1
Exhibit 2.7
RECAPITALIZATION AGREEMENT, AS AMENDED, BY AND AMONG LIVING CENTERS OF AMERICA,
INC., DEVCON HOLDING COMPANY, LIVING CENTERS-DEVCON, INC., AND GOLDER, THOMA,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ FUND IV, L.P.
2
RECAPITALIZATION AGREEMENT
DATED AS OF AUGUST 30, 1996
BY AND AMONG
LIVING CENTERS OF AMERICA, INC.,
DEVCON HOLDING COMPANY,
LIVING CENTERS-DEVCON, INC.,
AND
GOLDER, THOMA, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ FUND IV, L.P.
3
TABLE OF CONTENTS
[PAGE NUMBERS IN THIS EXHIBIT DO NOT
CORRESPOND TO THIS TABLE OF CONTENTS]
Page
----
1. Authorization and Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1A. Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1B. Purchase and Sale, Financing, Redemption and Related Transactions . . . . . . . . . . . . . . . . . . 3
1C. The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1D. Repurchase Price Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2. Conditions of Purchaser's Obligations at the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2A. Representations and Warranties; Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2B. Amendment of Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2C. Amendment of the Company's Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2D. Stockholders Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2E. Registration Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2F. Securities Law Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2G. Services Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2H. Bank and Subdebt Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2I. Transition Services Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2J. No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2K. Reclassification of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2L. Contribution; Repayment of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2M. Opinion of the Company's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2N. Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2O. Transfer of Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2P. Transfer of Excluded Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2Q. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2R. Compliance with Applicable Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2S. Environmental Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2T. Interim Period Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2U. Company Closing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2V. ▇▇▇▇▇▇ Care Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2W. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2X. Settlement of Interim Period Liabilities and Advances . . . . . . . . . . . . . . . . . . . . . . . . 9
2Y. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2-1. Conditions of the Company's and Existing Stockholders' Obligations at the Closing . . . . . . . . . . . . . 10
2-1A. Representations and Warranties; Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2-1B. Corporate Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2-1C. Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2-1D. Opinion of the Purchaser's Special Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2-1E. Compliance with Applicable Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▇▇
-▇-
▇
[▇▇▇▇ NUMBERS IN THIS EXHIBIT DO NOT
CORRESPOND TO THIS TABLE OF CONTENTS]
2-1F. Stockholders Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2-1G. Registration Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2-1H. Intercompany Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2-1I. Services Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2-1J. Transition Services Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2-1K. Environmental Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2-1L. Solvency Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2-1M. Company Closing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2-1N. ▇▇▇▇▇▇ Care Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2-1O. Settlement of Interim Period Liabilities and Advances . . . . . . . . . . . . . . . . . . . . . . . 13
2-1P. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2-1Q. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3A. Interim Agreements of the Company and the Existing Stockholders . . . . . . . . . . . . . . . . . . 13
3B. Closing Conditions and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3C. Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3D. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3E. LCA Marks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3F. Tax Basis Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3G. Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3H. Transfer of Certain Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3I. Delivery of Offsite Tangible Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3J. Release of Guarantees, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4. Certain Covenants between Effective Time and Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5A. Organization, Corporate Power and Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5B. Capital Stock and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5C. Subsidiaries; Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5D. Authorization; No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5E. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5F. Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5G. No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5H. Absence of Certain Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5I. Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5J. Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5K. Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5L. Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5M. Litigation, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5N. Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5O. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
- ii -
5
[PAGE NUMBERS IN THIS EXHIBIT DO NOT
CORRESPOND TO THIS TABLE OF CONTENTS]
5P. Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5Q. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5R. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5S. Environmental and Safety Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5T. Affiliated Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5U. Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5V. Healthcare Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5W. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5X. Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6. Remedies for Breaches of this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6A. Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6B. Indemnification Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6C. Matters Involving Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6D. Environmental Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6E. Other Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6F. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7A. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7B. Cross Reference to Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8A. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8B. Purchaser's Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8C. Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8D. Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
8E. Consent to Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8F. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8G. Generally Accepted Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8H. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8I. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8J. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8K. Descriptive Headings; Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8L. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8M. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8N. No Strict Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
8O. Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
8P. Termination; Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
8Q. Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
- iii -
6
SCHEDULES
Schedule 2T - Certain Leased Real Property
Schedule 5C - Subsidiaries
Schedule 5E - Financial Statements (to be attached)
Schedule 5F - Liabilities
Schedule 5G - Adverse Change
Schedule 5H - Developments
Schedule 5I - Assets
Schedule 5J - Taxes
Schedule 5K - Contracts
Schedule 5M - Litigation
Schedule 5N - Brokerage
Schedule 5O - Insurance
Schedule 5P - Employees
Schedule 5Q - Employee Benefits
Schedule 5R - Compliance
Schedule 5S - Environmental
Schedule 5T - Affiliated Transactions
Schedule 5U - Real Property
Schedule 5V - Healthcare
Schedule 7A - Liens
EXHIBITS
Exhibit 1A - Terms of Stock
Exhibit 1B - New Board of Directors
Exhibit 2C - Bylaws
Exhibit 2D - Stockholders Agreement
Exhibit 2E - Registration Agreement
Exhibit 2G - Services Agreement
Exhibit 2I - Transition Services Agreement (to be attached)
Exhibit 2M - Opinion of Company's Counsel
Exhibit 2-1C - Opinion of Purchaser's Special Counsel
Exhibit 2-1H - Form of Release
Exhibit 2-1N - ▇▇▇▇▇▇ Care Letter
Exhibit 7A - Exceptions to GAAP
- iv -
7
RECAPITALIZATION AGREEMENT
THIS RECAPITALIZATION AGREEMENT (this "Agreement") is made as
of August 30, 1996, among Living Centers- Devcon, Inc., a Florida corporation
(the "Company"), Golder, Thoma, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ Fund IV, L.P., a Delaware
limited partnership (the "Purchaser"), Living Centers of America, Inc. ("LCA")
and Devcon Holding Company ("Holding"). LCA and Holding are collectively
referred to herein as the "Existing Stockholders." Except as otherwise
indicated herein, capitalized terms used herein are defined in Section 7
hereof.
WHEREAS, Holding sought indications of interest with respect
to an acquisition of the Company;
WHEREAS, in connection with Holdings' solicitation of such
indications of interest, the Purchaser indicated an interest in pursuing a
transaction whereby it would purchase certain equity securities of the Company,
it would arrange for debt financing for the Company, and the Company would
effect a redemption of a substantial majority of the equity securities of the
Company held by Holding;
WHEREAS, in connection with the transactions described above,
the Company desires to reconstitute its capital structure through the
redemption of certain of its outstanding equity securities and the issuance and
sale of certain new equity securities on the terms and subject to the
conditions set forth herein;
WHEREAS, Holding desires to sell certain of its equity
securities of the Company on the terms and subject to the conditions set forth
herein;
WHEREAS, the Purchaser desires to acquire newly-issued equity
securities of the Company on the terms and subject to the conditions set forth
herein;
WHEREAS, prior to the closing of the transactions contemplated
by this Agreement, the Company's existing equity securities will be
recapitalized so that immediately prior to the Closing, the Company's
outstanding equity securities, including securities exercisable for or
convertible into equity securities, will consist solely of 100,000 shares of
Class B Common Stock, par value $.01 per share, all owned by Holding; and
WHEREAS, immediately following the Closing, American
Habilitation Services, Inc., a Delaware corporation will merge with and into
the Company (the "Merger"), with the Company being the surviving corporation
but being renamed "American Habilitation Services, Inc." in connection with
such Merger.
8
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Authorization and Closing.
1A. Authorizations.
(i) Authorization of Recapitalization. Effective
as of the Closing, the New Board of Directors (as defined below) will
approve and ratify this Agreement and the transactions contemplated
hereby and, subject to the terms and conditions herein, Holding shall
have approved the transactions described in Sections 2B and 2K below
in its capacity as a stockholder of the Company.
(ii) Purchaser Stock. The New Board of Directors
shall authorize the issuance and sale to the Purchaser (or its
designees) of an aggregate of 13,900 shares of Class A Preference
Stock for a purchase price of $1,000.00 per share and an aggregate of
70,000 shares of Class C Common for a purchase of $ 1.43 per share,
each having the rights and preferences set forth in Exhibit 1A
attached hereto. The shares of Class A Preference Stock and Class C
Common to be purchased hereunder are collectively referred to herein
as the "Purchaser Stock."
(iii) Redemption. At the Closing, but effective
immediately after the issuance of the Purchaser Stock to the Purchaser
as contemplated by this Agreement, the New Board of Directors (as
defined below) shall authorize the Company's repurchase from Holding
and simultaneous cancellation of 80,000 shares of Class B Common for
an aggregate repurchase price of $47.5 million, reduced
dollar-for-dollar for the amount of the Company's Indebtedness at the
Closing (if any) and subject to further adjustment as set forth in
Section 1D hereof (as adjusted, the "Repurchase Price"). The shares
of Class B Common to be repurchased hereunder are collectively
referred to herein as the "Existing Stock."
(iv) Financing Arrangements. At the Closing, but
effective immediately before the issuance of the Purchaser Stock to
the Purchaser as contemplated by this Agreement, the New Board of
Directors shall authorize the execution, delivery and performance of
the Bank Agreement and Subdebt Agreement (as defined in Section 2H).
(v) Equity Agreements. At the Closing, but
effective immediately after the issuance of the Purchaser Stock to the
Purchaser as contemplated by this Agreement, the New Board of
Directors shall authorize the execution, delivery and performance of
the Equity Agreements.
(vi) Transition Services Agreement. At the
Closing, but effective immediately after the redemption of the
Existing Stock as contemplated by this Agreement, the New Board of
Directors shall authorize the execution, delivery and performance of
the Transition Services ▇▇▇▇▇▇▇▇▇.
- ▇ -
▇
▇▇. ▇▇▇▇▇▇▇▇ and Sale, Financing, Redemption and Related
Transactions.
(i) Purchase and Sale of Purchaser Stock. At the
Closing, subject to the terms and conditions set forth herein, the
Company shall sell to the Purchaser (or its designees), and the
Purchaser (or its designees) shall purchase from the Company, the
number of shares of Class A Preference Stock and Class C Common set
forth in Section 1A(i) hereof for an aggregate purchase price of $14.0
million.
(ii) Financing. At the Closing (effective
immediately before the transaction described in Section 1B(i) above),
subject to the terms and conditions set forth herein, the Company
shall enter into the Bank Agreement and the Subdebt Agreement and
shall, in connection therewith, obtain or have available to it
(subject to the conditions precedent contained therein) loans and
advances totaling at least $35.0 million pursuant thereto.
(iii) Redemption of Existing Stock. At the Closing
(effective immediately after the transactions described in Sections
1B(i) and (ii) above), subject to the terms and conditions set forth
herein, the Company shall repurchase from Holding, and Holding shall
sell to the Company, the number of shares of Class B Common set forth
in Section 1A(ii) hereof for the Repurchase Price, payable as set
forth in Section 1C hereof.
(iv) New Board of Directors. At the Closing
(effective immediately before the transaction described in Section
1B(i) above), the members of the Board of Directors of the Company
serving immediately prior to the Closing shall resign and the Persons
designated on Exhibit 1B hereof shall be elected to the Company's
Board of Directors (the "New Board of Directors").
(v) Related Transactions. At the Closing
(effective immediately after the transactions described in Sections 1B
(i) through (iii) above), the Company, the Purchaser, and Holding, as
appropriate, shall enter into the Equity Agreements.
1C. The Closing. The closing of the purchase and sale of
the Purchaser Stock and redemption of the Existing Stock (the "Closing") shall
take place at the offices of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ (or, at the Purchaser's election, at the offices of Winston &
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇) at 10:00 a.m. on September 6, 1996
or at such other place, on such other date, or at such other time as the
Company and the Purchaser may agree in writing (the "Closing Date"). At the
Closing, (i) the Company shall deliver to the Purchaser (or its designees)
stock certificates evidencing the Purchaser Stock to be purchased by the
Purchaser (or its designees), registered in the Purchaser's (or its designees'
names) upon payment by the Purchaser (or its designees) of the purchase price
therefor by a cashier's or certified check, or by wire transfer of immediately
available funds to such account as is designated by the Company, in the
aggregate amount set forth in Section 1B(i) hereof, (ii) the Company shall
enter into the financing arrangements described in Section 1B(ii) hereof, and
(iii) Holding shall deliver to the Company
- 3 -
10
stock certificates evidencing the Existing Stock to be repurchased from Holding
by the Company upon payment of the Repurchase Price therefor by a cashier's or
certified check, or by wire transfer or immediately available funds to such
account as is designated by Holding.
1D. Repurchase Price Adjustment.
(i) Post-Closing Determination. On the Closing
Date, Holding and its auditors shall perform an inventory and such
other procedures as are reasonably necessary to be performed on such
date in order to enable the Parties to have an accurate and complete
Closing Review. Within 45 days after the Closing Date, Holding and
its auditors will conduct a review (the "Closing Review") of Working
Capital as of the open of business on the Closing Date and will
prepare and deliver to the Purchaser a computation of the amount of
Working Capital (the "Draft Balance Sheet") as of the open of business
on September 1, 1996 (the "Effective Time"). The Purchaser and its
auditors will cooperate fully with Holding and its auditors, and
Holding and its auditors will cooperate fully with the Purchaser and
its auditors, in connection with the Closing Review (including,
without limitation, making all relevant information available for
review and making all relevant personnel available for discussions).
Holding and its auditors shall give the Purchaser and its auditors an
opportunity to observe the Closing Review and shall make available to
such Persons all records and work papers used in preparing the Draft
Balance Sheet. The Purchaser shall be deemed for all purposes hereof
to have agreed with the computation of Working Capital as of the
Effective Time set forth on the Draft Balance Sheet (and such amount
will be conclusive and binding upon the Parties) unless the Purchaser,
within 20 days after receipt of the Draft Balance Sheet, delivers a
notice (an "Objection Notice") to Holding setting forth the
Purchaser's calculation of the disputed amount(s). Holding and the
Purchaser will use reasonable efforts to resolve any disagreements as
to such computations, but if they do not obtain a final resolution
within 20 days after Holding has received the Objection Notice,
Holding and the Purchaser will jointly retain an independent
accounting firm of recognized national standing (the "Firm") to
resolve any remaining disagreements. If Holding and the Purchaser are
unable to agree on the choice of the Firm, the Firm will be a
"big-six" accounting firm selected by lot (after excluding one firm
designated by each of Holding and the Purchaser). Holding and the
Purchaser shall direct the Firm to render a determination within 60
days of its retention, and the Parties and their respective employees
shall cooperate with the Firm during its engagement. The Firm shall
consider only those items and amounts in the Draft Balance Sheet set
forth in the Objection Notice which Holding and the Purchaser are
unable to resolve. The Firm's determination shall be based on the
definition of Working Capital included herein. The determination of
the Firm will be conclusive and binding upon the Parties. The Parties
shall bear the costs and expenses of the Firm based on the percentage
which the portion of the contested amount not awarded to each Party
bears to the amount actually contested by such Party. The amount of
Working Capital as of the Effective Time, as finally determined
pursuant to this Section 1D, is referred to herein as "Actual Working
Capital."
- 4 -
11
(ii) Post-Closing Adjustment. If Actual Working
Capital is greater than $5,483,437 ("Baseline Working Capital"), the
Company shall, within five (5) business days after the determination
thereof, pay to Holding an amount equal to such excess by wire
transfer or delivery of other immediately available funds. If Actual
Working Capital is less than Baseline Working Capital, Holding shall,
within five (5) business days after the determination thereof, pay to
the Company an amount equal to such deficiency by wire transfer or
delivery of other immediately available funds. All such payments
shall be treated as adjustments to the Repurchase Price. Baseline
Working Capital was calculated in the manner set forth on the Latest
Balance Sheet.
Section 2. Conditions of Purchaser's Obligations at the
Closing. The obligation of the Purchaser to purchase and pay for the Purchaser
Stock at the Closing is subject to the satisfaction as of the Closing of the
following conditions (provided, however, that the conditions set forth in
Sections 2W and 2Y shall have been satisfied on or before September 6, 1996 and
provided further that the parties shall have agreed to the form and substance
of the Transition Services Agreement on or before such date):
2A. Representations and Warranties; Covenants. The
respective representations and warranties contained in Section 5 and Section 8B
hereof shall be true and correct in all material respects at and as of the
Closing (not taking into account, for purposes of this condition, any updates
to the Schedules or other disclosures made to the Purchaser pursuant to Section
3A(iv)), and the Company and the Existing Stockholders shall have performed in
all material respects all of the covenants required to be performed by them
hereunder on or prior to the Closing; provided that to the extent the Company
takes any action or fails to take any action during the Interim Period at the
direction of the Purchaser as a result of which any representation or warranty
contained herein become untrue or inaccurate, such untruth or inaccuracy shall
not be taken into account for purposes of this condition.
2B. Amendment of Articles of Incorporation. The
Company's Articles of Incorporation (the "Articles of Incorporation") shall
have been duly amended to include the provisions set forth in Exhibit 1A
hereto, shall be in full force and effect under the laws of the State of
Florida as of the Closing as so amended, and shall not have been further
amended or modified.
2C. Amendment of the Company's Bylaws. The Company's
Bylaws shall have been duly restated as set forth in Exhibit 2C hereto, shall
be in full force and effect as of the Closing as so amended, and shall not have
been further amended or modified.
2D. Stockholders Agreement. The Company, the Purchaser,
Holding and each of the other stockholders of the Company shall have entered
into a stockholders agreement in form and substance as set forth in Exhibit 2D
attached hereto (the "Stockholders Agreement"), and the Stockholders Agreement
shall be in full force and effect as of the Closing.
- 5 -
12
2E. Registration Agreement. The Company, the Purchaser,
Holding and each of the other stockholders of the Company shall have entered
into a registration agreement in form and substance as set forth in Exhibit 2E
attached hereto (the "Registration Agreement"), and the Registration Agreement
shall be in full force and effect as of the Closing.
2F. Securities Law Compliance. The Company shall have
made all filings under all applicable federal and state securities laws to the
extent necessary to consummate the issuance of the Purchaser Stock pursuant to
this Agreement in compliance with such laws without registering the Purchaser
Stock for sale to the public in accordance with such laws.
2G. Services Agreement. The Company and GTCR IV, L.P.,
an Illinois limited partnership, shall have entered into a services agreement,
in form and substance as set forth in Exhibit 2G hereto (the "Services
Agreement"), and the Services Agreement shall be in full force and effect as of
the Closing.
2H. Bank and Subdebt Agreements.
(i) The Company and National Westminster Bank Plc
(the "Bank") shall have entered into a credit agreement and related
documents (collectively, as such agreement and documents are amended,
modified or waived from time to time, the "Bank Agreement") providing
for loans to the Company of up to $40.0 million in form and substance
satisfactory to the Purchaser, the Bank Agreement shall be in full
force and effect as of the Closing and shall not have been amended or
modified, and the Bank shall have advanced not less than $30.0 million
to the Company under the Bank Agreement; and
(ii) the Company and National Westminster Bank Plc
(the "Subdebt Lender") shall have entered into a credit agreement and
related documents (collectively, as such agreement and documents are
amended, modified or waived from time to time, the "Subdebt
Agreement") providing for loans to the Company of up to $10.0 million
in form and substance satisfactory to the Purchaser, the Subdebt
Agreement shall be in full force and effect as of the Closing and
shall not have been amended or modified, and the Subdebt Lender shall
have advanced not less than $5.0 million to the Company under the
Subdebt Agreement; provided that the Purchaser shall use reasonable
efforts to obtain the financing described in the commitment letters
from the Bank and the Subdebt Lender previously provided to the
Company.
2I. Transition Services Agreement. The Company and LC
Management Company, Inc. shall have entered into a transition services
agreement in form and substance satisfactory to the Purchaser and the Existing
Stockholders which will on the Closing Date be attached hereto as Exhibit 2I
(the "Transition Services Agreement") and the Transition Services Agreement
shall be in full force and effect as of the Closing.
- 6 -
13
2J. No Material Adverse Change. Since June 30, 1996, the
Company shall have not suffered a change in its business, assets, condition
(financial or otherwise), prospects or relations with its customers, suppliers
or employees that would be reasonably expected to have a Material Adverse
Effect (a "Material Adverse Change").
2K. Reclassification of Stock. The Company's existing
equity securities will have been recapitalized so that immediately prior to the
Closing the Company's outstanding equity securities, including securities
exercisable for or convertible in equity securities, will consist solely of
100,000 shares of Class B Common Stock, par value $.01 per share, all owned by
Holding.
2L. Contribution; Repayment of Indebtedness. All
intercompany liabilities owing from the Company to the Existing Stockholders or
their Affiliates as of the close of business on the day preceding the Effective
Time will be reclassified to capital of the Company (i.e., after the Closing
the Company shall not have any obligation to repay such intercompany
liabilities) and all of the Company's obligations relating to Indebtedness
accrued as of the close of business on the day preceding the Effective Time,
including, but not limited to, capitalized leases, accrued interest and
prepayment premiums accrued as of the close of business on the day preceding
the Effective Time will have been repaid in full.
2M. Opinion of the Company's Counsel. The Purchaser
shall have received from general or special counsel for the Company and the
Existing Stockholders reasonably acceptable to the Purchaser, opinions with
respect to the matters set forth in Exhibit 2M attached hereto, which shall be
addressed to the Purchaser and the Bank, dated the date of the Closing and in
form and substance reasonably satisfactory to the Purchaser.
2N. Proceedings. All corporate and other proceedings
taken or required to be taken by the Company and the Existing Stockholders in
connection with the transactions contemplated hereby to be consummated at or
prior to the Closing shall have been taken.
