EXHIBIT 2(A)
STOCK PURCHASE AGREEMENT
By and Among
NovaCare, Inc.,
NC Resources, Inc.,
Hanger Orthopedic Group, Inc.
and
HPO Acquisition Corp.
As of April 2, 1999
TABLE OF CONTENTS
PAGE
I. PURCHASE AND SALE OF THE SHARES............................................ 1
1.01 Purchase and Sale of the Shares..................................... 1
1.02 Purchase Price, Payment and Adjustments............................. 1
1.03 Delivery of the Shares.............................................. 4
1.04 Intercompany Account Obligations.................................... 4
1.05 Guaranties.......................................................... 4
II. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE SELLER................ 4
2.01 Organization and Qualification; Subsidiaries........................ 4
2.02 Conflicts........................................................... 5
2.03 Capitalization...................................................... 5
2.04 Financial Statements; No Undisclosed Liabilities.................... 5
2.05 Accounts Receivable; Inventories.................................... 6
2.06 Absence of Certain Changes.......................................... 6
2.07 Taxes ........................................................... 7
2.08 Real Property Owned or Leased....................................... 8
2.09 Title to Assets..................................................... 8
2.10 Contractual and Other Obligations................................... 8
2.11 Compensation and Employment Agreements.............................. 9
2.12 Employee Benefit Plans.............................................. 9
2.13 Labor Relations..................................................... 10
2.14 Insurance........................................................... 10
2.15 Litigation.......................................................... 11
2.16 Permits; Compliance with Applicable Law............................. 11
2.17 Bank Accounts....................................................... 12
2.18 Trademarks, Patents and Copyrights.................................. 12
2.19 Transactions with Certain Persons................................... 13
2.20 Authority........................................................... 13
2.21 Ownership of Shares................................................. 13
2.22 Consents ........................................................... 13
2.23 Foreign Person...................................................... 13
2.24 Medicare, Medicaid and Third-Party Payors........................... 14
2.25 Disclosure; Year 2000............................................... 14
III. REPRESENTATIONS AND WARRANTIES OF HANGER AND THE PURCHASER................. 15
3.01 Organization........................................................ 15
3.02 Authority........................................................... 15
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3.03 Conflicts........................................................... 15
3.04 Litigation; Disputes................................................ 15
3.05 Consents ........................................................... 15
3.06 Investment Purpose.................................................. 16
3.07 Financing........................................................... 16
IV. THE CLOSING................................................................ 16
4.01 Time and Place of the Closing....................................... 16
4.02 Termination......................................................... 16
4.03 Effect on Obligations............................................... 17
4.04 Return of Documentation............................................. 17
4.05 Sole and Exclusive Remedy........................................... 18
V. CONDITIONS TO THE SELLER'S OBLIGATIONS TO CLOSE............................ 18
5.01 Certificates........................................................ 18
5.02 Opinion of the Purchaser's Counsel.................................. 18
5.03 Representations, Warranties and Covenants........................... 18
5.04 No Litigation....................................................... 19
5.05 Approvals........................................................... 19
5.06 Third Party Consents................................................ 19
5.07 HSR Act Approval.................................................... 19
5.08 Releases ........................................................... 19
VI. CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE.......................... 19
6.01 Certificates........................................................ 19
6.02 Opinion of the Parent's Counsel..................................... 20
6.03 Representations, Warranties and Covenants........................... 20
6.04 No Litigation....................................................... 21
6.05 Approvals........................................................... 21
6.06 Third Party Consents................................................ 21
6.07 HSR Act Approval.................................................... 21
6.08 Resignations........................................................ 22
6.09 Discharge of Indebtedness; Release of Liens......................... 22
6.10 Temporary Use of Supplier Reimbursement Numbers..................... 22
6.11 Transition Services Agreement....................................... 22
6.12 Subscriber Services Agreement....................................... 22
6.13 Escrow Agreement.................................................... 22
VII. CONDUCT OF THE BUSINESS.................................................... 22
7.01 Operation of the Business........................................... 23
7.02 No Loans, Advances, Etc............................................. 23
7.03 Capital Expenditures................................................ 23
7.04 Preservation of Organization and Business Relationships............. 23
7.05 Employee Plans...................................................... 23
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7.06 Maintenance of Insurance............................................ 23
7.07 Claims ........................................................... 23
7.08 Sale of Assets...................................................... 23
VIII. OTHER AGREEMENTS OF THE PARTIES 23
8.01 Announcements....................................................... 23
8.02 Employee Obligations................................................ 24
8.03 Labor Relations..................................................... 24
8.04 Access to Information............................................... 24
8.05 Tax Matters......................................................... 26
8.06 Insurance Matters................................................... 28
8.07 Agreement by the Purchaser Regarding No Other Representations or
Warranties by the Parent or the Seller.............................. 29
8.08 Name Change......................................................... 30
8.09 Release of Liens.................................................... 30
8.10 Consents and Approvals.............................................. 30
8.11 Further Assurances.................................................. 30
8.12 Best Efforts........................................................ 31
8.08 Notice of Breach.................................................... 31
8.14 Confidentiality..................................................... 31
8.15 Access to Properties and Records.................................... 31
8.17 Acquisition of Rights to Confidentiality............................ 31
8.17 Financing........................................................... 32
IX. INDEMNIFICATION............................................................ 32
9.01 Indemnification by the Parent and the Seller........................ 32
9.02 Indemnification by the Purchaser.................................... 33
9.03 Procedure for Indemnification....................................... 33
9.04 Limits on the Liability of the Seller............................... 36
9.05 Other Limits on Indemnification..................................... 36
9.06 Losses Net.......................................................... 37
9.07 Sole and Exclusive Remedy........................................... 37
9.08 Limitations on Materiality.......................................... 37
X. BROKERS AND FINDERS........................................................ 37
10.01 The Parent's and the Seller's Obligations........................... 37
10.02 The Purchaser's Obligations......................................... 37
XI. MISCELLANEOUS.............................................................. 38
11.01 Notices............................................................. 38
11.02 Entire Agreement.................................................... 39
11.03 Assignment.......................................................... 39
11.04 Further Action...................................................... 39
11.05 Binding Effect...................................................... 39
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11.06 Expenses............................................................ 39
11.07 Arbitration......................................................... 39
11.08 Schedules and Exhibits.............................................. 39
11.09 Invalidity, Etc..................................................... 40
11.10 Headings............................................................ 40
11.11 Governing Law....................................................... 40
11.12 Counterparts........................................................ 40
11.13 Construction........................................................ 40
11.14 Hanger's Guaranty of Purchaser's Obligations........................ 40
11.15 Assignment of Parent Agreements..................................... 40
XII. DEFINITIONS................................................................ 41
12.01 Certain Definitions................................................. 41
SCHEDULES
Schedule 1.02(a)(1) Principal Amounts of Acquired Company Notes
Schedule 1.02(a)(2) Acquired-company Notes
Schedule 1.02(a)(3) Assumed Severance Obligations
Schedule 1.02(b) Trial Balance
Schedule 2.01 Subsidiaries, Capital Stock
Schedule 2.02 Group Member Conflicts
Schedule 2.03 Capitalization
Schedule 2.04(a) Financial Statements
Schedule 2.04(b) Liabilities
Schedule 2.05(a) Accounts Receivable Exceptions
Schedule 2.05(b) Inventory Exceptions
Schedule 2.06 Certain Changes
Schedule 2.07(a) Taxes
Schedule 2.07(b) Tax Attributes
Schedule 2.08 Real Property
Schedule 2.09 Title; Liens
Schedule 2.10 Contracts
Schedule 2.11 Compensation
Schedule 2.12 Benefit Plans
Schedule 2.13 Labor Relations
Schedule 2.14 Insurance
Schedule 2.15 Litigation
Schedule 2.16 Permits; Environmental
Schedule 2.18 Intellectual Property
Schedule 2.19 Transactions with Certain Persons
Schedule 2.22 Consents
Schedule 2.25 Y2K Compliance
Schedule 9.01 Assumed Litigation
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), made as of the
2nd day of April 1999, by and among NovaCare, Inc., a Delaware corporation
(the "Parent"), NC Resources, Inc., a Delaware corporation (the "Seller"),
Hanger Orthopedic Group, Inc., a Delaware corporation ("Hanger"), and HPO
Acquisition Corp., a Delaware corporation (the "Purchaser"). Capitalized terms
used herein and not defined in the specific Section in which they are used,
shall have the meanings assigned to such terms in Section XII hereof.
W I T N E S S E T H:
WHEREAS, the Seller is the holder of all of the issued and
outstanding shares of common stock, $.01 par value per share (the "Common
Stock"), of NovaCare Orthotics and Prosthetics, Inc., a Delaware corporation
(the "Company");
WHEREAS, the Parent is the holder of all of the outstanding
capital stock of the Seller; and
WHEREAS, the Purchaser desires to acquire from the Seller, and the
Seller desires to sell to the Purchaser, for the consideration hereinafter
provided, all of the outstanding shares of the Common Stock (collectively, the
"Shares").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto, intending
to be legally bound, hereby agree as follows:
SECTION I.
PURCHASE AND SALE OF THE SHARES
1.01 PURCHASE AND SALE OF THE SHARES. Subject to the terms and
conditions of this Agreement and on the basis of the representations,
warranties, covenants and agreements herein contained, at the Closing, the
Seller agrees to sell, assign and convey the Shares to the Purchaser, and the
Purchaser agrees to purchase, acquire and accept the Shares from the Seller.
1.02 PURCHASE PRICE, PAYMENT AND ADJUSTMENTS.
(a) PURCHASE PRICE AND PAYMENT. The Purchaser agrees to provide
the Seller with an aggregate value of Four Hundred Fifty-Five Million Dollars
($455,000,000.00) ("PURCHASE PRICE") for the Shares by: (i) the assumption of
the promissory notes payable by the Company to the sellers of acquired
businesses in a principal amount not to exceed the amount (the "Relevant
Amount") set forth on Schedule 1.02(a)(1) hereto with respect to the relevant
Closing Date (the "Acquired-company Notes") as specifically listed on SCHEDULE
1.02(A)(2) hereto; (ii) the escrow of Ten Million Dollars ($10,000,000.00)
(the "Escrowed Funds") until the determination of any Purchase Price
adjustments as provided in Section 1.02(b) hereof; (iii) the assumption of the
liability of the Parent with respect to the severance amounts calculated as
set forth on SCHEDULE 1.02(A)(3); and (iv) the payment of the balance of the
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Purchase Price in cash by wire transfer or delivery of other immediately
available funds at the Closing. In the event that the Closing hereunder shall
occur prior to July 1, 1999, at the request of the Seller, the Purchaser
agrees to use commercially reasonable efforts to deliver, in lieu of the cash
portion of the Purchase Price, a promissory note secured by a letter of credit
(the "Note"), due and payable to the Seller on July 1, 1999 and on terms
otherwise acceptable to the parties; provided, however, that the issuance of
the Note (and the maintenance of the letter of credit with respect thereto)
shall not result in any incremental cost to the Purchaser incurred due to the
delivery of the Note in lieu of cash or provided, further, that the Seller
agrees to bear such incremental costs.
(b) Purchase Price Adjustments. (i) Notwithstanding anything
contained in this Agreement to the contrary, the Seller and Parent guarantee
that the principal amount of the Company's Acquired-company Notes shall not
exceed a maximum of the Relevant Amount measured as of the close of business
on the Closing Date. In the event that the principal amount of the
Acquired-company Notes exceeds the Relevant Amount, then the cash portion of
the Purchase Price payable pursuant to Section 1.02(a) shall be reduced by the
amount, if any, by which the Acquired-company Notes exceed the maximum amount
of the Relevant Amount.
(ii) If, on the Closing Date, Adjusted Working Capital is less
than Ninety-Five Million Five Hundred Seventy-Two Thousand Dollars
($95,572,000.00), then the cash portion of the Purchase Price payable
pursuant to Section 1.02(a) shall be reduced by the amount of such
deficiency (the "Working Capital Deficiency") in Adjusted Working
Capital. If, on the Closing Date, Adjusted Working Capital is greater
than $95,572,000.00, then the cash portion of the Purchase Price payable
pursuant to Section 1.02(a) shall be increased by the amount by which
Adjusted Working Capital exceeds $95,572,000.00 (the "Working Capital
Excess"). Adjusted Working Capital shall be comprised of cash in an
amount of not less than Two Million Dollars ($2,000,000.00), accounts
receivable, inventory, other current assets, accounts payable, and
accrued expenses to third-parties (excluding all inter-company
obligations, accrued but unpaid Taxes and the current portion of the
Acquired- company Notes) of the Company calculated in accordance with
this Agreement and GAAP applied on a basis consistent with the Company's
prior practice. The Adjusted Working Capital shall be initially based
upon an estimated trial balance to be prepared by the Company and
presented to the Purchaser as of the end of the last full month
immediately prior to the month in which the Closing Date occurs. This
trial balance shall be attached hereto as SCHEDULE 1.02(B). At the
Closing, the Company shall present to the Purchaser the Company's
initial calculation of its Adjusted Working Capital as of the Closing
Date.
(iii) The actual Adjusted Working Capital of the Company as of the
Closing Date and the actual amount of Acquired-company Notes shall be
based upon a final Balance Sheet dated as of the Closing Date. The
Purchaser shall have such final Balance Sheet compiled by
PricewaterhouseCoopers LLP ("PWC"). The Purchaser shall deliver to the
Seller the calculation and determination of the actual Adjusted Working
Capital of the Company and Acquired-company Notes as of the Closing Date
as determined by PWC within ninety (90) days after the Closing Date.
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Such calculation shall be deemed conclusive and binding on the parties
for purposes of computing the actual Adjusted Working Capital of the
Company and Acquired-company Notes as of the Closing Date unless the
Seller objects by delivering a detailed statement describing the
Seller's objections to the Purchaser within thirty (30) days after
receiving from the Purchaser the determination by PWC of the Adjusted
Working Capital of the Company and Acquired-company Notes as of the
Closing Date. The Purchaser and the Seller will use reasonable efforts
to resolve any such objections themselves. Any dispute regarding the PWC
determination of the Adjusted Working Capital of the Company and
Acquired-company Notes as of the Closing Date shall be resolved in the
manner set forth in Section 1.02(d) hereof. If the Seller does not
provide such written notice to the Purchaser within such 30-day period,
then the Purchaser shall make the appropriate adjustment to the Purchase
Price in accordance with Section 1.02(c) within ten (10) days after the
date by which the Seller was required to provide such written notice
under this Section 1.02(b)(iii).
(c) The amount of any Working Capital Deficiency and the amount
by which the principal amount of the Acquired-company Notes exceeds the
Relevant Amount shall be promptly deducted from the Escrowed Funds and
returned to the Purchaser, with the remaining balance, if any, of the Escrowed
Funds being promptly thereafter released to the Seller. In the event the
Escrowed Funds are less than the subject Working Capital Deficiency and excess
Acquired-company Notes, then all of the Escrowed Funds shall be returned to
the Purchaser and the remaining amount of such Working Capital Deficiency and
excess Acquired-company Notes which is greater than the amount of the Escrowed
Funds shall be paid by the Parent and the Seller to the Purchaser in cash by
wire transfer within thirty (30) days of the final determination of such
amounts as provided under this Section 1.02. If there is no Working Capital
Deficiency and the amount of the Acquired-company Notes does not exceed the
Relevant Amount, then the entire amount of the Escrowed Funds shall be
released to the Seller. The amount of any Working Capital Excess shall be paid
by the Purchaser to the Seller in cash by wire transfer within thirty (30)
days of the final determination of such Working Capital Excess as provided
under this Section 1.02.
(d) Dispute Resolution Mechanism. If the parties do not obtain a
final resolution of a dispute regarding the determination by PWC of the actual
Adjusted Working Capital of the Company and the amount of Acquired-company
Notes as of the Closing Date as provided under Section 1.02(b) hereof within
thirty (30) days after the Purchaser has received the statement of objections
from the Seller, then PWC shall select another nationally-recognized,
independent certified public accounting firm, reasonably satisfactory to the
parties, to resolve any remaining objections. The determination of such second
accounting firm so selected by PWC will be set forth in writing and will be
conclusive and binding upon the parties. The Purchaser will revise the
determination of the actual Adjusted Working Capital of the Company and the
amount of the Acquired-company Notes as of the Closing Date to reflect such
resolution of any objections thereto. The fees and expenses of such second
accounting firm shall be borne 50% by the Purchaser and 50% by the Parent and
Seller.
