the event
of any other dispute under this Section IX, the parties shall proceed in
accordance with Section XV of this Agreement.
(d) In the case of any audit, examination or other
proceeding ("Proceeding") with respect to Taxes for which Seller is or may be
liable pursuant to this Agreement, Purchaser shall promptly inform Seller of
the nature of such proceeding, and shall afford Seller, at Seller's expense,
the opportunity to control the conduct of such Proceedings. If notice is not
given to the Seller within a sufficient period of time to allow the Seller
effectively to contest such proceeding, the Seller shall not be liable to
indemnify any Purchaser Indemnified Party to the extent that the Seller's
position or defense is prejudiced as a result thereof. Purchaser shall execute
or cause to be executed powers of attorney or other documents necessary to
enable Seller to take all actions desired by Seller with respect to such
Proceeding to the extent such Proceeding may affect either the amount of Taxes
for which Seller is liable pursuant to this Agreement. Seller shall have the
right to control any such Proceedings, and, if there is substantial authority
therefor, to initiate any claim for refund, file any amended return or take any
other action which it deems appropriate with respect to such Taxes. If
reasonably requested by Purchaser, Seller shall provide to Purchaser an opinion
in form and content reasonably acceptable to Purchaser from counsel that there
is substantial authority for the position that Seller is taking with respect to
such action, and Purchaser need not and Seller shall not take such action until
such opinion is delivered to Purchaser. Any Proceeding with respect to Taxes
for a period which includes but does not end on the Closing Date shall be
controlled jointly by Seller and Purchaser. Notwithstanding any provision of
this Section 9.03(d) to the contrary, Seller shall not have the right to enter
into any settlement of any Proceeding if, as a result of such settlement, the
Taxes payable by Purchaser or any Group Member for a taxable period for which
Seller is not obligated to indemnify Purchaser or such Group Member pursuant to
Article IX would be likely to be increased unless Seller agrees to indemnify
the affected party (the Purchaser or the affected Group Member, as the case may
be) for all such increases in Taxes. By written notice to Seller, Purchaser
shall have the right to instruct Seller to forego Proceedings with respect to
one or more items for which Seller may be liable to indemnify Purchaser. Such
notice shall constitute a waiver of the right of Purchaser to indemnification
for any Taxes arising out of such item for the period or periods involved, but
shall not otherwise waive any rights of Seller under this section.
9.4 Limits on the Liability of the Seller. Subject to the terms
hereof (including Sections 4.05 and 9.07 hereof), the aggregate liability of
the Seller for Damages or otherwise with respect to the subject matter of this
Agreement and the transactions contemplated hereby is, and shall be, limited to
an aggregate amount (the "Seller's Liability Amount") equal to the Purchase
Price, and the Purchaser, on behalf of itself, its Affiliates and all Purchaser
Indemnified Parties, agrees not to seek any Damages in excess of the Seller's
Liability Amount for any and all Damages sustained or incurred by any Purchaser
Indemnified Party for any breach or liability under this Agreement or otherwise
with respect to the subject matter of this Agreement and the transactions
contemplated hereby or otherwise.
9.5 Other Limits on Indemnification.
(a) Notwithstanding anything in this Section IX to the
contrary, no Purchaser Indemnified Party shall be entitled to indemnification
pursuant to Section 9.01 hereof and no Seller Indemnified Party shall be
entitled to indemnification pursuant to Section 9.02 hereof, in each case,
unless and until the aggregate amount of all Damages to which such
indemnification relates exceeds an aggregate amount (the "Basket Amount") equal
to $200,000 and then the Seller's, RHCI's, and
40
<PAGE> 48
the Purchaser's liability for indemnification under this Section IX shall be
limited to the amount that the Damages sustained or incurred by the party
seeking indemnification exceed the Basket Amount; provided that such limitation
and the Basket Amount shall not apply to claims (i) arising under Section
9.01(a)(i) out of the failure of Seller to perform its obligations under
Section 8.04 with respect to the payment of income Taxes, Section 9.01(a)(iv),
Section 9.01(b), Section 9.01(c) or Section 10.01, (ii) arising under Section
8.02, Section 9.02 out of a breach by the Purchaser of its obligations under
Section 8.04 or Section 10.02, or (iii) relating to the payment of the
Post-Closing Adjustment Amount under Section XII of this Agreement.
(b) The representations and warranties contained in or
made pursuant to this Agreement shall survive the consummation of this
Agreement and the Closing hereunder for a period of two (2) years from the
Closing Date and shall expire at midnight on the second anniversary of the
Closing Date, provided that the representations and warranties contained in
Sections 2.07 and 2.22 shall survive for the applicable statute of limitations,
and provided further that if written notice is properly given under this
Section IX with respect to any alleged breach of a representation or warranty
to which such party is entitled to be indemnified hereunder prior to the
applicable expiration date, such representation or warranty with respect to
such specified matter only shall continue indefinitely until the applicable
claim is finally resolved.
9.6 Losses Net. The amount of any Damages for which
indemnification is provided under this Section IX shall be net of Tax benefits
to be received by the Indemnitee, and net of any amounts recoverable by the
Indemnitee under insurance policies with respect to such Damages.
9.7 Sole and Exclusive Remedy. After the Closing Date, each party
hereto acknowledges and agrees that such party's sole and exclusive remedy with
respect to Damages and any and all other claims relating to the subject matter
of this Agreement and the transactions contemplated hereby (other than disputes
arising under Section 1.04, 8.04(b) and Article XII which disputes shall be
resolved as set forth in such sections) shall be in accordance with, and
limited by, the applicable provisions set forth in Section 8.02, in this
Section IX, in Section X and in Section XII.
SECTION X.
BROKERS AND FINDERS
10.1 The Seller's Obligations. Neither the Purchaser nor any Group
Member shall have any obligation to pay any financial advisory, finder's fee or
other compensation to any person, firm or corporation claiming by, through or
under the Seller or any Group Member in connection with the sale of the Shares
contemplated by this Agreement and the transactions contemplated herein, and
the Seller hereby agrees to defend, indemnify and hold the Purchaser harmless
from any Damage sustained or incurred by the Purchaser by reason of any such
claim for any such fee or other compensation.
10.2 The Purchaser's Obligations. The Seller shall not have any
obligation to pay any financial advisory, finder's fee or other compensation to
any person, firm or corporation claiming by, through or under the Purchaser (or
any Affiliate thereof) in connection with this Agreement and the transactions
contemplated herein, and the Purchaser hereby agrees to defend, indemnify and
hold the
41
<PAGE> 49
Seller harmless from any Damage sustained or incurred by the Seller by reason
of any such claim for any such fee or other compensation.
SECTION XI.