2O. Transfer of Real Property.
(i) The Existing Stockholders shall have caused
(i) the contribution, transfer and conveyance to the Company of each
parcel of real property used by the Company but owned by LCA or any
Subsidiary of LCA other than the Company (each, a "Real Property
Transferor"), each transfer of which shall be by general warranty deed
(unless the Real Property Transferor did not obtain title insurance in
connection with its acquisition of such parcel, in which case such
transfer shall be by special warranty deed), and (ii) the cancellation
of all leases concerning such owned real property to which the Company
is a party; provided that each such general warranty deed shall
specifically provide that the Company's recovery against the Real
Property Transferor in any way related to title matters concerning
prior title holders including, without limitation, defects, transfers
or encumbrances arising or existing prior to the date title vested in
such Real Property
- 7 -
14
Transferor as shown in such title insurance policy shall be limited to
the Real Property Transferor's recovery (if any) against the
applicable title insurer.
(ii) The Existing Stockholders shall have caused
the contribution, transfer and conveyance to the Company of each
parcel of real property used by the Company, but leased from a third
party to LCA or any Subsidiary of LCA other than the Company, by
assignment of lease if permitted by the particular lease without the
necessity of obtaining the lessor's consent; provided that if an
assignment of lease is prohibited by the terms of such lease but a
sublease is permitted by the terms of such lease, such transfer shall
be by sublease.
2P. Transfer of Excluded Assets and Liabilities. The
Existing Stockholders shall have caused the termination of the lease of the
Company's Retama Manor-San Antonio South facility and the distribution,
transfer and conveyance to, and the assumption by, a Subsidiary of LCA (other
than the Company or any of its Subsidiaries) of all other assets and
liabilities (whether known or unknown, accrued, absolute, contingent,
unliquidated or otherwise, whether due or to become due and regardless of when
asserted) arising out of or relating to the Company's Retama Manor- San Antonio
South facility (collectively, the "Excluded Assets and Liabilities").
2Q. Expenses. At the Closing, the Company shall have
reimbursed the Purchaser for, or paid directly, the fees and expenses of the
Purchaser's special counsel as provided in Section 8A hereof.
2R. Compliance with Applicable Laws. The purchase of
Purchaser Stock by the Purchaser hereunder shall not be prohibited by any
applicable law or governmental rule or regulation and shall not subject the
Purchaser to any material penalty, liability or, in the Purchaser's reasonable
judgment, other materially onerous condition under or pursuant to any
applicable law or governmental rule or regulation, and the purchase of the
Purchaser Stock by the Purchaser hereunder shall be permitted by laws, rules
and regulations of the jurisdictions and governmental authorities and agencies
to which the Purchaser is subject.
2S. Environmental Report. The Phase I Environmental
Report (the "Environmental Report") to be prepared by the Purchaser's
environmental consultant concerning the following Facilities: ▇▇▇▇▇▇ Care
Center, ▇▇▇▇▇▇▇ Oaks Development Center, San Augustine Nursing and Development
Center, Green Acres Convalescent and Development Center, ▇▇▇▇▇▇▇▇ Development
Center and the Human Development Center, shall not disclose environmental
issues with respect to which the aggregate Adverse Consequences are reasonably
anticipated to exceed $500,000.
2T. Interim Period Decisions. The Purchaser shall be
satisfied with all significant decisions relating to the Company and its
Subsidiaries made during the Interim Period pursuant to Section 4(i)(a) below.
- 8 -
15
2U. Company Closing Documents. The Company shall have
delivered to the Purchaser all of the following documents:
(i) an Officer's Certificate, dated the date of
the Closing, stating that the conditions specified in Sections 2A, 2B,
2C, 2J, 2K, 2L, 2N (except to the extent the proceedings referred to
therein shall be by the New Board of Directors), 2O and 2P, inclusive,
have been fully satisfied;
(ii) certified copies of (a) the resolutions duly
adopted by the Company's Board of Directors authorizing the execution,
delivery and performance of this Agreement and each of the other
agreements contemplated hereby, the filing of the amendment to the
Articles of Incorporation referred to in Section 2B, the amendment to
the Company's Bylaws referred to in Section 2C, the issuance and sale
of the Purchaser Stock and the consummation of all other transactions
contemplated by this Agreement, and (b) the resolutions duly adopted
by the Company's stockholders adopting the amendment to the Articles
of Incorporation referred to in Section 2B;
(iii) certified copies of the amended Articles of
Incorporation, and the Company's amended Bylaws, each as in effect at
the Closing;
(iv) copies of all third party and governmental
consents, approvals and filings (other than as to matters described in
Section 5V) specifically required of the Existing Stockholders or the
Company to be obtained prior to the Closing in connection with the
consummation of the transactions hereunder (including, without
limitation, all waivers of all preemptive rights and rights of first
refusal);
(v) at the Company's sole cost and expense,
copies of all title insurance policies currently maintained by the
Company or any Affiliate of the Company (the "Title Policies") for
each parcel of Owned Real Property and Leased Real Property
(collectively, the "Real Property") insuring title to the Real
Property in the Company or such Affiliate of the Company;
(vi) at the Company's sole cost and expense,
copies of all Real Property surveys in the possession of the Company
or any Affiliate of the Company;
(vii) an estoppel certificate in such form as shall
be reasonably acceptable to Purchaser with respect to each parcel of
Leased Real Property identified on the Schedule 2T - Certain Leased
Real Property attached hereto; and
(viii) such other documents relating to the
transactions contemplated by this Agreement as the Purchaser may
reasonably request.
- 9 -
16
2V. ▇▇▇▇▇▇ Care Agreement. The Company and the Existing
Stockholders shall have entered into the side letter relating to the ▇▇▇▇▇▇
Care Center in the form of Exhibit 2-1N attached hereto and such agreement
shall be in full force and effect.
2W. Financial Statements. The Existing Stockholders shall
have provided the Purchaser with the financial statements referred to in
Section 5E and the Purchaser shall be satisfied with such financial statements.
2X. Settlement of Interim Period Liabilities and
Advances. At the Closing, the Company and the Existing Stockholders, as
appropriate, shall have paid, in cash, the Interim Settlement Amount as
provided in Section 4(iii).
2Y. Insurance. On or before September 6, 1996, the
Purchaser, the Company and the Existing Stockholders shall have mutually agreed
as to the payment and allocation of costs and risks relating to retention of
uninsured claims, as among the Company and the Existing Stockholders,
associated with insurance (including, without limitation, health, life,
accident, dental, disability, and general liability insurance), workers'
compensation, and claims that would generally be covered by such policies.
Any condition specified in this Section 2 shall be waived if consented to in
writing by the Purchaser or if the Purchaser proceeds with the Closing with
knowledge that such condition has not been satisfied.
Section 2-1. Conditions of the Company's and Existing
Stockholders' Obligations at the Closing. The obligation of the Company to
issue the Purchaser Stock and the obligation of the Existing Stockholders to
sell the Existing Stock to the Company is subject to the satisfaction as of the
Closing of the following conditions (provided, however, that the conditions set
forth in Sections 2-1P and 2-1Q shall have been satisfied on or before
September 6, 1996 and provided further that the parties shall have agreed to
the form and substance of the Transition Services Agreement on or before such
date):
2-1A. Representations and Warranties; Covenants. The
representations and warranties contained in Section 8B shall be true and
correct in all material respects at and as of Closing.
2-1B. Corporate Proceedings. The Company's Board of
Directors shall have resigned and a New Board of Directors shall have been
elected. The New Board of Directors shall have authorized the execution of the
Bank Agreement, the Subdebt Agreement, the Services Agreement, the Solvency
Certificate and the redemption of the Existing Stock from the Existing
Stockholders utilizing the proceeds from the sale of the Purchaser Stock and
the financing received pursuant to the Bank Agreement and the Subdebt
Agreement.
- 10 -
17
2-1C. Financing.
(i) The Company and the Bank shall have entered
into the Bank Agreement providing for loans to the Company of up to
$40.0 million, the Bank Agreement shall be in full force and effect as
of the Closing and shall not have been amended or modified, and the
Bank shall have advanced not less than $30.0 million to the Company
under the Bank Agreement.
(ii) The Company and the Subdebt Lender shall have
entered into the Subdebt Agreement providing for loans to the Company
of up to $10.0 million, the Subdebt Agreement shall be in full force
and effect as of the Closing and shall not have been amended or
modified, and the Subdebt Lender shall have advanced not less than
$5.0 million to the Company under the Subdebt Agreement.
(iii) The Purchaser shall have purchased the
Purchaser Stock and in exchange therefor paid the Purchase Price in
immediately available funds.
2-1D. Opinion of the Purchaser's Special Counsel. The
Company and the Existing Stockholders shall have received from ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇, special counsel for the Purchaser, an opinion with respect to the
matters set forth in Exhibit 2-1C attached hereto, which shall be addressed to
the Company, the Existing Stockholders and the Bank, dated the date of the
Closing and in form and substance reasonably satisfactory to the Company and
the Existing Stockholders.
2-1E. Compliance with Applicable Laws. The issuance of
Purchaser Stock to the Purchaser hereunder and the subsequent purchase by the
Company of the Existing Stock shall not be prohibited by any applicable law or
governmental rule or regulation and shall not subject the Company or the
Existing Stockholders to any material penalty, liability or, in the Company or
the Existing Stockholders' reasonable judgment, other materially onerous
condition under or pursuant to any applicable law or governmental rule or
regulation, and the issue of the Purchaser Stock to the Purchaser and the
subsequent purchase by the Company of the Existing Stock hereunder shall be
permitted by laws, rules and regulations of the jurisdictions and governmental
authorities and agencies to which the Company or the Existing Stockholders are
subject.
2-1F. Stockholders Agreement. The Company, the Purchaser,
Holding and each of the other stockholders of the Company shall have entered
into the Stockholders Agreement, and the Stockholders Agreement shall be in
full force and effect as of the Closing.
2-1G. Registration Agreement. The Company, the Purchaser,
Holding and each of the other stockholders of the Company shall have entered
into the Registration Agreement, and the Registration Agreement shall be in
full force and effect as of the Closing.
- 11 -
18
2-1H. Intercompany Claims. The Company and its Subsidiary
shall have executed a Release, in form and substance as set forth in Exhibit
2-1H attached hereto and such Release shall be in full force and effect at
Closing.
2-1I. Services Agreement. The Company and GTCR IV, L.P.,
an Illinois limited partnership, shall have entered into the Services
Agreement, and the Services Agreement shall be in full force and effect as of
the Closing.
2-1J. Transition Services Agreement. The Company and LC
Management Company, Inc. shall have entered into the Transition Services
Agreement, and the Transition Services Agreement shall be in full force and
effect as of the Closing.
2-1K. Environmental Report. The Environmental Report shall
not disclose environmental issues with respect to which the aggregate Adverse
Consequences are reasonably anticipated to exceed $500,000.
2-1L. Solvency Certificate. The Company shall have
delivered to the Existing Stockholders a certificate of the Company (the
"Solvency Certificate") authorized by the New Board of Directors and executed
by ▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, in their capacities as Chief Executive
Officer of the Company and Chief Financial Officer of the Company,
respectively, stating that:
(i) "the Company is solvent as of the Closing
and shall not become insolvent as a result of the consummation of the
transactions contemplated by this Agreement; the Company is, and after
giving effect to the transactions contemplated by this Agreement shall
be, able to pay its debts as they become due, and the Company's
property now has, and after giving effect to the transactions
contemplated hereby shall have, a fair salable value greater than the
amounts required to pay its debts (including a reasonable estimate of
the amount of all contingent liabilities); the Company has adequate
capital to carry on its business, and after giving effect to the
transactions contemplated by this Agreement, the Company shall have
adequate capital to conduct its business; and no transfer of property
is being made and no obligation is being incurred in connection with
the transactions contemplated by this Agreement with the intent to
hinder, delay or defraud either present or future creditors of the
Company;"
(ii) attached to such certificate are true and
correct records of the proceedings of the New Board of Directors
reflecting the New Board of Directors' determination that the Company
has sufficient capital and surplus to effect the purchase of the
Existing Stock as contemplated hereby in compliance with applicable
corporate law and the Company meets the solvency and other standards
described in Section 2-1L(i) above and ratifying and approving the
execution, delivery and performance of this Agreement by the Company;
and
- 12 -
19
(iii) attached to such certificate is an
acknowledgment of the Purchaser to the effect that it will not in the
future dispute, and will not in the future take a position which is
inconsistent with, the Company's certifications and determinations
referenced in Sections 2-1L(i) and (ii) above.
2-1M. Company Closing Documents. The Company shall have
delivered to the Existing Stockholders all of the following documents:
(i) an officer's certificate, dated the date of
Closing, stating that the conditions specified in Sections 2-1A
through 2-1L, inclusive, have been fully satisfied;
(ii) certified copies of (a) the resolutions duly
adopted by the Company's New Board of Directors authorizing the
execution, delivery and performance of the documents and certificates
described in Section 2-1B above, and (b) the resolutions duly adopted
by the Company's then stockholders adopting the redemption of the
Existing Stock and approving the actions of the New Board of Directors
described in Section 2-1B above;
(iii) copies of all third party and governmental
consents, approvals and filings specifically required to be obtained
by Purchaser and the Company hereunder in connection with the
consummation of the transactions hereunder;
(iv) the Solvency Certificate as provided in
Section 2-1L above; and
(v) such other documents relating to the
transactions contemplated by this Agreement as the Existing
Stockholders may reasonably request.
2-1N. ▇▇▇▇▇▇ Care Agreement. The Company and the Existing
Stockholders shall have entered into the side letter relating to the ▇▇▇▇▇▇
Care Center in the form of Exhibit 2-1N attached hereto and such agreement
shall be in full force and effect.
2-1O. Settlement of Interim Period Liabilities and
Advances. At the Closing, the Company and the Existing Stockholders, as
appropriate, shall have paid, in cash, the Interim Settlement Amount as
provided in Section 4(iii).
2-1P. Insurance. On or before September 6, 1996, the
Purchaser, the Company and the Existing Stockholders shall have mutually agreed
as to the payment and allocation of costs and risks relating to retention of
uninsured claims, as among the Company and the Existing Stockholders,
associated with insurance (including, without limitation, health, life,
accident, dental, disability, and general liability insurance), workers'
compensation, and claims that would generally be covered by such policies.
2-1Q. Financial Statements. The condition to the
Purchaser's obligation set forth in Section 5W shall have been satisfied.
- 13 -
20
Any condition specified in this Section 2-1 shall be waived if consented to in
writing by the Company and the Existing Stockholders or if the Company and the
Existing Stockholders proceed with the Closing with knowledge that such
condition has not been satisfied.
Section 3. Covenants.
3A. Interim Agreements of the Company and the Existing
Stockholders. The Company covenants and agrees that prior to the Closing,
unless the Purchaser agrees otherwise in writing, or as otherwise expressly
contemplated or permitted by this Agreement, the Company will conduct its
business only in, and the Existing Stockholders will cause the Company to
conduct its business only in, the ordinary course of business, in substantial
accordance with all Legal Requirements and the Company's past custom and
practice. Without limiting the generality of the preceding sentence, each such
party covenants that except as contemplated hereby:
(i) the Company will not, directly or indirectly,
(a) sell, pledge, dispose of or encumber
any of its material assets, except in the ordinary course of
business consistent with the Company's past practice,
(b) engage in any activity which would
delay the payment of its accounts payable, or reduce or
otherwise restrict the amount of supplies on hand, other than
in the ordinary course of the conduct of such business,
(c) acquire (by merger, exchange,
consolidation, acquisition of stock or assets or otherwise)
any corporation, partnership, joint venture or other business
organization or division or material assets thereof,
(d) take any action with respect to the
grant of any bonuses, salary increases, severance or
termination pay, except in the ordinary course of business
consistent with the Company's past practice,
(e) declare, set aside, or pay any
dividend or make any distribution with respect to the capital
stock of the Company or redeem, purchase, or otherwise acquire
any of the capital stock of the Company except insofar as is
necessary to effect contribution of all intercompany
liabilities owing from the Company to the Existing
Stockholders or their Affiliates to capital of the Company, to
eliminate all cash balances (other than Interim Cash) and
except for the repurchase of the Existing Stock contemplated
by Section 1 above,
(f) take any action within its control
which would render, or which could reasonably be expected to
render, any representation or warranty made by the Company or
any Existing Stockholder in this Agreement untrue at (or at
any time prior to) the Closing,
- 14 -
21
(g) adopt or amend any employee benefit
or welfare plan insofar as such plan relates directly to the
Company's employees other than to provide the same treatments
and benefits to the Company's employees as are applied or
extended to employees of LCA and its consolidated
subsidiaries,
(h) engage in any activity which is
intended to delay or hinder the Company's capital expenditures
and commitments with a view to, or in anticipation of a
transaction of the type contemplated by Section 3C with the
Purchaser or any other Person, or
(i) enter into or modify, or propose to
enter into or modify, any agreement, arrangement or
understanding to take any of the actions referred to in
clauses (a) through (h) above;
(ii) the Company and each Existing Stockholder
will use its best efforts to cause the Company's current insurance
policies not to be canceled or terminated, and not to permit any of
the coverage pursuant to any such policy to lapse, unless at the time
of such termination, cancellation or lapse there is in full force and
effect a replacement policy which provides coverage in an amount which
is not less than the amount of the coverage pursuant to the canceled,
terminated or lapsed policy;
(iii) the Company and each Existing Stockholder
will:
(a) use commercially reasonable efforts
to (A) preserve intact the Company's organization, (B) keep
available the services of the key employees that are employed
at the Company's facilities, (C) maintain satisfactory
relationships with the Company's material suppliers and
customers and other Persons having business relationships with
the Company, and (D) maintain the Company's facilities and
assets in their existing condition, ordinary wear and tear
excepted,
(b) upon reasonable request, confer with
representatives of the Purchaser and the Purchaser's present
and proposed financing sources regarding the Company and its
business, and
(c) notify the Purchaser of any change
in the normal course of the Company's business or in the
condition of the Company's assets and any governmental or
third party complaint, investigation or hearing (or
communication indicating that such a complaint, investigation
or hearing is or may be contemplated) if such change,
complaint, investigation or hearing could reasonably be
expected to have a Material Adverse Effect;
- 15 -
22
(iv) the Company and each Existing Stockholder
promptly will notify the Purchaser if it obtains knowledge that any
representation or warranty by such Party set forth in this Agreement
was untrue when made or subsequently has become untrue; and
(v) the Company and each Existing Stockholder
will permit representatives of the Purchaser and the Purchaser's
present and proposed financing sources to have full access (at
reasonable times and in a manner so as not to unreasonably interfere
with the Company's normal business operations) to all the Company's
personnel and all premises, properties, books, records, contracts, Tax
records and other documents of the Company, and will allow such
Persons to make and retain copies of such documents; provided,
however, that as a condition to obtaining such access, each such
Person shall be required to execute and deliver a customary
confidentiality agreement to the Company, in form and substance
reasonably satisfactory to Holding.
3B. Closing Conditions and Consents. Each Party hereto
agrees to use its commercially reasonable efforts to cause the conditions to
the obligations of the respective Parties set forth in Section 2 to be
satisfied and to cooperate with the other Parties in respect to obtaining
necessary governmental or third party consents required to effectuate the
transactions to be consummated at the Closing.
3C. Exclusivity. Until the Closing (or until the date of
termination of this Agreement, if sooner), each of the Company or the Existing
Stockholders will not (and will not permit any Affiliate, employee, officer,
director, shareholder, agent or other person acting on its behalf to) (i)
solicit, initiate, or encourage the submission of any proposal or offer from
any Person relating to the acquisition of any capital stock or other voting
securities, or any substantial portion of the assets, of the Company (including
any acquisition structured as a merger, consolidation, or similar
reorganization) or (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in,
or facilitate in any other manner any effort or attempt by any Person to do or
seek any of the foregoing. Each of the Company and the Existing Stockholders
agrees to notify the Purchaser immediately if any Person makes any proposal,
offer, inquiry, or contact with respect to any of the foregoing.
3D. Further Assurances. From and after the Closing, each
party will execute all documents and take any other action which it is
reasonably requested to execute or take to effectuate further the transactions
contemplated by this Agreement and to consummate the Merger.
3E. LCA Marks. Immediately following the Closing, the
Merger will occur pursuant to which, among other things, Company's name will be
changed to "American Habilitation Services, Inc." or another name designated by
Purchaser which does not include, and is not confusingly similar to, the words
"Living Centers." The Company will cease using the name "Living Centers" as of
the Closing. In recognition of the fact that certain of the Company's assets
have imprinted thereon the words "Living Centers" and LCA's logotype and
variations thereof, the Company shall remove, within 30 days after the Closing,
such name or logotype from, or render the
- 16 -
23
same illegible on, all assets of the Company on which they are imprinted or
legible or, in the alternative, shall discontinue use of such assets. Subject
to the foregoing, during the 30 day period following Closing, the Company is
granted a non-exclusive, nonassignable royalty-free license to use all assets
utilizing the words "Living Centers," and LCA's logotype and variations thereof
(the "Marks"). The Company shall not use the Marks in any way indicating or
implying that the Marks are the property of the Company. The Company shall not
create any liabilities or obligations of LCA in connection with the use of the
Marks. The Company shall not use the Marks in any manner which indicates that
the Company is in any way related to or acting on behalf of LCA or any of its
Subsidiaries. The Company shall not assert any claim of ownership of, or any
claim to, any goodwill or reputation associated with the Marks by reason of the
Company's use of the Marks pursuant to this Section 3E or otherwise. The
Company shall not take action in derogation of any of the rights of LCA in the
Marks. The Company shall maintain quality standards for all assets utilizing
the Marks that are substantially equivalent to the standards currently used by
LCA in connection with such assets.
