ASSET ACQUISITION AND CONTRIBUTION AGREEMENT

Exhibit 10.1

 

ASSET ACQUISITION AND CONTRIBUTION AGREEMENT

 

by and between

 

FRIENDS HOSPITAL

 

as Seller,

 

and

 

FRIENDS BEHAVIORAL HEALTH SYSTEM, LP

 

as Purchaser

 

Dated as of April 22, 2005

TABLE OF CONTENTS

 

 

- i -

 

- ii -

 

- iii -

 

 

- iv -

LIST OF EXHIBITS

 

 

 

- v -

LIST OF SCHEDULES

 

 

TABLE OF DEFINED TERMS

 

 

- vi -

 

- vii -

 

- viii -

 

- ix -

ASSET ACQUISITION AND CONTRIBUTION AGREEMENT

 

This ASSET ACQUISITION AND CONTRIBUTION AGREEMENT (this “Agreement”) is made and entered into as of the 22nd day of April, 2005 (the “Execution Date”) by and between FRIENDS HOSPITAL , a Pennsylvania nonprofit membership corporation (“Seller”), and FRIENDS BEHAVIORAL HEALTH SYSTEM, LP , a Pennsylvania limited partnership (“Purchaser”). HORIZON MENTAL HEALTH MANAGEMENT, INC. , a Texas corporation (“HMHM”), joins in the execution of this Agreement for the limited purposes stated in Section 1.15, Section 9.11 and Section 12.15. FRIENDS GP, LLC , a Pennsylvania limited liability company (“FGP”), joins in the execution of this Agreement for the limited purposes stated in Sections 1.2 and 1.13.

 

R E C I T A L S:

 

A. Seller owns and operates a 192 bed acute psychiatric hospital and a 26 bed adult residential treatment center located at 4641 Roosevelt Boulevard, Philadelphia, Pennsylvania 19124-2399 (collectively, the “Hospital”);

 

B. Horizon Health Corporation, a Delaware corporation (“HHC”), executed a letter of intent with Seller on January 20, 2005, which provided that a mutually-agreed upon joint venture entity would be established by the parties to acquire the Hospital and related assets from Seller in exchange for Seller receiving $16,000,000 in cash and a 20% ownership interest in such entity;

 

C. In furtherance of such purposes, HHC caused its wholly-owned subsidiary, HMHM, (i) to form FGP as its wholly-owned subsidiary, and (ii) to cause FGP to form Purchaser with FGP serving as the sole general partner of and owning a 0.1% general partner interest in Purchaser, and HMHM serving as the sole limited partner of Purchaser and initially owning a 99.9% limited partner interest in Purchaser;

 

D. The parties hereto intend for Purchaser to be the entity to acquire the Hospital and its related assets, as described in Recital B above;

 

E. Purchaser desires to purchase and lease from Seller, and Seller desires to sell and lease to Purchaser, as more fully set forth in this Agreement, 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; and

 

F. Upon consummation of the transactions contemplated herein, (i) Seller will own a 20% membership interest in FGP and a 19.98% limited partner interest in Purchaser, (ii) HMHM will own an 80% membership interest in FGP and a 79.92% limited partner interest in Purchaser, and (iii) FGP will continue to own a 0.1% general partner interest in Purchaser.

 

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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 hereto, intending to be legally bound, agree as follows:

 

ARTICLE 1

DEFINITIONS; SALE AND TRANSFER OF ASSETS;

CONSIDERATION; CLOSING; CONTRIBUTION

 

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 (as defined herein).

 

(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.

 

(e) The words “including” and “include” shall be deemed to mean in each instance “including, 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) “Condominium” shall mean that certain condominium regime to be created pursuant to the Pennsylvania Uniform Condominium Act, 68 Pa. C.S.A. §§3101, et seq ., to subject to the condominium form of ownership all of the Real Property together with all of Seller’s other real property adjacent to the Real Property, the total of all of which being approximately 99.0508 acres.

 

(h) “Condominium Association” shall mean that certain condominium association to be created by Seller for the Condominium and to be known as Friends Campus Condominium Association.

 

(i) “Condominium Articles” shall mean the Articles of Incorporation of the Condominium Association attached hereto as Exhibit A .

 

(j) “Condominium Bylaws” shall mean the Bylaws of the Condominium Association attached hereto as Exhibit B .

 

(k) “Condominium Declaration” shall mean that certain Declaration of Condominium to be filed by Seller in the Philadelphia Department of Records to create the Condominium, and attached hereto as Exhibit C , as the same may be amended prior to or simultaneously with the Closing in order to subdivide Units 1A, 1B, 1C, 2A and 3A identified therein.

 

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

 

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(m) “Knowledge of Purchaser,” and similar variations thereof, shall mean the actual knowledge, as of the relevant date, of David K. White, Donald W. Thayer, Anthony J. Vadella and N. Matthew Lisagor after reasonable inquiry of employees or agents of Purchaser that were involved in its due diligence review of Seller and the Hospital.

