ASSET PURCHASE AGREEMENT
By and Among
SPECIALTY CARE NETWORK, INC.,
ASSOCIATED ARTHROSCOPY INSTITUTE, INC.
XXXXXXXXX X. XXXXXX, M.D.
and
XXXX X. SMALL, M.D.
Dated as of July 3, 1997
TABLE OF CONTENTS
(This Table of Contents is not a part of the Agreement and is only for
convenience of reference.)
Page
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1. Definitions...............................................................1
2. Basic Transaction.........................................................4
(a) Purchase and Sale of Assets.....................................4
(b) Assumption of Liabilities.......................................4
(c) Purchase Price..................................................5
(d) The Closing.....................................................5
(e) Deliveries at Closing...........................................5
(f) Proration.......................................................5
(g) Taxes and Expenses..............................................5
(h) Allocation......................................................6
(i) Employees.......................................................6
3. Representations and Warranties of AAII and the Shareholders...............6
(a) Organization, Qualification, and Power..........................6
(b) Ownership Interest of AAII......................................6
(c) Authorization of Transaction....................................6
(d) Noncontravention................................................6
(e) Subsidiaries and Investments....................................7
(f) Financial Statements............................................7
(g) Undisclosed Liabilities.........................................7
(h) Brokers' Fees...................................................7
(i) Material Contracts..............................................7
(j) Insurance; Malpractice..........................................8
(k) No Changes Prior to Closing Date................................8
(l) Title; Condition................................................9
(m) Litigation......................................................9
(n) Permits and Licenses............................................9
(o) Tax Matters.....................................................9
(p) Employee Benefit Plans..........................................9
(q) Third-Party Relations..........................................10
(r) Compliance with Applicable Laws................................11
(s) Employee Compensation..........................................11
(t) Environmental Matters..........................................11
(u) Healthcare Compliance..........................................11
(v) Fraud and Abuse................................................12
(w) Practice Compliance............................................12
(x) Rates and Reimbursement Policies...............................12
(y) Accounts Receivable............................................12
(z) Guaranties.....................................................13
(aa) Powers of Attorney.............................................13
(bb) Tangible Assets................................................13
(cc) Full ..........................................................13
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Page
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4. Representations and Warranties of SCN....................................13
(a) Organization...................................................13
(b) Authorization of Transaction...................................13
(c) Noncontravention...............................................13
(d) Brokers' Fees..................................................13
(e) Securities Filings.............................................13
5. Covenants................................................................14
(a) General........................................................14
(b) Notices and Consents...........................................14
(c) Regulatory Matters and Approvals...............................14
(d) Operation of Business..........................................14
(e) Further Acts and Assurances....................................14
(f) Full Access....................................................15
(g) Notice of Developments.........................................15
(h) Exclusivity....................................................15
(i) Collection of Accounts Receivable..............................15
(j) Corporate Authorization........................................15
(k) Malpractice Insurance..........................................15
(l) Employee Benefit Plans.........................................15
6. Conditions to Obligation to Close........................................15
(a) Conditions to Obligation of SCN................................15
(b) Conditions to Obligation of AAII...............................16
7. Items to be Delivered at or Prior to Closing.............................17
(a) By the Shareholders or AAII....................................17
(b) By SCN.........................................................17
8. Termination..............................................................17
(a) Termination of Agreement.......................................17
(b) Effect of Termination..........................................18
9. Indemnification..........................................................18
(a) Indemnification by AAII and the Shareholders...................18
(b) Notice to AAII and the Shareholders; Opportunity to Defend.....18
(c) General Indemnification by SCN.................................18
(d) Notice to SCN; Opportunity to Defend...........................18
(e) Right of Setoff................................................19
10. Miscellaneous...........................................................19
(a) Survival.......................................................19
(b) No Third-Party Beneficiaries...................................19
(c) Entire Agreement...............................................19
(d) Succession and Assignment......................................19
(e) Counterparts...................................................19
(f) Headings.......................................................19
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Page
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(g) Notices........................................................19
(h) Governing Law Venue............................................20
(i) Amendments and Waivers.........................................20
(j) Severability...................................................20
(k) Expenses.......................................................21
(l) Construction...................................................21
(m) No Referrals Required..........................................21
(n) Incorporation of Exhibits and Schedules........................21
SCHEDULE 1(a) REAL PROPERTY.......................Schedule 1(a)-1
SCHEDULE 1(b) FURNITURE, FIXTURES & EQUIPMENT.....Schedule 1(b)-1
SCHEDULE 1(d) LEASES OF PERSONAL PROPERTY.........Schedule 1(d)-1
SCHEDULE 2(b) ASSUMED LIABILITIES.................Schedule 2(b)-1
EXHIBIT 2(h) PURCHASE PRICE ALLOCATION AGREEMENT..Exhibit 2(h)-1
EXHIBIT 7(a)(ii) XXXX OF SALE.....................Exhibit 7(a)(ii)-1
EXHIBIT 7(a)(iii) SERVICE AGREEMENT...............Exhibit 7(a)(iii)-1
EXHIBIT 7(a)(v) AAII OPINION LETTER...............Exhibit 7(a)(v)-1
EXHIBIT 7(b)(ii) SCN OPINION LETTER...............Exhibit 7(b)(ii)-1
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ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of
July 3, 1997, by and among ASSOCIATED ARTHROSCOPY INSTITUTE, INC., a Texas
corporation ("AAII"), XXXXXXXXX X. XXXXXX, M.D., and XXXX X. SMALL, M.D. all
residents of the State of Texas (collectively the "Shareholders") on the one
hand and SPECIALTY CARE NETWORK, INC., a Delaware corporation ("SCN") on the
other hand. SCN, AAII and the Shareholders are referred to collectively herein
as the "Parties."
W I T N E S S E T H:
WHEREAS, AAII is a Texas corporation which owns the assets which are
used by and/or result from the Shareholders' practice of medicine;
WHEREAS, the Shareholders are medical doctors practicing medicine in
the State of Texas;
WHEREAS, the Parties anticipate that the transaction contemplated by
this Agreement will further certain of their business objectives; and
WHEREAS, the Parties desire to set forth in writing the terms and
conditions under which said transaction will be consummated.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the Parties, it is agreed as
follows:
1. Definitions.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Agreement" has the meaning set forth in the preface above.
"Applicable Laws" has the meaning set forth in Section 3(r) below.
"Assumed Liabilities" has the meaning set forth in Section 2(b) below.
"Texas Business Corporation Act" means the Business Corporation Act of
the State of Texas, as amended.
"Closing Date" has the meaning set forth in Section 2(d) below.
"AAII" has the meaning set forth in the preface above.
"Closing" has the meaning set forth in Section 2(d) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Delaware General Corporation Law" means the General Corporation Law of
the State of Delaware, as amended.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Employee Benefit Plans" has the meaning set forth in Section 3(p)(i)
below.
