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Exhibit 2.1
EXECUTION COPY
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
HEALTHSOUTH CORPORATION
AND
SELECT MEDICAL CORPORATION
------------------------
DATED AS OF JANUARY 27, 2007
------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I PURCHASE AND
SALE........................................1
1.1 Purchase and Sale of the
Shares..............................1
1.2
Consideration................................................2
1.3
Closing......................................................2
1.4 Deliveries by
Seller.........................................2
1.5 Deliveries by
Buyer..........................................2
1.6 Related
Calculations.........................................3
ARTICLE II RELATED
MATTERS..........................................6
2.1 Ancillary
Agreement..........................................6
2.2 Intercompany Agreements; Certain Other Intercompany
Matters....................................................6
2.3
Resignations.................................................7
2.4 Restructuring
Transactions...................................7
2.5
Guaranties...................................................9
2.6 Payment of Division
Indebtedness.............................9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
SELLER.................9
3.1 Organization of Seller;
Authority............................9
3.2 Title to
Shares.............................................10
3.3 Organization and
Qualification..............................10
3.4 Capitalization of the
Company...............................10
3.5 Capitalization of the Division
Entities.....................11
3.6 No Violation; Consents and
Approvals........................11
3.7 Financial Statements; Undisclosed
Liabilities...............12
3.8 Absence of Certain Changes or
Events........................13
3.9 Real
Property...............................................14
3.10 Intellectual
Property.......................................14
3.11
Litigation..................................................15
3.12 Employee Benefit
Plans......................................15
3.13
Taxes.......................................................16
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TABLE OF CONTENTS
(continued)
PAGE
3.14 Material Contracts and
Commitments..........................17
3.15 Compliance with Laws;
Permits...............................18
3.16 Labor
Matters...............................................19
3.17
Environmental...............................................19
3.18 Health Care Regulatory
Matters..............................20
3.19 Assets of the
Division......................................22
3.20
Brokers.....................................................22
3.21 NO OTHER
REPRESENTATIONS....................................23
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
BUYER.................23
4.1 Organization;
Authority.....................................23
4.2 No Violation; Consents and
Approvals........................23
4.3
Litigation..................................................24
4.4
Financing...................................................24
4.5 Acquisition of the Shares for Investment; Securities
Act....24
4.6 Vote/Approval
Required......................................24
4.7
Solvency....................................................24
4.8 Investigation by
Buyer......................................25
4.9
Brokers.....................................................25
ARTICLE V COVENANTS OF THE
PARTIES................................25
5.1 Conduct of the
Division.....................................25
5.2 Access to Information Prior to the Closing;
Confidentiality; Cooperation..............................27
5.3 Commercially Reasonable
Efforts.............................28
5.4
Consents....................................................28
5.5 Antitrust
Notification......................................29
5.6 Public
Announcements........................................29
5.7 Supplemental
Disclosure.....................................30
5.8 Certain Licenses and
Permits................................30
5.9 Records;
Cooperation........................................30
5.10 Preparation of Financial
Statements.........................32
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TABLE OF CONTENTS
(continued)
PAGE
5.11 Covenant Not to
Compete.....................................33
ARTICLE VI ADDITIONAL
AGREEMENTS...................................35
6.1 Tax
Matters.................................................35
6.2 Division Employees; Employee Contracts and
Benefits.........43
6.3 Workers'
Compensation.......................................46
6.4 Use of Seller's Name and
Logo...............................46
6.5
Software....................................................46
6.6 Enterprise
Systems..........................................47
ARTICLE VII CONDITIONS TO OBLIGATIONS OF EACH OF SELLER AND
BUYER...47
7.1 Mutual
Conditions...........................................47
ARTICLE VIII CONDITIONS TO OBLIGATIONS OF
SELLER.....................48
8.1
Conditions..................................................48
ARTICLE IX CONDITIONS TO OBLIGATIONS OF
BUYER......................48
9.1
Conditions..................................................48
ARTICLE X TERMINATION, AMENDMENT AND
WAIVER.......................49
10.1
Termination.................................................50
10.2 Procedure and Effect of
Termination.........................51
10.3 Amendment and
Modification..................................51
ARTICLE XI SURVIVAL OF REPRESENTATIONS;
INDEMNIFICATION............52
11.1 Survival of
Representations.................................52
11.2 Seller's Agreement to
Indemnify.............................52
11.3 Seller's Limitation of
Liability............................52
11.4 Buyer's Agreement to
Indemnify..............................53
11.5 Buyer's Limitation of
Liability.............................54
11.6 Conditions of Indemnification With Respect to
Third-Party Claims........................................54
11.7 Other
Claims................................................55
11.8 Sole
Remedy.................................................56
ARTICLE XII
MISCELLANEOUS...........................................57
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TABLE OF CONTENTS
(continued)
PAGE
12.1 Fees and
Expenses...........................................57
12.2 Further
Assurances..........................................58
12.3
Notices.....................................................58
12.4 Entire
Agreement............................................59
12.5
Severability................................................59
12.6 Binding Effect;
Assignment..................................59
12.7 No Third-Party
Beneficiaries................................59
12.8
Counterparts................................................59
12.9
Interpretation..............................................59
12.10 Forum; Service of
Process...................................60
12.11 Governing
Law...............................................60
12.12 Specific
Performance........................................60
12.13
Waivers.....................................................60
12.14 Defined
Terms...............................................60
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<PAGE>
INDEX OF DEFINED TERMS
Page
2005 Pro Forma Financial Information...............13
2005 Segment Information...........................13
90% Lease Condition................................61
90% Payor Contract Condition.......................62
Accounting Arbiter..................................5
Accounting Principles...............................3
Actual Closing Cash Balance.........................3
Actual Net Working Capital..........................4
Adjusted Grossed Up Basis..........................37
Affiliate..........................................62
Affiliated Group...................................17
Aggregate Deemed Sales Price.......................37
Agreement...........................................1
Allocation.........................................43
Allocation Dispute Notice..........................43
Ancillary Agreements................................8
Anti-Kickback Law..................................20
Applicable Buyer Plan..............................45
Audited Financial Statements.......................13
Basket.............................................54
Benefit Plans......................................63
Business............................................1
Business Day.......................................63
Buyer...............................................1
Buyer Claims.......................................53
Buyer Indemnified Parties..........................53
Buyer Representatives..............................28
Capitalized Lease Indebtedness.....................63
Cash...............................................63
Cash Adjustment Amount..............................4
Cash Due to Minority Interest Holders..............63
CIA................................................21
Closing.............................................1
Closing Cash Balance................................3
Closing Date........................................2
Code...............................................64
Company.............................................1
Conclusive Statement................................5
Confidentiality Agreement..........................29
Consent............................................12
Consented Leases...................................64
Consented Third Party Payor Contracts..............64
Consolidated Income Tax Return.....................41
Contract...........................................65
Courts.............................................61
