ASSET PURCHASE AGREEMENT
by and between
ARDENT HEALTHCARE ACQUISITION CORP., as Purchaser,
and
CARDINAL PEAK INDUSTRIES, INC., as Seller
Dated as of April 2, 2024
EXECUTION VERSION
PREAMBLE
This ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of April 2, 2024 (the "Agreement Date"), by and between:
ARDENT HEALTHCARE ACQUISITION CORP., a Delaware corporation ("Purchaser"), with its registered office c/o National Registered Services, Inc., 1209 Orange Street, Wilmington, Delaware 19801, and its principal business address at 590 Madison Avenue, 34th Floor, New York, New York 10022;
and
CARDINAL PEAK INDUSTRIES, INC., a Delaware corporation ("Seller"), with its principal offices located at 8400 Crescent Ridge Parkway, Suite 200, Nashville, Tennessee 37215.
Purchaser is a wholly owned subsidiary of Ardent Capital Partners III LP, a Delaware limited partnership ("Parent" or "Buyer Sponsor"), whose general partner is Ardent Capital Management LLC, a Delaware limited liability company. Purchaser was formed for the purpose of consummating the transactions contemplated by this Agreement.
Seller is engaged in the business of operating thirty-seven (37) outpatient rehabilitation and behavioral health facilities across seven (7) states, including the states of Tennessee, Georgia, North Carolina, South Carolina, Alabama, Virginia, and Kentucky. In connection with the operation of its business, Seller employs approximately two thousand one hundred (2,100) clinicians and support staff. Seller was founded in 2011 by Dr. Randall J. Whitfield and has since its founding developed a reputation as a leading provider of outpatient rehabilitation and behavioral health services in the southeastern United States.
The shareholders of Seller consist of Dr. Randall J. Whitfield, holding approximately fifty-two percent (52%) of the issued and outstanding equity interests, Elaine Whitfield-Torres, holding approximately eighteen percent (18%) of such equity interests, Ridgeline Growth Equity Fund II LP, holding approximately twenty-two percent (22%) of such equity interests, and other management shareholders, collectively holding the remaining approximately eight percent (8%) of such equity interests.
Purchaser desires to purchase from Seller, and Seller desires to sell to Purchaser, substantially all of the assets of Seller used in or related to the Business (as defined herein), upon the terms and subject to the conditions set forth in this Agreement.
RECITALS
WHEREAS, Seller is engaged in the business of operating outpatient rehabilitation and behavioral health facilities throughout the southeastern United States (the "Business");
WHEREAS, Purchaser desires to acquire from Seller, and Seller desires to sell, transfer, assign, convey, and deliver to Purchaser, substantially all of the assets used in or related to the Business, and Purchaser desires to assume certain specified liabilities of Seller related to the Business, all upon the terms and subject to the conditions set forth in this Agreement;
WHEREAS, the Board of Directors of Seller has, by unanimous written consent dated March 28, 2024, duly approved and authorized the execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby, and the shareholders of Seller holding the requisite percentage of issued and outstanding shares have approved the same;
WHEREAS, the Board of Directors of Purchaser has duly approved and authorized the execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby; and
WHEREAS, in connection with the transactions contemplated hereby, (i) certain key employees of Seller will enter into employment agreements and non-competition and non-solicitation agreements with Purchaser, (ii) the parties will enter into an escrow agreement providing for the deposit and release of a portion of the purchase price, (iii) the parties will enter into an earnout agreement providing for contingent consideration based on the post-closing performance of the Business, and (iv) the parties will enter into a transition services agreement to facilitate an orderly transition of the Business to Purchaser.
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I — DEFINITIONS
Section 1.1 — Definitions
As used in this Agreement, the following terms shall have the meanings set forth below:
"Acquired Assets" has the meaning set forth in Section 2.1.
"Adjusted EBITDA" means, for any period, the net income of the Acquired Business for such period, determined in accordance with GAAP applied consistently with the NWC Methodology and Seller's historical practices, before deduction for (a) interest expense, (b) income tax expense, (c) depreciation expense, and (d) amortization expense, in each case as further adjusted for the items set forth in the Earnout Agreement, including, without limitation, adjustments for non-recurring items, transaction-related expenses, non-cash stock-based compensation, management fees paid to Purchaser or its Affiliates, and other items as specifically set forth in Exhibit E.
"Affiliate" means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with such Person. For purposes of this definition, "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.
"Agreement" means this Asset Purchase Agreement, including all Exhibits and Schedules hereto, as it may be amended, supplemented, or otherwise modified from time to time in accordance with Section 11.7.
"Agreement Date" means April 2, 2024.
"Allocation Schedule" has the meaning set forth in Section 2.9.
"Assumed Contracts" means all contracts, agreements, leases, commitments, purchase orders, and other legally binding arrangements of Seller listed on Schedule 2.1(c) that Purchaser elects to assume at the Closing, together with any additional contracts entered into by Seller in the Ordinary Course of Business between the Agreement Date and the Closing Date with the prior written consent of Purchaser.
"Assumed Liabilities" has the meaning set forth in Section 2.3.
"Base Purchase Price" means Six Hundred Twenty Million Dollars ($620,000,000).
"Basket" means Three Million One Hundred Thousand Dollars ($3,100,000), representing zero point five percent (0.5%) of the Base Purchase Price.
"Bill of Sale" means the Bill of Sale in substantially the form attached hereto as Exhibit A, to be executed and delivered by Seller to Purchaser at the Closing.
"Business" means the business of operating outpatient rehabilitation and behavioral health facilities as conducted by Seller as of the Agreement Date and as of the Closing Date, including all related clinical, administrative, and operational functions.
