ACQUISITION AGREEMENT

 

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                                                                     Exhibit 2.1

 

                              ACQUISITION AGREEMENT

 

                                     BETWEEN

 

                           SELECT MEDICAL CORPORATION

 

                                      - and -

 

                            SLMC FINANCE CORPORATION

 

                                     - and -

 

                              CALLISTO CAPITAL L.P.

 

                      DATED the 23rd day of December, 2005

 

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                                TABLE OF CONTENTS

 

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                                                 ARTICLE 1 INTERPRETATION

 

1.1.      Definitions.............................................................................................        1

1.2.      Recitals................................................................................................        9

1.3.      Accounting Principles...................................................................................        9

1.4.      Governing Law; Attornment...............................................................................        9

1.5.      Entire Agreement; Amendment.............................................................................        9

1.6.      Calculation of Time.....................................................................................        9

1.7.      Performance on Holidays.................................................................................       10

1.8.      Waiver of Rights........................................................................................       10

1.9.      Tender..................................................................................................       10

1.10.     Severability............................................................................................       10

1.11.     Conflict................................................................................................       10

1.12.     Consents and Approvals..................................................................................       10

1.13.     Remedies Cumulative.....................................................................................       11

1.14.     Additional Rules of Interpretation......................................................................       11

1.15.     Schedules and Exhibits..................................................................................       12

 

                                          ARTICLE 2 PURCHASE AND SALE OF SHARES

 

2.1.      Purchase and Sale.......................................................................................       13

2.2.      Amount of Purchase Price................................................................................       13

2.3.      Estimate of Closing Working Capital.....................................................................       13

2.4.      Purchase Price Adjustment...............................................................................       13

2.5.      Preparation of Closing Balance Sheet....................................................................       14

2.6.      Payment of Estimated Purchase Price.....................................................................       15

2.7.      Delivery of Share Certificates..........................................................................       15

2.8.      Place of Closing........................................................................................       15

2.9.      Delivery of Section 116 Certificate.....................................................................       15

 

                                         ARTICLE 3 REPRESENTATIONS AND WARRANTIES

 

3.1.      Representations and Warranties in respect of the Corporation, Subsidiaries and Business.................       17

3.2.      Representations and Warranties in respect of the Guarantor and the Vendor...............................       23

3.3.      Representations and Warranties of the Purchaser.........................................................       25

3.4.      Commission..............................................................................................       25

3.5.      Due Diligence Review....................................................................................       26

3.6.      Survival of Representations and Warranties of the Guarantor and the Vendor..............................       26

3.7.      Survival of Representations and Warranties of the Purchaser.............................................       27

 

                                         ARTICLE 4 OTHER COVENANTS OF THE PARTIES

 

4.1.      Covenants of the Guarantor and the Vendor...............................................................       27

4.2.      Covenants of the Purchaser..............................................................................       28

4.3.      Cooperation.............................................................................................       31

 

                                             ARTICLE 5 CONDITIONS OF CLOSING

 

5.1.      Conditions for the Benefit of the Purchaser.............................................................       31

5.2.       Conditions for the Benefit of the Guarantor and the Vendor..............................................       33

5.3.      Waiver..................................................................................................       34

5.4.      Termination.............................................................................................       34

5.5.      Liability of Purchaser, Guarantor and Vendor............................................................       35

 

                                                 ARTICLE 6 INDEMNIFICATION

 

6.1.      Indemnification by the Guarantor and the Vendor.........................................................       35

6.2.      Indemnification by the Purchaser........................................................................       36

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                                      -i-

 

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6.3.      Agency for Representatives..............................................................................       36

6.4.      Notice of Third Party Claims............................................................................       36

6.5.      Defence of Third Party Claims...........................................................................       37

6.6.      Assistance for Third Party Claims.......................................................................       37

6.7.      Settlement of Third Party Claims........................................................................       38

6.8.      Direct Claims...........................................................................................       38

6.9.      Failure to Give Timely Notice...........................................................................       38

6.10.     Reductions..............................................................................................       38

6.11.     Payment and Interest....................................................................................       39

6.12.     Limitation..............................................................................................       39

6.13.     Additional Rules and Procedures.........................................................................       41

6.14.     Exclusive Remedy........................................................................................       41

 

                                                 ARTICLE 7 MISCELLANEOUS

 

7.1.      Further Assurances......................................................................................       42

7.2.      Public Announcements....................................................................................       42

7.3.      Notices.................................................................................................       42

7.4.      Time of the Essence.....................................................................................       43

7.5.      Costs and Expenses......................................................................................       43

7.6.      Effect of Closing.......................................................................................       43

7.7.      Counterparts............................................................................................       44

7.8.      Assignment..............................................................................................       44

7.9.      Parties in Interest.....................................................................................       44

7.10.     Third Parties...........................................................................................       44

7.11.     English Language........................................................................................       44

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                                      -ii-

 

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                                    SCHEDULES

 

Schedule 1.1A           -     Annual Financial Statements

Schedule 1.1B           -     Interim Financial Statements

Schedule 3.1.1A              Jurisdictions of Incorporation or Incorporation of

                            Each Subsidiary

Schedule 3.1.1B              Governing Agreements

Schedule 3.1.3          -     Clinics

Schedule 3.1.4          -     Authorized and Issued Capital

Schedule 3.1.5               Title to Purchased Shares and Capital Securities of

                            Subsidiaries

Schedule 3.1.6          -     Investments

Schedule 3.1.7               No Obligation to Issue Securities

Schedule 3.1.9           -     Regulatory Approvals and Consents

Schedule 3.1.15         -     Guarantees

Schedule 3.1.16         -     Non-Arm's Length Transactions

Schedule 3.1.18         -     Debt Instruments

Schedule 3.1.20         -     Legal Proceedings

Schedule 3.1.21         -      Banking Information

Schedule 4.3                 Information Technology Matters

 

