Exhibit 2.01
PURCHASE AND SALE AGREEMENT
FRESNO
This Agreement is made and entered into this 19th day of November, 1996
by and between Continental Medical Systems, Inc., a Delaware corporation
("Seller") and Regency Rehab Hospitals, Inc., a California corporation
("Purchaser").
RECITALS
A. Seller is the sole shareholder of Orange
Rehabilitation Hospital, Inc., a Delaware corporation (the "Corporation").
B. The Corporation is the sole general partner of San Joaquin
Valley Rehabilitation Hospital, a Delaware limited partnership (the
"Partnership").
C. The Partnership is the licensed operator of that 62 bed free
standing rehabilitation hospital commonly known as San Joaquin Valley
Rehabilitation Hospital and located at 7173 N. Sharon Avenue, Fresno, CA
93720 (the "Hospital").
D. In order to satisfy the requirements of certain financing documents
by which Purchaser and its parent corporation are bound, Seller and the
Corporation have agreed to restructure the operations of the Partnership in
order to permit the Corporation to assume direct operational and financial
responsibility for certain aspects of the Hospital subject to the obligation of
the Partnership to pay the Corporation therefor under the terms of the Amended
Management Agreement (as defined below) (the "Operations Restructuring"). To
that end, Seller and the Corporation intend, subject to obtaining the consent of
the limited partner in the Partnership and the Landlord (as defined below) to
take certain actions immediately prior to Closing which are more fully described
in the following recitals.
E. Seller has been providing management services to the Partnership
under the terms of an Agreement to Provide Management Services dated as of
January 23, 1991 (the "Existing Management Agreement"). In furtherance of the
Operations Restructuring, Seller intends to assign the Existing Management
Agreement to the Corporation and the Corporation intends to enter into an
Amended and Restated Management Agreement with the Partnership (the "Amended
Management Agreement").
F. In furtherance of the Operations Restructuring, the Seller and the
Corporation further intend to cause the Partnership to assign to the
Corporation, all of its right, title and interest in and to and obligations
under that Lease Agreement dated September 30, 1988 (as amended, the "Hospital
Lease") between the Partnership, as Tenant, and San Joaquin Health Care
Associates Limited Partnership, a Delaware limited partnership, as Landlord, and
concurrently therewith to sublease the Hospital back from the Corporation under
the terms of a Sublease Agreement (the "Hospital Sublease") and all of its
right, title and interest in and to and obligations under the Clinic Leases (as
defined below) and concurrently therewith to sublease the Clinics (as defined
below) back from the Corporation under the terms of two separate Sublease
Agreements (the "Clinic Subleases").
G. In furtherance of the Operations Restructuring, Seller, anticipates
that as of the Closing Date it will hold a promissory note from the Partnership
in the principal amount equal to all of the Intercompany Debt (as defined below)
owing from the Partnership to the Seller (the "Partnership Note") and that it
will sell, assign, transfer and convey to the Corporation, all of its right,
title and interest in and to the Partnership Note and the Corporation will
deliver to the Seller in consideration therefor its Promissory Note (the
"Corporation Note") in the principal amount equal to the principal amount of the
Partnership Note and containing all such other terms and conditions as are
reflected in the Partnership Note.
H. Upon completion of the Operations Restructuring and immediately
prior to Closing, the assets and liabilities of the Corporation shall consist of
those assets and liabilities described in Paragraphs 6.06 and 6.07 below.
I. Purchaser is interested in acquiring all of the Seller's
right, title and interest in and to the issued and outstanding common stock
of the Corporation and in and to the Corporation Note upon completion of the
Operations Restructuring.
J. Purchaser and Seller are interested in documenting the terms
and conditions under which said Operations Restructuring and purchase and
sale shall occur.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants of the parties set forth herein, IT IS HEREBY AGREED AS
FOLLOWS:
ARTICLE I
PURCHASE AND SALE
1.01. On the terms and subject to the conditions set forth herein,
Seller does hereby agree to sell to Purchaser and Purchaser does hereby agree to
acquire from Seller all of Seller's right, title and interest in and to all of
the issued and outstanding common stock of the Corporation (the "Stock"). In
addition, after consummation of the purchase of the Stock, Seller does hereby
agree to sell to Purchaser and Purchaser does hereby agree to acquire from
Seller, all of Seller's right, title and interest in and to the Corporation
Note.
Hereinafter the Stock and the Corporation Note will be collectively
referred to as the Seller's Assets.
ARTICLE II
PURCHASE PRICE/REFINANCING OF DEBT
2.01. Except as otherwise provided below, the purchase price for
the Stock shall be One Dollar.
2.02. Purchaser and Seller acknowledge and agree that the face amount
of the Corporation Note at Closing shall be equal to the Intercompany Debt (as
hereinafter defined). For purposes hereof, the Intercompany Debt shall be in an
amount equal to all of the funds loaned by CMS or Orange to the Partnership
which have not been repaid as of the Closing Date. Seller and Purchaser shall
agree on the amount of the Intercompany Debt as of the Closing Date based on the
Partnership's financial statements as of December 26, 1996. Purchaser shall
purchase the Corporation Note in the following manner:
(a) Purchaser shall deliver to Seller its promissory note in the face
amount equal to the working capital of the Partnership (the "Working Capital"),
which promissory note shall be in substantially the same form as that attached
hereto as Exhibit 2.02(b). As used herein Working Capital shall be defined as
the current assets of the Partnership, minus the current liabilities of the
Partnership, minus the value of the inventory owned by the Partnership, all as
determined in accordance with generally accepted accounting principles.
(b) Purchaser shall draw on the proceeds of its Subordinated Debt (as
hereinafter defined) and shall use the proceeds thereof to refinance an amount
equal to the difference between the Intercompany Debt and the Working Capital
and shall pay the same in cash at Closing (the "Cash Amount");
2.03. In the event the Intercompany Debt at Closing equals the sum of
the Working Capital at Closing plus $2,347,160, there shall be no adjustment to
the purchase price for the Stock.
2.04. If the amount of the Intercompany Debt at Closing exceeds the sum
of the Working Capital at Closing plus $2,347,160, then, unless the parties
agree to a different arrangement, the Cash Amount due and payable by Purchaser
at Closing will be reduced on a dollar for dollar basis by the amount of such
difference.
2.05. In the event the Intercompany Debt at Closing is less than the
sum of the Working Capital at Closing and $2,237,160, then, unless the parties
agree to a different arrangement, the purchase price for the Stock shall be
increased by the amount of such difference.
ARTICLE III
CLOSING
3.01. Provided that all of the conditions to closing set forth in
Paragraphs 12.01 and 12.02 have been satisfied or waived, the purchase and sale
of the Seller's Assets shall be effective as of 12:01 a.m. on January 1, 1997
unless extended by mutual agreement of the parties (the "Outside Closing Date").
Closing shall occur at offices of Lawyers Title Insurance Company at 10:00 am or
at such other time and place as may be agreed upon by the parties in order to
cause the transactions provided for herein to be effective as of the Outside
Closing Date. The actual date of Closing is referred to herein as the "Closing
Date."
3.02. At Closing, Seller shall deliver title to the Seller's Assets
free and clear of all liens and encumbrances.
3.03. Title to the Seller's Assets shall be conveyed to Purchaser
at Closing by Seller's delivery of the following documents:
(a) Seller shall deliver an Assignment Separate From Certificate in the
form and substance substantially the same as that attached hereto as Exhibit
3.03(a) pursuant to which Seller shall convey to Purchaser Seller's right, title
and interest in and to the Stock (the "Stock Assignment Agreement").
(b) Seller shall deliver an Assignment Agreement in form and substance
substantially the same as that attached hereto as Exhibit 3.03(b) pursuant to
which Seller shall convey to Purchaser Seller's right, title and interest in and
to the Corporation Note (the "Note Assignment Agreement").
(c) Such other documents or instruments as may be necessary to convey
title to the Seller's Assets to Purchaser in accordance with the terms hereof.
ARTICLE IV
COSTS AND PRORATIONS
The costs of the transaction and the expenses related to the ownership
of the Seller's Assets shall be allocated between Seller and Purchaser as
follows:
4.01. Seller and Purchaser shall share on a 50-50 basis any State and
County transfer or excise taxes due on the transfer of the Seller's Assets to
Purchaser.
4.02. Purchaser shall pay any sales tax due on the transfer of the
Seller's Assets to Purchaser.
4.03. Seller shall pay the base premium for a standard ALTA leasehold
title insurance policy, in an amount equal to $5,300,000 insuring title to the
Hospital as of Closing and Purchaser shall pay the cost of any premiums for
extended coverage which Purchaser may elect to secure, including the cost of the
ALTA survey required to obtain the same, any lender's coverage which it elects
or is required to secure in connection with its acquisition of the Seller's
Assets or financing thereof and any title endorsements which it elects to obtain
or is required to obtain to satisfy the requirements of its lender.
4.04. Purchaser shall pay the cost of any environmental Phase I
assessment of the Hospital which Purchaser elects to secure prior to Closing.
4.05. Seller and Purchaser shall each pay their own attorneys fees
incurred in connection with the preparation and negotiation of this Agreement
and the consummation of the transaction provided for herein.
4.06. Seller shall pay the cost of obtaining and recording any releases
necessary to deliver title to the Seller's Assets and to the Corporation's
Assets (as defined below) in accordance with the terms of this Agreement.
4.07. Seller shall pay any reasonable attorneys fees, processing fees
and other fees and expenses contemplated by the terms of the Hospital Lease and
the Partnership Agreement as a condition to the sale of the Seller's Assets to
Purchaser in accordance with the terms hereof and Purchaser shall pay any
reasonable attorneys' fees, processing fees and other fees and expenses
contemplated by the terms of the Hospital Lease and the Partnership Agreement as
a condition to securing consent to the Operations Restructuring.
4.08. Purchaser shall pay any filing fees due with respect to the
transaction evidenced by this Agreement and those other Purchase and Sale
Agreements set forth in Exhibit 4.08 (the "Other Agreements") under the
Antitrust Improvements Act of 1976, as amended (the "HSR Act").
4.09. Seller shall pay 70% of the cost of any repairs or renovations or
other work to the physical plant of the Hospital required to be undertaken by
the State of California in connection with any change of ownership survey which
it may elect to conduct as a condition to its review and, if applicable,
approval of the transaction which is the subject of this Agreement; provided,
however, that in the event the cost thereof, along with the cost of any repairs
or renovations or other work to the physical plant of the facilities which are
the subject of the Other Agreements, exceeds $250,000 (the "Licensure Cost Cap")
Seller shall have the right to terminate this Agreement in lieu of incurring
such costs in excess of the Licensure Cost Cap; and provided, further, that
Purchaser shall have the right to pay such costs in excess of the Licensure Cost
Cap in lieu of permitting Seller to terminate this Agreement.
4.10. Purchaser shall pay any filing or licensure fees due in
connection with the submission of any licensure or Medicare or Medi-Cal
certification applications which it is required to file in order to secure the
approval of the State of California of the transaction which is the subject of
this Agreement under applicable licensure and/or certification laws governing
the operation of the Facilities, as well as the fees and expenses of Davis
Wright Tremaine or any other legal counsel retained or utilized by Purchaser to
assist it with such matters.
4.11. Seller shall pay any reasonable attorneys fees, processing fees
and other fees and expenses contemplated by the terms of that Amended and
Restated Credit Agreement dated September 26, 1995 between Seller and
NationsBank of Texas, N.A. (the "Seller's Credit Agreement"), as a condition to
securing consent to the sale of the Stock and Purchaser shall pay any reasonable
attorneys' fees, processing fees and other fees and expenses contemplated by the
terms of the Credit Agreement dated December 29, 1995 between Regency Health
Services, Inc. and NationsBank of Texas, N.A.
4.12. The management fee due to the Corporation under the Amended
Management Agreement shall be prorated as of the Closing Date, with the Seller
entitled to any fees which relate to services rendered by it prior to the
Closing Date and with Purchaser entitled to any fees which relate to services to
be rendered by it from and after the Closing Date.
ARTICLE V
POSSESSION
On the Closing Date, Purchaser shall be entitled to possession of the
Seller's Assets.
ARTICLE VI
SELLER'S REPRESENTATIONS AND WARRANTIES
Seller hereby warrants and represents to Purchaser that, except as
otherwise specifically set forth in the disclosure letter addressed to Purchaser
and dated the date hereof (the "Seller Disclosure Letter"):
6.01. Status of Seller, the Corporation, the Partnership and the
Guarantor. Seller is a duly organized, validly existing Delaware corporation and
is in good standing under the laws thereof. The Corporation is a duly organized,
validly existing Delaware corporation and is in good standing under the laws
thereof. The Partnership is a duly organized, validly existing Delaware limited
partnership and is in good standing as a foreign limited partnership under the
laws of the State of California. Horizon/CMS Healthcare Corporation ("Horizon")
is a duly organized, validly existing Delaware corporation and is in good
standing under the laws thereof.
6.02. Validity and Conflicts. This Agreement is valid, binding and
enforceable against Seller in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization
other similar laws relating to the enforcement of creditors' rights generally
and by general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law). Subject to Seller obtaining
those Third Party Consents and Regulatory Approvals (as defined below) for which
it is responsible under the terms hereof, the execution of this Agreement and
the consummation of the transactions contemplated herein in accordance with the
terms hereof, including, but not limited to the consummation prior to Closing of
the Operations Restructure, will not result in a breach of the terms and
conditions of nor constitute a default under or violation of Seller's Articles
of Incorporation or Bylaws or any law, regulation, court order, mortgage, note,
bond, indenture, agreement, license or other instrument or obligation to which
Seller is now a party or by which any of Seller's Assets, the Hospital, the
Clinics (as defined below), the Corporation's Assets or the Partnership may be
bound or affected or any agreement, option, understanding or commitment or any
privilege granted by Seller, the Corporation or the Partnership to any other
party to purchase or otherwise acquire the Seller's Assets, the Corporation's or
the Partnership's Assets (as defined below) or result in the acceleration of or
an increase in the interest rate payable under any indebtedness to which Seller,
the Corporation or the Partnership is a party other than indebtedness of Seller
which does not relate to the Hospital or the Clinics or indebtedness which is to
be discharged by Seller or the Corporation as of the Closing Date.
