AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this “ Agreement ”) dated as of March 22, 2006 (this “ Agreement ”) is made by and among National Mentor Holdings, Inc., a Delaware corporation (the “ Company ”), NMH Holdings, LLC, a Delaware limited liability company (“ Purchaser ”), and NMH Mergersub, Inc., a Delaware corporation and a wholly-owned subsidiary of Purchaser (“ PurchaserSub ”). Certain capitalized terms used herein have the meanings set forth in ARTICLE 9 .

RECITALS

WHEREAS, the board of directors of the Company and the board of directors of Purchaser have each approved the terms and conditions of the acquisition of the Company by Purchaser to be effected by the merger of PurchaserSub with and into the Company, pursuant to the terms and subject to the conditions of this Agreement and the DGCL.

WHEREAS, as an inducement for the Company, Purchaser and PurchaserSub to enter into this Agreement, Vestar Capital Partners V, L.P. (“ Vestar ”), currently the sole member of Purchaser, has, on the date hereof, executed and delivered to the Company a limited guaranty (the “ Guaranty ”) of the obligations of Purchaser and PurchaserSub hereunder.

NOW, THEREFORE, in consideration of the foregoing, and of the representations, warranties, covenants and agreements contained herein, and intending to be legally bound, the parties hereto agree as follows:

ARTICLE 1
THE MERGER

SECTION 1.01. The Merger.

(a)           At the Effective Time, PurchaserSub shall be merged with and into the Company in accordance with the terms and conditions of this Agreement and the DGCL (the “ Merger ”), at which time the separate existence of PurchaserSub shall cease and the Company shall continue its existence. In its capacity as the corporation surviving the Merger, the Company is sometimes referred to as the “ Surviving Corporation .”

(b)           As soon as practicable after satisfaction or, to the extent permitted hereby, waiver of all conditions to the Merger set forth herein, the Company and PurchaserSub shall cause to be executed, acknowledged and filed a certificate of merger, substantially in the form of Exhibit A attached hereto (the “ Certificate of Merger ”) with the Secretary of State of the State of Delaware (the “ Secretary ”) and make all other filings or recordings required by Section 251 of the DGCL in connection with the Merger; provided that none of the parties hereto shall be obligated to consummate the transactions contemplated hereby prior to the date specified for Closing in Section 1.01(d) . The “ Effective Time ” shall be the date and time that the Certificate of Merger is filed with the Secretary (unless a later date and/or time is otherwise agreed upon by the parties and specified in the Certificate of Merger, in which case, the Effective Time shall be the date and time so specified).

 

 

(c)           From and after the Effective Time, the Merger shall have the effects set forth in Section 251 of the DGCL.

(d)           The closing of the Merger (the “ Closing ”) shall be held at the offices of Simpson Thacher & Bartlett LLP, 425 Lexington Avenue, New York, New York (or such other place as agreed by the parties) on a date to be specified by the parties, which shall be the later of (i) the third Business Day after satisfaction or, to the extent permitted hereby, waiver of the conditions set forth in ARTICLE 7 , and (ii) the earlier of (x) a date during the Marketing Period to be specified by Purchaser on no less than three Business Days’ notice to the Company (which date may be reasonably conditioned on the receipt of financing pursuant to the Debt Commitment on such date) and (y) the final day of the Marketing Period, unless the parties hereto agree on another date in writing.

(e)           No later than three Business Days prior to the Effective Time, the Company shall deliver to Purchaser a certificate setting forth the Company’s good faith estimate, as of the Effective Time, of all Transaction Related Expenses, including its good faith estimate of the Persons to whom Transaction Related Expenses have been or will be paid (the “ Expense Certificate ”). In the event that Purchaser objects that a material item has been omitted from such certificate, the Company and Purchaser hereby agree to reasonably cooperate and to negotiate in good faith to resolve any such objection prior to the Business Day before Closing, and the Expense Certificate shall be revised to the extent necessary to reflect such resolution.

SECTION 1.02. Organizational Documents. At the Effective Time (i) the certificate of incorporation of the Company in effect at the Effective Time shall be the certificate of incorporation of the Surviving Corporation until thereafter amended in accordance with applicable law and (ii) the by-laws of PurchaserSub in effect immediately prior to the Effective Time shall be the by-laws of the Surviving Corporation until thereafter amended in accordance with applicable law, except that the name of the Surviving Corporation shall be “National Mentor Holdings, Inc.”

SECTION 1.03. Directors and Officers. From and after the Effective Time (until successors are duly elected or appointed and qualified), the members of the board of directors of PurchaserSub at the Effective Time shall be the members of the board of directors of the Surviving Corporation and the officers of the Company at the Effective Time shall be the officers of the Surviving Corporation.

SECTION 1.04. Conversion of Capital Stock. At the Effective Time and by virtue of the Merger and without any action on the part of the Company, Purchaser or PurchaserSub or their respective equityholders:

(a)           Each share of PurchaserSub’s common stock outstanding immediately prior to the Effective Time shall be converted into one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation.

(b)           Except as otherwise provided in Section 1.04(e) , each share of Company Common Stock outstanding immediately prior to the Effective Time shall be converted into:

2

 

 

1.                                        the right to receive $35.30 in cash (the “ Per Share Merger Consideration ”) as adjusted pursuant to Sections 1.04(c) and (d)  below; and

2.                                        if the Per Share Merger Consideration has been adjusted pursuant to Section 1.04(d)  below, the right to receive an amount in cash equal to the Per Share Care Meridian Adjustment Amount upon distribution of the Escrow Account in accordance with the terms of the Escrow Agreement.

The aggregate of such cash consideration to be received in respect of the Company Common Stock is referred to herein as the “ Merger Consideration .”  All such Company Common Stock, when so converted pursuant to this Section 1.04(b) , shall no longer be outstanding, shall automatically be canceled and retired and shall cease to exist. Each holder of Company Common Stock so converted shall cease to have any rights with respect thereto, except the right to receive, without interest, the applicable Merger Consideration.

                                (c)           Immediately prior to the Effective Time, the Per Share Merger Consideration shall be adjusted by adding to it the Per Share Expense Adjustment (whether positive or negative). As used in this Agreement, “ Per Share Expense Adjustment ” means the result of (i) $2.77, minus (ii) the result of the amount of the Transaction Related Expenses reflected on the certificate delivered and, as the case may be, revised by the Company pursuant to Section 1.01(e) , divided by 11,672,957.867.

                                (d)           If the Care Meridian Transaction has not been consummated prior to the Closing, immediately prior to the Effective Time, the Per Share Merger Consideration shall be reduced by an amount (the “ Per Share Care Meridian Adjustment Amount ”) equal to (i) $15 million (the “ Care Meridian Adjustment Amount ”), divided by (ii) 11,672,957.867. If the Care Meridian Transaction has not been consummated prior to the Effective Time, (i) at the Effective Time, Purchaser shall deposit the Care Meridian Adjustment Amount into an Escrow Account (the “ Escrow Account ”) to be held and disbursed in accordance with the provisions of an escrow agreement (the “ Escrow Agreement ”) substantially in the form of Exhibit E attached hereto by and among Purchaser, the Stockholder Representative (defined below) and Wells Fargo Bank, National Association as escrow agent or another escrow agent mutually acceptable to Purchaser and the Stockholder Representative, (ii) at the Closing, Purchaser and the Stockholder Representative shall execute and deliver to the Escrow Agent the Escrow Agreement and (iii) from and after the Closing, Purchaser shall cause the Company and its Subsidiaries to use their commercially reasonable efforts to cause the Care Meridian Transaction to occur as promptly as practicable.

