Membership Interest Purchase Agreement

Exhibit 10.1


MEMBERSHIP INTEREST PURCHASE AGREEMENT


by and between

HORIZON HEALTH CORPORATION

as Seller,


and


CAREERSTAFF UNLIMITED, INC.


as Buyer


Dated as of August 22, 2005

TABLE OF CONTENTS

Page


Section 1. Definitions 1

Section 1.1 Definitions 1

Section 2. Purchase and Sale 2

Section 2.1 Interests 2

Section 2.2 Seller Assumed Liabilities 3

Section 2.3 Intercompany Receivable 3

Section 3. Purchase Price 3

Section 3.1 Cash at Closing 3

Section 3.2 Note A 4

Section 3.3 Note B 4

Section 3.4 Sun Guaranty 4

Section 3.5 Purchase Price Allocation 4

Section 4. Closing 4

Section 4.1 Escrow Date and Closing Date 4

Section 4.2 Escrow Transactions 4

Section 4.3 Closing Date 6

Section 4.4 Working Capital Settlement 6

Section 5. Conditions to Closing 8

Section 5.1 Buyer' s Conditions 8

Section 5.2 Seller' s Conditions 8

Section 6. Representations by Seller 9

Section 6.1 Interests 9

Section 6.2 Company 9

Section 6.3 Subsidiaries, Etc. 9

Section 6.4 No Proceedings 9

Section 6.5 Authority 9

Section 6.6 Litigation and Incident Reports 10

Section 6.7 Compliance 10

Section 6.8 Property 11

Section 6.9 Employees; Unions 11

Section 6.10 Hazardous Materials 11

Section 6.11 Condemnation 12

Section 6.12 Contracts 12

Section 6.13 Taxes 13

Section 6.14 Liens 13

Section 6.15 No Brokers or Finders 13

Section 6.16 Financial Statements. 13

Section 6.17 Insurance 14

Membership Interest Purchase Agreement i

Section 6.18 Licenses 14

Section 6.19 Operational Assets 14

Section 6.20 Employees of Seller 14

Section 6.21 Accounts Receivable 15

Section 6.22 Proprietary Rights 15

Section 6.23 No Misrepresentations 15

Section 6.24 Background Checks and Drug Screening 15

Section 6.25 Employee Licenses 16

Section 6.26 No Other Representations or Warranties. 16

Section 6.27 Accounts Payable 16

Section 6.28 Employee Benefits 16

Section 6.29 Guarantees 17

Section 7. Representations by the Buyer 17

Section 7.1 Authority 17

Section 7.2 Authorization/Execution 17

Section 7.3 Organization and Good Standing; No Violation 18

Section 7.4 Legal Proceedings 18

Section 7.5 Solvency 18

Section 7.6 No Conflicts; Consents 18

Section 7.7 Brokers and Finders 18

Section 8. Indemnification 19

Section 8.1 Survival 19

Section 8.2 Indemnification of Buyer by Seller 19

Section 8.3 Indemnification of Seller by Buyer 20

Section 8.4 Method of Asserting Claims 21

Section 8.5 Right of Offset 24

Section 8.6 Exclusive Remedy 24

Section 8.7 Survival 24

Section 8.8 Release 24

Section 9. Non-Disclosure 24

Section 10. Miscellaneous 24

Section 10.1 Entire Agreement 24

Section 10.2 Further Assurances and Cooperation 25

Section 10.3 Successors and Assigns 25

Section 10.4 Amendments 25

Section 10.5 Applicable Law; Venue; Jurisdiction 25

Section 10.6 Construction 25

Section 10.7 Severability 25

Section 10.8 Waivers 26

Section 10.9 Time is of the Essence 26

Section 10.10 Attorneys Fees 26

Section 10.11 Notices 26

Membership Interest Purchase Agreement ii

Section 10.12 Waiver of Jury Trial 27

Section 10.13 Calculation of Time Periods 27

Section 10.14 Third Party Beneficiary 27

Section 10.15 Captions 27

Section 10.16 Counterparts 27


Membership Interest Purchase Agreement iii

EXHIBITS AND SCHEDULES


EXHIBITS


Exhibit 2.2 Assumption Agreement

Exhibit 3.2 Note A

Exhibit 3.3 Note B

Exhibit 3.4 Sun Guaranty

Exhibit 4.2(b) Assignment of Membership Interest

Exhibit 4.2(g) Non-Competition and Non-Solicitation Agreement