NON-COMPETITION AGREEMENT
11.1 Noncompete Agreement. (a) Following the consummation of the
transactions contemplated hereby, and in consideration thereof, neither RHCI,
Seller or any other subsidiary of RHCI (collectively, the "Section XI Persons")
shall (a) subsequent to the date of the Closing and until two years after the
date of the Closing (the "Noncompete Period"), (x) engage, directly or
indirectly, whether as employer, consultant, principal, agent, distributor,
representative, consultant, partner, stockholder, limited partner or other
investor (other than an investment of not more than five percent (5%) of the
stock or equity of any corporation the capital stock of which is publicly
traded), in any activity or business venture involving the provision of Managed
Services (as hereinafter defined) which is in competition in the geographic
region where the Purchaser, the Group Members or any other subsidiary of the
Purchaser (hereinafter referred to collectively as the "Purchaser Group") then
conduct Managed Services or (y) solicit any then current employee of Purchaser,
any Group Member, or any other subsidiary of Purchaser engaged in Managed
Services (provided, however, that no Section XI Person shall be deemed to have
breached this covenant if the contact with any such person referred to in this
clause (y) is initiated by such person or if such contact was initiated by any
Section XI Person after such person was no longer employed by Purchaser, any
Group Member or any other subsidiary of Purchaser engaged in Managed Services),
or (z) solicit away from any Group Member or any other subsidiary of Purchaser
any third party payor or other customer or client of any Group Member as of the
Closing Date, either for its own account or for any person, firm or corporation
(it being understood and agreed that soliciting any such third party payor,
customer or client with respect to services or products other than those
Managed Services being provided by the Group Members as of the Closing Date is
not prohibited by this clause (z) or soliciting any third party payor, customer
or client who at the time of such solicitation is no longer a third party
payor, customer or client of the Purchaser Group is not prohibited by this
clause (z)). Because the remedy at law for any breach of the foregoing
provisions of this Section XI would be inadequate, each of the Seller and RHCI
hereby consents, in case of any such breach, to the granting of specific
enforcement, including, but not limited to, pre-judgment injunctive relief, of
such provisions provided that Purchaser shall not be limited to equitable
relief as its sole and exclusive remedy for a breach of this Section XI but
shall be entitled to exercise any and all remedies which may be available to it
under applicable law.
(b) Notwithstanding anything in Section 11.01(a) to the
contrary, nothing in Section 11.01(a) shall prohibit or be deemed to prohibit
the Seller, RHCI or any other Section XI Person from engaging, directly or
indirectly, whether as principal, agent, distributor, representative,
consultant, partner, stockholder, limited partner or other investor or
otherwise in any activity or business venture involving the provision of Ramsay
Services (as hereinafter defined).
11.2 Certain Definitions. For purposes hereof, (a) Managed
Services shall mean: (i) arranging for the provision of mental health and/or
substance abuse treatment for members, beneficiaries, clients, or employees, as
the case may be, of any health insurance companies, health maintenance
organizations, self-insured employers, health cooperatives, health care
alliances, or
42
<PAGE> 50
other third-party (each, a "Third-Party Payor") pursuant to contracts,
agreements or arrangements with such Third Party Payor; (ii) providing mental
health and/or substance abuse administrative services (e.g. utilization review
and case management) to or on behalf of such Third-Party Payor pursuant to
contracts, agreements or arrangements with such Third Party Payor; or (iii)
providing (other than as a direct provider of medical services) an employee
assistance program to or on behalf of such Third-Party Payor and (b) Ramsay
Services shall mean: the provision and management of programs and services for
at-risk, troubled youth and adolescents and the operation and management of
psychiatric health care facilities and units and the related provision and
management of behavioral health care services.
11.3 Reasonableness; Reformation. Seller and RHCI each severally
acknowledge and agree that (i) the provisions of this Section XI are ancillary
to the transaction pursuant to which Seller sold and Purchaser acquired the
Shares, (ii) the provisions of this Agreement contain reasonable limitations as
to time, geographical area and scope of activities to be restrained and do not
impose a greater restraint than is necessary to protect goodwill and other
business interests of Purchaser and its subsidiaries, (iii) if any portion of
the covenants and agreements set forth in this Section XI are held to be
invalid, unreasonable, arbitrary or against public policy, then such portion of
such covenants shall be considered divisible as to time, scope of activities
covered, and geographical area, and (iv) if any court of competent jurisdiction
determines the specified time period, scope of activities covered, or the
specified geographical area applicable to any provision of this Agreement to be
invalid, unreasonable, arbitrary or against public policy, a lesser time
period, scope of activities covered, and/or geographical area which is
determined to be reasonable, non-arbitrary and not against public policy may be
enforced against him.
SECTION XII.
POST-CLOSING ADJUSTMENT
12.1 Post-Closing Adjustment. The Seller and the Purchaser
covenant and agree that certain post-closing payments shall be payable based on
the following terms and conditions:
(a) In the event that one or more contracts are executed
and delivered prior to July 1, 1999 between a customer listed on Schedule 12.01
and a Group Member, Purchaser or any subsidiary or Affiliate of Purchaser (a
"Development Contract"), then the Purchaser shall, subject to the terms and
conditions of this Article XII, pay to the Seller an amount equal to the
product of (i) the aggregate number of covered lives covered by all such
Development Contracts on July 1, 1999 in excess of 70,000 lives times (ii)
$16.91. In the event that a Development Contract is executed by an Affiliate
of FPM which is not wholly-owned by a Group Member, then for the purposes of
this Section XII the number of covered lives covered by such Development
Contract shall be determined by multiplying such covered lives by a percentage
equal to the membership or partnership equity percentage interest that a Group
Member owns in such Affiliate. Additionally, in the event that Purchaser
elects to withdraw the notice of intent to terminate the FPM Customer Contract
with Apex Health Care of Alabama, Inc. and the FPM Customer Contract with Apex
Health Care of Mississippi, Inc. and such parties accept the withdrawal of the
notice of intention to terminate such FPM Customer Contracts with the effect
that on June 30, 1998 both such FPM Customer Contracts do not terminate but
remain in full force and effect, then for the purposes of this Section 12.01(a)
the payment to the Seller shall be calculated by utilizing the aggregate number
of cover lives covered
43
<PAGE> 51
by all such Development Contracts on July 1, 1999 in excess of 26,000 lives,
representing a reduction of the 70,000 lives set forth in Section 12.01(a)(i)
above by 44,000 as a result of the continuation and non-termination on June 30,
1998 of such two FPM Customer Contracts. Purchaser shall notify Seller in
writing on or before July 15, 1998 of the status of such FPM Customer Contracts
on June 30, 1998 for the purposes hereof.
(b) In the event that the aggregate number of lives
covered by the FPM Customer Contracts with PacifiCare of Utah, a division of
PacifiCare Health System, Inc. and Talbert Medical Group listed on Schedule
2.10 (collectively, the "PacifiCare Contract") on July 1, 1999 is less than
149,000, then the Seller shall, subject to the terms and conditions of this
Article XII, pay to the Purchaser an amount equal to the product of (i) the
number by which the aggregate number of lives covered by the PacifiCare
Contract on July 1, 1999 is less than 149,000 times (ii) $16.91.
(c) The amounts payable under Subsection (a) and (b)
above shall be determined as of July 1, 1999 and offset against each other and
the net amount shall be payable by Seller or Purchaser, as the case may be.
The net amount payable shall be the "Post-Closing Adjustment Amount;" provided,
however, that the Post-Closing Adjustment Amount payable by either Seller or
Purchaser shall be limited to a maximum of $2,000,000.