"Business Day" means any day other than a Saturday, a Sunday, or a day on which banking institutions in New York, New York or Nashville, Tennessee are authorized or required by Law to close.
"Change of Control" means (a) any merger, consolidation, recapitalization, or similar transaction involving the Acquired Business or Purchaser (or any successor entity holding substantially all of the Acquired Assets) in which the equity holders of Purchaser (or such successor entity) immediately prior to such transaction hold less than fifty percent (50%) of the outstanding equity interests of the surviving or resulting entity immediately following the consummation of such transaction, (b) any sale, transfer, or other disposition of all or substantially all of the Acquired Assets (whether in a single transaction or a series of related transactions), or (c) any transaction or series of related transactions resulting in any Person or "group" (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended) acquiring beneficial ownership (within the meaning of Rule 13d-3 promulgated under such Act) of more than fifty percent (50%) of the voting equity interests of Purchaser or any successor entity holding the Acquired Assets.
"Closing" has the meaning set forth in Section 3.1.
"Closing Cash Payment" has the meaning set forth in Section 2.5(a)(i).
"Closing Date" means the date on which the Closing actually occurs.
"Code" means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.
"Confidential Information" means all non-public, proprietary, or confidential information relating to the Business, the Acquired Assets, or the Assumed Liabilities, including trade secrets, business plans, financial data, customer and supplier information, employee information, clinical protocols, pricing information, and any other information that a reasonable Person would consider to be confidential, but excluding information that (a) is or becomes generally available to the public other than as a result of a breach of this Agreement, (b) was available to the receiving party on a non-confidential basis prior to disclosure, or (c) is independently developed by the receiving party without reference to the disclosing party's Confidential Information.
"Dawson Litigation" means the civil action styled Dawson v. Cardinal Peak Industries, Inc., Case No. 3:23-cv-01847, pending in the United States District Court for the Middle District of Tennessee.
"De Minimis Threshold" means One Hundred Thousand Dollars ($100,000) per individual claim.
"Disclosure Schedules" means the disclosure schedules delivered by Seller and Purchaser concurrently with the execution and delivery of this Agreement, as the same may be updated prior to the Closing in accordance with Section 6.1 and the other applicable provisions of this Agreement.
"Earnout" means the contingent consideration payable to Seller (and its shareholders) pursuant to Section 2.8 and the Earnout Agreement.
"Earnout Agreement" means the Earnout Agreement in substantially the form attached hereto as Exhibit E, to be executed and delivered by the parties at the Closing.
"Earnout Cap" means Forty-Five Million Dollars ($45,000,000) in the aggregate.
"Earnout Period 1" or "EP1" means the twelve (12)-month period commencing on July 1, 2024 and ending on June 30, 2025.
"Earnout Period 2" or "EP2" means the twelve (12)-month period commencing on July 1, 2025 and ending on June 30, 2026.
"Encumbrance" means any lien, pledge, hypothecation, mortgage, deed of trust, security interest, charge, easement, encumbrance, restriction on transfer, conditional sale or other title retention device or arrangement, assessment, covenant, condition, right of first refusal, right of first offer, or other similar restriction or encumbrance of any kind or nature whatsoever.
"Environmental Law" means any and all federal, state, local, or foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, agreements, or governmental restrictions relating to the protection of the environment, natural resources, or human health and safety, including the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. § 9601 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq.), the Clean Air Act (42 U.S.C. § 7401 et seq.), the Clean Water Act (33 U.S.C. § 1251 et seq.), and their state and local counterparts.
"EP1 Threshold" means Eighty Million Dollars ($80,000,000).
"EP2 Threshold" means Ninety Million Dollars ($90,000,000).
"Escrow Agent" means Commonwealth Trust & Escrow Company, a Delaware trust company.
"Escrow Agreement" means the Escrow Agreement in substantially the form attached hereto as Exhibit C, to be entered into among Purchaser, Seller, and the Escrow Agent at the Closing.
"Escrow Amount" means Sixty-Two Million Dollars ($62,000,000), representing ten percent (10%) of the Base Purchase Price.
"Estimated Closing Net Working Capital" has the meaning set forth in Section 2.6(a).
"Estimated Closing Statement" has the meaning set forth in Section 2.6(a).
"Excluded Assets" has the meaning set forth in Section 2.2.
"Excluded Liabilities" has the meaning set forth in Section 2.4.
"Final Closing Statement" has the meaning set forth in Section 2.6(c).
"Final Net Working Capital" has the meaning set forth in Section 2.6(c).
"FIRPTA Certificate" means a certificate of non-foreign status of Seller in compliance with Treasury Regulations Section 1.1445-2(b)(2), in substantially the form attached hereto as Exhibit K.
"Fundamental Representations" means, with respect to Seller, the representations and warranties set forth in Section 4.1 (Organization and Good Standing), Section 4.2 (Authority and Enforceability), Section 4.7 (Taxes), Section 4.18 (Brokers and Finders), and Section 4.19 (Title to Acquired Assets), and with respect to Purchaser, the representations and warranties set forth in Section 5.1 (Organization and Good Standing), Section 5.2 (Authority and Enforceability), and Section 5.5 (Brokers and Finders).
"GAAP" means United States generally accepted accounting principles as in effect from time to time, applied on a consistent basis.
"Governing Documents" means, with respect to any Person, the certificate of incorporation, certificate of formation, articles of organization, bylaws, operating agreement, limited partnership agreement, or other equivalent organizational or governing documents of such Person, in each case as amended or restated from time to time.
