Download ALMOST FAMILY INC (Form: 10-K, Received: 03

Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 1, 2016
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 001-09848
ALMOST FAMILY, INC.
(Exact name of Registrant as specified in its charter)
Delaware
06-1153720
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
9510 Ormsby Station Road, Suite 300, Louisville, Kentucky 40223
(Address of principal executive offices)
(502) 891-1000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act
Title of each class
Name of each exchange on which registered
Common Stock, par value $0.10 per share
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐
No ☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐
Smaller reporting company ☐
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of the last day of the second fiscal quarter ended July 3, 2015 was
$334,169,264 based on the last sale price of a share of the common stock as of July 2, 2015 ($39.21), as reported by the NASDAQ Global Market.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Outstanding at March 2 , 2016
Common Stock, $0.10 par value per share
10, 299,575 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 201 6 definitive proxy statement relating to the registrant’s Annual Meeting of Stockholders are incorporated by reference in Part III to the extent described therein.
Table of Contents
TABLE OF CONTENTS
PART I
Item 1.
4
Business
4
Item 1A. Risk Factors
17
Item 1B. Unresolved Staff Comments
28
Item 2.
Properties
28
Item 3.
Legal Proceedings
28
Item 4.
Mine Safety Disclosures
28
PART II
29
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
29
Item 6.
Selected Financial Data
31
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
32
Item 5.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
50
Item 8.
Financial Statements and Supplementary Data
51
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
77
Item 9A. Controls and Procedures
77
Item 9B. Other Information
77
PART III
77
Item 10. Directors, Executive Officers and Corporate Governance
77
Items 11, 12, 13 and 14. Executive Compensation; Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters; Certain Relationships and Related Transactions; and
Director Independence; and Principal Accountant Fees and Services
78
PART IV
80
Item 15. Exhibits and Financial State m ent Schedules
80
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In this report, the terms “Company,” “we,” “us” or “our” mean Almost Family, Inc. and all subsidiaries included
in our consolidated financial statements.
Special Caution Regarding Forward-Looking Statements
Certain statements contained in this annual report on Form 10-K, including, without limitation, statements
containing the words “believes,” “anticipates,” “intends,” “expects,” “assumes,” “trends” and similar expressions,
constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements are based upon the Company’s current plans, expectations and projections
about future events. However, such statements involve known and unknown risks, uncertainties and other factors
that may cause the actual results, performance or achievements of the Company to be materially different from
any future results, performance or achievements expressed or implied by such forward-looking statements. These
factors include, among others, the following:
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general economic and business conditions;
demographic changes;
changes in, or failure to comply with, existing governmental regulations;
legislative proposals for healthcare reform;
changes in Medicare and Medicaid reimbursement levels;
changes in laws and regulations with respect to Accountable Care Organizations;
effects of competition in the markets in which the Company operates;
liability and other claims asserted against the Company;
potential audits and investigations by government and regulatory agencies, including the impact of any
negative publicity or litigation;
ability to attract and retain qualified personnel;
availability and terms of capital;
loss of significant contracts or reduction in revenues associated with major payor sources;
ability of customers to pay for services;
business disruption due to natural disasters or terrorist acts;
ability to successfully integrate the operations of acquired businesses and achieve expected synergies
and operating efficiencies from the acquisition, in each case within expected time-frames or at all;
ability to successfully develop investments made by our healthcare innovations segment, in light of the
highly speculative nature of these early stage investments;
significant deterioration in economic conditions and significant market volatility;
effect on liquidity of the Company’s financing arrangements; and
changes in estimates and judgments associated with critical accounting policies and estimates.
For a detailed discussion of these and other factors that could cause the Company’s actual results to differ
materially from the results contemplated by the forward-looking statements, please refer to Item 1A. “Risk
Factors” and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
elsewhere in this report. The reader should not place undue reliance on forward-looking statements, which speak
only as of the date of this report. Except as required by law, the Company does not intend to publicly release any
revisions to forward-looking statements to reflect unforeseen or other events after the date of this report. The
Company has provided a detailed discussion of risk factors within this annual report on Form 10-K and various
filings with the Securities and Exchange Commission (“SEC”). The reader is encouraged to review these risk
factors and filings.
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PART I
ITEM 1. BUSINES S
Introduction
Almost Family, Inc. TM and subsidiaries (collectively “ Almost Family ”) is a leading, regionally focused provider
of home health services. We have service locations in Florida, Ohio, Tennessee, New York, Kentucky,
Connecticut, New Jersey, Massachusetts, Indiana, Illinois, Pennsylvania, Georgia, Missouri, Mississippi and
Alabama (in order of revenue significance in 2015).
We were incorporated in Delaware in 1985. Through a predecessor merged into the Company in 1991, we have
been providing health care services, primarily home health care, since 1976. We reported approximately $532
million of revenues for the year ended January 1, 2016 . Unless otherwise indicated, the financial information
included in Part I is for continuing operations.
Website Access to Our Reports
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all
amendments to those reports are available free of charge on our website at www.almostfamily.com as soon as
reasonably practicable after such material is electronically filed with or furnished to the SEC. Information
contained on Almost Family’s website is not part of this annual report on Form 10-K and is not incorporated by
reference in this document.
How We Are Currently Organized and Operate
The Company has two divisions, Home Health care and Healthcare Innovations. The Home Health care division
is comprised of two reportable segments, Visiting Nurse Services (VN or Visiting Nurse) and Personal Care
Services (PC or Personal Care). Healthcare Innovations is also a reporting segment. Reportable segments have
been identified based upon how management has organized the business by services provided to customers and
the criteria in Accounting Standards Codification (ASC) Topic 280, Segment Reporting .
Our VN segment provides a comprehensive range of Medicare-certified home health nursing services to patients
in need of recuperative care, typically following a period of hospitalization or care in another type of inpatient
facility. Our services are often provided to patients in lieu of additional care in other settings, such as long term
acute care hospitals, inpatient rehabilitation hospitals or skilled nursing facilities. Our nurses, therapists, medical
social workers and home health aides work closely with patients and their families to design and implement an
individualized treatment response to a physician-prescribed plan of care. Under the umbrella of our “Senior
Advocacy” mission, we offer special clinically-based protocols customized to meet the needs of the increasingly
medically complex, chronic and co-morbid patient populations we serve. Examples include Optimum Balance,
Silver Steps, Cardiocare, Orthopedic and Conjestive Heart Failure in the Home. VN Medicare revenues are
generated on a per episode basis rather than a fee per visit or hourly basis. Approximately 94% of the VN
segment revenues are generated from the Medicare program while the balance is generated from Medicaid and
private insurance programs.
Our PC segment provides services in patients’ homes primarily on an as-needed, hourly basis. These services
include personal care, medication management, meal preparation, caregiver respite and homemaking. Our
services are often provided to patients who would otherwise be admitted to skilled nursing facilities for long term
custodial care. PC revenues are generated on an hourly basis. Approximately 83% of the PC segment revenues
are generated from Medicaid and other government programs while the balance is generated from insurance
programs and private pay patients.
The Healthcare Innovations segment includes our developmental activity outside of the traditional home health
business platform.
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Additional financial information about our segments can be found in Part II, Item 8, “Notes to Consolidated
Financial Statements” and related notes included elsewhere in this Form 10-K.
Our View on Reimbursement and Diversification of Risk
Our Company is highly dependent on government reimbursement programs which pay for the majority of the
services we provide to our patients and customers. Reimbursement under these programs, primarily Medicare
and Medicaid, is subject to frequent changes as policy makers balance constituents’ needs for health care services
within the constraints of the specific government’s fiscal budgets. Medicare and Medicaid, respectively, are
consuming a greater percentage of federal and states’ budgets, which is exacerbated in times of economic
downturn. We believe that these financial issues are cyclical in nature rather than indicative of the long-term
prospect for Medicare and Medicaid funding of health care services. Additionally, we believe our services offer
the lowest cost alternative to institutional care and are a part of the solution to the federal government’s Medicare
and states’ Medicaid financing problems.
We believe that an important key to our historical success and to our future success is our ability to adapt our
operations to meet changes in reimbursement as they occur. One important way in which we have achieved this
adaptability in the past, and in which we plan to achieve it in the future, is to maintain some level of
diversification in our business mix.
The execution of our business plan will place primary emphasis on the development of our home health
operations. As our business grows, we may evaluate opportunities for the provision of other health care services
in patients’ homes that would be consistent with our Senior Advocacy mission.
Our Business Plan
Our future success depends on our ability to execute our business plan. Over the next three to five years we will
try to accomplish the following:

Generate meaningful same store sales growth through the focused provision of high quality services and
attending to the needs of our patients;
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Drive our costs down, while continuing to provide high quality patient care, by improving the
productivity of our work force through improved monitoring, tighter controls, workflow automation,
use of technology and other opportunities for efficiency gains;

Expand the significance of our home health services by selectively acquiring other quality providers,
through the startup of new agencies and potentially by providing new services in patients’ homes
consistent with our Senior Advocacy mission;

Make additional strategic investments which expand our Healthcare Innovation segment in its mission
to find solutions for more effective, efficient and appropriate delivery of homecare; and

Expand our capital base through both earnings performance and by seeking additional capital
investments in our Company.
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Overview of Our Services
Home Health Division Services
Operating Locations
Our operating locations for our VN and PC Segments in our home health division as of fiscal year end were as
follows:
Geographic Clusters
Southeast
Florida
Tennessee
Georgia
Mississippi
Alabama
Northeast
Pennsylvania
New Jersey
New York
Massachusetts
Connecticut
Midwest
Kentucky
Ohio
Indiana
Missouri
Illinois
Total
2015
Branches
Visiting
Personal
Nurse
Care
48
23
9
2
1
6
6
5
5
4
2014
Branches
Visiting
Personal
Nurse
Care
7
8
—
—
—
51
23
9
2
1
2
8
6
—
7
—
—
7
8
—
—
—
2
—
—
—
8
5
3
21
16
9
4
3
4
38
—
—
—
21
12
11
4
4
4
33
—
—
—
162
74
160
61
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Late in the fourth quarter of 2015, we closed or merged certain underperforming locations in Florida,
Pennsylvania, Indiana, and Illinois. On August 29 and on November 5 , 2015, we acquired operating locations in
New York and Connecticut, and Ohio, respectively.
Visiting Nurse Services
Our VN segment services consist primarily of the provision of skilled in-home medical services to patients in
need of short-term recuperative health care. Our patients are referred to us by their physicians or upon discharge
from a hospital or other type of in-patient facility. We operate 94 Medicare-certified home health agencies with a
total of 16 2 locations. In the fiscal year ended January 1, 2016 , approximately 94% of our visiting nurse
segment revenues were derived from the Medicare program.
Our Visiting Nurse segment provides a comprehensive range of Medicare-certified home health nursing
services. We receive payment from Medicare, Medicaid and private insurance companies. Our professional staff
includes registered nurses, licensed practical nurses, physical, speech and occupational therapists, and medical
social workers. They fulfill medical treatment plans prescribed by physicians. Our professional staff is subject to
state licensing requirements in the particular states in which they practice. Para-professional staff members
(primarily home health aides) also provide care to these patients.
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Our Visiting Nurse segment operations located in Florida normally experience higher admissions during the first
quarter and lower admissions during the third quarter than in the other quarters due to seasonal population
fluctuations.
Personal Care Services
Our PC segment services are also provided in patients’ homes. These services (generally provided by
para-professional staff such as home health aides) are generally of a custodial rather than skilled
nature. Generally, PC revenues are generated on an hourly basis. We currently operate 74 Personal Care
locations. In the fiscal year ended January 1, 2016 , approximately 83% of our personal care segment revenues
were derived from the Medicaid program.
Healthcare Innovations Segment
Our HealthCare Innovations (HCI) business segment was created to house and separately report on our
developmental activities outside our traditional home health business platform. These activities are intended
ultimately, whether directly or indirectly, to benefit our patients and payers through the enhanced provision of
home health services. HCI activities all share a common goal of improving patient experiences and quality
outcomes, while lowering costs. These include, but are not limited to: technology, information, population health
management, risk-sharing, assessments, care coordination and transitions, clinical advancements, enhanced
patient engagement and informed clinical decision making. We believe these activities help us discover valuable
insight and experiences that would not otherwise be gained in the routine operation of our core home health
business segments. Further, we believe these innovation activities, will play an important role in collaborating
with policy makers, payers, providers, and anyone who assumes financial risk for managing patient populations,
to seek to reduce costs , and improve quality by providing increasingly more care for more patients in their homes
than ever before.
As discussed further below, the HCI segment now includes: a) Imperium Health Management, an ACO
enablement company, b) an investment in NavHealth, a population-health analytics company, c) Ingenios Health,
a Nurse-Practitioner-oriented and mobile technology-enabled health risk assessment company primarily serving
managed care organizations; and d) Long Term Solutions, an in-home assessment company serving the long-term
care insurance industry.
Some of these initiatives are highly speculative and have been made in development stage enterprises. There can
be no assurance that we will receive any return on, or of, the capital we invest in these ventures. However, we
believe these activities already have, and will continue to help us, discover valuable insigh ts and experiences we
would not otherwise gain in the routine operation of our core home health business segments. These endeavors
are part of a growing number of care-related innovations and reforms. We expect more will be attempted over the
next several years.
Imperium
Imperium’s purpose is to assist independent primary care physician practices in establishing and successfully
operating Accountable Care Organizations (“ACOs”) first made possible by 2010’s Affordable Care
Act. Through improved care management, in a coordinated effort led by primary care physicians, with nurses and
home health agencies using evidence-based clinical standards, we seek to reduce avoidable hospitalizations,
emergent care, and non-impactful health care services. We seek to work together with primary care physicians to
manage high-cost patients in lower-cost settings, with a goal of generating, and sharing in, savings to the
Medicare program. By linking physicians with home health care through the ACO vehicle we seek to deliver
meaningful savings to the healthcare system and participate in a share of those savings under the Medicare Shared
Savings Program (“MSSP”) and such other similar models as may evolve in the future.
In the past year, Imperium has rapidly expanded its customer base growing from 3 ACOs under contract in 2013,
to 7 in 2014 , 11 in 2015 and 14 in 2016 . In terms of covered Medicare beneficiaries, Imperium has grown from
23,000 in 2013, to 45,000 in 2014 and 85,000 in 2015 and now has 124,000 in 2016 . While we intend to work
together toward the development of additional ACO relationships in markets in which Almost Family also
provides home health services, Imperium also currently has, and will continue to seek, ACO customers in other
service territories. We own 61.5% of Imperium and consolidate its result in our financial statements. We report a
provision for noncontrolling
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interests (NCI) to reflect the income or losses attributable to the 38.5% interest that we do not own. Additionally,
due to certain put-call arrangements we also reflect a mandatorily redeemable noncontrolling interest amount of
$3.6 million related to Imperium between the liability and equity sections of our balance sheet.
CMS announced the first year financial reconciliation and quality performance results for ACOs in September of
2014, in which, f ifty-three ACOs generated shared savings during their first performance year ended
December 31, 2013. ACOs that generated savings earned a performance payment, if they met the quality
standard. CMS announced the second year results in September of 2015. An Imperium serviced ACO received
an MSSP payment in the first and second CMS results. Imperium received its share $1.4 million in 2015 for 2014
services and $1.6 million in 2014 for 2013 services. There can be no assurance that future payments will be made
by CMS, the structure of MSSP payments will remain as currently deployed, or that an MSSP payment will be
received in 2016 related to our 2015 services or any future period.
NavHealth
NavHealth is a development-stage enterprise whose business plan is focused on the development of
technology-based tools designed to help health systems anticipate and inform a patient’s journey through the
health care system. Among its other objectives, NavHealth seeks to develop and market a software platform
designed to assist health care providers, managed care organizations and insurers in their efforts to aggregate
patient data from various sources, improve patient engagement, satisfaction and outcomes and lower the overall
cost of healthcare delivery. We are co-invested in NavHealth with founders Aneesh Chopra and Hunch Analytics
which Chopra co-founded with Sanju Bansal. Mr. Bansal is the co-founder and former COO of MicroStrategy
(MSTR), a worldwide provider of enterprise software for cloud business intelligence and big data services. We
made an initial $1 million noncontrolling investment in NavHealth on January 29, 2015 and may, at our option,
invest another $1 million. We account for this non-controlling investment under the cost method.
Ingenios Health Co.
Ingenios Health Co. (“Ingenios”) is a provider of technology enabled in-home clinical assessments for Medicare
Advantage, Managed Medicaid and Commercial Exchange lives in seven states and Washington, D.C. We
believe new health assessment capabilities provide the key element in the evolution of improved care planning
and delivery as healthcare delivery and reimbursement models evolve.
Long-Term Solutions
On January 5, 2016, we acquired Long Term Solutions , Inc. ( “ LTS ” ). See “Acquisitions” for additional
information. LTS performs in-home nursing assessments for the long-term care insurance industry. LTS also
provides a suite of planning and support services to insurance companies, employers and direct to individuals and
families throughout the United States. LTS, through its network of thousands of assessment service partners
provides assessments in all 50 U.S. states and a number of foreign countries. LTS estimates that the majority of
its assessments result in the patient ultimately receiving home health, assisted living or skilled nursing care in
accordance with their long-term care insurance benefits. One of every four of LTS’s 2015 assessments was
performed in territories currently served by our home health operations.
The American Association for Long-Term Care Insurance ( “ AALTCI ” ) estimates that the industry paid over
$7.5 billion in claims covering 273,000 beneficiaries across the US in its most recently studied year and that over
two thirds of all newly-opened long term care insurance claims paid for care in the home or in an assisted living
community setting. The AALTCI also reported total benefit payments increased by 13 percent and the number of
long term care insurance policyholders on claim grew 3.4 percent. According to the National Association of
Insurance Commissioners ( “ NAIC ” ) the top 100 plans in the US cover 7.2 million lives.
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Compensation for Home Health Services
We are compensated for our home health services by (i) Medicare (Visiting Nurse segment only), (ii) Medicaid,
(iii) other third party payors (e.g., insurance companies and other sources), and (iv) private pay (paid by personal
funds). The rates of reimbursement we receive from Medicare, Medicaid and other government programs are
generally dictated by those programs. In determining charge rates for goods and services provided to our other
customers, we evaluate several factors including cost and market competition. We sometimes negotiate contract
rates with third party providers such as insurance companies.
Our reliance on government sponsored reimbursement programs makes us vulnerable to possible legislative and
administrative regulation changes and budget cut-backs that could adversely affect the number of persons eligible
for such programs, the amount of allowed reimbursements or other aspects of the programs, any of which could
materially affect us. In addition, loss of certification or qualification under Medicare or Medicaid programs could
materially affect our ability to effectively market our services.
The following table sets forth our revenues from operations derived from each major payor class during the
indicated periods (by percentage of net revenues) for the fiscal years ended:
Payor Group
Medicare
Medicaid and Other Government
Programs
Insurance and private pay
January 1,
2016
December 31,
2014
December 31,
2013
71.4%
72.4%
71.2%
22.5%
6.1%
19.6%
8.0%
22.5%
6.3%
Medicare revenues are earned in our VN segment, where they account for 94% of segment revenues. Historical
changes in payment sources are primarily a result of changes in the types of customers we attract.
See “Government Regulation” and “Risk Factors.” We will monitor the effects of such items and may consider
modifications to our expansion and development strategy when and if necessary.
Acquisitions
The Company has completed several acquisitions over the past three years and will continue to seek to acquire
other quality providers of Medicare-certified home health and/or personal care services, along with making
investments in healthcare innovators through our Healthcare Innovations segment.
Factors which may affect future acquisition decisions include, but are not limited to, the quality and potential
profitability of the business under consideration, and our profitability and ability to finance the transaction.
2016 Acquisitions
On January 5, 2016, we acquired 100% of the equity of Long Term Solutions, Inc. (“LTS”). LTS is a provider of
in-home nursing assessments for the long-term care insurance industry. LTS provides assessments in all 50 U.S.
states and a number of foreign countries. The purchase price of $37 million was funded through borrowings on
the Company’s bank credit facility, seller notes and issuance of the Company’s common stock. LTS’s post
acquisition operating results will be reported in our Healthcare Innovations business segment.
On January 5, 2016, we purchased the assets of a Medicare-certified home health agency owned by Bayonne
Visiting Nurse Association (‘Bayonne”) located in New Jersey. Bayonne’s post acquisition operating results will
be reported in our VN segment.
2015 Acquisitions
On November 5, 2015, we acquired the stock of Black Stone Operations, LLC (“Black Stone”). Black Stone is a
provider of in-home personal care and skilled home health services in western Ohio and operates under the name
“Home Care by Black Stone .” The purchase price of $40 million was funded through borrowings on the
Company’s bank credit
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facility, seller notes and issuance of the Company’s common stock. Black Stone’s post acquisition operating
results are reported in our VN and PC segments.
On July 22, 2015, we acquired 100% of the equity of Ingenios Health Co. (“Ingenios”) for approximately $11.4
million of the Company’s common stock plus $2 million in cash. Ingenios is a leading provider of technology
enabled in-home clinical assessments for Medicare Advantage, Managed Medicaid and Commercial Exchange
lives in seven states and Washington, D.C. The post acquisition operating results of Ingenios are reported in our
Healthcare Innovations business segment.
On August 29, 2015, we acquired 100% of the equity of Bracor, Inc. (dba “WillCare”). Willcare, based in
Buffalo, NY, owned and operated VN and PC branch locations in New York (1 2 ) and Connecticut (1). The
purchase price was approximately $50.8 million. The transaction was funded by borrowings under the
Company’s bank credit facility. WillCare’s New York and Connecticut post acquisition operating results are
reported in our VN and PC segments.
On March 1, 2015, we acquired the stock of WillCare’s Ohio operations for $3.0 million. WillCare’s Ohio post
acquisition operating results are reported in our VN and PC segments.
On January 29, 2015, we acquired a noncontrolling interest in a development stage analytics and software
company, NavHealth, Inc. (“NavHealth”). The investment is an asset of our Health care Innovations segment.
2014 Acquisitions
During 2014, we completed a small acquisition using cash on hand to expand existing VN segment operations in
Kentucky.
2013 Acquisitions
On December 6, 2013, we acquired the stock of Omni Home Health Holdings, Inc. (“SunCrest”). The total
purchase price was $ 76.6 million . The transaction was funded primarily from borrowings from our senior
secured revolving credit facility and cash on hand. SunCrest’s post acquisition operating results are included in
our VN segment and our PC segment.
On October 4, 2013, we acquired a controlling interest in Imperium Health Management, LLC
(“Imperium”). Imperium is a development-stage enterprise that provides strategic health management services to
Accountable Care Organizations (“ACOs”). We acquired 61.5% interest for a total of $5.8 million. The
transaction was funded with cash on hand. Imperium’s post acquisition operating results are included in our
Healthcare Innovations segment.
On July 17, 2013, we acquired the assets of the Medicare-certified home agencies owned by Indiana Home Care
Network (“IHCN”). IHCN operated six home health agencies primarily in northern Indiana. The total purchase
price was $12.5 million and was funded with cash on hand and Almost Family, Inc. common stock. ICHN’s post
acquisition operating results are reported in our VN segment.
Competition, Marketing and Customers
The visiting nurse industry is highly competitive and fragmented. Competitors include larger publicly held
companies such as Amedisys, Inc. (NasdaqGS: AMED), Kindred Healthcare, Inc. (NYSE: KND), and LHC
Group, Inc. (NasdaqGS: LHCG), and numerous privately held multi-site home care companies, privately held
single-site agencies and a significant number of hospital-based agencies. Competition for customers at the local
market level is very fragmented and market specific. Generally, each local market has its own competitive profile
and no one competitor has significant market share across all our markets. To the best of our knowledge, no
individual provider has more than 6% share of the national Medicare home health market.
We believe the primary competitive factors are quality of service and reputation among referral sources. We
market our services through our site managers and marketing staff. These individuals contact referral sources in
their areas to
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market our services. Major referral sources include: physicians, hospital discharge planners, Offices on Aging,
social workers, and group living facilities. We also utilize, to a lesser degree, consumer-direct sales, marketing
and advertising programs designed to attract customers.
The personal care industry is likewise highly competitive and fragmented. Competitors include home health
providers, senior adult associations, and the private hiring of caregivers. We market our services primarily
through our site managers, and we compete by offering a high quality of care and by helping families identify and
access solutions for care. Major referral sources include case managers, physicians and hospital discharge
planners.
Our healthcare innovations segment competes in new industries, some of which were created by the Patient
Protection and Affordable Care Act (the “ACA”), signed into law in March 2010. In certain cases, we operate in
relatively new and unproven markets which include new competitors that are identified regularly and which range
in size from start-up companies to larger publicly held companies like Universal American Corp. (NYSE:
UAM). We market our services directly to our customers.
Government Regulation
Medicare Home Health Program
Payment Methodology
As shown in “Compensation for Services” above, approximately 71% of our 2015 consolidated net service
revenues were derived from the Medicare Program. Medicare reimburses home health care providers under the
Prospective Payment System (“PPS”), which pays a fixed, predetermined rate for services and supplies under an
episode of care. An episode of home health care spans a 60-day period, starting with the first day a billable visit
is furnished to a Medicare beneficiary and ending 60 days later. If a patient is still in treatment on the 60 th day, a
new episode begins on the 61 st day, commonly referred to as a recertification episode, regardless of whether a
billable visit is rendered on that day and ends 60 days later.
Payment rates are subject to adjustment based on certain variables including, but not limited to: (a) a case-mix
adjustment, which drives the home health resource group (“HHRG”) to which the Medicare patient is assigned
based on such factors as the patient’s clinical, functional, and services utilization characteristics; (b) geographic
wage adjustment, including rural rate add-ons, if any; (c) a payment adjustment based upon the level of therapy
services required (thresholds set at 6, 14 and 20 visits); (d) a low utilization payment adjustment (“LUPA”) if the
number of visits was fewer than five; (e) an outlier payment if our patient’s care was unusually costly (capped at
10% of total reimbursement at the agency level); (f) a partial payment if our patient transferred to another
provider or we received a patient from another provider before completing the episode; (g) the number of
episodes of care provided to a patient; and (h) sequestration, a 2% legislated reduction pursuant to the Budget
Control Act (“BCA”) signed into law on August 2, 2011, which was effective for episodes ended after March 31,
2013.
In establishing payment rates for the last three years , the Medicare Program re calibrated the national average
case-mix levels and maintained budget neutrality by making a corresponding adjustment to the National,
Standardized 60-Day Episode Payment Rate (“Base Episode Payment Rate”). These nominal case-mix and
payment rate recalibrations result in a lowe r case mix and higher base rates and are intended to have no effect on
payments actually made. We have presented the Base Episode Payment Rate established by the Medicare
Program for all episodes of care ended on or after
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the applicable time periods, along with the Base Episode Payment Rate for each period as if the case-mix reset s
were in effect for all prior periods below:
Base Episode Payment Rate
Adjusted for Case-mix
Recalibrations (2)
Base Episode
Payment Rate (1)
Period
January 1, 2016 through December 31, 2016
January 1, 2015 through December 31, 2015
January 1, 2014 through December 31, 2014
January 1, 2013 through December 31, 2013
$
2,965
2,961
2,869
2,138
$
2,965
2,990
3,003
3,013
(1) Reflects the payment rates as published by the Medicare Program.
(2) Presents the payment rates on a consistent basis as if the case-mix recalibrations had been in effect for all
periods presented. As applicable, a djusted payment rates for each of the years 2013-2015 were calculated
by multiplying the actual Base Episode Payment by 1.3464 (2014 Final Rule), then by 1.014 (2015 Final
Rule) and then by 1.0097 (2016 Final Rule).
After determining the appropriate PPS payment rate, we record net revenues as services are rendered to patients
over the 60-day episode period. At the end of each month, a portion of our revenue is estimated for episodes that
have not yet completed, which are generally referred to as episodes in progress. As a result, net service revenues
recorded for an episode in progress is subject to change if the actual number of visits differs from the number
anticipated at the start of care. Our revenue recognition under the Medicare reimbursement program is discussed
in greater detail in Part II, Item 7 “Critical Accounting Policies” and Item 8, “Notes to Consolidated Financial
Statements”.
Rebasing and Other Statutory Rate Reductions
The Patient Protection and Affordable Care Act (the “ACA”), signed into law in March 2010, has adversely
impacted our business and it is reasonable to expect it to have an impact on our business in the
future. Specifically, the ACA provisions:
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Outlined annual rate reductions from 2011 through 2017 for Medicare reimbursement rates for home
health care services we provide to our patients;
Established statutory reductions to the annual inflationary rate adjustments we would have otherwise
received;
Established certain “productivity” adjustments reducing the reimbursement rates we would have
otherwise received;
Required Centers for Medicare and Medicaid Services (“CMS”) to recalculate or “rebase” home health
reimbursement to more closely align with the costs of providing care;
Limited any reduction in reimbursement rates resulting from “rebasing” to a maximum of 3.5% per year
in each of the four phase-in years; and
Required the Medicare Payment Advisory Commission (“MedPac”) and the US Department of Health
and Human Services (“HHS”) Secretary to assess and report on the impact of rebasing on access and
quality of care.
On October 29, 2015, CMS issued its 2016 Home Health Prospective Payment System Rate Update. CMS is
implementing a 0.13% increase in the National, Standardized 60-Day Episode Payment Amount consisting of a
2.9% “market basket” increase minus a 0.6% productivity adjustment, a 2.71% ($80.95 per episode) rebasing cut,
a 0.97% case mix creep cut and an increase of 1.87% to maintain budget neutrality with respect to recalibration of
the home health case mix model for 2016. The impact of recalibration of the case-mix model on the Company
results in 2016 will depend upon the Company’s actual patient mix in that period. CMS is also implementing a
“Value Based Purchasing” (VBP) demonstration in 9 states (including Florida, Tennessee and Massachusetts
where the Company generated 38.1% of its fiscal year 2015 revenues ) under which certain 2016 agency specific
performance measures would be used to establish individual agency reimbursement rates for 2018. CMS
estimates that two thirds of providers will be a plus or minus 1.5% adjus tment to 2018 revenue rates. Investors
are encouraged to read the rule in its entirety at http://federalregister.gov/a/2015-27931 .
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Potential Future Developments in Medicare Home Health
While there have been many changes enacted over the past several years, the Congress and/or CMS may take
future actions which could have an adverse impact on our business, including possible:
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Acceleration or compressing of the rebasing period to a period shorter than the currently legislated
2014-2017 four-year phase in;
Changes in cost sharing between the Medicare program (“Program”) and beneficiaries (i.e., co-pays);
Removal of or changes to codes in the case-mix system or recalibration of the case-mix system
including further case-mix creep coding adjustments, all of which could result in changes to rates under
the national standardized 60-day episodic payment;
Post-acute care bundling;
Removal or reductions to established statutory reductions to the annual inflationary rate adjustments we
would have otherwise received;
“Productivity” payment reductions to reimbursement rates we would have otherwise received;
Changes that put providers “at risk” for patient outcomes,
Addition of new pre-authorization requirements for home health services, and
Other types of changes of which we may not currently be aware.
We are unable to predict when or whether any of these types of changes may be enacted or what impact, if any,
they may have on our business.
Medicaid Reimbursement
As shown in “Compensation for Services” above, approximately 22% of our 2015 consolidated net service
revenues were derived from state Medicaid and Other Government Programs, with approximately 9. 1 %, 5. 5 %,
3.2% and 1.7 % generated from Medicaid reimbursement programs in the states of Ohio, Connecticut, Tennessee
and Kentucky, respectively. Net service revenues under such state programs are derived from services provided
under a per visit, per hour or unit basis (as opposed to episodic). Revenues are calculated and recorded using
payor-specific or patient-specific fee schedules based on the contracted rates.
The financial condition of the Medicaid programs in each of the states in which we operate is cyclical with some
currently facing significant budget issues. States may be expected from time to time to take actions or evaluate
taking actions to control the rate of growth of Medicaid expenditures. Among these actions are the following:
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redefining eligibility standards for Medicaid coverage,
redefining coverage criteria for home and community based care services,
slowing payments to providers by increasing the minimum time in which payments are made,
limiting reimbursement rate increases or implementing rate cuts,
increased utilization of self-directed care alternatives,
shifting beneficiaries from traditional coverage to Medicaid managed care providers, and
changing regulations under which providers must operate.
Medicaid programs, while partially federally funded, are administered by the individual states under the broad
supervision of CMS. Accordingly, developments typically occur on a state-by-state basis. Specific programs
and changes are enacted regularly. Any such changes, if enacted, could adversely impact our operations.
Medicare and Medicaid Reimbursement Summary
The health care industry has experienced, and is expected to continue to experience, extensive and dynamic
periods of change. In addition to economic forces and regulatory influences, continuing political debate subjects
the health care industry to significant reform. Health care reforms have been enacted as discussed elsewhere in
this document and
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proposals for additional changes are continuously formulated by departments of the Federal government,
Congress, and state legislatures. Such governmental payors provide for approximately 94% of our consolidated
net service revenues, including Medicare Advantage plans run by private insurers which are also dependent on
federal funding.
We expect legislators and government officials to continuously review and assess alternative health care delivery
systems and payment methodologies. Changes in the law or new interpretations of existing laws may have a
dramatic effect on the definition of permissible or impermissible activities, the relative cost of doing business, and
the methods and amounts of payments for medical care by both governmental and other payors. We expect
legislative changes intended to “balance the budget” and slow the annual rate of growth of Medicare and
Medicaid to continue. Such future changes may further impact reimbursement for our services. There can be no
assurance that future legislation or regulatory changes will not have a material adverse effect on our results of
operations.
Governments might take or consider taking further actions because the number of Medicare and Medicaid
beneficiaries and their related expenditures are growing at a faster rate than the governments’ revenue. Medicare
and Medicaid are consuming increasing percentages of budgets and may expand further driven by state based
exchanges resulting from the ACA and implementing regulations. Health care financing issues are exacerbated
when revenues slow in a down economy. We believe that these financing issues are cyclical in nature rather than
indicative of the long-term prospect for Medicare and Medicaid funding of health care services for the
populations we serve. Additionally, we believe our services offer the lowest cost alternative to institutional care
and are a critical part of the solution to our nation’s health care financing problems.
Given the broad and far reaching implications of all the changes in the rapidly evolving environment in which we
operate, the incomplete nature of these changes, the pace at which the changes are taking place and the prospects
for future changes to be made, we cannot predict the ultimate impact, which may be material and adverse, that
health care reform efforts and resulting Medicare and Medicaid reimbursement rates will have on our liquidity,
our results of operations, the realizability of the carrying amounts of our intangible assets, including goodwill, or
our financial condition. Further, we are unable to predict what effect, if any, such material adverse effect, if it
were to occur, might have on our ability to continue to comply with the financial covenants of our revolving
credit facility and our ability to continue to access debt capital through that facility.
Permits and Licensure
Many states require companies providing certain health care services to be licensed as home health agencies. In
addition, certain health care practitioners employed by us require state licensure and/or registration and must
comply with laws and regulations governing standards of practice. The failure to obtain, renew or maintain any
of the required regulatory approvals or licenses could adversely affect our business. We believe we are currently
licensed appropriately where required by the laws of the states in which we operate. There can be no assurance
that either the states or the federal government will not impose additional regulations upon our activities which
might adversely affect our results of operations, financial condition, or liquidity.
Certificates of Need
Certain states require companies providing health care services to obtain a certificate of need issued by a state
health-planning agency. Where required by law, we have obtained certificates of need from those states. There
can be no assurance that we will be able to obtain any certificates of need which may be required in the future, if
we expand the scope of our services or if state laws change to impose additional certificate of need requirements,
and any attempt to obtain additional certificates of need will cause us to incur certain expenses.
Medicare and Medicaid Participation
Effective March 25, 2011, CMS implemented new enrollment regulations which were a response to aspects of the
ACA designed to enhance enrollment procedures to protect against fraud. The regulations authorize the
establishment of risk categories with risk level dictating the enrollment screening activities, i.e., more rigorous
screening as the perceived risk increases. For Medicare, there are three categories of providers i.e., “limited,”
“moderate,” or “high” risk, and CMS has
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placed newly enrolling home health agencies in the “high risk” category, with existing enrolled home health
agencies categorized as “moderate risk.” In addition to the low risk provider screening procedures, providers in
the moderate risk category will be subject to unannounced site visits. For high risk providers, any individual with
a 5% or more ownership interest will be subject to fingerprint-based criminal history record checks. Additionally,
the new regulations authorize Medicare and state Medicaid agencies to impose temporary enrollment moratoria
for a particular type of provider if determined to be necessary to combat fraud, waste, or abuse. To the extent that
home health agencies are subject to a moratorium, any newly enrolling home health agency, including any change
of ownership subject to the 36 month rule, and any expansion to add a branch would be affected by the
moratorium.
Other Regulations
A series of laws and regulations dating back to the Omnibus Budget Reconciliation Act of 1987 (“OBRA 1987”)
and through the ACA and related subsequent legislation have been enacted and apply to us. Changes in
applicable laws and regulations have occurred from time to time since OBRA 1987 including reimbursement
reductions and changes to payment rules. Changes are also expected to occur continuously for the foreseeable
future.
As a provider of services under Medicare and Medicaid programs, we are subject to the Medicare and Medicaid
anti-kickback statute and other “fraud and abuse laws.” The anti-kickback statute prohibits any bribe, kickback,
rebate or remuneration of any kind in return for, or as an inducement for, the referral of Medicare or Medicaid
patients. We may also be affected by the Federal physician self-referral prohibition, known as the “Stark” law,
which, with certain exceptions, prohibits physicians from referring patients to entities in which they have a
financial interest or from which they receive financial benefit. Penalties for violations of the federal Stark law
include payment sanctions, civil monetary penalties, and/or program exclusion. Many states in which we operate
have adopted similar self-referral laws, as well as laws that prohibit certain direct or indirect payments or
fee-splitting arrangements between health care providers, if such arrangements are designed to induce or to
encourage the referral of patients to a particular provider.
As a result of the Health Insurance Portability and Accountability Act of 1996 and other legislative and
administrative initiatives, Federal and state enforcement efforts against the health care industry have increased
dramatically, subjecting all health care providers to increased risk of scrutiny and increased compliance costs.
We are subject to routine and periodic surveys, audits and investigations by various governmental agencies. In
addition to surveys to determine compliance with the conditions of participation, CMS has engaged a number of
contractors (including Fiscal Intermediaries, Recovery Audit Contractors, Program Safeguard Contractors, Zone
Program Integrity Contractors, and Medicaid Integrity Contributors) to conduct audits to evaluate billing practices
and identify overpayments. In addition to audits by CMS contractors, individual states are implementing similar
programs such as using Medicaid Recovery Audit Contractors. We believe that we are in material compliance
with applicable laws. However, we are unable to predict what additional government regulations, if any, affecting
our business may be enacted in the future, how existing or future laws and regulations might be interpreted or
whether we will be able to comply with such laws and regulations either in the markets in which we presently
conduct, or wish to commence, business.
Medicare Accountable Care Organizations (ACOs)
The ACA also established ACOs as a tool to improve quality and lower costs through increased care coordination
in the Medicare fee-for-service (“FFS”) program, also known as “Original Medicare . ” The Medicare FFS
program covers approximately 70% of the Medicare recipients or approximately 36 million eligible Medicare
beneficiaries. ACOs are groups of doctors and other healthcare providers working together to provide high
quality services and care for their patients. Provider and beneficiary participation in an ACO is purely voluntary
and Medicare beneficiaries retain their current ability to seek treatment from any provider they wish. ACOs are
legal entities that contract with CMS for three-year periods. Beneficiaries are assigned to ACOs using an
“attribution” model based on a plurality of services provided by the primary care physician. Beneficiaries still
have the right to use any doctor or hospital who accepts Medicare, at any time. In order to receive revenues from
CMS under the MSSP, the ACO must meet certain minimum savings rates (i.e. save the federal government
money) and meet certain quality measures. More specifically, the ACOs costs of medical expenses for its
members during a relevant measurement year must be below the ACOs benchmark by a minimum amount as
established by CMS for such ACO.
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CMS established the MSSP to facilitate coordination and cooperation among providers to improve the quality of
care for Medicare FFS beneficiaries and reduce unnecessary costs. Eligible providers, hospitals, and suppliers
may participate in the MSSP by creating, participating in or contracting with an ACO. The MSSP is designed to
improve beneficiary outcomes and increase value of care by (1) promoting accountability for the care of Medicare
FFS beneficiaries; (2) requiring coordinated care for all services provided under Medicare FFS; and
(3) encouraging investment in infrastructure and redesigned care processes. The MSSP will reward ACOs that
reduce health care costs below their benchmark while also meeting performance standards on quality of
care. Under the final MSSP rules, Medicare will continue to pay individual providers and suppliers for specific
items and services as it currently does under the FFS payment methodologies. MSSP rules require CMS to
develop a benchmark for savings to be achieved by each ACO, if the ACO is to receive shared savings or for
ACOs that have elected to accept responsibility for losses. An ACO that meets the program’s quality
performance standards will be eligible to receive a share of the savings to the extent its assigned beneficiary
medical expenditures are below its own medical expenditure benchmark provided by CMS.
Insurance Programs and Costs
We bear significant risk under our large-deductible workers’ compensation insurance program and our
self-insured employee health program. Under the workers’ compensation insurance program, we bear risk up to
$400,000 per incident except for the recent Black Stone acquisition that had not yet been folded into our program
that has a stop loss of $750,000, after which stop-loss insurance coverage is maintained.
We purchase stop-loss insurance for the employee health plan that places a specific limit, generally $300,000, on
our exposure for any individual covered life. The ACA also includes regulatory changes related to employer
sponsored health insurance benefit plans, the most significant of which was initially effective for the Company
January 1, 2015. However, certain components continue to evolve, be delayed or have additional
developments. Management has implemented portions of its procedures and is currently working to evaluate the
implications of these changes and to develop appropriate courses of action for the Company. At this time, we are
unable to predict the full impact of such changes on our health insurance benefit programs or the costs of such
programs to the Company.
Malpractice and general patient liability claims for incidents which may give rise to litigation have been asserted
against us by various claimants. The claims are in various stages of processing and some may ultimately be
brought to trial. We are aware of incidents that have occurred through January 1, 2016 , that may result in the
assertion of additional claims. We currently carry professional and general liability insurance coverage (on a
claims made basis) for this exposure with no deductible.
We also carry D&O coverage for potential claims against our directors and officers, including securities actions,
with deductibles ranging from $1 75 ,000 to $ 5 00,000 per claim.
Total premiums, excluding estimated exposure to claims and deductibles, for all our non-health insurance
programs were approximately $4 .8 million for the contract year ended May 31, 2015.
We record estimated liabilities for our insurance programs based on information provided by the third-party plan
administrators, historical claims experience, the life cycle of claims, expected costs of claims incurred but not
paid, and expected costs to settle unpaid claims. We monitor our estimated insurance-related liabilities and
related insurance recoveries on a monthly basis and have recorded amounts due under insurance policies in other
current assets, while recording the estimated carrier liability in other current liabilities in our consolidated balance
sheets. As facts change, it may become necessary to make adjustments that could be material to our results of
operations and financial condition.
We believe that our present insurance coverage is adequate. As part of our on-going risk management, regulatory
compliance and cost control efforts, we continually seek alternatives that might provide a different balance of cost
and risk, including potentially accepting additional self-insurance risk in lieu of higher premium costs.
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Executive Officers of the Registrant
See Part III, Item 10 of this Form 10-K for information about the Company’s executive officers.
Employees and Labor Relations
As of January 1, 2016 , we had approximately 14,200 employees. None of our employees are represented by a
labor organization. We believe our relationship with our employees is satisfactory.
ITEM 1A. RISK FACTOR S
Described below and elsewhere in this report are risks, uncertainties and other factors that can adversely affect
our business, results of operations, cash flow, liquidity or financial condition. Investing in our common stock
involves a degree of risk. You should consider carefully the following risks, as well as other information in this
filing and the incorporated documents before investing in our common stock.
Risks Related to Our Industry
Complying with health care reform legislation and the implementing regulations and programmatic guidelines
could have a material adverse impact on our results of operations or financial condition in ways not currently
anticipated by us.
Part I, Item 1, “Government Regulation” summarizes US health care reform activities pertinent to our operations.
Very often, sweeping new legislation is followed by subsequent legislation to address previously unanticipated
consequences, or to further define provisions that were too vague to implement based on the language of the
original legislation and by legal actions to challenge its constitutionality. In our view it is reasonable to expect
this to occur over the next few years. As a result of the broad scope of the ACA and related legislation, the
significant changes it will effect in the healthcare industry and society generally, and the complexity of the
technical issues it addresses, we are unable to predict, at this time, all the ramifications the ACA and the
implementing regulations may have on our business as a health care provider or a sponsor of an employee health
insurance benefit plan. The ACA and implementing regulations and programmatic guidelines could have a
material adverse impact on our results of operations or financial condition in ways not currently anticipated by us.
Additionally, we may be unable to take actions to mitigate any or all of the negative implications of the ACA and
implementing regulations or programmatic guidelines which may result in unfavorable earnings, losses, or
impairment charges.
The ACA and related subsequent legislation may be modified through future legislative action or judicial
challenge. We can provide you with no assurance that the ultimate outcome of the ACA, health care reform
efforts and/or the federal budget and resulting Medicare reimbursement rates will not have a material adverse
effect on our liquidity, our results of operation, the realizability of the carrying amounts of our intangible assets,
including goodwill, or our financial condition. Further, we are unable to predict what effect, if any, such material
adverse effect, if it were to occur, might have on our ability to continue to comply with the financial covenants of
our revolving credit facility and our ability to continue to access debt capital through that facility.
The current status of Federal and State budgets may have a material adverse effect on our future results of
operations and financial condition, as well as our ability to access credit and capital.
There can be no assurance that Federal and State governments will be able to operate balanced budgets. While
the ultimate outcome of these events cannot be predicted, they may have a material adverse effect on the
Company. Historic economic conditions, stimulus efforts by the Federal government and costly new programs
created by ACA have placed significant strain on Federal and state budgets, many of which are in a deficit
position. Efforts to reduce spending at the Federal and/or state levels may result in reductions in reimbursement
by Medicare, Medicaid and other third-party payors along with tax increases, which may in turn result in
decreased revenue growth and a decrease in our profitability.
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Our contractors and suppliers may also be negatively impacted by these conditions and our ability to provide
patient care at a lower cost may diminish and reduce our profitability. Future disruptions in the credit and capital
markets, if any, may restrict our access to capital. As a result, our ability to incur additional indebtedness to fund
acquisitions and operations may be constrained. If the Federal and State budgets ’ conditions deteriorate or do not
improve, our results of operations or financial condition could be materially and adversely affected.
Our profitability depends principally on the level of government-mandated payment rates. Reductions in rates,
or rate increases that do not cover cost increases, may adversely affect our business.
We generally receive fixed payments from Medicare and Medicaid for our services based on the level of care that
we provide patients. Consequently, our profitability largely depends upon our ability to manage the cost of
providing services. Although current Medicare legislation provides for an annual adjustment of the various
payment rates based on the increase or decrease of the medical care expenditure category of the Consumer Price
Index, these Medicare payment rate increases may be less than actual inflation or could be eliminated or reduced
in any given year. Consequently, if our cost of providing services, which consists primarily of labor costs, is
greater than the respective Medicare or Medicaid payment rate, our profitability would be negatively impacted.
If any of our agencies fail to comply with the conditions of participation in the Medicare program, that agency
could be terminated from the Medicare program, which would adversely affect our net service revenue and
profitability.
Each of our home care agencies must comply with the extensive conditions of participation in the Medicare
program. If any of our agencies fail to meet any of the Medicare conditions of participation, that agency may
receive a notice of deficiency from the applicable state surveyor. If that agency then fails to institute a plan of
correction to correct the deficiency within the correction period provided by the state surveyor, that agency could
be terminated from the Medicare program. Additionally, failure to comply with the conditions of participation
related to enrollment could result in a deactivation or revocation of billing privileges. To the extent that billing
privileges are revoked there is a mandated one to three-year bar to re-enrollment. The failure to pass a site
verification visit, for example, could result in a revocation of billing privileges with a mandated two-year bar to
re-enrollment. Although the revocation would only immediately affect the particular enrollment subject to the
revocation, CMS has indicated that following a revocation it will review the enrollment files for providers under
common ownership or control to determine if a similar sanction is warranted for any of the other related
providers. Any termination of one or more of our home care agencies from the Medicare program for failure to
satisfy the program’s conditions of participation could adversely affect our net service revenue and profitability.
Any changes to the laws and regulations governing our business, or the interpretation and enforcement of
those laws or regulations, could cause us to modify our operations and could negatively impact our operating
results.
The federal government and the states in which we operate regulate our industry extensively. The laws and
regulations governing our operations, along with the terms of participation in various government programs,
regulate how we do business, the services we offer, and our interactions with patients and the public. These laws
and regulations, and their interpretations, are subject to frequent change. Changes in existing laws and
regulations, or their interpretations, or the enactment of new laws or regulations could reduce our profitability by:
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increasing our liability;
increasing our administrative and other costs;
increasing or decreasing mandated services;
forcing us to restructure our relationships with referral sources and providers; or
requiring us to implement additional or different programs and systems.
Violation of the laws governing our operations, or changes in interpretations of those laws, could result in the
imposition of fines, civil or criminal penalties, the termination of our rights to participate in federal and
state-sponsored programs, the suspension or revocation of our licenses, or claims for damages. If we become
subject to material fines or if other sanctions or other corrective actions are imposed on us, we might suffer a
substantial reduction in profitability.
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We have been and could become the subject of governmental investigations, claims and litigation that could
have a material adverse effect on our financial position, results of operation and liquidity.
Over the years, we, and the industry as a whole, have been the subject of civil investigations, and qui tam or
“whistleblower” suits relating to its Medicare-reimbursed oper ations. For further discussion , please refer to Part
I, “Legal Proceedings” and Part II, Item 8, “Notes to Consolidated Financial Statements”. We may become, or
unknown to us may already be, the subject of investigations, qui tams, or lawsuits that could have a material
adverse effect on our financial position, results of operation and liquidity.
Governmental agencies and their agents, such as the Medicare Administrative Contractors, fiscal intermediaries
and carriers, as well as the OIG, CMS and state Medicaid programs, conduct audits of our health care
operations. Depending on the nature of the conduct found in such audits and whether the underlying conduct
could be considered systemic, the resolution of these audits could have a material adverse effect on our financial
position, results of operation and liquidity.
For example, home health providers, including the Company, have received pre-pay Additional Development
Requests (“ADR”) in addition to Recovery Audit Contractor audits (“RAC”) from the Palmetto Government
Benefits Administration (“PGBA”) as a result of additional CMS funding allocations to the Medicare
Administrative Contractors (“MACs”) to conduct pre-payment reviews. ADR and RAC audits are both general
and focused in nature. The PGBA acts as one of our four fiscal intermediaries, but processes the majority of our
claims. We would expect ADR and RAC audits to continue in the future. If such ADR or RAC audits result in
reimbursement adjustments, we may suffer reduced profitability. Further, our appeal rights related to such audits
may lead to cash flow delays due to significant backlog at the Administrative Law Judge level. ADR and RAC
backlog was so significant in the hospital industry that CMS agreed to settle all ADR and RAC denials at $0.6
8 for each dollar denied. There can be no assurances that CMS will settle such claims for home health
providers.
If we are unable to maintain relationships with existing patient referral sources or to establish new referral
sources, our growth and profitability could be adversely affected.
Our success depends significantly on referrals from physicians, hospitals, case managers and other patient referral
sources in the communities that our home care agencies serve, as well as on our ability to maintain good
relationships with these referral sources. Our referral sources are not contractually obligated to refer home care
patients to us and may refer their patients to other providers. Our growth and profitability depend on our ability
to establish and maintain close working relationships with these patient referral sources and to increase awareness
and acceptance of the benefits of home care by our referral sources and their patients. We cannot assure you that
we will be able to maintain our existing referral source relationships or that we will be able to develop and
maintain new relationships in existing or new markets. Our loss of, or failure to maintain, existing relationships
or our failure to develop new relationships could adversely affect our ability to expand our operations and operate
profitably.
We are subject to federal and state laws that govern our financial relationships with physicians and other
healthcare providers, including potential or current referral sources.
We are required to comply with federal and state laws, generally referred to as “anti-kickback laws,” that prohibit
certain direct and indirect payments or fee-splitting arrangements between healthcare providers that are designed
to encourage the referral of patients to a particular provider for medical services. We are also required to comply
with the “Stark” law s , which places restrictions on physicians who refer patients to entities in which they have a
financial interest or from which they receive financial benefit. In addition to the federal anti-kickback and Stark
laws, some of the states in which we operate have enacted laws prohibiting certain business relationships between
physicians and other providers of healthcare services. We currently have contractual relationships with certain
physicians who provide consulting services to our Company. Many of these physicians are current or potential
referral sources. Although we believe our physician consultant arrangements currently comply with state and
federal anti-kickback and Stark laws, we cannot assure you that courts or regulatory agencies will not interpret
these laws in ways that will implicate our physician consultant arrangements. Violations of anti-kickback and
similar laws could lead to fines or sanctions, including under the False Claims Act, that may have a material
adverse effect on our operations.
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We may be subject to substantial malpractice or other similar claims.
The services we offer involve an inherent risk of professional liability and related substantial damage awards. On
any given day, we have thousands of nurses, therapists and other direct care personnel driving to and from
patients’ homes where they deliver medical and other care. Due to the nature of our business, we and the
caregivers who provide services on our behalf may be the subject of medical malpractice claims. These
caregivers could be considered our agents, and, as a result, we could be held liable for their medical
negligence. We cannot predict the effect that any claims of this nature, regardless of their ultimate outcome,
could have on our business , reputation , or on our ability to attract and retain patients and employees. We
maintain malpractice and various other liability insurance or re-insurance policies and are responsible for
deductibles and, as applicable, amounts in excess of the limits of our coverage. Although we contract with highly
rated carriers, we cannot guarantee collection of amounts expected to be recovered under various insurance or
reinsurance policies.
Delays in reimbursement may cause liquidity problems.
Our business is characterized by delays in reimbursement from the time we provide services to the time we
receive reimbursement or payment for these services. Data submission requirements change from time to time for
payors , payments to us may be delayed pending additional data or documentation requests by the fiscal
intermediary, or our ability to effectively respond to such requirements may delay our payment cycle. If we have
information system problems or issues that arise with Medicare or Medicaid, we may encounter delays in our
payment cycle. Such a timing delay may cause working capital shortages. Working capital management,
including prompt and diligent billing and collection, is an important factor in our results of operations and
liquidity. System problems, Medicare or Medicaid issues or industry trends may extend our collection period,
adversely impact our working capital. Our working capital management procedures may not successfully negate
this risk. There are often timing delays when attempting to collect funds from Medicaid programs. Delays in
receiving reimbursement or payments from these programs may adversely impact our working capital.
The home health care industry is highly competitive.
Our home health care agencies compete with local and regional home health care companies, hospitals, nursing
homes, and other businesses that provide home nursing services, some of which are large established companies
that have significantly greater resources than we do. Our primary competition comes from local companies in
each of our markets, and these privately-owned or hospital-owned health care providers vary by region and
market. We compete based on the availability of personnel; the quality, expertise, and value of our services; and
in select instances, on the price of our services. Increased competition in the future from existing competitors or
new entrants may limit our ability to maintain or increase our market share. We cannot assure you that we will be
able to compete successfully against current or future competitors or that competitive pressures will not have a
material adverse impact on our business, financial condition, or results of operations.
Some of our existing and potential new competitors may enjoy greater name recognition and greater financial,
technical, and marketing resources than we do. This may permit our competitors to devote greater resources than
we can to the development and promotion of services. These competitors may undertake more far-reaching and
effective marketing campaigns and may offer more attractive opportunities to existing and potential employees
and services to referral sources.
We expect our competitors to develop new strategic relationships with providers, referral sources, and payors,
which could result in increased competition. The introduction of new and enhanced service offerings, in
combination with industry consolidation and the development of strategic relationships by our competitors, could
cause a decline in revenue or loss of market acceptance of our services or make our services less
attractive. Additionally, we compete with a number of non-profit organizations that can finance acquisitions and
capital expenditures on a tax-exempt basis or receive charitable contributions that are unavailable to us.
We expect that industry forces will continue to have an impact on our business and that of our competitors. In
recent years, the health care industry has undergone significant changes driven by efforts to reduce costs, and we
expect these
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cost containment measures to continue in the future. Frequent regulatory changes in our industry, including
reductions in reimbursement rates and changes in services covered, have increased competition among home
health care providers. If we are unable to react competitively to new developments, our operating results may
suffer.
Portions of our Healthcare Innovations segment competes in relatively new and developing markets.
Portions of our Healthc are Innovations segment compete in new and developing markets with new competitors
or solutions developed and introduced to the market regularly. Such new products may capture market share
more quickly or may have access to more capital than the capital we have allocated for such projects. Our efforts
to bring new solutions to the market may prove unsuccessful, may prove to be unprofitable or may prove to be
more costly to bring to market than anticipated. Our investments in these activities are highly speculative in
nature and subject to loss.
A shortage of qualified registered nursing staff, physical therapists, occupational therapists and other
caregivers could adversely affect our ability to attract, train and retain qualified personnel and could increase
operating costs.
We rely significantly on our ability to attract and retain caregivers who possess the skills, experience, and licenses
necessary to meet the requirements of our patients. We compete for personnel with other providers of health care
services. Our ability to attract and retain caregivers depends on several factors, including our ability to provide
these caregivers with attractive assignments and competitive benefits and salaries. We cannot assure you that we
will succeed in any of these areas. In addition, there are occasional shortages of qualified healthcare personnel in
some of the markets in which we operate. As a result, we may face higher costs of attracting caregivers and
providing them with attractive benefit packages than we originally anticipated, and if that occurs, our profitability
could decline. Finally, although this is currently not a significant factor in our existing markets, if we expand our
operations into geographic areas where healthcare providers have historically unionized, we cannot assure you
that the negotiation of collective bargaining agreements will not have a negative effect on our ability to timely
and successfully recruit qualified personnel. Generally, if we are unable to attract and retain caregivers, the
quality of our services may decline, and we could lose patients and referral sources.
Risks Related to Our Business
We depend on government sponsored reimbursement programs with Medicare accounting for the largest
portion of our revenues.
For the years ended January 1, 2016, December 31, 2014 and 2013, we received 71% , 72% and 71%,
respectively, of our revenue from Medicare. Reductions in Medicare reimbursement have historically and may
continue to adversely impact our profitability. Such reductions in payments to us could be caused by:
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administrative or legislative changes to the base episode rate;
the elimination or reduction of annual rate increases based on medical inflation;
the imposition by Medicare of co-payments or other mechanisms shifting responsibility for a portion of
payment to beneficiaries;
adjustments to the relative components of the wage index;
changes to or imposition of regulations impacting our case-mix or therapy thresholds; or
other adverse changes to the way we are paid for delivering our services.
Our non-Medicare revenues and profitability also are affected by the continuing efforts of third-party payors to
contain or reduce the costs of health care by lowering reimbursement rates, narrowing the scope of covered
services, increasing case management review of services, and negotiating reduced contract pricing. Any changes
in reimbursement levels from these third-party payor sources and any changes in applicable government
regulations could have a material adverse effect on our revenues and profitability. We can provide no assurance
that we will continue to maintain the current payor or revenue mix.
Our reliance on government sponsored reimbursement programs such as Medicare and Medicaid makes us
vulnerable to possible legislative and administrative regulations and budget cut-backs that could adversely affect
the number of
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persons eligible for such programs, the amount of allowed reimbursements or other aspects of the programs, any
of which could materially affect us. In addition, loss of certification or qualification under Medicare or Medicaid
programs could materially affect our ability to effectively market our services.
We have a significant dependence on state Medicaid reimbursement programs.
Approximately 2 2 % , 20% and 23% of our fiscal years 2015, 2014 and 2013 revenues, respectively, were
derived from state Medicaid and other government programs, many of which currently face significant budget
issues. Further, the acquisitions completed by us in 2015 and 2013 increased our dependence on Medicaid
reimbursement. Specifically, for the year ended January 1, 2016 , approximately 9.1%, 5.5%, 3.2% and 1.7% of
our revenues were generated from Medicaid reimbursement programs in the states of Ohio, Connecticut,
Tennessee and Kentucky, respectively and 8.8%, 5.5%, 2.5% and 1.8% for the year ended December 31, 2014 ,
respectively. Such amounts for Ohio, Connecticut and Kentucky were 11.7%, 7.1% and 2.3%, respectively for
the year ended December 31, 2013 .
The financial condition of the Medicaid programs in each of the states in which we operate is cyclical and many
may be expected from time to time to take actions or evaluate taking actions to control the rate of growth of
Medicaid expenditures. Among these actions are the following:
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redefining eligibility standards for Medicaid coverage,
redefining coverage criteria for home and community based care services,
slowing payments to providers by increasing the minimum time in which payments are made,
limiting reimbursement rate increases,
increased utilization of self-directed care alternatives,
shifting beneficiaries from traditional coverage to Medicaid managed care providers, and
changing regulations under which providers must operate.
States may be expected to address these issues because the number of Medicaid beneficiaries and their related
expenditures are growing at a faster rate than the government’s revenue. Medicaid is consuming a greater
percentage of states’ budgets. This issue is exacerbated when revenues slow in a slowing economy. It is possible
that the actions taken by the state Medicaid programs in the future could have a significant unfavorable impact on
our results of operations, financial condition and liquidity.
Migration of our Medicare beneficiary patients to Medicare managed care providers could negatively impact
our operating results.
Historically, we have generated a substantial portion of our revenue from the Medicare fee-for-service
market. The Congress continues to allocate significant additional funds and other incentives to Medicare
managed care providers in order to promote greater participation in those plans by Medicare beneficiaries. If
these increased funding levels have the intended result, the size of the potential Medicare fee-for-service market
could decline, thereby reducing the size of our potential patient population, which could cause our operating
results to suffer.
Our growth strategy depends on our ability to manage growing and changing operations.
Our business plan calls for significant growth in our business over the next several years. This growth will place
significant demands on our management and information technology systems, internal controls, and financial and
professional resources. In addition, we will need to further develop our financial controls and reporting systems
to accommodate future growth. This could require us to incur expenses for hiring additional qualified personnel,
retaining professionals to assist in developing the appropriate control systems, and expanding our information
technology infrastructure. Our inability to manage growth effectively could have a material adverse effect on our
financial results.
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Our home health growth strategy depends on our ability to develop and to acquire additional agencies on
favorable terms and to integrate and operate these agencies effectively. If we are unable to do so, our future
growth and operating results could be negatively impacted.
With regard to development, we expect to continue to open agencies in our existing and new markets. Our new
agency growth, however, will depend on several factors, including our ability to:
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obtain locations for agencies in markets where need exists;
identify and hire a sufficient number of sales personnel and appropriately trained home care and other
health care professionals;
obtain adequate financing to fund growth; and
operate successfully under applicable government regulations.
With regard to acquisitions, we are focusing significant time and resources on the acquisition of home healthcare
providers, or of certain of their assets, in targeted markets. We may be unable to identify, negotiate, and complete
suitable acquisition opportunities on reasonable terms. We may incur future liabilities related to acquisitions.
Should any of the following problems, or others, occur as a result of our acquisition strategy, the impact could be
material:
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difficulties integrating personnel from acquired entities and other corporate cultures into our business;
difficulties integrating information systems;
the potential loss of key employees or referral sources of acquired companies or a reduction in patient
referrals by hospitals from which we have acquired home health care agencies;
the assumption of liabilities and exposure to undisclosed liabilities of acquired companies;
the acquisition of an agency with undisclosed compliance problems;
the diversion of management attention from existing operations;
difficulties in recouping partial episode payments and other types of misdirected payments for services
from the previous owners; or
an unsuccessful claim for indemnification rights from previous owners for acts or omissions arising
prior to the date of acquisition.
CMS has placed certain limitations on the sale or transfer of the Medicare Provider Agreement for any
Medicare-certified home health agency that has been in existence for less than 36 months or that has undergone a
change of ownership in the last 36 months. This limitation may reduce the number of home health agencies that
otherwise would have been available for acquisition and may limit our ability to successfully pursue our
acquisition strategy.
We have invested in development stage companies which may require further funding to support their
respective business plans, which may ultimately prove unsuccessful.
Through our Imperium acquisition, we provide strategic health management services to ACOs that have been
approved to participate in the Medicare Shared Savings Program (“MSSP”). In addition to our ownership
interests in ACOs, we also have service agreements with ACOs that provide for sharing of MSSPs received by the
ACO, if any. During 2013, we invested $5.8 million in our Imperium acquisition of which $3 million went to
fund operations in pursuit of its business plan. In 2015, we also invested $1 .0 million for a noncontrolling
interest in NavHealth and $1 3.1 million in Ingenios Health . These investments are highly speculative, are at
risk and we may choose to make further investments, all of which may ultimately provide no return and could
lead to a total loss of our investment.
ACOs are entities that contract with CMS to serve the Medicare fee-for-service population with the goal of better
care for individuals, improved health for populations and lower costs. ACOs share savings with CMS to the
extent that the actual costs of serving assigned beneficiaries are below certain trended benchmarks of such
beneficiaries and certain quality performance measures are achieved.
CMS made its first MSSP payments to ACOs for the first measurement periods ending December 31, 2013 in the
third quarter of 2014, while issuing its second year payments in the third quarter of 2015 . Imperium received a
MSSP
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payment in the third quarters of 2015 and 2014 for $1.4 million and $1.6 million, respectively, while breaking
even for the year at the operating income level.
We expect our Imperium and Ingenios operations to negatively impact our cash flows. Notwithstanding our
efforts, our ACOs may be unable to meet the required savings rates or may no t satisfy the quality measures and
efforts to drive other revenue may not cover operating costs of these investments. In addition, as the MSSP is a
new program, it presents challenges and risks associated with the timeliness and accuracy of data and
interpretation of complex rules, which may have a material adverse effect on our ability to recoup any of our
investments. Further, there can be no assurance that we will maintain positive r elations with our ACO partners
or significant customers, which could result in a loss of our investment.
In addition, CMS, the US Office of Inspector General, the Internal Revenue Service, the Federal Trade
Commission, US Department of Justice, and various states have adopted or are considering adopting new
legislation, rules, regulations and guidance relating to formation and operation of ACOs. Such laws may, among
other things, require ACOs to become subject to financial regulation such as maintaining deposits of assets with
the states in which they operate, the filing of periodic reports with the insurance department and/or department of
health, or holding certain licenses or certifications in the jurisdictions in which the ACOs operate. Failure to
comply with legal or regulatory restrictions may result in CMS terminating the ACOs agreement with CMS
and/or subjecting the ACO to loss of the right to engage in some or all business in a state, payments fines or
penalties, or may implicate federal and state fraud and abuse laws relating to anti-trust, physician fee-sharing
arrangements, anti-kickback prohibitions, prohibited referrals, any of which may adversely affect our operations
and/or profitability.
We may require additional capital to pursue our acquisition strategy.
At January 1, 2016, we had cash and cash equivalents of approximately $ 7.5 million and additional borrowing
capacity of approximately $32.1 million. Based on our current plan of operations, including acquisitions, we
cannot assure you that this amount will be sufficient, nor continue to be fully available, to support our current
growth strategies. We cannot readily predict the timing, size, and success of our acquisition efforts and the
associated capital commitments. If we do not have sufficient cash resources, our growth could be limited unless
we obtain additional equity or debt financing.
We last issued additional shares of our common stock in the third quarter of 2009, other than in conjunction with
acquisitions in 2015 and 2013 and employee benefit plans. At some future point, we may elect to issue additional
equity or debt securities in conjunction with raising capital or completing an acquisition. We cannot assure you
that such issuances will not be dilutive to existing shareholders. Conversely, our board may approve stock
repurchase programs in the future, which may use funds previously otherwise available for the pursuit of growth.
Our business depends on our information systems. Our inability to effectively integrate, manage, and keep
secure our information systems could disrupt our operations.
Our business depends on effective and secure information systems that assist us in, among other things,
monitoring utilization and other cost factors, processing claims, reporting financial results, measuring outcomes
and quality of care, managing regulatory compliance controls, and maintaining operational efficiencies. These
systems include software developed in-house and systems provided by external contractors and other service
providers. To the extent that these external contractors or other service providers become insolvent or fail to
support the software or systems, our operations could be negatively affected. Our agencies also depend upon our
information systems for accounting, billing, collections, risk management, quality assurance, payroll, learning
management and other information. If we experience a reduction in the performance, reliability, or availability of
our information systems, our operations and ability to process transactions and produce timely and accurate
reports could be adversely affected.
Our information systems and applications require continual maintenance, upgrading, and enhancement to meet
our operational needs. Our acquisitions require transitions and integration of various information systems. We
regularly upgrade and expand our information systems’ capabilities. If we experience difficulties with the
transition and integration of information systems or are unable to implement, maintain, or expand our systems
properly, we could
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suffer from, among other things, operational disruptions, regulatory problems, working capital disruptions and
increases in administrative expenses.
Our business requires the secure transmission of confidential information over public networks. Advances in
computer capabilities, new discoveries in the field of cryptography or other events or developments could result
in compromises or breaches of our security systems and patient data stored in our information systems. Anyone
who circumvents our security measures could misappropriate our confidential information or cause interruptions
in our services or operations. The Internet is a public network, and data is sent over this network from many
sources. In the past, computer viruses or software programs that disable or impair computers have been
distributed and have rapidly spread over the Internet. Computer viruses could be introduced into our systems, or
those of our providers or regulators, which could disrupt our operations or make our systems inaccessible to our
providers or regulators. We may be required to expend significant capital and other resources to protect against
the threat of security breaches or to alleviate problems caused by breaches. Our security measures may be
inadequate to prevent security breaches, and our business operations would be negatively impacted by
cancellation of contracts and loss of patients if security breaches are not prevented.
Further, our information systems are vulnerable to damage or interruption from fire, flood, natural disaster, power
loss, telecommunications failure, break-ins and similar events. A failure to implement our disaster recovery plans
or ultimately restore our information systems after the occurrence of any of these events could have a material
adverse effect on our business, financial condition and results of operations.
Because of the confidential health information we store and transmit, loss of electronically-stored information for
any reason could expose us to a risk of regulatory action, litigation, reputation damage, possible liability and loss.
We face additional federal requirements in the transmission and retention and protection of health
information.
The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) was enacted to ensure that
employees can retain and at times transfer their health insurance when they change jobs and to simplify healthcare
administrative processes. The enactment of HIPAA expanded protection of the privacy and security of personal
medical data and required the adoption of standards for the exchange of electronic health information. Among
the standards that the Secretary of Health and Human Services has adopted pursuant to HIPAA are standards for
electronic transactions and code sets, unique identifiers for providers, employers, health plans and individuals,
security and electronic signatures, privacy and enforcement. Failure to comply with HIPAA could result in fines
and penalties that could have a material adverse effect on us.
The Health Information Technology for Economic and Clinical Health Act (HITECH Act), effective February 22,
2010, sets forth health information security breach notification requirements. The HITECH Act requires patient
notification for all breaches, media notification of breaches of over 500 patients and at least annual reporting of
all breaches to the Secretary of HHS. The HITECH Act also includes 4 tiers of sanctions for breaches ($100 to
$1.5 million). Failure to comply with HITECH could result in fines and penalties that could have a material
adverse effect on us.
We develop portions of our clinical software system in-house. Failure of, or problems with, our system could
harm our business and operating results.
We develop and utilize a proprietary clinical software system to collect assessment data, log patient visits,
generate medical orders, and monitor treatments and outcomes in accordance with established medical
standards. The system integrates billing and collections functionality as well as accounting, human resource,
payroll, and employee benefits programs provided by third parties. Problems with, or the failure of, our
technology and systems could negatively impact data capture, billing, collections, and management and reporting
capabilities. Any such problems or failures could adversely affect our operations and reputation, result in
significant costs to us, and impair our ability to provide our services in the future. The costs incurred in
correcting any errors or problems may be substantial and could adversely affect our profitability.
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We depend on outside software providers.
We depend on the proper functioning and availability of our information systems in operating our business, some
of which are provided and/or hosted by outside software providers. These information systems and applications
require continual maintenance, upgrading, and enhancement to meet our operational needs. If our providers are
unable to maintain or expand our information systems properly, we could suffer from operational disruptions and
an increase in administrative expenses, among other things. The regulatory environment related to information
security and privacy is evolving and increasingly demanding. Furthermore, we also rely on cloud computing and
other similar hosted technologies that result in third parties holding significant amounts of customer or employee
information on our behalf. If the security and information systems of our or of outsourced third party providers
we use to store or process such information are compromised or if we, or such third parties, otherwise fail to
comply with applicable laws and regulations, we could face litigation and the imposition of penalties that could
adversely affect our financial performance. Our reputation as a brand or as an employer could also be adversely
affected from security breaches or regulatory violations, which could impair our sales or ability to attract and
keep qualified employees.
Our insurance coverage may not be sufficient for our business needs and/or the cost of such coverage may
adversely impact our results of operations.
We bear significant insurance risk under our large-deductible workers’ compensation insurance program and our
self-insured employee health program. We also carry D&O coverage for potential claims against our directors
and officers, including securities actions. For additional information, please refer to Part I, Item 1, “Insurance
Programs and Costs” and Part II, Item 8, “Notes to Consolidated Financial Statements.” Claims made to date or
in the future may exceed the limits of such insurance, if any. Such claims, if successful and in excess of such
limits, could have a material adverse effect on our ability to conduct business or on our assets. Benefits provided
by our employer sponsored health insurance plan may require changes as a result of the ACA or other regulatory
action. Such changes may have an adverse impact on our operating results.
Our insurance coverage also includes fire, property damage, and general liability with varying limits. Although
we maintain insurance consistent with industry practice, we cannot assure you that the insurance we maintain will
satisfy claims made against us. In addition, as a result of operating in the home healthcare industry, our business
entails an inherent risk of claims, losses , and potential lawsuits alleging employee accidents that may occur in a
patient’s home. Finally, insurance coverage may not continue to be available to us at commercially reasonable
rates, in adequate amounts or on satisfactory terms. Any claims made against us, regardless of their merit or
eventual outcome, could damage our reputation and business.
We estimate Medicare and Medicaid liabilities that may be payable by us in the future. These liabilities may be
subject to audit or further review, and we may owe additional amounts beyond what we expect and have
reserved.
The Company is paid for its services primarily by federal and state third-party reimbursement programs,
commercial insurance companies, and patients. Revenues are recorded at established rates in the period during
which the services are rendered. Appropriate allowances are recorded when the services are rendered, if
necessary, to give recognition to third party payment arrangements.
Laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to
interpretation. It is common for issues to arise related to: 1) medical coding, particularly with respect to
Medicare, 2) patient eligibility, particularly related to Medicaid, and 3) other reasons unrelated to credit risk, all
of which may result in adjustments to recorded revenue amounts. Management continuously evaluates the
potential for revenue adjustments and when appropriate provides allowances for losses based upon the best
available information. There is at least a reasonable possibility that recorded estimates could change by material
amounts in the near term.
We depend on the services of our executive officers and other key employees.
Our success depends upon the continued employment of certain members of our senior management team,
including our Chairman and Chief Executive Officer, William B. Yarmuth, and our other named executive
officers. We also depend
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upon the continued employment of the individuals that manage several of our key functional areas, including
operations, business development, accounting, finance, human resources, marketing, information systems,
contracting and compliance. The departure of any member of our senior management team or inability to
appropriately implement succession plans may materially affect our operations.
Our operations could be affected by natural disasters.
A substantial number of our agencies are located in Florida or coastal regions in the northeast, increasing our
exposure to hurricanes and other natural disasters. The occurrence of natural disasters in the markets in which we
operate could not only affect the day-to-day operations of our agencies but also could disrupt our relationships
with patients, employees and referral sources located in the affected areas. In addition, any episode of care that is
not completed due to the impact of a natural disaster will generally result in lower revenue for the episode. We
cannot assure you that hurricanes or other natural disasters will not have a material adverse impact on our
business, financial condition or results of operations in the future.
Risks Related to Ownership of Our Common Stock
The price of our common stock may be volatile and this may adversely affect our stockholders.
The price at which our common stock trades may be volatile. The stock market has from time to time
experienced significant price and volume fluctuations that have affected the market prices of securities,
particularly securities of health care companies. The market price of our common stock may be influenced by
many factors, including:
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our operating and financial performance;
variances in our quarterly financial results compared to expectations;
the depth and liquidity of the market for our common stock;
future sales of common stock or the perception that sales could occur;
investor perception of our business and our prospects;
developments relating to litigation or governmental investigations;
changes or proposed changes in health care laws or regulations or enforcement of these laws and
regulations, or announcements relating to these matters; or
general industry, economic and stock market conditions.
In addition, the stock market in general has experienced price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of health care provider companies. These broad
market and industry factors may materially reduce the market price of our common stock, regardless of our
operating performance. In the past, securities class-action litigation has often been brought against companies
following periods of volatility in the market price of their respective securities. We may become involved in this
type of litigation in the future. Litigation of this type is often expensive to defend and may divert our
management team’s attention as well as resources from the operation of our business.
Sales of substantial amounts of our common stock, or the availability of those shares for future sale, could
adversely affect our stock price and limit our ability to raise capital.
At January 1, 2016 , outstanding shares of our common stock totaled 10,021,395. In 2013, we established the
2013 Stock and Incentive Compensation Plan for the benefit of employees and directors providing for the
issuance of up to 700,000 shares of common stock. As of January 1, 2016 , shares of our common stock remained
reserved for issuance pursuant to our incentive compensation plans totaled 373,615 and shares of our common
stock reserved for issuance pursuant to our employee stock purchase plan totaled 300,000. The market price of
our common stock could decline as a result of sales of substantial amounts of our common stock to the public or
the perception that substantial sales could occur. These sales also may make it more difficult for us to sell
common stock in the future to raise capital.
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We do not regularly pay dividends on our common stock and you should not expect to receive dividends on
shares of our common stock.
Although our board of directors declared a special cash dividend of $2.00 per common share to shareholders of
record on December 20, 2012, we do not regularly pay dividends and intend to retain all future earnings to
finance the continued growth and development of our business. In addition, we do not anticipate paying any cash
dividends on our common stock in the foreseeable future. Any future payment of cash dividends will depend
upon our financial condition, capital requirements, earnings, and other factors deemed relevant by our board of
directors.
Our Board of Directors may use anti-takeover provisions or issue stock to discourage control contests.
We have implemented anti-takeover provisions or provisions that could have an anti-takeover effect, including
advance notice requirements for director nominations and stockholder proposals. These provisions, and others
that the Board of Directors may adopt hereafter, may discourage offers to acquire us and may permit our Board of
Directors to choose not to entertain offers to purchase us, even if such offers include a substantial premium to the
market price of our stock. Therefore, our stockholders may be deprived of opportunities to profit from a sale of
control.
ITEM 1B. UNRESOLVED STAFF COMMENT S
NONE.
ITEM 2. PROPERTIE S
Our executive offices are located in Louisville, Kentucky, in approximately 33,000 square feet of space leased
from an unaffiliated party.
We have 274 real estate location leases ranging from approximately 100 to 33,000 square feet of space in their
respective locations. See Part I, Item 1, “Business - Operating Segments” and Part II, Item 8, “Notes to
Consolidated Financial Statements.” We believe that our facilities are adequate to meet our current needs, and
that additional or substitute facilities will be available if needed.
ITEM 3. LEGAL PROCEEDING S
From time to time, we are subject to various legal actions arising in the ordinary course of our business, including
claims for damages for personal injuries. In our opinion, after discussion with legal counsel, the ultimate
resolution of any of these pending ordinary course claims and legal proceedings will not have a material effect on
our financial position or results of operations.
The Company is in the process of complying with a civil subpoena from the United States Department of Justice
received in January of 2016 related to two locations acquired along with SunCrest in late 2013. SunCrest had
previously acquired the locations in its merger with Omni Home Health in 2011. The subpoena seeks the
production of various pre-acquisition business records limited to certain Omni operations in Sarasota and Tampa,
Florida for the years 2007-2011. The Company is cooperating fully with this investigation. The subject
operations generated less than 1% of the Company’s consolidated revenues in 2015.
ITEM 4. MINE SAFETY DISCLOSURE S
Not applicable.
28
Table of Contents
PART I I
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUIT Y, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NASDAQ Global Select market under the symbol “AFAM” Set forth below
are the high and low sale prices for the common stock for the periods indicated as reported by NASDAQ:
Closing Common Stock Prices
Quarter Ended:
High
January 1, 2016
October 2, 2015
July 3, 2015
April 3, 2015
December 31, 2014
September 30, 2014
June 30, 2014
March 31, 2014
44.70
49.74
47.76
46.55
30.30
28.76
24.29
33.27
Low
37.75
39.14
36.59
28.68
26.35
22.47
19.98
22.21
On March 1, 2016, the last reported sale price for the common stock reported by NASDAQ was $ 39.08 and there
were approximately 312 holders of record of our common stock. We did not pay dividends in 2015 or 2014. We
do not intend to pay additional dividends on our common stock and will retain our earnings for future operations
and the growth of our business.
29
Table of Contents
STOCK PERFORMANCE GRAPH
The following stock performance graph does not constitute soliciting material and should not be deemed filed or
incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent the Company specifically incorporates the performance graph by
reference therein.
The Performance Graph below compares the cumulative total stockholder return on our common stock, $0.10 par
value per share, for the five-year period ended January 1, 2016 , with the cumulative total return on the Russell
2000 index and an industry peer group over the same period (assuming the investment of $100 in each on
December 31, 2010 and the reinvestment of dividends, if any). The peer group we selected is comprised of:
Amedisys, Inc. (AMED) and LHC Group, Inc. (LHCG). The cumulative total stockholder return on the following
graph is historical and is not necessarily indicative of future stock price performance.
12/10
Almost Family, Inc.
Russell 2000
Peer Group
100
100
100
12/11
43.15
95.82
36.30
30
12/12
12/13
12/14
12/15
57.98
111.49
47.33
92.52
154.78
57.19
82.85
162.35
95.63
109.40
155.18
132.01
Table of Contents
ITEM 6. SELECTED FINANCIAL DAT A
The following table sets forth selected financial information derived from the consolidated financial statements of
the Company for the periods and at the dates indicated. The information should be read in conjunction with the
consolidated financial statements and related notes included elsewhere in this and prior year Form 10-Ks.
Fiscal Year ended
January 1,
2016 (1)
(In thousands except per share data)
Results of operations data:
Net service revenues
Income from continued operations
attributable to Almost Family, Inc.
Discontinued operations
Net income attributable to Almost
Family, Inc.
Per share:
Basic:
Number of shares
Income from continued operations
attributable to Almost Family, Inc.
Discontinued operations
Net income attributable to Almost
Family, Inc.
Calendar Year
2014
2011
532,214
$
495,829
$
356,912
$
340,620
$
329,644
$
20,009
—
$
13,763
—
$
8,784
(558)
$
16,802
482
$
19,337
1,465
$
20,009
$
13,763
$
8,226
$
17,284
$
20,802
9,333
9,279
9,285
9,278
$
2.11
—
$
1.47
—
$
0.95
(0.06)
$
1.81
0.05
$
2.08
0.16
$
2.11
$
1.47
$
0.89
$
1.86
$
2.24
9,745
Dividend declared per share
2012
$
9,505
Diluted:
Number of shares
Income from continued operations
attributable to Almost Family, Inc.
Discontinued operations
Net income attributable to Almost
Family, Inc.
2013
9,462
9,374
9,324
9,360
$
2.05
—
$
1.45
—
$
0.94
(0.06)
$
1.80
0.05
$
2.07
0.16
$
2.05
$
1.45
$
0.88
$
1.85
$
2.22
$
—
$
—
$
—
$
2
$
—
(1) - See page 35 for discussion regarding the Company’s change to a 52-53 week reporting calendar in 2015.
January 1,
December 31,
2016
Balance sheet data
Working capital
Total assets
Long-term liabilities
Total liabilities
Noncontrolling
interest-redeemable Healthcare Innovations
Stockholders’ equity
$
54,643
464,769
136,048
190,869
2014
$
3,639
270,261
40,274
345,258
60,432
112,066
3,639
229,553
31
2013
$
44,148
354,362
83,436
136,669
3,639
214,054
2012
$
62,541
249,259
17,846
44,944
—
204,315
2011
$
63,394
251,160
15,708
44,863
—
206,297
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSI S OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company has two divisions, Home Health care and Healthcare Innovations. The Home Health care division
is comprised of two reportable segments, Visiting Nurse Services (VN or Visiting Nurse) and Personal Care
Services (PC or Personal Care). Our Healthcare Innovations division is also a reporting segment. Reportable
segments have been identified based upon how management has organized the business by services provided to
customers and the criteria in ASC Topic 280, Segment Reporting .
Our VN segment provides skilled medical services in patients’ homes largely to enable recipients to reduce or
avoid periods of hospitalization and/or nursing home care. VN Medicare revenues are generated primarily on a
per episode basis rather than a fee per visit or an hourly basis. Approximately 94% of the VN segment revenues
are generated from the Medicare program while the balance is generated from Medicaid and private insurance
programs.
Our PC segment services are also provided in patients’ homes. These services (generally provided by
paraprofessional staff such as home health aides) are generally of a custodial rather than skilled nature. PC
revenues are generated primarily on an hourly basis. Approximately 83% of the PC segment revenues are
generated from Medicaid and other government programs while the balance is generated from insurance
programs and private pay patients.
Our HealthCare Innovations ( “ HCI ” ) business segment was created to house and separately report on its
developmental activities outside our traditional home health business platform. These activities are intended
ultimately, whether directly or indirectly, to benefit patients and payers through the enhanced provision of home
health services. Its activities all share a common goal of improving patient experiences and quality outcomes,
while lowering costs. These include, but are not limited to: technology, information, population health
management, risk-sharing, assessments, care coordination and transitions, clinical advancements, enhanced
patient engagement and informed clinical decision making. We believe these activities help us discover valuable
insight and experiences that would not otherwise be gained in the routine operation of its core home health
business segments. Further, we believe these innovation activities, will play an important role in collaborating
with policy makers, payers, providers, and anyone who assumes financial risk for managing patient populations,
to seek to reduce costs and improve quality by providing increasingly more care for more patients in their homes
than ever before.
The HCI segment now includes: a) Imperium Health Management, an ACO enablement company, b) an
investment in NavHealth, a population-health analytics company, c) Ingenios Health, a
Nurse-Practitioner-oriented and mobile technology-enabled health risk assessment company primarily serving
managed care organizations; and d) Long Term Solutions, an in-home assessment company serving the long-term
care insurance industry.
During 2015, we completed four acquisitions and made a cost based investment. On November 5, 2015, we
completed the acquisition of Black Stone Operations, LLC (“Black Stone”). Black Stone owned and operated
personal care and skilled home health services in western Ohio. On August 29, 2015, we completed the
acquisition of Bracor, Inc. (dba “WillCare”). Willcare owned and operated VN and PC branch locations in New
York (1 2 ) and Connecticut (1). On March 1, 2015 we acquired the stock of WillCare’s Ohio operations. On
July 22, 2015, we acquired Ingenios Health Co. (“Ingenios”). Ingenios is a leading provider of technology
enabled in-home clinical assessments for Medicare Advantage, Managed Medicaid and Commercial Exchange
lives in 7 states and Washington, D.C. The results of the Black Stone and WillCare acquisitions are reported in
our VN and PC segments, while our Ingenios acquisition results are included in the Healthcare Innovations
segment.
On January 29, 2015, we acquired a noncontrolling interest in a development stage analytics and software
company, NavHealth, Inc. (“NavHealth”). The investment is an asset of our Health care Innovations segment.
During the second quarter of 2014, we acquired a small home health agency in southern Kentucky using cash on
hand to expand existing VN segment operations. During 2013, we completed three acquisitions. On December 6,
2013, the Company completed the acquisition of Omni Home Health Holdings, Inc. (“SunCrest”). SunCrest
subsidiaries owned
32
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and operated 60 Medicare-certified home health agencies and 9 private duty agencies in Florida, Tennessee,
Georgia, Pennsylvania, Kentucky, Illinois, Indiana, Mississippi and Alabama. On October 4, 2013, we acquired a
controlling interest in Imperium Health Management, LLC (“Imperium”), a development-stage enterprise that
provides strategic health management services to Accountable Care Organizations (“ACOs”). On July 17, 2013,
the Company acquired the assets of the Medicare-certified home health agencies owned by Indiana Home Care
Network (“IHCN”). The results of operations for SunCrest and IHCN are principally reported within the
Company’s Visiting Nurse reportable segment, while Imperium results are included in the Healthcare Innovations
segment.
Our View on Reimbursement and Diversification of Risk
Our Company is highly dependent on government reimbursement programs which pay for the majority of the
services we provide to our patients. Reimbursement under these programs, primarily Medicare and Medicaid, is
subject to frequent changes as policy makers balance their own needs to meet the health care needs of constituents
while also meeting their fiscal objectives. Medicare and Medicaid are consuming a greater percentage of federal
and states’ budgets, respectively, which is exacerbated in times of economic downturn. We believe that these
financial issues are cyclical in nature rather than indicative of the long-term prospect for Medicare and Medicaid
funding of health care services. Additionally, we believe our services offer the lowest cost alternative to
institutional care and is a part of the solution to both balancing the federal budget and the states’ Medicaid
financing problems.
We believe that an important key to our historical success and to our future success is our ability to adapt our
operations to meet changes in reimbursement as they occur. One important way in which we have achieved this
adaptability in the past, and in which we plan to achieve it in the future, is to maintain some level of
diversification in our business mix.
The execution of our business plan will place primary emphasis on the development of our home health
operations. As our business grows , we may evaluate opportunities for the provision of other health care services
in patients’ homes that would be consistent with our Senior Advocacy mission.
Our Business Plan
Our future success depends on our ability to execute our business plan. Over the next three to five years we will
try to accomplish the following:

Generate meaningful same store sales growth through the focused provision of high quality services and
attending to the needs of our patients;

Drive our costs down, while continuing to provide high-quality patient care, by improving the
productivity of our work force through improved monitoring, tighter controls, workflow automation,
use of technology and other opportunities for efficiency gains;

Expand the significance of our home health services by selectively acquiring other quality providers,
through the startup of new agencies and potentially by providing new services in patients’ homes
consistent with our Senior Advocacy mission;

Make additional strategic investments which expand our Healthcare Innovation segment in its mission
to find solutions for more effective, efficient and appropriate delivery of homecare; and

Expand our capital base through both earnings performance and by seeking additional capital
investments in our Company.
Health Care Reform Legislation and Medicare Regulations
The Federal Government has been pursuing a comprehensive reform of the US healthcare system since early
2009. Numerous changes have been enacted, proposed and continue to be debated, which are discussed in more
detail in Part I, Item 1, “Government Regulation” and Part I, Item 1A, “Risk Factors.” Many of the change
provisions do not take
33
Table of Contents
effect for an extended period of time and most will require the publication of implementing regulations and/or the
issuance of programmatic guidelines.
It is reasonable to expect that the implementation of the ACA and other changes and potential changes described
in Part I, Item 1, Government Regulation, might have a more immediate and negative impact on those providers
generating lower margins than us, with more leverage relative to earnings than us, with less capital resources than
us, or with less ability to adapt their operations. We believe this may result in a contraction of the number of
home health providers. In the event of such a contraction in the number of providers, we believe the surviving
providers may benefit from a higher rate of admissions growth than would have otherwise occurred. Those
surviving providers may earn incremental margins on those higher admissions that may serve to offset a portion
of the rate reduction from the Medicare program. However, there can be no assurance that we will be successful
in attracting such higher admissions.
It is also reasonable to expect that future rate cuts will present additional opportunities for us to make acquisitions
of other providers at valuations and on terms that are attractive to us and enable us to spread our segment and
unallocated corporate overhead expenses across a larger business base. However, there can be no assurance that
we will be successful in making such acquisitions or that such opportunities will present themselves.
As a result of the broad scope of health care reform, the significant changes it will effect in the healthcare industry
and society generally, and the complexity of the technical issues it addresses, we are unable to predict, at this
time, all the ramifications health care reform may have on our business as a health care provider or a sponsor of
an employee health insurance benefit plan. These matters could have a material adverse impact on our results of
operations or financial condition in ways not currently anticipated by us. This may increase our costs, decrease
our revenues, expose us to expanded liability or require us to revise the ways in which we conduct our
business. Refer to the results of operations for the impact of these items on revenue, operating and net income for
the years ended January 1, 2016, December 31, 2014 and 2013.
Management is continuing its work to evaluate the implications of these changes and to develop appropriate
courses of action for the Company. Additionally, we may be unable to take actions to mitigate any, or all, of the
negative implications of these matters.
We contemplate formulating and taking actions intended to mitigate or otherwise offset some of the negative
effects of reimbursement changes. These actions may include any or all of the following:




Attempting to increase our revenues by: investing more resources in sales and marketing activities,
development of diagnosis related specialty programs and increasing our educational programs regarding
the value of home health to drive admission growth, establishing startup branch operations to expand
our service territories, and acquisitions of underperforming providers with strong referral relationships,
Attempting to reduce our costs by: developing a more efficient delivery model, increasing the
productivity standards for our staff, optimizing the appropriate use of different levels of professional
staff, limiting or eliminating the growth in wage rates, limiting or reducing the size of our work force,
closing unprofitable branch operations and accelerating our efforts to evaluate the use of various
technological approaches to the delivery of patient care to improve patient outcomes and/or improve the
productivity of our workforce,
Evaluating the potential implications of health care reform on our employee benefit plans, and possible
changes we may need to make to our plans, and
Potentially other actions we deem appropriate including evaluation of potential additional service
offerings in patients’ homes consistent with our Senior Advocacy mission or changing the mix of the
types of services we provide.
Although we will attempt to mitigate or otherwise offset the negative effect of health care reform on our revenue
and our employee benefit plans, our actions may not ultimately be cost effective or prove successful.
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Seasonality
Our Visiting Nurse segment operations located in Florida (which generated approximately 2 4 % of that
segment’s revenues in fiscal year 2015) normally experience higher admissions during the first quarter and lower
admissions during the third quarter than in the other quarters due to seasonal population fluctuations.
Fiscal Year End
Effective with the first quarter of 2015, the Company adopted a 52-53 week fiscal reporting calendar under which
it will report its annual results going forward in four equal 13-week quarters. Every fifth year, one quarter will
include 14 weeks and that year will include 53 weeks of operating results. Once fully adopted, this approach will
minimize the impact of calendar differences when comparing different historical periods.
As a result of the change in the fiscal reporting calendar, fiscal year 2015 ended January 1, 2016 also included the
New Year’s Day holiday observed January 1, 2016. As such the fiscal year ended January 1, 2016 is 366 days,
one more day than it would have been if the change had not been made which reduced diluted earnings per share
by $0.03.
Critical Accounting Policies
The accompanying consolidated financial statements have been prepared in conformity with accounting
principles generally accepted in the United States. When more than one accounting principle, or the method of its
application, is generally accepted, we select the principle or method that is appropriate in the specific
circumstances. Application of these accounting principles requires us to make estimates about the future
resolution of existing uncertainties; actual results could differ from these estimates. We evaluate our estimates,
including those related to revenue recognition, collectability of accounts receivable, insurance reserves, goodwill,
intangibles, income taxes, stock-based compensation, litigation, and contingencies on an on-going basis. We base
these estimates on our historical experience and other assumptions that we believe are appropriate under the
circumstances. In preparing these consolidated financial statements, we have made our best estimates and
judgments of the amounts and disclosures included in the consolidated financial statements.
Revenue Recognition
We recognize revenues when patient services are provided, primarily in our patients’ homes. Net service
revenues are stated at amounts estimated by us to be their net realizable values. We are paid for our services
primarily by federal and state third-party reimbursement programs and, to a lesser degree, commercial insurance
companies and patients.
Medicare Episodic Revenues
Approximately 71% of our consolidated net service revenues are derived from the Medicare program. Net
service revenues are recorded under the Medicare prospective payment program (“PPS”) based on a 60-day
episode payment rate that is subject to adjustment based on certain variables including, but not limited to:
(a) changes in the base episode payments established by the Medicare program; (b) adjustments to the base
episode payments for case-mix and geographic wages; (c) a low utilization payment adjustment (“LUPA”) if the
number of visits was fewer than five; (d) a partial payment if our patient transferred to another provider or we
received a patient from another provider before completing the episode; (e) a payment adjustment based upon the
level of therapy services required (thresholds set at 6, 14 and 20 visits); (f) an outlier payment if our patient’s care
was unusually costly (capped at 10% of total reimbursement at the agency level); (g) the number of episodes of
care provided to a patient; and (h) 2% sequestration reduction for episodes ending after March 31, 2013.
At the beginning of each Medicare episode, we calculate an estimate of the amount of expected reimbursement
based on the variables outlined above and recognize Medicare revenue on an episode-by-episode basis during the
course of each episode over its expected number of visits. Over the course of each episode, as changes in the
variables become known, we calculate and record adjustments as needed to reflect changes in expectations for
that episode from those established at the start of the 60 day period until its ultimate outcome at the end of the 60
day period is known.
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Table of Contents
Non-Medicare Revenues
Substantially all remaining revenues are derived from services provided under a per visit, per hour or unit basis
(as opposed to episodic) for which revenues are calculated and recorded using payor-specific or patient-specific
fee schedules based on the contracted rates in each third party payor agreement.
Contingent Service Revenues
Our Healthcare Innovations segment provides strategic health management services to ACOs that have been
approved to participate in the “MSSP . ” In addition to having ownership interests in a few ACOs, we also have
service agreements with ACOs that provide for sharing of MSSP payments received by the ACO, if any. ACOs
are entities that contract with Centers for Medicare and Medicaid Services (CMS) to serve the Medicare
fee-for-service population with the goal of better care for individuals, improved health for populations and lower
costs. ACOs share savings with CMS to the extent that the actual costs of serving assigned beneficiaries are
below certain trended benchmarks of such beneficiaries and certain quality performance measures are
achieved. The MSSP is relatively new and therefore has limited historical experience, which impacts the
Company’s ability to accurately accumulate and interpret the data available for calculating an ACOs’ shared
savings, if any. MSSP payments are not recognized in revenue until persuasive evidence of an arrangement
exists, services have been rendered, the payment is fixed and determinable and collectability is assured, which
generally is satisfied only upon cash receipt. Under such agreements, we recognized $1.4 million in MSSP
payments for cash received during 2015 related to savings generated for the program period ended December 31,
2014 and $1.6 million for savings generated for the program period ended December 31, 2013, which accounted
for 41% and 63%, respectively of our healthcare innovations segment revenues. No revenue has been recognized
related to MSSP payments for savings generated through December 31, 2015, if any.
Revenue Adjustments
Laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to
interpretation. As a result, we may adjust previously recorded revenue amounts due to issues related to: a)
medical coding, particularly with respect to Medicare, b) patient eligibility, particularly with respect to Medicaid,
and c) other reasons unrelated to credit risk. Revenue adjustments, if any, to reflect actual payment amounts for
completed episodes or services provided under per visit, per hour or unit basis which differ from our estimates or
audit adjustments are recorded when known and estimable. Historically, revenue adjustments have not been
significant and as such, we believe that net service revenues and accounts receivable - net reflect their net
realizable value. Changes in estimates related to prior periods (increased) decreased revenues by approximately
($365,000), ($320,000) and $114,000 in the years ended January 1, 2016 and December 31, 2014 and 2013,
respectively.
Accounts Receivable
Accounts receivable are reported at their estimated net realizable value and are net of estimated allowances for
uncollectible accounts and adjustments. Accounts receivable consist primarily of amounts due from third-party
payors and patients. We evaluate the collectability of our accounts receivable based on certain factors, such as
payor types, historical collection trends and aging categories. We calculate our reserve for uncollectible accounts
based on the length of time that the receivables are past due. The percentage applied to the receivable balances
for each payor’s various aging categories is based on historical collection experience, business and economic
conditions and reimbursement trends.
Insurance Programs
We bear significant risk under our large-deductible workers’ compensation insurance program and our
self-insured employee health program. Under the workers’ compensation insurance program, we bear risk up to
$400,000 per incident, except for an acquisition that has not been folded into our program and carries a stop-loss
of $750,000. We purchase stop-loss insurance for the employee health plan that places a specific limit, generally
$300,000, on our exposure for any individual covered life.
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Table of Contents
Malpractice and general patient liability claims for incidents which may give rise to litigation have been asserted
against us by various claimants. The claims are in various stages of processing and some may ultimately be
brought to trial. We are aware of incidents that have occurred through January 1, 2016 that may result in the
assertion of additional claims. We currently carry professional and general liability insurance coverage (on a
claims made basis) for this exposure with no deductible. We also carry D&O coverage (also on a claims made
basis) for potential claims against our directors and officers, including securities actions, with deductibles ranging
from $1 75 ,000 to $ 5 00,000 per claim.
We record estimated liabilities for our insurance programs based on information provided by the third-party plan
administrators, historical claims experience, the life cycle of claims, expected costs of claims incurred but not
paid, and expected costs to settle unpaid claims. We monitor our estimated insurance-related liabilities and
recoveries, if any, on a monthly basis and as required by ASU 2010-24, Health Care Entities (Topic 954):
Presentation of Insurance Claims and Related Insurance Recoveries, record amounts due under insurance
policies in other current assets, while recording the estimated carrier liability in other current liabilities in the
consolidated balance sheets. As facts change, it may become necessary to make adjustments that could be
material to our results of operations and financial condition.
Goodwill and Other Intangible Assets
Intangible assets are stated at fair value at the time of acquisition and goodwill represents the excess cost over the
fair value of net assets acquired and liabilities assumed. Finite lived intangible assets are amortized on a
straight-line basis over the estimated useful life of the asset. Goodwill and indefinite-lived assets are not
amortized. We perform impairment tests of goodwill and indefinite lived assets as required by ASC Topic
350, Intangibles - Goodwill and Other on at least an annual basis. An impairment analysis requires numerous
subjective assumptions and estimates to determine fair value of the respective reporting units. We estimate the
fair value of the related reporting units using a combined market approach (guideline company and similar
transaction method) and income approach (discounted cash flow analysis). These models are based on our
projections of future revenues and operating costs and are reconciled to our consolidated market
capitalization. Discounted cash flow models are highly reliant on various assumptions. Significant assumptions
we utilize in these models for the current year included: projected business results and future industry direction,
long-term growth factor of 3% and weighted-average cost of capital of 15%. We use assumptions that we deem
to be reasonable estimates of likely future events and compares the total fair values of each reporting unit to our
overall market capitalization, and implied control premium, to determine if the fair values are reasonable
compared to external market indicators. Subsequent changes in these key assumptions could affect the results of
future goodwill impairment reviews.
Important to our overall impairment conclusion was the comparison of the aggregate fair values of the reporting
units to our overall market capitalization at the annual assessment date, including the implied control premium, to
determine if the fair values are reasonable compared to external market indicators. The aggregate fair value for
each reporting unit did not exceed our market value as of the annual impairment testing date. A negative control
premium indicates the high degree of conservatism built into our fair value models.
Because the fair value results for each reporting unit did not indicate a potential impairment existed, we did not
recognize any goodwill impairment during the fiscal years ending January 1, 2016, December 31, 2014 and
December 31, 2013 . Specifically, our VN and PC reporting unit fair value s w ere significantly over their
carrying value . Based on the sensitivity analysis performed on two key assumptions in the discounted cash
flow model s of each reporting unit, a 100 basis point change in either assumption (either individually or in the
aggregate) would not result in any impairment of our goodwill within either reporting unit.
In calculating the fair value of VN within the model, we considered our cash flow projections and weighted
average cost of capital to be conservative. Assuming no changes in the key assumptions identified and projected
results, we currently anticipate the future fair value of both the VN and PC reporting units to increase over time;
however, future declines in the operating results of either reporting unit could indicate a need to reevaluate the
fair value of these businesses under U.S. GAAP requirements and may ultimately result in an impairment to
goodwill. We will continue to monitor for any potential indicators of impairment.
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Table of Contents
Accounting for Income Taxes
We account for taxes in accordance with ASC Topic 740, Income Taxes . As of January 1, 2016 , we have net
deferred tax liabilities of approximately $13.1 million. The net deferred tax liability is composed of
approximately $19.1 million of deferred tax assets and approximately $32.2 million of deferred tax liabilities. We
have provided a valuation allowance against certain deferred tax assets based upon our estimates of realizability
of those assets through future taxable income. This valuation allowance was based in large part on our history of
generating operating income or losses in individual tax locales and expectations for the future. Our ability to
generate the expected amounts of taxable income from future operations is dependent upon general economic
conditions, competitive pressures on revenues and margins and legislation and regulation at all levels of
government. Further, we have book goodwill of $ 113.2 million which is not deductible for tax purposes. The
remaining deductible goodwill provides an annual tax deduction approximating $10.0 million through 2021. We
have considered the above factors in reaching our conclusion that it is more likely than not that future taxable
income will be sufficient to fully utilize the deferred tax assets (net of the valuation allowance) as of
January 1, 2016 .
RESULTS OF OPERATIONS
Year Ended January 1, 2016 Compared with Year Ended December 31, 2014
(In thousands)
January 1,
2016 (2)
Amount
Consolidated
Home Health
Operations
Net service
revenues:
Visiting Nurse
Personal Care
$
401,051
127,712
528,763
75.8%
24.2%
100.0%
49,872
14,170
64,042
$
380,788
112,497
493,285
77.2%
22.8%
100.0%
12.4%
11.1%
12.1%
42,899
12,453
55,352
3,451
100.0%
(1,217)
Change
Amount
$
%
5.3%
13.5%
7.2%
11.3%
11.1%
11.2%
6,973
1,717
8,690
16.3%
13.8%
15.7%
2,544
100.0%
907
35.7%
-35.3 %
(13)
-0.5 %
(1,204)
26,583
5.0%
25,558
5.2%
1,025
4.0%
$
4,139
32,103
(2,006)
(10,556)
19,541
0.8%
6.0%
-0.4 %
-2.0 %
3.7%
$
5,304
24,477
(1,442)
(9,511)
13,524
1.1%
4.9%
-0.3 %
-1.9 %
2.7%
$
(1,165)
7,626
(564)
(1,045)
6,017
-22.0 %
31.2%
39.1%
11.0%
44.5%
$
43,938
8.3%
$
35,841
7.2%
$
8,097
22.6%
$
21,411
4.0%
$
16,924
3.4%
$
4,487
26.5%
Healthcare
Innovations
Revenue
Operating income
before
noncontrolling
interest
Adjusted
EBITDA-HHO (1)
Adjusted
Earnings-HHO (1)
% Rev
20,263
15,215
35,478
Operating income
before corporate
expenses:
Visiting Nurse
Personal Care
Corporate expenses
Deal, transition and
other costs
Operating income
Interest expense, net
Income tax expense
Net income
December 31,
2014
Amount
% Rev
NM
(1) See page 48 for GAAP reconciliation of Adjusted EBITDA from home health operations and Adjusted
earnings from home health operations.
(2) See page 35 for discussion regarding the Company’s change to a 52-53 week reporting calendar in 2015.
Approximately $31. 2 million of our $35. 5 million year over year increase in Home Health revenue was a result
of our acquisition of WillCare and Black Stone. Refer to VN and PC segment discussions for further operating
performance details. Refer to “Fiscal Year End” related to our 52-53 week reporting conversion.
38
Table of Contents
Healthcare Innovations ’ operating loss was primarily due to the expected losses of our third quarter 2015
acquisition of Ingenios and to a lesser degree, higher losses in Imperium primarily related to a lower MSSP
payments in 2015, as compared to 2014.
Corporate expenses as a percentage of revenue decreased slightly to 5.0% in 2015 from 5. 2 % in 2014. Deal,
transition and other costs for 2015 include a net benefit of $4.2 million related to legal settlements, which was
offset by $2.5 million of deal and transition costs related to our 2015 acquisitions, the $1.8 million provision for
the Chapter 7 bankruptcy filing of a specific payor and $1.4 million related to the fourth quarter of 2015 closure
of underperforming branch locations in the VN segment. Deal and transition costs in 2014 primarily related to
the completion of the transition of our 2013 acquisitions.
Interest expense increased $0.6 million due to borrowings on our line of credit in conjunction with 2015
acquisitions.
Our effective tax rate for 2015 was 34.5% compared to 41.0% for 2014. The lower effective tax rate for 2015
was primarily r elated to the tax treatment of a legal settlement . Excluding the non-taxable settlement and other
nondeductible deal costs, our effective tax rate for 2015 would have been 40.5%.
Visiting Nurse Segment-Years Ended January 1, 2016 and December 31, 2014
Approximately 94% of the VN segment revenues were generated from the Medicare program while the balance
was generated from Medicaid and private insurance programs. In addition to our focus on operating income from
the
39
Table of Contents
Visiting Nurse segment, we also measure this segment’s performance in terms of admissions, episodes, visits,
patient months of care, revenue per episode and visits per episode. (In thousands, except statistical information)
January 1,
2016 (2)
Amount
Net service revenues
$
Cost of service revenues
Gross margin
General and
administrative expenses:
Salaries and benefits
Other
Total general and
administrative expenses
Operating income before
corporate expenses
$
Average number of
locations
All payors:
Patients Months
Admissions
Billable Visits
Medicare:
Admissions (1)
Revenue (in
thousands)
$
Revenue per
admission
$
Billable visits (1)
Recertifications
Payor mix % of
Admissions
Traditional
Medicare Episodic
Replacement Plans
Paid Episodically
Replacement Plans
Paid Per Visit
Non-Medicare:
Admissions (1)
Revenue (in
thousands)
Revenue per
admission
Billable visits (1)
Recertifications
Payor mix % of
Admissions
Medicaid & other
governmental
Private payors
December 31,
2014
Amount
% Rev
401,051
194,098
206,953
100.0%
48.4%
51.6%
115,002
42,079
$
380,788
186,837
193,951
100.0%
49.1%
50.9%
28.7%
10.5%
110,480
40,572
157,081
39.2%
49,872
12.4%
$
Change
Amount
% Rev
$
%
20,263
7,261
13,002
5.3%
3.9%
6.7%
29.0%
10.7%
4,522
1,507
4.1%
3.7%
151,052
39.7%
6,029
4.0%
42,899
11.3%
6,973
16.3%
$
163
167
(4)
-2.4 %
333,343
102,381
2,621,443
319,430
98,634
2,507,067
13,913
3,747
114,376
4.4%
3.8%
4.6%
3,377
3.9%
$
12,649
3.5%
$
(16)
96,791
124
-0.4 %
4.3%
0.3%
91,027
88.9%
377,724
94.2%
4,150
2,356,687
47,999
89.9%
87,650
88.9%
$
365,075
95.9%
$
4,165
2,259,896
47,875
90.1%
84.1%
84.0%
0.1%
4.1%
3.4%
0.7%
11.8%
12.6%
(0.8) %
11,354
11.1%
$
23,327
5.8%
$
2,055
264,756
2,991
10.1%
30.6%
69.4%
10,984
11.1%
$
15,713
4.1%
$
1,431
247,171
1,865
9.9%
23.3%
76.7%
370
3.4%
$
7,614
48.5%
$
624
17,585
1,126
43.6%
7.1%
60.4%
7.3%
(7.3) %
(1) Percentages pertain to percentage of total admissions or total billable visits, as applicable.
(2) See page 35 for discussion regarding the Company’s change to a 52-53 week reporting calendar in 2015.
VN segment net service revenues increased primarily due to the WillCare and Black Stone acquisitions which
increased net service revenues by $15. 3 million. The acquisitions increased operating income before corporate
expenses by $ 3.0 million.
Substantially all of the changes in cost of service revenues and general and administrative expenses were due to
the WillCare and Black Stone acquisitions.
40
Table of Contents
Excluding the effects of the WillCare and Black Stone acquisitions, operating income before corporate expenses
improved $ 3.9 million primarily due to higher volumes and an effective Medicare rate increase of about 1%.
Gross margin as a percent of revenue de creased 0. 7 % primarily due to organic volume growth, the Medicare
rate increase and lower cost per visit. Total general and administrative expenses declined slightly as a percentage
of revenue to 39.2 % from 39.7 % in the prior year primarily due to organic volume growth and the Medicare rate
increase.
As a result, VN segment operating income before corporate expenses improved to $ 49.9 million from $42.9
million in the prior year, which VN segment operating income as a percentage of revenue increased to 12. 4 %
from 11. 3 % in the prior year.
Personal Care Segment-Years Ended January 1, 2016 and December 31, 2014
Approximately 83% of the PC segment revenues were generated from Medicaid and other government programs
while the balance is generated from insurance programs and private pay patients. (In thousands, except statistical
information)
January 1,
2016 (1)
Amount
Net service
revenues
Cost of service
revenues
Gross margin
General and
administrative
expenses:
Salaries and
benefits
Other
Total general and
administrative
expenses
Operating income
before corporate
expenses
$
$
Average number of
locations
Admissions
Patient months of
care
Billable hours
Revenue per
billable hour
$
December 31,
2014
Amount
% Rev
127,712
100.0%
86,642
41,070
$
112,497
100.0%
67.8%
32.2%
76,865
35,632
17,373
9,527
13.6%
7.5%
26,900
21.1%
14,170
11.1%
$
Change
Amount
% Rev
$
%
15,215
13.5%
68.3%
31.7%
9,777
5,438
12.7%
15.3%
14,523
8,656
12.9%
7.7%
2,850
871
19.6%
10.1%
23,179
20.6%
3,721
16.1%
12,453
11.1%
1,717
13.8%
$
65
61
4
6.6%
6,944
6,458
486
7.5%
110,082
5,792,106
89,880
5,304,089
20,202
488,017
22.5%
9.2%
0.84
4.0%
22.05
$
21.21
$
(1) See page 35 for discussion regarding the Company’s change to a 52-53 week reporting calendar in 2015.
PC segment net revenue increased due to the WillCare and Black Stone acquisitions which increased net service
revenues by $15. 9 million and operating income before corporate expenses by $2. 5 million.
Excluding the effects of the WillCare and Black Stone acquisitions, net service revenues decreased $ 0.7 million
or 0.6 %, to $111. 8 million in 2015 from $112. 5 million in 2014 primarily due to a rate reduction for a specific
program in Ohio. Cost of service revenues as a percentage of net service revenues de creased slightly to 67.8 %
in 2015 from 68.3% in 2014.
Total general and administrative expenses in creased as a percent of net service revenues to 21.1 % from 20.6 %
in 2014.
As a result, PC segment operating income before corporate expenses in creased to $1 4 . 2 million from $ 12.5
million in 2014, while operating income before corporate expenses as a percentage of revenue was unchanged.
41
Table of Contents
Year Ended December 31, 2014 Compared with Year Ended December 31, 2013
(in thousands)
December 31,
December 31,
2014
Consolidated
Home Health
Operations
Net service
revenues:
Visiting Nurse
Personal Care
Amount
$
Adjusted
EBITDA-HHO(1)
Adjusted
Earnings-HHO(1)
77.2%
22.8%
100.0%
42,899
12,453
55,352
$
Change
% Rev
263,789
92,927
356,716
73.9%
26.1%
100.0%
11.3%
11.1%
11.2%
28,393
11,411
39,804
2,544
100.0%
(13)
Amount
$
%
44.4%
21.1%
38.3%
10.8%
12.3%
11.2%
14,506
1,042
15,548
51.1%
9.1%
39.1%
196
100.0%
2,348
1,198.0%
-0.5 %
(482)
-245.9 %
469
NM %
25,558
5.2%
20,206
5.7%
5,352
26.5%
5,304
24,477
(1,442)
(9,511)
1.1%
4.9%
-0.3 %
-1.9 %
4,321
14,795
(169)
(6,020)
1.2%
4.1%
0.0 %
-1.7 %
983
9,682
(1,273)
(3,491)
22.7%
65.4%
753.3%
58.0%
$
13,524
2.7%
$
8,606
2.4%
$
4,918
57.1%
$
35,841
7.2%
$
23,637
6.6%
$
12,204
51.6%
$
16,924
3.4%
$
11,532
3.2%
$
5,392
46.8%
Healthcare
Innovations
Revenue
Operating (loss)
income before
noncontrolling
interest
380,788
112,497
493,285
Amount
116,999
19,570
136,569
Operating income
before corporate
expenses:
Visiting Nurse
Personal Care
Corporate expenses
Deal, transition and
other costs
Operating income
Interest expense, net
Income tax expense
Net income from
continuing operations
2013
% Rev
(1) See page 48 for GAAP reconciliation of Adjusted EBITDA from Home Health operations and Adjusted
earnings from Home Health operations.
Approximately $127.6 million of our $136.6 million year over year increase in Home Health revenue was a result
of our acquisition of SunCrest. The balance was generated from organic growth, partially offset by Medicare rate
cuts in the VN segment. Refer to VN and PC segment discussions for further operating performance details.
Healthcare Innovations revenue increased $2.3 million year over year due to the receipt in 2014 of $1.6 million
for Imperium’s share of an MSSP payment, as a part of the first ever payments from CMS to ACOs under the
ACA. Additionally, Imperium earns certain fees from ACOs that are not subject to earning an MSSP
payment. Our Healthcare Innovations segment operations broke even in 2014, while losing $0.5 million in 2013.
Corporate expenses increased by $5. 4 million to $25. 6 million from $20.2 million in the prior year, while
declining as a percentage of revenue to 5. 2 % from 5.7% last year. The 2014 period includes $4.4 million of
incremental home office costs associated with the SunCrest acquisition. Additionally, 2014 included a $3.3
million provision for performance incentive programs while the prior year provision was zero.
During 2014, we consolidated several overlapping-territory Florida branches related to the SunCrest acquisition
and closed SunCrest’s Nashville based home office completing the last substantial steps of our integration
plan. As a result, deal, transition and other include certain one-time lease and related abandonment
charges. Deal, transition and other in 2014 also includes a $1.0 million benefit from insurance recoveries, net of
costs incurred during 2014, related to legal defense costs incurred by the Company primarily in 2011 and
2010. The underlying cases were dismissed in 2014.
42
Table of Contents
Interest expense increased $1.3 million due to borrowings on our line of credit in conjunction with the SunCrest
acquisition.
Our effective tax rate in 2014 was 41.0% compared to 41.9% for 2013. The lower income tax rate in 2013
occurred primarily due to the Work Opportunity Tax Credit (WOTC) not being extended for 2012 until 2013
which resulted in our 2013 effective tax rate including the WOTC benefit for 2 years (2013 and 2012).
43
Table of Contents
Visiting Nurse Segment-Years Ended December 31, 2014 and 2013
Approximately 96 % of the VN segment revenues were generated from the Medicare program while the balance
was generated from Medicaid and private insurance programs. (In thousands, except statistical information)
December 31,
December 31,
2014
Amount
Net service revenues
$
Cost of service revenues
Gross margin
General and
administrative expenses:
Salaries and benefits
Other
Total general and
administrative expenses
Operating income before
corporate expenses
$
Average number of
locations
All payors:
Patients Months
Admissions
Billable Visits
Medicare:
Admissions (1)
Revenue (in
thousands)
$
Revenue per
admission
$
Billable visits (1)
Recertifications
Payor mix % of
Admissions
Traditional
Medicare Episodic
Replacement Plans
Paid Episodically
Replacement Plans
Paid Per Visit
Non-Medicare:
Admissions (1)
Revenue (in
thousands)
Revenue per
admission
Billable visits (1)
Recertifications
Payor mix % of
Admissions
Medicaid & other
governmental
2013
% Rev
380,788
186,837
193,951
100.0%
49.1%
50.9%
110,480
40,572
Amount
$
263,789
127,695
136,094
100.0%
48.4%
51.6%
29.0%
10.7%
80,337
27,364
151,052
39.7%
42,899
11.3%
$
Change
Amount
% Rev
$
%
116,999
59,142
57,857
44.4%
46.3%
42.5%
30.5%
10.4%
30,143
13,208
37.5%
48.3%
107,701
40.8%
43,351
40.3%
28,393
10.8%
14,506
51.1%
$
167
111
56
50.5%
319,430
98,634
2,507,067
214,279
64,304
1,759,864
105,151
34,330
747,203
49.1%
53.4%
42.5%
29,209
50.0%
$
111,063
43.7%
$
(181)
591,550
14,278
-4.2 %
35.5%
42.5%
87,650
88.9%
365,075
95.9%
4,165
2,259,896
47,875
90.1%
58,441
90.9%
$
254,012
96.3%
$
4,346
1,668,346
33,597
94.8%
84.0%
91.9%
(7.9) %
3.4%
2.6%
0.8%
12.6%
5.5%
7.1%
10,984
11.1%
$
15,713
4.1%
$
1,431
247,171
1,865
9.9%
23.3%
5,863
9.1%
$
9,777
3.7%
$
1,668
91,518
1,230
5.2%
24.1%
5,121
87.3%
$
5,936
60.7%
$
(237)
155,653
635
-14.2 %
170.1%
51.6%
(0.8) %
Private payors
76.7%
75.9%
0.8%
(1) Percentages pertain to percentage of total admissions or total billable visits, as applicable.
Visiting Nurse segment net service revenues increased primarily due to the SunCrest acquisition which
increased net service revenues by $111.3 million. The SunCrest acquisition increased operating income
before corporate expenses by $15.6 million.
44
Table of Contents
Substantially all of the changes in cost of service revenues and general and administrative expenses were
due to the SunCrest acquisition.
Excluding the effects of the SunCrest acquisition, operating income before corporate expenses improved
$1.0 million as volume growth and cost improvements more than offset the impact of Medicare rate cuts
which reduced revenue and operating income by $4.2 million. Medicare rate cuts were comprised of a
1.15% 2014 rate cut on episodes ending after December 31, 2013 and a 2.0% Medicare sequestration cut
effective for episodes ended after March 2013.
Salaries and wages in 2014 included approximately $0.5 million of costs associated with employee pay
increases in effect for the last five months of the year.
Personal Care Segment-Years Ended December 31, 2014 and 2013
Approximately 79% of the PC segment revenues were generated from Medicaid and other government programs
while the balance is generated from insurance programs and private pay patients. (In thousands, except statistical
information)
December 31,
December 31,
2014
Amount
Net service
revenues
Cost of service
revenues
Gross margin
General and
administrative
expenses:
Salaries and
benefits
Other
Total general and
administrative
expenses
Operating income
before corporate
expenses
$
$
Average number of
locations
Admissions
Patient months of
care
Billable hours
Revenue per
billable hour
$
2013
% Rev
112,497
100.0%
76,865
35,632
Amount
$
92,927
100.0%
68.3%
31.7%
62,621
30,306
14,523
8,656
12.9%
7.7%
23,179
20.6%
12,453
11.1%
$
Change
Amount
% Rev
$
%
19,570
21.1%
67.4%
32.6%
14,244
5,326
22.7%
17.6%
12,349
6,546
13.3%
7.0%
2,174
2,110
17.6%
32.2%
18,895
20.3%
4,284
22.7%
11,411
12.3%
1,042
9.1%
—
0.0%
$
61
61
6,458
4,723
1,735
36.7%
89,880
5,304,089
80,045
4,682,590
9,835
621,499
12.3%
13.3%
1.36
6.9%
21.21
$
19.85
$
Net service revenues increased $19.6 million, or 21.1%, to $112.5 million in 2014 from $92.9 million in
2013, primarily due to the SunCrest acquisition which increased revenues by $16.2 million, with the
remainder due to organic volume growth. Cost of service revenues as a percentage of net service revenues
increased slightly to 68.3% in 2014 from 67.4% in 2013, primarily due to changes in business mix partially
due to the SunCrest acquisition.
Total general and administrative expenses as a percent of net service revenues increased to 20.6% in 2014
from 20.3% in 2013.
As a result, PC segment operating income before corporate expenses increased to $12.5 million from $11.4
million in 2013, while operating income before corporate expenses as a percentage of revenue decreased 1.2
%.
Liquidity and Capital Resources
We believe that a certain amount of debt has an appropriate place in our overall capital structure, when
reimbursement
45
Table of Contents
visibility permits, and it is not our strategy to eliminate all debt financing. We believe that our cash flow from
operations, cash on hand, and borrowing capacity on our bank credit facility, described below, will be sufficient
to cover operating needs, future capital expenditure requirements and scheduled debt payments of miscellaneous
small borrowing arrangements. In addition, it is likely that we will pursue growth from acquisitions, partnerships
and other ventures that would be funded from excess cash from operations, cash on hand, credit available under
the bank credit agreement and other financing arrangements that are normally available in the
marketplace. Further, our board may pursue a stock repurchase program or may decide to pay special dividends
in the future.
Revolving Credit Facility
We have a senior secured revolving credit facility with J.P. Morgan Securities LLC as Administrative Agent,
Bank of America, N.A. as Syndication Agent, and certain other lenders (the “Facility”). The Facility consists of a
$175 million credit line with a maturity date of November 15, 2020 and an “accordion” feature providing future
expansion of the Facility to $250 million. Borrowings (other than letters of credit) under the credit facility
generally will bear interest at a rate varying from London Interbank Offered Rate (LIBOR) rate plus 1.75% to
LIBOR rate plus 3.00%, depending on leverage. The Facility is secured by substantially all of our assets and the
stock of our subsidiaries. Debt issuance costs of $1.2 million are recorded in prepaid and other assets and is being
amortized through November 15, 2020.
Borrowings under the Facility are subject to various covenants including a multiple of 3.5 times earnings before
interest, taxes, depreciatio n and amortization (“EBITDA”). EBITDA may include “Acquired EBITDA” from
pro-forma acquisitions as defined. Borrowings under the Facility may be used for general corporate purposes,
including acquisitions. Application of the Facility’s borrowing formula as of January 1, 2016 , would have
permitted $ 43.4 million to be used. We had irrevocable letters of credit totaling $11.3 million outstanding in
connection with our self-insurance programs, which resulted in a total of $ 32.1 million being available for use at
January 1, 2016 . As of January 1, 2016 , we were in compliance with the various financial covenants. Under the
most restrictive of its covenants, we were required to maintain minimum net worth of at least $177.5 million at
January 1, 2016 . At such date, our net worth was approximately $270. 3 million.
The effective interest rates on our borrowings were 3.5 % and 2.7% for 2015 and 2014, respectively.
We believe the Facility will be sufficient to fund our operating needs and expansion plans for at least the next
year. We will continue to evaluate additional capital, including possible debt and equity investments in the
Company, to support a more rapid development of the business than would be possible with internal funds.
Cash Flows
Key elements to the Consolidated Statements of Cash Flows were as follows for the fiscal years: (in thousands):
Net Change in Cash and Cash Equivalents (in thousands)
Provided by (used in):
Operating activities
Investing activities
Financing activities
Discontinued operations
Net increase (decrease) in cash and cash equivalents
2015
$
$
21,206
(86,695)
66,125
—
636
2014
$
$
6,986
(2,200)
(10,146)
—
(5,360)
2013
$
$
19,546
(90,967)
55,209
2,338
(13,874)
2015 Compared to 2014
Net cash provided by operating activities resulted primarily from current period net income of $19.5 million, plus
certain non-cash items, net of changes in accounts receivable, accounts payable and accrued expenses. Accounts
receivable days sales outstanding, which were 58 at January 1, 2016 and 55 at December 31, 2014, increas ing
due to collection delays, primarily in the PC segment, as a result of changes in patient enrollment and billing
requirements enacted by the Medicaid managed care providers in Tennessee.
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Table of Contents
The cash used in investing activities was primarily due to our 2015 acquisitions, capital expenditures of $3.1
million and a $1.0 million cost basis investment.
The cash provided by financing activities resulted from $67.3 million of new borrowings on the revolving credit
facility and $1.2 million debt issuance costs incurred with the new five year $175 million credit facility.
2014 Compared to 2013
Net cash provided by operating activities resulted primarily from 2014 period net income of $13.5 million, plus
certain non-cash items, which was partially offset by a net cash outflow related to the acquired SunCrest
business. Conversion of SunCrest payroll, payment of other liabilities in excess of acquired cash and payment of
SunCrest transition and severance related costs reduced cash flow from operating activities by $11.6 million. In
addition, SunCrest clinical system conversions, transition of billing and collection activities from the SunCrest
home office to our Louisville home office at the end of third quarter of 2014 and some non-SunCrest payer
specific conversions to managed care combined to increase accounts receivable by $10.8 million. Conversely, tax
benefits related to the SunCrest acquisition increased operating cash flow by $7.8 million. Cash from operating
activities for 2014 was also reduced due to payment delays related to the conversion to managed care payers with
longer payment cycles in certain same store PC segment markets.
The cash used in investing activities was primarily due to an April 2014 acquisition and capital expenditures.
The cash used in financing activities was primarily related to a $9.6 million payment on the line of credit drawn in
connection with the 2013 SunCrest acquisition.
Acquisitions
The Company completed several acquisitions over the past three years and will continue to actively seek to
acquire other quality providers of home health services like our current operations.
Factors which may affect future acquisition decisions include, but are not limited to, the quality and potential
profitability of the business under consideration, potential regulatory limitations and our profitability and ability
to finance the transaction. See Part II, Item 8, Notes 12 and 14 to the accompanying Notes to Consolidated
Financial Statements for details regarding these acquisitions.
2016 Acquisitions
On January 5, 2016, we acquired 100% of the equity of Long Term Solutions, Inc. (“LTS”). LTS is a provider of
in-home nursing assessments for the long-term care insurance industry. LTS provides assessments in all 50 U.S.
states and a number of foreign countries. The purchase price of $37 million was funded through borrowings on
the Company’s bank credit facility, seller notes and issuance of the Company’s common stock. LTS’s post
acquisition operating results will be reported in our Healthcare Innovations business segment.
On January 5, 2016, we purchased the assets of a Medicare-certified home health agency owned by Bayonne
Visiting Nurse Association (‘Bayonne”) located in New Jersey. Bayonne’s post acquisition operating results will
be reported in our VN segment.
2015 Acquisitions
On November 5, 2015, we acquired the stock of Black Stone Operations, LLC (“Black Stone”). Black Stone is a
provider of in-home personal care and skilled home health services in western Ohio and operates under the name
“Home Care by Black Stone”. The purchase price of $40 million was funded through borrowings on the
Company’s bank credit facility, seller notes and issuance of the Company’s common stock. Black Stone’s post
acquisition operating results are primarily reported in our VN and PC segments.
On August 29, 2015, we acquired 100% of the equity of Bracor, Inc. (dba “WillCare”). WillCare, based in
Buffalo, NY, reported $72 million in revenue for the year ended December 31, 2014 with VN and PC branch
locations in New York (1 2 ) and Connecticut (1). The purchase price was approximately $50.8 million. The
transaction was funded by
47
Table of Contents
borrowings under the Company’s bank credit facility. On March 1, 2015, we acquired the stock of WillCare’s
Ohio operations for $3.0 million.
On July 22, 2015, we acquired 100% of the equity of Ingenios Health Co. (“Ingenios”) for approximately $11.4
million of the Company’s common stock plus $2 million in cash. Ingenios is a leading provider of technology
enabled in-home clinical assessments for Medicare Advantage, Managed Medicaid and Commercial Exchange
lives in 7 states and Washington, D.C.
On January 29, 2015, we acquired a noncontrolling interest in a development stage analytics and software
company, NavHealth, Inc. (NavHealth). The investment is an asset of our Health care Innovations segment.
2014 Acquisitions
During 2014, we completed a small acquisition using cash on hand to expand existing VN segment operations.
2013 Acquisitions
During 2013, in conjunction with our SunCrest and IHCN Acquisitions, we acquired 60 VN and 13 PC branch
locations in Tennessee, Pennsylvania, Georgia, Indiana, Mississippi, Illinois, Florida and Alabama (in order of
revenue significance). We funded these acquisitions with cash on hand of $31.8 million, $0.5 million in stock,
issuance of a $1.5 million promissory note and borrowings of $56.0 million on our senior secured revolving credit
facility.
In October of 2013, we also acquired a controlling interest in Imperium, a development-stage enterprise that
provides strategic health management services to Accountable Care Organizations (“ACOs”). We acquired a
61.5% interest in Imperium for a total of $5.8 million of which $3 million went into Imperium for its general
corporate purposes including pursuit of its business plan. The transaction was funded from cash on hand.
Contractual Obligations
The following table provides information about the payment dates of our contractual obligations at January 1,
2016 , excluding current liabilities except for the current portion of long-term debt and additional consideration
related to acquisitions (in thousands):
2016
Revolving
credit
facility
Notes
payable
Operating
leases
Total
$
—
2017
$
—
$
8,439
8,439
—
2018
$
—
$
5,930
5,930
—
2019
$
5,000
$
3,698
8,698
2020
—
$
2,153
3,653
113,790
$
—
1,500
$
Thereafter
$
1,634
115,424
—
Total
$
—
$
2,793
2,793
Letters of Credit
We have outstanding letters of credit totaling $11.3 million at January 1, 2016 , which benefit our third-party
insurer/administrators for our self-insurance programs. The amount of such insurance program letters of credit is
subject to negotiation annually upon renewal and may vary in the future based upon such negotiation, our
historical claims experience and expected future claims. It is reasonable to expect that the amount of the letter of
credit will increase in the future, however, we are unable to predict to what degree.
We currently have no contingent obligations related to acquisition agreements.
Our commitments and contingencies are also impacted by our general and professional liabilities, pending
litigation and investigations, and health care reform discussed elsewhere in this form 10-K. Please refer to
Part I, Item 1, “Government Regulation”, Part I, Item 1A, “Risk Factors”, Part I, Item 3 “Legal Proceedings”,
113,790
6,500
$
24,647
144,937
Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations —
Overview” and Part II, Item 8, “Notes to Consolidated Financial Statements”.
48
Table of Contents
Impact of Inflation
We do not believe that inflation has had a material effect on income during the past several years.
Non-GAAP Financial Measures
The information provided in this Annual Report use certain non-GAAP financial measures as defined under SEC
rules. In accordance with SEC rules, the Company has provided, in the supplemental information and the
footnotes to the tables, a reconciliation of those measures to the most directly comparable GAAP measures.
Adjusted Earnings from Home Health Operations
Adjusted earnings from home health operations (“Adjusted Earnings-HHO”) is not a measure of financial
performance under accounting principles generally accepted in the United States of America (“US GAAP”). It
should not be considered in isolation or as a substitute for net income, operating income, cash flows from
operating, investing or financing activities, or any other measure calculated in accordance with generally accepted
accounting principles. We believe the use of non-GAAP measures on a consolidated and business segment basis
assists investors in understanding the ongoing operating performance by presenting comparable financial results
between periods. The non-GAAP information provided is used by us and may not be determined in a manner
consistent with the methodologies used by other companies.
(in thousands)
Net income attributable to Almost Family, Inc.
Addbacks:
Deal, transition and other, net of tax
Loss on discontinued operations, net of tax
Adjusted earnings
Healthcare Innovations operating (gain) loss after
NCI, net of tax
Adjusted Earnings-HHO
Per share amounts-basic:
Average shares outstanding
Net income attributable to Almost Family, Inc.
Addbacks:
Deal, transition and other, net of tax
Loss on discontinued operations, net of tax
Adjusted earnings
Healthcare Innovations operating loss after NCI,
net of tax
Adjusted Earnings-HHO
Per share amounts-diluted:
Average shares outstanding
Net income attributable to Almost Family, Inc.
Addbacks:
Deal, transition and other, net of tax
Loss on discontinued operations, net of tax
Adjusted earnings
Healthcare Innovations operating loss after NCI,
net of tax
Adjusted Earnings-HHO
January 1,
2016
$
20,009
Fiscal Year ended
December
31, 2014
$
737
—
20,746
13,763
December
31, 2013
$
3,156
—
16,919
8,226
2,572
558
11,356
$
665
21,411
$
5
16,924
$
176
11,532
$
9,505
2.11
$
9,333
1.47
$
9,279
0.89
0.08
—
2.18
$
$
0.34
—
1.81
0.07
2.25
$
0.00
1.81
$
0.02
1.24
9,745
2.05
$
9,462
1.45
$
9,374
0.88
0.08
—
2.13
$
0.28
0.05
1.22
0.07
2.20
0.33
—
1.79
$
0.00
1.79
0.27
0.06
1.21
$
0.02
1.23
(1) See page 35 for discussion regarding the Company’s change to a 52-53 week reporting calendar in 2015.
49
Table of Contents
Adjusted EBITDA from Home Health Operations
Adjusted earnings before interest, income tax, depreciation, amortization, amortization of stock-based
compensation, Healthcare Innovations operating loss and deal, transition and other from Home Health Operations
(Adjusted EBITDA-HHO) is not a measure of financial performance under U.S. GAAP. It should not be
considered in isolation or as a substitute for net income, operating income, cash flows from operating, investing
or financing activities, or any other measure calculated in accordance with generally accepted accounting
principles. The items excluded from Adjusted EBITDA-HHO are significant components in understanding and
evaluating financial performance and liquidity. Management routinely calculates and communicates Adjusted
EBITDA-HHO and believes that it is useful to investors because it is commonly used as an analytical indicator
within our industry to evaluate performance, measure leverage capacity and debt service ability, and to estimate
current or prospective enterprise value. Adjusted EBITDA is used in certain covenants contained in our Credit
Facility.
The following table sets forth a reconciliation of net income to Adjusted EBITDA-HHO for the fiscal year (in
thousands):
(in thousands)
Net income attributable to Almost
Family, Inc.
Add back:
Interest expense, net
Income tax expense
Depreciation and amortization
Stock-based compensation
Deal, transition and other costs
Adjusted EBITDA
Healthcare Innovations operating
(gain) loss
Adjusted EBITDA-HHO
January 1, 2016 (1)
$
$
Fiscal Year ended
December 31,
2014
December 31, 2013
20,009 $
13,763
$
8,226
2,006
10,556
3,628
2,121
4,139
42,459
1,442
9,511
4,103
1,814
5,304
35,937
167
6,020
2,862
1,465
4,323
23,063
1,479
43,938 $
(96)
35,841 $
574
23,637
(1) See page 35 for discussion regarding the Company’s changed to a 52-53 week reporting calendar in 2015.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Ris k
Derivative Instruments
We do not use derivative instruments.
Market Risk of Financial Instruments
Our primary market risk exposure with regard to financial instruments is to changes in interest rates.
At January 1, 2016 , a hypothetical 100 basis point increase in short-term interest rates would result in a reduction
of approximately $ 1.2 million in our annual pre-tax earnings.
50
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DAT A
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOM E
(In thousands, except per share data)
January 1,
2016
Net service revenues
Cost of service revenues (excluding depreciation and
amortization)
Gross margin
General and administrative expenses:
Salaries and benefits
Other
Deal, transition and other non-recurring costs
Total general and administrative expenses
Operating income
Interest expense, net
Income before income taxes
Income tax expense
Net income from continuing operations
$
Discontinued operations:
(Loss) gain from operations, net of tax of $882
Gain on sale, net of tax of $973
(Loss) gain on discontinued operations
532,214
Fiscal Year ended
December 31,
2014
$
Per share amounts-basic:
Average shares outstanding
Income from continued operations attributable to
Almost Family, Inc.
Discontinued operations
Net income attributable to Almost Family, Inc.
190,548
166,364
147,849
66,281
4,139
218,269
32,103
(2,006)
30,097
(10,556)
19,541
139,793
62,261
5,304
207,358
24,477
(1,442)
23,035
(9,511)
13,524
102,005
45,243
4,323
151,571
14,793
(167)
14,626
(6,020)
8,606
—
—
—
468
20,009
$
Per share amounts-diluted:
Average shares outstanding
Income from continued operations attributable to
Almost Family, Inc.
Discontinued operations
Net income attributable to Almost Family, Inc.
2.11
—
2.11
$
$
2.05
—
2.05
239
13,763
8,048
$
9,333
$
$
9,745
$
(729)
171
(558)
13,524
9,505
$
356,912
263,994
231,835
19,541
$
$
281,842
250,372
—
—
—
Net income
Net (income) loss attributable to noncontrolling
interest
Net income attributable to Almost Family, Inc.
495,829
December 31,
2013
1.47
—
1.47
9,279
$
$
9,462
$
$
1.45
—
1.45
178
8,226
0.95
(0.06)
0.89
9,374
$
$
0.94
(0.06)
0.88
The accompanying notes to consolidated financial statements are an integral part of these financial statements.
51
Table of Contents
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET S
(In thousands)
January 1, 2016
December 31, 2014
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable - net
Prepaid expenses and other current assets
TOTAL CURRENT ASSETS
PROPERTY AND EQUIPMENT - NET
GOODWILL
OTHER INTANGIBLE ASSETS
OTHER ASSETS
TOTAL ASSETS
$
$
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable
Accrued other liabilities
Current portion - notes payable and capital leases
TOTAL CURRENT LIABILITIES
$
LONG-TERM LIABILITIES:
Revolving credit facility
Deferred tax liabilities
Seller notes
Other liabilities
TOTAL LONG-TERM LIABILITIES
TOTAL LIABILITIES
NONCONTROLLING INTEREST - REDEEMABLE HEALTHCARE INNOVATIONS
STOCKHOLDERS’ EQUITY:
Preferred stock, par value $0.05; authorized 2,000 shares; none
issued or outstanding
Common stock, par value $0.10; authorized 25,000; 10,125 and
9,574 issued and outstanding
Treasury stock, at cost, 103 and 94 shares
Additional paid-in capital
Noncontrolling interest - nonredeemable
Retained earnings
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
7,522
92,270
9,672
109,464
10,000
277,061
64,629
3,615
464,769
$
12,297
42,524
—
54,821
$
$
6,886
74,602
10,420
91,908
5,575
192,523
54,402
850
345,258
9,257
42,326
51
51,634
113,790
13,094
6,556
2,608
136,048
190,869
46,447
11,280
1,500
1,205
60,432
112,066
3,639
3,639
—
—
1,013
(2,731)
127,253
(730)
145,456
270,261
464,769
$
957
(2,392)
105,862
(420)
125,546
229,553
345,258
The accompanying notes to consolidated financial statements are an integral part of these financial statements.
52
Table of Contents
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUIT Y
(In thousands)
NonAdditional
Common Stock
Shares
Amount
Balance,
December 31, 2012
Stock award maturities,
net of shares
surrendered or withheld
Share awards and
related compensation
Tax loss from
stock-based
compensation
Stock provided in
acquisitions
Acquired
noncontrolling interest
Net loss noncontrolling
interests - redeemable
Noncontrolling
interests - redeemable
fair value accretion
Net loss noncontrolling
interests nonredeemable
Net income attributable
to Almost Family, Inc.
Balance,
December 31, 2013
Stock award maturities,
net of shares
surrendered or withheld
Share awards and
related compensation
Tax gain from
stock-based
compensation
Net loss noncontrolling
interests - redeemable
Noncontrolling
interests - redeemable
fair value accretion
Net loss noncontrolling
interests nonredeemable
Net income attributable
to Almost Family, Inc.
Balance,
December 31, 2014
Stock award maturities,
net of shares
surrendered or withheld
Share awards and
related compensation
Tax gain from
stock-based
compensation
Stock provided in
acquisitions
Net loss noncontrolling
interests - redeemable
Noncontrolling
interests - redeemable
fair value accretion
Net loss noncontrolling
interests nonredeemable
Net income attributable
to Almost Family, Inc.
Balance,
January 1, 2016
9,421
$
Treasury Stock
Shares
Amount
942
(91)
1
1
(1)
(20)
52
5
—
—
—
26
2
$
(2,320)
Paid-in
Capital
$
Retained
Earnings
101,945
$
103,748
$
Non-
controlling
Total
controlling
Interest - Nonredeemable
Stockholders’
Equity
Interest Redeemable
—
$
204,315
—
—
(2)
—
—
1,460
—
—
1,465
—
—
—
(62)
—
—
(62)
—
—
—
498
—
—
500
—
0
—
(193)
(193)
3,639
(185)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(185)
—
(185)
—
—
—
—
—
—
—
—
—
—
—
8,226
950
(92)
14
1
(2)
(52)
60
6
—
$
—
17
—
9,500
$
$
(2,340)
$
103,858
$
111,789
7
—
8,226
—
7
—
$
(186)
$
185
214,071
$
3,639
156
—
—
105
—
—
1,808
—
—
1,814
—
40
—
—
40
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(6)
—
(6)
—
—
—
—
—
—
(234)
(234)
—
—
—
—
—
—
—
13,763
—
957
(94)
10
1
(9)
(339)
100
11
—
9,574
$
—
—
441
44
$
(2,392)
$
105,862
13,763
$
125,546
$
(420)
$
229,553
(6)
6
$
3,639
128
—
—
(210)
—
—
2,110
—
—
2,121
—
—
—
215
—
—
215
—
—
—
18,938
—
—
18,982
(99)
—
—
—
—
—
—
—
—
—
—
—
—
—
(99)
—
(99)
—
—
—
—
—
—
—
(310)
(310)
—
—
—
—
—
—
—
20,009
—
1,013
(103)
10,125
$
$
(2,731)
$
127,253
20,009
$
145,456
$
(730)
$
270,261
The accompanying notes to consolidated financial statements are an integral part of these financial statements.
99
$
3,639
53
Table of Contents
ALMOST FAMILY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW S
(in thousands)
Fiscal Year ended
December 31, 2014
January 1, 2016
Cash flows from operating activities:
Net income
Loss on discontinued operations, net
of tax
Net income from continuing
operations
Adjustments to reconcile income to net
cash provided by operating activities:
Depreciation and amortization
Provision for uncollectible accounts
Stock-based compensation
Deferred income taxes
Change in certain net assets and
liabilities, net of the effects of
acquisitions:
(Increase) decrease in:
Accounts receivable
Prepaid expenses and other current
assets
Other assets
Accounts payable and accrued
expenses
Net cash provided by operating
activities
Cash flows from investing activities:
Capital expenditures
Cost basis investment
Acquisitions, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities:
Credit facility borrowings
Credit facility repayments
Debt issuance fees
Proceeds from stock option
exercises
Purchase of common stock in
connection with share awards
Tax impact of share awards
Payment of special dividend
Principal payments on notes payable
and capital leases
Net cash provided by (used in)
financing activities
Cash flows from discontinued
operations:
Operating activities
Investing activities
Net cash from discontinued operations
Net change in cash and cash
equivalents
Cash and cash equivalents at beginning
$
19,541
—
$
13,524
—
December 31, 2013
$
8,048
(558)
19,541
13,524
8,606
4,208
12,743
2,121
3,914
42,527
4,103
9,417
1,814
5,500
34,358
2,862
5,378
1,465
2,099
20,410
(17,393)
(25,613)
(4,440)
2,402
(585)
(647)
165
4,229
235
(5,745)
(1,277)
(888)
21,206
6,986
19,546
(3,117)
(1,000)
(82,578)
(86,695)
(1,231)
—
(969)
(2,200)
(2,502)
—
(88,465)
(90,967)
233,425
(166,082)
(1,161)
66,632
(76,185)
—
56,000
—
—
128
156
11
(338)
215
(50)
(52)
40
(35)
(20)
(62)
—
(12)
(702)
(720)
66,125
(10,146)
55,209
—
—
—
636
6,886
—
—
—
(5,360)
12,246
(742)
3,080
2,338
(13,874)
26,120
of period
Cash and cash equivalents at end of
period
Supplemental disclosures of cash
flow information:
Cash payment of interest, net of
amounts capitalized
Cash payment of taxes
Summary of non-cash investing and
financing activities:
Acquisitions funded by notes
payable
Acquisitions funded by stock
$
7,522
$
6,886
$
12,246
$
$
1,890
4,651
$
$
1,264
1,953
$
$
97
6,084
$
$
5,000
18,982
$
$
—
—
$
$
1,500
500
The accompanying notes to consolidated financial statements are an integral part of these financial statements.
54
Table of Contents
ALMOST FAMILY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT S
(Unless otherwise indicated all dollar and share amounts are in thousands)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation and Description Of Business
The consolidated financial statements include the accounts of Almost Family, Inc. (a Delaware corporation) and
its wholly-owned subsidiaries (collectively “ Almost Family ” or the “Company”). The Company is a leading,
regionally focused provider of home health services and has service locations in Florida, Ohio, Tennessee, New
York, Kentucky, Connecticut, New Jersey, Massachusetts, Indiana, Illinois, Pennsylvania, Georgia, Missouri,
Mississippi and Alabama (in order of revenue significance).
The Company was incorporated in Delaware in 1985. Through a predecessor that merged into the Company in
1991, the Company has been providing health care services, primarily home health care, since 1976. All material
intercompany transactions and accounts have been eliminated in consolidation.
On November 5, 2015, the Company completed the acquisition of Black Stone Operations, LLC (“Black
Stone”). Black Stone owned and operated personal care and skilled home health services in western Ohio. On
August 29, 2015, the Company completed the acquisition of Bracor, Inc. (dba WillCare). WillCare owned and
operated Visiting Nurse (“VN”) and Personal Care (“PC”) branch locations in New York (1 2 ), and Connecticut
(1). On July 22, 2015, the Company acquired Ingenios Health (“Ingenios”). Ingenios is a leading provider of
technology enabled in-house clinical assessments for Medicare Advantage, Managed Medicaid and Commercial
Exchange lives in seven states and Washington, D.C. On March 2, 2015, the Company acquired the stock of
Willcare’s Ohio operations. On January 29, 2015, the Company acquired a noncontrolling interest in a
development stage analytics and software company, NavHealth, Inc. (“NavHealth”). The results of operations for
WillCare and Black Stone are reported in the Company’s VN and PC segments, while Ingenios results are
included in the Company’s Healthcare Innovations segment.
On December 6, 2013, the Company completed the acquisition of Omni Home Health Holdings, Inc.
(“SunCrest”). Branded principally under the SunCrest name, its subsidiaries owned and operated 66
Medicare-certified home health agencies and 9 private duty agencies in Florida, Tennessee, Georgia,
Pennsylvania, Kentucky, Illinois, Indiana, Mississippi and Alabama. On October 4, 2013, the Company acquired
a controlling interest in Imperium Health Management, LLC (“Imperium”), a development-stage enterprise that
provides strategic health management services to Accountable Care Organizations (“ACOs”). On July 17, 2013,
the Company acquired the assets of the Medicare-certified home health agencies owned by Indiana Home Care
Network (“IHCN”). The acquisitions are more fully described in Note 12, “Acquisitions”. The results of
operations for SunCrest and IHCN are principally reported within the Company’s VN reportable segment, while
Imperium results are included in the Company’s Healthcare Innovations segment. The Company’s consolidated
financial statements are prepared in accordance with U.S. generally accepted accounting principles (US
GAAP). All intercompany balances and transactions have been eliminated.
Fiscal Year End
Effective with the first quarter of 2015, the Company adopted a 52-53 week fiscal reporting calendar under which
it will report its annual results going forward in four equal 13-week quarters. Every fifth year, one quarter will
include 14 weeks and that year will include 53 weeks of operating results.
New Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2014-09, Revenue from Contracts with Customers (Topic 606), during the second quarter of 2014. Topic 606
affects virtually all aspects of an entity’s revenue recognition, including determining the measurement of revenue
and the timing of when it
55
Table of Contents
is recognized for the transfer of goods or services to customers. Topic 606 is effective for annual reporting
periods beginning after December 15, 2017. The Company is currently evaluating the effect of the adoption of
Topic 606 on its financial position and results of operations.
In April 2014, the FASB issued ASU No. 2014-18, Reporting Discontinued Operations and Disclosures of
Disposals of Components of an Entity, which includes amendments of Accounting Standards Codification (ASC
205 Presentation of Financial Statements and ASC 360 Property, Plant and Equipment) which limits the
requirement for discontinued operations treatment to the disposal of a component of an entity, or a group of
components of an entity, that represents a strategic shift that has (or will have) a major effect on an entity’s
operations and financial results. Additionally, this new guidance no longer precludes discontinued operations
presentation based on continuing involvement or cash flows following the disposal. This guidance became
effective prospectively for the Company on January 1, 2015, and will impact the Company’s determination and
disclosure of discontinued operations treatment for subsequent qualifying divestitures, if any.
In April 2015, the FASB issued ASU No. 2015-03, Interest – Imputation of Interest (Subtopic
835-30): Simplifying the Presentation of Debt Issuance Costs. In certain cases, Subtopic 835-30 requires that
debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction
from the carrying amount of that debt liability. Subtopic 835-30 is effective for annual and interim periods
beginning after December 15, 2015. The Company does not expect ASU No. 2015- 03 to materially affect its
financial position and results of operation.
In April 2015, the FASB issued ASU No. 2015-05, Intangibles – Goodwill and Other – Internal-Use Software
(Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement . Subtopic
350-40 provides guidance that all software licenses included in cloud computing arrangement be accounted for
consistent with other licenses of intangible assets. However if a cloud computing arrangement does not include a
software license, the arrangement should be accounted for as a service contract, the accounting for which did not
change. Subtopic 350-40 is effective for annual and interim periods beginning after December 15, 2015. The
Company does not expect ASU No. 2015-05 to materially affect its financial position and results of operations.
In November 2015, the FASB issued ASU no. 2015-17, Balance Sheet Classification of Deferred Taxes. The new
guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be
classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent
deferred tax asset or liability. The Company elected to early adopt this guidance with retrospective treatment
which required reclassification of the consolidated balance sheet. Accordingly, $12.2 million was reclassified in
the prior year presentation to confirm with the current year presentation.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
Uninsured deposits at January 1, 2016 and December 31, 2014 were approximately $4,681 and $4,183
respectively. These amounts have been deposited with national financial institutions.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the
estimated useful lives (generally two to ten years for medical and office equipment and three years for internally
developed software). Leasehold improvements are depreciated over the terms of the respective leases (generally
three to ten years). Such costs are periodically reviewed for recoverability when impairment indicators are
present. Such indicators include, among other factors, operating losses, unused capacity, market value declines
and technological obsolescence. Recorded values of asset groups of property, plant and equipment that are not
expected to be recovered through undiscounted future net cash flows are written down to current fair value, which
generally is determined from estimated discounted future net cash flows (assets held for use) or net realizable
value (assets held for sale).
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Goodwill and Other Intangible Assets
Goodwill and indefinite lived intangible assets acquired are stated at fair value at the date of
acquisition. Subsequent to acquisition, the Company conducts annual reviews for impairment, or more frequently
if circumstances indicate impairment may have occurred. The Company reviews goodwill for impairment based
on its identified reporting units, which are the same as its reportable segments. The Company tests goodwill for
impairment by comparing the carrying value to the estimated fair value of its reporting units, determined using a
combination of the market approach (guideline company and similar transaction method) and income approach
(discounted cash flow analysis). The Company annually tests its indefinite-lived intangible assets, principally
trade names, certificates of need, provider numbers and licenses. Specifically trade names are tested using a
“relief-from-royalty” valuation method compared to the carrying value. Significant assumptions inherent in the
valuation methodologies for goodwill and other intangibles are employed and include, but are not limited to, such
estimates as future projected business results, growth rates, legislated changes in payment rates, weighted-average
cost of capital for a market participant, royalty and discount rates . The Company has completed its most recent
annual impairment tests as of January 1, 2016 and determined that no impairment existed.
Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, such as the
cost of non-compete agreements for which their estimated useful life is usually 3 years, beginning after the
earn-out period, if any.
The following table summarizes the activity related to the Company’s goodwill and other intangible assets:
Other Intangible Assets
Certificates
of Need and
Licenses
Goodwill
Balances at
December 31, 2013
Acquisitions
Changes
Amortization
Balances at
December 31, 2014
Acquisitions
Amortization
Balances at January
1, 2016
Trade
Names
Non-compete
Agreements
Total
$
192,489
—
34
—
$
38,321
1,290
—
—
$
14,781
—
—
(10)
$
72
—
—
(52)
$
53,174
1,290
—
(62)
$
192,523
$
39,611
$
14,771
$
20
$
54,402
84,538
—
$
277,061
6,433
—
$
46,044
3,640
(10)
$
18,401
180
(16)
$
10,253
(26)
184
$
64,629
See Note 12 for further discussion of acquisitions .
The following table summarizes the Company’s goodwill and other intangible assets by segment:
Other Intangible Assets
Certificates
of Need and
Licenses
Goodwill
Trade
Names
Non-compete
Agreements
Total
Visiting Nurse
Personal Care
Healthcare Innovations
December 31, 2014
balance
$
147,368
37,571
7,584
$
38,831
780
—
$
11,391
3,380
—
$
10
10
—
$
50,232
4,170
—
$
192,523
$
39,611
$
14,771
$
20
$
54,402
Visiting Nurse
Personal Care
Healthcare Innovations
$
186,384
72,773
17,904
$
42,884
3,160
—
$
13,206
5,195
—
$
92
92
—
$
56,182
8,447
—
January 1, 2016 balance
$
277,061
$
46,044
57
$
18,401
$
184
$
64,629
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Capitalization Policies
Maintenance, repairs and minor replacements are charged to expense as incurred. Major renovations and
replacements are capitalized to appropriate property and equipment accounts. Upon sale or retirement of
property, the cost and related accumulated depreciation are eliminated from the accounts and the related gain or
loss is recognized in the consolidated statement of income.
The Company capitalizes the cost of internally developed computer software for the Company’s own
use. Software development costs of approximately $788 , $327 and $647 were capitalized in the years ended
January 1, 2016 , December 31, 2014 and 2013, respectively.
Insurance Programs
The Company bears significant risk under its large-deductible workers’ compensation insurance program and its
self-insured employee health program. Under the workers’ compensation insurance program, the Company bears
risk up to $400 per incident, except for a recent acquisition that has not yet been folded into the Company’s
program and has a stop-loss of $750, after which stop-loss coverage is maintained. The Company purchases
stop-loss insurance for the employee health plan that places a specific limit, generally $300, on its exposure for
any individual covered life.
Malpractice and general patient liability claims for incidents which may give rise to litigation have been asserted
against the Company by various claimants. The claims are in various stages of processing and some may
ultimately be brought to trial. The Company currently carries professional and general liability insurance
coverage (on a claims made basis) for this exposure with no deductible. The Company also carries D&O
coverage (also on a claims made basis) for potential claims against the Company’s directors and officers,
including securities actions, with deductibles ranging from $1 75 to $5 00 per claim.
The Company records estimated liabilities for its insurance programs based on information provided by the
third-party plan administrators, historical claims experience, the life cycle of claims, expected costs of claims
incurred but not paid, and expected costs to settle unpaid claims. The Company monitors its estimated
insurance-related liabilities and recoveries, if any, on a monthly basis and records amounts due under insurance
policies in other current assets, while recording the estimated carrier liability in other current liabilities. As facts
change, it may become necessary to make adjustments that could be material to the Company’s results of
operations and financial condition.
Accounting for Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the Company’s book and tax bases of assets and
liabilities and tax carry-forwards using enacted tax rates in effect for the year in which the differences are
expected to reverse. The effect of changes in tax rates on deferred taxes is recognized in the period in which the
enactment dates change. Valuation allowances are established when necessary on a jurisdictional basis to reduce
deferred tax assets to the amounts expected to be realized.
Seasonality
The Company’s VN segment operations located in Florida (which generated approximately 2 4 % of that
segment’s revenues in the year ended January 1, 2016) normally experience higher admissions during the first
quarter and lower admissions during the third quarter than in the other quarters due to seasonal population
fluctuations.
Net Service Revenues
The Company is paid for its services primarily by federal and state third-party reimbursement programs,
commercial insurance companies, and patients. Revenues are recorded at established rates in the period during
which the services are
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rendered. Appropriate allowances to give recognition to third party payment arrangements are recorded when the
services are rendered.
Approximately 71% of the Company’s consolidated net service revenues are derived from the Medicare
program. Net service revenues are recorded under the Medicare prospective payment program (PPS) based on a
60-day episode payment rate that is subject to adjustment based on certain variables including, but not limited to:
(a) changes in the base episode payments established by the Medicare program; (b) adjustments to the base
episode payments for case-mix and geographic wages; (c) a low utilization payment adjustment (LUPA) if the
number of visits was fewer than five; (d) a partial payment if a patient is transferred to another provider or if a
patient is received from another provider before completing the episode; (e) a payment adjustment based upon the
level of therapy services required (thresholds set at 6, 14 and 20 visits); (f) an outlier payment if the patient’s care
was unusually costly (capped at 10% of total reimbursement); (g) the number of episodes of care provided to a
patient; and (h) a 2% reduction for sequestration.
At the beginning of each Medicare episode the Company calculates an estimate of the amount of expected
reimbursement based on the variables outlined above and recognizes Medicare revenue on an episode-by-episode
basis during the course of each episode over its expected number of visits. Over the course of each episode, as
changes in the variables become known, adjustments are calculated and recorded as needed to reflect changes in
expectations for that episode from those established at the start of the 60 day period until its ultimate outcome at
the end of the 60 day period is known.
Substantially all remaining revenues are earned on a per visit, hour or unit basis (as opposed to episodic). For all
services provided, the Company uses either payor-specific or patient-specific fee schedules for the recording of
revenues at the amounts actually expected to be received.
Laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to
interpretation. It is common for issues to arise related to: 1) medical coding, particularly with respect to
Medicare, 2) patient eligibility, particularly related to Medicaid, and 3) other reasons unrelated to credit risk, all
of which may result in adjustments to recorded revenue amounts. The Company continuously evaluates the
potential for revenue adjustments and when appropriate provides allowances for losses based upon the best
available information. There is at least a reasonable possibility that recorded estimates could change by material
amounts in the near term. Changes in estimates related to prior periods (increased) decreased revenues by
approximately ($365), ($320), and $114 in the years ended January 1, 2016 , December 31, 2014 and 2013,
respectively.
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Table of Contents
Revenue and Receivable Concentrations
The following table sets forth the percent of the Company’s revenues generated from Medicare, state Medicaid
programs and other payors for the fiscal year ended:
January
1, 2016
Medicare
Medicaid & other government programs:
Ohio
Connecticut
Tennessee
Kentucky
New York
Florida
Others
Subtotal
All other payors
Total
December
31, 2014
December
31, 2013
71.4%
72.4%
71.2%
9.1%
5.5%
3.2%
1.7%
1.7%
0.9%
0.4%
22.5%
6.1%
100.0%
8.8%
5.5%
2.5%
1.8%
—%
0.6%
0.4%
19.6%
8.0%
100.0%
11.7%
7.1%
0.2%
2.3%
—%
0.7%
0.5%
22.5%
6.3%
100.0%
Concentrations in the Company’s accounts receivable were as follows:
January 1, 2016
Amount
Percent
Medicare
Medicaid & other
government programs:
Ohio
Tennessee
New York
Kentucky
Florida
Connecticut
Others
Subtotal
All other payors
Subtotal
Allowances
Total
$
50,369
45.9%
7.9%
7.3%
2.9%
2.8%
2.5%
2.5%
1.1%
26.9%
27.3%
100.0%
$
8,627
8,038
3,207
3,055
2,702
2,693
1,156
29,478
29,937
109,784
(17,514)
92,270
December 31, 2014
Amount
Percent
$
46,342
55.5%
11.1%
6.7%
—%
4.4%
2.2%
4.8%
1.2%
30.4%
14.1%
100.0%
$
9,239
5,617
—
3,686
1,804
3,982
1,031
25,359
11,781
83,482
(8,880)
74,602
The ability of payors to meet their obligations depends upon their financial stability, future legislation and
regulatory actions. The Company does not believe there are any significant credit risks associated with
receivables from Federal and state third-party reimbursement programs. The allowance for uncollectible accounts
principally consists of management’s estimate of amounts that may prove uncollectible for coverage, eligibility
and technical reasons.
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Table of Contents
Payor Mix Concentrations and Related Aging of Accounts Receivable
The approximate breakdown by payor classification as a percent of total accounts receivable, net of contractual
allowances, if any, were as follows:
Payor
0-90
Medicare
Medicaid & Government
Self Pay
Insurance
Total
Payor
91-180
26%
12%
6%
7%
51%
0-90
Medicare
Medicaid & Government
Self Pay
Insurance
Total
January 1, 2016
181-365
10%
4%
1%
2%
17%
91-180
36%
19%
1%
6%
62%
>1 yr.
7%
8%
1%
5%
21%
December 31, 2014
181-365
13%
6%
0%
3%
22%
Total
3%
3%
1%
4%
11%
46%
27%
9%
18%
100%
>1 yr.
7%
4%
2%
2%
15%
Total
0%
1%
0%
0%
1%
56%
30%
3%
11%
100%
Variations between years are largely attributable to the WillCare and Black Stone acquisitions.
Allowance for Uncollectible Accounts by Payor Mix and Related Aging
The Company records an estimated allowance for uncollectible accounts by applying estimated bad debt
percentages to its accounts receivable aging. The percentages to be applied by payor type are based on the
Company’s historical collection and loss experience. The Company’s effective allowances for uncollectible
accounts as a percent of accounts receivable were as follows:
Payor
Medicare
Medicaid & Government
Self Pay
Insurance
Total
Payor
Medicare
Medicaid & Government
Self Pay
Insurance
Total
0-90
3%
4%
4%
3%
3%
0-90
0%
1%
1%
5%
1%
January 1, 2016
181-365
91-180
6%
5%
3%
5%
5%
91-180
36%
44%
34%
36%
38%
>1 yr.
December 31, 2014
181-365
>1 yr.
0%
8%
12%
22%
6%
8%
31%
51%
46%
23%
>2 yrs.
55%
46%
59%
56%
53%
100%
100%
100%
100%
100%
>2 yrs.
75%
66%
74%
83%
74%
100%
100%
100%
100%
100%
Variations between years are largely attributable to the WillCare and Black Stone acquisitions.
The Company’s allowance for uncollectible accounts at January 1, 2016 and December 31, 2014 was
approximately $17,514 and $8,880, respectively. The increase is primarily due to the timing of write-offs and to
a lesser degree, the 2015 acquisitions.
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Table of Contents
Contingent Service Revenues
The Company, through its Imperium acquisition, provides strategic health management services to ACOs that
have been approved to participate in the Medicare Shared Savings Program (“MSSP”). In some cases, the
Company also had ownership interests in ACOs beginning January 1, 2015.
ACOs are entities that contract with CMS to serve the Medicare fee-for-service population with the goal of better
care for individuals, improved health for populations and lower costs. ACOs share savings with CMS to the
extent that the actual costs of serving assigned beneficiaries are below certain trended benchmarks of such
beneficiaries and certain quality performance measures are achieved. The MSSP is relatively new and therefore
has limited historical experience, which impacts the Company’s ability to accurately accumulate and interpret the
data available for calculating an ACOs’ shared savings, if any. MSSP payments are not recognized in revenue
until persuasive evidence of an agreement exists, services have been rendered, the payment is fixed and
determinable and collectability is insured, which is generally satisfied upon cash receipt. Under such agreements,
the Company recognized $1.4 million and $1.6 million in MSSP payments for cash received during 2015 and
2014, respectively, related to savings generated for the program period ended December 31, 2013 and Decem ber
31, 2014, respectively , which is included in the Company’s Healthcare Innovations segment revenues. The
Company has yet to recognize MSSP payments, if any, for savings generated through January 1, 2016
Weighted Average Shares
Net income per share is presented as a unit of basic shares outstanding and diluted shares outstanding. Diluted
shares outstanding is computed based on the weighted average number of common shares and common
equivalent shares outstanding. Common equivalent shares result from dilutive stock options and unvested
restricted shares. The following table is a reconciliation of basic to diluted shares used in the earnings per share
calculation for the fiscal year ended:
January 1, 2016
Basic weighted average
outstanding shares
Dilutive effect of
outstanding
compensation awards
Diluted weighted average
outstanding shares
December 31, 2014
December 31, 2013
9,505
9,333
9,279
240
129
95
9,745
9,462
9,374
The assumed conversions to common stock of 20, 94, and 195 of the Company’s outstanding stock options were
excluded from the diluted EPS computation in 2015, 2014, and 2013, respectively, because these items, on an
individual basis, have an anti-dilutive effect on diluted EPS.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Financial Statement Reclassifications
Certain prior period amounts and data have been reclassified in the financial statements and related notes in order
to conform to the 2015 presentation.
Stock-Based Compensation
Stock options and restricted stock are granted under various stock compensation programs to employees and
independent directors. The Company accounts for such grants in accordance with ASC Topic 718, Compensation
— Stock Compensation and amortizes the fair value of awards, after estimated forfeiture, on a straight-line basis
over the requisite service periods.
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Table of Contents
Accounting for Leases
The Company accounts for operating leases using the straight-line rents method, which amortizes contracted total
rents due evenly over the lease term.
Advertising Costs
The Company expenses the costs of advertising, as incurred. Advertising expense was $39 3 , $3 0 6 and $326
for the years ended January 1, 2016 , December 31, 2014 and 2013, respectively.
NOTE 2 - ACCRUED LIABILITIES
Accrued liabilities consist of the following as of fiscal year ended:
January 1, 2016
Wages and employee benefits
Insurance accruals
Accrued taxes
Kentucky Medicaid cost report payable
Accrued professional fees and other
$
$
20,687
14,541
643
616
6,037
42,524
December 31, 2014
$
$
20,084
14,217
563
1,360
6,102
42,326
NOTE 3 - PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consist of the following as of the fiscal year ended:
January 1, 2016
Leasehold improvements
Medical equipment
Computer equipment
Internally developed software
Office and other equipment
Vehicles
$
Less accumulated depreciation
$
2,312
1,561
14,633
1,744
6,369
162
26,781
(16,781)
10,000
December 31, 2014
$
$
1,367
937
9,607
1,071
4,502
449
17,933
(12,358)
5,575
Depreciation and amortization expense related to property, plant and equipment is recorded in general and
administrative expenses - other and was $3,321, $3,850 and $2, 594 for the years ended January 1, 2016
, December 31, 2014 and 2013, respectively.
NOTE 4 - REVOLVING CREDIT FACILITY
The Company has a senior revolving credit facility with J.P. Morgan Securities LLC as Administrative Agent,
Bank of America, N.A. as Syndication Agent and certain other lenders (the “Facility”). The Facility consists of a
$175 million credit line with a maturity date of November 15, 2020 and an accordion feature which permits
expansion up to $250 million. Borrowings, other than letters of credit, under the credit facility generally will bear
interest at a rate varying from London Interbank Offered Rate (“LIBOR”) rate plus 1.75% to LIBOR rate plus
3.00% , depending on leverage. The Facility is secured by substantially all of the Company's assets and the stock
of its subsidiaries. Debt issuance costs of $1.2 million are recorded in prepaid and other assets and is being
amortized through November 15, 2020.
Borrowings under the Facility are subject to various covenants including a multiple of 3.5 times earnings before
interest, taxes, depreciation and amortization (“EBITDA”). EBITDA may include “Acquired EBITDA” from
pro-forma acquisitions as defined. Borrowings under the Facility may be used for general corporate purposes,
including
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Table of Contents
acquisitions. Application of the Facility’s borrowing formula as of January 1, 2016 , would have permitted $43 .
4 million to be used. We had irrevocable letters of credit totaling $11.3 million outstanding in connection with our
self-insurance programs, which resulted in a total of $ 32 . 1 million being available for use at January 1, 2016 .
As of January 1, 2016 , we were in compliance with the various financial covenants. Under the most restrictive of
its covenants, we were required to maintain minimum net worth of at least $177.5 million at January 1, 2016 . At
such date, our net worth was approximately $270.2 million.
The effective interest rates on our borrowings were 3 . 5 % and 2.7% for 2015 and 2014, respectively.
NOTE 5 - FAIR VALUE MEASUREMENTS
The Company’s financial instruments consist of cash, accounts receivable, payables and debt instruments. Due to
their short-term nature, the book values of cash, accounts receivable and payables are considered representative of
their respective fair values. The fair value of the Company’s debt instruments approximates their carrying values
as substantially all of such debt instruments have rates which fluctuate with changes in market rates.
As of January 1, 2016 , the Company does not have any assets or liabilities carried at fair value that are measured
on a recurring basis.
NOTE 6 - INCOME TAXES
The provision for income taxes consists of the following as of the fiscal year ended:
January 1, 2016
Federal - current
State and local current
Deferred
December 31, 2014
$
5,283
$
1,359
3,914
10,556
December 31, 2013
$
2,829
$
1,182
5,500
9,511
$
3,557
$
364
2,099
6,020
A reconciliation of the statutory to the effective rate of the Company is as follows as of the fiscal year ended:
January 1, 2016
Tax provision using
statutory rate
State and local taxes, net
of Federal benefit
Valuation allowance
Noncontrolling interest
related
Legal settlement related
Tax provision for
continuing operations
December 31, 2014
December 31, 2013
35.0%
35.0%
35.0%
4.4%
0.2%
4.7%
1.0%
5.7%
-0.6 %
0.6%
-5.1 %
0.4%
-0.1 %
0.5%
1.3%
35.1%
41.0%
41.9%
The Company has provided a valuation allowance against certain net deferred tax assets based upon
management’s estimation of realizability of those assets through future taxable income. This valuation allowance
was based in large part on the Company’s history of generating operating income or losses in individual tax
locales and expectations for the future. The Company’s ability to generate the expected amounts of taxable
income from future operations to realize its recorded net deferred tax assets is dependent upon general economic
conditions, competitive pressures on revenues and margins and legislation and regulation at all levels of
government. There can be no assurances that the Company will meet its expectations of future taxable
income. However, management has considered the above factors in reaching its conclusion that it is more likely
than not that future taxable income will be sufficient to realize the deferred tax assets (net of valuation allowance)
as of January 1, 2016 .
During 2015, the valuation allowance increased by $0.02 million due to a change in expected realizability of
deferred tax assets.
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Table of Contents
The principal tax carry-forwards and temporary differences were as follows as of the fiscal year ended:
January 1, 2016
Deferred tax assets
Non-deductible reserves and allowances
Insurance accruals
Net operating loss carryforwards
$
12,855
3,431
4,550
20,836
(1,762)
19,074
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Goodwill & intangibles
Accelerated depreciation
Total deferred tax liabilities
Net deferred tax liabilities
December 31, 2014
(30,719)
(1,449)
(32,168)
(13,094)
$
$
9,853
3,174
1,484
14,511
(1,746)
12,765
(23,038)
(1,007)
(24,045)
(11,280)
$
Total net deferred tax liabilities are reflected in the accompanying balance sheet as long-term
liabilities.
The Company had book goodwill of $1 13.2 million and $ 65.4 million at January 1, 2016 and
December 31, 2014 , respectively, which was not deductible for tax purposes.
State operating loss carryforwards totaling $ 28.8 million at January 1, 2016 are being carried forward in
jurisdictions where the Company is permitted to use tax losses from prior periods to reduce future taxable
income. If not used to offset future taxable income, these losses will expire between 2016 and 2035. Due to
uncertainty regarding the Company’s ability to use some of the carryforwards, a valuation allowance has been
established on $ 28.4 million of state net operating loss carryforwards. Based on the Company’s historical record
of producing taxable income and expectations for the future, the Company has concluded that future operating
income will be sufficient to give rise to taxable income sufficient to utilize the remaining state net operating loss
carryforwards.
US GAAP prescribes a recognition threshold and measurement attribute for the accounting and financial
statement disclosure of tax positions taken or expected to be taken in a tax return. The evaluation of a tax
position is a two-step process. The first step requires the Company to determine whether it is more likely than not
that a tax position will be sustained upon examination based on the technical merits of the position. The second
step requires the Company to recognize in the financial statements each tax position that meets the more likely
than not criteria, measured at the amount of benefit that has a greater than 50% likelihood of being realized. The
Company’s unrecognized tax benefits would affect the tax rate, if recognized. The Company includes the full
amount of unrecognized tax benefits in other noncurrent liabilities in the consolidated balance sheets. The
Company anticipates it is reasonably possible an increase or decrease in the amount of unrecognized tax benefits
could be made in the next twelve months. However, the Company does not presently anticipate that any increase
or decrease in unrecognized tax benefits will be material to the consolidated financial statements. C hanges in
unrecognized tax benefits were as follows.
January 1, 2016
Beginning of fiscal year
Increases related to positions taken on
items from prior years
Decreases related to positions taken on
items from prior years
Increases related to positions taken in
the current year
Lapse of statute of limitations
Settlement of uncertain tax positions
with tax authorities
$
1,186
December 31, 2014
$
—
December 31, 2013
$
—
—
—
—
—
—
—
1,284
—
1,186
—
—
—
—
—
—
Balance at end of fiscal year
$
2,470
$
1,186
$
—
For federal tax purposes, the Company is currently subject to examinations for tax years after 2011, while for
state purposes, tax years after 2006 are subject to examination, depending on the specific state rules and
regulations. The
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Internal Revenue Service completed an examination of the December 31, 2011 tax year and is currently
conducting an examination of Omni Home Health Holdings, Inc.’s federal tax returns for the year ended
December 31, 2012 and the period ended December 6, 2013.
The Company may from time to time be assessed interest and penalties by major tax jurisdictions, although any
such assessments historically have been minimal and immaterial to its financial results. Assessments for interest
and/or penalties are classified in the financial statements as general and administrative - other.
NOTE 7 - STOCKHOLDERS’ EQUITY
Employee Stock Incentive Plans
The Company has a 2000 Employee Stock Option Plan which initially provided for options to purchase up to
1,000 shares of the Company’s common stock to key employees, officers and directors. The Board of Directors
determines the amount and terms of the options, which cannot exceed ten years. At January 1, 2016 , options for
96 shares were outstanding under this plan. There are no shares available for future grant.
The 2007 Stock and Incentive Compensation Plan provided for stock awards up to 500 shares of the Company’s
common stock to employees, non-employee directors or independent contractors, with a maximum number of full
value restricted share awards up to 200 . As of January 1, 2016 , options for 237 shares were outstanding under
this plan, while 162 restricted shares had been awarded. There are no shares available for future grant.
The 2013 Stock and Incentive Compensation Plan provides for stock awards up to 700 shares of the Company’s
common stock to employees, non-employee directors or independent contractors. As of January 1, 2016 , options
for 134 shares had been granted and were outstanding under this plan, while 192 restricted shares had been
awarded. There are 374 shares available for future grant.
Historically, the Company has issued restricted share and/or option awards to employees and non-employee
directors. The Board of Directors determines the amount and terms of the options, which cannot
exceed ten years . Under both the 2013 and 2007 Stock and Incentive Compensation Plans, restricted share
awards cliff vest on the third anniversary , while option share awards vest annually in 25% increments over
four years .
Changes in award shares outstanding are summarized as follows:
Restricted shares
Shares
December 31, 2012
Granted
Vested or Exercised
Forfeited
December 31, 2013
Granted
Vested or Exercised
Forfeited
December 31, 2014
Granted
Vested or Exercised
Forfeited
January 1, 2016
50
58
(8)
—
100
61
(39)
—
122
100
(45)
—
177
Options
Wtd. Avg.
Grant Price
$
$
$
$
31.35
20.29
19.57
—
24.12
23.27
27.35
—
22.68
39.97
22.87
—
32.39
Shares
341
68
(2)
(24)
383
70
(13)
(13)
427
56
(12)
(4)
467
Aggregate
Intrinsic
Value
Wtd. Avg.
Ex. Price
$
$
$
$
25.62
20.71
12.29
(30.29)
24.52
24.28
2.87
(24.57)
24.89
37.30
23.97
(26.35)
26.39
$
$
4,300
1,191
(52)
(1,644)
5,251
977
(460)
(816)
5,696
52
(171)
(258)
5,529
Aggregate intrinsic value represents the estimated value of the Company’s common stock at the end of the period
in excess of the weighted average exercise price multiplied by the number of options outstanding or exercisable.
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Table of Contents
The following table summarizes information about stock options at January 1, 2016 :
Options Outstanding
Range of
Exercise
Price
$0.00-20.00
$20.01-30.00
Over $30.00
Shares
Wtd. Avg.
Remaining
Contractual
Life
107
213
147
467
1.61
6.52
5.81
5.17
Options Exercisable
Wtd. Avg.
Exercise
Price
$
$
$
$
Wtd. Avg.
Remaining
Contractual
Life
Shares
19.41
22.92
36.46
26.39
100
122
90
312
Wtd. Avg.
Exercise
Price
1.39
5.47
3.81
3.69
$
$
$
$
19.41
22.81
35.95
25.49
The following table details exercisable options and related information for year end:
January 1, 2016
Exercisable at end of year
Weighted average price
Weighted average fair value of options
granted during the year
$
312
25.49
$
12.35
December 31, 2014
December 31, 2013
$
273
25.59
$
259
24.89
$
11.61
$
9.59
The following table details unvested option activity for the year ended January 1, 2016 :
Wtd. Avg.
Ex. Price
Shares
December 31, 2014
Vested
Granted
Forfeited
January 1, 2016
154
55
56
—
155
$
$
23.65
24.73
37.30
(24.08)
28.20
The fair value of each option award is estimated on the date of grant using the Monte Carlo option valuation
model with suboptimal exercise behavior. The Monte Carlo model places greater emphasis on market evidence
and predicts more realistic results because it considers open form information including volatility, employee
exercise behaviors and turnover. Stock options have a contractual term of 10 years. The following assumptions
were used in determining the fair value of option awards for 2015 , 2014 and 2013 :
Grant date
March 2, 2015
March 17, 2014
March 1, 2013
Equivalent
Equivalent
interest rate
volatility
2.07%
2.68%
1.86%
Implied
expected
lives
32.50%
40.00%
40.00%
6.86
8.32
8.33
Expected volatility is based on an analysis that looks at the unbiased standard deviation of the Company’s
common stock over the option term as well as implied volatilities of all long-term exchange traded options for the
Company. The expected life of the options represents the period of time that the Company expects the options
granted to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the
grant of the option for the expected term of the instrument. A 0% dividend yield was assumed as no dividend
payout over the term of the award is expected.
As of January 1, 2016 , there was $3,589 of total unrecognized compensation cost, after estimated forfeitures,
related to unvested share-based compensation granted under the plans. That cost is expected to be recognized
over a weighted-average period of 2.37 years. The total fair value of option shares vested during the years ended
January 1, 2016 and December 31, 2014 was $48 7 and $446 , respectively.
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Table of Contents
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (“2009 ESPP”) which, if implemented, could provide
employees of the Company and its subsidiaries with an opportunity to participate in the growth of the Company
and to further align the interest of the employees with the interests of the Company through the purchase of shares
of the Company’s Common Stock. Under the 2009 ESPP, 300 shares of the Company’s Common Stock have
been authorized for issuance. As of January 1, 2016 , all 300 shares remain available for issuance.
NOTE 8 - RETIREMENT PLAN
The Company administers a 401(k) defined contribution retirement plan for the benefit of the majority of its
employees. Employees may participate in the plan immediately upon employment. The Company matches
contributions in an amount equal to one-quarter of the first 5% of each participant’s contribution to the plan after
completion of one year of service with the Company. 401(k) assets are held by an independent trustee, are not
assets of the Company, and accordingly are not reflected in the Company’s balance sheets. The Company’s
retirement plan expense was approximately $1,080, $910 and $550 for the years ended January 1, 2016
, December 31, 2014 , and 2013, respectively.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain real estate, office space, and equipment under non-cancelable operating leases
expiring at various dates through 202 5 and which contain various renewal and escalation clauses. Rent expense
amounted to approximately $11,356, $12,846 and $8,619 for years ended January 1, 2016 , December 31, 2014
and 2013, respectively. At January 1, 2016 , minimum rental payments under these leases were as follows:
2016
2017
2018
2019
2020
Thereafter
Total
$
$
8,439
5,930
3,698
2,153
1,634
2,793
24,647
Legal Proceedings
From time to time, the Company is subject to various legal actions arising in the ordinary course of the
Company’s business, including claims for damages for personal injuries. In the Company’s opinion, after
discussion with legal counsel, the ultimate resolution of any of these pending ordinary course claims and legal
proceedings will not have a material effect on the Company’s financial position or results of operations .
The Company is in the process of complying with a civil subpoena from the United States Department of Justice
received in January of 2016 related to two locations acquired along with SunCrest in late 2013. SunCrest had
previously acquired the locations in its merger with Omni Home Health in 2011. The subpoena seeks the
production of various pre-acquisition business records limited to certain Omni operations in Sarasota and Tampa,
Florida for the years 2007-2011. The Company is cooperating fully with this investigation. The subject
operations generated less than 1% of the Company’s consolidated revenues in 2015.
NOTE 10 - SEGMENT DATA
At January 1, 2016 , the Company has two divisions, Home Health care and Healthcare Innovations. The Home
Health care division is comprised of two reportable segments, Visiting Nurses Services (VN or Visiting Nurse)
and Personal Care Services (PC or Personal Care). Healthcare Innovations is also a reportable segment.
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Table of Contents
Consistent with information given to the chief operating decision maker, the Company does not allocate certain
corporate expenses to the reportable segments. These expenses are included in Unallocated below. The
Company evaluates the performance of its business segments based on operating income. Intercompany and
intersegment transactions have been eliminated. Segment information within the consolidated financial
statements have been recast for all periods presented to conform with the new segment reporting structure.
The Company’s VN segment provides skilled medical services in patients’ homes largely to enable recipients to
reduce or avoid periods of hospitalization and/or nursing home care. VN Medicare revenues are generated on a
per episode basis rather than a fee per visit or day of care. Approximately 94% of the VN segment revenues are
generated from the Medicare program, while the balance is generated from Medicaid and private insurance
programs.
The Company’s PC segment services are also provided in patients’ homes. These services (generally provided by
paraprofessional staff such as home health aides) are generally of a custodial rather than skilled nature. PC
revenues are generated on an hourly basis. Approximately 83% of the PC segment revenues are generated from
Medicaid and other government programs, while the balance is generated from insurance programs and private
pay patients.
The Company’s Healthcare Innovations business segment was created to house and separately report on our
developmental activities outside the traditional home health business platform. These activities are intended
ultimately, whether directly or indirectly, to benefit the Company’s patients and payers through the enhanced
provision of home health services. The activities all share a common goal of improving patient experiences and
quality outcomes while lowering costs. They include, but are not limited to, items such as: technology,
information, population health management, risk-sharing, care coordination and transitions, clinical
advancements, enhanced patient engagement and informed clinical decision.
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Table of Contents
Fiscal Year ended
December 31, 2014
January 1, 2016
Net service
revenues
Home Health
Visiting Nurse
Personal Care
Healthcare
Innovations
$
$
Operating income
(loss)
Home Health
Visiting Nurse
Personal Care
Healthcare
Innovations
Unallocated
$
$
Identifiable assets
Home Health
Visiting Nurse
Personal Care
Healthcare
Innovations
Unallocated
$
$
Identifiable
liabilities
Home Health
Visiting Nurse
Personal Care
Healthcare
Innovations
Unallocated
Noncontrolling
Interest Redeemable
Healthcare
Innovations
Capital
expenditures
Home Health
Visiting Nurse
Personal Care
Healthcare
Innovations
Unallocated
$
401,051
127,712
3,451
532,214
49,872
14,170
(1,217)
(30,722)
32,103
310,317
111,524
22,024
20,904
464,769
31,570
24,425
$
$
$
$
$
$
$
380,788
112,497
2,544
495,829
42,899
12,453
(13)
(30,862)
24,477
$
$
196
356,912
29,533
11,599
(482)
(25,857)
14,793
28,180
19,498
$
$
$
3,639
$
3,639
$
1,388
203
$
465
149
$
$
263,789
92,927
9,254
9,245
345,258
191
64,197
112,066
$
$
259,521
67,238
1,525
133,349
190,869
108
1,418
3,117
December 31, 2013
—
617
1,231
3,639
$
$
764
267
—
1,471
2,502
Depreciation and
amortization
Home Health
Visiting Nurse
Personal Care
Healthcare
Innovations
Unallocated
$
$
1,210
264
97
2,637
4,208
$
$
70
1,250
271
—
2,582
4,103
$
$
1,004
224
—
1,634
2,862
Table of Contents
NOTE 11 — DISCONTINUED OPERATIONS
The Company follows the guidance in Accounting Standards Codification (ASC) 205-20, Discontinued
Operations and, when appropriate, reclassifies operating units closed, sold or held for sale out of continuing
operations and into discontinued operations for all periods presented. In 2013, the Company completed the sale of
two Alabama locations, which operated in the VN segment. The operations and gain on sale related to the
Alabama operations were reclassified from continuing operations into discontinued operations for all periods
presented. The operations and any related gain on sale for these operations were reclassified from continuing
operations into discontinued operations for all periods presented. The effective tax rate for discontinued
operations is high in 2013 due primarily to the impact of writing off non-deductible goodwill in addition to
providing a valuation allowance for Alabama net operating loss carryforwards. Unless otherwise noted, amounts
in these Notes to Consolidated Financial Statements exclude amounts attributable to discontinued operations.
NOTE 12 - ACQUISITIONS
The Company completed each of the following acquisitions in pursuit of its strategy for operational expansion in
the eastern United States through an expanded service base and enhanced position in certain geographic
areas. The purchase price of each acquisition was determined based on the Company’s analysis of comparable
acquisitions, expected cash flows and arm’s length negotiation with the sellers. Each acquisition was included in
the Company’s consolidated financial statements from the respective acquisition date.
Goodwill recognized from the acquisitions primarily relates to expected contributions of each entity to the overall
corporate strategy in addition to synergies and acquired workforce, which are not separable from
goodwill. Goodwill and other intangible assets generated in asset purchase transactions are expected to be
amortizable for tax purposes on a straight-line basis over 15 years, unless otherwise noted. Goodwill and other
intangible assets generated in stock purchase transactions are not amortizable, unless otherwise noted.
On November 5, 2015, the Company acquired the stock of Black Stone Operations, LLC (“Black Stone”). Black
Stone is a provider of in-home personal care and skilled home health services in western Ohio and operates under
the name “Home Care by Black Stone”. The purchase price of $40 million was funded through borrowings on
the Company’s bank credit facility, seller notes and issuance of the Company’s common stock. Black Stone’s
post acquisition operating results are reported in the Company’s VN and PC segments and Healthcare Innovations
segment.
On August 29, 2015, the Company acquired 100% of the equity of Bracor, Inc. (dba “WillCare”). Willcare,
based in Buffalo, NY, owned and operated VN and PC branch locations in New York (1 2 ) and Connecticut
(1). The purchase price was approximately $50.8 million. The transaction was funded by borrowings under the
Company’s bank credit facility. WillCare’ s post acquisition operating results are reported in the Company’s VN
and PC segments.
On July 22, 2015, the Company acquired 100% of the equity of Ingenios Health Co. (“Ingenios”) for
approximately $11.4 million of the Company’s common stock plus $2 million in cash. Ingenios is a leading
provider of technology enabled in-home clinical assessments for Medicare Advantage, Managed Medicaid and
Commercial Exchange lives in seven states and Washington, D.C. The post acquisition operating results of
Ingenios are reported in the Company’s Healthcare Innovations business segment.
On March 1, 2015, the Company acquired the stock of WillCare’s Ohio operations for $3.0 million.
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Table of Contents
The following table summarizes the preliminary fair value estimates as of the respective acquisition dates of the
assets acquired and liabilities assumed for the Willcare, Ingenios and Black Stone acquisitions in 2015:
Preliminary
Purchase
Price Allocation
Accounts receivable
Property, plant & equipment
Other assets
Goodwill
Other intangibles
Assets acquired
Liabilities assumed
Net assets acquired
$
$
13,039
4,654
1,818
84,538
10,810
114,859
(8,299)
106,560
On January 29, 2015, the Company acquired a noncontrolling interest in a development stage analytics and
software company, NavHealth, Inc. (NavHealth). The investment is an asset of the Company’s Healthcare
Innovations segment.
During 2014, the Company completed a small acquisition using cash on hand to expand existing VN segment
operations.
On December 6, 2013, the Company acquired the stock of SunCrest. SunCrest and its subsidiaries owned and
operated 66 Medicare-certified home health agencies and 9 private duty agencies in Florida, Tennessee, Georgia,
Pennsylvania, Kentucky, Illinois, Indiana, Mississippi and Alabama. The total SunCrest purchase price for the
stock was $ 76.6 million, subject to a working capital adjustment. The purchase price consisted of cash
consideration of $75.1 million and a $1.5 million note payable, net of acquired cash balances of $2.2 million.
On October 4, 2013, the Company acquired 61.5% of Imperium for $5.8 million, of which $3.0 million was
working capital for Imperium. Imperium is a development-stage enterprise that provides strategic health
management services to ACOs. Substantially all of the purchase price was allocated to goodwill. The Company
is party to a put and call arrangement with respect to the remaining 38.5% non-controlling interest in
Imperium. The redemption value for both the put and the call arrangement is equal to fair value. Due to the
existing put and call arrangements, the non-controlling interest is considered to be redeemable and is recorded on
the balance sheet as a redeemable non-controlling interest outside of permanent equity. The redeemable
non-controlling interest is recognized at the higher of 1) the accumulated earnings associated with the
non-controlling interest or 2) the redemption value as of the balance sheet date.
On July 17, 2013, the Company acquired the assets of the Medicare-certified home agencies owned by
IHCN. IHCN operated six home health agencies primarily in northern Indiana for a total purchase price of $12.5
million consisting of cash and $0.5 million of Almost Family, Inc. common stock. A preliminary allocation of
purchase price resulted primarily in the allocation of $9.9 million to goodwill, $1.8 million to identified
intangibles with the remainder primarily due to property plant and equipment and accounts receivable.
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NOTE 13 - QUARTERLY FINANCIAL DATA— (UNAUDITED)
Summarized quarterly financial data are as follows for the fiscal years ended January 1, 2016 and December 31,
201 4 :
Net service revenues
Gross margin
Net income
attributable to
Almost
Family, Inc.
Jan. 1, 2016
Oct. 2, 2015
Jul. 3, 2015
$
$
$
145,217
67,521
$
2,760
131,232
61,757
$
7,799
127,366
Apr. 3,
2015
$
61,023
$
5,010
128,399
Dec. 31,
2014
$
60,072
$
4,394
124,756
Sept. 30,
2014
$
58,366
$
4,747
125,540
Jun. 30,
2014
$
59,020
$
3,782
125,193
Mar. 31,
2014
$
59,636
$
3,961
120,340
54,813
$
1,273
Average shares
outstanding
Basic
Diluted
9,775
9,604
9,393
9,353
9,352
9,347
9,338
9,293
10,000
9,822
9,569
9,521
9,474
9,443
9,431
9,426
Net income
attributable to
Almost
Family, Inc. per
share
Basic
$
0.27
$
0.81
$
0.53
$
0.47
$
0.50
$
0.40
$
0.42
$
0.14
Diluted
$
0.27
$
0.79
$
0.52
$
0.46
$
0.49
$
0.40
$
0.42
$
0.14
NOTE 14 - SUBSEQUENT EVENTS
Management has evaluated all events and transactions that occurred after January 1, 2016. The following
non-recognized subsequent events were noted:
On January 5, 2016, the Company acquired 100% of the equity of Long Term Solutions, Inc. ( “ LTS ” ). LTS is
a provider of in-home nursing assessments for the long-term care insurance industry. LTS provides assessments
in all 50 U.S. states and a number of foreign countries. The purchase price of $37 million was funded through
borrowings on the Company’s bank credit facility, seller notes and issuance of the Company’s common
stock. LTS’s post acquisition operating results will be reported in the Company’s Healthcare Innovations
business segment.
On January 5, 2016, the Company purchased the assets of a Medicare-certified home health agency owned by
Bayonne Visiting Nurse Association (Bayonne) located in New Jersey. Bayonne’s post acquisition operating
results will be reported in the Company’s VN segment.
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Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Almost Family, Inc. and s ubsidiaries
We have audited the accompanying consolidated balance sheets of Almost Family, Inc. and s ubsidiaries as of
January 1, 2016 and December 31, 2014, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended January 1, 2016. Our audits also included the
financial statement schedule listed in the Index at Item 15(a) 2 . These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial posit ion of Almost Family, Inc. and s ubsidiaries at January 1, 2016 and December 31, 2014, and the
consolidated results of their operations and their cash flows for each of the three years in the period ended January
1, 2016, in conformity with U.S. generally accepted accounting principles . Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Almost Family, Inc. and subsidiaries’ internal control over financial reporting as of January 1,
2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 2, 2016
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Louisville, Kentucky
March 2, 2016
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Table of Contents
Management’s Report on Internal Control over Financial Reporting
The consolidated financial statements appearing in this Annual Report have been prepared by management that is
responsible for their preparation, integrity and fair presentation. The statements have been prepared in
accordance with U.S. generally accepted accounting principles, which requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial statements and accompanying
notes.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended). Our internal
control system was designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial statement
preparation and presentation. Further, because of changes in conditions, the effectiveness of an internal control
system may vary over time.
Under the supervision and with the participation of our management, including our Chief Executive Officer
(CEO) and Principal Financial Officer (PFO), we conducted an evaluation of the effectiveness of our internal
control over financial reporting as of January 1, 2016 based on the framework in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) (COSO) with the exception of the operations of WillCare Healthcare, Ingenios Health Holdings, Inc.
and Black Stone Operations, LLC , which constituted 25 % of total assets as of January 2, 2016 and 6 % of net
service revenues for the fiscal year then ended . Based on that evaluation, our management concluded our
internal control over financial reporting was effective based on the criteria described above as of January 1, 2016.
Ernst & Young LLP, an independent registered public accounting firm, has audited and reported on the
effectiveness of our internal control over financial reporting. The report of Ernst & Young LLP is contained in
this Annual Report.
/s/ William B. Yarmuth
