EXHIBIT 2.10
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
BY AND AMONG
BLC ACQUISITIONS, INC., SALI MERGER SUB INC., AND
SOUTHERN ASSISTED LIVING, INC.
March 30, 2006
TABLE OF CONTENTS
Page
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ARTICLE I
THE MERGER
1.1 The Merger.......................................................... 1
1.2 The Closing......................................................... 1
1.3 Actions at the Closing.............................................. 1
1.4 Additional Actions.................................................. 3
1.5 Consideration; Conversion of Shares................................. 3
1.6 Net Working Capital Adjustments..................................... 4
1.7 Escrow Amount....................................................... 6
1.8 Dissenting Shares................................................... 6
1.9 Options and Warrants................................................ 7
1.10 Articles of Incorporation and By-laws............................... 8
1.11 No Further Rights................................................... 8
1.12 Closing of Transfer Books........................................... 8
1.13 ▇▇▇▇▇▇▇ Money....................................................... 8
1.14 Due Diligence Period................................................ 9
1.15 Officers............................................................ 9
1.16 Directors........................................................... 9
1.17 Title............................................................... 9
1.18 Surveys............................................................. 10
1.19 Company Obligation Escrow........................................... 10
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
2.1 Organization, Qualification and Corporate Power..................... 11
2.2 Capitalization...................................................... 11
2.3 Authorization of Transaction........................................ 12
2.4 Noncontravention.................................................... 13
2.5 Subsidiaries........................................................ 13
2.6 Financial Statements................................................ 14
2.7 Absence of Certain Changes.......................................... 14
2.8 Undisclosed Liabilities............................................. 14
2.9 Tax Matters......................................................... 14
2.10 Assets.............................................................. 16
2.11 Owned Real Property................................................. 17
2.12 Real Property Leases................................................ 17
2.13 Intellectual Property............................................... 17
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2.14 Contracts........................................................... 18
2.15 Assisted Living Residence Agreements; Rent Rolls.................... 19
2.16 Insurance........................................................... 20
2.17 Litigation.......................................................... 20
2.18 Employees........................................................... 20
2.19 Employee Benefits................................................... 21
2.20 Environmental Matters............................................... 23
2.21 Legal Compliance.................................................... 24
2.22 Permits............................................................. 24
2.23 Certain Business Relationships With Affiliates...................... 24
2.24 Brokers' Fees....................................................... 25
2.25 Books and Records................................................... 25
2.26 WARN Compliance..................................................... 25
2.27 Survey Reports...................................................... 25
2.28 Capital Expenditures................................................ 25
2.29 Absence of Adverse Notices.......................................... 26
2.30 Resident Records.................................................... 26
2.31 Government Reimbursement Programs................................... 26
2.32 Licensed Beds and Units............................................. 26
2.33 Disclosure.......................................................... 26
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE TRANSITORY SUBSIDIARY
3.1 Organization and Corporate Power.................................... 27
3.2 Authorization of Transaction........................................ 27
3.3 Noncontravention.................................................... 27
3.4 Financing........................................................... 28
3.5 Inspections; No Other Representations............................... 28
ARTICLE IV
COVENANTS
4.1 Closing Efforts..................................................... 28
4.2 Governmental and Third-Party Notices and Consents................... 28
4.3 Licensing Surveys................................................... 30
4.4 Operation of Business............................................... 30
4.5 Access to Information............................................... 32
4.6 Exclusivity......................................................... 32
4.7 Expenses............................................................ 33
4.8 Indemnification and Insurance....................................... 33
4.9 Title Information................................................... 34
4.10 Environmental Reports; Property Condition Reports................... 34
4.11 WARN Act............................................................ 34
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4.12 Pre-Closing Cooperation............................................. 34
4.13 Employee Matters.................................................... 34
4.14 Financial Report Cooperation........................................ 35
4.15 Condemnation........................................................ 35
4.16 Accounts Receivable................................................. 35
4.17 Shareholder Approval................................................ 36
4.18 Voting of Proxy by Shareholders Representatives..................... 37
ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
5.1 Conditions to Each Party's Obligations.............................. 38
5.2 Conditions to Obligations of the Buyer and the Transitory
Subsidiary....................................................... 38
5.3 Conditions to Obligations of the Company............................ 40
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification by the Indemnifying Securityholders................. 41
6.2 Indemnification by the Buyer........................................ 42
6.3 Indemnification Claims.............................................. 42
6.4 Survival of Representations and Warranties.......................... 45
6.5 Limitations......................................................... 46
6.6 Distribution of Escrow Amount....................................... 48
6.7 Tax Matters......................................................... 48
ARTICLE VII
TERMINATION
7.1 Termination of Agreement............................................ 55
7.2 Effect of Termination............................................... 56
ARTICLE VIII
DEFINITIONS
ARTICLE IX
MISCELLANEOUS
9.1 Press Releases and Announcements.................................... 70
9.2 No Third Party Beneficiaries........................................ 70
9.3 Entire Agreement.................................................... 71
9.4 Succession and Assignment........................................... 71
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9.5 Counterparts and Facsimile Signature................................ 71
9.6 Headings............................................................ 71
9.7 Notices............................................................. 71
9.8 Governing Law....................................................... 73
9.9 Amendments and Waivers.............................................. 73
9.10 Severability........................................................ 73
9.11 Submission to Jurisdiction.......................................... 74
9.12 Construction........................................................ 74
Exhibit A - Escrow Agreement
Exhibit B - Deposit Escrow Agreement
Exhibit C - Capital Expenditure Budget
Exhibit D - Opinion of ▇▇▇▇▇▇▇▇▇ Law Group PLLC
Exhibit E - Representation Letter
Exhibit F - Certain Long-Term Debt
Exhibit G - Disclosure for Form 8-K
Exhibit 1.6(E) - Illustration of Calculation of Estimated Adjusted Working
Capital
Exhibit 1.6(F) - Illustration of Calculation of Final Balance Sheet
Exhibit 5.2(k) - Weighted Average Census
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
Amended and Restated Agreement entered into as of March 30, 2006 by and
among BLC ACQUISITIONS, INC., a Delaware corporation (the "Buyer"), SALI MERGER
SUB INC, a Delaware corporation and a wholly-owned subsidiary of the Buyer (the
"Transitory Subsidiary"), and SOUTHERN ASSISTED LIVING, INC., a North Carolina
corporation (the "Company").
WITNESSETH
WHEREAS, Buyer, the Transitory Subsidiary and the Company (collectively,
the "Parties") wish to amend and restate that certain Agreement and Plan of
Merger, dated December 21, 2005 (the "Original Merger Agreement"), as amended
from time to time in accordance with its terms (as so amended and restated
herein, this "Agreement"); and
WHEREAS, this Agreement contemplates a merger of the Transitory Subsidiary
with and into the Company. In such merger, the Securityholders of the Company
will receive cash in exchange for their capital stock or other securities of the
Company;
NOW THEREFORE, in consideration of the representations, warranties,
covenants, promises and the mutual agreements contained herein, the Parties
agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon and subject to the terms and conditions of this
Agreement, the Transitory Subsidiary shall merge with and into the Company at
the Effective Time. From and after the Effective Time, the separate corporate
existence of the Transitory Subsidiary shall cease and the Company shall
continue as the Surviving Corporation. The Merger shall have the effects set
forth in Section 55-11-06 of the NCBCA and Section 252 of the DGCL.
1.2 The Closing. The Closing shall take place at the offices of Skadden,
Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP, Four Times Square, New York, New York,
commencing at 9:00 a.m. local time on the Closing Date.
1.3 Actions at the Closing. At the Closing:
(a) the Company shall deliver to the Buyer and the Transitory
Subsidiary the various certificates, instruments and documents referred to in
Section 5.2;
(b) the Buyer and the Transitory Subsidiary shall deliver to the
Company the various certificates, instruments and documents referred to in
Section 5.3;
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(c) the Surviving Corporation shall file with the Secretary of State
of the State of North Carolina the Articles of Merger;
(d) each Company Shareholder shall deliver to the Buyer for
cancellation the certificate(s) representing such Company Shareholder's Common
Shares properly endorsed or otherwise in proper form for cancellation; and
(e) Company Shareholders holding at least an aggregate of 99% of the
then-outstanding Common Shares shall deliver a Letter of Transmittal, in form
and substance reasonably satisfactory to Buyer, approving the transactions
contemplated herein, including, without limitation, the granting to the Company
the power and authority (x) to receive on behalf of such Company Shareholder its
pro-rata share of any amount paid by Buyer to the Company pursuant to Section
1.3(i) and (y) to pay such amount to the Company Obligation Escrow Agent as
contemplated by Section 1.3(i), and the granting to the Shareholder
Representatives (or their successors or assigns) of the power and authority to
incur obligations, to execute documents (including the Escrow Agreement) that
are legally binding on such Company Shareholder, to obligate such Company
Shareholder, to provide the indemnification contemplated by Section 6.1 and
Section 6.7, to make decisions and settle disputes on such Company Shareholder's
behalf as contemplated in Section 6.3, Section 6.7, and elsewhere in this
Agreement, the Escrow Agreement and the Deposit Escrow Agreement and to
otherwise act on behalf of such Company Shareholder, and agreeing to be liable
for such Liabilities as the Securityholders are responsible pursuant to the
terms of this Agreement, and to release the Company from any and all pre-Closing
Liabilities, and containing a certificate of non-foreign status (as provided by
Treasury Regulations Section 1.1445-2(b)(2)) (the "Letter of Transmittal");
(f) the Buyer shall pay (by check or by wire transfer) to: (i) each
Company Shareholder, the Closing Consideration into which his or her Common
Shares are converted pursuant to Section 1.5; (ii) each Optionholder, the Option
Consideration payable with respect to the Closing Consideration; (iii) each
Warrantholder, the Warrant Consideration payable with respect to the Closing
Consideration; and (iv) the Escrow Agent, the Escrow Amount;
(g) the Buyer, the Shareholder Representatives and the Escrow Agent
shall execute and deliver the Escrow Agreement, a copy of which is attached
hereto as Exhibit A, and the Buyer or the Transitory Subsidiary shall deposit
the Escrow Amount with the Escrow Agent in accordance with Section 1.7;
(h) the Company, Buyer and the Shareholder Representatives shall
execute and jointly deliver to the Deposit Escrow Agent the notice contemplated
by Section 6(a) of the Deposit Escrow Agreement authorizing release of the
Deposits to Buyer;
(i) if not already effected prior to the Closing, the Company shall
deliver the Company Obligation Amount to the Company Obligation Escrow Agent for
the payment of the Company Obligations. Notwithstanding the foregoing, to the
extent that as of the Closing, the Company shall have not delivered the Company
Obligation Amount to the Company Obligation Escrow Agent, Buyer shall pay to the
Company, who shall collect such payment on behalf of the Securityholders, an
amount equal to that portion of the Company Obligation Amount not yet paid
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to the Company Obligation Escrow Agent, and the Company, on behalf of the
Securityholders, shall pay such amount to the Company Obligation Escrow Agent;
(j) if not already effected prior to the Closing, the Company and the
Company Obligation Escrow Agent shall execute and deliver the Company Obligation
Escrow Agreement; and
(k) to the extent that the calculation of the Closing Net Working
Capital for the purposes of Section 1.6 of the Merger Agreement reflects the
obligations of the Company pursuant to the Bonus Plan (as defined in the
Disclosure Letter) and the Bonus Letters (as defined in the Disclosure Letter)
as liabilities of the Company, Buyer shall pay all such obligations to the
Bonused Employees.
1.4 Additional Actions.
(a) Within three (3) business days of the execution of the Original
Merger Agreement, Buyer, Transitory Subsidiary, the Company and the Deposit
Escrow Agent shall execute and deliver the Deposit Escrow Agreement.
(b) The Surviving Corporation may, at any time after the Effective
Time, take any action, including executing and delivering any document, in the
name and on behalf of either the Company or the Transitory Subsidiary, in order
to consummate the transactions contemplated by this Agreement.
1.5 Consideration; Conversion of Shares.
(a) The Initial Merger Consideration shall be equal to $82,900,000, in
cash. The "Closing Consideration," as calculated on a per Common Share basis, is
the quotient of (x) the Initial Merger Consideration, as so adjusted pursuant to
the terms of Sections 1.6(b), 1.17, 4.8(c) and 4.15 hereof, plus the aggregate
exercise price for all outstanding Options and Warrants over (y) the number of
Common Shares on a fully diluted basis. The Closing Consideration, as so
adjusted pursuant to the terms of Section 1.6(e), shall be referred to as the
"Final Consideration."
(b) At the Closing:
(i) By virtue of the Merger and without any action on the part of
any Party or the holder of any of the following securities, each Common
Share issued and outstanding immediately prior to the Effective Time (other
than Common Shares owned beneficially by Buyer or the Transitory
Subsidiary) shall be converted into and represent only the right to receive
(subject to the provisions of Section 1.7) the Closing Consideration for
each such Common Share less such Common Shareholder's pro rata share of the
Escrow Amount and the Company Obligation Amount (to the extent such amount
is paid to the Company at Closing on behalf of the Securityholders as
contemplated by Section 1.3(i)); provided that the Parties acknowledge and
agree that no holder of a Common Share shall be entitled to receive the
Closing Consideration for such Common Share unless and until such holder
executes and delivers to Buyer a Letter of Transmittal; provided that the
failure of any Company Shareholder to duly execute and deliver such
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Letter of Transmittal shall not delay the payment to the other Company
Shareholders of the Merger Consideration pursuant to the terms hereof;
(ii) By virtue of the Merger and without any action on the part
of any Party or the holder of any of the following securities, each share
of common stock, $0.01 par value per share, of the Transitory Subsidiary
issued and outstanding immediately prior to the Effective Time shall be
converted into and thereafter evidence, one share of common stock, no par
value per share, of the Surviving Corporation;
(iii) Buyer shall pay to each Securityholder such
Securityholder's pro rata portion of the aggregate Closing Consideration
less such Securityholder's pro rata share of the Escrow Amount and the
Company Obligation Amount (to the extent such amount is paid to the Company
at Closing on behalf of the Securityholders as contemplated by Section
1.3(i)); and
(iv) Buyer shall cause the amount of Five Million Three Hundred
Thirty Thousand Dollars ($5,330,000) (the "Escrow Amount") to be deposited
by Buyer with the Escrow Agent in accordance with the provisions of Section
1.7 hereof.
(c) Subject to Section 6.6, on the Final Balance Sheet Date, the
absolute difference between the aggregate Final Consideration and the aggregate
Closing Consideration shall be payable and paid by the Escrow Agent, the Buyer,
or the Securityholders, as applicable, to the Securityholders or the Buyer, as
applicable.
(d) If required by Section 1.13, the Deposit Escrow Agent shall
deliver an amount of funds equal to the Deposits to Buyer.
1.6 Net Working Capital Adjustments.
(a) Not less than three days prior to Closing, the Company shall
deliver to the Buyer a balance sheet that has been prepared by the Company in
accordance with GAAP applied on a consistent basis with the Company's historical
financial statements(provided that such balance sheet shall be prepared taking
into account the change in accounting for paid time off accrued by employees
contemplated by Section 2.6 of the Disclosure Letter), which fairly estimates
the Company's financial condition as of the Closing Date and which shall include
a written calculation of the Closing Net Working Capital (the "Estimated Closing
Balance Sheet").
(b) Based on the Estimated Closing Balance Sheet, the Initial Merger
Consideration shall be increased (the "Closing Positive Adjustment Amount") or
decreased (the "Closing Negative Adjustment Amount"), as the case may be, on a
dollar-for-dollar basis by the amount by which the Closing Net Working Capital
of the Company derived from the Estimated Closing Balance Sheet is greater or
less than $0.
(c) Within sixty (60) calendar days after the Closing, Buyer shall, at
Buyer's sole cost and expense, cause the Surviving Corporation to prepare and
deliver to the Shareholder Representatives a balance sheet of the Surviving
Corporation as of the Closing Date (without
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giving effect to the Merger) which shall include a written calculation of the
actual Adjusted Working Capital as of the Closing Date (collectively, the "Final
Closing Balance Sheet"). The Shareholder Representatives, or their designees,
may observe the preparation of, and shall have access to such books and records
as may be reasonably necessary to confirm the preparation of, the Final Closing
Balance Sheet. The Final Closing Balance Sheet shall be prepared in accordance
with GAAP applied on a consistent basis with the Company's historical financial
statements (provided that such balance sheet shall be prepared taking into
account the change in accounting for paid time off accrued by employees
contemplated by Section 2.6 of the Disclosure Letter) as set forth on Exhibit
1.6(F).
(d) If the Shareholder Representatives dispute any amounts reflected
on the Final Closing Balance Sheet as delivered by the Surviving Corporation,
the Shareholder Representatives shall so notify Buyer in writing ("Notice of
Dispute") not more than thirty (30) calendar days after the date the Shareholder
Representatives receive the Final Closing Balance Sheet, specifying in
reasonable detail the points of disagreement. If the Shareholder Representatives
fail to deliver a Notice of Dispute to Buyer within such thirty (30) day period,
the Shareholder Representatives shall be deemed to have accepted the Final
Closing Balance Sheet. Upon receipt of the Notice of Dispute, Buyer shall
promptly consult with the Shareholder Representatives with respect to such
points of disagreement in an effort to resolve the dispute. If any such dispute
cannot be resolved by Buyer and the Shareholder Representatives within ten (10)
calendar days after Buyer receives the Notice of Dispute, they shall refer the
dispute to a certified public accountant and partner at a national accounting
firm mutually agreeable by Buyer and the Shareholder Representatives (the
"Accountant"), who will act as an arbitrator to finally determine, as soon as
practicable, and in any event within thirty (30) calendar days after such
reference, all points of disagreement with respect to the Final Closing Balance
Sheet. In the event that Buyer and the Shareholder Representatives cannot
mutually agree on a partner at a national accounting firm each of Buyer and the
Shareholder Representatives shall select a partner at a national accounting
firm, who shall be compensated by the party appointing such partner at such
national accounting firm, and those two partners shall jointly select a third
partner at a national accounting firm to serve as the Accountant. For purposes
of such arbitration, each party shall submit a proposed Final Closing Balance
Sheet; Buyer's proposed Final Closing Balance Sheet need not be identical to the
Final Closing Balance Sheet delivered pursuant to Section 1.6(c). The Accountant
shall determine only those items in dispute and shall apply the accounting
principles set forth in this Section 1.6 and shall otherwise conduct the
arbitration under such procedures as the parties may agree or, failing such
agreement, under the Commercial Rules of the American Arbitration Association.
The fees and expenses of the arbitration and of the Accountant incurred in
connection with the arbitration of the Final Closing Balance Sheet shall be
allocated between the parties by the Accountant in proportion to the extent
either party did not prevail on items in dispute on the Final Closing Balance
Sheet; provided, that such fees and expenses shall not include, so long as a
party complies with the procedures of this Section, the other party's outside
counsel or accounting fees. All determinations by the Accountant shall be final,
conclusive and binding with respect to the Final Closing Balance Sheet and the
allocation of arbitration fees and expenses. The date upon which the Final
Closing Balance Sheet is agreed to by the Parties pursuant to the terms hereof
shall be referred to as the "Final Balance Sheet Date."
(e) Based on the Final Closing Balance Sheet determined under Section
1.6(c) or, if necessary, by the Accountant under Section 1.6(d), the aggregate
Closing Consideration
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shall be increased (the "Post-Closing Positive Adjustment Amount") or decreased
(the "Post-Closing Negative Adjustment Amount"), as the case may be, on a
dollar-for-dollar basis by the amount by which the Adjusted Working Capital of
the Surviving Corporation derived from the Final Closing Balance Sheet is
greater or less than the Adjusted Working Capital of the Surviving Corporation
derived from the Estimated Closing Balance Sheet. Notwithstanding the foregoing,
any amounts previously paid by the Indemnifying Securityholders pursuant to
Sections 6.7(h)(i) and 6.7(h)(ii) hereof shall be credited to the Indemnifying
Securityholders for purposes of determining the Post-Closing Positive Adjustment
Amount or the Post-Closing Negative Adjustment Amount.
(f) Subject to Section 6.6, the Post-Closing Positive Adjustment
Amount, if any, shall be promptly paid by the Buyer to the Securityholders on a
pro-rata basis within five (5) business days after the Final Closing Balance
Sheet Date. If there is a Post-Closing Negative Adjustment Amount, each
Securityholder shall be jointly and severally obligated to pay to Buyer, and
shall pay to Buyer no later than five (5) business days after the Final Balance
Sheet Date, such Post-Closing Negative Adjustment Amount; provided, however,
that Buyer may request the Escrow Agent to release to it all or any portion of
such portion of the Post-Closing Negative Adjustment Amount that is not received
by Buyer within such five (5) business day period, at Buyer's sole election, at
any time after the end of such five (5) business day period, and the Escrow
Agent shall promptly honor such request in accordance with the terms of the
Escrow Agreement.
(g) The Shareholder Representatives shall have full power and
authority on behalf of each Securityholder to take any and all actions on behalf
of, execute any and all instruments on behalf of, and execute or waive any and
all rights of, the Securityholders under this Section 1.6. The Shareholder
Representatives shall have no liability to any Securityholder for any action
taken or omitted on behalf of the Securityholders pursuant to this Section 1.6.
1.7 Escrow Amount. At Closing, the Buyer, the Shareholder Representatives
and the Escrow Agent shall execute and deliver the Escrow Agreement. The Escrow
Amount shall be paid by Buyer or Transitory Subsidiary at Closing to the Escrow
Agent and the Escrow Agent shall hold the Escrow Amount for satisfaction of any
adjustments to the aggregate Closing Consideration, as determined pursuant to
the terms of Section 1.6, and for satisfaction of any indemnification claims
pursuant to Article VI.
1.8 Dissenting Shares. Upon consummation of the Merger, Dissenting Shares
shall not be converted into or represent the right to receive the Closing
Consideration and the Final Consideration, if any, but shall instead be
converted into the right to receive such consideration as may be determined to
be due with respect to such Dissenting Shares pursuant to Section 55-13-01 et
seq. of the NCBCA. After the Effective Time, if a Company Shareholder forfeits
or withdraws his, her or its right to appraisal of Dissenting Shares, then, as
of the occurrence of such event, such holder's Dissenting Shares shall cease to
be Dissenting Shares. The Company shall give the Buyer (i) prompt notice of any
written demands for payment of Common Shares pursuant to Section 55-13-23 of the
NCBCA and any written demands for appraisal of any Common Shares, withdrawals of
such demands, and any other instruments that relate to such demands received by
the Company and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under the NCBCA. The Company shall not,
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except with the prior written consent of the Buyer, make any payment with
respect to any demands for appraisal of Common Shares or offer to settle or
settle any such demands.
1.9 Options and Warrants.
(a) Prior to the Effective Time, the Company shall enter into an
agreement, in form and substance reasonably satisfactory to Buyer, with each
holder of an outstanding Option providing for a termination of such Option
effective as of the Effective Time, in exchange for the payment of the Option
Consideration; provided that the Option Consideration shall be reduced by any
applicable federal and state withholding taxes; provided further, that the
agreement shall provide that such Optionholder (i) approves the transactions
contemplated herein, including, without limitation, the granting to the Company
the power and authority (x) to receive on behalf of such Optionholder its
pro-rata share of any amount paid by Buyer to the Company pursuant to Section
1.3(i) and (y) to pay such amount to the Company Obligation Escrow Agent as
contemplated by Section 1.3(i), and the granting to the Shareholder
Representatives (or their successors or assigns) the power and authority to
incur obligations, to execute documents (including the Escrow Agreement) that
are legally binding on such Optionholder, to obligate such Optionholder to
provide the indemnification contemplated by Section 6.1 and Section 6.7, to make
decisions and settle disputes on such Optionholder's behalf as contemplated in
Section 6.3, Section 6.7 and elsewhere in this Agreement and the Escrow
Agreement and to otherwise act on behalf of such Optionholder, and (ii) agrees
to be liable for such Liabilities as the Optionholders are responsible pursuant
to the terms of this Agreement, and to release the Company from any and all
pre-Closing Liabilities, and shall contain a certificate of non-foreign status
(as provided by Treasury Regulations Section 1.1445-2(b)(2)).