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1.03 DELIVERY OF THE SHARES. At the Closing, the Seller shall deliver
the Shares to the Purchaser by delivering certificates duly endorsed in blank
representing the Shares, each certificate to be accompanied by any requisite
stock transfer tax stamps.
1.04 INTERCOMPANY ACCOUNT OBLIGATIONS. As of the Effective Time, all
then outstanding intercompany obligations, agreements and contracts between
any Group Member and the Parent, the Seller or any of their Affiliates (other
than any Group Member) shall be cancelled or otherwise eliminated, at no cost
to the Purchaser, and in all cases none of the Parent, the Seller, any of
their Affiliates or any Group Member shall have any further liability or
obligation in respect of any such intercompany obligation, agreement or
contract; provided that nothing in this Section 1.04 shall affect any of the
covenants, agreements, obligations or liabilities of the Parent, the Seller or
the Purchaser as set forth in this Agreement.
1.05 GUARANTIES. In the event that the Seller, the Parent or any of
their Affiliates (other than any Group Member) has guaranteed (the entity
obligated under any such guaranty being hereinafter referred to as the
"Guarantor") any obligations (the "Guaranteed Obligations") of any Group
Member outstanding as of the Closing Date, the Purchaser shall use its
commercially reasonable efforts to obtain the release of each Guarantor from
any liability with respect to the Guaranteed Obligations and shall indemnify
and hold harmless each Guarantor harmless from and against any such liability.
SECTION II.
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE SELLER
In connection with the purchase and sale of the Shares hereunder, the
Parent and the Seller, jointly and severally, hereby represent and warrant to
Hanger and the Purchaser, as of the date hereof and as of the Closing Date,
that:
2.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. The Company and each
of its subsidiaries is listed on SCHEDULE 2.01 hereto (each a "Subsidiary" and
collectively, the "Subsidiaries") and is validly existing and in good standing
under the laws of the jurisdiction of its organization, and has all requisite
corporate or partnership (as applicable) power, authority and legal right to
own, operate and lease its assets and properties and to conduct the businesses
in which it is now engaged. Each Group Member is duly qualified to transact
business as a foreign corporation or partnership (as applicable) in all
jurisdictions wherein it is required to be so qualified, except where the
failure to be so qualified would not have a Material Adverse Effect. The
Company does not have any Subsidiaries other than the Subsidiaries. Other than
the Subsidiaries and other than as set forth on SCHEDULE 2.01 hereto, the
Company does not own any capital stock or other proprietary interest, directly
or indirectly, in any corporation, association, trust, partnership, joint
venture, limited liability company or other entity nor is the Company bound by
any agreement to acquire any such capital stock or other proprietary interest.
Copies of the certificate of incorporation and by-laws, or other
organizational documents, of the Company and each Subsidiary have been made
available to the Purchaser on or prior to the Closing Date, which copies are
complete and correct and include all amendments, modifications or supplements
thereto.
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2.02 CONFLICTS. Neither the execution and delivery of this Agreement by
the Parent and the Seller, nor the consummation of the transactions
contemplated hereby to be consummated by the Parent or the Seller, (a)
violates any provision of the certificate of incorporation or by-laws or other
organizational documents of the Parent, the Seller or any Group Member or (b)
constitutes a violation of any Applicable Law. Except as set forth on SCHEDULE
2.02 hereto, neither the execution and delivery of this Agreement by the
Parent and the Seller nor the consummation of the transactions contemplated
hereby to be consummated by the Parent or the Seller violates, conflicts with,
results in any breach of any of the terms of, or results in the termination
of, or the creation of any material Lien pursuant to the terms of, any
Contract or any material contract or other obligation to which the Parent or
the Seller is subject except where such violation, conflict, breach,
termination or Lien would not have a Material Adverse Effect.
2.03 CAPITALIZATION. The authorized, issued and outstanding capital
stock or other equity interests of the Company and each Subsidiary is as set
forth on SCHEDULE 2.03 hereto. All of the outstanding shares of the Common
Stock and all of the outstanding shares of capital stock of each corporate
Subsidiary have been duly and validly authorized and issued and are fully paid
and non-assessable and are owned of record by the Seller, the Company or a
Subsidiary, as the case may be. Except as set forth on SCHEDULE 2.03 hereto,
as of the Closing Date, there are no outstanding subscriptions, warrants,
options, calls, commitments, convertible or exchangeable securities, or other
rights or agreements to purchase or acquire shares of capital stock or other
equity interests of any Group Member to which any Group Member, the Parent or
the Seller is a party. Except as set forth on SCHEDULE 2.03 hereto, as of the
Closing Date, there are no agreements concerning the issuance, voting,
transfer, acquisition or disposition of shares of capital stock or other
equity interests of any Group Member to which any Group Member, the Parent or
the Seller is a party.
2.04 FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES. (a) The
Company's audited consolidated balance sheets as of June 30, 1997 and 1998 and
related consolidated statements of income and cash flows for each of the years
ended June 30, 1996, 1997 and 1998, and the unaudited consolidated balance
sheet as at December 31, 1998 and the related unaudited consolidated
statements of income and cash flows for the six months then ended
(collectively, the "Financial Statements") are attached hereto as SCHEDULE
2.04(A). The Financial Statements have been prepared in accordance with GAAP,
consistently applied, in all material respects, except that the Financial
Statements as of December 31, 1998 do not contain footnotes. The balance
sheets constituting a part of the Financial Statements fairly present in all
material respects the consolidated financial condition of the Group as at the
date of such balance sheets and the other related statements included in the
Financial Statements fairly present in all material respects the consolidated
results of operations and cash flows of the Group for the periods then ended.
(b) Except as set forth in SCHEDULE 2.04(B) hereto, no Group
Member has any material liabilities or obligations of any nature, whether
accrued, absolute, contingent or otherwise, except for:
(i) liabilities and obligations set forth or adequately reserved
against in the Financial Statements;
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(ii) liabilities and obligations incurred in the ordinary course
of business subsequent to the date of the Financial Statements; and
(iii) liabilities and obligations described or otherwise disclosed
on the Schedules to this Agreement.
(c) Except for indebtedness for borrowed money to be cancelled
or otherwise eliminated as set forth in Section 1.04 hereof and except for
indebtedness for borrowed money among Group Members, no Group Member has any
indebtedness for borrowed money.
2.05 ACCOUNTS RECEIVABLE; INVENTORIES.
(a) All accounts receivable of the Group Members reflected on
the balance sheet included in the Financial Statements as of December 31,
1998, and all accounts receivable which have arisen since December 31, 1998,
are valid accounts receivable subject to no known setoff or counterclaim and
have arisen only from bona fide arm's-length transactions in the ordinary
course of the business of the Group Members, consistent with past practices
and recorded in accordance with GAAP, consistently applied, and subject only
to the reserves reflected on the Financial Statements, except only as provided
in SCHEDULE 2.05(A).
(b) The inventories reflected on the balance sheet included in
the Financial Statements, or thereafter acquired by the Group Members (and not
subsequently disposed of in the ordinary course of business), consist of items
that are saleable in all material respects in the ordinary course of business
for the purpose for which they were procured or manufactured, and none of
which is damaged or defective, nor subject to any security interest, except as
otherwise provided in SCHEDULE 2.05(B). The values at which inventories are
carried on the balance sheet included in the Financial Statements, or in the
case of inventories acquired following December 31, 1998 on the books and
records of the applicable Group Member, reflect the normal inventory valuation
policy of the Group Members of stating inventories at the lower of cost or
market (on a first-in, first-out method) in accordance with GAAP.
2.06 ABSENCE OF CERTAIN CHANGES. Except as set forth in SCHEDULE 2.06,
since December 31, 1998 there has not been any (a) adverse change in the
assets, properties, results of operations or financial condition of the Group
which has resulted or is likely to result in a Material Adverse Effect; (b)
material damage to or destruction of the assets or properties of the Group,
whether or not insured; (c) material changes in the Group's customary methods
of operations or the manner in which their business is conducted; or (d)
except in the ordinary course of business, sale or transfer of material
tangible or intangible assets of the Group, or mortgage, pledge or imposition
of any Lien on such assets except for Permitted Liens.
2.07 TAXES. Except as set forth in SCHEDULE 2.07(A) hereto:
(a) Each Group Member has filed or caused to be filed on a
timely basis all returns, reports or other declarations relating to Taxes
required to be filed by it (the "Tax Returns"), except for any such Tax
Returns which the Company or the Seller are not aware were required to be
filed and the failure to file which would not have, in the aggregate, a
Material Adverse Effect, and each of the Group Members has timely paid or
caused to be paid all Federal, state, local and foreign taxes (including, but
not limited to, income, franchise, property (real, tangible and intangible),
6
sales, use, unemployment, withholding, gross receipts, business license,
transfer, capital, net worth, gains, excise, social security and workers'
compensation taxes and estimated income and franchise tax payments, and
penalties, interest and fines with respect to any thereof) (collectively,
"Taxes") set forth on such Tax Returns as due and payable by it with respect
to the periods covered by such Tax Returns. All of such Tax Returns are true
and correct in all material respects, except where the failure to be so would
not have, individually or in the aggregate, a Material Adverse Effect. Since
their respective dates of acquisition, the taxable income of each of the Group
Members has been included in the consolidated Federal income Tax Returns of
the Parent to the extent required to be included under the Code and in the
consolidated, combined or unitary state income Tax Returns of the Parent to
the extent required to be included under applicable state income Tax rules.
(b) With respect to any Taxes of any Group Member not yet due
and payable, adequate reserves and accruals in all material respects for such
Taxes have been made in the Financial Statements or in the books and records
of the applicable Group Member.
(c) Neither the Seller, nor the Parent, nor any Group Member has
received written notice from any taxing authority of any material deficiency,
claim or other dispute relating to the payment or assessment of any Taxes for
any period which remains unsettled at the date hereof, and to the Knowledge of
the Parent no such deficiency exists materially in excess of reserves and
accruals set forth in the Financial Statements.
(d) Neither the Seller, nor the Parent, nor any Group Member has
executed any waiver of any statute of limitations on the assessment or
collection of Taxes with respect to any Group Member or executed any agreement
now in effect extending the period of time to assess or collect any Taxes with
respect to any Group Member.
(e) There are no Liens for Taxes (other than Permitted Liens)
upon or, to the Knowledge of the Parent, threatened against any assets of the
Group, other than Liens which would not have a Material Adverse Effect.
(f) None of the Seller, the Parent or any Group Member is a
party to any pending or, to the Knowledge of the Parent, threatened action,
proceeding or assessment by any taxing authority, foreign or domestic,
relating to any Group Member.
(g) Except for the Tax Sharing Agreement which shall be
cancelled as of the Closing Date without any effect whatsoever on any Group
Member for any taxable year, no Group Member is a party to any tax sharing
agreement.
(h) No election under Section 341(f) of the Code has been or
will be made to treat any Group Member as a "consenting corporation" as
defined in such Section 341(f).
(i) No Group Member is or has been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code.
(j) SCHEDULE 2.07(B) hereto sets forth a summary of the Federal
and state tax attributes (net operating losses, etc.) available to each Group
Member and not less than five (5) days prior to the Closing Date, the Seller
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shall deliver to the Purchaser a schedule of the subsidiary stock basis for
each Group Member.
2.08 REAL PROPERTY OWNED OR LEASED. A list of all real property owned
or leased by each Group Member is set forth in SCHEDULE 2.08 hereto. Except as
set forth in SCHEDULE 2.08 hereto, all such leased real property is held
subject to written leases under which the applicable Group Member has not
received a written notice of any existing defaults or events of default or
events which with notice or lapse of time or both would constitute defaults on
the part of the applicable Group Member, nor has the applicable Group Member
done any act or omitted to do any required act which would result in a
default, except for any such default which would not have a Material Adverse
Effect. Furthermore, except as set forth in SCHEDULE 2.08 hereto, no lease
agreement relating to real property to which a Group Member is a party
contains a provision requiring approval by or consent of the lessor to a
change in control or ownership of the lessee or an increase in rental, fee
payable or other modification of the terms of such agreement as a result
thereof, which provision would be applicable to the transactions contemplated
by this Agreement.
2.09 TITLE TO ASSETS. Except as set forth in SCHEDULE 2.09 hereto, each
Group Member has good and valid title to all of the properties and assets
owned by it, free and clear of all Liens except for Permitted Liens. Each
Group Member leases, owns or has the right to use all properties and assets
used in the operation of its business as currently conducted. Except as set
forth on SCHEDULE 2.09, the assets of the Company and its Subsidiaries are
sufficient and adequate in all material respects to carry on their respective
businesses as presently conducted.
2.10 CONTRACTUAL AND OTHER OBLIGATIONS. Set forth in SCHEDULE 2.10
hereto is a list as of December 31, 1998 of all (a) contracts, agreements,
leases and guarantees to which any Group Member is a party or by which any
Group Member or any of their respective assets is bound, in any case with
respect to which the unperformed obligation of the applicable Group Member is
in excess of $100,000 in the aggregate (excluding contracts and agreements
referred to in Section 2.11 or 2.12 hereof) and (b) uncompleted orders for the
purchase by any Group Member of materials, supplies, equipment and services
for the requirements of its business, and all work-in-progress and open
customer orders, in any case with respect to which the unperformed obligation
of the applicable Group Member is in excess of $100,000 in the aggregate; all
of the foregoing required to be listed on SCHEDULE 2.10 hereto being
hereinafter collectively referred to as the "Contracts". To the Knowledge of
the Parent, neither any Group Member nor any other party to a Contract is in
default in the performance of any Contract nor done any act or failed to do
any required act which would result in a default, no written notice of such a
default has been received by any Group Member, the Seller or the Parent and
none of the Seller, the Parent or any Group Member has received written notice
of an event the occurrence of which with the giving of notice or the lapse of
time would constitute a default under any covenant or condition under any
Contract, except in each case for any default which would not have a Material
Adverse Effect. Except as set forth on SCHEDULE 2.10 or SCHEDULE 2.22 hereto,
no consents are required (except for any such consents as shall have been
obtained prior to the Closing Date), and no event of default will occur, under
any Contract as a result of the sale and transfer of the Shares from the
Seller to the Purchaser, and the change in control of the Company and the
Group Members as a result of the sale and transfer of the Shares from the
Seller to the Purchaser will not give any person or entity the right to
renegotiate, change or void any terms of, or accelerate any amounts under, any
8
Contract, any Acquired-company Notes or any non-competition agreement or
clause to which the Company and/or any Group Member is a party.
2.11 COMPENSATION AND EMPLOYMENT AGREEMENTS. Set forth in SCHEDULE 2.11
hereto is (a) a list as of the date hereof of all written agreements, plans or
arrangements by which any Group Member is bound with regard to compensation,
bonus, incentive, stock option, stock purchase, severance pay or other
benefits or perquisites, other than any agreements, plans or arrangements
listed in SCHEDULE 2.12 hereto and (b) a list as of the date hereof of all
employees of each Group Member who received compensation (excluding
compensation deemed to be received upon the exercise of stock options) in
excess of $50,000 during the most recently completed fiscal year and their
respective current positions and annual salaries and any other compensation
which is reasonably expected to be paid this year. SCHEDULE 2.11 hereto also
sets forth the names of all employees of the Company and each Group Member who
is a party to an employment, confidentiality or other agreement with the
Company or any Group Member, together with the terms of such agreement,
including non-competition scope and duration, and not less than five (5) days
prior to the Closing Date, the Seller shall deliver to the Purchaser a list of
the governing law, confidentiality and/or restrictive covenant provisions with
respect to such employment, confidentiality or other agreements. Except as set
forth in SCHEDULE 2.11 hereto, no employment agreement, severance agreement or
other agreement of any type to which any officer or employee of the Company or
any Group Member is a party contains any provision terminating or otherwise
calling for renegotiation, modification or payments under the terms of any
such agreement in the event of a change in control or ownership of the Company
or the subject Group Member. Except as set forth in SCHEDULE 2.11 hereto,
there are no contracts, agreements, plans or arrangements covering any
employee or former employee of the Company or any Group Member with "change of
control" or similar provisions. There is no contract, agreement, plan or
arrangement covering any employee or former employee of the Company that
individually or collectively could give rise to the payment of any amount that
would not be deductible pursuant to the terms of Section 280G of the Code.
