Exhibit 10.14
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STOCK PURCHASE AGREEMENT
among
LE BONHEUR HEALTH SYSTEMS, INC.,
SOUTHERN HEALTH SYSTEMS, INC.,
NOVA HOLDINGS, INC.
and
WELSH, CARSON, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ VII, L.P.
Dated as of May 31, 1996
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TABLE OF CONTENTS
PAGE
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ARTICLE I. PURCHASE OF SHS SHARES BY THE COMPANY
FROM LHS; ADJUSTMENT TO PURCHASE PRICE;
CLOSING DATE....................................................................... 2
SECTION 1.01 Purchase and Sale of SHS Shares............................................. 2
SECTION 1.02 Additional Agreements....................................................... 2
SECTION 1.03 Adjustment to Purchase Price................................................ 3
SECTION 1.04 Closing Date................................................................ 4
ARTICLE II. REPRESENTATIONS AND WARRANTIES
OF LHS AND SHS...................................................................... 5
SECTION 2.01 Organization, Qualification and Corporate Power; Subsidiaries................ 5
SECTION 2.02 Authorization of Agreements, Etc............................................. 6
SECTION 2.03 Validity..................................................................... 6
SECTION 2.04 Capitalization; Ownership of Capital Stock.................................. 7
SECTION 2.05 Financial Statements........................................................ 7
SECTION 2.06 Absence of Undisclosed Liabilities.......................................... 8
SECTION 2.07 Absence of Certain Changes or Events........................................ 8
SECTION 2.08 Governmental Approvals...................................................... 10
SECTION 2.09 Title to Properties, Absence of Liens
and Encumbrances............................................................ 10
SECTION 2.10 List of Properties, Contracts and Other Data ............................... 11
SECTION 2.11 Third-Party Payer and Supplier
Contracts................................................................... 12
SECTION 2.12 Intangible Rights........................................................... 13
SECTION 2.13 Software.................................................................... 13
SECTION 2.14 Litigation, Etc............................................................. 14
SECTION 2.15 Taxes....................................................................... 14
SECTION 2.16 Governmental Authorizations and Regulations................................. 16
SECTION 2.17 Labor Matters............................................................... 17
SECTION 2.18 Use of Real Property........................................................ 17
SECTION 2.19 Condition of Assets......................................................... 18
SECTION 2.20 Accounts Receivable......................................................... 18
SECTION 2.21 Books and Records........................................................... 18
SECTION 2.22 Employee Benefit Plans...................................................... 18
SECTION 2.23 Insurance................................................................... 20
SECTION 2.24 Environmental Matters; Medical Waste........................................ 20
SECTION 2.25 Related Party Transactions.................................................. 21
SECTION 2.26 INTENTIONALLY OMITTED
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PAGE
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SECTION 2.27 INTENTIONALLY OMITTED
SECTION 2.28 INTENTIONALLY OMITTED
SECTION 2.29 Controlled Substances....................................................... 22
SECTION 2.30 Disclosure of Certain Financial
Relationships............................................................... 22
SECTION 2.31 Brokers' or Finders' Fees................................................... 22
SECTION 2.32 Disclosure.................................................................. 22
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY................................................................... 23
SECTION 3.01 Organization, Power, Etc.................................................... 23
SECTION 3.02 Authorization of Agreements, Etc............................................ 23
SECTION 3.03 Validity.................................................................... 23
SECTION 3.04 Governmental Approvals...................................................... 23
SECTION 3.05 Brokers' or Finders' Fees................................................... 23
ARTICLE IV. COVENANTS................................................................... 23
SECTION 4.01 Certain Covenants of LHS and
Acquired Group.............................................................. 23
SECTION 4.02 Covenants of the Company................................................... 25
SECTION 4.03 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act....................................................... 26
SECTION 4.04 Tax Matters..................................................................26
ARTICLE V. CONDITIONS PRECEDENT........................................................ 30
SECTION 5.01 Conditions Precedent to the Obligations of the Company and Purchasers....... 30
SECTION 5.02 Conditions Precedent to the Obligations of LHS ............................. 33
ARTICLE VI. THE DIVESTMENT PLAN; THE
TRANSITION PLAN........................................................... 35
SECTION 6.01 The Divestment Plan......................................................... 35
SECTION 6.02 The Transition Agreements................................................... 37
ARTICLE VII. INDEMNIFICATION........................................................... 37
SECTION 7.01 Survival of Representations and War-
ranties..................................................................... 37
SECTION 7.02 Tax Indemnity............................................................... 37
SECTION 7.03 General LHS Indemnity....................................................... 39
SECTION 7.04 Conditions of Indemnification............................................... 40
SECTION 7.05 General Provisions Relating
to Indemnification...........................................................41
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SECTION 7.06 Exclusive Remedies.......................................................... 42
SECTION 7.07 General Company Indemnity ...................................................42
ARTICLE VIII. TERMINATION AND ABANDONMENT............................................... 42
SECTION 8.01 Termination................................................................. 42
SECTION 8.02 Procedure and Effect of Termination......................................... 43
ARTICLE IX. MISCELLANEOUS............................................................. 43
SECTION 9.01 Expenses, Etc............................................................... 43
SECTION 9.02 Publicity................................................................... 44
SECTION 9.03 Execution in Counterparts................................................... 44
SECTION 9.04 Notices..................................................................... 44
SECTION 9.05 Waivers..................................................................... 45
SECTION 9.06 Amendments.................................................................. 46
SECTION 9.07 Entire Agreement............................................................ 46
SECTION 9.08 APPLICABLE LAW.............................................................. 46
SECTION 9.09 Binding Effect; Benefits.................................................... 46
SECTION 9.10 Assignability............................................................... 46
Annexes
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Annex I List of Other Shareholders
Annex III Form of Subscription and Exchange Agreement
Annex IV Form of Noncompete
Schedules
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Schedule 1.03 Estimated Closing Balance Sheet and Explanation
Schedule 2.01(c) Ownership and Investment Interests of SHS
Schedule 2.01(d) Ownership and Investment Interests of NFI
Schedule 2.04(d) Subscriptions, Options, Warrants, etc. for Shares of Capital
Stock of SHS and NFI
Schedule 2.05 Financial Statements
Schedule 2.06 Undisclosed Liabilities
Schedule 2.07 Certain Changes or Events
Schedule 2.08 Government Approvals
Schedule 2.09 Title to Properties; Liens and Encumbrances
Schedule 2.10 Properties, Contracts and Other Data
Schedule 2.11 Third Party Payer and Supplier Contracts
Schedule 2.12 Intangible Rights
Schedule 2.13 Software
Schedule 2.14 Litigation and Claims
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Schedule 2.15 Tax Matters
Schedule 2.16 Governmental Authorizations and Regulations
Schedule 2.17 Labor Matters
Schedule 2.18 Leased Real Property
Schedule 2.22 Employee Benefit Plans
Schedule 2.23 Insurance Policies
Schedule 2.25 Related Party Transactions
Schedule 2.30 Certain Financial Relationships
Schedule 5.01(g)(1) Opinion of ▇▇▇▇▇▇▇▇▇, Will & ▇▇▇▇▇
Schedule 5.01(g)(2) Opinion of Armstrong, Allen, Prewitt, Gentry, ▇▇▇▇▇▇▇▇
& ▇▇▇▇▇▇
Schedule 5.02(i) Opinion of Reboul, MacMurray, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & Kristol
Schedule 6.01(b) List of Option Holders
Schedule 6.01(c) List of Unit Holders
Schedule 6.01(d) Indebtedness to be Satisfied
Schedule 6.01(e) Permitted Intercompany Balances
Schedule 6.01(f) Retained Employees
Schedule 6.02 Transition Agreements
iv
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of May 31, 1996, among LE
BONHEUR HEALTH SYSTEMS, INC., a Tennessee nonprofit corporation ("LHS"),
SOUTHERN HEALTH SYSTEMS, INC., a Tennessee corporation ("SHS"), NOVA HOLDINGS,
INC., a Delaware corporation (the "Company"), and WELSH, CARSON, ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇ VII, L.P., a Delaware limited partnership ("WCAS VII");
WHEREAS, SHS owns (i) all of the issued and outstanding
capital stock of Nova Factor, Inc., a Tennessee corporation ("NFI"; SHS, NFI and
each NFI Venture (as hereinafter defined) are each hereinafter sometimes
referred to individually as a "member of the Acquired Group" and, collectively
as the "Acquired Group"), and (ii) all of the issued and outstanding capital
stock of PharmaThera, Inc., a Tennessee corporation ("PTI"), Clinicall, Inc., a
Tennessee corporation ("CCI"), and HealthEffects, Inc., a Tennessee corporation
("HEI"); PTI, CCI, HEI and each Venture (as hereinafter defined) in which PTI,
CCI or HEI owns an equity interest are each hereinafter sometimes referred to
individually as an "Excluded Subsidiary" and collectively as the "Excluded
Subsidiaries" and together with the Excluded Ventures (as hereinafter defined)
as the "Excluded Group"; the Acquired Group and the Excluded Group are
hereinafter sometimes referred to collectively as the "Group");
WHEREAS, on or prior to the Closing Date (as hereinafter
defined), SHS intends to divest itself of the Excluded Group as hereinafter
provided;
WHEREAS, LHS, together with the individuals named in Annex I
hereto (the "Other Shareholders") collectively own all of the issued and
outstanding capital stock of SHS;
WHEREAS, on or prior to the Closing Date, SHS will repurchase
for cash all shares of its issued and outstanding capital stock which are owned
by the Other Shareholders other than any such shares which any such Other
Shareholders elect to exchange for shares of the Company on the Closing Date as
provided in the Subscription Agreement (as hereinafter defined);
WHEREAS, LHS wishes to sell to the Company, and the Company
wishes to purchase from LHS, all of the shares of capital stock of SHS owned by
LHS for cash on the terms and conditions hereinafter set forth;
WHEREAS, WCAS VII has caused the Company to be formed and,
pursuant to the Subscription and Exchange Agreement dated as of the date hereof
in the form annexed as Annex III (the "Sub-
scription Agreement") among the Company, WCAS VII and the other purchasers named
therein (WCAS VII and such other purchasers are each hereinafter sometimes
referred to individually as a "Purchaser" and collectively, as the "Purchasers")
will on the Closing Date, together with the other Purchasers, subject to the
terms and conditions set forth herein and therein, purchase from the Company
shares of its capital stock at a price sufficient to enable the Company to
purchase the shares of SHS to be sold to it by LHS as provided herein;
WHEREAS, WCAS VII will cause the Company to consummate the
purchase of all shares of SHS owned by LHS, pursuant to this Agreement; and
WHEREAS, LHS, in order to induce the Company to make the
purchases of the shares of SHS from LHS as provided herein, is willing to make
the representations, covenants and agreements on its part contained herein and
in the other agreements to be executed and delivered by it as contemplated
hereby.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto agree as follows:
ARTICLE I
PURCHASE OF SHS SHARES BY THE COMPANY FROM LHS;
ADJUSTMENT TO PURCHASE PRICE;
CLOSING DATE
2
SECTION 1.01 Purchase and Sale of SHS Shares. Subject to
the terms and conditions hereinafter set forth, on the Closing Date, LHS
agrees to sell to the Company, and the Company agrees to purchase from LHS,
10,000,000 shares of Class A Common Stock, par value $.01 per share, of SHS
(the "Class A Shares") for an aggregate price of $40,000,000 (the "Purchase
Price"), such price being subject to (i) decrease as provided in the last
sentence of this Section 1.01 and (ii) increase or decrease as provided in
Section 1.03. As payment in full for the Class A Shares, the Company shall,
against delivery of a certificate or certificates evidencing the Class A
Shares from LHS registered in the Company's name, an amount equal to the
aggregate purchase price for the Class A Shares by wire transfer of
immediately available funds to a bank account of LHS designated in advance in
writing to the Company. On the Closing Date, the Purchase Price shall be
decreased by an amount equal to the product of number of shares of Class B
Common Stock, par value $.01 per share, of SHS (the "Class B Shares")
exchanged by the Other Shareholders on the Closing Date for shares of capital
stock of the Company pursuant to the Subscription Agreement and $3.26.
SECTION 1.02 Additional Agreements. In addition to the
transactions to occur on the Closing Date pursuant to Section 1.01, each of
the agreements listed in Schedule 6.02 shall be executed and delivered by the
parties thereto on the Closing Date concurrently with the consummation of
such transactions.
SECTION 1.03 Adjustment to Purchase Price. (a) On May 22, 1996
SHS delivered to WCAS VII an estimated consolidated balance sheet of NFI and the
NFI Ventures (the "NFI Group") as of the Closing Date (the "Estimated Closing
Balance Sheet") which is attached as Schedule 1.03. The Estimated Closing
Balance Sheet was prepared, based on good faith estimates, in accordance with
generally accepted accounting principles consistently applied with those used in
the preparation of the audited consolidated financial statements for the Group,
the Acquired Group and the NFI Group referred to in Section 2.05, and (i) is
intended to fairly present, in all material respects, the estimated consolidated
balance sheet of NFI as of the Closing Date (after giving effect to the
estimated amounts of the adjustments for taxes and other items attributable to
the consummation of the transactions contemplated by the Divestment Plan (as
defined in Section 6.01)), and (ii) includes a calculation of the estimated
combined cash balances and consolidated equity of the NFI Group (without
including the cash balances of any NFI Venture) at the Closing Date and after
taking into account the transactions contemplated by the Divestment Plan
(respectively, the "Closing Date Cash" and the "Closing Date Equity"). LHS and
SHS will consult with WCAS
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VII and the New York office of Ernst & Young LLP ("E&Y-NY") as to all pro forma
adjustments (and will provide all such information and supporting data in
connection therewith as WCAS VII or E&Y-NY may request).
