Exhibit 2.1
EXECUTION COPY
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
HEALTHSOUTH CORPORATION
AND
SELECT MEDICAL CORPORATION
------------------------
DATED AS OF JANUARY 27, 2007
------------------------
TABLE OF CONTENTS
PAGE
ARTICLE I PURCHASE AND SALE........................................1
1.1 Purchase and Sale of the Shares..............................1
1.2 Consideration................................................2
1.3 Closing......................................................2
1.4 Deliveries by Seller.........................................2
1.5 Deliveries by Buyer..........................................2
1.6 Related Calculations.........................................3
ARTICLE II RELATED MATTERS..........................................6
2.1 Ancillary Agreement..........................................6
2.2 Intercompany Agreements; Certain Other Intercompany
Matters....................................................6
2.3 Resignations.................................................7
2.4 Restructuring Transactions...................................7
2.5 Guaranties...................................................9
2.6 Payment of Division Indebtedness.............................9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER.................9
3.1 Organization of Seller; Authority............................9
3.2 Title to Shares.............................................10
3.3 Organization and Qualification..............................10
3.4 Capitalization of the Company...............................10
3.5 Capitalization of the Division Entities.....................11
3.6 No Violation; Consents and Approvals........................11
3.7 Financial Statements; Undisclosed Liabilities...............12
3.8 Absence of Certain Changes or Events........................13
3.9 Real Property...............................................14
3.10 Intellectual Property.......................................14
3.11 Litigation..................................................15
3.12 Employee Benefit Plans......................................15
3.13 Taxes.......................................................16
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TABLE OF CONTENTS
(continued)
PAGE
3.14 Material Contracts and Commitments..........................17
3.15 Compliance with Laws; Permits...............................18
3.16 Labor Matters...............................................19
3.17 Environmental...............................................19
3.18 Health Care Regulatory Matters..............................20
3.19 Assets of the Division......................................22
3.20 Brokers.....................................................22
3.21 NO OTHER REPRESENTATIONS....................................23
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER.................23
4.1 Organization; Authority.....................................23
4.2 No Violation; Consents and Approvals........................23
4.3 Litigation..................................................24
4.4 Financing...................................................24
4.5 Acquisition of the Shares for Investment; Securities Act....24
4.6 Vote/Approval Required......................................24
4.7 Solvency....................................................24
4.8 Investigation by Buyer......................................25
4.9 Brokers.....................................................25
ARTICLE V COVENANTS OF THE PARTIES................................25
5.1 Conduct of the Division.....................................25
5.2 Access to Information Prior to the Closing;
Confidentiality; Cooperation..............................27
5.3 Commercially Reasonable Efforts.............................28
5.4 Consents....................................................28
5.5 Antitrust Notification......................................29
5.6 Public Announcements........................................29
5.7 Supplemental Disclosure.....................................30
5.8 Certain Licenses and Permits................................30
5.9 Records; Cooperation........................................30
5.10 Preparation of Financial Statements.........................32
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TABLE OF CONTENTS
(continued)
PAGE
5.11 Covenant Not to Compete.....................................33
ARTICLE VI ADDITIONAL AGREEMENTS...................................35
6.1 Tax Matters.................................................35
6.2 Division Employees; Employee Contracts and Benefits.........43
6.3 Workers' Compensation.......................................46
6.4 Use of Seller's Name and Logo...............................46
6.5 Software....................................................46
6.6 Enterprise Systems..........................................47
ARTICLE VII CONDITIONS TO OBLIGATIONS OF EACH OF SELLER AND BUYER...47
7.1 Mutual Conditions...........................................47
ARTICLE VIII CONDITIONS TO OBLIGATIONS OF SELLER.....................48
8.1 Conditions..................................................48
ARTICLE IX CONDITIONS TO OBLIGATIONS OF BUYER......................48
9.1 Conditions..................................................48
ARTICLE X TERMINATION, AMENDMENT AND WAIVER.......................49
10.1 Termination.................................................50
10.2 Procedure and Effect of Termination.........................51
10.3 Amendment and Modification..................................51
ARTICLE XI SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION............52
11.1 Survival of Representations.................................52
11.2 Seller's Agreement to Indemnify.............................52
11.3 Seller's Limitation of Liability............................52
11.4 Buyer's Agreement to Indemnify..............................53
11.5 Buyer's Limitation of Liability.............................54
11.6 Conditions of Indemnification With Respect to
Third-Party Claims........................................54
11.7 Other Claims................................................55
11.8 Sole Remedy.................................................56
ARTICLE XII MISCELLANEOUS...........................................57
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TABLE OF CONTENTS
(continued)
PAGE
12.1 Fees and Expenses...........................................57
12.2 Further Assurances..........................................58
12.3 Notices.....................................................58
12.4 Entire Agreement............................................59
12.5 Severability................................................59
12.6 Binding Effect; Assignment..................................59
12.7 No Third-Party Beneficiaries................................59
12.8 Counterparts................................................59
12.9 Interpretation..............................................59
12.10 Forum; Service of Process...................................60
12.11 Governing Law...............................................60
12.12 Specific Performance........................................60
12.13 Waivers.....................................................60
12.14 Defined Terms...............................................60
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INDEX OF DEFINED TERMS
Page
2005 Pro Forma Financial Information...............13
2005 Segment Information...........................13
90% Lease Condition................................61
90% Payor Contract Condition.......................62
Accounting Arbiter..................................5
Accounting Principles...............................3
Actual Closing Cash Balance.........................3
Actual Net Working Capital..........................4
Adjusted Grossed Up Basis..........................37
Affiliate..........................................62
Affiliated Group...................................17
Aggregate Deemed Sales Price.......................37
Agreement...........................................1
Allocation.........................................43
Allocation Dispute Notice..........................43
Ancillary Agreements................................8
Anti-Kickback Law..................................20
Applicable Buyer Plan..............................45
Audited Financial Statements.......................13
Basket.............................................54
Benefit Plans......................................63
Business............................................1
Business Day.......................................63
Buyer...............................................1
Buyer Claims.......................................53
Buyer Indemnified Parties..........................53
Buyer Representatives..............................28
Capitalized Lease Indebtedness.....................63
Cash...............................................63
Cash Adjustment Amount..............................4
Cash Due to Minority Interest Holders..............63
CIA................................................21
Closing.............................................1
Closing Cash Balance................................3
Closing Date........................................2
Code...............................................64
Company.............................................1
Conclusive Statement................................5
Confidentiality Agreement..........................29
Consent............................................12
Consented Leases...................................64
Consented Third Party Payor Contracts..............64
Consolidated Income Tax Return.....................41
Contract...........................................65
Courts.............................................61
Damages............................................53
Deficiency Amount...................................4
Disclosure Letter...................................6
Disregarded Entities...............................38
Distributions......................................65
Division............................................1
Division Entities...................................1
Division Offerees..................................44
DOJ................................................29
DRE Sales..........................................38
Earn-Out Indebtedness..............................65
EBITDA.............................................65
Effective Time......................................2
Election...........................................36
Enterprise Systems.................................48
Environmental Law..................................66
ERISA..............................................66
ERISA Affiliate....................................66
Estimated Closing Cash Balance......................3
Estimated Net Working Capital.......................3
Estimated Net Working Capital Adjustment............2
Excess Amount.......................................4
Excess Restructuring Costs..........................8
Exchange Act.......................................12
Excluded Assets.....................................7
Excluded Representations...........................53
Facilities.........................................66
Federal Health Care Programs.......................20
Filing.............................................12
Final Allocation...................................44
Form 8023..........................................36
FTC................................................29
GAAP...............................................67
Going Clinics.......................................7
Good Faith Statement................................3
Governmental Entity................................12
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Guaranties..........................................9
Hazardous Substances...............................67
Health Care Related Liabilities....................67
HIPAA..............................................20
HSR Act............................................12
Indebtedness.......................................67
Independent Accounting Firm........................37
Initial Purchase Price..............................2
Intellectual Property Rights.......................15
Intercompany Agreements.............................6
Interest Rate......................................68
Interim Pro Forma Income Statements................13
Interim Segment Information........................14
IT Systems.........................................15
Knowledge of Seller................................68
Law................................................68
Leased Real Property...............................14
Liens...............................................2
Litigation.........................................15
Material Adverse Effect............................69
Material Contracts.................................18
Minority Interest Holders..........................69
Net Working Capital.................................3
Net Working Capital Adjustment Amount...............4
Non Required Consent Third Party Payor Contract....70
Notice of Disagreement..............................4
Pension Plan.......................................70
Permits............................................19
Permitted Liens....................................70
Person.............................................70
Post-Closing Taxes.................................40
Pre-Closing Taxes..................................39
Pre-Closing Transactions...........................32
Purchase Price......................................6
Real Property......................................14
Records............................................31
Release............................................71
Replacement Lease...................................9
Required Consent Lease.............................71
Required Consent Third Party Payor Contract........71
Restricted Territory...............................71
Restructuring Agreements............................8
Restructuring Transactions..........................8
Retained Liabilities...........................46, 71
Retained Litigation................................32
SEC................................................33
Seller..............................................1
Seller Claims......................................54
Seller Indemnified Parties.........................54
Seller Outpatient Employee.........................35
Seller Returns.....................................38
Seller's Knowledge.................................68
Seller's Trademarks and Logos......................47
September 30 Form 10-Q.............................13
Severance Policy...................................45
Shares..............................................1
Xxxxx Law..........................................20
Statement...........................................3
Staying Clinics.....................................8
Straddle Period Returns............................38
Straddle Statement.................................38
Subsidiary.........................................72
Subsidiary Shares..................................10
Target Net Working Capital.........................72
Tax................................................18
Tax Benefit........................................57
Tax Indemnified Party..............................42
Tax Indemnifying Party.............................42
Tax Return.........................................18
Tax Third-Party Claim..............................42
Termination Date...................................51
Third-Party Claims.................................55
Transfer Taxes.....................................43
Transferred Employees..............................44
Transition Agreement................................6
Transition Date....................................33
Unadjusted Purchase Price...........................2
Unrelated Liabilities..............................73
Welfare Plan.......................................74
Wind-down Period...................................47
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STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT, dated as of January 27, 2007 (the
"Agreement"), by and between HealthSouth Corporation, a Delaware corporation
("Seller"), and Select Medical Corporation, a Delaware corporation ("Buyer").
RECITALS
--------
WHEREAS, Seller is engaged, directly and through the Division
Entities (as hereinafter defined), in the business of operating and managing
outpatient rehabilitation facilities offering a range of rehabilitative health
care services, including physical therapy and occupation therapy, with a
particular focus on orthopedic, sports-related, hand and spine injuries and
various neurological/neuromuscular conditions (the "Business");
WHEREAS, the Business is operated by Seller through the entities
listed on Schedule I attached hereto (collectively, the "Division Entities");
WHEREAS, prior to Closing (as hereinafter defined), all of Seller's
equity interests in the Division Entities shall be held, directly or
indirectly, by HealthSouth Holdings, Inc., a Delaware corporation (the
"Company" and, collectively with the Division Entities, the "Division");
WHEREAS, Seller is the record and beneficial owner of all of the
issued and outstanding shares of common stock, par value $0.01 per share (the
"Shares"), of the Company;
WHEREAS, Buyer desires to purchase and acquire from Seller, and
Seller desires to sell and transfer to Buyer, all of Seller's right, title and
interest in and to the Division by way of a purchase by Buyer and sale by
Seller of the Shares, upon the terms and subject to the conditions hereinafter
set forth; and
WHEREAS, the respective Board of Directors of each of Seller and
Buyer has approved this Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the foregoing and of the
representations, warranties, covenants, agreements and conditions contained
herein, and intending to be legally bound hereby, the parties hereto agree as
follows:
TERMS
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ARTICLE I
PURCHASE AND SALE
-----------------
1.1 Purchase and Sale of the Shares. Upon the terms and subject to
the conditions of this Agreement, at the closing provided for in Section 1.3
hereof (the "Closing"), Seller shall sell, convey, assign, transfer and
deliver to Buyer, and Buyer shall purchase, acquire and accept from Seller,
all of Seller's right, title and interest in and to the Shares, free and clear
of all liens, encumbrances, security interests, mortgages, pledges, claims and
options (collectively, "Liens").
1.2 Consideration. Upon the terms and subject to the conditions of
this Agreement, in consideration of the aforesaid sale, conveyance,
assignment, transfer and delivery of the Shares at the Closing, Buyer shall
pay to Seller an amount in cash, equal to (i) Two Hundred Forty Five Million
Dollars ($245,000,000) (the "Unadjusted Purchase Price"), plus (ii) an amount
equal to the Estimated Closing Cash Balance (as hereinafter defined), minus
(iii) an amount equal to Capitalized Lease Indebtedness as of the Effective
Time, minus (iv) an amount equal to Earn-Out Indebtedness as of the Effective
Time, plus (v) the amount, if any, by which the Estimated Net Working Capital
exceeds the Target Net Working Capital, minus (vi) the amount, if any, by
which the Estimated Net Working Capital is less than the Target Net Working
Capital (such amount, the "Initial Purchase Price"). Any increase or decrease
to the Unadjusted Purchase Price pursuant to clauses (v) or (vi) of this
Section 1.2 shall be referred to herein as the "Estimated Net Working Capital
Adjustment."
1.3 Closing. Subject to Article X hereof, the Closing of the
transactions contemplated by this Agreement shall take place at the offices of
Bradley, Arant, Rose & White LLP, 0000 Xxxxx Xxxxxx Xxxxx, Xxxxxxxxxx, Xxxxxxx
00000, at 10:00 a.m., local time, on the first Business Day of the month
immediately following the month in which the condition set forth in Section
7.1(c) is satisfied, but no sooner than March 1, 2007; provided that all other
conditions set forth in Article VII, Article VIII and Article IX hereof are
satisfied or capable of being satisfied at the Closing, or at such other
place, date and time as shall be agreed upon in writing by the parties hereto
(the date that the Closing actually occurs shall be referred to herein as the
"Closing Date"). Notwithstanding the foregoing, the parties hereto intend that
such Closing shall be deemed to be effective, and the transactions
contemplated by this Agreement shall be deemed to occur simultaneously, at
11:59 p.m., Central Time, on the last day of the month immediately prior to
the Closing Date (the "Effective Time").
1.4 Deliveries by Seller. Prior to or at the Closing, Seller shall
deliver or cause to be delivered to Buyer the following:
(a) stock certificate(s) representing the Shares, duly endorsed
or accompanied by stock powers duly executed in blank;
(b) each of the Ancillary Agreements, duly executed by Seller;
(c) the resignations referred to in Section 2.3 hereof; and
(d) the officer's certificate referred to in Section 9.1(c)
hereof.
1.5 Deliveries by Buyer. Prior to or at the Closing, Buyer shall
deliver or cause to be delivered to Seller the following:
(a) cash in an amount equal to the Initial Purchase Price by wire
transfer of immediately available funds to a bank account designated in
writing by Seller at least two (2) Business Days prior to the Closing Date;
(b) each of the Ancillary Agreements, duly executed by Buyer; and
(c) the officer's certificate referred to in Section 8.1(c)
hereof.
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1.6 Related Calculations.
(a) Cash Balance and Net Working Capital Calculations.
(i) Seller shall, at least five (5) Business Days prior to
the Closing Date, cause to be prepared and delivered to Buyer a
statement (the "Good Faith Statement") setting forth a good faith
estimate of the Closing Cash Balance (as hereinafter defined) of the
Division as of the Effective Time (the "Estimated Closing Cash Balance")
and the Net Working Capital (as hereinafter defined) of the Division as
of the Effective Time (the "Estimated Net Working Capital") and the
respective components and calculations of each thereof. Buyer and its
representatives shall have an opportunity to review and comment upon the
Good Faith Statement, which shall be subject to Buyer's reasonable
approval. As used herein, "Closing Cash Balance" shall mean an amount
equal to (A) Cash less (B) Cash Due to Minority Interest Holders as of
the Effective Time (it being understood that Seller shall be responsible
for any checks that are outstanding as of the Effective Time that relate
to the Company or the Division Entities). As used herein, "Net Working
Capital" shall mean (i) the sum of (A) accounts receivable, net of
reserves for doubtful accounts (but excluding any intercompany accounts
receivable) and (B) other current assets, less (ii) the sum of (A) trade
accounts payable (but excluding any intercompany accounts payable and
unapplied cash), (B) refunds due to patients and third-party payors,
principally as reflected in account 2512 (which as of September 30, 2006
reflected an accrued liability of $1.5 million), (C) accrued liabilities
(but excluding any intercompany accrued liabilities and excluding the
current portion of long-term Indebtedness) and (D) other current
liabilities, and shall be calculated in accordance with the Accounting
Principles. The "Accounting Principles" shall mean GAAP utilizing the
methodologies, accounting principles and practices used in the
preparation of the Audited Financial Statements (as hereinafter
defined), and as adjusted to derive the 2005 Pro Forma Financial
Information, consistent with the reconciliation thereof set forth in
Section 3.7(d) of the Disclosure Letter. Net Working Capital shall be
prepared in a manner consistent with the example thereof set forth in
Schedule II hereto, which Schedule II is derived from the September 30,
2006 pro forma balance sheet of the Division attached as Schedule III
hereto.
(ii) Between eight-five (85) and ninety (90) days after the
Closing Date, Seller shall cause to be prepared and delivered to Buyer a
statement (the "Statement") setting forth the Closing Cash Balance of
the Division as of the Effective Time (the "Actual Closing Cash
Balance") and the Net Working Capital of the Division as of the
Effective Time (the "Actual Net Working Capital") and the components and
calculations of each thereof. The Statement shall also set forth (i) the
difference, if any, determined by subtracting the Estimated Closing Cash
Balance from the Actual Closing Cash Balance (any such difference, the
"Cash Adjustment Amount"), it being understood that the Cash Adjustment
Amount may be either a positive or negative number and (ii) the
difference, if any, determined by subtracting the Estimated Net Working
Capital from the Actual Net Working Capital (such difference, the "Net
Working Capital Adjustment Amount"), it being understood that the Net
Working Capital Adjustment Amount may be either a positive or negative
number. Subject to Sections 1.6(a)(iii)-(v), (i) Buyer shall pay to
Seller the amount of any positive Cash Adjustment Amount and any
positive Net
3
Working Capital Amount and (ii) Seller shall pay to Buyer the amount of
any negative Cash Adjustment Amount and any negative Net Working Capital
Adjustment Amount, in each case, as finally determined pursuant to this
Section 1.6(a). To the extent that netting the payments referenced in
the preceding sentence results in a net payment by Buyer to Seller, the
amount of such net payment shall be referred to herein as the "Excess
Amount" and, to the extent that netting the payments referenced in the
preceding sentence results in a net payment by Seller to Buyer, the
amount of such net payment shall be referred to herein as the
"Deficiency Amount." Contemporaneously with its delivery to Buyer of the
Statement, Seller shall also deliver to Buyer a copy of the work papers
prepared in connection with the Statement's preparation. The Statement
shall be prepared in accordance with the Accounting Principles. Buyer
shall provide Seller and its representatives reasonable access, during
normal business hours of Buyer, to all personnel, books and records of
the Division as reasonably requested by Seller to assist it in its
preparation of the Statement.
(iii) After receipt of the Statement, Buyer shall have
forty-five (45) days to review the Statement together with the work
papers used in its preparation. During the course of the preparation of
the Statement and following the delivery of the Statement, Seller shall
provide Buyer and its representatives reasonable access, during normal
business hours of Seller, to all personnel, books and records of Seller
as reasonably requested by Buyer to assist it in its review of the
Statement and its preparation. The Statement shall become final and
binding upon the parties on the forty-fifth day following receipt
thereof by Buyer unless Buyer gives written notice of its disagreement
(a "Notice of Disagreement") to Seller prior to such date. Any Notice of
Disagreement shall (A) specify in reasonable detail the nature and
amount of any disagreement so asserted, and (B) include Buyer's
calculation of the Closing Cash Balance and/or Net Working Capital
(whichever is being disputed) of the Division as of the Effective Time.
If Buyer has given Seller a Notice of Disagreement prior to the
forty-fifth day following receipt by Buyer of the Statement, then the
Statement shall become final and binding upon the parties on the date
the parties hereto resolve in writing any differences they have with
respect to any matter properly included in the Notice of Disagreement,
in accordance with this Section 1.6(a). During the twenty (20) Business
Days immediately following the receipt by Seller of a Notice of
Disagreement, the respective Chief Financial Officers of Seller and
Buyer or their designees shall negotiate in good faith to resolve any
disputed items timely included in a Notice of Disagreement. During such
period, Buyer shall have full access to the working papers of Seller
prepared in connection with Seller's preparation of the Statement, and
Seller shall have full access to the working papers of Buyer prepared in
connection with Buyer's preparation of the Notice of Disagreement. Any
resolution of disputed items included in the Notice of Disagreement that
is agreed upon in writing by Buyer and Seller shall be final, binding
and conclusive as to Seller, Buyer and their respective Affiliates. At
the end of such twenty (20) Business Day period, at the request of
Seller or Buyer, any and all matters which remain in dispute, and which
were properly included in the Notice of Disagreement, shall be submitted
to a mutually acceptable, nationally recognized independent accounting
firm or other professional service organization that provides financial
dispute resolution services (the "Accounting Arbiter") selected by
Seller and Buyer, with no material relationship to Seller or Buyer or
any of their respective
4
Affiliates, for a binding resolution of such disputed items. If Buyer
and Seller are not able to agree upon an Accounting Arbiter, the
appointment of an Accounting Arbiter will be finally selected by mutual
agreement of an independent accounting firm selected by Seller and an
independent accounting firm selected by Buyer; provided that, neither of
the independent accounting firms selected by Buyer or Seller shall serve
as the Accounting Arbiter. The fees and expenses of the Accounting
Arbiter shall be paid one-half by Seller and one-half by Buyer.
(iv) The Accounting Arbiter shall determine and report in
writing to Seller and Buyer as to its determination of all disputed
matters submitted to the Accounting Arbiter and the effect of such
determinations on the Statement within twenty (20) Business Days after
such submission, and such determinations shall be final, binding and
conclusive as to Seller, Buyer and their respective Affiliates. In
resolving any disputed item, the Accounting Arbiter, acting in its
capacity as an expert and not as an arbitrator: (A) shall limit its
review to matters specifically set forth in such Notice of Disagreement
delivered pursuant to Section 1.6(a)(iii) as a disputed item (other than
those items thereafter resolved by mutual written agreement of Seller
and Buyer), (B) shall further limit its review to whether the
calculation of any such disputed item is mathematically accurate and
whether the calculation of the Closing Cash Balance and/or Net Working
Capital was made in accordance with the Accounting Principles and the
terms of this Agreement, and (C) shall not assign a value to any item
greater than the greatest value for such item claimed by any party or
less than the smallest value for such item claimed by any other party in
the Statement or the Notice of Disagreement delivered pursuant to
Section 1.6(a)(iii). Each of Seller and Buyer shall have the right,
within five (5) Business Days of submission of any disputed item to the
Accounting Arbiter, to meet with representatives of the Accounting
Arbiter and present its position as to the resolution of such disputed
item. In addition, Seller and Buyer shall each furnish to the Accounting
Arbiter such work papers and other documents and information relating to
the disputed items, as the Accounting Arbiter may reasonably request.
(v) At such time as the Statement becomes final, binding and
conclusive upon Seller, Buyer and their respective Affiliates in
accordance with this Section 1.6(a), the Statement shall become the
"Conclusive Statement." If the Conclusive Statement contains a
Deficiency Amount, then Seller shall pay to Buyer an amount in cash
equal to such Deficiency Amount. If the Conclusive Statement contains an
Excess Amount, then Buyer shall pay to Seller an amount in cash equal to
such Excess Amount. Any payment to be made pursuant to this Section 1.6
shall be made on the third Business Day following the date on which the
Statement becomes the Conclusive Statement pursuant to this Section
1.6(a). Any payment to be made pursuant to this Section 1.6(a) shall be
made on the third Business Day following the date on which the Statement
becomes the Conclusive Statement pursuant to this Section 1.6(a). Any
payment required to be made by Seller or Buyer pursuant to this Section
1.6(a) shall bear interest from the Closing Date through the date of
payment at the Interest Rate and shall be payable by wire transfer of
immediately available funds to an account or accounts designated by the
party entitled to receive such funds prior to the date when such payment
is due.
5
(b) The Initial Purchase Price, as increased by any Excess Amount
or decreased by any Deficiency Amount, as the case may be, shall be referred
to herein as the "Purchase Price."
ARTICLE II
RELATED MATTERS
---------------
2.1 Ancillary Agreement. Prior to or at the Closing, Seller and Buyer
shall enter into the Transition Services Agreement between Seller and Buyer,
substantially in the form set forth in Exhibit A attached hereto, pursuant to
which Seller shall provide, or cause to be provided, to the Division certain
transition services, as set forth therein, for the time periods set forth
therein, in accordance with the terms thereof (the "Transition Agreement").
2.2 Intercompany Agreements; Certain Other Intercompany Matters.
(a) Section 2.2(a)(i) of the disclosure letter delivered by
Seller to Buyer simultaneously herewith (the "Disclosure Letter") lists all
intercompany agreements between Seller or any of its Affiliates (other than
the Company or any Division Entity), on the one hand, and the Company or any
Division Entity, on the other hand (the "Intercompany Agreements"). Except as
set forth in Section 2.2(a)(ii) of the Disclosure Letter and except for those
Intercompany Agreements to be assigned by Seller to the Company pursuant to
Section 2.4(a) hereof, as of the Closing, Seller, the Company and the Division
Entities shall cause all Intercompany Agreements to be terminated in all
respects (pursuant to documentation reasonably acceptable to Buyer) such that
there is no cost or liability (including any Tax liability) thereunder from
and after the Closing on the part of the Company or any Division Entity.