                                (e)           Each share of Company Common Stock held by the Company in treasury or owned by Purchaser immediately prior to the Effective Time shall automatically be canceled and retired and shall cease to exist, and no payment shall be made in respect thereof. Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time that is a Dissenting Share shall be converted into the right to receive payment from the Surviving Corporation with respect thereto in accordance with the provisions of the DGCL.

3

 

 

SECTION 1.05. Exchange of Certificates.

(a)           Paying Agent . Purchaser shall act as paying agent for the purpose of effectuating the exchange of the Merger Consideration pursuant to this ARTICLE 1 for stock certificates (“ Certificates ”) that immediately prior to the Effective Time represented outstanding Company Common Stock, which were converted into the right to receive the Merger Consideration pursuant to Section 1.04(b) . This Section 1.05 shall not apply to any Dissenting Shares.

(b)           Exchange Procedures; Lost Certificates . At the Effective Time, Purchaser shall make all of the Merger Consideration available to each Person that is entitled to receive the Merger Consideration pursuant to Section 1.04(b)  above (each a “ Company Holder ”) for exchange in accordance with the terms and conditions of this Agreement. At the Effective Time, upon surrender to Purchaser by a Company Holder of Certificates representing the number of shares of Company Common Stock held by such holder, together with a duly executed and completed letter of transmittal substantially in the form of Exhibit B attached hereto, such holder of such Certificates shall immediately be paid in cash, by wire transfer to the account(s) specified in such holder’s transmittal letter, in exchange therefor the amount of the Merger Consideration to which such holder is entitled pursuant to this ARTICLE 1 in respect of the Company Common Stock represented by such Certificates. Until surrendered as contemplated by this Section 1.05 , each Certificate shall be deemed upon and at any time after the Effective Time to represent only the right to receive the appropriate amount of the Merger Consideration without interest as provided in this ARTICLE 1 . If any portion of the Merger Consideration is to be paid to a Person other than the Person in whose name the Certificate is registered, it shall be a condition to such payment that the Certificate so surrendered shall be properly endorsed or otherwise be in proper form for transfer. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such certificate to be lost, stolen or destroyed, the Surviving Corporation will deliver in exchange for such lost, stolen or destroyed certificate, the appropriate amount of Merger Consideration, as contemplated by this ARTICLE 1 .

(c)           No Further Ownership Rights in the Company Common Stock . All Merger Consideration paid upon surrender of Certificates in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to the Company Common Stock represented thereby. As of the Effective Time, the stock transfer books of the Company shall be closed and there shall be no further registration of transfers on the Company’s stock transfer books of the Company Common Stock formerly owned by the Company Holders. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged for the appropriate Merger Consideration as provided in this Section 1.05 .

(d)           Withholding . Purchaser shall be entitled to deduct and withhold from amounts otherwise payable pursuant to this Agreement any amount that it is required to deduct and withhold with respect to the making of such payments under any provision of Federal, state, local or foreign law. Any amounts so deducted and withheld will be treated for all purposes of this Agreement as having been paid to the Company Holder in respect of which such deduction and withholding was made.

4

 

 

SECTION 1.06. Options.

(a)           Except as otherwise agreed to in writing between any Option Holder (as hereinafter defined) and Purchaser, the Company shall cause all Options that are outstanding immediately prior to the Effective Time to be canceled or terminated, as of the Effective Time, at which time each holder of such cancelled or terminated Option (an “ Option Holder ”) shall be entitled to receive:

1.                                        an amount equal to the product of (i) the excess of the Per Share Merger Consideration (as adjusted pursuant to Sections 1.04(c) and (d) ) over the applicable exercise price per share of such Option as of such time and (ii) the number of shares of Company Common Stock such Option Holder could have purchased if such Option Holder had exercised such Option in full immediately prior to such time; and

2.                                        if the Care Meridian Transaction has not been consummated prior to the Effective Time, the right to receive cash upon distribution of the Escrow Account pursuant to the Escrow Agreement.

(b)           The consideration to be paid to the Option Holders as provided for in this Section 1.06 is collectively referred to herein as the “ Option Merger Consideration .”  Purchaser shall act as the paying agent for purposes of effectuating the payments contemplated by this Section 1.06 . Purchaser, in its capacity as paying agent, shall be entitled to deduct and withhold from the Option Merger Consideration otherwise payable hereunder to any Person such amounts as it is required to deduct and withhold with respect to the making of such payment under any provision of federal, state, local or foreign income tax law. To the extent that Purchaser, in its capacity as paying agent, so withholds those amounts, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Option Holder in respect of which such deduction and withholding was made.

SECTION 1.07. Stockholder Representative.

(a)           Upon adoption of this Agreement by the Board of Directors of the Company and approval of this Agreement by the stockholders of the Company in accordance with the DGCL, (a) Madison Dearborn Capital Partners III, L.P. (the “ Stockholder Representative ”) is appointed the attorney in fact of the Company Holders and Option Holders, with full power and authority, including power of substitution, acting in the name of and for and on behalf of the Company Holders and Option Holders, to direct the distribution of the Escrow Account and to pursue, defend and settle any claims relating thereto, and (b) the Stockholder Representative shall have the full power to execute and deliver the Escrow Agreement and shall have all of the rights and all of the obligations of the Stockholder Representative as set forth in the Escrow Agreement. 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 Company Holder or Option Holder or the occurrence of any other event or events. Each Company Holder and each Option Holder agrees that all expenses incurred by the Stockholder Representative or by the Escrow Agent on behalf of any of them may be paid out of the Escrow

5

 

Account. In the event that the Stockholder Representative, with the advice of counsel, is of the opinion that it requires further authorization or advice from the Company Holders and/or the Option Holders on any matters concerning this Agreement or the Escrow Agreement, the Stockholder Representative shall be entitled to seek such further authorization from such Persons prior to acting on their behalf. The Stockholder Representative may resign from its capacity as Stockholder Representative at any time by written notice delivered to Purchaser. If there is a vacancy at any time in the position of Stockholder Representative for any reason, such vacancy shall be filled by a majority vote of the Company Holders with each Company Holder entitled to one vote for each share of Company Common Stock converted pursuant to Section 1.04(b) . During the period of any such vacancy, any time period imposed on Purchaser to enforce, or realize the benefits of, its rights under this Agreement or the Escrow Agreement shall be tolled until Purchaser receives notice that such vacancy has been filled along with contact information for the new Stockholder Representative. The Stockholder Representative shall not be liable to Purchaser, PurchaserSub, the Company, the Company Holders or the Option Holders in its capacity as Stockholder Representative for any liability of any Company Holder or Option Holder or for any error of judgment, or any act done or step taken or omitted by it in good faith or for any mistake in fact or law, or for anything which it may do or refrain from doing in connection with this Agreement or the Escrow Agreement. The Stockholder Representative may seek the advice of legal counsel in the event of any dispute or question as to the construction of any of the provisions of this Agreement or the Escrow Agreement or its duties hereunder or thereunder, and it shall incur no liability in its capacity as Stockholder Representative to Purchaser, PurchaserSub, the Company, any Company Holder or any Option Holder and shall be fully protected with respect to any action taken, omitted or suffered by it in good faith in accordance with the opinion of such counsel.

ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as disclosed in (i) the Company Disclosure Schedule attached hereto or (ii) the Company SEC Documents filed prior to the date hereof, the Company represents and warrants to Purchaser that:

SECTION 2.01. Existence and Power.

(a)           The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has all corporate powers required to carry on its business as now conducted. The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the character of the property owned or leased by it or the nature of its activities makes such qualification necessary, except where the failure to be so qualified, individually or in the aggregate, has not had and would not reasonably be expected to have a Company Material Adverse Effect. The Company has heretofore made available to Purchaser true and complete copies of the Company’s certificate of incorporation and by-laws as currently in effect.