Damages............................................53
Deficiency Amount...................................4
Disclosure Letter...................................6
Disregarded Entities...............................38
Distributions......................................65
Division............................................1
Division Entities...................................1
Division Offerees..................................44
DOJ................................................29
DRE Sales..........................................38
Earn-Out Indebtedness..............................65
EBITDA.............................................65
Effective Time......................................2
Election...........................................36
Enterprise Systems.................................48
Environmental Law..................................66
ERISA..............................................66
ERISA Affiliate....................................66
Estimated Closing Cash Balance......................3
Estimated Net Working Capital.......................3
Estimated Net Working Capital Adjustment............2
Excess Amount.......................................4
Excess Restructuring Costs..........................8
Exchange Act.......................................12
Excluded Assets.....................................7
Excluded Representations...........................53
Facilities.........................................66
Federal Health Care Programs.......................20
Filing.............................................12
Final Allocation...................................44
Form 8023..........................................36
FTC................................................29
GAAP...............................................67
Going Clinics.......................................7
Good Faith Statement................................3
Governmental Entity................................12
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Guaranties..........................................9
Hazardous Substances...............................67
Health Care Related Liabilities....................67
HIPAA..............................................20
HSR Act............................................12
Indebtedness.......................................67
Independent Accounting Firm........................37
Initial Purchase Price..............................2
Intellectual Property Rights.......................15
Intercompany Agreements.............................6
Interest Rate......................................68
Interim Pro Forma Income Statements................13
Interim Segment Information........................14
IT Systems.........................................15
Knowledge of Seller................................68
Law................................................68
Leased Real Property...............................14
Liens...............................................2
Litigation.........................................15
Material Adverse Effect............................69
Material Contracts.................................18
Minority Interest Holders..........................69
Net Working Capital.................................3
Net Working Capital Adjustment Amount...............4
Non Required Consent Third Party Payor Contract....70
Notice of Disagreement..............................4
Pension Plan.......................................70
Permits............................................19
Permitted Liens....................................70
Person.............................................70
Post-Closing Taxes.................................40
Pre-Closing Taxes..................................39
Pre-Closing Transactions...........................32
Purchase Price......................................6
Real Property......................................14
Records............................................31
Release............................................71
Replacement Lease...................................9
Required Consent Lease.............................71
Required Consent Third Party Payor Contract........71
Restricted Territory...............................71
Restructuring Agreements............................8
Restructuring Transactions..........................8
Retained Liabilities...........................46, 71
Retained Litigation................................32
SEC................................................33
Seller..............................................1
Seller Claims......................................54
Seller Indemnified Parties.........................54
Seller Outpatient Employee.........................35
Seller Returns.....................................38
Seller's Knowledge.................................68
Seller's Trademarks and Logos......................47
September 30 Form 10-Q.............................13
Severance Policy...................................45
Shares..............................................1
Stark Law..........................................20
Statement...........................................3
Staying Clinics.....................................8
Straddle Period Returns............................38
Straddle Statement.................................38
Subsidiary.........................................72
Subsidiary Shares..................................10
Target Net Working Capital.........................72
Tax................................................18
Tax Benefit........................................57
Tax Indemnified Party..............................42
Tax Indemnifying Party.............................42
Tax Return.........................................18
Tax Third-Party Claim..............................42
Termination Date...................................51
Third-Party Claims.................................55
Transfer Taxes.....................................43
Transferred Employees..............................44
Transition Agreement................................6
Transition Date....................................33
Unadjusted Purchase Price...........................2
Unrelated Liabilities..............................73
Welfare Plan.......................................74
Wind-down Period...................................47
vi
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT, dated as of January 27, 2007 (the
"Agreement"), by and between HealthSouth Corporation, a Delaware
corporation
("Seller"), and Select Medical Corporation, a Delaware
corporation ("Buyer").
RECITALS
--------
WHEREAS, Seller is engaged, directly and through the
Division
Entities (as hereinafter defined), in the business of operating
and managing
outpatient rehabilitation facilities offering a range of
rehabilitative health
care services, including physical therapy and occupation
therapy, with a
particular focus on orthopedic, sports-related, hand and spine
injuries and
various neurological/neuromuscular conditions (the
"Business");
WHEREAS, the Business is operated by Seller through the
entities
listed on Schedule I attached hereto (collectively, the
"Division Entities");
WHEREAS, prior to Closing (as hereinafter defined), all of
Seller's
equity interests in the Division Entities shall be held,
directly or
indirectly, by HealthSouth Holdings, Inc., a Delaware
corporation (the
"Company" and, collectively with the Division Entities, the
"Division");
WHEREAS, Seller is the record and beneficial owner of all of
the
issued and outstanding shares of common stock, par value $0.01
per share (the
"Shares"), of the Company;
WHEREAS, Buyer desires to purchase and acquire from Seller,
and
Seller desires to sell and transfer to Buyer, all of Seller's
right, title and
interest in and to the Division by way of a purchase by Buyer
and sale by
Seller of the Shares, upon the terms and subject to the
conditions hereinafter
set forth; and
WHEREAS, the respective Board of Directors of each of Seller
and
Buyer has approved this Agreement and the transactions
contemplated hereby.
NOW, THEREFORE, in consideration of the foregoing and of the
representations, warranties, covenants, agreements and
conditions contained
herein, and intending to be legally bound hereby, the parties
hereto agree as
follows:
TERMS
-----
ARTICLE I
PURCHASE AND SALE
-----------------
1.1 Purchase and Sale of the Shares. Upon the terms and subject
to
the conditions of this Agreement, at the closing provided for in
Section 1.3
hereof (the "Closing"), Seller shall sell, convey, assign,
transfer and
deliver to Buyer, and Buyer shall purchase, acquire and accept
from Seller,
all of Seller's right, title and interest in and to the Shares,
free and clear
of all liens, encumbrances, security interests, mortgages,
pledges, claims and
options (collectively, "Liens").
<PAGE>
1.2 Consideration. Upon the terms and subject to the conditions
of
this Agreement, in consideration of the aforesaid sale,
conveyance,
assignment, transfer and delivery of the Shares at the Closing,
Buyer shall
pay to Seller an amount in cash, equal to (i) Two Hundred Forty
Five Million
Dollars ($245,000,000) (the "Unadjusted Purchase Price"), plus
(ii) an amount
equal to the Estimated Closing Cash Balance (as hereinafter
defined), minus
(iii) an amount equal to Capitalized Lease Indebtedness as of
the Effective
Time, minus (iv) an amount equal to Earn-Out Indebtedness as of
the Effective
Time, plus (v) the amount, if any, by which the Estimated Net
Working Capital
exceeds the Target Net Working Capital, minus (vi) the amount,
if any, by
which the Estimated Net Working Capital is less than the Target
Net Working
Capital (such amount, the "Initial Purchase Price"). Any
increase or decrease
to the Unadjusted Purchase Price pursuant to clauses (v) or (vi)
of this
Section 1.2 shall be referred to herein as the "Estimated Net
Working Capital
Adjustment."
