ASSET CONTRIBUTION AND EXCHANGE AGREEMENT

Exhibit 2.1

 

FINAL EXECUTION COPY

 

ASSET CONTRIBUTION AND EXCHANGE AGREEMENT

 

dated as of July 31, 2004

 

by and between

 

NOVAMED ACQUISITION COMPANY, INC.,

 

PALM BEACH OUTPATIENT SURGICAL CENTER, INC.

 

and

 

TOM M. COFFMAN, M.D.

MADONNA COFFMAN

ASSET CONTRIBUTION AND EXCHANGE AGREEMENT

 

THIS ASSET CONTRIBUTION AND EXCHANGE AGREEMENT (this “Agreement”) is dated effective as of 12:01 a.m. on July 31, 2004 (the “Closing Date”), by and among NovaMed Acquisition Company, Inc., a Delaware corporation (“NovaMed”), Palm Beach Outpatient Surgical Center, Inc., a Florida corporation (“Seller”), and Tom M. Coffman, M.D. and Madonna Coffman, as tenants by the entireties (each individually a “Shareholder” and collectively the “Shareholders”). NovaMed, Inc. (“Nova”), the owner of all of the issued and outstanding shares of NovaMed, shall be a party to this Agreement solely for the purpose of Nova’s agreement pursuant to Article X hereof. Visual Health and Surgical Center, Inc. and Eye Care and Surgery Center of Fort Lauderdale, Inc. shall be parties to this Agreement solely for the purposes of their respective agreements pursuant to Section 6.6 hereof. Certain capitalized terms have the meanings provided in Section 13.1.

 

RECITALS

 

A. Seller is engaged in the business of owning and operating a licensed ambulatory surgery center (the “Facility”) located at 2889 10^th Avenue North, Lake Worth, Florida 33461 (the “Business”). Shareholders are the controlling shareholders of Seller, owning 94.118% of Seller, with Kevin Kelly, M.D. and his wife, Linda S. Kelly, as tenants by the entireties, owning 5.882% of Seller.

 

B. Pursuant to the terms hereof, immediately prior to the Closing (as defined herein), Seller will transfer substantially all of its assets, and certain liabilities described herein, to a newly formed Delaware limited liability company, NovaMed Surgery Center of Palm Beach, LLC (the “New LLC”) in exchange for one hundred percent (100%) of the membership interests in the New LLC (“New LLC Interests”).

 

C. As a condition precedent to Closing, Seller must satisfy certain conditions as described in this Agreement.

 

D. Contemporaneous with the consummation of the transactions contemplated herein, Seller desires to transfer to NovaMed, and NovaMed desires to acquire from Seller, sixty percent (60%) of the total New LLC Interests in exchange for the Purchase Price (as defined herein), all on the terms and conditions hereinafter set forth.

ARTICLE I

CONTRIBUTION OF ASSETS TO NEW LLC AND OTHER PRE-CLOSING

COVENANTS

 

NOW, THEREFORE, in consideration of the mutual covenants of the parties as hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto hereby agree as follows:

 

1.1 Formation of the New LLC. Prior to the Closing, the New LLC will be formed pursuant to the Certificate of Formation in the form attached hereto as Exhibit 1.1-1.

 

1.2 Transfer of Assets to New LLC. Immediately prior to the Closing, and as a condition precedent to the transactions contemplated herein, Seller will transfer (the “New LLC Asset Transfer”) all of the Assets, free and clear of all Liens (other than those set forth on Schedule 4.2), in exchange for one hundred percent (100%) of the New LLC Interests. As of the Closing, the assets contributed into the New LLC as set forth herein will consist of all of the assets and property necessary to conduct the Business as it was conducted prior to the Closing (the “Assets”), including, without limitation, the following (except to the extent that any of the following are designated as Excluded Assets in Section 1.3 below):

 

(a) all inventory and supplies with respect to the Business (collectively, the “Inventory”);

 

(b) all of the tangible and intangible personal property with respect to the Business, including, without limitation, machinery, equipment, fixtures, phone numbers, computer hardware and software that are listed on Schedule 1.2(b) (collectively, the “Personal Property”);

 

(c) all prepaid expenses relating to the Business set forth on Schedule 1.2(c) (“Prepaid Expenses”);

 

(d) all contract rights with respect to those Material Contracts identified as Assumed Contracts on Schedule 4.9 (collectively, the “Assumed Contracts”), purchase orders, licenses and leases pertaining to the Business, including all leasehold improvements, rights under any restrictive covenants accruing to the benefit of the Business and any provider agreements relating to the operation of the Business;

 

(e) all names and tradenames of Seller and the Business, including, without limitation, the name “Palm Beach Outpatient Surgical Center” and all derivatives thereof;

 

(f) all records, files and papers primarily pertaining to the Business, including general business records, accounting records and Medical Records;

 

(g) all Permits and licenses relating to the operation of the Business, to the extent transferable;

 

(h) all causes of action, claims, warranties, guarantees, refunds, rights of recovery and set-off of every kind and character, relating primarily to the Assets or the Business;

 

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(i) all casualty insurance and warranty proceeds of Seller received after the Closing Date with respect to damage to, nonconformance of, or loss to, the Assets; and

 

(j) to the extent permitted by law, all accounts receivable or other rights to receive payment owing to Seller (the “Accounts Receivable”).

 

To the extent any personal property, inventory, supplies, equipment and contracts owned by any Shareholder or any of Seller and Shareholders’ respective Affiliates are primarily used in, or are necessary for the continued conduct of the Business, and would otherwise be deemed Assets, then Seller or Shareholder will cause such party to contribute such assets and property to Seller for contribution to the New LLC, free and clear of all Liens, prior to the Closing Date.

