ASSET PURCHASE AGREEMENT

Exhibit 10.3

 

EXECUTION COPY

 

ASSET PURCHASE AGREEMENT

 

by and between

 

MOUNTAIN STATE BEHAVIORAL HEALTH SERVICES, LLC

 

as Seller,

 

and

 

HHC RIVER PARK, INC.

 

as Purchaser

 

Dated as of June 9, 2005

 

TABLE OF CONTENTS

 

 

- i -

 

- ii -

 

- iii -

 

LIST OF EXHIBITS

 

 

- v -

 

LIST OF SCHEDULES

 

 

- vi -

 

TABLE OF DEFINED TERMS

 

 

 

- 2 -

 

- 3 -

 

ASSET PURCHASE AGREEMENT

 

This ASSET PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of the 9th day of June, 2005 (the “Execution Date”) by and between MOUNTAIN STATE BEHAVIORAL HEALTH SERVICES, LLC , a West Virginia limited liability company (“Seller”), and HHC RIVER PARK, INC. , a West Virginia corporation (“Purchaser”). Seller and Purchaser are sometimes collectively referred to herein as the “Parties” and individually referred to herein as a “Party.”

 

R E C I T A L S :

 

A. Seller owns and operates a 165 bed acute psychiatric hospital located at 1230 6 ^th Avenue, Huntington, West Virginia 25701 (the “Hospital”), and Seller also operates and manages a state-owned psychiatric residential treatment facility located at 1525 Martha Road, Barboursville, West Virginia 25504 (“Barboursville School”); and

 

B. Purchaser desires to purchase from Seller, and Seller desires to sell to Purchaser, all of the assets owned by Seller used in connection with the operation of the Hospital, other than certain excluded assets, for the consideration and upon the terms and conditions contained in this Agreement.

 

A G R E E M E N T :

 

NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises and covenants contained in this Agreement, the Parties hereto agree as follows:

 

ARTICLE 1

DEFINITIONS; SALE AND TRANSFER OF ASSETS;

CONSIDERATION; CLOSING

 

1.1 Definitions . For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires,

 

(a) The defined terms used in this Agreement shall include the plural as well as the singular.

 

(b) All accounting terms not otherwise defined herein have the meanings assigned under GAAP.

 

(c) All references in this Agreement to designated “Articles,” “Sections” and other subdivisions are to the designated Articles, Sections and other subdivisions of the body of this Agreement.

 

(d) Pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms.

 

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(e) The words “including” and “include” shall be deemed to mean in each instance “including, without limitation”, except as stated otherwise herein.

 

(f) The words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole, including the Exhibits and Schedules attached hereto, and not to any particular Article, Section or other subdivision.

 

(g) “Disclosure Schedules” shall mean the schedules attached to and constituting a part of this Agreement.

 

(h) “Knowledge of Purchaser,” and similar variations thereof, shall mean the actual knowledge, as of the relevant date, of Donald Thayer, Peter Kavanaugh, Dave White, Tony Vadella, David Meyercord or Matt Lisagor after reasonable inquiry of employees or agents of Purchaser that were involved in its due diligence review of Seller and the Hospital.

 

(i) “Knowledge of Seller,” and similar variations thereof, shall mean the actual knowledge, as of the relevant date, of Scott C. Stamm or Patrick D. Burrows after reasonable inquiry of senior employees of the Hospital responsible for the relevant matters.

 

(j) “Material Adverse Change” or “Material Adverse Effect,” when used with respect to the Seller or the Hospital, shall mean any material adverse change in or effect on the Hospital taken as a whole or the Assets taken as a whole, other than changes or effects that are or result from occurrences relating to the United States economy generally or the United States health care industry generally.

 

(k) Any reference in this Agreement to an “Affiliate” shall mean any Person directly or indirectly controlling, controlled by or under common control with a second Person. The term “Control” (including the terms “controlled by” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. A “Person” shall mean any natural person, partnership, corporation, limited liability company, association, trust or other legal entity.

 

Capitalized terms used in this Agreement shall have the definitions assigned to such terms elsewhere in this Agreement. For ease of reference, the section containing the definition of each such capitalized term is set forth in the table of defined terms included elsewhere as a part of this Agreement.

 

1.2 Transfer of Seller Assets . On the Closing Date, Seller shall assign, transfer, convey and deliver to Purchaser, and Purchaser shall acquire, all right, title and interest in and to all assets and properties of Seller, as such assets and properties shall exist on the Closing Date, that are utilized in any respect in connection with the operation of the Hospital, other than the Excluded Assets (collectively, the “Assets”), such transfer being deemed to be effective at the Effective Time, including the following:

 

(a) all of the real property that is owned by Seller and used with respect to the operation of the Hospital which is described in Schedule 1.2(a) (such description to include a

 

ASSET PURCHASE AGREEMENT – Page 2

legal description and address), together with all buildings, improvements and fixtures located thereupon and all construction in progress thereon (collectively, the “Owned Real Property”);

 

(b) all of the real property that is leased by Seller and used with respect to the operation of the Hospital, which is described in Schedule 1.2(b) (the land described therein being referred to herein as the “Leased Real Property”);

 

(c) all of the tangible personal property owned by Seller with respect to the operation of the Hospital, including all equipment, furniture, fixtures, machinery, vehicles, office furnishings, and leasehold improvements, including the items listed in Schedule 1.2(c) (the “Personal Property”);

 

(d) all of Seller’s rights, to the extent assignable or transferable, to all licenses, permits, approvals, certificates of need, certificates of exemption, franchises, accreditations and registrations and other governmental licenses, permits or approvals issued to Seller with respect to the operation of the Hospital which are listed in Schedule 1.2(d) (the “Licenses”);

 

(e) all of Seller’s interest, to the extent assignable or transferable, in and to all real property leases and personal property leases with respect to the operation of the Hospital which are listed in Schedule 1.2(e) , other than the Lease Agreement dated as of October 31, 2000 between Seller and S&P Properties, LLC which is listed on Schedule 1.3(c) (collectively, the “Leases”);

 

(f) all of Seller’s interest, to the extent assignable or transferable, in and to all contracts and agreements relating to the operation of the Hospital which are listed in Schedule 1.2(f) and all contracts and agreements relating to the operation of the Hospital executed after the date hereof which Purchaser has assumed (the “Contracts”); provided, however , the term “Contracts” as used in this Agreement shall exclude all other contracts and agreements relating to the Hospital, including contracts listed in Schedule 1.3(c) (the “Excluded Contracts”);

 

(g) all advance payments, prepayments, prepaid expenses, deposits which exist as of the Closing Date and do not constitute Excluded Assets under Section 1.3(e) hereof (the “Prepaids”);

 

(h) all inventories of supplies, drugs, food, janitorial and office supplies and other disposables and consumables located or held for use at the Hospital (the “Inventory”);

