Exhibit 99.1
SECOND AMENDMENT TO
ASSET SALE AGREEMENT
This Second Amendment to Asset Sale Agreement (this "Amendment") is made
and entered into effective as of January 1, 2005 (the "Amendment Effective
Date") by and among AHM CGH, Inc., a California corporation ("AHM"), Health
Resources Corporation of America - California, a Delaware corporation ("HRC"),
SHL/O Corp., a Delaware corporation ("SHL/O") and UWMC Hospital Corporation, a
California corporation ("UWMC") (AHM, HRC, SHL/O and UWMC are collectively
referred to herein as "Seller") and Integrated Healthcare Holdings, Inc., a
Nevada corporation ("Purchaser").
RECITALS
A. Seller and Purchaser entered into that certain Asset Sale Agreement
dated as of September 29, 2004, as amended by that certain First Amendment to
Asset Sale Agreement, dated as of January 28, 2005 (the "Agreement"), pursuant
to which Purchaser agreed to acquire from Seller substantially all of the assets
used in the operation of the Hospitals.
B. Through Purchaser's countersignature to a letter from Douglas A.
Jaques, counsel to Seller, to Robert Lundy and Todd Swanson, counsel to
Purchaser, dated January 28, 2005 (the "Letter"), Purchaser has entered into a
binding agreement with Seller with respect to certain matters relating to the
transaction contemplated by the Agreement.
C. The Letter contemplates that the matters addressed thereby will be
reflected in a formal amendment to the Agreement to be executed by Seller and
Purchaser.
D. Seller and Purchaser now desire to formally incorporate as part of
the Agreement those certain matters agreed to between the parties in the Letter
through the execution of this Amendment.
E. This Amendment, when executed by Seller and Purchaser, supercedes
the Letter which Letter shall be of no further force or effect.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises and covenants contained in this Amendment, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Defined Terms. Except to the extent it is specifically
indicated to the contrary in this Amendment, defined terms used in this
Amendment shall have the same meanings ascribed to them in the Agreement.
2. Good Faith Deposit. Section 1.4(a) of the Agreement is hereby
deleted, and replaced in its entirety with the following language:
"(a) Good Faith Deposit. Purchaser has delivered to Chicago
Title Insurance Company (the "Title Company"), for earnest money, a good faith
deposit in the amount of Ten Million Dollars ($10,000,000) (the "Good Faith
Deposit"). The Title Company shall hold the Good Faith Deposit in an interest
bearing account (which interest shall be accrued to Purchaser) pursuant to the
terms of the Escrow Agreement among Seller, Purchaser and the Title Company, as
amended, attached as Exhibit 1.4-a. Five Million Dollars ($5,000,000) of the
Good Faith Deposit is non-refundable regardless of the termination of this
Agreement pursuant to Section 8.1 below, with no exceptions. The other Five
Million Dollars ($5,000,000) of the Good Faith Deposit that is not subject to
the immediately preceding sentence (the "Residual Good Faith Deposit") is
non-refundable regardless of the termination of this Agreement pursuant to
Section 8.1 below, except that Purchaser shall be entitled to the return of the
Residual Good Faith Deposit, with all interest accrued on the entire Ten Million
Dollars ($10,000,000) of the Good Faith Deposit, in the event that, (i) on or
before 12:00 p.m. Pacific time, on February 5, 2005, (A) Seller or Purchaser
terminates this Agreement because of a failure to obtain reasonable assurances
from the California Department of Health Services (the "DHS") for any reason
(which assurances are reasonably acceptable to Purchaser), that Purchaser's
Change of Ownership ("CHOW") applications will be approved and an acute care
hospital license will be issued for all four Hospitals, (B) Purchaser terminates
this Agreement pursuant to Section 8.1(c), 8.1(d) (other than because of a
failure to obtain reasonable assurances of approval of Purchaser's CHOW
applications by the DHS), 8.1(f) or 8.1(h) (provided the failure of the
applicable event or condition(s) under 8.1(c), 8.1(d), 8.1(f) or 8.1(h) giving
rise to Purchaser's right to terminate under such subsection is not in any
manner due to Purchaser's fault, as provided therein, including without
limitation an inability of Purchaser to obtain financing or funding for the
payment of the Cash Purchase Price) or (C) Seller terminates this Agreement
pursuant to Section 8.1(e) (other than because of a failure to obtain reasonable
assurances of approval of Purchaser's CHOW applications by the DHS) based upon
the failure of a condition or a failure to close, respectively, that is not in
any manner due to Purchaser's failure to perform, including without limitation
an inability of Purchaser to obtain financing or funding for the payment of the
Cash Purchase Price; or (ii) after 12:00 p.m. Pacific time, on February 5, 2005,
Purchaser terminates this Agreement pursuant to Section 8.1(c). In the event the
Closing occurs, however, the Good Faith Deposit shall be applied as a credit
against the Purchase Price, payable at Closing pursuant to Section 1.7.2."