(b) If the Estimated Closing Balance Sheet shows (i) Closing
Date Cash other than $1,000,000 or (ii) Closing Date Equity other than
$3,300,000, then on the Closing Date the Purchase Price, as previously decreased
pursuant to Section 1.01, shall be further adjusted as and to the extent
provided in the following table:
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Closing Date Equity Cash Balance Purchase Price Adjustment
-------------------------- ---------------- -----------------------------------
3.3 million 1 million None
3.3 million More than 1 million None
3.3 million Less than 1 million Reduce by cash shortfall
More than 3.3 million 1 million None
More than 3.3 million More than 1 million Increase by cash excess, but not more than equity excess
More than 3.3 million Less than 1 million Reduce by cash shortfall
Less than 3.3 million 1 million Reduce by equity shortfall
Less than 3.3 million More than 1 million Reduce by equity shortfall
Less than 3.3 million Less than 1 million Reduce by greater shortfall
(c) As promptly as practicable, but in no event later than
sixty (60) days after the Closing Date, the Company will cause to be prepared
and delivered to LHS and WCAS VII a final balance sheet for the NFI Group as of
the Closing Date (the "Final Closing Balance Sheet"). The Final Closing Balance
Sheet will be audited by E&Y-Memphis and, except as indicated therein, will be
prepared in accordance with generally accepted accounting principles applied
consistently with those used in the preparation of the audited consolidated
financial statements of the Group, the Acquired Group and the NFI Group and will
(i) fairly present, in all material respects, the actual balance sheet of the
NFI Group as of the Closing Date (after giving effect to the provisions and
adjustments for taxes attributable to the consummation of the transactions
contemplated by the Divestment Plan), (ii) reflect any other modification,
change or addition agreed to between LHS and the Company, and (iii) include a
recalculation of Closing Date Cash and Closing Date Equity. The Company will
consult with LHS as to all final adjustments which shall be reasonably
satisfactory to LHS. The Final Closing Balance Sheet shall be accompanied by a
report of E&Y-Memphis stating that the Final Closing Balance Sheet has been
prepared in accordance with this Section 1.03(c) and shall be subject to Section
1.03(e).
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(d) If the Final Closing Balance Sheet shows (y) Closing Date
Cash other than as shown on the Estimated Closing Balance Sheet or (z) Closing
Date Equity other than as shown on the Estimated Closing Balance Sheet, the
Purchase Price shall be recalculated as provided in the table in Section 1.03(b)
and any further increase or decrease in the Purchase Price, after giving effect
to the adjustment provided in Section 1.03(b), shall be paid in cash by the
Company to LHS, or by LHS to the Company, as the case may be. Any such cash
payment shall be made by the Company or LHS, as the case may be, ten (10) days
after delivery of the Final Closing Balance Sheet pursuant to paragraph (c)
hereof by payment of such amount, in immediately available funds, by wire
transfer to an account designated in writing by the Company or LHS, as the case
may be.
(e) In the event of a disagreement between LHS and WCAS VII as
to the amounts determined pursuant to the Final Closing Balance Sheet, LHS and
WCAS VII agree that they will designate another firm of nationally recognized
public accountants (other than Ernst & Young LLP and any other firm with a
material relationship to any of the parties) mutually acceptable to LHS and WCAS
VII to review the Final Closing Balance Sheet and the adjustments provided
therein. LHS and WCAS VII further agree that the determinations of such
accounting firm as to any disputed amounts shall be conclusive. The expenses of
E&Y incurred in connection with the matters described in Sections 1.03(a) and
(c) above, and the expenses incurred by the accounting firm retained pursuant to
this Section 1.03(e) shall be shared by LHS and the Company equally.
SECTION 1.04 Closing Date. The closing of the transactions
described in Section 1.01 shall take place at the offices of Reboul,
MacMurray, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & Kristol, ▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇, effective as of 5:00 p.m., New York time, on May 31, 1996, or at
such other date and time as may be mutually agreed upon among the Company and
LHS (such date and time of closing being herein called the "Closing Date").
6
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
OF LHS AND SHS
Each of LHS and SHS hereby severally and not jointly
represents and warrants to the Company as follows:
SECTION 2.01 Organization, Qualification and Corporate
Power; Subsidiaries. (a) LHS is a not for profit corporation duly
incorporated and validly existing under the laws of the State of Tennessee.
LHS has the corporate power and authority to own the Class A Shares and to
execute, deliver and perform this Agreement and the Transition Agreements (as
defined in Section 5.01(j)) to which it is a party and to consummate the
transactions contemplated hereby and thereby.
(b) Each of SHS and NFI is a corporation duly incorporated and
validly existing under the laws of the State of Tennessee and is duly licensed
or qualified as a foreign corporation and is in good standing in each other
jurisdiction in which it owns or leases any real property or in which the nature
of business transacted by it makes such licensing or qualification necessary.
Each of SHS and NFI has the corporate power and authority to own and operate its
properties and to carry on its business as currently conducted, to execute,
deliver and perform this Agreement and the Transition Agreements to which it is
a party and to consummate the transactions contemplated hereby and thereby.
(c) Except as set forth on Schedule 2.01(c) or Schedule
2.01(d), SHS does not own any shares of any corporation or other equity
interest, either of record, beneficially or equitably, in any association,
partnership, limited liability company, joint venture or other legal entity, or
has any commitment to acquire any such interest or to make any loans or capital
contributions to any such entity.
(d) Annexed hereto as Schedule 2.01(d) is a list of all NFI
Ventures (each as hereinafter defined) setting forth the jurisdiction of its
formation and the record and beneficial ownership of all equity interests in
such entity. As used herein, the term "Venture" means any partnership, limited
liability company, joint venture or other entity in which NFI or any Excluded
Subsidiary owns an equity interest. For the purposes of this Agreement, an "NFI
Venture" shall mean a Venture in which NFI owns an equity interest, and an
"Excluded Venture" shall mean a Venture in which
7
an Excluded Subsidiary owns an equity interest.
Each NFI Venture is duly organized under the laws of the
jurisdiction of its formation, validly existing and in good standing under the
laws of such jurisdiction. Each NFI Venture has the requisite power and
authority, and the legal right, to own and operate its properties and to carry
on its business as currently conducted, and to execute and deliver any of the
Transition Agreements to which it may be a party and to consummate the
transactions contemplated thereby. Each NFI Venture is duly qualified to do
business and is in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of its business, as now being
conducted, makes such qualification necessary. Except as set forth in Schedule
2.01(d), neither NFI nor any NFI Venture owns any shares of any corporation or
any equity interest, either of record, beneficially or equitably, in any
association, partnership, limited liability company, joint venture or other
legal entity, or has any commitment to acquire any such interest or to make any
loans or capital contributions to any such entity.
SECTION 2.02 Authorization of Agreements, Etc. (a) The
execution and delivery by LHS and each member of the Acquired Group of this
Agreement and the Transition Agreements to which it is a party, and the
performance by LHS and each member of the Acquired Group of its obligations
hereunder and thereunder, have been duly authorized by all requisite
corporate, shareholder and other entity action required on the part of any
member of the Acquired Group and will not violate any provision of law or any
order of any court or other agency of government applicable to LHS or any
member of the Acquired Group, the Articles of Incorporation or By-laws, or
Partnership Agreement or Operating Agreement of LHS or any member of the
Acquired Group, or any provision of any indenture, agreement or other
instrument to which LHS or any member of the Acquired Group or any of its
properties or assets is bound, or conflict with, result in a breach of,
create any right of termination under or constitute (with due notice or lapse
of time or both) a default under any such indenture, agreement or other
instrument, or result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the properties or assets of
LHS or any member of the Acquired Group or result in any suspension,
revocation, impairment, forfeiture or nonrenewal of, or any requirement to
obtain, any Governmental Permit (as hereinafter defined).
8
SECTION 2.03 Validity. This Agreement has been duly
executed and delivered by LHS and SHS, and, subject to due execution by the
Company and the Purchasers, constitutes, and the Transition Agreements, when
executed and delivered by LHS and any member of the Acquired Group as
contemplated hereby, subject to the due execution by the other parties
thereto (other than LHS or any member of the Acquired Group), will
constitute, the legal, valid and binding obligations of LHS and any member of
the Acquired Group party thereto, enforceable against them in accordance with
their respective terms, except as enforceability may be limited by bankruptcy
or other laws affecting creditors' rights generally and limitations on the
availability of equitable remedies.
SECTION 2.04 Capitalization; Ownership of Capital Stock.
(a) As of the date hereof, the authorized capital stock of SHS consists of
20,000,000 shares of Class A Stock, 10,000,000 shares of Class B Stock and
1,000,000 shares of preferred stock, par value $.01 per share. 10,000,000
shares of Class A Stock and 1,141,438 shares of Class B Stock have been duly
and validly issued and are outstanding and fully paid and non-assessable. No
such preferred stock has ever been issued.
(b) The Class A Shares are owned by LHS free and clear of all
liens, charges, security interests or other encumbrances of any nature
whatsoever ("Encumbrances"). All right, title and interest in and to the Class A
Shares is being sold, assigned, transferred and delivered to the Company, and
the Company will receive valid title thereto, free and clear of any and all
Encumbrances.
(c) As of the date hereof, the authorized capital stock of NFI
consists of 1,000 shares of Common Stock, par value $.01 per share, of which 100
shares (the "NFI Shares") have been duly and validly issued and are outstanding
and fully paid and non-assessable. The NFI Shares are owned by SHS free and
clear of all Encumbrances.
(d) Except as otherwise set forth in Schedule 2.04(d) hereto
or as expressly contemplated by this Agreement, (i) no subscription, warrant,
option, convertible security or other right (contingent or other) to purchase or
acquire any shares of any class of capital stock of SHS or NFI is authorized or
outstanding, (ii) there is not any commitment of SHS or NFI to issue any shares,
warrants, options or other such rights or to distribute to holders of any class
of its capital stock any evidences of
9
indebtedness or assets and (iii) neither SHS nor NFI has any obligation
(contingent or other) to purchase, redeem or otherwise acquire any shares of its
capital stock or any interest therein or to pay any dividend or make any other
distribution in respect thereof.
SECTION 2.05 Financial Statements. SHS and NFI have
previously delivered to WCAS VII (i) audited consolidated and consolidating
financial statements for the Group and for NFI and the NFI Ventures as at and
for the periods ending June 30, 1995, 1994 and 1993, and (ii) unaudited
consolidated and consolidating financial statements for the Group and for NFI
and the NFI Ventures as of November 30, 1995 (collectively, the "Financial
Statements"). The Financial Statements (i) were prepared from the books and
records of the members of the Group to which they pertain and (ii) except as
otherwise set forth in Schedule 2.05 present fairly the consolidated
financial position of the Group and of NFI and the NFI Ventures as of the
respective dates specified therein, and the income, cash flows and
stockholders' equity for the respective periods then ended, all in conformity
with generally accepted accounting principles applied on a consistent basis.
Except as set forth in Schedule 2.05, since November 30, 1995, there has been
no material adverse change in the business, operations, properties or
condition (financial or other) of any member of the Acquired Group.
SECTION 2.06 Absence of Undisclosed Liabilities. Except as
and to the extent (i) reflected in the most recent balance sheet for such
member of the Acquired Group separately included in the financial statements
referred to in Section 2.05 hereof, (ii) incurred by such member of the
Acquired Group since the date of such balance sheet in the ordinary course of
business and consistent with past practice, or (iii) set forth in Schedule
2.06 hereto, no member of the Acquired Group has any material liabilities or
obligations of any kind or nature, whether known or unknown or secured or
unsecured (whether absolute, accrued, contingent or otherwise, and whether
due or to become due), of a nature customarily accrued, reserved against or
disclosed in a corporate balance sheet prepared in accordance with generally
accepted accounting principles, including without limitation any and all tax
liabilities due or to become due, whether incurred in respect of or measured
by the assets, income or receipts of such member for any period prior to the
close of business on November 30, 1995, or arising out of transactions
entered into or any state of facts existing prior thereto or transactions
contemplated by this Agreement.