(b) Prior to the Effective Time, the Company shall enter into an
agreement, in form and substance reasonably satisfactory to Buyer, with each
holder of an outstanding Warrant providing for a termination of such Warrant
effective as of the Effective Time, in exchange for the payment of the Warrant
Consideration; provided, that the Warrant Consideration shall be reduced by any
applicable federal and state withholding taxes; provided further, that the
agreement shall provide that such Warrantholder (i) approves the transactions
contemplated herein, including, without limitation, the granting to the Company
the power and authority (x) to receive on behalf of such Warrantholder its
pro-rata share of any amount paid by Buyer to the Company pursuant to Section
1.3(i) and (y) to pay such amount to the Company Obligation Escrow Agent as
contemplated by Section 1.3(i), and the granting to the Shareholder
Representatives (or their successors or assigns) the power and authority to
incur obligations, to execute documents (including the Escrow Agreement) that
are legally binding on such Warrantholder, to obligate such Warrantholder to
provide the indemnification contemplated by Section 6.1 and Section 6.7, to make
decisions and settle disputes on such Warrantholder's behalf as contemplated in
Section 6.3, Section 6.7 and elsewhere in this Agreement and the Escrow
Agreement and to otherwise act on behalf of such Warrantholder, and (ii) agrees
to be liable for such Liabilities as the Warrantholders are responsible pursuant
to the terms of this Agreement, and to release the Company from any and all
pre-Closing Liabilities, and shall contain a certificate of non-foreign status
(as provided by Treasury Regulations Section 1.1445-2(b)(2)).
(c) The Company shall terminate all Company Stock Plans immediately
prior to the Effective Time.
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1.10 Articles of Incorporation and By-laws.
(a) The Articles of Incorporation of the Surviving Corporation
immediately following the Effective Time shall be the same as the Articles of
Incorporation of the Transitory Subsidiary immediately prior to the Effective
Time, except that (i) the name of the corporation set forth therein shall be
changed to the name of the Company and (ii) the identity of the incorporator
shall be deleted.
(b) The By-laws of the Surviving Corporation immediately following the
Effective Time shall be the same as the By-laws of the Transitory Subsidiary
immediately prior to the Effective Time, except that the name of the corporation
set forth therein shall be changed to the name of the Company.
1.11 No Further Rights. From and after the Effective Time, no Common Shares
shall be deemed to be outstanding, and holders of certificates formerly
representing Common Shares shall cease to have any rights with respect thereto
except as provided herein or by law.
1.12 Closing of Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed and no transfer of Common Shares shall
thereafter be made. If, after the Effective Time, certificates formerly
representing Common Shares are presented to the Buyer or the Surviving
Corporation, they shall be cancelled and exchanged for the Closing Consideration
and the Final Consideration, if any, in accordance with Section 1.6.
1.13 ▇▇▇▇▇▇▇ Money. Within three (3) business days after the execution of
the Original Merger Agreement, Buyer shall deliver to the Deposit Escrow Agent
pursuant to a deposit escrow agreement, a copy of which is attached hereto as
Exhibit B (the "Deposit Escrow Agreement"), as modified as reasonably requested
by the Deposit Escrow Agent consistent with the terms hereof, an ▇▇▇▇▇▇▇ money
deposit in the amount of $200,000 (the "Initial Deposit"). Within three (3)
business days after the expiration of the Due Diligence Period, Buyer shall
deliver to the Deposit Escrow Agent an additional sum of $1,800,000 (the "Due
Diligence Deposit"). The Initial Deposit, Due Diligence Deposit, and all
interest accrued thereon shall be hereinafter referred to as the "Deposits". The
Deposit Escrow Agent shall hold the Deposits in one or more interest bearing
accounts as directed by Buyer and approved by the Company, such approval not to
be unreasonably withheld or delayed, and otherwise in accordance with the terms
and conditions of the Deposit Escrow Agreement.
(a) Upon the consummation of the Closing, the Deposit Escrow Agent
shall transfer an amount of immediately available same day funds equal to the
Deposits to a bank account designated by Buyer.
(b) Notwithstanding anything herein to the contrary, if Buyer
terminates this Agreement pursuant to Section 1.14, the Deposit Escrow Agent
shall immediately return the Initial Deposit to Buyer, irrespective of any
alternative instructions from the Company.
(c) In the event this Agreement is terminated after the expiration of
the Due Diligence Period pursuant to Sections 7.1(a), 7.1(b), 7.1(d), 7.1(e),
7.1(f), 7.1(g), 7.1(i) or 7.1(j), then the Deposit Escrow Agent shall return the
Deposits to Buyer.
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(d) In the event this Agreement is terminated after the expiration of
the Due Diligence Period pursuant to Sections 7.1(c) or 7.1(h), then the Deposit
Escrow Agent shall pay the Deposits to the Company, which payment of the
Deposits to the Company shall constitute the Company's full liquidated damages
payment, as provided in Section 6.5(f) hereof.
1.14 Due Diligence Period. The Company and Buyer hereby acknowledge that,
as of the date of the Original Merger Agreement, Buyer has not yet had an
opportunity to complete its required due diligence and fully review and evaluate
all aspects of this transaction, the Company and the condition and suitability
of the Company Facilities and the other assets of the Company and its
Subsidiaries. Accordingly, beginning on the date of the Original Merger
Agreement and continuing until 5:00 p.m. (New York time) on February 17, 2006
(the "Due Diligence Period"), Buyer shall have the right to terminate this
Agreement by written notice to the Company in the event Buyer, in Buyer's sole
discretion, is not satisfied with the Company and its Subsidiaries, for any
reason, which reason need not be specified in such notice, provided that such
notice is delivered (in accordance with the provisions of Section 9.7 hereof) to
the Company on or prior to 5:00 p.m. on the last day of the Due Diligence
Period. The Company acknowledges and agrees that Buyer has no obligation to give
the Company prior notice, and both parties acknowledge that neither of them has
any obligation to negotiate in good faith with the other party regarding
modifying the terms of this Agreement or the transactions contemplated hereby,
before Buyer delivers the notice of termination contemplated by the immediately
preceding sentence. If Buyer does not terminate this Agreement as set forth in
this Section 1.14 or as otherwise provided herein, time being of the essence
with respect to said time period, then this Agreement shall remain in full force
and effect. The parties agree to confirm in writing the expiration date of the
Due Diligence Period upon request of either the Company or Buyer.
1.15 Officers. The officers of the Transitory Subsidiary immediately prior
to the Effective Time shall be the officers of the Surviving Corporation and
will hold office until their successors are duly elected or appointed and
qualify in the manner provided in the articles of incorporation or by laws of
the Surviving Corporation or as otherwise provided by law, or until their
earlier death, resignation or removal.
1.16 Directors. The directors of the Transitory Subsidiary immediately
prior to the Effective Time shall be the directors of the Surviving Corporation
and will serve until their successors are duly elected or appointed and qualify
in the manner provided in the articles of incorporation or by laws of the
Surviving Corporation or as otherwise provided by law, or until their earlier
death, resignation or removal.
1.17 Title. In connection with the delivery contemplated by Section 5.2(m),
Buyer shall have until the business day immediately prior to the expiration of
the Due Diligence Period in which to examine title to the Company Facilities and
to obtain Title Commitments at Buyer's election and at Buyer's sole expense, and
in which to give the Company written notice of any title objections as to
matters that Buyer feels are not Permitted Liens. To the extent any title
objection is not included in such written notice, it shall become a "Permitted
Lien" for purposes of this Agreement. The Company shall take commercially
reasonable actions necessary to remove all title encumbrances that are not
Permitted Liens ("Removable Encumbrances"), that otherwise would be reflected on
the Title Commitments to be delivered at Closing. In the event that the Company
attempts to remove a Removable Encumbrance but is unable to do so after
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commercially reasonable efforts, such failure shall not constitute a Company
default, but shall allow Buyer the opportunity to terminate this Agreement
within five (5) business days after the Company provides written notice to Buyer
that is unable, after commercially reasonably efforts, to remove such item.
Further, the Company agrees that to the extent it fails to cause the removal of
any Removable Encumbrances of a definite and ascertainable amount as of the
Closing Date, Buyer may, in its sole discretion, pay the necessary amounts to
discharge all such Removable Encumbrances, and any such amount paid by Buyer
shall reduce the Initial Merger Consideration.
1.18 Surveys. Buyer, at Buyer's option and sole expense, shall have the
right to cause a surveyor or surveyors selected by Buyer properly licensed to
prepare current and accurate surveys of the Company Facilities (herein called
the "Surveys"). If Buyer elects to obtain the Surveys, Buyer shall cause three
(3) copies of the Surveys to be delivered to the Company.
1.19 Company Obligation Escrow. At or prior to the Closing, at the written
direction of Buyer, the Company shall establish an escrow account with the
Company Obligation Escrow Agent to be funded at or prior to Closing in
accordance with Section 1.3(i) in an amount equal to the Company Obligation
Amount. The Company and the Company Obligation Escrow Agent shall execute and
deliver at Closing, or at a date prior to the Closing, as directed by Buyer as
contemplated above, an escrow agreement (the "Company Obligation Escrow
Agreement"), in a form that contains terms reasonably satisfactory to each of
the Parties and the Company Obligation Escrow Agent (the Parties hereby agreeing
that the Company Obligation Escrow Agreement may be incorporated as part of the
Master Lease, as modified as contemplated by Section 5.2(l) hereof), to satisfy
wholly the obligation of the Company or the Surviving Corporation to pay the
Company Obligations."
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer that, except as set forth
in the Disclosure Letter, as issued with the execution of the Original Merger
Agreement and as revised and issued as of Closing, the statements contained in
this Article II are true and correct as of the date of the Original Merger
Agreement and will be true and correct as of the Closing as though made as of
the Closing, except to the extent such representations and warranties are
specifically made as of a particular date (in which case such representations
and warranties will be true and correct as of such date). The Disclosure Letter
shall be arranged in sections and subsections corresponding to the numbered and
lettered sections and subsections contained in this Article II. The disclosures
in any section or subsection of the Disclosure Letter shall qualify other
sections and subsections in this Article II where it is reasonably apparent from
a reading of the disclosure that such disclosure is applicable to such other
sections and subsections. The mere inclusion of an item on the Disclosure Letter
shall not be deemed an admission by the Company that such item is or was
material or is or was required to be disclosed thereon. For purposes of this
Article II, the phrase "to the knowledge of the Company" or any phrase of
similar import shall be deemed to refer to the actual knowledge of the Chief
Executive Officer, the President, the Senior Vice President of Operations and
the Vice President of Finance and Controller after reasonable inquiry.
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2.1 Organization, Qualification and Corporate Power. The Company is a
corporation duly organized, validly existing and in corporate good standing and,
except as set forth in Section 2.1 of the Disclosure Letter, tax good standing
under the laws of the State of North Carolina. The Company is duly qualified to
conduct business and is in corporate good standing and, except as set forth in
Section 2.1 of the Disclosure Letter, tax good standing under the laws of each
jurisdiction listed in Section 2.1 of the Disclosure Letter, which jurisdictions
constitute the only jurisdictions in which the nature of the Company's
businesses or the ownership or leasing of its properties requires such
qualification, except for those jurisdictions in which the failure to be so
qualified or in good standing, individually or in the aggregate, has not had and
would not reasonably be expected to have a Company Material Adverse Effect. The
Company has all requisite corporate power and authority to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it. The Company has furnished, or Made Available, to the Buyer complete
and accurate copies of its Articles of Incorporation and by-laws. The Company is
not in default under or in violation of any provision of its Articles of
Incorporation or by-laws.
2.2 Capitalization.
(a) The capital stock of the Company consists of 10,000,000 authorized
shares of common stock, no par value per share, of which 4,079,367 shares were,
as of the date of the Original Merger Agreement, issued and outstanding, and
402,778 authorized shares of preferred stock, $0.01 par value per share,
designated as Series A Redeemable Preferred Stock, of which, as of the date of
the Original Merger Agreement, none were issued and outstanding.
(b) Section 2.2(b) of the Disclosure Letter sets forth a complete and
accurate list, as of the date of the Original Merger Agreement, of the holders
of capital stock of the Company, showing the number of shares of capital stock
held by each shareholder. Section 2.2 of the Disclosure Letter also indicates
all outstanding Common Shares that constitute restricted stock or that are
otherwise subject to a repurchase or redemption right, indicating the name of
the applicable shareholder, the vesting schedule (including any acceleration
provisions with respect thereto), and the repurchase price payable by the
Company. All of the issued and outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable. All of the issued and outstanding shares of capital stock of the
Company have been offered, issued and sold by the Company in compliance with all
applicable federal and state securities laws.
(c) Section 2.2(c) of the Disclosure Letter sets forth a complete and
accurate list, as of the date of the Original Merger Agreement of: (i) all
Company Stock Plans, indicating for each Company Stock Plan the number of Common
Shares issued to date under such Plan, the number of Common Shares subject to
outstanding options under such Plan and the number of Common Shares reserved for
future issuance under such Plan; (ii) all Optionholders, indicating with respect
to each Option the Company Stock Plan under which it was granted, the number of
Common Shares subject to such Option, the exercise price, the date of grant, and
the vesting schedule (including any acceleration provisions with respect
thereto); and (iii) all Warrantholders, indicating with respect to each Warrant
the agreement or other document under which it was granted, the number of shares
of capital stock, and the class or series of such shares, subject to such
Warrant, the exercise price, the date of issuance and the expiration date
thereof. The
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Company has provided, or Made Available, to the Buyer complete and accurate
copies of all Company Stock Plans, forms of all stock option agreements
evidencing Options and all Warrants. All of the shares of capital stock of the
Company subject to Options and Warrants will be, upon issuance pursuant to the
exercise of such instruments, duly authorized, validly issued, fully paid and
nonassessable.
(d) Except as set forth in this Section 2.2 or in Section 2.2(d) of
the Disclosure Letter, (i) no subscription, warrant, option, convertible
security or other right (contingent or otherwise) to purchase or acquire any
shares of capital stock of the Company is authorized or outstanding, (ii) the
Company has no obligation (contingent or otherwise) to issue any subscription,
warrant, option, convertible security or other such right, or to issue or
distribute to holders of any shares of its capital stock any evidences of
indebtedness or assets of the Company, (iii) the Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any shares of
its capital stock or any interest therein or to pay any dividend or to make any
other distribution in respect thereof, and (iv) there are no outstanding or
authorized stock appreciation, phantom stock or similar rights with respect to
the Company.
(e) Except as set forth in Section 2.2(e) of the Disclosure Letter,
there is no agreement, written or oral, between the Company and any holder of
its securities, or, to the best of the Company's knowledge, among any holders of
its securities, relating to the sale or transfer (including agreements relating
to rights of first refusal, co sale rights or "drag along" rights), registration
under the Securities Act, or voting, of the capital stock of the Company.
2.3 Authorization of Transaction. With the exception of obtaining the
requisite shareholder approval, the Company has the requisite power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. The execution and delivery by the Company of this Agreement and the
consummation by the Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of the
Company. Without limiting the generality of the foregoing, the Board of
Directors of the Company, by unanimous written consent, has (i) determined that
the Merger is fair and in the best interests of the Company and its
shareholders, (ii) adopted this Agreement in accordance with the provisions of
the NCBCA, (iii) directed that this Agreement and the Merger be submitted to the
shareholders of the Company for their adoption and approval and resolved to
recommend that the shareholders of the Company vote in favor of the adoption of
this Agreement and the approval of the Merger. The Company represents and
warrants that the President of the Company (who is a Shareholder Representative)
(the "Proxy Holder") holds valid and irrevocable proxies with respect to an
aggregate of 1,325 Common Shares, as set forth in Section 2.3 of the Disclosure
Letter (the "Proxy Shares"), providing the Proxy Holder with all requisite power
and authority to vote such Proxy Shares to adopt and approve the Merger and the
Agreement (the "Shareholder Proxies"). This Agreement has been duly and validly
executed and delivered by the Company and, subject to the receipt of the
requisite shareholder approval, constitutes a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratoriums or similar laws
now or hereafter in effect relating to creditor's rights generally or to general
principles of equity.
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2.4 Noncontravention. Subject to compliance with the applicable
requirements of the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act and the filing of the Articles of
Merger as required by the NCBCA, and except as set forth in Section 2.4 of the
Disclosure Letter, neither the execution and delivery by the Company of this
Agreement, nor the consummation by the Company of the transactions contemplated
hereby, will (a) conflict with or violate any provision of the Articles of
Incorporation or Bylaws of the Company or the charter, bylaws or other
organizational document of any Subsidiary, (b) require on the part of the
Company or any Subsidiary any permit, authorization, consent or approval of, any
Governmental Entity, (c) conflict with, result in a breach of, constitute (with
or without due notice or lapse of time or both) a default under, result in the
acceleration of obligations under, create in any party the right to terminate,
modify or cancel any material contract or instrument (including, without
limitation, any Lease) to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary is bound or to which any of their respective
assets is subject, (d) result in the imposition of any Security Interest upon
any assets of the Company or any Subsidiary, or (e) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company, any
Subsidiary or any of their respective properties or assets, except, in the case
of clauses (b) through (e) above, where any such failure to provide the
appropriate notice or obtain the appropriate permit, authorization, consent or
approval, or where any such conflict, breach, default, acceleration,
termination, modification or cancellation, or any such imposition of any
Security Interest, has not had, or would not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect.
2.5 Subsidiaries.
(a) Section 2.5(a) of the Disclosure Letter sets forth: (i) the name
of each Subsidiary; (ii) the number and type of outstanding equity securities of
each Subsidiary and a list of the holders thereof; (iii) the jurisdiction of
organization of each Subsidiary; (iv) the names of the officers, directors,
managers or general partners of each Subsidiary; and (v) the jurisdictions in
which each Subsidiary is qualified or holds licenses to do business as a foreign
corporation or other entity.
(b) Each Subsidiary is a limited liability company or limited
partnership duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or formation. Each Subsidiary is duly
qualified to conduct business and is in good standing under the laws of each
jurisdiction in which the nature of its businesses or the ownership or leasing
of its properties requires such qualification, except where the failure to be so
qualified or in good standing, individually or in the aggregate, has not had and
would not reasonably be expected to have a Company Material Adverse Effect. Each
Subsidiary has all requisite power and authority to carry on the businesses in
which it is engaged and to own, lease or otherwise use the properties owned,
leased and used by it. The Company has delivered, or Made Available, to the
Buyer complete and accurate copies of the charter, by laws or other
organizational documents of each Subsidiary. No Subsidiary is in default under
or in violation of any provision of its charter, by-laws or other organizational
documents. All of the issued and outstanding equity interests of each Subsidiary
are duly authorized, validly issued, fully-paid and nonassessable. There are no
outstanding or authorized options, warrants, rights, agreements or commitments
to which the Company or any Subsidiary is a party or which are binding on any of
them providing for the issuance, disposition or acquisition of any capital stock
of any Subsidiary. There are no
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voting trusts, proxies or other agreements or understandings with respect to the
voting of any equity interests of any Subsidiary.
(c) The Company does not control directly or indirectly or have any
direct or indirect equity participation or similar interest in any corporation,
partnership, limited liability company, joint venture, trust or other business
association or entity which is not a Subsidiary.
2.6 Financial Statements. The Company has provided, or Made Available, to
the Buyer the Financial Statements. Except as set forth in Section 2.6 of the
Disclosure Letter, the Financial Statements have been prepared in accordance
with GAAP applied on a consistent basis throughout the periods covered thereby,
fairly present, in all material respects, the consolidated financial condition,
results of operations and cash flows of the Company and the Subsidiaries as of
the respective dates thereof and for the periods referred to therein and are
consistent with the books and records of the Company and the Subsidiaries;
provided, however, that the Financial Statements referred to in clause (b) of
the definition of such term are subject to normal recurring year-end adjustments
and do not include footnotes.
2.7 Absence of Certain Changes. Except as set forth in Section 2.7 of the
Disclosure Letter, since the Most Recent Balance Sheet Date, (a) there has
occurred no event or development which, individually or in the aggregate, has
had, or could reasonably be expected to have a Company Material Adverse Effect,
and (b) neither the Company nor any Subsidiary has taken any of the actions set
forth in paragraphs (a) through (m) of Section 4.4, except as permitted under
Section 4.4 hereof.
2.8 Undisclosed Liabilities. Except as set forth in Section 2.8 of the
Disclosure Letter, none of the Company and its Subsidiaries has any material
Liability, except for (a) Liabilities shown on the Most Recent Balance Sheet (b)
Liabilities which have arisen since the Most Recent Balance Sheet Date in the
Ordinary Course of Business to the extent such Liabilities would not,
individually or in the aggregate, be material to the Company and (c) contractual
and other Liabilities incurred in the Ordinary Course of Business which are not
required by GAAP to be reflected on a balance sheet.
2.9 Tax Matters.
(a) The Company will file the Amended Tax Returns and the 2005
Extensions, in each case in accordance with Section 6.7(h)(i)(A) hereof. Except
as set forth in the first sentence of this Section 2.9(a), and except as set
forth in Section 2.9(a) of the Disclosure Letter, the Company and, to the extent
applicable, each of its Subsidiaries has filed on a timely basis all Tax Returns
that such entity was required to file, and all such Tax Returns were complete
and accurate in all material respects. Except with respect to the Company's
original 2003 and 2004 Tax Returns, and except as set forth in Section 2.9(a) of
the Disclosure Letter, the Company and each of its Subsidiaries have paid on a
timely basis all Taxes that were due and payable. Except with respect to the
Amended Tax Returns and to the extent attributable to the Amended Tax Returns,
the unpaid Taxes of the Company and each of its Subsidiaries for tax periods
through the Most Recent Balance Sheet Date do not exceed the accruals and
reserves for Taxes (excluding accruals and reserves for deferred Taxes
established to reflect timing differences between book and Tax income) set forth
on the Most Recent Balance Sheet. Neither the
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Company nor any of its Subsidiaries has any actual or potential liability for
any Tax obligation of any person other than the Company and the Subsidiaries.
All Taxes that the Company or any of its Subsidiaries is or was required by law
to withhold or collect have been duly withheld or collected and, to the extent
required, have been paid to the proper Governmental Entity, and have been
properly reported as required under applicable information reporting
requirements.
(b) The Company has delivered, or Made Available, to the Buyer
complete and accurate copies of all federal income Tax Returns filed for the
2001, 2002, 2003 and 2004 taxable years of the Company and each of its
Subsidiaries, and examination reports and statements of deficiencies assessed
against or agreed to by the Company or any Subsidiary since December 31, 2001.
Except as set forth in Section 2.9(b) of the Disclosure Letter, the Company or
the relevant Subsidiary has paid all deficiencies resulting from any examination
or audit relating to Taxes. The federal income Tax Returns of the Company have
been audited by the Internal Revenue Service or are closed by the applicable
statute of limitations for all taxable years through 2001. Except as set forth
in Section 2.9(b) of the Disclosure Letter, no examination or audit of any Tax
Return of the Company or any of its Subsidiaries by any Governmental Entity is
currently in progress or, to the knowledge of the Company, threatened or
contemplated and neither the Company nor any of its Subsidiaries has been
informed by any jurisdiction that the jurisdiction believes that the Company or
any such Subsidiary was required to file any Tax Return that was not filed.
Neither the Company nor any of its Subsidiaries has waived any statute of
limitations with respect to Taxes or agreed to an extension of time with respect
to a Tax assessment or deficiency, or executed any power of attorney with
respect to any Tax matter that is currently in force.
(c) Except as set forth in Section 2.9(c) of the Disclosure Letter,
neither the Company nor any Subsidiary: (i) is a "consenting corporation" within
the meaning of Section 341(f) of the Code, and none of the assets of the Company
or the Subsidiaries are subject to an election under Section 341(f) of the Code;
(ii) has been a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code during the applicable period specified
in Section 897(c)(1)(A)(ii) of the Code; (iii) has any actual or potential
liability for any Taxes of any person (other than the Company and its
Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of federal, state, local, or foreign law), or as a transferee or
successor, by contract, or otherwise; (iv) has been a member of an affiliated
group filing a consolidated federal income Tax Return (other than an affiliated
group the common parent of which was the Company); (v) has participated in, or
otherwise made a filing with respect to, a "reportable transaction" within the
meaning of Treasury Regulation Section 1.6011-4(b); (vi) is a direct or indirect
beneficiary of a guarantee of Tax benefits or any other arrangement that has the
economic effect of providing a guarantee of Tax benefits (including a Tax
indemnity from a seller or lessee of property, or insurance protection with
respect to Tax treatment) with respect to any transaction, or Tax opinion
relating to the Company or any of its Subsidiaries; (vii) has distributed stock
of another person, or has had its stock distributed by another person, in a
transaction that was purported or intended to be governed in whole or in party
by Section 355 of the Code; (viii) has entered into any transactions or other
arrangements which could reasonably be expected to give rise to an accrual of
taxable income subsequent to the Closing without a contemporaneous receipt of
cash; (ix) has participated in or cooperated with an international boycott
within the meaning of Section 999 of the Code; (x) has income which is
includible in computing the taxable income of a United States person (as
determined under
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Section 7701 of the Code) under Section 951 of the Code; (xi) has an "investment
in United States property" within the meaning of Section 956 of the Code; (xii)
is or was subject to the provisions of Section 1503(d) of the Code; or (xiii) is
or has been required to make a basis reduction pursuant to Treasury Regulation
Section 1.1502-20(b) or Treasury Regulation Section 1.337(d)-2(b).