Neither the Company nor any trade or business (whether or not incorporated)
under common control with the Company within the meaning of Section 4001 of
ERISA has incurred any liability under the Worker Adjustment and Retraining
Act or any similar state law relating to employment termination in connection
with a mass layoff, plant closing or similar event.
2.12 EMPLOYEE BENEFIT PLANS.
Except as set forth in SCHEDULE 2.12 hereto:
(a) No Group Member maintains or sponsors, nor is it required to
make contributions to, any pension, profit-sharing, bonus, incentive, welfare
or other employee benefit plan within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") (such
plans and related trusts, insurance and annuity contracts, funding media and
related agreements and arrangements, other than any "multiemployer plan"
(within the meaning of Section 3(37) or Section 4001(a)(3) of ERISA), being
hereinafter referred to as the "Benefit Plans" and such multiemployer plans
being hereinafter referred to as the "Multiemployer Plans");
9
(b) Each Benefit Plan complies in all respects with all
requirements of ERISA and the Code except where the failure to so comply would
not have a Material Adverse Effect;
(c) Each Benefit Plan that is intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service as to such qualification within the period of
time prescribed by law;
(d) No Group Member maintains, sponsors or contributes to (nor
is required to contribute to) any Multiemployer Plan;
(e) No Benefit Plan is a "defined benefit plan" (within the
meaning of Section 3(35) of ERISA);
(f) None of the Parent, the Seller or any Group Member has
engaged in, and the Parent has no knowledge of any fiduciary or other
"disqualified person or party in interest" of any Benefit Plan of any Group
Member that has engaged in, any "prohibited transaction" (within the meaning
of Section 406 of ERISA or Section 4975(c) of the Code);
(g) Each Benefit Plan that is intended to be qualified under
Section 501(a) of the Code as an organization described in Code Section
501(c)(9) has received a favorable determination letter from the Internal
Revenue Service as to the tax-exempt status of the organization, within the
period of time prescribed by law; and
(h) The account balance of the VEBA Trust as of March 31, 1999
is $-0-. To the extent that the portion of the assets held by the VEBA Trust
attributable to Employees, Former Employees and Beneficiaries exceeds the
amount required to fund run-out claims of Employees, Former Employees and
Beneficiaries from the Health Plan, that portion of the assets will be
spun-off to fund a separate VEBA to benefit Employees, Former Employees and
Beneficiaries.
2.13 LABOR RELATIONS. Except as set forth on SCHEDULE 2.13 hereto, no
Group Member is subject to any labor strikes, stoppages or lockouts and none
of them is a party to any contract or agreement with any labor organization or
other representative of its employees.
2.14 INSURANCE. Set forth on SCHEDULE 2.14 hereto is a list as of the
date hereof of the property and casualty insurance policies maintained by each
of the Group Members, the coverages of such policies, the annual premium
amounts, any unpaid premium amounts, the dates of renewal and expiration, and
the dates, if any, of any gaps or lapses in such insurance coverage. SCHEDULE
2.14 also sets forth all insurance policies covering any Group Member that
will not continue to remain in effect after the Closing Date.
2.15 LITIGATION. Except as set forth in SCHEDULE 2.15 hereto, there is
no litigation, arbitration or other legal proceeding (collectively, "Actions")
pending or, to the Knowledge of the Parent, threatened against any Group
Member or any material portion of the assets or properties of the Group,
except for Actions covered by insurance policies maintained by or for the
benefit of the Group Members (including insurance policies which are subject
to applicable deductibles, liability retentions or other reimbursement
obligations).
10
2.16 PERMITS; COMPLIANCE WITH APPLICABLE LAW.
(a) GENERAL. Except as set forth in SCHEDULE 2.15 hereto, each
Group Member is in compliance with all Applicable Law relating to such Group
Member and its respective assets and properties, except where the failure to
be in compliance would not have a Material Adverse Effect.
(b) PERMITS. The permits, licenses, approvals, franchises and
authorizations (collectively, but excluding Environmental Permits, the
"Permits") issued to the Group Members are all the Permits required for the
ownership, operation and use by the Group Members of their properties and
assets and for the conduct of the business in which the Group Members are
presently engaged, except for such Permits which the failure to have would not
have a Material Adverse Effect. All the Permits are in full force and effect,
except where the failure to be in effect would not have a Material Adverse
Effect.
(c) ENVIRONMENTAL. Except as set forth in SCHEDULE 2.16 hereto:
(i) Each Group Member is in compliance with the provisions of
all Federal, state and local environmental laws, codes and ordinances
and all rules and regulations promulgated thereunder (the "Environmental
Laws"), including with respect to the real property leased by Group
Members listed on SCHEDULE 2.08 hereto and the improvements thereon (all
such leased real property and improvements thereon hereinafter referred
to collectively as the "Premises"), except where the failure to be in
compliance would not have a Material Adverse Effect.
(ii) Each Group Member has obtained all required Federal, state
and local permits, licenses, certificates and approvals (the
"Environmental Permits") relating to (A) air emissions, (B) discharges
to surface water or ground water, (C) noise emissions, (D) solid or
liquid waste disposal, and (E) the use, generation, storage,
transportation or disposal of toxic or hazardous substances or wastes
(intended hereby and hereafter to include any and all such materials
listed in any Environmental Law, as hazardous or potentially hazardous
(including, without limitation, (1) any chemical, compound, material or
substance that is defined, listed in, or otherwise classified pursuant
to, any of the Environmental Laws as a "hazardous substance", "hazardous
material", "hazardous waste", "toxic substance" or "toxic pollutant" and
(2) petroleum, natural gas, natural gas liquids, liquified natural gas,
and synthetic gas) (collectively, "Hazardous Substances")), except where
the failure to have obtained or maintained any such Environmental Permit
would not have a Material Adverse Effect.
(iii) To the Knowledge of the Parent, no violation of any
Environmental Law exists, and no Group Member has received any written
notice of violations of any Environmental Law which have not been cured,
relating to the use, ownership or occupancy of any of the Premises,
except for any violations which would not have a Material Adverse
Effect.
11
(iv) No Group Member has engaged in the generation, storage,
treatment, recycling, transportation or disposal of any Hazardous
Substance, except in compliance with applicable Environmental Laws,
except where the failure to be in compliance would not have a Material
Adverse Effect.
(v) None of the Premises, nor, to the Knowledge of the Parent,
any real property to which any Group Member has, directly or indirectly,
transported or arranged for the transportation of any Hazardous
Substances, is listed on the National Priorities List promulgated
pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), on CERCLIS (as defined in
CERCLA) or on any similar Federal, state or foreign list of sites
requiring investigation or clean-up.
2.17 BANK ACCOUNTS. Not less than five (5) days prior to the Closing
Date, the Seller shall deliver to the Purchaser a list as of such date of all
bank and securities accounts and lockboxes maintained by any Group Member, a
list of persons authorized to sign on behalf of each Group Member with respect
to each such account, a list of persons with authorized access to each such
lockbox and a list of the balances in such accounts and lockboxes as of the
most recent reasonably practicable dates (the Seller may comply with the
foregoing requirement as to balances by attaching a copy of the most recent
bank statements for such accounts and lockboxes).
2.18 TRADEMARKS, PATENTS AND COPYRIGHTS. SCHEDULE 2.18 hereto sets
forth a list as of the date hereof of all registrations of patents and pending
applications therefor, all registrations of trademarks, tradenames and service
marks and all pending applications therefor, all registrations of copyrights
and all pending applications therefor (collectively, "Intellectual Property"),
all to the extent that the foregoing items are used in the business of the
Group Members and are owned in whole or in part by any Group Member. To the
Knowledge of the Parent, all of the patents, trademarks, tradenames, service
marks, copyrights and licenses or other agreements listed in SCHEDULE 2.18
hereto are valid and in full force and effect, except as otherwise noted on
SCHEDULE 2.18 hereto. To the Knowledge of the Parent, no Group Member is
infringing upon, or otherwise violating, the rights of any third party with
respect to any Intellectual Property and no third party is infringing on the
rights of any Group Member.
2.19 TRANSACTIONS WITH CERTAIN PERSONS. Except with respect to
insurance arrangements set forth on SCHEDULE 2.14 hereto or referred to in
Section 8.06 hereof and the Tax Sharing Agreement, and except as set forth on
SCHEDULE 2.19 hereto, no executive officer, director or Affiliate of the
Parent, the Seller or any Group Member is presently a party to any agreement
with any Group Member regarding the payment of money or the transfer of
property by any Group Member to such person which will survive the Closing,
other than employment agreements all of which shall survive Closing without
change, except as otherwise provided on SCHEDULE 2.11.
2.20 AUTHORITY. Each of the Parent and the Seller has the corporate
power and authority to execute and deliver this Agreement and to perform its
covenants and agreements hereunder. The execution and delivery of this
Agreement by each of the Parent and the Seller, the performance by each of the
Parent and the Seller of its covenants and agreements hereunder and the
12
consummation by each of the Parent and the Seller of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action. This Agreement constitutes a valid and legally binding obligation of
the Parent and the Seller, enforceable against the Parent and the Seller in
accordance with its terms.
2.21 OWNERSHIP OF SHARES. As of the Effective Time, the Seller will own
all of the issued and outstanding shares of Common Stock, free and clear of
any Lien, and the Seller will have the unrestricted right and power to sell
and transfer such shares of Common Stock to the Purchaser. Upon transfer of
such Shares to the Purchaser in accordance with the terms hereof, the
Purchaser will acquire good and valid title to such Shares, free and clear of
any Lien, except those Liens created by the Purchaser or its Affiliates. As of
the Closing Date, the Seller will not own any shares of capital stock of the
Company other than the shares of Common Stock and will not have any option or
other right to acquire from any person or obligation or commitment to sell or
otherwise transfer to any person any shares of capital stock of the Company
owned by the Seller. As of the Effective Time, the Company, or one of its
direct or indirect wholly owned Subsidiaries, will own all of the issued and
outstanding shares of capital stock or other equity interests of each
Subsidiary, free and clear of any Lien, except that the Company only owns
(indirectly through its Subsidiaries) 50% of the equity interests in each of
Orthomedics-▇▇▇▇▇ (Rancho) and Orthomedics-▇▇▇▇▇ (Whittier), each California
general partnerships.
2.22 CONSENTS. Except as may be required under The ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
Antitrust Improvements Act of 1976, as amended ("HSR"), and except as set
forth on SCHEDULE 2.22 hereto, no consents, approvals or authorizations of, or
filings with, any Governmental Authority or any other person or entity are
required in connection with the execution and delivery of this Agreement by
the Parent and the Seller and the consummation of the transactions
contemplated hereby to be consummated by the Parent or the Seller, except
where the failure to obtain such consents, approvals, or authorizations, or
make such filings, would not have a Material Adverse Effect.
2.23 FOREIGN PERSON. Neither the Parent nor the Seller is a foreign
person within the meaning of Section 1445(f)(3) of the Code.
2.24 MEDICARE, MEDICAID AND THIRD-PARTY PAYORS. Each Group Member has
complied with all laws, rules and regulations of Medicaid and Medicare and all
applicable policies and procedures of third-party payors with which any Group
Member has conducted business and/or issued an invoice for services or
products, and has filed all returns, cost reports and other filings in the
manner prescribed, except where the failure to do so would not have,
individually or in the aggregate, a Material Adverse Effect. All returns, cost
reports and other filings made by each Group Member to Medicare, Medicaid, any
other governmental health or welfare related entity or any third-party payor
are true and complete, except where the failure to be so would not have,
individually or in the aggregate, a Material Adverse Effect. No deficiency in
any such returns, cost reports and other filings, including deficiencies for
late filings, has been asserted or, to the best Knowledge of the Parent,
threatened by any Federal or state agency or instrumentality or other provider
reimbursement entities relating to Medicare, Medicaid or any third-party payor
claims, and, to the best Knowledge of the Parent, there is no basis for any
claims or requests for reimbursement from any such agency, instrumentality or
entity except for any deficiencies which would not have, individually or in
13
the aggregate, a Material Adverse Effect. No Group Member has been subject to
any investigation of any type or any audit relating to fraudulent Medicare,
Medicaid or any third-party payor procedures or practices, except for audits
which would not have, individually or in the aggregate, a Material Adverse
Effect.
2.25 DISCLOSURE; YEAR 2000. (a) No representation or warranty made by
the Parent or the Seller herein, nor any certificate, Schedule or exhibit
prepared and furnished by the Parent, the Seller, the Company or any Group
Member or its respective representatives pursuant hereto, contains any untrue
statement of a material fact, or omits to state a material fact necessary to
make the statements of fact contained herein or therein not misleading in
light of the circumstances under which they were furnished.
(b) All items, products, software, components and systems used
in the operation of the business of the Company, which incorporate the
processing of dates or date-related data (including, but not limited to,
representing, calculating, comparing and sequencing), including, but not
limited to, computer systems, infrastructure items, software applications,
hardware and related equipment and utilities ("Components"), developed, in
whole or part, by the Company and its Subsidiaries are currently
Y2K-compliant, except as set forth in SCHEDULE 2.25 and except for such
non-compliance as would not have a Material Adverse Effect. The Company has
used commercially reasonable efforts to obtain (i) commitments that all its
vendors are or will be Y2K-compliant by June 30, 1999, and (ii) enforceable
agreements with each such vendor setting forth details of plans and schedules
to achieve Y2K-compliance and agreed-upon penalties for failure to achieve
full compliance pursuant to such schedules. The Seller agrees to cause the
TOPS hardware and software to become Y2K-compliant on or before the Closing
Date or, to the extent such software and hardware programs are not so
compliant by such time, notwithstanding the provisions of Section 9.05 hereof,
the Seller agrees to indemnify the Purchaser for the reasonable cost of making
such programs so compliant.
SECTION III.
REPRESENTATIONS AND WARRANTIES OF HANGER AND THE PURCHASER
In connection with the purchase and sale of the Shares hereunder, each
of Hanger and the Purchaser, jointly and severally, hereby represents and
warrants to the Parent and the Seller, as of the date hereof and as of the
Closing Date, that:
3.01 ORGANIZATION. Each of Hanger and the Purchaser is duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation.
3.02 AUTHORITY. Each of Hanger and the Purchaser has the requisite
corporate power and authority to execute and deliver this Agreement and to
perform its covenants and agreements hereunder. The execution and delivery of
this Agreement by each of Hanger and the Purchaser, the performance by each of
Hanger and the Purchaser of its covenants and agreements hereunder and the
consummation by each of Hanger and the Purchaser of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action. This Agreement constitutes a valid and legally binding obligation of
each of Hanger and the Purchaser, enforceable against each of Hanger and the
Purchaser in accordance with its terms.
14
3.03 CONFLICTS. Neither the execution and delivery of this Agreement by
Hanger and the Purchaser, nor the consummation of the transactions
contemplated hereby to be consummated by Hanger and the Purchaser, (a)
violates any provision of the certificate of incorporation or by-laws of
either of Hanger or the Purchaser or (b) constitutes a violation of any
Applicable Law. Neither the execution and delivery of this Agreement by Hanger
and the Purchaser nor the consummation of the transactions contemplated hereby
to be consummated by Hanger and the Purchaser violates, conflicts with,
results in any breach of any of the terms of or results in the termination of
or the creation of any material Lien pursuant to the terms of any material
contract, commitment, agreement, or lease of any kind to which Hanger or the
Purchaser is a party or by which Hanger or the Purchaser or any of their
respective assets are bound.
3.04 LITIGATION; DISPUTES. There are no Actions pending or, to the
knowledge of Hanger or the Purchaser, threatened, against or affecting Hanger
or the Purchaser which challenge the validity of this Agreement, or which if
adversely determined, would materially adversely affect their ability to
consummate the transactions contemplated by this Agreement or to perform their
respective covenants and agreements under this Agreement.