10
SECTION 2.07 Absence of Certain Changes or Events. Since
the date of its most recent balance sheet referred to in Section 2.05, except
(i) as otherwise set forth in Schedule 2.07 hereto, (ii) as otherwise
expressly contemplated in this Agreement, or (iii) as disclosed in the
materials accompanying the Estimated Balance Sheet, no member of the Acquired
Group has:
(a) changed or amended its Articles of Incorporation or
By-laws, Partnership Agreement, or Operating Agreement, as the case may
be;
(b) borrowed any amount or incurred any material obligation or
liability (absolute or contingent), that would be required to be
disclosed on a balance sheet as of the date hereof prepared in
accordance with generally accepted accounting principles, except
current liabilities incurred, and liabilities under contracts entered
into, in the ordinary course of business and consistent with past
practice;
(c) discharged or satisfied any lien, security interest,
charge or other encumbrance or incurred or paid any obligation or
liability (absolute or contingent), other than current liabilities
shown on such balance sheet and current liabilities incurred since that
date in the ordinary course of business and consistent with past
practice;
(d) mortgaged, pledged or subjected to any lien, security
interest, charge or other encumbrance any of its assets or properties
(other than Permitted Liens as defined in Section 2.09 below);
(e) sold, transferred, assigned, leased or otherwise disposed
of any of its material assets or properties, except for fair
consideration in the ordinary course of business and consistent with
past practice, or acquired any assets or properties, except in the
ordinary course of business and consistent with past practice;
(f) declared, set aside or paid any distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock or redeemed or otherwise acquired any of its capital
stock or split, combined or otherwise similarly changed its capital
stock or authorized the creation or issuance of or issued or sold any
capital stock or any securities or obligations convertible into or
exchangeable therefor, or given any person any right to acquire any
capital stock of such member, or agreed to
11
take any such action;
(g) made any distribution (whether in cash or property or any
combination thereof and whether in redemption or liquidation of an
interest in such member of the Acquired Group or otherwise) to any
person who or which at the time thereof was a partner or member of such
member of the Acquired Group;
(h) made any investment of a capital nature, whether by
purchase of stock or securities, contributions to capital, property
transfers or otherwise, in any partnership, limited liability company,
corporation or other entity, or purchased any material property or
assets;
(i) canceled or compromised any debt or claim other than in
the ordinary course of business consistent with past practice;
(j) waived or released any rights of material value, including
without limitation, any Intangible Rights (as defined in Section
2.10(b) below);
(k) transferred or granted any rights under or with respect to
any Intangible Rights, or permitted any license, permit or other form
of authorization relating to an Intangible Right to lapse;
(l) made or granted any wage or salary increase applicable to
any group or classification of employees generally, entered into any
employment contract with, or made any loan to, or entered into any
material transaction of any other nature with, any officer or employee
of LHS or any member of the Group;
(m) suffered any casualty loss or damage (whether or not such
loss or damage shall have been covered by insurance) which affects in
any material respect its ability to conduct its business;
(n) suffered any material losses, or waived any rights of
substantial value, whether or not in the ordinary course of business;
(o) received notification of cancellation, or canceled or
waived any rights which, individually or in the aggregate, are material
with respect to any currently existing
12
agreement, contract, right or understanding to which such member is a
party; or
(p) entered into any transaction except in the ordinary course
of business.
SECTION 2.08 Governmental Approvals. Except as set forth in
Schedule 2.08 hereto and other than pursuant to the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
Antitrust Improvements Act of 1976, as amended from time to time (the
"▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act"), if applicable, no order, authorization, approval,
license or consent from, or filing with, any federal or state governmental or
public body or other authority having jurisdiction over LHS or any member of
the Acquired Group, is required for the execution, delivery and performance
of this Agreement or any of the Transition Agreements, or the consummation of
the transactions contemplated hereby and thereby, is necessary in order to
ensure the legality, validity, binding effect or enforceability of this
Agreement or any of the Transition Agreements to which LHS or any member of
the Acquired Group is a party.
SECTION 2.09 Title to Properties, Absence of Liens and
Encumbrances. No member of the Acquired Group owns any real property. Each
member of the Acquired Group has (or upon consummation of the transactions to
occur on the Closing Date pursuant to Section 1.01, will have) good and valid
title to all its other assets and properties, in each case free and clear of
all Encumbrances, other than (w) as set forth in Schedule 2.09, (x) liens for
taxes not yet due or, if due, being contested in good faith by appropriate
proceedings, or (y) mechanics', materialmen's, landlords' and similar
statutory liens arising in the ordinary course of business or (z) liens,
pledges or deposits under workers' compensation, unemployment insurance,
social security or similar legislation, and all of which, in the aggregate,
would not have a material adverse effect on the business, properties or
condition (financial or other) of any member of the Acquired Group (a
"Material Adverse Effect") (the liens described in clauses (w), (x), (y) and
(z) above, together with liens that are released at or before Closing, being
referred to herein as "Permitted Liens").
SECTION 2.10 List of Properties, Contracts and Other Data.
Annexed hereto as Schedule 2.10 is a list setting forth the following:
(a) a description of all leases of real or personal property
to which any member of the Acquired Group is a
13
party, either as lessee or lessor, including a description of the
parties to each such lease, the property to which each such lease
relates, and the rental term and monthly (or other) rents payable
under each such lease;
(b) (i) all patents, trademarks and trade names, trademark and
trade name registrations, logos, servicemark registrations, copyright
registrations, all applications pending on the date hereof for patent
or for trademark, trade name, servicemark or copyright registrations,
and all other material proprietary rights other than such rights
relating to Software (as hereinafter defined) set forth in Schedule
2.13 hereto (collectively, "Intangible Rights") owned by any member of
the Acquired Group (specifying the nature of the rights therein), and
(ii) all licenses granted by or to any member of the Acquired Group and
all other material agreements to which any member of the Acquired Group
is a party that relate, in whole or in part, to any Intangible Rights
mentioned in clause (i) above or to other proprietary rights material
to any member of the Acquired Group, whether owned by any member of the
Acquired Group or otherwise;
(c) all collective bargaining agreements, employment and
consulting agreements, independent contractor agreements (other than
such agreements entered into in the ordinary course of business and
which are terminable without penalty upon not more than 30 days
notice), executive compensation plans, bonus plans, deferred
compensation agreements, severance obligations, employee pension plans
or retirement plans, employee profit sharing plans, employee stock
purchase and stock option plans, group life insurance, hospitalization
insurance or other similar plans or arrangements maintained for or
providing benefits to employees of, or independent contractors or other
agents for any member of the Acquired Group; and
(d) all contracts, including without limitation guarantees,
mortgages, indentures and loan agreements, to which any member of the
Acquired Group is a party, or to which any member of the Acquired Group
or any of its or their respective assets or properties is subject and
which are not specifically referred to in clauses (a), (b), or (c)
above, provided, however, that there need not be listed in said
Schedule 2.10 pursuant to this clause (d) any sales contracts, supply
contracts with suppliers and other such contracts incurred in the
ordinary course of business and consistent with past practice, other
than any such contract
14
which (i) is a contract or group of related contracts which exceeds
$100,000 in amount, (ii) contains warranties by any member of the
Acquired Group in excess of those customary in its business or (iii)
cannot be performed in the normal course within 12 months after the
Closing Date without breach or penalty.
True and complete copies of all documents and complete
descriptions of all binding oral commitments (if any) referred to in said
Schedule 2.10 have been made available to the Company and its counsel. All
material provisions of the contracts referred to in such Schedule are valid and
enforceable obligations of the applicable member of the Acquired Group, and, to
the knowledge of LHS and each member of the Acquired Group, as the case may be,
of the other parties thereto. As used in this Agreement, "to the knowledge of
LHS and each member of the Acquired Group" or any similar phrase shall mean the
actual knowledge of the directors, officers and senior management employees of
LHS, SHS and NFI. Except as set forth in Schedule 2.10, neither LHS nor any
member of the Acquired Group has been notified of any claim that any contract
referred to in such Schedule is not valid and enforceable in accordance with its
terms for the periods stated therein, or that there is under any such contract
any existing material default or event of default or event which, with notice or
lapse of time or both, would constitute such a default.
SECTION 2.11 Third-Party Payer and Supplier Contracts. Except
as set forth in Schedule 2.11, no member of the Acquired Group has lost any
customer, third-party payer or drug supplier contract since November 30, 1995,
and, to the knowledge of LHS and each member of the Acquired Group, no member of
the Acquired Group is about to lose any customer, third-party payer or drug
supplier in the event of a sale or change of ownership of the Acquired Group or
otherwise.2.11 Third-Party Payer and Supplier Contracts. Except as set forth in
Schedule 2.11, no member of the Acquired Group has lost any customer,
third-party payer or drug supplier contract since November 30, 1995, and, to the
knowledge of LHS and each member of the Acquired Group, no member of the
Acquired Group is about to lose any customer, third-party payer or drug supplier
in the event of a sale or change of ownership of the Acquired Group or
otherwise.
SECTION 2.12 Intangible Rights. Except as set forth in
Schedule 2.12 (i) Each member of the Acquired Group is in compliance with its
material contractual obligations relating to the protection of such of the
Intangible Rights used by it pursuant to licenses or other contracts, (ii) to
the best knowledge of LHS and each
15
member of the Acquired Group, each member of the Acquired Group owns or has the
right to use its respective Intangible Rights to provide and sell the services
provided and sold by it, and to conduct its respective business as heretofore
conducted, and the consummation of the transactions contemplated hereby will not
alter or impair its ownership or right to use any such Intangible Rights, (iii)
to the knowledge of LHS and each member of the Acquired Group, no claims are
currently being asserted with respect to the use by any member of the Acquired
Group of any of the Intangible Rights for patent, copyright or trademark
infringement, and (iv) to the knowledge of LHS and each member of the Acquired
Group, no person is infringing on or violating the Intangible Rights or know-how
owned by any member of the Acquired Group.
SECTION 2.13 Software. The operating and applications
computer software programs and databases used by each member of the Acquired
Group in the conduct of its business (collectively, the "Software") are
listed on Schedule 2.13 hereto. Except as set forth in Schedule 2.13 hereto,
each member of the Acquired Group holds valid licenses to all copies of such
member's Software material to its business, and no member of the Acquired
Group has sold, licensed, leased or otherwise transferred or granted any
interest or rights to any thereof. Except as set forth in Schedule 2.13
hereto, to the knowledge of LHS and each member of the Acquired Group, none
of the Software owned by any member of the Acquired Group infringes upon or
violates any patent, copyright, trade secret or other proprietary right of
any other person and, to the best knowledge of LHS and each member of the
Acquired Group, no claim with respect to any such infringement or violation
is threatened.
Upon consummation of the transactions contemplated by this
Agreement, each member of the Acquired Group will continue to own all the
Software owned by it and material to its business, free and clear of all claims,
liens, encumbrances, obligations and liabilities (other than Permitted Liens)
and, with respect to all agreements for the lease or license of Software which
require consents or other actions as a result of the consummation of the
transactions contemplated by this Agreement in order for each member of the
Acquired Group to continue to use and operate such Software after the Closing
Date, each member of the Acquired Group will have obtained such consents or
taken such other actions so required except where the failure to obtain such
consent would not have a Material Adverse Effect on the Acquired Group.
SECTION 2.14 Litigation, Etc. (a) Schedule 2.14 hereto sets
forth a complete list and an accurate description of all claims, actions,
suits, proceedings and investigations pending or, to the knowledge of LHS and
each member of the Acquired Group, threatened, by or against any member of
the Acquired Group or any of their respective properties, assets, rights or
businesses. No such pending or threatened claims,
16
actions, suits, proceedings or investigations, if adversely determined, would,
individually or in the aggregate, have a Material Adverse Effect.
(b) There are no actions, suits, proceedings or claims pending
before or by any court, arbitrator, regulatory authority or government agency
against or affecting LHS or any member of the Group that might enjoin or prevent
the consummation of the transactions contemplated by this Agreement or the
Transition Agreements to which LHS or any member of the Acquired Group is a
party.
SECTION 2.15 Taxes. (a) Except as set forth in Schedule
2.15 (i) each member of the Group has duly and timely filed or caused to be
filed all Tax returns, reports, estimates and information and other
statements or returns (collectively, "Tax Returns"), of which the failure to
file would have a Material Adverse Effect on the Acquired Group, required to
be filed by or on behalf of it (and all such Tax Returns with respect to
which each such member or its assets and properties may be liable or
otherwise subject), pursuant to any applicable federal, state and local tax
laws for all years and periods for which such Tax Returns have become due
(with extensions) as of the date hereof, and (ii) all such Tax Returns
(including all informational Tax Returns) were true, correct and complete in
all material respects as filed and correctly reflect in all material respects
the Tax or Taxes required to be paid or collected by each such member.
(b) For purposes of this Agreement, "Tax" and "Taxes" shall
mean any net income, unincorporated business, alternative or add-on minimum tax,
gross income, gross receipts, sales, use, ad valorem, value added, transfer,
gains, franchise, profits, withholding on amounts paid or received, payroll,
employment, excise, severance, stamp, occupation, property, windfall profit or
other taxes, or other like assessments or charges of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any governmental authority (domestic or foreign) responsible for the
imposition of any such taxes.
(c) Except as set forth in Schedule 2.15, (i) each member of
the Group has paid all Taxes shown as owed by it on the Tax Returns referred to
in Section 2.15(a) to the appropriate taxing authorities, or where payment of
Taxes is not yet due, has established or will establish an adequate reserve on
its books and records for the payment of all such Taxes with respect to all
taxable periods (or portions thereof) through the Closing Date
17
and (ii) no member of the Acquired Group has been the subject of a tax ruling
(or made a request therefor) or entered into any closing agreement under Section
7121 of the Code, which ruling or closing agreement has a material adverse
effect on the Taxes of any member of the Acquired Group on or after the Closing
Date.
(d) Except as set forth in Schedule 2.15, (i) no extensions of
time have been granted to any member of the Group to file any Tax Return
required by applicable law to be filed by it or on its behalf on or prior to the
Closing Date which have expired, or will expire, on or before the Closing Date
without such Tax Return having been filed, (ii) no deficiency or adjustment for
any Taxes has been proposed, asserted or assessed against any member of the
Group, and no federal, state or local audits or other administrative proceedings
or court proceedings are pending with regard to any such Taxes, (iii) to the
knowledge of LHS and SHS, there is no pending or threatened dispute or claim
concerning any Taxes of any member of the Group with respect to any taxable
period or portion thereof ending on or prior to the Closing Date, (iv) no waiver
or consent extending any statute of limitations for the assessment or collection
of any Taxes has been executed by or on behalf of any member of the Group, nor
are any requests for such waivers or consents pending, and (v) no federal income
tax returns of any member of the Group for any year after 1991 have been
examined by the Internal Revenue Service.
(e) Each NFI Venture that is a partnership, for all taxable
periods (and any portions thereof) from its respective date of organization
through the Closing Date, has been taxable as a partnership, and not as an
association taxable as a corporation, for federal, state and local income Tax
purposes.