(d) As of the Closing Date, (i) the Company's net operating loss carry
forwards that will be available, for federal income tax purposes, to be used by
the Surviving Corporation and/or Buyer immediately after the Closing will be
equal to at least Three Million Seven Hundred Thousand Dollars ($3,700,000),
subject to the limitations set forth in Section 382 of the Code, and (ii) the
Company will have an alternative minimum tax credit carry forward, for federal
income tax purposes, equal to at least Four Hundred Thousand Dollars ($400,000);
provided, however, if the actual amount with respect to either clause (i) or
(ii) is less than the minimum required amount set forth in this Section 2.9(d),
but the actual amount with respect to the other clause is greater than such
minimum required amount, then this representation and warranty shall be deemed
satisfied to the extent that the variances offset each other. For purposes of
comparing the amounts in clauses (i) and (ii), the alternative minimum tax
credit carryforward shall be divided by a factor of 0.35.
(e) There are no material liens for Taxes upon any property or asset
of the Company or any of its Subsidiaries, except for liens arising as a matter
of law relating to current Taxes not yet due.
(f) Except as set forth in Section 2.9(f) of the Disclosure Letter,
neither the Company nor any of its Subsidiaries (i) is a party to or is bound by
any Tax allocation or Tax sharing agreement or arrangement with any person other
than the Company or any of its Subsidiaries, pursuant to which it may have any
obligation to make any payments after the Closing, (ii) is a party to any
closing agreement pursuant to Section 7121 of the Code or any predecessor
provision thereof (or any similar provision of state, local or foreign law), or
any prefiling or other agreement with the Internal Revenue Service, or (iii) is
bound by any private letter ruling issued by the Internal Revenue Service or any
comparable ruling or guidance relating to Taxes issued by any other Governmental
Entity.
(g) Neither the Company nor any of its Subsidiaries is required to
include in income any adjustment pursuant to Section 481(a) of the Code by
reason of a voluntary change in accounting method, and the Internal Revenue
Service has not proposed any such adjustment or change in accounting method.
2.10 Assets.
(a) Except as set forth in Section 2.10(a) of the Disclosure Letter,
the Company or the applicable Subsidiary is the true and lawful owner, and has
good title to, all of the assets (tangible or intangible) purported to be owned
by the Company or the Subsidiaries, free and clear of all Security Interests.
Each of the Company and the Subsidiaries owns or leases all tangible assets
sufficient for the conduct of its businesses as presently conducted and as
presently proposed to be conducted. Except as set forth in Section 2.10(a) of
the Disclosure Letter, each such tangible asset is free from material defects,
has been maintained in accordance with normal
-16-
industry practice, is in good operating condition and repair (subject to normal
wear and tear) and is suitable for the purposes for which it presently is used.
(b) Section 2.10(b) of the Disclosure Letter lists individually (i)
all fixed assets (within the meaning of GAAP) of the Company or the Subsidiaries
having a book value greater than $10,000, and (ii) all other assets of a
tangible nature (other than inventories) of the Company or the Subsidiaries
whose book value exceeds $10,000.
2.11 Owned Real Property. Neither the Company nor any Subsidiary owns any
Owned Real Property.
2.12 Real Property Leases. Section 2.12 of the Disclosure Letter lists: (a)
each of the Company Facilities, (b) the street address and the current and
maximum licensed capacity of such Company Facility, (c) the landlord and owner
of each such Company Facility, (d) the term of each such Lease, and (e) any
extension and expansion or purchase options with respect thereto. The Company
has delivered, or Made Available, to the Buyer complete and accurate copies of
the Leases. Except as set forth in Section 2.12 of the Disclosure Letter,
neither the Company nor any of its Subsidiaries subleases or otherwise permits
the occupancy by any third party (other than the Residents) of all or any
portion of any of the Company Facilities. With respect to each Lease, except as
set forth in Section 2.12 of the Disclosure Letter:
(a) such Lease is legal, valid, binding, enforceable and in full force
and effect, subject to bankruptcy, insolvency, reorganization, moratoriums or
similar laws now or hereafter in effect relating to creditor's rights generally
or to general principles of equity;
(b) neither the Company nor any Subsidiary nor, to the knowledge of
the Company, any other party, is in material breach or violation of, or default
under, any such Lease, and no event has occurred, is pending or, to the
knowledge of the Company, is threatened, which, after the giving of notice, with
lapse of time, or otherwise, would constitute a material breach or default by
the Company or any Subsidiary or, to the knowledge of the Company, any other
party under such Lease.
(c) to the knowledge of the Company, all Company Facilities are
supplied with utilities and other services adequate for the operation of said
Company Facilities and are in good repair and working order sufficient for
normal operation of the Company's business, subject to normal wear and tear, and
adequate and suitable for the purposes for which they are presently being used;
(d) to the knowledge of the Company, each of the Company Facilities
has unlimited access to and from publicly dedicated streets, the responsibility
for maintenance of which has been accepted by the appropriate Governmental
Entity; and
(e) the Company is not aware of any Security Interest, easement,
covenant or other restriction or title matter applicable to the real property
subject to any such lease which would reasonably be expected to materially
impair the current uses or the occupancy by the Company or a Subsidiary of the
property subject thereto.
2.13 Intellectual Property.
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(a) Section 2.13(a) of the Disclosure Letter lists (i) each patent,
patent application, copyright registration or application therefor, mask work
registration or application therefor, and trademark, service ▇▇▇▇ and domain
name registration or application therefor of the Company or any Subsidiary.
(b) Each of the Company and the Subsidiaries owns or has the right to
use all material Intellectual Property necessary to conduct the business of the
Company and each of the Subsidiaries in the manner in which it is presently
conducted. To the knowledge of the Company, no other person or entity is
infringing, violating or misappropriating any of the Intellectual Property
rights of the Company or any Subsidiary. Except as set forth in Section 2.13(b)
of the Disclosure Letter, to the knowledge of the Company, neither the Company
nor any Subsidiary has infringed, violated or misappropriated any Intellectual
Property rights of any third party. Neither the Company nor any Subsidiary has
received any complaint, claim or notice, or written threat alleging any such
material infringement, violation or misappropriation. To the Company's
knowledge, there is no reasonable basis for any such claim.
(c) Section 2.13(c) of the Disclosure Letter identifies each license
or other agreement pursuant to which the Company or a Subsidiary has licensed,
distributed or otherwise granted any rights to any third party with respect to,
any Intellectual Property of the Company.
(d) Section 2.13(d) of the Disclosure Letter identifies each item of
Intellectual Property that is owned by a party other than the Company or a
Subsidiary, and the license or agreement pursuant to which the Company or a
Subsidiary uses it (excluding off the shelf software programs licensed by the
Company pursuant to "shrink wrap" licenses).
2.14 Contracts.
(a) Section 2.14(a) of the Disclosure Letter lists the following
agreements (written or oral) to which the Company or any Subsidiary is a party
as of the date of the Original Merger Agreement:
(i) any agreement (or group of related agreements) for the lease
of personal property from or to third parties providing for lease payments
in excess of $5,000 per annum;
(ii) any agreement for the purchase or sale of products or for
the furnishing or receipt of services, providing for payments by the
Company in excess of $5,000 per annum;
(iii) any agreement concerning the establishment or operation of
a partnership, joint venture or limited liability company;
(iv) any agreement under which it has created, incurred, assumed
or guaranteed (or may create, incur, assume or guarantee) indebtedness
(including capitalized lease obligations) or under which it has imposed (or
may impose) a Security Interest on any of its assets, tangible or
intangible;
-18-
(v) any agreement for the disposition of any material portion of
the assets or business of the Company or any Subsidiary (other than sales
of products or services in the Ordinary Course of Business) or any
agreement for the acquisition of the assets or business of any other entity
(other than purchases of inventory and supplies in the Ordinary Course of
Business);
(vi) any agreement concerning confidentiality or noncompetition
(other than those entered into with third parties relating to a sale of the
Company or all or substantially all of the assets of the Company and the
Subsidiaries that (x) were entered into during the calendar month of
September 2005 and (y) are substantially similar in form and substance to
the Confidentiality Agreement (as defined in Section 9.3);
(vii) any employment or consulting agreement;
(viii) any agreement involving any current or former officer,
director or shareholder of the Company or an Affiliate thereof;
(ix) any agreement under which the consequences of a default or
termination would reasonably be expected to have a Company Material Adverse
Effect;
(x) any agreement which is not cancelable upon notice of sixty
(60) days or less which provides for payments by the Company in excess of
$5,000 per annum; and
(xi) any other agreement not entered into in the Ordinary Course
of Business.
(b) The Company has delivered, or Made Available, to the Buyer a
complete and accurate copy of each agreement listed in Section 2.13 or Section
2.14 of the Disclosure Letter. With respect to each agreement so listed: (i) the
agreement is legal, valid, binding and enforceable and in full force and effect,
subject to bankruptcy, insolvency, reorganization, moratoriums or similar laws
now or hereafter in effect relating to creditor's rights generally or to general
principles of equity; and (ii) neither the Company nor any Subsidiary nor, to
the knowledge of the Company, any other party, is in material breach or
violation of, or default under, any such agreement, and no event has occurred,
is pending or, to the knowledge of the Company, is threatened, which, after the
giving of notice, with lapse of time, or otherwise, would constitute a material
breach or default by the Company or any Subsidiary or, to the knowledge of the
Company, any other party under such agreement.
2.15 Assisted Living Residence Agreements; Rent Rolls. Section 2.15 of the
Disclosure Letter lists each Resident, the apartment unit and Company Facility
where such Resident resides and the Rent Roll with respect thereto. Except as
set forth in Section 2.15 of the Disclosure Letter, neither the Company, nor any
of its Subsidiaries, is in material default under, nor to the Company's
knowledge is any Resident, in material default or is there any material dispute
under or with respect to any Assisted Living Residence Agreement. True and
complete
-19-
copies of the forms of Assisted Living Residence Agreement currently used in
each of the Company Facilities, including standard rent and rate schedules for
services provided by the Company, have been provided or Made Available to Buyer.
Except as set forth on Section 2.15 of the Disclosure Letter, all Residents of
the Company Facilities have executed Assisted Living Residence Agreements and
all Assisted Living Residence Agreements do not vary in any material respect
from the terms of the specimen agreements Made Available, were entered into on
an arms' length basis and do not provide for payment of a single sum in exchange
for lifetime care or other prepaid services.
2.16 Insurance. Section 2.16 of the Disclosure Letter lists each insurance
policy (including policies providing casualty, liability, medical and workers
compensation coverage) to which the Company or any Subsidiary is currently a
party, all of which are in full force and effect. The Company believes that the
insurance coverage currently held by the Company is adequate and appropriate for
its business as currently conducted. There is no material claim pending under
any such policy as to which coverage has been questioned, denied or disputed by
the underwriter of such policy. Except as set forth in Section 2.16 of the
Disclosure Letter, all premiums due and payable under all such policies have
been paid, and to the Company's knowledge, the Company and the Subsidiaries are
otherwise in compliance in all material respects with the terms of such
policies. The Company has no knowledge of any threatened termination of, or
substantial premium increase with respect to, any such policy. The Company has
reported all claims and given notice to all applicable insurance carriers of the
Company of any incident or occurrence which would reasonably be expected to give
rise to a claim under any such policy or policies of insurance, in accordance
with, and as and to the extent required by, such policy or policies.
2.17 Litigation. Except as set forth in Section 2.17 of the Disclosure
Letter, as of the date of the Original Merger Agreement, there is no Legal
Proceeding which is pending or, to the Company's knowledge, has been threatened
in writing against the Company or any Subsidiary which: (i) in any manner
challenges or seeks to prevent, enjoin, alter or delay the transactions
contemplated by this Agreement, or (ii) would reasonably be expected to cause
the Company or any Subsidiary to incur a material Liability. There are no
material judgments, orders or decrees outstanding against the Company or any
Subsidiary.
2.18 Employees.
(a) Section 2.18(a) of the Disclosure Letter contains a list of all
employees of the Company, along with the position and the annual rate of
compensation of each such person. Section 2.18 of the Disclosure Letter contains
a list of all employees of the Company or any Subsidiary who are a party to a
non-competition agreement with the Company or any Subsidiary; copies of such
agreements have previously been delivered, or Made Available, to the Buyer. To
the knowledge of the Company, no key employee or group of employees has any
plans to terminate employment with the Company or any Subsidiary.
(b) Neither the Company nor any Subsidiary is a party to or bound by
any collective bargaining agreement, nor has any of them experienced any
strikes, grievances, claims of unfair labor practices or other collective
bargaining disputes. The Company has no knowledge
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of any organizational effort made or threatened, either currently or within the
past two years, by or on behalf of any labor union with respect to employees of
the Company or any Subsidiary.
2.19 Employee Benefits.
(a) Section 2.19(a) of the Disclosure Letter contains a complete and
accurate list of all Company Plans. Complete and accurate copies (including all
applicable amendments) of (i) all Company Plans which have been reduced to
writing, (ii) written summaries of all unwritten Company Plans, (iii) all
related trust agreements, insurance contracts, summary plan descriptions and
summaries of material modifications, and (iv) all annual reports filed on IRS
Form 5500, 5500C or 5500R and (for all funded plans) and all plan financial
statements, if any, in each case, for the three most recent plan years for each
Company Plan, have been delivered, or Made Available to, the Buyer.
(b) Each Company Plan has been administered in accordance with its
terms and in all material respects in accordance with the Code, ERISA and all
applicable law, and each of the Company, the Subsidiaries and the ERISA
Affiliates has in all material respects met its obligations with respect to each
Company Plan and has timely made all required contributions thereto. All filings
and reports as to each Company Plan required to have been submitted to the
Internal Revenue Service or to the United States Department of Labor have been
duly submitted. No Company Plan has assets that include securities issued by the
Company or any ERISA Affiliate.
(c) There are no Legal Proceedings (except claims for benefits payable
in the normal operation of the Company Plans and proceedings with respect to
qualified domestic relations orders) against or involving any Company Plan or
asserting any rights or claims to benefits under any Company Plan that could
give rise to any liability.
(d) Except as set forth in Section 2.19(d) of the Disclosure Letter,
all the Company Plans that are intended to be qualified under Section 401(a) of
the Code have received current determination letters from the Internal Revenue
Service to the effect that such Company Plans are qualified and no such
determination letter has been revoked and revocation has not been threatened,
and no such Company Plan has been amended since the date of its most recent
determination letter or application therefor in any respect, and no act or
omission has occurred, that would adversely affect its qualification.
(e) Neither the Company, any Subsidiary, nor any ERISA Affiliate has
ever maintained an Employee Benefit Plan subject to Section 412 of the Code or
Title IV of ERISA.
(f) At no time has the Company, any Subsidiary or any ERISA Affiliate
been obligated to contribute to any pension plan that is "multiemployer plan"
(as defined in Section 4001(a)(3) of ERISA) and at no time has the Company, any
Subsidiary or any ERISA Affiliate been obligated to contribute to any welfare
plan that is a "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA).
(g) There are no material unfunded obligations under any Company Plan
providing benefits after termination of employment to any employee of the
Company or any
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Subsidiary (or to any beneficiary of any such employee), including but not
limited to retiree health coverage and deferred compensation, but excluding
continuation of health coverage required to be continued under Section 4980B of
the Code or other applicable law and insurance conversion privileges under state
law.
(h) No act or omission has occurred and to the knowledge of the
Company no condition exists with respect to any Company Plan that would subject
the Company, any Subsidiary or any ERISA Affiliate to any material fine,
penalty, tax or liability of any kind imposed under ERISA, the Code or
applicable federal or state securities laws.
(i) No Company Plan is funded by, associated with or related to a
"voluntary employee's beneficiary association" within the meaning of Section
501(c)(9) of the Code.
(j) Except as set forth on Section 2.19(j) of the Disclosure Letter,
each Company Plan is amendable and terminable by the Company at any time without
liability or expense to the Company or such Company Plan as a result thereof
(other than for benefits accrued through the date of termination or amendment
and reasonable administrative expenses related thereto) and no Company Plan,
plan documentation or agreement, summary plan description or other written
communication distributed generally to employees by its terms prohibits the
Company from amending or terminating any such Company Plan.
(k) Section 2.19(k) of the Disclosure Letter discloses each: (i)
agreement with any shareholder, director, executive officer or employee of the
Company or any Subsidiary (A) the benefits of which are contingent, or the terms
of which are altered, upon the occurrence of a transaction involving the Company
or any Subsidiary of the nature of any of the transactions contemplated by this
Agreement, or (B) providing severance benefits or other benefits after the
termination of employment of such director, executive officer or employee; (ii)
agreement, plan or arrangement under which any person may receive payments from
the Company or any Subsidiary that may be subject to the tax imposed by Section
4999 of the Code or included in the determination of such person's "parachute
payment" under Section 280G of the Code; and (iii) agreement or plan binding the
Company or any Subsidiary, including any stock option plan, stock appreciation
right plan, restricted stock plan, stock purchase plan, severance benefit plan
or Company Plan, any of the benefits of which will be increased, or the vesting
of the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement. Assuming the requisite shareholder
approval contemplated in Section 4.17, there is no contract, agreement, plan or
arrangement to which the Company or any of its Subsidiaries is a party,
including the provisions of Sections 1.6, 1.9, 4.8 and 4.16 and Article VI of
this Agreement, covering any current or former employee, director or consultant
of the Company or any of its Subsidiaries that, individually or collectively,
will give rise to the payment of any amount that would not be deductible
pursuant to Sections 404 or 280G of the Code.
(l) Section 2.19(l) of the Disclosure Letter sets forth the Company's
potential liability, as of the Closing Date, for awards payable to employees of
the Company under the Company's bonus programs, including the names of the
employees to receive awards thereunder and the amount of such awards. The
Company has entered into an agreement with each employee who is to receive an
award under such bonus programs which sets forth the relevant terms and
conditions of such employee's award.
-22-
(m) Except as set forth in Section 2.19(m) of the Disclosure Letter,
neither the Company nor any of its ERISA Affiliate has (i) used the services or
workers provided by third party contract labor suppliers, temporary employees,
"leased employees" (as that term is defined in Section 414(n) of the Code), or
individuals who have provided services as independent contractors to an extent
that would reasonably be expected to result in the disqualification of any of
the Company Plans or the imposition of penalties or excise taxes with respect to
the Plans by the Internal Revenue Service, the Department of Labor, or the
Pension Benefit Guaranty Corporation.
2.20 Environmental Matters.
(a) Each of the Company and the Subsidiaries has complied in all
material respects with all applicable Environmental Laws. There is no pending
or, to the knowledge of the Company, threatened civil or criminal litigation,
written notice of violation, formal administrative proceeding, or investigation,
inquiry or information request by any Governmental Entity, relating to any
Environmental Law involving the Company or any Subsidiary.
(b) Neither the Company nor any Subsidiary, or, to the knowledge of
the Company, any other person or entity, has released, discharged or otherwise
disposed of any Materials of Environmental Concern at, on, beneath or from any
parcel of real property currently or formerly leased by the Company or any
Subsidiary, and neither the Company or any Subsidiary has released, discharged
or otherwise disposed of any Materials of Environmental Concern at, on, beneath
or from any other real property.
(c) Neither the Company nor any Subsidiary is a party to or bound by
any court order, administrative order, consent order or other agreement between
the Company and any Governmental Entity entered into in connection with any
legal obligation or Liability arising under any Environmental Law.
(d) Set forth in Section 2.20(d) of the Disclosure Letter is a list of
all documents (whether in hard copy or electronic form) that contain any
environmental reports, investigations and audits relating to premises currently
or previously owned or operated by the Company or a Subsidiary (whether
conducted by or on behalf of the Company or a Subsidiary or a third party, and
whether done at the initiative of the Company or a Subsidiary or directed by a
Governmental Entity or other third party) which were issued or conducted during
the past five years and which the Company has possession of or access to. A
complete and accurate copy of each such document has been provided, or Made
Available, to the Buyer.
(e) The Company and the Subsidiaries do not have any material
environmental liability relating to any solid or hazardous waste transporter or
treatment, storage or disposal facility that has been used by the Company or any
Subsidiary.
(f) Notwithstanding the foregoing Sections 2.20(a) through 2.20(e),
the representations and warranties set forth in this Section 2.20 shall only
apply, with respect to each Managed Facility, for such period of time in which
the Company actually managed each such Managed Facility.
-23-
2.21 Legal Compliance.
(a) Except as set forth in Section 2.21(a) of the Disclosure Letter
and subject to the representations and warranties made in Sections 2.21(b)
hereof, each of the Company and the Subsidiaries is currently conducting, and
has at all times since October 1, 2003, conducted, their respective businesses
in compliance in all material respects with each applicable law (including rules
and regulations thereunder) of any federal, state, local or foreign government,
or any Governmental Entity, except for any violations or defaults that,
individually or in the aggregate, have not had and would not reasonably be
expected to have a material adverse effect on the assets, liabilities,
capitalization, financial condition or results of operations of any Company
Facility.
(b) The Company is certified for participation in, and party to, valid
provider agreements for payment by the North Carolina Special Assistance Program
(the "Government Program") for the provision of assisted living, special care
and other related healthcare and support services. True and complete copies of
the provider agreement relating to the Government Program have been delivered,
or Made Available to, Buyer. The Company is in good standing under the
Government Program and any third party payor program. There are no concluded or
pending or, to the Company's knowledge, threatened investigations, audits or
other actions by any third party fiscal intermediary or carrier administering
the Government Program or any Governmental Entity, to recoup, setoff, or suspend
payments to, or demand a refund from, or terminate the provider agreements with,
or asserting any claim, demand, penalty, fine, or other sanction with respect to
any of the activities, practices, policies or claims of the Company, and to the
Company's knowledge, there are no grounds to anticipate any such audit,
investigation or action with respect to the Company. The Company has not
submitted to the Government Program any materially false or fraudulent claim for
payment, nor has the Company materially violated any condition for
participation, or any rule, regulation, policy or standard of, the Government
Program. All applicable cost reports related to the Company for all periods
prior to the Closing have been accurately completed in all material respects and
timely filed.
(c) The Company and its Subsidiaries have complied, in all material
respects, with all applicable security and privacy standards regarding protected
health information under the Health Insurance Portability and Accountability Act
of 1996 and all applicable state privacy laws, and with all applicable
regulations promulgated under any such legislation.
2.22 Permits. The Company and its Subsidiaries hold all of the material
Permits that are required for the Company and the Subsidiaries to conduct their
respective businesses as presently conducted or as proposed to be conducted
prior to Closing. Each such Permit is in full force and effect; the Company or
the applicable Subsidiary is in substantial compliance with the terms of each
such Permit; and, to the knowledge of the Company, except as set forth on
Section 2.22 of the Disclosure Letter, no suspension or cancellation of such
Permit is threatened and there is no basis for believing that such Permit will
not be renewable upon expiration. Section 2.22 of the Disclosure Letter sets
forth a list of all operating licenses required for the operation of each of the
Company Facilities.
2.23 Certain Business Relationships With Affiliates. No Affiliate of the
Company (other than a Subsidiary) or of any Subsidiary (a) owns any property or
right, tangible or
-24-
intangible, which is used in the business of the Company or any Subsidiary, (b)
has any claim or cause of action against the Company or any Subsidiary, or (c)
owes any money to, or is owed any money by, the Company or any Subsidiary.
Section 2.23 of the Disclosure Letter describes any commercial transactions or
relationships between the Company or a Subsidiary and any Affiliate (other than,
with respect to the Company, a Subsidiary) thereof which occurred or have
existed since the beginning of the time period covered by the Financial
Statements.
2.24 Brokers' Fees. Except as set forth in Section 2.24 of the Disclosure
Letter, neither the Company nor any Subsidiary has any liability or obligation
to pay any fees or commissions to any broker, finder or agent with respect to
the transactions contemplated by this Agreement.
2.25 Books and Records. The minute books and other similar records of the
Company and each Subsidiary contain complete and accurate records of all actions
taken at any meetings of the Company's or such Subsidiary's shareholders, Board
of Directors or any committee thereof and of all written consents executed in
lieu of the holding of any such meeting. The books and records of the Company
and each Subsidiary accurately reflect in all material respects the assets,
Liabilities, business, financial condition and results of operations of the
Company or such Subsidiary and have been maintained in accordance with good
business and bookkeeping practices. Section 2.25 of the Disclosure Letter
contains a list of all bank accounts and safe deposit boxes of the Company and
the Subsidiaries and the names of persons having signature authority with
respect thereto or access thereto.
