ASSET PURCHASE AGREEMENT

Execution Copy

 

Exhibit 10.1

 

ASSET PURCHASE AGREEMENT (LIGHTHOUSE)

 

by and among

 

LIGHTHOUSE CARE CENTERS, LLC

and the other Sellers named herein,

 

as Sellers,

 

and

 

HORIZON HEALTH CORPORATION,

 

as Purchaser

 

Dated as of December 9, 2005

TABLE OF CONTENTS

 

 

 

- i -

 

- ii -

 

- iii -

 

- iv -

LIST OF EXHIBITS

 

 

- i -

LIST OF SCHEDULES

 

 

- i -

TABLE OF DEFINED TERMS

 

 

- 1 -

 

- 2 -

 

- 3 -

Exhibit 10.1

ASSET PURCHASE AGREEMENT (LIGHTHOUSE)

 

This ASSET PURCHASE AGREEMENT (LIGHTHOUSE) (this “Agreement”) is made and entered into as of the 9th day of December, 2005 (the “Execution Date”), by and among LIGHTHOUSE CARE CENTERS, LLC , a Delaware limited liability company, the other SELLERS (as defined herein) and HORIZON HEALTH CORPORATION , a Delaware corporation whose chief executive office is located in Lewisville, Texas (“Purchaser”). Sellers 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. Sellers own and operate the following behavioral health facilities (the “Facilities”):

 

(i)

Lighthouse Care Center of Conway, a one hundred four (104) licensed bed freestanding behavioral health facility located in Conway, South Carolina;

 

(ii)

Lighthouse Care Center of Berkeley County, a freestanding facility under construction in Summerville, South Carolina;

 

(iii)

Lighthouse Care Center of Oconee County, a twenty-eight (28) licensed bed freestanding behavioral health facility located in Tamassee, South Carolina;

 

(iv)

Lighthouse Care Center of Augusta, a one hundred six (106) licensed bed freestanding behavioral health facility located in Augusta, Georgia; and

 

(v)

Lighthouse Care Center of Cooper City, a thirty (30) licensed bed behavioral health facility located in Cooper City, Florida.

 

B. Purchaser desires to purchase from Sellers, and Sellers desire to sell and transfer to Purchaser, all of the real property and other assets owned by any Seller, other than certain excluded assets specified herein, for the consideration and upon the terms and conditions contained in this Agreement.

 

C. Simultaneous with the execution and delivery of this Agreement by the Parties, Focus Healthcare, LLC and certain entities related to it, as sellers (Focus Healthcare, LLC and such other entities, collectively, the “Focus Entities”), and Purchaser, as purchaser, have executed and delivered an Asset Purchase Agreement (Focus) (the “Focus Purchase Agreement”) providing for the sale to Purchaser by the Focus Entities of certain assets of the Focus Entities simultaneously with the consummation of the Closing under this Agreement.

 

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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, intending to be legally bound, agree as follows:

 

ARTICLE 1

DEFINITIONS; SALE AND TRANSFER OF ASSETS;

CONSIDERATION; CLOSING; OTHER MATTERS

 

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

 

(a) the terms used in this Agreement include the plural as well as the singular;

 

(b) all accounting terms used but not otherwise defined herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with 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 main body of this Agreement;

 

(d) pronouns of either gender or neuter include, as appropriate, the other pronoun forms;

 

(e) the words “including” and “include” are deemed to be followed by the words “without limitation”;

 

(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) “or” is used in the inclusive sense of “and/or”;

 

(h) “Affiliate” of a specified Person means any other Person directly or indirectly controlling, controlled by or under common control with the specified Person. The term “control” (including the terms “controlling,” “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;

 

(i) “Anti-Kickback Law“ means 42 U.S.C. § 1320a-7b(b) and any rules or regulations promulgated thereunder;

 

(j) “Antitrust Laws” means the Sherman Act, as amended, the Clayton Act, as amended, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), the Federal Trade Commission Act, as amended, and all other laws, rules, regulations and other legal requirements that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade;

 

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(k) “Disclosure Schedules” means the Schedules that are identified on the cover page thereof as “Sellers Disclosure Schedule” and attached to this Agreement;

 

(l) “Escrow Agreement” means the Execution Date Escrow Agreement or the Closing Date Escrow Agreement;

 

(m) “Facility Worker” means any individual who provides services to any Seller at or in connection with the operation of any Facility pursuant to an employee leasing agreement between the employer of such individual and any Seller;

 

(n) “False Claims Act” means 31 U.S.C. § 3729 et. seq. and any rules or regulations promulgated thereunder;

 

(o) “GAAP” means United States generally accepted accounting principles, as applied on a basis consistent with past practice;

 

(p) “Governmental Approvals” means all consents, approvals, authorizations, clearances, certificates of need, licenses and permits required to be obtained from governmental or regulatory agencies, authorities or bodies that are required for the consummation of the transactions contemplated by this Agreement;

 

(q) “immediate family member” has the meaning given to such term in 42 C.F.R. §411.351;

 

(r) “Knowledge of Sellers”, and similar variations thereof (including any reference to the “Knowledge” of any Seller), means the actual knowledge, as of the relevant date, of Byron DeFoor, Chuck Jabaley, Nelson Bowers, Neil Campbell or Mark Schneider after reasonable inquiry by them of Alice Marcie Clark Danks, Corporate Controller of Lighthouse Care Centers, LLC, and the administrator of each Facility;

 

(s) “Legal Requirement” means any federal, state, local or other constitution, treaty, statute, code, ordinance, law, principle of common law, or written rule or regulation;

 

(t) “Letter of Intent” means the amended and restated letter of intent dated October 25, 2005, as amended by letter dated November 30, 2005 and by letter dated December 7, 2005, among Purchaser, Focus Healthcare LLC and Lighthouse Care Centers, LLC, relating to the transactions contemplated by this Agreement and the Focus Purchase Agreement;

 

(u) “Material Adverse Change” or “Material Adverse Effect”, when used with respect to any Seller or Facility, or Sellers, means any material adverse change in or effect on such Seller or Facility or Sellers as a whole, as applicable, other than changes or effects that are or result from occurrences relating to the United States economy generally, the United States health care industry generally or any usual and customary seasonal variations or fluctuations in the occupancy rate of any Facility or the receivables of Sellers;

 

(v) “Material Interest” means direct or indirect beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of voting securities or other voting interests representing at least ten percent (10%) of the outstanding

 

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voting power of a Person or equity securities or other equity interests representing at least ten percent (10%) of the outstanding equity securities or equity interests in a Person;

 

(w) “Owner” means (i) each Seller, (ii) each Focus Entity, (iii) each party to a Right of First Refusal Agreement, other than Purchaser, and (iv) each Person that directly, or indirectly through one or more intermediaries, owns an equity security or other equity interest in any Person listed in any of the preceding clauses (i), (ii) or (iii);

 

(x) “Person” means any natural person, partnership, corporation, limited liability company, association, government, governmental agency, governmental authority, governmental body, governmental or political subdivision, trust or other legal entity;

 

(y) “Proceeding” means any action, arbitration, audit, hearing, investigation, litigation or suit (whether civil, criminal, administrative, judicial or investigative, whether formal or informal, whether public or private) commenced, brought, conducted or heard by or before, or otherwise involving, any government, governmental agency, governmental authority or body, court or arbitrator;

 

(z) “Related Person” means:

 

With respect to a particular individual:

 

(i) each immediate family member of such individual;

 

(ii) any Person that is directly or indirectly controlled by such individual or any one or more immediate family members of such individual;

 

(iii) any Person in which such individual or any one or more immediate family members of such individual holds (individually or in the aggregate) a Material Interest; and

 

(iv) any Person with respect to which such individual or any one or more immediate family members of such individual serves as a manager, director, executive officer, partner, executor or trustee (or in a similar capacity).