 

1.3 Excluded Assets. Notwithstanding anything to the contrary contained herein, the Assets do not include the following (collectively, the “Excluded Assets”):

 

(a) Seller’s rights under this Agreement, including the consideration paid to Seller pursuant to this Agreement;

 

(b) the tax records relating to the Business;

 

(c) Employee Benefit Plans relating to the employees of the Business and any and all rights therein or in the assets thereof;

 

(d) all Material Contracts not identified as Assumed Contracts on Schedule 4.9;

 

(e) all cash-on-hand and cash equivalents as of the Closing Date;

 

(f) all personal effects of Seller or Shareholders not used in connection with the operation of the Business as specified in Schedule 1.3(f), including, without limitation, personal hand instruments that certain Shareholders have purchased on their own or have had from previous practice, which are essentially duplicative with instruments owned by Seller, but which such Shareholders prefer to utilize; and

 

(g) any and all other items listed on Schedule 1.3(f) or otherwise designated as an Excluded Asset in this Agreement.

 

1.4 Excluded Liabilities. Notwithstanding anything to the contrary contained in this Agreement or in any Transaction Document, and regardless of whether such liability is disclosed in this Agreement, in any of the Transaction Documents or on any Schedule or Exhibit hereto or thereto other than the New LLC Assumed Liabilities (as defined in this Section below), the New LLC will not assume, agree to pay, perform and discharge or in any way be responsible for any debts, liabilities or obligations of the Business, Seller, Shareholders or any of their respective Affiliates of any kind or nature whatsoever, arising out of, relating to, resulting from, or caused by any transaction, status, event, condition, occurrence or situation relating to, arising out of or in connection with the Business, the Assets, Seller or any Shareholder existing, arising or occurring on or prior to the Closing Date, including, without limitation, any liabilities or obligations relating to or arising from the Excluded Assets (the “Excluded Liabilities”). Notwithstanding

 

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the foregoing, Seller will contribute into New LLC, and New LLC will assume and thereafter pay and fully satisfy when due, all liabilities and obligations: (a) which arose prior to the New LLC Asset Transfer and represent normal and current trade payables incurred by Seller in connection with the operation of the Business in the ordinary course of business, consistent with past custom and practice (and which are not delinquent), including, without limitation, those specifically set forth on Schedule 1.4(a) (“Accounts Payable”); (b) the other accrued liabilities of Seller which have been incurred in the ordinary course of business, consistent with past custom and practice and which are specifically set forth on Schedule 1.4(b) (“Accrued Liabilities”); and (c) first arising after the New LLC Asset Transfer under any Assumed Contract (except for any liability or obligation arising from any breach or failure to perform under any of the foregoing prior to the Closing Date) (all such liabilities and obligations to be so contributed into, and assumed by, the New LLC being collectively referred to herein as the “New LLC Assumed Liabilities”).

 

1.5 Satisfaction of Liabilities. Excluding the New LLC Assumed Liabilities, Seller agrees to satisfy all liabilities of Seller relating to the Business prior to the New LLC Asset Transfer or as soon as is reasonably practicable thereafter, which liabilities include, without limitation:

 

(a) all payroll expense and other compensation due and owing Seller’s employees for the period preceding the Closing Date (excluding any paid time off or other employee-related accruals to the extent they are included in Accrued Liabilities; and

 

(b) all Taxes, including payroll taxes, sales taxes and income taxes accrued up to the New LLC Asset Transfer (but excluding any such Taxes to the extent they are included in Accrued Liabilities).

 

ARTICLE II

SALE OF NEW LLC INTERESTS BY SELLER TO NOVAMED

 

In reliance upon the representations and warranties of NovaMed contained herein, and on the terms and conditions hereinafter set forth, Seller hereby agrees to sell, assign, transfer, convey and deliver to NovaMed (or its designee) at the Closing, free and clear of all Liens, all of Seller’s right, title and interest in and to sixty percent (60%) of the issued and outstanding New LLC Interests. In reliance upon the representations and warranties of Seller and Shareholders contained herein, and on the terms and conditions hereinafter set forth, NovaMed hereby agrees to purchase such New LLC Interests from Seller for the Purchase Price set forth in Article III hereof.

 

ARTICLE III

CONSIDERATION AND MANNER OF PAYMENT

 

3.1 Purchase Price. The aggregate purchase price for sixty percent (60%) of the New LLC Interests shall be $7,180,000 (the “Purchase Price”).

 

3.2 Payment of Purchase Price. At the Closing, NovaMed will pay to Seller, by wire transfer of immediately available funds to Seller’s designated bank account, an amount equal to the Purchase Price, according to the wire transfer instructions attached as Exhibit 3.2.

 

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ARTICLE IV

SELLER’S AND SHAREHOLDERS’ REPRESENTATIONS AND WARRANTIES

 

Each of Seller and Shareholders represents and warrants, jointly and severally, to NovaMed as of the Closing Date, as follows:

 

4.1 Seller’s Organization, Good Standing and Authority. Seller is a corporation duly organized, validly existing and in good standing under Florida law. Each of Seller and Shareholders has full capacity, power, right and authority to enter into and perform their respective obligations under this Agreement and each of the Transaction Documents to which each of them is a party. This Agreement and each of the Transaction Documents to which each is a party have been duly executed and delivered by each of Seller and Shareholders, and constitute the valid and binding obligations of Seller and Shareholders, enforceable against them in accordance with their respective terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors generally and the availability of equitable remedies.

 

4.2 Assets. Seller has full power and authority to carry on the Business as it is now being conducted and to own and hold under lease the properties and assets it now owns or holds under lease. The Assets constitute all tangible or intangible property, rights and assets necessary for the conduct by Seller of the Business as conducted during the twelve months preceding the Closing Date. Seller has good and marketable title to the Assets, in each case free and clear of any and all Liens. Upon consummation of the transactions contemplated by this Agreement, Seller will have conveyed, and the New LLC will be vested with, good and marketable title to the Assets, free and clear of all Liens. All of the Assets that are personal property are in operable condition and repair, except for reasonable wear and tear, and Seller and the Shareholders have no knowledge that any of the Assets require any repair or replacement in the foreseeable future except for maintenance in the ordinary course of business. Except as set forth on Schedule 4.2, none of the Assets are held under any lease, security agreement, conditional sales contract or other title retention or security agreement or is located other than at the Facility.