6.03. Authority. Subject to Seller obtaining those Third Party Consents
and Regulatory Approvals for which it is responsible under the terms hereof,
Seller has full corporate power and authority to execute and to deliver this
Agreement and all related documents, and to carry out the transactions
contemplated herein and therein. Seller further has full power and authority (i)
to own the Seller's Assets and (ii) to conduct its business as the same is now
being conducted. Seller further represents and warrants that (A) the Corporation
has full power and authority (i) to own the Corporation's Assets and (ii) to
lease the Hospital and the Clinics, to manage the operations thereof and to
conduct its business as the same is now being conducted and (B) the Partnership
has full power and authority (i) to lease or sublease and operate the Hospital
and the Clinics and (ii) to conduct its business as the same is now being
conducted.
6.04. The Financials. True and correct copies of an unaudited balance
sheet and statement of operations of the Corporation as of the close of Seller's
fiscal year ended May 31, 1996, and for the four month period ended September
30, 1996 (the "Company Financials") and of the Partnership with respect to the
Partnership's operation of the Hospital and the Clinics for the Partnership's
fiscal year ended May 31, 1996 and for the four month period ended September 30,
1996 (the "Partnership Financials" and together with the "Company Financials,"
the "Financials") are attached hereto as Exhibit 6.04. All such financial
statements fairly represent the financial condition, and accurately set forth in
all material respects as and to the extent required by GAAP the results of the
operations of the Corporation and of the Partnership at the Hospital and the
Clinics for the periods covered thereby subject to customary year end
adjustments. All of the accounts receivable reflected on the Partnership
Financials (less any allowances for doubtful accounts and contractual allowances
reflected therein) are collectible in the ordinary course of the business of the
Partnership. Any financial statements prepared by the Corporation or by the
Partnership subsequent to the date of the Financials or the date hereof will be
prepared in a manner consistent with the manner in which the Financials were
prepared, will fairly represent the financial condition, and will accurately set
forth in all material respects the results of the operations of the Corporation
and of the Partnership at the Hospital and the Clinics for the periods covered
thereby and will be provided to Purchaser within ten (10) days after the
completion thereof.
6.05. Absence of Adverse Change. Since the date of the Financials
there has not been any material adverse change in the financial condition,
business, assets, liabilities or results of operations of the Hospital or
the Clinics.
6.06. The Assets of the Corporation. As of the Closing Date, the
assets of the Corporation shall consist of the following (collectively, the
"Corporation's Assets"):
(a) The Hospital Lease (which Hospital Lease has been amended by First
Amendment dated September 13, 1990, Second Amendment dated January 31,
1991, Third Amendment dated January 1, 1992 and Fourth Amendment dated
December 31, 1994), including, but not limited to, the Corporation's
leasehold right, title and interest in and to:
(i) The real property situated in the State of California and
more particularly described in Exhibit 6.06(a)(i) (the "Hospital Real
Property") and the improvements thereon that comprise the Hospital.
(ii) All equipment, furniture and fixtures located on or used
in connection with the operation of the Hospital Real Property leased
by the Corporation either under the terms of the Hospital Lease or
under those contracts and commitments described in Exhibit 6.06(a)(ii)
(the "Leased Hospital Personal Property"), which Leased Hospital
Personal Property is more fully described in Exhibit 6.06(a)(ii).
(iii) All rights of first refusal, extension rights, and
purchase options set forth in the Hospital Lease.
(b) That Lease Agreement dated September 5, 1991 between First Herndon
Properties, as lessor, and the Partnership, as lessee (the "Fresno
Clinic Lease"), including, but not limited to, the Corporation's
leasehold right, title and interest in and to:
(i) The real property leased by the Corporation under the
terms of the Fresno Clinic Lease and situated in the State of
California and more particularly described or shown in Exhibit 6.06
(b)(i) (the "Fresno Clinic Real Property") and the improvements thereon
that comprise the outpatient clinic commonly known as CMS WorkAble of
Fresno/Outpatient Clinic (the "Fresno Clinic").
(ii) All equipment, furniture and fixtures located on or used
in connection with the operation of the Fresno Clinic Real Property
leased by the Corporation either under the Fresno Clinic Lease or under
those contracts and commitments described in Exhibit 6.06(f) (the
"Leased Fresno Clinic Personal Property"), which Leased Fresno Clinic
Personal Property is more fully described in Exhibit 6.06(b)(ii).
(iii) All rights of first refusal, extension rights, and
purchase options set forth in the Fresno Clinic Lease. (c) That Lease
Agreement dated June 1, 1994 between Chapel Hill Medical Center, as
lessor, and the Corporation, as lessee as amended by First Amendment
dated June 1, 1995 and by Second Amendment dated [June 1, 1996] (the
"Chapel Hill Clinic Lease" and together with the Fresno Clinic Lease,
the "Clinic Leases" and together with the Hospital Lease, the
"Leases"), including, but not limited to, the Corporation's leasehold
right title and interest in and to:
(i) The real property leased by the Corporation under the
terms of the Chapel Hill Clinic Lease and situated in the State of
California and more particularly described or shown in Exhibit
6.06(c)(i) (the "Chapel Hill Clinic Real Property" and together with
the Fresno Clinic Real Property, the "Clinic Real Property", and
together with the Hospital Real Property, the "Real Property") and the
improvements thereon that comprise the outpatient clinic commonly known
as Chapel Hill Rehab Center (the "Chapel Hill Clinic" and together with
the Fresno Clinic, the "Clinics").
(ii) All equipment, furniture and fixtures located on or used
in connection with the operation of the Chapel Hill Clinic Real
Property leased by the Corporation either under the Chapel Hill Clinic
Lease or under those contracts and commitments described in Exhibit
6.06(f) (the "Leased Chapel Hill Clinic Personal Property" and together
with the Leased Fresno Clinic Personal Property, the "Leased Clinic
Personal Property" and together with the Leased Hospital Personal
Property, the "Leased Personal Property"), which Leased Chapel Hill
Clinic Personal Property is more fully described in Exhibit
6.06(c)(ii).
(iii) All rights of first refusal, extension rights, and
purchase options set forth in the Chapel Hill Clinic Lease.
(d) The Corporation's stock record books, tax returns and minute
books.
(e) All of the Corporation's right, title and interest in and to
the Partnership Note.
(f) All of the Corporation's right, title and interest in
and to and obligations under the Amended Management Agreement.
(g) All of the Corporation's right, title and interest in and to
and obligations, if any, under the Hospital Sublease and the Clinic Subleases.
(h) That one percent general partnership interest and that sixty nine
percent limited partnership interest in the Partnership (the
"Partnership Interests").
6.07. The Corporation's Liabilities. As of the Closing Date, the
liabilities of the Corporation shall include only the following (the
"Corporation Liabilities"):
(a) The liability to make the lease and other payments and to perform
any other obligations under the Leases which relate to the periods on
and after the Closing Date;
(b) The liability to make the equipment lease payments under the
equipment leases listed on Exhibit 6.06(f) (the "Equipment Leases")
which relate to the periods on and after the Closing Date;
(c) The liability to perform the obligations imposed on it under
the Amended Management Agreement;
(d) The liability to pay when due the Accrued Benefits (as defined
below); and
(e) The obligations of the Corporation under the Corporation Note.
6.08. The Partnership's Assets and Liabilities. As of the Closing
Date the assets and liabilities of the Partnership shall be limited to the
following:
(a) All of the Partnership's right, title and interest in
and to and obligations under the Hospital Sublease;
(b) All of the Partnership's right, title and interest in and to
and obligations under the Clinic Subleases;
(c) All of the Partnership's right, title and interest in
and to and obligations under the Amended Management Agreement;
(d) All of the Partnership's right, title and interest in
and to and obligations under the Partnership Note.
(e) The Partnership Licenses (as defined below).
(f) All of the costs and expenses associated with the day to
day operation of the Hospital and the Clinics.
(g) The provider agreements between the Partnership and the United
States Department of Health and Human Services with respect to the
Medicare reimbursement for services provided at the Hospital and the
Clinics and with the California Department of Health Services with
respect to the Medi-Cal reimbursement for the services provided at the
Hospital and the Clinics.
(h) The inventory, including linens, dietary supplies and housekeeping
supplies, food and other consumable inventories located at, or usable
in the operation of, the Hospital and the Clinics (the "Consumables").
(i) The furniture, fixtures, equipment and vehicles owned by the
Partnership and located on the Real Property or in the Hospital or the
Clinics which is not the property of the lessors under the terms of the
Hospital Lease, the Clinic Leases or any other lease described in
Exhibit 6.08(j), as applicable, (the "Owned Personal Property") and
which Owned Personal Property is more fully described in Exhibit
6.08(i).
(j) All patient medical records, employment records, medical staff
rosters and files and other intangible personal property owned by the
Partnership relating to the Hospital and the Clinics and all rights of
the Partnership in and to (i) those contracts and commitments relating
to the Hospital and the Clinics as listed on Exhibit 6.08(j), true and
correct copies of which contracts have been provided to Purchaser by
Seller as of the date hereof and (ii) the permits and licenses used or
held for use by the Partnership in the operation of the Hospital and
the Clinics (the "Records and Rights").
(k) All of the Partnership's right, title and interest in and to the
trade names "San Joaquin Valley Rehabilitation Hospital" and "Chapel
Hill Rehab Center" and all other trade names used exclusively at the
Hospital or the Clinics and not used generally by Seller at its
hospitals (the "Trade Names").
(l) The liability to make the payment due under purchase orders placed
by the Partnership in the ordinary course of business but which are
open as of the Closing Date for inventory and supplies to be delivered
after the Closing Date;
6.09. The Licenses. The Partnership has all material licenses, permits
and authorizations necessary for the lawful leasing and operation of the
Hospital as a free standing rehabilitation hospital and the Clinics as
outpatient clinics, it being understood and agreed that Seller has represented
and does hereby represent to Purchaser that the Clinics are not required to be
separately licensed but are operated under the Licenses issued to the
Partnership in connection with its operation of the Hospital ( the "Partnership
Licenses"). True and correct copies of all of the Partnership Licenses are
attached hereto as Exhibit 6.09. Neither Seller nor the Partnership has received
written or verbal notice of (A) any action or proceeding which has been
initiated or is proposed to be initiated by the appropriate state or federal
agency having jurisdiction thereof, to (i) revoke, withdraw or suspend any of
the Partnership Licenses, (ii) terminate the participation of the Hospital or
the Clinics in either the Medicare or Medi-Cal Programs or the Joint Commission
on the Accreditation of Health Care Organizations (the "JCAHO") or the
Commission for the Accreditation of Rehabilitation Facilities ("CARF")
accreditation of the Hospital or any of the Clinics (to the extent it or they
are certified to participate therein), (B) any judicial or administrative agency
judgement or decision not to renew any of the Seller Licenses, (C) any action to
limit or ban admissions to the Hospital or the Clinics or (D) any licensure or
certification action of any other type, which would have a material adverse
effect on the business, assets or financial condition of the Hospital or the
Clinics.
6.10. Compliance with Law.
(a) The Hospital and the Clinics and their current operation and use
are in substantial compliance with all applicable health and safety laws,
regulations, ordinances, standards and orders issued by any municipal, county,
state or federal agency having authority over the Hospital and the Clinics and
with all municipal health, building and zoning laws and regulations (including,
without limitation, the building, zoning and life safety codes) where the
failure to comply therewith would have a material adverse effect on the
business, property, condition (financial or otherwise) or operation thereof and
there are no outstanding cited deficiencies or work orders issued to Seller, the
Corporation or the Partnership under any of the foregoing which have not been
corrected as of the date hereof or which will not be corrected as of the Closing
Date;
(b) Set forth in Exhibit 6.10(b) is a list of the most recent licensure
and Medicare and, if applicable, Medi-Cal certification survey and the results
of any complaint investigations conducted within the last six months for the
Hospital and the Clinics, copies of which have been made available to Purchaser
as of the date hereof. Seller has no knowledge, based on the results of Hospital
or Clinic surveys or complaint investigations provided verbally or in writing to
the Hospital or the Clinics by the applicable supervising agency or authority
and after due inquiry of the Chief Executive Officer of the Hospital, that the
Hospital or the Clinics, if and to the extent the same are currently
participating in the Medicare or Medi-Cal Programs, are not in substantial
compliance with all Conditions and Standards of Participation in the Medicare
and Medi-Cal Programs nor has Seller, the Corporation or the Partnership
received written or, to the best of Seller's knowledge, verbal notice from any
licensing or certifying agency requiring any or all of them to be physically
reworked or redesigned or to add furniture, fixtures, equipment or inventory so
as to conform to or comply with any existing licensure or Medicare or Medi-Cal
certification law, code or standard except where the requirement either (i) has
been fully satisfied prior to the date hereof, (ii) will be satisfied prior to
the Closing Date, (iii) will be in the process of being satisfied in the
ordinary course of business pursuant to the terms of a Plan of Correction or
other documentation submitted to and approved by the appropriate authority or
(iv) will be the subject of a valid written waiver issued by the applicable
licensing or certifying agency;
(c) Set forth in Exhibit 6.10(c) is a list of the most recent JCAHO and
CARF surveys conducted at the Hospital and, if applicable, the Clinics, and the
dates of any correspondence from or to Seller, the Corporation or the
Partnership and the JCAHO or CARF with respect to the correction of any
deficiencies identified in said survey, true and correct copies of which have
been made available to Purchaser as of the date hereof. The Hospital is duly
accredited by the JCAHO and by CARF, without contingencies except such
contingencies reflected in the surveys or correspondence described in Exhibit
6.10(c). Except as reflected in the surveys or correspondence described in
Exhibit 6.10(c), the Corporation has made or caused to be made on behalf of the
Partnership, the Hospital and the Clinics all proper filings required by JCAHO
and CARF. None of Seller, the Corporation or the Partnership has received
written or, to the best of Seller's knowledge after due inquiry of the Chief
Executive Officer of the Hospital, verbal notice from JCAHO or CARF requiring
the Hospital and/or the Clinics to be reworked or redesigned or to add
furniture, fixtures, equipment or inventory so as to retain such accreditation
except where the requirement either (i) has been fully satisfied prior to the
date hereof, (ii) will be satisfied prior to the Closing Date, (iii) will be in
the process of being satisfied in the ordinary course of business pursuant to
the terms of a Plan of Correction or other documentation submitted to and
approved by the appropriate authority or (iv) will be the subject of a valid
written waiver issued by JCAHO or CARF. Neither the Hospitals nor the Clinics
participates in any accreditation programs other than that offered by the JCAHO
and by CARF.
(d) There are no pending or, to the best of Seller's knowledge after
due inquiry of the Chief Executive Officer of the Hospital, threatened
investigations of or claims by any governmental agency or instrumentality
against (i) the Hospital or the Clinics, (ii) any of the members of the medical
staff, the Board of Directors or employees of the Hospital or the Clinics.