 

With respect to a specified Person other than an individual:

 

(i) any Person that is an Affiliate of such specified Person;

 

(ii) any Person that holds a Material Interest in such specified Person;

 

(iii) each Person that serves as a manager, director, executive officer, partner, executor or trustee of such specified Person (or in a similar capacity);

 

(iv) any Person in which such specified Person holds a Material Interest; and

 

(v) any Person with respect to which such specified Person serves as a manager, general partner or trustee (or in a similar capacity).

 

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(aa) “Sellers” means, collectively, (i) Lighthouse Care Centers, LLC, a Delaware limited liability company, (ii) Lighthouse Care Centers of South Carolina, LLC, a South Carolina limited liability company, (iii) Lighthouse Care Centers of Berkeley County, LLC, a South Carolina limited liability company, (iv) Lighthouse Care Centers of Oconee County, LLC, a South Carolina limited liability company, (v) Lighthouse Care Centers of Georgia, LLC, a Georgia limited liability company, (vi) Lighthouse Care Centers of Florida, LLC, a Florida limited liability company, (vii) Conway Investment Associates, LLC, a South Carolina limited liability company, (viii) Augusta Investment Associates, LLC, a Georgia limited liability company, and (ix) subject to Section 12.12, Jefferson City Medical Investors, LLC, a Delaware limited liability company; “Seller” means any of the Sellers, individually;

 

(bb) “Specified Representations” means any representation or warranty in either of Sections 2.5 or 2.21;

 

(cc) “Stark Law” means 42 U.S.C. § 1395nn and the rules or regulations promulgated thereunder; and

 

(dd) “Third-Party Claim” means any claim against any Indemnified Person by a Person that is not a Party, whether or not involving a Proceeding.

 

Other capitalized terms used in this Agreement have the respective meanings assigned to such terms elsewhere in this Agreement. For ease of reference, the page containing the definition of each such capitalized term is listed in the table of defined terms included elsewhere as a part of this Agreement.

 

1.2 Transfer of Seller Assets . Subject to Section 12.3(b), at the Closing, but effective as of the Effective Time, Sellers shall sell, assign, transfer, convey and deliver to Purchaser, free and clear of any Liens other than Permitted Encumbrances, and Purchaser shall acquire, all right, title and interest in and to all assets and properties of Sellers, real, personal or mixed, tangible and intangible, of every kind and description, wherever located, whether owned collectively by one or more Sellers or individually by any Seller (collectively, the “Assets”), including the following:

 

(a) all of the real property owned by any Seller, including the real property described in Schedule 1.2(a) , together with all buildings, improvements and fixtures located thereon and all construction in progress thereon (collectively, the “Real Property”);

 

(b) all equipment, furniture, fixtures, machinery, vehicles, office furnishings, leasehold improvements, and other tangible personal property owned by any Seller, including the items listed in Schedule 1.2(b) (the “Personal Property”);

 

(c) all rights of any Seller, 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 any Seller (the “Licenses”);

 

(d) subject to Section 9.3, the entire interest of each Seller in all leases listed in Schedule 1.2(d) pursuant to which any Seller, as lessee, leases any personal property, and all

 

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leases of personal property executed by any Seller on or after the Execution Date which Purchaser hereafter agrees in writing to accept (collectively, the “Leases”);

 

(e) subject to Section 9.3, the entire interest of each Seller in and to all contracts and agreements listed in Schedule 1.2(e) and all contracts and agreements executed by any Seller on or after the Execution Date which Purchaser hereafter agrees in writing to accept (the “Contracts”); provided, however , the term “Contracts” as used in this Agreement shall exclude all other contracts and agreements of any Seller (the “Excluded Contracts”), including contracts listed in Schedule 1.3(b) ;

 

(f) all accounts, notes, interest and other receivables of any Seller, and all claims, rights, interests and proceeds related thereto, including all accounts and other receivables arising from the rendering of services or the provision of medicine, drugs or supplies to patients at any Facility, billed and unbilled, recorded and unrecorded, for services provided by or on behalf of any Seller (the “Accounts Receivable”); provided, however , that the Accounts Receivable shall not include (i) any accounts or receivables arising from the rendering of services or provision of medicine, drugs or supplies to patients at any Facility, billed or unbilled, recorded or unrecorded, for services provided by any Seller prior to the Effective Time and relating to any Federal health care program as such term is defined in 42 U.S.C. § 1320a-7b(f) (the “Government Programs”) or any other third-party payor, which by law are not assignable, (ii) any rights of any Seller to settlements and retroactive adjustments, if any, for cost reporting periods ending on or prior to the Closing Date (whether open or closed) arising from or against any Government Programs or other third-party payor programs that settle on a cost-report basis, and (iii) any right to receive disproportionate share payments or enhanced payments from any Government Program (subsections (i), (ii) and (iii) above, collectively the “Government Receivables”);

 

(g) all advance payments, prepayments, prepaid expenses, deposits and the like of any Seller which exist as of the Closing Date (the “Prepaids”);

 

(h) all inventories of supplies, drugs, food, janitorial and office supplies, and other disposables and consumables of any Seller (the “Inventory”);

 

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

 

(j) to the extent assignable, all rights in all warranties of any builder, manufacturer or other Person in favor of any Seller;

 

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

 

(l) subject to the provisions of Section 1.13, all insurance proceeds arising in connection with property damage to or destruction of any assets of any Seller occurring after the Execution Date and prior to the Effective Time, to the extent not expended on the repair,

 

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restoration or replacement of such assets that are transferred to Purchaser at the Closing hereunder;

 

(m) all of Sellers’ rights in (i) all names, symbols, telephone numbers (and related listings and advertisements), facsimile numbers, domain names, trademarks, trade names, service marks and copyrights used with respect to the operation of any Facility, (ii) the items listed in Schedule 1.2(m) , (iii) all variants of any items referred to in the preceding clauses (i) or (ii), (iv) the internet website www.lighthousecarecenters.com maintained by any Seller and all content and information included thereon, and (v) all rights to the use of, and all common law trademark and other rights and all goodwill associated with, any item referred to in the preceding clauses (i), (ii), (iii) or (iv);

 

(n) to the extent transferable, all rights of any Seller with respect to any Medicare, Medicaid and other third-party provider or supplier numbers; and

 

(o) all other assets of any Seller;

 

provided, however , that the Assets shall not include the Excluded Assets.