 

(n) “Knowledge of Seller,” and similar variations thereof, shall mean the actual knowledge, as of the relevant date, of Joseph Pyle, Arris S. Veronie, Peter Schwartz and David Liddle.

 

(o) “Material Adverse Change” or “Material Adverse Effect,” when used with respect to the Seller, the Hospital or the Real Property, 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, the Southeastern Pennsylvania economy generally, the United States health care industry generally, the Southeastern Pennsylvania health care industry generally, the United States behavioral health care industry generally or the Southeastern Pennsylvania behavioral health care industry generally.

 

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 (or, to the extent applicable, cause to be assigned, transferred, conveyed and delivered) or lease to Purchaser, in each case as specified below, and Purchaser shall acquire, all right, title and interest or a leasehold interest in and to all assets and properties of Seller, in each case as specified below, 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, but not limited to, the following:

 

(a) a leasehold interest for forty (40) years in those certain condominium units identified as Units 1A-L, 1B-L, 1C-L, 2A-L and 3A-L in the Condominium Declaration, as amended pursuant to Section 7.13 hereof, together with all right, title and interest appurtenant thereto (collectively, the “Leased Real Property”); which lease shall be deemed fully prepaid for the entire forty-year initial term beginning at the Effective Date, and an option to lease the Leased Real Property for an additional forty (40) years, all of which is more fully described in the Ground Lease attached hereto as Exhibit D (the “Ground Lease”);

 

(b) a fee simple interest in those certain condominium units identified as Units 1A-I, 1B-I, 1C-I, 2A-I and 3A-I in the Condominium Declaration, as amended pursuant to Section 7.13 hereof, which consist of all buildings, improvements and fixtures located on the Leased Real Property (and all easements and appurtenances thereto), including without limitation, all construction in progress, together with all right, title and interest appurtenant thereto (collectively, the “Owned Real Assets,” and together with the Leased Real Property, collectively, the “Real Property”);

 

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(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 (collectively, the “Personal Property”);

 

(d) all of Seller’s rights, to the extent assignable or transferable, to all licenses, permits, approvals, franchises, accreditations and registrations and other governmental licenses, permits or approvals issued to Seller with respect to the operation of the Hospital and the ownership of the Owned Real Assets (collectively, the “Licenses”);

 

(e) all of Seller’s interest, to the extent assignable or transferable, in and to all personal property leases with respect to the operation of the Hospital (collectively, the “Personal Property Leases”);

 

(f) all of Seller’s and, to the extent applicable, its Affiliates’ interest, to the extent assignable or transferable, in and to all contracts and agreements relating to the operation of the Hospital or the ownership of the Owned Real Assets which are listed in Schedule 1.2(f) and all contracts and agreements executed after the date hereof which Purchaser or HHC Pennsylvania agrees to assume, or which Seller enters into in the ordinary course of business and which do not involve the expenditure of more than $25,000 per contract year and are terminable by Purchaser without penalty on not more than ninety (90) days prior written notice (collectively, the “Contracts“); provided, however , the term “Contracts” as used in this Agreement shall exclude all other contracts and agreements relating to the Hospital, including, without limitation, the contracts listed in Schedule 1.3(d) (collectively, the “Excluded Contracts”);

 

(g) all accounts, notes, interest and other receivables of Seller, and all claims, rights, interests and proceeds related thereto, including all accounts and other receivables arising from the rendering of services to patients at the Hospital, billed and unbilled, recorded and unrecorded, for services provided by Seller while owner or operator of the Assets (collectively, the “Accounts Receivable”); provided, however, that, to the extent not included in the calculation of Net Working Capital, the Accounts Receivable shall not include the Government Receivables.

 

(h) all advance payments, prepayments, prepaid expenses, deposits, refunds and the like which exist as of the Closing Date (collectively, the “Prepaids”);

 

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

 

(j) to the extent assignable or permitted by applicable law, all documents, records, policy and procedure manuals, compliance programs, staff bylaws, operating manuals, files and computer software owned 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, medical staff and peer review records and medical and administrative libraries;

 

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

 

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

 

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(m) subject to the provisions of Section 1.16 hereof, all insurance proceeds arising in connection with property damage to the Assets occurring after the Execution Date and prior to the Effective Time, to the extent not expended on the repair or restoration of the Assets;

 

(n) 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, excluding the name “Friends Hospital,” all variants thereof and all common law trademark rights associated therewith;

 

(o) a license to use the name “Friends Hospital” pursuant to the License Agreement in the form attached hereto as Exhibit E (the “License Agreement”);

 

(p) all of Seller’s rights with respect to its Medicare, Medicaid and other third-party provider numbers;

 

(q) all claims of Seller against third-parties relating to the Assets, choate or inchoate, known or unknown, contingent or otherwise, but excluding such claims related to Excluded Liabilities; and

 

(r) any other assets of Seller with respect to the operation of the Hospital or the ownership of the Owned Real Assets (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. Notwithstanding any other provision of this Agreement, the parties hereto acknowledge and agree that a 0.02% undivided interest in the Assets plus a 0.02% undivided interest in the Assumed Obligations shall be sold and transferred by Seller to FGP at the Effective Time in exchange for the 20% membership interest in FGP as described in Sections 1.6(d) and 1.13, and FGP will simultaneously contribute such 0.02% undivided interest in the Assets and the Assumed Obligations to Purchaser as a capital contribution to Purchaser. FGP hereby consents to the documentation of its purchase of the 0.02% undivided interest in the Assets and the Assumed Obligations as being made directly by Purchaser pursuant to this Agreement.

