EXHIBIT 2.1
Execution Copy
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
SELECT MEDICAL CORPORATION
CAMP HILL ACQUISITION CORP.
SEMPERCARE, INC.
AND
XXXXXXX X. XXXXXXXXX, AS STOCKHOLDERS' AGENT
DATED AS OF NOVEMBER 19, 2004
TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS......................................................... 2
ARTICLE II DESCRIPTION OF TRANSACTION.......................................... 8
2.1. Merger of Merger Sub into the Company............................... 8
2.2. Effect of the Merger................................................ 8
2.3. Closing; Effective Time............................................. 8
2.4. Certificate of Incorporation and Bylaws; Directors and Officers..... 8
2.5. Conversion of Shares................................................ 9
2.6. Net Working Capital Adjustment...................................... 10
2.7. Employee Stock Options.............................................. 12
2.8. Closing of the Company's Transfer Books............................. 13
2.9. Exchange of Certificates; Escrow.................................... 13
2.10. Dissenting Shares................................................... 15
2.11. Further Action...................................................... 15
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................... 15
3.1. Organization of the Company......................................... 15
3.2. Authority........................................................... 16
3.3. Capitalization...................................................... 17
3.4. Subsidiaries........................................................ 17
3.5. Capitalization of the Company Subsidiaries.......................... 18
3.6. Financial Statements................................................ 19
3.7. Undisclosed Liabilities............................................. 19
3.8. Accounts Receivable................................................. 20
3.9. Absence of Certain Changes or Events................................ 20
3.10. Real Property; Title to Assets...................................... 21
3.11. Material Contracts.................................................. 22
3.12. Intellectual Property............................................... 24
3.13. Litigation.......................................................... 25
3.14. Environmental Laws.................................................. 25
3.15. Employee Benefit Plans.............................................. 26
3.16. Compensation........................................................ 28
3.17. Taxes............................................................... 29
3.18. Insurance........................................................... 30
3.19. Labor Relations and Employment...................................... 31
3.20. Medicare Participation/Accreditation................................ 31
3.21. Cost Reports and Other Filings...................................... 32
3.22. Exclusion........................................................... 33
3.23. Billing............................................................. 33
3.24. Reimbursement Matters............................................... 33
3.25. No Criminal Proceedings............................................. 34
3.26. Licenses............................................................ 34
3.27. Long Term Hospital Certification.................................... 35
3.28. Compliance with Laws................................................ 36
3.29. Census and Payor Mix Reports........................................ 38
3.30. Xxxx-Xxxxxx......................................................... 38
3.31. Transactions With Affiliates........................................ 38
3.32. Bank Accounts....................................................... 38
3.33. Brokers or Finders.................................................. 38
3.34. Votes Required...................................................... 38
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB.......................................................... 39
4.1. Organization of Parent and Merger Sub............................... 39
4.2. Authority........................................................... 39
4.3. Litigation.......................................................... 40
4.4. Brokers or Finders.................................................. 40
4.5. Funding of Merger Consideration..................................... 40
4.6. Surviving Corporation After the Merger.............................. 40
ARTICLE V CERTAIN COVENANTS OF THE PARTIES.................................... 40
5.1. Access and Investigation............................................ 40
5.2. Conduct of Business................................................. 41
5.3. Notification........................................................ 43
5.4. No Negotiation...................................................... 44
5.5. Other Information and Events........................................ 44
5.6. Tax Return Filing................................................... 44
5.7. Regulatory Approvals................................................ 45
5.8. Public Announcements................................................ 45
5.9. Satisfaction of Conditions.......................................... 45
5.10. Indemnification of Officers and Directors........................... 46
5.11. Investigation by Parent and Merger Sub; No Other Representations
or Warranties....................................................... 46
5.12. FIRPTA Matters...................................................... 47
5.13. Indebtedness and Transaction Expenses............................... 47
5.14. Adoption of Merger Agreement........................................ 47
5.15. Preferred Stock..................................................... 48
5.16. Cooperation Regarding Licenses...................................... 48
5.17. Termination of Other Agreements..................................... 48
5.18. Credit Agreement Consent............................................ 48
ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH PARTY................... 48
6.1. No Restraints....................................................... 48
6.2. Xxxx-Xxxxx-Xxxxxx Requirements...................................... 48
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ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB........ 49
7.1. Representations and Warranties...................................... 49
7.2. Performance of the Company.......................................... 49
7.3. Material Adverse Effect............................................. 49
7.4. Secretary's Certificate............................................. 49
7.5. Good Standing Certificate........................................... 50
7.6. Organizational Documents............................................ 50
7.7. Legal Opinion....................................................... 50
7.8. Consents............................................................ 50
7.9. Licenses............................................................ 50
7.10. Credit Agreement Consent............................................ 50
7.11. Escrow Agreement.................................................... 51
7.12. Employment Agreements............................................... 51
7.13. Non-Solicitation and Confidentiality Agreements..................... 51
7.14. Other Certificates.................................................. 51
7.15. Resignations........................................................ 51
7.16. FIRPTA Compliance................................................... 51
7.17. Termination of Other Agreements..................................... 51
7.18. No Legal Proceedings................................................ 51
ARTICLE VIII CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY.................. 51
8.1. Representations and Warranties...................................... 51
8.2. Performance by Parent and Merger Sub................................ 52
8.3. Material Beneficial Change.......................................... 52
8.4. Secretary's Certificates............................................ 52
8.5. Escrow Agreement.................................................... 52
8.6. Legal Opinion....................................................... 52
8.7. Other Certificates.................................................. 52
8.8. No Legal Proceedings................................................ 52
ARTICLE IX TERMINATION......................................................... 53
9.1. Termination......................................................... 53
9.2. Procedures and Effect of Termination................................ 53
9.3. Return of Documentation............................................. 53
9.4. Non-Disparagement................................................... 54
ARTICLE X INDEMNIFICATION, ETC................................................ 54
10.1. Survival of Representations, Etc.................................... 54
10.2. Indemnification by the Stockholders................................. 55
10.3. Indemnification by Parent........................................... 57
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10.4. No Contribution..................................................... 57
10.5. Offset.............................................................. 57
10.6. Demands............................................................. 58
10.7. Right to Contest and Defend......................................... 58
10.8. Cooperation......................................................... 59
10.9. Limitations on Indemnification Obligations; Sole Recourse........... 59
10.10. Miscellaneous....................................................... 60
ARTICLE XI MISCELLANEOUS PROVISIONS............................................ 60
11.1. Schedules........................................................... 60
11.2. Further Assurances.................................................. 61
11.3. Fees and Expenses................................................... 61
11.4. Attorneys' Fees..................................................... 61
11.5. Notices............................................................. 61
11.6. Confidentiality..................................................... 63
11.7. Time of the Essence................................................. 63
11.8. Headings............................................................ 63
11.9. Counterparts........................................................ 63
11.10. Governing Law; Consent to Jurisdiction.............................. 63
11.11. Successors and Assigns.............................................. 64
11.12. Remedies Cumulative; Specific Performance........................... 64
11.13. Waiver.............................................................. 64
11.14. Waiver of Jury Trial................................................ 64
11.15. Amendments.......................................................... 65
11.16. Severability........................................................ 65
11.17. Parties in Interest................................................. 65
11.18. Entire Agreement.................................................... 65
11.19. Construction........................................................ 65
ARTICLE XII THE STOCKHOLDERS' AGENT............................................. 66
12.1. Authorization of the Stockholders' Agent............................ 66
12.2. Compensation; Exculpation; Indemnity................................ 67
EXHIBITS
Exhibit A Form of Employment Agreement
Exhibit B Principal Stockholders
Exhibit C Form of Non-Solicitation and Confidentiality Agreement
Exhibit D Form of Stockholder Written Consent
Exhibit E-1 Company Persons with Knowledge
Exhibit E-2 Parent Persons with Knowledge
Exhibit F Form of Option Note
Exhibit G Form of Letter of Transmittal
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Exhibit H Form of Escrow Agreement
Exhibit I Form of Charter Amendment
Exhibit J Opinion of Xxxxxx & Xxxxxx L.L.P.
Exhibit K Opinion of Dechert LLP
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DEFINED TERMS
Page
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ACMs...................................................................... 26
Acquisition Transaction................................................... 2
Actual Net Working Capital................................................ 9
Affiliate................................................................. 3
Agreement................................................................. 3
Balance Sheet............................................................. 20
Balance Sheet Date........................................................ 20
Basket Amount............................................................. 57
Business.................................................................. 3
Cash Merger Consideration................................................. 9
Charter Amendment......................................................... 16
Charter Documents......................................................... 46
Closing................................................................... 8
Closing Date.............................................................. 8
Closing Date Balance Sheet................................................ 10
Closing Date Cash Amount.................................................. 10
CMS....................................................................... 5
Code...................................................................... 3
Common Stock.............................................................. 1
Company................................................................... 1
Company Charter Documents................................................. 16
Company Pre-Closing Returns............................................... 45
Company Stock............................................................. 1
Company Stock Certificate................................................. 13
Company Stock Plan........................................................ 12
Company Subsidiaries...................................................... 17
Company Subsidiary........................................................ 17
Company Subsidiary Shares................................................. 19
Confidentiality Agreement................................................. 41
Contracts................................................................. 23
Credit Agreement Consent.................................................. 51
Damages................................................................... 3
Development Projects...................................................... 20
DGCL...................................................................... 8
DGCL Appraisal Procedures................................................. 15
Disputed Amounts.......................................................... 11
Dissenting Shares......................................................... 15
DOL....................................................................... 27
Drop Dead Date............................................................ 54
Eagle Merger Agreement.................................................... 5
Effective Time............................................................ 8
Employee Plans............................................................ 27
Employment Agreement...................................................... 1
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Encumbrance............................................................... 3
Entity.................................................................... 3
Environmental Law......................................................... 3
Environmental Permits..................................................... 26
ERISA..................................................................... 3
ERISA Affiliate........................................................... 27
Escrow Agent.............................................................. 14
Escrow Agreement.......................................................... 14
Estimated Closing Balance Sheet........................................... 10
Estimated Net Working Capital............................................. 10
Facility.................................................................. 32
Filings................................................................... 32
Financial Statements...................................................... 19
Founders.................................................................. 1
GAAP...................................................................... 3
Governmental Body......................................................... 3
Hazardous Substances...................................................... 26
Health Care Program....................................................... 38
Xxxx-Xxxxxx Act........................................................... 38
Holder.................................................................... 12
HSR Act................................................................... 49
Indebtedness.............................................................. 4
Indemnitees............................................................... 4
Indemnitors............................................................... 4
Indemnity Escrow Amount................................................... 14
Indemnity Escrow Funds.................................................... 15
Independent Accounting Firm............................................... 4
Information Statement..................................................... 2
Intellectual Property..................................................... 24
Investor Rights Agreement................................................. 49
IRS....................................................................... 27
Knowledge................................................................. 4
Leased Real Property...................................................... 22
Legal Proceeding.......................................................... 4
Legal Requirement......................................................... 5
Letter of Transmittal..................................................... 14
Licenses.................................................................. 5
Litigation Conditions..................................................... 59
Little Rock Lease......................................................... 5
Management................................................................ 26
Material Adverse Effect................................................... 5
Merger.................................................................... 1
Merger Consideration...................................................... 6
Merger Consideration Escrow Amount........................................ 14
Merger Consideration Escrow Funds......................................... 12
Merger Stockholder........................................................ 6
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Merger Sub................................................................ 1
Net Working Capital....................................................... 6
Non-Solicitation and Confidentiality Agreement............................ 1
Option.................................................................... 12
Option Note............................................................... 12
Option Withholding Amount................................................. 13
Outstanding Shares........................................................ 10
Parent.................................................................... 1
Parent Estimate........................................................... 10
Parent Expiration Date.................................................... 55
Parent Indemnitees........................................................ 6
Parent Net Working Capital Calculation.................................... 10
Payment................................................................... 38
Per Share Merger Consideration............................................ 9
Permitted Liens........................................................... 6
Person.................................................................... 7
Post-Closing Decrease Amount.............................................. 12
Post-Closing Increase Amount.............................................. 12
Pre-Closing Period........................................................ 41
Preferred Stock........................................................... 1
Prior Option Note......................................................... 13
Pro Rata Share............................................................ 7
Professional Employee..................................................... 35
Release................................................................... 26
Released.................................................................. 26
Representatives........................................................... 7
Requisite Stockholder Approvals........................................... 2
Series A Preferred........................................................ 1
Series A Voting Agreement................................................. 49
Series B Preferred........................................................ 1
Series C Preferred........................................................ 1
Series D Preferred........................................................ 1
Specified Sections........................................................ 49
Xxxxx Act................................................................. 37
State Health Care Program................................................. 38
Stockholder Expiration Date............................................... 55
Stockholder Indemnitees................................................... 7
Stockholder Written Consent............................................... 2
Stockholders.............................................................. 7
Stockholders' Agent....................................................... 66
Sub Common Stock.......................................................... 9
Subsidiary................................................................ 7
Surviving Corporation..................................................... 8
Tail Policy............................................................... 46
Target Net Working Capital................................................ 9
Tax....................................................................... 8
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Tax Return................................................................ 8
Third Party Claim......................................................... 59
Transaction Fees and Expenses............................................. 62
WARN Act.................................................................. 31
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AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
This Agreement and Plan of Merger and Reorganization is made and entered
into as of November 19, 2004, by and among Select Medical Corporation, a
Delaware corporation ("Parent"), Camp Hill Acquisition Corp., a Delaware
corporation ("Merger Sub"), SemperCare, Inc., a Delaware corporation (the
"Company"), and Xxxxxxx X. Xxxxxxxxx, as Stockholders' Agent (as defined below).
Certain other capitalized terms used in this Agreement are defined in Article I.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger of Merger
Sub with and into the Company in accordance with this Agreement and the Delaware
General Corporation Law (the "Merger"). Upon consummation of the Merger, Merger
Sub will cease to exist, and the Company will continue as a wholly-owned
subsidiary of Parent.
B. This Agreement has been approved by the respective boards of directors
of Parent, Merger Sub and the Company.
C. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's and Merger Sub's willingness to enter into this
Agreement, each of Xxxxxx X. Xxxxxx and Xxxx X. Xxxxx (the "Founders") have
entered into an Employment Agreement with the Company in the form attached
hereto as Exhibit A (each an "Employment Agreement"), the effectiveness of which
agreement is expressly conditioned upon the consummation of the Merger.
D. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's and Merger Sub's willingness to enter into this
Agreement, each of the Persons listed on Exhibit B have entered into a
Non-Solicitation and Confidentiality Agreement with Parent and the Company in
the form attached hereto as Exhibit C (each a "Non-Solicitation and
Confidentiality Agreement"), the effectiveness of which agreement is expressly
conditioned upon the consummation of the Merger.
E. The Company's authorized capital stock consists of Common Stock, par
value $0.001 per share (the "Common Stock"), Series A Preferred Stock, par value
$0.001 per share (the "Series A Preferred"), Series B Preferred Stock, par value
$0.001 per share (the "Series B Preferred"), Series C Preferred Stock, par value
$0.001 per share (the "Series C Preferred"), and Series D Preferred Stock, par
value $0.001 per share (the "Series D Preferred" and together with the Series A
Preferred, Series B Preferred and Series C Preferred, the "Preferred Stock").
The Common Stock and the Preferred Stock are sometimes collectively referred to
herein as the "Company Stock." The Preferred Stock will be converted into Common
Stock in accordance with the Company Charter Documents (as defined in Section
3.1(b)) and pursuant to the Charter Amendment (as defined in Section 3.1(c))
effective immediately prior to the Effective Time.
F. Immediately following the execution and delivery of this Agreement by
the Company, the Company shall obtain the approval of this Agreement and the
Charter Amendment
pursuant to a written consent of Stockholders, in the form attached hereto as
Exhibit D (the "Stockholder Written Consent"), signed by Stockholders who
constitute at least (i) a majority of the votes represented by all outstanding
shares of Common Stock, Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred, voting together as a single class, (ii) a
majority of the votes represented by all outstanding shares of Series A
Preferred, (iii) 60% of the votes represented by all outstanding shares of
Series B Preferred, (iv) 66% of the votes represented by all outstanding shares
of Series C Preferred and (v) 66% of the votes represented by all outstanding
shares of Series D Preferred (collectively, the "Requisite Stockholder
Approvals"), pursuant to and in accordance with the applicable provisions of the
DGCL (as defined in Section 2.2) and the Company Charter Documents. Prior to
executing the Stockholder Written Consent, each signatory thereto shall have
received from the Company an information statement including information
regarding the Company, the terms of the Merger and this Agreement and the
unanimous recommendation of the board of directors of the Company in favor of
approval of this Agreement and the Charter Amendment (the "Information
Statement").
The parties to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement and the Exhibits, Schedules and documents
delivered pursuant to this Agreement, the following terms shall have the
following meanings:
"Acquisition Transaction" shall mean any transaction involving:
(a) the sale, license or disposition by the Company or the
acquisition by any Person (other than Parent or Merger Sub) of all or a material
portion of any of the Company's business or assets;
(b) the issuance or disposition by the Company or acquisition by any
Person (other than Parent or Merger Sub) of (i) any capital stock or other
equity security of the Company (other than Common Stock issued to employees of
the Company upon exercise of Options and other than Common Stock issued to
stockholders of the Company upon the conversion of Preferred Stock), (ii) any
option, call, warrant or right (whether or not immediately exercisable) to
acquire any capital stock or other equity security of any of the Company (other
than stock options granted to directors, officers, employees or consultants of
the Company in accordance with the Company's past practices) or (iii) any
security, instrument or obligation that is or may become convertible into or
exchangeable for any capital stock or other equity security of the Company
(other than stock options granted to directors, officers, employees or
consultants of the Company in accordance with the Company's past practices); or
(c) any merger, consolidation, business combination, reorganization
or similar transaction involving the Company, other than the Merger or the
Charter Amendment.
"Affiliate" shall mean, with respect to any Person, any Person directly or
indirectly controlling, controlled by or under common control with such Person.
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"Agreement" shall mean this Agreement and Plan of Merger and
Reorganization, including the Exhibits and the Schedules attached hereto, as it
may be amended from time to time.
"Business" shall mean the business of the Company and Company Subsidiaries
as currently conducted.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Damages" shall include any loss, damage, injury, liability, claim,
demand, settlement, judgment, award, fine, penalty, cost or expense (including
reasonable attorneys' fees).
"Encumbrance" shall mean any lien, pledge, hypothecation, charge,
mortgage, security interest, encumbrance, claim, infringement, option, right of
first refusal, preemptive right, community property interest or restriction
(including any restriction on the voting of any security, any restriction on the
transfer of any security or other asset, any restriction on the receipt of any
income derived from any asset, any restriction on the use of any asset and any
restriction on the possession, exercise or transfer of any other attribute of
ownership of any asset).
"Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
"Environmental Law" shall mean any federal, state or local Legal
Requirement relating to pollution or protection of human health or the
environment (including ambient air, surface water, ground water, land surface or
subsurface strata), including any law or regulation relating to emissions,
discharges, Releases or threatened Releases of Hazardous Substances or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Substances.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"GAAP" shall mean United States generally accepted accounting principles
consistently applied.
"Governmental Body" shall mean any (a) nation, state, commonwealth,
province, territory, county, municipality, district or other jurisdiction of any
nature, (b) federal, state, local, municipal, foreign or other government or (c)
governmental or quasi-governmental authority of any nature (including any
governmental division, department, agency, commission, instrumentality, official
organization, unit, body or Entity and any court or other tribunal).
"Indebtedness" shall mean, without duplication and excluding accounts and
other obligations owed by the Company to any wholly owned Company Subsidiary or
owed by a wholly owned Company Subsidiary to the Company and/or one or more
wholly owned Company Subsidiaries, (a) all obligations of the Company and the
Company Subsidiaries for borrowed
3
money and any accrued interest, prepayment premiums or penalties related
thereto; (b) all obligations under interest rate and currency hedging
agreements, including swap breakage or associated fees; (c) 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 trade account
payables in the ordinary course of business; (d) all obligations evidenced by
notes, bonds, debentures, or other similar instruments; (e) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to acquired property; (f) all reimbursement obligations, contingent
or otherwise, under a drawn acceptance, letter of credit or a similar facility;
(g) all deferred compensation obligations; (h) all other long-term liabilities;
and (i) all guarantees of any of the foregoing; provided, however, that
Indebtedness shall not include any lease obligations, whether or not
characterized as a capital lease, or (y) any retention bonuses, success fees or
similar officer or employee retention payments put in place after the date
hereof at the written request of Parent and any severance obligations owed to an
officer or employee of the Company or any Company Subsidiary (including the
Founders pursuant to the Employment Agreements) as a result of the termination
of employment or reduction of salary or duties of such officer or employee by
Parent, the Surviving Corporation or any Company Subsidiary at or after the
Effective Time.
"Indemnitees" shall mean the Parent Indemnitees or the Stockholder
Indemnitees, as the case may be.
"Indemnitors" shall mean Parent or the Stockholder Indemnitors, as the
case may be.
"Independent Accounting Firm" means such "Big Four" accounting firm as
Parent and the Stockholder's Agent shall mutually agree upon; provided, however,
if Parent and the Stockholder's Agent cannot agree upon such a firm, the
Independent Accounting Firm shall be Deloitte & Touche LLP, unless such firm is
no longer "independent" with respect to Parent and the Merger Stockholders, in
which case such firm shall select the Independent Accounting Firm.
"Knowledge" shall mean the actual knowledge of any of the persons listed
on Exhibit E-1 hereto with respect to the Company and the Company Subsidiaries,
and any of the persons listed on Exhibit E-2 hereto with respect to Parent and
Merger Sub, in each case without independent investigation.
"Legal Proceeding" shall mean any action, suit, litigation, arbitration,
proceeding (including any civil, criminal, administrative, investigative or
appellate proceeding), hearing, inquiry, audit, examination or investigation
commenced, brought, conducted or heard by or before or otherwise involving, any
court or other Governmental Body or any arbitrator or arbitration panel.
"Legal Requirement" shall mean any federal, state, local, municipal,
foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, order, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Body.
"Licenses" shall mean all licenses, permits, certifications,
registrations, certificates of need, certificates of occupancy, Drug Enforcement
Administration registrations, franchises,
4
approvals, consents, waivers and authorizations from state and federal
healthcare programs and Governmental Bodies, but Licenses shall not include
Environmental Permits.