3.05 CONSENTS. Except as may be required under HSR, no consents,
approvals or authorizations of, or filings with, any Governmental Authority or
any other person or entity are required in connection with the execution and
delivery of this Agreement by Hanger and the Purchaser and the consummation of
the transactions contemplated hereby to be consummated by them.
3.06 INVESTMENT PURPOSE. The Purchaser is purchasing the Shares
pursuant to this Agreement for investment for its own account and not with a
view to the distribution of all or any part thereof as such term is used in
Section 2(11) of the Securities Act of 1933, as amended (the "Securities
Act"). The Purchaser is a sophisticated investor and capable of evaluating the
merits and the risks of acquiring the Shares. The Purchaser acknowledges that:
the Shares are "restricted securities (as defined under the rules and
regulations promulgated under the Securities Act); that the Shares have not
been issued or sold pursuant to any registration or similar filing, listing,
prospectus or document, or pursuant to any delivery requirements under the
laws of any Governmental Authority or the rules, regulations or guidelines of
any stock exchange or quotation system; and that it and its Affiliates and
representatives has each had access to information which it considers
necessary or advisable to enable it to make a decision concerning the purchase
of the Shares provided, however, such access shall in no way affect or
diminish the representations, warranties and covenants of the Parent and the
Seller in this Agreement.
3.07 FINANCING. The Purchaser and/or Hanger has available all funds, or
has written binding commitments from financial institutions or other sources
to obtain all funds on or prior to the Closing Date, necessary to pay the
Purchase Price as provided herein and otherwise to consummate the transactions
contemplated hereby in accordance with the terms and conditions hereof.
15
SECTION IV.
THE CLOSING
4.01 TIME AND PLACE OF THE CLOSING. The closing of the purchase and
sale of the Shares as set forth herein (herein referred to as the "Closing")
shall be held at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ at 10:00 a.m., local time, on the later of (i) June 15, 1999
(provided, that the Purchaser may require the Closing to be held on an earlier
date upon giving three (3) business days' notice to the Seller at any time
after the conditions precedent to the Closing have been satisfied) or (ii) the
date which is three (3) business days after the conditions precedent to the
Closing have been satisfied, or such other time, place and date as the
Purchaser and the Seller may agree (such date upon which the Closing occurs is
herein referred to as the "Closing Date") and, for accounting purposes, the
Closing shall be effective as of a mutually agreeable date.
4.02 TERMINATION. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned:
(a) at any time before the Closing, by written agreement of the
Seller and the Purchaser;
(b) unless extended by written agreement of the Seller and the
Purchaser, at any time after December 31, 1999 (the "Termination Date"), by
either the Seller or the Purchaser in writing, if the transactions
contemplated by this Agreement have not been consummated on or before such
date and such terminating party is not then in material breach of this
Agreement;
(c) at any time before the Closing, by the Purchaser or the
Seller in writing, in the event that any Governmental Authority shall have
issued an order, decree, ruling or taken any other action restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement and such order, decree, ruling or other action shall have become
final and nonappealable;
(d) at any time before the Closing, by the Purchaser in writing
pursuant to Section 6.03 hereof; and
(e) at any time before the Closing, by either the Purchaser or
the Seller in writing, without liability to the terminating party on account
of such termination, if such terminating party is not then in material breach
of this Agreement and the nonterminating party shall (i) fail to perform in
any material respect its agreements contained herein required to be performed
on or prior to the Closing Date and such nonterminating party has not cured in
all material respects such breach on or prior to the date which is 30 days
after such nonterminating party has received written notice from the
terminating party of such failure to perform or such longer period in the
event that such breach cannot reasonably be expected to be cured within such
30-day period and such nonterminating party is diligently pursuing such cure,
but in no event later than the Termination Date or (ii) subject to Section
6.03 hereof, breach in any material respect any of its representations or
warranties contained herein and such nonterminating party has not cured in all
material respects such breach on or prior to the date which is 30 days after
such nonterminating party has received written notice from the terminating
16
party of such breach or such longer period in the event that such breach
cannot reasonably be expected to be cured within such 30-day period and such
nonterminating party is diligently pursuing such cure, but in no event later
than the Termination Date.
4.03 EFFECT ON OBLIGATIONS. Termination of this Agreement pursuant to
Section 4.02 shall terminate all obligations and liabilities of the parties to
each other hereunder, except for the obligations under Sections 4.04, 8.01, X,
XI and XII, provided that in the event of a termination of this Agreement
pursuant to subsection 4.02(e) above under circumstances where the
nonterminating party has breached its obligation to close the transactions
contemplated hereby (notwithstanding that the nonterminating party's
conditions to such obligation to close contained in Section V or VI, as the
case may be, have been satisfied or that the terminating party stands ready,
willing and able to satisfy such conditions but for such breach), the
terminating party may exercise all available rights and remedies at law.
4.04 RETURN OF DOCUMENTATION. Following a termination in accordance
with Section 4.02, the Purchaser shall return, and shall cause all of its
representatives and Affiliates to return, all agreements, documents,
contracts, instruments, books, records, materials and all other information of
the Group, any Group Member, the Seller, the Parent or any of their Affiliates
provided by any Group Member, the Seller, the Parent or by any representative
of any Group Member, the Parent or the Seller to the Purchaser or any
representative or Affiliate of the Purchaser in connection with the
transactions contemplated by this Agreement, and the Seller and the Parent
shall return, and shall cause all of its representatives and Affiliates to
return, all agreements, documents, contracts, instruments, books, records,
materials and all other information of the Purchaser provided by the Purchaser
or any representative of the Purchaser to the Seller or the Parent in
connection with the transactions contemplated by this Agreement.
4.05 SOLE AND EXCLUSIVE REMEDY. Prior to the Closing, each party hereto
acknowledges and agrees that such party's sole and exclusive remedy with
respect to Damages and any and all claims for any breach or liability under
this Agreement or otherwise relating to the subject matter of this Agreement
and the transactions contemplated hereby shall be solely in accordance with,
and limited by, Sections 4.02 and 4.03 hereof.
SECTION V.
CONDITIONS TO THE SELLER'S OBLIGATIONS TO CLOSE
The obligation of the Seller to sell the Shares and otherwise to
consummate the transactions contemplated by this Agreement at the Closing is
subject to the following conditions precedent, any or all of which may be
waived by the Seller in the Seller's sole discretion, and each of which the
Purchaser hereby agrees to use its best efforts to satisfy at or prior to the
Closing:
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5.01 CERTIFICATES. The Seller shall have received:
(a) Certificates of incumbency executed by the Secretary of the
Purchaser in form and substance reasonably acceptable to the Seller;
(b) Certificate of the Secretary of the Purchaser certifying as
to a true and correct copy of the duly adopted resolutions of the board of
directors of the Purchaser, in form and substance reasonably acceptable to the
Seller, with respect to the consummation of the transactions contemplated by
this Agreement and that such resolutions continue in full force and effect,
without amendment, as of the Closing Date; and
(c) Such other certificates, instruments and other documents, in
form and substance reasonably satisfactory to the Seller and counsel for the
Seller, as the Seller shall have reasonably requested in connection with the
transactions contemplated hereby.
5.02 OPINION OF THE PURCHASER'S COUNSEL. The Seller shall have received
an opinion of Freedman, Levy, ▇▇▇▇▇ & ▇▇▇▇▇▇▇, counsel for Hanger and the
Purchaser, dated the Closing Date and covering the matters set forth in
Sections 3.01, 3.02 and 3.03 hereof.
5.03 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of the Purchaser contained herein shall be true and correct in all
material respects at and as of the Closing Date with the same effect as though
all such representations and warranties were made at and as of the Closing
Date, except to the extent that any of such representations and warranties
are, by their terms, made expressly as of the date of this Agreement or
another date, in which case such representations and warranties shall have
been true and correct in all material respects as of the date hereof or such
other date, as applicable, and the Purchaser shall have complied in all
material respects with all of its covenants and agreements contained herein
required to be complied with on or prior to the Closing Date, and on the
Closing Date, the Purchaser shall deliver to the Seller a certificate dated
the Closing Date to such effect.
5.04 NO LITIGATION. No action, suit, proceeding, writ, judgment,
injunction, decree or similar order of any Governmental Authority restraining,
enjoining or otherwise preventing the consummation of any of the transactions
contemplated by this Agreement, or seeking any Damages or any other relief as
a result of this Agreement or any of the transactions contemplated hereby
shall be pending.
5.05 APPROVALS. All governmental filings, authorizations and approvals
(if any) that are required for the consummation of the transactions
contemplated hereby shall have been duly made and obtained in form and
substance reasonably satisfactory to the Seller and the Seller's counsel.
5.06 THIRD PARTY CONSENTS. All consents of third parties set forth on
SCHEDULES 2.02 AND 2.22 hereto which are indicated by an asterisk shall have
been obtained.
5.07 HSR ACT APPROVAL. All waiting periods applicable to this Agreement
and the transactions contemplated hereby under HSR shall have expired or been
waived.
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5.08 RELEASES. The Seller shall have received general releases executed
by the Group Members and the Purchaser, in form and substance satisfactory to
the Seller, of all officers and directors of each Group Member who do not
remain in the employ of any Group Member immediately subsequent to the
Closing, with respect to acts or omissions occurring on or prior to the
Closing Date.
SECTION VI.
CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE
The obligation of the Purchaser to purchase the Shares and otherwise to
consummate the transactions contemplated by this Agreement at the Closing is
subject to the following conditions precedent, any or all of which may be
waived by the Purchaser in its sole discretion, and each of which the Seller
and the Parent hereby agree to use their respective best efforts to satisfy at
or prior to the Closing:
6.01 CERTIFICATES. The Purchaser shall have received:
(a) A true and correct copy of the certificate of incorporation
of the Company and each Subsidiary, certified as true and correct by the
Secretary of State or other appropriate governmental official of its
jurisdiction of organization, and a copy of the applicable by-laws as
certified as true and correct by its Secretary;
(b) Certificate of incumbency executed by the Secretary of the
Seller in form and substance reasonably acceptable to the Purchaser;
(c) Certificate of incumbency executed by the Secretary of the
Parent in form and substance reasonably acceptable to the Purchaser;
(d) Certificate of the Secretary of the Seller certifying as to
a true and correct copy of the duly adopted resolutions of the board of
directors and the duly adopted resolutions of the sole stockholder of the
Seller and a certificate of the Secretary of the Parent certifying as to a
true and correct copy of the duly adopted resolutions of the board of
directors of the Parent, each in form and substance reasonably acceptable to
the Purchaser, with respect to the consummation of the transactions
contemplated by this Agreement and that such resolutions continue in full
force and effect, without amendment, as of the Closing Date; and
(e) Such other certificates, instruments and other documents, in
form and substance reasonably satisfactory to the Purchaser and counsel for
the Purchaser, as the Purchaser shall have reasonably requested in connection
with the transactions contemplated hereby.
6.02 OPINION OF THE PARENT'S COUNSEL. The Purchaser shall have received
an opinion of ▇▇▇▇▇▇ & ▇▇▇▇▇▇, special counsel for the Parent and the Seller,
reasonably satisfactory to Purchaser's counsel and dated the Closing Date and
covering the matters set forth in the first two sentences of Section 2.01,
Section 2.02, the first two sentences of Section 2.03, Section 2.15, Section
2.20 and the second sentence of 2.21 hereof.
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6.03 REPRESENTATIONS, WARRANTIES AND COVENANTS. Subject to the next
succeeding sentence, the representations and warranties of the Parent and the
Seller contained herein shall be true and correct in all material respects at
and as of the Closing Date, except to the extent that any of such
representations and warranties are, by their terms, made expressly as of the
date of this Agreement or another date, in which case such representations and
warranties shall have been true and correct in all material respects as of the
date hereof or such other date, as applicable, and the Parent and the Seller
shall have complied in all material respects with all their respective
covenants and agreements contained herein required to be complied with on or
prior to the Closing Date, and on the Closing Date, the Parent and the Seller
shall each deliver to the Purchaser a certificate dated the Closing Date to
such effect. The Parent and the Seller shall deliver to the Purchaser a
notification, from time to time, on or before the date which is three business
days prior to the Closing Date, which notification (each, an "Update Notice")
shall (i) disclose information the existence of which does or may result in a
breach of the Parent's and the Seller's representations and warranties
contained in Section II hereof and (ii) update, modify or supplement the
Schedules and, upon delivery of such Update Notice, the applicable
representations and warranties (and the applicable Schedules), for all
purposes of this Agreement, shall be deemed to be amended to be consistent
with each such Update Notice; provided, however, that the delivery of any such
Update Notice shall not relieve the Parent and/or the Seller from any breach
of their respective representations and warranties contained in this Agreement
or the Schedules attached hereto. In the event that the Purchaser receives an
Update Notice which sets forth the occurrence or existence of events or
circumstances which, but for the delivery of an Update Notice, would have
resulted in a breach of any of the Parent's and the Seller's representations
and warranties set forth in Section II hereof which is reasonably likely to or
does result in a Material Adverse Effect the Purchaser shall (after providing
the Parent and the Seller with written notice and an opportunity to modify the
Update Notice or to cure any such breach and the Parent and the Seller shall
not have modified the Update Notice or cured such breach on or prior to the
date which is 60 days after the Parent and the Seller have received such
written notice or such longer period in the event that such breach cannot
reasonably be expected to be cured within such 60-day period and the Parent
and the Seller are diligently pursuing such cure, but in no event later than
the Termination Date) have no obligation to complete the Closing of the
transactions contemplated by this Agreement; the Purchaser's sole and
exclusive remedy in such event shall be to terminate this Agreement pursuant
to Section 4.02(d) above; provided, however, that notwithstanding the
foregoing, in the event an Update Notice sets forth the occurrence or
existence of events or circumstances which relate to a time period prior to
the date of this Agreement and which are a breach of any of the Parent's
and/or the Seller's representations and warranties contained in this Agreement
or the Schedules attached hereto prior to the delivery of such Update Notice
which is reasonably likely to or does result in a Material Adverse Effect,
then the Purchaser shall have no obligation to complete the Closing of the
transactions contemplated by this Agreement and the Parent and the Seller
shall be liable to the Purchaser for all damages incurred by the Purchaser as
a result thereof, including but not limited to the fees and costs incurred by
the Purchaser up to that time in its pursuit of the transactions contemplated
by this Agreement.
6.04 NO LITIGATION. No action, suit, proceeding, writ, judgment,
injunction, decree or similar order of any Governmental Authority restraining,
enjoining or otherwise preventing the consummation of any of the transactions
contemplated by this Agreement, or seeking any Damages or any other relief as
20
a result of this Agreement or any of the transactions contemplated hereby
shall be pending.
6.05 APPROVALS. All governmental filings, authorizations and approvals
(if any) that are required for the consummation of the transactions
contemplated hereby will have been duly made and obtained in form and
substance reasonably satisfactory to the Purchaser and the Purchaser's
counsel.
6.06 THIRD PARTY CONSENTS. All consents of third parties set forth on
SCHEDULES 2.02 AND 2.22 hereto which are indicated by an asterisk shall have
been obtained.
6.07 HSR ACT APPROVAL. All waiting periods applicable to this Agreement
and the transactions contemplated hereby under HSR shall have expired or been
waived.
6.08 RESIGNATIONS. At the request of the Purchaser, all officers and
all directors of each Group Member shall have executed and delivered to each
Group Member, as applicable, resignations effective as of the Effective Time.
6.09 DISCHARGE OF INDEBTEDNESS; RELEASE OF LIENS. The Parent shall have
performed, or caused the Company to perform, all acts necessary to discharge
all of the Company's obligations under all loan agreements, guarantees
relating to borrowed funds, pledge agreements relating to borrowed funds,
promissory notes and other agreements relating to borrowed funds, other than
the Acquired-company Notes listed on SCHEDULE 1.02(A)(2) hereto, and the
Parent and the Seller shall have terminated and released all Liens, security
interests, charges, interests or other encumbrances on the Shares or any
asset, real or personal, tangible or intangible, of the Company arising
therefrom, and shall have provided the Purchaser with evidence reasonably
satisfactory to the Purchaser to such effect.
