Exhibit 2.4
FIRST AMENDMENT
TO
STOCK PURCHASE AGREEMENT
This First Amendment to the Stock Purchase Agreement (this "First
Amendment") made and entered into as of November 14, 1999, by and among
NovaCare, Inc. a Delaware corporation ("Parent"), NC Resources, Inc., a Delaware
corporation and a wholly owned subsidiary of Parent ("Seller"), and Select
Medical Corporation, a Delaware corporation ("Purchaser"), amends that certain
Stock Purchase Agreement, dated as of October 1, 1999, by and among Parent,
Seller and Purchaser (the "Original Agreement"). Capitalized terms used but not
defined herein shall have the meanings assigned to them in the Original
Agreement.
W I T N E S S E T H
Whereas, the parties have entered into the Original Agreement; and
Whereas, the parties desire to amend the Original Agreement.
Now, Therefore, in consideration of the premises and mutual covenants
herein contained, and other good and valuable consideration, the receipt of
which is acknowledged by the parties, and intending to be legally bound hereby,
the parties hereby agree as follows:
1. Section 1.02 of the Original Agreement is hereby amended and restated
in its entirety to read as follows:
"1.02 Purchase Price. The aggregate purchase price for the Shares
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shall be Two Hundred Million Dollars ($200,000,000) (the "Purchase Price"). The
Purchase Price shall be payable at Closing by: (i) the assumption of the
principal of and accrued interest outstanding on the Closing Date under the
promissory notes payable by Parent, the Companies or Subsidiaries to the sellers
of acquired businesses and/or other third parties in connection with such
acquisitions (collectively, the "Seller Notes") and other third party
indebtedness, all as listed on Schedule l.02A, which principal and accrued
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interest as of June 30, 1999 was in the approximate amount of $46.8 million,
(ii) the payment by wire transfer of immediately available funds of Thirty
Million Dollars ($30,000,000) to PNC Bank, NA, as escrow agent (the "Escrow
Agent"), which amount the Escrow Agent shall hold in escrow (the "Escrow
Account") pursuant to an escrow agreement substantially in the form of Exhibit
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1.02 hereto (the "Escrow Agreement"), (iii) the payment by wire transfer of
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immediately available funds of Six Million Eight Hundred Thousand Dollars
($6,800,000) to the Escrow Agent, which amount the Escrow Agent shall hold in
escrow (the "Earn-Out Escrow Account") pursuant to an escrow agreement
substantially in the form of Exhibit 1.02A hereto (the "Xxxxxx Escrow
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Agreement"), and (iv) the payment of the balance of the Purchase Price (being
$163,200,000 less the principal of and accrued interest as of the Closing Date
under the indebtedness identified in clause (i)) to the Seller by bank wire
transfer of immediately available funds to an account or accounts designated in
writing by the Seller at least three business days prior to the Closing.
Purchaser shall have legal and equitable title to the assets in the Earn-Out
Escrow Account and the Escrow Account, and Seller's interest therein shall be
limited to its rights, if any, to distributions from said Earn-Out Escrow
Account and Escrow Account pursuant to this Agreement. The Purchase Price for
the Shares will be allocated among the Companies as set forth on Schedule 1.02.
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The parties agree that all Tax Returns or other Tax information they may file or
cause to be filed with any governmental entity shall be prepared and timely
filed consistently with such allocation."
2. Section 2.04(a)(ii) of the Original Agreement is hereby amended by
replacing the period at the end thereof with a semicolon and adding thereafter
the following:
"and (iii) unaudited combined statement of the results of operations
of the Companies and their subsidiaries for the fiscal quarter ended September
30, 1999 and combined balance sheet of the Companies and their subsidiaries as
of September 30, 1999."
3. Section 2.04 of the Original Agreement is hereby amended by adding
after subparagraph (g) thereof the following:
"(h) Attached as Schedule 2.04(H) is an estimate of the revenues of
the Companies and the Subsidiaries for the month of October, 1999, which
estimate was prepared in good faith by the Parent in the ordinary course of
business (the "October Revenue Report")."