 

1.3 Excluded Assets . Notwithstanding anything to the contrary in Section 1.2, the following assets (collectively, the “Excluded Assets”) are not part of the sale and purchase contemplated hereunder, are excluded from the Assets and shall remain the property of Sellers after the Closing:

 

(a) all cash and cash equivalents of any Seller;

 

(b) the Excluded Contracts other than the Leases, including those Excluded Contracts listed in Schedule 1.3(b) ;

 

(c) the Government Receivables;

 

(d) all documents, records, correspondence, work papers and other documents relating to the Seller Cost Reports or Agency Settlements;

 

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

 

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

 

(g) all limited liability company minute books of any Seller;

 

(h) all limited liability company membership interests or other equity interests in any Seller;

 

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

 

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(j) all rights of any Seller under or pursuant to this Agreement;

 

(k) all assets located at Sellers’ corporate headquarters in Chattanooga, Tennessee, except for any computer servers or software servicing any of the Facilities;

 

(l) all retrospective adjustment payments received from third-party payors, including Medicare and Medicaid, for services rendered to patients of the Facilities at or prior to the Effective Time, except to the extent included as a Current Asset in the Closing Date Net Assets Calculation; and

 

(m) all other assets specifically listed in Schedule 1.3(m) .

 

1.4 Assumed Liabilities . Subject to the terms and conditions of this Agreement, including Section 9.3, at the Closing, but effective as of the Effective Time, Purchaser shall assume and agree to discharge, pay or perform only the following liabilities and obligations of Sellers (collectively, the “Assumed Liabilities”):

 

(a) liabilities and obligations of any Seller under the Contracts, but only to the extent such liabilities and obligations either (i) arise after the Effective Time, or (ii) are specifically included as Current Liabilities in the Closing Date Net Assets Calculation; provided, however , that the Assumed Liabilities do not include any liability or obligation arising out of or relating to any breach or default by any Seller that occurred at or prior to the Effective Time;

 

(b) liabilities and obligations of any Seller under the Leases, but only to the extent such liabilities and obligations either (i) arise after the Effective Time, or (ii) are specifically included as Current Liabilities in the Closing Date Net Assets Calculation; provided, however , that the Assumed Liabilities do not include any liability or obligation arising out of or relating to any breach or default by any Seller that occurred at or prior to the Effective Time;

 

(c) Sellers’ accounts payable and other current liabilities, but only to the extent specifically included as Current Liabilities in the Closing Date Net Assets Calculation;

 

(d) Sellers’ obligations and liabilities as of the Closing Date in respect of accrued, unpaid vacation and sick pay of all Facility Workers who are leased to Purchaser by APE as of the Closing Date, and related taxes, but only to the extent specifically included as Current Liabilities in the Closing Date Net Assets Calculation;

 

(e) [ reserved ]; and

 

(f) any other obligations and liabilities of Sellers identified in Schedule 1.4(f) , but only to the extent specifically included as Current Liabilities in the Closing Date Net Assets Calculation.

 

1.5 Excluded Liabilities . Notwithstanding anything to the contrary in Section 1.4, Purchaser shall not assume or become responsible for any liabilities or obligations of any Seller other than the Assumed Liabilities (the “Excluded Liabilities”), and the Excluded Liabilities shall be retained, paid, performed and discharged solely by Sellers. The Excluded Liabilities shall include:

 

(a) all liabilities and obligations of any Seller which are not specifically included in the Assumed Liabilities;

 

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(b) all liabilities and obligations of any Seller arising out of or relating to any act, omission, event or occurrence connected with the use, ownership or operation of the Facilities or any of the Assets prior to the Effective Time, which are not specifically included in the Assumed Liabilities;

 

(c) all liabilities and obligations of any Seller to any employee of any Seller or any Facility Worker, including salary, wages, benefits, accrued unpaid vacation and sick pay and related Taxes, which are not specifically included in the Assumed Liabilities;

 

(d) all liabilities and obligations of any Seller arising under or in connection with or relating to payroll, vacation, sick leave, workers’ compensation, unemployment benefits, pension benefits, employee stock option or profit-sharing plans, health care plans or benefits, or any other employee plans or benefits or Plans of any kind for any Seller’s employees or former employees, or any Facility Workers or former Facility Workers, including all liabilities and obligations of any Seller for matching contributions for eligible beneficiaries’ 401(k) plans, Section 125 plans and other Plans, and all administrative costs associated with any such Plans; in each case which are not specifically included in the Assumed Liabilities;

 

(e) all liabilities and obligations of any Seller under any employment, severance, retention or termination agreement with any present or former employee of any Owner or any Related Person of any Owner or with any present or former Facility Worker;

 

(f) all liabilities and obligations of any Seller arising out of or relating to any employee or Facility Worker grievance to the extent arising out of any facts or circumstances occurring at or prior to the Effective Time, whether or not the affected employees or Facility Workers are hired by or leased to Purchaser;

 

(g) all liabilities and obligations of any Seller to any Owner or to any Related Person of any Owner, except for those arising after the Effective Time under the Conway Lease and the Cooper City Sublease and accrued insurance premiums owed to Sunland to the extent specifically included as Current Liabilities in the Closing Date Net Assets Calculation;

 

(h) all liabilities and obligations of any Seller relating to Seller Cost Reports with respect to periods ending at or prior to the Effective Time;

 

(i) all liabilities and obligations of any Seller with respect to refund, recoupment, set-off and other liabilities arising out of billings to third-party payors, including Medicare and Medicaid, for services rendered to patients of the Facilities at or prior to the Effective Time;

 

(j) all liabilities and obligations of any Seller for violations of any Legal Requirement, including the Anti-Kickback Law, the False Claims Act, the Stark Law and other Legal Requirements pertaining to Medicare, Medicaid or health care fraud or abuse;

 

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(k) all liabilities and obligations of any Seller under any Contract or Lease assumed by Purchaser pursuant to Section 1.4, which liability or obligation arises after the Effective Time but arises out of or relates to any breach or default by any Seller that occurred at or prior to the Effective Time;

 

(l) all liabilities and obligations of any Seller under any of the Excluded Contracts;

 

(m) except as provided in Section 1.4(d) (relating to taxes on accrued, unpaid vacation and sick pay) or Section 1.11 (relating to proration of property taxes), all liabilities and obligations of any Seller for Taxes, including (i) any Taxes arising as a result of the operation of any Facility or other operations of any Seller, or the ownership of any Assets, prior to the Effective Time, (ii) any Taxes with respect to Sellers that arise or will arise as a result of the sale or transfer of any of the Assets pursuant to this Agreement, and (iii) any liability or obligation of any Seller to pay the Taxes of any other Person under any tax sharing, tax allocation or tax indemnity agreement or otherwise;

 

(n) all liabilities and obligations of any Seller arising out of or resulting from any Seller’s compliance or noncompliance with any Legal Requirement or order, injunction, judgment, decree, ruling assessment or arbitration award of any government, governmental agency, governmental authority, governmental body, court or arbitrator;

 

(o) all liabilities and obligations of any Seller in connection with claims of professional malpractice;

 

(p) all liabilities and obligations of any Seller arising out of any Proceeding pending as of the Effective Time;

 

(q) all liabilities and obligations of any Seller arising out of any Proceeding commenced after the Effective Time to the extent arising out of or relating to any occurrence or event happening at or prior to the Effective Time;

 

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

 

(s) all liabilities and obligations of any Seller under this Agreement or any other document executed in connection with the transactions contemplated hereby.

