Exhibit 2.3
STOCK PURCHASE AGREEMENT
By and Among
NovaCare, Inc.,
NC Resources, Inc.
and
Select Medical Corporation
As of October 1, 1999
TABLE OF CONTENTS
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SECTION I PURCHASE AND SALE OF THE SHARES........................................................................... 1
1.01. Purchase and Sale of the Shares........................................................................... 1
1.02. Purchase Price............................................................................................ 1
1.03. Delivery of the Shares.................................................................................... 2
1.04. Intercompany Account Obligations.......................................................................... 2
1.05. Guaranties................................................................................................ 2
SECTION II REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE SELLER............................................... 3
2.01. Organization and Qualification: Subsidiaries: Managed Companies........................................... 3
2.02. Conflicts................................................................................................. 3
2.03. Capitalization............................................................................................ 4
2.04. Financial Statements: No Undisclosed Liabilities.......................................................... 4
2.05. Accounts Receivable....................................................................................... 5
2.06. Absence of Certain Chances................................................................................ 6
2.07. Taxes..................................................................................................... 6
2.08. Real Property Owned or Leased............................................................................. 8
2.09. Title to Assets........................................................................................... 8
2.10. Contractual and Other Obligations......................................................................... 8
2.11. Compensation.............................................................................................. 10
2.12. Employee Benefit Plans.................................................................................... 10
2.13. Labor Relations........................................................................................... 11
2.14. Insurance................................................................................................. 11
2.15. Litigation................................................................................................ 12
2.16. Permits: Compliance with Environmental Law: Compliance.................................................... 12
2.17. Bank Accounts............................................................................................. 15
2.18. Trademarks................................................................................................ 15
2.19. Transactions with Certain Persons......................................................................... 16
2.20. Authority................................................................................................. 16
2.21. Ownership of Shares....................................................................................... 17
2.22. Consents.................................................................................................. 17
2.23. Foreign Person............................................................................................ 17
2.24. Year 2000................................................................................................. 17
2.25. Medicare Participation!................................................................................... 17
2.26. Exclusion................................................................................................. 18
2.27. Federal Health Care Programs.............................................................................. 18
2.28. No Criminal Proceeding.................................................................................... 19
2.29. Third-Party Payment Contracts............................................................................. 19
2.30. Billing; Gratuitous Payments.............................................................................. 19
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2.31. Reimbursement Matters..................................................................................... 19
2.32. Solvency.................................................................................................. 20
2.33. Opinion of Financial Advisor.............................................................................. 20
2.34. Disclosure................................................................................................ 20
SECTION III REPRESENTATIONS AND WARRANTIES OF THE PURCHASER........................................................... 20
3.01. Organization.............................................................................................. 20
3.02. Authority................................................................................................. 20
3.03. Conflicts................................................................................................. 20
3.04. Litigation; Disputes...................................................................................... 21
3.05. Consents.................................................................................................. 21
3.06. Investment Purpose........................................................................................ 21
3.07. Financing................................................................................................. 21
SECTION IV. THE CLOSING............................................................................................... 21
4.01. Time and Place of the Closing............................................................................. 21
4.02. Termination............................................................................................... 22
4.03. Effect on Obligations..................................................................................... 22
4.04. Return of Documentation................................................................................... 23
4.05. Sole and Exclusive Remedy................................................................................. 23
SECTION V CONDITIONS TO THE SELLER'S OBLIGATIONS TO CLOSE........................................................... 23
5.01. Certificates.............................................................................................. 23
5.02. Opinion of the Purchaser's Counsel........................................................................ 24
5.03. Representations, Warranties and Covenants................................................................. 24
5.04. No Litigation............................................................................................. 24
5.05. HSR Act Approval.......................................................................................... 24
SECTION VI. CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE......................................................... 24
6.01. Certificates.............................................................................................. 24
6.02. Opinion of the Parent's Counsel........................................................................... 25
6.03. Representations; Warranties and Covenants................................................................. 25
6.04. No Litigation............................................................................................. 26
6.05. Approvals................................................................................................. 26
6.06. HSR Act Approval.......................................................................................... 26
6.07. Resignations.............................................................................................. 26
6.08. Escrow Agreement.......................................................................................... 26
6.09. Third Party Consents...................................................................................... 26
6.10. PNC Liens................................................................................................. 26
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SECTION VII CONDUCT OF THE BUSINESS.................................................................................... 27
7.01. Limitations on Conduct.................................................................................... 27
7.02. Preparation and Filing of Tax Returns..................................................................... 28
7.03. Access; Information and Documents......................................................................... 28
7.04. Preparation and Filing of Medicare and Medicaid Cost Reports.............................................. 29
7.05. Payment of Sellers' Notes and Earn Out Amounts............................................................ 29
SECTION VIII OTHER AGREEMENTS OF THE PARTIES........................................................................... 29
8.01. Announcements............................................................................................. 29
8.02. Employee Matters.......................................................................................... 29
8.03. Labor Relations........................................................................................... 31
8.04. Access to Information..................................................................................... 31
8.05. Intentionally left blank.................................................................................. 33
8.06. Tax Matters............................................................................................... 33
8.07. [Intentionally omitted]................................................................................... 36
8.08. Agreement by the Purchaser Regarding No Other Representations or Warranties by the Parent or the Seller... 36
8.09. Use of NovaCare Name...................................................................................... 36
8.10. Employee Obligations...................................................................................... 37
8.11. Non-Competition; Nonsolicitation.......................................................................... 38
8.12. No Solicitation........................................................................................... 39
8.13. Confidentiality........................................................................................... 39
8.14. Acquisition of Rights to Confidentiality.................................................................. 39
8.15. Accounts Receivable....................................................................................... 40
8.16. NCES Subscriber Agreement................................................................................. 40
8.17. NCES Office Support Services Agreement.................................................................... 41
8.18. Transition Services Agreement............................................................................. 41
8.19. Transition Obligations.................................................................................... 41
8.20. Representations regarding Working Capital, Long-Term
Liabilities and Tax Basis................................................................................. 41
8.21. Contribution of Assets.................................................................................... 43
8.22. Notice of Distributions................................................................................... 43
8.23. Updated Financial Information............................................................................. 43
8.24. Furniture, Fixtures....................................................................................... 43
SECTION IX INDEMNIFICATION............................................................................................. 44
9.01. Indemnification by the Parent and the Seller.............................................................. 44
9.02. Indemnification by the Group Members...................................................................... 44
9.03. Procedure for Indemnification............................................................................. 45
9.04. Limits on the Liability of the Parent and Seller.......................................................... 48
9.05. Other Limits on Indemnification........................................................................... 48
9.06. Losses Net................................................................................................ 48
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9.07. Sole and Exclusive Remedy................................................................................. 48
9.08. Limitation on indemnification............................................................................. 49
9.09. Limitation on Materiality................................................................................. 49
SECTION X BROKERS AND FINDERS.......................................................................................... 49
10.01. The Parent's and the Seller's Obligations................................................................. 49
10.02. The Purchaser's Obligations............................................................................... 49
SECTION XI MISCELLANEOUS............................................................................................... 50
11.01. Notices................................................................................................... 50
11.02. Assignment................................................................................................ 50
11.03. Further Action............................................................................................ 50
11.04. Binding Effect............................................................................................ 50
11.05. Expenses.................................................................................................. 50
11.06. Arbitration............................................................................................... 51
11.07. Schedules and Exhibits.................................................................................... 51
11.08. Invalidity................................................................................................ 51
11.09. Headings.................................................................................................. 51
11.10. Governing Law............................................................................................. 52
11.11. Counterparts.............................................................................................. 52
11.12. Construction.............................................................................................. 52
11.13. Assignment of Parent Agreements........................................................................... 52
SECTION XII DEFINITIONS................................................................................................ 52
12.01. Certain Definitions....................................................................................... 52
Schedule 1.02 Allocation of Purchase Price Among Companies
Schedule 1.02A Seller Notes and Other Third Party Indebtedness
Schedule 1.04 Intercompany Account Obligations
Schedule 1.05 Seller Guaranteed Obligations
Schedule 2.01 Subsidiaries, Capital Stock, Managed Companies
Schedule 2.02 Group Member Conflicts
Schedule 2.03 Capitalization
Schedule 2.04 Liabilities; Financial Statements
Schedule 2.04A Cash Receipts and Disbursements
Schedule 2.04G 1999 Cash Collection Analysis
Schedule 2.06 Certain Changes
Schedule 2.07 Taxes
Schedule 2.08 Real Property
Schedule 2.09 Title; Liens
Schedule 2.11 Compensation
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Schedule 2.11A Employee Contractual Severance
Schedule 2.12 Benefit Plans
Schedule 2.13 Labor Relations
Schedule 2.14 Insurance
Schedule 2.15 Litigation
Schedule 2.16 Permits: Environmental
Schedule 2.16(g) Facility Approvals
Schedule 2.16(h) Medicare Participation - Exceptions
Schedule 2.18 Intellectual Property
Schedule 2.19 Transactions with Certain Persons
Schedule 2.22 Consents
Schedule 2.24 Year 2000
Schedule 2.25 Medicare Provider Numbers
Schedule 2.30 Billing
Schedule 2.31 Reimbursement Matters
Schedule 7.01 Conduct of the Business
Schedule 8.02(e) Non-PROH COBRA Individuals
Schedule 8.10 Mountain Contract
Schedule 8.20(b)-1 Consolidated Net Working Capital
Schedule 9.02 Parent Agreements
EXHIBITS
Exhibits 1.02 Escrow Agreements
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), made as of October
1, 1999, by and among NovaCare, Inc., a Delaware corporation (the "Parent"), NC
Resources, Inc., a Delaware corporation (the "Seller"), and Select Medical
Corporation, a Delaware corporation (the "Purchaser"). Capitalized terms used
herein and not defined in the specific Section in which they are used, shall
have the meanings assigned to such terms in Section XII hereof.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Seller is the holder of all of the issued and outstanding
shares of common stock, $.01 par value per share (the "Common Stock"), of each
of RehabClinics, Inc., a Delaware corporation ("RehabClinics"), NovaCare
Occupational Health Services, Inc., a Delaware corporation ("NOHS"), Industrial
Health Care Company, Inc., a Delaware corporation ("IHCC"), CMC Center
Corporation, a Delaware corporation ("CMC"), and NovaMark, Inc., a Delaware
corporation ("NM") (each of RehabClinics, NOHS, IHCC, CMC, and NM hereinafter
referred to, individually, as a "Company" and, collectively, as the
"Companies");
WHEREAS, the Parent is the holder of all of the outstanding capital
stock of the Seller; and
WHEREAS, the Purchaser desires to acquire from the Seller, and the
Seller desires to sell to the Purchaser, for the consideration hereinafter
provided, all of the outstanding shares of the Common Stock of the Companies
(collectively, the "Shares").
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements hereinafter set forth, the parties hereto,
intending to be legally bond, hereby agree as follows:
SECTION I
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PURCHASE AND SALE OF THE SHARES
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1.01. Purchase and Sale of the Shares. Subject to the terms and
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conditions of this Agreement and on the basis of the representations,
warranties, covenants and agreements herein contained, at the Closing, the
Seller agrees to sell, assign and convey the Shares to the Purchaser and the
Purchaser agrees to purchase, acquire and accept the Shares from the Seller.
1.02. Purchase Price. The aggregate purchase price for the Shares
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shall be Two Hundred Million Dollars ($200.000.000) (the "Purchase Price"). The
Purchase Price shall be payable at Closing by: (i) the assumption of the
principal of and accrued interest outstanding in the Closing Date under the
promissory notes payable by Parent, the Companies or Subsidiaries to the sellers
of acquired businesses and/or other third parties in connection with such
acquisitions
(collectively, the "Seller Notes") and other third party indebtedness, all as
listed on Schedule 1.02A, which principal and accrued interest as of June 30,
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1999 was in the approximate amount of $46.8 million, (ii) the payment by wire
transfer of immediately available funds of Twenty Five Million Dollars
($25,000,000) to PNC Bank, NA as escrow agent (the "Escrow Agent"), which amount
the Escrow Agent shall hold in escrow pursuant to an escrow agreement
substantially in the form of Exhibit 1.02 hereto (the "Escrow Agreement"), and
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(iii) the payment of the balance of the Purchase Price (being $175,000,000 less
the principal of and accrued interest as of the Closing Date under the
indebtedness identified in clause (i)) to the Seller by bank wire transfer of
immediately available funds to an account or accounts designated in writing by
the Seller at least three business days prior to Closing. The Purchase Price for
the Shares will be allocated among the Companies as set forth on Schedule 1.02B.
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The parties agree that all Tax Returns or other Tax information they may file or
cause to be filed with any governmental entity shall be prepared and timely
filed consistently with such allocation.
1.03. Delivery of the Shares. At the Closing, the Seller shall
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deliver the Shares to the Purchaser by delivering certificates duly endorsed in
blank representing the Shares, each certificate to be accompanied by any
requisite stock transfer tax stamps and, any other documents that are reasonably
necessary to transfer to the Purchaser good title to the Stock, free and clear
of all liens, claims, security interests, pledges, charges, equities, options,
restrictions and encumbrances of whatever nature.
1.04. Intercompany Account Obligations. As a material inducement to
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the Purchaser to purchase the Shares, as of the Effective Time, except as set
forth on Schedule 1.04 hereto, all then outstanding intercompany obligations of
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any Group Member to the Parent, the Seller or any of their Affiliates (other
than any Group Member) shall be cancelled or otherwise eliminated, without cash
to or payment by any Group Member and be deemed capital contributions to such
Group Member, and all then outstanding intercompany obligations of the Parent,
the Seller or any of their Affiliates (other than any Group Member) to any Group
Member shall be cancelled or otherwise eliminated, and in all cases none of the
Parent, the Seller, any of their Affiliates or any Group Member shall have any
further liability or obligation in respect of any such intercompany obligation;
provided that nothing in this Section 1.04 shall affect any of the covenants,
agreements, obligations or liabilities of the Parent, the Seller or the
Purchaser set forth in this Agreement.
1.05. Guaranties. In the event that the Seller, the Parent or any of
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their Affiliates (other than any Group Member) has guaranteed (the entity
obligated under any such guaranty being hereinafter referred to as the
"Guarantor") any obligations (the "Seller Guaranteed Obligation") of any Group
Member outstanding as of the Closing Date, as more specifically described on
Schedule 1 .05 hereto, to the extent reasonably requested by the Parent, the
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Purchaser shall use its best efforts to obtain the release of each Guarantor
from any liability with respect to the Seller Guaranteed Obligations and, in any
event, from and after Closing such Group Member shall indemnify and hold each
Guarantor harmless from and against any such liability: provided, however, that
the Purchaser's best efforts shall not include any requirement to make any
payment or provide any collateral.
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SECTION II
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REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE SELLER
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In connection with the purchase and sale of the Shares hereunder, the
Parent and the Seller, jointly and severally, hereby represent and warrant to
the Purchaser, as of the date hereof and as of the Closing Date, that:
2.01. Organization and Qualification: Subsidiaries: Managed
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Companies. Each of(i) the Companies, (ii) each subsidiary of any Company (each
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a "Subsidiary" and, collectively, the "Subsidiaries") and (iii) each
corporation, partnership, professional corporation, limited liability company,
limited liability partnership or other entity that is managed by any Group
Member (each a "Managed Company" and collectively the "Managed Companies") is
listed on Schedule 2.01 hereto and the Seller, each Group Member and each
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Managed Company is validly existing and in good standing under the laws of the
jurisdiction of its organization, and has all requisite corporate, limited
liability company or partnership (as applicable) power, authority and legal
right to own, operate and lease its assets and properties and to conduct the
businesses in which it is now engaged. The Seller, each Group Member and each
Managed Company is duly qualified to transact business as a foreign corporation,
limited liability company or partnership (as applicable) in all jurisdictions
wherein it is required to be so qualified, except where the failure to be so
qualified would not have a Material Adverse Effect. None of the Companies have
any subsidiaries other than the Subsidiaries. Other than the Subsidiaries and
other than as set forth on Schedule 2.01 hereto, none of the Companies own any
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capital stock or other proprietary interest, directly or indirectly, in any
corporation, association, trust, partnership, joint venture, limited liability
company or other entity nor is any Company bound by any agreement to acquire any
such capital stock or other proprietary interest. Copies of the certificate of
incorporation and by-laws, or other organizational documents, and of the minute
book of each Company and each Subsidiary and each Managed Company have been made
available to the Purchaser on or prior to the Closing Date, which copies are
complete and correct and include all amendments, modifications or supplements
thereto. The certificate of incorporation and by-laws, or other organizational
documents of each Company and each Subsidiary and each Managed Company are in
full force and effect. Except for the Group Members, Parent and its
subsidiaries do not own any other business engaged in the business of outpatient
physical rehabilitation and occupational health.
2.02. Conflicts. Neither the execution and delivery of this
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Agreement by the Parent or the Seller, nor the consummation of the transactions
contemplated hereby to be consummated by the Parent or the Seller, (a) violates
or conflicts with any provision of the certificate of incorporation or by-laws
or other organizational documents of the Parent, the Seller or any Group Member
or Managed Company or (b) constitutes a violation of or contravenes with any
Applicable Law or Environmental Laws. Except as set forth on Schedule 2.02
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hereto, neither the execution and delivery of this Agreement by the Parent or
the Seller nor the consummation of the transactions contemplated hereby to be
consummated by the Parent or the Seller violates, conflicts with, requires any
consent under, results in any breach of any of the terms of or results in the
termination of or the creation of any material Lien pursuant to the terms
3
of any contract or other obligation to which the Parent or the Seller is subject
except where such violation, conflict, breach, termination or Lien is not
reasonably likely to have a Material Adverse Effect.
2.03. Capitalization. The authorized, issued and outstanding capital
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stock or other equity interests of each Company and each Subsidiary and each
Managed Company is as set forth on Schedule 2.03 hereto. All of the outstanding
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shares of the Common Stock of the Companies and, except as set forth on Schedule
--------
2.03 hereto, all of the outstanding shares of capital stock or other equity
----
interests of each Subsidiary have been duly and validly authorized and issued
and are fully paid and non-assessable and are owned of record by the Seller, a
Company or a Subsidiary, as the case may be, were not issued in violation of the
terms of any contract binding upon the Seller, a Company or a Subsidiary, as the
case may be, and were issued in compliance with each applicable certificate of
incorporation, bylaws or other organizational documents of the Seller, a Company
or a Subsidiary, as the case may be, and all applicable federal and state
securities or "blue sky" laws and regulations. Schedule 2.03 hereto sets forth
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the owner of record of the capital stock or other equity interest in each
Managed Company. Except as set forth on Schedule 2.03 hereto, there are no
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outstanding subscriptions, warrants, options, calls, commitments, convertible or
exchangeable securities, or other rights or agreements to purchase or acquire
from any Group Member, the Parent or the Seller or any of their Affiliates
shares of capital stock or other equity interests of any Group Member or demands
of any character binding on any Group Member, Parent or any of their Affiliates
relating to the capital stock of any Company or Subsidiary. Except as set forth
on Schedule 2.03 hereto, there are no agreements concerning the issuance,
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voting, transfer, acquisition or disposition of shares of capital stock or other
equity interests of any Group Member to which any Group Member, the Parent or
the Seller is a party.
2.04. Financial Statements: No Undisclosed Liabilities. (a) Attached
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as Schedule 2.04 are the following financial statements (collectively, including
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the footnotes to such financial statements, the "Financial Statements"):
(i) audited combined statements of the results of operations and
cash flows of the Companies and their subsidiaries for the fiscal years
ended June 30, 1999, 1998 and 1997 and combined balance sheets of the
Companies and their subsidiaries as at June 30, 1999 and 1998 together with
the footnotes thereto; and
(ii) unaudited combined statement of the results of operations of
the Companies and their subsidiaries for the fiscal quarter ended June 30,
1999.