6.10 TEMPORARY USE OF SUPPLIER REIMBURSEMENT NUMBERS. The Parent and
the Seller shall have executed the letter attached hereto as Exhibit 6.10 with
Hanger with respect to the temporary use by Hanger and its subsidiaries of
supplier reimbursement numbers, if any, of the Parent or any of its Affiliates
(other than any Group Member) used by the Company and any Group Member prior
to the Closing Date.
6.11 TRANSITION SERVICES AGREEMENT. The Parent, the Seller, Hanger and
the Purchaser agree to execute the Transition Services Agreement substantially
in the form attached hereto as Exhibit 6.11 and containing such other terms
and provisions as are mutually acceptable to the parties thereto.
6.12 SUBSCRIBER SERVICES AGREEMENT. The Parent agrees to cause NovaCare
Employee Services, Inc., a Delaware corporation ("NCES") and a subsidiary of
the Parent, and the Company to execute a Subscriber Services Agreement
containing substantially the terms in the term sheet attached hereto as
Exhibit 6.12 to provide for their agreement for NCES to provide certain
services to the Company and containing such other terms and provisions as are
mutually acceptable to the parties thereto.
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6.13 ESCROW AGREEMENT. The Purchaser and the Seller shall have executed
an Escrow Agreement with respect to the Escrowed Funds on mutually agreeable
terms, with a mutually agreeable escrow agent that is a commercial bank or
trust company.
SECTION VII.
CONDUCT OF THE BUSINESS
The Seller and the Parent, jointly and severally, hereby covenant and
agree with the Purchaser that, except as hereafter consented to in writing by
the Purchaser (which consent shall not be unreasonably withheld or delayed),
from and after the date of this Agreement and until the Effective Time, the
Seller and the Parent shall cause each Group Member not to:
7.01 OPERATION OF THE BUSINESS. Subject to the further limitations
contained in this Section VII, conduct any business other than in the ordinary
course of business.
7.02 NO LOANS, ADVANCES, ETC. Make or incur any lease, loan, Lien or
other obligation to or from a third party, or make loans or advances or grant
any pay raises, bonuses or awards, or make any other material payments,
whatsoever directly or indirectly, to any officer, employee or director of any
Group Member other than paying existing compensation amounts as set forth in
SCHEDULE 2.11 hereof and other than routine increases in any such person's
compensation in the ordinary course of business not in excess of 4%.
7.03 CAPITAL EXPENDITURES. Make any commitments for capital
expenditures for additions to property, plant or equipment in excess of
$50,000.
7.04 PRESERVATION OF ORGANIZATION AND BUSINESS RELATIONSHIPS. Fail to
use its reasonable efforts to (a) preserve its present business organization
intact, and (b) preserve present relationships with entities or persons having
business dealings with it except, in either case, where such failure would not
have a Material Adverse Effect.
7.05 EMPLOYEE PLANS. Enter into any material plan, arrangement or
commitment whatsoever with any of its employees, officers or consultants with
regard to compensation, benefits or perquisites.
7.06 MAINTENANCE OF INSURANCE. Fail to maintain through, but not after,
the Effective Time, insurance of the type and with such coverage amounts as is
maintained as of the date hereof.
7.07 CLAIMS. Waive, cancel, sell or otherwise dispose of for less than
the face value thereof any material claim or right it has against third
parties.
7.08 SALE OF ASSETS. Sell, buy, merge or dispose of all or any material
portion of the assets of any Group Member other than in the ordinary course of
business; nor amend the charter or by-laws of any Group Member or permit any
dividends or other distributions by any Group Member (except to another Group
Member).
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SECTION VIII.
OTHER AGREEMENTS OF THE PARTIES
8.01 ANNOUNCEMENTS. The Parent and the Purchaser will consult with each
other before any issuance by them or any of their Affiliates of, and will
provide each other the opportunity to review, comment upon and concur with,
any press release or other public statements with respect to the transactions
contemplated by this Agreement, and shall not issue any such press release or
make any such public statement prior to such consultation, except as either
party may determine is required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange. The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement shall be in the
form heretofore agreed to by the parties. In addition, the Purchaser shall
comply with the Confidentiality Agreement.
8.02 EMPLOYEE OBLIGATIONS. Except as specifically provided herein
(including in Section 8.06 hereof) and except in respect of the Parent's
401(k) plan covering a portion of the employees of the Group, and without
limiting the obligations and liabilities of any Group Member arising by
operation of law or under the terms of this Agreement, after the Closing, each
of the Group Members is and shall remain liable for and the Group Members and
the Purchaser shall be responsible only to the extent set forth in the
Schedules attached to this Agreement for and shall promptly discharge all
liabilities, duties and claims (by or to an Employee, Former Employee,
Beneficiary, Governmental Authority or otherwise) arising out of or relating
to the employment relationship between any Group Member and an Employee or
Former Employee, whether made to or imposed upon any Group Member, the Seller
or the Parent (or any Affiliate thereof), including, without limitation,
liabilities, duties and claims: (i) for deferred compensation, incentive
compensation, retirement benefits, health and life benefits, severance
arrangements and benefits, disability benefits and other fringe benefits under
any employee benefit plan, fund, program, arrangement, policy or practice;
(ii) relating to continuation health coverage pursuant to ss. 4980B of the
Code and Title I, Subtitle B, Part 6 of ERISA; (iii) for unemployment and
workers' compensation or similar benefits; and (iv) to file any and all annual
reports, filings or notices that may be required to be filed with Governmental
Authorities or provided to participants and beneficiaries after the Closing
Date.
8.03 LABOR RELATIONS. The Purchaser hereby agrees to defend and
indemnify the Seller Indemnified Parties, and to hold each Seller Indemnified
Party harmless, from and against all Damages that are sustained or incurred by
any Seller Indemnified Parties by reason of or in connection with any claim,
proceeding or suit brought against any Seller Indemnified Parties under the
Worker Adjustment Retraining and Notification Act, or any other local, state,
Federal or foreign law, which relates to actions taken by the Purchaser or any
Group Member at any time after the Effective Time with regard to any site of
employment or one or more facilities or operating units within any site of
employment of any Group Member.
8.04 ACCESS TO INFORMATION. (a) For a period of six years from the
Closing Date, the Purchaser shall (and shall cause each of the Group Members
to), during normal business hours and upon reasonable notice, make available
and provide the Parent and its representatives (including, without limitation,
counsel and independent auditors) with access to the facilities and properties
23
of each of the Group Members and to all information, files, documents and
records (written and computer) relating to any Group Member or any of its
businesses or operations for any and all periods prior to or including the
Closing Date which the Parent (or any Affiliate of the Parent) requires with
respect to any reasonable business purpose, and shall (and shall cause each of
the Group Members to) cooperate fully with the Parent and its representatives
(including, without limitation, its counsel and independent auditors) in
connection with the foregoing, including, without limitation, by making tax,
accounting and financial personnel and other appropriate employees and
officers of each Group Member available to the Parent and its representatives
(including, without limitation, counsel and independent auditors), with regard
to any reasonable business purpose.
(b) Without limiting the generality of Section 8.04(a), from and
after the Closing Date, the Purchaser shall (and shall cause each of the Group
Members to) cooperate fully with and assist, and shall cause its officers and
employees (and the officers and employees of the Group Members) to cooperate
fully with and assist, the Parent and its representatives (including, without
limitation, its counsel and independent auditors), in connection with:
(i) the preparation by the Parent at its sole cost of the Group
Members' (or any Group Member's) portion of any Federal consolidated
income Tax Return, report or declaration, and of any state consolidated,
combined or unitary income Tax Return, report or declaration, for any
Seller Tax Period;
(ii) any Tax audit, examination or proposed or final assessment
or the like (including without limitation any Tax Claim) relating to the
Seller, the Parent, the Group or any Group Member, and to any Seller Tax
Period;
(iii) the preparation of any financial statements of the Group
Members (or any Group Member) for (or including) any period (or portion
thereof) ending on or before the Effective Time, and to that end the
Purchaser shall cause each Group Member to prepare for and to deliver to
the Parent any financial information of the type historically prepared
by any Group Member for all periods (or portions thereof) ending on or
before the Effective Time and to cause the officers and employees of any
Group Member to cooperate fully and assist the Parent in its review and
verification of the same;
(iv) the preparation of any statement, report, notice, response
or other document for filing with the Securities and Exchange
Commission, any state or foreign securities commission or authority, any
other Governmental Authority or any securities exchange or market,
domestic or foreign, including, without limitation, in connection with
any comments, requests for information, inquiries, investigations or
proceedings, formal or informal, by any of the foregoing; or
(v) the investigation, prosecution or defense of or response to
any Actions, claims or inquiries commenced by any Governmental Authority
or any other person or entity, against the Parent or the Seller (or any
other Seller Indemnified Party or any Affiliate thereof).
24
(c) The cooperation and assistance of the Purchaser and the
Group Members and their respective officers and employees under this Section
8.04 shall be rendered during normal business hours and in a manner which does
not materially disrupt the business and operations of the applicable Group
Member, and the Purchaser shall use its best efforts in the case of the
preparation of any Tax Return, report or declaration and any financial
statements, to cause such cooperation and assistance to be rendered without
adverse consequences to the Seller or the Parent during the period that each
of the Group Members has normally assisted the Seller or the Parent in the
preparation by the Parent of Tax Returns, reports or declarations and
financial statements. The Parent shall reimburse the Group Members for any
out-of-pocket expenses paid by them, including reasonable accounting and
attorney's fees and costs, in the cooperation and assistance by the Purchaser
and the Group Members with the Parent' preparation of any such Tax Returns,
reports or declarations and any such financial statements.
(d) Without limiting the generality of subsection (a) of this
Section 8.04, following the Closing, the Purchaser shall not (and shall cause
the Group Members not to) destroy any information, files, documents or records
(written and computer) relating to any Group Member or any of its businesses
or operations without giving at least 30 days' prior written notice to the
Parent and shall (and shall cause the Group Members to) permit the Parent to
examine, duplicate (at the Parent's expense) and/or transfer (at the Parent's
expense) to the Parent or its representatives any of such information, files,
documents or records (written and computer).
8.05 TAX MATTERS. (a) The Seller, the Parent and the Purchaser
acknowledge and agree that, for Federal income tax purposes, the taxable year
of each Group Member will close on the Closing Date and that, for certain
state income tax purposes, the taxable year of some or all of the Group
Members may also close on the Closing Date. The Parent shall be responsible
for preparing and filing any and all of the foregoing income Tax Returns,
reports and declarations that include the Group Members for the periods ending
on or before the Closing Date, and shall be responsible for and shall pay all
Taxes payable by the Group Members with respect to such returns, the
determination of which taxes shall be solely within the Parent's control;
provided, however, that all such returns shall be prepared, and all Taxes
shall be calculated, lawfully and in a manner consistent with past practice
and the Seller shall not make any Tax elections or change any Tax accounting
methods (to the extent such changes would be binding on the Purchaser) without
the express written consent of the Purchaser. Without limiting the generality
of Section 8.04 hereof, the Purchaser shall fully cooperate with and assist
the Parent (including, without limitation, allowing access by the Parent and
its representatives (including its counsel and independent auditors) to the
books and records (written and computer) of the Group Members and allowing the
Parent at its sole cost to make copies thereof) in connection with the
preparation by the Parent of any income Tax Returns, reports and declarations
required to be prepared by the Parent or the Seller hereunder; and except as
provided in Section 8.04(c), neither the Parent nor the Seller shall be
charged with any cost or expense for the assistance rendered by the Purchaser
or any of the Group Members in connection therewith.
(b) Except as provided in clause (a) of this Section 8.05, the
Purchaser agrees to cause the Group Members to file all Tax Returns, reports
and declarations not related to income taxes required to be filed by any of
them after the Closing Date and to pay all such Taxes due and payable by any
of them after the Closing Date, including any such Taxes that accrued prior to
25
the Closing Date or that are otherwise allocable to any Seller Tax Period that
does not end on or before the Closing Date. Without limiting the generality of
Section 8.04 or this Section 8.05, the Parent shall be given the opportunity
to review, comment upon and suggest changes or corrections to, any Tax
Returns, reports and declarations covered by this Section 8.05(b) which
include any Seller Tax Period (and the work papers of the Group Members and
their accountants used in the preparation thereof), in each case prior to the
filing thereof (but in no event less than 30 days prior to such filing). In
the event of any dispute regarding the matters set forth in the immediately
preceding sentence, then PWC (or if PWC shall decline to arbitrate such
dispute, then another nationally recognized accounting firm selected by the
Parent) shall be requested to make a determination resolving any such dispute;
and the determination by PWC (or such other accounting firm) of any such
dispute shall be final and binding on the parties hereto. The fees and
expenses of PWC (or such other accounting firm) in resolving such dispute
shall be borne by the non-prevailing party.
(c) Any refunds or credits of Taxes of any Group Member for any
Seller Tax Period shall be for the account of the Parent. Applications for
refunds of Taxes, and the filing of amended Tax Returns with respect to any
Seller Tax Period shall be made and prosecuted only by the Parent or the
Seller. Without limiting the provisions of Section 8.04, the Purchaser shall
provide and shall cause each Group Member to provide to the Parent full
cooperation and assistance in connection with any application for refund or
amendment made or proposed to be made by the Parent or the Seller as shall be
requested by the Parent, including by causing each Group Member to authorize
by appropriate powers of attorney such person as the Parent shall designate to
represent such Group Member with respect to such refund claim, without charge
for any cost or expense for assistance rendered by officers and employees of
the Group Members in connection therewith. Neither the Parent nor the Seller
shall seek any Tax refund, or amend any Tax Return, which would have the
effect of increasing the Taxes of any Group Member for any taxable period (or
portion thereof) beginning after the Closing Date; however, the foregoing
shall not apply to any amended Tax Return which may be required by law
following resolution of a Tax dispute. Neither the Purchaser nor any Group
Member shall amend, or take any similar action with respect to, any Tax Return
filed by the Parent, the Seller or by any Group Member with respect to any
Seller Tax Period without the prior written consent of the Parent; provided
that the foregoing shall not apply to any amended Tax Return which may be
required by law following resolution of a Tax dispute conducted in accordance
with this Agreement. The Purchaser shall or shall cause each Group Member to
forward to the Parent any refund of Taxes of any Group Member allocable to any
Seller Tax Period within five days after such refund is received (or reimburse
the Parent for any credit within five days after the credit is allowed or
applied against other Tax liability). Notwithstanding the foregoing, the
control of the prosecution of a claim for refund of Taxes paid pursuant to a
deficiency assessed subsequent to the Closing Date as a result of an audit
shall be governed by the provisions of Section 9.03(d) hereof. Notwithstanding
anything contained herein to the contrary, nothing herein shall preclude the
Purchaser from carrying back losses to pre-Closing Tax periods to the extent
that such action does not reduce any attributes or Tax benefits of the Seller.
(d) The Purchaser shall not file an election (or cause a deemed
election) under Section 338 of the Code with respect to its acquisition of the
Group Members or any Group Member hereunder. The Purchaser shall not take any
action, and shall cause the Group Members not to take any action, outside the
ordinary course of the Group Members' business, which would increase the
26
amounts included in the gross income of the Parent under Section 551 or
Section 951 of the Code for any Seller Tax Period. Only after the payment of
compensation by the Parent or the Seller to the Purchaser in an amount which
is mutually acceptable to the Purchaser and the Parent, the Purchaser shall
consent to the election under Treasury Regulation ss. 1.1502-20(g)(1) to
re-attribute any net operating losses and/or net capital losses of any Group
Member to the Seller or the Parent, and shall cause the Group Members to
execute and file such statements as may be necessary or appropriate to effect
such election.
(e) Except as required by law, without the Parent's prior
written consent, neither the Purchaser nor any Group Member shall take any
position on any Tax Return, report or other declaration for any taxable period
which might result in any:
(1) increase in Tax (over accruals therefor on the books and
records of the Group Members as of the Effective Time) for any Seller
Tax Period in:
(A) the liability of the Parent, the Seller or any Group Member
in respect of the consolidated Federal income Tax liabilities, or any
state consolidated, combined or unitary income Tax liabilities, of the
Parent's or the Seller's tax group, as applicable, for periods while any
Group Member was part thereof; or
(B) the liability of the Parent, the Seller or any Group Member
in respect of any separate state, local or foreign Tax of any Group
Member; or
(2) reduction in any Tax attributes to which the Parent, the
Seller or any Group Member may be entitled with respect to any Seller
Tax Period.