"Material Adverse Effect" shall mean any material and adverse effect on
(a) the financial condition, properties, assets, liabilities, business or
results of operations of the Company and the Company Subsidiaries, taken as a
whole, (b) the ability of the Company to perform its obligations under this
Agreement or to consummate the transactions contemplated by this Agreement or
(c) the ability of the Company and the Company Subsidiaries to continue to
operate the Business after the Closing in substantially the same manner as the
Business was operated prior to the Closing; provided, however, in each case such
material and adverse effect shall exclude, and none of the following shall be
taken into account in determining whether there has been or may be a Material
Adverse Effect, (i) any change, effect, event, occurrence, state of facts or
development (other than any changes or proposed changes in Legal Requirements,
including changes or proposed changes in payment or reimbursement by government
payors, but excluding the final regulatory changes announced by the Centers for
Medicare and Medicaid Services ("CMS") on August 2, 2004 applicable to long term
acute care hospitals operated as "hospitals within hospitals" or "satellites")
attributable to conditions affecting the U.S. economy as a whole or the capital
markets in general which does not disproportionately affect the Company and the
Company Subsidiaries, taken as a whole, (ii) any decline in stock market indices
or any decline in the stock price of Parent's stock, (iii) any change, effect,
event, occurrence, state of facts or development arising from or relating to any
change required by generally accepted accounting principles in accounting
requirements or principles which does not disproportionately affect the Company
and the Company Subsidiaries, taken as a whole, (iv) the announcement or
pendency of the transactions contemplated hereby, (v) actions taken by or at the
written request of Parent, Merger Sub or their Affiliates, (vi) the termination
or threatened termination as of the result of the transactions contemplated
hereby of that certain Lease Agreement, dated March 24, 2000, by and between
Baptist Health Center - Little Rock and SemperCare Hospital of Little Rock, Inc.
(the "Little Rock Lease"), or the failure to obtain a consent or waiver to the
consummation of the transactions contemplated hereby from the landlord under the
Little Rock Lease, (vii) the consummation of or failure to consummate the
transactions contemplated by that certain Agreement and Plan of Merger, dated as
of October 17, 2004, by and among EGL Holding Company, EGL Acquisition Corp. and
Parent (as amended from time to time, the "Eagle Merger Agreement") or (viii)
any action taken by the Company after the date hereof that is required by this
Agreement.
"Merger Consideration" shall mean the product of the Per Share Merger
Consideration multiplied by the number of Outstanding Shares.
"Merger Stockholder" shall mean each stockholder of Company at the
Effective Time that does not perfect its appraisal rights and is otherwise
entitled to receive the Per Share Merger Consideration.
"Net Working Capital" shall mean (x) all consolidated current assets of
the Company and the Company Subsidiaries as at the Closing, less (y) all
consolidated current liabilities of the Company and the Company Subsidiaries as
at the Closing, in each case as determined in accordance with GAAP, with GAAP to
be applied consistently in the manner in which GAAP was applied in the
preparation of the Balance Sheet; provided, however, that (a) the foregoing
5
amounts in (x) and (y) shall exclude all deferred Tax assets and any Tax
benefits resulting from any payment in respect of Options or with respect to
restricted stock, (b) the foregoing amount in (y) shall include any liabilities
for the employer portion of withholding taxes due in connection with payments on
account of Options or restricted stock, (c) the foregoing amounts in (y) shall
include all outstanding Indebtedness and any unpaid Transaction Fees and
Expenses of the Company to the extent such Indebtedness and Transaction Fees and
Expenses of the Company exceed the amount thereof used to calculate the Closing
Date Cash Amount pursuant to Section 2.5(b)(i), but shall exclude all other
Indebtedness and Transaction Fees and Expenses of the Company, (d) the foregoing
amounts in (y) shall include any severance obligations and related costs that
any officer or employee of the Company or any Company Subsidiary would be
entitled to receive upon termination of employment at such officer's or
employee's election solely as a result of the transactions contemplated hereby
(other than the severance obligations described in clause (f) hereof), (e) the
foregoing amounts in (y) shall include an accrual, determined in accordance with
GAAP, for incurred but not reported claims, (f) the foregoing amounts in (y)
shall exclude any retention bonuses, success fees or similar officer or employee
retention payments put in place after the date hereof at the written request of
the Parent and any severance obligations owed to an officer or employee of the
Company or any Company Subsidiary (including the Founders pursuant to the
Employment Agreements) as a result of the termination of employment or reduction
of salary or duties of such officer or employee by Parent, the Surviving
Corporation or any Company Subsidiary at or after the Effective Time, (g) the
foregoing amounts in (x) shall include the principal amount of any Option Notes
or Prior Option Notes which are offset in accordance with Section 2.7 against
the Per Share Merger Consideration received by the maker of any such Option Note
or Prior Option Note and (h) the forgoing amounts in (y) shall exclude any
capital lease obligations.
"Parent Indemnitees" shall mean the following Persons: (a) Parent; (b)
Parent's current and future Affiliates (including Merger Sub and, following the
Merger, the Surviving Corporation); (c) the respective Representatives of the
Persons referred to in clauses (a) and (b) above; and (d) the respective
successors and assigns of the Persons referred to in clauses (a), (b) and (c)
above; provided, however, that the Stockholders shall not be deemed to be Parent
Indemnitees.
"Permitted Liens" shall mean (a) any Encumbrances disclosed on the Balance
Sheet or Schedule 1.2 hereto, (b) liens for Taxes, assessments or charges of any
Governmental Body which are not yet due and payable or which are being contested
by the Company or a Company Subsidiary in good faith, (c) liens incurred in
connection with workers' compensation, unemployment insurance and other types of
social security benefits, (d) mechanics', carriers', workmens', repairmens' 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, (e) any statutory or common law
landlord's liens created pursuant to or arising with respect to a lease,
sublease or license by the Company or a Company Subsidiary of Leased Real
Property arising or incurred in the ordinary course of business which are not
overdue, (f) mortgages or deeds of trust or other like security instruments
granted by an owner of Leased Real Property and encumbering the fee simple title
to Leased Real Property, (g) the terms, provisions, restrictions and limitations
of any lease, sublease or license agreement for the lease, sublease or license
by the Company or a Company Subsidiary of Leased Real Property and set forth on
Schedule 3.10(a), (h) the terms, provisions, restrictions and limitations
6
of any personal property lease to the extent that such terms, provisions,
restrictions and limitations do not materially impair the operation of the
business at the facility at which such leased personal property is located, (i)
deposits to secure the performance of bids, contracts (other than for borrowed
money), leases, statutory obligations, surety and appeal bonds, performance
bonds and other obligations of like nature incurred in the ordinary course of
business and (j) such imperfections or irregularities of title, easements
(including, without limitation, reciprocal easement agreements and utility
agreements), rights of way, encroachments, restrictive covenants, variances and
other similar restrictions, charges or encumbrances (whether or not recorded)
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" shall mean any individual, Entity or Governmental Body.
"Pro Rata Share" shall mean for each holder of Common Stock, the fraction
(expressed as a percentage), the numerator of which is the number of Outstanding
Shares held by such holder immediately prior to the Effective Time (but after
giving effect to the conversion of all Preferred Stock into Common Stock and the
exercise of Options pursuant to Section 2.7), and the denominator of which is
the number of Outstanding Shares.
"Representatives" shall mean officers, directors, employees, agents,
attorneys, accountants, advisors and representatives.
"Stockholder Indemnitees" shall mean the following Persons: (a) the
Stockholders; (b) the current and future Affiliates of the Stockholders and the
Stockholder's Agent; (c) the respective Representatives of the Persons referred
to in clauses (a) and (b) above; and (d) the respective successors and assigns
of the Persons referred to in clauses (a), (b) and (c) above.
"Stockholders" shall mean the stockholders of the Company.
"Subsidiary" shall mean, when used with respect to any party, any Entity
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 Entity, or any Entity of which such party is a
general partner.
"Tax" shall mean any tax (including, but not limited to, any income tax,
franchise tax, capital gains tax, gross receipts tax, value-added tax, surtax,
excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax,
property tax, business tax, withholding tax or payroll tax), levy, assessment,
tariff, duty (including any customs duty), deficiency or fee, and any related
charge or amount (including any fine, penalty or interest), imposed, assessed or
collected by or under the authority of any Governmental Body.
"Tax Return" shall mean any return (including any information return),
report, statement, indentation, estimate, schedule, notice, notification, form,
election, certificate or other document or information filed with or submitted
to or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection or payment of
7
any Tax or in connection with the administration, implementation or enforcement
of or compliance with any Legal Requirement relating to any Tax.
ARTICLE II
DESCRIPTION OF TRANSACTION
2.1 MERGER OF MERGER SUB INTO THE COMPANY. Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time (as defined in
Section 2.3), Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. The Company will continue as the
surviving corporation in the Merger (the "Surviving Corporation").
2.2 EFFECT OF THE MERGER. The Merger shall have the effect set forth in
this Agreement and in the applicable provisions of the Delaware General
Corporation Law (the "DGCL").
2.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Dechert LLP, 4000 Xxxx Atlantic Tower, 0000 Xxxx Xxxxxx, Xxxxxxxxxxxx, XX
00000 at 10:00 a.m. on the seventh day (or the next business day if the seventh
day is not a business day) after satisfaction or waiver of the latest to occur
of the conditions set forth in Articles VI, VII and VIII, except for those
conditions which are only capable of being performed at the Closing. The date on
which the Closing actually takes place is referred to in this Agreement as the
"Closing Date." For purposes of this Agreement (including with respect to any
calculation of the Actual Net Working Capital), the Closing shall be deemed to
have occurred 11:59 p.m. on the Closing Date. Contemporaneously with or as
promptly as practicable after the Closing, a properly executed certificate of
merger conforming to the requirements of the DGCL shall be filed with the
Secretary of State of the State of Delaware. The Merger shall become effective
at the time the certificate of merger is filed with and accepted by the
Secretary of the State of the State of Delaware (such time, the "Effective
Time").
2.4 CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS.
Unless otherwise determined by Parent, with advance written notice to the
Company, prior to the Effective Time:
(a) the Certificate of Incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation, until thereafter altered, amended or
repealed;
(b) the Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation, until
thereafter altered, amended or repealed; and
(c) the directors and officers of the Surviving Corporation
immediately after the Effective Time shall be the individuals designated by
Parent prior to the Closing.
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2.5 CONVERSION OF SHARES.
(a) Subject to Section 2.10, at the Effective Time, by virtue of the
Merger and without any further action on the part of Parent, Merger Sub, the
Company or any Stockholder:
(i) each share of the Common Stock outstanding immediately
prior to the Effective Time (but after giving effect to the conversion of all
Preferred Stock into Common Stock and the exercise of Options pursuant to
Section 2.7), other than any shares of Common Stock to be canceled pursuant to
Section 2.5(a)(iii), shall be converted into the right to receive the Per Share
Merger Consideration (as defined in Section 2.5(b));
(ii) the issued and outstanding shares of common stock, par
value $.01 per share, of Merger Sub ("Sub Common Stock"), all of which are held
by Parent, shall remain outstanding and, following the Merger, shall represent
all of the issued and outstanding capital stock of the Surviving Corporation;
and
(iii) each share of Common Stock held by the Company or any
Company Subsidiary immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof, and no cash, securities of Parent
or other consideration shall be delivered in exchange therefor.
(b) For purposes of this Agreement, the "Per Share Merger
Consideration" shall be the following:
(i) a cash amount equal to a fraction, (A) the numerator of
which of which shall equal (x) the Closing Date Cash Amount, plus (y) the amount
by which the Net Working Capital of the Company as of the Closing (the "Actual
Net Working Capital") is greater than $10,000,000 (the "Target Net Working
Capital"), minus (z) the amount by which the Actual Net Working Capital is less
than the Target Net Working Capital (such sum or difference, as the case may be,
the "Cash Merger Consideration"), and (B) the denominator of which shall equal
the aggregate number of shares of Common Stock outstanding immediately prior to
the Effective Time (but after giving effect to the conversion of all Preferred
Stock into Common Stock and the exercise of Options pursuant to Section 2.7)
(including any shares that are subject to a repurchase option or risk of
forfeiture under any restricted stock purchase agreement or other agreement),
but excluding shares of Common Stock to be canceled pursuant to Section
2.5(a)(iii) (the "Outstanding Shares");
(ii) a percentage interest in the Merger Consideration Escrow
Funds (as defined in Section 2.9(e)) equal to 1 divided by the number of
Outstanding Shares; and
(iii) a percentage interest in the Indemnity Escrow Funds (as
defined in Section 2.10) equal to 1 divided by the number of Outstanding Shares.
(c) For purposes of this Agreement, the "Closing Date Cash Amount"
shall mean (i) $100,000,000, minus (ii) the sum of the Merger Consideration
Escrow Amount (as defined in Section 2.9(b)), the Indemnity Escrow Amount (as
defined in Section 2.9(b)), the amount necessary to repay in cash and discharge
in full all Indebtedness of the Company and the
9
Company Subsidiaries as of the Closing and any unpaid Transaction Fees and
Expenses of the Company as of the Closing.
(d) The Per Share Merger Consideration payable to any Merger
Stockholder pursuant to this Section 2.5(a) shall be rounded to the nearest one
cent ($0.01), provided that all shares of Common Stock held by a Merger
Stockholder shall be aggregated for purposes of such calculations.
2.6 NET WORKING CAPITAL ADJUSTMENT.
(a) At least three (3) business days prior to the Closing, the
Company shall, in good faith and in consultation with Parent, prepare and
deliver to Parent a good faith estimate of the Actual Net Working Capital (the
"Estimated Net Working Capital"), together with an estimated balance sheet of
the Company, on a consolidated basis, as of the Closing (the "Estimated Closing
Balance Sheet"), prepared in accordance with GAAP, with GAAP to be applied
consistently in the manner in which GAAP was applied in the preparation of the
Balance Sheet. The Estimated Closing Balance Sheet shall be prepared as if the
Closing Date was the last day of the Company's fiscal year. The Estimated Net
Working Capital shall be calculated based on the Estimated Closing Balance
Sheet. In the event that Parent disagrees with the Company's calculation of the
Estimated Net Working Capital, then prior to the Closing, Parent shall deliver
to the Company its good faith estimate of the Actual Net Working Capital (the
"Parent Estimate"). Until the Actual Net Working Capital is finally determined
in accordance with this Section 2.6, the Per Share Merger Consideration shall be
determined using the Estimated Net Working Capital instead of the Actual Net
Working Capital.
(b) Within ninety (90) days after the Closing, Parent shall, in good
faith, cause to be prepared and delivered to the Stockholders' Agent (i) a
balance sheet of the Company and its consolidated subsidiaries as of the Closing
(the "Closing Date Balance Sheet") and (ii) a reasonably detailed calculation
(the "Parent Net Working Capital Calculation") of the Actual Net Working
Capital. The Closing Date Balance Sheet shall be prepared in accordance with
this Agreement and GAAP, with GAAP to be applied consistently in the manner in
which GAAP was applied in the preparation of the Balance Sheet. The Closing Date
Balance Sheet shall be prepared as if the Closing Date was the last day of the
Company's fiscal year. Each party acknowledges and agrees that the purpose of
the Parent Net Working Capital Calculation is to finalize the calculation of Net
Working Capital based on a closing of the Company's books as of the Closing.
Following the delivery of the Closing Date Balance Sheet and Parent Net Working
Capital Calculation to the Stockholders' Agent, Parent shall, and Parent shall
cause the Surviving Corporation to, afford the Stockholders' Agent and its
Representatives the opportunity to examine the calculation of the Closing Date
Balance Sheet, the Parent Net Working Capital Calculation and such underlying
records and work papers as are reasonably necessary and appropriate. Parent
shall cooperate reasonably promptly with the Stockholders' Agent and its
Representatives in such examination.
(c) The Stockholders' Agent may, on behalf of the Merger
Stockholders, dispute any amounts reflected in the Parent Net Working Capital
Calculation but only on the basis that such amounts were not calculated in
accordance with this Agreement or that such calculations are mathematically
inaccurate; provided, that the Stockholders' Agent shall notify
10
Parent in writing of each disputed amount and shall specify the amount thereof
in dispute (in the aggregate, the "Disputed Amounts"), within thirty (30) days
of Parent's delivery of the Parent Net Working Capital Calculation. If the
Stockholders' Agent does not dispute any amounts reflected in the Parent Net
Working Capital Calculation within such thirty (30) day period, the Parent Net
Working Capital Calculation shall be deemed to be and shall be final, binding
and conclusive on the parties hereto.
(d) In the event of such a dispute, Parent and the Stockholders'
Agent shall attempt in good faith to reconcile their differences and any
resolution by them as to any Disputed Amounts shall be in writing and shall be
final, binding and conclusive on the parties, and shall be used to determine the
Actual Net Working Capital. If Parent and the Stockholders' Agent are unable to
reach a resolution with respect to all Disputed Amounts within thirty (30) days
of the Stockholders' Agent's written notice of dispute to Parent, Parent and the
Stockholders' Agent shall submit the remaining Disputed Amounts for resolution
to the Independent Accounting Firm which shall be requested to determine and
report to the parties upon such remaining Disputed Amounts within thirty (30)
days after submission, and such report shall be final, binding and conclusive on
the parties hereto, and shall determine the Actual Net Working Capital. The
Independent Accounting Firm will have exclusive jurisdiction over the parties
hereto against one another or any other Person with respect to disputes over the
calculation of Actual Net Working Capital. Each party will furnish to the
Independent Accounting Firm such work papers and other documents and information
relating to the disputed issues as the Independent Accounting Firm may request
and are reasonably available to that party or its Subsidiaries (or its
independent public accountants) and will be afforded the opportunity to present
to the Independent Accounting Firm (to the extent permitted by the Independent
Accounting Firm) any material relating to the determination of the matters in
dispute and to discuss such determination with the Independent Accounting Firm.
The fees and expenses of the Independent Accounting Firm shall be allocated
between Parent and the Merger Stockholders (such allocation to be finally
determined by the Independent Accounting Firm) in such a way that Parent shall
be responsible for that portion of the fees and expenses equal to the total
amount of such fees and expenses multiplied by a fraction, the numerator of
which is the Disputed Amounts submitted to the Independent Accounting Firm that
are resolved against Parent, and the denominator of which is the Disputed
Amounts so submitted, and the Stockholders' Agent shall be responsible for the
remainder of such fees and expenses.
(e) If the Actual Net Working Capital, as finally determined
pursuant to this Section 2.6, exceeds the Estimated Net Working Capital, the
Merger Consideration shall be increased by an amount equal to such excess (such
excess being the "Post-Closing Increase Amount"). If the Actual Net Working
Capital, as finally determined pursuant to this Section 2.6, is less than the
Estimated Net Working Capital, the Merger Consideration shall be decreased by an
amount equal to such shortfall (such shortfall being the "Post-Closing Decrease
Amount"). If the Actual Net Working Capital exceeds the Estimated Net Working
Capital, (i) Parent shall pay to each Merger Stockholder, in the method set
forth in the Letter of Transmittal for such Merger Stockholder, such Merger
Stockholder's Pro Rata Share of (x) the Post-Closing Increase Amount plus (y)
interest on such Post-Closing Increase Amount (for the period commencing on the
Closing Date and ending on the date of payment) at a rate equal to the average
interest rate earned on the Merger Consideration Escrow Amount during such
period and (ii) Parent and the Stockholders' Agent shall execute and the
Stockholders' Agent shall deliver to the Escrow Agent
11
an instruction to release the Merger Consideration Escrow Amount and any
interest earned thereon (the "Merger Consideration Escrow Funds") to the Merger
Stockholders in accordance with the Escrow Agreement. If the Estimated Net
Working Capital exceeds the Actual Net Working Capital, Parent and the
Stockholders' Agent shall execute and Parent shall deliver to the Escrow Agent
an instruction (i) to release an amount of the Merger Consideration Escrow Funds
equal to the Post-Closing Decrease Amount plus any interest earned on such
amount to Parent and (ii) to release the remaining (after application of clause
(i) of this sentence) Merger Consideration Escrow Funds, if any, to the Merger
Stockholders in accordance with the Escrow Agreement. In the event that the
Post-Closing Decrease Amount exceeds the Merger Consideration Escrow Funds,
Parent shall be entitled to recover from the Indemnity Escrow Funds (x) such
excess plus (y) interest on such excess (for the period commencing on the
Closing Date and ending on the date of recovery) at a rate equal the average
interest rate earned on the Merger Consideration Escrow Amount during such
period. Each of the items to be paid or delivered pursuant to this Section
2.6(e) shall be so paid or delivered within three (3) business days of the final
determination of the Actual Net Working Capital.
2.7 EMPLOYEE STOCK OPTIONS.
(a) Subject to the other provisions of this Section 2.7, prior to
the Closing, the Company shall make an offer to the holder (the "Holder") of
each outstanding stock option (each an "Option") heretofore granted under the
Company's 1999 Stock Option Plan or any other stock option plan maintained by
the Company (the "Company Stock Plan") for the Holder to exercise such Option in
full or in part prior to the Closing, with the exercise price therefor paid
(wholly or partially) either in cash or in the form of a recourse note issued to
the Company that is payable in full from the Merger Consideration payable to
such Holder pursuant to the Merger if the Closing occurs, and if the Closing
does not occur, payable in any event in accordance with its terms (the "Option
Note"). The form of the Option Note is attached hereto as Exhibit F. If any
Holder does not accept such offer, either in full or in part, and does not
otherwise exercise the Options held by such Holder at or prior to the Closing,
each such unexercised Option shall expire at the Effective Time (with no
consideration therefor). The Letter of Transmittal for each Holder who acquired
shares of Company Common Stock pursuant to the exercise of an Option (whether
pursuant to such offer or otherwise, at any time) shall provide that all amounts
payable to the Company under Option Notes shall be paid and withheld by Parent
(together with any other amounts required to be withheld by applicable law upon
such exercise ("Option Withholding Amount")) from the Merger Consideration
otherwise payable to such Holder on the Closing Date.
(b) The principal and interest owed on any other note between the
Company and a Holder or any other prior Option recipient which was used to
previously exercise an Option ("Prior Option Note") will be satisfied by
offsetting such amount from the Merger Consideration otherwise payable to the
Holder or other prior Option recipient. The Company shall take all such actions
necessary, including the amendment of any existing notes, to effect the
foregoing.