William B. Yarmuth
Chairman and Chief Executive Officer
/s/ C. Steven Guenthner
C. Steven Guenthner
President & Principal Financial Officer
Date: March 2, 2016
March 2, 2016
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Almost Family, Inc. and s ubsidiaries
We have audited Almost Family, Inc. and s ubsidiaries’ internal control over financial reporting as of January 1, 2016, based
on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (2013 framework) (the COSO criteria). Almost Family, Inc. and s ubsidiaries’ management is
responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal
controls of Willcare HealthCare, Ingenios Health Holdings, Inc., and Black Stone Operations, LLC, which are included in the
2015 consolidated financial statements of Almost Family, Inc. and s ubsidiaries and constituted 25 % of total assets as of
January 1, 2016 and 6% of net service revenues for the year then ended. Our audit of internal control over financial reporting
of Almost Family, Inc. and s ubsidiaries also did not include an evaluation of the internal control over financial reporting of
Willcare HealthCare, Ingenios Health Holdings, Inc., and Black Stone Operations, LLC.
In our opinion, Almost Family, Inc. and s ubsidiaries maintained, in all material respects, effective internal control over
financial reporting as of January 1, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Almost Family Inc. and s ubsidiaries as of January 1, 2016 and December 31, 2014 and the
related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended
January 1, 2016 of Almost Family, Inc. and s ubsidiaries and our report dated March 2, 2016 expressed an unqualified opinion
thereon.
/s/ Ernst & Young LLP
Louisville, Kentucky
March 2, 2016
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT S ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURE S
Disclosure Controls and Procedures — As of January 1, 2016 , the Company’s management, with
participation of the Company’s Chief Executive Officer and Principal Financial Officer, evaluated the
effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e). Based on that evaluation, the Chief Executive Officer and Principal Financial
Officer concluded that the Company’s disclosure controls and procedures were effective as of January 1, 2016 .
Internal Control — Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we have included a report
that provides management’s assessment of our internal control over financial reporting as part of this Annual
Report on Form 10-K for the year ended January 1, 2016 . Management’s report is included in Item 8 of this
report under the caption entitled “Management’s Report on Internal Control Over Financial Reporting,” and is
incorporated herein by reference. Our independent registered public accounting firm has issued an attestation
report on the effectiveness of our internal control over financial reporting. This attestation report is included in
item 8 of this report under the caption entitled “Report of Independent Registered Public Accounting Firm” and is
incorporated herein by reference.
Changes in Internal Control Over Financial Reporting - There were no changes in the Company’s internal
control over financial reporting during the fourth quarter of 2015 , that have materially affected, or are reasonably
likely to materially affect, Almost Family, Inc.’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATIO N
None.
PART II I
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANC E
The information required by this Item is set forth in the Registrant’s definitive proxy statement to be filed with the
Commission no later than 120 days after January 1, 2016 , except for the information regarding executive officers
of the Company. The information required by this Item contained in such definitive proxy statement is
incorporated herein by reference.
The following table sets forth certain information with respect to the Company’s executive officers.
Name
Age
William B. Yarmuth (1)
C. Steven Guenthner (2)
P. Todd Lyles (3)
63
55
54
Daniel J. Schwartz (4)
49
Rajneesh Kaushal (5)
Jeffrey T. Reibel (6)
55
44
Position with the Company
Chairman of the Board and Chief Executive
Officer
President and Principal Financial Officer
Senior Vice President — Administration
Senior Vice President and Chief Operating
Officer
Senior Vice President and Chief Clinical
Officer
Vice President and Chief Accounting Officer
Executive officers of the Company are elected by the Board of Directors and serve at the pleasure of the Board of
Directors with the exception of William B. Yarmuth who has an employment agreement with the
Company. There are no family relationships between any director or executive officer.
(1) William B. Yarmuth has been a director and officer of the Company since 1991 . Mr. Yarmuth became
Chairman and C hief E xecutive O fficer in 1992 ; he also served as President until the appointment of
Steve Guenthner as
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President in 2012. Mr. Yarmuth has served as a member of the board of directors of Industrial Services of
America, Inc. since June 2014.
(2) C. Steven Guenthner has been President and Principal Financial Officer since June of 2012. Prior to which,
Mr. Guenthner served as Senior Vice President and Chief Financial Officer of the Company for twenty
years. From 1983 through 1992, Mr. Guenthner was employed as a C.P.A. with Arthur Andersen LLP.
(3) P. Todd Lyles joined the Company as Senior Vice President Planning and Development in 1997 and now
serves as Senior Vice President — Administration. Prior to joining the Company Mr. Lyles was Vice
President Development for the Kentucky Division of Columbia/HCA, a position he had held since
1993. Mr. Lyles experience also includes 8 years with Humana Inc. in various financial and hospital
management positions.
(4) Daniel J. Schwartz joined the Company as Senior Vice President - Operations in April 2013, becoming
Senior Vice President and Chief Operating Officer in December 2013. Mr. Schwartz’s healthcare
operations management experience includes previously serving as Chief Operating Officer of Addus
Healthcare, Inc. from January 2011 until November 2012; owner of New Paradigm Senior Services, LLC
from April 2010 until January 2011; and Senior Vice President — North American Operations for Sunrise
Senior Living, Inc. from 2006 until April 2010. Mr. Schwartz served Sunrise Senior Living, Inc. a total of
15 years. Mr. Schwartz also served as chief operating officer of New Perspective Senior Living from
November 2012 until joining the Company.
(5) Rajneesh Kaushal joined the company as Senior Vice President in October 2011 and now also serves as
Chief Clinical Officer. Prior to joining the Company, Mr. Kaushal had served as Executive Vice President
and Chief Clinical Officer for AccentCare, a national home health care company, which merged with
Guardian Home Care Holdings (Guardian) in December of 2010. Mr. Kaushal joined Guardian in 2006 and
his experience also includes hospital and post-acute care geriatrics.
(6) Jeffrey T. Reibel, a C.P.A., joined the Company in September of 2010 as Vice President of Finance and
became Vice President and Chief Accounting Officer in 2012. Prior to joining the Company, Mr. Reibel
served as Chief Executive Officer of a private compliance company he founded in 2006. Mr. Reibel’s
experience also includes three years as Controller and Principal Accounting Officer for a publicly traded
company in addition to twelve years with Ernst & Young LLP, specializing in audits of public companies
and various clients in the healthcare industry, including home health.
Code of Ethics
The Company has adopted a Code of Ethics for Senior Financial Officers that applies to its chief executive
officer, principal financial officer, chief accounting officer and any person performing similar functions. The
Company has made the Code of Ethics available on its website at www.almostfamily.com and will post any
waivers to the Code of Ethics on the website.
ITEMS 11, 12, 13 and 14. EXECUTIVE COMPENSATIO N; SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS; CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE; AND PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Registrant intends to file a definitive proxy statement with the Commission pursuant to Regulation 14A (17
CFR 240.14a) not later than 120 days after the close of the fiscal year covered by this report. In accordance with
General Instruction G(3) to Form 10-K, the information called for by Items 11, 12, 13 and 14 is incorporated
herein by reference to portions of the definitive proxy statement.
78
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Equity Compensation Plans
As of January 1, 2016 , shares of common stock authorized for issuance under our equity compensation plans are
summarized in the following table. See note 7 to the consolidated financial statements for a description of the
plans. The table below is furnished pursuant to item 12.
Plan Category
Plans approved by
shareholders
Plans not approved by
shareholders
Total
Shares to be
Issued Upon
Exercise
Weighted
Average Option
Exercise Price
Shares
Available for
Future Grants
466,752
$
26.39
373,615
—
466,752
$
—
26.39
—
373,615
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PART I V
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE S
Page Number
(a)
The following items are filed as part of this report:
1. Index to Consolidated Financial Statements
Consolidated Statements of Income for the years ended January 1, 2016,
December 31, 2014 and 2013
51
Consolidated Balance Sheets as of January 1, 2016 and December 31, 2014
52
Consolidated Statements of Stockholders’ Equity for the years ended January 1,
2016 and December 31, 2014 and 2013
53
Consolidated Statements of Cash Flows for the years ended January 1, 2016 and
December 31, 2014 and 2013
54
Notes to Consolidated Financial Statements
55
Report s of Independent Registered Public Accounting Firm
74
2. Index to Financial Statement Schedule
Schedule II — Valuation and Qualifying Accounts
All other Schedules have been omitted because they are either not required, not
applicable or, the information has otherwise been supplied in the financial statements
or notes thereto.
(b)
Exhibits required to be filed by Item 601 of Regulation S-K are set forth below:
80
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Number
Description of Exhibit
2.1
Share Purchase Agreement dated as of February 24, 2015 by and among Almost Family, Inc,
National Health Industries, Inc., Bracor, Inc. and Bracor’s shareholders, Summer Street Capital II,
L.P., Summer Street Capital NYS Fund II, L.P., David W. Brason, Todd W. Brason and David W.
Brason Multi-Generational Irrevocable Trust . (Schedules have been omitted pursuant to Item
601(b)(2) of Regulation S-K. Almost Family hereby undertakes to furnish supplementally copies
of any of the omitted schedules upon request by the U.S. Securities and Exchange Commission.)
(incorporated by reference to the Exhibit 2.1 to Registrant’s Report on Form 10-K for the year
ended December 31, 2014).
2.2
Stock Purchase Agreement dated as of February 24, 2015 by and among Almost Family, Inc,
National Health Industries, Inc., and Bracor, Inc.
(Schedules have been omitted pursuant to
Item 601(b)(2) of Regulation S-K. Almost Family hereby undertakes to furnish supplementally
copies of any of the omitted schedules upon request by the U.S. Securities and Exchange
Commission.) (incorporated by reference to the Exhibit 2.1 to Registrant’s Report on Form 10-K
for the year ended December 31, 2014).
2.3
Closing Letter Agreement dated August 28, 2015, as amendment to Share Purchase Agreement
dated as of February 2 4 , 2015 by and among Almost Family, Inc., National Health Industries,
Inc., Bracor, Inc. and Bracor’s shareholders, Summer Street Capital II, L.P., Summer Street
Capital NYS Fund II, L.P., David W. Brason, Todd W. Brason and David W. Brason
Multi-Generational Irrevocable Trust
(Schedules have been omitted pursuant to Item 601(b)(2)
of Regulation S-K. Almost Family hereby undertakes to furnish supplementally copies of any of
the omitted schedules upon request by the U.S. Securities and Exchange Commission.)
(incorporated by reference to Exhibit 2.2 to the Company’s C urrent Report on Form 8-K filed on
September 2, 2015).
2.4 *
Agreement and Plan of Merger dated as of November 3, 2015 by and among Almost Family, Inc.,
National Health Industries, Inc., AFAM Acquisition, LLC, Black Stone Operations, LLC, Black
Stone Companies of Ohio, Inc., ERH Development, LLC, Warren County Community Services,
LLC, LEC Community Services, Inc., Primrose Retirement Communities, LLC, Kimberly Payne
and David Brixey. (Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K.
Almost Family hereby undertakes to furnish supplementally copies of any of the omitted
schedules upon request by the U.S. Securities and Exchange Commission.)
2.5*
Stock Purchase Agreement dated as of January 2, 2016 by and among National Health Industries,
Inc., Almost Family, Inc., Long Term Solutions, Inc., and Anne Harrington, Noreen Guanci,
Noreen Guanci 2009 Irrevocable Trust and Richard Guanci 2009 Irrevocable Trust. (Schedules
have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Almost Family hereby
undertakes to furnish supplementally copies of any of the omitted schedules upon request by the
U.S. Securities and Exchange Commission.)
3.1
Certificate of Incorporation, as amended, of the Registrant (incorporated by reference to
Exhibit No. 3.1 of the Registrant’s Annual Report on Form 10-K for the year ended March 31,
1997 and Exhibit 3.1 of the Registrant’s Quarterly Report Form 10-Q for the quarter ended
September 30, 2008)
3.2
Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 of the
Registrant’s Current Report on Form 8-K as filed on June 8, 2012)
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4.1
Form of Senior Indenture – (incorporated by reference to Exhibit 4.1 to the Company’s Registration
Statement on form S-3 filed on May 29, 2015, SEC File No. 333-204584.)
4.2
Form of Subordinated Indenture – (incorporated by reference to Exhibit 4.2 to the Company’s
Registration Statement on form S-3 filed on May 29, 2015, SEC File No. 333-204584.)
4. 3
Other Debt Instruments — copies of other debt instruments for which the total debt is less than 10%
of assets will be furnished to the Commission upon request.
10.1+
Employment Agreement, dated January 1, 1996, between the Company and William B. Yarmuth
(incorporated by reference to Exhibit 10.24 to the Registrant’s report on Form 10-K for the year
ended March 31, 1996).
10.2+
2007 Stock and Incentive Compensation Plan (incorporated by reference to Appendix A of the
Definitive Proxy Statement on Schedule 14A as filed on June 25, 2007).
10.3+
Amended and Restated 2000 Stock Option Plan (incorporated by reference to Exhibit 4.1 to the
Registrant’s Registration Statement on Form S-8 Reg. No. 333-88744).
10.4+
Amended and Restated Non-Employee Directors Deferred Compensation Plan (incorporated by
reference to the Exhibit 10.13 to Registrant’s Report on Form 10-K for the year ended December 31,
2009).
10.5+
Forms of Stock Option Agreements and Restricted Stock Award Agreement pursuant to 2007 Stock
and Incentive Plan (incorporated by reference to Exhibit 10.15 to the Registrant’s report on
Form 10-K for the year ended December 31, 2008).
10.6+
Amendment dated January 1, 2009 to Employment Agreement effective January 1, 1996, between
the Registrant and William B. Yarmuth (incorporated by reference to Exhibit 10.20 to the
Registrant’s report on Form 10-K for the year ended December 31, 2008).
10.7+
Amendment to Amended and Restated 2000 Stock Option Plan dated January 1, 2009 (incorporated
by reference to Exhibit 10.22 to the Registrant’s report on Form 10-K for the year ended
December 31, 2008).
10.8+
Almost Family, Inc. 2009 Employee Stock Purchase Plan (incorporated by reference to Appendix A
of the Definitive Proxy Statement on Schedule 14A as filed on July 1, 2009).
10.9
Credit Agreement, dated as of December 2, 2010 among Almost Family, Inc., the lenders party
thereto, JPMorgan Chase Bank, N.A. as Administrative Agent and Bank of America, N.A., as
Syndication Agent. (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report
on Form 8-K dated December 2, 2010).
10.10+
2013 Stock and Incentive Plan (incorporated by reference to Appendix A of the Definitive Proxy
Statement on Schedule 14A as filed on April 4, 2013).
10.11+
Forms of Stock Option Agreement and Restricted Stock Award Agreement pursuant to 2013 Stock
and Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 of the Registrant’s
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013)
82
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10.12+
Offer of Employment letter dated March 12, 2013, between the Registrant and Daniel Schwartz
(incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 2013).
10.13
Third Amendment to Credit Agreement, dated as of February 12, 2015 among Almost Family, Inc.,
the lenders party thereto, JPMorgan Chase Bank, N.A. as Administrative Agent and Bank of
America, N.A., as Syndication Agent. ( i ncorporated by reference to Exhibit 10.1 of the
Registrant’s Current Report on Form 8-K as filed February 18, 2015).
10.14
Consolidated Amended and Restated Guaranty and Ratification Agreement dated as of February 12,
2015 (incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K as
filed February 18, 2015).
Consolidated Amended and Restated Pledge of Equity Interests dated as of February 12, 2015
(incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K as filed
February 18, 2015).
Consolidated Amended and Restated Security Agreement dated as of February 12, 2015
(incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 8-K as filed
February 18, 2015) .
Second Amendment to Credit Agreement dated as of December 6, 2013 by and among Almost
Family, Inc. and JPMorgan Chase Bank, N.A., for itself and as Administrative Agent under the
Credit Agreement dated as of December 2, 2010 (incorporated by reference to the Exhibit 10.14 to
Registrant’s Report on Form 10-K for the year ended December 31, 2014).
10.15
10.16
10.1 7
10.1 8
Letter Agreement dated as of December 10, 2012 by and among Almost Family, Inc. and JPMorgan
Chase Bank, N.A., for itself and as Administrative Agent under the Credit Agreement dated as of
December 2, 2010 (incorporated by reference to the Exhibit 10. 15 to Registrant’s Report on Form
10-K for the year ended December 31, 2014).
10.1 9 *
Fourth Amendment to Credit Agreement dated as of November 4 , 201 5 by and among Almost
Family, Inc. and JPMorgan Chase Bank, N.A., for itself and as Administrative Agent under the
Credit Agreement dated as of December 2, 2010.
21*
List of Subsidiaries of Almost Family, Inc.
23.1*
Consent of Ernst & Young LLP
31.1*
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act, as amended.
31.2*
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act, as amended.
32.1*
Certification of Chief Executive Officer pursuant to 18 U.S.C 1350, as adopted pursuant to section
906 of the Sarbanes Oxley Act of 2002.
83
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32.2*
Certification of Principal Financial Officer pursuant to 18 U.S.C 1350, as adopted pursuant to
section 906 of the Sarbanes Oxley Act of 2002.
101 *
Financial statements from the annual report on Form 10-K of Almost Family, Inc. for the fiscal year
ended January 1, 2016, filed on March 2, 2016, formatted in XBRL: (i) Consolidated Balance
Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Cash Flows,
(iv) Consolidated Statements of Stockholders’ Equity, and (v) the Notes to Consolidated Financial
Statements.
* Denotes filed herein.
+ Denotes compensatory plan or management contract.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ALMOST FAMILY, INC.
By: /s/ William B. Yarmuth March 2, 2016
William B. Yarmuth
Chairman, Chief Executive Officer
By: /s/ C. Steven Guenthner March 2, 2016
C. Steven Guenthner
President and Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
By:
/s/ William B. Yarmuth
William B. Yarmuth
Director, Chief Executive Officer
(principal executive officer)
March 2, 2016
By:
/s/ C. Steven Guenthner
C. Steven Guenthner
President and Principal Financial Officer
March 2, 2016
By:
/s/ Jeffrey T. Reibel
Vice President of Finance and Chief Accounting
Officer
March 2, 2016
Jeffrey T. Reibel
By:
/s/ Steven B. Bing
Steven B. Bing
Director
March 2, 2016
By:
/s/ Donald G. McClinton
Donald G. McClinton
Director
March 2, 2016
By:
/s/ Tyree G. Wilburn
Tyree G. Wilburn
Director
March 2, 2016
By:
/s/ Jonathan D. Goldberg
Jonathan D. Goldberg
Director
March 2, 2016
By:
/s/ W. Earl Reed, III
W. Earl Reed, III
Director
March 2, 2016
By:
/s/ Henry M. Altman, Jr.
Henry M. Altman, Jr.
Director
March 2, 2016
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ALMOST FAMILY, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE I I
(In thousands)
Col. A
Col. B
Col. C
Col. D
Col. E
(3)
Deductions
Balance at
End of
Period
Additions/(Deductions)
Description
Balance at
Beginning
of Period
(1)
Charged to
Costs and
Expenses
(2)
Charged to
Other
Accounts
Allowances:
Year Ended
January 1, 2016
$
8,880
Year Ended
December 31, 2014
$
15,586
$
9,413
$
—
Year Ended
December 31, 2013
$
5,236
$
5,526
$
8,910
12,743
1,891
(6,000)
$
17,514
$
(16,119)
$
8,880
$
(4,086)
$
15,586
(1) Charged to bad debt expense.
(2) Acquired uncollectible accounts reserves, primarily SunCrest acquisition related.
(3) Write-off of accounts.
86
Exhibit 2. 4
Execution Copy
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the " Agreement " ) is mad e and entered into as of
November 3 , 2015 , by and among (i) Almost Family, Inc., a Delaware corporation ( " Parent " ), (ii)
National Health Industries, Inc., a Kentucky corporation (" Acquiror "), (iii) AFAM Acquisition, LLC, an
Ohio limited liability company ( " Merger Sub " ) , (iv ) Black Stone Operations, LLC, a n Ohio
limited liability company ( " Target " ), ( v) Black Stone Companies of Ohio, Inc. , a n Ohio corporation ,
ERH Development, LLC, a n Ohio limited liability company, Warren County Community Services, LLC,
a n Ohio limited liability company, LEC Community Services, Inc., a n Ohio corporation, Primrose
Retirement Communities, LLC, a South Dakota limited liability company, and Kimberly Payne (each a "
Sell ing Party " and collectively, the " Selling Parties "), and (vi ) David Brixey , an individual , as the
representative for the Selling Parties ( " Selling Parties' Agent " ).
RECITALS
A.
respective
merger of
Managers
Target, Acquiror, Merger Sub and Selling Parties believe it is in the best interests of their
companies that Target and Merger Sub combine into a single company through the statutory
Merger Sub with and into Target (the " Merger " ) and, in furtherance thereof, the Boards of
of Target and Merger Sub , and the Board of Directors of Acquiror, have approved the Merger.
B. In connection with the Merger, the outstanding Target Units at the Effective Time will be
converted into the right to receive a portion of the Merger Consideration , upon the terms and subject to the
conditions of this Agreement.
C. Acquiror will deposit the Escrow Amount with the Escrow Agent, the release of which will be
contingent upon the occurrence of certain events and the satisfaction of certain conditions as set forth in this
Agreement and in the Escrow Agreement.
D. Target, Selling Parties, Acquiror and Merger Sub desire to make certain representations and
warranties and other agreements in connection with the Merger.
THE PARTIES, INTENDING TO BE LEGALLY BOUND, AGREE AS FOLLOWS:
1. Definitions . As used in this Agreement, and the attachments hereto, the following terms shall
have the following meanings:
" 409A Plan " has the meaning set forth in Section 3.23(j) .
"ACA" means the Affordable Care Act.
" Acquiror " has the meaning set forth in the introductory paragraph.
" Acquiror Cap " has the meaning set forth in Section 9.7(d).
" Acquiror Certificate " has the meaning set forth in Section 9.2(a).
1
" Acquiror Express Indemnification Clauses " means Sections 9.7(a)(iii) through (iv) of this
Agreement.
" Acquiror Financial Statements " has the meaning set forth in Section 5.5(b).
" Acquiror Fundamental Representations " has the meaning set forth in Section 9.7(b).
" Acquiror Indemnified Person " and " Acquiror Indemnified Persons " have the meanings set
forth in Section 9.1(a).
" Acquiror Notes " means th e promissory note s included among the Merger Consideration,
substantially in the form of instrument attached as Attachment B .
" Action " means any claim, action, cause of action, demand, lawsuit, arbitration, inquiry, audit,
notice of violation, proceeding, litigation, citation, summons, subpoena or investigation of any nature, civil,
criminal, administrative, regulatory or otherwise, whether at law or in equity.
" Affiliate " with respect to any Person, any other Person directly or indirectly controlling, controlled
by, or under common control with such Person provided that, for purposes of this definition, " control "
(including, with correlative meanings, the terms " controlled by " and " under common control with " ), as
used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise.
" Agreed Accounting Principles " means GAAP as currently applied by the Company in accordance
with the principals set forth on Attachment E .
" Agreement " has the meaning set forth in the introductory paragraph.
" Breach " has the meaning set forth in Section 3.14(g).
" Business Day " means any day except Saturday, Sunday or any other day on which commercial
banks located in Louisville, Kentucky are authorized or required by Law to be closed for business.
" Cap " has the meaning set forth in Section 9.1(d) (i) .
" Cavins Litigation " means Lisa C a v ins v. SB Health Care, Inc . dba Home Healthcare by Black
Stone, Strobl & Associates, et al, Court of Common Pleas Montgomery County, Case No. 2013 CV 07540 ,
including without limitation, any appeal or other actions with respect thereto .
" CERCLA " means the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. Section 9601, et seq., as amended.
" Certificate of Merger " has the meaning set forth in Section 2.1 (a) .
" Claims Period " has the meaning set forth in Section 9.2(c) .
2
" Closing " has the meaning set forth in Section 2.2 (a) .
" Closing Date " has the meaning set forth in Section 2.2 (a) .
" Closing Statement " has the meaning set forth in Section 2.7(c) .
" COBRA " has the meaning set forth in Section 3.23(b) .
" Code " means the Internal Revenue Code of 1986, as amended.
" Confidentiality Agreement " has the meaning set forth in Section 6.1.
" Contract " means any contract, agreement or arrangement, whether written or oral.
" Converted Units " has the meaning set forth in Section 2.6(a).
" Copyrights " means all copyrights, copyrightable works and mask works (including all applications
and registrations for each of the foregoing), and all other rights corresponding thereto throughout the world.
" Damages " means any and all losses, costs, damages, diminution in value, liabilities, Taxes and
reasonable expenses, including, without limitation, reasonable costs and expenses arising from claims,
demands, actions and causes of action (including reasonable legal fees).
" Deductible " has the meaning set forth in Section 9.1(b) .
" Effective Time " has the meaning set forth in Section 2.2 (a) .
" Encumbrance " means any lien, pledge, hypothecation, charge, mortgage, security interest,
encumbrance, claim, infringement, interference, option, right of first refusal, right of first negotiation,
license, covenant not to assert/sue or other immunity from suit, equitable interest, preemptive right,
community property interest, technology escrow, title retention or title reversion agreement, prior
assignment, or any other encumbrance or restriction of any nature, whether accrued, absolute, contingent or
otherwise (including without limitation any restriction on the transfer or licensing of any asset, any
restriction on the receipt of any income derived from any asset, any restriction on the use of any asset and
any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset) ,
excluding for purposes of this Agreement, Permitted Encumbrances.
" Environmental Laws " means any applicable L aws (including common laws), statutes,
ordinances, codes, regulations, rules, policies, permits, licenses, certificates, approvals, judgments, decrees,
orders, directives, or requirements that pertain to the protection of the environment, protection of public
health and safety, or protection of worker health and safety, or that pertain to the handling, use,
manufacturing, processing, storage, treatment, transportation, discharge, release, emission, disposal, re-use,
recycling, or other contact or involvement with Hazardous Materials, including, without limitation,
CERCLA.
3
" ERISA " has the meaning set forth in Section 3.23(a).
" ERISA Affiliate " has the meaning set forth in Section 3.23(a).
" Escrow Agent " shall have the meaning set forth in the Escrow Agreement.
" Escrow Amount " shall have the meaning set forth in Section 2.1(c)(iii).
" Escrow Agreement " means an escrow agreement in substantially the form attached hereto as
Attachment C .
" Escrow Fund " means the fund established pursuant to the Escrow Agreement, including only the
Escrow Amount paid by Acquiror to the Escrow Agent at the Closing pursuant to Section 2.8 of this
Agreement.
" Exchange Agent " has the meaning set forth in Section 2.7(a) .
" Express Indemnification Clauses " means Sections 9.1(a)( i ii ), 9.1(a) ( v ) and 9.1(a) ( vii) of
this Agreement, and third party personal injury and property damage claims falling within the scope of
Section 9.1(a)(vii) of this Agreement.
" FMLA " has the meaning set forth in Section 3.23(h) .
" Federal Anti-Kickback Statute " has the meaning set forth in Section 3.14(b).
" Federal False Claims Act " has the meaning set forth in Section 3.14(b).
" Fundamental Represe ntations " has the meaning set forth in Section 9.1(b).
" GAAP " means United States generally accepted accounting principles.
" Governmental Authority " means any United States federal or state government, governmental,
regulatory or administrative agency, department, court, commission, board, bureau or other authority or
instrumentality.
" Governmental Order " means any order, writ, judgment, injunction, decree, stipulation,
determination or award entered by or with any Governmental Authority.
" Governmental Programs " has the meaning set forth in Section 3.14(i).
" Hazardous Materials " means any material, chemical, compound, substance, mixture or
by-product that is identified, defined, designated, listed, restricted or otherwise regulated under
Environmental Laws as a " hazardous constituent, " " hazardous substance, " " hazardous material, " "
acutely hazardous material, " " extremely hazardous material, " " hazardous waste, " " hazardous waste
constituent, " " acutely hazardous waste, " " extremely hazardous waste, " " infectious waste, " "
medical waste, " " biomedical waste, " " pollutant, " " toxic pollutant, " " contaminant " or any other
formulation or terminology intended to classify or identify substances, constituents, materials or
4
wastes by reason of prope rties that are deleterious to the environment, natural resources, worker health and
safety, or public health and safety, including without limitation ignitability, corrosivity, reactivity,
carcinogenicity, toxicity and reproductive toxicity. The term " Hazardous Materials " shall include without
limitation any " hazardous substances " as defined, listed, designated or regulated under CERCLA, any "
hazardous wastes " or " solid wastes " as defined, listed, designated or regulated under RCRA, any asbestos
or asbestos-containing materials, any polychlorinated biphenyls, and any petroleum or hydrocarbonic
substance, fraction, distillate or by-product.
" Health Care Laws " has the meaning set forth in Section 3.14(b).
" Health Care Permits " has the mea ning set forth in Section 3.14(j ).
" HIPAA " has the mea ning set forth in Section 3.14(b ).
" HITECH Act " has the meaning set forth in Section 3.14(b).
" Home Health Aid Timesheet Dispute " means the internal investigation initiated concerning
possible falsification of client signatures on visit records by two (2) home health aides at Nursing Resources
Corporation, which could result in potential liability , including without limitation , any self-reporting
obligation or civil or criminal in vestigation related thereto.
" Identified Tax Issues " means (a) the B lackstone Group, LLC QSUB election matter , whereby an
election to be treated as an S Corporation was unexpectedly made by Blackstone Group, LLC in 2006 and
QSUB election s ( necessary following the Target Group restructuring s of 2008 and 2014 ) cannot be
located, but would have been required to maintain such election and may result in potential tax liability to
the Blackstone Group, LLC ; and (b) the Nursing Resources Corporation 336(e) election matter, whereby
Nursing Resources Corporation was to timely file a Section 336(e) election with the IRS following the
closing of the stock purchase agreement between Nursing Resources Corporation and Black Stone of
Northwest Ohio, LLC , but failed to do so , which may result in potential tax liability to Black Stone of
Northwest Ohio, LLC .
" Indebtedness " means (a) all obligations for borrowed money, advancement of funds or the
deferred purchase price of property or services, including without limitation reimbursement and other
obligations with respect to surety bonds and letters of credit (upon which funds have been drawn ) ,
guarantees, prepayment penalties, fees or other charges related thereto, as well as any interest or other
premium accrued thereon, (b) all obligations evidenced by notes, bonds, debentures or similar instruments,
as well as any interest or other premium thereon and (c) all capital leases. Indebtedness inclu des all
convertible debt of Target that has not converted prior to Closing into Target Units , and with respect thereto,
shall include all principal and accrued and unpaid interest and any other amounts payable to the holder
necessary to cause such convertible debt to be paid and satisfied in full .
" Independent Accountant " means a regional accounting firm that doesn't do the audit work for
any of Target Group or Parent (or Parent's direct and indirect subsidiaries), selected by mutual agreement of
Acquiror and Selling Parties' Agent.
5
" Information Systems " has the meaning set forth in Section 3.11(b) .
" Intellectual Property Rights " means any and all of the following in any country: (a)(i) Patents,
(ii) Trademarks, (iii) rights in domain names and domain name registrations, (iv) Copyrights, (v) Trade
Secrets, and (vi) all other intellectual property rights (whether or not appropriate steps have been taken to
protect such rights under a pplicable Law); and (b) the right (whether at law, in equity, by contract or
otherwise) to use, practice or otherwise exploit any of the foregoing.
" IRS " has the meaning set forth in Section 3.23(b)
" Key Employee "
means those employees of Target Group listed on Attachment A .
" Knowledge " means, with respect to a party, such party’s actual knowledge . For purposes of this
Agreement, "Knowl edge" of Target means the actual knowledge of the following individuals: David
Tramontana, Jordan Broome, and Jenny Sand .
" Law " means, collectively, all federal, state, provincial foreign or local statutes, laws, ordinances,
regulations, rules, codes, orders, other requirements or rules of law.
" Lease " or " Leases " has the meaning set forth in Section 3.16 .
" Majority Holders " has the meaning set forth in Section 9.4(e) .
" Material Adverse Effect " means any change, effect, event, circumstance or condition that is
materially adverse to the business, financial condition, results of operations, assets or liabilities of the
applicable Person and its subsidiaries, taken as a whole, but shall exclude any change, effect, event,
circumstance or condition resulting or arising from: (i) changes or conditions affecting economic or capital
markets in the United States or internationally, or any change in interest rates or general economic conditions
in the industries or markets in which such Person operates, including an increase in competition; (ii)
continuation or escalation of war, armed hostilities or national or international calamity; (iii) any act of God
or natural disaster; ( iv ) any act of terrorism or change in geopolitical conditions ; (v) changes expected by
Parent and/or Acquiror or for which Parent and/or Acquiror had knowledge; and ( v i ) any change in GAAP,
except to the extent such change has a materially disproportionate effect on such Person as compared to any
of the other companies in such Person ’s industry .
" Material Contract " means any Contract to which any of Target Group is , and at Closing will
remain, a party : (A) with receipts or expenditures (excluding payments of Indebtedness) in excess of $ 100
,000 during calendar year 2014 or anticipated receipts or expenditures (excluding payments of Indebtedness)
during calendar year 2015 ; (B) intentionally deleted ; (C ) requiring any of Target Group to indemnify any
Person; (D ) granting any exclusive rights to any party (including any right of first refusal, right of first offer
or right of first negotiation); (E ) evidencing Indebtedness of and to any of Target Group ; (F ) involving any
partnership, joint venture or limited liability company agreement or concerning any equity or partnership
interest in another Person; (G ) relating to the acquisition or disposition of any
6
business (whether by merger, sale of stock, sale of assets or otherwise) since January 1, 2014 ; (H ) which
limits or purports to limit the ability of the Target Business to compete in any line of business or with any
Person or in any geographic area or during any period of time; (I ) intentionally deleted ; (J ) which
contains " most favored nation " or preferred pricing provisions; ( J) Lease s ; (K ) for which the execution of
this Agreement and/or the consummation of the transaction contemplated hereby could reasonably be
expected to (1) permit any other party to cancel or terminate the same (with or without notice of passage of
time); (2) provide a basis for any other party to claim money damages (either individually or in the aggregate
with all other such claims under that contract) from any of Target Group ; or (3) give rise to a right of
acceleration of any material obligation or loss of any material benefit under such Materi al Contract, (L
) with a Private Program or Governmental Program with receipts in excess of $100,000 during calendar
year 2014 or expected receipts in excess of $100,000 for calen dar year 2015 , or (M) providing any
compensation or other benefits payable for referral of business to any of the Target Group.
" Merger " has the meaning set forth in Recital A.
" Merger Consideration " has the meaning set forth in Section 2.1(b).
" Merger Sub " has the meaning set forth in the introductory paragraph.
" Northwest Acquisition Earn Out " means the earn-out rights in connection with the Nursing
Resources Corporation s tock p urchase a greement , dated March 5, 2015, whereby David Venzke , the
seller of Nursing Resources Corporation, may be eligible to receive certain compensation based upon Black
Stone of Northwest Ohio, LLC operations .
" Ohio Law " has the meaning set forth in Section 2.1 (a).
" PPACA " means Patient Protection and Affordable Care Act of 2010.
" Parent Common Stock " means shares of Almost F amily, Inc. voting common stock.
"Parent" has the meaning set forth in the introductory paragraph.
" Patents " means all issued patents (including utility and design patents) and pending patent
applications (including invention disclosures, records of invention, certificates of invention and applications
for certificates of inventions and priority rights) filed with any Registration Office, including without
limitation, all non-provisional and provisional patent applications, substitutions, continuations,
continuations-in-part, divisions, renewals, revivals, reissues, re-examinations and extensions thereof.
" Pension Plan " has the meaning set forth in Section 3.23(d).
" Permitted Encumbrances " means (1) all statutory or other liens for taxes or assessments that are
not yet due, (2) all workmen’s and repairmen’s liens and other similar liens imposed by L aw incurred in the
ordinary course of business for sums not yet due, (3) other encumbrances to the extent fully reflected in the
Target Financial Statements, and (4) other
7
encumbrances that do not materially detract from the value of, materially interfere with, or otherwise
materially affect, the business operations involving the asset or property subject thereto or affected thereby.
" Permits " has the meaning set forth in Section 3.10.
" Person " means any individual, corporation, partnership, limited liability company, joint venture,
association, joint-stock company, trust, unincorporated entity or Governmental Entity.
" Personnel " has the meaning set forth in Section 3.14(b).
" Pre-Closing Tax Period " has the meaning set forth in Section 9.1(a)(v).
" Private Program " has the meaning set forth in Section 3.14(c).
" Pro Rata Portion " means with respect to any Selling Party , an amount equal to the quotient
obtained by divid ing (a) the number of Target Units held by such Selling Party as of the Effective Time by
(b) the number of Target Units held by all Selling Parties as of the Effective Time.
" RCRA " means the federal Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., as amended.
"Related Parties" and "Related Party" each ha ve the meaning s set forth in Section 10.12.
" Representatives " means officers, directors, managers, partners, trustees, executors, employees,
agents, attorneys, accountants and advisors.
" Required Contract Consents " has the meaning set forth in Section 3.15(b).
" Restricted Business " means a business engaged in providing home health services to patients,
including services (i) that are paid for under Medicare, Medicaid, PASSPORT, or any other governmental
program, private pay, any commercial insurance, or reimbursement, and (ii) that are in the fields of skilled
home healthcare, unskilled assistive care, private duty, or nurse practitioner house calls or hospice services .
" Retained Employee Liabilities " means (i) compensation and bonus amounts payable to current
and former employees of the Target Group with respect to the pre-Closing period, (ii) any change in control,
severance, stay bonus, transaction bonus, management fees, directors' fees, guaranty fees, or related or
similar obligations related to or triggered by the Merger payable to a current or former employee or other
service provider of the Target Group , (iii) Damages arising out of or relating to Target Employee Plans and
relating to the period prior to the Closing Date, and (iv) any payroll, withholding or related costs and
expenses associated with the items in (i) through (iii) above.
" Returns " means Tax returns, estimates, information statements and reports required to
8
be filed with any taxing authority with respect to any Target Group Taxes .
" Rule 144 " has the meaning set forth in Section 2.12(a).
"SEC" means the Securities and Exchange Commission.
"SEC Reports" has the meaning as set forth in Section 5.5(a).
" Securities Act " means the Securities Act of 1933, as amended.
" Selling Parties' Certificate " has the meaning set forth in Section 9.7(e).
" Se lling Parties' Claims Period " has the meaning set forth in Section 9.7(e).
" Sell ing Parties " has the meaning set forth in the introductory paragraph.
" Selling Parties' Agent " has the meaning set forth in the introductory paragraph.
" Selling Parties Noncompetition Agreements" has the meaning set forth in Section 6.6.
" Stark Law " has the meaning set forth in Section 3.14(b).
" Straddle Period " has the me aning set forth in Section 6.5(a ).
" Sub Units " has the meaning set forth in Section 2.6(a).
" Surviving Company " has the meaning set forth in Section 2.1 (a) .
" Target " has the meaning set forth in the introductory paragraph.
" Target Balance Sheet " has the meaning set forth in Section 3.7.
" Target Balance Sheet Date " has the meaning set forth in Section 3.4 (a) .
" Target Business " means the operation of the business of the Target Group as currently conducted,
including without limitation, the operation of a Medicare and Medicaid -certified home health and assisted
care provider business .
" Target Charter Documents " has the meaning set forth in Section 3.1 (a) .
" Target Disclosure Schedule " has the meaning set forth in Section 3 .
" Target Employee Plans " has the meaning set forth in Section 3.23(a) .
" Target's Equity Mirror Agreement "
Target and Phyllis Atkinson.
means the agreement dated October 1, 2012, between
9
" Target Financial Statements " has the meaning set forth in Section 3.4(a) .
" Target Group " means Target and the Target Subsidiaries.
" Target Group 's Current Facilities " has the meaning set forth in Section 3.21.
" Target Group 's Facilities " has the meaning set forth in Section 3.21.
" Target Group Intellectual Property " has the meaning set forth in Section 3.9(a).
" Target Group Liabilities " has the meaning set forth in Section 2.1(e).
"Target Indebtedness" means Indebtedness of any of the Target Group.
" Target Indemnified Persons " has the meaning set forth in Section 10.9(a).
" Target's Phantom Equity Agreements " means those two (2) agreements, both dated March 5,
2014, between Target and David Venzke and Target and Darren Horrigan, respectively.
" Target Subsidiaries " means tho se business entities listed on Section 1 of the Target Disclosure
Schedule.
" Target Transaction Expenses " means Transaction Expenses .
" Target Units " means Target's units of membership interest (as described in Target's operating
agreement) .
" Tax " and " Taxes " mean any and all federal, state and local taxes of any country, assessments
and other governmental charges, duties, impositions and liabilities, including taxes based upon or measured
by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, stamp, transfer,
franchise, withholding, payroll, recapture, employment, escheat, excise and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts, whether disputed or not, and
including any obligations to indemnify or succeed to such amounts with respect to any other Person
(including any liability for Taxes of a predecessor entity ).
" Third Party Claims " has the meaning as set forth in Section 9.6(a).
" Third Party Payor " includes any entity charged with paying claims or reimbursing the Target
Business for health care services provided to Governmental Programs or Private Program patients including
but not limited to carriers and Private Program health insurance administrators or third party administrators.
" Trade Secrets " means all proprietary, confidential and/or non-public information, however
documented, including but not limited to all trade secrets within the meaning of a pplicable Law.
10
" Trademarks " means all material (common law or registered) (a) trademarks, service marks, logos,
insignias, designs, trade dress, symbols, trade names and fictitious business names, emblems, signs, insignia,
slogans, other similar designations of source or origin and general intangibles of like nature ( including all
applications and registrations for each of the foregoing) , and (b) all goodwill associated with or symbolized
by any of th e foregoing.
" Transaction Expenses " means any fee, cost, expense, payment, expenditure, liability (contingent
or otherwise) or obligation incurred by the Target Group relating to the Merger that: (a) relates directly or
indirectly to (i) the proposed disposition of all or a portion of the Target Business, or the process of
identifying, evaluating and negotiating with prospective purchasers of all or a portion of the Target Business,
(ii) the investigation and review conducted by Acquiror and its Representatives, and any investigation or
review conducted by other prospective purchasers of all of a portion of the Target Business, with respect to
the Target Business (and the furnishing of information to Acquiror and its Representatives and such other
prospective purchasers and their Representatives in connection with such investigation and review), (iii) the
negotiation, preparation, review, execution, delivery or performance of the Agreement (including the Target
Disclosure Schedule), or any certificate, opinion, agreement or other instrument or document delivered or to
be delivered in connection with this Agreement or the transactions contemplated hereby, (iv) the preparation
and submission of any filing or notice required to be made or given in connection with the Merger, and the
obtaining of any consent required to be obtained in connection with any of such transactions, or (v) the
consummation of the Merger or any of the transactions contemplated by this Agreement; or (b) arises, is
triggered or becomes due or payable, in whole or in part, as result of the consummation (whether alone or in
combination with any other event or circumstance) of the Merger or any of the other transactions
contemplated by this Agreement, including in connection with any bonus, severance or change in control
arrangement.
" Transfer Agent "
means Computershare, and any successor transfer agent employed by Parent.
" Unconverted Convertible Debt " has the meaning set forth in Section 2.6(c).
" WARN " has the meaning set forth in Section 3.23(l) .
2. The Merger .
2.1 The Merger; Merger Consideration .
(a)
At the Effective Time and subject to and upon the terms and conditions of
this Agreement, the Certificate of Merger attached hereto as Attachment D (the " Certificate of Merger " )
and the appli cable provisions of the Ohio Limited Liability Company Act ( " Ohio Law " ), Merger Sub
shall be merged with and into Target, the sep arate corporate existence of Merger Sub shall cease and Target
shall continue as the Surviving Company (the " Surviving Company " ).
(b)
The aggregate consideration payable by Acquiror fo r Target in the
11
form of Parent Common Stock, Acquiror Notes and cash shall be $41 million ($41,000,000) , with the
amount of merger consideration payable by Acq uiror to holders of Target Units i ncreased or decreased ,
pursuant to this Agreement, as follows (the " Merger Consideration " ):
(i) decreased by the amount of Target Indebtedness;
(ii) decreased by the Transaction Expenses;
(iii) decreased by t he aggregat e Retained Employee Liabilities ; and
(iv) decreased by the aggregate value of restricted Parent Common Stock
actually granted to Key Employees at Closing, or expected to be granted within thirty (30) days of Closing,
pursuant to the employment agreements, employment letters or other instruments executed by each Key
Employee, with a maximum reduction in Merger Consideration of Nine Hundred Thousand Dollars
($900,000.00) .
(c)
The Merger Consideration shall be paid as follows:
(i) Seven M illion Five Hundred Fifty Thousand Dollars ($ 7,550 ,000 .00 )
of the Merger Consideration shall be paid in the form of Parent Common Stock, to be divided among the
Selling Parties as directed on the Closing Statement. For purposes of this Agreement, the value of Parent
Common S tock shall be equal to the aver age closing price of Parent's publicly-traded common stock over
the 20 trading days ending with Monday, November 2, 2015 ; provided , however , that pur suant to
Section 2.12(c), the $7,550,000 of Merger Consideration otherwise payable in the form of Parent Common
Stock shall be reduced by approximately $1 9 0,000, reflecting the agreement to pay non-accredited
investors in cash rather shares of Parent Common Stock.
(ii) $5 million ($5,000,000 .00 ) of the Merger Consideration shall be paid in
the form of Acquiror Notes, bearing interest at an annual rate of five percent ( 5% ) payable quarterly with
principal due and payable in a single balloon payment on the third anniversary of Closing Date, to be
issued to the Selling Parties in the initial principal amounts directed on the Closing Statement;
(iii) $3 million ($3,000,000 .00 ) of the Merger Consideration (the " Escrow
Amount " ) shall be paid to the Escrow Agent by wire transfer of immediately available funds to an account
designed by the Escrow Agent prior to the Closing Date; and
(iv) the remaining balance of the Merger Consideration , increased or
decreased pursuant to Section 2.1(b)(i) – (iv ) above , shall be paid in cash to the Selling Parties by wire
transfer of immediately available funds , to be divided among the Selling Parties as di rected on the Closing
Statement.
(d)
To the extent that after combining all shares of Parent Common
12
S tock to be received by a Selling Party in the Merger such Selling Party would be entitled to receive a
fractional share of one-half or more of a share of Parent Common S tock, such Selling Party shall receive one
additional whol e share, and if such Selling Party would be entitled to receive a fractional share of less than
one-half of a share of Parent Common S tock such Selling Party shall not receive such fractional share.
(e)
Acquiror shall pay, or shall cause Target to pay and satisfy in connection
with the consummation of the Closing : (i) the Target Indebtedness, (ii) the T arget Transaction Expenses,
and (iii) the Retained Employee Liabilities (collectively, the " Target Group Liabilities " ).
(f)
In the event that less than Nine Hundred Thousand Dollars ($900,000.00) of
restricted Parent Common Stock is granted to the Key Employees, at or within thirty (30) days of the
Closing, as provided in 2.1(b)(iv) above, then Acquiror shall pay the Selling Parties, within forty five ( 45 )
days of Closing , on a pro-rata basis and as additional Merger Consideration ( in cash by wire transfer of
immediately available funds) an amount equal to Nine Hundred Thousand Dollars ($900,000.00) minus the
aggregate value ( as of the date such stock was actually issued) of all of the restricted Parent Common Stock
actually granted to Key Employees at or within thirty (30) days of the Closing.
2.2 Closing; Effective Tim e .
(a)
The closing of the transactions contemplated hereby (the " Closing " ) shall
take place on the date of this Agreement (the " Closing Date " ). The Closing shall be effected by electronic
exchange of all documents required for the Closing. In connection with the Closing, the parties hereto shall
cause the Merger to be consummated by filing the Certificate of Merger with the Ohio Secretary of State, in
accordance with the relevant provisions of Ohio Law (the time of such filing being the " Effective Time " ,
which shall be deemed to have occurred at 12:01 a.m. on November 5, 2014 ).
(b)
At the Closing, the Selling Parties shall deliver to Acquiror and Merger Sub
from Target’s Secretary a certificate having attached thereto (i) the Target Charter Documents, each as in
effect immediately prior to the Effective Time, (ii) resolutions approved by Target’s Board of Managers
authorizing the transactions contemplated hereby, (iii) the executed written consent of the members of Target
(i.e., the Selling Parties ) approving the Merger, and (iv) for each member of the Target Group, certificates of
existence issued by the Ohio Secretary of State and fo r each other state where such member of the Target
Group is qualified to do business, in each case dated as of a date no more than two (2) Business D ays (fo r
the certificate of existence).
(c)
At or prior to the Closing, the Selling Parties shall deliver to Acquiror a ll
of the Required Contract Consents.
(d)
At the Closing, Target, the Selling Parties' Agent , Acquiror,
Escrow Agent shall execute and deliver the Escrow Agreement.
13
and the
(e)
At the Closing, Target shall deliver to Acquiror a statement (in such form as
may be reasonably requested by counsel to Acquiror) , dated as of the Closing Date and executed by Target’s
Board of Managers, certifying that: (i) for purposes of satisfying Acquiror’s obligations under Treasury
Regulation Section 1.1445-2(b)(2), Target is not a "foreign person" as defined in Section 1445 of the Code,
and (ii) for purposes of satisfying Acquiror’s obligations under Treasury Regulation Section
1.1445-11T(d)(2), (A) 50% or more of the value of the gross assets of Target do not consist of "United States
real property interests" under Section 897(c) of the Code, and (B) 90% or more of the value of the gross
assets of Target does not consist of U.S. real property interest s plus cash or cash equivalents.
(f)
At the Closing , if requested by Acquiror, Target shall deliver to Acquiror
written resignations , effective as of the Effective Time, of all officers , managers, members of the board of
managers and directors of the Target Group.
(g)
A t or prior to Closing, (i) Target s hall have delivered to Acquiror all
necessary payoff or similar letters with respect to the repayment and satisfaction, simultaneous with or prior
to Closing, of th e Indebtedness , and (ii)
Target Group's assets shall have been released , or be eligible
for release, from all security interests thereon and Target shall have taken all steps necessary to terminate , or
initiate the termination of, all UCC financing statements which have been filed with respect to such security
interests.
(h)
At the Closing, the Selling Parties' Agent and Acquiror shall have agreed
upon and executed the Closing Statement. The Selling Parties acknowledge that the allocation of Merger
Consideration among the Selling Parties as set forth on the Closing Statement is a true and correct allocation
of such Merger Consideration and that any post-Closing distributions or payments made pursuant to this
Agreement or the Escrow Agreement by Acquiror to the Selling Parties' Agent shall satisfy the obligation of
Acquiror or Escrow Agent to make such payment and the use or distribution of such proceeds shall be the
sole responsibility of the Selling Parties' Agent.
(i)
At or prior to Closing, e ach of the Key Employees and Selling Parties shall
have entered into a Key Employee Noncompetition Agreement or a Selling Parties Noncompetition
Agreement, as applicable .
(j)
At or prior to Closing, e ach Selling Party s hall have delivered to Acquiror a
general release by Selling Party of each member of the Target Group, excluding rights with respect to
director's and officer's indemnification to the extent contemplated in this Agreement and rights under this
Agreement.
(k)
Intentionally deleted .
(l)
Intentionally deleted .
(m)
At the Closing , the Exchange Agent will cause the Merger Consideration to
be duly paid to such Selling Party as provided herein .
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(n)
At the Closing , Acquiror shall cause the Escrow A mount to be deposited
with the Escrow Agent and shall complete the payments contemplated in the Closing Statement ( including,
without limitation, with respect to any payment of Transaction Expenses, upon receipt of reasonably
satisfactory evidence that each such Transaction Expense is the entire amount owed to such service provider
, and with respect to any Retained Employee Liability, upon receipt from an applicable current or former
employee of the Target Group of customary releases and acknowledgements of payment) .
(o)
At or prior to the Closing, Target shall deliver to Acquiror a full release by
all holders of rights under Target's Equity Mirror Agreements , Target's Phantom Equity Agreements
, and by parties to any o ther similar agreements , and participants in any compensation or equity plans ,
pursuant to which any of the Target Group grant s any rights with respect to equity or rights in equity,
options, warrants, incentive compensation, phantom equity plans, equity appreciation rights, severance
arrangements or other similar equity or bonus arrangements .
(p)
At or prior to the Closing, Target shall deliver to Acquiror evidence
satisfactory to Acquiror that all convertible notes issued by any of the Target Group have been duly
converted or are paid and satisfied in full as Target Indebtedness.
(q)
At or prior to the Closing, Target shall deliver to Acquiror evidence
satisfactory to Acquiror that all warrants issued for the purchase of Target Units have been cancelled and that
the holders of such warrants have released Target.
(r)
At or prior to Closing, Target shall deliver to Acquiror evidence satisfactory
to Acquiror that the following agreements have been cancelled and that the parties to such agreements (other
than the Target Group) have released the Target Group : (i) intentionally deleted , (ii) the Agreement
dated January 1, 2011 with Episcopal Retirement Homes, Inc., (iii) the Agreement dated as of December 1,
2011 with ERH Development, LLC, (iv) the Right of First Refusal and Put Option Agreement dated August
1, 2014 among Black Stone Companies of Ohio, Inc. , Black Stone Operations, LLC, LEC Community
Services, Inc. and ERH Development, LLC, and (v) the Agreement dated March 1, 2012 with LEC
Community Services, Inc .
(s)
At the Closing, Acquiror shall deliver to Selling Parties ' Agent an executed
guaranty whereby Acquiror shall assume, in place of Black Stone Companies of Ohio, Inc., the guaranty of
obligations to CM Capital Partners, LLC with regard to the lease of the primary office of Target located at
4700 East Galbraith Road, Sycamore Township, Hamilton County, Ohio .
(t)
At the Closing, the Acquiror and Merger Sub shall deliver to Target, from
Acquiror and Merger Sub’s applicable officer , a n executed certificate having attached thereto (i)
resolutions approved by both Acquiror’s and Merger Sub’s Board of Directors and/or Board of Managers, as
applicable, authorizing the transactions contemplated hereby , and (ii) for both Acquiror and Merger Sub,
certificates of existence issued by the Ohio , or Kentucky, as applicable, Secretary of State where such entity
was formed , in each case dated
15
as of a date no more than two (2) Business D ays (fo r the certificate of existence) prior to the Closing .
2.3 Effect of the Merger . At the Effective Time, the effect of the Merger shall be as
provided in this Agreement, the Certificate of Merger and the applicable provisions of Ohio Law . Without
limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Target and Merger Sub shall vest in the Surviving Company , and all
debts, liabilities and duties of Target and Merger Sub shall become the debts, liabilities and duties of the
Surviving Company .
2.4 Articles of Organization; Operating Agreement . At the Effective Time, the Articles
of Organization and Operating Agreement of the Surviving Company shall be the articles of organization
and operating agreement of Target in effect immediately prior to the Effective Time, in each case until
thereafter amended in accordance with their respective terms and Ohio Law .
2.5 Managers; D irectors and Officers .
The manager(s), dire ctors and officers of
Target immediately prior to the Effective Time shall, from and after the Effective Time, be the managers,
directors and officers, respectively, of the Surviving Company until their successors have been duly elected
or appointed and qualified or until their earlier death, resignation or removal in accordance with the Articles
of Organization and Operating Agreement of the Surviving Company .
2.6 Effect on Equity .
(a)
Conversion of Merger Sub Units .
At the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, Target or the Selling Parties , each u nit of
Merger Sub (the " Sub Units " ) issued and outstanding immediately prior to the Effective Time shall be
converted into one unit of the Surviving Company (the " Converted Units " ). The Converted Units shall
constitute the only membership interests of the Surviving Company at the Effective Time. From a nd after
the Effective Time, any certificates representing Sub Units shall be deemed for all purposes t o represent the
Converted Units until the Board of Direct ors of the Surviving Company issues new certificates in respect of
such Converted Units .
(b)
Conversion of Target Units . Each Target Unit issued and outstanding at the
Effective Time shall cease to be outstanding and shall be converted into and exchanged for the right to
receive the share of Merger Consideration set forth on the Closing Statement , subject to the requirement that
a portion of the Merger C onsideration be escrowed pursuant to Section 2.8. From a nd after the Effective
Time, no Target Units shall be outstanding and all Target Units automatically shall be cancelled and retired
and shall cease to exist, and each holder shall cease to have any rights w ith respect thereto, except the right
to receive for each Target Unit the share of Merger Consideration set forth on the Closing Statement ,
without interest thereon .
(c)
Target Convertible Debt . Except for Target’s convertible debt listed on
Section 3.5(a) of the Target Disclosure Schedule (the " Unconverted Convertible Debt " ), all of Target's
convertible debt has been converted into Target Units and Target has no further liability or obligation with
respect to Target's prior issued and outstanding convertible
16
debt. All of the Unconverted Convertible Debt shall be paid and satisfied at the Effective Time and the
amounts payable with respect to such outstanding convertible debt shall be included in Indebtedness .
2.7 Surrender of Target Units .
(a)
Exchange Agent . The Surviving Company shall act as payment and
exchange agent in the Merger (the " Exchange Agent " ).
(b)
Closing Statement . Prior to the Closing, Target shall deliver to Acquiro r a
definitive Closing Statement (a flow of funds schedule) included in the Closing Statement (the " Closing
Statement " ) certified by the Selling Parties' Agent and accurately setting forth: (i) the name of each
holder of Target Units immediately prior to the Effective Time, (ii) the number of Target Units held by such
holder immediately prior to the Effective Time, (iii) the share of the Merger Consideration which each
holder of Target Units is eligible to receive (taking into account the portion of the Merger Consideration to
be paid to the Escrow Agent) , and payment instru ctions for each holder, (iv) the calculation of Merger
Consideration , (v) the amount of Target’s Indebtedness and the amount of Target Transaction Expenses, in
each case as of the Closing Date, including a breakdown by individual or entity of amounts owed by each
member of the Target Group , (vi ) a breakdown of the Retained Employees Liabilities, and with respect
to any bonus or severance to be paid in connection with the transactions contemplated hereby, the name of
the bonus or severance recipient, the amount of bonus or severance and the method of payment (e.g. payroll)
; (vi i) a breakdown of the Target Transaction Expenses, including the name and amount due with respect
to each of the Target Transaction E xpenses and the method of payment (e.g., wire instructions) , and (vii
) setting forth the dollar value (and estimated number ) of shares of Parent Company Stock to be issued to
shareholders of Black Stone Companies of Ohio, Inc . The parties shall in good faith attem pt to promptly
resolve any dispute or questions regarding the Closing Statement .
(c)
Exchange Procedures . Commencing on the Closing Date , e ach holder of
Target Units that have been convert ed into the right to receive Merger Consideration s hall be entitled to
receive such holder's share of the Merger Consideration set forth in the Closing Statement (subject to the
escrow of a portion of the consideration pursuant to Section 2.8) in respect of such Target Unit .
(d)
Transfers of Ownership . At the Effective Time, the equity transfer books of
Target shall be closed, and there shall be no further registration of transfers of Target membership interests
or options thereafter on the records of Target.
(e)
No Liability . Notwithstanding anything to the contrary in this Section 2.7 ,
neither the Exchange Agent nor any party hereto shall be liable to any Person for any amount properly paid
to a public official pursuant to any applicable abandoned property, escheat or similar L aw.
(f)
No Further Ownership Rights in Target Units . The Merger Consideration
paid with respect to Target Units in accordance with the terms hereof shall be
17
deemed to have been issued in full satisfaction of all rights pertaining to such Target Units , and there shall
be no further registration of transfers on the records of th e Surviving Company of Target Units which were
outstanding immediately prior to the Effective Time .
(g)
Transaction Expenses and Other Professional Expenses .
With respect to
each professional firm or other vendor or service provider included among the Transaction Expenses ,
Selling Parties shall cause such professional or other vendor to deliver a letter to Target at or prior to
Closing, confirming the outstanding balance of fees and expenses due to such professional or vendor for
services through the Closing Date.
2.8 Escrow .
(a )
On the Closing Date, Acquiror shall deposit the Escrow Amount with the
Escrow Agent. The Escrow Amount shall be available to satisfy the indemnification obligations of the
Selling Parties to the Acquiror Indemnified Persons as follows:
(i) under Section 9.1(a)(vii )
with respect to the Identified Tax Issues, in an
amount up to $2,000,000;
(ii) under Section 9.1(a)(viii )
Earn-out, in an amount up to $625,000;
with respect to the Northwes t Acquisition
(iii) under Section 9.1(a)( i x) with respect to the Home Health Aid Timesheet
Dispute, in an amount up to $225,000; and
(iv) under Section 9.1(a)(x )
with respect to the Cavins Litigation, in an
amount up to $250,000.
(b)
The Escrow Amount shall be held by Escrow Agent in trust and shall not be
subject to any lien, attachment, trustee process or any other judicial process of any creditor of any Person,
and shall be held and disbursed solely for the purposes and in accordance with the terms of this Agreement
and the Escrow Agreement.
(c)
The amounts identified in Sections 2.8(a)(i) through (iv) as being held in
escrow with respect to the Identified Tax Issues, the Northwest Acquisition Earn-out, the Home Health Aid
Timesheet Dispute and the Cavins Litigation shall either be disbursed to Acquiror , subject to the
provisions of Section 9 and pursuant to valid indemnification claims under Sections 9.1(a)(vii) through (x) or
disbursed to Selling Parties' Agent (for further disbursement by the Selling Parties' Agent to the Selling
Parties) promptly following resolution of the respective matters described in Section 2.8(a)(i) through (iv)
. For purposes of determining whether such indemnification matters have been resolved, the Parties agree
as follows: (i) for the Identified Tax Issues, the Parties agree that resolution shall occur in stages based upon
the processing and acceptance of the private letter requests filed, or to be filed, by Target and the acceptance
of such requests by the IRS such that (a) for the Blackstone Group, LLC QSUB election matter, up to
$800,000 shall be eligible for release upon acceptance by the IRS of the requests applicable to such matter,
and (b) for the Nursing Resources Corporation 336(e) election
18
matter, up to $1,200,000 shall be eligible for release upon acceptance by the IRS of the requests applicable to
such matter ; (ii) for the Northwest Acquisition Earn-out, the Parties agree that resolution shall occur when
the 2015 financial reporting period for the applicable operating results is completed and the earn-out
payment, if any is calculated, which is expected to be completed by March 2016 ; (iii) for the Home Health
Aid Timesheet Dispute, the Parties anticipate that resolution shall occur when such investigation and any
related criminal civil or investigations are complete d ; and (iv) for the Cavins Litigation, the Parties agree
that resolution shall occur when the applicable appeals process is completed and no further appeals are filed
and/or eligible to be filed , which is expected in approximately three (3) to nine (9) months from the
Effective Time.
(d)
Selling Parties shall be treated , and authorize the Escrow Agent to treat,
the Selling parties as the owner s of the Escrow Fund for income tax purposes and the Escrow Agent is
authorized to report the amount of any and all e arnings on IRS Form 1099 to Selling Parties in accordance
with their respective Pro Rata Portion, and to issue any other Form 1099s to Selling Parties' Agent with
respect to such e arnings.
(e)
The fees and expenses of the Escrow Agent shall be paid in equal shares by
Acquiror and the Selling Parties. The Selling Parties' 50% share of the Escrow Agent's $3,500 acceptance
fee, as provided in the Escrow Agreement , shall be included on the Closing Statement as a payment out of
the cash portion of the Merger Consideration payable to the Selling Parties.
2.9 Taking of Necessary Action; Further Action . Each of Acquiror, Merger Sub and Target
will take all such reasonable and lawful action as may be necessary or desirable in order to effectuate the
Merger and the other transactions contemplated by this Agreement in accordance with the terms hereof as
promptly as possible. If, at any time after the Effective Time, any further action is necessary or desirable to
carry out the purposes of this Agreement and to vest the Surviving Company with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of Target and Merger Sub, the
officers and directors of Target and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary action, so long as such action
is not inconsistent with this Agreeme nt.
2.10 Payment of Target Liabilities . To the extent not paid prior to Closing, Acquiror shall
pay or cause Target to pay, at the Closing, the Target Transaction Expenses , Target Indebtedness and R
etained Employee Liabilities in the amounts set forth on the Closing Statement and in accordance with the
payment instructions included by the Selling Parties' Agent on the Closing Statement.
2.11 Withholding Rights .
Each of Acquiror, the Surviving Company , and the Escrow
Agent shall be entitled to deduct and withhold (or cause to be deducted and withheld) from any consideration
payable or otherwise deliverable pursuant to this Agreement or the Escrow Agreement to any Selling Party
such amounts as are required to be deducted and withheld with respect to any such payments under the Code
or any other applicable provision of U.S. federal, state, local or non-U.S. Tax L aw. To the extent that
amounts are withheld in
19
a ccordance with this Section 2.11 and remitted to the applicable taxing authorities, such withheld amounts
shall be treated for all purposes of this Agreement as having been delivered and paid to such holders in
respect of which such deduction and withholding was made.
2.12 Parent Common Stock .
(a)
All Parent Common S tock issued pursuant to this Agreement shall be
unregistered shares and shall be "restricted securities" under Rule 144 promulgated under the Securities
Act ( " Rule 144 " ) and Target and the Selling Parties acknowledge that the sale of the Parent Common S
tock shall be subject to Rule 144 transfer restrictions .
(b)
In addition to the Rule 144 requirements, which Target and Selling Parties
acknowledge apply to all Parent Common S tock separately and independently from any contractual
restrictions on transfer , Target and Selling Parties agree to the following additional transfer restrictions on
Parent Common S tock . At the Closing, each Selling Party receiving Parent Common S tock shall be
required to acknowledge and agree that it may not transfer its Parent Common S tock (by assignment or
distribution upon liquidation or otherwis e) during the period of six (6) months after issuance; provided,
however, that the restriction period applicable to David Tramo ntana will be more than six (6) months and
will be agreed-upon in connection with the negotiation of his employment terms. Certificates representing
Parent Common S tock shall include a legend evidencing the restrictions on transfer set forth in this Section
2.12 , or if shares of Parent Common S tock are issued in electronic format, such shares shall be issued by
the Transfer Agent subject to the notation of such ap plicable transfer restrictions.
Parent shall direct its
Transfer Agent to remove the legend referencing restrictions set forth in this paragraph from all such shares
of Parent Common Stock upon the expiration of the six (6) month period , other than with respect to David
Tramontana for whom such restrictive legend shall be removed at the expiration of three years.
(c)
The parties agree that Parent Common Stock may be issued directly to the
shareholders of Black Stone Companies of Ohio, Inc., provided such shareholders complete a questionnaire
confirming that they are accredited investors and are holding Parent Common Stock for investment purposes
and not for resale and other customary matters. The parties acknowledge that no shares of Parent Common
Stock will be issu ed to non-accredited investors. The portion of the Merger Consideration that would under
the terms of this Agreement otherwise be payable in shares of Parent Common St ock to a non-accredited
Selling Party (or shareholder of Black Stone Companies of Ohio, Inc.) shall instead be paid in cash . Selling
Parties represent that the dollar amount of Parent Common Stock that shall instead be payable in cash is
approximately $1 9 0,000 of the $7,550,000 otherwise payable in the form of Parent Common Stock
pursuant to Section 2.1(c).
2.13 Intentionally Deleted .
2.14 Target Group 401(k) Plans . Prior to Closing, the Board of Directors of each applicable
Target Group will adopt resolutions to terminate each of the Target Group's 401(k) plans as of a date prior to
Closing. No contributions will be made to any Target Group 401(k) plans from wages ear ned from and
after the Closing Date. Selling Parties will take all
20
actions necessary to correct all Target Group 401(k) plan errors for all years, including plan document errors,
administrative errors, and any other errors known to Selling Parties or the Target Group , which actions will
be taken in a manner consistent with the IRS’s Employee Plans Compliance Resolution System, which may
include an IRS filing and payment of penalties. Selling Parties will work with Target Group's and Selling
Parties' Agent's counsel on these corrections to ensure they are mad e in a proper manner, and Selling Parties
and Selling Parties' Agent will ensure that the errors are corrected as promptly as possible, and that all plan
accounts are then distributed to participants as promptly as possible. Selling Parties acknowledges that IRS
rules require that assets be distributed without delay following a plan termination, so time is of the
essence. Selling Parties' Agent will provide complete documentation to Acquiror of the correction of all
plan errors. Selling Parties' Agent will arrange for final nondiscrimination testing (if required by Law) ,
filing Form 5500 annual reports, and distribution of Summary Annual Reports to participants, and will
provide complete records of such actions to Acquiror .
2.15 "Black Stone" Name . Each of the Selling Parties acknowledges that by acquiring the
Target Group, Acquiror has acquired the sole right to use the "Black Stone" name in connection wit h the
operation of the Target Business, and that none of the Selling Parties shall use the "Black Stone" name in
connection with the operation of any health care business in the State of Ohio or that otherwise competes
with the Target Group's Target Business.
3. Representations and Warranties of Target . Target represents and warrants to Acquiror and
Merger Sub that the statements contained in this Section 3 are true and correct in all material respects,
except as disclosed in a document of even date herewith and delivered by Target to Acquiror on the date
hereof referring to the representations and warranties in this Agreement (the " Target Disclosure Schedule "
). The Target Disclosure Schedule will be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Section 3 .
3.1 Organization, Standing and Power; Subsidiaries .
(a)
Target is a limited liability company duly organized and validly existing
under the laws of the State of Ohio . Target has the requisite power to own its properties and to carry on its
business as now being conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified and in good standing could reasonably be expected to have
a Material Adverse Effect on Target . None of the Target Group is qualified to do business as a foreign
entity in any jurisdiction outside of Ohio.
Target has delivered to Acquiror a true and correct copy of
Target’s articles of organization and operating agreement and other organizational documents, as appli cable,
of Target, each as amended to date (collectively, the " Target Charter Documents " ). Target is not in
violation of any of the provisions of the Target Charter Documents.
(b)
Each of the Target Subsidiaries is a corporation or limited liability company,
duly organized and validly existing under the laws of the State of Ohio. Each of the Target Subsidiaries has
the requisite power to own its properties and to carry on its business as now being conducted and is duly
qualified to do business and is in good standing in each jurisdiction where qualification to do busines s is
required by applicable L aw . Target has
21
delivered to Acquiror a true and correct copy of the organizational documents of each of the Target
Subsidiaries, as amended to date (collectively, the " Target Subsidiaries Charter Documents " ). None of
the Target Subsidiaries is in violation of any of the provisions of the applicable Target Subsidiaries Charter
Documents.
(c)
Ex cept as set forth on Section 3.1 of the Target Disclosure Schedule, none
of the Target Group directly or indirectly owns any equity or similar interest in, or any int erest convertible
or exchangeable or exercisable for, any equity or similar interest in, any corporation, partnership, limited
liability company, joint venture or other business association or entity , which is not also part of the Target
Group.
3.2 Authority .
(a)
Each of the Selling Parties and Target has all requisite power and authority
to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated hereby, including the
Merger, have been duly authorized by all necessary action on the part of Target and each Selling Party
. Under Ohio Law and the Target Charter Documents, the affirmative vote of the Board of Managers is the
only approval necessary to approve and adopt this Agreement and the transactions contemplated hereby,
including the Merger. This Agreement has been duly executed and delivered by Target and the Selling
Parties and constitutes the valid and binding obligation of Target and the Selling Parties enforceable against
Target and the Selling Parties in accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar L aws affecting creditors’ rights generally and
by general principles of equity .
(b)
The execution and delivery of this Agreement by Target does not, and the
consummation of the transactions contemplated hereby will not result in any violation of, or default under
(with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or
acceleration of any material obligation or loss of any material benefit under (i) any provision of the Targ et
Charter Documents or Target Subsidiaries Charter Documents; or (ii) any Material Contract .
(c)
In connection with obtaining the Selling Parties' consent to the Merger and
providing such Selling Parties and holders of Target's convertible notes w ith information regarding the
Target Group and the Merger, other pre-Closing communications and notifications to the Selling Parties
relating to matters contemplated by this Agreement, Target has complied with the terms of the Target
Charter Documents, all applicable member agreements, and all a pplicable Law; provided, however, Target
makes no representation or warrant y regarding (x) any information regarding Acquiror or Parent Common S
tock or (y) Acquiror's compliance with any a pplicable Laws including without limitation all applicable
federal and state securities L aws. Target has provided to the Selling Parties and its holders of convertible
debt, all material information regarding Target, its financial information, properties and business and
regarding the terms of the Merger and other transactions contemplated by this Agreement necessary for the
making of all decisions relating the Merger and the other transactions contemplated by or referred to in this
Agreement.
22
3.3 Governmental Authorization . Except as set forth on Section 3.3 of the Target
Disclosure Schedule, no consent, approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other Governmental A uthority is required by or
with respect to Target in connection with the execution and delivery of this Agreement or the Closing of the
transactions contemplated hereby, except for the filing of the Certificate of Merger, as provided in
Section 2.2 of this Agreement. Each member of the Target Group has obtained each federal, state, county,
local or foreign governmental consent, license, permit, grant, or other authorization of a Governmental Entity
that is required by applicable L aw for the operation of the Target Business or the holding of any interest in
any of its properties and all of such authorizations are in full force and effect .
3.4 Financial Statements .
(a)
Target has delivered to Acquiror its audited consolidated financial
statements for the fiscal years ended December 31, 2014, 2013 and 2012, and its unaudited financial
statements (balance sheet, statement of operations and statement of cash flows) on a consolidated basis for
the 8 -month period ended August 31 , 2015 (the " Target Balance Sheet Date , " and such financial
statements, collectively, the " Target Financial Statements " ). The Target Financial Statements have been
prepared in accordance with Agreed Accounting Principles (except that the unaudited financial statements do
not contain footnotes and are subject to normal recurring year-end audit adjustments, the effect of which will
not, individually or in the aggregate, be materially adverse) applied on a consistent basis throughout the
periods presented and consistent with each other. The Target Financial Statements fairly present in all
material respects the consolidated financial condition, operating results and cash flow of Target Group as of
the dates, and for the periods, indicated therein, subject to normal year-end audit adjustments and the
absence of footnotes in the case of the unaudited Target Financial Statement s.
(b)
Target maintains a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed with management’s general or specific
authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in
conformance with Agreed Accounting Principles and to maintain accountability for assets; and (iii) access to
the ass ets of the Target Group is permitted only in accordance with management’s authorizati on. No
member of the Target Group is a party to or otherwise involved in any " off-balance sheet arrangements " (as
defined in Item 303 of Regulation S-K under the Securities Exchange Act of 1934, as amended ) .
(c)
The Closing Statement sets forth a true and correct schedule , in all material
respects, of all Target Indebtedness, Transaction Expenses, and Retained Employee Liabilities and a true and
correct allocation of the Merger Consideration among the Selling Parties based on the applicable Target
Group organizational documents and applicable Law.
The financial infor mation provided on
Attachment I was prepared in accordance with the Agreed Ac counting Principles.
3.5 Capital Structure .
The equity of Target consists of (i) ei ght thousand three hundred
ninety (8,390) issued and outstanding Target U nits . Following the Closing, Target shall
23
ha ve no warrants or options outstanding. Except as set forth on Section 3.5(a) of the Target Disclosure
Schedule, all of Target's convertible debt has been converted into Target Units and Target has no further
liability or obligation with respect to Target's prior issued and outstanding convertible debt. Target has the
right under applicable loan agreements to redeem all outstanding convertible debt that has not converted into
Target Units in connection with the closing of transactions contemplated by this Agreement, and upon
payment and satisfaction in full of amounts due pursuant to such convertible debt, Target will have no
further obligations with respect to such convertible debt. All outstanding Target Units are duly authorized,
validly issued, fully paid and non-assessable and are free of any liens or encumbrances other than any liens
or encumbrances created by or impose d upon the holders thereof, and , except as provided in the Target
Charter Documents, are not subject to preemptive rights, right of participation, rights of first refusal, or
similar rights, whether created by statute or any agreement to which Target is a party or by which it is
bound. N o equity based compensation plan or agreement is currently in effect, and there are no Target
Units reserved for issuance under any other equity based c ompensation plan or agreement. Target has
delivered to Acquiror true and complete copies of each instrument and agreement evidencing convertible
debt. E xcept for the rights disclosed in the preceding sentences, there are no other options, warrants,
restricted equity awards, phantom equity awards, calls, rights, commitments or agreements of any character
to which Target is a party or by which it is bound, obligating Target to issue, deliver, sell, repurchase or
redeem or cause to be issued, delivered, sold, repurchased or redeemed, any Target Units or other equity or
obligating Target to grant, extend, accelerate the vesting of, change the price of, or otherwise amend or enter
into any such option, warrant, call, right, commitment or agreement. Other than the Target Charter
Documents, t here are no contracts, commitments or agreements relating to the voting or registration of, or
restricting any holder from purchasing, selling, pledging or otherwise disposing of (or granting any option or
similar right with respect to), a ny Target Units or other Target equity. All Target Units were issued in all
material respects in compliance with all applicable federal and state securities L aws.
(a)
The Selling Parties collectively hold all of the issued and outstanding equity
interests of Target. Each Sell ing Party has good title to such Selling Party's Target Units, free and clear of
any Encumbrances. With respect to each Selling Party , Section 3.5( a ) of the Target Disclosure
Schedule sets forth the number of Target Units that each Selling Party holds of record, and the address and
state of residence of such Selling Party .
Target or a Target Subsidiary (as provided on Section 1 of the
Target Disclosure Schedule) ha ve good title to 100% of the issued and outstanding equity of each Target
Subsidiary, free and clear of any Encumbrances.
(b)
All of the information contained in the Closing Statement will be , in all
material respects, accurate and complete immediately prior to the Effective Time, and, except as set forth on
the Closing Statement , no other holder of Target Units , Target equity or options, warrants or other rights
convertible into or exercisable for Target Units or other equity shall have any right, title or claim to any
consideration payable in connection with the merger described in this Agreement. The allocation of the
Merger Consideration as set forth in the Closing Statement complies and is in accordance with the Target
Charter Documents and Ohio L aw .
24
(c)
Section 3.5(d) of the Target Disclosure Schedule sets forth a true and correct
schedule of the issued and outstanding equity of each of the Target Subsidiaries . No Target Subsidiary has
any warrants, options or convertible debt outstanding. All outstanding equ ity interest of the Target
Subsidiaries are duly authorized, validly issued, fully paid and non-assessable and are free of any liens or
encumbrances other than any liens or encumbrances created by or imposed upon the holders thereof, and are
not subject to preemptive rights, right of participation, rights of first refusal, or similar rights, whether
created by statute or any agreement to which the applicable Target Subsidiary is a party or by which it is
bound. No equity based compensation plan or agreement is currently in effect with re spect to any of the
Target Subsidiaries , and there are no equity interests reserved for issuance under any other equity based
compensation plan or agreement. T here are no other options, warrants, restricted equity awards, phantom
equity awards, calls, rights, commitments or agreements of any character to which any of the Target
Subsidiary is a party or by which it is bound, obligating any of the Target Subsidiaries to issue, deliver,
sell, repurchase or redeem or cause to be issued, delivered, sold, repurchased or rede emed, any equity or
obligating such Target Subsidiary to grant, extend, accelerate the vesting of, change the price of, or
otherwise amend or enter into any such option, warrant, call, right, commitment or agreement. There are
no contracts, commitments or agreements relating to the voting or registration of, or restricting any holder
from purchasing, selling, pledging or otherwise disposing of (or granting any option or similar right with
respect to), any equity of a Target Subsidiary . All equity interests of the Target Subsidiaries were issued in
all material respects in compliance with all applicable federal and state securities L aws.
3.6 Absence of Certain Changes .
(a)
Except as contemplated hereunder or as set f orth on Section 3.6(a) of the
Target Disclosure Schedule , since August 31, 2015 , each member of the Target Group has conducted its
business in the ordinary course consistent with past practi ce and there has not occurred (i ) any change,
event or condition (whether or not covered by insurance) that has resulted in, or is reasonably expected to
result in, a Material Adverse Effect on the Target Group ; (ii ) any acquisition, sale or transfer of any
material asset of any of the Target Group other than in the ordinary course of business and c onsistent with
past practice; (iii ) any change in accounting methods or practices (including any change in depreciation or
amortization policies or rates) by any of the Target Group or any revaluation by any of the Target Group of
any of its assets; (iv ) any declaration, setting aside, or payment of a dividend or other distribution with
respect to the equity of Target or any direct or indirect redemption, purchase or other acquisition by Target
of an y of its equity; ( v ) any Material Contract entered into by any of the Target Group , other than as set
forth on Section 3.16(a) of the Target Disclosure Schedule, or any material amendment to (other than in the
ordinary course of business ) or termination of, or default under, any Material Contract; (vi ) any amendment
or change to the Target Charter Documents; (vii ) any material increase in or material modification of the
compensation or benefits payable or to become payable by any of the Target Group to any of its officers or
employees; or (viii ) any negotiation or agreement by any of the Target Group to do any of the things descr
ibed in the preceding clauses (i) through (vii ) (other than negotiations with Acquiror and its Representatives
regarding the transactions contemplated by this Agreement). At the Effective Time, there will be no accrued
or unpaid dividends or distributions with respect to any Target Units .
25
(b)
Except as set forth on Section 3.6(b) of the Target Disclosure Schedule,
since August 31 , 2015, there has not occurred any change in the financial condition, properties, assets
(including intangible assets), liabilities, business, operations, results of operations o r prospects of any of
the Target Group , that, individually or in the aggregate, would reasonably be expected to have a Material A
dverse Effect on the Target Group .
3.7 Absence of Undisclosed Liabilities . None of the Target Group has any material
liability that is of a type required to be disclosed as a liability on a balance sheet prepared in accordance with
Agreed Accounting Principles , other than (a) those set forth or adequately provided for in the consolidated
balance sheet of Target as of the Target Balance Sheet Date (the " Target Balance Sheet " ); (b) those
incurred in the ordinary course of business since the Target Balance Sheet Date and consistent with past
practice; (c) those incurred in connection with the execution of this Agreement; and (d) those set forth in
Section 3.7 of the Target Disclosure Schedule .
3.8 Litigation .
(a)
Except as set forth on Section 3.8(a) of the Target Disclosure Schedule, t
here is no private or governmental action, suit, proceeding, claim, arbitration or , to the Knowledge of
Target, investigation , pending before any Governmental Entity, foreign or domestic, or, arbitrator, or, to the
Knowledge of Target, threatened against any member of the Target Group , or any of their properties or any
of its officers or directors (in their capacities as such). There is no judgment, injunction, decree or order
against any member of the Target Group or, to Target’s Knowledge, any of their directors or officers (in their
capacities as such).
(b)
To Target's Knowledge, no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition preventing the consummation of the Merger is in effect, nor is there pending any
proceeding brought by an administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing, nor has there been any action taken, or
any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Merger, which
makes the consummation of the Merger illegal.
(c)
Except as set forth on Section 3.8(c) of the Target Disclosure Schedule, t
here is not pending or, to Target's Knowledge, threatened, any legal proceeding in which a Governmental
Entity is or is threatened to become a party or is otherwise involved, and no member of the Target Group has
received any communication from any Governmental Entity in which such Governmental Entity indicates
the probability of commencing any legal proceeding or taking any other action: (i) challenging or seeking to
restrain or prohibit the consummation of the Merger; (ii) relating to the Merger and seeking to obtain from
Acquiror or any of its subsidiaries, or from any member of the Target Group , any damages or other relief;
(iii) seeking to prohibit or limit in any material respect Acquiror’s ability to vote, receive dividends with
respect to or otherwise exercise ownership rights with respect to the equity of Target; or (iv) that would
adversely affect the right of Acquiror or the Target Group to own the assets or operate the Target Business.
26
3.9 Intellectual Property
.
(a)
Section 3.9 (a) of the Target Disclosure Schedule sets forth a true and
complete list, as of the date hereof, of all Intellectual Property Rights owned by the Targe t Group that is
subject to an application or registration, including all pending applications and registrations therefor ( "
Target Group I ntellectual Property " ).
(b)
Except as set forth on Section 3.9 (b) of the Target Disclosure Schedule or
as would not, individually or in the aggregate, have a Material Adverse Effect, to the Knowledge of the
Target , as of the date hereof, (i) the Target Group Intellectual Property is valid and enforceable, and the
registrations therefor are subsisting , and (ii) Target Group owns the Target Group Intellectual Property free
and clear of all Encumbrances other than licenses, agreements and other arrangements entered into in the
ordinary course of business.
(c)
Except as set forth on Section 3.9( c ) of the Target Disclosure Schedule, t o
the Knowledge of Target , the operation of the Target Business as it is currently conducted does not infringe
on the intellectual property of any other Person . Since December 31, 2012, no member of the Target Group
has received a written claim or demand of any Person which cha llenges the validity of Target Group's
ownership of any Target Group Intellectual Property or asserts any such infringement, nor are there any
Proceedings pending or threatened in writing.
(d)
To the Knowledge of the Target, (i) none of the products or services
distributed, sold or offered by any member of the Target Group , nor any technology or materials used in
connection therewith infringes upon, misappropriates or violates any Target Group Intellectual Property of
any Person , and (ii) no Person is infringing, misappropriating or violating the Target Group Intellectual
Property .
3.10 Permits .
Each member of the Target Group holds, to the extent legally required to
operate its business as it is being operated as of the date hereof, all permits, licenses, clearances,
authorizations and approvals from the applicable Governmental Authority (collectively, " Permits " ) . No
suspension or cancellation of a ny Permits of any of the Target Group is pending or, to the Knowledge of the
Target, threatened. Each member of the Targ et Group is currently , and to the Knowledge of Target has
been, in compliance in all material respects with the terms of all of its Permits.
3.11 Privacy; Security Measures .
(a)
Privacy . Except as set forth on Section 3.11(a) of the Target Disclosure
Schedule, e ach member of the Target Group complied in all material respects with all a pplicable Law,
contractual obligations and its privacy policies relating to the collection, storage, use, disclosure and transfer
of any personally identifiable information collected by or on behalf of it, and has taken all measures required
by a pplicable Law to protect and maintain the confidential nature of such personally identifiable
information. The Target’s execution, delivery and performance of this Agreement and any ancillary
agreement contemplated hereby will comply with all a pplicable Law relating to privacy .
No member of
the Target Group has
27
received a written
information.
notice of a complaint regarding its collection, use or disclosure of personally identifiable
(b)
Security Measures . Each member of the Target Group has implemented
and maintained, consistent with industry standard practices and its contractual and other obligations to other
Persons, all reasonable security and other reasonable measures necessary to protect all computers, networks,
software and systems used in connection with the operation of the Target Business (the " Information
Systems " ) from v iruses and unauthorized access, use, modification, disclosure or other misuse. Target has
provided to Acquiror all of its disaster recovery and security plans, and procedures relating to Target’s
Information Systems. To the Knowledge of Target, there have been no unauthorized intrusions or breaches
of the security of the Target Group's Information S ystems.
3.12 Interested Party Transactions .
Except as set forth i n Section 3.12 of the Target
Disclosure Schedule, no member of the Target Group is indebted to any of its directors, officers, employees ,
members, managers or agents (except for amounts due as normal salaries and bonuses and in reimbursement
of ordinary expenses). Exc ept as set forth in Section 3.12 of the Target Disclosure Schedule, or in the
ordinary course of the Target Group’s business operations, no su ch director, officer, employee, member,
manager or agent , described above, is indebted to any of Target Group . Except as set forth on Section
3.12 of the Target Disclosure Schedule , none of the Selling Parties or their respective Affiliates , nor any
current di rector or officer of the Target Group, (a) has or during the last fiscal year has had any direct or
indirect interest in, or is or during the last fiscal year was a directo r, officer or employee of, any p erson that
is a client, customer, supplier, lessor, lessee, debtor, credi tor or competitor of any of the Target Group , or (b
) is the owner of in any material property, asset or right that is owned or used by the Target Group in th e
conduct of its business, or (c ) is, or during the last fiscal year has been, a party to any material agreement or
t ransaction with any of the Target Group .
3.13 Charter Document s . Target has made available to Acquiror true and correct copies of
all Target Charter Documents and Target Subsidiaries Charter Documents, each as amended, and if
available, true and correct copies of all written minutes or written actions of meeting by members,
shareholders, offices or managers.
3.14 Compliance with Law; Health C are
Matters .
(a)
No member of the Target Group has been or to Target’s K nowledge is
currently in material violation of any a pplicable Law, and each member of the Target Group has conducted
and is conducting its businesses in all material respects in accordance with a pplicable Law , and any and all
Governmental Orders applicable to such member of the Target Group .
Except as set forth on Section
3.14(a) of the Target Disclosure Schedule, or otherwise occurring in the normal course of business, n o
investigation or audit by any Governmental Authority with respect to any member of the Target Group is
pending or, to the Knowledge of Target, is threatened, nor, to the Knowledge of Target, has any
Governmental Authority indicated an intention to conduct any such investigation or audit.
(b)
Except as set forth on Section 3.14(b) of the Target Disclosure
28
Schedule, e ach member of the Target Group and to Target's Knowledge, all of the officers, managers,
directors and employees of any of Target Group , including without limitation all of its employees,
contractors, nurses and physicians (collectively, the " Personnel " ), while employed by any of the Target
Group , has complied in all material respects with a ll a pplicable Laws to which they are subject which deal
in any way with any health care regulatory matters, including, but not limited to, 42 U.S.C. Sections 1320a-7
and 7(a) imposing sanctions and civil monetary penalties respectively (commonly referred to as the " Civil
Monetary Penalties Law " ), 1320a-7b(b) (commonly referred to as the " Federal Anti-Kickback Statute " )
imposing criminal penalties for the knowing and willful solicitation, receipt, offer or payment, of any
remuneration in return for referring an individual for any item or service for which payment may be made
under any Governmental Program or under any other health benefits program using federal funds; 42 U.S.C.
Section 1395nn (commonly referred to as the " Stark Law " ) prohibiting physicians from making referrals
to certain entities for certain designated health services payable by any Governmental Program and imposing
civil penalties on entities entering into certain arrangements with physicians with respect to such prohibited
referrals; 31 U.S.C. Sections 3729-3733 (commonly referred to as the " Federal False Claims Act " )
prohibiting any individual or entity from knowingly presenting a false or fraudulent claim for payment to
any Governmental Program or to any other health benefits program using federal funds and the Affordable
Care Act (42 USC § 1320a-7K(d) creating liability under the Federal False Claims Act for person failing to
disclose and refund Medicare and Medicaid overpayments within the later of 60 days after the date of the
overpayment is identified or the next date the applicable report is due ; and the Health Insurance Portability
and Accountability Act of 1996 (commonly referred to as " HIPAA " ), as amended by the Health
Information Technology for Economic and Clinical Health Act (commonly referred to as the " HITECH Act
" ), and the regulations thereunder, creating various rules regarding the privacy and security of individually
identifiable health information, and, in each case, the applicable state statutory and regulatory counterparts to
such federal statutes and regulations in each of the states in which any member of the Target Group conducts
the Target Business (collectively, " Health Care Laws " ). Each member of the Target Group has
maintained in all material respects all records required to be maintained by it under applicable Governmental
Programs and Health Care Laws. Except as set forth on Section 3.14(b) of the Target Disclosure Schedule, t
o the K nowledge of Target, t here are no presently existing circumstances which would result or would be
reasonably expected to result in any material violation of any Health Care Laws by any member of the
Target Group or, to the Knowledge of Target, by any of its Personn el. No member of the Target Group or
any of the Personnel (while employed by Target Group ) has been sanctioned as not being in compliance
with any applicable Health Care Laws. Except as set forth on Section 3.14(b) of the Target Disclosure
Schedule, n o member of the Target Group or any of the Personnel (while employed by the Target Group
) has received any written notice or other communication from any Governmental Authority to the effect
that it or any of them or any activity conducted by it or any of them is not in material compliance with any
applicable Health Care Laws.
(c)
With respect to the Target Business, each member of the Target Group (A)
is qualified for participation in all of the Governmental Program (s) in which it participates, and (B) has
current provider numbers for the Governmental Programs and such private non-governmental programs
(each, a " Private Program " ), including without limitation
29
any private insurance program, under which it directly or indirectly is presently receiving payments or is a
participating provider. A list of all of the Company Group's existing Governmental Program provider
agreements and numbers, or if such contracts do not exist, other documentation evidencing such participation
is set forth on Section 3.14(c) of the Target Disclosure Schedule, current, true and complete copies of which
have been made available to Parent. Section 3.14(c) of the Target Disclosure Schedule also sets forth each
contractual arrangement with third party payors, including, but not limited to, private insurance, managed
care plans and HMOs. E ach member of the Target Group is in compliance in all material respects with all
requirements of each Governmental Program and each Private Program in wh ich such member of the Target
Group participates. Except as set forth on Section 3.14(c) of the Target Disclosure Schedule, n o member
of the Target Group or , to the Knowledge of Target, any of the Personnel, have received any notice
indicating that such participation will be terminated, suspended, limited or withdrawn , unless action is taken
by such member of the Target Group . No member of the Target Group has received any written
communication from a Governmental Authority th at alleges that it or any of its Personnel is not in
compliance with any Health Care Laws, other than statements of deficiencies from a Governmental
Authority received in the ordinary course of business. No member of the Target Group , or to the
Knowledge of Target, any of the Personnel has been subpoenaed or charged or investigated in connection
with any possible violation of any of the Health Care Laws. Except for payment adjustment notices received
in the ordinary course of business, there are no pending appeals, overpayment determinations, audits,
litigation or notices of intent to open Governmental Program or other Third Party Payor claim determinations
or cost reports with respect to the Target Business. True, correct and complete copies of all reports of all
inspections and surveys of each member of the Target Group containing unresolved findings with respect to
the Target Business, to Target's Knowledge , conducted in connection with Medicare or Private Program d
uring the past three (3) years have been provided or made available to Acquiror. No member of the Target
Group is in material default under any provider agreement or other contract with any Governmental
Program, Private Program or Third Party Payor (collectively, " Program Agreements "). Each member of
the Company Group is in material compliance with the rules and policies respecting each Program
Agreement, including, but not limited to, all certification, billing, reimbursement and documentation
requirements.
(d)
Exc ept as set forth on Section 3.14 ( d ) of the Target Disclosure Schedule,
none of the Target Group or , to the Knowledge of Target, any of the Personnel, has been convicted of,
charged with, or , to Target’s K nowledge , investigated for a Governmental Program related offense, or
convicted of, charged with or, to the Knowledge of Target, investigated for a violation of any of the Health
Care Laws, including without limitation those relating to improper billing, improper referrals, fraud, theft,
embezzlement, breach of fiduciary responsibility, financial misconduct, obstruction of an investigation or
abuse, mis - prescribing or improper distribution of any controlled substance . No member of the Target
Group nor, to the Knowledge of Target, any of the Personnel, has been charged with or convicted of any
criminal offense relating to the delivery of an item or service under any Governmental Program or excluded
or suspended from participation in any applicable Governmental Program . N o member of the Target
Group, or to the Knowledge of Target, any of the Personnel, has committed any offense which would
reasonably serve as the basis for any such exclusion, suspension,
30
debarment or other ineligibility from any Governmental Program . To the Knowledge of Target, no member
of the Target Group has arranged or contracted with any individual or entity that is suspended, excluded or
debarred from participation in, or otherwise ineligible to participate in a Governmental Program with respect
to anything relating to the Target Business .
(e)
To the Knowledge of Target, there are no current or pending payment or
reimbursement withholds, payment recoupments or suspensions by any Governmental Program, Private
Program or Third Party Payor relating to any of the Target Group or to the health care items or services
furnished by any of the Target Group, other than payment or reimbursement withholds, or payment
recoupments that are ordinary course adjustments to correct non-continuing, non-systemic errors and which,
when taken together, are immaterial.
(f)
In accordance wi th 42 CFR § 424.550(b), none of the Target Group , with
respect to its provider numbers, has experienced a change of majority ownership, as that term is interpreted
under 42 CFR § 424.550(b), during the 24 months preceding the Closing Date. To the Knowledge of Target,
there is no material violation, default, or deficiency that exists with respect to any Medicare provid er
number issued to or held by the Target Group that would give cause for termination of any provider
agreeme nt or the revocation of a Target Group member's enrollment with Medicar e or its right to bill
Medicare.
(g)
No member of the Target Group has received any written communication,
nor to the Knowledge of Target, any verbal notice, from any Governmental Authority or other source that
alleges that it is not in material compliance with the HIPAA Privacy and Security Standards or the HITECH
Act. To the Knowledge of Target, no Breach has occurred with respect to any unsecured protected health
information (including electronic protected health information) maintained by or for either any of the Target
Group that is subject to the notification requirements of 45 CFR Part 164, Subpart D, and no information
security or privacy breach event has occurred that would require notification under any comparable state
Laws. For purposes of this Section, " Breach " means a breach of unsecured Protected Health Information
as defined in 45 CFR Section 164.402 and " Protected Health Information " means individually identifiable
health information transmitted by electronic media, maintained in electronic media, or transmitted or
maintained in any other form or medium as defined in 45 CFR Section 160.103. Each member of the Target
Group has records retention policies and procedures that are required to be complied with under a pplicable
Laws pertaining to retention of health care records, including records retention requirements imposed by
Medicare, and it has materially complied with such policies and proced ures and such a pplicable Law .
(h)
No member of the Target Group is subject to a corporate integrity
agreement, consent order or similar agreement with any Governmental Authority. No member of the Target
Group or, to Target's Knowledge, any current Target Group employee has been excluded or is threatened
with exclusion from participation in any Governmental Program.
(i)
Each member of the Target Group has filed all material claims, cost reports,
or other reports required to be filed with respect to Target Group's provision of services, products and
supplies covered under Medicare, Medicaid, TRICARE and other Federal
31
Health Care Programs, as such term is defined in section 1128B(f) of the Social Security Act, 42 U.S.C. §
1320a-7b(f) or state health care programs ( collectively " Governmental Programs ") , in which any