 

4.3 Approvals. Except as set forth on Schedule 4.3, no consent, approval, order or authorization of, or registration, declaration or filing with, any national, state, provincial, local, governmental, judicial, public, quasi-public or administrative authority or agency (collectively, “Governmental Authority”) or other Person is required to be made or obtained by Seller or any Shareholder in connection with the authorization, execution, delivery and performance of this Agreement or any other Transaction Document, or the consummation of the transactions contemplated hereby and thereby.

 

4.4 New LLC Interests. Immediately prior to the Closing Date, Seller will be the only record and beneficial holder of the New LLC Interests. Seller has good and marketable title to the New LLC Interests free and clear of all Liens, and has full right, power and authority to transfer the New LLC Interests to NovaMed as provided herein, without obtaining the consent of any third party (other than the Manager of the New LLC (the “Manager”) as set forth in the terms and conditions of the Operating Agreement (as defined in Section 7.3(b)) of the New LLC). Upon consummation of the transactions contemplated herein, Seller shall have transferred good and marketable title to the New LLC Interests free and clear of all Liens.

 

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4.5 Financial Statements. Seller has previously delivered to NovaMed unaudited financial statements of Seller, to the extent available as of and for the years ending December 31, 2001, December 31, 2002, and December 31, 2003 and interim financial statements ending June 30, 2004, consisting of an income statement and balance sheet (“Financial Statements”). Except as set forth on Schedule 4.5, each of the Financial Statements (a) has been prepared in accordance with generally accepted accounting principles; (b) is true, complete and correct in all material respects as of the respective dates and for the respective periods above stated; (c) fairly presents in all material respects the financial position of Seller at such dates and the results of its operations for the periods ended on such dates, subject in the case of interim financial statements, to normal recurring year-end adjustments (the effect of which will not be materially adverse) and the absence of notes; and (d) is consistent with Seller’s books and records.

 

4.6 Absence of Undisclosed Liabilities. The New LLC has no material debts, liabilities or obligations of any nature (whether accrued, absolute, contingent, direct, indirect, perfected, or otherwise and whether due or to become due) arising out of transactions entered into at or prior to the Closing, or any transaction, series of transactions, action or inaction at or prior to the Closing, or any state of facts or condition existing at or prior to the Closing (regardless of when such liability or obligation is asserted), including but not limited to liabilities or obligations on account of Taxes or governmental charges or penalties, interest or fines thereon or in respect thereof, except (a) to the extent specifically reflected and accrued for or reserved against in the Financial Statements, (b) for liabilities specifically delineated on Schedule 4.6, or (c) liabilities incurred in the ordinary course of business since the date of the Financial Statements.

 

4.7 Inventory. All of the Inventory is usable in the ordinary course of business, is fully paid for and not subject to consignment or conditional sales arrangements and no material portion of the Inventory is obsolete or damaged.

 

4.8 Taxes. Seller has filed all Tax Returns on a timely basis that it is required to have filed in connection with the operation of the Business, and such returns are true, complete and correct. Seller has paid all Taxes, interest and penalties, if any, reflected on such Tax Returns or otherwise due and payable by them. Any deficiencies proposed as a result of any governmental audits of such Tax Returns have been paid or settled, and there are no present disputes as to Taxes payable by Seller in connection with the operation of the Business. With respect to all amounts of Taxes imposed on Seller for which Seller is or could be liable, whether to taxing authorities (as, for example, under the law) or to other Persons, with respect to all taxable periods or portions of periods ending on or before the Closing Date, all applicable Tax laws and agreements have been materially complied with, and all such amounts required to be paid by Seller to taxing authorities or others on or before the Closing Date have been paid, or have been materially accrued for or reserved against on the Financial Statements. No material issues have been raised and are currently pending by any taxing authority in connection with any of the Tax Returns. No waivers of statutes of limitations with respect to the Tax Returns have been given by or requested from the Shareholders or Seller. There are no Liens for Taxes (other than current taxes not yet due and payable) upon any asset of Seller. Seller is not a party to any Tax-indemnity, Tax-sharing, Tax allocation or other similar agreements or arrangements.

 

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4.9 Material Contracts. Schedule 4.9 is a correct and complete list of every material written contract, agreement, relationship or commitment, every material oral contract, commitment, agreement or relationship, to which Seller or any Shareholder is a party or by which Seller or any Shareholder is bound, as they relate to the Business (the “Material Contracts”), correct and complete copies of which previously have been made available to NovaMed. Except as set forth on Schedule 4.9, neither Seller nor any Shareholder is in default, and no event has occurred which with the giving of notice or the passage of time or both would constitute a default by such party, under any Material Contract, and, to the knowledge of Seller or any Shareholder, no event has occurred which with the giving of notice or the passage of time or both would constitute a default by any party to any such Material Contract.

 

4.10 Real Property. As it relates to the Business, Seller does not own any real property. Seller has a valid leasehold interest in the real property described in Schedule 4.10 (collectively, the “Leased Real Property”), free and clear of all Liens, except for Liens for current property taxes not yet due and payable. The Leased Real Property constitutes all real properties used or occupied by Seller in connection with the Business or reflected on the Financial Statements. Upon execution of the Lease Agreement (as hereinafter defined), the New LLC will have a valid leasehold interest in the Leased Real Property, which leasehold interest will be free and clear of all Liens, except for Liens created by the New LLC. With respect to the Leased Real Property and except as set forth on Schedule 4.10: (a) Seller has all easements and rights necessary to conduct the Business; (b) no portion thereof is subject to any pending or, to the knowledge of Seller or any Shareholder, threatened condemnation proceeding or proceeding by any public authority; (c) the buildings, plants and structures, including heating, ventilation and air conditioning systems, roof, foundation and floors, are in good operating condition and repair, subject only to ordinary wear and tear, and are not in violation of any zoning or other Rules; (d) there are no leases, subleases, licenses, concessions or other agreements, written or oral, granting to any party or parties the right of use or occupancy of any portion of any parcel of Leased Real Property; and (e) the Leased Real Property is supplied with utilities and other services reasonably necessary for the operation of such facilities.

