EXHIBIT 10.1

 

EXECUTION COPY

 

Exhibit “A”

 

 

ASSET PURCHASE AGREEMENT

 

dated as of

 

January 14, 2004

 

by and among

 

TENDER LOVING CARE HEALTH CARE SERVICES, INC.,

T.L.C. HOME HEALTH CARE INC.,

ALBERT GALLATIN HOME CARE, INC.,

STAFF BUILDERS, INC.,

STAFF BUILDERS INTERNATIONAL, INC.,

CARECO, INC.,

TENDER LOVING CARE HOME CARE SERVICES, INC.,

T.L.C. MIDWEST, INC.,

U.S. ETHICARE CORP.,

T.L.C. MEDICARE SERVICES OF DADE, INC.,

T.L.C. MEDICARE SERVICES OF BROWARD, INC.,

U.S. ETHICARE CHAUTAUQUA CORP.,

ETHICARE CERTIFIED SERVICES, INC.,

U.S. ETHICARE ERIE CORP.,

U.S. ETHICARE NIAGARA CORP.,

S.B.H.F., INC.,

STAFF BUILDERS SERVICES, INC.,

STAFF BUILDERS HOME HEALTH CARE, INC.,

ST. LUCIE HOME HEALTH AGENCY, INC.,

A RELIABLE HOMEMAKER OF MARTIN ST. LUCIE COUNTY, INC.,

 

and

 

CHARTER TLC, INC.

(and/or its designees)

 

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TABLE OF CONTENTS

 

Article I DEFINITIONS

 

Article II SALE AND PURCHASE OF ASSETS; CLOSING

 

 

2.1

Asset Purchase

 

 

 

 

 

 

2.2

Excluded Assets

 

 

 

 

 

 

2.3

Assumed Liabilities

 

 

 

 

 

 

2.4

Consideration

 

 

 

 

 

 

2.5

Transfer of Assets and Assumed Liabilities.

 

 

 

 

 

 

2.6

Possession

 

 

 

 

 

 

2.7

Transfer Taxes

 

 

 

 

 

 

2.8

Non-Assignable Permits.

 

 

 

 

 

 

2.9

Assignment of Provider Agreements

 

 

 

 

 

 

2.10

The Closing

 

 

 

 

 

 

2.11

Deliveries by Sellers

 

 

 

 

 

 

2.12

Deliveries by Purchaser

 

 

 

Article III PURCHASE PRICE ADJUSTMENT

 

 

3.1

Estimated Net Working Capital

 

 

 

 

 

 

3.2

Net Working Capital Adjustment

 

 

 

 

 

 

3.3

Calculation of Net Working Capital

 

 

 

 

 

 

3.4

Settlement Agreement Adjustment

 

 

 

 

 

 

3.5

Claims Adjustment

 

 

 

 

 

Article IV REPRESENTATIONS AND WARRANTIES OF THE SELLERS

 

 

4.1

Organization and Qualification

 

 

 

 

 

 

4.2

Authority; No Breach.

 

 

 

 

 

 

4.3

Financial Statements

 

 

 

 

 

 

4.4

Title to Assets

 

 

 

 

 

 

4.5

Intentionally Omitted

 

 

 

 

 

 

4.6

Absence of Undisclosed Liabilities

 

 

 

 

 

 

4.7

Absence of Certain Changes or Events

 

 

 

 

 

 

4.8

Real Property Assets

 

 

 

 

 

 

4.9

Intellectual Property

 

 

 

 

 

 

4.10

Accounts Receivable

 

 

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4.11

Contracts and Commitments

 

 

 

 

 

 

4.12

Customers and Suppliers

 

 

 

 

 

 

4.13

Insurance

 

 

 

 

 

 

4.14

Litigation, etc

 

 

 

 

 

 

4.15

Compliance with Law; Necessary Authorizations

 

 

 

 

 

 

4.16

Environmental Matters

 

 

 

 

 

 

4.17

Labor Matters

 

 

 

 

 

 

4.18

Employee Benefit Plans

 

 

 

 

 

 

4.19

Business Generally

 

 

 

 

 

 

4.20

Finders

 

 

 

 

 

 

4.21

Bank Accounts

 

 

 

 

 

 

4.22

Disclosure

 

 

 

 

 

Article V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

 

 

5.1

Organization and Qualification

 

 

 

 

 

 

5.2

Authority

 

 

 

 

 

 

5.3

No Breach

 

 

 

 

 

 

5.4

Powers; Consents; Absence of Conflicts

 

 

 

 

 

 

5.5

Litigation or Proceedings

 

 

 

 

 

 

5.6

Financial Capability

 

 

 

 

 

Article VI COVENANTS

 

 

6.1

Conduct of Business of the Sellers

 

 

 

 

 

 

6.2

Sellers’ Records

 

 

 

 

 

 

6.3

Filings and Authorizations

 

 

 

 

 

 

6.4

Further Assurances

 

 

 

 

 

 

6.5

Bankruptcy Covenants.

 

 

 

 

 

 

6.6

Apportioned Obligations

 

 

 

 

 

 

6.7

Taxes

 

 

 

 

 

 

6.8

Negotiations

 

 

 

 

 

 

6.9

Cost Reports

 

 

 

 

 

 

6.10

Consents

 

 

 

 

 

Article VII CONDITIONS TO CLOSING

 

 

7.1

Conditions Precedent to Obligations of Purchaser

 

 

 

 

 

 

7.2

Conditions Precedent to Obligations of the Sellers

 

 

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Article VIII INDEMNIFICATION

 

 

 

 

8.1

Non-Survival of Representations and Warranties

 

 

 

 

 

Article IX MISCELLANEOUS

 

 

9.1

Termination

 

 

 

 

 

 

9.2

Effect of Termination

 

 

 

 

 

 

9.3

Expenses

 

 

 

 

 

 

9.4

Amendment

 

 

 

 

 

 

9.5

Entire Agreement

 

 

 

 

 

 

9.6

Waivers

 

 

 

 

 

 

9.7

Notices

 

 

 

 

 

 

9.8

Counterparts

 

 

 

 

 

 

9.9

Governing Law

 

 

 

 

 

 

9.10

Binding Effect; Third Party Beneficiaries; Assignment

 

 

 

 

 

 

9.11

Severability

 

 

 

 

 

 

9.12

Specific Performance

 

 

 

 

 

 

9.13

Headings

 

 

 

 

 

 

9.14

No Agency

 

 

 

 

 

 

9.15

Sellers’ Representative

 

 

 

 

 

 

9.16

Public and Private Announcements

 

 

 

 

 

 

9.17

Preservation and Access to Records After Closing

 

 

 

 

 

 

9.18

Sellers’ Knowledge Qualifications

 

 

 

 

 

 

9.19

Accounting Terms

 

 

 

 

 

 

9.20

Interpretation

 

 

 

 

 

 

9.21

Confidentiality

 

 

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ASSET PURCHASE AGREEMENT

 

ASSET PURCHASE AGREEMENT, dated as of January 14, 2004 is made by and among
Charter TLC, Inc., a Delaware corporation, and/or its designees (collectively,
“Purchaser”), and Tender Loving Care Health Care Services, Inc., a Delaware
corporation (“TLC”), T.L.C. Home Health Care, Inc., a Florida corporation
(“TLCHHC”), Albert Gallatin Home Care, Inc., a Delaware corporation
(“Gallatin”), Staff Builders, Inc., a New York corporation (“SBI”), Staff
Builders International, Inc., a New York corporation (“SBII”), Careco, Inc., a
Massachusetts corporation (“Careco”), Tender Loving Care Home Care Services,
Inc., a New York corporation (“TLCHCSI”), T.L.C. Midwest, Inc., a Delaware
corporation (“Midwest”), U.S. Ethicare Corp., a Delaware corporation (“USEC”),
T.L.C. Medicare Services of Dade, Inc., a Florida corporation (“Dade”), T.L.C.
Medicare Services of Broward, Inc., a Florida corporation (“Broward”), U.S.
Ethicare Chautauqua Corp., a New York corporation (“USECC”), Ethicare Certified
Services, Inc., a New York corporation (“ECSI”), U.S. Ethicare Erie Corp., a New
York corporation (“USEEC”), U.S. Ethicare Niagara Corp., a New York corporation
(“USENC”), S.B.H.F., Inc., a New York corporation (“SBHF”), Staff Builders
Services, Inc., a New York corporation (“SBSI”), Staff Builders Home Health
Care, Inc., a Delaware corporation  (“SBHHCI”), St. Lucie Home Health Agency,
Inc., a Florida corporation (“SLHHAI”) and A Reliable Homemaker of Martin St.
Lucie County, Inc., a Florida corporation (“Homemaker”, together with TLC,
TLCHHC, Gallatin, SBI, SBII, Careco, TLCHCSI, Midwest, USEC, Dade, Broward,
USECC, ECSI, USEEC, USENC, SBHF, SBSI, SBHHCI, SLHHAI, and Homemaker, each
individually a “Seller” and collectively the “Sellers”), as debtors and
debtors-in-possession in jointly administered Chapter 11 cases (the “Bankruptcy
Cases”) pending in the United States Bankruptcy Court for the Eastern District
of New York (Central Islip) (the “Bankruptcy Court”).

 

WHEREAS, the Sellers are in the home health care service provider business (the
“Business”);

 

WHEREAS, on November 8, 2002 (the “Filing Date”), the Sellers each filed
voluntary petitions with the Bankruptcy Court under Chapter 11 of Title 11 of
the United States Code, Section 101, et seq. (the “Bankruptcy Code”); and

 

WHEREAS, the Sellers desire to sell substantially all of their assets to
Purchaser, and Purchaser desires to purchase and acquire substantially all of
the assets of the Sellers upon the terms and subject to the conditions set forth
herein;

 

NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING, OF THE REPRESENTATIONS,
WARRANTIES, COVENANTS AND MUTUAL AGREEMENTS HEREINAFTER CONTAINED, AND OF OTHER
GOOD AND VALUABLE CONSIDERATION, RECEIPT AND SUFFICIENCY OF WHICH ARE HEREBY
ACKNOWLEDGED, THE PARTIES AGREE AS FOLLOWS:

 

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ARTICLE I

 

DEFINITIONS

 

The terms defined in this Article I, whenever used herein (including without
limitation the Exhibits and Schedules hereto), shall have the following meanings
for all purposes of this Agreement:

 

“Administrative Bar Date” means the applicable last day for the filing of proofs
of claim relating to obligations that have accrued on or subsequent to the
Filing Date.

 

“Affiliate” of a Person means any other Person that directly or indirectly
through one or more intermediaries controls, is controlled by, or is under
common control with such Person.

 

“Agreement” means this agreement among the parties set forth on the first page
hereof, including, without limitation, all Exhibits and Schedules hereto, as the
same may be amended from time to time.

 

“Apportioned Obligations” has the meaning set forth in Section 6.6 hereof.

 

“Assets” has the meaning set forth in Section 2.1 hereof.

 

“Assumed Claims” means post-petition accrued and unpaid payroll, payroll related
obligations, accounts payable, accrued expenses, accrued franchise royalties,
accrued interest payable, accrued and unpaid professional fees and any other
current liabilities incurred in the ordinary course of business and usually
categorized as such in the financial statements of the Sellers, in each case
accruing from and after the Filing Date.

 

“Assumed Contracts” has the meaning set forth in Section 2.1 hereof.

 

“Assumed Liabilities” has the meaning set forth in Section 2.3 hereof.

 

“Auction” has the meaning set forth in Section 6.5(c) hereof.

 

“Balance Sheet Date” means November 30, 2003.

 

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“Bankruptcy Cases” has the meaning given to it in the recitals hereto.

 

“Bankruptcy Code” has the meaning given to it in the recitals hereto.

 

“Bankruptcy Court” has the meaning given to it in the recitals hereto.

 

“Bidding Procedures Order” has the meaning set forth in Section 6.5(c) hereof.

 

“Business” has the meaning given to it in the recitals hereto.

 

“Business Day” means any day other than a Saturday, Sunday or other day on which
commercial banks in New York City are required or authorized by law to be
closed.

 

“Claims Escrow” means the sum of One Million Dollars ($1,000,000) to be
delivered by Purchaser to the Escrow Agent pursuant to the Claims Escrow
Agreement on the Closing Date.

 

“Claims Escrow Agreement” means the Claims Escrow Agreement to be entered into
on the date hereof by and among the Sellers, Purchaser and the Escrow Agent,
substantially in the form annexed hereto as Exhibit 7.

 

“Clinical Due Diligence Review” means a review of, among other things, the
Sellers’ material compliance with state and federal regulations and guidelines
with respect to the provisions of home health services; admitting practices;
coding; utilization and appropriateness of services; billing procedures;
Medicare, state and/or accreditation survey reports; pre and post billing audits
conducted by the Centers for Medicare and Medicaid Services or its contractors;
in each case in order to insure that the Sellers’ operations and Business are
conducted and operated in compliance with law and in a manner consistent with
recognized professional standards of clinical practice and good industry
practice.

 

“Closing” means the closing of the transactions contemplated by this Agreement.

 

“Closing Date” means the date on which the conditions set forth in Article VII
are satisfied or waived, or such other date as the parties may mutually agree,
upon which the Closing takes place.

 

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“Code” means the Internal Revenue Code of 1986, as amended, and the Treasury
Regulations promulgated thereunder.

 

“Consent” means any consent, approval, authorization, license or order of,
registration, declaration or filing with, or notice to, or waiver from, any
federal, state, local, foreign or other Governmental Entity or any other Person,
including, without limitation, any security holder or creditor which is
necessary to be obtained, made or given in connection with the execution and
delivery of this Agreement and/or any Operative Document, the performance by a
Person of its obligations hereunder and/or thereunder and the consummation of
the transactions contemplated hereby and/or thereby.

 

“Deposit” has the meaning set forth in Section 2.4(c) hereof.

 

“Directly or Indirectly” means as an individual, partner, shareholder, member,
creditor, director, officer, principal, agent, employee, trustee, consultant,
advisor or in any other relationship or capacity.

 

“Disclosure Schedule” means the disclosure schedule attached to this Agreement
as Exhibit 1, and includes but is not limited to each of the Schedules expressly
referred to in Article IV.

 

“Employee Benefit Plan” means any “employee benefit plan” (as defined under
Section 3(3) of ERISA) or any other bonus, deferred compensation, pension,
profit-sharing, retirement, stock purchase, stock option, stock appreciation,
other forms of incentive compensation, excess benefit, supplemental pension
insurance, disability, medical, supplemental unemployment, vacation benefits,
payroll practice, fringe benefit, scholarship, sickness, accident, severance, or
post-retirement compensation or benefit, welfare or any other employee benefit
plan, policy, arrangement or practice, whether written or oral.

 

“Encumbrances” means collectively, any and all security interests, liens,
pledges, claims, levies, charges, escrows, encumbrances, options, rights of
first refusal, transfer restrictions, conditional sale contracts, title
retention contracts, mortgages, hypothecations, indentures, security agreements
or other agreements, arrangements, contracts, commitments, understandings or
obligations of any kind whatsoever, whether written or oral.

 

“Environment” means any surface or subsurface physical medium or natural
resource, including, air, land, soil, surface waters, ground waters, stream and
river sediments.

 

“Environmental Laws” means any federal, state, local or common law, rule,
regulation, ordinance, code, order or judgment (including the common law and any
judicial or

 

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administrative interpretations, guidances, directives, policy statements or
opinions) relating to the injury to, or the pollution or protection of, human
health and safety or the Environment.