member of the Target Group participates , in material compliance with all statutes, rules and regulations
applicable to the Governmental Program, and all such claims and reports comply in all material respects with
all statutes, rules and regulations applicable to the applicable Governmental Program s . Each member of
the Target Group is and has been in material compliance with filing re quirements with respect to all reports,
including cost reports, and such reports do not claim, and , to the Knowledge of Target, none of the Target
Group has received, payment or reimbursement in material excess of the amount provided by applicable L
aw , or any applicable agreement with a Private Program or a Governmental Program , except where excess
reim bursement was noted on the rep ort or in an appeal of the report. True and correct copies of all such
reports for the three most recent fiscal years of Target Group have been made available to Acquiror. Section
3.14(i ) of the Target Disclosure Schedule indicates which of such reports for cost reporting periods ended
within the three most recent fiscal years have been audited by the fiscal intermediary and finally settled. To
Target's Knowledge, there are no facts or circumstances which are reasonably be expected to give rise to any
material disallowance under any such cost reports. To the Knowledge of Target, no validation review or
program integrity review relating to any of the target Group has been conducted by any commission, board
or agency in connection with any Governmental Program, and no such reviews are scheduled, pending or, to
the Knowledge of target, threatened against or affecting any of the Company Group.
(j)
Section 3.14(j) of the Target Disclosure Schedule sets forth a true, complete
and correct list of: (i) all healthcare services provided by each member of the Target Group, (ii) all geo
graphic areas served by a Target Group member, and (iii) the Permits held each member of the Target Group
. Each member of the Target Group possesses all Permits that are necessary or required to be obtained to
carry on the health care operations of the Target Group in the manner presently conducted (collectively, "
Health Care Permits ") , including without limitation, Permits from the Ohio Department of Health in
connection with such Target Group member's participation in the Ohio Medicaid Program. Target has
previously provided copies of all Health Care Permits to Acquiror . All Health Care Permits are valid and in
full force and effect, no violations have occurred, and no action or proceeding is pending or, to the
Knowledge of Target, threatened to revoke or limit any of those Health Care Permits. To the Knowledge of
Target, no action has been taken or recommended by any Governmental Authority, either to revoke,
withdraw or suspend any Health Care Permit. To the Knowledge of Target, n o event has occurred which,
with the giving of notice, the passage of time, or both, would constitute grounds for a material violation of
any Health Care Permit or to revoke, suspend, restrict or cancel any Health Care Permits.
(k)
To the K nowledge of Target, n o pre-Closing consents or approvals are
required from any Governmental Authority or any health care provider or intermediary in connection with
the consummation of the Merger .
3.15 Material Contracts .
(a)
All of the Material Contracts of any of the members of the
32
Target
Group are listed in Section 3.15 (a) of the Target Disclosure Schedule (arranged according to the portion(s)
of the definition of " Material Contract " under which such Contract qualifies) and a true, correct and
complete copy of each such Material Contract has been delivered to Acquiror. Each Material Contract: (i) is
legal, valid, binding and enforceable and in full force and effect with respect to any member of the Target
Group , and to Target's Knowledge, is legal, valid, binding, enforceable and in full force and effect with
respect to each other party thereto, in either case subject to the effect of bankruptcy, insolvency, moratorium
or other similar L aws affecting the enforcement of creditors’ rights generally and except as the availability
of equitable remedies may be limited by general principles of equity; (ii) has not been breached or defaulted
in any material respect by any member of the Target Group and to Target's Knowledge, has not been
defaulted or breached by any other party thereto .
(b)
No prior consent of any party to a Material Contract is required for the
consummation by any of the Target Group of the transactions contemplated hereby to be in compliance with
the provisions of such Material Contract or to avoid the loss of any right under or the incurrence of any
obligation under, such Material Contract , other than those consents listed on Section 3.15 (b) of the Target
Disclosure Schedule (the " Required Contract Consents ") .
3.16 Real Estate . To the Knowledge of Target, a ll leases for real property (each a "
Lease " and collectively, " Leases " ) to which any member of the Target Group is a party are in full force
and effect and are valid, binding and enforceable in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, moratorium or other similar L aws affecting or
relating to creditors’ rights generally; and general principles of equity, regardless of whether asserted in a
proceeding in equity or at law. True and correct copies of all such Leases have been provided to
Acquiror. All rents and service charges under each Lease have been paid to the extent such rents and
charges are due and pay able under the Leases. None of the Target Group currently owns any real property.
3.17 Accounts Receivable . Subject to any reserves set forth therein, the Target Group's
patient accounts receivable shown on the Target Balance Sheet are (a) valid and genuine, have arisen solely
out of bona fide sales and deliveries of goods, performance of services, or other business transactions in the
ordinary course of business ( such business conducted consistent with past practices ) in each case with Pe
rsons other than Affiliates , and to the Knowledge of Target, are not subject to valid defenses, set-offs or
counter claims , and (b) collectible in the ordinary course of business .
3.18 Customers and Suppliers; Adequacy of Supply . Except in the ordinary course of
business after the Target Balance Sheet Date, no material customer and no material supplier of any member
of the Target Group has canceled or otherwise terminated or made any writ ten threat to any of the Target
Group to cancel or otherwise termina te its relationship with any member of the Target Group or has at any
time on or after the Target Balance Sheet Date, decreased materially its services or supplies to any member
of the Target Group in the cas e of any such supplier, or its usage of the services o r products of any of the
Target Group in the case of such customer, and to Target’s Knowledge, after the Target Balance Sheet Date,
no such supplier or customer has indicated either orally or in writing that it intends to cancel or otherwise
33
terminate its rela tionship with any member of the Target Group or to decrease materially its services o r
supplies to any member of the Target Group or its usage of the services or products of any of the Target
Group, as the case may be. To Target's Knowledge, n o member of the Target Group has breached, so as to
provide a benefit to a member of the Target Group that was not intended by the parties, any agreement
with, or engaged in any fraudulent conduct with respect to, any customer or supplier of any member of the
Target Group .
3.19 Employees and Consultants . Section 3.19 of the Target Disclosure Schedule contains
a list of the names of all employees (including without limitation part-time employees and temporary
employees), leased employees, independent contractors and consultants of a ny member of the Target Group
, together with their respective salaries or wages, other compensation, dates of employment, leave of absence
status, current positions, and an indication of whether such individual is an employee of any member of the
Target Group .
3.20 Title to Property .
(a)
Each member of the Target Group has good title to all of its tangible and
intangible assets, including without limitation those assets which are reflected in the Target Balance
Sheet or acquired in the normal course of business after the Target Balance Sheet Date , other than
properties, interests in properties and assets sold or otherwise disposed of since the Target Balance Sheet
Date in the ordinary course of business, or with respect to leased tangible personal properties and assets,
valid leasehold interests therein, free and clear of all Encumbrances except Permitted Encumbrances. The
plants, property and equipment of a ny member of the Target Group that are used in the day-to-day
operations of the Target Business are in all material respects in adequate working condition and repair,
subject to normal wear and tear. All assets used in the day-to-day operations of Target Group are ref
lected in the Target Balance Sheet to the extent required by Agreed Accounting Principles.
(b)
Upon Acquiror's payment to the holders of the security interests in the assets
of Target Group in the amounts set forth on the Closing Statement , each of the assets of Target Group will
be eligible to be released from all security interests thereon, and Target Group , in conjunction with such
holders, shall be able to take all steps necessary to terminate all UCC financing statements which have been
filed with respect to such security interests.
3.21 Environmental Matters .
Each member of the Target Group is and has been in
material compliance with all Environmental Laws relating to the properties or facilities used, leased or
occupied by it at any time (collectively, " Target Group ’s Facilities ; " such properties or facilities
currently used, leased or occupied by a ny of the Target Group are defined herein as " Target Group ’s
Current Facilities " ), and no member of the Target Group has discharged, emitted, released, leaked or
spilled Hazard ous Materials at any of Target Group's Facilities that may or will give rise to liability of
Target Group under Environmental Laws. To Target’s Knowledge, there are no Hazardous Materials
(including without limitation asbestos) present in the surface waters, structures, ground waters or soil s of
or beneath any of Target Group's Current Facilities. To Target’s Knowledge, there neither are nor have been
any aboveground or underground storage tanks for Hazardous Materials at Target Group's Current
Facilities. To Target’s Knowledg e, no employee of Target Group or other Person has claimed
34
that any member of the Target Group is liable for alleged injury or illness resulting from an alleged exposure
to a Hazardous Material. No civil, criminal or administrative action, proceeding or to Target’s K nowledge,
investigation is pend ing against any member of the Target Group or, to Target’s Knowledge, t hreatened
against any member of the Target Group , with respect to Hazardous Materials or Environmental La ws .
3.22 Taxes .
(a)
Except as provided in Section 3.22(a) of the Target Disclosure Schedule, e
ach member of the Target Group has prepared and timely filed (subject to applicable extensions) all material
Returns relating to any and all material Taxes concerning or attributable to it or its operations due prior to the
Closing Date and such Returns are true and correct in all material respects and , to the Knowledge of Target,
have been completed in accordance with a pplicable Law. Target has made available to Acquiror copies of
all Returns filed for all periods since its inception. All Taxes due and owing (whether or not shown on any
Return) by any member of the Target Group have been paid when due .
(b)
As of the date hereof, each member of the Target Group has (i) timely
withheld from its employees, independent contractors, customers, Selling Parties , and other Persons from
whom it is required to withhold Taxes in compliance with all a pplicable Law, and (ii) timely paid all
amounts so withheld to the appropriate Governmental Entity or taxing authority.
(c)
Except as provided in Section 3.22(c) of the Target Disclosure Schedule, d
uring the period of all unexpired applicable statutes of limitations, no member of the Target Group has been
delinquent in the payment of any material Tax. There is no material Tax deficiency outstanding or assessed
or to Target’s knowledge, proposed against any of the Target Group that is not reflected as a liability on
the Target’s Financial Statements, nor has any member of the Target Group executed any agreements or
waivers extending any statute of limitations on or extending the period for the assessment or collection of
any Tax . Except as provided in Section 3.22(c) of the Target Disclosure Schedule, n one of the Target
Group's Returns have been audited by a government or taxing authority, nor is any such audit in process or
pending, and no member of the Target Group has been notified of any request for such an audit or oth er
examination. No member of the Target Group is party to any administrative or legal action relating to Taxes
and no claims asserting any deficiencies in Taxes have been made by any taxing authority with respect to the
Target Group .
(d)
No member of the Target Group has any material liabilities for unpaid Taxes
that have not been accrued for or reserved on the face of the Target Balance Sheet (rather than in any notes
thereto), whether asserted or unasserted, contingent or otherwise, and Target has no Knowledge of any basis
for the assertion of any such liabilit y attributable to any of the Target Group , or its assets or operations.
(e)
Except as provided in Section 3.22 (e) of the Target Disclosure Schedule, n
o member of the Target Group is a party to any tax-sharing agreement or similar arrangement with any other
pa rty, and none of the Target Group has assumed any obligation to
35
pay any Tax obligations of, or with respect to any transaction relating to, any other Person or agreed to
indemnify any other Person with respect to any Tax.
(f)
Target has disclosed to Acquiror : (i) any Tax exemption, Tax holiday or
other Tax- sharing arrangement that any of the Target Group has in any jurisdiction, including the nature,
amount and lengths of such Tax exemption, Tax holiday or other Tax-sharing arrangement; and (ii) any
expatriate tax programs or policies affecting it. Each member of the Target Group is in compliance with all
terms and conditions required to maintain such Tax exemption, Tax holiday or other Tax-sharing
arrangement or order of any Governmental Entity and the consummation of the transactions contemplated
hereby will not have any adverse effect on the continuing validity and effectiveness of any such Tax
exemption, Tax holiday or other Tax-sharing arrangement or order.
(g)
Target is not a " foreign person " as defined in Section 1445 of the Code,
and within the meaning of Treasury Regulation 1.1445-11T(d), and neither (i) 50% or more of the value of
the gross assets of Target consists of " United States real property interests " under Section 897(c) of the
Code, nor (ii) 90% or more of the value of the gross assets of Target consists of U.S. real property interests
plus cash or cash equivalents.
(h)
No member of the Target Group has agreed to make, nor is required to
make, any adjustment under Section 481 of the Code or corresponding provision of L aw by reason of any
change in accounting method.
(i)
Except fo r Target's ownership of the Target Subsidiaries , or as otherwise
described o n Section 3.1 of the Target Disclosure Schedule , no member of the Target Group directly or
indirectly owns, and has directly or indirectly owned, any equity interest in any corporation, partnership,
limited liability company, trust or any other entity or arrangement that is treated as a " business entity "
within the meaning of Section 301.7701-2 of the Treasury Regulations .
(j)
There are no liens or encum brances on the assets of any member of the
Target Group relating to or attributable to Taxes, other than liens for Taxes not yet due and payable.
(k)
Exc ept as provided in Section 3.22 (k) of the Target Disclosure Schedule, n
o member of the Target Group has requested nor received any private letter ruling from the Internal Revenue
Service or comparable rulings from any other government or taxing agency (domestic or foreign).
(l)
Exc ept as provided in Section 3.22 (l) of the Target Disclosure Schedule , n
o power of attorney with respect to Taxes is currently in effect with respect to any member of the Target
Group .
(m)
Target’s Returns have never been subject to a Code Section 482 adjustment
or corresponding provision of L aw. To the Knowledge of Target, e ach member of the Target Group is in
compliance with all transfer pricing requirements in all jurisdictions in
36
which it does business.
(n)
Section 3.22 (n) of the Target Disclosure Schedule lists all of th e
jurisdictions in which any member of the Target Group files income, franchise or unincorporated business
Returns (to the extent applic able to it), and to Target’s Knowledge no member of the Target Group is (and
never has been) subject to any material income, franchise or unincorporated business Taxes in any
jurisdiction that is not listed in Section 3.2 2 (n) of the Target Disclosure Schedule.
(o)
No claim has been made by a taxing authority (domestic or foreign) in a
jurisdiction where Target Group does not file Returns to the effect that Target may be subject to Tax by that
jurisdiction. No member of the Target Group has had a permanent establishment in any foreign country, as
defined in any applicable Tax treaty or convention between the United States and such foreign country.
(p)
Exc ept as provided in Section 3.22 (p) of the Target Disclosure Schedule, e
ach member of the Target Group uses (and has used since its formation or, if acquired, since the date that the
Target Subsidiary was acquired ) the accrual method of accounting in computing its taxable income for
federal incom e Tax purposes, and each member of the Target Group uses the calendar year as its taxable
year for federal income Tax purposes .
(q)
No membe r of the Target Group or Acquiror, or any of their respective
Affiliates , will be required to include any item of income in, or exclude any item of deduction from, taxable
income for any taxable period (or portion thereof) ending after the Closing Date as a result of any: (A)
change in method of accounting for a taxable period ending on or prior to the Closing Date, (B) use of an
improper method of accounting for a taxable period ending on or prior to the Closing Date, (C) " closing
agreement " as described in Section 7121 of the Code (or any corresponding or similar provision of state,
local or foreign income Tax law) executed on or prior to the Closing Date; (D) installment sale or open
transaction disposition made on or prior to the Closing Date; (E) prepaid amount received on or prior to the
Closing Date or (F) any similar election, action, or agreement that would have the effect of deferring any
liability for Taxes of any member of the Target Group from any period ending on or before the Closing Date
to any period ending after such date.
(r)
No member of the Target Group is a party to any understanding or
arrangement described in Section 6662(d)(2)(C)(ii) of the Code as a " tax shelter " , or has participated in a "
reportable transaction " within the meaning of Treasury Regulations Section 1.6011-4.
(s)
No member of the Target Group has distributed stock of another Person, or
has had its stock distributed by another Person, in a transaction that was purported or intended to be
governed in whole or in part by Code Sections 355 or 361.
(t)
Target (i) has not been a member of an affiliated group (under Code Section
1504(a)) filing a consolidated federal income Return (other than a group the common parent of which was
Target); or (ii) has any liability for the Taxes of any Person (other
37
than Target) under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local, or
non-U.S. Law), as a transferee or successor, by contract, or otherwise.
(u)
For periods beginning January 1, 2013, all required estimated Tax payments
sufficient to avoid any underpayment penalties have been timely made by or on behalf of any of the Target
Group . None of the Returns fil ed by or with respect to any member of the Target Group contains a
disclosure statement under Section 6662 of the Code (or any similar provision of state, local or foreign Tax
law).
(v)
Except as provided in Section 3.22(v) of the Target Disclosure Schedule, s
ince December 31, 2012, Target has not made or changed any tax election, changed an annual accounting
period, adopted or changed any accounting method, filed any amended federal Return, entered into any
closing agreement as described in Section 7121 of the Code (or any corresponding or similar provision of
state, local or foreign income Tax law), settled any Tax claim or assessment, surrendered any right to claim a
refund of Taxes, or consented to any extension or waiver of the limitation period applicable to any Tax claim
or assessment relating to Target .
(w)
Each member of the Target Group has the status for federal income tax
purposes described on Section 3.22( w ) of the Target Disclosure Schedule .
3.23 Employee Benefit Plans ; Labor and Employment Matters .
(a)
Section 3.23(a) of the Target Disclosure Schedule contains in all material
respects an accurate and complete list, with respect to Target and any other Person within the controlled
group of corporations with Target or any of its subsidiaries within the meaning of Section 414(b), (c), (m) or
(o) of the Code, and the regulations issued thereunder (collectively an " ERISA Affiliate " ) of each plan,
program, policy, practice, contract, agreement or other arrangement providing for direct or indirect
compensation, severance benefits, termination pay, deferred compensation, performance awards, stock or
stock-related options or awards, pension benefits, retirement benefits, profit-sharing benefits, savings
benefits, disability benefits, medical insurance, dental insurance, health insurance, life insurance, death
benefit, other insurance, repatriation or expatriation benefits, tax gross ups, welfare benefits, fringe benefits
or other employee benefits or remuneration of any kind, whether written, unwritten or otherwise, funded or
unfunded, including, but not limited to, each " employee benefit plan, " within the meaning of Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ( " ERISA " ), which is or has been
maintained, contributed to, or required to be contributed to, by Target, any of its subsidiaries or any ERISA
Affiliate for the benefit of any current or former employee, director or consultant (collectively, the " Target
Employee Plans " ). None of Target, its subsidiaries and their ERISA Affiliates has made any plan or
commitment to establish any new Target Employee Plan, to modify any Target Employee Plan (except to the
extent required by L aw or to conform any such Target Employee Plan to the requirements of any a pplicable
Law, in each case as previously disclosed to Acquiror in writing, or as required by this Agreement). Kathy
Ferriell is no longer an employee of the Target Group and none of the Target Group has any further liability
or obligation under her Equity Mirror Agreement.
38
(b)
Documents . Except a s provided in Section 3.23 (b) of the Target
Disclosure Schedule, Target has provided to Acquiror (i) current, correct and complete copies of all
documents embodying each Target Employee Plan including all amendments thereto and all related trust
documents (or a summary of any oral Target Employee Plan), (ii) the three (3) most recent annual reports
(Form Series 5500 and all schedules and financial statements attached thereto), if any, required under ERISA
or the Code in connection with each Target Employee Plan, (iii) if the Target Employee Plan is funded, the
most recent annual and periodic accounting of Target Employee Plan assets, (iv) the most recent summary
plan description together with the summary(ies) of material modifications thereto, if any, with respect to
each Target Employee Plan, (v) all material written agreements and contracts relating to each Target
Employee Plan, including administrative service agreements and group insurance contracts, (vi) each
affirmative action plan, if applicable, (vii) all communications material to any employee or employees
relating to any Target Employee Plan and any proposed Target Employee Plan, in each case, relating to any
amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any liability to Target or any of its subsidiaries, (viii)
all correspondence to or from any governmental agency relating to any Target Employee Plan, (ix) all model
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ( " COBRA " ) forms and related
notices, (x) all policies pertaining to fiduciary liability insurance covering the fiduciaries for each Target
Employee Plan, (xi) all discrimination tests for each applicable Target Employee Plan for the three most
recent plan years, (xii) all registration statements, annual reports (Form 11-K and all attachments thereto)
and prospectuses prepared in connection with each Target Employee Plan, to the extent applicable, (xiii) all
HIPAA privacy notices and all business associate agreements to the extent required under HIPAA, (xiv) the
most recent Internal Revenue Services (" IRS ") determination or opinion letter issued with respect to each
Target Employee Plan and (xv) all rulings or notices issued by a governmental agency with respect to each
Target Employee Plan.
(c)
Target Employee Plan Compliance . Ex cept as provided in Section 3.23 (c)
of the Target Disclosure Schedule, Target has performed in all material respects all obligations required to be
performed by it under and is not in material default or violation of any Target Employee Plan , and to
Target’s Knowledge each Target Employee Plan has been established and maintained in all material respects
in accordance with its terms and in compliance with applicable Law, including ERISA or the Code. Each
Target Employee Plan intended to be qualified under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code has either (i) applied for a favorable determination letter, prior to
the expiration of the requisite remedial amendment period under applicable Treasury Regulations or IRS
pronouncements, but has not yet received a response; (ii) obtained a favorable determination, notification,
advisory and/or opinion letter, as applicable, on which the employer is entitled to rely, as to its qualified
status from the IRS; or (iii) still has a remaining period of time to apply for such a determination letter from
the IRS and to make any amendments necessary to obtain a favorable determination, and to Target’s
Knowledge nothing has occurred since the date of the most recent determination that could reasonably be
expected to cause any such Target Employee Plan or trust to fail to qualify under § 401(a) or 501(a) of the
Code. Except as provided in Section 3.23(c) of the Target Disclosure Schedule, n o " prohibited
transaction, " within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA,
39
and not otherwise exempt under Section 408 of ERISA, has occurred with respect to any Target Employee
Plan. There are no actions, suits or claims pending or, to the Knowledge of Target or any ERISA Affiliates,
threatened or reasonably anticipated (other than routine claims for benefits) against any Target Employee
Plan or against the assets of any Target Employee Plan and, to the Knowledge of Target or any ERISA
Affiliates, no fact or circumstance exists that would make such an action, suit or claim reasonably likely to
occur. Each Target Employee Plan can be amended, terminated or otherwise discontinued after the Effective
Time in accordance with its terms, without liability to Acquiror, Target or any ERISA Affiliate (other than
ordinary administration expenses), other than those Target Employee Plans identified on Section 3.24(a) of
the Target Disclosure Schedule that require assent of a participant thereof to effect an amendment or
termination. There are no audits, inquiries or proceedings pending or that have been initiated, or to the
Knowledge of Target, are reasonably likely to be initiated, by the IRS, United States Department of Labor,
or any other Governmental Authority with respect to any Target Employee Plan. N either Target nor any
ERISA Affiliate is subject to any material fine, assessment, penalty or other Tax or liability with respect to
any Target Employee Plan under Section 502(i) of ERISA or Sections 4975 through 4980 of the Code or
otherwise by operation of law or contract. Target has timely made in all material respects all contributions
and other payments required by and due under the terms of each Target Employee Plan. Except as provided
in Section 3.23(c) of the Target Disclosure Schedule, Target has no Knowledge of any event that would give
rise to loss of the tax-qualified or tax-exempt status of any Target Employee Plan.
(d)
No Pension Plan . No member of the Target Group or any ERISA Affiliate
has ever maintained, established, sponsored, participated in, or contributed to, or incurred an obligation to
contribute to any Target Employee Plan that is (i) an " employee pension benefit plan, " within the meaning
of Section 3(2) of ERISA (a " Pension Plan " ) subject to Part 3 of Subtitle B of Title I of ERISA, Title IV
of ERISA or Section 412 of the Code, (ii) a " funded welfare plan " within the meaning of Section 419 of the
Code, (iii) a " multiple employer welfare arrangement " (as defined under Section 3(40)(A) of ERISA
(without regard to Section 514(b)(6)(B) of ERISA)), or (iv) a Target Employee Plan in which stock of the
Target or any ERISA Affiliate is or was held as a plan asset.
(e)
No Self-Insured Target Employee Plan . N o member of the Target Group
or any ERISA Affiliate has ever maintained, established, sponsored, participated in or contributed to or
incurred an obligation to contribute to any self-insured " group health plan " (within the meaning of
Section 5000(b)(1) of the Code) that provides benefits to employees (other than a medical flexible spending
account, health reimbursement arrangement or other similar program, including any such plan pursuant to
which a stop-loss policy or contract applies).
(f)
Collectively Bargained, Multiemployer and Multiple-Employer Plan . At no
time has any member of the Target Group or any ERISA Affiliate contributed to or been obligated to
contribute to any multiemployer plan (as defined in Section 3(37) of ERISA). No member of the Target
Group or any ERISA Affiliate has at any time ever maintained, established, sponsored, participated in or
contributed to any multiple employer plan or to any
40
plan described in Section 413 of the Code.
(g)
No Post-Employment Obligations . Except as provided in Section 3.23 (g)
of the Target Disclosure Schedule, n o Target Employee Plan provides, or reflects or represents any liability
to provide, post-termination or retiree life insurance, health or other employee welfare benefits to any Person
for any reason, except as may be required by COBRA or other applicable L aw , and Target has not
represented, promised or contracted (whether in oral or written form) to any employee (either individually or
to employees as a group) or any other Person that such employee(s) or other Person would be provided with
life insurance, health or other employee welfare benefits, except to the extent required by statute.
(h)
COBRA; FMLA; HIPAA . To Target’s Knowledge, Target and each
ERISA Affiliate has complied in all material respects with COBRA, the Family Medical Leave Act of 1993,
as amended ( " FMLA " ), HIPAA, the Women’s Health and Cancer Rights Act of 1998, the Newborns’ and
Mothers’ Health Protection Act of 1996, and any similar provisions of the law s of Ohio applicable to its
employees. To the extent required under HIPAA and the regu lations issued thereunder, each member of the
Target Group has performed in all material respects all obligations under the medical privacy rules of
HIPAA, the electronic data interchange requirements of HIPAA, and the security requirements of
HIPAA. No member of the Target Group has unsatisfied obligations to any employees or qualified
beneficiaries pursuant to COBRA, HIPAA or any Ohio law governing health care coverage or extension.
(i)
Effect of Transaction . Exc ept as set forth on Section 3.2 3 (i) of the Target
Disclosure Schedule, neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby or any termination of employment or service in connection therewith will
(i) result in any payment (including severance, golden parachute, bonus, tax gross up, or otherwise),
becoming due to any current or former employee, director or consultant, (ii) result in any forgiveness of
indebtedness of any current or former employee, director or consultant, (iii) materially increase any benefits
otherwise payable by Target or any of its subsidiaries or ERISA Affiliates to any current or former
employee, director or consultant or (iv) result in the acceleration of the time of payment or vesting of any
such benefits to any current or former employee, director or consultant except as required under
Section 411(d)(3) of the Code.
(j)
Deferred Compensation . No compensation shall be includable in the gross
income of any current or former employee, director or consultant of any member of the Target Group or any
of its ERISA Affiliates as a result of the operation of Sections 409A or 457A of the Code with respect to any
applicable arrangements or agreements in effect prior to the Effective Time. No stock options, stock
appreciation rights or other equity-based awards issued or granted by Target are treated as deferred
compensation arrangements subject to the requirements of Sections 409A or 457A of the Code. Each "
nonqualified deferred compensation plan " (as such term is defined under Section 409A(d)(1) of the Code
and the guidance thereunder and under Section 457A of the Code and the guidance thereunder) under which
any member of the Target Group or any of its ERISA Affiliates makes, is obligated to make or promises to
make, payments (each, a " 409A Plan " ) to Target’s Knowledge complies in all material respects, in both
form and operation, with the requirements of Sections 409A and 457A of the Code and
41
the guidance thereunder. Section 3.23(j) of the Target Disclosure Schedule lists each 409A Plan under
which Target or its ERISA Affiliates makes, is obligated to make or promises to make, payments. No
payment to be made under any 409A Plan is, or to the Knowledge of Target will be, subject to the penalties
of Section 409A(a)(1) of the Code or 457A of the Code.
(k)
Employment Matters . E ach member of the Target Group is in material
compliance with all applicable L aws, rules and regulations respecting employment, employment practices,
terms and conditions of employment, employee safety and health, wages and hours, overtime compensation,
equal employment opportunities, fair employment practices, employment discrimination, harassment,
retaliation, reasonable accommodation, disability rights or ben efits, immigration , child labor, hiring,
promotion and termination of employees, working conditions, meal and break periods, privacy, health and
safety, workers’ compensation, leaves of absence and unemployment insurance , and in each case, with
respect to employees: (i) has withheld and reported all material amounts required by applicable L aw or by
agreement to be withheld and reported with respect to wages, salaries and other payments to employees, (ii)
is not liable for any arrears of wages, severance pay or any Taxes or any penalty for failure to comply with
any of the foregoing, and (iii) is not liable for any payment to any trust or other fund governed by or
maintained by or on behalf of any G overnmental A uthority, with respect to unemployment compensation
benefits, social security or other benefits or obligations for employees (other than routine payments to be
made in the normal course of business and consistent with past practice ) . There are no actions, suits, claims
or administrative matters pending, or to Target’s Knowledge threatened, or reasona bly anticipated, against
any member of the Target Group or any of their respective ERISA Affiliates relating to any employee or
Target Employee Plan. There are no pending or to Target’s Knowledge threatened, or reasonably
anticipated, claims or actions against any member of the Target Group or any trustee under any worker’s
compensation policy. The services provided by each of Tar get and their ERISA Affiliates’ employees are
terminable at the will of Target and its ERISA Affiliates. Section 3.23 (k) of the Target Disclosure Schedule
lists any employees who are employed pursuant to a written employment agreement by Target or any of its
ERISA Affiliates. Section 3.23(k) of the Target Disclosure Schedule lists all contractual liabilities of each
member of the Target Group and its ERISA Affiliates to any employee, director or consultant, that result
from the termination by Acquiror or Target of such Person’s employment or provision of services, a change
of control of Target, or a combination thereof. To Target’s Knowledge, n o member of the Target Group or
any ERISA Affiliate has direct or indirect liability with respect to any misclassification of any Person as an
independent contractor rather than as an employee, or with respect to any employee leased from another
employer.
A ll employees of the Target Business classified as exempt under the Fair Labor Standards Act
and applicable Ohio and local wage and hour laws are prop erly classified. There are no actions against any
of the Target Group pending, or to Target's Knowledge, threatened to be brought or filed, by or with any
Governmental Authority or arbitrator in connection with the employment of any current or former applicant,
employee, consultant or independent contractor of the Business, including, without limitation, any claim
relating to unfair labor practices, employment discrimination, harassment, retaliation, equal pay, wages and
hours or any other employmen t related matter arising under a pplicable Law.
(l)
Labor . No work stoppage or labor strike against any of the Target
42
Group is pending, or, to the Knowledge of Target, threatened, or reasonably anticipated. Target has no
Knowledge of any activities or proceedings of any labor union to organize any employees of any of the
Target Group . There are no actions, suits, claims, labor disputes or grievances pending or, to Target’s
Knowledge, threatened, or reasonably anticipated relating to any labor matters involving any employee of
any of the Target Group , including charges of un fair labor practices. No member of the Target Group has
engaged, to the extent material, in any unfair labor practices within the meaning of the National Labor
Relations Act. No member of the Target Group is presently, nor has it been in the past, a party to, or bound
by, any collective bargaining agreement, works council agreements or procedures, or union contract with
respect to employees and no collective bargaining agreement is being negotiated by any of the Target Group
. Within the past y ear, no member of the Target Group has incurred any liability or obligation under the
Worker Adjustment and Retraining Notification Act ( " WARN " ) or any similar applicable Ohio or local
law that remains unsatisfied, nor shall any terminations prior to the Closing Date result in unsatisfied liability
or obligation under WARN or any similar applicable Ohio or local law.
(m)
No Interference or Conflict . To the Knowledge of Target, no stockholder,
director, officer, manager, member, employee or consultant of any member of the Target Group is obligated
under any contract or agreement, subject to any judgment, decree, or order of any court or administrative
agency that would interfere with such Person’s efforts to promote the interests of the Target Group or that
would interfere with the business of the Target Group . To the Knowledge of Target, neither the execution
nor delivery of this Agreement, nor the carrying on of the business of the Target Group as presently
conducted nor any activity of such officers, directors, employees or consultants in connection with the
carrying on of such business as presently conducted will, conflict with or result in a breach of the terms,
conditions, or provisions of, or constitute a default under, any contract or agreement under which any of such
officers, directors, employees, or consultants is now bound.
(n)
For purposes of satisfying requirements under the Affordable Care Act ( "
ACA " ), and to the extent applicable, each of the Target Group has (i) offered minimum essential coverage
that is affordable and provides minimum value to all full-time employees (as defined by the ACA); (ii) has
tracked and recorded employee hours data in order to accurately determine employee full-time status for
purposes of offering proper coverage and avoiding employer mandate penalties under the ACA and to ensure
complete and accurate reporting under Code Sections 6055 and 6056 (as applicable); (iii) ensured that any "
grandfathered plan " under the ACA that it offers has continually satisfied the requirements to remain
grandfathered since March 23, 2010; (iv) determined that all of its workers have been properly classified
and, specifically, all workers who are common law employees within the meaning applicable to the ACA
and Code Section 4980H have been classified as employees; (v) satisfied the requirements of the Patient
Centered Outcomes Research Institute fee under Code Section 4376 for its self-funded plans, including the
proper filing of IRS Form 720 to report and pay the fee for all years required under the ACA; (vi) satisfied
the requirements of the Transitional Reinsurance Program fee under Code Section 1341 of the ACA for all
years required under the ACA; and (vii) timely distributed Summaries of Benefits and Coverage to proper
parties since the requirement began for open and special enrollments beginning on or after September 23,
2012.
43
3.24 Insurance . Each member of the Target Group has the policies of insurance and bonds
of the type and in the policy a mounts set forth on Section 3.24 of the Target Disclosure Schedule. There is
no material claim pending under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all
such policies and bo nds have been paid, and to Target’s Knowledge each member of the Target Group is
otherwise in all material respects in compliance with the terms of such policies and bonds. Target has no
Knowledge of any threatened termination of, or material premium increase with respect to, any of such
policies.
3.25 Brokers’ and Finders’ Fee . Except as set forth on Section 3.25 of the Target
Disclosure Schedule, no broker, finder or investment banker is entitled to brokerage or finders’ fees or
agents’ commissions or investment bankers’ fees or any similar charges in connection with the Merger, this
Agreement or any transaction contemplated hereby , as a result of any action by any member of the Target
Group or its Representatives.
3.26 Restrictions on Business Activities . There is no agreement, judgment, injunction,
order or decree binding upon any member of the Target Group that has or could reasonably be expected to
have the effect of prohibiting or materially impairing any current practice of its, any acquisition of property
by it or the conduct of its business as presentl y conducted.
3.27 Absence of Unlawful Payments . No member of the Target Group , or to the
Knowledge of Target, any of their directors, officers, employees, agents or representatives in their capacity
as such, or Person acting on behalf of any of the aforementioned, has offered, authorized, made, paid or
received, or will in the future offer, authorize, make, pay or receive, directly or indirectly, any bribes,
kickbacks, or other similar payments or offers or transfers of value in connection with obtaining or retaining
business or to secure an improper advantage to or from any Person; nor have any of them, directly or
indirectly, committed any violation of any applicable anti-corruption law or regulation, including the U.S.
Foreign Corrupt Practices Act, 15 U.S.C. 78dd et seq.
3.28 Compliance with Rights of First Refusal . Neither the execution, delivery and
performance of this Agreement, nor the consummation of the Merger or any other transaction contemplated
by this Agreement, will result in any violation or be in conflict with or constitute, with or without the
passage of time and giving of notice, any agreement to which Target is a party that provides for any right of
notice, right of first refusal, right of first offer, right of first negotiation or similar right directly or indirectly
applicable to this Agreement, the consummation of the Merger or any other transaction contemplated by this
Agreem ent .
3.29 Disclaimer of Other Representations and Warranties . Except for the representations a
nd warranties contained in Section s 3 or 4, no member of the Target Group or the Selling Parties or any
other Person has made or makes any other express or implied representation or warranty, either written or
oral, on behalf of any of the Target Group , and any such other representations and warranties are hereby
disclaimed.
4. Representations and Warranties of Selling Partie s . Each of the Selling Parties ,
44
severally but not jointly, represents and warrants to the Acquiror and Merger Sub as follows:
(a)
The Parent Common S tock to be received by such Selling Party will be
acquired for investment for such Selling Party's own account, not as a nominee or agent, and not with a view
to a public distribution of any part thereof, and such Selling Party has no present intention of selling,
granting any participation in, or otherwise distributi ng the same. Such Selling Party has no need for
liquidity with respect to its investment in Parent Common stock .
(b)
Acquiror has delivered to Target for distribution to its Sel ling Parties a
reasonable time before the date of this Agreement true and complete copies of Acquiror’s (i) Annual Report
on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission
(the " SEC " ); (ii) all periodic reports on Form 8-K filed with the SEC since December 31, 2014 to the date
hereof; and (iii) all Forms 10-Q filed with the SEC since December 31, 2014 to the date hereof. Each
Selling Party , or a representative thereof, has received a draft of this Agreement and has confirmed that all
documents, books and records pertaining to such Selling Party 's investment in Parent Common S tock and
requested by Target or such Selling Party have been made available.
(c)
Such Selling Party is an experienced investor in securities and acknowledges
that it bears the complete economic risk of its investment and has such knowledge and experience in
financial or business matters that such Selling Party is capable of evaluating the merits and risks of the
investment in Parent Common S tock . Such Selling Party is an "accredited investor" within the meaning of
Rule 501(a) promulgated under the Securities Act.
(d)
The purchase of Parent Common S tock by such Selling Party is consistent
with the general investment objectives of such Selling Party . Such Selling Party understands that the
purchase of Parent Common S tock involves a high degree of risk
(e)
Such Selling Party acknowledges that such Selling Party has been advised to
seek his, her or its own tax and legal advice in connection with this Agreement and the Merger, including
with respect to the treatment of the Merger for Federal, foreign, state and local income tax purposes and the
treatment of the Selling Party for tax purposes in connection therewith . Each Selling Party acknowledges
that none of the parties to this Agreement has (i) made any representations and warranties to such Selling
Party or to any of the other parties hereto regarding the treatment of the Merger for Federal, foreign, state or
local tax purposes, or (ii) provided any tax opinion or advice regarding the treatment of the Merger for
Federal, foreign, state or local tax purposes or the treatment of the Selling Party for tax purposes in
connection ther e with.
(f)
The Parent Common S tock issued to such Selling Party shall not be
registered under the Securities Act at the time of issuance, and as such shall constitute "restricted securities"
within the meaning of Rule 144 and, unless sold pursuant to an effective registration statement, the Paren t
Common S tock shall be available for sale in the public market only in compliance with Rule 144. Such
Selling Party understands that in connection with exchanging Target Units for Parent Common S tock , it
will be required to agree that it will not
45
transfer or dispose of any Parent Common stock unless and until, if requested by Acquiror, such Selling
Party shall have furnished to Acquiror (at the expense of such Selling Party or its transferee) a customary
opinion of counsel or other evidence, reasonably satisfactory to Acquiror, to the effect that such transfer may
be made without restrictions under the Securities Act. Such Selling Party further understands that Section
2.12 places additional restrictions on the transfer of Parent Common S tock . Certificates representing the
Parent Common S tock shall bear a legend substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY STATE SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD, PLEDGED, OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR A VALID EXEMPTION FROM
THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR OTHER EVIDENCE SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. THE SHARES REPRESENTED BY
THIS CERTIFICATE ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER SET
FORTH IN AN AGREEMENT AND PLA N OF MERGER DATED NOVEMBER 3, 2015 , A COPY OF
WHICH IS MAINTAINED IN THE OFFICE OF THE SECRETARY OF THE CORPORATION.
(g)
T he Selling Party's Target Units are not represented by certificates. The
Selling Party h as full power and authority to execute and deliver this Agreement and to surrender
its Target Units pursuant to this Agreement. The Selling Party has duly executed and delivered this
Agreement which constitutes the valid and legally bindi ng obligation of the Selling Party , enforceable in
accordance with its terms and conditions. I f the Selling Party is an entity, the execution and delivery of this
Agreement by the Selling Party and the performance by the Selling Party of its obligations under this
Agreement have been duly author ized by all necessary action on the part of the Selling Party (including by
any managing body o f the Selling Party, if required). The Selling Party is not required to give any notice to,
make any filing or registration with, or obtain any authorization, waiver, license, consent, or approval of any
G overnmental A uthority or third party in connection with the execution and delivery of this Agreement by
the Selling Party and the performance by the Selling Party of i ts obligations hereunder or the
consummation of the transactions contemplated by this Agreement. The Selling Party is the true and lawful
owner of, and has good and valid title to, the Target Units representing by Selling Party's certificates , free
and clear of all liens, pledges, restrictions, charges or claims, or any other encumbrances of any kind (other
than limitations on transfers imposed by applicab le securities laws). Upon consummation of the Merger ,
Acquiror shall hold good and valid title to the Target Units, subject to the terms and conditions of this
Agreement . No Selling Party is an individual resident of any state that is subject to community property
laws.
5. Representations and Warranties of Acquiror and Merger Sub . Acquiror and Merger Sub represent
and warrant to Target that the statements contained in this Section 4 are true and correct in all material
respects.
5.1 Organization, Standing and Power . Acquiror is a corporation duly
46
organized, validly existing and in good stan ding under the laws of the Commonwealth of Kentucky
. Merger Sub is a limited liability company duly organized and validly existing under the laws of the State
of Ohio . Each of Acquiror and Merger Sub has the corporate (if applicable) power to own its properties and
to carry on its business as now being conducted and as proposed to be conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to be so qualified and in good
standing could reasonably be expected to have a Material Adverse Effect on Acquiror or Merger Sub, as
applicable .
5.2 Authority .
(a)
Acquiror and Merger Sub have all requisite corporate or limited liability
company (as applicable) power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary corpor ate or limited
liability company (as applicable) action on the part of Parent, Acquiror , and Merger Sub. Each of this
Agreement and the other agreements contemplated hereby has been duly executed and delivered by Acquiror
and Merger Sub and constitutes the valid and binding obligations of Parent, Acquiror , and Merger Sub
enforceable against Parent, Acquiror , and Merger Sub, as applicable, in accordance with its terms, except as
may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar L aws affecting or
relating to creditors’ rights generally, and subject to general principles of equity. The execution and
delivery of this Agreement by Parent, Acquiror, and Merger Sub do not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with
or without notice or lapse of time, or both) any provision of the their respective organizational and governing
documents.
(b)
In connection with obtaining the consent to the Merger, Parent, Acquirer,
and Merger Sub have each complied with the terms of their respective organizational and governing
documents and all applicable Law .
(c)
No consent, approval, order or authorization of or registration, declaration or
filing with any Governmental Entity is required by or with respect to Parent, Acquiror, Merger Sub or any of
Parent’s or Acquiror's subsidiaries in connection with the execution and delivery of this Agreement and the
other agreements contemplated hereby by Parent, Acquiror , and Merger Sub or the consummation by
Parent, Acquiror , and Merger Sub of the transactions contemplated hereby and thereby, except for (i) the
filing of the Certificate of Merger ; and (ii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not reasonably be expected to have a Material Adverse
Effect on Acquiror and would not prevent, materially alter or delay any of the transactions contemplated by
this Agreement .
5.3 Issuance and Validity of Parent Common S tock . Parent Common S tock , when issued
in compliance with the provisions of this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, will be free of any liens or E ncumbrances, and will not be subject to any preemptive rights,
rights of firs
t refusal or redemption r ights.
47
5.4 Financial Ability to Perform
. Acquiror has, as of the date of this Agreement, and
shall have at Closing, all available cash funds, credit facilities or other sources of immediately available
funds sufficient to timely and fully consummate the transactions contemplated by this Agreement.
5.5 SEC Rep o rts .
(a)
Since January 1, 2 012, Parent has timely filed all required (by Law or
otherwise) reports, schedules, and forms with the SEC (collectively, and in each case including all
amendments, exhibits and schedules thereto and documents incorporated by reference therein, the " SEC
Reports " ). As of its filing date (or, if amended or superseded by a filing prior to the date of this
Agreement, on the date of such filing), each SEC Report complied as to form in all material respects with the
applicable requirements of the Securities Act and the Exchange Act, as the case may be. As of their
respective filing dates (or, if amended or superseded by a filing prior to the date of this Agreement, on the
date of such filing), none of the SEC Reports contained any untrue statement of a material fact or omitted to
state any material fact necessary to make the statements made therein, in the light of the circumstances in
which they were made, not misleading, except to the extent corrected by a subsequently filed SEC Report.
(b)
The consolidated financial statements (including any related notes) included
in the SEC Reports (the " Acquiror Financial Statements " ) fairly present in all material respects the
consolidated financial position, statements of equity, cash flows a nd changes in equity of Parent for the
respective fiscal periods or as of the respective dates therein set forth; and each of such statements (including
the related notes, where applicable) complies in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with respect thereto; and each of such
statements (including the related notes, where applicable) has been prepared in accordance with GAAP
consistently applied during the periods involved, except, in each case, as indicated in such statements or in
the notes thereto, and provided that unaudited interim financial statements may not contain footnotes and
may be subject to normal year-end audit adjustments.
5.6 No Material Adverse Ch ange . Since December 31, 2014 , except as disclosed in the
SEC Reports, there has not been any material adverse change in the business, operations, properties,
prospects, assets, or condition of Parent , and no event has occurred or circumstance exists that may result in
such a material adverse change.
5.7 Investment Intent . Acquiror is acquiring the Target Units for its own account for
investment purposes only and not with a view to any public distribution thereof or with any intention of
selling, distributing or otherwise disposing of the Target Units in a manner that would violate the registration
requirements of the Securities Act or any similar provisions of any a pplicable Law. Acquiror agrees that
Target Units may not be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of
without registration under the Securities Act and any other applicable securities Laws, except pursuant to an
exemption from such registration under the Securities Act and such Laws. Acquiror is able to bear the
economic risk of holding the Target Units for an indefinite period (including total loss of its investment), and
48
(either alone or together with its Representatives) has sufficient knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risk of its investment. Acquiror qualifies
as an " accredited investor, " as such term is defined in Rule 501(a) promulgated pursuant to the Securities
Act.
5.8 Acquiror Information . The information regarding Acquiror and Parent Common S tock
that Acquiror has provided to Target for delivery to Target's Selling Parties and holders of convertible stock
satisfies the information requirements of paragraph (b)(2)(ii) of Rule 502 of the Securities Act .
5.9 Brokers’ and Finders’ Fee . N o broker, finder or investment banker is entitled to
brokerage or finders’ fees or agents’ commissions or investment bankers’ fees or any similar charges in
connection with the Merger, this Agreement or any transaction contemplated hereby, as a result of any action
by Parent, Acquiror, Merger Sub or their Representativ es.
6. Additional Agreements .
6.1 Confidentiality .
Parent and Target shall hold, and shall cause their respective
Affiliates , and Representatives to hold, in confidence all documents and information furnished to it by or
on behalf of the other party in connection with the transactions contemplated hereby pursuant to the terms of
the confidentiality agreement dated May 22, 2015 between Parent and Target (the " Confidentiality
Agreement " ), which shall continue in full force and effect until the Closing Date, at which time such
Confidentiality Agreement and the obligations of the parties under this Section 6.1 shall terminate; provided,
however, that after the Closing Date, the Confidentiality Agreement shall terminate only in respect of that
portion of the confidential i nformation exclusively relating to the transactions contemplated by this
Agreement.
6.2 Public Disclosure . Target shall consult with Acquiror before issuing any press release
or otherwise making any public statement or making any other public (or non-confidential) disclosure
(whether or not in response to an inquiry) regarding the terms of this Agreement and the transactions
contemplated hereby, and shall not issue any such press release or make any such statement or disclosure
without the prior approval of Acquiror, except as may be required by applicable L aw.
6.3 Regulatory Approval; Further Assurances .
(a)
Each party shall use commercially reasonable efforts to file, as promptly as
practicable after the date of this Agreement, all notices, reports and other documents required to be filed by
such pa rty with any Governmental Authority with respect to the Merger and the other transactions
contemplated by this Agreement, and to submit promptly any additional information requested by any such
Governmental Authority . Each of Target and Acquiror shall : (i) give the other party prompt notice of the
commencement of any legal proceeding by o r before any Governmental Authority with respect to the
Merger or any of the other transactions contemplated by this Agreement, (ii) keep the other party informed
as to the status of any such legal proceeding, and (iii) promptly inform the other party of any communication
to or from any Governmental Authority regarding the Merger.
49
(b)
Acquiror and Target shall use commercially reasonable efforts to take, or
cause to be taken, all actions necessary to effectuate the Merger and make effective the other transactions
contemplated by this Agreement. Each party shall promptly deliver to the other a copy of each filing made
pursuant to Section 6.3(a), and each notice given and consent obtained by such party during the period prior
to the Effective Time. Each party, at the reasonable request of the other party, shall execute and deliver such
other instruments and do and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions contemplated hereby. Upon
execution and delivery of this Agreement, Acquiror will file the Certificate of Merger with the Ohio
Secretary of State.
6.4 Notification of Certain Matters . Each of Target and Acquiror shall give immediate
notice to the other if any of the following occurs after the date of this Agreement and prior to the termination
of this Agreement or the Effective Time: (a) receipt of any notice of, or other communication relating to, a
default, or event which with notice or lapse of time or both would become a default, under any Material
Contract; (b) receipt of any notice or other communication in writing from any Person alleging that the
consent of such Person is or may be required in connection with the transactions contemplated by this
Agreement; (c) receipt of any notice or other communicat ion from any Governmental Authority in
connection with the transactions contemplated by this Agreement; (d) the occurrence or non-occurrence of
any fact or event which could reasonably be expected to cause any covenant, condition or agreement
hereunder not to be complied with or satisfied; (e) the commencement or threat of any material action
involving or affecting Target or any of its properties or assets; (f) the occurrence or non-occurrence of any
fact or event that causes or is reasonably likely to cause a breach by Target or Acquiror of any provision of
this Agreement applicable to it; (g) the occurrence of any fact or event of which such party becomes aware
that results in the inaccuracy in any representation or warranty of such party in this Agreement; and (h) the
occurrence of any event that, had it occurred prior to the date of this Agreement without any additional
disclosure hereunder, would have constituted a Material Adverse Effect of Target or Acquiror; provided ,
that the delivery of any notice by any party pursuant to this provision shall not modify any representation or
warranty of such party, cure any breaches thereof or limit or otherwise affect the rights or remedies available
hereunder to the other parties and the failure of the party receiving such information to take any action with
respect to such notice shall not be deemed a waiver of any breach or breaches to the representations or
warranties of the party disclosing such information.
6.5 Tax Matters .
(a)
Allocation of Taxes . In the case of any Tax period that includes (but does
not end on) the Closing Date (the " Straddle Period " ), the portion of Tax which relates to the Pre-Closing
Tax Period shall (i) in the case of any Taxes other than Taxes based upon or related to income, gains,
receipts, or payroll, be deemed to be the amount of such Tax for the entire Straddle Period multiplied by a
fraction the numerator of which is the number of days in the Pre-Closing Tax Period and the denominator of
which is the number of days in the entire Straddle Period, and (ii) in the case of any Tax based upon or
related to income, gains, receipts, or payroll be deemed equal to the amount which would be payable if the
relevant Straddle Period
50
ended on the Closing Date. The Selling Parties will be responsible for the payme nt of any Taxes of the
Target Group accruing with respect to the period pr ior to the Effective Time.
For income tax purposes, t
he transactions contemplated by this Agreement shall be treated by the parties for tax purposes as a sale of
partnership interests by the Selling Parties and a purchase of assets by Acquiror. The Selling Parties shall
file a final partnership R eturn for the Target Group for the period ending at the Effective Time.
(b)
Preparation of Returns . All Returns of Target to be filed after the Effective
Time for any Tax period shall be prepared and filed by Acquiror or the Surviving Company , as applicable,
provided that all such Returns shall be prepared in a manner consistent with a pplicable Law, and to the
extent consistent with the foregoing, past practice. Acquiror or the Surviving Company , as the case may be,
shall provide drafts of any such Returns that show Taxes for which the Selling Parties are responsible for
indemnification to the Selling Parties' Agent at least 10 Business D ays prior to the due date for such
Return. If the Indemnifying Selling Parties' Agent objects to any such draft Return as it relates to Taxes for
which the Selling Parties are responsible for indemnification, the parties shall negotiate in good faith to
resolve such dispute .
(c)
Cooperation . Acquiror, the Surviving Company and the Selling Parties'
Agent shall cooperate fully as and to the extent reasonably requested by the other party in connection with
the preparation and filing of any Return required of Target, and the defense of any examination, claim, audit,
litigation or other proceeding, with respect to Taxes which may be payable by Target for a Pre-Closing Tax
Period or a Straddle Period. Acquiror, and the Surviving Company agree to abide by all record retention
requirements of, or record retention agreements entered into with, any Tax authority.
(d)
Certain Taxes and Fees . All transfer, documentary, sales, use, stamp,
registration, value added and other such Taxes, and all conveyance fees, recording charges and other fees
and charges (including any penalties and interest) incurred in connection with the consummation of the
transactions contemplated by this Agreement shall be borne and paid by the Selling Parties when due. The
party responsible under a pplicable Law for submitting payment of such Taxes to the applicable Tax
authority shall file all necessary Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees. If required by a pplicable Law,
Acquiror or the Surviving Company shall join in the execution of any suc h Returns and other
documentatio n .
(e)
Allocation of Merger Consideration . The Merger Consideration (and all
other items of consideration for federal income T ax purposes, including any adjustments thereto) shall be
allocated for all T ax purposes, among the assets of the Target Group in accordance with Attachment F . The
parties hereto (a) agree to be bound, and to cause their respective Affiliates and Representatives to be bound,
by such allocation as finally determined pursuant to this Section 6.5(e) (including adjustments thereto
pursuant to this Agreement), (b) shall act, and cause their respective Affiliates and Representatives to act, in
accordance with such allocation (including any adjustments thereto pursuant to this Agreement) in
preparation, filing and audit of any Return and for all other T ax and accounting purposes, and (c) shall not
take any position or action inconsistent with such allocation (including any adjustment thereto pursuant to
51
this Agreement).
6.6 Noncompetition Agreements . A s a condition and inducement for Acquiror’s
willingness to have entered into this Agreement, prior to the Effective time, each of the Selling Parties and
each of the equity holders of Black Stone Companies of Ohio, Inc. shall execute and deliver a
Noncompetition and Nonsolicitation Agreement in the form attached hereto as Attachment H , with such
modifications as are agreed upon by each Selling Party and Acquiro r (the " Selling Parties Noncompetition
Agreement ") to become effective at the Effective Time.
6.7 Approval of Merger . Each Selling Party agrees to approve the Merger and to otherwise
use its best efforts to cause a closing of the transactions contemplated by this Agreement .
6.8 Intentionally Deleted .
6.9 Intentionally Deleted .
7. Intentionally Deleted .
8. Intentionally Deleted .
9. Indemnification .
9.1 Indemnification by the Selling Parties .
(a)
From and after the Effective Time and s ubject to the limitations set forth
in this Section 9, the Selling Parties shall , severally and not jointly, indemnify and hold harmless Acquiror
and Target Group and their respective officers, directors, manager s, employees, agents and other R
epresentatives and Affiliates (individually an " Acquiror Indemnified Person " and collectively the "
Acquiror Indemnified Persons " ) from and against any and all Damages resulting from or arising out of:
(i) any misrepresentation or breach of any of the representations and wa
rranties given or made by the Selling Parties or Target in this Agreement;
Party
(ii) any breach of any covenant or agreement made by Target or any Selling
in this Agreement , at or prior to the Effective Time;
(iii) Damages arising from: (A) any post-payment review by, or claims,
actions, audits, investigations, or proceedings conducted by or on behalf of, any Third Party Payors or
Medicare administrative contractors or intermediaries, recovery auditors (formerly, recovery audit
contractors), long-term care audits, zone program integrity contractors or specialty medical review
contractors, but only with respect to Damages relating to the performance of such services by Target Group
prior to the Effective Time; (B) audits, investigations, claims, actions, proceedings or lawsuits filed by the
U.S. Department of Health and Human Services Office of Inspector General, U.S. Department of Justice, or
any state
52
attorney general or state licensing agency or other agencies or persons with respect to health care fraud or
False Claims Act Matters, qui tam or whistle blower actions, relating solely to the provision of health care
services or the submission of health care claims by Target Group and with dates of service prior to the
Effective Time; (C) any review by, or claims, actions, audits, investigations, or proceedings conducted by
any Governmental Authority or Third Party Payor , but limited to Damages relating to the operation of the
Target Business or its participation in Medicare or any Private Programs prior to the Effective Time; (D)
medical malpractice claims arising out of the operation of the Target Business prior to the Effective Time ,
including without limitation, the malpractice claims disclosed on Section 3.24 of the Target Disclosure
Schedule ; or (E) the failure of Target Group to obtain or maintain necessary Health Care Licenses for
periods prior to the Effective Time;
(iv) any worker's compensation claims , for occurrenc es prior to the
Effective Time , or the failure of Target Group to comply , prior to the Effective Time, with all applicable
requirements of the Patient Protection and Affordable Care Act of 2010 ( " PPACA " ), including, without
limitation, offering affordable coverage to a sufficient number of Company Employees to avoid penalties
under the PPACA;
(v) any Damages resulting from or arising out of (a) all Taxes (or the
non-payment thereof) of any of the Target Group or Selling Parties for all taxable periods ending on or
before the Closing Date and the portion through the end of the Closing Date for any Straddle Period ( "
Pre-Closing Tax Period " ), (b) all Taxes of any member of an affiliated, consolidated, combi ned or unitary
group of which any member of the Target Group (or any predecessor of a member of the Target Group ) is
or was a member on or prior to the Closing Date, including pursuant to Treasury Regulation §1.1502-6 or
any analogous or similar state, local, or non-U.S. law or regulation, (c) any and all Taxes of any Person
imposed on any member of the Target Group as a transferee or successor, by contract or pursuant to any a
pplicable Law, which Taxes relate to an event or transaction occurring before the Closing, and (d) any Taxes
that are the responsibility of the Selling Parties under Section 6.5(d). For the avoidance of doubt, the
employer’s share of all employment, payroll and similar Taxes incurred by a member of the Target Group
with respect to any compensatory payments made in connection with the Merger, whether such Taxes are
incurred prior to, at, or following the Effective Time, shall be treated as arising in the Pre-Closing Tax
Period;
(vi) any Damages arising out of or relating to any services provided by any of
the Target Group prior to the Effective Time or the operation of the Target Group's business or ownership o f
its properties prior to the Effective Time ;
(vii) any Damages arising out of the Identified Tax Issues , including without
limitation, (A) any Damages arising out of the failure of Acquiror to obtain a cost basis in the assets of those
members of the Target Group referred to in the definition of Identified Tax Issues;
(B ) any additional
taxes, penalties and interest payable by any of members of the Target Group arising out of the failure of the
applicable Target Group members to make the tax elections referenced the definition of Identified Tax
Issues, and (C ) any reasonable expenses actually incurred, including reasonable and necessary professional
fees and expenses, associated with obtaining rulings from the IRS or oth erwise dealing with the tax matters
53
described in the definition of Identified Tax Issues and this clause.
(viii) any amounts payable by Target Group in connection with the Northwest
Acquisition Earn-out;
(ix)
any Damages arising out of or relating to the Home Health Aid
Timesheet Dispute;
(x) any Damages arising out of or relating to the Cavins Litigation;
(xi) any Damages that arise out of the failure to include in Retained
Employee Liabilities or in the Closing Statement payable at Closing any change in control, severance,
transaction or " stay around " bonus or related or similar obligations, management fees, directors' fees,
guaranty fees, costs or expenses of Target incurred in connection with the negotiation and preparation of this
Agreement and the consummation of the transactions contemplated hereby, including for services rendered
by third party brokers, bankers, a ttorneys, accountants or other R epresentatives, and any associated payroll,
withholdin g an d similar expenses or costs;
(xii) any obligation of any of the Target Group to indemnify Target
Indemnified Persons for events occurring prior to the Effective Time that are not fully covered by the
Target Group's directors and officers liability insurance coverage obtained pursuant to Section 10.9 ;
(xiii) any Damages arising out of or related to any Target Employee Plans or
other "employee benefit plan" (as defined in ERISA) for which any of the Target Group has legal
responsible for under ERISA, including, without limitation, Damages incurred in connection with making
corrections , tax deficiencies arising out of the loss of deductions by Target Group, taxation of investment
earnings and other penalties and interest and professional and oth er expenses associated therewith and
Damages arising out of the Target Employee Plans compliance issues disclosed on Section 3.23(c) of the
Target Disclosure Schedule ;
(xiv) any amounts payable to David Venzke pursuant to any phantom equity
or other compensation or equity arrangements with an y member of the Target Group, Damages associated
with any outstanding obligations under contracts with David Venzke or expenses, including attorneys' fees,
arising out of pursuing funds escrowed by the Target Group in connection with transactions with David
Venzke ; and
(xv) defending any third party claim alleging the occurrence of facts or
circumstances that, if true, would entitle an Acquiror Indemnified Person to indemnification hereunder;
provided, however, that if the applicable third party claim is only one of several claims pursued by a third
party, defense expenses shall be divided pro rata among the parties based on a reasonable determination of
the relative potential liability associated with the claims.
54
(b)
Survival of Representations and Warranties . All representations and
warranties made by Target in this Agreement, or in any certificate, schedule or exhibit delivered pursuant
hereto, and representations and warranties of the Selling Parties in Section 4 shall survive the execution an d
delivery of this Agreement and the Closing until the date eighteen ( 18 ) months after the Effective Time
; provided , however , that any claims for indemnification involving (i) any breach of any of the
representations and warranties contained in Section 3.1 (Organization, Standing and Power; Subsidiaries),
Section 3.2(a) (Authority), Section 3.5 (Capital Structure) , Section 3.25 (Brokers' and Finders' Fee) , Section
3.20 (Title to Assets) (collectively, the " Fundamental Representations " ) and Section 3.14 (Compliance
with L aw and Healthcare Standards) shall survive for a period of thirty six ( 36 ) months after the Effective
Time, and (ii) fraud and intentional misrepresentation , Section 3.22 (Taxes), and Section 3.23 (Employee
Benefit Plans; Labor and Employment Matters) shall survive (A) until the expiration of the statute of
limitations applicable to such claims (and thereafter until resolved if a claim in respect thereof has been
made prior to such date) with respect to such matters , or (B) until the tenth anniversary of the Closing, if
no statute of limitations apply. There shall be no termination of any representation or warranty as to which a
claim has been asserted by any Acquiror Indemnified Person prior to the termination of such survival
period. All covenants and agreements survive indefinitely unless otherwise specified in their terms.
(c)
Threshold for Claims . No claim for Damages shall be made under
Section 9 .1 unless the aggregate of Damages for which claims are made hereunder by the Acquiror Indemni
fied Persons exceeds $2 00,000 (the " Deductible " ) ; provided , however , the Deductible shall not
apply to Damages arising out of indemnification claims under Section 9.1(a)(xiii) or 9.1(a)(xiv) . If the total
amount of all Damages exceeds the Deductible , then the Selling Parties ’ obligations under Section 9
.1 (subject to the exceptions noted above) shall be limited to the amount by which the aggregate amount of
all such Damages exceeds the Deductible .
(d)
Further Limitations on Indemnification Claims .
(i) T he aggregate amount to be paid by the Selling Parties for any Damages
arising out of or relating to any indem nification obligation under Section 9 .1 or otherwise arising out of or
relating to this Agreement , including, without limitation, all Damages referenced in Sections 9.1(d)(iii)
through (vi), will not exceed $5,000,000 (the " Cap " ) ; provided , however , that th e Cap shall not
apply to Damages arising out of : (A ) fraud or intentional misrepresentation, (B ) breach of a Fundamental
Representation, or (C ) Damages arising out of indemnification claims falling within the scope of the
Express Indemnification Clauses , as such matters are capped in Section 9.1(d)(ii) below .
(ii) T he aggregate amount to be paid by the Selling Parties for any Damages
arising out of or relating to claims for indemnification for : (A ) fraud or intentional misrepresentation, (B )
breach of a Fundamental Representation, or (C ) Damages arising out of the indemnification claims falling
within the scope of the Express Indemnification Clauses , will not exceed an amount eq ual to the Merger
Consideration.
(iii) The first $2,000,000 of Damages payable pursuant to this
55
Article 9 with respect to Identified Tax Issues shall be paid out of the Escrow Amount and any Damages in
excess of $2,000,000 shall be subject to offset against the Acquiror Notes .
The parties acknowledge that
professionals representing the Target Group shall handle matters relating to the Identified Tax Issues at the
sole expense of the Selling Parties ( which may be paid by the Selling Parties directly, or if not so paid, they
will be payable first out of the Escrow Amount and then as a set-off against the Acquiror Notes ) and the
Selling Parties' Agent shall be kept informed of the status of the Target Group's ruling requests and shall
manage and direct the professionals representing the Target Group with regard to handling such matters . If
the aggregate Damages relating to the Identified Tax Issues is less than $2,000,000, then the difference
between the aggregate Damages payable or paid pursuant to this Article 9 with respect to the Identified Tax
Issues and $2,000,000 shall be distributed out of escrow to the Selling Parties' Agent.
(iv) Target Group shall be reimbursed for up to $625,000 payable with
respect to the Northwest Acquisition Earn-out out of the Escrow Amount. If the amount payable by the
Target Group with respect to the Northwest Acquisition Earn-out is less than $625,000, then the difference
between the actual earn-out payment amount and $625,000 shall be distributed out of escrow to the Selling
Parties' Agent. The parties acknowledge that professionals representing the Target Group shall handle
matters relating to the Northwest Acquisition Earn-out at the sole expense of the Selling Parties ( which may
be paid by the Selling Parties directly, or if not so paid, they will be payable first out of the Escrow Amount
and then as a set-off against the Acquiror Notes ) and the Selling Parties' Agent shall be kept informed of
the status of the Target Group's ruling requests and shall manage and direct the professionals representing
the Target Group with regard to handling such matters.
(v) The first $225,000 of Damages payable pursuant to this Article 9 with
respect to Home Health Aid Timesheet Dispute shall be paid out of the Escrow Amount , and any
Damages in excess of $225,000 shall be subject to offset against the Acquiror Notes . If the aggregate
Damages relating to the Home Health Aid Timesheet Dispute is less than $225,000, then the difference
between the aggregate Damages payable or paid pursuant to this Article 9 with respect to the Home Health
Aid Timesheet Dispute and $225,000 shall be distributed out of escrow to the Selling Parties' Agent. The
parties acknowledge that professionals representing the Target Group shall handle matters relating to the
Home Health Aid Timesheet Dispute at the sole expense of the Selling Parties ( which may be paid by the
Selling Parties directly, or if not so paid, they will be payable first out of the Escrow Amount and then as a
set-off against the Acquiror Notes ) and the Selling Parties' Agent shall be kept informed of the status of
the Target Group's ruling requests and shall manage and direct the professionals representing the Target
Group with regard to handling such matters.
(vi) The first $250,000 of Damages payable pursuant to this Article 9 with
respect to the Cavins L itigation shall be paid out of the Escrow Amount, and any Damages in excess of
$250,000 shall be subject to offset against the Acquiror Notes. If the aggregate Damages relati ng to the
Cavins L itigation is less than $25 0,0 00, then the difference between the aggregate Damages payable or
paid pursuant to this Article 9 with respect to the Cavins litigation and $250,000 shall be distributed out of
escrow to the Selling Parties' Agent.
56
The Selling Parties' Agent shall be responsible for making decisions with respect to the appeal of the
judgment in the Cavins litigation and the expense of such appeal shall be paid directly by the Selling
Parties. Acquiror shall not be responsible for any damages, fees and expenses arising out of such
appeal.
(vii) Notwithstanding anything in this Agreement to the contrary, each
Selling Party's personal liability for payment of indemnification claims payable pursuant to this Agreement
shall be limited to such Selling Party's Pro R ata Portion of each applicable individual limitation set forth
in this Agreement .
(viii)
Notwithstanding anything in this Agreement to the contrary, p
ayments by Selling Part ies for any Damages arising out of or relating to any indemnification obligations
under Section 9.1 , shall be limited to the amount of any liability or damage that remains after deducting
therefrom any insurance proceeds and any indemnity, contribution or other similar payment actually received
by , or payable to, the applicable Acquiror Indemnified P erson in respect of any such claim ; provided,
however, that the amount of insurance proceeds deemed received by an Acquiror Indemnified Person shall
be net of any related costs and expenses, including the aggregate cost of pursuing any related insurance
claims and any related increases in insurance premiums or other chargebacks proximately caused by such
claims. The applicable Acquiror Indemnified Person shall use it s reasonable commercial efforts to recover
under any applicable insurance policies or indemnity, contribution or other similar agreement for any
Damages prior to seeking indemnification under this Agreement (it being agreed that promptly after the
realization of any insurance proceeds, indemnity, contribution or other similar payment, the Acquiror
Indemnified Person shall reimburse the Selling Parties for such reduction in Damages for which the Acquiror
Indemnified Person was indemnified prior to the realization of reduction of such Damages) .
(ix)
Notwithstanding anything in this Agreement to the contrary, p
ayments by Selling Part ies for any Damages arising out of or relating to any indemnification
obligations under Section 9.1, shall be reduced by an amount equal to any T ax benefit actually
realized by the applicable Acquiror Indemnified P erson in respect of such Damages by the Acquiror
Indemnified Person.
(x)
I n no event shall any of the Sell ing Parties be liable to any Acquiror
Indemnified P erson for any punitive , indirect or special D amages .
(e)
Limitations on Selling Parties' Indemnification Obligations
. Notwithstanding anything in this Agreement to the contrary, the referen ce to "severally and not joint ly "
and the limitation on a Selling Party's indemnification obligation set forth in Section 9.1( d )(vii) shall not be
interpreted or construed to place any limitation on the right of the Acquiror Indemnified Persons to be
compensated from the Escrow Fund or as a set off against the Acquiror Note s for the full amount of all
Damages arising out of or relating to any indemnificat ion claim .
(f)
Set-o ff Against Acquiror Note s . Except as otherw ise provided in this
Agreement , and except for indemnification claims with respect to the Identified Tax Issues,
57
the Northwest Acquisition Earn-out, the Home Health Aid Timesheet Dispute and the Cavins Litigation
, Acquiror shall , subject to the provisions of this Section 9, fi rst set off any Damages payable pursuant
to this Agreement against the outstanding balance of the Acquiror Note s , as among the Selling Parties on
a pro-rata basis, prior to seeking payment of Damages directly from the Selling Parties.
9.2 Indemnification Claims
by Acquiror .
(a)
Upon receipt by the Selling Parties' Agent of a certificate signe d by any
officer of Acquiror (a n " Acquiror 's Certificate " ) stating that Damages exist with respect to the
indemnification obligations of the Selling Parties set forth in Section 9.1 , and specifying in reasonable
detail the individual items of such Damages included in the amount so stated, the date each such item was
paid, or properly accrued or arose, and the nature of the misrepresentation, breach of warranty, covenant or
claim to which su ch item is related, Acquiror shall, subject to the provisions of this Section 9, be entitled to
set off against the outstanding principal balance of the Acquiror Note s, recover from the Escrow Fund or
recover from the Selling Parties, as applicable, the amount of such Damages and such amount shall no longer
be payable to the Selling Parties ; provided , however , if the validity of the claim or amount of Damages
set forth in the Acquiror's Certificate is disputed by the Selling Parties' Agent, then no set-off or deduction
shall be permitted against an Acquiror Note or the Escrow Fund until there is a final determination as
provided in this Agreement of the validity of the claim an d amount of Damages allowable. But, with
respect to a set-off or deduction against an Acquiror Note with respect to an indemnification claim which has
been determined to be valid and the amount of Damages determined , set-off or deduction against the
principal of the Acquiror Note shall be deemed to have occurred as of the date of the delivery of the
Acquiror's Certificate for purposes of calculating interest accruing on the Acquiror Note.
(b)
The Selling Parties' Agent shall have a period of thirty ( 30 ) days from a nd
after delivery of any Acquiror ’s Certificate to deliver to Acquiror a response, in which the Selling Parties'
Agent shall: (i) agree that Acquiror is entitled to be indemnified for all of the requested Damages (in which
case the response shall be accompanied by written notice executed by the Selling Parties' Agent instructing
the Escrow Agent to disburse the requested Damages to Acquiror) or (ii) dispute that Acquiror is entitled to
be indemnified for the requested Damages.
(c)
If the Selling Parties' Agent disputes any claim or claims made in any
Acquiror 's Certificate, Acquiror shall have thirty ( 30 ) days to respond in a written statement to the
objection of the Selling Parties' Agent . If after such thirty ( 30 ) day period there remains a dispute as to any
claims, the Selling Parties' Agent and Acquiror shall attem pt in good faith for thirty ( 30 ) days to agree
upon the rights of the respective parties with respect to each of such claims (the " C laims Period " ). If the
Selling Parties' Agent and Acquiror should so agree, a memorandum setting forth such agreement shall be
prepared and signed by Acquiror and the Selling Parties' Agent and shall be delivered to the Escrow
Agent. The Escrow Agent shall be entitled to rely on any such memorandum for the release of any Escrow
Amount to Acquiror in accordance with the terms of such memorandum and the Escrow Agreement.
9.3 Resolution of Conflicts .
If no agreement can be reached after good faith
58
negotiation between the parties pursuant to Section 9.2(c) during the Claims Period, either Acquiror or the
Selling Parties' Agent may initiate formal legal action with the applicable court in accordance with
Section 10.5 to resolve such dispute. The final judgment or decree of any court of competent jurisdiction as
to the validity and amount of any claim in such Acquiror 's Certificate shall be binding and conclusive upon
the parties to this Agreement, and notwithstanding anything in this Section 9 , the parties shall be entitled to
act in accordance with such decision. The judgment or decree of a court shall be deemed final when the
time for appeal, if any, shall have expired and no appeal shall have been taken or when all appeals taken
shall have been finally determined.
9.4 Selling Parties' Agent .
(a)
The Selling Parties' Agent shall be constituted and appointed as agent and
attorney-in-fact for and on behalf of the Selling Parties and shall have full power and authority to represent,
to give and receive notices and communications, to authorize the Escrow Agent to release any portion of the
Escrow Fund to Acquiror in satisfaction of claims by Acquiror, to object to such deliveries, to agree to,
negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to such claims and to take all actions necessary or appropriate in
the judgment of the Selling Parties' Agent for the interpretation of the Escrow Agreement and this
Agreement and accomplishment of the foregoing , and, in addition to the above matters arising pursuant to
the Agreement, to manage and direct other matters of interest to the Selling Parties including, without
limitation, the private letter rulings relating to the Indemnified tax Issues, the wrap up 401(k) matters for
terminated plans, the legal/regulatory matters, including litigation, appeals and/ or settlement discussions,
relating to the Cavins Litigation, the Home Health Aid Timesheet Dispute, and the Northwest Acquisition
Earn out, and the Target final partnership tax return . Acquiror , and the Escrow Agent under the Escrow
Agreement, shall be entitled to deal exclusively with Selling Parties' Agent on all matters relating to this
Agreement and the Escrow Agreement and shall be entitled to rely conclusively (without further evidence of
any kind whatsoever) on any document executed or purported to be executed on behalf of any Selling Party
by Selling Parties' Agent , and on any other action taken or purported to be taken on behalf of any Selling
Party or by the Selling Parties' Agent , as being fully binding upon such Person. Notices or communications
to or from Selling Parties' Agent shall constitute notice to or from each of the Selling Parties . Any decision
or action by the Selling Parties' Agent hereunder, including any agreement between Selling Parties' Agent
and Acquiror relating to the defense, payment or settlement of any claims for indemnification hereunder,
shall constitute a decision or action of all Selling Parties and shall be final, binding and conclusive upon each
such Person. No Selling Party shall have the right to object to, dissent from, protest or otherwise contest the
same. The provisions of this Section, including the power of attorney granted hereby, are independent and
severable, are irrevocable and coupled with an interest and shall not be terminated by any act of any one or
any Selling Party , or by operation of a pplicable Law, w hether by death or other event. No bond shall be
required of the Selling Parties' Agent .
(b)
The Selling Parties' Agent shall not be liable for any act done or omitted
hereunder as Selling Parties' Agent while acting in good faith and in the exercise of
59
reasonable judgment and any act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith. The Selling Parties shall severally indemnify and hold the Selling Parties'
Agent harmless against any loss, liability, claims, actions, damages or expense incurred without gross
negligence or bad faith on the part of the Selling Parties' Agent and arising out of or in connection with the
acceptance or administration of its duties hereunder.
(c)
The Selling Parties' Agent shall have reasonable access to information about
Target and the reasonable assistance of Target’s officers and employees for purposes of performing its duties
and exercising its rights hereunder, provided that the Selling Parties' Agent shall treat confidentially and not
disclose any nonpublic information from or about Target to anyone (except on a need to know basis to
individuals who agree to treat such information confidentially).
(d)
Acquiror acknowledges that the Selling Parties' Agent may have a conflict
of interest with respect to its duties as Selling Parties' Agent , and in such regard the Selling Parties' Agent
has informed Acquiror that it will act in the best interests of the Selling Parties .
(e)
The Selling Parties' Agent may resign at any time, and may be removed for
any reason or no reason by the vote or written consent of the holders of a majority of the shares of Target
Units immediately prior to the Closing (the " Majority Holders " ); provided, however, in no event shall the
Selling Parties' Agent resign or be removed without the Majority Holders having first appointed a new
Selling Parties' Agent who shall assume such duties immediately upon the resignation or removal of Selling
Parties' Agent . In the event of the death, incapacity, resignation or removal of Selling Parties' Agent , a new
Selling Parties' Agent shall be appointed by the vote or written c onsent of the Majority Holders. Notice of
such vote or a copy of the written consent appointing such new Selling Parties' Agent shall be sent to
Acquiror, such appointment to be effective upon the later of the date indicated in such consent or the date
such notice is received by Acquiror; provided, that until such notice is received, the parties shall be entitled
to rely on the decisions and actions of the prior Selling Parties' Agent as described above.
9.5 Actions of the Selling Parties' Agent . A decision, act , consent or instruction of the
Selling Parties' Agent shall constitute a decision of all Selling Parties for whom the Merger Consideration
otherwise payable to them is released to Acquiror from the Escrow Fund with respect to the matters set forth
in this Section 9 and shall be final, binding and conclusive upon each such Selling Party , and Acquiror and
the Escrow Agent under the Escrow Agreement may rely upon any decision, act, consent or instruction of
the Selling Parties' Agent as being the decision, act, consent or instruction of each and every such Selling
Party . Acquiror is hereby relieved from any liability to any Person for any acts done by them in accordance
with such decision, act, consent or instruction of the Selling Parties' Agent .
9.6 Third Party Claims .
(a)
In the event an Acquiror Indemnified Person receives notice of the assertion
or commencement of an Action made or brought by any Person who is not a party to
60
this Agreement or an Affiliate of a party to this Agreement or a Representative of the foregoing (a " Third
Party Claim ") against such Acquiror Indemnified Person with respect to which the Selling Parties are
obligated to provide indemnification under this Agreement, the Acquiror Indemnified Person shall give the
Selling Party's Agent reasonably prompt written notice thereof, but in any event not later than fifteen (15)
calendar days after receipt of such notice of such Third Party Claim. The failure to give such prompt written
notice shall not, however, relieve the Selling Parties of their indemnification obligations, except and only to
the extent that the Selling Parties forfeit rights or defenses by reason of such failure. Such notice by the
Acquiror Indemnified Person shall describe the Third Party Claim in reasonable detail, shall include copies
of all material written evidence thereof and shall indicate the estimated amount, if reasonably practicable, of
the Loss that has been or may be sustained by the Acquiror Indemnified Party.
(b)
The Selling Party's Agent shall have the right to participate in, or by giving
written notice to the Acquiror Indemnified Person, to assume the defense of any Third Party Claim at the
Selling Parties' sole expense and by the Selling Parties' own counsel, and the Acquiror Indemnified Person
shall cooperate in good faith in such defense; provided, that the Selling Parties shall not have the right to
defend or direct the defense of any such Third Party Claim that (x) is asserted directly by or on behalf of a
Person that is a supplier or customer of the Target Group, or (y) seeks an injunction or other equitable relief
against the Acquiror Indemnified Party. In the event that the Selling Parties assume the defense of any Third
Party Claim, subject to Section 9.6(d) , it shall have the right to take such action as it deems necessary to
avoid, dispute, defend, appeal or make counterclaims pertaining to any such Third Party Claim in the name
and on behalf of the Acquiror Indemnified Person. The Acquiror Indemnified Person shall have the right to
participate in the defense of any Third Party Claim with counsel selected by it subject to the Selling Parties'
right to control the defense thereof. The fees and disbursements of such counsel shall be at the sole expense
of the Acquiror Indemnified Person, provided, that if in the reasonable opinion of counsel to the Acquiror
Indemnified Person, (A) there are legal defenses available to an Acquiror Indemnified Person that are
different from or additional to those available to the Selling Parties; or (B) there exists a conflict of interest
between the Selling Parties and the Acquiror Indemnified Person that cannot be waived, the Selling Parties
shall be liable for the reasonable fees and expenses of counsel to the Acquiror Indemnified Person in each
jurisdiction for which the parties counsel is required, but , with respect to such additional legal defenses ,
only those fees and expenses associated with the pursuit of such additional legal defenses .
(c)
If the Selling Parties' Agent elects not to compromise or defend such Third
Party Claim, fails to notify the Acquiror Indemnified Person in writing , and within thirty (30) days, of its
election to defend as provided in this Agreement, or fails to diligently prosecute the defense of such Third
Party Claim, the Acquiror Indemnified Person may, subject to Section 9.6(d ), pay, compromise, defend such
Third Party Claim and seek indemnification for any and all Damages based upon, arising from or relating to
such Third Party Claim. Selling Parties and Acquiror shall cooperate with each other in all reasonable
respects in connection with the defense of any Third Party Claim, including making available records
relating to such Third Party Claim and furnishing, without expense (other than reimbursement of actual
out-of-pocket
61
expenses) to the defending party, management employees of the non-defending party as may be reasonably
necessary for the preparation of the defense of such Third Party Claims.
(d)
Notwithstanding any other provision of this Agreement, the Selling Parties
shall not enter into settlement of any Third Party Claim without the prior written consent of the Acquiror
Indemnified Person, except a s provided in this Section 9.6(d ). If a firm offer is made to settle a Third Party
Claim without leading to liability or the creation of a financial or other obligation on the part of the Acquiror
Indemnified Person and provides, in customary form, for the unconditional release of each Acquiror
Indemnified Person from all liabilities and obligations in connection with such Third Party Claim and the
Selling Parties desire to accept and agree to such offer, the Selling Parties shall give written notice to that
effect to the Acquiror Indemnified Person. If the Acquiror Indemnified Person fails to consent to such firm
offer within ten (10) days after its receipt of such notice, the Acquiror Indemnified Person may , following
written notice to the Selling Parties’ Agent, which shall be provided within such same ten (10) day period,
continue to contest or defend such Third Party Claim and in such event, the maximum liability of the Selling
Parties as to such Third Party Claim shall not exceed the amount of such settlement offer. If the Acquiror
Indemnified Person fails to consent to such firm offer and also fails to notify Selling Parties’ Agent, within
the preceding ten (10) day period, that the Acquiror Indemnified Person intends to assume defense of such
Third Party Claim, than the Selling Parties may settle the Third Party Claim upon the terms set forth in such
firm offer to settle such Third Party Claim. If the Acquiror Indemnified Person has assumed the defense
pursuant to this Section 9.6 , it shall not agree to any settlement without the written consent of the Selling
Parties' Agent, which consent shall not be unreasonably withheld or delayed.
9.7 Indemnification by Acquiror and Surviving Company .
(a)
Indemnification . From and after the Effective Time and subject to the
limitations set forth in this Section 9, Acquiror and the Surviving Company , jointly and severally, hereby
agree to indemnify and hold harmless the Selling Parties from and against any and all Damages, resulting
from or arising out of:
(i) any misrepresentation or breach of any of the representations and
warranties given or made by Acquiror or Merger Sub in this Agreement;
(ii) any breach of any covenant o r agreement made by Parent Acquiror ,
Merger Sub, or Surviving Company in this Agreement at or prior to the Effective Time ;
(iii) Damages arising from: (A) any post-payment review by, or claims,
actions, audits, investigations, or proceedings conducted by or on behalf of, any Third Party Payors or
Medicare administrative contractors or intermediaries, recovery auditors (formerly, recovery audit
contractors), long-term care audits, zone program integrity contractors or specialty medical review
contractors, but only with respect to Damages relating to the performance of such services by Target Group
after the Effective Time ; (B) audits, investigations, claims, actions, proceedings or lawsuits filed by the U.S.
Department of Health and Human Services Office of Inspector General, U.S. Department of Justice, or any
state
62
attorney general or state licensing agency or other agencies or persons with respect to health care fraud or
False Claims Act Matters, qui tam or whistle blower actions, but limited to Damages relating to the provision
of health care services or the submission of health care claims by Target Group re lating to dates of service
after to the Effective Time; (C) any review by, or claims, actions, audits, investigations, or proceedings
conducted by any Governmental Authority or Third Party Payor and relating to the operation of the Target
Business or its participation in Medica re or any Private Programs after to the Effective Time; (D) medical
malpractice claims arising out of the operat ion of the Target Business after to the Effective Time; or (E) the
failure of Target Group to obtain or maintain nece ssary Health Care Licenses after to the Effective Time;
(iv) any Damages arising out of or relating to any services provided by any of
the Target Group after the Effective Time, or the operation of the Target Group's business or o wnership of
its properties after the Effective Time ; and
(v) defending any third party claim alleging the occurrence of facts or
circumstances that, if true, would entitle a Selling Party to indemnification hereunder; provided, however,
that if the applicable th ird party claim is only one of several claims pursued by a third party, defense
expenses shall be divided pro rata among the parties based on a reasonable determination of the relative
potential liabi lity associated with the claims.
(b)
Survival of Representations and Warranties . All representations and
warranties made by Acquiror and Merger Sub in this Agreement, or in any certificate, schedule or exhibit
delivered pursuant hereto shall survive the execution and delivery of this Agreement and the Closing and
shall survive until the Escrow Termination Date; provided , however , that any claims for indemnification
involving (i) fraud or intentional misrepresentation and (ii) any breach of any of the representations and
warranties contained in Section 5.1 (Organization, Standing and Power) and Section 5.2 (Authority)
(collectively, the " Acquiror Fundamental Representations " ) shall survive (A) until the expiration of
the statute of limitations applicable to such claims (and thereafter until resolved if a claim in respect thereof
has been made prior to such date) with respect to such matters, or (B) indefinitely if no statute of limitations
apply. There shall be no termination of any representation or warranty as to which a claim has been asserted
by any Indemnified Cash Recipient prior to the termination of such survival period. All covenants and
agreements survive indefinitely unless otherwise specified in their terms.
(c)
Threshold for Claims . No claim for Damages shall be made under
Section 9 .7 unless the aggregate of Damages for which claims are made hereunder by the Selling Parties
exceeds the Deductible . If the total amount of all such Damages exceeds the Deductible , then the Acquiror
’s and Surviving Company’s obligations under Section 9 .7 shall be limited to the amount by which the
aggregate amount of all such Damages exceeds the Deductible .
(d)
Acquiror Cap on Indemnification Claims . T he aggregate amount to be
paid by the Acquiror and Surviving Company for any Damages arising out of or relating to any
indemnification obligation under this Section 9.7 or otherwise arising out of or relating to this Agreement
will not exceed $5,000,000 (the " Acquiror Cap " ); provided , however , that the
63
maximum aggregate limit for claims involving (i) fraud or intentional misrepresentation , (ii) an y breach of
any of an Acquiror Fundamental Representation , or (iii) an indemnification claim made pursuant to the
Acquiror Express Indemnification Clauses, shall be an amount equal to the Merger Consideration.
(e)
Indemnification Claims by Selling Parties . Upon receipt by Acquiror of a
certificate sign ed by Selling Parties’ Agent (a " Selling Parties' Certificate ") stating that Damages exist
with respect to the indemnification obligations of the Acquiror and Surviving Company set forth in
Section 9. 7 , and specifying in reasonable detail the individual items of such Damages included in the
amount so stated, the date each such item was paid, or properly accrued or arose, and the nature of the
misrepresentation, breach of warranty, covenant or claim to which such item is related, Selling Parties’ shall,
subject to the provisions of this Section 9, be entitled to recover from the Acquiror and Surviving Company,
the amount of such Damages. The Acquiror and Surviving Company shall have a period of thirty (30) days
from and after delivery of any Selling Parties' Certificate to deliver to Selling Parties’ Agent a response, in
which the Acquiror and Surviving Company shall: (i) agree that the Selling Parties are entitled to be
indemnified for all of the requested Damages (in which case the response shall be accompanied by payment
in full of such Damages); or (ii) dispute that the Selling Parties are entitled to be indemnified for the
requested Damages. If the Acquiror and Surviving Company dispute any clai m or claims made in any
Selling Parties' Certificate, Selling Parties’ Agent shall have thirty (30) days to respond in a written
statement to the objection of the Acquiror and Surviving Company. If after such thirty (30) day period
there remains a dispute as to any claims, the Selling Parties' Agent and Acquiror shall attempt in good faith
for thirty (30) days to agree upon the rights of the respective parties with respect to each of such claims (the "
Selling Parties' Claims Period "). If the Selling Parties' Agent and Acquiror should so agree, a
memorandum setting forth such agreement shall be prepared and signed by Acquiror and the Selling Parties'
Agent and any payment required thereunder shall be made by Acquiror and Surviving Company upon the
execution of such memorandum.
(f)
Resolution of Conflicts . If no agreement can be reached after good faith
negotiation between the parties pursuant to Section 9.7(e) during the Selling Parties' Claims Period, either
Acquiror or the Selling Parties' Agent may initiate formal legal action with the applicable court in
accordance with Section 10.5 to resolve such dispute. The final judgment or decree of any court of
competent jurisdiction as to the validity and amount of any claim in a Sell ing Parties' Certificate shall be
binding and conclusive upon the parties to this Agreement, and notwithstanding anything in this Section 9,
the parties shall be entitled to act in accordance with such decision. The judgment or decree of a court shall
be deemed final when the time for appeal, if any, shall have expired and no appeal shall have been taken or
when all appeals taken shall have been finally determined.
9.8 Tax Effect of Indemnification Payments . All amounts paid to any indemnified person
under this Section 9 (including from the Escrow Fund) shall be treated for all Tax purposes as adjustments to
Merger Consideration , unless otherwise required by a pplicable Law.
9.9 Exclu sive Remedies . The parties acknowledge and agree that, after the
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Effective Time, except for remedies that cannot be waived as a matter of a pplicable Law, their sole and
exclusive remedy with respect to any and all monetary damages for any breach of any re presentation,
warranty, covenant, agreement or obligation set forth in this Agreement or otherwise relating to the subject
matter of this Agreement, shall be pursuant to the indemnification provisions set forth in this Section 9. But
nothing in this Section 9.9 shall limit any Person's rights under Section 10.7.
9.10 Effect of Investigation . The representati ons, warranties and covenants of a Person,
and a Person's right to indemnification with respect thereto, shall not be affected or deemed waived by
reason of any investigation made by or on behalf of a Person (including by any of it s R epresentatives or by
reason of the fact the Person seeking indemnification, or any of its R epresentatives , knew or should have
known that any such representation or warranty is, was or might be inaccurate ), including as a result of
Target's or any Selling Party 's notification to Acquiror of specific matters prior to Closing .
9.11 Materiality Scrape . Notwithstanding anything in this Agreement to the contrary, for
the purposes of the determination of Damages pursuant to Section 9 (but not for purposes of determining
whether a representation and warranty has been breached), the representations and warranties of Target in
this Agreement that are qualified by materiality or Material Adverse Effect or similar materiality qualifiers
shall be deemed to be made without such Material Adverse Effect or other materiality qualifiers.
10. General Provisions .
10.1 Notices . All notices and other communications hereunder shall be in writing and shall
be deemed duly delivered: (i) upon receipt if delive red personally; (ii) three (3) B usine ss D ays after being
mailed by registered or certified mail, postage prepaid, return re ceipt requested; (iii) one (1) Business D ay
after it is sent by commercial overnight courier service; or (iv) upon transmission if sent via facsimile with
confirmation of receipt to the parties at the following address (or at such other address for a party as shall be
specified upon like notice):
(a)
if to Acquiror or Merger Sub, to:
c/o Almost Family, Inc.
9510 Ormsby Station Road, Suite 300
Louisville, Kentucky 40223
Attention: President
Fax : (502) 891-8067
Tel: (502) 891-1042
Email: [email protected]
with a copy to:
Frost Brown Todd LLC
400 West Market Street, 32nd Floor
Louisville, Kentucky 40202
65
Attention: Scott Dolson
Fax: (502) 581-1087
Tel: (502) 568-0203
Email: [email protected]
(b)
if to Target, to:
David Tramontana
4700 E. Galbraith Road, Suite 302
Cincinnati, OH 45236
Fax: (937) 299-2213
Tel: (513) 924-3690
Email: DTramontana@ blackstonehc.com
with a copy to:
Coolidge Wall Co., L.P.A.
33 West First Street
Suite 200
Dayton, Ohio 45402
Attention: Sam Warwar, Esq.
Fax: 937-223-6705
Tel: 937-223-8177
Email: [email protected]
(c)
if to Selling Parties' Agent, to:
David Brixey
2991 Newmark Drive
Miamisburg, OH 45342
Fax : (937) 291-4120
Tel: (937) 291-4110
Email: [email protected]
10.2 Counterparts; Facsimile . This Agree ment may be executed in one or more
counterparts, all of which s hall be considered one and the same agreement and shall become effective when
one or more counterparts have been signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart and such counterparts may be delivered by the
parties hereto via facsimile or electronic (PDF) transmission (each of which shall be deemed an original).
10.3 Entire Agreement; Nonassignability; Parties in Interest . This Agreement and the
documents and instruments and other agreements specifically referred to herein or delivered pursuant hereto,
including the exhibits and schedules hereto, including the Target Disclosure Schedule , (a) together
constitute the entire agreement among the parties with respect
66
to the subject matter hereof and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof except for the Confidentiality Agreement, which
