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FINAL EXECUTION COPY ASSET CONTRIBUTION AND EXCHANGE AGREEMENT

Asset Exchange Agreement

FINAL EXECUTION COPY ASSET CONTRIBUTION AND EXCHANGE AGREEMENT | Document Parties: NOVAMED INC | CENTER FOR OUTPATIENT SURGERY You are currently viewing:
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NOVAMED INC | CENTER FOR OUTPATIENT SURGERY

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Title: FINAL EXECUTION COPY ASSET CONTRIBUTION AND EXCHANGE AGREEMENT
Governing Law: Illinois     Date: 8/19/2005
Industry: Healthcare Facilities     Law Firm: Epps & Yong, LLP     Sector: Healthcare

FINAL EXECUTION COPY ASSET CONTRIBUTION AND EXCHANGE AGREEMENT, Parties: novamed inc , center for outpatient surgery
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                                                                   Exhibit 10.40

 

 

                                                          FINAL EXECUTION COPY

 

 

 

                  ASSET CONTRIBUTION AND EXCHANGE AGREEMENT

 

                         dated as of August 15, 2005

 

                                by and between

 

 

                      NOVAMED ACQUISITION COMPANY, INC.,

 

 

                        CENTER FOR OUTPATIENT SURGERY

 

 

                                     and

 

 

                             DAVID MARSHBURN, D.O.,

                             NEAL SHINDEL, M.D.,

                             ABDUL ALAAMA, M.D.,

                               GARLAN LO, M.D.,

                                     AND

                              WILLIAM MAY, M.D.

 

<PAGE>

 

                  ASSET CONTRIBUTION AND EXCHANGE AGREEMENT

 

 

      THIS ASSET   CONTRIBUTION   AND EXCHANGE   AGREEMENT (this   "Agreement") is

dated as of August   15,   2005 (the   "Execution   Date"),   by and among   NovaMed

Acquisition   Company,   Inc., a Delaware   corporation   ("NovaMed"),   Center for

Outpatient Surgery, a California   corporation   ("Seller") and David Marshburn,

D.O.,   Neal Shindel,   M.D.,   Abdul Alaama,   M.D.,   Garlan Lo, M.D. and William

May, M.D.   (individually a "Shareholder"   and collective the   "Shareholders").

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 located at 15141 East Whittier Boulevard, Suite 130,

Whittier, California 90603 (the "Business").

 

      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 Whittier, 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, fifty-one percent (51%) of the total New LLC Interests in exchange

for the Purchase Price (as defined herein), all on the terms and conditions

hereinafter set forth.

 

      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:

 

                                   ARTICLE I.

        CONTRIBUTION OF ASSETS TO NEW LLC AND OTHER PRE-CLOSING COVENANTS

 

      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, 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 (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):

 

<PAGE>

 

            (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);

 

            (d) all   contract   rights with respect to those   Material   Contracts

identified   as Assumed   Contracts   on Schedule 4.8   (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, "Center for Outpatient Surgery" and all derivations thereof;

 

            (f) all   records,   files   and   papers   primarily   pertaining   to the

Business,   including   general business records,   accounting   records and Medical

Records;

 

            (g) all Permits,   licenses and   certificates of need relating to the

operation of the Business;

 

             (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;

 

            (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;

 

            (j) to the extent permitted by law, all accounts receivable or other

rights to receive payment owing to Seller (the "Accounts Receivable");

 

            (k) all of the goodwill of and associated with the Business; and

 

            (l) all rights to the   security   deposit   being held by the landlord

relating to the Leased Real Property in accordance with the terms and conditions

of the underlying real property lease.

 

      To the extent any personal property,   inventory,   supplies,   equipment and

contracts owned by a Shareholder or any of Seller and a Shareholder's 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 such

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;

 

 

                                       2

<PAGE>

 

            (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 4.8;

 

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

and

 

             (g) all personal   effects of Seller or any   Shareholder   not used in

connection   with the operation of the Business as specified in Schedule   1.3(g),

including,   without limitation,   decorative   photographs located in the Facility

that are owned by one of the Shareholders, David Marshburn.