3. Closing Date. Section 1.5 of the Agreement is hereby deleted, and
replaced in its entirety with the following language:
"1.5 Closing Date. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at 9:00 a.m. on
February 28, 2005 (the "Closing Date"), at the offices of McDermott, Will &
Emery LLP, 2049 Century Park East, Suite 3400, Los Angeles, California 90067 or
such other date, time and place as the parties shall mutually agree; provided
that all conditions precedent and other matters required to be completed as of
the Closing Date have been or will be completed on such date. The Closing with
respect to each Hospital shall be deemed to have occurred and to be effective as
between the parties as of 12:01 a.m. Pacific time on the next day after the
Closing Date (the "Effective Time")."
4. Drop Dead Date. Section 8.1(g) of the Agreement is hereby
amended by changing the date "December 31, 2004" contained therein to "February
28, 2005".
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5. Audit of the Hospitals.
(a) New Section 9.2(h) is hereby added to the Agreement to
provide as follows:
"Promptly following the Closing Date, Seller and
Purchaser shall use reasonable commercial efforts to retain KPMG LLP (the
"Auditors"), an independent registered public accounting firm, to perform an
audit of the Hospitals with respect to the period prior to the Closing Date (the
"Audit Period"), to the extent reasonably necessary in developing financial
statements that meet the requirements of Regulation S-X promulgated under the
Securities Exchange Act of 1934, as amended (the "Audit"), which financial
statements will be filed as part of federal securities filings required to be
made by Purchaser or its affiliates following the Closing Date. Purchaser, its
representatives, and the Auditors shall be given access by Seller during normal
business hours to the extent reasonably needed for the conduct of the Audit to
all documents, records and work papers retained by Seller with respect to the
operation of the Hospitals during the Audit Period, all in such manner as to not
interfere unreasonably with Seller's business. Seller acknowledges and agrees
that it shall cooperate with Purchaser and the Auditors, on a timely basis and
as reasonably requested by Purchaser, in connection with the provision of
documents, records and work papers required by the Auditors and generally in
connection with the conduct of the Audit. Any documents and other materials
reasonably required by the Auditors for the conduct of the Audit shall be, at
Seller's option, either (i) copied by Seller for Purchaser at Purchaser's
expense, or (ii) removed by Purchaser from the premises, copied by Purchaser and
promptly returned to Seller. Purchaser agrees and acknowledges that Seller and
the Auditors shall be notified prior to any securities filings made by Purchaser
based or relying upon information relating to the operations of the Hospitals
during the Audit Period and the Audit, and shall prominently contain the
disclosure set forth on Schedule 9.2(h) attached hereto in such securities
filing. Notwithstanding anything contained in this Agreement including without
limitation Section 12.12 to the contrary, Purchaser acknowledges and agrees that
all costs relating to the Audit including without limitation the Auditors' fees
and expenses, and any costs incurred by Seller in connection with the Audit,
shall be borne by Purchaser."
(b) Section 10.3.1(i) is hereby deleted, and replaced in its
entirety by the following language:
"(i) any securities litigation involving (i) Purchaser
and/or (ii) any financing obtained by Purchaser which is utilized to fund, in
whole or in part, the Cash Purchase Price, other than to the extent arising out
of any willful misconduct of Seller or its employees, or intentionally false or
intentionally misleading statements of Seller or its employees, (j) the
preparation and/or submission of the Audit, and/or financial statements or other
information arising from or related to the Audit, including without limitation
any securities litigation, or any claim, suit, or other action brought by any
third party or Person in connection any filing by Purchaser or its affiliates
with federal or state securities regulators or any securities offering in
connection therewith, without regard to any alleged fault of Seller based on the
alleged acts or failure to act of Seller and";
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(c) Section 10.3.1(j), as in effect immediately prior to the
Amendment Effective Date, shall be redesignated as Section 10.3.1(k)
(d) The reference to Section 10.3.1(j) in the next to last
sentence of Section 10.3.1 shall be amended to refer to Section 10.3.1(k).