(f) Except as set forth in Schedule 2.15, no member of the
Acquired Group is a party to any tax-sharing or allocation agreement that will
survive the Closing Date, nor does any member of the Acquired Group owe any
amount to any entity outside the Acquired Group under any tax-sharing or
allocation agreement.
(g) Except as set forth in Schedule 2.15, no member of the
Acquired Group is a party to any agreement, contract or arrangement that would
result, by reason of the consummation of any of the transactions contemplated
herein, separately or in the aggregate, in the payment of any "excess parachute
payment" within the meaning of Section 280G of the Code.
(h) Neither SHS nor NFI (i) has been a member of an
18
affiliated group filing a consolidated federal income Tax Return (other than a
group the common parent of which was SHS) or (ii) has any liability for the
Taxes of any person (other than any of PTI, CCI and HEI (together with NFI, the
"Subsidiaries") under Treasury Regulation Section 1.1502-6 (or any similar
provision of state or local law), as a transferee or successor, by contract, or
otherwise.
(i) Except as set forth in Schedule 2.15, the books and
records of SHS and NFI made available for review by the Company and its
representatives provide information adequate to determine: (i) the basis of NFI
in each of its assets; (ii) the basis of SHS in the stock of each of the
Subsidiaries immediately preceding Closing (or the amount of any "excess loss
account" pursuant to applicable Treasury Regulations under Section 1502 of the
Code); (iii) the amount of any net operating loss, net capital loss, or unused
investment or other credit with respect to SHS or the Subsidiaries; and (iv) the
amount of any "deferred intercompany gain or loss" with respect to SHS or the
Subsidiaries arising out of any "deferred intercompany transaction" pursuant to
applicable Treasury Regulations under Section 1502 of the Code.
SECTION 2.16 Governmental Authorizations and Regulations.
(a) Except as set forth in Schedule 2.16 hereto, each member of the Acquired
Group has all material governmental licenses, franchises and permits,
including without limitation all licenses, franchises, permits,
accreditations, certificates of need and provider or supplier agreements as
may be required under Title XVIII and XIX of the Social Security Act and
other applicable laws for reimbursement of services rendered or goods sold,
or required under applicable federal or state laws and regulations for the
conduct of its business as currently conducted (collectively, "Governmental
Permits"), and
(b) The business of each member of the Acquired Group is being
conducted in compliance with all applicable laws, ordinances, rules and
regulations of all governmental authorities relating to their respective
properties or applicable to their respective businesses, including without
limitation the terms of all Governmental Permits and federal securities laws,
other than minor non-compliance that can be cured at nominal cost without
adversely affecting the business of each member of the Acquired Group as it is
currently conducted. Except as set forth in Schedule 2.16 hereto, no member of
the Acquired Group has received any notice of any alleged violation of any of
the foregoing, nor is any member of the Acquired Group aware of any basis
19
for any such allegation.
(c) Except as set forth in Schedule 2.16, no member of the
Acquired Group or any of their respective properties, operations or businesses
is subject to any order, judgment, injunction or decree to which any such entity
is a party or which names any such entity. To the knowledge of LHS and each
member of the Acquired Group, no action has been taken or recommended by any
governmental or regulatory official, body or authority, either to revoke,
withdraw or suspend any certificate of need or any license to operate any member
of the Acquired Group or to terminate or decertify any participation of any
member of the Acquired Group in the Medicare, Medicaid or CHAMPUS programs, nor
is there any decision not to renew any Medicare, Medicaid or CHAMPUS provider or
supplier agreement related to any member of the Acquired Group.
SECTION 2.17 Labor Matters. (a) No collective bargaining
agreement is applicable to any employees of any member of the Acquired Group.
There are not any disputes between any member of the Acquired Group and any
such employees that could reasonably be expected to materially adversely
affect the conduct of its or their respective business or any unresolved
labor union grievances or unfair labor practice or labor arbitration
proceedings pending, or to the knowledge of LHS or any member of the Acquired
Group, threatened, relating to the business of any member of the Acquired
Group. To the knowledge of LHS and each member of the Acquired Group, there
are not any organizational efforts presently being made or threatened
involving any of such employees. Except as set forth in Schedule 2.17 hereto,
no member of the Acquired Group has received notice of any claim that any
member of the Acquired Group has failed to comply with any laws relating to
employment, including any provisions thereof relating to wages, hours,
collective bargaining, the payment of social security and other payroll or
similar taxes, equal employment opportunity, employment discrimination or
harassment and employment safety, or that any member of the Acquired Group is
liable for any arrears of wages or any taxes or penalties for failure to
comply with any of the foregoing.
(b) There are no proceedings pending or, to the knowledge of
LHS or any member of the Acquired Group, threatened before the National Labor
Relations Board with respect to any employees of any member of the Acquired
Group. Except as set forth in Schedule 2.17 hereto, there are no discrimination
or harassment charges (relating to sex, age, religion, race, national origin,
ethnicity, handicap or veteran status) pending before
20
any federal or state agency or authority against any member of the Acquired
Group.
SECTION 2.18 Use of Real Property. The leased real
properties listed in Schedule 2.18 hereto are used and operated by each
member of the Acquired Group in material compliance and conformity with all
applicable leases. To the knowledge of LHS and each member of the Acquired
Group, the ownership, use and operation by each member of the Acquired Group
of its real estate or other assets do not violate, in any material respect,
any applicable zoning or building regulation, ordinance or other law, order,
regulation or requirement relating to such ownership, use or operation.
SECTION 2.19 Condition of Assets. All items of tangible
personal property, fixtures and equipment comprising the respective assets of
each member of the Acquired Group and necessary to the conduct of their
respective businesses are in a good state of repair (ordinary wear and tear
excepted) and operating condition, in all material respects.
SECTION 2.20 Accounts Receivable. Except as set forth in
Schedule 2.05, the accounts receivable reflected in the most recent balance
sheet for each member of the Acquired Group separately included in the financial
statements referred to in Section 2.05 hereof, and all accounts receivable
arising between November 30, 1995 and the date hereof, arose from bona fide
transactions in the ordinary course of business. Except as set forth in Schedule
2.05, the accounts receivable reflected on such balance sheet of each member of
the Acquired Group, have been recorded and reserved against in accordance with
generally accepted accounting principles consistently applied and consistent
with past practice. Except as set forth in Schedule 2.09, no such account
receivable has been assigned or pledged to any other person, firm or corporation
or, to the knowledge of the Partnership, is subject to any right of set-off.
Except as set forth in Schedule 2.05, to the knowledge of LHS and SHS adequate
provision has been made in the Financial Statements for collection losses,
contractual discounts and other adjustments from third party payers. Except as
set forth on Schedule 2.26, no member of the Acquired Group has claimed or
received reimbursements from the Medicare program, the Medicaid program or any
other third-party payer in excess of the amounts permitted by law, except as and
to the extent that such liability for such overpayment has already been
disclosed in Schedule 2.16, satisfied or for which adequate provision has been
made in the Financial Statements.
21
SECTION 2.21 Books and Records. The corporate minute books
and stock record books of SHS and NFI (i) accurately reflect all material
actions taken at all meetings of the stockholders and Board of Directors of
SHS and NFI, and each committee (if any) of such Board of Directors, and (ii)
properly and accurately record the issuance and transfer of all shares of
capital stock of SHS and NFI.
SECTION 2.22 Employee Benefit Plans. (a) Schedule 2.22
attached hereto lists each employee benefit plan within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA")
maintained by any member of the Acquired Group which contributes or is
required to contribute (a "Plan"). Each member of the Acquired Group has
complied and currently is in compliance in all material respects, both as to
form and operation, with the applicable provisions of ERISA and the Code with
respect to each of the Plans.
(b) With respect to each of the Plans which is intended to
qualify under Section 401(a) of the Code, the relevant member of the Acquired
Group has received favorable and unrevoked determination letters from the
Internal Revenue Service to the effect that such Plan does so qualify and that
the related trust is exempt from taxation pursuant to Section 501(a) of the
Code.
(c) No member of the Acquired Group has at any time
maintained, adopted, or established, contributed to or been required to
contribute to, or otherwise participated in or been required to participate in,
any employee benefit plan or other program or arrangement subject to Title IV of
ERISA (including, without limitation, a "multiemployer plan" (as defined in
Section 3(37) of ERISA) and a defined benefit plan (as defined in Section 3(35)
of ERISA)).
(d) Except as set forth on Schedule 2.22 hereto, and
notwithstanding anything else set forth herein, no member of the Acquired Group
has incurred any liability with respect to any Plan under ERISA (including,
without limitation, Title I or Title IV of ERISA), the Code or other applicable
law, which has not been satisfied in full on a timely basis, and no event has
occurred, and there exists no condition or set of circumstances which could
reasonably be anticipated to result in the imposition of any material liability
under ERISA (including, without limitation, Title I or Title IV of ERISA), the
Code or other applicable law with respect to any of the Plans.
22
(e) No Plan, other than a Plan which is an employee pension
benefit plan (within the meaning of Section 3(2)(A) of ERISA), provides
benefits, including without limitation, death, health or medical benefits
(whether or not insured), with respect to current or former employees of any
member of the Acquired Group beyond their retirement or other termination of
service with any member of the Acquired Group (other than (i) coverage mandated
by applicable law, (ii) deferred compensation benefits accrued as liabilities on
the books of the relevant member or (iii) benefits the full cost of which is
borne by the current or former employee (or his beneficiary)).
(f) Except as set forth on Schedule 2.22, the consummation of
the transactions contemplated by this Agreement will not (i) entitle any current
or former employee or officer of any member of the Acquired Group to severance
pay, unemployment compensation or any other payment, or (ii) accelerate the time
of payment or vesting, or increase the amount of compensation due any such
employee or officer.
(g) As a result of the transactions contemplated hereby, no
portion of any amount paid or payable by any member of the Acquired Group to a
"disqualified individual" (within the meaning of Section 280G(c) of the Code and
the regulations promulgated thereunder), whether paid or payable in cash,
securities of such member or otherwise and whether considered alone or in
conjunction with any other amount paid or payable to such a "disqualified
individual", constitutes an "excess parachute payment" within the meaning of
Section 280G(b) of the Code (without regard to subsection (b)(4) thereof) and
the regulations promulgated thereunder.
(h) Each member of the Acquired Group has provided to the
Company true and complete copies of the following for each Plan: (i) the Plan;
(ii) summary plan description of the Plan; (iii) the trust agreement, insurance
policy or other instrument relating to the funding of the Plan; (iv) the two
most recent Annual Reports (Form 5500 series) and accompanying schedules filed
with the Internal Revenue Service or United States Department of Labor with
respect to the Plan; (v) the most recent audited financial statement for the
Plan; (vi) the most recent actuarial report of the Plan; (vii) the policy of
fiduciary liability insurance (and agreements related thereto) maintained in
connection with the Plan; and (viii) the most recent determination letter issued
by the Internal Revenue Service with respect to the Plan that is intended to
qualify under Section 401(a) of the Code.
23
SECTION 2.23 Insurance. All policies of fire, liability
(including product liability), workers' compensation, malpractice and
professional liability and other forms of insurance providing insurance coverage
to or for each member of the Acquired Group are listed in Schedule 2.23 hereto
and (i) each member of the Acquired Group is a named insured under such
policies, (ii) all premiums with respect thereto covering all periods up to and
including the Closing Date have been paid or accrued for, and (iii) no notice of
cancellation or termination has been received with respect to any such policy.
All such policies are in full force and effect and will remain in full force and
effect to and including the Closing Date. All such policies are underwritten by
the insurers listed in Schedule 2.23 hereto, are sufficient for all applicable
requirements of law.
SECTION 2.24 Environmental Matters; Medical Waste. (a) For the
purposes of this Section 2.24, the following terms shall have the following
meanings:
"Environmental Law" means any current federal, state or local
statute, law, ordinance, rule or regulation of the United States and
any other jurisdiction within the United States now effective and any
order, to which any member of the Acquired Group is a party or is
otherwise directly bound of the United States or other jurisdiction
within the United States now effective relating to: (i) pollution or
protection of the environment, including natural resources; or (ii)
exposure of persons, including employees, to Hazardous Substances;
"Hazardous Substances" means any substance, whether liquid,
solid or gas (i) listed, identified or designated as hazardous or toxic
under any Environmental Law, (ii) which, applying criteria specified in
any Environmental Law, is hazardous or toxic, or (iii) the use or
disposal of which is regulated under Environmental Law.
(b) No Hazardous Substances have been, or have been threatened
to be, discharged, released or emitted into the air, water, surface water,
ground water, land surface or subsurface strata or transported to or from the
property of any member of the Acquired Group except in compliance in all
material respects with Environmental Law and except for incidental release of
Hazardous Substances in amounts or concentrations which would not reasonably be
expected to give rise to any claims or liabilities against any member of the
Acquired Group under any Environmental
24
Law.
(c) No member of the Acquired Group has received any written
notification from a governmental agency that there is any violation of any
Environmental Law with respect to the business and properties of any member of
the Acquired Group and no member of the Acquired Group has received any written
notification from a governmental agency pursuant to Section 104, 106 or 107 of
the Comprehensive Environmental Response Compensation and Liability Act, as
amended.
(d) No member of the Acquired Group is in violation of or, to
the knowledge of LHS and each member of the Acquired Group, the subject of, any
investigation, inquiry or enforcement action by any governmental authority under
the Medical Waste Tracking Act, 42 U.S.C. ss. 6992 et seq., or any applicable
state or local governmental statute, ordinance or regulation dealing with the
disposal of medical wastes ("Medical Waste Laws"). The members of the Acquired
Group have obtained and are in compliance with any permits related to medical
waste disposal required by the Medical Waste Laws, and have taken reasonable
steps to determine, and have determined, that all disposal of medical waste by
them have been in compliance with the Medical Waste Laws.