 

1.6 Actions Taken on Execution Date . Concurrently with the execution and delivery of this Agreement:

 

(a) The Seller Representative (as the agent of Sellers), Purchaser and The Bank/First Citizens Bank, as Escrow Agent (the “Escrow Agent” ), shall execute and deliver an Execution Date Escrow Agreement (Lighthouse) (the “Execution Date Escrow Agreement”), pursuant to which the Execution Date Escrow Deposit deposited with the Escrow Agent pursuant hereto and all earnings thereon shall be held, invested and disbursed by the Escrow Agent;

 

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(b) Purchaser shall deposit Eight Hundred Twenty-Six Thousand Four Hundred Fourteen Dollars ($826,414) in escrow with the Escrow Agent pursuant to the Execution Date Escrow Agreement (the “Execution Date Escrow Deposit“);

 

(c) Byron DeFoor, Chuck Jabaley and Nelson Bowers shall each execute and deliver to Purchaser a Non-Competition Agreement which shall restrict certain actions of each such individual (collectively, the “Noncompetition Agreements”); and

 

(d) Purchaser shall enter into a Right of First Refusal Agreement with each of (i) Focus Healthcare of Tennessee, LLC and Veranda Property Investment, LLC, with respect to the behavioral health facility known as Focus Healthcare of Tennessee located in Chattanooga, Tennessee, and (ii) Knollwood Psychiatric and Chemical Dependency Center, Inc. and Knollwood Investment Associates, LLC, with respect to the behavioral health facility known as Knollwood Hospital located in Riverside, California, which agreements grant a right of first refusal to Purchaser to acquire such facilities and their related assets as further described therein for a period of eighteen (18) months, commencing as of the Effective Time (collectively, the “Right of First Refusal Agreements”).

 

1.7 Purchase Price . The total consideration payable for the Assets (the “Purchase Price”) shall be (a) Thirty-One Million Five Hundred Nineteen Thousand Four Hundred Thirty-Four Dollars ($31,519,434), (i) subject to increase or decrease pursuant to Section 1.12, and (ii) subject to possible decrease pursuant to Section 4.10, and (b) the assumption of the Assumed Liabilities pursuant to Section 1.4. In accordance with Section 1.10, on the terms and subject to the conditions of this Agreement, at the Closing, subject to the adjustments contemplated by the preceding sentence, the Purchase Price shall be delivered by Purchaser to Sellers as follows:

 

(i) Twenty-Nine Million Eight Hundred Sixty-Six Thousand Six Hundred Six Dollars ($29,866,606) (the “Closing Purchase Price Payment”) by wire transfer to an account designated by the Seller Representative; provided, however, that Forty-Nine Thousand Five Hundred Eighty-Five Dollars ($49,585) of the aggregate deposit of One Hundred Fifty Thousand Dollars ($150,000) made by Purchaser pursuant to the Letter of Intent prior to the Execution Date (the “LOI Deposit”) shall be credited against and constitute payment of a like amount of the Closing Purchase Price Payment;

 

(ii) One Million Six Hundred Fifty-Two Thousand Eight Hundred Twenty-Eight Dollars ($1,652,828) (the “Closing Date Escrow Deposit”) by wire transfer to the Escrow Agent for deposit in escrow pursuant to a Closing Date Escrow Agreement (Lighthouse) in the form attached hereto as Exhibit A to be executed and delivered at the Closing by Purchaser, the Seller Representative (as the agent of Sellers) and the Escrow Agent (the “Closing Date Escrow Agreement”); provided, however , that an amount equal to the sum of the Execution Date Escrow Deposit made pursuant to Section 1.6(b), any Extension Escrow Deposit made pursuant to Section 8.1(f), and all earnings thereon to the Closing Date shall be credited against and constitute payment of a like amount of the Closing Date Escrow Deposit; and

 

(iii) the Assumed Liabilities shall be assumed by the execution and delivery of the Bills of Sale.

 

1.8 Closing Date . The consummation of the transactions contemplated by this Agreement (the “Closing”) shall take place (a) at 10:00 a.m. Central time at the offices of

 

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Strasburger & Price, L.L.P., on or before five (5) business days after the day on which the last of the conditions set forth in Articles 6 and 7 is fulfilled or waived (other than any conditions that are not capable of being satisfied until the Closing, but subject to the satisfaction or waiver of those conditions), or (b) at such other date, time and place as Purchaser and the Seller Representative shall mutually agree upon in writing (the date on which the Closing actually occurs, the “Closing Date”). The Closing, the transfer of the Assets and the assumption of the Assumed Liabilities shall be deemed to have occurred and to be effective as of 12:01 a.m. Eastern time, on the Closing Date (the “Effective Time”).

 

1.9 Items to be Delivered by Sellers at Closing . Subject to Section 12.3(b), at the Closing, Sellers shall deliver to Purchaser the following items, duly executed by Sellers or the Seller Representative where appropriate and in the form provided for below or otherwise reasonably satisfactory to Purchaser and counsel for Purchaser:

 

(a) the Closing Date Escrow Agreement executed by the Seller Representative and the Escrow Agent;

 

(b) multiple forms of General Assignment, Bill of Sale and Assumption of Liabilities (Lighthouse) as contemplated by the forms attached hereto as Exhibits B-1 and B-2 (the “Bills of Sale”);

 

(c) Limited Warranty Deeds with respect to the Real Property in forms reasonably satisfactory to Purchaser;

 

(d) original certificates of existence and good standing, or comparable status, of each Seller, issued by the state of each such Seller’s organization and each state in which such Seller operates a Facility or owns any of the Real Property, as applicable, dated no earlier than a date which is fourteen (14) calendar days prior to the Closing Date;

 

(e) an opinion of counsel for Sellers substantially as described in Exhibit C attached hereto;

 

(f) a certificate of Sellers, executed by a duly authorized officer of each Seller, certifying to Purchaser that (i) all the representations and warranties of Sellers 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, and (ii) Sellers have performed or complied with the covenants and agreements required of Sellers set forth in this Agreement to be performed or complied with by the Closing Date;

 

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

 

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(h) complete releases (or bank release letters in a form reasonably acceptable to Purchaser) of any and all pledges, liens, mortgages, security interests, restrictions, easements, conditions, covenants, charges, licenses, leases and other encumbrances of any nature whatsoever (collectively, “Liens”) with respect to the Assets, including the real property matters described in Section 7.8, other than Permitted Encumbrances;

 

(i) payment of the premiums, costs and charges relating to the Title Policies in the amount required to be paid by Sellers hereunder and payment of all other Taxes, fees and expenses required to be paid by Sellers pursuant to Sections 4.11 and 12.9, to the extent determinable at Closing;

 

(j) multiple forms of Limited Power of Attorney for use of Pharmacy Licenses, DEA and Other Registration Numbers, and DEA Order Forms (Lighthouse) for each Facility, substantially in the form of Exhibit D attached hereto (the “Powers of Attorney”);

 

(k) all consents to the assignment of the Contracts and the Leases from third parties required to assign the Contracts and Leases to Purchaser without violation or breach of the Contract or Lease in question (the “Contract and Lease Consents”), except for those Contracts and Leases as to which the provisions of clauses (a) or (b) of the first sentence of Section 7.5, and the provisions of the second sentence of Section 7.5 if applicable to the Contract or Lease in question, have been satisfied;

 

(l) Assignments and Assumptions of Real Estate Leases in forms reasonably satisfactory to Purchaser and the Seller Representative (the “Assignments of Leases”), pursuant to which:

 

(i) Conway Investment Associates, LLC will assign without recourse its interest, as landlord, in that certain Lease Agreement dated as of November 16, 2001, by and between Conway Investment Associates, LLC and Lighthouse Care Centers of South Carolina, LLC (the “Conway Lease”), to Purchaser or its Designee;

 