2.26 WARN Compliance. The Company and its Subsidiaries have taken, or will
take prior to the Closing, as required by law, any and all actions necessary to
comply with the Worker Adjustment and Retraining Notification Act (the "WARN
Act"), or state statute of similar import, with respect to any event or
occurrence affecting the Company Facilities or the business of the Company and
the Subsidiaries.
2.27 Survey Reports. Complete and correct copies of all Survey Reports,
waivers of deficiencies, plans of correction, and any other investigation
reports received by the Company or any Subsidiary and issued with respect to the
Company Facilities since October 1, 2003 (collectively, "Licensing Surveys")
have been delivered, or Made Available, to Buyer. Except as set forth on Section
2.27 of the Disclosure Letter, there are no material deficiencies or violations
noted in any Licensing Surveys, and, the Company or its Subsidiaries have
remedied, discharged and complied with all applicable plans of correction, such
that there are no current material violations or deficiencies with respect to
any of the licenses issued and required by Governmental Entities in connection
with the ownership, maintenance and operation of the Company Facilities or the
operation of the business of the Company and the Subsidiaries.
2.28 Capital Expenditures. Except as set forth in Section 2.28 of the
Disclosure Letter or permitted under Section 4.4 hereof, and except for routine
expenditures for repairs and replacements in connection with the ongoing
maintenance and upkeep of the Company Facilities, the Company and the
Subsidiaries do not have any outstanding contracts for capital expenditures
relating to the Company Facilities, nor does the Company nor any Subsidiary have
any agreement, obligations or commitments for capital expenditures relating to
the Company Facilities, including, without limitation, additions to property,
plant, equipment or intangible
-25-
capital assets. The Company covenants and agrees that any capital expenditures
with respect to which, as of the date of the Original Merger Agreement, the
Company has entered into agreements, or with respect to which work has already
commenced, will be completed prior to March 1, 2006.
2.29 Absence of Adverse Notices. Except as set forth in Section 2.29 of the
Disclosure Letter, none of the Company or any of the Subsidiaries has received
any written notice that any material customer or supplier of the Company and the
Subsidiaries intends to discontinue, substantially alter prices or terms to, or
significantly diminish its relationship with the Company and the Subsidiaries as
a result of the transaction contemplated hereby or otherwise.
2.30 Resident Records. Except as set forth in Section 2.30 of the
Disclosure Letter, none of Company or any of the Subsidiaries has received
written notice: (a) that Resident records used or developed in connection with
the business conducted at the Company Facilities have not been maintained in all
material respects in accordance with any applicable federal, state or local laws
or regulations governing the preparation, maintenance of confidentiality,
transfer and/or destruction of such records, and (b) of any material deficiency
in the Resident records used or developed in connection with the operation of
the business conducted at the Company Facilities.
2.31 Government Reimbursement Programs. Except as set forth in Section 2.31
of the Disclosure Letter, none of the Company or the Subsidiaries have
participated in, and none of them currently participate in, Title XVIII
("Medicare") or Title XIX ("Medicaid") of the Social Security Act and none of
them are a "provider" under the federal Medicare, CHAMPUS, TRICARE or any other
federal, state or local governmental reimbursement programs, or successor
programs to any of the above.
2.32 Licensed Beds and Units. The number of licensed assisted living beds
and units at the Company Facilities is as set forth on Section 2.32 of the
Disclosure Letter. There are no skilled nursing beds located at any of the
Company Facilities.
2.33 Disclosure. No representation or warranty by the Company contained in
this Agreement, and no statement contained in the Disclosure Letter or any other
document, certificate or other instrument delivered, to be delivered, Made
Available or to be Made Available by or on behalf of the Company pursuant to
this Agreement, contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE TRANSITORY SUBSIDIARY
Each of the Buyer and the Transitory Subsidiary jointly and severally
represents and warrants to the Company that the statements contained in this
Article III are true and correct as
-26-
of the date of the Original Merger Agreement and will be true and correct as of
the Closing as though made as of the Closing.
3.1 Organization and Corporate Power. Each of the Buyer and the Transitory
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation and in all
jurisdictions necessary to carry out the Company's business, except where any
failure to do so, individually or in the aggregate, has not had and would not
reasonably be expected to have a Buyer Material Adverse Effect. The Buyer has
all requisite corporate power and authority to carry on the businesses in which
it is engaged and to own and use the properties owned and used by it, except
where any failures, individually or in the aggregate, has not had and would not
reasonably be expected to have a Buyer Material Adverse Effect.
3.2 Authorization of Transaction. Each of the Buyer and the Transitory
Subsidiary has all requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The execution and delivery
by the Buyer and the Transitory Subsidiary of this Agreement and the
consummation by the Buyer and the Transitory Subsidiary of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of the Buyer and Transitory Subsidiary,
respectively. This Agreement has been duly and validly executed and delivered by
the Buyer and the Transitory Subsidiary and constitutes a valid and binding
obligation of the Buyer and the Transitory Subsidiary, enforceable against them
in accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratoriums or similar laws now or hereafter in effect relating to creditor's
rights generally or to general principles of equity.
3.3 Noncontravention. Subject to compliance with the applicable
requirements of the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act and the filing of the Articles of
Merger as required by the DGCL, neither the execution and delivery by the Buyer
or the Transitory Subsidiary of this Agreement, nor the consummation by the
Buyer or the Transitory Subsidiary of the transactions contemplated hereby, will
(a) conflict with or violate any provision of the charter or By-laws of the
Buyer or the Transitory Subsidiary, (b) require on the part of the Buyer or the
Transitory Subsidiary any filing with, or permit, authorization, consent or
approval of, any Governmental Entity, except where the failure to be provide
such notice or obtain any such permit, authorization, consent or approval,
individually or in the aggregate, has not had and would not reasonably be
expected to have a Buyer Material Adverse Effect, (c) conflict with, result in
breach of, constitute (with or without due notice or lapse of time or both) a
default under, result in the acceleration of obligations under, create in any
party any right to terminate, modify or cancel, or require any notice, consent
or waiver under, any material contract or instrument to which the Buyer or the
Transitory Subsidiary is a party or by which either is bound or to which any of
their assets are subject except for (i) any conflict, breach, default,
acceleration, termination, modification or cancellation which would not
adversely affect the consummation of the transactions contemplated hereby or
(ii) any notice, consent or waiver the absence of which would not adversely
affect the consummation of the transactions contemplated hereby, or (d) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
the Buyer or the Transitory Subsidiary or any of their properties or assets,
except where any such violation, individually or in the aggregate, has not had
and would not reasonably be expected to have a Buyer Material Adverse Effect.
-27-
3.4 Financing. The Buyer will have, as of the Closing Date and as of the
Final Balance Sheet Date, as applicable, sufficient funds available to pay the
aggregate Closing Consideration and the aggregate Final Consideration in
accordance with the terms of this Agreement and to perform its other obligations
pursuant to this Agreement.
3.5 Inspections; No Other Representations. Buyer and Transitory Subsidiary
are informed and sophisticated purchasers, and have engaged expert advisors,
experienced in the evaluation and purchase of companies such as Company and its
Subsidiaries as contemplated hereunder. Buyer and Transitory Subsidiary have
undertaken such investigation and have been provided with and have evaluated
such documents and information as they have deemed necessary to enable them to
make informed and intelligent decisions with respect to the execution, delivery
and performance of this Agreement. As of the Closing Date, to the extent that
Buyer and the Transitory Subsidiary shall have received such Environmental
Reports and such Property Condition Reports as are contemplated by Section 4.10
hereof, Buyer and Transitory Subsidiary expressly acknowledge and agree that no
information contained in such reports indicates the presence of any Material
Environmental Deficiencies or any Material Structural Deficiencies in the
Company Facilities. Buyer and Transitory Subsidiary acknowledge that Company
makes no representation or warranty with respect to (i) any projections,
estimates or budgets delivered or Made Available to Buyer and Transitory
Subsidiary of future revenues, future results of operations (or any component
thereof), future cash flows or future financial condition (or any component
thereof) of Company and the Subsidiaries or the future business and operations
of Company and the Subsidiaries or (ii) any other information or documents Made
Available to Buyer, Transitory Subsidiary or their respective counsel,
accountants or advisors with respect to Company or the Subsidiaries or their
respective businesses or operations, except as expressly set forth in this
Agreement.
ARTICLE IV
COVENANTS
4.1 Closing Efforts. Each of the Parties shall use its Reasonable Best
Efforts to take all actions and to do all things necessary, proper or advisable
to consummate the transactions contemplated by this Agreement, including using
its Reasonable Best Efforts to ensure that (i) its representations and
warranties are true and correct in all material respects at the Closing Date and
(ii) the conditions to the obligations of the other Parties to consummate the
Merger are satisfied.
4.2 Governmental and Third-Party Notices and Consents.
(a) Each Party shall use its Reasonable Best Efforts to obtain, at its
expense, all waivers, permits, consents, approvals or other authorizations from
Governmental Entities, and to effect all registrations, filings and notices with
or to Governmental Entities, as may be required for such Party to consummate the
transactions contemplated by this Agreement and to otherwise comply with all
applicable laws and regulations in connection with the consummation of the
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, each of the Parties shall promptly file any Notification and
Report Forms and related material that it may be required to file with the
Federal Trade Commission and the Antitrust Division of the
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United States Department of Justice under the ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ Act, shall use
its Reasonable Best Efforts to obtain an early termination of the applicable
waiting period, and shall make any further filings or information submissions
pursuant thereto that may be necessary, proper or advisable; provided that in no
event shall Buyer or any of its Affiliates be required to (i) agree or commit to
divest, hold separate, offer for sale, abandon, limit its operation of or take
similar action with respect to any assets (tangible or intangible) or any
business interest of it or any of its Affiliates (including, without limitation,
the Surviving Corporation or any of the Subsidiaries after consummation of the
Merger) in connection with or as a condition to receiving the consent or
approval of any Governmental Entity (including, without limitation, under the
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ Act) or (ii) defend through litigation on the merits any claim
asserted in any court by any person or Government Entity. Notwithstanding the
foregoing to the contrary, each of Buyer and the Company shall be responsible
for paying 50% of any filing fees incurred by either the Company or Buyer with
respect to filings made with the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice under the ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
Act. With respect to any survey or other relicensing inspection of a Company
Facility by any Governmental Entity conducted at any time during the three (3)
month period after the Closing Date as a result of Buyer's application for
change of ownership or change of operator, as applicable, the Company (or the
Indemnifying Securityholders to the extent such costs are payable after Closing)
shall be responsible (on a joint and several basis, with respect to the
Indemnifying Securityholders) for all citations and/or deficiencies attributable
(i) solely to pre-Closing activities that violate a licensing statute, rule or
regulation (and which violation did not first occur after the Closing Date)
and/or (ii) to pre-Closing conditions existing at such Company Facility, and the
Company shall take all actions reasonably necessary to correct such citations
and/or deficiencies to the extent applicable; provided, however, that in no
event shall the Company (or the Indemnifying Securityholders to the extent such
costs are payable after Closing) be obligated to pay pursuant to this Section
4.2, in the aggregate, more than $25,000 with respect to any Company Facility.
In any instance requiring payment by the Indemnifying Securityholders pursuant
to this Section 4.2, the Company shall promptly provide each Shareholder
Representative with copies of any and all invoices supporting such charges and
shall utilize reasonably cost-effective means of accomplishing such repairs.
Subject to the limitations set forth in the preceding two sentences, the
Company's or the Indemnifying Securityholders' responsibilities, as the case may
be, shall include correcting all non-compliances and/or citations, paying any
and all fines, providing a plan of correction (prior to Closing), providing and
bearing the expense for all consultants, staff, materials, supplies and
equipment necessary to complete the plan of correction, and achieve full
compliance.
(b) Notwithstanding anything else in this section to the contrary, and
in connection with the shareholder approval contemplated in Section 4.17(ii),
the Company shall, prior to the Closing, obtain all necessary consents from the
requisite Company Shareholders to ensure that there are no contracts,
agreements, plans, or arrangements maintained by the Company or any of its
Subsidiaries or to which the Company or any of its Subsidiaries is a party,
including the provisions of Sections 1.6, 1.9, 4.8 and 4.16 and Article VI of
this Agreement, covering any current or former employee, director or consultant
of the Company or any of its Subsidiaries that, individually or collectively,
will give rise to the payment of any amount that would not be deductible
pursuant to Section 280G of the Code.
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(c) Except as set forth above, the Company shall use its Reasonable
Best Efforts to obtain, at its expense, all such waivers, consents or approvals
from third parties, and to give all such notices to third parties, as are
required to be listed in the Disclosure Letter, including, without limitation,
any waivers, consents or approvals from third parties arising or delivered after
the Closing.
4.3 Licensing Surveys. The Company shall provide and cause its Subsidiaries
to provide, or Make Available, to Buyer any Licensing Surveys issued with
respect to the Company Facilities received by the Company between the Effective
Time and the Closing Date.
4.4 Operation of Business. Except as contemplated by this Agreement, during
the period from the date of the Original Merger Agreement to the earlier of the
Closing or the termination of this Agreement, the Company shall (and shall cause
each Subsidiary to) conduct its operations in the Ordinary Course of Business
and in compliance in all material respects with all applicable laws and
regulations and, to the extent consistent therewith, use its Reasonable Best
Efforts to preserve intact its current business organization, keep its physical
assets in good working condition, order and repair (normal wear and tear
excepted), maintain, comply with and not make any changes or modifications to
any contracts, Leases or other agreements, keep, maintain and comply with all
insurance policies and permits, and keep available the services of its current
officers and employees and preserve its relationships with customers, suppliers
and others having business dealings with it to the end that its goodwill and
ongoing business shall not be impaired in any material respect. Without limiting
the generality of the foregoing, during this period, the Company shall not (and
shall cause each Subsidiary not to), without the written consent of the Buyer,
which consent shall not be unreasonably withheld:
(a) issue or sell any stock or other securities of the Company or any
Subsidiary or any options, warrants or rights to acquire any such stock or other
securities (except pursuant to the conversion or exercise of Options or Warrants
outstanding on the date of the Original Merger Agreement), or amend any of the
terms of (including the vesting of) any Options, Warrants or restricted stock
agreements, or repurchase or redeem any stock or other securities of the Company
(except from former employees, directors or consultants in accordance with
agreements providing for the repurchase of shares at their original issuance
price in connection with any termination of employment with or services to the
Company);
(b) split, combine or reclassify any shares of its capital stock; or
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock
(except for cash dividends or distributions in respect of its capital stock up
to an aggregate of $1,000,000);
(c) create, incur or assume any short-term indebtedness (including
obligations in respect of capital leases) other than in the Ordinary Course of
Business, or create, incur or assume any long-term indebtedness; assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person or entity; or
make any loans, advances or capital contributions to, or investments in, any
other person or entity;
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(d) enter into, adopt or amend in any material respect any Employee
Benefit Plan or any employment or severance agreement or arrangement of the type
described in Section 2.19(k) (except for additional bonus agreements of the type
described in Section 2.19(k) of the Disclosure Letter) or (except for normal
increases in the Ordinary Course of Business) increase in any material respect
the compensation or fringe benefits of, or materially modify the employment
terms of, its directors, officers or employees, generally or individually, or
pay any bonus or other benefit to its directors, officers or employees (except
for existing payment obligations listed in Section 2.19 of the Disclosure Letter
or annual or other bonuses or salary increases contemplated under the Company's
annual budgets) or hire any new officers, or, except in the Ordinary Course of
Business, any new employees;
(e) acquire, sell, lease, license or dispose of any assets or property
(including any shares or other equity interests in or securities of any
Subsidiary or any corporation, partnership, association or other business
organization or division thereof), other than purchases and sales of assets in
the Ordinary Course of Business (but not any shares or other equity interests in
or securities of any Subsidiary, whether or not in the Ordinary Course of
Business), or merge or consolidate with any entity;
(f) mortgage or pledge any of its property or assets or subject any
such property or assets other than in the Ordinary Course of Business (but not
any shares or other equity interests in or securities of any Subsidiary, whether
or not in the Ordinary Course of Business), to any Security Interest;
(g) discharge or satisfy any Security Interest or pay any obligation
or liability other than in the Ordinary Course of Business;
(h) amend its charter, by-laws or other organizational documents
except as contemplated by this Agreement;
(i) change its accounting methods, principles or practices, except
insofar as may be required by a generally applicable change in GAAP, or make any
new elections, or changes to any current elections, with respect to Taxes;
(j) enter into any new contract or agreement requiring payments by the
Company in excess of $10,000 or that is not cancelable by the Company upon sixty
(60) days notice, except for Assisted Living Residence Agreements in the
Ordinary Course of Business, or amend, terminate, take or omit to take any
action that would constitute a violation of or default under, or waive any
rights under, any material contract or agreement (including, without limitation,
any Lease) of a nature required to be listed in Section 2.12, Section 2.13 or
Section 2.14 of the Disclosure Letter;
(k) make or commit to make any capital expenditure in excess of
$50,000 per item or $500,000 in the aggregate, unless any such capital
expenditure is otherwise consistent with the Company's capital expenditure
budget as described on Exhibit C;
(l) institute or settle, except for settlements which do not exceed
$50,000 in the aggregate, any Legal Proceeding; or
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(m) agree in writing or otherwise to take any of the foregoing
actions.
4.5 Access to Information.
(a) The Company shall (and shall cause each Subsidiary to), during the
period from the date of execution of the Original Merger Agreement until the
earlier of the Closing or the termination of this Agreement, permit
representatives of the Buyer, upon notice to the Company, to have full access
(at all reasonable times, and in a manner so as not to interfere unreasonably
with the normal business operations of the Company and the Subsidiaries) to all
premises, properties, financial, tax and accounting records (including the work
papers of the Company's independent accountants), contracts, other records and
documents, and personnel, of or pertaining to the Company and each Subsidiary.
(b) Within 30 days after the end of each month ending prior to the
Closing, beginning with the first month ending following the date of the
Original Merger Agreement, the Company shall furnish, or make available, to the
Buyer an unaudited income statement for such month and a balance sheet as of the
end of such month, prepared on a basis consistent with the Financial Statements.
Such financial statements shall present fairly, in all material respects, the
financial condition and results of operations of the Company and the
Subsidiaries on a consolidated basis as of the dates thereof and for the periods
covered thereby, and shall be consistent with the books and records of the
Company and the Subsidiaries.
(c) Each of the Buyer and the Transitory Subsidiary acknowledges and
agrees that they are parties to that certain Confidentiality Agreement with the
Company dated as of September 12, 2005 (the "Confidentiality Agreement"), and
the terms and conditions of the Confidentiality Agreement shall apply to the
matters set forth herein or contemplated hereby.
4.6 Exclusivity.
(a) From the date of execution of the Original Merger Agreement until
the earlier of the Closing or the termination of this Agreement, the Company
shall not, and the Company shall require each of its officers, directors,
employees, representatives and agents not to, directly or indirectly, (i)
initiate, solicit, encourage or otherwise facilitate any inquiry, proposal,
offer or discussion with any party (other than the Buyer) concerning any merger,
reorganization, consolidation, recapitalization, business combination,
liquidation, dissolution, share exchange, sale of stock, sale of material assets
or similar business transaction involving the Company, any Subsidiary or any
division of the Company, (ii) furnish, or make available, any non public
information concerning the business, properties or assets of the Company, any
Subsidiary or any division of the Company to any party (other than the Buyer) or
(iii) engage in discussions or negotiations with any party (other than the
Buyer) concerning any such transaction.
(b) The Company shall immediately notify any party with which
discussions or negotiations of the nature described in paragraph (a) above were
pending that the Company is terminating such discussions or negotiations. If the
Company receives any inquiry, proposal or offer of the nature described in
paragraph (a) above, the Company shall, within two business days after such
receipt, notify the Buyer of such inquiry, proposal or offer, including the
general terms of such inquiry, proposal or offer.
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4.7 Expenses. Except otherwise as provided in this Agreement, each of the
Parties shall bear its own costs and expenses (including legal and accounting
fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby.
4.8 Indemnification and Insurance.
(a) The Buyer shall not, for a period of six years after the Closing,
take any action to alter or impair any exculpatory or indemnification provisions
now existing in the Articles of Incorporation or By-laws of the Company, or any
other contract or agreement between or among the Company and its current or
former officer or directors, for the benefit of any individual who served as a
director or officer of the Company at any time prior to the Closing, except for
any changes which may be required to conform with changes in applicable law and
any changes which do not affect the application of such provisions to acts or
omissions of such individuals prior to the Closing.
(b) From and after the Closing, the Buyer agrees that it will, and
will cause the Surviving Corporation to, indemnify and hold harmless each
Indemnified Executive against any costs or expenses (including attorneys' fees),
judgments, fines, losses, claims, damages, liabilities or amounts paid in
settlement incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
Closing, whether asserted or claimed prior to, at or after the Closing, to the
fullest extent permitted under North Carolina law (and the Buyer and the
Surviving Corporation shall also advance expenses as incurred to the fullest
extent permitted under North Carolina law, provided the Indemnified Executive to
whom expenses are advanced provides an undertaking to repay such advances if it
is ultimately determined that such Indemnified Executive is not entitled to
indemnification).
(c) For a period of six years after the Closing, the Buyer shall cause
the Surviving Corporation to maintain (to the extent available in the market) in
effect a directors' and officers' liability insurance policy covering those
persons who are currently covered by the Company's directors' and officers'
liability insurance policy (a copy of which has been heretofore delivered, or
Made Available, to the Buyer) with coverage in amount and scope at least as
favorable to such persons as the Company's existing coverage; provided, that in
no event shall the Buyer or the Surviving Corporation be required to expend in
excess of $78,000 in the aggregate to procure such coverage for the entire six
year period and the Shareholder Representatives shall be entitled to personally
pay the amount of any premiums in excess of such limitation. Further, at the
option of Buyer, Buyer may elect to satisfy its obligations under this Section
4.8(c) by increasing the Initial Merger Consideration by $78,000 as contemplated
by Section 1.5(a), and, if Buyer does the foregoing, it shall have no further
obligations under this Section 4.8(c).
(d) On or prior to Closing, the Company shall obtain tail insurance
for professional and general liability insurance coverage in the amount of its
existing insurance coverage for such insurance, and lasting for a period of two
(2) years after Closing, with respect to the Company's pre-Closing operations,
which coverage shall name Buyer as a co-beneficiary thereunder (the "Tail
Insurance Coverage").
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4.9 Title Information. The Company shall deliver, or Make Available, to
Buyer, not more than three (3) business days following the date of execution of
the Original Merger Agreement, copies of any existing title insurance policies
insuring the Company's leasehold interest in the Company Facilities and any
existing surveys of the Company Facilities now in the Company's possession. Such
material is provided without representation or warranty of any kind, but rather
delivered as a convenience to assist Buyer in conducting its due diligence
inspections of the Company Facilities.
4.10 Environmental Reports; Property Condition Reports. The Buyer shall
have the right to procure, at its own cost and expense: (i) a Phase I
environmental report from a qualified and duly licensed professional, for each
of the Company Facilities; and (ii) a property condition report from a qualified
and duly licensed professional, for each of the Company Facilities. Upon
reasonable advance notice from Buyer, the Company shall permit Buyer and its
agents to conduct Phase I environmental assessments for each Company Facility,
and the Company shall, within ten days after the date of the Original Merger
Agreement, make available for review and copy any previously prepared Phase I
environmental assessments or other environmental assessments in the Company's
possession immediately upon the date of the Original Merger Agreement. Buyer
shall not take any core samples, install any monitoring ▇▇▇▇▇, or undertake any
other invasive tests or studies without the Company's and HCN's prior written
consent, which consent of the Company may not be withheld or delayed to the
extent that any Phase I environmental assessment provides reasonable support for
a Phase II study.
4.11 WARN Act. The Buyer shall not, and shall not cause the Surviving
Corporation or any Subsidiary to, at any time within the seventy (70) day period
after the Closing Date, effectuate a "plant closing" or "mass layoff" as those
terms are defined in the WARN Act, or any similar law, affecting in whole or in
part any site of employment, facility, operating unit or employee of the Company
or the Company Subsidiaries, without complying with the notice requirements and
all other provisions of the WARN Act and any similar law.
4.12 Pre-Closing Cooperation. During the period of time commencing on the
date of the Original Merger Agreement and ending on the earlier of the Closing
Date or the termination of the Original Merger Agreement, the Company shall
cooperate in good faith with Buyer on the planning and implementation of an
orderly and efficient transition of the assets and employees of the Company and
the Subsidiaries to Buyer as of the Closing, including without limitation,
training, employee-benefits systems, internal control systems, policies and
procedures and licensing transfers.
