Exhibit 2(m)
SECOND AMENDMENT
TO
ASSET PURCHASE AGREEMENT
THIS SECOND AMENDMENT TO ASSET PURCHASE AGREEMENT (this "Amendment") is
made and entered into as of the 18th day of November, 1998, by and among Allied
Specialty Care Services, Inc., a Florida corporation formerly known as CMSF,
Inc. (the "Buyer"), Allied Health Group, Inc., a Florida corporation ("AHG"),
Gut Management, Inc., a Florida corporation ("Gut"), Sky Management Co., a
Florida corporation ("Sky"), Florida Specialty Network, Ltd., a Florida limited
partnership ("FSN"), Surgical Associates of South Florida, Inc., a Florida
corporation ("SASF"), Surginet, Inc., a Florida corporation ("Surginet" and,
together with AHG, Gut, Sky, FSN and SASF, the "Sellers" and individually, a
"Seller"), Xxxxx Xxxxx, M.D. ("Nudel"), Xxxxx Xxxxxx, M.D. ("Xxxxxx"), Xxxxxxxx
Xxxxxxxx, M.D. ("Xxxxxxxx" and, together with Nudel and Xxxxxx, the "Executive
Shareholders") and Magellan Health Services, Inc., a Delaware corporation and
the ultimate corporate Parent of the Buyer (the "Parent").
RECITALS
A. The parties entered into that certain Asset Purchase Agreement dated as
of October 16, 1997, as amended on December 5, 1997 (the "Asset Purchase
Agreement"). Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in the Asset Purchase Agreement.
B. The parties desire to further amend the Asset Purchase Agreement, on the
terms and subject to the conditions set forth hereinbelow.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
of the parties, and in consideration of the representations, warranties and
covenants herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Amendments.
1.1 Buy-Out. In exchange for the payment by the Buyer to AHG of the
aggregate sum of $4,000,000 (the "Buyout Price"), payable in cash at Closing
(defined below) by wire transfer of immediately available funds, (a) the Buyer
shall be entitled to receive, and the Sellers shall release all claims to,
$18,906,746 of the Escrow Deposit, and any interest or earnings thereon (the
"Released Clawback"), and (b) the Buyer shall purchase, and the Sellers shall
sell, 87 1/2% of the Year 1 Earn-Out, the Year 2 Earn-Out and the Year 3
Earn-Out (collectively, the "Purchased Earn-Out"). In addition, effective on the
Effective Date, all Executive Shareholders and Sellers other than AHG shall
cease to be entitled to any amounts payable by the Buyer under the Asset
Purchase Agreement and the representations and warranties set forth in Sections
5.5, 5.6, 5.8, 5.9, 5.10, 5.11, 5.12, 5.13, 5.16, 5.17(e)-(h), 5.18, 5.20, 5.21,
5.22 and 5.25 of the Asset Purchase Agreement shall terminate. The parties to
this Amendment acknowledge and agree that the Buyout Price is payable in
consideration for the
Purchased Earn-Out, and the restructuring of Sections 3.3 and 3.4 of the Asset
Purchase Agreement as set forth herein, and that there is no perceived value of
future claims to the Released Clawback.
1.2 Ongoing Arrangement with AHG. Effective on the Effective Date, AHG
shall remain entitled to the amounts payable by the Buyer pursuant to Section 3
of the Asset Purchase Agreement, subject to the terms and conditions described
below.
(a) Modification of Earn-Out Provisions. Effective on the Effective
Date (except as set forth in Section 1.2(b) of this Amendment, which sets
forth certain amendments to the Remaining Earn-Out (defined below) and the
Remaining Clawback (defined below), and restates said provisions as Sections
3.3A and 3.4A of the Asset Purchase Agreement), Sections 3.3 and 3.4 of the
Asset Purchase Agreement shall be amended and restated in their entirety to
read as follows:
Section 3.3 Earn-Out. The Purchase Price shall be subject to
adjustment after the Closing as set forth in this Section 3.3:
(a) Earn-Out Definitions. Unless the context otherwise requires,
as used in this Section 3.3 and in Section 3.4, the following terms shall
have the following meanings:
(1) "Accountants" shall mean the independent public
accountants of the Buyer.
(2) "Earn-Out Period" shall mean each of the Year 2 Earn-Out
Period and the Year 3 Earn-Out Period.
(3) "EBITDA" shall mean the aggregate Net Revenue from the
operations of the Businesses, minus all expenses incurred in operating
the Businesses but before interest, income taxes, depreciation and
amortization, prepared in accordance with GAAP, consistently applied,
and adjusted as follows: (1) Introduced Business will be deemed to
have been conducted at the Businesses' cost of providing services for
such Introduced Business plus the applicable IB Profit Margin. (2) As
long as the Businesses are operated as a separate subsidiary or
division, administrative services provided to the Businesses will be
actual corporate overhead, including services provided by Parent or
Parent's Affiliates, on a cost basis, and will only include
administrative services that are reasonably and directly related to
the Businesses. In the event the Businesses are integrated into Parent
or an Affiliate of Parent to the extent that the corporate overhead
attributable to the Businesses cannot be readily determined, then, in
lieu of actual overhead, an amount equal to a percentage of Net
Revenue of the Businesses shall be allocated to the Businesses as
deemed overhead, which percentage will be established by dividing (A)
the amount of actual overhead incurred with respect to the Businesses
for the six month period immediately preceding such
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integration by (B) the Net Revenue of the Businesses for said
six-month period. Said fixed percentage shall thereafter be applied to
the Net Revenue of the Businesses for purposes of determining the
deemed overhead to be allocated to the Businesses. (3) Net proceeds
from dispositions of assets of the Businesses shall be reinvested in
the Businesses. (4) With respect to acquisitions made from and after
the Closing, in lieu of including Net Revenue and expenses related to
such acquisition in the calculation of EBITDA, net income, determined
in accordance with GAAP, from such acquisition shall be included in
EBITDA. (5) Expenses and capital expenditures with respect to the
items set forth in the Information Technologies Budget will be
allocated and treated as set forth in the Information Technologies
Budget regardless of their treatment under GAAP.
(4) "EBITDA Run Rate" shall mean an amount equal to the sum
of (i) the product of (x) two and (y) the aggregate "Per Contract
EBITDA" (as defined below) for the period from July 1, 2001 through
December 31, 2001 resulting from each contract which constitutes New
Business commencing on or before June 30, 2001, and (ii) the product
of (x) two and (y) the aggregate "Per Contract EBITDA" for the first
six months of operations resulting from each contract which
constitutes New Business commencing on or after July 1, 2001. For
purposes of this definition, the term "Per Contract EBITDA" shall mean
an amount equal to (i) revenue from each contract constituting New
Business, minus (ii) the direct costs and expenses related to each
contract constituting New Business, minus (iii) an allocated portion
of all other expenses taken into account in calculating EBITDA (other
than direct costs and expenses related to contracts not constituting
New Business), which allocation shall be based upon the number of
claims processed under each such contract constituting New Business as
compared to the number of claims processed under all contracts,
including both contracts which constitute New Business and contracts
which do not constitute New Business.
(5) "IB Profit Margin" shall mean a profit margin equal to
fifty percent (50%) or such other agreed upon percentage (the "IB
Profit Margin Percentage") of the average profit margin of the
Businesses for services similar to the applicable Introduced Business
provided during the fiscal quarter immediately preceding the fiscal
quarter in which the Businesses are to begin to provide services for
the Introduced Business. The proposed IB Profit Margin Percentage and
the proposed calculation of the IB Profit Margin (collectively, the
"IB Profit Margin Calculation") will be made by the Buyer in good
faith and presented in writing to the Executive Shareholders as soon
as practicable prior to the date on which services relating to the
Introduced Business are to be rendered. The Executive Shareholders
shall, not later that five Business
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Days after receipt of the IB Profit Margin Calculation, notify the
Buyer in writing of any objections thereto. Absent delivery of a
written objection as provided above, the IB Profit Margin Calculation
will be conclusive and binding upon the parties to this Agreement. If
written objection is delivered to the Buyer and the Buyer and the
Executive Shareholders are unable, within 5 Business Days after the
receipt by the Buyer of such written objection, to resolve the
dispute, the Buyer, in its sole discretion, may elect either (i) to
not make the Introduced Business available to the Buyer or (ii) to
submit the IB Profit Margin Calculation to an Independent Accounting
Firm mutually acceptable to the Executive Shareholders and the Buyer
whose determination shall be conclusive and binding on the parties. In
the event the Buyer elects to submit the matter to an Independent
Accounting Firm, the Businesses shall provide services for the
Introduced Business pending determination of the IB Profit Margin
Calculation.