 

(i) all documents, records, policy and procedure manuals, compliance programs, staff bylaws, operating manuals, files and computer software owned or used by Seller with respect to the operation of the Hospital, including all patient records, medical records, employee records, financial records with respect to the operation of the Hospital, equipment records, construction plans and specifications, and medical and administrative libraries;

 

(j) to the extent assignable, all rights in all warranties of any manufacturer or vendor in connection with the Personal Property;

 

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(k) all goodwill and other intangible assets used or useful in connection with the business of the Hospital;

 

(l) the name, symbols, telephone numbers, facsimile numbers, domain names, trademarks, trade names, service marks and copyrights used with respect to the operation of the Hospital, including the name “River Park Hospital,” all variants thereof and all common law trademark rights associated therewith;

 

(m) all of Seller’s rights with respect to its Medicare, Medicaid and other third-party provider numbers (the “Hospital Provider Numbers”) accruing after the Effective Time; and

 

(n) any other assets of Seller used in the operation of the Hospital (which are not otherwise specifically described above in this Section 1.2);

 

provided, however , that the Assets shall not include the Excluded Assets as defined in Section 1.3 below.

 

1.3 Excluded Assets . Seller shall retain the following assets, whether owned directly or indirectly by Seller (or any of Seller’s Affiliates) (collectively, the “Excluded Assets”):

 

(a) cash and cash equivalents;

 

(b) all accounts, notes, interest and other receivables of Seller, and all claims, rights, interests and proceeds related thereto, including all accounts and other receivables, including cost report receivables due and owing from any Government Programs that settle on a cost report basis or otherwise, arising from the rendering of services by Seller, whether billed or unbilled, recorded or unrecorded, and any rights of Seller to settlement and retroactive adjustments, if any, for all cost reporting periods ending on or before the Closing Date (whether open or closed) arising from any Government Programs that settle on a cost report basis, and any disproportionate share payments or enhanced payments from any Government Program;

 

(c) the Excluded Contracts, including those listed in Schedule 1.3(c) and all of Seller’s rights and interests thereunder;

 

(d) all Seller records relating to the Excluded Assets and Excluded Liabilities to the extent that Purchaser does not need the same in connection with the ongoing activities of the Hospital, the Assets, or the Assumed Obligations, as well as all records which by law Seller is required to maintain in its possession;

 

(e) any reserves or prepaid expenses to the extent related to Excluded Assets and Excluded Liabilities;

 

(f) all rights of Seller under or pursuant to this Agreement and related documents;

 

(g) all of Seller’s limited liability company minute and other record books;

 

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(h) all rights of Seller under any insurance policies maintained by Seller, except as otherwise provided in Section 1.14 hereof;

 

(i) all claims, rights, causes of action and choses in action relating to Excluded Liabilities or Excluded Assets;

 

(j) all rights of Seller to the name “Mountain State Behavioral Health Services, LLC” and all abbreviations and variations thereof and all service marks, symbols and logos related thereto; and

 

(k) any other assets of Seller identified in Schedule 1.3(k) .

 

1.4 Assumed Obligations . On the Closing Date, Seller shall assign, and Purchaser shall assume and agree to discharge and perform on and after the Effective Time, only the following liabilities and obligations of Seller (collectively, the “Assumed Obligations”):

 

(a) the Contracts, but only to the extent of the obligations either arising thereunder with respect to events or periods after the Effective Time or included in the calculation of Net Assets;

 

(b) the Leases but only to the extent of the obligations either arising thereunder with respect to events or periods after the Effective Time or included in the calculation of Net Assets;

 

(c) obligations and liabilities as of the Closing Date in respect of accrued, paid time off and extended sick leave (“ESL”) attributable to Hired Employees, and related taxes;

 

(d) the sponsorship of the River Park Hospital 401(k) and Profit Sharing Plan maintained by Seller, and all obligations arising after the Effective Time thereunder;

 

(e) all obligations and liabilities with respect to the Hospital Provider Numbers arising after the Effective Time, but excluding any liabilities excluded from the Assumed Obligations pursuant to Section 1.5(f);

 

(f) any obligations regarding the use, ownership or operation of the Hospital or the Assets after the Effective Time (without regard to whether such use, ownership or operation is consistent with Seller’s policies, procedures and/or practices prior to the Effective Time), other than as specifically included in the Excluded Liabilities; and

 

(g) any other obligations and liabilities identified in Schedule 1.4(g) , but only to the extent included in the calculation of “Net Assets.”

 

1.5 Excluded Liabilities . Purchaser shall not assume or become responsible for any of Seller’s duties, obligations or liabilities that are not expressly assumed by Purchaser pursuant to the terms of this Agreement or the Bill of Sale (the “Excluded Liabilities”), and Seller shall remain fully and solely responsible for all Excluded Liabilities. The Excluded Liabilities shall include:

 

(a) any liabilities of Seller with respect to the operation of the Hospital incurred prior to the Effective Time which are not otherwise specifically included in the Assumed Obligations;

 

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(b) all liabilities of Seller arising out of or relating to any act, omission, event or occurrence connected with the use, ownership or operation by Seller of the Hospital or any of the Assets prior to the Effective Time, other than as specifically included in the Assumed Obligations;

 

(c) all obligations and liabilities of Seller to Seller’s employees, including salary, wages and benefits accrued through the Effective Time, except to the extent assumed in Sections 1.4(c) and 1.4(d);

 

(d) all liabilities of Seller in connection with claims of professional malpractice to the extent arising out of or relating to acts, omissions, events or occurrences prior to the Effective Time;

 

(e) all liabilities of Seller for matching contributions for eligible beneficiaries’ 401(k) plans, Section 125 plans and other Seller Plans and all administrative costs associated with such welfare benefit plans other than as specifically included in the Assumed Obligations;

 

(f) all liabilities of Seller relating to Seller Cost Reports with respect to periods ending prior to the Effective Time and all liabilities of Seller with respect to refund, recoupment, set-off and other liabilities arising out of the billings to third party payors, including Medicare and Medicaid, for services rendered by Seller prior to the Effective Time;

 

(g) all liabilities of Seller for violations of any law, regulation or rule to the extent arising from acts or omissions prior to the Effective Time, including those pertaining to Medicare and Medicaid fraud or abuse;

 

(h) all liabilities of Seller under the Excluded Contracts;

 

(i) all liabilities of Seller for commissions or fees owed to any finder or broker in connection with the transactions contemplated hereunder; and

 

(j) all other liabilities or obligations of Seller and/or the Hospital which are not Assumed Obligations.