"Environmental Laws" means all federal, state, and local laws, rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder and other governmental requirements relating to pollution,
control of chemicals, storage and handling of petroleum products, management of
waste (including biohazardous or biomedical waste), discharges of materials into
the environment, health, safety, natural resources, and the environment,
including laws relating to emissions, discharges, releases, or threatened
releases of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes into ambient air, surface water, ground water, or
lands or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" means (a) the Articles of Incorporation,
qualifications to conduct business as a foreign corporation, arrangements with
registered agents relating to foreign qualifications, taxpayer and other
identification numbers, seals, minute books, transfer books, and other documents
relating to the organization, maintenance, and existence of AAII as a
corporation, (b) employment or noncompete agreements between AAII and those
licensed medical doctors under contract with AAII to provide medical services to
AAII patients, (c) all patient records and patient lists, (d) all insurance
policies of AAII and all claims arising thereunder and all prepaid expenses on
malpractice insurance premiums, (e) the inventories, cash, and accounts
receivable disposed of, cancelled, expanded or collected, as the case may be, by
AAII after the date hereof and prior to the Closing in the Ordinary Course of
Business and consistent with past practice, (f) personal property of individual
Shareholders which is not included on the financial statements of AAII, (g)
AAII's cash on hand as of the Closing Date, (h) AAII's third party provider
agreements and any of AAII's "provider numbers", (i) all drugs owned by AAII,
and (j) any rights of AAII under this Agreement or any related document or under
any other agreement between AAII on the one hand and SCN on the other hand
entered into on or after the date of this Agreement.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Hazardous Materials" has the meaning set forth in Section 3(t) below.
"IRS" means the Internal Revenue Service.
"Knowledge" means actual Knowledge after reasonable investigation.
"Medical Waste" includes, but is not limited to, pathological waste,
blood, sharps, wastes from surgery or autopsy, dialysis waste, including
contaminated disposable equipment and supplies, cultures and stock of infectious
agents and associated biological agents, contaminated animals, isolation wastes,
contaminated equipment, laboratory waste, various other biological waste and
discarded materials contaminated with or exposed to blood, excretion or
secretion from human beings or animals, and any substance, pollutant, material
or contaminant listed or regulated under the Medical Waste Tracking Act of 1988,
42 U.S.C. xx.xx. 6992, et seq.
"Medical Waste Law" means the Medical Waste Tracking Act of 1988, as
amended, the U.S. Public Vessel Medical Waste Anti-Dumping Act of 1988, 33
U.S.C.A. xx.xx. 2501, et seq., the Marine Protection, Research and Sanctuaries
Act of 1972, 33 U.S.C.A. xx.xx. 1401, et seq., the Occupational Safety and
Health Act, 29 U.S.C.A. xx.xx. 651, et seq., the United States Department of
Health and Human Services, National Institute for Occupational Self-Safety and
Health Infectious Waste Disposal Guidelines, Publication No. 88-119, all
regulations and orders issued pursuant
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to any of the foregoing, and any other federal, state, regional, county,
municipal or other local laws, regulations and ordinances insofar as they
purport to regulate Medical Waste or impose requirements relating to Medical
Waste.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice.
"Parties" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"PBGC" has the meaning set forth in Section 3(p)(ii) below.
"Shareholders" has the meaning set forth in the preface above.
"Purchase Price" has the meaning set forth in Section 2(a) below.
"Purchased Assets" means all of AAII's right, title, and interest in
and to the following assets of AAII owned as of the Closing Date:
(a) any and all leaseholds and subleaseholds in real property,
improvements, fixtures, and fittings thereon, and easements, rights-of-way, and
other appurtenances and hereditaments thereto (such as appurtenant rights in and
to public streets), including the assets described on Schedule 1(a) attached
hereto (the "Real Property"),
(b) any and all furniture, fixtures, equipment and other capital assets
of AAII, including items described on Schedule 1(b) attached hereto,
(c) any and all inventory of supplies, janitorial and office supplies,
and other disposables and consumables on hand at the Closing Date (excluding
drugs),
(d) any and all leases or subleases of equipment or other personal
property, and rights thereunder as described on Schedule 1(d) attached hereto,
(e) any and all Intellectual Property, goodwill associated therewith,
licenses and sublicenses granted and obtained with respect thereto, and rights
thereunder, remedies against infringements thereof, and rights to protection of
interests therein under the laws of all jurisdictions,
(f) any and all agreements, contracts, indentures, mortgages,
instruments, Security Interests, guaranties, other similar arrangements, and
rights thereunder,
(g) any and all claims, deposits, prepayments, refunds, causes of
action, choses in action, rights of recovery, rights of set off, and rights of
recoupment (except any such item relating to the payment of Taxes),
(h) any and all franchises, approvals, permits, licenses, orders,
registrations, certificates, variances, and similar rights obtained from
governments and governmental agencies,
(i) any and all books, records, ledgers, files, documents,
correspondence, lists, plats, architectural plans, drawings, and specifications,
creative materials, advertising and promotional materials, studies, reports, and
other printed or written materials (excluding patient medical records),
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(j) any and all accounts receivable (excluding governmental
receivables) of AAII as the same exist on the Closing Date and all rights to
receive payments on governmental receivables after payments on such governmental
receivables are received by AAII, which accounts receivable shall include all
uncollected patient accounts of AAII on the Closing Date.
The term "Purchased Assets" shall not include any specific item
included within the definition of Excluded Assets below.
"Real Property" has the meaning set forth within the definition of
Acquired Assets in this Section 1.
"Requisite AAII Approval" means the affirmative vote of the holders of
the requisite percentage of the shares of AAII which is required by the Texas
Business Corporation Act to approve the transactions contemplated by this
Agreement.
"Requisite SCN Board of Directors Approval" means the affirmative vote
of the holders of a majority of the SCN Board of Directors in favor of this
Agreement.
"SCN" has the meaning set forth in the preface above.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge or other security interest other than (a) mechanic's, materialmen's or
similar lien, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Service Agreement" means that certain Service Agreement dated as of
the Closing Date by and among SCN, AAII, and the Shareholders, in substantially
the form attached hereto as Exhibit 7(a)(iii).
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
2. Basic Transaction.
(a) Purchase and Sale of Assets. At the Closing, on and subject to the
terms and conditions of this Agreement, AAII agrees to transfer, sell, convey
and deliver to SCN, and SCN agrees to purchase, all of the Purchased Assets for
a price equal to $2,131,071 (the "Purchase Price") to be paid or satisfied as
set forth in Section 2(c).
(b) Assumption of Liabilities. Except as otherwise provided herein, SCN
shall assume at the Closing Date, and shall perform or discharge on or after the
Closing Date, only (i) the contracts, leases, commitments, obligations and
liabilities of AAII which are listed on Schedule 2(b) attached hereto, (ii) all
of AAII's trade payables (rent, utilities, telephone, etc.) incurred by AAII
during the thirty (30) day period prior to the Closing Date and in the ordinary
Course of Business, and (iii) AAII's state franchise tax liability not to
exceed, in the aggregate with the state franchise tax liabilities of Xxxx X.
Small, M.D., P.A., Allied Health Services, P.A., Access Medical Supply, Inc.,
Xxxxxxxxx X. Xxxxxx, M.D., P.A. and Xxxx X. Small, M.D. & Associates, P.A. being
assumed by SCN pursuant to the Agreement referred to in Section 6(a)(vii) below,
$160,000 (collectively, the "Assumed Liabilities"), and shall assume no other
liabilities of
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AAII. Notwithstanding any contrary provision contained herein, SCN shall not be
deemed to have assumed, nor shall SCN assume: (i) any liability which may be
incurred by reason of any breach of or default under such contracts, leases,
commitments or obligations which occurred prior to the Closing Date; (ii) any
liability for any employee benefits payable to employees of AAII, including, but
not limited to, liabilities arising under any Employee Benefit Plan of AAII;
(iii) any liability based upon or arising out of a violation of any laws by
AAII, including, without limiting the generality of the foregoing, any such
liability which may arise in connection with agreements, contracts, commitments
or provision of services by AAII or any Physician Owner; (iv) any liability
based upon or arising out of any tortious or wrongful actions.