"Governmental Authority" means any federal, state, local, municipal, foreign, or other governmental or quasi-governmental authority, agency, board, bureau, commission, department, instrumentality, political subdivision, tribunal, or arbitral body, or any self-regulatory organization, in each case of competent jurisdiction.
"Healthcare Laws" means all applicable Laws relating to the provision, arrangement, or payment for healthcare services, healthcare items, or healthcare benefits, including (a) the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)) and the regulations promulgated thereunder, (b) the Physician Self-Referral Law (commonly known as the "Stark Law") (42 U.S.C. § 1395nn) and the regulations promulgated thereunder, (c) the False Claims Act (31 U.S.C. § 3729 et seq.), (d) the Civil Monetary Penalties Law (42 U.S.C. § 1320a-7a), (e) HIPAA and the regulations promulgated thereunder, (f) the regulations of the Centers for Medicare & Medicaid Services and any applicable state Medicaid agency, and (g) all applicable state healthcare regulatory statutes, rules, and regulations, including state anti-kickback laws, self-referral laws, fee-splitting laws, corporate practice of medicine doctrines, and certificate of need laws.
"HIPAA" means the Health Insurance Portability and Accountability Act of 1996 (Public Law 104-191), as amended by the Health Information Technology for Economic and Clinical Health Act (the "HITECH Act"), and the regulations promulgated thereunder, including the Privacy Rule (45 C.F.R. Part 160 and Subparts A and E of Part 164), the Security Rule (45 C.F.R. Part 160 and Subparts A and C of Part 164), and the Breach Notification Rule (45 C.F.R. Part 160 and Subpart D of Part 164).
"Indemnification Cap" means One Hundred Twenty-Four Million Dollars ($124,000,000), representing twenty percent (20%) of the Base Purchase Price.
"intellectual Property" means all intellectual property rights of any kind or nature, including (a) patents, patent applications, and patent disclosures, together with all reissues, continuations, continuations-in-part, divisions, revisions, extensions, and reexaminations thereof, (b) trademarks, service marks, trade names, trade dress, logos, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith, (c) copyrights, copyrightable works, and all applications, registrations, and renewals in connection therewith, (d) trade secrets, know-how, inventions, processes, procedures, formulae, methods, techniques, data, databases, and other proprietary or confidential information, (e) Internet domain names and social media handles, (f) computer software (including source code, object code, and related documentation), and (g) all other proprietary rights relating to any of the foregoing.
"Knowledge of Seller" or "Seller's Knowledge" means the actual knowledge of Dr. Randall J. Whitfield (Chairman and Chief Executive Officer), Elaine Whitfield-Torres (Chief Clinical Officer), James D. Overstreet (Chief Financial Officer), Margaret P. Yamamoto (General Counsel), and Patricia A. Fontaine (Chief Operating Officer), in each case after reasonable inquiry of their direct reports and a review of the relevant files and records within their respective areas of responsibility.
"Law" means any statute, law, ordinance, regulation, rule, code, executive order, injunction, judgment, decree, or order of any Governmental Authority.
"Losses" means any and all damages, losses, deficiencies, liabilities, obligations, penalties, fines, claims, actions, suits, proceedings, costs, and expenses (including reasonable attorneys' fees, court costs, and expenses of investigation and litigation), whether or not involving a Third-Party Claim.
"Material Adverse Effect" means any change, event, occurrence, effect, condition, circumstance, development, or state of facts that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on (a) the business, assets, liabilities, financial condition, or results of operations of the Business, taken as a whole, or (b) the ability of Seller to consummate the transactions contemplated by this Agreement; provided, however, that none of the following, individually or in the aggregate, shall be deemed to constitute, or shall be taken into account in determining whether there has been, a Material Adverse Effect: (i) changes in general economic, business, financial, or market conditions, (ii) changes in conditions generally affecting the healthcare industry, (iii) changes in applicable Laws or GAAP, (iv) changes arising from or related to any pandemic, epidemic, or public health emergency, (v) natural disasters, acts of war, terrorism, or sabotage, (vi) changes resulting from the announcement or pendency of the transactions contemplated by this Agreement, (vii) changes resulting from actions required to be taken pursuant to this Agreement, or (viii) any failure by Seller to meet any internal projections or forecasts (provided that the underlying cause of such failure may be considered); except, in the case of clauses (i) through (v), to the extent such changes disproportionately and adversely affect the Business relative to other participants in the industries and geographies in which the Business operates.
"Net Working Capital" means, as of any date of determination, the current assets of the Business minus the current liabilities of the Business, in each case calculated in accordance with the NWC Methodology attached hereto as Exhibit D and GAAP applied consistently with Seller's past practice, excluding (a) cash and cash equivalents, (b) Tax-related assets and liabilities, and (c) any items specifically included in or excluded from the Purchase Price.
"NWC Collar" means Five Hundred Thousand Dollars ($500,000).
"NWC Methodology" means the methodology for calculating Net Working Capital as set forth on Exhibit D.
"NWC Target" means Twenty-Eight Million Dollars ($28,000,000).
"Ordinary Course of Business" means the ordinary and usual course of normal day-to-day operations of the Business, consistent with past custom and practice (including with respect to quantity and frequency).
"Outside Date" means September 30, 2024.
"Parent" or "Buyer Sponsor" means Ardent Capital Partners III LP, a Delaware limited partnership.
"PeakConnect" means Seller's proprietary patient-engagement software platform, including all source code, object code, user interfaces, databases, documentation, training materials, and related intellectual Property.