(6) "Independent Accounting Firm" shall mean one of the
"big-five" certified public accounting firms that does not have a
conflict of interest with respect to the preparation or review of the
EBITDA Statements.
(7) "Introduced Business" shall mean business introduced to
the Buyer by Parent or Parent's Affiliates (i) as part of a contract
with Parent or its Affiliates, or (ii) by reason of introductions to
the Buyer made by Parent or Parent's Affiliates. Neither Parent nor
any Parent Affiliate shall be obligated to introduce any business to
the Buyer or to otherwise cause any business that could be conducted
by the Buyer as Introduced Business to be referred to or conducted by
the Buyer.
(8) "New Business" shall mean contracts for services to be
provided by the Businesses (and additional services to be provided
under existing contracts by the Businesses) commencing between October
1, 1998 and October 1, 2001, inclusive, and for which no notice of
cancellation or nonrenewal has been given on or before October 1,
2001, but excluding (i) renewals (including amendments, restatements
or replacements) of contracts in force as of October 1, 1998 and (ii)
contracts which will expire by their terms absent notice of intent to
renew on or before October 1, 2001 (and with respect to which no
notice of intent to renew has been given).
(9) "Net Revenue" shall be defined as the combined revenues
of the Businesses (including income on operating cash and monies held
on behalf of third parties remaining after Buyer distributes cash in
excess of working capital requirements to Parent) (after elimination
of all inter-Business transactions and balances) which are capitation
fees (net of physician services expenses for AHG only, and net of any
retroactive adjustments under the terms of any managed care
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plans), service bureau billing fees, administrative fees, facility
fees, and fee for service xxxxxxxx (less contractual adjustments, bad
debt expense, charity adjustments, refunds, NSF checks, collection
agency fees and other adjustments to gross revenues), all as computed
in accordance with GAAP.
(10) "Year 2 Earn-Out" shall mean the amount, if any,
payable by the Buyer to AHG in accordance with the provisions of
Section 3.3(d) and Section 3.4.
(11) "Year 3 Earn-Out" shall mean the amount, if any,
payable by the Buyer to AHG in accordance with the provisions of
Section 3.3(e) and Section 3.4.
(12) "Year 3 Run Rate Earn-Out" shall mean the amount, if
any, payable by the Buyer to AHG in accordance with the provisions of
Section 3.3(f) and Section 3.4.
(13) "Year 2 EBITDA" shall have the meaning set forth in
Section 3.3(d).
(14) "Year 3 EBITDA" shall have the meaning set forth in
Section 3.3(e).
(15) "Year 2 Earn-Out Period" shall mean the 12-month period
ending on November 30, 1999.
(16) "Year 3 Earn-Out Period" shall mean the 12-month period
ending on November 30, 2000.
(17) "Year 2 Threshold" shall mean $11,000,000.
(18) "Year 3 Threshold" shall mean the greater of (i)
$11,000,000 or (ii) Year 2 EBITDA.
(b) EBITDA Statement. Within 75 calendar days after the last day
of each of the Year 2 Earn-Out Period and the Year 3 Earn-Out Period, the
Buyer shall prepare, the Accountants shall review, and the Buyer shall
deliver to AHG a statement reflecting the EBITDA from the consolidated
operations of the Businesses during such Earn-Out Period (each, an "EBITDA
Statement"), which statement will be determined in accordance with GAAP,
applied on a basis consistent with the financial statements of the Buyer
and the Parent for such period. The parties shall ensure that the
Accountants have full access to the books, records, facilities and
employees of the Businesses for purposes of reviewing the EBITDA Statement
and shall cooperate with the Accountants to the extent reasonably requested
to review the EBITDA Statement. The EBITDA Statement will be examined by
AHG (and, if AHG so chooses, by a
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firm of independent certified public accountants), who shall, not later
than 45 calendar days after receipt of the EBITDA Statement, raise any
objections it has to the EBITDA Statement by notifying the Buyer in writing
within such time period in a statement indicating the item or items
disputed, AHG's proposed adjustments and an adjusted EBITDA Statement
reflecting such adjustments (an "Objection Notice"). During such 45 day
period, AHG and any such independent certified public accountants shall
have full access to the books and records, other financial information
(including the working papers of the Accountants) and appropriate financial
personnel of the Buyer reasonably necessary for the preparation of an
Objection Notice. Absent delivery of an Objection Notice as provided above,
the EBITDA Statement will be conclusive and binding upon the parties to
this Agreement for the purposes of any purchase price adjustment under this
Section 3.3(b). In the event that an Objection Notice is delivered by AHG
as provided above, and if the Buyer and AHG are unable, within 15 calendar
days after receipt by the Buyer of such Objection Notice, to resolve the
disputed exceptions, such disputed exceptions will be referred to an
Independent Accounting Firm mutually acceptable to AHG and the Buyer. The
Independent Accounting Firm shall, within 60 days following its engagement
by the Buyer and AHG for this purpose, deliver to AHG and the Buyer a
written report determining such disputed exceptions (the "IAF EBITDA
Statement"). During such 60 day period, the Independent Accounting Firm
shall have full access to the books and records, other financial
information (including the working papers of the Accountants and AHG's
accountants, if any) and appropriate financial personnel of the Buyer which
the Independent Accounting Firm reasonably deems necessary or advisable for
the preparation of the IAF EBITDA Statement. The EBITDA reflected in the
IAF EBITDA Statement will be conclusive and binding upon the parties to
this Agreement for the purposes of any purchase price adjustment under this
Section 3.3(b), subject to application of the following provisions: (i) if
the IAF EBITDA Statement reflects EBITDA in excess of $300,000 over the
amount of the EBITDA reflected in the EBITDA Statement for the Earn-Out
Period at issue, then EBITDA for such Earn-Out Period shall be deemed to be
equal to the EBITDA reflected in the IAF EBITDA Statement, and the Buyer
shall bear all the fees and disbursements of the Independent Accounting
Firm in respect of its services under this Section 3.3(b) for such Earn-Out
Period, (ii) if the IAF EBITDA Statement reflects EBITDA that is equal to
or less than $300,000 over the amount of the EBITDA reflected in the EBITDA
Statement for such Earn-Out Period, but greater than the amount of the
EBITDA reflected in such EBITDA Statement, then EBITDA for such Earn-Out
Period shall be deemed to be equal to (A) the sum of (1) the EBITDA
reflected in the EBITDA Statement and (2) the EBITDA reflected in the IAF
EBITDA Statement divided by (B) two, and AHG shall bear all the fees and
disbursements of the Independent Accounting Firm in respect of its services
under this Section 3.3(b) for the Earn-Out Period at issue; and (iii) if
the IAF EBITDA Statement reflects EBITDA that is equal to or less than the
amount of the EBITDA reflected in the EBITDA Statement for such Earn-Out
Period, then EBITDA for such Earn-Out Period shall be deemed to be equal to
the EBITDA reflected in the IAF EEITDA Statement, and AHG shall
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bear all the fees and disbursements of the Independent Accounting Firm in
respect of its services under this Section 3.3(b) for the Earn-Out Period
at issue.