 

“Environmental Liabilities” means any claims, judgments, damages (including
punitive damages), losses, penalties, fines, liabilities, encumbrances, liens,
violations, costs and expenses (including attorneys’ and consultants’ fees) of
investigation, assessment, remediation or defense of any matter relating to
human health, safety or the Environment of whatever kind or nature by any Person
or Governmental Entity, (A) which are incurred as a result of (i) the existence
of Hazardous Substances in, on, under, at or emanating from any Real Property,
(ii) the off-site transportation, treatment, storage or disposal of Hazardous
Substances generated by the Sellers, or (iii) the violation of any Environmental
Laws, or (B) which arise under the Environmental Laws.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and the rules and regulations promulgated thereunder.

 

“ERISA Affiliate” means any entity that would be deemed a “single employer” with
the Sellers under Section 414(b), (c), (m) or (o) of the Code or Section 4001 of
ERISA.

 

“Escrow Agent” means Klestadt & Winters, LLP.

 

“Escrow Agreement” means the Escrow Agreement to be entered into on the date
hereof by and among the Sellers, Purchaser and the Escrow Agent, substantially
in the form annexed hereto as Exhibit 4.

 

“Estimated Net Working Capital” has the meaning set forth in Section 3.1(a)
hereof.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Excluded Assets” has the meaning set forth in Section 2.2 hereof.

 

“Excluded Liabilities” shall mean all of the debts, liabilities or obligations
of the Sellers other than the Assumed Liabilities including, without limitation,
those excluded debts, liabilities and obligations listed on Schedule 1.

 

“Expense Reimbursement” has the meaning set forth in Section 6.5(c) hereof.

 

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“Facilities” means the operating locations operated by the Sellers or the
Sellers’ franchisees.

 

“Filing Date” has the meaning given to it in the recitals hereto.

 

“Final Order” has the meaning set forth in Section 7.1(j) hereof.

 

“Financial Statements” means the consolidated unaudited balance sheets of TLC as
of March 31, 2003 and as of November 30, 2003 and the related consolidated
unaudited statements of operations, shareholder’s equity and cash flows of TLC
for the fiscal year ended March 31, 2003, and the eight-month period ended
November 30, 2003, and including the related notes thereto.

 

“GAAP” means United States generally accepted accounting principles, applied on
a consistent basis.

 

“Government Medical Reimbursement Program” has the meaning set forth in Section
4.15(d) hereof.

 

“Governmental Entity” means any federal, state, local or foreign government,
political subdivision, legislature, court, agency, department, bureau,
commission or other governmental regulatory authority, body or instrumentality,
including any industry or other non-governmental self-regulatory organizations.

 

“Hazardous Substance” means petroleum, petroleum products, petroleum-derived
substances, radioactive materials, hazardous wastes, polychlorinated biphenyls,
lead based paint, radon, urea formaldehyde, asbestos or any materials containing
asbestos, and any materials or substances regulated or defined as or included in
the definition of “hazardous substances,” “hazardous materials,” “hazardous
constituents,” “toxic substances,” “pollutants,” “contaminants” or any similar
denomination intended to classify or regulate substances by reason of toxicity,
carcinogenicity, ignitability, corrosivity or re activity under any
Environmental Law.

 

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder.

 

“Independent Auditor” has the meaning given to it in Section 3.3(b) hereof.

 

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“Instruments of Assignment” has the meaning given to it in Section 2.5(a)
hereof.

 

“Instruments of Assumption” has the meaning set forth in Section 2.5(b) hereof.

 

“IRS” means the Internal Revenue Service.

 

“Laws” has the meaning as set forth in Section 2.8(a) hereof.

 

“Licensed Service Provider” has the meaning as set forth in Section 4.15(c)
hereof.

 

“Marks” has the meaning as set forth in Section 4.9(a)(iv) hereof.

 

“Material Adverse Effect” means any material adverse effect on the business,
prospects, earnings, operations, Assets, liabilities, Properties, condition
(financial or otherwise), results of operations, net worth or Permits of the
Sellers taken as whole, excluding any effects resulting from (i) events or
circumstances adversely affecting a particular geographic market or the
healthcare industry generally which do not have a disproportionate adverse
effect on the Sellers or the Assets, (ii) general economic conditions, or (iii)
the execution, delivery, announcement, or performance of this Agreement or the
consummation of the transactions contemplated hereby.

 

“Medicare/Medicaid Liabilities” shall mean the Medicare and Medicaid liabilities
of the Sellers set forth on Schedule 3 hereto (Medicare/Medicaid Liabilities
shall not include any obligations arising under the Settlement Agreements) and
the other payor obligations set forth on Schedule 3 hereto.

 

“Net Working Capital” means the difference between (x) the sum of cash, accounts
receivable (net of allowance for doubtful accounts [excluding the reserve
related to ATC Healthcare, Inc. prepaid expense] and deferred revenue),
inventory, prepaid expenses (excluding the ATC Healthcare, Inc.-related prepaid
expense) and other current assets and (y) post-petition accrued and unpaid
payroll, payroll related obligations, accounts payable, accrued expenses,
accrued franchise royalties, accrued interest payable, accrued and unpaid
professional fees and any other current liabilities incurred in the ordinary
course of business and usually categorized as such in the financial statements
of TLC, in each case accruing from and after the Filing Date.  The calculation
of Net Working Capital shall exclude all liabilities related to: 1) workers’
compensation claims under the Sellers’ self-insured worker compensation plans
arising through December 31, 2002, 2) any potential reversal or repayment of tax
refunds, 3) the

 

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Settlement Agreements and 4) the Medicare/Medicaid Liabilities.  Each component
of Net Working Capital shall be calculated and reported in accordance with GAAP.

 

“Operative Document” means any agreement, instrument or other document to be
executed and delivered in connection with the consummation of the transactions
contemplated by this Agreement.

 

“Oversight Committee” means the committee consisting of professionals of (i) the
five member official committee of unsecured creditors appointed to represent the
interest of all unsecured creditors in the Sellers’ jointly administered cases,
(ii) National Century Financial Enterprises, Inc. and its related entities, and
(iii) Private Investment Bank, Limited in the Sellers’ jointly administered
cases.

 

“Oversight Committee Representative” means the individual or individuals
designated by the members of the Oversight Committee to act as such committee’s
representative as and to the extent contemplated in this Agreement.

 

“PBGC” means the Pension Benefit Guaranty Corporation.

 

“Pension Plan” means any “employee pension benefit plan” within the meaning of
Section 3(2) of ERISA maintained or contributed to by or on behalf of the
Sellers.

 

“Permits” means all licenses, certificates of authority, certificates of need,
Medicare Provider Agreements, Medicaid Provider Agreements, permits, orders,
consents, approvals, registrations, local siting approvals, authorizations,
qualifications and filings under any federal, state or local laws or with any
Governmental Entities or other private Persons.

 

“Person” means an individual, corporation, partnership, limited liability
company, firm, joint venture, association, joint stock company, trust,
unincorporated organization or other entity, or any Governmental Entity or
quasi-governmental body or regulatory authority.

 

“Plan” means any Employee Benefit Plan established, maintained, sponsored, or
contributed to by the Sellers or an ERISA Affiliate on behalf of any employee,
director or shareholder (whether current, former or retired) or their
beneficiaries, or with respect to which the Sellers or any ERISA Affiliate has
or has had any obligation on behalf of such person.

 

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“Post-Closing Tax Period” shall mean (i) any Tax period beginning the day after
the Closing Date and (ii) with respect to a Tax period that commences before but
ends after the Closing Date, the portion of such period beginning the day after
the Closing Date.

 

“Pre-Closing Tax Period” shall mean (i) any Tax period ending on or before the
Closing Date and (ii) with respect to a Tax period that commences before but
ends after the Closing Date, the portion of such period up to and including the
Closing Date.

 

“Property” (or “Properties” when the context requires) means any Real Property
and any personal or mixed property, whether tangible or intangible.

 

“Provider Agreements” means the program participation agreements with the
Medicare Program under Title XVIII of the Social Security Act and with the
various state Medical Assistance Programs under Title XIX of the Social Security
Act.

 

“Purchase Price” has the meaning set forth in Section 2.4(a) hereof, as adjusted
pursuant to Sections 3.2, 3.4 and 3.5.

 

“Real Property” means any real property presently owned, used, leased, occupied,
managed or operated by the Sellers.

 

“Sale Approval Order” has the meaning set forth in Section 6.5(d) hereof.

 

“Sale Hearing” has the meaning set forth in Section 6.5(c) hereof.

 

“Sellers” has the meaning given to it in the recitals hereto.

 

“Sellers Intellectual Property Rights” has the meaning set forth in Section
4.9(a) hereof.

 

“Sellers License Rights” has the meaning set forth in Section 4.9(b) hereof.

 

“Sellers’ Representative” has the meaning set forth in Section 9.15 hereof.

 

“Sellers Rights” has the meaning set forth in Section 4.9(b) hereof.

 

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“Sellers Software Products” has the meaning set forth in Section 4.9(a)(i)
hereof.

 

“Settlement Agreements” means collectively, (i) the Amended Settlement
Agreement, dated October 22, 2003, among the United States of America, acting
through the United States Department of Justice and on behalf of the Department
of Health and Human Services, the Centers for Medicare and Medicaid Services and
the Sellers, (ii) the Settlement Agreement, dated September 17, 2003, among the
Medicaid Fraud Control Unit of the Maryland Attorney General’s Office, the
Maryland Medical Assistance Program and the Sellers, and (iii) the Settlement
and Assumption Agreement, dated July 29, 2003, between McKesson Information
Solutions LLC and TLC.

 

“Subsidiary,” or “Subsidiaries” where the context requires, means any
corporation, partnership, limited liability company or other entity in which the
Sellers, directly or indirectly, owns or controls 50% or more of the voting
stock or other ownership interests.

 

“Tax Return” means each and every report, return, declaration, information
return, statement or other information required to be supplied to a taxing or
governmental authority with respect to any Tax or Taxes, including without
limitation any combined or consolidated return for any group of entities
including the Sellers.

 

“Taxes” (or “Tax” where the context requires) shall mean all federal, state,
county, provincial, local, foreign and other taxes (including, without
limitation, income, profits, premium, estimated, excise, sales, use, occupancy,
gross receipts, franchise, ad valorem, severance, capital levy, production,
transfer, withholding, employment and payroll related and property taxes and
other governmental charges and assessments), whether attributable to statutory
or nonstatutory rules and whether or not measured in whole or in part by net
income, and including, without limitation, interest, additions to tax or
interest, charges and penalties with respect thereto, and expenses associated
with contesting any proposed adjustment related to any of the foregoing.

 

“Trade Secrets” means any information which (i) is used in a business, (ii) is
not generally known to the public or to Persons who can obtain economic value
from its disclosure, and (iii) is subject to reasonable efforts to maintain its
secrecy or confidentiality; the term may include but is not limited to
inventions, processes, know-how, formulas, computer software, and mask works
which are not patented and are not protected by registration (e.g., under
copyright or mask work laws); lists of customers, suppliers, and employees, and
data related thereto; business plans and analyses; and financial data.

 

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ARTICLE II

 

SALE AND PURCHASE OF ASSETS; CLOSING

 

2.1           Asset Purchase.  Upon the terms and subject to the conditions
hereof, and upon the basis of the agreements, representations and warranties
contained in this Agreement, on the Closing Date, the Sellers agree to sell,
transfer, assign, convey and deliver to Purchaser, and Purchaser shall purchase,
acquire and accept from the Sellers, all of the Sellers’ right, title and
interest in and to all of the assets, properties and rights of the Sellers owned
or used by the Sellers in the conduct of the Business, as and to the extent
existing on the Closing Date (such assets, properties and rights are hereinafter
collectively referred to as the “Assets”), free and clear of all Encumbrances. 
Subject to, but without limitation of the foregoing, the Assets include the
following as and to the extent existing on the Closing Date:

 

(a)           Personal Property.  All personal property owned by the Sellers
with respect to the conduct of the Business;

 

(b)           Real Property.  All Real Property owned by the Sellers.

 

(c)           Cash.  All cash and cash equivalents of the Sellers.

 

(d)           Intellectual Property.  All right, title and interest to the
Sellers Rights set forth on Schedules 4.9(a) and (b);

 

(e)           Accounts Receivable.  All of the Sellers’ trade accounts, notes
and other receivables to the maximum extent permitted by law and consistent with
the provisions of §1815(c) of the Social Security Act, 42 U.S.C. §1395g(c), as
amended.  To the extent that any account receivable is unable to be assigned
because of any applicable law or regulation, the Sellers acknowledge and agree
that the receipt by any Seller of any account receivable shall be held in trust
for Purchaser and immediately be endorsed over and remitted to Purchaser.  For
purposes of this Agreement, accounts receivable shall include any settlement
amounts received or payable to any of the Sellers with respect to the settlement
of any open cost reporting periods as well as any lump sum payments attributable
to any retroactive adjustments of payment rates;

 

(f)            Contracts.  The contracts, leases and other agreements set forth
on Schedule 2.1(f) to which certain of the Sellers are a party and which relate
to the conduct of the Business (the “Assumed Contracts”);

 

(g)           Inventory.  All raw materials, work-in-process, finished goods and
merchandise, packaging materials and other supplies related thereto which are
owned or used by the Sellers in the conduct of the Business;

 

(h)           Insurance.  All rights of the Sellers under insurance policies
covering the Assets or the Business;

 

(i)            Bank Accounts.  All rights with respect to the bank accounts set
forth on Schedule 4.21;

 

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(j)            Deposits and Prepaid Expenses.  All deposits, notes receivable,
prepaid expenses, and other receivables relating to the conduct of the Business;

 

(k)           Books and Records.  All general, financial and personnel records,
correspondence and other files and records, including customer lists and sales
records, of the Sellers pertaining to the conduct of the Business, in accordance
with federal and state laws and regulations;

 

(l)            Goodwill.  All of the Sellers’ goodwill and other intangibles in
the Business;

 

(m)          Causes of Action.  All causes of action, rights of recovery and
rights of set-off arising out of the conduct of the Business (other than claims
and actions set forth in Section 2.2(d));

 

(n)           Permits.  All of the Sellers’ rights, title and interest in and to
any and all Permits, licenses, approvals and authorizations by a federal, state,
local or foreign governmental or non-governmental board, bureau, agency or
regulatory body pertaining to the conduct of the Business set forth on Schedule
2.1(n), to the extent transferable or assignable;

 

(o)           Preference and Avoidance Claims.  All preference, fraudulent
transfer and/or other avoidance claims and actions of any kind of the Sellers,
including, without limitation, any such claims and actions arising under
Sections 544, 545, 547, 548 549, 550 and 551 of the Bankruptcy Code (other than
the preference and/or avoidance claims and actions set forth in Section 2.2(d)
below); and

 

(p)           Customer and Supplier Lists.  All customer and supplier lists and
related information of the Sellers, as well as all existing advertising plans of
any kind, sales literature and related items, in accordance with federal and
state laws and regulations.