Exhibit 4.2(j) Transition Services Agreement

Exhibit 4.2(k) Assignment of Lock Box

Exhibit 4.3(a) Seller' s Closing Certificate

Exhibit 4.3(b) Buyer' s Closing Certificate

Exhibit 6.2 Certificate of Formation and Operating Agreement

Exhibit 6.21 Accounts Receivable


SCHEDULES

Schedule 2.2 August Bonuses

Schedule 4.2(l) Third Party Consents Delivered At Closing

Schedule 6.2 Formation, Qualification and Officers

Schedule 6.6 Pending Litigation

Schedule 6.7 Contracts Requiring Consents

Schedule 6.8 Title Encumbrance

Schedule 6.9 Employees and Independent Contractors

Schedule 6.12 Contracts with Vendors and Landlords and Material Contracts with Customers

Schedule 6.16 Financial Statements

Schedule 6.17 Insurance

Schedule 6.18 Licenses

Schedule 6.19 Operational Assets not Owned or Leased

Schedule 6.20 List of Corporate Employees and Employment Contracts

Schedule 6.22 Trademarks, Domain Name Registration and Material Software

Schedule 6.28 List of Employee Benefit Plans

Membership Interest Purchase Agreement iv

TABLE OF DEFINED TERMS


Accounting Firm 7

Accounts Receivable 15

Affiliate 2

Agreement 1

August Bonuses 3

Base Amount 7

Benefit Plans 16

Business 1

Buyer 1

Buyer Indemnified Parties 19

Claim Notice 21

Closing 4

Closing Date 4

Company 1

Company Liabilities 7

Contracts 12

Control 2

Corporate Employees 15

Damages 19

Disclosure Schedules 2

Effective Time 4

Employee Contracts 11

Environmental, Health, or Safety Law 12

ERISA 16

ERISA Affiliate 16

Escrow Agent 4

Escrow Date 4

Escrowed Documents 4

Execution Date 1

Financial Statements 13

GAAP 6

Indemnified Party 21

Indemnifying Party 21

Indemnity Notice 23

Intercompany Receivable 3

Interests 2

JPMorgan 5

Knowledge of Buyer 2

Knowledge of Seller 2

Liabilities Accrued Expenses - Other 6

Licenses 14

Material Adverse Change 2

Material Adverse Effect 2

Maximum Rate 4

Net, Accounts Receivable 6

Membership Interest Purchase Agreement v

Note A 4

Note B 4

Notice Period 21

Other Receivables - Other 6

Parties 1

Party 1

Person 2

Prepaids Rent-Leased Space 6

Proprietary Rights 15

Relevant Claim 20

Seller 1

Seller Assumed Liabilities 3

Seller Indemnified Parties 20

Seller Tax Claims 19

Software 15

Sun 4

Sun Guaranty 4

Superseded Agreements 25

Third Party Claim 21

Third Party Consents 5

Trade Secrets 15

Working Capital 6

Membership Interest Purchase Agreement vi

MEMBERSHIP INTEREST PURCHASE AGREEMENT

In exchange for the promises set forth below, Horizon Health Corporation, a Delaware corporation (" Seller" ), and CareerStaff Unlimited, Inc., a Delaware corporation (" Buyer" ), enter into this Membership Interest Purchase Agreement (" Agreement" ), dated as of August 22, 2005 (the " Execution Date" ), and agree as follows (Buyer and Seller may be referred to individually as a " Party" and collectively as the " Parties" ):

WHEREAS, ProCare One Nurses, LLC, a Delaware limited liability company (the " Company" ), is engaged in the business of providing specialized temporary nurse staffing services to acute care hospitals and specialty clinics (the " Business" ); and

WHEREAS, Seller is the Manager and the sole member of the Company and, subject to the terms of this Agreement, desires to sell its membership interest in the Company to Buyer and Buyer desires to purchase Seller' s membership interest in the Company; and

WHEREAS, the Parties desire to document the terms and conditions under which such purchase and sale shall occur.