3F. Tax Basis Information. Within 30 days after the
Closing, the Existing Stockholders will deliver to the Purchaser a complete
list of the Company's assets and an estimate of the tax basis of such assets,
dated as of the Effective Time or as of a reasonable date preceding the
Effective Time. On or before June 30, 1997, the Existing Stockholders shall
furnish the Company with a final list of the tax basis of such assets.
3G. Cooperation. Purchaser, the Company and the Existing
Stockholders shall cooperate fully, as and to the extent reasonably requested
by the other party, in connection with (i) the preparation and audit of LCA's
consolidated financial statements or the Company's financial statements, (ii)
responses with respect to regulatory matters or (iii) administration of or with
respect to litigation and other claims, in each case for any period beginning
before the Closing Date or for any date occurring before or as of the Closing
Date. Such cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably relevant
to any such preparation, audit, administration and response and making
employees available on a mutually convenient basis (without unreasonably
interfering with such employees' other business activities) to provide
additional information and explanation of any material provided hereunder. The
Company and the Existing Stockholders agree to retain all books and records
with respect to the matters covered by this Section 3G pertinent to the Company
relating to any period beginning before the Closing Date or to any date
occurring before or as of the Closing Date, in each case until the seventh
anniversary of the date hereof and to give the other party reasonable written
notice prior to transferring, destroying or discarding any such books and
records and, if the other party so requests, the Company or the Existing
Stockholders, as the case may be, shall allow the other party to take
possession of such books and records.
3H. Transfer of Certain Intellectual Property. Effective
as of the Closing, the Existing Stockholders hereby assign, transfer and
deliver to the Company, as is and without warranties, and the Company hereby
acquires and receives from the Existing Stockholders, for no additional
consideration, the Habilitation Documentation Software and the Devcon Quality
- 17 -
24
Information System, along with all copies and tangible embodiments thereof (in
whatever form or medium) (except that any data communications equipment located
at LCA's corporate headquarters used to transmit information between the
Facilities and LCA's corporate headquarters is not included), and all income,
royalties, damages and payments due or payable as of the Closing or thereafter,
including, without limitation, damages and payments for past, present or future
infringements or misappropriations thereof, the right to ▇▇▇ and recover for
past infringements or misappropriations thereof and any and all corresponding
rights that, now or hereafter, may be secured throughout the world. The
Transition Services Agreement sets forth the exclusive manner in which the
agreement set forth in the preceding sentence shall be performed by the
Existing Stockholders.
3I. Delivery of Offsite Tangible Property. Within seven
days after the Closing, the Existing Stockholders will deliver to the Company,
and the Company will receive from the Existing Stockholders, all of the
following items of tangible personal property to the extent they relate to the
Company and are currently located at LCA's corporate headquarters or at any
other location other than a Facility: all (i) minute books and stock record
books, (ii) records and other information pertaining to customers, suppliers
and employees, (iii) permits, licenses, certifications and approvals from all
permitting, licensing, accrediting and certifying agencies, (iv) leases,
contracts, and other agreements, (v) purchasing and sales records, accounting
records, tax or financial records, risk management records, and (vi) other
tangible property of any kind owned by the Company or its Subsidiaries.
3J. Release of Guarantees, etc. The Company shall use
commercially reasonable efforts to cause (and, in any event, by the 90th day
following the Closing, shall cause) the Existing Stockholders and their
Affiliates (other than the Company and its Subsidiaries) to be released and
discharged from the G.E. Capital vehicle leases and the Xerox machine leases
described on Schedule 7A-Liens to the extent such leases relate to, or are for
the benefit of, the Company or its Subsidiaries and the Existing Stockholders
or such Affiliates are directly or contingently liable with respect to such
leases for periods from and after the Closing. Such commercially reasonable
efforts shall include, without limitation, posting security in reasonable
amounts and executing reasonable financial assurances in favor of G.E. Capital
or Xerox, as the case may be.
Section 4. Certain Covenants between Effective Time and
Closing.
(i) During the period between the Effective Time
and the Closing (the "Interim Period"), the Company will be operated
on behalf of, and for the account of, the Purchaser, rather than the
Existing Stockholders. In connection therewith, the Company shall
maintain separate cash accounts into which all cash (the "Interim
Cash") arising from the operations of the Company and its Subsidiaries
will be placed and from which the only disbursements will be in
connection with the discharge of ordinary course liabilities and
obligations of the Company (including, but not limited to, overhead
charges in accordance with past custom and practice (including,
without limitation, expenses and obligations that were previously paid
or accrued at the LCA corporate level in behalf of the Company) and
- 18 -
25
Interim Period Liabilities in accordance with past custom and
practice). These accounts are referred to collectively as the "Interim
Cash Accounts." The Existing Stockholders shall keep an accurate and
complete memo account of the Interim Period Cash Account. In addition
to the other covenants contained in this Agreement, the Existing
Stockholders and the Company covenant and agree that during the Interim
Period, unless the Purchaser agrees otherwise in writing, the Company
will, and the Existing Stockholders will cause the Company to:
(a) promptly inform the Purchaser of any
significant issues and/or decisions relating to the Company
and its Subsidiaries;
(b) obtain the Purchaser's approval
(which approval shall not be unreasonably withheld or delayed)
of each of the Company's and its Subsidiaries' disbursements
out of the Interim Cash Accounts and each of the Company's and
its Subsidiaries' commitments in excess of $10,000, other than
(A) disbursements approved of or committed to prior to the
date hereof and (B) disbursements of amounts accrued as
current liabilities in the calculation of Actual Working
Capital;
(c) notify the Purchaser of any change
in the normal course of the Company's business or in the
condition of the Company's assets or of any governmental or
third party complaint, investigation or hearing of which the
Existing Stockholders have knowledge (or communication
indicating that such a complaint, investigation or hearing is
or may be contemplated);
(d) not, directly or indirectly, sell,
pledge, dispose of or encumber any of its assets, except in
the ordinary course of business consistent with the Company's
past practice,
(e) not, directly or indirectly, take
any action with respect to the grant of any bonuses, salary
increases, severance or termination pay (except for salary
increases, severance or termination pay made in the ordinary
course of business consistent with the Company's past
practice); and
(f) not, directly or indirectly,
declare, set aside, or pay any dividend or make any
distribution with respect to its capital stock or redeem,
purchase, or otherwise acquire any of its capital stock,
except in payment of the Repurchase Price, in connection with
the distribution of the Excluded Assets and Liabilities, and
except to the extent necessary to pay intercompany charges
attributable to disbursements in connection with the discharge
of ordinary course liabilities and obligations of the Company
(including, but not limited to, overhead charges in accordance
with past custom and practice).
(ii) The Purchaser, the Company and the Existing
Stockholders agree that all liabilities, expenses and obligations
incurred with respect to the Interim Period, and all
- 19 -
26
risk of loss or damage during the Interim Period, associated with the
Company's or its Subsidiaries' business, their activities, their
employees, and/or their assets or properties (the "Interim Period
Liabilities") shall be borne by the Company. To the extent that the
Existing Stockholders or their Affiliates (except the Company or its
Subsidiaries) become or are directly or indirectly liable for or
otherwise suffer or pay any Interim Period Liabilities, the Company
agrees that it will promptly upon request, without offset or deduction
for any claim hereunder or otherwise, pay all such Interim Period
Liabilities or reimburse the Existing Stockholders or such Affiliates
for any such payments that they make to the extent that Interim Period
Liabilities have not been paid pursuant to Section 4(iii) below.
Without limiting the foregoing, Interim Period Liabilities include (i)
any liabilities for any claims or occurrences during the Interim Period
with respect to matters covered by health, life, dental, casualty or
other insurance coverage of the type listed on Exhibit 7A-Exceptions to
GAAP provided through any of the Existing Stockholders or their
Affiliates (whether on a self-insured basis or otherwise), (ii)
employee payroll, withholding, bonus and benefit payments or
liabilities with respect to employees of the Company or its
Subsidiaries, (iii) all liabilities under vehicle leases as to vehicles
operated by the Company and supplies provided under any master supply
arrangement to the Company or the Subsidiary with respect to the
Interim Period. Notwithstanding the foregoing, nothing in this
paragraph shall be construed to limit or impair, or create any right of
setoff or counterclaim with respect to, any claim the Company may make
as a Purchaser Indemnified Party or Seller Indemnified Party against
any party hereto pursuant to this Section 6.
(iii) During the Interim Period, the Existing
Stockholders shall provide the Purchaser with a list of disbursements
to be made from the Interim Cash Account (or made as advances by the
Existing Stockholders on behalf of the Company) to satisfy liabilities
and expenses referenced in Section 4(i) above. Immediately prior to
the Closing, the Existing Stockholders shall provide a statement
listing the amount of Interim Cash deposited in, and disbursements
made from, the Interim Cash Accounts and liabilities and expenses
referenced in Section 4(i) above as to which no disbursements have
been made. To the extent that such statement reflects that the amount
of Interim Cash deposited exceeds the sum of such disbursements made,
such liabilities and expenses, the Interim Tax Amount (as defined
below) and the Prepaid Rent Amount (as defined below), the Company
will retain such excess and the Existing Stockholders will be entitled
to all amounts not so retained; to the extent that such statement
reflects that the amount of Interim Cash deposited is less than such
sum of disbursements made, liabilities and expenses, the Interim Tax
Amount and the Prepaid Rent Amount, then the Company shall pay to the
Existing Stockholders the amount of such deficiency at the Closing.
The amount of such excess or deficiency shall be referred to herein as
the "Interim Settlement Amount." The term "Interim Tax Amount" means
an amount equal to 25% of the excess (to the extent positive) of (A)
the amount of Interim Cash deposited in the Interim Cash Accounts in
the Interim Period, over (B) the sum of (x) the disbursements made
from the Interim Cash Accounts during the Interim Period and (y) the
liabilities and expenses referenced in Section 4(i) above (other than
contingent liabilities) with respect to the Interim Period as to which
no disbursements have been made. The Prepaid Rent Amount shall mean
lease payments made on behalf of the Company in the
- 20 -
27
amount of $132,562.62. LCA will pay and hold the Company harmless with
respect to the payroll payments due to the Company's and its
Subsidiary's employees on Wednesday September 4, 1996 (without limiting
the generality of the foregoing, the Interim Cash Account will not be
reduced by the amount of such payment). The preceding sentence will not
apply to any other payroll payments made during the Interim Period.
Section 5. Representations and Warranties. The Company
and the Existing Stockholders hereby jointly and severally represent and
warrant that:
5A. Organization, Corporate Power and Licenses. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Florida and is qualified to do business in every
jurisdiction in which the failure to so qualify has had or would reasonably be
expected to have a Material Adverse Effect. The Company possesses all
requisite corporate power and authority and, except as to licenses, permits and
authorizations as to matters of the type described in Sections 5J, 5P, 5Q, 5S
and/or 5V, all material licenses, permits and authorizations necessary to own
and operate its properties, to carry on its businesses as now conducted and to
carry out the transactions contemplated by this Agreement (assuming approval of
such transactions by the New Board of Directors). The copies of the Company's
charter documents and Bylaws, which have been furnished to the Purchaser's
special counsel, reflect all amendments made thereto at any time prior to the
date of this Agreement and are correct and complete.
5B. Capital Stock and Related Matters.
(i) The authorized capital stock of the Company
consists of 1,000 shares of Common Stock, par value $1.00 per share,
all of which are issued and outstanding and owned beneficially and of
record by Holding. As of the Closing, the Company and each Subsidiary
shall not have outstanding any stock or securities convertible or
exchangeable for any shares of its capital stock or containing any
profit participation features, nor shall it have outstanding any
rights or options to subscribe for or to purchase its capital stock or
any stock or securities convertible into or exchangeable for its
capital stock or any stock appreciation rights or phantom stock plans,
except as set forth in the Equity Agreements. As of the Closing, the
Company and each Subsidiary shall not be subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire
any shares of its capital stock or any warrants, options or other
rights to acquire its capital stock, except as contemplated by this
Agreement. All of the outstanding shares of the Company's and each
Subsidiary's capital stock are validly issued, fully paid and
nonassessable.
(ii) Except as contemplated by this Agreement,
there are no statutory or contractual stockholders preemptive rights
or rights of refusal with respect to the issuance of the Purchaser
Stock hereunder. The Company has not violated any applicable federal
or state securities laws in connection with the offer, sale or
issuance of any of its capital stock, and the offer, sale and issuance
of the Purchaser Stock hereunder do not require registration under the
Securities Act or any applicable state securities laws (assuming that
the Purchaser's
- 21 -
28
representations and warranties set forth herein are true and correct).
There are no agreements between the Existing Stockholders with respect
to the voting or transfer of the Company's or any Subsidiary's capital
stock or with respect to any other aspect of the Company's or any
Subsidiary's affairs, except as set forth in this Agreement.
(iii) Holding is the record and beneficial owner
and has good title to, the Existing Stock to be repurchased by the
Company hereunder. Immediately following the Closing, Holding will
have conveyed to the Company good title to all of such Existing Stock,
free and clear of all Liens, claims and encumbrances of any nature
whatsoever. The execution, delivery and performance of this Agreement
by such Existing Stockholder does not conflict or result in a breach
of any of the terms or provisions of, or constitute a default under,
any material contract, agreement or instrument to which such Existing
Stockholder is a party or by which such Existing Stockholder is bound.
5C. Subsidiaries; Investments. The attached Schedule
5C-Subsidiaries correctly sets forth the name of each Subsidiary the Company
has ever had, the jurisdiction of its incorporation and the Persons owning the
outstanding capital stock of such Subsidiary. Each Subsidiary is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and is qualified to do business in every
jurisdiction in which the failure to so qualify has had or would reasonably be
expected to have a Material Adverse Effect. Each Subsidiary possesses all
requisite corporate power and authority and, except as to licenses, permits and
authorizations as to matters of the type described in Sections 5J, 5P, 5Q, 5S
and/or 5V, all material licenses, permits and authorizations necessary to own
and operate its properties, to carry on its businesses as now conducted and to
carry out the transactions contemplated by this Agreement. The copies of each
Subsidiary's charter documents and bylaws, which have been furnished to the
Purchaser's special counsel, reflect all amendments made thereto at any time
prior to the date of this Agreement and are correct and complete.
5D. Authorization; No Breach.
(i) The execution, delivery and performance of
this Agreement, the amendment of the Articles of Incorporation and the
amendment of the Company's Bylaws have been duly authorized by the
Company. This Agreement constitutes a valid and binding obligation of
the Company, enforceable in accordance with its terms (assuming, for
purposes of this sentence, that this Agreement constitutes a valid and
binding obligation of each other party hereto and thereto, enforceable
in accordance with its terms). Assuming, for purposes of this
sentence that this Agreement provided for the sale of Existing Stock
by Holding to the Purchaser rather than the issuance of Purchaser
Stock by the Company to the Purchaser and the repurchase of the
Existing Stock by the Company from Holding, the execution and delivery
by the Company of this Agreement, the amendment of the Articles of
Incorporation and the Company's Bylaws and the fulfillment of and
compliance with the respective terms hereof and thereof by the
Company, would not (i) conflict with or result in a breach of the
terms, conditions or provisions of, (ii) constitute a default under,
(iii) result in the creation
- 22 -
29
of any lien, security interest, charge or encumbrance upon the
Company's capital stock or assets pursuant to, (iv) give any third
party the right to modify, terminate or accelerate any obligation
under, (v) result in a violation of, or (vi) except in connection with
the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended
and, except as to matters of the type addressed in Sections 5J, 5P,
5Q, 5S and/or 5V, require any authorization, consent, approval,
exemption or other action by or notice or declaration to, or filing
with, any court or administrative or governmental body or agency
pursuant to, the charter or Bylaws of the Company or any law, statute,
rule or regulation to which the Company is subject, or any material
agreement or instrument, order, judgment or decree to which the
Company is subject.
(ii) The execution, delivery and performance of
this Agreement and all other agreements contemplated hereby to which
either Existing Stockholder is a party have been duly authorized by
such Existing Stockholder. This Agreement and all other agreements
contemplated hereby to which either Existing Stockholder is a party
each constitutes a valid and binding obligation of such Existing
Stockholder, enforceable in accordance with its terms (assuming, for
purposes of this sentence, that each such agreement constitutes a
valid and binding obligation of each other party hereto and thereto,
enforceable in accordance with its terms). Assuming, for purposes of
this sentence that this Agreement provided for the sale of Existing
Stock by Holding to the Purchaser rather than the issuance of
Purchaser Stock by the Company to the Purchaser and the repurchase of
the Existing Stock by the Company from Holding, the execution and
delivery by each Existing Stockholder of this Agreement and all other
agreements contemplated hereby to which either Existing Stockholder is
a party, and the fulfillment of and compliance with the respective
terms hereof and thereof by each Existing Stockholder, would not (i)
conflict with or result in a breach of the terms, conditions or
provisions of, (ii) constitute a default under, (iii) result in the
creation of any lien, security interest, charge or encumbrance upon
either Existing Stockholder's capital stock or assets pursuant to,
(iv) give any third party the right to modify, terminate or accelerate
any obligation under, (v) result in a violation of, or (vi) except in
connection with the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976, as amended and, except as to matters of the type addressed in
Sections 5Q and/or 5V, require any authorization, consent, approval,
exemption or other action by or notice or declaration to, or filing
with, any court or administrative or governmental body or agency
pursuant to, the charter or bylaws of either Existing Stockholder or
any law, statute, rule or regulation to which either Existing
Stockholder is subject, or any material agreement or instrument,
order, judgment or decree to which either Existing Stockholder is
subject.
5E. Financial Statements. On or before September 6,
1996, there will be attached hereto as Schedule 5E - Financial Statements the
following financial statements:
(i) the unaudited balance sheets of the Company
as of September 30, 1995 and the related operating statements for the
twelve-month period then ended; and
- 23 -
30
(ii) the unaudited balance sheet of the Company as
of June 30, 1996 (the "Latest Balance Sheet"), and the related
operating statements for the nine-month period then ended.
Each of the foregoing financial statements has been prepared from the books and
records of account of the Company in conformity with the Company's prior
accounting practices on a consistent basis, and is in substantial accordance
with GAAP, subject to the absence of footnote disclosure and such other
qualifications as are described on the attached Schedule 5E - Financial
Statements, and, subject to the absence of footnote disclosure and such other
qualifications as are described on the attached Schedule 5E - Financial
Statements, is fairly stated or is true and correct in all material respects,
reflects accurately in all material respects the books and records of account
for the Company as of such dates and for such periods, and presents the
financial condition at such dates and results of operations of the Company for
the periods then ended. The Latest Balance Sheet additionally has been
adjusted on a pro forma basis to reflect the exclusion of the Excluded Assets
and Liabilities. In addition, LCA will furnish to the Purchaser on or before
September 6, 1996 copies of the internal trial balances for the Facilities as
of September 30, 1994 and the Devcon Area detailed operating statements for the
years ending September 30, 1993 and 1994. The trial balances described
properly and fairly reflect the transactions of the Facilities (except for the
items as set forth on the attached Schedule 5E - Financial Statements) for the
periods described above and have been produced from the books and records of
account of the Facilities on a consistent basis in accordance with LCA's past
accounting and reporting practices.
5F. Absence of Undisclosed Liabilities. Except as set
forth on the attached Schedule 5F - Liabilities, neither the Company nor any
Subsidiary has any obligation or liability that would be of a type required to
be reflected on a balance sheet (or in a note thereto) prepared in accordance
with GAAP other than: (i) liabilities set forth on the Latest Balance Sheet
(including any notes thereto), (ii) liabilities and obligations of the type set
forth on the Latest Balance Sheet which have arisen after the date of the
Latest Balance Sheet in the ordinary course of business (none of which is a
material liability resulting from breach of contract, breach of warranty, tort,
infringement, claim or lawsuit) and (iii) other liabilities and obligations
expressly disclosed in the other Schedules to this Agreement.
5G. No Material Adverse Change. Except as set forth on
the attached Schedule 5G - Adverse Change, since the date of the Latest Balance
Sheet, there has been no Material Adverse Change (other than changes in general
economic conditions or general changes similarly affecting similarly situated
participants in the Company's industry).