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of AAII or any Physician Owner, or (v) any liability for the payment of any
taxes imposed by law on AAII arising from any activities of AAII prior to the
Closing Date or by reason of the transactions contemplated by this Agreement.
(c) Purchase Price. SCN shall pay or satisfy the Purchase Price at the
Closing to AAII $2,131,071 in cash, payable by wire transfer or delivery of
immediately available funds, representing the Purchase Price.
(d) The Closing. The closing of the transaction (the "Closing") shall
take place at the offices of AAII, 0000 Xxxx Xxxxx Xxxxxxx, Xxxxx, Xxxxx 00000,
commencing at 9:00 a.m. local time on the second business day following the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the transactions contemplated hereby or such other date as the
Parties may mutually determine (the "Closing Date"); provided, however, that the
Closing Date shall be no later than July 31, 1997. Time is of the essence for
this Agreement.
(e) Deliveries at Closing. At the Closing, (i) SCN will deliver to AAII
the various certificates, instruments, and documents referred to in Section 7(b)
below; (ii) AAII will deliver to SCN the various certificates, instruments, and
documents referred to in Section 7(a) below.
(f) Proration. The following prorations among the Parties shall be made
as of the Closing Date. Except as provided for in Section 2(b), AAII shall
remain liable to the extent such items relate to any time period up to the
Closing Date and SCN shall be liable (solely pursuant to the terms of the
Service Agreement) to the extent such items relate to periods on and after the
Closing Date:
(i) Any ad valorem taxes, including, without limitation,
personal property taxes and assessments, and other taxes, if any, on or
with respect to the Purchased Assets,
(ii) Rents, additional rents, taxes and other items payable by
AAII under any lease, license, permit, contract or any other agreement
or arrangement to be assigned to or assumed by SCN, and
(iii) The amount of rents, taxes, and charges for sewer,
water, fuel, telephone, electricity, and other utilities; provided,
that if practicable, a meter reading shall be take on the Closing Date
and the respective obligations of the Parties determined in accordance
with such readings.
To the extent possible, the net amount of all such prorations will be
settled in cash at the Closing. If the actual expense of any of the above items
for the billing period in which the Closing Date falls is not known at the
Closing, the proration shall be made based on the expense incurred in the
previous billing cycle, for expenses billed less often than quarterly, and on
the average expense incurred in the preceding three (3) billing periods, for
expense xxxx quarterly or more often.
(g) Taxes and Expenses. AAII shall be responsible for any business,
occupation, withholding or similar tax or taxes of any kind related to AAII's
business for any period prior to the Closing Date. All applicable sales, use and
tangible taxes, documentary stamp taxes, filing and recording costs and other
transfer taxes, costs and fees relating to the transfer of title to the
Purchased Assets, and the consummation of the transactions described herein,
shall be paid by AAII.
(h) Allocation. The Parties agree to allocate the Purchase Price among
the Purchased Assets (and all other capitalizable costs) among the Purchased
Assets for all purposes (including financial accounting and tax purposes) in
accordance with the Purchase Price Allocation Agreement attached hereto as
Exhibit 2(h).
(i) Employees. As of the Closing Date, AAII shall terminate all the
employees of AAII other than Physician Employees and Technical Employees (both
as defined in the Service Agreement). SCN or an Affiliate of SCN may offer to
hire such terminated employees as it desires. AAII shall retain responsibility
under any and all employment
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agreements with respect to terminated employees. AAII hereby covenants and
agrees that it will take whatever steps are necessary to pay or fund completely
or reserve completely for any accrued benefits, where applicable, or vested
accrued benefits for which AAII or any entity might have any liability
whatsoever arising from any salary, wage, benefit, bonus, sick leave, insurance,
employment tax or similar liability of AAII to any employee or other person or
entity (including, without limitation, any Employee Benefit Plan of AAII and any
liability under employment contracts with AAII) allocable to services performed
prior to the Closing Date. AAII acknowledges that the purpose and intent of this
covenant is to assure that SCN shall have no liability whatsoever at any time in
the future with respect to any of AAII's employees or similar persons or
entities, including, without limitation, any Employee Benefit Plan of AAII.
3. Representations and Warranties of AAII and the Shareholders. AAII
and the Shareholders, jointly and severally, represent and warrant to SCN that
the statements contained in this Section 3 are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Section 3), except as set forth in the
disclosure schedule (the "Disclosure Schedule"). The Disclosure Schedule will be
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Section 3 and Section 4.
(a) Organization, Qualification, and Power. AAII is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Texas. AAII is duly authorized to conduct business and is in good standing under
the laws of each jurisdiction in which the character or location of the
properties owned or the business conducted by AAII makes such qualification
necessary. AAII has the full power and authority to carry on the business in
which it is engaged and to own and use the properties owned, leased and used by
it.
(b) Ownership Interest of AAII. AAII is owned in the manner set forth
in Section 3(b) of the Disclosure Schedule. Except as set forth in Section 3(b)
of the Disclosure Schedule, there are no other shares of any form authorized or
outstanding.
(c) Authorization of Transaction. AAII has the full power and authority
to execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of AAII and
the Shareholders, enforceable in accordance with its terms and conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency, professional regulatory organization or court to which AAII
is subject or any provision of the Articles of Incorporation or bylaws of AAII
or (ii) conflict with, result in a breach of, constitute a default under, result
in the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument or other arrangement to which AAII is a party or by which it
is bound or to which any of its assets is subject (or result in the imposition
of any Security Interest upon any of its assets). AAII is not required to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(e) Subsidiaries and Investments. AAII does not own, directly or
indirectly, any capital stock or other equity ownership or proprietary interest
in any other corporation, partnership, association, limited liability company,
trust, joint venture or other entity.
(f) Financial Statements. AAII has furnished SCN with unaudited balance
sheets dated December 31, 1995 and 1996 and May 31, 1997, and unaudited income
statements for the twelve (12) month periods ending December 31, 1996, 1995 and
1994 and the five (5) months ended May 31, 1997. Such financial statements,
including the notes thereto, except as indicated therein, were prepared on a
basis consistent with past accounting practices of AAII and fairly present the
results of operations for the periods noted therein. The balance sheets of AAII
delivered by AAII to SCN
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fairly present the financial condition of AAII at the date thereof, and except
as indicated therein, reflect all claims against and all debts and liabilities
of AAII fixed or contingent, as of the date thereof.
(g) Undisclosed Liabilities. AAII has no uninsured liability (whether
known or unknown, asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, and whether due or to become due),
including any liability for taxes, except for (i) liabilities set forth on the
face of the balance sheet dated as of December 31, 1996 and (ii) liabilities
which have arisen after December 31, 1996 in the Ordinary Course of Business
(none of which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law).
(h) Brokers' Fees. AAII does not have 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.