(c) Notwithstanding anything in this Section 2.7 to the contrary, if
the aggregate Per Share Merger Consideration received by any Holder minus the
sum (i) of the principal and interest owed on any Option Note made by such
Holder and (ii) the principal and
12
interest owed on any Prior Option Note made by such Holder does not at least
equal the withholding owed upon the purported exercise of any outstanding
unexercised Options in accordance with Section 2.7(a), then the Holder may not
exercise his Option using an Option Note, and must exercise his Option by paying
cash. In the event that the Holder cannot or does not pay the required cash
prior to the Closing, the unexercised Options shall expire immediately prior to
the Closing.
(d) The Company shall not take any action to directly or indirectly
reprice any outstanding Option prior to the Closing.
(e) As provided herein, the Company Stock Plan and any other plan,
program or arrangement providing for the issuance or grant of any other interest
in respect of the capital stock of the Company shall terminate upon the
Effective Time. Prior to the Closing, the Company shall have taken all steps
necessary to ensure that neither the Company nor any Company Subsidiary is or
will be bound at the Effective Time by any Options, other options, warrants,
rights or agreements which would entitle any Person to acquire any capital stock
of the Surviving Corporation or any Company Subsidiary or, except as otherwise
provided in this Agreement, to receive any payment in respect thereof. The
Company shall provide reasonable evidence of compliance with this Section 2.7 to
Parent at least three (3) business days prior to the Closing Date.
2.8 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time, the
stock transfer books of the Company shall be closed with respect to all shares
of such capital stock outstanding immediately prior to the Effective Time. No
further transfer of any such shares of the Company's capital stock shall be made
on such stock transfer books after the Effective Time. If, after the Effective
Time, a valid certificate previously representing any of such shares of the
Company's capital stock (a "Company Stock Certificate") is presented to the
Surviving Corporation or Parent, such Company Stock Certificate shall be
canceled and shall be exchanged as provided in Section 2.9.
2.9 EXCHANGE OF CERTIFICATES; ESCROW.
(a) At the Closing, Parent shall, for each Merger Stockholder who
surrenders a Company Stock Certificate for cancellation to Parent, together with
the letter of transmittal in the form attached hereto as Exhibit G ("Letter of
Transmittal"), duly completed and validly executed in accordance with the
instructions thereto, and such other documents as may be required pursuant to
such instructions, pay to each such Merger Stockholder, without interest, the
cash amount set forth in Section 2.5(b)(i) for the number of shares of Common
Stock previously represented by such Company Stock Certificate, payable as set
forth in the Letter of Transmittal. If any Merger Stockholder fails to surrender
a Company Stock Certificate or Letter of Transmittal at or prior to Closing,
Parent shall not pay the portion of the Merger Consideration applicable to the
related shares of Common Stock and Parent shall deposit such portion of the
Merger Consideration in a segregated account maintained by the Surviving
Corporation for the benefit of such Merger Stockholder. Promptly upon delivery
of such Company Stock Certificate and Letter of Transmittal, duly completed and
validly executed in accordance with the instructions thereto, and such other
documents as may be required pursuant to such instructions, the Surviving
Corporation shall pay to such Merger Stockholder, without interest, the cash
13
amount set forth in Section 2.5(b)(i) for the number of shares of Common Stock
previously represented by such Company Stock Certificate, payable as set forth
in the Letter of Transmittal. Parent may, in its sole and reasonable discretion,
waive the requirement of a Company Stock Certificate or Letter of Transmittal
for any or all such Merger Stockholders. Immediately prior to the Closing, each
Company Stock Certificate representing shares of Preferred Stock shall be deemed
to represent the number of shares of Common Stock into which such shares of
Preferred Stock have converted, without the necessity of any reissuance of such
Company Stock Certificate; it being understood that, pursuant to the Charter
Amendment, each share of Preferred Stock shall be convertible into one share of
Common Stock.
(b) At the Closing, Parent shall deliver to The Bank of New York, as
escrow agent, or, if The Bank of New York shall not agree to serve as escrow
agent, to such other bank or trust company as may be mutually agreed by Parent
and the Company (the "Escrow Agent"), pursuant to an Escrow Agreement
substantially in the form attached hereto as Exhibit H, subject to reasonable
changes required by Escrow Agent and reasonably acceptable to Parent, the
Company and the Stockholders' Agent (the "Escrow Agreement"), (i) $5,000,000 of
the Merger Consideration (the "Indemnity Escrow Amount") and (ii) $1,000,000 of
the Merger Consideration or such greater amount as is determined in accordance
with the following sentence (the "Merger Consideration Escrow Amount"), each by
wire transfer of immediately available funds. If Parent has delivered the Parent
Estimate to the Company pursuant to Section 2.6(a), the Merger Consideration
Escrow Amount shall be increased in an amount equal to the difference between
the Estimated Net Working Capital and the Parent Estimate; provided, however,
that the Merger Consideration Escrow Amount shall in no event exceed $3,000,000.
(c) Until surrendered as contemplated by this Section 2.9, each
Company Stock Certificate shall be deemed, from and after the Effective Time, to
represent only the right to receive the Per Share Merger Consideration. If any
Company Stock Certificate shall have been lost, stolen or destroyed, Parent may,
in its discretion and as a condition precedent to the delivery of the Per Share
Merger Consideration to the owner of such Company Stock Certificate, require the
owner of such lost, stolen or destroyed Company Stock Certificate to make an
affidavit of that fact and to deliver an appropriate indemnity or surety bond as
security against any claim that may be made against Parent or the Surviving
Corporation with respect to such Company Stock Certificate.
(d) Each of Parent and the Surviving Corporation shall be entitled
to deduct and withhold from any consideration payable or otherwise deliverable
to any holder or former holder of capital stock of the Company pursuant to this
Agreement such amounts as Parent or the Surviving Corporation is required to
deduct or withhold therefrom under the Code or under any provision of state,
local or foreign tax law. To the extent such amounts are so deducted or
withheld, such amounts shall be treated for all purposes under this Agreement as
having been paid to the Person to whom such amounts would otherwise have been
paid.
(e) Neither Parent nor the Surviving Corporation shall be liable to
any holder or former holder of capital stock of the Company for any cash amounts
delivered to any public official pursuant to any applicable abandoned property,
escheat or similar law.
14
2.10 DISSENTING SHARES. Notwithstanding anything to the contrary contained
in this Agreement, any shares ("Dissenting Shares") of Common Stock that are
outstanding immediately prior to the Effective Time and that are held by any
Person who is entitled to demand and properly demands payment of the fair value
of such Dissenting Shares pursuant to, and who complies in all respects with,
Section 262 of the DGCL (the "DGCL Appraisal Procedures") shall not be converted
into or be exchangeable for the right to receive the Per Share Merger
Consideration, in accordance with Sections 2.5 and 2.9, but rather the holders
of Dissenting Shares shall be entitled to payment of the fair value of such
Dissenting Shares in accordance with the DGCL Appraisal Procedures; provided,
however, that if any such holder shall fail to perfect or otherwise shall waive,
withdraw or lose the right to receive payment of the fair value of such holder's
Dissenting Shares under the DGCL Appraisal Procedures, then the right of such
holder to be paid the fair value of such holder's Dissenting Shares shall cease
and such Dissenting Shares shall be deemed to have been converted as of the
Effective Time into, and to have become exchangeable solely for the right to
receive the Per Share Merger Consideration, in accordance with Sections 2.5 and
2.9. The Company shall give prompt notice to Parent and Merger Sub of any
demands received by the Company for payment of the fair value of any shares of
Common Stock (including a copy of each demand). Prior to the Effective Time, the
Company shall not, without the prior written consent of Parent, make any payment
with respect to or settle or offer to settle, any such demands or agree to do
any of the foregoing. From and after the Effective Time, the Merger
Stockholders, joint and severally, shall be responsible for all payments, solely
through and to the extent of the Indemnity Escrow Amount and any interest earned
thereon (the "Indemnity Escrow Funds"), with respect to Dissenting Shares,
including without limitation, all expense associated with negotiations and
proceedings with respect to demands for appraisal required under the DGCL, in
excess of the aggregate Per Share Merger Consideration that would have been
payable to the holders of Dissenting Shares.
2.11 FURTHER ACTION. If, at any time after the Effective Time, any further
action is determined by Parent to be necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation or Parent with
full right, title and possession of and to all rights and property of Merger Sub
and the Company, the officers and directors of the Surviving Corporation and
Parent shall be fully authorized (in the name of Merger Sub, in the name of the
Company and otherwise) to take such action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to and for the benefit of the Parent
and Merger Sub as follows:
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 Delaware with requisite
corporate power and authority to (i) execute, deliver and (subject to receipt of
the Requisite Stockholder Approvals pursuant to the Stockholder Written Consent)
perform this Agreement, (ii) perform its obligations under all oral and written
agreements, legally binding commitments, contracts, subcontracts, leases,
promissory notes, option agreements, warranties, purchase orders, licenses
15
or sublicenses (including all amendments thereto) by which it is bound, (iii)
own, lease and operate its properties and (iv) 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 nature of the business transacted
by it or the character of the properties owned or leased by it require such
qualification, except where the failure to be so qualified would not reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect.
(b) True and complete copies of the Certificate of Incorporation and
Bylaws of the Company (the "Company Charter Documents") as in effect on the date
of this Agreement have been made available for inspection by Parent prior to the
date of this Agreement, which copies are complete and correct and include all
amendments, modifications or supplements thereto. The Company Charter Documents
are in full force and effect and the Company is in full compliance with all of
the terms and provisions of the Company Charter Documents.
(c) The Company's board of directors has recommended the approval
and adoption of an amendment to the Company's Certificate of Incorporation in
the form attached as Exhibit I hereto (the "Charter Amendment").
3.2 AUTHORITY.
(a) The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby by the Company have
been duly authorized by all 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, other than the
Requisite Stockholder Approvals pursuant to the Stockholder Written Consent.
This Agreement has been duly executed by the Company and 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 nor compliance with any of the
provisions hereof by the Company will (i) violate or conflict with any provision
of the Company Charter Documents or the certificate of incorporation, bylaws or
other similar organizational and operational documents of 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 or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in or permit
the termination of, loss of any right under or acceleration of the performance
required by, or result in the creation or imposition of any Encumbrance upon any
of the assets of the Company or any Company Subsidiary under, any of the terms,
conditions or provisions of any Contract disclosed or required to be disclosed
on Schedule 3.11(a) 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 Body, other than the filing of (x) the Charter Amendment and the
certificate of
16
merger required by the DGCL and (y) 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.
(c) The Company's board of directors has (i) unanimously determined
that the Merger is advisable and in the best interests of the Company and its
Stockholders, (ii) unanimously recommended the approval and adoption of this
Agreement by the holders of Company Stock entitled to vote thereon and (iii) to
the extent necessary, adopted a resolution having the effect of causing the
Company not to be subject to any state takeover law or similar Legal Requirement
that might otherwise apply to the Merger or any of the other transactions
contemplated by this Agreement.
3.3 CAPITALIZATION. The authorized, issued and outstanding capital stock
of the Company as of the date hereof is as set forth on Schedule 3.3 hereto. Set
forth on Schedule 3.3 is a list of all of the Stockholders and the capital stock
and other equity securities of the Company owned by each such Stockholder, in
each case as of the date hereof. The shares of Company Stock set forth on
Schedule 3.3 constitute all of the outstanding shares of capital stock of the
Company as of the date hereof. All such outstanding shares of capital stock of
the Company have been duly authorized and are validly issued, fully paid and
non-assessable and have not been issued in violation of the preemptive or
similar rights of any Stockholder arising by operation of securities laws or the
Company Charter Documents. The designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of each class and series
of authorized capital stock of the Company are as set forth in the Company
Charter Documents, and all such designations, powers, preferences, rights,
qualifications, limitations and restrictions are valid, binding and enforceable
and in accordance with all applicable laws. Except as set forth on Schedule 3.3,
as of the date hereof there is no existing subscription, option, warrant, call,
commitment or other right or agreement to which the Company is bound requiring,
and there are no convertible or exchangeable securities of the Company
outstanding which upon conversion or exercise 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, 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,
to the Knowledge of the Company, any Stockholder is a party.
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.
17
(b) Each of the Company Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with requisite corporate power and authority to (i) perform its
obligations under all oral and written agreements, legally binding commitments,
contracts, subcontracts, leases, promissory notes, option agreements,
warranties, purchase orders, licenses or sublicenses (including all amendments
thereto) by which it is bound, (ii) own, lease and operate its properties and
(iii) 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 nature of the business transacted by it or the character of the properties
owned or leased by it require such qualification, except where the failure to be
so qualified could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
(c) True and complete copies of the certificate of incorporation,
bylaws 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 Parent prior to the date of this
Agreement, which copies are complete and correct and include all amendments,
modifications or supplements thereto. The certificate of incorporation and
bylaws or other organizational documents of each Company Subsidiary are in full
force and effect and each Company Subsidiary is in full compliance with all of
the terms and provisions of such documents.
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) Except as set forth on Schedule 3.5(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 all of the Company 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 or a Company Subsidiary 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 or exercise 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), 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 or any
Company Subsidiary is a party.
18
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, 2003
and 2002 and June 30, 2002, and the related statements of income and cash flows
for the fiscal year ended December 31, 2003, the six months ended December 31,
2002 and the fiscal year ended June 30, 2002 and (ii) unaudited consolidated
balance sheet of the Company and its consolidated subsidiaries as of September
30, 2004 and 2003, and the related consolidated statement of income and cash
flows for the nine-month periods ended September 30, 2004 and 2003 are attached
hereto as Schedule 3.6(a) (together with the footnotes thereto, collectively,
the "Financial Statements"). The Financial Statements, present fairly, in all
material respects, the financial position of the Company and its consolidated
subsidiaries and the consolidated results of their operations as of the
respective dates and for the respective periods indicated therein and have been
prepared in accordance with GAAP, except that the unaudited statements may not
contain all footnotes required by GAAP and are subject to normal year-end audit
adjustments, none of which are expected to be material in amount or nature. The
financial statements set forth in subsection (i) above have been audited by
Ernst & Young LLP, independent public accountants, and the Company has provided
Parent with true and correct copies of the auditor's reports relating thereto.
The Financial Statements have been prepared from and are in accordance with the
books and records of the Company and the Company Subsidiaries.
(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 in Schedule 3.6(c) is a correct and complete list of
all so called "earn-out" obligations of the Company or any Company Subsidiary
arising pursuant to the acquisition of any hospitals, facilities or businesses,
including the name of the acquisition giving rise to such earn-out, the
acquisition date and a summary of the applicable earn-out provision.
(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,
2003 and each of the first three quarters of the fiscal year ended December 31,
2004.
(e) Set forth on Schedule 3.6(e) is true and complete list of all
hospital development projects of the Company or any Company Subsidiary
(collectively, the "Development Projects"), setting forth as to each Development
Project (i) the location or proposed location of such Development Project, (ii)
any certificates of need that have been applied for in connection with such
Development Project and the status of all such applications and (iii) any
letters of intent, partnership agreements or joint venture agreements relating
to such Development Project.
3.7 UNDISCLOSED LIABILITIES. Neither the Company nor any Company
Subsidiary has (x) any material liabilities or obligations (other than
contingent liabilities) or (y) to the
19
Knowledge of the Company, any material contingent liabilities or obligations,
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, 2003 (the "Balance Sheet Date"), (b) for liabilities
(including Taxes) which have been incurred since the Balance Sheet Date in the
ordinary course of business consistent with past practices, (c) for liabilities
under this Agreement, (d) for executory obligations under Contracts, (e) for
liabilities reflected on the September 30, 2004 balance sheet included in the
Financial Statements, (f) for liabilities for Transaction Fees and Expenses
incurred in connection with the transactions contemplated hereby and (g) as set
forth on Schedule 3.7. As of the date hereof, to the Knowledge of the Company,
except as disclosed on Schedule 3.7, neither the Company nor any Company
Subsidiary has any contractual obligation to provide uncompensated care to any
patient at any Facility, other than obligations pursuant to leases for the
Leased Real Property set forth on Schedule 3.10(a) and pursuant to the Licenses
set forth on Schedule 3.26(a).
3.8 ACCOUNTS RECEIVABLE. All accounts receivable of the Company and the
Company Subsidiaries reflected on the Balance Sheet included in the Financial
Statements (net of the reserves reflected thereon), and all accounts receivable
which have arisen since December 31, 2003, net of reserves computed in
accordance with GAAP, are valid and have arisen only from bona fide arm's length
transactions in the ordinary course of the business of the Company and the
Company Subsidiaries. The accounts receivable, net of reserves computed
consistently with past practices, set forth on the Balance Sheet are presented
fairly on such Balance Sheet in accordance with GAAP.
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 there has not been any event,
change, condition, state of facts 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 expressly required by the terms
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 material 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) sold, purchased or transferred any material assets, other than
in the ordinary course consistent with past practice;
(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 any
Stockholder, or declared, paid or set aside for payment any dividend or
distribution with respect to the Company Stock, or purchased or redeemed (or
committed to purchase or redeem) any shares of Company Stock
20
(other than Common Stock repurchased or to be repurchased by the Company from
employees of the Company or any Company Subsidiary pursuant to agreements in
effect on the date hereof under which the Company has the option to repurchase
such shares upon termination of employment);
(e) written down or cancelled any material receivables or 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 material judgment with respect to, or made any
material settlement of, any Legal Proceeding;
(g) effected any material change in accounting practices and
procedures, other than changes as a result of changes in GAAP; or
(h) made or authorized any capital expenditures in excess of $50,000
individually or $250,000 in the aggregate;
(i) consummated any transaction with any Affiliate (other than the
Company or a Company Subsidiary);
(j) made or entered into any acquisitions or dispositions of any
hospitals, facilities or businesses, other than the opening or establishment of
new hospitals, facilities or businesses;
(k) except in the ordinary course of business, mortgaged, pledged or
have imposed any Encumbrance on any material assets, except for Permitted Liens;
or
(l) agreed to do any of the foregoing.
3.10 REAL PROPERTY; TITLE TO ASSETS.
(a) Neither the Company nor any Company Subsidiary owns any real
property. The Company and the Company Subsidiaries own good and valid leasehold
interests in and to all real property leases to which the Company or any Company
Subsidiary are a party or by which the Company or any Company Subsidiary are
bound, which leases are listed on Schedule 3.10(a) (the "Leased Real Property").
Except for the Permitted Liens, there exist no Encumbrances affecting the Leased
Real Property.
(b) 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 Legal Requirement relating to any material part of the Leased
Real Property or the operation thereof or written notice of condemnation,
special assessment or the like, with respect thereto.
(c) Schedule 3.10(a) sets forth a true, correct and complete list of
all contracts or agreements under which the Company and Company Subsidiaries are
lessee, sublessee or licensee of any Leased Real Property with a brief
description of such contract or agreement, including, without limitation, the
parties to the lease, the term of the lease, the current expiration
21
date of the lease, the renewal options, the basic rent, any monthly payments of
additional rent and whether a physician is a party to such contract or
agreement. 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(a) is a legal, valid and
binding obligation of the Company and Company Subsidiaries, as applicable,
enforceable against the Company and Company Subsidiaries 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. There are no
outstanding options or rights of any third person to acquire the Company's or
any Company Subsidiary's leasehold interests in any such Leased Real Property.
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(a) 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, to the Knowledge of the
Company, no condition exists which (with notice or lapse of time or both) could
constitute a default thereunder in each case. True and complete copies of all
leases or other contracts or agreements listed on Schedule 3.10(a) (including
any amendments, modifications and renewal letters) have been made available for
inspection by Parent prior to the date of this Agreement.
(d) Except as set forth in Schedule 3.10(d) hereto, the Company and
each of the Company Subsidiaries has good title to all of its assets, including
the assets reflected in the Balance Sheet, except those disposed of by it since
the date of the Balance Sheet, free and clear of all Encumbrances except for
Permitted Liens. The Company and each of the Company Subsidiaries leases, owns
or has the right to use all assets used in the operation of the Business as
currently conducted.
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 contracts, agreements plans or arrangements required
to be listed on Schedule 3.16;
(ii) each management agreement, operating agreements, services
agreement and other agreements pertaining to the operation and maintenance of
any Facility with annual payments in excess of $100,000 and that is not
terminable by the Company or any Company Subsidiary within a 90-day period
without substantial cost or penalty;
(iii) all collective bargaining or other labor or union
contracts or agreements;
(iv) all instruments relating to Indebtedness, including any
note, bond, deed of trust, mortgage, indenture or agreement to borrow money, any
agreement relating to the extension of credit or the granting of an Encumbrance
(other than a Permitted Lien within the
22
meaning of clause (f), clause (g), clause (h) or clause (i) of the definition
thereof), or any agreement of guarantee in favor of any Person other than the
Company;
(v) each agreement, commitment or outstanding purchase order
relating to capital expenditures that involves total remaining payments by the
Company or any Company Subsidiary of more than $50,000 individually or $250,000
in the aggregate;
(vi) all agreements relating to the future disposition or
acquisition of any interest in any business enterprise (whether through the
purchase or sale of assets or stock or by merger, consolidation or other
business combination) for a purchase price of more than $100,000;
(vii) each contract, agreement or commitment (including any
lease for Leased Real Property) which (A) provides for annual aggregate payments
to or from the Company or any Company Subsidiary in excess of $50,000 or (B)
does not expire or is not terminable without substantial cost or penalty at the
option of the Company or the Company Subsidiary within a 90-day period,
excluding purchase orders made in the ordinary course of business consistent
with past practice and contracts;
(viii) all contracts or agreements which expressly restrict
the ability of the Company or Company Subsidiaries to conduct business of any
type or in any location;
(ix) all material powers of attorney;
(x) all licenses or agreements required to be listed on
Schedule 3.12(c);
(xi) all bonus, profit-sharing, compensation, stock option,
pension, retirement, deferred compensation, accrued vacation pay, group
insurance, welfare agreements or other plans, agreements, trusts or arrangements
for the benefit of employees;
(xii) all partnership or joint venture agreements;
(xiii) all agreements, arrangements or understandings with any
Affiliate of the Company or any Company Subsidiary; and
(xiv) all material agreements, contracts or commitments for
any charitable or political contribution.
