STOCK PURCHASE AGREEMENT

Exhibit 2.1

STOCK PURCHASE AGREEMENT

 

dated as of June 30, 2005

 

by and among

 

Amedisys Holding, L.L.C.,

as the Purchaser,

 

Amedisys, Inc.,

 

HMR Acquisition, Inc.

 

and

 

The Stockholders and Option Holders set forth on the

Stockholder Signature Page and Option Holder Signature Page attached hereto,

as the Sellers

 

STOCK PURCHASE AGREEMENT

 

This STOCK PURCHASE AGREEMENT is made as of June 30, 2005, by and among Amedisys Holding, L.L.C., a Louisiana limited liability company (the “Purchaser”); Amedisys, Inc., a Delaware corporation (“Amedisys” and, together with Purchaser, the “Purchaser Entities”); HMR Acquisition, Inc., a Delaware corporation (the “Company”); the holders of all options and warrants to purchase Common Stock of the Company (the “Option Holders”); and the holders of all of the Common Stock of the Company (the “Stockholders”). The Option Holders and the Stockholders are listed on the option holders signature page and the stockholders signature page, respectively, and are sometimes referred to herein individually as a “Seller” and collectively as the “Sellers.” The Purchaser, the Sellers and the Company are sometimes referred to collectively herein as the “Parties.” Certain capitalized terms that are used herein are defined in Article VIII below.

 

WHEREAS, the Sellers collectively own 100% of the Housecall Stock;

 

WHEREAS, the Parties desire to enter into this Agreement pursuant to which the Sellers agree to sell to the Purchaser and the Purchaser agrees to purchase from the Sellers all of the Housecall Stock;

 

NOW, THEREFORE, in consideration of the premises and the mutual promises made herein, and in consideration of the representations, warranties and covenants herein contained, the Parties hereby agree as follows:

 

ARTICLE I.

THE CLOSING; PURCHASE AND SALE OF HOUSECALL STOCK

 

Section 1.1 Purchase and Sale of Stock and Options

 

At the Closing, subject to the terms and conditions set forth in Sections 7.1 and 7.2 below, as applicable, the Purchaser shall purchase from the Sellers and the Sellers shall sell, convey, assign, transfer, and deliver to the Purchaser, all of the Housecall Stock, free from Liens.

 

Section 1.2 Purchase Price

 

The purchase price (the “Purchase Price”) for the Housecall Stock shall be $106,400,000 (i) plus or minus, as the case may be, the estimated adjustment that is provided for in Section 1.5 , and (ii) minus the amount of all Indebtedness of the Company or any Subsidiary existing on the Closing Date other than any such Indebtedness that either (A) will be a short-term liability on the Closing Balance Sheet, or (B) will be paid out of the Purchase Price at the Closing in accordance with Section 1.4(a)(ii) . The Purchase Price shall be paid by the Purchaser as described in Section 1.4 below. The Purchase Price is subject to post-Closing adjustment, pursuant to Section 1.6 below.

 

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Section 1.3 The Closing

 

(a) The closing of the purchase and sale of the Housecall Stock (the “Sale”), and the transactions relating thereto (collectively, the “Closing”) shall take place at the offices of Correro Fishman Haygood Phelps Walmsley & Casteix, L.L.P., 201 St. Charles Avenue, 46th Floor, New Orleans, LA 70170-4600 (or at such other location as the Parties may agree), commencing on a date and at a time that is agreed upon by the Parties or, if they cannot agree, then, subject to Section 9.1 below, at 10:00 a.m. local time on the seventh Business Day following the satisfaction of the conditions to Closing that are set forth in Sections 7.1(f) and 7.2(e) . The date and time of the Closing are referred to as the “Closing Date.” Purchaser Entities may unilaterally delay the Closing Date as necessary to accord Purchaser Entities the full 10 Business Days referred to in Section 5.4 .

 

(b) In addition to the Closing deliveries provided for elsewhere in this Agreement, the following shall also be delivered at Closing: (i) by Sellers and Purchaser, an escrow agreement (the “Escrow Agreement”) among Purchaser, Sellers and an escrow agent identified therein (the “Escrow Agent”), in the form of Schedule 1.3(b)(i) and duly executed by Sellers and Purchaser; (ii) by Sellers, a noncompetition and confidentiality agreement (the “Noncompetition Agreement”) between the Company and each of the persons listed on Schedule 1.3(b)(ii)-A , in the form of Schedule 1.3(b)(ii)-B and duly executed by each such person; (iii) by Sellers, an employment agreement (the “Services Agreement”) between the Company and each person identified on Schedule 1.3(b)(iii)-A , in the form of Schedule 1.3(b)(iii)-B , and duly executed by each such person; and (iv) by Sellers, the resignations of the directors and officers of the Company and each Subsidiary, effective at the Closing.

 

Section 1.4 Payment of the Purchase Price

 

At the Closing, subject to the satisfaction or waiver of each of the conditions specified in Sections 7.1 and 7.2 below:

 

(a) The Purchaser will pay the Purchase Price as follows:

 

(i) $10,640,000 will be paid to the Escrow Agent, to be held pursuant to the Escrow Agreement;

 

(ii) Any amount of the Purchase Price that is designated by the Stockholders’ Representative at least three Business Days prior to the Closing to be applied to Indebtedness of the Company shall be paid as so designated;

 

(iii) The remainder of the Purchase Price, after deducting the payments in accordance with (i) and (ii) above and after deducting any payment made by Purchaser of Seller Commitments listed on Schedule 5.12-B , shall be paid as follows: (A) 85.51% (which percentage represents the number of shares of Common Stock of the Stockholders, divided by such number of shares plus the number of shares of Common Stock issuable upon exercise of the Options) to the Stockholders in the proportions shown on Schedule 1.4(a)(iii)(A) , which proportions represent the proportionate ownership of Common Stock prior to the

 

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exercise of the Options, and (B) the remaining 14.49% (which percentage represents the number of shares of Common Stock issuable upon exercise of the Options divided by the sum of such number of shares plus the number of shares of Common Stock held by the Stockholders) to the Option Holders in the proportions shown on Schedule 1.4(a)(iii)(B) , which proportions represent the number of shares to which each Option Holder is entitled upon exercise of the Options divided by the total number to which all are entitled upon such exercise. Purchaser shall deduct from the amount payable under clause (B) the aggregate amount of employee tax withholding that is applicable to the Option Holders with respect to the exercise of the Options, and shall pay such amount to the Company. The amount payable to each Option Holder under clause (B) shall in turn be reduced by the amount of such withholding (if any) applicable to that Option Holder.

 

All payments to be made in accordance with Section 1.4(a) shall, to the extent wire transfer instructions have been delivered to Purchaser not less than three Business Days prior to the Closing, be made in accordance with those instructions by wire transfer of immediately available funds. All payments not made by wire transfer in accordance with the preceding sentence shall be made by an official bank check drawn on a federal reserve bank.

 

(b) The Stockholders and Option Holders shall deliver to the Purchaser the stock certificates and option and warrant agreements representing 100% of the Housecall Stock, on a fully diluted basis, endorsed in blank or accompanied by duly executed assignment documents and with signature guaranteed.

