-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lgx6s6CWj7Yd6HRyUb/iPXgxOOxwT+uipjvq56c9IS9J5jRe1Sq91jlNHfHkUdfq fViVESfGwfWsNbG+ioaNOQ== 0000758722-98-000034.txt : 19980714 0000758722-98-000034.hdr.sgml : 19980714 ACCESSION NUMBER: 0000758722-98-000034 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980630 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980710 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARACELSUS HEALTHCARE CORP CENTRAL INDEX KEY: 0000758722 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-GENERAL MEDICAL & SURGICAL HOSPITALS, NEC [8062] IRS NUMBER: 953565943 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-12055 FILM NUMBER: 98663873 BUSINESS ADDRESS: STREET 1: 515 W GREENS RD STREET 2: STE 800 CITY: HOUSTON STATE: TX ZIP: 77067 BUSINESS PHONE: 7138736623 MAIL ADDRESS: STREET 1: 515 W GREENS RD STREET 2: STE 800 CITY: HOUSTON STATE: TX ZIP: 77067 8-K 1 DHHS ACQUISITION/CHICO DISPOSTION UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JUNE 30, 1998 Commission file number 1-12055 PARACELSUS HEALTHCARE CORPORATION (Exact name of registrant as specified in its charter) CALIFORNIA 95-3565943 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 515 W. Greens Road, Suite 800, Houston, Texas (Address of principal executive offices) 77067 (281) 774-5100 (Zip Code) (Registrant's telephone number, including area code) 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On June 30, 1998, Paracelsus Healthcare Corporation (the "Company") completed the sale of substantially all of the assets of Chico Community Hospital, Inc., which included a 123 licensed bed acute care hospital and a 60 licensed bed rehabilitation hospital, both located in Chico, California, to N.T. Enloe Memorial Hospital and Enloe Health System, both California nonprofit public benefit corporations, for $25.0 million in cash plus working capital and the termination of a facility operating lease and an associated letter of credit obligation. The working capital component of the transaction is subject to a post-closing settlement. The purchase price was arrived at through an arms length negotiation. Net proceeds of the transaction were applied to reduce amounts outstanding under the Company's Amended and Restated Reducing Revolving Credit Facility (the "Credit Facility"), the agent bank of which is Paribas, and to reduce off - balance sheet commercial paper outstanding under the Company's receivable financing program. The Company expects to report a gain of approximately $4.2 million (net of tax) on the transaction. On July 1, 1998, the Company (through its subsidiary, Paracelsus Healthcare Corporation of North Dakota, Inc.) completed the purchase of Dakota Medical Foundation's 50% partnership interest in a general partnership operating as Dakota Heartland Health System ("DHHS" or the "Partnership") for $64.5 million dollars, thereby giving the Company 100% ownership of DHHS. The purchase price was pursuant to a right of the Dakota Medical Foundation to require the Company to purchase its 50% interest. Such right was negotiated on an arms length basis and was part of the original partnership agreement entered into as of December 31, 1994, which also established the formula for the purchase price. The Company funded the acquisition from borrowings under its Credit Facility. Prior to the purchase, the Company owned 50% of DHHS and accounted for its investment under the equity method. DHHS owns and operates a 218 licensed bed tertiary care hospital in Fargo, North Dakota. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS The historical financial statements for DHHS for the years ended December 31, 1996 and 1997, were previously reported in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. (a) Financial Statements (attached following the signature page): For the three months ended March 31, 1998 (Unaudited) 1. Consolidated Balance Sheet dated March 31, 1998 2. Consolidated Statements of Income for the three months ended March 31, 1998 and 1997 3. Consolidated Statement of Partner's Equity for the three months ended March 31, 1998 4. Consolidated Statements of Cash Flows for the three months ended March 31, 1998 and 1997 3 For the years ended December 31, 1995 and 1994 1. Report of PricewaterhouseCoopers, L.L.P., Independent Accountants, Dated February 16, 1996. 2. Balance Sheet dated December 31, 1995 and 1994 3. Statement of Income for the year ended December 31, 1995 4. Statement of Partners' Equity for the years ended December 31, 1995 and 1994 5. Statement of Cash Flows for the year ended December 31, 1995. 6. Notes to Financial Statements. (b) Unaudited Pro Forma financial information: Unaudited Pro Forma Condensed Combining Statement of Operations For the Three Months Ended March 31, 1998 Unaudited Pro Forma Condensed Combining Statement of Operations For the Year Ended December 31, 1997 Unaudited Pro Forma Condensed Combining Balance Sheet - March 31, 1998 Notes to Unaudited Pro Forma Condensed Combining Financial Statements (c) Exhibits 10.67 The Second Amended and First Restated Asset Purchase Agreement for Chico Community Hospital, dated December 15, 1997, and as amended dated June 12, 1998, among Paracelsus Healthcare Corporation, Chico Community Hospital, Inc., N.T. Enloe Memorial Hospital, and Enloe Health System. 10.68 Asset Purchase Agreement For Chico Community Rehabilitation Hospital, dated December 15, 1997, and as amended dated June 10, 1998, among Paracelsus Healthcare Corporation, Chico Community Hospital, Inc., N.T. Enloe Memorial Hospital, and Enloe Health System. 10.69 Agreement For Purchase and Sale of Partnership Interest, dated June 1, 1998, by and between Dakota Medical Foundation and Paracelsus Healthcare Corporation of North Dakota, Inc. 23.1 Consent of PricewaterhouseCoopers L.L.P. 4 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Paracelsus Healthcare Corporation (Registrant) Dated: July 9, 1998 By: /S/ JAMES G. VANDEVENDER ---------------------------------- James G. VanDevender Senior Executive Vice President, Chief Financial Officer & Director 5 PARACELSUS HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS The following table presents the Unaudited Pro Forma Condensed Combining Statements of Operations for the three months ended March 31, 1998, and the year ended December 31, 1997, to illustrate the effect of the sale of Chico Community Hospital and Chico Community Rehabilitation Hospital on June 30, 1998, and the Company's acquisition of Dakota Medical Foundation's (the "Foundation") 50% partnership interest in a general partnership operating as Dakota Heartland Health System ("DHHS")on July 1, 1998. The Unaudited Pro Forma Condensed Combining Statements of Operations assume the above transactions occurred at the beginning of each period. The Pro Forma Condensed Combining Balance Sheet assumes the above transactions occurred on March 31, 1998. On June 30, 1998, Paracelsus Healthcare Corporation (the "Company") completed the sale of substantially all of the assets of Chico Community Hospital, Inc., which included a 123 licensed bed acute care hospital and a 60 licensed bed rehabilitation hospital, both located in Chico, California, (collectively "Chico") to N.T. Enloe Memorial Hospital and Enloe Health System, both California nonprofit public benefit corporations, for $25.0 million in cash plus working capital and the termination of a facility operating lease and an associated letter of credit obligation. The working capital component of the transaction is subject to a post-closing settlement. The purchase price was arrived at through an arms length negotiation. Net proceeds of the transaction were applied to reduce amounts outstanding under the Company's Amended and Restated Reducing Revolving Credit Facility (the "Credit Facility"), the agent bank of which is Paribas, and to reduce off-balance sheet commercial paper outstanding under the Company's receivable financing program. On July 1, 1998, the Company (through its subsidiary, Paracelsus Healthcare Corporation of North Dakota, Inc.) completed the purchase of the Foundation's 50% partnership interest in a general partnership operating as Dakota Heartland Health System ("DHHS" or the "Partnership") for $64.5 million dollars, thereby giving the Company 100% ownership of DHHS. The purchase price was pursuant to a right of the Dakota Medical Foundation to require the Company to purchase its 50% interest. Such right was negotiated on an arms length basis and was part of the original partnership agreement entered into as of December 31, 1994, which also established the formula for the purchase price. The Company funded the acquisition from borrowings under its Credit Facility. Prior to the purchase, the Company owned 50% of DHHS and accounted for its investment under the equity method. DHHS owns and operates a 218 licensed bed tertiary care hospital in Fargo, North Dakota. These Unaudited Pro Forma Condensed Financial Statements do not purport to present the financial position or results of operations of the Company had the above transactions occurred on the dates specified, nor are they necessarily indicative of results of operations that may be expected in the future. The Unaudited Pro Forma Condensed Combining Financial Statements are qualified in their entirety by reference to, and should be read in conjunction with, the Company's audited consolidated financial statements for the year ended December 31, 1997, included in the Company's Annual Report on Form 10-K, the Company's unaudited condensed consolidated financial statements for the quarter ended March 31, 1998, included in the Company's Quarterly Report on Form 10-Q, the audited historical financial statements of DHHS for the years ended December 31, 1995 and 1994, and the unaudited historical financial statements for DHHS 6 for the quarter ended March 31, 1998, included elsewhere herein. The historical financial statements for DHHS for the years ended December 31, 1996 and 1997, were previously reported in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 7 PARACELSUS HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 (Dollars in thousands, except per share data)
Paracelsus Chico Pro Forma DHHS Healthcare Pro Forma Chico Pro Forma Pro Forma Corporation Adjustments Rf Disposition DHHS Adjustments Rf Paracelsus ----------- ----------- -- ----------- ------- ----------- -- ---------- (1) (1) Net revenue $ 160,410 $(9,389) (2) $151,021 $ 26,473 $177,494 Costs and expenses: Salaries and benefits 65,430 (4,010) (2) 61,420 9,686 71,106 Other operating expense 65,478 (3,420) (2) 62,058 9,265 71,323 Provision for bad debts 9,692 (287) (2) 9,405 825 10,230 Interest 12,379 (621) (3) 11,758 $ 1,371 (3) 13,129 Depreciation & amortization 8,188 (334) (2) 7,854 1,089 136 (5) 9,079 Equity in earnings of DHHS (3,085) (3,085) 3,085 (6) --------- ------- -------- --------- ------- -------- Total cost & expenses 158,082 (8,672) 149,410 20,865 4,592 174,867 --------- ------- -------- --------- ------- -------- Income before minority interest and income taxes 2,328 (717) 1,611 5,608 (4,592) 2,627 Minority interest (61) (61) (61) --------- ------- -------- --------- ------- -------- Income before income taxes 2,267 (717) 1,550 5,608 (4,592) 2,566 Provision for income taxes 642 (143) (4) 499 203 (4) 702 --------- ------- -------- --------- ------- -------- Net income $ 1,625 $ (574) $ 1,051 $ 5,608 $(4,795) $ 1,864 ========= ======= ======== ========= ======= ======== Income per share - - basic and assuming dilution $ 0.03 $ 0.02 $ 0.03 ========= ======== ======== Weighted average number of common and common equivalent shares 57,539 57,539 57,539 ========= ======== ========
See notes to unaudited pro forma condensed combining financial statements. 8 PARACELSUS HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (Dollars in thousands, except per share data)
Paracelsus Chico Pro Forma DHHS Healthcare Pro Forma Chico Pro Forma Pro Forma Corporation Adjustments Rf Disposition DHHS Adjustments Rf Paracelsus ----------- ----------- -- ----------- ------- ----------- -- ---------- (1) (1) Net revenue $ 659,219 $(33,751) (2) $625,468 $ 99,927 $725,395 Costs and expenses: Salaries and benefits 271,300 (16,086) (2) 255,214 36,509 291,723 Other operating expenses 269,653 (14,030) (2) 255,623 37,608 293,231 Provision for bad debts 46,606 (1,390) (2) 45,216 3,407 48,623 Interest 47,372 (2,305) (3) 45,067 $ 5,482 (3) 50,549 Depreciation and amortization 30,179 (1,270) (2) 28,909 4,595 304 (5) 33,808 Equity in earnings of DHHS (9,794) (9,794) 9,794 (6) Impairment charges 7,782 7,782 7,782 Unusual items (6,531) (6,531) (6,531) --------- ------- -------- --------- ------- -------- Total cost & expenses 656,567 (35,081) 621,486 82,119 15,580 719,185 --------- ------- -------- --------- ------- -------- Income before minority interest and income taxes 2,652 1,330 3,982 17,808 (15,580) 6,210 Minority interest (1,996) (1,996) (1,996) --------- ------- -------- --------- ------- -------- Income before income taxes 656 1,330 1,986 17,808 (15,580) 4,214 Provision for income taxes 1,812 546 (4) 2,358 913 (4) 3,271 --------- ------- -------- --------- ------- -------- Net loss $ (1,156) $ 784 $ (372) $ 17,808 $(16,493) $ 943 ========= ======= ======== ========= ======= ======== Loss per share - basic and assuming dilution $ (.02) $ (.01) $ .02 ========= ======== ======== Weighted average number of common and common equivalent shares 54,946 54,946 1,392 (7) 56,338 ========= ======== ======= ========
See notes to unaudited pro forma condensed combining financial statements. 9 PARACELSUS HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET PRO FORMA CONDENSED COMBINING BALANCE SHEET MARCH 31, 1998 (Dollars in thousands)
Paracelsus Chico Pro Forma DHHS Healthcare Pro Forma Chico Pro Forma Pro Forma Corporation Adjustments Rf Disposition DHHS Adjustments Rf Paracelsus ----------- ----------- -- ----------- ------- ----------- -- ---------- ASSETS: (1) (1) Current assets: Cash and cash equivalents $ 14,117 $ (1,820) (8) $ 12,297 $ 4,359 $ 16,656 Restricted cash 6,636 6,636 6,636 Accounts receivable, net 70,702 (3,197) (2) 67,505 17,744 85,249 Deferred income taxes 25,906 (879) (9) 25,027 25,027 Other 43,892 (1,220) (2) 42,672 5,135 47,807 --------- ------- -------- --------- -------- Total current assets 161,253 (7,116) 154,137 27,238 181,375 --------- ------- -------- --------- -------- Property and (2) equipment, net 306,402 (15,964) (9) 290,438 60,764 $ 7,443 (10) 358,645 Goodwill 113,463 113,463 29,770 (10) 143,233 Other assets 138,345 (2,005) (9) 136,340 3,350 (50,501)(10) 89,189 --------- ------- -------- --------- ------- -------- Total assets $719,463 $(25,085) $ 694,378 $ 91,352 $(13,288) $ 772,442 ========= ======= ======== ========= ======= ========
See notes to unaudited pro forma condensed combining financial statements 10 PARACELSUS HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINING BALANCE SHEET PRO FORMA CONDENSED COMBINING BALANCE SHEET MARCH 31, 1998 (Dollars in thousands)
Paracelsus Chico Pro Forma DHHS Healthcare Pro Forma Chico Pro Forma Pro Forma Corporation Adjustments Rf Disposition DHHS Adjustments Rf Paracelsus ----------- ----------- -- ----------- ------- ----------- -- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities: Accounts payable $ 45,034 $ (3,106) (2) $ 41,928 $ 5,970 $ 47,898 Accrued liabilities and other 70,060 (1,547) (2) 68,513 7,116 75,629 Current maturities of long-term debt 6,495 (6) (2) 6,489 6,489 --------- ------- -------- --------- -------- Total current liabilities 121,589 (4,659) 116,930 13,086 130,016 --------- ------- -------- --------- -------- Long term debt 490,856 (24,576) (8) 466,280 $64,978 (3) 531,258 Other long-term liabilities 64,565 64,565 64,565 Partners' equity 78,266 (78,266) (11) Stockholders' equity Common stock 224,475 224,475 224,475 Additional paid-in capital 390 390 390 Unrealized gains on marketable securities 12 12 12 Accumulated deficit (182,424) 4,150 (9) (178,274) (178,274) --------- ------- -------- -------- Total stockholders' equity 42,453 4,150 46,603 46,603 --------- ------- -------- -------- Total liabilities & shareholders' equity $ 719,463 $(25,085) $ 694,378 $ 91,352 $(13,288) $ 772,442 ========= ======== ========= ======== ======= ========
See notes to unaudited pro forma condensed combining financial statements 11 PARACELSUS HEALTHCARE CORPORATION NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS The following is a summary of the pro forma adjustments by line item.
Reference to Notes to Pro Forma Financial Statements Explanations - ----------- ----------------------------------------------------------------------------- (1) The statements of operations and balance sheet for Paracelsus Healthcare Corporation are summarized from its quarterly and annual reports on Form 10-Q and Form 10-K, respectively. DHHS' financial statements as of and for the three months ended March 31, 1998, are summarized from the unaudited consolidated historical financial statements included elsewhere herein. DHHS' statement of operations for the year ended December 31, 1997, are summarized from the Company's annual report on Form 10-K. (2) To remove Chico's historical results of operations, assets sold, liabilities assumed by the buyer, and liabilities paid by the Company in conjunction with the sale of Chico. (3) To record interest expense on (i) the net pro forma increase in the Credit Facility resulting from the Company's acquisition of the Foundation's 50% interest in DHHS, less net proceeds from the sale of Chico, and (ii) the pro forma decrease in amounts outstanding under the Company's commercial paper program as a result of the sale of Chico accounts receivable, certain accounts of which served as collateral under the program. With respect to Chico, the Unaudited Pro Forma Condensed Combining Statements of Operations assume application of $24.6 million in net proceeds from the Chico sale to reduce the Credit Facility (see Note 8) and a $3.1 million reduction in amounts outstanding under the Company's commercial paper program. The average interest rate in effect under the Credit Facility was 9.0% for the quarter ended March 31, 1998, and 8.3% for the year ended December 31, 1997. The average interest rate in effect under the commercial paper program was 6.8% for the quarter ended March 31, 1998, and 6.9% for the year ended December 31, 1997. With respect to DHHS, the Unaudited Pro Forma Condensed Combining Statements of Operations assume the Company increased the principal amount outstanding under the Credit Facility by $65.0 million (See Note 10). The interest rate currently in effect under the revolver portion of the Credit Facility is 8.4% (4) To record the pro forma provision for income taxes after taking into effect the sale of Chico and the consolidation of DHHS pursuant to the Company's acquisition of the Foundation's 50% interest in DHHS, thereby giving the Company 100% ownership of DHHS. Previously, the Company accounted for its investment in DHHS under the equity method. The incremental effective tax rate on income from continuing operations was 20% and 41% for the quarter ended March 31, 1998, and the year ended December 31, 1997, respectively.
12 PARACELSUS HEALTHCARE CORPORATION NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
Reference to Notes to Pro Forma Financial Statements Explanations - ----------- ----------------------------------------------------------------------------- (5) To adjust depreciation and amortization expense for the step up in basis for the depreciable assets of DHHS and the increase in goodwill in connection with the allocated purchase price (see Note 10). The acquired assets are estimated to have an average remaining useful life of approximately 20 years based on management's assumptions that DHHS's assets consist of 65% building and 35% equipment with the useful life of such assets determined in accordance with the Company's depreciation policy (35 years, 20 years and 10 years for buildings, improvements and equipment, respectively). Cost in excess of fair market value of net assets acquired ("Goodwill") is amortized on a straight line basis over a 20-year period. Based on this preliminary allocation, depreciation and amortization expense increased approximately $136,000 and $304,000 on a pro forma basis for the quarter ended March 31, 1998, and the year ended December 31, 1997, respectively. (6) To remove equity in the earnings of DHHS previously recorded by the Company. (7) To adjust the common and common equivalent shares to include the effect of dilutive securities on pro forma net income for the year ended December 31, 1997. (8) To reflect the pro forma sources and uses of cash in connection with the sale of Chico (in thousands). SOURCES: Proceeds from the sale of: Property and equipment $25,000 Pro forma net working capital(a) 3,904 ------- Total sources 28,904 ------- USES: Estimated transaction costs 2,002 Repayment of Credit Facility (b) 24,576 Repayment of amounts outstanding under commercial paper program(b) 3,115 Accrued employee benefits (a) 1,031 ------- Total uses 30,724 ------- Net use of funds $(1,820) ======= (a) Based on working capital balances as of March 31, 1998. Actual proceeds to be based on balances as of June 30, 1998, subject to adjustment and final settlement by the parties. (b) Based on actual amounts paid at or prior to the closing of the Chico sale.
13 PARACELSUS HEALTHCARE CORPORATION NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
Reference to Notes to Pro Forma Financial Statements Explanations - ----------- ----------------------------------------------------------------------------- (9) To record the pro forma gain on the sale of property and equipment of Chico. No gain or loss is anticipated on the sale of net working capital. (in thousands) Proceeds from the sale of property and equipment $25,000 Estimated transaction costs (2,002) ------- Net proceeds 22,998 Basis of property and equipment sold (15,964) ------- Pro forma gain before income taxes 7,034 Provision for income taxes (41%) 2,884 ------- Pro forma gain on sale $ 4,150 ======= ALLOCATION OF TAX LIABILITY: Current $ 879 Long term 2,005 ------- $ 2,884 ======= (10) To record the acquisition of DHHS using the purchase method of accounting, including the adjustment of DHHS's balance sheet to reflect the estimated fair market value of property and equipment acquired in excess of the DHHS' historical cost. The purchase price allocation reflected in the Pro Forma Condensed Combining Balance Sheet is based upon the best information currently available without a final independent appraisal of the net assets of DHHS. For the purpose of allocating net acquisition costs among the various assets acquired, the Company has tentatively allocated 20% of the net excess acquisition cost over DHHS' carrying value of the acquired assets to property and equipment and 80% to Goodwill. It is the Company's intention to more fully evaluate the net assets acquired and, as a result, the allocation of acquisition cost may change.
14 PARACELSUS HEALTHCARE CORPORATION NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
Reference to Notes to Pro Forma Financial Statements Explanations - ----------- ----------------------------------------------------------------------------- (10) Note 10 (continued) The Company does not expect the final allocation of acquisition cost to be materially different from that assumed in the Pro Forma Condensed Combining Balance Sheet. The following table summarizes the calculation of the preliminary purchase price allocation(in thousands): Total cash consideration (a) $ 64,528 Estimated transaction costs (a) 450 Company's prior investment in DHHS (b) 49,915 -------- Total cost to be allocated 114,893 Less net working capital acquired (14,152) Less DHHS' investment in equity investees (3,350) Plus intangible assets not allocated value (b) 586 Less DHHS' historical property and equipment value, net (60,764) -------- Purchase price in excess of DHHS' cost 37,213 Purchase price allocated to property and equipment(c) 7,443 -------- Purchase price allocated to Goodwill $ 29,770 ======== (a) Pro forma increase in credit facility, or $64,978. (b) Pro forma reduction in other long term assets. (c) Calculated as follows: Total purchase price allocated to property and equipment $ 75,649 Less DHHS' historical property and equipment value, net (60,764) -------- Step up in basis of property and equipment 14,885 Ownership percentage acquired 50% -------- Purchase price allocated to property and equipment in excess of the DHHS' cost $ 7,443 ======== (11) To remove the Foundation's partnership equity.
15 DAKOTA HEARTLAND HEALTH SYSTEM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 1998 16 DAKOTA HEARTLAND HEALTH SYSTEM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 1998 CONTENTS Consolidated Balance Sheet 17 Consolidated Statements of Income 18 Consolidated Statements of Partners' Equity 19 Consolidated Statements of Cash Flows 20 Notes to Consolidated Financial Statements 21 17 Dakota Heartland Health Center Consolidated Balance Sheets
MARCH 31, DECEMBER 31, 1998 1997 ------------------------------------ (Unaudited) (Note 1) ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 4,358,737 $ 7,276,675 Patient receivables, net of allowance for uncollectable accounts of $1,814,661 and $1,278,500 at March 31, 1998, and December 31, 1997, respectively 17,743,628 14,374,894 Supplies inventory 2,435,058 2,197,815 Prepaid expenses and other current assets 2,700,343 1,833,996 ------------ ------------ Total current assets 27,237,766 25,683,380 Property and equipment, net 60,764,444 60,663,177 Other assets: Investment in and advances to affiliates 2,496,668 2,316,137 Organizational costs, less accumulated amortization of $489,075 and $435,300 in March 31, 1998 and December 31, 1997, respectively 586,411 640,186 Other 266,990 234,915 ------------ ------------ Total assets $ 91,352,279 $ 89,537,795 ============ ============ LIABILITIES AND PARTNERS' EQUITY Current liabilities: Accounts payable $ 5,969,733 $ 5,017,075 Estimated third-party payor settlements 2,846,413 2,905,822 Accrued salaries and benefits 2,555,344 2,999,265 Other current liabilities 1,714,444 2,923,616 ------------ ------------ Total current liabilities 13,085,934 13,845,778 Partners' equity 78,266,345 75,692,017 ------------ ------------ Total liabilities and partners equity $ 91,352,279 $ 89,537,795 ============ ============
See accompanying notes. 18 Dakota Heartland Health System Consolidated Statements of Income (Unaudited)
THREE MONTHS ENDED MARCH 31, 1998 1997 ----------------------------------------- Revenue: Net patient service revenue $ 25,455,748 $ 23,882,534 Other revenue 1,016,757 800,176 ------------- ------------- Net revenue 26,472,505 24,682,710 Expenses: Salaries and benefits 9,686,615 8,910,903 Professional fees 2,534,854 3,287,530 Supplies 4,747,666 3,868,959 Depreciation and amortization 1,088,686 1,128,075 Provision for uncollectable accounts 824,836 858,328 Repairs and maintenance 409,007 227,553 Utilities 328,051 333,016 Rent and leases 296,702 366,322 Property taxes 271,198 285,914 Other 676,575 763,601 ------------- ------------- Total expenses 20,864,190 20,030,201 ------------- ------------- Net income $ 5,608,315 $ 4,652,509 ============= =============
See accompanying notes. 19 Dakota Heartland Health System Consolidated Statements of Partners' Equity (Unaudited)
PARACELSUS DAKOTA HEALTHCARE MEDICAL CORPORATION FOUNDATION TOTAL ------------ ------------ ------------ Partners' equity at December 31, 1997 $ 48,621,776 $ 27,070,241 $ 75,692,017 Net income 3,084,573 2,523,742 5,608,315 Partners' distributions (1,668,693) (1,365,294) (3,033,987) ------------ ------------ ------------ Partners' equity at March 31, 1998 $ 50,037,656 $ 28,228,689 $ 78,266,345 ============ ============ ============
See accompanying notes. 20 Dakota Heartland Health Center Consolidated Statements of Cash Flows (Unaudited)
THREE MONTHS ENDED MARCH 31, 1998 1997 ------------------------------- OPERATING ACTIVITIES Net income $ 5,608,315 $ 4,652,509 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,088,686 1,128,075 Provision for uncollectable accounts 824,836 858,328 Changes in operating assets and liabilities: Patient receivables, net (4,193,570) 415,147 Supplies inventory (237,243) 3,868 Prepaid expenses and other current assets (866,347) (811,396) Other assets (32,075) (79,649) Accounts payable 952,658 (1,788,813) Estimated third-party payor settlements (59,409) 232,429 Accrued salaries and benefits (443,921) (1,015,685) Other current liabilities (1,209,172) (415,048) ----------- ------------ Net cash provided by operating activities 1,432,758 3,179,765 INVESTING ACTIVITIES Purchase of property and equipment (1,136,178) (2,548,085) Increase in investments and advances to affiliates (180,531) (144,631) ----------- ------------ Net cash used in investing activities (1,316,709) (2,692,716) FINANCING ACTIVITIES Partners' distributions (3,033,987) (3,713,142) ----------- ------------ Decrease in cash and cash equivalents (2,917,938) (3,226,093) Cash and cash equivalents at beginning of year 7,276,675 6,718,589 ----------- ------------ Cash and cash equivalents at end of year $ 4,358,737 $ 3,492,496 =========== ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for taxes $ 35,000 $ 150,301
See accompanying notes. 21 Dakota Heartland Health Center Notes to Consolidated Financial Statements March 31, 1998 1. ORGANIZATION AND BASIS OF PRESENTATION On December 21, 1994, Dakota Heartland Health System (the "Partnership"), a general partnership, was formed by a wholly-owned subsidiary of Champion Healthcare Corporation ("Champion") that owned Heartland Medical Center, a 140- bed general acute facility in Fargo, North Dakota, and Dakota Medical Foundation (the "Foundation"), a not-for-profit corporation that owned Dakota Hospital, a 199-bed general acute care hospital also in Fargo, North Dakota. Champion and the Foundation contributed certain assets and liabilities, excluding long-term debt except capital leases, of their respective hospitals, and Champion contributed an additional $20 million in cash, each in exchange for 50% ownership in the Partnership. The Partnership then made a $20 million cash distribution to the Foundation. On December 21, 1994, Champion entered into an operating agreement with the Partnership to manage the combined operations of the two hospitals. Champion will receive 55% of the net income and distributable cash flow ("DCF") of the Partnership until such time as it has recovered, on a cumulative basis, an additional $10 million of DCF in the form of an "excess" distribution. In 1996, Paracelsus Healthcare Corporation ("Paracelsus") became the sole owner of Champion. BASIS OF PRESENTATION - The accompanying unaudited condensed consolidated financial statements of the Partnership have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The balance sheet at December 31, 1997, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The Partnership's business is seasonal in nature and subject to general economic conditions and other factors. Accordingly, operating results for the three months ending March 31, 1998, are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. These financial statements should be read in conjunction with the Partnership's audited consolidated financial statements and notes thereto for the year ended December 31, 1997, included in Paracelsus Healthcare Corporation's 1997 Form 10-K. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INCOME TAXES - The Partnership's income is attributed to its partners for income tax purposes. Accordingly, it has not accrued any liability for income taxes. An entity owned by the Partnership has paid income taxes of $35,000 and $150,301 for the quarters ended March 31, 1998 and 1997, respectively. 22 Dakota Heartland Health Center Notes to Consolidated Financial Statements March 31, 1998 2. SUBSEQUENT EVENT On August 20, 1997, the Foundation exercised its right to require Paracelsus to purchase the Foundation's 50% ownership interest in the Partnership. On July 1, 1998, Paracelsus (through its subsidiary Paracelsus Healthcare Corporation of North Dakota, Inc.) completed the purchase of the Foundation's 50% ownership in the Partnership for a negotiated purchase price of $64.5 million, inclusive of working capital, thereby giving Paracelsus 100% ownership of Dakota Heartland Health System. Paracelsus has sole power and authority to wind up the Partnership's business after July 1, 1998, and the Partnership shall terminate as of the date Paracelsus completes the wind up of the Partnership's business. 23 DAKOTA HEARTLAND HEALTH SYSTEM REPORT ON AUDIT OF FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1995 24 C O N T E N T S PAGE Report of Independent Accountants 25 Financial Statements: Balance Sheet 26 Statement of Income 27 Statement of Partners' Equity 28 Statement of Cash Flows 29 Notes to Financial Statements 30 25 REPORT OF INDEPENDENT ACCOUNTANTS To the Governing Board of Dakota Heartland Health System: We have audited the accompanying balance sheet of Dakota Heartland Health System (the Partnership) as of December 31, 1995 and 1994, and the related statements of income, partners' equity and cash flows for the year ended December 31, 1995. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dakota Heartland Health System as of December 31, 1995 and 1994, and the results of its operations, partners' equity and cash flows for the year ended December 31, 1995, in conformity with generally accepted accounting principles. /S/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP Minneapolis, Minnesota February 16, 1996 3 26 Dakota Heartland Health System BALANCE SHEET DECEMBER 31, 1995 AND 1994
ASSETS 1995 1994 ------------ ------------ Current assets: Cash and cash equivalents $ 19,062,865 $ 397,300 Patient receivables, net of allowance for uncollectible accounts of $3,396,655 and $3,439,911 in 1995 and 1994, respectively 17,339,282 21,530,288 Due from partners 4,000,000 Supplies inventory 1,602,786 1,724,706 Prepaid expenses and other current assets 1,003,019 568,052 ------------ ------------ Total current assets 39,007,952 28,220,346 Property and equipment, at cost 52,940,547 42,333,642 Other assets: Investment in and advances to affiliates 1,835,223 1,964,073 Organizational costs, less accumulated amortization of $45,291 1,057,215 -- Other 20,943 -- ------------ ------------ Total assets $ 94,861,880 $ 72,518,061 ============ ============ LIABILITIES AND PARTNERS' EQUITY Current liabilities: Accounts payable $ 12,380,016 $ 3,788,183 Estimated third-party payor settlements 2,008,176 3,426,079 Accrued salaries, wages and employee benefits 3,548,505 4,754,690 Other current liabilities 2,043,794 242,563 ------------ ------------ Total current liabilities 19,980,491 12,211,515 Other liabilities -- 91,404 Minority interest 56,877 38,478 Partners' equity 74,824,512 60,176,664 ------------ ------------ Total liabilities and partners' equity $ 94,861,880 $ 72,518,061 ============ ============
The accompanying notes are an integral part of the financial statements. 27 DAKOTA HEARTLAND HEALTH SYSTEM STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995 Net patient service revenue $ 99,098,598 Other revenue 6,912,796 ------------- Net revenue 106,011,394 ------------- Expenses: Salaries and benefits 38,796,941 Professional fees 20,446,296 Supplies 16,299,957 Depreciation and amortization 2,405,978 Repairs and maintenance 1,079,489 Utilities 1,224,450 Insurance 789,648 Rents and leases 2,003,288 Provision for uncollectible accounts 3,797,944 Property taxes 910,264 Other 2,109,291 ------------- Total expenses 89,863,546 ------------- Net income $ 16,147,848 =============
The accompanying notes are an integral part of the financial statements. 28 DAKOTA HEARTLAND HEALTH SYSTEM STATEMENT OF PARTNERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
CHAMPION DAKOTA TOTAL EQUITY ------------ ------------ ------------ Net assets contributed $ 16,511,768 $ 39,664,896 $ 56,176,664 Cash contribution 20,000,000 20,000,000 Working capital contributions due from partners 2,000,000 2,000,000 4,000,000 Equalization of capital accounts 1,576,564 (1,576,564) - - ------------ ------------ ------------ Initial capital 40,088,332 40,088,332 80,176,664 Special distribution - - (20,000,000) (20,000,000) ------------ ------------ ------------ Partners' equity, December 31, 1994 40,088,332 20,088,332 60,176,664 Net income 8,881,316 7,266,532 16,147,848 Partners' distribution (825,000) (675,000) (1,500,000) ------------ ------------ ------------ Partners' equity, December 31, 1995 $ 48,144,648 $ 26,679,864 $ 74,824,512 ============ ============ ============
The accompanying notes are an integral part of the financial statements. 29 DAKOTA HEARTLAND HEALTH SYSTEM STATEMENT OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FOR THE YEAR ENDED DECEMBER 31, 1995 Cash flows from operating activities: Net income $ 16,147,848 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,405,978 Gain on sale of property, plant and equipment (1,388) Provision for uncollectible accounts 3,797,944 Minority interest 18,399 Changes in operating assets and liabilities: Patient receivables, net 393,062 Supplies inventory 121,920 Prepaid expenses and other current assets (434,967) Other assets (20,943) Accounts payable 8,591,833 Estimated third-party payor settlements (1,417,903) Accrued expenses (1,206,185) Other liabilities 1,709,827 ------------- Net cash provided by operating activities 30,105,425 ------------- Cash flows from investing activities: Purchase of property and equipment (12,967,592) Payment for organizational costs (1,102,506) Contribution from partners 4,000,000 Other 130,238 ------------- Net cash used in investing activities (9,939,860) ------------- Cash flows from financing activities: Partners' draws (1,500,000) ------------- Net cash used in financing activities (1,500,000) ------------- Increase in cash and cash equivalents 18,665,565 ------------- Cash and cash equivalents, beginning of year 397,300 ------------- Cash and cash equivalents, end of year $ 19,062,865 ============= Supplemental disclosure of cash flow information: Cash paid during the year for interest $ 15,236 Cash paid for taxes 447,207
The accompanying notes are an integral part of the financial statements. 30 DAKOTA HEARTLAND HEALTH SYSTEM NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND ACCOUNTING POLICIES: On December 21, 1994, Dakota Heartland Health System, a general partnership (the Partnership), was formed by a wholly owned subsidiary of Champion Healthcare Corporation (Champion) that owned Heartland Medical Center, a 140-bed general acute care facility in Fargo, North Dakota, and Dakota Hospital (Dakota), a not-for-profit corporation that owned Dakota Hospital, a 199-bed general acute care hospital also in Fargo, North Dakota. Champion and Dakota contributed certain assets and liabilities, excluding long-term debt except capital leases, of their respective hospitals, and Champion contributed an additional $20,000,000 in cash, each in exchange for 50% ownership in the Partnership. The Partnership then made a $20,000,000 cash distribution to Dakota. Also on December 21, 1994, Champion entered into an operating agreement with the Partnership to manage the combined operations of the two hospitals. Champion will receive 55% of the net income and distributable cash flow (DCF) of the Partnership until such time as it has recovered, on a cumulative basis, an additional $10,000,000 of DCF in the form of an "excess" distribution (see also Note 4). USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net income during the reporting period. Actual results could differ from those estimates. The most significant areas which require the use of management's estimates relate to the determination of the estimated third-party payor settlements, the allowance for uncollectible accounts receivable and obsolete inventory. CASH AND CASH EQUIVALENTS: The Partnership considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. PATIENT RECEIVABLES: Payments for services rendered to patients covered by third-party payor programs are generally less than billed charges. Provisions for contractual adjustments are made to reduce the charges to these patients to estimated receipts based upon the third-party payor's principles of payment/ reimbursement (either prospectively determined or retrospectively determined costs). SUPPLIES INVENTORY: Supplies inventory is stated at the lower of cost or market, with cost determined substantially on the first-in, first-out basis. 31 DAKOTA HEARTLAND HEALTH SYSTEM NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND ACCOUNTING POLICIES, CONTINUED: PROPERTY AND EQUIPMENT: Property and equipment acquisitions are recorded at cost at the date of receipt. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets, ranging from 4 to 25 years. Maintenance and repairs are charged to expense as incurred while renewals and betterments are capitalized. The costs and related accumulated depreciation on asset disposals are removed from the accounts and any gain or loss is included in income. INCOME TAXES: The Partnership's income is attributed to its partners for income tax purposes. Accordingly, it has not accrued any liability for income taxes. Entities owned by the Partnership have paid income taxes during 1995 totaling $447,207. RECLASSIFICATIONS: Certain reclassifications have been made in the 1994 financial statements to conform to the 1995 presentation. 2. NET PATIENT SERVICE REVENUE: The Company's facilities have entered into agreements with third-party payors, including US government programs and managed care health plans, under which the Company is paid based upon established charges, cost of services provided, predetermined rates by diagnosis, fixed per diem rates or discounts or discounts from established charges. Net patient service revenues are recorded at estimated amounts due from patients and third-party payors for health care services provided, including anticipated settlements under reimbursement agreements with third-party payors. Payments for services rendered to patients covered by the Medicare and Medicaid programs are generally less than billed charges. Provisions for contractual adjustments are made to reduce charges to these patients to estimated receipts based upon each program's principle of payment/reimbursement (either prospectively determined or retrospectively determined costs). Final settlements under these programs are subject to administrative review and audit. The Company records adjustments, if any, resulting from such review or audits during the period in which these adjustments become known. Allowance for contractual adjustments under these programs are netted in accounts receivable in the accompanying Balance Sheet. It is management's opinion that adequate allowance has been provided for possible adjustments that might result from final settlements under these programs. 32 DAKOTA HEARTLAND HEALTH SYSTEM NOTES TO FINANCIAL STATEMENTS, CONTINUED 3. PROPERTY AND EQUIPMENT: A summary of property and equipment as of December 31, 1995 and 1994 is as follows:
1995 1994 -------------- -------------- Land and land improvements $ 2,360,412 $ 2,387,095 Buildings and improvements 21,624,868 20,087,268 Fixed equipment 4,899,749 4,724,125 Major movable equipment 13,863,470 12,516,205 Minor movable equipment 1,003,318 1,101,633 Construction in progress 10,638,351 606,250 Property held for expansion 911,066 911,066 -------------- -------------- 55,301,234 42,333,642 Less accumulated depreciation 2,360,687 -- -------------- -------------- $ 52,940,547 $ 42,333,642 ============== ==============
4. INVESTMENTS IN AND ADVANCES TO AFFILIATES: The Partnership owns portions of several entities. The investments in these entities are recorded on the equity method. The investments in and advances to affiliated companies on the accompanying balance sheet consisted of the following:
Investments and Advances Ownership --------------------------------- Percentage 1995 1994 -------------- -------------- Orthopro, Inc. 50% $ 203,155 Country Health, Inc. 49% $ 805,632 665,629 Health Care Incinerators, Inc. /Thorn Linen 33% 210,701 193,235 Dakota Outpatient Center 50% 356,016 311,604 Dakota Day Surgery 50% 462,874 590,450 ---------- ----------- $1,835,223 $ 1,964,073 ========== ===========
During 1995, the Partnership sold its 50% interest in Orthopro, Inc. 33 DAKOTA HEARTLAND HEALTH SYSTEM NOTES TO FINANCIAL STATEMENTS, CONTINUED 4. INVESTMENTS IN AND ADVANCES TO AFFILIATES, CONTINUED: The Partnership has a 50% interest in Dakota Outpatient Center (DOC), a general partnership which owns and operates a medical and office building. As a general partner, the Partnership is contingently liable on the outstanding debt of DOC. As of December 31, 1995, the balance of the note was $2,416,564. DOC also leases its real property to Dakota Hospital, Dakota Day Surgery (DDS) and Dakota Clinic, Ltd. (an unrelated corporation), under noncancelable 10-year net operating leases. Future minimum annual lease payments to be paid by the Hospital and DDS are $1,414,500 through 1998. The Partnership also has a 50% interest in DDS, a general partnership which provides outpatient surgical services. As a general partner, the Partnership is contingently liable to cover any operating losses of DDS. DDS had operating income in 1995. 5. CREDIT RISK The Partnership's revenues consist primarily of amounts due from the Medicare and Medicaid programs in addition to amounts due from insurance carriers and individuals. The Partnership determines the adequacy of a patient's third-party payor coverage upon admission. However, it generally does not require any collateral prior to performing services. The Partnership maintains reserves for contractual allowances and potential credit losses based on past experience and management's current expectations. Medicare and Medicaid gross revenue accounted for approximately 46% and 9% of the Partnership's total gross revenue. .. EX-10.67 2 SECOND AMENDED AND FIRST RESTATED ASSET PURCHASE AGREEMENT FOR CHICO COMMUNITY HOSPITAL THIS SECOND AMENDED AND FIRST RESTATED ASSET PURCHASE AGREEMENT FOR CHICO COMMUNITY HOSPITAL (this "AGREEMENT"), dated as of December 15, 1997, among Paracelsus Healthcare Corporation ("PARACELSUS"), a California corporation, Chico Community Hospital, Inc.("CCH" and "SELLER"), a California corporation and N.T. Enloe Memorial Hospital, a California nonprofit public benefit corporation ("BUYER") and Enloe Health System, a California nonprofit public benefit corporation ("SYSTEM"). RECITALS A. WHEREAS, Paracelsus is the parent corporation of Seller; B. WHEREAS, CCH owns and operates a 123 bed licensed general acute care hospital located at 560 Cohasset Road, Chico, California 95926 ("CCH"); C. WHEREAS, Seller and Buyer have entered into that certain Asset Purchase Agreement ("CRH AGREEMENT") whereunder Seller has agreed to assign to Buyer all of Seller's right, title and interest in and to Seller's lease of Chico Community Rehabilitation Hospital ("CRH") and to sell to Buyer substantially all of the assets, real and personal, tangible and intangible, used by Seller in the operation of CRH (collectively, "CRH FACILITY"). D. WHEREAS, Paracelsus and CCH desire to sell to Buyer and Buyer desires to purchase substantially all of the assets, real and personal, tangible and intangible, used by CCH in the operation of CCH (collectively the "BUSINESS"); W I T N E S S E T H: NOW, THEREFORE, for and in consideration of the foregoing premises and the agreements, covenants, representations and warranties hereinafter set forth and other good and valuable consideration, the receipt and adequacy of all of which are acknowledged and agreed, the parties hereto agree as follows: 1. SALE OF ASSETS AND CERTAIN RELATED MATTERS. 1.1 SALE OF ASSETS. Subject to the terms and conditions of this Agreement, at the Closing (as hereinafter defined), Seller shall sell, transfer, convey, assign and deliver to the Buyer, and Buyer shall purchase from Seller, the following assets and properties: (a) all real property and other real property interests used in connection with the operation of the Business or owned by Seller, including, without limitation, the operations of the hospital known as Chico Community Hospital (collectively the "HOSPITAL") together with all buildings, improvements and fixtures located thereupon and all construction in progress (such real property is referred to herein as the "REAL PROPERTY"), such Real Property being more specifically described in SCHEDULE 1.1(A); (b) all tangible personal property (excluding cash and cash equivalents) owned by Seller and used in connection with the Business, including, without limitation, all equipment, furniture, fixtures, machinery, vehicles, office furnishings, instruments, leasehold improvements and spare parts described in SCHEDULE 1.1(B), and, to the extent assignable or transferable by Seller, all rights in all warranties of any manufacturer or vendor with respect thereto (collectively the "PERSONAL PROPERTY"), but excluding the personal property described in Section 1.2(ix) hereof. (c) all rights, to the extent assignable or transferable, to all licenses, certificates of need, certificates of exemption, franchises, accreditations and registrations and other licenses or permits issued in connection with the Business (the "LICENSES"), including, without limitation, the Licenses described in SCHEDULE 1.1(C); (d) all of Seller's interest in and to those real property and personal property leases relating to the Business described in SCHEDULE 1.1(D) (all of such leases being referred to collectively as the "LEASES"); (e) all of Seller's interest in, to and under those contracts and agreements relating to the Business set forth in SCHEDULE 1.1(E) (the "CONTRACTS"); (f) any deposits, escrows, prepaid taxes or other advance payments relating to any expenses of the Business, as identified on SCHEDULE 1.1(F) as prepaid expenses to be transferred to Buyer (the "PREPAID EXPENSES"), but excluding the prepaid expenses of Seller described in SCHEDULE 1.1(F) hereof as prepaid expenses to be retained by Seller ("EXCLUDED PREPAID EXPENSES"); (g) all inventories of supplies, drugs, food, janitorial and office supplies and other disposables and consumables owned by Seller on the Closing Date (as hereinafter defined) and located at the premises of Seller or purchased by Seller for use in connection with the Business (the "OPERATING INVENTORY"); (h) all accounts receivable with respect to the Business, including all accounts receivable arising from the rendering of services to inpatients and outpatients at the Hospital, billed and unbilled, recorded or unrecorded, accrued and existing in respect of services up to the effective date of the Closing, including those from any source, excluding, however, the Excluded Receivables, as defined below (the "ACCOUNTS RECEIVABLE"); (i) all documents, records, operating manuals and files, and computer software owned by Seller, pertaining to or used in connection with the Business, including, without limitation, all patient records, medical records, financial records, equipment records, construction plans and specifications, and medical and administrative libraries, but excluding Seller's corporate minute books, minutes, tax records and any other records of Seller required to be maintained as a matter of law. (j) to the extent transferable by Seller, all unexpired warranties and covenants not to compete relating to the Business for which Seller is the beneficiary; (k) to the extent transferable by Seller, all rights and interest of Seller in all joint ventures, partnerships, corporations and other entities listed on SCHEDULE 1.1(K) and accepted by Buyer; (l) except as expressly excluded herein, all other property owned by Seller, whether tangible or intangible, located at the premises of Seller or used in connection with the Business whether or not reflected on the balance sheet of Seller, and specifically including the name "Chico Community Hospital"; and (m) an amount equal to the Medicare Receivables, which shall be evidenced by the Medicare Reconciliation Note. The foregoing, which (except for the Excluded Assets, as defined in Section 1.2) are hereafter referred to, collectively, as the "ASSETS", comprise substantially all of the property and assets used in the conduct and operation of the Business as of October 31, 1997, including without limitation, those assets reflected on the unaudited balance sheet of Seller dated October 31, 1997 (the "BALANCE SHEET"), and all assets acquired by Seller between October 31, 1997 and the Closing. 1.2 EXCLUDED ASSETS. The following items which are related to the Assets are not intended by the parties to be a part of the sale and purchase contemplated hereunder and are excluded from the Assets (collectively, the "EXCLUDED ASSETS"): (i) all cash and cash equivalents and temporary investments; (ii) (a) all amounts payable or to become payable to Seller from third party payors in respect of periods prior to the Cut-Off Point in respect of third party payor cost reports, including, without limitation, Medicare and Medi-Cal cost reports, filed or to be filed by Seller (the "COST REPORT RECEIVABLES"), (b) all accounts receivable from Medicare, MediCal and CHAMPUS with respect to the Business arising from the rendering of services to inpatients and outpatients at the Hospital, billed and unbilled, recorded and unrecorded, accrued and existing in respect of services up to the effective date of Closing (such accounts receivable, excluding the Cost Report Receivables, are referred to herein as the "MEDICARE RECEIVABLES"), and (c) the accounts receivable set forth on SCHEDULE 1.2(II) hereto, (such receivables referred to in clauses (a), (b) and (c) above, the "EXCLUDED RECEIVABLES"); (iii) Seller's corporate minute books, minutes, tax records and other records of Seller required to be maintained by Seller as a matter of law (it being understood that patient medical records of the Hospital are not intended to be excluded); (iv) all Excluded Prepaid Expenses of Seller identified in SCHEDULE 1.1(F) hereto; (v) all supplies, drugs, food and other disposables and consumables disposed of in the ordinary course of business prior to the Closing; (vi) the name "Paracelsus" and all variations thereof; (vii) all rights and privileges under contracts, agreements and leases not listed on SCHEDULES 1.1(D) OR 1.1(E) hereto; (viii) any claims by Seller against third parties whether known or unknown, contingent or otherwise, except those expressly described in Section 1.1(b); (ix) all intercompany accounts of Seller and Paracelsus and their affiliates; (x) any proprietary information contained in Seller's employee or operation manual that does not pertain to the ongoing operations of the Hospital; (xi) all commitments, contracts, leases, capital leases, notes, and agreements between Seller, Paracelsus and their affiliates; and (xii) the property described in SCHEDULE 1.2(XII) hereto. 