(i) Material Contracts. Section 3(i) of the Disclosure Schedule lists
the following contracts and other material agreements to which AAII is a party:
(i) any agreement (or group of related agreements) for the
lease of real or personal property to or from any Person;
(ii) any agreement (or group of related agreements) for the
purchase or sale of supplies, products, or other personal property or
for the furnishing or receipt of services;
(iii) any agreement concerning a partnership, limited
liability company or joint venture;
(iv) any agreement (or group of related agreements) under
which AAII has created, incurred, assumed, or guaranteed any
indebtedness for borrowed money, or any capitalized lease obligation
pursuant to which it has imposed a Security Interest in respect of any
of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any profit sharing, option, deferred compensation,
severance, or other plan or arrangement for the benefit of AAII's
current or former owners, directors, partners, managers, officers,
and/or employees;
(vii) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $25,000 or providing severance benefits;
(viii) any agreement pursuant to which AAII has advanced or
loaned any amount to any of its directors, officers, and employees;
(ix) any agreement pursuant to which the consequences of a
default or termination could have a material adverse effect on the
business, financial condition, operations, results of operations, or
future prospects of AAII;
(x) any third-party provider agreements; or
(xi) any other agreement (or group of related agreements)
outside the ordinary course of AAII's business or operations the
performance of which involves consideration in excess of $15,000; or
AAII has delivered or given SCN access to a correct and complete copy of each
written agreement listed in Section 3(i) of the Disclosure Schedule (as amended
through the Closing Date) and a written summary setting forth the terms and
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conditions of each oral agreement referred to in Section 3(i) of the Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) except as set
forth in Section 3(i) of the Disclosure Schedule, no notice of this Agreement or
consent of any third party is required in order for AAII to execute and deliver
this Agreement or to consummate the transactions contemplated hereby, and, after
assignment to SCN at Closing, the agreement will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms; (C) no
party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement. SCN shall have no obligation to
assume AAII's obligations under any agreement listed in Section 3(i) of the
Disclosure Schedule unless such obligation is also listed on Schedule 2(b).
(j) Insurance; Malpractice. Section 3(j) of the Disclosure Schedule
contains a list and brief description of all policies or binders of fire,
liability, product liability, workers compensation, health and other forms of
insurance policies or binders currently in force insuring against risks which
will remain in full force and effect at least through the Closing Date. Section
3(j) of the Disclosure Schedule contains a description of all current
malpractice liability insurance policies of the Shareholders, AAII and AAII's
professional employees and all predecessor policies in effect since February 1,
1990. Neither AAII, the Shareholders, nor AAII's professional employees have, in
the last seven (7) years, filed a written application for any insurance coverage
relating to AAII's business or property which has been denied by an insurance
agency or carrier. AAII, AAII's professional employees and the Shareholders have
been continuously insured for professional malpractice claims during the same
period. Section 3(j) of the Disclosure Schedule also sets forth a list of all
claims for any insured loss in excess of Five Thousand Dollars ($5,000.00) per
occurrence filed by or against AAII, AAII's professional employees or the
Shareholders during the three (3) year period immediately preceding the date
hereof, including workers compensation, general liability, environmental
liability and professional malpractice liability claims. None of AAII, AAII's
professional employees or the Shareholders is in material default with respect
to any provision contained in any such policy and none of them has failed to
give any notice or present any claim under any such policy in due and timely
fashion.
(k) No Changes Prior to Closing Date. During the period from December
31, 1996 through the date hereof, AAII has not (i) incurred any liability or
obligation of any nature (whether known or unknown, asserted or unasserted,
absolute or contingent, accrued or unaccrued, liquidated or unliquidated and
whether due or to become due), except in the Ordinary Course of Business, (ii)
written off as uncollectible any notes or accounts receivable, except write-offs
in the Ordinary Course of Business charged to applicable reserves, none of which
individually or in the aggregate is material to AAII, (iii) conducted its
business in such a manner so as to materially increase its accounts payable or
so as to materially decrease its accounts receivable, (iv) granted any increase
in the rate of wages, salaries, bonuses, or other remunerations of any employee,
except in the Ordinary Course of Business, (v) canceled or waived any claims or
rights of substantial value, (vi) made any change in any method of accounting,
(vii) otherwise conducted its business or entered into any transaction, except
in the usual and ordinary manner and in the Ordinary Course of Business, (viii)
agreed, whether or not in writing, to do any of the foregoing, or (ix) disposed
of its assets other than in the Ordinary Course of Business.
(l) Title; Condition. AAII has, or will have at the Closing Date, good
and marketable title to all of the Purchased Assets subject to no mortgage,
pledge, lien, lease, conditional sales agreement, option, right of first refusal
or any other encumbrance or charge, including taxes. AAII agrees to remove all
security interests reflected on any search of public records, if any, prior to
the Closing Date and to remove any other security interest filed with respect to
the Purchased Assets between the date of such search of public records and the
Closing Date.
(m) Litigation. There is no suit, action, proceeding at law or in
equity, arbitration, administrative proceeding or other proceeding or
investigation by any governmental entity pending, or threatened against, or
affecting AAII or any of the Purchased Assets, or any physician or other health
care professional engaged or employed by AAII, and there is no basis for any of
the foregoing. None of the actions, suits, proceedings, hearings, and
investigations set forth in
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Section 3(m) of the Disclosure Schedule could result in any material adverse
change in the operations, results of operations, or future prospects of the
business assets to be operated by SCN after the Closing.
(n) Permits and Licenses. AAII and all physicians and other health care
professionals engaged or employed by AAII have all permits and licenses required
by all applicable laws; have made all regulatory filings necessary for the
conduct of AAII's business; and are not in violation of any of said permitting
or licensing requirements.
(o) Tax Matters. All federal, state and other tax returns of AAII
required by law to be filed have been timely filed, and AAII has paid or
adequately provided for all taxes (including taxes on properties, income,
franchises, licenses, sales and payrolls) which have become due pursuant to such
returns or pursuant to any assessment, except for any taxes and assessments, the
amount, applicability or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which AAII has set aside on
its books adequate reserves. There are no tax liens on any of AAII's assets
except those with respect to taxes not yet due and payable. There are no pending
tax examinations of AAII's tax returns nor has AAII received a revenue agent's
report asserting a tax deficiency in the last twelve (12) months. There are not
and will not be at the Closing Date, any claims pending or asserted against AAII
for unpaid taxes by any federal, state or other governmental body. AAII has
withheld from each payment made to employees of AAII the amount of all taxes
(including, but not limited to, federal, state and local income taxes and
Federal Insurance Contribution Act taxes) required to be withheld therefrom and
all amounts customarily withheld therefrom, and has set aside all other employee
contributions or payments customarily set aside with respect to such wages and
has paid or will pay the same to, or has deposited or will deposit such payment
with, the proper tax receiving officers or other appropriate authorities.
(p) Employee Benefit Plans.
(i) List of Plans. Section 3(p) of the Disclosure Schedule
contains an accurate and complete list of all employee benefit plans
("Employee Benefit Plans") within the meaning of Section 3(3) of ERISA,
whether or not any Employee Benefit Plans are otherwise exempt from the
provisions of ERISA, established, maintained or contributed to by AAII
(including all employers (whether or not incorporated) which by reason
of common control are treated together with AAII and/or the
Shareholders as a single employer within the meaning of Section 414 of
the Code) since September 2, 1974.