 

Section 1.5 Estimated Adjustment

 

(a) At least five Business Days prior to the Closing, the Company shall deliver its best estimate of the Closing Balance Sheet (the “Estimated Balance Sheet”) and a calculation from that Estimated Balance Sheet of the estimated Net Working Capital as of the Effective Date (the “Estimated Net Working Capital”), determined in accordance with the definition of Net Working Capital in Article VIII and in accordance with the principles established by Section 1.6 , except that such Estimated Balance Sheet and the Estimated Net Working Capital shall not be subject to the dispute resolution procedures of Section 1.6 .

 

(b) The estimated adjustment that is referred to in clause (i) of Section 1.2 is the following:

 

(i) If the Estimated Net Working Capital is equal to the Target Net Working Capital, there shall be no adjustment pursuant to clause (i) of Section 1.2 ;

 

(ii) If the Estimated Net Working Capital exceeds the Target Net Working Capital, then the amount of such excess is the adjustment pursuant to clause (i) of Section 1.2 , and it is a positive adjustment (that is, it is added in calculating the Purchase Price); and

 

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(iii) If the Target Net Working Capital exceeds the Estimated Net Working Capital, then the amount of such excess is the adjustment pursuant to clause (i) of Section 1.2 , and it is a negative adjustment (that is, it is subtracted in calculating the Purchase Price).

 

Section 1.6 Post-Closing Purchase Price Adjustment

 

Following the Closing Date, the Purchase Price shall be adjusted as set forth below:

 

(a) The Purchaser shall prepare and deliver to the Sellers within 60 days after the last day of the month in which Closing occurs, an unaudited balance sheet of the Company and its Subsidiaries as of the close of business on the Effective Date (the “Closing Balance Sheet”) and a calculation of Net Working Capital determined from the Closing Balance Sheet (the “Net Working Capital Calculation”) and adjusted in accordance with the definition of Net Working Capital in Article VIII and the provisions of Section 1.6 and 5.16 . The Closing Balance Sheet and the Net Working Capital Calculation shall be prepared in a manner consistent with the application of the accounting principles applied in the preparation of the Latest Balance Sheet (but not inconsistent with GAAP), and all appropriate adjustments shall be made without regard to whether any such adjustment is or is not material.

 

(b) On or prior to the 30th day following the Purchaser’s delivery of the Closing Balance Sheet, the Stockholders’ Representative may give the Purchaser a written notice stating in reasonable detail the Sellers’ objections (an “Objection Notice”) to the Closing Balance Sheet and/or the Net Working Capital Calculation. Any Objection Notice shall specify in reasonable detail the dollar amount of any objection and the basis therefor. Any determination set forth on the Closing Balance Sheet or the Net Working Capital Calculation that is not specifically objected to in the Objection Notice and which is not affected by the Objection Notice shall be deemed acceptable and shall be final and binding upon the Parties upon delivery of the Objection Notice. If the Stockholders’ Representative does not give the Purchaser an Objection Notice within such 30-day period, then the Closing Balance Sheet will be conclusive and binding upon the Parties and the Net Working Capital Calculation will constitute the Net Working Capital Calculation for purposes of Section 1.6(a) above.

 

(c) Following the Purchaser’s receipt of any Objection Notice, the Stockholders’ Representative and the Purchaser shall attempt to negotiate in good faith to resolve such dispute. In the event that the Stockholders’ Representative and the Purchaser fail to agree on any of the proposed adjustments set forth in the Objection Notice within 30 days after the Purchaser receives the Objection Notice, the Sellers and the Purchaser agree that a mutually acceptable accounting firm of nationally recognized standing (the “Independent Auditors”) shall, within the 30-day period immediately following such failure to agree, make the final determination of the Net Working Capital in accordance with the terms of this Agreement. The Purchaser and the Stockholders’ Representative each shall provide the Independent Auditors with their respective determinations of the Net Working Capital Calculation. The Independent Auditors shall make an independent determination of the Net Working Capital that shall be final and binding on the Sellers and the Purchaser if such independent determination shall be within the range proposed by the Purchaser and the Sellers in the Net Working Capital Calculation and the Objection Notice. If the Independent Auditors’ determination of the Net Working Capital is outside of the

 

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range proposed by the Stockholders’ Representative and the Purchaser in the Net Working Capital Calculation and the Objection Notice, then the Net Working Capital Calculation of the party whose Net Working Capital Calculation was closer to that of the Independent Auditors shall be final and binding on the Sellers and the Purchaser. The fees, costs and expenses of the Independent Auditors shall be split equally between Purchaser, on the one hand, and Sellers, on the other, except that if the Independent Auditors’ determination of the Net Working Capital is outside of the range proposed by the Sellers and the Purchaser, then such fees, costs and expenses will be paid by the party whose Net Working Capital Calculation was different by the greater amount from that of the Independent Auditors.

 

(d) The terms “Closing Balance Sheet” and “Net Working Capital” shall mean the Closing Balance Sheet and Net Working Capital Calculation delivered pursuant to Section 1.6(a) as adjusted pursuant to Sections 1.6(b) and (c) . The date on which the Closing Balance Sheet and Net Working Capital are finally determined pursuant to this Section 1.6 is referred to as the “Settlement Date.”

 

(e) If the Estimated Net Working Capital exceeds the Net Working Capital Calculation, then the Sellers shall deliver to the Purchaser by wire transfer of immediately available funds an amount equal to the amount of such excess. If the Net Working Capital Calculation exceeds the Estimated Net Working Capital, then the Purchaser shall pay 10% of such excess to the Escrow Agent and shall pay to the Sellers, in the same proportions as the payments under Section 1.4 (a)(iii) and comparably reduced by any withholding obligations of the type referred to in Section 1.4(a)(iii) , by wire transfer of immediately available funds, 90% of the amount by which the Net Working Capital Calculation exceeds the Estimated Net Working Capital. All payments pursuant to this Section 1.6(e) shall bear interest from the Closing Date until paid, at a floating rate of interest equal to the prime rate reflected from time to time during that period in the Money Rates section of The Wall Street Journal .

 

(f) Schedule 1.6(f) provides an example of the calculation of Net Working Capital as of the Effective Date.

 

(g) The Parties acknowledge that the effect of calculating the Net Working Capital as of the Effective Date rather than as of the Closing Date is that changes in current assets and current liabilities of the Company and its Subsidiaries following the Effective Date will, if the Closing occurs, have been for the account of the Purchaser Entities and not of the Sellers. Consequently, and without limiting any other restrictions contained in this Agreement, the Company will not, and will cause its Subsidiaries not to, make any payment of any kind to Sellers following the Effective Date other than (i) payments that are required by contracts listed on the Contracts Schedule and payments of salaries and benefits at rates currently in effect, and (ii) other payments that will appear as current liabilities (without corresponding current assets) on the Closing Balance Sheet. In addition, all accruals that occur by reason of the Closing, such as the payment of severance and change-in-control benefits (other than such accruals related to amounts that Purchaser Entities have agreed to pay in accordance with this Agreement), shall for purposes of calculating Net Working Capital, and Delta Earnings or Delta Losses in accordance with Section 1.6(h) , be deemed to have occurred as of the Effective Date. The Parties agree to make all similar adjustments that are required so that when the Closing occurs, the Parties will to the maximum possible extent be in the position in which they would have been had the Closing Date and Effective Date both occurred on the Effective Date.

