EXHIBIT 2.1
EXECUTION COPY
STOCK PURCHASE AGREEMENT
by and among
XXXXXXX REHABILITATION CORPORATION,
XXXXX X. XXXXXXX FOUNDATION, INC.
and
SELECT MEDICAL CORPORATION
TABLE OF CONTENTS
Page
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ARTICLE 1. DEFINITIONS.................................................................................. 1
Section 1.1 Definitions........................................................................... 1
ARTICLE 2. SALE OF SHARES; PURCHASE PRICE............................................................... 6
Section 2.1 Sale of Shares........................................................................ 6
Section 2.2 Consideration; Closing Date Cash Payment.............................................. 6
Section 2.3 Closing............................................................................... 8
Section 2.4 Post-Closing Purchase Price Adjustment................................................ 8
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND STOCKHOLDER................................ 10
Section 3.1 Organization of the Company........................................................... 10
Section 3.2 Authority............................................................................. 11
Section 3.3 Capitalization........................................................................ 12
Section 3.4 Subsidiaries.......................................................................... 12
Section 3.5 Capitalization of the Company Subsidiaries............................................ 12
Section 3.6 Financial Statements.................................................................. 13
Section 3.7 Accounts Receivable................................................................... 14
Section 3.8 Undisclosed Liabilities............................................................... 14
Section 3.9 Absence of Certain Changes or Events.................................................. 15
Section 3.10 Real Property......................................................................... 16
Section 3.11 Material Contracts.................................................................... 16
Section 3.12 Intellectual Property................................................................. 18
Section 3.13 Litigation............................................................................ 19
Section 3.14 Compliance with Law; Governmental Approvals........................................... 19
Section 3.15 Employee Benefit Plans................................................................ 21
Section 3.16 Compensation.......................................................................... 23
Section 3.17 Taxes................................................................................. 23
Section 3.18 Insurance............................................................................. 24
Section 3.19 Labor Relations and Employment........................................................ 24
Section 3.20 Medicare Participation/Accreditation.................................................. 25
Section 3.21 Cost Reports and Other Filings........................................................ 25
Section 3.22 Exclusion............................................................................. 26
Section 3.23 Federal Health Care Programs.......................................................... 26
Section 3.24 Billing; Gratuitous Payments.......................................................... 27
Section 3.25 Reimbursement Matters................................................................. 27
Section 3.26 No Criminal Proceedings............................................................... 27
Section 3.27 Bank Accounts......................................................................... 27
Section 3.28 Brokers or Finders.................................................................... 27
Section 3.29 Organization of Stockholder........................................................... 28
Section 3.30 Ownership............................................................................. 28
Section 3.31 Authority............................................................................. 28
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Section 3.32 Litigation............................................................................ 29
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF BUYER...................................................... 29
Section 4.1 Organization of Buyer................................................................. 29
Section 4.2 Authority............................................................................. 29
Section 4.3 Funding............................................................................... 30
Section 4.4 Litigation............................................................................ 30
Section 4.5 Investment Representation; Business Investigation..................................... 31
Section 4.6 Brokers or Finders.................................................................... 31
ARTICLE 5. CERTAIN UNDERSTANDINGS AND AGREEMENTS........................................................ 31
Section 5.1 Conduct of Business................................................................... 31
Section 5.2 Pre-Closing Access to Properties and Records; Confidentiality......................... 33
Section 5.3 Post-Closing Access to Records........................................................ 34
Section 5.4 HSR................................................................................... 34
Section 5.5 Certain Tax Matters................................................................... 35
Section 5.6 Resignations.......................................................................... 38
Section 5.7 Employee Matters...................................................................... 38
Section 5.8 D&O Indemnification/Insurance......................................................... 40
Section 5.9 Implied Warranties.................................................................... 40
Section 5.10 Non-Competition; Nonsolicitation...................................................... 40
Section 5.11 No Solicitation....................................................................... 42
Section 5.12 Confidentiality....................................................................... 42
Section 5.13 Acquisition of Rights to Confidentiality.............................................. 42
Section 5.14 Payment of Indebtedness............................................................... 43
Section 5.15 Argosy Health, LLC.................................................................... 43
Section 5.16 Ancillary Agreements.................................................................. 43
Section 5.17 Liquidity............................................................................. 44
Section 5.18 Home Office Cost Report............................................................... 44
Section 5.19 Related Transactions.................................................................. 44
Section 5.20 Bequests.............................................................................. 44
Section 5.21 Accounts Receivable................................................................... 44
Section 5.22 Provider Based Status................................................................. 46
Section 5.23 Reasonable Efforts.................................................................... 46
Section 5.24 Certificate of Amendment.............................................................. 47
Section 5.25 Certain Employee Obligations.......................................................... 47
Section 5.26 Environmental Matters................................................................. 47
ARTICLE 6. CONDITIONS TO OBLIGATIONS OF EACH PARTY...................................................... 48
Section 6.1 No Action or Proceeding............................................................... 48
Section 6.2 Xxxx-Xxxxx-Xxxxxx Requirements........................................................ 48
Section 6.3 Ancillary Agreements.................................................................. 48
Section 6.4 ISRA.................................................................................. 49
ARTICLE 7. CONDITIONS TO OBLIGATIONS OF BUYER........................................................... 49
Section 7.1 Representations and Warranties........................................................ 49
Section 7.2 Performance of the Company and Stockholder............................................ 49
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Section 7.3 Secretary's Certificate............................................................... 49
Section 7.4 Good Standing Certificate............................................................. 50
Section 7.5 Organizational Documents.............................................................. 50
Section 7.6 Resignations.......................................................................... 50
Section 7.7 KALR.................................................................................. 50
Section 7.8 Consents.............................................................................. 50
Section 7.9 Legal Opinion......................................................................... 50
Section 7.10 Health Care Facilities Planning Act................................................... 51
ARTICLE 8. CONDITIONS TO OBLIGATIONS OF STOCKHOLDER AND THE COMPANY..................................... 51
Section 8.1 Representations and Warranties........................................................ 51
Section 8.2 Performance by Buyer.................................................................. 51
Section 8.3 Secretary's Certificate............................................................... 51
Section 8.4 Good Standing Certificate............................................................. 52
Section 8.5 Organizational Documents.............................................................. 52
ARTICLE 9. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION, ETC.................. 52
Section 9.1 Survival of Representations and Warranties, Etc....................................... 52
Section 9.2 Stockholder's Agreement to Indemnify.................................................. 52
Section 9.3 Buyer's Agreement to Indemnify........................................................ 54
Section 9.4 Cost Report Liability Indemnification................................................. 55
Section 9.5 75% Rule Reimbursement................................................................ 55
Section 9.6 Employee Benefits Liabilities Indemnification......................................... 57
Section 9.7 Workers' Compensation Insurance Indemnifications...................................... 57
Section 9.8 Third Party Claims.................................................................... 57
Section 9.9 Indemnification Amounts............................................................... 58
Section 9.10 Indemnification Period................................................................ 59
Section 9.11 Exclusive Remedies.................................................................... 59
Section 9.12 Miscellaneous......................................................................... 59
ARTICLE 10. TERMINATION.................................................................................. 59
Section 10.1 Termination........................................................................... 60
Section 10.2 Liability of Buyer and Stockholder.................................................... 60
ARTICLE 11. MISCELLANEOUS................................................................................ 60
Section 11.1 Notices............................................................................... 60
Section 11.2 Assignability; Parties in Interest.................................................... 64
Section 11.3 Governing Law......................................................................... 64
Section 11.4 Counterparts.......................................................................... 64
Section 11.5 Publicity............................................................................. 64
Section 11.6 Complete Agreement.................................................................... 65
Section 11.7 Amendments and Waivers................................................................ 65
Section 11.8 Expenses.............................................................................. 65
Section 11.9 Interpretation........................................................................ 65
Section 11.10 Severability.......................................................................... 65
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Section 11.11 Further Assurances.................................................................... 65
Section 11.12 Schedules............................................................................. 66
Section 11.13 Tax Disclosure........................................................................ 66
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LIST OF SCHEDULES
Schedule 2.4(a) Closing Date Balance Sheet Exceptions
Schedule 3.2(b) Consents and Approvals Required by the Company or any Company Subsidiary
Schedule 3.3 Capitalization
Schedule 3.4(a) Company Subsidiaries
Schedule 3.5(a) Authorized, Issued and Outstanding Capital Stock of the Company
Subsidiaries
Schedule 3.5(c) Company Subsidiary Share Agreements
Schedule 3.6(a) Financial Statements
Schedule 3.6(b) Company Indebtedness
Schedule 3.6(c) Company Earn-Out Obligations
Schedule 3.6(d) Cash Receipts
Schedule 3.8 Undisclosed Liabilities
Schedule 3.9 Absence of Certain Changes or Events
Schedule 3.10(b) Company Real Property
Schedule 3.10(c) Real Property Contracts
Schedule 3.11(a) Material Contracts
Schedule 3.11(b) Defaults under Material Contracts
Schedule 3.12 Intellectual Property
Schedule 3.13 Litigation
Schedule 3.14(b) Environmental Compliance
Schedule 3.14(d) Company Approvals
Schedule 3.15 Employee Benefit Plans
Schedule 3.16 Compensation
Schedule 3.17 Taxes
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Schedule 3.18 Insurance
Schedule 3.19 Labor Relations and Employment
Schedule 3.20 Medicare Participation/Accreditation
Schedule 3.21 Third Party Payor Cost Reports
Schedule 3.23 Federal Health Care Programs
Schedule 3.24 Billing
Schedule 3.25 Reimbursement Matters
Schedule 3.26 Criminal Proceedings
Schedule 3.27 Bank Accounts
Schedule 3.30 Ownership of Shares
Schedule 3.31(b) Consents and Approvals Required by Stockholder
Schedule 4.2(b) Consents and Approvals Required by Buyer
Schedule 5.1(a) Conduct of Business
Schedule 5.7 Employment, Retention and Severance Agreements
Schedule 5.10(b) Solicitation of Employees
Schedule 5.14 Payment of Indebtedness
Schedule 5.25 Certain Employee Obligations
Schedule 7.8 Closing Consents
Schedule 9.2(a)(viii) Environmental Indemnification
Schedule 11.12 Reasonable Efforts
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LIST OF EXHIBITS
Exhibit A........................................................... Form of Affiliation and Services Agreement
Exhibit B........................................................... Form of Lease Agreement
Exhibit C........................................................... Form of Intellectual Property Agreement
Exhibit D........................................................... Distribution Agreement
Exhibit E........................................................... D&O Insurance Terms
Exhibit F........................................................... ACM Abatement Plan
Exhibit G........................................................... Denitrification Plan
Exhibit H........................................................... Form of Legal Opinion
Exhibit I........................................................... Form of Employee Benefits Notice
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DEFINITIONS
75% Rule.................................................................. Section 9.5(a)
ACMs...................................................................... Section 3.14(b)(iii)
ACM Abatement Plan........................................................ Section 5.26(a)
Adjustment Amount......................................................... Section 2.4(c)
Affiliation and Services Agreement........................................ Section 1.1
Aggregate Closing Date Cash Payment....................................... Section 2.2(a)
Agreement................................................................. Preamble
Allocation Objection...................................................... Section 5.10(e)
Approvals................................................................. Section 3.14(a)
Argosy Note............................................................... Section 1.1
Argosy Settlement Agreement............................................... Section 1.1
Asserted Liability........................................................ Section 9.8
Audited Financial Statements.............................................. Section 3.6(a)
Balance Sheet............................................................. Section 3.8
Balance Sheet Date........................................................ Section 3.8
Business.................................................................. Section 1.1
Buyer..................................................................... Preamble
Buyer Indemnitees......................................................... Section 9.2(a)
Cash Equivalents.......................................................... Section 1.1
CERCLA.................................................................... Section 3.14(b)(v)
Certificate of Incorporation.............................................. Section 3.1(b)
Closing................................................................... Section 2.3
Closing Date.............................................................. Section 2.3
Closing Date Balance Sheet................................................ Section 2.4(a)
Closing Date Receivables.................................................. Section 5.21(a)(i)
Closing Date Reserves..................................................... Section 5.21(a)(ii)
Closing Date Working Capital.............................................. Section 2.4(a)
CMS....................................................................... Section 1.1
Code...................................................................... Section 1.1
Company................................................................... Preamble
Company Employees......................................................... Section 5.7(a)
Company Options........................................................... Section 2.2(c)
Company Stock Units....................................................... Section 2.2(d)
Company Subsidiary and Company Subsidiaries............................... Section 3.2(b)
Company Subsidiary Shares................................................. Section 3.5(b)
Competing Business........................................................ Section 1.1
Completion Certificate.................................................... Section 5.26(a)
Confidentiality Agreement................................................. Section 5.2
Contracts................................................................. Section 3.11(a)
Core...................................................................... Section 5.21(d)
Cost Report Liability..................................................... Section 1.1
Cumulative Receivables Collections........................................ Section 5.21(a)(iii)
Denitrification Plan...................................................... Section 5.26(b)
Determination Date........................................................ Section 1.1
Distribution Agreement.................................................... Section 2.2(b)(iii)
Glossary, i
Divisional Financial Statements........................................... Section 3.6(a)
Donation.................................................................. Section 5.20
Employee Benefits Reserve................................................. Section 9.6
Employee Plans............................................................ Section 3.15(a)
Encumbrance............................................................... Section 1.1
Environmental Laws........................................................ Section 3.14(b)(i)
Environmental Permits..................................................... Section 3.14(b)(ii)
ERISA..................................................................... Section 3.15(a)
ERISA Affiliate........................................................... Section 3.15(d)
Excess Parachute Payments................................................. Section 5.7(c)
Fair Market Value......................................................... Section 1.1
Fee Real Property......................................................... Section 3.10(a)
Filings................................................................... Section 3.21
Final Purchase Price...................................................... Section 2.2(a)
Financial Statements...................................................... Section 3.6(a)
First Measurement Date.................................................... Section 5.21(b)
First Measurement Payment................................................. Section 5.21(b)
First Quarter Financial Statements........................................ Section 3.6(a)
GAAP...................................................................... Section 3.6(a)
Governmental Agency....................................................... Section 1.1
Hazardous Substances...................................................... Section 3.14(b)(iii)
HSR Act................................................................... Section 5.4
IRS....................................................................... Section 1.1
ISRA...................................................................... Section 1.1
Indebtedness.............................................................. Section 1.1
Indemnified Party......................................................... Section 9.8
Indemnifying Party........................................................ Section 9.8
Independent Expert........................................................ Section 2.4(b)(ii)
Intellectual Property..................................................... Section 3.12
Intellectual Property Agreement........................................... Section 1.1
JPMorgan.................................................................. Section 3.28
KALC...................................................................... Section 5.24
KALC Entities............................................................. Section 9.2(a)(v)
Kalcorp................................................................... Section 9.2(a)(v)
KALR...................................................................... Section 5.24
KIR....................................................................... Section 1.1
KMRREC.................................................................... Section 1.1
Knowledge................................................................. Section 1.1
Lease Agreement........................................................... Section 1.1
Leased Real Property...................................................... Section 3.10(a)
Losses.................................................................... Section 9.2(a)
Management................................................................ Section 3.14(b)(iii)
Marketable Securities..................................................... Section 1.1
Material Adverse Effect................................................... Section 1.1
May Financial Statements.................................................. Section 3.6(a)
Xxxxx'x................................................................... Section 1.1
Glossary, ii
Denitrification Plan...................................................... Section 5.26(b)
Notice of Objection....................................................... Section 2.4(b)(i)
Option Consideration...................................................... Section 2.2(b)(iii)
Other Confidentiality Letters............................................. Section 5.13
PCBs...................................................................... Section 3.14(b)(iii)
Permitted Liens........................................................... Section 1.1
Person.................................................................... Section 1.1
PLIGA..................................................................... Section 9.2(a)
Post-Closing Tax Period................................................... Section 1.1
Pre-Closing Tax Calculation............................................... Section 5.5(b)(ii)
Pre-Closing Tax Period.................................................... Section 1.1
Price Per Share........................................................... Section 1.1
Princeton................................................................. Section 9.2(a)
Protected Employee........................................................ Section 1.1
Real Property............................................................. Section 3.10(a)
Release and Released...................................................... Section 3.14(b)(vi)
Restricted Parties........................................................ Section 5.10(a)
S&P....................................................................... Section 1.1
Second Measurement Date................................................... Section 5.21(c)
Securities Act............................................................ Section 1.1
Self Insured Plans........................................................ Section 9.6
Shares.................................................................... Section 1.1
Statement................................................................. Section 2.4(a)
Stock Unit Consideration.................................................. Section 2.2(b)(iii)
Stockholder............................................................... Preamble
Stockholder Indemnitees................................................... Section 9.3(a)
Straddle Period........................................................ Section 1.1
Subsidiary................................................................ Section 1.1
Target Working Capital.................................................... Section 1.1
Tax and Taxes........................................................... Section 1.1
Tax Return................................................................ Section 1.1
Undesignated Payments..................................................... Section 5.21(e)
Working Capital........................................................... Section 1.1
Glossary, iii
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("Agreement") is made this 30th
day of June, 2003, by and among XXXXXXX REHABILITATION CORPORATION, a Delaware
corporation (the "Company"), XXXXX X. XXXXXXX FOUNDATION, INC., a New Jersey
non-profit organization ("Stockholder"), and SELECT MEDICAL CORPORATION, a
Delaware corporation ("Buyer").
RECITALS
WHEREAS, Stockholder owns of record and beneficially all of
the issued and outstanding capital stock of the Company; and
WHEREAS, Stockholder desires to sell all such issued and
outstanding capital stock of the Company, and Buyer desires to acquire all of
the outstanding capital stock of the Company pursuant to the terms of this
Agreement;
NOW, THEREFORE, in order to consummate said transactions and
in consideration of the mutual agreements set forth herein and for good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1. DEFINITIONS.
Section 1.1 Definitions. As used in this Agreement,
unless otherwise defined herein or unless the context otherwise requires, the
following terms shall have the following meanings:
"Affiliation and Services Agreement" means the Amended and
Restated Affiliation and Services Agreement between Xxxxxxx Medical
Rehabilitation Research and Education Corporation, a New Jersey not-for-profit
corporation ("KMRREC"), the "supporting organization" (as defined in Section
509(a)(3) of the Code (as defined herein)) of which is Stockholder, and Xxxxxxx
Institute for Rehabilitation, Inc., a New Jersey Corporation ("KIR") and
wholly-owned subsidiary of the Company, in the form attached hereto as Exhibit
A.
"Business" means the business of the Company and Company
Subsidiaries (as defined in Section 3.2(b)) as currently conducted.
"Cash Equivalents" means (a) marketable direct obligations
issued by, or unconditionally guaranteed by, the United States government or
issued by any agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition; (b) certificates of deposit, time deposits, eurodollar time
deposits or overnight bank deposits having maturities of six months or less from
the date of acquisition issued by any commercial bank organized under the laws
of the United States or any state thereof having combined capital and surplus of
not less than $500,000,000; (c) commercial paper of an issuer rated at least A-1
by Standard & Poor's Ratings Services ("S&P") or P-1 by Xxxxx'x Investors
Service, Inc. ("Moody's"), or carrying an equivalent rating by a nationally
recognized rating agency, if both of the two named rating agencies cease
publishing ratings of commercial paper issuers generally, and maturing within
six months from the date of acquisition;
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(d) repurchase obligations of any commercial bank satisfying the requirements of
clause (b) of this definition, having a term of not more than 30 days, with
respect to securities issued or fully guaranteed or insured by the United States
government; (e) securities with maturities of one year or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory
of the United States, by any political subdivision or taxing authority of any
such state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political subdivision,
taxing authority or foreign government (as the case may be) are rated at least A
by S&P or A by Moody's; (f) securities with maturities of six months or less
from the date of acquisition backed by standby letters of credit issued by any
commercial bank satisfying the requirements of clause (b) of this definition;
(g) money market mutual or similar funds that invest exclusively in assets
satisfying the requirements of clauses (a) through (f) of this definition; or
(h) money market funds that (i) comply with the criteria set forth in SEC Rule
2a-7 under the Investment Company Act of 1940, as amended, (ii) are rated AAA by
S&P and Aaa by Moody's and (iii) have portfolio assets of at least
$5,000,000,000.
"Code" means the Internal Revenue Code of 1986, as amended and
in effect on the date hereof.
"Competing Business" means any business or other enterprise
that competes with the Business.
"Cost Report Liability" means amounts finally paid by the
Company and Company Subsidiaries after the Closing due to audit adjustments,
disallowances, recoupment or fraud in respect of Medicare and Medicaid cost
reports filed by the Company and any Company Subsidiary (as defined in Section
3.2(b)) relating to pre-Closing periods, including the reasonable and documented
out-of-pocket costs and expenses incurred by the Company and the Company
Subsidiaries in connection with the resolution of such Cost Report Liabilities.
"Encumbrance" means any mortgage, claim, lien, encumbrance,
conditional sales or other title retention agreement, right of first refusal,
preemptive right, pledge, option, charge, security interest or other similar
interest, easement, judgment or imperfection of title of any nature whatsoever.
"Fair Market Value" means, with respect to Marketable
Securities (as defined herein), the average of the high and low prices of such
Marketable Securities on the securities exchange providing the primary market on
which such Marketable Securities are traded on the last trading day prior to the
date upon which Fair Market Value of such Marketable Securities is to be
determined (the "Determination Date"), or if such Marketable Securities are not
so traded, the average of the closing bid and asked prices as reported by the
over-the-counter market on which such Marketable Securities are quoted on the
last trading day prior to the Determination Date; provided that, in the case of
investment grade debt securities that are not so traded or quoted, the Fair
Market Value of such Marketable Securities shall be the value that such
securities would be assigned on Stockholder's balance sheet in accordance with
GAAP (as defined in Section 3.6(a)) as of the Determination Date.
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"Governmental Agency" means any federal, state, local or
municipal, foreign or other government or subdivision, branch, department,
court, arbitrator, tribunal or agency thereof or any governmental, regulatory or
quasi governmental authority of any nature.
"IRS" means the Internal Revenue Service.
"ISRA" means the Industrial Site Recovery Act of New Jersey.
"Indebtedness" means (i) all obligations for the principal
amounts of borrowed money (including any interest rate swap breakage or
associated fees); (ii) all obligations to pay the deferred purchase price of
property or services (including the earned portion of any so-called "earn-out"
obligations) but excluding current liabilities for intercompany payables to
Stockholder or its affiliates in the ordinary course of business and trade
account payables in the ordinary course of business; (iii) all obligations
evidenced by notes, bonds, debentures, or other similar instruments; (iv) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to acquired property; (v) all reimbursement
obligations, contingent or otherwise, under a drawn acceptance, letter of credit
or a similar facility; (vi) all deferred compensation obligations and (vii) all
guarantees of any of the foregoing; provided, that "Indebtedness" shall not
include (A) any of the foregoing items to the extent they are included in
Working Capital (as hereinafter defined) on the Closing Date Balance Sheet, (B)
the guarantee of a construction loan in connection with Xxxxxxx Assisted Living
Centers, LLC, with outstanding principal balance of $12,225,000 as of December
31, 2002, (C) the guarantee of a bank loan payable by The Center for Health and
Fitness at Palisades, LLC, with an obligation of $586,500 as of December 31,
2002, (D) the contingent liability under a Support Agreement regarding three
loans to Xxxxxxx/Adventist Rehabilitation Hospital, LLC, with an obligation of
approximately $5.1 million as of December 31, 2002, (E) any capital lease
obligations and (F) the unearned portion of any so-called "earn out"
obligations.