(ii) Lighthouse Care Centers of South Carolina, LLC will assign without recourse its interest, as tenant, in the Conway Lease to Purchaser or its Designee;

 

(iii) Lighthouse Care Centers of Oconee County, LLC and Lighthouse Care Centers of South Carolina, LLC will each assign its interest, as tenant, in that certain Lease Agreement dated as of April 22, 2002, by and between the South Carolina Department of Juvenile Justice and Lighthouse Care Centers of South Carolina, to Purchaser or its Designee (the “Oconee County Lease”);

 

(iv) Lighthouse Care Centers, LLC and Lighthouse Care Centers of Florida, LLC will each assign without recourse its interest, as tenant, in that certain Sub-Lease dated as of December 6, 2002, by and between Focus Healthcare of Florida d/b/a High Point and Lighthouse Care Centers (the “Cooper City Sublease”), to Purchaser or its Designee;

 

(m) evidence of termination, together with mutual releases by the parties thereto, of all leases of the Real Property, other than the Conway Lease and the Cooper City Sublease;

 

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(n) possession of the tangible Assets at the respective Facilities; and

 

(o) such other instruments, certificates, consents, affidavits, no-change survey affidavits, or other documents which are reasonably necessary to carry out the transactions contemplated by this Agreement and to comply with the terms hereof or which Purchaser or a title company issuing one of the Title Policies may otherwise reasonably request.

 

1.10 Items to be Delivered by Purchaser at Closing . Subject to Section 12.3(b), at the Closing, Purchaser shall execute and deliver or cause to be delivered to Sellers the following, duly executed by Purchaser where appropriate:

 

(a) the Closing Date Escrow Agreement executed by Purchaser;

 

(b) the Closing Purchase Price Payment in accordance with Section 1.7(i) by wire transfer to the account specified by the Seller Representative, which account the Seller Representative shall specify to Purchaser not less than three (3) business days prior to the Closing Date in writing;

 

(c) the Closing Date Escrow Deposit in accordance with Section 1.7(ii) by wire transfer to the Escrow Agent for deposit in escrow pursuant to the Closing Date Escrow Agreement;

 

(d) the Bills of Sale;

 

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

 

(f) an opinion of counsel for Purchaser substantially as described in Exhibit E attached hereto;

 

(g) a certificate of Purchaser, executed by the President or any Vice President of Purchaser, certifying to Sellers that (i) 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, and (ii) Purchaser has performed or complied with the covenants and agreements required of Purchaser set forth in this Agreement required to be performed or complied with by the Closing Date;

 

(h) a certificate of Purchaser, executed by the corporate Secretary of Purchaser, certifying to Sellers (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 or any additional documents contemplated by this Agreement and (ii) the due adoption and text of the resolutions of the Board of Directors of Purchaser authorizing 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;

 

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(i) the Powers of Attorney;

 

(j) the Assignments of Leases; and

 

(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 or which may be reasonably requested by the Seller Representative.

 

1.11 Prorations and Utilities . To the extent not included in the calculation of the Net Assets Adjustment Amount or otherwise prorated pursuant to this Agreement, at Closing Purchaser and Sellers shall prorate (as of the Effective Time), to the extent applicable to the Assets, real estate and personal property lease 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 after Closing upon receipt of the final bill or other evidence of the applicable item of income or expense. There shall be no proration of rents or other items between Purchaser and Sellers under any of the Real Property Leases or the Cooper City Sublease, and Purchaser shall not be responsible for the security deposit, if any, deposited pursuant to any such leases nor shall any such security deposit be transferred to Purchaser.

 

1.12 Net Assets Adjustment .

 

(a) As used herein, (i) the term “Net Assets” means the amount determined by subtracting the “Current Liabilities” from the “Current Assets,” and (ii) the term “Base Net Assets” means One Million Five Hundred Fourteen Thousand Nine Hundred Thirteen Dollars ($1,514,913).

 

(b) At least ten (10) days prior to the Closing, the Seller Representative shall deliver to Purchaser a written determination of the Net Assets as of 11:59 p.m. Eastern Time on November 30, 2005 (“Estimated Net Assets”), which written determination shall contain reasonable detail and supporting documents showing the computation of such determination and the components of Current Assets and Current Liabilities included therein. The principles, specifications and methodologies for determining the Estimated Net Assets, including the components of the Current Assets and the components of the Current Liabilities to be included therein, shall be as specified in Schedule 1.12 . The “Net Assets Adjustment Amount” shall equal the difference between Estimated Net Assets and Base Net Assets. If Estimated Net Assets exceeds Base Net Assets, the Net Assets Adjustment Amount shall be added to the Closing Purchase Price Payment. If Estimated Net Assets is less than Base Net Assets, the Closing Purchase Price Payment shall be reduced by the amount of the Net Assets Adjustment Amount.

 

(c) Within one hundred eighty (180) days after the Effective Time, Purchaser shall deliver to the Seller Representative a written determination of the Net Assets as of 11:59 p.m. Eastern Time on the day before the Closing Date (“Closing Date Net Assets”), which written determination shall contain reasonable detail and supporting documents showing the computation of such determination and the components of Current Assets and Current Liabilities included therein. The principles, specifications and methodologies for determining Closing Date Net Assets, including the components of the Current Assets and the components of the Current

 

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Liabilities to be included therein, shall be as specified in Schedule 1.12 . Each Party shall have full access to the financial books and records of the Sellers or pertaining to the Facilities to confirm or audit Closing Date Net Assets computations. If the Seller Representative disagrees with Purchaser’s determination of Closing Date Net Assets, the Seller Representative shall notify Purchaser in writing within twenty (20) days after Purchaser’s delivery of its determination of Closing Date Net Assets and state in reasonable detail the basis for such disagreement. Failure of the Seller Representative to deliver such a notice of disagreement within such twenty (20) day period shall constitute Sellers’ acceptance of Purchaser’s determination of Closing Date Net Assets as delivered to the Seller Representative under this Section 1.12(c). If the Seller Representative and Purchaser fail to agree within thirty (30) days after the Seller Representative’s delivery of notice of disagreement on the amount of Closing Date Net Assets, such disagreement shall be resolved in accordance with the procedures set forth in Section 1.12(d), which shall be the sole and exclusive remedy for resolving disputes relative to the determination of the amount of Closing Date Net Assets under this Section 1.12.

 

(d) In the event that the Seller Representative and Purchaser are not able to agree on the Closing Date Net Assets within thirty (30) days after the Seller Representative’s delivery of notice of disagreement pursuant to Section 1.12(c), the Seller Representative and Purchaser shall each have the right to require that such disputed determination be submitted to Grant Thornton LLP, or if Grant Thornton LLP is not available for any reason or does not maintain its independent status, such other independent certified public accounting firm as the Seller Representative 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 arbitrator, shall promptly decide the proper amounts of such disputed entries (which decision shall also include a final calculation of Closing Date 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 Closing Date Net Assets under this Section 1.12. If issues are submitted to the Accounting Firm for resolution, (i) each Seller and Purchaser shall furnish or cause to be furnished to the Accounting Firm such work papers and other documents and information relating to the disputed issues as the Accounting Firm may request and are available to that Party or its agents, and the Seller Representative and Purchaser shall be afforded the opportunity to present to the Accounting Firm any material relating to the disputed issues and to discuss the issues with the Accounting Firm; (ii) the determination by the Accounting Firm, as set forth in a notice to be delivered to both the Seller Representative and Purchaser within sixty (60) days of the submission to the Accounting Firm, of the issues remaining in dispute, shall be final, binding and conclusive on the Parties and shall be used in the calculation of Closing Date Net Assets; and (iii) one-half of the Accounting Firm’s fees and expenses shall be paid by Sellers, and one-half of such fees and expenses shall be paid by Purchaser. The final calculation of Closing Date Net Assets pursuant to this Section 1.12, as determined pursuant to this Section 1.12, is referred to herein as the “Closing Date Net Assets Calculation.”

