PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT
ASSET PURCHASE AGREEMENT
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of [●], 2024 (the "Effective Date"), by and between:
ARDENT HEALTHCARE ACQUISITION CORP., a Delaware corporation (the "Purchaser"), with its registered address c/o National Registered Services, Inc., 1209 Orange Street, Wilmington, Delaware 19801;
and
CARDINAL PEAK INDUSTRIES, INC., a Delaware corporation qualified to do business in the States of Tennessee, Georgia, North Carolina, South Carolina, Alabama, Virginia, and Kentucky (the "Seller"), with its principal offices located at 8400 Crescent Ridge Parkway, Suite 200, Nashville, Tennessee 37215.
Purchaser and Seller are sometimes referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS
WHEREAS, Seller operates a business consisting of thirty-seven (37) outpatient rehabilitation and behavioral health clinics located across seven (7) states (Tennessee, Georgia, North Carolina, South Carolina, Alabama, Virginia, and Kentucky), employing approximately two thousand one hundred (2,100) clinicians and support staff, and providing a comprehensive suite of outpatient rehabilitation, behavioral health, and related healthcare services to patients in the communities it serves (the "Acquired Business");
WHEREAS, Purchaser is a newly formed Delaware corporation, wholly owned by Ardent Capital Partners III LP, a Delaware limited partnership (the "Sponsor"), formed on January 22, 2024, for the purpose of consummating the transactions contemplated by this Agreement;
WHEREAS, Purchaser desires to purchase, acquire, and accept from Seller, and Seller desires to sell, transfer, assign, convey, and deliver to Purchaser, substantially all of the assets of Seller used in or relating to the Acquired Business, upon the terms and subject to the conditions set forth herein;
WHEREAS, the Parties have previously executed a Letter of Intent dated January 29, 2024, setting forth certain non-binding understandings with respect to the proposed transaction, which is hereby superseded in its entirety by this Agreement;
and
WHEREAS, each of the Parties desires to make certain representations, warranties, covenants, and agreements in connection with the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual representations, warranties, covenants, and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE I — 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.
"Acquired Business" means the business conducted by Seller as of the date hereof using the Acquired Assets, including, without limitation, the operation of thirty-seven (37) outpatient rehabilitation and behavioral health clinics across seven states, together with all activities reasonably related thereto or conducted in connection therewith.
"Action" means any action, suit, claim, proceeding, hearing, arbitration, mediation, investigation, audit, or inquiry by or before any Governmental Authority or arbitrator.
"Adjusted EBITDA" means, for any applicable period, the net income of the Acquired Business, calculated in accordance with GAAP, consistently applied with Seller's historical financial statements as audited by Linden Hayes & Co., P.C., plus (a) interest expense, (b) income tax expense, (c) depreciation expense, (d) amortization expense, and (e) such other agreed-upon addbacks as set forth in Exhibit M, in each case as determined on a basis consistent with Seller's historical methodology for computing Adjusted EBITDA as set forth therein. For the avoidance of doubt, the methodology for calculating Adjusted EBITDA for purposes of the earnout provisions of Section 3.4 shall be the methodology set forth in Exhibit M.
"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" (including, with correlative meanings, the terms "controlled by" and "under common control with") means the possession, directly or indirectly, 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, Schedules, and Disclosure Schedules attached hereto, as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms.
"Anti-Kickback Statute" means Section 1128B(b) of the Social Security Act (42 U.S.C. § 1320a-7b(b)), as amended, and all regulations promulgated thereunder.
"Assumed Contracts" means the contracts, agreements, leases, licenses, commitments, purchase orders, and other arrangements to be assumed by Purchaser as set forth on Schedule 2.3 or as otherwise provided herein.
"Assumed Liabilities" has the meaning set forth in Section 2.3.
"Base Purchase Price" means Six Hundred Twenty Million Dollars ($620,000,000).
"Basket Amount" means
"Bill of Sale" means the Bill of Sale substantially in the form attached hereto as Exhibit A.
"Business Day" means any day that is not a Saturday, Sunday, or other day on which commercial banks in New York City, New York, or Nashville, Tennessee, are authorized or required by Law to remain closed.
"Buyer's Closing Certificate" means the certificate of Purchaser substantially in the form attached hereto as Exhibit K.
"Change of Control" means, with respect to any Person, any transaction or series of related transactions that results in (a) (b) merger, consolidation, or similar in which the holders of the voting equity interests of such Person immediately prior to such transaction hold less than fifty percent (50%) of the voting equity interests of the surviving or resulting entity immediately after such
"Closing" means the consummation of the transactions contemplated by this Agreement.
"Closing Date" means the date on which the Closing occurs in accordance with Section 8.1.
"Code" means the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.
"Commitment Letter" means the commitment letter dated [●], 2024, from Pinnacle National Bank, N.A., pursuant to which Pinnacle National Bank, N.A. has committed to provide debt financing to Purchaser in connection with the transactions contemplated hereby, on the terms and conditions set forth therein.
"Consent" means any consent, approval, authorization, waiver, permit, grant, franchise, concession, agreement, license, exemption, or order of, registration, certificate, declaration, or filing with, or report or notice to, any Person, including any Governmental Authority.