NOW, THEREFORE, in consideration of the premises and of the respective representations, warranties, covenants, agreements and conditions contained herein, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby contract and agree as follows:


Section 1. Definitions .

Section 1.1 Definitions . For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires,


(a) The defined terms used in this Agreement shall include the plural as well as the singular.

(b) All accounting terms not otherwise defined herein have the meanings assigned under GAAP.


(c) All references in this Agreement to designated " Sections" and other subdivisions are to the designated Sections and other subdivisions of the body of this Agreement.


(d) Pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms.

(e) The words " including" and " include" shall be deemed to mean in each instance " including, without limitation," except as stated otherwise herein.


(f) The words " herein," " hereof" and " hereunder" and other words of similar import refer to this Agreement as a whole, including the Exhibits and Schedules attached hereto, and not to any particular Article, Section or other subdivision. Membership Interest Purchase Agreement 1.

(g) " Disclosure Schedules" shall mean the schedules attached to and constituting a part of this Agreement.


(h) " Knowledge of Buyer," and similar variations thereof, shall mean the actual knowledge, as of the relevant date, of Rick Peranton, Richard Kopecky, Teresa Reinhardt and Gay Kelley, after reasonable inquiry of employees or agents of Buyer who were involved in Buyer' s due diligence review of Seller and the Business; provided, however, Buyer shall not be deemed to have knowledge of any matter that was not disclosed by Seller to Buyer in writing prior to the Closing.

(i) " Knowledge of Seller," and similar variations thereof, shall mean the actual knowledge, as of the relevant date and after reasonable inquiry of senior employees of the Company responsible for the relevant matters, of any of the following officers of Seller: John E. Pitts CFO, Frank J. Baumann, SVP Operations, David K. Meyercord SVP Administration and General Counsel, Donald W. Thayer SVP Acquisitions & Development, Peter Kavanaugh VP Acquisitions & Development, and Dana Hallberg President of ProCare One Nurses, LLC.


(j) " Material Adverse Change" or " Material Adverse Effect," when used with respect to the Company shall mean any material adverse change which, has had or could reasonably be expected to have an adverse effect on the financial condition, business, operations or assets of Company taken as a whole or the Business taken as a whole, other than changes or effects that are or result from occurrences relating to the United States economy generally or the United States health care industry generally.


(k) Any reference in this Agreement to an " Affiliate" shall mean any Person directly or indirectly controlling, controlled by or under common control with a second Person. The term " Control" (including the terms " controlled by" and " under common control with" ) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. A " Person" shall mean any natural person, partnership, corporation, limited liability company, association, trust or other legal entity.

Capitalized terms used in this Agreement shall have the definitions assigned to such terms elsewhere in this Agreement. For ease of reference, the Section containing the definition of each such capitalized term is set forth in the table of defined terms included elsewhere as a part of this Agreement.

Section 2. Purchase and Sale .

Section 2.1 Interests . At Closing (defined below), Seller shall irrevocably and forever sell, assign, and transfer to Buyer and its successors and assigns, and Buyer shall buy and accept from Seller, all of Seller' s rights, title, and interests in and to all of the issued and outstanding membership interests of the Company (collectively, the " Interests" ), free and clear of any and all liens, encumbrances, and claims of ownership, in exchange for the Purchase Price (as defined in Section 2).

Membership Interest Purchase Agreement 2.