1.3 ASSETS FREE AND CLEAR; ASSIGNMENT AND UNDERTAKING. (a) The Assets shall be sold free and clear of all liabilities, liens and encumbrances, except for Permitted Encumbrances (as hereinafter defined). At Closing, the parties will execute and deliver an assignment and undertaking (the "ASSIGNMENT AND UNDERTAKING"), in the form of APPENDIX 1.3, pursuant to which Seller shall assign to Buyer its future rights, and Buyer shall assume from Seller its future obligations, under those Contracts and Leases described in SCHEDULE 1.3; pursuant to which Buyer shall assume from Seller, Seller's future obligations in respect of the Assumed Liabilities (as hereinafter defined). (b) As of the Cut-Off Point, and in conjunction with the transfer of the Assets Buyer shall assume and/or agree to pay, perform and discharge the Assumed Liabilities. As used in this Agreement, "ASSUMED LIABILITIES" shall mean the following liabilities of Seller: (i) the obligations of Seller arising subsequent to the Cut-Off Point under the Leases and Contracts (collectively, the "SELLER CONTRACTS") (ii) Seller's current payables, but only to the extent included in the determination of the Working Capital (as hereinafter defined); (iii) Seller's obligations as of the Cut-Off Point in respect of the accrued vacation, holiday and sick leave of Seller's employees who are employed by Seller in connection with the Business as of the Closing Date; (iv) the obligations of Seller under capital leases described in the Financial Statements that pertain to the Hospital; and (v) credit balances owed to third parties on account with Seller as and to the extent such credit balances are reflected in the book value of the Accounts Receivable or in the book value of the Medicare Receivables that are reflected in the Medicare Reconciliation Note. (c) Buyer shall not be liable for (1) any claims arising from Seller's assignment and Buyer's assumption of the Seller Contracts, (2) performance by Seller under, and defaults by Seller in performance of, the Seller Contracts for periods prior to the Cut-Off Point, and (3) unpaid amounts in respect of the Seller Contracts that are past due as of the Cut- Off Point (unless included in Working Capital). Except as expressly provided to the contrary in Section 1.3(b) above, under no circumstance shall Buyer be obligated to pay or assume, and none of the Assets shall be or become liable for or subject to, any liability of Seller or its affiliates, including, without limitation, the following, whether fixed or contingent, recorded or unrecorded (collectively, the "EXCLUDED LIABILITIES"): (I) current liabilities (to the extent not taken into consideration in determining the Working Capital), long-term liabilities (excluding capital lease obligations specifically assumed) and all indebtedness and obligations or guarantees of Seller; (II) liabilities or obligations of Seller in respect of periods prior to and including the Cut-Off Point arising under the terms of the Medicare, Medi-Cal, Blue Cross or other managed care or third party payor programs, including, but not limited to, any retroactive denial of claims, recapture, civil monetary penalties or any gain on sale that may be recognized under the Medicare program as a result of the consummation of the transactions described herein; (III) federal, state or local tax liabilities or obligations of Seller in respect of periods prior to Cut-Off Point or resulting from the consummation of the transactions contemplated herein, including, without limitation, any income tax, any franchise tax, any tax recapture, any sales and/or use tax, any indigent care tax, any state and local recording fees and taxes which may arise upon the consummation of the transactions contemplated herein and any FICA, FUTA, workers' compensation and any and all other taxes or amounts due and payable as a result of the exercise by any of Seller's employees of such employees' right to vacation, sick leave and holiday benefits accrued while in the employ of Seller (to the extent not taken into consideration in determining the Working Capital); (IV) liability for any and all claims by or on behalf of Seller's employees relating to periods prior to Cut-Off Point, including, without limitation, liability for any pension, profit sharing, deferred compensation, or any other employee health and welfare benefit plans, liability for violations of ERISA, liability for any EEOC claim, wage and hour claim, unemployment compensation claim, workers' compensation claim or any other agreement, and liability for all employee wages and benefits, including, without limitation, (but only to the extent not assumed by Buyer pursuant to Section 1.3(b) hereof) accrued vacation, sick leave and holiday pay, severance pay and related taxes or other liability related thereto in respect of Seller's employees (to the extent not taken into consideration in determining the Working Capital); (V) liabilities or obligations arising subsequent to Cut-Off Point under contracts, commitments, leases or agreements to which Seller is a party, except to the extent Buyer accepts benefits under any such contracts, commitments, leases or agreements subsequent to Cut-Off Point and except for the Seller Contracts; (VI) liabilities or obligations arising out of any breach by Seller of any Seller Contract; (VII) any liability arising out of or in connection with claims for acts or omissions of Seller and Seller's employees, agents and independent contractors which allegedly occurred prior to Cut-Off Point including, without limitation, all malpractice and general liability claims, whether or not same are pending, threatened, known, or unknown; (VII) contracts and agreements between Seller and one or more of Seller affiliates; (IX) any debt, obligation, expense or liability of Seller arising out of or incurred solely as a result of any transaction of Seller occurring after Cut-Off Point or for any violation by Seller of any law, regulation or ordinance at any time; and (IX) any liability or obligation associated with or relating to any of the Excluded Assets. 1.4 PURCHASE PRICE; PRORATIONS; ALLOCATION. (a) The purchase price of the Assets (the "PURCHASE PRICE") shall be cash in the amount of TWENTY- FOUR MILLION SEVEN HUNDRED THOUSAND DOLLARS ($24,700,000) PLUS Working Capital (as hereinafter defined). (b) At Closing, (i) the Earnest Money Deposit delivered to Paracelsus by Buyer pursuant to the Earnest Money Deposit Agreement as provided in Section 1.9 hereof will be applied against the Purchase Price, (ii) the payment for Working Capital and the amount of the Medicare Reconciliation Note shall initially be made based upon the determination of Initial Working Capital (as hereinafter defined) and thereafter an adjusted payment and an adjustment to the Medicare Reconciliation Note shall be made as provided in Section 1.7. (c) Buyer and Seller shall prorate real estate and personal property lease payments, payments under any construction contracts assumed by Buyer pursuant to the Assignment and Undertaking, interest, real estate and personal property taxes, real estate lease deposits and escrows, other assessments, plus all other revenues and expenses with respect to the Business which are normally prorated upon the sale of assets of a going concern; provided, however, that the parties will not prorate any Prepaid Expenses. Seller shall order final readings of all power and other utility charges to be made as of the Cut-Off Point and shall pay when due all charges in respect thereof. All prorations contemplated by this Section 1.4(c) shall be made as of the Cut-Off Point. (d) For income tax purposes, the Purchase Price shall be allocated as provided in SCHEDULE 1.4(D) hereto. 1.5. INITIAL WORKING CAPITAL. (a) The "INITIAL WORKING CAPITAL" shall be an amount equal to the value of Seller's Initial Net Working Capital (as hereinafter defined) as of the date of, and based upon Seller's latest regularly prepared balance sheet in respect of the Business (the "INTERIM BALANCE SHEET") available prior to Closing, which shall be not more than 61 days old. The Interim Balance Sheet shall be prepared using the same methodologies and assumptions used in connection with the preparation of Financial Statements (as hereinafter defined), and in accordance with generally accepted accounting principles ("GAAP") applicable to interim financial statements. The Interim Balance Sheet shall also be used for purposes of determining the initial principal balance of the Medicare Reconciliation Note and the amount of cash to be delivered by Buyer to Seller with respect to the Medicare Reconciliation Note. For the purpose of the Initial Working Capital, "SELLER'S INITIAL NET WORKING CAPITAL" shall be equal to THE SUM OF (A) the amounts set forth on SCHEDULE 1.5.1(A); PLUS (B) the amount of any capital expenditures made by Seller from and after December 1, 1997 until the Cut-Off Point (as defined at Section 2.1); MINUS (C) the amount of Seller's capital leases obligations assumed by Buyer, specifically excluding the lease from Bell Atlantic Tricon Leasing Corporation relating to CRH. (b) No increase to Seller's Initial Net Working Capital shall be effected with respect to (i) any single item involving a capital expenditure in excess of $25,000, or (ii) within any 30 day period, any two or more items involving capital expenditures in excess of $50,000, in either case unless Seller shall have obtained Buyer's prior written consent to such expenditure. Buyer hereby acknowledges that it has consented to the capital expenditures described in SCHEDULE 1.5.1(B), but such consent is limited as to scope and dollar amount as described in SCHEDULE 1.5.1(B). In order that Buyer may know the methodology to determine Seller's Initial Net Working Capital, attached hereto as SCHEDULE 1.5.1(C) is a determination of Seller's Net Working Capital based upon the October 31, 1997 unaudited balance sheet of Seller and Seller hereby agrees to use the same methodology (as may be supplemented by the working papers thereto) to prepare SCHEDULE 1.5.1(A). 1.6 WORKING CAPITAL DETERMINATION. (a) Not more than 60 days after the Closing Date (i) Seller shall deliver to Buyer the balance sheet for Seller with respect to the Business as of the Cut-Off Point (the "CLOSING BALANCE SHEET"). The Closing Balance Sheet shall be prepared using the same methodologies and assumptions used in connection with the preparation of the Interim Balance Sheet, except as modified herein. The amount of the Medicare Reconciliation Note shall be determined from the Closing Balance Sheet. (b) The "WORKING CAPITAL" shall be an amount equal to the value of Seller's Net Working Capital (as hereinafter defined) as of the date of, and based upon the Closing Balance Sheet. (c) For the Working Capital, "SELLER'S NET WORKING CAPITAL" shall be determined using the same methodologies used to determine Seller's Initial Net Working Capital, but using the Closing Balance Sheet. (d) No more than three days prior to the Closing Date, Seller and Buyer shall conduct a physical inventory of the inventory and supplies on hand at the Hospital. Based on such inventory, and Seller shall value the supplies using the same methodology as Seller used in SCHEDULE 1.5.1(C) and Seller shall prepare a schedule thereof. In calculating the Working Capital, the amount of the inventory supplies shall be increased or decreased, as appropriate, to reflect the value of the additions to, and deletions from, the inventory and supplies between the inventory date and the Cut-Off Point. 1.7 PAYMENT OF POST-CLOSING WORKING CAPITAL ADJUSTMENT; DISPUTE RESOLUTION. (a) On or before 90 days after the Closing Date, Buyer will pay to Seller the amount by which Working Capital exceeds Initial Seller's Working Capital, or Seller will pay to Buyer the amount by which Seller's Working Capital is less than Seller's Initial Working Capital, in each case adjusted for differences in the amount of the Medicare Reconciliation Note as determined from the Interim Balance Sheet and the Closing Balance Sheet. Simultaneously with Seller's delivery of the Closing Balance Sheet to Buyer, Seller shall deliver a schedule to Buyer detailing any adjustments between the amount of the Purchase Price paid at Closing and any required adjustments resulting from the determination of Working Capital and adjustments to the principal amount of the Medicare Reconciliation Note. (b) In the event that Seller and/or Buyer shall dispute the working capital determination to be effected hereunder and such dispute is not resolved to the mutual satisfaction of Seller and Buyer within 90 days after the Closing Date, Seller and Buyer shall each have the right to require that such disputed determinations be submitted to Coopers & Lybrand LLP acting as experts and not as arbitrators, or to such other certified public accounting firm as Seller and Buyer may then mutually agree upon in writing, for computation or verification in accordance with the provisions of this Agreement and interpretation, where applicable, in accordance with GAAP. The certified public accounting firm so selected shall use its best efforts to make the computations or verifications within 60 days of their engagement. Both Seller and Buyer shall provide such access to the books and records of Seller as may be requested by such certified public accounting firm. The foregoing provisions for certified public accounting firm review shall be specifically enforceable by the parties; the decision of such accounting firm shall be final and binding upon Seller and Buyer; there shall be no right of appeal from such decision; and such accounting firm's fees and expenses for each such disputed determination shall be borne by the party whose determination has been modified by such accounting firm's report or by both parties in proportion to the relative amount each party's determination has been modified. 1.8 RECEIVABLES. Seller shall promptly remit to Buyer any payments it may receive which constitute payments of accounts receivable of Buyer, including any of the Accounts Receivable purchased pursuant to this Agreement. Seller also shall promptly remit to Buyer any payments it may receive which constitute payments with respect to the Medicare Receivables that Seller is obligated to pay to Buyer pursuant to the Medicare Reconciliation Note. Buyer shall promptly remit to Seller any payments it may receive that constitute payments of the Excluded Receivables except payments it may receive which constitute payments with respect to the Medicare Receivables that Seller is obligated to pay to Buyer pursuant to the Medicare Reconciliation Note. Seller shall provide Buyer with such agreements as may be necessary to permit Buyer to negotiate, deposit and otherwise receive for its own account the Assets and receive payments on the Medicare Reconciliation Note. 1.9 EARNEST MONEY DEPOSIT AGREEMENT. On the date this Agreement is executed and delivered by the parties hereto and as a condition to the effectiveness of this Agreement, Paracelsus, Seller, Buyer and System will execute the Earnest Money Deposit Agreement providing for a deposit in the initial amount of $2,000,000 as an "Earnest Money Deposit" to be held and disbursed pursuant to the terms and conditions of the Earnest Money Deposit Agreement. 2. CLOSING. 2.1 CLOSING. Subject to the conditions set forth in Articles 7 and 8 hereof, the consummation of the sale and purchase of the Assets contemplated by and described in this Agreement (the "Closing") shall take place in San Francisco, California, at the offices of Davis Wright Tremaine LLP or other agreed upon location, at 10:00 A.M. local time (a) on February 27, 1998 (if the applicable waiting periods required by the Hart-Scott- Rodino Antitrust Improvements Act of 1976 and all regulations promulgated thereunder (the "HSR Act"), shall have expired or been terminated, or (b) such date as may be agreed by the parties, not to extend past 180 days from the date of this Agreement set forth in the preamble hereof, unless within the 60 day period commencing on the 120th day from the date of this Agreement set forth in the preamble hereof, the applicable waiting period required by the HSR Act shall have terminated, in which case, Buyer may elect to extend Closing for a period not to exceed 60 days from the date such applicable waiting period under the HSR Act shall have terminated. The date on which the Closing occurs is referred to herein as the "CLOSING DATE." The Closing of the transactions shall be deemed to be effective as of 11:59 P.M. (California time) on the Closing Date or such other time which the parties may mutually designate in writing. The time at which the Closing shall be deemed to be effective is referred to herein as the "CUT- OFF POINT." 2.2 ACTION OF SELLER AT CLOSING. At the Closing, Seller shall deliver or shall cause to be delivered to Buyer the following: (a) a grant deed or deeds in recordable form, conveying to Buyer fee title to the Real Property interests that are designated in SCHEDULE 1.1(A) as parcels that are owned in fee simple by Seller, subject only to Permitted Encumbrances; (b) the Assignment and Undertaking; (c) bills of sale and assignments conveying and assigning to Buyer all other Assets; (d) copies of corporate resolutions duly adopted by the respective Boards of Directors of Seller and by the shareholder of Seller, authorizing and approving each such corporation's performance of the transactions contemplated hereby and the execution and delivery of the documents described herein, certified as true and of full force as of Closing by appropriate officers of each such corporation; (e) certificates, dated as of the Closing Date, of appropriate officers of each of Seller certifying that, to the best of such officer's knowledge and belief, as of Closing all of the respective representations and warranties by or on behalf of Seller contained in this Agreement are true and correct and all respective covenants and agreements of Seller to be performed prior to or as of Closing pursuant to this Agreement have been performed; (f) certificates of incumbency, dated as of the Closing Date, for the officers of each Seller making certifications for Closing, or executing deeds, the Assignment and Undertaking, the bill of sale, the Information Systems Agreement (as hereinafter defined), the Medicare Reconciliation Note, other agreements delivered at Closing or this Agreement; (g) certificates of corporate existence or good standing certificates of each of Seller and Paracelsus from the State of California, dated the most recent practical date prior to Closing; (h) subject to Section 1.2 hereof, all of Seller's Contracts, Leases, commitments, books, records and other data relating to the Assets, and simultaneously with such delivery and Seller will take all such steps as may reasonably be required to put Buyer in actual possession and operating control of the Assets; (i) the Information Systems Agreement; (j) any documents required by the Title Company (as defined herein) in order for the Title Company to deliver the Title Policies (as defined herein) subject only to the Permitted Encumbrances; (k) such agreements as may be necessary to permit Buyer to negotiate, deposit and otherwise receive for its own account the Assets and receive payments on the Medicare Reconciliation Note; and (l) the Medicare Reconciliation Note. 2.3 ACTION OF BUYER AT CLOSING. At the Closing, Buyer shall deliver to Seller the following: (a) payment in cash or immediately available funds of an amount equal to (i) the Purchase Price (less the amount of the Earnest Money Deposit as the same may be increased by the terms of the Earnest Money Deposit Agreement ), plus (ii) Working Capital; (b) the Assignment and Undertaking; (c) copies of corporate resolutions duly adopted by the Board of Directors of Buyer authorizing and approving Buyer's performance of the transactions contemplated hereby and the execution and delivery of the documents described herein, certified as true and of full force as of Closing by appropriate officers of Buyer; (d) certificates, dated as of the Closing Date, of appropriate officers of Buyer certifying that, to the best of such officers' knowledge and belief, as of Closing all of the respective representations and warranties by or on behalf of the Buyer contained in this Agreement are true and correct and all respective covenants and agreements of Buyer to be performed prior to or as of Closing pursuant to this Agreement have been performed; (e) a certificate of incumbency, dated as of the Closing Date, for the officers of Buyer making certifications for Closing or executing the Assignment and Undertaking, the Information Systems Agreement, or this Agreement; (f) a certificate of corporate existence of Buyer from the State of California, dated the most recent practical date prior to Closing; and (g) the Information Systems Agreement. 3. REPRESENTATIONS AND WARRANTIES OF SELLER As of the date hereof, Seller represents and warrants to Buyer that: 3.1 CORPORATE CAPACITY. (a) Seller and Paracelsus are corporations duly organized, validly existing and in good standing under the laws of California, with all requisite corporate power and authority to own, operate and lease their respective properties and to carry on their businesses as now being conducted. (b) SCHEDULE 3.1(B) contains a complete and correct copy of the Articles of Incorporation and all amendments thereto to the date hereof and the Bylaws as presently in effect of Seller and Paracelsus. 3.2 CORPORATE POWERS; ABSENCE OF CONFLICTS WITH OTHER AGREEMENTS, ETC. (a) The execution and delivery by Seller and Paracelsus of this Agreement and the performance of this Agreement and the other agreements and transactions contemplated hereby to be executed and performed by Seller and Paracelsus: (i) are within Seller's and Paracelsus' respective corporate powers, are not in contravention of the terms of Seller's or Paracelsus' Articles of Incorporation, Bylaws or any amendments thereto; (ii) except as set forth on SCHEDULE 3.2, upon the Closing, (A) will not result in any breach or acceleration of maturity of any indenture, agreement, lease or instrument, to which Seller or Paracelsus is a party or by which Seller or Paracelsus or any of the Assets is bound, (B) will not constitute a violation of any judgment, decree, or order of any court of competent jurisdiction applicable to Seller or Paracelsus, (C) will not violate any law, rule or regulation of any governmental authority applicable to the Seller, Paracelsus, the Business or any of the Assets and (D) will not require any consent, approval or authorization of, or notice to, or declaration, filing or registration with, any governmental or regulatory authority. (b) This Agreement has been duly and validly executed and delivered by Seller and Paracelsus, and, as of the Closing, the other agreements and instruments contemplated hereby to be executed and delivered by Seller and/or Paracelsus will have been duly and validly executed and delivered by Seller and, where applicable, Paracelsus. Upon approval of this Agreement and the other agreements and instruments contemplated hereby by the Board of Directors of Seller and Paracelsus, this Agreement will constitute, and upon such approval and their execution and delivery, the other agreements and instruments contemplated hereby to be executed and delivered by Seller and/or Paracelsus will constitute, the valid, legal and binding obligation of each of Seller and, where applicable, Paracelsus, enforceable against each of them in accordance with their respective terms except as such enforceability may be limited by bankruptcy, reorganization, insolvency, or other laws affecting the enforcement of creditors' rights generally or the availability of equitable remedies. 3.3 FINANCIAL STATEMENTS. SCHEDULE 3.3 hereto consists of true, correct and complete copies of the unaudited income statement of Seller with respect to the Business for the nine months ended October 31, 1997 (the "INCOME STATEMENT"), and the Balance Sheet as of the end of such period (the Income Statement and the Balance Sheet are referred to collectively as the "FINANCIAL STATEMENTS"). The Income Statement has been prepared from and is in accordance with the books and records of Seller, and fairly presents the operations of Seller for the period indicated, except (a) as indicated by the notes thereto and (b) with respect to any changes which would result from year-end audit adjustments which in the aggregate are not materially adverse to the business or financial condition of Seller. 3.4 POST-BALANCE SHEET RESULTS. Since October 31, 1997, with respect to the Assets there has not been: (a) any damage, destruction or loss (whether or not covered by insurance) materially adversely affecting the Assets, taken as a whole; (b) any sale, lease, transfer or disposition by Seller of the Assets except sales of inventories, supplies or accounts receivable and except for sales, leases, transfers or dispositions of non- material portions of the Assets in the ordinary course of Seller's business; or (c) any change or the occurrence of any fact or condition which may be reasonably expected to have a material adverse effect on the Business or the value of the Assets, other than such changes, facts and conditions, if any, generally affecting the hospital service area in which the Hospital is located, generally affecting the healthcare industry, or resulting from the announcement of the transactions contemplated hereby. 3.5 LICENSES. Seller has all licenses and permits relating to the ownership of the Assets and operation of the Business as are necessary and required for such ownership and operation except where the failure to obtain such licenses or permits would not have a material adverse effect on the ownership of the Assets or the operation of the Business. SCHEDULE 3.5 hereto contains a complete description of all material licenses, permits, franchises, certificates of need, certificate of need applications, and PRO memos, if any, and their respective dates of termination or renewal, owned or held by Seller relating to the ownership, development or operation of the Assets or the Business, together with any formal and specific notices or directives received by Seller from the agency responsible for such SCHEDULE 3.5 item, for which noncompliance with such notice or directive would likely cause the revocation, suspension or diminution in term for such item, all of which are, to Seller's knowledge, in good standing. 3.6 CERTAIN CONTRACTS. SCHEDULE 3.6 lists all contracts to which Seller is a party involving obligations in respect of the Business for payment, performance of services or delivery of goods in excess of $5,000 or which require Seller to continue to perform for a period of longer than 12 months ("SCHEDULED CONTRACTS"). Seller has delivered or made available to Buyer true and correct copies of all Scheduled Contracts. Except as set forth in SCHEDULE 3.6, all of the Contracts which Buyer has agreed to assume pursuant to the Assignment and Undertaking are valid and binding obligations of the parties thereto, are in full force and effect, and are enforceable against the parties thereto in accordance with their respective terms. To the best of Seller's knowledge, neither Seller nor any of the other parties to those Contracts which Buyer has agreed to assume pursuant to the Assignment and Undertaking (i) are in default under such contracts or (ii) consider Seller to be in default thereunder. Except as expressly noted in SCHEDULE 3.6, to the best of Seller's knowledge, no party to any of those Contracts which Buyer has agreed to assume pursuant to the Assignment and Undertaking intends to terminate or adversely modify its agreement(s) with respect thereto, or adversely change the volume of business done thereunder. 3.7 CERTAIN LEASES. SCHEDULE 3.7 lists all leases to which Seller is a party in respect of the Business involving annual obligations on the part of Seller for the payment of rent in excess of $5,000 or involving rental of real property by Seller as lessor, lessee, sublessor or sublessee ("SCHEDULED LEASES"). Seller has delivered or made available to Buyer true and correct copies of all Scheduled Leases. All of the Scheduled Leases which Buyer has agreed to assume pursuant to the Assignment and Undertaking are valid and binding obligations of the parties thereto, are in full force and effect, and are enforceable against the parties thereto in accordance with their terms; and to the best of Seller's knowledge, no event has occurred including, but not limited to, the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby which (whether with or without notice, lapse of time or both) would constitute a default thereunder. To the best of Seller's knowledge, neither Seller nor any of the other parties to any of those Scheduled Leases which Buyer has agreed to assume pursuant to the Assignment and Undertaking (i) is in default under any such Scheduled Lease or (ii) considers Seller to be in default thereunder. Seller has not, as lessor under any such Scheduled Lease, accepted prepaid rent more than one month in advance or waived any rights or obligations thereunder. No consents are required for Seller's assignments of the Scheduled Leases to be assigned except as disclosed in SCHEDULE 3.7. 3.8 TITLE TO PROPERTIES AND RELATED MATTERS. On the Closing Date Seller will hold and convey to Buyer good, valid and marketable title to all of the Assets free and clear of all title defects, liens, pledges, claims, charges, rights of first refusal (or other claims of interest), security interests or other encumbrances except as otherwise hereinafter provided. On the Closing Date, neither the Real Property owned by Seller nor designated in SCHEDULE 1.1(A) as a Real Property interest for which a Title Policies shall be obtained, will be subject to any recorded mortgages, deeds of trust, liens, encumbrances, easements, rights of way, claims, charges, equities, covenants, conditions, restrictions, reservations, limitations or other matters affecting such Real Property or Real Property interest except (i) those matters set forth in SCHEDULE 3.8(A); (ii) unrecorded leases as set forth in SCHEDULE 1.1(D); (iii) liens for current taxes and assessments; (iv) zoning and building laws, ordinances, resolutions and regulations; (v) such inchoate unfiled mechanics', carriers', workmen's, repairman's and other statutory liens, if any, which liens do not in the aggregate exceed $25,000 in amount; (vi) those matters set forth in Schedule B, Part 1, Exceptions from Coverage shown on the title insurance commitment for Real Property (Order No. 4- 62797DMS) issued by the Title Company (defined below) and dated November 21, 1997, as the same may be revised following receipt of a survey of each property but only to the extent that Seller has not created or caused any such matters, or has no knowledge of any such matters, or has disclosed them in this Agreement; (vii) rights-of-way, building or use restrictions, exceptions, variances, reservations or other limitations or matters affecting title to or use of the Real Property (excluding any variance or nonconforming use known to Seller but not disclosed in this Agreement) which do not materially impair the value of the Real Property or materially interfere with or impair the current use of the Real Property or any portion thereof or for which title insurance coverage is being provided to Buyer; (viii) such easements, rights-of-way, covenants, conditions, restrictions, reservations, limitations and other encumbrances as do not materially interfere with or impair the current use of the Real Property or any portion thereof or materially impair the value of the Real Property, but only to the extent that Seller has not created or caused any such matters, or has no knowledge of any such matters, or has disclosed them in this Agreement, or to the extent they are disclosed as special exceptions in the title commitments provided to Buyer; and (ix) such minor defects, irregularities, encumbrances, easements, rights-of-way, encroachments and clouds on title as typically exist with respect to properties similar in character to such Real Property, are not caused by or through Seller after the date of this Agreement, and as do not (A) materially interfere with or impair the current use and operation or any reasonably foreseeable future development or operation of the Real Property or any part thereof, or (B) materially impair Seller's title to such Real Property, or the value of the Real Property, any portion thereof or Seller's interest therein, or (C) prevent Seller from having good valid and marketable title to the Real Property, or (D) materially limit the scope or coverage of the Title Policies to be issued to Buyer (collectively "PERMITTED ENCUMBRANCES"). SCHEDULES 1.1(A) AND 1.1(D) include true and accurate descriptions of all Real Property owned or leased by Seller and all tangible personal property (excluding cash, property with an aggregate value in a non-material amount and the other Excluded Assets) leased by Seller and reflected on Seller's financial statements. Set forth on SCHEDULE 3.8(B) is a list of the most current title insurance policies, commitments or binders issued to Seller with respect to any of the Real Property or any portion thereof, and true and accurate copies thereof have been supplied to Buyer. Seller is not aware of and has not received any notice from any governmental agency of any violation of any building, zoning or other law, ordinance or regulation in respect of such property or structures or their use by Seller. To the best knowledge of Seller and other than as set forth on SCHEDULE 3.8(A), no portion of the Assets is subject to street or utility easements or a condemnation or similar proceeding. The Assets consisting of owned personal property are subject to no liens or encumbrances except the security interests of record set forth on SCHEDULE 3.8(C), which Schedule is a copy of a Uniform Commercial Code ("UCC") search duly obtained by Seller in the last 30 days and which search shows security interests of record relating to such Assets in the State of California. Seller agrees to remove all security interests relating to property interests of Seller included in the Assets reflected on such UCC search, if any, prior to the Closing (except those approved by Buyer in writing) and to remove any other security interests filed with respect to such Assets between the date of such UCC search and the date of Closing. SCHEDULE 3.8(D) describes all construction work, if any, which Seller or its predecessors have contracted for and which is presently in progress in respect of the Business, and also contains a good faith estimate, as of the date of this Agreement, of the cost to complete each such project. 3.9 EMPLOYEE BENEFIT PLANS. SCHEDULE 3.9 lists any "employee benefit plans" that are described in the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder ("ERISA"), that cover one or more employees of Seller and that are sponsored or contributed to by Seller (other than any defined contribution "employee pension benefit plan" as defined in ERISA, that does not require any contribution by Seller, any paid time-off policy or vacation/holiday/sick leave policy, and any "employee welfare benefit plan" as defined in ERISA, that is sponsored by Seller). Neither Seller nor, to the best knowledge of Seller and Paracelsus, any other person has engaged in a transaction with respect to any employee benefit plan listed or required to be listed on SCHEDULE 3.9 which could subject Buyer to a penalty under ERISA or a tax under the Internal Revenue Code of 1986, as amended (the "CODE"). Each of the employee benefit plans listed or required to be listed on SCHEDULE 3.9 has been operated and administered in accordance with applicable law, including without limitation ERISA, except for any such failure which would not subject Buyer to any penalty or other liability. Seller has not incurred nor presently expects to incur any liability under Title IV of ERISA that could result in liability to Buyer. Each employee benefit plan listed or required to be listed on SCHEDULE 3.9 that is a group health plan within the meaning of Section 5000(b)(1) of the Code is in compliance with the provisions of Section 4980B(f) of the Code, except for any such non-compliance which would not subject Buyer to any penalty or liability. 3.10 LITIGATION OR PROCEEDINGS. SCHEDULE 3.10(A) contains a list of each lawsuit or legal proceeding to which Seller is a party and which arose out of or in connection with the Business or, to Seller's knowledge, which has been threatened against Seller in connection with the Business. Except as disclosed on SCHEDULE 3.10(B), Seller has not received notice of any formal or informal investigations or proceedings of the California Department of Health Services, the United States General Accounting Office, the Health Care Financing Administration, the Department of Justice, the Federal Trade Commission or other similar governmental agencies (except for any investigations being conducted in the ordinary course of business and applicable to all hospitals) with respect to the Business. There are no such claims, actions, proceedings or investigations of which Seller has received written notice pending or, to the best knowledge of Seller, threatened challenging the validity or propriety of the transactions contemplated by this Agreement. Except as disclosed in SCHEDULE 3.10(B), Seller is not now, or has never been, a party to any injunction, order, or decree restricting the method of the conduct of the Business or the marketing of any of the Business' services, nor, except as disclosed on SCHEDULE 3.10(B), has any governmental agency investigated or requested (other than on a routine basis) information with respect to such methods of business or marketing of services; Seller has not received any notice that Seller currently violates any federal, state, or local law, ordinance, rule or regulation, which could have an adverse effect on the Business and, to the best of Seller's knowledge, no such claim is or has been threatened; and there have been no developments materially adverse to Seller with respect to any pending or threatened claim, action or proceeding of an administrative or judicial nature, including but not limited to those referred to in SCHEDULES 3.10(A) AND (B), and including without limitation any such pending or threatened claim, action or proceeding arising from or relating to (i) the assertion by any governmental authority of any retroactive adjustment of the sums which Seller was entitled to receive pursuant to government or third party reimbursement programs such as (but not limited to) Medicare and Medi-Cal, or (ii) any allegation by any governmental authority of fraud or abuse by any current or former officers or employees of Seller in connection with the making of any application for reimbursement pursuant to the government or third party reimbursement programs referred to in the preceding clause (i) while such individuals were officers or employees of Seller. 3.11 INSURANCE. SCHEDULE 3.11 summarizes the professional and general liability insurance policies covering the Business, and the property insurance policies covering the Assets, which SCHEDULE 3.11 reflects the policies' numbers, terms, identity of insurers, amounts and coverage. All such policies are currently in effect and to the best knowledge of Seller there are no defaults or alleged defaults thereunder. 3.12 SELLER'S EMPLOYEES. (a) SCHEDULE 3.12 contains a list of all of Seller's employees as of December 1, 1997, which list includes the then current estimated annualized salaries based on then current hourly wage rates and scheduled hours worked, department and job title or other summary of the responsibilities of such employees, any severance arrangements with such employees. Since December 1, 1997 there has not been any increase in the compensation payable or to become payable by Seller to any of its officers, employees or agents, or any bonus payment or arrangement made to or with any such person, nor has there been any change in Seller's personnel policies, except (in either case) in the ordinary course of Seller's business in accordance with established personnel policies or except as described in SCHEDULE 3.12. (b) Except as set forth on SCHEDULE 3.12, none of Seller's employees are employed by Seller pursuant to an employment agreement and/or severance agreement. SCHEDULE 3.12 includes a list of all employees of Seller (other than "part-time employees" as such term is defined in the Worker Adjustment and Retraining Notification Act, hereinafter referred to as the "WARN Act") who have been terminated or laid-off or whose employment with Seller otherwise has ceased since November 1, 1997. 3.13 LABOR MATTERS. Seller does not have any collective bargaining agreements with any labor union and there are no current negotiations with a labor union. Seller is in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, and is not engaged in any unfair labor practice except where such non-compliance would not have a material adverse effect on the Business or the Assets. Seller has not received any notice of an unfair labor practice complaint against Seller pending before the National Labor Relations Board. There is no labor strike, dispute, slowdown or stoppage actually pending against or affecting Seller, nor has Seller received notice of any threatened labor strike, dispute, slowdown or stoppage. No grievance which might have an adverse effect on Seller or any such arbitration proceeding arising out of or under collective bargaining agreements is pending and Seller has no knowledge that any claim therefor exists. Seller has not experienced any employee strikes since the date it acquired the Business. Seller will advise Buyer of any such labor dispute which shall arise before the Closing. 3.14 CERTAIN REPRESENTATIONS WITH RESPECT TO THE BUSINESS. (a) The Hospital has current contractual arrangements with third party payors. A complete and accurate copy of the existing third party payor contracts of the Hospital has been furnished or made available to Buyer. The Hospital is presently in compliance with all of the terms, conditions and provisions of such contracts except where failure to be in compliance would not have a material adverse effect on the Business or the Assets. SCHEDULE 3.14(A) lists all third-party payor and managed care agreements which are currently in effect and identifies all risk pools to which Seller is a party. (b) The Hospital is accredited as a general hospital by the Joint Commission on Accreditation of Healthcare Organizations ("JCAHO") and complete and accurate copies of its most recent survey reports, lists of deficiencies, if any, and Certificates of Accreditation relating to the Hospital have been furnished or made available to Buyer. (c) The Hospital is qualified for participation in the Medicare program. A complete and accurate copy of each existing Medicare contract has been furnished or made available to Buyer. The Hospital is presently in compliance with all of the terms, conditions and provisions of such contracts except where failure to be in compliance would not have a material adverse effect on the Business or the Assets. (d) The Hospital is qualified for participation in the Medi-Cal program. A complete and accurate copy of Seller's existing Medi-Cal contracts have been furnished or made available to Buyer. The Hospital is presently in compliance with all of the terms, conditions and provisions of such contracts except where failure to be in compliance would not have a material adverse effect on the Business or the Assets. (e) The Hospital participates in the CHAMPUS program. The Hospital is presently in compliance in all material respects with all of the terms and conditions of such participation except where failure to be in compliance would not have a material adverse effect on the Business or the Assets. (f) Complete and accurate copies of all fire marshal reports in Seller's possession or, to the best of Seller's knowledge, available to Seller with respect to the Hospital after January 1, 1997, have been, or will be prior to Closing, furnished to Buyer. (g) Seller has not received any written notice from any applicable governmental agency, nor does it have knowledge, of any violation of local building codes, ordinances or zoning laws applicable to the Hospital. (h) Copies of all licensure survey reports of the Hospital by the California Department of Health Services issued from and after January 1, 1996, that are in Seller's possession have been, or will be prior to Closing, supplied or made available to Buyer. (i) Copies of the Bylaws of the medical staffs of the Hospital, together with copies of minutes of meetings thereof since January 1, 1996, that are in Seller's possession have been supplied or will prior to Closing be made available to Buyer. No proceedings are pending or, to the best of Seller's knowledge, threatened, seeking to remove or limit the privileges of any member of the Hospital's medical staffs or appealing any such decision of such medical staff. (j) The Hospital is licensed by the California Department of Health Services as a general acute care hospital authorized to operate 123 beds in its existing location in Chico, California. CCH is presently in compliance with all the terms, conditions and provisions of such license except where failure to be in compliance would not have a material adverse effect on the Business or the Assets. SCHEDULE 3.14(J) contains a copy of such license. The facilities, equipment, staffing and operations of CCH satisfy the applicable hospital licensing requirements of the State of California except where failure to be in compliance would not have a material adverse effect on the Business or the Assets. (k) The Hospital currently has a memorandum of understanding with the appropriate peer review organization, and complete and accurate copies of all such memoranda of understanding have been furnished or made available to Buyer, or will prior to Closing be made available to Buyer. (l) Seller is in material compliance with all applicable laws and regulations that relate to the Assets and Business, except where the failure thereof would not have a material adverse effect on the Business. (m) Seller has not received any written notice of, nor has knowledge of, any threatened termination, cancellation or limitation, or other material adverse modification or change in, Seller's relationship with any payor, physician, medical group (including IPAs), the medical staff or suppliers. 3.15 REIMBURSEMENT MATTERS. Seller has delivered or made available to Buyer complete copies of all Medicare cost reports and related forms that have been filed during the past three years with respect to the Business. Seller has not received any written notices that either Medicare or Medi-Cal has any claims against it which may reasonably be expected to result in consolidated net offsets against future reimbursement in excess of that provided for in such Financial Statements. Seller has not been indicted, convicted or, to the best of Seller's knowledge, subject to an investigation of the Office of Inspector General of the Department of Health and Human Services (the "OIG") or other applicable government agency, or received a notice from the OIG or other applicable government agency, with respect to a violation or an alleged violation of the Medicare and Medi-Cal fraud and abuse provisions of the federal Social Security Act or the physician ownership and referral provisions of the Ethics in Patient Referral Act, and to the best of Seller's knowledge, has Seller not committed a violation of any of such provisions. 3.16 TAXES. Seller has filed all tax returns required by law to be filed by it and has paid all taxes, assessments and other governmental charges shown thereon as due and payable, other than those presently payable without penalty or interest or those being contested in good faith by appropriate procedures. There are no liens with respect to taxes (except for liens with respect to real property taxes not yet due) upon any of the Assets. Seller has not conducted the Business or engaged in any transaction which would cause the transaction contemplated hereby to be taxable under the California sales and use tax laws. 3.17 ENVIRONMENTAL. Except as disclosed in the McLaren/Hart Phase I Site Assessment of the Chico Community Hospital Acute Care Facility (October 29, 1997) obtained by Buyer relating to the Assets (the "Environmental Reports"): (a) Seller is currently, and at all times has been, in compliance with all Environmental Laws (as defined below) except where failure to comply with such Environmental Laws would not have a material adverse effect on the Business; (b) Seller has all permits, authorizations or other approvals required under environmental laws to operate the Assets and the Real Property, and is in compliance with all such permits, authorizations and approvals except where failure to comply with such permits, authorizations or approvals, individually or in the aggregate, would not have a material adverse effect on the Business; (c) Seller has not generated, handled, stored, disposed of or released any Hazardous Substance (as defined below) on any of the Real Property, except in compliance with applicable Environmental Laws except where failure to comply with such Environmental Laws, individually or in the aggregate, would not have a material adverse effect on the Business; (d) There are no polychlorinated biphenyls (PCBs) or transformers, capacitors, ballasts or other equipment that contains dielectric fluid containing PCBs at levels in excess of fifty parts per million (50 ppm) present, constructed, placed, deposited, stored, disposed of or located on the Real Property; (e) There are currently no aboveground or underground storage tanks for the storage of Hazardous Substances located on the Real Property, and, to the best knowledge of Seller, there have never been any such aboveground or underground storage tanks located on the Real Estate Property; (f) Seller has not received any communication (written or oral), whether from a governmental authority, citizens group, employee or otherwise, that alleges that Seller is not in full compliance with Environmental Laws. There is no Environmental Claim (as defined below) pending or threatened against Seller or with respect to the Assets. (g) There are no present or, to the best of Seller's knowledge, past actions, activities, circumstances, conditions, events or incidents, including, without limitation, the generation, storage, release, emission, discharge, presence or disposal of any Hazardous Substance, that could form the basis of any Environmental Claim against Seller under any Environmental Law in effect at any time at or prior to the Closing. (h) The inclusion of any item disclosed in SCHEDULE 3.17 and the inclusion of the reference to the Environmental Reports hereinabove does not constitute an admission by Seller, Paracelsus or Buyer that any matters disclosed in such schedule or Environmental Report constitutes a violation of any Environmental Law. The following terms shall have the following meanings: "ENVIRONMENTAL CLAIM" means any claim, action, cause of action, investigation or notice (written or oral) by any person or entity alleging potential liability (including, without limitation, potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from (a) the presence, or release into the environment, of any Hazardous Substances at any location, whether or not owned or operated by the Seller or (b) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. "ENVIRONMENTAL LAWS" means the federal, state (including specifically, but not by way of limitation, the State of California), and local environmental, health or safety laws, regulations, ordinances, rules and policies and common law in effect on the date hereof and the Closing Date relating to the generation, use, refinement, handling, treatment, removal, storage, production, manufacture, transportation, disposal, arranging for disposal, emissions, discharges, releases or threatened releases of Hazardous Substances, or otherwise relating to protection of human health, worker safety or the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), as the same may be amended or modified to the date hereof and the Closing Date, including, without limitation, the statutes and regulations listed below: Federal Resource Conservation and Recovery Act of 1976, 42 U.S.C.
6901, ET SEQ. Federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C.
9601, ET SEQ. Federal Clean Air Act, 42 U.S.C.
7401, ET SEQ. Federal Water Pollution Control Act, Federal Clean Water Act of 1977, 33 U.S.C.
1251, ET SEQ. Federal Insecticide, Fungicide, and Rodenticide Act, Federal Pesticide Act of 1978, 7 U.S.C.
136, ET SEQ. Federal Hazardous Materials Transportation Act, 49 U.S.C.
1801, ET SEQ. Federal Toxic Substances Control Act, 15 U.S.C.
2601, ET SEQ. Federal Safe Drinking Water Act, 42 U.S.C.
300f, ET SEQ. Federal Occupational Safety & Health Act of 1970, 29 U.S.C.
651, ET SEQ. Medical Waste Tracking Act of 1988, 42 U.S.C.
6992, ET SEQ. Marine Protection Research & Sanctuaries Act of 1972, 33 U.S.C.
1401, ET SEQ. The Act to Prevent Pollution from Ships, 33 U.S.C.
1901, ET SEQ. California Environmental Quality Act of 1970 (CEQA), California Government Code,
65914. California Hazardous Waste Control Law, California Health & Safety Code, Section 25100 et seq.. Nuclear Regulatory Commission Regulations, 10 C.F.R. Part 20 and 10 C.F.R. Part 61. Public Health Service Regulations, 42 C.F.R. Part 72. Food & Drug Administration Regulations, 21 C.F.R. Parts 58 and 211. U.S. Department of Transportation Regulations, 49 C.F.R. Parts 171- 179. U.S. Department of Agricultural Regulations, 9 C.F.R. Parts 50-56. U.S. Postal Service Regulations, 39 Part III. "HAZARDOUS SUBSTANCES" means any toxic or hazardous waste, pollutants or substances, explosives, radioactive materials, or Medical Waste (as defined below), including, without limitation, friable asbestos, asbestos- containing material, PCBs, petroleum products and byproducts, substances defined or listed as "hazardous substance", "toxic substance", "toxic pollutant", or similarly identified substance or mixture, in or pursuant to any Environmental Law. "MEDICAL WASTE" means any substance, pollutant, material, or contaminant listed or regulated under the Medical Waste Tracking Act of 1988, 42 U.S.C.
6992, ET SEQ., 49 C.F.R.