(b) The Financial Statements set forth in subsection (a)(i) above
have been audited by PricewaterhouseCoopers, independent public accountants. The
Financial Statements (i) have been prepared from and are in accordance with the
books and records of the Companies, (ii) fairly present in all material respects
the consolidated financial condition of the Companies and the Subsidiaries and
the results of their operations and cash flows as of the date and for the
periods specified therein, and iii) have been prepared in accordance with GAAP
.A11 references
4
in this Agreement to the "Balance Sheet" shall mean the combined balance sheet
of the Companies and their subsidiaries as at June 30, 1999 included in the
Financial Statements. The Financial Statements include the results of operations
of, and assets and liabilities of, the Managed Companies, as if they were
subsidiaries of the Companies.
(c) Attached in Schedule 2.04A is a schedule showing earnings
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before interest, income taxes, depreciation and amortization ("EBITDA") and cash
disbursements of the Companies and the Subsidiaries on a quarterly basis for the
one-year period ended June 30, 1999.
(d) Except as set forth in Schedule 2.04 or Schedule 2.04A hereto,
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no Group Member has any material liabilities or obligations of any nature,
whether accrued, absolute, contingent or otherwise, except for:
(i) liabilities and obligations set forth or reserved against in
the Financial Statements;
(ii) liabilities and obligations incurred in the ordinary course of
business subsequent to the date of the Financial Statements and reflected
on the Closing Balance Sheet (as defined herein); and
(iii) liabilities and obligations described or otherwise disclosed
on, or which may arise out of or with respect to the matters or Contracts
described or otherwise disclosed on, the Schedules to this Agreement.
(e) Except for indebtedness to be cancelled or otherwise eliminated
as set forth in Section 1.04 hereof and except for indebtedness among Group
Members, no Group Member has or has guaranteed any indebtedness for borrowed
funds.
(f) Set forth in Schedule 2.04A is the correct and complete list of
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(i) the Seller Notes including the entity or individuals owed, the acquisitions
to which each of the Seller Notes relate, the dates each of the principal
payments under the Seller Notes are due, the amount due under each of the Seller
Notes and the current and long term obligations relating to each of the Seller
Notes, and (ii) all so called "earn-out" obligations of any Group Member
including the name of the acquisition giving rise to such earn-out, the
acquisition date, and the terms of the applicable earn-out provision. The
information set forth on Schedule 2 04A is true, correct and complete.
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(g) Attached as Schedule 2.04(G) is a schedule showing a cash
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collection analysis of the Group Members which provide physical rehabilitation
services for the fiscal year 1999 on a monthly basis.
2.05. Accounts Receivable. All accounts receivable of the Group
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Members reflected on the Balance Sheet included in the Financial Statements, and
all accounts receivable
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which have arisen since June 30, 1999, are valid and have arisen only from bona
fide arm's length transactions in the ordinary course of the business of the
Group Members. .A11 of such accounts receivable have been billed and are
generally due within 30 days after such billing and, to the Knowledge of Parent,
are not subject to any counterclaims or offsets. The accounts receivable, net of
reserves, set forth on the Balance Sheet are presented fairly on such Balance
Sheet in accordance with GAAP.
2.06. Absence of Certain Chances. Except as set forth in Schedule
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2.06, since June 30, 1999 there has not been any (a) change in the assets,
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properties, net worth, results of operations, business or financial condition of
the Group which, individually or in the aggregate, has resulted in or is
reasonably likely to result in a Material Adverse Effect; (b) material damage to
or destruction or loss of the assets or properties of the Group, whether or not
insured; (c) material changes in the Group's customary methods of operations or
the manner in which their business is conducted; or (d) except in the ordinary
course of business, sale or transfer of material tangible or intangible assets
of the Group, or mortgage, pledge or imposition of any Lien on such assets
except for Permitted Liens (e) any increase in or establishment of any bonus,
insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option, stock purchase or other employee benefit plan, or any
other increase in the compensation payable or to become payable to any officers
or key employees of any Group Member or any Subsidiary; (f) any making or
authorization of any capital expenditures in excess of $100,000 individually or
$300,000 in the aggregate (other than with respect to start-ups or other
facility consolidations planned in the ordinary course of business provided that
the expenditures are consistent with the year to date capital budget); (g) any
change by any Group Member or any Subsidiary in any method of accounting or
keeping its books of account or accounting practices; or (h) any transactions
with Parent or Affiliates (other than a Group Member) except transfers of cash
in the ordinary course of business.
2.07. Taxes. Except as set forth in Schedule 2.07 hereto:
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(a) The Parent has filed or caused to be filed on a timely basis
all returns, reports or other declarations relating to Taxes required to be
filed with respect to each Group Member (the "Tax Returns"), and the Parent has
timely paid or caused to be paid all Federal, state, local and foreign taxes
(including, but not limited to, income, franchise, property (real, tangible and
intangible), sales, use, unemployment, withholding, gross receipts, business
license, transfer, capital, net worth, gains, excise, social security, workers'
compensation and other taxes of any kind whatsoever and estimated income and
franchise tax payments, and penalties, interest and fines with respect to any
thereof) (collectively, "Taxes") set forth on such Tax Returns as due and
payable with respect to the periods covered by such Tax Returns and all other
taxes of any Group Members that are due and payable, whether or not reflected on
a Tax Return. Since their respective dates of acquisition, the taxable income of
each of the Group Members has been included in the consolidated Federal income
Tax Returns of the Parent to the extent required to be included under the Code
and in the consolidated, combined, unitary or individual state income Tax
Returns of the Parent or an Affiliate to the extent required to be included
under applicable state income Tax rules.
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(b) With respect to any Taxes of any Group Member not due and
payable as of June 30, 1999, adequate reserves and accruals for such Taxes have
been made :n the Financial Statements and nothing has occurred subsequent to the
date of such Financial Statements to make any of such reserves and accruals
inadequate. All Taxes of the Group Members for periods after June 30, 1999 have
been paid or are adequately reserved against on the books and records of the
Companies.
(c) Neither the Seller, nor the Parent, nor any Group Member has
received written notice from any taxing authority of any material deficiency,
claim or other dispute relating to the payment or assessment of any Taxes for
any period which remains unsettled at the date hereof, and the Parent has no
reasonable basis to believe that any such deficiency exists materially in excess
of reserves and accruals set forth in the Financial Statements or in the books
and records of the applicable Group Member.
(d) Neither the Seller, nor the Parent, nor any Group Member has
executed any waiver of any statute of limitations on the assessment or
collection of Taxes with respect to any Group Member or executed any agreement
now in effect extending the period of time to assess or collect any Taxes with
respect to any Group Member.
(e) There are no Liens for Taxes (other than Permitted Liens) upon
or, to the Knowledge of the Parent, threatened against any assets of the Group.
(f) None of the Seller, the Parent or any Group Member is a party
to any pending or, to the Knowledge of the Parent, threatened examination,
action, proceeding or assessment by any taxing authority, foreign or domestic,
relating to any Group Member.
(g) Except for the Tax Sharing Agreement, which shall be cancelled
as of the Closing Date without any effect whatsoever on any Group Member for any
taxable year, no Group Member is a party to any tax sharing agreement.
(h) No election under Section 341(f) of the Code has been or will
be made to treat any Group Member as a "consenting corporation" as defined in
such Section 341(f).
(i) No Group Member is or has been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code.
(j) None of the Group Members has ever (i) been the subject of a
ruling with respect to Taxes that has a continuing effect or (ii) been the
subject of a closing agreement with a taxing authority with respect to Taxes
that has a continuing effect.
(k) None of the Group Members has agreed to make nor is it
required' to make any adjustment under Section 481 of the Code by reason of a
change in accounting method or otherwise.
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(l) The Parent has made available to Purchaser true, correct and
complete copies of the federal and state income tax returns of each of the Group
Members (prepared in the case of any consolidated or combined returns that
include any entities other than the Group Members on a pro forma basis
reflecting the operations of the Group Members for all taxable years beginning
on or after January 1, 1995.
(m) No Group Member is party to any agreement, arrangement or
understanding that, individually or in the aggregate with any other agreements,
arrangements or understandings could result in the payment of any amounts that
would be non-deductible under Section 280G of the Code.
(n) Following the Closing Date, the sale of any Group Member or
Managed Company or any of their assets will not result in the Purchaser or any
of its Affiliates having to take into account items of income or gain arising
from or related to intercompany transactions within the meaning of Treas. Reg.
(S)1.1502-13, that occurred with respect to such Group Member or Managed Company
or assets while owned directly or indirectly by Parent on or prior to the
Closing Date.
2.08. Real Property Owned or Leased. Set forth on Schedule 2.08 is a
----------------------------- -------------
correct list and summary description of all real property owned (beneficially or
of record) or leased by a Group Member. The information on such Schedule 2.08 is
true, correct and complete. Except as set forth in Schedule 2.08 hereto, all
-------------
such leased real property is held subject to written leases under which the
applicable Group Member has not received a written notice of any existing
defaults or events of default or events which with notice or lapse of time or
both would constitute defaults on the part of the applicable Group Member,
except for any such default which is not reasonably likely to have a Material
Adverse Effect.
2.09. Title to Assets. Except as set forth in Schedule 2.09 hereto,
--------------- -------------
each Group Member has good and, in the case of real property, marketable valid
title (fee or leasehold) to all of its properties and assets, including the
properties and assets reflected in the Balance Sheet, except those disposed of
by it since the date of the Balance Sheet, free and clear of all Liens except
for Permitted Liens and such other liens for which there is no underlying
liability or obligation (and Parent shall use its reasonable best efforts to
remove such liens prior to and following the Closing). Each Group Member leases,
owns or has the right to use all properties and assets used in the operation of
its business as currently conducted, Concurrently with the Closing, the liens
held by PNC Bank, N.A. on the assets of the Group Members shall be removed. As
of the Closing, the Parent or its Affiliates shall have contributed to the
capital of the Companies all assets formally used by Parent to provide services
to the Group Members.
2.10. Contractual and Other Obligations. Except as listed on
---------------------------------
Schedule 2.10 no Group Member is a party to or bound by any lease, contract or
-------------
commitment, oral or written, formal or informal, of the following types
(collectively, the "Contracts"):
8
a. notes, mortgages, indentures, security agreements or other agreements
and instruments relating to the borrowing of money, the extension of
credit or the granting of Liens or encumbrances;
b. employment and consulting agreements;
c. union or other collective bargaining agreements;
d. material powers of attorney;
e. material licenses of patent, trademark and other intellectual property
rights;
f. agreements, orders or commitments for the purchase of services, raw
materials, supplies or finished products from any one supplier for an
amount in excess of $50,000;
g. agreements, orders or commitments for the rental, lease or sale of
equipment, products or services for more than $100,000 to any single
purchaser or lessee;
h. contracts or options relating to the rental, sale or lease by a Group
Member of any material asset, other than in the ordinary course of
business;
i. bonus, profit-sharing, compensation, stock option, pension,
retirement, deferred compensation, accrued vacation pay, group
insurance, welfare agreements or other plans, agreements, trusts or
arrangements for the benefit of employees;
j. agreements or commitments for capital expenditures in excess of
$100,000 for any single project, other than with respect to start-ups
or other facility consolidations planned in the ordinary course of
business and as are otherwise listed on Schedule 2.06;
k. partnership or joint venture agreements;
l. agreements, arrangements or understandings with any Affiliate of the
Seller, the Parent or a Group Member;
m. material rental or lease agreements under which it is either lessor or
lessee;
n. material agreements, contracts or commitments for any charitable or
political contribution;
o. other agreements, contracts and commitments which are material to the
business of any Group Member or any Subsidiary or which involve
payments or receipts of more than $100,000 in any single year, or
which were entered into other than in the ordinary course of business;
p. agreement to acquire all or substantially all the business of another
entity or person;
q. agreements containing any "earn-out" obligations; or
r. indebtedness issued or assumed in connection with any acquisition of
another business.
To the Knowledge of the Parent neither any Group Member nor any other
party to a Contract is in default in performance of any Contract nor done any
act or failed to do any required act which would result in a default, no written
notice of such a default has been received by any Group Member, Seller or the
Parent and none of the Seller, the Parent or any Group Member has received
written notice of an event or occurrence of which with the giving of notice or
the lapse of time would constitute a default which is reasonably likely to have
a Material Adverse Effect. Except as set forth on Schedule 2.10 or Schedule
------------- --------
2.22 hereto, no consents are
----
9
required (except for any consents as shall have been obtained prior to the
Closing Date), and no event of default will occur, under any Contract as a
result of the sale and transfer of the Shares from the Seller to the Purchaser,
and the change in control of the Group Members as a result of the sale and
transfer of the Shares from the Seller to the Purchaser will not give any person
or entity the right to negotiate, change or void any terms of, or accelerate any
amounts under, any Contract, any Seller Notes or any non-competition agreement
or clause to which any Group member is a party.
2.11. Compensation. Set forth in Schedule 2.11 hereto is (a) a list
------------ -------------
of all agreements, plans or arrangements by which any Group Member is bound with
regard to compensation, bonus, incentive, stock option, stock purchase,
severance pay, retention bonuses or other benefits or perquisites, other than
any agreements, plans or arrangements listed in Schedule 2.12 hereto, any oral
-------------
"at will" employment arrangements, and any payments contingent on the
consummation of the transactions contemplated by this Agreement for which Parent
(and not Purchaser) shall be obligated and (b) a list as of the date hereof of
all employees of each Group Member entitled to receive salary at an annual rate
in excess of $50,000 and their respective positions and annual salaries. All
employees of any of the Group Members who have contractual severance
entitlements are listed on Schedule 2.1 1A.
---------------
2.12. Employee Benefit Plans.
----------------------
Except as set forth in Schedule 2.12 hereto:
-------------
(a) No Group Member maintains or sponsors, nor is it required to
make contributions to, any pension, profit-sharing, bonus, incentive, welfare or
other employee benefit plan within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (such plans and
related trusts, insurance and annuity contracts, funding media and related
agreements and arrangements, other than any "multiemployer plan" (within the
meaning of Section 3(37) or Section 4001(a)(3) of ERISA), being hereinafter
referred to as the "Benefit Plans" and such multiemployer plans being
hereinafter referred to as the "Multiemployer Plans");
(b) Each Benefit Plan complies in all respects with all
requirements of ERISA and the Code except where the failure to so comply would
not have a Material Adverse Effect;
(c) Each Benefit Plan that is intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service as to such qualification within the period of time
prescribed by law;
(d) No Group Member maintains, sponsors or contributes to nor is
required to contribute to) any Multiemployer Plan;
(e) No Benefit Plan is a "defined benefit plan" (within the meaning
of Section 3(35) of ERISA); and
10
(f) None of the Parent, the Seller or any Group Member has engaged
in, and the Parent has no knowledge of any fiduciary or other "disqualified
person or party in interest" of any Benefit Plan of any Group Member that has
engaged in, any "prohibited transaction within the meaning of Section 406 of
ERISA or Section 4975c) of the Code).
(g) No Group Member, nor any other employer (an "ERISA Affiliate")
that is, or at any relevant time was, together with any of the Companies,
treated as a "single employer" under section 414(b), 414(c) or 414(m) of the
Code, has at any time since January 1,1993 incurred any liability which could
subject any Group Member or Purchaser to material liability under Section 4062,
4063 or 4064 of ERISA or (2) , been required to contribute to, or incurred any
withdrawal liability, within the meaning of Section 4201 of ERISA to any
multiemployer pension plan, within the meaning of Section 3(37) of ERISA nor
does any Group Member or any ERISA Affiliate have any potential withdrawal
liability arising from a transaction described in Section 4204 of ERISA
(h) All contributions to, and payments from, the Non-PEO Benefit
Plans which have been required to be made in accordance with the Non-PEO
Benefits Plans have been timely made. All such contributions to the Non-PEO
Benefits Plans, and all payments under the Non-PEO Benefit Plans, except those
to be made from a trust qualified under section 401(a) of the Code, for any
period ending on or before June 30, 1999 that were not yet, but will be,
required to be made are properly accrued and reflected on the Financial
Statements.
(i) Parent has satisfied its obligations under the Parent NCES
Agreement with respect to the Benefit Plans in all material respects.
(j) No payment which is or may be made by, from or with respect to
any Benefit Plan, to any employee, former employee, director or agent of any
Group Member, either alone or in conjunction with any other payment, will or
could properly be characterized as an excess parachute payment under section
280G of the Code.
(k) Each employee of each Group Member is employed in a co-
employment arrangement between that Group Member and NovaCare Employee Services,
Inc. ("NCES").
2.13. Labor Relations. Except as set forth on Schedule 2.13 hereto,
--------------- -------------
no Group Member is subject to any labor strikes, stoppages or lockouts and none
of them is a parry to any contract or agreement with any labor organization or
other representative of its employees.
2.14. Insurance. Set forth on Schedule 2.14 hereto is a list as of
--------- -------------
the date hereof of all insurance policies maintained by or on behalf of each of
the Group Members, in effect for policy periods beginning on or after January 1,
1995, indicating for each policy the carrier, risks insured, the amounts of
coverage, deductible, premium rate, cash value if any, whether such policy is on
an "occurrence" or "claims made' basis and expiration date. All such policies
are in full force and effect. There is no material default with respect to any
provision contained in any such policy, nor has there been any failure to give
any notice (including notice of facts or circumstances which may give rise to a
claim under the policies, (or present any claim under any
11
such policy in a timely fashion or in the manner or detail required by the
policy. Except as set forth on Schedule 2.14, there are no outstanding unpaid
-------------
premiums under such policies. No notice of cancellation or non-renewal with
respect to, or disallowance of any claim under, an' such policy has been
received by the Seller, any Group Member or any Subsidiary Neither the Seller,
any Group Member nor any Subsidiary has been refused any insurance, nor has any
of their coverage been limited by any insurance carrier to which any of them has
applied for insurance or with which any of them has carried insurance during the
last five years. Except as disclosed on Schedule 2.14, no Group Member is now,
-------------
or will in the future be obligated to pay any retrospectively rated premiums,
deductible amounts or self insured retentions in connection with any insurance
policies.
2.15. Litigation. Except as set forth in Schedule 2.15 hereto, there
---------- -------------
is no litigation, arbitration, investigation or other legal proceeding
(collectively, "Actions") pending or, to the Knowledge of the Parent, threatened
against any Group Member or any material portion of the assets or properties of
the Group, except for Actions fully covered (without deductibles or retainages)
by insurance policies maintained by or for the benefit of the Group Members.
2.16. Permits: Compliance with Environmental Law: Compliance.
------------------------------------------------------
(a) Permits. The permits, licenses, approvals, franchises and
-------
authorizations (collectively, but excluding Environmental Permits, the
"Permits") issued to the Group Members are all the Permits required for the
ownership, operation and use by the Group Members of their properties and assets
and for the conduct of the business in which the Group Members are presently
engaged, except for such Permits which the failure to have is not reasonably
likely to have a Material Adverse Effect. All the Permits are in full force and
effect, except where the failure to be in effect would not have a Material
Adverse Effect.
(b) Environmental. Except as set forth in Schedule 2.16 hereto:
------------- -------------
(i) Each Group Member is and has been in compliance with the
provisions of all Federal, state and local environmental laws, codes,
ordinances, orders and all rules and regulations promulgated thereunder
(the "Environmental Laws"), including with respect to the real property
leased by Group Members listed on Schedule 2.08 hereto and the improvements
-------------
thereon (all such leased real property and improvements thereon hereinafter
referred to collectively as the "Premises"), except where the failure to be
in compliance would not have a Material Adverse Effect.