 

1.3 Excluded Assets . Notwithstanding anything to the contrary in Section 1.2, Seller shall retain the following assets, whether owned directly or indirectly by Seller (or any of Seller’s Affiliates) (collectively, the “Excluded Assets”):

 

(a) All real property owned by Seller other than the Owned Real Assets;

 

(b) cash and cash equivalents;

 

(c) the artifacts of Seller listed in Schedule 1.3(c) ;

 

(d) the Excluded Contracts;

 

(e) (i) all Accounts Receivable arising from the rendering services and provision of medicine, drugs and supplies to patients at the Hospital, billed or unbilled, recorded or unrecorded, for services provided by Seller while the owner or operator of the Assets prior to the Effective Time and relating to any Federal Health Care Program as such term is defined in 72

 

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U.S.C. § 1320a-7b(f) (the “Government Programs”) or any other third-party payor which by law is not assignable, (ii) any rights of Seller to settlement and retroactive adjustments, if any, for all 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”);

 

(f) all Seller records relating to the Excluded Assets and Excluded Liabilities to the extent that Purchaser does not reasonably 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;

 

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

 

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

 

(i) all of Seller’s corporate minute books and tax returns; and

 

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

 

1.4 Assumed Obligations . On the Closing Date, Seller shall assign, and Purchaser shall assume and agree to discharge 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 Working Capital;

 

(b) the Personal Property 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 Working Capital;

 

(c) accounts payable, accrued expenses (other than as described in subsection (d) below) and other current liabilities, but only to the extent included in the calculation of Net Working Capital;

 

(d) obligations and liabilities as of the Closing Date in respect of accrued, unpaid vacation and sick pay (whether accrued or unaccrued) of Seller’s employees who are hired by Purchaser as of the Closing Date, and related taxes but, in the case of unpaid vacation pay and related taxes, only to the extent included in the calculation of Net Working Capital, and in the case of sick pay, only to the extent set forth on Schedule 1.11 ; and

 

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

 

1.5 Excluded Liabilities . Notwithstanding anything to the contrary in Section 1.4, 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

 

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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;

 

(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 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;

 

(d) all liabilities of Seller for matching contributions for eligible beneficiaries’ 403(b) 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;

 

(e) 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 to patients of the Hospital prior to the Effective Time;

 

(f) 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;

 

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

 

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

 

(i) 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) Fourteen Million and No/100 Dollars ($14,000,000.00) (the “Closing Purchase Price Payment”), which includes $500,000 in prepaid rent under the Ground Lease and which shall be payable in cash at the Closing;

 

(b) the Working Capital 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;

 

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(c) Two Million and No/100 Dollars ($2,000,000.00) which shall be deposited by Purchaser in an escrow account with Wachovia Bank, N.A. (the “Escrow Agent”), as described in Section 1.12;

 

(d) a 20% membership interest in FGP, as described in Section 1.13, which the parties deem to be valued at $4,000.00; and

 

(e) a 19.98% limited partner interest in Purchaser, as described in Section 1.14, which the parties deem to be valued at $3,996,000.00.

 

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 Duane Morris LLP, One Liberty Place, Philadelphia, Pennsylvania 19103-7396, on or before the date that is five (5) business days after all conditions precedent and other matters required pursuant to this Agreement 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. (Philadelphia time) 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 provided for below or otherwise reasonably satisfactory to Purchaser and counsel for Purchaser:

 

(a) The Ground Lease;

 

(b) Bill of Sale in the form of Exhibit F attached hereto (the “Bill of Sale”);

 

(c) Assignment and Assumption Agreements in the forms of Exhibits G-1, G-2 and G-3 attached hereto (the “Assignment and Assumption Agreements”);

 

(d) Special Warranty Deeds in the form of Exhibit H attached hereto with respect to the Owned Real Assets;

 

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

 

(f) the License Agreement;

 

(g) original certificates of subsistence, or comparable status, of Seller, issued by the Commonwealth of Pennsylvania, dated no earlier than a date which is thirty (30) calendar days prior to the Closing Date;

 

(h) an opinion of counsel for Seller in substantially the form attached hereto as Exhibit J ;

 

(i) 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

 

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all material respects performed or complied with the covenants and agreements required of Seller set forth in this Agreement to be satisfied by the Closing Date and (iii) that all of the conditions contained in Sections 6.2, 6.3, 6.4 and 6.5 have been satisfied except those, if any, waived in writing by Seller;

 

(j) a certificate of the corporate 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 Board of Managers of Seller and the members of Seller, authorizing (1) the transfer of the Assets and Assumed Obligations by Seller to Purchaser and (2) 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;