6.11. Patients. There are no agreements not terminable at will with
patients or prospective patients of the Hospital or the Clinics which provide
for the provision of the care routinely provided at the Hospital or the Clinics
for no consideration nor will Seller, the Corporation or the Partnership enter
into any such agreements between the date hereof and the Closing Date.
6.12. Books and Records. To the best of Seller's knowledge after due
inquiry of the Chief Executive Officer and Medical Director of the Hospital, all
of the books and records of the Hospital and the Clinics, including patient
records, are true and correct in all material respects.
6.13. Title. As of the Closing Date, (i) Seller will own the Seller's
Assets, (ii) the Corporation will own or, in the case of the Leases and the
Equipment subject to the contracts listed in Exhibit 6.06(a)(ii), lease all of
the Corporation's Assets, and (iii) the Partnership will own or, in the case of
the Hospital Sublease, the Clinic Sublease and the contracts listed in Exhibit
6.08(j), lease all of the Partnership Assets free and clear in each instance of
all liens and encumbrances, other than the liens described in Exhibit 6.13 (the
"Permitted Encumbrances"). Neither Seller, the Corporation nor the Partnership
has received notice of any pending or threatened condemnation proceedings with
respect to the Real Property. Seller has good and marketable title to the Stock
and, at Closing Seller will have good and marketable title to the Corporation
Note, in each case free and clear of all liens, charges and encumbrances.
6.14. Unions. There are no union contracts in effect between the
Partnership, which, as of the date hereof, is the employer of the Facility
employees, on the one hand, and the employees of the Hospital or the Clinics, on
the other hand. To the best of Seller's knowledge, none of the Partnership's
employees who are not currently members of a labor union in connection with
their work at the Hospital or the Clinics are actively seeking the formation of
a labor union at the Hospital or the Clinics. In connection with the Operations
Restructuring, all of the Partnership's employees shall be terminated by the
Partnership prior to Closing and concurrently therewith re-hired by the
Corporation. Neither Seller, the Corporation nor the Partnership is a party to
any labor dispute, it being agreed that a claim for wrongful termination shall
not, for purposes of this Paragraph 6.14 be deemed to be a labor dispute.
Neither Seller, the Corporation nor the Partnership is a party to any union
contracts with respect to the Hospital or the Clinics.
6.15. Taxes and Tax Returns. All tax and other related returns, reports
and filings of any kind or nature, required to be filed prior to date of
execution of this Agreement by Seller with respect to the Seller's Assets, by
the Corporation, with respect to those of the Corporation's Assets which are
currently owned by the Corporation or by the Partnership with respect to those
of the Corporation's Assets which are currently owned by the Partnership and/or
with respect to its operations at the Hospital and the Clinics have been
properly completed and timely filed, or extensions for the filing thereof have
been timely secured, with all such filings being in material compliance with all
applicable requirements and all taxes due with respect to the foregoing have
been timely paid, except to the extent that the same are being duly contested in
good faith in accordance with applicable law and adequate reserves therefor are
reflected on the Company Financials or the Partnership Financials, as
applicable, or will be reflected in any subsequent financials prepared in
accordance with the representations and warranties contained in this Agreement.
6.16. Environmental Issues.
(a) Except in accordance, and in compliance, with any and all
applicable local, state and federal governmental laws, regulations and
requirements (collectively, the "Environmental Laws") relating to environmental
and occupational health and safety matters, and hazardous materials, substances
or wastes (as defined under any applicable Environmental Laws), the Seller, the
Company and the Partnership have (i) not released into the environment or
discharged, placed or disposed of any such hazardous materials, substances or
wastes or caused the same to be so released into the environment or discharged,
placed or disposed of at, on or under the Hospital or the Clinics other than to
the extent the same will not have a material adverse affect on the condition,
financial or otherwise, of the Hospital or the Clinics, (ii) not installed any
underground storage tanks and (iii) at all times operated the Hospital and the
Clinics in compliance with all Environmental Laws, except where the failure to
so comply would not have a material adverse affect on the condition, financial
or otherwise, of the Hospital or the Clinics. Seller further represents and
warrants that there is an underground storage tank located on the Hospital Real
Property for which Seller has secured a permit as required by law, a copy of
which is included in Exhibit 6.09.
(b) With respect to the Hospital and the Clinics prior to the date of
the Partnership's ownership or leasing thereof, to the best of Seller's
knowledge after due inquiry of the Director of Plant Operations at the Hospital,
(i) except to the extent permitted by applicable Environmental Laws, no
hazardous materials, substances or wastes were located on or at the Hospital or
the Clinics or were released into the environment or discharged, placed or
disposed of in, on or under the Hospital or the Clinics, (ii) except to the
extent permitted by applicable Environmental Laws, no underground storage tanks
are or were located at the Hospital or the Clinics, (iii) none of the Hospital
or the Clinics are located on property which was used as a dump for waste
material, and (iv) the Hospital and the Clinics have at all times complied with,
all Environmental Laws, except to the extent in each of the foregoing clauses
(i) through (iv) that any such non-compliance would not have a material adverse
effect on the Hospital or the Clinics. Seller has not received any written
notice from any governmental authority or any written complaint from any third
party with respect to its alleged noncompliance with, or potential liability
under, any Environmental Laws at the Hospital or the Clinics which remains
unresolved as of the date hereof.
(c) Seller will use its reasonable efforts to provide to Purchaser any
written assessments prepared by or on behalf of Seller concerning the hazardous
waste conditions at the Hospital or the Clinics which are currently in the
possession of Seller.
6.17. Necessary Action. Seller has duly and properly taken or obtained
or caused to be taken or obtained, or prior to Closing will have duly and
properly taken or obtained or caused to be taken or obtained, all action
necessary for Seller (i) to enter into and to deliver this Agreement and any and
all documents and agreements executed by Seller in connection herewith or in
furtherance hereof and (ii) to carry out the terms hereof and thereof and the
transaction contemplated herein and therein, including, but not limited to the
Operations Restructuring, which action shall include, but not be limited to,
obtaining the Third Party Consents and Regulatory Approvals for which Seller is
responsible hereunder. No other action by or on behalf of Seller is or will be
necessary to authorize the execution, delivery and performance of this Agreement
and any documents and agreements executed by Seller in connection herewith or
consummation of the transactions contemplated herein, other than securing those
Third Party Consents and Regulatory Approvals (as those terms are defined below)
for which Seller is responsible under the terms hereof. Seller represents and
warrants that as of the date of execution of this Agreement, it has secured the
consent of its Board of Directors and of the Board of Directors of Horizon to
the execution of this Agreement and of any documents and agreements necessary to
carry out the terms hereof and for the consummation of the transactions
contemplated by this Agreement. Nothing herein shall be construed as a guarantee
by Seller that it will be able to secure the Third Party Consents or Regulatory
Approvals for which it is responsible, but rather this paragraph shall be
limited to Seller's representation and warranty that it will use its best
efforts to secure such Third Party Consents and Regulatory Approvals, subject to
the limitation on the costs which Seller must incur in obtaining such consents
being limited in the manner set forth in Paragraph 4.09.
6.18. Litigation. Except as set forth in Exhibit 6.18, there is no, nor
has Seller, the Corporation or the Partnership, received written or verbal
notice of any, litigation, administrative investigation or other proceeding
pending or, to the best of Seller's knowledge based on written notice with
respect thereto, threatened by any governmental authority having jurisdiction
over Seller (with respect to the Hospital and the Clinics only), the
Corporation, the Partnership, the Hospital or the Clinics or by any other party
(A) where the amount claimed exceeds $50,000 in any single action or $100,000 in
the aggregate or (B) which seeks to challenge Seller's title to the Seller's
Assets, the Partnership's title to the Partnership Assets or Seller's right or
ability to consummate the transaction provided for herein, including but not
limited to the Operations Restructuring. None of the Seller, the Corporation nor
the Partnership is a party to nor is Seller, the Corporation, the Partnership,
the Hospital or either of the Clinics bound by any orders, judgments,
injunctions, decrees or settlement agreements under which it may have continuing
obligations as of the date hereof or as of the Closing Date and which are likely
to materially restrict or affect the present business operations of the Hospital
or the Clinics. The right or ability of Seller to consummate the transaction
contemplated herein, including, but not limited to, the Operations
Restructuring, has not been challenged by any governmental agency or any other
person and Seller has no knowledge of the occurrence of any event which would
provide a reasonable basis for any such litigation, investigation or other
proceeding.
6.19. Sensitive Payments. Seller has no reason to believe that it or
the Partnership has (i) made any contributions, payments or gifts to or for the
private use of any governmental official, employee or agent where either the
payment or the purpose of such contribution, payment or gift is illegal under
the laws of the United States or the jurisdiction in which made, (ii)
established or maintained any unrecorded fund or asset for any purpose or made
any false or artificial entries on its books, (iii) given or received any
payments or other forms of remuneration in connection with the referral of
patients which would violate the Medicare/Medicaid Anti-kickback Law, Section
1128(b) of the Social Security Act, 42 USC Section 1320a-7b(b) or any analogous
state statute or (iv) made any payments to any person with the intention or
understanding that any part of such payment was to be used for any purpose other
than that described in the documents supporting the payment. Seller has not
filed any reports on behalf of itself or the Corporation and the Corporation has
not filed any reports on behalf of itself or in the name of the Partnership with
any governmental agency which disclose that it has participated in any of the
foregoing practices or acts giving rise to such practices.
6.20. The Hospital and the Clinics. The Partnership is duly licensed to
operate the Hospital with 30 acute rehabilitation beds which are licensed under
California law as general acute care beds and 32 skilled nursing facility beds
and to operate the Clinics under the license issued to it for the Hospital and
is duly certified to participate in the Medicare Program and, to the extent the
Partnership has elected to participate therein, is duly certified to participate
in the Medi-Cal Program with respect to its operations at the Hospital. The
Hospital and the Clinics are in good operating condition and repair and
substantially all of the Personal Property and all of the major mechanical
systems located at or used in connection with the operation of the Hospital and
the Clinics are in good working order, condition and repair. The roofs of the
Hospital and the Clinics do not leak. The Personal Property is all of the
property necessary for the lawful operation of the Hospital at its current
occupancy levels and of the Clinics in the manner currently operated by the
Partnership. Seller has provided to Purchaser a true and correct copy of that
annual inspection report dated June 3, 1996 prepared by San Joaquin Health Care
Associates Limited Partnership with respect to those repairs which it has
advised Seller are required to be made by the Partnership under the terms of the
Hospital Lease.
6.21 Inventories. At Closing, each of the Hospital and the Clinics
shall have an inventory of non-perishable food, central supplies, linens,
housekeeping supplies, kitchen supplies, nursing supplies and other supplies,
which will be sufficient in condition and quantity to operate each of the
Hospital and the Clinics at its normal capacity and an inventory of perishable
food at the levels normally maintained by the Partnership at the Hospital.
6.22. Trade Names. Set forth in Exhibit 6.22 is a true and complete
list of the trade names under which the Partnership is, as of the date hereof,
doing business at the Hospital and the Clinics. Seller has not sought on its own
behalf or on behalf of the Corporation or the Partnership protection for such
names under state or federal trademark or trade name laws except to the extent
reflected in Exhibit 6.22. None of the Seller, the Corporation nor the
Partnership has received any notice from any person challenging or questioning
the right of the Partnership to use any such trade names.
6.23. Employees/ERISA.
(a) Set forth in Exhibit 6.23 is an accurate and complete list of all
bonus, deferred compensation, hospitalization or other medical, pension, life or
other insurance, profit sharing, sick leave, vacation, post retirement health or
life benefit, and any other employee benefit plans (as such term is defined in
Section 3 of the Employee Retirement Insurance Security Act ("ERISA"),
arrangement or practice, whether formal or informal, written or not, of Seller,
the Corporation or the Partnership which relate to the Hospital and the Clinics
or to any current or former employees at or of the Hospital and the Clinics (the
"Plan" or "Plans"). Except as set forth in Exhibit 6.23 and except for stock
purchase and stock options programs administered by Horizon and for which
Purchaser shall have no liability after Closing, neither Seller nor the
Partnership has made any commitment or representation to the current or former
employees of the Hospital and the Clinics to establish any additional Plan,
arrangement or practice or to modify or change any existing Plan, arrangement or
practice. Exhibit 6.23 also lists all employees of the Hospital and the Clinics
as of the date of this Agreement together with their positions and rates of pay
and earned and accrued vacation time, sick leave and holiday pay as of the date
specified therein, which date shall be the most recent date to which such
information is available to Seller.
(b) Set forth in Exhibit 6.23 is a true and correct copy of all
employment contracts between Seller, the Corporation or the Partnership and any
employee of the Hospital or the Clinics. Except as otherwise set forth in
Exhibit 6.23 all such contracts are terminable by Seller, the Corporation or the
Partnership, as applicable, prior to the Closing Date and, in the case of those
contracts listed in Exhibit 6.23A, will be terminated by Seller, the Corporation
or the Partnership, as applicable, prior to the Closing Date if so requested by
Purchaser.
6.24. Operating Contracts. Set forth in Exhibit 6.06(f) is a true and
correct list of all supply, licensing and operating contracts, equipment leases,
contracts with affiliates of Seller, the Corporation or the Partnership,
transfer agreements, contracts for or other evidences of indebtedness (other
than indebtedness to be discharged or released at Closing), security agreements
and other contracts and agreements, including without limitation, all provider
agreements with any third party payors and consulting and service contracts to
which Seller, the Corporation or the Partnership is a party in connection with
the operations at the Hospital and the Clinics (the "Operating Contracts").
Seller has provided Purchaser with a true and correct copy of each of the
Operating Contracts. Each of the Operating Contracts is in full force and effect
and none of the Operating Contracts has been modified or amended except as set
forth in Exhibit 6.06(f). None of Seller, the Corporation or the Partnership, as
applicable, is in default of any of its obligations under the Operating
Contracts nor is Seller aware of any default or any action or omission which,
with the passage of time or the giving of notice or both, would constitute a
default under the Operating Contracts by any other party thereto. Purchaser
acknowledges and agrees that Seller shall not be in default of its obligations
under this Paragraph 6.24 in the event Exhibit 6.06(f) fails to list or Seller
fails to provide to Purchaser any Operating Contracts where the payments
remaining due thereunder are less than $25,000.