1.3 Closing. Subject to Article X hereof, the Closing of the
transactions contemplated by this Agreement shall take place at
the offices of
Bradley, Arant, Rose & White LLP, 1819 Fifth Avenue North,
Birmingham, Alabama
35203, at 10:00 a.m., local time, on the first Business Day of
the month
immediately following the month in which the condition set forth
in Section
7.1(c) is satisfied, but no sooner than March 1, 2007; provided
that all other
conditions set forth in Article VII, Article VIII and Article IX
hereof are
satisfied or capable of being satisfied at the Closing, or at
such other
place, date and time as shall be agreed upon in writing by the
parties hereto
(the date that the Closing actually occurs shall be referred to
herein as the
"Closing Date"). Notwithstanding the foregoing, the parties
hereto intend that
such Closing shall be deemed to be effective, and the
transactions
contemplated by this Agreement shall be deemed to occur
simultaneously, at
11:59 p.m., Central Time, on the last day of the month
immediately prior to
the Closing Date (the "Effective Time").
1.4 Deliveries by Seller. Prior to or at the Closing, Seller
shall
deliver or cause to be delivered to Buyer the following:
(a) stock certificate(s) representing the Shares, duly
endorsed
or accompanied by stock powers duly executed in blank;
(b) each of the Ancillary Agreements, duly executed by
Seller;
(c) the resignations referred to in Section 2.3 hereof; and
(d) the officer's certificate referred to in Section 9.1(c)
hereof.
1.5 Deliveries by Buyer. Prior to or at the Closing, Buyer
shall
deliver or cause to be delivered to Seller the following:
(a) cash in an amount equal to the Initial Purchase Price by
wire
transfer of immediately available funds to a bank account
designated in
writing by Seller at least two (2) Business Days prior to the
Closing Date;
(b) each of the Ancillary Agreements, duly executed by Buyer;
and
(c) the officer's certificate referred to in Section 8.1(c)
hereof.
2
<PAGE>
1.6 Related Calculations.
(a) Cash Balance and Net Working Capital Calculations.
(i) Seller shall, at least five (5) Business Days prior to
the Closing Date, cause to be prepared and delivered to Buyer
a
statement (the "Good Faith Statement") setting forth a good
faith
estimate of the Closing Cash Balance (as hereinafter defined) of
the
Division as of the Effective Time (the "Estimated Closing Cash
Balance")
and the Net Working Capital (as hereinafter defined) of the
Division as
of the Effective Time (the "Estimated Net Working Capital") and
the
respective components and calculations of each thereof. Buyer
and its
representatives shall have an opportunity to review and comment
upon the
Good Faith Statement, which shall be subject to Buyer's
reasonable
approval. As used herein, "Closing Cash Balance" shall mean an
amount
equal to (A) Cash less (B) Cash Due to Minority Interest Holders
as of
the Effective Time (it being understood that Seller shall be
responsible
for any checks that are outstanding as of the Effective Time
that relate
to the Company or the Division Entities). As used herein, "Net
Working
Capital" shall mean (i) the sum of (A) accounts receivable, net
of
reserves for doubtful accounts (but excluding any intercompany
accounts
receivable) and (B) other current assets, less (ii) the sum of
(A) trade
accounts payable (but excluding any intercompany accounts
payable and
unapplied cash), (B) refunds due to patients and third-party
payors,
principally as reflected in account 2512 (which as of September
30, 2006
reflected an accrued liability of $1.5 million), (C) accrued
liabilities
(but excluding any intercompany accrued liabilities and
excluding the
current portion of long-term Indebtedness) and (D) other
current
liabilities, and shall be calculated in accordance with the
Accounting
Principles. The "Accounting Principles" shall mean GAAP
utilizing the
methodologies, accounting principles and practices used in
the
preparation of the Audited Financial Statements (as
hereinafter
defined), and as adjusted to derive the 2005 Pro Forma
Financial
Information, consistent with the reconciliation thereof set
forth in
Section 3.7(d) of the Disclosure Letter. Net Working Capital
shall be
prepared in a manner consistent with the example thereof set
forth in
Schedule II hereto, which Schedule II is derived from the
September 30,
2006 pro forma balance sheet of the Division attached as
Schedule III
hereto.
(ii) Between eight-five (85) and ninety (90) days after the
Closing Date, Seller shall cause to be prepared and delivered to
Buyer a
statement (the "Statement") setting forth the Closing Cash
Balance of
the Division as of the Effective Time (the "Actual Closing
Cash
Balance") and the Net Working Capital of the Division as of
the
Effective Time (the "Actual Net Working Capital") and the
components and
calculations of each thereof. The Statement shall also set forth
(i) the
difference, if any, determined by subtracting the Estimated
Closing Cash
Balance from the Actual Closing Cash Balance (any such
difference, the
"Cash Adjustment Amount"), it being understood that the Cash
Adjustment
Amount may be either a positive or negative number and (ii)
the
difference, if any, determined by subtracting the Estimated Net
Working
Capital from the Actual Net Working Capital (such difference,
the "Net
Working Capital Adjustment Amount"), it being understood that
the Net
Working Capital Adjustment Amount may be either a positive or
negative
number. Subject to Sections 1.6(a)(iii)-(v), (i) Buyer shall pay
to
Seller the amount of any positive Cash Adjustment Amount and
any
positive Net
3
<PAGE>
Working Capital Amount and (ii) Seller shall pay to Buyer the
amount of
any negative Cash Adjustment Amount and any negative Net Working
Capital
Adjustment Amount, in each case, as finally determined pursuant
to this
Section 1.6(a). To the extent that netting the payments
referenced in
the preceding sentence results in a net payment by Buyer to
Seller, the
amount of such net payment shall be referred to herein as the
"Excess
Amount" and, to the extent that netting the payments referenced
in the
preceding sentence results in a net payment by Seller to Buyer,
the
amount of such net payment shall be referred to herein as
the
"Deficiency Amount." Contemporaneously with its delivery to
Buyer of the
Statement, Seller shall also deliver to Buyer a copy of the work
papers
prepared in connection with the Statement's preparation. The
Statement
shall be prepared in accordance with the Accounting Principles.
Buyer
shall provide Seller and its representatives reasonable access,
during
normal business hours of Buyer, to all personnel, books and
records of
the Division as reasonably requested by Seller to assist it in
its
preparation of the Statement.
(iii) After receipt of the Statement, Buyer shall have
forty-five (45) days to review the Statement together with the
work
papers used in its preparation. During the course of the
preparation of
the Statement and following the delivery of the Statement,
Seller shall
provide Buyer and its representatives reasonable access, during
normal
business hours of Seller, to all personnel, books and records of
Seller
as reasonably requested by Buyer to assist it in its review of
the
Statement and its preparation. The Statement shall become final
and
binding upon the parties on the forty-fifth day following
receipt
thereof by Buyer unless Buyer gives written notice of its
disagreement
(a "Notice of Disagreement") to Seller prior to such date. Any
Notice of
Disagreement shall (A) specify in reasonable detail the nature
and
amount of any disagreement so asserted, and (B) include
Buyer's
calculation of the Closing Cash Balance and/or Net Working
Capital
(whichever is being disputed) of the Division as of the
Effective Time.
If Buyer has given Seller a Notice of Disagreement prior to
the
forty-fifth day following receipt by Buyer of the Statement,
then the
Statement shall become final and binding upon the parties on the
date
the parties hereto resolve in writing any differences they have
with
respect to any matter properly included in the Notice of
Disagreement,
in accordance with this Section 1.6(a). During the twenty (20)
Business
Days immediately following the receipt by Seller of a Notice
of
Disagreement, the respective Chief Financial Officers of Seller
and
Buyer or their designees shall negotiate in good faith to
resolve any
disputed items timely included in a Notice of Disagreement.