173, 186, and/or the California Waste Management Act, California Health & Safety Code,
117600 et seq. 3.18 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent reflected or specifically reserved against (which reserves are believed adequate in amount) in the Financial Statements, to the best of Seller's knowledge, Seller did not have, at the date of such Financial Statements, any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise and whether due or to become due) required to be reflected thereon or included therein, except for any liabilities which have been incurred since the dates of such Financial Statements in the ordinary course of business consistent with past practice or which have been discharged or paid in full prior to the date hereof. 3.19 BROKERAGE. Neither Seller nor Paracelsus has engaged any financial advisor, broker or similar entity in respect of the transactions contemplated hereby which may be entitled to a fee or commission in connection with such transactions, other than ABN-AMRO Chicago Corporation. Any fee due to such firm is solely a liability of Seller and Paracelsus. 3.20 NO MISLEADING STATEMENTS. No representation or warranty by Seller contained in this Agreement, and no statement contained in any Schedule (including any supplement or amendment thereto) and the documents to be delivered at the Closing by or on behalf of Seller to Buyer or any of its representatives in connection with the transactions contemplated hereby (the Schedules, including any supplement or amendment thereto, and such Closing documents are herein referred to, collectively, as the "ADDITIONAL DOCUMENTS"), contains or will contain any untrue statement of a material fact, or, to the best knowledge of Seller and Paracelsus, omits or will omit to state any material fact necessary, in light of the circumstances under which it was or will be made, in order to make the statements herein or therein not misleading. Copies of all documents described on any Schedule hereto which have been furnished, provided or made available to Buyer or are hereafter furnished, provided or made available to Buyer are or shall be, to the best of Seller's knowledge, true, correct and complete. 3.21 DISCLAIMER OF WARRANTIES. The Assets will be sold by Seller and purchased by Buyer in their condition at Closing, "AS IS", WITH NO WARRANTY OF HABITABILITY OR FITNESS FOR HABITATION, with respect to the Real Property, and WITH NO WARRANTIES, INCLUDING THE WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, with respect to the Personal Property and Operating Inventory, any and all of which warranties (both express and implied) Seller hereby disclaims. Nothing in this Section 3.21 shall be construed to limit the scope or effect of the express representations and warranties contained elsewhere in this Article III. 4. REPRESENTATIONS AND WARRANTIES OF BUYER AND SYSTEM. As of the date hereof, Buyer and the System represent and warrant to Seller and Paracelsus the following: 4.1 BUYER AND SYSTEM CAPACITY. (a) Buyer and System are nonprofit public benefit corporations duly organized, validly existing and in good standing under the laws of the States of California, with all requisite corporate power and authority to own, operate and lease their properties. (b) SCHEDULE 4.1 contains complete and correct copies of the Articles of Incorporation and all amendments thereto to the date hereof and the Bylaws as presently in effect of Buyer and System. 4.2 CORPORATE AUTHORIZATION/CONTRACT BINDING. (a) The execution, delivery and performance by Buyer and System of this Agreement and the other agreements and transactions contemplated hereby to be executed and performed by Buyer: (i) are within Buyer's and System's corporate powers, are not in contravention of the terms of Buyer's or System's Articles of Incorporation, Bylaws or any amendments thereto and have been duly authorized by the board of directors of Buyer and System; and (ii) except as set forth on SCHEDULE 4.2, on the Closing Date, (A) will not result in any breach of any indenture, agreement, lease or instrument to which Buyer or System is a party or by which Buyer or System is bound, (B) will not constitute a violation of any judgment, decree or order of any court of competent jurisdiction applicable to Buyer or System, (C) will not violate any law, rule or regulation of any governmental authority applicable to Buyer or System and (D) will not require any consent, approval or authorization of, or notice to, or declaration, filing or registration with, any governmental or regulatory authority. (b) This Agreement has been duly and validly executed and delivered by Buyer and System, and, as of the Closing, the other agreements and instruments contemplated hereby will have been duly and validly executed and delivered by Buyer and System. This Agreement constitutes, and upon their execution and delivery, the other agreements and instruments contemplated hereby will constitute, the valid, legal and binding obligations of Buyer and System, enforceable against each in accordance with their respective terms except as such enforceability may be limited by bankruptcy, reorganization, insolvency, or other laws affecting the enforcement of creditors' rights generally or the availability of equitable remedies. 4.3 BROKERAGE. Buyer has not engaged any financial advisor, broker or similar entity in respect of the transactions contemplated hereby which may be entitled to a fee or commission in connection with such transactions. 5. COVENANTS OF SELLER PRIOR TO CLOSING. Between the date of this Agreement and the Closing Date: 5.1 INFORMATION. Seller shall afford, to the officers and authorized representatives of Buyer access to the Assets and will furnish to Buyer such additional financial data and other information relating to the Assets or the Business as Buyer may from time to time reasonably request; provided such access shall occur at such time or times as will not disrupt delivery of care to patients. Seller agrees to cooperate reasonably with Buyer in Buyer's efforts (i) to make any required filings and to obtain any governmental approvals necessary in order to consummate the transactions contemplated hereby, (ii) to respond to any governmental investigation of such transactions, and (iii) to defend any legal or administrative proceedings challenging such transactions. Seller will, upon reasonable request, cooperate with Buyer, its representatives and counsel in the preparation of any document or other material which may be required by any governmental agency as a predicate to or result of the transaction herein contemplated. Seller shall provide Buyer, when normally available, monthly statements of income with respect to the Business for the interim period between the effective date of this Agreement and Closing. 5.2 OPERATIONS. With respect to the ownership of the Assets and the operation of the Business, Seller will use its reasonable best efforts to: (a) carry on the Business in substantially the same manner as it has been conducted heretofore and not make any change in personnel (other than in the ordinary course of business) or operations, and not make any change in finance or accounting policies; (b) maintain the Assets in as good working order and condition as at present, ordinary wear and tear excepted; (c) perform in all material respects Seller's obligations under agreements relating to or affecting the Assets or the Business; (d) keep in full force and effect present insurance policies or other comparable insurance coverage; (e) use commercially reasonable efforts to maintain and preserve the business organization of Seller intact, retain their present employees and maintain their relationship with suppliers, customers and others having business relations with Seller; (f) within a reasonable time prior to Closing, permit Buyer to make offers to any of the personnel who work at the Hospital or otherwise in the Business for employment by Buyer subsequent to the Closing, which personnel shall be allowed by Seller to accept or reject such offers without penalty (for the purpose of this Section 5.2(f), "penalty" shall not be interpreted to refer to the availability, or lack of availability of any severance benefit); (g) without the consent of Buyer, which will not be unreasonably withheld, Seller will not incur or commit to any obligation with respect to (i) individual purchase orders in excess of $40,000 for supplies or equipment, (ii) within any 30 day period, any two or more purchase orders in excess of $450,000, (iii) any single capital expenditure in excess of $25,000, or (iv) within any 30 day period, any two or more items involving capital expenditures in excess of $50,000; and (h) except in the ordinary course of business, Seller will not enter into, amend, or cancel Scheduled Contracts or Scheduled Leases that will be assumed by Buyer, without Buyer's prior written consent. 5.3 CERTAIN CHANGES. Without the prior written consent of Buyer, which consent will not be unreasonably withheld, Seller will not: (a) sell or agree to sell any of the Assets except for the depletion of inventories in the ordinary course of business; or (b) engage in any transaction out of the ordinary course of business, including any sale, transfer, lease, encumbrance or granting of a lien upon or a security interest in any portion of the Assets (except as provided in Section 5.3(a) above). 5.4 CASUALTY. If, prior to the Closing, the Hospital's facilities or other Assets sustain damage or destruction that Seller has not repaired prior to Closing, then the following provisions shall apply: (a) If -- (i) such damage or destruction results in either Hospital facility being unusable for its current purpose, or (ii) the cost to repair such damage or destruction, or to replace such damaged or destroyed facilities or other Assets (collectively, the "Cost to Repair"), is greater than $2,500,000 and Seller does not have insurance coverage therefor, then Buyer may elect either (1) to terminate this Agreement and all obligations of the parties hereunder or (2) to complete the transactions contemplated herein and receive as a credit to the Purchase Price the amount of such Cost to Repair and thereafter Seller shall have no obligation to repair such damage or destruction; (b) If subparagraph (a) does not apply, then: (i) If Seller has insurance coverage for the Cost to Repair any damage or destruction, then Buyer may elect either (1) to receive from Seller all of the proceeds of such insurance paid or payable and pay to Seller the full Purchase Price hereunder or (2) to allow Seller to retain all such insurance proceeds subject to a reduction of the Purchase Price in the amount thereof; and (ii) If and to the extent that the Cost to Repair any damage or destruction is not covered by insurance, including without limitation costs that are subject to a deductible or self-insured retention, then the Purchase Price shall be reduced by an amount equal to that portion of the Cost to Repair such damage or destruction that is not covered by insurance. 5.5 TITLE MATTERS. (a) At the Closing, Seller shall convey to Buyer free and clear of all liens and encumbrances except the Permitted Encumbrances good, marketable and insurable fee simple title to all of the Real Property designated in SCHEDULE 1.1(A) as parcels that are owned by Seller, and all rights, privileges and easements appurtenant thereto. Such conveyances shall be made by duly executed and acknowledged grant deeds (or assignments with warranty of good title with respect to the portions of the Real Property leased to Seller) which deeds and assignments shall be in the form of APPENDIX 5.5 hereto (such deeds and assignments are herein collectively referred to as "SELLER'S DEEDS"). Evidence of delivery of such good, marketable and insurable title shall be the issuance of one or more ALTA Owner's Policies of Title Insurance [(10-17-92)] with extended coverage, in an aggregate amount equal to $___,000,000 (the "Title Policies") which Seller shall deliver to Buyer at the Closing. In the event Seller delivers more than one Title Policy at Closing, each such Title Policy shall be in an amount requested by Buyer, subject, however, to the above limitation on the aggregate amount of such Title Policies. The Title Policies will be issued by Commonwealth Land Title Company 888 W. 6th St., Los Angeles, California 90017 (such company hereinafter called the "TITLE COMPANY"), and shall insure fee simple or leasehold (as applicable) title to the Real Property, and the appurtenant rights, privileges and easements, in the Buyer, subject only to Permitted Encumbrances and such other exceptions as Buyer shall approve in writing. The policies for the Real Property for which "as built" surveys are obtained pursuant to Section 5.5(b)(ii) below shall contain endorsements insuring over all printed or typed general exceptions for which insurance may be obtained by the delivery of such surveys. All Title Policies shall contain a zoning endorsement and such other endorsements as specified herein. Additional endorsements desired by Buyer shall be at Buyer's expense. (b) Seller has furnished to Buyer or will furnish to Buyer within 10 days prior to the Closing Date all of the following: (i) TITLE INSURANCE COMMITMENTS. With respect to all of the Real Property that are designated in SCHEDULE 1.1(A) as parcels that are owned in fee simple by Seller, a currently dated commitment or commitments for the Title Policies issued by the Title Company in accordance with the requirements set forth in Section 5.5(a) above. All examination fees, title premiums and other costs and expenses relating to such commitments and the Title Policies and all required endorsements shall be paid by Seller at Closing. (ii) ALTA SURVEYS. An "as built" survey with respect to the Hospital and each Real Property designated in SCHEDULE 1.1(A) hereto as a Real Property for which an as-built survey shall be obtained. Such surveys shall be prepared by surveyors licensed in the State of California and shall be in accordance with ALTA-ASCM standards for Class A urban-commercial surveys, shall be dated as of a date within 240 days prior to the Closing Date, shall be certified in favor of Buyer and the Title Company, and shall be in sufficient detail to provide the basis for the Title Company to issue the Title Policies without survey exceptions. All such survey costs and expenses shall be paid by Seller. (iii) BOUNDARY SURVEYS. Boundary surveys for each Real Property designated in SCHEDULE 1.1(A) as a Real Property for which a boundary survey shall be obtained. Such surveys shall be prepared by surveyors licensed in the State of California. All such survey costs and expenses shall be paid by Seller. 5.6 BEST EFFORTS TO CLOSE. Seller and Paracelsus shall use their best efforts to proceed toward the Closing and to cause the conditions to Closing to be met as soon as practicable and consistent with other terms contained herein. Seller and/or Paracelsus shall notify Buyer as soon as practicable of any event or matter which comes to Seller's or Paracelsus' attention which may reasonably be expected to prevent the conditions to Seller's obligation being met. 5.7 INSURANCE RATINGS. Seller shall take all action reasonably requested by Buyer to enable Buyer to succeed to the Worker's Compensation and Unemployment Insurance ratings, insurance policies, deposits and other interests of Seller and other ratings for insurance or other purposes established by Seller; provided, however, that the covenants contained in this sentence shall not require Seller to expend its own funds to satisfy such obligations, nor shall such covenants permit Buyer to acquire Seller's deposits without compensation to Seller. Buyer shall not be obligated to succeed to any such rating, insurance policy, deposit or other interest, except as it may elect to do so. 5.8 NOTICE; EFFORTS TO REMEDY. Seller will notify Buyer promptly in writing of, and contemporaneously will provide Buyer with true and complete copies of any and all information and documents relating to, and will use their best efforts to cure as soon as practicable (or by any subsequent date agreed upon by the parties), any event, transaction or circumstance occurring that causes or would cause any covenant or agreement of Seller or Paracelsus under this Agreement to be breached, or that renders or would render untrue any representation or warranty of Seller contained in this Agreement as if the same were made on or as of the date of such event, transaction or circumstance. Seller and Paracelsus also will use their reasonable best efforts to cure, as soon as practicable (or by any subsequent date agreed upon by the parties), any violation or breach of any representation, warranty, covenant or agreement made by either of them in this Agreement. Seller and Paracelsus shall have a reasonable time within which to effect a cure of such breach or misrepresentations before Buyer may terminate this Agreement (to the extent such remedy is available to Buyer pursuant to Section 11.1(d) hereof); provided, however, that after the date established by the parties for Closing, Buyer may terminate this Agreement (to the extent such remedy is available to Buyer pursuant to Section 11.1(d) hereof) unless such breach or misrepresentation has been cured to the reasonable satisfaction of Buyer . Furthermore, Seller and Paracelsus shall notify Buyer promptly in writing of any event, transaction or circumstance occurring that causes or would cause any covenant or agreement of Buyer under this Agreement to be breached, or that renders or would render untrue any representation or warranty of Buyer contained in this Agreement as if the same were made on or as of the date of such event, transaction or circumstance. Buyer shall have a reasonable time in which to effect a cure of such breach or misrepresentation before Seller may terminate this Agreement (to the extent such remedy is available to Seller pursuant to Section 11.1(d) hereof); provided, however, that after the date established by the parties for Closing, Seller may terminate this Agreement (to the extent such remedy is available to Seller pursuant to Section 11.1(d) hereof) unless the breach or misrepresentation has been cured to the reasonable satisfaction of Seller and Paracelsus. The failure of Seller to notify Buyer of any such discovered event, transaction or circumstance shall not release Buyer from any liability to Seller resulting from the breach attendant to such discovered event, transaction or circumstance; provided, however, that, unless Buyer had independent knowledge of such event, circumstance or condition, Buyer's liability shall be limited to the damages that would have nonetheless resulted to Seller had Seller disclosed such discovered event, transaction or circumstance to Buyer prior to Closing. 5.9 COOPERATION WITH BUYER. Seller shall cooperate in all reasonable respects with Buyer in connection with Buyer's efforts to obtain regulatory consents to and approvals of the transfer of the Licenses described in SCHEDULE 3.5 hereof. Seller also agrees that upon the written request of Buyer, Seller will use its reasonable best efforts to obtain any consents necessary for the assignment of the contracts and leases to be assumed by Buyer pursuant to the Assignment and Undertaking. The parties agree that Buyer will be primarily responsible for obtaining all such approvals and consents. 6. INDEMNIFICATION. 6.1 INDEMNITY BY BUYER AND SYSTEM. From and after Closing, Buyer and System shall indemnify, defend and hold harmless Seller and Paracelsus and their respective officers, employees, affiliates and agents (collectively, "BUYER INDEMNIFIED PARTIES") from and against any and all liabilities, losses, damages, demands, claims, suits, actions, judgments, causes of action, assessments, costs and expenses, including, without limitation, interest, penalties, reasonable attorneys' fees, any and all expenses incurred in investigating, preparing and defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation (collectively, "DAMAGES"), asserted against, resulting to, imposed upon, or incurred or suffered by any of them, directly or indirectly, as a result of or arising from the following: (i) any inaccuracy in or breach or nonfulfillment of any of the representations, warranties, covenants or agreements made by Buyer or System in this Agreement or the other agreements contemplated hereby; (ii) any liability imposed on any Buyer Indemnified Party to the extent such liability has been expressly assumed by Buyer pursuant to the Assignment and Undertaking; (iii) any misrepresentation in or any omission from any certificate or other document (collectively, the "BUYER ADDITIONAL DOCUMENTS") furnished or to be furnished by or on behalf of Buyer or System at Closing under this Agreement; (iv) any liability, obligation or indebtedness of Buyer or any alleged liability, obligation or indebtedness of Buyer , including without limitation those relating to contractual obligations, liabilities to Medicare or Medi-Cal programs, tax liabilities or professional malpractice or general liability claims, arising out of the operation of the Business after the Cut-Off Point which is imposed on or made against any Buyer Indemnified Party, except to the extent such liability or alleged liability arises out of a liability of Seller that has not been expressly assumed by Buyer pursuant to the Assignment and Undertaking; (v) any claims for fees or commissions of a broker, agent or similar entity employed or alleged to have been employed by or on behalf of Buyer in connection with the transactions contemplated hereby; and (vi) any liability imposed on any Buyer Indemnified Party arising out of the use by Buyer (or its assignees) of Seller's Drug Enforcement Agency Registration Numbers pursuant to the powers of attorney delivered in accordance with Section 9.10 of this Agreement. 6.2 INDEMNITY BY SELLER AND PARACELSUS. From and after the Closing, Seller and Paracelsus, jointly and severally, shall indemnify, defend and hold harmless Buyer and its respective officers, directors, employees, shareholders, affiliates and agents (collectively, the "SELLER INDEMNIFIED PARTIES") from and against any and all Damages asserted against, resulting to, imposed upon, or incurred or suffered by any of them, directly or indirectly, as a result of or arising from the following: (i) any inaccuracy in or breach or nonfulfillment of any of the representations, warranties, covenants or agreements made by Seller or Paracelsus in this Agreement or the other agreements contemplated hereby; (ii) any liability, obligation or indebtedness of Seller or Paracelsus or any alleged liability, obligation or indebtedness of Seller or Paracelsus, including without limitation those relating to contractual obligations, liabilities (including recapture of depreciation) to the Medicare or Medi-Cal programs, tax liabilities or professional malpractice or general liability claims, arising out of the operation of the Business prior to the Cut-Off Point which is imposed on or made against any Seller Indemnified Party, except to the extent certain contractual obligations have been expressly assumed by Buyer pursuant to the Assignment and Undertaking; (iii) any misrepresentation in or any omission from any certificate or other document (collectively, the "SELLER ADDITIONAL DOCUMENTS") furnished or to be furnished by or on behalf of Seller or Paracelsus at Closing under this Agreement; and (iv) any claims for fees or commissions of a broker, agent or similar entity employed or alleged to have been employed by or on behalf of Seller or Paracelsus in connection with the transactions contemplated hereby. 6.3 CLAIMS PROCEDURE. (a) If a party to this Agreement ("CLAIMING PARTY") learns of a circumstance giving rise to a claim for another party to this Agreement ("PERFORMING PARTY") to make payment, performance, or indemnity under this Agreement, then the Claiming Party shall give the Performing Party written notice thereof within a reasonable time considering the circumstances. No delay in giving notice to the Performing Party shall work a forfeiture of the rights of Claiming Party or shall limit the Performing Party's obligations under this Agreement. If, however, a delay in giving notice within a reasonable time prejudices the Performing Party and materially impairs its ability to mitigate loss, then the Performing Party shall have no obligation to pay that part of a loss caused by the delay. (b) The Performing Party shall defend, and shall have the right to settle, claims or suits by third parties that are payable or that are to be indemnified by the Performing Party under this Agreement. The Claiming Party shall reasonably cooperate with the Performing Party in the defense of claims and suits that the Performing Party defends, and the Performing Party shall reimburse the Claiming Party for out-of-pocket expenses incurred in cooperating at the Performing Party's request. The Claiming Party shall not settle such claims or suits defended by the Performing Party without the Performing Party's prior consent, which shall not be unreasonably withheld. The Claiming Party shall have the right to approve defense counsel selected by the Performing Party, which approval shall not be unreasonably withheld, and the right fully to participate in the defense of such claims and suits at the Claiming Party's sole cost and expense. The Claiming Party shall have the right to defend and settle claims or suits without prejudice to any of their rights against the Performing Party under this Agreement if the Performing Party declines or is unable to undertake the defense of a claim or suit within a reasonable time after the Performing Party's receipt of notice thereof. If the Performing Party disputes the Claiming Party's entitlement to indemnity and asserts the right to defend a claim or suit, and if the Claiming Party reasonably believes that the Performing Party's control of the defense of a claim or suit might prejudice the Claiming Party, then the Claiming Party shall have the right to defend such claim or suit. Performing Party shall have the right fully to participate in the defense of such claim or suit, and Claiming Party shall not settle such claim or suit without the Performing Party's prior consent, which Performing Party shall not unreasonably withhold. 6.4 LIMITATION ON CLAIMS. (a) No Seller Indemnified Party nor Buyer Indemnified Party shall make any claim for indemnification pursuant to Sections 6.1 or 6.2 with respect to any matter unless: (i) the amount of the Damages arising out of such matter is in excess of $25,000 (a "RELEVANT CLAIM"); and (ii) the aggregate amount of all Damages with respect to which a Relevant Claim is being made by an Indemnified Party against any or all of the applicable Indemnifying Parties (together with all such Relevant Claims previously made by the applicable Indemnified Parties against the applicable Indemnifying Parties) exceeds $250,000. (b) Notwithstanding the provisions of Section 6.4(a), any indemnified claim having its basis in any of the following shall not be subject to the thresholds established by such provisions: (A) a breach of the representations, warranties, covenants and agreements made in 1.3(c)(ii),3.15, 3.16, 3.17, 3.18, 3.19 and 4.3, (B) fraud or intentional misrepresentation, (C) a breach by Buyer to pay or observe any obligation of Seller assumed by Buyer pursuant to the Assignment and Undertaking, (D) a breach by Seller of its obligations under Section 1.3 hereof to pay or observe any of its obligations for trade payables, contracts, leases or other liabilities reflected on Seller's financial statements (other than those assumed by Buyer pursuant to the Assignment and Undertaking) and to satisfy prior to Closing all obligations secured by a lien on, or a security interest in, the Assets, (E) any breach by Buyer to pay the Purchase Price hereunder, or (F) a breach by Buyer or Seller of its obligation under Section 1.7.1 and 1.7.2 to pay any post-Closing adjustment to the Purchase Price required by such Sections. (c) Neither Seller nor Paracelsus shall be under any liability and no claim under Section 6.2 of this Agreement shall be made to the extent that any Damages may be recovered under a policy of insurance, except that (subject to the other limitations set forth in this Agreement) Seller and Paracelsus shall be liable to the extent of any deductibles under such insurance policy. (d) Neither Buyer nor System shall be under any liability and no claim under Section 6.1 of this Agreement shall be made to the extent that Paracelsus or Seller discovered such breach prior to the Closing Date and failed to disclose such breach to Buyer as provided in Section 5.8 hereof, except that Buyer and System shall be liable to the extent Buyer or System had knowledge of such breach or to the extent Paracelsus or Seller would have nonetheless suffered damages had such breach been disclosed to Buyer prior to the Closing Date. (e) Neither Seller nor Paracelsus shall be under any liability and no claim under Section 6.2 of this Agreement shall be made to the extent that Buyer discovered such breach prior to the Closing Date and failed to disclose such breach to Paracelsus and Seller as provided in Section 9.9 hereof, except that Paracelsus and Seller shall be liable to the extent either Paracelsus or Seller had knowledge of such breach or to the extent Buyer would have nonetheless suffered damages had such breach been disclosed to Paracelsus or Seller prior to the Closing Date. (f) If an Indemnifying Party is liable to an Indemnified Party for breach of any representation, warranty or undertaking, the liability of the Indemnifying Party shall be reduced and any amount paid by such Indemnifying Party shall be refunded to the extent that the Indemnified Party is eligible to obtain a reduction in its liability for tax (whether by way of credit or otherwise and calculated assuming that the Indemnified Party is taxed at the maximum rate applicable to such entity) which it would not have been eligible for had the breach which gave rise to liability of the Indemnifying Party not arisen. (g) Each Indemnified Party shall cooperate in all reasonable respects with the reasonable requests of its applicable Indemnifying Parties in the conduct of litigation, the making of settlements and the enforcement of any right of contribution to which the Indemnified Parties may be entitled from any person or entity in connection with the subject matter of any litigation subject to indemnification hereunder. In addition, the Indemnified Parties shall, upon the reasonable requests by their applicable Indemnifying Parties or counsel selected by such Indemnifying Parties, attend hearings and trials, assist in the securing and giving of evidence, assist in obtaining the presence or cooperation of witnesses, make available its own personnel, and assist in effecting settlements; and shall take such action as is reasonably necessary and appropriate in connection with such litigation. Seller Indemnified Parties shall not, except at their own cost, voluntarily make any payment, assume any obligation, incur any expense, or settle or compromise any claim without the express approval of Seller Indemnifying Parties in connection with any matter that is subject to indemnification hereunder. (h) The indemnification provided under Sections 6.1 and 6.2 shall survive the execution and delivery of this Agreement, the closing of the transactions contemplated hereby and the satisfaction of all other obligations of any party hereto under this Agreement. In respect of the indemnification provided under Section 6.1(i) and 6.2(i) relating to or arising out of a breach of a representation or warranty, and with respect to the indemnification provided under Sections 6.1(iii) and 6.2(iii) relating to or arising out of a misrepresentation in or omission from a Buyer Additional Document or a Seller Additional Document and which constitutes a "bring down" of a party's representations and warranties made in this Agreement, no indemnification may be asserted under this Agreement unless the party making the claim gives the party against whom the claim is to be made notice of such claim before the end of the applicable Survival Period (as defined in Section 12.18 hereto); PROVIDED, that such claim shall survive the expiration of the Survival Period if notice thereof, as required by Section 6.3, was given prior to the expiration of the Survival Period. In respect of the other indemnification provided under Sections 6.1 and 6.2, there shall be no limitation on when a claim for indemnification hereunder may be sought other than as set forth in Section 6.1 or 6.2, and the parties hereby waive any such limitation which may be imposed by law. (i) If a Performing Party pays a claim to a Claiming Party pursuant to this Agreement, then such party shall be subrogated to all rights of the party to or for whom the claim was paid against others for recovery of the loss, except affiliates, employees, officers, directors, successors or assigns of the party to or for whom the claim was paid. 6.5 JURISDICTION; SERVICE OF PROCESS. (a) Each of the parties hereto severally agrees that any legal action or proceeding with respect to this Agreement or to enforce any judgment obtained against any party hereto in connection with this Agreement may be brought by any other party hereto or any Seller Indemnified Party or Buyer Indemnified Party in the courts of the State of California or in the United States District Courts which are located in the City of Sacramento, California, or any other court to the jurisdiction of which such party hereto or any of its respective properties is or may be subject. In connection with any action or proceeding relating to this Agreement, each of the parties hereto severally irrevocably submits to the jurisdiction of the courts of the State of California and of the United States District Courts located in the city of Sacramento, California, and irrevocably waives any present or future objection to venue in any such court, and any present or future claim that any such court is an inconvenient forum. Nothing herein shall affect the right of the a party to serve process in any manner permitted by law or to bring any civil suit, action or proceeding against any party hereto or its respective property in the courts of any jurisdiction in which venue may be granted. (b) For the purposes of any legal action or proceeding brought by any party hereto or by any Seller Indemnified Party or any Buyer Indemnified Party with respect to this Agreement, each party hereto hereby irrevocably designates and appoints CT Corporation System, currently located at 818 W. 7th Street, Los Angeles, California 90017, as its authorized agent for service of process in the State of California. Each party hereto and each Seller Indemnified Party and each Buyer Indemnified Party shall for all purposes be entitled to treat such designee of each party hereto as the authorized agent to receive for and on its behalf service of writs or summons or other legal process in the State of California. In the event that, for any reason, such agent or his successor shall no longer serve as agent of any party hereto to receive service or process in the State of California, such party shall appoint a person in the State of California as a successor so to serve and advise the other parties hereto so that at all times each party hereto will maintain an agent to receive service of process in the State of California on its behalf with respect to this Agreement. In the event that, for any reason, service of legal process cannot be made in the manner described above, such service may be made in such other manner as permitted by law. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. The obligations of Buyer hereunder are subject to the satisfaction, on or prior to the Closing Date, of the following conditions unless waived in writing by Buyer: 7.1 REPRESENTATIONS/WARRANTIES; COMPLIANCE WITH COVENANTS. The representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects when made and on and as of the Closing Date, as though such representations and warranties had been made on and as of such Closing Date; and the covenants and conditions of this Agreement to be complied with or performed by Seller or Paracelsus on or before the Closing Date pursuant to the terms hereof shall have been duly complied with and performed in all material respects. 7.2 OPINION OF SELLER'S COUNSEL. Buyer shall have received an opinion from Michener, Larimore, Swindle, Whitaker, Flowers, Sawyer, Reynolds & Chalk L.L.P., counsel to Seller and Paracelsus, dated as of the Closing Date, substantially in the form of APPENDIX 7.2. 7.3 PRE-CLOSING CONFIRMATIONS. Buyer shall not have received in writing any notice from the California Department of Health Services or any other applicable agencies or licensing authorities that Buyer shall not be issued effective as of or promptly after the Closing a license to operate the Hospital and licenses or permits to provide all presently authorized supplemental and special services. 7.4 ACTION/PROCEEDING. No action, proceeding, investigation or administrative hearing before a court or any other governmental agency or body shall have been instituted against any party hereto (and remain unresolved) which seeks injunctive relief in anticipation of the sale of the Assets and may reasonably be expected to prohibit the sale of the Assets to Buyer or seeks damages in a material amount by reason of the consummation of such sale; nor shall any party hereto have received notification from any governmental agency of the United States of America or the State of California of such agency's current intent to seek injunctive relief in anticipation of the sale of the Assets to prohibit the sale of the Assets to Buyer. 7.5 [OMITTED] 7.6 TITLE POLICIES AND SURVEYS. Buyer and its counsel shall have received: (a) The form of the Title Policies which shall be issued on ALTA Owner's Policy [(10-17-92)] form with extended coverage and contain the endorsements described in Section 5.5(a). (b) The surveys described in Section 5.5. 7.7 CONVEYANCES AND DELIVERY OF TITLE POLICIES. Seller shall have delivered to Buyer all of Seller's Deeds and the Title Policies and required endorsements or irrevocable title insurance commitments in accordance with Section 5.5(a). 7.8 DELIVERY OF CERTAIN DOCUMENTS. At the Closing, the Seller shall have delivered to Buyer all documents, agreements and instruments contemplated by Section 2.2. 7.9 INFORMATION SYSTEMS AGREEMENT. Paracelsus and Buyer shall have executed and delivered an Information Systems Agreement (the "INFORMATION SYSTEMS AGREEMENT"), in substantially the form attached hereto as APPENDIX 7.9. 7.10 CERTIFICATE OF NON-FOREIGN STATUS. Seller shall have duly executed and delivered to Buyer a Certificate of Non-Foreign Status in the form attached hereto as APPENDIX 7.10. 7.11 HSR APPROVAL. The all applicable waiting periods specified in the HSR Act shall have expired or been terminated. 7.12 MEDICARE RECONCILIATION NOTE. Seller shall have delivered to Buyer a promissory note in the form of APPENDIX 7.12 hereto (the "MEDICARE RECONCILIATION NOTE"). The original principal balance of the Medicare Reconciliation Note will be an amount equal to the book value of the Medicare Receivables, net of the allowance for doubtful accounts and contractual adjustments related thereto, all as reflected on the Interim Balance Sheet. As provided in such Medicare Reconciliation Note and in Sections 1.6 and 1.7 hereof, the principal balance of such note will be adjusted to reflect changes in such net book value amount between the date of the Interim Balance Sheet and the date of the Closing Balance Sheet. 7.13 BUYER AND SYSTEM BOARD APPROVAL. The Board of Directors of Buyer and System shall have approved this Agreement and the transactions contemplated hereby. 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND PARACELSUS. The obligations of Seller and Paracelsus hereunder are subject to the satisfaction, on or prior to the Closing Date, of the following conditions unless waived in writing by Seller and Paracelsus: 8.1 REPRESENTATIONS/WARRANTIES; COMPLIANCE WITH COVENANTS. The representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date as though such representations and warranties had been made on and as of such Closing Date; the covenants and conditions of this Agreement to be complied with or performed by Buyer on or before the Closing Date pursuant to the terms hereof shall have been duly complied with and performed in all material respects. 8.2 OPINION OF BUYER'S COUNSEL. Seller shall have received from Davis Wright Tremaine LLP, counsel to Buyer , an opinion dated as of the Closing Date and addressed to Seller and Paracelsus, substantially in the form of APPENDIX 8.2. 8.3 ACTION/PROCEEDING. No action, proceeding, investigation or administrative hearing before a court or any other governmental agency or body shall have been instituted against any party hereto (and remain unresolved) which seeks injunctive relief in anticipation of the sale of the Assets and may reasonably be expected to prohibit the sale of the Assets to Buyer or seeks damages in a material amount by reason of the consummation of such sale; nor shall any party hereto have received notification from any governmental agency of the United States of America or the State of California of such agency's current intent to seek injunctive relief in anticipation of the sale of the Assets to prohibit the sale of the Assets to Buyer or the parties' execution. 8.4 DELIVERY OF CERTAIN DOCUMENTS. At the Closing, the Buyer shall have delivered to Seller all documents, agreements and instruments contemplated by Section 2.3. 8.5 HSR APPROVAL. The all applicable waiting periods specified in the HSR Act shall have expired or been terminated. 8.6 SELLER AND PARACELSUS BOARD APPROVAL. The Board of Directors of Seller and Paracelsus shall have approved this Agreement and the transactions contemplated hereby. 9. PARTICULAR COVENANTS OF BUYER. 9.1 BEST EFFORTS TO CLOSE. Buyer and System shall use their best efforts to proceed toward the Closing and to cause the conditions to Closing to be met as soon as practicable and consistent with other terms contained herein. Buyer shall notify Seller as soon as practicable of any event or matter which may reasonably be expected to prevent the conditions to Buyer's obligations being met. 9.2 EMPLOYMENT OF EMPLOYEES OF SELLER; ADDITIONAL EMPLOYEE MATTERS. (a) (i) Prior to Closing, Buyer shall offer, effective as of the Cut-Off Point, employment to all employees of Seller (except as provided in subsection (d) below) who are on the active payroll of Seller with respect to the Business on the Closing Date (including for this purpose any employee of Seller who elects to be treated as a retiree of Seller as of the Cut-Off Point for the purpose of qualifying for certain employee benefits). Buyer shall give the same offer of employment to any employee who is in paid or unpaid inactive status as of the Closing, and who is available for return to active status within 90 days after Closing (or at such later date as may be required by applicable law). All such employees who accept Buyer's offer of employment shall be referred to as the "Hired Employees." (ii) Each offer of employment under paragraph 9.2(a)(i) shall be for a substantially equivalent position, and at a substantially similar wage or salary, as provided by Seller to the Hired Employee immediately prior to the Closing Date (or, as to any employee who is in paid or unpaid inactive status as of the Closing Date who receives an offer of employment from Buyer upon becoming available to return to active status, immediately prior to the first day of such employee's paid or unpaid leave from Seller. As to each Hired Employee, Buyer shall also provide employee welfare benefits and paid time-off that are commensurate with those of other employees of Buyer having similar positions. Buyer agrees that, for the purpose of determining welfare benefits coverage and other related matters (including eligibility and participation, but not vesting or benefit accrual, under any Buyer pension benefit plan), each Hired Employee will be considered to have commenced employment with Buyer on the date such Hired Employee commenced uninterrupted employment with Seller (whichever is earlier). Notwithstanding the preceding sentence, Buyer shall not be obligated to provide Hired Employees any accrued sick or vacation days upon hiring them except as and to the extent provided in Sections 9.2(e) and (f) hereof. For the purpose of determining vesting and benefit accrual under all Buyer pension benefit plans, each Hired Employee will be considered to have commenced employment with Buyer on the Employment Commencement Date (as defined below). Health benefits coverage provided by Buyer for Hired Employees (and any dependents thereof) shall apply to covered expenses incurred on and after the Employment Commencement Date, and Buyer agrees to waive any limitations for pre-existing conditions with respect to any conditions affecting any Hired Employees (and any dependents thereof); subject to the following limitations: (x) the pre-existing condition provisions of Seller's health benefit plans shall apply in lieu of the pre- existing condition provisions of Buyer's plans to all Hired Employees (and their dependents) who are eligible for benefits under Seller's health benefits plans as of the Closing Date but who are subject to pre-existing condition limitations as of the Closing Date and (y) the pre-existing conditions limitations under Buyer's medical benefits plans shall apply to any Hired Employee (and his or her dependents) who is not eligible for benefits under Seller's health benefits plans as of the Closing Date, and any such Hired Employee shall be treated as having been hired by Buyer on the date such employee commenced employment with Seller for purposes of applying such pre-existing condition limitations to such Hired Employee (and such Hired Employee's dependents). (iii) The term "EMPLOYEE COMMENCEMENT DATE" shall mean the day immediately following the Cut-Off Point; provided, however, that with respect to any employee who is in paid or unpaid inactive status as of the Closing Date and to whom Buyer offers employment pursuant to this Section 9.2(a) the term "EMPLOYEE COMMENCEMENT DATE" shall mean such employee's first day of employment with Buyer. (b) Subject to the accuracy of Seller's representations and warranties in Section 3.12 and SCHEDULE 3.12, (i) on and after the Closing Date, Buyer shall be responsible for any and all notices required with respect to Buyer's termination of employees, and (ii) any liabilities or obligations arising under the WARN Act on or after the Closing Date shall be those of Buyer and not Seller. (c) After the Closing, Buyer will, upon reasonable request, give assistance to human resources personnel of Paracelsus and/or Seller in the post-closing administration of the respective employee benefit plans of Seller as they apply to Hired Employees. For this purpose, "assistance" includes reasonable access to the pre-Closing personnel records of Hired Employees. (d) Notwithstanding the provisions of Section 9.2(a), Buyer shall not be required to offer employment to (i) any person whom Buyer could otherwise terminate for cause, (ii) any person whom Buyer has prior to Closing previously employed and subsequently terminated for cause, or (iii) the President and Chief Executive Officer, the Chief Financial Officer or the Chief Operating Officer of Seller. (e) Buyer agrees that it shall assume, from and after the Cut-Off Point, the accrued liability of Seller for accrued vacation, holiday and sick day benefits and related taxes that relate to the Hired Employees, to the extent such amounts are included in Working Capital. Buyer agrees that (i) Hired Employees will be entitled to use such benefits in accordance with the generally applicable policies and procedures established by Buyer for use of paid leave, (ii) that such benefits will be in addition to any holidays, vacation days, sick days or other paid leave earned by the Hired Employees after the Cut-Off Point as employees of Buyer, and (iii) that such benefits will not (unless previously paid by Seller) be eliminated by Buyer without payment in full to the Hired Employees. Seller agrees that it will furnish to Buyer at Closing a schedule (dated as of the most recent date practicable prior to Closing) showing the name of each Hired Employee (and each employee of Seller on inactive status) and as to each such person the amount of accrued APL that such person has as of such date. As soon as possible after the Closing, Seller will furnish to Buyer a schedule showing such information as of the Cut-Off Point. 9.3 [OMITTED] 9.4 CONSENTS AND REGULATORY APPROVALS. Buyer acknowledge that except as provided in Section 5.9 hereof, neither Seller nor Paracelsus shall have any responsibility for obtaining any regulatory consents to and approvals of the transfer of the Licenses described in SCHEDULE 3.5 hereof or for obtaining any necessary consents to the assignment of the contracts and leases. Buyer agrees to use its reasonable best efforts to secure such approvals and consents as soon as practicable and prior to the Closing. 9.5 CHANGE OF NAME. Buyer agrees that it will cause all signs, if any, incorporating the names "Paracelsus" and "Paracelsus Healthcare"(and all variations thereof) which are located at any of the Real Property or the improvements thereto to be removed or modified as soon as reasonably practicable after the Closing Date and in any event within 30 days after the Closing Date, such that such names are no longer used at such Real Property or upon such improvements. 9.6 BUYER'S PAYMENT OF THE PURCHASE PRICE. Subject to the conditions to Closing set forth in this Agreement, Buyer shall pay the Purchase Price for the Assets in accordance with Section 2.3(a). 9.7 [OMITTED] 9.8 PRESERVATION AND ACCESS TO BOOKS AND RECORDS AFTER THE CLOSING. (a) After the Closing, Buyer shall keep and preserve all medical records and medical charts existing as of the Closing of patients of the Hospital for so long as Buyer is required by law to maintain such records (but in no event less that seven years, beginning on the Closing Date). Buyer acknowledges that as a result of entering into this Agreement and operating the Business, it will gain access to patient and other information which is subject to rules and regulations concerning confidentiality. Buyer agrees to abide by any such rules and regulations relating to the confidential information it acquires. Buyer agrees after Closing to maintain the patient records at the Business in accordance with applicable law (including, if applicable, Section 1861(v)(i)(I) of the Social Security Act (42 U.S.C.