5H. Absence of Certain Developments. Except as expressly
contemplated by this Agreement or as set forth on the attached Schedule 5H -
Developments, since June 30, 1996 (and, with respect to items (v), (vii),
(viii), (ix), (x) and (xiv) below, since March 31, 1996), neither the Company
nor any Subsidiary has:
- 24 -
31
(i) engaged in any activity which accelerated the
collection of its accounts or notes receivable, delayed the payment of
its accounts payable, or reduced or otherwise restricted the amount of
supplies on hand, other than in the ordinary course of the conduct of
such business;
(ii) issued any notes, bonds or other debt securities or
any capital stock or other equity securities or any securities
convertible, exchangeable or exercisable into any capital stock or
other equity securities;
(iii) borrowed any amount or incurred or become subject to
any material liabilities, except liabilities incurred in the ordinary
course of business and liabilities under contracts entered into in the
ordinary course of business and except for Indebtedness that will be
discharged by the Existing Stockholders at the Closing;
(iv) discharged or satisfied any material Lien or paid any
material obligation or liability (other than as contemplated by this
Agreement), other than liabilities paid in the ordinary course of
business;
(v) declared or made any payment or distribution of
property (other than cash) or Interim Cash to its stockholders with
respect to its capital stock or other equity securities or purchased
or redeemed any shares of its capital stock or other equity securities
(including, without limitation, any warrants, options or other rights
to acquire its capital stock or other equity securities);
(vi) mortgaged or pledged any of its properties or assets
or subjected them to any material Lien, except Permitted Liens for
current property taxes not yet due and payable;
(vii) sold, assigned or transferred any of its assets or
canceled any debts or claims, except in the ordinary course of
business;
(viii) suffered any extraordinary losses or waived any
rights of material value, whether or not in the ordinary course of
business or consistent with past practice;
(ix) made capital expenditures or commitments therefor
that aggregate in excess of $50,000, except for capital expenditures
in substantial accordance with the Company's capital expenditure
budget and replacement programs (as in effect on March 31, 1996);
(x) engaged in any activity which was intended to delay
or hinder the Company's capital expenditures and commitments with a
view to, or in anticipation of, a transaction of the type contemplated
by Section 3C with the Purchaser or any other Person;
- 25 -
32
(xi) made any loans or advances to, guarantees for the
benefit of, or any Investments in, any Persons in excess of $50,000 in
the aggregate (except for those which will be discharged or released
at or prior to the Closing);
(xii) made any charitable contributions or pledges in
excess of $10,000 in the aggregate;
(xiii) made any Investment in or taken steps to incorporate
any Subsidiary; or
(xiv) entered into any other material transaction other
than in the ordinary course of business.
Included with the attached Schedule 5G - Adverse Change is a statement of
amounts expended by LCA and its Subsidiaries during the current fiscal year
with respect to the Company and its Subsidiaries and charged to the Company's
fixed asset additions account.
5I. Assets. Except as set forth on the attached Schedule
5I - Assets, the Company and each Subsidiary has good title to, or a valid
leasehold interest in, the material properties and assets used by it or shown
on the Latest Balance Sheet or acquired thereafter, free and clear of all Liens
other than Permitted Liens, except for (i) such properties and assets disposed
of in the ordinary course of business since the date of the Latest Balance
Sheet, (ii) Liens disclosed on the Latest Balance Sheet (including any notes
thereto), (iii) Liens for current property taxes not yet due and payable and
(iv) assets owned by the Existing Stockholders or their Affiliates which will
be made available to the Company pursuant to, and for the period provided in,
the Transition Services Agreement. Except to the extent addressed by Section
5U and except as described on Schedule 5I - Assets, the Company's and each
Subsidiary's material equipment and other material tangible assets are suitable
in condition and repair for their current use in all material respects, subject
to the provision of usual and customary maintenance provided in the ordinary
course of business with respect to assets of like nature, age, usage and
construction. Except as set forth on the attached Schedule 7A - Liens, the
Company and each Subsidiary owns, or have a valid leasehold interest in, all
material assets necessary for the conduct of its business as presently
conducted (except for assets owned by the Existing Stockholders or their
Affiliates which will be made available to the Company pursuant to, and for the
periods provided in, the Transition Services Agreement).
5J. Tax Matters.
(i) Except as set forth on the attached Schedule 5J -
Taxes, (A) the Company and each Subsidiary has filed all Tax Returns
which it is required to file under applicable laws and regulations,
all such Tax Returns are complete and correct and have been prepared
in compliance with all applicable laws and regulations; (B) each
Affiliated Group has timely filed all income Tax Returns (in which the
Company or any Subsidiary is includable) required to be filed with
respect to each taxable period during which the Company or any
Subsidiary was a member of the Affiliated Group, each such income Tax
Return has been
- 26 -
33
prepared in compliance with all applicable laws and regulations, in
all respects insofar as such income Tax Returns relate to the Company
and the Subsidiaries; (C) the Company and each Subsidiary has paid all
Taxes due and owing by it (whether or not such Taxes are required to
be shown on a Tax Return) and has withheld and paid over to the
appropriate taxing authority all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder,
creditor or other third party; (D) all Taxes (for which the Company or
any Subsidiary may have any liability either directly or pursuant to
Treasury Regulation Section 1.1502-6 (and any similar provision of
state, local or foreign law)) due and payable by each Affiliated Group
with respect to each taxable period during which the Company or a
Subsidiary was a member of the Affiliated Group have been paid; (E)
neither the Company, nor any Subsidiary has waived any statute of
limitations with respect to any Taxes or agreed to any extension of
time with respect to any Tax assessment or deficiency and LCA has not
waived any statute of limitations or agreed to any extension of time
with respect to any Tax assessment or deficiency with respect to any
consolidated, combined or unitary Tax Return (in which the Company or
any Subsidiary is includable) filed by it during a period in which
either the Company or any Subsidiary was a member of LCA's Affiliated
Group; (F) the federal income Tax Returns of the Company and each
Subsidiary and the consolidated federal income Tax Return of LCA's
Affiliated Group have been audited or are closed for all tax years
through 1995; (G) no foreign, federal, state or local tax audits or
administrative or judicial proceedings are pending or being conducted
with respect to the Company or any Subsidiary; (H) no information
related to Tax matters has been requested in writing by any foreign,
federal, state or local taxing authority and no written notice
indicating an intent to open an audit or other review has been
received by the Company or any Subsidiary from any foreign, federal,
state or local taxing authority; and (I) no claim has ever been made
by a taxing authority in a jurisdiction where the Company or any
Subsidiary does not file Tax Returns that the Company or such
Subsidiary is or may be subject to Taxes assessed by such
jurisdiction.
(ii) The Company and each Subsidiary has not made an
election under IRC Section 341(f).
(iii) There are no liens for Taxes (other than for current
Taxes not yet due and payable) upon the assets of the Company or any
Subsidiary.
(iv) The Company and each Subsidiary will not be required
to include any amount in taxable income or exclude any item of
deduction or loss from taxable income for any taxable period (or
portion thereof) ending after the Closing Date (A) as a result of a
change in method of accounting for a taxable period ending on or prior
to the Closing Date, (B) as a result of any "closing agreement," as
described in IRC Section 7121 (or any corresponding provision of
state, local or foreign income Tax law) entered into on or prior to
the Closing Date, and (C) as a result of any sale reported on the
installment method where such sale occurred on or prior to the Closing
Date.
- 27 -
34
(v) The Company and each Subsidiary has no obligation or
liability for the payment of Taxes of any other person, including but
not limited to the following, a liability of the Company or any
Subsidiary for the payment of any Tax arising (A) as a result of being
(or ceasing to be) a member of any Affiliated Group (other than the
Affiliated Group of which LCA is the common parent), or being included
(or required to be included) in any Tax Return relating thereto, (B)
as a result from any expressed or implied obligation to indemnify
another person, and (C) as a result from the Company assuming or
succeeding to the Tax liability of any other person as a successor,
transferee or otherwise.
(vi) The Company and each Subsidiary is not a party to or
bound by any Tax allocation or Tax sharing agreement and has no
current or potential contractual obligation to indemnify any other
person with respect to Taxes.
(vii) The Company and each Subsidiary is not and will not
become obligated (under any contract entered into on or before the
Closing Date) to make any payments, that will be non-deductible under
IRC Section 280G (or any corresponding provision of state, local or
foreign income Tax law).
(viii) The Company and each Subsidiary is a member of an
Affiliated Group that (A) includes LCA and Holding, (B) files a
consolidated federal income Tax Return and (C) has LCA as the parent
corporation.
5K. Contracts and Commitments.
(i) Except (i) as expressly contemplated by this
Agreement (ii) as set forth on the attached Schedule 5K - Contracts,
Schedule 5Q - Employee Benefits or Schedule 5U - Real Property, (iii)
for agreements which were contained in the facility files in the data
room at LCA's headquarters on June 19 and 20, 1996, the originals of
which will be delivered by LCA to the Company pursuant to Section 3I
(the "Facility File Contracts"), (iv) agreements provided to
Purchaser's special counsel through the date hereof, indices of which
are attached as Schedule 5K(iv)-Supplemental Contracts and (v) for
agreements which are terminable by the Company upon 90 days or less
notice without penalty or not otherwise material, neither the Company
nor any Subsidiary is a party to or bound by any written or oral:
(a) pension, profit sharing, stock
option, employee stock purchase or other plan or arrangement
providing for deferred or other compensation to employees or
any other employee benefit plan or arrangement, or any
collective bargaining agreement or any other contract with any
labor union, or severance agreements, programs, policies or
arrangements;
(b) contract for the employment of any
officer, individual employee or other Person on a full-time,
part-time, consulting or other basis
- 28 -
35
providing annual compensation in excess of $50,000 or contract
relating to loans to officers, directors or Affiliates;
(c) contract under which the Company or
any Subsidiary has advanced or loaned any other Person amounts
in the aggregate exceeding $50,000;
(d) agreement or indenture relating to
Indebtedness (other than borrowed money) in amounts in excess
of $50,000, any agreement or indenture relating to borrowed
money, or the mortgaging, pledging or otherwise placing a Lien
on any material asset or material group of assets of the
Company or any Subsidiary except for, in any case,
Indebtedness that will be discharged by the Existing
Stockholders at the Closing;
(e) guarantee of any obligation, other
than those to be released at or prior to the Closing;
(f) lease or agreement under which the
Company or any Subsidiary is lessee of or holds or operates
any property, real or personal, owned by any other party,
except for any lease of real or personal property under which
the aggregate annual rental payments do not exceed $50,000;
(g) lease or agreement under which the
Company or any Subsidiary is lessor of or permits any third
party to hold or operate any property, real or personal, owned
or controlled by the Company or any Subsidiary;
(h) contract or group of related
contracts with the same party or group of affiliated parties
the performance of which involves consideration in excess of
$50,000;
(i) assignment, license, indemnification
or agreement with respect to any intangible property
(including, without limitation, any Intellectual Property);
(j) any warranty agreement with respect
to its services rendered or its products sold or leased;
(k) agreement under which it has granted
any Person any registration rights (including, without
limitation, demand and piggyback registration rights);
(l) distribution or franchise agreement;
(m) contract or agreement expressly
prohibiting it from freely engaging in any business or
competing anywhere in the world; or
- 29 -
36
(n) any other agreement which involves a
consideration in excess of $50,000 annually.
(ii) Those Facility File Contracts which if
canceled or terminated could reasonably be expected to materially
impair the business of the Company or the Company's ability to provide
necessary services to a significant number of its patients or hinder
the Company's compliance with Legal Requirements, and all of the
contracts, agreements and instruments set forth on Schedule 5K -
Contracts, are referred to collectively as the "Applicable Contracts."
The Applicable Contracts are valid, binding and enforceable against
the Company in accordance with their respective terms. The Company
has performed all material obligations required to be performed by it
under the Applicable Contracts and is not, except as set forth on
Schedule 5K - Contracts, in material default under or in breach of nor
in receipt of any written claim of material default or breach under
any Applicable Contract; to the Existing Stockholders' knowledge, no
event has occurred which with the passage of time or the giving of
notice or both would result in a material default or breach by the
Company or any Subsidiary under any Applicable Contract; to the
Existing Stockholders' knowledge, there is no breach or anticipated
breach by the other parties to any Applicable Contract.
(iii) The Purchaser's special counsel has been
supplied with a true and correct copy of each of the written
instruments, plans, contracts and agreements and an accurate
description of each of the oral arrangements, contracts and agreements
which are referred to on Schedule 5K - Contracts, together with all
amendments, waivers or other changes thereto.
5L. Intellectual Property Rights. Except for the use of
the LCA ▇▇▇▇, the name "Living Centers" or "Living Centers of America," the use
of the computerized information services used by the LCA group and the use of
the Habilitation Documentation Software and the Quality Information System,
neither the Company nor any Subsidiary owns or uses any material Intellectual
Property Rights. To the Existing Stockholders' knowledge, the conduct of the
Company's and its Subsidiaries' business has not infringed, misappropriated or
conflicted with and does not infringe, misappropriate or conflict with any
Intellectual Property Rights or other rights of other Persons.
5M. Litigation, etc. Except as set forth on the attached
Schedule 5M - Litigation, there are no (i) actions, suits, proceedings, orders
or claims pending or, to the Existing Stockholders' knowledge, threatened or
(ii) to the Existing Stockholders' knowledge, any investigations pending or
threatened, against or affecting the Company or any Subsidiary (or to the
Existing Stockholders' knowledge, pending or threatened against or affecting
any of the officers, directors or employees of the Company or any Subsidiary
with respect to its business or proposed business activities) at law or in
equity, or before or by any governmental department, commission, board, bureau,
agency or instrumentality (including, without limitation, any actions, suit or
proceedings with respect to the transactions contemplated by this Agreement)
which are not covered by insurance or described in Schedule 5V-Healthcare; the
Company and each Subsidiary is not subject to any arbitration
- 30 -
37
proceedings under collective bargaining agreements or otherwise or, to the
Existing Stockholders' knowledge, any governmental investigations or inquiries
not described in Schedule 5V-Healthcare.. The Company and each Subsidiary is
not subject to any judgment, order or decree of any court or other governmental
agency.
5N. Brokerage. Except as set forth on the attached
Schedule 5N - Brokerage, there are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement binding
upon the Company, any Subsidiary or either Existing Stockholder. The Existing
Stockholders shall pay, and hold the Purchaser, the Company and each Subsidiary
harmless against, any liability, loss or expense (including, without
limitation, reasonable attorneys' fees and out-of-pocket expenses) arising in
connection with any claim by, through or under the Company or the Existing
Stockholders.
5O. Insurance. The attached Schedule 5O - Insurance
contains a description of each insurance policy or program maintained on behalf
of the Company and each Subsidiary with respect to its properties, assets and
businesses, and each such policy or program is in full force and effect
immediately prior to the Closing. The Company and each Subsidiary is not in
default with respect to its obligations under any insurance policy maintained
by it. Except as set forth on Schedule 5O - Insurance, the Company and each
Subsidiary does not have any self-insurance or co- insurance programs, and the
reserves maintained by the Existing Stockholders on behalf of the Company and
its Subsidiaries are adequate to cover all anticipated liabilities of the
Company and its Subsidiaries to the Closing Date with respect to any such
self-insurance or co-insurance programs.
5P. Employees. Except as set forth on the attached
Schedule 5P - Employees, the Company is not aware that any of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇ or ▇▇▇▇▇ ▇▇▇▇▇▇ or any group of employees of the Company or any
Subsidiary has any plans to terminate employment with the Company or such
Subsidiary. The Company and each Subsidiary has complied in all material
respects with all laws relating to the employment of labor (including, without
limitation, provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other taxes), and
neither the Company, any Subsidiary, nor any Existing Stockholder is aware that
the Company or any Subsidiary has any union organization activities, threatened
or actual strikes or work stoppages or material grievances. Except as set
forth on the attached Schedule 5P - Employees, the Company and each Subsidiary
is not subject to any noncompete, nondisclosure, confidentiality, employment,
consulting or similar agreements relating to, affecting or in conflict with the
present business activities of the Company or any Subsidiary, except for
agreements between the Company or any Subsidiary and its present and former
employees. The Company possesses all material licenses, permits and
authorizations concerning employee matters (if any) necessary to carry on its
businesses as now conducted and to carry out the transactions contemplated by
this Agreement. Assuming, for purposes of this sentence that this Agreement
provided for the sale of Existing Stock by Holding to the Purchaser rather than
the issuance of Purchaser Stock by the Company to the Purchaser and the
repurchase of the Existing Stock by the Company from Holding, then with respect
of employee matters, the execution and delivery by the Company of this
Agreement, the amendment of the Articles of Incorporation and the Company's
Bylaws and the
- 31 -
38
fulfillment of and compliance with the respective terms hereof and thereof by
the Company, would not require any authorization, consent, approval, exemption
or other action by or notice or declaration to, or filing with, any court or
administrative or governmental body or agency pursuant to any law, statute,
rule or regulation to which the Company is subject, or any material agreement
or instrument, order, judgment or decree to which the Company is subject.
5Q. ERISA.
(i) Schedule 5Q - Employee Benefits sets forth
all of the bonus, deferred and incentive compensation, profit sharing,
retirement, vacation, sick leave, leave of absence, hospitalization,
severance, and fringe benefit plans, all "employee pension benefit
plans" (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) and all "employee welfare
benefit plans" (as defined in Section 3(1) of ERISA) which the Company
or any Subsidiary maintains, to which the Company or any Subsidiary
contributes or has an obligation to contribute, or with respect to
which the Company or any Subsidiary has any liability or reasonable
expectation of liability, whether or not any such plan has terminated
and whether or not any such plan is or was maintained or contributed
to by any current or former member of the Company's Controlled Group
(within the meaning of Section 414 of the IRC) (the "Plans") during
the six-year period immediately preceding the Closing Date. None of
the Plans (i) is subject to Title IV of ERISA or the minimum funding
requirements of Section 412 of the IRC or Section 302 of ERISA, (ii)
is a plan of the type described in Section 4063 of ERISA or Section
413(c) of the IRC, (iii) is a "multiemployer plan" (as defined in
Section 3(37) of ERISA), (iv) provides for medical or life insurance
benefits to current or future retired or former employees of the
Company or any Subsidiary (other than as required under IRC Section
4980B or applicable state law), or (v) obligates the Company or any
Subsidiary to pay any severance or similar benefit solely as a result
of a change in control or ownership within the meaning of Section 280G
of the IRC.
(ii) Each Plan is, in all material respects, in
compliance, and has been administered, maintained and funded in all
material respects in accordance, with the applicable provisions of
ERISA and the IRC and all other applicable laws, rules and
regulations, including, but not limited to, medical continuation under
IRC Section 4980B. None of the Company, any Controlled Group member,
any fiduciary or any other person has, other than in an immaterial
respect, with respect to any Plan, (i) engaged in any transaction
prohibited by ERISA, the IRC or other applicable law; (ii) breached
any fiduciary duty owed by it; or (iii) failed to file and distribute
timely and properly all reports and information required to be filed
or distributed in accordance with ERISA or the IRC. There are also
no pending or, to the Existing Stockholders' knowledge, threatened,
actions, suits, investigations or claims with respect to any Plan
(other than routine claims for benefits) which could reasonably be
expected to result in liability to the Company or any Subsidiary.
- 32 -
39
(iii) All contributions or premiums which are due
on or before the Closing Date with respect to the Plans have been
timely, or will have been prior to the Closing Date, paid.
(iv) Each Plan which is intended to be qualified
under section 401(a) of the IRC (i) has been timely amended to reflect
all requirements of the Tax Reform Act of 1986 ("TRA 86") and all
subsequent legislation which is required to be adopted prior to the
end of the TRA 86 remedial amendment period and (ii) has received from
the Internal Revenue Service a favorable determination letter which
considers the terms of the Plan as amended for such tax law changes.
Nothing has occurred since the date of such letter that could
adversely affect the qualified status of such Plan or the tax-exempt
status of any related trust.
(v) No under funded defined benefit plan has
been, during the five years preceding the Closing Date, transferred
out of the Company's Controlled Group.
(vi) Except as set forth on Schedule 5Q - Employee
Benefits, the Company and each Subsidiary has not incurred, and has no
reason to expect that it will incur, any material liability to the
Internal Revenue Service, the Department of Labor, the PBGC, any
multiemployer plan or otherwise under Title IV of ERISA (including any
withdrawal liability) or under the IRC with respect to any Plan or any
other plan that the Company or any member of its Controlled Group
maintains or ever has maintained or to which any of them contributes,
ever has contributed, or ever has been required to contribute.
(vii) With respect to each Plan, the Company has
provided Purchaser with true, complete and correct copies, to the
extent applicable, of (i) all documents pursuant to which the Plans
are maintained, funded and administered, (ii) the most recent annual
report (Form 5500 series) filed with the Internal Revenue Service
(with attachments), (iii) the most recent financial statement, and
(iv) all rulings, determinations, and opinions issued by any
Governmental Entity in the last three years (and pending requests for
governmental rulings, determinations, and opinions).
5R. Compliance with Laws. Except with respect to Legal
Requirements addressed by Sections 5J (Tax Matters), 5P (Employees), 5Q
(ERISA), 5S (Environmental and Safety Matters), and 5V (Healthcare Matters),
and except as set forth on the attached Schedule 5R - Compliance, the Company
and each Subsidiary is in substantial compliance with all Legal Requirements,
and the Company and each Subsidiary has not received notice of any such
non-compliance.
5S. Environmental and Safety Matters.
(i) For purposes of this Agreement, the term
"Environmental and Safety Requirements" shall mean all applicable
federal, state and local statutes, regulations, ordinances and other
provisions having the force or effect of law, and all applicable
judicial
- 33 -
40
and administrative orders and determinations, in each case concerning
public health and safety, worker health and safety and pollution or
protection of the environment (including, without limitation, all
those relating to the presence, use, production, generation, handling,
transport, treatment, storage, disposal, distribution, labeling,
testing, processing, discharge, Release, threatened Release, control
or cleanup of any hazardous materials, substances or wastes,
pesticides, pollutants, contaminants, toxic chemicals, petroleum
products or byproducts, asbestos, polychlorinated biphenyls, noise or
radiation); "Release" shall have the meaning set forth in CERCLA (as
defined below); and "Environmental Lien" shall mean any Lien, whether
recorded or unrecorded, in favor of any governmental entity, relating
to any liability of the Company or any Subsidiary arising under any
Environmental and Safety Requirements.