During such
period, Buyer shall have full access to the working papers of
Seller
prepared in connection with Seller's preparation of the
Statement, and
Seller shall have full access to the working papers of Buyer
prepared in
connection with Buyer's preparation of the Notice of
Disagreement. Any
resolution of disputed items included in the Notice of
Disagreement that
is agreed upon in writing by Buyer and Seller shall be final,
binding
and conclusive as to Seller, Buyer and their respective
Affiliates. At
the end of such twenty (20) Business Day period, at the request
of
Seller or Buyer, any and all matters which remain in dispute,
and which
were properly included in the Notice of Disagreement, shall be
submitted
to a mutually acceptable, nationally recognized independent
accounting
firm or other professional service organization that provides
financial
dispute resolution services (the "Accounting Arbiter") selected
by
Seller and Buyer, with no material relationship to Seller or
Buyer or
any of their respective
4
<PAGE>
Affiliates, for a binding resolution of such disputed items. If
Buyer
and Seller are not able to agree upon an Accounting Arbiter,
the
appointment of an Accounting Arbiter will be finally selected by
mutual
agreement of an independent accounting firm selected by Seller
and an
independent accounting firm selected by Buyer; provided that,
neither of
the independent accounting firms selected by Buyer or Seller
shall serve
as the Accounting Arbiter. The fees and expenses of the
Accounting
Arbiter shall be paid one-half by Seller and one-half by
Buyer.
(iv) The Accounting Arbiter shall determine and report in
writing to Seller and Buyer as to its determination of all
disputed
matters submitted to the Accounting Arbiter and the effect of
such
determinations on the Statement within twenty (20) Business Days
after
such submission, and such determinations shall be final, binding
and
conclusive as to Seller, Buyer and their respective Affiliates.
In
resolving any disputed item, the Accounting Arbiter, acting in
its
capacity as an expert and not as an arbitrator: (A) shall limit
its
review to matters specifically set forth in such Notice of
Disagreement
delivered pursuant to Section 1.6(a)(iii) as a disputed item
(other than
those items thereafter resolved by mutual written agreement of
Seller
and Buyer), (B) shall further limit its review to whether
the
calculation of any such disputed item is mathematically accurate
and
whether the calculation of the Closing Cash Balance and/or Net
Working
Capital was made in accordance with the Accounting Principles
and the
terms of this Agreement, and (C) shall not assign a value to any
item
greater than the greatest value for such item claimed by any
party or
less than the smallest value for such item claimed by any other
party in
the Statement or the Notice of Disagreement delivered pursuant
to
Section 1.6(a)(iii). Each of Seller and Buyer shall have the
right,
within five (5) Business Days of submission of any disputed item
to the
Accounting Arbiter, to meet with representatives of the
Accounting
Arbiter and present its position as to the resolution of such
disputed
item. In addition, Seller and Buyer shall each furnish to the
Accounting
Arbiter such work papers and other documents and information
relating to
the disputed items, as the Accounting Arbiter may reasonably
request.
(v) At such time as the Statement becomes final, binding and
conclusive upon Seller, Buyer and their respective Affiliates
in
accordance with this Section 1.6(a), the Statement shall become
the
"Conclusive Statement." If the Conclusive Statement contains
a
Deficiency Amount, then Seller shall pay to Buyer an amount in
cash
equal to such Deficiency Amount. If the Conclusive Statement
contains an
Excess Amount, then Buyer shall pay to Seller an amount in cash
equal to
such Excess Amount. Any payment to be made pursuant to this
Section 1.6
shall be made on the third Business Day following the date on
which the
Statement becomes the Conclusive Statement pursuant to this
Section
1.6(a). Any payment to be made pursuant to this Section 1.6(a)
shall be
made on the third Business Day following the date on which the
Statement
becomes the Conclusive Statement pursuant to this Section
1.6(a). Any
payment required to be made by Seller or Buyer pursuant to this
Section
1.6(a) shall bear interest from the Closing Date through the
date of
payment at the Interest Rate and shall be payable by wire
transfer of
immediately available funds to an account or accounts designated
by the
party entitled to receive such funds prior to the date when such
payment
is due.
5
<PAGE>
(b) The Initial Purchase Price, as increased by any Excess
Amount
or decreased by any Deficiency Amount, as the case may be, shall
be referred
to herein as the "Purchase Price."
ARTICLE II
RELATED MATTERS
---------------
2.1 Ancillary Agreement. Prior to or at the Closing, Seller and
Buyer
shall enter into the Transition Services Agreement between
Seller and Buyer,
substantially in the form set forth in Exhibit A attached
hereto, pursuant to
which Seller shall provide, or cause to be provided, to the
Division certain
transition services, as set forth therein, for the time periods
set forth
therein, in accordance with the terms thereof (the "Transition
Agreement").
2.2 Intercompany Agreements; Certain Other Intercompany
Matters.
(a) Section 2.2(a)(i) of the disclosure letter delivered by
Seller to Buyer simultaneously herewith (the "Disclosure
Letter") lists all
intercompany agreements between Seller or any of its Affiliates
(other than
the Company or any Division Entity), on the one hand, and the
Company or any
Division Entity, on the other hand (the "Intercompany
Agreements"). Except as
set forth in Section 2.2(a)(ii) of the Disclosure Letter and
except for those
Intercompany Agreements to be assigned by Seller to the Company
pursuant to
Section 2.4(a) hereof, as of the Closing, Seller, the Company
and the Division
Entities shall cause all Intercompany Agreements to be
terminated in all
respects (pursuant to documentation reasonably acceptable to
Buyer) such that
there is no cost or liability (including any Tax liability)
thereunder from
and after the Closing on the part of the Company or any Division
Entity.
(b) As of the Closing, all intercompany accounts receivable
and
accounts payable between the Company or any Division Entity, on
the one hand,
and Seller or any of its Affiliates (other than the Company or
any Division
Entity), on the other hand, shall be cancelled and terminated in
all respects
(pursuant to documentation reasonably acceptable to Buyer) such
that there is
no cost or liability (including any Tax liability) thereunder
from and after
the Closing on the part of the Company or any Division
Entity.
(c) Except as provided in the Transition Agreement, at or
prior
to the Closing, all information technology, accounting,
insurance, banking,
human resources, legal, tax, communications and other products
or services (i)
provided to the Company or any Division Entity (A) by Seller or
any of its
Affiliates (other than the Company or any Division Entity) or
(B) pursuant to
agreements, licenses or arrangements between Seller or its
Affiliates (other
than the Company or a Division Entity), on the one hand, and
third parties, on
the other hand, under which goods or services are provided to
the Company or
any Division Entity, or (ii) provided by either the Company or
any Division
Entity to Seller or any of its Affiliates (other than the
Company or any
Division Entity), including any agreements or understandings
(written or oral)
with respect thereto, will terminate. Except as otherwise
specifically
provided in the Transition Agreement, on and after the Closing
Date, Buyer
shall be solely responsible for the operation of the Division.