1395x(v)(1)(I)) and requirements of relevant insurance carriers. In addition, Seller and Paracelsus shall be entitled to remove from the Hospital any such patient records, but only for purposes of pending litigation involving a patient to whom such records refer, as certified in writing prior to removal by counsel retained by Seller or Paracelsus in connection with such litigation; provided, however, that to the extent Paracelsus or Seller are not required by subpoena or court order to use originals of the patient records for such purposes, Paracelsus shall (a) use copies of patient records, where appropriate and (b) cause Seller to use copies of patient records. Any original patient records so removed from the Business shall be promptly returned to Buyer following its use by Seller or Paracelsus. Notwithstanding the foregoing provisions, Seller or Paracelsus shall not be entitled to review, have access to, have copies of or remove from the premises of the Business any medical records or patient charts relating to any period after the expiration of the applicable statute of limitations expires for the bringing of any action against Seller for its ownership of the Business prior to the Cut-Off Point. (b) After the Closing, Buyer shall keep and preserve all other records of the Business existing as of the Closing which are delivered to Buyer by Seller for a period of 7 years or such longer period (if any) as such records are required to be kept and preserved by any federal or state law or regulation. After the Closing, upon reasonable written notice by Seller to Buyer, Seller shall be entitled, during regular business hours, to have access to and make copies of all records pertaining to the operation of the Business (other than medical records which shall be governed by the provisions of Section 9.8(a) hereof) prior to the Closing for any lawful corporate purpose. (c) Should Buyer decide to dispose of any books or records which they have been obligated to maintain pursuant to Section 9.8, Buyer shall advise Seller in writing of such intention and Seller shall have not less than 60 days after receipt of such notice to elect in writing to have Buyer deliver such records to Seller. 9.9 NOTICE; EFFORTS TO REMEDY. Buyer will notify Seller and Paracelsus promptly in writing of, and contemporaneously will provide Seller and Paracelsus with true and complete copies of any and all information and documents relating to, and will use their best efforts to cure as soon as practicable (or by any subsequent date agreed upon by the parties), any event, transaction or circumstance occurring that causes or would cause any covenant or agreement of Buyer under this Agreement to be breached, or that renders or would render untrue any representation or warranty of Buyer contained in this Agreement as if the same were made on or as of the date of such event, transaction or circumstance. Buyer also will use their best efforts to cure, as soon as practicable (or by any subsequent date agreed upon by the parties), any violation or breach of any representation, warranty, covenant or agreement made by either of them in this Agreement. Buyer shall have a reasonable time within which to effect a cure of such breach or misrepresentations before Seller or Paracelsus may terminate this Agreement (to the extent such remedy is available to Seller or Paracelsus pursuant to Section 11.1(d) hereof); provided, however, that after the date established by the parties for Closing, Seller or Paracelsus may terminate this Agreement (to the extent such remedy is available to Seller or Paracelsus pursuant to Section 11.1(d) hereof) unless such breach or misrepresentation has been cured to the reasonable satisfaction of Seller or Paracelsus. Furthermore, Buyer shall notify Seller and Paracelsus promptly in writing of any event, transaction or circumstance occurring that causes or would cause any covenant or agreement of Seller or Paracelsus under this Agreement to be breached, or that renders or would render untrue any representation or warranty of Seller or Paracelsus contained in this Agreement as if the same were made on or as of the date of such event, transaction or circumstance. Seller and Paracelsus shall have a reasonable time in which to effect a cure of such breach or misrepresentation before Buyer may terminate this Agreement (to the extent such remedy is available to Buyer pursuant to Section 11.1(d) hereof); provided, however, that after the date established by the parties for Closing, Buyer may terminate this Agreement (to the extent such remedy is available to Buyer pursuant to Section 11.1(d) hereof) unless the breach or misrepresentation has been cured to the reasonable satisfaction of Buyer . The failure of Buyer to notify Seller and Paracelsus of any such discovered event, transaction or circumstance shall not release Seller and Paracelsus from any liability to Buyer resulting from the breach attendant to such discovered event, transaction or circumstance; provided, however, that, unless Seller or Paracelsus had independent knowledge of such event, circumstance or condition, Paracelsus' and Seller's liability shall be limited to the damages that would have nonetheless resulted to Buyer had Buyer disclosed such discovered event, transaction or circumstance to Seller and Paracelsus prior to Closing. 9.10 POWER OF ATTORNEY FOR D.E.A. REGISTRATION NUMBER(S) AND CALIFORNIA PHARMACY LICENSE(S). Buyer covenants that it shall promptly apply for all necessary United States Department of Justice Drug Enforcement Agency ("D.E.A.") registration(s) or California Pharmacy License(s) with respect to the Hospital as soon as possible. At or prior to Closing, Seller shall execute in favor of Buyer one or more Powers of Attorney for Order Forms authorizing Buyer or a representative of Buyer to execute applications for books of official order forms and to sign such order forms, under Seller's D.E.A. Registration Number(s) or Seller's Pharmacy License(s) as required for all necessary controlled substances on an interim basis until such time as Buyer shall receive approval of all necessary D.E.A. registration(s) or California Pharmacy License(s). Seller covenants that it shall cooperate with Buyer and provide such information as Buyer may reasonably request in making all such applications for registration or licensing. 9.11 GOVERNMENTAL APPROVALS. Buyer shall assist and cooperate with Seller and Seller's representatives and counsel in obtaining all governmental consents, approvals and licenses which Seller reasonably deems necessary or appropriate and in the preparation of any document or other material which may be required by any governmental agency as a predicate to or result of the transactions contemplated herein. 9.12 FTC NOTIFICATION. Buyer shall, if and to the extent required by law, (i) file all reports or other documents required under the HSR Act or requested by the DOJ or the FTC under the HSR Act, and all regulations promulgated thereunder, or in order to permit all applicable waiting periods under the HSR Act to expire, (ii) seek early termination of such waiting periods concerning the transactions contemplated hereby, and (iii)comply promptly with any requests by the FTC or DOJ for additional information concerning such transactions, so that the applicable waiting period specified in the HSR Act will expire as soon as reasonably possible after the execution and delivery of this Agreement. Buyer agrees to furnish to Seller such information concerning Buyer as Seller needs to perform its obligations under Section 10.3 of this Agreement. 10. PARTICULAR COVENANTS OF SELLER AND PARACELSUS. 10.1 REIMBURSEMENT OF BUYER. If any third party payor deducts any amount from payments due Buyer in respect of claims against or amounts owed by Paracelsus or Seller, then Paracelsus and/or Seller will promptly reimburse Buyer for the amounts so deducted within 10 days after written demand therefor by Buyer. Buyer agrees to give prompt notice to Seller and Paracelsus of the assertion of any claim, formal or informal, by any third party payor for which, if deducted by such third party payor, Buyer would be entitled to reimbursement by Paracelsus and/or Seller hereunder and will cooperate in good faith, at no out-of-pocket cost to Buyer, so as to permit Paracelsus and/or Seller to mitigate the amount of any such claim by any such third party payor. 10.2 GOVERNMENTAL APPROVALS. Seller and Paracelsus shall assist and cooperate with Buyer and Buyer's representatives and counsel in obtaining all governmental consents, approvals and licenses which Buyer reasonably deems necessary or appropriate and in the preparation of any document or other material which may be required by any governmental agency as a predicate to or result of the transactions contemplated herein. 10.3 FTC NOTIFICATION. Seller and Paracelsus shall, if and to the extent required by law, (i) file all reports or other documents required under the HSR Act or requested by the DOJ or the FTC under the HSR Act, and all regulations promulgated thereunder, or in order to permit all applicable waiting periods under the HSR Act to expire, (ii) seek early termination of such waiting periods concerning the transactions contemplated hereby, and (iii)comply promptly with any requests by the FTC or DOJ for additional information concerning such transactions, so that the applicable waiting period specified in the HSR Act will expire as soon as reasonably possible after the execution and delivery of this Agreement. Seller and Paracelsus agree to furnish to Buyer such information concerning Seller and Paracelsus as Buyer needs to perform its obligations under Section 9.12 of this Agreement. 11. TERMINATION. 11.1 OPTIONAL TERMINATION. This Agreement may be terminated at any time prior to the Closing as follows: (a) by the mutual agreement of Buyer and Seller; (b) by Buyer in accordance with the provisions of Section 5.4; (c) by either Buyer or Seller, if any court of competent jurisdiction in the United States or other United States governmental body shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated hereby and such order, decree, ruling or other action shall have become final and non-appealable; (d) in the event either Seller or Paracelsus, on one hand, or either Buyer or System on the other hand, commits a material breach of any representation, warranty, covenant or agreement made herein, which breach, if left uncured, would result in a material adverse effect on the condition or value of the Assets or the operation of the Business, by either Buyer or Seller, provided such terminating party did not commit such breach and not an affiliate of the party that committed such breach, and provided further that this right to terminate shall be subject to the parties' rights to cure set forth herein; and (e) by either Buyer or Seller if the Closing has not occurred by the 180th day after the date of this Agreement as set forth in the preamble hereof because a condition to the terminating party's obligation to close set forth, in respect of Buyer in Article 7, or such later date as permitted under Section 2.1(b), and, in respect of Seller and Paracelsus in Article 8, was not satisfied on such date, unless the date for Closing has been extended by the mutual agreement of the parties hereto. 11.2 NOTICE OF ABANDONMENT. In the event of any termination pursuant to Section 11.1, written notice shall forthwith be given to the other parties hereto except with respect to a termination pursuant to Section 11.1(a). 11.3 EFFECT OF TERMINATION. Except for the obligations contained in Sections 6.1(v), 6.2(v), 12.8, 12.9 and 12.21 hereof, upon the due termination of this Agreement pursuant to Section 11.1(a), (b), (c) or (e), this Agreement shall forthwith become null and void, and neither party hereto nor any of its officers, directors, trustees, members or shareholders shall have liability hereunder, provided, however that in no event shall a party hereto be released from liability for damages under this Agreement or otherwise following termination under Section 11.1(d) in the event such party's breach resulted in the failure to close by any such termination date and such breaching party was not otherwise excused from its obligation so to close under this Agreement. Any and all claims or awards for damages (including without limitation punitive damages) following termination under Section 11.1(d), together with any and all claims for damages by the non-breaching party under the Earnest Money Deposit Agreement, shall not exceed $25,000,000. Parties specific agreement to and acknowledgment of the preceding: _______________[Paracelsus initials], _______________[CCH initials], _______________[Enloe initials], and _______________[System initials]. 12. GENERAL. 12.1 EXHIBITS, SCHEDULES AND OTHER INSTRUMENTS. Each Exhibit, Certificate, Appendix and Schedule, if any, to this Agreement shall be considered a part hereof as if set forth herein in full. Any fact disclosed on one Schedule hereto shall be deemed to be disclosed on each other applicable schedule. Buyer shall have 10 days following receipt of any Schedule not provided on the date of execution of this Agreement to approve or disapprove of any such Schedule. Seller shall have the right to update any Schedule prior to Closing, which updated Schedule shall also be subject to Buyer's approval. Buyer shall not unreasonably disapprove of any updated Schedule that reflects only changes resulting from operations of the Hospital in the ordinary course. Upon receiving notice from Buyer of a disapproved Schedule, Seller shall use its best efforts to remove or remedy any item or event disclosed in the disapproved Schedule, but if sit is unable to do so within 10 business days, Buyer shall have the option of waiving its disapproval or terminating this Agreement without liability to either party. 12.2 PRE-CLOSING ACCESS. Seller shall give Buyer, its accountants, counsel, and other representatives access to the premises and offices of the Hospital, management and supervisory employees of the Hospital, and make such information as Buyer may reasonably request available to Buyer, as may be necessary for Buyer to examine the Assets and Business being acquired. No such inspection by Buyer shall unreasonably interfere with Seller's conduct of business in the ordinary course. 12.3 TERMINATING COST REPORT. Seller agrees to file a terminating cost report in connection with third party receivables of the Business with applicable agencies and shall provide Buyer with a copy thereof prior to such filing. 12.4 ADDITIONAL ASSURANCES. The provisions of this Agreement shall be self-operative and shall not require further agreement by the parties except as may be herein specifically provided to the contrary; provided, however, at the request of either party, the other party shall execute such additional instruments and take such additional acts as are reasonably necessary to effectuate this Agreement. 12.5 CONSENTS, APPROVALS AND DISCRETION. Whenever this Agreement requires any consent or approval to be given by either party or either party must or may exercise discretion, the parties agree that such consent or approval shall not be unreasonably withheld or delayed and such discretion shall be reasonably exercised. 12.6 CHOICE OF LAW. THE PARTIES AGREE THAT THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA AND VENUE SHALL BE BUTTE OR SACRAMENTO COUNTIES. 12.7 BENEFIT/ASSIGNMENT. Subject to the provisions herein to the contrary, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective legal representatives, successors and assigns; provided, however, that no party may assign this Agreement without the prior written consent of the other party. 12.8 COSTS OF TRANSACTION. Subject to the other terms and provisions hereof, whether or not the transactions contemplated hereby shall be consummated, the parties agree as follows: (i) Seller and Paracelsus will pay the fees, expenses, and disbursements of Seller and Paracelsus and their respective agents, representatives, accountants, and counsel incurred in connection with the subject matter hereof and any amendments hereto; and (ii) Buyer shall pay the fees, expenses and disbursements of Buyer and its respective agents, representatives, accountants and counsel incurred in connection with the subject matter hereof and any amendments hereto. Buyer shall pay any transfer taxes and recording fees resulting from the consummation of the transactions contemplated hereby. 12.9 CONFIDENTIALITY. With respect to Confidential Information provided by Paracelsus or Seller in connection with and relative to the transactions contemplated by this Agreement, Buyer agrees to use reasonable best efforts to cause its officers, employees, representatives and agents to hold all such Confidential Information in strict confidence and only to disclose such Confidential Information to such duly authorized persons as are necessary to effect the transactions contemplated hereby, and, if requested, to return all originals and copies of any such written Confidential Information to Seller or Paracelsus in the event for any reason the sale of the Assets is not consummated. Nothing in this Section shall prohibit the use of such Confidential Information for such governmental filings as are required by law or governmental regulations or the disclosure of such Confidential Information if such disclosure is compelled by judicial or administrative process or, in the opinion of Buyer's counsel, other requirements of law. Subject to Paracelsus' disclosure obligations under federal securities laws, any release to the public of information with respect to the transactions contemplated hereby will be made only in the form and manner approved by the parties and their respective representatives. Buyer agrees that it will not use, and will not knowingly permit others to use, any Confidential Information in a manner detrimental to the Business, Paracelsus or Seller or to their competitive disadvantage. Buyer , its officers, employees and agents recognize that any breach of this Section would result in irreparable harm to Seller and Paracelsus and that therefore either Seller or Paracelsus shall be entitled to an injunction to prohibit any such breach by Buyer and its officers, employees and agents in addition to all of their other legal and equitable remedies. For the purposes hereof, "CONFIDENTIAL INFORMATION" shall mean all information of any kind concerning Paracelsus or Seller obtained, directly or indirectly, from Paracelsus or Seller in connection with the transactions contemplated by this Agreement except information (i) ascertainable or obtained from public or published information, (ii) received from a third party not known by Buyer to be under an obligation to keep such information confidential, (iii) which is or becomes known to the public (other than through a breach of this Agreement), or (iv) which was in Buyer's possession prior to disclosure thereof to Buyer in connection herewith. 12.10 WAIVER. The waiver by either party of a breach or violation of any term or provision of this Agreement shall not operate as, or be construed to be, a waiver of any subsequent breach of the same provision by any party or of the breach of any other term or provision of this Agreement. The delay or a failure of a party to transmit any written notice hereunder shall not constitute a waiver by such party of any default hereunder or of any other or further default under this Agreement except as may expressly be provided for by the terms of this Agreement. 12.11 TAX ALLOCATION. The allocation of the Purchase Price for tax purposes shall be set forth in a statement prepared in accordance with Section 1060 of the Internal Revenue Code of 1986, as amended, which statement shall be prepared in a manner generally consistent with the form of Internal Revenue Service Form 8594 and a manner consistent with the Purchase Price allocation provided under Section 1.4. Buyer and Seller shall cooperate in the preparation of such statement of allocation and each party hereto shall file a copy of such statement as, and if, required by applicable law. 12.12 INTERPRETATION. Each of the parties has agreed to the use of the particular language of the provisions of this Agreement including all attached Exhibits and Schedules and any questions of doubtful interpretation shall not be resolved by any rule or interpretation against the draftsman but rather in accordance with the fair meaning thereof, having due regard to the benefits and rights intended to be conferred upon the parties hereto and the limitations and restrictions upon such rights and benefits intended to be provided. Whenever any matter herein is represented, warranted or stated herein to be to the "KNOWLEDGE OF," to the "BEST KNOWLEDGE OF" or to the "BEST KNOWLEDGE AND BELIEF OF" Seller or Paracelsus, or words of similar import, such representation, warranty or statement shall mean all matters with respect to which (a) Seller has received written notice or (b) any of the following persons has knowledge or with reasonable inquiry under the circumstances would have knowledge: any director or officer of Seller, or any administrator, assistant administrator or controller at the Hospital. 12.13 NOTICE. Any notice, demand or communication required, permitted, or desired to be given hereunder shall be in writing and shall be deemed effectively given when personally delivered, when received by telegraphic or other electronic means (including telefax and telex) or overnight courier, or five days after being deposited in the United States mail, with postage prepaid, certified mail, return receipt requested, addressed as follows: Buyer: N.T. Enloe Memorial Hospital W. 5th Avenue & The Esplanade Chico, California 95926 Attention: Chief Executive Officer Seller: Paracelsus Healthcare Corporation 515 W. Greens Road, Suite 800 Houston, Texas 77067 Attention: President or to such other address, and to the attention of such other person or officer as any party may designate, with copies thereof to the respective counsel thereof as notified by such party. 12.14 SEVERABILITY. In the event any provision of this Agreement is held to be invalid, illegal or unenforceable for any reason and in any respect, such invalidity, illegality, or unenforceability shall in no event affect, prejudice or disturb the validity of the remainder of this Agreement, which shall be in full force and effect, enforceable in accordance with its terms, including, without limitation, those terms which contemplate or require the further agreements of the parties. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and still be legal, valid or enforceable. 12.15 GENDER AND NUMBER. Whenever the context of this Agreement requires, the gender of all words herein shall include the masculine, feminine and neuter, and the number of all words herein shall include the singular and plural. 12.16 DIVISIONS AND HEADINGS. The divisions of this Agreement into sections and subsections and the use of captions and headings in connection therewith are solely for convenience and shall have no legal effect in construing the provisions of this Agreement. 12.17 CONSENTED ASSIGNMENT. Anything contained herein to the contrary notwithstanding, this Agreement shall not constitute an agreement to assign any claim, right, contract, license, lease, commitment, sales order or purchase order if an attempted assignment thereof without the consent of another party thereto would constitute a breach thereof or in any material way affect the rights of Seller thereunder, unless such consent is obtained. If such consent is not obtained, or if an attempted assignment would be ineffective or would materially affect Seller's rights thereunder so that Buyer would not in fact receive all such rights, Seller shall cooperate in any reasonable arrangement designed to provide for Buyer during the Contract Period (as defined below) the benefit under any such claims, rights, contracts, licenses, leases, commitments, sales orders or purchase orders, including, without limitation, enforcement, at no out-of- pocket cost to Seller, of any and all rights of Seller against the other party or parties thereto arising out of the breach or cancellation by such other party or otherwise. To the extent that any claim, right, contract, license, lease, commitment, sales order or purchase order to be assigned to or acquired by Buyer pursuant to this Agreement also applies to facilities or operations other than those being sold pursuant hereto, then Seller also agrees that during the Contract Period, upon the written request of Buyer, it will use its reasonable best efforts to cause the services, property or other benefits provided or made available under such claim, right, contract, license, lease, commitment, sales order or purchase order to continue to be available to Buyer on terms and conditions substantially similar to those presently in effect. The term "CONTRACT PERIOD" shall mean with respect to any contract or other right the period beginning on the Closing Date and ending on the earlier of (a) the expiration of the term of the given contract or other right and (b) the third anniversary of the Closing Date. 12.18 SURVIVAL. The representations, warranties, covenants and agreements made by the parties herein shall survive the Closing; provided, however, that the representations and warranties made by the parties herein shall expire on the first anniversary of the Closing Date except with respect to matters for which Buyer has given notice of claim under Section 6.3, and except with respect to the representations and warranties set forth in Sections 3.1, 3.2, 3.10, 3.15, 3.16, 3.17, 3.19, 4.1, 4.2 and 4.3 (and the indemnities with respect thereto), which shall survive for the applicable statute of limitations periods (collectively, the "SURVIVAL PERIOD"). 12.19 ENTIRE AGREEMENT/AMENDMENT. Except for the Confidentiality Agreement between Paracelsus and Superior California Medical Center (now known as the System), dated June 16, 1997 (which Confidentiality Agreement will survive the execution and delivery of this Agreement) and the Second Amended and First Restated Earnest Money Deposit Agreement, this Agreement supersedes all prior contracts, understandings and agreements, whether written or oral, and constitutes the entire agreement of the parties respecting the within subject matter and no party shall be entitled to benefits other than those specified herein. As between or among the parties, no oral statements or prior written material (other than the Confidentiality Agreement) not specifically included herein shall be of any force and effect; the parties specifically acknowledge that in entering into and executing this Agreement, the parties rely solely upon the representations and agreements contained in this Agreement and no others. No terms, conditions, warranties, or representations, other than those contained herein (or in the Confidentiality Agreement) and no amendments or modifications hereto, shall be binding unless made in writing and signed by the party to be charged. Without limiting the foregoing, this Second Amended and First Restated Asset Purchase Agreement for Chico Community Hospital supersedes and replaces that certain Asset Purchase Agreement, dated December 15, 1997 among Paracelsus, Seller, Buyer and System, with respect to the Business. 12.20 COUNTERPARTS. This Agreement may be executed in multiple originals or counterparts, each and all of which shall be deemed an original and all of which together shall constitute but one and the same instrument. 12.21 RISK OF LOSS. Notwithstanding any other provision hereof to the contrary, the risk of loss in respect of casualty to the Assets shall be borne by Seller through the time of Closing and by the Buyer thereafter. 12.22 PUBLIC ANNOUNCEMENT. Paracelsus and Seller, on one hand, and Buyer, on the other hand, mutually agree that, prior to the Closing, no party shall issue any press release or make any public announcement of the transaction which is the subject of this Agreement without the prior consent of each other party, except where a public announcement is required by law as reasonably determined by such party. Additionally, Paracelsus and Seller, on one hand, and Buyer on the other hand, each agrees that, prior to the Closing, it will not, and will cause its officers, directors, partners, employees, counselors and representatives not to, discuss any aspects of this Agreement with any third party (other than their respective representatives, lenders, prospective underwriters and counselors) without the prior written consent of the other party hereto. [The next page of this Agreement is the signature page, which is page number "S-1."] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in multiple originals by their duly authorized officers and their corporate seals duly affixed hereto, all as of the day and year first above written. PARACELSUS HEALTHCARE CORPORATION By: Title: SELLER: CHICO COMMUNITY HOSPITAL, INC. By: Title: N.T. ENLOE MEMORIAL HOSPITAL By: Title: ENLOE HEALTH SYSTEM By: Title: S:\8-K\PUR2AMD.AGR THIRD AMENDMENT TO SECOND AMENDED AND FIRST RESTATED ASSET PURCHASE AGREEMENT FOR CHICO COMMUNITY HOSPITAL THIS THIRD AMENDMENT ("THIRD AMENDMENT") to the Second Amended and First Restated Asset Purchase Agreement for Chico Community Hospital (the "AGREEMENT") is entered into as of this 12th day of June, 1998, by and between PARACELSUS HEALTHCARE CORPORATION ("PARACELSUS"), a California corporation, CHICO COMMUNITY HOSPITAL, INC. ("CCH"), a California corporation (Paracelsus and CCH together "SELLER"), and N.T. ENLOE MEMORIAL HOSPITAL ("ENLOE"), a California nonprofit public benefit corporation, and ENLOE HEALTH SYSTEM ("SYSTEM"), a California nonprofit public benefit corporation (Enloe and System together "BUYER"). WHEREAS, Buyer and Seller have entered into the Agreement dated as of December 15, 1997 for the purchase by Enloe of the Business of CCH (as defined in the Agreement); and WHEREAS, Buyer and Seller wish to amend certain terms of the Agreement to reflect a later than anticipated closing of the Transaction. NOW THEREFORE, BUYER AND SELLER AGREE AS FOLLOWS: 1. Section 2.1 of the Agreement is hereby amended in its entirety, as follows: 2.1 CLOSING. Subject to the conditions set forth in Articles 7 and 8 hereof, the consummation of the sale and purchase of the Assets contemplated by and described in this Agreement (the "Closing") shall take place in San Francisco, California, at the offices of Davis Wright Tremaine LLP or other agreed upon location, at 10:00 A.M. local time on such date as may be agreed by the parties, not to extend past June 30, 1998. The date on which the Closing occurs is referred to herein as the "CLOSING DATE." The Closing of the transactions shall be deemed to be effective as of 11:59 P.M. (California time) on the Closing Date or such other time which the parties may mutually designate in writing. The time at which the Closing shall be deemed to be effective is referred to herein as the "CUT-OFF POINT." 2. Section 11.1(e) is of the Agreement is hereby amended in its entirety, as follows: (e) by either Buyer or Seller if the Closing has not occurred by June 30, 1998, because a condition to the terminating party's obligation to close set forth, in respect of Buyer in Article 7, and, in respect of Seller and Paracelsus in Article 8, was not satisfied on such date, unless the date for Closing has been extended by the mutual agreement of the parties hereto. 3. Except as amended by this Third Amendment, the Agreement is hereby ratified and confirmed by the parties and shall remain in full force and effect in accordance with its terms. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. SELLER: PARACELSUS HEALTHCARE CORPORATION a California corporation By: Name: Its authorized agent By: Name: Its authorized agent CHICO COMMUNITY HOSPITAL, INC. a California corporation By: Name: Its authorized agent By: Name: Its authorized agent BUYER: N.T. ENLOE MEMORIAL HOSPITAL a California nonprofit public benefit corporation By: Name: Its authorized agent By: Name: Its authorized agent ENLOE HEALTH SYSTEM a California nonprofit public benefit corporation By: Name: Its authorized agent By: Name: Its authorized agent EX-10.68 3 ASSET PURCHASE AGREEMENT FOR CHICO COMMUNITY REHABILITATION HOSPITAL THIS ASSET PURCHASE AGREEMENT FOR CHICO COMMUNITY REHABILITATION HOSPITAL (this "AGREEMENT"), dated as of December 15, 1997, among Paracelsus Healthcare Corporation ("PARACELSUS"), a California corporation, Chico Community Hospital, Inc.("CCH" and "SELLER"), a California corporation and N.T. Enloe Memorial Hospital, a California nonprofit public benefit corporation ("BUYER") and Enloe Health System, a California nonprofit public benefit corporation ("SYSTEM"). RECITALS A. WHEREAS, Paracelsus is the parent corporation of Seller; B. WHEREAS, CCH leases and operates a 60 bed licensed general acute care rehabilitation hospital at 340 W. East Avenue, Chico, California 95926 and conducts such business as Chico Community Rehabilitation Hospital ("CRH"); C. WHEREAS, Seller and Buyer have entered into that certain Asset Purchase Agreement and First Amendment to Asset Purchase Agreement and Earnest Money Deposit Agreement (collectively, the "CCH AGREEMENT") whereunder Seller has agreed to sell to Buyer substantially all of the assets, real and personal, tangible and intangible, used by Seller in the operation of Chico Community Hospital (collectively, "CCH FACILITY"); D. WHEREAS, Paracelsus and CCH desire to sell to Buyer and Buyer desires to purchase substantially all of the assets, real and personal, tangible and intangible, used by CCH in the operation of CRH, including Buyer's assumption of Seller's leasehold estate (the "CRH LEASE") in CRH (collectively the "BUSINESS"); E. WHEREAS, Paracelsus, Seller, Buyer and System acknowledge the uncertainty related to Seller's ability to assign the CRH Lease and for Buyer to assume the CRH Lease based on the existing terms of the CRH Lease, the difference in the corporate status of the parties and other factors which render uncertainty in the ability of the parties to consummate that transaction; F. WHEREAS, Paracelsus, Seller, Buyer and System entered into that certain First Amendment to Asset Purchase Agreement and Earnest Money Deposit Agreement dated December 15, 1997 providing for Seller's granting to Buyer of an option, and Buyer's exercise of that option, to accomplish the sale and purchase of the Business pursuant to this Agreement. W I T N E S S E T H: NOW, THEREFORE, for and in consideration of the foregoing premises and the agreements, covenants, representations and warranties hereinafter set forth and other good and valuable consideration, the receipt and adequacy of all of which are acknowledged and agreed, the parties hereto agree as follows: 1. SALE OF ASSETS AND CERTAIN RELATED MATTERS. 1.1 SALE OF ASSETS. Subject to the terms and conditions of this Agreement, at the Closing (as hereinafter defined), Seller shall sell, transfer, convey, assign and deliver to the Buyer, and Buyer shall purchase from Seller, the following assets and properties: (a) the assignment of leasehold interests held by Seller in real property and other real property interests used in connection with the operation of the Business or owned by Seller, including, without limitation, the lease and related obligations from Bell Atlantic Tricon Leasing Corporation and its successors or assigns (the "FACILITY LEASE") for Chico Community Rehabilitation Hospital (the "HOSPITAL"), such leasehold interests being more specifically described in SCHEDULE 1.1(A); (b) all tangible personal property (excluding cash and cash equivalents) owned by Seller and used in connection with the Business, including, without limitation, all equipment, furniture, fixtures, machinery, vehicles, office furnishings, instruments, leasehold improvements and spare parts described in SCHEDULE 1.1(B), and, to the extent assignable or transferable by Seller, all rights in all warranties of any manufacturer or vendor with respect thereto (collectively the "PERSONAL PROPERTY"), but excluding the personal property described in Section 1.2(ix) hereof. (c) all rights, to the extent assignable or transferable, to all licenses, certificates of need, certificates of exemption, franchises, accreditations and registrations and other licenses or permits issued in connection with the Business (the "LICENSES"), including, without limitation, the Licenses described in SCHEDULE 1.1(C); (d) all of Seller's interest in and to those personal property leases relating to the Business described in SCHEDULE 1.1(D) (all of such leases, including the Facility Lease, being referred to collectively as the "LEASES"); (e) all of Seller's interest in, to and under those contracts and agreements relating to the Business set forth in SCHEDULE 1.1(E) (the "CONTRACTS"); (f) any deposits, escrows, prepaid taxes or other advance payments relating to any expenses of the Business, as identified on SCHEDULE 1.1(F) as prepaid expenses to be transferred to Buyer (the "PREPAID EXPENSES"), but excluding the prepaid expenses of Seller described in SCHEDULE 1.1(F) hereof as prepaid expenses to be retained by Seller ("EXCLUDED PREPAID EXPENSES"); (g) all inventories of supplies, drugs, food, janitorial and office supplies and other disposables and consumables owned by Seller on the Closing Date (as hereinafter defined) and located at the premises of Seller or purchased by Seller for use in connection with the Business (the "OPERATING INVENTORY"); (h) all accounts receivable with respect to the Business, including all accounts receivable arising from the rendering of services to inpatients and outpatients at the Hospital, billed and unbilled, recorded or unrecorded, accrued and existing in respect of services up to the effective date of the Closing, including those from any source, excluding, however, the Excluded Receivables, as defined below (the "ACCOUNTS RECEIVABLE"); (i) all documents, records, operating manuals and files, and computer software owned by Seller, pertaining to or used in connection with the Business, including, without limitation, all patient records, medical records, financial records, equipment records, construction plans and specifications, and medical and administrative libraries, but excluding Seller's corporate minute books, minutes, tax records and any other records of Seller required to be maintained as a matter of law. (j) to the extent transferable by Seller, all unexpired warranties and covenants not to compete relating to the Business for which Seller is the beneficiary; (k) to the extent transferable by Seller, all rights and interest of Seller in all joint ventures, partnerships, corporations and other entities listed on SCHEDULE 1.1(K) and accepted by Buyer; (l) except as expressly excluded herein, all other property owned by Seller, whether tangible or intangible, located at the premises of Seller or used in connection with the Business whether or not reflected on the balance sheet of Seller, and specifically including the name "Chico Community Rehabilitation Hospital"; and (m) an amount equal to the Medicare Receivables, which shall be evidenced by the Medicare Reconciliation Note. The foregoing, which (except for the Excluded Assets, as defined in Section 1.2) are hereafter referred to, collectively, as the "ASSETS", comprise substantially all of the property and assets used in the conduct and operation of the Business as of October 31, 1997, including without limitation, those assets reflected on the unaudited balance sheet of Seller dated October 31, 1997 (the "BALANCE SHEET"), and all assets acquired by Seller between October 31, 1997 and the Closing. 1.2 EXCLUDED ASSETS. The following items which are related to the Assets are not intended by the parties to be a part of the sale and purchase contemplated hereunder and are excluded from the Assets (collectively, the "EXCLUDED ASSETS"): (i) all cash and cash equivalents and temporary investments; (ii) (a) all amounts payable or to become payable to Seller from third party payors in respect of periods prior to the Cut-Off Point in respect of third party payor cost reports, including, without limitation, Medicare and Medi-Cal cost reports, filed or to be filed by Seller (the "COST REPORT RECEIVABLES"), (b) all accounts receivable from Medicare, MediCal and CHAMPUS with respect to the Business arising from the rendering of services to inpatients and outpatients at the Hospital, billed and unbilled, recorded and unrecorded, accrued and existing in respect of services up to the effective date of Closing (such accounts receivable, excluding the Cost Report Receivables, are referred to herein as the "MEDICARE RECEIVABLES"), and (c) the accounts receivable set forth on SCHEDULE 1.2(II) hereto, (such receivables referred to in clauses (a), (b) and (c) above, the "EXCLUDED RECEIVABLES"); (iii) Seller's corporate minute books, minutes, tax records and other records of Seller required to be maintained by Seller as a matter of law (it being understood that patient medical records of the Hospital are not intended to be excluded); (iv) all Excluded Prepaid Expenses of Seller identified in SCHEDULE 1.1(F) hereto; (v) all supplies, drugs, food and other disposables and consumables disposed of in the ordinary course of business prior to the Closing; (vi) the name "Paracelsus" and all variations thereof; (vii) all rights and privileges under contracts, agreements and leases not listed on SCHEDULES 1.1(D) OR 1.1(E) hereto; (viii) any claims by Seller against third parties whether known or unknown, contingent or otherwise, except those expressly described in Section 1.1(b); (ix) all intercompany accounts of Seller and Paracelsus and their affiliates; (x) any proprietary information contained in Seller's employee or operation manual that does not pertain to the ongoing operations of the Hospital; (xi) all commitments, contracts, leases, capital leases, notes, and agreements between Seller, Paracelsus and their affiliates. (xii) the property described in SCHEDULE 1.2(XII) hereto. 1.3 ASSETS FREE AND CLEAR; ASSIGNMENT AND UNDERTAKING. (a) The Assets shall be sold free and clear of all liabilities, liens and encumbrances, except for Permitted Encumbrances (as hereinafter defined). At Closing, the parties will execute and deliver an assignment and undertaking (the "ASSIGNMENT AND UNDERTAKING"), in the form of APPENDIX 1.3, pursuant to which Seller shall assign to Buyer its future rights, and Buyer shall assume from Seller its future obligations, under those Contracts and Leases described in SCHEDULE 1.3; pursuant to which Buyer shall assume from Seller, Seller's future obligations in respect of the Assumed Liabilities (as hereinafter defined). (b) As of the Cut-Off Point, and in conjunction with the transfer of the Assets Buyer shall assume and/or agree to pay, perform and discharge the Assumed Liabilities. As used in this Agreement, "ASSUMED LIABILITIES" shall mean the following liabilities of Seller: (i) the obligations of Seller arising subsequent to the Cut-Off Point under the Leases and Contracts (collectively, the "SELLER CONTRACTS") (ii) Seller's current payables, but only to the extent included in the determination of the Working Capital (as hereinafter defined); (iii) Seller's obligations as of the Cut-Off Point in respect of the accrued vacation, holiday and sick leave of Seller's employees who are employed by Seller in connection with the Business as of the Closing Date; (iv) the obligations of Seller under capital leases described in the Financial Statements; (v) the Facility Lease; and (vi) credit balances owed to third parties on account with Seller as and to the extent such credit balances are reflected in the book value of the Accounts Receivable or in the book value of the Medicare Receivables that are reflected in the Medicare Reconciliation Note. (c) Buyer shall not be liable for (1) any claims arising from Seller's assignment and Buyer's assumption of the Seller Contracts, (2) performance by Seller under, and defaults by Seller in performance of, the Seller Contracts for periods prior to the Cut-Off Point, and (3) unpaid amounts in respect of the Seller Contracts that are past due as of the Cut- Off Point (unless included in Working Capital). Except as expressly provided to the contrary in Section 1.3(b) above, under no circumstance shall Buyer be obligated to pay or assume, and none of the Assets shall be or become liable for or subject to, any liability of Seller or its affiliates, including, without limitation, the following, whether fixed or contingent, recorded or unrecorded (collectively, the " Excluded Liabilities"): (I) current liabilities (to the extent not taken into consideration in determining the Working Capital), long-term liabilities (excluding capital lease obligations specifically assumed) and all indebtedness and obligations or guarantees of Seller; (II) liabilities or obligations of Seller in respect of periods prior to and including the Cut-Off Point arising under the terms of the Medicare, Medi-Cal, Blue Cross or other managed care or third party payor programs, including, but not limited to, any retroactive denial of claims, recapture, civil monetary penalties or any gain on sale that may be recognized under the Medicare program as a result of the consummation of the transactions described herein; (III) federal, state or local tax liabilities or obligations of Seller in respect of periods prior to Cut-Off Point or resulting from the consummation of the transactions contemplated herein, including, without limitation, any income tax, any franchise tax, any tax recapture, any sales and/or use tax, any indigent care tax, any state and local recording fees and taxes which may arise upon the consummation of the transactions contemplated herein and any FICA, FUTA, workers' compensation and any and all other taxes or amounts due and payable as a result of the exercise by any of Seller's employees of such employees' right to vacation, sick leave and holiday benefits accrued while in the employ of Seller (to the extent not taken into consideration in determining the Working Capital); (IV) liability for any and all claims by or on behalf of Seller's employees relating to periods prior to Cut-Off Point, including, without limitation, liability for any pension, profit sharing, deferred compensation, or any other employee health and welfare benefit plans, liability for violations of ERISA, liability for any EEOC claim, wage and hour claim, unemployment compensation claim, workers' compensation claim or any other agreement, and liability for all employee wages and benefits, including, without limitation, (but only to the extent not assumed by Buyer pursuant to Section 1.3(b) hereof) accrued vacation, sick leave and holiday pay, severance pay and related taxes or other liability related thereto in respect of Seller's employees (to the extent not taken into consideration in determining the Working Capital); (V) liabilities or obligations arising subsequent to Cut-Off Point under contracts, commitments, leases or agreements to which Seller is a party, except to the extent Buyer accepts benefits under any such contracts, commitments, leases or agreements subsequent to Cut-Off Point and except for the Seller Contracts; (VI) liabilities or obligations arising out of any breach by Seller of any Seller Contract; (VII) any liability arising out of or in connection with claims for acts or omissions of Seller and Seller's employees, agents and independent contractors which allegedly occurred prior to Cut-Off Point including, without limitation, all malpractice and general liability claims, whether or not same are pending, threatened, known, or unknown; (VII) contracts and agreements between Seller and one or more of Seller affiliates; (IX) any debt, obligation, expense or liability of Seller arising out of or incurred solely as a result of any transaction of Seller occurring after Cut-Off Point or for any violation by Seller of any law, regulation or ordinance at any time; and (IX) any liability or obligation associated with or relating to any of the Excluded Assets. 1.4 PURCHASE PRICE; PRORATIONS; ALLOCATION. (a) The purchase price of the Assets (the "PURCHASE PRICE") shall be cash in the amount of THREE HUNDRED THOUSAND DOLLARS ($300,000) PLUS Working Capital (as hereinafter defined). (b) At Closing, the payment for Working Capital and the amount of the Medicare Reconciliation Note shall initially be made based upon the determination of Initial Working Capital (as hereinafter defined) and thereafter an adjusted payment and an adjustment to the Medicare Reconciliation Note shall be made as provided in Section 1.7. (c) Buyer and Seller shall prorate real estate and personal property lease payments, payments under any construction contracts assumed by Buyer pursuant to the Assignment and Undertaking, interest, real estate and personal property taxes, real estate lease deposits and escrows, other assessments, plus all other revenues and expenses with respect to the Business which are normally prorated upon the sale of assets of a going concern; provided, however, that the parties will not prorate any Prepaid Expenses. Seller shall order final readings of all power and other utility charges to be made as of the Cut-Off Point and shall pay when due all charges in respect thereof. All prorations contemplated by this Section 1.4(c) shall be made as of the Cut-Off Point. (d) For income tax purposes, the Purchase Price shall be allocated as provided in SCHEDULE 1.4(D) hereto. 1.5. INITIAL WORKING CAPITAL. (a) The "INITIAL WORKING CAPITAL" shall be an amount equal to the value of Seller's Initial Net Working Capital (as hereinafter defined) as of the date of, and based upon Seller's latest regularly prepared balance sheet in respect of the Business (the "INTERIM BALANCE SHEET") available prior to Closing, which shall be not more than 61 days old.. The Interim Balance Sheet shall be prepared using the same methodologies and assumptions used in connection with the preparation of Financial Statements (as hereinafter defined), and in accordance with generally accepted accounting principles ("GAAP") applicable to interim financial statements. The Interim Balance Sheet shall also be used for purposes of determining the initial principal balance of the Medicare Reconciliation Note and the amount of cash to be delivered by Buyer to Seller with respect to the Medicare Reconciliation Note. For the purpose of the Initial Working Capital, "SELLER'S INITIAL NET WORKING CAPITAL" shall be equal to THE SUM OF (A) the amounts set forth on SCHEDULE 1.5.1(A); PLUS (B) the amount of any capital expenditures made by Seller from and after December 1, 1997 until the Cut-Off Point (as defined at Section 2.1); MINUS (C) the amount of Seller's capital leases obligations assumed by Buyer, other than the Facility Lease. (b) No increase to Seller's Initial Net Working Capital shall be effected with respect to (i) any single item involving a capital expenditure in excess of $25,000, or (ii) within any 30 day period, any two or more items involving capital expenditures in excess of $50,000, in either case unless Seller shall have obtained Buyer's prior written consent to such expenditure. Buyer hereby acknowledges that it has consented to the capital expenditures described in SCHEDULE 1.5.1(B), but such consent is limited as to scope and dollar amount as described in SCHEDULE 1.5.1(B). In order that Buyer may know the methodology to determine Seller's Initial Net Working Capital, attached hereto as SCHEDULE 1.5.1(C) is a determination of Seller's Net Working Capital based upon the October 31, 1997 unaudited balance sheet of Seller and Seller hereby agrees to use the same methodology (as may be supplemented by the working papers thereto) to prepare SCHEDULE 1.5.1(A). 1.6 WORKING CAPITAL DETERMINATION. (a) Not more than 60 days after the Closing Date (i) Seller shall deliver to Buyer the balance sheet for Seller with respect to the Business as of the Cut-Off Point (the "CLOSING BALANCE SHEET"). The Closing Balance Sheet shall be prepared using the same methodologies and assumptions used in connection with the preparation of the Interim Balance Sheet, except as modified herein. The amount of the Medicare Reconciliation Note shall be determined from the Closing Balance Sheet. (b) The "WORKING CAPITAL" shall be an amount equal to the value of Seller's Net Working Capital (as hereinafter defined) as of the date of, and based upon the Closing Balance Sheet. (c) For the Working Capital, "SELLER'S NET WORKING CAPITAL" shall be determined using the same methodologies used to determine Seller's Initial Net Working Capital, but using the Closing Balance Sheet. (d) No more than three days prior to the Closing Date, Seller and Buyer shall conduct a physical inventory of the inventory and supplies on hand at the Hospital. Based on such inventory, and Seller shall value the supplies using the same methodology as Seller used in SCHEDULE 1.5.1(C) and Seller shall prepare a schedule thereof. In calculating the Working Capital, the amount of the inventory supplies shall be increased or decreased, as appropriate, to reflect the value of the additions to, and deletions from, the inventory and supplies between the inventory date and the Cut-Off Point. 1.7 PAYMENT OF POST-CLOSING WORKING CAPITAL ADJUSTMENT; DISPUTE RESOLUTION. (a) On or before 90 days after the Closing Date, Buyer will pay to Seller the amount by which Working Capital exceeds Initial Seller's Working Capital, or Seller will pay to Buyer the amount by which Seller's Working Capital is less than Seller's Initial Working Capital, in each case adjusted for differences in the amount of the Medicare Reconciliation Note as determined from the Interim Balance Sheet and the Closing Balance Sheet. Simultaneously with Seller's delivery of the Closing Balance Sheet to Buyer, Seller shall deliver a schedule to Buyer detailing any adjustments between the amount of the Purchase Price paid at Closing and any required adjustments resulting from the determination of Working Capital and adjustments to the principal amount of the Medicare Reconciliation Note. (b) In the event that Seller and/or Buyer shall dispute the working capital determination to be effected hereunder and such dispute is not resolved to the mutual satisfaction of Seller and Buyer within 90 days after the Closing Date, Seller and Buyer shall each have the right to require that such disputed determinations be submitted to Coopers & Lybrand LLP acting as experts and not as arbitrators, or to such other certified public accounting firm as Seller and Buyer may then mutually agree upon in writing, for computation or verification in accordance with the provisions of this Agreement and interpretation, where applicable, in accordance with GAAP. The certified public accounting firm so selected shall use its best efforts to make the computations or verifications within 60 days of their engagement. Both Seller and Buyer shall provide such access to the books and records of Seller as may be requested by such certified public accounting firm. The foregoing provisions for certified public accounting firm review shall be specifically enforceable by the parties; the decision of such accounting firm shall be final and binding upon Seller and Buyer; there shall be no right of appeal from such decision; and such accounting firm's fees and expenses for each such disputed determination shall be borne by the party whose determination has been modified by such accounting firm's report or by both parties in proportion to the relative amount each party's determination has been modified. 1.8 RECEIVABLES. Seller shall promptly remit to Buyer any payments it may receive which constitute payments of accounts receivable of Buyer, including any of the Accounts Receivable purchased pursuant to this Agreement. Seller also shall promptly remit to Buyer any payments it may receive which constitute payments with respect to the Medicare Receivables that Seller is obligated to pay to Buyer pursuant to the Medicare Reconciliation Note. Buyer shall promptly remit to Seller any payments it may receive that constitute payments of the Excluded Receivables except payments it may receive which constitute payments with respect to the Medicare Receivables that Seller is obligated to pay to Buyer pursuant to the Medicare Reconciliation Note. Seller shall provide Buyer with such agreements as may be necessary to permit Buyer to negotiate, deposit and otherwise receive for its own account the Assets and receive payments on the Medicare Reconciliation Note. 2. CLOSING. 2.1 CLOSING. Subject to the conditions set forth in Articles 7 and 8 hereof, the consummation of the sale and purchase of the Assets contemplated by and described in this Agreement (the "Closing") shall take place in San Francisco, California, at the offices of Davis Wright Tremaine LLP or other agreed upon location, at 10:00 A.M. local time (a) on February 27, 1998 (if the applicable waiting periods required by the Hart-Scott- Rodino Antitrust Improvements Act of 1976 and all regulations promulgated thereunder (the "HSR Act"), shall have expired or been terminated, or (b) such date as may be agreed by the parties, not to extend past 180 days from the date of this Agreement set forth in the preamble hereof, unless within the 60 day period commencing on the 120th day from the date of this Agreement set forth in the preamble hereof, the applicable waiting period required by the HSR Act shall have terminated, in which case, Buyer may elect to extend Closing for a period not to exceed 60 days from the date such applicable waiting period under the HSR Act shall have terminated. Notwithstanding the foregoing, the Closing shall not occur prior to the Closing Date (as defined in Section 2.1 of the CCH Agreement. The date on which the Closing occurs is referred to herein as the "CLOSING DATE." The Closing of the transactions shall be deemed to be effective as of 11:59 P.M. (California time) on the Closing Date or such other time which the parties may mutually designate in writing. The time at which the Closing shall be deemed to be effective is referred to herein as the "CUT-OFF POINT." 2.2 ACTION OF SELLER AT CLOSING. At the Closing, Seller shall deliver or shall cause to be delivered to Buyer the following: (a) consent of Bell Atlantic Tricon Leasing Corporation or its successors or assigns to the assignment of the Facility Lease on terms mutually agreed to by Buyer and Seller, including without limitation an Estoppel Certificate reasonably acceptable to Buyer, which consent, estoppel certificate and such other agreements executed by the parties shall be attached hereto as SCHEDULE 2.2.A; (b) the Assignment and Undertaking; (c) bills of sale and assignments conveying and assigning to Buyer all other Assets; (d) copies of corporate resolutions duly adopted by the respective Boards of Directors of Seller and by the shareholder of Seller, authorizing and approving each such corporation's performance of the transactions contemplated hereby and the execution and delivery of the documents described herein, certified as true and of full force as of Closing by appropriate officers of each such corporation; (e) certificates, dated as of the Closing Date, of appropriate officers of each of Seller certifying that, to the best of such officer's knowledge and belief, as of Closing all of the respective representations and warranties by or on behalf of Seller contained in this Agreement are true and correct and all respective covenants and agreements of Seller to be performed prior to or as of Closing pursuant to this Agreement have been performed; (f) certificates of incumbency, dated as of the Closing Date, for the officers of each Seller making certifications for Closing, or executing deeds, the Assignment and Undertaking, the bill of sale, the Information Systems Agreement (as hereinafter defined), the Medicare Reconciliation Note, other agreements delivered at Closing or this Agreement; (g) certificates of corporate existence or good standing certificates of each of Seller and Paracelsus from the State of California, dated the most recent practical date prior to Closing; (h) subject to Section 1.2 hereof, all of Seller's Contracts, Leases, commitments, books, records and other data relating to the Assets, and simultaneously with such delivery and Seller will take all such steps as may reasonably be required to put Buyer in actual possession and operating control of the Assets; (i) the Information Systems Agreement (if not executed separately from the Information Systems Agreement executed by the parties pursuant to Section 2.2(i) of the CCH Agreement). (j) such agreements as may be necessary to permit Buyer to negotiate, deposit and otherwise receive for its own account the Assets and receive payments on the Medicare Reconciliation Note; and (k) the Medicare Reconciliation Note. 2.3 ACTION OF BUYER AT CLOSING. At the Closing, Buyer shall deliver to Seller the following: (a) payment in cash or immediately available funds of an amount equal to (i) the Purchase Price; plus (ii) Working Capital; (b) the Assignment and Undertaking; (c) copies of corporate resolutions duly adopted by the Board of Directors of Buyer authorizing and approving Buyer's performance of the transactions contemplated hereby and the execution and delivery of the documents described herein, certified as true and of full force as of Closing by appropriate officers of Buyer; (d) certificates, dated as of the Closing Date, of appropriate officers of Buyer certifying that, to the best of such officers' knowledge and belief, as of Closing all of the respective representations and warranties by or on behalf of the Buyer contained in this Agreement are true and correct and all respective covenants and agreements of Buyer to be performed prior to or as of Closing pursuant to this Agreement have been performed; (e) a certificate of incumbency, dated as of the Closing Date, for the officers of Buyer making certifications for Closing or executing the Assignment and Undertaking, the Information Systems Agreement, or this Agreement; (f) a certificate of corporate existence of Buyer from the State of California, dated the most recent practical date prior to Closing; and (g) the Information Systems Agreement (if not executed separately from the Information Systems Agreement executed by the parties pursuant to Section 2.2(i) of the CCH Agreement). 3. REPRESENTATIONS AND WARRANTIES OF SELLER As of the date hereof, Seller represents and warrants to Buyer that: 3.1 CORPORATE CAPACITY. (a) Seller and Paracelsus are corporations duly organized, validly existing and in good standing under the laws of California, with all requisite corporate power and authority to own, operate and lease their respective properties and to carry on their businesses as now being conducted. (b) SCHEDULE 3.1(B) contains a complete and correct copy of the Articles of Incorporation and all amendments thereto to the date hereof and the Bylaws as presently in effect of Seller and Paracelsus. 3.2 CORPORATE POWERS; ABSENCE OF CONFLICTS WITH OTHER AGREEMENTS, ETC. (a) The execution and delivery by Seller and Paracelsus of this Agreement and the performance of this Agreement and the other agreements and transactions contemplated hereby to be executed and performed by Seller and Paracelsus: (i) are within Seller's and Paracelsus' respective corporate powers, are not in contravention of the terms of Seller's or Paracelsus' Articles of Incorporation, Bylaws or any amendments thereto; (ii) except as set forth on SCHEDULE 3.2, upon the Closing, (A) will not result in any breach or acceleration of maturity of any indenture, agreement, lease or instrument, to which Seller or Paracelsus is a party or by which Seller or Paracelsus or any of the Assets is bound, (B) will not constitute a violation of any judgment, decree, or order of any court of competent jurisdiction applicable to Seller or Paracelsus, (C) will not violate any law, rule or regulation of any governmental authority applicable to the Seller, Paracelsus, the Business or any of the Assets and (D) will not require any consent, approval or authorization of, or notice to, or declaration, filing or registration with, any governmental or regulatory authority. (b) This Agreement has been duly and validly executed and delivered by Seller and Paracelsus, and, as of the Closing, the other agreements and instruments contemplated hereby to be executed and delivered by Seller and/or Paracelsus will have been duly and validly executed and delivered by Seller and, where applicable, Paracelsus. Upon approval of this Agreement and the other agreements and instruments contemplated hereby by the Board of Directors of Seller and Paracelsus, this Agreement will constitute, and upon such approval and their execution and delivery, the other agreements and instruments contemplated hereby to be executed and delivered by Seller and/or Paracelsus will constitute, the valid, legal and binding obligation of each of Seller and, where applicable, Paracelsus, enforceable against each of them in accordance with their respective terms except as such enforceability may be limited by bankruptcy, reorganization, insolvency, or other laws affecting the enforcement of creditors' rights generally or the availability of equitable remedies. 3.3 FINANCIAL STATEMENTS. SCHEDULE 3.3 hereto consists of true, correct and complete copies of the unaudited income statement of Seller with respect to the Business for the nine months ended October 31, 1997 (the "INCOME STATEMENT"), and the Balance Sheet as of the end of such period (the Income Statement and the Balance Sheet are referred to collectively as the "FINANCIAL STATEMENTS"). The Income Statement has been prepared from and is in accordance with the books and records of Seller, and fairly presents the operations of Seller for the period indicated, except (a) as indicated by the notes thereto and (b) with respect to any changes which would result from year-end audit adjustments which in the aggregate are not materially adverse to the business or financial condition of Seller. 3.4 POST-BALANCE SHEET RESULTS. Since October 31, 1997, with respect to the Assets there has not been: (a) any damage, destruction or loss (whether or not covered by insurance)materially adversely affecting the Assets, taken as a whole; (b) any sale, lease, transfer or disposition by Seller of the Assets except sales of inventories, supplies or accounts receivable and except for sales, leases, transfers or dispositions of non-material portions of the Assets in the ordinary course of Seller's business; or (c) any change or the occurrence of any fact or condition which may be reasonably expected to have a material adverse effect on the Business or the value of the Assets, other than such changes, facts and conditions, if any, generally affecting the hospital service area in which the Hospital is located, generally affecting the healthcare industry, or resulting from the announcement of the transactions contemplated hereby. 3.5 LICENSES. Seller has all licenses and permits relating to the ownership of the Assets and operation of the Business as are necessary and required for such ownership and operation except where the failure to obtain such licenses or permits would not have a material adverse effect on the ownership of the Assets or the operation of the Business. SCHEDULE 3.5 hereto contains a complete description of all material licenses, permits, franchises, certificates of need, certificate of need applications, and PRO memos, if any, and their respective dates of termination or renewal, owned or held by Seller relating to the ownership, development or operation of the Assets or the Business, together with any formal and specific notices or directives received by Seller from the agency responsible for such SCHEDULE 3.5 item, for which noncompliance with such notice or directive would likely cause the revocation, suspension or diminution in term for such item, all of which are, to Seller's knowledge, in good standing. 3.6 CERTAIN CONTRACTS. SCHEDULE 3.6 lists all contracts to which Seller is a party involving obligations in respect of the Business for payment, performance of services or delivery of goods in excess of $5,000 or which require Seller to continue to perform for a period of longer than 12 months ("SCHEDULED CONTRACTS"). Seller has delivered or made available to Buyer true and correct copies of all Scheduled Contracts. Except as set forth in SCHEDULE 3.6, all of the Contracts which Buyer has agreed to assume pursuant to the Assignment and Undertaking are valid and binding obligations of the parties thereto, are in full force and effect, and are enforceable against the parties thereto in accordance with their respective terms. To the best of Seller's knowledge, neither Seller nor any of the other parties to those Contracts which Buyer has agreed to assume pursuant to the Assignment and Undertaking (i) are in default under such contracts or (ii) consider Seller to be in default thereunder. Except as expressly noted in SCHEDULE 3.6, to the best of Seller's knowledge, no party to any of those Contracts which Buyer has agreed to assume pursuant to the Assignment and Undertaking intends to terminate or adversely modify its agreement(s) with respect thereto, or adversely change the volume of business done thereunder. 3.7 CERTAIN LEASES. SCHEDULE 3.7 lists all leases to which Seller is a party in respect of the Business involving annual obligations on the part of Seller for the payment of rent in excess of $5,000 or involving rental of real property by Seller as lessor, lessee, sublessor or sublessee ("SCHEDULED LEASES"). Seller has delivered or made available to Buyer true and correct copies of all Scheduled Leases. All of the Scheduled Leases which Buyer has agreed to assume pursuant to the Assignment and Undertaking are valid and binding obligations of the parties thereto, are in full force and effect, and are enforceable against the parties thereto in accordance with their terms; and to the best of Seller's knowledge, no event has occurred including, but not limited to, the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby which (whether with or without notice, lapse of time or both) would constitute a default thereunder. To the best of Seller's knowledge, neither Seller nor any of the other parties to any of those Scheduled Leases which Buyer has agreed to assume pursuant to the Assignment and Undertaking (i) is in default under any such Scheduled Lease or (ii) considers Seller to be in default thereunder. Seller has not, as lessor under any such Scheduled Lease, accepted prepaid rent more than one month in advance or waived any rights or obligations thereunder. No consents are required for Seller's assignments of the Scheduled Leases to be assigned except as disclosed in SCHEDULE 3.7 and the lease from Bell Atlantic Tricon Leasing Corporation relating to CRH. 3.8 TITLE TO PROPERTIES AND RELATED MATTERS. On the Closing Date Seller will hold and convey to Buyer good, valid and marketable title to all of the Assets free and clear of all title defects, liens, pledges, claims, charges, rights of first refusal (or other claims of interest), security interests or other encumbrances except as otherwise hereinafter provided. SCHEDULES 1.1(A) AND 1.1(D) include true and accurate descriptions of all real property owned or leased by Seller and all tangible personal property (excluding cash, property with an aggregate value in a non-material amount and the other Excluded Assets) leased by Seller and reflected on Seller's financial statements. The Assets consisting of owned personal property are subject to no liens or encumbrances except the security interests of record set forth on SCHEDULE 3.8(C), which Schedule is a copy of a Uniform Commercial Code ("UCC") search duly obtained by Seller in the last 30 days and which search shows security interests of record relating to such Assets in the State of California. Seller agrees to remove all security interests relating to property interests of Seller included in the Assets reflected on such UCC search, if any, prior to the Closing (except those approved by Buyer in writing) and to remove any other security interests filed with respect to such Assets between the date of such UCC search and the date of Closing. SCHEDULE 3.8(D) describes all construction work, if any, which Seller or its predecessors have contracted for and which is presently in progress in respect of the Business, and also contains a good faith estimate, as of the date of this Agreement, of the cost to complete each such project. 3.9 EMPLOYEE BENEFIT PLANS. SCHEDULE 3.9 lists any "employee benefit plans" that are described in the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder ("ERISA"), that cover one or more employees of Seller and that are sponsored or contributed to by Seller (other than any defined contribution "employee pension benefit plan" as defined in ERISA, that does not require any contribution by Seller, any paid time-off policy or vacation/holiday/sick leave policy, and any "employee welfare benefit plan" as defined in ERISA, that is sponsored by Seller). Neither Seller nor, to the best knowledge of Seller and Paracelsus, any other person has engaged in a transaction with respect to any employee benefit plan listed or required to be listed on SCHEDULE 3.9 which could subject Buyer to a penalty under ERISA or a tax under the Internal Revenue Code of 1986, as amended (the "CODE"). Each of the employee benefit plans listed or required to be listed on SCHEDULE 3.9 has been operated and administered in accordance with applicable law, including without limitation ERISA, except for any such failure which would not subject Buyer to any penalty or other liability. Seller has not incurred nor presently expects to incur any liability under Title IV of ERISA that could result in liability to Buyer. Each employee benefit plan listed or required to be listed on SCHEDULE 3.9 that is a group health plan within the meaning of Section 5000(b)(1) of the Code is in compliance with the provisions of Section 4980B(f) of the Code, except for any such non-compliance which would not subject Buyer to any penalty or liability. 3.10 LITIGATION OR PROCEEDINGS. SCHEDULE 3.10(A) contains a list of each lawsuit or legal proceeding to which Seller is a party and which arose out of or in connection with the Business or, to Seller's knowledge, which has been threatened against Seller in connection with the Business. Except as disclosed on SCHEDULE 3.10(B), Seller has not received notice of any formal or informal investigations or proceedings of the California Department of Health Services, the United States General Accounting Office, the Health Care Financing Administration, the Department of Justice, the Federal Trade Commission or other similar governmental agencies (except for any investigations being conducted in the ordinary course of business and applicable to all hospitals) with respect to the Business. There are no such claims, actions, proceedings or investigations of which Seller has received written notice pending or, to the best knowledge of Seller, threatened challenging the validity or propriety of the transactions contemplated by this Agreement. Except as disclosed in SCHEDULE 3.10(B), Seller is not now, or has never been, a party to any injunction, order, or decree restricting the method of the conduct of the Business or the marketing of any of the Business' services, nor, except as disclosed on SCHEDULE 3.10(B), has any governmental agency investigated or requested (other than on a routine basis) information with respect to such methods of business or marketing of services; Seller has not received any notice that Seller currently violates any federal, state, or local law, ordinance, rule or regulation, which could have an adverse effect on the Business and, to the best of Seller's knowledge, no such claim is or has been threatened; and there have been no developments materially adverse to Seller with respect to any pending or threatened claim, action or proceeding of an administrative or judicial nature, including but not limited to those referred to in SCHEDULES 3.10(A) AND (B), and including without limitation any such pending or threatened claim, action or proceeding arising from or relating to (i) the assertion by any governmental authority of any retroactive adjustment of the sums which Seller was entitled to receive pursuant to government or third party reimbursement programs such as (but not limited to) Medicare and Medi-Cal, or (ii) any allegation by any governmental authority of fraud or abuse by any current or former officers or employees of Seller in connection with the making of any application for reimbursement pursuant to the government or third party reimbursement programs referred to in the preceding clause (i) while such individuals were officers or employees of Seller. 3.11 INSURANCE. SCHEDULE 3.11 summarizes the professional and general liability insurance policies covering the Business, and the property insurance policies covering the Assets, which SCHEDULE 3.11 reflects the policies' numbers, terms, identity of insurers, amounts and coverage. All such policies are currently in effect and to the best knowledge of Seller there are no defaults or alleged defaults thereunder. 3.12 SELLER'S EMPLOYEES. (a) SCHEDULE 3.12 contains a list of all of Seller's employees as of December 1, 1997, which list includes the then current estimated annualized salaries based on then current hourly wage rates and scheduled hours worked, department and job title or other summary of the responsibilities of such employees, any severance arrangements with such employees. Since December 1, 1997 there has not been any increase in the compensation payable or to become payable by Seller to any of its officers, employees or agents, or any bonus payment or arrangement made to or with any such person, nor has there been any change in Seller's personnel policies, except (in either case) in the ordinary course of Seller's business in accordance with established personnel policies or except as described in SCHEDULE 3.12. (b) Except as set forth on SCHEDULE 3.12, none of Seller's employees are employed by Seller pursuant to an employment agreement and/or severance agreement. SCHEDULE 3.12 includes a list of all employees of Seller (other than "part-time employees" as such term is defined in the Worker Adjustment and Retraining Notification Act, hereinafter referred to as the "WARN ACT") who have been terminated or laid-off or whose employment with Seller otherwise has ceased since November 1, 1997. 3.13 LABOR MATTERS. Seller does not have any collective bargaining agreements with any labor union and there are no current negotiations with a labor union. Seller is in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, and is not engaged in any unfair labor practice except where such non-compliance would not have a material adverse effect on the Business or the Assets. Seller has not received any notice of an unfair labor practice complaint against Seller pending before the National Labor Relations Board. There is no labor strike, dispute, slowdown or stoppage actually pending against or affecting Seller, nor has Seller received notice of any threatened labor strike, dispute, slowdown or stoppage. No grievance which might have an adverse effect on Seller or any such arbitration proceeding arising out of or under collective bargaining agreements is pending and Seller has no knowledge that any claim therefor exists. Seller has not experienced any employee strikes since the date it acquired the Business. Seller will advise Buyer of any such labor dispute which shall arise before the Closing. 3.14 CERTAIN REPRESENTATIONS WITH RESPECT TO THE BUSINESS. (a) The Hospital has current contractual arrangements with third party payors. A complete and accurate copy of the existing third party payor contracts of the Hospital has been furnished or made available to Buyer. The Hospital is presently in compliance with all of the terms, conditions and provisions of such contracts except where failure to be in compliance would not have a material adverse effect on the Business or the Assets. SCHEDULE 3.14(A) lists all third-party payor and managed care agreements which are currently in effect and identifies all risk pools to which Seller is a party. (b) The Hospital is accredited as a general hospital by the Joint Commission on Accreditation of Healthcare Organizations ("JCAHO") and complete and accurate copies of its most recent survey reports, lists of deficiencies, if any, and Certificates of Accreditation relating to the Hospital have been furnished or made available to Buyer. (c) The Hospital is qualified for participation in the Medicare program. A complete and accurate copy of each existing Medicare contract has been furnished or made available to Buyer. The Hospital is presently in compliance with all of the terms, conditions and provisions of such contracts except where failure to be in compliance would not have a material adverse effect on the Business or the Assets. (d) The Hospital is qualified for participation in the Medi-Cal program. A complete and accurate copy of Seller's existing Medi-Cal contracts have been furnished or made available to Buyer. The Hospital is presently in compliance with all of the terms, conditions and provisions of such contracts except where failure to be in compliance would not have a material adverse effect on the Business or the Assets. (e) The Hospital participates in the CHAMPUS program. The Hospital is presently in compliance in all material respects with all of the terms and conditions of such participation except where failure to be in compliance would not have a material adverse effect on the Business or the Assets. (f) Complete and accurate copies of all fire marshal reports in Seller's possession or, to the best of Seller's knowledge, available to Seller with respect to the Hospital after January 1, 1997, have been, or will be prior to Closing, furnished to Buyer. (g) Seller has not received any written notice from any applicable governmental agency, nor does it have knowledge, of any violation of local building codes, ordinances or zoning laws applicable to the Hospital. (h) Copies of all licensure survey reports of the Hospital by the California Department of Health Services issued from and after January 1, 1996, that are in Seller's possession have been, or will be prior to Closing, supplied or made available to Buyer. (i) Copies of the Bylaws of the medical staff of the Hospital, together with copies of minutes of meetings thereof since January 1, 1996, that are in Seller's possession have been supplied or will prior to Closing be made available to Buyer. No proceedings are pending or, to the best of Seller's knowledge, threatened, seeking to remove or limit the privileges of any member of the Hospital medical staffs or appealing any such decision of such medical staff. (j) CRH is licensed by the California Department of Health Services as a general acute care rehabilitation hospital authorized to operate 60 beds in its existing location in Chico, California. CRH is presently in compliance with all the terms, conditions and provisions of such license except where failure to be in compliance would not have a material adverse effect on the Business or the Assets. SCHEDULE 3.14(J) contains a copy of such license. The facilities, equipment, staffing and operations of CRH satisfy the applicable hospital licensing requirements of the State of California except where failure to be in compliance would not have a material adverse effect on the Business or the Assets. (k) The Hospital currently has a memorandum of understanding with the appropriate peer review organization, and complete and accurate copies of all such memoranda of understanding have been furnished or made available to Buyer, or will prior to Closing be made available to Buyer. (l) Seller is in material compliance with all applicable laws and regulations that relate to the Assets and Business, except where the failure thereof would not have a material adverse effect on the Business. (m) Seller has not received any written notice of, nor has knowledge of, any threatened termination, cancellation or limitation, or other material adverse modification or change in, Seller's relationship with any payor, physician, medical group (including IPAs), the medical staff or suppliers. 3.15 REIMBURSEMENT MATTERS. Seller has delivered or made available to Buyer complete copies of all Medicare cost reports and related forms that have been filed during the past three years with respect to the Business. Seller has not received any written notices that either Medicare or Medi-Cal has any claims against it which may reasonably be expected to result in consolidated net offsets against future reimbursement in excess of that provided for in such Financial Statements. Seller has not been indicted, convicted or, to the best of Seller's knowledge, subject to an investigation of the Office of Inspector General of the Department of Health and Human Services (the "OIG") or other applicable government agency, or received a notice from the OIG or other applicable government agency, with respect to a violation or an alleged violation of the Medicare and Medi-Cal fraud and abuse provisions of the federal Social Security Act or the physician ownership and referral provisions of the Ethics in Patient Referral Act, and to the best of Seller's knowledge, has Seller not committed a violation of any of such provisions. 3.16 TAXES. Seller has filed all tax returns required by law to be filed by it and has paid all taxes, assessments and other governmental charges shown thereon as due and payable, other than those presently payable without penalty or interest or those being contested in good faith by appropriate procedures. There are no liens with respect to taxes (except for liens with respect to real property taxes not yet due) upon any of the Assets. Seller has not conducted the Business or engaged in any transaction which would cause the transaction contemplated hereby to be taxable under the California sales and use tax laws. 3.17 ENVIRONMENTAL. Except as disclosed in the McLaren/Hart Phase I Site Assessment of the Chico Community Hospital Rehabilitation Facility (October 24, 1997) obtained by Buyer relating to the Assets (the "Environmental Reports"): (a) Seller is currently, and at all times has been, in compliance with all Environmental Laws (as defined below) except where failure to comply with such Environmental Laws would not have a material adverse effect on the Business; (b) Seller has all permits, authorizations or other approvals required under environmental laws to operate the Assets and the Real Property, and is in compliance with all such permits, authorizations and approvals except where failure to comply with such permits, authorizations or approvals, individually or in the aggregate, would not have a material adverse effect on the Business; (c) Seller has not generated, handled, stored, disposed of or released any Hazardous Substance (as defined below) on any of the Real Property, except in compliance with applicable Environmental Laws except where failure to comply with such Environmental Laws, individually or in the aggregate, would not have a material adverse effect on the Business; (d) There are no polychlorinated biphenyls (PCBs) or transformers, capacitors, ballasts or other equipment that contains dielectric fluid containing PCBs at levels in excess of fifty parts per million (50 ppm) present, constructed, placed, deposited, stored, disposed of or located on the Real Property; (e) There are currently no aboveground or underground storage tanks for the storage of Hazardous Substances located on the Real Property, and, to the best knowledge of Seller, there have never been any such aboveground or underground storage tanks located on the Real Property; (f) Seller has not received any communication (written or oral), whether from a governmental authority, citizens group, employee or otherwise, that alleges that Seller is not in full compliance with Environmental Laws. There is no Environmental Claim (as defined below) pending or threatened against Seller or with respect to the Assets. (g) There are no present or, to the best of Seller's knowledge, past actions, activities, circumstances, conditions, events or incidents, including, without limitation, the generation, storage, release, emission, discharge, presence or disposal of any Hazardous Substance, that could form the basis of any Environmental Claim against Seller under any Environmental Law in effect at any time at or prior to the Closing. (h) The inclusion of any item disclosed in SCHEDULE 3.17 and the inclusion of the reference to the Environmental Reports hereinabove does not constitute an admission by Seller, Paracelsus or Buyer that any matters disclosed in such schedule or Environmental Report constitutes a violation of any Environmental Law. The following terms shall have the following meanings: "ENVIRONMENTAL CLAIM" means any claim, action, cause of action, investigation or notice (written or oral) by any person or entity alleging potential liability (including, without limitation, potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from (a) the presence, or release into the environment, of any Hazardous Substances at any location, whether or not owned or operated by the Seller or (b) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. "ENVIRONMENTAL LAWS" means the federal, state (including specifically, but not by way of limitation, the State of California), and local environmental, health or safety laws, regulations, ordinances, rules and policies and common law in effect on the date hereof and the Closing Date relating to the generation, use, refinement, handling, treatment, removal, storage, production, manufacture, transportation, disposal, arranging for disposal, emissions, discharges, releases or threatened releases of Hazardous Substances, or otherwise relating to protection of human health, worker safety or the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), as the same may be amended or modified to the date hereof and the Closing Date, including, without limitation, the statutes and regulations listed below: Federal Resource Conservation and Recovery Act of 1976, 42 U.S.C.
