EXHIBIT 10.1
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REORGANIZATION AND PURCHASE AGREEMENT
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By and Among
U.S. PHYSICAL THERAPY, LTD.
(THE PURCHASER)
STAR PHYSICAL THERAPY, LP
(THE COMPANY)
and
ITS RESPECTIVE PARTNERS
(THE SELLERS),
and
XXXX XXXXXXX,
(AS THE SELLER REPRESENTATIVE),
Dated as of September 6, 2007
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TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
Section 1.1 Definitions............................................2
Section 1.2 Certain Interpretive Matters..........................10
ARTICLE II
PRE-CLOSING REORGANIZATION, SALE AND PURCHASE
Section 2.1 Pre-Closing Reorganization............................11
Section 2.2 Purchase and Sale of Purchased Interests..............12
ARTICLE III
PURCHASE PRICE, CLOSING PAYMENTS, WORKING CAPITAL ADJUSTMENT
Section 3.1 Closing Purchase Price................................12
Section 3.2 Estimated Closing Working Capital.....................13
Section 3.3 Working Capital True-Up...............................13
ARTICLE IV
CLOSING AND CLOSING DELIVERIES
Section 4.1 The Closing...........................................16
Section 4.2 Deliveries of STAR LP and the Sellers.................16
Section 4.3 Deliveries by Purchaser...............................17
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF STAR LP AND THE SELLERS
Section 5.1 Existence and Power...................................18
Section 5.2 Authorization; Enforceability.........................18
Section 5.3 Governmental Authorization............................18
Section 5.4 Non-Contravention; Consents...........................19
Section 5.5 Capitalization........................................19
Section 5.6 Subsidiaries..........................................20
Section 5.7 Financial Statements..................................20
Section 5.8 No Undisclosed Liabilities............................20
Section 5.9 Tax Matters...........................................21
Section 5.10 Absence of Certain Changes............................22
Section 5.11 Contracts.............................................24
Section 5.12 Insurance Coverage....................................25
Section 5.13 Litigation............................................26
Section 5.14 Compliance with Laws; Permits.........................26
Section 5.15 Assets; Properties; Sufficiency of Assets.............27
Section 5.16 Intellectual Property.................................27
Section 5.17 Environmental Matters.................................28
Section 5.18 Benefit Plans and Material Documents..................29
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Section 5.19 Affiliate Transactions................................32
Section 5.20 Referrals, Supplier and Employee Relations............32
Section 5.21 Other Employment Matters..............................32
Section 5.22 Medicare Participation/Accreditation..................33
Section 5.23 Medicare and Medicaid Filings.........................34
Section 5.24 Exclusion.............................................34
Section 5.25 Federal Health Care Programs..........................35
Section 5.26 Billing; Gratuitous Payments..........................35
Section 5.27 Reimbursement Matters.................................35
Section 5.28 Bank Accounts.........................................36
Section 5.29 General Partner and STAR LP Matters...................36
Section 5.30 Accounts Receivable...................................36
Section 5.31 Finders' Fees.........................................37
Section 5.32 Books and Records.....................................37
Section 5.33 Disclosure............................................37
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 6.1 Existence and Power...................................37
Section 6.2 Authorization; Enforceability.........................37
Section 6.3 Governmental Authorization............................38
Section 6.4 Non-Contravention.....................................38
Section 6.5 Parent Stock..........................................38
Section 6.6 Section 6.7 Disclosure................................38
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Employees and Benefits................................38
Section 7.2 Physical Therapy Alliance.............................39
Section 7.3 Further Assurances....................................39
Section 7.4 No Change of Ownership................................39
Section 7.5 Cooperation with Post-Closing Consents................39
Section 7.6 Clinic Director Expense...............................40
ARTICLE VIII
CERTAIN TAX MATTERS
Section 8.1 Transfer Taxes........................................40
Section 8.2 Partnership Status....................................40
Section 8.3 Section 754 Election..................................40
Section 8.4 Other Tax Matters.....................................40
ARTICLE IX
CONDITIONS TO CLOSING
Section 9.1 Conditions to Obligations of Purchaser................42
Section 9.2 Conditions to Obligations of STAR LP and the Sellers..44
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ARTICLE X
SURVIVAL; INDEMNIFICATION
Section 10.1 Survival..............................................44
Section 10.2 Indemnification.......................................45
Section 10.3 Procedures............................................45
Section 10.4 Offset................................................47
Section 10.5 Payment of Indemnification Payments...................47
ARTICLE XI
MISCELLANEOUS
Section 11.1 Notices...............................................48
Section 11.2 Amendments and Waivers................................48
Section 11.3 Expenses..............................................49
Section 11.4 Successors and Assigns................................49
Section 11.5 No Third-Party Beneficiaries..........................49
Section 11.6 Governing Law.........................................49
Section 11.7 Jurisdiction..........................................49
Section 11.8 Counterparts..........................................50
Section 11.9 Table of Contents; Headings...........................50
Section 11.10 Entire Agreement......................................50
Section 11.11 Severability; Injunctive Relief.......................50
Section 11.12 Arbitration...........................................50
Section 11.13 Xxxxxxx Guarantee.....................................51
EXHIBITS
Exhibit A - Certificate of Formation of General Partner
Exhibit B - Limited Liability Agreement of General Partner
Exhibit C - Plan of Conversion
Exhibit D - Certificate of Formation of STAR LP
Exhibit E - Agreement of Limited Partnership of STAR LP
Exhibit F - Clinic Locations
Exhibit G - Employment Agreement
Exhibit H - Non-Competition Agreement
Exhibit I - Note
Exhibit J - Guarantee Agreement
Exhibit K - Assignment of Purchase Interests
Exhibit L - Form of Seller Counsel Legal Opinion
Exhibit M - Form of Purchaser Counsel Legal Opinion
Exhibit N - General Release
Exhibit O - Management Agreement
Exhibit P - Sharing Percentages
Exhibit Q Illustrative Computation of Net Working Capital
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REORGANIZATION AND PURCHASE AGREEMENT
REORGANIZATION AND PURCHASE AGREEMENT, dated as of September 6, 2007,
by and among U.S. Physical Therapy, Ltd., a Texas limited partnership (the
"Purchaser"), STAR Physical Therapy, LP, a Texas limited partnership ("STAR
LP"), the members of the Company set forth on the signature pages to this
Agreement and who collectively are the legal and beneficial owners of 100% of
the limited partnership interests of STAR LP (each a "Seller" and collectively
the "Sellers"), and Xxxx Xxxxxxx as Seller Representative for the purposes
described herein (the "Seller Representative") and in his individual capacity
for purposes of Section 11.13 of this Agreement relating to the unconditional
guarantee all of the obligations and liabilities of the Xxxx X. Xxxxxxx
Revocable Trust, one of the Sellers, under this Agreement.
RECITALS
A. The STAR PT Management GP, LLC, a Texas limited liability company and
sole general partner of STAR LP (the "General Partner") and Sellers are the
owners of all of the issued and outstanding partnership interests in STAR LP,
which has been, and will continue after the Closing, to be engaged in the
Business (as defined below), and the Xxxx X. Xxxxxxx Revocable Trust, one of the
Sellers, is the sole owner of all of the issued and outstanding membership
interests of the General Partner.
B. STAR LP is the successor entity to STAR Physical Therapy, LLC, a former
Tennessee limited liability company (the "Company"), as a result of the
Pre-Closing Reorganization described below.
C. The Company with the Sellers on or about August 30, 2007, (i) formed or
caused to form General Partner, including in connection with such formation the
transfer by the Xxxx X. Xxxxxxx Revocable Trust to General Partner of a 1%
member interest in the Company and (ii) as of the Effective Time, caused the
Company to be converted into STAR LP, a Texas limited partnership, under the
name "STAR Physical Therapy, LP" to succeed to the Business of the Company and
whereby, among other things, the Sellers converted their membership interests in
the Company into 99% limited partnership interests of STAR LP (the "LP
Interests") and the General Partner converted its 1% member interest in the
Company into a 1% general partner interest of STAR LP (the "GP Interest") as the
sole general partner, all in accordance with the Texas Business Organizations
Code ("TBOC") and the Tennessee Revised Limited Liability Company Act, as
amended ("TRLLCA") (the transactions described in clauses (i) and (ii) above,
collectively the "Pre-Closing Reorganization"), all as provided in this
Agreement.
D. On the terms and subject to the conditions of this Agreement, at the
Closing, the Purchaser shall, in consideration of the Purchase Price (as defined
below), purchase (or cause one or more of its Affiliates to purchase), (i) from
the Xxxx X. Xxxxxxx Revocable Trust one hundred percent (100%) of the membership
interests in the General Partner; and (ii) from the Sellers, sixty-nine (69%) of
the LP Interests in STAR LP.
E. As a result of the consummation of the Pre-Closing Reorganization and
the Closing, at the Effective Time: (i) the Sellers shall collectively own
thirty percent (30%) of the STAR LP Interests, all of which shall be LP
Interests; (ii) the Purchaser shall own or, as the sole owner of the General
Partner, control, (A) seventy percent (70%) of the STAR LP Interests, including
all of the GP Interest; and (B) 100% of the membership interests of the General
Partner; and (iii) STAR LP shall continue to engage in the Business.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants hereinafter set forth, the Purchaser, STAR LP and the
Sellers hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. In addition to the terms defined elsewhere
herein, the terms below are defined as follows:
"Accountants" has the meaning set forth in Section 3.3(b).
"Accounts Receivable" means all accounts and notes receivable relating
to the Business.
"Accredited Sellers" means the Sellers who constitute, and have
represented to Purchaser, their status as "accredited investors" at Closing as
such term is defined in Rule 501 promulgated under the Securities Act.
"Affected Employees" has the meaning set forth in Section 7.1(a).
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control with
the first Person and, if such first Person is an individual, any member of the
immediate family (including parents, spouse and children) of such individual and
any trust whose principal beneficiary is such individual or one or more members
of such individual's immediate family, and any Person who is controlled by any
such member or trust. For the purposes of this Agreement, "control," when used
with respect to any Person, means the possession, directly or indirectly, of the
power to (a) vote 10% or more of the securities having ordinary voting power for
the election of directors (or comparable positions) of such Person or (b) direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise, and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Agreement" means this Reorganization and Purchase Agreement, as the
same may be amended from time to time in accordance with the terms hereof.
"Ancillary Agreements" means the Employment Agreements, the General
Release, the Investment Agreement, the Management Agreement, the Non-Competition
Agreements, the Pre-Closing Reorganization Documents and all other instruments,
certificates and other agreements entered into by STAR LP or any Seller in
connection with the consummation of the transactions contemplated by this
Agreement.
"Balance Sheet Date" means July 31, 2007.
"Benefit Plan" means any employee benefit plan within the meaning of
Section 3(3) of ERISA, and any other plan, program, agreement, arrangement,
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policy, contract, commitment or scheme, written or oral, statutory or
contractual, that provides for compensation or benefits, including any deferred
compensation, executive compensation, bonus or incentive plan, any cafeteria
plan or any holiday or vacation plan or practice.
"Business" means the business of STAR LP as now conducted (and the
business of the Company as conducted before the consummation of the Pre-Closing
Reorganization), including the business of providing outpatient physical and
occupational therapy services, including but not limited to, pre- and
post-operative care and treatment for orthopedic-related disorders, sport
related injuries, preventative care, rehabilitation of injured workers and
neurological related injuries for patients and ancillary services and activities
in connection therewith from the locations and in the areas identified on the
attached Exhibit F.
"Business Day" means a day that is not a Saturday, Sunday or a day on
which commercial banking institutions located in the State of Texas are
authorized or required to close.
"Capital Stock" means (a) with respect to any Person that is a
corporation, any and all shares, interests, participation or other equivalents
(however designated and whether or not voting) of corporate stock, including the
common stock of such Person, and (b) with respect to any Person that is not a
corporation, any and all partnership, limited liability or membership interests
or other equity interests of such Person.
"Capitalized Lease Obligations" means the obligations of such Person
that are required to be classified and accounted for as capital lease
obligations under GAAP, together with all obligations to make termination
payments under such capitalized lease obligations.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, 42 U.S.C. xx.xx. 9601, et seq., as amended.
"Xxxxxxx" has the meaning set forth in Section 7.2.
"Charter Documents" means (a) in the case of any Person which is a
corporation, its articles, certificate or memorandum of incorporation or
association and bylaws or regulations, and each certificate or other document
setting forth the designation, amount and relative rights, limitations and
preferences of any class or series of the corporation's capital stock, (b) in
the case of a Person that is a limited liability company, its articles or
certificate of formation or organization, limited liability company agreement,
operating agreement or other similar governing documents and, (c) in the case of
Person that is a general or limited partnership, its certificate of formation or
limited partnership, partnership agreement or limited partnership agreement or
similar governing documents..
"Closing" has the meaning set forth in Section 4.1.
"Closing Cash Consideration" has the meaning set forth in Section
3.1(b).
"Closing Date" has the meaning set forth in Section 4.1.
"Closing Date Balance Sheet" has the meaning set forth in Section
3.3(a).
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"Closing Date Funded Indebtedness" means the aggregate amount necessary
to full pay and retire the Funded Debt of STAR LP as of the Closing Date.
"Closing Statement" has the meaning set forth in Section 3.3(a).
"Closing Working Capital Balance" has the meaning set forth in Section
3.3(a).
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Company" has the meaning set forth in Recital B to this Agreement.
"Constituent of Concern" means any substance defined as a hazardous
substance, hazardous waste, hazardous material, pollutant or contaminant by any
Environmental Law, any petroleum hydrocarbon and any degradation product of a
petroleum hydrocarbon, asbestos, PCB or similar substance, the generation,
recycling, use, treatment, storage, transportation, Release, disposal or
exposure of or to which is subject to regulation under any Environmental Law.
"Contracts" has the meaning set forth in Section 5.11.
"Conversion" has the meaning specified in Section 2.1(ii).
"Damages" has the meaning set forth in Section 10.2(a).
"Direct Claim" has the meaning set forth in Section 10.3(c).
"Effective Time" has the meaning set forth in Section 4.1.
"Employment Agreements" means the employment agreements between STAR LP
and each of the Key Employees in the form of Exhibit G hereto.
"Environmental Claims" means administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, citations, summonses,
notices of non-compliance or violation, requests for information, investigations
or proceedings relating in any way to the Release of Constituents of Concern or
any Environmental Law, including (a) Environmental Claims by Governmental
Authorities for enforcement, cleanup, removal, response, remedial or other
actions or damages pursuant to any applicable Environmental Law and (b)
Environmental Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
Constituents of Concern or arising from an alleged injury or threat of injury to
human health and safety or the environment.
"Environmental Condition" means a condition with respect to the
environment, which has resulted or could reasonably be expected to result in a
material loss, liability, cost or expense to the Business or STAR LP.
"Environmental Law" means any Law, administrative interpretation,
administrative order, consent decree or judgment, or common law relating to the
environment, human health and safety, including CERCLA, and any state and local
counterparts or equivalents.
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"Environmental Permits" mean all Permits, licenses, authorizations,
certificates and approvals of Governmental Authorities relating to or required
by Environmental Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor thereto.
"ERISA Affiliate" means any Person that, together with STAR LP, would
be considered a single employer within the meaning of Section 4001 of ERISA or
Section 414 of the Code.
"Estimated Closing Working Capital Balance" has the meaning set forth
in Section 3.2(a).
"Estimated Dispute Amount" has the meaning set forth in Section 10.4.
"Estimated Working Capital Adjustment" has the meaning set forth in
Section 3.2(b).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Filings" has the meaning set forth in Section 5.23.
"Final Parent Stock Price" means the average of the per share closing
sales prices of Parent Common Stock on NASDAQ Global Select Market, as reported
in The Wall Street Journal, for the ten consecutive trading days ending on the
second calendar day immediately prior to the Effective Time (or if such calendar
day is not a trading day, then ending on the first trading day immediately
preceding such calendar day).
"Foreign Qualifications" has the meaning set forth in Section 2.1(iii).
"Funded Debt" means any (a) Indebtedness for borrowed money (including
current maturities of such Indebtedness, accrued interest and penalties), (b)
any deferred compensation or similar obligations to current or former employees,
shareholders, members or their representatives, (c) any Capitalized Lease
Obligations, and (d) any guarantees of obligations of others similar to any of
those set forth above.
"GAAP" means U.S. generally accepted accounting principles,
consistently applied.
"General Partner" has the meaning set forth in Recital A to this
Agreement.
"General Partner Formation" has the meaning set forth in Section
2.1(i).
"General Release" means the general release among STAR LP, the Sellers
and Xxxxxxx, in the form of Exhibit N hereto.
"Governmental Authority" means any domestic or foreign governmental or
regulatory agency, authority, bureau, commission, department, official or
similar body or instrumentality thereof, or any governmental court, arbitral
tribunal or other body administering alternative dispute resolution.