                                    EXHIBITS

 

Exhibit A               -     Form of Legal Opinion of Vendor's Counsel

Exhibit B               -     Form of Legal Opinion of Purchaser's Counsel

Exhibit C               -     Form of Release

Exhibit D               -     Form of Non-Competition Agreement

 

                                     -iii-

 

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                              ACQUISITION AGREEMENT

 

            THIS ACQUISITION AGREEMENT made this 23rd day of December, 2005

between SELECT MEDICAL CORPORATION, a corporation incorporated under the laws of

the State of Delaware (the "Guarantor"), SLMC FINANCE CORPORATION (the "Vendor")

and CALLISTO CAPITAL L.P. (the "Purchaser"), by its general partner CALLISTO

CAPITAL (GP) L.P., by its general partner CALLISTO CAPITAL (GP) INC., a

corporation incorporated under the laws of the Province of Ontario.

 

                                    RECITALS

 

            WHEREAS the Guarantor is the sole registered and beneficial owner of

all of the outstanding shares in the capital of the Vendor;

 

            AND WHEREAS the Vendor is the sole registered and beneficial owner

of 13,127,364 issued and outstanding common shares in the capital of CANADIAN

BACK INSTITUTE LIMITED, a corporation amalgamated under the laws of the Province

of Ontario (the "Corporation");

 

            AND WHEREAS the Purchaser wishes to purchase, and the Vendor wishes

to sell, all of the issued and outstanding common shares in the capital of the

Corporation for the purchase price and upon the terms and conditions hereinafter

set forth;

 

                                    AGREEMENT

 

            NOW THEREFORE in consideration of the premises and mutual agreements

hereinafter set out and of other consideration (the receipt and sufficiency of

which are acknowledged by each Party), the Parties agree as follows:

 

                                   ARTICLE 1

                                 INTERPRETATION

 

1.1.   DEFINITIONS

 

             In this Agreement:

 

            "ACCOUNTING PRINCIPLES CONSISTENTLY APPLIED" means the generally

accepted accounting principles used in preparing the financial statements of the

Corporation as of and for the year ended December 31, 2004 (A) using the same

accounting methods, policies, practices and procedures, with consistent

classification, judgments, and estimation methodology, as were used in preparing

the financial statements as of and for the year ended December 31, 2004 and (B)

not taking into account any changes in circumstances or events occurring after

12:01 a.m. on the Closing Date.

 

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            "ACCOUNTING RECORDS" means all of the Corporation's books of

account, accounting records and other financial data and information, and

includes all records, data and information stored electronically, digitally or

on computer related media;

 

            "AFFILIATE" means, with respect to any person, any other person that

directly or indirectly controls, is controlled by, or is under common control

with that other person. For purposes of this definition, a person "controls"

another person if that person directly or indirectly possesses the power to

direct or cause the direction of the management and policies of that other

person, whether through ownership of securities, by contract or otherwise and

"controlled by" and "under common control with" have similar meanings;

 

            "AGREEMENT" means this acquisition agreement and all Schedules and

Exhibits attached hereto;

 

            "ANNUAL FINANCIAL STATEMENTS" means collectively the consolidated

unaudited financial statements of the Corporation and its Subsidiaries as at

December 31, 2004, consisting of the balance sheet of the Corporation and the

accompanying income statement attached hereto as Schedule 1.1A;

 

            "APPLICABLE LAW" means, in respect of any person, property,

transaction or event, any domestic or foreign statute, law (including the common

law), ordinance, rule, regulation, treaty, restriction, regulatory policy,

standard, code or guideline, by-law (zoning or otherwise) or Order that applies

in whole or in part to such person, property, transaction or event;

 

            "BOOKS AND RECORDS" means the Accounting Records and all books,

records, books of account, sales and purchase records, lists of suppliers and

customers, credit and pricing information, personnel and payroll records,

employment and consulting agreements, production, inventory and accounts

receivable data, formulae, business, engineering and consulting reports and

research and development information and plans and projections of or relating to

the Corporation, the Subsidiaries or the Business and all other documents,

files, records and studies, correspondence, and other data and information,

financial or otherwise, which are relevant to the Corporation, the Subsidiaries

or the Business, including all data and information stored electronically,

digitally or on computer related media;

 

            "BUSINESS" means (i) the business in Canada of providing programs

and/or services in physiotherapy, occupational and/or for exercise therapies as

well as massage therapy, physician and/or chiropractic services and elder care

services. For purposes of this definition, "physician services" shall mean

physician services provided in support of uni- or multi-discipline patient care

programs, or those directly provided for expert opinion, utilisation review or

independent examination, and "elder care services" shall mean physiotherapy,

occupational therapy, chiropody, massage therapy, nursing and personal support

provided in long-term care facilities, retirement homes and/or facilities,

assistive or supportive living residences and the patient's home; and (ii) the

licensing of certain rights by the Corporation and its Subsidiaries to third

parties;

 

                                     - 2 -

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            "BUSINESS DAY" means a day other than a Saturday, Sunday or any

other day on which the principal chartered banks located in the City of Toronto

are not open for the transaction of domestic business during normal banking

hours;

 

            "CAPITAL SECURITIES" means, with respect to any person, all shares,

interests, participations, or other equivalents (however designated, voting or

non-voting) of such person's capital, including common shares, preferred shares,

membership interests, limited or general partnership interests in a partnership,

interest in a trust or other equivalent of such ownership interest.