 

1.6 Purchase Price . Subject to the terms and conditions of this Agreement, the aggregate purchase price to be paid by Purchaser to Seller for the purchase of the Assets (the “Purchase Price”) shall consist of:

 

(a) Seven Million Three Hundred Eighty-Five Thousand and 00/100 Dollars ($7,385,000.00) (the “Closing Purchase Price Payment”) which shall be payable in cash at the Closing;

 

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(b) the Net Assets Payment which shall be the payment determined as set forth in Section 1.11 and shall, as applicable, be added to or be deducted from the Closing Purchase Price Payment at Closing, as set forth in Section 1.11;

 

(c) Five Hundred Thousand and 00/100 Dollars ($500,000.00) which shall be deposited by Purchaser in an escrow account with United Bank, Inc., Charleston, West Virginia (the “Escrow Agent”), as described in Section 1.12;

 

(d) Variable Payment A described in Section 1.13(a); and

 

(e) Variable Payment B described in Section 1.13(b).

 

1.7 Closing Date . The consummation of the transactions contemplated by this Agreement (the “Closing”) shall take place at 10:00 a.m. at the offices of Strasburger & Price, L.L.P., located at 901 Main Street, Suite 4300, Dallas, Texas, on or before five (5) business days after all conditions precedent and other matters required to be completed as of the Closing Date have been or will be completed on such date or such other date, time and place as the Parties shall mutually agree (the “Closing Date”). The Closing with respect to the transfer of the Assets, shall be deemed to have occurred and to be effective as between the Parties as of 12:01 a.m. (determined by reference to the local time zone in which the Hospital is located) on the Closing Date (the “Effective Time”).

 

1.8 Items to be Delivered by Seller at Closing . At or before the Closing, Seller shall deliver to Purchaser the following, duly executed by Seller where appropriate and in the form attached hereto as an Exhibit:

 

(a) General Assignment, Bill of Sale and Assumption of Liabilities in the form of Exhibit A attached hereto (the “Bill of Sale”);

 

(b) General Warranty Deed in the form of Exhibit B attached hereto with respect to each Owned Real Property (the “General Warranty Deed”);

 

(c) Assignment and Assumption of Lease in the form of Exhibit C attached hereto with respect to each Leased Real Property (the “Real Estate Lease Assignments”);

 

(d) Post-Closing Escrow Agreement in the form of Exhibit D attached hereto (the “Escrow Agreement”);

 

(e) original certificates of good standing, or comparable status, of Seller, issued by the State of West Virginia, dated no earlier than a date which is fourteen (14) calendar days prior to the Closing Date;

 

(f) a certificate of Seller, executed by the President or any Vice President of Seller, certifying to Purchaser (i) that all the representations and warranties of Seller contained herein are true as of the Closing Date with the same effect as though made at such time, except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties are true on and as of such earlier date, (ii) that Seller has in all material respects performed or complied with the covenants and agreements required of Seller

 

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set forth in this Agreement to be satisfied by the Closing Date and (iii) that all of the conditions contained in Article 6 have been satisfied except those, if any, waived in writing by Seller;

 

(g) a certificate of the Secretary of Seller certifying to Purchaser (i) the incumbency of the officers of Seller on the Execution Date and on the Closing Date and bearing the authentic signatures of all such officers who shall execute this Agreement and any additional documents contemplated by this Agreement and (ii) the due adoption and text of the resolutions of the manager and members of Seller, authorizing (A) the transfer of the Assets and Assumed Obligations by Seller to Purchaser and (B) the execution, delivery and performance of this Agreement and all ancillary documents and instruments by Seller, and that such resolutions have not been amended or rescinded and remain in full force and effect on the Closing Date;

 

(h) releases of liens and mortgages and UCC termination statements for any and all liens, mortgages, security interests, restrictions and financing statements with respect to the Assets (other than those exclusively relating to any of the Contracts and other than the Permitted Encumbrances) by the holders of such liens or mortgages or the secured parties named in such financing statements or written understandings to provide the same to Purchaser upon payment of the amounts secured thereby;

 

(i) to the extent the provisions thereof are permitted by and consistent with applicable law, a limited Power of Attorney for use of Pharmacy License, DEA and Other Registration Numbers, and DEA Order Forms, in the form of Exhibit E attached hereto (the “Power of Attorney”);

 

(j) all consents to the assignment of the Material Contracts from the third parties listed in Schedule 1.8(j) required to assign such Material Contracts to Purchaser (the “Contract Consents”), subject to Section 9.3 hereof;

 

(k) all governmental approvals and authorizations that are required for the consummation of the transactions contemplated by this Agreement (the “Governmental Approvals”);

 

(l) the Stock Purchase Agreement by and between Purchaser and the shareholders of PsychManagement Group, Inc., a West Virginia corporation, (the “PMG Stock Purchase Agreement”) and all items and documents required to be delivered therewith; and

 

(m) such other instruments, certificates, consents or other documents which are reasonably necessary to carry out the transactions contemplated by this Agreement and to comply with the terms hereof.

 

1.9 Items to be Delivered by Purchaser at Closing . At or before the Closing, Purchaser shall execute and deliver or cause to be delivered to Seller the following, duly executed by Purchaser where appropriate:

 

(a) payment of the Closing Purchase Price Payment (plus or minus the Net Assets Payment) on the Closing Date by wire transfer of immediately available funds to Seller to the account specified by Seller which account Seller shall specify to Purchaser not less than three (3) business days prior to the Closing Date in writing;

 

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(b) payment of the Escrow Deposit on the Closing Date by wire transfer of immediately-available funds to the Escrow Agent;

 

(c) a certificate of Purchaser, executed by the President or any Vice President of Purchaser, certifying to Seller (i) that all the representations and warranties of Purchaser contained herein are true as of the Closing Date with the same effect as though made at such time, except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties are true on and as of such earlier date, (ii) that Purchaser has in all material respects performed or complied with the covenants and agreements required of Purchaser set forth in this Agreement required to be satisfied by the Closing Date and (iii) that all of the conditions contained in Article 7 have been satisfied except those, if any, waived in writing by Purchaser;

 

(d) a certificate of the corporate Secretary of Purchaser certifying to Seller (i) the incumbency of the officers of Purchaser on the Execution Date and on the Closing Date and bearing the authentic signatures of all such officers who shall execute this Agreement and any additional documents contemplated by this Agreement and (ii) the due adoption and text of the resolutions of the directors of Purchaser authorizing (A) the purchase of the Assets and the assumption of the Assumed Obligations by Purchaser and (B) the execution, delivery and performance of this Agreement and all ancillary documents and instruments by Purchaser, and that such resolutions have not been amended or rescinded and remain in full force and effect on the Closing Date;

 

(e) original certificate of good standing, or comparable status, of Purchaser, issued by the West Virginia Secretary of State dated no earlier than a date which is fourteen (14) calendar days prior to the Closing Date;

 

(f) the Bill of Sale;

 

(g) the Real Estate Lease Assignments;

 

(h) the Escrow Agreement;

 

(i) the Power of Attorney;

 

(j) the PMG Stock Purchase Agreement and all items and documents required to be delivered therewith;

 

(k) such other instruments, certificates, consents or other documents which are reasonably necessary to carry out the transactions contemplated by this Agreement and to comply with the terms hereof; and

 

(l) the Guaranty and Suretyship Agreement of Horizon Health Corporation (the “Parent Guaranty”), attached to this Agreement as Exhibit F .