"Intellectual Property Agreement" means the Intellectual
Property Agreement between Stockholder and the Company in the form attached
hereto as Exhibit C.
"Knowledge" means the actual knowledge of (i) Xxxxxxx
Xxxxxxxxx, Xxxxxx Xxxxxx, Xxxx Xxxx XxXxxxxx, Art Xxxxxxxxx, Xxxxxx Xxxxx, Xxx
Xxxx, Xxxxx XxXxxx, Xxxxxxx Xxxxxx, Xxx X. Xxxxxxxx, Xxxxx Xxxxxxxxxx, Xxxx
Xxxxx, Xxxx Xxxxxx, Xxxxxxxxx Xxxxxxx, Xxxxxx Xxxxxx, Xxxxx Xxxx, Xxxxx Xxxxx,
Xxxxxx Xxxxx, Xxxxx Xxxx, Xxxxxx Xxxxx, Xxxxx Xxxxxxxxx, Xxxxxxxxx Xxxxxxx,
Xxxxxx Xxxxx, Xxxx Xxxxxxx, Xxxxx Xxxxxx and Xxxxx Xxxxxx with respect to the
Company, (ii) Xxxxxx XxXxxxxxxx Xxxxxxx, with respect to Stockholder, or (iii)
Buyer, as the case may be.
"Lease Agreement" means the Lease Agreement between
Stockholder and KIR in the form attached hereto as Exhibit B.
"Marketable Securities" means any securities which (a)(i) are
listed or quoted, as applicable, on a securities exchange or NASDAQ in the
United States and (ii) may be freely sold to the public on such exchange or
market without restriction (including without compliance with the registration
requirements of the Securities Act) other than customary restrictions pursuant
to the trading rules of such exchange or market or (b) debt securities that are
rated "investment
3
grade" by S&P or Moody's or by a nationally recognized rating agency if both S&P
and Moody's cease publishing ratings of investments.
"Material Adverse Effect" means any change, circumstance,
event or effect that, individually or in the aggregate, materially and adversely
affects (a) the business, assets, liabilities, financial condition or results of
operations of the Company and Company Subsidiaries taken as a whole, excluding
in all cases: (i) changes, circumstances, events or effects, including changes
in law and generally accepted accounting principles, generally affecting the
industry in which the Company and Company Subsidiaries operate or arising from
changes in general business or economic conditions in the United States
generally; provided that, such changes, circumstances, events or effects do not
have a disproportionate effect on the Company and the Company Subsidiaries; (ii)
changes, circumstances, events or effects resulting from the execution and/or
announcement of this Agreement; (iii) changes, circumstances, events or effects
resulting from any announcement by Stockholder or the Company regarding the
treatment of the Xxxxxxx Rehabilitation Corporation Employer Retirement Savings
Plan and its related trust, including, without limitation, the notice required
pursuant to Section 11.5; (iv) changes, circumstances, events or effects
resulting from compliance by Stockholder or the Company with its obligations
under this Agreement; and (v) changes, circumstances, events or effects
resulting from the announcement by The Centers for Medicare & Medicaid Services
("CMS") on May 8, 2003 relating to the 75% Rule (defined in Section 9.5(a)) or
(b) the ability of each of the Stockholder and the Company to consummate the
transactions contemplated hereby.
"Permitted Liens" shall mean (i) any Encumbrances disclosed on
the Balance Sheet (as defined in Section 3.8), (ii) liens for Taxes (as
hereinafter defined), assessments or charges of any Governmental Agency which
are not yet due and payable or which are being contested by the Company or a
Company Subsidiary in good faith, (iii) liens incurred in connection with
workers' compensation, unemployment insurance and other types of social security
benefits, (iv) mechanics', carriers', workmen's, repairmen's or other like liens
arising or incurred in the ordinary course of business, which are not overdue
for a period of more than 90 days or which are being contested in good faith by
appropriate proceedings, (v) liens arising under equipment leases with third
parties entered into in the ordinary course of business and (vi) such
imperfections or irregularities of title, easements (including, without
limitation, reciprocal easement agreements and utility agreements), zoning
requirements, rights of way, covenants, consents, agreements, reservations,
encroachments, variances and other similar restrictions, charges or encumbrances
(whether or not recorded) relating to Real Property (as defined in Section
3.10(a)) that do not materially detract from the value and do not materially
interfere with the present use of the property or leased assets affected thereby
and do not otherwise materially impair the Business.
"Person" means any individual, partnership, firm, corporation,
limited liability corporation, association, joint stock company, trust, joint
venture, unincorporated organization or Governmental Agency.
"Post-Closing Tax Period" means all taxable periods beginning
after the Closing Date (as defined in Section 2.3).
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"Pre-Closing Tax Period" means all taxable periods ending on
or before the Closing Date.
"Price Per Share" shall mean the quotient of (x) the Aggregate
Closing Date Cash Payment (defined in Section 2.2(a)) divided by (y) the sum of
(A) the aggregate number of unexpired, outstanding and, in the case of the
Company Options (as defined in Section 2.2(c)), exercisable Company Options and
Company Stock Units (as defined in Section 2.2(d)) immediately prior to the
Closing plus (B) the aggregate number of Shares outstanding immediately prior to
the Closing.
"Protected Employee" means any Person that, at the date of
determination as to whether such Person is a Protected Employee, is, or during
the six-month period prior to such date of determination, was, employed by
Buyer, the Company or a Company Subsidiary as (a) a physical therapist or nurse
(or with supervisory responsibility therefor), (b) any officer that has a title
of Vice President or senior, (c) a Chief Executive Officer or administrator or
manager of a facility or business, (d) an employee whose primary
responsibilities are in sales or marketing or (e) a physician.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the outstanding capital stock of Company.
"Straddle Period" means all taxable periods beginning prior to
and ending after the Closing Date.
"Subsidiary" means, when used with respect to any party, any
corporation or other organization, whether incorporated or unincorporated, (i)
which is consolidated with such party for financial reporting purposes and (ii)
of which such party directly or indirectly owns or controls at least a majority
of the securities or other interests having by their terms ordinary voting power
to elect a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization, or any
organization of which such party is a general partner.
"Target Working Capital" means $34,368,000.
"Tax" and "Taxes" means all taxes, charges, fees, levies, or
other assessments, including, without limitation, income, profits, gains, gross
receipts, net worth, premium, value added, ad valorem, excise, real and personal
property, sales, use, stamp, transfer, license, payroll, franchise, Social
Security, unemployment and withholding taxes, together with any interest,
penalties and additions thereto imposed or required to be withheld by the United
States or any other Governmental Agency, including all amounts imposed as a
result of being a member of an affiliated or combined group.
"Tax Return" means any report, return, election, estimate,
declaration, information statement and other forms and documents (including all
schedules, exhibits and other attachments thereto or amendments thereof)
relating to, and required to be filed with a Governmental Agency in connection
with, any Taxes (including estimated Taxes).
5
"Working Capital" means, as at any date of determination, the
excess, if any, of the (i) consolidated current assets of the Company and
Company Subsidiaries, computed in accordance with GAAP, over (ii) consolidated
current liabilities (including, without limitation, liabilities for Taxes) of
the Company and Company Subsidiaries, computed in accordance with GAAP,
excluding in each case (u) any current assets relating to the rights and
benefits pursuant to (A) the Settlement Agreement With Release dated May 13,
2003 by and between Xxxxxxx Rehab Centers, Inc., Argosy Health, LLC, the
Company, the Estate of Xxxxx Xxxxxx, G. Xxxxxx Xxxxxxxx and Xxx X. Xxxxxxxxxx,
Xx. (the "Argosy Settlement Agreement") and (B) the Promissory Note dated May 9,
2003 by G. Xxxxxx Xxxxxxxx and Xxx X. Xxxxxxxxxx, Xx. to the Company (the
"Argosy Note"), (v) any severance obligations resulting solely from the
execution of this Agreement or the consummation of the transactions contemplated
hereby or Buyer's intentions with respect to the Business, including any tax
benefits relating to such severance obligations, (w) any current assets relating
to the officers' and directors' insurance purchased pursuant to Section 5.8(b),
(x) intercompany receivables and payables among the Company and the Company
Subsidiaries, (y) current maturities of long-term debt and (z) any Tax benefit
resulting from the cash-out of the Company Options and Company Stock Units, in
each case as such assets and liabilities are properly accrued and reflected on
the books and records of the Companies and the Company Subsidiaries in
accordance with GAAP.
ARTICLE 2. SALE OF SHARES; PURCHASE PRICE.
Section 2.1 Sale of Shares. On the terms and subject to
the conditions set forth in this Agreement and on the basis of the
representations, warranties, covenants and agreements herein contained,
Stockholder shall sell, transfer, convey and deliver to Buyer, and Buyer shall
purchase, on the Closing Date, all of the Shares owned by Stockholder.
Section 2.2 Consideration; Closing Date Cash Payment.
(a) The purchase price to be paid for the Shares and all
other outstanding equity interests in the Company and for the agreements set
forth in Section 5.10 hereof shall be $230,000,000 less the aggregate principal
amount outstanding immediately prior to the Closing of all Indebtedness of the
Company and the Company Subsidiaries (as specified in the certificate provided
pursuant to this Section 2.2(a)) other than such Indebtedness set forth on
Schedule 5.14 that is repaid at the Closing pursuant to Section 5.14 (the
"Aggregate Closing Date Cash Payment") and either (x) plus the amount, if any,
by which the Closing Date Working Capital (as defined in Section 2.4(a)) is
greater than the Target Working Capital or (y) less the amount, if any, by which
the Closing Date Working Capital is less than the Target Working Capital (as so
adjusted, the "Final Purchase Price"). The Company shall deliver at the Closing
a certificate setting forth the true and complete list of all outstanding
Indebtedness of the Company and Company Subsidiaries, including the outstanding
principal amount thereof, immediately prior to the Closing signed by a duly
authorized officer of the Company.
(b) On the Closing Date:
(i) Stockholder shall deliver to Buyer a certificate or
certificates for its Shares duly endorsed in blank, or accompanied by
stock powers duly executed in blank, in proper form for transfer free
and clear of all Encumbrances;
6
(ii) Buyer, on behalf of Stockholder, shall pay to Fleet
National Bank (A) the outstanding principal amount of the loans under
the syndicated credit facility of the Company and any accrued and
unpaid interest relating thereto and (B) any fees that are required to
be paid to cancel any and all obligations the Company has under the
LIBOR interest rate swap agreement dated January 18, 2002 between the
Company and Fleet National Bank or any other interest rate swap
agreement, in each case to the extent not paid by the Company prior to
the Closing;
(iii) Buyer shall, on behalf of the Company, pay to the
account designated in writing by Stockholder pursuant to the
Distribution Agreement attached hereto as Exhibit D (the "Distribution
Agreement") (which account shall also be identified in writing by
Stockholder to Buyer prior to the Closing Date) an aggregate amount
(subject to any required employment-related tax withholding) equal to
(A) the product of (1) the difference between the Price Per Share and
the exercise price of each Company option and (2) the number of Shares
subject to such Company Option (the "Option Consideration") plus (B)
the product of (1) the Price Per Share and (2) the number of stock
units allocated to each participant's plan account immediately prior to
the Closing (the "Stock Unit Consideration"), such amount to be
disclosed in writing to Buyer by the Company the day before the
Closing;
(iv) Buyer shall pay by wire transfer of immediately
available funds to such account as designated by the Company at least
three days prior to the Closing Date an amount equal to the
employment-related amounts withheld pursuant to the immediately
preceding clause (iii) and, in connection therewith, Stockholder shall
provide to Buyer prior to the Closing Date a schedule setting forth the
allocation of the gross amounts payable pursuant to Sections
2.2(b)(iii) and 2.2(b)(iv) among the holders of the Company Options and
Company Stock Units based upon which the Company shall calculate
employment-related withholding amounts. The Company shall provide
Stockholder on the Closing Date a schedule showing the calculation of
the amounts so withheld with respect to each such holder and Buyer
shall cause the Company to remit such amounts to the appropriate
Governmental Agency and comply with all applicable Tax reporting
requirements with respect to such payments. Buyer, the Company and
Stockholder shall cooperate in the preparation of the schedules
described above and in all matters related to the required
employment-related withholdings with respect to payments to be made
under this Section; and
(v) Buyer shall pay to Stockholder the Aggregate Closing
Date Cash Payment less the sum of the amounts paid by Buyer pursuant to
Sections 2.2(b)(ii), 2.2(b)(iii) and 2.2(b)(iv), payable by wire
transfer of immediately available funds to such account as Stockholder
shall designate at least three days prior to the Closing Date.
(c) Stock Options. On or prior to the date of this
Agreement, each holder of options exercisable as of the Closing under the KRC
Amended and Restated 1998 Nonemployee Director Stock Option Plan or the KRC
Amended and Restated 1998 Long-Term Incentive Plan (the "Company Options") has
consented and agreed pursuant to the Distribution Agreement that such Company
Options shall be cancelled as of the Closing in exchange for an amount in cash
equal to the Option Consideration attributable to such Company Options (subject
to any required
7
employment-related withholding) in accordance with the Distribution Agreement.
Stockholder represents that, effective as of the Closing, the holders of Company
Options shall have no claim against Buyer or the Company in respect of such
Company Options.
(d) Stock Units. On or prior to the date of this
Agreement, each holder who holds as of the Closing unexpired and outstanding
stock unit rights under the Company's 1999 Nonemployee Director Compensation
Plan (the "Company Stock Units") has agreed pursuant to the Distribution
Agreement to the cancellation of such Company Stock Units as of the Closing in
exchange for an amount in cash equal to the Stock Unit Consideration
attributable to such Company Stock Units (subject to any required tax
withholding) in accordance with the Distribution Agreement. Stockholder
represents that, effective as of the Closing, the holders of Company Stock Units
shall have no claim against Buyer or the Company in respect of such Company
Stock Units.
Section 2.3 Closing. Subject to the satisfaction or
waiver of the conditions specified in Articles 6, 7 and 8, the closing of the
purchase and sale of the Shares (the "Closing") shall take place at the offices
of Dechert LLP, 4000 Xxxx Atlantic Tower, 0000 Xxxx Xxxxxx, Xxxxxxxxxxxx,
Xxxxxxxxxxxx 00000 on July 31, 2003, or, if such conditions are not satisfied or
waived by such date, three business days after all such conditions have been
satisfied or waived, or at such other time and place as shall be mutually
agreeable to the parties hereto. The date of the Closing is referred to herein
as the "Closing Date." The Closing shall be deemed to be effective as of the
close of business on the Closing Date.
Section 2.4 Post-Closing Purchase Price Adjustment
(a) Not more than 90 days after the Closing Date, Buyer
shall deliver to Stockholder a balance sheet for the Company and its
consolidated Subsidiaries as of the Closing Date (the "Closing Date Balance
Sheet"). The Closing Date Balance Sheet shall include a footnote reflecting the
amount of accrued reserves for each open cost report of the Company and the
Company Subsidiaries. Attached to the Closing Date Balance Sheet shall be a
schedule setting forth the reserves on the Closing Date Balance Sheet in
substantially the same level of detail as Stockholder has previously provided in
writing to Buyer with respect to the Company's December 31, 2002 and March 31,
2003 balance sheets. The Closing Date Balance Sheet shall be prepared in
accordance with GAAP using the same GAAP accounting principles, practices,
methodologies and policies as the Balance Sheet, except as provided in Schedule
2.4(a). From the Closing Date Balance Sheet, Buyer shall prepare and deliver to
Stockholder, within such 90-day period, a statement (the "Statement") setting
forth the calculation of the Working Capital as of the Closing (the "Closing
Date Working Capital"). After the Closing Date, at Buyer's request, Stockholder
shall provide Buyer and its representatives any information reasonably requested
and shall provide them access at all reasonable times to the personnel,
properties, books and records relating to the Company and the Company
Subsidiaries for such purpose.
(b) Objections; Resolution of Disputes.
(i) Unless Stockholder notifies Buyer in writing within
30 days after Buyer's delivery of the Statement of any objection to the
computation of Closing Date Working Capital set forth therein (the
"Notice of Objection"), the Statement shall become final and
8
binding. During such 30-day period, Stockholder and its representatives
shall be permitted to review the working papers of Buyer and Buyer's
accountants relating to the Statement, and Buyer shall provide
Stockholder and its representatives any information reasonably
requested and shall provide them access at all reasonable times to the
personnel, properties, books and records relating to the Company and
the Company Subsidiaries for such purpose. Any Notice of Objection
shall specify in reasonable detail the basis for the objections set
forth therein. Any Notice of Objection shall include only objections
based on (A) mathematical errors in the computation of Closing Date
Working Capital or (B) Closing Date Working Capital not having been
calculated in accordance with Section 2.4(a).
(ii) If Stockholder provides the Notice of Objection to
Buyer within such 30-day period, Stockholder and Buyer shall, during
the 30-day period following Buyer's receipt of the Notice of Objection,
attempt in good faith to resolve Stockholder's objections. During such
30-day period, Buyer and its representatives shall be permitted to
review the working papers of Stockholder and Stockholder's accountants
relating to the Notice of Objection and the basis therefor. If
Stockholder and Buyer are unable to resolve all such objections within
such 30-day period, the matters remaining in dispute shall be submitted
to a nationally recognized public accounting firm mutually agreed upon
and jointly engaged by Stockholder and Buyer and, if Stockholder and
Buyer are unable to so agree within 10 days after the end of such
30-day period, then Stockholder and Buyer shall each select such a firm
and such firms shall jointly select a third nationally recognized firm
to be jointly engaged by Stockholder and Buyer to resolve the disputed
matters (such selected firm being the "Independent Expert"). The
parties shall instruct the Independent Expert to render its reasoned
written decision as promptly as practicable but in no event later than
60 days after its selection. The resolution of disputed items by the
Independent Expert shall be final and binding, and the determination of
the Independent Expert shall constitute an arbitral award that is
final, binding and non-appealable and upon which a judgment may be
entered by a court having jurisdiction thereover. The fees and expenses
of the Independent Expert shall be allocated between Stockholder and
Buyer in such a way that Buyer shall be responsible for that portion of
the fees and expenses equal to such fees and expenses multiplied by a
fraction the numerator of which is the aggregate dollar value of
disputed items submitted to the Independent Expert by Stockholder that
are resolved against Buyer (as finally determined by the Independent
Expert) and the denominator of which is the total dollar value of the
disputed items so submitted by Stockholder, and Stockholder shall be
responsible for the remainder of such fees and expenses.
(c) Adjustment Payment. Within 10 days after the
Statement has become final and binding in accordance with this Section 2.4, (i)
if the Closing Date Working Capital is greater than the Target Working Capital,
Buyer shall pay to (x) the account designated pursuant to Section 2.2(b)(iii) an
amount in cash (subject to any required employment-related withholding) equal to
the product of (I) the difference between the Closing Date Working Capital minus
the Target Working Capital (such difference, the "Adjustment Amount") times (II)
a fraction the numerator of which is the aggregate number of Company Options and
Company Stock Units outstanding as of the Closing and the denominator of which
is the aggregate number of Shares, Company Options and Company Stock Units
outstanding as of the Closing (such
9
numbers to be disclosed in writing to Buyer by the Company prior to Closing),
and (y) Stockholder an amount in cash equal to the (I) the Adjustment Amount
minus (II) the amount paid pursuant to the immediately preceding clause (x) and
the amount of any employment-related withholdings; and (ii) if the Closing Date
Working Capital is less than the Target Working Capital, Stockholder shall pay
to Buyer an amount in cash equal to such difference. Any such payment hereunder
shall be made by wire transfer of immediately available funds to an account
designated in writing by Stockholder or Buyer, as the case may be. In the event
of any payment to be made under subclause (i)(x) of the first sentence of this
Section 2.4(c) above, Stockholder shall provide to Buyer prior to such payment a
schedule setting forth the allocation of the gross amount so payable among the
holders of the Company Options and Company Stock Units. Buyer shall calculate
employment-related withholding amounts based on such allocation and shall
provide Stockholder on the date the related payment is made a schedule showing
the calculation of the amounts so withheld with respect to each such holder.
Buyer shall pay to the Company such amounts as were withheld under the
immediately preceding sentence and the Company shall remit such amounts to the
appropriate Governmental Agency. Buyer shall, or shall cause the Company to,
comply with all applicable Tax reporting requirements with respect to such
payments. Buyer and Stockholder shall cooperate in the preparation of the
schedules described above and in all matters related to the required withholding
of Taxes with respect to payments to be made under this Section.
(d) Notwithstanding anything to the contrary herein,
Buyer shall not be required to make any payment to any holders of Company
Options or Company Stock Units in respect of such Company Options or Company
Stock Units, it being understood that any payment due such holders in respect of
such Company Options or Company Stock Units shall be made by Stockholder
pursuant to the Distribution Agreement, and Stockholder shall indemnify and hold
harmless any Buyer Indemnitee (as defined in Section 9.2(a)) against and from
any claims to the contrary made by the holders of Company Options or Company
Stock Units.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND STOCKHOLDER.
A. Representations and Warranties of the Company.
The Company hereby represents and warrants to Buyer as
follows:
Section 3.1 Organization of the Company.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation
with requisite corporate power and authority to enter into and perform this
Agreement, the Affiliation and Services Agreement, the Lease Agreement and the
Intellectual Property Agreement, to own, lease and operate its properties and to
carry on its business as now being conducted therein, and is duly qualified to
do business as a foreign corporation in all necessary jurisdictions, except
where the failure to be so qualified would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.
10
(b) True and complete copies of the certificate of
incorporation (the "Certificate of Incorporation") and By-laws of the Company as
in effect on the date of this Agreement have been made available for inspection
by Buyer prior to the date of this Agreement, which copies include all
amendments, modifications or supplements thereto. The Certificate of
Incorporation and By-laws of the Company are in full force and effect.
Section 3.2 Authority.
(a) The execution, delivery and performance of this
Agreement, the Affiliation and Services Agreement, the Lease Agreement and the
Intellectual Property Agreement, and the consummation of the transactions
contemplated hereby by the Company have been duly authorized by requisite
corporate action, and no other acts or other proceedings on the part of the
Company are necessary to authorize this Agreement or the transactions
contemplated hereby by the Company. This Agreement has been duly executed by the
Company and (assuming the due authorization, execution and delivery hereof by
Buyer) constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
in general, or by general principles of equity.
(b) Except as set forth on Schedule 3.2(b), neither the
execution and delivery by the Company of this Agreement nor the consummation of
the transactions contemplated hereby by the Company or Stockholder nor
compliance with any of the provisions hereof by the Company will (i) violate or
conflict with any provision of the Certificate of Incorporation or By-laws or
other similar organizational and operational documents of the Company or any of
the direct or indirect Subsidiaries of the Company (each, a "Company Subsidiary"
and, collectively, the "Company Subsidiaries"), (ii) violate or conflict with,
or result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of or loss of any right under, or accelerate the
performance required by or obligation of, or result in the creation of any
Encumbrance upon any of the assets of the Company or any Company Subsidiary
under (in each case in any material respect), any of the terms, conditions or
provisions of any material note, bond, mortgage, indenture, deed of trust,
license, lease, sublease, option, agreement or other instrument or obligation to
which the Company or any Company Subsidiary is a party, or by which any of them
or any of their respective assets may be bound or affected, or (iii) violate, in
any material respect, any order, writ, injunction, decree, statute, rule or
regulation applicable to the Company, any Company Subsidiary or any of their
respective assets. Except as set forth on Schedule 3.2(b), no consent or
approval by, notice to or registration with any Governmental Agency, other than
the filing of a Notification and Report Form with the Federal Trade Commission
and the Department of Justice and the termination or expiration of the related
waiting period, is required on the part of the Company or any Company Subsidiary
prior to the Closing Date in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
Section 3.3 Capitalization. The authorized, issued and
outstanding capital stock of the Company is as set forth on Schedule 3.3 hereto.