SECTION 2.25 Related Party Transactions. Except as set
forth in Schedule 2.25 hereto, there are no existing arrangements or proposed
transactions (other than (a) any transactions contemplated by the Transition
Agreements (as hereinafter defined) (b) relating to such person's employment
or (c) entered into on an arms' length basis in the ordinary course of
business) between any member of the Acquired Group and (i) any member of the
Excluded Group, (ii) any officer or director of LHS or any of its
subsidiaries (including without limitation any member of the Group) or any
member of the immediate family of any of the foregoing persons (such
officers, directors and family members being hereinafter individually
referred to as a "Related Party"), (iii) any business (corporate or
otherwise) which a Related Party owns, directly or indirectly, or in which a
Related Party has an ownership interest, or (iv) between any Related Party
and any business (corporate or otherwise) with which any member of the
Acquired Group regularly does business.
SECTION 2.26 INTENTIONALLY OMITTED
SECTION 2.27 INTENTIONALLY OMITTED
SECTION 2.28 INTENTIONALLY OMITTED
25
SECTION 2.29 Controlled Substances. Each member of the
Acquired Group and their respective partners, members, officers and directors,
and persons who provide professional services under agreements with any members
of the Acquired Group have not, in connection with their activities directly or
indirectly related to any members of the Acquired Group and in their
professional capacities only, as applicable, engaged in any activities which are
prohibited under the federal Controlled Substances Act, 21 U.S.C. ss. 801 et.
seq. or the regulations promulgated pursuant to such statute or any related
state or local statutes or regulations concerning the dispensing and sale of
controlled substances.
SECTION 2.30 Disclosure of Certain Financial Relationships.
Schedule 2.30 lists all material financial relationships (whether or not
memorialized in a writing) that any member of the Acquired Group has had with a
person known by such member of the Acquired Group to be a physician or an
immediate family member of a physician since January 1, 1993. For purposes of
this Section 2.30, the term "financial relationship" has the meaning set forth
in 42 USC ss. 1395nn.
SECTION 2.31 Brokers' or Finders' Fees. Except for the
financial advisory services provided to LHS, SHS and/or NFI by Equitable
Securities Corporation, all negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by LHS and SHS
directly with the Company and WCAS VII, without the intervention of any
person on behalf of either LHS or SHS in such manner as to give rise to any
claim by any person against the Company or WCAS VII for a finder's fee,
brokerage commission or similar payment and all fees shall be satisfied by
LHS on the Closing Date as provided in Section 9.01 hereof.
SECTION 2.32 Disclosure. To the knowledge of LHS and each
member of the Acquired Group, no information appearing in this Agreement and
the Schedules pertaining to LHS, SHS and the Acquired Group attached hereto
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the information contained herein or therein not
misleading in any respect.
26
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to LHS as follows:
SECTION 3.01 Organization, Power, Etc. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. The Company has the corporate power and authority
to execute and deliver this Agreement and the Transition Agreements to which it
is a party, to perform its obligations hereunder and thereunder.
SECTION 3.02 Authorization of Agreements, Etc. (a) the Company
has duly approved this Agreement and all the Transition Agreements to which the
Company is to be a party, and has duly authorized the execution and delivery of
this Agreement and the Transition Agreements to which the Company is to be a
party, and the consummation of the transactions contemplated hereby and thereby.
Neither the execution and delivery by the Company of this Agreement or the
Transition Agreements to which the Company is to be a party, nor the
consummation of the transactions contemplated hereby and thereby, will violate
any provision of law, any order of any court or other agency of government, the
Certificate of Incorporation or By-laws of the Company, or any judgment, award
or decree or any indenture, agreement or other instrument to which the Company
is a party, or by which it or any of its properties or assets is bound or
affected, or result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument,
or result in the creation or imposition of any lien, charge or encumbrance of
any nature whatsoever upon any of the properties or assets of the Company.
SECTION 3.03 Validity. This Agreement has been duly executed
and delivered by the Company, and, subject to due execution by the other parties
thereto, constitutes, and the Transition Agreements to which the Company is a
party, when executed and delivered by the Company as contemplated hereby,
subject to due execution by the other parties thereto, will constitute, the
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, except as enforceability may
be limited by bankruptcy or other laws affecting creditors' rights generally and
limitations on the availability of equitable remedies.
SECTION 3.04 Governmental Approvals. No order,
27
authorization, approval or consent from, or filing with, any federal or state
governmental or public body or other authority having jurisdiction over the
Company is required to be made or obtained by the Company for the execution,
delivery and performance of this Agreement or is necessary in order to ensure
the legality, validity, binding effect or enforceability of this Agreement or
the Transition Agreements to which the Company is a party.
SECTION 3.05 Brokers' or Finders' Fees. All negotiations
relative to this Agreement and the transactions contemplated hereby have been
carried out by the Company directly with the Purchasers, LHS and SHS without
the intervention of any person on behalf of the Company in such manner as to
give rise to any claim by any person against the Purchasers, LHS or SHS for a
finder's fee, brokerage commission or similar payment.
ARTICLE IV.
COVENANTS
SECTION 4.01 Certain Covenants of LHS and Acquired Group.
(a) Except for actions taken in connection with the Divestment Plan and the
Transition Agreements, and except for asset and liability transfers
consistent with minimizing adjustments to the Purchase Price pursuant to
Section 1.03(b) and (d), during the period from the date of this Agreement to
the Closing Date, LHS and SHS will cause each member of the Acquired Group to
(x) conduct its business and operations according to its ordinary course of
business consistent with past practice, including without limitation the
maintenance of inventory levels, the collection of third party accounts
receivable and the payment of third party accounts payable, (y) use its best
reasonable efforts to preserve its relationships with employees, customers
and suppliers, and (z) continue to provide its services to customers. Without
limiting the generality of the foregoing, during the period from the date of
this Agreement to the Closing Date LHS and SHS will not permit any member of
the Acquired Group to do any of the things listed in paragraphs (a) through
(p) of Section 2.07, except as otherwise contemplated by this Agreement.
(b) Between the date hereof and the Closing Date, LHS and SHS
shall provide reasonable access during normal business hours to the
representatives of the Company, WCAS VII and their counsel and accountants to
the financial, accounting and legal records of each member of the Acquired
Group, and, with the prior
28
express consent of Mr. ▇▇▇▇▇ ▇▇▇▇▇▇▇, to key employees of each member of the
Acquired Group designated by WCAS VII, and, in connection therewith, shall
permit their respective representatives to visit the premises of each member of
the Acquired Group. Such activities shall be performed, so far as is reasonably
possible, in such a manner as to avoid disruption of normal operations.
(c) Unless otherwise contemplated by this Agreement, between
the date hereof and the Closing Date, LHS and SHS will not permit any member of
the Acquired Group to enter into any transaction, make any agreement or
commitment, or take any action, which they know would result in any of the
representations, warranties or covenants of LHS and SHS contained in this
Agreement not being true and correct in all material respects at and as of the
time immediately after the occurrence of such transaction, event or action.
SECTION 4.02 Covenants of the Company. (a) Between the date
hereof and until the consummation of the transaction contemplated by Section
1.01, the Company shall not enter into any transaction, make any agreement or
commitment, or take or omit to take any action, which they know would result in
any of the representations or warranties of the Company contained in this
Agreement not being true and correct in all material respects at and as of the
time immediately after the occurrence of such transaction, event, action or
omission.
(b) The Company hereby covenants and agrees that it will cause
LHS to be named as an additional insured under Company's policies of
malpractice, professional liability and comprehensive and general liability
insurance applicable to the business of NFI and the NFI Ventures, commencing as
of the Closing Date and continuing through the maximum applicable
indemnification periods described in Article VII hereof; and Company will
annually furnish LHS a certificate of such coverage.
(c) For a period of seven years after the Closing, Company
shall not, and shall not permit SHS, NFI or any of the NFI Ventures to, amend,
repeal or modify any provision in SHS's or NFI's or any of the NFI Ventures'
certificate of incorporation or bylaws or partnership agreements, as the case
may be, relating to the exculpation or indemnification of former officers and
directors in any manner which would reduce the protection provided thereby
(unless required by law), and Company shall cause SHS and NFI to maintain
director and officer liability insurance providing coverage to the individuals
who were officers and
29
directors of SHS or NFI prior to the Closing Date comparable to the policy or
policies maintained by SHS or NFI immediately prior to the Closing; provided
that SHS and NFI shall be required to maintain or obtain such coverage only in
such amounts as shall be available for an annual premium cost equal to 150% of
the last annual premium paid by or on behalf of SHS and NFI prior to the Closing
Date.
SECTION 4.03 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act. If applicable, each of
the parties shall file any Notification and Report Forms and related material
that it may be required to file with the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, shall use its reasonable best efforts to obtain an
early termination of the applicable waiting period, and shall make any
further filings pursuant thereto that may be necessary, proper or advisable.
SECTION 4.04 Tax Matters. (a) Transfer Taxes. Any Tennessee
transfer taxes incurred by LHS in connection with the sale of the capital
stock of SHS to the Company pursuant to this Agreement shall be borne by LHS.
LHS shall prepare and file, at its own expense, all necessary tax returns and
other documentation with respect to all such transfer taxes.
(b) Tax Returns. (i) LHS shall prepare (or cause to be
prepared) and the Acquired Group shall timely file for all taxable periods
ending on or before the close of the Closing Date (a "Pre-Closing Period") all
Tax Returns required to be filed after the Closing Date by or on behalf of the
Acquired Group (the "Pre-Closing Period Tax Returns"). The preparation of such
Tax Returns and the positions taken thereon shall be consistent in all respects
with the Acquired Group's past tax accounting principles and practices.
(ii) The Company shall prepare and timely file (or cause to be
prepared and timely filed) for all taxable periods beginning before and ending
after the close of the Closing Date (a "Straddle Period"), all Tax Returns
required to be filed after the Closing Date by any member of the Acquired Group.
For purposes of this Agreement, the portion of the Straddle Period ending on and
including the Closing Date shall be referred to as the "Pre-Closing Straddle
Period" and the portion of the Straddle Period beginning after the Closing Date
shall be referred to as the "Post-Closing Straddle Period". Any such Taxes for a
Straddle Period with respect to a member of the Acquired Group shall be
apportioned to the Pre-Closing Straddle Period based on the
30
actual operations of such member during the portion of such period ending on and
including the Closing Date, determined as though such member's books closed at
the close of the Closing Date. The cost and expenses of preparing any Tax Return
for a Straddle Period shall be borne by the Company.
(iii) All Tax Returns referred to in Sections 4.04(b)(i) shall
be subject to review and approval by the Company, and all Tax Returns referred
to in Section 4.04(b)(ii) which affect the liability of LHS or the Excluded
Group for Taxes pursuant to this Agreement or otherwise shall be subject to
review and approval by LHS, in each case prior to filing, and such approval
shall not be unreasonably withheld by either such party. The party charged with
responsibility to prepare a Tax Return subject to review (the "Preparing Party")
shall present such Tax Return to the other party (the "Reviewing Party") no less
than fifty (50) days prior to the due date (including extensions) for filing the
Tax Return. The parties shall cooperate with one another by making available for
review all related work papers and analyses utilized in preparing the Tax Return
and all related books, records and personnel for this purpose without cost.
Within fifteen (15) days after receipt of the Tax Return, the Reviewing Party
shall deliver a letter to the Preparing Party stating whether it concurs with
the Tax Return or, if not, stating its exceptions thereto, together with the
reasons and supporting information relating to such exceptions. If there are no
such exceptions or such exceptions are resolved by the parties, then such
resolution shall be the final determination. If such exceptions cannot be
resolved by the parties within ten (10) business days after delivery of the list
of exceptions, the dispute shall be submitted to an independent tax consultant
who shall make a final determination in accordance with the terms of this
Agreement within fifteen (15) days after submission to such independent tax
consultant. The independent tax consultant shall be one of the "Big Six" public
accounting firms or a law firm with a nationally recognized tax practice with no
material relationship to the parties or their affiliates, and such independent
tax consultant shall be chosen by agreement of the parties, or if they are
unable to agree, chosen by lot from an equal number of nominees submitted by
each party. The fees and expenses of the independent tax consultant shall be
allocated by it in inverse proportion to the adjustment granted the Reviewing
Party. For example, if such tax consultant grants a portion of the exceptions
proposed by the Reviewing Party that results in an adjustment to the amount of
Taxes owed that is 25% of the total adjustment to the amount of Taxes owed that
would have occurred had all of the Reviewing Party's proposed exceptions been
grant-
31
ed, it shall assess the Reviewing Party with 75% of its fees and expenses. The
independent tax consultant's decision shall be final and binding upon, and
non-appealable by, the parties.