"De Minimis Amount" means per individual claim.
"De Minimis Collar" has the meaning set forth in Section 3.3(b).
"Disclosure Schedules" means the disclosure schedules delivered by Seller to Purchaser concurrently with the execution and delivery of this Agreement.
"Earnout" means the contingent consideration payable by Purchaser to Seller pursuant to Section 3.4.
"Earnout Cap" means Forty-Five Million Dollars ($45,000,000) in the aggregate.
"Earnout Period 1" means the twelve (12)-month period commencing on July 1, 2024 and ending on June 30, 2025.
"Earnout Period 2" means the twelve (12)-month period commencing on July 1, 2025 and ending on June 30, 2026.
"Encumbrance" means any lien, pledge, mortgage, deed of trust, charge, claim, security interest, encumbrance, option, right of first refusal, right of first offer, preemptive right, easement, servitude, restrictive covenant, condition, or other restriction or limitation of any kind, whether voluntary or involuntary, choate or inchoate, conditional or unconditional.
"Environmental Laws" means all applicable federal, state, and local statutes, regulations, ordinances, rules, orders, judgments, decrees, permits, concessions, grants, franchises, licenses, agreements, or governmental restrictions relating to pollution, protection of the environment, or the release or threatened release of hazardous materials into the environment, including, without limitation, 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.), the Toxic Substances Control Act (15 U.S.C. § 2601 et seq.), and all analogous state and local laws.
"Escrow Agent" means Commonwealth Trust & Escrow Company.
"Escrow Agreement" means the escrow agreement substantially in the form attached hereto as Exhibit D, to be executed at the Closing by Purchaser, Seller, and the Escrow Agent.
"Escrow Amount" means
"Estimated Closing NWC" has the meaning set forth in Section 3.3(a).
"Excluded Assets" has the meaning set forth in Section 2.2.
"Excluded Liabilities" has the meaning set forth in Section 2.4.
"Final NWC" has the meaning set forth in Section 3.3(c).
"Financial Statements" has the meaning set forth in Section 4.5.
"FIRPTA Certificate" means the certification of non-foreign status in substantially the form attached hereto as Exhibit L, certifying that Seller is not a "foreign person" within the meaning of Section 1445 of the Code.
"Fundamental Representations" means the representations and warranties of Seller set forth in Section 4.1 (Organization, Good Standing, and Qualification), Section 4.2 (Authority; Enforceability), Section 4.4 (Title to Acquired Assets), and Section 4.16 (Brokers).
"GAAP" means generally accepted accounting principles in the United States as in effect from time to time, consistently applied.
"Governmental Authority" means any federal, state, provincial, local, municipal, foreign, or other government or governmental or quasi-governmental authority of any nature, including any governmental agency, branch, department, official, instrumentality, commission, authority, or entity, and any court, tribunal, or arbitrator of competent jurisdiction.
"Healthcare Laws" means all applicable federal and state laws, rules, regulations, and orders governing the provision and administration of healthcare services, including, without limitation, the Anti-Kickback Statute (42 U.S.C. § 1320a-7b), the Physician Self-Referral Law (also known as the Stark Law) (42 U.S.C. § 1395nn), the Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. §§ 1320d through 1320d-8) ("HIPAA"), as amended by the Health Information Technology for Economic and Clinical Health Act (the "HITECH Act"), the False Claims Act (31 U.S.C. § 3729 et seq.), the Civil Monetary Penalties Law (42 U.S.C. § 1320a-7a), all applicable state licensure, certificate of need, and scope of practice laws, and all applicable regulations promulgated under any of the foregoing.
"HIPAA" means the Health Insurance Portability and Accountability Act of 1996, as amended by the HITECH Act, and the rules and regulations promulgated thereunder, including the Standards for Privacy of Individually Identifiable Health Information (45 C.F.R. Parts 160 and 164) and the Security Standards for the Protection of Electronic Protected Health Information (45 C.F.R. Parts 160, 162, and 164).
"Indemnification Cap" means
"intellectual Property" means all intellectual property and proprietary rights of any kind, including (a) patents, patent applications, and patent disclosures, (b) trademarks, service marks, trade names, trade dress, and domain names, together with all goodwill associated therewith, (c) copyrights and copyrightable works, (d) trade secrets, know-how, inventions, processes, techniques, and proprietary information, (e) computer software, including source code, object code, firmware, middleware, and related documentation, (f) databases and data collections, and (g) all registrations, applications, renewals, extensions, continuations, and reissues of, and rights to apply for, 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)
"Law" means any statute, law, ordinance, regulation, rule, code, order, decree, injunction, directive, requirement, constitution, treaty, or other binding pronouncement of any Governmental Authority.
"Leased Real Property" means the real property leased by Seller and used in the operation of the Acquired Business, as more particularly described on Schedule 4.8.
"Lien" shall have the same meaning as Encumbrance.
"Losses" means any and all losses, damages, liabilities, obligations, deficiencies, demands, claims, suits, actions, causes of action, assessments, judgments, settlements, fines, penalties, costs, and expenses (including reasonable attorneys' fees and expenses, experts' fees, and court costs), whether or not involving a Third-Party Claim.