 

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(h) If the Closing occurs after July 12, 2005, the Purchase Price will be further adjusted in accordance with the following: (i) The Purchase Price shall be increased by the Delta Earnings or reduced by the Delta Losses of the Company and its Subsidiaries for the period beginning the day following the Effective Date and ending at the close of business on the Closing Date (“Delta Period”); and (ii) if Section 1.6(h) is applicable, a statement of Delta Earnings or Delta Losses, as applicable, for the Delta Period will be prepared, delivered, reviewed, and determined according to the same time schedule and process as is applicable to the preparation, delivery, review and determination of Net Working Capital, mutatis mutandis . If the Closing occurs on or before July 11, 2005, this Section 1.6(h) is of no effect.

 

ARTICLE II.

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

 

As a material inducement to the Sellers to enter into this Agreement and to sell the Housecall Stock, the Purchaser Entities hereby represent and warrant, jointly and severally, that as of the date hereof:

 

Section 2.1 Organization; Corporate Power and Authorization

 

Amedisys is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware. Purchaser is a limited liability company duly organized, validly existing and in good standing under the laws of Louisiana. Each of the Purchaser Entities has the requisite power, corporate or other, and authority and all material licenses, permits and authorizations necessary to enter into, deliver and carry out its obligations pursuant to each of the Transaction Documents to which it is a party. Each Purchaser Entity’s execution, delivery and performance of each Transaction Document to which it is a party has been duly authorized by it.

 

Section 2.2 Binding Effect and Noncontravention

 

(a) Each Transaction Document to which a Purchaser Entity is a party constitutes its valid and binding obligation that is enforceable against it in accordance with the terms thereof, except as such enforceability may be limited by (i) applicable insolvency, bankruptcy, reorganization, moratorium or other similar laws affecting creditors’ rights generally, and (ii) applicable equitable principles (whether considered in a proceeding at law or in equity).

 

(b) The execution, delivery and performance by a Purchaser Entity of the Transaction Documents to which it is a party do not and shall not: (i) conflict with or result in a breach of the terms, conditions or provisions of; (ii) constitute a default under or result in a violation of; or (iii) require any authorization, consent, approval, exemption or other action by or declaration or notice to any third Person or Government Entity pursuant to, (A) its charter or bylaws or comparable organizational instruments, (B) any agreement, instrument, or other document, or any Legal Requirement to which it is a party or to which any of its assets is subject, or (C) except for any required filing under, or compliance by Amedisys with, the HSR Act, any constitution, statute, regulation, rule, injunction, judgment, order, Legal Requirement or other restriction of any Government Entity, to which it or any of its assets is subject.

 

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Section 2.3 Brokerage

 

The Purchaser Entities have no liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Sellers could become liable or obligated.

 

Section 2.4 Financial Ability

 

The Purchaser has available funds sufficient to consummate the transactions contemplated by this Agreement and acknowledges that this Agreement contains no financing contingency.

 

Section 2.5 No Litigation

 

There is no lawsuit, claim, action, proceeding or investigation pending or, to the knowledge of the Purchaser Entities, threatened against the Purchaser Entities, their properties or businesses, which is reasonably expected to have a Purchaser Material Adverse Effect or restrict the ability of the Purchaser Entities to consummate the transactions contemplated hereby and otherwise perform hereunder.

 

Section 2.6 Investment

 

The Purchaser is acquiring the Housecall Stock for its own account, for investment only, and not with a view to any resale or public distribution thereof. The Purchaser shall not offer to sell or otherwise dispose of the Housecall Stock in violation of any Legal Requirement requiring registration or qualification of any such offer, sale or other disposition. The Purchaser acknowledges that (a) the Housecall Stock has not been registered under the Securities Act, or any state securities laws, (b) there is no public market for the Housecall Stock and there can be no assurance that a public market shall develop, and (c) the Purchaser may be required to bear the economic risk of its investment in the Housecall Stock for an indefinite period of time. The Purchaser is an “accredited investor” within the meaning of Rule 501 under the Securities Act, as presently in effect.

 

Section 2.7 Accuracy on Closing Date

 

Each representation and warranty set forth in this Article II and all information contained in any certificate delivered by or on behalf of the Purchaser pursuant to this Agreement shall be true and correct as of the time of the Closing as though then made, except (a) as affected by the transactions expressly contemplated by this Agreement, and (b) to the extent that such representation and warranty expressly relates solely to an earlier date.

 

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ARTICLE III.

REPRESENTATIONS AND WARRANTIES ABOUT THE SELLERS

 

As a material inducement to the Purchaser Entities to enter into this Agreement, each Seller hereby represents and warrants, solely as to himself, herself or itself, that as of the date hereof:

 

Section 3.1 Organization; Power and Authorization

 

Such Seller, if such Seller is an entity, is validly existing and in good standing under the laws of the state of its organization and has the requisite power and authority necessary to enter into, deliver and perform its obligations pursuant to each of the Transaction Documents to which it is a party. Such Seller’s execution, delivery and performance of each Transaction Document to which it is a party has been duly authorized by such Seller. Such Seller, if an individual, is a person of full age and full legal capacity.

 

Section 3.2 Binding Effect and Noncontravention

 

(a) Each Transaction Document to which such Seller is a party constitutes a valid and binding obligation of such Seller which is enforceable against such Seller in accordance with its terms, except as such enforceability may be limited by (i) applicable insolvency, bankruptcy, reorganization, moratorium or other similar laws affecting creditors’ rights generally, and (ii) applicable equitable principles (whether considered in a proceeding at law or in equity).

 

(b) Except as set forth on the attached Conflicts Schedule , the execution, delivery and performance of the Transaction Documents to which such Seller is a party do not and shall not:

 

(i) conflict with or result in a breach of the terms, conditions or provisions of,

 

(ii) constitute a default under or result in a violation of,

 

(iii) result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel any liability or obligation of such Seller under, or

 

(iv) require any authorization, consent, approval, exemption or other action by or declaration or notice to any third Person or Government Entity pursuant to,

 

(A) the certificate of incorporation or bylaws (or comparable governing instruments) of such Seller, if applicable,

 

(B) any agreement, instrument or other document, and any Legal Requirement, to which such Seller is a party or to which any of such Seller’s assets, including such Seller’s Housecall Stock, is subject, or

 

(C) any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, Legal Requirement or other restriction of any Government Entity, to which such Seller or such Seller’s assets, including such Seller’s Housecall Stock, is subject.

 

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Section 3.3 Ownership

 

Such Seller holds of record, owns beneficially and has good and marketable title to all of such Seller’s Housecall Stock, as applicable, free and clear of Liens and any other security interests, options, warrants, purchase rights, contracts, commitments, equities, claims and demands. Such Seller is not a party to any voting trust, proxy, or other agreement or understanding with respect to the voting or transfer of any Housecall Stock, which will survive the Closing Date.