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"GP Formation Documents" has the meaning set forth in Section 4.2(i).
"GP Interest" has the meaning set forth in Recital C to this Agreement.
"Guarantee Agreement" has the meaning set forth in Section 3.1(d).
"Indebtedness" means with respect to any Person, at any date, without
duplication, (a) all obligations of such Person for borrowed money, including
all principal, interest, premiums, fees, expenses, overdrafts and penalties with
respect thereto, (b) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (c) all obligations of such
Person to pay the deferred purchase price of the property or services, except
trade payables incurred in the Ordinary Course of Business, (d) all obligations
of such Person to reimburse any bank or other Person in respect of amounts paid
under a letter of credit or similar instrument, (e) all Capitalized Lease
Obligations, (f) all other obligations of a Person which would be required to be
shown as indebtedness on a balance sheet of such Person prepared in accordance
with GAAP, and (g) all indebtedness of any other Person of the type referred to
in clauses (a) to (f) above directly or indirectly guaranteed by such Person or
secured by any assets of such Person, whether or not such Indebtedness has been
assumed by such Person.
"Indemnified Party" has the meaning set forth in Section 10.3(a).
"Indemnifying Party" has the meaning set forth in Section 10.3(a).
"Intellectual Property Right" means any trademark, service xxxx, trade
name, product designation, logo, slogan, invention, patent, trade secret,
copyright, know-how, proprietary design or process, computer software and
database, Internet address or domain name (including any registrations or
applications for registration or renewal of any of the foregoing), research in
progress, or any other similar type of proprietary intellectual property right,
in each case which is used or held for use or otherwise necessary in connection
with the conduct of the Business.
"Inventory" means raw materials, work in progress and finished goods
inventory.
"IRS" means the Internal Revenue Service.
"Key Employees" means each of Xxxx Xxxxxxx, Xxxxx Xxxxxxx, Xxx
Xxxxxxxxx, Xxxxx Xxxxxxx, Xxxxxx Xxxxxx, Xxxxx Xxxxx and Xxxx Xxxxxxx.
"Law" means any federal, foreign, state or local statute, law,
including common law, rule, regulation, ordinance, code, permit or license.
"Lien" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse claim of
any kind in respect of such property or asset. For the purposes of this
Agreement, a Person will be deemed to own, subject to a Lien, any property or
asset which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such property or asset.
"LP Interests" has the meaning set forth in Recital C to this
Agreement.
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"Management Agreement" means that certain Management Agreement dated
the date hereof between U.S. PT Management, Ltd., an Affiliate of the General
Partner, and STAR LP, in the form of Exhibit O hereto.
"Material Adverse Effect" means (i) with respect to STAR LP, a material
adverse effect on the business, assets, liabilities, condition (financial or
otherwise), or results of operations and (ii) with respect to the Purchaser, a
material adverse effect on the business, assets, liabilities, condition
(financial or otherwise) or results of operations of the Purchaser and its
Subsidiaries, taken as a whole.
"Net Working Capital" means at any given time an amount equal to the
current assets of STAR LP less the sum of (i) current liabilities of STAR LP,
including any STAR LP Transaction Expenses (to the extent not paid at or prior
to Closing) and (ii) Funded Debt of STAR LP. For illustration purposes only,
Exhibit Q set forth an example of the calculation of Net Working Capital based
upon the Reference Balance Sheet, as adjusted to remove certain current
liabilities not anticipated to continue after the Closing.
"Non-Competition Agreement" means the non-competition agreement among
the Sellers, Xxxxxxx and the Purchaser in substantially the form of Exhibit H
hereto.
"Notes" has the meaning set forth in Section 3.1(d).
"Order" means any judgment, injunction, judicial or administrative
order or decree.
"Ordinary Course of Business" means, with respect to any Person, the
ordinary course of business of such Person, consistent with such Person's past
practice and custom, including, with respect to any category, quantity or dollar
amount, term and frequency of payment, delivery, accrual, expense or any other
accounting entry.
"Parent" has the meaning set forth in Section 3.1(d).
"Parent Stock" means the common stock, par value $0.01 per share, of
Parent.
"Permit" has the meaning set forth in Section 5.14(b).
"Permitted Lien" means (a) mechanics' Liens, workmen's Liens, carriers'
Liens, repairmen's Liens, landlord's Liens or (b) statutory Liens for Taxes,
assessments and other similar governmental charges that are not overdue.
"Person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust or other entity or
organization or Governmental Authority.
"Pre-Closing Reorganization" has the meaning set forth in Recital C to
this Agreement and in Section 2.1(ii) of this Agreement.
"Pre-Closing Reorganization Documents" has the meaning set forth in
Section 4.2(i).
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"Pre-Closing Tax Period" means any Tax period (or portion thereof) that
ends on or before August 31, 2007.
"Prime Rate" means the U.S. prime rate of interest as published by The
Wall Street Journal on the last Business Day prior to the Closing Date as the
base rate on corporate loans posted by at least 75% of the 30 largest U.S.
banks.
"Property" means any real property and improvements at any time owned,
leased, used, operated or occupied (whether for storage, disposal or otherwise)
by STAR LP.
"PTA" has the meaning set forth in Section 7.2.
"PTA Clinics" has the meaning set forth in Section 7.2.
"PTA Indebtedness" has the meaning set forth in Section 7.2.
"Purchase Price" has the meaning set forth in Section 3.1.
"Purchased Interests" means (i) 100% of all of the issued and
outstanding Capital Stock of the General Partner and (ii) 69% of the LP
Interests of STAR LP to be purchased by the Purchaser on the Closing Date
immediately after consummation of the Pre-Closing Reorganization, subject to the
terms and conditions of this Agreement.
"Purchaser" has the meaning set forth in the introductory paragraph of
this Agreement.
"Real Property" has the meaning set forth in Section 5.15(b).
"Reference Balance Sheet" means the balance sheet of STAR LP as of July
31, 2007, attached hereto as Schedule 5.7.
"Reference Financial Statements" means the balance sheets of STAR LP as
of December 31, 2005 and 2006, together with the related statements of income
for the years then ended, and the Reference Balance Sheet, together with the
related statement of income for the six-month period then ended, all of which
are attached hereto as Schedule 5.7.
"Release" means any release, spill, emission, discharge, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the environment (including ambient air, surface water,
groundwater and surface or subsurface strata) or into or out of any Property,
including the movement of Constituents of Concern through or in the air, soil,
surface water, groundwater or property.
"Returns" means returns, declarations, reports, claims for refund,
information returns or other documents (including any related or supporting
schedules, statements or information) and including any amendment thereof filed
or required to be filed in connection with the determination, assessment or
collection of Taxes of any party or the administration of any Laws relating to
any Taxes.
"Securities Act" means the Securities Act of 1933, as amended.
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"Selected Representations and Warranties" means the representations and
warranties contained in Sections 5.1 (Corporate Existence and Power), 5.2
(Authorization; Enforceability), 5.3 (Governmental Authorization), 5.4
(Non-Contravention; Consents), 5.5 (Capitalization), 5.9 (Tax Matters), 5.15(a)
(Assets; Properties; Sufficiency of Assets), 5.17 (Environmental Matters), 5.22
(Medicare Participation/Accreditation), 5.23 (Cost Reports and Other Filings),
5.24 (Exclusion), 5.25 (Federal Health Care Programs), 5.26 (Billing; Gratuitous
Payments), 5.27 (Reimbursement Matters), 5.29 (General Partner and STAR LP
Matters) and 5.30 (Finders' Fees).
"Seller" and "Sellers" has the meaning set forth in the introductory
paragraph of this Agreement.
"Seller Representative" has the meaning set forth in Section 3.3(e).
"Sharing Percentages" means the percentage applicable to each Seller as
set forth on Exhibit P.
"STAR LP" has the meaning set forth in the introductory paragraph of
this Agreement, and includes, for purposes of this Agreement, the Company for
all periods prior to the effective time of the Conversion consummated pursuant
to the Pre-Closing Reorganization.
"STAR LP Benefit Plans" has the meaning set forth in Section 5.18(a).
"STAR LP Formation" has the meaning set forth in Section 2.1(ii).
"STAR LP Formation Documents" has the meaning set forth in Section
4.2(i).
"STAR LP Interests" has the meaning set forth in Section 2.1(ii).
"STAR LP Transaction Expenses" means the aggregate amount of all
out-of-pocket fees and expenses, incurred by or on behalf of, or to be paid by,
STAR LP relating to the negotiation, preparation or execution of this Agreement
or any documents or agreements contemplated hereby or the performance or
consummation of the transactions contemplated hereby, which shall include, but
not be limited to (A) any fees and expenses associated with obtaining necessary
or appropriate waivers, consents or approvals of any Governmental Authority or
third parties on behalf of STAR LP or any Seller, (B) any fees or expenses
associated with obtaining the release and termination of any liens or
Encumbrances, (C) all brokers' or finders' fees; (D) fees and expenses of
counsel, advisors, consultants, investment bankers, accountants, auditors and
experts, (F) all awarded discretionary pro rated 2007 bonuses for the period
from January 1, 2007 through the Closing Date (or portion of such period) to the
extent not accrued on the Closing Balance Sheet (including all payroll taxes of
STAR LP), and (G) all sale, change of control, "stay-around," retention, success
or similar bonuses, severance or other payments to any Person in connection with
or upon the consummation of the transactions contemplated hereby, in all cases,
which have not been paid on or prior to the Closing Date (including all payroll
taxes of STAR LP with respect thereto).
"Straddle Period" means any taxable period beginning before but ending
after the Closing Date.
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"Subsidiary" means, with respect to any Person, (a) any corporation 50%
or more of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation have or might have voting power by reason of the happening of
any contingency) is at the time owned by such Person, directly or indirectly
through Subsidiaries, and (b) any partnership, limited liability company,
association, joint venture, trust or other entity in which such Person, directly
or indirectly through Subsidiaries, is either a general partner, has a 50% or
greater equity interest at the time or otherwise owns a controlling interest.
"Xxxxxxx" means Xxxx X. Xxxxxxx, the founder of STAR LP and indirect
owner, through the Xxxx X. Xxxxxxx Revocable Trust, of (i) a majority of the
outstanding partnership interests of STAR LP and (ii) all of the outstanding
membership interest of the General Partner.
"Target Working Capital Balance" means $1,250,000.
"Tax" means (a) any net income, alternative or add-on minimum tax,
gross income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, withholding on amounts paid to or by STAR LP,
payroll, employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest, penalty, addition to tax or additional amount imposed by any Taxing
Authority, (b) any liability of STAR LP for the payment of any amounts of any of
the foregoing types as a result of being a member of an affiliated,
consolidated, combined or unitary group, or being a party to any agreement or
arrangement whereby liability of STAR LP for payment of such amounts was
determined or taken into account with reference to the liability of any other
Person, and (c) any liability of STAR LP for the payment of any amounts as a
result of being a party to any Tax-Sharing Agreement or with respect to the
payment of any amounts of any of the foregoing types as a result of any express
or implied obligation to indemnify any other Person.
"Tax-Sharing Agreements" means all existing Tax-sharing agreements or
arrangements (whether or not written) that are binding on STAR LP.
"Taxing Authority" means any Governmental Authority having jurisdiction
over the assessment, determination, collection or other imposition of any Tax.
"Third-Party Claim" means any claim, demand, action, suit or proceeding
made or brought by any Person who or which is not a party to this Agreement or
who or which is not an Affiliate of any party to this Agreement.
Section 1.2 Certain Interpretive Matters.
(a) When a reference is made in this Agreement to an Article,
Section, Exhibit or Schedule, such reference will be to an Article or
Section of, or an Exhibit or Schedule to, this Agreement unless
otherwise indicated. Whenever the words, "include," "includes" or
"including" are used in this Agreement, they will be deemed to be
followed by the words "without limitation." The words "hereof,"
"herein" and "hereunder" and words of similar import when used in this
Agreement refer to this Agreement as a whole and not to any particular
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provision of this Agreement. All terms defined in this Agreement have
the defined meanings when used in any certificate or other document
made or delivered pursuant hereto unless otherwise defined therein.
The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of such term.
All references to "$" or dollar amounts will be to lawful currency of
the United States of America. Any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument that
is referred to herein means such agreement, instrument or statute as
from time to time amended, modified or supplemented, including (in the
case of agreements or instruments) by waiver or consent and (in the
case of statutes) by succession of comparable successor statutes and
references to all attachments thereto and instruments incorporated
therein. References to a Person are also to its permitted successors
and assigns. Each of the Schedules will apply only to its
corresponding Section or subsection of this Agreement. Each accounting
term not otherwise defined in this Agreement has the meaning assigned
to it in accordance with GAAP. To the extent the term "day" or "days"
is used, it will mean calendar days unless referred to as a "Business
Day."
(b) No provision of this Agreement will be interpreted in favor
of, or against, any of the parties hereto by reason of the extent to
which any such party or its counsel participated in the drafting
thereof or by reason of the extent to which any such provision is
inconsistent with any prior draft hereof or thereof.
(c) All references to the "knowledge of STAR LP" or to words of
similar import will be deemed to be references to the actual knowledge
of any Seller or Xxxxxxx, and will include such knowledge as the
Sellers or Xxxxxxx would have had after due inquiry of the responsible
employees of STAR LP and its counsel and accountants, and all
references to the "knowledge of the Purchaser" or to words of similar
import will be deemed to be references to the actual knowledge of one
or more of the individuals whose names are listed on Schedule
1.2(c)(i) and will include such knowledge as such officers or
directors would have had after due inquiry of the responsible
employees of the Purchaser and its counsel and accountants.
ARTICLE II
PRE-CLOSING REORGANIZATION, SALE AND PURCHASE
Section 2.1 Pre-Closing Reorganization. Prior to the Closing, the
Company and the Sellers consummated, or caused to consummate, the following
transactions to effect a reorganization of the Business conducted by the
Company:
(i) Xxxxxxx has formed or caused to be formed the General
Partner, and caused the Xxxx X. Xxxxxxx Revocable Trust to transfer
and convey to the General Partner a one percent (1%) membership
interest in the Company in exchange for one hundred percent (100%) of
the membership interests in the General Partner (the "General Partner
Formation"), such membership transfer evidenced by a form of
assignment of membership interest reasonably acceptable to Purchaser;
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(ii) Immediately following the General Partner Formation and
before the Closing and in accordance with the Charter Documents of the
Company and the applicable provisions of the TBOC and the TRLLCA, the
Company, the Sellers and the General Partner entered into a plan of
conversion in the form attached hereto as Exhibit C (the "Plan of
Conversion"), whereby the Company was converted into a Texas limited
partnership under the name of "STAR Physical Therapy, LP" (the
"Conversion") and pursuant to which, among other things, (A) all of
the outstanding membership interests of the Company owned by the
Sellers immediately before the effective time of the Conversion
automatically converted into 99% limited partnership interests in STAR
LP, (B) the 1% membership interests owned by the General Partner
immediately prior to the effective time of the Conversion were
automatically converted into a 1% general partnership interest in STAR
LP, and (C) a certificate of conversion was filed by the Company with
Secretary of State of each of the States of Texas and Tennessee; and
(iii) each of STAR LP and the General Partner will be duly
qualified to do business in Tennessee and Indiana in accordance with
the applicable Laws of Tennessee and Indiana (collectively, the
"Foreign Qualifications") (the transactions described in clauses (i),
(ii) and (iii) of this Section 2.1, collectively the "Pre-Closing
Reorganization").
Section 2.2 Purchase and Sale of Purchased Interests. As of the date
hereof (but effective as of the Effective Time) and upon the terms and subject
to the conditions of this Agreement, at the Closing, the Sellers agree to sell
to the Purchaser, and the Purchaser shall purchase from the Sellers the
Purchased Interests, free and clear of all Liens. The Sellers shall pay any
Taxes payable with respect to the transfer of Purchased Interests by the Sellers
to the Purchaser.