(c) Tax Payments. LHS shall pay all Taxes with respect to all
Tax Returns described in Section 4.04(b) attributable to Pre-Closing Periods or
apportioned to Pre-Closing Straddle Periods pursuant to Section 4.04(b)(ii) ten
(10) days prior to the respective due dates (excluding extensions or waivers
thereof) for such Taxes or, if later, when the respective Tax Returns reporting
such Taxes are filed, other than (x) any Taxes payable (the "Excluded Taxes") as
the result of any (i) events occurring on the Closing Date, but after the
Closing, outside of the ordinary course of business, (ii) election made (or
deemed made) under Section 338 of the Code or any comparable provision of state
or local law as a result of a qualified stock purchase of SHS or NFI by the
Company, (iii) any increase in Taxes resulting from SHS or NFI (or any other
entities controlled by SHS or NFI after the Closing) amending any Pre-Closing
Tax Returns without the prior written permission of LHS, and (iv) Direct Taxes
of NFI or the NFI Ventures and (y) Taxes which were previously paid through
estimated Tax payments. The term "Direct Taxes" shall mean all Taxes imposed on
NFI or the NFI Ventures and attributable solely to the items of income, gain,
loss, deduction and credit realized by NFI or the NFI Ventures, and the business
operations, activities and assets of NFI or the NFI Ventures, in each case
determined on a stand alone basis as if NFI were not a member of the SHS
consolidated group or otherwise affiliated with any member of the Group. In no
event shall the term "Direct Taxes" include any liability of NFI for Taxes of
SHS or any member of the Excluded Group pursuant to Treasury Regulations Section
1.1502-6 (or any successor provision), any similar provisions of state or local
law, as a transferee or successor, by contract or otherwise. The parties
acknowledge that any amounts shown on SHS's Estimated and Final Closing Balance
Sheets as a tax provision or receivable, advance or similar item from LHS
represent LHS's obligation with respect to Taxes under this Section 4.04(c) and
are neither an obligation which LHS shall be required to pay to SHS nor an asset
SHS shall be entitled to receive from LHS other than pursuant to Sections 4.04
and 7.02 hereof.
(d) Refunds. The Company agrees to, and shall cause SHS and
NFI to, cooperate in obtaining any refunds of Taxes (other than any Excluded
Taxes) for Pre-Closing Tax Returns and the Pre-Closing Straddle Periods and to
promptly remit to LHS any such refunds received by the Company, SHS or NFI, net
of any
32
Taxes incurred by the Company, SHS or NFI. Any reasonable out-of-pocket costs or
expenses incurred by the Company, SHS or NFI in obtaining such refunds shall be
borne by LHS. In no event shall LHS be entitled to file an amended return or
otherwise make a claim for refund (or have such an amended return filed or such
claim made on its behalf) without the prior approval of the Company (which
approval shall not be unreasonably withheld) to the extent that such action
would increase the Tax liability of the Company or any member of the Acquired
Group for any taxable period or portion thereof following the Closing Date.
(e) Tax Characterization. Any payments made pursuant to (i)
this Section 4.04, (ii) the indemnity provisions of Article VII or (iii) the
purchase price adjustment provisions of this Agreement, shall be treated by each
of the parties hereto as an adjustment to the purchase price paid by the Company
for the Class A Shares for all Tax and financial accounting purposes. The
parties hereto agree to account for the transactions contemplated herein in a
manner consistent with all the provisions of this Agreement when filing their
respective Tax Returns and the Tax Returns of the Acquired Group.
(f) Post-Closing Audits and Other Proceedings. (i) LHS, on the
one hand, and Company on the other hand, each agrees, at its own expense (except
to the extent such expense, incurred to third parties, is subject to
indemnification pursuant to Section 7.2), to furnish or cause to be furnished to
each other, upon request, as promptly as practicable, such information and
assistance (including access to books and records) relating to the Acquired
Group and the Excluded Group as is reasonably necessary or is reasonably
requested for the preparation of any return for Taxes, any claim for refund or
any audit, and the prosecution or defense of any claim, suit or proceeding
relating to any proposed adjustment.
(ii) LHS, on the one hand, and the Company, on the other hand,
each agree to give prompt notice to each other of any written inquiry by a Tax
authority, scheduling of an examination or proposed adjustment with respect to
Taxes for any Pre-Closing Period or any Pre-Closing Straddle Period. LHS and the
Company shall cooperate with each other in the conduct of any Tax audit or other
Tax proceedings involving SHS or the Acquired Group for such periods and each
may participate at its own expense; provided, however, that LHS shall have the
right to control the conduct of any such audits or proceedings to the extent
such audits or proceedings relate to a proposed adjustment that could adversely
affect the liability of LHS or the Excluded Group for Taxes
33
pursuant to this Agreement or otherwise. The Company also may, at its own
expense, be present in any such audit or proceeding and, if LHS does not assume
the defense of any such audit or proceeding, the Company may defend the same in
such manner as it may deem appropriate, including, but not limited to, settling
such audit or proceeding after giving thirty (30) days' prior written notice to
LHS setting forth the terms and conditions of settlement, provided that LHS has
not objected within fifteen (15) days of receipt of such notice and assumed
control of the audit. In the event that a potential adjustment is present in and
audit or proceeding (otherwise controlled by LHS) for which the Company or any
member of the Acquired Group would be liable and not entitled to indemnification
hereunder, the Company shall have the right, at its expense, to control the
audit or proceeding with respect to such proposed adjustment. With respect to a
proposed adjustment which could adversely affect the liability of LHS or the
Excluded Group for Taxes pursuant to this Agreement or otherwise, on the one
hand, and the liability of the Company or any member of the Acquired Group for
Taxes pursuant to this Agreement or otherwise, on the other hand, (i) LHS and
the Company each may participate in the audit or proceeding, and (ii) any issues
with respect to the proposed adjustment or otherwise pertaining to the audit or
proceeding shall be decided jointly by LHS and the Company. Notwithstanding the
foregoing provisions of this Section, the parties to this Agreement shall
endeavor to agree on a joint representative or representatives in any proceeding
in which each is entitled to and desires to be represented.
(g) Miscellaneous Tax Issues. Notwithstanding any other
provision of this Agreement (i) the determination of the values placed on PTI,
HEI, CCI and any other assets transferred in connection with the Divestment Plan
shall be determined for Tax purposes solely by LHS and (ii) all Tax deductions
in respect of the repurchase by SHS of the shares of SHS Class B Stock,
cancellation of the Options and redemption of the Phantom Units, all pursuant to
the Divestment Plan, shall be claimed by SHS. In the event that any portion of
such deductions referred to in the immediately preceding clause (ii) are
reallocated to NFI pursuant to an adjustment by a Tax authority, the Company
shall pay to LHS the amount of any Tax benefit actually realized by the Company
or by the Acquired Group as a result of such reallocation at the time such
benefit is actually realized, but in no event shall the Company be obligated to
pay an aggregate amount pursuant to this sentence in excess of the Purchase
Price reduction pursuant to Section 1.03 hereof attributable to the provision
for Taxes made in the Final Closing Date Balance Sheet.
34
Solely at the option of LHS, SHS shall make an election under
Section 338(h)(10) of the Internal Revenue Code of 1986, as amended, and any
similar provision of state or local law, with respect to the acquisition of PTI
by LHS, provided, however, that SHS shall be obligated to make such election
only if LHS arranges, at LHS' sole expense, for the Tax Return on which the
election is made to be signed as preparer by an accounting firm of national
reputation and such firm confirms that such election should not result in the
imposition of penalties upon a subsequent disallowance of such 338(h)(10)
election by a Tax authority. Such 338(h)(10) election shall be treated for all
purposes of this Agreement as part of the Divestment Plan.
ARTICLE V.
CONDITIONS PRECEDENT
SECTION 5.01 Conditions Precedent to the Obligations of the
Company5.01 Conditions Precedent to the Obligations of the Company. The
obligation of the Company to consummate the transactions contemplated by this
Agreement on the Closing Date are subject, at the option of the Company, to the
satisfaction at or prior to the Closing Date of each of the following
conditions:
(a) Accuracy of Representations and Warranties. Except to the
extent altered by the Divestment Plan and the Transition Agreements, the
representations and warranties of LHS and SHS contained in this Agreement, or in
any certificate or document delivered to the Company pursuant hereto or thereto
shall be true and correct in all material respects on and as of the Closing Date
as though made at and as of that date except as to items which are specific as
to time, and LHS and SHS shall each have so certified to the Company in writing.
(b) Compliance with Covenants. LHS and SHS shall have
performed and complied in all material respects with all terms, agreements,
covenants and conditions of this Agreement to be performed or complied with by
them at or prior to the Closing Date (including, without limitation, the
pre-Closing portions of the transactions contemplated by the Divestment Plan and
the Transition Agreements), and LHS and SHS shall have so certified to the
Company in writing.
(c) No Material Adverse Change. Except to the extent altered
by the Divestment Plan and the Transition Agreements and except for the transfer
of assets and liabilities intended to
35
minimize adjustments to the Purchase Price pursuant to Sections 1.03(b) and (d),
on the Closing Date there shall not have been any material adverse change since
November 30, 1995, (i) in the financial condition or results of operations of
the business of any member of the Acquired Group or (ii) in the capacity of any
member of the Acquired Group to conduct such business in a manner consistent
with past practice, and LHS and SHS shall have certified to such effect to the
Company and the Purchasers in writing.
(d) Estimated Balance Sheet; Minimum Financial Requirements.
The Estimated Balance Sheet shall have been delivered to the Company and WCAS
VII.
(e) Outstanding Indebtedness. Except for an indebtedness in
the principal amount of $4,250,000 to Methodist Health Systems, Inc. which shall
be satisfied out of the proceeds of the sale of the Class A stock on the Closing
Date, no member of the Acquired Group shall have any existing indebtedness for
borrowed money to any party outside the Acquired Group or any liability under
any guaranty of any indebtedness of any party outside the Acquired Group,
provided, however, that NFI may have indebtedness for borrowed money to First
Tennessee Bank National Association in an amount not to exceed $7,200,000 under
a Promissory Note, Loan Agreement, Security Agreement and other related loan
documents dated as of November 30, 1994, as amended.
(f) All Proceedings To Be Satisfactory. All proceedings to be
taken by LHS and each member of the Acquired Group in connection with the
transactions contemplated hereby and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Company and its counsel,
Reboul, MacMurray, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & Kristol, and the Company, and said counsel
shall have received all such counterpart originals or certified or other copies
of such documents as they may reasonably request.
(g) Opinions of Counsel for LHS, SHS and NFI. The Company
shall have received the opinions of ▇▇▇▇▇▇▇▇▇, Will & ▇▇▇▇▇, counsel to LHS, and
Armstrong, Allen, Prewitt, Gentry, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, counsel to SHS and NFI,
addressed to the Company and dated the Closing Date, satisfactory in form and
substance to the Company and its counsel substantially in the forms attached as
Schedules 5.01(g)(1) and (2) hereto.
(h) Consents and Approvals. All authorizations, consents,
waivers and approvals required to be obtained by the Acquired Group without
which the Acquired Group would not be able
36
to conduct its business after the Closing Date in substantially the same manner
as theretofore conducted shall have been duly obtained and shall be in form and
substance reasonably satisfactory to counsel, provided however, that neither LHS
nor any member of the Group shall be required to obtain any authorization,
consent, waiver or approval from any partner in any NFI Venture unless such
partner has such a right under its partnership agreement upon a change of
control.
(i) Legal Actions or Proceedings. No legal action or
proceeding shall have been instituted or threatened by any private party or by
any governmental department, agency or authority, in either case seeking to
restrain, prohibit, invalidate or otherwise affect the consummation of the
transactions contemplated hereby or seeking damages or which would, if adversely
decided, cause a Material Adverse Effect.
(j) Transition Agreements. Each of the agreements listed in
Schedule 6.02 (collectively the "Transition Agreements") shall have been duly
executed and delivered by all parties thereto other than the Company.
(k) Antitrust Improvements Act. The waiting period under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, if applicable, shall have expired or been terminated.
(l) Supporting Documents. On or prior to the Closing Date, the
Company and its counsel shall have received copies of the following supporting
documents:
(i) (1) the charter documents of LHS, SHS and NFI, certified
as of a recent date by the Secretary of State of the State of
Tennessee; and (2) a certificate of the Secretary of State or
other appropriate official of the State of Tennessee as to the
due incorporation and existence of such corporation, and
listing all documents on file with said official;
(ii) a certificate of the Secretary or an Assistant Secretary
of LHS, SHS and NFI, dated the Closing Date and certifying (1)
that attached thereto is a true and complete copy of the
Charter and By-laws of such corporation as in effect on the
date of such certification; (2) that the Charter of such
corporation has not been amended since the date of the last
amendment referred to in the certificate delivered pursuant to
clause (i)(2) above; (3) that attached thereto is a true and
37
complete copy of the resolutions adopted by the Board of
Directors of such corporation, authorizing the execution,
delivery and performance of this Agreement and the Transition
Agreements to which such corporation is a party and the
consummation of the transactions contemplated hereby and
thereby; and (4) as to the incumbency and specimen signature
of each officer of such corporation executing this Agreement,
any Additional Agreement, and any certificate or instrument
furnished pursuant hereto, and a certification by another
officer of said corporation as to the incumbency and signature
of the officer signing the certificate referred to in this
paragraph (ii); and
(iii) such additional supporting documents and other
information with respect to the operations and affairs of any
member of the Acquired Group as the Company or its counsel may
reasonably request.
All such documents shall be reasonably satisfactory in form
and substance to the Company and its counsel.
SECTION 5.02 Conditions Precedent to the Obligations of
LHS. The obligation of LHS to consummate the transactions contemplated by
this Agreement on the Closing Date are subject, at the option of LHS, to the
satisfaction at or prior to the Closing Date of each of the following
conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of the Company contained in this Agreement or in
any certificate or document delivered to LHS pursuant hereto shall be true and
correct in all material respects on and as of the Closing Date as though made at
and as of that date except for items which are specific as to time and the
Company shall have so certified to LHS in writing.
(b) Compliance with Covenants. The Company shall have
performed and complied in all material respects with all terms, agreements,
covenants and conditions of this Agreement to be performed or complied with by
it at or prior to the Closing Date, and the Company shall have so certified to
LHS and SHS in writing.