(b) As of the Closing, all intercompany accounts receivable and
accounts payable between the Company or any Division Entity, on the one hand,
and Seller or any of its Affiliates (other than the Company or any Division
Entity), on the other hand, shall be cancelled and terminated in all respects
(pursuant to documentation reasonably acceptable to Buyer) such that there is
no cost or liability (including any Tax liability) thereunder from and after
the Closing on the part of the Company or any Division Entity.
(c) Except as provided in the Transition Agreement, at or prior
to the Closing, all information technology, accounting, insurance, banking,
human resources, legal, tax, communications and other products or services (i)
provided to the Company or any Division Entity (A) by Seller or any of its
Affiliates (other than the Company or any Division Entity) or (B) pursuant to
agreements, licenses or arrangements between Seller or its Affiliates (other
than the Company or a Division Entity), on the one hand, and third parties, on
the other hand, under which goods or services are provided to the Company or
any Division Entity, or (ii) provided by either the Company or any Division
Entity to Seller or any of its Affiliates (other than the Company or any
Division Entity), including any agreements or understandings (written or oral)
with respect thereto, will terminate. Except as otherwise specifically
provided in the Transition Agreement, on and after the Closing Date, Buyer
shall be solely responsible for the operation of the Division. Section 2.2(c)
of the Disclosure Letter sets forth all (x) Contracts between Seller or its
Affiliates (other than the Company or a Division Entity), on the one hand, and
third parties, on the other hand, pursuant to which the Company or any
Division Entity is entitled to receive
6
payments or other benefits, which will not be transferred to the Company or a
Division Entity and, following the Effective Time, the Company or such
Division Entity will no longer be entitled to such payments or benefits
provided thereunder and (y) other assets, properties and rights of the
Division that will be retained by Seller and will not be available for use by
the Division following the Effective Time.
2.3 Resignations. At the Closing, Seller shall cause to be delivered
to Buyer and the Company duly signed resignations from the members of the
board of directors, board of managers or similar governing bodies, effective
as of the Closing, of each Division Entity, unless otherwise requested by
Buyer, and shall take such other action as is necessary to accomplish the
foregoing.
2.4 Restructuring Transactions.
(a) Prior to the Closing, Seller shall, and shall cause its
Subsidiaries to, consummate the transactions listed in Section 2.4(a) of the
Disclosure Letter in order to transfer and convey to the Company or the
Division Entities all of Seller's right, title and interest in and to (i) the
equity interests in the Division Entities held by Seller or any of its
Subsidiaries (other than the Company or a Division Entity) and (ii) such other
properties, assets and Contracts primarily used in the conduct of the Business
as are set forth on Section 2.4(a) of the Disclosure Letter. Section 2.4(a) of
the Disclosure Letter shall also set forth a list of each of the current
operating outpatient rehabilitation clinics that will be owned by the Company
or the Division Entities immediately after the Closing (the "Going Clinics"),
and shall include a listing of the legal entity that owns each such Going
Clinic.
(b) Prior to the Closing, Seller shall, and shall cause its
Subsidiaries to, consummate the transactions listed in Section 2.4(b) of the
Disclosure Letter in order to transfer or convey to Seller or a Subsidiary of
Seller (other than the Company or a Division Entity) all of their right, title
and interest in and to (i) the equity interests in all Subsidiaries of or
other entities owned by the Company and the Division Entities that are not
engaged in the conduct of the Business and (ii) such other properties, assets
and Contracts that are not primarily used in the conduct of Business and which
are set forth in Section 2.4(b) of the Disclosure Letter (collectively, the
"Excluded Assets"). Section 2.4(b) of the Disclosure Letter shall also set
forth a list of each of the outpatient rehabilitation clinics owned or
controlled by Seller or its Subsidiaries at any time since September 30, 2005
that will not be owned by the Company or the Division immediately after the
Closing. Such outpatient rehabilitation clinics and any other clinic presently
or formerly owned or operated by Seller or its Subsidiaries (other than the
Going Clinics) shall be referred to as the "Staying Clinics." Buyer and Seller
agree that any liabilities or obligations of the Company or any Division
Entity that relate to the Excluded Assets or the Staying Clinics will also be
transferred to or assumed by Seller or a Subsidiary of Seller (other than the
Company or its Subsidiaries) prior to the Effective Time, and that the Company
and the Division Entities shall be released from any obligation relating to
such liabilities as of the Effective Time and indemnified by Seller from and
against such liabilities. The transactions listed in Sections 2.4(a) and
2.4(b) of the Disclosure Letter shall be collectively referred to herein as
the "Restructuring Transactions," and the agreements to effectuate the
Restructuring Transactions shall be referred to herein as the "Restructuring
Agreements." Together, the Transition Agreement and the Restructuring
Agreements are referred to herein as the "Ancillary
7
Agreements." Seller will consult with and take into account Buyer's reasonable
suggestions regarding the manner to effectuate the Restructuring Transactions;
provided, however, that Seller shall be free to structure the Restructuring
Transactions in such manner as it determines, in its sole discretion, as to
maximize tax efficiencies to Seller without Buyer's prior consent so long as
such structure does not adversely affect the parties' ability to effect either
the Election or the DRE Sales (each as hereinafter defined); provided,
further, that if Buyer shall propose changes to the Restructuring
Transactions, then (i) Seller shall effect the Restructuring Transactions in
accordance with Buyer's proposal to the extent commercially practicable and
(ii) Buyer shall reimburse and indemnify Seller from and against any and all
incremental Taxes, on a grossed up basis, and out-of-pocket expenses incurred
by Seller in effectuating the Restructuring Transactions in accordance with
Buyer's proposal to the extent such Taxes and out-of-pocket expenses exceed
the amount thereof that would have been incurred by Seller had Seller
effectuated the Restructuring Transactions in the manner proposed by Seller
(the "Excess Restructuring Costs").
(c) To the extent any property, asset or Contract that is
required to be transferred or conveyed pursuant to the Restructuring
Transactions or the transactions contemplated by this Agreement is not
assignable or transferable without the consent of any Person other than
Seller, Buyer or any of their respective Affiliates, and such consent shall
not have been given prior to the Closing, Seller shall have the continuing
obligation after the Closing to use its commercially reasonable efforts to
endeavor to obtain any such consent. After the Closing, Seller and Buyer shall
cooperate with each other in any reasonable arrangement that is designed to
(i) relieve Seller of the obligations of any such property, assets and
Contracts that are required to be transferred or conveyed to the Company or
the Division Entities pursuant to the Restructuring Transactions or the
transactions contemplated by this Agreement and provide Buyer the benefits
thereunder and (ii) relieve Buyer of the obligations of any such property,
assets and Contracts that are required to be transferred or conveyed to Seller
or a Subsidiary of Seller (other than the Company or the Division Entities)
pursuant to the Restructuring Transactions or the transactions contemplated by
this Agreement and provide Seller the benefits thereunder. Without limiting
the generality of the preceding sentence, with respect to Required Consent
Leases that are not Consented Leases as of the Closing, Seller shall be
entitled, in its reasonable discretion, to (i) enter into one or more
management agreements with the Company, in form and substance reasonably
acceptable to Buyer, with respect to the Facilities covered by each such
Required Consent Lease whereby Seller will maintain the Required Consent Lease
and operate such Facility for the benefit of Buyer, or (ii) cooperate with
Buyer in relocating the Facility to a location, and on lease terms, reasonably
acceptable to Buyer (each, a "Replacement Lease"), with Seller reimbursing and
indemnifying Buyer from and against all reasonable out-of-pocket expenses
incurred by Buyer in connection with such relocation, including, without
limitation, reasonable (x) moving expenses, (y) tenant improvements and (z)
any incremental rent expense required under such Replacement Lease above the
amount that would have been required to be paid by Buyer under the terms of
the Required Consent Lease; provided, however, that Seller's obligation to
reimburse and indemnify under clause (z) above shall be limited to amounts
incurred with respect to the period commencing on the Closing Date and ending
on the earliest date that the Required Consent Lease could be terminated by
the lessor (or, if earlier, the date such Required Consent Lease would have
expired) in accordance with its terms had the relocation not occurred.
8
2.5 Guaranties. Buyer shall use its commercially reasonable efforts
to cause itself or one of its Affiliates to be substituted in all respects for
Seller, effective as of the Closing, in respect of all obligations of Seller
under each of the guaranties of leases of real property which are set forth in
Section 2.5 of the Disclosure Letter for the benefit of the Division or any of
the Division Entities or any extensions or modifications thereto in accordance
with this Agreement (collectively, the "Guaranties"), and to use its
commercially reasonable efforts to cause each other party to such Guaranty to
release Seller and its Affiliates (other than the Company and any Division
Entity) from any and all obligations and liabilities under such Guaranty. To
the extent that it is commercially impracticable with respect to any given
Guaranty for Buyer to effect such substitution and release, Buyer shall
indemnify and hold harmless the Seller Indemnified Parties (as hereinafter
defined) from and against all Damages (as hereinafter defined) asserted
against, resulting to, imposed upon or incurred by the Seller Indemnified
Parties by reason of or arising from any liability or obligation resulting
from any such Guaranty in accordance with Section 11.4(e) hereof. Buyer shall
take all actions that are necessary to comply with this Section 2.5 as
promptly as practicable after the date hereof and shall keep Seller reasonably
informed of any developments associated therewith. Seller agrees to reasonably
cooperate with Buyer in connection with the fulfillment of Buyer's obligations
under this Section 2.5.
2.6 Payment of Division Indebtedness. At or prior to the Closing,
Seller shall repay or assume, or cause to be repaid or assumed, on behalf of
the Company and the Division Entities, all outstanding Indebtedness (together
with accrued interest thereon) of the Company and the Division Entities as of
the Closing Date (other than Capitalized Lease Indebtedness and Earn-Out
Indebtedness), and shall take all actions as may be required to release the
Company and the Division Entities from any and all obligations and liabilities
under such Indebtedness (other than Capitalized Lease Indebtedness and
Earn-Out Indebtedness) and any Lien or guaranty in respect of any such
Indebtedness (other than Capitalized Lease Indebtedness and Earn-Out
Indebtedness) or any Indebtedness of Seller or its Subsidiaries (other than
Capitalized Lease Indebtedness and Earn-Out Indebtedness) pursuant to releases
in form and substance reasonably acceptable to Buyer.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Except as set forth in the Disclosure Letter (as updated pursuant to
Section 5.7 hereof) (with specific reference to the particular Section or
subsection of this Agreement to which the information set forth in such
Disclosure Letter relates; provided, that any information set forth in one
section of the Disclosure Letter shall be deemed to apply to each other
Section or subsection thereof or hereof to which its relevance is readily
apparent on its face), Seller represents and warrants to Buyer as follows:
3.1 Organization of Seller; Authority. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware, and has all requisite corporate power and corporate authority to
enter into this Agreement and the Ancillary Agreements, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by
Seller and its Affiliates of this Agreement and each of the Ancillary
Agreements to which it is a party, and the consummation of the transactions
contemplated hereby and thereby, have been
9
duly authorized by all necessary corporate action on the part of Seller, and
no other acts or proceedings on the part of Seller, including stockholder
approval, are necessary for Seller to authorize this Agreement or the
Ancillary Agreements or the transactions contemplated hereby or thereby. This
Agreement has been (and each such Ancillary Agreement, upon execution and
delivery, will be) duly executed and delivered by Seller and each of its
Affiliates a party thereto and constitutes (and each such Ancillary Agreement,
upon execution and delivery, will constitute) a valid and binding obligation
of Seller and each of its Affiliates a party thereto, enforceable against
Seller and each of its Affiliates a party thereto in accordance with its and
their respective terms, except that (i) such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
other Laws, now or hereafter in effect, relating to or limiting creditors'
rights generally and (ii) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses and
to the discretion of the court before which any proceeding therefor may be
brought.
3.2 Title to Shares. Seller has good and valid title to the Shares,
free and clear of all Liens, and upon delivery to Buyer at the Closing of a
certificate or certificates representing the Shares, duly endorsed by Seller
for transfer to Buyer or accompanied by stock powers duly executed in blank,
and upon receipt by Seller of the Initial Purchase Price at the Closing, good
and valid title to the Shares will pass to Buyer, free and clear of any Liens.
Other than this Agreement, the Shares are not subject to any voting trust
agreement or other Contract, including any such Contract restricting or
otherwise relating to the voting, dividend rights or disposition of the
Shares. Except as set forth in Section 3.2 of the Disclosure Letter, Seller,
directly or indirectly through one of its Subsidiaries, has good and valid
title to all of the outstanding shares of capital stock or other equity
interests of the Division Entities, directly or indirectly (the "Subsidiary
Shares"), free and clear of all Liens.
3.3 Organization and Qualification. The Company and each of the
Division Entities is duly organized or formed, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or formation
and has all requisite corporate or other power and authority to own, lease and
operate its properties and to conduct its business as conducted on the date
hereof, except where the failure to be in good standing would not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect (as hereinafter defined). Except as set forth in
Section 3.3 of the Disclosure Letter, the Company and each of the Division
Entities is duly qualified or licensed to do business as a foreign
corporation, partnership or limited liability company and is in good standing
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification necessary,
except in those jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
3.4 Capitalization of the Company. The authorized capital stock of
the Company consists of 1,000 shares of common stock, par value $0.01 per
share, of which 1,000 shares, constituting the Shares, are validly issued and
outstanding. The Shares were duly authorized and are fully paid and
nonassessable. The Shares are owned of record and beneficially by Seller. Such
Shares have not been issued in violation of, and are not subject to, any
preemptive, subscription or similar rights. Except for the Shares, there are
no shares of capital stock or other equity securities of the Company
outstanding. There are no outstanding
10
warrants, options, "phantom" stock rights, agreements, convertible or
exchangeable securities or other commitments pursuant to which Seller or the
Company is or may become obligated to issue, sell, purchase, return or redeem
any shares of capital stock or other securities of the Company, or which give
any Person the right to receive any benefits or rights similar to any rights
enjoyed by or accruing to the holders of shares of capital stock of the
Company. There are no outstanding bonds, debentures, notes or other
Indebtedness having the right to vote on any matters upon which stockholders
of the Company may vote.
3.5 Capitalization of the Division Entities.
(a) Except for the Division Entities, the Company does not own,
directly or indirectly, any capital stock, equity securities or other equity
interest in any other Person. The Subsidiary Shares for each Division Entity
that is a corporation were duly authorized and are validly issued, fully paid
and nonassessable. The Subsidiary Shares of each Division Entity that is not a
corporation were duly authorized, and are validly issued. Except as set forth
in Section 3.5(a) of the Disclosure Letter, all issued and outstanding shares
of capital stock or other equity interests of each Division Entity will, as of
the Closing, be owned of record and beneficially by the Company or another
Division Entity. The Subsidiary Shares as of the Closing will be owned of
record and beneficially by the Company, either directly or indirectly through
a Division Entity.
(b) The Subsidiary Shares of each Division Entity have not been
issued in violation of, and are not subject to, any preemptive, subscription
or similar rights (except as otherwise required by applicable Law). Except as
set forth in Section 3.5(b) of the Disclosure Letter, there are no outstanding
warrants, puts, calls, options, "phantom" stock rights, agreements,
convertible or exchangeable securities or other commitments pursuant to which
Seller, the Company or any of the Division Entities is or may become obligated
to issue, sell, purchase, return or redeem any shares of capital stock, equity
interests or other securities of the Division Entities or which give any
Person the right to receive any benefits or rights similar to any rights
enjoyed by or accruing to the holders of the Subsidiary Shares of the Division
Entities. There are no outstanding bonds, debentures, notes or other
Indebtedness having the right to vote on any matters on which stockholders of
any of the Division Entities may vote.
3.6 No Violation; Consents and Approvals.
(a) The execution and delivery by Seller and each of its
Affiliates that are a party thereto of this Agreement and the Ancillary
Agreements do not, and the performance by Seller and its Affiliates of their
obligations hereunder and thereunder and compliance with the terms hereof and
thereof will not, (i) conflict with the Restated Certificate of Incorporation
or Amended and Restated Bylaws of Seller or the comparable governing
instruments of the Company or any of the Division Entities; (ii) subject to
receipt of the Consents and making of the Filings listed in Section 3.6(b) of
the Disclosure Letter
11
and the making of Filings under the HSR Act and the Exchange Act, violate or
conflict with, in each case in any material respect, any Law applicable to
Seller, the Company or any of the Division Entities, including any statute,
regulation and rule of any health care authority having jurisdiction over the
Division or the Facilities, including such Laws relating to health care fraud
and abuse; or (iii) subject to the receipt of the Consents and making of the
Filings listed in Section 3.6(b) of the Disclosure Letter and the making of
Filings under the HSR Act and the Exchange Act, result in any material
violation of or material breach or default under (or with notice or lapse of
time or both would result in a material violation of or a material breach or
default under), or result in or give rise to a right of termination,
cancellation or acceleration, or result in the creation, of any Lien upon, any
of the material properties or assets of the Company or any of the Division
Entities under any Material Contract (as hereinafter defined) or Permit (as
hereinafter defined) to which Seller, the Company or any of the Division
Entities is a party or by or to which Seller, the Company or any of the
Division Entities or any of their respective properties or assets is bound or
subject, except, in the case of (ii) and (iii) above, for any such conflict,
violation, breach, default, right of termination or cancellation which arises
from or relates to the legal or regulatory status of Buyer or the nature of
Buyer's businesses or its participation in the transactions contemplated
hereby.
(b) Set forth in Section 3.6(b) of the Disclosure Letter is a
list of each (i) consent, approval, waiver, license, certification, Permit,
order or authorization of (each, a "Consent") and registration, declaration or
filing (each, a "Filing") with, any court, administrative agency or commission
or other governmental entity, authority or instrumentality, domestic or
foreign (a "Governmental Entity"), that is material to the conduct of the
Business required to be obtained or made by or with respect to Seller or the
Division in connection with the execution and delivery of this Agreement or
the Ancillary Agreements, or the consummation by Seller of the transactions
contemplated hereby and thereby, other than (A) compliance with and Filings
under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and (B) compliance with and Filings under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); and (ii) Consent of any
third party required to be obtained or made by or with respect to Seller or
the Division in connection with the execution and delivery of this Agreement
or the Ancillary Agreements or the consummation by Seller of the transactions
contemplated hereby and thereby, other than such Consents, the failure of
which to obtain would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.
3.7 Financial Statements; Undisclosed Liabilities.
(a) Section 3.7(a) of the Disclosure Letter contains the audited
financial statements of the Division as of and for the two years ended
December 31, 2005 (collectively, the "Audited Financial Statements"). The
Audited Financial Statements and notes thereto (i) have been prepared from the
books and records of Seller and the Division, (ii) have been prepared in
accordance with GAAP, consistently applied (except as disclosed therein), and
(iii) fairly present in all material respects the financial condition and
results of operations of the Division for the periods presented, as more fully
described in the notes to the Audited Financial Statements.
(b) Section 3.7(b)(i) of the Disclosure Letter contains the
unaudited interim pro forma income statements of the Division prepared on a
quarterly basis for each of the quarters during the nine-month period ended
September 30, 2006 (the "Interim Pro Forma Income Statements"). The Interim
Pro Forma Income Statements (i) are pro forma for the ongoing and continuing
operations of the Division, prepared in the manner set forth in Section
3.7(b)(ii) of the Disclosure Letter, (ii) have been prepared from the books
and records of Seller and the Division, (iii) fairly present in all material
respects the results of operations of the Division on the basis of reporting
to Seller for the periods presented, and (iv) reflect the results of
operations of the
12
Division as presented in Seller's quarterly segment reporting in its interim
report on Form 10-Q for the nine months ended September 30, 2006, filed with
the Securities and Exchange Commission (the "September 30 Form 10-Q").
(c) Section 3.7(c) of the Disclosure Letter contains the
unaudited pro forma financial information of the Division as of and for the
year ended December 31, 2005 prepared on a quarterly basis (collectively, the
"2005 Pro Forma Financial Information"). The 2005 Pro Forma Financial
Information (i) are pro forma for the ongoing and continuing operations of the
Division, prepared in the manner set forth in Section 3.7(b)(ii) of the
Disclosure Letter, (ii) has been prepared from the books and records of Seller
and the Division, and (iii) fairly presents in all material respects the
financial condition and results of operations of the Division on the basis of
presentation outlined in Section 3.7(c) of the Disclosure Letter, which
presents the results of operations and financial position of the Division
being sold by Seller and acquired by Buyer.
(d) Section 3.7(d) of the Disclosure Letter contains the
following reconciliations:
(i) From the segment financial information presented in
Seller's annual report on Form 10-K for the fiscal year ended December
31, 2005, filed with the Securities and Exchange Commission (the "2005
Segment Information") to the 2005 Pro Forma Financial Information;
(ii) From the 2005 Segment Information to the Audited
Financial Statements; and
(iii) From the quarterly segment income statement
information presented in Seller's September 30 Form 10-Q (the "Interim
Segment Information") to the Interim Pro Forma Income Statement.
The reconciliations set forth in Section 3.7(d) of the Disclosure Letter have
been fairly presented and properly disclose the reconciling items from each of
(i) the 2005 Segment Information to the 2005 Pro Forma Financial Information,
(ii) the 2005 Segment Information to the Audited Financial Statements and
(iii) the Interim Segment Information to the Interim Pro Forma Income
Statement as of and for the periods presented in Section 3.7(d) of the
Disclosure Letter (details of which have been disclosed previously to Buyer).
(e) Except as set forth in Section 3.7(e) of the Disclosure
Letter, since December 31, 2005, except for liabilities and obligations (i)
disclosed in the Audited Financial Statements or the notes thereto, (ii)
incurred since December 31, 2005 in the ordinary course of business,
consistent with past practice, or (iii) disclosed in Section 3.7(b) of the
Disclosure Letter, neither the Company nor any of the Division Entities has
incurred any material liabilities or obligations (whether direct or indirect,
accrued, contingent or otherwise).
3.8 Absence of Certain Changes or Events. Since December 31, 2005,
there has not been any effect, change, fact, event, occurrence or circumstance
that, individually or in the aggregate, has had or would reasonably be
expected to result in a Material Adverse Effect.
13
Except as set forth in Section 3.8 of the Disclosure Letter, during the period
from December 31, 2005 to the date of this Agreement, (a) the Company and the
Division Entities have, in all material respects, operated the Division in the
ordinary course of business consistent with past practice, and (b) the Company
and the Division Entities have not taken any action which, if taken after the
date hereof to the Closing Date, would be prohibited by Section 5.1(a), (c),
(d), (e), (g) (other than adopting or modifying any Benefit Plan) (h), (i),
(j), (r) or (t) hereof.
3.9 Real Property. As used in this Agreement, the term "Real
Property" shall mean all real property owned in fee or leased by the Company
and the Division Entities and used primarily in the conduct of the Business.
Section 3.9 of the Disclosure Letter sets forth all of the Real Property.
Except as would not, individually or in the aggregate, reasonably be expected
to result in a Material Adverse Effect, the Company or one of the Division
Entities has (a) good and valid title to all Real Property owned by it or (b)
valid and subsisting leasehold interests in all Real Property leased by it
("Leased Real Property"), in each case, free and clear of all Liens, except
Permitted Liens and Liens set forth in Section 3.9 of the Disclosure Letter
which Liens on Section 3.9 of the Disclosure Letter shall be released as of
the Closing Date.
3.10 Intellectual Property.
(a) The Company or one of the Division Entities owns or possesses
valid, enforceable and adequate licenses or other legal rights to use all
material copyrights, trade names, trademarks, service marks, service names,
trade secrets, designs, licenses, patents, inventions, software, Internet
domain names and other intellectual property rights wherever recognized
throughout the world, including, without limitation, know-how (whether related
to any of the foregoing or otherwise) (including pending applications for any
of the foregoing) (collectively, "Intellectual Property Rights") used by the
Company and the Division Entities to operate the Division as operated on the
date hereof, and, except as set forth in Section 3.10(a) of the Disclosure
Letter, all such Intellectual Property Rights shall be fully available in all
material respects for use in the business of the Company and Division Entities
immediately after the Closing on materially identical terms, except as
provided in the Transition Agreement.
(b) Except as set forth in Section 3.10(b) of the Disclosure
Letter: (i) no material claims or proceedings are pending, or, to the
Knowledge of Seller, threatened, by any Person related to the use in the
operation of the Division of any Intellectual Property Rights or challenging
or questioning the validity, enforceability, extent or effectiveness of any
Intellectual Property Rights owned by the Company or any Division Entity, or
any license or agreement by which the Company or any Division Entity uses
Intellectual Property Rights in its business; (ii) to the Knowledge of Seller,
the operation of the Division, as conducted on the date hereof, does not
infringe, dilute or misappropriate the intellectual property rights of any
Person; and (iii) all material Filings, registrations and issuances pertaining
to the Intellectual Property Rights owned by the Company and the Division
Entities, including any and all material patents, registered trademarks and
copyright registrations, have been duly and timely made and all such material
patents, registered trademarks, registered copyrights and applications for the
foregoing are, to the Knowledge of Seller, valid and in full force and effect.
(c) Except as set forth in Section 3.10(c) of the Disclosure
Letter, the material information technology systems owned, licensed, leased,
operated on behalf of, or
14
otherwise held for use in the Business by the Company and the Division
Entities, including all material computer hardware, software, firmware and
telecommunications systems used in the Business of the Company and the
Division Entities (the "IT Systems"): (i) perform reliably and in material
conformance with the appropriate specifications or documentation for such IT
Systems, (ii) shall be fully available for use in the Business by the Company
and the Division Entities immediately following the Closing, and (iii)
constitute all of the material information technology systems used in the
Business of the Company and the Division Entities.
3.11 Litigation.
(a) Except for any qui tam action of which none of Seller, the
Company nor any Division Entity has Knowledge or received written notice,
Section 3.11(a) of the Disclosure Letter sets forth all actions, suits,
proceedings, investigations and inquiries ("Litigation") pending or, to the
Knowledge of Seller, threatened in writing to assert such Litigation by or
before any Governmental Entity, by or on behalf of any third party, against
Seller, the Company or any of the Division Entities which relate to the
Division, the Company or any of the Division Entities, which, if adversely
determined, would, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect or materially impact the ability of Seller
to consummate the transactions contemplated by this Agreement or the Ancillary
Agreements.