(b)           Each Company Subsidiary is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, and has all organizational powers required to carry on its business as now conducted. Each Company Subsidiary is duly

6

 

qualified to do business as a foreign entity and is in good standing in each jurisdiction where the character of the property owned or leased by it or the nature of its activities makes such qualification necessary, except where the failure to be so qualified, individually or in the aggregate, has not had and would not reasonably be expected to have a Company Material Adverse Effect. The Company has heretofore made available to Purchaser true and complete copies of each Company Subsidiary’s charter and by-laws or comparable documents as currently in effect.

SECTION 2.02. Company Authorization. The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby are within its organizational powers and, except for the Company Stockholder Approval, have been duly authorized by all necessary organizational action. Assuming that this Agreement constitutes the valid and binding obligation of Purchaser and PurchaserSub and subject to obtaining the Company Stockholder Approval, this Agreement constitutes a valid and binding agreement of the Company, enforceable in accordance with its terms.

SECTION 2.03. Governmental Authorization. The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby require no action by or in respect of, or filing with, any Governmental Entity, other than (a) the filing of (i) the Certificate of Merger in accordance with the DGCL and (ii) appropriate documents with the relevant authorities of other states or jurisdictions in which the Company or any Company Subsidiary is qualified to do business; (b) compliance with any applicable requirements of the HSR Act; (c) compliance with any applicable requirements of the Securities Act and the Exchange Act, (d) such as may be required under any applicable state securities or blue sky laws; and (e) such other consents, approvals, actions, orders, authorizations, registrations, declarations and filings which, if not obtained or made, would not reasonably be expected to, individually or in the aggregate, (x) have either a Company Material Adverse Effect or, assuming for this purpose that the Effective Time had occurred, a Purchaser Material Adverse Effect or (y) prevent or materially impair the ability of the Company, Purchaser and PurchaserSub to consummate the transactions contemplated by this Agreement (the filings and authorizations referred to in clauses (a) through (e) being referred to collectively as the “ Company Required Governmental Consents ”).

SECTION 2.04. Non-Contravention. Subject to obtaining the Company Stockholder Approval, the execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby do not and will not (a) contravene or conflict with its certificate of incorporation or by-laws, (b) assuming that all of the Company Required Governmental Consents are obtained, contravene or conflict with or constitute a violation of any provision of any law, regulation, judgment, injunction, order or decree binding upon or applicable to the Company or any Company Subsidiary, (c) require any consent or other action by any Person under, constitute a default under or give rise to a right of termination, cancellation or acceleration (with or without due notice or lapse of time or both) of any right or obligation of the Company or any Company Subsidiary or to a loss of any benefit or status to which the Company or any Company Subsidiary is entitled under any provision of any material agreement, contract or other instrument binding upon the Company or any Company Subsidiary or any material license,

7

 

franchise, permit or other similar authorization held by the Company or any Company Subsidiary or (d) result in the creation or imposition of any Lien on any material asset of the Company or any Company Subsidiary, other than, in the case of each of (b), (c) and (d), any such items that would not reasonably be expected to, individually or in the aggregate, (x) have a Company Material Adverse Effect or (y) prevent or materially impair the ability of the Company, Purchaser and PurchaserSub to consummate the transactions contemplated by this Agreement.

SECTION 2.05. Capitalization.

(a)           As of the date hereof, (i) 10,136,984.867 shares of Company Common Stock are issued and outstanding and (ii) no shares of the Company’s Class A Preferred Stock, par value $0.01 per share, are issued and outstanding. As of the date hereof, (i) Options to acquire an aggregate of 1,097,250 shares of Company Common Stock are outstanding under the Option Plan, which if exercised in full would have an aggregate exercise price of $12,285,000.00 and (ii) Options to acquire an aggregate of 438,723 shares of Company Common Stock are outstanding under the Seller Warrants, which if exercised in full would have an aggregate exercise price of $9,052,418.07 assuming that the Closing occurs on May 31, 2006.

(b)           As of the date hereof, except as described in Section 2.05(a) , there are no outstanding (i) shares of capital stock or other voting securities of the Company, (ii) securities of the Company convertible into or exercisable or exchangeable for capital stock or voting securities of the Company or (iii) other rights to acquire from the Company, and no obligation of the Company to issue, any capital stock, voting securities or securities convertible into or exercisable or exchangeable for capital stock or voting securities of the Company. Except as set forth in Section 2.05(b) of the Company Disclosure Schedule, there are no outstanding obligations of the Company or any Company Subsidiary to repurchase, redeem or otherwise acquire any capital stock or other voting securities of the Company or any securities convertible into or exercisable or exchangeable for capital stock or other voting securities of the Company or any voting trusts, registration rights agreements, proxies or other agreements or understandings in effect with respect to the voting or transfer of capital stock or other voting securities of the Company. No Company Subsidiary owns any capital stock or other voting securities of the Company or any securities convertible into or exercisable or exchangeable for capital stock or other voting securities of the Company.

SECTION 2.06. Subsidiaries.

(a)           Section 2.06(a) of the Company Disclosure Schedule sets forth a list of all Subsidiaries of the Company and their respective jurisdictions of incorporation or organization. All of the outstanding shares of capital stock or other voting securities of, or other ownership interest in, each Subsidiary of the Company, is owned by the Company, directly or indirectly.

(b)           All of the outstanding shares of capital stock or other voting securities of, or other ownership interest in, each Subsidiary of the Company have been duly authorized and validly issued and are fully paid and nonassessable. All of the outstanding capital stock or other voting securities of, or other ownership interest in, each Subsidiary of the Company is owned, directly or indirectly, by the Company free and clear of any Lien and free of any other limitation or restriction, including any limitation or restriction on the right to vote, sell or otherwise dispose

8

 

of such capital stock or other voting securities or other ownership interest (other than any of such under the Securities Act or any state securities laws) with such exceptions as, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect. There are no outstanding (i) securities of the Company or any of the Company Subsidiaries convertible into or exchangeable or exercisable for shares of capital stock or other voting securities of, or ownership interests in, any of the Company Subsidiaries, (ii) options, warrants or other rights to acquire from the Company or any of the Company Subsidiaries, and no other obligation of the Company or any of the Company Subsidiaries to issue, any capital stock or voting securities of, or other ownership interests in, or any securities convertible into or exchangeable or exercisable for any capital stock, or voting securities of, or ownership interests in, any of the Company Subsidiaries or (iii) obligations of the Company or any of the Company Subsidiaries to repurchase, redeem or otherwise acquire any outstanding securities of any of the Company Subsidiaries or any capital stock or other voting securities of, or other ownership interests in, any of the Company Subsidiaries.

SECTION 2.07. SEC Documents.

(a)           The Company has made available to Purchaser the Company SEC Documents. The Company has filed all reports, filings, registration statements and other documents required to be filed by it with the SEC since September 30, 2005.

(b)           As of its filing date, or as amended or supplemented prior to the date hereof, each of the Company SEC Documents complied as to form in all material respects with the applicable requirements of the Securities Act and/or the Exchange Act, as the case may be.

(c)           No Company SEC Document filed pursuant to the Exchange Act, as of its filing date, contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.

SECTION 2.08. Financial Statements.

(a)           The audited consolidated financial statements and unaudited consolidated interim financial statements of the Company included in the Company 10-K and the Company 10-Q:  (i) fairly present in all material respects, in conformity with GAAP applied on a consistent basis (except as may be indicated in the notes thereto), the consolidated financial position of the Company and the Company Subsidiaries as of the dates thereof and their consolidated results of operations and changes in financial position for the respective periods then ended (subject to normal year-end adjustments and lack of footnote disclosure in the case of any unaudited interim financial statements); (ii) were, in all material respects, prepared from the books and records of the Company and the Company Subsidiaries; and (iii) have been prepared in accordance with and comply, in all material respects, with all applicable accounting requirements and the applicable rules and regulations of the SEC.