(c) Run Rate Statement. Within 75 calendar days after April 1,
2002, the Buyer shall prepare, the Accountants shall review, and the Buyer
shall deliver to AHG a statement reflecting the EBITDA Run Rate (the "Run
Rate Statement"), which statement will be determined on a basis consistent
with the financial statements of the Buyer and the Parent for the fiscal
years ending September 30, 1999, 2000 and 2001. The parties shall ensure
that the Accountants have full access to the books, records, facilities and
employees of the Businesses for purposes of reviewing the Run Rate
Statement and shall cooperate with the Accountants to the extent reasonably
requested to review the Run Rate Statement. The Run Rate Statement will be
examined by AHG (and, if AHG so chooses, by a firm of independent certified
public accountants), who shall, not later than 45 calendar days after
receipt of the Run Rate Statement, raise any objections it has to the Run
Rate Statement by notifying the Buyer in writing within such time period in
a statement indicating the item or items disputed, AHG's proposed
adjustments and an adjusted Run Rate Statement reflecting such adjustments
(a "Run Rate Objection Notice"). During such 45 day period, AHG and any
such independent certified public accountants shall have full access to the
books and records, other financial information (including the working
papers of the Accountants) and appropriate financial personnel of the Buyer
reasonably necessary for the preparation of a Run Rate Objection Notice.
Absent delivery of a Run Rate Objection Notice as provided above, the Run
Rate Statement will be conclusive and binding upon the parties to this
Agreement for the purposes of any purchase price adjustment under this
Section 3.3(c). In the event that a Run Rate Objection Notice is delivered
by AHG as provided above, and if the Buyer and AHG are unable, within 15
calendar days after receipt by the Buyer of such Run Rate Objection Notice,
to resolve the disputed exceptions, such disputed exceptions will be
referred to an Independent Accounting Firm mutually acceptable to AHG and
the Buyer. The Independent Accounting Firm shall, within 60 days following
its engagement by the Buyer and AHG for this purpose, deliver to AHG and
the Buyer a written report determining such disputed exceptions (the "IAF
Run Rate Statement"). During such 60 day period, the Independent Accounting
Firm shall have full access to the books and records, other financial
information (including the working papers of the Accountants and AHG's
accountants, if any) and appropriate financial personnel of the Buyer which
the Independent Accounting Firm reasonably deems necessary or advisable for
the preparation of the IAF Run Rate Statement. The Run Rate reflected in
the IAF Run Rate Statement will be conclusive and binding upon the parties
to this Agreement for the purposes of any purchase price adjustment under
this Section 3.3(c) subject to application of the following provisions: (i)
if the IAF Run Rate Statement reflects an EBITDA Run Rate in excess of
$300,000 over the amount of the EBITDA Run Rate reflected in the Run Rate
Statement, then the EBITDA Run Rate shall be deemed to be equal to the
EBITDA Run Rate reflected in the IAF Run Rate Statement, and the Buyer
shall bear all the fees and disbursements
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of the Independent Accounting Firm in respect of its services under this
Section 3.3(c), (ii) if the IAF Run Rate Statement reflects an EBITDA Run
Rate that is equal to or less than $300,000 over the amount of the EBITDA
Run Rate reflected in the Run Rate Statement, but greater than the amount
of the EBITDA Run Rate reflected in such Run Rate Statement, then the
EBITDA Run Rate shall be deemed to be equal to (A) the sum of (1) the
EBITDA Run Rate reflected in the Run Rate Statement and (2) the EBITDA Run
Rate reflected in the IAF Run Rate Statement divided by (B) two, and AHG
shall bear all the fees and disbursements of the Independent Accounting
Firm in respect of its services under this Section 3.3(c); and (iii) if the
IAF Run Rate Statement reflects an EBITDA Run Rate that is equal to or less
than the amount of the EBITDA Run Rate reflected in the Run Rate Statement,
then the EBITDA Run Rate shall be deemed to be equal to the EBITDA Run Rate
reflected in the IAF Run Rate Statement, and AHG shall bear all the fees
and disbursements of the Independent Accounting Firm in respect of its
services under this Section 3.3(c).
(d) Year 2 Earn-Out Calculation. In the event EBITDA for the Year
2 Earn-Out Period (the "Year 2 EBIDTA") is greater than the Year 2
Threshold, then the Year 2 Earn-Out is the amount equal to the product of
(1) six multiplied by the difference between the Year 2 EBITDA and the Year
2 Threshold and (2) 0.075.
(e) Year 3 Earn-Out Calculation. In the event EBITDA for the Year
3 Earn-Out Period (the "Year 3 EBIDTA") is greater than the Year 3
Threshold, then the Year 3 Earn-Out is the amount equal to the product of
(1) four multiplied by the difference between the Year 3 EBITDA and the
Year 3 Threshold and (2) 0.075.
(f) Year 3 Run Rate Earn-Out Calculation.
(1) In the event the EBITDA Run Rate is less than
$15,000,000, then the Year 3 Run Rate Earn-Out is $0.
(2) In the event the EBITDA Run Rate is equal to or greater
than $15,000,000 but less than $20,000,000, then the Year 3 Run Rate
Earn-Out is the amount equal to a quotient (the numerator of which is
the EBITDA Run Rate less $14,999,999.99 and the denominator of which
is $20,000,000 less $14,999,999.99) multiplied by $1,500,000.
(3) In the event the EBITDA Run Rate is equal to or greater
than $20,000,000, then the Year 3 Run Rate Earn-Out is $1,500,000.
Section 3.4 Payment of Earn-Outs; Limitation on Earn-Outs. The Year 2
Earn-Out and the Year 3 Earn-Out, if any, shall be paid within 5 Business
Days of final determination of EBITDA for the applicable Earn-Out Period
pursuant to Section 3.3(b) and shall be paid to AHG, in cash by wire
transfer of immediately
8
available funds. The Year 3 Run Rate Earn-Out, if any, shall be paid within
5 Business Days of final determination of the EBITDA Run Rate pursuant to
Section 3.3(c) and shall be paid to AHG, in cash by wire transfer of
immediately available funds. Notwithstanding anything to the contrary
contained in this Section 3, in no event shall the Year 2 Earn-Out and the
Year 3 Earn-Out exceed $1,500,000 in the aggregate, and in no event shall
the Year 3 Run Rate Earn-Out exceed $1,500,000.
(b) Agreement Between AHG and GHS, Inc. AHG and the Executive
Shareholders, on a joint and several basis, represent and warrant that, pursuant
to the terms and conditions of a letter agreement dated October 8, 1997 by and
among the Sellers, the Executive Shareholders and GHS, Inc. (the "Letter
Agreement"), GHS, Inc. is entitled to receive a portion of the Escrow Deposit
(the "Clawback"), if and when released to the Sellers, and of the Year 1
Earn-Out, the Year 2 Earn-Out and the Year 3 Earn-Out, if any (collectively, the
"Earn-Out"). A total of $1,093,254 of the Escrow Deposit (the "Remaining
Clawback") is being held pursuant to the terms and conditions of the Escrow
Agreement for and on behalf of AHG for further payment to GHS, Inc. under the
terms of the Letter Agreement. In addition, GHS, Inc. is entitled under the
Letter Agreement to 12 1/2% of the Earn-Out (the "Remaining Earn-Out"). The
Remaining Clawback will not be released to the Buyer and the Remaining Earn-Out
will not be purchased by the Buyer pursuant to this Amendment. Notwithstanding
any provision of this Amendment to the contrary, effective on the Effective
Date, the Buyer agrees to continue to pay to AHG, for further payment to GHS,
Inc. pursuant to the terms and conditions of the Letter Agreement, sums payable
with respect to the Remaining Earn-Out pursuant to Sections 3.3 and 3.4 of the
Asset Purchase Agreement, as amended and restated in their entirety as Sections
3.3A and 3.4A of the Asset Purchase Agreement as follows:
Section 3.3A Earn-Out. The Purchase Price shall be subject to
adjustment after the Closing as set forth in this Section 3.3A:
(a) Earn-Out Definitions. Unless the context otherwise requires,
as used in this Agreement (other than with respect to Sections 3.3 and
3.4), the following terms shall have the following meanings:
(1) "Accountants" shall mean the independent public
accountants of the Buyer.
(2) "Earn-Out Period" shall mean each of the Year 1 Earn-Out
Period, the Year 2 Earn-Out Period and the Year 3 Earn-out Period.