"Permitted Encumbrances" means (a) Encumbrances for Taxes not yet due and payable or being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP, (b) statutory liens of landlords and liens of carriers, warehousemen, mechanics, and materialmen incurred in the Ordinary Course of Business for sums not yet due and payable, (c) zoning, building, and other land use Laws imposed by any Governmental Authority having jurisdiction over any leased real property, (d) easements, covenants, conditions, restrictions, and other similar matters of record affecting title to any leased real property that do not materially impair the occupancy or use of such real property for the purposes for which it is currently used in connection with the Business, and (e) any other Encumbrances set forth on Schedule 4.19.
"Person" means an individual, partnership, limited partnership, limited liability company, corporation, joint venture, trust, business trust, cooperative, association, unincorporated organization, Governmental Authority, or other entity of any kind.
"Pre-Closing Tax Period" means any taxable period (or portion thereof) ending on or before the Closing Date.
"Purchase Price" has the meaning set forth in Section 2.5.
"Purchaser Indemnified Parties" has the meaning set forth in Section 9.2.
"R&W Insurance Policy" means the representations and warranties insurance policy issued by Sentinel Specialty Insurance Company, Policy No. SSI-RWI-2024-05178, with a coverage limit of Sixty-Two Million Dollars ($62,000,000) and a retention of Six Million Two Hundred Thousand Dollars ($6,200,000), as bound on April 10, 2024.
"Seller Indemnified Parties" has the meaning set forth in Section 9.3.
"Seller's Existing Credit Facility" means that certain Credit Agreement dated as of March 15, 2018, by and among Seller, as borrower, and Velthorn Merchant Bank, N.A., as administrative agent and lender, as amended, restated, supplemented, or otherwise modified from time to time.
"Straddle Period" means any taxable period that begins on or before and ends after the Closing Date.
"Survival Period" has the meaning set forth in Section 9.1.
"Target Closing Date" means June 20, 2024.
"Tax" or "Taxes" means any and all federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto and any amendment thereof.
"Transaction Documents" means, collectively, this Agreement, the Bill of Sale, the Assignment and Assumption Agreement, the intellectual Property Assignment Agreement, the Escrow Agreement, the Earnout Agreement, the Employment Agreements, the Non-Competition and Non-Solicitation Agreements, the Transition Services Agreement, and all other agreements, certificates, instruments, and documents to be delivered in connection with the transactions contemplated by this Agreement.
"Transferred Employees" means those employees of Seller who accept offers of employment from Purchaser in accordance with Section 6.5.
"Transition Services Agreement" means the Transition Services Agreement in substantially the form attached hereto as Exhibit G, to be executed and delivered by the parties at the Closing.
Section 1.2 — Interpretation
Unless the context of this Agreement otherwise requires: (a) words of any gender include each other gender; (b) words using the singular or plural number also include the plural or singular number, respectively; (c) the terms "hereof," "herein," "hereby," "hereto," and derivative or similar words refer to this entire Agreement; (d) the terms "Article," "Section," "Schedule," "Exhibit," and "Annex" refer to the specified Article, Section, Schedule, Exhibit, or Annex of or to this Agreement, unless otherwise specified; (e) the word "including" and words of similar import when used in this Agreement means "including, without limitation," unless otherwise specified; (f) the word "or" shall not be exclusive; (g) references to agreements and other documents shall be deemed to include all subsequent amendments and other modifications thereto; (h) references to statutes shall include all regulations promulgated thereunder and references to statutes or regulations shall be construed as including all statutory and regulatory provisions consolidating, amending, or replacing the statute or regulation; (i) the word "extent" in the phrase "to the extent" means the degree to which a subject or other thing extends, and such phrase shall not mean simply "if"; (j) the headings and captions used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement; and (k) all accounting terms not specifically defined in this Agreement shall be construed in accordance with GAAP. The parties have participated jointly in the negotiation and drafting of this Agreement, and in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.
ARTICLE II — PURCHASE AND SALE
Section 2.1 — Purchase and Sale of Acquired Assets
Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Seller shall sell, transfer, assign, convey, and deliver to Purchaser, and Purchaser shall purchase and acquire from Seller, all of Seller's right, title, and interest in and to substantially all of the assets, properties, and rights of every kind and nature, whether real, personal, or mixed, tangible or intangible, owned, leased, licensed, or held by Seller and used in or related to the Business (collectively, the "Acquired Assets"), free and clear of all Encumbrances (other than Permitted Encumbrances), including without limitation the following:
(a) Tangible Personal Property. All tangible personal property, including all furniture, fixtures, equipment, machinery, vehicles, computer hardware, telecommunications equipment, medical and clinical equipment, leasehold improvements, and supplies, in each case owned by Seller and used in or related to the Business, including those items listed on Schedule 2.1(a);
(b) Inventory. All inventory of the Business, including clinical supplies, pharmaceutical supplies, office supplies, and other consumables;