(d) The Purchaser shall furnish to the Seller on or
before July 15, 1999 a certificate signed by the chief financial officer of the
Purchaser setting forth (i) each Development Contract that has been signed
prior to July 1, 1999, (ii) the total number of lives covered by each
Development Contract on July 1, 1999, (iii) the total number of covered lives
covered by the PacifiCare Contract on July 1, 1999, (iv) a calculation of the
Post-Closing Adjustment Amount based thereon, and (v) copies of all the
customer censuses. The determination of the total number of lives covered by
the Development Contracts and the PacifiCare Contract shall be determined by
the census under such contract as of July 1, 1999, as submitted in writing by
the customer to the Group Member for the purpose of determining the fee due
under such respective contract. The Seller shall have until on or before July
30, 1999 to dispute the calculation of the Post-Closing Adjustment Amount by
Purchaser. If Seller disputes any aspect of the calculation of the
Post-Closing Adjustment Amount by Purchaser, whether relating to the existence
of a Development Contract, number of lives covered by a Development Contract or
the PacifiCare Contract, or the calculation of the Post-Closing Adjustment
Amount, then the Seller shall deliver a written notice of such dispute to
Purchaser on or before July 30, 1999. Such written notice shall specify in
reasonable detail the specific aspect of the calculation of the Post-Closing
Adjustment Amount or otherwise that Seller disputes.
(e) In the event that the Seller does not dispute the
calculation of the Post-Closing Adjustment Amount by Purchaser then the
Post-Closing Adjustment Amount shall be payable by Purchaser or Seller, as the
case may be, on July 31, 1999 by wire transfer of immediately available funds
in such amount, subject to the proviso set forth in subsection (c) above. In
the event that the Seller disputes the calculation of the Post-Closing
Adjustment Amount, then the determination thereof shall be made by arbitration
pursuant to Article XV hereof; provided that such arbitration shall be limited
to the specific aspects of such calculation that Seller specified as being in
dispute in its written notice and provided further that the Post-Closing
Adjustment Amount shall be payable on or before three (3) business days after
the entry of such determination by the arbitrators and shall bear interest from
and after July 31, 1999 at the rate per annum equal to the prime rate of Chase
44
<PAGE> 52
Manhattan Bank (or its successors), as in effect from time to time, on the
basis of a 365-day year and the actual number of days elapsed from such date to
the date of payment.
(f) Any Post-Closing Adjustment Amount payable by Seller shall
not be paid out of the Indemnity Escrow Deposit.
12.2 Access by Seller. For the purposes of reviewing the calculation
of the Post-Closing Adjustment Amount, the Purchaser shall (and shall cause
each of the Group Members to), during normal business hours and upon reasonable
notice, make available to Seller and its representatives (including, without
limitation, counsel and independent auditor) provide access to the offices of
the Group Members and Purchaser and to all information, files, documents and
records of the Group Members and Purchaser relating to the calculation of the
Post-Closing Adjustment Amount.
12.3 Guaranty of RHCI. RHCI unconditionally and absolutely guarantees
the performance by Seller of its obligations under this Article XII including,
without limitation, payment of the Post-Closing Adjustment Amount.
SECTION XIII.
MISCELLANEOUS
13.1 Notices. All notices, requests or instructions hereunder shall be
in writing and delivered personally or sent by telecopy or registered or
certified mail, postage prepaid, return receipt requested, or by overnight
courier as follows:
(a) if to the Seller:
Ramsay Managed Care, Inc.
Columbus Center
One Alhambra Plaza, Suite 750
Coral Gables, Florida 33134
Attention: President
Telecopy: (305) 569-4647
-45-
<PAGE> 53
with a copy to:
Haythe & Curley
237 Park Avenue
New York, New York 10017
Attention: Bradley P. Cost, Esq.
Telecopy: (212) 682-0200
(b) if to the Purchaser:
Horizon Health Corporation
National Support Center
1500 Waters Ridge Drive
Lewisville, Texas 75057-6011
Attention: Mr. James W. McAtee
Executive Vice President
Telecopy: (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.
Telecopy: (214) 651-4330
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered, on the date of receipt, if telecopied, three business days
after the date of mailing, if mailed by registered or certified mail, return
receipt requested, and one business day after the date of sending, if sent by
Federal Express or other recognized overnight courier.
13.2 Entire Agreement. This Agreement, the Schedules and the Exhibits
hereto contain the entire agreement between the parties hereto with respect to
the transactions contemplated hereby, and, except for that certain
Confidentiality Agreement dated February 18, 1998 between RHCI and the
Purchaser (the "Confidentiality Agreement"), which shall remain in full force
and effect, supersedes all prior agreements, understandings, negotiations and
discussions, whether written or oral, of the parties, and no modification
hereof shall be effective unless in writing and signed by the party against
which it is sought to be enforced.
13.3 Assignment. This Agreement shall not be assignable by any of the
parties hereto except pursuant to a writing executed by all of the parties
hereto; provided that Purchaser may assign this Agreement to a wholly-owned
subsidiary but any such assignment shall not release Purchaser from any of its
obligations under this Agreement or delay the Closing.
46
<PAGE> 54
13.4 Further Action. Each of the parties hereto shall use such party's
best efforts to take such actions as may be necessary or reasonably requested
by the other parties hereto to carry out and consummate the transactions
contemplated by this Agreement.
13.5 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns.
13.6 Expenses. Each of the parties hereto shall bear such party's own
expenses in connection with this Agreement and the transactions contemplated
hereby whether or not the Closing occurs. In the event that there are any
direct or indirect real property transfer, personal property transfer or other
similar transfer taxes payable in connection with the transactions contemplated
hereby, such taxes shall be paid one-half by the Purchaser and one-half by the
Seller.
13.7 Schedules and Exhibits. All Schedules and Exhibits to this
Agreement are integral parts of this Agreement. Any item disclosed hereunder
(including on any Schedule hereto) shall be deemed disclosed for all purposes
hereof irrespective of the specific representation or warranty to which it is
explicitly referenced. Without limiting the generality of the foregoing, the
fact that any disclosure on any of the Schedules is not required to be
disclosed in order to render the applicable representation or warranty to which
it relates true, or that the absence of such disclosure on the Schedule would
not constitute a breach of such representation or warranty, shall not be deemed
or construed to expand the scope of any representation or warranty hereunder or
to establish a standard of disclosure in respect of any representation or
warranty. Notwithstanding anything contained herein to the contrary, 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.
Purchaser acknowledges that certain agreements and documents listed on the
Schedules are not attached to the Schedules, but were previously delivered or
made available to Purchaser by the Seller in connection with the due diligence
investigation conducted by Purchaser prior to the Closing. The Schedules
delivered pursuant to this Agreement shall not be attached hereto but shall be
delivered separately accompanied by a certificate executed by the Seller or the
Purchaser, as the case may be to the effect that such constitutes the Schedules
to this Agreement and constitute a part hereof. Nothing contained in this
Agreement shall be deemed to create or impose on Purchaser any duty to examine
or investigate any matter or thing for the purposes of verifying the
representations and warranties made by the Seller and RHCI herein.