 

2.2           Excluded Assets.  Any provision of this Agreement to the contrary
notwithstanding, Purchaser shall not acquire and there shall be excluded from
the Assets the following (the “Excluded Assets”):

 

(a)           all contracts, leases or other agreements which are not Assumed
Contracts;

 

(b)           all claims against Purchaser arising under or in connection with
this Agreement;

 

(c)           claims related solely to Excluded Liabilities; and

 

(d)           all preference, fraudulent transfer and/or other avoidance claims
and actions of any kind against (i) National Century Financial Enterprises, Inc.
and its related entities, (ii) Private Investment Bank Limited, (iii) former
officers and directors of the Sellers as of the date of this Agreement, (iv)
directors of TLC as of the date of this Agreement, and (v) the stockholder of
TLC as of the date of this Agreement and such stockholder’s directors and
officers.

 

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2.3           Assumed Liabilities.  Except as otherwise expressly provided in
this Section 2.3, Purchaser shall not assume or be responsible for, and shall in
no event be liable for any debts, liabilities or obligations of the Sellers,
whether fixed or contingent, known or unknown, liquidated or unliquidated,
suspected or unsuspected, material or immaterial, absolute or contingent,
matured or unmatured, determinable or undeterminable, direct or indirect,
secured or unsecured, or otherwise.  As the sole exception to the first sentence
of this Section 2.3, effective as of the Closing Date, Purchaser hereby assumes
and agrees to pay, discharge or perform, as appropriate, when due or otherwise
on a timely basis (i) the obligations of the Sellers under the Assumed Contracts
that accrue after the Closing Date, (ii) the cure payments in connection with
the executory contracts and/or unexpired leases in the respective amounts set
forth on Schedule 2.3, (iii) the obligations due pursuant to the Settlement
Agreements, (iv) the Medicare/Medicaid Liabilities and (v) the Assumed Claims
set forth on Schedule 2.3(a) (collectively, the “Assumed Liabilities”).

 

2.4           Consideration.  (a)  The aggregate consideration for the Assets
(the “Purchase Price”) shall be the following: (i) a cash payment in the amount
of Eighty-Two Million Dollars ($82,000,000) payable as provided in Section
2.12(a) and (ii) the assumption of the Assumed Liabilities.

 

(b)           Intentionally Omitted.

 

(c)           As of the date hereof, Purchaser has delivered to the Escrow Agent
a deposit (together with any interest accrued thereon, the “Deposit”) in the
amount of Two Million Five Hundred Thousand Dollars ($2,500,000) to be held in
accordance with the terms of this Agreement and the Escrow Agreement, and
applied to the cash portion of the Purchase Price at Closing.  In the event of
termination of this Agreement, the Deposit shall be disbursed as provided in
Section 9.2(b).

 

(d)           In the event that Purchaser is the Winning Bidder (as defined in,
and in accordance with, the Bidding Procedures Order), then Purchaser shall
within ten (10) Business Days following the Auction increase the Deposit by Five
Million Seven Hundred Thousand Dollars ($5,700,000).

 

2.5           Transfer of Assets and Assumed Liabilities.

 

(a)           At the Closing, the Sellers shall effect the sale, conveyance,
assignment, transfer and delivery of the Assets to Purchaser by delivering to
Purchaser or its designees documents of assignment and transfer as are
reasonably necessary to vest in Purchaser good and valid title to the Assets,
free and clear of all Encumbrances, except the Assumed Liabilities, in form and
substance reasonably acceptable to the parties, collectively, the “Instruments
of Assignment”.

 

(b)           At the Closing, Purchaser shall deliver to the Sellers
instruments, documents or agreements in form and substance reasonably acceptable
to the parties (collectively, the “Instruments of Assumption”) as are reasonably
necessary to evidence Purchaser’s assumption of and agreement to pay and
discharge the Assumed Liabilities.

 

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2.6           Possession.  Right to possession of the Assets shall transfer to
Purchaser on the Closing Date.  Sellers shall transfer and deliver to Purchaser
on the Closing Date such keys, lock and safe combinations and other similar
items as Purchaser shall require to obtain immediate and full occupation and
control of the Assets, and shall also make available to Purchaser at Sellers’
then existing locations all documents in Sellers’ possession that are required
to be transferred to Purchaser by this Agreement.

 

2.7           Transfer Taxes.  Provided that the Sale Approval Order (as defined
in Section 6.5(d) hereof) includes the finding set forth in clause (xiii) of
Section 6.5(d) in accordance with Section 1146(c) of the Bankruptcy Code, the
making or delivery of any instrument of transfer, including the filing of any
deed or other document of transfer to evidence, effectuate or perfect the
rights, transfers and interest contemplated by this Agreement, shall be in
contemplation of a plan or plans or reorganization to be confirmed in the
Bankruptcy Cases, and such shall be free and clear of any and all transfer tax,
stamp tax or similar taxes.  Such instruments, orders and agreements
transferring the Assets to Purchaser shall contain the following endorsement:

 

“Because this [instrument] has been authorized pursuant to an order of the
United States Bankruptcy Court for the Eastern District of New York (Central
Islip), in contemplation of a plan of reorganization of the Grantor, it is
exempt from transfer taxes, stamp taxes or similar taxes pursuant to 11 U.S.C.
§1146(c).”

 

If such transfer, stamp or similar taxes are ultimately payable, notwithstanding
Section 1146(c) of the Bankruptcy Code or for any other reason, Purchaser and
the Sellers shall equally share in the payment of any and all such transfer,
stamp or similar taxes which may be payable by reason of the transaction
contemplated in this Agreement and any and all claims, charges, interest or
penalties assessed, imposed or asserted in relation to any such taxes.

 

2.8           Non-Assignable Permits.

 

(a)           To the extent that any Permit included among the Assets is not
capable of being assigned to Purchaser at the Closing without the Consent of the
issuer thereof, or if such assignment or attempted assignment would constitute a
breach thereof, or a violation of any applicable federal, state, local or
foreign law, statute, ordinance, rule, regulation, order, judgment or decree,
administrative order or decree, administrative or judicial decision, and any
other executive or legislative proclamation (“Laws”), neither this Agreement nor
any Instrument of Assignment shall constitute an assignment thereof, or an
attempted assignment, unless such Consent has been obtained.

 

(b)           In the event that any Consent referred to in Section 2.8(a) has
not been obtained prior to the Closing and Purchaser nevertheless determines to
effect the Closing, if Purchaser so desires, Purchaser shall use its
commercially reasonable efforts, and the Sellers shall cooperate with Purchaser,
to obtain each and every such Consent and to resolve the impracticalities of
assignment referred to in Section 2.8(a) after the Closing; provided, however,

 

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that each party shall bear its own costs and expenses, and neither the Sellers
nor Purchaser shall be obligated to pay any consideration therefore to the
Person from whom the Consent is requested (other than filing and similar fees
payable to any Governmental Entity customarily paid in connection with
transactions of the type contemplated hereby).

 

(c)           To the extent that Consents referred to in Section 2.8(a) have not
been obtained by the Sellers prior to the Closing and Purchaser nevertheless
determines to effect the Closing, until the impracticalities of assignment
referred to in Section 2.8(a) hereof are resolved, each Seller shall use its
commercially reasonable efforts to (i) provide Purchaser with the same benefits
as those that were granted to the Sellers with respect to any Permit referred to
in Section 2.8(a) , (ii) cooperate in any reasonable and lawful arrangement
designed to provide such benefits to Purchaser, without incurring any financial
obligation to Purchaser, and (iii) enforce for the account and benefit of
Purchaser any and all rights of the Sellers arising from the Permits referred to
in Section 2.8(a) against such issuer thereof (including the right to elect to
terminate in accordance with the terms thereof on the advice of Purchaser).

 

(d)           To the extent that Purchaser is provided the benefits pursuant to
Section 2.8(c) of any Permit, Purchaser shall perform, at no cost to the
Sellers, on behalf of the Sellers, for the benefit of the issuer thereof, and/or
all other parties thereto, the obligations of the Sellers thereunder or in
connection therewith, but only to the extent that (i) such action by Purchaser
would not result in any material default thereunder or in connection therewith
and (ii) such obligation would have been an Assumed Liability but for the
non-assignability or non-transferability thereof.

 

2.9           Assignment of Provider Agreements.  Immediately following the date
hereof, Purchaser shall prepare (with the reasonable assistance of the Sellers)
all necessary CMS Forms 855 Change of Ownership indicating Purchaser’s intent to
take automatic assignment of the Sellers’ Medicare Provider Agreements in
accordance with 42 CFR §489.18(c).  As soon as possible following the Auction,
Purchaser and the Sellers shall jointly file such forms.  Each Seller shall
timely give any required notice to the appropriate federal and state agencies of
its intention to terminate participation in all Medicare and Medicaid programs. 
Assignment or termination and replacement of Medicaid Provider Agreements, and
any assumption of liabilities therewith, shall be governed by the applicable
state law for the jurisdictions in which the Sellers hold Medicaid Provider
Agreements.

 

2.10         The Closing.  The Closing shall take place at 9:00 a.m., local
time, on the Closing Date, at the offices of Proskauer Rose LLP, 1585 Broadway,
New York, New York, or at such other time, date or place as the parties may
mutually agree, subject to the satisfaction or waiver of all of the conditions
to Closing set forth in Article VII hereof.  At the Closing, Purchaser and the
Sellers shall deliver or cause to be delivered the items necessary to convey,
assign, transfer and deliver the Assets to Purchaser.

 

2.11         Deliveries by Sellers.  At the Closing, the Sellers shall deliver,
or cause to be delivered, to Purchaser each of the following, duly executed by
or on behalf of Sellers:

 

(a)           the Instruments of Assignment referred to in Section 2.5(a)
hereof;

 

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(b)           executed copies of the Consents referred to in Section 7.1(c)
hereof;

 

(c)           the officer’s certificate of the Sellers referred to in Section
7.1(e) hereof;

 

(d)           a copy of the Sale Approval Order referred to in Section 6.5(d)
hereof; and

 

(e)           a copy of the Bankruptcy Court’s docket sheet for the Bankruptcy
Cases evidencing that there has been no appeal or stay of the Sale Approval
Order.

 

2.12         Deliveries by Purchaser.  At the Closing, Purchaser shall deliver
or cause to be delivered to the Sellers each of the following, duly executed by
or on behalf of Purchaser:

 

(a)           an amount equal to the cash portion of the Purchase Price (less
(i) the amount of the Deposit and (ii) the amount of the Claims Escrow), by wire
transfer of immediately available funds to the account or accounts designated in
writing by the Sellers at least two (2) Business Days prior to the Closing Date;

 

(b)           the Instruments of Assumption referred to in Section 2.5(b)
hereof;

 

(c)           the officer’s certificate of Purchaser referred to in Section
7.2(e) hereof;

 

(d)           copies of the certificate of incorporation and by-laws of
Purchaser; and

 

(e)           resolutions of the board of directors of Purchaser approving and
authorizing the execution, delivery and performance of this Agreement and the
transactions contemplated in connection herewith, certified by the Secretary of
Purchaser as of the Closing Date, together with a certificate of the Secretary
of Purchaser as to the incumbency and signature of the officers of Purchaser
executing this Agreement and any certificate or other documents to be delivered
by them pursuant hereto, together with evidence of the incumbency of such
Secretary.

 

ARTICLE III

 

PURCHASE PRICE ADJUSTMENT

 

3.1           Estimated Net Working Capital.  (a)  On or before the third
Business Day prior to the Closing Date, the Sellers and Purchaser shall jointly
agree on an estimate of the amount of Net Working Capital as of the Closing Date
(the “Estimated Net Working Capital”).  The Estimated Net Working Capital shall
be determined in good faith on a reasonable basis using then available
information of the Sellers and based upon the books and records of the Sellers.

 

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(b)           In the event the Estimated Net Working Capital is less than
$20,000,000, then the payment to be made pursuant to Section 2.4(a)(i) shall be
reduced dollar-for-dollar by the amount of such shortfall.

 

(c)           In the event the Estimated Net Working Capital is greater than
$20,000,000, then the payment to be made pursuant to Section 2.4(a)(i) shall be
increased dollar-for-dollar by the amount of such excess.

 

3.2           Net Working Capital Adjustment.  (a)  The Purchase Price shall be
subject to adjustment as set forth below, and all references in this Agreement
to the Purchase Price shall be deemed to be the Purchase Price as adjusted
pursuant to this Section 3.2.

 

(b)           If the Net Working Capital is less than the Estimated Net Working
Capital, then the cash portion of the Purchase Price shall be reduced
dollar-for-dollar by the amount of such shortfall.

 

(c)           If the Net Working Capital is greater than the Estimated Net
Working Capital, then the cash portion of the Purchase Price shall be increased
dollar-for-dollar by the amount of such excess.

 

3.3           Calculation of Net Working Capital.  The determination of the Net
Working Capital shall be made pursuant to the following provisions:

 

(a)           Within sixty (60) days after the Closing Date, Purchaser shall
prepare a calculation of Net Working Capital as of the close of business on the
Closing Date on a basis consistent with that applied in the preparation of the
Financial Statements and deliver to the Sellers’ Representative and the
Oversight Committee Representative such calculation of Net Working Capital.

 

(b)           The Sellers’ Representative and the Oversight Committee
Representative will have a period of thirty (30) days following the delivery of
the calculation of Net Working Capital to notify Purchaser of any disagreements
with the calculation of Net Working Capital.  Failure to notify Purchaser within
such 30-day period shall be deemed acceptance of such calculation.  In the event
the Sellers’ Representative or the Oversight Committee Representative timely
notifies Purchaser of any disagreement, the parties agree that each of them
shall attempt in good faith to resolve such disagreements.  If within thirty
(30) days after delivery to Purchaser of the notification by the Sellers’
Representative or the Oversight Committee Representative of a disagreement, the
parties are unable to resolve such disagreement, either the Sellers’
Representative or the Oversight Committee Representative, on the one hand, or
Purchaser, on the other hand, shall have the right to submit the determination
of such matters to an independent accountant of national standing reasonably
acceptable to the Sellers’ Representative, the Oversight Committee
Representative and Purchaser (the “Independent Auditor”), whose decision shall
be binding on the parties.  The cost of the Independent Auditor shall be paid by
the party whose aggregate estimate of the disputed amount or amounts, as the
case may be, differs most greatly from the determination of the Independent
Auditor.

 

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(c)           If Purchaser, the Oversight Committee Representative and the
Sellers’ Representative or the Independent Auditor, as the case may be,
determines that the actual Net Working Capital is less than the Estimated Net
Working Capital, the Sellers shall remit such difference to Purchaser.

 

(d)           If Purchaser, the Oversight Committee Representative and the
Sellers’ Representative or the Independent Auditor, as the case may be,
determines that the actual Net Working Capital is greater than the Estimated Net
Working Capital, Purchaser shall remit such difference to Sellers.

 

(e)           Any cash payment to be made as a result of adjustments made in
accordance with this Section 3.3, shall be paid within five (5) Business Days of
such determination by wire transfer of immediately available funds.  Any such
payment shall be made to such account or accounts as may be designated by the
party entitled to such payment at least two (2) Business Days prior to the date
that such payment is to be made.

 

3.4           Settlement Agreement Adjustment.  (a)  The Purchase Price shall
also be subject to adjustment as set forth below, and all references in this
Agreement to the Purchase Price shall be deemed to be the Purchase Price as
adjusted pursuant to this Section 3.4.

 

(b)           The cash portion of the Purchase Price shall be increased
dollar-for-dollar by the amount of all regularly scheduled payments actually
made by the Sellers pursuant to the Settlement Agreements between the date
hereof and the Closing Date.

 

3.5           Claims Adjustment.  (a)  The Purchase Price shall also be subject
to adjustment as set forth below, and all references in this Agreement to the
Purchase Price shall be deemed to be the Purchase Price as adjusted pursuant to
this Section 3.5.