(ii) Each Group Member has obtained all required Federal, state and
local permits, licenses, certificates and approvals (the "Environmental
Permits") relating to (A) air emissions, (B) discharges to surface water or
ground water, (C) noise emissions, (D) solid, liquid or medical waste
disposal, and (E) the use, generation, storage, transportation or disposal
of toxic or hazardous substances or wastes (intended hereby and hereafter
to include any and all such materials listed in any Environmental Law, as
hazardous or potentially hazardous (including, without limitation, (1) any
chemical,
12
compound, material or substance that is defined, listed in, or otherwise
classified pursuant to, any of the Environmental Laws as a hazardous
substance", "hazardous material", "hazardous waste", "toxic substance" or
"toxic pollutant", "contaminant", "pollutant" or "waste" and (2) petroleum,
natural gas, natural gas liquids, liquefied natural gas, and synthetic gas)
(collectively, "Hazardous Substances")), and all such Environmental Permits
are in full force and effect, except where the failure to have obtained or
maintained any such Environmental Permit would not have a Material Adverse
Effect. Each Group Member is in, and has been in, compliance with all such
Environmental Permits, except where the failure to be in compliance is not
reasonably likely to have a Material Adverse Effect.
(iii) No Group Member has received or has knowledge of the existence
of any notice of violations citations, Summons, orders, complaints or
penalties of or relating to any Environmental Law or Environmental Permit
which have not been cured, and to the Knowledge of the Parent, no
investigation or review is pending or threatened by any governmental or
other entity or person, relating to the use, ownership or occupancy of any
of the Premises or the conduct of the business of the Group Members, except
for any violations referred to in any such notice which would not have a
Material Adverse Effect.
(iv) No Group Member has engaged in the generation, storage,
treatment, recycling, transportation or disposal of any Hazardous
Substance, except in compliance with applicable Environmental Laws, except
where the failure to be in compliance would not have a Material Adverse
Effect.
(v) No Group Member has, nor, to the Knowledge of the Parent, has
any other party for which any Group Member is or could be responsible
directly or indirectly, transported or arranged for the transportation of
any Hazardous Substances, is listed on the National Priorities List
promulgated pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), on CERCLIS
(as defined in CERCLA) or on any similar Federal, state or foreign list of
sites requiring investigation or cleanup.
(vi) No Group Member has nor, to the knowledge of the Parent, has
anyone else generated, treated, stored, recycled, disposed of or released
any Hazardous Substance on any Premises or any property previously owned or
leased by any Group Member or at any other property which has resulted in
any condition for which any Group Member is or is reasonably likely to be
responsible, including under CERCLA or any similar Environmental Law,
except for such condition which would not have a Material Adverse Effect.
(c) Each Group Member and each Subsidiary is, to the extent
applicable to their operations, (i) eligible to receive payment under Titles
XVIII and XIX of the Social Security Act, (ii) providers under existing provider
agreements with the Medicare program through applicable intermediaries and with
each state Medicaid program under which they are to have been providers and
(iii) in compliance with the conditions of participation in the Medicare
13
program, except where such inability in the case of either items (i) or (ii) or
non-compliance in the case of item (iii) is not reasonably likely to have a
Material Adverse Effect.
(d) Each Group Member and each Subsidiary has tiled all required
cost reports and other required claims and governmental filings with respect to
Medicare and each state Medicaid program in which they participate, all of which
were, when filed or as they have been subsequently amended, complete and
correct, except to the extent that such failure to file or failure to be
complete and correct is not reasonably likely to have a Material Adverse Effect.
Each Group Member and each Subsidiary has made available to Purchaser complete
and correct copies of all such cost reports, claims, governmental filings,
audits and schedules prepared or issued by, or filed with, any governmental
authority or private payor with respect to the operations of each of the Group
Members and each Subsidiary with respect to the prior three years.
(e) The businesses of each Group Member and each Subsidiary have
not been and are not being conducted in violation of any law, ordinance,
regulation or court ruling of any governmental authority (including, without
limitation, laws, rules and manual provisions pertaining to reimbursement of
each Group Member and each Subsidiary for services rendered, the federal False
Claims Act (31 U.S.C. (S)3729) or any other applicable federal or state false
claim or fraud law, the federal anti-kickback statute (42 U.S.C. (S)1320a-
7b(b)), any applicable state anti-kickback law, the federal Ethics in Patient
Referrals Act (42 U.S.C. (S)1 395nn, commonly known as the ▇▇▇▇▇ Act) or any
applicable state self-referral law), except for violations which are not
reasonably likely to, individually or in the aggregate, have a Material Adverse
Effect.
(f) Each of any Company, any Subsidiary and any of their current or
former shareholders, directors, officers, agents, employees and other persons
acting on behalf of them, has complied, in all material respects, with all
applicable federal, state and municipal statutes, rules, regulations and orders
and other requirements of all courts and other governmental or regulatory
authorities having jurisdiction over any Group Member, including without
limitation those relating to third party reimbursement (including, but not
limited to, Medicare, Medicaid, CHAMPUS and other federal health care programs),
fraudulent or abusive practices (including but not limited to the state health
care programs, Anti-Fraud and Abuse Amendments of the Social Security Act, as
amended, commonly known as the "Anti-Kickback Statute." and the amendments to
Section 1877 of the Social Security Act (42 U.S.C. (S)1395nn), enacted as part
of the Omnibus Budget Reconciliation Act of 1993, commonly known as "▇▇▇▇▇ II"),
environmental protection, occupational safety and health, equal employment
practices and fair trade practices., except where the failure to comply is not
likely to, individually or in the aggregate have a Material Adverse Effect.
(g) The Group Members and all professional employees or agents of
the Group Members hold and are in compliance with all permits, certificates
(including without limitation, certificates of need), licenses, orders,
registrations, franchises, authorizations and other approvals from all federal,
state, local and foreign governmental and regulatory bodies
14
(collectively "Approvals") which are required pursuant to all laws, rules and
regulations to enable the Group Members to own, operate and manage its business
unless the failure of which to possess or be in compliance with has not had and
is not reasonably likely to have a Material Adverse Effect. All such Approvals
are in full force and effect. Schedule 2.16(g) sets forth a true and correct
----------------
list of those Approvals held by the Group Members which are required :o operate
the Group Members' facilities.
(h) All services provided by the Companies, the Subsidiaries or any
professional employee or agent acting on behalf of any of them or for which the
Companies and/or the Subsidiaries directly or indirectly receive payment under
Medicare, Medicaid or other federal health care programs are, to the extent
required by law, certified for participation or enrollment in all such federal
health care programs, have a current and valid provider contract with such
federal health care programs, are in compliance with the conditions of
participation or enrollment of such federal health care programs, and, to the
extent required by law, have received all approvals or qualifications necessary
for capital reimbursement, except for such certifications, contracts,
compliances, approvals and qualifications which are set forth on Schedule
--------
2.161h) or which, individually or in the aggregate, are not reasonably likely to
have a Material Adverse Effect.
For purposes of Sections 2.04, 2.05, 2.06, 2.07, 2.08, 2.09, 2.10,
2.11, 2.14, 2.15, 2.16(c) through 2.16(i), 2.17, 2.25, 2.26, 2.27, 2.28, 2.29,
2.30, 2.31, the terms Group Members, Companies and Subsidiaries include the
Managed Companies.
2.17. Bank Accounts. Not later than ten (10) business days prior to
-------------
the Closing Date, the Seller shall deliver to the Purchaser a list as of a
recent date of all bank and securities accounts and lockboxes maintained by any
Group Member, a list of persons authorized to sign on behalf of each Group
Member with respect to each such account and a list of persons with authorized
access to each such lockbox.
2.18. Trademarks. Patents and Copyrights. (a) Schedule 2.18 hereto
----------------------------------- -------------
sets forth a list complete and accurate as of the date hereof of all
registrations of patents and pending applications therefor, all registrations of
trademarks, tradenames and service marks and all pending applications therefor,
all registrations of copyrights and all pending applications therefor, all
registration or reservations of domain names and all pending applications
therefor, and any other registration or applications for intellectual property,
all to the extent that the foregoing items are used in the business of any Group
Members or are owned in whole or in part by any Group Member.
(b) Schedule 2.18 also contains a complete and accurate list of all
-------------
material licenses, sublicenses, consents and other agreements (whether written
or otherwise) pertaining to any patents, patent applications, trademarks,
service marks, trade names, trade dress, copyrights, trade secrets, confidential
or proprietary information, computer software programs (other than standard,
commercially available programs), or other intellectual property the
"Intellectual Property") used by any Group Member in the conduct of its
business, and (ii) by which any Group Member licenses or otherwise authorizes a
third party to use such Intellectual Property.
15
None of the Group Members or, to the knowledge of any Group Member, the Parent
or the Seller, any other party is in breach of or default under any such license
or other agreement and each such license or other agreement is now and
immediately following the Closing shall be valid and in full force and effect.
(c) Except as explicitly indicated in Schedule 2.18, the applicable
-------------
Group Member owns or is licensed or otherwise has the exclusive right to use,
and has the right to bring actions for the infringement or other violation of,
all Intellectual Property necessary for the operation of the business of the
Group or any Group Member as it is currently conducted or currently proposed to
be conducted.
(d) The business operations of the Group or the Group Members do
not, to the Knowledge of the Parent, infringe, dilute, misappropriate or
otherwise violate the Intellectual Property rights of any third party, and no
claim has been made, notice given, or dispute arisen to that effect. None of the
Group Members have any pending claims that a third party has violated or
infringed any Group Member's Intellectual Property. To the Knowledge of the
Parent, the Seller and each group Member, all of the Intellectual Property and
licenses listed in Schedule 2.18 hereto are valid and in full force and effect,
-------------
and are held of record in the name of the applicable Group Member free and clear
of all Liens or other claims, and are not the subject of any cancellation or
reexamination proceeding or any other proceeding challenging their extent or
validity. Except as explicitly indicated in Schedule 2.18, a Group Member is
-------------
the applicant of record in all applications for Intellectual Property indicated
in Schedule 2.18, and no opposition, extension of time to oppose, interference,
-------------
rejection, or refusal to register has been received in connection with any such
application.
(e) To the knowledge of the Group Members, the Parent and the
Seller, none of the material trade secrets, know-how or other confidential or
proprietary information of any Group Member has been disclosed to any person
unless such disclosure was necessary, and was made pursuant to an appropriate
confidentiality agreement, except as otherwise noted on Schedule 2.18 hereto.
-------------
2.19. Transactions with Certain Persons. Except with respect to
---------------------------------
insurance arrangements referred to in Schedule 2.14 hereto or Section 8.07
-------------
hereof and the Tax Sharing Agreement, and except as set forth on Schedule 2.19
-------------
hereto, no officer, director or Affiliate of the Parent, the Seller or any Group
Member and none of the Parent or any Affiliate of the Parent (other than a Group
Member) has any interest in any property or assets used by any Group Member or
any Subsidiary in its business or has, since July 1, 1999, engaged in any
transaction with any Group Member or any Subsidiary (other than employment
relationships and expense reimbursement to employees in the ordinary course of
business).
2.20. Authority. Each of the Parent and the Seller has the corporate
---------
power and authority to execute and deliver this Agreement and to perform its
respective covenants and agreements hereunder. The execution and delivery of
this Agreement by each of the Parent arid the Seller, the performance by each of
the Parent and the Seller of its covenants and agreements hereunder and the
consummation by each of the Parent and the Seller of the transactions
16
contemplated hereby have been duly authorized by all necessary corporate action
including, without limitation, shareholder approval. This Agreement has been
duly executed and delivered by the Parent and the Seller and constitutes a valid
arid legally binding obligation of the Parent and the Seller, enforceable
against the Parent and the Seller in accordance with its terms.
2.21. Ownership of Shares. As of the Effective Time, the Seller will
-------------------
own .ill of the issued and outstanding shares of Common Stock of the Companies,
free and clear of any Lien, and the Seller will have the unrestricted right and
power to sell and transfer such shares of Common Stock to the Purchaser. Upon
transfer of such Shares to the Purchaser in accordance with the terms hereof,
the Purchaser will acquire good and valid title to such Shares, free and clear
of any Lien, except those Liens created by the Purchaser or its Affiliates. As
of the Closing Date, the Seller will not own any shares of capital stock of any
Company other than the shares of Common Stock of the Companies and will not have
any option or other right to acquire from any person or obligation or commitment
to sell or otherwise transfer to any person any shares of capital stock of any
Company owned by the Seller.
2.22. Consents. Except as may be required under The ▇▇▇▇-▇▇▇▇▇-
--------
▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended ("HSR"), and except as set
forth on Schedule 2.22 hereto, no consents, approvals or authorizations of, or
-------------
filings with, any Governmental Authority or any other person or entity are
required in connection with the execution and delivery of this Agreement by the
Parent and the Seller and the consummation of the transactions contemplated
hereby to be consummated by the Parent or the Seller, except where the failure
to obtain such consents, approvals, or authorizations, or make such filings is
not reasonably likely to have a Material Adverse Effect.
2.23. Foreign Person. Neither the Parent nor the Seller is a foreign
--------------
person within the meaning of Section 1445(f)(3) of the Code.
2.24. Year 2000. All items, products, software, components and
---------
systems used in the operation of the business of the Group, which incorporate
the processing of dates or date-related data (including, but not limited to,
representing, calculating, comparing and sequencing), including, but not limited
to, computer systems, infrastructure items, software applications, hardware and
related equipment and utilities, developed, in whole or part, by any Company or
Subsidiary are currently Y2K-compliant, except as set forth in Schedule 2.24 and
-------------
except for such non-compliance as is not reasonably likely to have a Material
Adverse Effect.
2.25. Medicare Participation / Accreditation. All health care
--------------------------------------
facilities owned or operated by any Group Member or any Subsidiary (each, a
"Company Facility") which participate in the Medicare and Medicaid programs,
have a current and valid provider agreement with the Medicare and Medicaid
programs and are in substantial compliance with the conditions of participation
of such programs, except where the failure to be so certified, to have such
agreements, or to be in such compliance is not reasonably likely to have a
Material Adverse Effect. Neither any Group Member nor any Subsidiary has
received notice from any governmental agency, fiscal intermediary, carrier or
similar entity which enforces or administers the statutory or regulatory
provisions in respect to any government health care program of any
17
pending or threatened investigations, and to the Knowledge of the Parent, no
such investigations are pending, threatened or imminent, which are reasonably
expected to have a Material Adverse Effect. All returns, cost reports and other
filings made by any Group Member or any Subsidiary with Medicare, Medicaid or
any other governmental health care program or third party payor are complete and
accurate except where the failure to be so complete and accurate is not
reasonably likely to have, individually or in the aggregate, a Material .Adverse
Effect. No adjustment or disallowance in any such cost reports and other
requests for payment, including adjustments or disallowances for late filings,
has been made or, to the Knowledge of the Parent, threatened by any federal or
state agency or instrumentality or other provider reimbursement entities
relating to Medicare or Medicaid or by any third party payor which individually
or in the aggregate would have a Material Adverse Effect, and, to the Knowledge
of the Parent, there is no basis for any successful claims or requests for
recovery of overpayments from any such agency, instrumentality, entity or third
party payor except for any such claims or requests which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect.
Schedule 2.22 identifies each Group Member which is a provider under Medicare or
-------- ----
Medicaid and its provider number and the date it became a Medicare or Medicaid
provider.
2.26. Exclusion. To the Knowledge of the Parent, neither any Group
---------
Member nor any Subsidiary employs or contracts with any person who has been
excluded from participation in a Federal Health Care Program (as defined in 42
U.S.C. (S)1320a-7b(f)) where such action could reasonably serve as a basis for
any Group Member's or any Subsidiary's suspension or exclusion from the Medicare
or any state Medicaid program.
2.27. Federal Health Care Programs.
----------------------------
(a) Neither Seller, any Group Member, any affiliate nor any person
who has a direct or indirect ownership interest (as those terms are defined in
42 C.F.R. (S)1001.100 1(a)(2)) in any Group Member of 5% or more, or who has an
ownership or control interest (as defined in Section 1 l24(a)(3) of the Social
Security Act or any regulations promulgated thereunder) in any Group Member, or
who is an officer, director, agent or managing employee (as defined in 42 C.F.R.
1001, 100 1(a)(i): (a) has had a civil monetary penalty assessed against it
under Section 1 128A of the Social Security Act or any regulations promulgated
thereunder; (b) has been excluded from participation under any federal health
care program; or (c) has been convicted (as that term is defined in 42 C.F.R.
(S) 1001.2) of any of the categories of offenses as described in the Social
Security Act Section 1128(a) and (b)(l), (2), (3) or any regulations promulgated
thereunder.
(b) All cost reports to be filed under Medicare and Medicaid or any
other applicable governmental or private provider regulations for the Company
Facilities were filed by the required filing dates. Such cost reports were
prepared and filed in good faith in accordance with applicable, laws, rules and
regulations and each Group Member has made provision to pay any net liability on
all Notices of Program Reimbursement (or similar documents) received from
Medicare, Medicaid or other governmental or private payors for the periods ended
prior to December 31, 1998. Neither any Company nor any Subsidiary has received
notice, or has
18
knowledge of the existence, of any pending dispute between any Company and/or
any Subsidiary and governmental authorities or the Medicare fiscal intermediary
regarding such cost reports for the remaining unaudited cost report periods
other than with respect to adjustments thereto made in the ordinary course of
business which do not involve amounts in excess of S20.000 in the aggregate. All
home office cost reports tiled by the Seller and all Group Members, it' any, are
true and correct in all material respects and the costs contained in such
reports are appropriately included therein and have been properly allocated
among the Seller, the Companies and the Subsidiaries and businesses in
accordance with Medicare and Medicaid rules and regulations. The home office
cost report of Seller and the Group Members, if any, covering the period June
30, 1998 through and including Closing will only include costs that are
allowable under applicable reimbursement regulations.
2.28. No Criminal Proceeding. There are no pending actions, charges,
----------------------
indictments, or investigations of any Group Member or, with respect to their
employment with any Group Member, their agents, officers or employees which
involve allegations of criminal violations by any Group Member or their agents,
officers or employees acting on behalf of any Group Member of any federal,
state, or local statute, law, or ordinance, including without limitation,
Medicare or Medicaid.
2.29. Third-Party Payment Contracts. Each Company and each
-----------------------------
Subsidiary has a valid contract to participate as a provider of services in and
under those third-party payment programs in which it operates. To the Knowledge
of the Parent, no action is pending to suspend, limit, terminate, or revoke the
status of any Company or any Subsidiary as a provider in any such program, and
neither any Company nor any Subsidiary has been provided notice by any such
third-party payor of its intention to suspend, limit, terminate, revoke, or fail
to renew any contractual arrangement with any Company or any Subsidiary as a
participating provider of services in whole or in part.
2.30. Billing; Gratuitous Payments. Except as set forth in Schedule
---------------------------- --------
2.30, all billing by, or on behalf of, any Company or any Subsidiary to third-
----
party payors, including, but not limited to, Medicare, Medicaid and private
insurance companies has been true and correct in all material respects. No Group
Member has received any notice from any third-party payor, including but not
limited to, Medicare or Medicaid, that indicates that the Purchaser could not
continue to ▇▇▇▇ in substantially the same manner as any Company or any
Subsidiary is billing on the date hereof.
2.31. Reimbursement Matters. Except as disclosed on Schedule 2.31,
--------------------- -------------
for the previous three years, the Seller, the Companies and the Subsidiaries
have not received any written notice of denial of payment or overpayment of a
material nature from a federal health care program or any other third party
reimbursement source (inclusive of managed care organizations) with respect to
items or services provided by any Company and/or any Subsidiary, other than
those which have been finally resolved in any settlement for an amount less than
$100,000.
19
2.32. Solvency. (a) The fair value of the assets of the Seller and
--------
the Parent, at a fair valuation, exceeds their respective debts and liabilities,
subordinated, contingent or otherwise: (b) the present fair saleable value of
the property of the Seller and the Parent is greater than the amount that will
be required to pay the probable liability of their respective debts and other
liabilities, subordinated, contingent or otherwise, as such debts and other
liabilities become absolute and matured; (C) the Seller and the Parent is able
to pay their respective debts and liabilities, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and matured: and (d)
the Seller and the Parent do not have unreasonably small capita! with which to
conduct the business in which they are engaged as such business is now conducted
and is proposed to be conducted.