"Material Adverse Effect" means any event, occurrence, fact, condition, or change that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on (a) the business, financial condition, results of operations, properties, assets, or liabilities of the Acquired Business, taken as a whole, or (b) the ability of Seller to consummate the transactions contemplated hereby; 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, financial, or market conditions, (ii) changes in conditions generally affecting the healthcare industry in the United States, (iii) changes in applicable Law or GAAP, (iv) the announcement or pendency of the transactions contemplated by this Agreement , (v) any natural disaster, epidemic, pandemic, or public health emergency, (vi) any act of war, terrorism, or national or international calamity, (vii) any failure by Seller to meet any internal or published projections, forecasts, or estimates of revenue, earnings, or other financial metrics for any period (provided that the underlying cause of such failure may be taken into account to the extent not
"Material Contract" means any contract, agreement, lease, license, commitment, or other arrangement to which Seller is a party or by which any of the Acquired Assets are bound that (a) involves aggregate consideration payable to or by Seller in excess of Five Hundred Thousand Dollars ($500,000) per annum, (b) has a remaining term (including renewal periods exercisable by the counterparty) in excess of twelve (12) months, (c) limits or restricts the ability of Seller to compete in any line of business or geographic area, (d) involves any managed-care, commercial payor, or governmental payor arrangement, (e) relates to any Leased Real Property, (f) relates to any intellectual Property material to the Acquired Business, (g) involves any joint venture, partnership, or similar arrangement, (h) relates to any indebtedness for borrowed money, or (i) is otherwise material to the Acquired Business.
"Net Working Capital" or "NWC" means, as of any date of determination, the current assets of the Acquired Business minus the current liabilities of the Acquired Business (excluding (x) cash and cash equivalents, (y) the current portion of any indebtedness under Seller's Existing Credit Facility, and (z) any current portion of deferred revenue associated with pre-Closing periods), in each case calculated in accordance with GAAP, consistently applied with Seller's past practices and the Financial Statements, and using the same line items and accounting methods as used to calculate the NWC Target.
"NWC Target" means Twenty-Eight Million Dollars ($28,000,000).
"Order" means any order, writ, judgment, injunction, decree, stipulation, determination, or award entered by or with any Governmental Authority.
"Ordinary Course of Business" means the ordinary course of business of the Acquired Business consistent with Seller's past custom and practice
"Outside Date" has the meaning set forth in Section 10.1(b).
"PeakConnect" means the proprietary patient-engagement software platform developed by and proprietary to Seller, known as "PeakConnect," including all associated source code, object code, databases, documentation, user interfaces, APIs, and related intellectual Property.
"Permitted Encumbrances" means (a) statutory liens 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) mechanics', materialmen's, carriers', workers', repairers', and similar statutory liens arising or incurred in the ordinary course of business for amounts not yet due and payable, (c) zoning, entitlement, conservation restriction, and other land use and environmental regulations by Governmental Authorities that do not materially interfere with the current use of the applicable Leased Real Property, (d) easements, covenants, conditions, restrictions, and other similar encumbrances of record that do not materially impair the use or occupancy of the applicable Leased Real Property in the operation of the Acquired Business as currently conducted, and such other encumbrances as are set forth on Schedule 4.4.
"Person" means any individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, Governmental Authority, or any other entity.
"Purchase Price" has the meaning set forth in Section 3.1.
"Purchaser Indemnified Parties" means Purchaser, its Affiliates, and their respective officers, directors, managers, members, partners, employees, agents, representatives, successors, and assigns.
"R&W Insurance Policy" means the representations and warranties insurance policy to be obtained by Purchaser from 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), to be split fifty percent (50%) to the Purchaser's Basket Amount and fifty percent (50%) to the Seller's Basket Amount.
"Representative" means, with respect to any Person, such Person's officers, directors, managers, members, partners, employees, agents, attorneys, accountants, financial advisors, investment bankers, consultants, and other authorized representatives.
"Seller Indemnified Parties" means Seller, its Affiliates, and their respective officers, directors, managers, members, partners, shareholders, employees, agents, representatives, successors, and assigns.
"Seller's Closing Certificate" means the certificate of Seller substantially in the form attached hereto as Exhibit J.
"Seller's Existing Credit Facility" means that certain Credit Agreement, dated as of March 15, 2018, by and between Seller, as borrower, and Velthorn Merchant Bank, N.A., as administrative agent and lender, as amended by that certain First Amendment to Credit Agreement, dated as of November 8, 2019, that certain Second Amendment to Credit Agreement, dated as of June 22, 2021, and that certain Third Amendment to Credit Agreement, dated as of January 10, 2023, together with all related security agreements, pledge agreements, guaranty agreements, and other ancillary documents and instruments.
"Stark Law" means 42 U.S.C. § 1395nn, as amended, and all regulations promulgated thereunder.
"Survival Period" has the meaning set forth in Section 9.1.
"Tax" or "Taxes" means all federal, state, provincial, local, foreign, and other taxes of any kind, including income, franchise, capital gains, gross receipts, environmental, customs duty, capital stock, severance, stamp, payroll, sales, employment, unemployment, disability, use, property, withholding, excise, production, value added, occupancy, and ad valorem taxes, and any interest, penalties, additions to tax, or additional amounts imposed with respect thereto by any Governmental Authority.