 

(b)           If, during the period commencing on the Closing Date and
terminating on the tenth Business Day following the Administrative Bar Date,
Purchaser becomes aware of any Assumed Claims which were not included as a
liability in connection with the final calculation of Net Working Capital, the
Purchase Price shall be reduced by the amount of such Assumed Claims.  In such
event, the Escrow Agent shall promptly remit from the Claims Escrow the amount
of the Purchase Price reduction to Purchaser.  Any balance remaining in the
Claims Escrow shall then be paid by the Escrow Agent to the Sellers.  In the
event the Purchase Price reduction pursuant to this Section 3.5(b) exceeds the
amount in the Claims Escrow, the Sellers will promptly remit the amount of such
shortfall to Purchaser.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OF THE SELLERS

 

Each of the Sellers hereby jointly and severally represents and warrants to
Purchaser as follows (all such representations and warranties are qualified by
the Disclosure Schedule attached to this Agreement as Exhibit 1):

 

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4.1           Organization and Qualification.  Each Seller is duly organized,
validly existing and in good standing in the state of its organization (which
state is set forth on Schedule 4.1), with all necessary corporate power and
authority to own, lease and operate its Assets and Properties and carry on its
business as presently owned or conducted.  Each Seller is licensed or qualified
to transact business and is in good standing as a foreign corporation in each of
the jurisdictions indicated on Schedule 4.1 of the Disclosure Schedule, which
are the only jurisdictions wherein, because of the business conducted there or
the nature of its Assets or Properties there, such Seller is required to be so
licensed or qualified, except where the failure to be so qualified or in good
standing would not, individually or in the aggregate, have a Material Adverse
Effect.

 

4.2           Authority; No Breach.

 

(a)           Each of the Sellers have all requisite power and authority to
execute and deliver this Agreement and the Operative Documents to which it is or
shall, pursuant to this Agreement, be a party, and to perform, carry out and
consummate the transactions contemplated hereby and thereby.  The execution,
delivery and performance of this Agreement and the Operative Documents to which
it is or shall, pursuant to this Agreement, be a party have been duly authorized
by all necessary action on the part of each of the Sellers.  This Agreement has
been duly executed and delivered by each of the Sellers and constitutes the
legal, valid and binding obligation of the Sellers, enforceable against the
Sellers in accordance with its terms.

 

(b)           Except with regard to the contemplated approval and authorization
of the Bankruptcy Court, and except as set forth on Schedule 4.2(b) of the
Disclosure Schedule, neither the execution and delivery of this Agreement or any
Operative Document by the Sellers nor the consummation of any of the
transactions contemplated herein or therein, nor the full performance by each of
the Sellers of its obligations hereunder or thereunder do or will: (i) violate
any provision of the certificate of incorporation or by-laws of any of the
Sellers; (ii) conflict with, result in a breach or violation of, or constitute a
default under (or an event which, with or without notice, lapse of time or both,
would constitute a default) or result in the invalidity of, or accelerate the
performance required by or cause or give rise to any right of acceleration or
termination of any right or obligation pursuant to any agreement or commitment
to which any of the Sellers are a party or by which any of the Sellers (or any
of their respective Assets or Properties) is subject or bound, except where such
conflict, breach, violation, default, invalidity or acceleration would not,
individually or in the aggregate, have a Material Adverse Effect; (iii) result
in the creation of, or give any third party the right to create, any Encumbrance
upon the Assets or Properties of any Seller; (iv) conflict with, violate, result
in a breach of or constitute a default under any writ, injunction, statute, law,
ordinance, rule, regulation, judgment, award, Permit, decree, order, or process
of any Governmental Entity to which any Sellers or any Assets or Properties of
any of the Sellers are subject, except where such conflict, violation, breach or
default would not, individually or in the aggregate, have a Material Adverse
Effect; (v) terminate or modify, or give any third party the right to terminate
or modify, the provisions or terms of any contract or agreement to which any of
the Sellers are a party or by which any of the Sellers (or any of their
respective Assets or Properties) is subject or bound; (vi) require any of the
Sellers to obtain any Consent, or (vii) result in or give to any Person any
additional rights or entitlement to

 

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increased, additional, accelerated or guaranteed payments under any contract or
agreement to which any of the Sellers are a party or by which any of their
respective Assets or Properties is subject or bound.

 

4.3           Financial Statements.  The Sellers have heretofore delivered to
Purchaser accurate and complete copies of the Financial Statements.  The
Financial Statements have been prepared from the books and records of TLC and
its Subsidiaries, and present fairly in all material respects (i) the
consolidated financial position of TLC and its Subsidiaries at March 31, 2003
and November 30, 2003, and (ii) the consolidated results of their operations,
cash flows and changes in shareholder’s equity (if applicable) for the periods
covered thereby in conformity with GAAP.

 

4.4           Title to Assets.  Sellers have good and valid title to all of the
Assets free and clear of any and all Encumbrances pursuant to Section 363 of the
Bankruptcy Code and any other applicable sections of the Bankruptcy Code and as
set forth in the Sale Approval Order.  Upon the Closing and transfer to
Purchaser of the Assets, Purchaser shall receive good and marketable title to
all of the Assets free and clear of any and all Encumbrances, pursuant to
Section 363 of the Bankruptcy Code and any other applicable sections of the
Bankruptcy Code and as set forth in the Sale Approval Order.

 

4.5           Intentionally Omitted.

 

4.6           Absence of Undisclosed Liabilities.  Except as set forth on
Schedule 4.6 of the Disclosure Schedule and other than liabilities arising in
the ordinary course of business under the agreements set forth on Schedule 4.11
(but excluding any liabilities arising as a result of a breach by any Seller of
any such agreement), no Seller has any liabilities, losses or obligations of any
nature (whether absolute, accrued, fixed, contingent, liquidated, unliquidated,
due or to become due, or otherwise), except for liabilities included or
reflected in the Financial Statements and adequately reserved against therein in
accordance with GAAP, except to the extent any such liability, loss or
obligation would not, individually or in the aggregate, have a Material Adverse
Effect.  To the knowledge of the Sellers, there is no basis for the assertion
against the Sellers of any such liability.

 

4.7           Absence of Certain Changes or Events.  Except as set forth on
Schedule 4.7 of the Disclosure Schedule, since the Filing Date the business of
the Sellers has been conducted only in the ordinary and usual course consistent
with past practice.  Without limiting the generality of the foregoing, except as
set forth on Schedule 4.7 of the Disclosure Schedule, since the Balance Sheet
Date no Seller has suffered any Material Adverse Effect, and no fact or
condition exists or, to the knowledge of any Seller, is contemplated or
threatened that might reasonably be expected to cause a Material Adverse Effect
in the future.

 

4.8           Real Property Assets.

 

(a)           Schedule 4.8(a) of the Disclosure Schedule contains a complete and
correct list of all Real Property owned by the Sellers.  Each of the Sellers
have good and

 

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marketable title to all such owned Real Property, free and clear of all
Encumbrances except for (i) liens for current Taxes not yet due and payable and
(ii) Encumbrances set forth on Schedule 4.8(a) of the Disclosure Schedule.

 

(b)           Schedule 4.8(b) of the Disclosure Schedule contains a complete and
correct list of all Real Property leased by the Sellers.  Each of the Sellers
enjoys peaceful possession of all such property.  The Sellers have previously
delivered to Purchaser true, complete and correct copies of all lease documents
to which any Seller is a party relating to such Real Property.  All such lease
documents are unmodified and valid, binding and enforceable in accordance with
their terms and are in full force and effect.  Except as set forth on Schedule
4.8(b), no default has been declared and is continuing under any such lease
document, and to the knowledge of the Sellers, no event has occurred which
constitutes or, with the passing of time or giving of notice, or both, would
constitute, a default under any such lease document.

 

4.9           Intellectual Property.

 

(a)           Except as disclosed on Schedule 4.9(a) of the Disclosure Schedule,
one or more of the Sellers is the exclusive owner of all right, title and
interest in and to each of the following that are being used in the business of
the Sellers as currently conducted, and/or have been or are being developed or
acquired for potential use in the business of the Sellers and/or that are
promoted, sold, licensed or otherwise distributed by the Sellers to any third
parties:

 

(i)            all computer programs and databases and their associated system
and user documentation (collectively, the “Sellers Software Products”) set forth
on Schedule 4.9(a)(i) of the Disclosure Schedule;

 

(ii)           all copyrights and copyright registrations set forth on Schedule
4.9(a)(ii) of the Disclosure Schedule;

 

(iii)          all patents and patent applications set forth on Schedule
4.9(a)(iii) of the Disclosure Schedule;

 

(iv)          All trademarks, service marks and tradenames (collectively the
“Marks”), and the registrations of, and/or applications to register, any one or
more of the Marks in federal, state or foreign jurisdictions set forth on
Schedule 4.9(a)(iv) of the Disclosure Schedule; and

 

(v)           all Trade Secrets and other proprietary rights.

 

The items referred to in subparagraphs (i) through (v) of this Section 4.9(a)
are herein referred to collectively as the “Sellers Intellectual Property
Rights.”  The Sellers Intellectual Property Rights constitute all such rights
necessary to operate the business of the Sellers as it is currently operated.

 

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(b)           Schedule 4.9(b) of the Disclosure Schedule sets forth a list of
all license and similar agreements between the Sellers and third parties, under
which the Sellers are granted rights to the use, reproduction, distribution,
manufacture, sale or licensing of items embodying the patent, copyright, Trade
Secret, trademark or other proprietary rights of such third parties
(collectively, the “Sellers License Rights”).  The Sellers are not, nor will the
Sellers be as a result of the execution and delivery of this Agreement or the
consummation of the transactions contemplated thereby, in violation of any
material rights pursuant to any license and similar agreements described on
Schedule 4.9(b) of the Disclosure Schedule.  The Sellers have not lost, nor will
the Sellers lose as a result of the execution and delivery of this Agreement or
the consummation of the transactions contemplated thereby, any material rights
pursuant to any license and similar agreements described on Schedule 4.9(b) of
the Disclosure Schedule.  Except as set forth on Schedule 4.9(b) of the
Disclosure Schedule, no Person is entitled to any royalty, fee and/or other
payment or other consideration of whatever nature with respect to the Sellers
License Rights or Sellers Intellectual Property Rights.  The Sellers License
Rights and the Sellers Intellectual Property Rights are sometimes collectively
referred to as the “Sellers Rights”.

 

(c)           Schedule 4.9(c) of the Disclosure Schedule sets forth a list of
all agreements under which the Sellers have granted any rights of whatever
nature to third parties of, to or under the Sellers Rights.  All such rights
granted have been and are non-exclusive.  True, correct and complete copies of
all such agreements have been delivered to Purchaser.

 

(d)           No claims with respect to the Sellers Rights have been asserted
or, to the knowledge of any Seller, are threatened by any Person, nor does any
Seller know of any valid grounds for any bona fide claims against the use by the
Sellers of any Sellers Rights.  To the knowledge of the Sellers, there has not
been any infringement, misappropriation or any other unauthorized use of any of
the Sellers Rights by any third party, employee, consultant or former employee
or consultant of the Sellers.

 

(e)           To the knowledge of the Sellers, none of the Sellers have, by
reason of its use, license, sale or other distribution of the Sellers’ Rights or
otherwise, nor has any Seller been alleged to have, infringed upon, violated,
misappropriated or misused any intellectual property right or other proprietary
right (including, without limitation, any patent right, copyright, trade name or
Trade Secret) of any third party.

 

4.10         Accounts Receivable.  Except as set forth on Schedule 4.10 of the
Disclosure Schedule, all of the accounts, notes and other receivables of the
Sellers (i) reflected on the Financial Statements as of the Balance Sheet Date
and (ii) as of the date hereof, represent sales actually made in the ordinary
course of business consistent with past practice for goods or services delivered
or rendered in bona fide arm’s-length transactions, constitute only valid,
undisputed claims, have not been extended or rolled over in order to make them
current and are collectible at their recorded amounts net of reserves for
non-collectibility reflected on the Financial Statements in accordance with
GAAP.

 

4.11         Contracts and Commitments.  Except as set forth on Schedules
4.8(b), 4.9(b) and 4.11 of the Disclosure Schedule:

 

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(a)           None of the Sellers have any agreements, contracts, or
commitments, written or oral, which either individually or in conjunction with
other agreements, contracts or commitments with the same party, and in
connection with the same matter, relate to commitments in excess of $50,000 per
annum or are otherwise material to its business, operations or prospects;

 

(b)           None of the Sellers have any (i) employment agreements, (ii)
employee non-competition agreements, or (iii) agreements or policies that
contain any bonus, severance or termination pay liabilities or obligations;

 

(c)           None of the Sellers have any collective bargaining or union
contracts or agreements;

 

(d)           None of the Sellers are a party to any partnership or joint
venture agreement whether or not a separate legal entity is created thereby;

 

(e)           None of the Sellers are in breach or default under any contract,
license agreement, commitment or restriction (whether written or oral) to which
such Seller is a party or by which such Seller or any of its Assets are bound,
except to the extent such breach or default would not, individually or in the
aggregate, have a Material Adverse Effect, and, to the knowledge of the Sellers,
there exists no event or condition which (whether with or without notice, lapse
of time, or both) would constitute a default thereunder, give rise to a right to
accelerate, modify or terminate any provision thereof or give rise to any
Encumbrance on its Property or Assets or a right to any additional or guaranteed
payments; and to the knowledge of the Sellers, no other party to any such
contract, agreement or commitment is in breach or default thereof;

 

(f)            Each contract and agreement referred to on Schedule 4.11 is valid
and in full force and effect and constitutes a legal, valid and binding
obligation of the Seller(s) that is a party to such contract or agreement, and,
to the knowledge of the Sellers, is enforceable in accordance with its terms,
and will not cease to be valid and in full force and effect after the Closing
Date, except to the extent that the failure of any such contracts or agreements
to be in full force and effect, enforceable in accordance with its terms, and a
legal, valid and binding obligation of the Sellers would not, individually or in
the aggregate, have a Material Adverse Effect; accurate and complete copies of
the contracts and agreements listed on Schedule 4.11, together with all
amendments thereto, have been heretofore delivered to Purchaser.

 

4.12         Customers and Suppliers.  Except as set forth on Schedule 4.12 of
the Disclosure Schedule, there has not been any material adverse change and, to
the knowledge of the Sellers, there are no facts which may reasonably be
expected by the Sellers to indicate that any material adverse change may occur
in the business relationship of the Sellers with any customer or supplier which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.  None of the Sellers are engaged in any material
disputes with any material customers or suppliers and no Seller has any reason
to believe that any material customer or supplier intends to discontinue or
adversely modify its relationship with the Sellers in any material respect after
the Closing Date where any such dispute or change would

 

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reasonably be expected to have a Material Adverse Effect.  In addition, none of
the Sellers has any knowledge that any material customer or group of customers
of the Sellers are materially dissatisfied with its services.

 

4.13         Insurance.  Schedule 4.13 of the Disclosure Schedule contains a
true and complete list of all insurance policies covering any of the Sellers or
otherwise held by or on behalf of it, or any aspect of its Assets or business,
indicating the type of coverage, name of insured, the insurer, the amount of
coverage, the deductibles, the premium, and the expiration date.  Except as set
forth on Schedule 4.13, there are no pending claims under any insurance policy
listed on Schedule 4.13.