(ii) Status of Plans. AAII has never maintained and does not
now maintain or contribute to any Employee Benefit Plan subject to
ERISA, which is not in substantial compliance with ERISA or which has
incurred any accumulated funding deficiency within the meaning of
Section 412 or 418B of the Code, or which has applied for or obtained a
waiver from the Internal Revenue Service of any minimum funding
requirement under Section 412 of the Code or which is subject to Title
IV of ERISA. AAII has not incurred any liability to the Pension Benefit
Guaranty Corporation ("PBGC") in connection with any Employee Benefit
Plan covering any employees of AAII or ceased operations at any
facility or withdrawn from any such Plan in a manner which could
subject it to liability under Section 4062(f), 4063 or 4064 of ERISA,
and knows of no facts or circumstances which might give rise to any
liability of AAII to the PBGC under Title IV of ERISA which could
reasonably be anticipated to result in any claims being made against
AAII by the PBGC. AAII has not incurred any withdrawal liability
(including any contingent or secondary withdrawal liability) within the
meaning of Sections 4201 and 4202 of ERISA, to any Employee Benefit
Plan which is a Multiemployer Plan (as defined in Section 4001 of
ERISA), and no event has occurred, and there exists no condition or set
of circumstances, which represent a material risk of the occurrence of
any withdrawal from or the partition, termination,
- 10 -
reorganization or insolvency of any Multiemployer Plan which would
result in any liability of AAII.
(iii) Contributions. Full payment has been made of all amounts
which AAII is required, under applicable law or under any Employee
Benefit Plan or any agreement relating to any Employee Benefit Plan to
which AAII is a party, to have paid as contributions thereto as of the
last day of the most recent plan year of such Employee Benefit Plan
ended prior to the date hereof. AAII has made adequate provision for
reserves to meet contributions that have not been made because they are
not yet due under the terms of any Employee Benefit Plan or related
agreements. Benefits under all Employee Benefit Plans are as
represented and have not been increased subsequent to the date as of
which documents have been provided.
(iv) Tax Qualification. Each Employee Benefit Plan intended to
be qualified under Section 401(a) of the Code has been determined to be
so qualified by the Internal Revenue Service and, nothing has occurred
since the date of the last such determination which resulted or is
likely to result in the revocation of such determination.
(v) Transactions. AAII has not engaged in any transaction with
respect to the Employee Benefit Plans which would subject it to a
material tax, penalty or liability for prohibited transactions under
ERISA or the Code nor have any of its directors, officers or employees
to the extent they or any of them are fiduciaries with respect to such
plans, breached any of their responsibilities or obligations imposed
upon fiduciaries under Title I of ERISA which would result in any
material claim being made under or by or on behalf of any such plans by
any party with standing to make such claim.
(vi) Other Plans. AAII presently does not maintain any
Employee Benefit Plans or any other foreign pension, welfare or
retirement benefit plans other than those listed on Section 3(p) of the
Disclosure Schedule.
(vii) Documents. AAII has delivered or caused to be delivered
to SCN true and complete copies of (i) all Employee Benefit Plans as in
effect, together with all amendments thereto which will become
effective at a later date, as well as the latest IRS determination
letter obtained with respect to any such Employee Benefit Plan
qualified under Section 401 or 501 of the Code, and (ii) the most
recently filed Form 5500 for each Employee Benefit Plan required to
file such form.
(q) Third-Party Relations. AAII has not received any notice that any
material patient, supplier, employee or associated physician intends to cease
doing business with AAII.
(r) Compliance with Applicable Laws. AAII has operated in compliance
with all federal, state, county and municipal laws, constitutions, ordinances,
statutes, rules, regulations and orders applicable thereto ("Applicable Laws").
No item disclosed in Section 3(r) of the Disclosure Schedule could have a
material effect on SCN. Neither AAII nor any physician associated with or
employed by AAII has received payment or any remuneration whatsoever to induce
or encourage the referral of patients or the purchase of goods and/or services
as prohibited under 42 U.S.C. ss. 1320a-7b(b), or otherwise perpetrated any
Medicare or Medicaid fraud or abuse nor has any fraud or abuse been alleged
within the last five (5) years by any government agency.
(s) Employee Compensation. AAII has paid or discharged or will pay or
discharge or assume all liabilities for compensation and benefits to which all
employees, including physician employees, are entitled through the Closing
- 11 -
Date, including but not limited to all salaries, wages, bonuses, incentive
compensation, payroll taxes, hospitalization and medical expenses, deferred
compensation, and vacation and sick pay, as well as any severance pay becoming
due as a result of the termination of certain of AAII's employees.
(t) Environmental Matters.
(i) AAII is in full compliance with all applicable
Environmental Laws.
(ii) AAII has not authorized or conducted the disposal or
release, or other handling of any Medical Waste, hazardous substance,
hazardous waste, hazardous material, hazardous constituent, toxic
substance, pollutant, contaminant, asbestos, radon, polychlorinated
biphenyls ("PCBs"), petroleum product or waste (including crude oil or
any fraction thereof), natural gas, liquefied gas, synthetic gas,
biohazardous or biomedical material, or other material defined,
regulated controlled or potentially subject to any remediation
requirement under any Environmental Law (collectively "Hazardous
Materials"), on, in, under or affecting or any property owned or leased
by AAII.
(iii) AAII has, and is in compliance with, all licenses,
permits, registrations, and government authorizations necessary to
operate under all applicable Environmental Laws. Section 3(t) of the
Disclosure Schedule lists all such licenses, permits, registrations and
government authorizations required by any Environmental Law.
(iv) AAII has not received any written or oral notice from any
governmental agency or entity or any other Person and there is no
pending or threatened claim, litigation or any administrative agency
proceeding that: (a) alleges a violation of any Environmental Law(s) by
AAII or, with respect to the Purchased Assets or any property owned or
leased by AAII, (b) alleges that AAII is a liable party or potentially
responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss. 9601, et seq., or any
analogous state law, (c) has resulted or could result in the attachment
of an environmental lien on any of the Purchased Assets or property
owned or leased by AAII or (d) alleges that AAII is liable for any
contamination of the environment, contamination of any property owned
or leased by AAII, damage to natural resources, property damage, or
personal injury based on its activities or the activities of any
predecessor or third parties involving Hazardous Materials, whether
arising under the Environmental Laws, common law principles, or other
legal standards.
(v) With respect to the generation, transportation, treatment,
storage and disposal or other handling of Medical Waste, AAII has
complied with all Medical Waste Laws.
(u) Healthcare Compliance. AAII is participating in or otherwise
authorized to receive reimbursement from Medicare and Medicaid and is a party to
other third-party payor agreements, if any, discussed in Section 3(i) of the
Disclosure Schedule. All necessary certifications and contracts required for
participation in such programs are in full force and effect and have not been
amended or otherwise modified, rescinded, revoked or assigned, and no condition
exists or event has occurred which in itself or with the giving of notice or the
lapse of time or both would result in the suspension, revocation, impairment,
forfeiture or non-renewal of any such third-party payor program. AAII is in
compliance in all material respects with the requirements of all such
third-party payors. AAII, the Shareholders, and its physician employees do not
have any financial relationship (whether investment interest, compensation
interest, or otherwise) with any entity to which any of the foregoing refer
patients, except for such financial relationships that qualify for exceptions to
state and federal laws restricting physician referrals to entities in which they
have a financial interest.
(v) Fraud and Abuse. AAII, the Shareholders, and persons and entities
providing professional services for AAII have not engaged in any activities
which are prohibited under 42 U.S.C. ss. 1320a-7b, or the regulations
promulgated thereunder pursuant to such statutes, or related state or local
statutes or regulations, or which are prohibited
- 12 -
by rules of professional conduct, including the following: (a) knowingly and
willfully making or causing to be made a false statement or representation of a
material fact in any application for any benefit or payment; (b) knowingly and
willfully making or causing to be made any false statement or representation of
a material fact for use in determining rights to any benefit or payment; (c)
failing to disclose knowledge by a claimant of the occurrence of any event
affecting the initial or continued right to any benefit or payment on its own
behalf or on behalf of another, with intent to fraudulently secure such benefit
or payment; or (d) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe, or rebate), directly or indirectly,
overtly or covertly, in cash or in kind or offering to pay or receive such
remuneration (1) in return for referring an individual to a person for the
furnishing or arranging for the furnishing or any item or service for which
payment may be made in whole or in part by Medicare or Medicaid or (2) in return
for purchasing, leasing, or ordering or arranging for or recommending
purchasing, leasing or ordering any good, facility, service or item for which
payment may be made in whole or in part by Medicare or Medicaid.