The Shares constitute all of the outstanding shares of capital stock of the
Company and have been duly authorized and are
11
validly issued, fully paid and non-assessable and have not been issued in
violation of the preemptive or similar rights of any stockholder of the Company
arising by operation of securities laws or the Certificate of Incorporation or
By-laws of the Company. All outstanding shares of capital stock of the Company
are owned by Stockholder. Except for the Company Options and Company Stock
Units, all of which are set forth on Schedule 3.3, there is no existing
subscription, option, warrant, call, commitment or other right or agreement to
which the Company or Stockholder is bound requiring, and there are no
convertible or exchangeable securities of the Company outstanding which upon
conversion would require, the issuance of any additional shares of capital stock
or other securities convertible into shares of capital stock of the Company.
Except as set forth on Schedule 3.3 hereto, there are no agreements concerning
the issuance, voting, transfer, acquisition or disposition of shares of capital
stock of the Company to which the Company or Stockholder is a party.
Section 3.4 Subsidiaries.
(a) Schedule 3.4(a) contains a true and complete list of
all of the Company Subsidiaries and the respective ownership interest of the
Company and other Persons in each such Subsidiary. Except as set forth on
Schedule 3.4(a), the Company does not own, directly or indirectly, any capital
stock, equity securities or other equity interests of any Person. Except as set
forth on Schedule 3.4(a), the Company is not a party to any agreement to own or
control, nor does the Company have the direct or indirect right to acquire, any
Subsidiary or ownership interest in any other Person.
(b) Each of the Company Subsidiaries is a corporation or
limited liability company, duly organized, validly existing and in good standing
under the laws of the state of its incorporation with requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted therein, and is duly qualified to do business as
a foreign corporation or limited liability company in all necessary
jurisdictions, except where the failure to be so qualified would not reasonably
be expected, individually or in the aggregate, to have a Material Adverse
Effect.
(c) True and complete copies of the certificate of
incorporation, by-laws, and other similar organizational and operational
documents, as applicable, as in effect on the date hereof for each Company
Subsidiary have been made available for inspection by Buyer prior to the date of
this Agreement, which copies include all amendments, modifications or
supplements thereto. The certificate of incorporation and by-laws, or other
organizational documents of each Company Subsidiary, are in full force and
effect.
Section 3.5 Capitalization of the Company Subsidiaries.
(a) The authorized, issued and outstanding capital stock,
equity securities or other equity interests of the Company Subsidiaries is set
forth on Schedule 3.5(a). All such shares have been duly authorized and are
validly issued, fully paid and non-assessable.
(b) The Company or one of the Company Subsidiaries has
good and valid title to all shares, equity securities or other equity interests
of the Company Subsidiaries (the "Company Subsidiary Shares") and, except as set
forth on Schedule 3.4(a), all of the Company
12
Subsidiary Shares are owned directly by the Company or one of the Company
Subsidiaries, beneficially and of record, free and clear of all Encumbrances.
The Company directly has full voting power over the Company Subsidiary Shares,
subject to no proxy, stockholders' agreement, voting trust or other agreement
relating to the voting of any Company Subsidiary Shares.
(c) No Person has any preemptive right to purchase any
shares of a Company Subsidiary. There is no existing subscription, option,
warrant, call, commitment or other right or agreement to which any Company
Subsidiary is bound requiring, and there are no convertible securities of any
Company Subsidiary outstanding which upon conversion would require, the issuance
of any additional shares of capital stock, equity securities or other equity
interests or other securities convertible or exchangeable into shares of capital
stock, equity securities or other equity interests of any Company Subsidiaries.
Except as set forth on Schedule 3.5(c) hereto, there are no agreements
concerning the issuance, transfer, acquisition or disposition of shares of
capital stock or other equity interests of any Company Subsidiary to which the
Company, a Company Subsidiary or Stockholder is a party.
Section 3.6 Financial Statements.
(a) True and complete copies of the (i) audited
consolidated balance sheets of the Company and its consolidated subsidiaries as
of December 31, 2002 and 2001, and the related statements of income and cash
flows for each of the fiscal years ended December 31, 2002, 2001 and 2000,
respectively, (together with the footnotes thereto, collectively, the "Audited
Financial Statements"), (ii) unaudited consolidated balance sheet of the Company
and its consolidated subsidiaries as of March 31, 2003 and the related statement
of income and cash flows for the three-month period ended March 31, 2003
(collectively, the "First Quarter Financial Statements" and, together with the
Audited Financial Statements, the "Financial Statements"), (iii) unaudited
consolidating income statement of the Inpatient, Outpatient, On-Site, Products
and Services, Argosy and Corporate Divisions for the five-month period ended May
31, 2003 (the "May Financial Statements") and (iv) unaudited consolidating
balance sheet of the Inpatient, Outpatient, On-Site, Products and Services,
Argosy and Corporate divisions of the Company and its consolidated subsidiaries
as of December 31, 2002, and the related consolidating statements of income for
the fiscal year ended December 31, 2002 (the "Divisional Financial Statements")
are attached hereto as Schedule 3.6 (a). The Financial Statements present
fairly, in all material respects, the financial position of the Company and its
consolidated subsidiaries and the results of their operations as of the
respective dates and for the respective periods indicated therein and, except as
disclosed in the footnotes to the Financial Statements, have been prepared in
accordance with United States generally accepted accounting principles ("GAAP")
consistently applied, except that the First Quarter Financial Statements have
been prepared without footnotes and are subject to normal year-end audit
adjustments, none of which are expected to be material in amount or nature. The
Divisional Financial Statements present fairly in all material respects, in the
context of the Financial Statements, the financial position of the Inpatient,
Outpatient, On-Site, Products and Services, Argosy and Corporate divisions of
the Company and its consolidated subsidiaries as of December 31, 2002 and the
results of their operations for the 12-month period then ended. The Financial
Statements and the Divisional Financial Statements have been prepared from and
are in accordance with the books and records of the Company and the Company
Subsidiaries, and Stockholder has provided to Buyer true and
13
correct copies of the auditor's report relating to the Audited Financial
Statements. The May Financial Statements have been prepared consistent with past
practice for the preparation of monthly financial statements, are as presented
to the management of the Company and include pension expense in the amount of
$2,248,000.
(b) Except for indebtedness among the Company and the
Company Subsidiaries and except as set forth on Schedule 3.6(b), neither the
Company nor any Company Subsidiary has or has guaranteed any Indebtedness.
(c) Set forth on Schedule 3.6(c) is a true and correct
list of all so-called "earn out" obligations of the Company or any Company
Subsidiary.
(d) Set forth on Schedule 3.6(d) is a list that presents
fairly, in all material respects, the total amount of net cash collections from
patients and third party payors by the Company and Company Subsidiaries, on both
a consolidated and consolidating (by legal entity) basis, for services rendered
to patients for each of the four quarters of the fiscal year ended December 31,
2002 and the three-month period ended March 31, 2003.
Section 3.7 Accounts Receivable. Except as set forth on
Schedule 3.24, Note 1, all accounts receivable of the Company and the Company
Subsidiaries reflected on the Balance Sheet represent, and all accounts
receivable of the Company and the Company Subsidiaries outstanding on the
Closing Date will represent, sales actually made or services actually performed
in bona fide transactions. Except for differences related to the Company's
transition to a centralized billing office and as set forth on Schedule 3.24,
Note 1, all such accounts receivable in the aggregate have been billed in
accordance with past practices since March 1, 2002. Notwithstanding any other
provision of this Agreement, Buyer shall not be entitled to make any claim
against Stockholder in respect of the accounts receivable referred to on
Schedule 2.4(a), Note 4.
Section 3.8 Undisclosed Liabilities. Except (a) as and
to the extent reflected or reserved against in the audited balance sheet of the
Company and its consolidated subsidiaries (the "Balance Sheet") as of December
31, 2002 (the "Balance Sheet Date"), (b) liabilities (including for Taxes) which
have been incurred since the Balance Sheet Date in the ordinary course of
business consistent with past practices, (c) liabilities and obligations
described or otherwise disclosed on, or which may arise out of contracts or
agreements described or otherwise disclosed on, the Schedules to this Agreement
and (d) as set forth on Schedule 3.8, there are no material liabilities or
obligations of the Company and the Company Subsidiaries, secured or unsecured
(whether absolute, accrued, contingent or otherwise), matured or unmatured.
Section 3.9 Absence of Certain Changes or Events. Since
the Balance Sheet Date, the Company and Company Subsidiaries have conducted
their business in the ordinary course consistent with past practice and, except
as set forth in or with respect to the First Quarter Financial Statements, since
the Balance Sheet Date there has not been any event, change, condition or
development that, individually or in the aggregate, has had or would reasonably
be expected to have a Material Adverse Effect. In addition, and without limiting
the foregoing, except as set forth on Schedule 3.9 or otherwise expressly
permitted or provided for by the terms
14
of this Agreement, the Company and Company Subsidiaries have not, since the
Balance Sheet Date:
(a) experienced any material damage, destruction or loss
to or of any of their assets which are used in the operation or conduct of the
Business;
(b) except as may be required under existing agreements
or in the ordinary course of business consistent with past practice, made or
agreed to make any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option, stock purchase or other employee benefit plan, or any other increase in
the compensation of any executive officer, director or employee;
(c) conducted their operations, or sold, purchased or
transferred any material assets, other than in the ordinary course consistent
with past practices;
(d) paid (or committed to pay) any management fee or made
(or committed to make) any loan or distribution of their property or assets to
Stockholder, or declared, paid or set aside for payment any dividend or
distribution with respect to the Shares, or purchased or redeemed (or committed
to purchase or redeem) any Shares;
(e) written down or cancelled any material debt or waived
or released any material right or claim, except for cancellations, waivers and
releases in the ordinary course of business and consistent with past practice;
(f) suffered any judgment with respect to, or made any
settlement of, any claim, suit, action or proceeding which have had or would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect;
(g) effected any material change in accounting practices
and procedures, other than changes required as a result of changes in GAAP;
(h) consummated or authorized any capital expenditures
for property, plant or equipment in excess of $100,000 individually or
$3,000,000 in the aggregate;
(i) consummated any transactions with Stockholder or any
of its affiliates (other than the Company or a Company Subsidiary) except for
transactions of a type generally described on Schedule 3.9;
(j) consummated or entered into any acquisitions or
dispositions of any clinics, facilities or businesses in excess of $100,000; or
(k) agreed to do any of the foregoing.
Section 3.10 Real Property.
(a) Except for Permitted Liens, the Company and Company
Subsidiaries own good and marketable fee title to the real property owned (as
opposed to leased) and operated by the Company and Company Subsidiaries in the
operation or conduct of the Business, together
15
with all improvements, buildings and fixtures located thereon or therein
(collectively, the "Fee Real Property") and good and valid leasehold interests
in and to the real property leases (the "Leased Real Property" and, together
with the Fee Real Property, the "Real Property"). Except for the Permitted
Liens, there exist (i) no Encumbrances affecting the Leased Real Property
created by, through or under the Company and Company Subsidiaries, and (ii) no
Encumbrances affecting the Fee Real Property.
(b) Set forth on Schedule 3.10(b) is a true and complete
list of all of the Real Property. Except as listed on Schedule 3.10(b), neither
the Company nor any Company Subsidiary has received written notice of an
outstanding violation of any applicable ordinance or other law, order,
regulation or requirement relating to any material part of the Real Property or
the operation thereof or written notice of condemnation, special assessment or
the like, with respect thereto which, in any such case, would reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect.
(c) Schedule 3.10(c) sets forth a true and complete list
of all contracts or agreements under which the Company and Company Subsidiaries
are lessee, sublessee or licensee of any Real Property. The Company and Company
Subsidiaries have the right to quiet enjoyment of the real properties leased by
it as tenant for the full term of the lease thereof to the extent provided in
each such lease. Each lease or other contract or agreement referred to in
Schedule 3.10(c) is a legal, valid, binding and enforceable obligation of the
Company and Company Subsidiaries, as applicable, except as enforcement thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights in general, or by
general principles of equity. To the Knowledge of the Company, except as set
forth on Schedule 3.10(c), there are no outstanding options or rights of any
third person to acquire any such leased property or any interest therein. All
leases, ground leases, subleases, licenses, options or other agreements of the
Company and Company Subsidiaries, as applicable, as set forth in Schedule
3.10(c) are in full force and effect, and neither the Company nor any Company
Subsidiary, as applicable, is in default under any such leases, ground leases,
subleases, licenses, options or other agreements, and no condition exists which
(with notice or lapse of time or both) would constitute a default thereunder, in
each case, other than such defaults as would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. True and
complete copies of all leases or other contracts or agreements listed on
Schedule 3.10(c) (including any amendments, modifications and renewal letters)
have been made available for inspection by Buyer prior to the date of this
Agreement.
Section 3.11 Material Contracts
(a) Schedule 3.11(a) contains a complete list of the
following leases, contracts, commitments and agreements, oral or written
("Contracts"), to which the Company or any Company Subsidiary is party or by
which any of its assets or properties is bound:
(i) all employment agreements other than "at will"
employment agreements;
(ii) all physician contracts;
(iii) all noncompete agreements;
16
(iv) all collective bargaining or other labor or union
contracts or agreements;
(v) all instruments relating to indebtedness for borrowed
money, any note, bond, deed of trust, mortgage, indenture or agreement
to borrow money, and any agreement relating to the extension of credit
or the granting of an Encumbrance other than Permitted Liens, or any
agreement of guarantee in favor of any person or entity other than the
Company;
(vi) all agreements, commitments or outstanding purchase
orders relating to capital expenditures involving total payments by the
Company and the Company Subsidiaries of more than $100,000;
(vii) all agreements relating to the future disposition or
acquisition of any business enterprise or any interest in any business
enterprise;
(viii) all contracts or agreements which (A) provide for
annual aggregate payments by the Company and the Company Subsidiaries
in excess of $100,000 and (B) do not expire or are not terminable
without substantial cost or penalty at the option of the Company within
a 90-day period, excluding purchase orders made in the ordinary course
of business consistent with past practice and contracts and other
agreements disclosed pursuant to this Agreement;
(ix) all contracts or agreements which materially restrict
the ability of the Company or Company Subsidiaries to conduct business
of any type or in any location;
(x) material powers of attorney;
(xi) contracts or options relating to the rental, sale or
lease by the Company or a Company Subsidiary of any material asset with
a value of more than $100,000, other than in the ordinary course of
business;
(xii) partnership or joint venture agreements;
(xiii) agreements with any affiliate of the Company, a
Company Subsidiary or Stockholder; and
(xiv) material agreements, contracts or commitments for any
charitable or political contribution.
(b) True and complete copies of the agreements set forth
on Schedule 3.11(a) have been made available for inspection by Buyer prior to
the date of this Agreement. All Contracts set forth on Schedule 3.11(a) are in
full force and effect, and except as set forth on Schedule 3.11(b), neither the
Company nor any Company Subsidiary, as applicable, is in default or has received
written notice of such a default under any Contract listed on Schedule 3.11(a)
and, to the Knowledge of the Company, no other party thereto is in default
thereunder, other than, in each case, any failure to be in full force and effect
and any such defaults as would not reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect.
17
Except as set forth on Schedule 3.11(b), no consents are required under any
Contract as a result of the sale and transfer of the Shares from Stockholder to
Buyer.
Section 3.12 Intellectual Property. Schedule 3.12
contains a complete list of all United States and foreign trademarks, service
marks and trade names (whether registered or not), and all applications for
registration of the foregoing, patents and patent applications and registered
copyrights, including, without limitation, computer software and proprietary or
sui generis databases (all of the foregoing, "Intellectual Property"), in each
case used in the Business and owned by or licensed to the Company or any Company
Subsidiary, other than off-the-shelf commercial software licensed to the Company
or any Company Subsidiary. To the Knowledge of the Company, all of the patents,
trademark and service xxxx registrations, copyright registrations and domain
name registrations, in each case used in the Business and owned by the Company
or any Company Subsidiary, are valid and in full force, are held of record in
the name of the Company or the applicable Company Subsidiary and are not the
subject of any cancellation or reexamination proceeding or any other proceeding
challenging their extent or validity. To the Knowledge of the Company, no
opposition, extension of time to oppose, interference, rejection or refusal to
register has been received in connection with any patent or trademark
application used in the Business and owned by the Company or any Company
Subsidiary. Except as set forth on Schedule 3.12, to the Knowledge of the
Company, there is no infringement, misuse or misappropriation, actual or
claimed, by the Company or any Company Subsidiary of any Intellectual Property
owned by others, or by others of any Intellectual Property owned by the Company
or any Company Subsidiary and used in the Business. Except as would not
reasonably be expected to have a Material Adverse Effect or as set forth on
Schedule 3.12, all Intellectual Property, processes, formulae, inventions,
know-how, ideas or concepts, in each case, used in the Business, which are
necessary to, or are being used in, the advertising or sale by the Company or a
Company Subsidiary of the products or services now being produced or provided by
such company are either (a) owned by the Company or a Company Subsidiary, free
and clear of any title defects or Encumbrances (other than Permitted Liens),
and, to the Knowledge of the Company, no third party has claimed rights adverse
to the Company and any Company Subsidiary or (b) the subject of a license or
agreement pursuant to which the Company or a Company Subsidiary has been granted
the right to make such uses thereof. Neither the Company nor any Company
Subsidiary, as applicable, is in default under any agreement pursuant to which
such company is licensing Intellectual Property of a third party or granting
licenses to its own Intellectual Property, other than such defaults as would not
reasonably be expected to have a Material Adverse Effect. Except for scheduled
or routine maintenance, the information technology systems of the Company and/or
any Company Subsidiary that are necessary for the operation of the Business are,
taken as a whole, available for use in the Business during normal working hours
of the Business. The Company and the Company Subsidiaries have taken
commercially reasonable steps to provide for the back-up and recovery of the
critical business data of the Business that is in electronic form (including
such data that is stored on magnetic or optical media in the ordinary course of
the Business).
Section 3.13 Litigation. Except as set forth on Schedule
3.13, there are no actions, suits, claims, proceedings or investigations pending
or, to the Knowledge of the Company, threatened against the Company or any
Company Subsidiary or any of the property or rights of the Company or any
Company Subsidiary, nor any outstanding monetary judgments, orders, writs,
injunctions or decrees of any Governmental Agency against the Company or any
18
Company Subsidiary which would result in liability to the Company or the Company
Subsidiaries in excess of $25,000 (whether or not insured) or that would
materially affect or delay the Company's or any Company Subsidiary's performance
of this Agreement. There are no material, non-monetary orders, writs,
injunctions or decrees of any Governmental Agency outstanding against the
Company or any Company Subsidiary. This Section 3.13 does not relate to
environmental, employee benefits, Tax or Medicare, Medicaid or other healthcare
matters, such matters being the subject of Sections 3.14(b), 3.15, 3.17 and
3.20-3.25 of this Agreement, respectively.
Section 3.14 Compliance with Law; Governmental Approvals.
(a) The Business is, and has been for the two years
immediately preceding the date of this Agreement, conducted in compliance in all
material respects with all applicable statutes, laws, ordinances, rules, orders
and regulations. The Company and Company Subsidiaries hold all licenses,
permits, certificates (including, without limitation, certificates of need),
registrations, franchises, authorizations and other approvals (collectively,
"Approvals") necessary for the conduct of the Business under and pursuant to all
applicable statutes, laws, ordinances, rules and regulations of all Governmental
Agencies, except where the failure to hold such licenses, permits, certificates,
registrations, franchises, authorizations and such other approvals would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect. This Section 3.14(a) does not relate to environmental, employee
benefits, Tax or Medicare, Medicaid or other healthcare matters, which are
subject to Sections 3.14(b), 3.15, 3.17 and 3.20-3.25, respectively, of this
Agreement.
(b) Except as set forth on Schedule 3.14(b):
(i) the Company and Company Subsidiaries are and the
Business is (and have been for the two years immediately preceding the
date of this Agreement) conducted in compliance with all applicable
statutes, laws, ordinances, orders, rules and regulations relating to
protection of human and worker health and safety and the environment
("Environmental Laws"), except for such noncompliance as would not
reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect;
(ii) the Company and Company Subsidiaries possess and are
(and have been for the two years immediately preceding the date of this
Agreement) in compliance with all permits, licenses, franchises,
approvals or authorizations from all Governmental Agencies required
under Environmental Laws ("Environmental Permits") for the operation or
conduct of the Business, except for such lack of possession and
noncompliance as would not reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect;
(iii) During the preceding five year period, and prior to
the five year period for matters that have not been fully resolved or
that were resolved and resulted in losses in excess of $25,000, no
notice, citation, summons or request for information has been issued
to, no penalty has been assessed against, no judgment, decree or order
is outstanding against and, to the Knowledge of the Company, no
investigation is pending or threatened against the Company or any
Company Subsidiary by any Governmental
19
Agency or any other party with respect to (A) any alleged violation of
any Environmental Law, (B) any alleged failure to have or be in
compliance with any Environmental Permit or (C) any request for
information or allegation regarding liability or potential liability
under CERCLA (as hereinafter defined) or any similar state
Environmental Law imposing such liability or (D) except as would not
reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect, any use, possession, generation, treatment,
storage, recycling, transportation or disposal or arrangement for
disposal (collectively "Management") or the Release (as defined below)
of any hazardous or toxic or polluting substance, material or waste,
contaminant or pollutant, including, without limitation, petroleum
products, polychlorinated biphenyls ("PCBs"), asbestos containing
materials ("ACMs"), medical, infectious or chemotherapeutic wastes and
radioactive materials ("Hazardous Substances");
(iv) no PCBs, or, following the implementation of the ACM
Abatement Plan (as defined in Section 5.26) and the issuance of the
Completion Certificate (as defined in Section 5.26) as set forth in
Section 5.26, ACMs, or underground storage tanks containing Hazardous
Substances are present at any property currently owned, operated or
leased by the Company or any Company Subsidiary and no PCBs or ACMs
were present at any property formerly owned, operated or leased by the
Company or any Company Subsidiary at the time of its ownership,
operation or lease of such property, in either case which requires
removal, closure, abatement, retrofilling or special management under
applicable Environmental Laws, except for such requirements as would
not reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect. Schedule 3.14(b) lists all above ground or
underground storage tanks used to store Hazardous Substances at any
property currently owned by the Company or any Company Subsidiary and,
with respect to any such tanks for which the Company or any Company
Subsidiary is responsible, at any property currently operated or leased
by the Company or any Company Subsidiary;
(v) no Hazardous Substance Managed by the Company or any
Company Subsidiary has come to be located on any site which is listed
or proposed for listing on the National Priorities List or
Comprehensive Environmental Response Compensation Liability Information
System under the Comprehensive Environmental Response Compensation and
Liability Act, as amended ("CERCLA") or any similar list or which is
the subject of federal, state or local enforcement actions or other
actions which may lead to claims against the Company or any Company
Subsidiary for clean-up costs, remedial work, damages to natural
resources or for personal injury claims, including, but not limited to,
claims under CERCLA, except for such listings or claims as would not
reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect;
(vi) no Hazardous Substance has been or is threatened to
be released, spilled, leaked, discharged, disposed of, pumped, emitted,
emptied, injected, leached, dumped or allowed to escape ("Release" or
"Released") at, on, about or under any property currently owned,
operated or leased by the Company or any Company Subsidiary and no
Hazardous Substance was Released at, on, about or under any property
formerly owned, operated or leased by the Company or any Company
Subsidiary at the time of its
20
ownership, operation or lease of such property, except for such
Releases and threatened Releases as would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect;
(vii) except as required by ISRA, no consent, approval,
authorization or filing is required under any applicable Environmental
Law in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby; and
(viii) this Section 3.14(b) is the sole and exclusive
representation and warranty relating to Environmental Laws.