 

4.14         Litigation, etc.  Except as set forth on Schedule 4.14 of the
Disclosure Schedule, there has not been in the thirty-six (36) months prior to
the date hereof, nor is there currently, any claim, action, suit, inquiry,
proceeding or investigation of any kind or nature whatsoever, by or before any
court or Governmental Entity or other regulatory or administrative agency or
commission or tribunal pending or, to the knowledge of any Seller, threatened
against or involving or that reasonably would be expected to involve any Seller
or its business, Assets, Properties, officers or directors, or which questions
or challenges the validity of this Agreement or any action taken or to be taken
by such Seller pursuant to this Agreement or in connection with the transactions
contemplated hereby; and, to the knowledge of any Seller, there is no valid
basis for any such claim, action, suit, inquiry, proceeding or investigation.

 

4.15         Compliance with Law; Necessary Authorizations.

 

(a)           Each of the Sellers are duly complying and has duly complied in
respect of its business, operations, Properties and Assets, with all applicable
laws, rules, regulations, orders, building and other codes, zoning and other
ordinances, Permits, authorizations, judgments and decrees of all Governmental
Entities, except to the extent that any such failure to comply would not,
individually or in the aggregate, have a Material Adverse Effect.  Except as set
forth on Schedule 4.15(a) of the Disclosure Schedule, no Seller is aware of any
present or past failure so to comply or of any past or present events,
activities or practices of the Sellers which may be construed to indicate
interference with or prevention of continued compliance with any laws, rules or
regulations or which may give rise to any common law or statutory liability, or
otherwise form the basis of any material claim, action, suit, proceeding,
hearing or investigation, except to the extent that any such failure to comply
would not, individually or in the aggregate, have a Material Adverse Effect. 
Except as set forth on Schedule 4.15(a) of the Disclosure Schedule, to the
knowledge of the Sellers, none of the Sellers nor any of their respective
officers or employees is the subject of any investigation relating to the
business of the Sellers.

 

(b)           Each of the Sellers has duly obtained all Permits, concessions,
grants, franchises, licenses and other governmental authorizations, Consents,
and approvals necessary for the conduct of its business including, without
limitation, those relating to Medicare, Medicaid or any other health insurance
or health care program sponsored or financed in whole or in part by any
Governmental Entity; each of the foregoing is set forth on Schedule 4.15(b) of
the Disclosure Schedule and is in full force and effect; each of the Sellers are
in compliance with all

 

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material terms of all the foregoing, except to the extent that failure to comply
would not, individually or in the aggregate, have a Material Adverse Effect;
except as set forth on Schedule 4.15(b) of the Disclosure Schedule, there are no
proceedings pending or, to the knowledge of any Seller, threatened which may
result in the revocation, cancellation, suspension or modification thereof, and
no Seller has any knowledge of any basis therefor; and except as set forth on
Schedule 4.15(b) of the Disclosure Schedule the consummation of the transactions
contemplated hereby will not result in any such revocation, cancellation,
suspension or modification nor require the Sellers or Purchaser to make any
filing or take any action in order to maintain the validity of any item listed
on Schedule 4.15(b) of the Disclosure Schedule.

 

(c)           Each person or entity employed or engaged by any of the Sellers to
provide services on behalf of such Seller (“Licensed Service Provider”) has
obtained (and maintains) all necessary licensure or certification to provide
such services in compliance in all material respects with any applicable law or
the requirements of any Government Medical Reimbursement Program.  Each Licensed
Service Provider is covered by a professional liability insurance policy
underwritten by a licensed insurance company, with coverage limits and terms
that are consistent with industry standards.

 

(d)           Except as set forth on Schedule 4.15(d) of the Disclosure
Schedule, to the knowledge of the Sellers, none of the Sellers nor any of their
respective officers, directors, employees or agents has been, in the thirty-six
(36) months prior to the date hereof, or is currently being investigated,
charged or implicated in any violation of any laws involving fraudulent and
abusive practices relating to its participation in Medicare, Medicaid, Tricare
or any other state or federally sponsored health care reimbursement or health
care program (each, a “Government Medical Reimbursement Program”), including but
not limited to fraudulent billing or recordkeeping practices.  In the thirty-six
(36) months prior to the date hereof, the Sellers have properly and legally
billed all individuals, intermediaries and third party payors, as appropriate,
for services rendered through the Sellers’ business and have maintained all
necessary documentation to support and reflect such billing practices, except to
the extent that failure to legally and properly bill would not, individually or
in the aggregate, have a Material Adverse Effect.  To the knowledge of the
Sellers, except as set forth on Schedule 4.15(d) of the Disclosure Schedule,
none of the Sellers nor any of their respective directors, officers, employees,
independent contractors or agents has committed any offense which is reasonably
likely to be the basis for suspension or exclusion of the Sellers or any of
their respective directors, officers, managers, current employees, partners or
independent contractors from any Government Medical Reimbursement Program,
including, but not limited to, defrauding a government program, loss of a
license to provide health care services, and failure to provide quality care.

 

(e)           None of the Sellers nor any of their respective directors,
officers, employees, independent contractors or agents, have engaged in any
activities which may serve as the grounds for any material penalties of any kind
under Sections 1128A, 1128B or 1877 of the Social Security Act (42 U.S.C. §§
1320a-7a, 1320a-7b and 1395nn), the False Claims Act (31 U.S.C. § 3729 et seq.),
the False Statements Act (18 U.S.C. § 1001), the Program Fraud Civil Penalties
Act (31 U.S.C. § 3801 et seq.), the Food, Drug and Cosmetic Act (21 U.S.C. § 301
et seq.) (all as amended or superseded), and the anti-fraud and abuse provisions
of the Health

 

25

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Insurance Portability and Accountability Act of 1996 (18 U.S.C. § 1347, 18
U.S.C. § 669, 18 U.S.C. § 1035, 18 U.S.C. § 1518) and the corresponding fraud
and abuse, false claims and anti-self referral statutes and regulations in each
state or other jurisdictions where any Seller has operations or any related
regulations or other federal or state laws and regulations.

 

4.16         Environmental Matters.  All of the operations of the Sellers comply
and have at all times complied with all applicable Environmental Laws, except to
the extent that any such failure to comply would not, individually or in the
aggregate, have a Material Adverse Effect, and none of the Sellers are subject
to any Environmental Liabilities which would, individually or in the aggregate,
have a Material Adverse Effect.

 

4.17         Labor Matters.  Except to the extent set forth on Schedule 4.17 of
the Disclosure Schedule:

 

(a)           there is no labor strike, or, to the knowledge of the Sellers,
dispute, grievance, arbitration proceeding, slowdown or stoppage, or charge of
unfair labor practice actually pending, threatened against or affecting the
operation of the business of the Sellers;

 

(b)           None of the Sellers have, during the three years prior to the date
hereof, experienced any work stoppage or other labor dispute, nor is any Seller
aware of any fact or circumstance that could result in any of the foregoing;

 

(c)           there are no charges or complaints of discrimination pending or to
the knowledge of any Seller, threatened, before the Equal Employment Opportunity
Commission or any state or local agency with respect to the Sellers, nor is any
Seller aware of any basis for any such charge or complaint; and

 

(d)           during the three years preceding the date hereof, no unions or
other collective bargaining units have been certified or recognized by the
Sellers as representing any of its employees and there are no existing union
organizing efforts or representation questions with respect to any of the
employees of the Sellers.

 

4.18         Employee Benefit Plans

 

(a)           Except as set forth on Schedule 4.18(a) of the Disclosure
Schedule, there are no Plans.  With respect to each Plan, as applicable,
accurate and complete (i) copies of each written Plan (including all amendments
thereto), (ii) written descriptions of each oral Plan, (iii) copies of related
trust or funding agreements, (iv) summary plan descriptions, (v) summaries of
material modifications, (vi) copies of the most recent annual reports and
actuarial valuations and (vii) copies of the most recent determination letter
from the IRS for each Plan intended to qualify under Code Section 401(a) have
been heretofore delivered to Purchaser.

 

(b)           None of the Sellers, their respective ERISA Affiliates, or any of
their respective predecessors has ever contributed to, contributes to, has ever
been required to contribute to, or otherwise participated in or participates in
or in any way, directly or indirectly, has any liability with respect to any
“multiemployer plan” (within the meaning of Sections

 

26

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(3)(37) or 4001(a)(3) of ERISA or Section 414(f) of the Code) or any single
employer pension plan (within the meaning of Section 4001(a)(15) of ERISA) which
is subject to Sections 4063 and 4064 of ERISA.

 

(c)           None of the Sellers are liable for any liability of any ERISA
Affiliate (including predecessors) with regard to any Employee Benefit Plan,
including without limitation, liabilities under Title IV of ERISA, Section 412
of the Code, and Section 302(a)(2) of ERISA.

 

(d)           The Sellers, each ERISA Affiliate, each Plan, and each “plan
sponsor” (within the meaning of Section 3(16) of ERISA) of each “welfare benefit
plan” (within the meaning of Section 3(1) of ERISA) has complied in all respects
with the requirements of Section 4980B of the Code and Title I, Subtitle B, Part
6 of ERISA.

 

(e)           No “reportable event” within the meaning of Section 4043(b) of
ERISA has occurred or is expected to occur, and the consummation of the
transaction contemplated by this Agreement will not result in a reportable
event.

 

(f)            With respect to each of the Plans on Schedule 4.18(a):

 

(i)            each Plan intended to qualify under Section 401(a) of the Code
has been qualified since its inception and has received a determination letter
from the IRS to the effect that the Plan is qualified under Section 401 of the
Code and any trust maintained pursuant thereto is exempt from federal income
taxation under Section 501 of the Code and nothing has occurred (since the date
of the determination letter) or is expected to occur through the date of the
Closing (including, without limitation, the transactions contemplated by this
Agreement) that caused or could cause the loss of such qualification or
exemption or the imposition of any penalty or tax liability;

 

(ii)           all payments required by any Plan, any agreement, or by law
(including, without limitation, all contributions, insurance premiums, or
intercompany charges) with respect to all periods through the date of the
Closing shall have been made prior to the Closing (on a pro rata basis where
such payments are otherwise discretionary at year end) or provided for by the
Sellers, by full accruals as if all targets required by such Plan had been or
will be met at maximum levels on its financial statements;

 

(iii)          no “accumulated funding deficiency”, (within the meaning of
Section 302 of ERISA and Section 412 of the Code), has been or could be expected
to be incurred, whether or not waived, and no excise or other taxes have been or
could be expected to be incurred or are due and owing with respect to the Plan
because of any failure to comply with the minimum funding standards of ERISA and
the Code;

 

(iv)          no claim, lawsuit, arbitration or other action has been
threatened, asserted, instituted, or anticipated against the Plans (other than
non-material routine claims for benefits, and appeals of such claims), any
trustee or fiduciaries thereof, the Sellers, any ERISA Affiliate, any director,
officer, or employee thereof, or any of the assets of any trust of the Plans;

 

27

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(v)           the Plan complies and has been maintained and operated in
accordance with its terms and applicable law, including, without limitation,
ERISA and the Code;

 

(vi)          no “prohibited transaction,” within the meaning of Section 4975 of
the Code and Section 406 of ERISA, has occurred or is expected to occur with
respect to the Plan (and the consummation of the transactions contemplated by
this Agreement will not constitute or directly or indirectly result in such a
“prohibited transaction”);

 

(vii)         no Plan is or expected to be under audit or investigation by the
IRS, Department of Labor, or any other governmental authority and no such
completed audit, if any, has resulted in the imposition of any tax or penalty;
and

 

(viii)        with respect to each Plan that is funded mostly or partially
through an insurance policy, none of the Sellers nor any ERISA Affiliate has any
liability in the nature of retroactive rate adjustment, loss sharing arrangement
or other actual or contingent liability arising wholly or partially out of
events occurring on or before the Closing.

 

(g)           The consummation of the transactions contemplated by this
Agreement will not give rise to any liability, including, without limitation,
liability for severance pay, unemployment compensation, termination pay, or
withdrawal liability, or accelerate the time of payment or vesting or increase
the amount of compensation or benefits due to any employee, director or
shareholder of the Sellers (whether current, former, or retired) or their
beneficiaries solely by reason of such transactions.  No amounts payable under
any Plan will fail to be deductible for federal income tax purposes by virtue of
Sections 280G or 162(m) of the Code.

 

(h)           None of the Sellers nor any ERISA Affiliate maintains, contributes
to, or in any way provides for any benefits of any kind whatsoever (other than
under Section 4980B of the Code, the Federal Social Security Act, or a plan
qualified under Section 401(a) of the Code) to any current or future retiree or
terminee.

 

(i)            None of the Sellers nor any ERISA Affiliate, or any officer or
employee thereof, has made any promises or commitments, whether legally binding
or not, to create any additional plan, agreement, or arrangement, or to modify
or change any existing Plan.

 

4.19         Business Generally.  To the knowledge of the Sellers, no events or
transactions have occurred which could be expected to have a Material Adverse
Effect.

 

4.20         Finders.  Except as set forth on Schedule 4.20 of the Disclosure
Schedule, none of the Sellers nor any of the Sellers’ directors or officers,
have taken any action that, Directly or Indirectly, would obligate Purchaser or
the Sellers, to anyone acting as broker, finder, financial advisor or in any
similar capacity in connection with this Agreement or any of the transactions
contemplated hereby.

 

4.21         Bank Accounts.  Schedule 4.21 of the Disclosure Schedule contains a
true and complete list of (a) the names and locations of all banks, trust
companies, securities brokers and other financial institutions at which the
Sellers have an account or safe deposit box or

 

28

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maintain a banking, custodial, trading or other similar relationship, (b) a true
and complete list and description of each such account, box and relationship and
(c) the name of every Person authorized to draw thereon or having access
thereto.

 

4.22         Disclosure.  No representation or warranty by the Sellers in this
Agreement, in any documents or papers furnished to Purchaser or its
representatives by or on behalf of the Sellers, pursuant to this Agreement or
any statement contained in the Disclosure Schedule or any certificates delivered
hereunder contains or will contain any untrue statement of material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements contained therein in light of the circumstances under which
it was made, not false or misleading.  All copies of contracts, agreements and
other documents made available to Purchaser or any of its representatives
pursuant hereto are complete and accurate.

 

ARTICLE V

 

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

 

Purchaser hereby represents and warrants as follows:

 

5.1           Organization and Qualification.  It is duly organized, validly
existing and in good standing in its jurisdiction of organization.

 

5.2           Authority.  It has all requisite power and authority to execute
and deliver this Agreement and to perform, carry out and consummate the
transactions contemplated hereby.  The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action on
its part.  This Agreement has been duly executed and delivered by it and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms.

 

5.3           No Breach.  Neither the execution and delivery of this Agreement
by it nor the consummation of the transactions contemplated herein and the full
performance by it of its obligations hereunder do or will:  (i) violate any
provision of its organizational documents; (ii) conflict with, violate, result
in a breach of or constitute a default under any writ, injunction, statute, law,
ordinance, rule, regulation, judgment, award, decree, order, or process of any
Governmental Entity; or (iii) require it to obtain any Consent.