13.8 Invalidity, Etc. Should any provision of this Agreement be held
by a court or arbitration panel of competent jurisdiction to be enforceable
only if modified, such holding shall not affect the validity of the remainder
of this Agreement, the balance of which shall continue to be binding upon the
parties hereto with any such modification to become a part hereof and treated
as though originally set forth in this Agreement. The parties further agree
that any such court or arbitration panel is expressly authorized to modify any
such unenforceable provision of this Agreement in lieu of severing such
unenforceable provision from this Agreement in its entirety, whether by
rewriting the offending provision, deleting any or all of the offending
provision, adding additional language to this Agreement, or by making such
other modifications as it deems warranted to carry out the intent and agreement
of the parties as embodied herein to the maximum extent permitted by law. The
parties expressly agree that this Agreement as so modified by a court or
arbitration panel shall be binding upon and enforceable against each of them.
In any event, should
47
<PAGE> 55
one or more of the provisions of this Agreement be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions hereof, and if such
provision or provisions are not modified as provided above, this Agreement
shall be construed as if such invalid, illegal or unenforceable provisions had
never been set forth herein.
13.9 Headings. The headings of this Agreement are for convenience of
reference only and are not part of the substance of this Agreement.
13.10 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without giving effect to
the conflicts of laws provisions and principles thereof.
13.11 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which taken together
shall constitute one and the same instrument.
13.12 Construction. The parties hereto agree that this Agreement is the
product of negotiations between sophisticated parties and individuals, all of
whom were represented by counsel, and each of whom had an opportunity to
participate in, and did participate in, the drafting of each provision hereof.
Accordingly, ambiguities in this Agreement, if any, shall not be construed
strictly or in favor of or against any party hereto but rather shall be given a
fair and reasonable construction without regard to the rule of contra
proferentum.
SECTION XIV.
DEFINITIONS
14.1 Certain Definitions. The following terms when used herein shall
have the meanings assigned to them below (certain other terms are defined
elsewhere herein):
"Actions" shall have the meaning set forth in Section 2.15 hereof.
"Affiliate" means a person or entity who directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, another person.
"Applicable Law" shall mean the collective reference to any law, rule,
regulation, ordinance, writ, judgment, injunction, decree, determination, award
or other order of any Governmental Authority, in each case excluding any and
all Environmental Laws.
"Base Net Worth" shall mean $7,312,904 representing the amount determined
from the FPM Balance Sheet by deducting the liabilities of the Group on a
consolidated basis from the assets of the Group on a consolidated basis but
disregarding for the purposes of such calculation all intercompany accounts and
payables reflected on the FPM Balance Sheet whether in the asset or the
liability sections thereof.
"Basket Amount" shall have the meaning set forth in Section 9.05
hereof.
48
<PAGE> 56
"Beneficiary" shall mean the person(s) or entity designated by an
Employee, Former Employee, by operation of law or otherwise, as the party
entitled to compensation, benefits, damages, insurance coverage, payments,
indemnification or any other goods or services as a result of any liability or
claim under any applicable welfare or benefit plan or program.
"Best Efforts" or "best efforts" shall mean diligently, promptly and in
good faith taking all actions which are reasonable, necessary and appropriate
to accomplish the objective requiring the use of best efforts, but shall not
include any obligation (a) to make any payment, incur any costs, commit
available resources, or forego the receipt of any payment, which in any case is
material in amount in light of the required objective, (b) to initiate any
lawsuit or other proceeding to achieve the required objective, or (c) to take
any action which is unlawful.
"Claims" shall have the meaning set forth in Section 2.22 hereof.
"Closing" and "Closing Date" shall have the meanings set forth in Section
4.01 hereof.
"Closing Balance Sheet" shall have the meaning set forth in Section 1.04(a)
hereof.
"Closing Net Worth" shall mean the consolidated assets of the Group minus
the consolidated liabilities of the Group as of the Closing Date excluding,
however, for all purposes of such calculation all intercompany accounts and
payables (whether reflected in either the asset or liability sections of the
Closing Balance Sheet) (immediately prior to the Closing and without giving
effect to Section 1.06 hereof), all determined in accordance with GAAP, and in
a manner consistent with the preparation of the February 28, 1998 balance sheet
included in the Financial Statements, but only to the extent not contrary to
GAAP.
"Closing Purchase Price" shall have the meaning set forth in Section 1.03
hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall have the meaning set forth in the recitals hereof.
"Confidentiality Agreement" shall have the meaning set forth in Section
13.02 hereof.
"Contracts" shall have the meaning set forth in Section 2.10 hereof.
"Control" (including the terms "controlling", "controlled by" and "under
common control with") means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of the
person, whether through stock ownership, voting rights, governing boards or
otherwise.
"Damages" shall mean any and all losses, claims, demands, damages,
liabilities, obligations, costs and expenses, including without limitation,
reasonable fees and disbursements of counsel sustained or incurred by the
Purchaser Indemnified Parties (or any of them) or the Seller Indemnified
Parties (or any of them), as the case may be, and other reasonable
out-of-pocket costs and expenses incurred in connection with investigating or
defending any action, suit or proceeding, commenced or threatened, but
excluding punitive or consequential losses or damages.
49
<PAGE> 57
"Determination" shall mean (a) the final non-appealable judgment by a
court of competent jurisdiction or arbitrator with respect to any claim covered
by Section IX hereof or (b) a compromise and settlement agreement executed and
delivered by both Indemnitor and Indemnitee with respect to any claim covered
by Section IX.
"Determination Date" shall mean the date the Determination is final,
legally binding, and non-appealable.
"Development Contract" shall have the meaning set forth in Section 12.01(a)
hereof.
"Dispute Notice" shall have the meaning set forth in Section
hereof.
"DOJ" shall have the meaning set forth in Section 8.05 hereof.
"DOL" shall have the meaning set forth in Section 2.12(l) hereof.
"Effective Time" shall mean the close of business Eastern Standard Time on
the Closing Date.
"Elections" shall have the meaning set forth in Section 8.04(d) hereof.
"Employees" shall mean all individuals with whom a Group Member maintains,
on the Closing Date, an employer- employee relationship, including any
individuals on lay-off, disability or leave of absence, whether paid or unpaid.
"Environmental Laws" shall have the meaning set forth in Section 2.16(c)
hereof.
"Environmental Permits" shall have the meaning set forth in Section 2.16(c)
hereof.
"ERISA" shall have the meaning set forth in Section 2.11 hereof.
"Escrow Agent" shall have the meaning set forth in Section 1.02 hereof.
"Escrow Agreement" shall have the meaning set forth in Section 1.02 hereof.
"Financial Statements" shall have the meaning set forth in Section 2.04
hereof.
"Former Employees" shall mean all individuals as to whom an
employer-employee relationship with any Group Member existed prior to the
Closing Date, but does not exist on the Closing Date, who remain entitled to
benefits under any applicable welfare or benefit plan or program.
"FTC" shall have the meaning set forth in Section 8.05.
"45-Day Period" shall have the meaning set forth in Section 1.04(c) hereof.
"FPM" shall have the meaning set forth in the recitals hereof.
50
<PAGE> 58
"FPM Balance Sheet" shall have the meaning set forth in Section 2.04
hereof.
"FPM Customer Contracts" shall have the meaning set forth in Section 2.10
hereof.