"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 this Agreement, the Bill of Sale, the Assignment and Assumption Agreement, the IP Assignment Agreement, the Escrow Agreement, the Employment Agreements, the Non-Competition and Non-Solicitation Agreements, the Transition Services Agreement, and all other agreements, instruments, certificates, and documents to be delivered at or in connection with the Closing pursuant to this Agreement.
"Transferred Employees" has the meaning set forth in Section 6.4.
"Working Capital Adjustment" has the meaning set forth in Section 3.3.
Other terms defined elsewhere in this Agreement shall have the meanings ascribed to them where they are defined.
ARTICLE II — PURCHASE AND SALE OF ASSETS
Section 2.1 — Acquired Assets
Subject to the terms and conditions set forth in this Agreement, at the Closing, Purchaser agrees to purchase, acquire, and accept from Seller, and Seller agrees to sell, transfer, assign, convey, and deliver to Purchaser, free and clear of all Encumbrances (other than Permitted Encumbrances), 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, wherever located and whether now existing or hereafter acquired (other than the Excluded Assets), that relate to, or are used or held for use in connection with, the Acquired Business (collectively, the "Acquired Assets"), including, without limitation, the following:
(a) Tangible Personal Property. All tangible personal property, including all furniture, fixtures, equipment, medical equipment, diagnostic equipment, therapeutic equipment, computer hardware, servers, networking equipment, office equipment, leasehold improvements, supplies, and other tangible assets used in or relating to the Acquired Business, as more particularly described on Schedule 2.1(a);
(b) intellectual Property. All intellectual Property owned by or licensed to Seller and used in or relating to the Acquired Business, including, without limitation, the PeakConnect patient-engagement software platform, including all associated source code, object code, databases, documentation, specifications, user manuals, training materials, and updates, and the registered trademark "PeakConnect" (U.S. Patent and Trademark Office Registration No. 5,412,887), and all other trademarks, service marks, trade names, copyrights, domain names, and trade secrets used in the Acquired Business, together with all related documentation, source code, object code, licenses, and rights, as more particularly described on Schedule 4.9;
(c) Assumed Contracts. All of Seller's rights, interests, and obligations under the Assumed Contracts, including all managed-care agreements, commercial payor agreements, vendor agreements, supplier agreements, service agreements, IT contracts, software licenses, consulting agreements, and other contracts and agreements set forth on Schedule 2.3;
(d) Leased Real Property. All of Seller's right, title, and interest in and to the leasehold interests in the thirty-seven (37) clinic locations comprising the Acquired Business, located across Tennessee (14 locations), Georgia (8 locations), North Carolina (5 locations), South Carolina (4 locations), Alabama (3 locations), Virginia (2 locations), and Kentucky (1 location), as more particularly described on Schedule 4.8, together with all improvements, fixtures, and appurtenances thereto and all security deposits and prepaid rent relating thereto;
(e) Accounts Receivable. All accounts receivable, notes receivable, and other receivables of the Acquired Business (including trade receivables, patient receivables, third-party payor receivables, and governmental payor receivables) outstanding as of the Closing Date, whether or not billed or invoiced, together with any security held therefor and all rights of collection with respect thereto;
(f) Prepaid Expenses and Deposits. All prepaid expenses, deposits, advance payments, and prepaid items relating to the Acquired Business, including lease security deposits, utility deposits, and insurance premium prepayments;
(g) Inventory and Supplies. All inventory, supplies, materials, and consumables used in or held for use in connection with the Acquired Business, including medical supplies, pharmaceutical supplies, office supplies, and other materials;
(h) Permits and Licenses. All permits, licenses, certifications, accreditations, registrations, franchises, approvals, and other governmental authorizations relating to the Acquired Business, to the extent transferable under applicable Law, including all Medicare and Medicaid provider agreements and certifications, state professional and facility licenses, DEA registrations, and other regulatory authorizations, as more particularly described on Schedule 4.13;
(i) Books and Records. All books, records, files, papers, and data of the Acquired Business, including patient records and charts (subject to and in compliance with Healthcare Laws, including HIPAA ), medical records, clinical records, financial records, accounting records, tax records (to the extent relating to the Acquired Assets or Assumed Liabilities), correspondence, personnel files (to the extent relating to Transferred Employees and to the extent permitted by Law), supplier lists, customer and patient lists, referral source data, and operational records;
(j) Goodwill. All goodwill associated with the Acquired Business, including the value of the Seller's name recognition, customer relationships, referral relationships, and reputation in the communities it serves;
(k) Insurance Proceeds. All rights to insurance proceeds, claims, and recoveries under any insurance policies of Seller to the extent relating to loss of or damage to the Acquired Assets occurring after the Closing or to events, occurrences, or claims arising after the Closing;
(l) Communications and Digital Assets. All telephone numbers, facsimile numbers, e-mail addresses, websites, internet domain names, URLs, social media accounts, and similar communication assets used in or relating to the Acquired Business; and
(m) Marketing Materials and Lists. All patient lists, referral source lists, physician referral lists, marketing materials, advertising materials, promotional materials, and related data and databases.