 

      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,   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 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 are   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,

 

 

                                       3

<PAGE>

 

title   and   interest   in and to   fifty-one   percent   (51%)   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 fifty-one   percent

(51%) of the issued and   outstanding   New LLC Interests shall be $8,100,000 (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.

 

                                  ARTICLE IV.

            SELLER'S AND SHAREHOLDERS' REPRESENTATIONS AND WARRANTIES

 

      Each of Seller and Shareholders   hereby   represents and warrants,   jointly

and   severally,   to NovaMed as of the   Execution   Date and 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

California 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

and,   to the   knowledge   of Seller,   there is no need to acquire or replace   any

material   assets.   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 and none of such property   requires any repair or replacement   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.   Certain of the Assets are subject to one or

more   capitalized   leases (the "Citicorp   Leases") with Citicorp Vendor Finance,

Inc., its successors and their respective affiliates (collectively, "Citicorp").

The Citicorp Leases are Assumed   Contracts.   Seller has not been able to produce

any   copies   of   the    Citicorp    Leases   to   Buyer   and    therefore   is   making

representations   and   warranties   herein as to the terms and   conditions   of the

Citicorp Leases.   Following the Closing,   New LLC's only   obligations   under the

Citicorp Leases shall be scheduled monthly payments of $10,198.53,   plus a $1.00

buyout,   with the final   monthly   payment and $1.00 buyout due in October   2005.

Upon the payment of the final monthly payment plus $1.00 buyout in October 2005,

the New LLC shall be vested with good and marketable   title to all of the Assets

 

 

                                       4

<PAGE>

 

free and   clear of all   Liens   except   for those   non-Citicorp   liens   listed on

Schedule   4.2.   New LLC is not   required   to give any notice to   Citicorp or any

other Person with respect to the exercise of the $1.00 buyout, but rather simply

can add the $1.00 buyout price to the final scheduled monthly payment in October

2005 in   order   to be   vested   with   good   and   marketable   title   to all of the

Citicorp-related Assets.

 

      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   Shareholders 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 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.

 

      4.5.   Financial   Statements.   Seller has   previously   delivered to NovaMed

unaudited financial   statements of Seller, to the extent available for the years

ending   December 31, 2002,   December 31, 2003 and December 31, 2004, and interim

financial statements ending May 31, 2005,   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 the

cash-basis   method of   accounting;   (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;   and (d) is   consistent   with   Seller's   books and

records.

 

      4.6.    Absence   of   Undisclosed    Liabilities.    Neither   Seller   nor   any

Shareholder,   with respect to the Business, has any material debts,   liabilities

or obligations of any nature (whether   accrued,   absolute,   contingent,   direct,

indirect, perfected,   inchoate,   unliquidated 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 guarantees, 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,    or   (b)   for   liabilities

specifically delineated on Schedule 4.6.

 

      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

 

 

                                       5

<PAGE>

 

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 fully 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 fully accrued for or fully reserved against on

the Financial   Statements.   No 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.

 

      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 furnished 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 or any

other   obligation   owed by Seller or any   Shareholder,   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   such a default by any party to

any such Material Contract or obligation.

 

      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

which it holds under the lease   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   Assignment   (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:   (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 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 could result in any Material   Adverse   Effect on Seller,

the Assets, the Business or New LLC.

 

      4.12. Compliance with Applicable Laws; Permits.

 

 

                                        6

<PAGE>

 

            (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   and   regulations   of all   Governmental

Authorities having authority over them, including, without limitation,   agencies

concerned   with   occupational   safety,    environmental   protection,    employment

practices,    Fraud   and   Abuse   Laws   and   Medicare   and   Medicaid   requirements

applicable to the Shareholders' and Seller's billing   procedures (except denials

of   claims   in   the   ordinary   course   of   business).   Neither   Seller   nor   any