 

Section 3.4 Accuracy on Closing Date

 

Each representation and warranty set forth in this Article III and all information contained in any certificate delivered by or on behalf of such Seller pursuant to this Agreement shall be true and correct in all material respects as of the time of the Closing as though then made (giving effect to any amended and restated Schedule to this Agreement submitted to the Purchaser prior to the Closing in accordance with Section 5.4 ), except (a) as affected by the transactions expressly contemplated by this Agreement and (b) to the extent that such representation and warranty expressly relates solely to an earlier date.

 

Section 3.5 Litigation Representation; No Litigation

 

There is no lawsuit, claim, action, proceeding or investigation pending or, to such Seller’s knowledge, threatened against such Seller or such Seller’s assets, properties or businesses, which is reasonably expected to have a material adverse effect on such Seller or which may or will restrict the ability of such Seller to consummate the transactions contemplated hereby and otherwise perform hereunder.

 

Section 3.6 Disclosure

 

No representation or warranty with respect to such Seller in Article III of this Agreement, no other representation or warranty concerning such Seller in this Agreement, and no statement in any related Schedule misstates a material fact or omits to state a material fact necessary to make the statements herein or therein, in light of the circumstances in which they were made, not misleading.

 

ARTICLE IV.

REPRESENTATIONS AND WARRANTIES ABOUT THE COMPANY

 

As a material inducement to the Purchaser to enter into this Agreement and to purchase the Housecall Stock, Sellers, each of which acts severally in the respective proportions shown on Schedule IV , hereby represent and warrant that:

 

Section 4.1 Organization; Qualification and Corporate Power

 

Each of the Company and its Subsidiaries is a corporation, limited liability company or partnership, as applicable, duly organized and validly existing in good standing under the laws of the jurisdiction of its incorporation or formation, as applicable. The Company and each of its Subsidiaries are duly authorized to conduct business and are in good standing under the laws of

 

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each jurisdiction where such qualification is required, except where the lack of such qualification has not had and will not have a Material Adverse Effect. Each of the Company and its Subsidiaries has full corporate power and authority or other power and authority, as applicable, to carry on the businesses in which it is engaged and to own and use the properties owned and used by it.

 

Section 4.2 Approvals and Consents

 

Each Transaction Document to which the Company or a Subsidiary is a party constitutes a valid and binding obligation of the Company or such Subsidiary, as applicable, which is enforceable against the Company or such Subsidiary, as applicable, in accordance with its terms, except as such enforceability may be limited by (i) applicable insolvency, bankruptcy, reorganization, moratorium or other similar laws affecting creditors’ rights generally, and (ii) applicable equitable principles (whether considered in a proceeding at law or in equity). Except as set forth on the attached Consents Schedule , the execution, delivery, and performance of the Transaction Documents to which any of the Company or its Subsidiaries is a party do not and shall not:

 

(a) conflict with or result in a breach of the terms, conditions, or provisions of,

 

(b) constitute a default under,

 

(c) give any third party the right to modify, terminate or accelerate any liability or obligation of, or charge any fee, penalty or similar payment to the Company or any Subsidiary under,

 

(d) result in a violation of, or

 

(e) require any authorization, consent, approval, exemption or other action by or declaration or notice to any third party or Government Entity (except for the applicable requirements of the HSR Act) pursuant to:

 

(i) the certificate of incorporation or bylaws or similar corporate governance documents of the Company or any of its Subsidiaries,

 

(ii) any material agreement (including, without limitation, the agreements that are required to be listed in the Contracts Schedule ), instrument or other document to which the Company or any of its Subsidiaries is a party or to which any of such entity’s assets is subject, or

 

(iii) any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, Legal Requirement or other restriction of any Government Entity, to which the Company or any of its Subsidiaries or any of their assets is subject.

 

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Section 4.3 Capitalization; Subsidiaries

 

(a) The entire authorized capital stock of the Company consists of (i) 10,000,000 shares of Preferred Stock, of which 5,125,000 have been designated Series A Preferred Stock and of which no shares are issued and outstanding, and (ii) 10,000,000 shares of Common Stock, of which 1,124,844 shares (all of which are included in the Housecall Stock) are issued and outstanding and 190,602 are reserved for issuance pursuant to outstanding warrants or pursuant to options granted under the Company’s 2002 Stock Incentive Plan (which warrants and options constitute the Options). All of the issued and outstanding shares of Common Stock of the Company have been duly authorized, are validly issued, fully paid, and non-assessable, and are held of record and beneficially by the Sellers as set forth on the Capitalization Schedule attached hereto. Except as set forth on the Capitalization Schedule , there are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require the Company or any Subsidiary to issue, sell, or otherwise cause to become outstanding any of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation or similar rights with respect to the Company or any Subsidiary. Notwithstanding anything contained on the Capitalization Schedule , Sellers expressly warrant that the Common Stock and Options now constitute, and will at the Closing constitute, the entire equity interest in the Company, on a fully diluted basis, such that Purchaser will acquire at the Closing 100% of the equity interest in the Company and such interest will not be subject to dilution by virtue of any act or deed by any Seller or any act or deed by the Company prior to the Closing.

 

(b) Housecall Medical Resources, Inc., a Delaware corporation (“Housecall”), is a Subsidiary of the Company and is owned, beneficially and of record, directly by the Company. The Subsidiaries Schedule sets forth for each Subsidiary of the Company (i) its name and jurisdiction of incorporation or formation, as applicable, (ii) the number of shares of authorized capital stock of each class of its capital stock or membership interests, as applicable, (iii) the number of issued and outstanding shares or membership interests, as applicable, of each class of its capital stock or membership interests, as applicable, the names of the holders thereof, and the number of shares or membership interests, as applicable, held by each such holder, and (iv) the number of shares or membership interests, as applicable, of its capital stock or membership interests, as applicable, held in treasury. All of the issued and outstanding shares of capital stock or membership interests, as applicable, of each Subsidiary of the Company have been duly authorized and are validly issued, fully paid, and nonassessable. Except as set forth on the Subsidiaries Schedule , the Company and its Subsidiaries, collectively, hold of record, own beneficially and have good and marketable title to all of the outstanding shares or membership interests, as applicable, of each Subsidiary of the Company. As of the Closing, such shares or membership interests, as applicable, shall be free and clear of any restrictions on transfer, Liens, security interests, options, warrants, purchase rights, contracts, commitments, equities, claims, and demands (other than restrictions under the Securities Act and state securities laws). There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require any of the Subsidiaries of the Company to issue, sell or otherwise cause to become outstanding any of such Subsidiary’s own capital stock or membership interests, as applicable. There are no outstanding or authorized stock appreciation, phantom stock, profit participation or similar rights with respect to any Subsidiary of the Company. There are no voting trusts, proxies, or other

 

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agreements or understandings with respect to the voting of any capital stock or membership interests, as applicable, of any of the Company and its Subsidiaries. None of the Company and its Subsidiaries controls directly or indirectly or has any direct or indirect equity ownership or participation in any corporation, partnership, trust, or other business association that is not a Subsidiary of the Company.