(b) Except as disclosed in Section 3.11(b) of the Disclosure
Letter, neither the Company nor any of the Division Entities nor any of their
respective properties is subject to any order, judgment, injunction or decree
material to the Division or the conduct of the Business.
3.12 Employee Benefit Plans.
(a) Neither the Company nor any Division Entity sponsors or
maintains any Benefit Plans. No ERISA Affiliate sponsors or maintains any
Benefit Plan that covers employees of the Company or any Division Entity or
with respect to which the Company or any Division Entity has or could
reasonably be expected to have any material liability.
(b) Each Benefit Plan has been administered in all material
respects in accordance with its terms and each of the Benefit Plans that is
sponsored, participated in or maintained by the Company or any of the Division
Entities is in compliance in all material respects with applicable Law,
including ERISA and the Code.
(c) No Benefit Plan is, or was at any time for which any statute
of limitations remains open, subject to Title IV of ERISA. Neither the
Company, any Division Entity nor any ERISA Affiliate is or at any time for
which any relevant statute of limitations remains open was required to
contribute to any "multiemployer plan" as defined in Section 4001(a)(3) of
ERISA or has withdrawn from any such multiemployer plan where such withdrawal
has resulted or could result in any "withdrawal liability" (within the meaning
of Section 4201 of ERISA) that has not been fully paid.
(d) The Company, each Division Entity and each ERISA Affiliate
have complied in all material respects with the notice and continuation
coverage requirements of
15
section 4980B of the Code and the regulations thereunder, including, without
limitation, the "M&A regulations" issued as Treasury Regulations Section
54.4980B-9, with respect to each Benefit Plan that is, or was during any
taxable year of the Company or any ERISA Affiliate for which the statute of
limitations on the assessment of federal income taxes remains open, by consent
or otherwise, a group health plan within the meaning of section 5000(b)(1) of
the Code.
(e) Except as set forth in Section 3.12(e) of the Disclosure
Letter, the consummation of the transactions contemplated by this Agreement
shall not, either alone or in combination with another event, (i) entitle any
current or former employee of the Company or one of the Division Entities to
severance pay, unemployment compensation or any other payment from Buyer, or
(ii) accelerate the time of payment or vesting, or increase the amount of
compensation or benefits due to any such employee or former employee. No
payment which is or may be made by, from or with respect to any Benefit Plan,
to any employee, former employee, director or agent of the Company or any
Division Entity or any ERISA Affiliate, either alone or in conjunction with
any other payment, could properly be characterized as an excess parachute
payment under section 280G of the Code.
(f) There are no Benefit Plans or any other material pension,
welfare, bonus, stock purchase, stock ownership, stock option, deferred
compensation, incentive, severance, termination or other compensation plan or
arrangement, or other material employee fringe benefit plan presently
maintained by, or contributed to by, the Company or any Division Entity
maintained outside the jurisdiction of the United States.
3.13 Taxes. (a) Except as set forth in Section 3.13 of the Disclosure
Letter or as would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect:
(i) All federal, state, local, and foreign Tax Returns (as
hereinafter defined) relating to the Division required to be filed by or
on behalf of the Company, the Division Entities and each consolidated,
combined, unitary, affiliated or aggregate group of which Seller and the
Company or any of the Division Entities is a member (an "Affiliated
Group") have been timely filed (taking into account applicable
extensions), and each such Tax Return was complete and correct in all
respects.
(ii) All Taxes (as hereinafter defined) relating to the
Division due and owing by the Company, the Division Entities or any
Affiliated Group, have been paid, or adequate reserves therefor have
been established.
(iii) All Tax withholding and deposit requirements relating
to the Company and the Division Entities (including any withholding with
respect to wages or other amounts paid to employees) have been satisfied
in full.
(b) Except as set forth in Section 3.13 of the Disclosure Letter:
(i) There is no material deficiency, proposed adjustment, or
matter in controversy that has been asserted or assessed in writing
relating to the Division with respect to any Taxes due and owing by the
Company, the Division Entities or any Affiliated Group, that has not
been paid or settled in full.
16
(ii) Neither the Company nor any of the Division Entities is
a party to any agreement providing for the allocation or sharing of, or
indemnification for, Taxes.
(iii) There are no Liens relating to Taxes upon the assets
of the Company or the Division Entities, other than Liens relating to
Taxes not yet due and payable.
(iv) There are no outstanding agreements or waivers
extending the statutory period of limitations applicable to any Tax
Return of the Company or any of the Division Entities.
(v) Neither the Company nor any of the Division Entities is
a party to any "listed transaction," as defined in Treasury Regulations
Section 1.6011-4(b)(2).
(vi) The federal Consolidated Income Tax Returns of the
Affiliated Group of which Seller is the common parent have been
examined, and such examinations have been resolved, or the statute of
limitations has expired, for all taxable years through 1995.
(c) For purposes of this Agreement, (i) "Tax" or "Taxes" means
any and all U.S. federal, state, local and foreign taxes, including income,
alternative or add-on minimum, gross receipts, profits, lease, service,
service use, wage, employment, workers compensation, business occupation,
environmental, estimated, excise, sales, use, transfer, license, payroll,
franchise, severance, stamp, occupation, windfall profits, withholding, social
security, unemployment, disability, ad valorem, capital stock, paid in
capital, recording, registration, property, real property gains, value added,
business license, custom duties and other taxes, charges, fees, levies,
imposts, duties or assessments of any kind whatsoever, imposed or required to
be withheld by any Tax authority, including any interest, additions to Tax or
penalties applicable or related thereto, and (ii) "Tax Return" means any
return, report or similar statement (including the attached schedules)
required to be filed with respect to any Tax, including any information
return, claim for refund, amended return or declaration of estimated Tax.
3.14 Material Contracts and Commitments.
(a) As used herein, "Material Contracts" shall mean: (i) any
Contract that provides for payment to the Company or any Division Entity for
the performance of services in an amount in excess of $1,000,000 annually;
(ii) any Contract requiring payments by the Company or any Division Entity in
excess of $1,000,000 annually; (iii) any Contract which contains restrictions
with respect to payment of dividends or any other distributions in respect of
the capital stock or other equity interests of the Company or any Division
Entity; (iv) any guarantee in respect of any Indebtedness or obligation of any
Person in an amount in excess of $1,000,000 (other than in the ordinary course
of business and other than with respect to any Indebtedness or any
Indebtedness or obligation of the Company or any Division Entity to another
Division Entity); (v) any Contract limiting the ability of the Company or any
Division Entity to engage in any line of business or to compete with any
Person; (vi) any Contract under which the
17
Company or a Division Entity has borrowed or loaned money in excess of
$250,000, or any mortgage, note, bond, indenture or other evidence of
Indebtedness (excluding advances, deposits, trade payables in the ordinary
course of business, and leases for telephones, copy machines, facsimile
machines and other office equipment); (vii) any joint venture, partnership or
other similar joint ownership agreements; (viii) Contracts with Governmental
Entities or consent decrees of Governmental Entities to which the Division is
bound; (ix) any employment, severance, change of control or "golden parachute"
Contract of a Transferred Employee; (x) any Contract (A) granting or obtaining
any right to use any Intellectual Property Rights material to the conduct of
the Business of the Company and Division Entities (other than Contracts
granting rights to use readily available commercial software available to
consumers for a combined license and maintenance fee of less than $250,000 per
year or subject to "shrink wrap" or "click through" license agreements) or (B)
restricting the right of the Company or any Division Entity or permitting any
third Person to use any Intellectual Property Rights material to the conduct
of the Business of the Company and Division Entities; (xi) any lease (or
sublease) of Leased Real Property requiring payments by the Company or any
Division Entity in an amount in excess of $250,000 annually; (xii) any
collective bargaining or other labor or union contracts or agreements to which
the Division is bound; (xiii) all agreements relating to the future
disposition or acquisition of any business enterprise or any interest in any
business enterprise; (xiv) any medical director agreements and all other
agreements with physicians; and (xv) agreements with any Affiliate of Seller.
(b) (i) Each of the Material Contracts is a valid and binding
obligation of the Company or a Division Entity, except that (A) enforcement of
any Material Contract may be subject to any bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other Laws, now or
hereafter in effect, relating to or limiting creditors' rights generally and
(B) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought; (ii) there is
no pending default under or breach of any Material Contract by the Company or
any Division Entity party thereto, and to Seller's Knowledge, there is no
pending default under or breach of any Material Contract by any other party
thereto, and no event has occurred that, with the lapse of time or the giving
of notice or both, would constitute a default thereunder by the Company or any
Division Entity party thereto, except, in any such case, any such default,
breach or event which would not, individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect; and (iii) no party to any
such Material Contract has given written notice to the Company or any Division
Entity of, or made a written claim against the Company or any Division Entity
with respect to, any breach or default thereunder, except, in any such case,
any such default, breach or event, which would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect.
3.15 Compliance with Laws; Permits.
(a) Except as set forth in Section 3.15(a) of the Disclosure
Letter, each of the Company and the Division Entities is in compliance in all
material respects with all applicable Laws with respect to the Division except
where such non-compliance would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect; provided,
however, that the provisions of this Section 3.15(a) shall not apply to: (i)
ERISA and other Laws applicable to the Benefit Plans, which are addressed in
Section 3.12 hereof; (ii) Laws
18
regarding the payment of Taxes, which are addressed in Section 3.13 hereof;
(iii) Laws regarding employment and employment practices, which are addressed
in Section 3.16 hereof; (iv) Environmental Laws (as hereinafter defined),
which are addressed in Section 3.17 hereof, and (v) Laws regarding healthcare
regulatory matters, which are addressed in Section 3.18 hereof.
(b) Except as set forth in Section 3.15(b) of the Disclosure
Letter and as would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect: (i) each Facility possesses
all permits, certificates, licenses, approvals, governmental franchises and
other authorizations ("Permits") presently required or necessary to own or
lease, as the case may be, and to operate its respective properties and to
carry on its respective businesses as presently conducted; (ii) each Facility
has fulfilled and performed all of its obligations with respect to such
Permits and no event has occurred which allows, or after notice or lapse of
time would allow, revocation or the termination thereof or results in any
other impairment of the rights of the holder of any such Permits; and (iii)
none of the Facilities has received any written notice of the institution of
any proceeding to revoke any such Permits.
3.16 Labor Matters. With respect to the Division: (a) each of the
Company and the Division Entities is in compliance in all material respects
with all applicable Laws regarding employment and employment practices; (b)
there are no material unfair labor practice charges or complaints against the
Company or any of the Division Entities brought before the National Labor
Relations Board nor is there any material grievance or any material
arbitration proceeding arising out of or under collective bargaining
agreements with respect to the Business of the Company or the Division
Entities nor, to the Knowledge of Seller, is any such charge, complaint,
grievance or proceeding threatened; (c) since January 1, 2005, there has not
been any labor strike or material work stoppage pending or, to the Knowledge
of Seller, threatened against the Company or the Division Entities; and (d)
there is no material charge or complaint pending or, to the Knowledge of
Seller, threatened against the Company or any of the Division Entities before
the Equal Employment Opportunity Commission or any similar state, local or
foreign agency responsible for the prevention of unlawful employment
practices. Since January 1, 2005, to the Knowledge of Seller, neither the
Company nor any Division Entity has received written notice of the intent of
any federal, state, local or foreign Governmental Entity responsible for the
enforcement of employment Laws to conduct an investigation of or relating to
the Company, or the Division Entities, and no such investigation is in
progress.
3.17 Environmental. (a) The Company, the Division Entities and the
Facilities are and, since January 1, 2005, have been in compliance in all
material respects with all Environmental Laws and environmental Permits and
have not received any material written claim, notice, request for information,
penalty assessment or demand, and no Litigation is pending or, to the
Knowledge of Seller, threatened in writing, regarding any material violation
of or material liability under any Environmental Law or environmental Permit,
which is pending and unresolved; (b) there have been no material Releases of
any Hazardous Substances which have required or would reasonably be expected
to require reporting, investigation, remediation or other response action or
the payment of material costs with respect thereto by the Company or any of
the Division Entities or with respect to the Facilities; and (c) Seller has
provided copies or otherwise reasonably made available for review by Buyer,
copies of all material environmental reports, studies, assessments or audits
in Seller's, the Company's or any Division Entities' possession or control.
19
3.18 Health Care Regulatory Matters.
(a) Compliance with Health Care Law/Fraud and Abuse. Except as
set forth in Section 3.18(a) of the Disclosure Letter, Seller, the Company and
each Division Entity are, and, to the Knowledge of Seller, at all times for
the two years immediately preceding the date of this Agreement have been, in
compliance with all applicable federal, state and municipal statutes,
regulations, rules and orders and other requirements of any Governmental
Entity to which it is subject with respect to health care laws and health care
regulatory and fraud and abuse matters, including, without limitation, those
relating to third-party reimbursement (including, but not limited to,
Medicare, Medicaid, CHAMPUS, TRICARE and other federal health care programs
(collectively "Federal Health Care Programs")), the federal health care
program anti-kickback law, 42 U.S.C. ss. 1320a-7b (commonly referred to as
"Anti-Kickback Law"), the federal physician self-referral law, 42 U.S.C. ss.
1395nn (commonly referred to as the "Xxxxx Law"), the federal False Claims
Act, 31 U.S.C. ss. 3729 et seq., the Health Insurance Portability and
Accountability Act of 1996, Pub. Law. 104-99 (commonly referred to as
"HIPAA"), and applicable sections of the Social Security Act, except for any
such non-compliance which would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
(b) No Medicare and Medicaid Exclusion. Except as set forth in
Section 3.18(b) of the Disclosure Letter, since January 1, 2005, (i) neither
the Company nor any Division Entity has (A) had a civil monetary penalty
assessed against it under Section 1128A of the Social Security Act or any
regulations promulgated thereunder; (B) been convicted of, charged with,
indicted or investigated for a Medicare, Medicaid or other Federal Health Care
Program (as defined in 42 U.S.C. ss. 1320a-7b(f)) related offense, or
convicted of, charged with, indicted or investigated for a violation of
federal or state law relating to fraud, theft, embezzlement, breach of
fiduciary responsibility, financial misconduct, obstruction of an
investigation or controlled substances, (C) been excluded or suspended from
participation in Medicare, Medicaid or any other Federal Health Care Program,
or have been disbarred, suspended or are otherwise ineligible to participate
in federal programs, or (D) committed any offense which may reasonably serve
as the basis for any such exclusion, suspension, disbarment or other
ineligibility, and (ii) Seller has not arranged or contracted with any
individual or entity that is suspended, excluded or disbarred from
participation in, or otherwise ineligible to participate in, a Federal Health
Care Program, except, in each case, for any such non-compliance which would
not, individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
(c) Participation. The Company and each Division Entity are, to
the extent applicable to their operations, (i) eligible to receive payment
under Titles XVIII and XIX of the Social Security Act, (ii) providers under
existing provider agreements with the Medicare program through applicable
intermediaries and with each state Medicaid program under which they have been
providers at any time since January 1, 2005 and (iii) except as set forth on
Section 3.18(c) of the Disclosure Letter, in compliance with, and at all times
since January 1, 2005 have been in material compliance with, all applicable
laws, regulations and policies of the Medicare, Medicaid and CHAMPUS/TRICARE
programs, except where such inability in the case of either item (i) or (ii)
or non-compliance in item (iii) could not reasonably be expected to have a
Material Adverse Effect. The Company is a party to a corporate integrity
agreement (a
20
"CIA"), as set forth in Section 3.18(c) of the Disclosure Letter, a true and
correct copy of which has been provided to Buyer. The Company is in full
compliance with all terms and conditions required of the Company under such
CIA.
(d) Medicare, Medicaid and Third-Party Payor Participation/
Accreditation/Contracts. Except as set forth in Section 3.18(d) of the
Disclosure Letter, all health care facilities owned or operated by the Company
or any Division Entity and all services provided by the Company, each Division
Entity or any professional employee or agent acting on behalf of any of them
or for which the Company and/or each Division Entity directly or indirectly
receives payment under Medicare, Medicaid or other Federal Health Care
Programs are, to the extent required by law, certified for participation or
enrollment in all such Federal Health Care Programs, have a current and valid
provider contract with such Federal Health Care Programs, are in compliance
with the conditions of participation or enrollment of such Federal Health Care
Programs except, in each case, for any such non-compliance which would not,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect. Set forth in Section 3.18(d) of the Disclosure Letter
are all of the Company's and each Division Entity's Federal Health Care
Program and third-party payor provider numbers and which outpatient clinics
are billing for services rendered utilizing each provider number. Except as
set forth in Section 3.18(d) of the Disclosure Letter, neither the Company nor
any Division Entity has received notice from any governmental agency, fiscal
intermediary, carrier or similar entity which enforces or administers the
statutory or regulatory provisions with respect to any Federal Health Care
Program, or from any third-party payor, of any pending or threatened
investigations, and to the Knowledge of Seller and each Division Entity, no
such investigations are pending, threatened or imminent, which could
reasonably be expected to have a Material Adverse Effect. Except as set forth
in Section 3.18(d) of the Disclosure Letter, to the Knowledge of Seller, no
action is pending to suspend, limit, terminate, or revoke the status of the
Company or any Division Entity as a provider in any such program, and neither
the Company nor any Division Entity has been provided notice by any such
third-party payor of its intention to suspend, limit, terminate, revoke, or
fail to renew any contractual arrangement with the Company or any Division
Entity as a participating provider of services in whole or in part. All
returns, cost reports and other filings made by the Company or any Division
Entity with Medicare, Medicaid or any other governmental health care program
or third-party payor are complete and accurate except where the failure to be
so complete and accurate could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. Except as set
forth in Section 3.18(d) of the Disclosure Letter and in connection with the
CIA referenced in Section 3.18(c) hereof, no adjustment or disallowance in any
such cost reports and other requests for payment, including adjustments or
disallowances for late filings, has been made or, to the Knowledge of Seller,
threatened by any federal or state agency or instrumentality or other provider
reimbursement entities relating to Medicare or Medicaid or by any third-party
payor which, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect, and, to the Knowledge of Seller, there is no
basis for any successful claims or requests for recovery of overpayments from
any such agency, instrumentality, entity or third-party payor except for any
such claims or requests which could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. All payments
required in connection with the CIA referenced in Section 3.18(c) hereof have
been made and no further payments or financial obligations in connection
therewith are due and owing or required thereunder.
21
(e) Reimbursement and Billing. Except as set forth in Section
3.18(e) of the Disclosure Letter, since January 1, 2005, (a) the Company and
each Division Entity has not received any written notice of denial of payment
or overpayment of a material nature from a Federal Health Care Program or any
other third-party reimbursement source (inclusive of managed care
organizations) with respect to items or services provided by the Company
and/or any Division Entity, other than those which have been finally resolved
in any settlement for an amount less than $100,000, (b) to the Knowledge of
Seller, there is no basis for the assertion after the Closing of any such
denial or overpayment claim, and (c) neither the Company nor any Division
Entity has received written notice from a Federal Health Care Program or any
other third-party reimbursement source (inclusive of managed care
organizations) of any pending or threatened claims, proceedings,
investigations or surveys specifically with respect to, or arising out of,
items or services provided by the Company or any Division Entity, and to the
Knowledge of Seller, no such investigation or survey is pending, threatened or
imminent which, individually or in the aggregate, would have a Material
Adverse Effect. All billing by, or on behalf of, the Company or any Division
Entity to third-party payors, including, but not limited to, Federal Health
Care Programs and insurance companies has been true and correct in all
material respects except where the failure to be so complete and accurate
could not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect. Except as set forth in Section 3.18(e) of the
Disclosure Letter, neither the Company nor any Division Entity has received
any notice from any third-party payor, including, but not limited to, Federal
Health Care Programs, that indicates that Buyer could not continue to xxxx in
substantially the same manner and structure as the Company or any Division
Entity is billing on the date hereof, which change in billing could reasonably
be expected to have a Material Adverse Effect.
3.19 Assets of the Division. Except for Staying Clinics and the
services to be provided under the Transition Agreement, as of the Closing, the
assets of the Division Entities will constitute all of the assets necessary to
operate the Business in the manner presently conducted and as reflected in the
Interim Pro Forma Income Statements, except for assets disposed of by the
Division in the ordinary course of Business. At Closing, the Company and the
Division Entities will be the only Affiliates of Seller that are engaged in
the operation of the Division. Except as set forth in Section 3.19 of the
Disclosure Letter, none of the Excluded Assets (other than Staying Clinics)
are primarily used in or necessary for the operation of the Business in the
manner presently conducted or as reflected in the Interim Pro Forma Income
Statements. Except for Staying Clinics and as set forth in Section 3.19 of the
Disclosure Letter, after giving effect to the Restructuring Transactions,
Seller will not, directly or indirectly, own any assets that are primarily
used in or, except as reflected in the Transition Agreement, are necessary for
the operation of the Business in the manner presently conducted or as
reflected in the Interim Pro Forma Income Statements. The Interim Pro Forma
Income Statements do not reflect the operations of any Staying Clinics, except
for Staying Clinics closed after September 30, 2006, as set forth in Section
3.19 of the Disclosure Letter.
3.20 Brokers. Except for Xxxxxxx, Sachs & Co., no broker, finder or
financial advisor or other Person is entitled to any brokerage fees,
commissions, finders' fees or financial advisory fees in connection with the
transactions contemplated hereby or by the Ancillary Agreements by reason of
any action taken by Seller, the Company or any Division Entity. Such fees and
expenses of Xxxxxxx, Xxxxx & Co. shall be borne by Seller.
22
3.21 NO OTHER REPRESENTATIONS. EXCEPT FOR THE REPRESENTATIONS AND
WARRANTIES EXPRESSLY SET FORTH IN THIS AGREEMENT OR IN ANY DOCUMENT DELIVERED
PURSUANT TO THIS AGREEMENT, SELLER HAS NOT MADE AND DOES NOT HEREBY MAKE ANY
EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES, STATUTORY OR OTHERWISE, OF
ANY NATURE, INCLUDING WITH RESPECT TO ANY EXPRESS OR IMPLIED REPRESENTATION OR
WARRANTY AS TO THE MERCHANTABILITY, QUALITY, QUANTITY, SUITABILITY OR FITNESS
FOR ANY PARTICULAR PURPOSE OF THE ASSETS AND PROPERTIES OF, OR THE RESULTS TO
BE OBTAINED BY, THE DIVISION. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES
EXPRESSLY SET FORTH IN THIS AGREEMENT OR IN ANY DOCUMENT DELIVERED PURSUANT TO
THIS AGREEMENT, ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, STATUTORY, COMMON
LAW OR OTHERWISE, OF ANY NATURE, INCLUDING WITH RESPECT TO THE
MERCHANTABILITY, QUALITY, QUANTITY, SUITABILITY OR FITNESS FOR ANY PARTICULAR
PURPOSE OF THE ASSETS AND PROPERTIES OF, OR THE RESULTS TO BE OBTAINED BY, THE
COMPANY OR THE DIVISION ENTITIES, ARE HEREBY DISCLAIMED BY SELLER.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to Seller as follows:
4.1 Organization; Authority. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Buyer has all requisite corporate power and authority to enter into this
Agreement and the Transition Agreement, to perform its obligations hereunder
and thereunder and to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance by Buyer of this Agreement,
and the consummation of the transactions contemplated hereby and thereby, have
been duly authorized by all necessary corporate action on the part of Buyer.
This Agreement has been (and the Transition Agreement, upon execution and
delivery, will be) duly executed and delivered by Buyer and constitutes (and
the Transition Agreement, upon execution and delivery, will constitute) a
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its and their respective terms, except that (i) such enforcement may be
subject to any bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other laws, now or hereafter in effect, relating to or limiting
creditors' rights generally and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefor may be brought.
4.2 No Violation; Consents and Approvals. The execution and delivery
by Buyer of this Agreement and the Transition Agreement do not, and the
performance by Buyer of its obligations hereunder and thereunder and
compliance with the terms hereof and thereof will not, (a) conflict with the
certificate of incorporation or by-laws of Buyer, or (b) subject to the
receipt of the Consents and the making of the Filings referred to in this
Section 4.2, result in any violation of or default under, or give rise to a
right of termination or cancellation, or result in the creation of any Lien
upon any of the properties or assets of Buyer under, (i) any Law applicable to
Buyer or (ii) any material note, bond, mortgage, indenture, license,
agreement, lease or other
23
instrument or obligation to which Buyer is a party or by which Buyer or its
assets may be bound, other than any such items as to which requisite waivers
or Consents have been obtained or which would not, individually or in the
aggregate, reasonably be expected to impair Buyer's ability to consummate the
transactions contemplated by this Agreement or the Ancillary Agreements.
Except as set forth in Section 4.2 of the Disclosure Letter, no Consent of, or
Filing with, any Governmental Entity, or any third Person, is required to be
obtained or made by or with respect to Buyer or its Affiliates in connection
with the execution and delivery of this Agreement or the Ancillary Agreements,
or the consummation by Buyer of the transactions contemplated hereby and
thereby, other than: (A) compliance with and Filings under the HSR Act; and
(B) compliance with and Filings under the Exchange Act, except for any such
Consents which would not, individually or in the aggregate, reasonably be
expected to impair the ability of Buyer to consummate the transactions
contemplated by this Agreement and the Ancillary Agreements.
4.3 Litigation. (a) There is no Litigation pending or, to the
knowledge of Buyer, threatened, by or before any Governmental Entity, or by or
on behalf of any third party, which, if adversely determined, would reasonably
be expected to impair the ability of Buyer to consummate the transactions
contemplated by this Agreement and the Ancillary Agreements, and (b) there are
no outstanding judgments, decrees or orders of any court or Governmental
Entity affecting Buyer or its assets, which would reasonably be expected to
impair the ability of Buyer to consummate the transactions contemplated by
this Agreement and the Ancillary Agreements.