4. Section 2.06 of the Original Agreement is amended by adding after
"(a)" in the second line thereof the words:
"except as reflected in the Financial Statements of the Companies as
of and for the 3 month period ended September 30, 1999, and except as disclosed
in the October Revenue Report,"
5. Section 2.30 of the Original Agreement is hereby amended by adding at
the end thereof the following:
"All xxxxxxxx by all Group Members accurately reflect the level of
service actually delivered to the patients, are substantiated by all
documentation required by applicable legal, contractual and professional
standards, and Group Members do not perform and xxxx for services at a level
above that which is appropriate."
6. Section 6.10 of the Original Agreement is amended by adding before the
period at the end thereof the words "and the Group Members have been released of
all obligations under the Credit Agreement referred to on Schedule 2.02."
7. The Original Agreement is hereby amended to add Section 6.11, as
follows:
"6.11 Microsoft License. The Parent, the Purchaser and Microsoft
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Corporation shall have entered into the letter agreement transferring the
Microsoft licenses to the Purchaser in the form attached hereto as Exhibit
6.11."
8. The Original Agreement is hereby amended to add Section 6.12, as
follows:
"6.12 Employee Payroll. The Parent (a) shall have paid, or caused to
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be paid, the gross payroll and related payroll taxes for the employees of the
Group Members that is payable Friday, November 19, 1999, (b) shall have
deposited sufficient funds in the appropriate payroll account to cover such
payroll and related payroll taxes, and (c) shall deliver a certificate to such
effect to the Purchaser on or prior to the Closing."
9. Section 8.06(d) of the Original Agreement is amended by deleting the
first word thereof and replacing it with the words: "Except as provided in
Section 8.27, the"
10. The first sentence of Section 8.10(d) of the Original Agreement is
hereby amended and restated in its entirety to read as follows:
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"(d) Parent and Seller shall reimburse Purchaser up to $5.0 million
for severance obligations actually incurred by Purchaser or the Group Members
with respect to those employees listed on Schedule 2.11 (excluding Xxxxx XxXxxx)
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who have contractual severance rights; provided, and only to the extent that (i)
in the case of an employee who is involuntarily terminated, such termination
notice must be given by Purchaser within one (1) year after the Closing Date
(and must become effective on or before the end of the thirteenth month after
the Closing Date), (ii) in the case of an employee who is entitled to severance
based on the exercise of a constructive termination provision, such contractual
right is based solely on the contractual provision existing on the Closing Date;
and provided, further that, with respect to any such employee, no other
contractual arrangement is entered into by the Purchaser, a Group Member or
their Affiliates. If such severance payments are payable to terminated employees
over time, Parent's and Seller's reimbursement obligations hereunder shall arise
at such time, and from time to time, as such severance payments are made (even
if such severance payments are payable more than 13 months after the Closing
Date). The Parent and Seller shall make such reimbursement payments to the
Purchaser within 10 days after Purchaser submits an invoice therefor; provided,
that, to the extent that the Parent and Seller are required to so reimburse the
Purchaser in excess of $1.0 million in cash on or before January 15, 2000, the
Parent and Seller may pay such excess amount on January 16, 2000."
11. Section 8.15 of the Original Agreement is hereby amended and restated
in its entirety to read as follows:
"8.15 Accounts Receivable.
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(a) The Parent represents and warrants to the Purchaser that all
accounts receivable reflected on the Closing Balance Sheet, net of reserves
against such accounts receivable reflected on the Closing Balance Sheet, shall
be fully collected. In order to give effect to the foregoing representation, the
Parent, Seller and the Purchaser agree to the payments and procedures set forth
in this Section 8.15.
(b) The following terms when used in this Section 8.15 shall have
the meanings assigned to them below:
(i) "Closing Date Receivables" shall mean all accounts
receivable reflected on the Closing Balance Sheet, net of reserves against such
accounts receivable reflected on the Closing Balance Sheet.
(ii) "Litigation Receivables" means Closing Date Receivables
which represent amounts due from patients who as of the Closing Date have
notified Parent, Seller or a Group Member of their inability to pay such
accounts pending resolution of litigation brought by such patient to collect
damages or insurance proceeds.
(iii) "Ordinary Receivables" means Closing Date Receivables
other than Litigation Receivables.
(iv) "Cumulative Receivable Collections" means, at any time,
the amount of cash collected by the Group Members on account of Closing Date
Receivables from and including the day after the Closing Date to such time.