(b) True, correct and complete copies of the agreements set forth on
Schedule 3.11(a) have been made available for inspection by Parent 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 in any material
respect, has done any act or failed to do any required act which constitutes a
default in any material respect, has received written notice of such a default,
or has received written notice of an event or occurrence of which with the
giving of notice or the lapse of time could constitute a default in any material
respect under any covenant or condition under any Contract set forth on or
required to be set forth on Schedule 3.11(a), and, to the Knowledge
23
of the Company, no other party to any such Contract is in default in any
material respect thereunder.
3.12 INTELLECTUAL PROPERTY.
(a) As used herein, the term "Intellectual Property" shall mean all
worldwide intellectual property rights, including, without limitation, patents,
trademarks, service marks, trade dress, trade names, Internet domain names,
copyrights, registrations and applications for any of the foregoing, know-how,
trade secrets, computer software programs and development tools, proprietary
information, technologies, and processes, and all documentation and media
describing or relating to any of the foregoing.
(b) Schedule 3.12(b) contains a complete list of all United States
and foreign trademarks, service marks and trade names (whether registered or
not) and registrations and applications for registration thereof, patents and
patent applications, domain name registrations, and registered and material
unregistered copyrights, including without limitation computer software or sui
generis databases, owned by or used by the Company or any Company Subsidiary
that are material to the Business, other than off-the-shelf commercial software
licensed to the Company or any Company Subsidiary for less than $1,000.00.
(c) Schedule 3.12(c) sets forth all material licenses, sublicenses,
consents and other agreements (whether written or otherwise) (i) pertaining to
any Intellectual Property (other than standard, commercially available
off-the-shelf software) used or held for use by the Company or any Company
Subsidiary, or (ii) by which the Company or any Company Subsidiary licenses or
otherwise authorizes a third party to use Intellectual Property.
(d) All of the patents, patent applications, trademark and service
xxxx registrations and applications, copyright registrations and applications
for copyright registration, and domain name registrations owned by the Company
or any Company Subsidiary (i) to the Knowledge of the Company, are valid and
(ii) are 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. No opposition, extension of time to oppose, interference, rejection,
or refusal to register has been received in connection with any such
application. 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 or used in the Business.
All material Intellectual Property used in or necessary for the operation of the
Business as currently conducted or proposed to be conducted is either (i) owned
by the Company or a Company Subsidiary, free and clear of any title defects or
Encumbrances (other than those Permitted Liens), and, to the Knowledge of the
Company, no third party has claimed rights adverse to the Company or any Company
Subsidiary, or (ii) the subject of a license or agreement pursuant to which the
Company or Company Subsidiary has been granted the right to make such use
thereof. Except as set forth on Schedule 3.12(d), neither the Company nor any
Company Subsidiary, as applicable, is in default under any material agreement
pursuant to which such company is licensing Intellectual Property of a third
party or granting licenses to its own Intellectual Property.
24
(e) The information technology systems owned, licensed, leased,
operated on behalf of, or otherwise held for use in the Business by the Company
and/or the Company Subsidiaries, including all computer hardware, software,
firmware and telecommunications systems used in the Business, perform reliably
and in material conformance with the appropriate specifications or documentation
for such systems. Except for scheduled or routine maintenance, the information
technology systems of the Company and/or any Company Subsidiary are
substantially available, in accordance with standard industry practices, for use
in the Business and, as applicable, by the customers and clients of the Company
and any Company Subsidiary, 24 hours a day, 7 days a week. The Company and the
Company Subsidiaries have taken commercially reasonable steps to provide for the
archival, back-up, recovery and restoration of the critical business data of the
business, including the provision of hot fail-over server capacity in the event
of a systems failure or disaster.
3.13 LITIGATION. Except as set forth on Schedule 3.13, there are no Legal
Proceedings pending or, to the Knowledge of the Company, overtly threatened by
or against the Company or any Company Subsidiary or any of the property or
rights of the Company or any Company Subsidiary, nor any outstanding judgments,
orders, writs, injunctions or decrees of any Governmental Body against the
Company or any Company Subsidiary.
3.14 ENVIRONMENTAL LAWS. Except as set forth on Schedule 3.14:
(a) the Company and Company Subsidiaries are and have for the
applicable statute of limitations been and the Business is and has been for the
applicable statute of limitations conducted in compliance with all applicable
Environmental Laws;
(b) the Company and Company Subsidiaries possess and are in
compliance with all Licenses required under Environmental Laws ("Environmental
Permits") for the operation or conduct of the Business;
(c) no notice, citation, summons, order or request for information
has been issued to, no complaint has been filed against, no penalty has been
assessed against, no judgment, decree or order is outstanding against and no
investigation or review is pending or, to the Knowledge of the Company,
threatened against the Company or any Company Subsidiaries by any Governmental
Body 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 use, possession, generation, treatment, storage,
recycling, transportation or disposal or arrangement for disposal (collectively
"Management") or the Release (as defined below), on-site or off-site, of any
hazardous or toxic or polluting substance, material or waste, contaminant, or
pollutant, including, without limitation, petroleum products, polychlorinated
biphenyls, asbestos containing materials ("ACMs"), medical, infectious or
chemotherapeutic wastes and radioactive materials ("Hazardous Substances");
(d) no underground storage tanks containing Hazardous Substances
used by the Company or any Company Subsidiary, or for which the Company or any
Company Subsidiary is responsible, are present at any property operated or
leased by the Company or any Company Subsidiary;
25
(e) to the Knowledge of the Company, no portion of any property
leased or occupied by the Company or any Company Subsidiary contains ACMs; any
asbestos surveys by the Company or any Company subsidiary have been made
available to Parent; and, to the Knowledge of the Company, none of the ACMs
require abatement, repair or encapsulation as of the date hereof;
(f) no Hazardous Substance has been released, spilled, leaked,
discharged, disposed of, pumped, emitted, emptied, injected, leached, dumped, or
allowed to escape ("Release" or "Released") by the Company or any Company
Subsidiary or, to the Knowledge of the Company, any of their predecessors at,
on, about or under any property now or formerly owned, operated or leased by the
Company or any Company Subsidiary or any of their predecessors in connection
with the operation of the Business;
(g) 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
(h) the Company has provided Parent copies of any environmental
inspections, investigations, studies, audits, tests, reviews or other analyses
in the possession of the Company or any Company Subsidiary conducted 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.
3.15 EMPLOYEE BENEFIT PLANS.
(a) Schedule 3.15(a) is a true and complete list of each (i)
"employee benefit plan," as defined in Section 3(3) of ERISA (including any
"multiemployer plan" as defined in Section 3(37) of ERISA) and (ii) all other
material pension, retirement, supplemental retirement, deferred compensation,
excess benefit, profit sharing, bonus, incentive, stock purchase, stock
ownership, stock option, stock appreciation right, employment, severance, salary
continuation, termination, change-of-control, health, life, disability, group
insurance, vacation, holiday and fringe benefit plan, program, contract or
arrangement (whether written or unwritten, qualified or nonqualified, funded or
unfunded and including any that have been frozen or terminated) maintained,
contributed to, or required to be contributed to, during any time for which the
relevant statute of limitations remains open 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") or under which the Company or any ERISA Affiliate
has any liability for the benefit of their respective employees (collectively,
the "Employee Plans").
(b) As applicable with respect to each Employee Plan, the Company
has delivered to Parent, true and complete copies of (i) each Employee Plan,
including all amendments thereto, and in the case of an unwritten Employee Plan,
a written description thereof, (ii) all trust documents, investment management
contracts, custodial agreements and insurance contracts relating thereto, (iii)
the current summary plan description and each summary of material modifications
thereto, (iv) the three most recent annual reports (Form 5500 and all schedules
thereto) filed with the Internal Revenue Service ("IRS") or Department of Labor
26
("DOL"), (v) the most recent IRS determination letter and each currently pending
application to the IRS for a determination letter, (vi) the three most recent
summary annual reports, financial statements and trustee reports and (vii) all
material records, notices and filings concerning IRS or DOL audits or
investigations and "prohibited transactions" within the meaning of Section 406
of ERISA or Section 4975 of the Code (including Forms 5330).
(c) Except as set forth Schedule 3.15(c), each Employee Plan has
been operated and administered in all material respects in compliance with its
terms and applicable requirements of applicable law, including ERISA and the
Code.
(d) Except as set forth Schedule 3.15(d), 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 could not
reasonably be expected to subject the Company to any material tax, penalty or
liability.
(e) Neither the Company nor any ERISA Affiliate has ever maintained
an Employee Plan that is a "multiemployer plan," within the meaning of Section
3(37) of ERISA, nor has the Company nor any ERISA Affiliate ever maintained an
Employee Plan that is now or at any relevant time was subject to Part 3,
Subtitle B of Title I of ERISA.
(f) Except as set forth Schedule 3.15(f), contributions to, and
payments from, any Employee Plan which may have been required in accordance with
the terms of such Employee Plan or any related document have been timely made
except to the extent such delay could not reasonably be expected to subject the
Company or any ERISA Affiliate to any material tax penalty or liability. Except
as set forth Schedule 3.15(f), all such contributions to, and payments from, any
Employee Plan, except those to be made from a trust, qualified under Section
401(a) of the Code, for any period ending before the Closing Date that are not
yet, but will be, required, are properly accrued and reflected on the most
recent financial statements set forth on Schedule 3.6(a).
(g) Except as set forth Schedule 3.15(g), the Company and each ERISA
Affiliate have complied 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.
(h) Except as set forth Schedule 3.15(h), all of the Employee Plans
which are pension benefit plans have received determination letters from the IRS
to the effect that such plans 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 or any ERISA Affiliate 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 could 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.
27
(i) Except as set forth Schedule 3.15(i), there are no pending
investigations by any Governmental Body involving the Employee Plans, no
termination proceedings involving the Employee Plans, and no threatened or
pending claims (except for claims for benefits payable in the normal operation
of the Employee Plans), suits or proceedings against any Employee Plan or
asserting any rights or claims to benefits under any Employee Plan which could
give rise to any material liability, nor, to the best of the Company's
Knowledge, are there any facts which could give rise to any material liability
in the event of any such investigation, claim, suit or proceeding. Except as set
forth Schedule 3.15(i), there are no materials filings or applications to any
Governmental Body which are currently outstanding or being prepared by the
Company or any Employee Plan with respect to the Employee Plans, including, but
not limited to filings under the Employee Plans Compliance Resolution System (as
set forth in Rev. Proc. 2003-44, and any successor thereto) or the Voluntary
Fiduciary Correction or Delinquent Filer Voluntary Compliance programs of the
DOL.
(j) Except as disclosed on Schedule 3.15(j), no payment which is or
may be made by from or with respect to any Employee Plan, to any employee,
former employee, director or agent of the Company or any ERISA Affiliate, either
alone or in conjunction with any other payment, will or could properly be
characterized as an excess parachute payment under Section 280G of the Code.
(k) Except as set forth Schedule 3.15(k), the Company and each ERISA
Affiliate have properly classified for all purposes (including, without
limitation, for all Tax purposes and for purposes of determining eligibility to
participate in any employee benefit plan) all employees, leased employees,
consultants and independent contractors, and has withheld and paid all
applicable Taxes and made all appropriate filings in connection with services
provided by such persons to the Company and each ERISA Affiliate, except as
could not reasonably be expected to subject the Company to any material tax,
penalty or liability. To the Knowledge of the Company, except as set forth on
Schedule 3.15(k), no employee of the Company or any ERISA Affiliate is bound by
any contract or commitment that restricts him or her from engaging in any
activity competitive with the Company's business or competing with any person or
entity other than as contained in his or her employment agreement with the
Company or an ERISA Affiliate.
3.16. COMPENSATION. Set forth on Schedule 3.16 hereto is (a) a list of all
agreements, plans or arrangements by which the Company or any Company Subsidiary
is bound with regard to employment, consulting services, compensation, bonus,
incentive, stock option, stock purchase, severance pay, retention bonuses,
success fees or other benefits or perquisites, other than any agreements, plans
or arrangements listed in Schedule 3.15(a) hereto or any oral "at will"
employment arrangements, (b) a list of all payments to directors, officers,
employees or consultants contingent on the consummation of the transactions
contemplated by this Agreement and (c) a list as of the date hereof of all
employees of the Company and each Company Subsidiary entitled to receive a base
salary at an annual rate in excess of $100,000 and their respective positions
and annual base salaries.
28
3.17 TAXES.
(a) (i) Except as provided on Schedule 3.17, each Tax Return
required to be filed (taking into account extensions) by or on behalf of or
including the Company or any Company Subsidiary has been timely filed, all such
Tax Returns were true, correct and complete in all material respects and such
Tax Returns were prepared in accordance with all applicable Legal Requirements
and accurately reflect the taxable income (or other measure of tax) of the
Company and each Company Subsidiary; (ii) all Taxes, whether or not shown on
such Tax Returns, due and owning by the Company or any Company Subsidiary 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 or payment has been requested or received; (v) the most recent of the
Company's financial statements reflect an adequate reserve for all Taxes payable
by the Company and Company Subsidiaries for taxable periods and portions thereof
accrued through the date of such financial statements, and nothing has occurred
subsequent to that date to make any of those accruals inadequate; (vi) neither
the Company nor any Company Subsidiary is under, or has received written
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) there has been no issue or claim raised in
writing against the Company or any Company Subsidiary for any Taxes, and no
assessments, deficiency or adjustment has been asserted or proposed in writing
with respect to any Tax Return and no issues relating to Taxes have been raised
by a taxing authority in writing in a completed audit or examination that, in
each case, could reasonably be expected to result in an assessment, deficiency,
or adjustment for a later taxable period; (viii) 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; (ix) the Company and each Company Subsidiary is
not bound by any tax sharing, tax indemnity or similar agreement with respect to
Taxes; (x) the Company and each Company Subsidiary has not ever (1) been the
subject of a Tax ruling that would have continuing effect after the Closing
Date; (2) been the subject of a closing agreement with any Governmental Body
that would have continuing effect after the Closing Date; or (3) granted a power
of attorney with respect to any Tax matters that would have continuing effect
after the Closing Date; and (xi) neither the Company nor any Company Subsidiary
has agreed, or is 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 Company has delivered or made available to Parent true
and complete copies of all income and other material Tax Returns filed with
respect to the Company or the Company Subsidiaries for all taxable periods
beginning after December 31, 1998 or for which the statute of limitations for
assessment of Tax has not expired and correct and complete copies of all
examination reports and notices of deficiencies received since December 31,
1998.
(b) The Company and each Company Subsidiary has complied in all
respects with all Legal Requirements relating to the withholding and payment of
Taxes, including requirements relating to employee wage withholding.
29
(c) No claim has been made by a taxing authority in a jurisdiction
where the Company and/or any Company Subsidiary do not file Tax Returns that the
Company and/or any Company Subsidiary are or may be subject to taxation by that
jurisdiction. The Company and/or any Company Subsidiary has not filed an
election under Section 338(g) or 338(h)(10) of the Code or caused a deemed
election under Section 338(e) of the Code. Neither the Company nor any Company
Subsidiary owns any interest in an entity characterized as a partnership for
federal income tax purposes. The Company and each Company Subsidiary has timely
filed all information returns or reports, including forms 1099, that are
required to be filed and has accurately reported all information required to be
included on such returns or reports. Neither the Company nor any Company
Subsidiary has engaged in any installment sales, open transactions or similar
items that will result in taxable income to the Company or a Company Subsidiary
following the Closing. There are no unpaid Tax liens upon any property or assets
owned by the Company or any Company Subsidiary (other than liens for Taxes not
yet due and payable). Neither the Company nor any Company Subsidiary has any
deferred gain or loss pursuant to Treas. Reg. Section 1.1502-13 (or analogous
provisions of state or local law) arising as a result of any intercompany
transaction. Neither the Company nor any Company Subsidiary has been a United
States real property holding corporation within the meaning of Section 897(c)(2)
during the applicable period set forth in Section 897(c)(1)(A)(ii).
(d) The Company has federal and state net operating loss
carryforwards as set forth on Schedule 3.17(d), expiring as set forth on such
schedule. Such net operating loss carryforwards are not subject to any Code
Section 382 limitations or separate return limitation year (SRLY) or other
limitations.
3.18. INSURANCE. Schedule 3.18 contains a true, correct 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 any Company Subsidiary in effect
for policy periods beginning on or after January 1, 2001, indicating for each
policy the carrier, the type of insurance coverage, 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 Parent 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. Neither the Company nor any Company Subsidiary, as
the case may be, is in material default under any of such policies. There has
not been any failure by the Company or any Company Subsidiary to give any notice
(including notice of facts or circumstances which may give rise to a material
claim under the policies) or present any claim under any such policy in a timely
fashion or in the manner or detail required by the policy. Except as set forth
on Schedule 3.18, there are no outstanding unpaid premiums under such policies
that are due and payable as of the date hereof, other than accounts payable in
the ordinary course of business. No disallowance of any material claim under any
such policy has been received by the Company or any Company Subsidiary. Neither
the Company nor any Company Subsidiary has been refused any insurance, nor has
any of their coverage been limited by any insurance carrier to which any of them
has applied for insurance or with which any of them has carried insurance during
the last five years. Except as disclosed on Schedule 3.18, neither the Company
nor any Company Subsidiary is now, or has entered into any agreement
30
pursuant to which it will be, obligated to pay any retrospectively rated
premiums, deductible amounts or self-insured retentions in connection with any
insurance policies. The Balance Sheet reflects adequate reserves for deductible
amounts, self-insured retentions and incurred but not reported claims in
accordance with GAAP as of the Balance Sheet Date.
3.19 LABOR RELATIONS AND EMPLOYMENT.
(a) At the present time and during the past three years, (i) no
unfair labor practice complaint or charge against the Company or any Company
Subsidiary has been brought before, or, to the Knowledge of the Company,
threatened by, the National Labor Relations Board or any other Government Body
in any jurisdiction; (ii) there has not occurred or, to the Knowledge of the
Company, been threatened any labor strike, dispute, picketing, slowdown,
stoppage, or other similar labor activity against or involving the Company or
any Company Subsidiary; (iii) neither the Company nor any Company Subsidiary is
or has been party to any collective bargaining agreement and there are no labor
unions or other organizations representing, purporting to represent, or
attempting to represent any employee; (iv) neither the Company nor any Company
Subsidiary is or has been a party to, or affected by or threatened with, any
union organizing or election activity or any dispute or controversy with a union
involving its employees; and (v) neither the Company nor any Company Subsidiary
has experienced any material labor difficulty.
(b) Neither the Company nor any Company Subsidiary has effectuated a
"plant closing" or "mass layoff" under the Worker Adjustment Retraining
Notification Act ("WARN Act") nor in the past 90 days has the Company or any
Company Subsidiary effectuated any plant closings or layoffs, which constitute
an "employment loss" within the meaning of the WARN Act or any state or local
law similar to the WARN Act.
3.20 MEDICARE PARTICIPATION/ACCREDITATION.
(a) All long-term acute care hospitals owned, operated or managed by
the Company or any Company Subsidiary (each, a "Facility"), as applicable, are
qualified for participation in the Medicare, Medicaid, CHAMPUS and TRICARE
programs (as indicated), have current and valid provider contracts with each
such program (as indicated), 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. Set forth on Schedule 3.20 are all of the Company's
and the Company Subsidiaries' provider numbers and a list of the Facilities that
are billing for services utilizing such provider numbers. Neither the Company
nor any Company Subsidiary has received any notice from any of the Medicare,
Medicaid, CHAMPUS or TRICARE programs of any pending or threatened investigation
or survey under the Medicare, Medicaid, CHAMPUS or TRICARE programs (other than
routine surveys in the ordinary course of business), and neither the Company nor
any Company Subsidiary has reason to believe that any such investigation or
survey is pending or threatened.
(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 Body, fiscal intermediary, carrier or similar Entity that
enforces or administers the statutory or regulatory
31
provisions in respect of any governmental health care program. There are no
outstanding judgments, orders, writs, injunctions or decrees of any Governmental
Body in respect of any governmental health care program against the Company or
any Company Subsidiary (whether or not covered by insurance).
3.21 COST REPORTS AND OTHER FILINGS.
(a) (i) 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
any Company Subsidiary on or prior to the Closing Date has been timely prepared
and filed in accordance with applicable Legal Requirements and all amounts shown
on such cost reports as owed by the Company or such Company Subsidiary have been
paid timely and (ii) all of such Filings were, when filed or as they have been
subsequently amended, true and complete in all material respects; provided,
however, that, for purposes of calculating Damages resulting from any breach or
inaccuracy of the representations and warranties in clauses (i) and (ii), all of
such Filings and all reserves reflected in the Financial Statements with respect
thereto will be aggregated. The Company has made available for inspection by
Parent prior to the date of this Agreement each such Filing made after January
1, 2001.
(b) Schedule 3.21 lists the Medicare and Medicaid cost reports duly
filed by the Company and each Company Subsidiary covering all open cost
reporting periods prior to the Closing Date and which of such cost reports has
been (i) audited but not fully settled and (ii) 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. Except
as set forth on Schedule 3.21, neither the Company nor any Company Subsidiary
has received notice, or has knowledge of the existence, of any pending dispute
between the Company and/or any Company Subsidiary and governmental authorities
or the Medicare fiscal intermediary regarding such cost reports for the
remaining unaudited cost reports, other than with respect to adjustments thereto
made in the ordinary course of business which do not involve individual line
item adjustments in any cost reporting period in excess of $20,000. Neither the
Company nor any Company Subsidiary has received written notice of, and the
Company does not have Knowledge of the existence of, 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 been and
would not reasonably be expected to be material. Neither the Company nor any
Company Subsidiary 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. The Financial Statements
reflect adequate reserves for all open and unsettled cost reporting periods in
accordance with GAAP.
(c) All home office cost reports filed by the Company and each
Company Subsidiary are true and correct 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.
32
3.22 EXCLUSION.
(a) Neither the Company nor any Company Subsidiary nor, to the
Knowledge of the Company, any Affiliate, 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 any officer, director, employee, vendor or agent of
the Company or any Company Subsidiary: (a) 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) No Legal Proceeding is pending or, to the Knowledge of the
Company, threatened to suspend, limit, terminate or revoke the status of the
Company or any Company Subsidiary as a provider in any federal health care
program. Neither the Company nor any Company Subsidiary has received any notice
from any third-party payor of its intentions to suspend, limit, terminate,
revoke or fail to renew any contractual arrangement with the Company or any
Company Subsidiary.