6.25. The Leases. True and correct copies of the Leases have been
provided by Seller to Purchaser. The Leases remain in full force and effect and
have not been amended or modified except as set forth in Paragraph 6.06. None of
Seller, the Corporation nor the Partnership has received from the landlord under
any of the Leases any written notice that it is in default of its obligations
under the Leases or that any guarantor thereof is in default of its obligations
under any Guaranty delivered in conjunction therewith nor does Seller have
knowledge after inquiry of the Chief Executive Officer of the Hospital of any
events which, with the passage of time or the giving of notice, would constitute
a material default thereunder. Except as set forth in the Clinic Leases with
respect to any common areas, the Partnership enjoys exclusive, peaceful and
undisturbed possession under all real and personal property leases to which it
is a party in connection with the Hospital and the Clinics, including, but not
limited to, under the Leases. Except as set forth in Exhibit 6.25, there are no
security deposits posted with respect to the Leases.
6.26. Physician Contracts. Exhibit 6.06(f) lists each contract between
the Seller, the Corporation, or the Partnership and the physicians providing
services to the patients of the Hospital or the Clinics, including contracts
with any entity owned or controlled by any such physicians, true and correct
copies of which have been provided to Purchaser. Seller represents and warrants
that none of Seller, the Corporation or the Partnership, has received any notice
that any state or federal agency or any other party believes or is attempting to
determine whether any violation exists under any such physician contracts
relating to the requirements of State and federal law governing physician self
referral and "kickbacks" including but not limited to the provisions of "Stark
II" and the federal fraud and abuse laws.
6.27. Medical Staff. Attached hereto as Exhibit 6.27 is a true and
correct copy of the medical staff roster for the Hospital and the Clinics.
Seller has made available to Purchaser a copy of the medical staff bylaws
currently in effect with respect to the Hospital and the Clinics, including any
and all current amendments and modifications thereto.
6.28. Cost Reports. Either Seller, the Corporation or the Partnership
has filed when due all cost reports and other reports required to be filed with
respect to each of the Hospital and the Clinics as of the date hereof under the
Medicare and Medi-Cal Programs. Neither Seller nor the Partnership is required
to file cost reports under any other third party payor and other reimbursement
programs in which the Hospital and the Clinics participate. Seller has no
knowledge that all such reports have not been prepared and filed in compliance
with all applicable rules and regulations. Attached hereto as Exhibit 6.28 is a
list of all such reports which have been filed by Seller, the Corporation or the
Partnership, during the last three years, true and correct copies of which have
been provided to Purchaser.
6.29. Reimbursement. The Hospital is treated under the Medicare Program
for reimbursement purposes as a free standing rehabilitation hospital with a
skilled nursing facility unit and the Clinics are treated under the Medicare
Program for reimbursement purposes as part of the Hospital's outpatient
rehabilitation department. None of Seller, the Corporation, nor the Partnership
has received any written or verbal notice from Medicare or its fiscal
intermediary threatening or challenging the status of the Hospital and the
Clinics for reimbursement purposes as a free standing rehabilitation hospital or
from any third party payor, including Medicare and Medi-Cal, with respect to any
proposed recoupment claim or any other proposed investigation, audit or
reimbursement dispute with respect to the Hospital or the Clinics or which could
adversely affect the Partnership's operations at the Hospital or the Clinics or
the continued licensure or certification thereof.
6.30. PRO Denials. Set forth in Exhibit 6.30 is a list of all of the
Peer Review Organization denials which to the best of Seller's knowledge after
inquiry of the Chief Executive Officer of the Hospital, Seller, the Corporation
and the Partnership have received with respect to the operations at the Hospital
and the Clinics during the last three years, including a description of the
basis therefor, and of the action, if any, taken by Seller, the Corporation or
the Partnership to appeal the same and the status and/or outcome of any such
appeals.
6.31. Insurance. Set forth in Exhibit 6.31 is a list of all insurance
policies held by Seller, the Corporation and the Partnership with respect to the
Hospital, the Clinics and the other Corporation Assets and Partnership Assets
and in effect as of the date of this Agreement, including the types of coverage
and amounts thereof and the amount of deductibles thereunder. Seller has
provided to Purchaser true and correct certificates evidencing such insurance as
well as copies of the current property, professional liability and workers
compensation insurance policies in effect with respect to the Hospital and the
Clinics. All monthly premium installments due with respect to all of such
insurance policies have been paid in full through the date of this Agreement and
will continue to be paid as and when due between the date of this Agreement and
the Closing Date.
6.32. Hill Burton. Neither Seller, the Corporation nor the Partnership
has any liability under the Hill Burton Program and Purchaser will have no
liability or obligation, as a transferee of Seller or otherwise, under the Hill
Burton Program as a result of the transaction contemplated by this Agreement.
6.33. The Partnership Agreement/The Management Agreement. True and
correct copies of the Partnership's Partnership Agreement (the "Partnership
Agreement") and the Existing Management Agreement have been provided by Seller
to Purchaser. Each of the Partnership Agreement and the Existing Management
Agreement is in full force and effect as of the date hereof and has not been
amended or modified except as reflected in Exhibit 6.33. Seller is not in
default of its obligations under the Existing Management Agreement and the
Corporation is not in default of any of its obligations under the Partnership
Agreement nor, to the best of Seller's knowledge after due inquiry of the Chief
Executive Officer of the Hospital, is the other limited partner under the
Partnership Agreement in default of its obligations thereunder. The Partnership
Agreement shall not be amended or modified between the date hereof and the
Closing Date other than with the prior written consent of Purchaser.
6.34. Disclosure. No representation or warranty by or on behalf of
Seller contained in this Agreement, as those representations have been modified
by the terms of Seller's Disclosure Letter, if applicable, contains or will
contain any untrue statement of a material fact, or omits or will omit to state
any material facts which are necessary in order to make the statements contained
herein in light of the circumstances under which they were made, not misleading.
ARTICLE VII
PURCHASER REPRESENTATIONS AND WARRANTIES
Purchaser hereby warrants and represents to Seller that, except as
otherwise specifically set forth in the letter from Purchaser to Seller dated
the date hereof (the "Purchaser Disclosure Letter"):
7.01. Status of Purchaser. Purchaser is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of California. Regency Health Services, Inc. ("Regency") is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware.
7.02. Validity and Conflicts. This Agreement is valid, binding and
enforceable against Purchaser in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
or other similar laws relating to the enforcement of creditors' rights generally
and by general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law). The execution of this
Agreement and the consummation of the transactions contemplated herein have been
approved by the Board of Directors of Purchaser and do not and will not result
in a breach of the terms and conditions of nor constitute a default under or
violation of the Articles of Incorporation or Bylaws of Purchaser, or any law,
regulation, court order, mortgage, note, bond, indenture, agreement, license or
other instrument or obligation to which Purchaser is now a party or by which any
of its assets may be bound or affected, subject, however, to Purchaser obtaining
those Third Party Consents and Regulatory Approvals for which it is responsible
under the terms hereof.
7.03. Authority. Subject to obtaining the Third Party Consents and
Regulatory Approvals which it and/or Seller are required to use their best
efforts to secure, Purchaser has full corporate power and authority to execute
and to deliver this Agreement and all related documents, and to carry out the
transactions contemplated herein and therein. Purchaser further has full power
and authority (i) to own the Interests and (ii) to conduct its business from and
after the Closing Date as the same is now being conducted.
7.04. Necessary Action. Purchaser has duly and properly taken or
obtained or caused to be taken or obtained, or prior to Closing will have duly
and properly taken or obtained or caused to be taken or obtained, all action
necessary for Purchaser (i) to enter into and to deliver this Agreement and any
and all documents and agreements executed by Purchaser in connection herewith or
in furtherance hereof and (ii) to carry out the terms hereof and thereof and the
transactions contemplated herein and therein, which action shall include, but
not be limited to, obtaining the Third Party Consents and Regulatory Approvals
for which Purchaser is responsible hereunder. No other action by or on behalf of
Purchaser is or will be necessary to authorize the execution, delivery and
performance of this Agreement and any documents and agreements executed by
Purchaser in connection herewith or consummation of the transactions
contemplated herein, other than securing those Third Party Consents and
Regulatory Approvals for which Purchaser is responsible under the terms hereof.
Purchaser represents and warrants that as of the date of execution of this
Agreement, it has secured the consent of its Board of Directors and of the Board
of Directors of Regency to the execution of this Agreement and of any documents
and agreements necessary to carry out the terms hereof and for the consummation
of the transactions contemplated by this Agreement. Nothing herein shall be
construed as a guarantee by Purchaser that it will be able to secure the Third
Party Consents or Regulatory Approvals for which it is responsible, but rather
this paragraph shall be limited to Purchaser's representation and warranty that
it will use its best efforts to secure such Third Party Consents and Regulatory
Approvals.
7.05. Litigation. There is no, nor has Purchaser received written or
verbal notice of any, litigation, administrative investigation or other
proceeding pending or, to the best of Seller's knowledge based on written notice
with respect thereto, threatened by any governmental authority having
jurisdiction over Purchaser or by any other party or which challenges
Purchaser's ability to consummate the transaction provided for herein. Purchaser
is not a party to or bound by any orders, judgments, injunctions, decrees or
settlement agreements under which it may have continuing obligations as of the
date hereof or as of the Closing Date and which are likely to materially
restrict or affect the business operations of Purchaser either before or after
the Closing. The right or ability of Purchaser to consummate the transaction
contemplated herein has not been challenged by any governmental agency or any
other person and Purchaser has no knowledge of the occurrence of any event which
would provide a reasonable basis for any such litigation, investigation or other
proceeding.
7.06. Sensitive Payments. Purchaser has no reason to believe that it
has (i) made any contributions, payments or gifts to or for the private use of
any governmental official, employee or agent where either the payment or the
purpose of such contribution, payment or gift is illegal under the laws of the
United States or the jurisdiction in which made, (ii) established or maintained
any unrecorded fund or asset for any purpose or made any false or artificial
entries on its books, (iii) given or received any payments or other forms of
remuneration in connection with the referral of patients which would violate the
Medicare/Medicaid Anti-kickback Law, Section 1128(b) of the Social Security Act,
42 USC Section 1320a-7b(b) or any analogous state statute or (iv) made any
payments to any person with the intention or understanding that any part of such
payment was to be used for any purpose other than that described in the
documents supporting the payment.
7.07. Taxes and Tax Returns. All tax and other related returns, reports
and filings of any kind or nature, required to be filed by Purchaser prior to
date of execution of this Agreement with respect to its operations have been
properly completed and timely filed, or extensions for the filing thereof have
been timely secured, with all such filings being in material compliance with all
applicable requirements and all taxes due with respect to Purchaser's operations
have been timely paid, except to the extent that the same are being duly
contested in good faith in accordance with applicable law and adequate reserves
therefor are reflected on Purchaser's financial statements or will be reflected
in any subsequent financials prepared by Purchaser.
7.08. Disclosure. No representation or warranty by or on behalf of
Purchaser contained in this Agreement, as those representations have been
modified by the terms of Purchaser's Disclosure Letter, if applicable, contains
or will contain any untrue statement of a material fact, or omits or will omit
to state any material facts which are necessary in order to make the statements
contained herein in light of the circumstances under which they were made, not
misleading.
ARTICLE VIII
BROKER
Each party hereby represents, covenants, and warrants to the other that
it has employed no broker or finder in connection with the transaction
contemplated herein. Each party agrees to pay any commission or finder's fee
which may be due on account of the transaction contemplated herein to any other
broker or finder employed by it, and to indemnify the other party hereto against
any claim for any commission or finder's fee made by any other broker allegedly
employed by it and from and against any and all costs and expenses incurred in
connection therewith, including, but not limited to, reasonable attorneys fees
and costs.
ARTICLE IX
SELLER COVENANTS
9.01. Pre-Closing Date. Seller covenants that between the date hereof
and the Closing Date, except as contemplated by this Agreement or with the
consent of Purchaser, which consent shall not be unreasonably withheld,
conditioned or delayed, Seller, the Corporation and the Partnership:
(a) Will operate the Hospital and the Clinics only in the ordinary
course and with due regard to the proper maintenance and repair of any real
property or personal property associated therewith, ordinary wear and tear
excepted;
(b) Will take all reasonable action to preserve the goodwill and the
present occupancy levels of the Hospital and the Clinics, it being understood
and agreed that they shall not be required to undertake any action to preserve
occupancy levels other than continuing to engage in the routine marketing
activities in which they are currently engaged at the Hospital and the Clinics;
(c) Except in conjunction with the Operations Restructuring, will not
make any material change in the operation of the Hospital or the Clinics nor,
except in the ordinary course of business, sell or agree to sell any items of
machinery, equipment or other fixed assets of the Hospital, including but not
limited to assets and equipment used in connection with the operation of the
Hospital or the Clinics nor otherwise enter into any agreements materially
affecting the Hospital or the Clinics;
(d) Will use its reasonable efforts to retain the goodwill of the
employees of, medical staff of or physicians under contract with, Seller, the
Corporation and the Partnership, located at or connected with the operation of
the Hospital and the Clinics and will provide Purchaser with notice in the event
of any union organizing activities or contract negotiations are commenced after
the date hereof;
(e) Will not, except in the ordinary course of business, increase the
compensation or bonuses payable or to become payable to any of the employees
located at or connected with the operation of the Hospital or the Clinics,
including employees located at the Seller's corporate or regional offices who
work exclusively on matters related to the Hospital and the Clinics, or grant
any severance benefits to any such employees other than to the extent such
bonuses or severance payments impose no obligation on Purchaser after the
Closing Date;
(f) Will not enter into any written employment agreements in connection
with the operation of the Hospital or the Clinics other than with physicians in
the ordinary course of business; provided, however, that Seller shall provide
Purchaser with copies of any such physician contracts;
(g) Will not, except in the ordinary course of business, enter into any
contract or commitment affecting any of the Seller's Assets, the Corporation's
Assets or the Partnership's Assets or incur any additional indebtedness or
amend, extend or renew any current debt instruments, whether in the ordinary
course of business or otherwise, nor will Seller declare or pay any dividend or
other distribution with respect to any of the Seller Assets nor pledge the
accounts receivable of Seller as security for any indebtedness or lease
agreements executed, amended or extended by Seller after the date hereof;
provided, however, that nothing herein shall be construed as prohibiting (i)
Seller or the Corporation from incurring inter-company indebtedness to Horizon
and loaning the proceeds thereof to the Partnership or the Corporation or the
Partnership from incurring such indebtedness, (ii) Horizon or the Seller from
incurring debt, the proceeds of which may be made available to Seller, the
Corporation or the Partnership or (iii) Seller, the Corporation or the
Partnership from executing any and all documents necessary to amend any debt
instruments under which Horizon may be the borrower and Seller, the Corporation
or the Partnership a guarantor;
(h) Will, during normal business hours, provide Purchaser and its
agents and employees with access on twenty-four (24) hours notice to the books
and records of Seller (with respect to the Hospital and the Clinics), the
Corporation, the Partnership, the Hospital and the Clinics provided they do not
interfere with the operation thereof;
(i) Will operate the Hospital and the Clinics in substantial compliance
with all applicable municipal, county, state and federal laws, regulations,
ordinances, standards and orders as now in effect (including, without
limitation, the building, zoning and life safety codes as currently applied with
respect thereto) where the failure to comply therewith could have a material
adverse effect on the business, property, condition (financial or otherwise) or
operation thereof;
(j) Will take all reasonable action to achieve substantial compliance
with any laws, regulations, ordinances, standards and orders applicable to the
Hospital and the Clinics which are enacted or issued after execution of this
Agreement and become effective or require compliance prior to the Closing where
the failure to comply therewith could have a material adverse effect on the
business, property, condition (financial or otherwise) or operation thereof;
(k) Will cause the Corporation's Assets and the Partnership's Assets to
be maintained in substantially the same condition as they were in at the date
hereof, ordinary wear and tear, casualty loss and taking by eminent domain
excepted;
(l) Will provide Purchaser with copies of the Corporation's
and the Partnership's monthly financial statements prepared in the ordinary
course of business;
(m) Will provide Purchaser with copies of all licensure or
certification surveys received by Seller (with respect to the Hospital and the
Clinics), the Corporation or the Partnership and the related Plans of Correction
prepared by Seller, the Corporation or the Partnership, as applicable;
(n) Will cause the Partnership to pay as and when due the accounts
payable which arise in the ordinary course of the business of the Hospital and
the Clinics, except to the extent that the amount owing is being duly contested
by Seller, the Corporation or the Partnership and such contest does not
materially affect Seller, the Corporation, the Partnership, the Hospital or the
Clinics;
(o) Will maintain in force the existing insurance coverage with
respect to the Hospital and the Clinics described in Exhibit 6.31;
(p) Will file all returns, reports and filings of any kind or nature,
or to secure timely extensions for the filing thereof, required to be filed by
Seller (with respect to the Seller's Assets, the Hospital and the Clinics), the
Corporation or the Partnership, including, but not limited to, state and federal
tax returns and Medicare and Medicaid cost reports with respect to the Hospital
and the Clinics and will timely pay all taxes or other obligations which are due
and payable with respect thereto, except to the extent that the same are being
duly contested in good faith in accordance with applicable law and such contest
does not materially affect Seller's ability to fulfill its obligations under
this Agreement or to consummate the transaction provided for herein or the
Corporation, the Partnership, the Hospital or the Clinics;
(q) Will provide to Purchaser copies of all material documents which
relate to, and, upon request, with verbal or written updates concerning the
status of, any litigation filed as of the date hereof or filed from and after
the date hereof by or against Seller (with respect to the Hospital and the
Clinics), the Corporation or the Partnership after the date of this Agreement
but prior to the Closing Date where the amount claimed or assessed by management
of Seller as likely to be claimed exceeds $500,000; and
(r) Will not amend or permit the amendment of any of the
Medical Staff Bylaws described in Paragraph 6.27.