(v) "Ordinary Receivable Collection Target Percentage"
means, for each of the periods specified in the table below, the percentage set
forth opposite such period:
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Period beginning the day after the Closing Ordinary Receivable Collection Target -
Date and ending: Percentage
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February 29, 2000 53%
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May 31, 2000 84%
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August 31, 2000 90%
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November 30, 2000 95%
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February 28, 2001 97%
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May 31,2001 98%
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August 31, 2001 99%
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November 30, 2001 100%
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(vi) "Litigation Receivable Collection Target Percentage" means, for
each of the periods specified below, the percentage set forth opposite such
period:
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Period beginning the day after the Closing Litigation Receivable Collection Target -
Date and ending: Percentage
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February 29, 2000 12.5%
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May 31,2000 25%
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August 31, 2000 37.5%
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November 30, 2000 50%
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February 28, 2001 62.5%
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May 31,2001 75%
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August 31, 2001 87.5%
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November 30, 2001 100%
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(vii) "Adjusted Litigation Receivables" means Litigation Receivables
multiplied by 2/3.
(viii) "Cumulative Escrow Collections" means, at any time, the
cumulative amount of cash paid to the Purchaser from the Escrow Account by the
Escrow Agent pursuant to the provisions of Section 8.15(c) from and including
the day after the Closing Date to such time, excluding any amounts paid in
respect of interest pursuant to Section 8.15(d).
(ix) "Cumulative Collections" means, at any time, the Cumulative
Receivable Collections at such time, plus the Cumulative Escrow Collections at
such time.
(c) As promptly as practicable after February 29, 2000, May 31, 2000,
August 31, 2000, November 30, 2000, February 28, 2001, May 31, 2001, August 31,
2001 and November 30, 2001 (each such date a "Measurement Date"), the Purchaser
shall deliver to the Parent and Seller a statement of the Cumulative Collections
as of such Measurement Date, together with the work papers upon which
Purchaser's calculation of such Cumulative Collections is based, and within 10
days thereafter the Seller shall pay to Purchaser (and to effect such payment
shall instruct the Escrow Agent to pay to the Purchaser) the amount, if any, by-
which (A) the sum of (i) the amount of Ordinary Receivables multiplied by the
Ordinary Receivable Collection Target Percentage applicable to such Measurement
Date plus (ii) the amount of the Adjusted Litigation Receivables multiplied by
the Litigation Receivable Collection Target Percentage applicable to such
Measurement Date, exceeds (B) the Cumulative Collections as of such Measurement
Date; provided that for purposes of the Measurement Date which is November 30,
2001, the term "Adjusted Litigation Receivables" in clause "(A)" above shall be
replaced
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with the term "Litigation Receivables;" and provided further that, if as of
November 30, 2001, Cumulative Collections as of such date exceed the amount of
Closing Date Receivables, Purchaser shall deposit such excess amount into the
Escrow Account (together with interest on such amount accrued from August 31,
2001 to the date of payment, at an annual rate of interest equal to the weighted
average interest rate earned during such period on the funds in the Escrow
Account (as reported to the parties by the Escrow Agent)) and such deposited
amount shall thereafter constitute part of the "Indemnity Escrow Deposit" under
and as defined in the Escrow Agreement. During the 30 day period prior to each
Measurement Date, and during the 10 day period following Purchaser's delivery of
such statement, Seller shall be given reasonable access to such employees and
such work papers management reports and other information relating to the
determination of Cumulative Collections for the 90 day period ending on such
Measurement Date as it reasonably requests. In addition, during the 90 day
period prior to the first Measurement Date, Purchaser shall provide Seller with
reasonable access to those of its employees as are involved in the creation of
the reporting system to be used to calculate Cumulative Receivable Collections,
and will consider Seller's reasonable suggestions to improve the integrity of
such reporting system.
(d) Together with each payment required to be made to Purchaser
pursuant to paragraph (c) above, Seller shall, in addition, pay to Purchaser
(and to effect such payment shall instruct the Escrow Agent to pay to Purchaser)
interest on the amount of such payment accrued from the Closing Date to the date
of payment, at an annual rate of interest equal to the weighted average interest
rate earned during such period on the funds in the Escrow Account (as reported
to the parties by the Escrow Agent).