(ii) Except as set forth on the attached Schedule
5S - Environmental:
(a) The Company and each Subsidiary has
complied with and is currently in compliance with all
Environmental and Safety Requirements, and the Company has not
received any notice, report or information regarding any
liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) or any corrective, investigatory or
remedial obligations arising under Environmental and Safety
Requirements which relate to the Company or any of its
properties or facilities.
(b) Without limiting the generality of
the foregoing, the Company and each Subsidiary has obtained
and complied with, and is currently in compliance with all
permits, licenses and other authorizations that may be
required pursuant to any Environmental and Safety Requirements
for the occupancy of its properties or facilities or the
operation of its business.
(c) None of the following exists at any
property or facility owned, occupied or operated by the
Company or any Subsidiary: (1) underground storage tanks or
regulated surface impoundments; (2) asbestos-containing
materials in any form or condition that could subject the
owner or operator of such property or facility to regulation;
(3) materials or equipment containing polychlorinated
biphenyls; or (4) landfills.
(d) The Company and each Subsidiary has
not treated, stored, disposed of, arranged for or permitted
the disposal of, transported, handled or Released any
substance (including, without limitation, any hazardous
substance) or owned, occupied or operated any facility or
property, in each case so as to give rise to liabilities of
the Company or any Subsidiary for response costs, natural
resource damages or attorneys' fees pursuant to the
Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 ("CERCLA"), as amended, or any other
Environmental and Safety Requirements.
- 34 -
41
(e) Without limiting the generality of
the foregoing, there are no facts, events or conditions
relating to the past or present properties, facilities or
operations of the Company or any Subsidiary that would give
rise to any material corrective, investigatory or remedial
obligations, or material liabilities, whether accrued,
absolute, contingent, unliquidated or otherwise, pursuant to
Environmental and Safety Requirements (including, without
limitation, those liabilities relating to onsite or offsite
Releases or threatened Releases of hazardous materials,
substances or wastes, personal injury, property damage or
natural resources damage).
(f) The Company and each Subsidiary has
not, either expressly or by operation of law, assumed or
undertaken any liability or corrective, investigatory or
remedial obligation of any other Person relating to any
Environmental and Safety Requirements.
(g) No Environmental Lien has, to the
Existing Stockholders' knowledge, attached to any property
owned, leased or operated by the Company or any Subsidiary.
5T. Affiliated Transactions. Except as set forth on the
attached Schedule 5T - Affiliated Transactions, no officer, director or
Affiliate of LCA or any of its Subsidiaries or, to the Existing Stockholders'
knowledge, no employee of LCA or any of its Subsidiaries or any individual
related by blood, marriage or adoption to any officer, director, Affiliate or
employee of LCA or any of its Subsidiaries or any entity in which any such
Person owns a five percent (5%) or more beneficial interest, is a party to any
agreement, contract, commitment or transaction with the Company or any
Subsidiary or has any interest in any material property used by the Company or
any Subsidiary.
5U. Real Property.
(i) The attached Schedule 5U(i) - Real Property
sets forth a list of all of the real property owned by the Company and
its Subsidiaries (the "Owned Real Property"). With respect to each
parcel of the Owned Real Property: (i) each such parcel is owned in
fee simple subject only to the Permitted Liens; and (ii) except as
disclosed in Schedule 5V(b) - ▇▇▇▇▇▇ Care, all buildings, structures
and other improvements, which are material to the Company, located on
the Owned Real Property are suitable in condition and repair for their
current use in all material respects, subject to the provision of
usual and customary maintenance provided in the ordinary course of
business with respect to buildings, structures and improvements of
like nature, age, usage and construction and all water, gas,
electrical, steam, compressed air, telephone, sanitary and storm
sewage lines and other utilities and systems necessary to and serving
the Owned Real Property are sufficient to enable the continued
operation of the Owned Real Property as it is now operated in the
conduct of the business of the Company and its Subsidiaries.
- 35 -
42
(ii) The attached Schedule 5U(ii) - Leases sets
forth a list of all of the leases and subleases (the "Leases") of real
property in which the Company and its Subsidiaries have a leasehold or
subleasehold interest (the "Leased Real Property") and all lease and
sublease documents. The Company has delivered to the Purchaser's
counsel complete and accurate copies of each of the Leases. With
respect to each Lease: (i) the Lease is legal, valid, binding,
enforceable and in full force and effect according to its terms and
the Company holds a valid leasehold or subleasehold interest in such
Lease; (ii) the Lease will continue to be legal, valid, binding,
enforceable and in full force and effect on identical terms as of
immediately following the Closing; (iii) neither the Company nor, to
the Existing Stockholders' knowledge, any other party to the Lease, is
in breach or default, and no event as to the Company or, to the
Existing Stockholders' knowledge, as to any other party, has occurred
which, with notice or lapse of time, would constitute such a breach or
default or permit termination, modification or acceleration under the
Lease; (iv) the Company has not, and to the Existing Stockholders'
knowledge, no other party to the Lease has, repudiated any provision
thereof; (v) there are no disputes, oral agreements, or forbearance
programs in effect as to the Lease; (vi) the Lease has not been
modified in any respect, except to the extent that such modifications
are disclosed by the documents delivered to the Purchaser's counsel;
(vii) the Company and each Subsidiary has not assigned, transferred,
conveyed, mortgaged, deeded in trust or encumbered any interest in the
Lease; (viii) to the Existing Stockholders' knowledge, all buildings,
improvements and other structures located upon the Leased Real
Property which are material to the operation of the business of the
Company have been operated and maintained in substantial accordance
with all applicable Legal Requirements (other than as to matters of
the type addressed in Section 5V) and the terms and conditions of the
Leases; and (ix) to the Existing Stockholders' knowledge, all
buildings, structures and other improvements located upon the Leased
Real Property which are material to the operation of the business of
the Company are in suitable condition and repair for their current use
in all material respects, subject to the provision of usual and
customary maintenance in the ordinary course of business, with respect
to buildings, structures and improvements of like nature, age, usage
and construction, and all water, gas, electrical, steam, compressed
air, telephone, sanitary and storm sewage and other utility lines and
systems necessary to and serving the Leased Real Property are
sufficient to enable the operation of the Leased Real Property as it
is now operated in the operation of the business of the Company.
(iii) The attached Schedule 5U(iii) - Managed
Property sets forth a list of all of the management agreements (the
"Management Agreements") for the property managed by the Company and
its Subsidiaries (the "Managed Property"). The Company has delivered
to the Purchaser's counsel complete and accurate copies of each of the
Management Agreements. With respect to each Management Agreement: (i)
the Management Agreement is legal, valid, binding, enforceable and in
full force and effect in accordance with its terms; (ii) the
Management Agreement will continue to be legal, valid, binding,
enforceable and in full force and effect on identical terms as of
immediately following the Closing; (iii) neither the Company nor, to
the Existing Stockholders' knowledge, any other party to the
- 36 -
43
Management Agreement, is in breach or default, and no event as to the
Company or, to the Existing Stockholders' knowledge, as to any other
party, has occurred which, with notice or lapse of time, would
constitute such a breach or default or permit termination,
modification or acceleration under the Management Agreement; (iv) the
Company has not, and to the Existing Stockholders' knowledge, no other
party to the Management Agreement has, repudiated any provision
thereof; (v) there are no disputes, oral agreements, or forbearance
programs in effect as to the Management Agreement; (vi) the Management
Agreement has not been modified in any respect, except to the extent
that such modifications are disclosed by the documents delivered to
the Purchaser's counsel; and (vii) the Company and each Subsidiary has
not assigned, transferred, conveyed, mortgaged, deeded in trust or
encumbered any interest in the Management Agreement.
(iv) The attached Schedule 5U(iv) - Utility Bonds
sets forth a list of all of the Company's utility bonds, each of which
will terminate as of the Closing Date.
5V. Healthcare Matters.
(i) Set forth in Schedule 5V(i) - Healthcare is a
list of each License maintained by the Company with respect to the
Company's operation of the Facilities. The number of beds Licensed at
each Facility on the Closing Date is set forth on Schedule 5V -
Healthcare. Except as set forth in Schedule 5V - Healthcare, the
Company has obtained or applied for all Licenses required by law, rule
or regulation from any applicable Governmental Entity necessary for
the legal operation of the Facilities as MR/DD Facilities or, where
applicable, long term care nursing Facilities.
(a) Except as set forth on Schedule
5V(b) - ▇▇▇▇▇▇ Care, the Company is in substantial compliance
with all Licenses listed on Schedule 5V - Healthcare; and
(b) Except as set forth on Schedule
5V(b) - ▇▇▇▇▇▇ Care, the Company has received no written
notice from any Governmental Entity in respect of the
threatened, pending, or possible suspension, revocation,
amendment or termination of any License listed on Schedule 5V
- Healthcare, which has not been determined in favor of the
Company nor to the Existing Stockholders' knowledge is there
any proposed or threatened issuance of any such notice.
Assuming, for purposes of this sentence that the Purchaser has and the
Company will post Closing properly file and timely file with all
necessary governmental authorities all necessary reports,
notifications or other documentation of the transactions described
herein and that this Agreement provided for the sale of Existing Stock
by Holding to the Purchaser rather than the issuance of Purchaser
Stock by the Company to the Purchaser and the repurchase of the
Existing Stock by the Company from Holding, the transactions described
herein would not,
- 37 -
44
to the Existing Stockholders' knowledge, constitute a violation of any
License currently held by the Company.
(ii) (a) The Facilities listed on Schedule
5V(ii)(a) - Healthcare are certified to participate in the
Medicaid program of the state in which they are located and
are parties to Medicaid participation agreements (or
contracts) for payment by the Medicaid programs. Except as
set forth in Schedule 5V(ii)(a) - Healthcare and Schedule
5V(b) - ▇▇▇▇▇▇ Care, the Facilities with Medicaid
certification and Medicaid participation agreements
(contracts) have not been subject to or, to the Existing
Stockholders' knowledge, threatened with, loss of Medicaid
funding or termination of Medicaid participation agreements
during the 12-month period terminating on the Closing Date and
the Company has received no written notice of pending,
threatened or possible investigations by or loss of
participation in any Medicaid program for any such Facilities.
Assuming, for purposes of this sentence that the Purchaser has
and the Company will post Closing properly file and timely
file with all necessary governmental authorities all necessary
reports, notifications or other documentation of the
transactions described herein and that this Agreement provided
for the sale of Existing Stock by Holding to the Purchaser
rather than the issuance of Purchaser Stock by the Company to
the Purchaser and the repurchase of the Existing Stock by the
Company from Holding, the transactions described herein would
not, to the Existing Stockholders' knowledge, constitute a
breach of or a default under any contract between the Company
and the state with which the Medicaid provider agreement
exists.
(b) The Facilities listed on Schedule
5V(ii)(b) - Healthcare are all of the Facilities managed by
the Company under contract with the State of Florida
Residential MR District which owns the Facility and provider
agreement. Except as set forth in Schedule 5V(ii)(b), the
contracts with the State of Florida have not been subject to,
or to the Existing Stockholders' knowledge, threatened with,
termination during the 12-month period terminating on the
Closing Date and the Company has received no written notice of
pending, threatened or possible contract terminations by the
State of Florida for any such Facilities. Assuming, for
purposes of this sentence that the Purchaser has and the
Company will post Closing properly file and timely file with
all necessary governmental authorities all necessary reports,
notifications or other documentation of the transactions
described herein and that this Agreement provided for the sale
of Existing Stock by Holding to the Purchaser rather than the
issuance of Purchaser Stock by the Company to the Purchaser
and the repurchase of the Existing Stock by the Company from
Holding, the transactions described herein would not, to the
Existing Stockholders' knowledge, constitute a breach of or a
default under any management contract between the Company and
the State of Florida Residential MR District.
- 38 -
45
(c) The facilities listed on Schedule
5V(ii)(c) - Healthcare are all of the Facilities operated
under the Texas Home and Community-Based Services Waiver
Program under Section 1915(c) of the Social Security Act. The
Facilities listed on Schedule 5V(ii)(c) - Healthcare are
certified by the TDMHMR as HCS Program Providers.
(d) The Facilities listed on Schedule
5V(ii)(d) - Healthcare are contracted with the State of
Florida to provide service to waiver clients.
(iii) The Company has filed, in respect to all
Facilities for which Medicaid cost reports are required, all required
cost reports for the fiscal year 1995, and such reports have been
filed either on a timely basis or prior to the time any penalty could
be incurred for failure to file on a timely basis. Except for
inadvertent errors and good faith claims which may be subject to
challenge by the applicable state agency, to the Existing
Stockholders' knowledge, all such cost reports accurately reflect the
information to be included thereon and do not claim, and neither the
Facilities nor the Company has received, reimbursement in excess of
the amount provided by applicable governmental rules and regulations.
Schedule 5V(iii) - Healthcare hereto indicates which of such costs
reports have been audited and finally settled. The Company has made
available to Purchaser the status of such cost reports which have not
been audited and finally settled and notices of program reimbursement,
proposed or pending audit adjustments, disallowances, appeals of
disallowances and any and all other unresolved claims or disputes in
respect of such cost reports of which the Company has received notice.
Except as set forth on Schedule 5V(iii) - Healthcare, there are no
facts or circumstances which may reasonably be expected to give rise
to any material disallowance under any such cost reports.
(iv) Each Facility has a patient trust fund
account with a local financial institution as reflected on Schedule 5V
- Healthcare. The Company's patient trust fund department monitors
trust fund activity and ensures that proper documentation is in place
for all disbursements from trust funds. Except for inadvertent errors
which may nonetheless be subject to challenge upon audit by the
applicable state agency, to the Existing Stockholders' knowledge, all
such patient trust fund accounts in the aggregate accurately reflect
the amount of patient trust funds required to be maintained by each
facility. The Company has made available to Purchaser the status of
any patient trust fund audits which have not been finally settled and
notices of proposed or pending audit adjustments, disallowances,
appeals of disallowances and any and all other unresolved claims or
disputes of which the Company has received notice in respect of such
patient trust fund accounts. Except as set forth on Schedule 5V(iv) -
Healthcare, there are no facts or circumstances which may reasonably
be expected to give rise to any material audit adjustment regarding
any such patient trust fund accounts. Schedule 5V(iv) - Healthcare
reflects Patient Trust Security Bonds of the Company, each of which
will terminate as of the Closing Date.
- 39 -
46
5W. Disclosure. Neither this Agreement, nor any of the
schedules, attachments or Exhibits hereto, contains any untrue statement of a
material fact or omits a material fact necessary to make each statement
contained herein or therein, not misleading.
5X. Closing Date. The representations and warranties of
the Company and the Existing Stockholders contained in this Section 5 and
elsewhere in this Agreement and all information contained in any schedule
hereto shall be true and correct in all material respects on the date of the
Closing as though then made, except as affected by the transactions expressly
contemplated by this Agreement.
Section 6. Remedies for Breaches of this Agreement.
6A. Survival of Representations and Warranties. The
representations and warranties of the Company and the Existing Stockholders
contained in Section 5S above shall survive the Closing and continue in full
force and effect for a period of four years thereafter, the representations and
warranties of the Company and the Existing Stockholders contained in Sections
5A, 5B, 5C, 5J and 5Q and the first two sentences of Section 5D, and the
representations and warranties of the Purchaser contained in Section 8B, shall
survive the Closing and continue in full force and effect until the expiration
of the applicable statute of limitations after giving effect to any extensions
or waivers thereof, and all other written representations and warranties of the
parties contained in this Agreement shall survive the Closing and continue in
full force and effect for a period of two years thereafter.
6B. Indemnification Provisions.
(i) Indemnification by Existing Stockholders.
Subject to the limitations set forth herein, the Existing Stockholders
(but not the Company) agree jointly and severally to indemnify each of
the Purchaser (and certain management investors to be designated by
the Purchaser) and the Company and their respective officers,
directors, employees, partners, shareholders and agents (collectively,
the "Purchaser Indemnified Parties") from and against the entirety of
any Adverse Consequences any Purchaser Indemnified Party may suffer
through and after the date of the claim for indemnification (including
any Adverse Consequences any Purchaser Indemnified Party may suffer
after the end of any applicable survival period) resulting from,
arising out of, relating to, or caused by:
(i) the breach of any of the representations
or warranties contained in Section 5 (as such representations
and warranties are updated pursuant to Section 3A(iv) above
with respect to facts, events or circumstances occurring
during the Interim Period); provided that to the extent the
Company takes any action or fails to take any action during
the Interim Period at the direction of the Purchaser as a
result of which any representation or warranty contained
herein become untrue or inaccurate, such untruth or inaccuracy
shall not be considered a breach for purposes of this
paragraph (i);
- 40 -
47
(ii) the breach of any of the pre-Closing
covenants or agreements of the Company contained in this
Agreement;
(iii) the breach of any of the covenants or
agreements of the Existing Stockholders contained in this
Agreement;
(iv) any Tax of the Company for any taxable
period (or portion thereof) ending on or prior to the Closing
Date;
(v) any liability or obligation resulting
from, arising out of, relating to, or caused by the Excluded
Assets and Liabilities;
(vi) any liability or obligation resulting
from, arising out of, relating to, or caused by the management
fees paid to the Company with respect to its Florida
Facilities;
(vii) any environmental issue described in
the Environmental Report;
(viii) any liability or obligation arising
out of any transaction, event, occurrence or circumstance
occurring or existing at or prior to the Effective Time, which
is of a type which would normally be accrued or expensed on
the books and records of LCA or any of its Subsidiaries rather
than those of the Company and its Subsidiaries (including,
without limitation, all claims incurred prior to the Effective
Time with respect to health, life, dental, casualty and other
insurance (including those referred to on Exhibit 7A -
Exceptions to GAAP); workers' compensation and occupational
injury; accrued payroll, withholding, bonuses and 401(k) and
DRIP accruals and contributions; income, franchise and
deferred income taxes; and discontinued operations);
. (ix) any liability for the proposed
recoupment pursuant to the Proposed Retroactive Rate Reduction
referenced in the 8/31/95 letter from TDMHMR with respect to
the ▇▇▇▇▇▇ Care Center; or
(x) any liability or obligation resulting
from, arising out of, relating to, or caused by the items
disclosed on Schedule 5M - Litigation.
(ii) Indemnification by Purchaser. Subject to the
limitations set forth herein, the Purchaser agrees to indemnify each
of the Existing Stockholders and the Company and their respective
officers, directors, employees, partners, shareholders and agents
(collectively, the "Seller Indemnified Parties") from and against the
entirety of any Adverse Consequences any Seller Indemnified Party may
suffer through and after the date of the claim for indemnification
(including any Adverse Consequences any Seller Indemnified Party may
suffer after the end of any applicable survival period) resulting
from,
- 41 -
48
arising out of, relating to, or caused by (i) the breach of any of the
representations or warranties contained in Section 8B, or (ii) the
breach of any of the covenants or agreements of the Purchaser
contained in this Agreement.
(iii) Indemnification by the Company. Subject to
the limitations set forth herein, the Company agrees to indemnify each
of the Purchaser (and certain management investors to be designated by
the Purchaser) and the Existing Stockholders, and each of their
respective officers, directors, employees, partners, shareholders and
agents (collectively, the "Company Indemnified Parties") from and
against the entirety of any Adverse Consequences any Company
Indemnified Party may suffer through and after the date of the claim
for indemnification (including any Adverse Consequences any Company
Indemnified Party may suffer after the end of any applicable survival
period) resulting from, arising out of, relating to, or caused by (A)
the breach of any of the post-Closing covenants or agreements of the
Company contained in this Agreement, (B) Interim Period Liabilities,
or (C) any liability or obligation of the Company arising out of the
Company's operations and activities from and after the Closing
(including, without limitation, obligations under leases and other
contracts assigned by the Existing Stockholders to the Company for
which the Existing Stockholders remain primarily or secondarily liable
to the other parties to such leases and other contracts); provided
that nothing in this paragraph (iii) shall be construed to limit or
impair, or create any right of setoff or counterclaim with respect to,
any claim the Company may make as a Purchaser Indemnified Party or
Seller Indemnified Party against any party hereto pursuant to this
Section 6; provided further that nothing contained in this Section 6
shall give the right of setoff (and no right of setoff shall be
asserted) as against any payment due from or obligation of the Company
by reason of the existence of any claim against the Existing
Stockholders hereunder.
(iv) Limitations on Indemnification. With respect
to claims for indemnification pursuant to Sections 6B(i) and 6B(ii)
above, the following provisions shall apply:
(a) If there is an applicable survival
period pursuant to Section 6A above with respect to such
claim, the party making such claim must make a written claim
for indemnification against the party from which such party is
seeking indemnification within such survival period, and with
respect to any Environmental Claim, the party making such
claim must make a written claim for indemnification against
the party from which such party is seeking indemnification on
or before the fourth anniversary of the Closing.
(b) The Existing Stockholders shall not
have any obligation to indemnify any Purchaser Indemnified
Party from and against any Adverse Consequences arising
pursuant to the breach of any of the representations or
warranties contained in Section 5S above or pursuant to clause
(vii) of Section 6B(i) above (each, an "Environmental Claim")
unless and until (and then, subject to the
- 42 -
49
other limitations herein, only to the extent) Purchaser
Indemnified Parties have collectively suffered Adverse
Consequences by reason of all such breaches in excess of a
$500,000 aggregate basket (the "Environmental Sub-Basket").