(s) Unless specifically prohibited by law, Seller will use its best
efforts to cause all of the conditions to Closing set forth in Paragraphs 12.01
and 12.02 which are within Seller's control to be satisfied prior to the Outside
Closing Date and Seller will not take any action inconsistent with its
obligations under this Agreement or which could hinder or delay the consummation
of the transactions contemplated by this Agreement;
(t) Neither Seller nor any of its officers, directors, advisors or
others authorized to act on its behalf shall directly initiate or solicit
discussions relating to any alternative acquisition proposal or similar
transaction including, without limitation, a merger or other business
combination involving Seller, any of the Seller's Assets, the Corporation's
Assets, the Partnership or the Partnership Assets, or offer to acquire or convey
in any manner, directly or indirectly, all or substantially all of the equity
interests in, the voting securities of Seller, the Seller's Assets, the
Corporation's Assets, the Partnership or the Partnership Assets; provided,
however, that public announcements of the transaction contemplated by this
Agreement shall not be prohibited hereby;
(u) Will proceed with all due diligence to secure the
Regulatory Approvals and Third Party Consents for which it is responsible
under the terms hereof;
(v) Will cooperate with Purchaser, at Purchaser's cost and expense, in
any audits of the results of operations at the Hospital and/or the Clinics which
Purchaser elects to conduct in order to comply with any requirements applicable
to it under the federal securities laws;
(w) Shall, within ten (10) days after Seller's receipt of Purchaser's
title, UCC search and survey objections pursuant to Paragraph 10.01, shall
advise Purchaser whether it intends to correct the defects to which Purchaser
has objected; and
(x) Will take such action as may be necessary to ensure that the assets
and the liabilities of the Corporation on the Closing Date exclude the
following:
(i) The Corporation's cash, cash equivalents and accounts
receivable (the "Cash and Cash Equivalents").
(ii) Any claims which the Corporation may have against third parties
relating to or arising from the acts or omissions of third parties
prior to the Closing (the "Third Party Claims").
(iii) Any refunds to which the Corporation may now or hereafter be
entitled relating to payments by or on behalf of the Corporation prior
to the Closing including, without limitation, any federal, state, local
or foreign taxes paid by the Corporation prior to the Closing Date (the
"Refunds").
(iv) The bank accounts of the Corporation (the "Bank Accounts").
(v) The items owned by the Corporation and listed on Exhibit 9.02
(x)(v);
(vi) All computer hardware and software relating to the wide area
network of Horizon used by the Corporation or the Partnership for the
operation of the general ledger and accounts payable software
applications, which computer hardware and software is more fully
described in Exhibit 9.02(x)(vi) (the "GL/AP Hardware and Software");
(vii) Subject to the provisions of Paragraph 9.03(e), the Corporation's
rights and interests in and to proprietary materials, programs,
manuals, promotional materials and other intangibles owned or developed
by Seller and used by the Corporation or the Partnership in connection
with the operations at the Hospital and/or the Clinics.
(y) Will proceed with all due diligence to cause the Operations
Restructuring to be completed as of the Closing Date pursuant to the terms of
documents, including, but not limited to, the Assignment of the Hospital Lease,
the Assignment of the Clinic Leases, the Hospital Sublease, the Clinic Subleases
and the Amended Management Agreement, in form and substance reasonably
acceptable to Seller and Purchaser.
9.02. Closing Date. On the Closing Date, Seller will deliver the
following to Purchaser or to a designated escrow agent in accordance with any
written escrow instructions executed by Seller and Purchaser:
(a) The Benefits Schedule (as defined in Paragraph 14.01).
(b) A certificate of Seller dated as of the Closing Date, certifying on
behalf of Seller in such detail as Purchaser may reasonably specify the
fulfillment of the conditions set forth in Paragraphs 12.02 (a) and (b) and
setting forth the incumbency of the officers executing documents on behalf of
Seller, a copy of the resolutions adopted by Seller's Board of Directors
authorizing the transaction provided for herein and the execution of this
Purchase Agreement and the other documents contemplated herein and attaching a
certificate of good standing issued by each of the California and Delaware
Secretary of State within no more than thirty (30) days prior to Closing;
(c) The duly executed Stock Assignment Agreement;
(d) The duly executed Note Assignment Agreement;
(e) Written Escrow Instructions;
(f) Evidence that Seller has secured all of the Regulatory Consents and
Third Party Approvals, including, but not limited to, the consent of the Bank of
Tokyo, San Joaquin Health Care Associates Limited Partnership (to the Operations
Restructuring and, if applicable, to the sale of the Stock), Professional Office
Corporation ("POC") (to both the sale of the Stock and the Operations
Restructuring) and the landlords under the Clinic Leases and the waiver by POC
of its right of first refusal and put rights, for which it is responsible under
the terms of this Agreement.
(g) An Estoppel Certificate in form and substance reasonably
acceptable to Purchaser executed by the landlord under the Hospital Lease;
(h) An opinion of the General Counsel of Horizon in form and
substance reasonably acceptable to Purchaser;
(i) The executed original of the Partnership Note;
(j) A duly executed original of the Hospital Sublease;
(k) A duly executed original of the Clinic Subleases;
(l) A duly executed original of the Amended Management Agreement;
(m) A duly executed copy of the agreement assigning the Existing
Management Agreement;
(n) A duly executed original of the Assignment and Assumption
Agreement with respect to the Hospital Lease.
(o) A duly executed original of the Assignment and Assumption
Agreement(s) with respect to the Clinic Leases
(p) Duly executed copies or originals of any other documents executed
by Seller, the Corporation and/or the Partnership in connection with the
Operations Restructuring.
In addition, on the Closing Date, the Seller shall pay the closing
costs for which it is responsible under Article IV and shall cause to be made
available to Purchaser at the Hospital any and all plans and specifications with
respect to the Hospital and the Clinics which may be in Seller's or the
Partnership's possession.
9.03. Post-Closing. Seller covenants and agrees that after the
Closing Date it will:
(a) Cooperate with Purchaser in the event its parent corporation is
required to include audited financial statements with respect to the Hospital
and the Clinics in its filings with the United States Securities and Exchange
Commission.
(b) Take such actions and properly execute and deliver to Purchaser
such further instruments of assignment, conveyance and transfer as, in the
reasonable opinion of counsel for Purchaser and Seller, may be reasonably
necessary to assure, complete and evidence the full and effective transfer and
conveyance of Seller's Assets.
(c) Fulfill any obligations which it may have under this Agreement
which survive Closing in accordance with the terms hereof or which, by agreement
of the parties, have not been fully performed as of the Closing Date and the
performance of which, by written agreement of the parties, has been extended
until after the Closing Date.
(d) File or cause to be filed any final cost reports with respect to
the cost reporting periods prior to the Closing Date for which it or the
Partnership may be responsible under applicable state and federal law within the
time periods proscribed thereunder, it being understood and agreed that the
purpose of this provision is to ensure that there is no adverse affect on the
reimbursement paid to Purchaser or the Partnership with respect to the
operations at the Hospital and the Clinics after Closing.
(e) To permit Purchaser, the Corporation and/or the Partnership to
continue to use, for a period of one hundred eighty (180) days after the
Closing, proprietary materials, programs, manuals, promotional materials and
other intangibles owned or developed by Seller and used by the Corporation or
the Partnership in connection with the operations at the Hospital and/or the
Clinics as are reasonably necessary to the continued licensure, certification
and/or accreditation of the Hospital or the Clinics after Closing.
(f) To provide data processing services with respect to the Hospital
and the hospitals which are the subject of the Other Agreements on the terms and
for the cost specified in Exhibit 9.03(f).
(g) To permit Purchaser, the Corporation and/or the Partnership to use
for a period of 60 days after Closing any signs located at the Hospital and/or
the Clinics or any pre-printed materials, such as admitting forms or patient
information materials, on which the Seller's name or logo may appear.
ARTICLE X
PURCHASER COVENANTS
10.01. Pre-Closing Date. Purchaser covenants that between the
date hereof and the Closing Date, except as contemplated by this Agreement
or with the consent of Seller, which consent shall not be unreasonably
withheld, conditioned or delayed:
(a) Within ten (10) days after the date of this Agreement advise Seller
of its objections to any UCC Search Reports, title commitment and/or survey of
the Real Property and the Hospital which Purchaser may elect to obtain;
provided, however, that Purchaser shall not have the right to object to any
items reflected on the title commitment which are reflected in Exhibit 6.13. If
Seller refuses to correct some or all of the title, survey or lien defects
objected to by Purchaser within the time period reflected in Paragraph 9.01(o)
or to give Purchaser reasonable assurances that the same will be corrected as of
the Closing Date, Purchaser shall have ten (10) days to advise Seller of its
decision to close, notwithstanding the defects, or of its election to terminate
this Agreement, in which case neither party shall have any further rights or
obligations hereunder. If Purchaser does not give notice of termination within
this ten (10) day period, it will be deemed to have waived its objections and to
have accepted such title, survey or lien defects.
(b) Purchaser will proceed with all due diligence to obtain
the Third Party Consents and Regulatory Approvals for which it is
responsible under the terms hereof; and
(c) Unless specifically prohibited by law, Purchaser will use its best
efforts to cause all of the conditions to Closing set forth in Paragraphs 12.01
and 12.02 which are within its control to be satisfied prior to the Outside
Closing Date and Purchaser will not take any action inconsistent with its
obligations under this Agreement or which could hinder or delay the consummation
of the transactions contemplated by this Agreement.
10.02. Closing Date. On the Closing Date, Purchaser will deliver to
the Escrow Agent (unless Seller and Purchaser agree in writing in the Escrow
Instructions to handle the same outside of escrow) the following:
(a) A certificate of a responsible officer of Purchaser dated as of the
Closing Date certifying on behalf of Purchaser in such detail as Seller may
reasonably specify the fulfillment of the conditions set forth in Paragraphs
12.01 (a) and (b) and setting forth the incumbency of the officers executing
documents on behalf of Purchaser, a copy of the resolutions adopted by
Purchaser's Board of Directors authorizing the transaction provided for herein
and the execution of this Purchase Agreement and the other documents
contemplated herein and attaching a certificate of good standing issued by the
California Secretary of State within no more than thirty (30) days prior to
Closing;
(b) The executed Note Assignment Agreement;
(c) The cash due at Closing pursuant to Paragraph 2.01;
(d) Duly executed Escrow Closing Instructions;
(e) An opinion of the General Counsel of Regency in form and
substance reasonably acceptable to Seller;
(f) The Purchaser's Note;
(g) Evidence that Purchaser has secured for the benefit of the
Corporation or the Partnership, as applicable, insurance with respect to the
Hospital and the Clinics which is substantially the same as the insurance
described in Paragraph 6.31;
(h) If and to the extent required by the Landlord as a condition to
agreeing to Release CMS from its obligations as a guarantor of the Hospital
Lease (which Release is not a condition to closing), evidence that the Initial
Term of the Hospital Lease has been extended for a period of five (5) years
after the expiration date currently reflected therein; and
(i) One or more Guaranty Agreements duly executed by Regency
Health Services, Inc. with respect to the Hospital Lease and the Clinic
Leases if and to the extent, in the case of the Clinic Leases, they are
currently guaranteed by CMS.
10.03. Post-Closing. After the Closing Date, Purchaser will:
(a) Provide Seller with access during normal business hours to any
books or records which Seller may need to file or to defend tax returns, cost
reports or other filings filed prior to or subsequent to the Closing Date which
relate to the period prior to the Closing Date or which Seller may require for
any other lawful purpose other than litigation commenced by Seller against
Purchaser under the terms of this Agreement and maintain all such books and
records for a period of one year after the Closing Date, at which time Purchaser
shall give Seller notice of Seller's right to remove such books and records from
the Hospital. Seller shall have a period of thirty (30) days after receipt of
such notice to advise Purchaser whether it intends to exercise its removal right
and, in the event Seller elects to do so, Seller shall have a period of thirty
(30) days thereafter in which to arrange, at its sole cost and expense, for the
removal of any or of such books and records from the Hospital, subject to
Purchaser's right to retain copies of any or all of such removed books and
records.