(c) The Company has directed Buyer to and made available
to Buyer copies of any material environmental inspections, investigations,
studies, audits, tests, reviews or other analyses conducted by or on behalf of
the Company or any Company Subsidiary or, to the Knowledge of the Company, in
any of their possession or control which relate to or are in connection with the
Company, the Company Subsidiaries, the Business and any properties currently or
formerly owned, operated or leased by the Company or any Company Subsidiary.
(d) Schedule 3.14(d) sets forth a true and correct list
of those Approvals from Medicare, Medicaid and all state health agencies held by
the Company and each Company Subsidiary which are required to operate the
Company's and each Company Subsidiary's facilities.
Section 3.15 Employee Benefit Plans.
(a) Schedule 3.15 contains a list of all "employee
benefit plans" (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), and all other employee compensation
and fringe benefit plans or arrangements (including, without limitation, all
stock compensation plans and bonus and incentive plans) maintained or
contributed to by the Company or with respect to which the Company has any
liability for the benefit of its employees or former employees (collectively,
the "Employee Plans").
(b) Except as disclosed on Schedule 3.15, each Employee
Plan has been operated and administered in all material respects in compliance
with its terms and applicable requirements of ERISA and the Code.
(c) A nonexempt "prohibited transaction" (within the
meaning of Section 4975 of the Code or Section 406 of ERISA) has not occurred
with respect to an Employee Plan, except as would not reasonably be expected to
subject the Company to any material tax, penalty or liability.
(d) No material liability under Subtitle C or D of Title
IV of ERISA has been or is expected to be incurred by the Company or any other
employer that is, or at any relevant time was, together with the Company,
treated as a "single employer" under section 414(b), 414(c) or 414(m) of the
Code (an "ERISA Affiliate") with respect to any ongoing, frozen or terminated
"single-employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any of them. No "accumulated funding
deficiency" as
21
defined in Section 412 of the Code (whether or not waived) has been incurred
with respect to any ongoing, frozen or terminated single-employer plan
maintained by the Company or any ERISA Affiliates that has not been satisfied in
full. Nether the Company nor any ERISA Affiliate has participated in, or
otherwise incurred any liability with respect to, any multiemployer plan (as
defined in Section 3(37) of ERISA) during any period with respect to which any
relevant statute of limitations remains open. Except as may be disclosed in
Schedule 3.15, all contributions to, and payments from, the Employee Plans which
may have been required to be made in accordance with the Employee Plans and,
when applicable, Section 302 of ERISA or Section 412 of the Code, have been
timely made in all material respects.
(e) With respect to each Employee Plan, true and complete
copies of the following documents have been made available for inspection by
Buyer prior to the date of this Agreement, to the extent in each case that such
documents exist: (i) current plan documents, plan amendments, and any other
documents that establish the existence of the plan or arrangement, including any
funding instruments; (ii) current summary plan descriptions and summaries of
material modifications, if any; (iii) the most recent tax qualified
determination letters, if any, received from (or applications pending with) the
IRS; and (iv) the most recent Form 5500 Annual Reports.
(f) The Company and each ERISA Affiliate have complied in
all material respects with the notice and continuation coverage requirements of
section 4980B of the Code and the regulations thereunder with respect to each
Employee 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.
(g) Except as indicated on Schedule 3.15, all of the
Employee Plans which are pension benefit plans have received determination
letters from the IRS to the effect that such plans and their related trusts are
qualified and exempt from federal income taxes under sections 401(a) and 501(a),
respectively, of the Code, as amended; and no determination letter with respect
to any Employee Plan has been revoked nor has the Company received notice of
threatened revocation, nor has any Employee Plan been amended, or failed to be
amended, since the date of its most recent determination letter in any respect
that would adversely affect its qualification or materially increase its cost
nor has any Employee Plan been amended in a manner that would require security
to be provided in accordance with section 401(a)(29) of the Code.
(h) Except as set forth on Schedule 3.15, there are no
pending investigations by any Governmental Agency involving the Employee Plans,
no termination proceedings by any Governmental Agency involving the Employee
Plans, and no pending, or to the Knowledge of the Company, threatened claims,
suits or proceedings against any Employee Plan or asserting any rights or claims
to benefits under any Employee Plan which would give rise to any material
liability (except for claims for benefits payable in the normal operation of the
Employee Plans). Except as set forth on Schedule 3.15, there are no outstanding
monetary judgments, orders, writs, injunctions or decrees of any Governmental
Agency against the Company or any Company Subsidiary involving the Employee
Plans which would result in liability to the Company or the Company Subsidiaries
in excess of $25,000 (whether or not covered by insurance) or that would
22
materially affect or delay the Company's or any Company Subsidiary's performance
of this Agreement. There are no material, non-monetary orders, writs,
injunctions or decrees of any Governmental Agency outstanding against the
Company or any Company Subsidiary with respect to any Employee Plans.
Section 3.16 Compensation. Set forth on Schedule 3.16
hereto is a list of all agreements, plans or arrangements by which the Company
or any Company Subsidiary is bound with regard to (a) compensation, bonus or
incentive, in each case in excess of $100,000, (b) stock option, stock purchase,
severance pay or retention bonuses and (c) any payment contingent on the
consummation of the transactions contemplated in this Agreement, in each case
other than any agreements, plans or arrangements set forth on Schedule 3.11(a)
or Schedule 3.15 hereto.
Section 3.17 Taxes.
(a) Except as indicated on Schedule 3.17, (i)(A) each
material Tax Return required to be filed by or on behalf of or including the
Company or any Company Subsidiary has been timely filed (taking into account
extensions) and (B) all such Tax Returns were true and complete in all material
respects, (ii) all Taxes shown on such Tax Returns have been timely paid, (iii)
neither the Company nor any Company Subsidiary is currently the beneficiary of
any extension of time within which to file any Tax Return, (iv) with respect to
Taxes of, or Tax Returns filed by or on behalf of, or including, the Company or
any Company Subsidiary, no statute of limitations on assessment has been waived
and no extension of time with respect to assessment has been requested or
received, (v) the Balance Sheet reflects an adequate reserve for all material
Taxes payable by the Company and Company Subsidiaries for taxable periods and
portions thereof accrued through December 31, 2002, (vi) neither the Company nor
any Company Subsidiary is under, or has received notification of any audit,
investigation or similar proceedings relating to Taxes and neither the Company
nor any Company Subsidiary is a party to any litigation relating to Taxes, (vii)
neither the Company nor any Company Subsidiary has been a member of a group of
corporations filing a consolidated, combined or unitary Tax Return other than a
group of which the Company was the common parent, (viii) the Company and each
Company Subsidiary is not bound by any tax sharing, tax indemnity or similar
agreement with respect to Taxes, (ix) the Company and each Company Subsidiary
has not ever (A) been the subject of a Tax ruling that would have continuing
effect after the Closing Date, (B) been the subject of a closing agreement or
the settlement or resolution of a dispute with any Governmental Agency with
respect to Taxes that would have continuing effect after the Closing Date or (C)
granted a power of attorney with respect to any Tax matters that would have
continuing effect after the Closing Date, (x) there is no consent under Section
341(f) of the Code in effect with respect to the Company or any Company
Subsidiary and (xi) the Company and each Company Subsidiary is not required to
make any adjustment under Section 481 of the Code for any taxable period
following the Closing Date (or under comparable provisions of state, local or
foreign law) by reason of a change in accounting method or otherwise. The
Stockholder has made available for inspection by Buyer true and complete copies
of all Tax Returns filed with respect to the Company or the Company Subsidiaries
for all taxable periods beginning after December 31, 1998, and will, upon
request, make available for inspection by Buyer true and complete copies of any
other Tax Returns filed with respect to the Company or the Company Subsidiaries
for which the statute of limitations for assessment of Tax has not expired.
23
(b) The Company and each Company Subsidiary has complied
in all material respects with all legal requirements relating to the withholding
and payment of Taxes, including requirements relating to employee wage
withholding.
Section 3.18 Insurance. Schedule 3.18 contains a true and
complete list of all insurance policies or binders of insurance or programs of
self-insurance maintained by or on behalf of the Company or Company Subsidiaries
and/or the properties leased by the Company or Company Subsidiaries, as the case
may be, in effect for policy periods beginning on or after July 1, 2002
indicating for each policy the carrier, risks insured, the amounts of coverage,
deductible, premium rate, cash value if any, whether such policy is on an
"occurrence" or "claims made" basis, expiration date and whether the program was
retrospectively rated. All such policies are in full force and effect. True and
complete copies of all such insurance policies and binders have been made
available for inspection by Buyer prior to the date of this Agreement. The
coverage under each such policy and binder is in full force and effect, and no
written notice of cancellation or non-renewal has been received by the Company
or any Company Subsidiary, except as set forth on Schedule 3.18. To the
Knowledge of the Company, the Company and Company Subsidiaries, as the case may
be, are not in material default under any of such policies. Except as set forth
on Schedule 3.18, all installments for premiums under such policies are current.
No insurance company has issued a reservation of rights or denial of coverage
for any claim currently pending against the Company or any Company Subsidiary,
except as set forth on Schedule 3.18. Since January 1, 2002, neither the Company
nor any Company Subsidiary has been refused any insurance. Except as disclosed
on Schedule 3.18, neither the Company nor any Company Subsidiary is now, nor
will in the future be obligated to pay any retrospectively rated premiums,
deductible amounts or self-insured retentions in connection with any insurance
policies. Since January 1, 2002, to the Company's Knowledge, there has not been
any failure to present any material claim under any such policy in a timely
fashion or in the manner or detail required by the policy. Xxxxxxxxx Xxxxxxx is
the corporate risk manager of the Company, is the employee of the Company to
whom all material incident reports are required by corporate policy and
procedure to be sent and such person does not delegate the responsibility for
receipt of such reports.
Section 3.19 Labor Relations and Employment. There is no
labor strike or material labor dispute, slowdown, stoppage or lockout pending,
or to the Knowledge of the Company, threatened against or affecting the Company
or any Company Subsidiary. To the Knowledge of the Company, there are no union
claims to represent the employees of the Company or any Company Subsidiary, and
there are no current union organizing activities among the employees of the
Company or any Company Subsidiary. Neither the Company nor any Company
Subsidiary is a party to or bound by any collective bargaining or similar
agreement with any labor organization, or work rules or practices agreed to with
any labor organization or employee association, applicable to employees of the
Company or such Company Subsidiary, as the case may be. Except as set forth on
Schedule 3.19, neither the Company nor any Company Subsidiary has experienced
any material work stoppage, strike, slowdown or, to the Knowledge of the
Company, union organizational efforts since January 1, 1999.
24
Section 3.20 Medicare Participation/Accreditation.
(a) The Company and each Company Subsidiary, as
applicable, are qualified for participation in the Medicare, Medicaid, CHAMPUS
and TRICARE programs, have current and valid provider contracts with such
programs and are, and have been, in compliance in all material respects with the
conditions of participation in such programs with respect to each participating
location, except as set forth on Schedule 3.20. Set forth on Schedule 3.20 are
all of the Company's and the Company Subsidiaries' provider numbers, a list of
the outpatient clinics, hospitals or contracts that are billing for services
utilizing such provider numbers and the type of designation of such facility or
service billed. Except as set forth on Schedule 3.20, neither the Company nor
any Company Subsidiary has received any written notice from any of the Medicare,
Medicaid, CHAMPUS or TRICARE programs, of any pending or threatened
investigation or survey, and neither the Company nor any Company Subsidiary has
reason to believe that any such investigation or survey is pending or
threatened, other than that which would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect.
(b) Neither the Company nor any Company Subsidiary has
received notice of any pending or threatened investigation or inquiry (other
than routine surveys and audits that have not resulted in an investigation or
inquiry) from any governmental agency, fiscal intermediary, carrier or similar
entity that enforces or administers the statutory or regulatory provisions in
respect of any governmental health care program. There are no outstanding
judgments orders, writs, injunctions or decrees of any Governmental Agency in
respect of any governmental health care program against the Company or any
Company Subsidiary which would result in liability to the Company or the Company
Subsidiaries in excess of $25,000 (whether or not covered by insurance) or that
would materially affect or delay the Company's or any Company Subsidiary's
performance of this Agreement. There are no material, non-monetary orders,
writs, injunctions or decrees of any Governmental Agency outstanding in respect
of any governmental health care program against the Company or any Company
Subsidiary.
Section 3.21 Cost Reports and Other Filings. Except as
set forth on Schedule 3.21, each cost report and other required claims and
governmental filings ("Filings") with respect to Medicare and each state
Medicaid program in which they participate required to be filed by or on behalf
of the Company or a Company Subsidiary on or prior to the Closing Date has been
or will be timely filed and all amounts shown on such cost reports as owed by
the Company or a Company Subsidiary have been or will be paid timely. All of
such Filings were, when filed or as they have been subsequently amended, true
and complete in all material respects. The Company has made available for
inspection by Buyer prior to the date of this Agreement each such Filing.
Schedule 3.21 lists the Medicare and Medicaid cost reports filed by the Company
and the Company Subsidiaries for any period after December 31, 1996 for which
the Company or any Company Subsidiary could be liable. Schedule 3.21 sets forth
which of such cost reports have been audited and finally settled, audited but
not finally settled and neither audited nor settled, and a brief description of
any and all notices of program reimbursement, proposed or pending audit
adjustments, disallowances, appeals of disallowances, and any and all other
unresolved claims or disputes in respect of such cost reports. There is no basis
for any claims against the Company or any Company Subsidiary by any third-party
payors other than routine Medicare and Medicaid audit adjustments which
adjustments have not had and would not reasonably be expected to have a Material
Adverse Effect. Neither the Company nor any Company Subsidiary
25
has received any written notice that Medicare or Medicaid has any claims against
it which could result in offsets against future reimbursement in excess of that
provided for in the Balance Sheet.
Section 3.22 Exclusion. To the Knowledge of the Company
and the Company Subsidiaries, neither the Company nor any Company Subsidiary
employs or contracts with any person who has been excluded from participation in
a federal health care program (as defined in 42 U.S.C. Section 1320a-7b(f))
where such action could reasonably serve as a basis for the Company's or any
Company Subsidiary's suspension or exclusion from the Medicare or any state
Medicaid program.
Section 3.23 Federal Health Care Programs.
(a) Neither the Company, any Company Subsidiary, any
affiliate nor any person who has a direct or indirect ownership interest (as
those terms are defined in 42 C.F.R. Section 1001.1001(a)(2)) in the Company or
any Company Subsidiary of 5% or more, or who has an ownership or control
interest (as defined in Section 1124(a)(3) of the Social Security Act or any
regulations promulgated thereunder) in the Company or any Company Subsidiary, or
who is an officer, director, agent or managing employee (as defined in 42 C.F.R.
Section 1001.1001(a)(i)): (a) except as set forth on Schedule 3.23, has had a
civil monetary penalty assessed against it under Section 1128A of the Social
Security Act or any regulations promulgated thereunder; (b) has been excluded
from participation under any federal health care program; or (c) has been
convicted (as that term is defined in 42 C.F.R. Section 1001.2) of any of the
categories of offenses as described in the Social Security Act Section 1128(a)
and (b)(1), (2), (3) or any regulations promulgated thereunder.
(b) All home office cost reports filed by the Company and
each Company Subsidiary are true and complete and the costs contained in such
reports are appropriately included therein and have been properly allocated
among the Company and each Company Subsidiary and businesses in accordance with
Medicare and Medicaid rules and regulations.
(c) To the Knowledge of the Company, no action is pending
or threatened to suspend, limit or terminate the status of the Company or any
Company Subsidiary as a provider in any federal health care program. Except as
set forth on Schedule 3.23, neither the Company nor any Company Subsidiary has
received notice that a third party private payor intends to terminate or fail to
renew any contractual arrangement with the Company or any Company Subsidiary
from which the Company derived more than $100,000 in revenue during 2002.
Section 3.24 Billing; Gratuitous Payments. Except as set
forth in Schedule 3.24, all billing by, or on behalf of, the Company or any
Company Subsidiary to third-party payors, including, but not limited to,
Medicare, Medicaid and private insurance companies has been true and complete in
all material respects. Neither the Company nor any Company Subsidiary has
received any notice from any third-party payor, including but not limited to,
Medicare or Medicaid, that indicates that Buyer could not continue to xxxx in
substantially the same manner and structure as the Company or any Company
Subsidiary is billing on the date hereof.
26
Section 3.25 Reimbursement Matters. Except as disclosed
on Schedule 3.25, for the previous three years, the Company and the Company
Subsidiaries have 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 Company
Subsidiary, other than those which have been finally resolved in any settlement
for an amount less than $100,000. Neither the Company nor any Company Subsidiary
is subject to (i) a "focused review" of claims by Medicare or (ii) a "Corporate
Integrity Agreement" or similar government - mandated compliance program.
Section 3.26 No Criminal Proceedings. Except as set forth
on Schedule 3.26, there are no pending actions, charges, indictments or
investigations of the Company or any Company Subsidiary or, with respect to
their employment with the Company or any Company Subsidiary, their agents,
officers or employees which involve allegations of criminal violations by the
Company or any Company Subsidiary or their agents, officers or employees acting
on behalf of the Company or any Company Subsidiary of any federal, state or
local statute, law or ordinance, including, without limitation, Medicare or
Medicaid.
Section 3.27 Bank Accounts. Schedule 3.27 sets forth a
list of all bank and securities accounts and lockboxes maintained by the Company
or any Company Subsidiary.
Section 3.28 Brokers or Finders. Except for X.X. Xxxxxx
Securities, Inc. ("JPMorgan") and Xxxxxx Brothers Inc., whose fees shall be paid
by the Company (provided that any such payment results in a reduction of Closing
Date Working Capital) or Stockholder, no broker, finder or investment banker is
entitled to any fee or commission from the Company, any Company Subsidiary or
Stockholder for services rendered on behalf of the Company, any Company
Subsidiary or Stockholder in connection with the transactions contemplated by
this Agreement.
B. Representations and Warranties of Stockholder.
Stockholder represents and warrants to Buyer as follows:
Section 3.29 Organization of Stockholder.
(a) Stockholder is a not-for-profit corporation duly
organized, validly existing and in good standing under the laws of the State of
New Jersey with requisite corporate power and authority to enter into and
perform this Agreement.
(b) True and complete copies of the certificate of
incorporation and by-laws of Stockholder as in effect on the date of this
Agreement have been made available for inspection by Buyer prior to the date of
this Agreement. Such certificate of incorporation and by-laws are in full force
and effect.
Section 3.30 Ownership. Stockholder owns beneficially and
of record the Shares, and has the right, power and authority to sell, convey,
transfer and deliver such Shares as provided in this Agreement. Upon delivery
and payment for the Shares owned by Stockholder as provided herein, there shall
be vested in Buyer good and valid title to such Shares, free and clear
27
of all Encumbrances. Except for the Company and the Company Subsidiaries and as
set forth on Schedule 3.30, Stockholder does not own, directly or indirectly,
any capital stock or other equity securities of any corporation nor has any
direct or indirect equity or ownership interest in any partnership, joint
venture or other business association or entity that is currently in a business
which is substantially similar to the Business.
Section 3.31 Authority.
(a) Stockholder has the authority to execute, deliver and
perform this Agreement, the Affiliation and Services Agreement, the Lease
Agreement and the Intellectual Property Agreement, and no other acts or other
proceedings on the part of Stockholder are necessary to authorize this
Agreement, the Affiliation and Services Agreement, the Lease Agreement, the
Intellectual Property Agreement or the transactions contemplated hereby by
Stockholder. This Agreement has been duly executed and delivered by Stockholder
and (assuming the due authorization, execution and delivery by Buyer)
constitutes the legal, valid and binding obligation of Stockholder, enforceable
against Stockholder in accordance with its terms, except as enforcement thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights in general, or by
general principles of equity.
(b) Neither the execution and delivery by Stockholder of
this Agreement nor the consummation of the transactions contemplated hereby nor
compliance with any of the provisions hereof by Stockholder will (i) violate or
conflict with any provision of the Certificate of Incorporation or By-laws of
Stockholder, (ii) violate or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in the creation of any
Encumbrance upon any of the assets of Stockholder under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, sublease, option, agreement or other instrument or obligation to
which Stockholder is a party, or by which it or its assets may be bound or
affected, or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Stockholder or any of its respective assets except, in
the case of clauses (ii) and (iii) above, for such violations, conflicts,
breaches or defaults which would not prohibit or materially and adversely
restrict or delay the consummation of the transactions contemplated hereby.
Except as set forth on Schedule 3.31(b), no consent or approval by, notice to or
registration with any Governmental Agency, other than the filing of a
Notification and Report Form with the Federal Trade Commission and the
Department of Justice and the termination or expiration of the related waiting
period, is required on the part of Stockholder prior to the Closing Date in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby.
Section 3.32 Litigation. There are no actions, suits,
claims, proceedings or investigations pending or, to the Knowledge of
Stockholder, threatened against Stockholder, nor any outstanding judgments,
orders, writs, injunctions or decrees of any Governmental Agency against
Stockholder which seek to prohibit or materially and adversely restrict or delay
the consummation of the transactions contemplated hereby or would materially and
adversely affect the ability of Stockholder to consummate the transactions
contemplated hereby.
28
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to the Company and
Stockholder as follows:
Section 4.1 Organization of Buyer. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation with requisite corporate power and authority
to enter into and perform this Agreement, to own, lease and operate its
properties and to carry on its business as now being conducted therein, and is
duly qualified to do business as a foreign corporation in each jurisdiction in
which the failure to be so qualified would prohibit or materially and adversely
restrict or delay the consummation of the transactions contemplated hereby.
Section 4.2 Authority.
(a) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby by Buyer
have been duly authorized by requisite corporate action, and no other acts or
other proceedings on the part of Buyer are necessary to authorize this Agreement
or the transactions contemplated hereby. This Agreement has been duly executed
by Buyer and (assuming the due authorization, execution and delivery hereof and
thereof by the Company and Stockholder) constitutes the legal, valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms,
except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights in general, or by general principles of equity.
(b) Neither the execution and delivery by Buyer of this
Agreement nor the consummation of the transactions contemplated hereby nor
compliance with any of the provisions hereof by Buyer will (i) violate or
conflict with any provision of the charter or By-laws or other similar
organizational and operational documents of Buyer or any of its Subsidiaries,
(ii) violate or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in the creation of any
Encumbrance upon any of the assets of Buyer or any of its Subsidiaries under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, sublease, option, agreement or other
instrument or obligation to which Buyer or any of its Subsidiaries is a party,
or by which it or any of its Subsidiaries or any of the assets of Buyer or any
of its Subsidiaries may be bound or affected, or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Buyer or any of
its Subsidiaries or any of the assets of Buyer or any of its Subsidiaries
except, in the case of clauses (ii) and (iii) above, for such violations,
conflicts, breaches or defaults which would not prohibit or materially and
adversely restrict or delay the consummation of the transactions contemplated
hereby. Except as set forth on Schedule 4.2(b), no consent or approval by,
notice to or registration with any Governmental Agency other than the filing of
a Notification and Report Form with the Federal Trade Commission and the
Department of Justice and the termination or expiration of the related waiting
period, is required on the part of Buyer prior to the Closing Date in connection
with the
29
execution and delivery of this Agreement, or the consummation of the
transactions contemplated hereby.