 

            "CLAIM" means any act, omission or state of facts, and any Legal

Proceeding, assessment, judgment, settlement or compromise relating thereto,

which may give rise to a right to indemnification under Sections 6.1 or 6.2

hereof;

 

            "CLINIC" means rehabilitation clinics established, operated and

maintained by the Corporation and its Subsidiaries;

 

            "CLOSING" means the completion of the sale to and purchase by the

Purchaser of the Purchased Shares and the completion of all other transactions

contemplated by this Agreement that are to occur contemporaneously therewith;

 

            "CLOSING BALANCE SHEET" means the consolidated balance sheet of the

Corporation as at the Closing Date, prepared in accordance with generally

accepted accounting principles in the United States, consistently applied, as

finally determined in accordance with the provisions of Section 2.5 hereof;

 

            "CLOSING DATE" means February 1, 2006 or such earlier or later date

as may be agreed upon in writing by the Parties; and in the event that the

Vendor is unable to obtain the certificate of compliance referred to in Section

2.9 hereof prior to February 1, 2006, then the Closing Date shall automatically

be extended to February 15, 2006 or such earlier or later date as may be agreed

upon in writing by the Parties;

 

             "CLOSING DOCUMENT" means any document or instrument delivered at the

Closing as provided in or pursuant to this Agreement;

 

            "CLOSING TIME" means 10:00 o'clock a.m. Toronto time on the Closing

Date or such other time on the Closing Date as the Parties agree in writing that

the Closing shall take place;

 

            "CLOSING WORKING CAPITAL" means the amount equal to: (i) the total

of the Corporation's current assets; less (ii) the total of its current

liabilities (excluding the current portion of any Long Term Liabilities); all on

a consolidated basis as shown on the Closing Balance Sheet;

 

                                     - 3 -

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            "CONSENT" means any consent, approval, permit, waiver, ruling,

exemption, or acknowledgement from any person (other than the Corporation or any

Subsidiary) under the terms of any Contract, Lease, or Equipment Lease issued to

or for the benefit of the Corporation or its Subsidiaries which is provided for

or required pursuant to the terms of such Contract, Lease or Equipment Lease in

connection with the sale of the Purchased Shares to the Purchaser and the

completion of the other transactions contemplated herein;

 

            "CONSTATING DOCUMENTS" means, with respect to any body corporate,

the original or restated articles of incorporation, articles of amendment,

articles of amalgamation, articles of arrangement, articles of reorganization,

articles of revival, letters patent, memorandum of agreement, special Act or

statute and any other instrument or constating document by or pursuant to which

the body corporate is incorporated or comes into existence and with respect to

any partnership, the partnership agreement and any other instrument or

constating document by or pursuant to which the partnership is created or comes

into existence;

 

            "CONTRACTS" means all contracts, agreements, instruments and other

legally binding commitments or arrangements, written or oral, entered into by

the Corporation or any of its Subsidiaries, including those listed or identified

on any Schedule attached hereto.

 

            "CORPORATION" means Canadian Back Institute Limited, a corporation

amalgamated under the laws of the Province of Ontario, including its successors

and assigns;

 

            "DEBT INSTRUMENT" means any bond, debenture, promissory note or

other instrument evidencing indebtedness for borrowed money;

 

            "DEFENDING PARTY" has the meaning ascribed thereto in Section 6.6

hereof;

 

            "DIRECT CLAIM" means any Claim asserted against an Indemnitor by an

Indemnitee which does not result from a Third Party Claim;

 

            "EMPLOYEE" means an individual who is employed by, or has a

contractual relationship to provide services to, the Corporation or any of its

Subsidiaries, whether on a full-time or part-time basis;

 

            "ENCUMBRANCE" means any mortgage, charge, easement, encroachment,

lien, adverse claim, restrictive covenant, assignment by way of security,

security interest of any nature, financing statement, servitude, pledge,

hypothecation, security agreement, title retention agreement, right of

occupation, option or privilege or any agreement to create any of the foregoing;

 

            "EQUIPMENT LEASES" means all leases of personal property to which

the Corporation or any Subsidiary is a party or under which it has rights;

 

                                     - 4 -

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            "ESTIMATED CLOSING WORKING CAPITAL" means the estimated amount of

Closing Working Capital as determined on the Pre-Closing Statement in accordance

with Section 2.3 hereof;

 

            "ESTIMATED LONG TERM LIABILITIES" means the estimated Long Term

Liabilities as determined on the Pre-Closing Statement in accordance with

Section 2.3 hereof.

 

            "FINANCIAL STATEMENTS" means, collectively, the Annual Financial

Statements and Interim Financial Statements;

 

            "GOVERNMENTAL AUTHORITY" means any domestic or foreign government,

whether federal, provincial, state, territorial or municipal; and any

governmental agency, ministry, department, Tribunal, commission, bureau, board

or other instrumentality exercising or purporting to exercise legislative,

judicial, regulatory or administrative functions of, or pertaining to,

government;

 

            "GUARANTEE" means any agreement, contract or commitment providing

for the guarantee, indemnification, assumption or endorsement or any like

commitment with respect to the obligations, liabilities (contingent or

otherwise) or indebtedness of any person;

 

            "GUARANTOR" means Select Medical Corporation, a corporation

incorporated under the laws of the State of Delaware, including its successors

and assigns;

 

            "INCOME TAX ACT" means, collectively, the Income Tax Act, R.S.C.