 

(k) a complete release 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 one of the Contracts or the Personal Property Leases);

 

(l) Limited Power of Attorney for use of Pharmacy License, DEA and Other Registration Numbers, and DEA Order Forms, in the form of Exhibit K attached hereto (the “Power of Attorney”);

 

(m) all consents to the assignment of the Contracts and Personal Property Leases from the third parties listed on Schedule 1.2(f) required to assign the Contracts and Personal Property Leases to Purchaser (the “Contract and Lease Consents”);

 

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

 

(o) the Assignment of Membership Interest in the form of Exhibit L attached hereto (the “Assignment of Membership Interest”);

 

(p) a counterpart of the Amended and Restated Operating Agreement of FGP in the form of Exhibit M attached hereto (the “Operating Agreement”);

 

(q) the Assignment of Partnership Interest in the form of Exhibit N attached hereto (the “Assignment of Partnership Interest”);

 

(r) a counterpart of the Amended and Restated Limited Partnership Agreement of Purchaser in the form of Exhibit O attached hereto (the “Limited Partnership Agreement”);

 

(s) approval of the Management Agreement between Purchaser and HHC Pennsylvania, LLC, a Pennsylvania limited liability company and subsidiary of HHC (“HHC Pennsylvania”), in the form attached hereto as Exhibit P (the “Management Agreement”) related to the management of the Hospital’s operations after the Effective Time;

 

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(t) evidence of the Tail Insurance Coverage reasonably satisfactory to Purchaser;

 

(u) the Condominium Declaration, the Condominium Articles and the Condominium Bylaws;

 

(v) minutes of the organizational meeting and all other meetings of the Condominium Association;

 

(w) original certificates of subsistence, or comparable status, of the Condominium Association, issued by the Pennsylvania Secretary of the Commonwealth, dated no earlier than a date which is thirty (30) calendar days prior to the Closing Date; and

 

(x) 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 Working Capital 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 two (2) business days prior to the Closing Date in writing;

 

(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 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 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 Sections 7.2, 7.3, 7.4 and 7.5 have been satisfied except those, if any, waived in writing by Purchaser;

 

(d) a certificate of the corporate Secretary of FGP, as Purchaser’s general partner, certifying to Seller (i) the incumbency of the officers of FGP on the Execution Date and on the Closing Date and bearing the authentic signatures of all such officers who shall execute this Agreement on behalf of Purchaser and any additional documents contemplated by this Agreement and (ii) the due adoption and text of the resolutions of the general partner 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;

 

(e) an opinion of counsel for Purchaser in substantially the form attached hereto as Exhibit Q ;

 

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(f) original certificate of subsistence, or comparable status, of Purchaser, issued by the Pennsylvania Secretary of the Commonwealth dated no earlier than a date which is thirty (30) calendar days prior to the Closing Date;

 

(g) the Ground Lease;

 

(h) the Bill of Sale;

 

(i) the Assignment and Assumption Agreements;

 

(j) the Post-Closing Escrow Agreement;

 

(k) the License Agreement;

 

(l) the Power of Attorney;

 

(m) the Assignment of Membership Interest;

 

(n) a counterpart of the Operating Agreement;

 

(o) a counterpart of the Limited Partnership Agreement;

 

(p) the Assignment of Partnership Interest;

 

(q) the Management Agreement; and

 

(r) 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.

 

1.10 Prorations and Utilities . To the extent not included in the calculation of Net Working Capital or otherwise prorated pursuant to this Agreement, Purchaser and Seller shall prorate (as of the Effective Time), to the extent applicable to the Assets, 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 upon receipt of the final bill or other evidence of the applicable item of income or expense.

 

1.11 Working Capital Settlement .

 

(a) Terms . As used herein, the term “Net Working Capital” shall mean the aggregate current assets of Seller conveyed to Purchaser pursuant to Section 1.2 hereof (excluding those Excluded Assets which would otherwise be included in current assets), minus the aggregate current liabilities of Seller assumed by Purchaser pursuant to Section 1.4 hereof (excluding those Excluded Liabilities which would otherwise be included in current liabilities), all as determined in accordance with generally accepted accounting principles (“GAAP”), except that sick pay and related taxes shall be included in the calculation of Net Working Capital at a value determined according to the methodology specified on Schedule 1.11 . As used herein, the term “Base Net Working Capital“ means $4,000,000.00.

 

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(b) Net Working Capital Calculation and Adjustments .

 

(i) At least ten (10) business days prior to Closing, Seller shall in good faith deliver to Purchaser a reasonable estimate of Net Working Capital as of the end of the most recently ended calendar month prior to the Closing Date for which financial statements are available (the “Estimated Net Working Capital”) and containing reasonable detail and supporting documents showing the derivation of such estimate. The principles, specifications and methodologies for determining the Estimated Net Working Capital shall be as specified in Schedule 1.11 and shall be used for purposes of calculating the Working Capital Payment portion of the Purchase Price as of the Closing. The “Working Capital Payment” shall equal the difference between Base Net Working Capital and Estimated Net Working Capital. If Estimated Net Working Capital exceeds Base Net Working Capital, the Working Capital Payment shall be added to the Closing Purchase Price Payment. If Estimated Net Working Capital is less than Base Net Working Capital, the Closing Purchase Price Payment shall be reduced by the amount of the Working Capital Payment.