4.4 Financing. Buyer has, and shall have at the Effective Time,
access to sufficient funds to perform its obligations under this Agreement and
to consummate the transactions contemplated hereby.
4.5 Acquisition of the Shares for Investment; Securities Act. Buyer
is acquiring the Shares for investment purposes only and not with any present
intention of distributing or selling the Shares in violation of federal, state
or other United States securities laws. Buyer agrees that it will not sell,
transfer, offer for sale, pledge, hypothecate or otherwise dispose of the
Shares in violation of any federal, state or other United States securities
laws.
4.6 Vote/Approval Required. No vote or consent of the holders of any
class or series of capital stock of Buyer is necessary to approve this
Agreement or the Transition Agreement or the transactions contemplated hereby
or thereby. The vote or consent of Buyer is the only vote or consent necessary
to approve this Agreement or the Transition Agreement or the transactions
contemplated hereby or thereby.
4.7 Solvency. Buyer is not entering into the transactions
contemplated by this Agreement with the actual intent to hinder, delay or
defraud either present or future creditors. Assuming that the representations
and warranties of Seller contained in this Agreement (without giving effect to
any materiality, Material Adverse Effect or Knowledge qualifiers set forth
therein) are true and correct in all material respects, at and immediately
after the Closing, and after giving effect to this Agreement and the other
transactions contemplated hereby, the Company and the Division Entities: (i)
will be solvent (in that both the fair value of their respective assets will
not be less than the sum of their respective debts and that the present fair
saleable value of their respective assets will not be less than the amount
required to pay their
24
respective probable liabilities on their respective debts as they become
absolute and matured); (ii) will have adequate capital and liquidity with
which to engage in their respective businesses; and (iii) will not have
incurred and do not plan to incur debts beyond their respective abilities to
pay as they become absolute and matured.
4.8 Investigation by Buyer. Buyer has conducted its own independent
investigation, review and analysis of the business, operations, assets,
liabilities, results of operations, financial condition, software, technology
and prospects of the Company and the Division Entities, which investigation,
review and analysis was done by Buyer and its Affiliates and, to the extent
Buyer deemed appropriate, by Buyer's representatives. Buyer acknowledges that
Seller has provided Buyer with access to the properties, premises, Contracts
and records of the Company and the Division Entities for this purpose. Buyer
acknowledges that, except for those representations or warranties expressly
set forth in this Agreement, it has not relied on, and shall not be entitled
to rely on, any representation or warranty, either express or implied,
previously made by Seller, the Company or any of their respective agents,
representatives, employees or Affiliates as to the accuracy or completeness of
any of the information provided or made available to Buyer or its agents or
representatives. Buyer agrees that none of Seller, the Company, the Division
Entities nor any of their respective agents, representatives, employees or
Affiliates has or shall have any liability or responsibility whatsoever to
Buyer or any of its agents or representatives on any basis (including in
contract or tort, under federal or state securities laws, or otherwise but
excluding fraud) based upon any information provided or made available, or
statements made, to Buyer or its agents or representatives prior to the date
hereof, except as provided in this Agreement or the Transition Agreement.
4.9 Brokers. No broker, finder or financial advisor or other Person
is entitled to any brokerage fees, commissions, finders' fees or financial
advisory fees in connection with the transactions contemplated hereby or by
the Transition Agreement by reason of any action taken by Buyer.
ARTICLE V
COVENANTS OF THE PARTIES
------------------------
5.1 Conduct of the Division. Except as contemplated by the terms of
this Agreement, or as set forth in Section 5.1 of the Disclosure Letter,
during the period from the date hereof to the Closing Date, Seller shall cause
the Company and the Division Entities to operate the Division only in the
ordinary course consistent with past practice. For the avoidance of doubt,
Buyer acknowledges that notwithstanding anything contained in this Section 5.1
to the contrary, each of the Company and each Division Entity shall be free to
pay cash dividends and other cash distributions to Seller and the Division
Entities and their respective equity owners at any time and from time to time
prior to the Closing Date and to consummate the Restructuring Transactions.
Without limiting the generality of the foregoing, except as expressly
contemplated by this Agreement or as set forth in Section 5.1 of the
Disclosure Letter, during the period from the date of this Agreement to the
Closing Date, without the prior written consent of Buyer (which will not be
unreasonably withheld, delayed or conditioned), Seller, with respect to the
Division, shall not permit the Company or any of the Division Entities to:
25
(a) amend its respective certificate of incorporation or by-laws
or comparable organizational documents, other than to the extent required to
change the name of the Company or any Division Entity prior to Closing to
eliminate any reference to "HealthSouth" in the name of the Company or such
Division Entity;
(b) create, incur, assume or guarantee any Indebtedness for
borrowed money to any Person, other than Seller or its Subsidiaries or any
Division Entity, in an amount in excess of $500,000;
(c) make any loans, advances, capital contributions to, or
investments in, any Person, other than (i) to a Division Entity in the
ordinary course of business or (ii) as required by the terms of any existing
written agreement disclosed to Buyer in the Disclosure Letter;
(d) issue, sell, deliver, redeem, repurchase, pledge or otherwise
encumber any shares of its capital stock or other equity interests or any
securities convertible into or exchangeable for any shares of its capital
stock or other equity interests, or grant or enter into any options, warrants,
rights, agreements or commitments with respect to the issuance of its capital
stock or other equity interests, or amend any terms of any such securities;
(e) split, combine or reclassify any of its capital stock or
other equity interests or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of their
capital stock or other equity interests;
(f) increase the rate of compensation of, or pay or agree to pay
any benefit to, its directors or officers, except as may be required by any
existing plan, including any Benefit Plan, agreement or arrangement, and
except in the ordinary course of business, including as part of the Company's
and the Division Entities' normal periodic performance reviews and related
compensation and benefit increases;
(g) enter into, adopt or amend in any material respect any
written employment (other than employment agreements terminable at will
without liability to the Division), severance or change of control agreement,
or adopt or modify any Benefit Plan, except, in each case, as required by Law;
(h) enter into, adopt, amend or terminate any collective
bargaining agreement, other than any adoption, amendment or termination (i)
required by the terms of any existing written agreements disclosed to Buyer,
or (ii) required by Law;
(i) except for any such actions required in connection with the
Restructuring Transactions or the relocation of any Facilities in the ordinary
course of business, sell, lease, transfer, or otherwise dispose of any
material properties or assets, real, personal or mixed, or permit any such
asset to become subject to any Lien other than a Permitted Lien, other than in
the ordinary course of business consistent with past practice;
(j) except for any such actions required in connection with the
Restructuring Transactions, acquire by merging or consolidating with, or by
purchasing the stock or a substantial portion of the assets of, or by any
other manner, any business or any corporation,
26
partnership, association or other business organization or division thereof or
otherwise acquire any assets (other than inventory in the ordinary course of
business of the Company and the Division Entities and other than as permitted
by clause (m) below) for consideration having a fair value in excess of
$1,000,000, for any single transaction or series of related transactions, or
$5,000,000 in the aggregate;
(k) except in the ordinary course of business consistent with
past practice, amend or modify in any material respect or terminate any
Material Contract, other than as contemplated in Section 2.4(a) or Section
2.4(b) of the Disclosure Letter or the relocation of any Facilities in the
ordinary course of business;
(l) enter into any joint venture, jointly owned partnership or
other similar joint ownership agreements, other than such agreements entered
into in the ordinary course of business consistent with past practice;
(m) except for such expenditures incurred in the ordinary course
of business and which are paid for before Closing or included as a liability
in the calculation of Net Working Capital, make or incur any capital
expenditure that is not contemplated by the Division's budget for fiscal 2007;
(n) make or change any election related to Taxes (unless required
by Law), the making or changing of which would materially increase the
Company's or any of the Division Entities' liability for Taxes subsequent to
the Closing Date;
(o) settle or compromise any material Tax liability, except in
the ordinary course of business;
(p) make any change in any method of accounting or accounting
practice or policy, other than as required by changes in GAAP or in Law;
(q) dissolve, wind-up or liquidate, other than any such
dissolution, winding up or liquidation which is in process on the date hereof;
(r) cancel any material Indebtedness owed to any Division Entity
or waive any rights or claims of substantial value, in each case other than in
the ordinary course of business consistent with past practice;
(s) initiate any Litigation that is not Retained Litigation,
other than in the ordinary course of business consistent with past practice;
(t) amend or modify any CIA in a manner adverse to the Company or
any Division Entity; or
(u) agree in writing to do any of the foregoing or not to take
any action required by this Agreement.
5.2 Access to Information Prior to the Closing; Confidentiality;
Cooperation.
27
(a) During the period from the date of this Agreement through the
Closing Date, Seller shall, and shall cause the Company and the Division
Entities to, give Buyer and its authorized employees, accountants, counsel and
other representatives (such entities and representatives other than Buyer
being referred to as "Buyer Representatives") reasonable access during regular
business hours to all offices, personnel, facilities, books and records of
Seller, the Company or the Division Entities as they may reasonably request,
and shall furnish or cause to be furnished to Buyer such financial and
operating data and other information with respect to the business and
properties of the Division as Buyer may from time to time reasonably request
and as may be necessary to enable Buyer to have its own financial, payroll and
accounting systems in place as of the Closing Date so as to not need to rely
on Seller to provide such services after the Closing, and Seller agrees to
reasonably cooperate with Buyer in connection with such transition matters;
provided, however, that (i) Buyer and Buyer Representatives shall take such
action as is deemed necessary in the reasonable judgment of Seller to schedule
such access and visits through only those specifically identified
representatives of Seller and in such a way as to avoid unreasonably
disrupting the normal business of the Company and the Division Entities; (ii)
the Company and the Division Entities shall not be required to take any action
which would constitute a waiver of the attorney-client or other privilege;
(iii) the Company and the Division Entities need not supply Buyer with any
information which, in the reasonable judgment of Seller, the Company or any of
the Division Entities is under a legal obligation not to supply; and (iv)
Seller, the Company and the Division Entities shall not be required to supply
Buyer with any information that does not relate to the Division. No
information received pursuant to this Section 5.2 shall affect or be deemed to
modify or update any of the representations and warranties of Seller contained
in this Agreement.
(b) Buyer shall hold, and shall cause Buyer Representatives to
hold, any information which it or they receive in connection with the
activities and transactions contemplated by this Agreement and the Ancillary
Agreements in strict confidence in accordance with and subject to the terms of
the confidentiality agreement between Buyer and Seller (the "Confidentiality
Agreement"), which shall survive the execution and delivery of this Agreement,
and any termination of this Agreement pursuant to Article X hereof, but shall
be terminated and of no further force and effect as of the Closing.
5.3 Commercially Reasonable Efforts. Subject to the terms and
conditions of this Agreement, each of the parties hereto shall use all
commercially reasonable efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, all things necessary, proper or advisable
under applicable Laws and regulations to consummate the transactions
contemplated by this Agreement and the Ancillary Agreements at the earliest
practicable date.
5.4 Consents. Without limiting the generality of Section 5.3 hereof,
each of the parties hereto shall use commercially reasonable efforts to obtain
all Consents of, and make all Filings with, all Governmental Entities and
third parties required in connection with the consummation of the transactions
contemplated by this Agreement prior to the Closing. Without limiting the
generality of the preceding sentence, Buyer specifically agrees to reasonably
cooperate with Seller in obtaining Consents for Required Third Party Payor
Contracts. Within ten (10) Business Days following the date hereof, each of
the parties hereto shall make or cause to be made all Filings under Laws
applicable to it as may be required for the consummation of the transactions
contemplated by this Agreement and the Ancillary Agreements. In addition to
28
the foregoing, Buyer agrees to provide such assurances as to financial
capability, resources and creditworthiness as may be reasonably requested by
any Governmental Entity or third party whose Consent is sought or to whom a
Filing is made hereunder. Buyer and Seller shall coordinate and cooperate with
each other in exchanging such information and assistance as any of the parties
hereto may reasonably request in connection with the foregoing.
5.5 Antitrust Notification. Subject to Section 10.2(b) hereof, Buyer
and Seller shall use their respective reasonable best efforts to obtain all
authorizations or waivers required under the HSR Act to consummate the
transactions contemplated hereby and by the Ancillary Agreements, including
(a) making all Filings with the Antitrust Division of the Department of
Justice ("DOJ") or the Federal Trade Commission ("FTC") required in connection
therewith (the initial filing to occur no later than ten (10) Business Days
following the execution and delivery of this Agreement), (b) responding as
promptly as practicable to all inquiries received from the DOJ or the FTC for
additional information or documentation, and (c) resolving any objections that
may be asserted by any Governmental Entity with respect to the transactions
contemplated by this Agreement in connection with any Filings made in
accordance with this Section 5.5. Each of Buyer and Seller shall furnish to
the other such necessary information and reasonable assistance as the other
may request in connection with its preparation of any filing or submission
which is necessary under the HSR Act. Seller and Buyer shall keep each other
apprised of the status of any communications with, and any inquiries or
requests for additional information from, the DOJ or the FTC. Notwithstanding
anything to the contrary in this Agreement, Buyer and Seller will use their
respective reasonable best efforts to offer to take, or cause to be taken, all
other actions and do, or cause to be done, all other things necessary, proper
or advisable to consummate and make effective the transactions contemplated by
this Agreement and the Ancillary Agreements, including taking all such further
action as reasonably may be necessary to resolve such objections, if any, as
the DOJ or the FTC or state antitrust enforcement authorities or any other
Person may assert under the HSR Act with respect to the transactions
contemplated hereby, and to avoid or eliminate each and every impediment under
any Law that may be asserted by any Governmental Entity with respect to the
transactions contemplated hereby so as to enable the Closing to occur as soon
as expeditiously possible, including, without limitation, (i) proposing,
negotiating, committing to and effecting, by consent decree, hold separate
order or otherwise, the sale, divestiture or disposition of such assets or
businesses of the Division or of Buyer or any of its Subsidiaries, and (ii)
otherwise taking or committing to take actions that after the Closing Date
would limit the freedom of the Division or of Buyer or any of its Subsidiaries
with respect to, or its ability to retain, one or more of their respective
businesses or assets, in each case, as may be required in order to avoid the
entry of, or to effect the dissolution of, any injunction, temporary
restraining order or other order in any suit or proceeding which would
otherwise have the effect of preventing or materially delaying the Closing,
provided, however, that nothing in this Agreement shall require or be
construed to require any of Buyer or any of its Subsidiaries to take any
action, propose or make any divestiture or other undertaking, or propose or
enter into any consent decree, except for those that would not, individually
or in the aggregate, reasonably be expected to be materially adverse to the
outpatient segment of Buyer and its Subsidiaries taken as a whole (assuming
for this purpose, that the transactions contemplated hereby have already been
consummated).
5.6 Public Announcements. Seller and Buyer shall not, and shall cause
their respective Subsidiaries not to, issue any public report, statement or
press release or otherwise
29
make any public statement with respect to this Agreement or the Ancillary
Agreements and the transactions contemplated hereby or thereby, from the date
hereof through the Closing Date, without prior consultation with and approval
of the other party (which approval shall not be unreasonably withheld, delayed
or conditioned), except as may be required by Law or securities exchange
regulations applicable to any such party, in which case such party shall
advise the other party and discuss the contents of the disclosure before
issuing any such report, statement or press release. In addition, except as
provided in this Section 5.6, Seller and Buyer shall not make any general
communication to suppliers, creditors, distributors, employees, customers or
others having business or financial relationships with the Division pertaining
to this Agreement or the Ancillary Agreements and the transactions
contemplated hereby or thereby, without the prior written approval of the
other party (which approval will not be unreasonably withheld, delayed or
conditioned). Immediately following the execution and delivery of this
Agreement, Seller and Buyer shall issue a press release to be mutually agreed
upon with respect to this Agreement and the transactions contemplated hereby.
5.7 Supplemental Disclosure.
(a) Seller shall from time to time prior to the Closing promptly
supplement or amend the Disclosure Letter with respect to (i) any matter that
existed as of the date of this Agreement and should have been set forth or
described in the Disclosure Letter and (ii) any matter hereafter arising
which, if existing as of the date of this Agreement, would have been required
to be set forth or described in the Disclosure Letter; provided, however,
that, with respect to clause (i) above, any such supplemental or amended
disclosure shall not be deemed to have been disclosed as of the date of this
Agreement unless expressly consented to in writing by Buyer; provided further,
that, with respect to clause (ii) above, any such supplement or amended
disclosure shall, for purposes of this Agreement and the Ancillary Agreements
(other than for the purposes of determining whether the conditions set forth
in Article IX hereof are satisfied), be deemed to have been disclosed as of
the date of this Agreement.
(b) Seller shall promptly notify Buyer of, and furnish Buyer any
information it may reasonably request with respect to, the occurrence, to the
Knowledge of Seller, of any event or condition or the existence, to the
Knowledge of Seller, of any fact that would cause any of the conditions to
Buyer's obligation to consummate the purchase and sale of the Shares not to be
fulfilled.
5.8 Certain Licenses and Permits. Seller covenants that all Permits
which are held in the name of Seller or any of its Affiliates (other than the
Company and the Division Entities) or any employee, officer, director,
stockholder or agent of Seller or any of its Affiliates (including the Company
and the Division Entities) or otherwise on behalf of the Company or any of the
Division Entities, that are used in the Business shall be duly and validly
transferred, to the extent legally transferable, to the Company or one of the
Division Entities without consideration prior to the Closing and that the
warranties, representations, covenants and conditions contained in this
Agreement shall apply to such Permits as if held by the Company or such
Division Entity as of the date hereof.
5.9 Records; Cooperation.
30
(a) On the Closing Date or at such other time as may be specified
in Section 5.9(a) of the Disclosure Letter, Seller shall deliver or cause to
be delivered to Buyer, but only to the extent permitted by applicable Law, all
original agreements, documents, books, records and files, including without
limitation financial information, asset management information, cash
management information, licensing or certification files, Medicare or Medicaid
cost reports, audits, appeals and related documentation, Real Property leases
and other information listed in Section 5.9(a) of the Disclosure Letter
(collectively, "Records"), if any, in the possession of Seller or any of its
Affiliates, relating primarily to the Division and the Division Entities to
the extent not then in the possession of the Company and the Division Entities
(and in the case of Records available in electronic form, such Records will
also be delivered to Buyer in electronic form in a manner reasonably
acceptable to Buyer), subject to the following exceptions:
(i) Buyer recognizes that certain Records may contain
incidental information relating to the Company and the Division Entities
or may relate primarily to Subsidiaries or divisions of Seller other
than the Company and the Division Entities, and that Seller may retain
such Records and shall provide copies of the relevant portions thereof
to Buyer; and
(ii) Seller may retain all Records prepared in connection
with the sale of the Shares, including all information and
correspondence received from other parties and analyses relating to the
Company and the Division Entities; provided, however, that any
confidentiality agreements entered into by Seller with respect to the
proposed sale of the Division shall be assigned to Buyer or the Company
effective as of the Closing Date to the extent assignable.
(b) In order that Seller may (i) properly respond to, conduct,
manage or otherwise participate in any Litigation which may arise from,
or relate to, any of the matters set forth on Section 5.9(b) of the
Disclosure Letter, or any settlement, arrangement or agreement entered
into in connection therewith (collectively, the "Retained Litigation")
and (ii) investigate, defend and otherwise respond to or satisfy
Retained Liabilities, Buyer agrees to use its commercially reasonable
efforts to reasonably cooperate, and to cause its Affiliates, employees,
accountants, counsel and other representatives to reasonably cooperate,
with Seller, its Affiliates, employees, accountants, counsel and other
representatives in connection with the Retained Litigation and Retained
Liabilities, and Seller agrees to reimburse Buyer for any reasonable
out-of-pocket costs of any such cooperation. Following the Closing,
neither Buyer, the Company, nor any Division Entity shall have any
rights or liabilities in connection with the Retained Litigation or the
Retained Liabilities and Seller shall have the right to settle the
Retained Litigation on behalf and in the name of the Company and/or any
of the Division Entities; provided, however, that Seller shall not,
without the consent of Buyer (which consent shall not be unreasonably
withheld, delayed or conditioned), enter into any settlement with
respect to any Retained Litigation which settlement provides for any
injunctive or other equitable relief with respect to the Business of the
Division or which requires the Company or the Division to pay any amount
of money. Without limiting the scope of the foregoing and except for
books and records relating to Taxes, which are addressed by Section
6.1(b)(vi) hereof, following the Closing, Buyer shall permit Seller and
its authorized representatives, during normal business hours and upon
reasonable notice, to have reasonable access to, and examine and make
copies of (at Seller's
31
expense), all books, records and personnel of the Company and the
Division Entities which relate to transactions or events occurring prior
to the Closing, including, without limitation, the events or
circumstances giving rise to the Retained Litigation and Retained
Liabilities ("Pre-Closing Transactions") or transactions or events
occurring subsequent to the Closing which are related to or arise out of
Pre-Closing Transactions, in each case, to the extent such Pre-Closing
Transactions relate to obligations of Seller or as necessary to comply
with applicable financial reporting obligations. Buyer agrees that it
shall retain all such books and records for a period of seven years
following the Closing Date, or for such longer period following the
Closing Date as may be required by Law. Seller shall hold, and shall
cause its Affiliates and representatives to hold, any information which
it or they receive in connection with the access granted pursuant to
this Section 5.9(b) in strict confidence and will not disclose such
information to any Person unless required by applicable law or with the
prior written consent of Buyer (which will not unreasonably be
conditioned, withheld or delayed).
(c) Seller and Buyer agree that it is the parties' mutual intent
that all Division Offerees who are to become Transferred Employees be
transitioned over to Buyer's payroll system at the Closing, and each of Seller
and Buyer agree to use their respective commercially reasonable efforts in
order to reasonably cooperate, and to cause their respective Affiliates,
employees, accountants, counsel and other representatives to reasonably
cooperate, with the other party in accomplishing such transition. In the event
that, despite the exercise of the efforts set forth in the preceding sentence,
Buyer is not able to reflect such Division Offerees on its payroll system as
of Closing, then such Division Offerees shall continue to be employees of
Seller or its applicable Subsidiary until such time, not later than ninety
(90) days after the Closing Date, as Buyer is able to reflect such Division
Offerees on its payroll (the later of such date and the Closing Date being
hereinafter referred to as the "Transition Date"). From the period beginning
on the Closing Date and ending on the Transition Date, (i) Seller agrees to
continue to reflect such Division Offerees who are to become Transferred
Employees on Seller's payroll system and to lease or second such employees to
Buyer pursuant to the terms of an employee lease agreement on terms to be
mutually agreed upon by Buyer and Seller, and (ii) Buyer agrees to reimburse
Seller for all associated costs and expenses incurred by Seller in its
performance of this Section 5.9(c), including, without limitation, all
expenses relating to such Division Offerees' base salary or wage rate, as
applicable, bonuses and employee benefits and all reasonable costs and
overhead of Seller in connection with providing the payroll services provided
hereunder.
(d) Seller and Buyer agree that the Division and Buyer are not
and will not be, by virtue of this Agreement or the transactions contemplated
hereunder, assuming any liabilities or obligations under the Amended and
Restated Class Settlement Procedure Agreement and Consent Decree or any other
obligations stemming from a proposed class action styled Access Now, Inc., a
Florida Corporation, Xxxxxx Xxxxxxx, Xxxxx Xxxxxxxxx Xxxxx and Xxxxx Xxxx,
individuals v. St. Petersburg Surgery Center, Ltd., et al., Civil Action No.
8:01-CV-T-17EAJ filed in the United States District Court for the Middle
District of Florida.
5.10 Preparation of Financial Statements. In the event that Buyer
reasonably determines, based upon the advice of its independent accountants or
a request by the Securities and Exchange Commission ("SEC"), that it requires
any financial statements (audited or otherwise) with respect to the Division
in addition to the financial statements described in
32
Section 3.7 hereof in order to comply with the requirements of the SEC, Seller
shall use commercially reasonable efforts to afford Buyer and its auditors
access to (a) the books and records of Seller, the Company and the Division
Entities (to the extent related to the Division only) and (b) Seller's
auditors and personnel to the extent reasonably required by Buyer to prepare
and/or audit all such financial statements. The cost and expense of preparing
such additional financial statements (including the costs of Seller's
auditors) shall be borne solely by Buyer. Seller agrees to, and to use
reasonable efforts to cause its Affiliates, advisors, accountants, auditors,
attorneys and representatives to, reasonably cooperate with Buyer and its
auditor in the preparation of such additional financial statements, including
by using commercially reasonable efforts to provide customary auditor
representation letters, and Buyer agrees to reimburse Seller for any
reasonable out-of-pocket costs incurred in connection with such cooperation.
For the avoidance of doubt, any information obtained by Buyer or its auditors
pursuant to this Section 5.10 shall be subject, prior to the Closing Date, to
the restrictions set forth in Section 5.2(b) hereof. From and after the
Closing Date, Buyer shall, and shall use reasonable efforts to cause its
Affiliates, advisors, accountants, auditors, attorneys and representatives to,
hold any material non-public information concerning or relating to Seller or
any of its Subsidiaries (other than the Company and the Division Entities) in
confidence except for such disclosures as may be (i) consented to by Seller in
writing or (ii) required by Law.
5.11 Covenant Not to Compete.
(a) Seller Covenant.