2.33. Opinion of Financial Advisor. Parent has received the written
----------------------------
opinion of Warburg Dillon Read LLC, its financial advisor, to the effect that,
as of the date of this Agreement, the Purchase Price is fair, from a financial
point of view, to the Parent and such opinion has not been withdrawn or revoked
or modified in any material respect.
2.34. Disclosure. No representation or warranty made by the Parent
----------
or the Seller herein, nor any certificate, Schedule or exhibit prepared and
furnished by the Parent, the Seller, or any Group Member or its respective
representatives hereto, contains any untrue statement of a material fact, or
omits to state a material fact necessary to make the statements of fact
contained herein or therein not misleading in light of the circumstances under
which they were furnished.
SECTION III
-----------
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
-----------------------------------------------
In connection with the purchase and sale of the Shares hereunder, the
Purchaser hereby represents and warrants to the Parent and the Seller, as of the
date hereof and as of the Closing Date, that:
3.01. Organization The Purchaser is duly organized, validly existing
------------
and in good standing under the laws of the jurisdiction of its incorporation.
3.02. Authority. The Purchaser has the requisite corporate power and
---------
authority to execute and deliver this Agreement and to perform the Purchaser's
covenants and agreements hereunder. The execution and delivery of this Agreement
by the Purchaser, the performance by the Purchaser of its covenants and
agreements hereunder and the consummation by the Purchaser of the transactions
contemplated hereby have been duly authorized by all necessary corporate action.
This Agreement constitutes a valid and legally binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with its terms.
3.03. Conflicts. Neither the execution and delivery of this
---------
Agreement by the Purchaser, nor the consummation of the transactions
contemplated hereby to be consummated by the Purchaser, (a) violates any
provision of the certificate of incorporation or by-laws of the
20
Purchaser or (b) constitutes a violation of any Applicable Law. Neither the
execution and delivery of this Agreement by the Purchaser nor the consummation
of the transactions contemplated hereby to be consummated by the Purchaser
violates, conflicts with, results in any breach of any of the terms of or
results in the termination of or the creation of any material lien pursuant to
the terms of any material contract, commitment, agreement, or lease of any and
to which the Purchaser is a party or by which the Purchaser or any of its assets
are bound.
3.04. Litigation; Disputes. There are no Actions pending or, to the
--------------------
Knowledge of the Purchaser, threatened, against or affecting the Purchaser which
challenge the validity of this Agreement, or which if adversely determined,
would materially adversely affect its ability to consummate the transactions
contemplated by this Agreement or to perform its covenants and agreements under
this Agreement.
3.05. Consents. Except as may be required under HSR, no consents,
--------
approvals or authorizations of, or filings with, any Governmental Authority or
any other person or entity are required in connection with the execution and
delivery of this Agreement by the Purchaser and the consummation of the
transactions contemplated hereby to be consummated by it.
3.06. Investment Purpose. The Purchaser is purchasing the Shares
------------------
pursuant to this Agreement for investment for its own account and not with a
view to the distribution of all or any part thereof as such term is used in
Section 2(11) of the Securities Act of 1933, as amended (the "Securities Act").
The Purchaser is a sophisticated investor and capable of evaluating the merits
and the risks of acquiring the Shares. The Purchaser acknowledges that the
Shares are "restricted securities" (as defined under the rules and regulations
promulgated under the Securities Act); that the Shares have not been issued or
sold pursuant to any registration or similar filing, listing, prospectus or
document, or pursuant to any delivery requirements under the laws of any
Governmental Authority or the rules, regulations or guidelines of any stock
exchange or quotation system; and that it and its Affiliates and representatives
has each had access to all information which it considers necessary or advisable
to enable it to make a decision concerning the purchase of the Shares.
3.07. Financing. The Purchaser has available all funds, or has
---------
written binding commitments from financial institutions or other sources
(heretofore delivered to, and satisfactory to, the Seller) to obtain all funds
on or prior to the Closing Date, necessary to pay the Purchase Price as provided
herein and otherwise to consummate the transactions contemplated hereby in
accordance with the terms and conditions hereof.
SECTION IV
----------
THE CLOSING
-----------
4.01. Time and Place of the Closing. The closing of the purchase and
----------------- -----------
sale of the Shares as set forth herein (herein referred to as the "Closing"
shall be held at the offices of Dechert Price & ▇▇▇▇▇▇, 4000 ▇▇▇▇ Atlantic
Tower, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ at 10:00 a.m. local
time, on the earlier of (i) the date which is three business
21
days after the expiration of the HSR thirty day waiting period, or 'ii' the date
which is ten (10) business days after the receipt of early termination of the
HSR waiting period, or such other time, place and date as the Purchaser and the
Seller may agree (such date upon which the Closing occurs is herein referred to
as the "Closing Date".
4.02. Termination. This Agreement may be terminated, and the
-----------
transactions contemplated hereby may be abandoned:
(a) at any time before the Closing, by written agreement of the
Seller and the Purchaser;
(b) unless extended by written agreement of the Seller and the
Purchaser, at any time after January 15, 2000 (the "Termination Date"), by
either the Seller or the Purchaser in writing, if the transactions contemplated
by this Agreement have not been consummated on or before such date and such
terminating party is not then in material breach of this Agreement;
(c) at any time before the Closing, by the Purchaser or the Seller
in writing, in the event that any Governmental Authority shall have issued an
order, decree, ruling or taken any other action restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and nonappealable;
and
(d) at any time before the Closing, by either the Purchaser or the
Seller in writing, without liability to the terminating party on account of such
termination, if such terminating party is not then in material breach of this
Agreement and the nonterminating party shall (i) fail to perform in any material
respect its agreements contained herein required to be performed on or prior to
the Closing Date which failure is reasonably likely to have a Material Adverse
Effect and such nonterminating party has not cured in all material respects such
breach on or prior to the date which is 30 days after such nonterminating party
has received written notice from the terminating party of such failure to
perform or such longer period in the event that such breach cannot reasonably be
expected to be cured within such 30-day period and such nonterminating party is
diligently pursuing such cure, but in no event later than the Termination Date
or (ii) breach any of its representations or warranties contained herein which
breach is reasonably likely to have a Material Adverse Effect and such
nonterminating party has not cured in all material respects such breach on or
prior to the date which is 30 days after such nonterminating party has received
written notice from the terminating party of such breach or such longer period
in the event that such breach cannot reasonably be expected to be cured within
such 30-day period and such nonterminating party is diligently pursuing such
cure, but in no event later than the Termination Date.
4.03. Effect on Obligations. Termination of this Agreement pursuant
---------------------
to Section 4.02 shall terminate all obligations and liabilities of the parties
to each other hereunder, except for the obligations under Sections 4.04, 8.01, X
XI and XII and except for liability of any parry which has willfully breached
any of the covenants or other provisions of this Agreement prior to termination
hereof, provided that in the event of a termination of this agreement pursuant
to
22
subsection 4.02(d) above under circumstances where the nonterminating party has
breached its obligation to close the transactions contemplated hereby
(notwithstanding that the nonterminating party's conditions to such obligation
to close contained in Section V or VI, as the case may be, have been satisfied
or that the terminating parry stands ready, willing and able to satisfy such
conditions but for such breach, the terminating party may exercise all available
rights and remedies at law.
4.04. Return of Documentation. Following a termination in accordance
-----------------------
with Section 4.02, the Purchaser shall return, and shall cause all of its
representatives and Affiliates to return, all agreements, documents, contracts,
instruments, books, records, materials and all other information of the Group,
any Group Member, the Seller, the Parent or any of their Affiliates provided by
any Group Member, the Seller, the Parent or by any representative of any Group
Member, the Parent or the Seller to the Purchaser or any representative or
Affiliate of the' Purchaser in connection with the transactions contemplated by
this Agreement, and the Seller and the Parent shall return, and shall cause all
of its representatives and Affiliates to return, all agreements, documents,
contracts, instruments, books, records, materials and all other information of
the Purchaser provided by the Purchaser or any representative of the Purchaser
to the Seller or the Parent in connection with the transactions contemplated by
this Agreement.
4.05. Sole and Exclusive Remedy. Prior to the Closing, each party
-------------------------
hereto acknowledges and agrees that such party's sole and exclusive remedy with
respect to monetary Damages and any and all claims for any breach or liability
under this Agreement, except fraud, or otherwise relating to the subject matter
of this Agreement, except fraud, and the transactions contemplated hereby shall
be solely in accordance with, and limited by, Sections 4.02 and 4.03 hereof
provided, however, that nothing contained in this Agreement shall in any manner
--------- -------
limit the Purchaser's right to seek injunctive and other equitable relief to
enforce the obligations of the Seller and the Parent under this Agreement.
SECTION V
---------
CONDITIONS TO THE SELLER'S OBLIGATIONS TO CLOSE
-----------------------------------------------
The obligation of the Seller to sell the Shares and otherwise to
consummate the transactions contemplated by this Agreement at the Closing is
subject to the following conditions precedent, any or all of which may be waived
by the Seller in the Seller's sole discretion, and each of which the Purchaser
hereby agrees to use its best efforts to satisfy at or prior to the Closing:
5.01. Certificates. The Seller shall have received:
------------
(a) Certificates of incumbency executed by the Secretary of the
Purchaser in form and substance reasonably acceptable to the Seller;
(b) Certificate of the Secretary of the Purchaser certifying as to
a true and correct copy of the duly adopted resolutions of the board of
directors of the Purchaser, in form
23
and substance reasonably acceptable to the Seller, with respect to the
consummation of the transactions contemplated by this Agreement and that such
resolutions continue in full force and effect, without amendment, as of the
Closing Date: and
(c) Such other certificates, instruments and other documents, in
form and substance reasonably satisfactory to the Seller and counsel for the
Seller, as the Seller shall have reasonably requested in connection with the
transactions contemplated hereby.
5.02. Opinion of the Purchaser's Counsel. The Seller shall have
----------------------------------
received an opinion of Dechert, Price & ▇▇▇▇▇▇, counsel for the Purchaser, dated
the Closing Date and covering the matters set forth in Sections 3.01, 3.02 and
3.03 hereof.
5.03. Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of the Purchaser contained herein shall be true and correct in
all material respects at and as of the Closing Date with the same effect as
though all such representations and warranties were made at and as of the
Closing Date, except to the extent that any of such representations and
warranties are, by their terms, made expressly as of the date of this Agreement
or another date, in which case such representations and warranties shall have
been true and correct in all material respects as of the date hereof or such
other date, as applicable, except where the failure to be true and correct
(without giving effect to any materiality qualification in any particular
representation) shall not, individually or in the aggregate, be reasonably
likely to have a Material Adverse Effect. The Purchaser shall have complied in
all material respects with all of its covenants and agreements contained herein
required to be complied with on or prior to the Closing Date, and on the Closing
Date, the Purchaser shall deliver to the Seller a certificate dated the Closing
Date to such effect.
5.04. No Litigation. No action, suit, proceeding, writ, judgment,
-------------
injunction, decree or similar order of any Governmental Authority restraining,
enjoining or otherwise preventing the consummation of any of the transactions
contemplated by this Agreement.
5.05. HSR Act Approval. All waiting periods applicable to this
----------------
Agreement and the transactions contemplated hereby under HSR shall have passed
or been terminated.
SECTION VI
----------
CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE
-------------------------------------------------
The obligation of the Purchaser to purchase the Shares and otherwise
to consummate the transactions contemplated by this Agreement at the Closing is
subject to the following conditions precedent, any or all of which may be waived
by the Purchaser in its sole discretion, and each of which the Seller and the
Parent hereby agree to use their respective best efforts to satisfy at or prior
to the Closing:
6.01. Certificates. The Purchaser shall have received:
------------
24
(a) A true and correct copy of the certificate of incorporation of
each. Company, certified as true and correct by the Secretary of State or
other appropriate governmental official of its jurisdiction of organization, and
a copy of the by-laws of each Company, certified as true and correct by its
Secretary:
(b) Certificate of incumbency executed by the Secretary to' the
Seller in form and substance reasonably acceptable to the Purchaser:
(c) Certificate of incumbency executed by the Secretary of the
Parent in form and substance reasonably acceptable to the Purchaser;
(d) Certificate of the Secretary of the Seller certifying as to a
true and correct copy of the duly adopted resolutions of the board of directors
and the duly adopted resolutions of the sole stockholder of the Seller and a
certificate of the Secretary of the Parent certifying as to a true and correct
copy of the duly adopted resolutions of the board of directors of the Parent,
each in form and substance reasonably acceptable to the Purchaser, with respect
to the consummation of the transactions contemplated by this Agreement and that
such resolutions continue in full force and effect, without amendment, as of the
Closing Date; and
(e) Such other certificates, instruments and other documents, in
form and substance reasonably satisfactory to the Purchaser and counsel for the
Purchaser, as the Purchaser shall have reasonably requested in connection with
the transactions contemplated hereby.
6.02. Opinion of the Parent's Counsel. The Purchaser shall have
-------------------------------
received an opinion of ▇▇▇▇▇▇ & ▇▇▇▇▇▇, special counsel for the Parent and the
Seller, reasonably satisfactory to the Purchaser and dated the Closing Date and
covering the matters set forth in the first two sentences of Section 2.01,
Section 2.02, the first two sentences of Section 2.03, Section 2.15, Section
2.20 and the second sentence of Section 2.21 hereof (provided that in rendering
such opinion such counsel may assume that the Purchaser does not have knowledge
of any adverse claim in respect of the Shares).
6.03. Representations; Warranties and Covenants.
-----------------------------------------
(a) The representations and warranties of the Parent and Seller
contained herein (without regard to any materiality or Material Adverse Effect
qualifications contained therein) shall be true and correct at and as of the
Closing Date with the same effect as though all such representations and
warranties were made at and as of the Closing Date, except to the extent that
any of such representations and warranties are, by their terms, made expressly
as of the date of this Agreement or another date, in which case such
representations and warranties shall have been true and correct as of the date
hereof or such other date, as applicable, except where the failure to be true
and correct (without giving effect to any materially qualification in any
particular representation) shall not, individually or in the aggregate, have or
be reasonably likely to have a Material Adverse Effect.
25
(b) The Parent and Seller shall have complied ~n all material
respects with its covenants and agreements contained herein required to be
compiled with on or prior to the Closing Date.
(c) On the Closing Date, the Parent and Seller shall deliver to the
Purchaser a certificate dated as of the Closing Date to the effects of paragraph
a and b of this section.
6.04. No Litigation. No action, suit, proceeding, writ, judgment,
-------------
injunction, decree or similar order of any Governmental Authority restraining,
enjoining or otherwise preventing the consummation of any of the transactions
contemplated by this Agreement, or seeking any Damages or any other relief as a
result of this Agreement or any of the transactions contemplated hereby, shall
be pending.
6.05. Approvals. All governmental filings, authorizations and
---------
approvals (if any) that are required for the consummation of the transactions
contemplated hereby will have been duly made and obtained in form and substance
reasonably satisfactory to the Purchaser and the Purchaser's counsel, except for
any such approvals as to which the failure to obtain shall not, individually or
in the aggregate, have a Material Adverse Effect, provided that failure to
obtain such approvals or make such filings does not constitute a violation of
law.
6.06. HSR Act Approval. All waiting periods applicable to this
----------------
Agreement and the transactions contemplated hereby under HSR shall have passed
or been terminated.
6.07. Resignations. All officers and all directors of each Group
------------
Member (except those designated by Purchaser) shall have executed and delivered
to each Group Member, as applicable, resignations effective as of the Effective
Time.
6.08. Escrow Agreement. At Closing, the Seller and the Purchaser
----------------
shall enter into the Escrow Agreement.
6.09. Third Party Consents. All consents of third parties described
--------------------
on Schedule 2.02 shall have been obtained, except when such failure to obtain
any consents, individually or in the aggregate, will not be reasonably likely to
result in a Material Adverse Effect.
6.10. PNC Liens. All liens on the assets of the Group Members held
---------
by PNC Bank, N.A., shall be removed as of the Closing Date, or Purchaser shall
have received reasonably satisfactory assurances from PNC Bank, N.A., that all
such liens shall be promptly removed following the Closing Date without any cost
or contributions from Purchaser or the Group Members.
26
SECTION VII
-----------
CONDUCT OF THE BUSINESS
-----------------------
7.01. Limitations on Conduct. The Seller and the Parent, jointly and
----------------------
severally, hereby covenant and agree with the Purchaser that, except as
hereafter consented to in writing by the Purchaser (which consent shall not be
unreasonably withheld or delayed from and after the date of this Agreement and
until the Effective Time, the Seller and the Parent shall cause each Group
Member not to, except as set forth on Schedule 7.01:
-------------
(a) Operation of the Business. Conduct the business of the each
-------------------------
Group Member other than in the ordinary course of business and consistent with
past practice.
(b) No Loans. Advances, Etc. Make or grant pay raises, bonuses, or
-----------------------
awards or severance to any officer, employee or director, or except in the
ordinary course of business and consistent with past practice, make or incur any
lease, loan, Lien or other obligation to or from a third party, or make any
other payments, directly or indirectly, to any officer, employee or director of
any Group Member.
(c) Capital Expenditures. Make any commitments for capital
--------------------
expenditures for additions to property, plant or equipment in excess of any
Group Member's current fiscal year to date capital budget.
(d) Preservation of Organization and Business Relationships. Fail
-------------------------------------------------------
to use its reasonable efforts to (i) preserve its present business organization
intact, (ii) keep available to the Purchaser the services of the present
officers and employees of the Group Members and (iii) preserve present
relationships with entities or persons having business dealings with it.
(e) Employee Plans. Except in the ordinary course of business,
--------------
enter into any plan, arrangement or commitment with any of its employees,
officers or consultants with regard to compensation, benefits or perquisites.
(f) Maintenance of Insurance. Fail to maintain in full force and
------------------------
effect through, but not after, the Effective Time, insurance of the type and
with such coverage amounts and with insurers rated A or better by AM Best as is
maintained as of the date hereof. Seller shall promptly advise Purchaser in
writing of any change of insurer or type of coverage.
(g) Claims. Waive, cancel, sell or otherwise dispose of for less
------
than the face value thereof any material claim or right it has against third
parties.
(h) Sale of Assets. Sell or dispose of any asset having a book
--------------
value in excess of $50,000 other than in the ordinary course of business and
consistent with past practice.
(i) Material Transactions.
---------------------
27
(1) amend its Articles of Incorporation or Bylaws;
(2) change its authorized or issued capital stock or issue any
rights or options to acquire shares of its capital stock or securities
convertible into or exchangeable for such Shares;
(3) enter into or renew any employment or consulting contract
or arrangement with any person which is not terminable at will, without penalty
or continuing obligation:
(4) make, change or revoke any Tax election or make any
agreement or settlement with any taxing authority:
(5) guarantee or become a co-maker or accommodation maker or
otherwise become or remain continently liable in connection with any liability
or obligation of any person (other than the endorsement of checks in the
ordinary course of business); or
(6) open any new clinic or purchase any clinic or close or sell
any clinic (except capital expenditures consistent with the year-to-date capital
budget);
(7) enter into or renew any real property lease, except clinic
leases not having a term of greater than five (5) years or which provide for
monthly base rent in excess of $10,000 per month;
(8) enter into any agreement which requires payments of more
than $100,000 in a single year.
(j) enter into any agreement to do any of the foregoing.
7.02. Preparation and Filing of Tax Returns. From and after the date
-------------------------------------
of this Agreement until the Effective Time, the Parent shall cause (i) all Tax
Returns of the Group Members or that include the activities of the Group Members
to be filed on a timely basis, and (ii) all Taxes of the Group Members that are
due and payable to be paid on a timely basis. Except as otherwise expressly
agreed to by the Purchaser, all such Tax Returns that reflect the operations,
activities or property of the Group Members shall be prepared in a manner
consistent with past practice and no Tax elections or accounting methods shall
be made or applied with respect to such Tax Returns other than in a manner that
is consistent with past practice. Parent shall provide Purchaser a reasonable
right to review and comment upon any such Tax Returns prior to the filing
thereof.