shall continue in full force and effect, and shall survive any termination of this Agreement or the Closin g, in
accordance with its terms, and (b) are not intended to confer upon any other Person any rights or remedies
hereunder and shall not be assigned by operation of law or otherwise without the written consent of the other
party.
10.4 Severability . In the event that any provision of this Agreement or the application
thereof becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the
remainder of this Agreement will continue in full force and effect and the application of such provision to
other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties
hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
10.5 Governing Law ; Venue; Waiver of Jury Trial .
(a)
This Agreement shall be governed by and construed in accordance with the
internal laws of the Commonwealth of Kentucky applicable to parties residing in Kentucky , without
regard to applicable principles of conflicts of law .
The parties to this Agreeme nt agree that any suit,
action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby, whether in contract, tort or
otherwise, shall be brought in the Kentucky Court of Justice , Jefferson County , Kentucky, or, if that
court does not have jurisdiction, a federal court sitting in Louisville, Kentucky , and that any case of action
arising out of this Agreement shall be deemed to have arisen from a transac tion of business in the State of
Kentucky , and each of the parties hereby irrevocably consents to the jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the
fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of
any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is
brought in any such court has been brought in an inconvenient form. Process in any such suit, action or
proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of
any such court.
(b)
TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT
CANNOT BE WAIVED, EACH PARTY HEREBY IRREVOCABLY WAIVES, AND COVENANTS
THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY
RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION ARISING IN WHOLE OR IN PART UNDER, RELATED TO,
BASED ON OR IN CONNECTION WITH THIS AGREEMENT OR THE SUBJECT MATTER HEREOF,
WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER SOUNDING IN TORT OR
CONTRACT OR OTHERWISE. ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART
OR A COPY OF THIS SECTION 10 . 5 WITH ANY COURT AS WRITTEN EVIDENCE OF THE
67
CONSENT OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
10.6 Rules of Construction . Each party acknowledges that such party has been represented
by counsel in connection with this Agreement and the transactions contemplated by this
Agreement. Accordingly, any rule of law or any legal decision that would require interpretation of any
claimed ambiguities in this Agreement against the drafting party has no application and is expressly waived.
10.7 Specific Enforcement .
(a)
Acquiror acknowledges and agrees that the Selling Parties would be
irreparably harmed and the Selling Parties would not have any adequate remedy at law in the event that any
of the provisions of this Agreement were not performed by Acquiror in accordance with their specific terms
or were otherwise breached. Accordingly, Acquiror agrees that each Selling Party shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and
provisions of this Agreement, this being in addition to any other remedy to which such Selling Party is
entitled at law or in equity.
(b)
Target and the Selling Parties acknowledges and agrees that Acquiror would
be irreparably harmed and Acquiror would not have any adequate remedy at law in the event that any of the
provisions of this Agreement were not performed by Target in accordance with their specific terms or were
otherwise breached. Accordingly, Target and the Selling Parties agree that Acquiror shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and
provisions of this Agreement, this being in addition to any other remedy to which Acquiror is entitled at law
or in equity.
10.8 Amendment; Waiver .
(a)
Acquiror and the Selling Parties’ Agent may cause this Agreement to be
amended only by execution of an instrument in writing signed on behalf of Acquiror and the Selling Parties'
Agent.
(b)
Any waiver of any of the terms or conditions of this Agreement must be in
writing and must be duly executed by or on behalf of the party to be charged with such waiver. The failure
of a party to exercise any of its rights hereunder or to insist upon strict adherence to any term or condition
hereof on any one occasion shall not be construed as a waiver or deprive that party of the right thereafter to
insist upon strict adherence to the terms and conditions of this Agreement at a later date. Further, no waiver
of any of the terms and conditions of this Agreement shall be deemed to or shall constitute a waiver of any
other term of condition hereof (whether or not similar).
10.9 Directors’ and Officers’ Indemnification and Insurance .
(a)
All rights relating to indemnification, exculpation and
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advancement of expenses by Target existing in favor of those Persons who are directors and officers of
Target as of the date of this Agreement (the " Target Indemnified Persons " ) for their acts and omissions
occurring prior to the Effective Time, as provided in the Target Charter Documents (as in effect as of the
date of this Agreement) or in any agreement, shall survive the Merger and shall be observed by the Surviving
Company to the fullest extent available under a pplicable Law, and any claim made requesting
indemnification pursuant to such indemnification rights shall continue to be subject to this Section 10.9(a)
and the indemnification rights provided under this Section 10.9(a) until the disposition of such claim. This
Section 10.9(a) shall not limit or otherwise adversely affect any rights any Target Indemnified Person may
have under any agreement with the Target or any of its subsidiaries, under the Target Charter Documents or
other organization documents or otherwise under a pplicable Law.
(b)
Target shall purchase a " tail policy " for directors’ and officers’ liability
insurance, in each case covering Persons who are currently covered by such insurance on terms no less
favorable than those in effect on the date hereof for a period of at least six years after the Closing, and if the
premium for such insurance is not paid prior to Closing, the full amount of the premium shall be treated as a
Transaction Expense.
(c)
The provisions of this Section 10.9 are intended to be for the benefit of, and
enforceable by, each Target Indemnified Person and such Target Indemnif ied Person’s estate, heirs and r
epresentatives .
( d)
The obligations of the Surviving Company under this Section 10.9 shall
continue in full force and effect for a period commencing as of the Closing and ending as of the earlier of (i)
the six (6) year anniversary of the Closing and (ii) the date that all applicable statute of limitation periods
have expired for any claim or claims for which a Target Indemnified Person may be entitled to
indemnification under this Section 10.9; provided, that all rights to indemnification in respect of any claim
for indemnification under this Section 10.9 asserted or made within such period shall continue until the final
disposition of such claim.
10.10 Expenses . Except as otherwise set forth herein, all costs and expenses, including fees
and disbursements of counsel, financial advisors and accountants, incurred in connection with this
Agreement and the transactions contemplated hereby will be paid by the party incurring such costs and
expenses, whether or not the Closing will have occurred.
10.11 No Third-Party Beneficiaries . Except as otherwise expressly provided in this
Agreement, this Agreement is for the sole benefit of the parties hereto and their respective successors and
permitted assigns and nothing in this Agreement expressed or implied shall give or be construed to give to
any Person, other than the parties hereto and such successors and permitted assigns, any legal or equitable
rights under this Agreement.
10.12 No Recourse . Notwithstanding anything that may be expressed or implied in this
Agreement, each party hereto covenants, agrees and acknowledges that no recourse under this Agreement or
any documents or instruments delivered in connection with this Agreement shall be had against any of
Parent's, Acquiror's or any of the Target Group's respective former,
69
current or future direct or indirect directors, officers, employees, agents or managers (each a " Related Party
" and collectively, the " Related Parties " ), in each cas e other than Selling Parties, Acquiror, Parent or any
of the Target Companies or any of their respective successors and permitted assignees under this Agreement,
whether by the enforcement of any assessment or by any legal or equitable p roceeding, or by virtue of any a
pplicable Law, it being expressly agreed and acknowledged that no personal liability whatsoever shall attach
to, be imposed on or otherwise be incurred by any of the Related Parties, as such, for any obligation or
liability of Selling Parties, Acquiror, Parent or any of the Target Group under this Agreement or any
documents or instruments delivered in connection herewith for any claim based on, in respect of or by reason
of such obligations or liabilities or their creation; provided, ho wever, nothing in this Section 10 .12 shall
relieve or otherwi se limit the liability of Selling Parties, Parent, Acquiror or any of the Target Group , as
such, for any breach or violation of its obligations under such agreements, documents or instruments.
10.13 Pronouns . All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, neuter, singular, or plural as the identity of the person or persons may require .
[signature pages follow]
70
IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan of Merger to be
executed and delivered by each of them or their respective officers thereunto duly authorized, all as of the
date first written above.
ALMOST FAMILY, INC.
By: /s/ C. Steven Guenthner
C. Steven Guenthner, President
NATIONAL HEALTH INDUSTRIES, INC.
By: /s/ C. Steven Guenthner
C. Steven Guenthner, President
AFAM ACQUISITION, LLC
By: /s/ C. Steven Guenthner
C. Steven Guenthner, President
BLACK STONE OPERATIONS, LLC.
By: /s/ David Tramontana
David Tramontana
CEO
BLACK STONE COMPANIES OF OHIO, INC.
By /s/ David Tramontana
David Tramontana
CEO
71
ERH DEVELOPMENT, LLC
By /s/ R. Douglas Spitler
R. Douglas Spitler
President
WARREN COUNTY COMMUNITY SERVICES,
LLC
By /s/ Eugene B. Rose
Eugene B. Rose
CEO
LEC COMMUNITY SERVICES, INC.
By /s/ Scott M. McQuinn
Scott M. McQuinn
President and CEO
By /s/ James L. Bowersox
James L. Bowersox
Treasurer and CFO
PRIMROSE RETIREMENT COMMUNITIES, LLC
By /s/ William J Schefbauer II
William J Schaefbauer II
President
/s/ Kimberly Payne
KIMBERLY PAYNE
72
SELLING PARTIES' AGENT:
/s/ David Brixey
DAVID BRIXEY
73
Attachments and Schedules
Attachment A Key Employees of Target Group *
Attachment B Acquiror Notes (Promissory Notes to Sellers) *
Attachment C Escrow Agreement *
Attachment D Certificate of Merger *
Attachment E Agreed Accounting Principles *
Attachment F Allocation of Merger Consideration *
Attachment G Intentionally Deleted
Attachment H Form of Selling Parties Noncompetition Agreement *
Attachment I Target Group Project Working Capital Statement *
Disclosure Schedule – Exceptions to Representations and Warranties of Sellers and the Company and
Certain Other Exceptions and Disclosures * *
* The information scheduled at this Attachment has been omitted pursuant to Item 601(b)(2) of Regulation
S-K. Almost Family hereby undertakes to furnish supplementally copies of any of the omitted schedules
upon request by the U.S. Securities and Exchange Commission.
**Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Almost Family hereby
undertakes to furnish supplementally copies of any of the omitted schedules upon request by the U.S.
Securities and Exchange Commission.
74
Exhibit 2.5
Execution Copy
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this " Agreement ") dated as of January
4, 2016, is entered into by and among (i) National Health Industries, Inc. (" Buyer "), (ii)
Almost Family, Inc. (" Parent "), (iii) Long Term Solutions, Inc. (the " Company "), and (iv)
Anne Harrington, Noreen Guanci, Noreen Guanci 2009 Irrevocable Trust and Richard Guanci
2009 Irrevocable Trust (each a " Seller " and collectively, " Sellers " ) . Each of Buyer, Parent,
the Company and Sellers is referred to in this Agreement individually as a " Party " and
together as the " Parties ." Capitalized terms not otherwise defined in this Agreement have the
meanings given to such terms in Article I.
RECITALS
A. Sellers own all of the Sellers’ Shares (as defined below).
B. The Parties desire that, upon the terms and subject to the conditions set forth in this
Agreement, Buyer will purchase from Sellers, and Sellers will sell to Buyer, all of the Sellers'
Shares.
THE PARTIES, INTENDING TO BE LEGALLY BOUND, AGREE AS
FOLLOWS :
ARTICLE I
DEFINITIONS
Unless otherwise expressly provided in this Agreement, the following terms, as used in
this Agreement, have the following meanings:
" 409A Plan " is defined in Section 5.20(h).
" Accounting Policies and Principles " means GAAP using and applying the same
accounting principles, practices, procedures, policies and methods (with consistent
classifications, judgments, elections, inclusions, exclusions and valuation and estimation
methodologies) used and applied by the Company in the preparation of the Most Recent
Reviewed Financial Statements.
" Accrued PTO " is defined in Section 6.13(c).
" Action " means any claim, action, cause of action, demand, lawsuit, arbitration,
inquiry, audit, notice of violation, proceeding, litigation, citation, summons, subpoena or
investigation of any nature, civil, criminal, administrative, regulatory or otherwise, whether at
law or in equity.
" Affiliate " means, with respect to any Person, any other Person directly or indirectly
controlling, controlled by, or under common control with, such Person and, in the case of an
individual, includes the individual’s immediate family, and the trustees of a trust the
beneficiaries of which include any one or more of the foregoing.
" Agreement " is defined in the preamble to this Agreement.
" Ancillary Documents " means the Buyer Notes, the Guaranty and the other
agreements, documents, instruments and certificates contemplated by this Agreement to be
executed in connection with the consummation of the transactions contemplated by this
Agreement.
" Articles of Incorporation " means the Articles of Incorporation of the Company, as
amended.
" Balance Sheet Date " means December 31, 2014.
" Business " means conducting in-person health assessments and undertaking
assessment review and documentation, care plan development and ongoing care coordination,
in each case throughout the United States for insurance providers, healthcare providers and
employers.
" Business Day " means any day other than a Saturday, a Sunday or a United States
federal or Kentucky state banking holiday.
" Buyer " is defined in the preamble to this Agreement.
" Buyer’s Fundamental Representations " is defined in Section 8.1(a)(i).
" Buyer Indemnitees " is defined in Section 8.2.
" Buyer Notes " means the promissory notes included among the Purchase Price
consideration, substantially in the form of instrument s attached as Attachment A .
" Buy-Sell Agreement " means the Buy-Sell Agreement dated as of May 14, 2008,
between the Sellers.
" Claim for Indemnification " means a good faith written notice by Buyer or any Seller
asserting a claim for Losses under Article VIII. Such notice shall provide, in reasonable detail:
(i) a specific description of the Losses that the Indemnified Party has suffered, or is reasonably
likely to suffer; (ii) the dollar amount of such Losses (to the extent known or ascertainable, or
if not, a good faith estimate of the amount thereof with reasonable explanation of the basis for
the estimate); (iii) the representation, warranty or covenant set forth in this Agreement the
breach of which is giving rise to such Losses; and (iv) the facts and circumstances underlying
such asserted breach.
" Closing " is defined in Section 2.6.
" Closing Company Indebtedness " means the Company's Company Indebtedness as of
the close of business on the Business Day immediately preceding the Effective Time.
" Closing Date " means the date of the Closing.
" COBRA " is defined in Section 5.20(b).
2
" Code " means the Internal Revenue Code of 1986, as amended.
" Commitment " means any: (i) option, warrant, convertible security, exchangeable
security, subscription right, conversion right, exchange right or other contract that requires the
Company to issue any of its stock other equity interests; (ii) other security convertible into,
exchangeable or exercisable for, or representing the right to subscribe for, any stock or other
equity interests of the Company; (iii) statutory pre-emptive right or pre-emptive right granted
under the Company's Organizational Documents; and (iv) stock appreciation right, phantom
stock, profit participation or other similar right with respect to the Company
" Company " is defined in the preamble to this Agreement.
" Company Employee " means an employee of the Company as of the Effective Time.
" Company Employee Plans " is defined in Section 5.20(a).
" Company Indebtedness " means, as of any particular time, with respect to the
Company, the outstanding principal amount of, accrued and unpaid interest on, and other
payment obligations (including any prepayment fees, make-whole premiums or other similar
fees or premiums payable as a result of the repayment of such i ndebtedness on the Closing
Date) arising under, without duplication: (i) indebtedness for borrowed money, including all
liabilities generally regarded as indebtedness for borrowed money in accordance with GAAP;
(ii) indebtedness evidenced by any note, bond, debenture, mortgage or other debt security; (iii)
obligations under capitalized leases determined under GAAP; (iv) indebtedness secured by an
Encumbrance on assets or properties; (v) accrued and unpaid director and management fees;
(vi) obligations under any performance bond or letter of credit, but only to the extent drawn or
called prior to the Closing Date; and (vii) guarantees with respect to any indebtedness,
obligation or liability of any other Person of a type described in clauses (i) through (vi) above.
" Company Intellectual Property " means the Owned Intellectual Property and the
Licensed Intellectual Property.
" Company Transaction Expenses " means, without duplication, all amounts due and
payable (and not previously paid) for costs and expenses incurred by the Company in
connection with the negotiation and preparation of this Agreement and the consummation of
the transactions contemplated hereby, including (i) for services rendered by third party
brokers, bankers, attorneys, accountants or other representatives and (ii) sale, "stay around",
retention or similar bonuses or payments to employees in connection with the consummation
of such transactions.
" Company Technology " means all Technology that is used by or on behalf of the
Company that is used in connection with the conduct of the Business.
" Contract " means any contract, agreement or other legally binding commitment,
whether written or oral, to which the Company is a party and which is in effect as of the date
of this Agreement.
3
" Copyrights " means all copyrights, copyrightable works and mask works (including
all applications and registrations for each of the foregoing), and all other rights corresponding
thereto throughout the world.
" Customer Contracts " is defined in Section 5.16(d).
" D&O Indemnified Parties " is defined in Section 6.14(a).
" Decree " means any injunction, judgment, order, decree or ruling of any applicable
Governmental Authority.
" Deductible Amount " is defined in Section 8.6(a)(i).
" Disclosure Schedule " shall mean the disclosure schedule provided by Sellers and the
Company to Buyer and Parent on the date hereof.
" Effective Time " means 12:01 a.m. on the day immediately following the Closing
Date.
" Encumbrance " means, with respect to any asset, any mortgage, pledge, lien,
encumbrance, easement, right of way, property right or interest, restriction on transfer, security
interest, or defect in title in respect of such asset other than liens disclosed on the Disclosure
Schedule but released prior to Closing. For the avoidance of doubt, the term "Encumbrance"
shall not include any license of any Intellectual Property.
" Entity " means a partnership, a corporation, a limited liability company, an
association, a trust, a joint venture or an unincorporated organization.
" Environment " means surface or ground water, water supply, soil, the ambient air,
oceans, rivers or other bodies of water.
" Environmental Laws " means all Laws that relate to the prevention, abatement or
elimination of pollution or the protection of the Environment.
" Equity Interest " means: (i) with respect to a corporation, any share of its capital
stock; (ii) with respect to a limited liability company, any of its units or other limited liability
company interests; and (iii) any other direct equity ownership in an Entity.
" Employment Agreements " is defined in Section 7.1(s).
" ERISA " is defined in Section 5.20(a).
" ERISA Affiliate " is defined in Section 5.20(d).
" Escrow Agreement " is defined in Section 7.1(t).
4
" Estimated Balance Sheet " means an estimated balance sheet of the Company as of
the close of business on the Business Day immediately preceding the Effective Time, prepared
by the Company in accordance with the Accounting Policies and Principles.
" Estimated Closing Company Indebtedness " means the aggregate amount of the
Closing Company Indebtedness, as set forth on the Estimated Balance Sheet; provided , that
, any amount of such i ndebtedness taken into account in determining the Estimated Working
Capital Adjustment shall not be taken into account in determining the Estimated Closing
Company Indebtedness.
" Estimated Closing Statement " is defined in Section 2.3.
" Estimated Company Transaction Expenses " means the aggregate unpaid amount of
Company Transaction Expenses as set forth on the Estimated Balance Sheet; provided , that ,
any Company Transaction Expenses taken into account in determining the Estimated Working
Capital Adjustment shall not be taken into account in determining the Estimated Company
Transaction Expenses.
" Estimated Working Capital " means the Working Capital of the Company as of the
close of business on the Business Day immediately preceding the Effective Time, calculated
based on the Estimated Balance Sheet .
" Estimated Working Capital Adjustment " means (i) the Estimated Working Capital
minus (ii) the Target Working Capital.
" Exchange Act " is defined in Section 4.5.
" Final Adjustment Amount " is defined in Section 2.5(c).
" Final Balance Sheet " means a balance sheet of the Company as of the Effective
Time, which shall be prepared by Buyer in accordance with the Accounting Policies and
Principles.
" Final Closing Company Indebtedness " means the aggregate amount of the Closing
Company Indebtedness, as set forth on the Final Balance Sheet; provided , that , any amount
of Closing Company Indebtedness taken into account in determining the Final Working
Capital Adjustment shall not be taken into account in determining the Final Closing Company
Indebtedness.
" Final Closing Statement " is defined in Section 2.5(a).
" Final Company Transaction Expenses " means the aggregate amount of Company
Transaction Expenses, as set forth on the Final Balance Sheet; provided , that , any Company
Transaction Expenses taken into account in determining the Final Working Capital Adjustment
shall not be taken into account in determining the Final Company Transaction Expenses.
" Final Purchase Price " is defined in Section 2.2.
5
" Final Working Capital " means the Working Capital of the Company as of the close
of business on the Business Day immediately preceding the Effective Time, calculated based
on the Final Balance Sheet.
" Final Working Capital Adjustment " means (i) the Final Working Capital minus (ii)
the Target Working Capital.
" Financial Statements " is defined in Section 5.8(a).
" GAAP " means United States generally accepted accounting principles as in effect
from time to time.
" Governmental Authority " means any agency, authority, board, bureau, commission,
court, tribunal, department, office or other governmental unit of a federal, state, county,
district, city, other political subdivision or taxing district, whether foreign or domestic.
" Governmental Order " means any order, writ, judgment, injunction, decree,
stipulation, determination or award entered by or with any Governmental Authority.
" Guanci Shareholders " mean Noreen Guanci, Noreen Guanci 2009 Irrevocable Trust
and Richard Guanci 2009 Irrevocable Trust .
" Guaranty " is defined in Section 7.2(h).
" Hazardous Substance " means any liquid, gaseous or solid material, substance or
waste that is defined or listed as hazardous or toxic under any applicable Environmental Law.
" Health Care Laws " is defined in Section 5.10(b).
" Indemnified Party " is defined in Section 8.4(a).
" Indemnifying Party " is defined in Section 8.4(a).
" Information Systems " is defined in Section 5.23(b).
" Insurance Policies " is defined in Section 5.17.
" Intellectual Property Rights " means any and all of the following in any country: (a)(i)
Patents, (ii) Trademarks, (iii) rights in domain names and domain name registrations, (iv)
Copyrights, (v) Trade Secrets, and (vi) all other intellectual property rights (whether or not
appropriate steps have been taken to protect such rights under Law); and (b) the right (whether
at law, in equity, by contract or otherwise) to use, practice or otherwise exploit any of the
foregoing.
" Interim Balance Sheet Date " means September 30, 2015.
" IRS " is defined in Section 5.20(b).
6
" Knowledge of the Company " or " Company’s Knowledge " means the actual
knowledge of Noreen Guanci and Anne Harrington.
" Law " means any constitution, statute, treaty, code, ordinance, law, rule or regulation
of any applicable Governmental Authority.
" Leased Property " is defined in Section 5.6(b).
" Licensed Intellectual Property " means Intellectual Property Rights owned by any
Person other than the Company (i) that are licensed to the Company, (ii) for which the
Company has received from such Person a covenant not to sue or assert or other immunity
from suit, or (iii) where such Person has undertaken an obligation to the Company to assert
such Intellectual Property Rights against one or more other Persons prior to asserting such
Intellectual Property Rights against the Company, or an obligation to exhaust remedies as to
such Intellectual Property Rights against one or more Persons prior to seeking remedies
against the Company.
" Losses " is defined in Section 8.2.
" Material Adverse Change " or " Material Adverse Effect " means a change, event or
occurrence that individually, or together with any other change, event or occurrence, has a
material adverse effect on the financial condition, business or results of operations of the
Company; provided , that , none of the following events, changes, developments, effects,
conditions, circumstances, matters, occurrences or state of facts shall be taken into account in
determining whether there has been or may be a Material Adverse Change or Material Adverse
Effect: (i) any change or development in global or national economic, monetary or financial
conditions, including changes or developments in prevailing interest rates, credit markets,
securities markets, general economic or business conditions or currency exchange rates, or
political or regulatory conditions; (ii) any act of God, war, armed hostilities or terrorism; (iii)
any change or development applicable in general to the industry in which the Company
operates; (iv) any change in Law or GAAP or the interpretation or enforcement of either by a
Governmental Authority after the date hereof; or (v) any failure of the Company to meet, with
respect to any period or periods, any internal or industry analyst projections, forecasts,
estimates of earnings or revenues, or business plans (it being understood that the facts and
circumstances giving rise or contributing to any such failure may, unless otherwise excluded
by another clause in this definition of "Material Adverse Change" and "Material Adverse
Effect," be taken into account in determining whether a "Material Adverse Change" or a
"Material Adverse Effect" has occurred or could be reasonably be expected to occur), so long
as in the case of clauses (i), (ii), (iii) or (iv) such events, changes, developments, effects,
conditions, circumstances, matters, occurrences or state of facts do not adversely affect the
Company in a materially disproportionate manner relative to other comparable participants in
the industry in which the Company operates.
" Material Contracts " is defined in Section 5.16(a).
" Most Recent Balance Sheet " is defined in Section 5.8(a).
" Most Recent Financial Statements " is defined in Section 5.8(a).
7
" Most Recent Reviewed Financial Statements " means the Financial Statements as of
and for the fiscal year ended December 31, 2014.
" Multiemployer Plan " means a multiemployer plan as defined in Section 3(37) of
ERISA.
" Neutral Auditor " is defined in Section 2.5(b).
" Objection Notice " is defined in Section 2.5(b).
" Off-the-Shelf Software " means any software (other than Public Software) that is
made generally and widely available to the public on a commercial basis and is licensed on a
non-exclusive basis.
" Open License Terms " means terms in any license, distribution model or other
agreement for a Work which require, as a condition of use, reproduction, modification and/or
distribution of the Work (or any portion thereof) or of any Related Software, any of the
following: (a) the making available of source code or any information regarding the Work or
any Related Software; (b) the granting of permission for creating modifications to or derivative
works of the Work or any Related Software; (c) the granting of a royalty-free license, whether
express, implied, by virtue of estoppel or otherwise, to any Person under Intellectual Property
Rights (including without limitation Patents) regarding the Work alone, any Related Software
alone or the Work or Related Software in combination with other hardware or software; (d) the
imposition of restrictions on future Patent licensing terms, or other abridgement or restriction
of the exercise or enforcement of any Intellectual Property Rights through any means; (e) the
obligation to include or otherwise communicate to other Persons any form of
acknowledgement and/or copyright notice regarding the origin of the Work or Related
Software; or (f) the obligation to include disclaimer language, including warranty disclaimers
and disclaimers of consequential damages. By means of example only and without limitation,
Open License Terms includes any versions of the following agreements, licenses or
distribution models: (i) the GNU General Public License (GPL); (ii) Lesser/Library GPL
(LGPL); (iii) the Common Development and Distribution License (CDDL); (iv) the Artistic
License (including without limitation PERL); (v) the Netscape Public License; (vi) the Sun
Community Source License (SCSL) or the Sun Industry Standards License (SISL); (vii) the
Apache License; (viii) the Common Public License; (ix) the Affero GPL (AGPL); (x) the
Berkeley Software Distribution (BSD) license; (xi) the Mozilla Public License (MPL); (xii) the
Microsoft Limited Public License; or (xiii) any licenses that are defined as OSI (Open Source
Initiative) licenses as listed on the site www.opensource.org.
" Ordinary Course of Business " means the conduct of the Business in a manner
substantially consistent with the regular conduct thereof by the Company, including any
activities associated with, or in anticipation of, this Agreement or the transactions
contemplated by this Agreement.
" Organizational Documents " means articles or certificates of incorporation and
bylaws.
" Owned Intellectual Property " means any material Intellectual Property Rights in
which the Company has any ownership interest (other than a license interest).
8
" Parent Common Stock " means shares of Almost Family, Inc. voting common stock.
" Parent Reports " is defined in Section 4.5.
" Parent " is defined in the preamble to this Agreement.
" Parent Benefit Plan " is defined in Section 6.13(a).
" Parties " is defined in the preamble to this Agreement.
" Patents " means all issued patents (including utility and design patents) and pending
patent applications (including invention disclosures, records of invention, certificates of
invention and applications for certificates of inventions and priority rights) filed with any
Registration Office, including without limitation, all non-provisional and provisional patent
applications, substitutions, continuations, continuations-in-part, divisions, renewals, revivals,
reissues, re-examinations and extensions thereof.
" Permitted Liens " means statutory liens for Taxes, special assessments or other
governmental and quasi-governmental charges not yet due and payable.
" Person " means an individual, an Entity or a Governmental Authority.
" Post-Closing Sale Proceeds " means, with respect to each Seller, the amount of the
Final Adjustment Amount (if any) that such Seller is entitled to receive based on such Seller's
Pro Rata Share.
" PPACA " is defined in Section 5.20(l).
" Pre-Closing Tax Periods " means all Tax periods (or portions thereof) ending on or
before the Effective Time, and the portion through the Effective Time for any Tax period that
includes (but does not end on) the Effective Time.
" Pre-Closing Taxes " means all Taxes of the Company for Pre-Closing Tax Periods.
" Preliminary Purchase Price " is defined in Section 2.2.
" Proceeding " means any action, litigation, suit, claim, dispute, demand, investigation,
review, hearing, charge, complaint or other judicial or administrative proceeding, at law or in
equity, before or by any Governmental Authority or arbitration or other dispute resolution
proceeding.
" Pro Rata Share " means each Seller's pro rata share of the applicable item based on
such Seller's percentage share of Sellers' Shares.
" Protected Health Information " is defined in Section 5.10(c).
9
" Public Software " means any software, libraries or other code that is licensed under or
is otherwise subject to Open License Terms. Software distributed under less restrictive free or
open source licensing and distribution models such as those obtained under the MIT, Boost
Software License, and the Beer-Ware Public Software licenses or any similar licenses, and any
software that is a public domain dedication are also "Public Software."
" Purchase Price " is defined in Section 2.2.
" Real Property Lease " is defined in Section 5.6(b).
" Representative " means, with respect to any Person, any and all directors, officers,
employees, consultants, financial advisors, counsel, accountants and other agents of such
Person.
" Registered Intellectual Property " means all Intellectual Property Rights for which
registrations have been obtained or applications for registration have been filed with a
Registration Office.
" Registration Office " means, collectively, the United States Patent and Trademark
Office, United States Copyright Office and all equivalent foreign patent, trademark, copyright
offices or other Governmental Authority.
" Related Software " means, with respect to a Work, any other software, libraries or
other code (or a portion of any of the foregoing) in each case that is incorporated into or
includes, relies on, is linked to or with, is derived from in any manner (in whole or in part), or
is distributed with such Work.
" Required Consents " is defined in Section 6.1(b).
" SEC " is defined in Section 3.1(a).
" Securities Act " is defined in Section 3.1(b).
" Seller Indemnitees " is defined in Section 8.3.
" Sellers " is defined in the preamble to this Agreement.
" Sellers' Fundamental Representations " is defined in Section 8.1(a)(i).
" Sellers' Shares " means all of the issued and outstanding capital stock of the
Company.
" Sellers' Taxes " is defined in Section 6.10(d).
" Source Code " means the source code (i.e., software code in its original, human
readable, un-compiled, form) of all Owned Intellectual Property that is comprised of software,
together with all extracts, portions and segments thereof.
" Straddle Period " is defined in Section 6.10(a).
10
" Tail Policy " is defined in Section 6.14(b).
" Target Working Capital " means $ 900,000 .
" Tax " or " Taxes " means any federal, state, local, or non-U.S. income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits,
customs duties, capital stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use, transfer, registration,
value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.
" Tax Benefit " means any refund of Taxes paid or reduction in the amount of Taxes
which otherwise would have been paid, in each case computed at the highest marginal tax rates
applicable to the recipient of such benefit.
" Tax Return " means any return, declaration, report, claim for refund, or information
return or statement relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
" Technology " means all tangible items constituting, disclosing or embodying any
Intellectual Property Rights, including all versions thereof and all technology from which such
items were or are derived, including but not limited to (a) works of authorship (including
software, firmware, games and middleware in source code and executable code form,
architecture, databases, plugins, libraries, APIs, interfaces, algorithms and documentation); (b)
inventions (whether or not patentable), designs, discoveries and improvements; (c) proprietary,
confidential and/or technical data and information, Trade Secrets and know how; (d)
databases, data compilations and collections, and customer and technical data; (e) methods and
processes; and (f) devices, prototypes, designs, specifications and schematics.
" Territory " is defined in Section 6.11(a).
" Third Party Claim " means any Proceeding by or before any Governmental Authority
or any arbitration or other alternative dispute resolution proceeding made or brought by any
Person who is not a Party or an Affiliate of a Party.
" Trade Secrets " means all proprietary and confidential information, however
documented, that constitutes a "trade secret" within the meaning of applicable Law.
" Trademarks " means all material (common law or registered) (a) trademarks, service
marks, logos, insignias, designs, trade dress, symbols, trade names and fictitious business
names, emblems, signs, insignia, slogans, other similar designations of source or origin and
general intangibles of like nature (including all applications and registrations for each of the
foregoing), and (b) all goodwill associated with or symbolized by any of the foregoing.
" WARN " is defined in Section 5.20(k).
11
" Work " means any software, libraries or other code (including without limitation
middleware and firmware).
" Working Capital " means an amount (which may be a positive or negative number)
equal to: (i) the current assets of the Company, excluding all cash and deferred Tax assets,
minus (ii) the current liabilities of the Company, excluding any deferred Tax liabilities, in
each case determined under Accounting Policies and Principles. Notwithstanding the
foregoing, Company Transaction Expenses are excluded from Working Capital for purposes of
this Agreement and the purchase price adjustments set forth in Sections 2.3 and 2.5.
ARTICLE II
PURCHASE AND SALE OF SELLERS' SHARES
2.1 Basic Transaction . Upon the terms and subject to the conditions of this
Agreement, Buyer agrees to purchase from each Seller, and each Seller agrees to sell to Buyer,
all of such Seller’s Sellers' Shares for the consideration specified in this Article II.
2.2 Purchase Price . In consideration for all of the issued and outstanding Sellers'
Shares, Buyer shall pay, in accordance with the terms of this Article II, the sum of
$37,000,000 (the " Purchase Price "), adjusted initially pursuant to Section 2.3 (as so adjusted,
the " Preliminary Purchase Price "), and adjusted thereafter pursuant to Section 2.5 (as so
adjusted, the " Final Purchase Price ").
2.3 Pre-Closing Adjustments . P rior to the Closing, the Company shall deliver to
Buyer the Estimated Balance Sheet and a statement prepared in good faith (the " Estimated
Closing Statement ") setting forth the Estimated Working Capital Adjustment, the Estimated
Closing Company Indebtedness, the Estimated Company Transaction Expenses, and the
calculation of such amounts. The Estimated Closing Statement shall be used to determine the
Preliminary Purchase Price, by adjusting the Purchase Price as follows:
(a) the Preliminary Purchase Price shall be increased on a dollar-for-dollar
basis by:
(i) an amount equal to the Estimated Working Capital Adjustment, if
such amount is positive (the " Positive Estimated Working Capital Adjustment "); and
(ii) the amount of all cash that is held by the Company at the close of
business on the Business Day immediately preceding the Closing Date.
(b) the Preliminary Purchase Price shall be decreased on a dollar-for-dollar
basis by an amount equal to the Estimated Working Capital Adjustment, if such amount is
negative.
2.4 Payment of Preliminary Purchase Price . The Preliminary Purchase Price shall be
paid as follows:
12
(a) $11,000,000 of the Preliminary Purchase Price shall be paid in the form of
Parent Common Stock, to be divided among the Sellers based on their Pro Rata Share. For
purposes of this Agreement, the value of Parent Common Stock shall be equal to the average
closing price of Parent's publicly-traded common stock over the 20 trading days ending with
trading day immediately preceding the Closing Date. To the extent that after combining all
shares of Parent Common Stock to be received by a Seller pursuant to this Agreement, such
Seller would be entitled to receive a fractional share of one-half or more of a share of Parent
Common Stock, such Seller shall receive one additional whole share, and if such Seller would
be entitled to receive a fractional share of less than one-half of a share of Parent Common
Stock such Seller shall not receive such fractional share;
(b) $6,000,000 in the form of Buyer Notes, bearing interest at an annual rate
of five percent (5%) payable quarterly, and with principal due and payable in a single balloon
payment on the third anniversary of the Closing Date, and with the aggregate principal amount
to be divided between the Sellers based on their Pro Rata Shares;
(c) as set forth on the Estimated Closing Statement, amounts equal to the
Estimated Closing Company Indebtedness and the Estimated Company Transaction Expenses
shall be paid in cash to the appropriate payees by wire transfer of immediately available funds;
and;
(d) an amount equal to the Positive Estimated Working Capital Adjustment, if
any, shall be escrowed with Fifth Third Bank, pending determination of the post-Closing
adjustments to the Preliminary Purchase Price pursuant to Section 2.5; and
(e) the remaining balance of the Preliminary Purchase Price, increased or
decreased pursuant to Section 2.3, and after deducting amounts paid pursuant to Sections
2.4(a) through (d), shall be paid in cash to the Sellers by wire transfer of immediately available
funds, to be divided among the Sellers based on their Pro Rata Share.
2.5 Post-Closing Adjustments to the Preliminary Purchase Price .
(a) No later than 90 days following the Closing Date, Buyer shall prepare and
deliver to Sellers the Final Balance Sheet and a written statement (such statement, as it may be
adjusted pursuant to this Section 2.5, the " Final Closing Statement ") setting forth the Final
Working Capital Adjustment, the Final Closing Company Indebtedness and the Final
Company Transaction Expenses, and detail on the calculation of such amounts. The Final
Closing Statement shall be used to determine the Final Purchase Price, by adjusting the
Purchase Price as follows:
(i) the Purchase Price shall be increased on a dollar-for-dollar basis by
an amount equal to the Final Working Capital Adjustment, if such amount is positive, plus any
amount by which the Estimated Company Closing Indebtedness is more than the Final
Company Closing Indebtedness, plus any amount by which Estimated Company Transaction
Expenses are more than Final Company Transaction Expenses; and
13
(ii) the Purchase Price shall be decreased on a dollar-for-dollar basis by
the sum of (A) an amount equal to the Final Working Capital Adjustment, if such amount is
negative; (B) any amount by which Final Closing Company Indebtedness exceeds Estimated
Company Closing Indebtedness; and (C) any amount by which Final Company Transaction
Expenses exceed Estimated Company Transaction Expenses; provided , that , no adjustments
shall be made to the Purchase Price under subsections (B) and (C) above to the extent that such
amounts have been taken into account in determining the Final Working Capital Adjustment.
(b) Within 45 days following delivery of the Final Balance Sheet and the Final
Closing Statement to Sellers, Sellers shall notify Buyer (i) that Sellers accept the Final Balance
Sheet and the Final Closing Statement or (ii) that Sellers object (an " Objection Notice ") to an
item or items reflected thereon. Such Objection Notice, if any, shall set forth Sellers’
objections to the Final Balance Sheet and the Final Closing Statement in reasonable detail. If
Buyer and Sellers are unable to resolve the issues in dispute within 30 days after delivery of
the Objection Notice, such disputed issues will be submitted for resolution to RSM US LLP
(f/k/a McGladrey LLP) , independent certified public accountants (the " Neutral Auditor
"). The Neutral Auditor shall be engaged within 30 days after delivery of the Objection
Notice. If either Party fails to take action such that the Neutral Auditor may be jointly engaged
by the Parties pursuant to the prior sentence of this Section 2.5(b), then the other Party may
engage the Neutral Auditor on behalf of both Parties. The Neutral Auditor shall make such
review and examination of the relevant facts and documents as the Neutral Auditor deems
appropriate, and shall permit each of Buyer and Sellers to make a written presentation of their
respective positions; provided , however , that the Neutral Auditor shall require all facts,
documents and written presentations from Buyer and Sellers to be completely submitted within
30 days after the Neutral Auditor has been engaged. Within 30 days after the date required for
submission of such facts, documents and written presentations, and regardless of whether such
submissions shall have been made, the Neutral Auditor shall resolve all disputed items in
writing and shall prepare and deliver its decision, which shall be final and binding upon the
Parties without further recourse or collateral attack and, as to each disputed matter, which shall
accept (x) either Buyer’s or Sellers’ position on each disputed matter set forth in the Objection
Notice or (y) the stipulated position of Buyer and Sellers with respect to any matter which
prior to such stipulation was disputed. All costs of the dispute resolution process contemplated
by this Section 2.5(b) (including the Neutral Auditor’s fees, but exclusive of attorneys’ fees)
shall be borne by the Party who is the least successful in such process, which shall be
determined by comparing (A) the position asserted by each Party on all disputed matters taken
together to (B) the final decision of the Neutral Auditor on all disputed matters taken
together. For purposes of the immediately preceding sentence, the "disputed matters" shall be
all matters raised in the Objection Notice, and the "position asserted" by each of Buyer and
Sellers shall be determined by reference to their respective written presentations submitted to
the Neutral Auditor pursuant to this Section 2.5(b). The Neutral Auditor shall neither preside
over any hearing of the Parties nor permit the Parties to make any oral arguments to the
Neutral Auditor.
(c) As used in this Agreement, " Final Adjustment Amount " means: (i) if
Sellers fails to deliver an Objection Notice or accepts the Final Balance Sheet and the Final
Closing Statement in accordance with Section 2.5(b), an amount (which may be a positive or a
14
negative number) equal to (x) the Final Purchase Price as set forth in the Final Closing
Statement, minus (y) the Preliminary Purchase Price; or (ii) if the amount of the Final Purchase
Price is resolved by Buyer and Sellers or by submission of any Disputed Matters to the Neutral
Auditor in accordance with Section 2.5(b), then an amount (which may be a positive or a
negative number) equal to (x) the Final Purchase Price as so resolved, minus (y) the
Preliminary Purchase Price. If the Final Adjustment Amount is a positive number, then Buyer
shall promptly, but in any event within five Business Days after the final and binding
determination of the Final Purchase Price in accordance with Section 2.5(b), pay to each Seller
such Seller’s Pro Rata Share of the Final Adjustment Amount plus the amount held in escrow
pursuant to Section 2.4(d). If the Final Adjustment Amount is a negative number, then, as
appropriate Buyer shall be paid all or part of the amount escrowed pursuant to Section 2.4(d),
and if the amount due to Buyer exceeds such escrowed amount, Sellers shall promptly, but in
any event within five Business Days after the final and binding determination of the Final
Purchase Price in accordance with Section 2.5(b), pay to Buyer such Seller's Pro Rata Share of
the Final Adjustment Amount (net of the amount paid to Buyer out of escrow). All amounts to
be paid pursuant to this Section 2.5(c) shall be made by wire transfer of immediately available
funds to such bank accounts as the respective receiving Parties shall specify within three
Business Days after the final and binding determination of the Final Purchase Price in
accordance with Section 2.5(b).
(d) Except as set forth in this Section 2.5, each of Buyer and Sellers shall bear
its own expenses incurred in connection with the preparation and review of the Estimated
Balance Sheet, the Estimated Closing Statement, the Final Balance Sheet and the Final Closing
Statement.
2.6 Closing . The closing of the transactions contemplated by this Agreement (the "
Closing ") shall take place at the offices of Frost Brown Todd LLC, Louisvil le, Kentucky,
commencing at 4:15 p .m., local time within three Business Days following the satisfaction or
waiver of the last of the conditions to the obligations of the Parties to consummate the
transactions contemplated by this Agreement (other than conditions with respect to actions
each Party will take at the Closing itself), or such other place or date as the Parties may
mutually determine. The Parties may mutually agree to consummate the Closing via electronic
exchange of execution versions of the agreements and documents contemplated by this
Agreement and the signed signature pages thereto via facsimile or via email by PDF. The
Closing shall be deemed to have occurred for Tax and business purposes as of the Effective
Time.
2.7 Deliveries at Closing . At Closing:
(a) Buyer will deliver to Sellers the certificates, instruments, and documents
referred to in Section 7.2;
(b) Sellers and the Company will deliver to Buyer the certificates, instruments,
and documents referred to in Section 7.1;
(c) each Seller will deliver to Buyer stock certificates and duly executed
assignment instruments with respect to such Seller's Sellers' Shares;
15
(d) each Seller will deliver a W-9 to Parent's exchange agent; and
(e) Buyer will make the payments specified in Section 2.4, including the
issuance of the Buyer Notes (the Parties acknowledge that Anne Harrington has directed that
her Buyer Note be issued to Anne M. Harrington as Trustee of the Anne M. Harrington
Revocable 1999 Trust) , the wiring of the cash portion of the Purchase Price, and the issuance
of the Parent Common Stock (which issuance shall be handled through Parent's exchange
agent) (the Parties acknowledge that Anne Harrington has directed that Parent's exchange
agent issue her Parent Common Stock in the name of Anne M. Harrington, as Trustee of the
Anne M. Harrington Revocable 1999 Trust) . Buyer shall instruct the exchange agent to issue
the Parent Common Stock within five Business Days after Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each Seller severally and not jointly represents and warrants to Buyer that, except as
set forth in the Disclosure Schedule, the statements contained in this Article III are correct and
complete as
concerns such Seller as of the date of this Agreement.
3.1 Investment Representations and Acknowledgements . The Parent Common Stock
to be received by Seller will be acquired for investment for Seller's own account, not as a
nominee or agent, and not with a view to a public distribution of any part thereof, and Seller
has no present intention of selling, granting any participation in, or otherwise distributing the
same.
(a) Buyer has delivered to Seller a reasonable time before the date of this
Agreement true and complete copies of Parent's (i) Annual Report on Form 10-K for the year
ended December 31, 2014 filed with the Securities and Exchange Commission (the " SEC " );
(ii) all periodic reports on Form 8-K filed with the SEC since December 31, 2014 to the date
hereof; and (iii) all Forms 10-Q filed with the SEC since December 31, 2014 to the date
hereof. Seller, or a representative thereof, has received a draft of this Agreement and has
confirmed that all documents, books and records pertaining to Seller's investment in Parent
Common Stock and requested by Seller have been made available.
(b) Seller acknowledges that it bears the complete economic risk of its
investment and has such knowledge and experience in financial or business matters that Seller
is capable of evaluating the merits and risks of the investment in Parent Common
Stock. Seller is an "accredited investor" within the meaning of Rule 501(a) promulgated under
the Securities Act of 1933, as amended (the " Securities Act ").
(c) The purchase of Parent Common Stock by such Seller is consistent with
the general investment objectives of Seller. Seller understands that the purchase of Parent
Common Stock involves a high degree of risk.
(d) Seller acknowledges that she or it has been advised to seek her or its own
tax and legal advice in connection with this Agreement, including with respect to the treatment
of the transactions contemplated by this Agreement for Federal, foreign, state and local income
16
tax purposes and the treatment of Seller for tax purposes in connection therewith. Seller
acknowledges that none of the Parties has (i) made any representations and warranties to her or
it regarding the treatment of the transactions contemplated by this Agreement for Federal,
foreign, state or local tax purposes, or (ii) provided any tax opinion or advice regarding the
treatment of the transactions contemplated by this Agreement for Federal, foreign, state or
local tax purposes or the treatment of Seller for tax purposes in connection therewith.
(e) Seller acknowledges that the Parent Common Stock issued to Seller shall
not be registered under the Securities Act at the time of issuance, and as such shall constitute
"restricted securities" within the meaning of Rule 144 and, unless sold pursuant to an effective
registration statement, the Parent Common Stock shall be available for sale in the public
market only in compliance with Rule 144. In addition to the Rule 144 restrictions on the sale
of the Parent Common Stock, Seller agrees that, except in connection with the acquisition or
other c hange of control involving the sale by Parent's shareholders of their shares of Parent C
ommon S tock , she or it (or in the case of Anne Harrington, the Anne M. Harrington
Revocable 1999 Trust) shall not sell or transfer any of the Parent Common Stock for a period
of 36 months after the Closing Date, provide d , however, that Seller (or in the case of Anne
Harrington, the Anne M. Harrington Revocable 1999 Trust) may sell or transfer her or its Pro
Rata Share of up to $2 million in sale value of the shares of Parent Common Stock issued by
Parent to Seller as consideration pursuant to Section 2.4(a) prior to the 36 th month anniversary
of the Closing Date. Certificates representing the Parent Common Stock shall bear a legend
substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD,
PLEDGED, OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR A
VALID EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW
OR OTHER EVIDENCE SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED. THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER
SET FORTH IN A STOCK PURCHASE AGREEMENT DATED JANUARY 4, 2016, A
COPY OF WHICH IS MAINTAINED IN THE OFFICE OF THE SECRETARY OF THE
CORPORATION.
(f) Seller has full power, capacity and authority to execute and deliver this
Agreement and the Ancillary Documents and to surrender her or its Sellers' Shares pursuant to
this Agreement. Seller has duly executed and delivered this Agreement and the Ancillary
Documents which constitutes the valid and legally binding obligation of Seller, each
enforceable in accordance with its terms and conditions. Except as set forth in the Buy-Sell
Agreement, Seller is not required to give any notice to, make any filing or registration with, or
obtain any authorization, waiver, license, consent, or approval of any Governmental Authority
or third party in connection with the execution and delivery of this Agreement by Seller and
the performance by Seller of her or its obligations hereunder or the consummation of the
transactions contemplated by this Agreement.
17
3.2 Ownership of Sellers' Shares . Seller holds of record and owns beneficially all of
the Sellers' Shares set forth opposite her or its name in Section 3.2 of the Disclosure Schedule,
free and clear of any restrictions or Encumbrances (other than as set forth in the Buy-Sell
Agreement and restrictions of general applicability imposed by federal or state securities
laws). Seller is not a party to any agreement (other than the Buy-Sell Agreement) restricting
Seller’s ability to sell, transfer or otherwise dispose of any of her or its Sellers' Shares. Seller
is not a party to any voting trust, proxy or other agreement or understanding with respect to the
voting of any of her or its Sellers' Shares. Upon consummation of the transactions
contemplated by this Agreement, Buyer shall hold good and valid title to all of the Sellers'
Shares, subject to the terms and conditions of this Agreement. Seller is a resident of
Massachusetts. Seller is not an individual resident of a state that is subject to community
property laws.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
Parent and Buyer represent and warrant to Sellers that the statements contained in this
Article IV are correct and complete as of the date of this Agreement.
4.1 Organization . Parent is a corporation duly organized, validly existing and in good
standing under the Laws of the State of Delaware. Buyer is a corporation duly organized,
validly existing, and in good standing under the Laws of the Commonwealth of
Kentucky. Parent and Buyer are qualified to do business and are in good standing in each
jurisdiction where such qualification is required.
4.2 Authorization of Transaction . Each of Parent and Buyer has the requisite power
and authority to execute and deliver this Agreement and each of the Ancillary Documents to
which it is a party , and to perform its obligations under this Agreement and each such
Ancillary Document. This Agreement has been, and the Ancillary Documents to which Parent
and Buyer is a party, when entered into by Parent and/or Buyer, as applicable, will be, duly
and validly executed and delivered by Parent and Buyer, as applicable, and , assuming the due
authorization, execution and delivery by the other Parties hereto and thereto, this Agreement
constitutes, and the Ancillary Documents to which Parent and Buyer are a party, when entered
into by Parent and/or Buyer, as applicable, will constitute, Parent’s and Buyer’s valid and
legally binding obligation, enforceable against Parent and Buyer in accordance with its terms
and conditions, subject to applicable bankruptcy, insolvency, reorganization, moratorium and
other similar Laws affecting creditors’ rights generally and general principles of equity.
4.3 Capitalization . As of the date of this Agreement, the authorized capital stock of
Parent consists of (a) 25,000,000 shares of Parent Common Stock, par value of $.10 per share,
of which 10,021,395 shares are issued and outstanding, and (b) 2,000,000 shares of
preferred stock, par value $0.05 per share, none of which are issued and outstanding. All of
the issued and outstanding shares of Parent Common Stock are duly authorized, validly issued,
fully paid, nonassessable and free of all preemptive rights. All of the Parent Common Stock
issued to Sellers will be, when issued in accordance with this Agreement, duly authorized,
validly issued, fully paid and nonassessable, and will not be subject to any preemptive rights or
rights of first refusal created by statute, the Organizational Documents of Parent or any
agreement to which
18
Parent is a party. As of the date of this Agreement, except for benefit plans maintained by
Parent, or as previously publicly disclosed in the Parent Reports, a press release or otherwise,
there are outstanding no rights, warrants or options to purchase Parent Common Stock,
respectively.
4.4 Non-Contravention . Neither the execution and the delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, will: (a) violate any Law, Decree,
or other restriction of any Governmental Authority to which Parent or Buyer is subject or any
provision of their respective Organizational Documents; or (b) conflict with, result in a breach
of, constitute a default under, result in the acceleration of any obligation under, create in any
party the right to accelerate, terminate, modify, or cancel, or require any notice under, any
agreement, contract, lease, license, instrument, or other arrangement to which Parent or Buyer
is a party or by which either is bound or to which any of their respective assets are
subject. Neither Parent nor Buyer is required to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any Governmental Authority in order to
consummate the transactions contemplated by this Agreement.
4.5 Reports and Financial Statements . Parent and Buyer have previously furnished or
made available to the Sellers complete and accurate copies, as amended or supplemented, of
Parent's (a) Annual Report on Form 10-K for the year ended December 31, 2014 filed with the
SEC; (b) all periodic reports on Form 8-K filed with the SEC since December 31, 2014 to the
date hereof; (c) all Forms 10-Q filed with the SEC since December 31, 2014 to the date hereof;
and (d) all other reports filed by Parent under Section 13 or subsections (a) or (c) of Section 14
of the Securities Exchange Act of 1934, as amended (the " Exchange Act ") with the SEC
since December 31, 2014 (the reports listed in subsections (a) through (d) of this Section 4.5
are collectively referred to herein as the " Parent Reports "). The Parent Reports constitute all
of the documents required to be filed by Parent under Section 13 or subsections (a) or (c) of
Section 14 of the Exchange Act with the SEC from December 31, 2014 through the date of this
Agreement. The Parent Reports complied in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder when filed. As of their respective
dates, the Parent Reports did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading. The audited financial
statements and unaudited interim financial statements included in the Parent Reports (i)
complied as to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto when filed, (ii) were prepared
in accordance with GAAP applied on a consistent basis throughout the periods covered
thereby (except as may be indicated therein or in the notes thereto, and in the case of quarterly
financial statements, as permitted by Form 10-Q under the Exchange Act), (iii) fairly present
the consolidated financial condition, results of operations and cash flows of Parent as of the
respective dates thereof and for the periods referred to therein, and (iv) are consistent with the
books and records of Parent. Except as set forth in the Parent Reports, neither Parent nor any
of its subsidiaries has any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) required by generally accepted accounting principles to be recognized
or disclosed on a consolidated balance sheet of Parent and its subsidiaries or in the notes
thereto, except (A) liabilities reflected in the audited consolidated balance sheet of the Parent
as of September 30,
19
2015, and (B) liabilities incurred since September 30, 2015, in the ordinary course of business
consistent with past practice.
4.6 Brokers’ Fees . Neither Parent nor Buyer has any liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
4.7 Investment . Each of Parent and Buyer, individually and together with their
Affiliates, as applicable: (a) is an informed, sophisticated entity with sufficient knowledge and
experience in investment and financial matters so as to be capable of evaluating the risks and
merits of a purchase of the Sellers' Shares; (b) has determined that the purchase of the Sellers'
Shares is consistent with its general business and investment objectives; (c) understands that
the purchase of the Sellers' Shares involves business and other risks; (d) is financially able to
bear the risks of purchasing the Sellers’ Shares; (e) is acquiring the Sellers' Shares, directly or
indirectly, for its own account for the purpose of investment and not with a view to or for sale
in connection with any distribution thereof; (f) understands that the Sellers' Shares have not
been registered under the Securities Act or the securities laws of any state and, accordingly,
must be held indefinitely unless a subsequent disposition thereof is registered under the
Securities Act or qualified under such state laws or is exempt from such registration or
qualification; and (g) is an "accredited investor" as defined in Rule 501(a) under the Securities
Act.
4.8 Financial Ability to Perform . Parent and Buyer have, and will have as of the
Closing, available cash funds, credit facilities or other sources of immediately available funds
sufficient to consummate the transactions contemplated by this Agreement. Each of Parent’s
and Buyer’s obligations to consummate the transactions contemplated by this Agreement are
not subject to any financing condition.
4.9 Litigation . There is no Proceeding pending, or to Parent’s and Buyer’s knowledge,
threatened, against Parent or Buyer which would have a material adverse effect on the
financial condition, results of operations or business of Parent or Buyer, or which seeks to
enjoin, challenge, alter, delay, restrict or prohibit the consummation of the transactions
contemplated by this Agreement.
4.10 Sole Representations . Each of Parent and Buyer acknowledges that the Sellers
and the Company have not made and are not making any representations or warranties
whatsoever, express or implied, regarding the subject matter of this Agreement or the accuracy
and completeness of any books or records delivered to Parent and Buyer, except as provided in
Article III and Article V, any Ancillary Document and any certificate delivered at the Closing
pursuant hereto or thereto, and Parent and Buyer specifically disclaim any such other
representations and warranties that may have been made by any other Person. Each of Parent
and Buyer acknowledges that it is not relying and has not relied on any representations or
warranties whatsoever regarding the subject matter of this Agreement, express or implied,
except for the representations and warranties in Article III, Article V, any Ancillary Document
and any certificate delivered at the Closing pursuant hereto or thereto, and is entering into the
transactions contemplated by this Agreement and the Ancillary Documents subject only to
such representations and warranties, as limited by the terms of this Agreement and such
Ancillary
20
Documents as applicable. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, EXCEPT AS SET FORTH IN THIS AGREEMENT OR ANY ANCILLARY
DOCUMENT, NO REPRESENTATION OR WARRANTY HAS BEEN MADE OR IS
BEING MADE HEREIN TO PARENT OR BUYER OR ANY OTHER PERSON (I) WITH
RESPECT TO ANY PROJECTIONS, FORECASTS, BUSINESS PLANS, ESTIMATES OR
BUDGETS DELIVERED TO OR MADE AVAILABLE TO PARENT OR BUYER, OR (II)
WITH RESPECT TO ANY OTHER INFORMATION OR DOCUMENTS MADE
AVAILABLE AT ANY TIME TO PARENT, BUYER OR ANY OTHER PERSON.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer that, except as set forth in the
Disclosure Schedule, the statements contained in this Article V are (i) correct and complete as
of the date of this Agreement or (ii) to the extent made as of or with respect to a specific date,
correct and complete as of such date.
5.1 Organization, Qualification, Corporate Power and Authorization . The Company is
duly organized, validly existing, and in good standing under the Laws of the jurisdiction of its
incorporation or formation. The Company is qualified to do business and is in good standing
in the states listed on Section 5.1 of the Disclosure Schedule, which list represents each
jurisdiction where such qualification is required. The Company has full corporate power and
authority to carry on the Business and to own and use the properties owned and used by it.
5.2 Authorization of Transaction . The Company has the requisite power and authority
to execute and deliver this Agreement and each of the Ancillary Documents to which it is a
party , and to perform its obligations under this Agreement and each such Ancillary
Document. This Agreement has been, and each of the Ancillary Documents to which it is a
party, when entered into by the Company, will be, duly and validly executed and delivered by
the Company and , assuming the due authorization, execution and delivery by the other parties
hereto and thereto, this Agreement constitutes, and each of the Ancillary Documents to which
the Company is a party, when entered into by the Company, will constitute, the valid and
legally binding obligation of the Company, enforceable against the Company in accordance
with its terms and conditions, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and other similar Laws affecting creditors’ rights generally and general principles
of equity.
5.3 Capitalization . Section 5.3 of the Disclosure Schedule sets forth: (a) the number of
authorized shares for each class of the Company’s capital stock; and (b) the number of issued
and outstanding shares of each class of the Company’s capital stock, all of which have been
duly authorized and are validly issued, fully paid and non-assessable. There are no
outstanding Commitments that would require the Company to issue, sell or otherwise cause to
become outstanding any of stock or other equity interests. There are no voting trusts, proxies,
or other agreements or understandings with respect to the voting of the Sellers' Shares.
5.4 Non-Contravention . Except as set forth in Section 5.4 of the Disclosure Schedule,
neither the execution and the delivery of this Agreement, nor the consummation of the
21
transactions contemplated hereby, will: (a) violate any Law, Decree or other restriction of any
Governmental Authority to which the Company is subject or any provision of the
Organizational Documents of the Company; (b) conflict with, result in a breach of, constitute a
default under, result in the acceleration of any obligation under, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under, any Material Contract; or
(c) result in the imposition of an Encumbrance on any of the material assets of the Company
except for Permitted Liens . Except as set forth in Section 5.4 of the Disclosure Schedule, the
Company is not required to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any Person in order for the Parties to consummate the
transactions contemplated by this Agreement.
5.5 Brokers’ Fees . Except for the fees arising out of the Company’s engagement of
Covington Associates, LLC, the Company does not have any liability or obligation to pay any
fees or commissions to any broker, finder, or similar agent with respect to the transactions
contemplated by this Agreement.
5.6 Real Property .
(a) The Company does not own, nor has it ever owned, any real property.
(b) Section 5.6(b) of the Disclosure Schedule contains a list of each real
property lease to which the Company is a party (each, a " Real Property Lease ," and all real
property under such leases being collectively, the " Leased Property "). Each Real Property
Lease is valid, binding and enforceable and in full force and effect. The Company is not in
default under any Real Property Lease.
(c) The Leased Property constitutes all of the real property used, in any
material respect, in connection with the operation of the Business, and is adequate to conduct
the Business as currently conducted.
5.7 No Subsidiaries . The Company has no subsidiaries and owns no equity interest, or
right to acquire any equity interest, in any Person.
5.8 Financial Statements .
(a) Section 5.8 of the Disclosure Schedule sets forth the following financial
statements (collectively, the " Financial Statements "): (i) the unaudited balance sheets and
statements of income and cash flow of the Company as of and for the fiscal year ended on the
Balance Sheet Date; and (ii) the unaudited balance sheet (the " Most Recent Balance Sheet ")
and income statement of the Company (together with the Most Recent Balance Sheet, the "
Most Recent Financial Statements ") as of and for the month ended on the Interim Balance
Sheet Date. Except as may be indicated in the notes thereto and except for the Most Recent
Financial Statements, which are subject to normal year-end adjustments and do not contain all
footnotes and other presentation items required under GAAP, each of the Financial Statements
has been prepared (A) from the books and records of the Company consistent with past
practices, and (B) in accordance with the Accounting Policies and Principles, applied on a
consistent basis
22
throughout the periods covered thereby, and presents fairly, in all material respects, the
financial condition and results of operations and cash flows of the Company as of the
respective dates and for the respective periods covered thereby.
(b) The Company has implemented and maintains a system of internal control
over financial reporting sufficient to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements and that transactions are
recorded as necessary to permit preparation of financial statements in conformity with GAAP.
The Company maintains internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management’s general or
specific authorizations, (ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain accountability for assets, (iii)
access to assets is permitted only in accordance with management’s general or specific
authorization, and (iv) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect to any differences.
(c) All classifications, judgments, elections, inclusions, exclusions and
valuation and estimation methodologies used and applied by the Company in the preparation
of the Most Recent Reviewed Financial Statements, the Estimated Balance Sheet and the
Estimated Working Capital Adjustment are in accordance with Accounting Policies and
Principles.
5.9 Absence of Certain Changes and Events . From the Balance Sheet Date to the date
of this Agreement there has not been any Material Adverse Change. Except as set forth in
Section 5.9 of the Disclosure Schedule, and without limiting the generality of the immediately
preceding sentence, from the Balance Sheet Date to the date of this Agreement, the Company
has not:
(a) amended its Organizational Documents;
(b) issued, sold or otherwise disposed of any of its stock or other equity
interests, or granted any Commitments;
(c) effected any recapitalization, reclassification, stock split or like change in
its capitalization;
(d) incurred any Company Indebtedness other than in the Ordinary Course of
Business;
(e) sold, assigned, leased or transferred any of its tangible assets outside the
Ordinary Course of Business;
(f) made any capital expenditure (or series of related capital expenditures)
outside the Ordinary Course of Business;
23
(g) made any capital investment in, any loan to, or any acquisition of the
securities of, any other Person (or series of related capital investments, loans or acquisitions)
outside the Ordinary Course of Business;
(h) granted any increase in the base compensation of or bonuses payable to
any of its directors, managers, officers or employees, made any change in employment or
severance terms for any of its directors, managers or officers, or any material change in the
employment, severance or payment terms for any of its other employees, consultants or
independent contractors, in each case, other than in the Ordinary Course of Business, or as
required pursuant to the terms and conditions of any existing Contract, except for retention and
similar arrangements entered into in contemplation of the transactions contemplated by this
Agreement; or
(i) made any material change in its accounting methods, principles or practices
for financial accounting (except for those changes required to comply with GAAP or
applicable Law or as disclosed in the notes to the Financial Statements) .
5.10 Compliance with Laws .
(a) Except as set forth in Section 5.10(a) of the Disclosure Schedule, the
Company has not been and is not in violation in any material respect of any applicable Law,
and has conducted and are conducting the Business in all material respects in accordance with,
applicable Laws and Governmental Orders. Except as set forth in Section 5.10(a) of the
Disclosure Schedule, no investigation, audit, inquiry or review by any Governmental Authority
with respect to the Company is pending or, to the Knowledge of the Company, threatened, nor,
to the Knowledge of the Company, has any Governmental Authority indicated an intention to
conduct any such investigation, audit, inquiry or review.
(b) The Company and all of its officers, directors and employees have
complied in all material respects with all applicable Laws to which they are subject with
respect to healthcare regulatory matters (including The Social Security Act, Sections 1128,
1128A and 1128B, 42 U.S.C. Sections 1320a-7, 7(a) and 7(b), including Criminal Penalties
Involving Medicare or State Health Care Programs, commonly referred to as the "Federal
Anti-Kickback Statute" and The Social Security Act, Section 1877, 42 U.S.C. Section 1395nn
(Prohibition Against Certain Referrals), commonly referred to as the "Stark Statute," the
statute commonly referred to as the "Federal False Claims Act," the Health Insurance
Portability and Accountability Act of 1996 (commonly referred to as "HIPAA"), as amended
by the Health Information Technology for Economic and Clinical Health Act (commonly
referred to as the "HITECH Act") (collectively, " Health Care Laws "). The Company has
maintained in all material respects all records required to be maintained by the Laws of all
applicable federal, state and local Governmental Authorities as required by applicable Health
Care Laws. Neither the Company nor any Seller, or, to the Knowledge of the Company, any
of their respective officers, directors, employees, consultants or agents, has been materially
sanctioned as not being in compliance with any Health Care Laws. Neither the Company nor,
to the Knowledge of the Company, any of its officers, directors or employees, has since
December 31, 2012, received any written notice or other communication from any
Governmental Authority to the effect that it or
24
any activity conducted by the Company is not in material compliance with any Health Care
Laws.
(c) The Company is in material compliance with the applicable privacy,
security, transaction standards, breach notification, and other provisions and requirements of
HIPAA, the HITECH Act and any comparable state Laws. The Company has established and
implemented such policies, programs, procedures, contracts and systems as are necessary to
comply with HIPAA and the HITECH Act. The Company has not received any written
communication, or to the Company's Knowledge, any verbal notice, from any Governmental
Authority that alleges that the Company is not in material compliance with the HIPAA Privacy
and Security Standards or the HITECH Act. Except as set forth in Section 5.10(c) of the
Disclosure Schedule, no Breach has occurred with respect to any unsecured Protected Health
Information (including electronic Protected Health Information) maintained by or for the
Company that is subject to the notification requirements of 45 CFR Part 164, Subpart D, and
no information security or privacy breach event has occurred that would require notification
under any comparable state Laws. For purposes of this Section, " Breach " means a breach of
unsecured Protected Health Information as defined in 45 C.F.R. Section 164.402 and "
Protected Health Information " means individually identifiable health information transmitted
by electronic media, maintained in electronic media, or transmitted or maintained in any other
form or medium as defined in 45 CFR Section 160.103. The Company has record retention
policies and procedures that require compliance with all records retention Laws pertaining to
retention of health care records, and the Company has materially complied with such policies
and procedures and such Law.
(d) There are no health care regulatory consents or notifications required to be
made to any Governmental Authority in connection with the consummation of the transactions
contemplated by this Agreement.
(e) Notwithstanding any other provisions of this Agreement, Section 5.13
contains the Company’s sole representations and warranties regarding Environmental Matters,
Section 5.14 contains the Company’s sole representations and warranties regarding Taxes, and
Section 5.20 contains the Company’s sole representations and warranties regarding ERISA and
employee benefit plan matters, in each case with respect to compliance with applicable Law .
5.11 Undisclosed Liabilities . Except for: (a) liabilities reflected on or reserved against
in the Financial Statements or disclosed in the notes thereto ; (b) liabilities that have arisen
since the Interim Balance Sheet Date in t he Ordinary Course of Business ; or ( c) the
Company Transaction Expenses , the Company does not have any material liabilities.
5.12 Permits . The Company possesses all material permits, licenses and
authorizations necessary to carry on the Business in the manner presently conducted. Section
5.12 of the Disclosure Schedule sets forth those permits, licenses and authorizations necessary
to carry on the Business in the manner presently conducted, which permits, licenses and
authorizations are valid and in full force and effect except as set forth therein. The Company
is not in default under, or violation of, any material permit, license or authorization held by it.
25
5.13 Environmental Matters . The Business is presently conducted, in all material
respects, in compliance with all applicable Environmental Laws. Since December 31, 2013,
the Company has not received any written citation or other notification from any
Governmental Authority or any other Person that the Company is in violation, in any material
respect, of any Environmental Laws. The Company is not subject to any Decree issued by any
Governmental Authority with respect to Environmental Laws or violations thereof. The
Company has not generated, used, transported, treated, stored, released or disposed of any
Hazardous Substances in material violation of any applicable Environmental Laws.
5.14 Taxes .
(a) Except as set forth in Section 5.14 of the Disclosure Schedule, all income
Tax Returns filed or required to be filed (after giving effect to extensions) on or before the date
of this Agreement by or on behalf of the Company have been duly filed or extended and each
such Tax Return is true, correct and complete in all material respects. All income and other
material Taxes owed by the Company that are due and payable have been paid in full.
(b) The Company has provided to Buyer true, correct, and complete copies of
all income Tax Returns of the Company filed for every taxable period for which the applicable
statutory periods of limitations has not expired. No claim concerning Taxes of the Company
has been raised in writing by a Taxing authority in a jurisdiction where the Company does not
file Tax Returns that the Company is or may be subject to taxation by that jurisdiction.
(c) There are no Encumbrances with respect to Taxes on any of the assets of
the Company except for Permitted Liens.
(d) The Company has withheld from salaries, wages and other amounts paid
or owing and deposited with and reported to the appropriate taxing authorities all material
Taxes required to be so withheld, deposited or reported under Tax information reporting and
withholding provisions of applicable Law.
(e) The Company is not a beneficiary of any extension of time that remains in
effect (other than an automatic extension of time not requiring the consent of any Tax
authority) within which: (i) to file any Tax Return or make any election, designation or similar
filing relating to Taxes for which it is liable or (ii) to pay or remit any Taxes for which it is
liable. The Company has not extended any statute of limitations that remains in effect with
respect to any material amount of Taxes for which it is liable.
(f) The Company has not been a party to any "listed transaction" as defined in
Code Section 6707A(c)(2) and Treasury Regulations Section 1.6011-4(b)(2).
(g) The Company has not distributed stock of another Person, or has had its
stock distributed by another Person, in a transaction that was purported or intended to be
governed in whole or in part by Code Sections 355 or 361.
26
(h) The Company is not a party to or bound by any Tax allocation or Tax
sharing agreement other than any agreement entered into in the Ordinary Course of Business,
the primary focus of which is not Taxes (including leases, loans or purchase and sale contracts
that include ancillary Tax provisions).
(i) The Company (i) has not been a member of an affiliated group (under Code
Section 1504(a)) filing a consolidated federal income Tax Return (other than a group the
common parent of which was the Company); or (ii) has no liability for the Taxes of any Person
(other than the Company) under Treasury Regulations Section 1.1502-6 (or any similar
provision of state, local, or non-U.S. Law), as a transferee or successor, by contract, or
otherwise.
(j) The Company is not a "United States real property holding corporation"
within the meaning of Section 897(c)(2) of the Code.
(k) The Company has been a validly electing S corporation within the
meaning of Code Sections 1361 and 1362 at all times during its existence, and the Company
will be an S corporation up to and including the Closing Date.
(l) The Company shall not be liable for any Tax under Code Section 1374 in
connection with the deemed sale of the Company's assets (caused by the Section 338(h)(10)
Election.
(m) Each Person classified as an independent contractor or employee by the
Company is properly classified as such in accordance with applicable Law. The Company is
in full compliance with applicable Law with respect to its treatment of Persons classified as
independent contractors or employees. To the Company’s Knowledge, each Person subject to
service agreement with the Company who is not an individual and who has classified Persons
performing assessments on such Person's behalf under such service agreement as an
independent contractor has properly classified such Person in accordance with applicable
Law. The representations and warranties set forth in this Section 5.14(m) apply both to
worker classification issues for Tax purposes and for labor and employment law purposes.
5.15 Intellectual Property .
(a) Disclosure of Certain Intellectual Property . Section 5.15(a)(i) of
the Disclosure Schedule is a complete and accurate list of all Registered Intellectual Property,
grouped by Patents (including withdrawn, lapsed, abandoned or expired Patents), Trademarks,
Copyrights, and domain names, and the title, application number, filing date, jurisdiction, and
registration number for each item . Section 5.15(a)(ii) of the Disclosure Schedule is a
complete and accurate list of all Licensed Intellectual Property (other than Off-the-Shelf
Software). There is no item of Licensed Intellectual Property to which the Company has an
exclusive license of any kind. Section 5.15(a)(iii) of the Disclosure Schedule is a complete
and accurate list of all Owned Intellectual Property.
(b) Enforceability; No Challenges . Each item of Registered Intellectual
Property is subsisting and in good standing, and to the Knowledge of the Company valid and
27
enforceable. To the Knowledge of the Company, there are no facts, information, or
circumstances, including any facts or information that would constitute prior art, that would
render any of the Registered Intellectual Property invalid or unenforceable, or would preclude
the issuance of or otherwise affect any pending application for any Registered Intellectual
Property. The Company has not misrepresented, or failed to disclose, any facts or information
in any application for any Registered Intellectual Property that would constitute fraud or a
misrepresentation with respect to such application or that, to the Knowledge of the Company,
would otherwise affect the enforceability of any Registered Intellectual Property.
(c) Proper Filing . Except as disclosed in Section 5.15(c) of the Disclosure
Schedule, with respect to each item of Registered Intellectual Property, all necessary filing,
examination, registration, maintenance, renewal and other fees and taxes have been paid, and
all necessary documents and certificates have been filed with all relevant Registration Offices
for the purposes of maintaining such Intellectual Property Rights, in each case in accordance
with Law. Section 5.15(c) of the Disclosure Schedule is a complete and accurate list of all
actions that must be taken by the Company within 120 days of the Closing Date with respect to
any of the Registered Intellectual Property, including payment of any filing, examination,
registration, maintenance, renewal and other fees and taxes or the filing of any documents,
applications or certificates for the purposes of maintaining, perfecting, preserving or renewing
such Intellectual Property Rights, in each case in accordance with Law.
(d) Domain Names . No domain name included in the Registered Intellectual
Property has lapsed, expired or been abandoned.
(e) Trade Secrets . The Company has taken reasonable measures and
precautions to protect and maintain the confidentiality of the material Trade Secrets included
in the Intellectual Property. To the Company's Knowledge, the Company has not disclosed
any material Trade Secrets to any Person without having such Person execute a written
agreement regarding the non-disclosure and non-use thereof. All use, disclosure or
appropriation by the Company of any Trade Secret not owned by it has been pursuant to the
terms of a written agreement between it and the owner of such Trade Secret, or is otherwise
lawful. The Company has not received a notice from any Person that there has been an
unauthorized use or disclosure of any Trade Secrets included in the Owned Intellectual
Property. No Person that has received any material Trade Secrets from the Company has
refused to provide to the Company, after the Company’s request therefor, a certificate of return
or destruction of any documents or materials containing such Trade Secrets.
(f) Ownership of and Right to Use Intellectual Property; No Encumbrances
. The Company is the sole and exclusive owner of and has good title to all Owned Intellectual
Property, free and clear of all Encumbrances. The Company has the sole and exclusive right to
bring a claim or suit against any other Person for past, present or future infringement of
Owned Intellectual Property. The Company has not transferred ownership of, or granted any
exclusive license with respect to, any Owned Intellectual Property or permitted the rights of
the Company in any Owned Intellectual Property to enter into the public domain. The
Company has a valid, legally enforceable right to use, practice and otherwise exploit all
Licensed Intellectual Property, subject to the terms of each applicable license
agreement. Subject to the terms of the applicable
28
license agreement, each item of Licensed Intellectual Property (including without limitation
any interest therein acquired through a license or other right to use, but excluding any
Off-the-Shelf Software) is free and clear of Encumbrances created or granted by or to the
Company. The Company has not received any written notice that any portion of the Licensed
Intellectual Propert y is subject to any Encumbrance.
(g) Disclosure of Inbound Licenses . Section 5.15(g) of the Disclosure
Schedule is a complete and accurate list of all Contracts pursuant to which any Person granted
or is required to grant to the Company any right under or license to, any covenant not to assert
or sue or other immunity from suit under or any other rights to any current or future
Intellectual Property Rights, or where the Company is the beneficiary of a covenant or
obligation not to assert any Intellectual Property Rights against the Company prior to asserting
such Intellectual Property Rights against any other Person or a covenant or obligation to
exhaust remedies as to particular Intellectual Property Rights against any Person prior to
seeking remedies against the Company .
(h) Disclosure of Other Intellectual Property Agreements . Section 5.15(h) of
the Disclosure Schedule is a complete and accurate list, grouped by subsection, of all Contracts
as follows: (i) regarding joint development with third parties of any products or Company
Technology; (ii) by which the Company, granted or is required to grant any ownership right or
title to any Intellectual Property Rights, (iii) by which the Company is assigned or granted an
ownership interest in any Intellectual Property Rights (other than written agreements with
employees and independent contractors that assign or grant to the Company ownership of
Intellectual Property Rights developed in the course of providing services to the Company);
(iv) under which the Company grants or receives an option or right of first refusal or
negotiation relating to any Intellectual Property Rights; (v) under which any Person is granted
any right to access Company Source Code or to use Company Source Code, including without
limitation the right to create derivative works of the Company's products; (vi) pursuant to
which the Company has deposited or is required to deposit with an escrow agent or any other
Person Company Source Code or other Company Technology or the execution of this
Agreement or the consummation of any of the transactions contemplated hereby could
reasonably be expected to result in the release or disclosure of the Company Source Code; or
(vii) that restricts the use, sale, transfer, delivery or licensing of Intellectual Property Rights,
including without limitation any covenant not to compete having such implications.
(i) Royalties . The Company does not have any contractual obligation to pay
any royalties, license fees or other amounts or provide or pay any other consideration to any
Person by reason of ownership, use, exploitation, practice, sale or disposition of any
Intellectual Property Rights (or any tangible embodiment thereof) or reproducing, making,
using, selling, offering for sale, distributing or importing any Company product.
(j) Indemnification . Except as set forth in Section 5.15(j) of the Disclosure
Schedule, the Company has not entered into any Contract to defend, indemnify or hold
harmless any Person against any charge of infringement of any Intellectual Property Rights.
29
(k) No Breach . The Company is not in breach in any material respect of any
Contract described in this Section. To the Knowledge of the Company, no other Person is in
breach in any material respect of any Contract described in this Section.
(l) Public Software . Section 5.15(l) of the Disclosure Schedule provides a
summary of the following: (i) all Public Software used by the Company in any manner in the
conduct of the Business; (ii) a description of each item of Public Software identified in the
foregoing subpart (i); (iii) the Open License Terms applicable to such Public Software and a
reference to where such Open License Terms may be found; (iv) whether such Public Software
has been distributed by the Company to any Person or only used internally by the Company;
(v) whether (and if so, how) such Public Software has been modified by the Company; and
(vi) the Company software in which any Public Software is used. No Public Software was or
is used in connection with the development of any Company product. The Company is in
compliance with all Open License Terms applicable to any Public Software. The Company
has not received any notice alleging that it is in violation or breach of any Open License
Terms.
(m) No Joint Ownership . The Company does not jointly own, license or
claim any right, title or interest with any other Person of any Owned Intellectual Property.
(n) No Employee Ownership . No current or former officer, manager,
director, equity holder, member, employee, consultant or independent contractor of the
Company has any right, title or interest in, to or under any Company Intellectual Property that
has not been either irrevocably assigned or transferred to it or licensed (with the right to grant
sublicenses) to it under an exclusive, irrevocable, worldwide, royalty free, fully paid and
assignable license and disclosed in Section 5.15(n) of the Disclosure Schedule.
(o) No Challenges . No Person has challenged, or to the Company's
Knowledge, threatened to challenge, and no Person has asserted, or to the Company's
Knowledge, threatened a claim or made a demand, nor is there any pending proceeding or, to
the Company's Knowledge, threatened any such challenge, claim, demand or proceeding,
which would adversely affect (i) the Company’s right, title or interest in, to or under the
Owned Intellectual Property, (b) any Contract, license or other arrangement under which either
Company claims any right, title or interest under the Owned Intellectual Property or restricts
the use, manufacture, transfer, sale, delivery or licensing by it of any Owned Intellectual
Property, or (c) the validity, enforceability or claim construction of any Patents that are part of
the Owned Intellectual Property. The Company has not received any written notice regarding
any such challenge, claim, demand or proceeding.
(p) No Restrictions . The Company is not subject to any proceeding or
outstanding decree, order, judgment or stipulation restricting in any manner the use, transfer or
licensing by it of the Owned Intellectual Property, or, with respect to any such proceeding, the
use, manufacture, transfer, sale, importation or licensing of any Company product, or that if
determined adversely to it would adversely affect the validity, use or enforceability of any
Owned Intellectual Property.
30
(q) No Infringement by Other Persons . To the Company's Knowledge, no
Owned Intellectual Property or Licensed Intellectual Property that is exclusively licensed to
the Company is being or has been infringed, misappropriated or violated by any Person.
(r) No Infringement by the Company . To the Company's Knowledge, the
conduct of the Business, including without limitation the making, using, offering for sale,
selling, distributing and/or importing of any Company product does not and will not infringe,
constitute contributory infringement, inducement to infringe, misappropriation or unlawful use
of Intellectual Property Rights of any Person. No Person has asserted in writing or to the
Company's Knowledge threatened a claim, nor has any Company received any written
notification, that the Business or any Owned Intellectual Property (or that any Intellectual
Property Rights embodied in the Owned Intellectual Property) infringes, constitutes
contributory infringement, inducement to infringe, misappropriation or unlawful use of any
Person’s Intellectual Property Rights. No Person has notified the Company in writing that the
Company requires a license to any Person’s Intellectual Property Rights and the Company has
not received any unsolicited written offer to license (or any other notice of) any Person’s
Intellectual Property Rights. The Company has not obtained any non-infringement, freedom to
operate, clearances or invalidity opinions from counsel (inside or outside counsel) regarding
the Business.
(s) Employee and Contractor Agreements . Except as disclosed in Section
5.15(s) of the Disclosure Schedule, all current and former employees, consultants and
independent contractors of the Company who are or were involved in, or who have contributed
in any manner to the creation or development of any Owned Intellectual Property have
executed and delivered to the Company a written agreement regarding the protection of
proprietary information and the irrevocable assignment to the Company of any Owned
Intellectual Property, the form(s) of which agreements are substantially identical to those made
available by the Company. To the Knowledge of the Company, no current or former
employee, consultant or independent contractor is in violation of any term of any such
agreement. Section 5.15(s) of the Disclosure Schedule also sets forth a complete and accurate
list of all consultants and independent contractors used by the Company in connection with the
conception, reduction to practice, creation, derivation, development, or making of the Owned
Intellectual Property.
(t) No Release of Source Code . The Company has not, delivered or licensed
to any Person, agreed to disclose, deliver or license to any Person, or permitted the disclosure
or delivery to any escrow agent or other Person, any Source Code with respect to any Owned
Intellectual Property, except for disclosures to employees, independent contractors or
consultants under binding written agreements that prohibit use or disclosure except in the
performance of services for the Company. To the Company's Knowledge, no event has
occurred, and no circumstance or condition exists, that (with or without notice or lapse of
time) will, or could reasonably be expected to, result in the disclosure or delivery to any
Person of such Source Code.
(u) No Standards Bodies . The Company is not now, nor has ever been, and
no previous owner of any Owned Intellectual Property owned or purported to be owned by the
Company was during the duration of their respective ownership, a member or promoter of, or a
contributor to or made any commitments or agreements regarding any patent pool, industry
standards body, standard setting organization, industry or other trade association or similar
31
organization, in each case that could or does require or obligate the Company or the previous
owner to grant or offer to any other Person any license or other right to the Owned Intellectual
Property, including without limitation any future Intellectual Property Rights developed,
conceived, made or reduced to practice by the Company after the Closing Date.
(v) No Government Funding . No funding, facilities, resources or personnel
of any Governmental Authority or any university, college, other educational institution,
multi-national, bi-national or international organization or research center was used in
connection with the development or creation, in whole or in part, of any Owned Intellectual
Property.
(w) No Limits on the Company’s Rights . The execution, delivery or
performance of this Agreement or any Ancillary Document contemplated hereby, the
consummation of the transactions contemplated by this Agreement or such Ancillary
Document and the satisfaction of any Closing condition set forth herein will not contravene,
conflict with or result in any termination of or new or additional limitations on the Company's
post-Closing right, title or interest in or to the Owned Intellectual Property, nor will it cause:
(i) a Company to grant to any other Person any right to or with respect to any Intellectual
Property, (ii) the Company to be bound by, or subject to, any non-compete or other restriction
on the operation or scope of its Business, or (iii) the Company to be obligated to pay any
royalties or other fees or consideration with respect to Intellectual Property Rights of any
Person in excess of those payable by it in the absence of this Agreement or the transactions
contemplated hereby, except as set forth in the terms of license arrangements for Off-the-Shelf
Software or as required by Parent or Buyer.
(x) Registered Intellectual Property . The Company does not have any
Registered Intellectual Property oth er than as set forth on Section 5.15(a)(i) of the Disclosure
Schedule.
5.16 Contracts .
(a) Section 5.16(a) of the Disclosure Schedule lists and, the Company has
made available to Buyer copies of, the following Contracts with respect to which the Company
has ongoing obligations as of the date hereof (collectively, the " Material Contracts "):
(i) all Contracts with customers, suppliers or vendors providing for
annual expenditures or receipts or payments by the Company of $50,000 or more;
(ii) all Contracts relating to Company Indebtedness;
(iii) all Contracts relating to employment or compensation of any
employee of the Company with an aggregate annual salary and cash bonus in excess of
$50,000 or containing any change-in-control or severance payment obligations;
(iv) all Contracts providing for commission or equity or non-equity
incentive payments;
32
(v) all lease agreements (whether of real or personal property)
providing for annual lease payments in excess of $50,000;
(vi) all Contracts relating to the acquisition or disposition of any
equity, business or assets (whether by merger, sale of stock, sale of assets or otherwise);
(vii) all Contracts relating to the Intellectual Property Rights or the
license or ownership thereof (other than Off-the-Shelf Software);
(viii) all Contracts to which the Company is a party that provide for
any joint venture, partnership or similar arrangement by the Company;
(ix) all Contracts relating to the issuance of equity or debt in the
Company or rights to acquire equity or debt interests in the Company;
(x) all Contracts to which the Company, on the one hand, and any of
the Company’s Affiliates, on the other hand, are parties or by which they are bound that relate
to or are connected in any way with the Business;
(xi) all Contracts with any Governmental Authority;
(xii) all Contracts restricting the ability of the Company to engage in
any line of business or to compete with any Person; which limits or purports to limit the ability
of the Company’s Business to compete in any line of business or with any Person or in any
geographic area or during any period of time;
(xiii) all Contracts which contains "most favored nation" or preferred
pricing provisions;
(xiv) all Contracts for which the execution of this Agreement and/or
the consummation of the transaction contemplated hereby could reasonably be expected to
(A) permit any other party to cancel or terminate the same (with or without notice of passage
of time); (B) provide a basis for any other party to claim money damages (either individually
or in the aggregate with all other such claims under that contract) from the Company; or
(C) give rise to a right of acceleration of any material obligation or loss of any material benefit
under such Material Contract; and
(xv) all Contracts relating to the prospective acquisition or disposition
of any material assets, product line or service offering outside the Ordinary Course of
Business.
(b) Each of the Material Contracts is in full force and effect, is a valid and
binding obligation of the Company, and is enforceable in accordance with its terms (except as
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other
similar Laws affecting creditors’ rights generally and general principles of equity). The
Company is not in breach of, or default under, any Material Contract in any material
respect. Complete and correct copies of each Material Contract (including all modifications,
amendments and supplements thereto and waivers thereunder) have been made available to
Buyer.
33
(c) Except as set forth on Section 5.16(c) of the Disclosure Schedule, no prior
consent of any party to a Material Contract is required for the consummation by the Sellers or
the Company of the transactions contemplated hereby to be in compliance with the provisions
of such Material Contract or to avoid the loss of any right under or the incurrence of any
obligation under, such Material Contract .
(d) Section 5.16(d) of the Disclosure Schedule sets for th a list of customer
contracts (including written work orders) where the customer relationship has generat ed at
least $50,000 in aggregate revenues during calendar year 2014 or 2015 (the " Customer
Contracts "). Sellers have made available to Buyer a true and correct copy, including all
amendments and written work orders, with respect to each Customer Contract. The Company
has performed in all material respects its obligations and otherwise complied in all material
respects with the terms of such Customer Contracts (including any work orders delivered in
connection therewith) and is not currently in default in any material respect under any such
Customer Contracts. The Company has not receive d any written communication from any
customer who is a par ty to a Customer Contracts that either alleg es or notif ies the Company
that the Company or any Company employees or contractors ha s breached in any material
respect any of the terms of a Customer Contract. Except as set forth on Section 5.16(d) of the
Disclosure Schedule, t he Company has not received any communication from a ny customer
who is a party to a Customer Contract stating that such customer intends to terminate , suspend
or modify in any material respects the customer relationship , or reduce in any material respect
the volume of assessments made by the Company for such customer . Except for payment
adjustments or inquiries occurring in the ordinary course of business, there are no pending
payment disputes with any party to a Customer Contract.
5.17 Insurance . Section 5.17 of the Disclosure Schedule sets forth a list of each
material insurance policy (collectively, the " Insurance Policies ") maintained by the
Company. No written notice of cancellation or termination of any of the Insurance Policies
has been received by the Company, and all premiums due on the Insurance Policies have been
paid. Such Insurance Policies are in full force and effect and shall remain in full force and
effect following the consummation of the transactions contemplated by this Agreement.
Neither the Seller nor any of its Affiliates (including the Company) has received any written
notice of cancellation of, premium increase with respect to, or alteration of coverage under,
any of such Insurance Policies. All premiums due on such Insurance Policies have either been
paid or, if due and payable prior to Closing, will be paid prior to Closing in accordance with
the payment terms of each Insurance Policy. The Insurance Policies do not provide for any
retrospective premium adjustment or other experience-based liability on the part of the
Company. All such Insurance Policies (a) are valid and binding in accordance with their terms;
and (b) have not been subject to any lapse in coverage. Except as set forth in Section 5.17 of
the Disclosure Schedule, there are no claims related to the business of the Company pending
under any such Insurance Policies as to which coverage has been questioned, denied or
disputed or in respect of which there is an outstanding reservation of rights. The Company is
not in default under, or has otherwise failed to comply with, in any material respect, any
provision contained in any such Insurance Policy. The Insurance Policies are of the type and
in the amounts customarily carried by Persons
34
conducting a business similar to the Company and are sufficient for compliance with all
applicable Laws and Contracts to which the Company is a party or by which it is bound.
5.18 Litigation .
(a) Except as set forth on Section 5.18(a) of the Disclosure Schedule, there is
no Proceeding pending before any Governmental Authority, foreign or domestic, or, arbitrator,
or, to the Knowledge of the Company, threatened against the Company, or any of their
properties or any of its officers or directors (in their capacities as such). There is no judgment,
injunction, decree or order against the Company or, to the Company's Knowledge, any of their
directors or officers (in their capacities as such).
(b) To the Company's Knowledge, no temporary restraining order, preliminary
or permanent injunction or other order issued by any court of competent jurisdiction or other
legal or regulatory restraint or prohibition preventing the consummation of the transactions
contemplated by this Agreement is in effect, nor is there pending any proceeding brought by
an administrative agency or commission or other governmental authority or instrumentality,
domestic or foreign, seeking any of the foregoing, nor has there been any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the
transactions contemplated by this Agreement, which makes the consummation of such
transactions illegal.
(c) There is not pending or, to the Company's Knowledge, threatened, any
Action in which a Governmental Authority is or is threatened to become a party or is otherwise
involved, and the Company has not received any communication from any Governmental
Authority in which such Governmental Authority indicates the probability of commencing any
legal proceeding or taking any other action: (i) challenging or seeking to restrain or prohibit
the consummation of the transactions contemplated by this Agreement; (ii) relating to this
Agreement and seeking to obtain from Buyer, Buyer's Affiliates, or from the Company, any
damages or other relief; or (iii) that would adversely affect the right of Buyer or the Company
to own the assets or operate the Business.
5.19 Labor Matters .
(a) Section 5.19(a) of the Disclosure Schedule sets forth for each employee of
the Company whose annual base salary exceeds $50,000, such employee’s name, title or
position held, and base salary, wage or other pay rate.
(b) The Company is not a party to any collective bargaining agreement or
other labor union contract and, to the Knowledge of the Company, no petition has been filed,
nor has any proceeding been instituted by any employee or group of employees with any labor
relations board or commission seeking recognition of a collective bargaining representative.
(c) The Company is, in all material respects, in compliance with all applicable
Laws pertaining to employment and employment practices, including all such Laws relating to
labor relations, equal employment, fair employment practices, entitlements, workers
35
compensation, prohibited discrimination, employment eligibility, immigration or other similar
employment practices or acts.
(d) There are no pending nor, to the Knowledge of the Company, threatened
labor strikes, work stoppages, slowdowns or refusals to work or similar material labor
disruption or dispute affecting the Company, and, to the Knowledge of the Company, there are
no labor disputes currently subject to any grievance procedure or Proceeding.
(e) All Persons performing services directly or indirectly for the Company is
properly classified for Tax and employment purposes as employees or independent
contractors. To the Company's Knowledge, no Governmental Authority has challenged the
classification of any Person who is directly or indirectly providing services to or on behalf of
the Company.
(f) The Company is in compliance in all material respects with the
Immigration Reform and Control Act of 1986, as amended.
5.20 Employee Benefit Plans .
(a) Company Employee Plans . Section 5.20(a) of the Disclosure Schedule
contains in all material respects an accurate and complete list of each plan, program, policy,
practice, contract, agreement or other arrangement providing for direct or indirect
compensation, severance benefits, termination pay, deferred compensation, performance