(e) During the two year period following the Closing, the Purchaser
will cause the Group Members to follow substantially the same accounts
receivable collector) practices as were used by the Group Members prior to
Closing."
12. Section 8.16 of the Original Agreement is hereby amended and restated
in its entirety to read as follows:
"8.16 NCES Subscriber Agreement. Effective as of the Closing Date,
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the Parent and the Purchaser agree to enter into a subscriber services agreement
(the "Purchaser NCES Agreement") with NovaCare Employee Services, Inc. ("NCES")
substantially in the form of Exhibit 8.16. Notwithstanding anything contained in
this Agreement to the contrary, Parent and the Purchaser hereby agree that the
Purchaser has, and shall have, no obligations under the Subscriber Services
Agreement dated as of July 1, 1999 by and between the Parent and NCES."
13. Section 8.18 of the Original Agreement is hereby amended to read in
its entirety as follows:
"8.18 Transition Services Agreement. At the Closing, the Parent and
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Purchaser shall enter into a transition services agreement ("Transition
Agreement") in the form of Exhibit 8.18."
14. Section 8.19(u) of the Original Agreement is hereby deleted.
15. Section 8.19 of the Original Agreement is hereby amended to add at the
end of the section prior to the period (.), as follows:
"and the Parent hereby agrees to use its best efforts to assist the
Purchaser in negotiating such a contract that is acceptable to the Purchaser.
Pending the negotiation and execution of such contract with AT&T, Parent's and
Purchaser's obligations with respect to the AT&T contract will be as set forth
in the Transition Services Agreement."
16. Section 8.20(b) of the Original Agreement is hereby amended by adding
before the period at the end of the first sentence thereof, the following:
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"; provided however that the net accounts receivable of the Companies
and Subsidiaries to be included in the Closing Balance Sheet shall be equal to
(A) the net accounts receivable that would be included in a balance sheet of the
Companies and the Subsidiaries as of the close of business on November 30, 1999
prepared in accordance with GAAP, applied on a basis consistent with the
preparation of the audited Financial Statements, plus (B) the actual cash
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collections of accounts receivable by the Companies and the Subsidiaries from
the day following the Closing Date through November 30, 1999, inclusive, and
minus (C) the product of (x) the net revenues of the Companies and the
Subsidiaries for the period from November 1, 1999 through November 30, 1999,
inclusive, determined in accordance with GAAP, applied on a basis consistent
with the preparation of the audited Financial Statements, times, (y) a fraction,
the numerator of which is the total number of patient visits for the Group
Members for the period from the day following the Closing Date through November
30, 1999, inclusive (as such visits are reported on the Weekly Flash DOC Summary
prepared in the ordinary course of the Parent's business) and the denominator of
which is the total number of patient visits for the Group Members for the month
of November 1999 (as such visits are reported on the Weekly Flash DOC Summary
prepared in the ordinary course of the Parent's business)."
17. Section 8.20(d) of the Original Agreement is hereby amended by adding
at the end thereof the following:
"Each time Parent or Seller make any payment required pursuant to this
Section 8.20(d) with respect to a breach of the representations in Section
8.20(a)(i) or Section 8.20(a)(ii), it shall, in addition to such payment, pay to
Purchaser interest on the amount of such payment accrued from and including the
Closing Date to the date of payment, at an annual rate of interest equal to the
weighted average interest rate earned during such period on the funds in the
Escrow Account (as reported to the parties by the Escrow Agent)."
18. The Original Agreement is hereby amended to add Section 8.25, as
follows:
"8.25 Oui Tam Suit. The Parent and Seller shall be fully responsible
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for defending, at their sole expense, and to pay any and all Damages relating to
United States of America, ex rel., Xxxx Xxx v. Healthsouth, Inc., NovaCare,
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Inc., Living Centers of America, Inc., Manor Care, Inc., Sun Healthcare Group,
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Inc., and Xxxx Xxx 1 through Xxxx Xxx 100, No. 98-CV-4185 (E.D. Pa. Aug. 10,
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1998) and the inquiry and/or investigation relating thereto (the "Qui Tam
Suit"), any claim alleged in or which could have been alleged in the Qui Tam
Suit, any governmental intervention relating to the allegations made in the Qui
Tam Suit, and any other suit or governmental claim arising from the same
transactions, occurrences or practices as those alleged in the Qui Tam Suit.