Section 2.2 Seller Assumed Liabilities . Seller and Buyer acknowledge and agree that Buyer is unwilling to purchase the Interests unless Seller assumes certain liabilities of the Company prior to or contemporaneously with the Closing. Seller shall execute and deliver an Assumption Agreement in the form of Exhibit 2.2 to be delivered at Closing and pursuant to which Seller shall assume any and all liabilities not identified in Working Capital (as defined in Section 4.3 below), and arising or incurred prior to the Closing Date or based on the operations of the Company or of the Business prior to the Closing Date, including but not limited to the following: (i) all of the Company' s payables for periods prior to the Closing Date (as defined in Section 4.1) excluding, however, all payables that were accounted for in the calculation of Working Capital, (ii) any and all tax obligations arising prior to the Closing Date or related to income allocable to periods prior to the Closing Date, including any deferred Federal and State taxes, (iii) any income tax liability resulting from cancellation or nonpayment of the Intercompany Receivable as described in Section 2.3 below, (iv) obligations arising under any bonus payable to Dana Hallberg or any other employee of Seller or Company as a result of the transfer of the ownership of the Company, (v) obligations under Seller' s Stock Options previously granted to any Company employees, (vi) bonuses earned by Dana Hallberg and Jeannie Eliott or any other employees of the Company for fiscal years ending on or before August 31, 2005, (vii) a pro rata portion, i.e., 28/31sts, of the monthly bonuses for the month of August 2005, earned pursuant to plans identified on Schedule 2.2 (the " August Bonuses" ), (viii) workers compensation claims related to periods prior to the Closing Date, (ix) professional liability claims related to periods prior to the Closing Date, (x) group health insurance costs related to periods prior to the Closing Date, (xi) obligations under any of the Contracts (as defined in Section 6.12 below), except to the extent such obligations relate to Buyer' s operation of the Business on or after the Effective Time, (xii) obligations under any Employee Contracts, (xiii) payroll and welfare benefits through the Effective Time for all employees of the Company and for the Schedule 6.20 Employees, (ix) litigation arising out of or related to the operations of the Company or of the Business prior to the Closing Date (collectively, " Seller Assumed Liabilities" ). The August Bonuses will not be included in the calculation of Working Capital and payment thereof shall be handled as set forth in the Transition Services Agreement, which is to be entered into by Buyer, Seller and the Company effective as of the Closing Date.


Section 2.3 Intercompany Receivable . Seller and Buyer acknowledge and agree that there is an intercompany account receivable (the " Intercompany Receivable" ) that is owed to the Company by Seller, but that, immediately prior to the Closing Date, the Intercompany Receivable shall be canceled and Seller shall not be required to pay such account receivable to the Company, provided that Seller shall be responsible for any tax liability of Seller or the Company resulting from such nonpayment.


Section 3. Purchase Price . The Purchase Price shall be Eight Million Three Hundred Thousand and NO/100 Dollars ($8,300,000), except as may be adjusted pursuant to Section 4.3, and shall be payable as follows:

Section 3.1 Cash at Closing . Four Million Two Hundred Thousand and NO/100 Dollars ($4,200,000) shall be payable to Seller by wire transfer of immediately available funds at Closing.

Membership Interest Purchase Agreement 3.

Section 3.2 Note A . Two Million One Hundred Thousand and NO/100 Dollars ($2,100,000) shall be payable by Buyer' s execution and delivery at Closing of Buyer' s Promissory Note in the face amount thereof (" Note A" ). Note A shall not bear interest and shall be due and payable in full six months after the Closing Date. Note A shall be in form and substance substantially the same as Exhibit 3.2 hereto.


Section 3.3 Note B . Two Million and NO/100 Dollars ($2,000,000) shall be payable by Buyer' s execution and delivery at Closing of Buyer' s Promissory Note in the face amount thereof (" Note B" ). Note B shall bear interest at a floating rate of interest equal to the lesser of (i) the Prime Rate as set forth in The Money Rates Section of The Wall Street Journal, as it may be adjusted from time to time, or (ii) the maximum lawful rate of interest permitted to be charged thereon under the laws of the State of Texas (the " Maximum Rate" ). Note B shall provide for twelve (12) quarterly payments of principal each in the amount of One Hundred Sixty Six Thousand Six Hundred Sixty Six and 66/100 Dollars ($166,666.66), together with interest on the unpaid principal balance calculated as provided in Note B. The first payment of interest and principal shall be due and payable on the first day of the first month after the Closing Date and the last such payment due thirty-six months after the Closing Date. Note B shall be in form and substance substantially the same as Exhibit 3.3 hereto.