(3) "EBITDA" shall mean the aggregate Net Revenue from the
operations of the Businesses, minus all expenses incurred in operating the
Businesses but before interest, income taxes, depreciation and
amortization, prepared in accordance with GAAP, consistently applied, and
adjusted as follows: (1) Introduced Business will be deemed to have been
conducted at the Businesses' cost of providing services for such Introduced
Business plus the applicable IB Profit Margin. (2) Any increase in EBITDA
earned by the Businesses through the
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restructuring of the Xxxxxxx Consulting Agreement that requires one-time
cash payments by Buyer or Buyer's Affiliates shall be deducted from EBITDA.
(3) As long as the Businesses are operated as a separate subsidiary or
division, administrative services provided to the Businesses will be actual
corporate overhead, including services provided by Parent or Parent's
Affiliates, on a cost basis, and will only include administrative services
that are reasonably and directly related to the Businesses. In the event
the Businesses are integrated into Parent or an Affiliate of Parent to the
extent that the corporate-overhead attributable to the Businesses cannot be
readily determined, then, in lieu of actual overhead, an amount equal to a
percentage of Net Revenue of the Businesses shall be allocated to the
Businesses as deemed overhead, which percentage will be established by
dividing (A) the amount of actual overhead incurred with respect to the
Businesses for the six month period immediately preceding such integration
by (B) the Net Revenue of the Businesses for said six-month period. Said
fixed percentage shall thereafter be applied to the Net Revenue of the
Businesses for purposes of determining the deemed overhead to be allocated
to the Businesses. (4) Net proceeds from dispositions of assets of the
Businesses shall be reinvested in the Businesses. (5) With respect to
acquisitions made from and after the Closing, in lieu of including Net
Revenue and expenses related to such acquisition in the calculation of
EBITDA, net income, determined in accordance with GAAP, from such
acquisition shall be included in EBITDA. (6) Expenses and capital
expenditures with respect to the items set forth in the Information
Technologies Budget will be allocated and treated as set forth in the
Information Technologies Budget regardless of their treatment under GAAP.
(7) Any and all amounts payable under, or in connection with the
termination of, any Leases which are assumed by the Buyer as part of the
Contracts for Leased Real Property which is no longer used in any of the
Businesses shall be treated as current expenses for purposes of calculating
EBITDA regardless of their treatment under GAAP.
(4) "IB Profit Margin" shall mean a profit margin equal to
fifty percent (50%) or such other agreed upon percentage (the "IB Profit
Margin Percentage") of the average profit margin of the Businesses for
services similar to the applicable Introduced Business provided during the
fiscal quarter immediately preceding the fiscal quarter in which the
Businesses are to begin to provide services for the Introduced Business.
The proposed IB Profit Margin Percentage and the proposed calculation of
the IB Profit Margin (collectively, the "IB Profit Margin Calculation")
will be made by the Buyer in good faith and presented in writing to the
Executive Shareholders as soon as practicable prior to the date on which
services relating to the Introduced Business are to be rendered. The
Executive Shareholders shall, not later that five Business Days after
receipt of the IB Profit Margin Calculation, notify the Buyer in writing of
any objections thereto. Absent delivery of a written objection as provided
above, the IB Profit Margin Calculation will be conclusive and binding upon
the parties to this Agreement. If written objection is delivered to the
Buyer and the Buyer and the Executive Shareholders are unable, within 5
Business Days after the receipt by the Buyer of such written objection, to
resolve the dispute, the Buyer, in its sole
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discretion, may elect either (i) to not make the Introduced Business
available to the Buyer or (ii) to submit the IB Profit Margin Calculation
to an Independent Accounting Firm mutually acceptable to the Executive
Shareholders and the Buyer whose determination shall be conclusive and
binding on the parties. In the event the Buyer elects to submit the matter
to an Independent Accounting Firm, the Businesses shall provide services
for the Introduced Business pending determination of the IB Profit Margin
Calculation.
(5) "Independent Accounting Firm" the "big-five" certified
public accounting firms that does not a conflict of interest with respect
to the preparation or review of the EBITDA Statements.
(6) "Introduced Business" shall mean business introduced to
the Buyer by Parent or Parent's Affiliates (i) as part of a contract with
Parent or its Affiliates, or (ii) by reason of introductions to the Buyer
made by Parent or Parent's Affiliates. The Executive Shareholders
acknowledge and agree that neither Parent nor any Parent Affiliate shall be
obligated to introduce any business to the Buyer or to otherwise cause any
business that could be conducted by the Buyer as Introduced Business to be
referred to or conducted by the Buyer.
(7) "Net Revenue" shall be defined as the combined revenues
of the Businesses (including income on operating cash and monies held on
behalf of third parties remaining after Buyer distributes cash in excess of
working capital requirements to Parent) (after elimination of all
inter-Business transactions and balances) which are capitation fees (net of
physician services expenses for AHG only, and net of any retroactive
adjustments under the terms of any managed care plans), service bureau
billing fees, administrative fees, facility fees, and fee for service
xxxxxxxx (less contractual adjustments, bad debt expense, charity
adjustments, refunds, NSF checks, collection agency fees and other
adjustments to gross revenues), all as computed in accordance with GAAP.
(8) "Year 1 Adjustment" shall mean the amount, if any,
payable to the Buyer from the Escrow Funds in accordance with the
provisions of Section 3.3A(c) and Section 3.4A(a).
(9) "Year 2 Adjustment" shall mean the amount, if any,
payable to the Buyer from the Escrow Funds in accordance with the
provisions of Section 3.3A(d) and Section 3.4A(b).
(10) "Year 3 Adjustment" shall mean the amount, if any,
payable to the Buyer from the Escrow Funds in accordance with the
provisions of Section 3.3A(e) and Section 3.4A(c).
11
(11) "Year 1 Earn-Out" shall mean the amount, if any,
payable by the Buyer to the Escrow Agent in accordance with the provisions
of Section 3.3A(c) and Section 3.4A(a).
(12) "Year 2 Earn-Out" shall mean the amount, if any,
payable by the Buyer to the Escrow Agent in accordance with the provisions
of Section 3.3A(d) and Section 3.4A(b).
(13) "Year 3 Earn-Out" shall mean the amount, if any,
payable by the Buyer to the Escrow Agent in accordance with the provisions
of Section 3.3A(e) and Section 3.4A(c).
(14) "Year 1 EBITDA" shall have the meaning set forth in
Section 3.3A(c)(1).
(15) "Year 2 EBITDA" shall have the meaning set forth in
Section 3.3A(d)(1).
(16) "Year 3 EBITDA" shall have the meaning set forth in
Section 3.3A(e)(1).
(17) "Year 1 Earn-Out Period" shall mean the 12-month period
ending on November 30, 1998.
(18) "Year 2 Earn-Out Period" shall mean the 12-month period
ending on November 30, 1999.
(19) "Year 3 Earn-Out Period" shall mean the 12-month period
ending on November 30, 2000.
(20) "Year 1 Threshold" shall mean $11,000,000.
(21) "Year 2 Threshold" shall mean the greater of (i)
$11,000,000 or (ii) Year 1 EBITDA.
(22) "Year 3 Threshold" shall mean the greater of (i)
$11,000,000, (ii) Year 1 EBITDA, or (iii) Year 2 EBITDA.