 

Section 4.4 Financial Statements

 

(a) Attached hereto as Schedule 4.4(a) are the following financial statements for the Company (collectively, the “Financial Statements”):

 

(i) the Company’s audited consolidated balance sheets and related statements of income and cash flows at and for each of the two fiscal years ended December 31, 2004 and 2003 and for the period from October 9, 2002 (Inception) through December 31, 2002,

 

(ii) Housecall’s audited consolidated balance sheets and related statements of income and cash flows (as predecessor to the Company) for the period from January 1, 2002 through November 18, 2002, and

 

(iii) the Company’s unaudited consolidated balance sheets and related statements of income and cash flows as prepared by management at and for the quarters ended March 31, 2005 and March 31, 2004.

 

(b) Except as set forth on the attached Financial Statements Schedule , each Financial Statement (including the notes thereto) has been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby and fairly presents the financial condition of the Company and its Subsidiaries as of such dates and their results of operations and cash flows for the periods specified, except as disclosed therein; provided, however, that the unaudited financial statements are subject to normal recurring year-end audit adjustments (which are not material) and do not contain all footnotes required under generally accepted accounting principles.

 

Section 4.5 Events Subsequent to the Latest Balance Sheet

 

Except as set forth on the attached Developments Schedule , since the date of the Latest Balance Sheet, there has been no change in the financial condition or operating results of the Business, which has had or will have a Material Adverse Effect.

 

Section 4.6 Assets

 

The Company has good and marketable title to, or a valid leasehold interest in, the assets reflected on the Latest Balance Sheet or acquired since the date thereof, except (a) assets disposed of in the ordinary course of business since the date of the Latest Balance Sheet, and (b) as set forth on the Assets Schedule attached hereto (collectively, the “Assets”). Such assets are free of Liens, other than Permitted Liens, and are sufficient to allow the Company and the Subsidiaries to conduct the Business in all material respects as and where currently conducted.

 

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Each of the Assets necessary for the conduct of the Business as currently conducted by the Company and its Subsidiaries and having a book value of at least $1,000 are usable in the ordinary course of business and are in good condition, normal wear and tear excepted.

 

Section 4.7 Compliance with Laws

 

Except as set forth on the attached Compliance Schedule (and other than tax matters addressed in Section 4.8 , environmental matters addressed in Section 4.9 , employee benefits matters addressed in Section 4.13 and regulatory matters addressed in Sections 4.18 through 4.23 ), each of the Company and its Subsidiaries has complied in all material respects with all Legal Requirements relating to the operation of the Business, other than those Legal Requirements the violation of which has not had and will not have a Material Adverse Effect. None of the Company and its Subsidiaries has, on or after January 1, 2002, received notice alleging any violations of Legal Requirements except as set forth on the attached Compliance Schedule .

 

Section 4.8 Tax Matters

 

Except as set forth on the attached Taxes Schedule :

 

(a) Each of the Company and its Subsidiaries has filed all Tax Returns that it was required to file on or before the Closing Date, and has paid all Taxes shown thereon as owing, or has adequately provided for such Taxes on the Financial Statements except where the failure to file Tax Returns, to pay Taxes, or to provide adequately for Taxes has not had and will not have a Material Adverse Effect.

 

(b) All Tax Returns required to be filed with respect to the Company or the Subsidiaries are true, correct, and complete in all material respects and have been timely filed (including extensions).

 

(c) None of the Company and its Subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to any Tax assessment or deficiency.

 

(d) No taxing authority has asserted that any of the Company or its Subsidiaries is responsible for the payment of any additional Taxes for any period. No taxing authority is currently auditing the Tax Returns of any of the Company or its Subsidiaries for any period.

 

(e) For United States federal income tax purposes, the Company will have a net operating loss in the amount of at least $5,000,000 for the period from January 1, 2005 through the Effective Date, which amount will not be reduced by application to prior periods.

 

Section 4.9 Environmental Matters

 

Except as described on the attached Environmental Matters Schedule :

 

(a) Each of the Company and its Subsidiaries is in material compliance with all applicable Environmental Laws.

 

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(b) Each of the Company and its Subsidiaries has obtained and is in material compliance with all material permits, licenses and other authorizations that are required pursuant to Environmental Laws for the operation of the Business.

 

(c) Neither the Company nor any of its Subsidiaries has received notice of violations or liabilities arising under Environmental Laws and relating to the operation of the Business, except where such violation or liability has not had and will not have a Material Adverse Effect.

 

(d) Neither the Company nor any of its Subsidiaries has assumed or undertaken any liability or corrective or remedial obligation of any other Person arising under Environmental Laws.

 

(e) Neither the Company nor any of its Subsidiaries has entered into or agreed to, nor does the Company or any Subsidiary currently intend to enter into or agree to, any consent decree or order, and the Company and Subsidiaries are not subject to any material obligation imposed by any Legal Requirement, judgment, decree or judicial or administrative order relating to compliance with, or the cleanup of Hazardous Substances under, any applicable Environmental Laws.

 

(f) Neither the Company nor any of its Subsidiaries has been party to any administrative or judicial proceeding under any applicable Environmental Laws either now or any time during the past five years.

 

(g) Neither the Company nor any of its Subsidiaries has received notice that there has been or is to be asserted any claim, obligation, liability, loss, damage or expense of whatever kind or nature, contingent or otherwise, incurred or imposed or based upon any provision of any Environmental Law and arising out of any act or omission of the Company or any of its Subsidiaries, their respective employees, agents or representatives or arising out of the ownership, use, control or operation by the Company or any of the Subsidiaries of any plant, facility, site, area or property (including, without limitation, any plant facility, site, area or property currently or previously owned or leased by the Company) from which any Hazardous Substances were released into the environment (the term “release” meaning any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment, by the Business and or any third Person, and the term “environment” meaning any surface or ground water, drinking water supply, soil, surface or subsurface strata or medium, or the ambient air), and, to the Company’s Knowledge, there exists no basis for any such claim obligation, liability, loss damage or expense.

 

(h) Neither the Company nor any of its Subsidiaries is in material violation of or, to the Company’s Knowledge, the subject of any enforcement action by any governmental authority under, the Medical Waste Tracking Act, 42 U.S.C. §§. 6992 et seq., or any other applicable federal, state or local governmental law dealing with the disposal of medical wastes (“ Medical Waste Laws ”). Neither the Company nor any of its Subsidiaries has received any notice of any investigation or inquiry by any governmental authority under the Medical Waste Laws.

 

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Section 4.10 Intellectual Property

 

(a) The attached Intellectual Property Schedule describes:

 

(i) all Intellectual Property owned by the Company or any of its Subsidiaries for which a patent or registration exists or has been applied for; and

 

(ii) all written licenses of Intellectual Property that the Company or any of its Subsidiaries has been granted from any third Person or has granted to any third Person.

 

(b) The Company and its Subsidiaries own or otherwise have the right to use, all Intellectual Property used by them in the conduct of the Business.

 

(c) The Intellectual Property Schedule sets forth all proceedings or actions before any court or tribunal related to any of the Intellectual Property. The Company has received no notice that any Intellectual Property is the subject of any proceeding or outstanding decree, order, judgment, agreement or stipulation that if adversely determined does or would materially restrict the use, transfer or licensing thereof by the Company or any of its Subsidiaries, or would materially and adversely affect the validity, scope, use or enforceability of such Intellectual Property, except as set forth in the Intellectual Property Schedule .