 

1.10 Prorations and Utilities . To the extent not included in the calculation of Net Assets or otherwise prorated pursuant to this Agreement, Purchaser and Seller shall prorate (as of the Effective Time), to the extent applicable to the Assets, real estate and personal property lease

 

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payments, real estate and personal property taxes, assessments and other similar charges against real estate, and utility charges. If accurate allocations as to such matters cannot be made at Closing because current bills are not obtainable, the Parties shall allocate such income or expense at Closing on the best available information, subject to adjustment upon receipt of the final bill or other evidence of the applicable item of income or expense.

 

1.11 Net Assets Settlement .

 

(a) As used herein, the term “Net Assets,” as determined in accordance with generally accepted accounting principles, including the methods and practices as historically applied by Seller prior to the Closing and as are reflected in the audited balance sheet of the Seller as of December 31, 2004 (“Hospital Historical GAAP”), shall mean the Inventory and Prepaids, less the amount of accrued paid time off, and 16% of the amount of ESL attributable to the Hired Employees being assumed by the Purchaser pursuant to Section 1.4(c) hereof plus the amount of any capital expenditure relating to the Hospital (other than normal and customary maintenance and replacement items) which was (i) approved in advance by Purchaser in writing and (ii) paid by the Seller or the Hospital after the Execution Date and prior to the Closing. Prepaids from and after the Closing Date shall only be included in Net Assets to the extent that Purchaser receives the economic benefit of such prepaid expense. In the event an accounting principle, including the methods and practices as historically applied by Seller is not in accordance with GAAP, it shall not constitute a Hospital Historical GAAP Principle for any purpose under this Agreement and shall not be followed in the determination of Net Assets or the EBITDA of the Hospital under Section 1.13 hereof.

 

(b) At least ten (10) business days prior to Closing, Seller shall in good faith deliver to Purchaser a reasonable estimate of Net Assets as of the end of the most recently ended calendar month prior to the Closing Date for which financial statements are available (“Estimated Net Assets”) and containing reasonable detail and supporting documents showing the derivation of such estimate. The “Net Assets Payment” shall equal the difference between the Estimated Net Assets and $199,000. If Estimated Net Assets exceeds $199,000, the Net Assets Payment shall be added to the Closing Purchase Price Payment. If Estimated Net Assets is less than $199,000, the Closing Purchase Price Payment shall be reduced by the amount of the Net Assets Payment. Within ninety (90) days after the Closing, Purchaser shall deliver to Seller its determination of the Net Assets as of the Effective Time. Each Party shall have full access to the financial books and records pertaining to the Hospital to confirm or audit Net Assets computations. Should Seller disagree with Purchaser’s determination of Net Assets, Seller shall notify Purchaser in writing within fifteen (15) days after Purchaser’s delivery of its determination of Net Assets and state the basis for its disagreement. If Seller and Purchaser fail to agree within thirty (30) days after Seller’s delivery of notice of disagreement on the amount of Net Assets, such disagreement shall be resolved in accordance with the procedures set forth in Section 1.11(c), which shall be the sole and exclusive remedy for resolving disputes relative to the determination of Net Assets. The Purchase Price shall be increased or decreased based on the difference between the actual Net Assets as of the Effective Time and the Estimated Net Assets calculated at the Closing and, within five (5) business days after determination thereof, any excess of actual Net Assets over Estimated Net Assets shall be paid in cash to Seller, and any deficiency in actual Net Assets versus Estimated Net Assets shall be paid in cash to Purchaser pursuant to the Post-Closing Escrow Agreement, in either case without interest on such amount.

 

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(c) Dispute of Adjustments . In the event that Seller and Purchaser are not able to agree on the actual Net Assets within thirty (30) days after Seller’s delivery of notice of disagreement in accordance with Section 1.11(b) hereof, Seller and Purchaser shall each have the right to require that such disputed determination be submitted to Arnett & Foster, PLLC, or if Arnett & Foster, PLLC is not available for any reason or does not maintain its independent status, such other independent certified public accounting firm as Seller and Purchaser may then promptly mutually agree upon in writing (the “Accounting Firm”) for computation or verification in accordance with the provisions of this Agreement. The Accounting Firm shall review the matters in dispute and, acting as arbitrators, shall promptly decide the proper amounts of such disputed entries (which decision shall also include a final calculation of Net Assets). The submission of the disputed matter to the Accounting Firm shall be the exclusive remedy for resolving disputes relative to the determination of Net Assets. The Accounting Firm’s determination shall be binding upon Seller and Purchaser. The Accounting Firm’s fees and expenses shall be borne equally by Seller and Purchaser.

 

1.12 Escrow Deposit . At Closing, Purchaser shall deposit Five Hundred Thousand and No/100 Dollars ($500,000.00) with the Escrow Agent, by wire transfer of immediately-available funds to the account of the Escrow Agent (the “Escrow Deposit,” and, together with all earnings thereon, the “Escrow Funds”). The Escrow Funds shall be held, invested and disbursed by the Escrow Agent as specified in and pursuant to the terms and conditions of the Escrow Agreement in the form of Exhibit D attached hereto.

 

1.13 Variable Payments .

 

(a) On or before ninety (90) days after the end of the twelve month period described below (the “First Variable Payment Date”), Purchaser shall make an additional payment to Seller (“Variable Payment A”) in an amount equal to $1,201,222.00 subject, however, to the following adjustments:

 

(i) In the event that the EBITDA of the Hospital for the 12-month period commencing as of the first day of the month after the month in which the Closing occurs is less than $1,445,000.00 (the “Year 1 EBITDA Target”) then Variable Payment A shall be decreased by six times (6x) the amount that the actual EBITDA of the Hospital for such 12-month period is less than the Year 1 EBITDA Target; or

 

(ii) In the event that the EBITDA of the Hospital for such 12-month period is more than the Year 1 EBITDA Target, then, subject to the provisions of subsection 1.13(e) below, Variable Payment A shall be increased by six times (6x) the amount that the actual EBITDA of the Hospital for such 12-month period is in excess of the Year 1 EBITDA Target.

 

Within fifteen (15) days after the initial settlement with the Government Programs of the cost reports relating to the 12-month period commencing as of the first day of the month after the month in which the Closing occurs, any increase in Variable Payment A as a result of the affect such cost reports have on EBITDA for such 12-month period will be paid by the Purchaser to the

 

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Seller and any decrease in Variable Payment A as a result of the affect such cost reports have on EBITDA for such 12-month period will be paid by the Seller to the Purchaser. Upon final settlement or audit of such cost reports, any changes from the initial settlement shall be paid between the Parties in the same manner.