Section 2.2(c)
of the Disclosure Letter sets forth all (x) Contracts between
Seller or its
Affiliates (other than the Company or a Division Entity), on the
one hand, and
third parties, on the other hand, pursuant to which the Company
or any
Division Entity is entitled to receive
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payments or other benefits, which will not be transferred to the
Company or a
Division Entity and, following the Effective Time, the Company
or such
Division Entity will no longer be entitled to such payments or
benefits
provided thereunder and (y) other assets, properties and rights
of the
Division that will be retained by Seller and will not be
available for use by
the Division following the Effective Time.
2.3 Resignations. At the Closing, Seller shall cause to be
delivered
to Buyer and the Company duly signed resignations from the
members of the
board of directors, board of managers or similar governing
bodies, effective
as of the Closing, of each Division Entity, unless otherwise
requested by
Buyer, and shall take such other action as is necessary to
accomplish the
foregoing.
2.4 Restructuring Transactions.
(a) Prior to the Closing, Seller shall, and shall cause its
Subsidiaries to, consummate the transactions listed in Section
2.4(a) of the
Disclosure Letter in order to transfer and convey to the Company
or the
Division Entities all of Seller's right, title and interest in
and to (i) the
equity interests in the Division Entities held by Seller or any
of its
Subsidiaries (other than the Company or a Division Entity) and
(ii) such other
properties, assets and Contracts primarily used in the conduct
of the Business
as are set forth on Section 2.4(a) of the Disclosure Letter.
Section 2.4(a) of
the Disclosure Letter shall also set forth a list of each of the
current
operating outpatient rehabilitation clinics that will be owned
by the Company
or the Division Entities immediately after the Closing (the
"Going Clinics"),
and shall include a listing of the legal entity that owns each
such Going
Clinic.
(b) Prior to the Closing, Seller shall, and shall cause its
Subsidiaries to, consummate the transactions listed in Section
2.4(b) of the
Disclosure Letter in order to transfer or convey to Seller or a
Subsidiary of
Seller (other than the Company or a Division Entity) all of
their right, title
and interest in and to (i) the equity interests in all
Subsidiaries of or
other entities owned by the Company and the Division Entities
that are not
engaged in the conduct of the Business and (ii) such other
properties, assets
and Contracts that are not primarily used in the conduct of
Business and which
are set forth in Section 2.4(b) of the Disclosure Letter
(collectively, the
"Excluded Assets"). Section 2.4(b) of the Disclosure Letter
shall also set
forth a list of each of the outpatient rehabilitation clinics
owned or
controlled by Seller or its Subsidiaries at any time since
September 30, 2005
that will not be owned by the Company or the Division
immediately after the
Closing. Such outpatient rehabilitation clinics and any other
clinic presently
or formerly owned or operated by Seller or its Subsidiaries
(other than the
Going Clinics) shall be referred to as the "Staying Clinics."
Buyer and Seller
agree that any liabilities or obligations of the Company or any
Division
Entity that relate to the Excluded Assets or the Staying Clinics
will also be
transferred to or assumed by Seller or a Subsidiary of Seller
(other than the
Company or its Subsidiaries) prior to the Effective Time, and
that the Company
and the Division Entities shall be released from any obligation
relating to
such liabilities as of the Effective Time and indemnified by
Seller from and
against such liabilities. The transactions listed in Sections
2.4(a) and
2.4(b) of the Disclosure Letter shall be collectively referred
to herein as
the "Restructuring Transactions," and the agreements to
effectuate the
Restructuring Transactions shall be referred to herein as the
"Restructuring
Agreements." Together, the Transition Agreement and the
Restructuring
Agreements are referred to herein as the "Ancillary
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Agreements." Seller will consult with and take into account
Buyer's reasonable
suggestions regarding the manner to effectuate the Restructuring
Transactions;
provided, however, that Seller shall be free to structure the
Restructuring
Transactions in such manner as it determines, in its sole
discretion, as to
maximize tax efficiencies to Seller without Buyer's prior
consent so long as
such structure does not adversely affect the parties' ability to
effect either
the Election or the DRE Sales (each as hereinafter defined);
provided,
further, that if Buyer shall propose changes to the
Restructuring
Transactions, then (i) Seller shall effect the Restructuring
Transactions in
accordance with Buyer's proposal to the extent commercially
practicable and
(ii) Buyer shall reimburse and indemnify Seller from and against
any and all
incremental Taxes, on a grossed up basis, and out-of-pocket
expenses incurred
by Seller in effectuating the Restructuring Transactions in
accordance with
Buyer's proposal to the extent such Taxes and out-of-pocket
expenses exceed
the amount thereof that would have been incurred by Seller had
Seller
effectuated the Restructuring Transactions in the manner
proposed by Seller
(the "Excess Restructuring Costs").
(c) To the extent any property, asset or Contract that is
required to be transferred or conveyed pursuant to the
Restructuring
Transactions or the transactions contemplated by this Agreement
is not
assignable or transferable without the consent of any Person
other than
Seller, Buyer or any of their respective Affiliates, and such
consent shall
not have been given prior to the Closing, Seller shall have the
continuing
obligation after the Closing to use its commercially reasonable
efforts to
endeavor to obtain any such consent. After the Closing, Seller
and Buyer shall
cooperate with each other in any reasonable arrangement that is
designed to
(i) relieve Seller of the obligations of any such property,
assets and
Contracts that are required to be transferred or conveyed to the
Company or
the Division Entities pursuant to the Restructuring Transactions
or the
transactions contemplated by this Agreement and provide Buyer
the benefits
thereunder and (ii) relieve Buyer of the obligations of any such
property,
assets and Contracts that are required to be transferred or
conveyed to Seller
or a Subsidiary of Seller (other than the Company or the
Division Entities)
pursuant to the Restructuring Transactions or the transactions
contemplated by
this Agreement and provide Seller the benefits thereunder.
Without limiting
the generality of the preceding sentence, with respect to
Required Consent
Leases that are not Consented Leases as of the Closing, Seller
shall be
entitled, in its reasonable discretion, to (i) enter into one or
more
management agreements with the Company, in form and substance
reasonably
acceptable to Buyer, with respect to the Facilities covered by
each such
Required Consent Lease whereby Seller will maintain the Required
Consent Lease
and operate such Facility for the benefit of Buyer, or (ii)
cooperate with
Buyer in relocating the Facility to a location, and on lease
terms, reasonably
acceptable to Buyer (each, a "Replacement Lease"), with Seller
reimbursing and
indemnifying Buyer from and against all reasonable out-of-pocket
expenses
incurred by Buyer in connection with such relocation, including,
without
limitation, reasonable (x) moving expenses, (y) tenant
improvements and (z)
any incremental rent expense required under such Replacement
Lease above the
amount that would have been required to be paid by Buyer under
the terms of
the Required Consent Lease; provided, however, that Seller's
obligation to
reimburse and indemnify under clause (z) above shall be limited
to amounts
incurred with respect to the period commencing on the Closing
Date and ending
on the earliest date that the Required Consent Lease could be
terminated by
the lessor (or, if earlier, the date such Required Consent Lease
would have
expired) in accordance with its terms had the relocation not
occurred.