"GAAP" shall mean generally accepted accounting principles.
"Governmental Authority" shall mean the collective reference to any court,
tribunal, government, or governmental agency, authority or instrumentality,
domestic or foreign.
"Group" shall mean FPM and the Subsidiaries, taken as a whole.
"Group Member" shall mean, individually, FPM and each of the Subsidiaries.
"Hazardous Substances" shall have the meaning set forth in Section 2.16(c)
hereof.
"HMO" shall have the meaning set forth in Section 2.12(i) hereof
"HSR Act" shall have the meaning set forth in Section 2.24 hereof.
"Indemnification Matter" shall have the meaning set forth in Section
9.03(a) hereof.
"Indemnitee" shall have the meaning set forth in Section 9.03(a)
hereof.
"Indemnitor" shall have the meaning set forth in Section 9.03(a)
hereof.
"Indemnity Escrow Amount" shall have the meaning set forth in Section 1.02
hereof.
"Indemnity Escrow Deposit" shall have the meaning set forth in Section 1.02
hereof.
"Indemnity Notice" shall have the meaning set forth in Section 9.03(a)
hereof.
"Indemnity Notice Period" shall have the meaning set forth in Section
9.03(b) hereof.
"Indemnity Response" shall have the meaning set forth in Section 9.03(c)
hereof.
"Independent Auditor" shall have the meaning set forth in Section 1.04(d)
hereof.
"Independent Auditor's Determination" shall have the meaning set forth in
Section 1.04(d) hereof.
"Intellectual Property" shall have the meaning set forth in Section 2.18
hereof.
"Interim Period" shall have the meaning set forth in Section 8.04 hereof.
"Lien" shall mean any mortgage, pledge, encumbrance, charge or other
security interest of any kind or nature whatsoever.
"Managed Services" shall have the meaning set forth in Section 11.02
hereof.
51
<PAGE> 59
"Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, businesses, results of operations or financial condition of
the Group, taken as a whole, and in any case after application of the proceeds
of any insurance or indemnity under any contract or agreement to which any
Group Member, the Seller or the Purchaser (or any Affiliate thereof) is a
party; provided that the term "Material Adverse Effect" as used herein shall
not include any effect attributable to changes in the economy (of the United
States or any other country) generally, changes in the industries in which any
Group Member engages, or seasonality of the businesses of any Group Member.
Material Adverse Change shall also have the meaning set forth in Section 6.07
hereof for the purposes of Section 6.07.
"Multiemployer Plans" shall have the meaning set forth in Section 2.12(a)
hereof.
"Noncompete Period" shall have the meaning set forth in Section 11.01
hereof.
"PacifiCare Contract" shall have the meaning set forth in Section 12.01(b)
hereof.
"PBGC" shall have the meaning set forth in Section 2.12(b).
"Pension Plan" shall have the meaning set forth in Section 2.11 hereof.
"Permits" shall have the meaning set forth in Section 2.16(b) hereof.
"Permitted Liens" shall mean:
(a) Liens for Taxes not yet due or which are being contested in
good faith by appropriate proceedings, provided that adequate reserves with
respect to contested taxes are maintained on the books of any Group Member;
(b) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other social
security legislation;
(c) easements, rights-of-way, restrictions and other similar
encumbrances previously incurred in the ordinary course of business which, in
respect of properties or assets of Group are not material, and which, in the
case of such encumbrances on the assets or properties of any Group Member, do
not materially detract from the value of any such properties or assets or
materially interfere with any present use of such properties or assets;
(d) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
which are not overdue for a period of more than 90 days or which are being
contested in good faith by appropriate proceedings;
(e) deposits to secure the performance of bids, contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in the
ordinary course of business; and
(f) statutory and contractual Liens on the property of any Group
Member in favor of landlords securing leases.
52
<PAGE> 60
"Premises" shall have the meaning set forth in Section 2.16(c) hereof.
"PsychTrac Property" shall have the meaning set forth in Section 5.09
hereof.
"PPO" shall have the meaning set forth in Section 9.03(d) hereof.
"Post-Closing Adjustment Amount" shall have the meaning set forth in
Section 12.01 hereof.
"Purchaser Indemnified Parties" shall have the meaning set forth in Section
9.01 hereof.
"Purchase Price" shall have the meaning set forth in Section 1.03 hereof.
"Purchaser Group" shall have the meaning set forth in Section 11.01 hereof.
"Ramsay Services" shall have the meaning set forth in Section 11.02 hereof.
"Real Property Leases" shall have the meaning set forth in Section 2.08
hereof.
"Schedules" shall mean the Schedules attached hereto and made a part of
this Agreement.
"Section XI Persons" shall have the meaning set forth in Section 11.01
hereof.
"Section 338 Forms" shall have the meaning set forth in Section 8.04(d).
"Securities Act" shall have the meaning set forth in Section 3.06 hereof.
"Seller Indemnified Parties" shall have the meaning set forth in Section
9.02 hereof.
"Seller Tax Period" shall mean and include any and all periods ending on
or before the Closing Date, and in addition, the portion of any taxable period
that includes, but does not end on or before, the Closing Date that consists of
a partial period deemed to end on the Closing Date; provided that in the case
of any Seller Tax Period that does not end on or before the Closing Date, for
purposes hereof the books and records of the relevant Group Member(s) shall be
deemed to have been closed at and as of the Closing Date.
"Seller's Health Plan" shall have the meaning set forth in Section 8.05
hereof.
"Seller's Liability Amount" shall have the meaning set forth in Section
9.04 hereof.
"Service" shall mean the Internal Revenue Service.
"Shares" shall have the meaning set forth in the recitals hereof.
"60-Day Period" shall have the meaning set forth in Section 1.04(a) hereof.
"Statement of Closing Net Worth" shall have the meaning set forth in
Section 1.04(a) hereof.
"Subsidiary" and "Subsidiaries" shall have the meanings set forth in
Section 2.01 hereof.
53
<PAGE> 61
"Taxes" shall have the meaning set forth in Section 2.07 hereof.
"Tax Claim" shall have the meaning set forth in Section 9.03 hereof.
"Tax Notice" shall have the meaning set forth in Section 9.03(d) hereof.
"Tax Notice Period" shall have the meaning set forth in Section 9.03(d)
hereof.
"Tax Returns" shall have the meaning set forth in Section 2.07 hereof.
"Tax Sharing Agreement" shall mean that certain Tax Sharing Agreement,
dated as of October 25, 1994, by and between the Seller and RHCI.
"Termination Date" shall have the meaning set forth in Section 4.02(b)
hereof.
"Third Party Payor" shall have the meaning set forth in Section 11.02
hereof.
"30-Day Period" shall have the meaning set forth in Section 1.04(d) hereof.
"Welfare Plan" shall have the meaning set forth in Section 2.11 hereof.
SECTION XV.