ARTICLE III
PURCHASE PRICE, CLOSING PAYMENTS, WORKING CAPITAL ADJUSTMENT
Section 3.1 Closing Purchase Price. In consideration for the
conveyance by the Sellers to the Purchaser of the Purchased Interests, at the
Closing (but effective as of the Effective Time), the Purchaser will pay, or
cause to be paid, $23,100,000 aggregate purchase price (the "Purchase Price"),
as adjusted pursuant to Sections 3.2 and 3.3, payable as follows:
(a) An amount sufficient to satisfy in full the Closing Date
Funded Indebtedness, to the applicable lenders;
(b) $19,099,995 in cash, as adjusted for the Estimated Working
Capital Adjustment pursuant to Section 3.2 (the "Closing Cash
Consideration") and any reduction in the Purchase Price pursuant to
Section 7.6, to Sellers by wire transfer of immediately available
funds to a bank account designated in writing by the Sellers, such
designation to occur no later than the second Business Day prior to
the scheduled payment date to be allocated among the Sellers as set
forth on Schedule 3.1(b);
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(c) $3,000,005 payable in Parent Stock to the Accredited Sellers
based on the Final Parent Stock Price; and
(d) $1,000,000 by the issuance by the Purchaser to Accredited
Sellers of three-year promissory notes payable to the Accredited
Sellers in the aggregate original principal amount of $1,000,000, in
the form attached hereto as Exhibit I (the "Notes"), as adjusted
pursuant to Section 3.3. The original principal amount to each
Accredited Seller shall be as set forth on Schedule 3.1(d). The Notes
shall (i) bear interest at the annual rate equal to the Prime Rate
with interest and principal payable annually beginning on the first
anniversary date of the Closing Date, (ii) provide for prepayments,
without penalty, at any time by the Purchaser and (iii) shall be
unsecured but guaranteed by the ultimate parent corporation of
Purchaser, U.S. Physical Therapy, Inc., a Delaware corporation (the
"Parent") in the form attached hereto as Exhibit J (the "Guarantee
Agreement").
Section 3.2 Estimated Closing Working Capital.
(a) Prior to the Closing Date, STAR LP and Purchaser will prepare
and agree on an estimate of the Closing Working Capital Balance (the "Estimated
Closing Working Capital Balance") determined in accordance with Section 3.3(a),
as if it were the actual Closing Working Capital Balance, but based upon STAR
LP's and Purchaser's review of monthly and other financial information then
available and inquiries of personnel responsible for the preparation of the
financial information relating to STAR LP in the ordinary course, and prepared
in accordance with GAAP applying the same accounting principles, policies, and
practices that were used in preparing the Reference Financial Statements.
(b) The Closing Cash Consideration will be decreased
dollar-for-dollar by the an amount equal to the excess, if any, of the Target
Working Capital Balance over the Estimated Closing Working Capital Balance,
determined in accordance with Section 3.3(a) (the "Estimated Working Capital
Adjustment").
Section 3.3 Working Capital True-Up.
(a) Within 60 days after the Closing Date, Purchaser will prepare
and deliver or cause to be prepared and delivered to the Seller Representative a
balance sheet of STAR LP as of the close of business on August 31, 2007 (the
"Closing Date Balance Sheet") and a proposed statement of the Net Working
Capital of STAR LP prepared therefrom (the "Closing Statement"), in each case,
without giving effect to the transactions described in this Agreement to be
consummated at the Closing, other than the payment at Closing of the Closing
Date Funded Indebtedness, if any, which shall be treated as paid as of the
Effective Time. The Closing Date Balance Sheet and the Closing Statement (i)
will reflect, respectively, the financial position of STAR LP and the components
and calculation of the Net Working Capital of STAR LP and (ii) will be prepared
and determined as of the close of business on August 31, 2007, in accordance
with GAAP applying the same accounting principles, policies, and practices that
were used in preparing the Reference Financial Statements. The Net Working
Capital of STAR LP as of the close of business on August 31, 2007, determined in
accordance with this Section 3.3 is referred to herein as the "Closing Working
Capital Balance."
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(b) If, within 30 days after the date of Purchaser's delivery of
the Closing Date Balance Sheet and the Closing Statement, Seller Representative
determines in good faith that the Closing Date Balance Sheet and the Closing
Statement have not been prepared or determined in accordance with this
Agreement, Seller Representative will give written notice to Purchaser within
such 30 day period (i) setting forth Seller Representative's proposed changes to
the Closing Date Balance Sheet as prepared by Purchaser and the determination by
Seller Representative of the Closing Working Capital Balance and (ii) specifying
in reasonable detail Seller Representative's basis for disagreement with
Purchaser's preparation and determination of the Closing Date Balance Sheet and
the Closing Working Capital Balance. The failure by Seller Representative to so
express disagreement and provide such notice within such 30 day period will
constitute the acceptance of Purchaser's preparation of the Closing Date Balance
Sheet and the computation of the Closing Working Capital Balance. If Purchaser
and Seller Representative are unable to resolve any disagreement between them
with respect to the preparation of the Closing Date Balance Sheet and the
determination of the Closing Working Capital Balance within 15 days after the
giving of notice by Seller Representative to Purchaser of such disagreement, the
items in dispute will be referred for determination to the Nashville office of
Xxxxx Xxxxxx and Company LLC (or, if they are unable or unwilling to serve,
another nationally or regionally recognized accounting firm not affiliated with
STAR LP, the Sellers or Purchaser) (the "Accountants") as promptly as
practicable, but not later than five days after the expiration of such 15 day
period. Each of the Purchaser and Seller Representative shall provide the
Accountants with a statement of its position within fifteen (15) days from the
date of the referral. Each party shall submit, in writing, detailed briefs to
the Accountants setting forth their position as to the amount of each item
remaining in dispute with respect to the calculation of Closing Working Capital
Balance, and the Accountants shall make a written determination as promptly as
practicable but in any event within thirty (30) days after the date on which the
dispute is referred to the Accountants by selecting from the position of either
Purchaser or Seller Representative. Neither Purchaser nor the Seller
Representative shall be entitled to respond to the brief provided by the other
party to the Accountants. The Accountants shall be authorized to select only the
calculation of Closing Working Capital Balance as presented by Purchaser and the
Seller Representative and shall not select any other amount as the calculation
of Closing Working Capital Balance. The costs and expenses of the Accountants
shall be borne by the party against whom the arbitration is decided. No party
will disclose to the Accountants, and the Accountants will not consider for any
purpose, any settlement discussions or settlement offer made by any Party. The
calculation of Closing Working Capital Balance as finally determined in
accordance with the terms of this Section 3.3 shall be the "Closing Working
Capital Balance" and such decision of the Accountants shall be final and binding
on the Purchaser and the Seller Representative (on behalf of all Sellers).
(c) Upon the final determination of the Closing Working Capital
Balance, the Parties shall make the following adjustments:
(i) If the Closing Working Capital Balance exceeds the
Estimated Closing Working Capital Balance and the Estimated
Working Capital Balance was less than the Target Working Capital
Balance, then Purchaser will pay to the Seller Representative (on
behalf of all Sellers) the amount of such difference, but in no
event in an amount greater than the Estimated Working Capital
Adjustment computed pursuant to Section 3.2(b).
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(ii) If the Closing Working Capital Balance is less than the
Estimated Closing Working Capital Balance, then the Sellers will
pay to Purchaser the amount of such difference.
(d) Any payment in respect of an adjustment required to be made
under this Section 3.3(c) will be made by the Sellers or Purchaser, as
applicable, in cash by wire transfer of immediately available funds to one
account specified by Purchaser or Seller Representative, as applicable, in
writing, prior to the date such payment is required to be made hereunder. Such
payment will be made within five (5) Business Days following the final
determination of the Closing Working Capital Balance. The Sellers shall be
jointly and severally liable for any payment due Purchaser under Section 3.3(c),
and to the extent not otherwise promptly satisfied by the Sellers in cash,
Purchaser may (but is not required) to set-off amounts due and owing by
Purchaser under the Notes to satisfy any amounts due Purchaser pursuant to
Section 3.3(c). Any payment due to the Seller Representative under Section
3.3(c) shall be paid to the Sellers based on their relative Sharing Percentages
(less any fees and expenses incurred by the Seller Representative in performance
on behalf of the Sellers).
(e) By execution of this Agreement, each of the Sellers hereby
appoints, without further act of any Seller, Xxxxxxx as the Seller
representative ("Seller Representative"), as agent and attorney-in-fact of each
of the Sellers, with full power and authority, including power of substitution,
acting in the name of and for and on behalf of such Seller and to, in Seller
Representative's sole discretion: (i) resolve any dispute with Buyer over any
aspect of this Section 3.3; (ii) give and receive notices and communications
with respect to this Section 3.3 and Section 8.4; (iii) agree to, negotiate,
enter into settlements and compromises of, and arbitration and comply with
orders and awards of arbitrators in respect of any claim or dispute under this
Section 3.3; (iv) enter into any agreement to effectuate any of the foregoing
items (i)-(iii) which shall have the effect of binding each Seller as if such
Seller had personally entered into such agreement(s), taken such actions or
refrained from taking such actions described in items (i)-(iv) above; (v) do all
other things and take all other action under or related to this Section 3.3 or
the other agreements contemplated under this Section 3.3 that Seller
Representative may consider necessary or proper to effectuate any of the
foregoing. Notwithstanding the foregoing, all actions taken or decisions made by
the Seller Representative on behalf of the Sellers shall be evidenced by a
writing signed by the Seller Representative and shall be taken or made in a
manner that is ratable and equitable among such Sellers. This appointment and
power of attorney shall be deemed as coupled with an interest and all authority
conferred hereby shall be irrevocable and shall not be subject to termination by
operation of law, whether by the death or incapacity or liquidation or
dissolution of any Seller or the occurrence of any other event or events and the
Seller Representative may not terminate this power of attorney with respect to
any Seller or such Seller's successors or assigns without the consent of
Purchaser. Each Seller agrees to hold the Seller Representative harmless and
indemnify the Seller Representative, with respect to any and all loss, damage or
liability and expenses (including reasonable legal fees) which such Seller may
sustain as a result of any action taken in good faith by the Seller
Representative.
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ARTICLE IV
CLOSING AND CLOSING DELIVERIES
Section 4.1 The Closing. The closing of the sale and purchase
of the Purchased Interests (the "Closing") will take place on or about September
6, 2007, at the offices of Xxxxxx & Xxxxxx, L.L.P., located at 0000 Xxxx Xxxxxx,
00xx Xxxxx, Xxxxxxx, Xxxxx, unless the parties agree in writing to change the
Closing to another time, date or place. The date upon which the Closing occurs
is herein called the "Closing Date," but each of the parties hereto hereby agree
that the purchase and sale of the Purchased Interests shall be effective for all
purposes, including financial accounting and Tax purposes, at 8:01 a.m. on
September 1, 2007 ("Effective Time").
Section 4.2 Deliveries of STAR LP and the Sellers. At the Closing,
STAR LP and Sellers will deliver, or cause to be delivered, to the Purchaser:
(i) all documents necessary to evidence consummation of the
Pre-Closing Reorganization duly executed by STAR LP, Sellers, the
General Partner or STAR LP, as applicable, including: (A) the
Certificate of Formation of the General Partner in the form of Exhibit
A hereto, the Limited Liability Company Agreement of the General
Partner in the form of Exhibit B hereto, an assignment of 1%
membership interest from Xxxxxxx to the General Partner in a form
reasonably acceptable to Purchaser, and to effect the GP Formation
(such Exhibit A and Exhibit B, collectively, the "GP Formation
Documents"); (B) Plan of Conversion in the form of Exhibit C, the
Certificate of Formation of STAR LP in the form of Exhibit D hereto,
and the Certificate of Conversions to effect the STAR LP Formation
(such Exhibit C and Exhibit D, collectively, the "STAR LP Formation
Documents"); (C) the foreign qualification applications to qualify
each of the General Partner and STAR LP to do business in Tennessee
and Indiana, to effect the Foreign Qualifications; and (D) and such
other documents necessary to consummate the Pre-Closing Reorganization
(the items in clauses (A) through (D) collectively, the "Pre-Closing
Reorganization Documents");
(ii) an Assignment of Purchased Interests in the form of Exhibit
K hereto;
(iii) the Agreement of Limited Partnership of STAR LP in the form
of Exhibit E hereto, executed by the Sellers;
(iv) a certificate of a duly authorized officer of the General
Partner and of the Sellers confirming compliance with the condition
set forth in Section 9.1(a);
(v) a certificate of the secretary of STAR LP and of the Sellers
certifying as to each of the Pre-Closing Reorganization Documents;
(vi) evidence or copies of the consents, approvals, orders,
qualifications or waivers required by any third party or Governmental
Authority to consummate the transactions contemplated by this
Agreement that are listed in Schedule 4.2(vi);
(vii) an Investment Agreement executed by each of the Accredited
Sellers with respect to the Parent Stock, Notes and Guarantee received
as a part of the Purchase Price, in substantially the form attached
hereto;
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(viii) each Ancillary Agreement (other than those provided under
clause (i) above) required to be executed and delivered by parties
other than the Purchaser or its Affiliates;
(ix) an opinion of Xxxxxx & Xxxxxxxx, P.L.L.C., counsel for the
Seller, in the form of Exhibit L hereto;
(x) resignations of the managers and officers of the General
Partner (other than with respect to the persons executing Employment
Agreements relating to the positions set forth in such Employment
Agreements);
(xi) payoff letters executed and delivered from all holders of
Closing Date Funded Debt, which payoff letters set forth the terms and
conditions of payment and satisfaction in full of all such Closing
Date Funded Debt and release of all Liens granted by STAR LP relating
thereto on and as of the Closing Date; and
(xii) such other documents and instruments as may be reasonably
required to consummate the transactions contemplated by this Agreement
and the Ancillary Agreements and to comply with the terms hereof and
thereof.
Section 4.3 Deliveries by Purchaser. At the Closing, the Purchaser
will deliver, or cause to be delivered, to the applicable Sellers:
(i) the Closing Cash Consideration to Sellers by wire
transfer of immediately available funds to the accounts specified
pursuant to Section 3.1(b);
(ii) the Notes executed by the Purchaser issued to the
Accredited Sellers pursuant to Section 3.1(d);
(iii) the Parent Stock issued to the Accredited Sellers
pursuant to Section 3.1(c);
(iv) the Guarantee Agreement executed by Parent;
(v) the Agreement of Limited Partnership in the form of
Exhibit E hereto, executed by the Purchaser and the General
Partner;
(vi) a certificate of an authorized officer of the Purchaser
confirming the Purchaser's compliance with the condition set
forth in Section 9.2(a);
(vii) each Ancillary Agreement required to be duly
authorized and delivered by the Purchaser or its Affiliates;
(viii) an opinion of Xxxxxx & Xxxxxx, L.L.P., counsel for
the Purchaser, in the form of Exhibit M hereto; and
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(ix) such other documents and instruments as may be
reasonably required to consummate the transactions contemplated
by this Agreement and the Ancillary Agreements and to comply with
the terms hereof and thereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF STAR LP AND THE SELLERS
STAR LP and Sellers represent and warrant to the Purchaser as of the
time immediately prior to the consummation of the Pre-Closing Reorganization,
except if expressly provided as of another time, as follows:
Section 5.1 Existence and Power. STAR LP (i) is a limited liability
partnership duly organized, validly existing and in good standing under the laws
of the State of Texas, (ii) has all limited partnership power required to carry
on the Business as now conducted and (iii) is duly qualified to conduct business
as a foreign limited liability company and is in good standing in each other
jurisdiction where such qualification is necessary. Schedule 5.1 sets forth a
list of each foreign jurisdiction in which STAR LP is qualified to do business.
STAR LP has previously delivered to the Purchaser true, correct and complete
copies of the articles of organization (and all amendments thereto) and limited
liability company agreement of STAR LP (and all amendments thereto) as in effect
immediately prior to consummation of Pre-Closing Reorganization pursuant to this
Agreement.
Section 5.2 Authorization; Enforceability. As of Closing, the
execution, delivery and performance of this Agreement by STAR LP and each of the
Sellers, and of each of the Ancillary Agreements by STAR LP, the Sellers or the
General Partner to the extent it will be a party thereto are within each party's
powers and have been duly authorized by all necessary actions, and no other
action on the part of any such party is necessary to authorize this Agreement or
any of the Ancillary Agreements to which any such party is a party at the
Closing. As of Closing, this Agreement has been, and each of the Ancillary
Agreements to which STAR LP, any Sellers or the General Partner is a party have
been duly executed and delivered by such party, as applicable. Assuming the due
execution and delivery by the Purchaser of this Agreement and each of the
Ancillary Agreements to which STAR LP, any of the Sellers or the General Partner
is a party at the Closing, this Agreement constitutes, and each Ancillary
Agreement to which STAR LP or any of the Sellers or the General Partner are a
party at the Closing constitutes at the Effective Time, valid and binding
agreements of such party, as applicable, enforceable against each in accordance
with their terms, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
enforcement of creditors' rights generally and by general principles of equity
(whether applied in a proceeding at law or in equity).
Section 5.3 Governmental Authorization. Except as disclosed in
Schedule 5.3, as of Closing, the execution, delivery and performance by STAR LP,
the Sellers and the General Partner of this Agreement and each Ancillary
Agreement to which STAR LP, the Sellers or the General Partner is a party
require no consent, approval, order, authorization or action by or in respect
of, or filing with, any Governmental Authority.