1985, 5th Supplement, the Income Tax Application Rules, R.S.C. 1985, 5th

Supplement, and the Income Tax Regulations, in each case as amended to the date

hereof;

 

            "INDEMNITEE" means any Party and its Representatives entitled to

indemnification under this Agreement;

 

            "INDEMNITOR" means any Party obligated to provide indemnification

under this Agreement;

 

            "INDEMNITY PAYMENT" means any amount of a Loss required to be paid

pursuant to Sections 6.1, or 6.2 hereof;

 

            "INFORMATION" has the meaning ascribed thereto in Section 4.2.1(a)

hereof;

 

            "INTELLECTUAL PROPERTY RIGHTS" means:

 

      (a)    all trade marks, trade names, business names, styles, designs,

            graphics, slogans, logos, service marks, brand names, internet

            domain names and registrations and other commercial symbols and all

            applications therefore;

 

      (b)    all copy rights and all applications therefore;

 

                                     - 5 -

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      (c)    all know how, inventions, trade secrets, including business

            methodologies and processes, confidential information and any

            licensed property or technology;

 

      (d)    all computer software and software systems and rights related

            thereto including all related code, specifications, documentation,

            revisions, enhancements, and modifications thereto and all data,

            databases and related documentation in whatever form and media;

 

and includes any statutory or common law rights in respect thereof and any and

all applications, registrations, licenses, sub-licenses, franchises, agreements

or any other evidence of a right in any of the foregoing.

 

            "INTERIM FINANCIAL STATEMENTS" means the unaudited consolidated

financial statements of the Corporation for the ten (10) month period ended

October 31, 2005 attached hereto as Schedule 1.1B;

 

            "INTERIM PERIOD" means the period from and including the time of

execution of this Agreement to and including the Closing Time;

 

            "KNOWLEDGE OF THE GUARANTOR" means the current conscious awareness

of Robert Ortenzio, Patricia Rice or Ken Moore without any duty of inquiry;

 

            "LEASES" means the real property leases and other rights of

occupancy relating to real property to which the Corporation or any Subsidiary

is a party or under which it has rights, whether as lessor or lessee;

 

            "LEGAL PROCEEDING" means any litigation, action, suit,

investigation, hearing, claim, complaint, grievance, arbitration proceeding or

other proceeding and includes any appeal or review and any application for same;

 

            "LICENSE" means any license, permit, approval, authorization,

certificate, directive, order, variance, registration, right, privilege,

concession or franchise issued, granted, conferred or otherwise created by any

Governmental Authority;

 

            "LONG TERM LIABILITIES" means the indebtedness for borrowed money,

capital leases and seller notes of the Corporation and its Subsidiaries as shown

on the Closing Balance Sheet, which for greater certainty includes the current

portion of any Long Term Liabilities;

 

            "LOSS" means any and all loss, liability, damage, cost, expense,

charge, fine, penalty or assessment, resulting from or arising out of any Claim,

including the costs and expenses of any Legal Proceeding, assessment, judgment,

settlement or compromise relating thereto and all interest, fines and penalties

and reasonable legal fees and expenses incurred in connection therewith, but

excluding punitive damages (other than punitive paid to a third party in

connection with a Third Party Claim) loss of profits and consequential damages;

 

                                     - 6 -

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            "MATERIAL ADVERSE EFFECT" shall mean any effect or change that would

be materially adverse to the business, results of operations or financial

condition of the Corporation and its Subsidiaries on a consolidated basis.

 

            "NOTICE PERIOD" has the meaning ascribed thereto in Section 6.5

hereof;

 

            "ORDER" means any order, directive, judgment, decree, award or writ

of any Tribunal;

 

            "PARTIES" means the Guarantor, the Vendor and the Purchaser and

"Party" means any one of them;

 

            "PERSON" is to be broadly interpreted and includes an individual, an

incorporated body wherever or however incorporated, a partnership, a trust, a

fund, an unincorporated association or organization, a government of a country

or any political subdivision thereof, or any agency or department thereof, and

the executors, administrators or other legal representatives of an individual in

such capacity.

 

            "PRIME RATE" for any day means the rate of interest expressed as a

rate per annum that the Bank of Montreal establishes at its head office in

Toronto, Ontario as the reference rate of interest that it will charge on that

day for Canadian dollar demand loans to its customers in Canada and which it at

present refers to as its prime rate;

 

            "PURCHASE PRICE" means the price payable by the Purchaser to the

Vendor for the Purchased Shares provided for in Section 2.2 hereof;

 

            "PURCHASED SHARES" means the 13,127,364 issued and outstanding

common shares in the capital of the Corporation;

 

            "PURCHASER" means Callisto Capital (GP) Inc., a corporation

incorporated under the laws of the Province of Ontario, including its successors

and assigns;

 

            "PURCHASER'S ADVISORS" means the directors, officers, employees,

auditors, legal counsel and fiscal and tax advisors of the Purchaser and of any

lenders or prospective lenders to the Purchaser and their respective

representatives and any other person authorized in writing by the Purchaser to

represent the Purchaser;

 

            "PWC" means PricewaterhouseCoopers LLP;

 

            "REGULATORY APPROVAL" means any approval, consent, ruling,

authorization, notice, permit or acknowledgement that may be required from any

Governmental Authority by Applicable Law, the terms of any License or the

conditions of any Order in connection with the sale of the Purchased Shares to

the Purchaser and the completion of the other transactions contemplated herein;

 

                                     - 7 -

 

<PAGE>

 

            "REPRESENTATIVE" means, in respect of an Indemnitee, each director,

officer, employee, agent, solicitor, accountant, professional advisor and other

representative of that Indemnitee and, in respect of the Purchaser, also

includes the Corporation or any Subsidiary;

 

            "SENIOR EMPLOYEES OF THE CORPORATION" means Christopher Szybbo,

Cameron McInnes, Lloyd Vinish, Christina Boyle and Bernie Rilling;

 

            "SUBSIDIARY" means with respect to any person, a corporation,

partnership, limited partnership, limited liability company or other entity of

which such person owns, directly or indirectly, any number of outstanding

Capital Securities as have the ordinary voting power to determine the election

of directors or other managers of such corporation, partnership, limited

partnership, limited liability company or other entity. Unless the context

otherwise requires, each reference to Subsidiaries herein shall be a reference

to Subsidiaries of the Corporation.