 

(ii) Within sixty (60) days after the Closing, Purchaser shall deliver to Seller its good faith determination of the Net Working Capital as of the Effective Time following the same principles, specifications and methodologies used to determine the Estimated Net Working Capital as set forth on Schedule 1.11 (“Interim Net Working Capital”). The Purchase Price shall be increased or decreased based on the difference between the Interim Net Working Capital as of the Effective Time and the Estimated Net Working Capital calculated at the Closing and, within five (5) business days after determination thereof, any excess of Interim Net Working Capital over Estimated Net Working Capital shall be paid in cash to Seller by Purchaser, and any deficiency in Interim Net Working Capital versus Estimated Net Working Capital shall be paid in cash to Purchaser pursuant to the Post-Closing Escrow Agreement, in either case together with interest on such amount at the rate of six percent (6%) per annum accruing from the Closing Date until the date when such payment is made.

 

(iii) Within sixty (60) days following December 31, 2005, Purchaser shall deliver to Seller a determination of the Net Working Capital as of the Effective Time following the same principles, specifications and methodologies used to determine the Estimated Net Working Capital as set forth on Schedule 1.11 (“Final Net Working Capital”). Should Seller disagree with Purchaser’s final determination of Final Net Working Capital, Seller shall notify Purchaser within thirty (30) days after Purchaser’s delivery of its determination of Final Net Working Capital. If Seller and Purchaser fail to agree within thirty (30) days after Seller’s delivery of notice of disagreement on the amount of Final Net Working Capital, 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 Final Net Working Capital. The Purchase Price shall be increased or decreased based on the difference between the Final Net Working Capital as of the Effective Time and the Interim Net Working Capital and, within five (5) business days after determination thereof, any excess of Final Net Working Capital over Interim Net Working Capital shall be paid in cash to Seller by Purchaser, and any deficiency in Final Net Working Capital versus Interim Net Working Capital shall be paid in cash to Purchaser pursuant to the Post-Closing Escrow Agreement, in either case together with interest on such amount at the rate of six percent (6%) per annum accruing from the Closing Date until the date when such payment is made.

 

ASSET ACQUISITION AND CONTRIBUTION AGREEMENT – Page 12

(iv) Each party and its duly authorized representatives shall have full access to the financial books and records pertaining to the Hospital to confirm or audit Net Working Capital computations.

 

(c) Dispute of Adjustments . In the event that Seller and Purchaser are not able to agree on the Final Net Working Capital within thirty (30) days after Seller’s delivery of notice of disagreement, Seller and Purchaser shall each have the right to require that such disputed determination be submitted to Deloitte & Touche USA LLP or if Deloitte & Touche USA LLP 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 Working Capital). The submission of the disputed matter to the Accounting Firm shall be the exclusive remedy for resolving disputes relative to the determination of Net Working Capital. 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 Two Million and No/100 Dollars ($2,000,000.00) 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 Post-Closing Escrow Agreement.

 

1.13 Membership Interest in FGP . At Closing:

 

(a) FGP shall deliver a fully executed Assignment of Membership Interest which assigns and transfers a 20% membership interest in FGP to Seller, free and clear of all liens and encumbrances; and

 

(b) All members of FGP, including Seller, shall execute and deliver a counterpart of the Operating Agreement.

 

As of the Effective Time, Seller shall become a member of FGP.

 

1.14 Limited Partner Interest in Purchaser . At Closing:

 

(a) Purchaser shall deliver an Assignment of Partnership Interest which assigns and transfers a 19.98% limited partner interest in Purchaser to Seller; and

 

(b) All partners of Purchaser, including Seller, shall execute and deliver a counterpart of the Limited Partnership Agreement.

 

As of the Effective Time, Seller shall become a limited partner of Purchaser.

 

1.15 Contribution by HMHM . At or before Closing, HMHM (a) agrees to contribute or cause the contribution of sufficient funds to its subsidiaries in order to allow Purchaser to make the Closing Purchase Price Payment, and (b) agrees to cause its subsidiaries to

 

ASSET ACQUISITION AND CONTRIBUTION AGREEMENT – Page 13

consummate the transactions contemplated hereby to be consummated on the Closing Date if all conditions to Closing in this Agreement have been satisfied or waived by the appropriate parties hereto.

 

1.16 Risk of Loss . The risk of loss or damage to any of the Personal Property, Owned Real Assets, the Hospital and all other Assets and property, 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 Assets, the Hospital and all other Assets and property of Seller through the Effective Time.