Section 4.3 Funding. Buyer has cash available or has one
or more fully executed commitment letters with respect to borrowing facilities
(true and complete copies of which have been provided to Stockholder prior to
the date of this Agreement) which, upon funding in accordance with such
commitment letters, together with its available cash, will be sufficient to
enable it to consummate the transactions contemplated by this Agreement.
Section 4.4 Litigation. There are no actions, suits,
claims, proceedings or investigations pending or, to the Knowledge of Buyer,
threatened against Buyer, nor any outstanding judgments, orders, writs,
injunctions or decrees of any Governmental Agency against Buyer or any of its
Subsidiaries, which seek to prohibit or materially restrict or delay the
consummation of the transactions contemplated hereby or would materially and
adversely affect the ability of Buyer or any of its Subsidiaries to consummate
the transactions contemplated hereby.
Section 4.5 Investment Representation; Business
Investigation. Buyer is acquiring the Shares for its own account, for investment
purposes only and not with a view to the distribution of the Shares. Buyer (a)
fully understands the nature, scope and duration of the limitations on transfer
applicable to the Shares, (b) can bear the economic risk of an investment in the
Shares, (c) understands that the Shares (i) have not been registered under the
Securities Act or under any state securities law, (ii) are being sold to Buyer
in reliance on exemptions from the registration requirements of the Securities
Act and such state securities laws, (iii) are "restricted securities" within the
meaning of Rule 144 under the Securities Act and (iv) may not be sold,
transferred or otherwise disposed of unless subsequently registered under the
Securities Act and applicable state securities laws or unless an exemption from
registration is then available and (d) is an "accredited investor" as such term
is defined under Rule 501(a) of the Securities Act.
Section 4.6 Brokers or Finders. Buyer has not entered
into and will not enter into any agreement, arrangement or understanding with
any person or firm which will result in the obligation of the Company or
Stockholder to pay any finder's fee, brokerage commission or similar payment in
connection with the transactions contemplated hereby.
ARTICLE 5. CERTAIN UNDERSTANDINGS AND AGREEMENTS.
Section 5.1 Conduct of Business.
(a) From the date of this Agreement to the Closing Date,
the Company shall use commercially reasonable efforts to conduct the Business,
and to cause the Company Subsidiaries to conduct the Business, in the ordinary
course consistent with past practice, to preserve their business organizations
intact, keep available the services of their officers and employees and maintain
satisfactory relationships with suppliers, customers and others having business
relationships with it. Without limiting the foregoing, except as set forth on
Schedule 5.1 or expressly permitted or provided for by the terms of this
Agreement, the Company will not,
30
and will cause the Company Subsidiaries not to, do any of the following without
the prior written consent of Buyer (which consent shall not be unreasonably
withheld or delayed):
(i) amend its Certificate of Incorporation, By-laws or
other similar organizational and operational documents;
(ii) redeem or otherwise acquire any shares of its capital
stock, equity securities or other equity interests or issue any capital
stock or any option, warrant or right relating thereto or any
securities convertible into or exchangeable for any shares of capital
stock, equity securities or other equity interests;
(iii) declare, set aside or pay any dividends or make any
other distributions in respect of any of its capital stock or any other
equity interests (other than from a Company Subsidiary to another
Company Subsidiary or to the Company);
(iv) adopt or amend any employee benefit plan or
collective bargaining agreement, except as may be, and to the extent,
required by law;
(v) incur or assume any liabilities for borrowed money or
obligations for borrowed money (i) in the aggregate in excess of
$500,000 in the ordinary course of business or (ii) outside of the
ordinary course of business;
(vi) permit, allow or suffer any of its material assets,
leases or lease property to be subject to any Encumbrance, other than
Permitted Liens;
(vii) cancel any material indebtedness or waive any claims
or rights of substantial value;
(viii) pay, loan or advance any amount to, or sell, transfer
or lease any of its material assets to, or enter into any agreement or
arrangement with Stockholder, except for transactions of a type
generally described on Schedule 3.9 or as contemplated by Schedule
3.11(a), Note 13;
(ix) make any material change in any method of accounting
or accounting practice or policy other than those required by GAAP;
(x) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof;
(xi) acquire or agree to acquire any assets (A) outside
the ordinary course of business or (B) in excess of $100,000 in the
aggregate (in each case, excluding capital expenditures, which are
described under subsection (xviii) hereof);
(xii) sell, lease or otherwise dispose of, or agree to
sell, lease or otherwise dispose of, any of its assets having an
aggregate value in excess of $100,000 (excluding sales of inventory in
the ordinary course of business consistent with past practices);
31
(xiii) amend, revise, renew or terminate any material
contract, lease, sublease, option or other agreement to which the
Company or a Company Subsidiary may be a party, which requires payments
by the Company and/or any Company Subsidiary of more than $100,000 in a
single year, in each case other than with respect to Real Property;
(xiv) enter into or renew any employment, labor, consulting
or service contract, except in the ordinary course of business;
(xv) enter into any employment, labor, consulting or
service contract, arrangement or commitment which is not terminable at
will, without penalty or continuing obligation to the Company;
(xvi) initiate or settle any litigation to which the
Company or a Company Subsidiary is a party that is not fully covered by
insurance;
(xvii) except pursuant to commitments existing on the date
hereof, (A) make or grant pay raises or bonuses to employees of the
Company or any Company Subsidiary (other than any executive officer
thereof), except in the ordinary course of business consistent with
past practices and in no event for any pay raises in excess of 3% of
such employee's salary at such time, (B) make or grant pay raises or
bonuses to any executive officer of the Company or any Company
Subsidiary or (C) make or grant awards of severance to any officer,
employee or director of the Company or any Company Subsidiary;
(xviii) make any commitments for capital expenditures for
additions to property, plant or equipment in excess of $100,000 in the
aggregate;
(xix) fail to use its reasonable efforts to (i) preserve
its present business organization intact, (ii) keep available to Buyer
the services of the present officers and employees of the Company and
the Company Subsidiaries and (iii) preserve present relationships with
entities or persons having business dealings with it;
(xx) fail to pay premiums under existing insurance
policies as required;
(xxi) (i) open any new clinic or purchase or sell any
clinic or (ii) close any clinic without providing to Buyer five days
prior notice;
(xxii) enter into or renew any real property lease; or
(xxiii) agree to any of the foregoing.
(b) The Company will provide written notice to Buyer of
any contemplated action or inaction that would require Buyer's prior written
consent pursuant to this Section 5.1, which notice will describe in reasonable
detail the requested action or inaction. The Company will promptly provide Buyer
with such additional information as Buyer may reasonably request in connection
with its determination whether or not to consent thereto. Within three business
days following Buyer's receipt of any such notice, Buyer shall inform the
Company in writing as to whether Buyer consents or does not consent to the
contemplated action or inaction. If Buyer
32
takes no action in writing with respect to such notice within ten business days
of receipt of such notice, Buyer shall be deemed to have consented to such
contemplated action or inaction.
(c) The Company, upon written notice to Buyer, may, at
any time after the date hereof through and including the Closing Date, amend the
existing Schedules, or add additional Schedules, to list or describe any matter
or exception relating to the representations and warranties set forth in Section
3 hereof which arises out of or results from any actions taken by the Company or
any Company Subsidiary after the date hereof which are permitted by the
exceptions listed in the second sentence of Section 5.1(a) and otherwise
permitted by this Agreement and, if existing or occurring at the date hereof,
would have been required to be listed or described in one or more of the
Schedules. Such amendments or additions shall qualify the representations and
warranties made by the Company on the Closing Date and for purposes of Section
9.1 hereof.
Section 5.2 Pre-Closing Access to Properties and
Records; Confidentiality. Between the date hereof and the Closing Date, the
Company will, and will cause the Company Subsidiaries to, give authorized
representatives of Buyer, in such a manner as not to unduly disrupt normal
business activities, reasonable access to the premises, properties, contracts,
books, records and affairs of the Company and Company Subsidiaries and will
cause the officers of the Company and Company Subsidiaries to furnish such
financial, technical and operating data and other information pertaining to the
Business as Buyer shall from time to time reasonably request; provided that,
nothing in the foregoing shall be deemed to require the Company or any Company
Subsidiary to provide any such access for purposes of environmental
investigations, surveys or similar actions. Buyer will hold in confidence all
information obtained as a result of such access or furnished by Stockholder, the
Company or Company Subsidiaries in accordance with the terms of the
confidentiality agreement dated November 19, 2002 between the JPMorgan and Buyer
(the "Confidentiality Agreement"), and will use such information only for the
purpose of considering the transactions contemplated hereby, and if such
transactions are not consummated as contemplated herein, will promptly return or
destroy, as the case may be, all such information and all information derived
therefrom (including all copies thereof) to Stockholder in accordance with the
terms of such Confidentiality Agreement. The parties hereto agree that it is
impossible to measure in money the damages which will accrue by reason of a
breach by Buyer of this Section 5.2, and, therefore, this Section may be
specifically enforced. Buyer hereby waives the claim or defense therein that any
other party has an adequate remedy at law. Notwithstanding the provisions of
this Agreement and the provisions of the Confidentiality Agreement, Buyer may
disclose, in financing offering documents, other documents related to Buyer's
financing of the transaction and in filings with the Securities and Exchange
Commission, financial and other information concerning the Company, the Business
and the transactions contemplated hereby, including the Company's financial
statements and any other information derived therefrom; provided that, in any
such case such disclosure is required by law or regulation or in Buyer's
reasonable judgment is reasonably necessary for marketing purposes.
Section 5.3 Post-Closing Access to Records. Buyer agrees
to preserve all records delivered by Stockholder, the Company or Company
Subsidiaries pursuant to this Agreement for a period of at least seven years
from the Closing Date or, if longer, the period of completion and closure of all
United States, state, local and foreign Tax audits and returns of Stockholder,
the Company and Company Subsidiaries and their affiliated entities relating to
33
periods prior to the Closing Date. Thereafter, Buyer will not voluntarily
dispose of, alter or destroy any such records without giving thirty (30) days
prior written notice to Stockholder to permit it, at its expense, to examine,
duplicate or take possession of such records. During the period such records are
so required to be preserved and kept, duly authorized representatives of
Stockholder shall, upon reasonable prior notice, have access thereto during
normal business hours to examine, inspect and copy such records. Buyer and
Stockholder shall provide each other with reasonable access to any records or
information relevant to any Tax Return, audit or examination by any Governmental
Agency, or judicial or administrative proceeding or determination relating to
liability for Taxes (including refunds) as are in its possession or subject to
its control pursuant to this Section 5.3.
Section 5.4 HSR. Each of Buyer and the Company shall (a)
promptly, (but in no event later than five business days after the date hereof)
make or cause to be made the filings required of such party or any of its
subsidiaries or affiliates under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements
Act of 1976, as amended, and the rules promulgated thereunder (the "HSR Act")
with respect to the transactions contemplated hereby, (b) comply as promptly as
reasonably practicable with any request under the HSR Act for additional
information, documents or other materials received by such party or any of its
subsidiaries from the Federal Trade Commission, the Department of Justice or any
other Governmental Agency in respect of such filings or such transactions and
(c) cooperate with the other party in connection with any such filing and in
connection with resolving any investigation or other inquiry of any such agency
with respect to any such filing or any such transaction. Each party shall use
its reasonable efforts to furnish to each other all information required for any
application or other filing to be made pursuant to any applicable law in
connection with the transactions contemplated by this Agreement. Each party
shall promptly inform the other party of any communication with, and any
proposed understanding, undertaking or agreement with, any Governmental Agency
regarding any such filings or any such transaction. The parties hereto will
consult and cooperate with one another in connection with any analyses,
appearances, presentations, memoranda, briefs, arguments, opinions and proposals
made or submitted by or on behalf of any party hereto in connection with
proceedings under or relating to the HSR Act.
Section 5.5 Certain Tax Matters.
(a) Stockholder shall, or shall cause the Company and
Company Subsidiaries to, prepare and file with the appropriate Governmental
Agency all Tax Returns required to be filed (with extensions) by the Company or
any Company Subsidiary on or prior to the Closing Date and will cause the
Company and Company Subsidiaries to pay all Taxes required to be paid with
respect to such Tax Returns.
(b) Buyer shall prepare, or cause to be prepared, all Tax
Returns required to be filed (with extensions) by the Company or any Company
Subsidiary after the Closing Date. Each such Tax Return for any Pre-Closing Tax
Period or for any Straddle Period shall be prepared in accordance with past
practice of the Company or the Company Subsidiary, as applicable, unless
otherwise required by applicable laws.
(i) Other than as provided in Section 5.5(b)(iii), in the
case of each Tax Return for any Pre-Closing Tax Period, Buyer shall
deliver to Stockholder, at least 45
34
days prior to the applicable filing deadline, a copy of such Tax Return
for Stockholder's review and approval. Stockholder shall have 30 days
following receipt of each such Tax Return to deliver to Buyer its
written approval of such Tax Return or a written statement of
Stockholder's desired revisions to such Tax Return. Upon receipt of
written approval from Stockholder or upon making any revisions
requested by Stockholder or upon Stockholder's failure to give notice
within such 30-day period, Buyer shall timely file, or cause to be
timely filed with the appropriate Governmental Agency all such Tax
Returns and shall pay, or cause to be paid, all Taxes required to be
paid with respect to such Tax Returns.
(ii) Other than as provided in Section 5.5(b)(iii), in the
case of each Tax Return for any Straddle Period, Buyer shall deliver to
Stockholder, at least 90 days prior to the applicable filing deadline,
a copy of such Tax Return, together with a calculation of the amount of
Taxes related to such Tax Return that is attributable to the portion of
such Straddle Period ending on the Closing Date (the "Pre-Closing Tax
Calculation"). The Stockholder shall, within 30 days of receipt of each
such Tax Return and Pre-Closing Tax Calculation, deliver to Buyer its
written approval or written notice of objection with respect to such
Tax Return or Pre-Closing Tax Calculation. If Buyer and Stockholder are
unable to resolve any dispute within 15 days following Buyer's receipt
of Stockholder's notice of objection delivered pursuant to the
preceding sentence, such dispute shall be submitted to the Independent
Expert selected, to the extent not previously selected, in accordance
with the procedures set forth in Section 2.4(b)(ii) for final
determination, which determination shall be binding upon Buyer and
Stockholder. Upon Buyer's receipt of Stockholder's written approval or
upon the final determination of all disputes with respect to a Tax
Return, Buyer shall file, or cause to be filed, with the appropriate
Governmental Agency such Tax Return and shall pay, or cause to be paid,
all Taxes required to be paid with respect to such Tax Return. If a
final determination has not been made by the time the filing of such
Tax Return is required, Buyer shall timely file, or cause to be timely
filed, such Tax Return and pay, or cause to be paid, all Taxes due and
file, or cause to be filed, an amended Tax Return, if necessary, upon
final determination of an Independent Expert.
(iii) In the case of each Tax Return for any Pre-Closing
Tax Period or Straddle Period relating to employment taxes, Buyer (A)
shall cause such Tax Return to be timely filed with the appropriate
Governmental Agency in accordance with past practice of the Company and
Company Subsidiaries, (B) shall timely pay or cause to be paid all
Taxes due with respect to such Tax Return, and (C) shall deliver such
Tax Return to Stockholder for review as soon as practicable following
the filing of such Tax Return and take any action, if reasonably
requested by Stockholder, to correct or amend such Tax Return.
(c) Buyer agrees (i) to furnish Stockholder with copies
of all correspondence received from any Governmental Agency in connection with
any audit relating to the Tax Returns of the Company or any Company Subsidiary
for taxable periods beginning prior to the Closing Date, and (ii) to cooperate,
to the extent reasonably requested by Stockholder, in connection with any audit,
litigation or other proceeding with respect to Taxes of the Company or any
Company Subsidiary.
35
(d) Stockholder and Buyer agree, upon the other party's
reasonable request and at the requesting party's expense, to make any filing or
to obtain any certificate or other document from any Governmental Agency or any
other Person as may be necessary to mitigate, reduce or eliminate any Tax that
could be imposed with respect to the transactions contemplated hereby.
(e) Buyer shall not make or permit to be made any
election under section 338 of the Code with respect to its acquisition of the
Company or any Company Subsidiary.
(f) All transfer, registration, stamp, documentary,
sales, use and similar Taxes (including but not limited to, all applicable real
estate transfer or gains Taxes and any stock transfer Taxes), including any
penalties, interest and additions with respect thereto, and fees incurred in
connection with this Agreement and the transactions contemplated hereby shall be
the responsibility of and be paid by Buyer. Stockholder and Buyer shall
cooperate in the timely making of all filings, returns, reports and forms as may
be required in connection therewith.
(g) Notwithstanding any other provision of this
Agreement, after the Closing Date, Stockholder shall indemnify and hold harmless
Buyer, the Company and any Company Subsidiary from and against (i) any Taxes of
the Company or any Company Subsidiary attributable to any Pre-Closing Tax Period
or the portion of any Straddle Period ending on the Closing Date (determined
without regard to any Tax benefit attributable to the cash-out of the Company
Options and Company Stock Units), to the extent any such Taxes exceed the
accruals for such Taxes (reduced by any incremental Tax benefit resulting from
the cash out of the Company Options and Company Stock Units) reflected in the
computation of Closing Date Working Capital, as finally determined pursuant to
Section 2.4(a), and (ii) any Taxes of any person other than the Company or a
Company Subsidiary imposed under Treas. Regs. Section 1.1502-6 (or analogous
provision of state, local or foreign law) by reason of the Company or the
Company Subsidiary being a member of a consolidated, combined or unitary group
of corporations prior to the Closing Date. In the case of any Straddle Period,
Taxes attributable to the portion of such Straddle Period ending on the Closing
Date shall be determined as if such taxable period ended as of the close of
business on the Closing Date; provided that, real property, personal property
and other ad valorem Taxes shall be prorated on a daily basis. The amount of any
Taxes for which indemnification is provided under this Section 5.5(g) shall be
increased or decreased to take account of any net Tax detriment or benefit,
respectively, actually realized arising from such Taxes or the receipt of such
indemnification payment. Buyer (or its affiliated entities) shall be obligated
to use all commercially reasonable efforts to pursue in good faith Tax benefits
arising from amounts for which indemnification is provided under this Section
5.5(g).
(h) Stockholder, in its sole discretion, shall have the
right to participate in or control any audit or examination by any Governmental
Agency and contest and defend against any assessment, notice of deficiency or
other adjustment or proposed adjustment relating to or with respect to Taxes or
Tax Returns for any Pre-Closing Tax Period and shall have full control over the
resolution or settlement of any such matters; provided that, in the event that
any such adjustment would have an adverse effect on the Company or a Company
Subsidiary for a Post-Closing Tax Period, Stockholder (i) shall permit Buyer to
participate in the proceeding to the extent the adjustment may affect the Tax
liability of the Company or any Company Subsidiary for a Post-Closing Tax Period
and (ii) shall not settle or otherwise compromise such proceeding
36
without the prior written consent of Buyer, which shall not be unreasonably
withheld. To the extent Stockholder does not assume full control over any such
matters, Buyer shall use commercially reasonably efforts to defend positions
taken on Tax Returns for Pre-Closing Tax Periods and shall keep Stockholder
reasonably informed of the progress of any such proceedings and shall not settle
or otherwise compromise such proceeding without the prior written consent of
Stockholder, which shall not be unreasonably withheld. To the extent that any
assessment, notice of deficiency or other adjustment or proposed adjustment
relating to or with respect to Tax Returns for any taxable period other than a
Pre-Closing Tax Period would have an adverse effect on Stockholder or require
indemnification pursuant to Section 5.5(g) or Section 9.2(a), Buyer, (i) shall
permit Stockholder to participate in the proceeding to the extent the adjustment
may affect the liability of Stockholder and (ii) shall not settle or otherwise
compromise such proceeding without the prior written consent of Stockholder,
which shall not be unreasonably withheld.
(i) If, at any time on or after the Closing Date, the
Company or any affiliates thereof actually receives any refund, rebate, return
or other similar payment or credit with respect to Taxes relating to or arising
out of a Pre-Closing Tax Period or the portion of any Straddle Period ending on
the Closing Date (other than a refund, rebate, return or other similar payment
or credit attributable to a carryback of a net operating loss, capital loss or
similar Tax attribute from a taxable period (or portion thereof) following the
Closing Date), such Person shall promptly notify Stockholder in writing and
shall remit the full amount of such payment or credit to Stockholder in
immediately available funds, to the extent the amount of such refund exceeds the
amount, if any, taken into account in the determination of Closing Date Working
Capital. Buyer shall use commercially reasonable efforts to pursue any refund,
rebate, return or other similar payment to which it becomes entitled.
(j) Stockholder shall deliver to Buyer a non-foreign
affidavit dated as of the Closing Date which shall conform to the model
certification set forth in Treasury Regulations Section 1.1445-2(b)(2)(iii)(B).
Section 5.6 Resignations. On the Closing Date,
Stockholder shall cause to be delivered to Buyer duly signed resignations,
effective immediately after the Closing, of all directors of the Company.
Section 5.7 Employee Matters.
(a) For a period of one year following the Closing Date,
Buyer agrees it will provide or cause to be provided to the employees of the
Company and Company Subsidiaries immediately prior to the Closing Date (the
"Company Employees") compensation and benefits (including severance benefits)
that are no less favorable than the benefits currently provided to
similarly-situated employees of Buyer. From and after the Closing Date, Buyer
will recognize any prior service of the Company Employees with the Company or
any predecessor entity (to the extent credited by the Company) or any Company
Subsidiary as of the Closing Date for all purposes (other than for benefit
accrual under any defined benefit plan) under Buyer's benefit plans and
arrangements in which they become participants to the same extent such service
was recognized by the Company prior to the Closing Date. Buyer agrees that where
applicable with respect to any welfare plan of Buyer, Buyer will (i) waive, with
respect to any Company Employees, any pre-existing condition exclusion and
actively-at-work requirements, to the extent
37
such exclusion or requirement would not have applied under the applicable plan
of the Company or any Company Subsidiary and (ii) provide that any covered
expenses incurred on or before the Closing Date by a Company Employee or a
Company Employee's covered dependents shall be taken into account for purposes
of satisfying applicable deductible, coinsurance and maximum out-of-pocket
provisions after the Closing Date to the same extent as such expenses would be
taken into account if incurred by similarly situated employees of Buyer.
Notwithstanding the foregoing, (i) following the Closing Date, Buyer will cause
the Company to honor the terms of the employment, retention and severance
agreements and plans as set forth on Schedule 5.7 (subject to any right to
modify such agreements and plans in accordance with their terms) and (ii) for
the six month period following the Closing Date, Buyer will cause the Company to
(A) recognize any prior service of the Company Employees with the Company or any
predecessor entity (to the extent normally credited by the Company) or any
Company Subsidiary for the purposes of the Company's Severance Policy KRC - HR -
7603, which is set forth on Schedule 5.7, (B) honor the obligations set forth in
the Company's Severance Policy KRC - HR - 7603 in effect as of the date hereof
(without regard to any amendment or termination provision) as such obligations
relate to the amount of severance paid pursuant to such plan to a terminated
employee and (C) cover any such terminated employee under the then-current
medical plans of the Company for the one month period following termination and,
thereafter, to provide COBRA coverage at the expense of such terminated employee
as required by law.