 

(d) All material rights relating to the Intellectual Property are valid and enforceable, and (i) there are no facts showing and (ii) to the Company’s Knowledge, no party has asserted, that any such rights are invalid or unenforceable. Except as set forth in the Intellectual Property Schedule , and to the Company’s Knowledge, no Person has infringed or misappropriated or is infringing on or misappropriating any Intellectual Property. The Company and its Subsidiaries have taken commercially reasonable actions to maintain their respective material Intellectual Property rights, including payment of required fees, and filing of required documents with the relevant authorities.

 

(e) The Company and its Subsidiaries have taken commercially reasonable precautions to protect the secrecy, confidentiality and value of all of their respective material trade secrets and proprietary information. No material violation of such precautions that materially lessens the value of any trade secret or proprietary information of the Company or any Subsidiary has occurred.

 

(f) The Company and its Subsidiaries are in material compliance with all licenses for the use of software, and all software used by them is covered by a valid license.

 

Section 4.11 Real Estate

 

(a) The Company owns no real property.

 

(b) The attached Real Estate Schedule lists all real property that the Company or any Subsidiary leases or subleases from any other Person. Except as set forth on the attached Real Estate Schedule , with respect to each lease and sublease listed on the Real Estate Schedule , the lease or sublease is legal, valid, binding, enforceable, and in full force and effect except where the illegality, invalidity, nonbinding nature, unenforceability, or ineffectiveness has not had and will not have a Material Adverse Effect.

 

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(c) The Company and the Subsidiaries are in peaceful and undisturbed possession of each parcel of real estate leased or subleased by any of them as tenant. There exist no contractual or legal restrictions that preclude or materially restrict the Company’s or such Subsidiary’s ability to use such leased or subleased real estate for the purposes for which they are currently being used by the Company or such Subsidiary.

 

(d) There are no (i) condemnation proceedings by any Governmental Entity affecting any portion of any leased or subleased real property; (ii) any special assessment by any Governmental Entity affecting any portion of any leased or subleased real property; or (iii) pending or threatened enforcement proceedings by any Governmental Entity relating to an alleged zoning violation affecting any portion of any leased or subleased premises and, to the Company’s Knowledge, there is no basis for any such condemnation, special assessment or enforcement proceedings.

 

Section 4.12 Litigation

 

The attached Litigation Schedule sets forth each instance in which the Company or any Subsidiary (a) is subject to any outstanding injunction, judgment, order or decree, (b) is a party to any action, lawsuit, proceeding, hearing, investigation or other claim, (c) to the Company’s Knowledge, is subject to claims that are threatened or unasserted or (d) has received notice that it is a party to any action, lawsuit, proceeding, hearing, investigation or other claim, in or before any court or quasi judicial or administrative agency of any federal, state, local or foreign jurisdiction, in each case where the injunction, judgment, order, decree, ruling, action, suit, proceeding, hearing, investigation or claim has had or will have a Material Adverse Effect.

 

Section 4.13 Employee Benefits

 

The Employee Benefits Schedule lists each Employee Benefit Plan that the Company or any of its Subsidiaries maintains or to which the Company or any of its Subsidiaries contributes or has an obligation to contribute. Except as set forth on the Employee Benefits Schedule :

 

(a) Each such Employee Benefit Plan complies in form and in operation with the applicable requirements of ERISA, the Code and the terms of such Employee Benefit Plan in all material respects, except to the extent the failure to comply has not had and will not have a Material Adverse Effect.

 

(b) With respect to each such Employee Benefit Plan, all required payments, premiums, contributions, distributions, or reimbursements for all periods ending prior to or as of the Closing Date have been made or properly accrued.

 

(c) Each such Employee Benefit Plan which is intended to be qualified under Section 401(a) of the Code (i) has been amended to reflect the changes in law imposed by GUST and EGTRRA or any other applicable change, (ii) has received a determination letter from the Internal Revenue Service to the effect that it meets the requirements of Section 401(a) of the

 

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Code or may rely on an opinion or advisory letter issued to a master or prototype or volume submitter provider with respect to the tax-qualified status of the Employee Benefit Plan, and (iii) nothing has occurred since the date of such determination that could cause the Employee Benefit Plan to lose its tax-qualified status.

 

(d) Neither the Company nor any of its Subsidiaries maintains, sponsors, contributes to, or has any Liability or potential Liability under or with respect to any “multiemployer plan” within the meaning of Section 3(37) of ERISA or any “defined benefit plan” within the meaning of Section 3(35) of ERISA or otherwise has any Liabilities or potential Liabilities under Title IV of ERISA.

 

(e) None of the Employee Benefit Plans requires the Company or any of its Subsidiaries to provide health, accident or life insurance benefits to retirees other than in accordance with Section 4980B of the Code.

 

(f) The Company has delivered or made available to the Purchaser with respect to each Employee Benefit Plan correct and complete copies of (i) all plan documents pursuant to which the plan is maintained, funded and administered, including trust agreements, insurance policies and service agreements, and all amendments to such documents, (ii) the current summary plan description and all summaries of material modification issued since the publication of such summary plan description, (iii) the most recent Internal Revenue Service determination letter, opinion or advisory letter, if applicable, and (iv) the most recent Form 5500 Annual Report and related schedules. All such Annual Reports have been timely filed.

 

Section 4.14 Affiliate Transactions

 

(a) The Related Party Schedule sets forth all Related Party Agreements in effect on the date hereof (except for oral Related Party Agreements that relate exclusively to the Company’s employment of Persons in the ordinary course of business). All Liabilities of each Seller or any of such Seller’s Related Persons or any of their respective Affiliates owed to the Company, and all Liabilities of the Company owed to any Seller or such Seller’s Related Persons or any of their respective Affiliates, will have been paid in full prior to the Closing.

 

(b) Except as set forth on the Related Party Schedule , no Seller or Related Person of a Seller is, alone or with one or more other Persons, an Affiliate of any entity, business or trade (other than the Company) that (i) engages in any line of business which is the same as or similar to the Business or (ii) is, or has at any time on or after January 1, 2002, engaged in any transaction with the Company. Except as set forth on the Related Party Schedule , no Seller or Related Person of a Seller or any of their respective Affiliates has or has had at any time on or after January 1, 2002, any interest in any Asset or Liability of the Company. The Company and its Subsidiaries have alternative sources, at comparable prices, for all Assets, or properties or supplies that any of them acquire from any Seller or Related Person of a Seller or any of their respective Affiliates.

 

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Section 4.15 Insurance

 

The attached Insurance Schedule contains a description of each insurance policy currently maintained by the Company and its Subsidiaries with respect to their respective properties, assets and business. All such policies are in full force and effect and, to the Company’s Knowledge, no event has occurred that would, by the terms of the policy, give any insurance carrier a right to terminate any such policy.