 

5.4           Powers; Consents; Absence of Conflicts.  The execution, delivery,
and performance of this Agreement by Purchaser and the consummation of the
transactions contemplated hereby by Purchaser:  (a) are within its corporate
powers, are not in contravention of the terms of the certificate of
incorporation or bylaws of Purchaser, and have been duly authorized by all
appropriate corporate action; (b) do not and will not require any approval or
consent of, or filing with, any governmental agency or authority; (c) do not and
will not violate any statute, law, rule, or regulation to which Purchaser may be
subject; (d) do not and will not conflict with, or result in a breach of or a
default under (with or without notice or lapse of time,

 

29

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or both), any contract, agreement, indenture, mortgage, deed of trust, lease, or
other instrument to which Purchaser is a party or by which Purchaser is bound or
subject; and (e) do not and will not violate any judgment, order, or decree of
any court or other governmental agency or authority to which Purchaser may be
subject.  This Agreement has been duly executed and delivered by Purchaser and
constitutes a valid and binding obligation of Purchaser, enforceable against it
in accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium, and similar laws affecting
creditors’ rights and remedies generally and general principles of equity.

 

5.5           Litigation or Proceedings.  There is no litigation or other
proceeding pending or, to the knowledge of Purchaser or any of its Affiliates,
directors, managers, officers, employees, agents, or representatives, threatened
against Purchaser that could reasonably be expected to affect adversely
Purchaser’s ability to consummate the transactions contemplated by this
Agreement.

 

5.6           Financial Capability.  Purchaser has cash, or the ability to
obtain cash by means of credit facilities with financially responsible third
parties, in an amount sufficient to enable it to perform all of its obligations
hereunder, including, without limitation, payment of the Purchase Price.

 

ARTICLE VI

 

COVENANTS

 

6.1           Conduct of Business of the Sellers.  Except as set forth on
Schedule 6.1, from the date hereof and until the Closing Date, except as
contemplated by this Agreement or expressly consented to by an instrument in
writing signed by Purchaser, each Seller shall:  (i) conduct its business and
operations only in the ordinary course, consistent with past practice, (ii)
maintain and preserve the Assets in good repair, order and condition, including,
without limitation, performing, in a manner and on a basis consistent with past
practice, all periodic maintenance and necessary reconditioning, (iii) preserve
its business operations and organizations intact, (iv) keep available the
services of its current officers and satisfactorily performing employees, (v)
preserve its current advantageous business relationships, including, without
limitation, the goodwill of its customers and suppliers and others having
business relationships with it, (vi) other than in the ordinary course, not
grant any increase in the rate or terms of compensation payable, or to become
payable to any of its directors, officers or key employees; (vii) other than in
the ordinary course, not grant any increase in the rate or terms of any Employee
Benefit Plan payment or arrangement; (viii) not enter into any agreement or make
any other commitment involving an amount in excess of $50,000, absent prior
consent of Purchaser, which consent shall not be unreasonably withheld or
delayed; and (ix) not, Directly or Indirectly, redeem, purchase or otherwise
acquire any of its shares of capital stock or authorize any stock split or
recapitalization.  Without limiting the generality of the foregoing, and, except
as contemplated in this Agreement, prior to the Closing Date the Sellers shall
use all commercially reasonable efforts to not take any action which would
result in the incorrectness as

 

30

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of the Closing Date of any representation and warranty contained in Article IV
without the prior written consent of Purchaser.

 

6.2           Sellers’ Records.  Prior to the Closing Date, each Seller shall
afford Purchaser, its attorneys, accountants and representatives, free and full
access to the Sellers’ business, books, records and employees, and shall provide
to Purchaser and its representatives such additional financial and operating
data and other information as Purchaser shall from time to time reasonably
request upon advance written notice.  The Sellers shall permit Purchaser upon
advance written notice to contact customers and suppliers of the Sellers for
determining and verifying the precise terms and nature of their arrangements.

 

6.3           Filings and Authorizations.  Each of the Sellers and Purchaser, as
promptly as practicable, (i) shall make, or cause to be made, all such filings
and submissions under laws, rules and regulations applicable to it or its
Affiliates, as may be required to consummate the transactions contemplated
herein, in accordance with the terms of this Agreement, (ii) shall use all
commercially reasonable best efforts to obtain, or cause to be obtained, all
authorizations, approvals, consents and waivers from all governmental and
non-governmental Persons necessary to be obtained by it or its Affiliates, in
order to consummate the transactions contemplated herein; provided, however,
that, any provision hereof to the contrary notwithstanding, the Sellers shall
have no obligation to: (A) except as set forth in Section 6.10, pay any fee to
any third party for the purpose of obtaining any Consent or any costs and
expenses of any third party resulting from the process of obtaining such Consent
or (B) sell any material portion of the Business; provided further, however,
that neither Purchaser nor the Sellers shall be obligated to consummate the
transactions contemplated by this Agreement absent the prior approval of the
Bankruptcy Court and neither Purchaser nor the Sellers shall be obligated to
modify the Agreement in any material respect to satisfy the Bankruptcy Court,
and (iii) shall use all commercially reasonable efforts to take, or cause to be
taken, all other actions necessary, proper or advisable in order for him, her or
it to fulfill his, her or its obligations hereunder.  The Sellers and Purchaser
shall coordinate and cooperate with one another in exchanging such information
and supplying such reasonable assistance as may be reasonably requested by each
in connection with the foregoing.

 

6.4           Further Assurances.  Simultaneous with the Closing, Sellers shall
take such steps as may be necessary to put Purchaser in actual possession and
operating control of the Assets and the Business.  At or after the Closing,
Sellers shall, at the reasonable request of Purchaser, without further
consideration, promptly execute and deliver, or cause to be executed and
delivered, to Purchaser such assignments, bills of sale, consents and other
instruments in addition to those required by this Agreement, in form and
substance reasonably satisfactory to Purchaser, and take all such other actions
as Purchaser may reasonably deem necessary to implement any provision of this
Agreement and to transfer to and vest in Purchaser title to, and to put
Purchaser in possession of, all of the Assets, free and clear of any and all
Encumbrances.

 

6.5           Bankruptcy Covenants.

 

(a)           Cure of Defaults.  Sellers shall promptly, on or prior to the
Closing Date, cure any and all defaults and breaches and satisfy any liability
or obligation arising from or

 

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relating to pre-Closing periods under the Assumed Contracts, except as expressly
assumed by Purchaser under this Agreement, so that such Assumed Contracts may be
assigned by Sellers to Purchaser in accordance with the provisions of Section
365 of the Bankruptcy Code, the Sale Approval Order, any other orders of the
Bankruptcy Court effectuating such assignments, and this Agreement.

 

(b)           Motions, Orders, etc.  Sellers shall promptly provide Purchaser
with the proposed final drafts of all documents, motions, orders, or pleadings
that Sellers propose to file with the Bankruptcy Court which relate to the
approval of this Agreement, the Assets, or the consummation of the transactions
contemplated hereby, or any provision therein or herein, and shall provide
Purchaser and its counsel with a reasonable opportunity to review and comment on
such documents, motions, orders, or pleadings.

 

(c)           Bidding Procedures Order  Without limiting the generality of the
foregoing Section 6.5(b), the bidding procedures order, in the form annexed
hereto as Exhibit 2 (the “Bidding Procedures Order”), shall be reasonably
acceptable in form and substance to Purchaser and shall include provisions,
among other things (i) setting the earliest available date for a hearing to
approve the sale of the Assets (the “Sale Hearing”), (ii) authorizing Sellers to
conduct an auction (the “Auction”) of the Assets in the event that qualified
bids are received for the sale of the Assets in accordance with the Bidding
Procedures Order and setting a date for such Auction, (iii) establishing bidding
procedures reasonably acceptable to Purchaser, (iv) approving the selection of
Purchaser as the stalking horse bidder, (v) approving the payment of reasonable
out-of-pocket expenses (which shall not include salaries of any employees of
Purchaser or its Affiliates) incurred by Purchaser up to the date of the
Auction, including but not limited to financing commitment fees, up to an
aggregate amount of $1,500,000 (the “Expense Reimbursement”), in the event that
Purchaser is not the Winning Bidder (as defined in, and in accordance with, the
Bidding Procedures Order) at the Auction, which payment shall be made to
Purchaser concurrently with the receipt by any of the Sellers of any proceeds
(including the proceeds of a deposit in the event of a default by such third
party purchaser) in connection with such third party sale, (vi) providing that
Purchaser’s claim to the Expense Reimbursement shall be entitled to
superpriority administrative expense claim treatment in the Bankruptcy Cases,
senior to all other superpriority claims, whether now or hereafter incurred or
accrued, (vii) providing that no prospective purchaser will be permitted to bid
at the Auction unless such party has been deemed “qualified” in accordance with
objective criteria set forth in the Bidding Procedures Order, which at a
minimum, shall require any such prospective purchaser to provide documentation
establishing that such prospective purchaser has sufficient cash on hand or a
binding financial commitment from an established financial institution or other
credit worthy party to ensure such prospective purchaser’s ability to meet its
commitments pursuant to its bid, (viii) providing that no prospective purchaser
who bids for the Assets at the Auction shall be entitled to purchase the Assets
unless such prospective purchaser submits to Sellers in writing in accordance
with the Bidding Procedures Order a bid at least equal to $2,000,000 greater
than the consideration set forth in this Agreement (including all cash, non-cash
consideration and assumed liabilities), and then $500,000 greater for any
additional incremental bid, accompanied by a commitment to proceed to a closing
on contractual terms at least as favorable to Sellers as those set forth in this
Agreement plus a cash deposit of $2,500,000, (ix) requiring Sellers to provide
to Purchaser, upon receipt thereof, a copy of any and all bids received by
Sellers, and (x)

 

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authorizing any other procedural matters that Sellers and Purchaser reasonably
deem appropriate.  Should overbidding take place, Purchaser shall have the
right, but not the obligation, to participate in the overbidding and to be
approved as the successful overbidder at the Sale Hearing based upon any such
overbid, provided, however, that Purchaser shall receive a credit against any
additional incremental bid in an amount equal to $1,500,000, provided further
that if the actual expenses incurred by Purchaser up to the date of the Auction
are less than $1,500,000 then Purchaser shall, if it is the Winning Bidder (as
defined in, and in accordance with, the Bidding Procedures Order), increase the
cash portion of the Purchase Price by an amount equal to the difference between
(1) $1,500,000 and (2) the actual expenses incurred by Purchaser.  Sellers shall
use their best efforts to obtain entry of the Bidding Procedures Order.  To the
extent there is any inconsistency between this paragraph and the Bidding
Procedures Order, the Bidding Procedures Order shall govern.

 

(d)           Sale Approval Order.  Without limiting the generality of the
foregoing Section 6.5(b), the sale approval order, in the form annexed hereto as
Exhibit 3 (the “Sale Approval Order”), shall be reasonably acceptable in form
and substance to Purchaser and shall include provisions, among other things (i)
providing that Purchaser shall not incur any liability as a successor to the
Business, (ii) approving the sale of the Assets to Purchaser on the terms and
conditions set forth in this Agreement, or such higher and better terms and
conditions offered at the Auction, and authorizing Sellers to proceed with this
transaction, (iii) stating that any objections timely filed with respect to the
sale of the Assets, which have not been withdrawn, are overruled or the
interests of such objections have been otherwise satisfied or adequately
provided for by the Bankruptcy Court, (iv) finding that the Purchase Price
represents fair value for the Assets, (v) finding that the sale is in the best
interests of Sellers’ estates and creditors, (vi) finding that Purchaser is a
good faith purchaser of the Assets under Section 363(m) of the Bankruptcy Code
and that the provisions of Section 363(n) of the Bankruptcy Code have not been
violated, (vii) providing that the sale of the Assets to Purchaser shall be free
and clear of all liens, claims, interests, obligations and encumbrances
whatsoever under Section 363 of the Bankruptcy Code and any other applicable
sections of the Bankruptcy Code, (viii) providing that the Bankruptcy Court
shall retain jurisdiction for the purpose of enforcing the provisions of the
Sale Approval Order including, without limitation, compelling delivery of the
Assets to Purchaser and protecting Purchaser against any liens, claims,
interests, obligations and encumbrances against Sellers or the Assets, (ix)
finding that there are no brokers involved in consummating the sale and no
brokers’ commissions are due, (x) providing that the parties hereto shall be
authorized to close this transaction immediately upon execution of the Sale
Approval Order pursuant to Rules 6004(g) and 6006(d) of the Federal Rules of
Bankruptcy Procedure, (xi) authorizing and directing Sellers to execute,
deliver, perform under, consummate and implement this Agreement, together with
all additional instruments and documents that may be reasonably necessary or
desirable to implement the foregoing, (xii) determining that Purchaser is not a
successor to Sellers or otherwise liable for any of the Excluded Liabilities or
Excluded Assets and permanently enjoining each and every holder of any of the
Excluded Liabilities or Excluded Assets from commencing, continuing or otherwise
pursuing or enforcing any remedy, claim, cause of action or encumbrance against
Purchaser or the Assets related thereto, and (xiii) finding that, pursuant to
Section 1146(c) of the Bankruptcy Code, the within transaction is “in
contemplation of a plan or plans of reorganization to be confirmed in the
Bankruptcy Cases,” and as such shall be free and clear of any and all transfer
tax, stamp tax or

 

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similar taxes; provided, however, that Purchaser’s obligations hereunder shall
not be conditioned on the finding set forth in this clause (xiii).  Sellers
shall use their best efforts to obtain entry of the Sale Approval Order. 
Purchaser’s obligations to consummate the transactions contemplated herein shall
be conditioned upon the Bankruptcy Court’s entry of the Sale Approval Order in
form and substance satisfactory to Purchaser.  To the extent that there is any
inconsistency between this paragraph and the Sale Approval Order, the Sale
Approval Order shall govern.

 

(e)           Assumed Contracts.  Sellers shall not reject under Section 365 of
the Bankruptcy Code, waive or release any of their rights under, amend or
otherwise modify any of the Assumed Contracts without the prior written consent
of Purchaser, which consent shall not be unreasonably withheld.  Sellers shall
obtain an order or orders (which may include the Sale Approval Order) in a form
reasonably satisfactory to Purchaser, among other things (i) approving the
assumption and assignment of the Assumed Contracts to Purchaser pursuant to, and
subject to the provisions of, Section 365 of the Bankruptcy Code, (ii) providing
that all defaults of Sellers under the Assumed Contracts arising or accruing
prior to the date of the Closing (without giving effect to any acceleration
clauses or any default provisions in such contracts of a kind specified in
Section 365(b)(2) of the Bankruptcy Code) have been cured or will be promptly
cured by Sellers or Purchaser so that Purchaser shall have no liability or
obligation with respect to any default or obligation arising or accruing prior
to the date of the Closing or in respect of any cure obligations, except as may
otherwise be specifically agreed as set forth in this Agreement, such Assumed
Contracts and cure amounts are set forth on Schedule 6.5(e), and (iii) providing
that the Assumed Contracts shall be transferred to, and remain in full force and
effect for the benefit of, Purchaser, notwithstanding any provision in any such
Assumed Contract or in applicable Law (including those described in Sections
365(b)(2) and (f) of the Bankruptcy Code) that prohibits, restricts, or limits
in any way such assignment or transfer.

 

(f)            Other Bankruptcy Covenants.  Sellers shall promptly make any
filings, take all actions, and use their best efforts to obtain any and all
other approvals and orders necessary or appropriate for consummation of the sale
of the Assets, subject to their obligations to comply with any order of the
Bankruptcy Court. In the event an appeal is taken, or a stay pending appeal is
requested, from any of the foregoing orders of the Bankruptcy Court, Sellers
shall immediately notify Purchaser of such appeal or stay request and, upon
Purchaser’s request, shall provide to Purchaser within two days after Sellers’
receipt thereof a copy of the related notice of appeal or order of stay. 
Sellers shall also provide Purchaser with written notice of any motion,
application, brief or other pleading filed in connection with any appeal from
any of such orders.