(b) Take such actions and properly execute and deliver such further
instruments as Seller may reasonably request to assure, complete and evidence
the transaction provided for in this Agreement.
(c) Fulfill any obligations which it may have under this Agreement
which survive Closing in accordance with the terms thereof or which, by
agreement of the parties, have not been fully performed as of the Closing Date
and the performance of which, by written agreement of the parties, has been
extended until after the Closing Date.
(d) To the extent permitted by law, Seller and the staff physicians of
the Hospital employed by Seller or the Partnership prior to the Closing Date
(but in the case of such staff physicians only as necessary for the further care
of their patients and the defense of litigation) shall be entitled, after the
Closing Date, during normal business hours of the Hospital and the Clinics and
on advance notice to Purchaser to have access to and to make copies, at their
sole cost and expense, of the patient records, including the medical records and
medical charts of any patient admitted to the Hospital or the treated in a
Clinic on or before the Closing Date. In addition, to the extent permitted by
law and to the extent required by law, Seller shall be entitled to remove from
the Hospital or a Clinic any such record or chart, but only for the purposes of
pending litigation involving a patient to whom such record or chart refers, as
certified in writing prior to removal by an officer of Seller or counsel
retained by Seller in connection with such litigation, and only prior to making
a copy thereof, at Seller's cost and expense, for retention at the Hospital or
the Clinic, as applicable. Any record or chart so removed by the Hospital or any
Clinic shall be promptly returned to Purchaser following its use by Seller in
accordance with the terms hereof.
(e) Provide any and all working capital loans required for
the day to day operations of the Hospital and the Clinics by the Corporation.
(f) Provide such notice as may be required after Closing to each
regulatory authority having jurisdiction over the Hospital, the consent of which
was not required as a condition to Closing but notice to which is required or
recommended after Closing, including, but not limited to, JCAHO and CARF.
(g) Not to use the Seller's name in connection with the operation of
the Hospital and the Clinics other than as specifically authorized by Paragraph
9.03(g).
(h) Purchaser shall not renew the term of the Hospital Lease upon the
expiration of the Initial Term thereof unless CMS is released from its Guaranty
at the time of such renewal with respect to any obligations arising under the
Hospital Lease during any and all renewal terms.
ARTICLE XI
MUTUAL COVENANTS
11.01. General Covenants. Following the execution of this Agreement,
Seller and Purchaser agree:
(a) If any event should occur, either within or without the knowledge
or control of any party, which would prevent fulfillment of the conditions to
the obligations of any party hereto to consummate the transactions contemplated
by this Agreement, to use its or their reasonable efforts to cure the same as
expeditiously as possible;
(b) To cooperate fully with each other in preparing, filing,
prosecuting, and taking any other actions which are or may be reasonable and
necessary to obtain the consent of any governmental instrumentality or any third
party, to accomplish the transactions contemplated by this Agreement;
(c) To deliver such other instruments of title, certificates, consents,
endorsements, assignments, assumptions and other documents or instruments, in
form reasonably acceptable to the party requesting the same and its counsel, as
may be reasonably necessary to carry out and/or to comply with the terms of this
Agreement and the transactions contemplated herein;
(d) To confer on a regular basis with the other, report on material
operational matters and promptly advise the other orally and in writing of any
change or event having, or which, insofar as can reasonably be foreseen could
have, a material adverse effect on such party or which would cause or constitute
a material breach of any of the representations, warranties or covenants of such
party contained herein; and
(e) To promptly provide the other (or its counsel) with copies of all
other filings made by such party with any state or federal governmental entity
in connection with this Agreement or the transactions contemplated hereby.
11.02. Hart-Scott-Rodino Filing. If and to the extent applicable:
(a) Purchaser and Seller agree to file, and to cause any other person
obligated to do so as a result of its shareholdings in Seller, with the
Antitrust Division of the United States Department of Justice and the Federal
Trade Commission a Notification and Report Form in accordance with the
notification requirements of the HSR Act and to use its and their best efforts
to achieve the prompt termination or expiration of the waiting period or any
extension thereof provided for under the HSR Act as a prerequisite to the
consummation of the transactions provided for herein.
(b) Nothing herein shall be construed as requiring Seller to (i) sell
or otherwise dispose of any of the Seller Assets or the Corporation's Assets or
the Partnership's Assets which are the subject of this Agreement or the Other
Agreements which either alone or in the aggregate, with all such other sales or
dispositions, would constitute the sale or disposition of a "significant
subsidiary" (as defined in Rule 1-02 of Regulation S-X of the rules and
regulations of the Commission), (ii) take any action, the consummation of which
cannot be conditioned on the consummation of the transactions contemplated by
this Agreement, where such action would have a material adverse effect on Seller
or (iii) take any action which either would have a material adverse effect on
the operations, business or financial condition of Seller or would materially
impair the value of the transaction contemplated herein to Seller or Purchaser.
(c) Nothing herein shall be construed as requiring Purchaser to (i)
sell or otherwise dispose of any of its assets which either alone or in the
aggregate, with all such other sales or dispositions, would constitute the sale
or disposition of a "significant subsidiary," (ii) take any action, the
consummation of which cannot be conditioned on the consummation of the
transactions contemplated by this Agreement, where such action would have a
material adverse effect on Purchase or (iii) take any action which either would
have a material adverse effect on the operations, business or financial
condition of Purchaser or would materially impair the value of the transaction
contemplated herein to Seller or Purchaser.
11.03. Third Party Consents/Regulatory Approval. Each of Purchaser and
Seller will use its best efforts to obtain prior to the Closing Date all
consents, approvals and licenses necessary to permit the consummation of the
transactions contemplated by this Agreement and the Other Agreements, including,
but not limited to, such licensure and certification approval in the State of
California as may be necessary to enable Purchaser to lawfully own and/or
operate the Hospital and the Clinics from and after the Closing Date (the
"Regulatory Approvals"), and the consent of its lenders, lessors and other third
parties to the extent required under any loan documents, lease agreements,
management agreements or other instruments to which it is a party, including,
but not limited to, the consent of the lessors under the Leases (the "Third
Party Consents"); provided, however, that the consent of the holders of the
bonds issued by Purchaser's parent corporation under that Indenture dated as of
June 28, 1996 in the original principal amount of $50,000,000 and that Indenture
dated as of October 12, 1995 in the original principal amount of $110,000,000
(collectively, the "Subordinated Debt") shall not be deemed to be a required
Third Party Consent, it being understood and agreed that Purchaser has
represented that the transaction as contemplated herein after the completion of
the Operations Restructuring will not require the consent of such bondholders
and that Seller has, in part, relied on such representation in agreeing to
undertake the Operations Restructuring.
11.04. Public Announcements. The parties shall consult with each
other prior to the issuance by either party of any press release or any
written statement with respect to this Agreement or the transactions
contemplated hereby.
11.05. Costs. Except as otherwise specifically provided herein, each
party shall bear its own costs and expenses with respect to securing the Third
Party Consents and Regulatory Approvals, including complying with the
requirements of the HSR Act, for which it is responsible hereunder.
ARTICLE XII
CONDITIONS
12.01. Purchaser Conditions. All obligations of Purchaser under
this Agreement are subject to the fulfillment, prior to or as of the Outside
Closing Date (as defined below), of each of the following conditions any
one or more of which may be waived in writing by Purchaser:
(a) The representations and warranties of Seller contained in this
Agreement shall be true and correct at and as of the Closing Date as though such
representations and warranties were then again made, other than any
representations or warranties which specifically relate to an earlier period,
which shall have been true as of the date thereof.
(b) Seller shall have performed all of its obligations under this
Agreement that are to be performed by it prior to or as of the Closing Date.
(c) Purchaser and Seller shall have received the Third Party Consents
and Regulatory Approvals and shall have satisfied any and all conditions to the
effectiveness thereof, including, but not limited to, if applicable, change of
ownership approval from the California Department of Health Services (the "CHOW
Approval").
(d) Other than with respect to a default identified in the Seller
Disclosure Letter as of the date of this Agreement or any defaults identified
after the date of this Agreement in any amendments to the Seller Disclosure
Letter, which amendments are not objected to by Purchaser, neither Seller nor
the Partnership shall be in default, where said default cannot be cured by the
Closing Date, under any mortgage, contract, lease or other agreement to which
Seller, the Corporation or the Partnership is a party or by which Seller, the
Corporation or the Partnership is bound and which will affect or relate to the
Real Property, the Personal Property, the Hospital or the Clinics after the
Closing Date.
(e) Subject to Purchaser ordering the same, a title insurance policy
providing for leasehold coverage shall have been issued with respect to the
Hospital subject only to the Permitted Encumbrances (the "Title Insurance
Policy").
(f) Subject to Purchaser ordering the same, Purchaser shall be
satisfied or, pursuant to Paragraph 10.01(a) shall be deemed to be satisfied,
with the Survey.
(g) Subject to Purchaser ordering the same, Purchaser shall be
satisfied, or pursuant to Paragraph 10.01(a) shall be deemed to be satisfied,
with the results of the UCC Searches.
(h) If applicable, the filing and waiting period requirements under the
HSR Act shall have been complied with and shall have expired or terminated.
(i) The closing of the transactions which are the subject of
the Other Agreements shall have occurred.
12.02. Seller Conditions. All obligations of Seller under this
Agreement are subject to the fulfillment, prior to or as of the Outside
Closing Date, of each of the following conditions any one or more of which may
be waived by Seller in writing:
(a) The representations and warranties of Purchaser contained in this
Agreement shall be true and correct at and as of the Closing Date as though such
representations and warranties were then again made, other than any
representations or warranties which specifically relate to an earlier period,
which shall have been true as of the date thereof.
(b) Purchaser shall have performed all of its obligations under this
Agreement that are to be performed by it prior to or as of the Closing Date.
(c) Purchaser and Seller shall have received the Third Party Consents
and Regulatory Approvals and shall have satisfied any and all conditions to the
effectiveness thereof; provided, however, that it shall not be a condition to
Seller's obligation to close hereunder that the landlord under any or all of the
Leases has refused to release Seller from its guarantee thereof or from primary
liability thereunder.
(d) The closing of the transaction which are the subject of
the Other Agreements shall have occurred.
ARTICLE XIII
TERMINATION
13.01. Termination. This Agreement may be terminated by
Purchaser or Seller upon the following conditions:
(a) By mutual consent of the parties;
(b) By Purchaser if the conditions to Closing set forth in Paragraph
12.01 have not been satisfied through no fault of Purchaser or waived by
Purchaser by the Outside Closing Date;
(c) By Seller if the conditions to Closing set forth in Paragraph 12.02
have not been satisfied through no fault of Seller or waived by Seller by the
Outside Closing Date;
(d) By either party if the Closing has not occurred by the Outside
Closing Date or such later date as may be agreed upon in writing by Seller and
Purchaser; provided, however, that in the event all of the conditions to Closing
provided for in Paragraph 12 have been satisfied or waived by the Outside
Closing Date other than the Purchaser's receipt of the CHOW Approval pursuant to
Paragraph 12.01(c), provided Purchaser is diligently pursuing the issuance of
the CHOW Approval by the California Department of Health, the Outside Closing
Date shall automatically be extended for such additional period of time as may
be necessary to permit Purchaser to secure the CHOW Approval; provided, further
that in the event Purchaser has not secured the same within thirty (30) days
after the Outside Closing Date, this Agreement shall thereafter terminate in
accordance with the terms hereof and the parties shall have no further rights or
obligations hereunder.
(e) By either party if the United States Department of Justice
or the Federal Trade Commission requires any of the actions described in
Paragraph 11.02;
(f) By either party in the event of a material adverse change in the
information contained in the other party's Disclosure Letter as a result of the
updating thereof by such other party.
(g) By Purchaser in event that prior to the Closing Date a material
portion of any of the Hospital Real Property or the Hospital is damaged or
destroyed by fire or other casualty or has been taken or condemned by any public
or quasi-public authority under the power or eminent domain; provided, however,
that in the event Purchaser fails to exercise its termination rights hereunder,
then it shall be conclusively deemed to have waived said right and Seller shall
assign to Purchaser all of its rights to any insurance proceeds or condemnation
award and all claims in connection therewith.
13.02. Neither party to this Agreement may claim termination
or pursue any other remedy referred to in Paragraph 13.01 on account of a breach
of a condition, covenant or warranty by the other, without first given such
other party written notice of such breach and not less than ten (10) days within
which to cure such breach. The Closing Date shall be postponed if necessary to
afford such opportunity to cure.
13.03. In the event of the termination of this Agreement by Seller
under either Paragraph 13.01(c) or Paragraph 13.01(d) where, in either case the
Closing has failed to occur as a result of a material breach by Purchaser of its
obligations hereunder or under the Other Agreements, Seller shall be entitled
either (A) to seek damages from Purchaser as a result of said breach or (B)
without the need to prove damages, to collect from Purchaser on written demand
the sum of Two Million Five Hundred Thousand and no/100 Dollars ($2,500,000) as
liquidated damages in full and complete settlement of any and all claims which
Seller may have against Purchaser hereunder and under the Other Agreements as a
result of said breach by Purchaser, it being understood and agreed that the
amount provided for in this clause (B) is intended to compensate Seller for the
damages suffered by it as a result of said breach without resort to the courts
and is not intended to be a limitation on the damages which Seller would be able
to seek to recover in the event it elects to proceed under clause (A).
13.04. In the event of the termination of this Agreement by Purchaser
under either Paragraph 13.01(b) or Paragraph 13.01(d) where, in either case the
Closing has failed to occur as a result of a material breach by Seller of its
obligations hereunder or under the Other Agreements, Purchaser shall have the
right either (A) to seek specific performance of Seller's obligations hereunder
or (B) to seek damages suffered by it as a result of said breach.
13.05. In the event of the termination of this Agreement pursuant to
Paragraphs 13.01(a), (e), (f) or (g), neither party shall have any further
rights or obligations hereunder.