Purchaser agrees to, and agrees to cause each Group Member to, reasonably
cooperate with the Parent and its representatives in connection with the Qui Tam
Suit, which cooperation shall include, without limitation, the retention and
(upon the Parent's reasonable request) the provision to the Parent of records
and information which are relevant to the Qui Tam Suit, and making officers and
employees reasonably 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 the Qui Tam Suit."
19. The Original Agreement is hereby amended to add Section 8.26, as
follows:
"8.26 Columbia\Georgia Physical Therapy Joint Venture. Georgia
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Physical Therapy, Inc. ("Georgia PT") has previously formed a joint venture with
Columbia\HCA Healthcare Corporation currently known as G. P. Therapy, LLC (the
"Joint Venture"). It is currently contemplated that the Joint Venture will be
terminated and the assets of the Joint Venture will be divided between the
parties to the Joint Venture. Parent and Seller represent and warrant to
Purchaser that in the event of such termination of the Joint Venture, the value
(determined in accordance with GAAP) of the tangible net assets received by the
Companies in connection with the termination of the Joint Venture will equal or
exceed the sum of
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$1,700,000 and the amount of any cash invested by the Companies in the Joint
Venture after September 30, 1999, and in the event such value does not exceed
such amount Parent and Seller will pay Purchaser the difference between such
amounts."
20. The Original Agreement is hereby amended to add Section 8.27, as
follows:
"8.27 Section 338(h)(10) Election. At the election of the Purchaser,
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the Purchaser and the Parent shall make an election pursuant to Section
338(h)(l0) of the Code (and any comparable elections for state and local income
tax purposes) with respect to the purchase and sale of all of the issued and
outstanding capital stock of NovaMark, Inc. hereunder (the "Elections"). If any
Election is made, the Purchaser and the Parent shall jointly execute Internal
Revenue Form 8023 and any applicable forms for state and local income tax
purposes (the "Election Forms") in a timely manner, and the Parent shall timely
provide (or cause to be timely provided) to the Purchaser such powers of
attorney as the Purchaser shall reasonably request authorizing the Purchaser to
provide any additional information and to perform all acts reasonably necessary
for the complete and timely filing of the Election Forms. The Purchaser shall,
in its sole discretion, determine "MADSP" (as determined in accordance with
Treasury Regulation Section 1.338(h)(10)-l(f)) for the assets of NovaMark, Inc.,
and the allocation of such MADSP among such assets. The parties shall for all
federal, state and local income tax purposes and for accounting purposes report
the transactions in a manner consistent with the determination and allocation of
MADSP."
21. The Original Agreement is hereby amended to add Section 8.28, as
follows:
"8.28 Escrow Agreements. The Purchaser and Seller hereby agree to
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cooperate in good faith, within thirty (30) days from the date of Closing, to
identify a successor agent which will agree to hold the assets in the Escrow
Account and the assets in the Earn-Out Escrow Account in trust for the Purchaser
and the Seller, as their interest may appear, pursuant to each escrow agreement
in the form attached hereto as Exhibit K and Exhibit L, except for such changes
as the successor agent may require and which are agreed to by the Purchaser and
the Seller."
22. Section 9.01(g) of the Original Agreement is amended by replacing the
words
"seventy-five percent (75%)" with the words "ninety percent (90%)",
and Section 9.02(e) of the Original Agreement is amended by replacing the words
"twenty-five percent (25%)" with the words "ten percent (10%)".
23. Section 9.01(h) of the Original Agreement is hereby amended and
restated in its entirety to read as follows:
"(h) seventy-five percent (75%) of all Damages arising from any
liability or claim, whether or not included on Schedule 2.15 (other than under
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the Xxxxxx Purchase Agreement (as defined below) which is addressed in Section
9.10 herein), known or unknown, arising out of acts or omissions occurring prior
to the Closing Date with respect to any acquisition agreement for the purchase
and sale of clinics within the business of the Group Members,"
24. Section 9.01(k) of the Original Agreement is hereby amended and
restated in its entirety to read as follows:
"(k) any liabilities arising from any claim included on Schedule 2.15
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(other than under the Qui Tam Suit, which is addressed in subclause "(I)"
herein) which are not otherwise liabilities against which Group Members have
indemnified Purchaser, in whole or in part pursuant to Section 9.02, (1) any
liability or obligation relating to the Qui Tam Suit, any governmental
intervention relating to the allegations made in the Qui Tam Suit, and any other
suit or governmental claim arising from the same
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transactions, occurrences or practices as those alleged in, or that could have
been alleged in the Qui Tam Suit, and (m) any liability or obligation specified
in Section 9.10."