4.13 Employee Matters. Section 2.19 of the Disclosure Letter lists the
employees of the Company who are participants in the Bonus Plan (as defined in
the Disclosure Letter) or are a party to Bonus Letters (as defined in the
Disclosure Letter) as of the date of the Original Merger Agreement (such
employees collectively, the "Bonused Employees"). No later than such date that
is five business days prior to the Closing Date, or such earlier date as may be
required to permit the Company to comply with the requirements of the WARN Act
and all other applicable laws, rules and regulations, the Buyer shall deliver to
the Company, in writing, a list of such Bonused Employees that Buyer desires to
retain subsequent to Closing (the "Retained Employees"). The Company shall take
all actions it deems necessary or appropriate to terminate the employment of any
Bonused Employee who is not a Retained Employee prior to the Closing
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in a manner that complies in all material respects with applicable laws, rules
and regulations. Prior to Closing, the Company shall, and subsequent to Closing,
the Indemnifying Securityholders shall, on a joint and several basis, pay and be
responsible for all costs and expenses (including, without limitation, all
severance, termination pay, accrued salary and vacation), and all claims,
relating to or arising from the termination of any Bonused Employees.
4.14 Financial Report Cooperation. Prior to the Closing, the Company shall
take all actions reasonably requested by Buyer to assist Buyer and its
Affiliates or their representatives in preparing for any filings Buyer or any of
its Affiliates may need to make with the Securities and Exchange Commission or
any other Governmental Entity, to the extent any such filing relates to the
transactions contemplated hereby, including preparing any financial statements
required under the Securities Act or the Exchange Act or the rules and
regulations promulgated thereunder. To the extent reasonably requested by Buyer
after the Closing, the Shareholder Representatives shall take all actions
reasonably requested by Buyer to assist Buyer and its Affiliates or their
representatives in preparing for any filings Buyer or any of its Affiliates may
need to make with the Securities and Exchange Commission or any other
Governmental Entity, to the extent any such filing relates to the transactions
contemplated hereby, including preparing any financial statements required under
the Securities Act or the Exchange Act or the rules and regulations promulgated
thereunder. Buyer shall reimburse the Shareholder Representatives for their
reasonable expenses incurred in providing assistance pursuant to this Section
4.14 subsequent to Closing. A Shareholder Representative, when reasonably
requested by Buyer, shall execute and deliver a representation letter, in form
and substance substantially similar to the letter attached hereto as Exhibit E,
to Buyer's auditors with respect to financial information delivered to Buyer and
its auditors with respect to the pre-Closing operations of the Company.
4.15 Condemnation. If after the date of the Original Merger Agreement and
prior to Closing or the termination of this Agreement, a Condemnation Event
occurs with respect to one or more of the Company Facilities, the Company shall
take all commercially reasonable steps to promptly commence the repair of any
such damage, destruction or loss (in all instances to restore such Company
Facility to full functional status consistent with prior operations); provided,
however that Buyer shall not be required to proceed to the Closing until any
such damage, destruction or loss is repaired in all instances to restore such
Company Facility to full functional status consistent with prior operations,
unless Buyer and the Company mutually agree upon an amount of funds that shall
be deducted from the Initial Merger Consideration. In the event that the
Company, any Subsidiary or the Buyer shall receive funds from any insurance
carrier or collateral source with respect to any Company Facility that suffered
a Condemnation Event, and the Initial Merger Consideration was reduced pursuant
to this Section 4.15 because of such Condemnation Event, any such amounts so
received by the Company or any Subsidiary shall be promptly paid to the
Shareholders Representatives, up to such amount by which the Initial Merger
Consideration was reduced with respect to such Company Facility, and the
Shareholder Representatives shall transfer to the Securityholders such amounts
on a pro-rata basis.
4.16 Accounts Receivable.
(a) With respect to accounts receivable of the Company outstanding as
of the Closing Date which are owed by Residents (or former Residents) who
directly pay for such amounts, instead of Medicare, Medicaid, or other federal,
state or local governmental
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reimbursement program Governmental Entity paying for such amounts ("Private
Receivables"), Buyer shall use commercially reasonable efforts, consistent with
past practice, to collect the Private Receivables in the ordinary course of
Buyer's operation of the Company Facilities, and shall, within thirty (30) days
after collecting any portion of any Private Receivable, forward any such
collected amounts to the Shareholder Representatives. In the event that Buyer is
unable to collect any portion of a Private Receivable within 180 days after such
Private Receivable is due, Buyer shall cause the Company to assign all of its
right, title and interest in and to such uncollected portion of such Private
Receivable to the Shareholder Representatives (such assigned portion of a
Private Receivable, an "Assigned Private Receivable"). To the extent that the
Shareholder Representatives receive any proceeds from Buyer pursuant to this
Section 4.16(a), and to the extent that the Shareholder Representatives receive
any proceeds in connection with the collection of any Assigned Private
Receivables (net of any expenses incurred in connection with such collection
efforts), the Shareholder Representatives shall transfer to the Securityholders
such amounts on a pro-rata basis.
(b) With respect to accounts receivable of the Company outstanding as
of the Closing Date which are owed by Residents (or former Residents) but which
are to be paid by a State, Medicare or Medicaid Governmental Entity ("Aid
Receivables"), Buyer shall use commercially reasonable efforts, consistent with
past practice, to collect the Aid Receivables in the ordinary course of Buyer's
operation of the Company Facilities, and shall, within thirty (30) days after
collecting any portion of any Aid Receivable, forward any such collected amounts
to the Shareholder Representatives. In the event that Buyer is unable to collect
any portion of an Aid Receivable within 120 days after such Aid Receivable is
due, Buyer shall cause the Company to assign all of its right, title and
interest in and to such uncollected portion of such Aid Receivable to the
Shareholder Representatives (such assigned portion of an Aid Receivable, an
"Assigned Aid Receivable"). To the extent that the Shareholder Representatives
receive any proceeds from Buyer pursuant to this Section 4.16(b), and to the
extent that the Shareholder Representatives receive any proceeds in connection
with the collection of any Assigned Aid Receivable (net of any expenses incurred
in connection with such collection efforts), the Shareholder Representatives
shall transfer to the Securityholders such amounts on a pro-rata basis.
(c) If, after the Closing Date, any Securityholder collects any
amounts relating to unpaid or delinquent rent for the Company Facilities to the
extent related to a period of time after the Closing, such Securityholder shall,
within five (5) days after the receipt thereof, deliver to Buyer any such funds.
(d) All rents relating to the Company Facilities received, by Buyer or
the Company, or by any Securityholder pursuant to Section 4.16(c), after the
Closing Date that relate to Private Receivables shall be applied first to
current rents and then to delinquent rents, if any, in inverse order of
maturity. All rents relating to the Company Facilities received, by Buyer or the
Company, or by any Securityholder pursuant to Section 4.16(c), after the Closing
Date that relate to Aid Receivables shall be applied for the specific periods
for which services were provided in accordance with the remittance advice
pertaining to such amount.
4.17 Shareholder Approval. The Company shall, prior to the Closing, use its
best efforts to duly call, give notice of, convene and hold a meeting of its
stock holders in accordance
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with the NCBCA, other applicable law and the Company's organizational documents,
or to cause the requisite Company Shareholders to execute an action by written
consent, (i) to adopt and approve the Merger and this Agreement and (ii) to
adopt and approve appropriate resolutions to ensure that there are no contracts,
agreements, plans, or arrangements maintained by the Company or any of its
Subsidiaries or to which the Company or any of its Subsidiaries is a party,
including the provisions of Sections 1.6, 1.9, 4.8 and 4.16 and Article VI of
this Agreement, covering any current or former employee, director or consultant
of the Company or any of its Subsidiaries that, individually or collectively,
will give rise to the payment of any amount that would not be deductible
pursuant to Section 280G of the Code, and such shareholder vote or written
consent, when effectuated shall constitute a valid shareholder vote or action by
written consent under the NCBCA and the organizational documents of the Company,
will be valid and binding on the Company and all of the Company Shareholders and
will be the only vote of, or written consent by, the holders of any class or
series of the outstanding capital stock of the Company required to be obtained
from the Company Shareholders in connection with the approval of this Agreement,
the Merger and the transactions contemplated hereby, including, without
limitation, the granting to the Shareholder Representatives (or their successors
or assigns) of the power and authority to incur obligations, to execute
documents (including the Escrow Agreement) that are legally binding on the
Company Shareholders, to obligate the Company Shareholders to provide the
indemnification contemplated by Section 6.1, to make decisions and settle
disputes on the Company Shareholders' behalf as contemplated in Section 6.3 and
elsewhere in this Agreement and the Escrow Agreement and to otherwise act on
behalf of the Company Shareholders.
4.18 Voting of Proxy by Shareholders Representatives.
(a) Each of the Major Shareholders represents and warrants that
Section 2.2(b) of the Disclosure Letter sets forth the number of shares of
Company capital stock (together with any shares of Company capital stock
acquired after the date of the Original Merger Agreement, the "Shares"), of
which each Major Shareholders is the record or beneficial owner as of the date
of the Original Merger Agreement. Each of the Major Shareholders represents and
warrants that, as of the date of the Original Merger Agreement, it owns the
Shares as set forth on Section 2.2(b) of the Disclosure Letter, free and clear
of all liens and all voting agreements and commitments of every kind, except as
provided in this Section 4.18 and in the Founders' Agreement (as defined and
described in Section 2.2 of the Disclosure Letter. Each of the Major
Shareholders further represents and warrants that each has the power to vote all
Shares owned by it without restriction and that no proxies heretofore given in
respect of any or all of such Shares are irrevocable and that any such proxies
have heretofore been revoked.
(b) Each of the Major Shareholders agrees that (except with respect to
certain Options held by each of the Shareholder Representatives, which the
Shareholder Representatives may elect to terminate prior to Closing) it will
not, directly or indirectly, sell, transfer, assign, pledge, encumber or
otherwise dispose of any of the Shares owned by it, or any interest therein, or
any other securities convertible into or exchangeable for Company capital stock,
or any voting rights with respect thereto or enter into any contract, option or
other arrangement or understanding with respect thereto (including any voting
trust or agreement and the granting of any proxy), other than: (a) pursuant to
the Merger or (b) with the prior written consent of Buyer.
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(c) At every meeting of the shareholders of the Company called, and at
every postponement or adjournment thereof, and on every action or approval by
written consent of the shareholders of the Company, each of the Major
Shareholders agrees to vote its Shares or to cause its Shares to be voted in
favor of adoption and approval of the Merger and the Merger Agreement. The
Company agrees to cause the Proxy Holder to vote the Shareholder Proxies in
favor of the Merger and the Merger Agreement.
(d) Each of the Major Shareholders represents and warrants that (a) it
has all necessary power and authority to enter into the agreement to vote the
Shares set forth in this Section 4.18 (the "Voting Agreement"); and (b) the
Voting Agreement is a legal, valid and binding agreement of such undersigned and
is enforceable against it in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratoriums or similar laws now or hereafter in
effect relating to creditor's rights generally or to general principles of
equity.
Notwithstanding anything to the contrary herein, the rights of the Buyer with
respect to any claims resulting from or relating to any misrepresentation,
breach of warranty or failure to perform any covenant or agreement by the
Shareholders Representatives contained in this Section 4.18 shall not be subject
to the limitations contained in Section 6.5 hereof.
ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
5.1 Conditions to Each Party's Obligations. The respective obligations of
each Party to consummate the Merger are subject to the satisfaction of the
following condition:
(a) all applicable waiting periods (and any extensions thereof) under
the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act shall have expired or otherwise been terminated.
5.2 Conditions to Obligations of the Buyer and the Transitory Subsidiary.
The obligation of each of the Buyer and the Transitory Subsidiary to consummate
the Merger is subject to the satisfaction (or waiver by the Buyer) of the
following additional conditions:
(a) there are no Dissenting Shares;
(b) the Company and the Subsidiaries shall have obtained at their own
expense (and shall have provided, or Made Available, copies thereof to the
Buyer) all of the waivers, permits, consents, approvals or other authorizations,
and effected all of the registrations, filings and notices, referred to in
Section 4.2 which are required on the part of the Company or the Subsidiaries,
except for: (i) any waivers, permits, consents, approvals, licenses or other
authorizations which may be delivered or issued subsequent to the Closing Date
pursuant to applicable law, rule or regulation relating to such waiver, permit,
consent, approval, license or other authorization; and (ii) any failure of which
to obtain or effect would not, individually or in the aggregate, have a Company
Material Adverse Effect or a material adverse effect on the ability of the
Parties to consummate the transactions contemplated by this Agreement (except
for the
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failure to obtain or effect any waivers, permits, consents, approvals, licenses
or other authorizations with respect to the Leases);
(c) the representations and warranties of the Company set forth in
this Agreement that are qualified as to materiality shall be true and correct
and the representations and warranties of the Company that are not qualified as
to materiality shall be true and correct in all material respects, in each case,
as of the Closing as though made as of the Closing, provided that, to the extent
that any such representation or warranty speaks as of a specified date, it need
only be true and correct as of such specified date; provided, however, that for
purposes of this Section 5.2(c), the representations and warranties of the
Company shall be deemed to be qualified by the Original Disclosure Letter, as
opposed to the Disclosure Letter;
(d) the Company shall have performed or complied with in all material
respects its agreements and covenants required to be performed or complied with
under this Agreement as of or prior to the Closing;
(e) no Legal Proceeding shall be pending wherein an unfavorable
judgment, order, decree, stipulation or injunction would (i) prevent
consummation of the transactions contemplated by this Agreement, (ii) cause the
transactions contemplated by this Agreement to be rescinded following
consummation or (iii) have, individually or in the aggregate, a Company Material
Adverse Effect, and no such judgment, order, decree, stipulation or injunction
shall be in effect;
(f) the Company shall have delivered, or Made Available, to the Buyer
and the Transitory Subsidiary the Company Certificate;
(g) the Buyer shall have received from ▇▇▇▇▇▇▇▇▇ Law Group PLLC, an
opinion covering the matters substantially as set forth on Exhibit D, and
otherwise in form and substance reasonably satisfactory to Buyer, addressed to
the Buyer dated as of the Closing Date;
(h) the Buyer shall have received such other certificates and
instruments (including certificates of good standing of the Company and the
Subsidiaries in their jurisdiction of organization and the various foreign
jurisdictions in which they are qualified, certified charter documents,
certificates as to the incumbency of officers and the adoption of authorizing
resolutions) as it shall reasonably request in connection with the Closing;
(i) there shall be no Material Environmental Deficiencies or Material
Structural Deficiencies with respect to the Company Facilities;
(j) [Intentionally Omitted]
(k) the Actual Census shall not have decreased by two percent (2%) or
more when compared with the Weighted Average Census in the three month period
ending on October 31, 2005. Attached as Exhibit 5.2(k) is the Weighted Average
Census for the three month period ended October 31, 2005;
(l) the Company shall have received a modified Master Lease to become
effective following Closing, as agreed by HCN and Buyer in their sole
discretion, which consent
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shall not be unreasonably withheld, noting the change in operator and lessee and
other changes necessary to take into account the change of control of the
Company with respect to the Master Lease; provided, however, that Buyer shall
not be entitled to demand any changes in economic terms of the Master Lease from
HCN unless such changes are consented to by HCN;
(m) Provided Buyer has taken all customary and necessary actions for
the issuance of the Title Commitments, the Title Company shall have delivered
the Title Commitments at the Buyer's sole expense, to Buyer and each such Title
Commitment shall not contain any exceptions to title for liens affecting the
title of the Company or any Subsidiary other than the Permitted Liens.
(n) Company Shareholders representing at least 99% of the outstanding
shares of capital stock of the Company shall have executed and delivered a
Letter of Transmittal, all Optionholders shall have executed and delivered the
agreement contemplated by Section 1.9(a), and all Warrantholders shall have
executed and delivered the agreement contemplated by Section 1.9(b);
(o) the Company Facilities shall not have suffered a Condemnation
Event;
(p) there shall have been no Company Material Adverse Effect;
(q) the Company shall have provided the appropriate notices and
obtained the appropriate permits, authorizations, consents or approvals as
contemplated in Section 2.4, and shall have received all approvals required to
prevent any of the matters contemplated by Section 2.4(c) or 2.4(d) from
occurring, except where any such failure to provide the appropriate notice or
obtain the appropriate permit, authorization, consent or approval, or where any
such conflict, breach, default, acceleration, termination, modification or
cancellation, or any such imposition of any Security Interest, has not had or
would not reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect;
(r) the Company shall have delivered evidence which is reasonably
satisfactory to Buyer that the Company is in good tax standing under the laws of
the States of North Carolina, South Carolina and Virginia, that all matters
disclosed on Section 2.1 of the Disclosure Letter have been fully resolved, and
that neither the Company nor any of the Subsidiaries shall have any liabilities
or obligations with respect to the foregoing; and
(s) the Company shall have complied with its obligations under Section
6.7(h)(i)(A) with respect to the preparation and filing of the Amended Tax
Returns and the 2005 Extensions, and the Indemnifying Securityholders shall have
complied with their obligations under Section 6.7(h)(i)(A) with respect to the
payment of the Taxes due and owing on such Tax Returns.
5.3 Conditions to Obligations of the Company. The obligation of the Company
to consummate the Merger is subject to the satisfaction (or waiver by the
Company) of the following additional conditions:
(a) the representations and warranties of the Buyer and the Transitory
Subsidiary set forth in this Agreement that are qualified as to materiality
shall be true and correct
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and the representations and warranties of the Buyer and the Transitory
Subsidiary that are not qualified as to materiality shall be true and correct in
all material respects, in each case, as of the Closing as though made as of the
Closing, provided that, to the extent that any such representation or warranty
speaks as of a specified date, it need only be true and correct as of such
specified date;
(b) each of the Buyer and the Transitory Subsidiary shall have
performed or complied with in all material respects its agreements and covenants
required to be performed or complied with under this Agreement as of or prior to
the Closing;
(c) no Legal Proceeding shall be pending or threatened wherein an
unfavorable judgment, order, decree, stipulation or injunction would (i) prevent
consummation of the transactions contemplated by this Agreement or (ii) cause
the transactions contemplated by this Agreement to be rescinded following
consummation, and no such judgment, order, decree, stipulation or injunction
shall be in effect;
(d) the Buyer shall have delivered, or Made Available, to the Company
the Buyer Certificate; and
(e) the Company shall have received such other certificates and
instruments (including certificates of good standing of the Buyer and the
Transitory Subsidiary in their jurisdiction of organization, certified charter
documents, certificates as to the incumbency of officers and the adoption of
authorizing resolutions) as it shall reasonably request in connection with the
Closing.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification by the Indemnifying Securityholders. Subject to the
limitations set forth in this Article VI, the Indemnifying Securityholders shall
indemnify the Buyer, the Buyer's permitted assignees and Affiliates and their
respective partners, directors, members, shareholders, officers, employees and
agents in respect of, and hold each of them harmless against, any and all
Damages incurred or suffered by the Surviving Corporation or any of them
resulting from, relating to or constituting:
(a) any breach of any representation or warranty of the Company
contained in this Agreement or any other agreement or instrument furnished, or
Made Available, by the Company to the Buyer pursuant to this Agreement (without
giving effect to any qualifications as to knowledge, materiality, Company
Material Adverse Effect or similar qualifications contained in such
representations and warranties); provided, however, that for purposes of this
Section 6.1(a), any matter that would result at any time in a Company Material
Adverse Effect, or any Material Environmental Deficiencies, Material Structural
Deficiencies, Condemnation Event or Legal Proceeding wherein an unfavorable
judgment, order, decree, stipulation or injunction would prevent consummation of
the transactions contemplated by this Agreement, cause the transactions
contemplated by this Agreement to be rescinded following consummation or have,
individually or in the aggregate, a Company Material Adverse Effect, that in
each such case (x) was not disclosed
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on the Original Disclosure Letter but was ultimately disclosed in the Disclosure
Letter, (y) occurred after the date of the Original Merger Agreement and prior
to the Closing Date, and (z) did not occur as a result of an act by or on behalf
of the Company, any Subsidiary or any Securityholder, shall be deemed to be
disclosed as of the date of the Original Merger Agreement and shall not be
subject to the indemnity provisions of this Article VI;
(b) any failure to perform any covenant or agreement of the Company
contained in this Agreement or any agreement or instrument furnished, or Made
Available, by the Company to the Buyer pursuant to this Agreement;
(c) any failure of any Company Shareholder to have good, valid and
marketable title to the issued and outstanding Common Shares issued in the name
of such Company Shareholder, free and clear of all Security Interests;
(d) any breach of any representation or warranty contained in, or
failure to perform any covenant or agreement required under, the representation
letter provided by the Shareholder Representative pursuant to Section 4.14
hereof; or
(e) (i) any deductible payments made by the Surviving Corporation or
its Affiliates in connection with claims made under the Tail Insurance Coverage,
and, (ii) to the extent not reimbursed under the Tail Insurance Coverage, any
payments made by the Surviving Corporation or its Affiliates in connection with
any claim, suit or proceeding not disclosed on the Original Disclosure Letter by
a third party against or relating to the Company, the Surviving Corporation, any
Subsidiary or any of their respective directors, managers, officers, employees
and agents relating to events, actions or omissions not disclosed on the
Original Disclosure Letter that occurred prior to the Closing.
6.2 Indemnification by the Buyer. The Buyer and the Transitory Subsidiary
shall, jointly and severally, indemnify the Indemnifying Securityholders and the
Indemnifying Securityholders' permitted assignees and Affiliates and their
respective partners, directors, members, shareholders, officers, employees and
agents in respect of, and hold each of them harmless against, any and all
Damages incurred or suffered by the Indemnifying Securityholders resulting from,
relating to or constituting:
(a) any breach of any representation or warranty of the Buyer or the
Transitory Subsidiary contained in this Agreement or any other agreement or
instrument furnished, or Made Available, by the Buyer or the Transitory
Subsidiary to the Company pursuant to this Agreement (without giving effect to
any qualifications as to knowledge, materiality, Buyer Material Adverse Effect
or similar qualifications contained in such representations and warranties; or
(b) any failure to perform any covenant or agreement of the Buyer or
the Transitory Subsidiary contained in this Agreement or any agreement or
instrument furnished, or Made Available, by the Buyer or the Transitory
Subsidiary to the Company pursuant to this Agreement.
6.3 Indemnification Claims.
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(a) An Indemnified Party shall give written notification to the
Indemnifying Party of the commencement of any Third Party Action. Such
notification shall be given within 10 days after receipt by the Indemnified
Party of notice of such Third Party Action, and shall describe in reasonable
detail (to the extent known by the Indemnified Party) the facts constituting the
basis for such Third Party Action and the amount of the claimed damages;
provided, however, that no delay or failure on the part of the Indemnified Party
in so notifying the Indemnifying Party shall relieve the Indemnifying Party of
any liability or obligation hereunder except to the extent of any damage or
liability caused by or arising out of such failure. Within 10 days after
delivery of such notification, the Indemnifying Party may, upon written notice
thereof to the Indemnified Party, assume control of the defense of such Third
Party Action with counsel reasonably satisfactory to the Indemnified Party;
provided that (i) the Indemnifying Party may only assume control of such defense
if (A) it acknowledges in writing to the Indemnified Party that any damages,
fines, costs or other liabilities that may be assessed against the Indemnified
Party in connection with such Third Party Action constitute Damages for which
the Indemnified Party shall be indemnified pursuant to this Article VI and (B)
the ad damnum is less than or equal to the amount of Damages for which the
Indemnifying Party is liable under this Article VI and (ii) the Indemnifying
Party may not assume control of the defense of a Third Party Action involving
criminal liability or in which equitable relief is sought against the
Indemnified Party. If the Indemnifying Party does not, or is not permitted under
the terms hereof to, so assume control of the defense of a Third Party Action,
the Indemnified Party shall control such defense. The Non-controlling Party may
participate in such defense at its own expense. The Controlling Party shall keep
the Non-controlling Party advised of the status of such Third Party Action and
the defense thereof and shall consider in good faith recommendations made by the
Non-controlling Party with respect thereto. The Non-controlling Party shall
furnish the Controlling Party with such information as it may have with respect
to such Third Party Action (including copies of any summons, complaint or other
pleading which may have been served on such party and any written claim, demand,
invoice, billing or other document evidencing or asserting the same) and shall
otherwise cooperate with and assist the Controlling Party in the defense of such
Third Party Action. The reasonable fees and expenses of counsel to the
Indemnified Party with respect to a Third Party Action shall be considered
Damages for purposes of this Agreement if (i) the Indemnified Party controls the
defense of such Third Party Action pursuant to the terms of this Section 6.3(a)
or (ii) the Indemnifying Party assumes control of such defense and the
Indemnified Party reasonably concludes that the Indemnifying Party and the
Indemnified Party have conflicting interests or different defenses available
with respect to such Third Party Action. The Indemnifying Party shall not agree
to any settlement of, or the entry of any judgment arising from, any Third Party
Action without the prior written consent of the Indemnified Party, which shall
not be unreasonably withheld, conditioned or delayed; provided that the consent
of the Indemnified Party shall not be required if the Indemnifying Party agrees
in writing to pay any amounts payable pursuant to such settlement or judgment
and such settlement or judgment includes a complete release of the Indemnified
Party from further liability and has no other adverse effect on the Indemnified
Party. The Indemnified Party shall not agree to any settlement of, or the entry
of any judgment arising from, any such Third Party Action without the prior
written consent of the Indemnifying Party, which shall not be unreasonably
withheld, conditioned or delayed.