 

4.11 Litigation. Except as set forth on Schedule 4.11, there are no claims, counterclaims, actions, suits, orders, proceedings (arbitration, mediation or otherwise), investigations or judgments pending or, to the knowledge of Seller or any Shareholder, threatened against or involving Seller, the Business or, with respect to the Business, any Shareholder, or relating to the transactions contemplated hereby, at law or in equity, in any court or agency, or before or by any Governmental Authority, nor, to the knowledge of Seller or any Shareholder, are there any facts, conditions or incidents that could be reasonably expected to result in any such actions, suits, proceedings (arbitration, mediation or otherwise) or investigations. Except as set forth on Schedule 4.11, neither Seller nor any Shareholder is subject to any judgment, order or decree of any court or Governmental Authority. None of the matters set forth on Schedule 4.11 would likely result in any Material Adverse Effect on Seller, the Assets, the Business or New LLC.

 

4.12 Compliance with Applicable Laws; Permits.

 

(a) Each of Seller and Shareholders, in their conduct of the Business, have complied, in all material respects, with applicable federal, state and local laws and the rules

 

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and regulations of all Governmental Authorities having authority over them, including, without limitation, agencies concerned with Fraud and Abuse Laws and Medicare and Medicaid requirements applicable to the Shareholders’ and Seller’s billing procedures in their conduct of the Business (except denials of claims in the ordinary course of business). Neither Seller nor any Shareholder has received any written notice of Seller’s violation of any such rules or regulations, whether corrected or not, within the last five (5) years. Seller is eligible to receive payment under Titles XVIII and XIX of the Social Security Act.

 

(b) Seller holds all the permits, licenses and other approvals of Governmental Authorities material for the current conduct, ownership, use, occupancy and operation of the Business and the Leased Real Property, including, without limitation, those identified on Schedule 4.12(b) (“Permits”). Seller is in compliance in all material respects with such Permits, all of which are in full force and effect, and Seller has not received any notices (written or oral) to the contrary.

 

4.13 Transaction Not a Breach. The execution, delivery and performance by Seller and Shareholders of this Agreement and the Transaction Documents will not:

 

(a) Result in a breach of any of the terms or conditions of, or constitute a default under, or in any manner release any party thereto from any obligation under any mortgage, note, bond, indenture, contract, agreement, license or other instrument or obligation of any kind or nature by which Seller or Business may be bound or affected;

 

(b) violate or conflict with any order, writ or injunction of any court, administrative agency or Governmental Authority to which Seller or any Shareholder is subject;

 

(c) Constitute an event which would permit any party to terminate any agreement or accelerate the maturity of any indebtedness or other obligation;

 

(d) Violate any provision of the organizational documents of Seller; or

 

(e) Result in the creation or imposition of any Lien upon any property of Seller.

 

4.14 Conduct of Business. Since the Review Date, Seller has conducted the Business in the ordinary course of business, consistent with past custom and practice, and has incurred no material liabilities other than in the ordinary course of business, consistent with past custom and practice, and there has been no Material Adverse Effect on the assets, financial condition, operating results, employee or patient relations, business activities or business prospects of Seller or the Business. Without limitation of the foregoing, since the Review Date, Seller has not, except in the ordinary course of business, consistent with past custom and practice, or as otherwise set forth on Schedule 4.14:

 

(a) Incurred any obligation or liability, absolute, accrued, contingent or otherwise, whether due or to become due, whether individually or in the aggregate, that has had or could be reasonably expected to result in a Material Adverse Effect;

 

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(b) Voluntarily or involuntarily sold, transferred, abandoned, surrendered, leased or otherwise disposed of any of its assets material to the operation of Seller;

 

(c) Waived or released any right of substantial value;

 

(d) Received any notice of termination of any contract, lease or other agreement, or suffered any damage, destruction or loss that, individually or in the aggregate, has had or could be reasonably expected to result in a Material Adverse Effect;

 

(e) Instituted, settled or agreed to settle any litigation, action, proceeding or arbitration;

 

(f) Made a material purchase commitment other than in the ordinary course of business, consistent with past custom and practice;

 

(g) Modified the timing, course of conduct or other cash management activities with respect to the collection of Accounts Receivable of the Business;

 

(h) Failed to pay any Accounts Payable or any other obligations consistent with past practices, except for bona fide disputes arising in the ordinary course of business;

 

(i) Entered into any material transaction, contract or commitment other than in the ordinary course of business, consistent with past custom and practice, other than the transactions contemplated by the Transaction Documents;

 

(j) Suffered any event or events, whether individually or in the aggregate, that has had or could be reasonably expected to result in a Material Adverse Effect on the Business; or

 

(k) Issued any equity interests or entered into any agreement or understanding to do so.

 

4.15 Health, Safety and Environment. Seller has never generated, transported, treated, stored, disposed of or otherwise handled any Hazardous Materials at any site, location or facility in connection with its business or any of its assets in material violation of any applicable Environmental and Safety Requirements (as hereinafter defined). Seller: (i) is in material compliance with all applicable federal, state and local laws, rules, regulations, ordinances and relating to public health and safety, worker health and safety and pollution and protection of the environment, all as amended (“Environmental and Safety Requirements”), and (ii) possesses, or as described on Schedule 4.15 has timely applied for, all material permits, licenses, certifications and approvals and has filed all notices or applications required thereby or pertaining thereto. Seller has never received any written notice of any private, administrative or judicial inquiry, investigation, order or action, or any written notice of any intended or threatened private, administrative, or judicial inquiry, investigation, order or action relating to the presence or alleged presence of Hazardous Materials in, under or upon any property currently leased or owned by Seller, nor is Seller aware of any such inquiry, investigation, order, action or notice. There are no pending, or to the knowledge of Seller or any Shareholder, threatened,

 

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investigations, actions, orders or proceedings (or written notices of potential investigations, actions, orders or proceedings) from any Governmental Authority or any third party alleging non-compliance with Environmental and Safety Requirements.