(i) In order to induce Buyer to enter into this Agreement,
Seller hereby covenants and agrees that, except as otherwise provided
herein, from and after the Closing and until the fifth (5th) anniversary
of the Closing Date, it shall not, and shall cause its controlled
Affiliates not to, directly or indirectly, participate in the
management, operation or control of, or have any financial or ownership
interest in, or aid or knowingly assist anyone else in the conduct of
(including providing financing or leasing any assets to), any business
or entity that (a) engages in the Business in any Restricted Territory,
or (b) is, to Seller's Knowledge, making preparations for engaging in
such Business in any Restricted Territory; provided, however, that
Seller may (y) acquire a Person that engages in the Business, among
other activities of such Person, in any Restricted Territory, provided
that such Person's EBITDA from the conduct of the Business in such
Restricted Territory do not exceed 10% of its total EBITDA for the
completed portion of its then current fiscal year or the full fiscal
year immediately prior to such acquisition, and (z) enter into, at arm's
length, any bona fide joint venture (or partnership or other business
arrangement) with any Person who is not directly engaged in the Business
but which is an Affiliate of another Person engaged in the Business; and
provided, further, that nothing contained in this Section 5.11(a)(i)
shall prohibit or otherwise restrict Seller's current or future
operation of (a) the facilities listed in Section 5.11(a)(i) of the
Disclosure Letter which provide outpatient therapy in affiliation with
one of Seller's inpatient rehabilitation facilities or (b) any of the
four facilities listed in Section 5.11(a)(i) of the Disclosure Letter
which provide outpatient therapy in affiliation with one of Seller's
long-term acute care hospitals, or, with respect to both clauses (a) and
(b), a relocation of such a facility. In addition, nothing contained in
this Section 5.11(a)(i) will prohibit Seller from operating one (but not
more than one) facility that
33
provides outpatient therapy in affiliation with an inpatient
rehabilitation facility that is built, developed or acquired by Seller
after the date hereof. In the event Seller acquires a Person that
engages in the Business in compliance with clause (b)(y), then in each
such case Seller shall, within twelve (12) months after the date that
such acquisition is consummated, sell or otherwise divest itself of the
portion of such acquired Person that engages in the Business and
promptly provide written notice to Buyer of such intended divestiture.
(ii) For a period of two (2) years from and after the date
hereof, neither Seller nor any of its Subsidiaries shall, directly or
indirectly, without the prior written consent of Buyer: (x) solicit or
direct any other Person to solicit any officer or other employee (or any
Person who was an officer or employee of the Company or any Division
Entity within six (6) months of the date of any such solicitation, if
such Person's employment was not terminated by the Company or such
Division Entity) to: (A) terminate such officer's or employee's
employment with the Company or any Division Entity; or (B) seek or
accept employment or other affiliation with Seller or its Subsidiaries
(other than, in each case, any solicitation directed at the public in
general in publications available to the public in general or any
contact which Seller or its Subsidiaries can demonstrate was initiated
by such officer, director or employee or any contact six (6) months
after such officer's or employee's employment with the Company or any
Division Entity is terminated) or (y) hire, employ or retain as a
consultant or direct any other person to hire, employ or retain as a
consultant, any such officer or other employee of the Company or any
Division Entity (or any Person who was an officer or employee of the
Company or any Division Entity within six (6) months of the date of any
such hiring, if such Person's employment was not terminated by the
Company or any Division Entity). Seller's obligations under this Section
5.11(a)(ii) with respect to new Company and Division Entity employees
hired after the Closing Date shall be subject to the condition that
Buyer shall have notified Seller of the names of such new employees.
(iii) Seller hereby acknowledges and agrees that if Seller
or any one or more of its Subsidiaries breaches any provision of this
Section 5.11(a), any remedy at law would be inadequate and that Buyer,
in addition to seeking monetary damages in connection with any such
breach (other than a breach arising under Section 5.11(a)(ii)(y)), shall
be entitled to specific performance, and injunctive and other equitable
relief to prevent or restrain a breach of this Section 5.11(a) or to
enforce the provisions hereof. Buyer and Seller acknowledge and agree
that, notwithstanding anything to the contrary in this Agreement,
including Article XI hereof, in the event of a breach by Seller or any
one or more of its Subsidiaries of Section 5.11(a)(ii)(y) with regard to
any given Person, Buyer's sole and exclusive remedy for such breach
shall be to cause Seller to terminate the employment or consultancy of
such Person; provided, however, that the foregoing shall not relieve
Seller from any liability for its failure to comply with the provisions
of this sentence.
(b) Buyer Covenant.
(i) For a period of two (2) years from and after the date
hereof, neither Buyer nor any of its Subsidiaries shall, directly or
indirectly, without the prior written consent of Seller, hire, employ or
retain as a consultant or direct any other person
34
to hire, employ or retain as a consultant, any officer or other employee
of Seller or its Subsidiaries who is directly associated with a facility
of Seller or its Subsidiaries that provides outpatient therapy in
affiliation with an inpatient rehabilitation facility or (solely with
respect to the four facilities listed in Section 5.11(a)(i) of the
Disclosure Letter that provide outpatient therapy in affiliation with a
long-term acute care hospital) long-term acute care hospital (a "Seller
Outpatient Employee") (or any Person who was a Seller Outpatient
Employee within six (6) months of the date of any such hiring, if such
Person's employment was not terminated by Seller or its Subsidiaries).
Section 5.11(b)(i) of the Disclosure Statement, as supplemented pursuant
to Section 5.7, sets forth a list of all current Seller Outpatient
Employees. Buyer's obligations under this Section 5.11(b)(i) with
respect to new employees of Seller or its Subsidiaries hired after the
Closing Date shall be subject to the condition that Seller shall have
notified Buyer of the names of such new employees.
(ii) Buyer hereby acknowledges and agrees that if Buyer or
any one or more of its Subsidiaries breaches any provision of this
Section 5.11(b), any remedy at law would be inadequate and that Buyer,
in addition to seeking monetary damages in connection with any such
breach (other than a breach arising under Section 5.11(b)(i)(y)), shall
be entitled to specific performance, and injunctive and other equitable
relief to prevent or restrain a breach of this Section 5.11(b) or to
enforce the provisions hereof. Buyer and Seller acknowledge and agree
that, notwithstanding anything to the contrary in this Agreement,
including Article XI hereof, in the event of a breach by Buyer or any
one or more of its Subsidiaries of Section 5.11(b)(i)(y) with regard to
any given Person, Seller's sole and exclusive remedy for such breach
shall be to cause Buyer to terminate the employment or consultancy of
such Person; provided, however, that the foregoing shall not relieve
Buyer from any liability for its failure to comply with the provisions
of this sentence.
(c) Mutual Covenant. Seller and Buyer intend that the provisions
of this Section 5.11 be enforced to the fullest extent permissible under the
laws applied in each jurisdiction in which enforcement is sought. If any
provision of this Section 5.11, or any part hereof, shall be held by a court
of competent jurisdiction to be invalid or unenforceable, this Section 5.11
shall be amended to revise the scope of such provision, to make it enforceable
to the fullest extent permitted by applicable Law, if possible, or to delete
such provision or such part, such revision or deletion to apply only with
respect to the operation of this Section 5.11 in the jurisdiction of such
court.
ARTICLE VI
ADDITIONAL AGREEMENTS
---------------------
6.1 Tax Matters.
(a) Section 338(h)(10) Election; Actions to Treat The Company and
The Division Entities as Disregarded.
(i) Seller and Buyer shall jointly make an election under
Section 338(h)(10) of the Code (and any comparable provision of
applicable state or local income Tax Law) with respect to the purchase
of the shares of the Company by Buyer
35
(and with respect to the Division Entities, except those if any as shall be
mutually agreed upon by Buyer and Seller) and shall cooperate with each other
to take all actions necessary and appropriate (including filing such
additional forms, returns, elections schedules and other documents as may be
required) to effect and preserve a timely election, in accordance with the
provisions of Treasury Regulation Section 1.338(h)(10)-1 (or any comparable
provisions of state or local Tax Law) (the "Election").
(ii) In connection with the Election, Buyer and Seller shall
mutually prepare an Internal Revenue Service Form 8023 (or successor
form) and all other schedules and documents as may be required ("Form
8023") and any comparable forms required by provisions of state or local
Law. With the cooperation of Buyer, Seller shall prepare a draft Form
8023 and provide such draft Form 8023 to Buyer within twenty (20) days
of the provision of the Conclusive Statement, as provided in Section
1.6(a)(v) hereof. If, within twenty (20) days of the receipt of the
draft Form 8023, Buyer notifies Seller that it disagrees with the draft
Form 8023 and provides Seller with a statement setting out the reasons
for its disagreement, then Seller and Buyer shall attempt to resolve
their disagreement within the twenty (20) days following Buyer's
notification to Seller of such disagreement; otherwise, the draft Form
8023 shall become the Final Form 8023. If Seller and Buyer are unable to
resolve their disagreement, the dispute shall be submitted to the
Accounting Arbiter or such other internationally recognized accounting
firm as Seller and Buyer shall in good faith agree (the "Independent
Accounting Firm"), whose expense shall be borne equally by Seller and
Buyer, for resolution within twenty (20) days of such submission. The
Form 8023 delivered by the Independent Accounting Firm shall be the
Final Form 8023. The Final Form 8023 shall be binding on Seller, Buyer,
and their respective Affiliates. Seller and Buyer shall take no
position, and cause their respective Affiliates to take no position,
inconsistent with the Final Form 8023. Neither Seller nor Buyer shall,
or shall permit the Company and the Division Entities to, take any
action to modify the Form 8023 (including any corrections, amendments or
supplements thereto) after their execution or to modify or revoke the
Election following the filing of the Form 8023 by Seller without the
written consent of Seller or Buyer, as the case may be.
(iii) In connection with the Election, on or prior to the
six-month anniversary of the Closing Date, (a) Buyer shall provide to
Seller a proposed determination of the "Aggregate Deemed Sales Price"
and the "Adjusted Grossed Up Basis" (each, as defined under applicable
Treasury Regulations) with respect to the Company and the Division
Entities (except those if any as shall be mutually agreed upon by Buyer
and Seller), which allocations shall be made in accordance with Section
338(b) of the Code and any applicable Treasury Regulations. Within
fifteen (15) days following such provision, Seller shall have the right
to dispute any such proposed determination or proposed allocation;
otherwise, such proposed determination or proposed allocation shall
become final. If Seller so disputes any such determination or allocation
and Buyer and Seller are unable to resolve their disagreement within the
twenty (20) days following notification of such dispute, the dispute
shall be submitted to the Independent Accounting Firm, whose expense
shall be borne equally by Buyer and Seller, for resolution within twenty
(20) days of such submission. The decision of the Independent Accounting
Firm with respect to such dispute shall be binding upon Buyer and
Seller. Seller and Buyer (a)
36
shall be bound by the determinations and the allocations determined
pursuant to this paragraph consistently therewith for purposes of
determining any Taxes, including the preparation and filing of Internal
Revenue Service Form 8883; (b) shall prepare and file all Tax Returns to
be filed with any Tax authority in a manner consistent with such
allocations; and (c) shall take no position inconsistent with such
allocations in any Tax Return, any proceeding before any Tax authority
or otherwise. In the event that any such allocation is disputed by any
Tax authority, the party receiving notice of such dispute shall promptly
notify and consult with the other party hereto concerning resolution of
such dispute.
(iv) Buyer and Seller shall mutually prepare any forms or
schedules similar to Form 8023 that are required for provisions of state
or local Law that are comparable to Treasury Regulations Section
1.338(h)(10)-1 in a manner similar to the above procedure. In the event
that the Final Form 8023 (or similar forms or schedules required for
provisions of state or local Law) is disputed by any Tax authority, the
party receiving written notice of the dispute shall promptly notify the
other party hereto concerning such dispute.
(v) Notwithstanding the provisions of Sections 6.1(a)(i)
through (iv) or any provision of Section 5.1, to the extent permitted by
applicable Law, Seller may take such action, including converting the
Company and Division Entities to limited liability companies or similar
forms of organization, and shall make such elections as may be required
to cause the Company and each of the Division Entities, other than those
Division Entities as may be mutually agreed between Buyer and Seller
prior to Closing, to be treated as entities each of which is disregarded
as separate from its owner, within the meaning of Treasury Department
Regulation 301.7701-2(c)(2) (and any analogous provision of state or
local Tax law) ("Disregarded Entities"), so that, with respect to each
such Disregarded Entity Seller shall be treated as selling, and Buyer
shall be treated as purchasing, for all Federal and applicable state and
local income tax purposes, the assets (other than stock of another
Disregarded Entity) held by such Disregarded Entity; provided, however,
that Seller may not take such action without the prior written consent
of Buyer with respect to the Company or any Division Entity if such
action would preclude Buyer from obtaining a tax basis in the assets of
such entity equal to the allocable portion of the Purchase Price
pursuant to the provisions of Section 6.1(f) or would otherwise
adversely affect Buyer. Deemed sales of assets pursuant to the
provisions of this Section 6.1(a)(v) are referred to herein as "DRE
Sales."
(b) Tax Return Filings, Refunds, and Credits.
(i) Seller shall timely prepare and file (or cause such
preparation and filing) with the appropriate Tax authorities all
required Tax Returns (including any Consolidated Income Tax Returns),
and any amended Tax Returns, with respect to the Division, the Company
and the Division Entities for Tax periods that end on or before the
Closing Date (the "Seller Returns"), and will pay (or cause to be paid)
all Taxes due with respect to Seller Returns. Seller shall provide Buyer
with a copy of any such Seller Return.
37
(ii) Buyer shall timely prepare and file (or cause such
preparation and filing) with the appropriate Tax authorities all
required Tax Returns with respect to the Division, the Company, and the
Division Entities for all Tax periods that include, but do not end on,
the Closing Date (the "Straddle Period Returns"). The preparation and
the filing shall be consistent with (including, as necessary, attaching
copies of any relevant forms of its U.S. federal income Tax Return for
the year including the Closing Date), and Buyer shall take no position
that is inconsistent with, the Election (or, if applicable, the DRE
Sales), or the forms filed with the Tax authorities with respect to the
Election (or, if applicable, the DRE Sales) in any proceeding before any
Tax authority. Buyer shall provide Seller with copies of any Straddle
Period Returns at least thirty (30) Business Days (or such lesser period
if, in the case of non-income Taxes, such forty-five (45) Business Day
deadline is not reasonably practicable) prior to the due date thereof
(giving effect to any extensions thereto), accompanied by a statement
(the "Straddle Statement") setting forth and calculating in reasonable
detail the Pre-Closing Taxes (as hereinafter defined). If Seller agrees
with the Straddle Period Return and Straddle Statement, Seller shall pay
to Buyer an amount equal to the Pre-Closing Taxes shown on the Straddle
Statement not later than two (2) Business Days before the due date
(including any extensions thereof) for payment of Taxes with respect to
such Straddle Period Return. If, within ten (10) days of the receipt of
the Straddle Period Return and Straddle Statement, Seller notifies Buyer
that it disputes the manner of preparation of the Straddle Period Return
or the Pre-Closing Taxes shown on the Straddle Statement, then Buyer and
Seller shall attempt to resolve their disagreement within the five (5)
days following Seller's notification to Buyer of such disagreement. If
Buyer and Seller are unable to resolve their disagreement, the dispute
shall be submitted to the Independent Accounting Firm, whose expense
shall be borne equally by Buyer and Seller, for resolution within twenty
(20) days of such submission. The decision of the Independent Accounting
Firm with respect to such dispute shall be binding upon Buyer and
Seller, and Seller shall pay to Buyer an amount equal to the Pre-Closing
Taxes, as decided by the Independent Accounting Firm, not later than two
(2) Business Days before the due date (including any extensions thereof)
for payment of Taxes with respect to such Straddle Period Return or, if
later, within two (2) Business Days following the resolution of the
amount of such Pre-Closing Taxes, provided that Seller shall reimburse
Buyer for any undisputed amounts not later than two (2) Business Days
before the due date (including applicable extensions) for the payment of
Taxes with respect to such Straddle Period Return.
(iii) From and after the Closing Date, Buyer and its
Affiliates (including the Company and the Division Entities) shall not
file any amended Tax Return, carryback claim, or other adjustment
request with respect to the Division, the Company or the Division
Entities for any Tax period that includes or ends on or before the
Closing Date unless Seller consents in writing; provided, however, that
with respect to any Straddle Period, such consent shall not be
unreasonably withheld, delayed or conditioned.
(iv) For purposes of this Agreement, in the case of any
Taxes of the Division, the Company, or the Division Entities that are
payable with respect to any Straddle Period, the portion of any such
Taxes that constitutes "Pre-Closing Taxes" shall:
38
(A) in the case of real property, personal property and other ad valorem
Taxes imposed on a periodic basis with respect to the business or assets
of the Division, the Company, or the Division Entities or otherwise
measured by the level of any item, be deemed to be the amount of such
Taxes for the entire Straddle Period (or, in the case of such Taxes
determined on an arrears basis, the amount of such Taxes for the
immediately preceding Tax period) multiplied by a fraction, the
numerator of which is the number of calendar days in the portion of the
Straddle Period ending on the Closing Date and the denominator of which
is the number of calendar days in the entire Straddle Period, and (B) in
the case of all other Taxes that are either (x) based upon or related to
income or receipts or (y) imposed in connection with any sale, transfer
or assignment or any deemed sale, transfer or assignment of property
(real or personal, tangible or intangible), be deemed equal to the
amount that would be payable if the Tax period ended on the Closing
Date. For purposes of clause (B) of the preceding sentence, any
exemption, deduction, credit or other item that is calculated on an
annual basis shall be allocated to the portion of the Straddle Period
ending on the Closing Date on a pro rata basis determined by multiplying
the total amount of such item allocated to the Straddle Period times a
fraction, the numerator of which is the number of calendar days in the
portion of the Straddle Period ending on the Closing Date and the
denominator of which is the number of calendar days in the entire
Straddle Period. The parties hereto shall, to the extent permitted by
applicable Law, elect with the relevant Tax authority to treat a portion
of any Straddle Period as a short taxable period ending as of the close
of business on the Closing Date. For purposes of this Agreement,
"Post-Closing Taxes" shall include any Taxes of the Division, the
Company, and the Division Entities that are payable with respect to a
Straddle Period, except for the portion of any such Taxes that
constitutes Pre-Closing Taxes.
(v) Seller and Buyer shall reasonably cooperate in preparing
and filing all Tax Returns with respect to the Division, the Company,
and the Division Entities, including maintaining and making available to
each other all records reasonably necessary in connection with Taxes of
the Division, the Company, or the Division Entities and in resolving all
disputes and audits with respect to all Tax periods relating to Taxes of
the Division, the Company, and the Division Entities. Buyer shall
prepare (or cause such preparation) within one hundred twenty (120) days
after the Closing Date, usual and customary Consolidated Income Tax
Return reporting packages submitted to Buyer by Seller with respect to
the Company and the Division Entities for the taxable period ending on
December 31, 2006 and for the taxable period beginning January 1, 2007,
and ending as of the Closing Date. Without limiting the generality of
the foregoing, Buyer shall reasonably cooperate (at Seller's expense) in
the preparation, filing and prosecution of any claim for refunds of
Taxes with respect to any Tax Period ending on or before the Closing
Date.
(vi) For a period of six years after the Closing Date,
Seller and its representatives shall have reasonable access to the books
and records (including the right to make extracts thereof) of the
Division, the Company, and the Division Entities to the extent that such
books and records relate to Taxes and to the extent that such access may
reasonably be required by Seller in connection with matters relating to
or affected by the operation of the Division (including the Division
Entities) prior to the Closing Date.
39
Such access shall be afforded by Buyer upon receipt of reasonable
advance notice and during normal business hours. If Buyer shall desire
to dispose of any of such books and records prior to the expiration of
such six-year period, Buyer shall, prior to such disposition, give
Seller a reasonable opportunity, at Seller's expense, to segregate and
remove such books and records as Seller may select. In addition to the
foregoing, the parties agree to cooperate with each other with respect
to the defense of any claims or litigation relating to Taxes pertaining
to the Division, the Company, or the Division Entities, provided that
the party requesting such cooperation shall reimburse the other party
for the other party's reasonable out-of-pocket costs and expenses of
furnishing such cooperation.
(vii) If a Tax Indemnified Party (as hereinafter defined)
receives a refund or credit or other reimbursement with respect to Taxes
for which, or a Tax Period with respect to which, it would be
indemnified under this Agreement, the Tax Indemnified Party shall pay
over such refund or credit or other reimbursement to the Tax
Indemnifying Party (as hereinafter defined). For the avoidance of doubt,
any refund of Taxes relating to the Division received by Buyer with
respect to a Taxable Period ending on or before the Closing Date shall
be paid over to Seller and any refund of Taxes relating to the Division
received by Seller with respect to a Taxable Period ending after the
Closing Date shall be paid over to Buyer.
(viii) To the maximum extent allowed by law, Buyer must
carry back any Tax Benefit (as hereinafter defined) which is
attributable to the Division, the Company, or any of the Division
Entities for any Tax period ending on or before the Closing Date or the
portion of the Straddle Period ending on the Closing Date unless Buyer
requests and obtains the written consent of Seller to do otherwise.
(ix) Buyer shall not, and shall cause the Company and the
Division Entities not to, make, amend or revoke any Tax election if such
action would adversely affect any Seller or its Affiliates with respect
to any Tax period ending on or before the Closing Date or for the
portion of a Straddle Period ending on the Closing Date or any Tax
refund with respect thereto; provided that Buyer may take such actions
if it reimburses Seller for the amount of Taxes resulting from such
election that Seller would otherwise be responsible for hereunder.
(x) For purposes of this Agreement, a "Consolidated Income
Tax Return" is any income Tax Return filed with respect to any
consolidated, combined, affiliated or unified group provided for under
Section 1501 of the Code and the Treasury Regulations under Section 1502
of the Code, or any comparable provisions of foreign, state or local
Law, other than any income Tax Return that includes only the Company and
the Division Entities.
(c) Indemnity for Taxes.
(i) Notwithstanding any other provision of this Agreement,
any indemnification with respect to Taxes shall be exclusively governed
by the provisions of this Section 6.1(c).
40
(ii) Seller shall indemnify Buyer Indemnified Parties
against and hold them harmless from all liability for (i) all Taxes
imposed on the Division, the Company, or the Division Entities with
respect to Tax periods ending on or before the Closing Date, (ii)
Pre-Closing Taxes determined pursuant to Section 6.1(b)(iv) with respect
to any Straddle Period, (iii) all Taxes that are attributable to Seller
or any member (other than the Company or the Division Entities) of an
Affiliated Group to which Seller is or was the common parent prior to
the Closing Date that is imposed under Treasury Regulations Section
1.1502-6 (or any similar provision of state, local or foreign Tax Law)
by reason of the Company or any of the Division Entities being included
in any such Tax group, (iv) all Damages imposed or suffered by Buyer
Indemnified Parties by reason of or arising from any breach of or
inaccuracy in any representation or warranty of Seller with regard to
Taxes contained in Section 3.13 hereof, and (v) all Taxes arising in
connection with or resulting from the Restructuring Transactions (other
than Excess Restructuring Costs).
(iii) Buyer, the Company, and the Division Entities shall
indemnify Seller and its Affiliates against and hold them harmless from
all liability for (i) all Taxes of the Division, the Company, and the
Division Entities with respect to Tax periods beginning after the
Closing Date and (ii) Post-Closing Taxes, as determined pursuant to
Section 6.1(b)(iv) with respect to any Straddle Period.
(iv) The obligation of Seller to indemnify and hold harmless
Buyer Indemnified Parties, on the one hand, and the obligations of
Buyer, the Company, and the Division Entities to indemnify and hold
harmless Seller, on the other hand, pursuant to this Section 6.1(c),
shall terminate sixty (60) days following the expiration of the
applicable statutes of limitations with respect to the Tax liabilities
in question (giving effect to any waiver, mitigation or extension
thereof and except for claims that have been asserted prior to that
time).
(v) A party seeking indemnification provided for under this
Agreement (a "Tax Indemnified Party") in respect of Taxes arising out of
or involving a claim or demand made by any third Person, including a Tax
authority, against such party (a "Tax Third-Party Claim") must notify
the party from whom such indemnification is sought (the "Tax
Indemnifying Party") in writing of the Tax Third-Party Claim as promptly
as possible but in no event later than ten (10) days after receipt by
the Tax Indemnified Party of written notice of the Tax Third-Party
Claim; provided, however, that failure to give such notification shall
not affect the indemnification provided hereunder except to the extent
the Tax Indemnifying Party shall have been actually prejudiced as a
result of such failure (except that the Tax Indemnifying Party shall not
be liable for any expenses incurred during the period in which the Tax
Indemnified Party failed to give such notice). Thereafter, the Tax
Indemnified Party shall deliver to the Tax Indemnifying Party, as
promptly as possible but in no event later than ten (10) days after the
Tax Indemnified Party's receipt thereof, copies of all notices and
documents (including court papers) received by the Tax Indemnified
Party, relating to the Tax Third-Party Claim.
41
If a Tax Third-Party Claim is made against the Tax Indemnified Party,
the Tax Indemnifying Party shall be entitled to participate in the defense
thereof and (except in the case of Straddle Period Taxes) to assume the
defense thereof with counsel or other Tax advisors selected by the Tax
Indemnifying Party reasonably satisfactory to the Tax Indemnified Party, if
the Tax Indemnifying Party expressly agrees in writing that, as between the
two, the Tax Indemnifying Party is solely responsible to satisfy and discharge
the claim. If the Tax Indemnifying Party assumes such defense, the Tax
Indemnifying Party shall not be liable to the Tax Indemnified Party for legal
or other expenses subsequently incurred by the Tax Indemnified Party in
connection with the defense thereof, provided, however, that the Tax
Indemnifying Party shall be liable for the reasonable fees and expenses of
counsel employed by the Tax Indemnified Party, if and to the extent that (i)
the Tax Indemnifying Party has not employed counsel reasonably satisfactory to
the Tax Indemnified Party to assume the defense of such action within a
reasonable time after commencement of the action; (ii) the employment of
counsel and the amount reimbursable therefor by the Tax Indemnified Party has
been authorized in writing by the Tax Indemnifying Party; or (iii)
representation of the Tax Indemnifying Party and the Tax Indemnified Party by
the same counsel would, in the reasonable opinion of such counsel, create a
conflict of interest. If the Tax Indemnifying Party assumes such defense, the
Tax Indemnified Party shall have the right to participate in the defense
thereof and to employ counsel or other Tax advisors, at its own expense
separate from the counsel or other Tax advisors employed by the Tax
Indemnifying Party. Whether or not the Tax Indemnifying Party chooses to
defend or prosecute any Tax Third-Party Claim, all of the parties hereto shall
reasonably cooperate in the defense or prosecution thereof. Such cooperation
shall include the provision to the Tax Indemnifying Party of records and
information which are reasonably relevant to such Tax Third-Party Claim, and
making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder.