 

            "TAX LEGISLATION" means, collectively, the Income Tax Act and all

federal, provincial, territorial, municipal, foreign, or other statutes,

including all treaties, conventions, case law, interpretation bulletins,

circulars and releases, rules, regulations, orders, and decrees of any

jurisdiction, imposing a tax;

 

            "TAX RETURNS" means all reports, elections, returns, and other

documents required to be filed under the provisions of any Tax Legislation and

any Tax forms required to be filed, whether in connection with a Tax Return or

not, under any provisions of any applicable Tax Legislation;

 

            "TAX" or "TAXES" means all taxes, assessments, charges, dues,

duties, rates, fees, imposts, levies and similar charges of any kind lawfully

levied, assessed or imposed by any Governmental Authority, including, Canadian

federal, provincial, territorial, municipal and local, foreign or other income,

capital, goods and services, capital gains, sales, use, consumption,

registration, environmental, excise, value-added, business, real property,

personal property, stamp, transfer, franchise, withholding, payroll and employee

withholding, or employer health taxes, customs, import, anti-dumping or

countervailing duties, Canada Pension Plan contributions, employment insurance

premiums, social security and workers' compensation premiums or payments,

including any interest, penalties and fines associated therewith or that may

become payable in respect thereof, and any liability for any of the foregoing as

a transferee or successor, guarantor or surety or in a similar capacity under

any contract, arrangement, agreement, understanding or commitment (whether

written or oral) or by operation of law;

 

            "THIRD PARTY" has the meaning ascribed thereto in Section 6.13(a)

hereof;

 

            "THIRD PARTY CLAIM" means any Claim asserted against an Indemnitee

that is paid or payable to, or claimed by, any person who is not a Party;

 

            "TRIBUNAL" means any court (including a court of equity), arbitrator

or arbitration panel and any other Governmental Authority, stock exchange or

other body exercising adjudicative, regulatory, judicial or quasi-judicial

powers; and

 

                                     - 8 -

 

<PAGE>

 

            "VENDOR" means SLMC Finance Corporation, a corporation incorporated

under the laws of the State of Delaware, including its successors and assigns.

 

1.2.   RECITALS

 

            The Parties acknowledge and declare that the recitals in this

Agreement are true and correct.

 

1.3.   ACCOUNTING PRINCIPLES

 

            Wherever in this Agreement reference is made to generally accepted

accounting principles, such reference shall be deemed to be to the generally

accepted accounting principles from time to time in the opinions and

pronouncements of the Accounting Principles Board and the American Institute of

Certified Public Accountants and statements and pronouncements of the Financial

Accounting Standards Board, applicable as at the date on which such principles

are to be applied or on which any calculation or determination is required to be

made in accordance with generally accepted accounting principles in the United

States.

 

1.4.   GOVERNING LAW; ATTORNMENT

 

            This Agreement shall be construed, interpreted and enforced in

accordance with, and the rights of the Parties shall be governed by, the laws of

the Province of Ontario and the federal laws of Canada applicable therein

(excluding any conflict of law rule or principle of such laws that might refer

such interpretation or enforcement to the laws of another jurisdiction) and each

Party irrevocably submits to the non-exclusive jurisdiction of the courts of

Ontario with respect to any matter arising hereunder or relating hereto.

 

1.5.   ENTIRE AGREEMENT; AMENDMENT

 

            This Agreement constitutes the entire agreement between the Parties

with respect to the transactions herein contemplated and cancels and supersedes

any prior understandings, agreements, negotiations and discussions, written or

oral, between the Parties with respect thereto (including the letter of intent

dated June 29, 2005 among the Guarantor, the Corporation and Callisto Capital

(GP) L.P.). There are no representations, warranties, terms, conditions,

undertakings or collateral agreements or understandings, express or implied,

between the Parties other than those expressly set forth in this Agreement. This

Agreement may not be amended, supplemented or otherwise modified in any respect

except by written instrument executed by the Parties.

 

1.6.   CALCULATION OF TIME

 

            In this Agreement, a period of days shall be deemed to begin on the

first day after the event which began the period and to end at 5:00 p.m.

(Toronto time) on the last day of the period. If any period of time is to expire

hereunder on any day that is not a Business Day, the

 

                                     - 9 -

 

<PAGE>

 

period shall be deemed to expire at 5:00 p.m. (Toronto time) on the next

succeeding Business Day.

 

1.7.   PERFORMANCE ON HOLIDAYS

 

            If any act (including the giving of notice) is otherwise required by

the terms hereof to be performed on a day which is not a Business Day, such act

shall be valid if performed on the next succeeding Business Day.

 

1.8.   WAIVER OF RIGHTS

 

            Any waiver of, or consent to depart from, the requirements of any

provision of this Agreement shall be effective only if it is in writing and

signed by the Party giving it, and only in the specific instance and for the

specific purpose for which it has been given. No failure on the part of any

Party to exercise, and no delay in exercising, any right under this Agreement

shall operate as a waiver of such right. No single or partial exercise of any

such right shall preclude any other or further exercise of such right or the

exercise of any other right.

 

1.9.   TENDER

 

            Except as otherwise provided herein, any tender of documents or

money hereunder may be made upon the Parties or their respective counsel and

money shall be tendered by official bank draft drawn upon a Canadian chartered

bank or by negotiable cheque payable in Canadian funds and certified by a

Canadian bank listed in Schedule I, II or III to the Bank Act (Canada).

 

1.10. SEVERABILITY

 

            Any provision in this Agreement which is prohibited or unenforceable

in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent

of such prohibition or unenforceability without invalidating the remaining

provisions hereof or affecting the validity or enforceability of such provision

in any other jurisdiction.