 

4.16 Employees. Schedule 4.16 is a true, complete and correct list setting forth as of the date stated thereon the names and current compensation rate and compensation of all individuals employed by Seller. There has been no material increase, other than in the ordinary course of business, consistent with past custom and practice, in the compensation or rate of compensation payable to any employees of Seller since the Review Date, nor since that date has there been any promise to any employee listed on Schedule 4.16, orally or in writing, of any bonus or increase in compensation, except for increases in the ordinary course of business consistent with Seller’s past compensation practices and listed on Schedule 4.16, and obligations incurred under existing bonus, insurance, pension or other Employee Benefit Plans described on Schedule 4.19 or Schedule 4.20. Except as set forth on Schedule 4.16, there has been no promise to any employee listed on Schedule 4.16, orally or in writing, of any guaranty of employment following the Closing Date.

 

4.17 Insurance. Seller has obtained and maintained in full force and effect commercially reasonable amounts of insurance to protect it and the Business against the types of liabilities, including medical malpractice, customarily insured against by Persons operating a business of similar size and nature to the Business, and all premiums due on such policies have been paid. Such insureds have complied in all material respects with the provisions of all such policies. Seller has previously delivered to NovaMed complete and correct copies of all such policies, together with all riders and amendments thereto in the possession of Seller. Except as set forth on Schedule 4.17, there are no claims or asserted claims reported to insurers under such policies, including all medical malpractice claims and similar types of claims, actions or proceedings asserted against any of Seller and the Shareholders at any time within the past five (5) years.

 

4.18 Affiliate Transactions. Excluding ordinary course distributions to its equity holders and other than as set forth on Schedule 4.18, there are no transactions involving the transfer of any cash, property or rights to or from Seller from, to or for the benefit of any Affiliate or former Affiliate of Seller (“Affiliate Transactions”) during the period commencing January 1, 2001 through the date hereof or any existing commitments of Seller to engage in the future in any Affiliate Transactions.

 

4.19 Employee Benefit Plans. Except as set forth in Schedule 4.19, neither Seller nor any Plan Affiliate has maintained, sponsored, adopted, made contributions to or obligated itself to make contributions to or to pay any benefits or grant rights under or with respect to any “Employee Pension Benefit Plan” (as defined in Section 3(2) of ERISA), “Employee Welfare Benefit Plan” (as defined in Section 3(1) of ERISA), “multi-employer plan” (as defined in Section 3(37) of ERISA), any collective bargaining agreement, plan of deferred compensation, medical plan, life insurance plan, long-term disability plan, dental plan or other plan providing for the welfare of any of Seller’s employees or former employees or beneficiaries thereof, personnel policy (including but not limited to vacation time, holiday pay, bonus programs, moving expense reimbursement programs and sick leave), material fringe benefit, excess benefit plan, bonus or incentive plan (including but not limited to stock options, restricted stock, stock

 

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bonus and deferred bonus plans), severance agreement, salary reduction agreement, top hat plan or deferred compensation plan, change-of-control agreement, employment agreement, consulting agreement or any other benefit, program, policy, arrangement, agreement or contract (collectively, “Employee Benefit Plans”), whether or not written or terminated, which could give rise to or result in Seller or such Plan Affiliate having any debt, liability, claim or obligation of any kind or nature, whether accrued, absolute, contingent, direct, indirect, known or unknown, perfected or inchoate or otherwise and whether or not due or to become due. Correct and complete copies of all Employee Benefit Plans previously have been made available to NovaMed. The Employee Benefit Plans are in compliance in all material respects with governing documents and agreements and with applicable laws. Seller acknowledges that it will be solely responsible for administering and/or terminating its Employee Benefit Plans following the Closing.

 

4.20 Personnel Agreements, Plans and Arrangements. Except as listed in Schedule 4.20, neither Seller nor any Shareholder is a party to or obligated in connection with the Business with respect to any outstanding contracts with current or former employees, agents, consultants, or advisers.

 

4.21 Certain Payments. None of Seller, the Shareholders, any director, officer, agent, or employee of Seller or any other Person associated with or acting for or on behalf of Seller has, directly or indirectly, made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any Person, private or public, regardless of form, whether in money, property, or services (i) for securing patients or referrals, (ii) for patients or referrals secured, (iii) to obtain special concessions or for special concessions already obtained, for or in respect of Seller, or (iv) in violation of any law.

 

4.22 Workers Compensation. Schedule 4.22 sets forth all expenses, obligations, duties and liabilities relating to any pending, ongoing, or to Seller’s knowledge, threatened claims by employees and former employees of Seller, and the extent of any specific accrual on or reserve therefor set forth on the Financial Statements, for costs, expenses and other liabilities under any workers compensation laws, regulations, requirements or programs. Except as set forth on Schedule 4.22, no claim, injury, fact, event or condition exists which would give rise to a material claim by any employees or former employees (including dependents and spouses) of Seller under any workers compensation laws, regulations, requirements or programs. Since the Review Date, there has been no material change, other than in the ordinary course of business, in the information disclosed in Schedule 4.22.

 

4.23 Accounts Receivable/Accounts Payable.

 

(a) Accounts Receivable. Except as set forth on Schedule 4.23(a), the Accounts Receivable are valid, binding and legally enforceable obligations and are owned by Seller free and clear of all Liens, and, except for contractual allowances, reserves for bad debts and other adjustments that are consistent with those adjustments made in preparing the Financial Statements, will not be subject to any offset, counterclaim or other adverse claim or defense, and may be transferred to the New LLC to the extent permitted by law. The Accounts Receivable arose in the ordinary and usual course of the business, and the Accounts Receivable are set forth on the books and records of Seller. Schedule 4.23(a) contains a complete and accurate list of all Accounts Receivable as of the date stated thereon, which list represents the Accounts Receivable after adjusting for contractual allowances and bad debt reserves.

 

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(b) Accounts Payable and Accrued Liabilities. Schedule 1.4(a) and Schedule 1.4(b) sets forth a complete and correct list of the Accounts Payable and Accrued Liabilities. Each of the Accounts Payable and Accrued Liabilities are valid and have been incurred in connection with the operation of the Business in the ordinary course of business, consistent with Seller’s past custom and practice.