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<PAGE>
2.5 Guaranties. Buyer shall use its commercially reasonable
efforts
to cause itself or one of its Affiliates to be substituted in
all respects for
Seller, effective as of the Closing, in respect of all
obligations of Seller
under each of the guaranties of leases of real property which
are set forth in
Section 2.5 of the Disclosure Letter for the benefit of the
Division or any of
the Division Entities or any extensions or modifications thereto
in accordance
with this Agreement (collectively, the "Guaranties"), and to use
its
commercially reasonable efforts to cause each other party to
such Guaranty to
release Seller and its Affiliates (other than the Company and
any Division
Entity) from any and all obligations and liabilities under such
Guaranty. To
the extent that it is commercially impracticable with respect to
any given
Guaranty for Buyer to effect such substitution and release,
Buyer shall
indemnify and hold harmless the Seller Indemnified Parties (as
hereinafter
defined) from and against all Damages (as hereinafter defined)
asserted
against, resulting to, imposed upon or incurred by the Seller
Indemnified
Parties by reason of or arising from any liability or obligation
resulting
from any such Guaranty in accordance with Section 11.4(e)
hereof. Buyer shall
take all actions that are necessary to comply with this Section
2.5 as
promptly as practicable after the date hereof and shall keep
Seller reasonably
informed of any developments associated therewith. Seller agrees
to reasonably
cooperate with Buyer in connection with the fulfillment of
Buyer's obligations
under this Section 2.5.
2.6 Payment of Division Indebtedness. At or prior to the
Closing,
Seller shall repay or assume, or cause to be repaid or assumed,
on behalf of
the Company and the Division Entities, all outstanding
Indebtedness (together
with accrued interest thereon) of the Company and the Division
Entities as of
the Closing Date (other than Capitalized Lease Indebtedness and
Earn-Out
Indebtedness), and shall take all actions as may be required to
release the
Company and the Division Entities from any and all obligations
and liabilities
under such Indebtedness (other than Capitalized Lease
Indebtedness and
Earn-Out Indebtedness) and any Lien or guaranty in respect of
any such
Indebtedness (other than Capitalized Lease Indebtedness and
Earn-Out
Indebtedness) or any Indebtedness of Seller or its Subsidiaries
(other than
Capitalized Lease Indebtedness and Earn-Out Indebtedness)
pursuant to releases
in form and substance reasonably acceptable to Buyer.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Except as set forth in the Disclosure Letter (as updated
pursuant to
Section 5.7 hereof) (with specific reference to the particular
Section or
subsection of this Agreement to which the information set forth
in such
Disclosure Letter relates; provided, that any information set
forth in one
section of the Disclosure Letter shall be deemed to apply to
each other
Section or subsection thereof or hereof to which its relevance
is readily
apparent on its face), Seller represents and warrants to Buyer
as follows:
3.1 Organization of Seller; Authority. Seller is a corporation
duly
organized, validly existing and in good standing under the laws
of the State
of Delaware, and has all requisite corporate power and corporate
authority to
enter into this Agreement and the Ancillary Agreements, to
perform its
obligations hereunder and thereunder and to consummate the
transactions
contemplated hereby and thereby. The execution, delivery and
performance by
Seller and its Affiliates of this Agreement and each of the
Ancillary
Agreements to which it is a party, and the consummation of the
transactions
contemplated hereby and thereby, have been
9
<PAGE>
duly authorized by all necessary corporate action on the part of
Seller, and
no other acts or proceedings on the part of Seller, including
stockholder
approval, are necessary for Seller to authorize this Agreement
or the
Ancillary Agreements or the transactions contemplated hereby or
thereby. This
Agreement has been (and each such Ancillary Agreement, upon
execution and
delivery, will be) duly executed and delivered by Seller and
each of its
Affiliates a party thereto and constitutes (and each such
Ancillary Agreement,
upon execution and delivery, will constitute) a valid and
binding obligation
of Seller and each of its Affiliates a party thereto,
enforceable against
Seller and each of its Affiliates a party thereto in accordance
with its and
their respective terms, except that (i) such enforcement may be
subject to
bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or
other Laws, now or hereafter in effect, relating to or limiting
creditors'
rights generally and (ii) the remedy of specific performance and
injunctive
and other forms of equitable relief may be subject to equitable
defenses and
to the discretion of the court before which any proceeding
therefor may be
brought.
3.2 Title to Shares. Seller has good and valid title to the
Shares,
free and clear of all Liens, and upon delivery to Buyer at the
Closing of a
certificate or certificates representing the Shares, duly
endorsed by Seller
for transfer to Buyer or accompanied by stock powers duly
executed in blank,
and upon receipt by Seller of the Initial Purchase Price at the
Closing, good
and valid title to the Shares will pass to Buyer, free and clear
of any Liens.
Other than this Agreement, the Shares are not subject to any
voting trust
agreement or other Contract, including any such Contract
restricting or
otherwise relating to the voting, dividend rights or disposition
of the
Shares. Except as set forth in Section 3.2 of the Disclosure
Letter, Seller,
directly or indirectly through one of its Subsidiaries, has good
and valid
title to all of the outstanding shares of capital stock or other
equity
interests of the Division Entities, directly or indirectly (the
"Subsidiary
Shares"), free and clear of all Liens.
3.3 Organization and Qualification. The Company and each of
the
Division Entities is duly organized or formed, validly existing
and in good
standing under the laws of the jurisdiction of its incorporation
or formation
and has all requisite corporate or other power and authority to
own, lease and
operate its properties and to conduct its business as conducted
on the date
hereof, except where the failure to be in good standing would
not,
individually or in the aggregate, reasonably be expected to
result in a
Material Adverse Effect (as hereinafter defined). Except as set
forth in
Section 3.3 of the Disclosure Letter, the Company and each of
the Division
Entities is duly qualified or licensed to do business as a
foreign
corporation, partnership or limited liability company and is in
good standing
in each jurisdiction in which the property owned, leased or
operated by it or
the nature of the business conducted by it makes such
qualification necessary,
except in those jurisdictions where the failure to be so duly
qualified or
licensed and in good standing would not, individually or in the
aggregate,
reasonably be expected to result in a Material Adverse
Effect.
3.4 Capitalization of the Company. The authorized capital stock
of
the Company consists of 1,000 shares of common stock, par value
$0.01 per
share, of which 1,000 shares, constituting the Shares, are
validly issued and
outstanding. The Shares were duly authorized and are fully paid
and
nonassessable. The Shares are owned of record and beneficially
by Seller. Such
Shares have not been issued in violation of, and are not subject
to, any
preemptive, subscription or similar rights. Except for the
Shares, there are
no shares of capital stock or other equity securities of the
Company
outstanding. There are no outstanding
10
<PAGE>
warrants, options, "phantom" stock rights, agreements,
convertible or
exchangeable securities or other commitments pursuant to which
Seller or the
Company is or may become obligated to issue, sell, purchase,
return or redeem
any shares of capital stock or other securities of the Company,
or which give
any Person the right to receive any benefits or rights similar
to any rights
enjoyed by or accruing to the holders of shares of capital stock
of the
Company. There are no outstanding bonds, debentures, notes or
other
Indebtedness having the right to vote on any matters upon which
stockholders
of the Company may vote.