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Section 5.4 Non-Contravention; Consents. Except as disclosed in
Schedule 5.4, as of Closing, the execution, delivery and performance by STAR LP
and each of the Sellers of this Agreement and each Ancillary Agreement to which
STAR LP, any of the Sellers or the General Partner is a party, and the
consummation of the transactions contemplated hereby and thereby do not (a)
violate the Charter Documents of STAR LP, the General Partner or any applicable
Seller as in effect either before or after the Pre-Closing Reorganization, (b)
violate any applicable Law or Order, (c) require any filing with or Permit,
consent or approval of, or the giving of any notice to, any Person (including
filings, consents or approvals required under any Permits of STAR LP, any Seller
or any licenses to which STAR LP or any Seller is a party), (d) result in a
violation or breach of, conflict with, constitute (with or without due notice or
lapse of time or both) a default under, or give rise to any right of
termination, cancellation or acceleration of any right or obligation of STAR LP
or any Seller, or to a loss of any benefit to which STAR LP or any Seller is
entitled under, any Contract, agreement or other instrument binding upon STAR LP
or any Seller, or any license, franchise, Permit or other similar authorization
held by STAR LP or any Seller, or (e) result in the creation or imposition of
any Lien (other than Permitted Liens) on any asset of STAR LP. Notwithstanding
the foregoing, no representation or warranty is made with respect to whether the
transactions contemplated hereby violate any general non-assignment clause under
any Contract, agreement or other instrument binding upon STAR LP solely as a
result of the Conversion contemplated by the Pre-Closing Reorganization.
Section 5.5 Capitalization.
(a) Immediately prior to the consummation of the Pre-Closing
Reorganization, (i) all units of the outstanding Capital Stock of STAR
LP are owned of record and beneficially by the Sellers in the amounts
as set forth on Schedule 5.5, and (ii) all such units of Capital Stock
of STAR LP were duly authorized, validly issued and outstanding, fully
paid and nonassessable, and free of preemptive rights and other Liens
and were issued in compliance with applicable limited liability
company and securities laws.
(b) Immediately after the consummation of the Pre-Closing
Reorganization and immediately prior to the closing of the purchase
and sale of the Purchased Interests, (i) the total outstanding Capital
Stock of STAR LP are owned of record and beneficially (A) 1% by the
General Partner and (B) 99% by the Sellers, and (ii) the total
outstanding Capital Stock of the General Partner is owned of record
and beneficially by Xxxx X. Xxxxxxx Revocable Trust, in each case,
free of preemptive rights and other Liens and were issued in
compliance with applicable limited partnership or limited liability
company laws, as applicable, and securities laws. Immediately after
the consummation of the Pre-Closing Reorganization and prior to the
closing of the purchase and sale of the Purchased Interests pursuant
to this Agreement, the General Partner is the sole general partner of
STAR LP and the General Partner and Sellers together own of record and
beneficially 100% of the Capital Stock of STAR LP, free and clear of
all Liens. Upon consummation of the transactions contemplated by this
Agreement, at the Effective Time (i) the Purchaser will acquire good,
valid and indefeasible title to all of the Purchased Interests, free
and clear of all Liens, and which interests will represent as of the
Effective Time (A) 100% of the issued and outstanding Capital Stock of
the General Partner, which General Partner in turn owns 1% of the
issued and outstanding Capital Stock of STAR LP and (B) 69% of the
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issued and outstanding Capital Stock of STAR LP, (ii) Sellers will
retain an aggregate 30% of the issued and outstanding Capital Stock of
STAR LP.
(c) Immediately before and after the consummation of the
Pre-Closing Reorganization and as of the Effective Time, (i) there
were no options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, convertible securities or other
rights, agreement, arrangements or commitments of any character
relating to the shares of Capital Stock of STAR LP or obligating STAR
LP to issue, sell or otherwise cause to become outstanding any shares
of its Capital Stock and (ii) there were no outstanding contractual
obligations of STAR LP to repurchase, redeem or otherwise acquire any
Capital Stock of STAR LP or interests in STAR LP, or to provide funds
to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any other Person. Immediately prior to
the closing of the Pre-Closing Reorganization, all of the issued and
outstanding Capital Stock of STAR LP were owned of record and
beneficially by the Sellers in amounts and the percentages set forth
on Schedule 5.5 hereof, free and clear of all Liens. Immediately
before and after the Pre-Closing Reorganization and as of the
Effective Time, (i) there are no voting trusts, agreements, proxies or
other understandings in effect with respect to the voting or transfer
of any of the shares of Capital Stock of STAR LP and (ii) there are no
outstanding or authorized stock or other equity appreciation, phantom
stock participation or similar rights with respect to STAR LP.
Section 5.6 Subsidiaries. STAR LP does not own any Capital Stock or
other equity or ownership or proprietary interest in any Person.
Section 5.7 Financial Statements.
(a) STAR LP heretofore furnished the Purchaser with a true and
complete copy of the Reference Financial Statements which are attached
hereto as Schedule 5.7. The Reference Financial Statements have been
derived from the books and records of STAR LP, have been prepared in
accordance with GAAP (except for, with respect to the Reference
Balance Sheet and the related statement of income, normal year-end
adjustments and the absence of footnotes), and fairly present in all
material respects the financial condition of STAR LP at the respective
dates thereof and the results of operations and for the periods
indicated.
(b) The books of account, minute books, stock record books and
other records of STAR LP, all of which have been made available to the
Purchaser, are complete and correct in all material respects.
Section 5.8 No Undisclosed Liabilities. There are no liabilities,
whether accrued, contingent, absolute, determined, determinable or otherwise, of
STAR LP other than (a) liabilities fully provided for in the Reference Financial
Statements, (b) liabilities specifically disclosed in Schedule 5.8, (c) other
undisclosed current liabilities incurred since the Balance Sheet Date in the
Ordinary Course of Business which could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect and (d) executory
obligations relating to the Contracts and for which STAR LP is not otherwise
delinquent or in breach or default of such Contracts. Except as disclosed on
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Schedule 5.8. None of STAR LP, the General Partner or any Seller has any such
liability to any partner (or former member) of STAR LP with respect to the
purchase of their shares of Capital Stock of STAR LP or otherwise and the
consummation of the transaction contemplated by this Agreement (including the
Pre-Closing Reorganization) will not otherwise give rise to any such liability.
Section 5.9 Tax Matters.
(a) Except as disclosed in Schedule 5.9(a):
(i) from the time since its formation, STAR LP has been
taxed as a partnership for federal and applicable state income
tax purposes;
(ii) STAR LP does not currently have any liability for U.S.
federal income Taxes;
(iii) all Tax Returns required to be filed with any
Governmental Authority on or before the Closing by or on behalf
of STAR LP have been duly filed on a timely basis in accordance
with all applicable Laws;
(iv) at the time of their filings all such Tax Returns were
complete and correct in all material respects;
(v) all Taxes required to be paid by STAR LP on or before
the date of this Agreement have been paid, the reserves for Taxes
of STAR LP reflected in the Reference Balance Sheet are adequate
to cover all Taxes that have not been paid, but which under GAAP
were accruable, through the date of the Reference Balance Sheet
and the accrued and unpaid Taxes of STAR LP do not and will not
from the Reference Balance Sheet Date through the Effective Time
result from transactions outside the Ordinary Course of Business
(other than as a result of transactions contemplated by this
Agreement);
(vi) there are no Liens for Taxes upon any assets of STAR
LP, except Liens for Taxes not yet due for current Tax periods
ending after the date of this Agreement;
(vii) there are no outstanding deficiencies, assessments or
written proposals for the assessment of Taxes proposed, asserted
or assessed against STAR LP, and, to the knowledge of STAR LP, no
grounds exist for any such assessment of Taxes;
(viii) STAR LP is not an obligor on, and none of its assets
have been financed directly or indirectly by, any tax exempt
bonds;
(ix) no extension or waiver of the statute of limitations on
the assessment of any Taxes has been granted to or applied for by
STAR LP;
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(x) STAR LP (x) is not a party to any Tax allocation or
Tax-Sharing Agreement, (y) has not been a member of a
consolidated, combined or unitary group for purposes of filing
Tax Returns, and (z) does not have any liability for the Taxes of
any other Person as a transferee or successor, by contract or
otherwise;
(xi) none of the Tax Returns of STAR LP are the subject of
an action, suit, proceeding, audit or examination by a
Governmental Authority;
(xii) STAR LP has withheld and paid all Taxes required to
have been withheld and paid in connection with any amounts paid
or owing to any employee, independent contractor, creditor, or
other party;
(xiii) none of STAR LP, any Seller or their respective
representatives have filed an election to treat the General
Partner as an association taxable as a corporation for federal
income tax purposes; and
(xiv) STAR LP is not a United States real property holding
corporation within the meaning of Code Section 897(c)(2) during
the applicable period specified in Code Section 897(c)(1)(A)(ii).
(b) Schedule 5.9(b) lists all Returns filed with respect to STAR
LP for all taxable periods since the fiscal year ended December 31,
2003 and specifies the jurisdictions in which each such Return has
been filed, and indicates any Returns that currently are the subject
of audit, and STAR LP has delivered to the Purchaser correct and
complete copies of all such Returns since the fiscal year ended
December 31, 2003, and of any examination reports and any statements
of deficiencies proposed to be assessed against, or agreed to by STAR
LP.
(c) In connection with the Pre-Closing Reorganization, no
election was filed to cause the General Partner or STAR LP to be
treated as an association taxable as a corporation for U.S. federal
income tax purposes for any period commencing with the consummation of
the Pre-Closing Reorganization, and since such consummation through
the closing of the purchase and sale of the Purchased Interests
pursuant to this Agreement, the General Partner will be treated as a
"disregarded entity" within the meaning of Section 301.7701-3(b) of
Treasury Regulation promulgated under the Code for federal income tax
purposes.
Section 5.10 Absence of Certain Changes. Except as disclosed in
Schedule 5.10 or as expressly permitted by this Agreement, since the Balance
Sheet Date, STAR LP has conducted the Business in the Ordinary Course of
Business and there has not been any event, occurrence, development or
circumstances which has had or which could reasonably be expected to have a
Material Adverse Effect. Except as disclosed in Schedule 5.10, since the Balance
Sheet Date, STAR LP has not:
(i) Changed any salaries or other compensation of, or paid
any distributions or bonuses to, any current or former director,
manager, officer, employee, partner or member of STAR LP, or
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entered into any employment, severance or similar agreement with
any current or former director, manager, officer, employee,
partner or member of STAR LP;
(ii) Adopted or increased any benefits under any profit
sharing, bonus, deferred compensation, savings, insurance,
pension, retirement or other Benefit Plan for or with any of the
employees of STAR LP;
(iii) Entered into any material contract or commitment,
except for contracts and commitments entered into by STAR LP in
the Ordinary Course of Business;
(iv) Modified or amended in any material respect or
terminated any Contract listed or required to be listed in
Schedule 5.11(a);
(v) Incurred any Indebtedness for borrowed money or issued
any debt securities or assumed, guaranteed or enclosed, or
otherwise as an accommodation become responsible for, the
obligations of any Person, other than with respect to
availability under its existing credit facilities that will be
repaid in full at Closing pursuant to Section 3.1(a);
(vi) Sold, leased or otherwise disposed of any material
asset or property;
(vii) Created or assumed any Lien, other than a Permitted
Lien;
(viii) Terminated or closed any facility, business or
operation;
(ix) Authorized or made any capital expenditure in excess of
$10,000, individually or $25,000 in the aggregate;
(x) Declared, paid or set aside for payment any non-cash
dividend or other distribution in respect of any outstanding
Capital Stock of STAR LP;
(xi) Issued any shares of Capital Stock or securities
convertible into or exchangeable or exercisable for shares of
Capital Stock of STAR LP;
(xii) Settled, released or forgiven any indebtedness or
guarantee in favor of STAR LP, material claim or litigation or
waived any material right thereto; or
(xiii) Agreed to do any of the foregoing.
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Section 5.11 Contracts.
(a) Except as specifically disclosed in Schedule 5.11(a), STAR LP
is not a party to or bound by any lease, agreement, contract,
commitment or other legally binding contractual right or obligation
(whether written or oral) (collectively, "Contracts") that is of a
type described below:
(i) any lease (whether of real or personal property),
including the leases disclosed or required to be disclosed on
Schedule 5.15(b);
(ii) any agreement for the purchase of materials, supplies,
goods, services, equipment or other assets that provides for
aggregate payments by STAR LP of $10,000 or more;
(iii) any sales, distribution or other similar agreement
providing for the sale by STAR LP of materials, supplies, goods,
services, equipment or other assets that provides for aggregate
payments to STAR LP of $10,000 or more;
(iv) any partnership, joint venture or other similar
agreement or arrangement;
(v) any Contract pursuant to which any third party has
rights to own or use any material asset of STAR LP, including any
Intellectual Property Right of STAR LP;
(vi) any agreement relating to the acquisition or
disposition of any business (whether by merger, sale of stock,
sale of assets or otherwise) or granting to any Person a right of
first refusal, first offer or other right to purchase any of the
assets of STAR LP;
(vii) any agreement relating to Indebtedness (in any case,
whether incurred, assumed, guaranteed or secured by any asset of
STAR LP) other than accruals recorded in the Ordinary Course of
Business;
(viii) any license, franchise or similar agreement;
(ix) any agency, dealer, sales representative, marketing or
other similar agreement;
(x) any third party payor, managed care and other similar
payment arrangements or Contracts pursuant to which the terms of
which STAR LP derives or is reasonably expected to derive more
than $100,000 of revenue during any twelve month period;
(xi) any agreement with (A) any member of STAR LP or any
other Affiliate of STAR LP or (B) any director, manager or
officer of STAR LP or with any "associate" or any member of the
"immediate family" (as such terms are respectively defined in
24
Rules 12b-2 and 16a-1 of the Exchange Act) of any such director
or officer, other than as set forth in clause (xiv) below;
(xii) any management service, consulting or any other
similar type of agreement;
(xiii) any warranty, guaranty or other similar undertaking
with respect to any contractual performance (or the standard
forms of any of the foregoing of STAR LP) or agreement to
indemnify any Person;
(xiv) any employment, deferred compensation, severance,
bonus, retirement or other similar agreement or plan in effect as
of the date hereof (including in respect of any advances or loans
to any employees) and entered into or adopted by STAR LP;
(xv) any Contract that purports to limit STAR LP's freedom
to compete in any line of business or in any geographic area, and
Contracts that contain any standstill or non-solicitation
agreements; or
(xvi) any other agreement, commitment, arrangement or plan
of STAR LP that is material to STAR LP or the Business.
(b) Each Contract disclosed in or required to be disclosed in
Schedule 5.11(a) is a valid and binding agreement of STAR LP and, to
the knowledge of STAR LP, each other party thereto, enforceable in
accordance with its respective terms, except as such enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting enforcement of creditors' rights
generally and by general principles of equity (whether applied in a
proceeding at law or in equity). Neither STAR LP nor, to the knowledge
of STAR LP, any other party to any such Contract is in default or
breach (with or without due notice or lapse of time or both) in any
material respect under the terms of any such Contract. STAR LP has
delivered or made available to the Purchaser true and complete
originals or copies of all Contracts disclosed in or required to be
disclosed in Schedule 5.11(a).
Section 5.12 Insurance Coverage. Schedule 5.12 contains a list of all
of the insurance policies and fidelity bonds covering the assets, Business,
operations, employees, officers and directors (or comparable positions such as
managers) of STAR LP and a list of all claims pending as of the Balance Sheet
Date and the Closing Date under any such policies or bonds, including a
description of the background and status of such claims. There is no claim by
STAR LP pending under any of such policies or bonds as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have been
paid and STAR LP has complied with the terms and conditions of all such policies
and bonds. Such policies of insurance and bonds (or other policies and bonds
providing substantially similar insurance coverage) are in full force and
effect. STAR LP has no knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies or bonds. Since the last
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renewal date of any insurance policy, there has not, to the knowledge of STAR
LP, been any adverse change in the relationship of STAR LP with its respective
insurers or the premiums payable pursuant to such policies.
Section 5.13 Litigation. Except as disclosed in Schedule 5.13(a),
there is no action, suit, investigation, arbitration or administrative or other
proceeding pending or, to the knowledge of STAR LP, threatened, against or
affecting STAR LP before any court or arbitrator or any Governmental Authority
or which in any manner challenges or seeks to prevent, enjoin, alter or
materially delay the transactions contemplated by this Agreement and any
Ancillary Agreements to which STAR LP or any Seller is a party at Closing. STAR
LP does not know of any valid basis for any such action, suit, investigation,
arbitration or proceeding against or affecting STAR LP or the Business. Except
as disclosed in Schedule 5.13(a), there are no outstanding judgments, orders,
injunctions, decrees, stipulations or awards (whether rendered by a court,
administrative agency, arbitral body or Governmental Authority) against STAR LP
or any Seller.
Section 5.14 Compliance with Laws; Permits.