(e) Section 10.3.2(a)(vi) is hereby amended to add the
following phrase at the end thereof:
"; provided, however, the limitation that a minimum
aggregate amount of Damages must be incurred before Seller is entitled to seek
indemnification under Section 10.3.1(a), as set forth in this Section
10.3.2(a)(vi)(B), shall not apply to a Relevant Claim brought by Seller under
Section 10.3.1(j)."
6. Effect on Agreement; General Provisions. Except as set forth
in this Amendment, the terms and provisions of the Agreement are hereby ratified
and declared to be in full force and effect. Except as otherwise expressly set
forth herein, this Amendment shall be governed by the provisions of the
Agreement including with respect to choice of law, disputes, arbitration and
successors and assigns. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Captions and paragraph
headings are used herein for convenience only, are not a part of this Amendment
or the Agreement as amended by this Amendment and shall not be used in
construing either document. Other than the reference to the Agreement contained
in the first recital of this Amendment, each reference to the Agreement and any
agreement contemplated thereby or executed in connection therewith, whether or
not accompanied by reference to this Amendment, shall be deemed a reference to
the Agreement as amended by this Amendment.
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IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
in multiple originals by their authorized officers, effective as of the
Effective Time.
SELLER:
AHM CGH, Inc., a California corporation
By:_______________________________
Name:_____________________________
Its: Authorized Signatory
Health Resources Corporation of America -
California, a Delaware corporation
By:_______________________________
Name:_____________________________
Its: Authorized Signatory
SHL/O Corp., a Delaware corporation
By:_______________________________
Name:_____________________________
Its: Authorized Signatory
UWMC Hospital Corporation, a California
corporation By:__________________________
Name:_____________________________
Its: Authorized Signatory
PURCHASER:
Integrated Healthcare Holdings, Inc. a
California corporation
By:_______________________________
Name:_____________________________
Its:_______________________________
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SCHEDULE 9.2(H)
ALL INFORMATION IN THIS [SECURITIES FILING] CONCERNING THE HOSPITALS AND THE
HOSPITALS' OPERATIONS IS BEING FURNISHED SOLELY BY ISSUER. THE INFORMATION
SUPPLIED BY ISSUER (INCLUDING THE INFORMATION SET FORTH IN THIS [SECURITIES
FILING]) CONCERNING THE HOSPITALS AND THE HOSPITALS' OPERATIONS HAS NOT BEEN
REVIEWED BY THE PRIOR OWNER OF THE HOSPITALS OR ANY OF ITS REPRESENTATIVES FOR
ACCURACY OR OTHERWISE, AND THE PRIOR OWNER OF THE HOSPITALS IS NOT RESPONSIBLE
IN ANY WAY FOR ANY SUCH INFORMATION. IN MAKING AN INVESTMENT DECISION, INVESTORS
MUST RELY UPON THEIR OWN EXAMINATION OR KNOWLEDGE OF THE HOSPITALS, ITS
OPERATIONS AND ITS FINANCIAL RESULTS OR OTHERWISE RELY UPON THE REPRESENTATIONS
OF ISSUER. ALL REPRESENTATIONS BY ISSUER OR ITS REPRESENTATIVES AS TO
INFORMATION CONCERNING THE HOSPITALS OR THE HOSPITALS' OPERATIONS OR FINANCIAL
RESULTS, AND ALL INFORMATION SET FORTH IN THIS [SECURITIES FILING] CONCERNING
THE HOSPITALS OR THE HOSPITALS' OPERATIONS OR FINANCIAL RESULTS, IS THE SOLE
RESPONSIBILITY OF ISSUER, AND NO SUCH REPRESENTATIONS OR INFORMATION MAY BE
RELIED UPON BY ANY INVESTOR AS BEING PROVIDED OR APPROVED, EXPLICITLY OR
IMPLICITLY, BY THE PRIOR OWNER OF HOSPITAL."
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