(c) The Existing Stockholders shall not
have any obligation to indemnify any Purchaser Indemnified
Party from and against any Adverse Consequences arising
pursuant to clauses (i) or (vii) of Section 6B(i) above unless
and until (and then, subject to the other limitations herein,
only to the extent) Purchaser Indemnified Parties have
collectively suffered Adverse Consequences by reason of all
such breaches in excess of a $1,000,000 aggregate basket
(excluding for purposes of such calculation, any Adverse
Consequences used in satisfying the Environmental Sub-Basket,
it being the intent that as to Environmental Claims, the
Existing Stockholders will have the benefit of the
Environmental Sub-Basket and the provisions of this paragraph
(c) to the extent of any excess).
(d) The Purchaser shall not have any
obligation to indemnify any Seller Indemnified Party from and
against any Adverse Consequences arising pursuant to clause
(i) of Section 6B(ii) unless and until (and then, subject to
the other limitations herein, only to the extent) Seller
Indemnified Parties have collectively suffered Adverse
Consequences by reason of all such breaches in excess of a
$1,000,000 aggregate basket (at which point the Purchaser will
be obligated to indemnify Seller Indemnified Parties from and
against all such Adverse Consequences in excess of such
basket).
(e) In no event shall the aggregate
amount of any liability of the Existing Stockholders with
respect to Adverse Consequences arising pursuant to clauses
(i), (vi) or (vii) of Section 6B(i) exceed $10,000,000, and in
no event shall the aggregate amount of any liability of the
Purchaser with respect to Adverse Consequences arising
pursuant to clause (i) of Section 6B(ii) exceed $10,000,000.
(f) Neither Existing Stockholder shall
be liable under the indemnification provisions of this Section
6 hereof with respect to Adverse Consequences arising pursuant
to clause (i) of Section 6B(i) (other than with respect to the
breach of any of the representations or warranties contained
in Section 5E) to the extent that ▇▇▇▇ ▇. ▇▇▇▇▇▇ or ▇▇▇▇▇ ▇▇▇▇
has knowledge of facts or circumstances not disclosed, which
if disclosed, would not constitute a breach at the Closing.
(g) Any set of common facts and
circumstances which constitute the basis for claims that both
(i) a representation or warranty has been breached and (ii) a
pre-Closing covenant or agreement has been breached, shall be
construed as being the basis for such claim that a
representation or warranty has been breached
- 43 -
50
rather than the basis for such claim that a pre-Closing
covenant or agreement has been breached.
(h) The amount of any indemnification
payable under Section 6 shall be (i) net of any insurance
recoveries received by the Indemnified Party, (ii) net of any
income Tax benefit realized by the Indemnified Party, (iii)
increased to take account of any income Tax cost incurred by
the Indemnified Party arising from the receipt or accrual of
indemnity payments hereunder (grossed up for such increase)
and (iv) in the case of a claim for indemnification with
respect to a matter for which a reserve was taken into account
in the determination of Actual Working Capital, decreased by
the amount of such reserve. In computing the amount of any
such Tax cost or Tax benefit, the Indemnified Party shall be
deemed to recognize all other items of income, gain, loss,
deduction or credit before recognizing any item arising from
the receipt or accrual of any indemnity payment hereunder or
the incurrence or payment of any indemnified Adverse
Consequences. Any indemnification payment hereunder shall
initially be made without regard to this paragraph and shall
be increased or reduced to reflect any such net Tax cost
(including gross-up) or net Tax benefit only after the
Indemnified Party has actually realized such cost or benefit.
For purposes of this Agreement, an Indemnified Party shall be
deemed to have "actually realized" a net Tax cost or a net Tax
benefit to the extent that, and at such time as, the amount of
Taxes payable by such Indemnified Party is increased above or
reduced below, as the case may be, the amount of Taxes that
such Indemnified Party would be required to pay but for the
receipt or accrual of the indemnity payment of the incurrence
or payment of such Adverse Consequences, as the case may be.
The amount of any increase or reduction hereunder shall be
adjusted to reflect any final determination (which shall
include the execution of Form 870-AD or successor form) with
respect to the Indemnified Party's liability for Taxes and
payments between the Existing Stockholders and the Purchaser
to reflect such adjustment shall be made if necessary. Any
indemnity payment under this Agreement shall be treated as an
adjustment to the Repurchase Price for Tax purposes, unless a
final determination (which shall include the execution of a
form 870-AD or successor form) with respect to the Indemnified
Party or any of its Affiliates causes any such payment not to
be treated as an adjustment to the Repurchase Price for United
States federal income Tax purposes. For purposes of the
preceding sentence, the amount of any state income tax benefit
or cost shall take into account the federal income tax effect
of such benefit or cost.
(i) If a Purchaser Indemnified Party
suffers any Adverse Consequences for which such Purchaser
Indemnified Party is entitled to indemnification under the
provisions of this Agreement by reason of a violation of a
Legal Requirement (a "Violation Based Loss"), then,
notwithstanding anything to the contrary contained in this
Agreement, to the extent the discovery of such violation by a
Governmental Entity or other third party or the incurring of
such
- 44 -
51
Violation Based Loss resulted from the Purchaser Indemnified
Party disclosing such matter to such Governmental Entity or
other third party under circumstances where such Purchaser
Indemnified Party was not obligated to do so under any Legal
Requirement or contractual obligation, neither Existing
Stockholder shall be liable to such Purchaser Indemnified
Party under the indemnification provisions of this Section 6
hereof to the extent the indemnification claim resulted from
such non-required disclosure.
(j) With respect to any Environmental
Claim for any Facility, the Existing Stockholders shall not
have any obligation to indemnify any Purchaser Indemnified
Party from and against any Adverse Consequences to the extent
such Adverse Consequences arise solely from the diminution in
fair market value of such Facility as a result of the facts
and circumstances underlying such Environmental Claim.
(k) With respect to any Environmental
Claim asserted hereunder, the Existing Stockholders'
obligation to provide indemnification hereunder shall not
exceed the amount of indemnification that would be required
with respect to such Environmental Claim if the use of the
relevant Facility were to remain the same as the use existing
as of the Closing Date.
6C. Matters Involving Third Parties.
(i) If any third party shall notify any Person
entitled to indemnification hereunder (each an "Indemnified Party")
with respect to any matter (a "Third Party Claim") which may give rise
to a claim for indemnification against any Party (each an
"Indemnifying Party") under Section 6B, then the Indemnified Party
shall promptly notify the Indemnifying Party thereof in writing;
provided, however, that no delay on the part of the Indemnified Party
in notifying the Indemnifying Party shall relieve any Indemnifying
Party from any obligation hereunder unless (and then solely to the
extent) such Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to
defend the Indemnified Party against the Third Party Claim with
counsel of its choice so long as (A) the Indemnifying Party notifies
the Indemnified Party in writing within 15 days after the Indemnified
Party has given notice of the Third Party Claim that the Indemnifying
Party will indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer
(subject to the limitations in this Agreement) resulting from, arising
out of, relating to, or caused by the Third Party Claim, and (B) the
Indemnifying Party conducts the defense of the Third Party Claim
diligently. The Indemnified Party shall provide the Indemnifying
Party with access to such information and materials (including the
right to make copies thereof) as may be reasonably necessary in order
for the Indemnifying Party to evaluate the Third Party Claim.
- 45 -
52
(iii) So long as the Indemnifying Party is
conducting the defense of the Third Party Claim in accordance with
Section 6C(ii) above, (A) the Indemnified Party may retain separate
co-counsel at its sole cost and expense and participate (but the
Indemnifying Party shall control) in defense of the Third Party Claim,
(B) the Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party
Claim without the prior written consent of the Indemnifying Party, not
to be withheld unreasonably, and (C) the Indemnifying Party will not
consent to the entry of any judgment or enter into any settlement
containing injunctive or equitable relief (to the extent such
equitable relief cannot reasonably be satisfied with money damages)
with respect to the Third Party Claim without the prior written
consent of the Indemnified Party not to be withheld unreasonably.
Notwithstanding anything to the contrary in this Section 6C, any Third
Party Claim that is also an Environmental Claim shall also be subject
to the terms of Section 6D hereof; without limiting the generality of
the foregoing clause, the participation by the Indemnified Party in
the defense of such Third Party Claim shall be subject to the
provisions of Section 6D(i)- (ii) hereof.
(iv) In the event any of the conditions in Section
6C(ii) above is or becomes unsatisfied, however, (A) the Indemnified
Party may defend against, and consent to the entry of any judgment or
enter into any settlement with respect to, the Third Party Claim in
any manner it reasonably may deem appropriate (and the Indemnified
Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (B) to the extent the
Indemnified Party is entitled to indemnification as provided herein,
the Indemnifying Party will reimburse the Indemnified Party promptly
and periodically for the costs of defending against the Third Party
Claim (including reasonable attorneys' fees and expenses) (subject to
the limitations in this Agreement), and (C) the Indemnifying Party
will remain responsible for any Adverse Consequences the Indemnified
Party may suffer resulting from, arising out of, relating to, in the
nature of, or caused by the Third Party Claim to the fullest extent
provided in Section 6B (subject to the limitations in this Agreement).
6D. Environmental Management.
(i) Upon assertion by a Purchaser Indemnified
Party of an Environmental Claim hereunder, the Existing Stockholders
shall be entitled to assume Principal Management of the subject matter
of such claim. To assume Principal Management, the Existing
Stockholders must notify the Purchaser Indemnified Party within 30
days of such notice that it intends to assume Principal Management.
If exigent circumstances require action (including, without
limitation, release reporting or remedial action) more promptly than
is contemplated by the above-referenced 30-day period, the Purchaser
Indemnified Party may, if reasonable under the circumstances, specify
in its notice that the Existing Stockholders must provide their notice
within such shorter time as is specified in such notice by the
Purchaser Indemnified Party. In the event the Existing Stockholders
elect not to undertake Principal Management, the Purchaser Indemnified
Party shall assume Principal
- 46 -
53
Management of the subject matter of the claim. As of the Closing Date,
the Existing Stockholders are deemed to have assumed Principal
Management with respect to the matters so designated on Schedule 5S -
Environmental. "Principal Management" means the authority to
principally direct the handling of the subject matter of the
Environmental Claim, including, without limitation, selection of
consultants, contractors, experts or advisors; investigation,
evaluation, selection and implementation of remedial measures; and
negotiations with or challenges to any governmental agencies and third
parties. The party exercising Principal Management shall exercise
sole and exclusive authority to conduct any negotiations with
governmental agencies or third parties concerning the investigation,
evaluation, selection, and implementation of remedial measures,
subject to the express rights afforded to the party not exercising
Principal Management under Section 6D(ii) below.
(ii) The party not exercising Principal Management
with respect to a particular matter shall be entitled, at its sole
cost and expense, to reasonably participate in the management of such
matter. Such participation shall include, without limitation: (A) the
right to receive copies of all reports, work plans and analytical data
submitted to governmental agencies, all notices or other letters or
documents received from governmental agencies, any other documentation
and correspondence materially bearing to the claim, and notices of
material meetings; (B) the opportunity to attend such material
meetings; and (C) the right to reasonably consult with, and approve in
advance (which approval will not be unreasonably withheld or delayed)
material actions by, the party exercising Principal Management.
(iii) In the event they undertake Principal
Management of any matter, the Existing Stockholders shall, upon
reasonable notice to the Purchaser Indemnified Party, have reasonable
access to the relevant subject Facility. The Existing Stockholders
shall undertake all activities that they conduct or coordinate
hereunder in a manner that does not unreasonably interfere with the
day-to-day operation of such Facility of the Purchaser Indemnified
Party. The party undertaking Principal Management hereunder for any
matter shall manage the matter in good faith and in a responsible
manner, and any activities conducted in connection therewith shall be
undertaken promptly and completed expeditiously using commercially
reasonable efforts, subject to the schedules and approvals required by
the applicable governmental body. The parties agree to reasonably
cooperate with one another in connection with addressing any matter
hereunder. Without prejudicing its rights (or the rights of any other
party hereto) to indemnification under this Agreement, any party
hereto may take any reasonable action that is required to respond to
an actual or threatened emergency or imminent endangerment situation
arising from a matter otherwise covered hereunder.
(iv) Any matter covered hereunder shall be deemed
to have been adequately completed to the extent that it (A) attains
compliance with Environmental and Safety Requirements, including
without limitation, all action levels or cleanup standards
- 47 -
54
promulgated thereunder and (B) does not unreasonably interfere with
the operations of the affected property as such operations are now
conducted.
(v) In selecting a remedial measure for any
Environmental Claim asserted hereunder, the parties hereto agree to
use the most cost-effective remedy that satisfies the criteria
specified in clauses (A) and (B) of Section 6D(iv) hereof.
(vi) Notwithstanding anything to the contrary in
this Section 6D, any Environmental Claim that is also a Third Party
Claim shall also be subject to the terms of Section 6C hereof.
6E. Other Provisions. Each Existing Stockholder hereby
agrees that it will not make any claim for indemnification hereunder against
the Company by reason of the fact that (i) it was a director, officer,
employee, or agent of the Company or was serving at the request of the Company
as a partner, trustee, director, officer, employee, or agent of another entity
or (ii) the Company joined in making representations or warranties to the
Purchaser (whether such claim is for judgments, damages, penalties, fines,
costs, amounts paid in settlement, losses or expenses) with respect to any
action, suit, proceeding, complaint, claim, or demand brought by the Purchaser
against the Existing Stockholders (if such action, suit, proceeding, complaint,
claim, or demand is pursuant to this Agreement).
6F. Remedies. Except and only to the extent expressly
provided in this Agreement or the Equity Agreements, on and after the Closing
the Existing Stockholders, their officers, directors, employees, agents and
affiliates, and the officers and directors of the Company holding offices prior
to the election of the New Board members shall not have any liability,
responsibility or obligation to the Purchaser, American Habilitation Services,
Inc., the Company, the Company's Subsidiary or their respective officers,
directors, employees, agents or Affiliates with respect to or by reason of any
fact, circumstance, event, condition, act, omission, claim, transaction or
arrangement in any way relating to or affecting the Company and/or its
Subsidiary (including, without limitation, any environmental, corporate or
healthcare matter), regardless of whether such liability, responsibility or
obligation arising or is alleged to arise by reason of negligence or breach of
fiduciary duty. The indemnification provisions set forth in this Agreement,
together with specific performance under Section 8Q below, constitute the sole
and exclusive remedy of the parties hereto in connection with the matters set
forth herein and the transactions contemplated hereby and are in lieu of any
other statutory, equitable common law or other remedy that any such party may
have relative to such matters. In addition, THE PURCHASER AND EACH EXISTING
STOCKHOLDER EXPRESSLY WAIVES THE PROVISIONS OF CHAPTER XVII, SUBCHAPTER E.
SECTIONS 17.41 THROUGH 17.63, INCLUSIVE, (EXCEPT FOR SECTION 17.55) OF THE
TEXAS BUSINESS AND COMMERCE CODE, WHICH IS GENERALLY KNOWN AS THE TEXAS
DECEPTIVE TRADE PRACTICES ACT. THE PURCHASER AND EACH EXISTING STOCKHOLDER
REPRESENTS AND WARRANTS THAT IT (I) HAS ASSETS OF $5 MILLION OR MORE, (II) HAS
KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT ENABLE SUCH
PARTY TO EVALUATE
- 48 -
55
THE MERITS AND RISKS OF THE TRANSACTIONS CONTEMPLATED HEREBY, (III) IS NOT IN A
SIGNIFICANTLY DISPARATE BARGAINING POSITION RELATIVE TO THE OTHER PARTIES AND
(IV) HAS BEEN REPRESENTED BY LEGAL COUNSEL IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED HEREBY. Nothing set forth in this Section 6F is intended to be
construed or shall be construed to (a) modify, alter or otherwise affect in any
way the respective rights, undertakings, duties, obligations, claims or
liabilities of each of the parties under or arising out of this Agreement, the
Stockholders Agreement, the Registration Agreement, the Transition Services
Agreement, or any of the other documents, agreements, or instruments executed in
connection herewith or therewith, (b) exonerate or exculpate any such Person
with respect to any intentional fraud committed by such Person, or (c) limit or
impair (or create any right of setoff or counterclaim with respect to) any claim
the Company may make as a Purchaser Indemnified Party or Seller Indemnified
Party against any party hereto pursuant to this Section 6
Section 7. Definitions.
7A. Definitions. For the purposes of this Agreement, the
following terms have the meanings set forth below:
"Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses, but
excluding consequential or incidental damages other than those of a third party
sought to be recovered by an Indemnified Party in a Third Party Claim.
"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Affiliated Group" means any affiliated group as defined in
IRC Section 1504 that has filed a consolidated return for federal income tax
purposes (or any similar group under state, local or foreign law) for a period
during which the Company was a member.
"Class A Preference Stock" means the Company's Class A
Preference Stock, par value $.01 per share.
"Class B Common" means the Company's Class B Common Stock, par
value $.01 per share.
"Class C Common" means the Company's Class C Common Stock, par
value $.01 per share.
- 49 -
56
"Equity Agreements" means the Stockholders Agreement, the
Registration Agreement and the Services Agreement.
"Facilities" means all Owned Real Property, Leased Real
Property and Managed Property.
"GAAP" means United States generally accepted accounting
principles, consistently applied.
"Governmental Entity" shall mean any court or any federal,
state, or local legislative body or administrative agency, governmental
municipality, department, commission, regulatory authority, board, bureau, or
other body, including, without limitation, any such entity having jurisdiction
over the operations of the Facilities owned or operated by the Company.
"Indebtedness" means at a particular time, without
duplication, (i) any indebtedness for borrowed money or issued in substitution
for or exchange of indebtedness for borrowed money, (ii) any indebtedness
evidenced by any note, bond, debenture or other debt security, (iii) any
indebtedness for the deferred purchase price of property or services with
respect to which a Person is liable, contingently or otherwise, as obligor or
otherwise (other than trade payables and other current liabilities incurred in
the ordinary course of business), (iv) any commitment by which a Person
expressly assures a creditor against loss (including, without limitation,
contingent reimbursement obligations with respect to letters of credit), (v)
any indebtedness guaranteed in any manner by a Person (including, without
limitation, guarantees in the form of an agreement to repurchase or reimburse),
(vi) any obligations under capitalized leases with respect to which a Person is
liable, contingently or otherwise, as obligor, guarantor or otherwise, or with
respect to which obligations a Person expressly assures a creditor against
loss, and (vii) any indebtedness secured by a Lien on a Person's assets other
than Permitted Liens.
"Intellectual Property Rights" means all (i) patents, patent
applications, patent disclosures and inventions (whether or not patentable and
whether or not reduced to practice), (ii) trademarks, service marks, trade
dress, trade names, logos and corporate names and registrations and
applications for registration thereof together with all of the goodwill
associated therewith, (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration
thereof, (iv) mask works and registrations and applications for registration
thereof, (v) computer software, data, data bases and documentation thereof,
(vi) trade secrets and other confidential information (including, without
limitation, ideas, formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial and marketing plans and customer and supplier
lists and information), (vii) other intellectual property rights, (viii) copies
and tangible embodiments thereof (in whatever protectable form or medium), and
(ix) license agreements related thereto.
- 50 -
57
"Investment" as applied to any Person means (i) any direct or
indirect purchase or other acquisition by such Person of any notes,
obligations, instruments, stock, securities or ownership interest (including
partnership interests and joint venture interests) of any other Person and (ii)
any capital contribution by such Person to any other Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
any reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"knowledge" or "aware" as applied to any Person means the
actual knowledge or awareness of such Person (which as applied to the Existing
Stockholders shall mean such knowledge and awareness of ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇, and
which as applied to the Purchaser shall mean such knowledge and awareness of
▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇▇).
"Legal Requirement" means any requirement arising under any
action, statute, law, ordinance, order, judgment, decree, treaty, rule,
regulation, determination or direction of any Governmental Entity, including
any Environmental and Safety Requirement.
"Licenses" shall mean all permits, licenses, registrations,
franchises, concessions, orders, certificates, consents, authorizations and
approvals of any Governmental Entity required in order to possess, use, alter,
repair, maintain, or operate the Facilities owned or operated by the Company.
"Liens" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof), any sale of receivables with recourse against the Company or any
Affiliate, any filing or agreement to file a financing statement as debtor
under the Uniform Commercial Code or any similar statute other than to reflect
ownership by a third party of property leased to the Company under a lease
which is not in the nature of a conditional sale or title retention agreement,
or any subordination arrangement in favor of another Person (other than any
subordination arising in the ordinary course of business).
"Material Adverse Effect" means a material adverse effect upon
the financial condition, operating results, assets, operations or business
prospects of the Company and its Subsidiaries taken as a whole.
"Officer's Certificate" means a certificate signed by the
Company's president or its chief financial officer, stating that the officer
signing such certificate has made or has caused to be made such investigations
as are reasonably necessary in order to permit him to verify the accuracy of
the information set forth in such certificate.
"Permitted Liens" means:
- 51 -
58
(i) tax liens with respect to taxes not yet due
and payable or which are being contested in good faith by appropriate
proceedings and for which appropriate reserves have been established
in accordance with GAAP;
(ii) deposits or pledges made in connection with,
or to secure payment of, utilities or similar services, workers'
compensation, unemployment insurance, old age pensions or other social
security obligations;
(iii) purchase money security interests in any
property acquired by the Company to the extent permitted by this
Agreement;
(iv) interests or title of a lessor under any
Lease;
(v) mechanics', materialmen's or contractors'
liens or encumbrances or any similar lien or restriction arising or
incurred in the ordinary course of business for amounts which are not
delinquent and which are not, individually or in the aggregate,
material to the business of the Company and its Subsidiaries;
(vi) easements, rights-of-way, restrictions and
other similar charges and encumbrances not interfering with the
ordinary conduct of the business of the Company or detracting from the
value of the assets of the Company;
(vii) liens to secure Indebtedness being repaid at
the Closing; and
(viii) liens outstanding on the date hereof set
forth on Schedule 7A - Liens.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Provider Agreement" shall mean all agreements or contracts
with any state Governmental Entity for the provision of services to
Medicaid-eligible clients for which reimbursement is made under Title XIX of
the Social Security Act (the Medicaid Program) or a Medicaid Waiver Program.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal law then in force.