awards, stock or stock-related options or awards, pension benefits, retirement benefits,
profit-sharing benefits, savings benefits, disability benefits, medical insurance, dental
insurance, health insurance, life insurance, death benefit, other insurance, repatriation or
expatriation benefits, tax gross ups, welfare benefits, fringe benefits or other employee benefits
or remuneration of any kind, whether written, unwritten or otherwise, funded or unfunded,
including, but not limited to, each "employee benefit plan," within the meaning of Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended (" ERISA "), which is
or has during the last three years been maintained, contributed to, or required to be contributed
to, by the Company for the benefit of any current or former employee, director or consultant
(collectively, the " Company Employee Plans "). The Company has not made any plan or
commitment to establish any new Company Employee Plan, to modify any Company
Employee Plan (except to the extent required by law or to conform any such Company
Employee Plan to the requirements of any applicable Law, in each case as previously disclosed
to Buyer in writing, or as required by this Agreement).
(b) Documents . The Company has provided to Buyer, in each case, to the
extent applicable, (i) current, correct and complete copies of all documents embodying each
Company Employee Plan including all amendments thereto and all related trust documents (or
a summary of any oral Company Employee Plan), (ii) the three (3) most recent annual reports
(Form Series 5500 and all schedules and financial statements attached thereto), if any, required
under ERISA or the Code in connection with each Company Employee Plan, (iii) if the
Company Employee Plan is funded, the most recent annual and periodic accounting of
Company Employee Plan assets, (iv) the most recent summary plan description together with
the summary(ies) of material modifications thereto, if any, with respect to each Company
Employee Plan, (v) all communications material to any employee or employees relating to any
Company
36
Employee Plan and any proposed Company Employee Plan, in each case, relating to any
amendments, terminations, establishments, increases or decreases in benefits, acceleration of
payments or vesting schedules or other events which would result in any liability to the
Company, (vii) all material written agreements and contracts relating to each Company
Employee Plan, including administrative service agreements and group insurance contracts,
(vi) all material correspondence to or from any Governmental Authority relating to any
Company Employee Plan, (vii i ) all model Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended (" COBRA ") forms and related notices, (ix ) all policies pertaining to
fiduciary liability insurance covering the fiduciaries for each Company Employee Plan, (x) all
discrimination tests for each applicable Company Employee Plan for the three most recent
plan years, (x i ) all registration statements, annual reports (Form 11-K and all attachments
thereto) and prospectuses prepared in connection with each Company Employee Plan, to the
extent applicable, (xi i ) all HIPAA privacy notices and all business associate agreements to
the extent required under HIPAA, (xii i ) the most recent Internal Revenue Service (" IRS ")
determination or opinion letter issued with respect to each Company Employee Plan and (xiv )
all rulings or notices issued by a governmental agency with respect to each Company
Employee Plan.
(c) Company Employee Plan Compliance . The Company has performed in
all material respects all obligations required to be performed by it under, is not default or
violation of, and the Company has no Knowledge of any default or violation of any other party
to, any Company Employee Plan, and each Company Employee Plan has been established and
maintained in all material respects in accordance with its terms and in compliance with
applicable Law, including ERISA or the Code. Each Company Employee Plan intended to be
qualified under Section 401(a) of the Code and each trust intended to qualify under
Section 501(a) of the Code has either (i) applied for a favorable determination letter, prior to
the expiration of the requisite remedial amendment period under applicable Treasury
Regulations or IRS pronouncements, but has not yet received a response; (ii) obtained a
favorable determination, notification, advisory and/or opinion letter, as applicable, on which
the employer is entitled to rely, as to its qualified status from the IRS; or (iii) still has a
remaining period of time to apply for such a determination letter from the IRS and to make any
amendments necessary to obtain a favorable determination, and nothing has occurred since the
date of the most recent determination that could reasonably be expected to cause any such
Company Employee Plan or trust to fail to qualify under § 401(a) or 501(a) of the Code. No
"prohibited transaction," within the meaning of Section 4975 of the Code or Sections 406 and
407 of ERISA, and not otherwise exempt under Section 408 of ERISA, has occurred with
respect to any Company Employee Plan. There are no actions, suits or claims pending or, to
the Knowledge of the Company, threatened (other than routine claims for benefits) against any
Company Employee Plan or against the assets of any Company Employee Plan and, to the
Knowledge of the Company or any ERISA Affiliates, no fact or circumstance exists that
would make such an action, suit or claim likely to occur. Each Company Employee Plan can
be amended, terminated or otherwise discontinued after the Effective Time in accordance with
its terms, without liability to Buyer or the Company (other than ordinary administration
expenses), other than those Company Employee Plans identified on Section 5.20(a) of
Disclosure Schedule that require assent of a participant thereof to effect an amendment or
termination. There are no audits, inquiries or proceedings pending or that have been initiated,
or to the Knowledge of the
37
Company or any ERISA Affiliates, by the IRS, United States Department of Labor, or any
other Governmental Authority with respect to any Company Employee Plan. The Company is
not subject to any material fine, assessment, penalty or other Tax or liability with respect to
any Company Employee Plan under Section 502(i) of ERISA or Sections 4975 through 4980
of the Code or otherwise by operation of law or contract. The Company has timely made in all
material respects all contributions and other payments required by and due under the terms of
each Company Employee Plan.
(d)
Pension Plan; Collectively Bargained, Multiemployer and
Multiple-Employer Plan . Neither the Company nor any entity that is treated as a "single
employer" with the Company pursuant to Section 414(b), 414(c), 414(m), or 414(o) of the
Code (an " ERISA Affiliate ") has within the last six (6) years maintained, established,
sponsored, participated, in, contributed to, or could other incur any liability with respect to: (i)
any "multiemployer plan," as defined in Section 3(37) or 4001(a)(3) of ERISA or 414(f) of the
Code; (ii) any "multiple employer plan", within the meaning of Section 210, 4063 or 4064 of
ERISA or Section 413(c) of the Code; (iii) any employee benefit plan that is subject to Section
302 of ERISA, Title IV of ERISA or Sections 412 of the Code; or (iv) any "multiple employer
welfare arrangement," as defined in Section 3(40) of ERISA.
(e) No Self-Insured Company Employee Plan . Neither the Company nor any
ERISA Affiliate has ever maintained, established, sponsored, participated in or contributed to
or incurred an obligation to contribute to any self-insured "group health plan" (within the
meaning of Section 5000(b)(1) of the Code) that provides benefits to employees (other than a
medical flexible spending account, health reimbursement arrangement or other similar
program, including any such plan pursuant to which a stop-loss policy or contract applies).
(f) No Post-Employment Obligations . No Company Employee Plan provides,
or reflects or represents any liability to provide, post-termination or retiree life insurance,
health or other employee welfare benefits to any Person, except as may be required by
COBRA or other applicable statute, and the Company has not represented, promised or
contracted (whether in oral or written form) to any employee (either individually or to
employees as a group) or any other Person that such employee(s) or other Person would be
provided with life insurance, health or other employee welfare benefits, except to the extent
required by statute.
(g) Effect of Transaction . Excluding the payment of the Purchase Price to the
Sellers, n either the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby or any termination of employment or service in connection
therewith will (i) result in any material payment (including severance, golden parachute, bo
nus, tax gross up, or otherwise ), becoming due to any current or former employee, director or
consultant, (ii) result in any forgiveness of indebtedness of any current or former employee,
director or consultant, (iii) materially increase any benefits otherwise payable by the Company
to any current or former employee, director or consultant, or (iv) result in the acceleration of
the time of payment or vesting of any such benefits to any current or former employee,
director or consultant except as required under Section 411(d)(3) of the Code.
38
(h) Deferred Compensation . No compensation shall be includable in the
gross income of any current or former employee, director or consultant of either Company or
any of its ERISA Affiliates as a result of the operation of Sections 409A or 457A of the Code
with respect to any applicable arrangements or agreements in effect prior to the Effective
Time. No stock options, stock appreciation rights or other equity-based awards issued or
granted by the Company are treated as deferred compensation arrangements subject to the
requirements of Sections 409A or 457A of the Code. Each "nonqualified deferred
compensation plan" (as such term is defined under Section 409A(d)(1) of the Code and the
guidance thereunder and under Section 457A of the Code and the guidance thereunder) under
which either Company or any of its ERISA Affiliates makes, is obligated to make or promises
to make, payments (each, a " 409A Plan ") complies in all material respects, in both form and
operation, with the requirements of Sections 409A and 457A of the Code and the guidance
thereunder. Section 5.19(f)(h) of the Disclosure Schedule lists each 409A Plan under which
the Company or its ERISA Affiliates makes, is obligated to make or promises to make,
payments. No payment to be made under any 409A Plan is, or to the Knowledge of the
Company will be, subject to the penalties of Section 409A(a)(1) of the Code or Section 457A
of the Code.
(i) COBRA; FMLA . The Company has complied in all material respects with
COBRA, the Family Medical Leave Act of 1993, as amended, the Women’s Health and
Cancer Rights Act of 1998, the Newborns’ and Mothers’ Health Protection Act of 1996, and
any similar provisions of state law applicable to its employees. The Company has no
unsatisfied obligations to any employees or qualified beneficiaries pursuant to COBRA,
HIPAA or any state law governing health care coverage or extension.
(j) Employment Matters . The Company is in material compliance with all
applicable foreign, federal, state and local laws, rules and regulations respecting employment,
employment practices, terms and conditions of employment, employee safety and health and
wages and hours, and in each case, with respect to employees: (i) has withheld and reported
all material amounts required by law or by agreement to be withheld and reported with respect
to wages, salaries and other payments to employees, (ii) is not liable for any arrears of wages,
severance pay or any Taxes or any penalty for failure to comply with any of the foregoing, and
(iii) is not liable for any payment to any trust or other fund governed by or maintained by or on
behalf of any governmental authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for employees (other than routine payments to
be made in the normal course of business and consistent with past practice). There are no
actions, suits, claims or administrative matters pending, or to the Company's Knowledge
threatened, or reasonably anticipated, against the Company relating to any employee or
Company Employee Plan. There are no pending or to the Company's Knowledge threatened,
or reasonably anticipated, claims or actions against the Company or any trustee under any
worker’s compensation policy. The services provided by the Company are terminable at the
will of the Company. No employees of the Company are employed pursuant to a written
employment agreement by the Company. There are no contractual liabilities of the Company
to any employee, director or consultant, that result from the termination by Buyer or the
Company of such Person’s employment or provision of services, a change of control of the
Company, or a combination thereof. The Company has no direct or indirect liability with
respect to any
39
misclassification of any Person as an independent contractor rather than as an employee, or
with respect to any employee leased from another employer.
(k) Labor . No work stoppage or labor strike against the Company is pending,
or, to the Knowledge of the Company, threatened, or reasonably anticipated. The Company
has no Knowledge of any activities or proceedings of any labor union to organize any
employees of the Company. There are no actions, suits, claims, labor disputes or grievances
pending or, to the Company's Knowledge, threatened, or reasonably anticipated relating to any
labor matters involving any employee of the Company, including charges of unfair labor
practices. The Company has not engaged, to the extent material, in any unfair labor practices
within the meaning of the National Labor Relations Act. The Company does not presently,
nor has it been in the past, a party to, or bound by, any collective bargaining agreement, works
council agreements or procedures, or union contract with respect to employees and no
collective bargaining agreement is being negotiated by the Company. Within the past year, the
Company has not incurred any liability or obligation under the Worker Adjustment and
Retraining Notification Act (" WARN ") or any similar state or local law that remains
unsatisfied, nor shall any terminations prior to the Closing Date result in unsatisfied liability or
obligation under WARN or any similar state or local law.
(l) PPACA . The Company has complied in all material respects with all
applicable requirements of the Patient Protection and Affordable Care Act of 2010 (" PPACA
"), including, without limitation, offering affordable coverage to a sufficient number of
employees of the Company to avoid penalties under the PPACA.
(m) No Interference or Conflict . To the Knowledge of the Company, no
stockholder, director, officer, employee or consultant of the Company is obligated under any
contract or agreement, subject to any judgment, decree, or order of any court or administrative
agency that would interfere with such Person’s efforts to promote the interests of the Company
or that would interfere with the Business. To the Knowledge of the Company, neither the
execution nor delivery of this Agreement, nor the carrying on of the Business as presently
conducted nor any activity of such officers, directors, employees or consultants in connection
with the carrying on of such Business as presently conducted will, conflict with or result in a
breach of the terms, conditions, or provisions of, or constitute a default under, any contract or
agreement under which any of such officers, directors, employees, or consultants is now
bound.
(n) Termination of 401(k) Plan . The Company has adopted resolutions and
any related amendments providing for the termination of the Long Term Solutions 401(k)
Profit Sharing Plan and Trust , effective at least one day prior to the Closing Date .
5.21 Accounts Receivable . Subject to any reserves set forth therein, the accounts
receivable shown on the Financial Statements are valid and genuine, have arisen solely out of
bona fide sales and deliveries of goods, performance of services, and other business
transactions in the Ordinary Course of Business consistent with past practices in each case
with Persons other than Affiliates, are not subject to any prior assignment, lien or security
interest, and are not subject to valid defenses, set-offs or counter claims. The accounts
receivable are collectible in
40
accordance with their terms at their recorded amounts, subject only to the reserve for doubtful
accounts on the Financial Statements.
5.22 Absence of Unlawful Payments . The Company has not, and to the Knowledge of
the Company, none of its directors, officers, employees, agents or representatives in their
capacity as such, or Person acting on behalf of any of the aforementioned, have offered,
authorized, made, paid or received, or will in the future offer, authorize, make, pay or receive,
directly or indirectly, any bribes, kickbacks, or other similar payments or offers or transfers of
value in connection with obtaining or retaining business or to secure an improper advantage to
or from any Person; nor have any of them, directly or indirectly, committed any violation of
any applicable anti-corruption law or regulation, including the U.S. Foreign Corrupt Practices
Act, 15 U.S.C. 78dd et seq.
5.23 Privacy; Security Measures .
(a) Privacy . Except as set forth in Section 5.23(a) of the Disclosure Schedule,
the Company has complied in all material respects with all applicable Law, contractual
obligations and its privacy policies relating to the collection, storage, use, disclosure and
transfer of any personally identifiable information collected by or on behalf of it, and has taken
all appropriate and industry standard measures to protect and maintain the confidential nature
of such personally identifiable information. The execution, delivery and performance of this
Agreement and any Ancillary Document contemplated hereby will comply with all applicable
Law relating to privacy and with the Companies' privacy policies. The Company has not
received a written complaint regarding its collection, use or disclosure of personally
identifiable information.
(b) Security Measures . The Company has implemented and maintained,
consistent with industry standard practices and its contractual and other obligations to other
Persons, all reasonable security and other reasonable measures necessary to protect all
computers, networks, software and systems used in connection with the operation of the
Business (the " Information Systems ") from viruses and unauthorized access, use,
modification, disclosure or other misuse. The Company has provided to Buyer all of its
disaster recovery and security plans, and procedures relating to the Company's Information
Systems. To the Knowledge of the Company, there have been no unauthorized intrusions or
breaches of the security of the Company's Information System s.
5.24 Restrictions on Business Activities . There is no Decree binding upon the
Company that has or could reasonably be expected to have the effect of prohibiting or
materially impairing the conduct of its Business as presently conducted.
5.25 Title to Property .
(a) The Company has good title to all of its properties, interests in properties
and assets reflected in the Most Recent Balance Sheet or acquired after the date of the Most
Recent Balance Sheet or properties, interests in properties and assets sold or otherwise
disposed of since the date of the Most Recent Balance Sheet in the Ordinary Course of
Business), or with
41
respect to leased properties and assets, valid leasehold interests therein, free and clear of all
Encumbrances except for Permitted Liens . The plants, property and equipment of the
Company that are used in the operations of the Business are in all material respects in adequate
working condition and repair, subject to normal wear and tear. All properties used in the
operations of the Company are reflected in the Financial Statements to the extent required by
Accounting Principles and Policies.
(b) Upon Buyer's payment to the holders of the security interests in the assets
of the Company in the amounts set forth on the Estimated Closing Statement, each of the
assets of the Company will be released from all security interests thereon, and the Company
shall be able to take all steps necessary to terminate all UCC financing statements which have
been filed with respect to such security interests.
5.26 Full Disclosure . To the Knowledge of the Company, no representation or
warranty by Sellers or the Company in this Agreement and no statement contained in the
Disclosure Schedule to this Agreement or any certificate or other document furnished or to be
furnished to Bu yer pursuant to this Agreement , contains any untrue statement of a material
fact, or omits to state a material fact necessary to make the statements contained therein, in
light of the circumstances in which they are made, not misleading.
ARTICLE VI
CERTAIN COVENANTS AND AGREEMENTS
6.1 Cooperation ; Required Consents .
(a) Subject to the terms and conditions of this Agreement, each Party shall use
commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things reasonably necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this Agreement
(including the satisfaction, but not waiver, of the closing conditions set forth in Article VII).
(b) As soon as practicable, the Parties shall commence all reasonable actions
to make the notifications and obtain the consents, provide the notices, and make the filings set
forth in Section 6.1(b) of the Disclosure Schedule (collectively, the " Required Consents ")
required to consummate the transactions contemplated by this Agreement.
6.2 Access . Prior to the Closing, the Company will permit representatives of Buyer to
have reasonable access, during normal business hours and in a manner so as not to interfere
with the normal business operations of the Company, to the premises, properties, books,
records, contracts and documents of or pertaining to the Business as Buyer may reasonably
request. All requests for information made pursuant to this Section 6.2 shall be directed to
Anne Harrington or Noreen Guanci, or such other officers of the Company as may be designated
in writing by Ms. Harrington or Ms. Guanci.
6.3 Expenses . Except as otherwise provided in this Agreement, each of the Parties
shall pay their respective costs and expenses in connection with the negotiation and
preparation
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of this Agreement and the Ancillary Documents, and their respective performance hereunder
and thereunder, including fees, expenses and disbursements of third party brokers, attorneys,
accountants and other service providers.
6.4 Intentionally Omitted .
6.5 No Public Announcement . Unless otherwise required by applicable Law, no press
release or public announcement related to this Agreement or the transactions contemplated
hereby, or, prior to the Closing, any other announcement or communication to the employees
or Persons having business relations with the Company, shall be issued or made by any Party,
in each case without the joint approval of Buyer and Sellers, which approval shall not be
unreasonably withheld, delayed or conditioned; provided that the foregoing restrictions shall
not restrict or prohibit: (a) any Party from making any announcement to its employees, equity
holders, customers and other business relations to the extent such Party reasonably determines
in good faith that such announcement is necessary or advisable; or (b) Parent or Buyer from
providing general information about the subject matter of this Agreement and the transactions
contemplated hereby in connection with their fundraising, marketing, informational or
reporting activities.
6.6 Preservation of Books and Records . After the Closing Date, Buyer shall, and shall
cause its Affiliates to, until the seventh anniversary of the Closing Date, retain all books,
records and other documents of the Company relating to periods prior to the Closing and make
the same available for inspection and copying by each Seller (at such Seller’s expense) during
normal business hours, upon reasonable request and upon reasonable notice. Buyer shall not,
and shall cause each of its Affiliates to not, destroy or permit to be destroyed any such books,
records or documents after the seventh anniversary of the Closing Date without first advising
Sellers in writing and giving Sellers a reasonable opportunity to obtain possession thereof.
6.7 Transfer Taxes . All transfer, documentary, sales, use, stamp, registration and
other such Taxes, and all conveyance fees, recording charges and other fees and charges
(including any penalties and interest) incurred in connection with consummation of the
transactions contemplated by this Agreement shall be shared by Sellers when due, and Sellers
will file all necessary Tax Returns and other documentation with respect to all such Taxes, fees
and charges, and, if required by applicable Law, Buyer will, and will cause its Affiliates to,
join in the execution of any such. The Sellers, on the one hand, and the Buyer, on the other
hand, will each be responsible for one-half of any such Taxes and related expenses, and
promptly upon the request of the Sellers, but in any event within five Business Days of receipt
of a written statement setting forth such Taxes and related expenses, Buyer shall remit to
Sellers an amount equal to one-half of any such amounts. Each of the parties hereto shall
prepare and file, and shall fully cooperate with the other party with respect to the preparation
and filing of, any Tax Returns and other filings relating to any such Taxes or charges as may
be required.
6.8 Further Assurances . Subject to the terms and conditions of this Agreement, each
Party agrees, from time to time as and when requested by any other Party, to execute and
deliver, or cause to be executed and delivered, all such documents, and to use its commercially
reasonable efforts to take, or cause to be taken, all such further or other appropriate actions and
43
to do, or cause to be done, all other things, as such other Party may reasonably deem necessary
or desirable to carry out the provisions of this Agreement and give effect to the transactions
contemplated hereby.
6.9 Closing Conditions . From the date of this Agreement until the earlier of the
Closing and the termination of this Agreement, each Party shall, and Sellers shall cause the
Company to, use reasonable best efforts to take such actions as are necessary to expeditiously
satisfy the closing conditions set forth in Article VII.
6.10 Tax Matters .
(a) The Company and each Seller shall join with Buyer in making an election
under Code Section 338(h)(10) (and any corresponding election under state and local law)
with respect to the purchase and sale of the Sellers' Shares under this Agreement (collectively,
a " Section 338(h)(10) Election "). Sellers shall include any income, gain, loss, deduction, or
other tax item resulting from the Section 338(h)(10) Election on their tax returns to the extent
required by applicable Law. Sellers shall also pay any Tax imposed on the Company
attributable to the making of the Section 338(h)(10) Election, including (i) any Tax imposed
under Code Section 1374, (ii) any Tax imposed under Regulation Section
1.338(h)(10)-1(d)(2), and any state or local Tax imposed on the Company arising out of the
Section 338(h)(10) Election. In particular, and not by way of limitation, in order to effect such
election, on or prior to the Closing Date, Buyer and Sellers shall cooperate to prepare and
jointly execute necessary copies of Internal Revenue Service Forms 8023 and 8883 and all
attachments required to be filed therewith pursuant to applicable Treasury Regulations and
Sellers shall deliver such documents to Buyer at or prior to Closing. Sellers acknowledge and
agree that the Form 8883 will be included with the filing of the Company's final S corporation
tax return.
(b) Parent, Buyer, the Company and the Sellers agree that the Purchase Price
and the liabilities of the Company (plus other relevant items) will be allocated to the assets of
the Company in a manner consistent with Code Sections 338 and 1060 and the regulations
thereunder. Buyer, the Company and the Sellers shall file all Tax returns and information
reports in a manner consistent with such allocations. Buyer shall prepare a completed set of
Internal Revenue Service Forms 8883 (and any comparable forms required to be filed under
state and local Tax law) and any additional data or materials required to be attached to Form
8883 pursuant to Treasury Regulations promulgated under Section 338 of the Code.
(c) The Company and Sellers shall not revoke the Company's election to be
taxed as an S corporation within the meaning of Code Sections 1361 and 1362. Company and
the Sellers shall not take or allow any action that would result in the termination of the
Company's status as a validly electing S corporation within the meaning of Code Sections
1361 and 1362.
(d) To the extent permitted or required by law or administrative practice, the
taxable year of the Company that includes the Closing Date shall be treated as closing on (and
including) the Closing Date. In the case of any Taxes of the Company that are payable with
respect to any Tax period that includes (but does not end on) the Closing Date (a " Straddle
44
Period "), the portion of any such Taxes that are allocable to the portion of the Straddle Period
ending on the Closing Date shall: (i) in the case of Taxes that are either (A) based upon or
related to income, activities, events, receipts or expenditures, or (B) imposed in connection
with any sale, transfer or assignment or any deemed sale, transfer or assignment of property
(real or personal, tangible or intangible), will be determined based on an interim closing of the
books as of the close of business on the Closing Date; and (ii) in the case of all other Taxes, be
deemed to be the amount of such Taxes for the entire Straddle Period (or, in the case of such
Taxes determined on an arrears basis, the amount of such Taxes for the immediately preceding
Tax period) multiplied by a fraction, the numerator of which is the number of calendar days in
the portion of the Straddle Period ending on the Closing Date and the denominator of which is
the number of calendar days in the entire Straddle Period. Without limiting the generality of
the immediately preceding sentence, any retention or transaction bonuses or other
compensatory payments or payment obligations of the Company to employees or other
Persons that will become due and payable as a result of the consummation of the transactions
contemplated by this Agreement shall be considered to have been paid prior to the Closing
Date, but only to the extent that such compensation is included as a Transaction Expense or
otherwise included as a current liability in the calculation of Working Capital.
(e) Subject to Section 6.10, following the Closing, Sellers shall prepare or
cause to be prepared all Tax Returns for the Company that relate to (or include)
any Pre-Closing Tax Period and that are due after the Closing Date. Buyer or the Company
shall file or cause to be filed such Tax Returns. Buyer shall be permitted to review any such
Tax Return prior to the filing thereof. Sellers shall pay or cause to be paid the Taxes shown as
due on any such Tax Return to the extent such Taxes relate to (or include ) any Pre-Closing
Tax Period. Notwithstanding anything to the contrary in this Agreement, the Sellers shall have
no liability under this Agreement with respect to (and Buyer shall pay or cause to be paid) (i)
any Taxes that were taken into account in the calculation of Closing Working Capital, (ii)
Taxes incurred as a result of actions outside the ordinary course taken after the Closing, or (iii)
Taxes incurred after the Closing Date. Notwithstanding anything to the contrary anywhere in
this Agreement, the parties agree that all losses, deductions, credits and any other Tax Benefits
available on account of the payment or incurrence of the Transaction Expenses, the payment of
the Company Indebtedness, and the other transactions are payments contemplated by this
Agreement shall be reported in Pre-Closing Tax Periods (and otherwise treated as attributable
to Pre-Closing Tax Periods and for the economic benefit of the Sellers). Buyer shall prepare
and timely file (or cause to be prepared and timely filed) all other Tax Returns of the Company
required to be filed with any Governmental Authority after the Closing Date, and shall pay (or
cause to be paid) any Taxes due in respect of such Tax Returns.
With respect to any
Tax Returns filed with respect to any Pre-Closing Taxable Period, or with respect to any
Straddle Period, Sellers shall be responsible for the Pre-Closing Taxes due in respect of such
Tax Returns (collectively, " Sellers' Taxes ").
(f) Buyer shall not (and shall not cause or permit Parent or the Company to) (i)
amend any Tax Return that relates to any Pre-Closing Tax Period or with respect to any
Straddle Period or (ii) make any Tax election that has retroactive effect to any such
Pre-Closing Tax Period or to any Straddle Period, in each case without the prior written
consent of Sellers,
45
which consent shall not be unreasonably withheld, conditioned or delayed. Buyer shall, if the
Sellers request and at the expense of the Sellers, cause the Company to file for and obtain any
refunds or credits to which Sellers may be entitled hereunder. Buyer shall permit Sellers to
control (at the expense and in the sole discretion of the Sellers) the prosecution and content of
any such refund or credit claim.
(g) Any refunds (including, for the avoidance of doubt, overpayments of
estimated Taxes) of, or credits against, Taxes of, or with respect to, the Company for any
Pre-Closing Tax Period will be for the benefit of Sellers, and Buyer or the Company will
forward the amount of any such refunds (whether received as a refund or as a credit against or
an offset of Taxes otherwise payable), together with any interest thereon, as directed by Sellers
within 10 days of receipt.
(h) Buyer, the Company and Sellers will, and will cause their respective
Affiliates to, provide each other with such cooperation and information as any of them
reasonably may request in connection with any Tax matters relating to the Company. Buyer
will retain, or cause the Company to retain, all Tax Returns, schedules and work papers,
records and other documents in its possessions relating to Tax matters of the Company for all
Pre-Closing Tax Periods until the later of (i) the expiration of the statute of limitations of the
taxable periods to which such Tax Returns and other documents relate or (ii) six years
following the due date (without extension) for such Tax Returns.
(i) Buyer shall promptly notify Sellers in writing of the commencement of any
audit or examination of any Tax Return of the Company for any Pre-Closing Tax Period and
any proposed change or adjustment, claim, dispute, arbitration or litigation that, if sustained,
would reasonably be expected to give rise to a claim for indemnification in respect of Taxes
under this Agreement (a “Tax Claim”). Such notice shall describe the asserted Tax Claim in
reasonable detail and shall include copies of any notices and other documents received from
any Taxing authority in respect of any such asserted Tax Claim. Sellers shall have the right to
control any Tax Claims in the Tax audit, examination, and settlement stage, and, if not settled,
in any further contest; provided, however, that Sellers shall inform Buyer of the status and
progress of such Tax Claim and that Buyer will have the opportunity to participate in such Tax
Claim at its expense. Sellers may not settle any Tax Claim (either at the audit or examination
stage or thereafter) without first obtaining Buyer’s consent (which concsent shall not be
unreasonably withheld, conditioned or delayed).
6.11 Non-Competition and Non-Solicitation .
(a) For a period beginning on the Closing Date and ending on the fifth
anniversary of the later of (i) the termination of such Seller's employment with the Company,
Parent or an Affiliate of Parent or (ii) the Closing Date, each Seller shall not, except in her
capacity as an officer or employee of the Company, engage in or assist others in engaging in
the Business within the United States (the " Territory "), as a stockholder, partner, member,
owner, joint venturer, investor, employee, officer, director, sole proprietor, or similar capacity
(other than as a holder of not more than two percent (2%) of the total outstanding stock of a
publicly held company).
46
(b) For a period beginning on the Closing Date and ending on later of (i) the
fifth anniversary the Closing Date, or (ii) three years after termination of such Seller's
employment with Parent or an Affiliate of Parent, each Seller agrees that she or it shall not,
directly or indirectly, for herself or on behalf of any other Person: (A) induce, persuade or
encourage any customer or supplier of the Business in the Territory to cease doing business
with the Company, Buyer or any Affiliate thereof; (B) solicit or procure the business of any
Person that is a customer of the Company as of the Closing Date in the Territory in connection
with any activities which are in competition with the Business; (C) accept or procure any
business from any Person that is a customer of the Company as of the Closing Date in the
Territory in connection with any activities which are in competition with the Business; or (D)
supply or procure any services to any Person that is a customer of the Company as of the
Closing Date in the Territory in connection with any activities which are in competition with
the Business.
(c) For a period beginning on the Closing Date and ending on later of (i) the
fifth anniversary the Closing Date, or (ii) three years after termination of such Seller's
employment with Parent or an Affiliate of Parent, each Seller agrees that she or it shall not,
directly or indirectly, for herself or on behalf of any other Person, (A) hire or solicit for
employment any employee of the Company (defined to include for purpose of this Section an
individual who was employed during the Restriction Period or during the 12 months preceding
the Closing Date), Buyer or any Affiliate thereof who was, as of the Closing Date, an
employee of the Company, or (B) induce, persuade or encourage any employee of the
Company to terminate such employee’s position with the Company .
(d) Each Seller acknowledges that: (i) an essential part of the acquisition
contemplated by this Agreement is the purchase by Buyer of goodwill, and that to protect and
preserve such goodwill, the covenants set forth in this Section 6.11 are not only reasonable and
necessary but required as a condition to Buyer’s consummation of the transactions
contemplated by this Agreement; (ii) the provisions of this Section 6.11 are the product of
arm’s-length negotiations and are reasonable and necessary to protect and preserve Buyer’s
interests in and right to the ownership, use and operation of the Business from and after the
Closing Date; and (iii) Buyer would be irreparably damaged if such Seller breached her or its
covenants set forth in this Section 6.11.
(e) The Parties recognize that damages in the event of a breach by any Seller
of any provision of this Section 6.11 would be difficult, if not impossible, to ascertain, and that
such breach would give rise to irreparable harm to Buyer and the Company, and it is therefore
agreed that Buyer, in addition to and without limiting any other remedy or right it may have,
shall have the right to seek an injunction or other equitable relief in any court of competent
jurisdiction, enjoining any such breach. The existence of this right shall not preclude any other
rights or remedies at law or in equity which Buyer may have relating to a breach of this
Section 6.11.
(f) The parties agree that the restrictions set forth herein are reasonable and
necessary to preserve the Business and that the maximum protection available under the law
shall be provided to Buyer by this Agreement to protect Buyer's interests in the Business and
its confidential and trade secret information and that, if the restrictions imposed hereby are
held by
47
any court to be invalid, illegal or unenforceable as to time, territory, scope or otherwise, this
Agreement shall be construed to impose restrictions which are valid, legal and enforceable as
to time, territory, scope or otherwise, as the case may be, to the maximum extent permitted
under applicable law.
(g) For purposes of this Section 6.11, with respect to the term of each Guanci
Shareholder's obligations, a Se ller 's employment shall mean Noreen Guanci's employment
with the Company, Parent or an Affiliate.
6.12 Use of Corporate Name or Trade Name . After the Closing, except in connection
with services provided on behalf of the Company, Parent, Buyer or her or its respective
Affiliates, neither any Seller nor any of their respective Affiliates will use commercially any of
the legal or trade names associated with the Company or the Business, or any other trade name
included within the Company Intellectual Property, any derivative or variation thereof or any
name similar thereto.
6.13 Employees .
(a) For purposes of eligibility and vesting of a Company Employee in a
benefit plan of Parent or its subsidiaries (including Buyer or, after the Closing, the Company)
(a " Parent Benefit Plan "), to the extent allowed under the applicable Parent Benefit Plans,
each Company Employee shall be credited with all years of service for which such Company
Employee was credited before the Closing Date under any comparable Company Employee
Plans in which such Company Employee participated immediately prior to the Closing Date,
except that the foregoing shall not apply to the extent such credit would result in a duplication
of benefits for the same period of service. In addition, and without limiting the generality of
the foregoing, subject to any eligibility requirements: (i) each Company Employee shall given
the opportunity to participate, without any waiting time, in any and all Parent Benefit Plans
made available to similarly situated employees of Parent's Affiliates, (ii) for purposes of each
Parent Benefit Plan providing medical, dental, pharmaceutical and/or vision benefits to any
Company Employee, Parent shall cause to the extent permitted under such Parent Benefit Plan,
all pre-existing condition exclusions and actively-at-work requirements of such Parent Benefit
Plan to be waived for such Company Employee and his or her covered dependents (except to
the extent such pre-existing condition or actively-at-work requirement applied under a
comparable Company Employee Plan in which such Company Employee participated
immediately prior to the Closing Date), and (iii) to the extent allowed under such Parent
Benefit Plans, during the remaining portion of the applicable Parent Benefit Plan year
following the Closing, Parent shall cause any eligible expenses incurred by such Company
Employee and his or her covered dependents during the portion of the plan year of the
Company Employee Plan ending on the date such Company Employee’s participation in the
corresponding Parent Benefit Plan begins to be taken into account under such Parent Benefit
Plan for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket
requirements applicable to such Company Employee and his or her covered dependents for the
applicable plan year as if such amounts had been paid in accordance with such Parent Benefit
Plan.
48
(b ) Parent, Buyer or the Company (post-Closing) shall (i) credit each of the
Company Employees with an amount of paid vacation and sick leave days following the
Closing Date equal to the amount of vacation time and sick leave days each such Company
Employee has accrued but not yet used or cashed out as of the Closing Date under the
Company’s vacation and sick leave policies applicable to such Company Employee as in effect
immediately prior to the Closing Date (collectively " Accrued PTO "), and (ii) allow each of
the Company Employees to use such Accrued PTO at such times as each would have been
allowed under the Company’s vacation and sick leave policies applicable to such Company
Employees as in effect immediately prior to the Closing Date.
( c ) No provision of this Agreement shall create any third party beneficiary
rights in any employee, individual independent contractor, or former employee or individual
independent contractor of the Company (including any beneficiary or dependent thereof) in
respect of continued employment by Parent, Buyer, the Company or otherwise. Nothing
herein shall (i) guarantee employment for any period or preclude the ability of Parent or the
Company, as applicable, to terminate the employment or service of any Company Employee
for any reason, subject to applicable Law, (ii) require Parent, Buyer or the Company to
continue any Company Employee Plan or other employee benefit plans or arrangements, or
prevent the amendment, modification or termination thereof after the Closing Date, or (iii)
amend any Company Employee Plan or Parent Benefit Plan or other employee benefit plan or
arrangement.
6.14 Indemnification of Directors and Officers .
(a) From and after the Closing Date, Parent shall cause the Company to fulfill
and honor in all respects the obligations of the Company to its directors and officers pursuant
to any indemnification provisions under the Articles of Incorporation or bylaws of the
Company as in effect on the date of this Agreement (the persons entitled to be indemnified
pursuant to such provisions being referred to collectively as the " D&O Indemnified Parties
"). From and after the Closing Date through the sixth (6 th ) anniversary of the Closing Date,
Parent shall cause the Company to maintain the provisions with respect to indemnification and
exculpation from liability as set forth in the Articles of Incorporation or bylaws of the
Company as of the date of this Agreement, which provisions shall not be amended, repealed or
otherwise modified during such period in any manner that would adversely affect the rights
thereunder of any D&O Indemnified Party. This Section 6.14 shall survive the Closing Date,
is intended to benefit and may be enforced by the D&O Indemnified Parties, and shall be
binding
on
all
successors
and
assigns
of
Parent,
Buyer
and
the
Company.
Notwithstanding anything to the contrary, the Sellers acknowledge that sole
source for recover y by a D&O Indemnified Party shall be under the coverage provided by the
Tail Policy.
(b) Prior to the Closing, Seller shall cause the Company to purchase and
maintain in effect, without any lapses in coverage, a "tail" policy providing directors' and
officers' liability insurance coverage for the benefit of those Persons who are covered by the
Company's directors' and officers' liability insurance policies as of the date of this Agreement
(the " Tail Policy ") , for a period of six years from the Closing Date, with respect to matters
occurring prior to the Closing . The cost of the Tail Policy for the six year period shall be
borne
49
by Sellers and if it is not paid prior to Closing, such expense will be treated as a Transaction
Expense.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Obligation of Parent and Buyer . The obligations of Parent and
Buyer to consummate the transactions to be performed by it in connection with the Closing is
subject to satisfaction or waiver of the following conditions:
(a) (i) each of the representations and warranties of Sellers set forth in Article
III, and of the Company set forth in Article V (other than the representations and warranties
listed in clause (ii) of this Section 7.1(a)), shall be true and correct in all respects (without
giving effect to any materiality qualifiers, including references to "Material Adverse Change"
or "Material Adverse Effect," contained therein) on and as of the Closing Date as though such
representation and warranty were made on and as of the Closing Date (except with respect to
any such representation or warranty that is expressly made or speaks only as of the date of this
Agreement or another specific date, which need only be true and correct on and as of the date
of this Agreement or such other date, as applicable), except where the failure of any of such
representations and warranties to be so true and correct, individually or in the aggregate, would
not have a Material Adverse Effect; and
(ii) each of the representations and warranties of Sellers set forth in
Sections 3.1 (Investment Representations and Acknowledgements), and 3.2 (Ownership of
Sellers' Shares), and of the Company set forth in Sections 5.1 (Organization, Qualification,
Corporate Power and Authorization), 5.2 (Authorization of Transaction), 5.3 (Capitalization),
and 5.5 (Brokers’ Fees), shall be true and correct in all respects on and as of the Closing Date,
as though such representation and warranty were made on and as of the Closing Date;
(b) Sellers and the Company shall have performed and complied with, in all
material respects, all covenants, agreements and obligations required to be performed or
complied with by Sellers and the Company under this Agreement at or prior to the Closing;
(c) the Required Consents shall have been obtained or made;
(d) no Decree of any Governmental Authority shall be in effect, and no Law
shall have been enacted, entered, promulgated, enforced or deemed applicable by any
Governmental Authority that prohibits or makes illegal the consummation of the transactions
contemplated by this Agreement;
(e) [Reserved];
(f) Buyer shall have received a certificate of a Secretary of the Company
certifying that attached thereto are true and complete copies of all resolutions adopted by the
board of directors of the Company authorizing the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated by this Agreement;
50
(g) Buyer shall have received a certificate of the Secretary of the Company
certifying the names and signatures of the officers of the Company authorized to sign this
Agreement and any other documents to be delivered pursuant to this Agreement;
(h) Sellers shall have delivered to Buyer a good standing certificate (or its
equivalent) for the Company from the Massachusetts Secretary of State and in each state
where the Company is qualified as a foreign corporation;
(i) each Seller shall have delivered to Buyer a certificate pursuant to Treasury
Regulation Section 1.1445-2(b) that Seller is not a foreign person within the meaning of
Section 1445 of the Code;
(j) Sellers shall have delivered to Buyer the deliveries set forth in Section 2.7;
(k) the Company shall have delivered to Buyer payoff or similar letters with
respect to the repayment and satisfaction, simultaneous with or prior to Closing, of the
Company Indebtedness listed in Section 7.1(k) of the Disclosure Schedule ;
(l) from the date of this Agreement, there shall not have occurred any Material
Adverse Effect;
(m) Sellers shall have delivered to Buyer written resignations, effective as of
the Closing Date, of the officers and directors of the Company;
(n) Sellers shall, if requested by Buyer, deliver to Buyer a certified copy of
resolutions terminating the Company's 401(k) plan, in form and content satisfactory to Buyer;
(o) Sellers shall have executed and delivered general releases in favor of the
Company , in form reasonably satisfactory to Buyer ;
(p) [ Reserved ];
(q) Sellers shall execute and deliver Form 8023 with respect to the Section
338(h)(10) Election;
(r) the acquisition of 100% of the Sellers' Shares;
(s) each of Noreen Guanci and Anne Harrington shall have entered into
employment agreements in a form satisfactory to such individual and Buyer (the "
Employment Agreements "); and
(t) each of Sellers shall have entered into an escrow agreement with Fifth
Third Bank and Buyer, if applicable, as contemplated by Section 2.4(d) (the " Escrow
Agreement ").
51
7.2 Conditions to Obligation of Sellers . The obligation of Sellers to consummate the
transactions to be performed by them in connection with the Closing is subject to satisfaction
or waiver of the following conditions:
(a) each of the representations and warranties of Parent and Buyer set forth in
Article IV shall be true and correct in all material respects on and as of the Closing Date, as
though such representation and warranty were made on and as of the Closing Date;
(b) Parent and Buyer shall have performed and complied with, in all material
respects, all covenants, agreements and obligations required to be performed or complied with
by Parent and Buyer under this Agreement at or prior to the Closing;
(c) the Required Consents shall have been obtained or made;
(d) no Decree shall be in effect, and no Law shall have been enacted, entered,
promulgated, enforced or deemed applicable by any Governmental Authority, that prohibits or
makes illegal the consummation of the transactions contemplated by this Agreement;
(e) [Reserved];
(f) Sellers shall have received a certificate of a Secretary of each of Parent and
Buyer certifying that attached thereto are true and complete copies of all resolutions adopted
by the board of directors and bank group of Parent and the board of directors of Buyer,
respectively, authorizing the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement;
(g) Sellers shall have received a certificate of the Secretary of each of Parent
and Buyer certifying the names and signatures of the officers of Parent and Buyer,
respectively, authorized to sign this Agreement and any other documents to be delivered
pursuant to this Agreement;
(h) Parent shall have executed and delivered to Sellers a guaranty in the form
of Guaranty Agreement attached as Attachment B (the " Guaranty ");
(i) Parent and Buyer shall have delivered to Sellers the deliveries set forth in
Section 2.7;
(j) Parent and Buyer shall have executed and delivered the Employment
Agreements with each of Noreen Guanci and Anne Harrington;
(k) Sellers shall have received a copy of the letter of instruction to the Parent’s
transfer agent with respect to the issuance of the Parent Common Stock contemplated hereby
and confirmation of its transmission to such transfer agent; and
(l) from the date of this Agreement, there shall have not been a change, event
or occurrence that individually, or together with any other change, event or occurrence, has a
52
material adverse effect on the financial condition, business or results of operation of Parent or
Buyer; and
(m) Parent and Buyer shall have executed and delivered, if applicable, the
Escrow Agreement in a form satisfactory to the Sellers.
7.3 Frustration of Closing Conditions . No Party may rely on the failure of any
condition set forth in this Article VII to be satisfied if such failure was caused by such Party’s
failure to use commercially reasonable efforts to cause the Closing to occur, as required by
Section 6.1.
ARTICLE VIII
REMEDIES
8.1 Survival of Representations, Warranties and Covenants .
(a) All of the representations and warranties contained in Articles III, IV and
V shall survive the Closing and continue in full force and effect for a period of 18 months
thereafter; provided that:
(i) the representations and warranties of Sellers and the Company
contained in Sections 3.1 (Investment Representations and Acknowledgements), 3.2
(Ownership of Sellers' Shares), 5.1 (Organization, Qualification, Corporate Power and
Authorization), 5.2 (Authorization of Transaction), 5.3 (Capitalization), and 5.5 (Brokers'
Fees) (collectively, the " Sellers' Fundamental Representations ") shall survive the Closing and
continue in full force and effect for a period of three years after Closing;
(ii) the representations and warranties of Parent and Buyer contained in
Sections 4.1 (Organization), 4.2 (Authorization of Transaction), 4.3 (Capitalization), 4.6
(Brokers' Fees) and 4.7 (Investment) (collectively, the " Buyer Fundamental Representations ")
shall survive the Closing and continue in full force and effect for a period of three years after
Closing ; and
(iii) the representations and warranties of the Company contained in
Sections 5.14 (Taxes) and claims arising out of Sellers' or the Company's fraud, criminal
activity or willful misconduct shall survive for the applicable statute of limitation associated
with the subject matter of such claims.
(b) Except as otherwise specifically provided in this Agreement, all covenants
contained in this Agreement to be performed before or at the Closing shall not survive the
Closing and all covenants contained in this Agreement to be performed after the Closing shall
survive the Closing in accordance with their respective terms or if there is no term associated
with such covenant, then such covenants shall survive indefinitely. Sellers' obligation to
indemnify Buyer Indemnities pursuant to Sections 8.2(e) and (f) shall survive for the statute of
limitations applicable to the underlying claims. Parent’s and Buyer's obligation to indemnify
53
Sellers pursuant to Section 8.3(c) shall survive for the statute of limitations applicable to the
underlying claims.
(c) The Parties acknowledge and agree that no claim may be brought in
respect of a breach of any representation or warranty or express indemnification clause
contained in this Agreement after the expiration of the survival period applicable to such
representation and warranty or express indemnification clause, as set forth in Sections 8.1(a) or
(b). Notwithstanding anything in this Agreement to the contrary, any claims asserted in good
faith with reasonable specificity (to the extent known at such time) and in writing by notice
from the non-breaching party to the breaching party prior to the expiration date of the
applicable survival period shall not thereafter be barred by the expiration of the relevant
representation or warranty or express indemnification clause and such claims shall survive
until finally resolved.
8.2 Claims Against Seller s . From and after the Closing and subject to the provisions
of this Article VIII, Buyer and its respective Affiliates (which shall include, following the
Closing, the Company), directors, officers, managers, employees, and agents (collectively, the
" Buyer Indemnitees ") shall be entitled to make a Claim for Indemnification against Sellers in
respect of any and all losses, assessments, adjustments, recoupment, suspensions, offsets,
damages, liabilities, costs and expenses (including reasonable attorney fees) (collectively, "
Losses ") incurred by Buyer Indemnitees arising out of or resulting from, and Sellers shall
severally and not jointly and in accordance with their respective Pro Rata Share (except that as
among the Guanci Shareholders, their indemnification obligations and liability under this
Agreement shall be joint and several ) agree to indemnify, defend and hold Buyer
Indemnitees harmless from any Losses arising out of or resulting from:
(a) a breach of any representation or warranty of any Seller contained in
Article III;
(b) a breach of any representation or warranty of the Company contained in
Article V;
(c) a breach of any covenant or agreement of any Seller contained in this
Agreement;
(d) a breach of any covenant or agreement of the Company contained in this
Agreement ;
(e) (i) all Taxes (or the non-payment thereof) of the Company for the
Pre-Closing Tax Periods, provided, for the avoidance of doubt, the employer’s share of all
employment, payroll and similar Taxes incurred by the Company with respect to any
compensatory payments made in connection with the transaction contemplated by this
Agreement, whether such Taxes are incurred prior to, at, or following the Closing Date, shall
be treated as arising in the Pre-Closing Tax Periods; (ii) all Taxes of any member of an
affiliated, consolidated, combined or unitary group of which the Company (or any predecessor
of the Company) is or was a member on or prior to the Closing Date, including pursuant to
Treasury Regulation §1.1502-6 or any analogous or similar state, local, or non-U.S. law or
regulation; (iii)
54
any and all Taxes of any Person imposed on the Company as a transferee or successor, by
contract or pursuant to any Law, which Taxes relate to an event or transaction occurring before
the Closing; (iv) any Sellers' Taxes; and (v) any Tax imposed on the Company attributable to
the making of the Section 338(h)(10) Election, including (A) any Tax imposed under Code
Section 1374, (B) any Tax imposed under Regulation Section 1.338(h)(10)-1(d)(2), and (C)
any state or local Tax imposed on the Company or Sellers arising out of the Section 338(h)(10)
Election;
(f) subject to the limitations set forth in Section 8.6(i) hereof ,
the
misclassification of the Company’s workers for Tax, employment or labor purposes, including
without limitation, resulting in wage and hour claims, unemployment claims, claims relating to
under-withholding of Taxes, Tax or business nexus claims, and any Action by a third party or
Governmental Authority relating thereto , but only with respect to Losses relating to services
performed with dates of service prior to the Effective Time (whether the Action or third party
claim giving rise to the Losses occurs prior to or after the Effective Time). Buyer
acknowledges that the scope of Seller's indemnification obligation under this Section 8.2(f)
excludes Losses relating to Losses relating to services performed with dates of service after the
Effective Ti me; an d
(g) defending any third party claim alleging the occurrence of facts or
circumstances that, if true, would entitle an Buyer Indemnitee to indemnification hereunder.
8.3 Claims Against Buyer . From and after the Closing and subject to the provisions of
this Article VIII, Sellers and each of their respective Affiliates, directors, officers, managers,
employees (collectively, the " Seller Indemnitees ") shall be entitled to make a Claim for
Indemnification against Buyer in respect of any and all Losses incurred by Seller
Indemnitees arising out of or resulting from, and Buyer shall indemnify, defend and hold
Seller Indemnitees harmless from and against any Losses arising out of or resulting from:
(a) a breach of any representation or warranty of Parent or Bu yer contained in
Article IV;
(b) a breach of any covenant or obligation of Parent or Buyer contained in this
Agreement;
(c) the misclassification of the Company’s workers for Tax, employment or
labor purposes, including without limitation, resulting in wage and hour claims, unemployment
claims, claims relating to under-withholding of Taxes, and any Action by a third party or
Governm ental Authority relating thereto , but in each case, (i) only with respect to Losses
relating to services performed with dates of service after the Effective Time , and (ii) only
with respect to Losses relating to Actions against Sellers arising in their capacity as Company
shareholders prior to the Effective Time ; and
(d) defending any third party claim alleging the occurrence of facts or
circumstances that, if true, would entitle a Seller Indemnitee to indemnification hereunder.
55
8.4 Matters Involving Third Party Claims .
(a) If any third party shall notify any Party (the " Indemnified Party ") with
respect to a Third Party Claim which may give rise to a Claim for Indemnification against any
other Party (the " Indemnifying Party ") under this Article VIII, then the Indemnified Party
shall promptly provide a Claim for Indemnification to the Indemnifying Party; provided
, however , that no delay on the part of the Indemnified Party in notifying any Indemnifying
Party shall relieve the Indemnifying Party from any obligation hereunder unless (and then only
to the extent) the Indemnifying Party is prejudiced by such delay. Thereafter, the Indemnified
Party shall deliver to the Indemnifying Party, promptly following receipt thereof, copies of all
notices and documents (including court papers) received by the Indemnified Party relating to
any such Third Party Claim.
(b) Any Indemnifying Party shall have the right (but not the obligation), upon
written notice to the Indemnified Party delivered no later than 30 days after receipt by the
Indemnifying Party of the Claim for Indemnification, to assume the conduct and control,
through counsel of its choice reasonably satisfactory to the Indemnified Party, and at the
expense of the Indemnifying Party, of the settlement or defense of the Third Party Claim. The
Indemnified Party shall cooperate with the Indemnifying Party and its counsel in connection
therewith and the Indemnifying Party shall permit the Indemnified Party to participate in such
settlement or defense through counsel chosen by the Indemnified Party; provided that the fees
and expenses of such counsel shall be borne solely by such Indemnified Party. So long as the
Indemnifying Party is reasonably contesting any such Third Party Claim in good faith, the
Indemnified Party shall not pay or settle such Third Party Claim. If the Indemnifying Party
does not notify the Indemnified Party in writing within 30 days after receipt of the Claim for
Indemnification that it elects to undertake the defense of the Third Party Claim, then the
Indemnified Party shall have the right to contest, settle or compromise such Third Party Claim
with the prior written consent of the Indemnifying Party, not to be unreasonably withheld;
provided , that , (i) no such consent shall be required in connection with a settlement for
monetary damages (A) in an amount less than or equal to $50,000 and (B) which does not
contain an admission on liability on the part of any Indemnifying Party, and (ii) the
Indemnified Party shall not, by virtue of its election to undertake such defense pursuant to this
sentence, be deemed to have waived any right to seek indemnity therefor pursuant to this
Article VIII. Any settlement or compromise of any Third Party Claim by the Indemnifying
Party shall require the prior written consent of the Indemnified Party, which consent shall not
be unreasonably withheld, conditioned or delayed; provided that no such consent shall be
required for any such settlement or compromise that (x) is exclusively monetary and (y) does
not contain an admission of liability on the part of any Indemnified Party
(c) All of the Parties shall reasonably cooperate in the defense or prosecution
of any Third Party Claim in respect of which indemnity may be sought hereunder and Parent,
Buyer and each Seller (or a duly authorized representative of such Party) shall (and Buyer
shall cause the Company to) furnish such records, information and testimony, and attend such
conferences, discovery proceedings, hearings, trials and appeals, as may be reasonably
requested in connection therewith.
8.5 Matters Not Involving Third Party Claim s .
56
Buyer Indemnitees or Seller
Indemnitees may make a claim under this Article VIII that does not involve a Third Party
Claim in any amount to which they may be entitled under this Article VIII by providing a
Claim for Indemnification against the appropriate Indemnifying Party promptly (but in no
event more than 10 Business Days) after such Indemnified Party has notice of any Losses that
may give rise to a Claim for Indemnification; provided , however , that no delay on the part
of a Buyer Indemnitee or Seller Indemnitee in notifying such Indemnifying Party shall relieve
the Indemnifying Party from any obligation hereunder unless (and then only to the extent) such
Indemnifying Party is actually prejudiced by such delay. Such Indemnifying Party shall have
30 days to object to the Claim for Indemnification by delivery of a written notice of such
objection to the Indemnified Party. If an objection is delivered by the Indemnifying Party,
then the Indemnified Party and the Indemnifying Party shall negotiate in good faith for a
period of 20 Business Days from the date the Indemnified Party receives such objection prior
to commencing any Proceeding with respect to such Claim for Indemnification.
8.6 Limitations on Indemnification .
(a) Notwithstanding anything to the contrary in this Agreement, the right of
Buyer Indemnitees to indemnification in respect of Losses under this Article VIII shall be
subject to the following limitations:
(i) Buyer Indemnitees shall not be entitled to assert any Claim for
Indemnification pursuant to Sections 8.2(b) and (d) (or Claims pursuant to Section 8.2(g) with
respect to matters arising in Section 8.2(b) or (d)) in respect of any Losses, or series of related
Losses, until the aggregate amount of all Losses actually incurred by Buyer Indemnitees
exceeds an amount equal to $185,000 (the " Deductible Amount "), in which case Buyer
Indemnitees shall have the right to seek indemnification for the amount of Losses in excess of
the Deductible Amount; provided , however , that the limitation set forth in this Section
8.6(a)(i) shall not apply to Losses based upon, arising out of or resulting, directly or indirectly,
from (A) a breach of Sellers' Fundamental Representations, or (B) fraud, criminal activity or
willful misconduct ;
(ii) the aggregate maximum amount available to Buyer Indemnitees for
Claims for Indemnification pursuant to Sections 8.2 shall be limited to $5,000,000; provided
, however , that the limitation set forth in this Section 8.6(a)(ii) shall not apply to Losses
based upon, arising out of or resulting, directly or indirectly, from (A) a breach of Sellers'
Fundamental Representations, (B) fraud , criminal activity or willful misconduct, or (C)
indemnification claim s made under Sections 8.2(e) or Section 8.2(f), or Section 8.2(g) as it
relates to third party claims giving rise to an indemnification claim under Sections 8.2(e) or
Section 8.2 (f);
(iii) in no event shall the Sellers' aggregate liability under this Article
VIII exceed the Purchase Price;
(iv) notwithstanding anything in this Agreement to the contrary, each
Seller's aggregate personal liability arising out of or resulting from this Agreement shall be
several and not joint and shall be limited to such Seller’s Pro Rata Share of the aggregate
liability for indemnification under this Agreement; provided , however , that any liability or
57
indemnification obligation of a Guanci Shareholder under this Agreement is joint and several
with all Guanci Shareholders ; and
(v) with respect to any Claim for Indemnification arising under Section
8.2(a) or Section 8.2(c), Buyer Indemnitees shall only be permitted to assert a Claim for
Indemnification against the actual Seller who is in breach of such representation, warranty,
covenant or agreement and not against any other Seller, and shall look only to such breaching
Seller for recovery with respect thereto; provided, however, if the Claim for Indemnification
against a Guanci Shareholder, then such Claim for Indemnification may be made against all
Guanci Shareholders. For the avoidance of doubt, none of the Sellers will be responsible to
indemnify any Buyer Indemnified Party pursuant to Sections 8.2(a) or 8.2(c) for any violation
by another Seller of any representation, warrant, covenant or agreement personal to such other
Seller; provided, however, that each of the Guanci Shareholders shall be jointly and severally
obligated to indemnify a Buyer Indemnified Party for any violation by any Guanci
Shareholder.
(b) No Buyer Indemnitee shall be entitled to be indemnified with respect to
Losses that (i) were included as a liability in the calculation of the Final Adjustment Amount
or (ii) such Buyer Indemnitee has otherwise been compensated for pursuant to consideration
adjustments under Article II.
(c) Notwithstanding anything to the contrary in this Agreement, the right of
Seller Indemnitees to indemnification in respect of Losses under this Article VIII shall be
subject to the following limitations:
(i) Seller Indemnitees shall not be entitled to assert any Claim for
Indemnification pursuant to Sections 8.3 in respect of any Losses, or series of related Losses,
until the aggregate amount of all Losses actually incurred by Seller Indemnitees exceeds an
amount equal to the Deductible Amount, in which case Seller Indemnitees shall have the right
to seek indemnification for the amount of Losses in excess of the Deductible Amount;
provided , however , that the limitation set forth in this Section 8.7(c)(i) shall not apply to
Losses based upon, arising out of or resulting, directly or indirectly, from (A) a breach of
Buyer’s Fundamental Representations, (B) any failure to make payment of any portion of the
Purchase Price, including, without limitation, under the Buyer Notes, (C) fraud, criminal
activity or willful misconduct; or (D) indemnification claim s made under Section 8.3(c).
(ii) the aggregate maximum amount available to Seller Indemnitees for
Claims for Indemnification pursuant to Sections 8.3 shall be limited to $5,000,000; provided
, however , that the limitation set forth in this Section 8.7(c)(ii) shall not apply to Losses
based upon, arising out of or resulting, directly or indirectly, from (A) a breach of Buyer’s
Fundamental Representations, (B) any failure to make payment of any portion of the Purchase
Price, including, without limitation, under the Buyer Notes, (C) fraud, criminal activity or
willful misconduct; or (D) indemnification claim s made under Section 8.3(c); and
(iii) in no event shall Parent’s and Buyer’s aggregate liability under this
Article VIII exceed the Purchase Price.
58
(d) Notwithstanding anything to the contrary in this Agreement, all materiality
qualifications (whether by reference to "material", "all material respects", "Material Adverse
Change" or "Material Adverse Effect") contained in the representations and warranties set
forth in this Agreement shall be disregarded solely for purposes of determining, under this
Article VIII, the amount of any Losses arising out of or resulting from a breach of any such
representation or warranty; provided that none of such materiality qualifications shall be
disregarded for purposes of determining whether any such representation or warranty has been
breached.
(e)
Notwithstanding anything contained herein to the contrary, no
Indemnifying Party shall be liable for punitive or exemplary damages.
(f) The amount of Losses subject to indemnification under this Article VIII
shall be calculated net of any amounts recovered by the Indemnified Party under applicable
insurance policies of from any other Person alleged to be responsible therefore; provided
, however , that in no event shall an Indemnified Party be required to first proceed against
applicable insurance coverage before proceeding against the Indemnifying Party pursuant to
this Article VIII. If the amount of the Losses is reduced by recovery, settlement or otherwise
under any insurance coverage or pursuant to any claim, recovery, settlement or payment by or
against any other Person, the amount of such reduction (net of increased future premiums, in
the case of insurance coverage or expenses, including reasonable attorneys' fees, incurred in
connection with such recovery, settlement or payment) will be applied to such claim or
promptly repaid by the Indemnified Party to the Indemnifying Party (or added back to the
Deductible), as applicable.
(g) Any calculation of Losses for purposes of this Article VIII shall be
reduced to take account of any net Tax benefit actually realized by the Indemnified Party as a
result of any such Losses. Any payment hereunder shall initially be made without regard to
this Section 8.6(g) and shall be reduced to reflect any such net Tax benefit only after the
Indemnified Party has actually realized such benefit. For purposes of this Agreement, the
Indemnified Party shall be deemed to have “actually realized” a net Tax benefit to the extent
that, and at such time as, the amount of Taxes required to be paid by the Indemnified Party is
reduced below the amount of Taxes that it would have been required to pay but for
deductibility of such Losses, in each case: (i) during the Tax year as the year in which the
relevant Losses occurred and the two immediately succeeding tax years; (ii) calculated so that
the items related to the Indemnifying Party’s indemnification obligations are the last to be
recognized; and (iii) as reasonably determined by the Indemnified Party. The amount of any
reduction hereunder shall be adjusted to reflect any final determination with respect to the
Indemnified Party’s liability for Taxes, consistent with the foregoing.
(h) Any liability for indemnification under this Article VIII will be determined
without duplication of recovery for the Indemnified Party by reason of either the state of facts
giving rise to such liability constituting a breach of more than one representation, warranty,
covenant or agreement or the fact that such representation, warranty, covenant, or agreement
was made by more than one Party.
(i) For the avoidance of doubt and notwithstanding anything to the contrary
59
contained in this Article VIII, Sellers shall have no liability to Buyer or any Buyer Indemnitee
for any Losses relating to the operation of the Business after the Effective Time attributable to
a Buyer Indemnitee’s determination to continue any classification of the Company’s workers
for Tax, employment or labor purposes following the Closing, including without limitation,
any Losses resulting from wage and hour claims, unemployment claims, claims relating to
under-withholding of Taxes, Tax or business nexus claims, and any Action by a third party or
Governmental Authority relating thereto, and any ensuing liability Buyer or its Affiliates
(including the Company) incur as a result thereof.
8.7 Exclusive Remedy . After the Closing, the rights of the Parties pursuant to the
provisions of this Article VIII shall be the sole and exclusive remedy for the Parties, and each
Party hereby waives all other remedies, with respect to any claim or matter arising from or
relating to this Agreement and the transactions contemplated by this Agreement, other than
claims arising from fraud, criminal activity or willful misconduct on the part of a Party hereto
in connection with the transactions contemplated by this Agreement. Nothing in this Section
8.7 shall limit any Party's right to seek and obtain any equitable relief to which any Party shall
be entitled or to seek any remedy on account of any Party's fraudulent, criminal or willful
misconduct
.
8.8 Set-off Against Buyer Notes . Except as otherwise provided in this Agreement,
Buyer shall first set off any Losses payable pursuant to Article VIII of this Agreement against
the outstanding balance of the Buyer Notes, and as among the Buyer Notes (to the extent
applicable) based on each Seller's Pro Rata Share, prior to seeking payment of amounts due
with respect to an indemnification claim directly from the Sellers.
8.9 Adjustments to Final Purchase Price . All indemnification payments under this
Article VIII shall be deemed adjustments to the Final Purchase Price.
ARTICLE IX
[ RESERVED ]
ARTICLE X
MISCELLANEOUS
10.1 No Third Party Beneficiaries . This Agreement shall not confer any rights or
remedies upon any Person other than the Parties and their respective successors and permitted
assigns; provided , that f rom and after the Closing, the D&O Indemnified Parties shall be third
party beneficiaries of the provisions of Section 6.14, with the right to pursue claims for
damages and other relief (including specific performance or other equitable relief) in the event
of any breach thereof.
10.2 Entire Agreement . This Agreement and the Ancillary Documents entered into by
and between the Parties constitute the entire agreement between the Parties with respect to the
subject matter of this Agreement and such Ancillary Documents, and supersede any prior
understandings, agreements, or representations by or between the Parties, written or oral, to the
60
extent they related in any way to the subject matter of this Agreement and such Ancillary
Documents.
10.3 Succession and Assignment . This Agreement shall be binding upon and inure to
the benefit of the Parties and their respective successors and permitted assigns. No Party may
assign either this Agreement or any of her or its rights, interests, or obligations hereunder
without the prior written approval of the other Parties.
10.4 Counterparts; Signatures . This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. A manual signature on this Agreement or any
Ancillary Document, an image of which has been transmitted electronically, shall constitute an
original signature for all purposes. The delivery of copies of this Agreement or any Ancillary
Document, including executed signature pages where required, by electronic transmission will
constitute effective delivery of this Agreement or such Ancillary Document for all purposes.
10.5 Headings . The article and section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or interpretation of this
Agreement.
10.6 Notices . All notices and other communications hereunder shall be in writing and
shall be deemed duly delivered: (i) upon receipt if delivered personally; (ii) three Business
Days after being mailed by registered or certified mail, postage prepaid, return receipt
requested; (iii) one Business Day after it is sent by commercial overnight courier service; or
(iv) upon transmission if sent via facsimile with confirmation of receipt to the parties at the
following address (or at such other address for a party as shall be specified upon like notice):
(a) if to Buyer or the Company , to:
c/o Almost Family, Inc.
9510 Ormsby Station Road, Suite 300
Louisville, Kentucky 40223
Telephone: (502) 891-1042
Facsimile: (502) 891-8067
Email: [email protected]
Attention: President
with a copy to:
Frost Brown Todd LLC
400 West Market Street, 32nd Floor
Louisville, Kentucky 40202
Attention: Scott Dolson
Telephone: (502) 568-0203
Facsimile: (502) 581-1087
Email: [email protected]
61
(b) if to Noreen Guanci:
11 Hillside Place
Sudbury, MA 01776
Telephone: ( 508) 335 -7101
Facsimile: ( 508) 720-3201
Email: [email protected]
(c) If to
Noreen Guanci 2009 Irrevocable Trust
11 Hillside Place
Sudbury, MA 01776
Attn: Richard Guanci, Trustee
Telephone: (508) 395-0035
Email: [email protected]
(d) If to Richard Guanci 2009 Irrevocable Trust
11 Hillside Place
Sudbury, MA 01776
Attn: Noreen Guanci, Trustee
Telephone: ( 508) 335-9135
Facsimile: ( 508) 720-3201
(e) if to Anne Harrington:
4 Pettees Pond Lane
Walpole, Ma 02081
Telephone: ( 508) 907-7102
Facsimile: ( 508) 720-320 2
Email: aharrington @longtermsol.com
(f) If to (b) through (e), with copy to:
Nutter, McClennen & Fish, LLP
Seaport West
155 Seaport Boulevard
Boston, Massachusetts 02210
Attention: Alex S. Glovsky
Tel ephone : ( 617 ) 439 - 2618
Facsimile : ( 617 ) 310 - 9618
Email: [email protected]
62
10.7 Governing Law and Venue . This Agreement shall be governed by and construed
in accordance with the internal laws of Delaware applicable to parties residing in Delaware,
without regard to applicable principles of conflicts of law. The Parties agree that any suit,
Action or proceeding seeking to enforce any provision of, or based on any matter arising out of
or in connection with, this Agreement or the transactions contemplated hereby, whether in
contract, tort or otherwise, shall be brought in the Court of Chancery of the State of Delaware,
New Castle County, or, if that court does not have jurisdiction, a federal court sitting in
Wilmington, Delaware, and that any case of action arising out of this Agreement shall be
deemed to have arisen from a transaction of business in the State of Delaware, and each of the
parties hereby irrevocably consents to the jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, Action or proceeding and irrevocably waives, to
the fullest extent permitted by law, any objection that it may now or hereafter have to the
laying of the venue of any such suit, Action or proceeding in any such court or that any such
suit, Action or proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, Action or proceeding may be served on any
party anywhere in the world, whether within or without the jurisdiction of any such court.
10.8 Waiver of Jury Trial . TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW THAT CANNOT BE WAIVED, EACH OF THE PARTIES HERETO
HEREBY WAIVES AND COVENANTS THAT IT SHALL NOT ASSERT (WHETHER AS
PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO TRIAL BY JURY IN ANY
FORUM IN RESPECT OF ANY ACTION, SUIT OR PROCEEDING ARISING IN WHOLE
OR IN PART OUT OF, RELATED TO, BASED UPON, OR IN CONNECTION
HEREWITH OR THE SUBJECT MATTER HEREOF OR THE CONTEMPLATED
TRANSACTIONS (WHETHER SOUNDING IN CONTRACT, TORT, STATUTE OR
OTHERWISE). ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR
A COPY OF THIS SECTION 10.8 WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL
BY JURY.
10.9 Amendments and Waivers . No amendment or waiver of any provision of this
Agreement shall be valid unless the same shall be in a writing referring to this Agreement
signed by Buyer and Sellers. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
10.10 Severability . Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability
of the remaining terms and provisions hereof or the validity or enforceability of the offending
term or provision in any other situation or in any other jurisdiction.
10.11 Construction . Any reference to any federal, state, local, or foreign Law shall be
deemed also to refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The word "including" (and variations thereof) shall mean "including,
without limitation." All accounting terms used in this Agreement shall have the meanings
given to them in accordance with GAAP. All monetary amounts set forth in this Agreement
are in United
63
States Dollars. All words used in this Agreement will be construed to be of such gender or
singular or plural as the circumstances require. All references to "Section" or "Article" shall
be deemed to refer to the provisions of this Agreement unless otherwise expressly
provided. The words "this Agreement," "hereof," "hereunder," "herein," "hereby," or words of
similar import shall refer to this Agreement as a whole and not to a particular section,
subsection, clause or other subdivision of this Agreement, unless the context otherwise
requires. The word "or" shall not be construed in its exclusive sense. The Parties have
participated jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of this
Agreement. For the avoidance of doubt, documents posted by the Company or the Sellers or
their respective attorneys, representatives or agents in the electronic or virtual data room
maintained in connection with the transactions contemplated hereby are deemed to have been
made available and provided and delivered to Buyer and Parent.
10.12 Incorporation of Exhibits and Schedules . The Attachments and Disclosure
Schedule identified in this Agreement are incorporated into this Agreement by reference and
made a part of this Agreement.
10.13 Specific Performance . Each of the Parties acknowledges and agrees that the
other Parties would be damaged irreparably in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or otherwise are
breached. Accordingly, each of the Parties agrees that the other Parties shall be entitled, in
addition to any other remedy at law or in equity, to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce the terms of this Agreement, in
any Delaware State or Federal court sitting in Dover, Delaware by a decree of specific
performance without the necessity of proving the inadequacy of money damages as a
remedy. Each party hereby waives any requirement for securing or posting of any bond in
connection with such remedy. With respect to any matter contemplated by this Section 10.13,
each Party agrees and consents to the exclusive jurisdiction of any Delaware State or Federal
court sitting in Dover, Delaware, waives all objections based on lack of venue and forum non
conveniens, and irrevocably consents to the personal jurisdiction of all such courts.
10.14 Counterparts; Facsimile . This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the Parties and delivered
to the other Parties, it being understood that all parties need not sign the same counterpart and
such counterparts may be delivered by the Parties via facsimile or electronic (PDF)
transmission (each of which shall be deemed an original).
10.15 Legal Representation . Each of the parties to this Agreement acknowledges that
Nutter, McClennen & Fish, LLP currently serves as counsel to both (a) the Company and (b)
the Sellers, including in connection with the negotiation, preparation, execution and delivery
of this Agreement, the Ancillary Documents and the consummation of the transactions
contemplated hereby. There may come a time, including after consummation of the Closing,
when the interests of the Sellers and the Company may no longer be aligned or when, for any
reason, the
64
Sellers, Nutter or the Company believes that Nutter cannot or should no longer represent
both the Sellers and the Company. The parties understand and specifically agree that Nutter
may withdraw from representing the Company and continue to represent the Sellers, even if
the interests of the Sellers and the interests of the Company are or may be adverse, including
in connection with any dispute arising out of or relating to this Agreement, any of the
Ancillary Documents, and even though Nutter may have represented the Company in a matter
substantially related to such dispute or may be handling ongoing matters for the Company or
any of its Affiliates, and Parent, Buyer and the Company hereby consent thereto and waive any
conflict of interest arising therefrom. Each of the parties further agrees that, as to all
communications among Nutter, the Company and the Sellers, the attorney-client privilege, the
expectation of client confidence and all other rights to any evidentiary privilege belong to the
Sellers and shall not pass to or be claimed by the Company or any of its Affiliates. In addition,
if the Closing occurs, the Company shall have no right of access to or control over any of
Nutter’s records related to the transactions contemplated by this Agreement, which shall
become the property of (and be controlled by) the Sellers. Furthermore, in the event of a
dispute between the Sellers and the Company arising out of or relating to any matter in which
Nutter acted for them both, none of the attorney-client privilege, the expectation of client
confidence or any other rights to any evidentiary privilege will protect from disclosure to the
Sellers any information or documents developed or shared during the course of Nutter’s joint
representation of the Sellers and the Company. Notwithstanding the foregoing, in the event
that after the Closing a dispute or Legal Proceeding arises between Parent, Buyer or any
Subsidiary thereof and a Person other than the Sellers, then the Company or such Subsidiary,
as applicable, may assert the attorney-client privilege to prevent disclosure of confidential
communications to or from Nutter to such Person.
(signature page follows)
65
IN WITNESS WHEREOF , the Parties have caused this Stock Purchase Agreement
to be duly executed as of the date first above written.
BUYER :
NATIONAL HEALTH INDUSTRIES, INC.
By
/s/ C. Steven Guenthner
C. Steven Guenthner, President
PARENT :
ALMOST FAMILY, INC.
By:
/s/ C. Steven Guenthner
C. Steven Guenthner, President
COMPANY :
LONG TERM SOLUTIONS, INC.
By:
Title:
/s/ Noreen Guanci
CEO
SELLERS :
/s/ Noreen Guanci
Noreen Guanci
/s/ Anne Harrington
Anne Harrington
/s/ Richard Guanci
Richard Guanci, as Trustee of the Noreen Guanci
2009 Irrevocable Trust
/s/ Noreen Guanci
Noreen Guanci, as Trustee of the Richard Guanci
2009 Irrevocable Trust
66
Attachments and Schedules
Attachment A Buyer Notes*
Attachment B Parent Guaranty Agreement*
Disclosure Schedule – Exceptions to Representations and Warranties of Sellers and the
Company and Certain Other Exceptions and Disclosures**
*The information scheduled at this Attachment has been omitted pursuant to Item 601(b)(2) of
Regulation S-K. Almost Family hereby undertakes to furnish supplementally copies of any of
the omitted schedules upon request by the U.S. Securities and Exchange Commission.
**Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Almost Family
hereby undertakes to furnish supplementally copies of any of the omitted schedules upon
request by the U.S. Securities and Exchange Commission.
67
Exhibit 10.19
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT
(this
“
Amendment ” ) is made and entered in to effective as of November 4 , 2015 , by and among
: [i] ALMOST FAMILY, INC. , a Delaware corporation ( “ AFI” ) ; [ii] JPMORGAN
CHASE BANK, N.A. , a national banking association , as Administrative Agent and for
itself as a Lender described in the Credit Agreement defined below ( the “ Agent” ) ; [iii
] BANK OF AMERICA, N.A. , a national banking association , as Syndication Agent and
for itself as a Lender ( “ BOA ” ) ; [iv ] FIFTH THIRD BANK , an Ohio banking
corporation , as Documentation Agent and for itself as a Lender ( “ FTB ” ) ; and [ v
] REGIONS BANK , an Alabama banking corporation for itself as a Lender ( “ RB ” ) (
Agent, BOA, FTB and RB are collectively referred to herein as the “ Lenders ” ) .
RECITALS :
A. AFI, Agent and each of the Lenders entered into that certain Credit Agreement
dated as of December 2, 2010 (the “ Original Credit Agreement ” ), as modified by each of
the following: [i] that certain letter agreement dated as of December 10, 2012 (the “ Letter
Agreement ” ) ; [ii] that certain Second Amendment to Credit Agreement dated as of
December 6, 2013 (the “ Second Amendment ” ); and [iii] that certain Third Amendment to
Credit Agreement dated as of February 12, 2015 (the “ Third Amendment ” )(the Original
Credit Agreement, as modified and amended by the Letter Agreement, the Second Amendment
and the Third Amendment , are collectively referred to herein as the “ Credit Agreement ”
). Certain initially capitalized terms used in this Amendment shall have the respective
meaning s set forth in the Credit Agreement unless expressly otherwise defined herein.
B. AFI has informed Agent that it intends to acquire (the “ Black Stone Acquisition ”
) one hundred percent (100%) of the issued and outstanding shares of capital stock of Black
Stone Home Health care, an Ohio corporation ( “ Black Stone ” ) , and has requested that
Agent and each Lender consent to the Black Stone Acquisition and that in connection
therewith each of the Lenders make an advance of a Revolving Borrowing as a part of their
respective Commitments as described i n the Credit Agreement .
C. T he Credit Agreement contains certain requirements in order for an A cquisition
(such as the Black Stone Acquisition) to be deemed to be a Permitted Acquisition including
(but not limited to) the following ( hereinafter collectively referred to as the “ Unfulfilled
Conditions ” ) : [ i ] the personal property assets that are acquired have been pledged and
granted (unless the pledge or grant is prohibited by Governmental Authority or the provisions
of contracts governing the same) as part of the Collateral (the “ Personal Property Pledge
Requirement ” ) ; [ ii ] if Equity Interests of the Target Person have been acquired, the
Target Person at the time such Equity Interests are acquired, must have executed and delivered
a Guaranty Agreement and Agent shall have received an exclusive first priority pledge and
grant of such Equity Interest of the Target Person as part of the Collateral (the “ Guaranty
and Pledge of Equity Interest Requirement ” ) ; and [ iii ] if the Acquisition for which
the Acquisition Consideration paid by the Acquirer exceeds the Acquisiti on Information
Threshold Amount , AFI shall have furnish ed the requisite Proforma Acquisition
Information to the Administrative Agent
and each of the Lenders at least ten (10) Business Days
Acquisition (the “ Notice Requirement ” ) .
prior to the consummation of the
D . AFI has furnished to Agent the requisite Proforma Acquisition
Information pursuant to that certain Project Knight Transaction Information Package dated
as of October 2015 (the “ Transaction Package ” ) .
E . AFI has informed Agent that, given the timing of the closing of the Black Stone
Acquisition on or about November 3, 2015 (the “ Acquisition Closing Date ” ), AFI will be
unable to fulfill the Personal Property Pledge Requirement or the Guaranty and Pledge of
Equity Interest Requirement , nor will AFI be able to comply with the Notice Requirement .
F. AFI desires to consummate the Black Stone Acquisition on the Acquisition Closing
Date notwithstanding the Unfulfilled Conditions , and has requested that Agent and each
Lender consent to the Black Stone Acquisition and that in connection therewith each of the
Lenders make an advance of a Revolving Borrowing on the Acquisition Closing Date as a part
their respective Commitments as described in the Credit Agreement .
E. Lenders are agree able, notwithstanding the Unfulfilled Conditions, to consent to the
Black Stone Acquisition , to advance to AFI a Revolving Borrowing for the purposes set forth
in the Transaction Package , and to deem the Black Stone Acquisition a Permitted Acquisition
under the Credit Agreement , so long as AFI furnishes to Agent the Additional Loan
Documents (as defined below) on or before the Post-Black Stone Acquisition Documents
Delivery Date (as defined below).
NOW THEREFORE , in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound, it is hereby agreed as follows:
ARTICLE 1
Amendment to Credit Agreement
AFI and Lenders each hereby agree that, subject to satisfaction of the conditions
stipulated in Article 3 of this Amendment, the Credit Agreement is hereby modified so that, u
pon consummation of the Black Stone Acquisition , Black Stone shall be deemed to be a
Subsidiary and added to the Schedule 3.01 attached to the Third Amendment and made part of
the Credit Agreement. Upon Agent’s request, AFI shall promptly furnish to Agent a
complete, accurate and current Schedule 3.01 that includes the state of formation, tax
identification number, organizational identification number and the identity of the owners of
all of the Equity Interests of each Subsidiary including Black Stone, in form and substance
satisfactory in all respects to Agent in its sole discretion .
2
ARTICLE 2
Consent, Acknowledgement and Limited Waiver of Agent and Lenders
As evidenced by their respective signatures to this Amendment as set forth below, but
subject to and conditioned upon the fulfillment and satisfaction of the Conditions to
Effectiveness at the time and in the manner set forth below and the delivery of the Additional
Loan Documents described below , Agent and each of the Lenders hereby: [i] consents to the
Black Stone Acquisition ; [ii] waives the provisions of the Credit Agreement relating to the
Personal Property Pledge Requirement , the Guaranty and Pledge of Equity Interest
Requirement and the Notice Requirement only with respect to the Black Stone Acquisition;
and [iii] agrees to make an advance of its portion of a Revolving Borrowing on the
Acquisition Closing Date as a part their respective Commitments as described in and otherwise
in accordance with the Credit Agreement solely for the purposes of allowing AFI to
consummate the Black Stone Acquisition . From and after the consummation of the Black
Stone Acquisition, notwithstanding the Unfulfilled Conditions, Agent and each of the Lenders
acknowledges and agrees that the Black Stone Acquisition shall be deemed to be a Permitted
Acquisition as described in the Credit Agreement subject to AFI delivering to Agent and each
of the Lenders the Additional Loan Documents described below.
ARTICLE 3
Conditions to Effectiveness
This Amendment shall become effective when, and only when, Agent shall have
received this Amendment signed by no less than the Required Lenders and AFI and e vidence
satisfactory to Agent that the closing of the Black Stone Acquisition has occurred and, in
conjunction therewith, that any Lien encumbering the assets of Black Stone or any subsidiary
of Black Stone that is not a Permitted E ncumbrance has been terminated or will be terminated
on the Acquisition Closing Date , and no Event of Default under the Credit Agreement or
under or with respect to any of the oth er Loan Documents shall exist at the time AFI makes a
request for the applicable Revolving Borrowing as provided below and in the Credit
Agreement .
ARTICLE 4
Post-Closing Documents
AFI hereby agrees to furnish to Agent on or before December 3, 2015 (the “
Post-Black Stone Acquisi ti on Documents Delivery Date ” ) , each of the documents or
instruments set forth below (collectively, for purposes of this Amendment, the “ Additional
Loan Documents ” ) , each executed by each of the parties hereto and the parties thereto
where provided, respectively, all of which shall be in such form and substance satisfactory to
Agent and Lenders in a ll respects in their sole discretion and upon the satisfaction of all the
conditions set forth in Article 3 shall be deemed part of the “Loan Documents” referred to in
the Credit Agreement :
A . The Transaction Package and all other documents and information relating thereto,
as may be reasonably requested by Agent or any Lender.
3
B. A Guaranty Agreement (the “ Black Stone Guaranty Agreement ” ) entered into
by Black Stone and each subsidiary of Black Stone (collectively, the “ Black
Stone Subsidiaries ” ) , containing the absolute, joint and several guarantee of payment by
each of them, respectively, of the Obligations, and which shall be supplemental to any and
each Guaranty Agreement heretofore given by any other Subsidiary Guarantor.
C . A Pledge of Equity Interests containing the grant to Agent for the ratable benefit of
the Lenders, as part of the Collateral for the Obligations in each c ase, by AFI of one hundred
percent (100%) of the issued and outstanding shares of capital stock of Black Stone , and by
Black Stone and the applicable subsidiaries of Black Stone of all of t he Equity Interests of
each of the Black Stone Subsidiaries owned by them (if any) , respectively, including delivery,
in conjunction with or promptly following such pledge, of all certificates evidencing any such
ownership and related stock or membership unit powers, as applicable, endor sed by the entity
pledging same.
D . A security agreement ( the “ Black Stone Security Agreement ” ) pursuant to
which Black Stone and each of the Black Stone Subsidiaries shall grant to Agent for the
ratable benefit of the Lenders a continuing first priority security interest in all of the personal
property of each as part of the Collateral for the Obligations, which Black Stone Security
Agreement shall be supplemental to any other Security Agreement he retofore executed and
delivered.
E . An Incumbency Certificate and Certi fied Copy of Resolutions for AFI, Black Stone
and each of the Black Stone Subsidiaries, authorizing the execution and delivery of this A
mendment and the other Additional Loan Documents to which each is a party, respectively,
and including a copy of the organization documents for Black Stone and each of the Black
Stone Subsidiaries , and evidence of the valid existence of each and of AFI .
F . An opinion of legal counsel to AFI addressed to Agent and each of the Lenders as
to the due authorization, execution, delivery and enforceability of this Amendment and the
Additional Loan Docume nts by and with respect to AFI, Black Stone and each of the Black
Stone Subsidiaries , and such other matte rs as Agent may reasonably request.
G. Agent and Lenders shall have receive d such other documents, instruments and
certificates, if any, as Agent may reasonably request to insure the binding effect in accordance
with the terms thereof of the Credit Agreement as modified by this Amendment, and the
Additional Loan Documents.
AFI hereby expressly acknowledges and agrees that failure by AFI to furnish the Additional
Loan Documents to Agent by and no later than the Post-Black Stone Acquisition Documents
Delivery Date or the failure by AFI to use the Revolving Borrowing funds advanced to AFI by
the Lenders for the purposes set forth in the Transaction Package shall constitute a default by
AFI under the Credit Agreement and under each of the Loan Documents , whereupon Agent
and Lenders shall be free to pursue all of their respective rights and remedies as set forth in t
he Credit Agreement and the Loan Documents .
4
ARTICLE 5
Representations and Warranties
AFI hereby restates, reaffirms, confirms and incorporates herein by this reference as of
the date first written above each of the representations, warranties and covenants contained in
the Credit Agreement and the other Loan Documents, as modified by this Amendment, and
confirms and agrees that it has no defenses, offsets or counterclaims with respect
thereto. Without limitation of the preceding sentence, AFI represents and warrants that: [i] this
Amendment has been executed and delivered by a representative of AFI who is duly
authorized to do so and that this Amendment is valid and binding on AFI; [ii] the Additional
Loan Documents shall be executed and delivered by a representative executed and delivered
by a representative of AFI and each Subsidiary Guarantor that is a party thereto who is duly
authorized to do so and that the same shall be valid and binding on each ; and [iii] this
Amendment and each of the Additional Loan Documents are (and will be) the enforceable
obligations of the parties thereto in accordance with their respective terms . With out
limitation of the forgoing and except ing only the Unfulfilled Conditions, AFI specifically
represents , warrants and covenants to Agent and each of the Lenders that all of the
conditions and requirements contained in the Credit Agreement and all of the other Loan
Documents for the Black Stone Acquisition to be deemed to be a Permitted Acquisition as
described in the Credit Agreement have been satisfied or will be satisfied on the Acquisition
Closing Date.
ARTICLE 6
Other Provisions
4.1 AFI acknowledges and agrees that neither it nor any other party has any defenses or
offsets to the payment of any amount due to Agent or any of the Lenders under the Credit
Agreement or under any of the other Loan Documents and, further, that neither it nor any other
party has any defenses, claims or counterclaims with respect to the performance of any of the
obligations arising under or in connection with any of the Loan Documents.
4.2 AFI hereby agrees to reimburse Agent for all expenses incurred by Agent and
Lenders in connection with the preparation, execution, delivery and performance of this
Amendment, including without limitation for reasonable fees of legal counsel to Agent.
4.3 This Amendment is not intended to be and shall not be deemed to be a novation of
any of the Loan Documents or any part thereof, but rather shall be supplemental to each of the
Loan Documents and shall be entitled to the benefit of the same priority of each of the Loan
Documents, to the maximum extent permitted by law. None of the Loan Documents are
intended to be released, altered or changed in any manner except as expressly set forth herein,
and such documents shall continue to be in full force and effect from and after the date of this
Amendment as they were prior to the date hereof
4. 4 Except as expressly modified by this Amendment, all terms and conditions of the
Credit Agreement and the other Loan Documents shall remain in full force and effect as they
were immediately prior to the execution and delivery of this Amendment, and those terms and
conditions as modified are incorporated herein by this reference and shall govern this
5
Amendment in all respects.
Upon the effectiveness of this Amendment, each reference in
the Credit Agreement and the other Loan Documents to the “Credit Agreement” shall mean
and be deemed a reference to the Credit Agreement as modified by this Amendment.
4. 5 This Amendment may not be modified in any respect except in writing signed by
the party c harged with such modification. This Amendment constitutes the final, complete
and exclusive agreement among Agent, Lenders and AFI concerning its subject matter and
neither the Agent, Lenders nor AFI are relying on any oral agreements or understandings of
any nature whatsoever with respect thereto.
4. 6 This Amendment shall be effective notwithstanding that it is executed in
counterparts, and a facsimile or other reproduction of a signature of any party to it shall be
effective to the same extent as the manual signature of such party, but such party shall furnish
its manually signed signature pages to each other party promptly upon request of such other
party.
4. 7 This Amendment shall be governed by and shall construed in accordance with the
laws of the Commonwealth of Kentucky in all respects .
IN TESTIMONY WHEREOF , witness the signatures on behalf of AFI,
Agent, BOA, FTB and RB, all effective as of the date first above written.
“AFI”
ALMOST FAMILY, INC. , a Delaware
corporation
By: /s/ C. Steven Guenthner
C. Steven Guenthner, President, Principal
Financial Officer, Secretary and Treasurer
[COUNTERPART SIG NATURE PAGES FOR AGENT AND LENDERS CONTAINED
ON THE FOLLOWING FOUR PAGES]
6
[ COUNTERPART SIGNATURE PAGE TO FOURTH AMENDMENT TO CREDIT
AGREEMENT ]
“AGENT”
JPMORGAN CHASE BANK, N.A., as
Administrative Agent and for itself as a Lender
By:
/s/ J. Duffy Baker, Jr.
(signature)
Name: J. Duffy Baker, Jr.
(print)
Title:
7
Executive Director
[ COUNTERPART SIGNATURE PAGE TO FOURTH AMENDMENT TO CREDIT
AGREEMENT ]
/s/
“BOA”
BANK OF AMERICA, N.A., as Syndication
Agent and for itself as a Lender
By:
/s/ E. Mark Hardison
(signature)
Name: E. Mark Hardison
(print)
Title:
8
Senior Vice President
[ COUNTERPART SIGNATURE PAGE TO FOURTH AMENDMENT TO CREDIT
AGREEMENT ]
/s/
“FTB”
FIFTH THIRD BANK, as Documentation Agent
and for itself as a Lender
By:
/s/ Vera B. McEvoy
(signature)
Name: Vera B. McEvoy
(print)
Title:
9
Vice President
[COUNTERPART SIGNATURE PAGE TO FOURTH AMENDMENT TO CREDIT AGREEMENT
]
“RB”
REGIONS BANK , for itself as a Lender
By:
/s/ Joseph A. Miller
(signature)
Name: Joseph A. Miller
(print)
Title:
10
Managing Director
Exhibit 21
ALMOST FAMILY, INC. AND SUBSIDIARIES
LIST OF SUBSIDIARIES AS OF JANUARY 1, 2016
NAME
OF
STATE OF
INCORPORATION OR
ORGANIZATION
ENTITY
I. Almost Family, Inc . directly owned subsidiaries
Adult Day Care of America, Inc.
AFAM Merger, Inc.
AFAM Acquisition, LLC
National Health Industries, Inc.
Imperium Health Management, LLC
Pricare ACO, LLC
Bluegrass Clinical Partners, LLC
Commonwealth Clinical Partners, LLC
ACO Clinical Partners, LLC
Bluegrass Accountable Care LLC
Colorado Clinical Partners, LLC
Eastern Kentucky Clinical Partners, LLC
Greater Tallahassee Clinical Partners, LLC
Integrity Clinical Partners, LLC
Kentuckiana Clinical Partners, LLC
Kentucky Accountable Care LLC
Kentucky Clinical Partners, LLC
Kentucky Physicians for Accountable Care LLC
Physicians Accountable Care, LLC
Physicians Accountable Care of Kentucky LLC
Physicians Accountable Care of Tennessee, LLC
Tennessee Clinical Partners, LLC
Utah Clinical Partners, LLC
Western Kentucky Clinical Partners, LLC
Ingenios Health Holdings, Inc.
Ingenios Health Co.
Delaware
Delaware
Kentucky
Kentucky
Kentucky
Kentucky
Kentucky
Kentucky
Kentucky
Kentucky
Colorado
Kentucky
Florida
Minnesota
Kentucky
Kentucky
Kentucky
Kentucky
Kentucky
Kentucky
Tennessee
Tennessee
Utah
Kentucky
Delaware
Delaware
II. National Health Industries, Inc. directly and indirectly owned
subsidiaries
AFAM Acquisition Ohio, LLC
Almost Family ACO Services of Kentucky, LLC
Almost Family ACO Services of South Florida, LLC
Almost Family PC of Ft. Lauderdale, LLC
Almost Family PC of Kentucky, LLC
Almost Family PC of SW Florida, LLC
Almost Family PC of West Palm, LLC
BHC Services, Inc.
Black Stone Operations, LLC
Advanced Geriatric Education & Consulting, LLC
Blackstone Group, LLC
Blackstone Health Care, LLC
S&B Health Care, LLC
Black Stone of Cincinnati, LLC
Assisted Care by Black Stone of Cincinnati, LLC
Home Health Care by Black Stone of Cincinnati, LLC
Care Advisors by Black Stone, LLC
MJ Nursing at Black Stone, LLC
Black Stone of Dayton, LLC
Assisted Care by Black Stone of Dayton, LLC
Home Health Care by Black Stone of Dayton, LLC
Black Stone of Central Ohio, LLC
Assisted Care by Black Stone of Central Ohio, LLC
Kentucky
Kentucky
Florida
Florida
Kentucky
Florida
Florida
New York
Ohio
Ohio
Ohio
Ohio
Ohio
Ohio
Ohio
Ohio
Ohio
Ohio
Ohio
Ohio
Ohio
Ohio
Ohio
Home Health Care by Black Stone of Central Ohio, LLC
Black Stone of Northwest Ohio, LLC
Ohio
Ohio
Assisted Care by Black Stone of Northwest Ohio, LLC
Home Health Care by Black Stone of Northwest Ohio, LLC
Black Stone of Northeast Ohio, LLC
Bracor, Inc.
WillCare, Inc.
Litson Health Care, Inc.
Western Region Health Corporation
Litson Certified Care, Inc.
Patient’s Choice Homecare, LLC
Connecticut Home Health Care, Incorporated
Cambridge Home Health Care Holdings, Inc.
Cambridge Home Health Care, Inc.
Cambridge Home Health Care, Inc./Private
Caretenders Mobile Medical Services, LLC
Caretenders of Cleveland, Inc.
Caretenders of Columbus, Inc.
Caretenders of Jacksonville, LLC
Caretenders Visiting Services of Columbus, LLC
Caretenders Visiting Services of District 6, LLC
Caretenders Visiting Services of District 7, LLC
Caretenders Visiting Services Employment Company, Inc.
Caretenders Visiting Services of Gainesville, LLC
Caretenders Visiting Services of Hernando County, LLC
Caretenders Visiting Services of Kentuckiana, LLC
Caretenders Visiting Services of Ocala, LLC
Caretenders Visiting Services of Orlando, LLC
Caretenders Visiting Services of Pinellas County, LLC
Caretenders Visiting Services of Southern Illinois, LLC
Caretenders Visiting Services of St. Augustine, LLC
Caretenders Visiting Services of St. Louis, LLC
Caretenders VNA of Ohio, LLC
Caretenders VS of Boston, LLC
Caretenders VS of Central KY, LLC
Caretenders VS of Lincoln Trail, LLC
Caretenders VS of Louisville, LLC
Caretenders VS of Northern KY, LLC
Caretenders VS of Ohio, LLC
Caretenders VS of SE Ohio, LLC
Caretenders VS of Western KY, LLC
IN Homecare Network Central , LLC
IN Homecare Network North , LLC
Mederi Caretenders VS of Broward, LLC
Mederi Caretenders VS of SE FL, LLC
Mederi Caretenders VS of SW FL, LLC
Mederi Caretenders VS of Tampa, LLC
Princeton Home Health, LLC
OMNI Home Health Holdings, Inc.
Omni Home Health Services, LLC
Ohio
Ohio
Ohio
New York
New York
New York
New York
New York
Connecticut
Connecticut
Delaware
Ohio
Ohio
Ohio
Kentucky
Kentucky
Florida
Ohio
Kentucky
Kentucky
Kentucky
Florida
Florida
Kentucky
Florida
Kentucky
Florida
Illinois
Florida
Missouri
Ohio
Massachusetts
Kentucky
Kentucky
Kentucky
Kentucky
Ohio
Ohio
Kentucky
Indiana
Indiana
Florida
Florida
Florida
Florida
Alabama
Delaware
Delaware
Home Health Agency — Broward, Inc.
Home Health Agency — Brevard, LLC
Home Health Agency — Central Pennsylvania, LLC
Home Health Agency — Collier, LLC
Home Health Agency — Hillsborough, LLC
Home Health Agency — Illinois, LLC
Home Health Agency — Indiana, LLC
Home Health Agency — Palm Beaches, LLC
Home Health Agency — Pennsylvania, LLC
Home Health Agency — Philadelphia, LLC
Home Health Agency — Pinellas, LLC
OMNI Health Management, LLC
OMNI Home Health — District 1, LLC
OMNI Home Health — District 2, LLC
OMNI Home Health — District 4, LLC
OMNI Home Health — Hernando, LLC
OMNI Home Health — Jacksonville, LLC
SunCrest Healthcare, Inc.
Almost Family ACO Services of Tennessee, LLC
BGR Acquisition, LLC
SunCrest Companion Services, LLC
SunCrest Healthcare of East Tennessee, LLC
SunCrest Healthcare of Middle TN, LLC
SunCrest Healthcare of West Tennessee, LLC
SunCrest Home Health of AL, LLC
SunCrest Home Health of Central FL, LLC
SunCrest Home Health of Georgia, LLC
SunCrest Home Health — Southside, LLC
SunCrest Home Health of Manchester, Inc.
SunCrest Home Health of MO, Inc.
SunCrest Home Health of Nashville, Inc.
SunCrest Home Health of North Carolina, Inc.
SunCrest Home Health of South GA, Inc.
SunCrest Home Health of Tampa, LLC
SunCrest LBL Holdings, Inc.
Trigg County Home Health, Inc.
SunCrest Home Health of Claiborne County, Inc.
Tennessee Nursing Services of Morristown, Inc.
SunCrest Outpatient Rehab Services of TN, LLC
SunCrest Outpatient Rehab Services, LLC
SunCrest TeleHealth Services, Inc.
III. AFAM Acquisition, LLC directly and indirectly owned subsidiaries
Patient Care, Inc.
Patient Care Medical Services, Inc.
Patient Care New Jersey, Inc.
Patient Care of Hudson County, LLC
Patient Care Pennsylvania, Inc.
Priority Care, Inc.
Patient Care Connecticut, LLC
Florida
Florida
Florida
Florida
Florida
Florida
Florida
Florida
Florida
Florida
Florida
Florida
Florida
Florida
Florida
Florida
Florida
Georgia
Tennessee
Florida
Tennessee
Tennessee
Tennessee
Tennessee
Alabama
Florida
Georgia
Georgia
Tennessee
Missouri
Tennessee
North Carolina
Georgia
Florida
Tennessee
Kentucky
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
Delaware
New Jersey
Delaware
New Jersey
Delaware
Connecticut
Connecticut
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statements:

Registration Statement (Form S-8 No. 333-43631) pertaining to the Non-Employee Directors Deferred
Compensation Plan,

Registration Statement (Form S-8 No. 333-88744) pertaining to the Almost Family, Inc. 2000 Stock
Option Plan,

Registration Statement (Form S-8 No. 333-149674) pertaining to the Almost Family, Inc. 2007 Stock
and Incentive Compensation Plan,

Registration Statement (Form S-8 No. 333-161484) pertaining to the Almost Family, Inc. 2009
Employee Stock Purchase Plan, and

Registration Statement (Form S-8 No. 333-188398) pertaining to the Almost Family, Inc. 2013 Stock
and Incentive Compensation Plan;

Registration Statement (Form S-3 No. 333-204584) of Almost Family, Inc.;
of our reports dated March 2, 2016, with respect to the consolidated financial statements and schedule of Almost
Family, Inc. and Subsidiaries and the effectiveness of internal control over financial reporting of Almost Family,
Inc. and Subsidiaries included in this Annual Report (Form 10-K) of Almost Family, Inc. for the year ended
January 1, 2016.
/s/ Ernst & Young LLP
Louisville, Kentucky
March 2 , 2016
Exhibit 31.1
CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT
I, William B. Yarmuth, certify that:
1. I have reviewed this annual report on Form
10-K of Almost Family,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 2 , 2016
By /s/ William B. Yarmuth
William B. Yarmuth
Chairman of the Board, Chief Executive Officer
1
Exhibit 31.2
CERTIFICATIONS OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT
I, C. Steven Guenthner, certify that:
1. I have reviewed this annual report on Form
10-K of Almost Family,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 2 , 2016
By /s/ C. Steven Guenthner
C. Steven Guenthner
President and Principal Financial Officer
1
Exhibit 32.1
CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
(AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
I, William B. Yarmuth, Chief Executive Officer of Almost Family, Inc. (the “Company”), certify,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1)
The Annual Report on Form 10-K of the Company for the annual period ended January 1,
2016 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m); and
(2)
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
6
Date: March 2 , 2016
By /s/ William B. Yarmuth
William B. Yarmuth
Chairman of the Board, Chief Executive Officer
A signed original of this written statement required by Section 906 has been provided to the Company and will
be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
1
Exhibit 32.2
CERTIFICATIONS OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
(AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
I, C. Steven Guenthner, Principal Financial Officer of Almost Family, Inc. (the “Company”),
certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1)
The Annual Report on Form 10-K of the Company for the annual period ended January 1,
2016 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m); and
(2)
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Date: March 2 , 2016
By /s/ C. Steven Guenthner
C. Steven Guenthner
President & Principal Financial Officer
A signed original of this written statement required by Section 906 has been provided to the Company and will
be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
1