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Exhibit 2.A
FIRST AMENDMENT
TO
STOCK PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO THE STOCK PURCHASE AGREEMENT (this "FIRST
AMENDMENT") made and entered into as of November 19, 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 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 1.02A, which principal and accrued
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
1.02 hereto (the "Escrow Agreement"), (iii) the payment by wire transfer of
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 "▇▇▇▇▇▇ Escrow
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
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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. 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 ▇▇▇▇▇▇▇▇ 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 ▇▇▇▇ 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
Corporation shall have entered into the letter agreement transferring the
Microsoft licenses to the Purchaser in the form attached hereto as Exhibit
6.11."
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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 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:
"(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 ▇▇▇▇▇ ▇▇▇▇▇▇) 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.
(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:
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(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 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).
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(e) During the two year period following the Closing, the Purchaser
will cause the Group Members to follow substantially the same accounts
receivable collection practices as were used by the Group Members prior to
Closing."
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, 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
Purchaser shall enter into a transition services agreement ("Transition
Agreement") in the form of Exhibit 8.18."
14. Section 8.19(ii) 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:
"; 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
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
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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 Qui Tam Suit. The Parent and Seller shall be fully responsible
for defending, at their sole expense, and to pay any and all Damages relating to
United States of America, ex rel., ▇▇▇▇ ▇▇▇ v. Healthsouth, Inc., NovaCare,
Inc., Living Centers of America, Inc., Manor Care, Inc., Sun Healthcare Group,
Inc., and ▇▇▇▇ ▇▇▇ 1 through ▇▇▇▇ ▇▇▇ 100, No. 98CV-4185 (E.D. Pa. Aug. 10,
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 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 $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:
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"8.27 Section 338(h)(10) Election. At the election of the Purchaser,
the Purchaser and the Parent shall make an election pursuant to Section
338(h)(10) 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)-1(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
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
the ▇▇▇▇▇▇ 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
(other than under the Qui Tam Suit, which is addressed in subclause "(l)"
herein) which are not otherwise liabilities against which Group Members have
indemnified Purchaser, in whole or in part
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pursuant to Section 9.02, (l) 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
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
▇▇▇▇▇▇ 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 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 ▇▇▇▇▇▇ 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(l) or Section 9.10"
28. The Original Agreement is hereby amended to add Section 9.10, as
follows:
"9.10 Earn-Out Indemnification.
(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
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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 ▇▇▇▇▇▇ Sportsmedicine Institute,
Inc. ("▇▇▇▇▇▇") 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
"▇▇▇▇▇▇ Purchase Agreement"), dated March 1, 1998, by and among NovaCare
Outpatient Rehabilitation East, Inc., the Parent, ▇▇▇▇▇▇ 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 "▇▇▇▇▇▇ Earn-Out Obligations"), including any amount paid in
settlement of any such 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 ▇▇▇▇▇▇ Earn-Out Obligations, in excess
of any such amounts that would, under the terms of the ▇▇▇▇▇▇ Purchase Agreement
as in effect on the date hereof, be payable to the Former Shareholders in
respect of ▇▇▇▇▇▇ 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 ▇▇▇▇▇▇ Purchase Agreement as in effect on the date hereof in respect
of the ▇▇▇▇▇▇ 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 ▇▇▇▇▇▇ 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 ▇▇▇▇▇▇ 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 ▇▇▇▇▇▇
Purchase Agreement, as in effect on the date hereof, to the Former Stockholders
in respect of the ▇▇▇▇▇▇ 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 ▇▇▇▇▇▇ 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 ▇▇▇▇▇▇ 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,
10.
11
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 ▇▇▇▇▇▇'▇
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.
(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 ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, et
al. and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, 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 ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, et al., and ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, 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 ▇▇▇▇▇▇ ▇.
▇▇▇▇▇, et al. and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, et al., 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."
11.
12
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 1.02A 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.
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.
12.
13
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.
13.
14
IN WITNESS WHEREOF, the parties have each caused this FIRST AMENDMENT
to be executed as of the date first written above.
NOVACARE, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Executive Officer
NC RESOURCES, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇
------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇
Title: President
SELECT MEDICAL CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President
14.
15
Exhibit A
Schedule 1.02
Purchaser Price Allocation
NovaMark, Inc. $ 40 million
Rehab Clinics, Inc. $ 147 million
NovaCare Occupational Health Seniors, Inc. $ 6 million
Industrial Health Care Company, Inc. $ 6 million
CMC Center Corporation $ 1 million
------------------
$200 Million
15.
16
Exhibit B
Schedule 2.03
Capitalization
"NOVAMARK, INC
COMMON STOCK
Number Authorized: 3,000 Par Value $0.01
Number Issued: 100
Shareholders (Corporations) % of Issued
NC Resources, Inc. 100.0000%"
16.
▇▇
▇▇▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇ ▇.▇▇
▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ of America, ex rel. ▇▇▇▇ ▇▇▇ v. Healthsouth, Inc., NovaCare
Inc., Living Centers of America, Inc., Manor Care, Inc., Sun Healthcare Group,
Inc. et. al., No. 98CV-4185 (E.D. Pa August 10, 1998).
17.
18
Exhibit D
Exhibit 1.02A
▇▇▇▇▇▇ Escrow Agreement
18.
19
Exhibit E
Exhibit 6.11
Microsoft License Transfer Letter
19.
20
Exhibit F
Exhibit 8.16
The Purchaser NCES Agreement
20.
21
Exhibit G
Exhibit 1.02
Escrow Agreement
21.
22
Exhibit H
Exhibit 8.18
Transition Services Agreement
22.
23
Exhibit I
Financial Statements
for 3 month period
ended September 30, 1999
23.
24
Exhibit J
Schedule 2.04(H)
October Revenue Report
24.