 

4.24 Brokers. Except as set forth on Schedule 4.24, all negotiations relating to this Agreement and the Transaction Documents, and the transactions contemplated hereby and thereby, have been carried on without the intervention of any Person acting on behalf of any of Seller or Shareholders in such a manner as to give rise to any valid claim for any broker’s or finder’s fee or similar compensation against NovaMed. Seller will be responsible for all broker’s or finder’s fees or similar compensation payable to such Persons listed on Schedule 4.24, including, without limitation, The Bloom Organization, LLC.

 

4.25 No Misrepresentation. None of the representations and warranties of Seller and Shareholders set forth in this Agreement, in any of the certificates, schedules, lists, documents, exhibits, or other instruments delivered, or to be delivered, to NovaMed as contemplated by any provision hereof (including the Transaction Documents), contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained herein or therein not misleading. To the knowledge of Seller or any Shareholder, there are no material facts which have not been disclosed to NovaMed which have a Material Adverse Effect, or could reasonably be anticipated to have a Material Adverse Effect, on the Business or Seller’s or any Shareholder’s ability to consummate the transactions contemplated hereby.

 

4.26 HIPAA. Seller and Shareholders represents and warrants that (a) all of the Assets being sold and/or provided by Seller to NovaMed under this Agreement, including without limitation, any computer hardware and/or software, are in compliance with the Health Insurance Portability and Accountability Act of 1996 (Public Law 104-91, 42 U.S.C. 1301 et. seq.) and regulations promulgated thereunder (collectively, “HIPAA”), and applicable state laws having similar subject matter to HIPAA (“State HIPAA”), and (b) Seller conducted its business and activities, including, without limitation, its billing and collection activities, its medical records management activities, and its general practice management activities, in a manner that complied with HIPAA and State HIPAA.

 

4.27 No Other Representations or Warranties. Neither the Seller nor any of the Shareholders shall be deemed to have made to NovaMed any representation or warranty other than expressly made by the Seller and Shareholders in this Agreement or the other Transaction Documents. Without limiting the generality of the foregoing, and except as expressly covered by a representation and warranty contained in this Agreement or the other Transaction Documents, neither the Seller nor the Shareholders make any representation or warranty to NovaMed with respect to (i) any future projection, estimates or budgets heretofore delivered to or made available to NovaMed of future revenues, expenses or expenditures, future results of operations (or any component thereof), future cash flows or future financial condition (or any component thereof) of the Business, or (ii) any other information or documents made available to NovaMed or its counsel or advisors with respect to the Seller, the Shareholders the Business or the New LLC.

 

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ARTICLE V

NOVAMED’S REPRESENTATIONS AND WARRANTIES

 

NovaMed hereby represents and warrants to Seller as of the Closing Date as follows:

 

5.1 Organization. NovaMed is duly organized, validly existing and in good standing under the laws of the State of Delaware.

 

5.2 Authorization. NovaMed has full power, right and authority to enter into and perform its obligations under this Agreement and each of the Transaction Documents to which it is a party. The execution, delivery and performance by NovaMed of this Agreement and each of the Transaction Documents to which it is a party have been duly and properly authorized by all requisite corporate action in accordance with applicable law and with NovaMed’s Certificate of Incorporation. This Agreement and each of the Transaction Documents to which NovaMed is a party have been duly executed and delivered by NovaMed and are the valid and binding obligation of NovaMed and are enforceable against NovaMed in accordance with their respective terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors generally and the availability of equitable remedies.

 

5.3 Transaction Not a Breach. The execution, delivery and performance of this Agreement and the Transaction Documents by NovaMed will not violate and conflict with, or result in the breach of any of the terms, conditions, or provisions of NovaMed’s Certificate of Incorporation or of any contract, agreement, mortgage, or other instrument or obligation of any nature to which NovaMed is a party or by which NovaMed is bound.

 

5.4 Approvals. Except as set forth on Schedule 5.4, no consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority or other Person is required to be made or obtained by NovaMed in connection with the authorization, execution, delivery and performance of this Agreement or any other Transaction Document, or the consummation of the transactions contemplated hereby and thereby.

 

5.5 Litigation. Except as set forth on Schedule 5.5, there are no claims, counterclaims, actions, suits, orders, proceedings (arbitration, mediation or otherwise), investigations or judgments pending or, to the knowledge of NovaMed, threatened against or involving NovaMed relating to the transactions contemplated hereby, at law or in equity, in any court or agency, or before or by any Governmental Authority, nor, to the knowledge of NovaMed, are there any facts, conditions or incidents that could be reasonably expected to result in any such actions, suits, proceedings (arbitration, mediation or otherwise) or investigations against or involving NovaMed relating to the transactions contemplated hereby.

 

5.6 Acquisition of New LLC Interests. NovaMed is acquiring the New LLC Interests for its own account and not with a view to the distribution or resale thereof. NovaMed has no intention of selling the New LLC Interests in a public distribution in violation of federal securities laws or any applicable state securities laws.

 

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5.7 Broker. All negotiations relating to this Agreement and the Transaction Documents, and the transactions contemplated hereby and thereby, have been carried on without the intervention of any Person acting on behalf of NovaMed in such a manner as to give rise to any valid claim for any broker’s or finder’s fee or similar compensation against Seller.

 

5.8 No Misrepresentation. None of the representations and warranties of NovaMed set forth in this Agreement or in any of the certificates, schedules, lists, documents, exhibits, or other instruments delivered, or to be delivered, to Seller as contemplated by any provision hereof (including the Transaction Documents), contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained herein or therein not misleading. To the knowledge of NovaMed, there are no material facts which have not been disclosed to Seller and the Shareholders which have a Material Adverse Effect, or could reasonably be anticipated to have a Material Adverse Effect, on NovaMed’s ability to consummate the transactions contemplated hereby

 

ARTICLE VI

ADDITIONAL AGREEMENTS

 

6.1 Release of Liens and Lien Searches. Seller shall procure all applicable release of liens with respect to those Liens set forth on Schedule 4.2, prior to the New LLC Asset Transfer. Seller shall use its reasonable efforts to provide NovaMed with all information and other assistance required for the parties to file all applicable UCC termination statements (in form and manner required by NovaMed or its lenders). Following the filing of all such UCC termination statements, and unless otherwise mutually agreed upon by Seller and NovaMed, there shall be no remaining financing statements, judgments, taxes or other Liens outstanding against any of the Assets or the Business as of the Closing Date.