(a) Except as described in Schedule 5.14(a), STAR LP has complied
in all material respects with all Laws. STAR LP knows of no fact,
circumstance, condition or situation existing which, after notice or
lapse of time or both, would constitute noncompliance in any material
respect by STAR LP or give rise to any future liability of STAR LP
with respect to any Law heretofore or currently in effect. To the
knowledge of STAR LP, STAR LP is not required to make any material
expenditure to achieve or maintain compliance with any Law. Neither
the use, condition nor other aspect of any of the assets of the
Business or other right, property or asset used in or associated with
the Business is or has been in violation of any applicable Law. Except
as set forth in Schedule 5.14(a), neither STAR LP nor any Seller has
received any notice of any violation of any Law, or any potential
liability under any Law, relating to the operation of the Business or
to any of its assets, operations, processes, results or products, nor
is STAR LP aware of any such violation or potential liability.
(b) Schedule 5.14(b) sets forth a list of each government or
regulatory license, authorization, permit, franchise, provider number,
consent and approval (the "Permits") issued and held by or on behalf
of STAR LP or required to be so issued and held to carry on the
Business as currently conducted by STAR LP. Except as disclosed in
Schedule 5.14(b), STAR LP is the authorized legal holder of the
Permits, and each Permit is valid and in full force and effect. STAR
LP is not in default under, and no condition exists that with notice
or lapse of time or both could constitute a default or could give rise
to a right of termination, cancellation or acceleration under, any
Permit held by STAR LP.
26
Section 5.15 Assets; Properties; Sufficiency of Assets.
(a) Except for Inventory, if any, disposed of, or cash or cash
equivalents expended, in the Ordinary Course of Business, STAR LP has
good title to, or in the case of leased property has valid leasehold
interests in, the property and assets (whether real or personal,
tangible or intangible) reflected in the Reference Balance Sheet or
acquired after the date thereof, free and clear of all Liens, except
for Permitted Liens.
(b) STAR LP owns no Real Property assets. Schedule 5.15(b) sets
forth a list of all real property assets leased by STAR LP (the "Real
Property"). STAR LP is a tenant or possessor in good standing
thereunder (with a right of quiet enjoyment therein) and all rents due
under such leases have been paid. Neither STAR LP nor, to the
knowledge of STAR LP, any other party to any such lease is in default
or breach (with or without due notice or lapse of time or both) under
the terms of any such lease. STAR LP is in peaceful and undisturbed
possession of the space and/or estate under each lease of which it is
a tenant. STAR LP has not received any notice of any appropriation,
condemnation or like proceeding, or of any violation of any applicable
zoning Law or Order relating to or affecting the Real Property, and to
STAR LP's knowledge, no such proceeding has been threatened or
commenced. Each item of Real Property has adequate Utilities (as
hereinafter defined) of a capacity and condition to serve adequately
such Real Property (with due regard for the use to which such Real
Property is presently being put by STAR LP). For purposes of this
Agreement, the term "Utilities" means all of the following: water
distribution and service facilities; sanitary sewers and associated
installations; storm sewers; storm retention ponds and other drainage
facilities; electrical distribution and service facilities; telephone,
and similar communication facilities; heating, ventilating, cooling
and air conditioning systems and facilities; natural gas distribution
and service facilities; fire protection facilities; garbage compaction
and collection facilities; and all other utility lines, conduit,
pipes, ducts, shafts, equipment, apparatus and facilities.
(c) Schedule 5.15(c) sets forth a list of all tangible personal
property of STAR LP, and such tangible personal property is in all
material respects in good repair and operating condition (subject to
normal maintenance requirements and normal wear and tear excepted).
(d) The property and assets of STAR LP constitute all of the
properties and assets used in the Business, and such property and
assets are adequate to conduct the Business as currently conducted by
STAR LP.
Section 5.16 Intellectual Property.
(a) Schedule 5.16(a) sets forth a list of all Intellectual
Property Rights which are owned by STAR LP or which STAR LP is a
licensor or licensee, and all material licenses, sublicenses and other
written agreements as to which STAR LP or any of its Affiliates is a
party and pursuant to which any Person is authorized to use such
Intellectual Property Right, including the identity of all parties
thereto.
27
(b) Except as disclosed in Schedule 5.16(b):
(i) All of the Intellectual Property Rights necessary for or
used in the conduct of the Business are set forth in Schedule
5.16(a).
(ii) To the knowledge of STAR LP, the conduct of the
Business by STAR LP as currently conducted does not infringe upon
any Intellectual Property Right of any third party. There is no
claim, suit, action or proceeding that is either pending or, to
the knowledge of STAR LP, threatened, that, in either case,
involves a claim of infringement by STAR LP of any Intellectual
Property Right of any third party, or challenging STAR LP's
ownership, right to use, or the validity of any Intellectual
Property Right listed or required to be listed in Schedule
5.16(a). STAR LP has no knowledge of any basis for any such claim
of infringement and no knowledge of any continuing infringement
by any other Person of any of the Intellectual Property Rights
listed or required to be listed in Schedule 5.16(a);
(iii) No Intellectual Property Right listed or required to
be listed in Schedule 5.16(a) is subject to any outstanding
order, judgment, decree, stipulation or agreement restricting the
use thereof by STAR LP or restricting the licensing thereof by
STAR LP to any Person, other than with respect to standard and
customary restrictions associated with commercially available
third party software to which STAR LP has a valid right to use in
connection with the Business;
(iv) STAR LP has not entered into any agreement to indemnify
any other Person against any charge of infringement of any
Intellectual Property Right; and
(v) STAR LP has duly maintained all registrations for any
Intellectual Property Rights listed or required to be listed in
Schedule 5.16(a).
Section 5.17 Environmental Matters.
(a) Except as disclosed in Schedule 5.17(a):
(i) STAR LP has not, and to STAR LP's knowledge no other
party has, generated, recycled, used, treated or stored on,
transported to or from, or Released or disposed on, the Property
any Constituents of Concern or, to the knowledge of STAR LP, on
any property adjoining or adjacent to any Property, except in
compliance with Environmental Laws;
(ii) STAR LP has not disposed of Constituents of Concern
from Property at any off-site facility except in compliance with
Environmental Laws;
(iii) STAR LP has been and is in compliance, in all material
respects, with (a) Environmental Laws and (b) the requirements of
Permits issued under such Environmental Laws with respect to the
Property;
28
(iv) There are no pending Environmental Claims against STAR
LP or, to the knowledge of STAR LP, threatened Environmental
Claims against STAR LP or pending or, to the knowledge of STAR
LP, threatened Environmental Claims against any Property;
(v) To the knowledge of STAR LP, there are no underground
storage tanks or sumps located on any Property;
(vi) STAR LP is not listed, nor to the knowledge of STAR LP,
proposed for listing, nor to the knowledge of STAR LP without
having performed any inquiry, is any Property listed or proposed
for listing, on the National Priorities List under CERCLA or on
any similar federal, state or foreign list of sites requiring
investigation or clean-up, and STAR LP has not received any
requests for information pursuant to 104(e) of CERCLA or any
state counterpart or equivalent;
(vii) STAR LP has obtained all Environmental Permits
required in connection with the operation of the Business or the
use of the Property and is in compliance with the terms of each
Environmental Permit. Except as set forth in Schedule
5.17(a)(viii), there are no Environmental Permits of STAR LP that
are nontransferable or require consent, notification or other
action to remain in full force and effect following the
consummation of the transactions contemplated hereby; and
(viii) STAR LP has no liability under any Environmental Law
(including an obligation to remediate any Environmental Condition
whether caused by STAR LP or any other Person).
(b) STAR LP has delivered or made available to the Purchaser true
and complete copies of all environmental investigations, studies,
audits, tests, reviews or other analyses commenced or conducted by or
on behalf of STAR LP or any Seller (or by a third party of which STAR
LP has knowledge) in relation to the current or prior business of STAR
LP.
(c) For purposes of this Section 5.17, the term "STAR LP"
(including the use of such term in the term "Property") will include
any entity which is, in whole or in part, a predecessor of STAR LP.
Section 5.18 Benefit Plans and Material Documents.
(a) Schedule 5.18(a) sets forth a list of all Benefit Plans with
respect to which STAR LP or any ERISA Affiliate has or has had prior
to the date hereof any obligation or liability or which are or were
prior to the date hereof maintained, contributed to or sponsored by
STAR LP or any ERISA Affiliate for the benefit of any current or
former employee, officer, director or manager of STAR LP or any ERISA
Affiliate (collectively "STAR LP Benefit Plans"). With respect to each
STAR LP Benefit Plan, STAR LP has delivered or made available to the
Purchaser a true and complete copy of each such STAR LP Benefit Plan
(including all amendments thereto) and a true and complete copy of
each material document (including all amendments thereto) prepared in
29
connection with each such STAR LP Benefit Plan including (i) a copy of
each trust or other funding arrangement, (ii) each summary plan
description and summary of material modifications, (iii) the most
recently filed IRS Form 5500 for each such STAR LP Benefit Plan, if
any, and (iv) the most recent determination letter referred to in
Section 5.18(d). STAR LP has no express or implied commitment to
create, incur liability with respect to or cause to exist any Benefit
Plan or to modify any Benefit Plan, other than as required by Law.
(b) Except as disclosed in Schedule 5.18(b), none of STAR LP
Benefit Plans is a plan that is or has ever been subject to Title IV
of ERISA, Section 302 of ERISA or Section 412 of the Code. None of
STAR LP Benefit Plans is a "multiemployer plan" as defined in Section
3(37) of ERISA. Neither the Company nor any ERISA Affiliate has had,
has or could have any liability with respect to any Plan subject to
Title IV of ERISA. Except as disclosed in Schedule 5.18(b), none of
STAR LP Benefit Plans provides for the payment of separation,
severance, termination or similar-type benefits to any person or
provides for or, except to the extent required by Law, promises
retiree medical or life insurance benefits to any current or former
employee, officer, director or manager of STAR LP or any ERISA
Affiliate.
(c) Except as disclosed in Schedule 5.18(c), each STAR LP Benefit
Plan is in compliance with, and has been operated in accordance with,
its terms and the ERISA Affiliates have satisfied all of their
statutory, regulatory and contractual obligations with respect to each
such STAR LP Benefit Plan. No legal action, suit or claim is pending
or, to the knowledge of STAR LP, threatened with respect to any STAR
LP Benefit Plan (other than claims for benefits in the ordinary
course).
(d) Except as disclosed in Schedule 5.18(d), each STAR LP Benefit
Plan or trust which is intended to be qualified or exempt from
taxation under Section 401(a), 401(k) or 501(a) of the Code has
received a favorable determination letter from the IRS that it is so
qualified or exempt under the currently applicable requirements of the
Code, and, to the knowledge of STAR LP, nothing has occurred since the
date of such determination letter that would adversely affect the
qualified or exempt status of any STAR LP Benefit Plan or related
trust.
(e) There has been no non-exempt prohibited transaction (within
the meaning of Section 406 of ERISA or Section 4975 of the Code) with
respect to any STAR LP Benefit Plan. Neither STAR LP nor any ERISA
Affiliate has incurred any liability for any excise tax arising under
the Code with respect to a STAR LP Benefit Plan.
(f) All contributions, premiums or payments required to be made
with respect to any STAR LP Benefit Plan have been made on or before
their due dates. For completed plan years of such STAR LP Benefit
Plans, all such contributions have been fully deducted for income tax
purposes and no such deduction has been challenged or disallowed by
any Governmental Authority.
(g) There has been no amendment to, written interpretation of or
announcement (whether or not written) by STAR LP relating to, or
30
change in employee participation or coverage under, any STAR LP
Benefit Plan that would increase materially the expense of maintaining
such STAR LP Benefit Plan above the level of the expense incurred in
respect thereto for the most recent fiscal year ended prior to the
date hereof.
(h) Except as disclosed in Schedule 5.18(h), no employee or
former employee of STAR LP will become entitled to any bonus,
retirement, accelerated vesting or timing of payments, severance, job
security or similar benefit or enhanced such benefit (including
acceleration of vesting or exercise of an incentive award) as a result
of the transactions contemplated by this Agreement.
(i) Schedule 5.18(i) lists each Company Benefit Plan that is
treated as a "nonqualified deferred compensation plan" under Section
409A of the Code and each such plan has been maintained in good faith
compliance with the requirements of Section 409A of the Code and
applicable notices and regulations, both proposed and final, issued by
the Internal Revenue Service. Except as set forth in Schedule 5.18(i)
hereto, each Company Benefit Plan that is required to be amended as of
December 31, 2007 to either be exempt from or to comply with Section
409A of the Code (and the final regulations thereunder that were
issued on April 10, 2007) has been so amended.
(j) No Person who is entitled to a benefit under any Company
Benefit Plan that is a deferred compensation plan has incurred or will
incur any additional tax described in Section 409A of the Code as a
result of any event occurring, or the manner in which such plan has
been established or operated, prior to the Closing Date.
(k) Except as specified in 5.18(k) hereto, no Company Benefit
Plan provides for a "gross up" or similar payments in respect to any
Taxes that may become payable under Section 409A or Section 4999(a) of
the Code.
(l) There have been no terminations, partial terminations or
discontinuances of contributions to any tax qualified pension plan
during the preceding five years without notice to and approval by the
Internal Revenue Service and payment of all obligations and
liabilities attributable to such tax qualified pension plan.
(m) Except as set forth in Schedule 5.18(m), there are no
investigations or audits of any Company Benefit Plan by any
Governmental Authority currently pending and there have been no such
investigations or audits that have been concluded that resulted in any
liability to the Company or any ERISA Affiliate of the Company that
has not been discharged.
(n) Neither the Company nor any ERISA Affiliate of the Company
maintains, has established or has ever participated in a multiple
employer welfare benefit arrangement as described in Section 3(40)(A)
of ERISA.
(o) Neither the Company nor any ERISA Affiliate of the Company
has any current or future obligation or liability with respect to a
Company Benefit Plan pursuant to the provisions of a collective
bargaining agreement.
31
(p) Except as set forth in Schedule 5.18(p) hereto, none of the
Company Benefit Plans provide for post-employment life or health
insurance, benefits or coverage for any employees, directors or
consultants or former employees, directors, or consultants (or any of
their beneficiaries) of the Company, except as may be required under
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
or other similar law.
Section 5.19 Affiliate Transactions.
(a) Except as disclosed in Schedule 5.19(a), there are no
outstanding payables, receivables, loans, advances and other similar
accounts between STAR LP, on the one hand, and any of its Affiliates,
on the other hand, relating to the Business.
(b) Except as disclosed in Schedule 5.19(b), no director,
manager, officer or, to the knowledge of STAR LP, any other employee
of STAR LP, possesses, directly or indirectly, any ownership interest
in, or is a director, officer or employee of, any Person which is a
supplier, customer, lessor, lessee, licensor, or competitor of STAR
LP. Ownership of 1% or less of any class of securities of a Person
whose securities are registered under the Exchange Act will not be
deemed to be an ownership interest for purposes of this Section
5.19(b).
Section 5.20 Referrals, Supplier and Employee Relations. Schedule 5.20
includes a complete and correct list of (a) all physicians, clinics, hospital or
other sources who have made referrals for the Business that aggregate in excess
of 5% of the total combined revenues of STAR LP in calendar year 2006 and during
the six month period ending July 31, 2007, and (b) all suppliers from whom STAR
LP has purchased in excess of $25,000 in equipment or supplies to date in
calendar year 2006 or during the six month period ending July 31, 2007,. The
relationships of STAR LP with such referral sources and suppliers and the
employees of STAR LP are good commercial working relationships and, except as
disclosed in Schedule 5.20, none of such referral sources, suppliers or
employees has canceled, terminated or otherwise materially altered or notified
any authorized representative of STAR LP of any intention to cancel, terminate
or materially alter its relationship with STAR LP since the Balance Sheet Date.
Section 5.21 Other Employment Matters.
(a) STAR LP is not a party to any labor or collective bargaining
agreement.
(b) No labor organization or group of STAR LP employees has made
a pending demand for recognition, there are no representation
proceedings or petitions seeking a representation proceeding presently
pending or, to the knowledge of STAR LP, threatened to be brought or
filed with the National Labor Relations Board or other labor relations
tribunal, and there is no organizing activity involving STAR LP
pending or, to the knowledge of STAR LP, threatened by any labor
organization or group of employees.
(c) There are no (i) strikes, work stoppages, slow-downs,
lockouts or arbitrations or (ii) grievances or other labor disputes
pending or, to the knowledge of STAR LP, threatened against or
involving STAR LP.
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(d) There are no complaints, charges or claims against STAR LP
pending or, to the knowledge of STAR LP, threatened to be brought or
filed with any Governmental Authority based on, arising out of, in
connection with, or otherwise relating to the employment by STAR LP,
of any Person, including any claim for workers' compensation.