(b)           There are no material liabilities or obligations of the Company or any Company Subsidiary of any kind whatsoever, whether known or unknown, asserted or

9

 

unasserted, accrued, contingent, absolute, determined, determinable or otherwise, in each case, other than:

(i)            liabilities or obligations disclosed or provided for in the Company Balance Sheet or disclosed in the notes thereto;

(ii)           liabilities or obligations incurred since December 31, 2005 in the ordinary course of business consistent with past practice;

(iii)          liabilities or obligations under this Agreement or incurred in connection with the transactions contemplated hereby;

(iv)          liabilities or obligations of the Company or the Company Subsidiaries under the agreements, contracts, leases or licenses to which they are a party; and

(v)           liabilities and obligations that would not be required by GAAP (consistently applied in accordance with the Company’s past practice) to be reflected on a balance sheet of the Company.

SECTION 2.09. Absence of Certain Changes. Since the date of the Company Balance Sheet, except as otherwise expressly contemplated by this Agreement, the Company and the Company Subsidiaries have conducted their business in the ordinary course consistent with past practice and there has not been any (i) change, effect, occurrence or development which,  individually or in the aggregate, has had or would reasonably be expected to have a Company Material Adverse Effect or (ii) any action taken which, if it had been taken after the date hereof, would have required Purchaser’s prior written consent pursuant to Section 4.01 .

SECTION 2.10. Litigation.

(a)           There is no action, suit, investigation, arbitration or proceeding (“ Action ”) pending against, or to the Knowledge of the Company threatened against, the Company or any Company Subsidiary or any of their respective assets, rights or properties that (i) involves a claim in excess of $250,000, (ii) individually or in the aggregate, has had or would reasonably be expected to have a Company Material Adverse Effect or (iii) individually or in the aggregate, has prevented or materially impaired, or would reasonably be expected to prevent or materially impair, the ability of the Company, Purchaser or PurchaserSub to consummate the transactions contemplated hereby. Except as set forth in Section 2.10 of the Company Disclosure Schedule and except for Actions initiated by Governmental Authorities, all such Actions that arose prior to the date hereof have been reported to the Company’s applicable insurance carrier prior to the date hereof and all such Actions arising following the date hereof and prior to the Closing will have been reported to the Company’s insurance carriers reasonably promptly after arising, but in any event prior to the Closing.

(b)           Neither the Company nor any of the Company Subsidiaries nor any of their respective properties, rights or assets is subject to any judgment, decree, order, injunction, ruling, assessment, stipulation, award, finding, determination, writ, settlement agreement,  arbitration award or local, state or federal government investigation that, individually or in the aggregate, has had or would reasonably be expected to have a Company Material Adverse Effect.

10

 

SECTION 2.11. Taxes.

(a)           (i) All Tax Returns required to be filed with any taxing authority by, or with respect to, the Company and the Company Subsidiaries have been timely filed in accordance with all applicable laws, and all such Tax Returns are complete and correct in all material respects; (ii) the Company and the Company Subsidiaries have timely paid all material Taxes that are due and payable (other than Taxes which are being contested in good faith and for which adequate reserves are reflected on the Company Balance Sheet); (iii) neither the Company nor any of the Company Subsidiaries has been a member of an affiliated, consolidated, combined or unitary group other than one of which the Company was the common parent; and (iv) no audits or administrative or judicial proceedings with respect to material Taxes of the Company or any Company Subsidiary are pending or being conducted. The Company has made adequate provision for all material Taxes in the Company Balance Sheet in accordance with GAAP for all Taxes not yet due and payable as of September 30, 2005.

(b)           Neither the Company nor any of the Company Subsidiaries (i) is or has ever been a member of an affiliated, consolidated, combined or unitary group other than one of which the Company was the common parent, or (ii) has any liability for Taxes of any person arising from the application of Treasury Regulation section 1.1502-6 or any analogous provision of state, local or foreign law, or as a transferee or successor, by contract, or otherwise.

(c)           There are no Liens with respect to Taxes upon any of the assets or properties of either Company or its Subsidiaries, other than with respect to Taxes not yet due and payable and for which adequate reserves have been reflected on the Company Balance Sheet.

(d)           No material deficiencies for any Taxes that have not been settled or otherwise disposed of have been proposed or assessed in writing against or with respect to any Taxes due by or Tax Returns of Company or any Company Subsidiary, and there is no outstanding audit, assessment, dispute or claim concerning any Tax liability of the Company or any Company Subsidiary either within the Knowledge of the Company or claimed, pending or raised by an authority in writing. During the last two years, and to the Company’s Knowledge during the last five years, no written claim has ever been made by any Governmental Entity in a jurisdiction where neither the Company nor any Company Subsidiary files Tax Returns that it is or may be subject to taxation by that jurisdiction.

(e)           None of Company or any Company Subsidiary is a party to, is bound by or has any obligation under any Tax sharing or Tax indemnity agreement or similar contract or arrangement.

(f)            None of Company or any Company Subsidiary has been either a “distributing corporation” or a “controlled corporation” in a distribution occurring during the last two years in which the parties to such distribution treated the distribution as one to which Section 355 of the Code is applicable.

(g)           All material Taxes required to be withheld, collected or deposited by or with respect to Company and each Company Subsidiary have been timely withheld, collected or

11

 

deposited as the case may be, and to the extent required, have been paid to the relevant taxing authority.

(h)           No closing agreement pursuant to section 7121 of the Code (or any similar provision of state, local or foreign law) has been entered into by or with respect to Company or any Company Subsidiary.

(i)            Neither the Company nor any Company Subsidiary has granted any waiver of any federal, state, local or foreign statute of limitations with respect to, or any extension of a period for the assessment of, any Tax beyond the date hereof.

(j)            Neither the Company nor any Company Subsidiary will be required to include amounts in income, or exclude items of deduction, in a taxable period beginning after the Closing Date as a result of (i) a change in method of accounting occurring prior to the Closing Date or an adjustment by a taxing authority to any method of accounting employed prior to the Closing Date, (ii) an installment sale or open transaction arising in a taxable period (or portion thereof) ending on or before the Closing Date, (iii) a prepaid amount received, or paid, prior to the Closing Date or (iv) deferred gains arising prior to the Closing Date.

(k)           Neither the Company nor any Company Subsidiary has engaged in any transaction that could give rise to (i) a registration obligation with respect to any Person under Section 6111 of the Code or the regulations thereunder, (ii) a list maintenance obligation with respect to any Person under Section 6112 of the Code or the regulations thereunder, or (iii) a disclosure obligation as a “reportable transaction” under Section 6011 of the Code and the regulations thereunder.

(l)            Community Care Indemnity Company, a Vermont stock corporation and wholly owned subsidiary of the Company (“ Community Care Indemnity ”), is properly incorporated and regulated as an insurance company under the laws of Vermont and qualifies as an insurance company for federal income tax purposes under the standards prescribed by the IRS in published guidance, including but not limited to, Rev. Rul. 2005-40.

(m)          The Company is not a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

(n)           The Company has made available to Purchaser true and correct copies of all material federal, state and local Tax Returns filed by either the Company or any Company Subsidiary after December 31, 2002. There are no requests for information currently outstanding that could in any material respect affect the Taxes of the Company or the Company Subsidiaries.