3.23 BILLING. The Company has designed its internal policies and
procedures to ensure that 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 is, in the aggregate, true,
correct 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 Parent 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.
3.24 REIMBURSEMENT MATTERS. Except as disclosed on Schedule 3.24, for the
previous three years, (a) neither the Company nor any Company Subsidiary has
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
$50,000, (b) to the Knowledge of the Company, there is no basis for the
assertion after the Closing of any such denial or overpayment claim and (c)
neither the Company nor any Company Subsidiary has received written notice from
a federal health care program or any other third party reimbursement source
(inclusive of managed care organizations) of any pending or threatened Legal
Proceedings or surveys specifically with respect to, or arising out of, items or
services provided by the Company or any Company Subsidiary, and to the Knowledge
of the Company, no such investigation or survey is pending, threatened or
imminent. 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.
33
3.25 NO CRIMINAL PROCEEDINGS. There are no pending Legal Proceedings
(other than unknown investigations) against the Company or any Company
Subsidiary or, to the Knowledge of the Company, their agents, officers or
employees with respect to their employment with the Company or any Company
Subsidiary, which involve allegations of criminal violations of any Legal
Requirements by the Company or any Company Subsidiary or their agents, officers
or employees acting on behalf of the Company or any Company Subsidiary,
including without limitation, Medicare or Medicaid.
3.26 LICENSES.
(a) Schedule 3.26(a) contains a complete and accurate list of each
material License that is owned, held or possessed by the Company or any Company
Subsidiary. Each License listed or required to be listed on Schedule 3.26(a) is
valid and in full force and effect. Except as set forth on Schedule 3.26(a):
(i) the Company and each Company Subsidiary is, and at all
times since January 1, 2001 has been, in compliance in all material respects
with the terms and requirements of each License identified or required to be
identified on Schedule 3.26(a);
(ii) to the Knowledge of the Company, no event has occurred or
circumstance exists that may (with or without notice or lapse of time) (A)
constitute or result directly or indirectly in a material violation of or a
material failure to comply with any term or requirement of any License listed or
required to be listed on Schedule 3.26(a) or (B) result directly or indirectly
in the revocation, withdrawal, suspension, cancellation, termination or
nonrenewal of, or any modification to, any License listed or required to be
listed on Schedule 3.26(a);
(iii) neither the Company nor any Company Subsidiary has
received, at any time since January 1, 2001, any written notice or, to the
Knowledge of the Company, other communication from any Governmental Body or any
other Person regarding (A) any actual, alleged, possible or potential material
violation of or material failure by the Company or any Company Subsidiary to
comply with any term or requirement of any License or (B) any actual, proposed,
possible or potential revocation, withdrawal, suspension, cancellation or
termination of, or modification to, any License;
(iv) all applications required to have been filed for the
renewal of the Licenses listed or required to be listed on Schedule 3.26(a) have
been duly filed on a timely basis with the appropriate Governmental Bodies, and
all other filings required to have been made with respect to such Licenses have
been duly made on a timely basis with the appropriate Governmental Bodies; and
(v) to the Knowledge of the Company, there is no reason why
any Licenses listed or required to be listed on Schedule 3.26(a) and issued to
the Company or one or more of the Company Subsidiaries will not be reissued or
transferred in the ordinary course if required as a result of the execution and
consummation of this Agreement.
The Licenses listed in Schedule 3.26(a) collectively constitute all of the
Licenses necessary to permit the Company and the Company Subsidiaries to
lawfully conduct and operate the Business
34
(including, without limitation, the operation of each of the Facilities) in
substantially the manner they currently conduct and operate the Business and to
permit the Company and each Company Subsidiary to own and use their assets in
substantially the manner in which they currently own and use such assets.
(b) To the Knowledge of the Company, each License held by any
administrator, medical director, director of nursing or other material medical
professional employee or medical contracted agent (each a "Professional
Employee") of the Company or any Company Subsidiary and necessary for that
Professional Employee to carry out his/her duties for the Company or any Company
Subsidiary is valid and in full force and effect. Except as set forth on
Schedule 3.26(b):
(i) to the Knowledge of the Company, each Professional
Employee is, and at all times since January 1, 2001 has been, in compliance in
all material respects with all of the terms and requirements of each such
License;
(ii) to the Knowledge of the Company, no event has occurred or
circumstance exists that may (with or without notice or lapse of time) (A)
constitute or result directly or indirectly in a material violation of or a
material failure to comply with any term or requirement of any such License or
(B) result directly or indirectly in the revocation, withdrawal, suspension,
cancellation, termination or non-renewal of, or any modification to, any such
License;
(iii) to the Knowledge of the Company, no Professional
Employee has received, at any time since January 1, 2001, any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible or potential material
violation of or material failure to comply with any term or requirement of any
License or (B) any actual, proposed, possible or potential revocation,
withdrawal, suspension, cancellation or termination of, or modification to, any
License; and
(iv) to the Knowledge of the Company, all applications
required to have been filed for the renewal of such Licenses have been duly
filed on a timely basis with the appropriate Governmental Bodies, and all other
filings required to have been made with respect to such Licenses in order for
the Professional Employee to perform his or her duties for the Company or any
Company Subsidiary have been duly made on a timely basis with the appropriate
Governmental Bodies.
3.27 LONG TERM HOSPITAL CERTIFICATION. Except as set forth on Schedule
3.27, (i) each Facility meets the requirements for a long-term care hospital set
forth at 42 CFR Section 412.23(e), (ii) each Facility meets the grandfathering
requirements for a long-term care hospital set forth at 42 CFR Section
412.534(f), (iii) neither the Company nor any Company Subsidiary has received
written notice from a Governmental Body of any pending or threatened Legal
Proceedings or surveys (other than surveys conducted in the ordinary course of
business) specifically with respect to any Facility's status as a long-term care
hospital, (iv) to the Knowledge of the Company, no such investigation or survey
is pending, threatened or imminent (other than surveys conducted in the ordinary
course of business) and (v) the Company has no reason to believe that each of
the Facilities will not continue to meet such requirements
35
applicable to its Medicare fiscal year. Each Facility set forth on Schedule 3.27
meets the requirements necessary to permit such facility to be paid under the
Medicaid prospective payment system specified in 42 CFR Section 412.1(a)(1) and
the Company expects such Facility to meet the requirements for a long-term care
hospital set forth at 42 CFR Section 412.23(e) by the date set forth opposite
such Facility on Schedule 3.27, which date is prior to the commencement of such
Facility's next Medicare cost reporting period.
3.28 COMPLIANCE WITH LAWS.
(a) The Company and each of the Company Subsidiaries is, and for the
applicable statute of limitations has been, in compliance in all material
respects with all Legal Requirements (other than with respect to Environmental
Laws, which are covered by Section 3.14) that are or were applicable to it or to
the conduct or operation of its business or the ownership, lease or use of any
of its assets, including, without limitation, all statutes, rules, regulations
and regulatory requirements relating to (i) the operation of a Facility as a
long-term acute care hospital and (ii) health, safety or other similar matters.
(b) To the Knowledge of the Company, no event has occurred or
circumstance exists that (with or without notice or lapse of time) is reasonably
likely to (i) constitute or result in a material violation by the Company or any
Company Subsidiary of, or a material failure on the part of the Company or any
Company Subsidiary to comply with, any Legal Requirement (other than with
respect to Environmental Laws, which are covered by Section 3.14), (ii) give
rise to any material obligation on the part of the Company or any Company
Subsidiary to undertake, or to bear all or any portion of the cost of, any
remedial action of any nature, or (iii) result in the imposition of a material
Encumbrance against the Company or any Company Subsidiary, any Facility or any
other property of the Company or any Company Subsidiary under any Legal
Requirement (other than with respect to Environmental Laws, which are covered by
Section 3.14).
(c) Neither the Company nor any Company Subsidiary has received, at
any time since January 1, 2001, any written notice or, to Knowledge of the
Company , other communication from any Governmental Body or any other Person
regarding (i) any actual or alleged material violation of, or failure to comply
in any material respect with, any Legal Requirement (other than with respect to
Environmental Laws, which are covered by Section 3.14), or (ii) any actual or
alleged obligation on the part of the Company or any Company Subsidiary to
undertake, or to bear all or any portion of the cost of, any remedial action of
any nature.
(d) Without limitation of the other provisions of this Section 3.28,
except as set forth on Schedule 3.28:
(i) neither the Company nor any Company Subsidiary has
submitted any claim in connection with any referral to any Facility that
violated any applicable self-referral law, including, without limitation, the
Ethics in Patient Referrals Act, 42 U.S.C. Section 1395nn (the "Xxxxx Act"), or
any applicable state self-referral law;
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(ii) neither the Company nor any Company Subsidiary has
submitted any claim for payment to any payor source, either governmental or
nongovernmental, in violation of any false claim or fraud law, including,
without limitation, the False Claims Act, 31 U.S.C. Section 3729, or any other
applicable federal or state false claim or fraud law;
(iii) neither the Company nor any Company Subsidiary nor, to
the Knowledge of the Company, any Person providing professional or other
services to the Company or a Company Subsidiary is presently, or has, engaged in
any activities which are cause for criminal or civil penalties and/or mandatory
or permissive exclusion from any Health Care Program (as hereinafter defined),
including, without limitation, (A) knowingly and willfully making or causing to
be made a false statement or representation of a material fact in any
application for any benefit or payment; (B) knowingly and willfully making or
causing to be made a false statement or representation of a material fact for
use in determining rights to any benefit or payment; (C) presenting or causing
to be presented a claim for reimbursement under any Health Care Program that is:
(1) for an item or service the claimant knows or should know was not provided as
claimed; (2) for an item or service the claimant knows or should know is false
or fraudulent; or (3) for an item or service the claimant knows or should know
is not medically necessary; (D) any failure by a claimant to disclose knowledge
of the occurrence of any event affecting the initial or continued right to any
benefit or payment on its own behalf or on behalf of another, with the intent to
fraudulently secure such benefit or payment; (E) knowingly or willfully
soliciting or receiving any bribe, rebate, payoff, influence payment, kickback
or other payment of any nature in violation of any Legal Requirement with
respect to any Health Care Program; or (F) knowingly and willfully making or
causing to be made or inducing or seeking to induce the making of any false
statement or representation (or omitting to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading) or a material fact with respect to (1) the conditions or operations
of a Facility in order that such Facility may obtain certification,
accreditation or similar approval under any Federal Health Care Program (as
defined at 42 U.S.C. Section 1320a-7b(f)) or any health care program operated by
or financed in whole or in part by any state or other government jurisdiction in
which the Company or any Company Subsidiary is authorized to do business (each a
"State Health Care Program" and together with the Federal Health Care Programs,
the "Health Care Programs"), or (2) information required to be provided under
Section 1124A of the Social Security Act (42 U.S.C. Section 1320a-3); and
(iv) neither the Company, nor any Company Subsidiary nor, to
the Knowledge of the Company, any officer, director, employee or contracted
agent (for or on behalf of the Company or any Company Subsidiary) of the Company
or any Company Subsidiary, has, directly or indirectly, (A) offered, paid,
solicited or received any remuneration, in cash or in kind, to, or made any
financial arrangements with, any past or present customers, past or present
suppliers, contractors or third party payors of the Company or any Company
Subsidiary, in order to obtain business or payments from such Persons in
violation of any Legal Requirement; (B) solicited, received, given or agreed to
give, or is aware that there has been made or that there is any agreement to
make, any gift or gratuitous Payment (as hereinafter defined) of any kind,
nature or description to any customer or potential customer, supplier or
potential supplier, contractor, third party payor or any other Person in
violation of any Legal Requirement; (C) made or agreed to make, or is aware that
there has been made or that there is any agreement to make, any contribution,
payment, gift or other distribution, whether in money, property or
37
services (a "Payment") to, or for the private use of, any governmental official,
employee or agent where the Payment was in violation of any Legal Requirement;
(D) established or maintained any unrecorded fund or asset for any purpose or
made any false or artificial entries on any of the books or records of the
Company or any Company Subsidiary for any reason; (E) made, or agreed to make,
or is aware that there has been made or that there is any agreement to make, any
Payment to any Person with the intention or understanding that any part of such
Payment would be used for any purpose other than that described in the documents
supporting such Payment; or (F) solicited, received, paid or offered any illegal
remuneration for any referral to any Facility in violation of any Legal
Requirement, including without limitation, the Federal Anti-Kickback Statute, 42
U.S.C. Section 1320a-7b(b), or any applicable state anti-kickback law.
3.29 CENSUS AND PAYOR MIX REPORTS. The Company has delivered to Parent
true and complete reports detailing the census and payor mix for each Facility
for all periods from January 1, 2003 to September 30, 2004.
3.30 XXXX-XXXXXX. Neither the Company nor any Company Subsidiary has ever
received, nor was the construction, renovation or improvement of any Facility at
any time financed by, any construction grants, loans or loan guarantees made
pursuant to the Hospital Survey or Construction Act, Title VI of the Public
Service Act or the National Health Planning and Resource Development Act, Title
XVI of the Public Health Service Act (Title VI and Title XVI being hereinafter
referred to as the "Xxxx-Xxxxxx Act"). Neither the Company nor any Company
Subsidiary is subject to any obligations or community service assurance
requirements pursuant to the Xxxx-Xxxxxx Act.
3.31 TRANSACTIONS WITH AFFILIATES. Except as set forth in Schedule 3.31
since December 31, 2002, no director, officer, employee or greater than five
percent (5%) stockholder of the Company or member of the family or Affiliate
(other than a Company Subsidiary or a portfolio company of such Person) of any
such Person is a party to any transaction with the Company or any Company
Subsidiary, including any Contract providing for the employment of, furnishing
of services by, rental of real or personal property from or otherwise requiring
payments to any such Person or firm, other than employment-at-will arrangements
in the ordinary course of business.
3.32 BANK ACCOUNTS. Schedule 3.32 sets forth a list of all bank and
securities accounts and lockboxes maintained by the Company or any Company
Subsidiary, a list of persons authorized to sign on behalf of the Company and
each Company Subsidiary with respect to each such account and a list of persons
with authorized access to each such lockbox.
3.33 BROKERS OR FINDERS. No broker, finder or investment banker is
entitled to any fee or commission from the Company or any Company Subsidiary for
services rendered on behalf of the Company or any Company Subsidiary in
connection with the Merger or the transactions contemplated by this Agreement.
3.34 VOTES REQUIRED. The Requisite Stockholder Approvals pursuant to the
Stockholder Written Consent are the only votes of the holders of any class or
series of the Company's capital stock necessary to adopt this Agreement and
approve the Merger, the Charter Amendment and the other transactions
contemplated by this Agreement.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to the
Company as follows:
4.1 ORGANIZATION OF PARENT AND MERGER SUB. Each of Parent and Merger Sub
is a corporation duly organized, validly existing and in good standing under the
laws of the state of Delaware 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 not prohibit or materially and adversely
restrict or delay the consummation of the transactions contemplated hereby.
4.2 AUTHORITY.
(a) The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby by each of Parent and
Merger Sub have been duly authorized by requisite corporate action, and no other
acts or other proceedings on the part of Parent and Merger Sub are necessary to
authorize this Agreement or the transactions contemplated hereby. This Agreement
has been duly executed by each of Parent and Merger Sub and constitutes the
legal, valid and binding obligation of each of Parent and Merger Sub,
enforceable against each of Parent and Merger Sub 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 4.2(b), neither the execution
and delivery by Parent and Merger Sub of this Agreement nor the consummation of
the transactions contemplated hereby nor compliance with any of the provisions
hereof by Parent and Merger Sub will (i) violate or conflict with any provision
of the certificate of incorporation or bylaws or other similar organizational
and operational documents of Parent, Merger Sub or any of their Subsidiaries,
(ii) violate or conflict with, or result in a breach 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 or permit the termination of, loss of any material
right under or acceleration of the performance required by, or result in the
creation or imposition of any Encumbrance upon any of the assets of Parent,
Merger Sub or any of their 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
Parent, Merger Sub or any of their Subsidiaries is a party, or by which it or
any of its Subsidiaries or any of the assets of Parent, Merger Sub or any of
their Subsidiaries may be bound or affected, or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Parent, Merger Sub
or any of their Subsidiaries or any of the assets of Parent, Merger Sub or any
of their Subsidiaries except, in the case of clauses (ii) and (iii) above, for
such violations, conflicts, breaches or defaults which would not prohibit or
restrict or delay the consummation of the transactions contemplated hereby.
Except as set forth on Schedule 3.2(b), no consent or approval by, notice to or
registration with any Governmental
39
Body, other than the filing of (x) the certificate of merger required by the
DGCL and (y) 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 Parent or Merger Sub prior to the
Closing Date in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby.
4.3 LITIGATION. As of the date of this Agreement, there are no Legal
Proceedings pending or, to the Knowledge of Parent, threatened against Parent or
Merger Sub, nor any outstanding judgments, orders, writs, injunctions or decrees
of any Governmental Body against Parent, Merger Sub or any of their
Subsidiaries, which seek to prohibit or materially and adversely restrict or
delay the consummation of the transactions contemplated hereby or would
adversely affect the ability of Parent, Merger Sub or any of their Subsidiaries
to consummate the transactions contemplated hereby.
4.4 BROKERS OR FINDERS. No broker, finder or investment banker is entitled
to any fee or commission from Parent or Merger Sub for services rendered on
behalf of Parent, Merger Sub or any of their Subsidiaries in connection with the
Merger and the transactions contemplated by this Agreement.
4.5 FUNDING OF MERGER CONSIDERATION. Parent has, as of the date hereof,
and will have, as of the Closing, liquid assets or available borrowing
facilities in amounts sufficient to enable Parent to consummate the transactions
contemplated by this Agreement and to pay the Merger Consideration to each
Merger Stockholder.
4.6 SURVIVING CORPORATION AFTER THE MERGER. Assuming the representations
and warranties of the Company contained in this Agreement are true and correct
in all material respects, at and immediately after the Effective Time, and after
giving effect to the Merger and the other transactions contemplated herein, the
Surviving Corporation (a) will be solvent (in that both the fair value of its
assets will not be less than the sum of its debts and that the present fair
saleable value of its assets will not be less than the amount required to pay
its probable liability on its debts as they become absolute and matured), (b)
will have adequate capital with which to engage in its business and (c) will not
have incurred and does not plan to incur debts beyond its ability to pay as they
become absolute and matured.
ARTICLE V
CERTAIN COVENANTS OF THE PARTIES
5.1 ACCESS AND INVESTIGATION. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to Article IX or the Effective Time (the "Pre-Closing Period"), the
Company shall, and shall cause its Representatives to: (a) provide Parent and
Parent's Representatives with reasonable access during normal business hours to
the Company's Representatives, personnel and assets and to all existing books,
records, Tax Returns, work papers and other documents and information relating
to the Company (including such access to conduct environmental audits); and (b)
provide Parent and Parent's Representatives with copies of such existing books,
records, Tax Returns, work papers and other documents and information relating
to the Company, and with such additional financial, operating and other data and
information regarding the Company, as Parent may
40
reasonably request. Parent and its Representatives will hold any such
information in accordance with the terms of the confidentiality agreements,
dated April 13, 2004 and February 17, 2004, each between the Company and Parent
(collectively, the "Confidentiality Agreement").
5.2 CONDUCT OF BUSINESS. During the Pre-Closing Period, 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 necessary for the conduct
of the Business and maintain satisfactory relationships with suppliers,
customers and others having business relationships with it. Without limiting the
foregoing, except as set forth on Schedule 5.2, the Company will not, and will
cause the Company Subsidiaries not to, do any of the following without the prior
written consent of Parent:
(a) amend its certificate of incorporation, bylaws or other similar
organizational and operational documents, other than the Charter Amendment;
(b) 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 (other than (A) the issuance of Common Stock to employees of the
Company upon exercise of Options outstanding as of the date hereof, (B) the
issuance of Common Stock to Stockholders upon conversion of Preferred Stock
outstanding as of the date hereof and (C) the repurchase of Common Stock from
employees of the Company or any Company Subsidiary pursuant to agreements in
effect on the date hereof under which the Company has the option to repurchase
such shares upon the termination of employment);
(c) 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);
(d) adopt or amend any Employee Plan (except to the extent required
by Section 2.7 hereof) or collective bargaining agreement, except as may be, and
to the extent, required by law;
(e) guarantee any liabilities, obligations or indebtedness of any
Person (other than the Company or any Company Subsidiary);
(f) permit, allow or suffer any of its material assets, leases or
leased property to be subject to any Encumbrance, other than Permitted Liens;
(g) cancel any material indebtedness for borrowed money owed to the
Company or any Company Subsidiary or waive any other claims or rights of
substantial value;
(h) 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,
any Stockholder or Affiliate (other than with payments, loans, advances, sales,
transfers, leases, agreements or arrangements between the Company and any
Company Subsidiary or between two or more Company Subsidiaries and other than as
contemplated by this Agreement);
41
(i) make any material change in any method of accounting or
accounting practice or policy other than those required by GAAP;
(j) 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;
(k) acquire or agree to acquire (A) short-term assets outside of the
ordinary course of business consistent with past practice and (B) any long-term
assets (other than capital expenditures and additions to property, plant or
equipment pursuant to Section 5.2(q)) outside the ordinary course of business
consistent with past practices and in the aggregate in excess of $100,000;
(l) 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
$50,000;
(m) amend, revise, take any action to renew or take any action to
terminate any material contract, lease, sublease, option or other agreement to
which the Company or a Company Subsidiary may be a party, which requires annual
payments to or from the Company or any Company Subsidiary of more than $50,000;
(n) enter into or renew any employment, labor or consulting
contract, arrangement or commitment, other than those that are terminable at
will, without penalty or continuing obligation;
(o) initiate or settle any litigation to which the Company or a
Company Subsidiary is a party that would require payments in excess of $100,000
in the aggregate, excluding payments to the extent they are covered by
insurance;
(p) make or grant pay raises, bonuses, awards or severance to any
officer, employee or director, or make any other payments, directly or
indirectly, to any officer, employee or director of the Company or any Company
Subsidiary, other than annual merit increases in the ordinary course of business
consistent with past practice or as required by the terms of any employment,
bonus or severance agreement or plan in effect on the date immediately prior to
the date hereof;
(q) make any capital expenditures for additions to property, plant
or equipment outside of the ordinary course of business consistent with past
practice; or make any commitments for capital expenditures for additions to
property, plant or equipment where the payments for such commitments to be made
after the Closing will be in excess of $50,000 in the aggregate;
(r) fail to maintain in full force and effect through the Closing,
insurance of the type and with such coverage amounts and with insurers rated
comparable to those maintained as of the date hereof (the Company shall promptly
advise Parent in writing of any change of insurer or type of coverage);
42
(s) make, change or revoke any material Tax election or make any
agreement or settlement with any taxing authority;
(t) open any new hospital or purchase any hospital or close or sell
any hospital;
(u) enter into or renew any real property lease; or
(v) agree to any of the foregoing.