 

(b) On or before ninety (90) days after the end of the twelve month period described below (the “Second Variable Payment Date”), Purchaser shall make an additional payment to Seller (“Variable Payment B”) in an amount equal to $664,700.00 subject, however, to the following adjustments:

 

(i) In the event that the EBITDA of the Hospital for the second 12-month period commencing after the first twelve month period referenced in Section 1.13(a) above is less than $1,858,500.00 (the “Year 2 EBITDA Target”) then Variable Payment B shall be decreased by six times (6x) the amount that the actual EBITDA of the Hospital for such 12-month period is less than the Year 2 EBITDA Target; or

 

(ii) In the event that the EBITDA of the Hospital for such 12-month period is more than the Year 2 EBITDA Target, then, subject to the provisions of subsection 1.13(e) below, Variable Payment B shall be increased by six times (6x) the amount that the actual EBITDA of the Hospital for such 12-month period is in excess of the Year 2 EBITDA Target.

 

Within fifteen (15) days after the initial settlement with the Government Programs of the cost reports relating to the second 12-month period commencing after the first twelve month period referenced in Section 1.2(a) above, any increase in Variable Payment B as a result of the affect such cost reports have on EBITDA for such 12-month period will be paid by the Purchaser to the Seller and any decrease in Variable Payment B as a result of the affect such cost reports have on EBITDA for such 12-month period will be paid by the Seller to the Purchaser. Upon final settlement or audit of such cost reports, any changes from the initial settlement shall be paid between the Parties in the same manner.

 

(c) For the purposes of this Section 1.13, the term “EBITDA of the Hospital” shall mean the net income of Purchaser plus the amount of interest, income taxes, depreciation and amortization for the applicable period, all as determined by Purchaser in accordance with Hospital Historical GAAP. As specified in Section 9.8, Purchaser shall maintain its separate corporate existence until the end of the second twelve-month period described in Section 1.13(b) above. The principles and methodologies for determining the EBITDA of the Hospital and other terms and conditions relating to the payment of Variable Payment A and Variable Payment B hereunder shall be as specified in Schedule 1.13 .

 

(d) Purchaser shall deliver to Seller its determination of the applicable EBITDA of the Hospital with each Variable Payment. Seller may dispute such determination and have such determination finally resolved in the same manner and within the same time periods as are applicable to the determination of the actual Net Assets of Seller as of the Effective Time under Section 1.11.

 

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(e) Notwithstanding any provision of this Agreement to the contrary, the total amount of the Variable Payment A and the Variable Payment B shall be capped and not exceed Four Million Five Hundred Thirty-Five Thousand Dollars ($4,535,000) in the aggregate.

 

1.14 Risk of Loss .

 

(a) The risk of loss or damage to any of the Personal Property, Owned Real Property, the Hospital and all other assets and property of Seller, the transfer of which is contemplated by this Agreement, shall remain with Seller until the Effective Time and Seller shall maintain in effect without material change all of its insurance policies covering the Personal Property, Owned Real Property, the Hospital and all other assets and property of Seller through the Effective Time. With respect to the Owned Real Property and Leased Real Property (collectively, the “Real Property”), if prior to the Closing, all or any part of the Real Property is destroyed or damaged by fire or the elements or by any other cause where such damage or destruction is in the aggregate (the “Aggregate Damage”) less than ten percent (10%) of the Purchase Price and Seller has duly maintained the insurance policies described above, the parties’ duties and obligations under this Agreement shall not be affected and the Closing shall proceed as scheduled; provided, however, that Seller shall assign, transfer and set over to Purchaser all of Seller’s right, title and interest in and to any insurance proceeds on account of such damage or destruction up to the cost of repairs or rebuilding and, if such insurance policy proceeds are insufficient to repair, restore and/or replace the Real Property, the difference between the cost to repair, restore and/or replace and the amount of such proceeds shall be deducted from the Purchase Price. If prior to the Closing, all or any part of the Real Property is destroyed or damaged by fire or the elements or by any other cause where the Aggregate Damage exceeds ten percent (10%) of the Purchase Price, Purchaser may elect to (i) purchase such Owned Real Property or take assignment of such Leased Real Property, and the Closing shall proceed as scheduled (provided, however, that at the Closing Seller shall assign, transfer and set over to Purchaser all of Seller’s right, title and interest in and to any insurance proceeds on account of such damage or destruction loss plus the amount of any deductibles under such insurance policies), (ii) not purchase such Owned Real Property or not take assignment of such Leased Real Property, and, in such event, an appropriate adjustment to the Purchase Price shall be made by Purchaser and Seller, provided, however, that Seller shall not be required to accept any adjustment to the Purchase Price and, in the event the Seller and Purchaser are unable to agree on the amount of the adjustment to the Purchase Price, the Seller or Purchaser may terminate this Agreement; or (iii) elect to terminate this Agreement by written notice to Seller. If Purchaser and Seller are unable to agree upon the amount of the Aggregate Damage by the originally scheduled Closing Date (the “Original Closing Date”), the amount of the Aggregate Damage shall be determined by a consulting firm mutually selected by Seller and Purchaser (the “Independent Consultant”) pursuant to Section 1.14(d) hereof.

 

(b) With respect to any Assets other than Real Property which are destroyed or damaged by fire or the elements or by any other cause prior to the Closing, Seller shall assign, transfer and set over to Purchaser all of Seller’s right, title and interest to any insurance proceeds on account of such damage or destruction up to the cost of repairs or replacement of such Assets and shall reimburse Purchaser for any deductible Purchaser is required to pay in connection with the receipt of such insurance proceeds.

 

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(c) If prior to the Closing, all or any part of a parcel of the Real Property is made subject to an eminent domain or condemnation proceeding which would in Purchaser’s judgment materially adversely impair access to the Real Property or be materially adverse to the operations of the Hospital, Purchaser may elect to (i) purchase such affected Owned Real Property or take assignment of such Leased Real Property, and the Closing shall proceed as scheduled (provided, however, at the Closing Seller shall assign, transfer and set over to Purchaser all of Seller’s right, title and interest in and to any award in such eminent domain or condemnation proceeding), (ii) not purchase the affected Owned Real Property or not take assignment of such Leased Real Property, and, in such event, an appropriate adjustment to the Purchase Price shall be made by Purchaser and Seller, provided, however, that Seller shall not be required to accept any adjustment to the Purchase Price and, in the event the Seller and Purchaser are unable to agree on the amount of the adjustment to the Purchase Price, the Seller or Purchaser may terminate this Agreement, or (iii) terminate this Agreement by written notice to Seller.