7.03. Access; Information and Documents. The Seller and the Parent
---------------------------------
shall cause each Group Member to give to the Purchaser and to the Purchaser's
counsel, accountants and other representatives access during normal business
hours, on reasonable notice to all of each Group Member's properties, books, tax
returns, contracts, commitments, records, officers. personnel and accountants
and will furnish to the Purchaser all such documents and copies of
28
documents (certified to be true copies if requested) and all information with
respect to the affairs of any Group Member as the Purchaser may reasonably
request.
7.04. Preparation and Filing of Medicare and Medicaid Cost Reports.
------------------------- ----------------------------------
From and after the date of this Agreement until the Effective Time, the Parent
shall cause all Medicare and Medicaid cost reports of the Group Members or those
that include the activities of the Group Members to be filed on a timely basis.
Except as otherwise expressly agreed to by the Purchaser. all such Medicare and
Medicaid cost reports of the Group Members shall be prepared in a manner
consistent with past practice. Parent shall make such Medicare and Medicaid cost
reports available to Seller to review at least 15 days prior to such Medicare
and Medicaid Cost reports being filed. Parent will prepare home office cost
reports for all periods through Closing in a manner consistent with prior
practice and file them in a timely manner.
7.05. Payment of Sellers' Notes and Earn Out Amounts. Pending
----------------------------------------------
Closing, Seller shall pay all amounts due under the Seller Notes and all amounts
due pursuant to the so called "earn out" obligations of any Group Member on a
timely basis, subject to available offsets, if any.
SECTION VIII
------------
OTHER AGREEMENTS OF THE PARTIES
-------------------------------
8.01. Announcements. The Parent and the Purchaser will consult with
-------------
each other before any issuance by them or any of their Affiliates of, and will
provide each other the opportunity to review, comment upon and concur with, any
press release or other public statements with respect to the transactions
contemplated by this Agreement, and shall not issue any such press release or
make any such public statement prior to such consultation, except as either
party may determine is required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange or quotation system. The parties agree that the initial press release
to be issued with respect to the transactions contemplated by this Agreement
shall be in the form heretofore agreed to by the parties. In addition, the
Purchaser shall comply with the Confidentiality Agreement.
8.02. Employee Matters.
----------------
(a) Except as specifically provided for herein, effective as of the
Closing Date, Parent and Seller shall have no obligation to provide benefits to
any Employee, former Employee or Beneficiary under the Parent NCES Agreement, or
otherwise, and Purchaser and the Group Members shall be responsible for and
shall promptly discharge all of Parent's liabilities under the Parent NCES
Agreement with respect to the PEO Benefit Plans. Effective as of the Closing
Date, Parent and Seller shall cease to have any liability with respect to the
NonPEO Benefits Plans.
(b) Effective as of the Closing Date, Parent shall take, or cause
to be taken, all such action as is necessary to terminate its co-sponsorship of
the PEO Benefit Plans.
29
Notwithstanding the preceding sentence. Parent shall retain responsibility under
those PEO Benefit Plans that are employee welfare benefit plans (as designated
on Schedule 2.12) (collectively, the Seller's Health Plan) for all claims
-------------
incurred by Employees. Former Employees and their Beneficiaries of any Group
Member prior to the Closing Date, including claims submitted after the Closing
Date, but only to the extent that the amount of such claims exceed the amount of
any corresponding accrual or reserve reflected on the Closing Balance Sheet or
which are not otherwise satisfied by insurance coverage. A claim shall be deemed
to have occurred on the date of (i) death or dismemberment in the case of claims
under life insurance or accidental death and dismemberment insurance, (ii) the
date of initial disability in the case of disability claims, or (iii) in the
case of all other claims including medical claims, the date on which the charge
or expense giving rise to such claim is incurred. From and after the Effective
Time, the Purchaser shall cause the Group Members to pay to the Parent (to the
extent accrued or otherwise reserved for on the Closing Balance Sheet) any
premium or other charges due in respect of
coverage of Employees, Former Employees or Beneficiaries under the Seller's
Health Plan through the Effective Time within 30 days after receipt of an
invoice or statement relating to the same. The amount of such premiums and
charges shall be calculated in accordance with the Parent's and the Group
Member's prior practices regarding such premiums and charges in accordance with
Code (S)4980B. The Purchaser agrees to notify all Employees, Former Employees
and their Beneficiaries of the manner in which pre-Effective Time Expenses under
the Seller's Health Plan are to be submitted for reimbursement and to request
that all such expenses be submitted within 60 days after the Closing Date.
(c) Effective as of the Closing Date, active participation of the
Employees in the NCES/NovaCare, Inc. 40 1(k) Retirement Savings Plan ("Parent's
40 1(k) Plan") shall cease and Purchaser shall establish a defined contribution
retirement plan qualified under Section 401(a) of the Code for the benefit of
all employees of the Group Members who continue employment with the Purchaser or
any Group Member thereafter (the "Retained Employees") (the "Purchaser's 40 1(k)
Plan"). Within 180 days after the Closing Date, Purchaser shall provide Parent
with an opinion letter of counsel acceptable to the Parent that the Purchaser's
40 1(k) Plan satisfies the requirements for qualification under Section 40 1(a)
of the Code or deliver to Parent a current favorable determination letter issued
by the IRS that the Purchaser's 40 1(k) Plan satisfies the requirements for
qualification under Section 401(a) of the Code. As soon as practicable after
the latest of(i) the expiration of 30 days following the filing of Forms 5310
with the IRS, if required and (ii) the receipt by Parent of the opinion or
determination letter prescribed above, Parent shall cause the trustee of
Parent's 40 1(k) Plan to transfer to the trust forming a part of the Purchaser's
401(k) Plan cash and/or securities reasonably acceptable to Purchaser (including
participant notes) equal to the aggregate account balances (including loan
balances) of the Retained Employees as of such transfer date.
(d) Purchaser agrees that each Retained Employee will be given
credit for all service with any Group Member, the Subsidiaries and any
affiliates thereof in determining such Retained Employee's eligibility to
participate and vest in any employee benefits, as well as the amount of vacation
and severance, if service is applicable under Purchaser's plans, offered by
30
Purchaser or any affiliate of Purchaser to the same extent as if that service
had been performed for Purchaser. In addition, Purchaser will grant credit under
its vacation, sick leave and paid time off programs for all accrued vacation,
sick leave and paid time off to which the Retained Employees are entitled under
comparable Benefit Plans maintained by Parent on the Closing Date.
(e) Set forth on Schedule 8.02(e) is a list of all former employees
---------------
currently receiving or entitled to receive continuation health coverage pursuant
to (S)4980B of the Code arid Title I, Subtitle B. Part 6 of ERISA ("COBRA
Coverage") from Parent or any ERIS.A Affiliate (other than a Group Member).
Parent will update Schedule 8.02(e) as of the Closing Date. All individuals
---------------
listed on the updated Schedule 8.02(e) and their spouses and dependants who are
---------------
"qualified beneficiaries" within the meaning of (S) 4980B (g) of the Code are
hereinafter referred to as the 'COBRA Participants." Subject to Parent's
reimbursement obligation as described below, effective as of the Closing Date.
Purchaser and the Group Members shall be responsible for the provision of COBRA
Coverage to the COBRA Participants. Notwithstanding the preceding sentence,
Parent shall retain responsibility to reimburse Purchaser and the Group Members
on a monthly basis to the extent that the aggregate claims of the non-Group
Member COBRA Participants pursuant to their COBRA Coverage exceed the aggregate
premiums paid from the Closing Date for such COBRA Coverage, but only to the
extent not otherwise satisfied by insurance coverage.
(f) No covenant or agreement by any party hereto to indemnify any
other party hereto shall release, or be deemed to release, any insurer or
indemnitor of any Damages which might be the basis for any Indemnification
Matter.
(g) Effective as of the Closing Date, active participation of the
Employees in the NovaCare Employee Stock Purchase Plan shall cease.
8.03. Labor Relations. The Purchaser hereby agrees to defend and
---------------
indemnify the Seller Indemnified Parties, and to hold each Seller Indemnified
Party harmless, from and against all Damages that are sustained or incurred by
any Seller Indemnified Parties by reason of or in connection with any claim,
proceeding or suit brought against any Seller Indemnified Parties under the
Worker Adjustment Retraining and Notification Act, or any other local, state,
Federal or foreign law, which relates to actions taken by the Purchaser or any
Group Member at any time after the Effective Time with regard to any site of
employment or one or more facilities or operating units within any site of
employment of any Group Member.
8.04. Access to Information. (a) Subject to Section 8.04(c). For a
---------------------
period of six years from the Closing Date, each of the Seller, the Parent and
the Purchaser shall (and, in the case of the Purchaser, shall cause each of the
Group Members to), during normal business hours and upon reasonable notice, make
available and provide the other parties and their representatives (including,
without limitation, counsel and independent auditors) with access to the
facilities and properties of each of the Group Members and to all information,
files, documents and records (written and computer) relating to any Group Member
or any of its
31
businesses or operations for any and all periods prior to or including the
Closing Date which another party (or any of its Affiliates) requires with
respect to any reasonable business purpose, and shall (and, in the case of the
Purchaser, shall cause each of the Group Members to cooperate fully with the
Parent and its representatives (including, without limitation, its counsel and
independent auditors) in connection with the foregoing, including, without
limitation, by making tax, accounting and financial personnel and other
appropriate employees and officers of the Seller, the Parent or each Group
Member, as the case may be, reasonably available to the other parties and their
representatives (including, without limitation, counsel and independent
auditors), with regard to any reasonable business purpose.
(b) Without limiting the generality of Section 8.04(a) but subject
to Section 8.04(c), from and after the Closing Date, the Purchaser shall (and
shall cause each of the Group Members to) cooperate fully with, and shall cause
its officers and employees (and the officers and employees of the Group Members
to cooperate fully with the Parent and its representatives) (including, without
limitation, its counsel and independent auditors) in connection with
(i) the Parent's preparation of the Group Members' (or any Group
Member's) Federal, state or local income Tax Return, report or declaration,
for any Seller Tax Period, and to that end following the Closing Date, the
Parent shall submit to the Purchaser blank Tax Return workpaper packages
reasonably necessary to enable the Parent to prepare such Tax Returns and
the Purchaser shall cause the Group Members to prepare for and to deliver
to the Parent, within 90 days following the later of receipt of such
workpaper packages and the Closing Date completed workpaper packages, and
shall cause the officers and employees of the Group Members to cooperate
and assist the Parent in the Parent's review and verification of the same;
(ii) any Tax audit, examination or proposed or final assessment or
the like (including without limitation any Tax Claim) relating to the
Seller, the Parent, the Group or any Group Member, and to any Seller Tax
Period;
(iii) the preparation of any financial statements of the Group Members
(or any Group Member) for (or including) any period (or portion thereof)
ending on or before the Effective Time, and to that end the Purchaser shall
cause each Group Member to prepare for and to deliver to the Parent any
financial information of the type historically prepared by any Group Member
for all periods (or portions thereof) ending on or before the Effective
Time and to cause the officers and employees of any Group Member to
cooperate fully and assist the Parent in its review and verification of the
same;
(iv) the Parent's preparation of any statement, report, notice,
response or other document for filing with the Securities and Exchange
Commission, any state or foreign securities commission or authority, any
other Governmental Authority or any securities exchange or market, domestic
or foreign, including, without limitation, in connection with any comments,
requests for information, inquiries, investigations or proceedings, formal
or informal, by any of the foregoing;
32
(v) the investigation, prosecution or defense of or response to any
Actions, claims or inquiries commenced by any Purchaser Indemnified Party,
or by any Governmental Authority or any other person or entity, against the
Parent or the Seller (or any other Seller Indemnified Party or any
Affiliate thereof), or by the Parent or the Seller (or any Affiliate
thereof) against the Purchaser or any other Purchaser Indemnified Party),
including in any case relating to any Indemnification Matter under Sections
8.03. IX or X hereof.
(c) The cooperation and assistance of the Purchaser and the Group
Members and their respective officers and employees under this Section 8.04
shall be rendered during normal business hours and in a manner which does not
disrupt the business and operations of the applicable Group Member or interfere
with the performance by employees of the Group Members of their normal duties,
and subject to the foregoing the Purchaser shall use its best efforts in the
case of the Parent's preparation of any Tax Return, report or declaration and
any financial statements, to cause such cooperation and assistance to be
rendered without adverse consequences to the Seller or the Parent during the
period that each of the Group Members has normally assisted the Seller or the
Parent in the Parent's preparation of Tax Returns, reports or declarations and
financial statements. The Parent shall reimburse the Group Members for any out-
of-pocket expenses paid by them in the cooperation and assistance by Purchaser
with the Parent's preparation of any such Tax Returns, reports or declarations
and any such financial statements.
(d) Purchaser and Group Member shall not in any case be required to
spend more than 300 employee hours for the assistance and cooperation described
herein; hours spent in excess of 300 shall be charged at Purchaser's and Group
Member's fully burdened cost per hour.
(e) Without limiting the generality of subsection (a) of this
Section 8.04, following the Closing, no party shall (and no party shall cause
their Affiliates to) destroy any information, files, documents or records
(written and computer) relating to any Group Member or any of its businesses or
operations on or before the Closing Date without giving at least 30 days' prior
written notice to the other parties hereto and shall (and shall cause their
Affiliates to) permit the other parties hereto to examine, duplicate (at the
expense of the other parties hereto) and/or transfer (at the expense of the
other parties hereto) to the other parties hereto or their representatives any
of such information, files, documents or records (written and computer).
8.05. Intentionally left blank.
------------------------
8.06. Tax Matters. (a) The Seller, the Parent and the Purchaser
-----------
acknowledge and agree that, for Federal Income Tax purposes, the taxable year of
each Group Member will close on the Closing Date and that, for certain state and
local income Tax purposes, the taxable year of some or all of the Group Members
may also close on the Closing Date. The Parent shall be responsible for
preparing and filing any and all income Tax Returns, reports and declarations
that include the Group Members for the periods ending on or before the Closing
Date, and shall be responsible for and shall pay all income Taxes payable by the
Group Members with respect to
33
such returns. To the extent permitted by law, the Parent and the Purchaser agree
to cause a taxable period of each Group Member to close on the Closing Date for
state and local income Tax purposes. Except to the extent expressly permitted by
the Purchaser or as specified in this Agreement, all Tax Returns prepared by the
Parent with respect to the Group Members pursuant to this Section 8.06(a) shall
be prepared in a manner consistent with past practice and no Tax elections shall
be made or Tax accounting methods shall be applied except in a manner consistent
with past practice. Parent shall provide to Purchaser a reasonable right to
review and comment upon any such Tax Returns prior to the filing thereof.
(b) Except as provided in clause (a) of this Section 8.06. the
Purchaser agrees to cause the Group Members to file all Tax Returns, reports and
declarations required to be riled by any of them after the Closing Date and to
pay all Taxes due and payable by any of them after the Closing Date, including
any Taxes (other than income Taxes) that accrued prior to the Closing Date or
that are otherwise allocable to any Seller Tax Period that does not end on or
before the Closing Date. Without limiting the generality of Section 8.04 or
this Section 8.06, the Parent and Purchaser shall be given the opportunity to
review, comment upon and suggest changes or corrections to, any income Tax
Returns, reports and declarations prepared by the other party covered by this
Section 8.06(a) and (b) which include any Seller Tax Period (and the work papers
of the Group Members and Parent and their accountants used in the preparation
thereof), in each case prior to the filing thereof (but in no event less than 30
days prior to such filing). In the event of any dispute regarding the matters
set forth in the immediately preceding sentence, then PricewaterhouseCoopers (or
if PricewaterhouseCoopers shall decline to arbitrate such dispute, then another
nationally recognized accounting firm selected by the Parent) shall be requested
to make a determination resolving any such dispute; and the determination by
PricewaterhouseCoopers (or such other accounting firm) of any such dispute shall
be final and binding on the parties hereto. The fees and expenses of
PricewaterhouseCoopers (or such other accounting firm) in resolving such dispute
shall be borne fifty percent (50%) by the Parent and fifty percent (50%) by the
Purchaser.
(c) Any refunds or credits of income Taxes of any Group Member for
any Seller Tax Period shall be for the account of the Parent to the extent not
reflected in the calculation of Consolidated Net Working Capital reflected on
the Closing Balance Sheet, and to the extent not attributable to the carryback
from a taxable period following the Closing Date ("Parent's Refunds").
Applications for Parent's Refunds of Taxes, and the filing of amended Tax
Returns with respect to any Seller Tax Period resulting in Parent's Refunds
shall be made and prosecuted only by the Parent or the Seller. Without limiting
the provisions of Section 8.04, the Purchaser shall provide and shall cause each
Group Member to provide to the Parent full cooperation and assistance in
connection with any application for refund or amendment made or proposed to be
made by the Parent or the Seller as shall be requested by the Parent, including
by causing each Group Member to authorize by appropriate powers of attorney such
person as the Parent shall designate to represent such Group Member with respect
to such refund claim, without charge for any cost or expense for assistance
rendered by officers and employees of the Group Members in connection therewith.
Neither the Parent nor the Seller shall seek any Tax refund, or amend any Tax
Return, which would have the effect of increasing the Taxes of any
34
Group Member for any taxable period (or portion thereof) beginning after the
Closing Date; however, the foregoing shall not apply to any amended Tax Return
which may be required by law following resolution of a Tax dispute. Neither the
Purchaser nor any Group Member shall amend, or take any similar action with
respect to, any Tax Return filed by the Parent, the Seller or by any Group
Member with respect to any Seller Tax Period without the prior written consent
of the Parent: provided that the foregoing shall not apply to any amended Tax
Return which may be required by law following resolution of a Tax dispute
conducted in accordance with this Agreement. The Purchaser shall or shall cause
each Group Member to forward to the Parent any Parent's Refund of income Taxes
of any Group Member within five days after such refund is received or reimburse
the Parent for any credit within five days after the credit is allowed or
applied against other Tax liability). Notwithstanding the foregoing, the control
of the prosecution of a claim for refund of Taxes paid pursuant to a deficiency
assessed subsequent to the Closing Date as a result of an audit shall be
governed by the provisions of 9.03(d) hereof.
(d) The Purchaser shall not file an election (or cause a deemed
election) under Section 33 8(h)(l0) of the Code with respect to its acquisition
of the Group Members or any Group Member hereunder. The Purchaser shall consent
to the election under Treasury Regulation (S)1.1502-20(g)(l) to re-attribute any
net operating losses and/or net capital losses of any Group Member to the Seller
or the Parent, except for an amount of such losses as is necessary to offset the
Tax liability of any Group Member arising pursuant to (S)481 of the Code, and
shall cause the Group Members to execute and file such statements as may be
necessary or appropriate to effect such election.
(e) All Taxes with respect to the income, property or operations of
the Group Members that relate to any taxable year or period beginning before and
ending after the Closing Date shall be apportioned between the Seller Tax Period
and the period beginning the day after the Closing Date as follows: (A) in the
case of Taxes other than income and sales or use Taxes, on a per diem basis, and
(B) in the case of income Taxes (including income Taxes based on capital or
other alternative bases) and sales or use Taxes, as determined from the books
and records of the Parent and the Group Member in question, as though the
taxable year of the Group Member terminated on the Closing Date, and based on
the accounting methods, elections and conventions used by the Parent and/or the
relevant Group Member in prior years.