 

(e) The Purchase Price shall be increased or decreased based on the difference between Closing Date Net Assets and Estimated Net Assets (the “Final Net Assets Settlement Amount”) up to, but not exceeding, a total adjustment amount of One Hundred Sixty-Five Thousand Two Hundred Eighty-Five Dollars ($165,285). Within ten (10) days after the date the final determination of Closing Date Net Assets is agreed to or settled upon by the Parties pursuant to this Section 1.12 (the “Final Net Assets Settlement Date”), (i) if Closing Date Net

 

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Assets exceed Estimated Net Assets, the Final Net Assets Settlement Amount shall be paid in cash by Purchaser to an account specified by the Seller Representative by wire transfer of immediately-available funds and as an increase to the Purchase Price, or (ii) if Estimated Net Assets exceed Closing Date Net Assets, the Final Net Assets Settlement Amount shall be paid in cash to Purchaser pursuant to the Closing Date Escrow Agreement as a decrease in the Purchase Price; provided, however, that the increase or decrease pursuant to this sentence shall not exceed One Hundred Sixty-Five Thousand Two Hundred Eighty-Five Dollars ($165,285).

 

1.13 Risk of Loss . The risk of loss or damage to any of the Personal Property, the Real Property, the Facilities and all other assets and property of Sellers, the transfer of which is contemplated by this Agreement, shall remain with Sellers until the Effective Time. Sellers shall maintain in effect through the Effective Time, without material change, all insurance policies covering the Personal Property, the Real Property, the Facilities and all other assets and property of Sellers.

 

(a) With respect to the Real Property, if prior to the Closing, all or any part of the Real Property is damaged or destroyed 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 Sellers have 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 , at the Closing, Sellers shall assign, transfer and set over to Purchaser all of Sellers’ right, title and interest in and to any insurance proceeds on account of such damage or destruction and shall pay to Purchaser an amount of cash equal to the amount of any applicable deductibles under such insurance policies, and, if the sum of such insurance proceeds and deductible amounts are insufficient to repair, restore and/or replace the damaged or destroyed Real Property, the Purchase Price and the Closing Purchase Price Payment shall be reduced by an amount equal to difference between the cost to repair, restore and/or replace and the sum of such insurance proceeds and deductible amounts. If prior to the Closing, all or any part of the Real Property is damaged or destroyed by fire or the elements or by any other cause where the Aggregate Damage equals or exceeds ten percent (10%) of the Purchase Price, Purchaser may elect to (i) purchase such Real Property, in which case the Closing shall proceed as scheduled; provided, however , at the Closing, Sellers shall assign, transfer and set over to Purchaser all of Sellers’ right, title and interest in and to any insurance proceeds on account of such damage or destruction and shall pay to Purchaser an amount of cash equal to the amount of any applicable deductibles under such insurance policies, and, if the sum of such insurance proceeds and deductible amounts are insufficient to repair, restore and/or replace the damaged or destroyed Real Property, the Purchase Price and the Closing Purchase Price Payment shall be reduced by an amount equal to the difference between the cost to repair, restore and/or replace and the sum of such insurance proceeds and deductible amounts, (ii) not purchase such Real Property, and, in such event, an appropriate reduction of the Purchase Price, utilizing a methodology to be agreed upon, shall be made by Purchaser and the Seller Representative, or (iii) elect to terminate this Agreement by written notice to the Seller Representative. If Purchaser and the Seller Representative are unable to agree upon the amount of the Aggregate Damage and any applicable Purchase Price reduction within ten (10) days after Purchaser notifies the Seller Representative of an election made by Purchaser pursuant to subsection (ii) of the preceding sentence, the amount of the Aggregate Damage and any applicable Purchase Price reduction shall be determined by a consulting firm mutually selected

 

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by the Seller Representative and Purchaser (the “Independent Consultant”) pursuant to Section 1.13(d).

 

(b) With respect to any Assets other than Real Property which are damaged or destroyed by fire or the elements or by any other cause prior to the Closing, Sellers shall assign, transfer and set over to Purchaser all of Sellers’ right, title and interest to any insurance proceeds on account of such damage or destruction and shall pay to Purchaser an amount of cash equal to the amount of any applicable deductibles under such insurance policies, and, if such insurance proceeds and deductible amounts are insufficient to repair, restore and/or replace the damaged or destroyed Assets, the Purchase Price and the Closing Purchase Price Payment shall be reduced by an amount equal to the difference between the cost to repair, restore and/or replace and the sum of such insurance proceeds and deductible amounts.

 

(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 reasonable judgment materially adversely impair access to such Real Property or be materially adverse to the operations of the Facility located on such Real Property, Purchaser may elect to (i) purchase such affected Real Property, and the Closing shall proceed as scheduled; provided, however , at the Closing, Sellers shall assign, transfer and set over to Purchaser all of Sellers’ right, title and interest in and to any award in such eminent domain or condemnation proceeding, (ii) not purchase the affected Real Property and the Facility and related Assets located thereon, and, in such event, an appropriate reduction of the Purchase Price, utilizing a methodology to be agreed upon, shall be made by Purchaser and the Seller Representative, or (iii) terminate this Agreement by written notice to the Seller Representative. If Purchaser and the Seller Representative are unable to agree upon the amount of the Purchase Price reduction within ten (10) days after Purchaser notifies the Seller Representative of an election made by Purchaser pursuant to subsection (ii) of the preceding sentence, the amount of the Purchase Price reduction shall be resolved by the Independent Consultant pursuant to Section 1.13(d).

 

(d) If pursuant to either Section 1.13(a) or 1.13(c), the amount of the Aggregate Damage (and any applicable Purchase Price reduction) is to be determined by the Independent Consultant, within the ten (10) day period referred to in Section 1.13(a) or 1.13(c), as applicable (the “Submittal Date”), Purchaser and the Seller Representative shall each submit to the other and to the Independent Consultant its proposed Aggregate Damage if applicable (and any applicable Purchase Price reduction) as a result of the event(s) contemplated by either Section 1.13(a) or 1.13(c), along with a detailed description of the basis for such amount and any applicable reduction. 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 if applicable (and any applicable Purchase Price reduction), taking into account any submissions by the Seller Representative or Purchaser made by the Submittal Date. The decision of the Independent Consultant shall be conclusive and binding as between Purchaser and Sellers. One-half of the costs of such review shall be paid by Sellers, and one-half of the costs of such review shall be paid by Purchaser. Upon any such determination of the adjustment to the Purchase Price in accordance with this Section 1.13(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 fifteenth (15th) calendar day following the Submittal Date unless Purchaser and the Seller Representative mutually agree upon a later date.

 

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1.14 Seller Representative .