 

(a) With respect to the Owned Real Assets, if prior to the Closing, all or any part of the Owned Real Assets 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 twenty percent (20%) 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 , 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 and, if such insurance policy proceeds are insufficient to repair, restore and/or replace the Owned Real Assets, the difference between the cost to repair, restore and/or replace and the amount of such proceeds shall be deducted from the Purchase Price; provided, however , that if the amount to be deducted from the Purchase Price exceeds $500,000, Seller may terminate this Agreement by written notice to Purchaser. If prior to the Closing, all or any part of the Owned Real Assets is destroyed or damaged by fire or the elements or by any other cause where the Aggregate Damage exceeds twenty percent (20%) of the Purchase Price, Purchaser may elect to (i) purchase such Owned Real Assets, 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 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 Assets, and, in such event, an appropriate adjustment to the Purchase Price shall be made by Purchaser and Seller and the Closing shall proceed as scheduled; provided, however , that if the amount to be deducted from the Purchase Price exceeds $500,000, Seller may terminate this Agreement by written notice to Purchaser; 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 an independent consulting firm mutually selected by Seller and Purchaser (the “Independent Consultant”) pursuant to Section 1.16(d).

 

(b) With respect to any Assets other than Owned Real Assets which are destroyed or damaged by fire or the elements or by any other cause prior to the Closing, except as provided in subsection (a) above, 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 and shall reimburse Purchaser at the Closing for any deductible Purchaser is required to pay in connection with the receipt of such insurance proceeds.

 

(c) If prior to the Closing, all or any part of a parcel of the Owned Real Assets is made subject to an eminent domain or condemnation proceeding which would in Purchaser’s reasonable judgment materially adversely impair access to the Owned Real Assets or be

 

ASSET ACQUISITION AND CONTRIBUTION AGREEMENT – Page 14

materially adverse to the operations of the Hospital, Purchaser may elect to (i) lease such affected Owned Real Assets, 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 related to the Owned Real Assets in such eminent domain or condemnation proceeding), (ii) not purchase the affected Owned Real Assets, and, in such event, an appropriate adjustment to the Purchase Price shall be made by Purchaser and Seller, or (iii) terminate this Agreement by written notice to Seller. If Purchaser and Seller are unable to agree upon the amount of the adjustment described in subsection (ii) of the preceding sentence by the Original Closing Date, the adjustment shall be resolved by the Independent Consultant pursuant to Section 1.16(d).

 

(d) If pursuant to either Section 1.16(a) or 1.16(c), 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 either Section 1.16(a) or 1.16(c), 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 1.16(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 Disclosure Schedules, Seller hereby represents, warrants and covenants 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, warranties and covenants as of the Closing Date and the Effective Time:

 

2.1 Authority . Seller has full corporate power and authority to enter into this Agreement and all documents delivered hereto and full corporate power and authority to carry out and perform the transactions contemplated hereby.

 

2.2 Authorization/Execution . All corporate 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, except for the consent of the members of Seller to the consummation of the transactions contemplated by this Agreement. This Agreement and all documents delivered hereto have been duly and validly executed and delivered by Seller and, assuming due and valid execution by, and enforceability against,

 

ASSET ACQUISITION AND CONTRIBUTION AGREEMENT – Page 15

Purchaser, this Agreement and all documents delivered pursuant hereto constitute valid and binding obligations of Seller enforceable in accordance with its 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 nonprofit membership corporation duly incorporated, registered and subsisting under the laws of the Commonwealth of Pennsylvania. Seller has full power and authority to own, operate and lease its properties and to carry on its businesses as now conducted.

 

(b) Except as listed on Schedule 2.3(b) , Seller has no subsidiaries, whether direct or indirect. Except as listed on Schedule 2.3(b) , 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.

 

(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 which would reasonably be expected to have a Material Adverse Effect; (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, instrument, license or other agreement to which Seller is a party, or by which Seller is bound; (iv) require the consent of any third party under any Contract or Personal Property Lease; (v) permit the acceleration of the maturity of any indebtedness of Seller; or (vi) violate or conflict with any provision of the Articles of Incorporation or Bylaws of Seller.

 

2.4 Financial Statements; Changes .

 

(a) Seller has delivered to Purchaser the audited balance sheets for Seller at June 30, 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 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 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 February 28, 2005 (the “Interim Balance Sheet Date”) and the related statement of operations for the eight month period then ended. Such interim financial statements have been prepared in conformity with 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

 

ASSET ACQUISITION AND CONTRIBUTION AGREEMENT – Page 16

Balance Sheet Date. Such interim financial statements reflect all adjustments necessary for a fair presentation other than normal year-end adjustments which are not material in amount in the aggregate, and omit required footnotes. At the Interim Balance Sheet Date, Seller had no material liability (actual, contingent or accrued) that, in accordance with 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 on Schedule 2.4 , 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 agreement, condition, action or omission which would be proscribed by (or require consent under) Section 4.2 had it existed, occurred or arisen after the date of this Agreement; or

 

(iii) any strike or labor organizing activity; or

 

(iv) 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; provided, however, that this representation and warranty as of the Closing Date shall be subject to the provisions of Section 1.16 hereof.

 

2.5 Tax and Other Returns and Reports .

 

(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 controlled (as defined in Section 4.6(b) hereof) by Seller.