 

Section 4.16 Employees

 

The Employees Schedule attached hereto contains a true and complete list as of the date of this Agreement of (a) the employees employed by the Company or any of its Subsidiaries, (b) the rate of all compensation paid by the Company or any of its Subsidiaries to each such employee in 2004 plus any bonus, contingent or deferred compensation related to calendar year 2004, and the rate being paid in 2005, and (c) the directors of the Company and each of its Subsidiaries. The Company and the Subsidiaries are in compliance in all material respects with all applicable laws relating to employment and employment practices and those relating to the calculation and payment of wages, including without limitation, classification of employees under the Fair Labor Standards Act of 1938, as amended, overtime, maximum hours of work, equal employment opportunity (including laws prohibiting discrimination and/or harassment on the basis of race, national origin, religion, gender, disability, age, workers compensation or otherwise), affirmative action and other hiring practices, occupational safety and health, workers compensation, unemployment, the payment of social security and other Taxes, and unfair labor practices under the National Labor Relations Act. Neither the Company nor any Subsidiary has entered into any collective bargaining agreement or other arrangement with any labor union and no such agreement is currently being negotiated. There has not been, since December 31, 2002, any work interruption or material labor grievance, in either case related to union activity, filed by any employee or collective bargaining unit with respect to the Company or any Subsidiary.

 

Section 4.17 Contracts

 

(a) Except as expressly contemplated by this Agreement or as set forth on the attached Contracts Schedule , neither the Company nor any Subsidiary is a party to or bound by any written or oral:

 

(i) pension, profit sharing, stock option, employee stock purchase or other plan or arrangement providing for deferred or other compensation to its current or former directors, officers or employees or any other Employee Benefit Plan, arrangement or practice, whether formal or informal;

 

(ii) collective bargaining agreement or any other contract with any labor union, or severance agreements, programs, policies or arrangements;

 

(iii) management agreement or contract for the employment of any officer, employee or other Person on a full-time, part-time, consulting or other basis (A) providing cash or other compensation, (B) providing for the payment of any cash or other compensation or benefits upon the consummation of the transactions

 

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contemplated hereby or upon discharge or other termination of employment of such officer, employee or other Person following such consummation or (C) otherwise restricting its ability to terminate the employment of any employee at any time for any lawful reason or for no reason without penalty or liability;

 

(iv) contract or agreement involving any Governmental Entity;

 

(v) agreement with Third Party Payors;

 

(vi) material agreement with physicians, hospitals or nursing facilities;

 

(vii) agreement with any “business associates” as such term is defined in HIPAA;

 

(viii) agreement or indenture relating to borrowed money or other Indebtedness or the mortgaging or pledging on any material asset;

 

(ix) lease or agreement under which the Company or any Subsidiary is (A) lessee of or holds or operates any personal property owned by any other party, except for any lease of personal property under which the aggregate annual rental payments do not exceed $25,000 or (B) lessor of or permits any third party to hold or operate any property, real or personal, owned or controlled by the Company or any of its Subsidiaries;

 

(x) contract relating to the marketing, sale, advertising or promotion of its services, where such contract involves a fee or payment by the Company or any of its Subsidiaries in excess of $25,000, other than trade promotion offers between the Company or any of its Subsidiaries and their respective customers entered into in the ordinary course of business;

 

(xi) other agreement which involves a consideration in excess of $10,000 annually and is not in the ordinary course of business;

 

(xii) any agreement with a referral source, including (without limitation) medical director arrangements, advisory contracts, and preferred provider agreements;

 

(xiii) any agreement with any Government Program or Private Program;

 

(xiv) any agreement that contains a change of control provision to which the transactions contemplated by this Agreement would apply; or

 

(xv) any other agreement that is material to the Company or any Subsidiary or the Business.

 

(b) All of the contracts, agreements and instruments set forth or required to be set forth on the attached Contracts Schedule (the “Material Contracts”) are valid, binding and enforceable against the Company in accordance with their respective terms, except as designated

 

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completed on such schedule and except as such enforceability may be limited by (i) applicable insolvency, bankruptcy, reorganization, moratorium or other similar laws affecting creditors’ rights generally and (ii) applicable equitable principles (whether considered in a proceeding at law or in equity). Except as set forth on the Contracts Schedule, neither the Company nor any of its Subsidiaries has materially defaulted under or materially breached any Material Contract, and to the Company’s Knowledge, no other party to a Material Contract has breached or cancelled or plans to breach or cancel any Material Contract.

 

(c) All contracts of the type referred to in Section 4.17(a)(iii)(B) are attached in their entirety to the Contracts Schedule .

 

Section 4.18 No Agency Action or Enforcement

 

Except as set forth on the Compliance Schedule :

 

(a) Neither the Company nor any of its Subsidiaries is currently, with respect to any Governmental Entity or Third Party Payor: (i) to the Company’s Knowledge, the subject of any material audit, inquiry, or investigation; or (ii) party to any consent decree, judgment, order, or settlement that (A) requires the payment of money by the Company or any Subsidiary to any Government Entity or Third Party Payor, (B) requires any recoupment of money from the Company or any Subsidiary by any Governmental Entity or Third Party Payor, or (C) requires or prohibits any activity by the Company or any Subsidiary.

 

(b) (i) neither the Company’s nor any Subsidiary’s right to receive reimbursements pursuant to any Government Program or Private Program has been terminated or otherwise materially adversely affected as a result of any investigation or action by any Government Entity or Third Party Payor; (ii) neither the Company nor any Subsidiary has, on or after January 1, 2002, been the subject of any inspection, investigation, survey, audit, monitoring or other form of review by any Governmental Entity, Third Party Payor, trade association, professional review organization, accrediting organization, licensing agency or certifying agency, other than any such inspection, investigation, survey, audit, monitoring or other form of review that was routinely conducted by any such Governmental Entity, Third Party Payor, trade association, professional review organization, accrediting organization, licensing agency or certifying agency and was not based upon, and did not result in a finding of, any alleged improper activity, nor has the Company or any of its Subsidiaries received any notice of deficiency during the past five years in connection with their respective operations; and (iii) there are not any outstanding deficiencies or work orders of any Third Party Payor or any Governmental Entity having jurisdiction over the Company or any Subsidiary, or requiring conformity to any applicable agreement, conditions of participation, accreditation standard, statute, regulation, ordinance or bylaw, including but not limited to, the Government Programs and Private Programs.

 

(c) Neither the Company nor any Subsidiary is subject to (i) any proceeding to exclude or suspend a health care provider or any provider number from any Government Program or any Private Program, or (ii) any corporate integrity agreement, settlement agreement, or other comparable agreement or understanding with any Government Entity.

 

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(d) Neither the Company nor any of its Subsidiaries has received any notice indicating that its qualification as a participating provider in any Governmental Program or Private Program may be terminated or withdrawn, nor does the Company or any of its Subsidiaries have any Knowledge that such qualification may be terminated or withdrawn.

 

(e) Neither the Company nor any of its Subsidiaries has any reimbursement or payment rate appeals, disputes or contested positions pending before any Governmental Entity or any Private Program.