5.3 NOTIFICATION.
(a) During the Pre-Closing Period, the Company shall promptly notify
Parent in writing of the Company obtaining Knowledge of:
(i) any event, condition, fact or circumstance that occurred
or existed on or prior to the date of this Agreement and that caused or
constitutes a material inaccuracy in or a material breach of any representation
or warranty made by the Company in this Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute a material inaccuracy in or a material breach of any representation
or warranty made by the Company in this Agreement if (i) such representation or
warranty had been made as of the time of the occurrence, existence or discovery
of such event, condition, fact or circumstance, or (ii) such event, condition,
fact or circumstance had occurred, arisen or existed on or prior to the date of
this Agreement;
(iii) any material breach of any covenant or obligation herein
of the Company; and
(iv) any event, condition, fact or circumstance that would
make the timely satisfaction of any of the conditions set forth in Article VI,
Article VII or Article VIII impossible or unlikely.
(b) During the Pre-Closing Period, Parent shall promptly notify the
Company in writing of Parent obtaining Knowledge of:
(i) any event, condition, fact or circumstance that occurred
or existed on or prior to the date of this Agreement and that caused or
constitutes a material inaccuracy in or material breach of any representation or
warranty made by Parent or Merger Sub in this Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute a material inaccuracy in or material breach of any representation or
warranty made by Parent or Merger Sub in this Agreement if (i) such
representation or warranty had been made as of the time of the occurrence,
existence or discovery of such event, condition, fact or circumstance, or (ii)
such event, condition, fact or circumstance had occurred, arisen or existed on
or prior to the date of this Agreement;
43
(iii) any material breach of any covenant or obligation herein
of Parent or Merger Sub; and
(iv) any event, condition, fact or circumstance that would
make the timely satisfaction of any of the conditions set forth in Article VI,
Article VII or Article VIII impossible or unlikely.
5.4 NO NEGOTIATION. During the period from the receipt by the Company of
the Requisite Stockholder Approvals pursuant to the Stockholder Written Consent
until the earlier of the termination of this Agreement pursuant to Article IX or
the Effective Time, the Company shall not, directly or indirectly:
(a) solicit or encourage the initiation of any inquiry, proposal or
offer from any Person (other than Parent) relating to a possible Acquisition
Transaction;
(b) participate in any discussions or negotiations or enter into any
agreement with, or provide any non-public information to, any Person (other than
Parent) relating to or in connection with a possible Acquisition Transaction; or
(c) consider, entertain or accept any proposal or offer from any
Person (other than Parent) relating to a possible Acquisition Transaction.
The Company shall promptly notify Parent in writing of any material inquiry,
proposal or offer relating to a possible Acquisition Transaction that is
received by the Company during the Pre-Closing Period.
5.5 OTHER INFORMATION AND EVENTS. During the Pre-Closing Period, the
Company shall furnish to Parent:
(a) as soon as possible and in any event within five (5) business
days after the Company or a Company Subsidiary receives notice from any party to
any Contract that the Company or a Company Subsidiary is in default thereunder,
a copy of such notice;
(b) promptly after the commencement thereof, notice in writing of
all Legal Proceedings by or before any court or Governmental Body, against or
affecting the Company or a Company Subsidiary or any of its properties or
assets.
5.6 TAX RETURN FILING. The Company shall cause to be prepared and timely
filed all Tax Returns required to be filed by the Company or any Company
Subsidiary on or prior to the Closing Date (the "Company Pre-Closing Returns").
The Company Pre-Closing Returns shall be prepared, where relevant, in a manner
consistent with the Company's past practices except as otherwise required by
applicable law. The Company shall allow Parent the opportunity to review and
comment on the Company Pre-Closing Returns to be filed after the date hereof for
a reasonable period prior to the intended filing date, provided that nothing
hereunder shall limit the Company's right to cause such Tax Returns to be filed
on a timely basis. The Company shall cause to be timely paid and shall be
responsible for all Taxes due on or prior to the Closing Date with respect to
Company Pre-Closing Returns.
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5.7 REGULATORY APPROVALS. The Company and Parent shall use all reasonable
efforts to file, as soon as practicable after the date of this Agreement (but in
any event within three (3) business days of the date of this Agreement), all
notices, reports and other documents required to be filed with any Governmental
Body with respect to the Merger and the other transactions contemplated by this
Agreement, and to submit promptly any additional information requested by any
such Governmental Body. The Company and Parent shall respond as promptly as
practicable to (a) any inquiries or requests received from the Federal Trade
Commission or the Department of Justice for additional information or
documentation and (b) any inquiries or requests for information received from
any state attorney general or other Governmental Body in connection with
antitrust or related matters. Each of the Company and Parent shall (i) give the
other party prompt notice of the commencement of any Legal Proceeding by or
before any Governmental Body with respect to the Merger or any of the other
transactions contemplated by this Agreement, (ii) keep the other party informed
as to the status of any such Legal Proceeding and (iii) promptly inform the
other party of any communication to or from the Federal Trade Commission, the
Department of Justice or any other Governmental Body regarding the Merger. The
Company and Parent will consult and cooperate with one another, and will
consider in good faith the views of one another, in connection with any
analysis, appearance, presentation, memorandum, brief, argument, opinion or
proposal made or submitted in connection with any Legal Proceeding under or
relating to any federal or state antitrust or fair trade law.
5.8 PUBLIC ANNOUNCEMENTS. During the Pre-Closing Period, neither the
Company nor Parent shall (and neither shall permit any of its Representatives
to) issue any press release or make any public statement regarding this
Agreement or the Merger, or regarding any of the other transactions contemplated
by this Agreement, without the other parties' prior written consent, except as
such release or statement may be required by law or the rules or regulations of
any United States or foreign securities exchange; provided, however, that,
promptly following the execution of this Agreement, Parent and the Company shall
issue a mutually acceptable press release.
5.9 SATISFACTION OF CONDITIONS. Prior to the Closing, (a) the Company
shall use its commercially reasonable efforts to cause the conditions set forth
in Article VII to be satisfied on a timely basis (including without limitation
to cure any material inaccuracy in any representation or warranty that would
exist as of the Closing Date), and (b) Parent and Merger Sub shall use their
commercially reasonable efforts to cause the conditions set forth in Article
VIII to be satisfied on a timely basis (including without limitation to cure any
material inaccuracy in any representation or warranty that would exist as of the
Closing Date). Notwithstanding anything to the contrary herein, neither Parent
nor the Company, nor any of their respective Affiliates, shall be required as a
result of this Agreement, to propose or agree to accept any undertaking or
condition, to enter into any consent decree, to make any divestiture or accept
any operational restriction or to take or commit to take any action that could
reasonably be expected to limit (x) the freedom of action of Parent or the
Company or their respective Subsidiaries or Affiliates with respect to the
operation of, or Parent's or its Subsidiaries' or Affiliates' ability to retain,
the Company, the Company Subsidiaries or any of their respective businesses or
assets or (y) the ability to retain, own or operate any portion of the business
of Parent, the Company or their respective Subsidiaries and Affiliates or alter
or restrict in any way the business or commercial practices of Parent or the
Company or either of their respective Subsidiaries or Affiliates.
45
5.10 INDEMNIFICATION OF OFFICERS AND DIRECTORS.
(a) The certificate of incorporation and bylaws of the Surviving
Corporation and the Company Subsidiaries (the "Charter Documents") shall contain
provisions no less favorable with respect to indemnification and advancement of
expenses than are set forth in the Charter Documents of the Company or the
applicable Company Subsidiary, as in effect on the date hereof, which provisions
shall not be amended, repealed or otherwise modified for a period of six years
from the Effective Time in any manner that would affect adversely the rights
thereunder of individuals who at any time prior to the Effective Time were
entitled to indemnification and advancement of expenses under the applicable
Charter Documents.
(b) At or prior the Effective Time, the Company shall obtain an
insurance policy insuring the Company and the Company Subsidiaries and their
respective directors and officers for anything done or not done by such
directors or officers in any such capacity whether pertaining to any act or
omission occurring or existing prior to or at the Effective Time and whether
asserted or claimed prior to, at or after the Effective Time (the "Tail
Policy"). The Tail Policy shall provide for aggregate coverage of at least
$3,000,000, shall have a minimum six (6) year tail and shall be reasonably
acceptable to Parent. The premiums related to the Tail Policy shall either be
paid out of current assets prior the Closing or be included as a current
liability in all Net Working Capital calculations.
(c) The provisions of this Section 5.10 are intended to be for the
benefit of, and shall be enforceable by, each of the Persons entitled to
indemnification and advancement of expenses under the Charter Documents or
covered by the Tail Policy, their heirs and their personal representatives and
shall be binding on all successors and assigns of Parent, Merger Sub, the
Company, the Surviving Corporation and the Company Subsidiaries.
5.11 INVESTIGATION BY PARENT AND MERGER SUB; NO OTHER REPRESENTATIONS OR
WARRANTIES.
(a) In connection with Parent's and Merger Sub's investigation of
the Company and the Company Subsidiaries and their businesses and operations,
Parent, Merger Sub and their respective Representatives have received from the
Company or its Representatives certain projections and other forecasts for the
Company and the Company Subsidiaries and certain estimates, plans and budget
information. Parent and Merger Sub acknowledge and agree that (i) there are
uncertainties inherent in attempting to make such projections, forecasts,
estimates, plans and budgets; (ii) Parent and Merger Sub are familiar with such
uncertainties; and (iii) Parent and Merger Sub are taking full responsibility
for making their own evaluations of the adequacy and accuracy of all estimates,
projections, forecasts, plans and budgets so furnished to them or their
Representatives. The Company represents that such projections, forecasts,
estimates, plans and budgets were prepared by it in good faith.
(b) Each of Parent and Merger Sub agrees that, except for the
representations and warranties made by the Company that are expressly set forth
in this Agreement or in any Exhibits, Schedules and documents delivered pursuant
to this Agreement, neither the Company nor any Company Subsidiary has made and
shall not be deemed to have made to any of Parent, Merger Sub or their
respective Affiliates or Representatives any representation or warranty of
46
any kind. Without limiting the generality of the foregoing, each of Parent and
Merger Sub agrees that neither the Company nor any Company Subsidiary made or
has made any representation or warranty to Parent, Merger Sub or to any of their
respective Representatives or Affiliates with respect to any projections,
forecasts, estimates, plans or budgets of future revenue, expenses or
expenditures, future results of operations (or any component thereof), future
cash flows (or any component thereof) or future financial condition (or any
component thereof) of the Company or any Company Subsidiary or the future
business, operations or affairs of the Company or any Company Subsidiary.
(c) The Company acknowledges and agrees that, except for the
representations and warranties made by Parent or Merger Sub as expressly set
forth in Article IV, neither Parent nor Merger Sub makes or has made to the
Company, any Company Subsidiary, any Stockholder or any of their respective
Affiliates or Representatives any representation or warranty of any kind.
5.12 FIRPTA MATTERS. At the Closing, (a) the Company shall deliver to
Parent a statement (in such form as may be reasonably requested by counsel to
Parent) conforming to the requirements of Xxxxxxx 0.000 - 0(x)(0) xx xxx Xxxxxx
Xxxxxx Treasury Regulations and (b) the Company shall deliver to the Internal
Revenue Service the notification required under Xxxxxxx 0.000 - 0(x)(0) xx xxx
Xxxxxx Xxxxxx Treasury Regulations.
5.13 INDEBTEDNESS AND TRANSACTION EXPENSES. At the Closing, Parent will
pay, or will cause the Surviving Corporation to pay, all Indebtedness
outstanding as of the Closing Date and all unpaid Transaction Fees and Expenses
of the Company as of the Closing Date, each as specified by the Company. One (1)
day prior to the Closing, the Company shall provide Parent with (a) a copy of
the "payoff" letters from the lenders in connection with the Indebtedness, (b) a
copy of the letters from such lenders confirming that all Encumbrances relating
to such Indebtedness will be removed by the lenders effective upon payment to
the lenders of the amounts set forth in the payoff letters and (c) a complete
and accurate itemization of any other Indebtedness and a good faith estimate of
all unpaid Transaction Fees and Expenses of the Company.
5.14 ADOPTION OF MERGER AGREEMENT. Immediately following the execution of
this Agreement, the Company shall use its commercially reasonable best efforts
to obtain the Requisite Stockholder Approvals and the approval of the Charter
Amendment pursuant to the Stockholder Written Consent. Upon receipt of the
Requisite Stockholder Approvals, the Company shall promptly deliver to Parent a
certificate of a duly authorized officer of the Company certifying as to the
receipt of such Requisite Stockholder Approvals pursuant to the Stockholder
Written Consent. Promptly following the receipt of the Requisite Stockholder
Approvals, the Company shall file the Charter Amendment with the Secretary of
State of the State of Delaware. Upon the acceptance for filing of the Charter
Amendment by the Secretary of State of Delaware, the Company shall promptly
deliver to Parent a certificate of a duly authorized officer of the Company
certifying as to such acceptance. Within five (5) days of the date of this
Agreement, the Company shall send to the Stockholders a notice complying with
Section 262(d)(2) of the DGCL.
47
5.15 PREFERRED STOCK. The Company shall take all other actions necessary
to ensure that all shares of Preferred Stock shall be converted into the
applicable number of shares of Common Stock effective immediately prior to the
Effective Time.
5.16 COOPERATION REGARDING LICENSES. Each party shall use all reasonable
efforts to assist and cooperate with the other party, including by providing all
relevant information, in order to make all necessary filings with all
appropriate Governmental Bodies (i) to obtain any approvals or consents from
Governmental Bodies that Parent deems necessary or appropriate for the
consummation of the transactions contemplated by this Agreement and (ii) to
cause all Licenses that Parent deems necessary or appropriate to conduct and
operate the Business following the Effective Time in substantially the same
manner as the Company and the Company Subsidiaries currently conduct and operate
the Business to be received, reissued, transferred or to remain in effect, as
applicable.
5.17 TERMINATION OF OTHER AGREEMENTS.
(a) The Company shall use commercially reasonably efforts to ensure
that the Second Amended and Restated Investor Rights Agreement, dated as of
October 31, 2001, by and among the Company, the Investors party thereto, the
Founders and Xxxxx Xxxxxx (the "Investor Rights Agreement") shall be terminated
immediately prior to the Closing.
(b) The Company shall use commercially reasonably efforts to ensure
that the Second Amended and Restated Investor Rights Agreement, dated as of
October 31, 2001, by and among the Company, the Investors and Shareholders party
thereto (the "Series A Voting Agreement") shall be terminated immediately prior
to the Closing.
5.18. CREDIT AGREEMENT CONSENT. Parent shall use commercially reasonably
efforts to obtain the Credit Agreement Consent (as defined in Section 7.10)
within thirty (30) days after the date of this Agreement.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH PARTY
The obligations of each party to consummate the transactions contemplated
by this Agreement are subject to the satisfaction (or waiver by each of the
parties), at or prior to the Closing, of each of the following conditions:
6.1 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
6.2 XXXX-XXXXX-XXXXXX REQUIREMENTS. The waiting periods (as such may be
extended by the Governmental Bodies involved) applicable to the consummation of
the transactions contemplated hereby under the provisions of the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended, and the rules
thereunder (the "HSR Act") shall have expired or have been terminated by the
appropriate Governmental Body.
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ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS
OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are subject
to the satisfaction (or waiver by Parent), at or prior to the Closing, of each
of the following additional conditions:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company (a) set forth in Sections 3.1, 3.2(a), 3.2(c), 3.3, 3.4, 3.5, 3.33
and 3.34 of this Agreement (the "Specified Sections") shall be true and correct
in all material respects on the date hereof and at and as of the Closing Date as
if made at and as of such date and (b) contained in this Agreement (other than
the Specified Sections) shall be true and correct (without regard to any
Material Adverse Effect or other materiality qualifiers contained therein) on
the date hereof and at and as of the Closing Date as if made at and as of such
date, except for those representations and warranties which address matters only
as of a particular date (which shall have been true and correct as of such date)
and except, in the case of clause (b) only, where the failure of such
representations and warranties to be true and correct would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect,
and the Company shall have delivered to Parent a certificate to such effect
signed by a duly authorized officer of the Company.
7.2 PERFORMANCE OF THE COMPANY. Each of the obligations of the Company 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 shall have delivered to
Parent a certificate to such effect signed by a duly authorized officer of the
Company.
7.3 MATERIAL ADVERSE EFFECT. There shall not have occurred after the date
of this Agreement (i) a change or proposed change in Legal Requirements
(including all changes or proposed changes in payment or reimbursement by
government payors) that does have or would reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the business,
financial condition, results of operations or prospects of the Company and the
Company Subsidiaries, taken as a whole, other than the final regulatory changes
announced by CMS on August 2, 2004 applicable to long-term acute care hospitals
operated as "hospitals within hospitals" or "satellites", or (ii) any event,
change, condition, circumstance or state of facts that has had or would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
7.4 SECRETARY'S CERTIFICATE. Parent 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,
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; (b) the attached copy of the
resolutions of the Stockholders authorizing and approving
49
this Agreement and Charter Amendment and stating that the resolutions thereby
certified have not been amended, modified, revoked or rescinded; and (c) the
incumbency, authority and specimen signature of each officer of the Company
executing this Agreement or any other document or instrument contemplated
hereby.
7.5 GOOD STANDING CERTIFICATE. Parent shall have received certificates as
to the Company's and each Company Subsidiary's organization, valid existence and
good standing as a domestic corporation in the State of Delaware as of a date no
more than five days prior to the Closing Date.
7.6 ORGANIZATIONAL DOCUMENTS. Parent 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 bylaws or other
organizational documents, as the case may be, of the Company and each Company
Subsidiary, certified as true and complete by its Secretary.
7.7 LEGAL OPINION. Parent shall have received from counsel for the Company
an opinion dated the Closing Date in the form attached hereto as Exhibit J.
7.8 CONSENTS. The Company shall have received (and furnished to the Parent
evidence thereof reasonably satisfactory to Parent) any necessary or required
approvals and consents from all third parties necessary or required to complete
the transactions contemplated hereby or necessary for the Contracts, the leases
of the Leased Real Property and any other contracts material to the Business set
forth on Schedule 7.8 to remain in effect for the benefit of the Surviving
Corporation or any Company Subsidiary, as applicable, following consummation of
the transactions contemplated hereby on the same terms as in effect prior to the
Closing (other than with respect to the Little Rock Lease), and such approvals
and consents shall not have expired or been withdrawn as of the Closing Date.
7.9 LICENSES. All approvals and consents from Governmental Bodies that
Parent deems necessary or appropriate for the consummation of the transactions
contemplated by this Agreement shall have been obtained, and all Licenses that
Parent deems necessary or appropriate to conduct and operate the Business
following the Effective Time in substantially the same manner as the Company and
the Company Subsidiaries currently conduct and operate the Business shall have
been received, reissued or transferred or will remain in effect, as applicable,
or with respect to any such Licenses that may not be obtained under applicable
Legal Requirements prior to the Effective Time, assurances reasonably
satisfactory to Parent shall have been received from the applicable Governmental
Bodies that such Licenses will be obtained promptly following the Effective
Time.
7.10 CREDIT AGREEMENT CONSENT. Parent shall have received a written
consent to the transactions contemplated hereby (the "Credit Agreement Consent")
from the lenders under that certain Credit Agreement, dated as of September 22,
2000, by and among Parent, Canadian Back Institute Limited, the Lenders party
thereto, JPMorgan Chase Bank, as US Agent and US Collateral Agent, JPMorgan
Chase Bank, Toronto Branch (as successor to X.X. Xxxxxx Bank
50
Canada), as Canadian Agent and Canadian Collateral Agent, Banc of America
Securities, LLC, as Syndication Agent, and CIBC, Inc., as Documentation Agent.
7.11 ESCROW AGREEMENT. Each of the Stockholders' Agent and the Escrow
Agent shall have duly executed and delivered the Escrow Agreement to Parent.
7.12 EMPLOYMENT AGREEMENTS. The Employment Agreements shall be in full
force and effect.
7.13 NON-SOLICITATION AND CONFIDENTIALITY AGREEMENTS. The Non-Solicitation
and Confidentiality Agreements shall be in full force and effect.
7.14 OTHER CERTIFICATES. Parent shall have received such other
certificates, instruments and other documents, in form and substance reasonably
satisfactory to Parent and counsel for Parent, as Parent shall have reasonably
requested in connection with the transactions contemplated hereby.
7.15 RESIGNATIONS. All directors and officers of the Company and each
Company Subsidiary (except those designated by Parent) shall have executed and
delivered to the Company and each Company Subsidiary, as applicable,
resignations effective as of the Effective Time.
7.16 FIRPTA COMPLIANCE. The Company shall have complied with Section 5.12.
7.17 TERMINATION OF OTHER AGREEMENTS. Prior to the Closing, the Investor
Rights Agreement and the Series A Voting Agreement shall have been terminated
and no longer in effect.
7.18 NO LEGAL PROCEEDINGS. No Governmental Body or other Person shall have
commenced or threatened to commence any Legal Proceeding (a) challenging or
seeking the recovery of damages in connection with the Merger; (b) seeking to
prohibit or limit the exercise by Parent of any material right pertaining to its
ownership of stock of Merger Sub or the Company; or (c) claiming to own any
capital stock of the Company, or the option or other right to the capital stock
of the Company, or right to receive consideration as a result of the Merger.