Section 3.4 Sun Guaranty . Each of Note A and Note B shall be guaranteed by Buyer' s parent, Sun Healthcare Group, Inc. (" Sun" ) pursuant to a guaranty in form and substance substantially the same as that attached hereto as Exhibit 3.4 (the " Sun Guaranty" ).


Section 3.5 Purchase Price Allocation . Buyer and Seller shall cooperate in a commercially reasonable manner to agree upon a purchase price allocation within thirty (30) days after the Closing.


Section 4. Closing .


Section 4.1 Escrow Date and Closing Date . On or before August 22, 2005 (the " Escrow Date" ), all of the items set forth in Section 4.2 shall be delivered to Strasburger & Price, LLP, Attention: Patrick Owens, Esq., 901 Main Street, Suite 4400, Dallas, Texas 75202 (the " Escrow Agent" ) to be held in escrow and released on August 29, 2005 (the " Closing Date" ) upon satisfaction of the items in Section 4.3. The closing of the purchase of the Interests contemplated hereby (the " Closing" ) shall be effective at 12:01 a.m. on the Closing Date (the " Effective Time" ).

Section 4.2 Escrow Transactions . On or before the Escrow Date the following documents (collectively, the " Escrowed Documents" ), all of which shall provide they are effective as of the Closing Date, shall be delivered to Escrow Agent to be held until the Closing date and then released to the other party, subject to the provisions of Section 4.3:

(a) Buyer and Seller shall each deliver four (4) executed copies of this Agreement.


(b) Seller shall deliver any certificates then held by Seller evidencing the Interests duly endorsed for transfer to the Buyer or, if such certificates do not exist, an Assignment of Membership Interest in the form attached hereto as Exhibit 4.2(b) . Membership Interest Purchase Agreement 4.

(c) Buyer shall deliver Note A duly executed by Buyer.

(d) Buyer shall deliver Note B duly executed by Buyer.

(e) Buyer shall deliver the Sun Guaranty duly executed by Sun.

(f) Seller shall deliver copies of the written resignations effective as of the Closing Date of each of the officers of the Company.


(g) Seller shall deliver an executed a Non-Competition and Non-Solicitation Agreement in the form attached hereto as Exhibit 4.2(g) .

(h) Seller shall deliver a certified copy of the Certificate of Formation of Company and a good standing certificate for Company dated no earlier than thirty (30) days prior to the Closing Date issued by the Delaware Secretary of State or other applicable governmental authority.

(i) Seller shall provide any other documentation that effectuates this Agreement or any amendment hereto, as Buyer may request, including proof that all taxes, assessments, wages, and insurance premiums have been paid in full or will be paid in full as of the Closing Date.

(j) Buyer and Seller shall each deliver a signed Transition Services Agreement in the form of Exhibit 4.2(j) , providing for Seller to provide certain services to Buyer after the Closing Date.


(k) Seller shall deliver documentation in the form attached hereto as Exhibit 4.2(k) evidencing that the Company' s lock box has been assigned to Buyer, effective as of the Closing, and that the assignment has been accepted by the bank at which the lock box is maintained.


(l) Seller shall deliver the executed consents (the " Third Party Consents" ) for the Contracts identified on Schedule 4.2(l) .

(m) Seller shall deliver a release of the Pledge of the Membership Interests to JPMorgan Chase Bank N.A. (" JPMorgan" ) as agent for various banks, executed on behalf of JPMorgan.


(n) Seller shall deliver UCC Financing Statement Amendments executed by JPMorgan as agent for the secured parties, terminating the UCC-1 financing statements filed with the Secretary of State of Delaware on 7/8/02 as document numbers 21652662 and 21653157 and naming the Company as the debtor.


(o) Buyer, Seller and Company shall each deliver four (4) executed copies of the Assumption Agreement in the form attached hereto as Exhibit 2.2 .

Membership Interest Purchase Agreement 5.