(c) Legal Actions or Proceedings. No legal action or
proceeding shall have been instituted or threatened by any private party by any
governmental department, agency or authority, in either case seeking to
restrain, prohibit, invalidate or
38
otherwise affect the consummation of the transactions contemplated hereby or
seeking damages which would, if adversely decided, cause a Material Adverse
Effect.
(d) Transition Agreements. Each of the Transition Agreements
shall have been duly executed and delivered by the Company and the Purchasers
party thereto.
(e) Antitrust Improvements Act. The waiting period under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, if applicable, shall have expired or been terminated.
(f) Supporting Documents. On or prior to the Closing Date, LHS
and its counsel shall have received copies of the following supporting
documents:
(i) (1) the charter documents of the Company certified as of a
recent date by the Secretary of State of the State of
Delaware; and (2) a certificate of the Secretary of State or
other appropriate official of the State of Delaware as to the
due incorporation and good standing of the Company, and
listing all documents on file with said official;
(ii) a certificate of the Secretary or an Assistant Secretary
of the Company, dated the Closing Date and certifying (1) that
attached thereto is a true and complete copy of the
Certificate of Incorporation and By-laws of the Company as in
effect on the date of such certification; (2) that the
Certificate of Incorporation of the Company has not been
amended since the date of the last amendment referred to in
the certificate delivered pursuant to clause (i)(2) above; (3)
that attached thereto is a true and complete copy of the
resolutions adopted by the Board of Directors of the Company,
authorizing the execution, delivery and performance of this
Agreement and the Transition Agreements to which the Company
is a party and the consummation of the transactions
contemplated hereby and thereby; and (4) as to the incumbency
and specimen signature of each officer of the Company
executing this Agreement, any Additional Agreement, and any
certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the
incumbency and signature of the officer signing the
certificate referred to in this paragraph (ii); and
39
(iii) such additional supporting documents and other
information with respect to the operation and affairs and
capitalization of Company as LHS or its counsel may reasonably
request.
All such documents shall be reasonably satisfactory in form
and substance to LHS and its counsel.
(g) Disposition of PTI, HEI and CCI. SHS shall have disposed
of its entire interest in PTI, HEI and CCI and each Venture in which any of them
owns an equity interest.
(h) No Breach. Neither WCAS VII nor the Company shall have
asserted any breach by LHS of any representation or warranty contained in this
Agreement or any document delivered pursuant to this Agreement or any failure by
LHS to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by LHS hereunder.
(i) All Proceedings To Be Satisfactory. All proceedings to be
taken by Company, WCAS VII and each member of the Group in connection with the
transactions contemplated hereby and all documents incident thereto shall be
reasonably satisfactory in form and substance to LHS and its counsel, ▇▇▇▇▇▇▇▇▇,
Will & ▇▇▇▇▇, and LHS and said counsel shall have received all such counterpart
originals or certified or other copies of such documents as they may reasonably
request.
(j) Opinion of Counsel For Company and WCAS VII. LHS shall
have received the opinion of Reboul, MacMurray, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & Kristol,
counsel to WCAS VII and Company, addressed to LHS and dated the Closing Date,
satisfactory in form and substance to LHS and its counsel substantially in the
form attached as Schedule 5.02(i) hereto.
ARTICLE VI.
THE DIVESTMENT PLAN;
THE TRANSITION PLAN
SECTION 6.01 The Divestment Plan. On or prior to the Closing
Date, LHS and SHS shall take or cause the following actions to be taken (herein
collectively referred to as the "Divestment Plan"):
(a) Redemption of Certain SHS Shares. SHS shall
40
redeem all of the shares of Class B Stock owned by the Other Shareholders who do
not elect to exchange such shares pursuant to the Subscription Agreement. Such
redemption shall be effected against delivery to SHS of the certificates
evidencing the shares so tendered, duly endorsed in blank.
(b) Cancellation of Class B Stock Options. Set forth on
Schedule 6.01(b) is a list of the holders (the "Option Holders") of all
outstanding Class B Stock options (the "Options") issued pursuant to the SHS
Amended and Restated Class B Common Stock Option Plan and the SHS Class B Common
Stock Option Plan. SHS shall cause all Option Holders to tender to SHS for
cancellation, the number of Options set forth opposite the name of such Option
Holder in Schedule 6.01(b) hereto under the heading "Number of Options." Such
tender shall be effected by delivery to SHS of the executed option agreement
evidencing the Options so tendered. Payments to all Option Holders pursuant to
this Section 6.01(b) shall be made after withholding for or on account of taxes
and such other deductions as may be required under applicable federal, state and
local law.
(c) Redemption of Growth Plan Participants. Set forth on
Schedule 6.01(c), is a list of the holders (the "Unit Holders") of all
outstanding phantom units of Class B Stock (the "Phantom Units") granted
pursuant to the SHS Growth Plan. SHS shall liquidate the Phantom Units by paying
to each Unit Holder the amount set forth opposite such Unit Holder's name in
Schedule 6.01(c) hereto under the heading "Liquidation Price," and each Unit
Holder shall in return execute and deliver to SHS a certificate, in a form
reasonably acceptable to SHS, acknowledging such payment to the Unit Holder and
the termination of the Unit Holder's rights in and to such Phantom Units.
Payments to all Unit Holders pursuant to this Section 6.01(c) shall be made
after withholding for or on account of taxes and such other deductions as may be
required under applicable federal, state and local law.
(d) Satisfaction of Certain Indebtedness. The respective
member or members of the Group shall satisfy any and all indebtedness for
borrowed money existing under the notes, loan agreements, security instruments
and other loan documents set forth on Schedule 6.01(d), and shall obtain, from
the respective creditors, the release and discharge of any security interests
granted therein.
(e) Elimination of Intercompany Balances. With the exception
of those amounts set forth in Schedule 6.01(e) or owed under the Transition
Agreements described in Schedule 6.02, all
41
intercompany balances (i) owed by or to any member of the Acquired Group, on the
one hand, and LHS and any member of the Excluded Group, on the other hand, or
(ii) owed by and between members of the Acquired Group, shall be repaid,
extinguished or contributed to capital.
(f) Divestiture of the Excluded Group. SHS shall have disposed
of any and all of SHS's ownership interest in and to the capital stock of, or
other equity interests in, each member of the Excluded Group, without the
assumption, retention or incurrence by any member of the Acquired Group of any
liabilities or indemnification obligations in connection therewith other than
those described in Schedule 6.01(f) hereof. An agreement substantially in the
form of Annex IV attached hereto shall have been executed and delivered by the
parties thereto.
SECTION 6.02 The Transition Agreements. In order to facilitate
that immediately following the Closing Date the Acquired Group will be able to
continue to conduct its business and operations according to its ordinary course
of business consistent with past practice, on or prior to the Closing Date LHS
and SHS shall cause the various members of the Acquired Group and the Excluded
Group to take the requisite actions and enter into the various agreements (the
"Transition Agreements") set forth on Schedule 6.02.
42
ARTICLE VII.
INDEMNIFICATION
SECTION 7.01 Survival of Representations and Warranties.
The representations and warranties made by LHS in this Agreement or pursuant
hereto or in any certificate delivered pursuant hereto SHALL NOT SURVIVE the
Closing Date, except for its representations and warranties contained in
Section 2.01(a), Sections 2.02(a) and 2.03 to the extent they pertain to LHS,
and Section 2.04(b), which shall survive for the statute of limitations
applicable thereto. Simultaneously with the Closing of the transactions
contemplated herein, WCAS VII and the Company, on behalf of themselves, the
Acquired Group, the shareholders of the Company and their respective
successors and assigns, agree they shall be deemed to have waived and
released any and all claims any of them might have asserted pursuant to this
Agreement or in connection with the transactions contemplated hereby, whether
before or after the Closing, based on facts or circumstances either (i)
constituting a breach of any such representation or warranty, except as
provided in Sections 7.02, 7.03 and 7.06 or (ii) previously disclosed to the
Company.
43
SECTION 7.02 Tax Indemnity. (a) LHS agrees to and shall
indemnify and hold harmless the Company and each member of the Acquired Group
(collectively the "Indemnitees"), from and against any and all Taxes (other
than Excluded Taxes) (i) imposed on or incurred by LHS, any member of the
Acquired Group or any member of the Excluded Group for any taxable year or
taxable period ending on or prior to the close of the Closing Date (including
any short periods up to and including the close of the Closing Date and any
Pre-Closing Straddle Period), (ii) imposed on or incurred by LHS, or any
member of the Excluded Group, the Company, or any member of the Acquired
Group arising out of the consummation of the Divestment Plan and (with the
exception of transfer Taxes incurred by the Company other than as provided in
Section 4.04(a)) the purchase contemplated hereby, (iii) imposed on or
incurred by the Company, SHS or NFI with respect to (x) any item of deferred
income or gain recognized at any time on or following the Closing Date
pursuant to Treasury Regulations Sections 1.1502-13 and 1.1502-13T (or any
successor provisions) and any similar provisions of state or local law, to
the extent attributable to any "intercompany transactions" between or among
any members of the Excluded Group and SHS or NFI occurring on or prior to the
Closing Date, or (y) the recognition of income or gain in respect of any
"excess loss account" in the shares of stock of NFI at any time on or
following the Closing Date pursuant to Treasury Regulations Section 1.1502-19
(or any successor provision) and any similar provisions of state or local
law, but not in excess of an amount equal to the "excess loss account" in the
shares of stock of NFI immediately following the Closing, and (iv) reasonable
attorneys' fees and expenses with respect to contesting any of the
indemnified Taxes referred to in clauses (i), (ii) and (iii) above incurred
by the Company, any member of the Acquired Group or WCAS VII, as well as any
applicable interest, penalty or additional charge with respect to such Taxes.
(b) LHS shall not be required to indemnify the Indemnitees in
respect of any Tax until there occurs a Final Determination (as defined below)
of the liability of the Indemnitees for the Tax (and any interest, penalties and
additions to the Tax) asserted to be payable as a result of any proposed
adjustment, unless LHS elects not to contest or defend against the proposed
adjustment of the Tax. A "Final Determination" shall mean (i) a decision,
judgment decree or other order by any court of competent jurisdiction, which
decision judgment, or decree or other order has become final after all allowable
appeals by either party to the action have been exhausted or the time for filing
such appeal has expired, (ii) a closing agreement entered into
44
under Section 7121 of the Internal Revenue Code, or any other settlement
agreement entered into in connection with an administrative or judicial
proceeding with the consent of LHS, or (iii) the expiration of the time for
instituting a claim for refund, or if such claim was filed, the expiration of
the time for instituting a suit with respect thereto. If LHS elects to protest a
proposed adjustment by paying the Tax claimed or to make a deposit in the nature
of a cash bond with respect to any proposed adjustment (a "Tax Deposit"), the
Indemnitees shall, upon the receipt of such Tax Deposit from LHS, promptly remit
such Tax Deposit to the tax authority or court, as requested by LHS, and
properly designate the nature of such amount. Any interest expense which is
stopped as a result of such Tax Deposit shall be for the account of LHS. If the
Indemnitees subsequently receive a refund, in whole or in part, of the Tax
Deposit or interest, penalties, or additions to Tax paid with funds advanced by
LHS, the Indemnitees shall within thirty (30) days of such receipt pay to LHS
the amount of such refund, plus the amount of any additional interest received
thereon. Within thirty (30) days after a Final Determination of, or the election
of LHS not to contest or defend against, the liability of the Indemnitees for
which LHS is required to make an indemnity payment hereunder LHS shall pay the
Indemnitees any excess of such full amount due over any advances or Tax Deposits
previously made by LHS (net of any prior return to LHS of such advances or Tax
Deposits) pursuant to this indemnity and any other payments previously made by
LHS with respect to such Taxes. The Company shall cooperate fully with LHS in
obtaining any refund or return of any Tax Deposits previously made by LHS where
so requested by LHS. In the event that any Tax Deposit made by LHS has been
applied to any Taxes payable by the Company or a member of the Acquired Group
which are not subject to indemnification under this Section 7.02, the Company
shall pay to LHS an amount equal to the portion of the Tax Deposit so applied,
together with any applicable interest savings actually realized by the Company
or a member of the Acquired Group as a result of such application of the Tax
Deposit, within thirty (30) days following the day on which such Taxes would
have otherwise been paid, but for the application of such Tax Deposit, by the
Company or the member of the Acquired Group, as the case may be.
(c) If, as a result of a governmental audit or examination or
adjustment, an item of income is accelerated into a Pre-Closing Straddle Period
or an earlier period from a Post-Closing Straddle Period or later period, or an
item of deduction or credit is disallowed or deferred from a Pre-Closing
Straddle Period or earlier period into a Post-Closing Straddle Period or
45
later period, such shift in taxable periods shall not give rise to an
indemnifiable claim by WCAS VII, Company or any member of the Acquired Group.
If, as a result of a governmental audit or examination or adjustment, an item of
income is deferred from a Pre-Closing Straddle Period or earlier period to a
Post-Closing Straddle Period or later period, or an item of deduction or credit
is disallowed or accelerated from a Post-Closing Straddle Period or later period
into a Pre-Closing Straddle Period or earlier period, the Company shall be
entitled to file an amended Tax Return or otherwise claim a refund or credit,
and retain all such amounts for its own account, in respect of any reduction in
Taxes in such Pre-Closing Straddle Period or earlier period to the extent
attributable to such shift in Tax items.
(d) Anything in this Agreement to the contrary
notwithstanding, the provisions of Section 4.04 and this Section 7.02 shall
survive until the expiration of the applicable Tax statute of limitation period
(including any extensions thereof) for the Taxes referred to herein, and any
Taxes subject to indemnification under this Section 7.02 shall not be subject to
the provisions of Sections 7.03 and 7.04 hereof.