ARTICLE XIV
EMPLOYEE BENEFITS
14.01. On the Closing Date, Seller shall deliver to Purchaser a
schedule (the "Employee Schedule") which reflects among other things the
following: (i) the name of all employee of the Hospital and the Clinics as of
the Closing Date, (ii) their positions and rates of pay, (iii) a reasonable
estimate as of the Closing Date of all earned and accrued vacation, holiday and
sick pay and earned or accrued "EVA" bonuses due to and/or coming due to the
employees of the Hospital and the Clinics as of the Closing Date (the "Estimated
Accrued Benefits"). Purchaser shall agree from and after the Closing Date, to
cause the Corporation to pay the Actual Accrued Benefits, to the employees of
the Hospital and the Clinics as and when due in accordance with the
Corporation's personnel policies from and after the Closing Date, it being
agreed for the benefit of Seller that such policies shall not be modified by
Purchaser after Closing with the intent or result being a reduction of benefits
accrued in favor of any employee as of the Closing Date. Within a reasonable
period of time following the Closing Date, which shall in no event be more than
thirty (30) days, Seller shall provide Purchaser with a schedule of the Accrued
Benefits which were earned or accrued as of the Closing Date (the "Actual
Accrued Benefits").
14.02. Purchaser shall retain as employees of the Corporation at
Closing all of the employees of the Corporation who, as of the Closing, work at
the Hospital and the Clinics and have been employed on average for 20 hours or
more per week. Such employees whose employment is continued shall be referred to
as the "Retained Employees." Any such continued employment of a Retained
Employee by Purchaser shall be on terms which require said Retained Employee to
perform comparable services, in a comparable position and at substantially the
same base salary as such Retained Employee enjoyed with the Partnership prior to
Closing. Seller or any of its affiliates shall have the right to employ or offer
to employ any Retained Employee who declines to continue employment with the
Corporation. The Retained Employees who elect to accept continued employment
with the Corporation shall hereinafter be referred to as the "Hired Employees")
and as to each of the Hired Employees, Purchaser shall recognize each such Hired
Employees original hire date and shall cause the Corporation to continue to
employ each such Hired Employee for a period of no less than ninety (90) days
following the Closing Date unless the employment of such Hired Employee is
terminated in accordance with Purchaser's personnel policies or as a result of
such Hired Employee's resignation.
14.03. Purchaser and Seller acknowledge and agree that the provisions
of Section 14.02 are designed solely to ensure that Seller is not required to
give notice to the employees of the Hospital and the Clinics of the "closure"
thereof under the Worker Adjustment and Retraining Notification Act (the "WARN
Act") or under any comparable California state law. Accordingly, Purchaser
agrees to indemnify, defend and hold harmless Seller from any liability which it
may incur under the WARN Act or under comparable California State law in the
event of a violation by Purchaser of its obligations thereunder, including a
violation which results from allegations that Purchaser constructively
terminated the employees of the Hospital and the Clinics as a result of the
terms and conditions of employment offered by Purchaser. Nothing in Section
14.02 shall, however, create any rights in favor of any person not a party
hereto, including the employees of the Hospital or the Clinics, or constitute an
employment agreement or condition of employment for any employee of Seller or
any affiliate of Seller who is a Retained Employee or a Hired Employee.
14.04. Seller shall offer and provide, as appropriate, group health
plan continuation coverage pursuant to the requirements of Section 601, et seq.
of ERISA and Section 498B of the Internal Revenue Code ("COBRA") to all of the
employees of the Hospital and the Clinics to whom it is required to offer the
same under applicable law. Seller acknowledges and agrees that Purchaser is not
assuming any of Seller's obligations to its employees under COBRA or otherwise,
except as specifically provided in this Article XIV. As of the Closing Date, all
active employees of the Corporation: (i) who participate as of the Closing Date
in group health insurance coverage sponsored by Seller and (ii) who remain
employees of the Corporation after the Closing Date, shall be eligible for
participation in a group health plan (as defined for purposes of Internal
Revenue Code Section 4980B) established and maintained by Purchaser for the
general benefit of its employees and their dependents and all such employees
shall be covered without a waiting period and without regard to any pre-existing
condition unless (A) they are under a waiting period with Seller at the time of
Closing, in which case they shall be required to complete their waiting period
while under Purchaser's group health plan or (B) they were subject to a
pre-existing condition exclusion while under Seller's group health plan, in
which case they shall be subject to the same exclusion while in Purchaser's
group health plan, which exclusion shall, if applicable, be subject to the same
time limitation while in Purchaser's employ as was applicable thereto while said
employees were in Seller's employ, with the time limit calculated from the date
the same commenced while in Seller's employ. Seller and Purchaser acknowledge
and agree that it is the intent of this provision that Seller shall not be
required to provide continued health coverage under ERISA or Section 4980 of the
Internal Revenue Code to any of such employees of the Corporation who are
retained after Closing or to any qualified beneficiary (as defined for purposes
of Section 4980B of the Internal Revenue Code) with respect to any such
employees.
14.05. Seller agrees that the continued employment of the Hired
Employees of the Hospital and the Clinics will be important to the viability of
Purchaser's operations at the Hospital and the Clinics. Accordingly, Seller
agrees that for a period of one year after the Closing Date it will not directly
or indirectly solicit the employment of any of such Hired Employees nor shall it
take any action to directly or indirectly interfere with their employment
relationship with Purchaser or to induce them in any manner to terminate their
employment relationship with Purchaser. Seller acknowledges and agrees that
Purchaser would not be fully compensated by damages in the event of a breach or
threatened breach by Seller of this provision and accordingly agrees that
Purchaser shall be entitled, without the need to post a bond, to seek an
injunction to restrain such violation or threatened violation of this Paragraph
14.05.
ARTICLE XV
INDEMNIFICATION
15.01. Seller shall indemnify and hold Purchaser harmless from and
against an amount equal to any and all damages, liabilities, losses, costs or
expenses (the "Losses") which Purchaser may incur as a result of the following
(it being understood and agreed that in the event of any such Losses incurred by
Purchaser in its capacity as the sole shareholder of a partner in the
Partnership, the amount of such Losses suffered by Purchaser shall be equal to
70% of the Losses suffered or incurred by the Partnership):
(a) Except as otherwise provided in this Agreement, the leasing or
ownership of the Seller's Assets, the Corporation's Assets and/or the
Partnership's Assets and the operation of the Hospital and the Clinics prior to
the Closing Date, whether or not the same are covered by the Partnership's
insurance, including, but not limited to (i) any obligations under the Leases,
the Operating Contracts, the Corporation Liabilities, and the Partnership
Liabilities, (ii) any violations of the Medicare or Medicaid fraud and abuse
laws, the Stark II law governing relationships with physicians or any other
state or federal law governing the operation of the Hospital and/or the Clinics
(whether or not such violations would constitute a breach by Seller of a
representation or warranty set forth herein) and (iii) any failure of any cost
report filed by the Corporation, the Partnership or Seller, for the cost
reporting periods prior to the Closing Date, including the final cost reports
filed after the Closing Date, to comply with applicable state or federal law
(whether or not such violation would constitute a breach by Seller of a
representation or warranty set forth herein);
(b) Any misrepresentation or breach of warranty of Seller
set forth in this Agreement or nonfulfillment of any agreement on the part of
Seller under this Agreement;
(c) Any failure in connection with the transaction
contemplated herein to comply with the requirements of any laws or
regulations relating to bulk sales or transfers;
(d) Any claims against Seller, the Partnership, Purchaser, the
Hospital, the Clinics or the other Partnership Assets under the Medicare or
Medi-Cal Programs or under any other third party payor programs (i) with respect
to the operation of the Hospital and the Clinics by the Partnership prior to the
Closing Date, (ii) for recapture of depreciation generated by the transaction
contemplated hereby or (iii) for repayment of any overpayments made to the
Partnership or Seller under the Medicare or Medi-Cal Programs or any other third
party payor program for services rendered at the Hospital or the Clinics prior
to the Closing Date, including, but not limited to, claims against Purchaser in
the form of offsets by Medicare or Medi-Cal or any other third party payor
against their payments due to Purchaser on and after the Closing Date;
(e) The assets and liabilities described in Paragraph 9.01(x); and
(f) Any and all actions, suits, proceedings, demands, assessments,
judgements, reasonable costs and other reasonable expenses, including, but not
limited to, reasonable attorney's fees, incident to the foregoing.
15.02. Purchaser shall indemnify and hold Seller harmless from and
against any and all damages, liabilities, losses, costs or expenses which it may
incur as a result of:
(a) Except as otherwise provided in this Agreement, any and all
obligations relating to the leasing or ownership of the Seller's Assets, the
Corporation's Assets, the Partnership's Assets and the operation of the Hospital
and the Clinics from and after the Closing Date, including, but not limited to,
any obligations under the Leases, the Operating Contracts, the Corporation
Liabilities and the Partnership Liabilities (if and to the extent they relate
solely to the period from and after the Closing Date);
(b) Any misrepresentation or breach of warranty by Purchaser
set forth in this Agreement or nonfulfillment of any agreement on the part of
Purchaser under this Agreement; and
(c) Any federal income tax liability which Seller may incur in
connection with the consummation of the Transaction provided for herein which is
directly attributable to the Operations Restructuring; provided, however, in no
event shall Purchaser's liability under this Paragraph 15.02(c) exceed $100,000;
provided, further, that Purchaser's indemnity obligation shall be conditional on
a review and approval by Purchaser's independent certified public accountant of
Seller's tax liability calculation.
(d) Any and all actions, suits, proceedings, demands, assessments,
judgements, reasonable costs and other reasonable expenses, including, but not
limited to, reasonable attorney's fees, incident to the foregoing.
15.03. Notwithstanding the foregoing, neither Purchaser nor Seller (the
"Non-Breaching Party") shall be entitled to seek damages from the other party
(the "Breaching Party") under Paragraphs 15.01(b) and 15.02(b), respectively,
for the breach of a representation or warranty set forth in this Agreement
unless the amount of the damages, liabilities, losses, costs or expenses
incurred by the Non-Breaching Party individually or in the aggregate with any
and all prior breaches equals or exceeds Fifty Thousand and no/100 Dollars
($50,000) (the "Representation and Warranty Liability Threshold"). In the event
the Representation and Warranty Threshold is met, then the Non-Breaching Party
shall be entitled to seek to collect from the Breaching Party any and all
damages, liabilities, losses, costs or expenses suffered or incurred as a result
of all such breaches of the representations and warranties set forth herein on a
first dollar basis and not merely to recover damages in excess of the
Representation and Warranty Liability Threshold.
15.04. Notwithstanding anything to the contrary contained in this
Paragraph 15 in addition to all other available rights and remedies, in the
event of a breach by Purchaser of its covenant set forth in Paragraph 10.03(h),
Seller shall have the right to require Purchaser to post as security for the
performance by Purchaser of its obligations under the Hospital Lease an
irrevocable letter of credit from a lender and in a form reasonably acceptable
to Seller and in an amount equal to one year's Base Rent then due under the
Hospital Lease (the "Letter of Credit"). Purchaser acknowledges and agrees that
Seller shall have the right to draw on such Letter of Credit, in the event of a
breach by Purchaser of its obligations under the Hospital Lease as a result of
which the landlord thereunder seeks to enforce the obligations of CMS under its
Guaranty thereof and that, in the event of such a draw against the Letter of
Credit, that Purchaser shall be required to reinstate the Letter of Credit to
its original principal balance. Seller and Purchaser shall have the right to
enter into Letter of Credit Agreement if and when such Letter of Credit is
posted setting forth such additional details with respect thereto as they deem
to be appropriate.
ARTICLE XVI
MISCELLANEOUS
16.01. Notices. Any notice, request or other communication to be
given by any party hereunder shall be in writing and shall be sent by registered
or certified mail, postage prepaid, by overnight delivery, hand
delivery or facsimile transmission to the following address:
To Seller: c/o Horizon/CMS Healthcare Corporation
6001 Indian School Road, N.E.
Albuquerque, NM 87110
Attn: Neal Elliott
Telephone No.: 505-878-6350
Facsimile No.: 505-881-6100
With copy to: Scot Sauder, Esq.
c/o Horizon/CMS Healthcare Corporation
6001 Indian School Road, N.E.
Albuquerque, NM 87110
Telephone No.: 505-878-6356
Facsimile No.: 505-881-6100
To Purchaser: Regency Rehab Hospitals, Inc.
2742 Dow Avenue
Tustin, CA 92680
Attn: Bruce Broussard
Telephone No.: 714-544-4443
Facsimile No.: 714-544-2441
with copy to: Regency Rehab Hospitals, Inc.
2742 Dow Avenue
Tustin, CA 92680
Attn: David Grant
Telephone No.: 714-544-4443
Facsimile No.: 714-544-2441
and with copy to: Randi S. Nathanson, Esq.
1411 Fourth Avenue
Suite 905
Seattle, WA 98101
Telephone No.: 206-623-6239
Facsimile No.: 206-623-1738
Notices shall be deemed given three (3) business days after deposit in
the mail as provided herein or upon actual receipt if sent by overnight
delivery, facsimile transmission or hand delivery.
16.02. Assignment. No party may assign, directly or indirectly, its
rights or obligations hereunder without the prior written consent of the other
party; provided, however, that Purchaser may assign its rights and obligations
hereunder with respect to any Real Property and Personal Property included in
the Corporation's Assets effective at Closing to a real estate investment trust
(the "REIT") in connection with its financing of the transaction provided for
herein provided Seller first confirms to Purchaser that, in its reasonable
determination, such assignment will not have adverse reimbursement consequences
for Seller; and provided, further, that no such assignment shall relieve
Purchaser of its obligations hereunder. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns, including successors by operation of law pursuant to any
merger, consolidation or sale of assets involving either party. In the event of
an assignment of this Purchase Agreement to a REIT, Purchaser shall advise
Seller as to those documents and deliveries contemplated by this Agreement which
are to run in favor of the REIT rather than Purchaser and those documents and
deliveries contemplated by this Agreement which will be delivered by the REIT
rather than Purchaser, if any, it being understood and agreed that in the event
of such an assignment, the only right which the REIT will assume is Purchaser's
right to take title to the Corporation's Assets and the only obligation which
the REIT will assume is Purchaser's obligation to pay the purchase price in
accordance with the terms hereof .
16.03 Sole Agreement. This Agreement may not be amended or modified in
any respect whatsoever except by instrument in writing signed by the parties
hereto. This Agreement, the Disclosure Letter of each of Seller and Purchaser
and the documents executed and delivered pursuant hereto constitute the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersede all prior negotiations, discussions, writings and agreements
between them.
16.04. Captions. The captions of this Agreement are for convenience
of reference only and shall not define or limit any of the terms or provisions
hereof.
16.05. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
16.06. Severability. Should any one or more of the provisions of
this Agreement be determined to be invalid, unlawful or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions hereof shall not in any way be affected or impaired thereby.
16.07. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original; but such counterparts
shall together constitute but one and the same instrument.