(f) All Taxes with respect to the income, property or operations
of the Group Members that relate to any taxable year or period beginning
before and ending after the Closing Date shall be apportioned between the
Seller Tax Period and the period beginning the day after the Closing Date as
follows: (A) in the case of Taxes other than income and sales or use Taxes, on
a per diem basis, and (B) in the case of income Taxes (including income Taxes
based on capital or other alternative bases) and sales or use Taxes, as
determined from the books and records of the Parent and the Group Member in
question, as though the taxable year of the Group Member terminated on the
Closing Date, and based on the accounting methods, elections and conventions
used by the Parent and/or the relevant Group Member in prior years.
8.06 INSURANCE MATTERS.
(a) The Purchaser and each Group Member acknowledge and agree
that, effective as of the Effective Time, coverage under all health and
medical insurance plans or programs sponsored or maintained by the Seller or
the Parent for all Employees, Former Employees and their Beneficiaries as
applied to any and all of the Group Members (collectively, the "Seller's
Health Plan") shall terminate and be of no further force or effect.
Notwithstanding the preceding sentence, any expense incurred by an Employee,
Former Employee or Beneficiary prior to the Effective Time that would have
been covered under the Seller's Health Plan shall continue to be the
responsibility of the Seller or the Parent, as applicable. From and after the
Effective Time, the Purchaser shall cause the Group Members to pay to the
Parent any premium or other charges due in respect of coverage of Employees,
27
Former Employees or Beneficiaries under the Seller's Health Plan through the
Effective Time within 30 days after receipt of an invoice or statement
relating to the same. The amount of such premiums and charges shall be
calculated in accordance with the Parent's and the Group Member's prior
practices regarding such premiums and charges. The Purchaser agrees to notify
all Employees, Former Employees and their Beneficiaries of the manner in which
pre-Effective Time expenses under the Seller's Health Plan are to be submitted
for reimbursement and to request that all such expenses be submitted within 60
days after the Closing Date. The Purchaser and each Group Member acknowledge
and agree that, effective as of the Effective Time, coverage for all
Employees, Former Employees and their Beneficiaries under all life insurance,
disability, or any other welfare or benefit plans or programs sponsored or
maintained by the Seller or the Parent as applied to any and all of the Group
Members shall terminate and be of no further force or effect.
(b) From and after the Effective Time, (i) the Group Members
shall cease to be covered with respect to any event or occurrence after the
Effective Time under all insurance policies covering any Group Member (other
than insurance policies described in the first sentence of subsection (a)
above, which shall be subject to the provisions of such subsection) and (ii)
with respect to any event or occurrence prior to the Effective Time, the Group
Members shall, subject to the terms and conditions of such policies, continue
to be entitled to the benefits thereof.
(c) The Purchaser shall cause the Group Members promptly to
notify the Parent of any claims which would be subject to any insurance
coverage maintained by the Parent, the Seller or any of their Affiliates
(other than any Group Member) for the benefit of any Group Member and based on
events or occurrences on or prior to the Closing Date, and shall cause the
Group Members to keep the Parent advised of the status of (and any
developments regarding) any such claims, and to cooperate with the Parent and
any insurance carrier in connection with the investigation and defense of any
such claims, all in accordance and consistent with the standard practices and
procedures established from time to time by the Parent or any such insurance
carrier.
(d) No covenant or agreement by any party hereto to indemnify
any other party hereto shall release, or be deemed to release, any insurer or
indemnitor of any Damages which might be the basis for any Indemnification
Matter.
8.07 AGREEMENT BY THE PURCHASER REGARDING NO OTHER REPRESENTATIONS OR
WARRANTIES BY THE PARENT OR THE SELLER. The Purchaser agrees that except for
the representations and warranties (including the Schedules with respect
thereto) made by the Parent and the Seller and expressly set forth in Section
II of this Agreement (as such representations and warranties are modified
pursuant to the provisions of Section 6.03 hereof), neither the Parent nor the
Seller nor any Affiliate or representative of either has made and shall not be
construed as having made to the Purchaser or to any representative or
Affiliate thereof, and neither the Purchaser nor any Affiliate nor any
representative thereof has relied upon, any representation or warranty of any
kind. Without limiting the generality of the foregoing, and notwithstanding
any otherwise express representations and warranties made by the Parent and
the Seller in Section II hereof, the Purchaser agrees that neither the Parent
nor the Seller nor any Affiliate or representative of either makes or has made
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any representation or warranty to the Purchaser or to any representative or
Affiliate thereof with respect to:
(i) any projections, estimates or budgets contained in that
certain Confidential Information Memorandum relating to the Group
Members or otherwise heretofore or hereafter delivered to or made
available to the Purchaser or its counsel, accountants, advisors,
lenders, representatives or Affiliates of future revenues, expenses or
expenditures, future results of operations (or any component thereof),
future cash flows (or any component thereof) or future financial
condition (or any component thereof) of the Group or any Group Member or
the future business, operations or affairs of the Group or any Group
Member; and
(ii) any other information, statements or documents heretofore or
hereafter delivered to or made available to the Purchaser or its
counsel, accountants, advisors, lenders, representatives or Affiliates
(including, without limitation, the Confidential Information Memorandum
relating to the Group Members) with respect to the Group or any Group
Member or the business, operations or affairs of the Group or any Group
Member.
8.08 NAME CHANGE. The Purchaser shall take all steps necessary or
appropriate to cause the Company and each other Group Member, as applicable,
to change its name at or immediately after the Closing Date to another
corporate name not containing the name "NovaCare" or any variation thereof and
to cease conduct of business from and after the Closing Date under any assumed
or trade name containing the name "NovaCare" or any variation thereof.
Notwithstanding the foregoing, the Purchaser, the Company and the Group
Members may continue to utilize all boxes, labels, products and other assets
bearing the "NovaCare" name (the "Supplies") until depleted. The Purchaser
agrees to use its best efforts to utilize the Supplies as expeditiously as
possible and will indemnify the Parent from any and all liabilities arising
out of such use except to the extent that such liability arises from a product
liability claim which would constitute a breach of a representation or
warranty of the Parent or the Seller hereunder.
8.09 RELEASE OF LIENS. From and after the Closing Date, the Parent
agrees to do all acts necessary to continue to extinguish and pay-off all
Liens (other than Permitted Liens) against all assets of the Company and all
assets of each Group Member which existed as of the Closing Date, and the
Parent agrees to indemnify the Purchaser from any liability or Damages due to
such Liens.
8.10 CONSENTS AND APPROVALS. The Parent shall use its best efforts to
obtain all necessary consents, waivers, authorizations and approvals of all
governmental and regulatory authorities, domestic and foreign, and of all
other persons, firms or corporations required in connection with the
execution, delivery and performance by it of this Agreement.
8.11 FURTHER ASSURANCES. Upon the request of a party or parties hereto
at any time after the Closing Date, the other party or parties will forthwith
execute and deliver such further instruments of assignment, transfer,
conveyance, endorsement, direction or authorization and other documents as the
requesting party or parties or its or their counsel may request in order to
perfect title of the Purchaser and its successors and assigns to the Shares or
29
otherwise to effectuate the purposes of this Agreement.
8.12 BEST EFFORTS. Upon the terms and subject to the conditions of this
Agreement, each of the parties hereto will use its best efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable consistent with applicable law to consummate
and make effective in the most expeditious manner practicable the transactions
contemplated hereby.
8.13 NOTICE OF BREACH. Through the Closing Date, each of the parties
hereto shall promptly give to the other parties written notice with
particularity upon having knowledge of any matter that may constitute a breach
of any representation, warranty, agreement or covenant contained in this
Agreement.
8.14 CONFIDENTIALITY. Except as required by law, each party hereto
shall not, directly or indirectly, disclose to any person or entity or use any
information not in the public domain or generally known in the industry, in
any form, whether acquired prior to or after the Closing Date, received from
another party hereto relating to the business and operations of the Company,
the Parent, their respective subsidiaries or affiliates, including but not
limited to information regarding customers, vendors, suppliers, trade secrets,
training programs, manuals or materials, technical information, contracts,
systems, procedures, mailing lists, know-how, trade names, financial or other
data (including the revenues, costs or profits associated with any of the
Company's products or services), business plans, code books, invoices and
other financial statements, computer programs, software systems, databases,
discs and printouts, plans (business, technical or otherwise), customer and
industry lists, correspondence, internal reports, personnel files, sales and
advertising material, telephone numbers, names, addresses or any other
compilation of information, written or unwritten, which is or was used in the
business of the Company or any of its Subsidiaries.
8.15 ACCESS TO PROPERTIES AND RECORDS. The Parent shall afford to the
Purchaser, and to the accountants, counsel and representatives of the
Purchaser, reasonable access during normal business hours upon reasonable
notice throughout the period prior to the Closing Date to all properties,
books, contracts, commitments, and records of the Company and its Subsidiaries
and, during such period, shall furnish promptly to the Purchaser all other
information concerning the business, its properties and its personnel as the
Purchaser may reasonably request, including but not limited to monthly
financial statements consisting of balance sheets, income statements and cash
flow statements for each month subsequent to the period covered by the
Financial Statements attached hereto as SCHEDULE 2.04(A) and continuing for
each month thereafter up to the last full month prior to the Closing Date;
provided that no investigation or receipt of information pursuant to this
Section 8.15 shall qualify any representation or warranty of the Parent or the
Seller or the conditions to the obligations of the Purchaser.
8.16 ACQUISITION OF RIGHTS TO CONFIDENTIALITY. At the Closing, the
Parent shall assign, grant and convey to the Purchaser all its rights under
confidentiality agreements between it and persons other than the Purchaser
that were entered into in connection with or relating to a possible sale of
the Shares or any part thereof (collectively, "Other Confidentiality
Letters"), including the right to enforce all terms of the Other
Confidentiality Letters. At the Closing, the Parent shall deliver to the
30
Purchaser copies of the Other Confidentiality Letters to the extent permitted
by the terms thereof; provided that if any Other Confidentiality Letter shall
not be assignable, the Parent shall disclose to the Purchaser the parties to
such letter agreement.
8.17 FINANCING. The Parent shall cooperate with Hanger in all
reasonable respects to enable Hanger to obtain the financing contemplated by
Section 3.07 (the "Financing"), including using its best efforts to (i)
prepare interim financial statements for the Company and its Subsidiaries
("Interim Financials"), if required in connection with the Financing, (ii)
obtain consents of its independent public accountants and comfort letters,
when required, with respect to the Financial Statements and any Interim
Financials, at Hanger's cost, so that such financial statements can be used in
Rule 144A offering memoranda and registration statements filed under the
Securities Act of 1933, as amended, and reports under the Securities Exchange
Act of 1934, as amended ("Public Filings"), issued or filed by Hanger, (iii)
cooperate with Hanger so Hanger can obtain information sufficient for Hanger
to comply with the requirements of the Management's Discussion and Analysis
portion of the Public Filings, as it may relate to the Company and its
Subsidiaries, (iv) compile the requisite financial information, including
supplying financial information for purposes of comfort letters to be issued
in connection with the Public Filings, (vi) request the independent public
accountants of the Company to give full and complete access to Hanger and its
agents and representatives to its work papers and any other supporting
information relating to the Financial Statements or the Interim Financials,
subject to customary agreements sought by independent public accountants in
connection with giving such access, (vii) sign customary management
representation letters relating to the Financial Statements and the Interim
Financials, (viii) cooperate in the preparation of financial statements for
the Company and its Subsidiaries that are suitable for inclusion by Hanger in
the Public Filings, including compliance with the applicable provisions of
Regulation S-X, and (ix) provide reasonable assistance to Hanger in connection
with any roadshow, rating agency or lender presentations and meetings relating
to the Financing.
SECTION IX.
INDEMNIFICATION
9.01 INDEMNIFICATION BY THE PARENT AND THE SELLER. After the Closing
Date, the Parent and the Seller, jointly and severally, shall indemnify and
hold harmless the Purchaser (and its employees, officers, partners, directors,
shareholders, agents and representatives) and the Group Members (collectively,
the "Purchaser Indemnified Parties") from and against all Damages which are
sustained or incurred by any of the Purchaser Indemnified Parties, to the
extent that the Damages are sustained or incurred by reason of (a) the breach
by the Parent or the Seller of any of its covenants or agreements hereunder to
be performed after the Closing Date, or, subject to the limitations of Section
9.05(c), the breach by the Parent or the Seller of any of its Pre-Closing
Covenants, (b) the breach of any of the representations or warranties made by
the Parent and the Seller in Section II hereof (as modified by Section 6.03
hereof), (c) any liability (as a result of Treasury Regulation ss. 1.1502-
6(a) or otherwise) for Taxes of the Parent or the Seller or any other
corporation which is or has been affiliated with the Parent or the Seller
(other than any of the Group Members) or (d) the litigation set forth on
SCHEDULE 9.01.
9.02 INDEMNIFICATION BY THE PURCHASER. After the Closing Date, Hanger
and the Purchaser, jointly and severally, shall indemnify and hold harmless
the Parent, the Seller and their respective employees, officers, partners,
31
directors, shareholders, agents and representatives (collectively, the "Seller
Indemnified Parties") from and against all Damages which are sustained or
incurred by any of the Seller Indemnified Parties, to the extent that such
Damages are sustained or incurred by reason of (a) the breach by either of
Hanger or the Purchaser of any of its covenants or agreements hereunder to be
performed after the Closing Date, or, subject to the limitations of Section
9.05(c), the breach by either of Hanger or the Purchaser of any of its
Pre-Closing Covenants, (b) the breach of any of the representations or
warranties made by either of Hanger or the Purchaser in Section III hereof or
(c) any liability of the Parent or any of its Affiliates (other than any Group
Member) arising out of (i) those certain agreements (the "Parent Agreements"),
none of which are material, to which the Parent or any of its Affiliates
(other than any Group Member) is a party and which relate solely to the
business of the Company (or any other Group Member), it being understood and
agreed that the Parent shall deliver to the Purchaser a schedule of the Parent
Agreements (which the Parent shall use its reasonable best efforts to ensure
is complete) not less than five (5) days prior to the Closing Date, (ii)
severance payments due to employees performing all or substantially all their
services on behalf of the Company or any other Group Member, more particularly
set forth on SCHEDULE 2.11, who are terminated at any time subsequent to the
Closing Date, (iii) any litigation set forth in SCHEDULE 2.15 (other than any
litigation set forth on SCHEDULE 9.01) to which the Parent or any of its
Affiliates (other than any Group Member) is or becomes a party, (iv)
obligations under the employment agreements set forth on SCHEDULE 1.02(A)(3)
assumed by the Purchaser pursuant to Section 1.02(a), or (v) the operations of
the business of the Company or any Group Member subsequent to the Closing
Date.
9.03 PROCEDURE FOR INDEMNIFICATION. (a) Except as provided in clause
(d) of this Section 9.03, in the event that any party hereto or other
Purchaser Indemnified Party or Seller Indemnified Party reasonably believes
that such party has a claim for Damages in respect of which indemnity may be
sought by such party pursuant to Section 8.03, this Section IX or Section X
(each, an "Indemnification Matter"), the party indemnified hereunder (the
"Indemnitee") shall notify the party(s) providing indemnification
(collectively, the "Indemnitor") by sending written notice to the Indemnitor
(an "Indemnity Notice"). In the case of third party claims, which, if
successful, could result in an indemnity payment hereunder, an Indemnity
Notice shall be given within 30 days after the discovery by the Indemnitee of
the filing or assertion of any claim against the Indemnitee stating the nature
and basis of such claim; provided, however, that any delay or failure to
notify any Indemnitor of any claim shall not relieve it from any liability
except to the extent that the Indemnitor demonstrates that the defense of such
action is prejudiced by such delay or failure to notify. Any Indemnity Notice
(i) shall state (with reasonable specificity) the basis on which
indemnification is being asserted, (ii) shall set forth the amount of Damages
for which indemnification is being asserted and (iii) in the case of third
party claims, shall be accompanied by copies of all relevant pleadings,
demands and other papers served on the Indemnitee.