25. Section 9.02(h) of the Original Agreement is hereby amended and
restated in its entirety to read as follows:
"twenty-five percent (25%) of all Damages arising from any liability
or claim, whether or not included on Schedule 2.15 (other than the Xxxxxx
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Purchase Agreement (as defined below) which is addressed in Section 9.10
herein), known or unknown, arising from acts or omissions occurring prior to the
Closing Date with respect to any acquisition agreement for the purchase and sale
of clinics within the business of the Group Members, and"
26. Section 9.04 of the Original Agreement is hereby amended and restated
in its entirety to read as follows:
"9.04 Limits on the Liability of the Parent and Seller. Subject to the
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terms of Section 4.05, 9.07 and 9.08 hereof, the aggregate liability of the
Parent and the Seller for Damages and the obligation to make other payments to
Purchaser pursuant to this Agreement shall be, limited to an aggregate amount
(the "Seller's Liability Amount") equal to Thirty Million Dollars ($30,000,000),
plus (i) any interest or other income earned on the monies in the Escrow
Account, plus (ii) any other amounts deposited after the Closing Date in the
Escrow Account, plus (iii) any amounts in the Earn-Out Escrow Account and,
subject to Section 9.08 hereof, the Purchaser, on behalf of itself, its
Affiliates and all Purchaser Indemnified Parties, agrees not to seek Damages- or
other payments in excess of the Seller's Liability Amount or from sources other
than the funds held in escrow pursuant to the Escrow Agreement or the Xxxxxx
Escrow Agreement. Seller and Parent agree that Purchaser shall be entitled to
recover from the Escrow Account and the Earn-Out Escrow Account any Damages
against which it is entitled to be indemnified by Parent and Seller hereunder,
and Seller agrees to give instructions to the Escrow Agent to give effect to the
foregoing."
27. Section 9.08 of the Original Agreement is hereby amended to add before
the period (.), as follows:
", and (iii) there shall be no limitations on the liability (or the
sources of recovery) of the Seller and the Parent under either Section 9.04 or
Section 9.05 for Damages of the Purchaser which relate to the representations,
warranties and indemnifications set forth in Section 8.26, Section 9.01(1) or
Section 9.10."
28. The Original Agreement is hereby amended to add Section 9.10, as
follows:
"9.10 Earn-Out Indemnification.
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(a) Subject to the limitations contained in Section 9.10(b),
notwithstanding anything in this Agreement to the contrary, the Parent and
Seller hereby jointly and severally agree to indemnify and hold harmless the
Purchaser Indemnified Parties from and against any and all Damages, sustained or
incurred by any of the Purchaser Indemnified Parties, as a result of, or arising
from, any action brought or claim made (whether or not any litigation has been
commenced) by or on behalf of the former stockholders (the "Former
Stockholders") of Xxxxxx Sportsmedicine Institute, Inc. ("Xxxxxx") alleging a
breach of any obligation to make so-called earnout payments pursuant to Section
I. C. of the Agreement of Purchase and Sale (the "Xxxxxx Purchase Agreement"),
dated March 1, 1998, by and among NovaCare Outpatient Rehabilitation East, Inc.,
the Parent, Xxxxxx and the Former Stockholders, or otherwise claiming that as a
result of actions or omissions of the Parent or its subsidiaries the Former
Stockholders have not received the full amount of the earnout payments to which
they would otherwise be entitled (together, the "Xxxxxx Earn-Out Obligations"),
including any amount paid in settlement of any such
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actions or claims. The parties agree that such Damages shall include, but not be
limited to, amounts contained in any settlement arrangement, whether or not any
litigation has commenced, negotiated by the Purchaser and/or a Group Member, as
applicable, in their sole discretion, however structured, in connection with
obtaining a release from such Former Stockholders with respect to any claims
made by such Former Stockholders.