ARTICLE VIII
CONDITIONS PRECEDENT TO
OBLIGATIONS OF THE COMPANY
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction (or waiver by the Company), at or prior to the Closing, of each of
the following additional conditions:
8.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Parent and Merger Sub contained in this Agreement (without giving effect to any
materiality qualifiers contained herein) shall be true and correct on the date
hereof and at and as of the Closing Date as if made at and as of such date,
except for those representations and warranties which address matters only as of
a particular date (which shall have been true and correct as of such date) and
51
except where the failure of such representations and warranties to be true and
correct would not prohibit or materially and adversely restrict or delay the
consummation of the transactions contemplated hereby, and Parent shall have
delivered to the Company a certificate to such effect signed by a duly
authorized officer of Parent.
8.2 PERFORMANCE BY PARENT AND MERGER SUB. Each of the obligations of
Parent and Merger Subs 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, Parent shall
have delivered to the Company a certificate to such effect signed by a duly
authorized officer of Parent.
8.3 MATERIAL BENEFICIAL CHANGE. There shall not have occurred after the
date of this Agreement any change to the final regulatory changes announced by
CMS on August 2, 2004 applicable to long-term acute care hospitals operated as
"hospitals within hospitals" or "satellites" that has had or would reasonably be
expected to have, individually or in the aggregate, a material beneficial effect
on the business, financial condition, results of operations or prospects of the
Company and the Company Subsidiaries, taken as a whole.
8.4 SECRETARY'S CERTIFICATES. The Company shall have received
certificates, dated the Closing Date, duly executed by the respective
Secretaries or Assistant Secretaries of Parent and Merger Sub, on behalf of
Parent and Merger Sub, certifying as to: (a) the attached copy of the
resolutions of Parent or Merger Sub, as applicable, 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 Parent or Merger
Sub, as applicable, executing this Agreement or any other document or instrument
contemplated hereby.
8.5 ESCROW AGREEMENT. Parent and the Escrow Agent shall have duly executed
and delivered the Escrow Agreement to the Stockholders' Agent.
8.6 LEGAL OPINION. The Company shall have received from counsel for Parent
an opinion dated the Closing Date in the form attached hereto as Exhibit K.
8.7 OTHER CERTIFICATES. The Company shall have received such other
certificates, instruments and other documents, in form and substance reasonably
satisfactory to the Company and counsel for the Company, as the Company shall
have reasonably requested in connection with the transactions contemplated
hereby.
8.8 NO LEGAL PROCEEDINGS. No Governmental Body or other Person shall have
commenced or threatened to commence any Legal Proceeding which could give rise
to the recovery of damages from any Stockholder (pursuant to Article X hereof or
otherwise) in connection with the Merger.
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ARTICLE IX
TERMINATION
9.1 TERMINATION. This Agreement may be terminated at any time prior to the
Closing as follows, and in no other manner:
(a) by mutual consent of Parent and the Company;
(b) by Parent if any of the conditions set forth in Article VI or
Article VII shall have become incapable of fulfillment, and shall not have been
waived by Parent;
(c) by the Company if any of the conditions set forth in Article VI
or Article VIII shall have become incapable of fulfillment, and shall not have
been waived by the Company;
(d) by either Parent or the Company if the Closing has not occurred
within 90 days of this Agreement (the "Drop Dead Date"); provided, however, that
if the Closing has not occurred because of a party's breach of this Agreement,
then the Drop Dead Date shall be extended for 20 days to the extent such breach
can be cured and such breaching party is using commercially reasonable efforts
to effect such cure; provided, further, that if the Department of Justice or the
Federal Trade Commission has made a formal request for additional information or
documentary material under the HSR Act within such 90-day period, then the Drop
Dead Date shall be extended to the earlier of (i) 120 days after the date of
this Agreement and (ii) 15 days after each of Parent and the Company has
substantially complied with such second request;
(e) by Parent if the Requisite Stockholder Approval are not obtained
within three (3) hours of the execution of this Agreement or if the Charter
Amendment is not filed with and accepted by the Secretary of State of the State
of Delaware within one (1) business day of the execution of this Agreement; and
(f) by the Company if Parent has not received the Credit Agreement
Consent within 30 days after the date of this Agreement.
9.2 PROCEDURES AND EFFECT OF TERMINATION. If this Agreement is terminated
as provided herein, neither party shall have any liability or further obligation
to any other party under the terms of this Agreement; provided that if such
termination shall result from the breach by the non-terminating party of any
representation or warranty, or the failure of the non-terminating party to
perform a covenant of this Agreement, such party shall be fully liable for any
and all damages incurred or suffered by the other parties as a result of such
failure; provided further that if this Agreement is terminated by the Company
pursuant to Section 9.1(f), Parent shall promptly reimburse the Company for all
out-of-pocket legal and accounting expenses reasonably incurred by the Company
in connection with the preparation and negotiation of this Agreement since
October 21, 2004.
9.3 RETURN OF DOCUMENTATION. Following termination of this Agreement,
Parent shall return all agreements, documents, contracts, instruments, books,
records, materials and other information (in any format) regarding the Company
or any Company Subsidiary provided to Parent or its Representatives in
connection with the transactions contemplated by this
53
Agreement. The Confidentiality Agreement shall remain in full force and effect
following any termination of this Agreement.
9.4 NON-DISPARAGEMENT. Following termination of this Agreement, none of
Parent, Merger Sub or the Company shall, and each of them shall cause their
respective stockholders, directors, officers and Affiliates not to, disparage in
any way the other party or any of such other party's stockholders, directors,
officers, employees or agents, whether publicly or privately, orally, in
writing, or otherwise, including, without limitation, in communications with any
suppliers, clients, customers or any other Person.
ARTICLE X
INDEMNIFICATION, ETC.
10.1 SURVIVAL OF REPRESENTATIONS, ETC.
(a) The representations and warranties made by the Company in this
Agreement and in each of the other agreements, certificates and instruments
delivered to Parent pursuant to or in connection with the transactions
contemplated by this Agreement shall survive the Closing and shall expire,
together with the Parent Indemnitees' right to seek indemnification for breaches
thereto pursuant to this Article X, on the date which is nine (9) months
following the Closing Date (the "Stockholder Expiration Date"); provided,
however, that if, at any time prior to the Stockholder Expiration Date, any
Parent Indemnitee (acting in good faith) delivers to the Stockholders' Agent a
written notice alleging the existence of an inaccuracy in or a breach of any of
the representations and warranties made by the Company (and setting forth in
reasonable detail the basis for such Parent Indemnitee's belief that such an
inaccuracy or breach may exist) and asserting a claim for recovery under Section
10.2 based on such alleged inaccuracy or breach, then the claim asserted in such
notice shall survive the applicable Stockholder Expiration Date until such time
as such claim is fully and finally resolved. The representations and warranties
made by Parent and Merger Sub shall survive the Closing and shall expire,
together with the Stockholder Indemnitees' right to seek indemnification for
breaches thereto pursuant to this Article X, on the date which is nine (9)
months following the Closing Date (the "Parent Expiration Date"); provided,
however, that if, at any time prior to the Parent Expiration Date, any
Stockholder Indemnitee (acting in good faith) delivers to Parent a written
notice alleging the existence of any inaccuracy in or breach of any of the
representations and warranties made by Parent and Merger Sub (and setting forth
in reasonable detail the basis for such Stockholder Indemnitee's belief that
such an inaccuracy or breach may exist) and asserting a claim for recovery under
Section 10.3 based on such alleged inaccuracy or breach, then the claim asserted
in such notice shall survive the applicable Parent Expiration Date until such
time as such claim is fully and finally resolved.
(b) For purposes of this Agreement, each statement or other item of
information set forth in any Schedule hereto shall be deemed to be a part of the
representation and warranty made by the Company, Parent or Merger Sub, as the
case may be, in this Agreement.
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10.2 INDEMNIFICATION BY THE STOCKHOLDERS.
(a) Subject to the limitations set forth in this Article X, from and
after the Effective Time, by virtue of the Merger each Stockholder, jointly and
severally, shall, solely through and to the extent of the Indemnity Escrow
Funds, hold harmless and indemnify each of the Parent Indemnitees from and
against, and shall compensate and reimburse each of the Parent Indemnitees for,
any Damages which are suffered or incurred by any of the Parent Indemnitees or
to which any of the Parent Indemnitees may otherwise become subject (regardless
of whether or not such Damages relate to any third-party claim) and which arise
from or as a result of or are connected with: (i) any misrepresentation in,
inaccuracy in or breach of any representation or warranty of the Company set
forth in this Agreement or in any agreement, certificate or instrument furnished
or to be furnished to Parent pursuant hereto or in connection with the
transactions contemplated hereby; (ii) any breach of any covenant or obligation
of the Company (including the covenants set forth in Article V) to be performed
by the Company at or prior to the Effective Time; (iii) any Legal Proceeding
relating to any inaccuracy or breach of the type referred to in clause (i) or
(ii) above; (iv) (A) any applicable self-insurance retention or deductible
amount for any insured medical malpractice Legal Proceeding or potential Legal
Proceeding arising out of acts or omissions occurring on or prior to the Closing
Date and (B) any liability in connection with any uninsured medical malpractice
Legal Proceeding or potential Legal Proceeding arising out of acts or omissions
occurring on or prior to the Closing Date; (v) 50% of any liability not paid by
insurers arising out of those certain cases captioned Morales v. SemperCare
Hospital of Orlando, Inc., et al, Circuit Court of the Ninth Judicial District
in and for Orange County, Florida, Case No. 04-CA-6159, and Xxxxxx v. SemperCare
Hospital of Baton Rouge, Inc., 19th Judicial District Court, East Baton Rouge,
Louisiana, Case Number 520608; (vi) any liability arising out of acts or
omissions occurring on or prior to the Closing Date relating to any actual or
alleged overpayment due to adjustments made after the Closing Date to the cost
reports filed by or on behalf of the Company or any Company Subsidiary on or
prior to the Closing Date (determined on an aggregate basis after first netting
any applicable reserves for such liability set forth as a current liability on
the Closing Date Balance Sheet and then taking into account, without
duplication, any underpayments owed to the Company or any Company Subsidiary due
to adjustments made to such cost reports during the period from the Closing Date
to the date which is five (5) business days prior to the Stockholder Expiration
Date); (vii) any liability (other than a liability covered by clause (vi) above)
arising out of acts or omissions occurring on or prior to the Closing Date
relating to (A) any failure to comply with Legal Requirements related to
governmental third party payor programs, including compliance with all Medicare
and/or Medicaid Legal Requirements, (B) any failure to comply with payment
policies related to non-governmental third party payor programs, (C) any actual
or alleged overpayment by any third party payor other than due to adjustments
made to the cost reports filed by or on behalf of the Company or any Company
Subsidiary on or prior to the Closing Date, and (D) any failure to comply with
state health care Legal Requirements, including state facility and professional
licensure and certificate of need Legal Requirements, in each case, to the
extent such liability exceeds any reserves for such liability set forth as a
current liability on the Closing Date Balance Sheet; (viii) any Legal Proceeding
initiated by a Stockholder or Stockholders (A) seeking appraisal pursuant to
Section 2.10 to the extent that such Damages exceed the aggregate Per Share
Merger Consideration that would have been payable to such Stockholder or
Stockholders or (B) challenging the fairness of the Merger; (ix) any
Indebtedness or Transaction Fees and Expenses of the Company to the extent such
Indebtedness or
55
Transaction Fees and Expenses of the Company exceed the amounts thereof used to
calculate the Closing Date Cash Amount pursuant to Section 2.5(b)(i); (x) any
Post-Closing Decrease Amount to the extent such amount exceeds the Merger
Consideration Escrow Funds; (xi) any liability arising from any Legal Proceeding
brought by any Stockholder relating to any untrue statement or alleged untrue
statement of a material fact contained in the Information Statement (other than
any statement provided in writing by Parent to the Company specifically for
inclusion therein) or any omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstance under which they were made, not misleading; (xii) any
liability for excess parachute payments by the Company or any Company Subsidiary
under Section 280G of the Code payable as a result of or in connection with
transactions contemplated hereby; (xiii) any liability for severance obligations
and related costs paid to any officer or employee of the Company or any Company
Subsidiary upon termination after the Closing by such officer or employee of
such officer's or employee's employment pursuant to agreements in effect prior
to the Closing, other than with respect to (A) any retention bonuses, success
fees or similar officer or employee retention payments put in place after the
date hereof at the written request of Parent, (B) any severance obligations owed
to the Company's current chief operating officer pursuant to his agreement
disclosed to Parent, (C) any severance obligations owed to an officer or
employee under any such agreement because such officer or employee terminated
such officer's or employee's employment after the Closing because such officer
or employee had a reduction of such officer's or employee's salary, was
relocated or had a material reduction of such officer's or employee's duties
from such officer's or employee's duties prior to the Closing (it being
understood that a change in an officer's or employee's title or supervisor or a
change in such officer's or employees duties but without a reduction in overall
responsibility shall not constitute a material reduction in such officer's or
employee's duties for purposes of this clause (C)) and (D) any such severance
obligations set forth as a current liability on the Closing Date Balance Sheet;
(xiv) any liability, cost or expenses sustained or incurred as a result of or in
connection with those items listed on Schedule 3.15(c), Schedule 3.15(d),
Schedule 3.15(f) and Schedule 3.15(i) or any action taken which is necessary to
bring the Surviving Corporation or any Company Subsidiary into compliance with
all applicable Legal Requirements with respect to such items or any other matter
arising out of such action, including without limitation, any filing fees,
attorneys' and accountants' fees, required contributions to any Employee Plan,
penalties, excise taxes, civil sanctions and interest; or (xv) any Legal
Proceeding commenced by any Parent Indemnitee for the purpose of enforcing any
of its rights under this Article X. The Parent Indemnitees may not make any
claim for indemnification pursuant to Section 10.2(a)(i) or Section 10.2(a)(iii)
(relating to Legal Proceedings relating to any inaccuracy or breach of the type
referred to in Section 10.2(a)(i)) (except for claims with respect to Sections
3.1, 3.2(a), 3.2(c), 3.3, 3.4, 3.5, 3.15, 3.17, 3.31, 3.33 and 3.34) until the
aggregate Damages incurred by the Parent Indemnitees for which indemnification
may be sought exceeds $750,000 (the "Basket Amount"), at which point the Parent
Indemnitees shall only be entitled to seek indemnification for the amount by
which such Damages exceed the Basket Amount.
(b) Each of the Company and the Stockholders acknowledges and agrees
that, if the Surviving Corporation or any Company Subsidiary suffers, incurs or
otherwise becomes subject to any Damages as a result of or in connection with
any inaccuracy in or breach of any representation, warranty, covenant or
obligation, then (without limiting any of the rights of the Surviving
Corporation as a Parent Indemnitee) Parent shall also be deemed, by virtue of
its
56
ownership of the stock of the Surviving Corporation, to have incurred Damages as
a result of and in connection with such inaccuracy or breach.
(c) Any amount of Damages required to be indemnified pursuant to
this Section 10.2 shall be deemed, to the extent permitted by law, an adjustment
in the Merger Consideration.
10.3 INDEMNIFICATION BY PARENT. Subject to the limitations set forth in
this Article X, from and after the Effective Time, Parent shall hold harmless
and indemnify each of the Stockholder Indemnitees from and against, and shall
compensate and reimburse each of the Stockholder Indemnitees for, any Damages
which are suffered or incurred by any of the Stockholder Indemnitees or to which
any of the Stockholder Indemnitees may otherwise become subject (regardless of
whether or not such Damages relate to any third-party claim) and which arise
from or as a result of, or are connected with: (a) any misrepresentation in,
inaccuracy in or breach of any representation or warranty set forth in this
Agreement or any agreement, certificate or instrument furnished or to be
furnished to the Company or the Stockholders' Agent pursuant hereto or in
connection with the transactions contemplated hereby; (b) any breach of any
covenant or obligation of Parent or Merger Sub (including the covenants set
forth in Article V); or (c) any Legal Proceeding relating to any inaccuracy or
breach of the type referred to in clause (a) or (b) above (including any Legal
Proceeding commenced by any Stockholder Indemnitee for the purpose of enforcing
any of its rights under this Article X). Any amount of Damages required to be
indemnified pursuant to this Section 10.3 shall be deemed, to the extent
permitted by law, an adjustment in the Merger Consideration. Any claims for
indemnification pursuant to this Section 10.3 shall be made by the Stockholders'
Agent on behalf of any Stockholder Indemnitee. The Stockholder Indemnitees may
not make any claim for indemnification pursuant to Section 10.3(a) (except for
claims with respect to Sections 4.1, 4.2(a) and 4.4) until the aggregate Damages
incurred by the Stockholder Indemnitees for which indemnification may be sought
exceeds $750,000, at which point the Stockholder Indemnitees shall only be
entitled to seek indemnification for the amount by which such Damages exceed
$750,000.
10.4 NO CONTRIBUTION. Each Stockholder Indemnitor waives, and acknowledges
and agrees that such Stockholder Indemnitor shall not have and shall not
exercise or assert (or attempt to exercise or assert), any right of
contribution, right of indemnity or other right or remedy against Merger Sub,
the Company or the Surviving Corporation in connection with any indemnification
obligation or any other liability to which he may become subject under or in
connection with this Agreement, other than as contemplated by Section 5.10.
10.5 OFFSET.
(a) The amount of Damages pursuant to this Article X shall be is
reduced by the amount of any insurance coverage (net of (i) any out-of-pocket
expenses, (ii) any increase in premiums or (iii) any deductible incurred in
obtaining such reduction). Notwithstanding any other provision in this Agreement
including this Section 10.5, there shall be no affirmative obligation or duty on
the part of any party to obtain insurance (other than pursuant to Section
5.10(b)) with respect to any aspect of their respective businesses, operations
or assets. In connection with any Damages for which an Indemnitee may seek
indemnification under this Article X, such Indemnitee shall use its commercially
reasonable efforts to seek and pursue any
57
available insurance coverage or other claims against third parties that such
Indemnitee may have in respect of such Damages. If the Indemnitee receives any
such amounts subsequent to an indemnification payment by the Indemnitor in
respect of such Damages, then such Indemnitee shall promptly reimburse the
Indemnitor up to the above amounts so received by the Indemnitee, net of any
Taxes and collection costs. In computing the amount of any Damages for purposes
of determining the liability of an Indemnitor under this Article X, the amount
of any Tax benefit actually realized in cash by the Indemnitee arising from the
incurrence or payment of any such Damages shall be deducted from such Damages
and Damages shall include any Tax detriment incurred.
(b) For purposes of calculating the amount of any Damages, any
reserve for the specific matter that gave rise to such Damages shall be taken
into account in calculating such Damages (to the extent that such reserve is not
otherwise taken in account in such calculation) if and to the extent that such
reserve was set forth on the Closing Date Balance Sheet and taken into account
as a current liability in the calculation of Actual Net Working Capital.
10.6 DEMANDS. If any Indemnitee believes such Indemnitee is entitled to be
indemnified by any Indemnitor pursuant to this Article X with respect to any
demand, assertion, claim, action or proceeding, judicial or otherwise, by any
third party (such third party demand, assertion, claim, action or proceeding
being referred to herein as a "Third Party Claim"), such Indemnitee agrees that,
promptly upon its discovery of facts giving rise to a claim for indemnity under
the provisions of this Agreement with respect to such Third Party Claim, such
Indemnitee will give prompt notice thereof in writing to Parent, if the
Indemnitee is any Stockholder Indemnitee, or to the Stockholders' Agent on
behalf of the Merger Stockholders, if the Indemnitee is any Parent Indemnitee,
together with a statement of such information respecting any of the foregoing as
such party shall have. Such notice shall include a formal demand for
indemnification under this Agreement. Failure of the Indemnitee to give such
notice in a timely manner shall not relieve the Indemnitor from any liability
which it may have on account of this Article X or otherwise, except to the
extent that the Indemnitor is materially prejudiced thereby.
10.7 RIGHT TO CONTEST AND DEFEND. The Indemnitor shall be entitled at its
cost and expense to participate in the defense of any Third Party Claim for
which it has received notice from the Indemnitee under Section 10.6 and, subject
to the limitations set forth in this Section 10.7, shall be entitled to control
and appoint lead counsel (reasonably satisfactory to the Indemnitee) for such
defense; provided that the Indemnitor shall be entitled to control and appoint
lead counsel only if (i) the claim involves (and continues to involve) solely
monetary damages, (ii) the Indemnitor expressly agrees in writing to the
Indemnitee that, as between the two, the Indemnitor is solely obligated to
satisfy and discharge the claim and (iii) the Indemnitor makes reasonably
adequate provision to satisfy the Indemnitee of the Indemnitor's ability to
satisfy and discharge the claim (the foregoing collectively, the "Litigation
Conditions"); provided, however, that the Indemnitor shall forfeit the right to
control the defense or settlement of any such claim if, at any time after
assuming the defense or settlement thereof, the Indemnitor no longer satisfies
the Litigation Conditions; provided, further, that notice of the intention to so
control the defense or settlement shall be delivered by the Indemnitor to the
Indemnitee within twenty (20) days (or sooner, if the nature of the Third Party
claim so requires) from the date of receipt by the Indemnitor of notice by the
Indemnitee of the assertion of the Third Party Claim. Any such contest may be
conducted in the name and on behalf of the Indemnitor or the
58
Indemnitee, as may be appropriate. Such contest shall be conducted by reputable
counsel employed by the Indemnitor, but the Indemnitee shall have the right, but
not the obligation, to participate in such proceedings and to be represented by
counsel of its own choosing at its sole cost and expense. Notwithstanding the
foregoing, upon the election by the Indemnitor to assume the defense, the
Indemnitor shall be liable for the reasonable fees and expenses of counsel
employed by the Indemnitee, if and only to the extent that (i) the Indemnitor
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 Indemnitee
has been authorized in writing by the Indemnitor or (iii) representation of the
Indemnitor and the Indemnitee by the same counsel would, in the reasonable
opinion of such counsel, constitute a conflict of interest under applicable
standards of professional conduct. The Indemnitor shall have full authority to
determine all action to be taken with respect to a Third Party Claim the defense
of which it has assumed in accordance with this Section 10.7; provided, however,
that the Indemnitor will not have the authority to subject the Indemnitee to any
non-monetary relief whatsoever, other than the performance of purely ministerial
tasks, and any settlement of a claim must include a full release of the
Indemnitee. If the Indemnitor does not elect to assume the control of the
defense of any such Third Party Claim, fails to notify the Indemnitee of its
election as herein provided or fails to satisfy the Litigation Conditions, the
Indemnitee may pay, compromise or defend such Third Party Claim; provided,
however, that the Indemnitee shall obtain the prior written consent of the
Indemnitor (which shall not be unreasonably withheld, conditioned or delayed)
before entering into any settlement of such Third Party Claim.