 

(b) Tax Returns and Audits . Except as set forth on Schedule 2.5 :

 

(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, except for Seller’s federal Tax return for its fiscal year ended June 30, 2004. 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.

 

(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.

 

ASSET ACQUISITION AND CONTRIBUTION AGREEMENT – Page 17

(iii) Seller has made available (or will make available through the Closing Date) to Purchaser (A) correct and complete copies of all Tax returns of Seller relating to the Assets and (B) any examination reports, statements of deficiencies and assessments by any governmental authority against or agreed to by Seller since December 31, 1998. 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, or to Seller’s Knowledge, 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, except for such liens or security interests that will be removed on or prior to the Closing Date.

 

(v) No property of 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 would not be deductible under Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”). Seller has disclosed on its Tax returns all positions taken therein that could give rise to a substantial understatement (A) of federal income tax under Code Section 6662 or (B) 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 including, without limitation, its status as an organization described in Code Section 501(c)(3). The consummation of the transactions contemplated herein are not expected to 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 years 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)).

 

(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.

 

ASSET ACQUISITION AND CONTRIBUTION AGREEMENT – Page 18

(x) None of Seller nor its Subsidiaries is a partner in any entity classified as a partnership for federal income tax purposes (except that Seller will become a partner in Purchaser upon the Closing).

 

(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” 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 .

 

(a) Schedule 1.2(f) lists each Material Contract related to the Assets or the operation of the Hospital 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 on Schedule 1.3(d) . As used herein, “Material Contract” means any contract or agreement that (i) after the Interim Balance Sheet Date obligates Seller to pay an amount of $25,000 or more in any one twelve month period on an annual basis or obligates Seller to pay an aggregate amount of $50,000 or more, (ii) 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, (iii) contains a covenant not to compete or otherwise significantly restricts Seller’s business activities, (iv) limits the ability of Seller to conduct its business, including as to manner or place, (v) grants a power of attorney, agency or similar authority to another Person, (vi) contains a right of first refusal, (vii) constitutes a collective bargaining agreement including any collective bargaining agreement with physicians or any other referral source, (viii) constitutes an employment or severance agreement with any director, officer or employee of Seller, (ix) represents a contract upon which the business of the Hospital is substantially dependent, (x) 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, (xi) 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 referring physician’s immediate family member has an ownership or investment interest, (xii) represents a third party payor, managed care or preferred provider organization contract, (xiii) represents a clinical or educational affiliation agreement, or (xiv) 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

 

ASSET ACQUISITION AND CONTRIBUTION AGREEMENT – Page 19

been made available to Purchaser. Each Material Contract is valid and subsisting; except as set forth on Schedule 1.2(f) , 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 on Schedule 1.2(f) , no material breach or default, alleged material 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 Real Property, the Personal Property and the other Assets, except for (i) any lien for taxes not yet due and payable, (ii) any obligations included in the Assumed Obligations, (iii) easements and other restrictions of record, or that are visible on the Real Property, (iv) any encumbrances or defects that do not materially interfere with the operations of the Hospital on the Real Property in any manner consistent with the current use by Seller, (v) any liens that will be removed of record on or prior to the Closing Date, (vi) such partial exclusions from coverage appearing in the standard form of ALTA owner’s title insurance policy that are not customarily removed by affidavit in local transactions, (vii) printed exclusions from coverage appearing in the standard form of ALTA owner’s title insurance policy, provided that there shall be deleted therefrom any exception for possible unfiled mechanics’ liens or claims for labor or material furnished prior to the Effective Time upon Seller’s certification or, in the event that Seller is unable to certify to the Title Company that no building, construction, alterations, additions or repairs have been made to the Real Property within the four (4) month period preceding the Closing Date, then the exception for mechanics’ liens shall be insured over by affirmative coverage, Seller to pay any special premiums for mechanics’ lien coverage charged because of Seller’s failure to make such certification, and (viii) subsurface public utility easements for local distribution, such as for gas, water and sewer lines or electric, telephone or CATV cable, the location of which is ascertainable and fixed, provided that the exercise of the rights thereunder does not materially interfere with the operations of the Hospital in any manner consistent with the current use by Seller (collectively, the “Permitted Encumbrances”). Except as shown in Schedule 2.7 , all material tangible properties of Seller are, to the Knowledge of Seller, in a good state of maintenance and repair (except for ordinary wear and tear) and in operating condition.

 

(b) The Real Property constitutes all of the real property owned by Seller that is used in the conduct of the business of the Hospital.

 

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

 

(d) At Closing, Seller will convey to Purchaser (i) good, valid and marketable fee simple title to all Assets other than the Leased Real Property and (ii) good, valid and marketable leasehold interest in the Leased Real Property, in each case under clauses (i) and (ii) subject to no mortgage, lien, pledge, security interest, conditional sales agreement, right of first refusal, option or encumbrance, except for the Permitted Encumbrances and the rights of any lessor or licensor of leased or licensed personal property.

 

ASSET ACQUISITION AND CONTRIBUTION AGREEMENT – Page 20

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

 

(f) 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 of the Real Property by Seller.