(b) (i) Stockholder shall take, and shall cause the
Company to take, all actions necessary to transfer the sponsorship of the
Xxxxxxx Rehabilitation Corporation Employer Retirement Savings Plan (f/k/a The
Xxxxxxx Rehabilitation Corporation Pension Plan) and its related trust from the
Company to Stockholder or KMRREC (as determined by Stockholder in its sole
discretion) prior to the Closing Date.
(ii) Stockholder shall cause, except as provided
herein or as required by applicable law, as of the Closing Date, all employees
of Stockholder or KMRREC and their dependents and beneficiaries to cease to
accrue further benefits, and have no rights to further participation, under any
Employee Plan. Notwithstanding the above, with respect to any employee of
Stockholder or KMRREC (including any beneficiary or dependent thereof), the
Company shall retain (1) all liabilities and obligations arising under any
Employee Plan that is a group life, accident, medical, dental or disability plan
or similar arrangement to the extent that such liability or obligation relates
to claims incurred (whether or not reported) on or prior to the Closing Date and
(2) all liabilities and obligations arising under any worker's compensation
arrangement to the extent such liability or obligation relates to events
occurring (whether or not reported) during the period prior to the Closing Date;
provided that, Stockholder shall promptly, and in any case within 10 business
days of Buyer's written request, reimburse Buyer for any reasonable and
documented additional costs that it, or its Employee Plans, may incur, over and
above the premiums previously paid by Stockholder or KMRREC, on account of
retaining the liabilities described in 5.7(b)(ii)(1) and (2) above, whether such
additional costs are incurred by way of additional out of pocket costs, or
retrospective premium adjustments or otherwise. For purposes of this Section
5.7(b)(ii), a claim shall be deemed to be incurred when (A) with respect to
medical or dental benefits, the medical or dental services giving rise to such
claim are performed and (B) with respect to life, accident or disability
benefits, when the event, condition or illness giving rise to such claim occurs.
38
(c) The Stockholder shall indemnify and hold harmless
Buyer, the Company and any Company Subsidiary or successor thereof, to the
fullest extent permitted by law from and against any and all liabilities, costs,
claims and expenses, including all professional fees (such as attorneys' or
accountants' fees), arising out of the payment of any "excess parachute
payments" as defined by section 280G of the Code ("Excess Parachute Payments").
Such costs shall include, but not be limited to, the costs of paying any tax
gross-up to the individual who receives an excess parachute payment and the
costs of the lost deduction to the Buyer, Company, or any Company Subsidiary or
successor thereof, if applicable, of the payment of any "excess parachute
payments." It is agreed and understood that the indemnification described in
this Section 5.7(c) shall not be subject to the limitations described in
Sections 9.2 or 9.10 hereof. Buyer shall, and shall cause the Company and the
Company Subsidiaries to, not take any position in connection with the filing of
any Tax Return (including on amended Tax Returns) or in the event of any dispute
with any Governmental Agency contrary to or not consistent with the position of
Stockholder that the Company qualifies for exemption under Section
280G(b)(5)(A)(i) of the Code in any Tax filings or Tax reports of the Company,
any Company Subsidiary or any Company Employee unless Buyer reasonably concludes
that the position taken by Stockholder is not supported by substantial authority
within the meaning of Section 6662(d)(2)(B)(i) of the Code.
Section 5.8 D&O Indemnification/Insurance.
(a) From and after the Closing Date, Buyer will indemnify
and hold harmless each officer and director of the Company and Company
Subsidiaries as of the Closing Date to the fullest extent permitted under
applicable law, the organizational documents of the Company or any Company
Subsidiary, as applicable, and any agreement effective as of the date of this
Agreement between any such officer or director and the Company or any Company
Subsidiary, in each case, in respect of acts or omissions occurring on or prior
to the Closing Date.
(b) At the Closing, Buyer shall, on behalf of the
Company, purchase on a prepaid noncancelable basis, from the insurance company
and on the terms set forth on Exhibit E, directors' and officers' liability
insurance (or an extended reporting endorsement) in respect of acts or omissions
occurring on or prior to the Closing Date, covering each person currently
covered by the policy to which the "tail" relates (a copy of which has been made
available to Buyer). In satisfying its obligation under this Section 5.8(b)
Buyer shall pay, or cause to be paid, premiums in the amount of $360,000, with
any excess premiums to be paid by Stockholder.
Section 5.9 Implied Warranties. Except as expressly
provided in this Agreement, neither the Company nor Stockholder has made or is
making any representation or warranty whatsoever to Buyer as to Stockholder, the
Company, Company Subsidiaries or the Business. Without limiting the foregoing,
Buyer acknowledges that Stockholder, the Company and the Company Subsidiaries
have not made any implied warranties (whether of merchantability or fitness for
a particular purpose or otherwise), or any representation or warranty as to the
viability or likelihood of success of the Business, the Company or any Company
Subsidiary after the Closing Date, or any representation or warranty as to the
information contained in the Information Memorandum furnished by JPMorgan on
behalf of the Company, or in any subsequent or supplemental materials provided
by the Company or Stockholder, except as expressly provided in this Agreement.
39
Section 5.10 Non-Competition; Nonsolicitation.
(a) For a period of seven years from and after the
Closing Date, neither Stockholder nor any of its Subsidiaries (collectively, the
"Restricted Parties") shall, directly or indirectly, own, manage, operate,
control or participate in the ownership, management, operation or control of, or
provide any financing or lease any assets to, any entity that engages in a
Competing Business; provided, however, that the foregoing shall not restrict any
Restricted Party with respect to (i) establishing, developing, sponsoring,
promoting and providing educational programs and medical and scientific research
in the field of physical rehabilitation and fields ancillary thereto, (ii)
sponsoring and assisting not-for-profit treatment facilities devoted to
improving and protecting the health and welfare of all persons, particularly
those with physical disabilities, (iii) aiding persons with physical and other
disabilities, (iv) providing access to community resources aimed at promoting
life and health, (v) providing assistance to persons with the aim of permitting
them to learn to lead full and meaningful lives and (vi) fundraising for any of
the foregoing, so long as, in any event, no Restricted Party receives any
remuneration from patients or patients' insurance companies for services
provided to patients; provided further, that the foregoing shall not prohibit
the beneficial or record ownership by a Restricted Party of up to five percent
of the outstanding securities of a Competing Business, so long as the Restricted
Parties do not actively participate in the management of such Competing
Business.
(b) For a period of five years from and after the Closing
Date, the Restricted Parties shall not directly or indirectly solicit (other
than for charitable purposes), employ, retain as a consultant or attempt to
entice away from Buyer, the Company, the Company Subsidiaries or their
respective affiliates, any Protected Employee, except (i) for those Protected
Employees set forth on Schedule 5.10(b) and (ii) that the Restricted Parties may
employ or retain as a consultant any Protected Employee who is no longer
employed by the Company or any Company Subsidiary solely for the purpose of
assisting in the processes contemplated in Section 2.4 hereof. For a period of
two years from and after the Closing Date, the Restricted Parties shall not
directly or indirectly solicit (other than for charitable purposes) or attempt
to entice away from Buyer, the Company, the Company Subsidiaries or their
respective affiliates any person, firm or corporation which is, or has been
during the six-month period commencing on the Closing Date, a customer of Buyer,
the Company or a Company Subsidiary.
(c) In the event that the covenants contained in this
Section 5.10 shall be determined by any court of competent jurisdiction to be
unenforceable by reason of its extending for too long a period of time or over
too large a geographical area or by reason of its being too extensive in any
other respect, it shall be interpreted to extend only over the longest period of
time over which it may be enforceable and/or over the largest geographical area
as to which it may be enforceable and/or to the maximum extent in all other
respects as to which it may be enforceable, all as determined by such court in
such action.
(d) The parties are entering into the foregoing covenant
to assure Buyer of the transfer of the goodwill of the Company and the Company
Subsidiaries, and in order to induce Buyer to consummate the transactions
contemplated by this Agreement. Stockholder and Buyer covenant that, in the
event of a breach by Stockholder of the terms and conditions of this Section
5.10 to be performed, Buyer may suffer irreparable damage for which remedies at
law are inadequate and therefore, with respect to a breach of this Section 5.10,
notwithstanding any other
40
provision of this Agreement, Buyer may receive, from a court of competent
jurisdiction, an injunction, a decree for specific performance or such other
equitable relief as may be deemed appropriate under the circumstances, in
addition to any other remedies at law or in equity Buyer, the Company or any
Company Subsidiary may have.
(e) Stockholder shall, upon reasonable prior notice, give
authorized representatives of Buyer reasonable access to Stockholder and its
records during normal business hours and will furnish such information as Buyer
shall from time to time reasonably request to permit Buyer to propose to
Stockholder the portion of the Final Purchase Price allocable to Stockholder's
undertakings pursuant to this Section 5.10. Buyer agrees to reimburse
Stockholder for any reasonable and documented out-of-pocket costs and expenses
incurred plus the pro rata salary, wage and benefits of any Stockholder
employees used pursuant to such access and furnishing of information. Buyer
will, and will cause its representatives to, hold in confidence all information
obtained as a result of such access or furnished by Stockholder in accordance
with the terms of the Confidentiality Agreement, and will use such information
only for the purposes set forth in this Section 5.10(e). Provided Stockholder
has complied with its obligations set forth in this Section 5.10, Buyer shall
use its commercially reasonable efforts to submit, within five business days
prior to the Closing Date, to Stockholder Buyer's calculation of the portion of
the Final Purchase Price allocable to Stockholder's undertakings pursuant to
this Section 5.10. Unless Stockholder notifies Buyer within 30 days after
Buyer's delivery of such computation of any objection to such computation (the
"Allocation Objection"), the computation shall become final and binding. Any
Allocation Objection shall specify in reasonable detail the basis for the
objections set forth therein. An Allocation Objection shall thereafter be
treated in accordance with the procedures for resolving Notices of Objection set
forth in Section 2.4(b)(ii) of this Agreement.
Section 5.11 No Solicitation. During the period beginning
on the date hereof and ending on the earlier of the Closing Date and the date of
termination of this Agreement, Stockholder will not (and will cause its
Subsidiaries and representatives not to) (a) solicit or initiate the submission
of any proposal or offer from any person relating to the direct or indirect
acquisition of all or any substantial portion of the Shares or assets of the
Company and the Company Subsidiaries or (b) participate in any discussions or
negotiations regarding, or furnish any information with respect to, any effort
or any attempt by any person other than Buyer to do or seek any of the
foregoing.
Section 5.12 Confidentiality. After the Closing,
Stockholder and its Subsidiaries (other than the Company and the Company
Subsidiaries) shall not, directly or indirectly, and Stockholder shall not
permit its representatives to, disclose to any person or entity or use any
information of the Company or Company Subsidiaries, in any form, whether
acquired prior to or after the Closing Date, relating to the Business, except
(a) information which (i) is in the public domain, (ii) is generally known in
the industry, (iii) becomes public knowledge through no fault of Stockholder,
(iv) is disclosed to Stockholder by third parties which have a right to do so,
(v) is required to be disclosed by court order or other government process or
the disclosure of which is necessary for Stockholder to comply with applicable
law or defend against claims or (vi) is provided to representatives of
Stockholder to pursue or defend against claims or disputes or to fulfill
Stockholder's obligations under this Agreement or the transactions contemplated
hereby or (b) as permitted pursuant to the Affiliation and Services Agreement.
41
Section 5.13 Acquisition of Rights to Confidentiality. To
the extent permitted by the terms thereof, at the Closing Stockholder shall
assign, grant and convey to Buyer all its rights under confidentiality
agreements between it and persons other than Buyer that were entered into in
connection with or relating to a possible sale of the Shares or any part thereof
(collectively "Other Confidentiality Letters"), including the right to enforce
all terms of the Other Confidentiality Letters. At the Closing, Stockholder
shall deliver to Buyer copies of the Other Confidentiality Letters to the extent
permitted by the terms thereof.
Section 5.14 Payment of Indebtedness. Prior to or
concurrent with the Closing, Stockholder shall, or shall cause the Company and
Company Subsidiaries to, pay off all indebtedness of the Company and the Company
Subsidiaries listed on Schedule 5.14, and shall remove, or cause to be removed,
all Encumbrances on the assets of the Company and the Company Subsidiaries held
by Fleet National Bank, or otherwise securing such indebtedness, and Stockholder
shall provide Buyer with (a) a copy of the "pay-off" letter from Fleet National
Bank in connection therewith and (b) a copy of the letter from Fleet National
Bank confirming that all Encumbrances relating to such indebtedness will be
removed by Fleet National Bank effective upon payment of the amount set forth in
the pay-off letter. Notwithstanding the foregoing, Stockholder shall not, and
shall not cause the Company or any Company Subsidiary to, pay off any
indebtedness listed on Schedule 5.14 unless, in the reasonable judgment of
Stockholder and the Company, after such pay-off, the Company will have an amount
of Working Capital that is not less than the Target Working Capital; provided
that, Stockholder shall, or shall cause the Company to, provide notice to Buyer
of such pay-off prior to paying off any such indebtedness.
Section 5.15 Argosy Health, LLC. Stockholder shall
indemnify and hold Buyer, the Company and the Company Subsidiaries harmless from
and against any Losses arising out of any claim by any Governmental Agency or
any client of Argosy Health, LLC that a client was overbilled on or before the
Closing Date. On or prior to the Closing, the Company shall assign to
Stockholder (a) all rights to any claims against third parties arising from or
relating to any overbilling of clients of Argosy Health, LLC on or before the
Closing Date and (b) all rights and benefits under (i) the Argosy Settlement
Agreement and (ii) the Argosy Note. Buyer shall, upon reasonable prior notice,
give authorized representatives of Stockholder reasonable access to Argosy
Health, LLC during normal business hours and its records and will furnish such
information as Stockholder shall from time to time reasonably request to permit
Stockholder to pursue any claims pursuant to this Section 5.15. Stockholder
agrees to reimburse Buyer for any reasonable and documented out-of-pocket costs
and expenses incurred plus the pro rata salary, wage and benefits of any Company
or Company Subsidiary employees used pursuant to such access and furnishing of
information. Stockholder will, and will cause its representatives to, hold in
confidence, subject to the exceptions provided in Section 5.12 hereof, all
information obtained as a result of such access or furnished by Argosy Health,
LLC; provided that, Stockholder may use such information for the purposes set
forth in this Section 5.15.
Section 5.16 Ancillary Agreements. On the Closing Date,
(i) Stockholder, the Company, KMRREC and KIR shall execute the Affiliation and
Services Agreement, (ii) Stockholder and KIR shall execute the Lease Agreement
and (iii) Stockholder and the Company shall execute the Intellectual Property
Agreement.
42
Section 5.17 Liquidity. At all times from the Closing
Date until the third anniversary of the Closing Date, Stockholder shall maintain
cash, Cash Equivalents and/or Marketable Securities (as Stockholder shall
determine in its sole discretion) with a Fair Market Value of at least
$42,500,000; provided that, such amount required to be maintained shall be
reduced dollar for dollar by the total amount of payments made by Stockholder to
Buyer pursuant to Sections 9.2(a)(i) (other than for Losses related to the
representations and warranties listed in Section 9.2(c)), 9.2(a)(iv),
9.2(a)(vii), 9.2(a)(viii), 9.2(a)(xi), 9.2(a)(xii) (to the extent that it
relates to Section 9.2(a)(i) (other than for Losses related to the
representations and warranties listed in Section 9.2(c)), 9.2(a)(iv),
9.2(a)(vii), 9.2(a)(viii) or 9.2(a)(xi)), 9.4 and 9.5.
Section 5.18 Home Office Cost Report. Buyer shall file or
cause to be filed the home office cost report of the Company and each Company
Subsidiary covering the period January 1, 2003 through and including Closing
with the same degree of care and skill customarily employed by Buyer on its own
behalf. Such filing shall include costs incurred by the Company and each Company
Subsidiary in an amount at least equal to the Company's and each Company
Subsidiary's home office costs reflected on the consolidated financial
statements of the Company and the Company Subsidiaries for the corresponding
period.
Section 5.19 Related Transactions. Stockholder shall, and
shall cause the Company and Company Subsidiaries to, take any and all actions
necessary so that, as of the Closing, there will be no liabilities or
obligations from the Company or Company Subsidiaries to Stockholder, except as
reflected as a current liability on the Closing Date Balance Sheet or pursuant
to this Agreement, the Intellectual Property Agreement, Affiliation and Services
Agreement and Lease Agreement.
Section 5.20 Bequests. If, after the Closing, the Company
or any Company Subsidiary receives a bequest, charitable donation or other
charitable or similar gift or contribution (whether in the form of cash, check,
securities or other investments, real estate or otherwise (each, a "Donation"))
from any Person made or intended to be made for the benefit of Stockholder, the
Company or Company Subsidiary (as the case may be) shall promptly (a) remit such
Donation to Stockholder or (b) return such Donation to such Person and notify
such Person of the appropriate address to send Donations to Stockholder.
Section 5.21 Accounts Receivable.
(a) The following terms when used in this Section 5.21
shall have the meanings assigned to them below:
(i) "Closing Date Receivables" means all net trade
accounts receivable reflected on the Closing Date Balance Sheet,
without taking account of any allowance for doubtful accounts deducted
therefrom.
(ii) "Closing Date Reserves" means the allowance for
doubtful accounts against the Closing Date Receivables reflected on the
Closing Date Balance Sheet.
(iii) "Cumulative Receivable Collections" means, at any
time, the amount of cash collected by the Company and Company
Subsidiaries on account of Closing Date
43
Receivables from and including the day after the Closing Date to the
First Measurement Date or Second Measurement Date (each as hereinafter
defined), as the case may be.
(b) As promptly as practicable (but in any event within
30 days) after the one year anniversary of the Closing Date (the "First
Measurement Date"), Buyer shall deliver to Stockholder a statement of the
Cumulative Receivable Collections as of the First Measurement Date, together
with the work papers upon which Buyer's calculation of such Cumulative
Receivable Collections is based. Within five days after Stockholder has provided
written notice to Buyer that Stockholder has completed its review of such
statement, and is in agreement therewith, pursuant to this Section 5.21(b),
Buyer shall pay to Stockholder the amount determined by the formula (A x B) - C
(the "First Measurement Payment"), where "A" equals the amount, if any, by which
the amount of the Cumulative Receivable Collections as of the First Measurement
Date exceeds the positive difference between (i) the Closing Date Receivables
and (ii) the Closing Date Reserves; "B" equals 0.6; and "C" is the amount of any
reasonable and documented costs or expenses incurred by Buyer, the Company or
Company Subsidiaries related to the collection of such Closing Date Receivables
plus the pro rata salary, wages and benefits of employees used related to the
collection of such Closing Date Receivables; provided that, in no event will
Stockholder be required to make any payments to Buyer, the Company or any
Company Subsidiaries pursuant to this Section 5.21. During the period that
begins 10 days before the First Measurement Date, and ends on the 30th day
following Buyer's delivery of such statement, Stockholder shall be given
reasonable access to such employees and such work papers and other information
relating to the determination of Cumulative Receivable Collections for the
period between the Closing Date and the First Measurement Date as it reasonably
requests.
(c) As promptly as practicable (but in any event within
30 days) after the 18 month anniversary of the Closing Date (the "Second
Measurement Date"), Buyer shall deliver to Stockholder a statement of the
Cumulative Receivable Collections as of the Second Measurement Date, together
with the work papers upon which Buyer's calculation of such Cumulative
Receivable Collections is based. Within five days after Stockholder has provided
written notice to Buyer that Stockholder has completed its review of such
statement, and is in agreement therewith, pursuant to this Section 5.21(c),
Buyer shall pay to Stockholder the amount determined by the formula ((A x B) -
C) - D, where "A" equals the amount, if any, by which the amount of the
Cumulative Receivable Collections as of the Second Measurement Date exceeds the
positive difference between (i) the Closing Date Receivables and (ii) the
Closing Date Reserves; "B" equals 0.6; "C" is the amount of any reasonable and
documented costs or expenses incurred by Buyer, the Company or Company
Subsidiaries subsequent to the First Measurement Date related to the collection
of such Closing Date Receivables plus the pro rata salary, wages and benefits of
employees used related to the collection of such Closing Date Receivables; and
"D" is the First Measurement Payment; provided that, in no event will
Stockholder be required to make any payments to Buyer, the Company or any
Company Subsidiaries pursuant to this Section 5.21. During the period that
begins 10 days before the Second Measurement Date, and ends on the 30th day
following Buyer's delivery of such statement, Stockholder shall be given
reasonable access to such employees and such work papers and other information
relating to the determination of Cumulative Receivable Collections for the
period between the Closing Date and the Second Measurement Date as it reasonably
requests.
44
(d) During the period between the Closing and the Second
Measurement Date, Buyer shall cause the Company and Company Subsidiaries to
follow substantially similar accounts receivable collection practices with
respect to the Closing Date Receivables as are used by Buyer in the collection
of its similarly situated accounts receivable.
(e) In the event that during the 18 months following the
Closing Date, the Company or any Company Subsidiary receives a payment for
services rendered by Core Rehab Management, LLC ("Core") under circumstances in
which the particular account receivable that should be credited with such
payment is not clearly designated or readily apparent (the "Undesignated
Payments"), the parties agree that such payment shall be credited to outstanding
accounts receivable of Core in the following order of priority: (i) First, to
outstanding accounts receivable of Core that were reflected on the Closing Date
Balance Sheet and that had been outstanding for fewer than 120 days as of the
Closing Date; (ii) Second, to outstanding accounts receivable of Core that were
created subsequent to the Closing Date and that, as of the date of such payment,
had been outstanding for more than 45 days from the date of service; (iii)
Third, to outstanding accounts receivable of Core that were reflected on the
Closing Date Balance Sheet and that had been outstanding for 120 days or more as
of the Closing Date; and (iv) Fourth, to any other outstanding accounts
receivable of Core. During such 18 month period, Buyer agrees to provide
Stockholder within 15 days following the end of each month a written report
listing any such Undesignated Payments received during such month and whether
such payment was credited to the outstanding accounts receivable set forth in
subsection (i), (ii), (iii) or (iv) of this Section 5.21(e).
Section 5.22 Provider Based Status. Between the date
hereof and the Closing Date, the Company shall reasonably cooperate with Buyer
and take all reasonable steps necessary in obtaining favorable written provider
based status determinations by Medicare for any and all facilities of the
Company and the Company Subsidiaries that are treated as satellite hospitals or
provider based outpatient facilities, including, without limitation, promptly
upon the reasonable request of Buyer, (a) implementing reasonable operational
changes to facilitate the approval of provider based status and (b) submitting
any letters or other documents to Governmental Authorities in connection with
obtaining provider based status determinations with respect to such facilities.
Section 5.23 Reasonable Efforts. Subject to the terms and
conditions of this Agreement, each party shall use all reasonable efforts to
take, or cause to be taken, all actions necessary to consummate the transactions
contemplated by this Agreement, including, without limitation, (a) the Company,
upon the request of Buyer, using all reasonable efforts to take all actions
necessary to obtain consents and comfort letters from the Company's financial
auditors that may be needed in filings with the Securities and Exchange
Commission and in connection with Buyer's financing of the transactions
contemplated by this Agreement; provided that, Buyer shall reimburse the Company
for any reasonable and documented out-of-pocket costs and expenses incurred in
connection with obtaining such consents and comfort letters and (b) reasonable
efforts to cooperate in providing all information that is necessary to the
transfer of the licenses referenced in Section 7.10.