 

6.6           Apportioned Obligations.  All real property Taxes, personal
property Taxes and similar ad valorem obligations levied with respect to the
Assets for a taxable period which includes (but does not end on) the Closing
Date (collectively, the “Apportioned Obligations”) shall be apportioned between
the Sellers and Purchaser based on the number of days of such taxable period
included in the Pre-Closing Tax Period and the number of days of such taxable
period included in the Post-Closing Tax Period.  The Sellers shall be liable for
the proportionate amount of such Taxes that is attributable to the Pre-Closing
Tax Period, and Purchaser shall be liable for the proportionate amount of such
Taxes that is attributable to the Post-Closing Tax Period.  Upon receipt of any
bill for real or personal property Taxes relating to

 

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the Assets, each of the Sellers and Purchaser shall present a statement to the
other and simultaneously provide a copy of same to the Oversight Committee
Representative, setting forth the amount of reimbursement to which each is
entitled under this Section 6.6 together with such supporting evidence as is
reasonably necessary to calculate the proration amount.  The proration amount
shall be paid by the party owing it to the other within ten (10) Business Days
after delivery of such statement.  In the event that either the Sellers or
Purchaser shall make any payment for which it is entitled to reimbursement under
this Section 6.6, the other party shall make such reimbursement promptly but in
no event later than ten (10) Business Days after the presentation of a statement
setting forth the amount of reimbursement to which presenting party is entitled
along with such supporting evidence as is reasonably necessary to calculate the
amount of reimbursement.  Purchaser shall notify the Sellers’ Representative and
the Oversight Committee Representative of any audit or examination of the
Apportioned Obligations.  The Sellers’ Representative and the Oversight
Committee Representative shall have the right to participate in any such audit
or examination and Purchaser shall not settle any such audit or examination
without the consent of the Sellers’ Representative and the Oversight Committee
Representative, which consent shall not be unreasonably withheld.

 

6.7           Taxes.  Except as otherwise specifically provided in this
Agreement, (i) the Sellers shall pay all Taxes payable with respect to the
operations of the Business for all periods ending on or prior to the Closing
Date and (ii) Purchaser shall pay all Taxes payable with respect to the
operations of the Business for all periods from and after the Closing Date.

 

6.8           Negotiations.     Commencing immediately following the Auction,
Purchaser shall have the right to negotiate with any third party, including, but
not limited to, any governmental regulatory authority, with respect to the terms
of any claim, liability or agreement to which any of the Sellers is a party,
including, but not limited to, the Settlement Agreements and that certain
Corporate Integrity Agreement, as amended, among the Office of Inspector General
of the Department of Health and Human Services, TLC, SBI, SBSI, SLHHAI and
SBHHCI; provided, however, that the Sellers shall have the right to be present
at all such negotiations.  The failure or refusal of any such third party to
agree to a modification of any such claim, liability, or agreement, shall not
constitute a breach of this Agreement.

 

6.9           Cost Reports.  Each Seller shall, within fifty (50) days after the
Closing, file with the appropriate Medicare and Medicaid agencies all final cost
reports with respect to its operation which are required to be filed under the
terms of the Medicare and Medicaid Programs.  Following the Closing, Buyer shall
make reasonably available to the Sellers such of its personnel and books and
records as are reasonably necessary to assist the Sellers in the preparation of
such cost reports.  Purchaser shall also make such personnel and books and
records reasonably available to the Sellers with respect to any other reports,
filings, or forms that the Sellers must submit to any Governmental Entity after
the Closing.  Simultaneous with such filing, each Seller shall provide Purchaser
with copies of such cost reports, together with copies of any amendments thereto
and correspondence related to such final cost reports.

 

6.10         Consents.  Prior to Closing, the Sellers shall use their
commercially reasonable best efforts to (a) obtain, or cause to be obtained, all
Consents, including but not limited to the Consents set forth on Schedule 7.1(c)
and (b) obtain, or cause to be obtained, and

 

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deliver each of the franchisee waivers described in Section 7.1(l) and the
agreement set forth on Section 7.1(m) to Purchaser.  The Sellers shall be
responsible for all costs and expenses resulting from securing each such Consent
or agreement (including without limitation, any fee to any third party for the
purpose of obtaining each such Consent or agreement or any costs and expenses of
any third party resulting from securing each such Consent or agreement).

 

ARTICLE VII

 

CONDITIONS TO CLOSING

 

7.1           Conditions Precedent to Obligations of Purchaser.  The obligation
of Purchaser under this Agreement to consummate the transactions contemplated by
this Agreement on the Closing Date shall be subject to the satisfaction, at or
prior to the Closing Date, of all of the following conditions, any one or more
of which may be waived by Purchaser:

 

(a)           Representations and Warranties Accurate.  The representations and
warranties of the Sellers contained in this Agreement which are qualified as to
materiality shall be true and correct in all respects, and those not so
qualified shall be true and correct in all material respects, as of the date of
this Agreement and as of the Closing Date with the same force and effect as
though made on and as of the Closing Date.

 

(b)           Performance by the Sellers.  Each of the Sellers shall have
performed and complied in all material respects with all covenants and
agreements required to be performed or complied with by such Person hereunder on
or prior to the Closing Date.

 

(c)           Consents.  All Consents required in connection with the
consummation of the transactions contemplated by this Agreement and the Closing
(including those set forth on Schedule 7.1(c) hereto) shall have been duly
obtained, made or given and shall be in full force and effect, without the
imposition upon Purchaser or the Sellers of any condition, restriction or
required undertaking.

 

(d)           No Legal Prohibition.  No suit, action, investigation, inquiry or
other proceeding by any Governmental Entity or other Person shall have been
instituted or threatened which arises out of or relates to this Agreement, or
the transactions contemplated hereby and no injunction, order, decree or
judgment shall have been issued and be in effect or threatened to be issued by
any Governmental Entity of competent jurisdiction, and no statute, rule or
regulation shall have been enacted or promulgated by any Governmental Entity and
be in effect, which in each case restrains or prohibits the consummation of the
transactions contemplated hereby.

 

(e)           Certificate.  Purchaser shall have received a certificate, dated
the Closing Date, signed on behalf of the Sellers by an officer of TLC, to the
effect that the conditions set forth in Sections 7.1(a), 7.1(b), and 7.1(c) have
been satisfied.

 

(f)            Due Diligence.  Purchaser shall have completed its Clinical Due
Diligence Review of the Sellers and the Business, and said Clinical Due
Diligence Review shall be

 

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satisfactory to Purchaser in its sole discretion; provided, however, that this
condition shall be deemed satisfied on January 21, 2004.

 

(g)           No Material Adverse Change.  No material adverse change shall have
occurred in the business of the Sellers and no other event, loss, damage,
condition or state of facts of any kind shall exist which has a Material Adverse
Effect or can reasonably be expected to have a Material Adverse Effect.  The
provisions of this Section 7.1(g) shall not apply to items which appear on
Schedules 4.6 and 4.14.

 

(h)           HSR Act.  The required waiting period under the HSR Act shall have
expired or been earlier terminated.

 

(i)            Intentionally Omitted.

 

(j)            Entry of Order; Appeal.  The Bankruptcy Court shall have entered
the Bidding Procedures Order in accordance with Section 6.5(c), the Sale
Approval Order in accordance with Section 6.5(d), and any other order in
accordance with Section 6.5(e) relating to the assignment of the Assumed
Contracts, all in form and substance reasonably acceptable to Purchaser, and the
Sale Approval Order and any other order in accordance with Section 6.5(e)
relating to the assignment of the Assumed Contracts, shall not have been stayed,
and shall have become a Final Order, unless the finality of the Sale Approval
Order is waived by Purchaser in Purchaser’s sole discretion.  The term “Final
Order” as used in this Agreement shall mean an order, judgment or other decree,
the operation or effect of which has not been reversed, stayed, modified or
amended and any and all appeal periods with respect to such order, judgment or
other decree have expired.

 

(k)           Assigned Agreements.  The agreements set forth on Schedule 7.1(k)
shall have been assigned to Purchaser.

 

(l)            Franchisee Waivers.  Each of the franchisees set forth on
Schedule 7.1(l) shall have executed and delivered to Purchaser a waiver
agreement substantially in one of the forms annexed hereto as Exhibit 5-1
through Exhibit 5-10.

 

(m)          Maryland Agreement.  The Medicaid Fraud Control Unit of the
Maryland Attorney General’s Office and the Maryland Medical Assistance Program
shall have executed and delivered to Purchaser an agreement substantially in the
form annexed hereto as Exhibit 6.

 

7.2           Conditions Precedent to Obligations of the Sellers.  The
obligations of each of the Sellers under this Agreement to consummate the
transactions contemplated by this Agreement on the Closing Date shall be subject
to the satisfaction, at or prior to the Closing Date, of all of the following
conditions, any one or more of which may be waived by the Sellers:

 

(a)           Representations and Warranties Accurate.  The representations and
warranties of Purchaser contained in this Agreement which are qualified as to
materiality shall be true and correct in all respects, and those not so
qualified shall be true and correct in all material respects, as of the date of
this Agreement and as of the Closing Date with the same force and effect as
though made on and as of the Closing Date.

 

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(b)           Performance by Purchaser.  Purchaser shall have performed and
complied in all material respects with all covenants and agreements required to
be performed or complied with by them hereunder on or prior to the Closing Date.

 

(c)           Consents.  All Consents required in connection with the purchase
and sale of the Assets and the Closing shall have been duly obtained, made or
given and shall be in full force and effect.

 

(d)           No Legal Prohibition.  No suit, action, investigation, inquiry or
other proceeding by any Governmental Entity or other Person shall have been
instituted or threatened which arises out of or relates to this Agreement or the
transactions contemplated hereby and no injunction, order, decree or judgment
shall have been issued and be in effect or threatened to be issued by any
Governmental Entity of competent jurisdiction, and no statute, rule or
regulation shall have been enacted or promulgated by any Governmental Entity and
be in effect, which in each case restrains or prohibits the consummation of the
transactions contemplated hereby.

 

(e)           Certificate.  Sellers’ Representative shall have received a
certificate, dated the Closing Date, signed on behalf of Purchaser by an officer
of Purchaser, to the effect that the conditions set forth in Sections 7.2(a),
7.2(b) and 7.2(c) have been satisfied.

 

(f)            HSR Act.  The required waiting period under the HSR Act shall
have expired or been earlier terminated.

 

(g)           Intentionally Omitted.

 

(h)           Entry of Order; Appeal.  The Sale Approval Order shall have been
entered by the Bankruptcy Court and shall not have been stayed.  If an appeal of
the Sale Approval Order is filed and Purchaser elects in its sole discretion to
waive the condition to Closing that the Sale Approval Order shall be a Final
Order, then Sellers shall be obligated to proceed with the Closing
notwithstanding the pendency of any such appeal, unless the Sale Approval Order
is stayed.

 

ARTICLE VIII

 

INDEMNIFICATION

 

8.1           Non-Survival of Representations and Warranties.  All
representations and warranties contained in Articles IV and V shall expire at
the close of business on the Closing Date.

 

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ARTICLE IX

 

MISCELLANEOUS

 

9.1           Termination.  This Agreement may be terminated, and the
transactions contemplated herein may be abandoned:

 

(a)           any time before the Closing, by mutual written agreement of the
Sellers and Purchaser;

 

(b)           any time before the Closing, by the Sellers, on the one hand, or
Purchaser, on the other hand, (i) in the event of a material breach hereof by
any non-terminating party if such non-terminating party fails to cure such
breach within five (5) Business Days following notification thereof by the
terminating party or (ii) upon notification to the non-terminating party by the
terminating party that the satisfaction of any condition to the terminating
party’s obligations under this Agreement becomes impossible or impracticable
with the use of commercially reasonable efforts if the failure of such condition
to be satisfied is not caused by a breach hereof by the terminating party;

 

(c)           by Purchaser, upon five (5) Business Days’ prior written notice to
the Sellers’ Representative, if (i) Purchaser is not determined to be the
Winning Bidder (as defined in, and in accordance with, the Bidding Procedures
Order) upon the conclusion of the Auction, (ii) the Sale Approval Order and any
other order in accordance with Section 6.5(e) relating to the assignment of the
Assumed Contracts shall not have been entered within three (3) Business Days
following the date of the Sale Hearing or (iii) the Closing has not taken place
by the 120th day following the date of the Auction, other than by reason of a
material breach of this Agreement by Purchaser; or

 

(d)           by the Sellers, upon five (5) Business Days’ prior written notice
to Purchaser, if the Closing has not taken place by the 270th day following the
date of the Auction, other than by reason of a material breach of this Agreement
by the Sellers.

 

The time periods for termination of this Agreement set forth in Sections
9.1(c)(iii) and 9.1(d) may be extended by mutual written agreement of the
Sellers and Purchaser without further order of the Bankruptcy Court.

 

9.2           Effect of Termination.

 

(a)           If this Agreement is validly terminated pursuant to Section 9.1,
this Agreement will forthwith become null and void, and there will be no
liability or obligation on the part of any party (or any of their respective
officers, directors, employees, partners, agents or other representatives or
Affiliates), except as provided in the next succeeding sentence and except that
the provisions in Sections 9.3, 9.16 and 9.21 will continue to apply following
any such termination.  Notwithstanding any other provision in this Agreement to
the contrary, upon termination of this Agreement pursuant to Sections 9.1(b),
(c) and (d), the Sellers will remain liable to Purchaser for any breach of this
Agreement by the Sellers existing at the time of such

 

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termination, and Purchaser will remain liable to the Sellers for any breach of
this Agreement by Purchaser existing at the time of such termination.  Failure
of any party to satisfy any of the conditions set forth in Sections 7.1 or 7.2
of this Agreement shall not be deemed a breach of this Agreement by such party
except to the extent that such failure also constitutes a breach of a
representation, warranty or covenant.

 

(b)           Notwithstanding the provisions of Section 9.2(a), above:

 

(i)            if Purchaser or the Sellers terminate this Agreement pursuant to
Section 9.1(a) or Section 9.1(b)(ii), Purchaser shall receive the prompt return
of the Deposit;

 

(ii)           if Purchaser terminates this Agreement pursuant to Section
9.1(b)(i) or Section 9.1(c), Purchaser shall receive the prompt return of the
Deposit;

 

(iii)          if the Sellers terminate this Agreement pursuant to Section
9.1(b)(i), the Sellers shall receive, as their sole and exclusive remedy
available under any Law, including the Bankruptcy Code, the Deposit; and

 

(iv)          if the Sellers terminate this Agreement pursuant to Section
9.1(d), Purchaser shall receive the prompt return of the Deposit.

 

9.3           Expenses.  Except as otherwise set forth herein, each party hereto
shall pay its own expenses incurred in connection with this Agreement and the
transactions contemplated hereby.  Purchaser and the Sellers shall each pay one
half of all filing fees required to be paid to the Federal Trade Commission
pursuant to the HSR Act.  Notwithstanding the foregoing, in the event Purchaser
is not the Winning Bidder (as defined in, and in accordance with, the Bidding
Procedures Order) at the Auction, the Sellers will reimburse Purchaser for all
reasonable expenses incurred by Purchaser up to the date of the Auction,
including but not limited to financing commitment fees, up to an aggregate
amount of $1,500,000.