6901, ET SEQ. Federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C.
9601, ET SEQ. Federal Clean Air Act, 42 U.S.C.
7401, ET SEQ. Federal Water Pollution Control Act, Federal Clean Water Act of 1977, 33 U.S.C.
1251, ET SEQ. Federal Insecticide, Fungicide, and Rodenticide Act, Federal Pesticide Act of 1978, 7 U.S.C.
136, ET SEQ. Federal Hazardous Materials Transportation Act, 49 U.S.C.
1801, ET SEQ. Federal Toxic Substances Control Act, 15 U.S.C.
2601, ET SEQ. Federal Safe Drinking Water Act, 42 U.S.C.
300f, ET SEQ. Federal Occupational Safety & Health Act of 1970, 29 U.S.C.
651, ET SEQ. Medical Waste Tracking Act of 1988, 42 U.S.C.
6992, ET SEQ. Marine Protection Research & Sanctuaries Act of 1972, 33 U.S.C.
1401, ET SEQ. The Act to Prevent Pollution from Ships, 33 U.S.C.
1901, ET SEQ. California Environmental Quality Act of 1970 (CEQA), California Government Code,
65914. California Hazardous Waste Control Law, California Health & Safety Code, Section 25100 et seq.. Nuclear Regulatory Commission Regulations, 10 C.F.R. Part 20 and 10 C.F.R. Part 61. Public Health Service Regulations, 42 C.F.R. Part 72. Food & Drug Administration Regulations, 21 C.F.R. Parts 58 and 211. U.S. Department of Transportation Regulations, 49 C.F.R. Parts 171- 179. U.S. Department of Agricultural Regulations, 9 C.F.R. Parts 50-56. U.S. Postal Service Regulations, 39 Part III. "HAZARDOUS SUBSTANCES" means any toxic or hazardous waste, pollutants or substances, explosives, radioactive materials, or Medical Waste (as defined below), including, without limitation, friable asbestos, asbestos- containing material, PCBs, petroleum products and byproducts, substances defined or listed as "hazardous substance", "toxic substance", "toxic pollutant", or similarly identified substance or mixture, in or pursuant to any Environmental Law. "MEDICAL WASTE" means any substance, pollutant, material, or contaminant listed or regulated under the Medical Waste Tracking Act of 1988, 42 U.S.C.
6992, ET SEQ., 49 C.F.R.
173, 186, and/or the California Waste Management Act, California Health & Safety Code,
117600 et seq. 3.18 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent reflected or specifically reserved against (which reserves are believed adequate in amount) in the Financial Statements, to the best of Seller's knowledge, Seller did not have, at the date of such Financial Statements, any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise and whether due or to become due) required to be reflected thereon or included therein, except for any liabilities which have been incurred since the dates of such Financial Statements in the ordinary course of business consistent with past practice or which have been discharged or paid in full prior to the date hereof. 3.19 BROKERAGE. Neither Seller nor Paracelsus has engaged any financial advisor, broker or similar entity in respect of the transactions contemplated hereby which may be entitled to a fee or commission in connection with such transactions, other than ABN-AMRO Chicago Corporation. Any fee due to such firm is solely a liability of Seller and Paracelsus. 3.20 NO MISLEADING STATEMENTS. No representation or warranty by Seller contained in this Agreement, and no statement contained in any Schedule (including any supplement or amendment thereto) and the documents to be delivered at the Closing by or on behalf of Seller to Buyer or any of its representatives in connection with the transactions contemplated hereby (the Schedules, including any supplement or amendment thereto, and such Closing documents are herein referred to, collectively, as the "ADDITIONAL DOCUMENTS"), contains or will contain any untrue statement of a material fact, or, to the best knowledge of Seller and Paracelsus, omits or will omit to state any material fact necessary, in light of the circumstances under which it was or will be made, in order to make the statements herein or therein not misleading. Copies of all documents described on any Schedule hereto which have been furnished, provided or made available to Buyer or are hereafter furnished, provided or made available to Buyer are or shall be, to the best of Seller's knowledge, true, correct and complete. 3.21 DISCLAIMER OF WARRANTIES. The Assets will be sold by Seller and purchased by Buyer in their condition at Closing, "AS IS", WITH NO WARRANTY OF HABITABILITY OR FITNESS FOR HABITATION, with respect to the Real Property, and WITH NO WARRANTIES, INCLUDING THE WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, with respect to the Personal Property and Operating Inventory, any and all of which warranties (both express and implied) Seller hereby disclaims. Nothing in this Section 3.21 shall be construed to limit the scope or effect of the express representations and warranties contained elsewhere in this Article III. 4. REPRESENTATIONS AND WARRANTIES OF BUYER AND SYSTEM. As of the date hereof, Buyer and the System represent and warrant to Seller and Paracelsus the following: 4.1 BUYER AND SYSTEM CAPACITY. (a) Buyer and System are nonprofit public benefit corporations duly organized, validly existing and in good standing under the laws of the States of California, with all requisite corporate power and authority to own, operate and lease their properties. (b) SCHEDULE 4.1 contains complete and correct copies of the Articles of Incorporation and all amendments thereto to the date hereof and the Bylaws as presently in effect of Buyer and System. 4.2 CORPORATE AUTHORIZATION/CONTRACT BINDING. (a) The execution, delivery and performance by Buyer and System of this Agreement and the other agreements and transactions contemplated hereby to be executed and performed by Buyer: (i) are within Buyer's and System's corporate powers, are not in contravention of the terms of Buyer's or System's Articles of Incorporation, Bylaws or any amendments thereto and have been duly authorized by the board of directors of Buyer and System; and (ii) except as set forth on SCHEDULE 4.2, on the Closing Date, (A) will not result in any breach of any indenture, agreement, lease or instrument to which Buyer or System is a party or by which Buyer or System is bound, (B) will not constitute a violation of any judgment, decree or order of any court of competent jurisdiction applicable to Buyer or System, (C) will not violate any law, rule or regulation of any governmental authority applicable to Buyer or System and (D) will not require any consent, approval or authorization of, or notice to, or declaration, filing or registration with, any governmental or regulatory authority. (b) This Agreement has been duly and validly executed and delivered by Buyer and System, and, as of the Closing, the other agreements and instruments contemplated hereby will have been duly and validly executed and delivered by Buyer and System. This Agreement constitutes, and upon their execution and delivery, the other agreements and instruments contemplated hereby will constitute, the valid, legal and binding obligations of Buyer and System, enforceable against each in accordance with their respective terms except as such enforceability may be limited by bankruptcy, reorganization, insolvency, or other laws affecting the enforcement of creditors' rights generally or the availability of equitable remedies. 4.3 BROKERAGE. Buyer has not engaged any financial advisor, broker or similar entity in respect of the transactions contemplated hereby which may be entitled to a fee or commission in connection with such transactions. 5. COVENANTS OF SELLER PRIOR TO CLOSING. Between the date of this Agreement and the Closing Date: 5.1 INFORMATION. Seller shall afford, to the officers and authorized representatives of Buyer access to the Assets and will furnish to Buyer such additional financial data and other information relating to the Assets or the Business as Buyer may from time to time reasonably request; provided such access shall occur at such time or times as will not disrupt delivery of care to patients. Seller agrees to cooperate reasonably with Buyer in Buyer's efforts (i) to make any required filings and to obtain any governmental approvals necessary in order to consummate the transactions contemplated hereby, (ii) to respond to any governmental investigation of such transactions, and (iii) to defend any legal or administrative proceedings challenging such transactions. Seller will, upon reasonable request, cooperate with Buyer, its representatives and counsel in the preparation of any document or other material which may be required by any governmental agency as a predicate to or result of the transaction herein contemplated. Seller shall provide Buyer, when normally available, monthly statements of income with respect to the Business for the interim period between the effective date of this Agreement and Closing. 5.2 OPERATIONS. With respect to the ownership of the Assets and the operation of the Business, Seller will use its reasonable best efforts to: (a) carry on the Business in substantially the same manner as it has been conducted heretofore and not make any change in personnel (other than in the ordinary course of business) or operations, and not make any change in finance or accounting policies; (b) maintain the Assets in as good working order and condition as at present, ordinary wear and tear excepted; (c) perform in all material respects Seller's obligations under agreements relating to or affecting the Assets or the Business; (d) keep in full force and effect present insurance policies or other comparable insurance coverage; (e) use commercially reasonable efforts to maintain and preserve the business organization of Seller intact, retain their present employees and maintain their relationship with suppliers, customers and others having business relations with Seller; (f) within a reasonable time prior to Closing, permit Buyer to make offers to any of the personnel who work at the Hospital or otherwise in the Business for employment by Buyer subsequent to the Closing, which personnel shall be allowed by Seller to accept or reject such offers without penalty (for the purpose of this Section 5.2(f), "penalty" shall not be interpreted to refer to the availability, or lack of availability of any severance benefit); (g) without the consent of Buyer, which will not be unreasonably withheld, Seller will not incur or commit to any obligation with respect to (i) individual purchase orders in excess of $40,000 for supplies or equipment, (ii) within any 30 day period, any two or more purchase orders in excess of $450,000, (iii) any single capital expenditure in excess of $25,000, or (iv) within any 30 day period, any two or more items involving capital expenditures in excess of $50,000; and (h) except in the ordinary course of business, Seller will not enter into, amend, or cancel Scheduled Contracts or Scheduled Leases that will be assumed by Buyer, without Buyer's prior written consent. 5.3 CERTAIN CHANGES. Without the prior written consent of Buyer, which consent will not be unreasonably withheld, Seller will not: (a) sell or agree to sell any of the Assets except for the depletion of inventories in the ordinary course of business; or (b) engage in any transaction out of the ordinary course of business, including any sale, transfer, lease, encumbrance or granting of a lien upon or a security interest in any portion of the Assets (except as provided in Section 5.3(a) above). 5.4 CASUALTY. If, prior to the Closing, the Hospital facility or other Assets sustain damage or destruction that Seller has not repaired prior to Closing, then the following provisions shall apply: (a) If -- (i) such damage or destruction results in either Hospital facility being unusable for its current purpose, or (ii) the cost to repair such damage or destruction, or to replace such damaged or destroyed facilities or other Assets (collectively, the "Cost to Repair"), is greater than $2,500,000 and Seller does not have insurance coverage therefor, then Buyer may elect either (1) to terminate this Agreement and all obligations of the parties hereunder or (2) to complete the transactions contemplated herein and receive as a credit to the Purchase Price the amount of such Cost to Repair and thereafter Seller shall have no obligation to repair such damage or destruction; (b) If subparagraph (a) does not apply, then: (i) If Seller has insurance coverage for the Cost to Repair any damage or destruction, then Buyer may elect either (1) to receive from Seller all of the proceeds of such insurance paid or payable and pay to Seller the full Purchase Price hereunder or (2) to allow Seller to retain all such insurance proceeds subject to a reduction of the Purchase Price in the amount thereof; and (ii) If and to the extent that the Cost to Repair any damage or destruction is not covered by insurance, including without limitation costs that are subject to a deductible or self-insured retention, then the Purchase Price shall be reduced by an amount equal to that portion of the Cost to Repair such damage or destruction that is not covered by insurance. 5.5 This Section intentionally omitted. 5.6 BEST EFFORTS TO CLOSE. Seller and Paracelsus shall use their best efforts to proceed toward the Closing and to cause the conditions to Closing to be met as soon as practicable and consistent with other terms contained herein. Seller and/or Paracelsus shall notify Buyer as soon as practicable of any event or matter which comes to Seller's or Paracelsus' attention which may reasonably be expected to prevent the conditions to Seller's obligation being met. 5.7 INSURANCE RATINGS. Seller shall take all action reasonably requested by Buyer to enable Buyer to succeed to the Worker's Compensation and Unemployment Insurance ratings, insurance policies, deposits and other interests of Seller and other ratings for insurance or other purposes established by Seller; provided, however, that the covenants contained in this sentence shall not require Seller to expend its own funds to satisfy such obligations, nor shall such covenants permit Buyer to acquire Seller's deposits without compensation to Seller. Buyer shall not be obligated to succeed to any such rating, insurance policy, deposit or other interest, except as it may elect to do so. 5.8 NOTICE; EFFORTS TO REMEDY. Seller will notify Buyer promptly in writing of, and contemporaneously will provide Buyer with true and complete copies of any and all information and documents relating to, and will use their best efforts to cure as soon as practicable (or by any subsequent date agreed upon by the parties), any event, transaction or circumstance occurring that causes or would cause any covenant or agreement of Seller or Paracelsus under this Agreement to be breached, or that renders or would render untrue any representation or warranty of Seller contained in this Agreement as if the same were made on or as of the date of such event, transaction or circumstance. Seller and Paracelsus also will use their reasonable best efforts to cure, as soon as practicable (or by any subsequent date agreed upon by the parties), any violation or breach of any representation, warranty, covenant or agreement made by either of them in this Agreement. Seller and Paracelsus shall have a reasonable time within which to effect a cure of such breach or misrepresentations before Buyer may terminate this Agreement (to the extent such remedy is available to Buyer pursuant to Section 11.1(d) hereof); provided, however, that after the date established by the parties for Closing, Buyer may terminate this Agreement (to the extent such remedy is available to Buyer pursuant to Section 11.1(d) hereof) unless such breach or misrepresentation has been cured to the reasonable satisfaction of Buyer . Furthermore, Seller and Paracelsus shall notify Buyer promptly in writing of any event, transaction or circumstance occurring that causes or would cause any covenant or agreement of Buyer under this Agreement to be breached, or that renders or would render untrue any representation or warranty of Buyer contained in this Agreement as if the same were made on or as of the date of such event, transaction or circumstance. Buyer shall have a reasonable time in which to effect a cure of such breach or misrepresentation before Seller may terminate this Agreement (to the extent such remedy is available to Seller pursuant to Section 11.1(d) hereof); provided, however, that after the date established by the parties for Closing, Seller may terminate this Agreement (to the extent such remedy is available to Seller pursuant to Section 11.1(d) hereof) unless the breach or misrepresentation has been cured to the reasonable satisfaction of Seller and Paracelsus. The failure of Seller to notify Buyer of any such discovered event, transaction or circumstance shall not release Buyer from any liability to Seller resulting from the breach attendant to such discovered event, transaction or circumstance; provided, however, that, unless Buyer had independent knowledge of such event, circumstance or condition, Buyer's liability shall be limited to the damages that would have nonetheless resulted to Seller had Seller disclosed such discovered event, transaction or circumstance to Buyer prior to Closing. 5.9 COOPERATION WITH BUYER. Seller shall cooperate in all reasonable respects with Buyer in connection with Buyer's efforts to obtain regulatory consents to and approvals of the transfer of the Licenses described in SCHEDULE 3.5 hereof. Seller also agrees that upon the written request of Buyer, Seller will use its reasonable best efforts to obtain any consents necessary for the assignment of the contracts and leases to be assumed by Buyer pursuant to the Assignment and Undertaking. The parties agree that Buyer will be primarily responsible for obtaining all such approvals and consents. 6. INDEMNIFICATION. 6.1 INDEMNITY BY BUYER AND SYSTEM. From and after Closing, Buyer and System shall indemnify, defend and hold harmless Seller and Paracelsus and their respective officers, employees, affiliates and agents (collectively, "BUYER INDEMNIFIED PARTIES") from and against any and all liabilities, losses, damages, demands, claims, suits, actions, judgments, causes of action, assessments, costs and expenses, including, without limitation, interest, penalties, reasonable attorneys' fees, any and all expenses incurred in investigating, preparing and defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation (collectively, "DAMAGES"), asserted against, resulting to, imposed upon, or incurred or suffered by any of them, directly or indirectly, as a result of or arising from the following: (i) any inaccuracy in or breach or nonfulfillment of any of the representations, warranties, covenants or agreements made by Buyer or System in this Agreement or the other agreements contemplated hereby; (ii) any liability imposed on any Buyer Indemnified Party to the extent such liability has been expressly assumed by Buyer pursuant to the Assignment and Undertaking; (iii) any misrepresentation in or any omission from any certificate or other document (collectively, the "BUYER ADDITIONAL DOCUMENTS") furnished or to be furnished by or on behalf of Buyer or System at Closing under this Agreement; (iv) any liability, obligation or indebtedness of Buyer or any alleged liability, obligation or indebtedness of Buyer, including without limitation those relating to contractual obligations, liabilities to Medicare or Medi-Cal programs, tax liabilities or professional malpractice or general liability claims, arising out of the operation of the Business after the Cut-Off Point which is imposed on or made against any Buyer Indemnified Party, except to the extent such liability or alleged liability arises out of a liability of Seller that has not been expressly assumed by Buyer pursuant to the Assignment and Undertaking; (v) any claims for fees or commissions of a broker, agent or similar entity employed or alleged to have been employed by or on behalf of Buyer in connection with the transactions contemplated hereby; and (vi) any liability imposed on any Buyer Indemnified Party arising out of the use by Buyer (or its assignees) of Seller's Drug Enforcement Agency Registration Numbers pursuant to the powers of attorney delivered in accordance with Section 9.10 of this Agreement. 6.2 INDEMNITY BY SELLER AND PARACELSUS. From and after the Closing, Seller and Paracelsus, jointly and severally, shall indemnify, defend and hold harmless Buyer and its respective officers, directors, employees, shareholders, affiliates and agents (collectively, the "SELLER INDEMNIFIED PARTIES") from and against any and all Damages asserted against, resulting to, imposed upon, or incurred or suffered by any of them, directly or indirectly, as a result of or arising from the following: (i) any inaccuracy in or breach or nonfulfillment of any of the representations, warranties, covenants or agreements made by Seller or Paracelsus in this Agreement or the other agreements contemplated hereby; (ii) any liability, obligation or indebtedness of Seller or Paracelsus or any alleged liability, obligation or indebtedness of Seller or Paracelsus, including without limitation those relating to contractual obligations, liabilities (including recapture of depreciation) to the Medicare or Medi-Cal programs, tax liabilities or professional malpractice or general liability claims, arising out of the operation of the Business prior to the Cut-Off Point which is imposed on or made against any Seller Indemnified Party, except to the extent certain contractual obligations have been expressly assumed by Buyer pursuant to the Assignment and Undertaking; (iii) any misrepresentation in or any omission from any certificate or other document (collectively, the "SELLER ADDITIONAL DOCUMENTS") furnished or to be furnished by or on behalf of Seller or Paracelsus at Closing under this Agreement; and (iv) any claims for fees or commissions of a broker, agent or similar entity employed or alleged to have been employed by or on behalf of Seller or Paracelsus in connection with the transactions contemplated hereby. 6.3 CLAIMS PROCEDURE. (a) If a party to this Agreement ("CLAIMING PARTY") learns of a circumstance giving rise to a claim for another party to this Agreement ("PERFORMING PARTY") to make payment, performance, or indemnity under this Agreement, then the Claiming Party shall give the Performing Party written notice thereof within a reasonable time considering the circumstances. No delay in giving notice to the Performing Party shall work a forfeiture of the rights of Claiming Party or shall limit the Performing Party's obligations under this Agreement. If, however, a delay in giving notice within a reasonable time prejudices the Performing Party and materially impairs its ability to mitigate loss, then the Performing Party shall have no obligation to pay that part of a loss caused by the delay. (b) The Performing Party shall defend, and shall have the right to settle, claims or suits by third parties that are payable or that are to be indemnified by the Performing Party under this Agreement. The Claiming Party shall reasonably cooperate with the Performing Party in the defense of claims and suits that the Performing Party defends, and the Performing Party shall reimburse the Claiming Party for out-of-pocket expenses incurred in cooperating at the Performing Party's request. The Claiming Party shall not settle such claims or suits defended by the Performing Party without the Performing Party's prior consent, which shall not be unreasonably withheld. The Claiming Party shall have the right to approve defense counsel selected by the Performing Party, which approval shall not be unreasonably withheld, and the right fully to participate in the defense of such claims and suits at the Claiming Party's sole cost and expense. The Claiming Party shall have the right to defend and settle claims or suits without prejudice to any of their rights against the Performing Party under this Agreement if the Performing Party declines or is unable to undertake the defense of a claim or suit within a reasonable time after the Performing Party's receipt of notice thereof. If the Performing Party disputes the Claiming Party's entitlement to indemnity and asserts the right to defend a claim or suit, and if the Claiming Party reasonably believes that the Performing Party's control of the defense of a claim or suit might prejudice the Claiming Party, then the Claiming Party shall have the right to defend such claim or suit. Performing Party shall have the right fully to participate in the defense of such claim or suit, and Claiming Party shall not settle such claim or suit without the Performing Party's prior consent, which Performing Party shall not unreasonably withhold. 6.4 LIMITATION ON CLAIMS. (a) No Seller Indemnified Party nor Buyer Indemnified Party shall make any claim for indemnification pursuant to Sections 6.1 or 6.2 with respect to any matter unless: (i) the amount of the Damages arising out of such matter is in excess of $25,000 (a "RELEVANT CLAIM"); and (ii) the aggregate amount of all Damages with respect to which a Relevant Claim is being made by an Indemnified Party against any or all of the applicable Indemnifying Parties (together with all such Relevant Claims previously made by the applicable Indemnified Parties against the applicable Indemnifying Parties) exceeds $250,000. (b) Notwithstanding the provisions of Section 6.4(a), any indemnified claim having its basis in any of the following shall not be subject to the thresholds established by such provisions: (A) a breach of the representations, warranties, covenants and agreements made in 1.3(c)(ii),3.15, 3.16, 3.17, 3.18, 3.19 and 4.3, (B) fraud or intentional misrepresentation, (C) a breach by Buyer to pay or observe any obligation of Seller assumed by Buyer pursuant to the Assignment and Undertaking, (D) a breach by Seller of its obligations under Section 1.3 hereof to pay or observe any of its obligations for trade payables, contracts, leases or other liabilities reflected on Seller's financial statements (other than those assumed by Buyer pursuant to the Assignment and Undertaking) and to satisfy prior to Closing all obligations secured by a lien on, or a security interest in, the Assets, (E) any breach by Buyer to pay the Purchase Price hereunder, or (F) a breach by Buyer or Seller of its obligation under Section 1.7.1 and 1.7.2 to pay any post-Closing adjustment to the Purchase Price required by such Sections. (c) Neither Seller nor Paracelsus shall be under any liability and no claim under Section 6.2 of this Agreement shall be made to the extent that any Damages may be recovered under a policy of insurance, except that (subject to the other limitations set forth in this Agreement) Seller and Paracelsus shall be liable to the extent of any deductibles under such insurance policy. (d) Neither Buyer nor System shall be under any liability and no claim under Section 6.1 of this Agreement shall be made to the extent that Paracelsus or Seller discovered such breach prior to the Closing Date and failed to disclose such breach to Buyer as provided in Section 5.8 hereof, except that Buyer and System shall be liable to the extent Buyer or System had knowledge of such breach or to the extent Paracelsus or Seller would have nonetheless suffered damages had such breach been disclosed to Buyer prior to the Closing Date. (e) Neither Seller nor Paracelsus shall be under any liability and no claim under Section 6.2 of this Agreement shall be made to the extent that Buyer discovered such breach prior to the Closing Date and failed to disclose such breach to Paracelsus and Seller as provided in Section 9.9 hereof, except that Paracelsus and Seller shall be liable to the extent either Paracelsus or Seller had knowledge of such breach or to the extent Buyer would have nonetheless suffered damages had such breach been disclosed to Paracelsus or Seller prior to the Closing Date. (f) If an Indemnifying Party is liable to an Indemnified Party for breach of any representation, warranty or undertaking, the liability of the Indemnifying Party shall be reduced and any amount paid by such Indemnifying Party shall be refunded to the extent that the Indemnified Party is eligible to obtain a reduction in its liability for tax (whether by way of credit or otherwise and calculated assuming that the Indemnified Party is taxed at the maximum rate applicable to such entity) which it would not have been eligible for had the breach which gave rise to liability of the Indemnifying Party not arisen. (g) Each Indemnified Party shall cooperate in all reasonable respects with the reasonable requests of its applicable Indemnifying Parties in the conduct of litigation, the making of settlements and the enforcement of any right of contribution to which the Indemnified Parties may be entitled from any person or entity in connection with the subject matter of any litigation subject to indemnification hereunder. In addition, the Indemnified Parties shall, upon the reasonable requests by their applicable Indemnifying Parties or counsel selected by such Indemnifying Parties, attend hearings and trials, assist in the securing and giving of evidence, assist in obtaining the presence or cooperation of witnesses, make available its own personnel, and assist in effecting settlements; and shall take such action as is reasonably necessary and appropriate in connection with such litigation. Seller Indemnified Parties shall not, except at their own cost, voluntarily make any payment, assume any obligation, incur any expense, or settle or compromise any claim without the express approval of Seller Indemnifying Parties in connection with any matter that is subject to indemnification hereunder. (h) The indemnification provided under Sections 6.1 and 6.2 shall survive the execution and delivery of this Agreement, the closing of the transactions contemplated hereby and the satisfaction of all other obligations of any party hereto under this Agreement. In respect of the indemnification provided under Section 6.1(i) and 6.2(i) relating to or arising out of a breach of a representation or warranty, and with respect to the indemnification provided under Sections 6.1(iii) and 6.2(iii) relating to or arising out of a misrepresentation in or omission from a Buyer Additional Document or a Seller Additional Document and which constitutes a "bring down" of a party's representations and warranties made in this Agreement, no indemnification may be asserted under this Agreement unless the party making the claim gives the party against whom the claim is to be made notice of such claim before the end of the applicable Survival Period (as defined in Section 12.18 hereto); PROVIDED, that such claim shall survive the expiration of the Survival Period if notice thereof, as required by Section 6.3, was given prior to the expiration of the Survival Period. In respect of the other indemnification provided under Sections 6.1 and 6.2, there shall be no limitation on when a claim for indemnification hereunder may be sought other than as set forth in Section 6.1 or 6.2, and the parties hereby waive any such limitation which may be imposed by law. (i) If a Performing Party pays a claim to a Claiming Party pursuant to this Agreement, then such party shall be subrogated to all rights of the party to or for whom the claim was paid against others for recovery of the loss, except affiliates, employees, officers, directors, successors or assigns of the party to or for whom the claim was paid. 6.5 JURISDICTION; SERVICE OF PROCESS. (a) Each of the parties hereto severally agrees that any legal action or proceeding with respect to this Agreement or to enforce any judgment obtained against any party hereto in connection with this Agreement may be brought by any other party hereto or any Seller Indemnified Party or Buyer Indemnified Party in the courts of the State of California or in the United States District Courts which are located in the City of Sacramento, California, or any other court to the jurisdiction of which such party hereto or any of its respective properties is or may be subject. In connection with any action or proceeding relating to this Agreement, each of the parties hereto severally irrevocably submits to the jurisdiction of the courts of the State of California and of the United States District Courts located in the city of Sacramento, California, and irrevocably waives any present or future objection to venue in any such court, and any present or future claim that any such court is an inconvenient forum. Nothing herein shall affect the right of the a party to serve process in any manner permitted by law or to bring any civil suit, action or proceeding against any party hereto or its respective property in the courts of any jurisdiction in which venue may be granted. (b) For the purposes of any legal action or proceeding brought by any party hereto or by any Seller Indemnified Party or any Buyer Indemnified Party with respect to this Agreement, each party hereto hereby irrevocably designates and appoints CT Corporation System, currently located at 818 W. 7th Street, Los Angeles, California 90017, as its authorized agent for service of process in the State of California. Each party hereto and each Seller Indemnified Party and each Buyer Indemnified Party shall for all purposes be entitled to treat such designee of each party hereto as the authorized agent to receive for and on its behalf service of writs or summons or other legal process in the State of California. In the event that, for any reason, such agent or his successor shall no longer serve as agent of any party hereto to receive service or process in the State of California, such party shall appoint a person in the State of California as a successor so to serve and advise the other parties hereto so that at all times each party hereto will maintain an agent to receive service of process in the State of California on its behalf with respect to this Agreement. In the event that, for any reason, service of legal process cannot be made in the manner described above, such service may be made in such other manner as permitted by law. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER The obligations of Buyer hereunder are subject to the satisfaction, on or prior to the Closing Date, of the following conditions unless waived in writing by Buyer: 7.1 REPRESENTATIONS/WARRANTIES; COMPLIANCE WITH COVENANTS. The representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects when made and on and as of the Closing Date, as though such representations and warranties had been made on and as of such Closing Date; and the covenants and conditions of this Agreement to be complied with or performed by Seller or Paracelsus on or before the Closing Date pursuant to the terms hereof shall have been duly complied with and performed in all material respects. 7.2 OPINION OF SELLER'S COUNSEL. Buyer shall have received an opinion from Michener, Larimore, Swindle, Whitaker, Flowers, Sawyer, Reynolds & Chalk L.L.P., counsel to Seller and Paracelsus, dated as of the Closing Date, substantially in the form of APPENDIX 7.2. 7.3 PRE-CLOSING CONFIRMATIONS. Buyer shall not have received in writing any notice from the California Department of Health Services or any other applicable agencies or licensing authorities that Buyer shall not be issued effective as of or promptly after the Closing a license to operate the Hospital and licenses or permits to provide all presently authorized supplemental and special services. 7.4 ACTION/PROCEEDING. No action, proceeding, investigation or administrative hearing before a court or any other governmental agency or body shall have been instituted against any party hereto (and remain unresolved) which seeks injunctive relief in anticipation of the sale of the Assets and may reasonably be expected to prohibit the sale of the Assets to Buyer or seeks damages in a material amount by reason of the consummation of such sale; nor shall any party hereto have received notification from any governmental agency of the United States of America or the State of California of such agency's current intent to seek injunctive relief in anticipation of the sale of the Assets to prohibit the sale of the Assets to Buyer. 7.5 [OMITTED] 7.6 [OMITTED] 7.7 [OMITTED] 7.8 DELIVERY OF CERTAIN DOCUMENTS. At the Closing, the Seller shall have delivered to Buyer all documents, agreements and instruments contemplated by Section 2.2. 7.9 INFORMATION SYSTEMS AGREEMENT. If applicable, Paracelsus and Buyer shall have executed and delivered an Information Systems Agreement (the "INFORMATION SYSTEMS AGREEMENT"), in substantially the form attached hereto as APPENDIX 7.9. 7.10 CERTIFICATE OF NON-FOREIGN STATUS. Seller shall have duly executed and delivered to Buyer a Certificate of Non-Foreign Status in the form attached hereto as APPENDIX 7.10. 7.11 HSR APPROVAL. The all applicable waiting periods specified in the HSR Act shall have expired or been terminated. 7.12 MEDICARE RECONCILIATION NOTE. Seller shall have delivered to Buyer a promissory note in the form of APPENDIX 7.12 hereto (the "MEDICARE RECONCILIATION NOTE"). The original principal balance of the Medicare Reconciliation Note will be an amount equal to the book value of the Medicare Receivables, net of the allowance for doubtful accounts and contractual adjustments related thereto, all as reflected on the Interim Balance Sheet. As provided in such Medicare Reconciliation Note and in Sections 1.6 and 1.7 hereof, the principal balance of such note will be adjusted to reflect changes in such net book value amount between the date of the Interim Balance Sheet and the date of the Closing Balance Sheet. 7.13 BUYER AND SYSTEM BOARD APPROVAL. The Board of Directors of Buyer and System shall have approved this Agreement and the transactions contemplated hereby. 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND PARACELSUS. The obligations of Seller and Paracelsus hereunder are subject to the satisfaction, on or prior to the Closing Date, of the following conditions unless waived in writing by Seller and Paracelsus: 8.1 REPRESENTATIONS/WARRANTIES; COMPLIANCE WITH COVENANTS. The representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date as though such representations and warranties had been made on and as of such Closing Date; the covenants and conditions of this Agreement to be complied with or performed by Buyer on or before the Closing Date pursuant to the terms hereof shall have been duly complied with and performed in all material respects. 8.2 OPINION OF BUYER'S COUNSEL. Seller shall have received from Davis Wright Tremaine LLP, counsel to Buyer, an opinion dated as of the Closing Date and addressed to Seller and Paracelsus, substantially in the form of APPENDIX 8.2. 8.3 ACTION/PROCEEDING. No action, proceeding, investigation or administrative hearing before a court or any other governmental agency or body shall have been instituted against any party hereto (and remain unresolved) which seeks injunctive relief in anticipation of the sale of the Assets and may reasonably be expected to prohibit the sale of the Assets to Buyer or seeks damages in a material amount by reason of the consummation of such sale; nor shall any party hereto have received notification from any governmental agency of the United States of America or the State of California of such agency's current intent to seek injunctive relief in anticipation of the sale of the Assets to prohibit the sale of the Assets to Buyer or the parties' execution. 8.4 DELIVERY OF CERTAIN DOCUMENTS. At the Closing, the Buyer shall have delivered to Seller all documents, agreements and instruments contemplated by Section 2.3. 8.5 HSR APPROVAL. The all applicable waiting periods specified in the HSR Act shall have expired or been terminated. 8.6 SELLER AND PARACELSUS BOARD APPROVAL. The Board of Directors of Seller and Paracelsus shall have approved this Agreement and the transactions contemplated hereby. 9. PARTICULAR COVENANTS OF BUYER. 9.1 BEST EFFORTS TO CLOSE. Buyer and System shall use their best efforts to proceed toward the Closing and to cause the conditions to Closing to be met as soon as practicable and consistent with other terms contained herein. Buyer shall notify Seller as soon as practicable of any event or matter which may reasonably be expected to prevent the conditions to Buyer's obligations being met. 9.2 EMPLOYMENT OF EMPLOYEES OF SELLER; ADDITIONAL EMPLOYEE MATTERS. (a) (i) Prior to Closing, Buyer shall offer, effective as of the Cut-Off Point, employment to all employees of Seller (except as provided in subsection (d) below) who are on the active payroll of Seller with respect to the Business on the Closing Date (including for this purpose any employee of Seller who elects to be treated as a retiree of Seller as of the Cut-Off Point for the purpose of qualifying for certain employee benefits). Buyer shall give the same offer of employment to any employee who is in paid or unpaid inactive status as of the Closing, and who is available for return to active status within 90 days after Closing (or at such later date as may be required by applicable law). All such employees who accept Buyer's offer of employment shall be referred to as the "Hired Employees." (ii) Each offer of employment under paragraph 9.2(a)(i) shall be for a substantially equivalent position, and at a substantially similar wage or salary, as provided by Seller to the Hired Employee immediately prior to the Closing Date (or, as to any employee who is in paid or unpaid inactive status as of the Closing Date who receives an offer of employment from Buyer upon becoming available to return to active status, immediately prior to the first day of such employee's paid or unpaid leave from Seller. As to each Hired Employee, Buyer shall also provide employee welfare benefits and paid time-off that are commensurate with those of other employees of Buyer having similar positions. Buyer agrees that, for the purpose of determining welfare benefits coverage and other related matters (including eligibility and participation, but not vesting or benefit accrual, under any Buyer pension benefit plan), each Hired Employee will be considered to have commenced employment with Buyer on the date such Hired Employee commenced uninterrupted employment with Seller (whichever is earlier). Notwithstanding the preceding sentence, Buyer shall not be obligated to provide Hired Employees any accrued sick or vacation days upon hiring them except as and to the extent provided in Sections 9.2(e) and (f) hereof. For the purpose of determining vesting and benefit accrual under all Buyer pension benefit plans, each Hired Employee will be considered to have commenced employment with Buyer on the Employment Commencement Date (as defined below). Health benefits coverage provided by Buyer for Hired Employees (and any dependents thereof) shall apply to covered expenses incurred on and after the Employment Commencement Date, and Buyer agrees to waive any limitations for pre-existing conditions with respect to any conditions affecting any Hired Employees (and any dependents thereof); subject to the following limitations: (x) the pre-existing condition provisions of Seller's health benefit plans shall apply in lieu of the pre- existing condition provisions of Buyer's plans to all Hired Employees (and their dependents) who are eligible for benefits under Seller's health benefits plans as of the Closing Date but who are subject to pre-existing condition limitations as of the Closing Date and (y) the pre-existing conditions limitations under Buyer's medical benefits plans shall apply to any Hired Employee (and his or her dependents) who is not eligible for benefits under Seller's health benefits plans as of the Closing Date, and any such Hired Employee shall be treated as having been hired by Buyer on the date such employee commenced employment with Seller for purposes of applying such pre-existing condition limitations to such Hired Employee (and such Hired Employee's dependents). (iii) The term "EMPLOYEE COMMENCEMENT DATE" shall mean the day immediately following the Cut-Off Point; provided, however, that with respect to any employee who is in paid or unpaid inactive status as of the Closing Date and to whom Buyer offers employment pursuant to this Section 9.2(a) the term "EMPLOYEE COMMENCEMENT DATE" shall mean such employee's first day of employment with Buyer. (b) Subject to the accuracy of Seller's representations and warranties in Section 3.12 and SCHEDULE 3.12, (i) on and after the Closing Date, Buyer shall be responsible for any and all notices required with respect to Buyer's termination of employees, and (ii) any liabilities or obligations arising under the WARN Act on or after the Closing Date shall be those of Buyer and not Seller. (c) After the Closing, Buyer will, upon reasonable request, give assistance to human resources personnel of Paracelsus and/or Seller in the post-closing administration of the respective employee benefit plans of Seller as they apply to Hired Employees. For this purpose, "assistance" includes reasonable access to the pre-Closing personnel records of Hired Employees. (d) Notwithstanding the provisions of Section 9.2(a), Buyer shall not be required to offer employment to (i) any person whom Buyer could otherwise terminate for cause, (ii) any person whom Buyer has prior to Closing previously employed and subsequently terminated for cause, or (iii) the President and Chief Executive Officer, the Chief Financial Officer or the Chief Operating Officer of Seller. (e) Buyer agrees that it shall assume, from and after the Cut-Off Point, the accrued liability of Seller for accrued vacation, holiday and sick day benefits and related taxes that relate to the Hired Employees, to the extent such amounts are included in Working Capital. Buyer agrees that (i) Hired Employees will be entitled to use such benefits in accordance with the generally applicable policies and procedures established by Buyer for use of paid leave, (ii) that such benefits will be in addition to any holidays, vacation days, sick days or other paid leave earned by the Hired Employees after the Cut-Off Point as employees of Buyer, and (iii) that such benefits will not (unless previously paid by Seller) be eliminated by Buyer without payment in full to the Hired Employees. Seller agrees that it will furnish to Buyer at Closing a schedule (dated as of the most recent date practicable prior to Closing) showing the name of each Hired Employee (and each employee of Seller on inactive status) and as to each such person the amount of accrued APL that such person has as of such date. As soon as possible after the Closing, Seller will furnish to Buyer a schedule showing such information as of the Cut-Off Point. 9.3 [omitted] 9.4 CONSENTS AND REGULATORY APPROVALS. Buyer acknowledge that except as provided in Section 5.9 hereof, neither Seller nor Paracelsus shall have any responsibility for obtaining any regulatory consents to and approvals of the transfer of the Licenses described in SCHEDULE 3.5 hereof or for obtaining any necessary consents to the assignment of the contracts and leases. Buyer agrees to use its reasonable best efforts to secure such approvals and consents as soon as practicable and prior to the Closing. 9.5 CHANGE OF NAME. Buyer agrees that it will cause all signs, if any, incorporating the names "Paracelsus" and "Paracelsus Healthcare"(and all variations thereof) which are located at any of the Real Property or the improvements thereto to be removed or modified as soon as reasonably practicable after the Closing Date and in any event within 30 days after the Closing Date, such that such names are no longer used at such Real Property or upon such improvements. 9.6 BUYER'S PAYMENT OF THE PURCHASE PRICE. Subject to the conditions to Closing set forth in this Agreement, Buyer shall pay the Purchase Price for the Assets in accordance with Section 2.3(a). 9.7 [omitted] 9.8 PRESERVATION AND ACCESS TO BOOKS AND RECORDS AFTER THE CLOSING. (a) After the Closing, Buyer shall keep and preserve all medical records and medical charts existing as of the Closing of patients of the Hospital for so long as Buyer is required by law to maintain such records (but in no event less that seven years, beginning on the Closing Date). Buyer acknowledges that as a result of entering into this Agreement and operating the Business, it will gain access to patient and other information which is subject to rules and regulations concerning confidentiality. Buyer agrees to abide by any such rules and regulations relating to the confidential information it acquires. Buyer agrees after Closing to maintain the patient records at the Business in accordance with applicable law (including, if applicable, Section 1861(v)(i)(I) of the Social Security Act (42 U.S.C.