Section 2.2 — Excluded Assets
Notwithstanding anything in Section 2.1 to the contrary, the Acquired Assets shall not include the following assets (collectively, the "Excluded Assets"):
(a) Cash and Cash Equivalents. All cash, cash equivalents, bank accounts, certificates of deposit, money market accounts, and similar liquid investments of Seller, wherever held or maintained;
(b) Tax Refunds and Credits. All Tax refunds, Tax credits, and rights to receive Tax refunds or credits attributable to any taxable period (or portion thereof) ending on or before the Closing Date;
(c) Dr. Whitfield's Personal Property. Certain items of personal property belonging to Dr. Randall J. Whitfield that are located at the offices of Seller and are described on Schedule 2.2(c);
(d) Corporate Name. The corporate name "Cardinal Peak Industries" and all derivations and variants thereof; provided, however, that Purchaser shall receive a limited, non-exclusive, royalty-free, non-transferable license to use the name "Cardinal Peak Industries" and associated trade dress solely in connection with the transition of the Acquired Business for a period of months following the Closing Date, as more particularly set forth in the IP Assignment Agreement;
(e) Equity Interests in Cardinal Peak Labs. All equity interests held by Seller in Cardinal Peak Labs, Inc., a dormant Delaware corporation, together with all assets, liabilities, and obligations of Cardinal Peak Labs, Inc.;
(f) Rights Under Transaction Documents. All of Seller's rights under this Agreement and the other Transaction Documents;
(g) Corporate Records. Seller's certificate of incorporation, bylaws, qualifications to do business, arrangements with registered agents, corporate seal, minute books, stock transfer books, stock records, and other corporate governance documents;
(h) Insurance Policies. All insurance policies of Seller (other than rights to proceeds relating to the Acquired Assets as contemplated by Section 2.1(k)), including all liability insurance policies, property insurance policies, and directors' and officers' liability insurance
Section 2.3 — Assumed Liabilities
Subject to the terms and conditions set forth in this Agreement, at the Closing, Purchaser shall assume and agree to pay, perform, and discharge when due the following liabilities and obligations of Seller, and only the following liabilities and obligations (collectively, the "Assumed Liabilities"):
(a) Trade Payables. All trade accounts payable and accrued expenses of the Acquired Business arising in the Ordinary Course of Business that are outstanding as of the Closing Date and have an original invoice date within days of the Closing Date;
(b) Obligations Under Assumed Contracts. All obligations and liabilities arising under the Assumed Contracts to the extent such obligations and liabilities arise from and relate to the period after the Closing Date and are required to be performed after the Closing Date, but excluding any liability or obligation arising from 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 for Transferred Employees as of the Closing Date, to the extent accrued on the Financial Statements or the Estimated Closing NWC; and
(d) Post-Closing Patient Liabilities. All patient-related liabilities and obligations arising from the treatment of patients by the Acquired Business on or after the Closing Date.
The Assumed Contracts shall be listed on Schedule 2.3, which shall be prepared by Seller and delivered to Purchaser prior to the Closing.
Section 2.4 — Excluded Liabilities
Notwithstanding anything herein to the contrary, Purchaser shall not assume or be responsible for, and Seller shall retain and be solely responsible for, all liabilities and obligations of Seller or relating to the Acquired Business other than the Assumed Liabilities (collectively, the "Excluded Liabilities"), including, without limitation, the following:
(a) Pre-Closing Litigation. All liabilities and obligations arising from or related to any Action pending or threatened against Seller or the Acquired Business on or prior to the Closing Date, including, without limitation, the putative class action captioned 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, in which plaintiffs allege wage-and-hour violations under the Fair Labor Standards Act (the "Dawson Matter"), the estimated exposure for which is between Two Million Eight Hundred Thousand Dollars ($2,800,000) and Five Million One Hundred Thousand Dollars ($5,100,000), as estimated by Seller's counsel;
(b) Pre-Closing Tax Liabilities. All Tax liabilities of Seller attributable to any taxable period (or portion thereof) ending on or before the Closing Date, including any Tax liability arising from the transactions contemplated hereby (other than transfer taxes to be shared as provided in Section 6.6);
(c) 401(k) Plan Liabilities. Any and all liabilities, obligations, and claims arising from or related to Seller's 401(k) plan, including any liability for contributions, matching contributions, vesting, fiduciary duties, plan administration, or compliance with the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the Code;
(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., including all principal, accrued and unpaid interest, fees, prepayment premiums (if any), and other amounts outstanding thereunder (estimated at approximately Eighty-Seven Million Four Hundred Thousand Dollars ($87,400,000) as of the anticipated Closing Date);
(e) Excluded Asset Liabilities. Any liabilities or obligations arising from, relating to, or associated with the Excluded Assets;
(f) Pre-Closing Tort Claims. Any product liability, professional liability, medical malpractice, or other tort claims arising from or related to the operation of the Acquired Business or the provision of services by the Acquired Business on or prior to the Closing Date; and
(g) Seller's Transaction Expenses. All costs, expenses, and liabilities incurred by Seller in connection with the negotiation, preparation, and consummation of the transactions contemplated by this Agreement, including fees and expenses of Seller's legal counsel (Barrow, Kensington & Pratt LLP), financial advisor (Meridian Oak Advisory Group), accountants (Linden Hayes & Co., P.C.), and any other advisors or consultants engaged by Seller.