(b) EBITDA Statement. Within 75 calendar days after the last day
of each of the Year 1 Earn-Out Period, the Year 2 Earn-Out Period and the
Year 3 Earn-Out Period, the Buyer shall prepare, the Accountants shall
review, and the Buyer shall deliver to AHG a statement reflecting the
EBITDA from the consolidated operations of the Businesses during such
Earn-Out Period (each, an "EBITDA Statement"), which statement will be
determined in accordance with GAAP, applied on a basis consistent with the
financial statements of the Buyer and Parent for such period. The parties
shall ensure that the Accountants have full
12
access to the books, records, facilities and employees of the Businesses
for purposes of reviewing the EBITDA Statement and shall cooperate with the
Accountants to the extent reasonably requested to review the EBITDA
Statement. The EBITDA Statement will be examined by AHG (and, if AHG so
chooses, by a firm of independent certified public accountants), who shall,
not later than 45 calendar days after receipt of the EBITDA Statement,
raise any objections it has to the EBITDA Statement by notifying the Buyer
in writing within such time period in a statement indicating the item or
items disputed, AHG's proposed adjustments and an adjusted EBITDA Statement
reflecting such adjustments (an "Objection Notice"). During such 45 day
period, AHG and any such independent certified public accountants shall
have full access to the books and records, other financial information
(including the working papers of the Accountants) and appropriate financial
personnel of the Buyer reasonably necessary for the preparation of an
Objection Notice. Absent delivery of an Objection Notice as provided above,
the EBITDA Statement will be conclusive and binding upon the parties to
this Agreement for the purposes of any purchase price adjustment under this
Section 3.3A(b). In the event that an Objection Notice is delivered by AHG
as provided above, and if the Buyer and AHG are unable, within 15 calendar
days after receipt by the Buyer of such Objection Notice, to resolve the
disputed exceptions, such disputed exceptions will be referred to an
Independent Accounting Firm mutually acceptable to AHG and the Buyer. The
Independent Accounting Firm shall, within 60 days following its engagement
by the Buyer and AHG for this purpose, deliver to AHG and the Buyer a
written report determining such disputed exceptions (the "IAF EBITDA
Statement"). During such 60 day period, the Independent Accounting Firm
shall have full access to the books and records, other financial
information (including the working papers of the Accountants and AHG's
accountants, if any) and appropriate financial personnel of the Buyer which
the Independent Accounting Firm reasonably deems necessary or advisable for
the preparation of the IAF EBITDA Statement. The EBITDA reflected in the
IAF EBITDA Statement will be conclusive and binding upon the parties to
this Agreement for the purposes of any purchase price adjustment under this
Section 3.3A(b), subject to application of the following provisions: (i) if
the IAF EBITDA Statement reflects EBITDA in excess of $300,000 over the
amount of the EBITDA reflected in the EBITDA Statement for the Earn-Out
Period at issue, then EBITDA for such Earn-Out Period shall be deemed to be
equal to the EBITDA reflected in the IAF EBITDA Statement, and the Buyer
shall bear all the fees and disbursements of the Independent Accounting
Firm in respect of its services under this Section 3.3A(b) for such
Earn-Out Period, (ii) if the IAF EBITDA Statement reflects EBITDA that is
equal to or less than $300,000 over the amount of the EBITDA reflected in
the EBITDA Statement for such Earn-Out Period, but greater than the amount
of the EBITDA reflected in such EBITDA Statement, then EBITDA for such
Earn-Out Period shall be deemed to be equal to (A) the sum of (1) the
EBITDA reflected in the EBITDA Statement and (2) the EEITDA reflected in
the IAF EBITDA Statement divided by (B) two, and AHG and the Executive
Shareholders, on a joint and several basis, shall bear all the fees and
disbursements of the Independent Accounting Firm in respect of its services
13
under this Section 3.3A(b) for the Earn-Out Period at issue; and (iii) if
the IAF EBITDA Statement reflects EBITDA that is equal to or less than the
amount of the EBITDA reflected in the EBITDA Statement for such Earn-Out
Period, then EBITDA for such Earn-Out Period shall be deemed to be equal to
the EBITDA reflected in the IAF EEITDA Statement, and AHG and the Executive
Shareholders, on a joint and several basis, shall bear all the fees and
disbursements of the Independent Accounting Firm in respect of its services
under this Section 3.3A(b) for the Earn-Out Period at issue.
(c) Year 1 Adjustment/Year 1 Earn-Out Calculation.
(1) In the event the EBITDA for the Year 1 Earn-Out Period
calculated pursuant to Section 3.3A(b) above (the "Year 1 EBITDA") is less
than $10,000,000, then the Year 1 Adjustment is the amount equal to the
product of (i) seven multiplied by the difference between the Year 1 EBITDA
and $10,000,000 and (ii) 0.125.
(2) In the event the Year 1 EBITDA is equal to or less than
the Year 1 Threshold and equal to or greater than $10,000,000, then the
Year 1 Adjustment is $0.00.
(3) In the event the Year 1 EBITDA is greater than the Year
1 Threshold, then the Year I Earn-Out is the amount equal to the product of
(i) six multiplied by the difference between the Year 1 EBITDA and the Year
1 Threshold and (ii) 0.125.
(d) Year 2 Adjustment/Year 2 Earn-Out Calculation.
(1) In the event the EBITDA for the Year 2 Earn-Out Period
calculated pursuant to Section 3.3A(b) above (the "Year 2 EBITDA") is equal
to or less than the Year 2 Threshold, then the Year 2 Adjustment is the
amount equal to the sum of (i) the product of (x) six multiplied by the
difference between the Year 2 Threshold and the greater of (a) $11,000,000
or (b) the Year 2 EBITDA and (y) 0.125; plus (ii) the amount equal to the
product of (x) seven multiplied by the amount, if any, by which the Year 2
EBITDA is less than $10,000,000 and (y) 0.125; provided, however, that the
Year 2 Adjustment will be $0.00 if the Year 2 EBITDA is equal to or greater
than $10,000,000 but less than or equal to $11,000,000.
(2) In the event the Year 2 EBITDA is greater than the Year
2 Threshold, then the Year 2 Earn-Out is the amount equal to the product of
(i) six multiplied by the difference between the Year 2 EBITDA and the Year
2 Threshold and (ii) 0.125; provided, however, that the Year 2 Earn-Out
will be $0.00 if the Year 2 EBITDA is equal to or greater than $10,000,000
but less than or equal to $11,000,000.
14
(e) Year 3 Adjustment/Year 3 Earn-Out Calculation.
(1) In the event the EBITDA for the Year 3 Earn-Out Period
calculated pursuant to Section 3.3A(b) above (the "Year 3 EBITDA") is equal
to or less than the Year 3 Threshold, then the Year 3 Adjustment is the
amount equal to the sum of (i) the product of (x) four multiplied by the
difference between Year 3 Threshold and the greater of (a) $11,000,000 or
(b) the Year 3 EBITDA and (y) 0.125, plus (ii) the amount equal to the
product of (x) seven multiplied by the amount, if any, by which the Year 3
EBITDA is less than $10,000,000 and (y) 0.125; provided, however, that the
Year 3 Adjustment will be $0.00 if the Year 3 EBITDA is equal to or greater
than $10,000,000 but less than or equal to $11,000,000.
(2) In the event the Year 3 EBITDA is greater than the Year
3 Threshold, then the Year 3 Earn-Out is the amount equal to the product of
(i) four multiplied by the difference between the Year 3 EBITDA and the
Year 3 Threshold and (ii) 0.125; provided, however, that the Year 3
Earn-Out will be $0.00 if the Year 3 EBITDA is equal to or greater than
$10,000,000 but less than or equal to $11,000,000.
Section 3.4A Payment of Adjustment and Earn-Out; Distribution of
Escrow. The Year 1 Adjustment or Year 1 Earn-Out, Year 2 Adjustment or Year
2 Earn-Out and Year 3 Adjustment or Year 3 Earn-Out, if any, shall be paid
within 5 Business Days of final determination of EBITDA for the applicable
Earn-Out Period pursuant to Section 3.3A(b) and shall be paid to the Buyer
or the Escrow Agent, as the case may be, in the following manner:
(a) Year 1 Adjustment/Year 1 Earn-Out.
(1) In the event the Year 1 Adjustment is calculated
pursuant to Section 3.3A(c)(1) above, then the Escrow Agent shall deliver
to Buyer from the Escrow Funds an amount equal to the Year 1 Adjustment,
together with the interest or earnings thereon as set forth in Section
3.4A(d).