1395x(v)(1)(I)) and requirements of relevant insurance carriers. In addition, Seller and Paracelsus shall be entitled to remove from the Hospital any such patient records, but only for purposes of pending litigation involving a patient to whom such records refer, as certified in writing prior to removal by counsel retained by Seller or Paracelsus in connection with such litigation; provided, however, that to the extent Paracelsus or Seller are not required by subpoena or court order to use originals of the patient records for such purposes, Paracelsus shall (a) use copies of patient records, where appropriate and (b) cause Seller to use copies of patient records. Any original patient records so removed from the Business shall be promptly returned to Buyer following its use by Seller or Paracelsus. Notwithstanding the foregoing provisions, Seller or Paracelsus shall not be entitled to review, have access to, have copies of or remove from the premises of the Business any medical records or patient charts relating to any period after the expiration of the applicable statute of limitations expires for the bringing of any action against Seller for its ownership of the Business prior to the Cut-Off Point. (b) After the Closing, Buyer shall keep and preserve all other records of the Business existing as of the Closing which are delivered to Buyer by Seller for a period of 7 years or such longer period (if any) as such records are required to be kept and preserved by any federal or state law or regulation. After the Closing, upon reasonable written notice by Seller to Buyer, Seller shall be entitled, during regular business hours, to have access to and make copies of all records pertaining to the operation of the Business (other than medical records which shall be governed by the provisions of Section 9.8(a) hereof) prior to the Closing for any lawful corporate purpose. (c) Should Buyer decide to dispose of any books or records which they have been obligated to maintain pursuant to Section 9.8, Buyer shall advise Seller in writing of such intention and Seller shall have not less than 60 days after receipt of such notice to elect in writing to have Buyer deliver such records to Seller. 9.9 NOTICE; EFFORTS TO REMEDY. Buyer will notify Seller and Paracelsus promptly in writing of, and contemporaneously will provide Seller and Paracelsus with true and complete copies of any and all information and documents relating to, and will use their best efforts to cure as soon as practicable (or by any subsequent date agreed upon by the parties), any event, transaction or circumstance occurring that causes or would cause any covenant or agreement of Buyer under this Agreement to be breached, or that renders or would render untrue any representation or warranty of Buyer contained in this Agreement as if the same were made on or as of the date of such event, transaction or circumstance. Buyer also will use their best efforts to cure, as soon as practicable (or by any subsequent date agreed upon by the parties), any violation or breach of any representation, warranty, covenant or agreement made by either of them in this Agreement. Buyer shall have a reasonable time within which to effect a cure of such breach or misrepresentations before Seller or Paracelsus may terminate this Agreement (to the extent such remedy is available to Seller or Paracelsus pursuant to Section 11.1(d) hereof); provided, however, that after the date established by the parties for Closing, Seller or Paracelsus may terminate this Agreement (to the extent such remedy is available to Seller or Paracelsus pursuant to Section 11.1(d) hereof) unless such breach or misrepresentation has been cured to the reasonable satisfaction of Seller or Paracelsus. Furthermore, Buyer shall notify Seller and Paracelsus promptly in writing of any event, transaction or circumstance occurring that causes or would cause any covenant or agreement of Seller or Paracelsus under this Agreement to be breached, or that renders or would render untrue any representation or warranty of Seller or Paracelsus contained in this Agreement as if the same were made on or as of the date of such event, transaction or circumstance. Seller and Paracelsus shall have a reasonable time in which to effect a cure of such breach or misrepresentation before Buyer may terminate this Agreement (to the extent such remedy is available to Buyer pursuant to Section 11.1(d) hereof); provided, however, that after the date established by the parties for Closing, Buyer may terminate this Agreement (to the extent such remedy is available to Buyer pursuant to Section 11.1(d) hereof) unless the breach or misrepresentation has been cured to the reasonable satisfaction of Buyer . The failure of Buyer to notify Seller and Paracelsus of any such discovered event, transaction or circumstance shall not release Seller and Paracelsus from any liability to Buyer resulting from the breach attendant to such discovered event, transaction or circumstance; provided, however, that, unless Seller or Paracelsus had independent knowledge of such event, circumstance or condition, Paracelsus' and Seller's liability shall be limited to the damages that would have nonetheless resulted to Buyer had Buyer disclosed such discovered event, transaction or circumstance to Seller and Paracelsus prior to Closing. 9.10 POWER OF ATTORNEY FOR D.E.A. REGISTRATION NUMBER(S) AND CALIFORNIA PHARMACY LICENSE(S). Buyer covenants that it shall promptly apply for all necessary United States Department of Justice Drug Enforcement Agency ("D.E.A.") registration(s) or California Pharmacy License(s) with respect to the Hospital as soon as possible. At or prior to Closing, Seller shall execute in favor of Buyer one or more Powers of Attorney for Order Forms authorizing Buyer or a representative of Buyer to execute applications for books of official order forms and to sign such order forms, under Seller's D.E.A. Registration Number(s) or Seller's Pharmacy License(s) as required for all necessary controlled substances on an interim basis until such time as Buyer shall receive approval of all necessary D.E.A. registration(s) or California Pharmacy License(s). Seller covenants that it shall cooperate with Buyer and provide such information as Buyer may reasonably request in making all such applications for registration or licensing. 9.11 GOVERNMENTAL APPROVALS. Buyer shall assist and cooperate with Seller and Seller's representatives and counsel in obtaining all governmental consents, approvals and licenses which Seller reasonably deems necessary or appropriate and in the preparation of any document or other material which may be required by any governmental agency as a predicate to or result of the transactions contemplated herein. 9.12 FTC NOTIFICATION. Buyer shall, if and to the extent required by law, (i) file all reports or other documents required under the HSR Act or requested by the DOJ or the FTC under the HSR Act, and all regulations promulgated thereunder, or in order to permit all applicable waiting periods under the HSR Act to expire, (ii) seek early termination of such waiting periods concerning the transactions contemplated hereby, and (iii) comply promptly with any requests by the FTC or DOJ for additional information concerning such transactions, so that the applicable waiting period specified in the HSR Act will expire as soon as reasonably possible after the execution and delivery of this Agreement. Buyer agrees to furnish to Seller such information concerning Buyer as Seller needs to perform its obligations under Section 10.3 of this Agreement. 10. PARTICULAR COVENANTS OF SELLER AND PARACELSUS. 10.1 REIMBURSEMENT OF BUYER. If any third party payor deducts any amount from payments due Buyer in respect of claims against or amounts owed by Paracelsus or Seller, then Paracelsus and/or Seller will promptly reimburse Buyer for the amounts so deducted within 10 days after written demand therefor by Buyer. Buyer agrees to give prompt notice to Seller and Paracelsus of the assertion of any claim, formal or informal, by any third party payor for which, if deducted by such third party payor, Buyer would be entitled to reimbursement by Paracelsus and/or Seller hereunder and will cooperate in good faith, at no out-of-pocket cost to Buyer, so as to permit Paracelsus and/or Seller to mitigate the amount of any such claim by any such third party payor. 10.2 GOVERNMENTAL APPROVALS. Seller and Paracelsus shall assist and cooperate with Buyer and Buyer's representatives and counsel in obtaining all governmental consents, approvals and licenses which Buyer reasonably deems necessary or appropriate and in the preparation of any document or other material which may be required by any governmental agency as a predicate to or result of the transactions contemplated herein. 10.3 FTC NOTIFICATION. Seller and Paracelsus shall, if and to the extent required by law, (i) file all reports or other documents required under the HSR Act or requested by the DOJ or the FTC under the HSR Act, and all regulations promulgated thereunder, or in order to permit all applicable waiting periods under the HSR Act to expire, (ii) seek early termination of such waiting periods concerning the transactions contemplated hereby, and (iii) comply promptly with any requests by the FTC or DOJ for additional information concerning such transactions, so that the applicable waiting period specified in the HSR Act will expire as soon as reasonably possible after the execution and delivery of this Agreement. Seller and Paracelsus agree to furnish to Buyer such information concerning Seller and Paracelsus as Buyer needs to perform its obligations under Section 9.12 of this Agreement. 11. TERMINATION. 11.1 OPTIONAL TERMINATION. This Agreement may be terminated at any time prior to the Closing as follows: (a) by the mutual agreement of Buyer and Seller; (b) by Buyer in accordance with the provisions of Section 5.4; (c) by either Buyer or Seller, if any court of competent jurisdiction in the United States or other United States governmental body shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated hereby and such order, decree, ruling or other action shall have become final and non-appealable; (d) in the event either Seller or Paracelsus, on one hand, or either Buyer or System on the other hand, commits a material breach of any representation, warranty, covenant or agreement made herein, which breach, if left uncured, would result in a material adverse effect on the condition or value of the Assets or the operation of the Business, by either Buyer or Seller, provided such terminating party did not commit such breach and not an affiliate of the party that committed such breach, and provided further that this right to terminate shall be subject to the parties' rights to cure set forth herein; and (e) by either Buyer or Seller if the Closing has not occurred by the 180th day after the date of this Agreement as set forth in the preamble hereof because a condition to the terminating party's obligation to close set forth, in respect of Buyer in Article 7, or such later date as permitted under Section 2.1(b), and, in respect of Seller and Paracelsus in Article 8, was not satisfied on such date, unless the date for Closing has been extended by the mutual agreement of the parties hereto. 11.2 NOTICE OF ABANDONMENT. In the event of any termination pursuant to Section 11.1, written notice shall forthwith be given to the other parties hereto except with respect to a termination pursuant to Section 11.1(a). 11.3 EFFECT OF TERMINATION. Except for the obligations contained in Sections 6.1(v), 6.2(v), 12.8, 12.9 and 12.21 hereof, upon the due termination of this Agreement pursuant to Section 11.1(a), (b), (c) or (e), this Agreement shall forthwith become null and void, and neither party hereto nor any of its officers, directors, trustees, members or shareholders shall have liability hereunder, provided, however that in no event shall a party hereto be released from liability for damages under this Agreement or otherwise following termination under Section 11.1(d) in the event such party's breach resulted in the failure to close by any such termination date and such breaching party was not otherwise excused from its obligation so to close under this Agreement. Any and all claims or awards for damages (including without limitation punitive damages) following termination under Section 11.1(d) shall not exceed $5,000,000. Parties specific agreement to and acknowledgment of the preceding: _______________[Paracelsus initials], _______________[CCH initials], _______________[Enloe initials], and _______________[System initials]. 12. GENERAL. 12.1 EXHIBITS, SCHEDULES AND OTHER INSTRUMENTS. Each Exhibit, Certificate, Appendix and Schedule, if any, to this Agreement shall be considered a part hereof as if set forth herein in full. Any fact disclosed on one Schedule hereto shall be deemed to be disclosed on each other applicable schedule. Buyer shall have 10 days following receipt of any Schedule not provided on the date of execution of this Agreement to approve or disapprove of any such Schedule. Seller shall have the right to update any Schedule prior to Closing, which updated Schedule shall also be subject to Buyer's approval. Buyer shall not unreasonably disapprove of any updated Schedule that reflects only changes resulting from operations of the Hospital in the ordinary course. Upon receiving notice from Buyer of a disapproved Schedule, Seller shall use its best efforts to remove or remedy any item or event disclosed in the disapproved Schedule, but if sit is unable to do so within 10 business days, Buyer shall have the option of waiving its disapproval or terminating this Agreement without liability to either party. 12.2 PRE-CLOSING ACCESS. Seller shall give Buyer, its accountants, counsel, and other representatives access to the premises and offices of the Hospital, management and supervisory employees of the Hospital, and make such information as Buyer may reasonably request available to Buyer, as may be necessary for Buyer to examine the Assets and Business being acquired. No such inspection by Buyer shall unreasonably interfere with Seller's conduct of business in the ordinary course. 12.3 TERMINATING COST REPORT. Seller agrees to file a terminating cost report in connection with third party receivables of the Business with applicable agencies and shall provide Buyer with a copy thereof prior to such filing. 12.4 ADDITIONAL ASSURANCES. The provisions of this Agreement shall be self-operative and shall not require further agreement by the parties except as may be herein specifically provided to the contrary; provided, however, at the request of either party, the other party shall execute such additional instruments and take such additional acts as are reasonably necessary to effectuate this Agreement. 12.5 CONSENTS, APPROVALS AND DISCRETION. Whenever this Agreement requires any consent or approval to be given by either party or either party must or may exercise discretion, the parties agree that such consent or approval shall not be unreasonably withheld or delayed and such discretion shall be reasonably exercised. 12.6 CHOICE OF LAW. THE PARTIES AGREE THAT THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA AND VENUE SHALL BE BUTTE OR SACRAMENTO COUNTIES. 12.7 BENEFIT/ASSIGNMENT. Subject to the provisions herein to the contrary, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective legal representatives, successors and assigns; provided, however, that no party may assign this Agreement without the prior written consent of the other party. 12.8 COSTS OF TRANSACTION. Subject to the other terms and provisions hereof, whether or not the transactions contemplated hereby shall be consummated, the parties agree as follows: (i) Seller and Paracelsus will pay the fees, expenses, and disbursements of Seller and Paracelsus and their respective agents, representatives, accountants, and counsel incurred in connection with the subject matter hereof and any amendments hereto; and (ii) Buyer shall pay the fees, expenses and disbursements of Buyer and its respective agents, representatives, accountants and counsel incurred in connection with the subject matter hereof and any amendments hereto. Buyer shall pay any transfer taxes and recording fees resulting from the consummation of the transactions contemplated hereby. 12.9 CONFIDENTIALITY. With respect to Confidential Information provided by Paracelsus or Seller in connection with and relative to the transactions contemplated by this Agreement, Buyer agrees to use reasonable best efforts to cause its officers, employees, representatives and agents to hold all such Confidential Information in strict confidence and only to disclose such Confidential Information to such duly authorized persons as are necessary to effect the transactions contemplated hereby, and, if requested, to return all originals and copies of any such written Confidential Information to Seller or Paracelsus in the event for any reason the sale of the Assets is not consummated. Nothing in this Section shall prohibit the use of such Confidential Information for such governmental filings as are required by law or governmental regulations or the disclosure of such Confidential Information if such disclosure is compelled by judicial or administrative process or, in the opinion of Buyer's counsel, other requirements of law. Subject to Paracelsus' disclosure obligations under federal securities laws, any release to the public of information with respect to the transactions contemplated hereby will be made only in the form and manner approved by the parties and their respective representatives. Buyer agrees that it will not use, and will not knowingly permit others to use, any Confidential Information in a manner detrimental to the Business, Paracelsus or Seller or to their competitive disadvantage. Buyer , its officers, employees and agents recognize that any breach of this Section would result in irreparable harm to Seller and Paracelsus and that therefore either Seller or Paracelsus shall be entitled to an injunction to prohibit any such breach by Buyer and its officers, employees and agents in addition to all of their other legal and equitable remedies. For the purposes hereof, "CONFIDENTIAL INFORMATION" shall mean all information of any kind concerning Paracelsus or Seller obtained, directly or indirectly, from Paracelsus or Seller in connection with the transactions contemplated by this Agreement except information (i) ascertainable or obtained from public or published information, (ii) received from a third party not known by Buyer to be under an obligation to keep such information confidential, (iii) which is or becomes known to the public (other than through a breach of this Agreement), or (iv) which was in Buyer's possession prior to disclosure thereof to Buyer in connection herewith. 12.10 WAIVER. The waiver by either party of a breach or violation of any term or provision of this Agreement shall not operate as, or be construed to be, a waiver of any subsequent breach of the same provision by any party or of the breach of any other term or provision of this Agreement. The delay or a failure of a party to transmit any written notice hereunder shall not constitute a waiver by such party of any default hereunder or of any other or further default under this Agreement except as may expressly be provided for by the terms of this Agreement. 12.11 TAX ALLOCATION. The allocation of the Purchase Price for tax purposes shall be set forth in a statement prepared in accordance with Section 1060 of the Internal Revenue Code of 1986, as amended, which statement shall be prepared in a manner generally consistent with the form of Internal Revenue Service Form 8594 and a manner consistent with the Purchase Price allocation provided under Section 1.4. Buyer and Seller shall cooperate in the preparation of such statement of allocation and each party hereto shall file a copy of such statement as, and if, required by applicable law. 12.12 INTERPRETATION. Each of the parties has agreed to the use of the particular language of the provisions of this Agreement including all attached Exhibits and Schedules and any questions of doubtful interpretation shall not be resolved by any rule or interpretation against the draftsman but rather in accordance with the fair meaning thereof, having due regard to the benefits and rights intended to be conferred upon the parties hereto and the limitations and restrictions upon such rights and benefits intended to be provided. Whenever any matter herein is represented, warranted or stated herein to be to the "KNOWLEDGE OF," to the "BEST KNOWLEDGE OF" or to the "BEST KNOWLEDGE AND BELIEF OF" Seller or Paracelsus, or words of similar import, such representation, warranty or statement shall mean all matters with respect to which (a) Seller has received written notice or (b) any of the following persons has knowledge or with reasonable inquiry under the circumstances would have knowledge: any director or officer of Seller, or any administrator, assistant administrator or controller at the Hospital. 12.13 NOTICE. Any notice, demand or communication required, permitted, or desired to be given hereunder shall be in writing and shall be deemed effectively given when personally delivered, when received by telegraphic or other electronic means (including telefax and telex) or overnight courier, or five days after being deposited in the United States mail, with postage prepaid, certified mail, return receipt requested, addressed as follows: Buyer: N.T. Enloe Memorial Hospital W. 5th Avenue & The Esplanade Chico, California 95926 Attention: Chief Executive Officer Seller: Paracelsus Healthcare Corporation 515 W. Greens Road, Suite 800 Houston, Texas 77067 Attention: President or to such other address, and to the attention of such other person or officer as any party may designate, with copies thereof to the respective counsel thereof as notified by such party. 12.14 SEVERABILITY. In the event any provision of this Agreement is held to be invalid, illegal or unenforceable for any reason and in any respect, such invalidity, illegality, or unenforceability shall in no event affect, prejudice or disturb the validity of the remainder of this Agreement, which shall be in full force and effect, enforceable in accordance with its terms, including, without limitation, those terms which contemplate or require the further agreements of the parties. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and still be legal, valid or enforceable. 12.15 GENDER AND NUMBER. Whenever the context of this Agreement requires, the gender of all words herein shall include the masculine, feminine and neuter, and the number of all words herein shall include the singular and plural. 12.16 DIVISIONS AND HEADINGS. The divisions of this Agreement into sections and subsections and the use of captions and headings in connection therewith are solely for convenience and shall have no legal effect in construing the provisions of this Agreement. 12.17 CONSENTED ASSIGNMENT. Anything contained herein to the contrary notwithstanding, this Agreement shall not constitute an agreement to assign any claim, right, contract, license, lease, commitment, sales order or purchase order if an attempted assignment thereof without the consent of another party thereto would constitute a breach thereof or in any material way affect the rights of Seller thereunder, unless such consent is obtained. If such consent is not obtained, or if an attempted assignment would be ineffective or would materially affect Seller's rights thereunder so that Buyer would not in fact receive all such rights, Seller shall cooperate in any reasonable arrangement designed to provide for Buyer during the Contract Period (as defined below) the benefit under any such claims, rights, contracts, licenses, leases, commitments, sales orders or purchase orders, including, without limitation, enforcement, at no out-of- pocket cost to Seller, of any and all rights of Seller against the other party or parties thereto arising out of the breach or cancellation by such other party or otherwise. To the extent that any claim, right, contract, license, lease, commitment, sales order or purchase order to be assigned to or acquired by Buyer pursuant to this Agreement also applies to facilities or operations other than those being sold pursuant hereto, then Seller also agrees that during the Contract Period, upon the written request of Buyer, it will use its reasonable best efforts to cause the services, property or other benefits provided or made available under such claim, right, contract, license, lease, commitment, sales order or purchase order to continue to be available to Buyer on terms and conditions substantially similar to those presently in effect. The term "CONTRACT PERIOD" shall mean with respect to any contract or other right the period beginning on the Closing Date and ending on the earlier of (a) the expiration of the term of the given contract or other right and (b) the third anniversary of the Closing Date. 12.18 SURVIVAL. The representations, warranties, covenants and agreements made by the parties herein shall survive the Closing; provided, however, that the representations and warranties made by the parties herein shall expire on the first anniversary of the Closing Date except with respect to matters for which Buyer has given notice of claim under Section 6.3, and except with respect to the representations and warranties set forth in Sections 3.1, 3.2, 3.10, 3.15, 3.16, 3.17, 3.19, 4.1, 4.2 and 4.3 (and the indemnities with respect thereto), which shall survive for the applicable statute of limitations periods (collectively, the "SURVIVAL PERIOD"). 12.19 ENTIRE AGREEMENT/AMENDMENT. Except for the Confidentiality Agreement between Paracelsus and Superior California Medical Center (now known as the System), dated June 16, 1997 (which Confidentiality Agreement will survive the execution and delivery of this Agreement), this Agreement supersedes all prior contracts, understandings and agreements, whether written or oral, and constitutes the entire agreement of the parties respecting the within subject matter and no party shall be entitled to benefits other than those specified herein. As between or among the parties, no oral statements or prior written material (other than the Confidentiality Agreement) not specifically included herein shall be of any force and effect; the parties specifically acknowledge that in entering into and executing this Agreement, the parties rely solely upon the representations and agreements contained in this Agreement and no others. No terms, conditions, warranties, or representations, other than those contained herein (or in the Confidentiality Agreement) and no amendments or modifications hereto, shall be binding unless made in writing and signed by the party to be charged. Without limiting the foregoing, this Asset Purchase Agreement for Chico Community Rehabilitation Hospital supersedes and replaces that certain Asset Purchase Agreement dated December 15, 1997 among Paracelsus, Seller, Buyer and System, with respect to the Business. 12.20 COUNTERPARTS. This Agreement may be executed in multiple originals or counterparts, each and all of which shall be deemed an original and all of which together shall constitute but one and the same instrument. 12.21 RISK OF LOSS. Notwithstanding any other provision hereof to the contrary, the risk of loss in respect of casualty to the Assets shall be borne by Seller through the time of Closing and by the Buyer thereafter. 12.22 PUBLIC ANNOUNCEMENT. Paracelsus and Seller, on one hand, and Buyer, on the other hand, mutually agree that, prior to the Closing, no party shall issue any press release or make any public announcement of the transaction which is the subject of this Agreement without the prior consent of each other party, except where a public announcement is required by law as reasonably determined by such party. Additionally, Paracelsus and Seller, on one hand, and Buyer on the other hand, each agrees that, prior to the Closing, it will not, and will cause its officers, directors, partners, employees, counselors and representatives not to, discuss any aspects of this Agreement with any third party (other than their respective representatives, lenders, prospective underwriters and counselors) without the prior written consent of the other party hereto. The next page of this Agreement is the signature page, which is page number "S-1." IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in multiple originals by their duly authorized officers and their corporate seals duly affixed hereto, all as of the day and year first above written. PARACELSUS HEALTHCARE CORPORATION By: Title: SELLER: CHICO COMMUNITY HOSPITAL, INC. By: Title: N.T. ENLOE MEMORIAL HOSPITAL By: Title: ENLOE HEALTH SYSTEM By: Title: FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT FOR CHICO COMMUNITY REHABILITATION HOSPITAL THIS FIRST AMENDMENT ("FIRST AMENDMENT") to the Asset Purchase Agreement for Chico Community Rehabilitation Hospital (the "AGREEMENT") is entered into as of the effective date set forth in Section 10 hereof, by and between PARACELSUS HEALTHCARE CORPORATION ("PARACELSUS"), a California corporation, CHICO COMMUNITY HOSPITAL, INC. ("CCH" and "SELLER"), a California corporation, and N.T. ENLOE MEMORIAL HOSPITAL ("BUYER"), a California nonprofit public benefit corporation, and ENLOE HEALTH SYSTEM ("SYSTEM"), a California nonprofit public benefit corporation. WHEREAS, Buyer, System, Seller and Paracelsus have entered into the Agreement dated as of December 15, 1997 for the purchase by Enloe of the Business of CRH (as defined in the Agreement); and WHEREAS, the Agreement contemplated that Seller would assign to Buyer at Closing all its interests in the Facility Lease (as defined in the Agreement); and WHEREAS, Buyer has entered into a Purchase and Sale Agreement with Finova Capital Corporation ("FINOVA"), the landlord under the Facility Lease, whereunder Buyer will purchase all of Finova's interest in the real and personal property comprising CRH, and the parties to the Facility Lease and related agreements and leases will terminate the Facility Lease and the related agreement and leases, all occurring concurrent with the Closing under the Agreement; and WHEREAS, Buyer and Seller wish to amend certain terms of the Agreement to reflect the purchase of the real and personal property as well as a later than anticipated closing of the Transaction. NOW THEREFORE, BUYER, SYSTEM, SELLER AND PARACELSUS AGREE AS FOLLOWS: 1. Recitals D and E are hereby amended in their entirety, as follows: D. WHEREAS, Paracelsus and CCH desire to sell to Buyer and Buyer desires to purchase substantially all of the assets, real and personal, tangible and intangible, used by CCH in the operation of CRH (collectively the "BUSINESS); E. WHEREAS, Enloe and Finova Capital Corporation ("FINOVA"), a Delaware corporation which owns all of the real property and a substantial amount of the personal property comprising CRH and leases such real and personal property to CCH, have entered into that certain Purchase and Sale Agreement (the "FINOVA AGREEMENT") whereunder Buyer will purchase all of Finova's interest in the real and personal property comprising CRH; it is the intent of the parties hereto that the closing on this Agreement shall be concurrent with the closing by the parties to the Finova Agreement; and 2. Section 1.1(a) of the Agreement is deleted in its entirety. 3. Section 1.1(d) of the Agreement is amended by deleting "including the Facility Lease," in the second line thereof. 4. Section 1.3(b) is amended by deleting "(v) the Facility Lease; and (vi)" and inserting "and (v)." 5. Section 2.1 of the Agreement is hereby amended in its entirety, as follows: 2.1 CLOSING. Subject to the conditions set forth in Articles 7 and 8 hereof, the consummation of the sale and purchase of the Assets contemplated by and described in this Agreement (the "CLOSING") shall take place in San Francisco, California, at the offices of Davis Wright Tremaine LLP or other agreed upon location, at 10:00 A.M. local time on such date as may be agreed by the parties, not to extend past June 30, 1998. The date on which the Closing occurs is referred to herein as the "CLOSING DATE." The Closing of the transactions shall be deemed to be effective as of 11:59 P.M. (California time) on the Closing Date or such other time which the parties may mutually designate in writing. The time at which the Closing shall be deemed to be effective is referred to herein as the "CUT-OFF POINT." 6. Section 2.2(a) is deleted in its entirety. 7. Section 3.7 is amended to read by deleting "and the lease from Bell Atlantic Tricon Leasing Corporation relating to CRH" in the final line thereof. 8. Sections 7.5 and 7.6 are amended in their entirety to read as follows: 7.5 TERMINATION OF FACILITY LEASE AND RELATED AGREEMENTS. Effective the Closing Date, the respective parties to the leases and agreements set forth below have terminated all such leases and agreements on terms acceptable to Buyer and the parties thereto, which terms shall include without limitation (i) the agreement and acknowledgment by the parties that Buyer shall have no liability whatsoever related to any claim, dispute, default or other matter arising out of the performance of the parties to such leases and agreements prior to the termination date thereof; (ii) that no party to the termination agreements shall have recourse against Buyer or the real or personal property which are the subjects of the leases and agreements arising out of any claim, dispute, default or other matter arising out of the performance of the parties to such leases and agreements prior to the termination date thereof; and (iii) there has been no assignment of the rights and/or obligations of any parties to each terminated lease or agreement. The leases and agreements to be terminated shall include the following: (a) The Facility Lease dated June 7, 1991, as amended December 20, 1991 and June 30, 1994 by and between CCH, as assignee of Chico Rehabilitation Hospital, Inc. ("CRHI"), and Finova, as successor in interest to Bell Atlantic Tricon Leasing Corporation ("BATLC"). (b) The following agreements between CCH and Finova, each of which CCH has assumed from CRHI and Finova has succeeded to the interest therein of BATLC: (i) Memorandum of Lease and Grant of Option for North Valley Rehabilitation Hospital, dated June 7, 1991; (ii) Tax Indemnity Agreement, dated as of June 7, 1991 and amended on December 20, 1991; (iii) Equipment Lease No. 2911 dated December 27, 1990, as amended by Amendment One dated December 27, 1990, Amendment Two dated December 27, 1990 and Amendment Three dated March 28, 1991; (iv) Subordination and Continuous Ownership Agreement, dated June 7, 1991; (v) Security Agreement and Assignment, dated June 7, 1991; and (vi) the Financing Statements identified on Schedule A hereto. (c) The following agreements entered into by Paracelus, as assignee of Continental Medical Systems, Inc., a Delaware corporation ("CMS") with or for the benefit of Finova, each of which Finova has succeeded to the interest therein of BATLC: (i) the Tax Indemnity Agreement, dated as of June 7, 1991 and amended on December 20, 1991; (ii) the Subordination and Continuous Ownership Agreement, dated June 7, 1991; (iii) Guaranty Agreement, dated June 7, 1991; and (iv) Guaranty, dated December 29, 1990 (guaranteeing the obligations of CCH under the Equipment Lease). d. The Memorandum of Repurchase Option whereunder Paracelsus, and CCH granted an option to CRHI, CMS and any majority-owned subsidiary of CMS to repurchase CRH. 7.6 CLOSING OF THE FINOVA AGREEMENT. The parties to the Finova Agreement have closed the transaction contemplated therein concurrent with the Closing. 9. Section 8 is amended by adding new Sections 8.7 and 8.8 as follows: 8.7 TERMINATION OF FACILITY LEASE AND RELATED AGREEMENTS. Effective the Closing Date, the respective parties to the leases and agreements set forth in Section 7.5 have terminated all such leases and agreements on terms acceptable to Seller and the parties thereto. 8.8 CLOSING OF THE FINOVA AGREEMENT. The parties to the Finova Agreement have closed the transaction contemplated therein concurrent with the Closing. 10. Section 11.1(e) is of the Agreement is hereby amended in its entirety, as follows: (e) by either Buyer or Seller if the Closing has not occurred by June 30, 1998, because a condition to the terminating party's obligation to close set forth, in respect of Buyer in Article 7, and, in respect of Seller and Paracelsus in Article 8, was not satisfied on such date, unless the date for Closing has been extended by the mutual agreement of the parties hereto. 11. The First Amendment shall be effective upon the execution by Enloe and Finova of the Finova Agreement. 12. Except as amended by this First Amendment, the Agreement is hereby ratified and confirmed by the parties and shall remain in full force and effect in accordance with its terms. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. PARACELSUS: PARACELSUS HEALTHCARE CORPORATION a California corporation By: Name: Its authorized agent By: Name: Its authorized agent SELLER: CHICO COMMUNITY HOSPITAL, INC. a California corporation By: Name: Its authorized agent By: Name: Its authorized agent BUYER: N.T. ENLOE MEMORIAL HOSPITAL a California nonprofit public benefit corporation By: Name: Its authorized agent By: Name: Its authorized agent SYSTEM: ENLOE HEALTH SYSTEM a California nonprofit public benefit corporation By: Name: Its authorized agent By: Name: Its authorized agent EX-10.69 4 AGREEMENT FOR PURCHASE AND SALE OF PARTNERSHIP INTERESTS by and between DAKOTA MEDICAL FOUNDATION AND PARACELSUS HEALTHCARE CORPORATION OF NORTH DAKOTA, INC. DATED AS OF JUNE 1, 1998 TABLE OF CONTENTS PAGE Section 1. Definitions 1 1.01. Definitions 1 1.02. Other Definitions 8 Section 2.Sale and Purchase 8 2.01. Sale and Purchase 8 2.02. Purchase Price 8 2.03. Method of Payment 8 2.04. Escrow 8 2.05. Full Payment 8 Section 3.Additional Covenants and Agreements 8 3.01. Effect on Prior Agreements 9 a. Prior Agreements 9 b. Survival of Representations 9 c. Rights Not Affected By Knowledge 9 3.02. Specific Actions on Prior Agreements 10 a. Partnership Agreement 10 b. Contribution Agreement 10 c. Operating Agreement 10 3.03 Exercise of Put Right 10 3.04 Effect on Partnership 10 a. Dissolution 10 b. Winding Up 11 c. Termination 12 3.05. Tax Matters 12 3.06. Disclaimer of Fiduciary Obligations 12 3.07. Resignation of Positions with Partnership 12 3.08. Maintain Existence & Preserve Proceeds 12 3.09. Mutual Releases 13 3.10. No Disparagement 13 3.11. Information for Tax Returns 14 3.12. Noncompetition & Nonsolicitation Covenants 14 a. Statement of Enforceability 14 b. Noncompetition Covenant 14 c. Nonsolicitation Covenant 15 d. Injunctive Remedy 15 e. Other Relief 16 f. Information 17 3.13. Maintenance of Insurance 17 3.14. Confidentiality of Records 17 Section 4.Representations and Warranties of Dakota about Dakota 18 4.01. Authorization of Transaction 18 4.02. Organization; Good Standing 18 4.03. Membership 19 4.04 No Subsidiaries or Affiliates 19 4.05. Litigation and Related Matters 19 4.06. Insurance Coverages 19 4.07. Financial Statements 19 4.08. No Undisclosed Liabilities 20 4.09. No Joint Partner Liabilities 20 4.10. Compliance with Prior Agreements 20 4.11. Compliance with Legal Requirements 20 4.12. Good Title to Dakota Partnership Interest 20 4.13. No Conflict; Effect of Agreement 20 4.14. Taxes 22 4.15. Solvency 22 4.16. No Other Agreements 22 4.17. No Broker's Fee 23 4.18. No Consents Required 23 4.19. Statements True and Correct 23 Section 5.Mutual Representations and Warranties about Partnership 23 5.01. Organization; Good Standing 23 5.02. Capitalization 23 5.03. Full and Complete Information 23 5.04. Compliance with Prior Agreements 23 Section 6.Representations and Warranties of Paracelsus ND 24 6.01. Authorization of Transaction 24 6.02. Organization; Good Standing 24 6.03. Insurance Coverages 25 6.04. Financial Statements 25 6.05. No Undisclosed Liabilities 25 6.06. No Joint Partner Liabilities 26 6.07. Compliance With Prior Agreements 26 6.08. Compliance With Legal Requirements 26 6.09. No Conflict, Effect of Agreement 26 6.10. Taxes 27 6.11. Solvency 28 6.12. No Other Agreements, No Liens 28 6.13. No Broker's Fee 28 6.14. No Consents Required 28 6.15. Statements True and Correct 29 6.16. Operation of Partnership 29 Section 7.Rights and Obligations Pending Closing 29 7.01. Confidential Information 29 7.02. Public Announcements 30 7.03. Access and Investigation 30 7.04. Maintenance of the Business of Partnership 31 7.05. Negative Covenant Paracelsus ND 31 7.06. Required Approvals; Governmental Authorizations 31 7.07. Best Efforts 31 7.08. Notification 31 7.09. No Negotiation 32 Section 8.Conditions Precedent to Paracelsus ND's Obligation to Close 32 8.01. Closing Certificate 32 a. Representations and Warranties of Dakota 32 b. Obligations of Dakota 32 8.02. Secretary's Certificate 33 8.03. Legal Matters 33 8.04. No Prohibition 33 8.05. Necessary Consents 33 8.06. No Claim Regarding Ownership or Sale Proceeds 33 8.07. Delivery of Documents 33 8.08. Legal Opinion 34 Section 9.Conditions Precedent to Dakota's Obligation to Close 34 9.01 Closing Certificate 34 . a. Representations and Warranties of Paracelsus ND 34 b. Obligations of Paracelsus ND 34 9.02. Secretary's Certificate 34 9.03. Payment of Purchaser Price 35 9.04. Delivery of Documents 35 9.05. Legal Opinions 35 Section 10.Deliveries at Closing; Post-Closing Further Assurances 35 10.01. Deliveries by Dakota 35 a. Corporate Documents and Certificates 35 b. Closing Certificate 35 c. Secretary's Certificate 35 d. Written Resignation 35 e. Escrow Agreement 35 f. Partnership Interest Assignment 35 g. Legal Opinion 36 h. Other Documents 36 10.02. Further Assurances by Dakota 36 10.03. Deliveries by Paracelsus ND 36 a. Corporate Documents and Certificates 36 b. Closing Certificate 36 c. Secretary's Certificate 36 d. Purchase Price 36 e. Escrow Agreement 36 f. PHC Guaranty Agreement 36 g. Legal Opinion 36 Section 11. Closing 37 11.01. Closing; Effective Time 37 a. Closing 37 b. Effective Time 37 Section 12. Termination 27 12.01. Grounds For Termination 28 12.02. Effect of Termination 28 Section 13. Tolling 38 13.01. Exercise of Tolling Right 38 13.02. Duration of Tolling Period 38 a. Litigation Intervention 38 b. Failure of Dakota to Close 39 13.03. Distributions During Tolling 39 13.04. Paracelsus ND's Rights Upon Tolling 39 13.05. Effect of Tolling 39 Section 14.Survival of Representations; Indemnification 39 14.01. Survival of Representations 39 a. Survival Period 39 b. Rights Not Affected by Knowledge 40 14.02 Survival of Indemnification Provisions in Prior Agreements 40 a. Contribution Agreement 40 b. Operating Agreement 40 14.03. Indemnification of Paracelsus ND 40 14.04. Indemnification of Dakota 41 14.05. Limitations on Liability 42 14.06. Thresholds 42 14.07. Effect of Taxes and Insurance 42 14.08. Escrow Fund Setoff Right; Notice 43 14.09. Procedure for Indemnification; Third Party Claims 43 14.10. Procedure for Indemnification; Other Claims 44 Section 15.Notice 45 15.01. Notices 45 Section 16.Miscellaneous 46 16.01. Transaction Costs and Expenses 46 16.02. Assignability; Binding Effect; Third Parties 46 16.03. Waiver 47 16.04. Severability 47 16.05. Further Assurances 47 16.06. Entire Agreement; Headings; Incorporation by Reference 47 16.07. Governing Law; Venue; Attorney's Fees 47 16.08. Multiple Counterparts 48 Signatures 49 SCHEDULES Schedule 3.12.b - Restricted Territory Dakota Disclosure Schedule Paracelsus ND Disclosure Schedule EXHIBITS Exhibit "A " - Form of Escrow Agreement Exhibit "B " - Form of PHC Guaranty Agreement Exhibit "C " - Form of Partnership Interest Assignment AGREEMENT FOR PURCHASE AND SALE OF PARTNERSHIP INTERESTS This Agreement for Purchase and Sale of Partnership Interests, dated as of June 1, 1998 (the "AGREEMENT"), is entered into by and between DAKOTA MEDICAL FOUNDATION, a North Dakota non-profit corporation (f/k/a Dakota Hospital) ("DAKOTA"), and PARACELSUS HEALTHCARE CORPORATION OF NORTH DAKOTA, INC., a North Dakota corporation (f/k/a Champion Healthcare Corporation of North Dakota, Inc.) ("PARACELSUS ND"). RECITALS WHEREAS, Dakota and Paracelsus ND previously entered into a partnership agreement forming a North Dakota general partnership on November 18, 1994 and thereafter entered into as of December 31,1994 the Partnership Agreement and the Partnership began doing business as Dakota Heartland Health System ("DHHS"); and WHEREAS, under the provisions of the Partnership Agreement, Dakota and Paracelsus ND each own fifty percent (50%) of the Partnership Interests; and WHEREAS, under Section 3.03(g) of the Partnership Agreement, Dakota has the right to require Paracelsus ND to purchase the Dakota Partnership Interest (the "PUT"), and by letter dated August 20, 1997 (the "PUT EXERCISE DATE"), Dakota gave Paracelsus ND notice that it was exercising the Put; and WHEREAS, in accordance with the Put, Paracelsus ND desires to purchase from Dakota, and Dakota desires to sell to Paracelsus ND, the Dakota Partnership Interest, upon the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, and covenants stated herein, and the other good and valuable consideration exchanged between the parties, the receipt and sufficiency of which is hereby acknowledged, the parties intending to be legally bound agree as follows: SECTION 1. DEFINITIONS 1.01. DEFINITIONS. As used herein, the following terms have the meanings specified or referred to in this section (unless specifically defined or the context clearly requires otherwise): "ACT" means the North Dakota Uniform Partnership Act, as amended and any corresponding provisions of succeeding law, and the regulations promulgated thereunder. "AFFILIATE" means, with respect to any Person, any other Person controlling, controlled by, or under common control with that first Person. For purposes of this definition, the terms "control" and "controlled by" and "under common control with" mean, (i) with respect to any corporation or other entity having voting shares or the equivalent and elected or appointed directors, managers, or other Persons performing similar functions, the ownership or power to vote more than 50% of shares or the equivalent having the power to vote in the election or appointment of directors, managers, or other Persons performing similar functions or the ability to direct its business affairs through Contract or otherwise, and (ii) with respect to any other Person, the ability to direct its business and affairs through Contract or otherwise. "AGREEMENT" has the meaning given that term in the opening paragraph hereof, as such may be amended from time to time. "AVAILABLE CASH" has the meaning given that term in Section 1.01 of the Partnership Agreement. "BUSINESS DAY" means any day other than a Saturday, a Sunday, or a holiday on which national banking associations in the State of North Dakota are closed. "CLOSING" has the meaning given that term in SECTION 11.01.A hereof. "CLOSING DATE" has the meaning given that term in SECTION 11.01.A hereof. "CONFIDENTIAL INFORMATION" has the meaning given that term in SECTION 7.01.A hereof. "CONSENT" means any approval, consent, ratification, waiver, or other authorization (including any Governmental Authorization). "CONTRACT" means any contract, agreement, obligation, promise, commitment, arrangement, document, instrument, or undertaking (whether written or oral, and whether express or implied) that is legally binding. "CONTRIBUTION AGREEMENT" means that certain Contribution Agreement, dated as of November 18, 1994, as amended, between Dakota, DHE II, Paracelsus ND, PHC/CHC, and the Partnership. "DAKOTA" has the meaning given that term in the opening paragraph hereof. "DAKOTA CLAIMS" has the meaning given that term in SECTION 14.03 hereof. "DAKOTA DISCLOSURE SCHEDULE" has the meaning given that term in the opening paragraph of SECTION 4 hereof. "DAKOTA FINANCIAL STATEMENTS" has the meaning given that term in SECTION 4.07 hereof. "DAKOTA INDEMNIFIED PARTIES" has the meaning given that term in SECTION 14.03 hereof. "DAKOTA INTERIM FINANCIAL STATEMENTS" has the meaning given that term in SECTION 4.07 hereof. "DAKOTA PARTNERSHIP INTEREST" means the entire Partnership Interest of Dakota. "DAKOTA PERMITTED CLAIM" has the meaning given that term in SECTION 14.05. "DAKOTA THRESHOLD" has the meaning given that term in SECTION 14.05. "DEFAULT CLOSING DATE" has the meaning given that term in SECTION 13.02. "DHE II" means Dakota Health Enterprises II, Inc., a North Dakota corporation. "DHHS" has the meaning given that term in the first recital paragraph hereof. "EFFECTIVE TIME" has the meaning given that term in SECTION 11.01.B hereof. "ESCROW AGENT" means Norwest Investment Services, Inc., and its successors and permitted assigns. "ESCROW AGREEMENT" means that certain Escrow Agreement, dated as of the Closing Date, between Paracelsus ND, Dakota, and the Escrow Agent, in substantially the form attached hereto as EXHIBIT "A ". "ESCROW FUND" has the meaning given that term in SECTION 2.03 hereof. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended and any corresponding provisions of succeeding law, and the regulations promulgated thereunder. "GAAP" means the generally accepted accounting principles in the United States, in effect from time to time. "GOVERNMENTAL AUTHORIZATION" means any approval, consent, license, permit, waiver, or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement. "GOVERNMENTAL BODY" means any (i) nation, state, county, city, town, village, district, or other jurisdiction of any nature, (ii) federal, state, local, municipal, foreign, or other government, (iii) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal), (iv) multi-national organization or body, or (v) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature. "GUARANTY AGREEMENT" means that certain Guaranty Agreement, dated December 21, 1994, as amended, between PHC/CHC, the Partnership, and Dakota. "HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended and any corresponding provisions of succeeding law, and the regulations promulgated thereunder. "INDEMNITEE" means a party seeking indemnification. "INDEMNITOR" means a party against whom a claim for indemnification is made. "IRC" means the Internal Revenue Code of 1986, as amended and any corresponding provisions of succeeding law, and the regulations promulgated thereunder. "KNOWLEDGE" with respect to: (i) an individual, is deemed to exist of a particular fact or other matter if, such individual is, or has at any time been, (y) actually aware of such fact or other matter, or (z) a prudent individual could be expected to discover or otherwise become aware of such fact or other matter in the course of conducting a reasonable inquiry about the existence of such fact or other matter; and (ii) any Person (other than an individual), is deemed to exist of a particular fact or other matter if, any individual who is serving, or who at any time has served, as a director, officer, partner, executor, or trustee of such Person (or in any similar capacity) has, or at any time had, knowledge (as defined in "(i)" above) of such fact or other matter. "LEGAL REQUIREMENT" means any federal, state, local, municipal, foreign, international, multi-national, or other administrative order, constitution, law, ordinance, principle of common law, regulation, statute, or treaty. "LIENS" means all mortgages, deeds of trust, claims, liens, judgments, security interests, pledges, leases, conditional sale contracts, rights of first refusal, options, charges, liabilities, debts, obligations, agreements, powers of attorney, limitations, reservations, restrictions, and other encumbrances or adverse claims of every kind and nature, including any restriction on use, voting, transfer, receipt of income, or exercise of any attribute of ownership. "LOSSES" has the meaning given that term in SECTION 14.02 hereof. "OPERATING AGREEMENT" means that certain Operating Agreement, dated December 21, 1994, as amended, between PHC/CHC, the Partnership, Dakota, and Paracelsus ND. "NEW CLOSING DATE" has the meaning given that term in SECTION 13.02. "ORDINARY COURSE OF BUSINESS" means an action taken by a Person that is: (i) consistent with the past practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person; (ii) not required to be authorized by the board of directors of such Person (or by any Person or group of Persons exercising similar authority), and is not required to be specifically authorized by the parent company, if any, of such Person; and (iii) similar in nature and magnitude to actions customarily taken, without any authorization by the board of directors (of by any Person or group of Persons exercising similar authority), in the ordinary course of the normal day-to-day operations of other Persons that are in the same line of business as such Person. "PARACELSUS ND" has the meaning given that term in the opening paragraph hereof. "PARACELSUS ND CLAIMS" has the meaning given that term in the last sentence of SECTION 14.02 hereof. "PARACELSUS ND DISCLOSURE SCHEDULE" has the meaning given that term in the opening paragraph of SECTION 6 hereof. "PARACELSUS ND INDEMNIFIED PARTIES" has the meaning given that term in SECTION 14.02 hereof. "PARACELSUS ND PERMITTED CLAIM" has the meaning given that term in SECTION 14.05. "PARACELSUS ND THRESHOLD" shall have the meaning given that term in SECTION 14.05. "PARTNERSHIP" means the North Dakota general partnership named Dakota/Champion Partnership formed pursuant to the Partnership Agreement and doing business as Dakota Heartland Health System. "PARTNERSHIP AGREEMENT" means that certain Amended and Restated Partnership Agreement of Dakota/Champion Partnership, dated as of December 21, 1994, as amended, between Dakota and Paracelsus ND. "PARTNERSHIP INTEREST" means the entire ownership interest of a partner in the Partnership, including, without limitation, rights to distributions (liquidating or otherwise), allocations, information, and to consent or approve. "PARTNERSHIP INTEREST ASSIGNMENT" means that certain Partnership Interest Assignment, dated as of the Closing Date, given by Dakota in favor of Paracelsus ND, in substantially the form attached hereto as EXHIBIT "C". "PERSON" includes any individual, partnership, joint venture, limited partnership, limited liability company, trust, estate, corporation (including a non-profit corporation), association, custodian, trustee, executor, administrator, or other entity or Governmental Body. "PHC" means Paracelsus Healthcare Corporation, a California corporation. "PHC/CHC" means PHC/CHC Holdings, Inc., a Delaware corporation (f/k/a Champion Healthcare Corporation). "PHC GUARANTY AGREEMENT" means that certain Guaranty Agreement, dated as of the Closing Date, between PHC and Dakota, in substantially the form attached hereto as EXHIBIT "B". "PRIME RATE" has the meaning given that term in SECTION 14.07 hereof. "PRIOR AGREEMENTS" has the meaning given that term in SECTION 3.01.A hereof. "PROCEEDING" means any action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator. "PROPOSED CLOSING DATE" has the meaning given that term in SECTION 13.02. "PURCHASE PRICE" has the meaning given that term in SECTION 2.02 hereof. "PUT" has the meaning given that term in the third recital paragraph hereof. "PUT CLOSING PERIOD" has the meaning given that term in SECTION 13.01 hereof. "PUT EXERCISE DATE" has the meaning given that term in the third recital paragraph hereof. "REPRESENTATIVES" means the members, directors, trustees, officers, employees, agents, financial advisers, accountants, and attorneys of a Person in such capacity. "RESTRICTED ACTIVITY" has the meaning given that term in SECTION 3.12.B hereof. "RESTRICTED CAPACITY" has the meaning given that term in SECTION 3.12.B hereof. "RESTRICTED PERIOD" has the meaning given that term in SECTION 3.12.B hereof. "RESTRICTED TERRITORY" has the meaning given that term in SECTION 3.12.B hereof. "RESTRICTIONS" has the meaning given that term in SECTION 3.12.E hereof. "SECURITIES ACT" means the Securities Act of 1933, as amended and any corresponding provisions of succeeding law, and the regulations promulgated thereunder. "SUBSIDIARY" means, with respect to any Person (the "OWNER"), any corporation or other Person of which securities or other interests having the power to elect a majority of that corporation's or other Person's board of directors or similar governing body, or otherwise having the power to direct the business and policies of that corporation or other Person (other than securities or other interests having such power only upon the happening of a contingency that has not occurred) are held by the Owner or one or more of its Subsidiaries. "TAX" or "TAXES" means any Governmental Body tax assessment, penalty, interest, fee, or other charge. "TAX RETURN" means any return (including an information return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax. "TOLLING DATE" has the meaning given that term in SECTION 13.01 hereof. "TOLLING NOTICE" has the meaning given that term in SECTION 13.01 hereof. "TOLLING NOTICE RESPONSE" has the meaning given that term in SECTION 13.02 hereof. "TOLLING PERIOD" has the meaning given that term in SECTION 13.02 hereof. "TOLLING PERIOD NOTICE" has the meaning given that term in SECTION 13.02 hereof. "TRANSACTION" means the sale and purchase of the Dakota Partnership Interest and performance of the other covenants and agreements described herein. "TRANSACTION DOCUMENTS" means this Agreement, the Escrow Agreement, the PHC Guaranty Agreement, the Partnership Interest Assignment, and the documents, instruments, exhibits, schedules, certificates, and lists referred to herein relating to each of the foregoing, as applicable to each of Paracelsus ND and Dakota. 