(o)           None of the independent contractors who have been under Contract with the Company or any Company Subsidiary for any taxable period ending on or prior to the Closing Date for which the statute of limitations has not expired are “employees” for United States federal income tax, Federal Insurance Contribution Act tax and Federal Unemployment purposes except as has not had and would not reasonably be expected to have a Company Material Adverse Effect.

12

 

(p)           Neither the Company nor any Company Subsidiary meets the “adjusted ordinary gross income requirement” for a personal holding company, as defined in Section 542(a)(1) of the Code.

SECTION 2.12. Compliance with Laws; Licenses, Permits and Registrations.

(a)           Neither the Company nor any Company Subsidiary is in violation of, or has violated, any applicable provisions of any Laws, including any Laws relating to employment, employment practices, compensation, benefits, hours, terms and conditions of employment, and the termination of employment, except for any such violations which, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect.

(b)           Each of the Company and the Company Subsidiaries has all permits, licenses, approvals, authorizations of and registrations with and under all federal, state, local and foreign laws, and from all Governmental Entities (collectively, “ Permits ”) required by the Company and the Company Subsidiaries to carry on their respective businesses as currently conducted, except where the failure to have any such Permits, individually or in the aggregate, has not had and would not reasonably be expected to have a Company Material Adverse Effect.

(c)           All material Permits are in full force and effect and since January 1, 2005, neither the Company nor any Company Subsidiary has received any written or, to the Knowledge of the Company, oral notice from any Governmental Entity asserting that the Company or any Company Subsidiary is not in material compliance with any Law or material Permit or threatening to suspend, revoke, revise, limit or terminate any material Permit held by the Company or any Company Subsidiary, other than notices that have been withdrawn or otherwise resolved prior to the date hereof.

SECTION 2.13. Contracts. Except as set forth in the Company Disclosure Schedule corresponding to this Section 2.13 , neither the Company nor any Company Subsidiary is party to any (each such item required to be listed on such schedule, a “ Material Contract ”): (i) lease, license, Contract, agreement or obligation that involves aggregate payments or other consideration in excess of $1,500,000 per year, (ii) Contract relating to indebtedness for borrowed money and having an outstanding principal amount in excess of $500,000, (iii) Contract entered into after the date of the Company 10-Q or not yet consummated for the acquisition or disposition, directly or indirectly (by merger or otherwise), of assets or capital stock or other equity interests of another Person for aggregate consideration under such agreement in excess of $500,000, (iv) Contract that expressly limits the ability of the Company or any Company Subsidiary to compete in or conduct any line of business or compete with any Person or in any geographic area or during any period of time, (v) Contract pursuant to which the Company or any Company Subsidiary has any material payment obligations (whether contingent or otherwise) that could arise after the date of the Company 10-Q in respect of earn-outs, deferred purchase price arrangements, indemnities or similar arrangements that have arisen in connection with investments in or acquisitions or dispositions of companies or businesses, (vi) any employment, consulting, severance or similar Contract with any employee, independent contractor or consultant of the Company or any Company Subsidiary whose current annual cash compensation is in excess of $175,000 that is not terminable by the Company or such Company

13

 

Subsidiary by notice of not more than 180 days for a cost of less than $100,000, (vii) material joint venture, partnership agreement or similar Contract, (viii) Contract restricting the payment of dividends or other distributions or (ix) any Contract providing for future payments that are conditioned upon, in whole or in part, the transactions contemplated hereby (each of the foregoing items (i) - (ix) not to include agreements among the Company and/or the Company Subsidiaries). Each Material Contract is valid, binding and enforceable and in full force and effect, except where the failure to be valid, binding and enforceable and in full force and effect would not reasonably be expected to have a Company Material Adverse Effect, and there are no defaults thereunder, except for those defaults that would not reasonably be expected to have a Company Material Adverse Effect. The Company has made available to Purchaser prior to the date hereof true and complete copies of all Material Contracts, including all amendments and supplements thereto as in effect on the date hereof.

SECTION 2.14. Employee Benefit Plans.

(a)           The Company Disclosure Schedule corresponding to this Section 2.14(a)  contains an accurate and complete list of each Company Employee Plan.

(b)           The Company Disclosure Schedule corresponding to this Section 2.14(b)  contains an accurate and complete list of each collective bargaining agreement and each other material agreement, arrangement, commitment, understanding, plan, or policy of any kind, with or for the benefit of any current or former officer or director of the Company or any Company Subsidiary other than any Company Employee Plan listed as required in Section 2.14(a) . Each item listed on Section 2.14(b)  is referred to herein as a “ Company Compensation Commitment .”

(c)           Each Company Employee Plan that is intended to be qualified within the meaning of Section 401(a) of the Code and each trust which forms a part of any such Company Employee Plan has received a determination from the IRS that such Company Employee Plan is qualified under Section 401(a) of the Code and that such related trust is exempt from taxation under Section 501(a) of the Code, and nothing has occurred since the date of such determination that could adversely affect the qualification of such benefit plan or the exemption from taxation of such related trust.

(d)           With respect to each Company Employee Plan which is a “defined benefit plan” (as such term is defined in Section 3(35) of ERISA), the fair market value of the assets equal or exceed the benefit liabilities thereof, where such benefit liabilities are determined by an independent actuary on the basis of an “on-going” plan.

(e)           Except as disclosed in the Company Disclosure Schedule corresponding to this Section 2.14(e) , none of the Company Employee Plans or the Company Compensation Commitments obligates the Company or any Company Subsidiary to pay any material separation, severance, termination or similar benefit as a result of any transaction contemplated by this Agreement or as a result of a change in control or ownership within the meaning of Section 280G of the Code, whether or not in each case any other event or occurrence is required.

(f)            (i)  Each Company Employee Plan and any related trust, insurance contract or fund has been maintained, funded and administered in compliance in all material

14

 

respects with its respective terms and applicable law; (ii) there has been no application for or waiver of the minimum funding standards imposed by Section 412 of the Code with respect to any Company Employee Plan;  and (iii) neither the Company nor any Company Subsidiary has incurred any liability under Title IV of ERISA (other than for contributions not yet due) or to the Pension Benefit Guaranty Corporation (other than for payment of premiums not yet due).

(g)           The Company and each Company Subsidiary have complied in all material respects with the health care continuation requirements of Part 6 of Title I of ERISA (“ COBRA ”); and the Company and the Company Subsidiaries have no material obligation under any Company Employee Plan or otherwise to provide health benefits to former employees of the Company or any Company Subsidiary or any other Person, except as specifically required by COBRA.

(h)   (i)  Neither the Company nor any Company Subsidiary has incurred any liability on account of a “partial withdrawal” or a “complete withdrawal” (within the meaning of Sections 4205 and 4203, respectively, of ERISA) from any plan subject to Title IV of ERISA which is a “multiemployer plan” (as such term is defined in Section 3(37) of ERISA), no such liability has been asserted, and there are no events or circumstances which could result in any such partial or complete withdrawal; and (ii) neither the Company nor any Company Subsidiary is bound by any material contract or agreement or has any obligation or liability described in Section 4204 of ERISA. No Company Employee Plan is a “multiemployer plan” (as such term is defined in Section 3(37) of ERISA.

(i)            Neither the Company nor any Company Subsidiary has, contributes to, maintains or sponsors or has any material liability with respect to any employee benefit plan, agreement or arrangement applicable to employees of the Company or any Company Subsidiary located outside the United States.

(j)            With respect to each Company Employee Plan and each Company Compensation Commitment, the Company or the appropriate Company Subsidiary has made available to Purchaser true, complete and correct copies of (to the extent applicable) (i) all documents pursuant to which the Company Employee Plan or the Company Compensation Commitment is maintained, funded and administered, (ii) the most recent annual report (Form 5500 series) filed with the IRS (with applicable attachments), (iii) the most recent financial statements, (iv) the most recent actuarial valuation of benefit obligations, and (v) the most recent determination letter received from the IRS and the most recent application to the IRS for such determination letter.