(b) The parties hereto acknowledge and agree that the intent of the
foregoing indemnification is to protect the Purchaser Indemnified Parties from
and against any financial obligation incurred in connection with the resolution
of any and all disputes relating to the Xxxxxx Earn-Out Obligations, in excess
of any such amounts that would, under the terms of the Xxxxxx Purchase Agreement
as in effect on the date hereof, be payable to the Former Shareholders in
respect of Xxxxxx Earn-Out Obligations at the time such indemnification -
obligations hereunder arise. Accordingly, the parties hereto agree that the
Damages payable to the Purchaser hereunder, whether as a result of a settlement,
arbitration award or judgment, shall not include (or shall be reduced by, as
applicable) an amount equal to the amount(s), if any, that would, as of the date
of such settlement, award or judgment, be payable to the Former Stockholders
under the Xxxxxx Purchase Agreement as in effect on the date hereof in respect
of the Xxxxxx Earn-Out Obligations based- on the actual net revenues achieved
for the relevant period. On the other hand, if as of the date of any such
settlement, arbitration award or judgment, no such amount is payable to the
Former Stockholders with respect to the Xxxxxx Earn-Out Obligations for the
relevant period, either because such period has not yet occurred or been
completed, or because sufficient revenues have not been generated for such
period (or portion thereof), or for any other reason, the Damages shall include
the full amount of any such settlement, award or judgment. By way of
illustration, if the Purchaser and/or a Group Member structure a settlement of
the Xxxxxx Earn-Out Obligations for the period ending March 31, 2000 by paying
to the Former Stockholders a payment of $4,000,000, but, based on the actual net
revenues achieved for the period ending March 31, 2000, an earnout payment of $
1-,000,000 is, at the time of such settlement, due under the terms of the Xxxxxx
Purchase Agreement, as in effect on the date hereof, to the Former Stockholders
in respect of the Xxxxxx Earn-Out Obligations for that period, the Purchaser
would be entitled to draw $3,000,000 from the Earn-Out Escrow Account (upon
delivery to the Parent and Seller of a release, executed by the Former
Stockholders, with respect to the Xxxxxx Earn-Out Obligations for such period),
in addition to any other Damages it may have incurred. If, on the other hand,
the Purchaser and/or a Group Member settles all the Xxxxxx Earn-Out Obligations
for the periods ending March 31, 2000 and March 31, 2001, by paying to the
Former Stockholders $5,000,000, and, at the time of such settlement, sufficient
revenues have not been generated to entitle the Former Stockholders to any earn-
out payment for the period ending March 31, 2000 (nor for the period ending
March 31, 2001, since the earn-out period will not have even commenced), the
entire $5,000,000 amount would be included as Damages, and the Purchaser would
be entitled to withdraw such Damages from the Earn-Out Escrow Account (upon
delivery to the Parent and Seller of a release executed by the Former
Stockholders with respect to the Earn-Out Obligations). Neither Parent nor
Seller shall be entitled to make any claim that (and hereby waive any claim
hereafter arising that), had Purchaser or any Group Member operated Xxxxxx'x
business differently, the Former Stockholders would have been entitled to a
larger earn-out payment.
(c) The Purchaser and the Seller agree that the Purchaser shall be
entitled to draw from the Earn-Out Escrow Account any and all amounts necessary
to satisfy the Parent's and Seller's obligation set forth in this Section 9.10.
The Purchaser and the Seller further agree that the Purchaser shall be entitled
to draw from the Earn-Out Escrow Account as hereinbefore provided whether or not
the underlying dispute and/or any resulting claim constitutes or gives rise to a
claim of a Purchaser Indemnified Party against the Parent and Seller pursuant to
the indemnification provisions set forth in any other section of this Agreement
and the Escrow Agreement relating hereto; the Purchaser shall have no obligation
to first seek recovery from the amounts held pursuant to the Escrow Agreement
but may draw upon the Earn-Out Escrow Account without regard to the Escrow
Agreement.