ARBITRATION
15.1 Arbitration Procedure. In the event of a dispute regarding any
matters arising out of or relating to this Agreement, except as set forth in
Section 1.04(d) (including, but not limited to, actions for injunctive or
declaratory relief) (hereinafter collectively "arbitrable issues") that cannot
be settled by agreement between the parties, such controversy or dispute shall
be submitted for arbitration in Atlanta, Georgia, and for this purpose each
party hereby expressly consents to such arbitration in such forum. The
arbitration process shall proceed as follows:
(a) Step One. In the event of a dispute, the disputing party
(herein so called) may at any time notify the other party ("answering party")
in writing that the disputing party demands to pursue arbitration as provided
in Step Two below, setting forth in specific terms the disputing party's
proposed statement of the matters in dispute to be submitted to arbitration and
the name and address of the arbitrator selected by the disputing party. Within
ten (10) business days following receipt of the disputing party's written
arbitration demand complying with the requirements of this Step One, the
answering party shall notify the disputing party in writing, setting forth in
specific terms the answering party's proposed statement of the matter in
dispute and identifying the name and address of the arbitrator selected by such
answering party.
(b) Step Two. The two (2) arbitrators so selected shall meet
and confer within twenty (20) business days after receipt by the disputing
party of the answering party's written notice as called for under Step One
above, and if they are unable within said twenty (20) day period to reach a
decision on the matters in dispute, they shall, at the expiration of said
twenty (20) day period, jointly select a neutral third arbitrator. If said
arbitrators are unable to choose a neutral third
54
<PAGE> 62
arbitrator, any party may request the American Arbitration Association ("AAA")
to appoint an additional arbitrator from its National Panel of Commercial
Arbitrators. Any party to this Agreement may advise the AAA that time is of
the essence and that the parties to this Agreement would like such selection as
soon as is reasonably possible, it being expressly understood that in such AAA
selection process the selection is in the sole discretion of the AAA, and that
the AAA shall not be required by reason of this Agreement to consult with the
parties to this Agreement in said selection process; provided that all
arbitrators, including the additional arbitrator selected by the AAA, shall be
disinterested individuals knowledgeable in commercial transactions. Upon
selection of the additional arbitrator, all arbitrators shall within ten (10)
business days thereafter convene an arbitration proceeding at a date, time and
place (in metropolitan Dallas, Texas) designated by said arbitrators by a
majority vote, written notice of which shall be given to the parties not later
than seven (7) calendar days prior to said hearing date. At the hearing, each
party may be represented by counsel and present testimony and evidence. If at
the commencement of the hearing the parties cannot agree on a joint statement
of the matters in dispute to be submitted to the arbitrators, the arbitrators
shall be empowered to frame the submission issue(s). A Certified Court
Reporter's transcript may be demanded by any party or by the arbitrators and
said official transcript shall be prepared, completed, and delivered to the
arbitrators with copies to each party within ten (10) business days following
the conclusion of the hearing. Arbitration sessions following the initial
session, if necessary, shall be scheduled by the arbitrators so that the
arbitration proceedings (i.e., presentation of evidence and/or oral arguments)
are completed within twenty (20) days of the initial session. Each party shall
be given the opportunity to file with the arbitrators simultaneous written
briefs five (5) business days following receipt by the arbitrators of the
official transcript but, if no transcript is demanded as provided in this
Agreement, said briefs shall be filed simultaneously five (5) business days
following conclusion of the hearing. Copies of any such briefs shall be
provided to the other party concurrently upon filing with the arbitrators.
(c) Step Three. Within ten (10) business days following the
receipt by the arbitrators of the brief(s) (or within ten (10) business days
following conclusion of the hearing if all parties waive briefs), the
arbitrators shall make and deliver to the parties their decision and award in
writing. The arbitrators shall have the authority to enter any award or to
grant any relief which could be obtained in a court of competent jurisdiction
and reasonable attorneys', arbitrators' and experts' fees and expenses of
arbitration may be awarded as the arbitrators see fit, consistent with the
provisions of this Agreement. The arbitrators shall have no authority to
modify, amend or alter the provisions of this Agreement and shall base their
decision and award on applicable law, the language contained in this Agreement
and the facts giving rise to the dispute as presented on the record at the
hearing. The arbitrators shall issue a written opinion explaining the basis
for their findings.
15.2 Self-Execution. It is expressly understood between the parties
that this Section XV is a self- executing arbitration provision and that any
party may unilaterally select an arbitrator if the other party refuses to
arbitrate. It is further expressly agreed that said unilaterally-selected
arbitrator may proceed to arbitrate the issue(s) and the arbitration and
decision shall be self-executing and therefore shall not require the order of
any Court to proceed. The parties may, however, mutually stipulate in writing
to extend or to shorten the prescribed time periods (including a stipulation to
expedite the referral and submission to arbitration). All provisions of this
Agreement not in dispute shall be observed and performed without interruption
during the pendency of any proceeding called for under this Section XV.
55
<PAGE> 63
15.3 Arbitrator's Fees. If an additional arbitrator is required
pursuant to Step Two under Section 15.01 above, each party shall pay its pro
rata share of any required retainer or other payments required by such
arbitrator upon such arbitrator's demand, with the ultimate responsibility for
the arbitrators' fees to be determined by the arbitrators in the final
arbitration award pursuant to Step Three of Section 15.01 above; otherwise,
each party shall bear its own costs and expenses in connection with any
proceedings under this Section XV and, in any event, each party shall pay the
fees of the arbitrator it selects.
15.4 Rules Governing Arbitration. In all other respects, the
arbitration shall be conducted pursuant to the then-existing Commercial Rules
of the AAA to the extent such rules are not inconsistent with any provision of
this Agreement. Subject to the foregoing, the arbitrators shall determine the
scope and extent of permissible discovery, if any.
15.5 Entry of Award. Entry of Award. The award of the arbitrators may
be entered as a final judgment by any court of competent jurisdiction.
15.6 Injunctive Relief. Notwithstanding the provisions of this Section
XV to the contrary, each party shall be entitled to seek temporary or
preliminary injunctive relief from a court of competent jurisdiction if the
failure to immediately obtain injunctive relief will result in irreparable harm
to that party. The jurisdiction of the court shall extend only to such relief
and any request for permanent injunctive relief shall remain subject to the
arbitration provisions of this Agreement.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
56
<PAGE> 64
IN WITNESS WHEREOF, this Stock Purchase Agreement has been duly
executed by the parties hereto as of the date first above written.
SELLER:
RAMSAY MANAGED CARE, INC.
By: /s/ Luis E. Lamela
---------------------------------
Name: Luis E. Lamela
Title: Chief Executive Officer
PURCHASER:
HORIZON HEALTH CORPORATION
By /s/ James W. McAtee
----------------------------------
Name: James W. McAtee
Title: Executive Vice President
Acknowledged and, solely
for purposes of Sections II(B)
IX, X, XI XII, XIII and XV hereof,
Agreed to:
RAMSAY HEALTH CARE, INC.
By: /s/ Luis E. Lamela
---------------------------------------------
Name: Luis E. Lamela
Title: Chief Executive Officer
57
<PAGE> 1
EXHIBIT 10.2
ESCROW AGREEMENT
ESCROW AGREEMENT dated as of June 2, 1998 (this "Agreement")
by and among Ramsay Managed Care, Inc., a Delaware corporation ("Seller"),
Ramsay Health Care, Inc., a Delaware corporation ("RHCI," collectively with the
Seller, the "Companies"), Horizon Health Corporation, a Delaware corporation
(the "Purchaser") and Haythe & Curley (the "Escrow Agent").