(f) Following the Closing, and without regard to any of the
limitations set forth in Section IX, the Parent and the Seller shall fully
indemnify and hold harmless the Purchaser and each of the Group Members from and
against any liability for any Damages that relate to Taxes (i) of the Group
Members that are attributable to any taxable period or portion thereof that ends
on or before the Closing Date to the extent the liability therefor exceeds the
amount expressly reflected as a liability in the calculation of Consolidated Net
Working Capital reflected on the Closing Balance Sheet or (ii) of any person
other than a Group Member for which a Group Member may become liable (A) by
reason of being a member of a consolidated or combined Tax Return that includes
such other person on or before the Closing Date. B by reason of being a
successor to such other person by merger, liquidation or otherwise on or before
35
the Closing Date or (C) by reason of being a party to a Tax sharing or Tax
allocation agreement on or before the Closing Date.
(g) Except as otherwise provided in this Agreement, on or before the
Closing Date, the Parent shall cause all Tax sharing agreements or arrangements
that may exist between any Group Member and the Parent, the Seller or their
Affiliates to be terminated and all obligations thereunder to be terminated as
of the Closing Date, and none of the Group Members shall have any liability
thereunder for any and all amounts due in respect of periods up to and,
including the Closing Date.
8.07. [Intentionally omitted]
-----------------------
8.08. Agreement by the Purchaser Regarding No Other Representations or
----------------------------------------------------------------
Warranties by the Parent or the Seller. The Purchaser agrees that except for
--------------------------------------
the representations and warranties (including the Schedules with respect
thereto) made by the Parent and the Seller and expressly set forth in this
Agreement or any certificate delivered pursuant hereto neither the Parent nor
the Seller nor any Affiliate or representative of either has made and shall not
be construed as having made to the Purchaser or to any representative or
Affiliate thereof, and neither the Purchaser nor any Affiliate nor any
representative thereof has relied upon, any other representation or warranty of
any kind. Without limiting the generality of the foregoing, except for any
express representations and warranties made by the Parent and the Seller in this
Agreement or any certificate delivered pursuant to this Agreement, the Purchaser
agrees that neither the .Parent nor the Seller nor any Affiliate or
representative of either makes or has made any representation or warranty to the
Purchaser or to any representative or Affiliate thereof with respect to:
(i) any projections, estimates or budgets contained in that certain
Confidential Information Memorandum relating to the Group Members or
otherwise heretofore or hereafter delivered to or made available to the
Purchaser or its counsel, accountants, advisors, lenders, representatives
or Affiliates of future revenues, expenses or expenditures, future results
of operations (or any component thereof), future cash flows (or any
component thereof) or future financial condition (or any component thereof)
of the Group or any Group Member or the future business, operations or
affairs of the Group or any Group Member; and
(ii) any other information, statements or documents heretofore or
hereafter delivered to or made available to the Purchaser or its counsel,
accountants, advisors, lenders, representatives or Affiliates (including,
without limitation, the Confidential Information Memorandum relating to the
Group Members) with respect to the Group or any Group Member or the
business, operations or affairs of the Group or any Group Member.
8.09. Use of NovaCare Name. Purchaser hereby agrees that Parent may
--------------------
use the name "NovaCare" and the domain name "▇▇▇▇▇▇▇▇.▇▇▇" for a period of six
(6) months after the Closing Date, provided that the Parent shall not hold
itself out to the public as being affiliated
36
with the Purchaser. At the end of such six month period, Parent shall promptly
take such steps as are necessary to change its name to a name not including the
word "NovaCare."
8.10. Employee Obligations
--------------------
(a) The Parent shall be responsible for any and all obligations
arising out of the contractual arrangement with MT Consulting, attached hereto
as Schedule 8.10 the "Mountain Contract"). The Mountain Contract provides,
-------------
among other things that ▇▇▇▇▇ Mackef and other individuals currently or formerly
employed by MT Consulting (the "Mountain Personnel") will be employed by one or
more of the Group Members. Promptly following the execution and delivery of
this Agreement. Parent or Seller will deliver to Purchaser a written list
identifying (by name, job title and job function) each of the Mountain Personnel
who Parent or Seller has committed or intends to employ, or actually has
employed, Purchaser will notify Seller within thirty (30) days following its
receipt of such list, as to which of the Mountain Personnel Purchaser will
consent to employ or retain, as the case may be (the "Approved Mountain
Personnel"). Parent shall, in addition to its obligations under Section 8.10(b)
through (e) hereof, be responsible for any severance obligations due to the
Mountain Personnel other than the Approved Mountain Personnel; on the other
hand, Purchaser shall be responsible for any severance obligation due to the
Approved Mountain Personnel. Parent shall indemnify and hold Purchaser
harmless, as further provided in Section IX, for any and all liabilities
relating to the agreements and understandings set forth in subsection "(a)".
(b) The parties agree that, notwithstanding anything else herein,
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ shall not become an employee of Purchaser and, if employed by
any Group Member, shall be terminated by such Group Member as of the Closing
Date. Parent shall be fully responsible for any and all payments or other
obligations due or payable to ▇▇. ▇▇▇▇▇▇ at or after Closing arising from his
employment with Parent and the Group Members prior to the Closing Date. Parent
shall indemnify and hold Purchaser harmless, as further provided in Section IX,
for any and all liabilities relating thereto.
(c) Parent shall be fully responsible for any and all incentive
payment obligations to any employees relating to the consummation of the
transactions contemplated by this Agreement. Parent shall indemnify and hold
Purchaser harmless, as further provided in Section IX, for any and all
liabilities relating thereto.
(d) Parent shall reimburse Purchaser up to $3.5 million for
severance obligations actually incurred by Purchaser with respect to those
employees listed on Schedule 2.11 (excluding ▇▇▇▇▇ ▇▇▇▇▇▇) who have contractual
-------- ----
severance rights; provided, and only to the extent that (i) in the case of an
employee who is involuntarily terminated, such termination notice must be given
by Purchaser within 4 months after the Closing Date (and must become effective
on or before the end of the fifth month after the Closing Date), (ii) in the
case of an employee who is entitled to severance based on the exercise of a
constructive termination provision, such contractual right is based solely on
the contractual provision existing on the Closing Date; and provided, further
that, with respect to any such employee, no other contractual arrangement is
entered into by the Purchaser, a Group Member or their Affiliates. Parent shall
indemnify and
37
hold Purchaser harmless, as further provided in Section IX, for any and all
liabilities relating thereto. Parent further covenants that, if any potential
obligations of Parent under this subsection "(d)" remain unsatisfied as of the
date Parent intends to make any distribution of assets to shareholders or a
liquidation trustee, Parent shall provide security sufficient to satisfy any
such remaining obligation, to Purchaser's reasonable satisfaction.
(e) Parent shall be fully responsible for any and all contractual
retention bonus arrangements with employees listed on Schedule 2.11 provided,
-------------
that such employee voluntarily or involuntarily terminates his or her employment
with Purchaser, a Group Member or their Affiliates, as applicable, within one
year after the Closing Date. Parent shall indemnify and hold Purchaser
harmless, as further provided in Section IX. for any and all liabilities
relating thereto.
8.11. Non-Competition; Nonsolicitation.
--------------------------------
(a) For a period of five years from and after the Closing Date,
neither the Parent, the Seller nor any of their respective Affiliates (other
than individuals who are officers, directors and/or controlling stockholders)
(collectively, the "Restricted Parties") shall, directly or indirectly, (i) own,
manage, operate, join, control or participate in the ownership, management,
operation or control of, or provide any financing or lease any assets to, any
entity that engages in, or that the Restricted Party knows intends to engage in,
a Competing Business, or (ii) solicit, retain as a consultant, interfere with or
attempt to entice away from the Purchaser, the Group or their respective
Affiliates, any Protected Employee, or (iii) solicit, interfere with or attempt
to entice away from the Purchaser, the Group or their respective Affiliates, any
person, firm or corporation which has been or is during the two-year period
commencing on the Closing Date a customer of the Purchaser or any Group Member.
Ownership of not more than 2% of the outstanding stock of any publicly traded
company shall not be a violation of this Section 8.11 so long as the Restricted
Parties do not participate in the management of such company.
(b) The length of time for which this covenant not to compete shall
be in force shall not include any period of violation or any other period
required for litigation during which Purchaser or any Group Member seeks to
enforce this Section 8.11. In the event that any of the covenants contained in
this Section 8.11 shall be determined by any court of competent jurisdiction to
be unenforceable by reason of its extending for too long a period of time or
over too large a geographical area or by reason of its being too extensive in
any other respect, it shall be interpreted to extend only over the longest
period of time for which it may be enforceable, and/or over the largest
geographical area as to which it may be enforceable and/or to the maximum extent
in all other respects as to which it may be enforceable, all as determined by
such court in such action.
(c) The restrictive covenants contained in this Section 8.11 are
each covenants independent of any other provision of this Agreement, and the
existence of any claim which any party may allege against any other party to
this Agreement, whether based on this Agreement or otherwise, shall not prevent
the enforcement on these covenants. The Seller and the Parent acknowledge that
the Purchaser is purchasing the Companies in reliance on the goodwill of the
38
businesses of the Group and the covenants contained in this Section 8.11 are
essential to the protection of the Purchaser's purchase of the Companies and
that the Purchaser would not purchase the Companies but for these covenants.
The Seller and the Parent agree that a breach by any of them of this Section
8.11 shall cause irreparable harm to the Purchaser and the Group -and that the
Purchaser's and the Group's remedies at law for any breach or threat of breach
of the provisions of this Section 8.11 shall be inadequate, and that the
Purchaser and the Group shall be entitled to an injunction or injunctions to
prevent breaches of this Section 8.11 and to enforce specifically the terms and
provisions hereof, in addition to any other remedy to which the Purchaser or the
Group may be entitled at law or in equity.
8.12. No Solicitation. During the period beginning on the date hereof
---------------
and ending on the earlier of the Closing Date and the date of termination of
this Agreement. the Parent and the Seller will not (and will cause their
Affiliates and representatives not to) (i) solicit, initiate or encourage the
submission of any proposal or offer from any person relating to the direct or
indirect acquisition of all or any substantial portion of the Shares or assets
of the Companies or (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other matter, any effort or any attempt by any person other
than the Purchaser to do or seek any of the foregoing.
8.13. Confidentiality. Except as required by law, after the Closing
---------------
the Parent and its Affiliates (other than individuals who are officers,
directors, or controlling stockholders) (not including the Group Members) shall
not, directly or indirectly, disclose to any person or entity or use any
information not in the public domain or generally known in the industry, in any
form, whether acquired prior to or after the Closing Date, relating to the
business and operations of the Companies or the Subsidiaries, including but not
limited to information regarding customers, vendors, suppliers, trade secrets,
training programs, manuals or materials, technical information, contracts,
systems, procedures, mailing lists, know-how, trade names, financial or other
data (including the revenues, costs or profits associated with any of the
Companies' products or services), business plans, code books, invoices and other
financial statements, computer programs, software systems, databases, industry
lists, correspondence, internal reports, personnel files, sales and advertising
material, telephone numbers, names, addresses or other compilations of
information, written or unwritten, which is or was used in the business of the
Companies or any of the Subsidiaries.
8.14. Acquisition of Rights to Confidentiality. At the Closing, the
----------------------------------------
Parent shall assign, grant and convey to the Purchaser all its rights under
confidentiality agreements between it and persons other than the Purchaser that
were entered into in connection with or relating to a possible sale of the
Shares or any part thereof (collectively, "Other Confidentiality Letters"),
including the right to enforce all terms of the Other Confidentiality Letters.
Promptly after the date hereof, Parent shall request the return of all
confidential information provided to other persons pursuant to the Other
Confidentiality Letters. At the Closing, the Parent shall deliver to the
Purchaser copies of the Other Confidentiality Letters to the extent permitted by
the terms thereof; provided that, if any Other Confidentiality Letter shall not
be assignable, the Parent shall disclose to the Purchaser the parties to such
Other Confidentiality Letter.
39
8.15. Accounts Receivable. The Parent represents and warrants that,
-------------------
with respect to accounts receivable reflected on the Closing Balance Sheet which
are one year or more old on the date of the Closing Balance Sheet, the Purchaser
shall collect all such accounts receivable, less reserves against such accounts
receivable reflected on the Closing Balance Sheet and less any such accounts for
which the payor is involved in litigation, (i.e.. accounts which represent
amounts due from patients who have notified Parent, Seller or a Group Member of
their inability to pay such accounts pending resolution of litigation brought by
such patient to collect damages or insurance proceeds), on or before one year
after the Closing Date. During such period, the Purchaser will cause the Group
Members to follow substantially the same accounts receivable collection
practices as were used by the Group Members prior to Closing. The Parent shall
pay to Purchaser any such shortfall within thirty days of the final
determination thereof; provided, that Purchaser shall be entitled to review the
work papers upon which any such determination is based. Purchaser shall provide
to Parent, within thirty days after the completion of each three-month period
after the Closing Date, a report regarding the collection of such accounts
receivable during such quarter.
8.16. NCES Subscriber Agreement. (a) Effective as of the Closing
-------------------------
Date, Purchaser agrees to enter into a subscriber services agreement (the
"Purchaser NCES Agreement") with NovaCare Employee Services, Inc. ("NCES") on
substantially the same terms as the Subscriber Services Agreement (the "Parent
NCES Agreement") dated as of July 1, 1999 between Parent and NCES, except that
the Purchaser NCES Agreement shall provide that (i) Purchaser may, at its
option, terminate the Purchaser NCES Agreement at any time on or after 18 months
after the Closing Date by giving NCES at least 30 days prior written notice of
such termination and (ii) Purchaser shall not be obligated for any Minimum Fee
Guarantee except the Minimum Fee Guarantee for the period covered by the term of
the Purchaser NCES Agreement. Parent shall use its best efforts to cause NCES
to enter into the Purchaser NCES Agreement with Purchaser effective at or before
Closing.
(b) In the event that despite the parties best efforts, NCES does
not enter into the Purchaser NCES Agreement at or before Closing, at the
Closing, Parent shall assign to Purchaser and, subject to subsection "(d)"
herein, Purchaser shall assume from Parent, the Parent's rights and obligations
under the Parent NCES Agreement; provided that in the event Purchaser breaches
the Parent NCES Agreement by delivering a termination notice to NCES as of any
date on or after the 18 months after the Closing Date or by failing or refusing
to perform its obligations under the Parent NCES Agreement accruing on or after
such date, Parent and Seller shall, without regard to any limitations or
conditions on indemnification contained in Section IX, jointly and severally
indemnify and hold harmless the Purchaser Indemnified Parties from and against
all Damages arising out of such termination and breach of the Parent NCES
Agreement (it being understood that Purchaser shall remain obligated to NCES
with respect to any and all obligations and damages relating to the period from
the Closing Date through the date of such termination); the intention of the
parties being that Purchaser shall be responsible to NCES as if it had entered
into the Purchaser NCES Agreement, and Parent shall be responsible for all other
obligations to NCES.
40
(c) In the event that following the Closing, Purchaser and NCES
enter into the Purchaser NCES Agreement, the assignment and assumption of the
Parent NCES Agreement provided for in Section 8.16(b) shall be null and void and
of no further force or effect.
(d) Purchaser's obligations under 3.16b) to assume the Parent NCES
Agreement shall be conditioned on Parent having complied with its obligations
under Section 5.12 of the Merger Agreement dated as of September 3, 1999 between
NCES and Parent regarding the provision of a guarantee by Parent of the Minimum
Fee Guarantee to be received by NCES under the Parent NCES Agreement and the
posting of sufficient security to secure such guarantee, to Purchaser's
reasonable satisfaction.
8.17. NCES Office Support Services Agreement. At the Closing, Parent
--------------------------------------
shall assign to Purchaser and Purchaser shall assume from Parent, the rights and
obligations of the Support Services Agreement (the "NCES Office Support
Agreement"), executed August 16, 1999, between NovaCare, Inc. and NovaCare
Employee Services, Inc.
8.18. Transition Services Agreement. Parent and the Purchaser shall
-----------------------------
exercise good faith efforts to negotiate and enter into a transition agreement
(the "Transition Agreement") with respect to the transitional provision of
office space and related services to Parent.
8.19. Transition Obligations. Following the execution of the Agreement
----------------------
and up through and at the Closing, the parties shall take such steps as are
reasonable and appropriate to cause Purchaser to assume responsibility for (or
reimburse Parent for, as applicable) the following transitional obligations of
the Parent: (i) lease costs for 44,000 square feet of space occupied by the
Group Members at the corporate headquarters in King of Prussia, Pennsylvania for
which the Parent is the sublandlord, on substantially the same terms as is
currently reflected in Parent's lease agreement for such space, and (ii)
obligations under the Microsoft license agreement in an amount equal to
$997,189, and (iii) such other obligations set forth in Schedule 2.10 under the
heading "(b) MIS", provided that the Group Members obtain the benefits of the
equipment or services covered thereby. In addition, Purchaser hereby covenants
to negotiate in good faith and to use its best efforts to enter into a contract
with AT&T for the business of the Group Members for a period up through December
31, 2001.
8.20. Representations regarding Working Capital, Long-Term Liabilities
----------------------------------------------------------------
and Tax Basis
-------------
(a) Parent represents and warrants to Purchaser that (i) the
Consolidated Net Working Capital (as defined herein) as of the Closing Date, as
determined in accordance herewith, will be at least $85.8 million; (ii) the
Long-Term Liability Amount (as defined herein) will be zero, and (iii) the Tax
Liability Amount (as defined herein) will be zero.
(b) The Purchaser shall prepare and deliver to the Parent within one
hundred twenty (120) days after the Closing a consolidated balance sheet of the
Companies and its Subsidiaries as of Closing (the "Closing Balance Sheet")
prepared in accordance with GAAP, applied on a basis consistent with the
preparation of the audited Financial Statements, and
41
audited by PricewaterhouseCoopers. The Purchaser shall determine the
Consolidated Net Working Capital and the Long-Term Liability Amount using the
information reflected on the Closing Balance Sheet. For illustrative purposes,
the calculation of the Consolidated Net Working Capital as of June 30, 1999 is
reflected on Schedule 8.20(b'-l. The Purchaser shall prepare and deliver to
------------------
Parent within one hundred twenty (120) days after the Closing a statement of the
Tax Liability Amount. The Closing Balance Sheet, Purchaser's determination of
Consolidated Net Working Capital, the Purchaser's determination of the Long-Term
Liability Amount and the Purchaser's determination of the Tax Liability Amount
shall be subject to review by the Parent within thirty (30) days of the date of
delivery of such information to the Parent, during which period the Parent shall
have access to the workpapers and such other documents and information relating
to the preparation of the Closing Balance Sheet, the determination of the
Consolidated Net Working Capital, the determination of the Long-Term Liability
Amount and the determination of the Tax Liability Amount as it shall request.
Parent may dispute any amounts on the Closing Balance Sheet, the Consolidated
Net Working Capital, the Long-Term Liability Amount and the Tax Liability Amount
but only on the basis that (i) the amounts in dispute were not presented in
accordance with GAAP applied on a basis consistent with the preparation of the
audited Financial Statements, (ii) the computations were in error, or (iii) in
the case of the Tax Liability Amount, the amounts in dispute were not in
accordance with the tax records of the Companies, provided that Parent notifies
Purchaser in writing within thirty (30) days of the disputed amount, specifying
the amount and basis thereof. Any such dispute which cannot be resolved after
good faith negotiations within thirty (30) days from the date Purchaser is so
notified shall at the request of either Purchaser or Parent be referred to a
nationally recognized firm of certified public accountants (the "Independent
Accountants") who has not previously rendered services to Purchaser or Parent or
an affiliate thereof chosen jointly by Parent and Purchaser (or if Parent and
Purchaser are unable to agree, by their certified public accountants), whose
determination on such matters shall be final and binding on the parties and
whose fees and expenses shall be shared equally by the parties. The Independent
Accountants shall resolve disputed items solely on the basis of whether amounts
in dispute were determined in accordance with this Agreement. For purposes of
this Agreement, the final Consolidated Net Working Capital and the Long-Term
Liability shall be as reflected on the Closing Balance Sheet as modified by
resolution of the Parent and Purchaser or by the aforesaid independent
accounting firm, or if the Parent fails to notify Purchaser in writing of any
disputed items within the prescribed thirty (30) day period, the Closing Balance
Sheet as previously delivered by Purchaser.