 

1.11. CONFLICT

 

            In the event of any conflict or inconsistency between the terms and

conditions in the body of this Agreement and those in any Schedule (including

any agreement entered into pursuant to this Agreement), the terms and conditions

in the body of this Agreement shall govern and take precedence and the Parties

shall take such steps as may be required or desirable to conform the conflicting

or inconsistent provisions thereof to this Agreement.

 

1.12. CONSENTS AND APPROVALS

 

            Unless otherwise specified, where the consent or approval of a Party

is contemplated or required by the terms of this Agreement, that Party shall not

unreasonably delay

 

                                     - 10 -

 

<PAGE>

 

or withhold the giving of such consent or approval after a request therefor has

been made by the other Party.

 

1.13. REMEDIES CUMULATIVE

 

            The rights, remedies, powers and privileges herein provided to a

Party are cumulative and in addition to and not exclusive of or in substitution

for any rights, remedies, powers and privileges otherwise available to that

Party.

 

1.14. ADDITIONAL RULES OF INTERPRETATION

 

      (a)    In this Agreement, unless the context requires otherwise, words in

            one gender include all genders and words in the singular include the

            plural and vice versa.

 

      (b)    The division of this Agreement into Articles, Sections, Subsections,

            Schedules and other subdivisions, the inclusion of headings and the

            provision of a table of contents are for convenience of reference

            only and shall not affect the construction or interpretation of this

            Agreement. The headings in the Agreement are not intended to be full

            or precise descriptions of the text to which they refer.

 

      (c)    Unless something in the subject matter or context is inconsistent

            therewith, references herein to an Article, Section, Subsection,

            paragraph, clause, Schedule or Exhibit are to the applicable

            article, section, subsection, paragraph, clause Schedule or Exhibit

            of this Agreement.

 

      (d)    Wherever the words "include", "includes" or "including" are used in

            this Agreement or in any Closing Document, they shall be deemed to

            be followed by the words "without limitation" and the words

            following "include", "includes" or "including" shall not be

            considered to set forth an exhaustive list.

 

      (e)    The words "hereof", "herein", "hereto", "hereunder", "hereby" and

            similar expressions shall be construed as referring to this

             Agreement in its entirety and not to any particular section or

            portion of it.

 

      (f)    Unless otherwise specified, all dollar amounts in this Agreement,

            including the symbol "$", refer to Canadian currency.

 

      (g)    Unless otherwise indicated, all references in this Agreement to any

            statute include the regulations thereunder and all applicable

            guidelines, bulletins or policies made in connection therewith and

            which are legally binding, in each case as amended, re-enacted,

            consolidated or replaced from time to time and in the case of any

            such amendment, re-enactment, consolidation or replacement,

            reference herein to a particular provision shall be read as

            referring to such amended, re-enacted, consolidated or replaced

            provision.

 

                                     - 11 -

 

<PAGE>

 

 

      (h)    All references herein to any agreement (including this Agreement),

            document or instrument mean such agreement, document or instrument

            as amended, supplemented, modified, varied, restated or replaced

            from time to time in accordance with the terms thereof and, unless

            otherwise specified therein, includes all schedules and exhibits

            attached thereto.

 

      (i)    Unless otherwise defined herein, words or abbreviations which have

            well-known trade meanings are used herein with those meanings.

 

1.15. SCHEDULES AND EXHIBITS

 

             The following are the Schedules and Exhibits attached to and

incorporated in this Agreement by reference and deemed to be a part hereof:

 

Schedules

 

Schedule 1.1A           -       Annual Financial Statements

Schedule 1.1B           -       Interim Financial Statements

Schedule 3.1.1A                Jurisdictions of Incorporation and Formation of

                              Each Subsidiary

Schedule 3.1.1B                Governing Agreements

Schedule 3.1.3          -       Clinics

Schedule 3.1.4          -       Authorized and Issued Capital

Schedule 3.1.5                 Title to Purchases Shares and Capital Securities

                              of Subsidiaries

Schedule 3.1.6          -       Investments

Schedule 3.1.7          -       No Obligation to Issue Securities

Schedule 3.1.9          -       Regulatory Approvals and Consents

Schedule 3.1.15         -       Guarantees

Schedule 3.1.16         -       Non-Arm's Length Transactions

Schedule 3.1.18         -       Debt Instruments

Schedule 3.1.20         -       Legal Proceedings

Schedule 3.1.21         -       Banking Information

Schedule 4.3                   Information Technology Matters

 

Exhibits

 

Exhibit A               -       Form of Legal Opinion of Guarantor's and Vendor's

                              Counsel

Exhibit B               -       Form of Legal Opinion of Purchaser's Counsel

Exhibit C               -       Form of Release

Exhibit D               -       Form of Non-Competition Agreement

 

                                     - 12 -

 

<PAGE>

 

                                    ARTICLE 2

                           PURCHASE AND SALE OF SHARES

 

2.1.   PURCHASE AND SALE

 

            Subject to the terms and conditions of this Agreement, the Vendor

agrees to sell, transfer and assign the Purchased Shares to the Purchaser and

the Purchaser agrees to purchase the Purchased Shares from the Vendor.

 

2.2.   AMOUNT OF PURCHASE PRICE

 

            The aggregate price payable by the Purchaser to the Vendor for the

Purchased Shares (the "Purchase Price") shall equal Ninety Million Seven Hundred

and Eighteen Thousand Nine Hundred and Sixty-Six Dollars ($90,718,966) less the

amount of any Long Term Liabilities on the Closing Date, subject to adjustment

pursuant to Section 2.3 and Section 2.4 hereof, and shall be payable in

accordance with provisions of Section 2.6 hereof.