SECTION 7.03 General LHS Indemnity. Subject to the terms
and conditions of this Article VII, LHS agrees to and will indemnify, defend
and hold the Company and each member of the Acquired Group harmless from and
against all demands, claims, actions or causes of action, assessments,
losses, damages, liabilities, costs and expenses, including without
limitation interest, penalties and reasonable attorneys' fees and expenses
(hereinafter collectively called "Damages"), asserted against, resulting to,
imposed upon or incurred by the Company, WCAS VII and/or any member of the
Acquired Group, resulting from or arising out of (i) a breach of the
representations and warranties made by LHS in Section 2.01(a), Sections
2.02(a) and 2.03 to the extent that they pertain to LHS, and Section 2.04(b),
(ii) the management or operation by SHS of the business of, or the furnishing
of services by LHS or SHS to, any member of the Excluded Group, (iii) SHS's
capacity as a shareholder of any member of the Excluded Group, and (iv) the
Divestment Plan or any actions or transactions taken in connection therewith
(or the failure to take any action contemplated thereby), except (A) the
actions under Sections 6.01(a), (b) and (c) with the SHS employees who will
continue to be employed by SHS or another member of the Acquired Group on or
after the Closing Date, (B) the retention of indebtedness and security
interests by any member of the Acquired Group to the extent contemplated by
this Agreement and (C) liabilities (other than liabilities for Taxes which
are
46
subject to indemnification under Section 7.02) accruing under the Divestment
Plan to any member of the Acquired Group (other than liabilities incurred by SHS
or NFI with respect to members of the Excluded Group). In no event shall LHS be
obligated hereunder for the inaccuracy of pro-forma financial information or the
failure of projected financial information to come true.
SECTION 7.04 Conditions of Indemnification. The obligations
and liabilities of LHS (herein sometimes called the "indemnifying party"), to
the Company and each member of the Acquired Group (herein sometimes
collectively called the "party to be indemnified") under Section 7.03 hereof
with respect to claims resulting from the assertion of liability by third
parties shall be subject to the following terms and conditions:
(a) within 20 days after receipt of notice of (i) commencement
of any action or (ii) the assertion of any claim by a third party, the
party to be indemnified shall give the indemnifying party written
notice thereof together with a copy of such claim, process or other
legal pleading (provided that failure so to notify the indemnifying
party of the assertion of a claim within such period shall not affect
its indemnity obligation hereunder except as and to the extent that
such failure shall adversely affect the defense of such claim), and the
identifying party shall have the right to undertake the defense thereof
by representatives of its own choosing who shall be reasonably
satisfactory to the indemnified party;
(b) in the event that the indemnifying party, by the 30th day
after receipt of notice of any such claim (or, if earlier, by the tenth
day preceding the day on which an answer or other pleading must be
served in order to prevent judgment by default in favor of the person
asserting such claim), does not elect to defend against such claim, the
party to be indemnified will (upon further notice to the indemnifying
party) have the right to undertake the defense, compromise or
settlement of such claim on behalf of and for the account and risk of
the indemnifying party, subject to the right of the indemnifying party,
with the consent of the indemnified party, to assume the defense of
such claim at any time prior to settlement, compromise or final
determination thereof;
(c) anything in this Section 7.04 to the contrary
notwithstanding, (i) if there is a reasonable probability that a claim
may materially and adversely affect the indem-
47
nified party other than as a result of money damages or other money
payments, the indemnified party shall have the right, at its own cost
and expense, to compromise or settle such claim, but (ii) the
indemnified party shall not, without the prior written consent of the
indemnifying party, settle or compromise any claim or consent to the
entry of any judgment which does not include as an unconditional term
thereof the giving by the claimant or the plaintiff to the
indemnifying party a release from all liability in respect of such
claim; and
(d) in connection with any such indemnification, the
indemnified party will cooperate in all reasonable requests of the
indemnifying party.
SECTION 7.05 General Provisions Relating to Indemnification.
(a) The party entitled to indemnification shall take all
reasonable steps to mitigate all indemnifiable liabilities and damages upon and
after becoming aware of any event which could reasonably be expected to give
rise to any liabilities or damages that are indemnifiable hereunder. No party
shall be entitled to indemnification to the extent of any insurance, federal or
state income tax deductions or credits arising from the indemnifiable event (to
the extent that any savings from such deduction or credit is actually realized)
or net proceeds of actions against third parties by Company or any member of the
Acquired Group based on pre-Closing Date facts; such indemnified party agrees to
timely notify the insurance carrier and diligently prosecute claims against the
insurance carrier without regard to the possibility of indemnification
hereunder.
(b) Neither Company, nor any member of the Acquired Group
shall make any claim against LHS for indemnification to the extent that the
basis thereof has resulted in a purchase price adjustment pursuant to Section
1.03 hereof, nor shall any of them make any claim against LHS for
indemnification of any item incurred by an NFI Venture until such Venture has
exhausted its remedies against its other partners.
(c) No claim may be made against LHS for indemnification for
any individual claim unless such claim, or group of related claims, exceeds
$1,000.
SECTION 7.06 Exclusive Remedies. The rights of the parties
under Article I, and Section 4.04 and the indemnification
48
rights provided in this Article VII shall be the exclusive remedy of the Parties
pursuant to this Agreement with respect to any dispute arising out of or related
to this Agreement, except for (a) the right to seek specific performance of any
of the agreements contained herein, (b) any case where one party has defrauded
the other, and (c) any remedies available under applicable federal and state
securities statutes.
SECTION 7.07 General Company Indemnity. Subject to the terms
and conditions of this Article VII, the Company agrees to and will indemnify,
defend and hold LHS and each member of the Excluded Group harmless from and
against all Damages asserted against, resulting to, imposed upon or incurred by
LHS and/or any member of the Excluded Group, resulting from or arising out of
(i) a breach of the representations, warranties or covenants made by the Company
in this Agreement or any document delivered by or for it pursuant to this
Agreement or (ii) any claim by any third party which should not have been made
because of Section 7.01 hereof.
ARTICLE VIII.VIII.
TERMINATION AND ABANDONMENT
SECTION 8.01 Termination8.01 Termination. This Agreement may
be terminated at any time prior to the closing on the Closing Date:
(a) by the mutual consent of the Company and LHS; or
(b) by either the Company or LHS if the Closing Date shall not
have occurred on or before June 14, 1996 or such later date as may be
agreed upon by them; provided, however, that the right to terminate
this Agreement under this clause (b) shall not be available to any
party (a "Defaulting Party") whose failure (or whose affiliate's or
affiliates' failure) to fulfill any obligation under this Agreement has
been the cause of, or resulted in the failure of the Closing to occur
on or before such date.
No such termination shall affect the liability hereunder of any Defaulting
Party.
SECTION 8.02 Procedure and Effect of Termination. In the
event of termination of this Agreement and abandonment of the transactions
contemplated hereby pursuant to Section 8.01 above, written notice thereof
shall forthwith be given to the other
49
parties to this Agreement and this Agreement shall terminate and the
transactions contemplated hereby shall be abandoned, without further action by
any of the parties hereto. If this Agreement is terminated as provided in this
Agreement:
(a) the parties hereto will promptly redeliver all documents,
work papers and other material of any other party relating to the
transactions contemplated hereby, whether obtained before or after the
execution hereof, to the party furnishing the same; and
(b) no party shall have any liability or further obligation to
any other party to this Agreement pursuant to this Agreement except as
provided in Section 8.01 above or Section 9.01.
50
ARTICLE IX.
MISCELLANEOUS
SECTION 9.01 Expenses, Etc. Whether or not the transactions
contemplated by this Agreement are consummated, none of the parties hereto
shall have any obligation to pay any of the fees and expenses of any other
party incident to the negotiation, preparation and execution of this
Agreement, including the fees and expenses of counsel, accountants,
investment bankers and other experts , except as hereinafter provided or as
otherwise provided in Section 1.03(e). If such transactions are consummated,
then the Company shall pay the fees and expenses of (i) Reboul, MacMurray,
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & Kristol for its legal services to the Company and the
Purchasers, (ii) ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & Green, P.C. for its legal services to the
Company and the Purchasers, and (iii) subject to the provisions of Section
1.03(e), E&Y for its accounting and other related services to the Company and
the Purchasers. LHS will pay the fees and expenses of (i) Equitable
Securities Corporation for its financial advisory services to LHS, SHS and/or
NFI, (ii) ▇▇▇▇▇▇▇▇▇, Will & ▇▇▇▇▇ for its legal services to LHS. NFI will pay
the fees and expenses of ▇▇▇▇▇▇▇▇▇, Will & ▇▇▇▇▇ and Armstrong, Allen,
Prewitt, Gentry, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ for its legal services to the Group, to
the extent that any such fees and expenses which have not been paid on May
31, 1996 are accrued on the Closing Balance Sheet. LHS will indemnify the
Company, each Purchaser and, to the extent the transactions contemplated by
this Agreement are consummated, each member of the Acquired Group and hold
each of them harmless from and against any claims for finders' fees or
brokerage commissions in relation to or in connection with such transactions
as a result of any agreement or understanding between LHS, SHS or NFI and any
third party. The Company and WCAS VII will indemnify LHS and SHS and hold
each of them harmless from and against any claims for finders' fees or
brokerage commissions in relation to or in connection with such transactions
as a result of any agreement or understanding between the Company or any
Purchaser and any third party.
SECTION 9.02 Publicity. The parties hereto agree to
cooperate in issuing any press release or other public announcement
concerning this Agreement or the transactions contemplated hereby. Each party
shall furnish to the other drafts of all such press releases or announcements
prior to their release. In the case of any press release or communication
proposed to be made (i) by LHS or any of its subsidiaries or affiliates
(including
51
without limitation any member of the Group) relating to the transactions
contemplated by this Agreement, the prior consent (which shall not be
unreasonably withheld) of WCAS VII shall be obtained with respect to the timing
and contents thereof, or (ii) by the Company or WCAS VII relating to the
transactions contemplated by this Agreement, the prior consent (which shall not
be unreasonably withheld) of LHS shall be obtained with respect to the timing
and contents thereof. Nothing contained herein shall prevent any party from at
any time furnishing any information required by any governmental authority.
SECTION 9.03 Execution in Counterparts. For the convenience
of the parties, this Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
SECTION 9.04 Notices. All notices which are required or may
be given pursuant to the terms of this Agreement shall be in writing and
shall be sufficient in all respects if (i) delivered personally, (ii) mailed
by registered or certified mail, return receipt requested and postage
prepaid, (iii) sent via a nationally recognized overnight courier service or
(iv) sent via facsimile confirmed in writing to the recipient, in each case
as follows:
If to LHS, to:
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
with a copy to:
▇▇▇▇▇▇▇▇▇, Will & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
If to SHS, to:
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇. ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
52
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
with a copy to:
Armstrong, Allen, Prewitt, Gentry,
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ Plaza
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇., Esq.
and to:
▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
at his Chicago address
If to any Purchaser, to its address appearing in Annex I hereto, with a
copy to:
Reboul, MacMurray, ▇▇▇▇▇▇,
▇▇▇▇▇▇▇ & Kristol
▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
or such other address or addresses as any party shall have designated by notice
in writing to the other parties. All notices shall be deemed to have been or
made when delivered by hand or courier or when sent by facsimile, or, if mailed,
five business days after being so mailed.
SECTION 9.05 Waivers. Either LHS or WCAS VII may, by
written notice to the other, and without the consent of any other party
hereto, (i) extend the time for the performance of any of the obligations or
other actions of the other under this Agreement, (ii) waive any inaccuracies
in the representations or warranties of the other contained in this Agreement
or in any document delivered pursuant to this Agreement, (iii) waive
compliance with any of the conditions or covenants of the other contained in
this Agreement, or (iv) waive performance of any of the obligations of the
other under this Agreement. Except as provided in the preceding sentence and
in
53
Section 7.01, no action taken pursuant to this Agreement, including without
limitation any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach.
SECTION 9.06 Amendments. This Agreement may be amended,
without the consent of any other party, only by an instrument in writing
signed by WCAS VII, the Company and LHS.
SECTION 9.07 Entire Agreement. This Agreement, its
Exhibits, Schedules and Annexes, the other agreements referred to in Section
5.01 and the documents and agreements executed on the Closing Date in
connection herewith, constitute the entire agreement between the parties
hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral and written, between the parties hereto
with respect to the subject matter hereof other than paragraph 10 of the
letter dated December 20, 1995, among WCAS VII, LHS and NFI, which shall
continue to apply only in so far as it relates to full-time officers or
managers of LHS.
SECTION 9.08 APPLICABLE LAW. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, EXCLUSIVE OF THE CONFLICTS OF LAWS PROVISIONS THEREOF.
SECTION 9.09 Binding Effect; Benefits. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the
parties hereto or their respective successors and assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
SECTION 9.10 Assignability. Neither this Agreement nor any
of the parties' rights hereunder shall be assignable by any party hereto
without the prior written consent of the other parties hereto.
54
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
NOVA HOLDINGS, INC.
By: /s/ Nova Holdings, Inc.
--------------------------------
Title:
LE BONHEUR HEALTH SYSTEMS, INC.
By: /s/ Le Bonheur Health Systems, Inc.
--------------------------------
Title:
SOUTHERN HEALTH SYSTEMS, INC.
By: /s/ Southern Health Systems, Inc.
----------------------------------
Title:
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇ VII, L.P.
By WCAS VII Partners, L.P.,
General Partner
By: /s/ WCAS VII Partners, L.P.
--------------------------------