(2) In the event the Year 1 Earn-Out is calculated pursuant
to Section 3.3A(c)(3) above, the Buyer shall pay to the Escrow Agent the
Year I Earn-Out in cash by wire transfer of immediately available funds,
which shall be held by the Escrow Agent as part of the Escrow Funds. Upon
receipt by the Escrow Agent of the Year 1 Earn-Out, the Escrow Agent shall
then deliver to AHG an amount equal to one-third of the principal of the
Escrow Funds, together with the interest or earnings thereon as set forth
in Section 3.4A(d).
15
(b) Year 2 Adjustment/Year 2 Earn-Out.
(1) In the event the Year 2 Adjustment is calculated
pursuant to Section 3.3A(d)(1) above, then the Escrow Agent shall deliver
to the Buyer from the Escrow Funds an amount equal to the Year 2
Adjustment, together with the interest or earnings thereon as set forth in
Section 3.4A(d).
(2) In the event the Year 2 Earn-Out is calculated pursuant
to Section 3.3A(d)(2) above, then the Buyer shall pay to the Escrow Agent
the Year 2 Earn-Out in cash by wire transfer of immediately available
funds, which shall be held by the Escrow Agent as part of the Escrow Funds.
Upon receipt by the Escrow Agent of the Year 2 Earn-Out, the Escrow Agent
shall then deliver to AHG an amount equal to one-half of the principal of
the Escrow Funds, together with the interest or earnings thereon as set
forth in Section 3.4A(d).
(c) Year 3 Adjustment/Year 3 Earn-Out.
(1) In the event the Year 3 Adjustment is calculated
pursuant to Section 3.3A(e)(1) above, then the Escrow Agent shall deliver
to the Buyer from the Escrow Funds an amount equal to the Year 3
Adjustment, together with the interest or earnings thereon as set forth in
Section 3.4A(d). Any Escrow Funds remaining after distribution of the Year
3 Adjustment to the Buyer shall be disbursed to AHG, promptly after
disbursement of the Year 3 Adjustment, together with interest or earnings
thereon, to the Buyer.
(2) In the event the Year 3 Earn-Out is calculated pursuant
to Section 3.3A(e)(2) above, then the Buyer shall pay to AHG the Year 3
Earn-Out in cash by wire transfer of immediately available funds, and the
Escrow Agent shall transfer the Escrow Funds to AHG.
(d) Distributions of Interest or Earnings on the Escrow Funds.
Interest or other earnings on the Escrow Deposit and additional amounts
paid by the Buyer to the Escrow Agent pursuant to this Section 3.4A shall
be disbursed prorata to the recipient of principal held in the Escrow
Funds. For income tax purposes, it shall be assumed that AHG will be
entitled to receive all interest and other earnings on the principal
amounts held in the Escrow Fund and the Buyer and AHG agree to direct the
Escrow Agent pursuant to joint instructions to disburse to AHG an amount
from the Escrow Funds necessary for AHG or its assigns to pay their federal
income tax liability on said interest and earnings, assuming for purposes
hereof an effective tax rate of 31%. The amount of any previous
distributions for taxes made to AHG shall be taken into account in the
event that disbursements from the Escrow Funds are later made to the Buyer
and appropriate adjustments will be made in accordance with joint
instructions from the Buyer and AHG to the Escrow Agent.
16
(e) Limitations on Distributions to AHG. Notwithstanding anything
to the contrary contained in Sections 3.3A and 3.4A, in no event shall
distributions to AHG pursuant to this Section 3.4A exceed $6,093,254 in the
aggregate (exclusive of interest or earnings thereon).
(f) Adjustments in Excess of Escrow Funds. In the event that the
Adjustment for any Earn-Out Period should exceed the amount of the
remaining Escrow Funds, the amount of such excess, shall be applied as a
credit in favor of the Buyer and shall be deducted from the amount
otherwise payable by the Buyer as the Year 2 Earn-Out and Year 3 Earn-Out,
as applicable.
2. Closing and Termination. The closing of the transactions contemplated by
this Amendment (the "Closing") shall take place no later than two (2) business
days after the fulfillment of all conditions precedent to Closing set forth in
Sections 3 and 4 to this Amendment, or such other date as the Buyer and AHG
shall mutually agree (the "Closing Date"). The Closing shall take place by the
delivery of documents by facsimile, overnight courier or other means on or
before the Closing Date. Notwithstanding the actual time of the Closing, the
parties hereto agree that the Closing shall be effective and deemed for all
purposes to have occurred as of 12:01 a.m. local time on October 1, 1998 (the
"Effective Date"). This Amendment may be terminated and the transactions
contemplated hereby may be abandoned at any time before the Closing:
2.1 By Consent. By the mutual written consent of all of the parties
hereto;
2.2 By the Buyer and the Parent. By the Buyer and the Parent, upon
written notice to the Sellers and the Executive Shareholders, if all the
conditions set forth in Section 4 of this Amendment shall not have been
satisfied or waived on or before November 30, 1998, unless such satisfaction has
been frustrated or made impossible by any act or failure to act of the Buyer or
the Parent; or
2.3 By the Sellers and the Executive Shareholders. By the Sellers and
the Executive Shareholders, upon written notice to the Buyer and the Parent, if
all of the conditions set forth in Section 3 of this Amendment shall not have
been satisfied or waived on or before November 30, 1998, unless satisfaction has
been frustrated or made impossible by any act or failure to act of any of the
Sellers or the Executive Shareholders.
3. Conditions Precedent to the Sellers' and the Executive Shareholders'
Obligations to Close. The obligations of the Seller and the Executive
Shareholders to consummate the transactions contemplated by this Amendment are
subject to the fulfillment, on or before the Closing Date, of the following
conditions, any one or more of which may be waived by the Sellers and the
Executive Shareholders hereto in their sole discretion.
3.1 Delivery of Buy-Out Price. The Buyer shall cause the Buyout Price
to be delivered by federal funds wire transfer to the Broad and Xxxxxx Trust
Account, in accordance with wire transfer instructions furnished in writing by
AHG, for further credit to AHG in accordance with the agreement of the Sellers.
17
3.2 Escrow Agreement. The Sellers and the Buyer shall deliver joint
written instructions to the Escrow Agent authorizing and directing the Escrow
Agent to disburse to the Buyer the Released Clawback and any interest or
earnings thereon. In addition, the Escrow Agreement shall be amended to reflect
that the Remaining Clawback and any interest or earnings thereon shall continue
to be held in escrow for the sole benefit of AHG (for further distribution to
GHS, Inc.) and the Buyer, and to reflect that all of the Sellers other than AHG
shall cease to be parties to the Escrow Agreement.
3.3 Management Agreement. The Management Agreement dated as of
December 5, 1997 by and among the Buyer, the Parent, RNSF Management, Inc., a
Florida corporation, and the Executive Shareholders shall be terminated.
3.4 Xxxxxxxx Employment Agreement. Xxxxxxxx and the Buyer shall enter
into an employment agreement (the "Xxxxxxxx Employment Agreement"), in form and
substance reasonably acceptable to the Buyer and Xxxxxxxx. The Xxxxxxxx
Employment Agreement will be for a term of two years commencing October 1, 1998
(each, an "Annual Period"). Xxxxxxxx will be entitled to an annual salary of
$50,000 during each Annual Period, during which time the Xxxxxxxx Employment
Agreement cannot be terminated by the Buyer without "cause", as defined therein.
If Xxxxxxxx terminates the Xxxxxxxx Employment Agreement on or before the end of
the first Annual Period or the second Annual Period other than for cause or
"good cause", as defined therein, he will be required to repay to the Buyer
$400,000 or $250,000, respectively, of his allocable portion of the Buyout
Price. Xxxxxxxx shall provide services to the Buyer on a part-time basis for up
to 20 hours per week in each Annual Period. The Xxxxxxxx Employment Agreement
will contain a reasonable non-compete provision.