 

9.4           Amendment.  This Agreement may not be modified, amended, altered
or supplemented except by a written agreement executed by Purchaser and the
Sellers.

 

9.5           Entire Agreement.  This Agreement, together with the Exhibits and
Schedules hereto and the instruments and other documents delivered pursuant to
this Agreement, contain the entire agreement of the parties relating to the
subject matter hereof, and supersede all prior agreements, understandings,
representations, warranties and covenants of any kind between the parties.  All
others are specifically waived.

 

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9.6           Waivers.  Waiver by any party of any breach of or failure to
comply with any provision of this Agreement by the other party shall not be
construed as, or constitute, a continuing waiver of such provision, or a waiver
of any other breach of, or failure to comply with, any other provision of this
Agreement.  No waiver of any such breach or failure or of any term or condition
of this Agreement shall be effective unless in a written notice signed by the
waiving party and delivered, in the manner required for notices generally, to
each affected party.

 

9.7           Notices.  All notices and other communications hereunder shall be
validly given or made if in writing, (i) when delivered personally (by courier
service or otherwise), (ii) when sent by telecopy, or (iii) when actually
received if mailed by first-class certified or registered United States mail or
recognized overnight courier service, postage-prepaid and return receipt
requested, and all legal process with regard hereto shall be validly served when
served in accordance with applicable law, in each case to the address of the
party to receive such notice or other communication set forth below, or at such
other address as any party hereto may from time to time advise the other parties
pursuant to this Subsection:

 

If to the Sellers:

 

Tender Loving Care Health Care Services, Inc.
1983 Marcus Avenue
Lake Success, New York 11042
Telephone:     (516) 358-1000
Telecopier:     (516) 327-3373
Attention:       Chief Restructuring Officer & General Counsel

 

with a copy to:

 

Klestadt & Winters, LLP
381 Park Avenue South, 12th Floor
New York, NY 10016-8806
Telephone:     (212) 972-3000
Telecopier:     (212) 972-2245
Attention:       Tracy L. Klestadt, Esq.

 

and

 

Fulbright & Jaworski, LLP
801 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2623
Telephone:     (202) 662-0200
Telecopier:     (202) 661-4643
Attention:       Frederick Robinson, Esq.

 

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If to Purchaser:

 

Charter TLC, Inc.
c/o Charterhouse Group International, Inc.
535 Madison Avenue
New York, NY 10022
Telephone:     (212) 584-3200
Telecopier:     (212) 750-9704
Attention:       Jim Silver

 

with a copy to:

 

Proskauer Rose LLP
1585 Broadway
New York, New York  10036
Telephone:     (212) 969-3000
Telecopier:     (212) 969-2900
Attention:       Stephen W. Rubin, Esq.

 

9.8           Counterparts.  This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same document.

 

9.9           Governing Law.  All disputes arising out of or related to this
Agreement, including, without limitation, any dispute relating to the
interpretation, meaning or effect of any provision hereof, will be resolved in
the Bankruptcy Court and the parties hereto will each submit to the exclusive
jurisdiction of the Bankruptcy Court for the purposes of adjudicating any such
dispute, to the extent the jurisdiction of the Bankruptcy Court is applicable. 
If the jurisdiction of the Bankruptcy Court is not applicable, any legal action,
suit or proceeding arising out of or relating to this Agreement, each and every
agreement and instrument contemplated hereby or the transactions contemplated
hereby and thereby shall be instituted in any Federal court of the Eastern
District of New York.  This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York (i.e., without regard
to its conflicts of law rules).

 

9.10         Binding Effect; Third Party Beneficiaries; Assignment.  This
Agreement shall be binding upon, inure to the benefit of, and be enforceable by,
the parties hereto and their respective legal representatives, successors and
permitted assigns.  Except as expressly set forth herein, nothing expressed or
referred to in this Agreement is intended or shall by construed to give any
Person other than the parties to this Agreement, or their respective legal
representatives, successors and permitted assigns, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision contained
herein.  Neither party may assign this Agreement nor any of its rights
hereunder, other than any right to payment of a liquidated sum, nor delegate any
of its obligations hereunder, without the prior written consent of the other,
except that Purchaser may assign its rights under this Agreement to any
Affiliate or to any Person providing financing for the transaction.  Purchaser
may assign the Assets to any of its Subsidiaries or Affiliates, except as
prohibited by applicable health care law.

 

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9.11         Severability.  Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall not invalidate the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction, and any such provision, to the extent invalid or
unenforceable, shall be replaced by a valid and enforceable provision which
comes closest to the intention of the parties underlying such invalid or
unenforceable provision.

 

9.12         Specific Performance.  Notwithstanding anything to the contrary
contained herein, each party hereto acknowledges that money damages would be
incalculable and an insufficient remedy for any breach of this Agreement by such
party and that any such breach would cause the other party hereto irreparable
harm.  Accordingly, each party hereto also agrees that, in the event of any
breach or threatened breach of the provisions of this Agreement by such party,
the other party hereto shall be entitled to equitable relief without the
requirement of posting a bond or other security, including in the form of
injunctions and orders for specific performance.

 

9.13         Headings.  The headings contained in this Agreement are for
reference purposes only and shall not modify define, limit, expand or otherwise
affect in any way the meaning or interpretation of this Agreement.

 

9.14         No Agency.  Except as provided in Section 9.15 hereof, no party
hereto shall be deemed hereunder to be an agent of, or partner or joint venturer
with, any other party hereto.

 

9.15         Sellers’ Representative.  Each Seller hereby irrevocably appoints
Tender Loving Care Health Care Services, Inc. (the “Sellers’ Representative”) as
its true and lawful attorney-in-fact and agent, with full power of substitution
or resubstitution, to act solely and exclusively on behalf of such Seller with
respect to any matters relating to this Agreement and any document, certificate
or other agreement to be executed and delivered by or on behalf of any Seller
pursuant hereto, with the full power, without the consent of the Sellers or any
of them, to exercise as it in its sole discretion deems appropriate, all of the
powers which any Seller could exercise under the provisions of this Agreement or
any document, certificate or other agreement to be executed and delivered by or
on behalf of any Seller pursuant hereto, including, without limitation, to (i)
accept and give notices hereunder or thereunder on behalf of any or all of the
Sellers, (ii) consent to any modification or amendment hereof or thereof or
(iii) give any waiver or consent hereunder or thereunder.  Sellers’
Representative does hereby accept such appointment.  Purchaser shall be entitled
to rely exclusively upon such notices, waivers, consents, amendments,
modifications and other acts of the Sellers’ Representative as being the binding
acts of the Sellers or any of them, and Purchaser shall be entitled to deliver
any notices, payments or other items required to be delivered by it to any
Seller hereunder or thereunder only to the Sellers’ Representative, and any such
delivery shall be fully effective as if it were made directly to any relevant
Seller.  Sellers’ Representative shall not effect any substitution for himself
as the Sellers’ Representative without the prior written consent of Purchaser,
which consent shall not be unreasonably withheld.  In the event that Sellers’
Representative is dissolved or merged out of existence, the Sellers shall
promptly designate a new Sellers’ Representative.

 

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9.16                         Public and Private Announcements.  Prior to
Closing, neither Purchaser nor any Seller will issue or cause the publication of
any press release or otherwise make any public and/or private statement with
respect to the transactions contemplated hereby without the prior written
consent of the parties hereto, except with regard to certain negotiations or
communications by the Sellers with any or all competing bidders as contemplated
under the Bidding Procedures Order, provided, that any party hereto may make a
public and/or private announcement to the extent required by law, judicial
process or the rules, regulations or interpretations of the Securities and
Exchange Commission or any national securities exchange.

 

9.17                         Preservation and Access to Records After
Closing.    (a)    With regard to patient records relating to the Business, from
and after the Closing Date, Purchaser shall maintain the patient records held at
the Facilities as of the Closing Date relating to periods prior to the Closing
Date in accordance with applicable law, and in a manner consistent with the
policies and procedures of the Sellers governing maintenance of patient records
generated at the Facilities.

 

(b)           Purchaser acknowledges that, as a result of purchasing the Assets,
it will gain access to patient and other information that is subject to
statutes, laws, rules, and regulations regarding confidentiality, and agrees to
abide by such statutes, laws, rules, and regulations with regard to such
confidential information.

 

(c)           Purchaser acknowledges that following the Closing Date, the
Sellers may need access to information or documents in the control or possession
of Purchaser for the purposes of concluding the transactions contemplated
hereby, audits, compliance with governmental requirements and regulations, and
the prosecution or defense of claims.  Accordingly, Purchaser agrees that
following the Closing Date it shall make reasonably available to the Sellers,
their representatives, agents or independent auditors, and/or any governmental
agencies or authorities designated by the Sellers, upon written request,
consistent with applicable law, and at the expense of the Sellers, such
documents and information as may be available relating to the Business for
periods prior and subsequent to the Closing Date to the extent necessary to
facilitate concluding the transaction herein contemplated, audits, compliance
with governmental requirements and regulations, and the prosecution or defense
of claims or other causes of action retained by the Sellers.  Subsequent to the
Closing Date, Purchaser shall make available to Sellers’ Representative and it’s
counsel the Sellers’ books and records, for the purposes of, inter alia, (i)
complying with the terms of this Agreement or applicable law and (ii) resolving
all claims against the Sellers scheduled or filed in the Bankruptcy Cases and
any claims to which the Sellers have retained liabilities.

 

9.18         Sellers’ Knowledge Qualifications.  Whenever the Sellers’ make any
representation, warranty or other statement to the Sellers’ knowledge, Sellers’
knowledge means the knowledge, after due inquiry, of each of the persons set
forth on Schedule 9.18 hereto.

 

9.19         Accounting Terms.  Any accounting terms used in this Agreement
shall, unless otherwise defined in this Agreement, have the meaning ascribed
thereto by GAAP.

 

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9.20         Interpretation.  In this Agreement, unless a contrary intention
appears, (i) the words “herein”, “hereof” and “hereunder” and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision, and to any certificates delivered
pursuant hereto; and (ii) reference to any Article or Section means such Article
or Section hereof.

 

9.21         Confidentiality.     Prior to Closing, any information obtained or
derived by Purchaser as a result of its Clinical Due Diligence Review shall be
maintained strictly confidential, shall be used solely for the purposes
contemplated by this Agreement, and shall not be disclosed to any third party
except to the extent that such disclosure is specifically required by law. 
Purchaser further agrees that, not less than five (5) Business Days prior to
disclosing any confidential information pursuant to the first sentence of this
Section 9.21, it will inform the Sellers of the circumstances requiring
disclosure, unless providing such disclosure is itself prohibited by law.

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

 

 

TENDER LOVING CARE HEALTH CARE

 

SERVICES, INC.

 

 

 

 

 

 

 

By:

/s/ James K. Happ

 

 

 

Name: James K. Happ

 

 

Title: Chief Executive Officer

 

 

 

 

 

 

 

T.L.C. HOME HEALTH CARE INC.

 

 

 

 

 

 

 

By:

/s/ James K. Happ

 

 

 

Name: James K. Happ

 

 

Title: Chief Executive Officer

 

 

 

 

 

 

 

ALBERT GALLATIN HOME CARE, INC.

 

 

 

 

 

 

 

By:

/s/ James K. Happ

 

 

 

Name: James K. Happ

 

 

Title: Chief Executive Officer

 

 

 

 

STAFF BUILDERS, INC.

 

 

 

 

By:

/s/ James K. Happ

 

 

 

Name: James K. Happ

 

 

Title: Chief Executive Officer

 

 

 

 

 

 

 

STAFF BUILDERS INTERNATIONAL, INC.

 

 

 

 

 

 

 

By:

/s/ James K. Happ

 

 

 

Name: James K. Happ

 

 

Title: Chief Executive Officer

 

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CARECO, INC.

 

 

 

 

By:

/s/ James K. Happ

 

 

 

Name: James K. Happ

 

 

Title: Chief Executive Officer

 

 

 

 

 

 

 

TENDER LOVING CARE HOME CARE

 

SERVICES, INC.

 

 

 

 

 

 

 

By:

/s/ James K. Happ

 

 

 

Name: James K. Happ

 

 

Title: Chief Executive Officer

 

 

 

 

T.L.C. MIDWEST, INC.

 

 

 

 

 

 

 

By:

/s/ James K. Happ

 

 

 

Name: James K. Happ

 

 

Title: Chief Executive Officer

 

 

 

 

 

 

 

U.S. ETHICARE CORP.

 

 

 

 

 

 

 

By:

/s/ James K. Happ

 

 

 

Name: James K. Happ

 

 

Title: Chief Executive Officer

 

 

 

 

 

 

 

T.L.C. MEDICARE SERVICES OF DADE,
INC.

 

 

 

 

 

 

 

By:

/s/ James K. Happ

 

 

 

Name: James K. Happ

 

 

Title: Chief Executive Officer

 

47

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T.L.C. MEDICARE SERVICES OF

 

BROWARD, INC.

 

 

 

 

 

 

 

By:

/s/ James K. Happ

 

 

 

Name: James K. Happ

 

 

Title: Chief Executive Officer

 

 

 

 

U.S. ETHICARE CHAUTAUQUA CORP.

 

 

 

 

 

 

 

By:

/s/ James K. Happ

 

 

 

Name: James K. Happ

 

 

Title: Chief Executive Officer

 

 

 

 

 

 

 

ETHICARE CERTIFIED SERVICES, INC.

 

 

 

 

 

 

 

By:

/s/ James K. Happ

 

 

 

Name: James K. Happ

 

 

Title: Chief Executive Officer

 

 

 

 

 

 

 

U.S. ETHICARE ERIE CORP.

 

 

 

 

 

 

 

By:

/s/ James K. Happ

 

 

 

Name: James K. Happ

 

 

Title: Chief Executive Officer

 

 

 

 

 

 

 

U.S. ETHICARE NIAGARA CORP.

 

 

 

 

 

 

 

By:

/s/ James K. Happ

 

 

 

Name: James K. Happ

 

 

Title: Chief Executive Officer

 

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S.B.H.F., INC.

 

 

 

 

 

 

 

By:

/s/ James K. Happ

 

 

 

Name: James K. Happ

 

 

Title: Chief Executive Officer

 

 

 

 

 

 

 

STAFF BUILDERS SERVICES, INC.

 

 

 

 

 

 

 

By:

/s/ James K. Happ

 

 

 

Name: James K. Happ

 

 

Title: Chief Executive Officer

 

 

 

 

STAFF BUILDERS HOME HEALTH

 

CARE, INC.

 

 

 

 

 

 

 

By:

/s/ James K. Happ

 

 

 

Name: James K. Happ

 

 

Title: Chief Executive Officer

 

 

 

 

 

 

 

ST. LUCIE HOME HEALTH AGENCY, INC.

 

 

 

 

 

 

 

By:

/s/ James K. Happ

 

 

 

Name: James K. Happ

 

 

Title: Chief Executive Officer

 

 

 

 

 

 

 

A RELIABLE HOMEMAKER OF MARTIN

 

ST. LUCIE COUNTY, INC.

 

 

 

 

 

 

 

By:

/s/ James K. Happ

 

 

 

Name: James K. Happ

 

 

Title: Chief Executive Officer

 

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CHARTER TLC, INC.

 

 

 

 

 

 

 

By:

/s/ Lori Hess

 

 

 

Name: Lori Hess

 

 

Title: Vice President

 

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