 

(d) If pursuant to Section 1.14(a) hereof, the amount of the Aggregate Damage (and any applicable Purchase Price adjustment) is to be determined by the Independent Consultant, within five (5) calendar days after the Original Closing Date (the “Submittal Date”), each Party shall submit to the other Party and to the Independent Consultant its proposed Aggregate Damage (and any applicable Purchase Price adjustment) as a result of the event(s) contemplated by Section 1.14(a), along with a detailed description of the basis for such amount and any applicable adjustment. Within ten (10) calendar days after the Submittal Date, the Independent Consultant, acting as an expert and not as an arbitrator, shall determine the Aggregate Damage (and any applicable Purchase Price adjustment), taking into account any submissions by Seller or Purchaser made by the Submittal Date. The decision of the Independent Consultant shall be conclusive and binding as between Purchaser and Seller, and the costs of such review shall be borne equally by Seller and Purchaser. Upon any such determination of the adjustment to the Purchase Price in accordance with this Section 1.14(d), the Parties shall, subject to the terms and conditions of this Agreement, consummate the transactions contemplated by this Agreement at a mutually agreeable time and place, in accordance with the provisions of this Agreement, which shall be no later than the twenty-fifth (25th) calendar day following the Original Closing Date unless the Parties mutually agree upon a later date.

 

ARTICLE 2

REPRESENTATIONS AND WARRANTIES OF SELLER

 

Except as otherwise indicated on the applicable Disclosure Schedules expressly related to the particular representation or warranty stated below in this Article 2, Seller hereby represents and warrants to Purchaser as to the following matters as of the Execution Date. Except as otherwise provided herein, Seller shall be deemed to remake all of the following representations and warranties as of the Closing Date and the Effective Time:

 

2.1 Authority . Seller has full limited liability company power and authority to enter into this Agreement and all documents required to be delivered hereunder and full limited liability company power and authority to carry out and perform the transactions contemplated herein.

 

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2.2 Authorization/Execution . All limited liability company and other actions required to be taken by Seller to authorize the execution, delivery and performance of this Agreement, all documents executed by Seller which are necessary to give effect to this Agreement and all transactions contemplated hereby, have been duly and properly taken or obtained by Seller. No other corporate or other action on the part of Seller is necessary to authorize the execution, delivery and performance of this Agreement, all documents necessary to give effect to this Agreement and all transactions contemplated herein. This Agreement and all documents delivered hereunder have been duly and validly executed and delivered by Seller and, assuming due and valid execution by, and enforceability against, Purchaser, this Agreement and all documents delivered hereunder constitute valid and binding obligations of Seller enforceable in accordance with their respective terms subject to (a) applicable bankruptcy, reorganization, insolvency, moratorium and other laws affecting creditors’ rights generally from time to time in effect and (b) limitations on the enforcement of equitable remedies.

 

2.3 Organization and Good Standing; No Subsidiaries; No Conflicts .

 

(a) Seller is a limited liability company duly organized, validly existing and in good standing under the laws of the State of West Virginia. Seller has full power and authority to own, operate and lease its properties and to carry on its business as now conducted.

 

(b) Seller has no subsidiaries, whether direct or indirect. Seller has no equity interest or investment in, and does not have any other right or obligation to purchase any equity interest or other investment in, and is not a partner of or joint venturer with, any other person or entity.

 

(c) Except as provided in Schedule 2.3(c) , the execution and delivery of this Agreement and the performance of the transactions contemplated by this Agreement and all other instruments, agreements, and certificates referenced herein to which Seller is or will be a party do not (i) violate any decree or judgment of any court or governmental authority which is applicable to or binding upon Seller; (ii) violate any law, rule or regulation applicable to Seller; (iii) violate or conflict with, or result in a breach of, or constitute a default (or an event which, with or without notice or lapse of time or both, would constitute a default) under, or permit cancellation of, or result in the creation of any encumbrance upon any of the Assets under, any Material Contract, lease, sales order, purchase order, indenture, mortgage, note, bond, or, license to which Seller is a party, or by which Seller is bound; (iv) permit the acceleration of the maturity of any indebtedness of Seller; or (v) violate or conflict with any provision of the Articles of Organization or Operating Agreement of Seller.

 

2.4 Financial Statements; Changes .

 

(a) Seller has delivered to Purchaser the audited balance sheets for Seller at December 31, 2004, 2003 and 2002 and the related statements of operations for the periods then ended. All such financial statements have been prepared in conformity with Hospital Historical GAAP applied on a consistent basis throughout such periods. Such statements of operations present fairly in all material respects the results of operations of Seller for the respective periods covered, and the balance sheets present fairly in all material respects the financial condition of

 

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Seller as of their respective dates. Since December 31, 2004, there has been no change in any of the significant accounting policies, practices or procedures of Seller.

 

(b) Seller has delivered to Purchaser an unaudited balance sheet for Seller at April 30, 2005 (the “Interim Balance Sheet Date”) and the related statement of operations for the four month period then ended. Such interim financial statements have been prepared in conformity with Hospital Historical GAAP. The interim statement of operations presents fairly in all material respects the results of the operations of Seller for the period covered, and the interim balance sheet presents fairly in all material respects the financial condition of Seller at the Interim Balance Sheet Date. Such interim financial statements reflect all adjustments necessary for a fair presentation of the financial information contained therein other than normal year-end adjustments which are not material in amount in the aggregate. At the Interim Balance Sheet Date, Seller had no material liability (actual, contingent or accrued) that, in accordance with Hospital Historical GAAP applied on a consistent basis, should have been shown or reflected on the interim balance sheet but was not.

 

(c) Except as set forth in Schedule 2.4(c) , since the Interim Balance Sheet Date, whether or not in the ordinary course of business, there has not been, occurred or arisen:

 

(i) any change in or event affecting Seller or the business of the Hospital, that has had or would reasonably be expected to have a Material Adverse Effect; or

 

(ii) any strike or other labor dispute; or

 

(iii) any casualty, loss, damage or destruction (whether or not covered by insurance) of any property of Seller that is material or that has involved or may involve a material loss to Seller in excess of applicable insurance coverage.

 

2.5 Tax and Other Returns and Reports . Except as set forth in Schedule 2.5 :

 

(a) For purposes of this Agreement, “Tax” or “Taxes” shall be defined as set forth below in Section 2.5(c) and shall include (i) any obligations under any agreements or arrangements with any other Person with respect to such amounts and including any liability for Taxes of any predecessor or previously owned entity and (ii) any liability for any Taxes as a result of being a member of an affiliated, consolidated, combined or unitary group. For purposes of this Section 2.5 and Schedule 2.5 , with respect to matters pertaining to this Section 2.5, the terms “Seller,” “Subsidiary” or “Subsidiaries” shall include all entities currently or previously owned, directly or indirectly, by Seller.

 

(b) Tax Returns and Audits .