 

2.3.   ESTIMATE OF CLOSING WORKING CAPITAL

 

            At least five (5) Business Days prior to the Closing Date, the

Toronto office of PWC will have worked with the Corporation and the Vendor to

have prepared and delivered to the Purchaser and the Vendor a written statement

(the "Pre-Closing Statement"), based upon the Books and Records of the

Corporation, that sets forth the Estimated Closing Working Capital and the

Estimated Long Term Liabilities. The Pre-Closing Statement, the Estimated

Closing Working Capital and the Estimated Long Term Liabilities set forth

therein shall be binding on the parties hereto, subject to any adjustments to

the Estimated Closing Working Capital and the Estimated Long Term Liabilities

after the Closing pursuant to Section 2.4 hereof.

 

2.4.   PURCHASE PRICE ADJUSTMENT

 

            Within ten (10) Business Days following the date on which the

Closing Balance Sheet becomes final and binding on the Parties, as determined in

Section 2.5 below, the Purchase Price shall be adjusted, on a dollar-for-dollar

basis:

 

      (a)    upward or downward, by an amount by which the Long Term Liabilities

            is less or greater than, respectively, the Estimated Long Term

            Liabilities;

 

       (b)    upward or downward, by the amount by which the Closing Working

            Capital is greater or less than, respectively, the Estimated Closing

            Working Capital; and

 

      (c)    upward by the amount of the aggregate purchase price paid by the

            Corporation or any Subsidiary in connection with any acquisitions

            completed by the Corporation or any Subsidiary from and after the

            date hereof and prior to the Closing Date.

 

                                      - 13 -

 

<PAGE>

 

            In the event of any aggregate downward adjustments to the Purchase

Price pursuant to the foregoing provisions of this Section 2.4, the Vendor shall

pay to the Purchaser, by wire transfer or bank draft, within ten (10) Business

Days following the date on which the Closing Balance Sheet becomes final and

binding upon the Parties, as determined in Section 2.5 below, an amount equal to

such downward adjustment. The Guarantor hereby agrees to forthwith pay the

amount of such downward adjustment to the Purchaser in the event that the Vendor

does not so pay the Purchaser within the ten (10) Business Day period. In the

event of any aggregate upward adjustment to the Purchase Price pursuant to the

foregoing provisions of this Section 2.4, subject to Section 2.9 below, the

Purchaser shall pay to the Vendor, by wire transfer or bank draft, within ten

(10) Business Days following the date on which the Closing Balance Sheet becomes

final and binding upon the Parties, as determined in Section 2.5 below, an

amount equal to such upward adjustment.

 

2.5.   PREPARATION OF CLOSING BALANCE SHEET

 

2.5.1 INITIAL PREPARATION

 

            Promptly after the Closing Time, the Purchaser shall prepare, at the

Purchaser's expense and in accordance with Accounting Principles Consistently

Applied, a balance sheet of the Corporation as at 12:01 a.m. on the Closing Date

(the "Closing Balance Sheet") and a calculation of Closing Working Capital and

Long Term Liabilities at that time. A draft of the Closing Balance Sheet and a

draft calculation of Closing Working Capital and Long Term Liabilities shall be

delivered to the Vendor no later than sixty (60) days following the Closing

Date. The Purchaser shall provide the Vendor with copies of all working papers

used in the preparation of the draft Closing Balance Sheet. If the Vendor does

not give a notice of disagreement in accordance with Section 2.5.2 hereof, the

Vendor shall be deemed to have accepted the draft Closing Balance Sheet and

draft calculation of the Closing Working Capital and Long Term Liabilities

prepared by the Purchaser which shall be final and binding on the Parties and

the draft calculations of Closing Working Capital and Long Term Liabilities

shall constitute the Closing Working Capital and Long Term Liabilities for

purposes of this Agreement immediately following the expiry date for the giving

of such notice of disagreement.

 

2.5.2 DISPUTE SETTLEMENT

 

            If the Vendor disagrees with any item in the draft Closing Balance

Sheet or the draft calculation of the Closing Working Capital or Long Term

Liabilities prepared pursuant to Section 2.5.1 hereof, the Vendor shall give

written notice to the Purchaser of such disagreement no later than forty-five

(45) Business Days after delivery of the draft Closing Balance Sheet. Any notice

of disagreement given by the Vendor shall set forth in detail the particulars of

such disagreement. The Vendor and the Purchaser shall then use reasonable

efforts to resolve such disagreement for a period of thirty (30) days following

the giving of such notice. If the matter is not resolved by the end of such

thirty (30) day period, then such disagreement shall be submitted by the Vendor

and the Purchaser to a national accounting firm in Canada and the United States

agreed upon by the Parties (the "Arbitrator"). In the event that the Parties

cannot agree on an arbitrator, then the Arbitrator shall be determined by PWC.

The Arbitrator shall, as promptly as

 

                                     - 14 -

 

<PAGE>

 

practicable (but in any event within forty-five (45) days following its

appointment), make a determination of the Closing Working Capital and Long Term

Liabilities, based solely on written submissions submitted by the Vendor and the

Purchaser to the Arbitrator. In resolving any disputed item, the Arbitrator: (a)

shall be bound by the principles set forth in this Agreement, (b) shall limit

its review to matters specifically set forth in the notice of disagreement, and

(c) shall not assign a value greater than the greatest value for such item

claimed by either party or less than the smallest value for such item claimed by

either party. The decision of the Arbitrator as to the Closing Working Capital

and Long Term Liabilities shall be final and binding upon the Parties and shall

constitute the Closing Working Capital and Long Term Liabilities for purposes of

this Agreement. The Purchaser shall pay one-half of the fees and expenses of the

Arbitrator with respect to the resolution of the dispute and the Vendor shall

pay the balance.