(b) In order to seek indemnification under this Article VI, an
Indemnified Party shall deliver a Claim Notice to the Indemnifying Party.
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(c) Within 20 days after delivery of a Claim Notice, the Indemnifying
Party shall deliver to the Indemnified Party a Response, in which the
Indemnifying Party shall: (i) agree that the Indemnified Party is entitled to
receive all of the Claimed Amount (in which case the Response shall be
accompanied by a payment by the Indemnifying Party to the Indemnified Party of
the Claimed Amount, by check or by wire transfer, (ii) agree that the
Indemnified Party is entitled to receive the Agreed Amount (in which case the
Response shall be accompanied by a payment by the Indemnifying Party to the
Indemnified Party of the Agreed Amount, by check or by wire transfer, or (iii)
dispute that the Indemnified Party is entitled to receive any of the Claimed
Amount.
(d) During the 30-day period following the delivery of a Response that
reflects a Dispute, the Indemnifying Party and the Indemnified Party shall use
good faith efforts to resolve the Dispute. If the Dispute is not resolved within
such 30-day period, the Indemnifying Party and the Indemnified Party shall
discuss in good faith the submission of the Dispute to binding arbitration, and
if the Indemnifying Party and the Indemnified Party agree in writing to submit
the Dispute to such arbitration, then the provisions of Section 6.3(e) shall
become effective with respect to such Dispute. The provisions of this Section
6.3(d) shall not obligate the Indemnifying Party and the Indemnified Party to
submit to arbitration or any other alternative dispute resolution procedure with
respect to any Dispute, and in the absence of an agreement by the Indemnifying
Party and the Indemnified Party to arbitrate a Dispute, such Dispute shall be
resolved in a state or federal court sitting in the State of Delaware, in
accordance with Section 9.11.
(e) If, as set forth in Section 6.3(d), the Indemnified Party and the
Indemnifying Party agree to submit any Dispute to binding arbitration, the
arbitration shall be conducted by a single arbitrator (the "Arbitrator") in
accordance with the Commercial Rules in effect from time to time and the
following provisions:
(i) In the event of any conflict between the Commercial Rules in
effect from time to time and the provisions of this Agreement, the
provisions of this Agreement shall prevail and be controlling.
(ii) The parties shall commence the arbitration by jointly filing
a written submission with the Wilmington, Delaware office of the AAA in
accordance with Commercial Rule 5 (or any successor provision).
(iii) No depositions or other discovery shall be conducted in
connection with the arbitration.
(iv) Not later than 30 days after the conclusion of the
arbitration hearing, the Arbitrator shall prepare and distribute to the
parties a writing setting forth the arbitral award and the Arbitrator's
reasons therefor. Any award rendered by the Arbitrator shall be final,
conclusive and binding upon the parties, and judgment thereon may be
entered and enforced in any court of competent jurisdiction (subject to
Section 9.11), provided that the Arbitrator shall have no power or
authority to (x) award damages in excess of the portion of the Claimed
Amount that is subject to such Dispute, (y) award multiple, consequential,
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punitive or exemplary damages, or (z) grant injunctive relief, specific
performance or other equitable relief.
(v) The Arbitrator shall have no power or authority, under the
Commercial Rules or otherwise, to (x) modify or disregard any provision of
this Agreement, including the provisions of this Section 6.3(e), or (y)
address or resolve any issue not submitted by the parties.
(vi) In connection with any arbitration proceeding pursuant to
this Agreement, each party shall bear its own costs and expenses, except
that the fees and costs of the AAA and the Arbitrator, the costs and
expenses of obtaining the facility where the arbitration hearing is held,
and such other costs and expenses as the Arbitrator may determine to be
directly related to the conduct of the arbitration and appropriately borne
jointly by the parties (which shall not include any party's attorneys' fees
or costs, witness fees (if any), costs of investigation and similar
expenses) shall be shared equally by the Indemnified Party and the
Indemnifying Party.
(f) Notwithstanding the other provisions of this Section 6.3, if a
third party asserts (other than by means of a lawsuit) that an Indemnified Party
is liable to such third party for a monetary or other obligation which may
constitute or result in Damages for which such Indemnified Party may be entitled
to indemnification pursuant to this Article VI, and such Indemnified Party
reasonably determines that it has a valid business reason to fulfill such
obligation, then (i) such Indemnified Party shall be entitled to satisfy such
obligation, without prior notice to or consent from the Indemnifying Party, (ii)
such Indemnified Party may subsequently make a claim for indemnification in
accordance with the provisions of this Article VI, and (iii) such Indemnified
Party shall be reimbursed, in accordance with the provisions of this Article VI,
for any such Damages for which it is entitled to indemnification pursuant to
this Article VI (subject to the right of the Indemnifying Party to dispute the
Indemnified Party's entitlement to indemnification, or the amount for which it
is entitled to indemnification, under the terms of this Article VI).
(g) For purposes of this Section 6.3 and the second and third
sentences of Section 6.4, (i) if the Indemnifying Securityholders comprise the
Indemnifying Party, any references to the Indemnifying Party (except provisions
relating to an obligation to make any payments) shall be deemed to refer to the
Shareholder Representatives, and (ii) if the Indemnifying Securityholders
comprise the Indemnified Party, any references to the Indemnified Party (except
provisions relating to an obligation to make or a right to receive any payments)
shall be deemed to refer to the Shareholder Representatives. The Shareholder
Representatives shall have full power and authority on behalf of each
Indemnifying Securityholder to take any and all actions on behalf of, execute
any and all instruments on behalf of, and execute or waive any and all rights
of, the Indemnifying Securityholders under this Article VI. The Shareholder
Representatives shall have no liability to any Indemnifying Securityholder for
any action taken or omitted on behalf of the Indemnifying Securityholders
pursuant to this Article VI.
6.4 Survival of Representations and Warranties. All representations and
warranties that are covered by the indemnification agreements in Sections
6.1(a), 6.1(b) and 6.1(d) and
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Sections 6.2(a) and 6.2(b) shall (a) survive the Closing and (b) shall expire on
the date that is eighteen (18) months following the Closing Date, except that
the representations and warranties set forth in Sections 2.20, 2.21 and 2.31
shall survive until the expiration of the statutes of limitation (including
valid extensions thereof) applicable to the matters referred to therein for any
claims that seek recovery of Damages. If an Indemnified Party delivers to an
Indemnifying Party, before expiration of a representation or warranty, either a
Claim Notice based upon a breach of such representation or warranty, or an
Expected Claim Notice based upon a breach of such representation or warranty,
then the applicable representation or warranty shall survive until, but only for
purposes of, the resolution of any claims arising from or related to the matter
covered by such notice. If the legal proceeding or written claim with respect to
which an Expected Claim Notice has been given is definitively withdrawn or
resolved in favor of the Indemnified Party, the Indemnified Party shall promptly
so notify the Indemnifying Party. The rights to indemnification set forth in
this Article VI shall not be affected by (i) any investigation conducted by or
on behalf of an Indemnified Party or any knowledge acquired (or capable of being
acquired) by an Indemnified Party, whether before or after the Closing Date,
with respect to the inaccuracy or noncompliance with any representation,
warranty, covenant or obligation which is the subject of indemnification
hereunder or (ii) any waiver by an Indemnified Party of any closing condition
relating to the accuracy of representations and warranties or the performance of
or compliance with agreements and covenants.
6.5 Limitations.
(a) Notwithstanding anything to the contrary herein, the maximum
aggregate liability of the Indemnifying Securityholders for Damages under this
Article VI shall be, at the election of the Buyer, made in its sole discretion
by written notice delivered pursuant to Section 9.7 prior to the last day of the
Due Diligence Period, either:
(i) (A) $30,000,000, and (B) each Indemnifying Securityholder
shall be jointly and severally liable for any Damages for
which the Indemnifying Securityholders are liable under this
Article VI; provided that the limitation set forth in this
sentence shall not apply in the case of fraud or intentional
misrepresentation or the intentional breach of any covenant
contained in this Agreement; provided further, that the
Indemnifying Securityholders shall not be liable under this
Article VI until the aggregate Damages incurred by the
parties entitled to indemnification pursuant to Section 6.1
exceeds $250,000; and, provided further, that in the event
the aggregate amount of Damages incurred by the parties
entitled to indemnification pursuant to Section 6.1 exceeds
$250,000, then the Indemnifying Shareholders shall be
responsible only for Damages in excess of $125,000; or
(ii) (A) $41,500,000, and (B) each Indemnifying Securityholder
shall only be liable for his, her or its pro rata share
(based on the amount of the Closing Consideration, the Final
Consideration, the Option
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Consideration or the Warrant Consideration received by such
Indemnifying Securityholder as a percentage of the total
Closing Consideration, the Final Consideration, the Option
Consideration or the Warrant Consideration) of the Damages
for which the Indemnifying Securityholders are liable under
this Article VI; provided that the limitation set forth in
this sentence shall not apply in the case of fraud or
intentional misrepresentation or the intentional breach of
any covenant contained in this Agreement; provided further,
that the Indemnifying Securityholders shall not be liable
under this Article VI until the aggregate Damages incurred
by the parties entitled to indemnification pursuant to
Section 6.1 exceeds $250,000; and, provided further, that in
the event the aggregate amount of Damages incurred by the
parties entitled to indemnification pursuant to Section 6.1
exceeds $250,000, then the Indemnifying Shareholders shall
be responsible only for Damages in excess of $125,000.
(b) Notwithstanding anything to the contrary herein except paragraph
(f) of this section, the aggregate liability of the Buyer for Damages under this
Article VI shall not exceed $30,000,000; provided that the limitation set forth
in this sentence shall not apply in the case of fraud or intentional
misrepresentation or the intentional breach of any covenant contained in this
Agreement.
(c) Except with respect to claims based on fraud or claims under
Section 4.18, after the Closing, the rights of the Indemnified Parties under
this Article VI shall be the exclusive remedy of the Indemnified Parties with
respect to claims resulting from or relating to any misrepresentation, breach of
warranty or failure to perform any covenant or agreement contained in this
Agreement;
(d) No Indemnifying Securityholder shall have any right of
contribution against the Company or the Surviving Corporation with respect to
any breach by the Company of any of its representations, warranties, covenants
or agreements.
(e) The amount of Damages recoverable by an Indemnified Party under
this Article VI with respect to an indemnity claim shall be reduced by (i) any
proceeds received by such Indemnified Party or an Affiliate, with respect to the
Damages to which such indemnity claim relates, from an insurance carrier or any
third party, (ii) the amount of any tax savings actually realized by such
Indemnified Party or an Affiliate, for the tax year in which such Damages are
incurred, which are clearly attributable to the Damages to which such indemnity
claim relates (net of any increased tax liability which may result from the
receipt of the indemnity payment or any insurance proceeds relating to such
Damages). Each Indemnified Party shall use its reasonable efforts to seek
payment or reimbursement for any Damages from its insurance carrier or other
collateral sources prior to asserting any indemnification claims against an
Indemnifying Securityholder or Affiliate thereof. In the event that an
Indemnified Party shall receive funds from any insurance carrier or collateral
source with respect to any Damages, any such amounts so received shall be
payable to the Indemnifying Securityholders, regardless of
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when received by the Indemnified Party, up to such amount previously paid by the
Indemnifying Securityholders or their Affiliates with respect to such Damages.
(f) Notwithstanding anything to the contrary herein, in the event that
after the expiration of the Due Diligence Period, Buyer shall not consummate the
Closing under this Agreement even though the Company shall have satisfied its
obligations under Section 5.2, then the Company's sole remedy shall be to
terminate this Agreement and to receive the Deposits or such portion thereof as
remain undisbursed as of such time, as full and complete liquidated damages, as
set forth in Section 1.13 hereof. The parties acknowledge and agree that the
amount of damages which the Company may incur as a result of such termination
may be difficult to ascertain, and that the amount specified herein is a fair
and reasonable estimate thereof, after which the parties shall have no further
rights hereunder.
(g) Notwithstanding anything to the contrary herein, the
indemnification obligations of the Indemnifying Securityholders pursuant to
Section 6.1(e)(i) shall not be subject to the last two provisos of Sections
6.5(a)(i) and 6.5(a)(ii).
6.6 Distribution of Escrow Amount. Following the Closing, in the event that
Buyer has a claim for indemnification with respect to Damages against the
Indemnifying Securityholders pursuant to this Article VI and/or is entitled to a
payment under Section 1.6, Buyer shall be entitled to recover the amount of such
claim from, in its sole discretion, (a) the Escrow Account (to the extent there
are any funds remaining in the Escrow Account), or (b) from the Indemnifying
Securityholders; provided, however, that if a claim by Buyer exceeds the amount
of funds then in the Escrow Account, then Buyer shall be entitled to recover an
amount with respect to such claim from the Escrow Account equal to 50% of the
amount of funds then held in the Escrow Account, and Buyer shall be entitled to
recover the remaining amount of such claim from the Indemnifying
Securityholders. The Escrow Agent shall distribute to the Securityholders in
accordance with, and subject to the terms of, the Escrow Agreement: (i) on the
date that is five (5) business days after the later of (x) the date that the
Buyer approves the 2005 Tax Returns and (y) the date that the Buyer approves the
2006 Tax Returns, each as contemplated by Section 6.7(h)(i)(A), an amount equal
to $500,000 (or such lesser amount then remaining in the Escrow Account);
provided that if such Tax Returns indicate that the Company has breached any of
its representations or warranties contained in Section 2.9(d) of the Merger
Agreement, such amount shall be reduced by the Damages incurred by the Buyer as
a result of any such breach as estimated in good faith by Buyer, (ii) on the
nine (9) month anniversary of the Closing Date (or the first business day
thereafter), an amount equal to $2,415,000, less any amounts distributed from
the Escrow Account and less any amounts held in reserve for pending claims
pursuant to the terms of the Escrow Agreement, and (iii) on the eighteen (18)
month anniversary of the Closing Date (or the first business day thereafter),
the then remaining funds in the Escrow Account, less any amounts held in reserve
for pending claims pursuant to the terms of the Escrow Agreement.
6.7 Tax Matters.
(a) Tax Sharing Agreements. Any Tax sharing agreements or arrangements
to which the Company or any Subsidiary is a party or may have any liability or
obligation (other than any Tax sharing agreement or arrangement which may be
deemed to exist pursuant to the
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terms of any Lease) shall be terminated effective as of the Closing. After the
Closing, this Agreement shall be the sole Tax sharing agreement (other than any
Tax sharing agreement or arrangement which may be deemed to exist pursuant to
the terms of any Lease) relating to the Company or any Subsidiary for all
Pre-Closing Tax Periods.
(b) Indemnifying Securityholders' Tax Indemnity.
(i) Notwithstanding any other provisions of this Agreement, from
and after the Closing Date, the Indemnifying Securityholders shall be: (x)
jointly and severally liable if Buyer elects the option set forth in
Section 6.5(a)(i), or (y) severally, but not jointly, liable if Buyer
elects the option set forth in Section 6.5(a)(ii), and shall indemnify and
hold harmless, the Surviving Corporation, each of its Subsidiaries, the
Buyer, the Buyer's permitted assignees and their respective Affiliates,
partners, directors, members, shareholders, officers, employees and agents
against the following amounts: (A) Taxes of the Indemnifying
Securityholders, the Company, or any Subsidiary of the Company with respect
to taxable years or periods ending on or before the Closing Date; (B) with
respect to taxable years or periods beginning before the Closing Date and
ending after the Closing Date, Taxes of the Surviving Corporation or any
Subsidiary which are allocable, pursuant to clause (ii) of this Section
6.7(b), to the portion of such taxable year or period ending at the end of
the day on the Closing Date (an "Interim Period") (Interim Periods and any
taxable year or years or period or periods that end on or prior to the
Closing Date each being referred to as a "Pre-Closing Tax Period" and
collectively as "Pre-Closing Tax Periods"); (C) Taxes of any member of any
Affiliated Group with which the Company or any Subsidiary files or has
filed a Tax Return on a consolidated, combined, affiliated, unitary or
similar basis for a taxable year or period beginning before the Closing
Date; (D) Taxes or other costs of the Surviving Corporation, each of its
Subsidiaries, the Buyer, the Buyer's permitted assignees and their
respective Affiliates, partners, directors, members, shareholders,
officers, employees and agents payable as a result of any inaccuracy in or
breach of any representation or warranty made in Section 2.9 of this
Agreement (without giving effect to any qualifications as to knowledge,
materiality, Material Adverse Effect or similar qualifications contained in
such representation or warranty) or any breach of any covenant contained in
this Section 6.7, without duplication; and (E) any Taxes or other payments
required to be made after the Closing Date by the Surviving Corporation or
any Subsidiary to any party under any Tax sharing, indemnity or allocation
agreement or other arrangement in effect prior to the Closing (whether or
not written) with respect to a Pre-Closing Tax Period. For purposes of the
foregoing, the amount of any indemnification obligations pursuant to
Section 6.7(b)(i) shall be reduced by any amounts specifically accrued as
liabilities for Taxes on the Estimated Closing Balance Sheet or the Final
Closing Balance Sheet.
(ii) In order to apportion appropriately any Taxes relating to
any taxable year or period that includes an Interim Period, the parties
hereto shall, to the extent permitted under applicable Law, (x) elect with
the relevant Tax
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authority to treat, for all purposes, the Closing Date as the last day of
the taxable year or period of the Company or any Subsidiary and (y) elect
the "closing of the books" method of accounting with respect to allocations
between taxable periods ending on the Closing Date and any succeeding
taxable periods. Each such Interim Period shall be treated as a short
taxable year and a Pre-Closing Tax Period for purposes of this Section
6.7(b). In any case where applicable law does not permit the Company or any
Subsidiary to treat the Closing Date as the last day of the taxable year or
period of the Company or such Subsidiary with respect to Taxes that are
payable with respect to an Interim Period, the portion of any such Tax that
is allocable to the portion of the Interim Period ending on the Closing
Date shall be:
(A) in the case of Taxes that are either (1) based upon or
related to income or receipts, or (2) imposed in connection with any
sale or other transfer or assignment of property (real or personal,
tangible or intangible), deemed equal to the amount which would be
payable if the taxable year or period ended at the end of the day on
the Closing Date (except that, solely for purposes of determining the
marginal tax rate applicable to income or receipts during such period
in a jurisdiction in which such tax rate depends upon the level of
income or receipts, annualized income or receipts shall be taken into
account, if appropriate, for an equitable sharing of such Taxes); and
(B) in the case of Taxes not described in subparagraph (A)
above that are imposed on a period basis and measured by the level of
any item, deemed to be the amount of such Taxes for the entire period
(or, in the case of such Taxes determined on an arrears basis, the
amount of such Taxes for the immediately preceding period) multiplied
by a fraction, the numerator of which is the number of calendar days
in the Interim Period ending on and including the Closing Date and the
denominator of which is the number of calendar days in the entire
relevant period.
(c) Buyer Indemnification. The Buyer shall indemnify and hold harmless
the Indemnifying Securityholders for all Taxes of the Company, each Subsidiary,
the Surviving Corporation and each of its Subsidiaries with respect to (i)
taxable years or periods beginning after the Closing Date and (ii) the portion
of any Interim Period that is after the Closing Date.
(d) Mutual Cooperation. As soon as practicable, but in any event
within thirty (30) days after the request of the Buyer or any Indemnifying
Securityholder, the Buyer shall, or shall cause the Surviving Corporation to,
deliver to the Indemnifying Securityholders or the Indemnifying Securityholders
shall deliver to the Buyer, as the case may be, such information and other data
relating to the Tax Returns and Taxes of the Company, the Surviving Corporation
or any Subsidiary, and shall provide such other assistance as may reasonably be
requested, to cause the timely completion and filing of all Tax Returns, to
respond promptly to inquiries, audits or
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examinations by any taxing authorities with respect to any Tax Returns or
taxable periods or to otherwise enable the Indemnifying Securityholders, the
Buyer, the Company, the Surviving Corporation or any Subsidiary to satisfy their
respective accounting or Tax requirements. For a period of seven (7) years from
and after the Closing, the Buyer and the Indemnifying Securityholders, shall,
and shall cause their Affiliates to, maintain and make available to the other
party, on such other party's reasonable request and at such other party's
expense, copies of any and all information, books and records referred to in
this Section 6.7(d). After such seven-year period, the Buyer or the Indemnifying
Securityholders, as the case may be, may dispose of such information, books and
records, provided that prior to such disposition, (i) each Indemnifying
Securityholder shall give the Buyer the opportunity, at the Buyer's expense, to
take possession of such information, books and records held by such Indemnifying
Securityholder and (ii) the Buyer shall give the Indemnifying Securityholders
the opportunity, at the Indemnifying Securityholders' expense, to take
possession of such information, books and records held by the Surviving
Corporation.
(e) Contests. Whenever any taxing authority makes a written assertion
of a claim for or dispute regarding, or assessment of, Taxes for which the
Indemnifying Securityholders are liable or required to provide indemnification
under this Article VI, the Buyer shall, if informed of such an assertion or
assessment, inform the Indemnifying Securityholders within fifteen (15) business
days; provided, that any failure to inform the Indemnifying Securityholders
shall not relieve the Indemnifying Securityholders of their obligation to
provide the indemnity required hereunder. The Indemnifying Securityholders shall
have the right to control any resulting proceedings and to determine whether and
when to settle any such claim, assessment or dispute to the extent such
proceedings or determinations affect the amount of Taxes for which the
Indemnifying Securityholders are liable or required to provide indemnification
under this Article VI, except that the Buyer shall have the right to consent to
any settlement to the extent such proceedings or settlement could reasonably be
expected to affect the amount of Taxes imposed on the Buyer, the Surviving
Corporation or any Subsidiary for taxable periods or portions thereof beginning
after the Pre-Closing Tax Periods. Whenever any taxing authority makes a written
assertion of a claim for or dispute regarding, or assessment of, Taxes for which
the Buyer is liable or required to provide indemnification under this Article
VI, the Indemnifying Securityholders shall, if informed of such assertion or
assessment, inform the Buyer within fifteen (15) business days; provided, that
any failure to inform the Indemnifying Securityholders shall not relieve the
Indemnifying Securityholders of their obligation to provide the indemnity
required hereunder. The Buyer shall have the right to control any resulting
proceedings and to determine whether and when to settle any such claim,
assessment or dispute, except that the Indemnifying Securityholders shall have
the right to consent, which consent shall not be unreasonably withheld, to any
settlement to the extent such proceedings could reasonably be expected to
materially affect the amount of Taxes for which the Indemnifying Securityholders
are liable under or required to provide indemnification this Agreement.
(f) Resolution of Disagreements Between Indemnifying Securityholders
and the Buyer. If either the Indemnifying Securityholders or the Buyer disagree
as to the amount of Taxes for which they are liable or required to provide
indemnification under this Article VI, the Shareholder Representatives, on
behalf of the Indemnifying Securityholders, and the Buyer shall promptly consult
each other to resolve such dispute following the receipt of written notice from
either party to begin such consultation (the "Consultation Notice"). If any such
point of
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disagreement cannot be resolved within twenty (20) days of the date of the
Consultation Notice, the Shareholder Representatives and the Buyer shall within
ten (10) days after such period jointly select a nationally recognized
independent public accounting firm or law firm with no material relationship to
the Indemnifying Securityholders or the Buyer to act as an arbitrator to
resolve, within forty-five (45) days after its selection, all points of
disagreement concerning Tax matters with respect to this Agreement and presented
to such accounting firm or law firm at the time of its selection. If the
Shareholder Representatives, on the one hand, and the Buyer, on the other hand
cannot agree on the selection of an accounting or law firm within such ten-day
period, they shall cause their respective accounting firms or law firms to
select such firm within five (5) business days after the end of such ten-day
period. Any such resolution shall be conclusive and binding on the Buyer and the
Indemnifying Securityholders. The fees of such independent public accounting
firm or law firm shall be divided equally between the Indemnifying
Securityholders, on the one hand, and the Buyer, on the other hand. The
Shareholder Representatives and the Buyer shall (and shall cause the Surviving
Corporation to) provide to such firm full cooperation.