(c) Assumed Contracts. All contracts, agreements, leases, commitments, purchase orders, and other legally binding arrangements of Seller listed on Schedule 2.1(c) (the "Assumed Contracts"), including without limitation: (i) thirty-seven (37) triple-net leases for clinic locations across the states of Tennessee (14 locations), Georgia (8 locations), North Carolina (5 locations), South Carolina (4 locations), Alabama (3 locations), Virginia (2 locations), and Kentucky (1 location); (ii) managed-care agreements with twelve (12) major payors, including the managed-care agreement with SummitCare Health Plans, Inc.; and (iii) vendor agreements and service contracts;
(d) intellectual Property. All intellectual Property owned, held, or licensed by Seller and used in or related to the Business, including without limitation (i) the PeakConnect patient-engagement software platform, together with all source code, object code, documentation, and related materials, (ii) the registered trademark "Cardinal Peak" (U.S. Registration No. 5,412,887), (iii) all unregistered trademarks, trade names, and service marks used in the Business, (iv) all domain names associated with the Business, and (v) all trade secrets, know-how, clinical protocols, and proprietary methodologies;
(e) Accounts Receivable. All accounts receivable, notes receivable, and other rights to payment arising from the Business, whether billed or unbilled, and whether arising from services rendered to patients, payors, or other third parties, together with any security held therefor;
(f) Permits and Licenses. All permits, licenses, certifications, authorizations, approvals, registrations, and similar rights issued by any Governmental Authority and held by Seller in connection with the Business, to the extent transferable under applicable Law, including all Medicare and Medicaid provider enrollment numbers, state healthcare licenses, and professional licenses, as listed on Schedule 4.15;
(g) Books and Records. All books, records, files, papers, data, documents (in whatever form or medium), and correspondence relating to the Business, including patient records (subject to applicable privacy Laws), financial records, clinical records, operational records, employee records (to the extent relating to Transferred Employees), and regulatory files;
(h) Goodwill. All goodwill and going concern value of the Business, including the value of the Seller's relationships with patients, referral sources, payors, suppliers, and the communities in which the Business operates;
(i) Warranties and Guarantees. All rights under or pursuant to any warranties, representations, guarantees, indemnities, and similar rights made by third parties, including suppliers, vendors, manufacturers, and contractors, to the extent related to the Acquired Assets or the Business;
(j) Prepaid Expenses and Deposits. All prepaid expenses, advance payments, security deposits, and other deposits of Seller to the extent related to the Business or the Acquired Assets, including prepaid rent, insurance premiums, and utility deposits;
(k) Claims and Causes of Action. All claims, causes of action, choses in action, rights of recovery, rights of set-off, and rights of recoupment of any kind or nature, whether known or unknown, contingent or fixed, arising from or related to the Business or the Acquired Assets (other than any such rights that constitute Excluded Assets);
(l) Other Assets. All other assets, properties, and rights of Seller of every kind and nature, whether tangible or intangible, that are used in or related to the Business, other than the Excluded Assets.
Section 2.2 — Excluded Assets
Notwithstanding anything in Section 2.1 to the contrary, the following assets of Seller shall be excluded from the Acquired Assets and shall be retained by Seller (collectively, the "Excluded Assets"):
(a) All cash and cash equivalents of Seller, including all bank accounts, certificates of deposit, money market accounts, and short-term investments, wherever located;
(b) All Tax refunds, credits, and prepayments attributable to Pre-Closing Tax Periods;
(c) Certain items of personal property belonging to Dr. Randall J. Whitfield as specifically described on Schedule 2.2(c);
(d) The corporate name "Cardinal Peak Industries" and all derivations, variations, and abbreviations thereof (provided, however, that Seller shall grant to Purchaser a non-exclusive, royalty-free license to use such name for a period of twelve (12) months following the Closing Date pursuant to the intellectual Property Assignment Agreement, as further described in Section 6.13);
(e) All equity interests of Seller in Cardinal Peak Labs, Inc., a dormant Delaware corporation and inactive subsidiary of Seller;
(f) Seller's Governing Documents, minute books, stock transfer ledgers, and corporate seal;
(g) All rights of Seller under this Agreement and the other Transaction Documents, including the right to receive the Purchase Price and any Earnout Payments; and
(h) All rights of Seller under insurance policies maintained by Seller, including any claims, refunds, or proceeds thereunder, except to the extent such insurance policies relate to Assumed Liabilities arising after the Closing Date.
Section 2.3 — Assumed Liabilities
Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Purchaser shall assume and agree to pay, perform, and discharge when due only the following liabilities and obligations of Seller (collectively, the "Assumed Liabilities"):
(a) Trade Payables. All trade accounts payable and accrued expenses of the Business arising in the Ordinary Course of Business within ninety (90) days prior to the Closing Date that remain unpaid as of the Closing Date;
(b) Contract Obligations. All obligations and liabilities of Seller arising under or in connection with the Assumed Contracts, but only to the extent such obligations and liabilities arise from and after the Closing Date and do not arise from or relate to any breach, default, or violation by Seller occurring on or prior to the Closing Date;
(c) Accrued PTO. All accrued and unused paid time off (PTO) obligations of Seller with respect to Transferred Employees as of the Closing Date, as set forth on the schedule to be delivered by Seller at the Closing; and
(d) Post-Closing Patient Liabilities. All liabilities arising from or related to clinical services rendered to patients on or after the Closing Date, including professional liability claims arising from treatment provided on or after the Closing Date.