(w) Practice Compliance. AAII is lawfully operated in accordance with
the requirements of all Applicable Laws and has all necessary authorizations for
the conduct of its business, all of which are in full force and effect. There
are no outstanding notices of deficiencies relating to AAII issued by any
governmental authority or third-party payor requiring conformity or compliance
with any applicable law or condition for participation with such governmental
authority or third-party payor, and after reasonable and independent inquiry and
due diligence and investigation, AAII has neither received notice nor has any
Knowledge or reason to believe that such necessary authorizations may be revoked
or not renewed in the Ordinary Course of Business.
(x) Rates and Reimbursement Policies. The jurisdiction in which AAII is
located does not currently impose any restrictions or limitations on rates which
may be charged to private pay patients receiving services provided by AAII. AAII
does not have any rate appeal currently pending before any governmental
authority or any administrator of any third-party payor program. No Applicable
Law which affects rates or reimbursement procedures has been enacted,
promulgated or issued within the eighteen (18) months preceding the date of this
Agreement and no such legal requirement is proposed or currently pending in the
jurisdiction in which AAII is located, which could have a material adverse
effect on AAII or may result in the imposition of additional Medicaid, Medicare,
charity, free care, welfare, or other discounted or government assisted patients
at AAII or require AAII to obtain any necessary authorization which AAII does
not currently possess.
(y) Accounts Receivable. All accounts receivable, unbilled invoices and
other debts due or recorded in the respective records and books of account of
AAII, as being due to AAII, (i) are valid, existing and are collectible within
one hundred eighty (180) days following the date of this Agreement without
resort to legal proceedings or use of collection agencies, (ii) have arisen in
the Ordinary Course of Business, and (iii) none of such accounts receivable or
other debts is or will at the Closing Date be subject to any counterclaim or
set-off. There has been no material adverse change since May 31, 1997 in the
amount of accounts receivable or other debts due AAII, the allowances with
respect thereto, or accounts payable of AAII from that reflected in the most
recent balance sheet previously delivered by AAII to SCN.
(z) Guaranties. AAII is not a guarantor and otherwise is not liable for
any liability or obligation (including indebtedness) of any other Person.
(aa) Powers of Attorney. There are no outstanding powers of attorney
executed by AAII, except as may be contained in financing documents or security
agreements listed in Section 3(i) of the Disclosure Schedule.
(bb) Tangible Assets. AAII owns or leases all land, buildings,
machinery, equipment, and other tangible assets necessary for the conduct of its
business as presently conducted. Each tangible asset is free from defects has
been maintained in accordance with normal industry practice and is in good
operating condition and repair (subject to normal wear and tear).
- 13 -
(cc) Full Disclosure. No representation or warranty made by AAII in
this Agreement contains or will contain any untrue statement of a material fact
or omits or will omit to state a material fact necessary to make the statements
contained herein or therein not materially misleading.
4. Representations and Warranties of SCN. SCN represents and warrants
to AAII that the statements contained in this Section 4 are correct and complete
as of the date of this Agreement and will be correct and complete as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 4), except as
set forth in the Disclosure Schedule. The Disclosure Schedule will be arranged
in paragraphs corresponding to the numbered and lettered paragraphs contained in
this Section 4.
(a) Organization. SCN is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
(b) Authorization of Transaction. SCN has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement, to issue the SCN Shares to be issued in connection with this
Agreement and otherwise to perform its obligations hereunder; provided, however,
that SCN cannot consummate the transaction unless and until it receives the
Requisite SCN Board of Directors Approval. Except as set forth in the preceding
sentence, this Agreement constitutes the valid and legally binding obligation of
SCN, enforceable in accordance with its terms and conditions.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency, professional regulatory organization or court to which SCN
is subject or may become subject as a result of the transaction contemplated by
this Agreement, or any provision of the charter or bylaws of SCN or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which SCN is a party or by which it is bound
or to which any of its assets is subject. Other than state and federal filings
required by the Securities Act and similar state statutes, SCN does not need to
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(d) Brokers' Fees. SCN does not have 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 SCN could become liable or
obligated.
(e) Securities Filings. All reports and statements filed with respect
to SCN pursuant to the Securities Act or the Securities Exchange Act conform to
the requirements of the Securities Act and the Securities Exchange Act and the
rules and regulations promulgated thereunder and did not include at the time of
filing such document any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading.
5. Covenants. The Parties agree as follows with respect to the period
from and after the execution of this Agreement.
(a) General. Each of the Parties will use its or his best efforts to
take all action and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction of the closing conditions set forth in Section 6 below) to be
satisfied by him or it. This Section 5(a) shall not be construed to obligate any
of the Parties to waive any condition precedent to his or its obligations to
perform hereunder.
- 14 -
(b) Notices and Consents. AAII will give any notices to third parties,
and will use its best efforts to obtain any third party consents, necessary or
required to consummate the transaction or that SCN reasonably may request in
connection with the matters referred to in Section 3(i) above.
(c) Regulatory Matters and Approvals. Each of the Parties will give any
notices to, make any filings with, and use its reasonable best efforts to obtain
any authorizations, consents, and approvals of governments and governmental
agencies in connection with the transactions contemplated by this Agreement.
(d) Operation of Business. From the date of this Agreement through the
Closing Date, AAII will not engage in any practice, take any action, or enter
into any transaction outside the Ordinary Course of Business. Without limiting
the generality of the foregoing:
(i) AAII will not authorize or effect any change in its
Articles of Incorporation or bylaws;
(ii) AAII will not grant any options, warrants, or other
rights to purchase or obtain any of its shares or issue, sell, or
otherwise dispose of any of its shares;
(iii) AAII will not declare, set aside, or pay any dividend or
distribution with respect to its shares (whether in cash or in kind),
or redeem, repurchase, or otherwise acquire any of its shares in either
case outside the Ordinary Course of Business without the consent of
SCN, which consent shall not be unreasonably withheld;
(iv) AAII will not issue any note, bond, or other debt
security or create, incur, assume, or guarantee any indebtedness for
borrowed money or capitalized lease obligation outside the Ordinary
Course of Business;
(v) AAII will not impose any Security Interest upon any of its
assets outside the Ordinary Course of Business;
(vi) AAII will not make any capital investment in, make any
loan to, or acquire the securities or assets of any other Person
outside the Ordinary Course of Business;
(vii) AAII will not make any change in employment terms for
any of the Shareholders or its managers, officers, and employees
outside the Ordinary Course of Business; and
(viii) AAII will not commit to do any of the foregoing.
(e) Further Acts and Assurances. AAII and the Shareholders shall, at
any time and from time to time at and after the Closing, upon request of SCN,
take any and all steps necessary to place SCN in possession and operating
control of the Purchased Assets, and will do, execute, acknowledge and deliver,
or will cause to be done, executed, acknowledged and delivered, all such further
acts, deeds, assignments, transfers, conveyances, powers of attorney and
assurances as may be required for the better transferring and confirming to SCN
or its successors or assigns, or for reducing to possession, any or all of the
Purchased Assets.