3.5 Xxxxxxx Employment Agreement. Xxxxxxx and the Buyer shall enter into an
employment agreement, in form and substance reasonably acceptable to Xxxxxxx and
the Buyer (the "Xxxxxxx Employment Agreement"). The Xxxxxxx Employment Agreement
will be for a term of two Annual Periods. Xxxxxxx will be entitled to an annual
salary of $450,000 during the first two Annual Periods, during which time the
Xxxxxxx Employment Agreement cannot be terminated by the Buyer without "cause",
as defined therein. If Xxxxxxx terminates the Xxxxxxx Employment Agreement on or
before the end of the first Annual Period or the second Annual Period other than
for cause or "good cause", as defined therein, he will be required to repay to
the Buyer $500,000 or $300,000, respectively, of his allocable portion of the
Buyout Price. The Xxxxxxx Employment Agreement will automatically renew for a
third year (the "Renewal Period"), with an annual salary of $450,000, if the
Buyer has a "run rate" resulting from new business (and additional services
under existing contracts) commencing between October 1, 1998 and October 1,
2000, inclusive, and for which no notice of cancellation or non-renewal has been
given on or before October 1, 2000, but excluding (i) renewals (including
amendments, restatements or replacements) of contracts in force as of October 1,
1998 and (ii) contracts which will expire by their terms absent notice of intent
to renew on or before October 1, 2000 (and with respect to which no notice of
intent to renew has been given) (the "Two Year New Business"), of $15,000,000 or
more projected for the fiscal year ending September 30, 2001. The "run rate" is
to be computed by projecting, on or about October 1, 2000, EBITDA of the Buyer
resulting from the Two Year New Business for the fiscal year ending September
30, 2001. The "run rate" will
18
be determined by the Buyer in good faith and consistent with the methodology
used for computing the EBITDA Run Rate. There will be a provision for resolving
disputes as to the computation of the "run rate", consistent with the provisions
of Section 3.3(c) of the Asset Purchase Agreement, as amended by this Amendment.
If the Buyer does not achieve the requisite "run rate", then the Buyer will have
the option of renewing the Xxxxxxx Employment Agreement for the Renewal Period,
at an annual salary to be determined by Xxxxxxx and the Buyer in good faith. The
Xxxxxxx Employment Agreement will contain a reasonable non-compete provision.
3.6 Xxxxx Release. X.X. Xxxxx, M.D. shall execute and deliver a
release in favor of AHG and the Executive Shareholders, in form and substance
reasonably acceptable to AHG, releasing any and all claims under the Bonus
Agreement, dated December 1, 1997, by and between AHG and Xxxxx (the "Bonus
Agreement"), in exchange for receipt at Closing of a portion AHG's Applicable
Percentage of the Buyout Price.
3.7 Kanter and Young Releases. Xxxxxx Xxxxxx, M.D. and Xxxxxx Xxxxxx
(collectively, the "Kanters") and Xxxxxxx Xxxxx, M.D. and Xx-Xxx Xxxxx
(collectively, the "Xxxxxx") each shall execute and deliver a release in favor
of Xxxxxxxx, in form and substance reasonably acceptable to Xxxxxxxx,
acknowledging the release to the Buyer of the Released Clawback and releasing
and any all claims to payment of a portion of the Released Clawback under the
Purchase and Indemnification Agreement, dated December 5, 1997, by and among the
Kanters, the Xxxxxx and Xxxxxxxx (the "Purchase and Indemnification Agreement").
3.8 Xxxxxxx Buy-Out Agreement. In consideration for the receipt of an
allocable portion of the Buyout Price, the Buy-Out Agreement, dated December 1,
1997, by and among FSN, Xxxxxx Xxxxx Company, Xxxxxxx Xxxx and Xxxxxxx
(collectively, the "Xxxxxxx Parties"), AHG and FSN (the "Xxxxxxx Buy-Out
Agreement") shall be amended (a) to terminate all rights of the Xxxxxxx Parties
to receive a portion of the Escrow Funds and (b) to provide for payment of the
Year 3 Run Rate Earn-Out and of the Year 2 Earn-Out and the Year 3 Earn-Out (as
determined pursuant to Section 1.2(a) of this Amendment) in lieu of the Earn-Out
Payments (as such term is defined in the Xxxxxxx Buy-Out Agreement).
3.9 Authorization of the Sellers. Execution, delivery and performance
of this Amendment, and all other agreements entered into in connection with the
transactions contemplated hereby, shall have been authorized by all necessary
action on the part of each of the Sellers.
4. Conditions Precedent to the Buyer's and the Parent's Obligations to
Close. The obligations of the Buyer and the Parent to consummate the
transactions contemplated by this Amendment are subject to the fulfillment, on
or before the Closing Date, of the following conditions, any one or more of
which may be waived by the Buyer and the Parent hereto in their sole discretion:
4.1 Escrow Agreement. The Sellers and the Buyer shall deliver joint
written instructions to the Escrow Agent authorizing and directing the Escrow
Agent to disburse to the Buyer the Released Clawback and any interest or
earnings thereon. In addition, the Escrow Agreement shall be amended to reflect
that the Remaining Clawback and any interest or earnings
19
thereon shall continue to be held in escrow for the sole benefit of AHG (for
further distribution to GHS, Inc.) and the Buyer, and to reflect that all of the
Sellers other than AHG shall cease to be parties to the Escrow Agreement.
4.2 Management Agreement. The Management Agreement dated as of
December 5, 1997 by and among the Buyer, the Parent, RNSF Management, Inc., a
Florida corporation, and the Executive Shareholders shall be terminated.
4.3 Xxxxxxxx Employment Agreement. Xxxxxxxx and the Buyer shall enter
into the Xxxxxxxx Employment Agreement on the terms and conditions set forth in
Section 3.4 of this Amendment.
4.4 Xxxxxxx Employment Agreement. Xxxxxxx and the Buyer shall enter
into the Xxxxxxx Employment Agreement on the terms and conditions set forth in
Section 3.5 of this Amendment.
4.5 Xxxxxxx Buy-Out Agreement. The Xxxxxxx Buy-Out Agreement shall be
amended as set forth in Section 3.8 of this Amendment.
4.6 Authorization. Each of the Sellers shall deliver an officer's
certificate dated as of the Closing Date and certifying that execution, delivery
and performance of this Amendment, and all other agreements entered into in
connection with the transactions contemplated hereby, have been authorized by
all necessary action on the part of each Seller.
5. Representations and Warranties.
5.1 Representations and Warranties of the Buyer and the Parent. In
order to induce the Seller and the Executive Shareholders to enter into this
Amendment, and to consummate the transactions contemplated hereby, the Buyer and
the Parent, on a joint and several basis, represent and warrant as follows:
(a) Corporate Status. The Buyer and the Parent are corporations
duly organized and validly existing under the laws of the State of Florida and
Delaware, respectively. The Buyer's status is active under the laws of the State
of Florida and the Parent is in good standing under the laws of the State of
Delaware. The Buyer and the Parent have all requisite corporate power and
authority to own their respective properties and assets and to carry on their
respective businesses as they are presently being conducted.
(b) Power and Authority. The Buyer and the Parent have the full
right, power and authority to enter into, and to perform their respective
obligations under, this Amendment.
(c) Binding Agreement. The execution and delivery by the Buyer
and the Parent of this Amendment and the performance of their respective
obligations hereunder have been duly authorized by all necessary corporate
action and no other proceedings on the part of the Buyer or the Parent are
necessary to authorize the execution of this Amendment and the performance of
transactions contemplated hereby. This Amendment has been duly and validly
20
executed and delivered by the Buyer and the Parent and constitutes the legal,
valid and binding obligation of the Buyer and of the Parent enforceable against
the Buyer and the Parent in accordance with its terms, except as enforcement may
be limited by bankruptcy, insolvency, moratorium or other laws affecting
creditors' rights generally, or equitable principles, whether applied in a
proceeding in equity or law.
(d) Absence of Conflicting Agreements. Neither the execution or
delivery of this Amendment by the Buyer and the Parent, nor the performance by
the Buyer and the Parent of the transactions contemplated hereby, conflicts
with, or constitutes a breach of or a default under (a) the respective Articles
of Incorporation or Bylaws of the Buyer and the Parent (b) any applicable law,
or any applicable rule, judgment, order, writ, injunction or decree of any
court, (c) any applicable rule or regulation of any administrative agency or
other governmental authority, or (d) any agreement, lease, indenture, instrument
or contract to which the Buyer or the Parent is now a party or by which the
Buyer or the Parent or any of their respective properties or assets are bound,
which breach or default would have a material adverse effect on the business or
operations of the Buyer or the Parent.