"Subsidiary" means, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that
- 52 -
59
Person or a combination thereof, or (ii) if a limited liability company,
partnership, association or other business entity, a majority of the
partnership or other similar ownership interest thereof is at the time owned or
controlled, directly or indirectly, by any Person or one or more Subsidiaries
of that Person or a combination thereof. For purposes hereof, a Person or
Persons shall be deemed to have a majority ownership interest in a limited
liability company, partnership, association or other business entity if such
Person or Persons shall be allocated a majority of limited liability company,
partnership, association or other business entity gains or losses or shall be
or control any managing director or general partner of such limited liability
company, partnership, association or other business entity.
"Tax" or "Taxes" means federal, state, county, local, foreign
or other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or
add-on minimum, estimated and other taxes of any kind whatsoever (including,
without limitation, deficiencies, penalties, additions to tax, and interest
attributable thereto).
"Tax Return" means any return, information report or filing
with respect to Taxes, including any schedules attached thereto and including
any amendment thereof.
"TDMHMR" means the Texas Department of Mental Health and
Mental Retardation.
"Treasury Regulations" means the United States Treasury
Regulations promulgated under the IRC, and any reference to any particular
Treasury Regulation section shall be interpreted to include any final or
temporary revision of or successor to that section regardless of how numbered
or classified.
"Working Capital" shall mean (i) the Company's consolidated
current assets (other than the Excluded Assets and Liabilities) minus (ii) the
Company's consolidated current liabilities (other than Indebtedness (including
intercompany Indebtedness), current liabilities resulting from the Company's
obligations pursuant to Section 8A below and the Excluded Assets and
Liabilities), each determined on a consolidated basis in accordance with GAAP,
except for the exceptions to GAAP set forth on Exhibit 7A attached hereto.
7B. Cross Reference to Other Definitions. Set forth
below is a cross reference to other defined terms used in this Agreement:
Term Section
---- -------
Actual Working Capital 1D(i)
Agreement Preface
Applicable Contracts 5K(i)
Articles of Incorporation 2B
- 53 -
60
Bank 2H(i)
Bank Agreement 2H(i)
Baseline Working Capital 1D(ii)
CERCLA 5S(ii)(e)
Closing 1C
Closing Date 1C
Closing Review 1D(i)
Company Preface
Company Indemnified Parties 6B(iii)
Draft Balance Sheet 1D(i)
Effective Time 1D(i)
Environmental and Safety Requirements 5S(i)
Environmental Sub-Basket 6B(iv)(b)
Environmental Claim 6B(iv)(b)
Environmental Lien 5S(i)
Environmental Report 2S
Environmental Sub-Basket 6B(iv)(b)
ERISA 5Q(i)
Excluded Assets and Liabilities 2P
Existing Stock 1A(iii)
Existing Stockholders Preface
Facility File Contracts 5K(i)
Firm 1D(i)
Health Plan 8D(v)
HMO Contracts 8D(vii)
Holding Preface
Incident 8D(iv)
Indemnified Party 6C(i)
Indemnifying Party 6C(i)
Interim Cash 4(i)
Interim Cash Accounts 4(i)
Interim Period 4(i)
Interim Period Liabilities 4(ii)
Interim Settlement Amount 4(iii)
Interim Tax Amount 4(iii)
Latest Balance Sheet 5E(ii)
Leased Real Property 5U(ii)
Leases 5U(ii)
Managed Property 5U(iii)
Management Agreements 5U(iii)
Marks 3E
Material Adverse Change 2J
Merger Recitals
- 54 -
61
New Board of Directors 1B(iv)
Objection Notice 1D(i)
Owned Real Property 5U(i)
Plans 5Q(i)
Post-Closing Third Party Tax Claim 8C(vi)(b)
Pre-Closing Third Party Tax Claim 8C(vi)(a)
Principal Management 6D(i)
Purchaser Preface
Purchaser Indemnified Parties 6B(i)
Purchaser Stock 1A(ii)
Real Property 2T(v)
Real Property Transferor 2O(i)
Registration Agreement 2E
Release 5S(i)
Repurchase Price 1A(iii)
Seller Indemnified Parties 6B(ii)
Services Agreement 2G
Solvency Certificate 2-1L
Stockholders Agreement 2D
Subdebt Agreement 2H(ii)
Subdebt Lender 2H(ii)
Third Party Claim 6C(i)
Title Policies 2T(v)
TOI Plan 8D(ix)
TRA 86 5Q(iv)
Transfer Taxes 8C(v)
Transition Services Agreement 2I
Violation Based Loss 6B(iv)(i)
Section 8. Miscellaneous.
8A. Expenses. The Company shall pay, and hold the
Purchaser and all holders of Purchaser Stock harmless against liability for the
payment of, (i) all of the fees and expenses of the Company and the Purchaser
in connection with this Agreement, the Equity Agreements and the other
transactions contemplated hereby, including the reasonable fees and expenses of
the Purchaser's legal counsel and accountants (subject to any separate
agreement between the Company and such Person) which shall be payable at the
Closing, (ii) the fees and expenses incurred with respect to any amendments or
waivers (whether or not the same become effective) under or in respect of this
Agreement, the Equity Agreements and the other agreements contemplated hereby,
the Articles of Incorporation (including, without limitation, in connection
with any proposed merger, sale or recapitalization of the Company), (iii) stamp
and other taxes which may be payable in respect of the execution and delivery
of this Agreement or the issuance, delivery or sale of any shares of Purchaser
Stock, (iv) the fees and expenses incurred with respect to the enforcement of
the rights
- 55 -
62
granted under this Agreement, the Equity Agreements and the other agreements
contemplated hereby, if the Purchaser or holder of Purchaser Stock prevails in
such enforcement action, and (v) the reasonable fees and expenses incurred by
each such Person in any required filing with any governmental agency with
respect to its investment in the Company or in any other required filing with
any governmental agency with respect to the Company which mentions such Person;
provided that none of the foregoing obligations of the Company (and no payments
by the Company in satisfaction of any such obligations) shall be deemed to
reduce Working Capital for purposes of Section 1D above and the Existing
Stockholders shall have no liability therefor under Section 6 or otherwise.
The Existing Stockholders shall pay all fees and expenses of attorneys,
investment bankers, brokers, consultants, and other advisors to the Company and
the Existing Stockholders relating to the transactions contemplated by this
Agreement.
8B. Purchaser's Representations. The Purchaser hereby
represents and warrants that:
(i) the Purchaser is a limited partnership duly
organized, validly existing and in good standing under the laws of
Delaware and is qualified to do business in every jurisdiction in
which the failure to so qualify has had or would reasonably be
expected to have a Material Adverse Effect; the Purchaser possesses
all requisite partnership power and authority and all material
licenses, permits and authorizations necessary to carry out the
transactions contemplated by this Agreement;
(ii) the execution, delivery and performance of
this Agreement have been duly authorized by the Purchaser;
(iii) this Agreement constitutes a valid and
binding obligation of the Purchaser enforceable in accordance with its
terms (assuming, for purposes of this sentence, that this Agreement
constitutes a valid and binding obligation of each other party hereto
and thereto, enforceable in accordance with its terms);
(iv) the execution and delivery by the Purchaser
of this Agreement, and the fulfillment of and compliance with the
respective terms hereof by it, do not and shall not (A) conflict with
or result in a breach of the terms, conditions or provisions of, (B)
constitute a default under, (C) result in a violation of, or (D)
require any authorization, consent, approval, exemption or other
action by or notice or declaration to, or filing with, any court or
administrative or governmental body or agency pursuant to, the
organizational documents of the Purchaser, or any law, statute, rule
or regulation to which it is subject, or any agreement, instrument,
order, judgment or decree to which it is bound or otherwise subject;
(v) the Purchaser is an "accredited investor" (as
such term is defined under Regulation D of the Securities Act) and is
acquiring the Purchaser Stock purchased hereunder or acquired pursuant
hereto for its own account with the present intention of holding such
securities for purposes of investment, and that it has no intention of
selling such
- 56 -
63
securities in a distribution in violation of the federal securities
laws or any applicable state securities laws; provided that nothing
contained herein shall prevent the Purchaser and subsequent holders of
Purchaser Stock from transferring such securities in compliance with
the provisions of the Stockholders Agreement;
(vi) there are no claims for brokerage
commissions, finders' fees or similar compensation in connection with
the transactions contemplated by this Agreement based on any
arrangement or agreement binding upon the Purchaser; the Purchaser
shall pay, and hold the Existing Stockholders harmless against, any
liability, loss or expense (including, without limitation, reasonable
attorneys' fees and out-of-pocket expenses) arising in connection with
any claim by, through or under the Purchaser; and
(vii) to the Purchaser's knowledge, the purchase of
Purchaser Stock by the Purchaser hereunder is not prohibited by any
applicable law or governmental rule or regulation and will not subject
the Purchaser to any material penalty, liability or, in the
Purchaser's reasonable judgment, other materially onerous condition
under or pursuant to any applicable law or governmental rule or
regulation, and the purchase of the Purchaser Stock by the Purchaser
hereunder is permitted by laws, rules and regulations of the
jurisdictions and governmental authorities and agencies to which the
Purchaser is subject.
8C. Tax Matters. The following provisions shall govern
the allocation of responsibility as between Purchaser and the Existing
Stockholders for certain tax matters following the Closing Date:
(i) Tax Periods Ending on or Before the Closing
Date. The Existing Stockholders shall prepare or cause to be prepared
and file or cause to be filed all Tax Returns for the Company and the
Subsidiaries for all periods ending on or prior to the Closing Date
which are filed after the Closing Date. The Existing Stockholders
shall be responsible for and shall indemnify Purchaser against any
liability of the Company and any Subsidiary for Taxes with respect to
such periods. The Company shall provide a power of attorney to the
Existing Stockholders to permit the Existing Stockholders to sign and
file such Tax Returns and the Existing Stockholders shall indemnify
and hold harmless all officers of the Company for any liability in
connection with the preparation and filing of such Tax Returns. Each
such Tax Return shall be prepared in a manner consistent with past
returns and in compliance with applicable law. The Existing
Stockholders shall provide copies of all such Tax Returns to the
Company within 15 days of filing such Tax Returns.
(ii) Affiliated Group Returns. The Existing
Stockholders shall prepare or cause to be prepared and file or cause
to be filed all income Tax Returns with respect to periods for which
the consolidated, unitary and combined income Tax Returns of LCA will
include the operations of the Company or any Subsidiary. The portion
of each such Tax Return relating to the Company and each Subsidiary
shall be prepared in a manner consistent with past returns, and each
such return shall be prepared in compliance with applicable law.
- 57 -
64
The Existing Stockholders shall be responsible for and shall indemnify
Purchaser against any liability of the Company and any Subsidiary
under Treasury Regulation Section 1.1502-6 (and any similar provision
of state, local or foreign law) for Taxes of any Affiliated Group.
The Existing Stockholders shall provide copies of the portions of all
such Tax Returns relating to the Company and each Subsidiary within 15
days of filing such Tax Returns.
(iii) Tax Periods Beginning Before and Ending After
the Closing Date. The Company shall prepare or cause to be prepared
and file or cause to be filed any Tax Returns of the Company for Tax
periods which begin before the Closing Date and end after the Closing
Date. The Existing Stockholders shall pay to the Company within 15
days of the date on which Taxes are paid with respect to such periods
an amount equal to the portion of such Taxes which relates to the
portion of such Taxable period ending on the Closing Date. For
purposes of this Section, in the case of any Taxes that are imposed on
a periodic basis and are payable for a Taxable period that includes
(but does not end on) the Closing Date, the portion of such Tax which
relates to the portion of such Taxable period ending on the Closing
Date shall (x) in the case of any Taxes other than Taxes based upon or
related to income or receipts, be deemed to be the amount of such Tax
for the entire Taxable period multiplied by a fraction the numerator
of which is the number of days in the Taxable period ending on the
Closing Date and the denominator of which is the number of days in the
entire Taxable period, and (y) in the case of any Tax based upon or
related to income or receipts be deemed equal to the amount which
would be payable if the relevant Taxable period ended on the Closing
Date. For purposes of this Section, in the case of any Tax credit
relating to a Taxable period that begins before and ends after the
Closing Date, the portion of such Tax credit which relates to the
portion of such Taxable period ending on the Closing Date shall (A) in
the case of a credit with respect to Taxes other than Taxes based upon
income or receipts, be the amount which bears the same relationship to
the total amount of such Tax credit as the amount of Taxes described
in (x) above bears to the total amount of such Taxes for such Taxable
period, and (B) in the case of a credit with respect to Taxes based
upon income or receipts, be the amount which bears the same
relationship to the total amount of such Tax credit as the amount of
Taxes described in (y) above bears to the total amount of such Taxes
for such Taxable period. All determinations necessary to give effect
to the foregoing allocations shall be made in a manner consistent with
prior practice of the Company. In the event of any disputes concerning
such determinations, procedures similar to those set forth in Section
1D(i) hereof shall be used.
(iv) Cooperation on Tax Matters.
(a) Purchaser, the Company and the
Existing Stockholders shall cooperate fully, as and to the
extent reasonably requested by the other party, (A) in
connection with the filing of Tax Returns pursuant to this
Section and any audit, litigation or other proceeding with
respect to Taxes and (B) in connection with respect to any Tax
planning of the Company, the Purchaser or the Existing
Stockholders. Such cooperation shall include the retention
and (upon the other
- 58 -
65
party's request) the provision of records and information which
are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually
convenient basis to provide additional information and
explanation of any material provided hereunder. The Company
and the Existing Stockholders agree (A) to retain all books and
records with respect to Tax matters pertinent to the Company
relating to any taxable period beginning before the Closing
Date until the expiration of the statute of limitations (and,
to the extent notified by the Purchaser of the Company, any
extensions thereof) of the respective taxable periods, and to
abide by all record retention agreements entered into with any
taxing authority, and (B) to give the other party reasonable
written notice prior to transferring, destroying or discarding
any such books and records and, if the other party so requests,
the Company or the Existing Stockholders, as the case may be,
shall allow the other party to take possession of such books
and records.
(b) Purchaser and the Existing
Stockholders further agree, upon request, to provide the other
party with all information that either party may be required
to report pursuant to IRC Section 6043 and all Treasury
Department Regulations promulgated thereunder.
(v) Certain Taxes. The Purchaser on the one hand
and the Existing Stockholders on the other hand shall each be
responsible for 50% of all transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties
and interest) incurred in connection with this Agreement ("Transfer
Taxes"). Any Tax Returns or other documentation with respect to
Transfer Taxes shall be timely prepared and filed by the party
normally obligated by law or regulation to make such filing. The
parties agree to cooperate with each other in connection with the
preparation and filing of such returns. At the time Transfer Taxes
are paid, the Purchaser on the one hand and the Existing Stockholders
on the other hand shall each pay 50% of such Transfer Taxes to the
applicable taxing authority.
(vi) Notice of Tax Audits/Claims.
(a) If any third party notifies any
member of the Existing Stockholders' Affiliated Group of the
existence of any audit, litigation or other proceeding
relating to Taxes of the Affiliated Group's combined,
consolidated or unitary Tax Return relating to any taxable
period during which the Company or any Subsidiary was a member
of such Affiliated Group (a"Pre-Closing Third Party Tax
Claim"), the Existing Stockholders shall give notice to the
Company and to the Purchaser within 15 days of the notice of
the Pre-Closing Third Party Tax Claim. The Existing
Stockholders further covenant not to settle or otherwise
dispose of any Pre-Closing Third Party Tax Claim, if such
claim shall have adverse Tax consequences to the Company, any
Subsidiary and/or the Purchaser (other than an adverse Tax
consequence to which the Existing Stockholders have a duty to
- 59 -
66
indemnify the Purchaser pursuant to Section 6 hereof), without
first obtaining written consent of such settlement or
disposition by the Company and the Purchaser. Such consent by
the Company and the Purchaser shall not be unreasonably
withheld. The Parties agree that, for purposes of this Section
8C(vi)(a), no consent shall be required from the Company or
Purchaser in the event a settlement or disposition of a
Pre-Closing Third Party Tax Claim (x) requires no change to the
Tax Returns (involved in the Pre-Closing Third Party Tax Claim)
as prepared and filed with the applicable taxing authority and
such Tax Returns are prepared consistent with the past practice
of the Company pursuant to this Section 8C, and (y) imposes no
conditions on the manner in which Tax Returns for any period
(or portion thereof) beginning after the Closing Date are
prepared.
(b) If any third party notifies the
Company of the existence of any audit, litigation or other
proceeding relating to Taxes of the Company or any Subsidiary
relating to any taxable period beginning on or after the
Closing which may have adverse tax consequences to the
Existing Stockholders (a "Post-Closing Third Party Tax
Claim"), the Company shall give notice to the Existing
Stockholders within 15 days of the notice of the Post-Closing
Third Party Tax Claim. If a proposed settlement or other
disposition of such claim actually would result in adverse Tax
consequences to the Existing Stockholders, the Purchaser shall
cause the Company not to agree to such settlement or other
disposition without first obtaining the written consent of the
Existing Stockholders. Such consent by the Existing
Stockholders shall not be unreasonably withheld.
8D. Employee Matters.
(i) LCA shall be responsible for all liabilities
and obligations arising under its Plans and the Company shall not
assume any liability or obligation arising under the Plans, except as
specifically provided below in this Section 8D.
(ii) LCA shall contribute a matching contribution
on behalf of each of the Company's employees who participated in the
Living Centers of America, Inc. Retirement Savings Plan or the Living
Centers of America, Inc. Deferred Retirement Income Plan at the same
time LCA makes such matching contributions on behalf of the other
active participants of such Plans (which contributions are expected to
occur in November or December of 1996), equal to the matching
contribution percentage then contributed on behalf of all other active
participants of such Plans pro rated based on the number of days
between the first day of LCA's current fiscal year or such employee's
commencement date in such Plan, whichever is later, and the Closing
Date. All employees of the Company and its Subsidiaries who have
account balances in the Living Centers of America, Inc. Retirement
Savings Plan or the Living Centers of America, Inc. Deferred
Retirement Income Plan immediately prior to the Closing Date
(including pursuant to the preceding sentence) shall be fully vested
in all of
- 60 -
67
their account balances as of the Closing Date and in the matching
contribution contributed to their accounts subsequent to the Closing
Date.
(iii) At the Closing Date or as soon as practicable
thereafter and also as soon as practicable after the date the matching
contribution, which is attributable to the plan year in which the
Closing Date occurs, is contributed to Company employees' accounts,
LCA, the Company, and the Purchaser shall execute and deliver such
documents and instruments as may be required to: (i) effect transfers
of all account balances of each of the Company's employees who
participated in the Living Centers of America, Inc. Retirement Savings
Plan, including notes evidencing participant loans, to a plan which is
sponsored by the Company and (ii) ensure that all assets of such plan
which correspond to such account balances, as the same exist as of the
most recent valuation date prior to each transfer, are transferred in
the form of cash and/or property mutually agreed upon by LCA and the
Company to a plan which is sponsored by the Company. Subsequent to
the Closing Date, but only with respect to the first plan year of the
Company's plan, LCA shall provide any information and assistance
reasonably requested by the Company in connection with the Company's
efforts to maintain the Company's plan, including any reporting,
disclosure or filing requirements arising after the Closing Date with
respect to the Company's plan.
(iv) LCA shall retain all liabilities and
obligations relating to statutory workers' compensation claims made by
any Company employee which relate to Incidents first arising before
the Closing Date, regardless of whether such claims were filed or
presented before or after the Closing Date. For the purposes of the
immediately preceding sentence, "Incident" includes, without
limitation, death, accident, disability, injury, or disease.
(v) LCA or its insurer shall be liable for all
liabilities with respect to long term disability benefits payable to
each Company employee covered under the Living Centers of America,
Inc. Group Life and Health Plan (the "Health Plan") and, subject to
the applicable terms and conditions of the Health Plan, whose
disability commenced prior to October 1, 1996 (regardless of whether
each such employee's disability status had actually been determined
prior to October 1, 1996 to constitute a "disability" as defined under
the Health Plan). For purposes of the preceding sentence, the term
"Company employees" shall include (a) all such employees who
participated in the Health Plan as of the Closing Date and who are in
receipt of or eligible to receive long-term disability benefits
thereunder prior to October 1, 1996, (b) all such employees who
participated in the Health Plan as of the Closing Date whose
disability commenced prior to October 1, 1996 and who remain disabled
for the length of the relevant waiting period under the Health Plan
and (c) all such employees who participated in the Health Plan as of
the Closing Date and who, as of the Closing Date, were absent from
active employment by reason of illness, pregnancy or injury but who,
as of the Closing Date, were reasonably expected to be able to perform
all of the duties of their respective positions within six months
after the Closing Date but subsequently are not able
- 61 -
68
to return to active employment with the Company after the Closing Date
due to a disability that qualifies for long-term disability benefits
under the terms of the Health Plan.