 

(i) Seller has timely filed (taking into account valid extensions of the time for filing) all Tax returns required to have been filed and all such Tax returns were true, correct and complete in all material respects. All Taxes owed by Seller (whether or not shown on any Tax return) that have become due and payable have been paid. Seller is not currently the beneficiary of any extension of time within which to file any Tax return. No claim has ever been made by an authority in a jurisdiction where Seller does not file Tax returns that it is or may be subject to taxation by that jurisdiction.

 

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(ii) Seller has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, member, or other third party.

 

(iii) Seller has made available (or will make available through the date of Closing) to Purchaser (i) correct and complete copies of all Tax returns of Seller relating to the Assets and (ii) any examination reports, statements of deficiencies and assessments by any governmental authority against or agreed to by Seller since December 31, 2001. Seller does not expect any authority to assess additional Taxes for any period for which Tax returns have been filed. There is no dispute or claim concerning any Tax liability of Seller claimed, threatened or otherwise raised by any authority. Seller has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.

 

(iv) There are no liens or security interests on any of the Assets that arose in connection with any failure (or alleged failure) to pay any Tax.

 

(v) No property owned by Seller is “tax-exempt use property” within the meaning of Section 168(h) of the Code. Seller is not a party to any lease made pursuant to former Section 168(f)(8) of the Internal Revenue Code of 1954.

 

(vi) Seller is not under any obligation to make a payment that will not be deductible under Section 280G of the Internal Revenue Code of 1986 (the “Code”). Seller has disclosed on its Tax returns all positions taken therein that could give rise to a substantial understatement (i) of federal income tax under Code Section 6662 or (ii) of any Tax under a similar provision of state, local or foreign Tax law. Seller has not engaged in any transaction which would be treated as a “reportable transaction” within the meaning of Treasury Regulations Section 1.6011-4 or otherwise been involved in a transaction which would require it to disclose a “reportable transaction.” Seller has not been a member of an affiliated group filing a consolidated federal income Tax return and does not have any liability for the Taxes of any Person (other than Seller) under Treasury Regulations Section 1.1502-6, or any similar provision of state, local or foreign law, as a transferee or successor, by contract, or otherwise. Seller has not been a party to any Tax allocation or sharing agreement. Neither Seller nor its subsidiaries is currently or has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

 

(vii) Seller is and has been in full compliance with all terms and conditions of any Tax exemptions, Tax holidays or other Tax reduction agreements. The consummation of the transactions contemplated herein will not have any material adverse effect on the continued validity and effectiveness of any such Tax exemption, Tax holiday or other Tax reduction agreement or order.

 

(viii) Neither the Seller nor any of its Subsidiaries has constituted either a “distribution corporation” or a “controlled corporation” in a distribution of stock qualifying for tax-free treatment under Code Section 355 (a) in the two year prior to the date of this Agreement or (b) in a distribution which could otherwise constitute part of a “plan” or “series of related transactions” (within the meaning of Code Section 355(c)).

 

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(ix) Seller has not, with respect to any open taxable period, applied for and been granted permission to adopt a change in its method of accounting requiring adjustments under Section 481 of the Code or comparable state or foreign law.

 

(x) None of Seller nor its Subsidiaries is a partner in any entity classified as a partnership for federal income Tax purposes.

 

(xi) Neither Seller nor any of its Subsidiaries has made an election under Treasury Regulations Section 301.7701-3 with respect to any entity.

 

(xii) None of Seller nor its Subsidiaries will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending prior to, on, or after the Closing Date as a result of any deferred intercompany gain or any excess loss account described in Treasury Regulations under Code Section 1502 (or any corresponding or similar provision of federal state, local or foreign income Tax law).

 

(c) “Tax” and “Taxes” means any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Section 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.

 

2.6 Material Contracts . Schedule 2.6 lists each Material Contract to which Seller is a party or to which any of its properties are subject or by which any thereof is bound, other than the Excluded Contracts listed in Schedule 1.3(c) . Unless otherwise so noted in Schedule 2.6 , each such Material Contract was entered into in the ordinary course of business. As used herein, “Material Contract” means any contract that (a) after the Interim Balance Sheet Date obligates Seller to pay an amount of twenty-five thousand dollars ($25,000) or more in any one twelve month period on an annual basis or obligates Seller to pay an aggregate amount of Fifty Thousand Dollars ($50,000) or more, (b) has an unexpired term as of the Interim Balance Sheet Date in excess of twelve (12) months that is not terminable upon ninety (90) days or less notice by Seller at any time during the term, without penalty, (c) contains a covenant not to compete or otherwise significantly restricts business activities, (d) limits the ability of Seller to conduct its business, including as to manner or place, (e) grants a power of attorney, agency or similar authority to another person or entity, (f) contains a right of first refusal, (g) constitutes a collective bargaining agreement including any collective bargaining agreement with physicians or any other referral source, (h) constitutes an employment or severance agreement with any director, officer or employee of Seller, (i) represents a contract upon which the business of the Hospital is substantially dependent or a contract which is otherwise material to the business of the Hospital, (j) represents a contract with a physician, or to the Knowledge of Seller, an immediate family member of a physician (as that term is defined in 42 C.F.R. § 411.351) or any other referral source, including any contract with a pharmacy or any other supplier of medical products to patients of the Hospital, (k) to the Knowledge of Seller, represents a contract with an entity in which a referring physician (as that term is defined in 42 U.S.C. § 1395m(h)(7)) or a

 

ASSET PURCHASE AGREEMENT – Page 18

referring physician’s immediate family member has an ownership or investment interest, (l) represents a third party payor, managed care or preferred provider organization contract, or (m) was not made in the ordinary course of business. True, correct and complete copies of the Material Contracts and the Excluded Contracts, including all amendments and supplements, have been made available to Purchaser. Each Material Contract is valid and subsisting; except as set forth in Schedule 2.6 , Seller has duly performed in all material respects all its obligations thereunder to the extent that such obligations to perform have accrued; and, except as set forth in Schedule 2.6 , no breach or default, alleged breach or default, or event which would (with the passage of time, notice or both) constitute a material breach or default thereunder by Seller (or, to the Knowledge of Seller, any other party or obligor with respect thereto), has occurred or as a result of the execution of this Agreement or its performance will occur.