 

(a) Each Seller hereby constitutes and appoints Byron DeFoor as its representative and true and lawful attorney in fact (the “Seller Representative”), with full power and authority in each of their names and on behalf of each of them:

 

(i) to act on behalf of each of them in the absolute discretion of the Seller Representative, but only with respect to the following provisions of this Agreement, with the power to: (A) designate the account for payment of the Purchase Price pursuant to Section 1.7 or 1.10 or other payments to be made to any Seller pursuant to this Agreement or either Escrow Agreement, (B) act pursuant to Sections 1.11, 1.12 and 1.13 with respect to prorations and Purchase Price adjustments (including the Net Assets Adjustment Amount and the Final Net Assets Settlement Amount) and related matters, including executing any amendment hereto to reflect any Purchase Price adjustment or reduction agreed to pursuant to Section 1.12 or 1.13, (C) execute, deliver and act under each Escrow Agreement, (D) grant any waiver or consent under Article 6, Section 8.1 or Section 12.14, make any determination under Article 6 or Section 8.1 (including a determination that the conditions in Article 6 have been satisfied), or terminate this Agreement pursuant to Section 8.1, (E) act in connection with any matter as to which Sellers, jointly and severally, have or are alleged to have obligations, or as to which any Seller is or claims to be an Indemnified Person, under Article 10, (F) consent to the assignment of rights under this Agreement in accordance with Section 12.3(a), (G) give and receive notices pursuant to Section 12.6, and (H) receive and accept such notices or correspondence, execute such other documents, and take such other actions as are provided herein to be received, accepted, executed or taken by the Seller Representative; and

 

(ii) in general, to do all things and to perform all acts, including executing and delivering all agreements, certificates, receipts, instructions and other instruments contemplated by or deemed advisable to effectuate the provisions of this Section 1.14.

 

(b) The foregoing appointment and grant of power and authority is coupled with an interest and is in consideration of the mutual covenants made herein and is irrevocable and shall not be terminated by any act of any Seller or by operation of law or by the occurrence of any other event.

 

(c) Each Seller consents to the taking by the Seller Representative of any and all actions and the making by the Seller Representative of any decisions required or permitted to be taken or made by the Seller Representative pursuant to this Section 1.14, and agrees that each such action or decision shall bind such Seller. Each Seller hereby authorizes, approves and ratifies the execution of the Execution Date Escrow Agreement by the Seller Representative on such Seller’s behalf and further acknowledges and agrees that such Seller is bound thereby as if such Seller had executed the Execution Date Escrow Agreement directly.

 

(d) Each Seller agrees that the Seller Representative shall have no obligation or liability to any Person for any action or omission taken or omitted by the Seller Representative in good faith hereunder. Sellers, jointly and severally, shall indemnify and hold the Seller Representative harmless from and against any and all loss, damage, expense or liability (including reasonable counsel fees and expenses) which the Seller Representative may sustain as a result of any such action or omission by the Seller Representative hereunder.

 

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(e) Purchaser and the Escrow Agent shall be entitled to conclusively rely, without any independent verification or inquiry, upon any document or other paper delivered by or other action taken by the Seller Representative as (i) genuine and correct and (ii) having been duly signed or sent or taken by the Seller Representative, and neither Purchaser nor the Escrow Agent shall be liable to any Seller for any action taken or omitted to be taken by Purchaser or such Escrow Agent in such reliance.

 

(f) Payments made to or as directed by the Seller Representative under Section 1.10 or any other provision of this Agreement, or under either Escrow Agreement, are binding to the same extent as though such payments were made directly to Sellers. Neither Purchaser nor the Escrow Agent shall have any responsibility or liability for any further delivery or application of any such payment, it being agreed by Sellers that, on the terms set forth herein, (i) any payment Purchaser is required to make hereunder, and any payment the Escrow Agent is required to make under either Escrow Agreement, may be made to or as directed by the Seller Representative on behalf of Sellers, (ii) Sellers shall determine among themselves the amount due to each Seller from each payment made to or as directed by the Seller Representative hereunder or under either Escrow Agreement, and (iii) each Seller shall look solely to the Seller Representative for each Seller’s respective share of any payment made to or as directed by the Seller Representative hereunder or under either Escrow Agreement.

 

(g) Byron DeFoor may appoint Seller Representative, LLC, a Tennessee limited liability company (the “Successor Representative”), as the successor Seller Representative to replace Byron DeFoor. To be effective, such appointment must be written, signed by Byron DeFoor as the Seller Representative to indicate such appointment, signed by the Successor Representative to indicate its acceptance of such appointment and its agreement to be bound by the terms hereof pertaining to the “Seller Representative,” delivered to Purchaser and be reasonably satisfactory to Purchaser in form and substance. Upon such an appointment of a successor Seller Representative under this Agreement, such successor Seller Representative will succeed to and become vested with all of the rights, powers, privileges and duties of the predecessor Seller Representative, and the predecessor Seller Representative shall be discharged from such predecessor Seller Representative’s duties and obligations under this Agreement.

 

ARTICLE 2

REPRESENTATIONS AND WARRANTIES OF SELLERS

 

Sellers, jointly and severally, represent and warrant to Purchaser as follows:

 

2.1 Authority . Each Seller has full limited liability company power and authority (a) to enter into this Agreement and all documents delivered or to be delivered by such Seller in connection herewith, and (b) to carry out and perform the transactions contemplated hereby or thereby.

 

2.2 Authorization/Execution . All limited liability company action and other actions required to be taken by any Seller to authorize the execution, delivery and performance of this Agreement, all documents executed or to be executed by any Seller in connection herewith, and all transactions contemplated hereby or thereby, have been duly and properly taken or obtained. No other limited liability company action or other action on the part of any Seller is necessary to authorize the execution, delivery and performance of this Agreement, any document executed or to be executed by any Seller in connection herewith, or any transaction contemplated hereby.

 

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This Agreement and all documents executed or to be executed by any Seller in connection herewith have been (or will be, as applicable) duly and validly executed and delivered by each Seller party thereto and (assuming due and valid execution by, and enforceability against, Purchaser if Purchaser is a party thereto) this Agreement and all documents executed or to be executed by any Seller in connection herewith constitute (or will constitute, when executed and delivered) valid and binding obligations of each Seller party thereto enforceable in accordance with their respective terms.

 

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

 

(a) Each Seller is a limited liability company duly organized, validly existing and in good standing under the laws of the state of its organization. Each Seller is duly qualified and in good standing in each state in which such Seller owns any real property, if different from the state of its organization, and all such states are listed for each Seller on Schedule 2.3(a) . Each Seller has full power and authority to own, operate and lease its properties and to carry on its business as now conducted.

 

(b) Except as set forth on Schedule 2.3(b) , no Seller has any subsidiary, whether direct or indirect, that is not also a Seller hereunder. No Seller has any equity interest or investment in, or any other right or obligation to purchase any equity interest or other investment in, any other Person that is not also a Seller hereunder. No Seller is a partner of or joint venturer with any other Person.

 

(c) Except as set forth 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 any Seller is or will be a party do not and will not (i) violate any decree or judgment of any court or governmental authority which is applicable to or binding upon any Seller, (ii) violate in any material respect any Legal Requirement applicable to any 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 contract, lease, sales order, purchase order, indenture, mortgage, note, bond, instrument, license or other agreement to which any Seller is a party, or by which any Seller is bound, which violation, conflict, breach or default would have a Material Adverse Effect on any Seller or Facility, (iv) require the consent, waiver or approval of or notice to any Person, which, if not obtained, would have a Material Adverse Effect on any Seller or Facility, (v) permit the acceleration of the maturity of any indebtedness of any Seller, or (vi) violate or conflict with any provision of the certificate of formation or organization, limited liability company agreement or regulations, or similar organizational documents of any Seller.