Section 2.5 — Consents to Assignment; Non-Assignable Assets
(a) Seller and Purchaser acknowledge that twenty-nine (29) of the thirty-seven (37) clinic leases comprising the Leased Real Property contain provisions requiring the consent of the applicable landlord to the assignment of, or in connection with a change of control with respect to, the tenant's interest under such lease. In addition, certain of the Assumed Contracts (including certain managed-care agreements) may require the consent of the applicable counterparty to the assignment thereof or to the change of control contemplated by this Agreement. A schedule of all contracts and leases requiring consent for assignment or change of control is attached hereto as Schedule 2.5.
(b) To the extent that the assignment or attempted assignment of any Assumed Contract or Leased Real Property would constitute a breach thereof, or would be ineffective without the consent of a third party, and such consent has not been obtained prior to the Closing, this Agreement shall not constitute an assignment or attempted assignment of such contract, agreement, or lease. In such event, shall use commercially reasonable efforts, both before and after the Closing, to obtain all such consents as promptly as practicable.
(c) Pending the receipt of any such consent, Seller shall cooperate with Purchaser in any reasonable arrangement designed to provide Purchaser with the economic benefits and obligations of any such contract, agreement, or lease, including by acting as agent for Purchaser, subcontracting or subletting to Purchaser, or entering into any other lawful arrangement. Seller shall promptly pay and remit to Purchaser, when received, all monies and benefits received by Seller under any such contract, agreement, or lease, and Purchaser shall indemnify Seller against any liabilities, costs, or expenses arising from Purchaser's use or enjoyment of the benefits thereof.
(d) Once any such consent is obtained, the applicable Assumed Contract or lease shall be deemed to have been automatically assigned and assumed as of the Closing Date, and the provisions of this Agreement relating to Assumed Contracts and Assumed Liabilities shall apply as if such assignment had occurred at the Closing.
ARTICLE III — PURCHASE PRICE
Section 3.1 — Purchase Price
The aggregate consideration for the purchase and sale of the Acquired Assets (the "Purchase Price") shall consist of:
(a) The Base Purchase Price of Six Hundred Twenty Million Dollars ($620,000,000), payable in cash at the Closing, subject to the adjustments set forth in Sections 3.2 and 3.3;
(b) The assumption of the Assumed Liabilities by Purchaser; and
(c) The Earnout Payments of up to Forty-Five Million Dollars ($45,000,000) in contingent consideration, payable in accordance with Section 3.4.
Section 3.2 — Payment at Closing
At the Closing, Purchaser shall pay or cause to be paid the following amounts by wire transfer of immediately available funds to the accounts designated in the funds flow memorandum to be agreed upon by the Parties prior to Closing (substantially in the form attached hereto as Exhibit N):
(a) To Seller (or its designees): An amount equal to , as adjusted by the Estimated Working Capital Adjustment pursuant to Section 3.3(b), by wire transfer of immediately available funds to such bank account or accounts as Seller shall designate in writing not fewer than three (3) Business Days prior to the Closing Date;
(b) To the Escrow Agent: An amount equal to (the Escrow Amount), to be held and distributed by Commonwealth Trust & Escrow Company, as Escrow Agent, in accordance with the terms and conditions of the Escrow Agreement; and
(c) To Velthorn Merchant Bank, N.A.: Such amount as is necessary to pay off, satisfy, and discharge in full all outstanding indebtedness, obligations, and liabilities under Seller's Existing Credit Facility (estimated at approximately Eighty-Seven Million Four Hundred Thousand Dollars ($87,400,000) as of the anticipated Closing Date), in accordance with a payoff letter to be delivered by Velthorn Merchant Bank, N.A. at or prior to the Closing, together with wire transfer instructions, pursuant to Section 6.9. For the avoidance of doubt, amounts paid under this Section 3.2(c) shall be on behalf of, and shall reduce the amounts payable to, Seller under Section 3.2(a).
The Parties shall cooperate in good faith to prepare and agree upon a funds flow memorandum setting forth the wire instructions and amounts to be paid to each recipient at the Closing, which shall be circulated to the Parties and their respective counsel for review and approval no fewer than Business Days prior to the Closing Date.
Section 3.3 — Working Capital Adjustment
(a) Estimated Closing NWC. Not later 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 Acquired Business as of 11:59 p.m. Eastern Time on the day immediately preceding the Closing Date (the "Estimated Closing NWC"), together with reasonable supporting documentation and schedules. The Estimated Closing Statement shall be prepared in accordance with GAAP, consistently applied with the methodology used to prepare the Financial Statements and to calculate the NWC Target. For informational purposes, as of the date of this Agreement, Seller estimates that the Closing NWC will be approximately Twenty-Nine Million Two Hundred Thousand Dollars ($29,200,000).