(vi) Subject to the following provisions of this
paragraph and the terms and conditions of the Health Plan, LCA agrees
to continue to provide coverage under the HealthSelect coverage under
the Health Plan for and on behalf of Company employees (and their
covered dependents), who participated in the HealthSelect coverage
under the Health Plan immediately prior to the Closing Date, until
12:01 a.m. on September 15, 1996 as if such Company employees had
continued to be actively employed by LCA throughout the Transition
Period (as defined below). For the purposes of this paragraph, the
Transition Period is the period beginning at 12:01 a.m. on September
1, 1996 and ending at 12:01 a.m. on September 15, 1996.
(vii) The Company agrees to sponsor a group health
plan which provides major medical and other health benefits to (a)
Company employees (and their covered dependents) who participated in
the HealthSelect coverage under the Health Plan as of the Closing
Date, beginning as of 12:01 a.m. on September 15, 1996 and (b) Company
employees (and their covered dependents) who participated in the
Health Plan as of the Closing Date under either the Humana Health
Maintenance Organization coverage, the PCA Health Plans of Texas, Inc.
coverage, the HIP Health Maintenance Organization coverage or the
Travelers (Metra Health) Health Maintenance Organization coverage
(collectively referred to as "HMO Contracts"), beginning as of 12:01
a.m. on October 1, 1996. Coverage and eligibility under such group
health plan sponsored by the Company shall disregard, with respect to
each Company employee and covered dependent, pre-existing conditions,
in-patient hospitalization status (or other confinement in a
healthcare facility), waiting periods and any other eligibility
requirement with respect to those covered persons who participated in
the Health Plan or any HMO Contract immediately prior to the Closing
Date. In addition, with respect to each Company employee who did not
participate in the Health Plan or HMO Contract immediately prior to
the Closing Date, such Company employee may enroll himself or herself
(and his or her eligible dependents) in the Health Plan, effective
12:01 a.m. on October 1, 1996.
(viii) Subject to the following provisions of this
paragraph and the terms and conditions of the applicable plan, program
or insurance policy, LCA agrees to continue to provide coverage under
its (a) long-term disability coverage under the Health Plan, (b) group
term life insurance coverage under the Health Plan, (c) dental
insurance coverage under the Health Plan, (d) Starbridge plan and (e)
HMO Contracts, for and on behalf of those Company employees and their
covered dependents who participated in such plans immediately prior to
the Closing Date, during the Transition Period (as defined below) as
if such Company employees had continued to be actively employed by LCA
throughout the Transition Period. For purposes of this paragraph, the
Transition Period is the period beginning at 12:01 a.m. on September
1, 1996 and ending at 12:01 a.m. on October 1, 1996.
- 62 -
69
(ix) With respect to those Company employees who
are covered as of the Closing Date under the LCA Texas Occupational
Injury/Illness Plan (the "TOI Plan"), which plan provides benefits for
work-related bodily injuries and occupational diseases, LCA agrees to
continue to provide coverage under the TOI Plan on their behalf,
during the period beginning at 12:01 a.m. on September 1, 1996 and
ending on 12:01 a.m. on October 1, 1996.
8E. Consent to Amendments. Except as otherwise provided
herein, no modification, amendment or waiver of any provision of this Agreement
shall be effective against the Company, the Existing Stockholders or the
Purchaser unless such modification, amendment or waiver is approved in writing
by the Company (as approved by the vote of the Company's Board of Directors),
the Existing Stockholders and the holders of a majority of the Purchaser Stock
then outstanding, respectively. No other course of dealing between the
Company, the Existing Stockholders and any holder of the Purchaser Stock or any
delay in exercising any rights hereunder shall operate as a waiver of any
rights of any such holders to the extent that there is no duplication of remedy
or recovery.
8F. Successors and Assigns. Except as otherwise
expressly provided herein, all covenants and agreements contained in this
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, and whether or not any express
assignment has been made, the provisions of this Agreement which are for the
Purchaser's benefit as a purchaser or holder of Purchaser Stock are also for
the benefit of, and enforceable by, any subsequent holder of such Purchaser
Stock.
8G. Generally Accepted Accounting Principles. Where any
accounting determination or calculation is required to be made under this
Agreement or the exhibits hereto, such determination or calculation (unless
otherwise provided) shall be made in accordance with GAAP as in effect at the
Closing.
8H. Entire Agreement. This Agreement and the other
agreements contemplated hereby constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and supersedes any
prior understanding, agreements, or representations by or among the parties
hereto, written or oral, to the extent they related in any way to the subject
matter hereof.
8I. Severability. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
8J. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, any one of which need not contain
the signatures of more than one party, but all such counterparts taken together
shall constitute one and the same Agreement.
- 63 -
70
8K. Descriptive Headings; Interpretation. The
descriptive headings of this Agreement are inserted for convenience only and do
not constitute a substantive part of this Agreement. The use of the word
"including" in this Agreement shall be by way of example rather than by
limitation. The use of specific dollar thresholds in any provision of this
Agreement shall not be determinative of the standard of materiality for
purposes of any other provision of this Agreement.
8L. Governing Law. All issues and questions concerning
the construction, validity, enforcement and interpretation of this Agreement
and the exhibits and schedules hereto shall be governed by, and construed in
accordance with, the laws of the State of Texas, without giving effect to any
choice of law or conflict of law rules or provisions (whether of the State of
Texas or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Texas.
8M. Notices. All notices, demands or other
communications to be given or delivered under or by reason of the provisions of
this Agreement shall be in writing and shall be deemed to have been given when
delivered personally to the recipient, one day after being sent to the
recipient by reputable overnight courier service (charges prepaid) or three
days after being mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to the Purchaser and to the Company at the address
indicated below:
If to the Company before the Closing, to:
Living Centers-Devcon, Inc.
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Sydney ▇. ▇▇▇▇▇, ▇▇., Associate General Counsel
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Mayor, Day, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, L.L.P.
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company after the Closing, to:
American Habilitation Systems, Inc.
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
- 64 -
71
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. Perl
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Purchaser, to:
Golder, Thoma, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ Fund IV, L.P.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. Perl
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to either Existing Stockholder, to:
Living Centers of America, Inc.
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Sydney ▇. ▇▇▇▇▇, ▇▇., Vice President and
Associate General Counsel
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
- 65 -
72
with a copy to:
Mayor, Day, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, L.L.P.
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
8N. No Strict Construction. The parties hereto 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 hereto, 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.
8O. Third Party Beneficiaries. Except as provided
herein, this Agreement shall not confer any rights or remedies upon any Person
other than the parties hereto and their respective successors, heirs and
assigns.
8P. Termination; Effect of Termination.
(i) Termination. This Agreement may be terminated as
provided below:
(a) by mutual written consent of the Company and
the Purchaser;
(b) by the Company if there has been a material
breach on the part of the Purchaser, and by the Purchaser if
there has been a material breach by the Company or the
Existing Stockholders, of any representation, warranty,
covenant or agreement contained in this Agreement;
(c) by the Purchaser if any of the conditions in
Section 2 has not been satisfied as of the Closing Date or if
satisfaction of such a condition is or becomes impossible
(other than through the failure of the Purchaser to comply
with its obligations under this Agreement) and the Purchaser
has not waived such condition on or before the Closing Date;
(d) by the Existing Stockholders if any of the
conditions in Section 2-1 has not been satisfied as of the
Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of any of
the Existing Stockholders or the Company to comply with its
obligations under this Agreement)
- 66 -
73
and the Existing Stockholders and the Company has not waived
such condition on or before the Closing Date;
(e) by either the Company or the Purchaser if the
transactions contemplated hereby have not been consummated on
or prior to September 13, 1996; provided that neither the
Company nor the Purchaser shall be entitled to terminate this
Agreement pursuant to this Section 8P if such party's material
breach of this Agreement has prevented the consummation of the
transactions contemplated hereby; or
(f) by the Existing Stockholders, the Purchaser
or the Company if any of the conditions set forth in Sections
2W, 2Y, 2-1P or 2-1Q are not satisfied on or before September
6, 1996 or if the Existing Stockholders, the Purchaser or the
Company have not agreed upon the form and substance of the
Transition Services Agreement by such date..
(ii) Effect of Termination. Each party's right of
termination under Section 8P(i) is in addition to any other rights it
may have under this Agreement or otherwise, and the exercise of a
right of termination will not be an election of remedies. If this
Agreement is terminated pursuant to Section 8P(i), all further
obligations of the parties under this Agreement will terminate, except
that the obligations in Section 8A will survive; provided, however,
that if this Agreement is terminated by a party because of the breach
of this Agreement by another party or because one or more of the
conditions to the terminating party's obligations under this Agreement
is not satisfied as a result of another party's failure to comply with
its obligations under this Agreement, the terminating party's right to
pursue all legal remedies will survive such termination unimpaired.
8Q. Specific Performance. Each of the parties hereto
acknowledges and agrees that the other parties hereto would be damaged
irreparably in the event any of the covenants and agreements of this Agreement
are not performed in accordance with their specific terms or otherwise are
breached. Accordingly, each of the parties hereto shall be entitled to an
injunction or injunctions to prevent breaches of the covenants and agreements
of this Agreement and to enforce specifically such provisions in this Agreement
and the terms and provisions thereof in any action instituted in any court of
the United States or any state thereof having jurisdiction over the parties
hereto and the matter at issue in addition to any other remedy to which they
may be entitled, at law or in equity, in accordance with the terms of this
Agreement.
* * * * *
- 67 -
74
IN WITNESS WHEREOF, the parties hereto have executed this
Recapitalization Agreement on the date first written above.
LIVING CENTERS-DEVCON, INC.
By: /s/ [Signature Omitted]
-----------------------------------
Its: [Title Omitted]
-----------------------------------
GOLDER, THOMA, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇
FUND IV, L.P.
By: GTCR IV, L.P.
Its: General Partner
By: Golder, Thoma, Cressey,
Rauner, Inc.
Its: General Partner
By: /s/ [Signature Omitted]
-----------------------------------
Its: [Title Omitted]
-----------------------------------
THE EXISTING STOCKHOLDERS:
LIVING CENTERS OF AMERICA, INC.
By: /s/ [Signature Omitted]
-----------------------------------
Its: [Title Omitted]
-----------------------------------
DEVCON HOLDING COMPANY
By: /s/ [Signature Omitted]
-----------------------------------
Its: [Title Omitted]
-----------------------------------
75
FIRST AMENDMENT TO RECAPITALIZATION AGREEMENT
THIS FIRST AMENDMENT, dated as of September 13, 1996 (this
"Amendment"), is made to the Recapitalization Agreement, dated as of August 30,
1996 (the "Agreement"), by and among Living Centers-Devcon, Inc., a Florida
corporation (the "Company"), Golder, Thoma, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ Fund IV, L.P., a
Delaware limited partnership (the "Purchaser"), Living Centers of America, Inc.
("LCA") and Devcon Holding Company ("Holding"). LCA and Holding are
collectively referred to herein as the "Existing Stockholders." Terms used and
not otherwise defined herein have the meanings accorded to such terms in the
Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. The side letter entered into by the parties hereto on
September 6, 1996 concerning, among other things, the Transition Services
Agreement and the Company's financial statements, is hereby incorporated by
reference to the full extent as if restated herein.
2. Section 1A(ii) of the Agreement is hereby deleted in
its entirety and the following provision is substituted in lieu thereof:
"(ii) Purchaser Stock. The New Board of Directors shall
authorize the issuance and sale to the Purchaser (or its
designees) of an aggregate of 13,978.27 shares of Class A
Preference Stock for a purchase price of $1,000.00 per share
and an aggregate of 68,409 shares of Class C Common for a
purchase of $ 1.43 per share, each having the rights and
preferences set forth in Exhibit 1A attached hereto. The
shares of Class A Preference Stock and Class C Common to be
purchased hereunder are collectively referred to herein as the
"Purchaser Stock.""
3. Section 1B(i) of the Agreement is hereby deleted in
its entirety and the following provision is substituted in lieu thereof:
"(i) Purchase and Sale of Purchaser Stock. At the
Closing, subject to the terms and conditions set forth herein,
the Company shall sell to the Purchaser (or its designees),
and the Purchaser (or its designees) shall purchase from the
Company, the number of shares of Class A Preference Stock and
Class C Common set forth in Section 1A(i) hereof for an
aggregate purchase price of $14,076,000."
4. Section 1C of the Agreement is hereby deleted in its
entirety and the following provision is substituted in lieu thereof:
" 1C. The Closing. The closing of the purchase and sale of
the Purchaser Stock and redemption of the Existing Stock (the
"Closing") shall take place at the offices of
76
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
(or, at the Purchaser's election, at the offices of Winston &
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇) at 10:00 a.m. on
September 13, 1996 (the "Closing Date"). At the Closing, (i)
the Company shall deliver to the Purchaser (or its designees)
stock certificates evidencing the Purchaser Stock to be
purchased by the Purchaser (or its designees), registered in
the Purchaser's (or its designees' names) upon payment by the
Purchaser (or its designees) of the purchase price therefor by
wire transfer of immediately available funds to such account
as is designated by the Company, in the aggregate amount set
forth in Section 1B(i) hereof (provided that the Purchaser
may, or it may permit one of its designees to, pay for up to
$76,000 of the Purchaser Stock with a promissory note in lieu
of cash), (ii) the Company shall enter into the financing
arrangements described in Section 1B(ii) hereof, and (iii)
Holding shall deliver to the Company stock certificates
evidencing the Existing Stock to be repurchased from Holding
by the Company upon payment of the Repurchase Price therefor
by a cashier's or certified check, or by wire transfer or
immediately available funds to such account as is designated
by Holding."
5. Section 4(iii) of the Agreement is hereby deleted in
its entirety and the following provision is substituted in lieu thereof:
"(iii) During the Interim Period, the Existing Stockholders
shall provide the Purchaser with a list of disbursements to be
made from the Interim Cash Account (or made as advances by the
Existing Stockholders on behalf of the Company) to satisfy
liabilities and expenses referenced in Section 4(i) above.
Immediately prior to the Closing, the Existing Stockholders
shall provide a statement listing the amount of Interim Cash
deposited in, and disbursements made from, the Interim Cash
Accounts and liabilities and expenses referenced in Section
4(i) above as to which no disbursements have been made. To
the extent that such statement reflects that the amount of
Interim Cash deposited exceeds the sum of such disbursements
made, such liabilities and expenses and the Prepaid Rent
Amount (as defined below), the Company will retain such excess
and the Existing Stockholders will be entitled to all amounts
not so retained; to the extent that such statement reflects
that the amount of Interim Cash deposited is less than such
sum of disbursements made, liabilities and expenses, and the
Prepaid Rent Amount, then the Company shall pay to the
Existing Stockholders the amount of such deficiency at the
Closing. The amount of such excess or deficiency shall be
referred to herein as the "Interim Settlement Amount." The
Prepaid Rent Amount shall mean lease payments made on behalf
of the Company in the amount of $132,562.62. LCA will pay and
hold the Company harmless with respect to the payroll payments
due to the Company's and its Subsidiary's employees on
Wednesday September 4, 1996 (without limiting the generality
of the foregoing, the Interim Cash Account will not be reduced
by the amount of such payment). The preceding sentence will
not apply to any other payroll payments made during the
Interim Period."
- 2 -
77
6. Section 6B(i) of the Agreement is hereby amended to
add the following clauses 6B(i)(xi) through 6B(i)(xx):
"(xi) in connection with the San Augustine Development
Center, any liability or obligation arising under
that certain Deed of Trust dated August 7, 1980 to
First International Bank in Houston, NA securing the
amount of $355,000;
(xii) in connection with the Sweetbriar Development Center,
any liability or obligation arising under (a) that
certain Deed of Trust dated October 15, 1976 to ▇▇▇
▇▇▇▇, Trustee securing the amount of $450,000, and
(b) that certain Deed of Trust dated August 7, 1980
to ▇▇▇▇ ▇. ▇▇▇▇▇, Trustee securing that amount of
$433,000;
(xiii) in connection with the Cypress Group Home, any
liability or obligation arising under that certain
Deed of Trust dated September 28, 1984 to ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, Trustee securing the amount of $55,920;
(xiv) in connection with the Commanche Flats development,
any liability or obligation arising under that
certain Deed of Trust dated September 20, 1988 to
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ securing the amount of $80,000;
(xv) in connection with the West Road Group Home, any
liability or obligation arising under that certain
Mortgage to ▇▇▇▇▇ Federal Savings and Loan
Association securing the amount of $45,800;
(xvi) in connection with the ▇▇▇▇▇ Group Home, any
liability or obligation arising under that certain
Mortgage to Citibank, Federal Savings Bank dated
October 11, 1991 securing the amount of $19,864;
(xvii) in connection with the ▇▇▇▇▇ ▇▇▇▇ I and ▇▇▇▇▇ ▇▇▇▇
▇▇ developments, any liability or obligation arising
under that certain tax suit filed on May 24, 1994 in
▇▇▇▇▇▇ County, Texas as ▇▇▇▇▇▇ ISD, et al vs. Living
Center Devcon, Inc., Cause #C94319;
(xviii) in connection with the Jacksonville Business Office,
Normandy Village, Fern Group Home, Marlake Group
Home, ▇▇▇▇ ▇▇▇▇▇▇▇▇ Group Home, and Norwalk Group
Home, any liability or obligation under the current
leases for said properties arising out of the Company
being denied the benefits or use and enjoyment of
said properties due to an alleged or actual failure
of the Existing Stockholders to provide a valid and
subsisting leasehold interest in said properties.
The Company hereby agrees to be bound by the terms of
the current leases for said properties;
- 3 -
78
(xix) in connection with the development at ▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, any liability or
obligation arising under the lease relating thereto
by reason of the failure of the Existing Stockholders
to obtain the necessary landlord consent to the
assignment of the lease for this development to the
Company;
(xx) in connection with the Riverview Group Home, the
▇▇▇▇▇▇ Group Home, the Aransas Pass Group Home, the
Orange Grove Group Home, the ▇▇▇▇▇▇▇ Group Home, the
Silverway Group Home, the ▇▇▇▇▇▇▇▇▇ Group Home, and
the ▇▇▇▇▇▇▇▇ Group Home, any liability or obligation
arising out of the failure of the Existing
Stockholders to pay the remaining obligations on that
certain Promissory Note from ARA Living Centers of
Texas, Inc. to Brush County Services in the amount of
$518,000.
The Existing Stockholders hereby agree to use
reasonable efforts to obtain (1) releases for the
Deeds of Trust or Mortgages referenced in clauses
6B(i)(xi)-(xvi) and to provide same to the Company,
and (2) the dismissal of the tax suit referenced in
clause 6B(i)(xvii). The Existing Stockholders'
obligations under clauses 6B(i)(xi) through
6B(i)(xviii) above shall be limited to discharging
(or providing adequate security for the discharge of)
the liability, if any, secured by liens described
therein. In addition, the Existing Stockholders'
obligations under clause 6B(i)(xix) above shall be
limited to discharging the lease obligations in
clause 6B(i)(xix)."
7. Each reference in Sections 6B(i)(iv), 8C(i) and
8C(ii) to the term "Closing Date" is hereby replaced with the term "Effective
Time."
8. Section 8C of the Agreement is hereby amended to add
the following subsection (e)(ii):
"Effective Date. The parties agree for all purposes relating
to Tax matters (including, but not limited to, the preparation
of Tax Returns) they will treat the transactions contemplated
by Section 1 as having occurred as of the close of business on
August 31, 1996, notwithstanding the fact that the Closing
will occur after such date. Such treatment shall not
constitute a breach of the obligations of the Existing
Stockholders or the Company with respect to Taxes or a breach
of any representation or warranty concerning Taxes. The
Company hereby indemnifies each of the Existing Stockholders
and their Affiliates from any Adverse Consequences suffered by
the Existing Stockholders and their Affiliates resulting from,
arising out of or relating to any determination by any Tax
Governmental Authority that such tax treatment is incorrect;
provided that the Company's liabilities under the preceding
indemnity shall not exceed $50,000."
- 4 -
79
9. Except as expressly amended or modified hereby, the
Agreement will and does remain in full force and effect.
10. This Amendment will be governed by and construed in
accordance with the domestic laws of the State of Texas, without giving effect
to any choice of law or conflict provision or rule (whether of the State of
Texas or any other jurisdiction) that would cause the laws of any jurisdiction
other than the State of Texas to be applied. In furtherance of the foregoing,
the internal law of the State of Texas will control the interpretation and
construction of this Amendment, even if under such jurisdiction's choice of law
or conflict of law analysis, the substantive law of some other jurisdiction
would ordinarily apply.
11. This Agreement may be executed simultaneously in two
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together shall constitute one
and the same Amendment.
* * * *
- 5 -
80
IN WITNESS WHEREOF, the Parties have executed this First
Amendment to Recapitalization Agreement as of the date first written above.
LIVING CENTERS-DEVCON, INC.
By: /s/ [Signature Omitted]
----------------------------------
Its: [Title Omitted]
----------------------------------
GOLDER, THOMA, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇
FUND IV, L.P.
By: GTCR IV, L.P.
Its: General Partner
By: Golder, Thoma, Cressey,
Rauner, Inc.
Its: General Partner
By: /s/ [Signature Omitted]
----------------------------------
Its: [Title Omitted]
----------------------------------
THE EXISTING STOCKHOLDERS:
LIVING CENTERS OF AMERICA, INC.
By: /s/ [Signature Omitted]
----------------------------------
Its: [Title Omitted]
----------------------------------
DEVCON HOLDING COMPANY
By: /s/ [Signature Omitted]
----------------------------------
Its: [Title Omitted]
----------------------------------
- 6 -