Section 2.4 — Excluded Liabilities
Except for the Assumed Liabilities, Purchaser shall not assume and shall not be responsible for any liabilities, obligations, or commitments of Seller of any kind or nature whatsoever, whether known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured, determined or determinable, and whether or not arising out of or relating to acts, events, or conditions occurring, arising, or existing at, before, on, or after the Closing Date (collectively, the "Excluded Liabilities"), including without limitation the following:
(a) Dawson Litigation. All liabilities, costs, expenses, damages, judgments, settlements, and obligations arising from or related to the Dawson Litigation (Dawson v. Cardinal Peak Industries, Inc., Case No. 3:23-cv-01847 (M.D. Tenn.)), a putative class action alleging wage-and-hour violations under the Fair Labor Standards Act, and any and all other litigation, claims, actions, suits, proceedings, arbitrations, or investigations arising from or related to the operation of the Business prior to the Closing Date;
(b) Pre-Closing Tax Liabilities. All Tax liabilities of Seller for all Pre-Closing Tax Periods, including any portion of a Straddle Period allocated to the pre-Closing portion in accordance with Section 6.9;
(c) 401(k) Plan Liabilities. All liabilities, obligations, and commitments arising under or in connection with Seller's 401(k) plan, including any funding obligations, penalties, or claims by participants;
(d) Existing Credit Facility. All indebtedness, obligations, and liabilities arising under or in connection with Seller's Existing Credit Facility with Velthorn Merchant Bank, N.A. (outstanding principal as of the Closing Date estimated at Eighty-Seven Million Four Hundred Thousand Dollars ($87,400,000)), including all accrued and unpaid interest, fees, penalties, prepayment premiums, and other amounts payable thereunder;
(e) Excluded Asset Liabilities. Any and all liabilities arising out of, relating to, or associated with any Excluded Asset; and
(f) Pre-Closing Operational Liabilities. Any and all liabilities arising out of or related to Seller's ownership or operation of the Business prior to the Closing Date that are not expressly assumed by Purchaser as Assumed Liabilities pursuant to Section 2.3, including without limitation (i) product liability, professional liability, or malpractice claims arising from treatment provided prior to the Closing Date, (ii) employment-related liabilities (other than accrued PTO for Transferred Employees), (iii) workers' compensation claims arising from occurrences prior to the Closing Date, and (iv) any liabilities arising from non-compliance with applicable Laws prior to the Closing Date.
Section 2.5 — Purchase Price
The aggregate consideration for the Acquired Assets (the "Purchase Price") shall consist of the following:
(a) Base Purchase Price. Six Hundred Twenty Million Dollars ($620,000,000) (the "Base Purchase Price"), payable as follows:
(i) Five Hundred Fifty-Eight Million Dollars ($558,000,000) in cash (the "Closing Cash Payment"), payable at the Closing by wire transfer of immediately available funds to the account or accounts designated by Seller in writing not less than two (2) Business Days prior to the Closing Date, calculated as the Base Purchase Price of $620,000,000 minus the Escrow Amount of $62,000,000, subject to adjustment pursuant to Section 2.6(b); and
(ii) Sixty-Two Million Dollars ($62,000,000) (the "Escrow Amount"), representing ten percent (10%) of the Base Purchase Price, to be deposited at the Closing with the Escrow Agent by wire transfer of immediately available funds, to be held, invested, and disbursed in accordance with the terms and conditions of the Escrow Agreement.
(b) Earnout Payments. Contingent consideration of up to Forty-Five Million Dollars ($45,000,000) in the aggregate (the "Earnout Cap"), payable in accordance with Section 2.8 and the Earnout Agreement.
(c) Working Capital Adjustment. The adjustments to the Closing Cash Payment as calculated pursuant to Section 2.6.
The Base Purchase Price represents an implied enterprise value multiple of approximately 8.36x Seller's last-twelve-months Adjusted EBITDA of Seventy-Four Million One Hundred Sixty Thousand Dollars ($74,160,000), reflecting an Adjusted EBITDA margin of approximately 18.0% on last-twelve-months revenue of Four Hundred Twelve Million Dollars ($412,000,000) for the fiscal year ended December 31, 2023.
Section 2.6 — Working Capital Adjustment
Section 2.6(a) — Estimated Closing Net Working Capital
Not less than three (3) Business Days prior to the Closing Date, Seller shall prepare and deliver to Purchaser a written statement (the "Estimated Closing Statement") setting forth Seller's good faith estimate of the Net Working Capital of the Business as of 11:59 p.m. Eastern Time on the day immediately prior to the Closing Date (the "Estimated Closing Net Working Capital"), prepared in accordance with the NWC Methodology set forth on Exhibit D and GAAP applied consistently with Seller's past practice. As of the Agreement Date, the NWC Target is Twenty-Eight Million Dollars ($28,000,000) and the parties' preliminary estimate of the Estimated Closing Net Working Capital is Twenty-Nine Million Two Hundred Thousand Dollars ($29,200,000). Seller shall provide Purchaser with reasonable supporting documentation for the Estimated Closing Statement and shall make its financial personnel available to Purchaser and its advisors for purposes of reviewing and discussing the Estimated Closing Statement prior to the Closing.
Section 2.6(b) — Closing Adjustment
The Closing Cash Payment shall be adjusted at the Closing as follows:
(i) If the Estimated Closing Net Working Capital exceeds the NWC Target by more than the NWC Collar (i.e., by more than $500,000), then the Closing Cash Payment shall be increased on a dollar-for-dollar basis by the amount of such excess over the NWC Target (not the NWC Collar);
(ii) If the NWC Target exceeds the Estimated Closing Net Working Capital by more than the NWC Collar (i.e., by more than $500,000), then the Closing Cash Payment shall be decreased on a dollar-for-dollar basis by the amount by which the NWC Target exceeds the Estimated Closing Net Working Capital; and
(iii) If the absolute value of the difference between the Estimated Closing Net Working Capital and the NWC Target is less than or equal to the NWC Collar ($500,000), no adjustment to the Closing Cash Payment shall be made at the Closing.
Section 2.6(c) — Post-Closing Final Determination
Within ninety (90) days following the Closing Date (i.e., no later than September 28, 2024), Purchaser shall prepare and deliver to Seller a written statement (the "Final Closing Statement") setting forth Purchaser's calculation of the Net Working Capital of the Business as of 11:59 p.m. Eastern Time on the day immediately prior to the Closing Date (the "Final Net Working Capital"), prepared in accordance with the NWC Methodology and GAAP applied consistently with Seller's past practice. Purchaser shall provide Seller with reasonable access to the books, records, and working papers used in the preparation of the Final Closing Statement.