Whether or not the Tax Indemnifying Party shall have assumed the defense of a
Tax Third-Party Claim, the Tax Indemnified Party shall not admit any liability
with respect to, or settle, compromise or discharge, such Tax Third-Party
Claim without the Tax Indemnifying Party's prior written consent, which
consent shall not be unreasonably withheld, delayed or conditioned.
(d) Transfer and Similar Taxes. Notwithstanding any other
provisions of this Agreement to the contrary, all sales, use, transfer, gains,
stamp, duties, recording and similar Taxes (collectively, "Transfer Taxes")
incurred in connection with the transactions contemplated by this Agreement
shall be borne one-half by Buyer and one-half by Seller, provided that all
Transfer Taxes incurred in connection with the Restructuring Transactions
(other than Excess Restructuring Costs) shall be borne by Seller. Seller shall
accurately prepare and file all necessary Tax Returns and other documentation
with respect to Transfer Taxes and timely pay all such Transfer Taxes. Buyer
shall have reasonable opportunity to review and comment on any such Tax Return
prior to filing, and Seller shall make such changes thereto as Buyer shall
reasonably request. Buyer shall pay to Seller its share, if any, of the
Transfer Tax shown to be due on the Tax Return as agreed within ten (10)
Business Days after such Tax Return is given to Buyer. If required by
applicable Law, Buyer will join in the execution of any such Return.
(e) Termination of Tax Sharing Agreements. On or prior to the
Closing Date, any agreement with respect to Taxes to which the Company or any
of the Division Entities is a party shall be terminated (other than
agreements, arrangements or practices solely
42
between or among the Company and the Division Entities), all obligations
thereunder shall be settled no later than immediately prior to the Closing and
no additional payments shall be made under any provisions thereof after the
Closing Date.
(f) Allocation of Purchase Price. Within thirty (30) Business
Days following the date hereof, Buyer shall prepare and deliver, or cause to
be prepared and delivered, to Seller, an allocation of the Initial Purchase
Price among the assets of the Company and the Division Entities and the
non-competition covenant set forth in Section 5.11 hereof (the "Allocation").
If, within thirty (30) Business Days of the receipt of the Allocation, Seller
notifies Buyer that it disagrees with the Allocation and provides Buyer with a
notice setting out in reasonable detail the reasons for its disagreement (the
"Allocation Dispute Notice"), then Seller and Buyer shall attempt to resolve
their disagreement within the ten (10) days following Buyer's receipt of
Seller's Allocation Dispute Notice; otherwise, the Allocation shall become the
"Final Allocation." If Seller and Buyer are unable to resolve their
disagreement, the disputed items set forth in the Allocation Dispute Notice
shall be submitted to the Independent Accounting Firm, whose expense shall be
borne equally by Seller and Buyer. The Independent Accounting Firm shall
determine and report in writing to Seller and Buyer as to its determination of
all disputed matters submitted to the Independent Accounting Firm and the
effect of such determinations on the Allocation within ten (10) Business Days
after such submission, and such determinations shall be final, binding and
conclusive as to Seller, Buyer and their respective Affiliates. In resolving
any disputed item set forth in the Allocation Dispute Notice, the Independent
Accounting Firm, acting in its capacity as an expert and not as an arbitrator:
(i) shall limit its review to matters specifically set forth in Buyer's
Allocation Dispute Notice as a disputed item (other than those items
thereafter resolved by mutual written agreement of Seller and Buyer) and (ii)
shall not assign a value to any item greater than the greatest value for such
item claimed by any party or less than the smallest value for such item
claimed by any other party in the Allocation prepared by Seller or Buyer's
Allocation Dispute Notice delivered pursuant to this Section 6.1(f). Each of
Seller and Buyer shall have the right, within five (5) Business Days of
submission of any disputed item to the Independent Accounting Firm, to meet
with representatives of the Independent Accounting Firm and present its
position as to the resolution of such disputed item. In addition, Seller and
Buyer shall each furnish to the Independent Accounting Firm such work papers
and other documents and information relating to the disputed items, as the
Independent Accounting Firm may reasonably request. Buyer and Seller agree to
(i) be bound by the Final Allocation, (ii) act in a manner consistent with the
Final Allocation for all purposes, including, without limitation, the
preparation of financial statements and filing of all Tax Returns and in the
course of any Tax audit, Tax review or Tax litigation relating thereto, and
(iii) take no position, and cause their Affiliates to take no position,
inconsistent with the Final Allocation for any purpose, in each case, except
as otherwise required by Law.
6.2 Division Employees; Employee Contracts and Benefits.
(a) Continuation of Employment. At or prior to the Closing, Buyer
shall make "at will" offers of employment to all employees of Seller and its
Subsidiaries who are
43
actively employed by Seller and who work at any of the Facilities, as well as
those employees of Seller and its Subsidiaries who are primarily involved in
actively providing services to the Division and who are listed in Section
6.2(a) of the Disclosure Letter (the "Division Offerees") on the terms
described in Section 6.2(b). Any employees of Seller and its Subsidiaries who
are normally employed in connection with the operation of the Facilities, or
primarily in providing services to the Division and who are listed on Schedule
6.2(a) of the Disclosure Letter and are on approved leave of absence,
including by reason of short or long term disability, shall become Division
Offerees if, and only if, they are able to return to active employment within
180 days after Closing. Buyer agrees to hire the Division Offerees who accept
such offer of employment. Division Offerees who accept their employment offers
and commence employment with Buyer pursuant to such offers shall be referred
to herein as "Transferred Employees." If, at any time from the Transition Date
until the date that is one year after the Transition Date, Buyer, the Company
or any Division Entity terminate the employment of any Transferred Employee
(other than any Transferred Employee listed in Section 6.2(g) of the
Disclosure Letter), Buyer shall be responsible for any severance due such
employees under the severance plan of Seller disclosed in Section 6.2(a) of
the Disclosure Letter (the "Severance Policy") and shall indemnify and hold
harmless Seller against any Damages arising in connection therewith. If, at
any time from and after the date that is one year after the Transition Date,
Buyer, the Company or any Division Entity terminate the employment of any
Transferred Employee (other than any Transferred Employee listed in Section
6.2(g) of the Disclosure Letter), Buyer shall be responsible for any severance
due such employees under any applicable severance plan of Buyer and shall
indemnify and hold harmless Seller against any Damages arising in connection
therewith. If a Division Offeree does not accept Buyer's offer of employment
where such offer did not reflect a base salary or wage rate, as applicable,
bonus opportunities and employee benefits comparable in the aggregate to (or
in excess of) the base salary or wage rate, as applicable, bonus opportunities
(excluding transaction, retention or similar bonuses) and employee benefits
provided to such Division Offeree as of the date hereof, Buyer shall be
responsible for any severance due such Division Offeree under the Severance
Policy and shall indemnify and hold harmless Seller against any Damages
arising in connection therewith. If a Division Offeree does not accept Buyer's
offer of employment where such offer reflected a base salary or wage rate, as
applicable, bonus opportunities and employee benefits comparable in the
aggregate to (or in excess of) the base salary or wage rate, as applicable,
bonus opportunities (excluding transaction, retention or similar bonuses) and
employee benefits provided to such Division Offeree as of the date hereof,
Seller shall be responsible for any severance due such Division Offeree under
the Severance Policy and shall indemnify and hold harmless Buyer against any
Damages arising in connection therewith.
(b) Compensation and Benefits. Subject to Section 6.2(g) hereof,
upon the Transition Date, Buyer shall offer, or shall cause, as applicable, a
Subsidiary of Buyer to offer, a base salary or wage rate, as applicable, bonus
opportunity and employee benefits to the Transferred Employees that are
substantially similar to those offered by Buyer, or the relevant Subsidiary of
Buyer, to its own similarly situated employees. Any employee benefits provided
to such Transferred Employees will be provided under existing or newly
established employee benefit plans which will, in either case, be employee
benefit plans of Buyer, a Subsidiary of Buyer, the Company or a Division
Entity (any such employee benefit plan in which Transferred Employees
participate, the "Applicable Buyer Plan") and which may be modified at any
time.
(c) Seller Plans. Transferred Employees shall cease
participation, vesting, benefit and service accruals under all Benefit Plans
of Seller immediately upon the Transition Date.
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(d) Benefit Plan Liabilities. Except as set forth in Sections
6.2(e) and 6.2(g) hereof, all Benefit Plan liabilities accrued by Seller with
respect to Transferred Employees prior to the Transition Date, and all
liabilities for benefits under any Benefit Plan that, on the Transition Date,
are incurred but not yet reported, shall be the liability of and paid by
Seller in accordance with applicable requirements. A liability under any
Benefit Plan shall be deemed to be incurred for purposes of this Section
6.2(d) on the date on which the services or other benefits giving rise to that
liability are provided without regard to when any xxxx or other demand for
payment is made. Seller shall not be liable for any liabilities that are
incurred, or that relate to any period, on or after the Transition Date.
(e) Certain Other Liabilities. As of the Transition Date, all
liabilities and obligations whatsoever with respect to Transferred Employees
relating to or arising under any accrued wages and holiday, vacation and sick
day benefits, shall to the extent accrued and reflected in the Net Working
Capital be assumed by, and the sole responsibility of, Buyer or the Company or
a Division Entity.
(f) Participation and Service Credit.
(i) Except as otherwise expressly provided in this
Agreement, effective as of the Transition Date, Buyer or a Division
Entity, as applicable, shall give Transferred Employees service credit
for purposes of eligibility and vesting under any Applicable Buyer Plan
to the extent such service was recognized under the corresponding
Benefit Plan of Seller.
(ii) Any Applicable Buyer Plan providing health benefits
shall provide that each Transferred Employee who, on the Transition
Date, is participating under a Welfare Plan of Seller providing health
benefits, shall be immediately eligible to participate in and receive
coverage under the Applicable Buyer Plan as of the Transition Date.
Buyer shall waive any restrictions on coverage for pre-existing
conditions or requirements for evidence of insurability under the
Applicable Buyer Plan for Transferred Employees to the extent such
restrictions have been or would have been satisfied under Seller Welfare
Plans. Transferred Employees shall receive credit under each Applicable
Buyer Plan for co-payments and payments under a deductible limit made by
them and for out-of-pocket maximums and similar limits applicable to
them during the plan year of Seller Welfare Plan in which the Transition
Date occurs in accordance with the corresponding Seller Welfare Plan.
(g) Certain Plans and Agreements. Buyer agrees that Buyer will,
or will cause the Company or the Division Entities to reimburse Seller for an
amount up to $4,958,000 for severance costs that may be incurred by Seller in
connection with the termination of employment of any employee listed in
Section 6.2(g) of the Disclosure Letter, provided that, as a condition of that
reimbursement Seller has taken all such actions as are reasonably necessary to
ensure that Buyer, its Subsidiaries, the Company and the Division Entities are
entitled to the protections of all restrictive covenants, including without
limitation, non-competition, protection of confidential information and
non-solicitation of employees, to which any of the individuals listed in
Section 6.2(g) of the Disclosure Letter are subject by reason of any sale or
other bonuses contingent upon the consummation of the transactions
contemplated hereunder. All other liabilities of Seller or the Division
Entities for severance pay (other than in connection with the
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Severance Plan), stay bonuses, stock options or other equity incentives,
retention plans, sale or other bonuses contingent upon the consummation of the
transactions contemplated hereunder or any similar arrangements shall be
retained by Seller and shall constitute "Retained Liabilities" hereunder and
Buyer shall not assume any such liabilities or any other employee benefit or
compensation liabilities, except as specifically set forth in Section 6.2(e)
above.
(h) FUTA; FICA. Buyer and Seller shall (i) treat Buyer or a
Subsidiary of Buyer as a "successor employer" and the Company and the Division
Entities, as applicable, as a "predecessor," within the meaning of Sections
3121(a)(1) and 3306(b)(1) of the Code, with respect to Transferred Employees
employed by Buyer or a Subsidiary of Buyer for purposes of Taxes imposed under
the United States Federal Unemployment Tax Act or the United States Federal
Insurance Contributions Act, and (ii) cooperate with each other to avoid the
filing of more than one IRS Form W-2 with respect to each such Transferred
Employee for the calendar year in which the Transition Date occurs.
(i) WARN Act Requirements. On and after the Transition Date,
Buyer shall be responsible with respect to Transferred Employees and their
beneficiaries for compliance with the Worker Adjustment and Retraining
Notification Act of 1988 and any other applicable state Law of similar
purpose.
6.3 Workers' Compensation. Prior to Closing, Buyer shall use
commercially reasonable efforts to fulfill the necessary requirements of each
state in which the Company or any of the Division Entities operates with
respect to workers' compensation insurance, including posting surety bonds or
purchasing insurance policies.
6.4 Use of Seller's Name and Logo. It is expressly agreed that Buyer
is not purchasing, acquiring or otherwise obtaining any right, title or
interest in and to the name "HealthSouth" or any trade names, trademarks,
Internet domain names, identifying logos or service marks related thereto or
employing the words "HealthSouth" or any part or variation of any of the
foregoing or any confusingly similar trade name, trademark, Internet domain
name, logo or service xxxx (collectively, "Seller's Trademarks and Logos").
Notwithstanding the foregoing, the parties agree that during the period from
the Closing Date until one hundred eighty (180) days after the Closing Date
(the "Wind-down Period"), the Division Entities shall be entitled to continue
to use Seller's Trademarks and Logos to the extent that such Seller's
Trademarks and Logos exist or are contained as of the Closing Date on any
business cards, schedules, stationery, displays, signs, promotional materials,
manuals, forms, computer software and other similar material used by the
Division prior to the Closing Date in the operation of the Division. The
nature and quality of all uses of Seller's Trademarks and Logos made by the
Division Entities shall conform to the quality standards set by Seller and
communicated to Buyer, the Company or the Division Entities, either directly
or indirectly. Buyer, the Company and the Division Entities shall not use
Seller's Trademarks and Logos in any manner which might dilute, tarnish or
disparage Seller or Seller's Trademarks and Logos. Buyer agrees that
immediately upon termination of the Wind-down Period, Buyer shall cause the
Division Entities to cease and desist from all further use of Seller's
Trademarks and Logos and shall adopt new trade names, trademarks, Internet
domain names, identifying logos and service marks related thereto which are
not confusingly similar to Seller's Trademarks and Logos.
46
6.5 Software. Seller shall deliver to Buyer at or prior to the
Closing, via means and media to be mutually determined by the parties, the
computer software source code and any computer aided software engineering
tools, application program interfaces, developer toolkits, utilities and user
documentation for the HPAS, Data Warehouse and Intranet applications developed
for or used by the Division, including, without limitation, programming
statements, instructions and notes, diagrams, schematics, help files,
documentation and other material that a reasonably skilled programmer would
need to operate, maintain, support and modify the HPAS, Data Warehouse and
Intranet applications. Seller shall deliver the Hyperion Cubes associated with
the Data Warehouse application used by the Division. In connection with the
delivery of the HPAS, Data Warehouse and Intranet source code as provided
herein, Seller hereby grants to Buyer and its Subsidiaries a perpetual,
irrevocable, assignable, non-exclusive, worldwide, royalty-free and fully
paid-up license to use, reproduce, distribute, display, modify, create
derivative works of and otherwise exploit the HPAS, Data Warehouse and
Intranet applications.
6.6 Enterprise Systems. Seller and Buyer acknowledge and agree that
it may be necessary to transfer to Buyer, the Company or the Division
Entities, as applicable, certain rights under the computer hardware and
software licenses, leases and service agreements used by the Division Entities
and set forth in Section 6.6 of the Disclosure Letter, which have been
acquired by Seller on an enterprise basis on behalf of the Company, the
Division Entities or, as applicable, other Affiliates of Seller (the
"Enterprise Systems"). Seller shall assist Buyer in effecting such assignments
or transfers under the Enterprise System agreements as are set forth in
Section 6.6 of the Disclosure Letter, which Buyer and Seller have determined
are necessary for the Division Entities to continue to use such Enterprise
Systems following the Closing, provided that any such transfer or assignment
shall involve only the capacity or volume used by the Division Entities under
such agreements. Buyer shall be fully responsible for the payment of any fee
or charge imposed by a licensor, lessor, or service provider under any
Enterprise Systems as a consequence of such transfer. No other rights under
computer hardware and software licenses, leases and service agreements used by
the Division Entities which have been acquired by Seller on an enterprise
basis on behalf of the Company, the Division Entities or, as applicable, other
Affiliates of Seller shall be assigned or transferred to Buyer, the Company or
any Division Entity pursuant to this Agreement, and Buyer, the Company and the
Division Entities shall not be responsible for the payment of any support,
lease or license fees due and owing after Closing with respect to any such
other computer hardware and software licenses, leases and service agreements.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF EACH OF SELLER AND BUYER
-----------------------------------------------------
7.1 Mutual Conditions. The respective obligations of each of Seller
and Buyer to consummate the transactions contemplated by this Agreement are
subject to the satisfaction, or waiver to the extent permitted, at or prior to
the Closing of each of the following conditions:
(a) No Injunction or Statute. No statute, rule, regulation,
executive order, decree, injunction or other order enacted, entered,
promulgated, enforced or issued by any
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Governmental Entity preventing consummation of the transactions contemplated
by this Agreement shall be in effect on the Closing Date.
(b) No Proceeding. There shall not be pending any suit, action or
proceeding by any Governmental Entity challenging or seeking to restrain or
prohibit the consummation of the transactions contemplated by this Agreement.
(c) Expiration or Termination of HSR Periods. All waiting periods
applicable to the transactions contemplated by this Agreement under the HSR
Act shall have expired or been terminated.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF SELLER
-----------------------------------
8.1 Conditions. The obligations of Seller to consummate the
transactions contemplated by this Agreement are subject to the fulfillment at
or prior to the Closing of each of the following conditions (any or all of
which may be waived in whole or in part by Seller):
(a) Representations and Warranties. The representations and
warranties of Buyer contained in this Agreement shall be true and correct
(without giving effect to any "materiality" qualifiers set forth therein) as
of the date of this Agreement and on and as of the Closing Date with the same
force and effect as if made at and as of the Closing Date (other than those
representations and warranties that address matters only as of a particular
date or only with respect to a specific period of time, which need only be
true and correct as of such date or with respect to such period), except where
the failure of such representations and warranties to be true and correct
(without giving effect to any "materiality" qualifiers set forth therein)
would not materially impair the ability of Buyer to consummate the
transactions contemplated hereby.
(b) Performance. Buyer shall have performed and complied, in all
material respects, with all agreements and covenants required by this
Agreement to be so performed or complied with by Buyer at or prior to the
Closing.
(c) Officer's Certificate. Buyer shall have delivered to Seller a
certificate, dated as of the Closing Date, executed by an executive officer of
Buyer, certifying the fulfillment of the conditions specified in Sections
8.1(a) and 8.1(b) hereof.
(d) Secretary's Certificates. Seller shall have received
certificates, dated the Closing Date, duly executed by the Secretary or
Assistant Secretary of Buyer, on behalf of Buyer, certifying as to: (i) the
attached copy of the resolutions of the Board of Directors of Buyer,
authorizing and approving the execution, delivery and performance of, and the
consummation of the transactions contemplated by, this Agreement and any other
documents or instruments contemplated hereby, and stating that the resolutions
thereby certified have not been amended, modified, revoked or rescinded; and
(ii) the incumbency, authority and specimen signature of each officer of Buyer
executing this Agreement or any other document or instrument contemplated
hereby.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF BUYER
----------------------------------
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9.1 Conditions. The obligations of Buyer to consummate the
transactions contemplated by this Agreement are subject to the fulfillment at
or prior to the Closing of each of the following conditions (any or all of
which may be waived in whole or in part by Buyer):
(a) Representations and Warranties. The representations and
warranties of Seller (i) contained in Sections 3.2, 3.4 and 3.5 of this
Agreement shall be true and correct as of the date of this Agreement and on
and as of the Closing Date with the same force and effect as if made at and as
of the Closing Date (other than those representations and warranties that
address matters only as of a particular date or only with respect to a
specific period of time, which need only be true and correct as of such date
or with respect to such period), (ii) contained in Section 3.19 of this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and on and as of the Closing Date with the same force and
effect as if made at and as of the Closing Date, and (iii) contained in this
Agreement other than those referenced in clauses (i) or (ii) above, shall be
true and correct (without giving effect to any "materiality" or "Material
Adverse Effect" qualifiers set forth therein) as of the date of this Agreement
and at and as of the Closing Date with the same force and effect as if made at
and as of the Closing Date (other than those representations and warranties
that address matters only as of a particular date or only with respect to a
specific period of time, which need only be true and correct as of such date
or with respect to such period), except in the case of clauses (iii) where the
failure of such representations and warranties to be true and correct (without
giving effect to any "materiality" or "Material Adverse Effect" qualifiers set
forth therein) would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.
(b) Performance. Seller shall have performed and complied, in all
material respects, with all agreements and covenants required by this
Agreement to be so performed or complied with by Seller at or prior to the
Closing.
(c) Officer's Certificate. Seller shall have delivered to Buyer a
certificate, dated as of the Closing Date, executed by an executive officer of
Seller, certifying the fulfillment of the conditions specified in Sections
9.1(a) and 9.1(b) hereof.
(d) Restructuring Transactions. Seller shall have caused the
Restructuring Transactions to be consummated pursuant to agreements in form
and substance reasonably satisfactory to Buyer.
(e) Regulatory Consents and Notices. All consents, approvals,
waivers, authorizations, licenses and Filings required to be obtained from or
made with any Governmental Entity so as to permit Buyer or the Division
Entities to continue to operate the Business after the Closing in
substantially the same manner as the Business is currently operated shall have
been obtained and made, and any waiting period applicable to the transactions
contemplated by this Agreement in connection with any Filing required to be
made with or notice required to be given to any Governmental Entity under
applicable Law shall have expired.
(f) Third Party Lease Consents. The aggregate EBITDA of the
outpatient rehabilitation clinics of the Division for the nine months ended
September 30, 2006 located at Real Properties which are Consented Leases
(excluding clinics that have negative EBITDA, without any allocation of
corporate overhead) shall equal at least eighty percent (80%)
49
of the aggregate EBITDA of the outpatient rehabilitation clinics that are
Required Consent Leases (excluding clinics that have negative EBITDA, without
any allocation of corporate overhead) for the nine months ended September 30,
2006.
(g) Third Party Payor Contract Consents. The aggregate revenues
of the Division for the nine months ended September 30, 2006 derived from
third party payor contracts which are (i) Consented Third Party Payor
Contracts, or (ii) Non Required Consent Third Party Payor Contracts, shall
equal at least eighty percent (80%) of the aggregate revenues of the Division
derived from all third party payor contracts for the nine months ended
September 30, 2006.
(h) Repayment of Indebtedness. Seller shall have repaid or
assumed, or caused to be repaid or assumed, on behalf of the Company and the
Division Entities, all outstanding Indebtedness (together with accrued
interest thereon) of the Company and the Division Entities (other than
Capitalized Lease Indebtedness and Earn-Out Indebtedness), and the Company and
the Division Entities shall have been released from any and all obligations
and liabilities related to such Indebtedness (other than Capitalized Lease
Indebtedness and Earn-Out Indebtedness) and any Lien or guaranty in respect of
any such Indebtedness (other than Capitalized Lease Indebtedness and Earn-Out
Indebtedness) shall have been released.
(i) Secretary's Certificate. Buyer shall have received a
certificate, dated the Closing Date, duly executed by the Secretary or an
Assistant Secretary of Seller, on behalf of Seller, certifying as to: (i) the
attached copy of the resolutions of the Board of Directors of Seller
authorizing and approving the execution, delivery and performance of, and the
consummation of the transactions contemplated by, this Agreement, the
Restructuring Agreements and any other documents or instruments contemplated
hereby, and stating that the resolutions thereby certified have not been
amended, modified, revoked or rescinded; (ii) the incumbency, authority and
specimen signature of each officer of Seller executing this Agreement, the
Restructuring Agreements or any other document or instrument contemplated
hereby.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
10.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby and by the Ancillary Agreements may be
abandoned:
(a) at any time, by mutual written agreement of Seller and Buyer;
(b) at any time after the date that is six months following the
date hereof (the "Termination Date"), by either Seller or Buyer upon five (5)
Business Days' prior written notice to the other party, if the Closing shall
not have occurred for any reason on or prior to the Termination Date,
provided, however, that the right to terminate this Agreement pursuant to this
Section 10.1(b) shall not be available to any party whose failure to perform
any of its obligations under this Agreement required to be performed by it at
or prior to the Closing has been the cause of, or resulted in, the failure of
the Closing to occur.
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(c) (i) by Seller, if the conditions set forth in Section 7.1 or
8.1 hereof have not been satisfied, and are not reasonably capable of being
satisfied on or prior to the Termination Date, or (ii) by Buyer, if the
conditions set forth in Section 7.1 or 9.1 have not been satisfied, and are
not reasonably capable of being satisfied, on or prior to the Termination
Date; or
(d) by Buyer or Seller, if any court of competent jurisdiction or
any Governmental Entity shall have issued an order, decree or ruling or taken
any other action permanently enjoining, restraining or otherwise prohibiting
the consummation of the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and
non-appealable.