(b) Closing Adjustment. The cash portion of the Base Purchase Price payable to Seller at the Closing pursuant to Section 3.2(a) shall be adjusted on a dollar-for-dollar basis as follows (the "Estimated Working Capital Adjustment"):
(i) if the Estimated Closing NWC exceeds the NWC Target by more than Five Hundred Thousand Dollars ($500,000) (the "De Minimis Collar"), the cash payable at Closing shall be increased by an amount equal to the excess of the Estimated Closing NWC over the NWC Target; or
(ii) if the NWC Target exceeds the Estimated Closing NWC by more than the De Minimis Collar, the cash payable at Closing shall be decreased by an amount equal to the excess of the NWC Target over the Estimated Closing NWC;
provided, however, that no adjustment shall be made if the absolute value of the difference between the Estimated Closing NWC and the NWC Target is equal to or less than the De Minimis Collar.
(c) Post-Closing True-Up.
(i) Preparation of Final Closing Statement. Within days following the Closing Date , 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 Acquired Business as of 11:59 p.m. Eastern Time on the day immediately preceding the Closing Date (the "Final NWC"), together with reasonable supporting documentation and schedules. The Final Closing Statement shall be prepared in accordance with GAAP, consistently applied with the methodology used to prepare the Estimated Closing Statement and the Financial Statements.
(ii) Review Period. Seller shall have thirty (30) days following receipt of the Final Closing Statement (the "Review Period") to review the Final Closing Statement and to provide Purchaser with written notice of any objections thereto (an "Objection Notice"). The Objection Notice shall set forth, in reasonable detail, each disputed item or amount and the basis for Seller's objection, together with Seller's proposed resolution of each disputed item. During the Review Period, Purchaser shall provide Seller and its Representatives with reasonable access to the books, records, work papers, and supporting documentation used in the preparation of the Final Closing Statement.
(iii) Dispute Resolution. If Seller delivers an Objection Notice within the Review Period, the Parties shall attempt in good faith to resolve all disputed items within fifteen (15) days following Purchaser's receipt of the Objection Notice. If any disputed items remain unresolved at the end of such fifteen (15)-day period, the Parties shall promptly engage an independent nationally recognized accounting firm mutually agreed upon by the Parties (the "Independent Accountant"), which shall not be Ashford & Creighton LLP, Linden Hayes & Co., P.C., or any other accounting firm that has provided services to either Party or its Affiliates within the preceding twenty-four (24) months. The Independent Accountant shall be engaged solely to resolve the remaining disputed items, and its determination shall be made in accordance with this Agreement, GAAP, and the methodology used to prepare the Financial Statements. The Independent Accountant shall render its determination within thirty (30) days after its engagement and shall set forth such determination in a written report delivered to each Party, which determination shall be final, binding, and conclusive on the Parties and shall not be subject to appeal or further review. The Independent Accountant shall not assign a value to any disputed item that is greater than the highest value or less than the lowest value assigned to such item by either Party. The fees and expenses of the Independent Accountant shall be
(iv) Final True-Up Payment. Within five (5) Business Days following the final determination of the Final NWC (whether by agreement of the Parties, expiration of the Review Period without an Objection Notice, or determination by the Independent Accountant):
(A) if the Final NWC exceeds the Estimated Closing NWC, Purchaser shall pay to Seller, by wire transfer of immediately available funds, the amount of such excess; or
(B) if the Estimated Closing NWC exceeds the Final NWC, Seller shall pay to Purchaser (or Purchaser may elect to have such amount paid from the Escrow Amount), by wire transfer of immediately available funds, the amount of such excess.
Section 3.4 — Earnout
(a) General. In addition to the Base Purchase Price, Purchaser shall pay, or cause to be paid, to Seller additional contingent consideration (the "Earnout Payments") based on the financial performance of the Acquired Business during the applicable Earnout Periods, as more particularly set forth in this Section 3.4.
(b) Tranche 1 Earnout.
(i) Maximum Amount. The maximum earnout payment payable in respect of Earnout Period 1 shall be Twenty-Two Million Five Hundred Thousand Dollars ($22,500,000).
(ii) Measurement. The Tranche 1 Earnout shall be based upon the Adjusted EBITDA of the Acquired Business for Earnout Period 1 (the twelve (12)-month period ending June 30, 2025).
(iii) Threshold. If the Adjusted EBITDA of the Acquired Business for Earnout Period 1 is less than Eighty Million Dollars ($80,000,000) (the "Tranche 1 Threshold"), no earnout payment shall be payable with respect to Tranche 1.
(iv) Target. If the Adjusted EBITDA of the Acquired Business for Earnout Period 1 is equal to or greater than Eighty-Five Million Dollars ($85,000,000) (the "Tranche 1 Target"), the full Tranche 1 Earnout of Twenty-Two Million Five Hundred Thousand Dollars ($22,500,000) shall be payable.
(v) Interpolation. If the Adjusted EBITDA of the Acquired Business for Earnout Period 1 is equal to or greater than the Tranche 1 Threshold but less than the Tranche 1 Target, the Tranche 1 Earnout shall be calculated by linear interpolation, at a rate of Four Dollars and Fifty Cents ($4.50) for each One Dollar ($1.00) of Adjusted EBITDA in excess of the Tranche 1 Threshold (calculated as $22,500,000 ÷ $5,000,000 = $4.50 per dollar). For example, if the Adjusted EBITDA for Earnout Period 1 is $82,000,000, the Tranche 1 Earnout would equal $2,000,000 × $4.50 = $9,000,000.
(c) Tranche 2 Earnout.