 

Section 4.19 Health Care Licenses

 

All Health Care Licenses applicable to the Company or any of its Subsidiaries, to the extent necessary for the conduct of the Business as currently conducted: (a) have been obtained, are in effect and are set forth on the Health Care Licenses Schedule ; (b) are valid and in good standing in each jurisdiction in which such Health Care Licenses or other Permits were issued or are operable; and (c) have not been subject to revocation or forfeiture by any Government Entity except where the failure to have such Health Care Licenses has not had and will not have, individually or in the aggregate, a Material Adverse Effect. Except as disclosed in the Health Care Licenses Schedule, neither the Company nor any Subsidiary is party to any order or legal or administrative proceeding with respect to any of the Health Care Licenses. Neither the Company nor any Subsidiary has received notice of any action pending or recommended by any Government Entity (or in the case of accreditation, the accrediting body) having jurisdiction over a Health Care License to revoke, withdraw or suspend any such Health Care License. No event has occurred which, with the giving of notice, the passage of time, or both, would constitute grounds for a material violation, order or deficiency with respect to any Health Care License or to revoke, withdraw or suspend any such Health Care License.

 

Section 4.20 Compliance

 

(a) The Company and its Subsidiaries have established and implemented such policies, programs, procedures, contracts and systems, as are necessary to comply with HIPAA; Title II, Subtitle F, Sections 261-264, Public Law 104-191; and the Standards for Privacy of Individually Identifiable Health Information, 45 C.F.R. Parts 160-164, and the HIPAA Security and Transactions and Code Sets standards, except where the failure to do so has not had and will not have a Material Adverse Effect.

 

(b) Each of the Company and its Subsidiaries has complied in all material respects with all Legal Requirements pertaining to Health Care Laws, other than those Legal Requirements the violation of which has not had and will not have a Material Adverse Effect.

 

Section 4.21 Billing Practices

 

(a) All reports, cap reports, cost reports, billings, claims and other filings for professional and related services submitted by or on behalf of the Company or any of its Subsidiaries to any Governmental Entity for any Government Program, or any Third Party Payor for any Private Program, have been submitted timely and in compliance with all applicable statutes, rules, regulations and Legal Requirements and are accurate and complete in all material

 

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respects, except where any failure to so comply (either individually or in the aggregate) has not had and will not have a Material Adverse Effect. The Company and each Subsidiary have paid or caused to be paid all known and undisputed refunds, overpayments, discounts or adjustments which have become due pursuant to such reports, cap reports, cost reports, billings, claims and other filings. Except as set forth in the Billing Practices Schedule , (a) there are no pending appeals, adjustments, challenges, audits, inquiries, additional document requests, litigation or notices of intent to audit, reopening of cost reports, or Notices of Program Reimbursement reflecting overpayments, penalties, interest or fines with respect to any such reports, cap reports, cost reports, billings, claims and other filings and (b) during the last five years neither the Company nor any Subsidiary has been audited or surveyed, or otherwise examined, by any Government Program or Private Program. The Company and each Subsidiary have responded timely to all requests by Governmental Entities and Third Party Payors for information about billings. The Company and each Subsidiary have not claimed or received reimbursements from Private Programs in excess of amounts permitted by Legal Requirements or contract, except as reserved therefor as a liability on the Estimated Closing Balance Sheet.

 

(b) The Company and each Subsidiary have not claimed or received reimbursements from Government Programs in excess of amounts permitted by Legal Requirements or contract, except as reserved therefor as a liability on the Estimated Closing Balance Sheet. Reserves recorded on the Estimated Closing Balance Sheet as a liability with respect to adjustments in amounts paid or received on cost reports filed pursuant to a Government Program or other Federal Health Care Program (as defined in 42 U.S.C. § 1320a-7b(f)) are sufficient to pay all Liabilities that may accrue to the Company or any of its Subsidiaries, in the aggregate, with respect to such cost reports.

 

Section 4.22 Regulatory Compliance

 

(a) Those of the Company and its Subsidiaries that hold provider numbers with Medicare or Medicaid (the “Providers,” each of which is listed on the Provider Schedule ) are qualified as participating providers under the programs in which they participate. None of the Providers has received any notice indicating that such qualification will be terminated or withdrawn. The Providers have timely filed all claims or other reports required to be filed with respect to the purchase of products or services by Third Party Payors in the ordinary course of business, except where the failure to file such claims and reports has not had and will not have, individually or in the aggregate, a Material Adverse Effect, and all such claims or reports are complete and accurate in all material respects.

 

(b) Except as set forth on the Compliance with Laws Schedule , no employees, officers, agents, representatives, shareholders or members of the boards of directors of the Company or any Subsidiary have been convicted of or charged with a Medicare, Medicaid, other Federal Health Care Program (as defined in 42 U.S.C. § 1320a-7b(f)), or other Governmental Program related offense, or convicted of or charged with a violation of federal or state law related to fraud, theft, embezzlement, breach of fiduciary responsibility, financial misconduct, obstruction of an investigation or controlled substances. No employees, officers, agents, representatives, shareholders or members of the boards of directors of the Company or any Subsidiary have been excluded or suspended from participation in Medicare or Medicaid, or other Governmental Program, or have been debarred, suspended or are otherwise ineligible to participate in federal programs.

 

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(c) None of the Company or any Subsidiary, or any of the Company’s or Subsidiaries’ respective directors, officers, agents, representatives, shareholders or employees, has directly or indirectly made or offered to make any contribution, gift, bribe, rebate, payoff, influence payment, kickback or other payment to any Person, regardless of form, whether in money, property or services, including without limitation: (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured, (iii) to obtain special concessions or for special concessions already obtained, for or in respect of the Company or any Subsidiary or any Affiliate of any of them, or (iv) to induce or reward the referral of business or services that are billed to any Government Program or Private Program.

 

(d) No referral source of the Company or any Subsidiary maintains an ownership interest in, or compensation arrangement with, the Company or any Subsidiary in contravention of the Stark Law.

 

(e) Neither the Company nor any Subsidiary is relying on any exemption from or deferral of any Legal Requirement that would not remain available following the Closing.

 

Section 4.23 Reimbursement

 

Each of the Company and its Subsidiaries that is set forth on the Health Care Licenses Schedule or Provider Schedule as having a provider number is certified for participation and reimbursement under Titles XVIII and XIX of the Social Security Act, the CHAMPUS Program, and the TriCare Program (Medicare, Medicaid, CHAMPUS and TriCare programs and all other similar federal, state or local reimbursement or governmental health care programs are hereinafter referred to collectively as the “ Government Programs ”). Each of such entities has current provider numbers and provider agreements for such Government Programs and for its Private Programs. The Company and its Subsidiaries are in compliance with all requirements of each Government Program and each Private Program under which any of them is presently receiving payments or is eligible to receive payments, except where failure to comply has not had and will not have a Material Adverse Effect.

 

Section 4.24 Broker Fees

 

None of the Company or any of its Subsidiaries has any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Purchaser Entities could become liable or obligated.

 

Section 4.25 Operation in the Ordinary Course

 

Except as disclosed in the Ordinary Course Schedule and except as otherwise provided in or contemplated by this Agreement (including the schedules hereto), since the date of the Latest Balance Sheet, the Company and Subsidiaries have conducted the Business only in, and neither the Company nor any of its Subsidiaries has engaged in any transaction other than, in the ordinary course of business in connection with the operation of the Business and has not:

 

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