10.2 Procedure and Effect of Termination. In the event of the
termination of this Agreement and the abandonment of the transactions
contemplated hereby and by the Ancillary Agreements pursuant to Section 10.1
hereof, written notice thereof shall be given by the party so terminating to
the other party to this Agreement, and this Agreement shall terminate and the
transactions contemplated hereby and thereby shall be abandoned without
further action by Seller or Buyer. If this Agreement is terminated pursuant to
Section 10.1 hereof:
(a) Buyer shall return all documents, work papers and other
materials (and all copies thereof) obtained from Seller or the Company or any
of the Division Entities or their respective employees, agents or
representatives relating to the transactions contemplated hereby and by the
Restructuring Agreements, whether so obtained before or after the execution
hereof, to the party furnishing the same, and all confidential information
received by Buyer with respect to the Division shall be treated in accordance
with Section 5.2(b) hereof and the Confidentiality Agreement referred to in
such Section;
(b) At the option of Seller, all Filings, applications and other
submissions made pursuant to Sections 5.3, 5.4 and 5.5 hereof shall, to the
extent practicable, be withdrawn from the agency or other Person to which
made;
(c) If this Agreement is terminated and the transactions
contemplated hereby are abandoned as described in this Section 10.2, this
Agreement shall become null and void and of no further force or effect, except
for the obligations provided for in Sections 5.6, 10.2, 12.3, 12.10 and 12.11
hereof, the confidentiality provision contained in Section 5.2(b) hereof and
the Confidentiality Agreement referred to in such Section shall survive any
such termination of this Agreement without limitation; and
(d) Such termination shall not be deemed to release and shall not
relieve either party hereto from any liability for any breach or violation by
such party of any of its representations, warranties, covenants or agreements
contained in this Agreement, nor shall such termination impair the rights of
either party to (i) compel specific performance by the other party of its
obligations under this Agreement or (ii) seek any other remedy under law or in
equity.
10.3 Amendment and Modification. This Agreement may be amended,
modified or supplemented at any time but only by written agreement of the
parties hereto.
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ARTICLE XI
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
11.1 Survival of Representations. The representations and warranties
in this Agreement shall survive the Closing solely for purposes of this
Article XI and shall terminate on the date that is eighteen (18) months after
the Closing Date; provided, however, the representations and warranties under
Sections 3.1, 3.2, 3.4 and 3.5 hereof (and solely to the extent relating to
the foregoing representations, the certificate delivered pursuant to Section
9.1(c) hereof) shall survive indefinitely. Notwithstanding the foregoing,
Seller's obligation to indemnify Buyer Indemnified Parties (as hereinafter
defined) pursuant to Sections 11.2(b), 11.2(c), 11.2(d), 11.2(e), 11.2(f),
11.2(g), 11.2(h), 11.2(i), 11.2(j) and 11.2(k) hereof shall survive
indefinitely. The parties intend to shorten the statute of limitations and
agree that no claims or causes of action may be brought against Seller or
Buyer based upon, directly or indirectly, any of the representations and
warranties contained in Articles III and IV hereof after the applicable
survival period. Notwithstanding anything to the contrary contained herein,
the foregoing time limitations shall not apply to any claims with respect to
which the claiming party has delivered a written notice prior to the
expiration of the applicable time period in accordance with the provisions
hereof.
11.2 Seller's Agreement to Indemnify. Upon the terms and subject to
conditions of this Article XI, from and after the Closing Date, Seller shall
indemnify, defend and hold harmless Buyer, its Affiliates (including the
Company and its Subsidiaries) and their respective officers, directors, and
employees ("Buyer Indemnified Parties"), from and against all demands, claims,
actions or causes of action, assessments, losses, damages, liabilities, costs
and expenses, including reasonable attorneys' fees and expenses (collectively,
"Damages"), asserted against, resulting to, imposed upon, or suffered or
incurred by Buyer Indemnified Parties by reason of or arising from: (a) a
breach of any representation or warranty of Seller contained in this Agreement
or any certificate delivered hereunder; (b) a breach of any covenant or
agreement of Seller contained in this Agreement or any certificate delivered
hereunder; (c) Unrelated Liabilities (as hereinafter defined); (d) the
Retained Litigation; (e) any liability for Indebtedness of the Company or any
Division Entity (other than any Capitalized Lease Indebtedness or Earn-Out
Indebtedness) outstanding as of the Closing; (f) any Retained Liabilities; (g)
any Health Care Related Liabilities; (h) the failure to obtain Consent to a
Required Consent Lease such that it becomes a Consented Lease unless, at the
time that such Damages are incurred, the 90% Lease Condition is satisfied; (i)
the failure to obtain Consent to a Required Consent Third Party Payor Contract
such that it becomes a Consented Third Party Payor Contract unless, at the
time that such Damages are incurred, the 90% Payor Contract Condition is
satisfied; (j) any escheat law with respect to unclaimed property; or (k) the
costs of enforcing any Buyer Indemnified Party's rights hereunder
(collectively, "Buyer Claims").
11.3 Seller's Limitation of Liability. Notwithstanding any provision
in this Agreement to the contrary, the liability of Seller to indemnify Buyer
Indemnified Parties pursuant to Section 11.2(a) hereof against any Damages
sustained by reason of any Buyer Claim with respect to a breach of a
representation or warranty shall be limited to Buyer Claims as to which a
Buyer Indemnified Party has given Seller written notice, setting forth therein
in reasonable detail the basis for such Buyer Claim, on or prior to the
termination of such representation or warranty pursuant to Section 11.1
hereof; provided, however, that (a) Seller
52
shall be liable pursuant to the provisions for indemnification contained in
Section 11.2(a) hereof with respect to breaches of representations and
warranties (other than the representations and warranties contained in
Sections 3.1, 3.2, 3.3, 3.4, 3.19 and 3.20 hereof and, solely to the extent
relating to the foregoing representations, the certificate delivered pursuant
to Section 9.1(c) hereof (collectively, the "Excluded Representations")), only
after the aggregate amount of all such Buyer Claims for which Seller is liable
under this Agreement (without regard to the limitation contained in this
proviso) exceeds an amount equal to $1,840,000 (the "Basket"), and only to the
extent of such excess, and (b) no Buyer Claim (or series of related Buyer
Claims) pursuant to the provisions for indemnification contained in Section
11.2(a) hereof with respect to breaches of representations and warranties in
an amount less than $50,000 may be asserted. Notwithstanding any other
provision of this Agreement, in no event shall the aggregate amount of all
Buyer Claims for which Seller is liable pursuant to: (i) Section 11.2(a)
hereof (other than as a result of the breach of any Excluded Representations),
exceed an amount equal to $19,187,000, and (ii) Section 11.2(a) hereof (solely
as a result of the breach of Excluded Representations), 11.2(b). 11.2(f),
11.2(g), 11.2(h) and 11.2(i), exceed an amount equal to the Purchase Price,
less the aggregate amount of all Buyer Claims for which Seller is liable
pursuant to Section 11.2(a) hereof with respect to breaches of representations
and warranties other than the Excluded Representations. Without limiting in
any manner the applicability of the preceding provisions of this Section 11.3,
Buyer and Seller agree that (i) Seller's obligations under Section 11.2(h)
with respect to any given Required Consent Lease shall be limited to Damages
incurred with respect to the period commencing on the Closing Date and ending
on the earliest date that the Required Consent Lease could be terminated by
the lessor (or, if earlier, the date such Required Consent Lease would have
expired) in accordance with its terms had Consent thereunder been obtained,
and (ii) Seller's obligations under Section 11.2(i) with respect to any given
Required Consent Third Party Payor Contract shall be limited to Damages
incurred with respect to the period commencing on the Closing Date and ending
on the earlier of the date one year after the Closing Date and the date that
such contract would normally expire in accordance with its terms had Consent
thereunder been obtained.
11.4 Buyer's Agreement to Indemnify. Upon the terms and subject to
the conditions of this Article XI, from and after the Closing Date, Buyer
shall indemnify, defend and hold harmless Seller, its Affiliates and their
respective officers, directors, and employees ("Seller Indemnified Parties"),
from and against all Damages asserted against, resulting to, imposed upon or
incurred by Seller Indemnified Parties by reason of or arising from: (a) a
breach of any representation or warranty of Buyer contained in this Agreement
or any certificate delivered hereunder; (b) a breach of any covenant or
agreement of Buyer contained in this Agreement or any certificate delivered
hereunder; (c) any liability or obligation of the Company, the Division
Entities or the Division other than the Retained Litigation, Unrelated
Liabilities, Pre-Closing Taxes, or any other liability for which Seller has
agreed to indemnify Buyer or the existence of which is a breach of Seller's
representations and warranties under this Agreement; (d) any liability or
obligation resulting from any Guaranty made by Buyer or its Affiliates
referred to in Section 2.5 hereof, to the extent arising or incurred after the
Closing; (e) any liability or obligation resulting from any Guaranty referred
to in Section 2.5 hereof for which Buyer shall not have caused itself or one
of its Affiliates to be substituted in all respects for Seller, effective as
of the Closing; (f) any liability for any Capitalized Lease Indebtedness or
Earn-Out Indebtedness; (g) any Excess Restructuring Costs, or (h) the costs of
enforcing any Seller Indemnified Party's rights hereunder (collectively,
"Seller Claims").
53
11.5 Buyer's Limitation of Liability. Notwithstanding any provision
in this Agreement to the contrary, the liability of Buyer to indemnify Seller
Indemnified Parties pursuant to Section 11.4(a) hereof against any Damages
sustained by reason of any Seller Claim with respect to the breach of a
representation or warranty shall be limited to Seller Claims as to which a
Seller Indemnified Party has given Buyer written notice thereof, setting forth
therein in reasonable detail the basis for such Seller Claim, on or prior to
the termination of such representation or warranty pursuant to Section 11.1
hereof; provided, however, that (i) Buyer shall be liable pursuant to the
provisions for indemnification contained in Section 11.4(a) hereof with
respect to breaches of warranties (other than the representations and
warranties contained in Section 4.1 hereof and, solely to the extent relating
to the foregoing representation, the certificate delivered pursuant to Section
8.1(c) hereof) only after the aggregate amount of all such Seller Claims for
which Buyer is liable under this Agreement (without regard to the limitation
contained in this proviso) exceeds an amount equal to $1,840,000, and only to
the extent of such excess, and (ii) no Seller Claim (or series of related
Seller Claims) pursuant to the provisions for indemnification contained in
Section 11.4(a) hereof with respect to breaches of representations and
warranties in an amount less than $50,000 may be asserted. Notwithstanding any
other provision of this Agreement, in no event shall the aggregate amount of
all Seller Claims for which Buyer is liable pursuant to such Section 11.4(a)
hereof (other than the representations and warranties set forth in Section 4.1
hereof, and, solely to the extent relating to the foregoing, the certificate
delivered pursuant to Section 8.1(c) hereof) exceed an amount equal to
$19,187,000.
11.6 Conditions of Indemnification With Respect to Third-Party
Claims. The obligations and liabilities of Seller and Buyer with respect to
Buyer Claims and Seller Claims, respectively, which arise or result from
claims for Damages made by third parties ("Third-Party Claims") shall be
subject to the following terms and conditions:
(i) (A) The indemnified party shall give the indemnifying
party prompt written notice of any such Third-Party Claim; provided,
however, that failure to give such notification shall not affect the
indemnification provided hereunder except to the extent the indemnifying
party shall have been materially prejudiced as a result of such failure;
and (B) the indemnifying party shall have the right to undertake the
defense thereof by counsel chosen by it that is reasonably acceptable to
the indemnified party, if the claim involves solely monetary damages and
the indemnifying party expressly agrees in writing with the indemnified
party that, as between the two, the indemnifying party is solely
responsible to satisfy and discharge the claim; provided, that if the
indemnifying party assumes such defense, the indemnified party shall
have the right to participate in the defense thereof and to employ
counsel, at its own expense, separate from the counsel employed by the
indemnifying party, it being understood that the indemnifying party
shall control such defense; provided further, however, that the
indemnifying party shall be liable for the reasonable fees and expenses
of counsel employed by the indemnified party, if and to the extent that
(x) the indemnifying party has not employed counsel reasonably
satisfactory to the indemnified party to assume the defense of such
action within a reasonable time after receiving notice of the
commencement of the action; (y) the employment of counsel and the amount
reimbursable therefor by the indemnified party has been authorized in
writing by the indemnifying party; or (z) representation of the
indemnifying party and the indemnified
54
party by the same counsel would, in the reasonable opinion of such
counsel, create a conflict of interest;
(ii) Until the indemnifying party assumes the defense of a
Third-Party Claim, the indemnified party shall have the right to
undertake the defense, compromise or settlement of such Third-Party
Claim on behalf of and for the account and risk of the indemnifying
party subject to the right of the indemnifying party to assume the
defense of such Third-Party Claim at any time prior to settlement,
compromise or final determination thereof (subject to subclause (B) of
clause (i) above); and
(iii) Notwithstanding any provision in this Article XI to
the contrary, without the prior written consent of the indemnified party
(which consent shall not be unreasonably withheld, delayed or
conditioned), the indemnifying party shall not admit any liability with
respect to, or settle, compromise or discharge, any Third-Party Claim or
consent to the entry of any judgment with respect thereto, except in the
case of any settlement that (A) includes as an unconditional term
thereof the delivery by the claimant or plaintiff to the indemnified
party of a written release from all liability in respect of such
Third-Party Claim and which does not impose any obligation on the
indemnified party, or (B) provides solely for monetary relief to be paid
by the indemnifying party and which does not otherwise involve or
purport to bind or limit the indemnified party. In addition, if the
indemnifying party shall have assumed the defense of the Third-Party
Claim, the indemnified party shall not admit any liability with respect
to, or settle, compromise or discharge, any Third-Party Claim or consent
to the entry of any judgment with respect thereto, without the prior
written consent of the indemnifying party (which consent shall not be
unreasonably withheld, delayed or conditioned), and the indemnifying
party will not be subject to any liability for any such admission,
settlement, compromise, discharge or consent to judgment made by an
indemnified party without such prior written consent of the indemnifying
party.
11.7 Other Claims. In the event any indemnified party should have a
claim against any indemnifying party under Section 11.2 or 11.4 hereof that
does not involve a Third-Party Claim being asserted against or sought to be
collected from such indemnified party, the indemnified party shall, as
promptly as practicable after discovery of such claim, deliver written notice
of such claim to the indemnifying party. The failure by any indemnified party
so to notify the indemnifying party shall not relieve the indemnifying party
from any liability which it may have to such indemnified party under Section
11.2 or 11.4 hereof, except to the extent that the indemnifying party shall
have been materially prejudiced by such failure. If the indemnifying party
does not notify the indemnified party within twenty (20) Business Days
following its receipt of such notice that the indemnifying party disputes its
liability to the indemnified party under Section 11.2 or 11.4 hereof, such
claim specified by the indemnified party in such notice shall be conclusively
deemed a liability of the indemnifying party under Section 11.2 or 11.4 hereof
and the indemnifying party shall pay the amount of such liability to the
indemnified party on demand or, in the case of any notice in which the amount
of the claim (or any portion thereof) is estimated, on such later date when
the amount of such claim (or such portion thereof) becomes finally determined.
If the indemnifying party has timely disputed its liability with respect to
such claim, as provided above, the indemnifying party and the indemnified
party shall proceed in
55
good faith to negotiate a resolution of such dispute and, if not resolved
through negotiations, such dispute shall be resolved by litigation in an
appropriate Court of competent jurisdiction.
11.8 Sole Remedy.
(a) Buyer and Seller acknowledge and agree that, if the Closing
occurs, their sole and exclusive remedy for monetary damages following the
Closing with respect to any and all claims, including Buyer Claims and Seller
Claims (whether Third-Party Claims or otherwise), relating to the subject
matter of this Agreement shall be pursuant to the provisions set forth in
Section 6.1(c) hereof and this Article XI; provided, however, that nothing
contained herein shall prevent an indemnified party from pursuing remedies as
may be available to such party under applicable Law in the event of an
indemnifying party's fraud or failure to comply with its indemnification
obligations hereunder.
(b) The indemnifying party shall be subrogated to the rights of
the indemnified party in respect of any insurance relating to the Damages to
the extent of any indemnification payments made hereunder. The parties agree
that the indemnification obligations of the parties set forth in this
Agreement do not in any way change or modify any duty of any party to mitigate
its Damages under applicable Law; provided that, with regard to any
indemnification obligation of Seller under 11.2(h), Seller and Buyer agree
that Buyer's duty to mitigate shall include the entry into a management
agreement with Seller or relocation of the applicable Facility in accordance
with the last sentence of Section 2.4(c). Any liability for indemnification
hereunder shall be determined without duplication of recovery by reason of the
state of facts giving rise to such liability constituting a breach of more
than one representation, warranty, covenant or agreement.
(c) Buyer and Seller agree to treat (and cause their Affiliates
to treat), to the extent permitted by applicable Law, any indemnification
payment under this Agreement as an adjustment to the Purchase Price. Any
indemnification obligation under this Agreement shall be net of (i) any Tax
Benefit actually realized by the indemnified party or its Affiliates, and (ii)
any insurance proceeds or any indemnity, contribution or other similar payment
received by the indemnified party or its Affiliates from any third party with
respect thereto, net of any expenses related to the recovery of such proceeds
and net of any increase in premiums of retroactive premium adjustments. The
indemnified party shall use its commercially reasonable efforts, at no cost to
the Indemnified Party, to obtain full recovery under all insurance policies
covering any indemnification obligation to the same extent as they would if
such indemnification obligation were not subject to indemnification under this
Agreement (it being understood that Buyer shall have no obligation to make a
claim against Buyer's insurance policies with respect to any matter that is
covered by Seller's self-insurance program). In the event that an insurance or
other recovery is received by any indemnified party with respect to any
indemnification obligation for which any such Person has been indemnified
under this Agreement, then a refund equal to the aggregate amount of the
recovery shall be made promptly to the indemnifying party. As used herein,
"Tax Benefit" shall mean the Tax savings attributable to any deduction,
expense, loss, credit or refund to the indemnified party or its Affiliates,
when actually realized, net of any Tax detriment associated with the receipt,
or right to receive indemnification hereunder. The amount of any Tax Benefit
actually realized shall be equal to the actual reduction in Taxes paid
56
in cash determined with the applicable Tax items taken into account as
compared with the Taxes that would have been payable without the applicable
Tax items.
(d) For purposes of this Agreement, except with respect to
damages claimed by a third party, the parties acknowledge and agree that
Damages shall not include damages incurred directly or indirectly as a result
of lost profits or any special, consequential or punitive damages.
Notwithstanding the foregoing, it is understood and agreed that the limitation
on recovery of lost profits, special, consequential or punitive damages
contained in the preceding sentence shall not limit a party's ability to
recover direct or general damages or change or have any bearing on the
interpretation of what constitutes direct or general damages, it being
understood that direct and general damages shall be given its normal meaning
under the Law.
(e) It is agreed that, solely in determining whether there has
been a breach of any provision under this Agreement for purposes of this
Article XI, the concepts of materiality, Material Adverse Effect, "in all
material respects" and other similar qualifying language contained in such
provision shall be read to mean that the breach of or failure to comply with
such provision has resulted, or would reasonably be expected to result, in
Damages to the non-breaching party in excess of $100,000; provided, however,
that in the event that there has been a breach of such provision after giving
effect to such qualifying language (as read in the manner set forth above in
this Section 11.8(e)), then for purposes of determining whether the Basket has
been exceeded with respect to such breach or breaches and the amount of any
resulting Damages, the concept of materiality, Material Adverse Effect, "in
all material respects" and other similar qualifying language contained in the
representations and warranties and certifications of or on behalf of the
applicable party shall be disregarded.
(f) Notwithstanding anything to the contrary contained herein, no
limitation or condition of liability or indemnity shall apply to any rights or
claims based upon fraud or intentional misrepresentation.
(g) No right of indemnification hereunder shall be limited by
reason of any investigation or audit conducted before or after the Closing or
the knowledge of the non-breaching party of any breach of a representation,
warranty, covenant or agreement contained in this Agreement or in any
certificate delivered pursuant hereto by the other party at any time, or the
decision of any party to complete the Closing.
ARTICLE XII
MISCELLANEOUS
-------------
12.1 Fees and Expenses. Whether or not the transactions contemplated
hereby and by the Ancillary Agreements are consummated pursuant hereto and
thereto, each of Seller and Buyer shall pay all fees and expenses incurred by
it or on its behalf and Seller shall pay all fees and expenses incurred by or
on behalf of the Company or any of the Division Entities in connection with or
in anticipation of this Agreement, the Restructuring Transactions and the
consummation of the transactions contemplated hereby.
12.2 Further Assurances. After Closing, at the request of the other
party hereto and at the expense of the party so requesting, Seller and Buyer
shall execute and deliver to such
57
requesting party such documents, shall file with the appropriate Governmental
Entities all documents necessary or appropriate and take such other action as
such requesting party may reasonably request in order to consummate the
transactions contemplated hereby and by the Ancillary Agreements, including,
without limitation, Section 2.4 hereof.
12.3 Notices. All notices, requests, demands, waivers and
communications required or permitted to be given under this Agreement shall be
in writing (which shall include notice by telecopy or like transmission) and
shall be deemed given (i) on the day delivered (or if that day is not a
Business Day, or if delivered after the close of business on a Business Day,
on the first following day that is a Business Day) when (x) delivered
personally against receipt or (y) sent by overnight courier, (ii) on the day
when transmittal confirmation is received if sent by telecopy (or if that day
is not a Business Day, or if after the close of business on a Business Day, on
the first following day that is a Business Day) and (iii) on the third
Business Day after mailed by certified or registered first-class mail to the
parties at the following addresses (or to such other addresses as a party may
have specified by notice given to the other parties hereto pursuant to this
provision):
If to Buyer, to:
Select Medical Corporation
0000 Xxx Xxxxxxxxxx Xxxx
Xxxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx, Esq.
with a copy to:
Dechert LLP
Xxxx Centre
0000 Xxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxxx X. Xxxxxx, Esq.
If to Seller, to:
HealthSouth Corporation
Xxx XxxxxxXxxxx Xxxxxxx
Xxxxxxxxxx, Xxxxxxx 00000
Telecopy: (000) 000-0000
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
Xxx Xxxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
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Telecopy: (000) 000-0000
Attention: Xxxxxx X. Xxxxxx, Esq.
Xxxxxxx X. Land, Esq.
12.4 Entire Agreement. This Agreement, the Ancillary Agreements, the
Disclosure Letter and the exhibits, schedules and other documents referred to
herein which form a part hereof (including the Confidentiality Agreement
referred to in Section 5.2(b) hereof) contain the entire understanding of the
parties hereto with respect to the subject matter hereof and supersede all
prior oral or written agreements, understandings, statements or proposals;
provided, however, that if there is any conflict between the Confidentiality
Agreement and this Agreement, the terms of this Agreement shall govern. This
Agreement supersedes all prior agreements and understandings, oral and
written, with respect to its subject matter.
12.5 Severability. Should any provision of this Agreement for any
reason be declared invalid or unenforceable, such decision shall not affect
the validity or enforceability of any of the other provisions of this
Agreement, which other provisions shall remain in full force and effect and
the application of such invalid or unenforceable provision to Persons or
circumstances other than those as to which it is held invalid or unenforceable
shall be valid and be enforced to the fullest extent permitted by Law.
12.6 Binding Effect; Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, successors and permitted
assigns, except that (a) other than as contemplated herein, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned, directly or indirectly, by Seller or Buyer without the prior written
consent of the other party hereto; (b) the rights and obligations of Seller
may be assigned to any of its wholly-owned subsidiaries, which at the time of
such assignment own the Shares, provided that no such assignment shall limit
or affect Seller's obligations hereunder; and (c) the rights and obligations
of Buyer may be assigned to any of its wholly-owned Subsidiaries, provided
that no such assignment shall limit or affect Buyer's obligations hereunder.
12.7 No Third-Party Beneficiaries. This Agreement is not intended and
shall not be deemed to confer upon or give any Person except the parties
hereto and their respective successors and permitted assigns any remedy,
claim, liability, reimbursement, cause of action or other right under or by
reason of this Agreement (except as set forth in Article XI hereof with
respect to Buyer Indemnified Parties and Seller Indemnified Parties).
12.8 Counterparts. This Agreement may be executed in counterparts
(including by facsimile), each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
12.9 Interpretation. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. As used in this Agreement, the term
"including" shall mean including, without limitation, and, unless the context
otherwise requires, the word "or" is not exclusive. All references in this
Agreement to "dollars" or "$" shall mean United States dollars.
59
12.10 Forum; Service of Process. Except as set forth in Section 1.6
hereof, any legal suit, action or proceeding brought by Seller or Buyer, or
any of their respective Affiliates, arising out of or based upon this
Agreement shall be instituted in the courts of the State of Delaware or the
courts of the United States of America located in the State of Delaware
(collectively, the "Courts"), and each of Seller and Buyer (on its behalf and
on behalf of such Affiliates) waives any objection which it may now or
hereafter have to the laying of venue of any such proceeding, and irrevocably
submits to the exclusive jurisdiction of the Courts in any such suit, action
or proceeding. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT
TO A TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING (INCLUDING ANY
COUNTERCLAIM) ARISING OUT OF OR BASED UPON THIS AGREEMENT.
12.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the principles of conflicts of law thereof (to the extent that the
application of the laws of another jurisdiction would be required thereby).
12.12 Specific Performance. Each party hereto acknowledges that money
damages would be both incalculable and an insufficient remedy for any breach
of this Agreement by such party and that any such breach would cause the other
party hereto irreparable harm. Accordingly, each party hereto also agrees
that, in the event of any breach or threatened breach of the provisions of
this Agreement by such party, the other party hereto shall be entitled to
equitable relief without the requirement of posting a bond or other security,
including in the form of injunctions and orders for specific performance, in
addition to all other remedies available to such other parties at law or in
equity. The provisions of this Section 12.12 shall not apply with regard to
Section 5.11, which shall be governed by the terms set forth therein.
