OVERVIEW OF THE DEAL PROCESS: A ROADMAP THROUGH THE PAPER JUNGLE

1. OVERVIEW OF THE DEAL PROCESS: A ROADMAP THROUGH THE PAPER JUNGLE a presentation for American Health Lawyers Association’s Transactions Seminar Nashville, April 25, 2013 Michael F. Schaff, Esq. Wilentz, Goldman & Spitzer, P.A. (732) 855-6047 mschaff@wilentz.com John R. Washlick, Esq. Buchanan Ingersoll & Rooney PC (215) 665-3950john.washlick@bipc.com

2. Agenda Pre-Transaction Considerations Non-Disclosure/Confidentiality/Evaluation Material Agreements Letter of Intent/Term Sheet Choosing the Appropriate Acquisition Model Valuation and FMV Due Diligence Typical Contract Provisions Hidden Risks of Boilerplate Provisions Controlling the Process and Managing Expectations Post-Closing Transaction Issues 2

3. Pre-Transaction Considerations • Socializing the Deal • Is the deal doable? • Cultural/Mission compatibility • Demystifying ethical and religious directives (ERDs) • Locality – Politics in the Local Market • Aligning strategic goals • Synergies and expansion of clinical services • Skilled leadership and management 3

4. Non-Disclosure/Confidentiality/Evaluation Material Agreements • Generally • Definition of Confidential Information • Nonpublic, confidential & proprietary information • Will you need to specifically stamp “Confidential”? • Does it matter who discloses it? • employees, attorneys, accountants, agents • Format of disclosure? • written, electronic. oral or tour of facilities 4

5. Non-Disclosure/Confidentiality/Evaluation Material Agreements • Exclusions from Confidentiality, information which: • was known to the purchaser before the receipt of such information; • becomes known publicly other than through the purchaser; • is learned or developed by the purchaser independent of the seller’s information; and • which becomes known to the purchaser on a non-confidential basis from a source that is not prohibited from disclosing such information. 5

6. Non-Disclosure/Confidentiality/Evaluation Material Agreements • Prohibited Use • limit to evaluate for the transaction • not use for any purpose • not disclose to 3rd parties • What if the purchaser is compelled by Court to disclose? • give Seller sufficient notice so can attempt to obtain a protective order • Time Period to keep Confidential • Right to obtain Temporary Restraining Order or Injunction on Breach • Venue & Choice of Law 6

7. Non-Disclosure/Confidentiality/Evaluation Material Agreements • Return or destruction of information on termination • Non-solicitation • Employees • Customers/Facilities • Non-compete? • Standstill Provision 7

8. Letter of Intent/Term Sheet • Generally • Sets out material Terms and schedule • Structure • Asset Sale • Stock or Membership Interest sale • Price • Fixed Price • Formula Price • Payment Terms • Collateral 8

9. Letter of Intent/Term Sheet No-Shop Non-solicitation Publicity Closing Date Contingencies Choice of law Confidentiality Binding Provisions 9

10. Choosing the Appropriate Acquisition Model • Typical Models • Non-Profit/Tax-Exempt Parent/Holding Co. • For-Profit Corporation • Limited Liability Company • Joint Operating Company • Joint Venture • Results of due diligence my affect ultimate model 10

11. Valuation and FMV • Fact NOT Law • Legal Significance • Tax • Tax-Exemption • Allocation of Purchase Price • Fraud and Abuse • Stark • Anti-Kickback Statute • FMV v. Commercially Reasonable • Review -- Do Not ASSUME Accuracy 11

12. Due Diligence • Generally • It’s all about Disclosure • Identification of Assets/Business • Tangible Assets • fixtures, furniture, equipment, cash, a/r, deposits, bank accounts, leases, real estate, inventory, supplies, software • Intangible Assets • Goodwill, name, telephone #, website, intellectual property 12

13. Due Diligence • Identification of Liabilities • Lines of Credit, Loans • Equipment & real estate leases • Accounts Payable • Compliance Audits • Environmental Issues • Employment Issues 13

14. Due Diligence • Identification of Agreements • Leases • Consulting and Employment • Payer/Hospital Agreements • Personal Guarantees • Assignability 14

15. Due Diligence • Regulatory Issues • Governmental/CMS Required Approvals (CHOW, State AG/Court, State Licenses) • Anti-Trust (HSR Threshold = $70.9 Million) • Tax-Exemption • Fraud & Abuse Issues -- Existing Relationships • Space Leases – expired, unsigned, undated, etc. • Physician Employment Agreements • Other Relationships with Physicians – medical director arrangements, unwritten financial relationships • Relationships with other referral sources 15

16. Due Diligence • Regulatory Issues • What do you do if you identify a potential problem? • Indemnification provisions – may not be practical depending upon parties involved or structure of transaction. • Self-disclose prior to closing – close over or await resolution • Reps and Warranties NOT a substitution for due diligence 16

17. Typical Key Contract Provisions • Identification of what is being Sold • Purchase Price • Deposits • Adjustments • Earn outs • Working capital adjustments • Holdbacks/Escrow • Bulk Sale 17

18. Typical Key Contract Provisions • Payment Terms • Collateral • Representations and Warranties • Indemnification • Caps/baskets/buckets • Time limits • Closing Conditions 18

19. Typical Key Contract Provisions • Labor • Retention of key employees, • Layoffs/Severance, • COBRA obligations, • WARN Act • Third Party Consents • Restrictive Covenants • Survival of Representations and Warranties • ERD • Preservation of 501(c)(3) Status 19

20. Hidden Risks of Boilerplate Provisions • Say what you mean, mean what you say! • Assignment • Compliance with Laws • Survival of Representations and Warranties • Choice of Law • Forum • Amendment 20

21. Hidden Risks of Boilerplate Provisions • Say what you mean, mean what you say! • Waiver • Notice • Entire Agreement • Third Party Rights • Indemnification • Arbitration 21

22. Controlling the Process and Managing Expectations • Identify Deal Team • In-House • How much do you do In-House? • Multi-Department – When do you bring in The Team? • Legal • CFO / Finance • Compliance • HR • Physicians – Integration/Quality • IT • PR • Board – Committee (Audit) 22

23. Controlling the Process and Managing Expectations • Identify Deal Team • Outside Counsel – Multi Disciplinary • Health Care • Corporate • ERISA • Labor • Anti-Trust • Tax • Bond Counsel • Real Estate • Schedule Tasks and Responsibilities • Schedule Team Meetings for Status Updates 23

24. Post-Closing Transaction Issues • Future Commitments • Capital Expenditures • Physician Recruitment • Service Lines – Consolidation, Termination and Charity Care • Transitional Services -- Wind-Down Seller • Enforcement of Commitments • Foundation/Successor Entity • Attorney General 24

25. QUESTIONS? a presentation for American Health Lawyers Association’s Transactions Seminar Nashville, April 25, 2013 OVERVIEW OF THE DEAL PROCESS: A ROADMAP THROUGH THE PAPER JUNGLE Michael F. Schaff, Esq. Wilentz, Goldman & Spitzer, P.A. (732) 855-6047 mschaff@wilentz.com John R. Washlick, Esq. Buchanan Ingersoll & Rooney PC (215) 665-3950john.washlick@bipc.com