Shareholder   has received any 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.   Seller has timely and   accurately   filed all requisite   reports,   returns,

data,   and other   information   required by all   Governmental   Authorities   which

control, directly or indirectly, any of Seller's activities to be filed with any

commissions,   boards, bureaus, and agencies and has paid all sums heretofore due

with   respect to such   reports   and   returns.   No such report or return has been

inaccurate, incomplete or misleading. Seller has timely and accurately filed all

requisite   reimbursable   claims   and   other   reports   required   to be   filed   or

otherwise filed in connection   with all state and federal   Medicare and Medicaid

programs in which Seller participates that are due on or before the Closing Date

or which relate to services   provided on or before the Closing Date,   and Seller

has not billed for any services   that were not provided at the   Facility.   There

are no   claims   pending   or,   threatened   or   scheduled   before   any   authority,

including   without   limitation   any   intermediary,   carrier,   or other   state or

federal   agency with respect to any Medicare and Medicaid   claim filed by Seller

on or before   the   Closing   Date,   or   program   compliance   matters.   Except for

routinely    scheduled    Medicare   and    Medicaid    program    participation    and

certification   surveys pursuant to Seller's Medicare and Medicaid   contracts and

filings,   no valid program integrity review related to Seller has been conducted

by any   authority in   connection   with the Medicare or Medicaid   programs and no

such review is scheduled, pending, or to Seller's knowledge,   threatened against

or affecting   Seller,   the Business,   the Facility,   or the   consummation of the

transactions contemplated hereby.

 

            (b) Seller holds all the permits, licenses, certificates of need and

other   approvals   of   Governmental   Authorities   necessary   or 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.   All of the Permits are

in good standing,   and to Seller's   knowledge,   no suspension,   cancellation   or

adverse   action is   threatened   against the   Permits,   and there is no basis for

believing that any Permits will not be renewed upon expiration.

 

      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;

 

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

property of Seller; or

 

 

                                       7

<PAGE>

 

             (f) Require any authorization, consent, approval, exemption or other

action by or notice to any court, Governmental Authority or any other Person.

 

      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;

 

            (b)   Pledged   or   subjected   any   of   its   assets   to   any   Lien   or

restriction;

 

            (c)   Voluntarily   or   involuntarily   sold,   transferred,   abandoned,

surrendered,   leased or otherwise   disposed of any of its assets material to the

operation of Seller;

 

            (d) Canceled or compromised any material debt or claim, or waived or

released any right of substantial value;

 

            (e) 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;

 

            (f) Instituted,   settled or agreed to settle any litigation, action,

proceeding or arbitration;

 

            (g) Made a material   purchase   commitment other than in the ordinary

course of business, consistent with past custom and practice;

 

            (h) Modified the timing,   course of conduct or other cash management

activities   with   respect   to   the   collection   of   accounts   receivable   of the

Business;

 

            (i)   Failed   to pay any   accounts   or   notes   payable   or any   other

obligations   consistent   with past   practices,   except   for bona   fide   disputes

arising in the ordinary course of business;

 

            (j) 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;

 

            (k) 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; or

 

            (l) 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

 

 

                                       8

<PAGE>

 

any of its   assets in   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 requirements   relating to public health and safety, worker health

and safety and pollution and   protection of the   environment,   all as amended or

hereafter amended ("Environmental and Safety Requirements"),   and (ii) possesses

all required permits,   licenses,   certifications and approvals and has filed all

notices or applications required thereby or pertaining thereto. Seller has never

been subject to, or 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   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,   investigations,   actions, orders or proceedings (or written notices

of   potential    investigations,    actions,    orders   or   proceedings)   from   any

Governmental   Authority or any other   entity   regarding   any matter   relating to

Environmental and Safety Requirements.

 

      4.16.   Employees.   Schedule   4.16 is a true,   complete   and   correct   list

setting forth as of the Review Date 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,   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, 2003   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

 

 

                                       9

<PAGE>

 

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 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 furnished 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,   threatened   or

ongoing   claims by employees   and former   employees   (including   dependents   and

spouses) of Seller (or its predecessors), 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


 
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