3.5 Capitalization of the Division Entities.
(a) Except for the Division Entities, the Company does not
own,
directly or indirectly, any capital stock, equity securities or
other equity
interest in any other Person. The Subsidiary Shares for each
Division Entity
that is a corporation were duly authorized and are validly
issued, fully paid
and nonassessable. The Subsidiary Shares of each Division Entity
that is not a
corporation were duly authorized, and are validly issued. Except
as set forth
in Section 3.5(a) of the Disclosure Letter, all issued and
outstanding shares
of capital stock or other equity interests of each Division
Entity will, as of
the Closing, be owned of record and beneficially by the Company
or another
Division Entity. The Subsidiary Shares as of the Closing will be
owned of
record and beneficially by the Company, either directly or
indirectly through
a Division Entity.
(b) The Subsidiary Shares of each Division Entity have not
been
issued in violation of, and are not subject to, any preemptive,
subscription
or similar rights (except as otherwise required by applicable
Law). Except as
set forth in Section 3.5(b) of the Disclosure Letter, there are
no outstanding
warrants, puts, calls, options, "phantom" stock rights,
agreements,
convertible or exchangeable securities or other commitments
pursuant to which
Seller, the Company or any of the Division Entities is or may
become obligated
to issue, sell, purchase, return or redeem any shares of capital
stock, equity
interests or other securities of the Division Entities or which
give any
Person the right to receive any benefits or rights similar to
any rights
enjoyed by or accruing to the holders of the Subsidiary Shares
of the Division
Entities. There are no outstanding bonds, debentures, notes or
other
Indebtedness having the right to vote on any matters on which
stockholders of
any of the Division Entities may vote.
3.6 No Violation; Consents and Approvals.
(a) The execution and delivery by Seller and each of its
Affiliates that are a party thereto of this Agreement and the
Ancillary
Agreements do not, and the performance by Seller and its
Affiliates of their
obligations hereunder and thereunder and compliance with the
terms hereof and
thereof will not, (i) conflict with the Restated Certificate of
Incorporation
or Amended and Restated Bylaws of Seller or the comparable
governing
instruments of the Company or any of the Division Entities; (ii)
subject to
receipt of the Consents and making of the Filings listed in
Section 3.6(b) of
the Disclosure Letter
11
<PAGE>
and the making of Filings under the HSR Act and the Exchange
Act, violate or
conflict with, in each case in any material respect, any Law
applicable to
Seller, the Company or any of the Division Entities, including
any statute,
regulation and rule of any health care authority having
jurisdiction over the
Division or the Facilities, including such Laws relating to
health care fraud
and abuse; or (iii) subject to the receipt of the Consents and
making of the
Filings listed in Section 3.6(b) of the Disclosure Letter and
the making of
Filings under the HSR Act and the Exchange Act, result in any
material
violation of or material breach or default under (or with notice
or lapse of
time or both would result in a material violation of or a
material breach or
default under), or result in or give rise to a right of
termination,
cancellation or acceleration, or result in the creation, of any
Lien upon, any
of the material properties or assets of the Company or any of
the Division
Entities under any Material Contract (as hereinafter defined) or
Permit (as
hereinafter defined) to which Seller, the Company or any of the
Division
Entities is a party or by or to which Seller, the Company or any
of the
Division Entities or any of their respective properties or
assets is bound or
subject, except, in the case of (ii) and (iii) above, for any
such conflict,
violation, breach, default, right of termination or cancellation
which arises
from or relates to the legal or regulatory status of Buyer or
the nature of
Buyer's businesses or its participation in the transactions
contemplated
hereby.
(b) Set forth in Section 3.6(b) of the Disclosure Letter is
a
list of each (i) consent, approval, waiver, license,
certification, Permit,
order or authorization of (each, a "Consent") and registration,
declaration or
filing (each, a "Filing") with, any court, administrative agency
or commission
or other governmental entity, authority or instrumentality,
domestic or
foreign (a "Governmental Entity"), that is material to the
conduct of the
Business required to be obtained or made by or with respect to
Seller or the
Division in connection with the execution and delivery of this
Agreement or
the Ancillary Agreements, or the consummation by Seller of the
transactions
contemplated hereby and thereby, other than (A) compliance with
and Filings
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended
(the "HSR Act"), and (B) compliance with and Filings under the
Securities
Exchange Act of 1934, as amended (the "Exchange Act"); and (ii)
Consent of any
third party required to be obtained or made by or with respect
to Seller or
the Division in connection with the execution and delivery of
this Agreement
or the Ancillary Agreements or the consummation by Seller of the
transactions
contemplated hereby and thereby, other than such Consents, the
failure of
which to obtain would not, individually or in the aggregate,
reasonably be
expected to result in a Material Adverse Effect.
3.7 Financial Statements; Undisclosed Liabilities.
(a) Section 3.7(a) of the Disclosure Letter contains the
audited
financial statements of the Division as of and for the two years
ended
December 31, 2005 (collectively, the "Audited Financial
Statements"). The
Audited Financial Statements and notes thereto (i) have been
prepared from the
books and records of Seller and the Division, (ii) have been
prepared in
accordance with GAAP, consistently applied (except as disclosed
therein), and
(iii) fairly present in all material respects the financial
condition and
results of operations of the Division for the periods presented,
as more fully
described in the notes to the Audited Financial Statements.
(b) Section 3.7(b)(i) of the Disclosure Letter contains the
unaudited interim pro forma income statements of the Division
prepared on a
quarterly basis for each of the quarters during the nine-month
period ended
September 30, 2006 (the "Interim Pro Forma Income Statements").
The Interim
Pro Forma Income Statements (i) are pro forma for the ongoing
and continuing
operations of the Division, prepared in the manner set forth in
Section
3.7(b)(ii) of the Disclosure Letter, (ii) have been prepared
from the books
and records of Seller and the Division, (iii) fairly present in
all material
respects the results of operations of the Division on the basis
of reporting
to Seller for the periods presented, and (iv) reflect the
results of
operations of the
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<PAGE>
Division as presented in Seller's quarterly segment reporting in
its interim
report on Form 10-Q for the nine months ended September 30,
2006, filed with
the Securities and Exchange Commission (the "September 30 Form
10-Q").
(c) Section 3.7(c) of the Disclosure Letter contains the
unaudited pro forma financial information of the Division as of
and for the
year ended December 31, 2005 prepared on a quarterly basis
(collectively, the
"2005 Pro Forma Financial Information"). The 2005 Pro Forma
Financial
Information (i) are pro forma for the ongoing and continuing
operations of the
Division, prepared in the manner set forth in Section 3.7(b)(ii)
of the
Disclosure Letter, (ii) has been prepared from the books and
records of Seller
and the Division, and (iii) fairly presents in all material
respects the
financial condition and results of operations of the Division on
the basis of
presentation outlined in Section 3.7(c) of the Disclosure
Letter, which
presents the results of operations and financial position of the
Division
being sold by Seller and acquired by Buyer.