(e) STAR LP is in compliance in all material respects with all
Laws and Orders in respect of employment and employment practices
(including relating to the employment or engagement of aliens or
similar immigration matters) and the terms and conditions of
employment and wages and hours, and has not, and is not, engaged in
any unfair labor practice. All current and former independent
contractors engaged by STAR LP are property characterized as such
under the Code and other applicable Law.
(f) Schedule 5.21(f) contains a complete and accurate list of the
following information for each employee, officer, director or manager
of STAR LP, including each employee on leave of absence or layoff
status: employer; name; job title; current compensation paid or
payable and any change in compensation since the Balance Sheet Date;
vacation accrued as of a recent date; and service credited as of a
recent date for purposes of vesting and eligibility to participate
under any pension, retirement, profit-sharing, thrift-savings,
deferred compensation, stock bonus, stock option, cash bonus, employee
stock ownership (including investment credit or payroll stock
ownership), severance pay, insurance, medical, welfare, or vacation
plan or other Benefit Plan of STAR LP; and all bonuses and any other
amounts to be paid by STAR LP at or in connection with the Closing.
(g) Except as set forth in Schedule 5.21(g), no officer,
director, manager or partner of STAR LP and, to the knowledge of STAR
LP, no other employee of STAR LP, is a party to, or is otherwise bound
by, any confidentiality, non-competition, proprietary rights agreement
or similar agreement that would affect (i) the performance of his or
her duties as an employee, officer or director or (ii) the ability of
the Purchaser to conduct the Business after the Effective Time.
Section 5.22 Medicare Participation/Accreditation.
(a) STAR LP is qualified for participation in the Medicare and
Medicaid programs, have current and valid provider contracts with such
programs and are, and have been, in compliance in all material
respects with the conditions of participation in such programs with
respect to each participating location. STAR LP has no known pending
Medicare or Medicaid payment offsets, and have not received any notice
of such payment offsets. Schedule 5.22 sets forth for STAR LP (and the
Sellers, if any) all of their respective provider numbers (including
both individual and group numbers), Durable Medical Equipment numbers,
National Provider Identifier numbers, a list of the outpatient
clinics, hospitals or contracts that are billing for services
utilizing such provider numbers and the type of designation of such
facility or service billed. All such provider numbers, Durable Medical
Equipment numbers and National Provider numbers are in valid and in
good standing. Except as set forth on Schedule 5.22, neither STAR LP
nor any Seller has received any written notice from either the
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Medicare or Medicaid program of any pending or threatened
investigation or survey, and, to STAR LP's knowledge, there is no
reason to believe that any such investigation or survey is pending or
threatened.
(b) Neither STAR LP nor any Seller 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 Authority, fiscal intermediary, carrier
or similar entity that enforces or administers the statutory or
regulatory provisions in respect of any governmental health care
program. There are no outstanding judgments orders, writs, injunctions
or decrees of any Governmental Authority in respect of any
governmental health care program against STAR LP or any Seller which
would result in liability to STAR LP in excess of $10,000 (whether or
not covered by insurance) or that would materially affect or delay
STAR LP's or any Seller's performance of this Agreement. There are no
material, non-monetary orders, writs, injunctions or decrees of any
Governmental Authority outstanding in respect of any governmental
health care program against STAR LP or any Seller.
Section 5.23 Medicare and Medicaid Filings. Except as set forth on
Schedule 5.23, each report (including but not limited to Non-Application of Cost
Report) and other required claims, filings or submissions (collectively
"Filings") with respect to Medicare and each state Medicaid program in which
they participate, required to be filed by or on behalf of STAR LP or any Seller
on or prior to the Closing Date, has been timely filed and amounts shown on such
Filings (if any) as owed by STAR LP or such Seller(s) have been paid timely. All
of such Filings were, when filed or as they have been subsequently amended, true
and complete in all material respects. STAR LP has made available for inspection
by the Purchaser prior to the date of this Agreement each such Filing. Schedule
5.23 lists the Medicare and Medicaid Filings filed by STAR LP or any Seller for
any period after December 31, 2001 for which STAR LP or any Seller could be
liable. Schedule 5.23 sets forth which of such Filings have been audited and
finally settled, audited but not finally settled and neither audited nor
settled, and a brief description of any and all notices of program
reimbursement, proposed or pending audit adjustments, disallowances, appeals of
disallowances, and any and all other unresolved claims or disputes in respect of
such Filings. To the knowledge of STAR LP, there is no basis for any material
claims against STAR LP or any Seller 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 STAR LP nor any
Seller has received any written notice that Medicare (inclusive of applicable
fiscal intermediary or carrier) and or Medicaid (inclusive of applicable state
agency) has any claims against it which could result in offsets against future
reimbursement in excess of that provided for in the Reference Balance Sheet.
Section 5.24 Exclusion. Neither STAR LP nor any Seller has, and to the
knowledge of STAR LP, no other Person with whom STAR LP employs or otherwise
contracts in any capacity whatsoever has, been excluded from participation in a
federal health care program (as defined in 42 U.S.C. Section 1320a-7b(f)) where
such action could reasonably serve as a basis for STAR LP's or such Seller(s)
suspension or exclusion from the Medicare or any state Medicaid program.
34
Section 5.25 Federal Health Care Programs.
(a) None of STAR LP, its Affiliates (including the Sellers) or
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 STAR LP 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 STAR LP, or who is an officer, director,
manager, agent or managing employee (as defined in 42 C.F.R. Section
1001.1001(a)(i)): (i) except as set forth in Schedule 5.25, has had a
civil monetary penalty assessed against it under Section 1128A of the
Social Security Act or any regulations promulgated thereunder; (ii)
has been excluded from participation under any federal health care
program; or (iii) has been convicted (as that term is defined in 42
C.F.R. Section 1001.2) of any of the categories of offenses as
described in the Social Security Act Section 1128(a) and (b)(1), (2),
(3) or any regulations promulgated thereunder.
(b) All Filings filed or submitted by STAR LP or any Seller are
true and complete and the contents contained in such Filings are in
full accordance with Medicare and Medicaid rules and regulations.
(c) No action is pending or, to the knowledge of STAR LP,
threatened, to suspend, limit or terminate the status of STAR LP or
any Seller as a provider in any federal health care program. Except as
set forth on Schedule 5.25, neither STAR LP nor any Seller has
received notice that a third party private payor intends to terminate
or fail to renew any contractual arrangement with STAR LP or such
Seller(s) (or adversely amend or modify any right of reimbursement
thereunder) from which STAR LP or any Seller derived more than $25,000
in revenue from the Business during 2006.
Section 5.26 Billing; Gratuitous Payments. Except as set forth in
Schedule 5.26, all billing by, or on behalf of, STAR LP or any Seller relating
to the Business to third-party payors, including to Medicare, Medicaid and
private insurance companies has been true and complete in all material respects.
Neither STAR LP nor any Seller has received any notice from any third-party
payor, including from Medicare or Medicaid, that indicates that the Purchaser
could not continue to xxxx in substantially the same manner and structure as
STAR LP or the Sellers are is billing on the date hereof with respect to the
Business.
Section 5.27 Reimbursement Matters. Except as disclosed on Schedule
5.27, for the previous three years, neither STAR LP nor any Seller 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 STAR LP or any Seller, other than those which have been finally
resolved in any settlement for an amount less than $10,000. Neither STAR LP nor
any Seller is subject to (i) a "focused review" of claims by Medicare or (ii) a
"Corporate Integrity Agreement" or similar government - mandated compliance
program.
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Section 5.28 Bank Accounts. Schedule 5.28 lists each bank, trust
company or similar institution with which STAR LP maintains an account or safe
deposit box, and accurately identifies each such account or safe deposit box by
its number or other identification and the names of all individuals authorized
to draw thereon or have access thereto.
Section 5.29 General Partner and STAR LP Matters.
(a) The General Partner is a newly formed entity organized
specifically for the purpose of the Pre-Closing Reorganization and has
not otherwise conducted any business or operations, and as of the
Effective Time, has no liabilities, except for its interest in STAR LP
and the Pre-Closing Reorganization Documents executed by the General
Partner or STAR LP in connection with the GP Formation and the
conversion and each Ancillary Agreement to which it is a party and
which is to be entered into at Closing.
(b) Except for the General Partner's interest in STAR LP, the
General Partner does not own any Capital Stock or other equity or
ownership or proprietary interest in any Person.
(c) As of the Effective Time, except as set forth in the GP
Formation Documents and the STAR LP Formation Documents and the
purchase and sale of the Purchased Interests contemplated by this
Agreement, (i) there are no options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, convertible
securities or other rights, agreements or commitments of any character
relating the Capital Stock of the General Partner or STAR LP or
obligating the General Partner or STAR LP to issue, sell or otherwise
cause to become outstanding any of their respective Capital Stock,
(ii) there were no outstanding contractual obligations of the General
Partner or STAR LP to repurchase, redeem or otherwise acquire any
Capital Stock of the General Partner or STAR LP or interest in the
General Partner or STAR LP or to provide funds to or make any
investment (in the form of a loan, capital contribution or otherwise)
in, any other Person; and (iii) there are no voting trusts,
agreements, proxies or other understandings in effect with respect to
the voting or transfer of any Capital Stock of the General Partner or
STAR LP.
(d) As of the Effective Time, the General Partner is not a party
to any agreement or contract, other than the Pre-Closing
Reorganization Documents and the Ancillary Agreements (including the
Contracts, if any) to which it is a party and which is to be entered
into at Closing.
Section 5.30 Accounts Receivable. All of the Accounts Receivable
reflected on Schedule 5.30 (net of any discount to adjust such balances to
allowable reimbursement amounts and net of applicable reserves for doubtful
accounts and patient refunds as set forth on such Schedule 5.30) are valid and
enforceable claims, and the goods and services sold and delivered which gave
rise to such Accounts Receivable were sold and delivered in the Ordinary Course
of Business. Except as set forth in Schedule 5.30, such Accounts Receivable are
subject to no defenses, offsets or recovery in whole or in part by the Persons
whose purchase gave rise to such Accounts Receivable or by third parties and are
fully collectible within 120 days after the Effective Time without resort to
36
legal proceedings, except to the extent of the amount of the reserve for
doubtful accounts reflected on the Reference Balance Sheet (plus any additional
applicable reserves established since such date in the Ordinary Course of
Business).
Section 5.31 Finders' Fees. Except as set forth on Schedule 5.31,
there is no investment banker, broker, finder or other intermediary which has
been retained by or is authorized to act on behalf of STAR LP or any Seller who
is, or who to STAR LP's knowledge may claim to be, entitled to any fee or other
commission in connection with the transactions contemplated by this Agreement or
any of the Ancillary Agreements.
Section 5.32 Books and Records. The books of account, minute books,
stock record books and other records of STAR LP are complete and correct in all
material respects. Except as set forth in Schedule 5.32, there are no
outstanding powers of attorney executed on behalf of STAR LP.
Section 5.33 Disclosure. None of the information contained in the
Schedules or in this Agreement contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements contained therein, in light of the circumstances
under which they were or are made, not false or misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER
The Purchaser represents and warrants to STAR LP and the Sellers as
follows:
Section 6.1 Existence and Power. The Purchaser is a limited
partnership duly formed, validly existing and in good standing under the laws of
the State of Texas. The Purchaser has all limited partnership power required to
carry on its business as now conducted. The Purchaser is duly qualified to
conduct business as a foreign limited partnership and is in good standing in
each jurisdiction where such qualification is necessary. The Purchaser has
previously delivered to STAR LP and the Sellers true and complete copies of the
Charter Documents of the Purchaser, all as currently in effect.
Section 6.2 Authorization; Enforceability. The execution, delivery and
performance by the Purchaser of this Agreement and each of the Ancillary
Agreements to which it is a party at the Closing are within the Purchaser's
limited partnership power and have been duly authorized by the partners of the
Purchaser and no other limited partnership action on the part of the Purchaser
is necessary to authorize this Agreement or any of the Ancillary Agreements to
which the Purchaser is a party at the Closing. This Agreement has been, and each
of the Ancillary Agreements to which the Purchaser is a party at the Closing has
been, duly executed and delivered by the Purchaser. Assuming the due execution
and delivery by STAR LP and the Sellers of this Agreement and each of the
Ancillary Agreements to which the Purchaser is a party at the Closing, this
Agreement constitutes, and each Ancillary Agreement to which the Purchaser is a
party at the Closing constitutes at the Effective Time, valid and binding
agreements of the Purchaser, enforceable against the Purchaser in accordance
with their terms, except as such enforcement may be limited by bankruptcy,
37
insolvency, reorganization, moratorium or other similar laws affecting
enforcement of creditors' rights generally and by general principles of equity
(whether applied in a proceeding at law or in equity).
Section 6.3 Governmental Authorization. Except as disclosed in
Schedule 6.3, the execution, delivery and performance by the Purchaser of this
Agreement and each Ancillary Agreement to which the Purchaser is a party at the
Closing require no consent, approval, order, authorization or action by or in
respect of, or filing with, any Governmental Authority.
Section 6.4 Non-Contravention. Except as set forth on Schedule 6.4,
the execution, delivery and performance by the Purchaser of this Agreement and
each Ancillary Agreement to which the Purchaser is a party at the Closing, and
the consummation of the transactions contemplated hereby and thereby, do not (a)
violate the certificate of limited partnership or agreement of limited
partnership or other similar constituent documents of the Purchaser, (b) violate
any applicable Law or Order, (c) require any filing with or Permit, consent or
approval of, or the giving of any notice to, any Person (including filings,
consents or approvals required under any Permits of the Purchaser or any
licenses to which the Purchaser is a party), or (d) result in a violation of or
breach of, conflict with, constitute (with or without due notice or lapse of
time or both) a default under, or give rise to any right of termination,
cancellation or acceleration of any right or obligation of the Purchaser or to a
loss of any benefit to which the Purchaser is entitled under, any Contract,
agreement or other instrument binding upon the Purchaser or any license,
franchise, Permit or other similar authorization held by the Purchaser.
Section 6.5 Parent Stock. The Parent Stock to be issued to the
Accredited Sellers as part of the Purchase Price pursuant to Section 3.1(c)
shall represent when issued duly authorized, validly issued, full paid and
non-assessable shares of the Parent's common stock.
Section 6.6 Section 6.7 Disclosure. None of (i) any other written
information required to be furnished to STAR LP or Sellers by the Purchaser
under this Agreement, or (ii) the representations and warranties of the
Purchaser contained in this Agreement contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements contained therein, in light of the circumstances
under which they were or are made, not false or misleading.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Employees and Benefits.
(a) The Purchaser agrees that individuals who are employed by
STAR LP immediately prior to the Closing Date and set forth on
Schedule 5.21(f) shall continue to be employees of STAR LP as of the
Effective Time (each such employee, an "Affected Employee") at the
wage level set forth therein, provided, that, the terms of employment
of the Key Employees shall be governed by the terms and conditions of
the Employment Agreements, provided, further, that nothing contained
herein shall confer upon any Affected Employee the right to continued
employment by STAR LP for any period of time after the Effective Time
which is not otherwise required by law, contract or the Employment
Agreements.
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(b) Unless and until the date the Purchaser determines in its
sole and absolute discretion to move Affected Employees to U.S.
Physical Therapy, Inc.'s group employee health and welfare benefit
plans or other Benefit Plans, the Purchaser shall cause STAR LP to
maintain for the benefit of the Affected Employees the Transferred
Employee Benefit Plans or such other plans that are substantially
comparable as a whole to the Benefit Plans maintained by STAR LP
immediately prior to the Closing.
Section 7.2 Physical Therapy Alliance. STAR LP provides certain
management and other services to Physical Therapy Alliance, LLC, a Kentucky
limited liability company ("PTA"), pursuant to the terms of that certain
Management Services Agreement dated August 15, 2002. PTA owns and operates two
physical therapy clinics located at 0000 Xxxxxxxx'x Xxxxxxx, Xxxxx 000,
Xxxxxxxxxx, Xxxxxxxx 00000 and 0000 Xxxxxxxxx Xxxx, Xxxxxxxxxx, Xxxxxxxx 00000
(the "PTA Clinics"). As of July 31, 2007, PTA was indebted to STAR LP in the
amount of $702,023.64 for accrued but unpaid management fees and working capital
advances (the "PTA Indebtedness"). All of the membership interests in PTA are
owned by Xxxx X. Xxxxxxx ("Xxxxxxx"), one of the Sellers. Following the Closing,
STAR LP and Xxxxxxx hereby agree to cooperate and work in good faith with one
another to explore and, if commercially practicable, arrange for a transfer of
the PTA Clinics and related business to STAR LP. The terms and conditions of any
such transfer will assure that Xxxxxxx will not have any Tax liability (or will
be indemnified or reimbursed for such Tax liability) in connection with the
transfer and that based on the existence of the Management Services Agreement
between PTA and STAR LP, Xxxxxxx will receive nominal consideration, if any, for
any transfer of his membership interests or the assets of PTA to STAR LP.