 

2.4 Financial Statements; Changes; Related Matters .

 

(a) Sellers have delivered to Purchaser the financial statements of Sellers listed in Schedule 2.4(a) . To the Knowledge of Sellers, except as set forth in Schedule 2.4(a) , such financial statements fairly present in all material respects the financial condition and the results of operations of Sellers as at the respective dates of and for the periods referred to in such financial statements, all in accordance with GAAP.

 

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(b) Sellers have delivered to Purchaser unaudited, unconsolidated balance sheets (the “Interim Balance Sheets”) of Sellers at October 31, 2005 (the “Interim Balance Sheet Date”) and the related unaudited, unconsolidated statements of operations of Sellers for the ten (10) month period then ended. To the Knowledge of Sellers, except as set forth in Schedule 2.4(b) , such financial statements fairly present in all material respects (and the financial statements delivered pursuant to Section 4.5 will fairly present in all material respects) the financial condition and the results of operations of Sellers as at the respective dates of and for the periods referred to in such financial statements. To the Knowledge of Sellers, except as set forth in Schedule 2.4(b) , such interim financial statements reflect (and in the case of financial statements delivered pursuant to Section 4.5 will reflect when delivered) all adjustments necessary for a fair presentation of the financial information contained therein other than normal year-end adjustments which are consistent with past practices.

 

(c) To the Knowledge of Sellers, the financial statements referred to in this Section 2.4 and delivered pursuant to Section 4.5 reflect and will reflect the consistent application in all material respects of accounting principles throughout the periods involved, except as disclosed in the notes to such financial statements. To the Knowledge of Sellers, all such financial statements have been and will be prepared from and are and will be in accordance with the accounting records of Sellers. To the Knowledge of Sellers, the accounting records of Sellers, all of which have been made available to Purchaser, are complete and correct in all material respects and represent actual, bona fide transactions and have been maintained in accordance with sound business practices.

 

(d) Sellers have delivered to Purchaser copies of all letters from Sellers’ auditors to any Seller during the twenty-four (24) months preceding the execution of this Agreement, together with copies of all responses thereto.

 

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

 

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

 

(ii) any strike or other material labor dispute involving any Seller or employees or personnel at any Facility; or

 

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

 

(f) Except as set forth in Schedule 2.4(f) , no Seller has any material liabilities except for liabilities reflected or reserved against in the Interim Balance Sheets and current liabilities incurred in the ordinary course of business of Sellers since the Interim Balance Sheet Date.

 

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2.5 Taxes .

 

(a) For purposes of this Agreement,

 

(i) “Tax” or “Taxes” means any income, gross income, gross receipts, premiums, profits, capital, franchise, withholding, payroll, social security, workers compensation, unemployment, disability, property, ad valorem, stamp, excise, registration, occupation, service, sales, use, license, lease, transfer, import, export, value added, severance, environmental, alternative minimum, estimated or other similar tax (including any fee, assessment, or other charge in the nature of or in lieu of any tax) imposed by any governmental entity or political subdivision thereof, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.

 

(ii) “Tax Return” means any report of Taxes due, any claims for refund of Taxes paid, any information return with respect to Taxes, or any other similar report, statement, declaration, or document required to be filed under the Internal Revenue Code of 1986, as amended (the “Code”), or other Legal Requirement relating to Taxes, including any attachments, exhibits, or other materials submitted with any of the foregoing, and including any amendments or supplements to any of the foregoing.

 

(b) Except as set forth in Schedule 2.5(b) :

 

(i) Each 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 any Seller (whether or not shown on any Tax Return) that have become due and payable have been paid, except where the failure to pay such Taxes would not have a Material Adverse Effect on any Seller or Facility.

 

(ii) No Seller is currently the beneficiary of any extension of time within which to file any Tax Return.

 

(iii) Each 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.

 

(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 deficiencies for any Taxes have been asserted or assessed in writing against any Seller or any of the Assets, which are unpaid. To the Knowledge of Sellers, there are no claims, audits, or investigations pending or threatened against any Seller or any of the Assets for any Tax.

 

(vi) To the Knowledge of Sellers, there is no reasonable basis for any assertion by any tax authority of any deficiency in Taxes against any Seller or the Assets, including any assertion by any tax authority for any jurisdiction where a Seller does not file Tax Returns with respect to a given Tax that the Seller is or may be subject to such Tax in such jurisdiction.

 

(vii) No Seller has consented to extend to a date later than the Closing Date the time in which any Tax may be assessed or collected by any tax authority

 

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(viii) No Seller is a party to any tax allocation or sharing agreement with any Person, or a party to any agreement to indemnify any Person with respect to Taxes.

 

(ix) None of the Assets shown on any Interim Balance Sheet is owned by a Person other than a Seller such that Purchaser will not acquire ownership of the Asset for tax purposes as a result of the transactions contemplated by this Agreement.

 

(x) None of the Assets is (A) required to be or is being depreciated under the alternative depreciation system under Code Section 168(g)(2), or (B) subject to Code Section 168(f).

 

(xi) No “industrial development bonds” within the meaning of Section 103 of the Internal Revenue Code of 1954, as amended and in effect prior to the enactment of the Tax Reform Act of 1986, “private activity bonds” within the meaning of Code Section 141, or other tax exempt financings are outstanding which have been used to finance Assets of any Seller, whether leased or owned.

 

(xii) The consummation of the transactions contemplated by this Agreement will not adversely affect the continued validity and effectiveness of any Tax exemptions, Tax holidays or other Tax reduction agreements or orders that relate to the Assets.

 

(xiii) None of the Assumed Liabilities is an obligation to make a payment that is not deductible under Code Sections 280G or 162(m) or any corresponding provision of any other applicable Tax law.

 

(xiv) No Seller is a partner in any entity classified as a partnership for federal income Tax purposes that is not also a Seller hereunder.

 

(xv) No election under Treasury Regulations Section 301.7701-3 or corresponding provisions of any other applicable Tax law has been made to classify any Seller entity other than in accordance with the default classification for such entity.

 

(xvi) No Seller is a “foreign person” within the meaning of Treasury Regulation Section 1.1445-2(b).

 

2.6 Material Contracts . Schedule 2.6 lists each Material Contract to which any 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(b) . Except as set forth 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 or agreement that (a) after the Interim Balance Sheet Date, obligates any Seller or Sellers to pay an amount of Twenty-Five Thousand Dollars ($25,000) or more in any one twelve-month period or obligates any Seller or Sellers 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 sixty (60) days or less notice by the Seller party thereto at any time during the term, without penalty, (c) contains a covenant not to compete or otherwise restricts the ability of any Seller to conduct its business, including as to manner or place, (d) grants a power of attorney, agency or similar authority to another Person or entity, (e) contains a right of first refusal, (f) constitutes a collective bargaining agreement including any collective bargaining agreement with physicians

 

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or any other referral source, (g) constitutes an employment or severance agreement with any Facility Worker or any member, manager, director, officer or employee of any Seller or any Affiliate of any Seller, (h) represents a contract upon which the business of any Facility is substantially dependent or a contract which is otherwise material to the business of any Facility, (i) represents a contract with a physician, or to the Knowledge of Sellers, an immediate family member of a physician or any other re