16.08 Knowledge Defined. To the extent that any of the representations
and warranties contained in this Agreement are limited by the phrases "to the
knowledge of" or "Purchaser has no knowledge of" or "Seller has no knowledge of"
or words or phrases of similar import, the same shall mean to the actual
knowledge of any of the corporate officers or directors of the party or its
subsidiaries making said representation or warranty after due and diligent
inquiry with respect thereto. To the extent that any of the representations and
warranties contained in this Agreement refer to verbal notice to a party such
notice shall be deemed to have been received if delivered to any officer of such
party or to an officer of one of its subsidiaries.
16.09. Expenses. Each party shall bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby.
16.10. Third Party Beneficiary. Nothing in this Agreement express or
implied is intended to and shall not be construed to confer upon or create in
any person (other than the parties hereto and their successors and permitted
assigns) any rights or remedies under or by reason of this Agreement, including
without limitation, any right to enforce this Agreement.
16.11. Attorneys' Fees. In the event of a dispute between the parties
hereto with respect to the interpretation or enforcement of the terms hereof,
the prevailing party in any action resulting therefrom shall be entitled to
collect from the other its reasonable costs and attorneys' fees, including its
costs and fees on appeal.
16.12. 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 or local
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The word
"including" shall mean "including without limitation." The period covered by the
phrase "from and after the Closing Date" shall include the Closing Date.
16.13. Survival. The representations, warranties, covenants or
conditions set forth herein shall survive the Closing for a period of two years
after the Closing, other than the representation set forth in Paragraphs 6.15
and 6.16, which shall survive for the applicable statute of limitations;
provided, however, that in the event that, at anytime during that two year
period, any claim is made for a breach thereof, the same shall survive until a
final non-appealable resolution thereof. Nothing in this Paragraph 16.13 shall
be construed to limit the indemnity obligations of Seller and Purchaser under
Paragraph 15.01 which shall survive for as long as the matters to which they
relate survive by the terms of this Agreement or, if no such limitation is
provided for herein, which shall survive until the expiration of the applicable
statute of limitations with respect to the matters to which they relate.
16.14. Effectiveness of Agreement. This Agreement shall be of no
effect unless and until each of the Other Agreements has been executed and
delivered by the parties hereto or thereto.
16.15. Identification of Documents Provided. Any and all documents
provided by Seller to Purchaser which are listed on the exhibits hereto shall be
numbered using a Bates sequential numbering system in order to ensure that there
are no disputes concerning what documents were so provided.
IN WITNESS WHEREOF, the parties hereby execute this Agreement as of the
day and year first set forth therein.
CONTINENTAL MEDICAL SYSTEMS, INC.
By: ___________________________
Its: ____________________________
REGENCY REHAB HOSPITALS, INC.
By: ____________________________
Its: ____________________________
HORIZON GUARANTY
Horizon/CMS Healthcare Corporation, a Delaware corporation ("Horizon")
as a material inducement to Regency Rehab Hospitals, Inc. ("Purchaser") to enter
into the Purchase and Sale Agreement between Continental Medical Systems, Inc.,
as Seller, and Purchaser dated November 19, 1996 (the "Agreement"), hereby
unconditionally, irrevocably and jointly and severally with Seller, guarantees
and promises to and for the benefit of Purchaser that (i) the representations
and warranties of Seller are true and correct as of the date of execution of the
Agreement and shall be true and correct as of the Closing Date (as modified by
any supplements to the Seller Disclosure Letter to reflect events after the date
hereof) and (ii) Seller shall perform all of its obligations, covenants and
agreements, including, but not limited to, its indemnity obligations under
Paragraph 15, to be performed on its part under the Agreement . If Seller
defaults under the Agreement , Purchaser may proceed immediately against Horizon
or Seller or both to enforce any rights it has under the Agreement or this
Guaranty. Notwithstanding the foregoing, the representations and warranties of
Seller will not survive beyond the periods applicable thereto set forth in
Paragraph 16.13 hereof and this Guaranty shall not be construed to give
Purchaser a claim or cause of action against Horizon after the expiration of the
applicable survival period for a breach by Seller of any representation or
warranty.
The liability of Horizon hereunder shall not be affected by:
(a) The renewal, extension, modification or termination of the
Agreement by lapse of time or otherwise (all of which are hereby
authorized by Horizon) or a release or limitation of the liability of
Seller or its estate in any bankruptcy or insolvency proceeding;
(b) Any extension in the time for making any payment
due under the Agreement or acceptance of partial payment from Seller;
(c) The acceptance or release by Purchaser of any
additional security for the performance of Seller's obligations under the
Agreement ;
(d) The failure during any period of time whatsoever of
Purchaser to attempt to collect any amount due under the Agreement or
to exercise any remedy available thereunder or any other security
instrument given as security for performance of the same, in the event
of a default in the performance by Seller in its obligations
thereunder;
(e) Any assignment or successive assignments of
Purchaser's interest under the Agreement (whether absolute or as
collateral);
(f) The assertion by Purchaser against Seller of any rights or
remedies reserved or granted to Purchaser under the Agreement,
including the commencement by Purchaser of any proceedings against
Seller upon the occurrence of a default thereunder; or
(g) Any dealings, transactions or other matter occurring
between Purchaser and Seller;
whether or not Horizon shall have knowledge or have been notified of or
agreed to any of the foregoing.
Horizon hereby expressly waives:
(a) Notice of acceptance of this Guaranty;
(b) Presentment, demand, notice of dishonor, protest and
notice of protest, and all other notices whatsoever, including, without
limitation, notice of any event or matter described in the first
paragraph hereof; provided, however, that nothing herein shall be
construed as a waiver by Horizon on its own behalf or on behalf of
Seller with respect to any notice required to be provided by Purchaser
under the terms of the Agreement ;
(c) Any and all claims or defenses based upon lack of
diligence in:
(i) collection of any amount, the payment of which is
guaranteed hereby;
(ii) protection of any collateral or other security for
the obligations which are the subject of this Guaranty;
(iii) realization upon any other security given for the
obligations which are the subject of this Guaranty; or
(iv) the discharge, liquidation or reorganization of
Seller in bankruptcy or the rejection of the Agreement by Seller or by a
trustee in bankruptcy;
(d) Any and all defenses of suretyship; and
(e) Any defense based on the lack of consideration for
this Guaranty.
Nothing herein shall be construed, however, as a waiver by Horizon of
any of the defenses available to the Seller under the Purchase Agreement to the
extent Horizon is lawfully entitled to raise the same as a defense to its
obligations hereunder.
No delay or omission on the part of Purchaser in the exercise of any
right or remedy hereunder shall operate as a waiver thereof. All remedies of
Purchaser hereunder shall be in addition to, and exercisable consecutively or
concurrently in any combination with, any and all remedies available to
Purchaser by operation of law or under the Agreement , and Purchaser may
exercise its remedies hereunder without the necessity of any notice to Seller or
Horizon of nonpayment, nonobservance, nonperformance or other default by Seller
under the Agreement other than such notice as may be specifically required by
the terms of the Agreement prior to the exercising of such right or remedy.
Notwithstanding any provision of this Guaranty to the contrary, in the
event of the enforcement of this Guaranty by Purchaser, Purchaser shall be
entitled to collect from Horizon, Purchaser's costs of collection, including,
without limitation, reasonable attorneys' fees.
Horizon shall not be subrogated to any of the rights of Purchaser by
reason of any of the provisions of this Guaranty or by reason of the performance
by Guarantor of any of its obligations hereunder and Horizon shall look solely
to Seller for recoupment of any costs or expenses incurred by Horizon in
performing its obligations hereunder.
For so long as any of the obligations which are the subject of this
Guaranty remain outstanding Horizon shall, upon request, provide Purchaser with
its quarterly and annual financial statements as soon as the same are available
and with any other financial statements as may be reasonably requested by
Purchaser.
This Guaranty shall not be assignable by Horizon but shall be binding
upon the successors of Horizon. This Guaranty shall be assignable by Purchaser
in connection with a permitted assignment of the Agreement and shall inure to
the benefit of its successors and assigns.
If any term, restriction or covenant of this Guaranty is deemed illegal
or unenforceable, all other terms, restrictions and circumstances subject hereto
shall remain unaffected to the extent permitted by law; and if any application
of any term, restriction or covenant to any person or circumstances is deemed
illegal, the application of such term, restriction or covenant to other persons
and circumstances shall remain unaffected to the extent permitted by law.
Seller's Parent:
HORIZON/CMS HEALTHCARE CORPORATION,
a Delaware corporation
By: ______________________________
Neal M. Elliott
President
REGENCY GUARANTY
Regency Health Services, Inc., a Delaware corporation ("Regency") as a
material inducement to Continental Medical Systems, Inc. ("Seller") to enter
into the Purchase and Sale Agreement between Seller and Regency Rehab Hospitals,
Inc. ("Purchaser") dated November 19, 1996 (the "Agreement"), hereby
unconditionally, irrevocably and jointly and severally with Purchaser,
guarantees and promises to and for the benefit of Seller that (i) the
representations and warranties of Purchaser are true and correct as of the date
of execution of the Agreement or the Purchaser's Note and shall be true and
correct as of the Closing Date (as modified by any supplements to the Purchaser
Disclosure Letter to reflect events after the date hereof), (ii) Purchaser shall
perform all of its obligations, covenants and agreements, including, but not
limited to, its indemnity obligations under Paragraph 15, to be performed on its
part under the Agreement or the Purchaser's Note and (iii) Purchaser's
obligations under the Purchaser's Note (as defined in the Agreement or the
Purchaser's Note). If Purchaser defaults under the Agreement or the Purchaser's
Note or the Purchaser's Note, Seller may proceed immediately against Regency or
Purchaser or both to enforce any rights it has under the Agreement or the
Purchaser's Note or the Purchaser's Note or this Guaranty. Notwithstanding the
foregoing, the representations and warranties of Purchaser will not survive
beyond the periods applicable thereto set forth in Paragraph 16.13 hereof and
this Guaranty shall not be construed to give Seller a claim or cause of action
against Regency after the expiration of the applicable survival period for a
breach by Purchaser of any representation or warranty.
The liability of Regency hereunder shall not be affected by:
(a) The renewal, extension, modification or termination of the
Agreement or the Purchaser's Note or the Purchaser's Note by lapse of
time or otherwise (all of which are hereby authorized by Regency) or a
release or limitation of the liability of Purchaser or its estate in
any bankruptcy or insolvency proceeding;
(b) Any extension in the time for making any payment
due under the Agreement or the Purchaser's Note or acceptance of partial
payment from Purchaser;
(c) The acceptance or release by Seller of any
additional security for the performance of Purchaser's obligations under the
Agreement or the Purchaser's Note;
(d) The failure during any period of time whatsoever of Seller
to attempt to collect any amount due under the Agreement or the
Purchaser's Note or to exercise any remedy available thereunder or any
other security instrument given as security for performance of the
same, in the event of a default in the performance by Purchaser in its
obligations thereunder;
(e) Any assignment or successive assignments of
Seller's interest under the Agreement(whether absolute or as collateral);
(f) The assertion by Seller against Purchaser of any rights or
remedies reserved or granted to Seller under the Agreement or the
Purchaser's Note, including the commencement by Seller of any
proceedings against Purchaser upon the occurrence of a default
thereunder; or
(g) Any dealings, transactions or other matter occurring
between Seller and Purchaser;
whether or not Regency shall have knowledge or have been notified of or
agreed to any of the foregoing.
Regency hereby expressly waives:
(a) Notice of acceptance of this Guaranty;
(b) Presentment, demand, notice of dishonor, protest and
notice of protest, and all other notices whatsoever, including, without
limitation, notice of any event or matter described in the first
paragraph hereof; provided, however, that nothing herein shall be
construed as a waiver by Regency on its own behalf or on behalf of
Purchaser with respect to any notice required to be provided by Seller
under the terms of the Agreement or the Purchaser's Note;
(c) Any and all claims or defenses based upon lack of
diligence in:
(i) collection of any amount, the payment of which is
guaranteed hereby;
(ii) protection of any collateral or other security for
the obligations which are the subject of this Guaranty;
(iii) realization upon any other security given for the
obligations which are the subject of this Guaranty; or
(iv) the discharge, liquidation or reorganization of
Purchaser in bankruptcy or the rejection of the Agreement or the
Purchaser's Note by Purchaser or by a trustee in bankruptcy;
(d) Any and all defenses of suretyship; and
(e) Any defense based on the lack of consideration for
this Guaranty.
Nothing herein shall be construed, however, as a waiver by Regency of
any of the defenses available to the Purchaser under the Agreement or the
Purchaser's Note to the extent Regency is lawfully entitled to raise the same as
a defense to its obligations hereunder.
No delay or omission on the part of Seller in the exercise of any right
or remedy hereunder shall operate as a waiver thereof. All remedies of Seller
hereunder shall be in addition to, and exercisable consecutively or concurrently
in any combination with, any and all remedies available to Seller by operation
of law or under the Agreement or the Purchaser's Note, and Seller may exercise
its remedies hereunder without the necessity of any notice to Purchaser or
Regency of nonpayment, nonobservance, nonperformance or other default by
Purchaser under the Agreement or the Purchaser's Note other than such notice as
may be specifically required by the terms of the Agreement or the Purchaser's
Note prior to the exercising of such right or remedy.
Notwithstanding any provision of this Guaranty to the contrary, in the
event of the enforcement of this Guaranty by Seller, Seller shall be entitled to
collect from Regency, Seller's costs of collection, including, without
limitation, reasonable attorneys' fees.
Regency shall not be subrogated to any of the rights of Seller by
reason of any of the provisions of this Guaranty or by reason of the performance
by Regency of any of its obligations hereunder and Regency shall look solely to
Purchaser for recoupment of any costs or expenses incurred by Regency in
performing its obligations hereunder.
For so long as any of the obligations which are the subject of this
Guaranty remain outstanding Regency shall, upon request, provide Seller with its
quarterly and annual financial statements as soon as the same are available and
with any other financial statements as may be reasonably requested by Seller.
This Guaranty shall not be assignable by Regency or by Seller but shall
be binding upon the successors of Regency and Seller.
If any term, restriction or covenant of this Guaranty is deemed illegal
or unenforceable, all other terms, restrictions and circumstances subject hereto
shall remain unaffected to the extent permitted by law; and if any application
of any term, restriction or covenant to any person or circumstances is deemed
illegal, the application of such term, restriction or covenant to other persons
and circumstances shall remain unaffected to the extent permitted by law.
Purchaser's Parent:
REGENCY HEALTH SERVICES, INC.
a Delaware corporation
By: ______________________________
Richard Matros
President