(c) As used herein, the "Consolidated Net Working Capital" of the
Companies and their Subsidiaries shall mean the excess of the "current assets"
of the Companies and their Subsidiaries (excluding deferred income taxes) over
the "current liabilities" (excluding the current portion of Seller Notes and
other third-party indebtedness, deferred income taxes, accrued contingent
earnouts, accrued interest and intercompany accounts payable and accrued
liabilities, except insurance reserves and payroll and related benefit costs) on
a consolidated basis, in each case as such assets and liabilities are properly
accrued and reflected on the books and records of the Companies and their
Subsidiaries in accordance with GAAP applied on a basis consistent with the
preparation of the audited Financial Statements. For avoidance of doubt
42
such insurance reserves shall be reflected as a liability on the Closing Balance
Sheet. As used herein, the 'Tax Basis" shall mean the aggregate Tax basis of the
assets owned by the Group Members (exclusive of Tax basis in the stock of other
Group Members). As used herein the "Tax Liability Amount" shall mean 35% of the
aggregate amount by which the Tax Basis is less than $240 million. As used
herein, the "Long-Term Liability Amount" shall mean the amount, if any, by which
the long-term liabilities (other than the long-term portion of Seller notes and
other third-party indebtedness and deferred taxes) reflected on the Closing
Balance Sheet are greater than the long-term liabilities (other than the long-
term portion of Seller notes and other third-party indebtedness and deferred
taxes) as reflected on the Balance Sheet.
(d) For purposes of this Agreement, the final Tax Liability Amount
shall be based on the Tax Liability Amount reported by Purchaser or if disputed
by Parent within such thirty (30) day period, the amount as modified by
resolution of the Parent and Purchaser or by the aforesaid Independent
Accountants. If the Consolidated Net Working Capital is so determined to be less
than $85.8 million resulting in a breach of the representation set forth in
8.20(a)(i), the amount of the shortfall shall be paid by Parent to Purchaser as
complete damages in respect of such breach. If the Long-Term Liability Amount is
so determined to be greater than zero resulting in a breach of the
representation set forth in 8.20(a)(ii), the amount of such excess shall be paid
by the Parent to the Purchaser as complete damages in respect of such breach. If
the Tax Liability Amount is so determined to be greater than zero resulting in a
breach of the representation set forth in 8.20(a)(iii), the amount of the Tax
Liability Amount, multiplied by fifty-nine percent (59%) (present value discount
factor), shall be paid by the Parent to the Purchaser as complete damages in
respect of such breach. Any amount due pursuant to this Section 8.20(d) shall be
paid by Parent to Purchaser within fifteen (15) days after (i) as to any
undisputed portion, the determination of such undisputed portion of such amount,
(ii) as to any disputed portion, the final determination of such matter in
accordance with the procedures outlined herein.
8.21. Contribution of Assets. The Parent has previously transferred
----------------------
as a contribution to the capital of the Company, all assets of the
Parent used in the business of the Group.
8.22. Notice of Distributions. Parent will provide Purchaser with
-----------------------
thirty (30) days prior written notice before it makes any distributions to its
shareholders or a liquidating trust.
8.23. Updated Financial Information. Parent shall deliver to
-----------------------------
Purchaser unaudited results of operations and balance sheets for the Group
Members for the monthly periods prior to the Closing Date, to the extent
prepared by the Group Members in the ordinary course of business.
8.24. Furniture, Fixtures. The assets owned by the Companies
-------------------
include the furniture, fixtures, equipment and cubicles associated solely with
the operation of the Physical Rehabilitation Occupational Health Division of the
Parent.
43
SECTION IX
----------
INDEMNIFICATION
---------------
9.01. Indemnification by the Parent and the Seller. After the
--------------------------------------------
Closing Date, the Parent and the Seller, jointly and severally, shall indemnify
and hold harmless the Purchaser (and its employees, officers, partners,
directors, shareholders, agents and representatives) and the Group Members
(collectively, the "Purchaser Indemnified Parties") from and against all Damages
(unless otherwise specifically limited herein) which are sustained or incurred
by any of the Purchaser Indemnified Parties, to the extent that the Damages are
sustained or incurred by reason of (a) the breach by the Parent or the Seller of
any of its covenants or agreements hereunder, (b) the breach of any of the
representations or warranties made by the Parent and the Seller in this
Agreement or any certificate delivered pursuant to this Agreement (other than
the Medicare Representations, which are addressed in subclause "(g)" herein),
(C) any liability in
connection with any outstanding claim covered by liability insurance with P.I.E.
Mutual, (d) any liability in connection with the litigation that the Parent is
currently engaged in with the Pennsylvania Insurance Guarantee Association, (e)
any liability or obligation for which Parent has assumed responsibility pursuant
to Section 8.10 herein, (f) any liability for claims of a nature typically
covered under professional liability or other liability insurance policies, (g)
seventy-five percent (75%) of all Damages arising from the breach of any
Medicare Representation (including any claims listed on Schedule 2.15 for
-------------
recoupment under Medicare reimbursement law or regulation), (h) seventy-five
percent (75%) of all Damages arising from any liability or claim, whether or not
included on Schedule 2.15, known or unknown, arising out of acts or omissions
occurring prior to the Closing Date with respect to any acquisition agreement
for the purchase and sale of clinics within the business of the Group Members,
(i) any liabilities, of any nature, of NovaMark, Inc, not otherwise created or
incurred by Purchaser or by NovaMark, Inc. after the Closing Date, (j) any
liabilities for work place injuries or workers' compensation claims, that occur
prior to the Closing Date, and (k) any liabilities arising from any claim
included on Schedule 2.15 which are not otherwise liabilities against which
-------------
Group Members have indemnified Purchaser, in whole or in part pursuant to 9.02.
9.02. Indemnification by the Group Members. After the Closing
------------------------------------
Date, the Group Members shall indemnify and hold harmless the Parent, the Seller
and their respective employees, officers, partners, directors, shareholders,
agents and representatives (collectively, the "Seller Indemnified Parties") from
and against all Damages (unless otherwise specifically limited herein) which are
sustained or incurred by any of the Seller Indemnified Parties, to the extent
that such Damages are sustained or incurred by reason of (a) the breach by the
Purchaser of any of its covenants or agreements hereunder, (b) the breach of any
of the representations or warranties made by the Purchaser in Section III
hereof, (c) any liability of the Parent or any of its Affiliates (other than any
Group Member) arising out of those certain agreements (the "Parent Agreements")
described on Schedule 9.02 to which the Parent or any of its Affiliates (other
-------------
than any Group Member) is a party, to the extent the same relate to the business
of any Company (or any other Group Member; provided that the same do not
constitute a breach of any of the
44
Parent's or the Seller's representations or warranties herein and are not
otherwise liabilities against which Parent has indemnified Purchaser, (d) except
as otherwise provided in Section 8.10, severance and other contractual and other
obligations to any of the individuals listed on Schedule 2.11 as of the
-------------
Effective Time and thereafter; provided that the same do not constitute a breach
of any of the Parent's or the Seller's representations or warranties herein and
are not otherwise liabilities against which Parent has indemnified Purchaser,
(e) twenty-five percent (25%) of all Damages arising from the breach by Parent
and Seller of any Medicare Representation (including any claims listed on
Schedule 2.15 for recoupment or overpayment under Medicare reimbursement law or
-------------
regulation), (h) twenty-five percent (25%) of all Damages arising from any
liability or claim, whether or not included on Schedule 2.15, known or unknown,
-------------
arising from acts or omissions occurring prior to the Closing Date with respect
to any acquisition agreement for the purchase and sale of clinics within the
business of the Group Members, and (i) all Damages arising from any acts or
omissions occurring after the Closing Date with respect to any acquisition
agreement for the purchase and sale of clinics within the business of the Group
Members: provided that the same do not constitute a breach to any of the
Parent's or the Seller's representations or warranties herein and are not
otherwise liabilities against which Parent has indemnified Purchaser.
9.03. Procedure for Indemnification. (a) Except as provided in
-----------------------------
clause (d) of this Section 9.03, in the event that any party hereto or other
Purchaser Indemnified Party or Seller Indemnified Party reasonably believes that
such party has a claim for Damages in respect of which indemnity may be sought
by such party pursuant this Agreement (each, an "Indemnification Matter"), the
party indemnified hereunder (the "Indemnitee") shall notify the party(s)
providing indemnification (collectively, the "Indemnitor") by sending written
notice to the Indemnitor (an "Indemnity Notice"). In the case of third party
claims, which, if successful, could result in an indemnity payment hereunder, an
Indemnity Notice shall be given within 30 days after the discovery by the
Indemnitee of the filing or assertion of any claim against the Indemnitee
stating the nature and basis of such claim; provided, however, that any delay or
failure to notify any Indemnitor of any claim shall not relieve it from any
liability except to the extent that the Indemnitor demonstrates that the defense
of such action is prejudiced by such delay or failure to notify. Any Indemnity
Notice (i) shall state (with reasonable specificity) the basis on which
indemnification is being asserted, (ii) shall set forth the amount of Damages
for which indemnification is being asserted and (iii) in the case of third party
claims, shall be accompanied by copies of all relevant pleadings, demands and
other papers served on the Indemnitee.
(b) The indemnitor shall have the right, exercisable by written
notice to the Indemnitee within 30 days of receipt of notice from the Indemnitee
of the commencement or assertion of any third party claim in respect of which
indemnity may be sought hereunder (the "Indemnity Notice Claim"), to assume and
conduct the defenses of such third party claim with counsel selected by the
Indemnitor and reasonably acceptable to the Indemnitee; provided that (i) the
defense of such third party claim by the Indemnitor will not, in the judgment
for the Indemnitee, have a material adverse effect of the Indemnitee; and (ii)
the Indemnitor has sufficient financial resources (including amounts held in
escrow pursuant to the Escrow
45
Agreement), in the reasonable judgment of the Indemnitee, to satisfy the amount
of any adverse monetary judgement that is reasonably likely to result: and (iii)
the third parry claim solely seeks (and continues to seek) monetary damages: and
(iv) the Indemnitor expressly agrees :n writing that as between the Indemnitor
and the Indemnitee, the Indemnitor shall be solely obligated to satisfy and
discharge the third parry claim (the conditions set forth in clauses i through
iv) collectively referred to as the "Litigation Conditions"). If the Indemnitor
does nor assume the defense of such third parry claim in accordance with this
Section 9.03, the Indemnitee may continue to defend the third party claim. If
the Indemnitor has assumed the defense of' a third party claim as provided in
this Section 9.03. the Indemnitor will not be liable for any legal expenses
subsequently incurred by the Indemnitee in connection with the defense thereof
provided, however, that if(i) the Litigation Conditions cease to be met, or (ii)
the Indemnitor fails to take reasonable steps necessary to defend diligently
such third party claim, the Indemnitee may assume its own defense, and the
Indemnitor will be liable for all reasonable costs or expenses paid or incurred
in connection therewith. The Indemnitor or the Indemnitee, as the case may be,
shall have the right to participate in (but to control) at its Own expense, the
defense of any third party claim which the other is defending as provided in
this Agreement. The Indemnitor, if it shall have assumed the defense of any
third party claim as provided in this Agreement, shall not, without the prior
written consent of the Indemnitee, consent to a settlement of, or the entry of
any judgment arising from, any such third party claim (i) which does not include
as a unconditional term thereof the giving by the claimant or the plaintiff to
the Indemnitee a complete release from all liability in respect of such third
party claim, or (ii) which grants any injunctive or equitable relief, or (iii)
which may reasonably be expected to have a material adverse effect on the
affected business of the Indemnitee. The Indemnitee shall have the right to
settle any third party claim, the defense of which has not been assumed by the
Indemnitor, with the written consent of the Indemnitor, which consent shall not
be unreasonably withheld or delayed. Within 30 days after the Determination Date
with respect to a third parry claim, the Indemnitor shall pay the Indemnitee the
amount of Damages sustained or incurred by the Indemnitee, Interest will accrue
on unpaid Damages at the prime rate plus two percent (2%) per annum.
(c) In the event that liability hereunder does not involve a third
party claim, the Indemnitor shall within 30 days after the date of receipt of an
Indemnity Notice respond in writing to the Indemnitee (the "Indemnity Response")
and set forth with reasonable specificity those items in the Indemnity Notice to
which the Indemnitor does not agree as well as the summary basis upon which such
disagreement is founded. Within 30 days following the receipt of the Indemnity
Response by the Indemnitee, representatives of the Indemnitor and the Indemnitee
shall meet to attempt to resolve through good faith negotiations the applicable
Indemnification Matters. The parties shall negotiate in good faith for up to 60
days in an attempt to reach a settlement of any disputed matter. In the event
that such good faith negotiations are unsuccessful or in the event of any other
dispute under this Section IX, the parties shall proceed in accordance with
Section 11.07 of this Agreement.
(d) (i) If a claim shall be made by any taxing authority, which, if
successful, might result in an indemnity payment to any Purchaser Indemnified
Party, the Purchaser shall
46
promptly notify the Parent in writing (a "Tax Notice") of such claim a "Tax
Claim"). If a Tax Notice is not given to the Parent within a reasonable period
of time, or unreasonable detail to apprise the Parent of the nature of the Tax
Claim, in each case taking into account the facts and circumstances with respect
to such Tax Claim, neither the Parent nor the Seller shall be liable to any
Purchaser Indemnified Party to the extent that the Parent's or the Seller's
position is prejudiced as a result thereof.
(ii) With respect to any Tax Claim, the Parent and the Seller shall
have the right to control and conduct all proceedings and negotiations in
connection with such Tax Claim (including, without limitation, selection of
counsel) and, without limiting the foregoing, may in the Parent's sole
discretion pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with any taxing authority with
respect thereto, and may, in the Parent's sole discretion, either pay the
Tax claimed and ▇▇▇ for a refund where applicable law permits such refund
suits or contest the Tax Claim ~n any permissible manner. The Parent
shall, within 30 days of receipt or' a Tax Notice with respect to a Tax
Claim (the "Tax Notice Period"), notify the Purchaser in writing of its
intention to control and conduct the proceedings and negotiations in
connection with such Tax Claim. In the event that the Parent does notify
the Purchaser of its intention to control and conduct the proceedings and
negotiations in connection with any Tax Claim as provided above, the
Purchaser shall have the right to participate fully in such proceedings and
negotiations (including, without limitation, with counsel of its choice),
at its sole expense, and the Parent and the Seller shall cooperate fully
with the Purchaser in connection with such participation. If the Parent
does not deliver to the Purchaser within the Tax Notice Period written
notice that it will control and conduct the proceedings and negotiations in
connection with a Tax Claim, the Purchaser may control, or cause the
applicable Group Member to control, and conduct such proceedings and
negotiations in such manner as it may deem appropriate. In the event that
the Parent or the Seller do not exercise their right to control and conduct
the proceedings and negotiations in connection with any Tax Claim as
provided above, the Parent and the Seller shall have the right to
participate fully in such proceedings and negotiations (including, without
limitation, with counsel of their choice), at their sole expense, and the
Purchaser shall, and shall cause each Group Member to, cooperate fully with
Parent and the Seller and their accountants and other representatives in
connection with such participation, and in all cases the Purchaser shall
keep the Parent fully informed as to all matters concerning such Tax Claim
and shall promptly notify the Parent in writing of any and all significant
developments relating thereto. Without limiting Sections 8.04 and 8.06,
the Purchaser and each of its Affiliates shall (and the Purchaser shall
cause the Group Members to) cooperate fully with the Parent and the Seller
in contesting any Tax Claim, which cooperation shall include, without
limitation, the retention and (upon the Parent's request) the provision to
the Parent of records and information which are relevant to such Tax Claim,
and making officers and employees available on a timely and mutually
convenient basis to provide additional information or explanation of any
material provided hereunder or to testify at proceedings relating to such
Tax Claim.
47
(iii) Notwithstanding anything to the contrary contained herein, in
no event shall the Purchaser or any Group Member settle or otherwise
compromise any Tax Claim without the Parent's prior written consent which
may not be withheld for any reason.
9.04. Limits on the Liability of the Parent and Seller. Subject
------------------------------------------------
to the terms of Sections 4.05, 9.07 and 9.08 hereof, the aggregate liability of
the Parent and the Seller for Damages and the obligation to make other payments
to Purchaser pursuant to this Agreement shall be, limited to an aggregate amount
(the "Seller's Liability Amount") equal to Twenty Five Million Dollars
(S25.000.000) and, subject to Section 9.08 hereof, the Purchaser, on behalf of
itself, its Affiliates and all Purchaser Indemnified Parties, agrees not to seek
any Damages or other payments in excess of the Seller's Liability Amount or from
sources other than the funds held in escrow pursuant to the Escrow Agreement.
9.05. Other Limits on Indemnification.
-------------------------------
(a) Subject to Section 9.08, but notwithstanding anything else in
this Section ix or Section X to the contrary and subject to the final sentence
of this Section 9.05(a), no Purchaser Indemnified Party shall be entitled to
indemnification pursuant to Section 9.01 hereof unless and until the aggregate
amount of all Damages to which the indemnity set forth in Section 9.01 relates,
sustained or incurred by all Purchaser Indemnified Parties exceeds an aggregate
amount (the "Basket Amount") equal to $500,000; provided that the Basket Amount
shall be increased, dollar for dollar, by the amount by which the Consolidated
Net Working Capital as of the Closing Date (as determined pursuant to Section
8.20) exceeds $85.8 million. Subject to Section 9.04 and Section 9.08, if such
Damages exceed the Basket Amount, then the Seller's liability for
indemnification under Section 9.01 shall be limited to the amount of such
Damages sustained or incurred which exceeds the Basket Amount.
(b) The representations and warranties contained in or made
pursuant to this Agreement shall expire eighteen months from the Closing Date,
provided that the representations and warranties contained in Sections 2.07,
2.21, 2.24, 8.15 and 8.20 shall survive for the applicable statute of
limitations, and the Medicare Representations shall expire twenty-four months
from the Closing Date; provided further that if written notice is properly given
under this Section IX with respect to any alleged breach of a representation or
warranty to which such party is entitled to be indemnified hereunder prior to
the applicable expiration date, such representation or warranty with respect to
such specified matter only shall continue indefinitely until the applicable
claim is finally resolved.
9.06. Losses Net. The amount of any Damages for which
----------
indemnification is provided under this Section IX or Section X shall be net of
Tax benefits actually received by the Indemnitee, and net of any amounts
actually recovered by the Indemnitee under insurance policies with respect to
such Damages.
9.07. Sole and Exclusive Remedy. After the Closing Date, each
-------------------------
party hereto acknowledges and agrees that such party's sole and exclusive remedy
with respect to monetary Damages and any and all other monetary claims or
payment obligations relating to the subject
48
matter of this Agreement and the transactions contemplated hereby (other than
for fraud and other than disputes arising under the second sentence of Section
8.06(b) hereof which disputes shall be resolved as set forth in such Section)
shall be in accordance with, and limited by, the indemnification provisions set
forth in this Agreement; provided, however, that nothing contained in this
Agreement shall in any manner limit the Purchaser's right to seek injunctive and
other equitable relief to enforce the obligations of the Seller and the Parent
under this Agreement."