 

2.6.   PAYMENT OF ESTIMATED PURCHASE PRICE

 

            On the Closing Date, subject to Section 2.9, the Purchaser shall pay

the Vendor, by wire transfer of immediately available funds, an estimate of the

Purchase Price, being an amount equal to Ninety Million Seven Hundred and

Eighteen Thousand Nine Hundred and Sixty-Six Dollars ($90,718,966) plus or

minus, as the case may be, the amount by which the Estimated Closing Working

Capital is greater than or less than, respectively, Twelve Million Three Hundred

Seventy-Two Thousand Nine Hundred and Ninety-Five Dollars ($12,372,995), minus

the Estimated Long Term Liabilities.

 

2.7.   DELIVERY OF SHARE CERTIFICATES

 

            The Vendor shall transfer and deliver to the Purchaser at the

Closing Time share certificates representing the Purchased Shares owned by the

Vendor duly endorsed in blank for transfer, or accompanied by irrevocable

security transfer powers of attorney duly executed in blank.

 

2.8.   PLACE OF CLOSING

 

            The Closing shall take place at the Closing Time at the offices of

Fraser Milner Casgrain LLP, Suite 4200, 1 First Canadian Place, Toronto,

Ontario, or at such other place as may be agreed upon by the Vendor and the

Purchaser.

 

2.9.   DELIVERY OF SECTION 116 CERTIFICATE

 

      (a)    The Vendor shall provide the Purchaser on or before the Closing Date

            with a certificate of compliance for the purposes of section 116 of

            the Income Tax Act with a certificate limit (as defined in

            subsection 2 of section 116 of the Income Tax Act) fixed by the

            Minister of National Revenue in such certificate equal to the

            Purchase Price payable to the Vendor on Closing.

 

      (b)    In the event that the estimated Purchase Price determined under

             Section 2.6 results in an amount payable on the Closing Date by the

            Purchaser that is greater

 

                                     - 15 -

<PAGE>

 

 

            than the certificate limit (such excess amount hereinafter referred

             to as the "CD Excess Amount"), then the Purchaser shall only pay to

            the Vendor on the Closing Date an amount equal to the certificate

            limit plus 75% of such CD Excess Amount on the date set out in

            Section 2.6. The Vendor shall provide the Purchaser on or before the

            date that is 30 days after the end of the month in which the Closing

            Date occurred (the "CD Remittance Date") with a certificate of

            compliance issued under subsection 116(4) of the Income Tax Act with

            a certificate limit fixed by the Minister of National Revenue in

            such certificate equal to the amount payable pursuant to Section

            2.6. Upon receipt of such certificate, the Purchaser shall pay the

            balance of the CD Excess Amount to the Vendor forthwith. If the

            Vendor fails to deliver to the Purchaser such certificate on or

            before the CD Remittance Date, the Purchaser shall, on the

            Remittance Date, pay to the Receiver General for Canada the balance

            of the CD Excess Amount, and the amount so paid by the Purchaser

            shall be considered for all purposes to be a payment made by the

            Purchaser to the Vendor on account of the total aggregate Purchase

            Price.

 

      (c)    In the event that any aggregate upward adjustment to the Purchase

            Price pursuant to the provisions of Section 2.4 results in an amount

            payable by the Purchaser that is greater than the certificate limit

            (such excess amount hereinafter referred to as the "AD Excess

            Amount"), then the Purchaser shall only pay to the Vendor an amount

            equal to 75% of such AD Excess Amount on the date set out in Section

            2.4 (the "Adjustment Date"). The Vendor shall provide the Purchaser

            on or before the date that is 30 days after the end of the month in

            which the Adjustment Date occurred (the "AD Remittance Date") with a

             certificate of compliance issued under subsection 116(4) of the

            Income Tax Act with a certificate limit fixed by the Minister of

            National Revenue in such certificate equal to the total aggregate

            Purchase Price including any adjustment under Section 2.4. Upon

            receipt of such certificate, the Purchaser shall pay the balance of

            the AD Excess Amount to the Vendor forthwith. If the Vendor fails to

            deliver to the Purchaser such certificate on or before the AD

            Remittance Date, the Purchaser shall, on the AD Remittance Date, pay

            to the Receiver General for Canada the balance of the AD Excess

            Amount, and the amount so paid by the Purchaser shall be considered

            for all purposes to be a payment made by the Purchaser to the Vendor

            on account of the total aggregate Purchase Price.

 

      (d)    If necessary for the Vendor to obtain an amended certificate from

            Canada Revenue Agency, the Purchaser agrees to return the original

            certificate to the Vendor at any time on receiving written

            assurances that a revised certificate having an appropriate

            certificate limit will be issued by Canada Revenue Agency and

            delivered to the Purchaser immediately thereafter.

 

                                   ARTICLE 3

                         REPRESENTATIONS AND WARRANTIES

 

                                     - 16 -

 

<PAGE>

 

3.1.   REPRESENTATIONS AND WARRANTIES IN RESPECT OF THE CORPORATION, SUBSIDIARIES

      AND BUSINESS

 

            The Guarantor and the Vendor hereby represent and warrant on a joint

and several basis to the Purchaser as set out in this Section 3.1 and

acknowledge that the Purchaser is relying on such representations and warranties

in connection with the transactions contemplated in this Agreement.

 

3.1.1 INCORPORATION AND ORGANIZATION OF THE CORPORATION

 

            The Corporation is a corporation amalgamated and subsisting under

the laws of the Province of Ontario. Each Subsidiary, if a corporation, is a

corporation incorporated and subsisting under the laws of the jurisdiction of

its corporation, if a partnership, is a partnership formed and subsisting under

the laws of the jurisdiction in which such partnership has been formed. Each

jurisdiction of incorporation or formation of each Subsidiary is set forth in

Schedule 3.1.1A attached hereto. No proceedings have been taken or authorized by

any of the Guarantor, Vendor, or to the Knowledge of the Guarantor, the

Corporation or any Subsidiary or by any other person with respect to the

ban