Section 5.24 Certificate of Amendment. Prior to, and for
a reasonable amount of time after, the Closing, the Company shall take all
reasonable action, including without
45
limitation, working with relevant joint venture partners to file certificates of
amendment to the certificates of incorporation and certificates of formation of
Xxxxxxx Assisted Living Residence V, LLC, Xxxxxxx Assisted Living Centers, LLC
("KALC"), Xxxxxxx Assisted Living Residence I, LLC ("KALR") and Xxxxxxx Assisted
Living Residence III, LLC with the appropriate state offices, to change each of
such entities' corporate or limited liability company names, as the case may be,
so the word "Xxxxxxx" or any derivation thereof no longer is included in such
entities' corporate or limited liability company names.
Section 5.25 Certain Employee Obligations. On or prior to
the Closing, Stockholder shall, and shall cause the Company and the Company
Subsidiaries to, enter into an agreement in which all obligations set forth on
Schedule 5.25, to the extent such obligations are not to be listed as current
liabilities on the Closing Date Balance Sheet, are either (a) paid off or (b)
assumed by Stockholder, in either case, with no future obligations to Buyer, the
Company or any Company Subsidiary.
Section 5.26 Environmental Matters.
(a) Stockholder shall, or prior to the Closing shall
cause the Company or the Company Subsidiaries to, arrange for the performance of
the work proposed by PMK Group as set forth in the "Construction Cost Estimate -
Asbestos Abatement Activities Motivated by Asbestos Abatement Plan," attached
hereto as Exhibit F (the "ACM Abatement Plan"), which work shall be completed no
later than 90 days after Closing. Upon completion of such work, Stockholder
shall instruct PMK Group to prepare and deliver to the Company or the Company
Subsidiaries, as applicable, a statement addressed to the Company or the Company
Subsidiaries, as applicable, that states that the work set forth in the ACM
Abatement Plan was completed (the "Completion Certificate"). Any costs and
expenses relating to such work that are not specifically identified as a current
liability on the Closing Date Balance Sheet shall be for Stockholder's account.
(b) Stockholder shall take, at Stockholder's sole cost
and expense, any and all actions necessary to bring the Company's operations, as
conducted on and immediately before the Closing, into compliance with the
applicable nitrite discharge limits at the Xxxxxxx Real Property as such limits
are in effect at the Closing. Without limiting the generality of the foregoing,
Stockholder shall arrange for the performance of the wastewater treatment plant
modifications, as set forth in the plan attached hereto as Exhibit G (the
"Denitrification Plan"), which modifications shall be completed after Closing as
promptly as reasonably practicable, but in no event later than 12 months after
Closing; provided that, Stockholder shall not be in breach of this Section
5.26(b) of this Agreement because of any failure of the Denitrification Plan to
be completed within 12 months after Closing if, but only to the extent that,
such failure is caused, or contributed to, by any event or circumstance, or
combination of events or circumstances, that is beyond the reasonable control of
Stockholder (including, but not limited to, any delays in obtaining any
applicable approval from any Governmental Agency).
(c) Stockholder shall take, at Stockholder's sole cost
and expense, any and all actions necessary to comply with ISRA as may be imposed
based on the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereunder, with respect to the Xxxxxxx Wilpage
Medical facility in Livingston, New Jersey. Stockholder shall use
46
commercially reasonable efforts to obtain within the time periods required by
Environmental Laws and before the anticipated Closing Date, the letter of
non-applicability approved by the New Jersey Department of Environmental
Protection, de minimis quantity exemption, negative declaration, no further
action letter, remediation agreement or other documentation described in Section
6.4.
(d) Buyer shall, and shall cause the Company and the
Company Subsidiaries to, give Stockholder and authorized representatives of
Stockholder, in such a manner as not to unduly disrupt normal business
activities, reasonable access to the premises and properties of the Company and
Company Subsidiaries for the purpose of satisfying the requirements of this
Section 5.26.
ARTICLE 6. CONDITIONS TO OBLIGATIONS OF EACH PARTY.
The obligations of each party to consummate the transactions
contemplated hereby shall be subject to the fulfillment, at or prior to the
Closing Date, of the following conditions, each of which may be waived by the
parties in writing:
Section 6.1 No Action or Proceeding. No claim, action,
suit or other proceeding shall be pending by any public authority or person
before any Governmental Agency which would have the effect of making illegal or
otherwise enjoining, restraining or prohibiting the transactions contemplated
hereby.
Section 6.2 Xxxx-Xxxxx-Xxxxxx Requirements. The waiting
periods (as such may be extended by the Governmental Agencies involved)
applicable to the consummation of the transactions contemplated hereby under the
provisions of the HSR Act shall have expired or have been terminated by the
appropriate Governmental Agency.
Section 6.3 Ancillary Agreements. Each of the
Intellectual Property Agreement, Affiliation and Services Agreement and Lease
Agreement shall be in full force and effect.
Section 6.4 ISRA. Stockholder shall have received and
furnished to Buyer a true and complete copy of a letter of non-applicability, de
minimis quantity exemption, negative declaration approved by the New Jersey
Department of Environmental Protection, no further action letter, remediation
agreement identifying Stockholder as the party responsible under the agreement
or other documentation demonstrating that ISRA does not apply to the prosthetics
facility in Livingston, New Jersey, or, if ISRA does apply to such facility,
that Stockholder has satisfied all of the requirements necessary to enable the
transactions contemplated by this Agreement to occur without delay and in
compliance with ISRA.
ARTICLE 7. CONDITIONS TO OBLIGATIONS OF BUYER.
The obligation of Buyer to consummate the transactions
contemplated hereby shall be subject to the fulfillment, at or prior to the
Closing Date, of the following additional conditions, each of which may be
waived by Buyer in writing:
47
Section 7.1 Representations and Warranties. The
representations and warranties of the Company and Stockholder contained in this
Agreement shall be true and correct in all respects at and as of the Closing
Date as if made at and as of such date (without regard to any Material Adverse
Effect or other materiality qualifiers contained therein), except for (a) those
representations and warranties which address matters only as of a particular
date (which shall have been true and correct as of such date, subject to clause
(b)), (b) where the failure or failures of such representations and warranties
to be true and correct have not had and would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect; provided
that the exception in this Section 7.1(b) shall not apply to the representations
and warranties set forth in Section 3.3 ("Capitalization"), and the Company and
Stockholder shall have delivered to Buyer a certificate to such effect, in the
case of the Company, signed by a duly authorized officer thereof.
Section 7.2 Performance of the Company and Stockholder.
Each of the obligations of the Company and Stockholder to be performed, at or
before the Closing Date pursuant to the terms of this Agreement, shall have been
duly performed in all material respects at or before the Closing Date, and, at
the Closing Date, the Company and Stockholder shall have delivered to Buyer a
certificate to such effect, in the case of the Company, signed by a duly
authorized officer thereof.
Section 7.3 Secretary's Certificate. Buyer shall have
received a certificate, dated the Closing Date, duly executed by the Secretary
or an Assistant Secretary of the Company, on behalf of the Company, certifying
as to (a) the attached copy of the resolutions of the Board of Directors (or a
duly authorized committee or officer) of the Company authorizing and approving
the execution, deliver 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 (b) the
incumbency, authority and specimen signature of each officer of the Company
executing this Agreement or any other document or instrument contemplated
hereby.
Section 7.4 Good Standing Certificate. Buyer shall have
received a certificate of the Company's organization, valid existence and good
standing as a domestic corporation in the state of its incorporation as of a
date no more than five days prior to the Closing Date.
Section 7.5 Organizational Documents. Buyer shall have
received a true and complete copy of the certificate of incorporation or other
formation document, as the case may be, of the Company and each Company
Subsidiary, certified as true and complete by the Secretary of State or other
appropriate governmental official of its jurisdiction of organization, and a
copy of the by-laws or other organizational documents, as the case may be, of
the Company and each Company Subsidiary, certified as true and complete by its
Secretary.
Section 7.6 Resignations. All directors of the Company
and each non-employee director of the Company Subsidiaries (except those
designated by Buyer) shall have executed and delivered to the Company and each
Company Subsidiary, as applicable, resignations effective as of the Closing.
48
Section 7.7 KALR. Stockholder shall have (a) transferred
the Company's direct or indirect interest in each of KALR, Xxxxxxx Assisted
Living Residence III, L.L.C., Xxxxxxx Assisted Living Residence V, L.L.C. and
KALC to Stockholder, an affiliate of Stockholder (other than the Company or a
Company Subsidiary) or a third party; provided that, such transfer to a third
party shall not result in any adverse tax consequence to the Company or any
Company Subsidiary or the creation or continuation of any liability or
obligation for the Company, any Company Subsidiary or Buyer and (b) had the
Company and all Company Subsidiaries released from any and all guaranties
relating to KALR, Xxxxxxx Assisted Living Residence III, L.L.C., Xxxxxxx
Assisted Living Residence V, L.L.C. and KALC, including the guarantee of a
construction loan in connection with KALC, with outstanding principal balance of
$12,225,000 as of December 31, 2002; in the case of either clause (a) or (b)
above, other than any tax consequence or tax liability for which indemnification
is provided under Section 9.2(a)(v) of the Agreement.
Section 7.8 Consents. The Company shall have received
(and furnished to Buyer evidence thereof reasonably satisfactory to Buyer) the
consents listed on Schedule 7.8.
Section 7.9 Legal Opinion. Buyer shall have received
from Xxxxxxx, Del Deo, Dolan, Griffinger and Xxxxxxxxx, A Professional
Corporation, counsel for Stockholder, an opinion dated the Closing Date in the
form attached hereto as Exhibit H.
Section 7.10 Health Care Facilities Planning Act. Buyer
shall have received approval from the New Jersey Department of Health and Senior
Services for the transfer of the licenses for the licensed facilities of the
Company and the Company Subsidiaries.
ARTICLE 8. CONDITIONS TO OBLIGATIONS OF STOCKHOLDER AND
THE COMPANY.
The obligations of Stockholder and the Company to consummate
the transactions contemplated hereby shall be subject to the fulfillment, at or
prior to the Closing Date, of the following additional conditions, each of which
may be waived by Stockholder in writing:
Section 8.1 Representations and Warranties. The
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all respects at and as of the Closing Date as if made at and
as of such date (without regard to materiality qualifiers contained therein),
except for (a) those representations and warranties which address matters only
as of a particular date (which shall have been true and correct as of such date,
subject to clause (b)), and (b) failures of such representations and warranties
to be true and correct as would not prohibit or materially and adversely
restrict or delay the consummation of the transactions contemplated hereby, and
Buyer shall have delivered to the Company and Stockholder a certificate to such
effect signed by a duly authorized officer thereof.
Section 8.2 Performance by Buyer. Each of the
obligations of Buyer to be performed, at or before the Closing Date pursuant to
the terms of this Agreement, shall have been duly performed in all material
respects at or before the Closing Date, and, at the Closing
49
Date, Buyer shall have delivered to the Company and Stockholder a certificate to
such effect signed by a duly authorized officer of Buyer.
Section 8.3 Secretary's Certificate. Stockholder shall
have received a certificate, dated the Closing Date, duly executed by the
Secretary or Assistant Secretary of Buyer, on behalf of Buyer, certifying as to
(a) the attached copy of the resolutions 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 (b) the incumbency, authority
and specimen signature of each officer of Buyer executing this Agreement or any
other document or instrument contemplated hereby.
Section 8.4 Good Standing Certificate. Stockholder shall
have received a certificate of Buyer's organization, valid existence and good
standing as a domestic corporation in the state of its incorporation as of a
date no more than five days prior to the Closing Date.
Section 8.5 Organizational Documents. Stockholder shall
have received a true and complete copy of the certificate of incorporation or
other formation document, as the case may be, of Buyer, certified as true and
complete by the Secretary of State or other appropriate governmental official of
its jurisdiction of organization, and a copy of the by-laws or other
organizational documents, as the case may be, of the Buyer, certified as true
and complete by its Secretary.
ARTICLE 9. NATURE AND SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNIFICATION, ETC.
Section 9.1 Survival of Representations and Warranties,
Etc. All covenants and agreements of the parties made in this Agreement or
provided herein shall survive the Closing Date unless otherwise expressly
provided herein. All representations and warranties of the parties made in this
Agreement and in the certificates delivered pursuant to Sections 7.1 and 8.1 of
this Agreement or as provided herein shall survive the Closing Date for a period
of twenty-four (24) months, notwithstanding any investigation at any time made
by or on behalf of the other party, except (a) the representations made in
Sections 3.14(b) and 3.15 and, solely to the extent it relates to the foregoing,
the certificate delivered pursuant to Section 7.1 of this Agreement shall
survive until the 60th day after the expiration of the applicable statute of
limitations, (b) the representations and warranties made in Sections 3.1 (in so
far as it relates to the due incorporation or organization of the Company),
3.2(a), 3.3, 3.4 (in so far as it relates to ownership of shares and the due
incorporation of the Company Subsidiaries and the existence of such Company
Subsidiaries), 3.29 (in so far as it relates to the due incorporation or
organization of Stockholder), 3.30, 3.31(a), 4.1 (in so far as it relates to the
due incorporation or organization of Buyer), 4.2(a) and 4.6 and, solely to the
extent they relate to the foregoing, the certificates delivered pursuant to
Sections 7.1 and 8.1 of this Agreement, shall survive the Closing Date in
perpetuity and (c) 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.
50
Section 9.2 Stockholder's Agreement to Indemnify.
(a) Stockholder hereby agrees to defend, indemnify and
hold Buyer, the Company (following the Closing) and their respective employees,
shareholders, affiliates, officers and directors (collectively, the "Buyer
Indemnitees") harmless from and against any and all claims, liabilities, losses,
fines or damages, together with costs and expenses, including, without
limitation, reasonable legal fees, (collectively, "Losses"), arising out of or
resulting from (i) any breach by Stockholder or the Company of the
representations and warranties contained in Article 3 and, solely to the extent
it relates to the foregoing, the certificate delivered pursuant to Section 7.1
of this Agreement (other than to the extent such representations and warranties
solely relate to Cost Report Liabilities, which are addressed in Section 9.4),
(ii) any breach by the Company (prior to the Closing) or any breach by
Stockholder of any covenant or agreement of the Company (prior to the Closing)
or Stockholder contained in this Agreement, (iii) any liability for any
Indebtedness of the Company or a Company Subsidiary outstanding as of the
Closing (other than any Indebtedness to the extent such Indebtedness has
resulted in a reduction to the Final Purchase Price and is not listed on
Schedule 5.14), (iv) any liability arising solely out of the failure of
Princeton Insurance Company ("Princeton"), due to Princeton's insolvency, to
provide coverage for professional liability and general liability claims
relating to events occurring prior to the Closing Date that would otherwise be
insured by Princeton; provided, that Buyer shall have made commercially
reasonable efforts, and failed, to recover the amount of such coverage from the
New Jersey Property and Liability Insurance Guarantee Association ("PLIGA");
provided further, that Stockholder shall indemnify Buyer for only 50% of such
Losses remaining after such recourse to PLIGA, (v) any (A) liability arising
from or related to the interest of the Company or any Company Subsidiary in
KALR, Xxxxxxx Assisted Living Corporation ("Kalcorp"), Xxxxxxx Assisted Living
Residence V, LLC, KALC and Xxxxxxx Assisted Living Residence III, LLC
(collectively, the "KALC Entities"), or any obligation or liability relating to,
in connection with or of the KALC Entities, including any guarantees by the
Company or Company Subsidiaries of any obligations of the KALC Entities and (B)
Taxes incurred by the Company or any Company Subsidiary, including Kalcorp, (or
any Tax detriment actually realized by the Company or a Company Subsidiary,
including Kalcorp, as a result of the reduction in any Tax benefit otherwise
available to the Company or any Company Subsidiary, including Kalcorp, other
than with respect to the utilization of any net operating losses that are
present in Kalcorp prior to the Closing) directly attributable to the transfer
of the interests in any KALC Entity pursuant to Section 7.7, (vi) any liability
arising from or related to the Xxxxxxx Rehabilitation Corporation Employer
Retirement Savings Plan (f/k/a The Xxxxxxx Rehabilitation Corporation Pension
Plan), (vii) any Losses resulting from the Company's or any Company Subsidiary's
over-deployment, overuse, misuse or other unauthorized or unlicensed use on or
prior to the Closing Date of computer hardware or software used in the Business;
(viii) those matters identified on Schedule 9.2(a)(viii); provided, that
Stockholder shall have no obligation to defend, indemnify or hold harmless any
Buyer Indemnitee under this clause (viii) to the extent such Buyer Indemnitee
(x) undertakes any sampling or testing relating to the matters set forth on
Schedule 9.2(a)(viii) on or after the date hereof other than as required by
Environmental Law, or (y) exceeds the minimum standards applicable under
Environmental Law in effect at the Closing or uses other than the most
cost-effective method with respect to the removal, remediation or response of or
to any such matter that does not unreasonably interfere with the operations of
Buyer or unreasonably delay the completion of such removal, remediation or
response, and provided further, that, notwithstanding anything in this Agreement
to the contrary, Stockholder
51
shall have the right to defend any proceeding with respect to which any Buyer
Indemnitee may be entitled to be defended, indemnified or held harmless under
this clause (viii) if Stockholder reasonably expects to be responsible for a
majority of the Losses (taking into account the limitations in Section 9.2(b))
arising from or related to such proceeding, and Stockholder shall have the right
to compromise or settle any such proceeding; provided, that Stockholder shall
not, without the prior written consent (not to be unreasonably withheld) of the
Buyer Indemnitee enter into any compromise or settlement of any such proceeding
that commits the Buyer Indemnitee to take, or forebear to take, any action or to
expend any money not covered by the indemnity as a result of the limitations in
Section 9.2(b), or which does not provide for a complete release of the Buyer
Indemnitee; (ix) the Company's failure to comply with the applicable
nitrite/nitrate discharge limits, including groundwater nitrite/nitrate
standards, at the Company's Xxxxxxx, New Jersey facility prior to the
satisfaction of the requirements of Section 5.26(b); provided that, Buyer shall
continue with the Company's implementation of non-capital efforts until the
completion of the Denitrification Plan; (x) to the extent such back-up well is
required by applicable laws in effect at the Closing for the Company's
operations as conducted at the Closing, the Company's failure to meet primary
and secondary drinking water standards in effect at the Closing for the back-up
well at Xxxxxxx Real Property (including the cost of any upgrades, such as
treatment systems, using the most cost-effective method if the well does not
consistently meet and continue to meet the standards in effect at the Closing
within one year after the Closing); provided, that Buyer shall continue with the
Company's implementation of non-capital efforts for one year following the
Closing; (xi) any fine, out of pocket cost or penalty related to the late filing
of any Form 5500; and (xii) the successful enforcement by any Buyer Indemnitee
of its rights under this Section 9.2(a); provided that, Stockholder shall not be
required to indemnify any Buyer Indemnitee for any Loss to the extent of any
reserve against such specific Loss that was reflected as a current liability on
the Closing Date Balance Sheet.
(b) Notwithstanding Section 9.2(a), (i) Stockholder shall
not be liable, pursuant to Section 9.2(a)(i) or Section 9.2(a)(iv), for any
Losses unless the aggregate of all Losses covered by such sections suffered by
Buyer exceeds, on a cumulative basis, an amount equal to $3 million, and then
only to the extent of any such excess, (ii) the aggregate liability of
Stockholder hereunder pursuant to Section 9.2(a)(i), Section 9.2(a)(iv), Section
9.2(a)(vii), Section 9.2(a)(viii), Section 9.2(a)(xi), Section 9.2(a)(xii)) (to
the extent that it relates to Section 9.2(a)(i), (iv), (vii), (viii) or (xi)),
Section 9.4 and Section 9.5 for Losses suffered by Buyer shall in no event
exceed $42,500,000 and (iii) Stockholder shall not be liable to Buyer for its
indirect, special, incidental, consequential or punitive damages which are not
reasonably foreseeable (other than damages paid to a third party) resulting from
breaches by Stockholder or the Company of its representations, warranties or
covenants hereunder. Furthermore, Stockholder shall not be liable under Section
9.2(a) for any Losses for which indemnification is provided under Section 5.5(g)
of this Agreement.
(c) Notwithstanding anything to the contrary in this
Agreement, the limitations on liability under Section 9.2(b) for Losses of a
Buyer Indemnitee shall not apply to the representations and warranties set forth
in Sections 3.1 ("Organization of the Company") (in so far as it relates to the
due incorporation or organization of the Company), 3.2(a) ("Authority"), 3.3
("Capitalization"), 3.4 ("Subsidiaries") (in so far as it relates to ownership
of shares and the due incorporation or organization of the Company Subsidiaries
and the existence of such Company Subsidiaries), 3.28 ("Brokers or Finders"),
3.30 ("Ownership") and, solely to the
52
extent related to the foregoing, the certificate delivered pursuant to Section
7.1 of this Agreement; provided that, (i) such liability shall in no event
exceed the Final Purchase Price and (ii) no limitation or condition of liability
or indemnity shall apply to fraud.
Section 9.3 Buyer's Agreement to Indemnify.
(a) Buyer agrees to defend, indemnify and hold
Stockholder and its employees, members, affiliates, officers and directors (the
"Stockholder Indemnitees") harmless from and against any and all Losses arising
out of or resulting from (i) any breach of the representations and warranties
contained in Article 4 hereof and, solely to the extent it relates to the
foregoing, the certificate delivered pursuant to Section 8.1 of this Agreement,
(ii) any breach by Buyer of any covenant or agreement of Buyer contained in this
Agreement and (iii) the business conducted, including the Business, or actions
taken or omitted to be taken by Buyer or its affiliates after the Closing Date;
provided, that, in any event, the same does not constitute a breach of any of
the Company's or Stockholder's representations, warranties or covenants herein
and are not otherwise liabilities against which Stockholder has indemnified a
Buyer Indemnitee.
(b) Notwithstanding Section 9.3(a), (i) Buyer shall not
be liable, pursuant to Section 9.3(a)(i), for any Losses unless the aggregate of
all Losses covered by such section suffered by Stockholder exceeds, on a
cumulative basis, an amount equal to $3 million, and then only to the extent of
any such excess, (ii) the aggregate liability of Buyer hereunder pursuant to
Section 9.3(a)(i) and Section 9.4 for Losses suffered by Stockholder shall in no
event exceed $42,500,000 and (iii) Buyer shall not be liable to Stockholder for
its indirect, special, incidental, consequential or punitive damages which are
not reasonably foreseeable (other than damages paid to third parties) resulting
from breaches by Buyer of its representations, warranties or covenants
hereunder.
(c) Notwithstanding anything to the contrary in this
Agreement, the limitations on liability under Section 9.3(b) for Losses suffered
by a Stockholder Indemnitee shall not apply to the representations and
warranties set forth in Sections 4.1 ("Organization of Buyer") (in so far as it
relates to the due incorporation or organization of Buyer), 4.2(a) ("Authority")
and 4.6 ("Brokers or Finders") and, solely to the extent related to the
foregoing, the certificate delivered pursuant to Section 8.1 of this Agreement;
provided that, (i) such liability shall in no event exceed the Final Purchase
Price and (ii) no limitation or condition of liability or indemnity shall apply
to fraud.
Section 9.4 Cost Report Liability Indemnification.