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(d) As part of the consideration for the Parent's and Seller's
indemnification obligations contained herein, the Purchaser hereby agrees that
any monetary judgment or monetary settlement in the cases of Xxxxxx x. Xxxxx, et
-------------------
al. and Xxxxxx x. Xxxxxxxx, et al. shall be assigned to the Seller. If the
-- -------------------------
Purchaser receives any money from the judgment and/or settlement of such cases,
the Purchaser shall immediately transfer such money to the Seller. From time to
time, the Purchaser and the Group Members shall be entitled to withdraw from the
Earn-Out Escrow Account an amount equal to the costs and expenses incurred by
the Purchaser or any Group Member in connection with such litigation.
(e) At such time as the Purchaser settles all disputes relating to
the Former Stockholders with respect to the -Earn-Out Obligations and settles
all disputes relating to the cases of Xxxxxx x. Xxxxx, et al., and Xxxxxx v.
----------------------- ---------
Stejbach, et al., and the Former Stockholders execute and deliver to the
----------------
Purchaser and the Parent a release of all claims relating to the Former
Stockholders and the Earn-Out Obligations, Purchaser will deliver a certificate
to the Parent to such effect (the date of such delivery being the "Earn-Out
Escrow Expiration Date"). After the Purchaser delivers such certificate to the
Parent, then any amounts remaining in the Earn-Out Escrow Account, after
satisfaction of any indemnity obligations under this section including
reimbursement of the costs and expenses relating to the cases of Xxxxxx v.
---------
Xxxxx. et al. and Xxxxxx v, Stejbach, et at., shall be distributed 75% to the
------------ --------------------------
Parent and 25% to the Purchaser.
(f) The parties agree to give instructions to the Escrow Agent to
give effect to the provisions of this Agreement."
29. Section 11.13 of the Original Agreement is hereby amended by adding at
the end thereof the following: "For the avoidance of doubt, the Parent and
Seller agree that all obligations of Parent herein are the joint and several
obligations of the Parent and Seller."
30. Schedule 1.02 of the Original Agreement is hereby amended and restated
as set forth in Exhibit A hereto.
31. Schedule 2.03 of the Original Agreement is hereby amended to add the
language set forth in Exhibit B hereto.
32. The words "[See Section 8.18]" of Schedule 2.10(b) of the Original
Agreement are hereby deleted and replaced with "[See Section 8.19]".
33. The words "Winthrop - telecom hardware lease $15,000 per month" of
Schedule 2.10(b) of the Original Agreement are hereby deleted.
34. Schedule 2.15 of the Original Agreement is hereby amended to add the
language set forth in Exhibit C hereto.
35. The Original Agreement is hereby amended to add Exhibit l.02A as set
forth in Exhibit D hereto.
36. The Original Agreement is hereby amended to add Exhibit 6.11 as set
forth in Exhibit E hereto.
37. The Original Agreement is hereby amended to add Exhibit 8.16 as set
forth in Exhibit F hereto.
38. Exhibit 1.02 of the Original Agreement is hereby replaced with Exhibit
G.
39. The Original Agreement is hereby amended to add Exhibit 8.18 as set
forth in Exhibit H.
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40. Schedule 2.04 of the Original Agreement is hereby amended to add
thereto the Financial Statements of the Companies as of and for the 3 month
period ended September 30, 1999, which statements are attached as Exhibit I.
41. The Original Agreement is hereby amended to add Schedule 2.04(H) as
set forth in Exhibit J.
42. Any reference in the Original Agreement to the term "Agreement" is
deemed to refer to both the Original Agreement as well as the Original
Agreement, as amended by this First Amendment.
43. Except as amended by this First Amendment, the Original Agreement
remains in full force and effect.
44. This First Amendment is made under, and shall be construed and
enforced in accordance with, the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed solely therein, without giving
effect to principles of conflicts of law.
45. This First Amendment may be executed in several counterparts, each of
which shall be deemed an original and all of which shall constitute one and the
same instrument.
IN Witness Whereof, the parties have caused this First Amendment to be
executed as of the date first written above.
NovaCare, Inc.
By: /s/ Xxxxxxx X. Xxxxx
-----------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Chief Executive Officer
NC Resources, Inc.
By: /s/ Xxxxxxx X. Xxx
-----------------------------------
Name: Xxxxxxx X. Xxx
Title: President
Select Medical Corporation
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Vice President
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