WHEREAS, concurrently with the execution of this Agreement,
the closing of transactions contemplated by that certain Stock Purchase
Agreement (the "Purchase Agreement") among the Companies and the Purchaser,
dated as May 1, 1998, have occurred, pursuant to which the Seller has sold to
the Purchaser, and the Purchaser has purchased from the Seller, the Shares (as
defined in the Purchase Agreement); and
WHEREAS, Section 1.02 of the Purchase Agreement provides for
the Purchaser to deposit $1,000,000 (the "Escrow Deposit") with the Escrow
Agent upon the execution and delivery thereof, such amount to be held by the
Escrow Agent subject to the terms and conditions of this Agreement and the
Purchase Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Establishment of Escrow Account. The
Purchaser and the Companies hereby authorize the Escrow Agent to establish an
escrow account (the "Escrow Account"), and the Escrow Agent hereby acknowledges
receipt of the Escrow Deposit by wire transfer of immediately available funds
on the date hereof. The Escrow Deposit shall be held, administered and
disposed of by the Escrow Agent in accordance with the terms and conditions
hereinafter set forth.
Section 2. Investment of Escrow Property: Distribution
of Interest.
(a) The Escrow Agent shall act as custodian of the Escrow
Deposit and shall from time to time invest and reinvest the Escrow Deposit and
any interest, income and other proceeds therefrom (collectively, the "Escrow
Property") in any one or more of the following investments as the Purchaser may
from time to time elect by notice in writing:
(1) Any direct obligations of the United States
of America, or of any agency thereof, or obligations
guaranteed as to principal and interest by the United States
of America, or of any agency thereof, in either case maturing
not more than 30 days from the date of acquisition thereof;
(2) Any certificates of deposit issued by (and
other time deposits held at) any bank, savings and loan
company or trust company organized under the laws of the
United States of America or any state thereof and having
capital, surplus and undivided profits of at least
$500,000,000, maturing not more than 30 days from the date of
acquisition thereof; or
<PAGE> 2
2
(3) Any money-market funds having aggregate
assets of at least $1,000,000,000 and that have a portfolio
consisting primarily of securities of the type and maturity
described in clauses (1) and (2) above.
The Escrow Agent shall have the power to sell or liquidate the
foregoing investments whenever the Escrow Agent shall be required to release
all or any portion of the Escrow Property pursuant to Section 3 below. The
Escrow Agent shall have no responsibility for any investment losses resulting
from the investment, reinvestment or liquidation of the Escrow Property in
accordance with this Agreement.
(b) Any interest or other income received on such
investment and reinvestment of the Escrow Property shall become part of the
Escrow Property, except as specified in Section 3 below.
(c) In the absence of written instructions to the
contrary from the Purchaser, the Escrow Agent shall invest the Escrow Property
in investments set forth in Section 2(a)(3) hereof.
Section 3. Release of the Escrow Property. The Escrow
Agent shall promptly pay and disburse the Escrow Property (or any portion
thereof) as directed jointly by the Purchaser and the Companies in writing or
pursuant to a final arbitrators' award pursuant to Section XV of the Purchase
Agreement. Notwithstanding anything to the contrary contained herein, the
parties hereto irrevocably instruct the Escrow Agent to, and agree that the
Escrow Agent shall, (i) pay and disburse all of the Escrow Property (held at
the time) to the Companies on the business day immediately following the second
anniversary of the Closing Date (as defined in the Purchase Agreement), unless
prior to such time the Escrow Agent has received written notice from the
Purchaser that such Escrow Property is the subject of a valid claim for
indemnification by the Purchaser pursuant to the Section IX of the Purchase
Agreement, in which case the Escrow Agent shall continue to hold the Escrow
Property in accordance with the terms of this Agreement and (ii) pay and
disburse to the Companies on a quarterly basis from and after the date hereof
any and all interest and other income received on any investment or
reinvestment of the Escrow Property (it being understood and agreed that upon
such payment and disbursement such amount(s) shall not constitute Escrow
Property). Except as expressly set forth herein, this Agreement will terminate
upon the release of the entire Escrow Property pursuant to this Section 3.
Section 4. Concerning the Escrow Agent. To induce the
Escrow Agent to act hereunder, it is further agreed by each of the parties
hereto that:
(a) The Escrow Agent shall not be under any duty to give
the Escrow Property held by it hereunder any greater degree of care than it
gives its own similar property and shall not be required to invest any funds
held hereunder except as directed in this Agreement.
(b) This Agreement expressly sets forth all the duties of
the Escrow Agent with respect to any and all matters pertinent hereto. No
implied duties or obligations shall be read
<PAGE> 3
3
into this Agreement against the Escrow Agent. The Escrow Agent shall not be
bound by the provisions of any agreement among the other parties hereto except
this Agreement.
(c) The Escrow Agent shall not be liable, except for its
own gross negligence or willful misconduct, including a knowing breach of this
Agreement, and, except with respect to claims based upon such gross negligence
or willful misconduct, including a knowing breach of this Agreement, that are
asserted against the Escrow Agent, the Companies, on the one hand, and the
Purchaser, on the other hand, shall, jointly and severally, indemnify and hold
harmless the Escrow Agent (and any successor to the Escrow Agent) from and
against any and all, losses, liabilities, claims, actions, damages and
expenses, including reasonable attorney's fees and disbursements (collectively,
"Escrow Damages"), arising out of and in connection with this Escrow Agreement,
except with respect to Escrow Damages arising out of the gross negligence or
willful misconduct of the Escrow Agent, including a knowing breach of this
Agreement. Without limiting the foregoing, the Escrow Agent shall in no event
be liable in connection with its investment or reinvestment of any cash held by
it hereunder in good faith and in accordance with the terms hereof. This
paragraph shall survive notwithstanding any termination of this Agreement or
the resignation of the Escrow Agent.
(d) The Escrow Agent shall be entitled to rely in good
faith upon any order, judgment, certification, demand, notice, instrument or
other writing delivered to it hereunder without being required to determine the
authenticity or the correctness of any fact stated therein or the propriety or
validity or the service thereof. The Escrow Agent may act in reliance upon any
instrument or signature believed in good faith by it to be genuine and may
assume in good faith that any person purporting to give receipt or advice or
make any statement or execute any document in connection with the provisions
hereof has been duly authorized to do so.
(e) The Escrow Agent may act pursuant to the advice of
counsel with respect to any matter relating to this Agreement and shall not be
liable for any action taken or omitted in good faith in accordance with such
advice.
(f) The Escrow Agent does not have any interest in the
Escrow Property deposited hereunder but is serving as escrow holder only, and
the Companies, on the one hand, and the Purchaser, on the other hand, shall,
jointly and severally, pay or reimburse the Escrow Agent upon request for any
transfer taxes or other taxes relating to the Escrow Property incurred in
connection herewith and shall indemnify and hold harmless the Escrow Agent from
any such taxes that it is obligated to pay. Any payments of income from the
Escrow Property shall be subject to withholding regulations then in force with
respect to United States income taxation rules and regulations. The Seller
will provide the Escrow Agent with an appropriate W-9 form for Tax I.D. number
certificates. It is understood that the Escrow Agent shall be responsible for
income reporting only with respect to income earned on investment of funds
which are a part of the Escrow Property and is not responsible for any other
reporting. This paragraph shall survive notwithstanding any termination of
this Agreement or the resignation of the Escrow Agent.