10.8 COOPERATION. The Indemnitor and the Indemnitee agree to cooperate
with each other and their respective counsel in contesting any Third Party Claim
or, if appropriate, in making any counterclaim against the Person asserting the
Third Party Claim, or any cross-complaint against any other Person, including
giving each other reasonable access to all information relevant thereto, subject
to receipt of a reasonable confidentiality agreement. The Indemnitor shall be
obliged to reimburse the Indemnitee for the reasonable out-of-pocket expenses
related to such cooperation.
10.9 LIMITATIONS ON INDEMNIFICATION OBLIGATIONS; SOLE RECOURSE. The
aggregate indemnification obligations of the Merger Stockholders pursuant to
Section 10.2(a) shall not exceed the Indemnity Escrow Funds (it being understood
that Parent may recover the Merger Consideration Escrow Funds to the extent
provided in Section 2.6). Subject to the rights of Parent to recover the Merger
Consideration Escrow Funds to the extent provided in Section 2.6, the Indemnity
Escrow Funds shall be the sole and exclusive source of funding for any claims
for indemnification by any Parent Indemnitee hereunder and once the Indemnity
Escrow Funds have been released from escrow pursuant to the terms of the Escrow
Agreement, such funds shall cease to be subject to any claims for
indemnification by any Parent Indemnitee; provided, however, that such
limitations shall not apply to Damages resulting from fraud or intentional
misrepresentation on the part of the Company or any Stockholder Indemnitor, as
applicable. The aggregate indemnification obligations of Parent pursuant to
Section 10.3 shall not exceed $5,000,000; provided, however, that such
limitation shall not apply to Damages resulting from fraud or intentional
misrepresentation on the part of Parent. The Stockholder Indemnitees' right to
seek indemnification pursuant to this Article X shall expire on the Parent
Expiration Date; provided, however, that if, at any time prior to the Parent
Expiration Date, any Stockholder
59
Indemnitee (acting in good faith) delivers to Parent a written notice alleging
the existence of any matter for which such Stockholder Indemnitee is entitled to
recovery under Section 10.3 (and setting forth in reasonable detail the basis
for such Stockholder Indemnitee's belief that such Stockholder Indemnitee is
entitled to indemnification) and asserting a claim for recovery under Section
10.3, then the claim asserted in such notice shall survive the applicable Parent
Expiration Date until such time as such claim is fully and finally resolved.
From and after the Effective Time, other than with respect to claims under
Sections 2.5, 2.6, 2.7, 2.9, 5.10 and 12.2, the remedies set forth in this
Article X shall constitute the sole and exclusive remedies for monetary Damages
for breach of this Agreement, except for fraud or intentional misrepresentation.
10.10 MISCELLANEOUS.
(a) For purposes of determining whether there has been any
inaccuracy in or breach of any representation or warranty by the Company, Parent
or Merger Sub in this Agreement or in any agreement, certificate or instrument
furnished or to be furnished pursuant hereto or in connection with the
transactions contemplated hereby and for purposes of calculating the amount of
Damages to which an Indemnitee is entitled as a result of any such inaccuracy or
breach, such representation or warranty shall not be deemed qualified by any
concept of "material," "materiality," "Material Adverse Effect" or other similar
qualification; provided, however, that this Section 10.10(a) shall not apply to
the representations and warranties set forth in Sections 3.6(a), 3.6(d), 3.9,
3.11(a), 3.12(b), 3.12(c) and 3.15(b)(vii) and the first sentence of Section
3.26(a).
(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 any party of any breach of a representation, warranty, covenant or
agreement by the other party at any time, or the decision of any party to
complete the Closing.
(c) Notwithstanding anything to the contrary set forth herein, no
limitation or condition of liability or indemnity shall apply to any rights or
claims based upon fraudulent or intentional misrepresentation.
(d) The limitations on the indemnification obligations set forth in
Sections 10.2 and 10.3 shall not apply to any covenants or agreements of the
Company, Parent or Merger Sub in this Agreement.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 SCHEDULES. The Schedules attached to this Agreement (i) shall not be
construed as indicating that any matter disclosed therein is required to be
disclosed, as some matters stated therein are given for informational purposes
only, nor shall such disclosure be construed as an admission that such
information is material to the Company or Parent, as the case may be, and (ii)
shall be deemed to disclose any matter disclosed on any particular schedule on
any other schedule where it is apparent on the face of the disclosure and
without reference to any separate or independent document or information (other
than the Schedules) that such disclosure would be specifically applicable to
such other schedule.
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11.2 FURTHER ASSURANCES. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
11.3 FEES AND EXPENSES. Each of the Company, the Stockholders, the
Stockholders' Agent and Parent (with respect to itself and Merger Sub), shall
bear and pay all fees, costs and expenses (including legal fees and accounting
fees) that have been incurred or that are incurred by such party in connection
with the transactions contemplated by this Agreement, including all fees, costs
and expenses incurred by such party in connection with or by virtue of (a) the
investigation and review conducted by Parent and its Representatives with
respect to the Company's business (and the furnishing of information to Parent
and its Representatives in connection with such investigation and review), (b)
the negotiation, preparation and review of this Agreement (including the
Schedules hereto) and all agreements, certificates, opinions and other
instruments and documents delivered or to be delivered in connection with the
transactions contemplated by this Agreement, (c) the preparation and submission
of any filing or notice required to be made or given in connection with any of
the transactions contemplated by this Agreement, and the obtaining of any
consent required to be obtained in connection with any of such transactions, and
(d) the consummation of the Merger, including any retention bonuses, "success"
fees, change of control payments and any other payment obligations payable as a
result of the consummation of the Merger (other than, with respect to the
Company, any retention bonuses, success fees or similar employee retention
payment put in place after the date hereof at the written request of Parent and
any severance obligations owed to an employee of the Company or any Company
Subsidiary as a result of the termination of employment of such employee by
Parent, the Surviving Corporation or any Company Subsidiary after the Effective
Time, which shall be deemed to be Transaction Fees and Expenses of Parent)
(collectively, the "Transaction Fees and Expenses"). Notwithstanding the
foregoing, any filing fees payable in connection with filings made pursuant to
the HSR Act shall be split equally between Parent and the Company. For purposes
of this Agreement, one half of any fees payable at the Closing to the Escrow
Agent shall be considered Transaction Fees and Expenses of Parent and one half
of any fees payable at the Closing to the Escrow Agent shall be considered
Transaction Fees and Expenses of the Company.
11.4 ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
11.5 NOTICES. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
If to Parent or Merger Sub:
61
Select Medical Corporation
0000 Xxx Xxxxxxxxxx Xxxx
Xxxxxxxxxxxxx, XX 00000
Attention: Xxx Xxxxx
Facsimile: (000) 000-0000
Copy to:
Select Medical Corporation
0000 Xxx Xxxxxxxxxx Xxxx
Xxxxxxxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
Dechert LLP
4000 Xxxx Atlantic Tower
0000 Xxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000-0000
Attention: Xxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
If to the Company:
SemperCare, Inc.
0000 Xxxxx Xxxxxx Xxxxxxx
Xxxxx 000
Xxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
Copy to:
Xxxxxx & Xxxxxx L.L.P.
0000 Xxxxxxxx Xxxx Xxxxxx
0000 Xxxx Xxxxxx
Xxxxxx, XX 00000-0000
Attention: Xxxxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
If to the Stockholders' Agent or
any of the Stockholder
Indemnitors:
Xxxxxxx X. Xxxxxxxxx
Xxxxxxxxx Xxxx & Xxxxxx
0000 Xxxxxxxxxx Xxxxxxxxx
Xxxxxxxx, XX 00000
Facsimile: (000) 000-0000
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Copy to:
Xxxxxx & Xxxxxx L.L.P.
0000 Xxxxxxxx Xxxx Xxxxxx
0000 Xxxx Xxxxxx
Xxxxxx, XX 00000-0000
Attention: Xxxxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
11.6 CONFIDENTIALITY. At the Effective Time, the parties acknowledge and
agree that the Confidentiality Agreement shall terminate and be of no further
force and effect.
11.7 TIME OF THE ESSENCE. For the purposes of this Agreement and the
transactions contemplated by this Agreement, time is of the essence.
11.8 HEADINGS. The underlined headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
11.9 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall constitute an original and all of which, when taken
together, shall constitute one agreement.
11.10 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement, and all
agreements, documents and instruments delivered pursuant hereto or incorporated
herein, unless otherwise expressly provided therein, shall be governed by, and
construed in accordance with, the internal laws of the State of New York
(without giving effect to principles of conflicts of laws); provided, however,
that with regard to issues and questions of corporate law where the laws of the
State of New York are not applicable, such issues and questions concerning the
application, construction, validity, interpretation and enforcement of this
Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Delaware or any other jurisdiction)
that would cause the application of any other laws. Each party hereto, for
itself and its successors and assigns, irrevocably agrees that any Legal
Proceeding arising out of or relating to this Agreement shall be instituted only
in the United States District Court for the Southern District of New York
located in the City of New York or, in the absence of jurisdiction, the Supreme
Court of New York located in the City of New York, and generally and
unconditionally accepts and irrevocably submits to the exclusive jurisdiction of
the aforesaid courts and irrevocably agrees to be bound by any final judgment
rendered thereby from which no appeal has been taken or is available in
connection with this Agreement. Each party, for itself and its successors and
assigns, irrevocably waives any objection it may have now or hereafter to the
laying of the venue of any such Legal Proceeding, including, without limitation,
any objection based on the grounds of forum non conveniens, in the aforesaid
courts. Each of the parties, for itself and its successors and assigns,
irrevocably agrees that all process in any such Legal Proceedings in any such
court may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to it at its
address set forth in Section 11.5 or at such other address of which the other
parties shall have been notified in accordance with the provisions of
63
Section 11.5, such service being hereby acknowledged by the parties to be
effective and binding service in every respect. Nothing herein shall affect the
right to serve process in any other manner permitted by law.
11.11 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of: the Company and its successors and assigns (if any);
Parent and its successors and assigns (if any); and Merger Sub and its
successors and assigns (if any). Merger Sub may assign its rights under this
Agreement to another direct or indirect Subsidiary of Parent (including the
right to be a constituent corporation in the Merger), in which case references
herein to Merger Sub shall be deemed to apply to such Subsidiary and such
Subsidiary shall be made a party signatory hereto. Except as set forth in the
previous sentence, this Agreement may not be assigned by any party prior to the
Closing Date. After the Closing Date, Parent may freely assign any or all of its
rights (but not its obligations) under this Agreement (including its
indemnification rights (but not its obligations hereunder) under Article X), in
whole or in part, to any other Person without obtaining the consent or approval
of any other party hereto or of any other Person. Notwithstanding the foregoing,
nothing in this Section 11.11 shall prohibit the merger of Parent with EGL
Acquisition Corp. pursuant to the Eagle Merger Agreement.
11.12 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. Except as otherwise set
forth in Article X of this Agreement and except with respect to equitable
claims, the rights and remedies of the parties hereto shall be cumulative (and
not alternative). The parties to this Agreement agree that, in the event of any
breach or threatened breach by any party to this Agreement of any covenant,
obligation or other provision set forth in this Agreement for the benefit of any
other party to this Agreement, such other party shall be entitled (in addition
to any other remedy that may be available to it) to (a) a decree or order of
specific performance or mandamus to enforce the observance and performance of
such covenant, obligation or other provision, and (b) an injunction restraining
such breach or threatened breach.
11.13 WAIVER.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out
of this Agreement or any power, right, privilege or remedy under this Agreement,
unless the waiver of such claim, power, right, privilege or remedy is expressly
set forth in a written instrument duly executed and delivered on behalf of such
Person; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
11.14 WAIVER OF JURY TRIAL. Each of the parties hereto hereby irrevocably
waives any and all right to trial by jury in any Legal Proceeding arising out of
or related to this Agreement or the transactions contemplated hereby.
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11.15 AMENDMENTS. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered: (a) prior to the Closing Date, on behalf of Parent, Merger Sub, the
Company and the Stockholders' Agent (acting exclusively for and on behalf of all
of the Merger Stockholders); and (b) after the Closing Date, on behalf of Parent
and the Stockholders' Agent (acting exclusively for and on behalf of all of the
Merger Stockholders).
11.16 SEVERABILITY. In the event that any provision of this Agreement or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
11.17 PARTIES IN INTEREST. Except for the provisions of Sections 2.5, 2.6,
2.9 and 5.10 and Articles X and XII, none of the provisions of this Agreement is
intended to confer upon any Person (other than the parties hereto and their
respective successors and assigns (if any)) any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
11.18 ENTIRE AGREEMENT. This Agreement and the other agreements referred
to herein set forth the entire understanding of the parties hereto relating to
the subject matter hereof and thereof and supersede all prior agreements and
understandings among or between any of the parties relating to the subject
matter hereof and thereof; provided, however, that the Confidentiality Agreement
executed by Parent and the Company shall not be superseded by this Agreement and
shall remain in effect in accordance with its terms until the earlier of (a) the
Effective Time or (b) the date on which such Confidentiality Agreement is
terminated in accordance with its terms.
11.19 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement
to "Articles," "Sections," "Schedules" and "Exhibits" are intended to refer to
Articles and Sections of this Agreement and Schedules and Exhibits to this
Agreement.
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ARTICLE XII
THE STOCKHOLDERS' AGENT
By virtue of the Merger, each Merger Stockholder hereby agrees as follows:
12.1 AUTHORIZATION OF THE STOCKHOLDERS' AGENT. Xxxxxxx X. Xxxxxxxxx (the
"Stockholders' Agent") (and any successor appointed to act on his behalf) hereby
is appointed, authorized and empowered to act, on behalf of the Merger
Stockholders, in connection with, and to facilitate the consummation of the
transactions contemplated by, this Agreement and the other agreements
contemplated hereby, and in connection with the activities to be performed on
behalf of the Merger Stockholders under this Agreement and the Escrow Agreement,
for the purposes and with the powers and authority hereinafter set forth in this
Article XII and in the Escrow Agreement, which shall include the power and
authority:
(a) to execute and deliver the Escrow Agreement (with such
modifications or changes therein to which the Stockholders' Agent, in his
reasonable discretion, shall consent) and to agree to such amendments or
modifications thereto as the Stockholders' Agent, in its reasonable discretion,
may deem necessary or desirable to give effect to the matters set forth in this
Article XII;
(b) to execute and deliver such waivers and consents in connection
with this Agreement and the consummation of the transactions contemplated hereby
as the Stockholders' Agent, in his reasonable discretion, may deem necessary or
desirable to give effect to the intentions of this Agreement and the other
agreements contemplated hereby;
(c) as the representative of the Merger Stockholders, to enforce and
protect the rights and interests of the Merger Stockholders and to enforce and
protect the rights and interests of the Stockholders' Agent arising out of or
under or in any manner relating to this Agreement and the Escrow Agreement and,
in connection therewith, to (i) assert or institute any claim for
indemnification on behalf of the Stockholder Indemnitees; (ii) investigate,
defend, contest or litigate any claim for indemnification initiated by the
Parent or Merger Sub, or any other Person, against the Stockholders' Agent, the
Merger Consideration Escrow Funds and/or the Indemnity Escrow Funds, and receive
process on behalf of any or all Merger Stockholders in any such claim and
compromise or settle on such terms as the Stockholders' Agent shall determine to
be appropriate and give receipts, releases and discharges on behalf of all of
the Merger Stockholders with respect to any such claim; (iii) file any proofs,
debts, claims and petitions as the Stockholders' Agent may deem advisable or
necessary; (iv) settle or compromise any claims asserted under this Agreement;
(v) assume, on behalf of all of the Merger Stockholders, the defense of any
claim that is the basis of any claim asserted under this Agreement; and (vi)
file and prosecute appeals from any decision, judgment or award rendered in any
of the foregoing claims, it being understood that the Stockholders' Agent shall
not have any obligation to take, and shall not have liability for any failure to
take, any such any action;
(d) to enforce payment from the Indemnity Escrow Funds and any other
amounts payable to the Merger Stockholders, in each case on behalf of the Merger
Stockholders, in the name of the Stockholders' Agent;
66
(e) to cause to be paid out of the Indemnity Escrow Funds the full
amount of any judgment or judgments and legal interest and costs awarded in
favor of any Parent Indemnitee arising out of the indemnification provisions set
forth in Article XI of this Agreement;
(f) to cause to be paid out of the Merger Consideration Escrow Funds
the full amount of the Post-Closing Decrease Amount;
(g) to waive or refrain from enforcing any right of the Merger
Stockholders or any of them and/or of the Stockholders' Agent arising out of or
under or in any manner relating to this Agreement, the Escrow Agreement or any
other agreement contemplated hereby or thereby; and
(h) to make, execute, acknowledge and deliver all such other
agreements, guarantees, orders, receipts, endorsements, notices, requests,
instructions, certificates, stock powers, letters and other writings, and, in
general, to do any and all things and to take any and all action that the
Stockholders' Agent, in its sole and absolute direction, may consider necessary
or proper or convenient in connection with or to carry out the activities
described in paragraphs (a) through (g) above and the transactions contemplated
by this Agreement and the Escrow Agreement.
Parent, Merger Sub, the Surviving Corporation and the Company Subsidiaries shall
be entitled to rely exclusively upon the communications of the Stockholders'
Agent relating to the foregoing as the communications of the Merger
Stockholders. Neither Parent, Merger Sub nor the Surviving Corporation (a) need
be concerned with the authority of the Stockholders' Agent to act on behalf of
all Merger Stockholders hereunder or (b) shall be held liable or accountable in
any manner for any act or omission of the Stockholders' Agent in such capacity.
Notwithstanding anything to the contrary contained herein, the parties
acknowledge and agree that (i) the Stockholders' Agent may not enter into or
grant any amendments or modifications described in Section 12.1(a) or waivers or
consents described in Section 12.1(b) unless such amendments, modifications,
waivers or consents shall affect each Merger Stockholder similarly and to the
same relative extent and (ii) any such amendment, modification, waiver or
consent that does not affect any Merger Stockholder similarly and to the same
relative extent as it affects other Merger Stockholders must be executed by such
Merger Stockholder to be binding on such Merger Stockholder. Notwithstanding
anything to the contrary contained herein, the Stockholders' Agent, in his role
as Stockholders' Agent, shall have no liability whatsoever to the Company,
Parent, Merger Sub, the Surviving Corporation or any of their Affiliates or
Subsidiaries. The grant of authority provided for in this Section 12.1 is
coupled with an interest and is being granted, in part, as an inducement to the
Company, Parent and Merger Sub to enter into this Agreement and shall be
irrevocable and survive the death, incompetency, bankruptcy or liquidation of
any Merger Stockholder and shall be binding on any successor thereto, and (ii)
shall survive any distribution from the Escrow Agent.
12.2 COMPENSATION; EXCULPATION; INDEMNITY.
(a) The Stockholders' Agent shall not be entitled to any fee,
commission or other compensation for the performance of his service hereunder.
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(b) In dealing with this Agreement, the Escrow Agreement and any
instruments, agreements or documents relating thereto, and in exercising or
failing to exercise all or any of the powers conferred upon the Stockholders'
Agent hereunder or thereunder, (i) the Stockholders' Agent shall not assume any,
and shall incur no, responsibility whatsoever to any Merger Stockholder by
reason of any error in judgment or other act or omission performed or omitted
hereunder or in connection with this Agreement, the Escrow Agreement or any
instruments, agreements or documents relating thereto, unless by the
Stockholders' Agent's gross negligence or willful misconduct, and (ii) the
Stockholders' Agent shall be entitled to rely on the advice of counsel, public
accountants or other independent experts experienced in the matter at issue, and
any error in judgment or other act or omission of the Stockholders' Agent
pursuant to such advice shall in no event subject the Stockholders' Agent to
liability to any Merger Stockholder, the Company, Parent, Merger Sub, the
Surviving Corporation or any other Person, unless by the Stockholders' Agent's
gross negligence or willful misconduct.
(c) Each Merger Stockholder, severally, shall indemnify the
Stockholders' Agent up to, but not exceeding, an amount equal to the aggregate
Per Share Merger Consideration received by such Merger Stockholder under Article
II of this Agreement, which indemnification shall be paid by such Merger
Stockholder pro rata in accordance with the aggregate Per Share Merger
Consideration received by such Merger Stockholder under Article II of this
Agreement, against all damages, liabilities, claims, obligations, costs and
expenses, including reasonable attorneys', accountants' and other experts' fees
and the amount of any judgment against him, of any nature whatsoever, arising
out of or in connection with any claim or in connection with any appeal thereof,
relating to the acts or omissions of the Stockholders' Agent hereunder, under
the Escrow Agreement or otherwise, except for such damages, liabilities, claims,
obligations, costs and expenses, including reasonable attorneys', accountants'
and other experts' fees and the amount of any judgment against the Stockholders'
Agent that arise from the Stockholders' Agent's gross negligence or willful
misconduct, including the willful breach of this Agreement or the Escrow
Agreement. The foregoing indemnification shall not be deemed exclusive of any
other right to which the Stockholders' Agent may be entitled apart from the
provisions hereof. In the event of any indemnification under this Section
12.2(c), each Merger Stockholder shall promptly deliver to the Stockholders'
Agent full payment of his, her or its ratable share of such indemnification
claim.
(d) All of the indemnities, immunities and powers granted to the
Stockholders' Agent under this Agreement shall survive the Closing and/or any
termination of this Agreement and the Escrow Agreement.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
SELECT MEDICAL CORPORATION
By: /s/ Xxxxxxx X. Xxxxxx
______________________________
Name: Xxxxxxx X. Xxxxxx
Title: Senior Vice President
CAMP HILL ACQUISITION CORP.
By: /s/ Xxxxxxx X. Xxxxxx
______________________________
Name: Xxxxxxx X. Xxxxxx
Title: Vice President
SEMPERCARE, INC.
By: /s/ Xxxxxx X. Xxxxxx
______________________________
Name: Xxxxxx X. Xxxxxx
Title: President and Chief
Executive Officer
STOCKHOLDERS' AGENT
/s/ Xxxxxxx X. Xxxxxxxxx
_________________________________
Xxxxxxx X. Xxxxxxxxx
[Signature Page to Agreement and Plan of Merger and Reorganization]