1.02. OTHER DEFINITIONS. Other terms may be defined elsewhere herein and have the meanings so given to them. SECTION 2. SALE AND PURCHASE 2.01. SALE AND PURCHASE. Upon the terms and subject to the conditions set forth herein, at the Closing, Dakota agrees to sell, transfer, convey, assign and deliver to Paracelsus ND, free and clear of all Liens, and Paracelsus ND thereupon agrees to purchase and acquire from Dakota, the Dakota Partnership Interest. 2.02. PURCHASE PRICE. The total purchase price to be paid by Paracelsus ND for the Dakota Partnership Interest shall be SIXTY-FOUR MILLION FIVE HUNDRED TWENTY-EIGHT THOUSAND FOUR HUNDRED AND SIXTEEN DOLLARS ($64,528,416) (the "PURCHASE PRICE"). 2.03. METHOD OF PAYMENT. At the Closing, Paracelsus ND shall pay to Dakota the Purchase Price by wire transfer or delivery of other immediately available funds to the account or accounts designated by Dakota, less $6,450,000 (the "ESCROW FUND") which shall be wire transferred by Paracelsus ND to the Escrow Agent to be held, invested, and disbursed pursuant to the Escrow Agreement. 2.04. ESCROW. Dakota shall not be entitled to receive any portion of the Escrow Fund, except pursuant to the terms of the Escrow Agreement, and after deducting and offsetting all amounts permitted hereunder or thereunder. 2.05. FULL PAYMENT. The payment of the Purchase Price under SECTION 2.03 hereof shall be payment in full for the Dakota Partnership Interest and the other rights and privileges granted to Paracelsus ND hereunder. SECTION 3. ADDITIONAL COVENANTS AND AGREEMENTS Paracelsus ND and Dakota covenant and agree as follows: 3.01. EFFECT ON PRIOR AGREEMENTS. A. PRIOR AGREEMENTS. Paracelsus ND and Dakota acknowledge having previously entered into the Partnership Agreement, Contribution Agreement, and Operating Agreement (collectively, the "PRIOR AGREEMENTS"), and agree that the provisions of the Prior Agreements which specifically survive termination according to the provisions thereof shall continue in full force and effect both after the date hereof and the Closing Date in accordance with their respective provisions, except as specifically amended, modified, or terminated by this Agreement. Except as specifically set forth herein, neither this Agreement nor the amendment, modification, or termination of the Prior Agreements, or any provisions thereof, shall relieve or otherwise release any of the parties thereto from any failure to perform or other breach thereunder during the period such Prior Agreements were in effect. To the extent there is a conflict between the provisions of any of the Prior Agreements and the Transaction Documents, the provisions of the Transaction Documents shall govern. B. SURVIVAL OF REPRESENTATIONS. I. Paracelsus ND and Dakota each ratify and confirm that they have complied in all material respects with their respective covenants and agreements in the Prior Agreements. II. Notwithstanding the provisions of the Contribution Agreement, (i) Dakota agrees that its representations, warranties, covenants, and agreements in the following sections of the Contribution Agreement are extended and shall survive the Closing for a period of ten (10) years thereafter: Section 5.1 (Corporate Capacity), Section 5.3 (Corporate Powers, Etc.), Section 5.6 (Extraordinary Liabilities), Section 5.10 (Medicare Participation/Accreditation), Section 5.11 (Compliance with Law), Section 5.12 (Agreements and Commitments), Section 5.22 (Third Party Payor Cost Reports), and Section 5.27 (Full Disclosure); and (ii) Paracelsus ND agrees that its representations, warranties, covenants, and agreements in the following sections of the Contribution Agreement are extended and shall survive the Closing for a period of ten (10) years thereafter: Section 6.1 (Corporate Capacity), Section 6.2 (Corporate Powers, Etc.), Section 6.4 (Extraordinary Liabilities), Section 6.8 (Medicare Participation/Accreditation), Section 6.9 (Compliance with Law), Section 6.10 (Agreements and Commitments), Section 6.19 (Third Party Payor Cost Reports), and Section 6.24 (Full Disclosure). Neither party shall be deemed as making, as of the effective date hereof or as of the Closing Date, the representations, warranties, covenants, and agreements in the sections of the Contribution Agreement referenced in this SECTION 3.01.B.II. C. RIGHTS NOT AFFECTED BY KNOWLEDGE. Each party is entitled to and is deemed to have reasonably relied upon the representations, warranties, covenants, and agreements of the other party in the Prior Agreements. The right to indemnification and other remedies based upon such representations, warranties, covenants, and agreements will not be lost, waived, reduced, or otherwise affected by any investigation conducted with respect to, or any Knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of any of the Prior Agreements or any of the Transaction Documents on the Closing Date, with respect to the accuracy or inaccuracy of or compliance or failure to comply with, any such representation, warranty, covenant, or agreement. Further, no such right to indemnification and other remedies shall be affected by Paracelsus ND's belief that any such representation or warranty is or has been false or inaccurate, or that any such covenant or agreement is or has been breached. Further, the waiver of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or agreement, will not affect the right to indemnification or any other remedy based on such representations, warranties, covenants, or agreements. 3.02. SPECIFIC ACTIONS ON PRIOR AGREEMENTS. A. PARTNERSHIP AGREEMENT. Subject to SECTION 3.04 hereof, the Partnership Agreement shall continue in full force and effect until such time as the Partnership has terminated, at which time the Partnership Agreement shall also terminate. B. CONTRIBUTION AGREEMENT. Effective upon the Closing, Section 11.2 of the Contribution Agreement shall terminate, Section 11.1 of the Contribution Agreement shall be superseded in its entirety by SECTION 3.12 hereof, and, except as expressly amended by this Agreement, all other provisions of the Contribution Agreement shall remain in full force and effect. C. OPERATING AGREEMENT. Effective upon the Closing, the Operating Agreement shall terminate. 3.03. EXERCISE OF PUT RIGHT. Dakota acknowledges that it exercised the Put on the Put Exercise Date. 3.04. EFFECT ON PARTNERSHIP. A. DISSOLUTION. I. Paracelsus ND and Dakota agree that, effective upon the Closing, Dakota shall be deemed to have voluntarily withdrawn from the Partnership without any further action and the Partnership shall be dissolved by mutual agreement. Dakota agrees that, after the Closing, it (i) will not be a partner in the Partnership, (ii) shall have no power or authority with respect to the Partnership, and (iii) shall not hold itself out as, and shall affirmatively give notice to any Person who reasonably should be so informed, that it is no longer a partner in the Partnership. Paracelsus ND shall have the right to review and approve, in advance of being filed or given, any Statement of Disassociation under the Act or other filings or notices filed or given by Dakota. II. Dakota agrees that it shall have no right after the Closing to participate in or receive any portion of the Partnership's business, profits, losses, assets, capital, or distributions, or any other element of a Partnership Interest, but shall only have the right to receive payment of the Purchase Price and any other amounts specifically set forth herein. Dakota agrees that the Purchase Price is payment in complete liquidation and satisfaction of all rights and interests it has in the Partnership, including, but not limited to, the Dakota Partnership Interest. III. Except as may be limited by SECTION 13.05, Paracelsus shall within sixty (60) days after Closing determine whether as of Closing, there is Available Cash, and if there is Available Cash, distribute to Dakota its share thereof within five (5) days of such determination in accordance with the Partnership Agreement and provide Dakota with the accounting and financial statements upon which it relied when calculating the amount of the Available Cash. B. WINDING UP. I. Dakota agrees that Paracelsus ND shall have the sole power and authority over winding up the Partnership's business after Closing. Except as required in Paracelsus ND's discretion for winding up the Partnership's business, no further business shall be conducted by Paracelsus ND or Dakota in the name of or on behalf of the Partnership after the Closing. II. As the sole event of winding up the Partnership's business, Paracelsus ND shall promptly after the Closing assume and be assigned, delegated, and distributed all of the assets, capital, rights, liabilities, obligations, and business of the Partnership as it exists on the Closing Date. This provision shall not in any way limit the rights and obligations specifically set forth herein. III. Dakota agrees that, in the absence of fraud, it shall have no right to, and hereby waives, any right to an accounting or settlement of or right to compel liquidation of the Partnership following dissolution of the Partnership. IV. From and after the Closing, the parties shall not owe any duties or have any obligations or liabilities to each other with respect to the Partnership, in the process of winding up or otherwise, except as specifically set forth herein. V. Dakota agrees not to take any action that is inconsistent with, or not necessary to or appropriate for, winding up the Partnership's business in Paracelsus ND's discretion, and further agrees to take such actions and execute and deliver such documents as Paracelsus ND may reasonably request for winding up the Partnership's business and terminating the Partnership. C. TERMINATION. The Partnership shall terminate for all purposes when the winding up of its business has been completed by Paracelsus ND. 3.05. TAX MATTERS. The Partnership's items of income, gain, loss, and deduction shall be allocated to Paracelsus ND and Dakota for the Tax year that includes the Closing Date in accordance with Article V of the Partnership Agreement. Dakota shall not be allocated a share of any such Partnership items of income, gain, loss, or deduction for any subsequent year. The parties shall each timely file all required Tax Returns and reports relating to their Partnership Interests and the Transaction. 3.06. DISCLAIMER OF FIDUCIARY OBLIGATIONS. Dakota and Paracelsus ND agree that, with respect to this Transaction, each is an independent party. Each is an experienced and sophisticated business entity, and is relying on its own Representatives in determining to enter into and consummate the Transaction. The relationship between Dakota and Paracelsus ND as partners in the Partnership shall not create fiduciary obligations with respect to each other for the purposes of the Transaction. 3.07. RESIGNATION OF POSITIONS WITH PARTNERSHIP. At the Closing, Dakota shall tender to the Secretary of the Governing Board of the Partnership the written resignations of all its nominees or appointees to the Governing Board or other offices or positions with the Partnership, effective as of the Closing Date, from all offices and positions with the Partnership. 3.08. MAINTAIN EXISTENCE AND PRESERVE PROCEEDS. A. Dakota agrees to maintain and preserve: I. The corporate existence and good standing of Dakota under the applicable Legal Requirements of the State of North Dakota for a period of at least ten (10) years after the Closing Date; and II. The Escrow Fund (in the amounts as required from time-to-time under the Escrow Agreement), subject to the rights of Paracelsus ND under this Agreement and the Escrow Agreement; and III. The principal amount of the Purchase Price, less the Escrow Fund (in the amounts as required from time-to-time under the Escrow Agreement), for a period of at least nine (9) years after the Closing Date, subject only to distributions thereof required by North Dakota or Federal statute or regulation for it to maintain its tax exempt status as a private foundation described in
501(c)(3) and
509(a) of the IRC. B. Dakota further agrees not to intentionally, at any time, dissolve, liquidate, or take any other action, or fail to take any action, which would diminish the principal amount of the Purchase Price or the Escrow Fund as required to be maintained and preserved in accordance with SECTION 3.08.A hereof or otherwise adversely affect the rights of Paracelsus ND or any of the other Paracelsus Indemnified Parties under any of the Transaction Documents or Prior Agreements. 3.09. MUTUAL RELEASES. Except for those matters for which indemnification is specifically provided for herein, upon the Closing (i) Dakota irrevocably and unconditionally forever releases, discharges, and covenants not to sue Paracelsus ND, PHC/CHC, PHC, or the Partnership, or any of their respective successors, assigns, Affiliates, Subsidiaries, insurers, or Representatives, and (ii) Paracelsus ND irrevocably and unconditionally forever releases, discharges, and covenants not to sue Dakota, or any of it's successors, assigns, Affiliates (such term in this SECTION 3.09 shall not include the Dakota Clinic, Ltd., its owners or employees), Subsidiaries, insurers, or current or past Representatives, from and against any and all complaints, grievances, demands, obligations, promises, agreements, claims, damages, actions, causes of action, and costs and expenses (including, but not limited to, attorney and expert witness fees), of whatsoever kind or nature, whether known or unknown, asserted or not asserted, accruing or arising prior to or existing on the Closing Date which such party may have or claim to have against any of the foregoing released Persons regarding any and all matters between any of them; PROVIDED, HOWEVER, this section shall not release or otherwise apply to any of the liabilities or obligations set forth in, provided for, or created by this Agreement or any of the other Transaction Documents. In addition, except as otherwise permitted by this Agreement or required by applicable Legal Requirement, Paracelsus ND and Dakota each hereby covenant and agree that it shall not, with the intent of a claim or action being brought against the other, take any action to solicit, promote, facilitate, encourage, or assist any third party or any Governmental Body in bringing such a claim or action. 3.10. NO DISPARAGEMENT. During the Restricted Period: A. Dakota agrees, on behalf of itself and its Representatives while acting in such Person's capacity as a Representative, that any future statement or comment, whether written or oral, that any such Person may make about Dakota's relationship and dealings with Paracelsus ND, PHC/CHC, or PHC prior to the Closing Date, or the operations of the Partnership prior to the Closing Date, will not be of a derogatory nature and will not disparage, question, or impugn the reputation, business ability or acumen, or standing in the business community or in the community as a whole, of Paracelsus ND, PHC/CHC, PHC, or the Partnership, or any of the respective Representatives thereof, in such Person's capacity as a Representative; and B. Paracelsus ND agrees, on behalf of itself and its Representatives while acting in such Person's capacity as a Representative, that any future statement or comment, whether written or oral, that any such Person may make about Paracelsus ND's relationship and dealings with Dakota prior to the Closing Date, or the operations of the Partnership prior to the Closing Date, will not be of a derogatory nature and will not disparage, question, or impugn the reputation, business ability or acumen, or standing in the business community or in the community as a whole, of Dakota or any of the respective Representatives thereof, in such Person's capacity as a Representative; PROVIDED HOWEVER C. The restrictions in this SECTION 3.10 shall not place a limitation on either party or their Representatives in filing a court action, filing a response to any court action, filing court documents in furtherance of any court action or providing sworn statements or testimony directly related to a court action. 3.11. INFORMATION FOR TAX RETURNS. Dakota shall cooperate with Paracelsus ND and the Partnership after the Closing, by providing either or both of them, without any additional consideration, promptly upon request, such records and other information regarding the Partnership, as may reasonably be requested from time to time by either or both of them, in connection with the preparation or audit of federal, state and local income and other Tax returns, and audits, disputes, refund claims or litigation relating thereto. In such connection, and strictly for such purpose, Dakota will afford Representatives of Paracelsus ND and the Partnership access to books and records relating to the Partnership which are not acquired by Paracelsus ND hereunder or retained by the Partnership. 3.12. NONCOMPETITION AND NONSOLICITATION COVENANTS. For purposes of this SECTION 3.12 the term "Affiliate(s)" shall not include members of Dakota who are physicians, the Dakota Clinic, Ltd. or the employees of the Dakota Clinic, Ltd. The exclusion of physicians from the definition of Affiliate(s) in this SECTION 3.12 is not intended to allow Dakota to engage in any Restricted Activity with any such physician(s). A. STATEMENT OF ENFORCEABILITY. Dakota acknowledges that this SECTION 3.12 is entered into in conjunction with the sale of a partnership interest and upon or in anticipation of a dissolution of a partnership and, therefore, is fully enforceable as written under N.D.C.C
9-08-06(2) and other applicable Legal Requirements. Dakota further acknowledges that the provisions in this section are conditions precedent and material inducements to Paracelsus ND entering into this Agreement and consummating the Transaction. B. NONCOMPETITION COVENANT. Dakota agrees, for itself and its Affiliates, that during the period beginning on the Closing Date and continuing for a period of five (5) years thereafter (the "RESTRICTED PERIOD"), neither Dakota nor any of its Affiliates will, directly or indirectly, either as an employee, employer, independent contractor, consultant, agent, principal, owner, partner, shareholder, member, officer, director, or in any other individual or representative capacity (collectively, the "RESTRICTED CAPACITY"), own, manage, operate, consult with, control, engage in, loan money to, finance, guaranty the performance, obligation or indebtedness of, or otherwise fund or participate in any manner whatsoever in, (i) any healthcare facility (which shall include, without limitation, general acute care hospitals, speciality hospitals, comprehensive rehabilitation facilities, rehabilitation agencies, diagnostic imaging centers, ambulatory or other types of surgery centers and home health agencies, but shall exclude inpatient or outpatient psychiatric or substance abuse facilities), or (ii) any Person which directly or indirectly owns any healthcare facility, which provides either inpatient or outpatient acute care medical services that are on the date of this Agreement provided by the Partnership (collectively, the "RESTRICTED ACTIVITY"), that is located within the geographic area described in SCHEDULE 3.12.B hereto (the "RESTRICTED TERRITORY"), which is the primary and secondary service areas of the Partnership's hospitals; PROVIDED, HOWEVER, that Dakota or any of its Affiliates may invest in the securities of any enterprise (without otherwise participating in the activities of such enterprise) if (x) such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Exchange Act and are actively traded by the public, and (y) none of them beneficially owns (as defined by Rule 13d-3 promulgated under the Exchange Act) in excess of five percent (5%) of the outstanding equity or debt securities of such enterprise. This restriction does not prevent Dakota from carrying out during the Restricted Period its charitable mission in the healthcare industry by providing grants to worthy medical causes on an evenhanded basis provided that such grants are (i) not made to any Person, which if such Person were subject to this SECTION 3.12.B, would be in breach of the terms hereof by engaging in a Restricted Activity within the Restricted Territory, and (ii) based on an unmet community need and the result of such grant(s) would not negatively impact the business of Paracelsus ND in a disparate way from any other similar health care provider in the Restricted Territory. C. NONSOLICITATION COVENANT. Dakota agrees, for itself and its Affiliates, that it will not, at any time during the Restricted Period, directly or indirectly, (i) solicit any employee, independent contractor, or consultant of Paracelsus ND or the Partnership for the purpose of causing that employee, independent contractor, or consultant to terminate his employment or contractual relationship with Paracelsus ND or the Partnership, or (ii) take any deliberate action or engage in any course of conduct to divert or attempt to divert from Paracelsus ND or the Partnership any business, through any means, including, but not limited to, taking any deliberate action or engaging in any course of conduct to influence or attempt to influence any of the customers, patients, or physicians with which Paracelsus ND or the Partnership has done business during the term of the Partnership Agreement or this Agreement. D. INJUNCTIVE REMEDY. Dakota acknowledges that the foregoing restrictions in this SECTION 3.12 (collectively, the "RESTRICTIONS"), in view of the nature of the business in which each of Paracelsus ND and the Partnership is and has been engaged, are reasonable and necessary in order to protect their legitimate business interests, and that any violation thereof would result in immediate and irreparable injury to them, and Dakota therefore further acknowledges that, in the event it violates, or threatens to violate, any of such Restrictions, Paracelsus ND and the Partnership, or either of them, shall be entitled to obtain from any court of competent jurisdiction, without the posting of any bond or other security, preliminary and permanent injunctive relief as well as damages and an equitable accounting of all earnings, profits, and other benefits arising from such violation, which rights shall be cumulative and in addition to any other rights or remedies in law or equity to which they may be entitled. If Paracelsus ND notifies Dakota in writing that it believes Dakota has violated a Restriction and Dakota does not cure such violation within the time period specified in SECTION 3.12.E below, the Restricted Period shall be tolled from the date of notice until such alleged violation is cured to the reasonable satisfaction of Paracelsus ND. If any Restrictions, or any part thereof, are determined in any Proceeding to be invalid or unenforceable, the remainder of the Restrictions shall not thereby be affected and shall be given full effect without regard to the invalid provisions. If the Restrictions should be adjudged unreasonable in any Proceeding, then the reviewing Governmental Body or other Person shall have the power to reform the Restrictions to the extent reasonably necessary to make the Restrictions valid and enforceable and, in the modified form, such provisions shall then be enforceable and shall be enforced. E. OTHER RELIEF. In the event Paracelsus ND believes Dakota has breached or threatened to breach the provisions of this SECTION 3.12, before Paracelsus ND pursues any remedy or relief other than injunctive relief, Dakota shall have twenty (20) Business Days to cure such breach or threatened breach after the date on which it receives notice from Paracelsus ND of the alleged violation hereof. If Dakota cures the breach or threatened breach within such period, there shall be no breach or default of this section relating to that incident of prohibited conduct by Dakota. F. INFORMATION. If Paracelsus ND believes at any time during the Restricted Period that Dakota has breached or threatened to breach the provisions of this SECTION 3.12, Paracelsus ND may request that Dakota supply it with such information as Paracelsus ND reasonably determines is necessary to ascertain compliance with or breach of the provisions of this section. Paracelsus ND shall specifically request in writing the requested information. Dakota agrees to furnish the requested information to Paracelsus ND within a reasonable period of time under the circumstances (but, in any event, not to exceed ten (10) Business Days) after receiving the request; PROVIDED, HOWEVER, that Dakota shall not be required to furnish any requested information which is privileged, confidential, or proprietary, as determined in reasonable, good faith by Dakota. 3.13. MAINTENANCE OF INSURANCE. For a period of ten (10) years after the Closing Date, Paracelsus shall maintain insurance customary for the operation of a general acute care hospital with continuous coverage beginning on December 21, 1994, in amounts customary within the industry for hospitals similarly situated, with financially sound carriers, and consistent with its past practices. 3.14. CONFIDENTIALITY OF RECORDS. The parties acknowledge that Paracelsus ND will after the Closing be the custodian for all books, records, data, materials, policies, agreements and all other information in any medium whatsoever of the Dakota Assets, as defined in Section 2.1 of the Contribution Agreement (collectively, the "Records") to the extent the Records exist on the Closing Date. Except as permitted or required by this SECTION 3.14, Paracelsus ND hereby covenants and agrees that, for a period of ten (10) years after the Closing Date, Paracelsus ND shall maintain in full confidence and not disclose or allow disclosure of any Record or any other information it has acquired (whether written, visually, orally, electronically or otherwise) regarding the Dakota Assets during its operation of the Partnership (together with Records, the "Confidential Data"). Notwithstanding the preceding sentence, Confidential Data shall not include any documents, data or other information (i) received by Paracelsus ND from sources other than Dakota; (ii) made public or disclosed by any Person other than Paracelsus ND; (iii) currently existing in the public domain as of the date of the Closing; (iv) entered into the public domain after the Closing otherwise than through Paracelsus ND; (v) disclosed in any public document, report or filing; or (vi) created by Paracelsus ND or the Partnership during the term of the Partnership. Nothing in this SECTION 3.14 shall prevent Paracelsus ND from: (1) disclosing and using Confidential Data upon receipt of legal process, which shall without limitation include, civil, administrative or criminal subpoena, and requests for production or inspection of documents in any civil, administrative or criminal proceeding; (2) disclosing and using Confidential Data necessary to defend or pursue a claim by or against any third party in any Proceeding; (3) disclosing and using Confidential Data to refute or correct any statement or publication by a third party that is reasonably necessary to maintain the reputation, standing and goodwill of Paracelsus ND in the community; (4) using Confidential Data or disclosing Confidential Data to Representatives or medical staff of Paracelsus ND as necessary to the operation of Paracelsus ND in the normal and ordinary course of business or as required by any Legal Requirement. Paracelsus ND shall give Dakota prompt notice of its receipt of legal process requiring disclosure and use of Confidential Data or its need to disclose and use Confidential Data to defend or pursue a claim by or against any third party in any Proceeding, so that Dakota may seek an appropriate protective order, agreement of confidentiality, or other remedy to ensure the continued confidentiality of the Confidential Data. Notwithstanding the obligation in the preceding sentence, Paracelsus ND shall not be required to give such notice with respect to any legal process or claim which is normal and customary for a general acute care hospital and for which insurance coverage is generally applicable. In the event that such protective order, agreement of confidentiality or other remedy is not obtained, or Dakota waives compliance with this SECTION 3.14, Paracelsus ND or its Representative will furnish or use only the Confidential Data that is required or reasonably necessary. Except for (i) those matters for which indemnification is specifically provided for herein; and (ii) the exception provided for in "(1)" immediately above, in no event shall disclosure of any Record by Paracelsus ND in accordance with this SECTION 3.14 be used by Paracelsus ND separately or in concert or cooperation with a third party to pursue a claim against Dakota. Paracelsus ND acknowledges that the requirements regarding confidentiality of Confidential Data described in this SECTION 3.14, are reasonable and necessary in order to protect the legitimate business interests of Dakota, and that any violation thereof would result in immediate and irreparable injury to Dakota, and Paracelsus ND therefore further acknowledges that, in the event it violates, or threatens to violate, any of the requirements regarding confidentiality of Confidential Data described in this SECTION 3.14, Dakota shall be entitled to obtain from any court of competent jurisdiction, without the posting of any bond or other security, preliminary and permanent injunctive relief as well as damages and an equitable accounting of all earnings, profits, and other benefits arising from such violation, which rights shall be cumulative and in addition to any other rights or remedies in law or equity to which it may be entitled. SECTION 4. REPRESENTATIONS AND WARRANTIES OF DAKOTA ABOUT DAKOTA Dakota represents and warrants to Paracelsus ND that, except as disclosed on the disclosure schedule attached hereto, which shall be arranged in paragraphs corresponding to the numbered and lettered sections of this SECTION 4 and initialed by the parties (the "DAKOTA DISCLOSURE SCHEDULE"), each of the following statements is true and accurate on the date hereof and will be true and accurate in all respects on and as of the Closing Date: 4.01. AUTHORIZATION OF TRANSACTION. Dakota has the absolute and unrestricted full right, power, and authority to execute and deliver this Agreement and the other Transaction Documents to which it is a party and to perform its obligations under this Agreement and the other Transaction Documents to which it is a party. Each of this Agreement and the other Transaction Documents to which Dakota is a party constitutes the legal, valid, and binding obligation of Dakota, enforceable against Dakota in accordance with the respective terms thereof. The execution and delivery of this Agreement and the other Transaction Documents to which Dakota is a party, and the consummation of the Transaction, has been duly authorized and no other proceeding by Dakota is necessary with respect thereto. Dakota will take, or cause to be taken, all action necessary to consummate the Transaction. 4.02. ORGANIZATION; GOOD STANDING. Dakota is a non-profit corporation duly incorporated, validly existing, and in good standing under the applicable Legal Requirements of the State of North Dakota. Dakota has the full power and authority (corporate and otherwise) to own, lease, and operate all of the assets and properties it presently owns, leases, and operates, and to conduct business as it is presently being conducted by it. Dakota is duly qualified as a foreign corporation in all jurisdictions where the nature of its business requires it to be so qualified. Dakota has delivered to Paracelsus ND complete and accurate copies of its Articles of Incorporation and Bylaws, as amended and in effect on the Closing Date. Each officer and director of Dakota in office has been duly elected or appointed in full compliance with the Articles of Incorporation and Bylaws of Dakota and any applicable Legal Requirements. 4.03. MEMBERSHIP. All the members of Dakota are listed by name and address in Section 4.03 of the Dakota Disclosure Schedule. 4.04. NO SUBSIDIARIES OR AFFILIATES. Dakota has no Subsidiaries, except for the "Family House." Except for the Partnership, Dakota has no Affiliates (such term in this SECTION 4.04 shall not include the Dakota Clinic, Ltd.). 4.05. LITIGATION AND RELATED MATTERS. Dakota is not subject to any currently existing Proceeding by any Governmental Body, and there is no Proceeding against Dakota pending before any Governmental Body or before any private arbitration tribunal or, to its Knowledge, threatened against Dakota, either (a) involving any challenge to, or seeking damages or other relief in connection with, the Transaction, or (b) that may have the effect of preventing, delaying, making illegal, or otherwise interfering with the Transaction. Except as described in Section 4.05 of the Dakota Disclosure Schedule, Dakota has no Knowledge of the assertion of any Proceeding involving it by any Governmental Body or any Person or entity regarding any violation of any Legal Requirement. 4.06. INSURANCE COVERAGES. A. All insurance policies or other Contracts for the transfer or sharing of any risk under which Dakota has been covered at any time since January 1, 1995 are listed and briefly described in Section 4.06 of the Dakota Disclosure Schedule. All such insurance policies or other Contracts that are in full force and effect are so noted in Section 4.06 of the Dakota Disclosure Schedule, and Dakota is not in default under any of them. Dakota has delivered to Paracelsus ND true and accurate copies of all such insurance policies or other Contracts. Dakota has not been refused any insurance coverage which it has applied for or sought. B. All such insurance policies of Dakota are issued by an insurer that is financially sound. In the aggregate, such insurance policies and other Contracts provide adequate coverage for all the risks to which the assets and operations, including, but not limited to, the ownership of the Dakota Partnership Interest, are exposed. All such insurance policies and other Contracts will continue in full force and effect following the Closing. Dakota has given notice to its insurers of all claims that may be insured thereby. 4.07. FINANCIAL STATEMENTS. The audited financial statements, including an income statement, balance sheet, and statement of cash flows as of and for Dakota's fiscal year ending December 31, 1997, and an unaudited income statement and balance sheet (the "DAKOTA INTERIM FINANCIAL STATEMENTS") as of and for the three (3) months ended March 31, 1998 (collectively, the "DAKOTA FINANCIAL STATEMENTS"), and all other financial records, data, and information about Dakota furnished by, or at the direction of, Dakota to Paracelsus ND since January 1, 1995, fully and fairly present the financial condition of Dakota as of the dates and for the periods indicated, are complete and accurate in all material respects, and have been prepared in accordance with GAAP consistently applied throughout the periods involved, except for the absence of notes as to the Dakota Interim Financial Statements. Dakota has delivered to Paracelsus ND complete and accurate copies of the Dakota Financial Statements. 4.08. NO UNDISCLOSED LIABILITIES. Dakota has no actual Knowledge of any fact or circumstance regarding the business of the Partnership that occurred since December 21, 1994 that is not within the actual Knowledge of Paracelsus ND that could reasonably be expected to create a liability of the Partnership or itself. 4.09. NO JOINT PARTNER LIABILITIES. Since December 21, 1994 Dakota has neither taken nor failed to take any action which has resulted, or reasonably could be foreseen to result in, any liability or obligation to Paracelsus ND by virtue of Paracelsus ND having been a partner of Dakota in the Partnership on or prior to the Closing Date, that is not within the actual Knowledge of Paracelsus ND. 4.10. COMPLIANCE WITH PRIOR AGREEMENTS. Dakota has neither taken any action nor failed to take any action prohibited or required, as the case may be, under any of the Prior Agreements with respect to the business, assets, operations, or management of the Partnership. Each of the Prior Agreements (except for the provisions thereof which are amended, modified, or terminated by any of the Transaction Documents) are legal, valid, and binding obligations of Dakota or DHE II, as the case may be, enforceable against Dakota or DHE II, as the case may be, in accordance with the respective terms thereof. 4.11. COMPLIANCE WITH LEGAL REQUIREMENTS. A. To its Knowledge, Dakota has at all times since December 21, 1994, been in full compliance with each Legal Requirement that is or was applicable to it, the violation of which would have a material adverse effect on its financial condition. B. Since December 21, 1994, no event has occurred that (with or without the giving of notice or the lapse of time or both)(i) may constitute or result in a violation by Dakota of, or a failure on the part of Dakota to comply with, any Legal Requirement, or (ii) may give rise to any obligation on the part of Dakota to undertake, or to bear all or any portion of the cost of, any remedial action of any nature, that in either (i) or (ii) the result of which would have a material adverse effect on its financial condition. 4.12. GOOD TITLE TO DAKOTA PARTNERSHIP INTEREST. Dakota is the sole legal and beneficial owner and holder of the Dakota Partnership Interest and has good, marketable, and valuable title to such Dakota Partnership Interest free and clear of all Liens, and to its Knowledge has taken no action that has created a Lien on the Dakota Partnership Interest. 4.13. NO CONFLICT; EFFECT OF AGREEMENT. The execution, delivery, and performance of this Agreement and the other Transaction Documents and the consummation by Dakota of the Transaction and the compliance by Dakota with the applicable provisions of this Agreement and the other Transaction Documents to which it is a party does not and will not (with or without the giving of notice or the lapse of time or both): A. Except as specifically provided under the provisions of this Agreement or the other Transaction Documents, cause or result in a default under, or result in the modification or termination of, any Contract to which Dakota or the Partnership is a party or by which any of their respective assets are bound or subject; B. Result in the creation or imposition of any Lien upon the Dakota Partnership Interest or any asset of Dakota or the Partnership; C. Contravene, conflict with, or result in the violation of any provision of the Articles of Incorporation or Bylaws of Dakota or any resolution or written consent adopted by the directors or members of Dakota; D. Contravene, conflict with, or result in the violation of any provision of the Prior Agreements or any resolution or written consent adopted by the partners or Board of Governors of the Partnership; E. Except as specifically provided under the provisions of this Agreement or the other Transaction Documents, contravene, conflict with, or result in a violation of, or give any Governmental Body or other Person the right to challenge the Transaction or to exercise any remedy or obtain any relief under, any judgment, order, writ, injunction, decree, or Legal Requirement to which Dakota, the Dakota Partnership Interest, or the Partnership may be bound or subject; F. Contravene, conflict with, or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization that is held by Dakota or that otherwise relates to the business of, or any of the assets owned or used by, Dakota or the Partnership; G. Contravene, conflict with, or result in a violation or breach of any provision of, or give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Contract to which Dakota is a party, or Dakota, the Dakota Partnership Interest, or the Partnership may be bound or subject; H. Result in the imposition or creation of any Lien upon or with respect to any of the assets owned or used by Dakota or the Partnership; or I. violate any judgment, order, writ, injunction, or decree outstanding against Dakota or the Partnership. 4.14. TAXES. A. Dakota has filed, or caused to be filed, on a timely basis since becoming a partner in the Partnership, all Tax Returns that are or were required to be filed by or with respect to the Dakota Partnership Interest pursuant to any applicable Legal Requirement. Dakota has delivered, or made available, to Paracelsus ND copies of all such Tax Returns. B. Dakota is not delinquent in the payment of any Tax, and there is no Tax deficiency asserted against Dakota, and there is no unpaid assessment, proposal for additional Tax, deficiency, or delinquency in the payment of any Tax. There are no Tax Liens upon any property or assets of Dakota, nor does Dakota have notice of any event which could result in such a Lien. C. The Tax Returns of Dakota for calendar years after 1994 have not been audited by the Internal Revenue Service or any other Taxing authority, and there is no audit, investigation, or other proceeding relating to Tax pending or threatened against Dakota. Dakota has no Knowledge, and has not received any notice, of any circumstance that will likely result in an audit of the Tax Returns. All Tax Returns that have been filed by Dakota are true, correct, and complete. D. Dakota was granted federal Tax exempt status under Section 501(c)(3) of the IRC in May of 1962. Since that date, Dakota has complied with all Legal Requirements for obtaining and maintaining such federal Tax exempt status. 4.15. SOLVENCY. Dakota is neither now insolvent nor will it be rendered insolvent by the consummation of the Transaction. Furthermore, immediately after the Closing, (a) Dakota will be able to pay its current liabilities as they become due, (b) Dakota will not have unreasonably small capital and will not have insufficient capital with which to conduct its present or proposed business, and (c) taking into account pending and threatened litigation, final judgments against Dakota in actions for money damages are not reasonably anticipated to be rendered at a time when, or in amounts such that, Dakota will be unable to satisfy any such judgments promptly in accordance with their terms (taking into account the maximum probable amount of such judgments in any such actions and the earliest reasonable time at which such judgments might be rendered). The cash available to Dakota, after taking into account all other anticipated uses of such cash, will be sufficient to pay any such judgments promptly in accordance with their terms. As used in this section, (x) "INSOLVENT" means, for any Person, that the sum of the present fair saleable value of its assets does not and/or will not exceed its debts and other probable liabilities, and (y) the term "DEBTS" includes any legal liability, whether matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent, disputed or undisputed or secured or unsecured. 4.16. NO OTHER AGREEMENTS. Other than this Agreement, the other Transaction Documents, and the Prior Agreements, neither Dakota nor any of its Affiliates (such term in this SECTION 4.16 shall not include the Dakota Clinic, Ltd.) has any Contract with any of Paracelsus ND, CHC/PHC, or the Partnership, and there are no other liabilities or obligations owing by any of Paracelsus ND, PHC/CHC, or the Partnership, on the one hand, to Dakota or any of its Affiliates, on the other hand. To the extent there are any Contracts between Dakota or any of its Affiliates, on the one hand, and any of Paracelsus ND, CHC/PHC, or the Partnership, on the other hand (other than as pursuant to this Agreement or the other Transaction Documents or the Prior Agreements), each such Contract is listed and briefly described in Section 4.16 of the Dakota Disclosure Schedule. None of Paracelsus ND, PHC/CHC, or the Partnership is in breach or default of any of their respective obligations under any such listed Contract. Dakota has no Liens against any of Paracelsus ND, PHC/CHC, or the Partnership, or any of their respective assets. 4.17. NO BROKER'S FEE. Dakota has not incurred any obligation or liability for broker's or finder's fees or similar payments with respect to the Transaction. 4.18. NO CONSENTS REQUIRED. Except for any Consent required under the HSR Act, Dakota neither is nor will be required to give any notice to or obtain any Consent from any Governmental Body or other Person in connection with the execution and delivery of this Agreement or the consummation or performance of the Transaction. 4.19. STATEMENTS TRUE AND CORRECT. No representation or warranty of Dakota in this Agreement or the other Transaction Documents, and no statement or information in any certificates, lists, documents, schedules, or exhibits furnished by Dakota in connection with the Transaction, contains any untrue statement of material fact or omits to state a material fact necessary to make the statements herein or therein, in the light of the circumstances in which they were made, not false or misleading (with the foregoing being to the best of the Knowledge of Dakota with respect to underlying statements and information which are expressly so qualified). SECTION 5. MUTUAL REPRESENTATIONS AND WARRANTIES ABOUT PARTNERSHIP Each party represents and warrants to the other that each of the following statements is true and accurate on the date hereof and will be true and accurate in all respects on and as of the Closing Date: 5.01. ORGANIZATION; GOOD STANDING. The Partnership is a general partnership duly organized, validly existing, and in good standing under the laws of the State of North Dakota. The Partnership has the full power and authority (partnership and otherwise) to own, lease, and operate all of the assets and properties it presently owns, leases, and operates, and to conduct business as it is presently being conducted by it. The Partnership is duly qualified as a foreign general partnership in all jurisdictions where the nature of its business requires it to be so qualified. 5.02. CAPITALIZATION. The aggregate of one hundred percent (100%) of the Partnership Interests in the Partnership are legally and beneficially owned and held by Dakota and Paracelsus ND. The Dakota Partnership Interest equals fifty percent (50%) of the Partnership Interests. There are no other partners of the Partnership or other Persons with any ownership interest in the Partnership. There are no Contracts relating to the issuance, sale, or transfer of any ownership interests of the Partnership. None of the Partnership Interests was issued in violation of the Securities Act or any other Legal Requirement. Except as set forth in is audited balance sheet dated December 31, 1997, the Partnership does not own, or have any Contract to acquire, any equity securities or interests or other interests in any other Person. 5.03. FULL AND COMPLETE INFORMATION. Each party has full and complete access to all records and information about the Partnership. Each party has Knowledge of the past and present operations and financial condition of the Partnership. Each party has, since the formation of the Partnership been a partner and had representatives as officers and on the Governing Board of the Partnership. 5.04. COMPLIANCE WITH PRIOR AGREEMENTS. To each party's Knowledge, the Partnership and its business have been managed and operated in compliance with the Prior Agreements. SECTION 6. REPRESENTATIONS AND WARRANTIES OF PARACELSUS ND Paracelsus ND represents and warrants to Dakota that, except as disclosed on the disclosure schedule attached hereto, which shall be arranged in paragraphs corresponding to the numbered and lettered sections of this SECTION 6 and initialed by the parties (the "PARACELSUS ND DISCLOSURE SCHEDULE"), each of the following statements is true and accurate on the date of this Agreement and will be true and accurate in all respects on and as of the Closing Date: 6.01. AUTHORIZATION OF TRANSACTION. Paracelsus ND has the absolute and unrestricted full right, power, and authority to execute and deliver this Agreement and the other Transaction Documents to which it is a party and to perform its obligations under this Agreement and the other Transaction Documents to which it is a party. Each of this Agreement and the other Transaction Documents to which Paracelsus ND is a party constitutes the legal, valid, and binding obligation of Paracelsus ND, enforceable against Paracelsus ND in accordance with the respective terms thereof. The execution and delivery of this Agreement and the other Transaction Documents to which Paracelsus ND is a party, and the consummation of the Transaction, has been duly authorized and no other proceedings (corporate or otherwise) by Paracelsus ND is necessary with respect thereto. Paracelsus ND will take, or cause to be taken, all action (corporate or otherwise) necessary to consummate the Transaction. 6.02. ORGANIZATION; GOOD STANDING. Paracelsus ND is a corporation duly incorporated, validly existing, and in good standing under the laws of the State of North Dakota. Paracelsus ND has the full power and authority (corporate and otherwise) to own, lease, and operate all of the assets and properties it presently owns, leases, and operates, and to conduct business as it is presently being conducted by it. Paracelsus ND is duly qualified as a foreign corporation in all jurisdictions where the nature of its business requires it to be so qualified. Paracelsus ND has delivered to Dakota complete and accurate copies of its Articles of Incorporation and Bylaws, as amended and in effect on the Closing Date. Each officer and director of Paracelsus ND in office was duly elected or appointed in full compliance with the Articles of Incorporation and Bylaws of Paracelsus ND and any applicable Legal Requirements. 6.03. INSURANCE COVERAGES. A. All insurance policies or other Contracts for the transfer or sharing of any risk under which Paracelsus ND has been covered at any time since January 1, 1995 are listed and briefly described in Section 6.03 of the Paracelsus ND Disclosure Schedule. All such insurance policies or other Contracts that are in full force and effect are so noted in Section 6.03 of the Paracelsus ND Disclosure Schedule, and Paracelsus ND is not in default under any of them. Paracelsus ND has delivered to Dakota true and accurate copies of all such insurance policies or other Contracts. Paracelsus ND has not been refused any insurance coverage which it has applied for or sought. B. All such insurance policies of Paracelsus ND are issued by an insurer that is financially sound. In the aggregate, such insurance policies and other Contracts provide adequate coverage for all the risks to which its assets and operations are exposed. All such insurance policies and other Contracts will continue in full force and effect following the Closing. Paracelsus ND has given notice to its insurers of all claims that may be insured thereby. 6.04. FINANCIAL STATEMENTS. The audited financial statements, including an income statement, balance sheet, and statement of cash flows as of and for PHC's fiscal year ending December 31, 1997, and an unaudited income statement and balance sheet (the "PHC INTERIM FINANCIAL STATEMENTS") as of and for the three (3) months ended March 31, 1998 (collectively, the "PHC FINANCIAL STATEMENTS"), fully and fairly present the financial condition of PHC as of the dates and for the periods indicated, are complete and accurate in all material respects, and have been prepared in accordance with GAAP consistently applied throughout the periods involved, except for the PHC Interim Financial Statements, which meet the requirements of Regulation S-X under the Federal Securities Laws for interim financial statements. Paracelsus ND has delivered to Dakota complete and accurate copies of the PHC Financial Statements. 6.05. NO UNDISCLOSED LIABILITIES. Paracelsus ND has no actual Knowledge of any fact or circumstance regarding the business of the Partnership that occurred since December 21,1994 that is not within the actual Knowledge of Dakota that could reasonably be expected to create a liability of the Partnership or itself. 6.06. NO JOINT PARTNER LIABILITIES. Since December 21, 1994 Paracelsus ND has neither taken nor failed to take any action which has resulted, or reasonably could be foreseen to result in, any liability or obligation to Dakota by virtue of Dakota having been a partner of Paracelsus ND in the Partnership on or prior to the Closing Date, that is not within the actual Knowledge of Dakota. 6.07. COMPLIANCE WITH PRIOR AGREEMENTS. Paracelsus ND has neither taken any action nor failed to take any action prohibited or required, as the case may be, under any of the Prior Agreements with respect to the business, assets, operations, or management of the Partnership. Each of the Prior Agreements (except for the provisions thereof which are amended, modified, or terminated by any of the Transaction Documents) are legal, valid, and binding obligations of Paracelsus ND, enforceable against Paracelsus ND in accordance with the respective terms thereof. 6.08. COMPLIANCE WITH LEGAL REQUIREMENTS. A. To its Knowledge, Paracelsus ND has at all times since December 21, 1994 been in full compliance with each Legal Requirement that is or was applicable to it, the violation of which would have a material adverse effect on its financial condition. B. Since December 21,1994, no event has occurred that (with or without the giving of notice or the lapse of time or both) (i) may constitute or result in a violation by Paracelsus ND of, or a failure on the part of Paracelsus ND to comply with, any Legal Requirement, or (ii) may give rise to any obligation on the part of Paracelsus ND to undertake, or to bear all or any portion of the cost of, any remedial action of any nature, that in either (i) or (ii) the result of which would have a material adverse effect on its financial condition 6.09. NO CONFLICT; EFFECT OF AGREEMENT. The execution, delivery, and performance of this Agreement and the other Transaction Documents and the consummation by Paracelsus ND of the Transaction and the compliance by Paracelsus ND with the applicable provisions of this Agreement and the other Transaction Documents to which it is a party does not and will not (with or without the giving of notice or the lapse of time or both): A. Except as specifically provided under the provisions of this Agreement or the other Transaction Documents, cause or result in a default under, or result in the modification or termination of, any Contract to which Paracelsus ND or the Partnership is a party or by which any of their respective assets are bound or subject; B. Contravene, conflict with, or result in the violation of any provision of the Articles of Incorporation or Bylaws of Paracelsus ND or any resolution or written consent adopted by the board of directors of Paracelsus ND; C. Contravene, conflict with, or result in the violation of any provision of the Prior Agreements or any resolution or written consent adopted by the partners or Board of Governors of the Partnership; D. Except as specifically provided under the provisions of this Agreement or the other Transaction Documents, contravene, conflict with, or result in a violation of, or give any Governmental Body or other Person the right to challenge the Transaction or to exercise any remedy or obtain any relief under, any judgment, order, writ, injunction, decree, or Legal Requirement to which Paracelsus ND or the Partnership may be bound or subject; E. Contravene, conflict with, or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization that is held by Paracelsus ND or that otherwise relates to the business of, or any of the assets owned or used by, Paracelsus ND or the Partnership; F. Contravene, conflict with, or result in a violation or breach of any provision of, or give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Contract to which Paracelsus ND is a party, or Paracelsus ND or the Partnership may be bound or subject; G. Except for Liens resulting from the senior bank loan agreement of PHC, result in the imposition or creation of any Lien upon or with respect to any of the assets owned or used by Paracelsus ND or the Partnership; or H. Violate any judgment, order, writ, injunction, or decree outstanding against Paracelsus ND or the Partnership. 6.10. TAXES. A. Paracelsus ND has filed, or caused to be filed, on a timely basis since becoming a partner in the Partnership, all Tax Returns that are or were required to be filed by or with respect to its interest in the Partnership pursuant to any applicable Legal Requirement. B. Paracelsus ND is not delinquent in the payment of any Tax, and there is no Tax deficiency asserted against Paracelsus ND, and there is no unpaid assessment, proposal for additional Tax, deficiency, or delinquency in the payment of any Tax. There are no Tax Liens upon any property or assets of Paracelsus ND, nor does Paracelsus ND have notice of any event which could result in such a Lien. C. The Tax Returns filed by or with respect to the interest of Paracelsus ND in the Partnership for calendar years after 1994 have not been audited by the Internal Revenue Service or any other Taxing authority, and there is no audit, investigation, or other proceeding relating to Taxes pending or threatened against Paracelsus ND. Paracelsus ND has no Knowledge, and has not received any notice, of any circumstance that will likely result in an audit of the Tax Returns filed by or with respect to the interest of Paracelsus ND in the Partnership. All such Tax Returns that have been filed are true, correct, and complete. 6.11. SOLVENCY. Paracelsus ND is neither now insolvent nor will it be rendered insolvent by the consummation of the Transaction. Furthermore, immediately after the Closing, (a) Paracelsus ND will be able to pay its current liabilities as they become due, (b) Paracelsus ND will not have unreasonably small capital and will not have insufficient capital with which to conduct its present or proposed business, and (c) taking into account pending and threatened litigation, final judgments against Paracelsus ND in actions for money damages are not reasonably anticipated to be rendered at a time when, or in amounts such that, Paracelsus ND will be unable to satisfy any such judgments promptly in accordance with their terms (taking into account the maximum probable amount of such judgments in any such actions and the earliest reasonable time at which such judgments might be rendered). The cash available to Paracelsus ND, after taking into account all other anticipated uses of such cash, will be sufficient to pay any such judgments promptly in accordance with their terms. As used in this section, (x) "INSOLVENT" means, for any Person, that the sum of the present fair saleable value of its assets does not and/or will not exceed its debts and other probable liabilities, and (y) the term "DEBTS" includes any legal liability, whether matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent, disputed or undisputed or secured or unsecured. 