Purchaser, for itself and on behalf of STAR LP, recognizes and agrees that
Xxxxxxx does not have and will not have any personal liability or obligation to
Purchaser or STAR LP with respect to the PTA Indebtedness.
Section 7.3 Further Assurances. From time to time, as and when
requested by any party hereto, the other parties will execute and deliver, or
cause to be executed and delivered, all such documents and instruments and will
take, or cause to be taken, all such further actions, as the requesting party
may reasonably deem necessary or desirable to consummate the transactions
contemplated by this Agreement or to vest STAR LP with full title to all
properties, assets, rights, approvals, immunities and franchises of STAR LP as
of the time immediately prior to the Closing Date Time.
Section 7.4 No Change of Ownership. STAR LP and each of the Sellers
agree that neither the Pre-Closing Reorganization nor the purchase by Purchaser
(or its Affiliates) of the Purchased Interests pursuant to this Agreement
results in a change of ownership ("CHOW") as defined by 42 CFR 489.18 and
Section 3210 of the CMS State Operations Manual.
Section 7.5 Cooperation with Post-Closing Consents. To the extent any
third party consents required by STAR LP to consummate the transactions
contemplated by this Agreement (including the Pre-Closing Reorganization) are
not obtained on or prior to Closing, each of the Sellers hereby agrees to assist
and cooperate with STAR LP and Purchaser in such manner as may be reasonably
requested by them in obtaining such consents after the Closing, including by
participating in discussions and negotiations with all persons or entities with
the authority to grant or withhold such consent.
39
Section 7.6 Clinic Director Expense. STAR LP, each of the Sellers and
Purchaser hereby acknowledge and agree that STAR LP shall be permitted to
negotiate with Xxxxxx Xxxxxxx regarding his continuing employment arrangement
with STAR LP post-closing on terms reasonable acceptable to Purchaser, including
payments to secure the waiver of any right to the sale of clinic bonus or deemed
sale of clinic bonus under Sections 9 and 11 of his existing employment
agreement with STAR LP. The Sellers and Purchaser shall each bear 50% of any
out-of-pocket payments to Xxxxxx Xxxxxxx, whether occurring before or after
Closing, to secure the foregoing waiver up to a maximum payment by Purchaser of
$200,000, with the Sellers bearing the responsibility for any additional
payments over such amount. For avoidance of doubt, Sellers shall be responsible
for all amounts paid to Xxxxxx Xxxxxxx in connection with the foregoing waiver
above over $400,000. The Sellers shall be jointly and severally liable for the
obligation under this Section 7.6; provided, however, to the extent the
foregoing payment (i) is made on or before Closing, the Sellers' portion of the
payment shall be a dollar-for-dollar reduction of the Purchase Price payable
under Section 3.1(b) and (ii) to the extent such payment is made after the
Closing, the Purchaser shall offset the Sellers' portion of such payment against
the Note or Notes.
ARTICLE VIII
CERTAIN TAX MATTERS
Section 8.1 Transfer Taxes. Any sales, use, transfer, vehicle
transfer, stamp, conveyance, value added or other similar Taxes that may be
imposed by any Governmental Authority, in connection with this transaction, will
be borne by Sellers.
Section 8.2 Partnership Status. The parties hereto intend that STAR LP
will constitute a partnership for U.S. federal income tax purposes both (i)
following the consummation of the Pre-Closing Reorganization and before the
closing of the purchase and sale of the Purchased Interests pursuant to this
Agreement and (ii) immediately following the closing of the purchase and sale of
the Purchased Interests pursuant to this Agreement. No party hereto shall take
any action to cause STAR LP not to be treated as partnership for U.S. federal
income tax purposes as of such times.
Section 8.3 Section 754 Election. The parties hereto agree that STAR
LP will file with the IRS, and the parties hereto hereby request and consent to
the filing of, an election under Section 754 of the Code. Purchaser and Sellers
shall agree to the allocation of the Closing Purchase Price among the assets and
properties of STAR LP within 60 days after the Closing for all purposes,
including financial accounting and Tax purposes, and which allocation shall be
in accordance with Section 755 of the Code. None of STAR LP, Sellers or
Purchaser shall take any position on any Tax return or before any Taxing
Authority inconsistent with such allocation (except to the extent otherwise
required by a "final determination" within the meaning of the Code).
Section 8.4 Other Tax Matters.
(a) STAR LP, the Sellers and Purchaser, as applicable, shall, to
the extent permitted by applicable Law and except as otherwise
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provided herein, elect with each relevant Taxing Authority to close
the taxable period of STAR LP at the end of the day on August 31,
2007.
(b) In the case of any Tax for any Straddle Period imposed upon
or measured by income or receipts, Taxes shall be allocated between
the Pre-Closing Tax Period and the portion of the Straddle Period
following August 31, 2007 on the basis of an interim closing of the
books as of the close of business on the August 31, 2007. The
liability and deduction for franchise Taxes based on income or gross
receipts shall be determined on the basis of the period during which
such income or gross receipts were earned and without regard to the
period for which any privilege to exercise such franchise is granted.
(c) In the case of any Tax for any Straddle Period that is not
imposed upon or measured by income or gross receipts, the amount of
such Tax to be apportioned to the Pre-Closing Tax Period shall be the
amount of such Tax multiplied by a fraction the numerator of which is
the number of days in the portion of such Tax period ending on August
31, 2007, and the denominator of which is the total number of days in
the entire Tax period. The remaining amount of such Tax shall be
apportioned to the portion of the Straddle Period following August 31,
2007.
(d) STAR LP shall prepare and file, or cause to be prepared and
filed, all Tax Returns relating to STAR LP required to be filed on or
prior to August 31, 2007. The Purchaser shall be provided a reasonable
opportunity to review and comment on all such Tax Returns in the
nature of income or franchise Tax Returns before such Tax Returns are
filed with the applicable Taxing Authorities.
(e) The Purchaser shall prepare and file (or cause to be prepared
and filed) all Tax Returns of STAR LP not described in subparagraph
(d), including all Straddle Period Tax Returns.
(f) The amount of any Straddle Period Taxes allocated or
apportioned to the Pre-Closing Tax Period pursuant to this Section
5.10 (to the extent not already paid on or before August 31, 2007 or,
without duplication, accrued as a current liability on the Reference
Balance Sheet or included as a current liability on the Closing Date
Balance Sheet) shall be paid by the Sellers to Purchaser promptly upon
demand by the Purchaser to the Seller Representative. The Sellers
shall be jointly and severally liable for any payment due Purchaser
under this Section 8.4(f), and to the extent not otherwise promptly
satisfied by the Sellers in cash, Purchaser may (but is not required)
to set-off amounts due and owing by Purchaser under the Notes to
satisfy any amounts due Purchaser pursuant to this Section 8.4(f).
(g) Any Tax Return for any taxable period ending on or prior to
August 31, 2007 or for any Straddle Period, and any Tax Return for any
taxable period beginning after August 31, 2007 if items reported on
such Tax Return might reasonably affect items reported on any Tax
Return for any taxable period ending on or prior to August 31, 2007 or
for any Straddle Period, shall be prepared on a basis consistent with
past Tax accounting practices and Tax reporting positions of STAR LP
(unless such past practices or reporting positions are not, or cease
to be, permissible under the Code or other applicable Tax Law) and, to
41
the extent any items are not covered by past practices or reporting
positions (or in the event such past practices or reporting positions
are not, or cease to be, permissible under the Code or other
applicable Tax Law), in accordance with sound legal principles and
reasonable Tax accounting practices selected by the party responsible
for preparing the Tax Return, and in all other respects in a manner
consistent with the allocation of responsibility for Taxes in this
Section 8.4.
(h) As to any Pre-Closing Tax Period, neither the Sellers nor the
Seller Representative shall make or change, or cause or permit STAR LP
to make or change, any Tax election, change an annual Tax accounting
period, adopt or change any Tax accounting method, file any amended
Tax Return, enter into any closing agreement, settle any Tax claim or
assessment relating to STAR LP, surrender any right to claim a refund
of Taxes, consent to any extension or waiver of the limitation period
applicable to any Tax claim or assessment relating to STAR LP, or take
any similar action relating to the filing of any Tax Return or the
payment of any Tax.
(i) At the Closing, STAR LP shall deliver to Purchaser a
certificate(s), duly executed and acknowledged, in form and substance
reasonably satisfactory to Purchaser, certifying that the acquisition
of the Purchased Interest is exempt from withholding under Section
1445 of the Code.
(j) After the Closing, until expiration of the statue of
limitations applicable for taxable periods ending on, before, or
including August 31, 2007, the Sellers and the Seller Representative,
on the one hand, and Purchaser, on the other hand, shall (and shall
cause their respective Affiliates to) (i) provide such assistance to
STAR LP as is reasonably requested by STAR LP in connection with its
preparation of any Tax Returns which STAR LP is responsible for
preparing and filing, (ii) cooperate fully in the manner reasonably
requested by the other party in connection with responding to any
inquiries from or preparing for any audits of, or disputes with taxing
authorities regarding, any Taxes or Tax Returns of STAR LP for taxable
periods ending on, before, or including August 31, 2007, and (iii)
make available to the other party or parties, as the case may be, with
respect to taxable periods ending on, before, or including August 31,
2007, all information in its possession relating to STAR LP which may
be relevant to any Tax Return, audit or examination, proceeding or
determination and to any taxing authority as reasonably requested by
the other party.
ARTICLE IX
CONDITIONS TO CLOSING
Section 9.1 Conditions to Obligations of Purchaser. The obligations of
the Purchaser to consummate the Closing are subject to the satisfaction (or
waiver by the Purchaser) at or prior to the Closing of the following conditions:
(a) Representations, Warranties and Covenants of STAR LP and the
Sellers.
(i) The representations and warranties of STAR LP and the
Sellers made in this Agreement shall be true and correct in all
42
material respects (except in the case of (i) the representations
contained in Section 5.1 (Existence and Power), Section 5.2
(Authorization; Enforceability), Section 5.4 (Non-Continuation;
Consents), Section 5.5 (Capitalization) and Section 5.31
(Finders' Fees) and (ii) any representation and warranty that is
expressly qualified by "materiality," "Material Adverse Effect"
or words of similar import, then in all respects) as of the date
hereof (except to the extent such representations and warranties
relate to an earlier date or time, in which case as of such
earlier date or time); and
(ii) STAR LP and the Sellers shall have performed and
complied in all material respects with all terms, agreements and
covenants contained in this Agreement required to be performed or
complied with by STAR LP and the Sellers on or before the Closing
Date.
(b) No Injunction, etc. No provision of any applicable Law and no
judgment, injunction, order or decree of any Governmental Authority
shall be in effect which shall prohibit the consummation of the
Closing.
(c) No Proceedings. No action, suit or proceeding materially
affecting the Business or challenging this Agreement, the Ancillary
Agreements or the transactions contemplated hereby or thereby or
seeking to prohibit, alter, prevent or materially delay the Closing or
seeking material damages shall have been instituted or threatened by
any Person.
(d) Delivery of Documents. Each of the deliveries required by
Section 4.2 shall have been made.
(e) Third-Party Consents; Governmental Approvals. All consents,
approvals, waivers and Permits, if any, disclosed or required to be
disclosed on Schedule 4.2(vi) attached hereto shall have been
received.
(f) Pre-Closing Reorganization. The Pre-Closing Reorganization
shall have been consummated, including the transactions described in
Section 2.1.
(g) Discharge of Liens. STAR LP shall have discharged all Liens
on the assets and properties of STAR LP, other than Permitted Liens.
(h) No Material Adverse Change. No event shall have occurred
which, individually or in the aggregate, has had, or could reasonably
be expected to have, a Material Adverse Effect on STAR LP or the
Business.
(i) Clinic Director Waivers. STAR LP shall have provided
Purchaser executed written letter agreements from each of Xxxxxxx
Xxxxxx, Xxxx Xxxxxxxxx, Xxxxx Xxxxxxx, Xxxxx Xxxxxx and Xxxx Xxxxxxxx
in a form reasonably satisfactory to Purchaser whereby each of the
foregoing persons agrees to waive and render null and void any
provision contained in their existing employment agreement with STAR
LP or other agreement existing on or prior to the Closing relating to
any bonus on the sale any clinic locations operated by STAR LP as a
result of this Agreement or any subsequent transaction by STAR LP,
Purchaser or Parent or their respective Affiliates after the Closing.
43
Section 9.2 Conditions to Obligations of STAR LP and the Sellers. The
obligations of STAR LP and the Sellers to consummate the Closing are subject to
the satisfaction (or waiver by STAR LP and the Sellers) at or prior to the
Closing of the following conditions:
(a) Representations, Warranties and Covenants of Purchaser.
(i) The representations and warranties of the Purchaser made
in this Agreement shall be true and correct in all material
respects (except, in the case of (i) Section 6.1 (Existence and
Power), Section 6.2 (Authorization; Enforceability), Section 6.4
(Non-Continuation) and Section 6.5 (Parent Stock) or (ii) any
representation and warranty that is expressly qualified by
"materiality," "Material Adverse Effect" or words of similar
import, then in all respects) as of the date hereof; and
(ii) The Purchaser shall have performed and complied in all
material respects with all terms, agreements and covenants
contained in this Agreement required to be performed or complied
with by the Purchaser on or before the Closing Date.
(b) No Injunction, etc. No provision of any applicable Law and no
judgment, injunction, order or decree of any Governmental Authority
shall be in effect which shall prohibit the consummation of the
Closing.
(c) Delivery of Documents. Each of the deliveries required by
Section 4.3 shall have been made.
ARTICLE X
SURVIVAL; INDEMNIFICATION
Section 10.1 Survival. The representations and warranties of the
parties contained in this Agreement or in any certificate or other writing
delivered pursuant hereto or in connection herewith shall survive the Closing
for three (3) years; provided, however, that (i) the Selected Representations
and Warranties (other than those contained in clause (ii) below, which shall
survive as set forth below) shall survive the Closing for seven (7) years and
(ii) the representations and warranties contained in Section 5.5(b)
(Capitalization) and Section 5.15(a) (Assets; Properties; Sufficiency of Assets)
shall survive the Closing indefinitely. Notwithstanding the immediately
preceding sentence, any representation or warranty in respect of which indemnity
may be sought under this Agreement will survive the time at which it would
otherwise terminate pursuant to the immediately preceding sentence if written
notice of the inaccuracy or breach thereof giving rise to such right of
indemnity shall have been given to the party against whom such indemnity may be
sought prior to such time; provided, however, that the applicable representation
or warranty will survive only with respect to the particular inaccuracy or
breach specified in such written notice. All covenants and agreements of the
parties contained in this Agreement will survive the Closing indefinitely. The
44
representations and warranties will not be affected or reduced as a result of
any investigation or knowledge of the Purchaser.
Section 10.2 Indemnification.
(a) From and after the Closing, the Sellers will, jointly and
severally, indemnify, defend and hold harmless the Purchaser and its
partners, officers, directors, employees, affiliates (including STAR
LP after the Closing), stockholders and agents, and the successors to
the foregoing (and their respective officers, directors, employees,
affiliates, stockholders and agents) against any and all liabilities,
damages and losses, and, but only to the extent asserted in a
Third-Party Claim, punitive damages, and all costs or expenses,
including reasonable attorneys' and consultants' fees and expenses
incurred in respect of Third-Party Claims or claims between the
parties hereto ("Damages"), incurred or suffered as a result of or
arising out of (i) the failure of any representation or warranty made
by STAR LP or any Seller in Article V to be true and correct as of the
Closing Date (except to the extent such representations and warranties
relate to an earlier date or time, in which case as of such earlier
date or time) (and which, for purposes of clause (i) of this Section
10.2(a), shall be determined without reference to any qualifier of any
representation or warranty with respect to "materiality," "Material
Adverse Effect" or other similar concepts), (ii) the breach of any
covenant or agreement made or to be performed by STAR LP or any Seller
pursuant to this Agreement, (iii) any Environmental Claims or
Environmental Conditions which relate to the business of STAR LP prior
to the Closing Date and (iv) any claim by Xxxxxx X. Xxxxxxx or Xxxxx
Xxxxxxx relating to the right to the payment of the bonus regarding
the sale or deemed sale of clinics under Section 9 and Section 11 of
their respective employment agreements with STAR LP; provided,
however, that the Sellers will not be liable under clause (i) of this
Section 10.2(a)(i) (other than with respect to a breach of any of the
Selected Representations and Warranties) unless, and then only to the
extent, the aggregate amount of Damages exceeds $150,000, provided,
further, that the aggregate liability of the Sellers under clause (i)
of this Section 10.2(a) will not exceed, in the aggregate, an amount
equal to twenty-five percent (25%) of the sum of the Purchase Price.