 

6.2 Employees; Labor Relations.

 

(a) Continuing Employees. New LLC shall offer to employ the employees of Seller listed on Schedule 6.2(a) (the “Continuing Employees”) as of the Closing Date, on the terms and conditions established by New LLC in its sole discretion. Such offer of employment by New LLC shall not be deemed to create a continuing right to employment for any Continuing Employees. Seller shall be solely responsible for all liabilities relating, directly or indirectly, to any of Seller’s employees who do not accept New LLC’s offer of employment. Seller shall be solely responsible for any employment-related claims filed by any employees of Seller which relate to facts and circumstances existing on and prior to the Closing Date, or arise from or relate to completion of the transactions contemplated by this Agreement or the Transaction Documents, regardless of when filed.

 

(b) COBRA Notice. Seller represents that it has complied, in all material respects, with the applicable requirements of COBRA through the Closing Date and shall be responsible for all liabilities arising under COBRA with respect to any event occurring prior to and on the Closing Date.

 

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(c) Noncompetition Agreements. Seller hereby waives any noncompetition provision that may apply to Continuing Employees with respect to New LLC’s hiring of the Continuing Employees.

 

6.3 Post-Closing Remittances; New LLC’s Appointment as Attorney-In-Fact. If, after the Closing Date, Seller shall receive any remittance from any account debtors with respect to the Accounts Receivable, Seller shall endorse such remittance to the order of the New LLC and forward it to the New LLC promptly following receipt thereof. Seller hereby irrevocably constitutes and appoints New LLC and any officer or agent of New LLC as Seller’s true and lawful attorney-in-fact, with full power and authority, in the place and stead of Seller for the limited purposes of receiving, collecting, indorsing, negotiating and cashing any and all cash, checks, drafts, payments, accounts receivable and other instruments (collectively the “Items”) which are payable to Seller and which represent Items related to the Business or which represent payment on Accounts Receivable related to the Business, and which in accordance with the terms of this Agreement, have been sold, conveyed, assigned or transferred to New LLC or are otherwise for the account of New LLC hereby. Seller further agrees to execute all documents and take such other action as New LLC may reasonably request to confirm the power granted to New LLC by this Section 6.3. Notwithstanding the foregoing, in no event shall New LLC receive, collect, indorse, negotiate or cash such Items pursuant to the above authority if to do so would be to violate the laws, regulations or any other written guidance of any state or federal health program. In such event, New LLC and Seller agree to take such actions as necessary to convey such payments to New LLC consistent with applicable laws, regulations and written guidance.

 

6.4 Further Assurances. The parties hereto shall execute such further documents, and perform such further acts, as may be reasonably necessary to transfer and convey the Assets to the New LLC, and the New LLC Interests to NovaMed, all on the terms contained herein, and to otherwise comply with the terms of this Agreement and consummate the transactions contemplated herein.

 

6.5 Professional Liability Tail Coverage. Prior to the Closing Date, Seller’s professional liability insurance coverage for the Facility has been on a claims-made basis (rather than an occurrence basis) through a professional liability policy maintained by Seller and its Affiliates covering not only the Facility, but other businesses owned and operated by Seller’s Affiliates. Seller and Shareholder agree to either: (i) continue in full force and effect on behalf of the Seller the same level of professional liability insurance coverage on a claims made basis until the three-year anniversary of the Closing Date (the “Tolling Date”); or (ii) upon the termination of such professional liability insurance coverage described in (i) prior to the Tolling Date, purchase an extended reporting (“tail”) professional liability insurance policy covering acts and omissions occurring at the Facility prior to the Closing Date, in an amount equal to the professional liability insurance carried immediately prior to the Closing Date, or such other amount, and for such period of time, as determined by mutual agreement of NovaMed and Seller. Seller and Shareholders agree to use commercially reasonable efforts to make NovaMed a certificate holder on any such policies and will deliver to NovaMed: (x) with respect to the coverage described in (i) above, at least annually in advance a certificate of insurance evidencing the required coverage; and (y) evidence of any “tail” coverage described in (ii) above. Moreover, notwithstanding anything to the contrary in any other agreement, with respect to Tom

 

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M. Coffman only, so long as Dr. Coffman is in compliance with this Section 6.5 then he shall also be deemed in compliance with Section 8.4 of the Operating Agreement (and Section 8.4 of the Limited Liability Company Agreements for each of the Jupiter ASC and Fort Lauderdale ASC, as applicable). This Section 6.5 shall survive the Closing and remain in effect indefinitely.

 

6.6 Change-in-Control of Medical Practice.

 