(b) Except as provided in clause (d) of this Section 9.03, in
the case of third party claims the Indemnitee shall give the Indemnitor the
right (i) to control and conduct any proceedings or negotiations in connection
therewith and necessary or appropriate to defend the Indemnitee (provided such
are pursued in a professional manner), (ii) to take all other reasonable steps
or proceedings to settle or defend any such claims, provided that the
Indemnitor shall not settle any such claim without the prior written consent
of the Indemnitee, which consent will not be unreasonably withheld or delayed,
32
unless, in the case that the Parent or the Seller is the Indemnitor, such
settlement only involves the payment of money (all of which shall be payable
by the Parent or the Seller), in which event the Parent and the Seller shall
have the right to settle any such claim without the consent of the Indemnitee,
and (iii) to employ counsel selected by the Indemnitor, after reasonable
consultation with the Indemnitee, to contest any such claim or liability in
the name of the Indemnitee or otherwise. Notwithstanding the Indemnitor's
election to appoint counsel to represent the Indemnitee in an action, the
Indemnitee shall have the right to employ separate counsel and the Indemnitor
shall bear the reasonable fees, costs and expenses of such separate counsel,
if the Indemnitee determines, based upon the advice of counsel, that a
conflict or potential conflict of interest exists between the Indemnitor and
the Indemnitee in such action. The Indemnitor shall, within 30 days of receipt
of an Indemnity Notice in respect of such claim (the "Indemnity Notice
Period"), notify the Indemnitee in writing of its intention to assume the
defense of such claim. In the event that the Indemnitor does assume the
defense as provided above, the Indemnitee shall have the right to participate
fully in such defense (including, without limitation, with counsel of its
choice), at its sole expense, and the Indemnitor shall cooperate fully with
the Indemnitee in connection with such participation. If the Indemnitor does
not deliver to the Indemnitee within the Indemnity Notice Period written
notice that the Indemnitor will assume the defense of any such claim or
litigation resulting therefrom, the Indemnitee may defend against any such
claim or litigation in such manner as it may deem appropriate and the
Indemnitee may settle such claim or litigation, provided that the Indemnitee
shall not settle any such claim without the prior written consent of the
Indemnitor, which consent will not be unreasonably withheld or delayed. In the
event that the Indemnitor does not assume the defense as provided above, the
Indemnitor shall have the right to participate fully in such defense
(including, without limitation, with counsel of its choice), at its sole
expense, and the Indemnitee shall cooperate fully with the Indemnitor in
connection with such participation, and in all cases the Indemnitee shall keep
the Indemnitor fully informed as to all matters concerning such third party
claim and shall promptly notify the Indemnitor in writing of any and all
significant developments relating thereto. Within 30 days after the
Determination Date with respect to a third party claim, the Indemnitor shall
pay the Indemnitee the amount of Damages sustained or incurred by the
Indemnitee.
(c) In the event that liability hereunder does not involve a
third party claim, the Indemnitor shall within 30 days after the date of
receipt of an Indemnity Notice respond in writing to the Indemnitee (the
"Indemnity Response") and set forth with reasonable specificity those items in
the Indemnity Notice to which the Indemnitor does not agree as well as the
summary basis upon which such disagreement is founded. Within 30 days
following the receipt of the Indemnity Response by the Indemnitee,
representatives of the Indemnitor and the Indemnitee shall meet to attempt to
resolve through good faith negotiations the applicable Indemnification
Matters. The parties shall negotiate in good faith for up to 60 days in an
attempt to reach a settlement of any disputed matter. In the event that such
good faith negotiations are unsuccessful or in the event of any other dispute
under this Section IX, the parties shall proceed in accordance with Section
11.07 of this Agreement.
(d) (i) If a claim shall be made by any taxing authority, which,
if successful, might result in an indemnity payment to any Purchaser
Indemnified Party, the Purchaser shall promptly notify the Parent in writing
(a "Tax Notice") of such claim (a "Tax Claim"). If a Tax Notice is not given
to the Parent within a sufficient period of time to allow the Parent or the
33
Seller effectively to contest such Tax Claim, or in reasonable detail to
apprise the Parent of the nature of the Tax Claim, in each case taking into
account the facts and circumstances with respect to such Tax Claim, neither
the Parent nor the Seller shall be liable to any Purchaser Indemnified Party
to the extent that the Parent's or the Seller's position is prejudiced as a
result thereof.
(ii) With respect to any Tax Claim, the Parent and the Seller
shall have the right to control and conduct all proceedings and
negotiations in connection with such Tax Claim (including, without
limitation, selection of counsel) and, without limiting the foregoing,
may in the Parent's sole discretion pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with any
taxing authority with respect thereto, and may, in the Parent's sole
discretion, either pay the Tax claimed and ▇▇▇ for a refund where
applicable law permits such refund suits or contest the Tax Claim in any
permissible manner. The Parent shall, within 30 days of receipt of a Tax
Notice with respect to a Tax Claim (the "Tax Notice Period"), notify the
Purchaser in writing of its intention to control and conduct the
proceedings and negotiations in connection with such Tax Claim. In the
event that the Parent does notify the Purchaser of its intention to
control and conduct the proceedings and negotiations in connection with
any Tax Claim as provided above, the Purchaser shall have the right to
participate fully in such proceedings and negotiations (including,
without limitation, with counsel of its choice), at its sole expense,
and the Parent and the Seller shall cooperate fully with the Purchaser
in connection with such participation. If the Parent does not deliver to
the Purchaser within the Tax Notice Period written notice that it will
control and conduct the proceedings and negotiations in connection with
a Tax Claim, the Purchaser may control, or cause the applicable Group
Member to control, and conduct such proceedings and negotiations in such
manner as it may deem appropriate. In the event that the Parent or the
Seller do not exercise their right to control and conduct the
proceedings and negotiations in connection with any Tax Claim as
provided above, the Parent and the Seller shall have the right to
participate fully in such proceedings and negotiations (including,
without limitation, with counsel of its choice), at their sole expense,
and the Purchaser shall, and shall cause each Group Member to, cooperate
fully with Parent and the Seller and their accountants and other
representatives in connection with such participation, and in all cases
the Purchaser shall keep the Parent fully informed as to all matters
concerning such Tax Claim and shall promptly notify the Parent in
writing of any and all significant developments relating thereto.
Without limiting Sections 8.04 and 8.05, the Purchaser and each of its
Affiliates shall (and the Purchaser shall cause the Group Members to)
cooperate fully with the Parent and the Seller in contesting any Tax
Claim, which cooperation shall include, without limitation, the
retention and (upon the Parent's request) the provision to the Parent of
records and information which are relevant to such Tax Claim, and making
officers and employees available on a timely and mutually convenient
basis to provide additional information or explanation of any material
provided hereunder or to testify at proceedings relating to such Tax
Claim.
(iii) Notwithstanding anything to the contrary contained herein,
in no event shall the Purchaser or any Group Member settle or otherwise
compromise any Tax Claim without the Parent's prior written consent
which shall not be unreasonably withheld. The Parent agrees to either
give its consent or the reasonable basis for withholding its consent
within 15 days of the receipt of any notice by the Parent from the
Purchaser, the Company or any Group Member.
34
9.04 LIMITS ON THE LIABILITY OF THE SELLER. Subject to the terms hereof
(including Sections 4.05 and 9.07 hereof), the aggregate liability of the
Parent and the Seller for Damages or otherwise with respect to the subject
matter of this Agreement and the transactions contemplated hereby is, and
shall be, limited to an aggregate amount (the "Seller's Liability Amount")
equal to $100,000,000, and the Purchaser, on behalf of itself, its Affiliates
and all Purchaser Indemnified Parties, agrees not to seek any Damages in
excess of the Seller's Liability Amount for any and all Damages sustained or
incurred by any Purchaser Indemnified Party for any breach or liability under
this Agreement or otherwise with respect to the subject matter of this
Agreement and the transactions contemplated hereby or otherwise.
9.05 OTHER LIMITS ON INDEMNIFICATION.
(a) Notwithstanding anything in Section 8.03, this Section IX or
Section X to the contrary and subject to the final sentence of this Section
9.05(a), no Purchaser Indemnified Party shall be entitled to indemnification
pursuant to Section 9.01 hereof unless and until the aggregate amount of all
Damages to which the indemnity set forth in Section 9.01(b) relates sustained
or incurred by all Purchaser Indemnified Parties exceeds an aggregate amount
(the "Basket Amount") equal to $1,500,000. Subject to Section 9.04 above, if
such Damages exceed the Basket Amount, then the Seller's liability for
indemnification under Section 9.01(b) shall be limited to the amount of such
Damages sustained or incurred which exceeds the Basket Amount. Notwithstanding
anything contained herein to the contrary, there shall be no limitation on the
liability of the Seller and the Parent under either Section 9.04 or this
Section 9.05 for Damages of the Purchaser which relate to Section 9.01(a)
[breaches of covenants], Section 9.01(c) [Tax liabilities], Section 9.01(b)
(insofar as it relates to breaches of Sections 2.01, 2.02, 2.03, 2.04 or 2.21)
and/or the last sentence of Section 6.03 hereof as therein provided.
(b) The representations and warranties contained in or made
pursuant to this Agreement shall expire 15 months from the Closing Date, or if
at the end of such 15 month period the Parent shall be continuing to operate
one or more businesses for profit, such period shall be extended during the
operation thereof for up to an additional three months, provided that the
representations and warranties contained in Sections 2.07, 2.16(c), 2.21 and
2.24 shall survive for the applicable statute of limitations, and provided
further that if written notice is properly given under this Section IX with
respect to any alleged breach of a representation or warranty to which such
party is entitled to be indemnified hereunder prior to the applicable
expiration date, such representation or warranty with respect to such
specified matter only shall continue indefinitely until the applicable claim
is finally resolved.
(c) With respect to any claim by the Parent or the Seller, on
the one hand, or the Purchaser, on the other hand, against the other based
upon a breach of any covenant or agreement of the other herein which is
required to be performed on or prior to the Closing Date (the "Pre-Closing
Covenants"), such Pre-Closing Covenant shall not survive the Closing and the
breach thereof shall be deemed to have been waived by the party for whose
benefit such Pre-Closing Covenant exists; provided that in the event that such
breach has had a Material Adverse Effect and the party who has breached such
Pre-Closing Covenant has taken actions to intentionally conceal the existence
of such breach from the party for whose benefit such Pre-Closing Covenant
exists, and provided further that the party for whose benefit such Pre-Closing
Covenant exists has sustained or incurred Damages that would otherwise
constitute an Indemnification Matter covered by the provisions of Section 9.01
35
or 9.02, as the case may be, then the applicable Pre-Closing Covenant shall be
deemed to have survived the Closing.
9.06 LOSSES NET. The amount of any Damages for which indemnification is
provided under Section 8.03, this Section IX or Section X shall be net of Tax
benefits to be received by the Indemnitee, and net of any amounts recoverable
by the Indemnitee under insurance policies with respect to such Damages.
9.07 SOLE AND EXCLUSIVE REMEDY. After the Closing Date, each party
hereto acknowledges and agrees that such party's sole and exclusive remedy
with respect to Damages and any and all other claims relating to the subject
matter of this Agreement and the transactions contemplated hereby (other than
disputes arising under the second sentence of Section 8.05(b) hereof which
disputes shall be resolved as set forth in such Section) shall be in
accordance with, and limited by, the indemnification provisions set forth in
Section 8.03, this Section IX and Section X.
9.08 LIMITATIONS ON MATERIALITY. For purposes of the indemnification
provided in this Article 9, in determining whether the representations and
warranties of the Parent or the Seller have been breached or are inaccurate or
the amount of any Damages, no effect will be given to any materiality
(including Material Adverse Effect) qualification set forth in such
representations and warranties.
SECTION X.
BROKERS AND FINDERS
10.01 THE PARENT'S AND THE SELLER'S OBLIGATIONS. Neither the Purchaser
nor any Group Member shall have any obligation to pay any financial advisory,
finder's fee or other compensation to any person, firm or corporation claiming
by, through or under the Parent, the Seller or any Group Member in connection
with the sale of the Shares contemplated by this Agreement and the
transactions contemplated herein, and the Parent and the Seller, jointly and
severally, hereby agree to defend, indemnify and hold the Purchaser and each
Group Member harmless from any Damages sustained or incurred by the Purchaser
or such Group Member by reason of any such claim for any such fee or other
compensation. It is understood and agreed that the Parent shall be solely
responsible for the fees and the expenses of ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, Inc.,
▇▇▇▇▇▇ Brothers, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co., Inc. and Warburg ▇▇▇▇▇▇ ▇▇▇▇ LLC
in connection with this Agreement and the transactions contemplated hereby.
10.02 THE PURCHASER'S OBLIGATIONS. Neither the Parent nor the Seller
shall have any obligation to pay any financial advisory, finder's fee or other
compensation to any person, firm or corporation claiming by, through or under
the Purchaser (or any Affiliate thereof) in connection with this Agreement and
the transactions contemplated herein, and the Purchaser hereby agrees to
defend, indemnify and hold the Parent and the Seller harmless from any Damages
sustained or incurred by the Seller by reason of any such claim for any such
fee or other compensation.
36
SECTION XI.
MISCELLANEOUS
11.01 NOTICES. All notices, requests or instructions hereunder shall be
in writing and delivered personally or sent by telecopy or registered or
certified mail, postage prepaid, return receipt requested, or by FedEx or
other recognized overnight courier as follows:
(a) if to the Seller or the Parent:
NovaCare, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Purchaser:
Hanger Orthopedic Group, Inc.
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Freedman, Levy, ▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered, on the date of receipt, if telecopied, three business days
after the date of mailing, if mailed by registered or certified mail, return
receipt requested, and one business day after the date of sending, if sent by
FedEx or other recognized overnight courier.
37
11.02 ENTIRE AGREEMENT. This Agreement, the Schedules and the Exhibits
hereto contain the entire agreement among the parties hereto with respect to
the transactions contemplated hereby, and, except for that certain
Confidentiality Agreement dated December 15, 1998 between ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, Inc., on behalf of the Parent, and Hanger, which shall remain in full
force and effect, supersede all prior agreements, understandings, negotiations
and discussions, whether written or oral, of the parties, and, except as
otherwise provided in Section 6.03 hereof, no modification hereof shall be
effective unless in writing and signed by the party against which it is sought
to be enforced.
11.03 ASSIGNMENT. This Agreement shall not be assignable by any of the
parties hereto except pursuant to a writing executed by all of the parties
hereto, provided that the Purchaser may without such prior consent, for
collateral security purposes, assign its rights (but not its obligations) to
providers of financing in connection with the purchase of the Shares.
11.04 FURTHER ACTION. Each of the parties hereto shall use such party's
best efforts to take such actions as may be necessary or reasonably requested
by the other parties hereto to carry out and consummate the transactions
contemplated by this Agreement.
11.05 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and
permitted assigns.
11.06 EXPENSES. Each of the parties hereto shall bear such party's own
expenses in connection with this Agreement and the transactions contemplated
hereby whether or not the Closing occurs. In the event that there are any
direct or indirect real property transfer, personal property transfer or other
similar transfer taxes payable in connection with the transactions
contemplated hereby, such taxes shall be paid by the Seller.
11.07 ARBITRATION. Subject to Sections 8.05(b) and 9.03(c) hereof, the
parties agree that they shall submit any dispute arising out of or relating to
this Agreement, or any breach hereof, to arbitration in accordance with the
rules of the American Arbitration Association then in effect. The parties
further agree that judgment upon an award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. The arbitration shall be
held in the District of Columbia.
11.08 SCHEDULES AND EXHIBITS. All Schedules and Exhibits to this
Agreement are integral parts of this Agreement.