(g) The Escrow Agent makes no representation as to the
validity, value, genuineness or the collectibility of any security or other
document or instrument held by or delivered to it.
<PAGE> 4
4
(h) The Escrow Agent shall not be called upon to advise
any party as to the wisdom in selling or retaining or taking or refraining from
any action with respect to any property deposited hereunder.
(i) The Escrow Agent (and any successor or substitute
escrow agent) may at any time resign as such by delivering the Escrow Property
to any successor escrow agent jointly designated by the other parties hereto in
writing, or to any court of competent jurisdiction in an interpleader action
brought by any such escrow agent, whereupon such escrow agent shall be
discharged of and from any and all further obligations arising in connection
with or relating to this Agreement. The resignation of any escrow agent
hereunder will take effect on the earlier of (a) the appointment of a successor
(including a court of competent jurisdiction in an interpleader action brought
by any such escrow agent) or (b) the close of business on the day which is 60
days after receipt by the other parties hereto of such escrow agent's written
notice of resignation. If at that time the resigning escrow agent has not
received a designation of a successor escrow agent, such escrow agent's sole
responsibility after that time shall be to safekeep the Escrow Property until
receipt of a designation of successor escrow agent. The Companies and the
Purchaser may agree at any time to replace the Escrow Agent (or any successor
or substitute escrow agent) with a substitute escrow agent upon delivery of
written notice thereof, signed by each such party, to such escrow agent, which
replacement shall be effective at the close of business on the day which is no
less than three (3) days after receipt by such escrow agent of such notice as
indicated in such notice.
(j) In the event of any disagreement between the other
parties hereto resulting in adverse claims or demands being made in connection
with the Escrow Property (or any portion thereof), or in the event that the
Escrow Agent in good faith is in doubt as to what action it should take
hereunder, the Escrow Agent shall be entitled to retain the Escrow Property
until the Escrow Agent shall have received (i) a final non-appealable order of
a court of competent jurisdiction directing delivery of the Escrow Property or
(ii) a written agreement executed by the other parties hereto directing
delivery of the Escrow Property, in which event the Escrow Agent shall disburse
the Escrow Property in accordance with such order or agreement. The Escrow
Agent shall act on such court order or joint written agreement without further
question.
(k) The Escrow Agent shall not receive compensation for
the services to be rendered by the Escrow Agent hereunder, but the Companies,
on the one hand, and the Purchaser, on the other hand, jointly and severally,
agree to reimburse the Escrow Agent for all reasonable expenses, disbursements
and advances incurred or made by the Escrow Agent in the performance of its
duties hereunder (including reasonable fees, expenses and disbursements of its
counsel).
(l) The parties hereto acknowledge and agree that Haythe
& Curley has acted, and will continue to act, in the capacity as legal counsel
to each of the Companies, including, without limitation, in connection with the
transactions contemplated by the Purchase Agreement and this Agreement. Each
of the parties hereto hereby waive any conflict arising out of such
representation and Haythe & Curley's acting hereunder as Escrow Agent and
hereby irrevocably and unconditionally consent and agree to such representation
and continued representation of the Companies and acting as Escrow Agent
hereunder.
<PAGE> 5
5
Section 5. Miscellaneous. (a) The parties hereto
hereby irrevocably submit to the jurisdiction of the State of New York or any
federal court sitting in New York, New York in any action or proceeding arising
out of or relating to this Agreement, and the parties hereby irrevocably agree
that all claims in respect of such action or proceeding arising out of or
relating to this Agreement shall be heard and determined in such State of New
York or federal court, as the case may be. The other parties hereby consent to
and grant to any such court jurisdiction over the persons of such parties and
over the subject matter of any such dispute and agree that delivery or mailing
of any process or other papers in the manner provided hereinabove, or in such
other manner as may be permitted by law, shall be valid and sufficient service
thereof.
(b) This Agreement shall be binding upon and inure solely
to the benefit of the parties hereto and their respective successors and
assigns and shall not be enforceable by or inure to the benefit of any third
party except as provided in Section 4(i) with respect to a resignation by or
the replacement of the Escrow Agent or any successor or substitute escrow
agent. Except as provided in Section 4(i) with respect to the Escrow Agent or
any successor or substitute escrow agent, no party may assign any of its rights
or obligations under this Agreement without the written consent of the other
parties. This Agreement shall be construed in accordance with and governed by
the internal law of the State of New York (without reference to any rules as to
conflicts of law which would apply the laws of any other jurisdiction).
(c) This Agreement may only be modified by a writing
signed by each of the parties hereto, and no waiver hereunder shall be
effective unless in a writing signed by the party to be charged.
(d) All notices, requests, instructions or other
communication required by or permitted to be given in connection with this
Agreement shall be in writing, except as expressly otherwise permitted herein,
and shall be delivered in person, sent by telecopy, sent by certified or
registered mail, return receipt requested, postage prepaid, or sent by Federal
Express or any other nationally recognized overnight courier service to the
respective parties as provided below:
(a) If to the Companies:
Ramsay Managed Care, Inc.
Columbus Center
One Alhambra Plaza, Suite 750
Coral Gables, Florida 33134
Attention: President
Telecopy: (305) 569-4647
Ramsay Health Care, Inc.
Columbus Center
One Alhambra Plaza, Suite 750
Coral Gables, Florida 33134
Attention: President
Telecopy: (305) 569-4647
<PAGE> 6
6
with a copy to:
Haythe & Curley
237 Park Avenue
New York, New York 10017
Attention: Bradley P. Cost, Esq.
Telecopy: (212) 682-0200
(b) If to the Purchaser:
Horizon Health Corporation
National Support Center
1500 Waters Ridge Drive
Lewisville, Texas 75057-6011
Attention: Mr. James W. McAtee
Executive Vice President
Telecopy: (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.
Telecopy: (214) 651-4330
(c) If to the Escrow Agent:
Haythe & Curley
237 Park Avenue
New York, New York 10017
Attention: Bradley P. Cost, Esq.
Telecopy: (212) 682-0200
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered, telecopied, or sent by Federal Express or any other
recognized overnight courier service, and three (3) business days after the
date of mailing, if mailed by certified mail, return receipt requested.
(e) Counterparts. This Agreement may be executed in
counterparts, including by telecopy, each of which shall be deemed an original,
but all of which taken together shall constitute one and the same instrument.
<PAGE> 7
7
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date set forth above.
RAMSAY MANAGED CARE, INC.
By: /s/ Carol C. Lang
----------------------------------------------
Name: Carol C. Lang
Title: EVP
RAMSAY HEALTH CARE, INC.
By: /s/ Carol C. Lang
----------------------------------------------
Name: Carol C. Lang
Title: EVP
HORIZON HEALTH CORPORATION
By: /s/ James W. McAtee
----------------------------------------------
Name:
Title:
HAYTHE & CURLEY
By: /s/ Bradley P. Cost
----------------------------------------------
Name:
Title:
