HealthSouth Corporation One HealthSouth Parkway Birmingham, Alabama 35243
Exhibit 2.2
EXECUTION COPY
EXECUTION COPY
HealthSouth Corporation
Xxx XxxxxxXxxxx Xxxxxxx
Xxxxxxxxxx, Xxxxxxx 00000
Xxx XxxxxxXxxxx Xxxxxxx
Xxxxxxxxxx, Xxxxxxx 00000
May 1, 2007
Ladies and Gentlemen:
Reference is hereby made to that certain Stock Purchase Agreement (the “Stock Purchase
Agreement”), dated as of January 27, 2007, by and between HealthSouth Corporation
(“Seller”) and Select Medical Corporation ( “Buyer”). Capitalized terms used
herein and not otherwise defined shall have the respective meanings ascribed to them in the Stock
Purchase Agreement.
This letter agreement (this “Letter Agreement”) shall confirm that, in consideration
of the mutual agreements set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Seller and Buyer hereby agree as follows:
1. Medicare CHOWs
Notwithstanding anything to the contrary in the Stock Purchase Agreement or the Disclosure
Letter, Buyer and Seller acknowledge and agree that as a result of the asset transfers of certain
Going Facilities in connection with the Restructuring Transactions (the “Outlier
Facilities”), including, without limitation, the Going Facilities that are listed on
Schedule A attached hereto, there may be a delay in the processing of Medicare xxxxxxxx for
such Outlier Facilities. As to any Outlier Facility, (a) the aggregate amount of Medicare xxxxxxxx
such Outlier Facility has not submitted for payment because of the foregoing is referred to herein
as “Held Xxxxxxxx”, (b) the date such Outlier Facility has received both (i) a tie-in notice from
Medicare (including, if necessary, a Medicare Regional Office or Fiscal Intermediary) indicating
that the change of ownership in connection with the Restructuring Transactions is approved thereby
permitting Held Xxxxxxxx to be submitted for payment and paid and (ii) if necessary, any state
survey agency approvals or notices required to permit Held Xxxxxxxx to be submitted for payment and
paid, is referred to herein as the “Tie-In Notice Date” and (c) the last to be obtained of the
notices and approvals referred to in clause (b) of this sentence, to the extent applicable, is
referred to as the “Tie-In Notice.” Collectively, the foregoing effects are referred to below as
the “CHOW Cash Flow Impact”.
Buyer desires to be made whole, and Seller desires to make Buyer whole, in accordance with the
provisions of this Letter Agreement, for the CHOW Cash Flow Impact arising directly from the delay
in Buyer’s receipt of payment of Held Xxxxxxxx with respect to the Outlier Facilities from the
Closing Date through the Tie-In Notice Date for each Outlier Facility. In that connection, Buyer
and Seller agree that Buyer will hold back $250,000 (the “CHOW Holdback Amount”) from the
Initial Purchase Price payable at the Closing pursuant to Sections 1.2 and 1.5(a) of the Stock
Purchase Agreement until the CHOW Holdback Amount is released in accordance with the terms hereof.
Each of Buyer and Seller agrees to use commercially reasonable efforts to pursue receipt of Tie-In
Notices.
In the event that Tie-In Notices with respect to all Outlier Facilities shall have been
received prior to the ninetieth (90th) calendar day following the Closing Date (the
“Three Month Anniversary”), then, on the Three Month Anniversary, Buyer shall pay to Seller, in
cash by wire transfer of immediately available funds to a bank account designated in writing by
Seller (the “Seller Account”), an amount (the “Seller Release Amount”) equal to the
excess, if any, of the CHOW Holdback Amount over the sum of the Interest Amount (as hereinafter
defined) for all Outlier Facilities. As used herein, the “Interest Amount” shall mean an amount,
for each Outlier Facility, equal to the product of (i) the quotient determined by dividing the
aggregate amount of Held Xxxxxxxx with respect to such Outlier Facility as of the Tie-In Notice
Date for such Outlier Facility by 2, (ii) multiplied by the Interest Rate, and (iii) multiplied by
a fraction, the numerator of which is equal to the actual number of days elapsed between the
Closing Date and the Tie-In Notice Date for such Outlier Facility and the denominator of which is
equal to 365.
In the event that Tie-In Notices with respect to all Outlier Facilities shall not have been
received prior to the Three Month Anniversary, Buyer and Seller shall negotiate in good faith to
enter into a mutually agreeable arrangement with respect to Seller making Buyer whole for the CHOW
Cash Flow Impact to Buyer arising directly from the delay in Buyer’s receipt of payment of Held
Xxxxxxxx following the Closing. In addition, in the event that ownership and control of the
Retained Facilities (as hereinafter defined) shall be transferred to Buyer pursuant to paragraph 3
hereof prior to the release of the CHOW Holdback Amount, then if, as of the date of such transfer,
Tie-In Notices shall not have been received with respect to those Retained Facilities so
transferred, for which Medicare change of ownership filings have been made, then such Retained
Facilities shall thereafter be treated as Outlier Facilities for purposes of this paragraph 1
(except that, for purposes of the definition of the “Interest Amount” for such Retained Facilities,
references in such definition to the Closing Date shall be replaced with the date of transfer of
such Retained Facility to Buyer pursuant to paragraph 3 hereof).
Buyer shall be entitled to retain the excess of the CHOW Holdback Amount over the Seller
Release Amount (or such other amount as shall be released after the Three Month Anniversary
pursuant to the mutually agreeable arrangement set forth in the first sentence of the immediately
preceding paragraph, to the extent applicable). The Initial Purchase Price and the Purchase Price
shall be reduced by the amount retained by Buyer in accordance with the foregoing sentence. Buyer
and Seller acknowledge and agree that except as specifically provided
in this paragraph 1, the CHOW Holdback Amount shall not be subject to any other right of
set-off, nor be subject to any defenses, off-set or recoupment by Buyer in respect of any other
right of Buyer or any other amounts that Buyer shall claim to be entitled pursuant to the Stock
Purchase Agreement.
Buyer and Seller acknowledge and agree that the CHOW Cash Flow Impact shall not constitute a
breach or violation of any representation, warranty or covenant contained in the Stock Purchase
Agreement or a non-fulfillment of any condition to Closing set forth in Articles VII through IX of
the Stock Purchase Agreement.
2. UVA Facilities
Notwithstanding anything to the contrary in the Stock Purchase Agreement or the Disclosure
Letter, Buyer and Seller agree that the facility listed under “Staying” in Schedule B
attached hereto shall be treated for all purposes under the Stock Purchase Agreement as a Staying
Clinic within the meaning of Section 2.4(b) of the Stock Purchase Agreement and paragraph 3 of
Section 2.4(b) of the Disclosure Letter, Buyer shall acquire no right, interest or title in or to
such facility, and the employees of Seller and its Subsidiaries who are employed at such facility
shall remain employees of Seller or its Subsidiaries at Closing and shall not be treated as
Division Offerees. Prior to Closing, Seller shall take all action necessary to cause all equity
interests in and to, and other assets of, and all liabilities arising out of or related to, the
facility listed under “Staying” in Schedule B to be transferred to and assumed by Seller or a
Subsidiary of Seller, other than a Division Entity. Notwithstanding anything to the contrary in
the Stock Purchase Agreement, Buyer’s continued ownership and operation of the Staying Clinic
listed under “Staying” in Schedule B attached hereto shall not constitute a violation of
Section 5.11 of the Stock Purchase Agreement.
In consideration of Buyer’s willingness to treat the facility listed under “Staying” on
Schedule B as a Staying Clinic, Seller and Buyer have agreed (a) to seek to negotiate in
good faith during the sixty (60) days following the Closing Date, with respect to the five
facilities listed under “Buyer Managed Facilities” in Schedule B attached hereto (the
“Substituted Facilities”), to either provide for the transfer to Buyer of the Substituted
Facilities on mutually acceptable terms or enter into a “turn-key” Management Agreement, providing
that Buyer shall manage the Substituted Facilities, which Management Agreement shall be in form and
substance mutually acceptable to Seller and Buyer, including as to the amount of compensation to
Buyer thereunder (the “Management Agreement”), (b) to reduce the Initial Purchase Price
payable by Buyer at the Closing pursuant to Sections 1.2 and 1.5(a) of the Stock Purchase Agreement
by an aggregate amount of One Million Eight Hundred Thousand Dollars ($1,800,000) and (c) that
Buyer will hold back One Million Eight Hundred Thousand Dollars ($1,800,000) (the “UVA
Holdback Amount”) from the Initial Purchase Price payable at the Closing pursuant to
Sections 1.2 and 1.5(a) of the Stock Purchase Agreement until the UVA Holdback Amount is released
in accordance with the terms hereof. Neither Buyer nor Seller shall be obligated to agree to the
transfer of the Substituted Facilities or the entering into of the Management Agreement with
respect thereto.
If Seller and Buyer shall agree to transfer the Substituted Facilities to Buyer or enter into
the Management Agreement, each of Seller and Buyer shall use its commercially reasonable efforts,
prior to such transfer or entering into of the Management Agreement, to cause the Substituted
Facilities to become non-provider based facilities, including making all Filings with, and seeking
all Consents of, Governmental Authorities required in connection therewith. Upon such transfer of
the Substituted Facilities to Buyer or entering into the Management Agreement and provided that
prior thereto all Filings with, and Consents of, Governmental Authorities with respect to the
Substituted Facilities becoming non-provider based facilities shall have been made and obtained,
(i) Buyer shall pay to Seller, in cash by wire transfer of immediately available funds to the
Seller Account, an amount equal to the UVA Holdback Amount and (ii) Buyer shall make “at will”
offers of employment to all employees of Seller and its Subsidiaries who are employed at the
Substituted Facilities in accordance with Article VI of the Stock Purchase Agreement, each of whom
shall constitute Division Offerees for all purposes of Article VI of the Stock Purchase Agreement.
If Buyer and Seller enter into the Management Agreement, the Substituted Facilities shall
thereafter continue to be owned by Seller, but shall be managed by Buyer upon the terms and
conditions set forth in the Management Agreement
If Seller and Buyer shall not agree to transfer the Substituted Facilities to Buyer or enter
into the Management Agreement within sixty (60) days following the Closing Date, Buyer shall be
entitled to retain the UVA Holdback Amount and the Initial Purchase Price and the Purchase Price
shall be reduced by the UVA Holdback Amount. Buyer and Seller acknowledge and agree that the UVA
Holdback Amount shall not be subject to any right of set-off, nor be subject to any defenses,
off-set or recoupment by Buyer in respect of any other right of Buyer or any other amounts that
Buyer shall claim to be entitled pursuant to the Stock Purchase Agreement.
Buyer and Seller acknowledge and agree that the failure of the facility listed under “Staying”
in Schedule B hereto to be included as a Going Clinic shall not constitute a breach or
violation of any representation, warranty or covenant contained in the Stock Purchase Agreement or
a non-fulfillment of any condition to Closing set forth in Articles VII through IX of the Stock
Purchase Agreement.
3. CON Approvals
Notwithstanding anything to the contrary in the Stock Purchase Agreement or the Disclosure
Letter, Buyer and Seller agree that, as of immediately prior to Closing, Certificate of Need
(“CON”) approvals for the Going Facilities listed in Schedule C attached hereto (the
“Retained Facilities”) have neither been received from, nor determined to be unnecessary
by, the respective states under which such facilities are listed in Schedule C.
Notwithstanding anything to the contrary in the Stock Purchase Agreement or the Disclosure Letter,
Buyer and Seller agree that the Retained Facilities listed in Schedule C attached hereto
shall be treated for all purposes
under the Stock Purchase Agreement as a Staying Clinic within the meaning of Section 2.4(b) of
the Stock Purchase Agreement and paragraph 3 of Section 2.4(b) of the Disclosure Letter, and Buyer
shall acquire no right, interest or title in or to such Retained Facilities unless and until
transferred to Buyer in accordance with this paragraph 3. Prior to Closing, Seller shall take all
action necessary to cause all equity interests in and to, and other assets of, and all liabilities
arising out of or related to the Retained Facilities to be transferred to and assumed by Seller or
a Subsidiary of Seller, other than a Division Entity.
Seller and Buyer have agreed with respect to the Retained Facilities, that Seller will
continue to own and control each such Retained Facility during the Regulatory Approval Period (as
hereinafter defined) for such Retained Facility, but that (a), with respect to the Retained
Facilities located in the State of Connecticut, as set forth in Schedule C hereto (the “Connecticut
Retained Facilities”), each Retained Facility will be staffed by employees of Buyer during the
Regulatory Approval Period upon the terms and conditions set forth in the Staffing Agreement
attached hereto as Exhibit II (the “Staffing Agreement”) and (b) with respect to
the Retained Facility located in the District of Columbia, as set forth in Schedule C (the “DC
Retained Facility”), Buyer and Seller shall enter into a management agreement (the “DC
Management Agreement”) attached hereto as Exhibit III. Notwithstanding the foregoing,
Buyer shall make “at will” offers of employment to all employees of Seller and its Subsidiaries who
are employed at the Retained Facilities in accordance with Article VI of the Stock Purchase
Agreement, each of whom shall constitute Division Offerees for all purposes of Article VI of the
Stock Purchase Agreement. As used herein, “Regulatory Approval Period” shall mean a period, with
respect to each Retained Facility, beginning on the Closing Date and continuing until such time as
either (i) the CON approval is issued with respect to such Retained Facility by the applicable
state authority, (ii) the applicable state authority determines that CON approval is not required,
(iii) if CON approval is determined to be necessary and such approval is ultimately denied for
such Retained Facility and either (a) an appeal is filed, or (b) Seller provides Buyer with notice
of its intent to terminate or otherwise dispose of such Retained Facility, the Regulatory Approval
Period shall terminate on the earliest of the date on which (x) a final, non-appealable decision is
issued with respect to the appeal by a court of competent jurisdiction upholding the denial, (y)
the date upon which Seller withdraws such appeal in order to terminate or otherwise dispose of the
Retained Facility (which date shall be specified by Seller in written notice to Buyer) or (z) the
date upon which Buyer requests Seller to withdraw such appeal (which date shall be following the
nine month anniversary of the Closing Date and shall be specified by Buyer in a written notice to
Seller).
During the period from the Closing Date through the date upon which any Retained Facility is
transferred to Buyer pursuant to this paragraph 3, all revenues from such Retained Facility shall
be deposited into a bank account in the name of Seller ( the “Lockbox Account”). During
the period from the Closing Date through the date upon which any Retained Facility is transferred
to Buyer pursuant to this paragraph 3, disbursements shall be paid from such Lockbox Account in
accordance with the Staffing Agreement and the DC Management
Agreement. In the event that the amount in the Lockbox Account shall be insufficient to pay
Buyer the amounts due under the Staffing Agreement and the DC Management Agreement, Seller shall
reimburse Buyer directly for such shortfall.
During the period from the Closing Date through the date upon which any Retained Facility is
transferred to Buyer pursuant to this paragraph 3, each of Buyer and Seller shall conduct
operations with respect to such Retained Facility in the ordinary course of business, consistent
with past practices.
In furtherance of the foregoing arrangement, at the Closing, Buyer and Seller agree that Buyer
will hold back Twenty Three Million Four Hundred Thousand Dollars ($23,400,000) (the “CON
Holdback Amount”) from the Initial Purchase Price payable at the Closing pursuant to Sections
1.2 and 1.5(a) of the Stock Purchase Agreement until the CON Holdback Amount is released in
accordance with the terms hereof.
On the last day of the month in which CON approval is received from the applicable state
authority or notice is received from the applicable state authority that CON approval is not
required, (a) with respect to the DC Retained Facility or (b) with respect to the Connecticut
Retained Facilities representing at least seventy five percent (75%) of the aggregate EBITDA for
all Connecticut Retained Facilities (as set forth on Schedule C), then, (i) Seller shall, pursuant
to instruments of assignment reasonably acceptable to Buyer, transfer to Buyer free and clear of
all Liens (other than Permitted Liens), ownership and control of such Retained Facilities for which
the CON approval from the applicable state authority was received or deemed to be unnecessary
(together with the assets and liabilities that relate to the operations thereof that, pursuant to
the terms of the Stock Purchase Agreement, are of the type that would have been transferred to
Buyer had such Retained Facility been transferred at the Closing), (ii) with respect to the
Connecticut Retained Facilities, Buyer shall pay to Seller, in cash by wire transfer of immediately
available funds to the Seller Account, an amount equal to the CON Holdback Amount multiplied by a
fraction, the numerator of which is the EBITDA for such Connecticut Retained Facilities, as set
forth on Schedule C hereto, and the denominator of which is the aggregate amount of EBITDA for all
Connecticut Retained Facilities, as set forth on Schedule C hereto, (iii) the Staffing Agreement or
DC Management Agreement in the case of the DC Retained Facility shall terminate with respect to
each Retained Facility so transferred and (iv) subject to the payment of such amounts required to
be paid under the Staffing Agreement and the DC Management Agreement, Seller shall be entitled to
retain the amount contained in the Lockbox Account that arises out of or relates to such Retained
Facilities.
If there is a transfer of some but not all Connecticut Retained Facilities pursuant to the
immediately foregoing paragraph, on the last day of the month in which CON approval is received
from the applicable state authority for any other Connecticut Retained Facilities or receipt of
notice from the applicable authority that CON approval is not required, (i) Seller shall, pursuant
to instruments of assignment reasonably acceptable to Buyer, transfer to Buyer free and clear of
all Liens (other than Permitted Liens) ownership and control of such Connecticut
Retained Facility for which the CON approval from the applicable state authority was received
or deemed to be unnecessary (together with the assets and liabilities that relate to the operations
thereof that, pursuant to the terms of the Stock Purchase Agreement, are of the type that would
have been transferred to Buyer had such Retained Facility been transferred at the Closing), (ii)
Buyer shall pay to Seller, in cash by wire transfer of immediately available funds to the Seller
Account, an amount equal to the CON Holdback Amount multiplied by a fraction, the numerator of
which is the EBITDA for such Connecticut Retained Facility, as set forth on Schedule C hereto, and
the denominator of which is the aggregate amount of EBITDA for all Connecticut Retained Facilities,
as set forth on Schedule C hereto, (iii) the Staffing Agreement shall terminate with respect to
each Connecticut Retained Facility so transferred and (iv) subject to the payment of such amounts
required to be paid under the Staffing Agreement and the DC Management Agreement, Seller shall be
entitled to retain the amount contained in the Lockbox Account that arises out of or relates to
such Connecticut Retained Facility.
If CON approval is determined to be necessary for any Connecticut Retained Facility and such
approval is ultimately denied for such Connecticut Retained Facility and either (a) an appeal is
filed, or (b) Seller provides Buyer with notice of its intent to terminate or otherwise dispose of
such Connecticut Retained Facility or (c) Buyer notifies Seller following the nine month
anniversary of the Closing Date of Buyer’s intent to cease pursuing an appeal for such Connecticut
Retained Facility, then, upon the earliest of the date on which (x) a final, non-appealable
decision is issued with respect to the appeal by a court of competent jurisdiction upholding the
denial, (y) the date upon which Seller withdraws such appeal in order to terminate or otherwise
dispose of the Connecticut Retained Facility (which date shall be specified by Seller in written
notice to Buyer), or (z) the date upon which Buyer requests Seller to withdraw such appeal (which
date shall not be prior to the nine month anniversary of the Closing Date and shall be specified by
Buyer in a written notice to Seller), then (i) Buyer shall be entitled to retain, and the Initial
Purchase Price and the Purchase Price shall be decreased by, an amount equal to the CON Holdback
Amount multiplied by a fraction, the numerator of which is the EBITDA for each such Connecticut
Retained Facility, as set forth on Schedule C hereto, and the denominator of which is the aggregate
amount of EBITDA for all Connecticut Retained Facilities, as set forth on Schedule C hereto, (ii)
the Staffing Agreement shall terminate with respect to each such Connecticut Retained Facility and
(iii) Seller shall be entitled to retain the amount contained in the Lockbox Account that arises
out of or relates to each such Connecticut Retained Facility. Notwithstanding anything to the
contrary in the Stock Purchase Agreement, Seller’s continued ownership and operation of the
Connecticut Retained Facility shall not constitute a violation of Section 5.11 of the Stock
Purchase Agreement
If CON approval is not obtained for Connecticut Retained Facilities representing at least 75%
of the aggregate EBITDA for all Connecticut Retained Facilities, as set forth on Schedule C, on or
prior to the nine month anniversary of the Closing Date, then Buyer shall thereafter be entitled to
cease pursuing the CON approval for all Connecticut Retained Facilities, upon written notice to
Seller, and (i) Buyer shall retain, and the Purchase Price shall be reduced by, the CON
Holdback Amount, (ii) the Staffing Agreement shall terminate with respect to all of the
Connecticut Retained Facilities and (iii) Seller shall be entitled to retain all amounts contained
in the Lockbox Account. Notwithstanding anything to the contrary in the Stock Purchase Agreement,
Buyer’s continued ownership and operation of the Connecticut Retained Facility shall not constitute
a violation of Section 5.11 of the Stock Purchase Agreement.
In the event of a termination of the Staffing Agreement for any Connecticut Retained Facility
pursuant to either of the two immediately preceding paragraphs, (i) such termination shall not
become effective until an appropriate transition period (up to 60 days) in which Buyer shall
transition management to Seller of such Connecticut Retained Facility with respect to which the
Staffing Agreement is being terminated, (ii) Buyer shall transfer to Seller all lease agreements
and other assets used primarily in connection with such Connecticut Retained Facility and Seller
shall assume all liabilities and agreements arising in the ordinary course of the conduct of such
Connecticut Retained Facility between the Closing Date and the date of termination of the Staffing
Agreement for such Connecticut Retained Facility pursuant to this paragraph 3 and all lease
agreements relating to such Retained Facility, and (iii) all employees at such Connecticut Retained
Facility shall be terminated by Buyer upon the effective time of such termination and Seller shall
make “at will” offers of employment to such employees (provided that Seller shall reimburse and
indemnify Buyer for any severance due to (i) such employees as a result thereof, each in an amount
up to the amount that would be due to such employees under the Severance Policy (ignoring any
clause in such Severance Policy excluding severance payments in connection with a sale of such
Retained Facility) or, if greater, (ii) Xxxxxxx Xxxxx, Xxxxx XxXxxxxx, Xxxx Xxxxxxx or Xxxxx Xxxx,
pursuant to the letter agreement between Buyer and each of Xx. Xxxxx, Xx. Xxxxxxx and Xx. Xxxx
dated May 1, 2007, as applicable or, in the case of Xx. XxXxxxxx, the employment agreement between
Buyer and Xx. XxXxxxxx dated May 1, 2007).
Buyer and Seller acknowledge and agree that except as specifically provided in this paragraph
3, the CON Holdback Amount shall not be subject to any other right of set-off, nor be subject to
any defenses, off-set or recoupment by Buyer in respect of any other right of Buyer or any other
amounts that Buyer shall claim to be entitled pursuant to the Stock Purchase Agreement.
In furtherance of the foregoing, Buyer and Seller agree that, at such time as Seller delivers
the Statement to Buyer pursuant to Section 1.6(a)(ii), Seller shall also deliver to Buyer a
statement setting forth the amount of (i) the target Net Working Capital attributable to each of
the Retained Facilities (for each Retained Facility, the “Retained Target Working Capital”) and
(ii) the aggregate amount of the Estimated Net Working Capital attributable to all of the Retained
Facilities (the “Retained Estimated Working Capital”), together with work papers supporting the
calculation of such amounts. The allocation of Target Working Capital and Estimated Working
Capital among the Going Clinics and the Retained Facilities shall be subject to review, dispute and
resolution pursuant to Section 1.6(a)(iii)-(v) of the Stock Purchase Agreement as if such matters
were part of the Statement. The amount of the Estimated Net Working Capital less the
amount of the Retained Estimated Working Capital shall hereinafter be referred to as the
“Going Estimated Working Capital”), and the amount of the Target Net Working Capital less the sum
of the Retained Target Working Capital of all Retained Facilities shall be referred to as the
“Going Target Working Capital.”
Notwithstanding anything to the contrary in Section 1.6 of the Stock Purchase Agreement, for
purposes of calculating the Net Working Capital Adjustment Amount, (i) the amount of the Actual
Working Capital shall exclude Net Working Capital of all Retained Facilities and (ii) all
references in such calculation to the Estimated Net Working Capital shall be replaced with the
Going Estimated Working Capital.
In addition, within sixty (60) days following the last to occur of (i) the transfer to Buyer
of all Retained Facilities, or (ii) the termination of the Staffing Agreement and, in the case of
the DC Retained Facility, the DC Management Agreement with respect to all Retained Facilities
(other than those transferred to Buyer), Seller shall deliver to Buyer a statement setting forth,
with respect to each Retained Facility transferred to Buyer, the Net Working Capital of such
Retained Facility as of the date of transfer of such Retained Facility to Buyer (the “Actual
Retained Facility Working Capital”). Such statement shall also set forth, with respect to each
Retained Facility transferred to Buyer, the difference, if any, determined by subtracting the
Retained Target Working Capital from the Actual Retained Facility Working Capital (with respect to
each Retained Facility, the “Retained Facility Adjustment Amount”, it being understood that the
Retained Facility Adjustment Amount may result in a positive or negative number). For purposes of
calculating the Net Retained Facility Adjustment Amount to be paid to Buyer or Seller as provided
below, the Retained Facility Adjustment Amount shall include interest thereon at the Interest Rate
from the closing date of the sale of such Retained Facility to Buyer pursuant to this paragraph 3
to the date of payment of the Net Retained Facility Adjustment Amount referred to below, it being
understood that if the Retained Facility Adjustment Amount is a positive number, the amount of
interest shall be added to such Retained Facility Adjustment Amount, and if such Retained Facility
Adjustment Amount is a negative number, the amount of interest shall be subtracted from such
Retained Facility Adjustment Amount (making it further negative). The sum of all of the positive
Retained Facility Adjustment Amounts, less the sum of all negative Retained Facility Adjustment
Amounts is referred to herein as the “Net Retained Facility Adjustment Amount”, it being understood
that the Net Retained Facility Adjustment Amount may be a positive or negative number. Buyer shall
have the right to review and dispute the statement delivered pursuant to this paragraph in
accordance with the provisions of Section 1.6(a)(iii)-(v) of the Stock Purchase Agreement as if
such statement were the Statement. Subject to such review and dispute, (i) Buyer shall pay to
Seller the amount of any positive Net Retained Facility Adjustment Amount and (ii) Seller shall pay
to Buyer the amount of any negative Net Retained Facility Adjustment Amount, in either case, within
ten (10) Business Days following the date such statement becomes final and binding in accordance
with Section 1.6(a) (as if such statement were the Statement). Contemporaneously with its delivery
to Buyer of such statement, Seller shall also deliver to Buyer a copy of the work
Select Medical Corporation
May 1, 2007
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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. In addition, at the time Buyer or Seller makes payment of the positive or negative
Net Retained Facility Adjustment Amount, (a) Seller shall pay to Buyer the excess, if any, of the
Going Target Working Capital over the Going Estimated Working Capital, or Buyer shall pay to Seller
the excess, if any, of the Going Estimated Working Capital over the Going Target Working Capital,
and (b) Buyer shall repay to Seller any reduction to the Initial Purchase Price made pursuant to
Section 1.2(vi) of the Stock Purchase Agreement or Seller shall repay to Buyer any increase to the
Initial Purchase Price made pursuant to Section 1.2(v) of the Stock Purchase Agreement (any such
payment by Buyer or Seller, the “Equalization Payment”). The Equalization Payment shall be netted
against the Retained Facility Adjustment Amount to determine the net amount due by Buyer or Seller,
as the case may be.