11.09 INVALIDITY, ETC. Should any provision of this Agreement be held by
a court or arbitration panel of competent jurisdiction to be enforceable only
if modified, such holding shall not affect the validity of the remainder of
this Agreement, the balance of which shall continue to be binding upon the
parties hereto with any such modification to become a part hereof and treated
as though originally set forth in this Agreement. The parties further agree
that any such court or arbitration panel is expressly authorized to modify any
such unenforceable provision of this Agreement in lieu of severing such
unenforceable provision from this Agreement in its entirety, whether by
rewriting the offending provision, deleting any or all of the offending
provision, adding additional language to this Agreement, or by making such
other modifications as it deems warranted to carry out the intent and
agreement of the parties as embodied herein to the maximum extent permitted by
38
law. The parties expressly agree that this Agreement as so modified by a court
or arbitration panel shall be binding upon and enforceable against each of
them. In any event, should one or more of the provisions of this Agreement be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions hereof,
and if such provision or provisions are not modified as provided above, this
Agreement shall be construed as if such invalid, illegal or unenforceable
provisions had never been set forth herein.
11.10 HEADINGS. The headings of this Agreement are for convenience of
reference only and are not part of the substance of this Agreement.
11.11 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without giving effect to
the conflicts of laws provisions and principles thereof that would apply the
laws of any other jurisdiction.
11.12 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
11.13 CONSTRUCTION. The parties hereto agree that this Agreement is the
product of negotiations among sophisticated parties, each of whom was
represented by counsel, and each of whom had an opportunity to participate in,
and did participate in, the drafting of each provision hereof. Accordingly,
ambiguities in this Agreement, if any, shall not be construed strictly or in
favor of or against any party hereto but rather shall be given a fair and
reasonable construction without regard to the rule of CONTRA PROFERENTEM.
11.14 HANGER'S GUARANTY OF PURCHASER'S OBLIGATIONS. Hanger hereby
unconditionally guaranties to the Parent and the Seller the due and timely
performance by the Purchaser of all of the Purchaser's obligations under this
Agreement.
11.15 ASSIGNMENT OF PARENT AGREEMENTS. The Parent hereby assigns to the
Company, and the Company hereby accepts and assumes, all the Parent's rights
and obligations pursuant to the Parent Agreements. To the extent that any
Parent Agreement to be assigned to the Company hereunder requires the consent
to such assignment by any third party thereto, the Parent shall cooperate
fully with the Company in attempting to procure any such consent and in any
reasonable arrangement designed to provide the Company with the benefits under
any such Parent Agreement. The failure of the Company or the Parent to obtain
any such consent shall in no way relieve the Company from its obligation to
assume such Parent Agreement and the Company shall fully and faithfully
perform, observe and fulfill all the unfulfilled obligations of the Parent
under such Parent Agreements. From and after the Closing Date, the Company
shall use commercially reasonable efforts to obtain promptly and deliver to
the Parent, written releases in favor of the Parent with respect to any such
obligations and liabilities under all Parent Agreements.
39
SECTION XII.
DEFINITIONS
12.01 CERTAIN DEFINITIONS. The following terms when used herein shall
have the meanings assigned to them below (certain other terms are defined
elsewhere herein):
"Actions" shall have the meaning set forth in Section 2.15 hereof.
"Affiliate" means a person or entity who directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, another person.
"Applicable Law" shall mean the collective reference to any law, rule,
regulation, ordinance, writ, judgment, injunction, decree, determination,
award or other order of any Governmental Authority, in each case excluding any
and all Environmental Laws.
"Beneficiary" shall mean the person(s) or entity(ies) designated by an
Employee or Former Employee, by operation of law or otherwise, as the party
entitled to compensation, benefits, damages, insurance coverage, payments,
indemnification or any other goods or services as a result of any liability or
claim under any applicable welfare or benefit plan or program.
"Benefit Plan" shall have the meaning set forth in Section 2.12 hereof.
"Best Efforts" or "best efforts" shall mean diligently, promptly and in
good faith taking all actions which are reasonable, necessary and appropriate
to accomplish the objective requiring the use of best efforts, but shall not
include any obligation (a) to make any payment, incur any costs, commit
available resources, or forego the receipt of any payment, which in any case
is material in amount in light of the required objective, (b) to initiate any
lawsuit or other proceeding to achieve the required objective, or (c) to take
any action which is unlawful.
"Closing" and "Closing Date" shall have the meanings set forth in
Section 4.01 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall have the meaning set forth in the recitals hereof.
"Confidentiality Agreement" shall have the meaning set forth in Section
11.02 hereof.
"Contracts" shall have the meaning set forth in Section 2.10 hereof.
"Control" (including the terms "controlling", "controlled by" and "under
common control with") means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of the
person, whether through stock ownership, voting rights, governing boards or
otherwise.
40
"Damages" shall mean any and all losses, claims, demands, damages,
liabilities, obligations, costs and expenses, including without limitation,
reasonable fees and disbursements of counsel (however sustained or incurred,
including, without limitation, in any action or proceeding involving any third
party or involving any other party to this Agreement) sustained or incurred by
or claimed against the Purchaser Indemnified Parties (or any of them) or the
Seller Indemnified Parties (or any of them), as the case may be, and other
reasonable out-of-pocket costs and expenses incurred in connection with
investigating or defending any action, suit or proceeding, commenced or
threatened, but excluding punitive or consequential losses or damages.
"Determination" shall mean (a) the final non-appealable judgment by a
court of competent jurisdiction or arbitrator with respect to any claim
covered by Section IX hereof or (b) a compromise and settlement agreement
executed and delivered by both the Indemnitor and the Indemnitee with respect
to any claim covered by Section IX.
"Determination Date" shall mean the date the Determination is final,
legally binding, and non-appealable.
"Effective Time" shall mean the close of business Eastern Standard Time
on the Closing Date.
"Employees" shall mean all individuals with whom a Group Member
maintains, on the Closing Date, an employer-employee relationship, including
any individuals on lay-off, disability or leave of absence, whether paid or
unpaid.
"Environmental Laws" shall have the meaning set forth in Section 2.16(c)
hereof.
"Environmental Permits" shall have the meaning set forth in Section
2.16(c) hereof.
"ERISA" shall have the meaning set forth in Section 2.12(a) hereof.
"Financial Statements" shall have the meaning set forth in Section 2.04
hereof.
"Former Employees" shall mean all individuals as to whom an
employer-employee relationship with any Group Member existed prior to the
Closing Date, but does not exist on the Closing Date, who remain entitled to
benefits under any applicable welfare or benefit plan or program.
"GAAP" shall mean generally accepted accounting principles.
"Governmental Authority" shall mean the collective reference to any
court, tribunal, government, or governmental agency, authority or
instrumentality, domestic or foreign.
"Group" shall mean the Company and its Subsidiaries, taken as a whole.
"Group Member" shall mean, individually, the Company and each of its
Subsidiaries.
41
"Indemnification Matter" shall have the meaning set forth in Section
9.03 hereof.
"Knowledge of the Parent" shall mean, with respect to a particular fact
or other matter, that (i) an individual who is a director or executive officer
of the Parent, the Seller, the Company or any Group Member is actually aware
of such fact or other matter or (ii) a reasonably prudent individual in the
satisfaction of his or her duties as a director or executive officer of the
Parent, the Seller, the Company or any Group Member would be reasonably
expected to discover or otherwise become aware of such fact or other matter in
the course of conducting a reasonable investigation.
"Lien" shall mean any mortgage, pledge, encumbrance, charge or other
security interest of any kind or nature whatsoever.
"Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, businesses, results of operations or financial condition
of the Group, taken as a whole, and in any case after application of the
proceeds of any insurance or indemnity under any contract or agreement to
which any Group Member, the Parent or the Seller (or any Affiliate thereof) is
a party or, for purposes of Section 6.03, a material adverse effect on the
ability of the Parent or the Seller to consummate the sale of the Shares as
provided in this Agreement; provided that the term "Material Adverse Effect"
as used herein shall not include any effect attributable to changes in the
economy (of the United States or any other country) generally, changes in the
industries in which any Group Member engages, or seasonality of the businesses
of any Group Member.
"Permits" shall have the meaning set forth in Section 2.16(b) hereof.
"Permitted Liens" shall mean:
(a) Liens for Taxes not yet due or which are being contested in
good faith by appropriate proceedings, provided that adequate reserves with
respect to contested taxes are maintained on the books of any Group Member;
(b) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other social
security legislation;
(c) easements, rights-of-way, restrictions and other similar
encumbrances previously incurred in the ordinary course of business which, in
respect of properties or assets of the Group are not material, and which, in
the case of such encumbrances on the assets or properties of any Group Member,
do not materially detract from the value of any such properties or assets or
materially interfere with any present use of such properties or assets;
(d) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
which are not overdue for a period of more than 90 days or which are being
contested in good faith by appropriate proceedings;
42
(e) deposits to secure the performance of bids, contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
(f) statutory and contractual Liens on the property of any Group
Member in favor of landlords securing leases; and
(g) Liens in existence on the Closing Date listed on SCHEDULE 2.09
hereto.
"Pre-Closing Covenants" shall have the meaning set forth in Section
9.05(c) hereof.
"Purchaser Indemnified Parties" shall have the meaning set forth in
Section 9.01 hereof.
"Retro-Premium Insurance Amounts" shall mean any liability or other
obligation paid by the Parent or the Seller (or any Affiliate of the Parent or
the Seller) (whether by reimbursement to any claims security or escrow funds,
any additional premiums on retrospective adjustment or otherwise) under any
policies of insurance maintained by the Parent or the Seller (or any Affiliate
of the Parent or the Seller) for the benefit of any Group Member attributable
to events or occurrences on or prior to the Closing Date.
"Schedules" shall mean the Schedules attached hereto and made a part of
this Agreement.
"Seller Indemnified Parties" shall have the meaning set forth in Section
9.02 hereof.
"Seller's Health Plan" shall have the meaning set forth in Section 8.07
hereof.
"Seller Tax Periods" shall mean and include any and all periods ending
on or before the Closing Date, and in addition, the portion of any taxable
period that includes, but does not end on or before, the Closing Date that
consists of a partial period deemed to end on the Closing Date; provided that
in the case of any Seller Tax Period that does not end on or before the
Closing Date, for purposes hereof the books and records of the relevant Group
Member(s) shall be deemed to have been closed at and as of the Closing Date.
"Shares" shall have the meaning set forth in the recitals hereof.
"Subsidiary" and "Subsidiaries" shall have the meanings set forth in
Section 2.01 hereof.
"Taxes" shall have the meaning set forth in Section 2.07 hereof.
"Tax Claim" shall have the meaning set forth in Section 9.03 hereof.
"Tax Returns" shall have the meaning set forth in Section 2.07 hereof.
43
"Tax Sharing Agreement" shall mean the practice employed by the Parent
in causing the Seller and each of the Group Members to pay to the Parent or to
the Seller the separate company liability of each Group Member in respect of
the consolidated Federal income Tax and state income Tax liabilities of the
Parent's or the Seller's tax group, as applicable.
"Y2K-compliant" shall mean able to provide specific dates and calculate
spans of dates, and to record, store, process and provide true and accurate
dates and calculations for dates and spans of dates within and between the
twentieth and twenty-first centuries prior to, including and following January
1, 2000, including by: (i) correctly processing day and date calculations;
(ii) recognizing September 9, 1999 and January 1, 2001 as valid dates; (iii)
recognizing the year 2000 as a leap year having 366 days, and correctly
processing February 29, 2000 as a valid leap year date; (iv) employing only
four-digit year representations in software, components and systems owned or
operated in connection with the Company and its Subsidiaries; and (v)
incorporating interface programs sufficient to translate accurately to
four-digit format (without any burden of interpretation) any two-digit year
representations included in software, components or systems, including but not
limited to external databases, data warehouses, software systems and user
interfaces that send data to or receive data from software, components or
systems used in the Business.
* * *
43
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first above written.
SELLER:
NC RESOURCES, INC.
By: /s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Executive Officer
PARENT:
NOVACARE, INC.
By: /s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Executive Officer
HANGER ORTHOPEDIC GROUP, INC.
By: /s/▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chief Executive Officer
PURCHASER:
HPO ACQUISITION CORP.
By: /s/▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chief Executive Officer
45
AMENDMENT NO. 1 TO
STOCK PURCHASE AGREEMENT
AMENDMENT NO. 1 made as of May 19, 1999 ("Amendment No. 1"), by and
among NovaCare, Inc., a Delaware corporation ("Parent"), NC Resources, Inc., a
Delaware corporation (the "Seller"), Hanger Orthopedic Group, Inc., a Delaware
corporation ("Hanger"), and HPO Acquisition Corp., a Delaware corporation (the
"Purchaser"), to the Stock Purchase Agreement, dated as of April 2, 1999, by
and among the Parent, the Seller, Hanger and the Purchaser (the "Stock
Purchase Agreement").
W I T N E S S E T H:
WHEREAS, the parties hereto have entered into the Stock Purchase
Agreement pursuant to which, among other things, the Seller shall sell to the
Purchaser, and the Purchaser shall acquire from the Seller, all of the issued
and outstanding shares of common stock, $.01 par value per share, of NovaCare
Orthotics and Prosthetics, Inc., a Delaware corporation (the "Company"); and
WHEREAS, the parties hereto desire to amend the Stock Purchase Agreement
as hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. DEFINED TERMS. All capitalized terms used but not otherwise
defined herein shall have the respective meanings ascribed thereto in the
Stock Purchase Agreement.
2. AMENDMENTS TO STOCK PURCHASE AGREEMENT.
(a) Section 1.02(a) of the Stock Purchase Agreement is hereby amended
by deleting Section 1.02(a) thereof in its entirety and substituting therefor
the following:
"(a) PURCHASE PRICE AND PAYMENT. The Purchaser agrees to provide
the Seller with an aggregate value of Four Hundred Forty-Five Million
Dollars ($445,000,000.00) ("PURCHASE PRICE") for the Shares by: (i) the
assumption of the promissory notes payable by the Company to the sellers
of acquired businesses in a principal amount not to exceed the amount
(the "Relevant Amount") set forth on Schedule 1.02(a)(1) hereto with
respect to the relevant Closing Date (the "Acquired-company Notes") as
specifically listed on SCHEDULE 1.02(A)(2) hereto; (ii) the escrow of
Ten Million Dollars ($10,000,000.00) (the "Escrowed Funds") until the
determination of any Purchase Price adjustments as provided in Section
1.02(b) hereof; (iii) the assumption of the liability of the Parent with
respect to the severance amounts calculated as set forth on SCHEDULE
1.02(a)(3); and (iv) the payment of the balance of the Purchase Price in
cash by wire transfer or delivery of other immediately available funds
at the Closing."
(b) Section 4.01 of the Stock Purchase Agreement is hereby amended by
deleting Section 4.01 in its entirety and substituting therefor the following
paragraph:
"4.01 TIME AND PLACE OF THE CLOSING. The closing of the purchase
and sale of the Shares as set forth herein (herein referred to as the
"Closing") shall be held at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ at 10:00 a.m., local time, on July 1,
1999, or such other time, place and date as the Purchaser and the Seller
may agree (such date upon which the Closing occurs is herein referred to
as the "Closing Date") and, for accounting purposes, the Closing shall
be effective as of a mutually agreeable date."
(c) Schedule 1.02(a)(2) to the Stock Purchase Agreement is hereby
amended by deleting Schedule 1.02(a)(2) thereof in its entirety and
substituting therefor a new Schedule 1.02(a)(2) in the form attached to this
Amendment No. 1.
3. MISCELLANEOUS.
(a) The parties hereto further agree that all notices, requests or
instructions under this Amendment No. 1 or any other agreement made between
the parties hereto in connection with the Stock Purchase Agreement shall be in
writing and delivered personally, sent by telecopy or sent by registered or
certified mail, postage prepaid, return receipt requested, or by FedEx or
other recognized overnight courier, to the address set forth in Section 11.01
of the Stock Purchase Agreement.
(b) Except as specifically amended herein, the Stock Purchase
Agreement shall remain in full force and effect in accordance with its terms.
(c) This Amendment No. 1 shall be binding upon the parties hereto and
their respective successors and assigns.
(d) This Amendment No. 1 may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
* * *
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to be duly executed on the date first above written.
NC RESOURCES, INC.
By: /s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Executive Officer
NOVACARE, INC.
By: /s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Executive Officer
HANGER ORTHOPEDIC GROUP, INC.
By: /s/▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chief Executive Officer
HPO ACQUISITION CORP.
By: /s/▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chief Executive Officer