(b) The Purchaser will indemnify, defend and hold harmless the
Sellers against Damages incurred or suffered as a result of or arising
out of (i) the failure of any representation or warranty made by the
Purchaser in Article VI to be true and correct as of the Closing Date,
and (ii) the breach of any covenant or agreement made or to be
performed by the Purchaser pursuant to this Agreement.
Section 10.3 Procedures.
(a) If any Person who or which is entitled to seek
indemnification under Section 10.2 (an "Indemnified Party") receives
notice of the assertion or commencement of any Third-Party Claim
against such Indemnified Party with respect to which the Person
against whom or which such indemnification is being sought (an
"Indemnifying Party") is obligated to provide indemnification under
this Agreement, the Indemnified Party will give such Indemnifying
Party reasonably prompt written notice thereof, but in any event not
later than 20 days after receipt of such written notice of such
45
Third-Party Claim. Such notice by the Indemnified Party will describe
the Third-Party Claim in reasonable detail, will include copies of all
available material written evidence thereof and will indicate the
estimated amount, if reasonably estimable, of the Damages that have
been or may be sustained by the Indemnified Party. The Indemnifying
Party will have the right to participate in, or, by giving written
notice to the Indemnified Party, to assume, the defense of any
Third-Party Claim at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel (which will be reasonably
satisfactory to the Indemnified Party), and the Indemnified Party will
cooperate in good faith in such defense.
(b) If, within 20 days after giving notice of a Third-Party Claim
to an Indemnifying Party pursuant to Section 10.3(a), an Indemnified
Party receives written notice from the Indemnifying Party that the
Indemnifying Party has elected to assume the defense of such
Third-Party Claim as provided in the last sentence of Section 10.3(a),
the Indemnifying Party will not be liable for any legal expenses
subsequently incurred by the Indemnified Party in connection with the
defense thereof; provided, however, that if the Indemnifying Party
fails to take reasonable steps necessary to defend diligently such
Third-Party Claim within twenty (20) days after receiving written
notice from the Indemnified Party or if the Indemnified Party
reasonably believes the Indemnifying Party has failed to take such
steps or if the Indemnifying Party has not undertaken fully to
indemnify the Indemnified Party in respect of all Damages relating to
the matter, the Indemnified Party may assume its own defense, and the
Indemnifying Party will be liable for all reasonable costs and
expenses paid or incurred in connection therewith; provided, however,
that the Indemnifying Party shall not be liable for the costs and
expenses of more than one counsel for all Indemnified Parties in any
one jurisdiction. Without the prior written consent of the Indemnified
Party, the Indemnifying Party will not enter into any settlement of
any Third-Party Claim which would lead to liability or create any
financial or other obligation on the part of the Indemnified Party for
which the Indemnified Party is not entitled to indemnification
hereunder, or which provides for injunctive or other non-monetary
relief applicable to the Indemnified Party, or does not include an
unconditional release of all Indemnified Parties. If a firm offer is
made to settle a Third-Party Claim without leading to liability or the
creation of a financial or other obligation on the part of the
Indemnified Party for which the Indemnified Party is not entitled to
indemnification hereunder and the Indemnifying Party desires to accept
and agree to such offer, the Indemnifying Party will give written
notice to the Indemnified Party to that effect. If the Indemnified
Party fails to consent to such firm offer within ten days after its
receipt of such notice, the Indemnified Party may continue to contest
or defend such Third-Party Claim and, in such event, the maximum
liability of the Indemnifying Party as to such Third-Party Claim will
not exceed the amount of such settlement offer. The Indemnified Party
will provide the Indemnifying Party with reasonable access during
normal business hours to books, records and employees of the
Indemnified Party necessary in connection with the Indemnifying
Party's defense of any Third-Party Claim which is the subject of a
claim for indemnification by an Indemnified Party hereunder.
(c) Any claim by an Indemnified Party on account of Damages which
does not result from a Third-Party Claim (a "Direct Claim") will be
46
asserted by giving the Indemnifying Party reasonably prompt written
notice thereof. Such notice by the Indemnified Party will describe the
Direct Claim in reasonable detail, will include copies of all
available material written evidence thereof and will indicate the
estimated amount, if reasonably practicable, of Damages that has been
or may be sustained by the Indemnified Party. The Indemnifying Party
will have a period of thirty (30) calendar days within which to
respond in writing to such Direct Claim. If the Indemnifying Party
does not so respond within such thirty (30) day period, the
Indemnifying Party will be deemed to have rejected such claim, in
which event the Indemnified Party will be free to pursue such remedies
as may be available to the Indemnified Party on the terms and subject
to the provisions of this Agreement.
(d) A failure to give timely notice or to include any specified
information in any notice as provided in Sections 10.3(a), 10.3(b) or
10.3(c) will not affect the rights or obligations of any party
hereunder, except and only to the extent that, as a result of such
failure, any party which was entitled to receive such notice was
deprived of its right to recover any payment under its applicable
insurance coverage or was otherwise materially prejudiced as a result
of such failure.
Section 10.4 Offset. If the Purchaser incurs any Damages for which it
is entitled to indemnification by the Sellers under this Article X pursuant to
(i) a written agreement for offset among the Purchaser and the applicable Seller
or (ii) either (x) a decision by an arbitrator in accordance with Section 11.12
or (y) a judgment entered by a court of competent jurisdiction, the Purchaser
shall have the right (but not the obligation) to offset any payments due or to
be due under the Notes, and principal amount of the Notes, by the amount of the
Damages. Such right of offset shall not be considered an exclusive remedy, it
being agreed that the Purchaser shall also be entitled to exercise any other
remedies available to it at law or equity, including the indemnification rights
set forth in this Article X.
In addition, if a dispute arises or exists concerning a claim as to
whether any Seller is obligated to indemnify the Purchaser pursuant to this
Article X, the Purchaser shall make a good faith estimate of the amount of such
indemnification liability (the "Estimated Dispute Amount") and shall have the
right (but not the obligation), if any payment(s) under the Notes become due
prior to the final resolution of such dispute consistent with the immediately
preceding paragraph, to reduce or offset such payment(s) by the Estimated
Dispute Amount until such time as the dispute is finally resolved in a manner
consistent with the immediately preceding paragraph.
Section 10.5 Payment of Indemnification Payments. All indemnifiable
Damages payable by the Sellers under this Article X shall be paid in cash in
immediately available funds, subject to Section 10.4 or otherwise satisfied by
exercise of the offset right by Purchaser pursuant to Section 10.4. All
indemnifiable Damages payable by the Sellers under this Article X shall be net
of amounts actually recovered by the Purchaser under any insurance policy. All
indemnifiable Damages payable by the Purchaser under this Article X shall be
paid in cash in immediately available funds.
47
ARTICLE XI
MISCELLANEOUS
Section 11.1 Notices. All notices and other communications required or
permitted hereunder will be in writing and, unless otherwise provided in this
Agreement, will be deemed to have been duly given when delivered in person or
when dispatched by electronic facsimile transfer (receipt confirmed) or one
Business Day after having been dispatched by a nationally recognized overnight
courier service to the appropriate party at the address specified below:
(a) If to the Purchaser to:
U.S. Physical Therapy, Ltd.
0000 Xxxx Xxx Xxxxxxx Xxxxxxx Xxxxx
Xxxxx 000
Xxxxxxx, Xxxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxxxxx X. XxXxxx
With a copy to:
Xxxxxx & Xxxxxx, L.L.P.
0000 Xxxx Xxxxxx, 00xx Xxxxx
Xxxxxxx, Xxxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxx X. Xxxxxxx
(b) If to STAR LP, any Seller or Seller Representative, to:
STAR Physical Therapy, LP
000 Xxxxxxxx Xxxx
Xxxxx 000
Xxxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attention: Xxxx Xxxxxxx
with a copy to:
Xxxxxx & Xxxxxxxx, P.L.L.C.
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, XX 00000-0000
Facsimile No.: (000) 000-0000
Email: xxxxxxx.xxxxxxxx@xxxxxx.xxx
Attention: Xxxxxxx X. Xxxxxxxx
or to such other address or addresses as any such party may from time to time
designate as to itself by like notice.
Section 11.2 Amendments and Waivers.
48
(a) Any provision of this Agreement may be amended or waived if,
but only if, such amendment or waiver is in writing and is signed, in
the case of an amendment, by each party to this Agreement, or in the
case of a waiver, by the party against whom the waiver is to be
effective.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder will operate as a waiver thereof nor will
any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided will be cumulative
and not exclusive of any rights or remedies provided by Law.
Section 11.3 Expenses. Whether or not the transactions contemplated by
this Agreement are consummated, except as otherwise expressly provided for
herein, the parties will pay or cause to be paid all of their own fees and
expenses incident to this Agreement and in preparing to consummate and in
consummating the transactions contemplated hereby, including the fees and
expenses of any broker, finder, financial advisor, investment banker, legal
advisor or similar person engaged by such party.
Section 11.4 Successors and Assigns. The provisions of this Agreement
will be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. No party may assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement (including any
transfer by way of merger or operation of law) without the consent of each other
party hereto; provided, however, that Purchaser may assign all or any portion of
its rights and/or obligations hereunder to an Affiliate of Purchaser or Parent;
provided, further, that no such assignment shall relieve Purchaser from its
obligations hereunder. Any assignment in violation of the preceding sentence
will be void ab initio.
Section 11.5 No Third-Party Beneficiaries. Except as provided in
Article X, this Agreement is for the sole benefit of the parties hereto and
their permitted successors and assigns, and nothing herein expressed or implied
will give or be construed to give to any Person, other than the parties hereto
and such permitted successors and assigns, any legal or equitable rights
hereunder.
Section 11.6 Governing Law. This Agreement will be governed by, and
construed in accordance with, the laws of the State of Texas, regardless of the
Laws that might otherwise govern under principles of conflict of laws thereof.
Section 11.7 Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the transactions contemplated hereby may be brought in
the courts of the State of Texas, in Xxxxxx County, and the federal courts in
the Southern District of Texas. Each of the parties (i) consents to the
exclusive jurisdiction of such courts (and of the appropriate appellate courts
therefrom) in any such suit, action or proceeding, (ii) irrevocably waives, to
the fullest extent permitted by Law, any objection which it may now or hereafter
have to the laying of the venue of any such suit, action or proceeding in any
such court or that any such suit, action or proceeding which is brought in any
such court has been brought in an inconvenient forum, (iii) will not attempt to
deny or defeat such personal jurisdiction by motion or other request for leave
49
from any such court, and (iv) will not bring any action relating to this
Agreement or any of the transactions contemplated by this Agreement in any other
court. Process in any such suit, action or proceeding may be served on any party
anywhere in the world, whether within or without the jurisdiction of any such
court. Without limiting the foregoing, each party agrees that service of process
on such party as provided in Section 11.1 will be deemed effective service of
process on such party.
Section 11.8 Counterparts. This Agreement may be executed in one or
more counterparts, all of which will be considered one and the same agreement
and will become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
Section 11.9 Table of Contents; Headings. The table of contents and
headings in this Agreement are for convenience of reference only and will not
control or affect the meaning or construction of any provisions hereof.
Section 11.10 Entire Agreement. This Agreement (including the
Schedules and Exhibits hereto) and the Ancillary Agreements constitute the
entire agreement among the parties with respect to the subject matter of this
Agreement. This Agreement (including the Schedules and Exhibits hereto) and the
Ancillary Agreements supersede all prior agreements and understandings, both
oral and written, between the parties with respect to the subject matter hereof
of this Agreement.
Section 11.11 Severability; Injunctive Relief. If any provision of
this Agreement or the application of any such provision to any Person or
circumstance is held invalid, illegal or unenforceable in any respect by a court
of competent jurisdiction, the remainder of the provisions of this Agreement (or
the application of such provision in other jurisdictions or to Persons or
circumstances other than those to which it was held invalid, illegal or
unenforceable) will in no way be affected, impaired or invalidated, and to the
extent permitted by applicable Law, any such provision will be restricted in
applicability or reformed to the minimum extent required for such provision to
be enforceable. This provision will be interpreted and enforced to give effect
to the original written intent of the parties prior to the determination of such
invalidity or unenforceability.
Section 11.12 Arbitration. Any dispute between the parties hereto with
respect to any claim for indemnification or otherwise arising under this
Agreement shall be resolved by binding arbitration in accordance with the
following provisions, provided, however, that any party may seek injunctive
relief or other equitable relief to preserve the status quo pending arbitration.
(a) Any party to this Agreement may submit any dispute that is
subject to arbitration by giving written notice to the other parties
hereto. Within 30 days after receipt of such notice by such other
party, the parties hereto shall mutually select an arbitrator. If the
parties are unable to agree upon such selection within such 30 days,
then either party may, upon at least five days prior written notice to
the other party, request the American Arbitration Association to
appoint the arbitrator. The American Arbitration Association may
thereupon appoint the arbitrator. The arbitrator shall be impartial
and unrelated, directly or indirectly, so far as rendering of services
50
is concerned to either of the parties or any of their respective
Affiliates. The arbitration shall be conducted in Houston, Texas in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association, as then in effect, except as otherwise
provided in this Section 11.12, and the arbitrator shall be paid on an
hourly basis, except as otherwise mutually agreed.
(b) The arbitrator shall investigate the facts and may, in his or
her discretion, hold hearings, at which the parties hereto may present
evidence and arguments, be represented by counsel and conduct
cross-examination. The arbitrator shall permit discovery by the
parties thereto in accordance with the Federal Rules of Civil
Procedure. The arbitrator shall render a written decision on the
matter presented as soon as practicable after his or her appointment
and in any event not more than 90 days after such appointment. The
decision of the arbitrator, which may include equitable relief, shall
be final and binding on the parties hereto, and judgment upon the
decision may be entered in any court having jurisdiction thereof. If
the arbitrator shall fail to render a decision within such 90 day
period, either party may institute such action or proceeding in such
court as shall be appropriate in the circumstances and upon the
institution of such action, the arbitration proceeding shall be
terminated and shall be of no further force and effect. The prevailing
party shall be awarded reasonable attorneys' fees, expert and
non-expert witness costs and expenses incurred in connection with the
arbitration, and the fees and costs of the arbitrator shall be borne
by the nonprevailing party unless, in either case, the arbitrator for
good cause determines otherwise. In resolving any dispute, the
arbitrator shall apply the provisions of this Agreement and applicable
law, without varying therefrom in any respect. The arbitrator shall
not have the power to add to, modify or change any of the provisions
of this Agreement.
Section 11.13 Xxxxxxx Guarantee. By execution of this Agreement,
Xxxxxxx hereby unconditionally guarantees each and every obligation and
liability of the Xxxx X. Xxxxxxx Revocable Trust, one of the Sellers, under the
terms of this Agreement. Xxxxxxx hereby further acknowledges and agrees that as
the settlor, trustee and beneficiary of the Xxxx X. Xxxxxxx Revocable Trust he
is indirectly receiving substantial benefits and consideration as a result of
the consummation of the transactions contemplated by this Agreement.
51
The parties hereto have caused this Agreement to be duly executed by
their respective authorized officers as of the day and year first above written.
PURCHASER:
U.S. PHYSICAL THERAPY, LTD.
By: National Rehab Management GP, Inc.,
its general partner
By: /s/ Xxxxxxxx X. XxXxxx
-------------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
COMPANY:
STAR PHYSICAL THERAPY, LP
By: STAR PT Management GP, LLC,
its general partner
By: /s/ Xxxx X. Xxxxxxx
-------------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
SELLERS:
XXXX X. XXXXXXX REVOCABLE TRUST
By: /s/ Xxxx X. Xxxxxxx
-------------------------------------------
Xxxx X. Xxxxxxx, Trustee
/s/ Xxxxxx X. Xxxxxx
-----------------------------------------------
Xxxxxx X. Xxxxxx
/s/ Xxxxxx X. Xxxxxxxxx, Xx.
-----------------------------------------------
Xxxxxx X. Xxxxxxxxx, Xx.
52
/s/ Xxxxx Xxxxx
-----------------------------------------------
Xxxxx Xxxxx
/s/ Xxxxx X. Xxxxxxx
-----------------------------------------------
Xxxxx X. Xxxxxxx
/s/ Xxxx X. Xxxxxxx
-----------------------------------------------
Xxxx X. Xxxxxxx
/s/ Xxxxx X. Xxxxxxx
-----------------------------------------------
Xxxxx X. Xxxxxxx
SELLER REPRESENTATIVE:
/s/ Xxxx X. Xxxxxxx
-----------------------------------------------
Xxxx X. Xxxxxxx
ACKNOWLEDGED AND AGREED TO THIS
6TH DAY OF SEPTEMBER, 2007 FOR THE
SOLE PURPOSE OF SECTION 11.13
OF THIS AGREEMENT
/s/ Xxxx X. Xxxxxxx
----------------------------------------
Xxxx X. Xxxxxxx
53