(f) Full Access. Upon three (3) days prior notice, AAII will permit
representatives of SCN to have full access to all premises, properties,
personnel, books, records (including tax records), contracts, and documents of
or pertaining to AAII during normal business hours. SCN (i) will treat and hold
as such any confidential information it receives from AAII in the course of the
reviews contemplated by this Section 5(f), (ii) will not use any of the
confidential information except in connection with this Agreement, and (iii) if
this Agreement is terminated for any reason whatsoever, agrees to return to AAII
all tangible embodiments (and all copies) thereof which are in its possession.
- 15 -
(g) Notice of Developments. Each Party will give prompt written notice
to the other Parties of any material adverse development causing a breach of any
of its own representations and warranties in Section 3 or Section 4 above. No
disclosure by any Party pursuant to this Section 5(g), however, shall be deemed
to amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(h) Exclusivity. Until the earlier of (i) July 31, 1997 or (ii) the
Closing Date, AAII will not solicit, initiate, or encourage the submission of
any proposal or offer from any Person relating to the acquisition of all or
substantially all of the capital stock or assets of AAII (including any
acquisition structured as a merger, consolidation, or share exchange). AAII
shall notify SCN immediately if any Person makes any proposal, offer, inquiry,
or contact with respect to any of the foregoing.
(i) Collection of Accounts Receivable. The Shareholders agree to
cooperate with SCN in the collection of accounts receivable owned by AAII as of
the Closing Date acquired pursuant to this Agreement. SCN, at its option, shall
have the right to require the collection of said accounts receivable through a
lockbox or bank account sweep arrangement. In connection therewith, the
Shareholders agree to execute the necessary documents and follow the necessary
procedures as described in the Service Agreement to accommodate the collection
of the accounts receivable in such manner.
(j) Corporate Authorization. By execution of this Agreement, the
Shareholders agree to take any and all steps necessary and will do, execute,
acknowledge and deliver, or will cause to be done, executed, acknowledged and
delivered, all such acts, deeds and assurances required in order to consummate
the transactions contemplated by this Agreement, including voting as directors
of AAII in favor of the transactions contemplated by this Agreement and voting
as an owner of AAII in favor of the transactions contemplated by this Agreement
at any meeting (or in any action by written consent) required by the Texas
Business Corporation Act.
(k) Malpractice Insurance. On or before the Closing, all physicians and
employees of AAII shall be covered by medical malpractice insurance and, if
required by SCN, medical malpractice tail insurance to cover prior occurrences
shall be procured by AAII.
(l) Employee Benefit Plans. Prior to the Closing Date, all Employee
Benefit Plans shall be terminated in accordance with, and to the extent required
by, Applicable Law.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of SCN. The obligation of SCN to
consummate the transactions contemplated by this Agreement is subject to
satisfaction of the following conditions:
(i) AAII shall have procured all of the third party consents
specified in Section 5(b) above;
(ii) the representations and warranties set forth in Section 3
above shall be true and correct in all material respects at and as of
the Closing Date;
(iii) AAII shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this
- 16 -
Agreement to be rescinded following consummation, or (C) affect
adversely the right of SCN to own the Purchased Assets;
(v) all actions to be taken by AAII in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby, have been taken or
delivered to SCN and are satisfactory in form and substance to SCN;
(vi) SCN shall have completed and be satisfied with its due
diligence review;
(vii) On or before the Closing Date, the transactions
contemplated by (i) the Merger Agreement between SCN, Xxxx X. Small,
M.D., P.A., and Xxxx X. Small, M.D. dated July 3, 1997, (ii) the Merger
Agreement between SCN, Xxxx X. Small, M.D. & Associates, P.A. and Xxxx
X. Small, M.D. dated July 3, 1997, (iii) the Merger Agreement between
SCN, Xxxxxxxxx X. Xxxxxx, M.D., P.A., and Xxxxxxxxx X. Xxxxxx, M.D.
dated July 3, 1997, (iv) the Asset Purchase Agreement between SCN,
Allied Health Services, P.,A. and Xxxx X. Small, M.D. dated July 3,
1997, and (v) the Asset Purchase Agreement between SCN, Access Medical
Supply, Xxxxxxxxx X. Xxxxxx, M.D. and Xxxx X. Small, M.D., dated July
3, 1997, shall have been consummated; and
(viii) SCN's Board of Directors shall have approved the
transactions contemplated by this Agreement in their sole and absolute
discretion.
SCN may waive any condition specified in this Section 6(a) if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of AAII. The obligation of AAII to
consummate the transactions contemplated by this Agreement is subject to
satisfaction of the following conditions:
(i) the transactions contemplated by this Agreement shall be
approved by AAII's Board of Directors and shall receive the Requisite
AAII Approval;
(ii) the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as of
the Closing Date;
(iii) SCN shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing; and
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of SCN to own the
Purchased Assets.
AAII may waive any condition specified in this Section 6(b) if it executes a
writing so stating at or prior to the Closing.
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7. Items to be Delivered at or Prior to Closing.
(a) By the Shareholders or AAII. The Shareholders or AAII, as
applicable, shall execute and deliver to SCN, prior to or at the Closing:
(i) Certified resolutions of AAII authorizing the execution of
all documents and the consummation of all transactions contemplated
hereby;
(ii) A Xxxx of Sale in substantially the form attached hereto
as Exhibit 7(a)(ii);
(iii) A Service Agreement in substantially the form attached
hereto as Exhibit 7(a)(iii);
(iv) A certificate duly executed by the President of AAII that
as of the Closing Date, all representations and warranties of AAII are
true and correct, all covenants and agreements contained in the
Agreement to be performed by AAII have been performed or complied with,
and all conditions to Closing have been satisfied.
(v) An opinion from AAII's counsel in substantially the form
attached hereto as Exhibit 7(a)(v); and
(vi) Such other instruments as may be reasonably requested by
SCN in order to effect to or carry out the intent of this Agreement.
(b) By SCN. SCN shall deliver to AAII at or prior to the Closing:
(i) Certified resolutions of SCN authorizing the execution of
all documents and the consummation of all transactions contemplated
thereby;
(ii) The Purchase Price;
(iii) An opinion from SCN's counsel in substantially the form
attached hereto as Exhibit 7(b)(ii);
(iv) A certificate, duly executed by the President of SCN,
stating as of the Closing Date, all representations and warranties of
SCN are true, all covenants and agreements contained in the Agreement
to be performed by SCN have been performed or complied with and all
conditions to Closing have been satisfied;
(v) a Service Agreement in substantially the form attached
hereto as Exhibit 7(a)(iii); and
(vi) Such other instruments as may be reasonably requested by
the Shareholders in order to effect to or carry out the intent of this
Agreement.
8. Termination.
(a) Termination of Agreement. Either of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether before
or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual written
consent at any time prior to the Closing Date;
(ii) SCN may terminate this Agreement by giving written notice
to AAII at any time prior to the Closing Date (A) in the event AAII has
breached any representation, warranty, or covenant contained in this
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Agreement in any material respect, SCN has notified AAII of the breach,
and the breach has continued without cure for a period of 30 days after
the notice of breach or (B) if the Closing shall not have occurred on
or before July 31, 1997 by reason of the failure of any condition
precedent under Section 6(a) hereof (unless the failure results
primarily from SCN breaching any representation, warranty, or covenant
contained in this Agreement); or
(iii) AAII may terminate this Agreement by giving written
notice to SCN at any time prior to the Closing Date (A) in the event
SCN has breached any representation, warranty, or covenant contained in
this Agreement in any material respect, AAII has notified SCN of the
breach, and the breach has continued without cure for a period of 30
days after the notice of breach or (B) if the Closing shall not have
occurred on or before July 31, 1997 by reason of the failure of any
condition precedent under Section 6(b) hereof (unless the failure
results primarily from AAII breaching any representation, warranty, or
covenant contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section 8(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach).