SECTION 2.15. Transactions with Affiliates. Section 2.15 of the Company Disclosure Schedule lists all material transactions, agreements, arrangements or understandings (other than those that have expired or been terminated without any continuing or contingent obligation thereunder) between the Company or any Company Subsidiary, on the one hand, and (i) any holder of the Company’s outstanding capital stock or any of their respective Affiliates (other than the Company and the Company Subsidiaries), or (ii) any current or former executive officer or director (or any immediate family member thereof) of the Company or any Company Subsidiary or any Person referred to in clause (i) above, in each case, other than agreements evidencing Options and employment, severance, benefit or other similar Contract with any

 

15

 

 

equity holder or current or former executive officer or director, on the other hand (collectively, the “ Affiliate Contracts ”).

SECTION 2.16. Intellectual Property. The Company and the Company Subsidiaries own or have adequate rights to use all patents, trademarks, service marks, trade names, copyrights, trade secrets and other intellectual property rights (collectively, the “ Company Intellectual Property ”) necessary to carry on their respective businesses as currently conducted free and clear of all Liens (other than Liens arising under licenses granted in the ordinary course of business consistent with past practice), except where the failure to own or have adequate rights to use such Intellectual Property free and clear of all Liens would not reasonably be expected to have a Company Material Adverse Effect. Neither the Company nor any Company Subsidiary has received any notice of infringements of, or conflict with, the rights of others with respect to the use of any Company Intellectual Property, other than such as would not reasonably be expected to have a Company Material Adverse Effect.

SECTION 2.17. Required Vote; Board Approval.

(a)           The only vote of the holders of any class or series of the capital stock or other voting securities of the Company required by law, rule or regulation to approve this Agreement, the Merger and/or any of the other transactions contemplated hereby is the affirmative vote of the holders of a majority of the outstanding shares of Company Common Stock in favor of the adoption of this Agreement (the “ Company Stockholder Approval ”).

(b)           The Company’s board of directors has (i) determined that this Agreement and the transactions contemplated hereby, including the Merger, are advisable and in the best interests of the Company and its stockholders, (ii) approved this Agreement and the transactions contemplated hereby and (iii) resolved to recommend to such stockholders that they vote in favor of adopting and approving this Agreement and the Merger in accordance with the terms hereof.

SECTION 2.18. Finders’ Fees. Except for the fees and expenses of the Persons set forth in Section 2.18 of the Company Disclosure Schedule, which fees and expenses will be Transaction Related Expenses, there is no investment banker, broker, finder or other such intermediary which has been retained by, or is authorized to act on behalf of, the Company or any Company Subsidiary who might be entitled to any fee or commission from Purchaser or any of its Subsidiaries upon consummation of the transactions contemplated by this Agreement.

SECTION 2.19. Labor and Employment-Related Matters. Except as set forth in Schedule 2.19 of the Company Disclosure Schedule, (a) neither the Company nor any Company Subsidiary is a party to any collective bargaining agreement or other Contract with any labor organization or other labor representative of any of the employees of the Company or any Company Subsidiary, nor is any such Contract presently being negotiated; (b) to the Knowledge of the Company, no campaigns are being conducted to solicit cards from any of the employees of the Company or any Company Subsidiary to authorize representation by any labor organization, and no such campaigns have been conducted within the past three years; (c) no labor strike, slowdown, work stoppage, dispute, lockout or other labor controversy is in effect or, to the Knowledge of the Company, threatened, and neither the Company nor any Company Subsidiary

16

 

has experienced any such labor controversy within the past three years; (d) no unfair labor practice charge or complaint is pending or, to the Knowledge of the Company, threatened, and no grievance or arbitration proceeding is pending or, to the Knowledge of the Company, threatened, in each case which, if adversely decided, may reasonably be expected to, individually or in the aggregate, create a liability in excess of $500,000, or cause the Company or any Company Subsidiary to incur expenses or forgo operating savings in excess of $500,000; (e) no action, complaint, charge, inquiry, proceeding or investigation by or on behalf of any employee, prospective employee, former employee, labor organization, governmental agency or other representative of the employees of the Company or any Company Subsidiary is pending or, to the Knowledge of the Company, threatened which, if adversely decided, may reasonably be expected to, individually or in the aggregate, create a liability in excess of $500,000; (f) neither the Company nor any Company Subsidiary is a party to, or otherwise bound by, any consent decree with, or citation by, any Government Entity relating to employees or employment practices; (g) within the past two years, neither the Company nor any Company Subsidiary has closed any plant or facility or effectuated any layoffs of employees (whether or not in noncompliance with the Worker Adjustment and Retraining Notification Act of 1988, or any similar applicable foreign, state or local Law) and no such actions have been planned or announced; and (h) within the past two years, neither the Company nor any Company Subsidiary has implemented any early retirement, separation or window program, nor has any such entity planned or announced any such program for the future.

SECTION 2.20. Real Property.

(a)           The Company or one of the Company Subsidiaries has, in all material respects, good, valid and marketable title to each parcel of real property owned by the Company or a Company Subsidiary (the “ Owned Real Property ”).

(b)   The Company or one of the Company Subsidiaries has, in all material respects, a good and valid leasehold interest in each parcel of real property leased by it (the “ Leased Real Property ”). Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, all of the leases relating to the Leased Real Property (each a “ Lease ”, collectively, the “ Leases ”) (i) are a valid and binding obligation of the Company or Company Subsidiary party thereto, enforceable in accordance with its terms against the Company or Company Subsidiary party thereto and, to the Knowledge of the Company, the counterparty thereto, and (ii) are in full force and effect and (A) neither the Company nor any Company Subsidiary is in default (or has taken or failed to take any action which, with notice, lapse of time, or both, would constitute a default) under the terms of any Lease or has received notice of default under any Lease which has not been cured within applicable grace periods and (B) to the Knowledge of the Company, no other Person is in default under any Lease.

(c)   There are no condemnation proceedings or eminent domain proceedings of any kind pending or, to the Knowledge of the Company, threatened with respect to any portion of the Company’s or any Company Subsidiaries’ real property.

SECTION 2.21. Personal Property. The Company and the Company Subsidiaries have good, valid and marketable title to or, in the case of leased or licensed property

17

 

and assets, have valid leasehold interests in or license to use all property and assets (whether real, personal tangible or intangible) reflected on the Company Balance Sheet or acquired after the date of the Company Balance Sheet, except for properties and assets sold since the date of the Company Balance Sheet in the ordinary course of business consistent with past practice or where the failure to have such good, valid and marketable title or valid leasehold interests or valid license would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.

SECTION 2.22. Insurance Coverage.

(a)   Section 2.22(a)  of the Company Disclosure Schedule contains a true and complete list of all material insurance policies carried by or for the benefit of the Company or any Company Subsidiary. All such insurance policies are in full force and effect. The Company has made available to Purchaser a true and complete copy of each of the insurance policies listed on Section 2.22(a) of the Company Disclosure Schedule (collectively, the “ Policies ”).

(b)   No written notice of early cancellation, non-renewal, early termination or revocation has been received with respect to any of the Policies. There are no pending or, to the Knowledge of the Company, threatened material claims against any of the Policies by the Company or any Company Subsidiary as to which the insurers have denied liability in writing.

(c)   Community Care Indemnity has conducted and is conducting its operations in all material respects in accordance with its plan of operations, a true and complete copy of which has been made available to Purchaser prior to the date hereof.