The provisions of Section 6.4 of the Stock Purchase Agreement shall apply to the sale of each
Retained Facility to Buyer as if the Closing Date were the closing date of such Retained Facility
pursuant to this paragraph 3 and references to “Division” and “Division Entity” were references to
such Retained Facility.
Buyer and Seller acknowledge and agree that the failure to obtain the CON approval or
determination that CON approval is not required for the transfer of ownership and control of the
facilities listed in Schedule C attached hereto shall not constitute a breach or violation
of any representation, warranty or covenant contained in the Stock Purchase Agreement or a
non-fulfillment of any condition to Closing set forth in Articles VII through IX of the Stock
Purchase Agreement.
4. Partnerships.
Notwithstanding anything to the contrary in the Stock Purchase Agreement or the Disclosure
Letter, prior to Closing Seller has caused each of the entities listed in Schedule D to be
owned 100% by HealthSouth Holdings, Inc. or another Division Entity and Seller shall have taken all
actions necessary or appropriate to have either (i) caused any equity interests in such entities
not owned by Seller or its Subsidiaries to be purchased or otherwise acquired by HealthSouth
Holdings, Inc. or another Division Entity or (ii) merged another entity with and into each such
entity and cashed out the minority limited partners or otherwise restructured such entities so as
to eliminate the equity interests not previously owned HealthSouth Holdings, Inc. or another
Division Entity.
5. Chiropractor Facilities
Notwithstanding anything to the contrary in the Stock Purchase Agreement or the Disclosure
Letter, Buyer and Seller agree that the facilities listed in Schedule E attached hereto
Select Medical Corporation
May 1, 2007
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shall be treated for all purposes of the Stock Purchase Agreement as a Staying Clinics within
the meaning of Section 2.4(b) of the Stock Purchase Agreement and paragraph 3 of Section 2.4(b) of
the Disclosure Letter and Buyer shall acquire no right, interest or title in or to such facilities.
Prior to Closing, Seller shall take all actions necessary as to cause all equity interests in and
to, and all liabilities arising out of or related to, the facilities listed in Schedule E attached
hereto to be transferred to and assumed by Seller or a Subsidiary of Seller, other than a Division
Entity. The employees of Seller and its Subsidiaries who are employed at such facilities shall
remain employees of Seller or its Subsidiaries at Closing and shall not be treated as Division
Offerees.
Buyer and Seller acknowledge and agree that the failure of the facilities listed in
Schedule E hereto to be included as Going Clinics shall not constitute a breach or
violation of any representation, warranty or covenant contained in the Stock Purchase Agreement or
a non-fulfillment of any condition to Closing set forth in Articles VII through IX of the Stock
Purchase Agreement, nor shall there be any adjustment to the Purchase Price in respect thereof.
Except as may be modified by this Letter Agreement, all of the terms, covenants, agreements,
conditions and other provisions of the Stock Purchase Agreement, in each case as in effect on the
date hereof, shall remain in full force and effect in accordance with their respective terms.
This Letter 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).
This Letter Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same instrument, and
shall become effective upon its execution by Seller and Buyer.
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Select Medical Corporation
May 1, 2007
Page 12
May 1, 2007
Page 12
Kindly acknowledge Buyer’s agreement with the foregoing by executing this Letter Agreement in
the space provided below.
| Very truly yours, HEALTHSOUTH CORPORATION |
||||
| By: | /s/ Xxxx X. Xxxxxxxxxxx | |||
| Name: | Xxxx X. Xxxxxxxxxxx | |||
| Title: | Secretary | |||
ACKNOWLEDGED AND AGREED:
SELECT MEDICAL CORPORATION
| By: | /s/ Xxxxxxx X. Xxxxxx | |||
| Name: | Xxxxxxx X. Xxxxxx | |||
| Title: | Executive Vice President | |||