(a) Tom M. Coffman, M.D., one of the Shareholders, is the direct or indirect controlling shareholder of Visual Health and Surgical Center, Inc. and Eye Care and Surgery Center of Fort Lauderdale, Inc. (or its successor following the Restructuring (as hereinafter defined)) (each a “Medical Practice” and collectively the “Medical Practices”). In addition to other office locations, the Medical Practices have office locations listed on Schedule 6.6 attached hereto (collectively, the “Office Locations”). In consideration for the various covenants and agreements set forth in this Agreement and the other Transaction Documents, for so long as Dr. Coffman owns an equity interest in the New LLC, neither Coffman nor any Medical Practice shall enter into any Change-In-Control Transaction (as hereinafter defined) of such Medical Practice without the prior written approval of NovaMed (which NovaMed may grant or deny in its sole and absolute discretion). As used herein, “Change-In Control Transaction” shall mean: (a) the sale or transfer of any one or more office locations of the Medical Practices listed on Schedule 6.6 (or any successor locations); (b) the sale, transfer or assignment of any of the equity interests of a Medical Practice held by Dr. Coffman or the issuance by a Medical Practice of any equity interests to any other person, or any combination of such transactions during the period commencing as of the Closing Date and expiring as of the date Dr. Coffman no longer owns any equity interests in the New LLC, such that Dr. Coffman fails to maintain (directly or indirectly) a majority of the equity interests in any Office Location; or (c) a Medical Practice approves, in any transaction or series of related transactions, a definitive agreement to merge or consolidate any one or more Office Locations with or into another entity, or to sell or otherwise dispose of all or substantially all of the assets of any one or more Office Locations. Each of Dr. Coffman and the Medical Practices (i) acknowledges that a breach of any of its or their covenants contained in this Section 6.6 will result in irreparable harm to NovaMed, and (ii) agrees that, in addition to any and all other remedies available to NovaMed at law or equity, such covenant shall be specifically enforceable and that specific performance and injunctive relief shall be a remedy properly available to NovaMed for a breach of such covenant. As part of any Restructuring, Dr. Coffman agrees to cause the Successor Practice (as hereinafter defined) to be bound by the terms and conditions of this Section 6.6. As used herein, “Restructuring” shall be the restructuring of Eye Care and Surgery Center of Fort Lauderdale, Inc. (“ECSCF”) (which as of the Closing Date owns both medical offices and the Fort Lauderdale ASC) prior to the closing of the Fort Lauderdale ASC Transaction in which ECSCF retains the Fort Lauderdale ASC but spins-off or otherwise transfers the medical clinics to another entity controlled by Dr. Coffman (the “Successor Practice”).

 

(b) Notwithstanding Section 6.6(a) above, if at the 18-month anniversary of the Closing Date, the Trailing 12-Month EBITDA (as hereinafter defined) of the New LLC is greater than or equal to $2.75 million, then Dr. Coffman shall be permitted to consummate a Change-In-Control Transaction without the prior written approval of NovaMed so long as: (i) such Change-In-Control Transaction results in the majority of the equity interests in the Medical Practice, or all or substantially all of the assets of the Office Locations, being held (directly or

 

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indirectly) by either (A) all of Drs. Richard Livernois, Floyd Cornell and Kevin Kelly (the “Existing Doctor Group”) or (B) if not all of the members of the Existing Doctor Group, by Drs. Livernois and Cornell; and (ii) such Change-In-Control Transaction is consummated no earlier than the 24-month anniversary of the Closing Date and not later than the 36-month anniversary of the Closing Date. If at the 18-month anniversary of the Closing Date the Trailing 12-Month EBITDA of the New LLC is less than $2.75 million, then NovaMed retains all of its approval rights as set forth in Section 6.6(a) above with respect to any Change-In-Control Transaction with the Existing Doctor Group, provided that at the 18-month anniversary of the Closing Date and upon the request of Dr. Coffman, NovaMed shall inform Dr. Coffman as to whether NovaMed will approve or disapprove of any Change-In-Control Transaction with the Existing Doctor Group in accordance with its approval rights set forth in Section 6.6(a) above. As used herein, “Trailing 12-Month EBITDA” shall mean the earnings of the New LLC before interest, taxes, depreciation and amortization, all as measured in accordance with generally accepted accounting principles, for the twelve-month period ending on the 18-month anniversary of the Closing Date.

 

6.7 Humana Remittances. Until such time as the New Facility Humana Contract becomes effective, Seller and Shareholders agree to remit to New LLC any payments from Humana received by Seller, Shareholders or any of their respective Affiliates for ambulatory surgical facility services for the covered lives under the Humana Lake Worth PCPs listed on Schedule 11.2.2(c). The parties hereto hereby agree to reconcile the amount of such payments to reflect any modifications to the list of Humana Lake Worth PCPs as such list may change following the Closing Date.

 

ARTICLE VII

CLOSING

 

7.1 Time and Place. The closing of the transactions that are the subject of this Agreement (the “Closing”) shall occur via facsimile effective as of the Closing Date, with original documents to be exchanged by nationally recognized overnight courier for delivery on the next business day after the Closing Date.

 

7.2 Conditions Precedent. As a condition precedent to the consummation of the transactions contemplated herein:

 

7.2.1 New LLC Asset Transfer. Seller shall have consummated the New LLC Asset Transfer in accordance with the terms and conditions of Article I hereof.

 

7.2.2 Change of Ownership Approvals. The New LLC shall have received all necessary state licensure and Medicare approvals to commence the New LLC’s ownership and operation of the Business (with the understanding that upon commencement of operations, there may be billing delays associated with procuring third party payor provider numbers).

 

7.2.3 Fort Lauderdale ASC. NovaMed shall have entered into definitive agreements (subject only to NovaMed’s due diligence review and state licensure approval) to purchase a minority equity interest in an ambulatory surgery center located at 2540 N.E. Ninth Street, Fort Lauderdale, Florida 33304 (the “Fort Lauderdale ASC”) and owned by Beyond 20/20, Inc. (“20/20 Inc.”), a Florida corporation wholly owned by the Shareholders (the “Fort Lauderdale ASC Transaction”).

 

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7.2.4 Jupiter ASC. NovaMed shall have entered into an option agreement to purchase equity interests in an ambulatory surgery center located at 102 Coastal Way, Jupiter, Florida 33477 (the “Jupiter ASC”) and owned by 20/20 Inc. and the The Paul N. Schacknow Revocable Trust (the “Jupiter ASC Transaction”).

 

7.3 Deliveries of Seller and Shareholders. At the Closing, Seller and Shareholders will execute and deliver or cause to be executed and delivered to NovaMed:

 

(a) a Contribution Agreement to evidence the New LLC Asset Transfer and to effectively vest the New LLC with full, complete and marketable right, title and interest in and to the Assets, in substantially the form of attached Exhibit 7.3(a) (the “Contribution Agreement”);

 

(b) the Limited Liability Company Agreement of the New LLC, in the form attached hereto as Exhibit 7.3(b) (the “Operating Agreement”), duly executed by the Physician Members and Owner Physicians (as such terms are defined in the Operating Agreement) of the New LLC;

 

(c) a certificate of the Secretary of Seller as to (i) copies of resolutions of its Board of Directors and Shareholders authorizing the execution, delivery and performance of this Agre