(d)   The Company and Community Care Indemnity have posted reserves in relation to the anticipated payment of benefits, losses, claims and expenses under any insurance Contract or policy that it is party to or bound by, and all such reserves: (i) are reflected adequately in all material respects in the financial statements of the Company and Community Care Indemnity; (ii) were calculated in all material respects in accordance with generally accepted actuarial principles, consistently applied; and (iii) were based on reasonable actuarial assumptions given the circumstances under which such Contract or policy was written. The cash balances of Community Care Indemnity are sufficient to satisfy the requirements, if any, of applicable Law.

SECTION 2.23. Environmental Matters. Except as would not reasonably be expected to have a Company Material Adverse Effect, each of the Company and the Company Subsidiaries: (i) is in compliance with all, and has not violated any, Environmental Laws applicable to it; (ii) to the Knowledge of the Company, does not own, lease or otherwise operate any property at which Materials of Environmental Concern are present in a condition or under circumstances that could reasonably be expected to result in any liability or obligation to it; and has not, nor has any predecessor of it, owned, leased or operated any such property; (iii)  has not received any notice or claim alleging that it has violated any Environmental Laws or that it is liable or has any obligations to any Person as a result of the presence or release of any Materials of Environmental Concern at any real property currently or formerly owned, leased or otherwise used (including any offsite waste storage, handling or disposal facility) or indicating that there is any investigation of or inquiry into the possibility of such a claim, and there is no basis for any

18

 

such claim; and (iv) is not a party to or, to the Knowledge of the Company, affected by, any proceedings, investigations, or agreements concerning, Environmental Laws or the presence or release of any Materials of Environmental Concern. The Company has made available to Purchaser prior to the date hereof true and complete copies of all material studies, audits, assessments or investigations concerning compliance with, or liability or obligations under, Environmental Laws affecting the Company or any Company Subsidiary that are in the possession or control of the Company or any Company Subsidiary. For purposes of this Agreement, “ Environmental Laws ” means all Laws of any Governmental Entity regulating, relating to or imposing liability or standards of conduct concerning pollution or protection of surface water, groundwater, ambient air, surface or subsurface soil, wildlife habitat, or related aspects of the environment, or employee health and safety; and “ Materials of Environmental Concern ” means any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products, polychlorinated biphenyls, urea-formaldehyde insulation, asbestos, molds, radon or other radioactive material, and any pollutants,  contaminants, or hazardous or toxic materials or wastes defined as such in, or regulated or that could give rise to liability under, any applicable Environmental Law.

SECTION 2.24. Payors.

(a)   Neither the Company nor any Company Subsidiary is currently involved in any material dispute with any Governmental Entity payor or third party payor (e.g., a health insurer, HMO, PPO and the like) that provides in excess of $3 million of annual revenue to the Company and the Company Subsidiaries on a consolidated basis (each, a “ Material Payor ”), and since July 1, 2005, neither the Company nor any Company Subsidiary has received any written notice from any Material Payor to the effect that such Material Payor intends to cease doing business or significantly reduce the volume of its business with the Company or any Company Subsidiary or change any of the material terms related to its contracts with the Company or any of the Company Subsidiaries.

(b)   To the Knowledge of the Company, since July 1, 2005 no Governmental Entity payor or other third party payor has an intention to reduce the rates paid to the Company or any Company Subsidiary for services performed under any contract to which the Company or any Company Subsidiary is a party, except, individually or in the aggregate, as would not be material to the business of the Company and the Company Subsidiaries as currently conducted.

(c)   Neither the Company nor any Company Subsidiary has been excluded or debarred by any Law or Order from any healthcare program run by any Governmental Entity, and no formal Action to exclude or debar the Company or any Company Subsidiary from any such healthcare program is pending or, to the Knowledge of the Company, threatened.

ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
PURCHASER

Except as disclosed in the Purchaser Disclosure Schedule attached hereto, Purchaser represents and warrants to the Company that:

19

 

 

SECTION 3.01. Corporate Existence and Power. Purchaser is a limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has all organizational powers required to carry on its business as now conducted. PurchaserSub is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has all corporate powers required to carry on its business as now conducted. Purchaser is duly qualified to do business as a foreign limited liability company and is in good standing in each jurisdiction where the character of the property owned or leased by it or the nature of its activities makes such qualification necessary, except where the failure to be so qualified, individually or in the aggregate, has not had and would not reasonably be expected to have a Purchaser Material Adverse Effect. Purchaser has heretofore made available to the Company true and complete copies of its limited liability company agreement and certificate of formation as currently in effect and PurchaserSub’s certificate of incorporation and by-laws as currently in effect. Since the date of its incorporation, PurchaserSub has not engaged in any activities other than in connection with or as contemplated by this Agreement.

SECTION 3.02. Authorization; Approvals. The execution, delivery and performance by Purchaser and PurchaserSub of this Agreement and the consummation by Purchaser and PurchaserSub of the transactions contemplated hereby are within the organizational powers of Purchaser and PurchaserSub and have been duly authorized by all necessary organizational action. Assuming that this Agreement constitutes the valid and binding obligation of the Company, this Agreement constitutes a valid and binding agreement of each of Purchaser and PurchaserSub, enforceable in accordance with its terms. No vote of the holders of any of the outstanding membership interests or capital stock, as the case may be, of Purchaser or PurchaserSub or any other security of Purchaser or PurchaserSub under the laws of the state of its organization or any other applicable law or regulation, or pursuant to the terms of the organizational documents of Purchaser or PurchaserSub that has not been obtained, is necessary to approve this Agreement or the transactions contemplated hereby.

SECTION 3.03. Governmental Authorization. The execution, delivery and performance by Purchaser and PurchaserSub of this Agreement and the consummation by Purchaser and PurchaserSub of the transactions contemplated hereby require no action by or in respect of, or filing with, any Governmental Entity, other than (a) those set forth in clauses (a) through (d) of Section 2.03 and (b) such other consents, approvals, actions, orders, authorizations, registrations, declarations and filings which, if not obtained or made, would not reasonably be expected to, individually or in the aggregate, (x) have either a Purchaser Material Adverse Effect or (assuming for this purpose that the Effective Time had occurred) a Company Material Adverse Effect, or (y) prevent or materially impair the ability of Purchaser and PurchaserSub to consummate the transactions contemplated by this Agreement (the filings and authorizations referred to in clause (b) being referred to collectively as the “ Purchaser Required Governmental Consents ”).

SECTION 3.04. Non-Contravention. The execution, delivery and performance by Purchaser and PurchaserSub of this Agreement and the consummation by Purchaser and PurchaserSub of the transactions contemplated hereby do not and will not (a) contravene or conflict with the limited liability company agreement or certificate of formation of Purchaser or the certificate of incorporation or by-laws of PurchaserSub, (b) assuming that all of the Purchaser

20

 

Required Governmental Consents are obtained, contravene or conflict with or constitute a violation of any provision of any law, regulation, judgment, injunction, order or decree binding upon or applicable to Purchaser or any Purchaser Subsidiary, (c) require any consent or other action by any Person under, constitute a default under or give rise to a right of termination, cancellation or acceleration (with or without due notice or lapse of time or both) of any right or obligation of Purchaser or any Purchaser Subsidiary or to a loss of any benefit or status to which Purchaser or any Purchaser Subsidiary is entitled under any provision of any material agreement, contract or other instrument binding upon Purchaser or any Purchaser Subsidiary or any material license, franchise, permit or other similar authorization held by Purchaser or any Purchaser Subsidiary, or (d) result in the creation or imposition of any Lien on any material asset of Purchaser or any Purchaser Subsidiary other than, in the case of each of (b), (c) and (d), any such items that would not reasonably be expected to, individually or in the aggregate, (x) have a Purchaser Material Adverse Effect or (y) prevent or materially impair the ability of Purchaser or PurchaserSub to consummate the transactions contemplated by this Agreement.