9.08. Limitation on indemnification. Notwithstanding anything to
-----------------------------
the contrary in this Agreement, (i) there shall be no limitations on the
liability (or the sources of recovery of the Seller and the Parent under either
Section 9.04 or Section 9.05 for Damages of the Purchaser which relate to the
representations, warranties and indemnifications set forth in Sections 2.01
("Organization") (in so far as it relates to the due incorporation or
organization of the Group Members and the existence of subsidiaries), 2.03
("Capitalization"), 2.09 ("Title to Assets"), 2.20 ("Authority"), 2.21
("Ownership of Shares"), 8.02(e) ("Employee Matters"), 8.06 ("TAX Matters"),
8.16 ("NCES Agreement"), 8.20(a)(ii) ("Long-Term Liability Amount"), 8.20(iii')
("Tax Liability ▇▇▇▇▇▇"), ▇.▇▇(▇), (▇), (▇), (▇), (▇), (▇) and (k), or for
fraud, and ii the limitations f Section 9.05 shall not apply to claims of
Purchaser based on a breach of the representations and agreements of Parent as
set forth in Sections 8.15 ("Accounts Receivable") and 8.20(i) ("Consolidated
Net Working Capital").
9.09. Limitation on Materiality. For purposes of the
-------------------------
indemnification provided in this Section IX, in determining whether the
representations and warranties of the Parent or the Seller have been breached or
are inaccurate or the amount of any Damages, no effect will be given to any
materiality (including Material Adverse Effect) qualifications set forth in such
representations and warranties.
SECTION X
---------
BROKERS AND FINDERS
-------------------
10.01. The Parent's and the Seller's Obligations. Neither the
-----------------------------------------
Purchaser nor any Group Member shall have any obligation to pay any financial
advisory, finder's fee or other compensation to any person, firm or corporation
claiming by, through or under the Parent, the Seller or any Group Member in
connection with the sale of the Shares contemplated by this Agreement and the
transactions contemplated herein, and the Parent and the Seller, jointly and
severally, hereby agree to defend, indemnify and hold the Purchaser and each
Group Member harmless from any Damages sustained or incurred by the Purchaser or
such Group Member by reason of any such claim for any such fee or other
compensation. It is understood and agreed that the Parent shall be solely
responsible for the fees and the expenses of ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co., Inc.
and Warburg Dillon Read LLC ("Warburg") in connection with this Agreement and
the transactions contemplated hereby.
10.02. The Purchaser's Obligations. Neither the Parent nor the
---------------------------
Seller shall have any obligation to pay any financial advisory, finder's fee or
other compensation to any person,
49
firm or corporation claiming by, through or under the Purchaser (or any
Affiliate thereof) in connection with this Agreement and the transactions
contemplated herein, and the Purchaser hereby agrees to defend, indemnify and
hold the Parent and the Seller harmless from any Damages sustained or incurred
by the Seller by reason of any such claim for any such fee or other
compensation.
SECTION XI
----------
MISCELLANEOUS
-------------
11.01. Notices. All notices, requests or instructions hereunder
-------
shall be in writing and delivered personally or sent by telecopy or registered
or certified mail, postage prepaid. return receipt requested, or by FedEx or
other recognized overnight courier as follows:
(a) if to the Seller or the Parent:
NovaCare, Inc.
oral, of the parties, and, except as otherwise provided in Sections 6.03 and
8.05 hereof, no modification hereof shall be effective unless in writing and
signed by the party against which it is sought to be enforced.
11.02. Assignment. This Agreement shall not be assignable by any
----------
of the parties hereto except pursuant to a writing executed by all of the
parties hereto except that the Purchaser may without the Seller's or the
Parent's consent assign its right hereunder to a wholly owned subsidiary of the
Purchaser, but no such assignment shall relieve the Purchaser of its obligations
hereunder.
11.03. Further Action. Each of the parties hereto shall use such
--------------
party's best efforts to take such actions as may be necessary or reasonably
requested by the other parties hereto to carry out and consummate the
transactions contemplated by this Agreement.
11.04. Binding Effect. This Agreement shall be binding upon and
--------------
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
11.05. Expenses. Each of the parties hereto shall bear such
--------
party's own expenses in connection with this Agreement and the transactions
contemplated hereby whether or not the Closing occurs. The Sellers shall pay
each Group Member's expenses in connection with this Agreement and the
transactions contemplated hereby whether or not the Closing occurs. In the
event that there are any direct or indirect real property transfer, personal
property transfer or other similar transfer Taxes payable in connection with the
transactions contemplated hereby, such Taxes shall be paid one-half by the
Purchaser and one-half by the Seller. The Seller and the Purchaser shall share
equally the cost of the filing fee required by the HSR Act.
50
11.06. Arbitration. Subject to Sections 8.06(b) and 9.03(c)
-----------
hereof, the parties agree that they shall submit any dispute arising out of or
relating to this Agreement. or any breach hereof, to arbitration in accordance
with the rules of the American Arbitration Association then in effect, The
parties further agree that judgment upon an award rendered by the arbitrator may
be entered in any court having jurisdiction thereof, The arbitration shall be
held in Philadelphia, Pennsylvania.
11.07. Schedules and Exhibits. All Schedules and Exhibits to this
----------------------
Agreement are integral parts of this Agreement. Any item disclosed hereunder on
any Schedule hereto shall be deemed disclosed for purposes of the other
Schedules hereof provided that the relevance of the disclosed item to the other
Schedules is reasonably clear. Without limiting the generality of the
foregoing, the fact that any disclosure on any of the Schedules is not required
to be disclosed in order to render the applicable representation or warranty to
which it relates true, or that the absence of such disclosure on the Schedule
would not constitute a breach of such representation or warranty, shall not be
deemed or construed to expand the scope of any representation or warranty
hereunder or to establish a standard of disclosure in respect of any
representation or warranty. The right to indemnification, payment of Damages or
other remedy based on the Seller's and the Parent's representations, warranties,
covenants, and obligations will not be affected by any investigation conducted
with respect to, or any Knowledge of the Purchaser acquired (or capable of being
acquired) at any time, whether before or after the execution and delivery of
this Agreement or the Closing Date, with respect to the accuracy or inaccuracy
of or compliance with, any such representation, warranty, covenant, or
obligation.
11.08. Invalidity. Etc., Should any provision of this Agreement be
-----------------
held by a court or arbitration panel of competent jurisdiction to be enforceable
only if modified, such holding shall not affect the validity of the remainder of
this Agreement, the balance of which shall continue to be binding upon the
parties hereto with any such modification to become a part hereof and treated as
though originally set forth in this Agreement. The parties further agree that
any such court or arbitration panel is expressly authorized to modify any such
unenforceable provision of this Agreement in lieu of severing such unenforceable
provision from this Agreement in its entirety, whether by rewriting the
offending provision, deleting any or all of the offending provision, adding
additional language to this Agreement, or by making such other modifications as
it deems warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law. The parties expressly
agree that this Agreement as so modified by a court or arbitration panel shall
be binding upon and enforceable against each of them. In any event, should one
or more of the provisions of this Agreement be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions hereof, and if such provision or
provisions are not modified as provided above, this Agreement shall be construed
as if such invalid, illegal or unenforceable provisions had never been set forth
herein.
11.09. Headings. The headings of this Agreement are for
--------
convenience of reference only and are not part of the substance of this
Agreement.
51
11.10. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the Commonwealth of Pennsylvania
without giving effect to the conflicts of laws provisions and principles thereof
that would apply the laws of any other jurisdiction.
11.11. Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
11.12. Construction. The parties hereto agree that this Agreements
------------
the product of negotiations among sophisticated parties, each of whom was
represented by counsel, arid each of whom had an opportunity to participate in,
and did participate in, the drafting of each provision hereof. Accordingly,
ambiguities in this Agreement, if any, shall not be construed strictly or in
favor of or against any party hereto but rather shall be given a fair and
reasonable construction without regard to the rule of contra proferentem.
------------------
11.13. Assignment of Parent Agreements. The Parent hereby assigns
-------------------------------
to the relevant Company, and such Company hereby accepts and assumes, all the
Parent's rights and obligations pursuant to any Parent Agreement set forth on
Schedule 9.02 applicable to such Company. To the extent that any Parent
-------------
Agreement for rights and obligations thereunder to be assigned to any Company
hereunder requires the consent to such assignment by an third party thereto, the
Parent shall cooperate fully with such Company in attempting to procure any such
consent and in any reasonable arrangement designed to provide such Company with
the benefits under any such Parent Agreement. The failure of any Company or the
Parent to obtain any such consent shall in no way relieve such Company from its
obligation to assume such Parent Agreement (or applicable tights and obligations
thereunder) and such Company shall fully and faithfully perform, observe and
fulfill all the unfulfilled applicable obligations of the Parent under such
Parent Agreement. From and after the Closing Date, the Purchaser shall use its
best efforts to obtain promptly and deliver to the Parent, written releases in
favor of the Parent with respect to any such obligations and liabilities under
all Parent Agreements.
SECTION XII
-----------
DEFINITIONS
-----------
12.01. Certain Definitions. The following terms when used herein
-------------------
shall have the meanings assigned to them below (certain other terms are defined
elsewhere herein):
"Actions" shall have the meaning set forth in Section 2.15 hereof.
"Affiliate" means a person or entity who directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, another person.
52
"Applicable Law" shall mean the collective reference to any law, rule,
regulation, ordinance, writ, judgment, injunction, decree, determination, award
or other order of any Governmental Authority, in each case excluding any and all
Environmental Laws.
"Beneficiary" shall mean the person(s) or entity(ies) designated by an
Employee or Former Employee, by operation of law or otherwise, as the party
entitled to compensation, benefits, damages, insurance coverage, payments,
indemnification or any other goods or services as a result of any liability or
claim under any applicable welfare or benefit plan or program.
"Benefit Plan" shall have the meaning set forth in Section 2.12
hereof.
"Best Efforts" or "best efforts" shall mean diligently, promptly and
in good faith taking all actions which are reasonable, necessary and appropriate
to accomplish the objective requiring the use of best efforts, but shall not
include any obligation (a) to make any payment, incur any costs, commit
available resources, or forego the receipt of any payment, which in any case is
material in amount in light of the required objective, (b) to initiate any
lawsuit or other" proceeding to achieve the required objective, or (C) to take
any action which is unlawful.
"Closing" and "Closing Date" shall have the meanings set forth in
Section 4.01 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall have the meaning set forth in the recitals
hereof.
"Competing Business" shall mean any business or other enterprise which
engages in the business in which any Group Member currently engages.
"Confidentiality Agreement" shall have the meaning set forth in
Section 11.02 hereof.
"Contracts" shall have the meaning set forth in Section 2.10 hereof.
"Control" (including the terms "controlling", "controlled by" and
"under common control with") means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of the
person, whether through stock ownership, voting rights, governing boards or
otherwise.
"Damages" shall mean any and all losses, claims, demands, damages,
liabilities, obligations, costs and expenses, including without limitation,
reasonable fees and disbursements of counsel (however sustained or incurred,
including, without limitation, in any action or proceeding involving any third
party or involving any other party to this Agreement) sustained or incurred by
the Purchaser Indemnified Parties (or any of them) or the Seller Indemnified
Parties (or any of them), as the case may be, and other reasonable out-of-pocket
costs and expenses incurred in connection with investigating or defending any
action, suit or proceeding, commenced or threatened, but excluding punitive
damages (other than punitive damages payable to third parties).
"Determination" shall mean (a) the final non-appealable judgment by a
court of competent jurisdiction or arbitrator with respect to any claim covered
by Section IX hereof or (b)
53
a compromise and settlement agreement executed and delivered by both the
Indemnitor and the Indemnitee with respect to any claim covered by Section IX.
"Determination Date" shall mean the date the Determination is final,
legally binding, and non-appealable.
"Effective Time" shall mean at the close of business Eastern Standard
Time on the Closing Date.
"Employees" shall mean (i) all individuals with whom a Group Member
maintains, on the Closing Date, an employer-employee relationship, including any
individuals on lay-off, disability or leave of absence, whether paid or unpaid,
and (ii) individuals whose primary role and responsibilities relate to the
businesses conducted by the Group.
"Environmental Laws" shall have the meaning set forth in Section
2.16(b) hereof.
"Environmental Permits" shall have the meaning set forth in Section
2.l6(b) hereof.
"ERISA" shall have the meaning set forth in Section 2.12(a) hereof.
"Financial Statements" shall have the meaning set forth in Section
2.04 hereof.
"Former Employees" shall mean all individuals as to whom an employer-
employee relationship with any Group Member existed prior to the Closing Date,
but does not exist on the Closing Date, who remain entitled to benefits under
any applicable welfare or benefit plan or program.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"Governmental Authority" shall mean the collective reference to any
court, tribunal, government, or governmental agency, authority or
instrumentality, domestic or foreign.
"Group" shall mean the Companies and their respective subsidiaries,
taken as a whole.
"Group Member" shall mean, individually, each of the Companies and
each of its subsidiaries.
"Indemnification Matter" shall have the meaning set forth in Section
9.03 hereof.
"Knowledge of the Parent" shall mean, with respect to a particular
fact or other matter, that (i) an individual who is a director or officer of the
Parent, the Seller, any Company or any Group Member is actually aware of such
fact or other matter or (ii) a reasonably prudent individual in the satisfaction
of his or her duties as a director or officer of the Parent, the Seller, any
Company or any Group Member would be reasonably expected to discover or
otherwise become aware of such fact or other matter in the course of conducting
a reasonable investigation.
"Knowledge of the Purchaser" shall mean, with respect to a particular
fact or other matter, that (i) an individual who is a director or officer of the
Purchaser is actually aware of such fact or other matter or (ii) a reasonably
prudent individual in the satisfaction of his or her
54
duties as a director or officer of the Purchaser would be reasonably expected to
discover or otherwise become aware of such fact or other matter in the course of
conducting a reasonable investigation.
"Lien" shall mean any mortgage, pledge, encumbrance, charge or other
security interest of any kind or nature whatsoever.
"Managed Company" shall have the meaning set forth in Section 2.01
hereof.
"Material Adverse Effect" shall mean any circumstance or event which,
individually or in the aggregate with any other circumstance or event, is or is
reasonably likely to be material and adverse to the assets, properties,
businesses, results of operations or financial condition of the Group, taken as
a whole, and in any case after application of the proceeds of any insurance or
indemnity under any contract or agreement to which any Group Member, the Parent,
the Seller or the Purchaser (or any Affiliate thereof) is a parry: provided that
the term "Material Adverse Effect" as used herein shall not include any effect
attributable to changes in the economy (of the United States or any other
country generally changes in the industries ~n which any Group Member engages,
or seasonality of the businesses of any Group Member or any changes in
reimbursement regulation, legislation or regulatory interpretation, For the
purposes of this Agreement, the determination of whether a breach of a
representation and warranty or covenant of this Agreement shall be deemed to
give rise to a Material Adverse Effect shall be determined on a cumulative basis
by adding the effect of the breach of any such representation and warranty or
covenant (determined without regard to any materiality or Material Adverse
Effect qualifiers) to the effect of all other breaches of representations and
warranties and covenants of this Agreement (determined without regard to any
materiality or Material Adverse Effect qualifiers) for each of the applicable
period or periods to which each such representation, warranties or covenants
relate, in all cases before applying the materiality standard set forth in the
preceding sentence, and then determining whether, for any of the applicable
periods, such aggregate sum or effect meets or exceeds the materiality standard
set forth in the preceding sentence. For purposes of this definition of
Material Adverse Effect, the effect of any matter as to any past period shall be
determined based on its actual effect, and its effect as to any future period
shall be determined based on the effect that such matter is reasonably likely to
have.
"Medicare Representations" shall mean those representations and
warranties set forth in Sections 2.16 (c) through (i), 2.25, 2.27, 2.30 and 2.31
herein.
"Non-PEO Benefit Plans" shall mean the Benefit Plans not maintained
pursuant to the Parent NCES Agreement.
"PEO Benefit Plans" shall mean the Benefit Plans maintained pursuant
to the Parent NCES Agreement.
"Permits" shall have the meaning set forth in Section 2.16(a) hereof.
"Permitted Liens" shall mean:
55
(a) Liens for Taxes which are not yet due or which are being contested
in good faith by appropriate proceedings, provided that adequate reserves with
respect to contested Taxes are maintained on the books of any Group Member;
(b) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other social
security legislation;
(c) easements, rights-of-way, restrictions and other similar
encumbrances previously incurred in the ordinary course of business which, in
respect of properties or assets of the Group. are not material, and which, in
the case of such encumbrances on the assets or properties of any Group Member,
do not materially detract from the value of any such properties or assets and do
not materially interfere with any present use of such properties or assets:
(d) carriers', warehousemen's, mechanics', materialmen' s, repairmen's
or other like Liens arising in the ordinary course of business which are not
overdue for a period of more than 90 days or which are being contested in good
faith by appropriate proceedings;
(e) deposits to secure the performance of bids, contracts (other than
for borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(f) statutory and contractual Liens on the property of any Group
Member in favor of landlords securing leases; and
(g) Liens in existence on the Closing Date listed on Schedule 2.09
-------------
hereto.
"Pre-Closing Covenants" shall have the meaning set forth in Section
9.05(c) hereof,
"Protected Employee" shall mean any current or former executive or
professional employee of the Group Members or the Purchaser during the period in
which the covenant set forth in Section 8.11 hereof are in effect, but excluding
any persons who have not been employed by any Group Member or the Purchaser
during the two-year period preceding the date on which a determination is made
regarding whether a person is a Protected Employee.
"Purchaser Indemnified Parties" shall have the meaning set forth in
Section 9.01 hereof.
"Retro-Premium Insurance Amounts" shall mean any liability or other
obligation paid by the Parent or the Seller (or any Affiliate of the Parent or
the Seller) (whether by reimbursement to any claims security or escrow funds,
any additional premiums on retrospective adjustment or otherwise) under any
policies of insurance maintained by the Parent or the Seller (or any Affiliate
of the Parent or the Seller) for the benefit of any Group Member attributable to
events or occurrences on or prior to the Closing Date.
"Schedules" shall mean the Schedules attached hereto and made a part
of this Agreement.
56
"Seller Indemnified Parties" shall have the meaning set forth in
Section 9 02 hereof.
"Seller's Health Plan" shall have the meaning set forth in Section 8.0
hereof
"Seller Tax Periods" shall mean and include any and all periods ending
on or before the Closing Date, and in addition, the portion of any taxable
period that includes, but does not end on or before, the Closing Date that
consists of a partial period deemed to end on the Closing Date: provided that in
the case of any Seller Tax Period that does not end on or before the Closing
Date, for purposes hereof the books and records of the relevant Group Members
shall be deemed to have been closed at and as of the Closing Date hereof.
"Subsidiary" and "Subsidiaries" shall have the meanings set forth in
Section 2.01
"Taxes" shall have the meaning set forth in Section 2.07 hereof.
"Tax Claim" shall have the meaning set forth in Section 9.03(d)
hereof, "Tax Returns" shall have the meaning set forth in Section 2.07 hereof,
"Tax Sharing Agreement" shall mean the practice employed by the Parent
in causing the Seller and each of the Group Members to pay to the Parent or to
the Seller the separate company liability of each Group Member in respect of the
consolidated Federal income Tax and state income Tax liabilities of the Parent's
or the Seller's tax group, as applicable.
"Y2K-compliant" shall mean able to provide specific dates and
calculate spans of dates, and to record, store, process and provide true and
accurate dates and calculations for dates and spans of dates within and between
the twentieth and twenty-first centuries prior to, including and following
January 1, 2000, including by: (i) correctly processing day and date
calculations; (ii) recognizing January 1, 2001 as a valid date; (iii)
recognizing the year 2000 as a leap year having 366 days, and correctly
processing February 29, 2000 as a valid leap year date; (iv) employing only
four-digit year representations in software, components and systems owned or
operated in connection with any Company or Subsidiary; and (v) incorporating
interface programs sufficient to translate accurately to four-digit format
(without any burden of interpretation) any two-digit year representations
included in software, components or systems, including but not limited to
external databases, data warehouses, software systems and user interfaces that
send data to or receive data, from software, components or systems used in the
Group's business.
* * *
57
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first above written.
SELLER:
NC RESOURCES, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇
------------------------------
Name:
Title
PARENT:
NOVACARE, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
Name:
Title
PURCHASER:
SELECT MEDICAL CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------
Name:
Title