 

(g) 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.

 

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. Except as shown on Schedule 2.8 , such assets include all permits or other rights with respect to any of the, foregoing. Seller has complete rights to use or ownership of all intangible property required for use in connection with the business of the Hospital as presently conducted by Seller. Except as disclosed on 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 on Schedule 2.8 , 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 (and is not otherwise aware) that such intangible property or any use thereof by Seller conflicts with or infringes (or allegedly conflicts with or infringes) the rights of any Person.

 

2.9 Legal Proceedings . Except as set forth on Schedule 2.9 , there is no claim, suit, litigation, arbitration, mediation, investigation, order, action or other proceeding (collectively, “Claims”) pending, or, to the Knowledge of Seller threatened, against or affecting Seller, the Assets or the Hospital. Except as described in Schedule 2.9 , all such Claims are fully insured (except for applicable deductibles), and no insurer has issued a “Reservation of Rights” letter or otherwise qualified its obligation to insure and defend Seller against law suits arising therefrom.

 

2.10 Accounting Records; Internal Controls .

 

(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 GAAP so as to maintain accountability for assets.

 

(b) Data Processing Records . All data processing 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 as Seller.

 

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 two (2) years and 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

 

ASSET ACQUISITION AND CONTRIBUTION AGREEMENT – Page 21

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 $50,000 which have been made by Seller in the last two (2) years under any insurance policy and bond. Except as set forth on Schedule 2.11 , all such insurance policies and bonds are in full force and effect. Except as shown on 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. To the Knowledge of Seller, there are no outstanding requirements or recommendations by any insurance company that issued a policy with respect to any of the Assets or the Hospital 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 vacation and sick leave, the paid time off pay 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 and indicating whether such employee is a part-time or full-time employee. Except as shown on 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. There is no labor strike, arbitration, dispute, slowdown or stoppage, and no union organizing campaign, pending, or to the Knowledge of Seller threatened by or involving the employees of Seller with respect to the operation of the Hospital.

 

2.13 Employee Benefits .

 

(a) Schedule 2.13 contains a list of each pension, retirement, savings, deferred compensation, and profit-sharing plan and each bonus or other incentive plan, severance plan, health, group insurance or other welfare plan, or other similar plan and any “employee plan” within the meaning of Section 3(3) of ERISA, under which any employee, former employee or independent contractor (or beneficiary of any employee, former employee or independent contractor) of Seller has or may have any current or future right to benefits (the term “plan” shall include any contract, agreement, policy or understanding, each such plan being hereinafter referred to in this Agreement individually as a “Plan”). Seller has made available to Purchaser true and complete copies of (i) each Plan and (ii) the summary plan description, if any, for each Plan. No Plan is intended to be tax qualified under Sections 401(a) and 501(a) of the Code. To Seller’s Knowledge, there has been no prohibited transaction within the meaning of Section 4975 of the Code and Section 406 of Title I of ERISA with respect to any Plan as to which there is no statutory or administrative exemption.

 

(b) There are no actions pending, or, to Seller’s Knowledge, threatened, with respect to any Plan or the assets of any Plan, other than claims for benefits in the ordinary course. To Seller’s Knowledge, each Plan has been administered in all material respects in accordance with its terms and with all applicable laws (including ERISA).

 

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(c) Neither Seller nor any Commonly Controlled Entity contributes to or has an obligation to contribute to, nor has Seller or any Commonly Controlled Entity at any time within six (6) years prior to the Closing contributed to or had an obligation to contribute to, either (i) a multiemployer plan within the meaning of Section 3(37) of ERISA, or (ii) any plan subject to Title IV of ERISA. Seller has performed timely and shall timely perform all obligations of Seller and each Commonly Controlled Entity, whether arising by operation of law or by contract, required to be performed under Section 4980B of the Code (or similar state law), including, but not limited to, such obligations that may arise by virtue of the transactions contemplated by this Agreement. For the purposes of this Section 2.13, “Commonly Controlled Entity“ means any corporation, trade, business, or entity under common control with Seller within the meaning of Section 414(b), (c), (m), or (o) of the Code, or Section 4001 of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

 

(d) Each employee, former employee and independent contractor of Seller has been properly classified as such for all purposes under the Code and ERISA.

 

(e) Seller maintains no “pension plan” within the meaning of Section 3(2) of ERISA for its employees other than a program of contributions made to individual custodial accounts or tax-deferred annuities under Section 403(b) of the Code (“Seller’s 403(b) Program”).

 

(f) Seller’s 403(b) Program has been maintained in material compliance with all applicable provisions of the Code and ERISA. Seller does not owe, nor will Purchaser owe, any taxes, penalties, judgments or settlements in connection with Seller’s 403(b) Program based on an act or omission of Seller taken at any time.

 

2.14 Certain Interests . Except as shown on Schedule 2.14 , no Affiliate of Seller, nor any officer, director or manager thereof, has any material interest in any property used in or pertaining to the business of the Hospital; no such Person is indebted or otherwise obligated to Seller; and Seller is not indebted or otherwise obligated to any such Person, except for amou