SECTION 3.05. Litigation. There is no Action pending against, or to the Knowledge of Purchaser threatened against, Purchaser or any Purchaser Subsidiary or any of their respective assets, rights or properties that (i) individually or in the aggregate, has had or would reasonably be expected to have a Purchaser Material Adverse Effect or (ii) individually or in the aggregate, has prevented or materially impaired, or would reasonably be expected to prevent or materially impair, the ability of the Company, Purchaser or PurchaserSub to consummate the transactions contemplated hereby.

SECTION 3.06. Finders’ Fees. There is no investment banker, broker, finder or other such intermediary which has been retained by, or is authorized to act on behalf of, Purchaser or any of its Subsidiaries who might be entitled to any fee or commission from the Company or any Company Subsidiary prior to consummation of the transactions contemplated by this Agreement.

SECTION 3.07. Acquisition of Common Stock for Investment. Purchaser is acquiring the Company Common Stock for its own account with the present intention of holding such securities for investment purposes and not with a view to or for sale in connection with any public distribution of such securities in violation of any federal or state securities laws. Purchaser is an “accredited investor” within the meaning of Regulation D of the Securities Act. Purchaser acknowledges and agrees that the Company Common Stock may not be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of without registration under the Securities Act, except pursuant to an exemption from such registration available under the Securities Act.

SECTION 3.08. Financing. Attached hereto as Exhibit C are copies of (i) an executed commitment letter (the “ Equity Commitment Letter ”), dated as of the date hereof, from Vestar evidencing its commitment to subscribe for and purchase equity interests of Purchaser for an aggregate subscription amount of $258 million in cash, subject to the terms and conditions thereof, and (ii) an executed commitment letter (the “ Debt Commitment Letter ” and, together with the Equity Commitment Letter, the “ Commitment Letters ”), dated as of the date hereof, from JPMorgan Chase Bank, N.A., UBS Loan Finance LLC, Bank of America, N.A. and Banc of America Bridge LLC (such institutions, the “ Lenders ”), with J.P. Morgan Securities Inc., UBS

21

 

Securities LLC and Banc of America Securities LLC acting in arranging and bookrunning roles. Pursuant to the Debt Commitment Letter and subject to the terms and conditions contained therein (including the exhibits thereto), the Lenders have committed to provide $300 million in aggregate principal amount of senior term loans and up to $215 million in aggregate principal amount of subordinated bridge loans to Purchaser at the Closing (the “ Debt Commitment ”). The obligations to fund the commitments under the Debt Commitment Letter are not subject to any condition other than those set forth in the Debt Commitment Letter. Purchaser has no Knowledge of any fact or occurrence that would reasonably be expected to (i) make any of the assumptions or statements set forth in the Debt Commitment Letter inaccurate, (ii) cause the Debt Commitment Letter to be ineffective or (iii) preclude in any material respect the satisfaction of the conditions set forth in the Debt Commitment Letter. As of the date hereof, the Debt Commitment Letter is in full force and effect and has not been amended in any material respect, and the financing and other fees that are due and payable on or before the date hereof under the Debt Commitment Letter have been paid in full. Subject to the terms and conditions of the Commitment Letters, assuming for purposes of this representation that the conditions set forth in Section 7.03(a) and (b)   are satisfied, the funds contemplated to be received pursuant to the Commitment Letters will be sufficient to pay the Merger Consideration and the Option Merger Consideration and to make all other necessary payments (including related fees and expenses) by it and PurchaserSub in connection with the Merger.

SECTION 3.09. Solvency. Immediately following the Closing, each of Purchaser, the Company and each of the Company Subsidiaries will be Solvent (assuming for the purposes of this representation that each of the Company and the Company Subsidiaries was Solvent immediately prior to the Closing and assuming the accuracy of the representations and warranties contained in Article 2 hereof). For purposes of the preceding sentence, “ Solvent ” shall mean, with respect to any Person, that (i) the fair saleable value of the property of such Person and its Subsidiaries is, on the date of determination, greater than the total amount of liabilities of such Person and its Subsidiaries as of such date, (ii) such Person and its Subsidiaries are able to pay all liabilities of such Person and its Subsidiaries as such liabilities mature and (iii) such Person and its Subsidiaries do not have unreasonably small capital for conducting the business theretofor or proposed to be conducted by such Person and its Subsidiaries.

SECTION 3.10. No Knowledge of Misrepresentations or Omissions. Purchaser and PurchaserSub have no Knowledge that the representations and warranties of the Company in this Agreement and the Company Disclosure Schedule attached hereto are not true and correct in all material respects.

SECTION 3.11 . Acknowledgement. Each of Purchaser and PurchaserSub acknowledges that it has conducted to its satisfaction, an independent investigation and verification of the financial condition, results of operations, assets, liabilities, properties and projected operations of the Company and the Company Subsidiaries and, in making its determination to proceed with the transactions contemplated by this Agreement, Purchaser and PurchaserSub have relied on the results of their own independent investigation and verification and the representations and warranties of the Company expressly and specifically set forth in this Agreement, including the schedules attached hereto. Such representations and warranties by the Company constitute the sole and exclusive representations and warranties of the Company, its stockholders and the holders of Options to Purchaser and PurchaserSub in connection with the

22

 

transactions contemplated hereby, and Purchaser and PurchaserSub understand, acknowledge and agree that all other representations and warranties of any kind or nature expressed or implied (including, but not limited to, any relating to the future or historical financial condition, results of operations, assets or liabilities of the Company, or the quality, quantity or condition of the Company’s assets) are specifically disclaimed by the Company, its stockholders and the holders of Options. The Company, its stockholders and the holders of Options do not make or provide, and Purchaser and PurchaserSub hereby waive, any warranty or representation, express or implied, as to the quality, merchantability, fitness for a particular purpose, conformity to samples, or condition of the Company’s or the Company Subsidiaries’ assets or any part thereof.

SECTION 3.12. Payors. Neither Purchaser nor PurchserSub has been excluded or debarred by any Law or Order from any healthcare program run by any Governmental Entity, and no formal Action to exclude or debar Purchaser or PurchaserSub from any such healthcare program is pending or, to the Knowledge of Purchaser, threatened.

ARTICLE 4
COVENANTS OF COMPANY

SECTION 4.01. Company Interim Operations. Except as set forth in Section 4.01 of the Company Disclosure Schedule or as otherwise expressly contemplated or permitted hereby, without the prior written consent of Purchaser, such consent not to be unreasonably withheld or delayed, from the date hereof until the Effective Time, the Company shall, and shall cause each of the Company Subsidiaries to, conduct its business in all material respects in the ordinary course consistent with past practice and shall use commercially reasonable efforts to (i) preserve intact its present business organization, (ii) continue to make capital expenditures in accordance with the capital expenditure budget previously disclosed to Purchaser and (iii) maintain in effect all material foreign, federal, state and local licenses, approvals and authorizations, including, without limitation, all material licenses and permits that are required for the Company or any Company Subsidiary to carry on its business as currently conducted. Without limiting the generality of the foregoing, except as set forth in Section 4.01 of the Company Disclosure Schedule or as otherwise expressly contemplated or permitted by this Agreement, from the date hereof until the Effective Time, without the prior written consent of Purchaser, such consent not to be unreasonably withheld or delayed, the Company shall not, nor shall it permit any Company Subsidiary to:

(a)           amend its certificate of incorporation, by-laws or equivalent organizational documents;

(b)