(g) Treatment of Indemnification Payments. The parties hereto agree to
treat all indemnification payments made pursuant to this Article VI (including,
without limitation, payments pursuant to Sections 6.1, 6.2 and 6.7) as
adjustments to the Merger Consideration for all income Tax purposes and to take
no position contrary thereto in any Tax Return or audit or examination by, or
proceeding before, any taxing authority, except as required by a change in law
or a "determination" as defined in Section 1313 of the Code and the Treasury
Regulations thereunder.
(h) Tax Returns.
(i) Pre-Closing Tax Returns.
(A) Prior to the Closing Date, the Company shall (1)
prepare, or cause to be prepared, amended Tax Returns for its 2003 and
2004 tax years (the "Amended Tax Returns"), treating the HCN
Sale-Leaseback as a true sale and true lease, and shall consider the
benefits to the Company of making a "closing-of-the books election"
under Treasury Regulations Section 1.382-6(b) (and any corresponding
provision of applicable state and local Tax laws) to close the books
of the Company on September 29, 2003, and to the extent such election
is deemed beneficial to the Company, shall use its reasonable efforts
to obtain an extension under Treasury Regulations Section 301.9100-3
to make such election and (2) prepare and file, or cause to be
prepared and filed, valid extensions of the due dates for filing the
2005 Tax Returns (the "2005 Extensions"). The Indemnifying
Securityholders shall pay all third party costs and expenses incurred
in connection with the preparation of the Amended Tax Returns and the
preparation and filing of the 2005 Extensions. The Company shall
deliver copies of the Amended Tax Returns (together with all relevant
schedules and work papers) to Buyer for Buyer's review and approval,
at Buyer's expense, at least fifteen (15) days prior to the Closing
Date. After Buyer has approved the Amended Tax Returns, the Company
shall file
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such Amended Tax Returns with the relevant Governmental Entities. The
Indemnifying Securityholders shall be responsible for payment of the
Taxes shown as due and owing on the Amended Tax Returns and the 2005
Extensions, less any amounts specifically accrued as liabilities
therefor on either the Estimated Closing Balance Sheet or the Final
Closing Balance Sheet. To the extent such amounts on either the
Estimated Closing Balance Sheet or the Final Closing Balance Sheet
exceed the amounts shown as due and owing on Amended Tax Returns and
the 2005 Extensions, such amounts shall be paid by Buyer to the
Indemnifying Securityholders. After the Closing, the Shareholder
Representatives shall cause to be prepared the 2005 Tax Returns and
the 2006 Tax Returns. The Buyer and the Surviving Corporation shall,
to the extent necessary, execute an engagement letter with an
independent accounting firm chosen by the Shareholder Representatives
and shall provide reasonable assistance, access and information to the
Shareholder Representatives and such independent accounting firm in
connection with the preparation of such Tax Returns. The Indemnifying
Securityholders shall pay all third party costs and expenses incurred
in connection with the preparation of the 2005 Tax Returns and the
2006 Tax Returns, less any amounts specifically accrued therefor on
the Estimated Closing Balance Sheet or the Final Closing Balance
Sheet. The Shareholder Representatives shall deliver the 2005 Tax
Returns and 2006 Tax Returns (in each case, together with all relevant
schedules and work papers) to Buyer at least thirty-five (35) days
prior to the due dates for such Tax Returns. Buyer shall have a period
of thirty (30) days following delivery of such Tax Returns to review
and approve, at Buyer's expense, such Tax Returns. After Buyer has
reviewed and approved the 2005 Tax Returns and the 2006 Tax Returns
(which approval shall not be unreasonably withheld), the Surviving
Corporation shall file such Tax Returns in a timely manner with the
relevant Governmental Entities and shall provide a copy of such filed
Tax Returns to the Shareholder Representatives. At least three (3)
days prior to the due date for the payment of the Taxes shown as due
with respect to the 2005 Tax Returns and the 2006 Tax Returns (in each
case, as reasonably approved by Buyer), the Indemnifying
Securityholders shall pay to Buyer an amount equal to the Taxes shown
as due and owing on such Tax Returns, less, in each case, any amounts
specifically accrued as liabilities therefor on either the Estimated
Closing Balance Sheet or the Final Closing Balance Sheet. To the
extent such amounts on either the Estimated Closing Balance Sheet or
the Final Closing Balance Sheet exceed the amounts shown as due and
owing on the 2005 Tax Returns or the 2006 Tax Returns, such amounts
shall be paid by Buyer to the Indemnifying Securityholders.
(B) Except as set forth in Section 6.7(h)(i)(A) above, the
Surviving Corporation shall prepare and file, or cause to be prepared
and filed, all Tax Returns that include, or are required to be filed
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by, the Company or any Subsidiary for all tax periods that end on or
prior to the Closing Date, that are due after the Closing Date
(including all permitted extensions of such due dates). The
Shareholder Representatives, on behalf of the Indemnifying
Securityholders, shall be provided with copies of such Tax Returns
(together with all relevant schedules and work papers) or drafts
thereof at least fifteen (15) days prior to the filing thereof and
shall be entitled to review and comment upon such Tax Returns. Buyer
or the Surviving Corporation shall consider in good faith any changes
to such Tax Returns that are reasonably requested by the Shareholder
Representatives. The Indemnifying Securityholders shall pay all third
party costs and expenses incurred in connection with the preparation
of such Tax Returns (up to a maximum of $30,000 in the aggregate,
inclusive of the costs and expenses paid by the Indemnifying
Shareholders in connection with the preparation of the 2005 Tax
Returns and the 2006 Tax Returns as contemplated in Section
6.7(h)(i)(A)), less any amounts accrued therefor on the Estimated
Closing Balance Sheet or the Final Closing Balance Sheet. At least
three (3) days prior to the due date for the payment of the Taxes
shown as due with respect to such Tax Returns, the Indemnifying
Securityholders shall pay to Buyer an amount equal to the Taxes shown
as due and owing on such Tax Returns, less any amounts specifically
accrued as liabilities therefor on either the Estimated Closing
Balance Sheet or the Final Closing Balance Sheet. To the extent such
amounts on either the Estimated Closing Balance Sheet or the Final
Closing Balance Sheet exceed the amount shown as due and owing on the
Tax Returns, such amounts shall be paid by Buyer to the Indemnifying
Securityholders. Neither the Buyer nor the Surviving Corporation shall
prepare or file amended Amended Tax Returns, 2005 Tax Returns or 2006
Tax Returns without the prior written consent of the Shareholder
Representatives, which consent will not be unreasonably withheld.
(ii) All Other Tax Returns. The Surviving Corporation shall prepare
and file, or cause to be prepared and filed, all Tax Returns that are due
after the Closing Date that include, or are required to be filed by, the
Surviving Corporation or any Subsidiary. To the extent that any such Tax
Returns relate to any Taxes for which any Indemnifying Securityholder is
required to provide indemnification pursuant to this Article VI, (A)
Shareholder Representatives, on behalf of the Indemnifying Securityholders
shall be provided with copies of the relevant portions of such Tax Returns
(together with all relevant schedules and work papers) or drafts thereof
for review at least fifteen (15) days prior to the filing thereof, and (B)
at least three (3) days prior to the due date for payment of such Taxes,
the Indemnifying Securityholders shall pay to the Buyer an amount equal to
the portion of such Taxes for which the Indemnifying Securityholders are
required to provide indemnification pursuant to this Article VI to the
extent such Taxes were allocated to Pre-Closing Tax Periods pursuant to
Section 6.7(b)(ii), less any amounts specifically accrued as liabilities
therefor, on either the Estimated Closing Balance Sheet or the Final
Closing Balance Sheet. To the extent such amounts on either the Estimated
Closing Balance Sheet or the Final
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Closing Balance Sheet exceed the amount shown as due and owing on the Tax
Returns, such amounts shall be paid by the Buyer to the Indemnifying
Securityholders.
(i) Certificates. The Buyer and the Indemnifying Securityholders
further agree, upon request, to use their commercially reasonable efforts to
obtain any certificate or other document from any Governmental Entity or any
other person as may be necessary to mitigate, reduce or eliminate any Tax that
could be imposed with respect to the transactions contemplated hereby.
(j) Survival of Obligations. Notwithstanding any other provisions of
this Agreement, the obligations of the parties set forth in this Section 6.7
shall be subject to the limitations contained in Section 6.5, and shall remain
in effect until the expiration of the applicable statutes of limitations
(including valid extensions thereof).
ARTICLE VII
TERMINATION
7.1 Termination of Agreement. The Parties may terminate this Agreement
prior to the Closing, as provided below:
(a) the Parties may terminate this Agreement by mutual written
consent;
(b) the Buyer may terminate this Agreement by giving written notice to
the Company in the event the Company is in breach of any representation,
warranty or covenant contained in this Agreement, and such breach (i)
individually or in combination with any other such breach, would cause the
conditions set forth in clauses (c) or (d) of Section 5.2 not to be satisfied
and (ii) is not cured within twenty (20) days following delivery by the Buyer to
the Company of written notice of such breach;
(c) the Company may terminate this Agreement by giving written notice
to the Buyer in the event the Buyer or the Transitory Subsidiary is in breach of
any representation, warranty or covenant contained in this Agreement, and such
breach (i) individually or in combination with any other such breach, would
cause the conditions set forth in clauses (a) or (b) of Section 5.3 not to be
satisfied and (ii) is not cured within twenty (20) days following delivery by
the Company to the Buyer of written notice of such breach;
(d) the Buyer may terminate this Agreement at any time prior to the
expiration of the Due Diligence Period in accordance with Section 1.14 hereof;
(e) the Buyer may terminate this Agreement in accordance with Section
1.17 hereof;
(f) the Buyer may terminate this Agreement by giving written notice to
the Company if the Closing shall not have occurred on or before one hundred and
eighty (180) days after the date of execution of the Original Merger Agreement
by reason of the failure of any condition precedent under Section 5.1 or 5.2
(unless the failure results primarily from a breach by
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the Buyer or the Transitory Subsidiary of any representation, warranty or
covenant contained in this Agreement);
(g) the Company may terminate this Agreement by giving written notice
to the Buyer if the Closing shall not have occurred on or before one hundred and
eighty (180) days after the date of execution of the Original Merger Agreement
by reason of the failure of any condition precedent under Section 5.1 or 5.3
(unless the failure results primarily from a breach by the Company of any
representation, warranty or covenant contained in this Agreement);
(h) the Company may terminate this Agreement in accordance with
Section 6.5(f) hereof;
(i) the Buyer or Company may terminate this Agreement by giving
written notice to the other party if a court of competent jurisdiction or other
Governmental Entity shall have issued a nonappealable final order, decree or
ruling or taken any other action, in each case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger, unless the party
relying on such order, decree or ruling or other action has not complied in all
material respects with its obligations under this Agreement; or
(j) the Buyer may terminate this Agreement by giving written notice to
the Company if Buyer reasonably determines that any condition precedent under
Section 5.2(i), 5.2(o), or 5.2(p) is unlikely to be satisfied (unless such
failure results primarily from the fault of or a breach by the Buyer of any
representation, warranty or covenant contained in this Agreement).
7.2 Effect of Termination.
(a) In the event this Agreement is terminated as provided in Sections
7.1(a), 7.1(b), 7.1(d), 7.1(e), 7.1(f), 7.1(g), 7.1(i) or 7.1(j) hereof, the
parties hereto will be released from all future obligations hereunder.
(b) In the event this Agreement is terminated as provided in Sections
7.1(c) or 7.1(h) hereof, the parties hereto will be released from all future
obligations hereunder, except that the Escrow Agent shall be obligated to pay to
Company the Deposits.
(c) In the event this Agreement is terminated as provided in Section
7.1(f) or (g) hereof, due to the failure of the closing condition of Section
5.2(q) to be satisfied as of such termination, the parties hereto will be
released from all future obligations and liabilities hereunder, except that
notwithstanding anything in this Agreement to the contrary: (A) the Company
shall promptly reimburse Buyer for all reasonable out of pocket expenses
incurred in connection with this Agreement by Buyer prior to the date of such
termination, up to a maximum aggregate amount of $1,000,000, upon the Company's
receipt of reasonable documentation of such expenses, and (B) Buyer shall
promptly provide the Company with all Surveys, Title Commitments, environmental
reports, environmental assessments and other reports prepared by third parties
with respect to the Company Facilities in connection with the transactions
contemplated under this Agreement. Notwithstanding anything in this Agreement to
the contrary, the reimbursement of expenses as described in this Section 7.2(c)
shall be Buyer's sole remedy
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and the Company's sole liability with respect to a termination of this Agreement
as a result of the event described in this Section 7.2(c).
(d) Notwithstanding the foregoing, the obligations of the parties set
forth in Section 4.5(c) (which relates to confidentiality), Section 4.7 (which
relates to payment of certain expenses) and this Section 7.2, will survive any
termination of this Agreement. Except as provided in Section 7.2(c) or otherwise
herein, the parties hereto will have any and all remedies provided at law or in
equity or otherwise (including specific performance) to enforce the obligations
set forth in Section 1.13(d), Section 4.5(c), Section 4.7 and this Section 7.2,
and nothing herein will relieve any party from liability for any breach hereof,
and each party will be entitled to any remedies at law or in equity to recover
Damages arising from such breach, and except that termination shall not preclude
any Party from suing any other Party for any breach of this Agreement that
occurred prior to such termination; provided, however, that for purposes of this
Section 7.2, the representations and warranties of the Company shall be deemed
to be qualified by the Original Disclosure Letter, as opposed to the Disclosure
Letter, except with respect to matters arising from events occurring between the
date of the execution of the Original Merger Agreement and the Closing Date
which did not occur as a result of an act by or on behalf of the Company, any
Subsidiary or any Securityholder, in which case the representations and
warranties of the Company shall be deemed to be qualified by the Disclosure
Letter, as opposed to the Original Disclosure Letter.
ARTICLE VIII
DEFINITIONS
For purposes of this Agreement, each of the following terms shall have the
meaning set forth below.
"2005 Extensions" shall have the meaning ascribed to it in Section
6.7(h)(i)(A).
"2005 Tax Returns" shall mean the Tax Returns for the Company's 2005 tax
year, prepared on a basis consistent with the Amended Tax Returns.
"2006 Tax Returns" shall mean the Tax Returns for the Company's 2006 tax
year, for the Interim Period through the Closing Date, prepared on a basis
consistent with the Amended Tax Returns and the 2005 Tax Returns.
"AAA" shall mean the American Arbitration Association.
"Accountant" shall have the meaning ascribed to it in Section 1.6(d).
"Actual Census" shall mean the Weighted Average Census of all of the
Company Facilities (except the Managed Facilities), determined as of ten (10)
days, or if such day is not a business day, then the next most recent business
day, before Closing. No Residents shall be included for purposes of calculation
of the Actual Census to the extent the Assisted Living Residence Agreements for
such Residents contain terms that are materially different than the terms set
forth on the specimen agreements Made Available to Buyer or to the extent the
rental
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and other sums payable thereunder are other than those which are consistent with
the Ordinary Course of Business.
"Adjusted Working Capital" shall mean the working capital of the Company
and its Subsidiaries (total current assets less current liabilities) determined
in accordance with GAAP, applied on a consistent basis with the Company's
historical financial statements, but adjusted to eliminate accrued interest and
current portions of long-term debt, further adjusted to reflect an accrual by
the Company for unpaid costs and expenses, including change in control bonus
payments to employees or other payments, associated with the Merger, further
adjusted to reflect all long-term debt of the Company or any Subsidiary except
to the extent long-term debt is set forth on Exhibit F, further adjusted to
eliminate all accounts receivable, further adjusted, to the extent necessary, to
include any and all costs and expenses of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP related to the
Company's 2005 audit by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, and further adjusted to reflect the
calculation of Prorations as of the Closing Date as contemplated by the
definition of Prorations (provided, that all items reflected in the calculation
of Prorations shall otherwise be excluded from the calculation of Adjusted
Working Capital). An illustration of the calculation of estimated Adjusted
Working Capital as of the date of the Original Merger Agreement is attached to
Exhibit 1.6(E).
"Affiliate" shall mean any affiliate, as defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended.
"Affiliated Group" means an affiliated group as defined in Section 1504 of
the Code (or analogous combined, consolidated, unitary, or similar group defined
under state, local or foreign income Tax law.
"Agreed Amount" shall mean part, but not all, of the Claimed Amount.
"Aid Receivables" shall have the meaning ascribed to it in Section 4.16
hereof.
"Amended Tax Returns" shall have the meaning ascribed to it in Section
6.7(h)(i)(A).
"Arbitrator" shall have the meaning set forth in Section 6.3(e) hereof.
"Articles of Merger" shall mean the articles of merger or other appropriate
documents prepared and executed in accordance with Section 55-11-05 of the
NCBCA.
"Assigned Aid Receivable" shall have the meaning ascribed to it in Section
4.16 hereof.
"Assigned Private Receivable" shall have the meaning ascribed to it in
Section 4.16 hereof.
"Assisted Living Residence Agreements" shall mean the agreements between
the Residents and each operator of the Company Facilities.
"Bonused Employees" shall have the meaning ascribed to it in Section 4.13
hereof.
"Buyer" shall have the meaning set forth in the first paragraph of this
Agreement.
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"Buyer Certificate" shall mean a certificate to the effect that each of the
conditions specified in clauses (a) through (c) (insofar as clause (c) relates
to Legal Proceedings involving the Buyer or the Transitory Subsidiary) of
Section 5.3 is satisfied in all respects.
"Buyer Material Adverse Effect" shall mean any material adverse change,
event, circumstance or development with respect to, or material adverse effect
on the ability of Buyer to consummate the transactions contemplated hereby. For
the avoidance of doubt, the parties agree that the terms "material",
"materially" or "materiality" as used in this Agreement with an initial lower
case "m" shall have their respective customary and ordinary meanings, without
regard to the meaning ascribed to Buyer Material Adverse Effect.
"CERCLA" shall mean the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Claim Notice" shall mean written notification which contains (i) a
description of the Damages incurred or reasonably expected to be incurred by the
Indemnified Party and the Claimed Amount of such Damages, to the extent then
known, (ii) a statement that the Indemnified Party is entitled to
indemnification under Article VI for such Damages and a reasonable explanation
of the basis therefor, and (iii) a demand for payment in the amount of such
Damages.
"Claimed Amount" shall mean the amount of any Damages incurred or
reasonably expected to be incurred by the Indemnified Party.
"Closing" shall mean the closing of the transactions contemplated by this
Agreement.
"Closing Consideration" shall have the meaning ascribed to it in Section
1.5(a) hereof.
"Closing Date" shall mean the date two business days after the satisfaction
or waiver of all of the conditions to the obligations of the Parties to
consummate the transactions contemplated hereby (excluding the delivery at the
Closing of any of the documents set forth in Article V), or such other date as
may be mutually agreeable to the Parties.
"Closing Net Working Capital" shall mean the Adjusted Working Capital
estimated by the Company pursuant to Section 1.6(a).
"Closing Negative Adjustment Amount" shall have the meaning ascribed to it
in Section 1.6(b) hereof.
"Closing Positive Adjustment Amount" shall have the meaning ascribed to it
in Section 1.6(b) hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and any
successor law.
"Commercial Rules" shall mean the Commercial Arbitration Rules of the AAA.
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"Common Shares" shall mean the issued and outstanding shares of common
stock, no par value per share, of the Company.
"Company" shall have the meaning set forth in the first paragraph of this
Agreement.
"Company Certificate" shall mean a certificate to the effect that each of
the conditions specified in clause (a) of Section 5.2 and clauses (a) through
(e) (insofar as clause (e) relates to Legal Proceedings involving the Company or
a Subsidiary) of Section 5.2 is satisfied in all respects.
"Company Facilities" shall mean the assisted living facilities owned,
leased or operated by the Company.
"Company Material Adverse Effect" shall mean any material adverse change,
event, circumstance or development with respect to, or material adverse effect
on, (i) the business, assets, liabilities, capitalization, financial condition,
or results of operations of the Company and the Subsidiaries or any of the
Company Facilities, taken as a whole, or (ii) the ability of the Buyer to
operate the business of the Company and each of the Subsidiaries immediately
after the Closing. For the avoidance of doubt, the parties agree that the terms
"material", "materially" or "materiality" as used in this Agreement with an
initial lower case "m" shall have their respective customary and ordinary
meanings, without regard to the meaning ascribed to Company Material Adverse
Effect and that a Company Material Adverse Effect shall not be deemed to have
occurred in the event that any Permits shall remain pending and unissued by
Governmental Entity as of the Closing Date.
"Company Obligation Amount" shall mean Six Million Three Hundred Sixty
Seven Thousand Eight Hundred Ninety Dollars ($6,367,890).
"Company Obligation Escrow Agent" shall mean HCN, or one of its Affiliates.
"Company Obligation Escrow Agreement" shall have the meaning ascribed to it
in Section 1.19."
"Company Obligations" shall mean all amounts required to be paid by the
Company after the Closing under the Master Lease equal to the Company Obligation
Amount.
"Company Plan" shall mean any Company Stock Plan and any Employee Benefit
Plan maintained, or contributed to, by the Company, any Subsidiary or any ERISA
Affiliate or to which any of the foregoing is required to contribute or with
respect to which any of the foregoing has any liability.
"Company Shareholders" shall mean the shareholders of record of the Company
immediately prior to the Effective Time.
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"Company Stock Plan" shall mean any stock option plan or other stock or
equity-related plan of the Company.
"Condemnation Event" shall mean: (i) damage to any one or more of the
Company Facilities, the costs of repair for which exceed $250,000 for any single
Company Facility, or $2,000,000 in the aggregate; or (ii) any condemnation by a
Governmental Entity with respect to a Company Facility which renders such
Company Facility unsuitable for the continued operation of the Company's
business, substantially as it was conducted prior to such condemnation. The
terms Company Facility and Company Facilities, for purposes of this definition,
shall not include the Managed Facilities.
"Consultation Notice" shall have the meaning ascribed to in Section 6.7(f)
hereof.
"Controlling Party" shall mean the party controlling the defense of any
Third Party Action.
"Damages" shall mean any and all losses, costs, damages and expenses
(including amounts paid in settlement, interest, court costs, costs of
investigators, reasonable fees and expenses of attorneys, accountants, financial
advisors and other experts, and other expenses of litigation, arbitration or
other dispute resolution proceedings relating to a Third Party Action or an
indemnification claim under Article VI), other than those costs and expenses of
arbitration of a Dispute which are to be shared equally by the Indemnified Party
and the Indemnifying Party as set forth in Section 6.3(e)(vi).
"Deposit Escrow Agent" shall mean the Chicago Title Insurance Company or
another national insurance company reasonably acceptable to the Buyer.
"Deposit Escrow Agreement" shall have the meaning set forth in Section 1.13
hereof.
"Deposits" shall have the meaning ascribed to it in Section 1.13 hereof.
"DGCL" shall mean the Delaware General Corporate Law, as amended.
"Disclosure Letter" shall mean the Disclosure Letter issued with the
execution of the Original Merger Agreement and as revised and issued as of
Closing pursuant to Article II.
"Dispute" shall mean the dispute resulting if the Indemnifying Party in a
Response disputes its liability for all or part of the Claimed Amount.
"Dissenting Shares" shall mean Common Shares held as of the Effective Time
by a Company Shareholder who has not voted such Common Shares in favor of the
adoption of this Agreement and with respect to which appraisal shall have been
duly demanded and perfected in accordance with Section 55-13 of the NCBCA and
not effectively withdrawn or forfeited prior to the Effective Time.
"Due Diligence Deposit" shall have the meaning ascribed to it in Section
1.13 hereof.
"Due Diligence Period" shall have the meaning ascribed to it in Section
1.14 hereof.
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"Effective Time" shall mean the time at which the Surviving Corporation
files the Articles of Merger with the Secretary of State of the State of North
Carolina.
"Employee Benefit Plan" shall mean any "employee pension benefit plan" (as
defined in Section 3(2) of ERISA), any "employee welfare benefit plan" (as
defined in Section 3(1) of ERISA), and any other written or oral plan, program,
policy, agreement or arrangement involving direct or indirect compensation,
including insurance coverage, severance benefits, disability benefits, deferred
compensation, consulting compensation, bonuses, stock options, stock purchase,
phantom stock, stock appreciation or other forms of incentive compensation or
post-retirement compensation.
"Environmental Law" shall mean any federal, state or local law, statute,
rule, order, directive, judgment, Permit or regulation or the common law
relating to the environment, occupational health and safety, or exposure of
persons or property to Materials of Environmental Concern, including any
statute, regulation, administrative decision or order pertaining to: (i) the
presence of or the treatment, storage, disposal, generation, transportation,
handling, distribution, manufacture, processing, use, import, export, labeling,
recycling, registration, investigation or remediation of Materials of
Environmental Concern or documentation related to the foregoing; (ii) air, water
and noise pollution; (iii) groundwater and soil contamination; (iv) the release,
threatened release, or accidental release into the environment, the workplace or
other areas of Materials of Environmental Concern, including emissions,
discharges, injections, spills, escapes or dumping of Materials of Environmental
Concern; (v) transfer of interests in or control of real property which may be
contaminated; (vi) community or worker right-to-know disclosures with respect to
Materials of Environmental Concern; (vii) the protection of wild life, marine
life and wetlands, and endangered and threatened species; (viii) storage tanks,
vessels, containers, abandoned or discarded barrels and other closed
receptacles; and (ix) health and safety of employees and other persons. As used
above, the term "release" shall have the meaning set forth in CERCLA.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean any entity which is, or at any applicable time
was, a member of (1) a controlled group of corporations (as defined in Section
414(b) of the Code), (2) a group of trades or businesses under common control
(as defined in Section 414(c) of the Code), or (3) an affiliated service group
(as defined under Section 414(m) of the Code or the regulations under Section
414(o) of the Code), any of which includes or included the Company or a
Subsidiary.
"Escrow Agreement" shall mean an escrow agreement in substantially the form
attached hereto as Exhibit A.
"Escrow Agent" shall mean an escrow agent mutually acceptable to Buyer and
the Company.
"Escrow Account" shall have the meaning ascribed to it in Section
1.6(b)(iv) hereof.
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"Escrow Amount" shall have the meaning ascribed to it in Section 1.5(b)(iv)
hereof.
"Estimated Closing Balance Sheet" shall have the meaning ascribed to it in
Section 1.6(a).
"Expected Claim Notice" shall mean a notice that, as a result of a legal
proceeding instituted by or written claim made by a third party, an Indemnified
Party reasonably expects to incur Damages for which it is entitled to
indemnification under Article VI.
"Final Balance Sheet Date" shall have the meaning ascribed to it in Section
1.6(d) hereof.
"Final Closing Balance Sheet" shall have the meaning ascribed to it in
Section 1.6(a) hereof.
"Final Consideration" shall have the meaning ascribed to it in Section
1.5(a) hereof.
"Financial Statements" shall mean:
(a) the audited consolidated balance sheets and statements of income,
changes in shareholders' equity and cash flows of the Company as of the end of
and for the fiscal years ended December 31, 2002, 2003 and 2004, and
(b) the Most Recent Balance Sheet and the unaudited consolidated
statements of income, changes in shareholders' equity and cash flows for the ten
months ended as of the Most Recent Balance Sheet Date.
"GAAP" shall mean United States generally accepted accounting principles.
"Governmental Entity" shall mean any court, arbitrational tribunal,
administrative agency or commission or other governmental or regulatory
authority or agency.
"Government Programs" shall have the meaning ascribed to it in Section
2.21(b) hereof.
"▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act" shall mean the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended.
"HCN Sale-Leaseback" shall mean that certain sale-leaseback transaction
entered into as of September 29, 2003 among the Company and certain of its
Subsidiaries, on the one hand, and HCN and certain of its affiliates, on the
other hand.
"Indemnified Party" shall mean a party entitled, or seeking to assert
rights, to indemnification under Article VI.
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"Indemnifying Party" shall mean the party from whom indemnification is
sought by the Indemnified Party.
"Indemnified Executive" means each present and former director and officer
of the Company.
"Indemnifying Securityholders" shall mean the Securityholders receiving the
Merger Consideration pursuant to Section 1.5.
"Initial Deposit" shall have the meaning ascribed to it in Section 1.13
hereof.
"Initial Merger Consideration" shall have the meaning ascribed to it in
Section 1.5(a) hereof.
"Intellectual Property" shall mean all:
(a) patents, patent applications, patent disclosures and all related
continuation, continuation-in-part, divisional, reissue, reexamination, utility
model, certificate of invention and design patents, patent applications,
registrations and applications for registrations;
(b) trademarks, service marks, trade dress, Internet domain names,
logos, trade names and corporate names and registrations and applications for
registration thereof;
(c) copyrights and registrations and applications for registration
thereof;
(d) mask works and registrations and applications for registration
thereof;
(e) computer software, data and documentation;
(f) inventions, trade secrets and confidential business information,
whether patentable or nonpatentable and whether or not reduced to practice,
know-how, manufacturing and product processes and techniques, research and
development information, copyrightable works, financial, marketing and business
data, pricing and cost information, business and marketing plans and customer
and supplier lists and information;
(g) other proprietary rights relating to any of the foregoing
(including remedies against infringements thereof and rights of protection of
interest therein under the laws of all jurisdictions); and
(h) copies and tangible embodiments thereof.
"Interest Rate" shall mean the Prime Rate of Interest as set forth in the
Wall Street Journal on the date a payment is determined to be due and payable.
"Interim Period" shall have the meaning ascribed to it in Section 6.7(b)(i)
hereof.
"Lease" shall mean any lease or sublease or other occupying agreement, as
amended (as disclosed in Section 2.12 of the Original Disclosure Letter),
pursuant to which the Company or a
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Subsidiary leases or subleases or otherwise occupies from another party any real
property, including any Company Facilities.
"Legal Proceeding" shall mean any action, suit, proceeding, claim,
arbitration or investigation before any Governmental Entity or before any
arbitrator.
"Letter of Transmittal" shall have the meaning set forth in Section 1.3(e)
hereof.
"Liability" means any liability, whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due.
"Licensing Survey" shall have the meaning set forth in Section 2.27 hereof.
"Made Available" or "Make Available" shall mean provided to, or open for
reasonable inspection on the electronic data room established by the Company or
at the Company's Facilities by, Buyer, its agents, representatives or
Affiliates, either electronically or in written format.
"Major Shareholders" shall mean ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
and God's Bounty, L.L.C.
"Managed Facilities" shall mean each of the ▇▇▇▇ ▇▇▇▇ Plantation, Berne
Village and Windsor House West facilities, which the Company, or its
Subsidiaries, manages or has managed.
"Master Lease" shall mean that certain Amended and Restated Master Lease
Agreement made effective as of September 29, 2003 among Health Care REIT, Inc.,
a corporation organized under the laws of the State of Delaware ("HCN" and a
"Landlord" as further defined therein), HCRI North Carolina Properties, LP, a
limited partnership organized under the laws of the State of North Carolina
("HCN-NC, LP" and a "Landlord" as further defined therein), and HCRI North
Carolina Properties, LLC, a limited liability company organized under the laws
of the State of Delaware ("HCN-NC, LLC" and a "Landlord" as further defined
therein) and SALI TENANT, LLC, a limited liability company organized under the
laws of the State of North Carolina and a wholly-owned subsidiary of the Company
("Tenant"), as amended (as disclosed in Section 2.12 of the Original Disclosure
Letter).
"Material Environmental Deficiencies" shall mean the presence of Materials
of Environmental Concern, which: (i) would cause any of the Company Facilities
to fail to comply in all material respects with all applicable laws, rules and
regulations; and (ii) have an estimated total cost to remediate such
deficiencies in excess of an amount which represents 5% of the Merger
Consideration.
"Materials of Environmental Concern" shall mean any: pollutants,
contaminants or hazardous substances (as such terms are defined under CERCLA),
pesticides (as such term is defined under the Federal Insecticide, Fungicide and
Rodenticide Act), solid wastes and hazardous wastes (as such terms are defined
under the Resource Conservation and Recovery Act), chemicals, other hazardous,
radioactive or toxic materials, oil, petroleum and petroleum
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products (and fractions thereof), or any other material (or article containing
such material) listed or subject to regulation under any law, statute, rule,
regulation, order, Permit, or directive due to its potential, directly or
indirectly, to harm the environment or the health of humans or other living
beings.
"Material Structural Deficiencies" shall mean defects in the physical
condition of the Company Facilities (including the heating, ventilation and air
conditioning systems, plumbing, electrical, energy, life, safety and support
systems, structural systems or foundation thereof) that cause the Company
Facilities to: (i) fail to comply in all material respects with all applicable
building codes and regulations in the locality in which the Company Facilities
are located; and (ii) have an estimated total cost to repair such deficiencies
in excess of an amount which represents 5% of the Merger Consideration.
"Merger" shall mean the merger of the Transitory Subsidiary with and into
the Company in accordance with the terms of this Agreement.
"Merger Consideration" shall mean the sum of the aggregate Closing
Consideration and aggregate Final Consideration.
"Most Recent Balance Sheet" shall mean the unaudited consolidated balance
sheet of the Company as of the Most Recent Balance Sheet Date.
"Most Recent Balance Sheet Date" shall mean October 31, 2005.
"Non-controlling Party" shall mean the party not controlling the defense of
any Third Party Action.
"NCBCA" shall mean the North Carolina Business Corporation Act, as amended.
"Notice of Dispute" shall have the meaning ascribed to it in Section 1.6(d)
hereof.
"Option" shall mean each option to purchase or acquire Common Shares.
"Optionholder" shall mean the registered holder of an issued an outstanding
option to purchase shares of the Company's common stock.
"Option Consideration" shall mean an amount in cash equal to the product of
(i) the excess of the Closing Consideration and Final Consideration per Common
Share underlying such Option, in each case, over the exercise price per Common
Share of such Option and (ii) the number of Common Shares subject to such
Option.
"Ordinary Course of Business" shall mean the ordinary course of business
consistent with past custom and practice (including with respect to frequency
and amount).
"Original Disclosure Letter" shall mean the Disclosure Letter provided by
the Company to the Buyer as of the execution of the Original Merger Agreement.
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"Original Merger Agreement" shall have the meaning set forth in the
recitals of this Agreement.
"Other Employees" shall have the meaning ascribed to it in Section 4.13
hereof.
"Owned Real Property" shall mean each item of real property in fee owned by
the Company or a Subsidiary.
"Parties" shall mean the Buyer, the Transitory Subsidiary and the Company.
"Permitted Liens" shall mean (a) liens for taxes, assessments or other
governmental charges or levies that are not yet due or payable; (b) statutory
liens of landlords and liens of carriers, warehousemen, mechanics, materialmen,
repairmen and other liens imposed by applicable law and on a basis consistent
with past practice for amounts not yet due; (c) liens incurred or deposits made
in the Ordinary Course of Business in connection with workers' compensation,
unemployment insurance or other types of social security; (d) defects of title,
easements, rights-of-way, restrictions and other similar charges or encumbrances
not materially detracting from the value of the asset subject to the lien or
materially interfering with the ordinary conduct of business; (e) any set of
facts an accurate up-to-date survey would show; provided, however, such facts do
not materially interfere with the present use, enjoyment and occupation of the
real property asset; (f) any other matters of title not objected to in writing
by Buyer in accordance with Section 1.17 hereof; and (g) liens with respect to
the matters disclosed on Exhibit F.
"Permits" shall mean all permits, licenses, registrations, certificates,
orders, approvals, franchises, variances and similar rights issued by or
obtained from any Governmental Entity required by the Company and its
Subsidiaries to carry on their respective businesses as currently conducted.
"Private Receivables" shall have the meaning ascribed to it in Section 4.16
hereof.
"Post-Closing Negative Adjustment Amount" shall have the meaning ascribed
to it in Section 1.6(e).
"Post-Closing Positive Adjustment Amount" shall have the meaning ascribed
to it in Section 1.6(e).
"Pre-Closing Tax Periods" shall have the meaning ascribed to it in Section
6.7(b)(i) hereof.
"Prorations" shall mean the apportionment, with respect to the Company
Facilities, as of 12:01 a.m. on the Closing Date, as if Buyer were vested with
title to the Company Facilities on the Closing Date:
(i) all rent, additional rent and other payments under the Leases;
(ii) gas, electricity and other utility charges for which the Company or
any of its Subsidiaries is liable, if any (such charges to be apportioned as of
the Closing Date on the basis
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of the most recent meter reading occurring prior to the Closing Date (dated not
more than fifteen (15) days prior to the Closing Date) or, if unmetered, on the
basis of a current ▇▇▇▇ for each such utility); and
(iii) any other operating expenses or other items, including payments
(including, without limitation, any fees, dues, assessments and other sums
payable) under any operating agreements or other agreements affecting or
otherwise relating to the Company Facilities, which are customarily prorated
between a purchaser and a seller in the area in which each applicable Company
Facility is located (excluding rents from Residents).
"Proxy Holder" shall have the meaning set forth in Section 2.3 hereof.
"Proxy Shares" shall have the meaning set forth in Section 2.3 hereof.
"Reasonable Best Efforts" shall mean best efforts, to the extent
commercially reasonable.
"Removable Encumbrance" shall have the meaning set forth in Section 1.17
hereof.
"Rent Roll" shall mean the current monthly fee charged to each Resident by
the Company.
"Residents" shall mean such persons currently residing in the Company
Facilities.
"Response" shall mean a written response containing the information
provided for in Section 6.3(c).
"Retained Employees" shall have the meaning ascribed to it in Section 4.13
hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securityholders" shall mean the Company Shareholders, Optionholders and
Warrantholders of record of the Company immediately prior to the Effective Time.
"Security Interest" shall mean any mortgage, pledge, security interest,
encumbrance, charge or other lien (whether arising by contract or by operation
of law) (collectively, "Liens"), other than (i) mechanic's, materialmen's, and
similar liens arising in the Ordinary Course of Business and securing
obligations that are not yet due and payable, or (ii) liens arising under
worker's compensation, unemployment insurance, social security, retirement, and
similar legislation.
"Shareholder Proxies" shall have the meaning set forth in Section 2.3
hereof.
"Shareholder Representatives" shall mean ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇.
"Shares" shall have the meaning set forth in Section 4.18(a) hereof.
"Software" shall mean any of the software owned by the Company or a
Subsidiary.
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"Subsidiary" shall mean any corporation, partnership, trust, limited
liability company or other non-corporate business enterprise in which the
Company (or another Subsidiary) holds stock or other ownership interests
representing (a) more than 50% of the voting power of all outstanding stock or
ownership interests of such entity or (b) the right to receive more than 50% of
the net assets of such entity available for distribution to the holders of
outstanding stock or ownership interests upon a liquidation or dissolution of
such entity.
"Surveys" shall mean have the meaning set forth in Section 1.18 hereof.
"Survey Reports" shall mean monthly and annual monitoring, inspection or
survey reports received by the Company from relevant Governmental Entities.
"Surviving Corporation" shall mean the Company, as the surviving
corporation in the Merger.
"Tail Insurance Coverage" shall have the meaning ascribed to it in Section
4.8(d).
"Taxes" shall mean all taxes, charges, fees, levies or other similar
assessments or liabilities, including income, gross receipts, ad valorem,
premium, value-added, excise, real property, personal property, sales, use,
transfer, escheat withholding, employment, unemployment, insurance, social
security, business license, business organization, environmental, workers
compensation, payroll, profits, license, lease, service, service use, severance,
stamp, occupation, windfall profits, customs, duties, franchise and other taxes
imposed by the United States of America or any state, local or foreign
government, or any agency thereof, or other political subdivision of the United
States or any such government, and any interest, fines, penalties, assessments
or additions to tax resulting from, attributable to or incurred in connection
with any tax or any contest or dispute thereof.
"Tax Returns" shall mean all forms, reports, returns, declarations,
statements or other information(including any related or supporting schedules or
attachments to any of the foregoing, and any amendments to any of the foregoing)
supplied or required to be supplied to any Governmental Entity in connection
with Taxes.
"Third Party Action" shall mean any suit or proceeding by a person or
entity other than a Party for which indemnification may be sought by a Party
under Article VI.
"Transitory Subsidiary" shall have the meaning set forth in the first
paragraph of this Agreement.
"Treasury Regulations" and "Treasury Regulation" means the final and
temporary (but not proposed) income tax regulations promulgated under the Code,
as such regulations may be amended from time to time.
"Title Company" shall mean any national title insurance company reasonably
acceptable to the Buyer.
"Title Commitments" shall mean the title commitments for each of the
Company Facilities issued by the Title Company, which preliminary reports shall
contain a commitment of
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the Title Company to issue in favor of the holder of the leasehold interest in
the Lease title insurance policies on extended coverage 1970 or 1992 ALTA Owners
Policy forms, in form and substance reasonably acceptable to Buyer insuring
valid leasehold estates in the Company Facilities and issuing such endorsement
as may be reasonably required by Buyer.
"Voting Agreement" shall have the meaning set forth in Section 4.18 hereof.
"WARN Act" shall mean the Worker Adjustment Retraining and Notification Act
of 1988, as amended.
"Warrant" shall mean each warrant or other contractual right to purchase or
acquire Common Shares, provided that Options shall not be considered Warrants.
"Warrantholder" shall mean the registered holder of an issued an
outstanding warrant to purchase shares of the Company's common stock.
"Warrant Consideration" shall mean an amount in cash equal to the product
of (a) the excess of the Closing Consideration and Final Consideration per
Company Share underlying such Warrant over, in each case, the exercise price per
Company Share of such Warrant and (b) the number of Common Shares subject to
such Warrant.
"Weighted Average Census" shall mean the census of all the Company
Facilities (except the Managed Facilities) for the most recent month then ended,
equal to the quotient obtained by dividing (A) the sum of the average number of
Residents for the month for all such Company Facilities by (B) the total number
of beds available at such Company Facilities, as normally recorded by the
Company.
ARTICLE IX
MISCELLANEOUS
9.1 Press Releases and Announcements. No Party shall issue any press
release or public announcement relating to the subject matter of this Agreement
without the prior written approval of the other Parties, which approval shall
not be unreasonably withheld or delayed; provided, however, that any Party may
make any public disclosure it believes in good faith is required by applicable
law, regulation or stock market rule (in which case the disclosing Party shall
use reasonable efforts to advise the other Parties and provide them with a copy
of the proposed disclosure for review and comment at least one business day
prior to making the disclosure). The Company acknowledges and agrees that Buyer
shall file a Current Report on Form 8-K with the Securities and Exchange
Commission announcing the transactions contemplated hereby, and that Buyer shall
file the Agreement with such Current Report on Form 8-K or with a Quarterly
Report on Form 10-Q. The Parties acknowledge and agree that Buyer's disclosure
in Buyer's Current Report on Form 8-K with respect to the announcement of this
transaction will be as set forth on Exhibit G.
9.2 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person or entity other than the Parties and their
respective successors and
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permitted assigns; provided, however, that (a) the provisions in Article I
concerning payment of the Merger Consideration, (b) the provisions of Article VI
concerning indemnification are intended for the benefit of the persons or
entities entitled to indemnification thereunder, and (c) the provisions of
Section 4.8 concerning indemnification are intended for the benefit of the
individuals specified therein.
9.3 Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements or representations by or among the Parties,
written or oral, with respect to the subject matter hereof; provided that the
Confidentiality Agreement dated September 12, 2005 between the Buyer and the
Company (the "Confidentiality Agreement") shall remain in effect in accordance
with its terms.
9.4 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign any of its rights or delegate any of
its performance obligations hereunder without the prior written approval of the
other Parties; provided that the Transitory Subsidiary may assign its rights,
interests and obligations hereunder to an Affiliate of the Buyer. Any purported
assignment of rights or delegation of performance obligations in violation of
this Section 9.4 is void.
9.5 Counterparts and Facsimile Signature. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument. This Agreement may
be executed by facsimile signature.
9.6 Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.7 Notices. All notices, requests, demands, claims, waivers and other
communications required or permitted under this Agreement will be in writing and
will be deemed to have been delivered (a) the next business day when sent
overnight by a recognized courier service, (b) upon delivery when personally
delivered to the recipient, or (c) when receipt is electronically confirmed, if
sent by facsimile; provided, however, that if electronic receipt is confirmed
after normal business hours of the recipient, notice shall be deemed to have
been given on the next business day. All such notices and communications will be
mailed, sent or delivered as set forth below or to such other person(s),
facsimile number(s) or address(es) as the applicable recipient may have
designated by written notice to the other signatories to this Agreement:
If to the Company: Copy to:
----------------- -------
Southern Assisted Living, Inc. ▇▇▇▇▇▇▇▇▇ Law Group PLLC
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
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Tel: (▇▇▇) ▇▇▇-▇▇▇▇ Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇ Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Buyer or the Transitory Subsidiary: Copy to (which shall not constitute notice):
-------------------------------------------- -------------------------------------------
Brookdale Senior Living, Inc. Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ Four Times Square
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., SVP, Attn: ▇▇▇▇▇▇ ▇. Coco
General Counsel and Secretary
Tel: (▇▇▇) ▇▇▇-▇▇▇▇ Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇ Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and to:
Brookdale Senior Living, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇, SVP and
Chief Investment Officer
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
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If to the Shareholder Representatives: Copy to (which shall not constitute notice
-------------------------------------- ------------------------------------------
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Law Group PLLC
▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇ Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇ Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and to:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
9.8 Governing Law. All matters arising out of or relating to this Agreement
and the transactions contemplated hereby (including without limitation its
interpretation, construction, performance and enforcement) shall be governed by
and construed in accordance with the internal laws of the State of Delaware
without giving effect to any choice or conflict of law provision or rule
(whether of the State of Delaware or any other jurisdiction) that would cause
the application of laws of any jurisdictions other than those of the State of
Delaware.
9.9 Amendments and Waivers. The Parties may mutually amend any provision of
this Agreement at any time prior to the Closing. No amendment of any provision
of this Agreement shall be valid unless the same shall be in writing and signed
by all of the Parties. No waiver of any right or remedy hereunder shall be valid
unless the same shall be in writing and signed by the Party giving such waiver.
No waiver by any Party with respect to any default, misrepresentation or breach
of warranty or covenant hereunder shall be deemed to extend to any prior or
subsequent default, misrepresentation or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
9.10 Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified.
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9.11 Submission to Jurisdiction. Each Party (a) submits to the jurisdiction
of any state or federal court sitting in the State of Delaware in any action or
proceeding arising out of or relating to this Agreement (including any action or
proceeding for the enforcement of any arbitral award made in connection with any
arbitration of a Dispute hereunder), (b) agrees that all claims in respect of
such action or proceeding may be heard and determined in any such court, (c)
waives any claim of inconvenient forum or other challenge to venue in such
court, (d) agrees not to bring any action or proceeding arising out of or
relating to this Agreement in any other court and (e) waives any right it may
have to a trial by jury with respect to any action or proceeding arising out of
or relating to this Agreement; provided in each case that, solely with respect
to any arbitration of a Dispute, the Arbitrator shall resolve all threshold
issues relating to the validity and applicability of the arbitration provisions
of this Agreement, contract validity, applicability of statutes of limitations
and issue preclusion, and such threshold issues shall not be heard or determined
by such court. Each Party agrees to accept service of any summons, complaint or
other initial pleading made in the manner provided for the giving of notices in
Section 9.7, provided that nothing in this Section 9.11 shall affect the right
of any Party to serve such summons, complaint or other initial pleading in any
other manner permitted by law.
9.12 Construction.
(a) The language used in this Agreement shall be deemed to be the
language chosen by the Parties to express their mutual intent, and no rule of
strict construction shall be applied against any Party.
(b) Any reference to any federal, state, local or foreign statute or
law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise.
(c) Any reference herein to "including" shall be interpreted as
"including without limitation".
(d) Any reference to any Article, Section or paragraph shall be deemed
to refer to an Article, Section or paragraph of this Agreement, unless the
context clearly indicates otherwise.
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IN WITNESS WHEREOF, the Parties have executed this Amended and Restated
Agreement as of the date first above written.
BLC ACQUISITIONS, INC.
By: /s/ R. ▇▇▇▇▇▇▇ ▇▇▇▇▇
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Title: Vice President
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SALI MERGER SUB INC.
By: /s/ R. ▇▇▇▇▇▇▇ ▇▇▇▇▇
------------------------------------
Title: Vice President
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SOUTHERN ASSISTED LIVING, INC.
By: /s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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Title: CEO
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The following shareholders of the Company hereby execute this Amended and
Restated Agreement for the sole purpose of agreeing to and becoming bound by the
provisions of Section 4.18.
MAJOR SHAREHOLDERS (solely for purposes of Section 4.18):
By: /s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
GOD'S BOUNTY, L.L.C.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Manager and Sole Voting Member
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