Section 4.3 Closing Date . On the Closing Date, upon Escrow Agent' s receipt of all of the following, Escrow Agent shall release the Escrowed Documents to Buyer or Seller, as appropriate:

(a) Seller shall deliver an executed Certificate in the form of Exhibit 4.3(a) , affirming that all representations and warranties made by Seller in this Agreement are true and correct as of the Closing Date, and that the Seller' s Conditions to Close in Section 5.2 have been satisfied or waived;

(b) Buyer shall deliver an executed Certificate in the form of Exhibit 4.3(b) , affirming that all representations and warranties made by Buyer in this Agreement are true and correct as of the Closing Date, and that the Buyer' s Conditions to Close in Section 5.1 have been satisfied or waived; and

(c) Buyer shall have wired to Seller Four Million Two Hundred and No/100 Dollars ($4,200,000.00), which constitutes the portion of the Purchase Price due to Seller in cash at Closing.


If all of the foregoing does not occur by 5:00 p.m. Central time on the Closing Date, Escrow Agent shall return the Escrowed Documents to the party who delivered them to Escrow Agent.


Section 4.4 Working Capital Settlement.

(a) As used herein, the term " Working Capital" shall mean the " Net, Accounts Receivable" , " Other Receivables Other" , and " Prepaids Rent-Leased Space" less the " Liabilities Accrued Expenses Other" as of the Closing Date, as determined in accordance with generally accepted accounting principles, consistently applied (" GAAP" ), including the methods and practices as historically applied by the Company prior to the Closing. Notwithstanding the foregoing, the " Net, Accounts Receivable" for purposes of calculating Working Capital shall only include those accounts receivable that were outstanding on the Closing Date and were collected by the Company on or before December 31, 2005. Seller will retain " Cash and Current Assets-Other" and will pay all liabilities that relate to a period of time ending on or before the Effective Time. If the Company gets an invoice after the Effective Time that covers a period that includes the Effective Time, Horizon would be liable for and pay its prorata portion of the invoice relating to the period prior to the Effective Time.


(b) Buyer agrees to use commercially reasonable good faith efforts to collect all outstanding accounts receivable on the Closing Date and shall use reasonable efforts to notify Seller if any account debtors dispute any of these receivables. All collections after the Closing Date shall be applied first to the oldest outstanding invoice of the payor that was included in accounts receivable on the Closing Date unless (i) the payor has objected in writing to any specific invoice, or (ii) it is clear that the payor intends the payment to apply to a specific invoice, either because the payor has designated the invoice in writing or because the amount of the payment matches the amount of an invoice. Buyer acknowledges that the Company' s accounts receivable include amounts for services that have been provided by the Company but which have not yet been invoiced.

Membership Interest Purchase Agreement 6.

(c) Any accounts receivable that were outstanding on the Closing Date and remain outstanding on December 31, 2005 shall be assigned to Seller. Seller recognizes that some of the account debtors on these accounts may be ongoing customers of the Company, and Seller agrees to use only those collection efforts that it uses for its current customers. Buyer agrees to cause the Company to provide Seller with reasonable access to or copies of information reasonably required by Seller to respond to disputes raised by account debtors on the assigned accounts.

(d) On or before January 10, 2006, Buyer shall deliver to Seller its determination of Working Capital. Each Party shall have full access to the financial books and records pertaining to the Company to confirm or audit Working Capital computations. Should Seller disagree with Buyer' s determination of Working Capital, Seller shall notify Buyer in writing within fifteen (15) days after Buyer' s delivery of its determination of Working Capital and state the basis for its disagreement. If Seller and Buyer fail to agree within thirty (30) days after Seller' s delivery of notice of disagreement on the amount of Working Capital, such disagreement shall be resolved in accordance with the procedures set forth in Section 4.3(d), which shall be the sole and exclusive remedy for resolving disputes relative to the determination of Working Capital. The Purchase Price shall be increased or decreased based on the difference between the amount of the Working Capital and Two Million Four Hundred Twenty-Three Thousand Eight Hundred Twenty-Eight and No/100 Dollars ($2,423,828.00) (the " Base Amount" ). Within five (5) business days after determination thereof, any excess of actual Working Cap ...