FINAL EXECUTION COPY ASSET CONTRIBUTION AND EXCHANGE AGREEMENT

 

 

                                                                   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.

 

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                  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):

 

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            (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;

 

 

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            (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,

 

 

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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

 

 

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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

 

 

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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.

 

 

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            (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

 

 

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            (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.