12.13 Waivers. Except as otherwise provided herein, no action taken
pursuant to this Agreement, including any investigation by or on behalf of any
party, shall be deemed to constitute a waiver by the party taking such action
of compliance with any representations, warranties, covenants or agreements
contained in this Agreement or in any of the Ancillary Agreements. Any term,
covenant or condition of this Agreement may be waived at any time by the party
which is entitled to the benefit thereof, but only by a written notice signed
by such party expressly waiving such term or condition. The waiver by any
party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any
other provision hereunder.
12.14 Defined Terms.
"2005 Pro Forma Financial Information" shall have the meaning
ascribed to such term in Section 3.7(c) hereof.
"2005 Segment Information" shall have the meaning ascribed to such
term in Section 3.7(d)(i) hereof.
"90% Lease Condition" shall mean the condition that outpatient
rehabilitation clinics of the Division for the nine months ended September 30,
2006 located at Real Properties
60
which are Consented Leases (excluding clinics that have negative EBITDA,
without any allocation of corporate overhead) is equal to or greater than
ninety percent (90%) of the aggregate EBITDA of the outpatient rehabilitation
clinics that are Required Consent Leases (excluding clinics that have negative
EBITDA, without any allocation of corporate overhead) for the nine months
ended September 30, 2006.
"90% Payor Contract Condition" shall mean the condition that the
aggregate revenues of the Division for the nine months ended September 30,
2006 derived from third party payor contracts which are Consented Third Party
Payor Contracts or Non Required Consent Third Party Payor Contracts is equal
to or greater than ninety percent (90%) of the aggregate revenues of the
Division derived from all third party payor contracts for the nine months
ended September 30, 2006.
"Accounting Arbiter" shall have the meaning ascribed to such term in
Section 1.6(a)(iii) hereof.
"Accounting Principles" shall have the meaning ascribed to such term
in Section 1.6(a)(i) hereof.
"Actual Closing Cash Balance" shall have the meaning ascribed to such
term in Section 1.6(a)(ii) hereof.
"Actual Net Working Capital" shall have the meaning ascribed to such
term in Section 1.6(a)(ii) hereof.
"Adjusted Grossed Up Basis" shall have the meaning ascribed to such
term in Section 6.1(a)(iii) hereof.
"Affiliate" shall have the meaning ascribed to such term in Rule
12b-2 promulgated under the Exchange Act.
"Affiliated Group" shall have the meaning ascribed to such term in
Section 3.13(a)(i) hereof.
"Aggregate Deemed Sales Price" shall have the meaning ascribed to
such term in Section 6.1(a)(iii) hereof.
"Agreement" shall have the meaning ascribed to such term in the
Preamble hereto.
"Allocation" shall have the meaning ascribed to such term in Section
6.1(f) hereof.
"Allocation Dispute Notice" shall have the meaning ascribed to such
term in Section 6.1(f) hereof.
"Ancillary Agreements" shall have the meaning ascribed to such term
in Section 2.1 hereof.
61
"Anti-Kickback Law" shall have the meaning ascribed to such term in
Section 3.18(a) hereof.
"Applicable Buyer Plan" shall have the meaning ascribed to such term
in Section 6.2(b) hereof.
"Audited Financial Statements" shall have the meaning ascribed to
such term in Section 3.7(a) hereof.
"Basket" shall have the meaning ascribed to such term in Section 11.3
hereof.
"Benefit Plans" shall mean each Pension Plan, Welfare Plan, and each
other plan or written arrangement or policy relating to stock options, stock
purchases, compensation, deferred compensation, severance, fringe benefits or
other employee benefits, in each case maintained, participated in or
contributed to by any ERISA Affiliate for the benefit of any present or former
employees of the Company or any of the Division Entities.
"Business" shall have the meaning ascribed to such term in the
Recitals hereto.
"Business Day" shall mean any day other than a Saturday, a Sunday or
a day on which banks in the City of New York are authorized or obligated by
Law to close.
"Buyer" shall have the meaning ascribed to such term in the Preamble
hereto.
"Buyer Claims" shall have the meaning ascribed to such term in
Section 11.2 hereof.
"Buyer Indemnified Parties" shall have the meaning ascribed to such
term in Section 11.2 hereof.
"Buyer Representatives" shall have the meaning ascribed to such term
in Section 5.2(a) hereof.
"Capitalized Lease Indebtedness" shall have the meaning ascribed to
such term within the definition of "Indebtedness" in this Section 12.14.
"Cash" shall mean unrestricted cash, immediately available, held by
the Company and any Division Entity as of the Effective Time.
"Cash Adjustment Amount" shall have the meaning ascribed to such term
in Section 1.6(a)(ii) hereof.
"Cash Due to Minority Interest Holders" shall mean the aggregate
amount of Cash due to Minority Interest Holders in respect of accrued but
unpaid Distributions payable as of the Effective Time by Division Entities,
whether or not declared.
"CIA" shall have the meaning ascribed thereto in Section 3.18(c)
hereof.
"Closing" shall have the meaning ascribed to such term in Section 1.1
hereof.
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"Closing Cash Balance" shall have the meaning ascribed to such term
in Section 1.6(a)(i) hereof.
"Closing Date" shall have the meaning ascribed to such term in
Section 1.3 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall have the meaning ascribed to such term in the
Recitals hereto.
"Conclusive Statement" shall have the meaning ascribed to such term
in Section 1.6(a)(v) hereof.
"Confidentiality Agreement" shall have the meaning ascribed to such
term in Section 5.2(b) hereof.
"Consent" shall have the meaning ascribed to such term in Section
3.6(b) hereof.
"Consented Leases" shall mean a Required Consent Lease for which the
lessor or landlord has, prior to (or, for purposes of Section 11.2(h) hereof,
after) Closing, consented in writing to the transactions contemplated by this
Agreement without any conditions that are adverse to the Division and, as a
result of such Consent, the Company or any Division Entity will have, from and
after the Closing (or, for purposes of Section 11.2(h) hereof, the date of
such Consent), no lesser rights or greater burdens under such lease as it had
on the date hereof unaffected by the transactions contemplated hereby,
including the continued right to exercise all renewal options under such
lease.
"Consented Third Party Payor Contracts" shall mean a Required Consent
Third Party Payor Contract for which one of the following conditions has been
met: (a) the third party payor has, prior to (or, for purposes of Section
11.2(i) hereof, after) Closing, consented in writing to the transactions
contemplated by this Agreement without any conditions that are adverse to the
Division and, as a result of such Consent, the Company or any Division Entity
will have, from and after the Closing (or, for purposes of Section 11.2(i)
hereof, the date of such Consent), a payor contract with such third party
payor on substantially the same terms as it had on the date hereof unaffected
by the transactions contemplated hereby; (b) if requested by Buyer (it being
understood that Buyer shall have no obligation hereunder to make such
request), the third party payor has, prior to (or, for purposes of Section
11.2(i) hereof, after) Closing, consented in writing to the inclusion of the
Division, to the extent covered in such Required Consent Third Party Payor
Contract, within a then-existing contract between Buyer and such third party
payor; or (c) the Company or a Division Entity has entered into a new contract
with such third party payor with substantially the same terms for the Division
as the contract with such third party payor that exists as of the date hereof.
"Consolidated Income Tax Return" shall have the meaning ascribed to
such term in Section 6.1(b)(x) hereof.
"Contract" shall mean any contract, obligation, plan, undertaking,
arrangement, commitment, note, bond, mortgage, indenture, agreement, license,
lease or other instrument.
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"Courts" shall have the meaning ascribed to such term in Section
12.10 hereof.
"Damages" shall have the meaning ascribed to such term in Section
11.2 hereof.
"Deficiency Amount" shall have the meaning ascribed to such term in
Section 1.6(a)(ii) hereof.
"Disclosure Letter" shall have the meaning ascribed to such term in
Section 2.2(a) hereof.
"Disregarded Entity" shall have the meaning ascribed to such term in
Section 6.1(a)(i) hereof.
"Distributions" shall mean the amount of any dividends or other
distributions accrued by a Division Entity during the calendar quarter in
which the Effective Time occurs; provided, however, that, for purposes of
determining the amount of Cash Due to Minority Interest Holders, the amount of
Distributions shall be determined by multiplying (i) the total amount of such
dividends or other distributions that would be payable by a Division Entity to
Seller or its Affiliates in respect of the entire calendar quarter in which
the Effective Time occurs by (ii) a fraction, the numerator of which is the
number of days in such calendar quarter that have elapsed up to and including
the Effective Time, and the denominator of which is the total number of days
in such calendar quarter.
"Division" shall have the meaning ascribed to such term in the
Recitals hereto.
"Division Entities" shall have the meaning ascribed to such term in
the Recitals hereto.
"Division Offerees" shall have the meaning ascribed to such term in
Section 6.2(a) hereof.
"DOJ" shall have the meaning ascribed to such term in
Section 5.5 hereof.
"DRE Sales" shall have the meaning ascribed to such term in Section
6.1(a)(v) hereof.
"Earn-Out Indebtedness" shall have the meaning ascribed to such term
within the definition of "Indebtedness" in this Section 12.14.
"EBITDA" shall mean for any Person the net income before interest,
taxes, depreciation and amortization of such Person.
"Effective Time" shall have the meaning ascribed to such term in
Section 1.3 hereof.
"Election" shall have the meaning ascribed to such term in Section
6.1(a)(i) hereof.
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"Enterprise Systems" shall have the meaning ascribed to such term in
Section 6.6 hereof.
"Environmental Law" shall mean any Law or common law relating to
pollution, Hazardous Substances or the protection of the environment, human
health or safety;
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended and the regulations promulgated thereunder.
"ERISA Affiliate" shall mean the Company or any other Person or
entity that, together with Seller, is, or at any time for which any relevant
statute of limitations remaining open, was, treated as a single employer under
Section 414(b), (c), (m) or (o) of the Code.
"Estimated Closing Cash Balance" shall have the meaning ascribed to
such term in Section 1.6(a)(i) hereof.
"Estimated Net Working Capital" shall have the meaning ascribed to
such term in Section 1.6(a)(i) hereof.
"Estimated Net Working Capital Adjustment" shall have the meaning
ascribed to such term in Section 1.2 hereof.
"Excess Amount" shall have the meaning ascribed to such term in
Section 1.6(a)(ii) hereof.
"Excess Restructuring Costs" shall have the meaning ascribed to such
term in Section 2.4(b) hereof.
"Exchange Act" shall have the meaning ascribed to such term in
Section 3.6(b) hereof.
"Excluded Assets" shall have the meaning ascribed to such term in
Section 2.4(b) hereof.
"Excluded Representations" shall have the meaning ascribed to such
term in Section 11.3 hereof.
"Facilities" shall mean the outpatient rehabilitation facilities
owned and operated by the Division.
"Federal Health Care Programs" shall have the meaning ascribed to
such term in Section 3.18(a) hereof.
"Filing" shall have the meaning ascribed to such term in Section
3.6(b) hereof.
"Final Allocation" shall have the meaning ascribed to such term in
Section 6.1(f) hereof.
65
"Form 8023" shall have the meaning ascribed to such term in Section
6.1(a)(ii) hereof.
"FTC" shall have the meaning ascribed to such term in Section 5.5
hereof.
"GAAP" means U.S. generally accepted accounting principles,
consistently applied throughout the periods presented.
"Going Clinics" shall have the meaning ascribed to such term in
Section 2.4(a) hereof.
"Good Faith Statement" shall have the meaning ascribed to such term
in Section 1.6(a)(i) hereof.
"Governmental Entity" shall have the meaning ascribed to such term in
Section 3.6(b) hereof.
"Guaranties" shall have the meaning ascribed to such term in Section
2.5 hereof.
"Hazardous Substances" shall mean any hazardous or toxic substance,
material or waste, pollutant or contaminant, including, without limitation,
any petroleum product or by-product, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls, radioactive
material, medical waste, infectious waste, mold or radon;
"Health Care Related Liabilities" shall mean any liabilities or
obligations of the Division to the extent arising from events or
circumstances, or acts or omissions, which occur prior to the Closing and
which constitute an actual or alleged violation of the Xxxxx, Anti-Kickback or
False Claims Act Laws, or of any other statutes, rules, regulations regarding
any Federal Health Care Programs including, without limitation, alleged
improper billing or coding activities, billing for services that are not
medically necessary or provided, fraud or abuse, criminal activity or fee
splitting or with respect to any document filed or to be filed by Seller or
any claim made in connection with any Federal Health Care Program or third
party payor.
"HIPAA" shall have the meaning ascribed to such term in Section
3.18(a) hereof.
"HSR Act" shall have the meaning ascribed to such term in Section
3.6(b) hereof.
"Indebtedness" of any Person at any date means: (a) all indebtedness of such
Person for borrowed money or for the deferred purchase price of property or
services, other than trade liabilities and accrued expenses, including any
interest and premiums and the earned portion of any so-called "earn-out"
obligations, including those listed in Section 12.14(i) of the Disclosure
Letter (the "Earn-Out Indebtedness"); (b) any other indebtedness of such
Person that is evidenced by a note, bond, debenture or similar instrument; (c)
all obligations of such Person under capitalized leases ("Capitalized Lease
Indebtedness"); (d) all liabilities secured by any Lien on any property owned
by such Person even though such Person has not assumed or otherwise become
liable for the payment thereof; (e) any other long-term liabilities as
determined in accordance with GAAP; (f) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
acquired property; (g) all
66
reimbursement obligations, contingent or otherwise, under a drawn acceptance,
letter of credit or similar facility; (h) obligations with respect to any
interest rate or currency, hedging, swap or similar agreement; (i) any
obligation classified as a refund due patients and other third-party payors in
the Audited Financial Statements, other than those reflected in account 2512;
and (j) direct or indirect guarantees of any of the foregoing for the benefit
of another Person.
"Independent Accounting Firm" shall have the meaning ascribed to such
term in Section 6.1(a)(ii) hereof.
"Initial Purchase Price" shall have the meaning ascribed to such term
in Section 1.2 hereof.
"Intellectual Property Rights" shall have the meaning ascribed to
such term in Section 3.10(a) hereof.
"Intercompany Agreements" shall have the meaning ascribed to such
term in Section 2.2(a) hereof.
"Interest Rate" shall mean the rate of interest published as the
"Prime Rate" in the "Money Rates" column of the Eastern Edition of The Wall
Street Journal calculated on the basis of a 365-day year and charged for the
actual number of days elapsed.
"Interim Pro Forma Income Statement" shall have the meaning ascribed
to such term in Section 3.7(b) hereof.
"Interim Segment Information" shall have the meaning ascribed to such
term in Section 3.7(d)(iii) hereof.
"IT Systems" shall have the meaning ascribed to such term in Section
3.10(c) hereof.
"Knowledge of Seller" or "Seller's Knowledge" shall mean the actual
knowledge of Xxx Xxxxxxx, Xxxx X. Xxxxxxx, Xxxxxxx X. Xxxx, Xxxxx X. Xxxxxx,
Xxxxx XxXxxxxxx, Xxxx Xxxxxx, Xxx Xxxxxx, Xxxx X. Xxxxxxxxxxx and Xxxxx Xxxxx.
"Law" shall mean shall mean any federal, state, county, municipal, local or
foreign statute, ordinance, rule, regulation, law, judgment, order, decree,
injunction or other authorization.
"Leased Real Property" shall have the meaning ascribed to such term
in Section 3.9 hereof.
"Liens" shall have the meaning ascribed to such term in Section 1.1
hereof.
"Litigation" shall have the meaning ascribed to such term in Section
3.11(a) hereof.
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"Material Adverse Effect" shall mean a material adverse effect on the
business, assets, liabilities, results of operations or financial condition of
the Company and the Division Entities, taken as a whole, or on the ability of
Seller to perform its obligations hereunder or consummate the transactions
contemplated by this Agreement; provided, however, that none of the following
shall be taken into account in determining whether a Material Adverse Effect
has occurred: (a) any adverse change, effect, event, occurrence, state of
facts or development to the extent attributable to this Agreement or the
announcement or pendency of the transactions contemplated by this Agreement
(including any reduction in revenues, any disruption in supplier, distributor,
partner or similar relationships or any loss of employees); (b) any adverse
change, effect, event, occurrence, state of facts or development to the extent
attributable to Buyer's announcement or other disclosure of its plans or
intentions with respect to the operation of the Division (or any portion
thereof); (c) changes or conditions, including changes in the economy,
financial markets, or political conditions, whether resulting from acts of
terrorism or war or otherwise, affecting the U.S. economy generally or the
industry in which the Division operates (except to the extent such changes
have a disproportionate impact on the Division, taken as a whole, relevant to
other companies in the industries and geographic markets where the Division
conducts business); (d) any adverse change, effect, event, occurrence, state
of facts or development resulting from the taking of any action by Seller
required by, or the failure to take any action by Seller prohibited by, this
Agreement (including any reduction in revenues, any disruption in supplier,
distributor, partner or similar relationships or any loss of employees); (e)
any failure by the Division to meet projections or forecasts (provided that
the underlying cause of such failure may be considered in determining whether
there is a Material Adverse Effect); (f) any change after the date hereof in
accounting requirements or principles required by GAAP or required by any
change in applicable Laws and any restatement of the Division's financial
statements as a result thereof or public announcement related thereto; or (g)
any adverse change, effect, event, occurrence, state of facts or development
attributable or relating to transaction expenses incurred in connection with
the transactions contemplated by this Agreement.
"Material Contracts" shall have the meaning ascribed to such term in
Section 3.14(a) hereof.
"Minority Interest Holders" shall mean holders of capital stock or
other equity interests in the Division Entities other than Seller and its
Subsidiaries.
"Net Working Capital" shall have the meaning ascribed to such term in
Section 1.6(a)(i) hereof.
"Net Working Capital Adjustment Amount" shall have the meaning
ascribed to such term in Section 1.6(a)(ii) hereof.
"Non Required Consent Third Party Payor Contract" means those third
party payor contracts that, without giving effect to the reference to
"Material Adverse Effect" in the last sentence of Section 3.6(b) hereof, would
not be required to be listed in Section 3.6(b) of the Disclosure Letter.
"Notice of Disagreement" shall have the meaning ascribed to such term
in Section 1.6(a)(iii) hereof.
68
"Pension Plan" shall mean each employee pension benefit plan as
defined in Section 3(2) of ERISA.
"Permits" shall have the meaning ascribed to such term in Section
3.15(b) hereof.
"Permitted Liens" shall mean (i) statutory material mechanics',
carriers', workmen's, repairmen's or similar Liens arising or incurred in the
ordinary course of business with respect to liabilities that are not yet due
or delinquent, (ii) ordinary course Liens for Taxes, assessments and other
governmental charges which are not due and payable or which may hereafter be
paid without penalty and for which adequate reserves have been made in the
2005 Pro Forma Financial Information, and (iii) in the case of Real Property,
(A) immaterial imperfections of title or encumbrances, (B) easements,
covenants, rights-of-way and other encumbrances or restrictions of record, (C)
zoning, building and other similar restrictions, (D) Liens that have been
placed by any developer, landlord or other third party on any leased property
and (E) unrecorded easements, covenants, rights of way or other restrictions,
none of which items materially impair the use of the property to which they
relate to the operation of the Division as operated on the date hereof.
"Person" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, a limited liability company, an
unincorporated organization and a government or any department or agency
thereof.
"Post-Closing Taxes" shall have the meaning ascribed to such term in
Section 6.1(b)(iv) hereof.
"Pre-Closing Taxes" shall have the meaning ascribed to such term in
Section 6.1(b)(iv) hereof.
"Pre-Closing Transactions" shall have the meaning ascribed to such
term in Section 5.9(b) hereof.
"Purchase Price" shall have the meaning ascribed to such term in
Section 1.6(b) hereof.
"Real Property" shall have the meaning ascribed to such term in
Section 3.9 hereof.
"Records" shall have the meaning ascribed to such term in Section
5.9(a) hereof.
"Release" shall mean any release, deposit, discharge, emission,
leaking, leaching, spilling, seeping, migrating, injecting, pumping, pouring,
emptying, escaping, dumping, disposal or other movement of Hazardous
Substances.
"Replacement Lease" shall have the meaning ascribed to such term in
Section 2.4(c) hereof.
69
"Required Consent Lease" means those leases and subleases for Real
Property that, without giving effect to the reference to "Material Adverse
Effect" in the last sentence of Section 3.6(b) hereof, would be required to be
listed in Section 3.6(b) of the Disclosure Letter.
"Required Consent Third Party Payor Contract" means the third party
payor contracts that, without giving effect to the reference to "Material
Adverse Effect" in the last sentence of Section 3.6(b) hereof, would be
required to be listed in Section 3.6(b) of the Disclosure Letter.
"Restricted Territory" shall mean the area within a twenty (20) mile
radius of any location where a Facility is owned or operated as of the Closing
Date.
"Restructuring Agreements" shall have the meaning ascribed to such
term in Section 2.4(b) hereof.
"Restructuring Transactions" shall have the meaning ascribed to such
term in Section 2.4(b) hereof.
"Retained Liabilities" shall mean (i) any liabilities or obligations
of Seller, the Company or the Division for any severance pay, stay bonuses,
stock options or other equity incentives, retention plans, sale or other
bonuses contingent upon the consummation of the transactions contemplated
hereunder or any similar arrangements except as set forth in Section 6.2(g)
hereof, and (ii) any and all liabilities or obligations of the Division to the
extent arising from events or circumstances, or relating to acts or omissions,
which occur prior to the Closing and that are normally covered by any
commercial general liability, automobile, workers' compensation, property and
casualty, professional malpractice, employer liability, health benefit or
other insurance policy or are covered by any self-insurance retention of
Seller, other than any liabilities or obligations to the extent reflected as a
liability in Actual Net Working Capital.
"Retained Litigation" shall have the meaning ascribed to such term in
Section 5.9(b) hereof.
"SEC" shall have the meaning ascribed to such term in Section 5.10
hereof.
"Seller" shall have the meaning ascribed to such term in the Preamble
hereto.
"Seller Claims" shall have the meaning ascribed to such term in
Section 11.4 hereof.
"Seller Indemnified Parties" shall have the meaning ascribed to such
term in Section 11.4 hereof.
"Seller Outpatient Employee" shall have the meaning ascribed to such
term in Section 5.11(b)(i) hereof.
"Seller Returns" shall have the meaning ascribed to such term in
Section 6.1(b)(i) hereof.
70
"Seller's Trademarks and Logos" shall have the meaning ascribed to
such term in Section 6.4 hereof.
"September 30 Form 10-Q" shall have the meaning ascribed to such term
in Section 3.7(b) hereof.
"Severance Policy" shall have the meaning ascribed to such term in
Section 6.2(a) hereof.
"Shares" shall have the meaning ascribed to such term in the Recitals
hereto.
"Xxxxx Law" shall have the meaning ascribed to such term in Section
3.18(a) hereof.
"Statement" shall have the meaning ascribed to such term in Section
1.6(a)(ii) hereof.
"Staying Clinics" shall have the meaning ascribed to such term in
Section 2.4(b) hereof.
"Straddle Period Returns" shall have the meaning ascribed to such
term in Section 6.1(b)(ii) hereof.
"Straddle Statement" shall have the meaning ascribed to such term in
Section 6.1(b)(ii) hereof.
"Subsidiary" means with respect to a specified Person, any other
Person of which (i) a majority of the voting power of the voting equity
securities or equity interests is owned, directly or indirectly, by such
specified Person or (ii) the general partner, manager or other entity
governing such other Person is controlled by such specified Person.
"Subsidiary Shares" shall have the meaning ascribed to such term in
Section 3.2 hereof.
"Target Net Working Capital" means Twenty-Seven Million One Hundred
Twenty-Four Thousand Dollars ($27,124,000), such amount having been calculated
in accordance with the calculation of Net Working Capital set forth on
Schedule II attached hereto.
"Tax" or "Taxes" shall have the meaning ascribed to such term in
Section 3.13(c) hereof.
"Tax Benefit" shall have the meaning ascribed to such term in Section
11.8(c) hereof.
"Tax Indemnified Party" shall have the meaning ascribed to such term
in Section 6.1(c)(v) hereof.
72
"Tax Indemnifying Party" shall have the meaning ascribed to such term
in Section 6.1(c)(v) hereof.
"Tax Return" shall have the meaning ascribed to such term in Section
3.13(c) hereof.
"Tax Third-Party Claim" shall have the meaning ascribed to such term
in Section 6.1(c)(v) hereof.
"Termination Date" shall have the meaning ascribed to such term in
Section 10.1(b) hereof.
"Third-Party Claims" shall have the meaning ascribed to such term in
Section 11.6 hereof.
"Transfer Taxes" shall have the meaning ascribed to such term in
Section 6.1(d) hereof.
"Transferred Employees" shall have the meaning ascribed to such term
in Section 6.2(a) hereof.
"Transition Agreement" shall have the meaning ascribed to such term
in Section 2.1(a) hereof.
"Transition Date" shall have the meaning ascribed to such term in
Section 5.9(c) hereof.
"Unadjusted Purchase Price" shall have the meaning ascribed to such
term in Section 1.2 hereof.
"Unrelated Liabilities" shall mean any obligation or liability of
Seller or its Affiliates (including the Company or a Division Entity) to the
extent such obligation or liability does not arise out of or relate to the
Business of the Division to be sold to Buyer hereunder. For the avoidance of
doubt, Unrelated Liabilities shall include any liabilities assumed by Seller
or any of its Affiliates as part of the Restructuring Transactions or that
relate to any Excluded Assets or the Staying Clinics.
"Welfare Plan" shall mean each employee welfare benefit plan as
defined in Section 3(1) of ERISA.
"Wind-down Period" shall have the meaning ascribed to such term in
Section 6.4 hereof.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement as of the day and year first above written.
HEALTHSOUTH CORPORATION
By: /s/ Xxx Xxxxxxx
----------------------------------
Name: Xxx Xxxxxxx
Title: Chief Executive Officer
SELECT MEDICAL CORPORATION
By: /s/ Xxxxxx X. Xxxxxxxx
----------------------------------
Name: Xxxxxx X. Xxxxxxxx
Title: Chief Executive Officer