5.2 Representations and Warranties of the Sellers and of the Executive
Shareholders. In order to induce the Buyer and the Parent to enter into this
Amendment, and to consummate the transactions contemplated hereby, each of the
Sellers and of the Executive Shareholders, on a joint and several basis,
represent and warrant as follows; provided, however, that the representations
and the warranties of each Executive Shareholder are made only as to himself and
to each Seller in which such Executive Shareholder owns any shares or
partnership interests, as the case may be:
(a) Corporate and Partnership Status. Each Seller (other than
FSN) is a corporation duly organized and validly existing under the laws of the
State of Florida and its status is active. FSN is a limited partnership duly
organized and validly existing under the laws of the State of Florida and its
status is active. Each Seller has all requisite corporate or partnership power
and authority to own its property and assets and to carry on its business as it
is presently being conducted.
(b) Power and Authority. On or before the Closing Date, each
Seller will have the full right, power and authority to enter into, and to
perform its obligations under, this Amendment and the consent of no other party
will be necessary or required in order to permit or allow each such Seller to
enter into and perform its obligations hereunder. Other than as provided in the
Xxxxxxx Buy-Out Agreement, the Bonus Agreement, the Letter Agreement and the
Purchase and Indemnification Agreement, no Seller has assigned or will have
assigned on or before the Closing Date any rights to any portion of the Clawback
or the Earn-Out under the Asset Purchase Agreement.
(c) Binding Agreement. On or before the Closing Date, the
execution and delivery by each Seller of this Amendment and the performance of
its obligations hereunder will have been duly authorized by all necessary
corporate or partnership action, as applicable, and no other proceedings on the
part of such Seller will be necessary to authorize the execution of this
Amendment and the performance of transactions contemplated hereby. On or before
the Closing Date, this Amendment will have been duly and validly executed and
delivered by each
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Seller and will constitute the legal, valid and binding obligation of such
Seller enforceable against such Seller in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, moratorium or other laws
affecting creditors' rights generally, or equitable principles, whether applied
in a proceeding in equity or law. This Amendment has been duly and validly
executed and delivered by each Executive Shareholder and constitutes the legal,
valid and binding obligation of such Executive Shareholder enforceable against
such Executive Shareholder in accordance with its terms, except as enforcement
may be limited by bankruptcy, insolvency, moratorium or other laws affecting
creditors' rights generally, or equitable principles, whether applied in a
proceeding in equity or law.
(d) Absence of Conflicting Amendments. Neither the execution or
delivery of this Amendment by each Seller and each Executive Shareholder, nor
the performance by each Seller and each Executive Shareholder of the
transactions contemplated hereby, conflicts with, or constitutes a breach of or
a default under (a) the Articles of Incorporation or Bylaws (or, in the case of
FSN, the Certificate of Limited Partnership or the FSN Limited Partnership
Agreement) of such Seller, (b) any applicable law, or any applicable rule,
judgment, order, writ, injunction or decree of any court, (c) any applicable
rule or regulation of any administrative agency or other governmental authority,
or (d) any agreement, lease, indenture, instrument or contract to which such
Seller or Executive Shareholder is now a party or by which such Seller or
Executive Shareholder or any of their respective properties or assets are bound,
which breach or default would have a material adverse effect on the business or
operations of such Seller or the assets of such Executive Shareholder.
6. Ratification. Except as modified by this Amendment, the Asset Purchase
Amendment is and shall continue to be in full force and effect and is hereby in
all respects confirmed, approved and ratified.
7. Miscellaneous.
7.1 Further Assurances. At any time, and from time to time, each party
will execute such additional instruments and take such action as may be
reasonably requested by the other party to confirm or perfect title to any
property transferred hereunder or otherwise to carry out the intent and purposes
of this Amendment.
7.2 Costs and Expenses. Each party hereto agrees to pay its own costs
and expenses incurred in negotiating this Amendment and consummating the
transactions described herein.
7.3 Time. Time is of the essence.
7.4 Entire Amendment. This Amendment and the transactions contemplated
hereby constitute the entire Amendment among the parties hereto with respect to
the subject matter hereof, and supersede all prior negotiations, letters and
understandings relating to the subject matter hereof.
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7.5 Amendment. This Amendment may not be amended, supplemented or
modified in whole or in part except by an instrument in writing signed by the
party or parties against whom enforcement of any such amendment, supplement or
modification is sought.
7.6 Assignment. Except as otherwise provided in Section 12.1 the Asset
Purchase Agreement, this Amendment may not be assigned by any party hereto
without the prior written consent of the other parties.
7.7 Choice of Law. This Amendment will be interpreted, construed and
enforced in accordance with the laws of the State of Florida.
7.8 Headings. The section and subsection headings in this Amendment
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Amendment.
7.9 Pronouns. All pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine, neuter, singular or plural as the context
may require.
7.10 Number and Gender. Words used in this Amendment, regardless of
the number and gender specifically used, shall be deemed and construed to
include any other number, singular or plural, and any other gender, masculine,
feminine or neuter, as the context indicates is appropriate.
7.11 Construction. The parties hereto and their respective legal
counsel participated in the preparation of this Amendment; therefore, this
Amendment shall be construed neither against nor in favor of any of the parties
hereto, but rather in accordance with the fair meaning thereof.
7.12 Effect of Waiver. The failure of any party at any time or times
to require performance of any provision of this Amendment will in no manner
affect the right to enforce the same. The waiver by any party of any breach of
any provision of this Amendment will not be construed to be a waiver by any such
party of any succeeding breach of that provision or a waiver by such party of
any breach of any other provision.
7.13 Severability. The invalidity, illegality or unenforceability of
any provision or provisions of this Amendment will not affect any other
provision of this Amendment, which will remain in full force and effect, nor
will the invalidity, illegality or unenforceability of a portion of any
provision of this Amendment affect the balance of such provision. In the event
that any one or more of the provisions contained in this Amendment or any
portion thereof shall for any reason be held to be invalid, illegal or
unenforceable in any respect, this Amendment shall be reformed, construed and
enforced as if such invalid, illegal or unenforceable provision had never been
contained herein.
7.14 Binding Nature. This Amendment will be binding upon and will
inure to the benefit of any successor or successors of the parties hereto.
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7.15 No Third-Party Beneficiaries. Notwithstanding anything in this
Amendment to the contrary, no person (including, without limitation, GHS, Inc.)
shall be deemed to possess any third-party beneficiary right pursuant to this
Amendment. It is the intent of the parties hereto that no direct benefit to any
third party is intended or implied by the execution of this Amendment.
7.16 Counterparts. This Amendment may be executed in one or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same instrument.
[SIGNATURES BEGIN ON THE FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
ALLIED SPECIALTY CARE SERVICES, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
ALLIED HEALTH GROUP, INC.
By:
----------------------------------
Xxxxxxxx Xxxxxxxx, M.D., President
GUT MANAGEMENT, INC.
By:
----------------------------------
Xxxxx Xxxxx, M.D., President
SKY MANAGEMENT CO.
By:
----------------------------------
Xxxxxxxx Xxxxxxxx, M.D., President
FLORIDA SPECIALTY NETWORK, LTD.
By:Florida Specialty Network, Inc., General Partner
By:
----------------------------------
Xxxxxxxx Xxxxxxxx, M.D., President
25
SURGICAL ASSOCIATES OF SOUTH FLORIDA, INC.
By:
----------------------------------
Xxxxx Xxxxxx, M.D., President
SURGINET, INC.
By:
----------------------------------
Xxxxxxxx Xxxxxxxx, M.D., President
--------------------------------------
XXXXX XXXXX, M.D.
--------------------------------------
XXXXX XXXXXX, M.D.
--------------------------------------
XXXXXXXX XXXXXXXX, M.D.
MAGELLAN HEALTH SERVICES, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
26