9. Indemnification.
(a) Indemnification by AAII and the Shareholders. AAII and the
Shareholders agree to and shall jointly and severally defend, indemnify and hold
harmless SCN, its successors and assigns, officers and directors against any and
all losses, liabilities, expenses (including without limitation reasonable
attorney's fees) and damages resulting from or arising out of the breach,
untruth or inaccuracy of any representation, warranty or covenant of AAII or the
Shareholders set forth in this Agreement. Neither AAII nor the Shareholders
shall be liable to SCN for any claims against AAII or the Shareholders under
this Section 9(a) unless and until the aggregate of all claims against AAII or
the Shareholders exceeds the sum of $25,000.00, whereupon SCN shall be entitled
to recover the full amount of all claims, including the initial $25,000.00.
(b) Notice to AAII and the Shareholders; Opportunity to Defend. SCN
agrees to give prompt notice to AAII and the Shareholders of the assertion of
any claim, or the commencement of any suit, action or proceeding, in respect of
which indemnity may be sought under Section 9(a). AAII and the Shareholders may
participate in and at their election, or at the request of SCN, assume the
defense of any such suit, action or proceeding at AAII or the Shareholders'
expense. Neither AAII nor the Shareholders shall be liable under Section 9(a)
for any settlement effected without their consent of any claim, litigation or
proceeding in respect of which indemnity may be sought under Section 9(a) which
consent shall not be unreasonably withheld.
(c) General Indemnification by SCN. SCN agrees to and shall defend,
indemnify and hold harmless the Shareholders, their heirs and assigns against
any and all losses, liabilities, expenses (including without limitation
reasonable attorneys' fees) and damages resulting from the breach, untruth or
inaccuracy of any representation, warranty or covenant of SCN set forth in this
Agreement. SCN shall not be liable to the Shareholders for any claims against
SCN under this Section 9(c) unless and until the aggregate of all claims against
SCN exceeds the sum of $25,000.00, whereupon the Shareholders shall be entitled
to recover the full amount of all claims, including the initial $25,000.00.
(d) Notice to SCN; Opportunity to Defend. The Shareholders agree to
give prompt notice to SCN of the assertion of any claim, or the commencement of
any suit, action or proceeding in respect of which indemnity may be sought under
Section 9(c). SCN may participate in and at its election, or at the request of
the Shareholders, assume the defense of any such suit, action or proceeding at
SCN's expense. SCN shall not be liable under Section 9(c) for any settlement
effected without its consent of any claim, litigation or proceeding in respect
of which indemnity may be sought hereunder, which consent shall not be
unreasonably withheld.
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(e) Right of Setoff. In the event of any breach of warranty,
representation, covenant or agreement by AAII or the Shareholders giving rise to
indemnification to SCN under Section 9(a) hereof, SCN shall be entitled to
offset the amount of damages incurred by it as a result of such breach of
warranty, representation, covenant or agreement against the amounts payable to
the Shareholders or AAII under the Service Agreement. In the event that SCN
determines that an amount is to be so offset, as a condition precedent to such
right of setoff, SCN shall give the Shareholders written notice of the amount of
such proposed setoff and the basis therefor within thirty (30) days after the
date on which such amount is finally determined. If SCN shall not have received
written notice from the Shareholders contesting such setoff within twenty (20)
days of their receipt of such written notice from SCN, the setoff shall be
deemed to have been consented to by the Shareholders, and SCN shall be entitled
to deduct the entire amount claimed as a setoff from the next succeeding amounts
payable under the Service Agreement. In the event that the Shareholders shall
object to the proposed setoff by written notice received by SCN during such
twenty (20) day period, the entitlement of SCN to the claimed setoff shall be
determined as set forth in Section 10.4.3 of the Service Agreement.
10. Miscellaneous.
(a) Survival. The representations and warranties of the Shareholders,
AAII and SCN contained in this Agreement and the indemnifications contained
herein shall survive the Closing. No claim for indemnification with respect to
any alleged misrepresentation or breach of warranty may be made after three (3)
years following the Closing Date. Any matter to which indemnification pertains
and with respect to which a claim has been asserted or threatened following the
Closing Date shall continue to be subject to the indemnification under this
Agreement until finally terminated, settled, resolved or adjudicated; and all
terms, conditions and stipulations of this Agreement shall likewise continue to
apply.
(b) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
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If to AAII: Copy to:
Xxxxxxxxx X. Xxxxxx, M.D. Xxxxx Xxxxxxxxx
Xxxx X. Small, M.D. 0000 Xxxx Xxxxx Xxxxxxx
0000 Xxxx Xxxxx Xxxxxxx Xxxxx, Xxxxx 00000
Xxxxx, Xxxxx 00000 Facsimile: (000) 000-0000
Facsimile: (000) 000-0000
If to SCN: Copy to:
Xxxxx X. Xxxxx, President Xxxxx X. Xxxxxxx
Specialty Care Network, Inc. Baker, Donelson, Bearman & Xxxxxxxx
00 Xxxxx Xxxxxxxxx, Xxxxx 000 165 Madison Ave., Ste. 0000 Xxxxxxx
Xxxxxxxx, Xxxxxxxx 00000 Ave, Suite 2100
Facsimile: (000) 000-0000 Xxxxxxx, Xxxxxxxxx 00000
Facsimile: (000) 000-0000
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other party
notice in the manner herein set forth.
(h) Governing Law Venue. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Texas without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Texas or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Texas. Each of the parties
submits to the jurisdiction of any state or federal court sitting in Denver,
Colorado, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court. Each party also agrees not to bring
any action or proceeding arising out of or relating to this Agreement in any
other court. Each of the parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of any other party with respect
thereto.
(i) Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent to stockholder approval will be subject
to the restrictions contained in the Texas Business Corporation Act. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by each of the Parties. No waiver by any party of
any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
- 21 -
(k) Expenses. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
(m) No Referrals Required. The Parties agree that no part of this
Agreement shall be construed to induce or encourage the referral of patients or
the purchase of health care services or supplies. The Parties acknowledge that
there is no requirement under this Agreement or any other agreement between AAII
and SCN that any party refer any patients to any health care provider or
purchase any health care goods or services from any source. Additionally, no
payment under this Agreement is in return for the referral of patients, if any,
or in return for purchasing, leasing or ordering services from SCN or any of
SCN's affiliates. The Parties may refer patients to any company or person
providing services and will make such referrals, if any, consistent with
professional medical judgment and the needs and wishes of the relevant patients.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
* * * * *
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
SCN:
SPECIALTY CARE NETWORK, INC.
By:
----------------------------------
Title:
-------------------------------
AAII:
ASSOCIATED ARTHROSCOPY INSTITUTE, INC.
By:
----------------------------------
Title:
-------------------------------
SHAREHOLDERS:
--------------------------------------
XXXXXXXXX X. XXXXXX, M.D.
--------------------------------------
XXXX X. SMALL, M.D.
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