Seller shall have thirty (30) days following its receipt of the Final Closing Statement (the "Review Period") to review and examine the Final Closing Statement. During the Review Period, Purchaser shall provide Seller and its accountants with reasonable access to the books, records, accounts, work papers, and other relevant information of the Business as reasonably necessary for Seller's review. If Seller disagrees with Purchaser's calculation of the Final Net Working Capital, Seller shall, on or prior to the last day of the Review Period, deliver to Purchaser a written notice of disagreement (the "Notice of Disagreement") specifying in reasonable detail the items or amounts with which Seller disagrees and Seller's proposed adjustments, together with supporting documentation. If Seller does not deliver a Notice of Disagreement within the Review Period, the Final Closing Statement as delivered by Purchaser shall be deemed final and binding.
If a Notice of Disagreement is timely delivered, Purchaser and Seller shall attempt in good faith to resolve the matters set forth in the Notice of Disagreement for a period of fifteen (15) days following Purchaser's receipt of the Notice of Disagreement (the "Resolution Period"). If Purchaser and Seller are unable to resolve all disputed items within the Resolution Period, the remaining disputed items shall be submitted for resolution to an independent nationally recognized accounting firm mutually agreed upon by the parties (the "Independent Accountant"). If the parties are unable to agree on the identity of the Independent Accountant within five (5) Business Days following the expiration of the Resolution Period, the Independent Accountant shall be selected by lot from among Severin Beck CPAs LLP, Muldoon Thackeray CPAs LLP, and Penrose Firth CPAs LLP, excluding any firm that has provided audit or advisory services to either party within the preceding two (2) years. The Independent Accountant shall act as an arbitrator and shall determine only those items remaining in dispute, and its determination shall be final and binding on the parties and not subject to appeal or further review. In making its determination, the Independent Accountant shall not assign a value to any disputed item greater than the highest value claimed by either party or less than the lowest value claimed by either party. The fees and expenses of the Independent Accountant shall be allocated between Purchaser and Seller in inverse proportion to the amount by which each party's position is modified by the Independent Accountant's determination.
Section 2.6(d) — Final Adjustment Payment
Within five (5) Business Days following the final determination of the Final Net Working Capital (whether by agreement of the parties, deemed acceptance, or determination by the Independent Accountant), a final adjustment payment shall be made as follows:
(i) If the Final Net Working Capital exceeds the Estimated Closing Net Working Capital (after giving effect to any Closing adjustment under Section 2.6(b)), Purchaser shall pay to Seller an amount equal to such excess by wire transfer of immediately available funds;
(ii) If the Estimated Closing Net Working Capital (after giving effect to any Closing adjustment under Section 2.6(b)) exceeds the Final Net Working Capital, Seller shall pay to Purchaser an amount equal to such excess, which amount shall be deducted first from the Escrow Amount, and if the Escrow Amount is insufficient, Seller shall pay the remaining amount by wire transfer of immediately available funds; and
(iii) Notwithstanding the foregoing, no final adjustment payment shall be required if the absolute value of the difference between the Final Net Working Capital and the NWC Target is less than or equal to the NWC Collar ($500,000) and no Closing adjustment was made under Section 2.6(b).
Any adjustment payment shall bear interest at the prime rate as published by The Wall Street Journal on the Closing Date from the Closing Date through the date of payment, calculated on the basis of a 365-day year and the actual number of days elapsed.
Section 2.7 — Escrow
At the Closing, Purchaser shall deposit (or cause to be deposited) the Escrow Amount of Sixty-Two Million Dollars ($62,000,000) with Commonwealth Trust & Escrow Company, as Escrow Agent, by wire transfer of immediately available funds, to be held, invested, and disbursed in accordance with the terms and conditions of the Escrow Agreement. The Escrow Amount shall be released to Seller in accordance with the following schedule:
Tranche 1: Thirty-One Million Dollars ($31,000,000), representing fifty percent (50%) of the Escrow Amount, shall be released to Seller on June 30, 2025 (the twelve (12)-month anniversary of the Closing Date), net of the aggregate amount of (A) any indemnification claims that have been resolved in favor of any Purchaser Indemnified Party on or prior to such date, and (B) any pending, unresolved indemnification claims for which Purchaser has delivered written notice to the Escrow Agent and Seller on or prior to such date (which amounts shall be retained in escrow pending final resolution of such claims);
Tranche 2: Thirty-One Million Dollars ($31,000,000), representing the remaining fifty percent (50%) of the Escrow Amount, shall be released to Seller on December 30, 2025 (the eighteen (18)-month anniversary of the Closing Date), net of the aggregate amount of (A) any indemnification claims that have been resolved in favor of any Purchaser Indemnified Party on or prior to such date, and (B) any pending, unresolved indemnification claims for which Purchaser has delivered written notice to the Escrow Agent and Seller on or prior to such date (which amounts shall be retained in escrow pending final resolution of such claims).
The Escrow Amount shall serve as the primary (but not exclusive) source for the satisfaction of indemnification claims made by Purchaser Indemnified Parties under Article IX. The investment of the Escrow Amount and the allocation of any interest or earnings thereon shall be governed by the Escrow Agreement. For Tax purposes, any interest or earnings on the Escrow Amount shall be allocated to and reported by Seller as income of Seller.