Promptly (but in any event within 90 days) following the end of each calendar
year after the Closing Date, Buyer shall prepare and deliver to Stockholder a
report in reasonable detail of Cost Report Liabilities for cost reports closed
during such year (or, in the case of 2003, for the period from the Closing Date
to December 31, 2003). To the extent that such Cost Report Liabilities for cost
reports closed during such calendar year exceed the amount reserved for such
cost reports as current liabilities on the Closing Date Balance Sheet,
Stockholder will promptly pay to Buyer 90% of such excess. To the extent that
such Cost Report Liabilities for cost reports closed during such calendar year
are less than the amount reserved for such cost reports as current liabilities
on the Closing Date Balance Sheet, Buyer will promptly pay to Stockholder 90% of
such excess reserve. Buyer hereby agrees that it shall take any and all actions
consistent with actions customarily taken by
53
Buyer on its own behalf to minimize any and all Cost Report Liabilities and to
recover and have refunded any and all amounts payable to the Company or any
Company Subsidiary to the extent the Company or any Company Subsidiary was
underpaid with respect to any Medicare or Medicaid cost reports below Medicare
and Medicaid's reimbursement obligations in respect of such Medicare or Medicaid
cost report.
Section 9.5 75% Rule Reimbursement.
(a) Stockholder agrees to reimburse Buyer for (i) all
revenues from periods ending on or prior to the Closing Date that Buyer is
finally determined to be required, by the fiscal intermediary for the hospitals
of the Company and the Company Subsidiaries, to remit due solely to the failure
by the Company or any Company Subsidiary prior to the Closing to comply with 42
C.F.R. Section 412.23(b) (the "75% Rule") as applied by such fiscal intermediary
and (ii) all reasonable and documented out-of-pocket costs and expenses incurred
by the Company and the Company Subsidiaries in connection with resolving the
amount of such revenues to be remitted. In the event that Stockholder is
required to make any reimbursements to Buyer pursuant to this Section 9.5,
Stockholder shall have the same right to participate in the defense of and, if
it so chooses, to assume the defense of any dispute relating to such
reimbursement as the Indemnifying Party does pursuant to Section 9.8.
(b) In the event that the application of the 75% Rule
results in the remitting of revenues by the Company for the year ended December
31, 2003, (i) such revenues (and any and all related out-of-pocket costs and
expenses) relating to patients that were admitted on or after the Closing Date
shall in no event be subject to any reimbursement by Stockholder, (ii)
Stockholder shall, pursuant to Section 9.5(a) (but subject to Section
9.2(b)(ii)), reimburse Buyer for such revenues (and any reasonable and
documented out-of-pocket costs and expenses incurred by the Company and the
Company Subsidiaries in connection with resolving the amount of such revenues to
be remitted) relating to patients that were discharged on or prior to the
Closing Date and (iii) Stockholder shall, pursuant to Section 9.5(a) (but
subject to Section 9.2(b)(ii)), reimburse Buyer for that fraction of the
revenues (and any reasonable and documented out-of-pocket costs and expenses
incurred by the Company and the Company Subsidiaries in connection with
resolving the amount of such revenues to be remitted) related to each patient
admitted prior to the Closing Date and discharged after the Closing Date equal
to (A) the total number of days of such patient's stay that fell on or prior to
the Closing Date, over (B) the total number of days of such patient's stay.
(c) Buyer shall, and shall cause the Company and Company
Subsidiaries to, not take any position contrary to or not consistent with the
position Stockholder takes with respect to the Company's or any Company
Subsidiary's compliance with the 75% Rule during any period ending on or prior
to the Closing Date or any period a portion of which ends on or prior to the
Closing Date in any communication or dispute with any Governmental Agency,
fiscal intermediary, carrier or similar entity that enforces or administers the
statutory or regulatory provisions in respect of any governmental health care
program, so long as such position is a reasonable position (it being understood
that Buyer and Stockholder's position with respect to periods after Closing and
pre-Closing, respectively, may be different).
54
(d) Stockholder shall not take any position contrary to
or not consistent with the position Buyer takes with respect to the Company's or
any Company Subsidiary's compliance with the 75% Rule during any period
beginning on or after the Closing Date or any period a portion of which ends on
or after the Closing Date in any communication or dispute with any Governmental
Agency, fiscal intermediary, carrier or similar entity that enforces or
administers the statutory or regulatory provisions in respect of any
governmental health care program, so long as such position is a reasonable
position (it being understood that Buyer and Stockholder's position with respect
to periods after Closing and pre-Closing, respectively, may be different).
Section 9.6 Employee Benefits Liabilities
Indemnification. The parties agree that there shall be reflected on the Closing
Date Balance Sheet a reserve for incurred but not paid claims under the
Company's self insured dental and optical reimbursement plans and dependent care
reimbursement plan. The reserve for such items reflected on the Closing Date
Balance Sheet shall be referred to herein as the "Employee Benefits Reserve" and
such plans shall be referred to herein as the "Self Insured Plans." Within 45
days after the last day employees are entitled to submit claims under the Self
Insured Plans with respect to events that occurred prior to the Closing, Buyer
will send to Stockholder a calculation of the amount of such claims with respect
to events that occurred prior to the Closing that were paid or are payable after
the Closing Date and (a) if such amount is less than the amount of the Employee
Benefits Reserve, Buyer, within 5 days from the delivery of such calculation,
shall pay Stockholder the amount of such shortfall and (b) if such amount is
more than the amount of the Employee Benefits Reserve, Stockholder, within 5
days from the delivery of such calculation, shall pay Buyer the amount of such
overage.
Section 9.7 Workers' Compensation Insurance
Indemnifications. To the extent that the end-of-year audits for the Company's
two workers' compensation policies with New Jersey Manufacturers and Liberty
Mutual result in a premium call for the Company for 2003, Stockholder shall pay
to Buyer no later than 45 days following such end-of-year audits that amount of
cash that equals (a) such premium call, times (b) the number of days that have
elapsed from and including January 1, 2003 to the Closing Date, divided by (c)
365. To the extent that the end-of-year insurance company audits for the
Company's two workers' compensation policies with New Jersey Manufacturers and
Liberty Mutual result in a refund to the Company for 2003, Buyer shall pay to
Stockholder no later than 45 days following such end-of-year audits that amount
of cash that equals (a) such refund, times (b) the number of days that have
elapsed from and including January 1, 2003 to the Closing Date, divided by (c)
365.
Section 9.8 Third Party Claims. Promptly after the
receipt by Buyer Indemnitees or Stockholder Indemnitees of a notice of any
claim, action, suit or proceeding of any third party which is subject to
indemnification hereunder, such party (the "Indemnified Party") shall give
written notice of such claim to the party obligated to provide indemnification
hereunder (the "Indemnifying Party"), stating the nature and basis of such claim
and the amount thereof, to the extent known ("Asserted Liability"). Failure of
the Indemnified Party to give such notice shall not relieve the Indemnifying
Party from any liability which it may have on account of this indemnification or
otherwise, except to the extent that the Indemnifying Party is actually
prejudiced thereby. The Indemnifying Party shall be entitled to participate in
the defense of and, if it so chooses, to assume the defense of, or otherwise
contest, such claim, action, suit or
55
proceeding with counsel selected by the Indemnifying Party and reasonably
satisfactory to the Indemnified Party if (i) the claim involves solely monetary
damages and (ii) the Indemnifying Party expressly agrees in writing with the
Indemnified Party that, as between the two, the Indemnifying Party is solely
obligated to satisfy and discharge the claim; provided that, the Indemnifying
Party shall not, without the prior written consent of the Indemnified Party,
enter into any compromise or settlement that commits the Indemnified Party to
take, or to forbear to take, any action or which does not provide for a complete
release by such third party of the Indemnified Party. If the Indemnifying Party
elects to defend such Asserted Liability, it shall within 30 days notify the
Indemnified Party of its intent to do so. Upon the election by the Indemnifying
Party to assume the defense of, or otherwise contest, such claim, action, suit
or proceeding, the Indemnifying Party shall not be liable for any legal or other
expenses subsequently incurred by the Indemnified Party in connection with the
defense thereof, although the Indemnified Party shall have the right to
participate in the defense thereof and to employ counsel, at its own expense.
Notwithstanding the foregoing, the Indemnifying Party shall be liable for the
reasonable fees and expenses of counsel employed by the Indemnified Party, if
and only to the extent that (i) the Indemnifying Party has not employed counsel
to assume the defense of such action within a reasonable time after receiving
notice of the commencement of the action, (ii) the employment of counsel and the
amount reimbursable therefor by the Indemnified Party has been authorized in
writing by the Indemnifying Party or (iii) representation of the Indemnifying
Party and the Indemnified Party by the same counsel would, in the reasonable
opinion of such counsel, constitute a conflict of interest. The parties shall
use commercially reasonable efforts to minimize Losses from claims by third
parties and shall act in good faith in responding to, defending against,
settling or otherwise dealing with such claims, notwithstanding any dispute as
to liability as between the parties under this Article 9. The parties shall also
reasonably cooperate in any such defense, give each other reasonable access to
all information relevant thereto and use commercially reasonable efforts to make
employees and other representatives available on a mutually convenient basis to
provide additional information and explanation of any material provided in
connection therewith. In addition, in the case of claims relating to
environmental matters, Stockholder shall be given reasonable access to the
relevant sites and shall have the right to attend all material meetings with
Governmental Agencies or other third parties responsible for the claim or any
related remedial action. Whether or not the Indemnifying Party shall have
assumed the defense, the Indemnifying Party shall not be obligated to indemnify
the other party hereunder for any settlement entered into without the
Indemnifying Party's prior written consent, which consent shall not be
unreasonably withheld or delayed.
Section 9.9 Indemnification Amounts. Subject to the
limitations set forth in Section 9.2(b) and Section 9.3(b), the amount of any
Losses for which indemnification is provided under this Article 9 shall be
increased or decreased to take account of any net tax detriment or benefit,
respectively, actually realized arising from such Losses or the receipt of such
indemnification payment. If any Indemnified Party (or its affiliated entities)
shall have received any payment pursuant to this Article 9 with respect to any
Losses and subsequently receives insurance proceeds or other amounts or actually
realizes a tax benefit with respect to such Losses, then such Indemnified Party
(or its affiliated entities) shall promptly pay to the Indemnifying Party the
amount so recovered (after deducting the amount of the expenses incurred by it
in procuring such recovery), but not in excess of the amount previously so paid
by the Indemnifying Party. The Indemnified Party shall be obligated to use all
commercially
56
reasonable efforts to pursue in good faith (i) claims under any applicable
insurance policies (including, without limitation, any applicable insurance
policies maintained by the Company) and against other third parties who may be
responsible for Losses and (ii) tax benefits arising from Losses for which
indemnification is provided under this Article 9. For all Tax purposes,
Stockholder and Buyer agree to treat any indemnity payment under this Agreement
as an adjustment to the Final Purchase Price, unless a final determination
requires otherwise.
Section 9.10 Indemnification Period. Notwithstanding
anything to the contrary, the indemnification obligations of Stockholder and
Buyer (a) for representations and warranties shall continue for the applicable
survival period set forth in Section 9.1 (other than to the extent such
representations and warranties relate to Medicare and Medicaid cost reports,
which are addressed in subclause "(c)" herein), (b) for any covenant (other than
Section 9.4) shall continue indefinitely unless expressly set forth in such
covenant and (c) pursuant to Section 9.4 shall continue for a two year period
following the Closing Date in the case of Medicare and Medicaid cost reports for
which a Notice of Program Reimbursement has been received on or prior to the
Closing Date and for a two year period following the receipt of a Notice of
Program Reimbursement with respect to any Medicare or Medicaid cost report for
which a Notice of Program Reimbursement has not been received on or prior to the
Closing Date (except, in each case, for circumstances that are determined by a
court of competent jurisdiction in a judgment that has become final to have
resulted from fraud, in which case the survival is indefinite); provided,
however, that any claim for indemnification in respect of which notice is given
in accordance with the provisions of Section 9.8 hereof prior to the termination
of any such period shall survive with respect to such claim until final
resolution thereof.
Section 9.11 Exclusive Remedies. The sole and exclusive
remedy of a party to this Agreement for monetary damages for any claim arising
under this Agreement against another party hereto shall be the indemnification
provided in this Article 9, and each party agrees that it will not pursue any
other remedy, except that any such party may seek specific performance or
injunctive relief.
Section 9.12 Miscellaneous.
(a) Solely for purposes of calculating the amount of
Losses for the purposes of this Article 9 arising out of or relating to any
breach of a representation or warranty, the references to "Material Adverse
Effect" or other materiality qualifications contained in the representations and
warranties and the certificates delivered pursuant to Sections 7.1 and 8.1 of
this Agreement shall be disregarded (except for any breach of any representation
or warranty contained in Section 3.9 and, solely to the extent it relates to
Section 3.9, the certificate delivered pursuant to Section 7.1 of this Agreement
and except when used for purposes of determining items to be listed on the
Schedules pursuant to Sections 3.11(a)(x), 3.11(a)(xiv) and 3.17(a)(i)(A) of
this Agreement).
(b) 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 to Section 7.1 or Section 8.1 of this
Agreement by the other party at any time, or the decision of any party to
complete the Closing.
57
ARTICLE 10. TERMINATION.
Section 10.1 Termination. This Agreement may be
terminated at any time prior to the Closing Date as follows, and in no other
manner:
(a) by mutual consent of Buyer and Stockholder;
(b) by Buyer if any of the conditions set forth in
Article 6 or Article 7 shall have become incapable of fulfillment, and shall not
have been waived by Buyer;
(c) by Stockholder if any of the conditions set forth in
Article 6 or Article 8 shall have become incapable of fulfillment, and shall not
have been waived by Stockholder; or
(d) by either Buyer or Stockholder if the Closing has not
occurred within 150 days of this Agreement; provided, however, that neither
party may terminate this Agreement pursuant to this subsection (d) if the
Closing has not occurred by such date, by reason of the failure of such party to
perform in all material respects any of its obligations under this Agreement.
Section 10.2 Liability of Buyer and Stockholder. Upon
termination pursuant Section 10.1(b) or Section 10.1(c) hereof due to an
unintentional misrepresentation or unintentional breach of warranty or covenant
or an unintentional default of a party, the sole remedy shall be that the party
at fault reimburse the other parties for all legal, investment banking,
accounting, and other out-of-pocket expenses reasonably incurred by it in
connection with this Agreement and the transactions contemplated hereby. Upon
any termination pursuant to Section 10.1(a) or Section 10.1(d) hereof, no party
shall have any liability or obligation under this Agreement (except to observe
the confidentiality obligations of such party), and each party shall bear the
expenses incurred by it.
ARTICLE 11. MISCELLANEOUS.
Section 11.1 Notices.
(a) Except for notices pursuant to Section 5.1, all
notices, requests, demands and other communications hereunder shall be in
writing (including telecopy or similar writing) and shall be given,
If to Buyer:
Select Medical Corporation
0000 Xxx Xxxxxxxxxx Xxxx
Xxxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: General Counsel
Facsimile: (000) 000-0000
with a copy to:
Dechert LLP
58
0000 Xxxx Xxxxxxxx Tower
0000 Xxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
If to Stockholder:
Xxxxx X. Xxxxxxx Foundation, Inc.
0000 Xxxxxxxx Xxxxxx Xxx
Xxxx Xxxxxx, Xxx Xxxxxx 00000
Attention: President
Facsimile: (000) 000-0000
With a copy to:
Xxxxx Xxxxxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
and
Xxxxxxx Xxxxxxx & Xxxxxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxxxxx
Facsimile: (000) 000-0000
If to Company:
Xxxxxxx Rehabilitation Corporation
000 Xxxxxxxxx Xxxxx
Xxxx Xxxxxx, Xxx Xxxxxx 00000
Attention: Chief Executive Officer
Facsimile: (000) 000-0000
With a copy to:
Xxxxx X. Xxxxxxx Foundation, Inc.
0000 Xxxxxxxx Xxxxxx Xxx
Xxxx Xxxxxx, Xxx Xxxxxx 00000
59
Attention: President
Facsimile: (000) 000-0000
and
Xxxxx Xxxxxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
and
Xxxxxxx Xxxxxxx & Xxxxxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxxxxx
Facsimile: (000) 000-0000
or to such other address or telecopy number and with such other copies as such
party may hereafter specify for the purpose of notice to the other party. Each
such notice, request, demand or other communication shall be effective (i) if
given by telecopy, when such telecopy is transmitted to the telecopy number
specified in this Section and evidence of receipt is received or (ii) if given
by any other means, upon delivery or refusal of delivery at the address
specified in this Section.
(b) All notices pursuant to Section 5.1 shall be in
writing (including telecopy or similar writing) and shall be given,
If to Buyer:
Select Medical Corporation
0000 Xxx Xxxxxxxxxx Xxxx
Xxxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxx Xxxxx
Facsimile: (000) 000-0000
with a copy to:
Dechert LLP
0000 Xxxx Xxxxxxxx Tower
0000 Xxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
60
If to Stockholder:
Xxxxx X. Xxxxxxx Foundation, Inc.
0000 Xxxxxxxx Xxxxxx Xxx
Xxxx Xxxxxx, Xxx Xxxxxx 00000
Attention: President
Facsimile: (000) 000-0000
With a copy to:
Xxxxx Xxxxxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
and
Xxxxxxx Xxxxxxx & Xxxxxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxxxxx
Facsimile: (000) 000-0000
If to Company:
Xxxxxxx Rehabilitation Corporation
000 Xxxxxxxxx Xxxxx
Xxxx Xxxxxx, Xxx Xxxxxx 00000
Attention: Chief Executive Officer
Facsimile: (000) 000-0000
With a copy to:
Xxxxx X. Xxxxxxx Foundation, Inc.
0000 Xxxxxxxx Xxxxxx Xxx
Xxxx Xxxxxx, Xxx Xxxxxx 00000
Attention: President
Facsimile: (000) 000-0000
and
Xxxxx Xxxxxxxxxx LLP
1301 Avenue of the Americas
00
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
and
Xxxxxxx Xxxxxxx & Xxxxxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxxxxx
Facsimile: (000) 000-0000.
Each such notice shall be effective (i) if given by telecopy, when such telecopy
is transmitted to the telecopy number specified in this Section and evidence of
receipt is received or (ii) if given by any other means, upon delivery or
refusal of delivery at the address specified in this Section.
Section 11.2 Assignability; Parties in Interest. This
Agreement shall not be assignable by any of the parties hereto, except that this
Agreement shall be assignable in whole or in part by Buyer to any Subsidiary of
Buyer, provided that no such assignment shall relieve the assignor of its
obligations hereunder. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. Except as specifically provided in Article 9 hereof, this Agreement is
for the sole and exclusive benefit of the parties to this Agreement and their
successors and assigns and nothing in this Agreement is intended to confer,
expressly or by implication, upon any other person any legal or equitable
rights, remedies or claims under or by reason of this Agreement.
Section 11.3 Governing Law. This Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of New York.
Section 11.4 Counterparts. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Agreement shall become effective when each party shall
have received a counterpart signed by the other party.
Section 11.5 Publicity. Stockholder and Buyer agree that
press releases and other announcements (including to employees of, and any
entities or persons having business dealings with, the Company and/or Company
Subsidiaries) with respect to the transactions contemplated hereby shall be
subject to mutual agreement; provided, however, that either party may make such
announcements as, on the advice of its counsel, such party is required to make
pursuant to applicable law or the requirements of a stock exchange or other
applicable self-regulatory organization, but in such event such party shall, to
the extent practicable, give the other party reasonable prior notice and an
opportunity to comment on the proposed announcement. Notwithstanding anything to
the contrary herein, immediately after the execution of this Agreement, the
Company shall deliver to the employees of the Company and the Company
Subsidiaries a notice regarding employee benefits in the form attached hereto as
Exhibit I.
62
Section 11.6 Complete Agreement. This Agreement, the
exhibits hereto and the schedules and documents delivered pursuant hereto or
referred to herein contain the entire agreement between the parties hereto with
respect to the transactions contemplated herein and supersede all previous
negotiations, commitments and writings.
Section 11.7 Amendments and Waivers. Stockholder and
Buyer may (a) extend the time for the performance of any of the obligations or
other acts of the parties hereto, (b) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any or
documents delivered pursuant hereto, (c) waive compliance with any of the
covenants or agreements contained in this Agreement or (d) amend this Agreement,
if and only, in the case of an extension or amendment, if such action is set
forth in a written agreement signed by both parties, or, in the case of a
waiver, if such waiver is signed by the party against whom the waiver is to be
effective.
Section 11.8 Expenses. Except as specifically provided in
this Agreement, Buyer, on the one hand, and Stockholder (on behalf of the
Company, the Company Subsidiaries and Stockholder), on the other hand, shall
bear the expenses incurred by it (and in the case of Stockholder, the expenses
incurred by the Company and the Company Subsidiaries) in connection with the
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, Stockholder and Buyer shall each be responsible for 50% of all
filing fees incurred in connection with any filing made pursuant to the HSR Act.
Section 11.9 Interpretation. The headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
Section 11.10 Severability. Any portion or provision of
the Agreement which is invalid, illegal or unenforceable in any jurisdiction
shall, as to that jurisdiction, be ineffective to the extent of such invalidity,
illegality or unenforceability, without affecting in any way the remaining
portions or provisions hereof in such jurisdiction or, to the extent permitted
by law, rendering that or any other portion or provision of the Agreement
invalid, illegal or unenforceable in any other jurisdiction.
Section 11.11 Further Assurances. Each party hereto
agrees, to the extent reasonable, to execute any and all documents and to
perform such other acts as may be necessary or expedient to further the purposes
of this Agreement and the transactions contemplated hereby.
Section 11.12 Schedules. The headings contained in the
Schedules are for convenience of reference only and shall not be deemed to
modify or influence the interpretation of this Agreement or the information
contained in the Schedules. Any matter set forth on any Schedule shall be deemed
to be set forth on any other Schedule to which such matter may be responsive or
which may require such matter to be disclosed, so long as the relevance of such
matter to such other Schedule is reasonably apparent. Certain matters set forth
in the Schedules are included for informational purposes only, notwithstanding
the fact that, because they do not rise above applicable materiality thresholds
or otherwise, they would not be required to be set forth herein by the terms of
this Agreement. Disclosure of such matters shall not be taken as an admission by
Stockholder, the Company or Buyer that such disclosure is required to be made
63
under the terms of any provision of this Agreement or is outside the ordinary
course of business, and in no event shall the disclosure of such matters be
deemed or interpreted to broaden or otherwise amend the representations,
warranties and covenants contained in the Agreement. For purposes of Section
5.23, the term "reasonable efforts" shall include the actions set forth on
Schedule 11.12.
Section 11.13 Tax Disclosure. Notwithstanding anything to
the contrary set forth herein or in any other agreement to which the parties
hereto are parties or by which they are bound, the obligations of
confidentiality contained herein, as they relate to the transactions
contemplated hereby, shall not apply to the federal tax structure or federal tax
treatment of the transactions contemplated hereby, and each party hereto (and
any employee, representative, or agent of any party hereto) may disclose to any
and all persons, without limitation of any kind, the federal tax structure and
federal tax treatment of the transactions contemplated hereby. The preceding
sentence is intended to cause the transactions contemplated hereby not to be
treated as having been offered under conditions of confidentiality for purposes
of Section 1.6011-4(b)(3) (or any successor provision) of the Treasury
Regulations promulgated under Section 6011 of the Code, as amended, and shall be
construed in a manner consistent with such purpose.
[Signatures follow on page S-1]
64
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective duly authorized officers as of the
date first above written.
XXXXXXX REHABILITATION CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxxxx
----------------------------------------
Name: Xxxxxxx X. Xxxxxxxxx
Title: President and CEO
XXXXX X. XXXXXXX FOUNDATION, INC.
By: /s/ Xxxxxx XxXxxxxxxx Xxxxxxx
----------------------------------------
Name: Xxxxxx XxXxxxxxxx Xxxxxxx
Title: President
SELECT MEDICAL CORPORATION
By: /s/ Xxxxx X. Xxxxxxxx
----------------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: Executive Chairman
S-1