(i) Maximum Amount. The maximum earnout payment payable in respect of Earnout Period 2 shall be Twenty-Two Million Five Hundred Thousand Dollars ($22,500,000).
(ii) Measurement. The Tranche 2 Earnout shall be based upon the Adjusted EBITDA of the Acquired Business for Earnout Period 2 (the twelve (12)-month period ending June 30, 2026).
(iii) Threshold. If the Adjusted EBITDA of the Acquired Business for Earnout Period 2 is less than Ninety Million Dollars ($90,000,000) (the "Tranche 2 Threshold"), no earnout payment shall be payable with respect to Tranche 2.
(iv) Target. If the Adjusted EBITDA of the Acquired Business for Earnout Period 2 is equal to or greater than Ninety-Five Million Dollars ($95,000,000) (the "Tranche 2 Target"), the full Tranche 2 Earnout of Twenty-Two Million Five Hundred Thousand Dollars ($22,500,000) shall be payable.
(v) Interpolation. If the Adjusted EBITDA of the Acquired Business for Earnout Period 2 is equal to or greater than the Tranche 2 Threshold but less than the Tranche 2 Target, the Tranche 2 Earnout shall be calculated by linear interpolation, at the same rate of Four Dollars and Fifty Cents ($4.50) for each One Dollar ($1.00) of Adjusted EBITDA in excess of the Tranche 2 Threshold (calculated as $22,500,000 ÷ $5,000,000 = $4.50 per dollar).
(d) Earnout Cap. Notwithstanding anything in this Section 3.4 to the contrary, the aggregate maximum amount of Earnout Payments payable by Purchaser to Seller under this Section 3.4 shall not exceed the Earnout Cap of Forty-Five Million Dollars ($45,000,000).
(e) Calculation and Payment Procedures.
(i) Within days following the end of each applicable Earnout Period, Purchaser shall prepare and deliver to Seller a written statement (each, an "Earnout Statement") setting forth in reasonable detail Purchaser's calculation of the Adjusted EBITDA of the Acquired Business for such Earnout Period and the resulting earnout payment (if any) payable to Seller in respect thereof, together with reasonable supporting documentation and work papers.
(ii) Seller shall have thirty (30) days following receipt of each Earnout Statement (the "Earnout Review Period") to review such Earnout Statement and to provide Purchaser with written notice of any objections thereto, specifying in reasonable detail each disputed item and the basis for such objection. During the Earnout Review Period, Purchaser shall provide Seller and its Representatives with reasonable access to the books, records, work papers, and supporting documentation used in the preparation of the applicable Earnout Statement.
(iii) If Seller delivers a timely objection notice, the Parties shall attempt in good faith to resolve all disputed items within fifteen (15) days. If any disputed items remain unresolved, the dispute resolution mechanism set forth in Section 3.3(c)(iii) shall apply, mutatis mutandis, and the determination of the Independent Accountant shall be final and binding.
(iv) Payment of each Earnout Payment (if any) shall be made by Purchaser to Seller within ten (10) Business Days following the final determination of the applicable Earnout Statement (whether by agreement of the Parties, expiration of the Earnout Review Period without objection, or determination by the Independent Accountant), by wire transfer of immediately available funds to the account designated by Seller.
(f) Operating Covenants During Earnout Periods. During each Earnout Period:
(i) Purchaser shall operate the Acquired Business
(ii) Purchaser shall not take any action, or fail to take any action, with the primary purpose of reducing, avoiding, or delaying any Earnout Payment;
(iii) Purchaser shall
(iv) Purchaser shall not
(g) Change of Control Acceleration.
(i) If a Change of Control of the Acquired Business or Purchaser occurs prior to the end of any applicable Earnout Period, one hundred percent (100%) of the maximum remaining unpaid Earnout Payments (i.e., the full Earnout Cap of $45,000,000 less any Earnout Payments previously paid to Seller) shall become immediately due and payable to Seller.
(ii) Payment of the accelerated Earnout Payments shall be made by wire transfer of immediately available funds within Business Days following the closing of such Change of Control transaction, to the account designated by Seller.
Section 3.5 — Escrow
(a) At the Closing, Purchaser shall deposit with Commonwealth Trust & Escrow Company, as Escrow Agent, the Escrow Amount of of the Base Purchase Price, to be held and distributed in accordance with the terms and conditions of the Escrow Agreement. The Escrow Amount shall serve as security for Seller's indemnification obligations under Article IX of this Agreement.
(b) The Escrow Amount shall be released to Seller in accordance with the following schedule, subject to reduction for any pending or resolved indemnification claims:
(i) Tranche 1 Release. Fifty percent (50%) of the Escrow Amount shall be released to Seller on the anniversary of the Closing Date, net of the aggregate amount of any pending or unresolved indemnification claims and any amounts previously paid from the escrow in respect of resolved indemnification claims; and
(ii) Tranche 2 Release. The remaining fifty percent (50%) of the Escrow Amount , together with any amounts retained in escrow from Tranche 1 on account of then-pending claims that have since been resolved in favor of Seller, shall be released to Seller on the anniversary of the Closing Date, net of the aggregate amount of any pending or unresolved indemnification claims and any amounts previously paid from the escrow in respect of resolved indemnification claims.