Section 2.8 — Earnout
Section 2.8(a) — Earnout Payments
In addition to the Base Purchase Price, Seller (and its shareholders) shall be entitled to receive contingent earnout payments (the "Earnout Payments") based on the financial performance of the Acquired Business following the Closing, as follows:
Tranche 1 Earnout Payment. Seller shall be entitled to receive a payment of up to Twenty-Two Million Five Hundred Thousand Dollars ($22,500,000) (the "Tranche 1 Earnout Payment") based on the Adjusted EBITDA of the Acquired Business during Earnout Period 1 (the twelve (12)-month period ending June 30, 2025), determined as follows:
(i) If the Adjusted EBITDA for Earnout Period 1 is less than the EP1 Threshold of Eighty Million Dollars ($80,000,000), the Tranche 1 Earnout Payment shall be zero dollars ($0);
(ii) If the Adjusted EBITDA for Earnout Period 1 is equal to or greater than the EP1 Threshold of Eighty Million Dollars ($80,000,000) but less than Eighty-Five Million Dollars ($85,000,000), the Tranche 1 Earnout Payment shall be calculated on a linear interpolation basis at a rate of Four Dollars and Fifty Cents ($4.50) for each One Dollar ($1.00) of Adjusted EBITDA in excess of the EP1 Threshold (i.e., $22,500,000 divided by $5,000,000 equals $4.50 per dollar); and
(iii) If the Adjusted EBITDA for Earnout Period 1 equals or exceeds Eighty-Five Million Dollars ($85,000,000), the Tranche 1 Earnout Payment shall be Twenty-Two Million Five Hundred Thousand Dollars ($22,500,000).
Tranche 2 Earnout Payment. Seller shall be entitled to receive a payment of up to Twenty-Two Million Five Hundred Thousand Dollars ($22,500,000) (the "Tranche 2 Earnout Payment") based on the Adjusted EBITDA of the Acquired Business during Earnout Period 2 (the twelve (12)-month period ending June 30, 2026), determined as follows:
(i) If the Adjusted EBITDA for Earnout Period 2 is less than the EP2 Threshold of Ninety Million Dollars ($90,000,000), the Tranche 2 Earnout Payment shall be zero dollars ($0);
(ii) If the Adjusted EBITDA for Earnout Period 2 is equal to or greater than the EP2 Threshold of Ninety Million Dollars ($90,000,000) but less than Ninety-Five Million Dollars ($95,000,000), the Tranche 2 Earnout Payment shall be calculated on a linear interpolation basis at a rate of Four Dollars and Fifty Cents ($4.50) for each One Dollar ($1.00) of Adjusted EBITDA in excess of the EP2 Threshold (i.e., $22,500,000 divided by $5,000,000 equals $4.50 per dollar); and
(iii) If the Adjusted EBITDA for Earnout Period 2 equals or exceeds Ninety-Five Million Dollars ($95,000,000), the Tranche 2 Earnout Payment shall be Twenty-Two Million Five Hundred Thousand Dollars ($22,500,000).
Aggregate Cap. The total aggregate Earnout Payments payable pursuant to this Section 2.8 shall not exceed the Earnout Cap of Forty-Five Million Dollars ($45,000,000).
Section 2.8(b) — Earnout Calculation and Payment
Within ninety (90) days after the end of each Earnout Period, Purchaser shall prepare and deliver to Seller a written statement (each, an "Earnout Statement") setting forth Purchaser's calculation of the Adjusted EBITDA for such Earnout Period, together with reasonable supporting documentation. Seller shall have thirty (30) days following its receipt of each Earnout Statement (the "Earnout Review Period") to review such Earnout Statement. During the Earnout Review Period, Purchaser shall provide Seller and its accountants with reasonable access to the books, records, accounts, work papers, and other relevant information of the Acquired Business as reasonably necessary for Seller's review.
If Seller disagrees with Purchaser's calculation of Adjusted EBITDA, Seller shall, on or prior to the last day of the Earnout Review Period, deliver to Purchaser a written notice of disagreement specifying in reasonable detail the items or amounts with which Seller disagrees and Seller's proposed adjustments, together with supporting documentation. If Seller does not deliver a notice of disagreement within the Earnout Review Period, the applicable Earnout Statement as delivered by Purchaser shall be deemed final and binding.
Any disputes with respect to an Earnout Statement shall be resolved using the same procedures and mechanisms set forth in Section 2.6(c), including the engagement of the Independent Accountant, whose determination shall be final and binding.
Within ten (10) Business Days following the final determination of Adjusted EBITDA for each Earnout Period (whether by agreement of the parties, deemed acceptance, or determination by the Independent Accountant), Purchaser shall pay to Seller the applicable Earnout Payment (if any) by wire transfer of immediately available funds to the account designated by Seller in writing.
Section 2.8(c) — Conduct of Business During Earnout Period
During each Earnout Period, Purchaser shall, and shall cause its Affiliates to:
(i) operate the Acquired Business in good faith and in the Ordinary Course of Business consistent with past practices of Seller;
(ii) not take any action, or omit to take any action, with the primary purpose of reducing, avoiding, or delaying any Earnout Payment;
(iii) maintain separate books and records for the Acquired Business sufficient to permit the accurate calculation of Adjusted EBITDA for each Earnout Period;
(iv) not make any material changes to the accounting policies, practices, or principles used to calculate Adjusted EBITDA without Seller's prior written consent (which consent shall not be unreasonably withheld, conditioned, or delayed); and
(v) provide Seller with quarterly financial reports for the Acquired Business (including unaudited income statements) within forty-five (45) days after the end of each fiscal quarter, for informational purposes.
For the avoidance of doubt, nothing in this Section 2.8(c) shall limit Purchaser's ability to operate the Acquired Business in its reasonable business judgment, including making decisions with respect to personnel, pricing, marketing, capital expenditures, and strategic direction, so long as such decisions are not taken with the primary purpose of reducing or avoiding any Earnout Payment.