 

2.7 Real and Personal Property; Title to Property; Leases .

 

(a) Seller has good and valid title, free of encumbrances in and to the Owned Real Property, the Personal Property and the other Assets, except for (i) any lien for taxes not yet due and payable, (ii) any lease obligations included in the Assumed Obligations, (iii) easements, rights of way, and other restrictions of record, (iv) statutory liens of landlords, liens of carriers, warehousemen, mechanical and materialmen and other liens imposed by law in the ordinary course of business, (v) any liens on any furniture, equipment, fixtures or Inventory pursuant to any capital lease or any other lease being assumed by Purchaser as an Assumed Obligation, (vi) any encumbrances or defects that do not materially interfere with the operations of the Hospital in any manner consistent with the current use by Seller, and (vii) those liens and encumbrances relating to Seller’s outstanding debt owed to The Huntington National Bank listed in Schedule 2.7(a), which shall be discharged at or prior to the Closing (collectively, the “Permitted Encumbrances”). Except as shown in Schedule 2.7(a) , all material tangible properties of Seller are, to the Knowledge of Seller, in a reasonably good state of maintenance and repair (except for ordinary wear and tear) and in operating condition.

 

(b) The Owned Real Property listed in Schedule 1.2(a) consists of all Real Property owned by Seller and used in the conduct of the business of the Hospital.

 

(c) The Leased Real Property listed in Schedule 1.2(b) consists of all Real Property leased by Seller and used in the conduct of the business of the Hospital.

 

(d) Seller has heretofore made available to Purchaser a true, correct and complete copy of all of the Leases. Except as shown in Schedule 2.7(d) , no consents are required of third parties to the assignment of the Leases.

 

(e) At Closing, Seller will convey to Purchaser good and valid title to the Owned Real Property and all other Assets and a valid leasehold interest in the Leased Real Property, subject to no mortgage, lien, pledge, security interest, conditional sales agreement, right of first refusal, option or encumbrance, except for Permitted Encumbrances and the rights of any lessor or licensor of leased or licensed personal property.

 

(f) The Leases constitute the entire agreement to which Seller is a party with respect to the properties which are demised pursuant thereto.

 

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(g) Seller has accepted possession of the Leased Real Property pursuant to each Real Property Lease in which it is the lessee and is in actual possession thereof and has not sublet, assigned or hypothecated its leasehold interest.

 

(h) As of the date hereof, all conditions precedent to the enforceability of each Lease have been satisfied and, to the Knowledge of Seller, there exists no breach or default, nor state of facts which, with the passage of time, notice, or both, would result in a breach or default on the part of Seller or, to the knowledge of Seller, the other party thereunder.

 

(i) Seller has no Knowledge of, and, during the past three (3) years, Seller has not received any written notice of, non-compliance with law, zoning ordinance or other restriction with respect to any Real Property.

 

(j) There is no pending or, to the Knowledge of Seller, threatened action that would materially interfere with the ownership, use or quiet enjoyment of any Real Property by Seller.

 

(k) Seller has no Knowledge of, and, during the past three (3) years, Seller has not received any notice of, any proposed special assessments, threatened condemnation or any proposed material changes in property tax or land use laws affecting the Real Property.

 

(l) The Assets constitute all of the property necessary for Purchaser to operate the Hospital after the Effective Time in substantially the same manner as Seller operates the Hospital as of the date hereof.

 

2.8 Intangible Property . Schedule 2.8 lists any and all marks and other material items of intangible property in which Seller has an interest and the nature of such interest (“Intangible Property”). Except as shown in Schedule 2.8 , the Intangible Property includes all permits or other rights with respect to any of the foregoing. Seller has rights to use or ownership of all Intangible Property required for use in connection with the business of the Hospital. Except as disclosed in Schedule 2.8 , Seller does not use any Intangible Property by consent of any other person and is not required to and does not make any payments to others with respect thereto. Except as shown in Schedule 2.8 and except for Permitted Encumbrances, the Intangible Property of Seller is fully assignable free and clear of any encumbrances. Seller has in all material respects performed all obligations required to be performed by, and Seller is not in default in any material respect under, any contract relating to any of the foregoing. Seller has not received any notice to the effect (or otherwise has Knowledge) that such intangible property or any use thereof by Seller conflicts with or infringes (or allegedly conflicts with or infringes upon) the rights of any Person.

 

2.9 Legal Proceedings . Except as set forth in Schedule 2.9 , there is no order or action pending, or, to the Knowledge of Seller threatened, against or affecting Seller, or any of its respective properties or assets that involves a claim of aggregate liability in excess of $25,000.00 against Seller. Schedule 2.9 lists each order and each action that involves a claim of aggregate liability in excess of $25,000.00 against, or that enjoins or seeks to enjoin or excludes or seeks to exclude the conduct of any activity by, Seller.

 

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2.10 Accounting Records; Internal Controls; Absence of Certain Payments .

 

(a) Accounting Records . Seller has records that accurately and validly reflect its respective transactions, and accounting controls sufficient to insure that such transactions are (i) executed in accordance with management’s general or specific authorization and (ii) recorded in conformity with Hospital Historical GAAP so as to maintain accountability for assets.

 

(b) Data Processing; Access . Such records, to the extent they contain important information that is not easily and readily available elsewhere, have been duplicated, and such duplicates are stored safely and securely pursuant to procedures and techniques utilized by companies of comparable size in similar lines of business.

 

2.11 Insurance . Schedule 2.11 lists all insurance policies and bonds that are maintained by Seller and are material to the business of the Hospital and indicates the type of insurance, policy number, term, identity of insurer, premiums and coverage amounts for the previous five (5) years and basic coverages (including applicable deductibles) for each such insurance policy and bond. Seller is not in default under any insurance policy or bond. Seller has timely filed claims with its respective insurers with respect to all matters and occurrences for which it believes it has coverage. Schedule 2.11 lists all claims in excess of $20,000 which have been made by Seller in the last two (2) years under any insurance policy or bond. Except as set forth in Schedule 2.11 , all insurance policies and bonds are in full force and effect. Except as shown in Schedule 2.11 , Seller has not received notice from any insurer or agent of any intent to cancel or not to renew any of such insurance policies and bonds. There are no outstanding requirements or recommendations by any insurance company that issued a policy with respect to any of the properties and assets of Seller or by any Board of Fire Underwriters or other body exercising similar functions or by any governmental entity requiring or recommending any action which has not been taken.

 

2.12 Employees .

 

(a) Schedule 2.12 sets forth a complete list (as of the date set forth therein) of names, positions and current annual salaries or wage rates, bonus and other compensation and/or benefit arrangements, accrued paid time off and ESL and period of service credited for vesting as of the date thereof of all full-time and part-time employees of Seller with respect to the operation of the Hospital or Barboursville School and indicating whether such employee is a part-time, full-time or PRN employee. The maximum accrual for extended sick leave for employees of the Seller is 160 hours and no employee currently has an amount of accrued sick leave in excess of such maximum. Except as shown in Schedule 2.12 , there are no employment agreements or severance agreements with employees of Seller.

 

(b) There are no labor union or collective bargaining agreements in effect with respect to the employees of Seller with respect to the operation of the Hospital. There is no unfair labor practice complaint against Seller pending, or to the Knowledge of Seller threatened, before the National Labor Relations Board with respect to the operation of the Hospital. The