6.12. NO OTHER AGREEMENTS, NO LIENS. Other than this Agreement, the other Transaction Documents, and the Prior Agreements, neither Paracelsus ND nor any of its Affiliates has any Contract with Dakota or the Partnership, and there are no other liabilities or obligations owing by Paracelsus ND or the Partnership (other than as distributions from the Partnership may be required), on the one hand, to Dakota or any of its Affiliates (such term in this SECTION 6.12 shall not include the Dakota Clinic, Ltd.), on the other hand. To the extent there are any Contracts between Dakota or any of its Affiliates, on the one hand, and any of Paracelsus ND, CHC/PHC, or the Partnership, on the other hand (other than as pursuant to this Agreement or the other Transaction Documents or the Prior Agreements), each such Contract is listed and briefly described in SECTION 6.12 of the Paracelsus ND Disclosure Schedule. Neither Dakota, nor the Partnership is in breach or default of any of their respective obligations under any such listed Contract. Paracelsus ND has no Liens against Dakota or the Partnership, or any of their respective assets. 6.13. NO BROKER'S FEE. Paracelsus ND has not incurred any obligation or liability for broker's or finder's fees or similar payments with respect to the Transaction. 6.14. NO CONSENTS REQUIRED. Except for any Consent required under the HSR Act and change of control filings and other routine filings resulting from the Transaction, Paracelsus ND neither is nor will be required to give any notice to or obtain any Consent from any Governmental Body or other Person in connection with the execution and delivery of this Agreement or the consummation or performance of the Transaction. 6.15. STATEMENTS TRUE AND CORRECT. No representation or warranty of Paracelsus ND in this Agreement or the other Transaction Documents, and no statement or information in any certificates, lists, documents, schedules, or exhibits furnished by Paracelsus ND in connection with the Transaction, contains any untrue statement of material fact or omits to state a material fact necessary to make the statements herein or therein, in the light of the circumstances in which they were made, not false or misleading (with the foregoing being to the best of the Knowledge of Paracelsus ND with respect to underlying statements and information which are expressly so qualified). 6.16. OPERATION OF PARTNERSHIP. The Partnership has been operated in accordance with the Operating Agreement; the annual financial statements of the Partnership fully and fairly present the financial condition of the Partnership as of the dates and for the periods indicated and are complete, accurate in all material respects, and have been prepared in accordance with GAAP consistently applied throughout the periods involved; full, complete and accurate operational and financial information of the Partnership that was material to the Governing Board has been provided to the Governing Board of the Partnership; except as to any actual Knowledge of Dakota, the Partnership has been operated in compliance with each Legal Requirement that is or was applicable to it; and the Partnership has maintained policies of insurance customary for the operation of a general acute care hospital, in amounts customary within the industry for hospitals similarly situated, and with financially sound carriers. SECTION 7. RIGHTS AND OBLIGATIONS PENDING CLOSING 7.01. CONFIDENTIAL INFORMATION. A. Prior to consummation of the Transaction or termination of this Agreement, the parties to this Agreement will be providing one another with or have access to information about each other and the Partnership which is protected, secret, non-public, or proprietary in nature (the "CONFIDENTIAL INFORMATION"). Each party agrees to hold confidential, to protect, and not to disclose the Confidential Information, except on a "need-to-know" basis to its Representatives, and that the Confidential Information will not, without the prior written consent of the other party, be disclosed to any other Person by such party or it Representatives. Each party shall be fully liable for any breach of this Agreement by its Representatives. Notwithstanding the foregoing, for the purposes of this section, Confidential Information shall not include information that, without violating this Agreement, (i) was known to such party prior to the disclosure by another party, (ii) is or becomes generally available to the public other than by violating this Agreement, or (iii) otherwise becomes lawfully available to a party to this Agreement on a nonconfidential basis from a third party who is not, to the best of the Knowledge of such party to this Agreement, under an obligation of confidence to the other party to this Agreement. If this Agreement is terminated prior to consummation of the Transaction, then each party shall return all documents and other material, whether or not confidential, provided to it pursuant to this Agreement by or on behalf of the other party to this Agreement. The foregoing obligations of confidentiality and nondisclosure shall be in effect for a period of three (3) years beyond such termination. During such period, no party shall use any of the Confidential Information received from a party to the detriment of any other party. B. In the event that a party, or anyone to whom it supplies the Confidential Information, receives a request to disclose all or any part of the Confidential Information under the terms of a subpoena or order issued by a Governmental Body, the party agrees (i) to notify the other party immediately of the existence, terms, and circumstances surrounding such request, (ii) to consult with the other party on the advisability of taking legally available steps to resist or narrow such request, and (iii) if disclosure of such Confidential Information is required to prevent a party from being held in contempt or subject to other penalty, to furnish only such portion of the Confidential Information as the disclosing party is legally compelled to disclose and to exercise its best efforts to obtain an order or other reliable assurance that confidential treatment will be accorded to the disclosed Confidential Information. 7.02. PUBLIC ANNOUNCEMENTS. Any public announcement or similar publicity with respect to this Agreement or the Transaction will be issued, if at all, at such time and in such manner as Paracelsus ND and Dakota mutually agree, or at such time as PHC may be required to disclose pursuant to law or stock exchange rules. Dakota and Paracelsus ND will consult with each other concerning the means by which the Partnership's employees, customers, patients, and suppliers and others having dealings with the Partnership will be informed, if at all, of the Transaction, and Paracelsus ND will have the right to review in advance any such written communication and to be present for any such oral communication. 7.03. ACCESS AND INVESTIGATION. Between the date hereof and the Closing Date, each of Dakota and Paracelsus ND will, to the fullest extent of its power and authority (i) afford the other party and its Representatives full and free access to their personnel, properties, Contracts, books and records, and other documents and data relating to the Partnership or their Partnership Interest, (ii) furnish the other party and its Representatives with copies of all such Contracts, books and records, and other existing documents and data as may reasonably be requested, and (iii) furnish the other party and its Representatives with such additional related financial, operating, and other data and information as may reasonably be requested. 7.04. MAINTENANCE OF THE BUSINESS OF PARTNERSHIP. Between the date hereof and the Closing Date, Dakota will, to the fullest extent of its power and authority: A. Comply with the Prior Agreements; and B. Use its best efforts to preserve intact the current business organization of the Partnership, keep available the services of the current officers, employees, and agents of the Partnership, and maintain the relations and goodwill with suppliers, customers, patients, landlords, creditors, employees, agents, and others having business relationships with the Partnership. 7.05. NEGATIVE COVENANT PARACELSUS ND. Except as otherwise expressly permitted by this Agreement, between the date hereof and the Closing Date, Paracelsus ND will not to the fullest extent of its power and authority, without the prior consent of Dakota, take any affirmative action, or fail to take any reasonable action within its control, as a result of which: A. it fails to comply with the Prior Agreements; or B. subject to its business judgement, fails to use its best efforts to preserve intact the current business organization of the Partnership, keep available the services of the current officers, employees, and agents of the Partnership, and maintain the relations and goodwill with suppliers, customers, patients, landlords, creditors, employees, agents, and others having business relationships with the Partnership. 7.06. REQUIRED APPROVALS; GOVERNMENTAL AUTHORIZATIONS. Dakota shall assist and cooperate with Paracelsus ND and its Representatives in (i) making all filings that Paracelsus ND elects to make or is required by Legal Requirements to be make in order to consummate the Transaction (including all filings under the HSR Act), and (ii) obtaining all Governmental Authorizations and Consents from any other Persons which are conditions precedent to the consummation of the Transaction or otherwise necessary or appropriate with respect to this Transaction (including taking all actions requested by Paracelsus ND to cause early termination of any applicable waiting period under the HSR Act). 7.07. BEST EFFORTS. Between the date hereof and the Closing Date, Dakota and Paracelsus ND will each use its best efforts to cause the conditions in SECTION 8 and SECTION 9 hereof to be satisfied. 7.08. NOTIFICATION. Between the date of this Agreement and the Closing Date, each party will promptly notify the other party if it becomes aware of any fact or condition that causes or constitutes a breach of the other party's representations and warranties as of the date of this Agreement, or if either party becomes aware of the occurrence after the date of this Agreement of any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute a breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. Should any such fact or condition require any change in the Dakota Disclosure Schedule or Paracelsus ND Disclosure Schedule, if such disclosure schedules were dated the date of the occurrence or discovery of any such fact or condition, the party required to make such disclosure will promptly deliver to the other party a supplement to the applicable Disclosure Schedule, specifying such change, any of which such supplements is subject to the approval of the non-supplementing party in its sole discretion. During the same period, each party will promptly notify the other party of the occurrence of any breach of any covenant or agreement of such party in this SECTION 7 or of the occurrence of any event that may make the satisfaction of the conditions in SECTION 8 and SECTION 9 hereof impossible or unlikely. 7.09. NO NEGOTIATION. Until such time, if any, as this Agreement is terminated, Dakota will not, directly or indirectly, solicit, initiate, or encourage any inquiries or proposals from, discuss or negotiate with, provide any non-public information to, or consider the merits of any unsolicited inquiries or proposals from, any Person (other than Paracelsus ND) relating to any transaction involving the sale of the Dakota Partnership Interest or the business or assets (other than in the Ordinary Course of Business) of the Partnership, or any of the Partnership Interests, or any merger, consolidation, business combination, or similar transaction involving the Partnership. SECTION 8. CONDITIONS PRECEDENT TO PARACELSUS ND'S OBLIGATION TO CLOSE The obligation of Paracelsus ND to close under this Agreement is subject to each of the following conditions (any of which may, in Paracelsus ND's discretion, be waived, in whole or in part) existing on the Closing Date or such other applicable date: 8.01. CLOSING CERTIFICATE. The President (or other authorized corporate officer) of Dakota shall have executed and delivered to Paracelsus ND a certificate dated as of the Closing Date certifying that: A. REPRESENTATIONS AND WARRANTIES OF DAKOTA. The representations and warranties made by Dakota in or pursuant to this Agreement or the other Transaction Documents are true and accurate in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made or given on and as of such date. In determining whether there has been a material misrepresentation or material adverse event, all occurrences and adverse events shall be aggregated to determine the applicability or breach of the provisions of this Agreement. B. OBLIGATIONS OF DAKOTA. Dakota has performed and complied in all material respects with all of its obligations under this Agreement and the other Transaction Documents which are to be performed or complied with by it prior to or on the Closing Date. 8.02. SECRETARY'S CERTIFICATE. Paracelsus ND shall have received a certificate of the Secretary (or other authorized corporate officer) of Dakota certifying as true, accurate, and complete, as of the Closing Date: (a) a copy of the resolutions of Dakota's board of directors authorizing the execution, delivery, and performance of this Agreement and the other Transaction Documents to which it is a party and the consummation by Dakota of the Transaction; (b) a copy of the resolutions of Dakota's members authorizing the exercise and consummation of the Put; (c) a certified copy of the Articles of Incorporation of Dakota issued by the Secretary of State of North Dakota; (d) a copy of the Bylaws of Dakota; and (e) the incumbency of the officer or officers authorized to execute on behalf of Dakota the Agreement and the other Transaction Documents to which it is a party. 8.03. LEGAL MATTERS. There must not have been commenced or threatened against Paracelsus ND, Dakota, the Partnership, or any of their respective Affiliates, any Proceeding (a) involving any challenge to, or seeking damages or other relief in connection with, the Transaction, or (b) that may have the effect of preventing, delaying, making illegal, or otherwise interfering with the Transaction. 8.04. NO PROHIBITION. Neither the consummation nor the performance of the Transaction will, directly or indirectly (with or without the giving of notice or the lapse of time or both), materially contravene, or conflict with, or result in a material violation of, or cause Paracelsus ND or any of its Affiliates to suffer any material adverse consequence under, (a) any applicable Legal Requirement or judgment, order, writ, injunction, or decree, or (b) any Legal Requirement or judgment, order, writ, injunction, or decree that has been published, introduced, or otherwise proposed by or before any Governmental Body. 8.05. NECESSARY CONSENTS. The Consent of all Persons necessary for the consummation of the Transaction shall have been granted and be in full force and effect, including, without limitation, the Consent of or required by or pursuant to, as the case may be the HSR Act. 8.06. NO CLAIM REGARDING OWNERSHIP OR SALE PROCEEDS. There must not have been made or threatened by any Person any claim asserting that such Person (a) is the holder or the beneficial owner of, or has the right to acquire or to obtain beneficial ownership of, the Dakota Partnership Interest or any Partnership Interests of, or any other voting, equity, or ownership interest in, the Partnership, or (b) is entitled to all or any portion of the Purchase Price payable for the Dakota Partnership Interest. 8.07. DELIVERY OF DOCUMENTS. Dakota shall have executed and delivered, or caused the execution and delivery, to Paracelsus ND the: documents required to be executed by Dakota and Dakota's legal counsel under SECTION 10.01. 8.08. LEGAL OPINION. Dakota shall have delivered to Paracelsus ND a legal opinion from Dakota's legal counsel, Dorsey & Whitney LLP, dated the Closing Date and in form and substance satisfactory to Paracelsus ND's legal counsel, to the effect that (a) Dakota is a nonprofit corporation duly incorporated, validly existing and in good standing with the laws of the State of North Dakota; (b) such counsel has no knowledge of the existence of any facts indicating that Dakota does not have full power and authority to convey, assign, transfer and deliver the Dakota Partnership Interest to Paracelsus ND as provided in this Agreement; (c) all corporate and other proceedings required to be taken by Dakota to authorize it to carry out this Agreement have been duly and properly taken; (d) this Agreement has been duly executed by Dakota and, except as may be limited by bankruptcy, insolvency or other similar laws affecting creditors generally, is a legal, valid and binding obligation of Dakota, enforceable in accordance with its terms; (e) the instruments delivered by Dakota at the closing are legal, valid and binding in accordance with their terms; and (f) Dakota is not a party to any action or proceeding before any Governmental Body that would have a material adverse impact on the Dakota Partnership Interest or the operation of the Partnership. In issuing such opinion, such counsel may refrain from opining about (i) the legality of the transaction contemplated by this Agreement under state or federal antitrust laws or (ii) whether this Agreement is equitably enforceable. 8.09. DELIVERY OF OTHER DOCUMENTS. Dakota shall have delivered, or caused to be delivered, all documents, instruments, exhibits, schedules, certificates, and lists required by this Agreement and the other Transaction Documents to be delivered or as requested by Paracelsus ND's legal counsel. SECTION 9. CONDITIONS PRECEDENT TO DAKOTA'S OBLIGATION TO CLOSE The obligation of Dakota to close on the Closing Date under this Agreement is subject to each of the following conditions (any of which may, in Dakota's discretion, be waived in writing) existing on the Closing Date or such other applicable date: 9.01. CLOSING CERTIFICATE. The President (or other authorized corporate officer) of Paracelsus ND shall have executed and delivered to Dakota a certificate dated as of the Closing Date certifying that: A. REPRESENTATIONS AND WARRANTIES OF PARACELSUS ND. The representations and warranties made by Paracelsus ND in or pursuant to this Agreement or the other Transaction Documents are true and accurate in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made or given on and as of such date. In determining whether there has been a material misrepresentation or material adverse event, all occurrences and adverse events shall be aggregated to determine the applicability or breach of the provisions of this Agreement. B. OBLIGATIONS OF PARACELSUS ND. Paracelsus ND has performed and complied in all material respects with all of its obligations under this Agreement and the other Transaction Documents which are to be performed or complied with by it prior to or on the Closing Date. 9.02. SECRETARY'S CERTIFICATE. Dakota shall have received a certificate of the Secretary (or other authorized corporate officer) of Paracelsus ND certifying as true, accurate, and complete, as of the Closing Date: (a) a copy of the resolutions of Paracelsus ND's board of directors authorizing the execution, delivery, and performance of this Agreement and the other Transaction Documents to which it is a party and the consummation by Paracelsus ND of the Transaction; (b) a certified copy of the Articles of Incorporation of Paracelsus ND issued by the Secretary of State of North Dakota; (c) a copy of the Bylaws of Paracelsus ND; and (d) the incumbency of the officer or officers authorized to execute on behalf of Paracelsus ND the Agreement and the other Transaction Documents to which it is a party. 9.03. PAYMENT OF PURCHASE PRICE. Paracelsus ND shall have delivered to Escrow Agent, on behalf of Dakota, the total sum of the Purchase Price. 9.04. DELIVERY OF DOCUMENTS. Paracelsus ND shall have executed and delivered, or caused the execution and delivery, to Dakota the documents required to be executed Paracelsus ND, PHC and Paracelsus ND's legal counsel under SECTION 10.03. 9.05. LEGAL OPINION. Paracelsus ND shall have delivered to Dakota a legal opinion from Paracelsus ND's legal counsel, Michener, Larimore, Swindle, Whitaker, Flowers, Sawyer, Reynolds & Chalk, L.L.P. ( which firm may rely to the extent it deems necessary on the opinions of Paracelsus ND's local North Dakota legal counsel, Gunhus, Grinnell, Klinger, Swenson & Guy, Ltd.), dated the Closing Date and in form and substance satisfactory to Dakota's legal counsel, to the effect that (a) Paracelsus ND is a business corporation duly incorporated, validly existing and in good standing with the laws of the State of North Dakota; (b) PHC is a business corporation duly incorporated, validly existing and in good standing with the laws of the State of California; (c) all corporate and other proceedings required to be taken by Paracelsus ND and PHC to authorize it to carry out this Agreement have been duly and properly taken, (d) this Agreement has been duly executed by Paracelsus ND and, except as may be limited by bankruptcy, insolvency or other similar laws affecting creditors generally, is a legal, valid and binding obligation of Paracelsus ND, enforceable in accordance with its terms; (e) the instruments delivered by Paracelsus ND at the closing are legal, valid and binding in accordance with their terms; and (f) Paracelsus ND is not a party to any action or proceeding before any Governmental Body that would have a material adverse impact on the operation of the Partnership. In issuing such opinion, such counsel may refrain from opining about (i) the legality of the transaction contemplated by this Agreement under state or federal antitrust laws or (ii) whether this Agreement is equitably enforceable. SECTION 10. DELIVERIES AT CLOSING; POST-CLOSING FURTHER ASSURANCES 10.01. DELIVERIES BY DAKOTA. Dakota shall deliver, or cause to be delivered, to Paracelsus ND or such other Person as required hereby, at the Closing: A. CORPORATE DOCUMENTS AND CERTIFICATES. I. A Certificate of Good Standing for Dakota issued by the Comptroller of the State of North Dakota dated within twenty (20) days prior to the Closing Date; and II. A Certificate of Existence for Dakota issued by the Secretary of the State of North Dakota dated within twenty (20) days prior to the Closing Date. B. CLOSING CERTIFICATE. The Closing Certificate of Dakota, as required by SECTION 8.01 hereof. C. SECRETARY'S CERTIFICATE. The Secretary's Certificate of Dakota, as required by SECTION 8.02 hereof. D. WRITTEN RESIGNATIONS. The written resignations of all Dakota's nominees or appointees to the Governing Board or other offices or positions with the Partnership, as required by SECTION 3.07 hereof. E. ESCROW AGREEMENT. The Escrow Agreement, as required by SECTION 2.03 hereof. F. PARTNERSHIP INTEREST ASSIGNMENT. The Partnership Interest Assignment. G. LEGAL OPINION. The legal opinion of Dakota's legal counsel, as required by SECTION 8.08 hereof. H. OTHER DOCUMENTS. Such other documents as Paracelsus ND may reasonably request. 10.02. FURTHER ASSURANCES BY DAKOTA. From time to time after the Closing, upon Paracelsus ND's request, Dakota agrees to execute and deliver such additional instruments of conveyance and transfer and take such further actions as may be required in conformity with this Agreement and the other Transaction Documents for the complete sale and transfer to Paracelsus ND of the Dakota Partnership Interest. 10.03. DELIVERIES BY PARACELSUS ND. Paracelsus ND shall deliver, or cause to be delivered, to Dakota, or such other Person as required hereby, at the Closing: A. CORPORATE DOCUMENTS AND CERTIFICATES. I. A Certificate of Good Standing for Paracelsus ND issued by the Comptroller of the State of North Dakota dated within twenty (20) days prior to the Closing Date; and II. A Certificate of Existence for Paracelsus ND issued by the Secretary of the State of North Dakota dated within twenty (20) days prior to the Closing Date. B. CLOSING CERTIFICATE. The Closing Certificate of Paracelsus ND, as required by SECTION 9.01 hereof. C. SECRETARY'S CERTIFICATE. The Secretary's Certificate of Paracelsus ND, as required by SECTION 9.02 hereof. D. PURCHASE PRICE. The Purchase Price, as required by SECTION 2.03 hereof. E. ESCROW AGREEMENT. The Escrow Agreement, as required by SECTION 2.03 hereof. F. PHC GUARANTY AGREEMENT. The PHC Guaranty Agreement. G. LEGAL OPINION. The legal opinion of Paracelsus ND's legal counsel, as required by SECTION 9.05 hereof. SECTION 11. CLOSING 11.01. CLOSING; EFFECTIVE TIME. A. CLOSING. Subject to the provisions for termination of this Agreement in SECTION 12 hereof, the closing for the consummation of the Transaction (the "CLOSING") shall take place at the offices of Dorsey & Whitney LLP, Dakota Center, Suite 402, 51 North Broadway, Fargo, North Dakota 58107, at 10:00 a.m., local time, on the later of (i) June 1, 1998, or (ii) the third Business Day after the termination of the applicable waiting period under the HSR Act, or on such other date mutually agreed upon in writing by Paracelsus ND and Dakota. The date on which the Closing actually occurs, whether on a date set forth in the preceding sentence or as such may be extended as permitted hereby, is referred to herein as the "CLOSING DATE". Subject to the provisions of SECTION 12 hereof, failure to consummate the Transaction on the date determined pursuant to this SECTION 11.01 will not result in the termination of this Agreement and will not relieve any party of any obligation hereunder. B. EFFECTIVE TIME. The Transaction shall be effective for Tax and accounting purposes as of 12:01 a.m. on the day immediately following the Closing Date (the "EFFECTIVE TIME"), unless otherwise mutually agreed upon in writing by Paracelsus ND and Dakota. SECTION 12. TERMINATION 12.01. GROUNDS FOR TERMINATION. This Agreement may, by notice given prior to or at the Closing, be terminated only: A. By Paracelsus ND if any of the conditions in SECTION 8 hereof have not been satisfied as of the Closing Date or if satisfaction of such conditions is or becomes impossible (other than through the failure of Paracelsus ND to comply with its obligations hereunder) and Paracelsus ND has not waived such conditions on or before the Closing Date; B. By Dakota with the consent of Paracelsus ND, or C. By Dakota if the condition in either SECTION 9.03 or SECTION 9.04 hereof is not satisfied on the Closing Date and all other conditions to Closing in SECTION 8 (to the extent any condition therein is not waived by Paracelsus ND) and SECTION 9 have been met on or before the Closing Date. 12.02. EFFECT OF TERMINATION. The right of termination under this SECTION 12 is in addition to any other rights a party may have under this Agreement or otherwise, and the exercise of a right of termination is not an election of remedies. If this Agreement is terminated pursuant to this section, all further obligations of the parties under this Agreement will terminate, except that the obligations in SECTION 3.04, SECTION 7.01, SECTION 13.04, and SECTION 16.01 hereof will survive; PROVIDED, HOWEVER, that if this Agreement is terminated by a party because of the breach of this Agreement by the other party, the terminating party's right to pursue all its legal rights and remedies will survive such termination unimpaired. SECTION 13. TOLLING 13.01. EXERCISE OF TOLLING RIGHT. If the Closing does not occur by August 7, 1998 (the "TOLLING DATE") for any of the following reasons: (a) there is in effect an order by a court of competent jurisdiction enjoining or otherwise prohibiting or materially limiting the consummation of the Put, or there exists pending, or there is overtly threatened (by any federal or state agency or department) litigation that seeks to prohibit or materially limit the consummation of the Put; (b) the applicable waiting period under the HSR Act has not expired or been terminated; or (c) at the date set for Closing or if no such date is set, the Tolling Date, Paracelsus ND is prepared to deliver those items specified in SECTION 10.03 hereof and at such time Dakota fails to deliver the items specified in SECTION 10.01 hereof, Paracelsus ND may, in its sole discretion, toll and suspend the running of the twelve (12) month period under SECTION 3.03(G) of the Partnership Agreement which commenced on the Put Exercise Date and during which it is required to complete its purchase of the Dakota Partnership Interest (the "PUT CLOSING PERIOD"). Paracelsus ND shall exercise such tolling right by giving written notice thereof to Dakota, including a statement of the ground or grounds relied upon for exercising its tolling right, within three (3) Business Days after the Tolling Date (the "TOLLING NOTICE"). 13.02. DURATION OF TOLLING PERIOD. A. LITIGATION INTERVENTION. If Paracelsus ND delivers a Tolling Notice to Dakota exercising the tolling right for the reasons described in either Section 13.01 (a) or (b), the Tolling Notice shall specify a certain Business Day in the future on which the Closing will occur (the "NEW CLOSING DATE") which New Closing Date shall in no event be later than one (1) year after the date of the Tolling Notice. The period of time from the date of Tolling Notice to the New Closing Date as provided for in this SECTION 13.02.A is referred to as the "TOLLING PERIOD". If the Closing does not occur on or before the New Closing Date, the Tolling Period expires, unless (i) the parties mutually agree in writing to extend the Tolling Period or (ii) the parties agree to submit to binding arbitration the issue of whether Paracelsus ND has a reasonable likelihood of being able to consummate the Closing within a reasonable period of time as determined by the arbitrator. If the matter is submitted to arbitration, the arbitrator's order shall specify the date upon which the Tolling Period will expire. Upon expiration of the Tolling Period (whether extended by arbitration or not), the Put Closing Period shall automatically expire and each party shall be free to exercise all of its rights under the Partnership Agreement. B. FAILURE OF DAKOTA TO CLOSE. If Paracelsus ND delivers a Tolling Notice to Dakota exercising the tolling right for the reasons described in SECTION 13.01 (C), within three (3) Business Days after receiving the Tolling Notice from Paracelsus ND, Dakota shall deliver to Paracelsus ND a written statement (the "TOLLING NOTICE RESPONSE") identifying in detail, (i) the specific cause of the Closing not occurring by the Tolling Date, and (ii) the next earliest Business Day after which such condition, obligation, or other matter, as the case may be, will be satisfied or performed and the Closing can occur (the "PROPOSED CLOSING DATE"). If Dakota fails to deliver the Tolling Notice Response, or in the Tolling Notice Response fails to specify the cause of delay in Closing or a Proposed Closing Date, Paracelsus ND shall, within three (3) Business Days after the date by which Dakota was to have provided the Tolling Notice Response, deliver to Dakota a written statement (the "TOLLING PERIOD NOTICE") identifying a Business Day in the future on which the Closing will occur (the "DEFAULT CLOSING DATE"). The Default Closing Date shall be set by Paracelsus ND, in its sole discretion, provided that such date is no earlier than the Proposed Closing Date ( if such a date is set) and no later than thirty (30) calendar days thereafter. The period of time from the date of Tolling Notice to either the Proposed Closing Date or the Default Closing Date, as provided for in this SECTION 13.02.B, is referred to as the "TOLLING PERIOD". If the Closing does not occur on the Proposed Closing Date or, on or prior to the Default Closing Date as determined above, Paracelsus may, at its discretion, extend the Tolling Period until such time as the Closing is consummated or a court of competent jurisdiction orders otherwise. 13.03. DISTRIBUTIONS DURING TOLLING. At all times during any Tolling Period, Paracelsus ND shall distribute Available Cash to Dakota in accordance with the terms of the Partnership Agreement. 13.04. PARACELSUS ND'S RIGHTS UPON TOLLING. If the grounds for the tolling under this SECTION 13 is SECTION 13.01(C), Paracelsus ND may, in its sole discretion, at any time thereafter, pursue any and all other rights and remedies it may have under this Agreement or otherwise. 13.05. EFFECT OF TOLLING. Except as otherwise specifically provided herein, Paracelsus ND's exercise of its tolling right under this SECTION 13 shall not affect the enforceability of any other provisions of the Prior Agreements. In the event the Tolling Period expires and the Transaction was not consummated during the Tolling Period, each party shall have all rights provided it under the Partnership Agreement. SECTION 14. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION 14.01. SURVIVAL OF REPRESENTATIONS. A. SURVIVAL PERIOD. Notwithstanding any investigation made by or on behalf of any party, all representations and warranties made by the parties in this Agreement shall survive the Closing and remain effective for a period of ten (10) years thereafter. B. RIGHTS NOT AFFECTED BY KNOWLEDGE. Each party is entitled to and is deemed to have reasonably relied upon the representations, warranties, covenants, and agreements of the other party in this Agreement. The right to indemnification and other remedies based upon such representations, warranties, covenants, and agreements will not be lost, waived, reduced, or otherwise affected by any investigation conducted with respect to, or any Knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of any of the Prior Agreements or any of the Transaction Documents or the Closing Date, with respect to the accuracy or inaccuracy of or compliance or failure to comply with, any such representation, warranty, covenant, or agreement. Further, no such right to indemnification and other remedies shall be affected by either party's belief that any such representation or warranty of the other party is or has been false or inaccurate, or that any such covenant or agreement is or has been breached. Further, the waiver of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or agreement, will not affect the right to indemnification or any other remedy based on such representations, warranties, covenants, or agreements. 14.02. SURVIVAL OF INDEMNIFICATION PROVISIONS IN PRIOR AGREEMENTS. A. CONTRIBUTION AGREEMENT. Notwithstanding the provisions of this Section 14, the parties hereby agree that the indemnification provisions in Article XIII of the Contribution Agreement shall survive the Closing and shall govern the indemnification of losses described therein for a period of ten (10) years after the Closing, at which time such provisions shall expire; provided however, that Section 13.3 of the Contribution Agreement regarding thresholds for indemnification is hereby amended and shall be superceded in its entirety by SECTION 14.06 of this Agreement. B. OPERATING AGREEMENT. Notwithstanding the provisions of this Section 14, the parties hereby agree that the indemnification provisions in Section 8.2 of the Operating Agreement shall survive the Closing and shall govern the indemnification of losses described therein for a period of ten (10) years after the Closing, at which time such provisions shall expire. 14.03. INDEMNIFICATION OF PARACELSUS ND. A. Subject to the provisions of this SECTION 14, Dakota agrees to indemnify, defend, and hold harmless Paracelsus ND, the Partnership and (but excluding Dakota, as applicable) their respective predecessors, successors, assigns, officers, directors, stockholders, employees, Subsidiaries, parents, Affiliates, partners, agents, attorneys, accountants, financial advisers and representatives (collectively, the "PARACELSUS ND INDEMNIFIED PARTIES"), against and in respect of any losses, damages (including incidental and consequential damages), deficiencies, diminutions in value, liabilities, actions, suits, proceedings, demands, assessments, judgments, fines, and reasonable costs and expenses (including, but not limited to, attorney and expert witness fees) (collectively, the "LOSSES"), arising or resulting, directly or indirectly, from or in connection with: i. Any material misrepresentation or other breach of any representation or warranty made by Dakota in this Agreement or in any of the other Transaction Documents (regardless of whether such has been waived by Paracelsus ND); ii. Any material failure to perform or other breach of any covenant, agreement, or obligation of Dakota in this Agreement or in any of the other Transaction Documents (regardless of whether such has been waived by Paracelsus ND); iii. Any grossly negligent act or omission or any act or omission in bad faith of any of the nominees or appointees of Dakota to the Governing Board of the Partnership or other offices or positions of the Partnership, or of any of the other Dakota Indemnified Parties (regardless of whether such has been waived by Paracelsus ND); or iv. Any matter disclosed in Section 4.05 of the Dakota Disclosure Schedule (regardless of whether such has been waived by Paracelsus ND); B. Subject to the provisions of this SECTION 14 and specifically the indemnification rights provided in SECTION 14.02 and SECTION 14.03.A, Dakota agrees to indemnify, defend, and hold harmless the Paracelsus ND Indemnified Parties against one-half ( 1/2 ) of any Losses to any of the Paracelsus ND Indemnified Parties arising or resulting, directly or indirectly, from the operation of the Partnership since December 21, 1994 and on or prior to the Closing Date; provided that such Loss was: i. Not caused by or within the Knowledge of PHC/CHC, Paracelsus ND, its Affiliates, employees, agents, or independent contractors under the Operating Agreement; or ii. Disclosed to the Governing Board of the Partnership during such period, and not caused as a result of Paracelsus ND's gross negligence or bad faith. The foregoing matters in this SECTION 14.03 giving rise to the rights of the Paracelsus ND Indemnified Parties to indemnification hereunder are referred to as the "PARACELSUS ND CLAIMS". 14.04. INDEMNIFICATION OF DAKOTA. Subject to the provisions of this SECTION 14, Paracelsus ND agrees to indemnify, defend, and hold harmless Dakota and (but excluding the Partnership) its predecessors, successors, assigns, officers, directors, stockholders, employees, Subsidiaries, parents, Affiliates (such term in this SECTION 14.04 shall exclude Dakota Clinic Ltd., its owners and employees), partners, agents, attorneys, accountants, financial advisers, and representatives (collectively, the "DAKOTA INDEMNIFIED PARTIES"), against and in respect of any Losses, arising or resulting, directly or indirectly, from or in connection with: A. Any material misrepresentation or other breach of any representation or warranty made by Paracelsus ND in this Agreement or in any of the other Transaction Documents (regardless of whether such has been waived by Dakota); B. Any material failure to perform or other breach by Paracelsus ND of any covenant, agreement, or obligation in this Agreement or in any of the other Transaction Documents (regardless of whether such has been waived by Dakota); C. Any action, inaction, or liability incurred after Closing (including any action, inaction, or liability related to winding up the Partnership by Paracelsus ND, regardless of whether such has been waived by Dakota); or D. Any grossly negligent act or omission or any act or omission in bad faith of any of the nominees or appointees of Paracelsus ND to the Governing Board of the Partnership or other offices or positions of the Partnership or of any of the other Paracelsus ND Indemnified Parties, excluding the Partnership (regardless of whether such has been waived by Dakota). The foregoing matters giving rise to the rights of the Dakota Indemnified Parties to indemnification hereunder are referred to as the "DAKOTA CLAIMS". 14.05. LIMITATIONS ON LIABILITY. Notwithstanding any other provision hereof, neither party shall be liable for any Losses under this SECTION 14 in excess of the Purchase Price. The obligations of both parties under this SECTION 14 shall terminate, except as to claims previously asserted, ten (10) years after the Closing. 14.06. THRESHOLDS. Neither the Paracelsus ND Indemnified Parties nor the Dakota Indemnified Parties shall have the right to indemnification under this SECTION 14 until their respective claims (without regard to the De minimis Threshold) in the aggregate exceed the sum of $650,000 (the "Indemnity Threshold"). Once the Indemnity Threshold has been reached as to a party such party shall have the right to indemnification, PROVIDED HOWEVER, neither the Paracelsus ND Indemnified Parties nor the Dakota Indemnified Parties shall have the right to indemnification under this SECTION 14 for any claim that does not exceed $25,000 (the "De minimis Threshold"). Notwithstanding the foregoing, the De minimis Threshold shall not apply to any claim resulting from a claim or other legal action brought by any Governmental Body or the appropriate fiscal intermediary of the Health Care Financing Administration either (i) alleging violations of the Medicare or Medicaid programs or (ii) relating to a false, inaccurate, or incomplete claim for reimbursement submitted to either such program. 14.07. EFFECT OF TAXES AND INSURANCE. The liability of an Indemnitor under this SECTION 14 shall be reduced by the Tax benefit actually realized and any insurance proceeds received by the Indemnitee as a result of any Losses upon which the claim for indemnification is based, and shall include any Tax detriment actually incurred by the Indemnitee as a result of such Losses. The amount of any such Tax benefit or detriment shall be determined by taking into account the effect, if any and to the extent then determinable, of timing differences resulting from the acceleration or deferral of items of gain or loss resulting from such Losses and shall otherwise be determined so that payment by the Indemnitor, as so adjusted, will make the Indemnitee as economically whole as reasonably possible. 14.08. ESCROW FUND SETOFF RIGHT; NOTICE. Upon notice to Dakota stating the basis therefor, any of the Paracelsus ND Indemnified Parties may, in their sole discretion, deduct, set off, and make a claim only for amounts resulting from a claim brought by any Governmental Body or the appropriate fiscal intermediary of the Health Care Financing Administration either (i) alleging violations of the Medicare or Medicaid programs, or (ii) relating to a false, inaccurate, or incomplete claim for reimbursement submitted to either such program to which they may be entitled under this SECTION 14 against and from the Escrow Fund or any other amounts owed to Dakota under this or any of the other Transaction Documents. Paracelsus ND shall give notice to Dakota (a) as promptly as reasonably possible of Paracelsus ND's becoming aware of the likelihood of its incurring Losses for which indemnification is provided for under this SECTION 14, and (b) within ten (10) business days following receipt by Paracelsus ND of any written notice from any governmental regulatory or examining body of the commencing of, or existence of, an investigation, audit or examination, the result of which could reasonably result in Paracelsus ND incurring Losses for which indemnification is provided for under this SECTION 14; provided however the failure to give such notice shall not restrict, diminish or limit Paracelsus ND's rights hereunder. The exercise of such right by any of the Paracelsus ND Indemnified Parties in good faith, whether or not ultimately determined to be justified, will not constitute a breach or default hereunder or thereunder, as the case may be. In the event the exercise of such right is ultimately determined not to be justified, then Paracelsus ND shall pay interest on such amount at the "Prime Rate" (as published in THE WALL STREET JOURNAL, as such Prime Rate may change from time to time) plus two percent (2%), during the period Paracelsus ND retained such amount. Neither the exercise of nor the failure to exercise such right will constitute an election of remedies or limit any of the Paracelsus ND Indemnified Parties in any manner in the enforcement of any other remedies that may be available to them. 14.09. PROCEDURE FOR INDEMNIFICATION; THIRD PARTY CLAIMS. A. After receipt by an Indemnitee under this SECTION 14 of notice of the commencement of any Proceeding against it, such Indemnitee shall, if a claim is to be made against an Indemnitor hereunder, promptly give notice to the Indemnitor of the commencement of such claim (including all documents and other information which the Indemnitee has with respect thereto), but the failure to notify the Indemnitor shall not relieve the Indemnitor of any liability that it may have to any Indemnitee, except to the extent that the Indemnitor demonstrates that the defense of such action is prejudiced by the Indemnitee's failure to give such notice. B. If any Proceeding referred to in the preceding subsection is brought against an Indemnitee and it gives notice to the Indemnitor of the commencement of such Proceeding, the Indemnitor will, be entitled to participate in such Proceeding and, to the extent that it wants (unless (i) the Indemnitor is also a party to such Proceeding and the Indemnitee determines in good faith that joint representation would be inappropriate, or (ii) the Indemnitor fails to provide reasonable assurance to the Indemnitee of its financial capacity to defend such Proceeding and provide indemnification with respect to such Proceeding) to assume the defense of such Proceeding with counsel satisfactory to the Indemnitee and, after notice from the Indemnitor to the Indemnitee of its election to assume the defense of such Proceeding, the Indemnitor will not, as long as it diligently conducts such defense, be liable to the Indemnitee under this SECTION 14 for any fees of other counsel or any other expenses with respect to the defense of such Proceeding, in each case subsequently incurred by the Indemnitee in connection with the defense of such Proceeding, other than reasonable and necessary costs of investigation. If the Indemnitor assumes the defense of a Proceeding, (i) it will be conclusively established for purposes of this Agreement that the claims made in that Proceeding are within the scope of and subject to indemnification under this SECTION 14; (ii) no compromise or settlement of such claims may be effected by the Indemnitor without the Indemnitee's consent unless (y) there is no finding or admission of any violation of Legal Requirements or any violation of the rights of any Person and no effect on any other claims that may be made against the Indemnitee, and (z) the sole relief provided is monetary damages that are paid in full by the Indemnitor, and (iii) the Indemnitee will have no liability with respect to any compromise or settlement of such claims effected without its consent. If notice is given to an Indemnitor of the commencement of any Proceeding and the Indemnitor does not, within ten (10) calendar days after the Indemnitee's notice is given, give notice to the Indemnitee of its election to assume the defense of such Proceeding, the Indemnitor will be bound by any determination made in such Proceeding or any compromise or settlement effected by the Indemnitee. C. Notwithstanding the foregoing, if an Indemnitee determines in good faith that there is a reasonable probability that a Proceeding may adversely affect it or its Affiliates (such term in this SECTION 14.09.C shall exclude Dakota Clinic Ltd, its owners and employees) , other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the Indemnitee may, by notice to the Indemnitor, assume the exclusive right to defend, compromise, or settle such Proceeding, but the Indemnitor will not be bound by any determination of a Proceeding so defended or any compromise or settlement effected without its consent (which may not be unreasonably withheld). 14.10. PROCEDURE FOR INDEMNIFICATION; OTHER CLAIMS. A claim for indemnification for any matter not involving a third-party claim covered by SECTION 14.09 may be asserted by the Indemnitee promptly giving notice to the Indemnitor requesting indemnification and stating in reasonable detail the nature of such matter and the amount of Losses claimed therefor. The Indemnitor shall have fifteen (15) calendar days after receiving such notice to respond. If the Indemnitor accepts responsibility or does not respond within such 15 day period, the Indemnitor shall pay the Indemnitee the full amount of the claim within ten (10) Business Days after responsibility therefor is so determined. If the Indemnitor rejects the claim for indemnification, and the dispute is not resolved by the Indemnitor and Indemnitee within fifteen (15) calendar days, either party may pursue any available remedy, in law or equity. If it is determined after any such Proceeding that the Indemnitor is liable for the claim, it shall pay the Indemnitee the full amount of the claim within ten (10) Business Days after responsibility therefor is so determined or as otherwise ruled in any such Proceeding. SECTION 15. NOTICE 15.01. NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be sufficiently given if personally delivered, mailed by certified or registered mail, return receipt requested, sent by Federal Express (or other guaranteed and receipted delivery service), or sent by facsimile transmission to the following addresses (or such other addresses as specified by written notice timely given to the other parties). TO PARACELSUS ND: Paracelsus Healthcare Corporation Attn: James G. VanDevender 515 West Greens Road, Suite 800 Houston, Texas 77067 Telephone: (281) 774-5115 Facsimile: (281) 774-5110 WITH A COPY (WHICH SHALL NOT CONSTITUTE NOTICE) TO: Michener, Larimore, Swindle, Whitaker, Flowers, Sawyer, Reynolds & Chalk, L.L.P. Attn: Wayne M. Whitaker 3500 City Center Tower II 301 Commerce Street Fort Worth, Texas 76102 Telephone: (817) 335-4417 Facsimile: (817) 335-6935 TO DAKOTA: Dakota Medical Foundation Attn: John L. Hicks, D.D.S. 1711 South University Drive Fargo, North Dakota 58109-7067 Telephone: (701) 280-4150 Facsimile: (701) 280-4552 WITH A COPY (WHICH SHALL NOT CONSTITUTE NOTICE) TO: Dorsey & Whitney LLP Attn: Forrest G. Burke Pillsbury Center South 220 South Sixth Street Minneapolis, Minnesota 55402-1498 Telephone: (612) 340-6321 Facsimile: (612) 340-8827 Any notice given in accordance with this section is effective three (3) Business Days after the date on which the same was delivered, deposited, or confirmed, as applicable for the notice procedure used. SECTION 16. MISCELLANEOUS 16.01. TRANSACTION COSTS AND EXPENSES. Except as specifically provided otherwise herein, each party hereunder shall be responsible for and pay its own costs and expenses, including fees of accountants, attorneys, and other advisors, incurred by it in connection with the Transaction; PROVIDED, HOWEVER, that if the Transaction is not consummated as a result of a breach of this Agreement by any party, such party shall be liable for expenses and costs incurred by the other party, together with all reasonable expenses and costs (including, but not limited to, attorney and expert witness fees) incurred by the other party in connection with enforcing its rights under this Agreement, notwithstanding the provisions of SECTION 12 hereof. Paracelsus ND shall pay all recording fees, documentary stamp Taxes, discretionary surtaxes and intangible Taxes for recording any deeds, assignments, or other instruments in connection with the Transaction. Each of Dakota and Paracelsus ND shall pay one-half ( 1/2 ) of the HSR Act filing fee, provided however in no event shall Dakota be required to pay more than $22,500 of the HSR Act filing fee. 16.02. ASSIGNABILITY; BINDING EFFECT; THIRD PARTIES. A. The rights and obligations of any party under this Agreement may not be assigned or delegated by any party without the prior written consent of the other party, which shall not be unreasonably withheld, except that Paracelsus ND may assign and delegate any of its rights and obligations to any Subsidiary or Affiliate or any successor in a merger, sale of substantially all of its assets, or other similar transaction. Subject to the preceding sentence, this Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. B. Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies arising from this Agreement on any Person other than the parties and their respective successors or assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third party to a party, nor shall any provision of this Agreement give any third party a right of subrogation or action against any party, except as otherwise set forth in this Agreement. 16.03. WAIVER. There can be no waiver of any term, provision, or condition of this Agreement which is not in writing signed by the party against whom the waiver is sought to be enforced. Waiver by any party of the default or breach of any provision of this Agreement by another shall not operate or be construed as a waiver of any subsequent default or breach. 16.04. SEVERABILITY. If any provision of this Agreement is held invalid or unenforceable in any Proceeding, it is the parties' intent that all other provisions of this Agreement shall remain fully valid, enforceable, and binding on the parties. 16.05. FURTHER ASSURANCES. The parties agree to take such further actions, including the execution and delivery of any documents, as may be required, necessary, or desirable for the performance of this Agreement. 16.06. ENTIRE AGREEMENT; HEADINGS; INCORPORATION BY REFERENCE. Except as otherwise provided herein with respect to the Prior Agreements, this Agreement together with the other Transaction Documents constitutes the entire agreement between the parties relating to the subject matter hereof, and supersedes all previous agreements, written or oral. This Agreement shall not be amended or modified except by an instrument in writing signed by all parties. Headings are for convenience of reference only and shall not affect the interpretation or construction of this Agreement. All documents, instruments, exhibits, and schedules referred to in this Agreement are incorporated by reference for all purposes. 16.07. GOVERNING LAW; VENUE; ATTORNEY'S FEES. A. Any dispute between the parties relating to this Agreement shall be construed under and in accordance with the laws of the State of North Dakota applicable to contracts between residents of North Dakota that are to be wholly performed within such state. B. The parties agree that the United States District Court for the District of North Dakota, Southeastern Division, and the state courts within Cass County, North Dakota shall have exclusive venue and jurisdiction of the same. C. The prevailing party in any litigation shall be entitled to recover from the other party reasonable attorney and expert witness fees, and court costs incurred in the same, in addition to any other relief that may be awarded. 16.08. MULTIPLE COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall constitute an original and all of which shall constitute one document; and furthermore, a facsimile signature hereon shall be deemed an original. [signatures on following page] - 1 - IN WITNESS WHEREOF, the parties have executed this Agreement and caused same to be duly delivered on their behalf on the day and year first written above. Paracelsus ND: Dakota: PARACELSUS HEALTHCARE DAKOTA MEDICAL FOUNDATION CORPORATION OF NORTH DAKOTA, INC. By: By: Name: Name: Title: Title: - 2 - Schedule 3.12.b RESTRICTED TERRITORY [to come] - 3 - DAKOTA DISCLOSURE SCHEDULE 4.01. AUTHORIZATION OF TRANSACTION. 4.02. ORGANIZATION; GOOD STANDING. 4.03. CAPITALIZATION. 4.04. NO SUBSIDIARIES OR AFFILIATES. 4.05. LITIGATION AND RELATED MATTERS. 4.06. INSURANCE COVERAGES. 4.07. FINANCIAL STATEMENTS. 4.08. NO UNDISCLOSED LIABILITIES. 4.09. JOINT PARTNER LIABILITIES. 4.10. COMPLIANCE WITH PRIOR AGREEMENTS. 4.11. COMPLIANCE WITH LEGAL REQUIREMENTS. 4.12. GOOD TITLE TO DAKOTA PARTNERSHIP INTEREST. 4.13. NO CONFLICT; EFFECT OF AGREEMENT. 4.14. TAXES. 4.15. SOLVENCY. 4.16. NO OTHER AGREEMENTS. 4.17. NO BROKER'S FEE. 4.18 NO CONSENTS REQUIRED. 4.19. STATEMENTS TRUE AND CORRECT. Initials: - 4 - Partnership Disclosure Schedule 5.01. ORGANIZATION; GOOD STANDING. 5.02. CAPITALIZATION. 5.03. FULL AND COMPLETE INFORMATION. 5.04. COMPLIANCE WITH PRIOR AGREEMENTS. 5.05. STATEMENTS TRUE AND CORRECT. Initials: - 5 - Paracelsus ND Disclosure Schedule 6.01. AUTHORIZATION OF TRANSACTION. 6.02. ORGANIZATION; GOOD STANDING. 6.03. NO CONSENTS REQUIRED. 6.04. STATEMENTS TRUE AND CORRECT. Initials: - 6 - EX-23 5 Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements pertaining to the Paracelsus Healthcare Corporation 1996 Stock Incentive Plan, as amended (Form S-8 No. 33-10299) and pertaining to various stock option plans of Paracelsus Healthcare Corporation (Form S-8 No. 33-12331) of our report dated February 16, 1996, with respect to the consolidated financial statements of Dakota Heartland Health System for the year ended December 31, 1995. /S/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP Houston, Texas July 10, 1998 -----END PRIVACY-ENHANCED MESSAGE-----