(d) Section 3.7(d) of the Disclosure Letter contains the
following reconciliations:
(i) From the segment financial information presented in
Seller's annual report on Form 10-K for the fiscal year ended
December
31, 2005, filed with the Securities and Exchange Commission (the
"2005
Segment Information") to the 2005 Pro Forma Financial
Information;
(ii) From the 2005 Segment Information to the Audited
Financial Statements; and
(iii) From the quarterly segment income statement
information presented in Seller's September 30 Form 10-Q (the
"Interim
Segment Information") to the Interim Pro Forma Income
Statement.
The reconciliations set forth in Section 3.7(d) of the
Disclosure Letter have
been fairly presented and properly disclose the reconciling
items from each of
(i) the 2005 Segment Information to the 2005 Pro Forma Financial
Information,
(ii) the 2005 Segment Information to the Audited Financial
Statements and
(iii) the Interim Segment Information to the Interim Pro Forma
Income
Statement as of and for the periods presented in Section 3.7(d)
of the
Disclosure Letter (details of which have been disclosed
previously to Buyer).
(e) Except as set forth in Section 3.7(e) of the Disclosure
Letter, since December 31, 2005, except for liabilities and
obligations (i)
disclosed in the Audited Financial Statements or the notes
thereto, (ii)
incurred since December 31, 2005 in the ordinary course of
business,
consistent with past practice, or (iii) disclosed in Section
3.7(b) of the
Disclosure Letter, neither the Company nor any of the Division
Entities has
incurred any material liabilities or obligations (whether direct
or indirect,
accrued, contingent or otherwise).
3.8 Absence of Certain Changes or Events. Since December 31,
2005,
there has not been any effect, change, fact, event, occurrence
or circumstance
that, individually or in the aggregate, has had or would
reasonably be
expected to result in a Material Adverse Effect.
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Except as set forth in Section 3.8 of the Disclosure Letter,
during the period
from December 31, 2005 to the date of this Agreement, (a) the
Company and the
Division Entities have, in all material respects, operated the
Division in the
ordinary course of business consistent with past practice, and
(b) the Company
and the Division Entities have not taken any action which, if
taken after the
date hereof to the Closing Date, would be prohibited by Section
5.1(a), (c),
(d), (e), (g) (other than adopting or modifying any Benefit
Plan) (h), (i),
(j), (r) or (t) hereof.
3.9 Real Property. As used in this Agreement, the term "Real
Property" shall mean all real property owned in fee or leased by
the Company
and the Division Entities and used primarily in the conduct of
the Business.
Section 3.9 of the Disclosure Letter sets forth all of the Real
Property.
Except as would not, individually or in the aggregate,
reasonably be expected
to result in a Material Adverse Effect, the Company or one of
the Division
Entities has (a) good and valid title to all Real Property owned
by it or (b)
valid and subsisting leasehold interests in all Real Property
leased by it
("Leased Real Property"), in each case, free and clear of all
Liens, except
Permitted Liens and Liens set forth in Section 3.9 of the
Disclosure Letter
which Liens on Section 3.9 of the Disclosure Letter shall be
released as of
the Closing Date.
3.10 Intellectual Property.
(a) The Company or one of the Division Entities owns or
possesses
valid, enforceable and adequate licenses or other legal rights
to use all
material copyrights, trade names, trademarks, service marks,
service names,
trade secrets, designs, licenses, patents, inventions, software,
Internet
domain names and other intellectual property rights wherever
recognized
throughout the world, including, without limitation, know-how
(whether related
to any of the foregoing or otherwise) (including pending
applications for any
of the foregoing) (collectively, "Intellectual Property Rights")
used by the
Company and the Division Entities to operate the Division as
operated on the
date hereof, and, except as set forth in Section 3.10(a) of the
Disclosure
Letter, all such Intellectual Property Rights shall be fully
available in all
material respects for use in the business of the Company and
Division Entities
immediately after the Closing on materially identical terms,
except as
provided in the Transition Agreement.
(b) Except as set forth in Section 3.10(b) of the Disclosure
Letter: (i) no material claims or proceedings are pending, or,
to the
Knowledge of Seller, threatened, by any Person related to the
use in the
operation of the Division of any Intellectual Property Rights or
challenging
or questioning the validity, enforceability, extent or
effectiveness of any
Intellectual Property Rights owned by the Company or any
Division Entity, or
any license or agreement by which the Company or any Division
Entity uses
Intellectual Property Rights in its business; (ii) to the
Knowledge of Seller,
the operation of the Division, as conducted on the date hereof,
does not
infringe, dilute or misappropriate the intellectual property
rights of any
Person; and (iii) all material Filings, registrations and
issuances pertaining
to the Intellectual Property Rights owned by the Company and the
Division
Entities, including any and all material patents, registered
trademarks and
copyright registrations, have been duly and timely made and all
such material
patents, registered trademarks, registered copyrights and
applications for the
foregoing are, to the Knowledge of Seller, valid and in full
force and effect.
(c) Except as set forth in Section 3.10(c) of the Disclosure
Letter, the material information technology systems owned,
licensed, leased,
operated on behalf of, or
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otherwise held for use in the Business by the Company and the
Division
Entities, including all material computer hardware, software,
firmware and
telecommunications systems used in the Business of the Company
and the
Division Entities (the "IT Systems"): (i) perform reliably and
in material
conformance with the appropriate specifications or documentation
for such IT
Systems, (ii) shall be fully available for use in the Business
by the Company
and the Division Entities immediately following the Closing, and
(iii)
constitute all of the material information technology systems
used in the
Business of the Company and the Division Entities.
3.11 Litigation.
(a) Except for any qui tam action of which none of Seller,
the
Company nor any Division Entity has Knowledge or received
written notice,
Section 3.11(a) of the Disclosure Letter sets forth all actions,
suits,
proceedings, investigations and inquiries ("Litigation") pending
or, to the
Knowledge of Seller, threatened in writing to assert such
Litigation by or
before any Governmental Entity, by or on behalf of any third
party, against
Seller, the Company or any of the Division Entities which relate
to the
Division, the Company or any of the Division Entities, which, if
adversely
determined, would, individually or in the aggregate, reasonably
be expected to
result in a Material Adverse Effect or materially impact the
ability of Seller
to consummate the transactions contemplated by this Agreement or
the Ancillary
Agreements.
(b) Except as disclosed in Section 3.11(b) of the Disclosure
Letter, neither the Company nor any of the Division Entities nor
any of their
respective properties is subject to any order, judgment,
injunction or decree
material to the Division or the conduct of the Business.
3.12 Employee Benefit Plans.
(a) Neither the Company nor any Division Entity sponsors or
maintains any Benefit Plans. No ERISA Affiliate sponsors or
maintains any
Benefit Plan that covers employees of the Company or any
Division Entity or
with respect to which the Company or any Division Entity has or
could
reasonably be expected to have any material liability.
(b) Each Benefit Plan has been administered in all material
respects in accordance with its terms and each of the Benefit
Plans that is
sponsored, participated in or maintained by the Company or any
of the Division
Entities is in compliance in all material respects with
applicable Law,
including ERISA and the Code.
(c) No Benefit Plan is, or was at any time for which any
statute
of limitations remains open, subject to Title IV of ERISA.
Neither the
Company, any Division Entity nor any ERISA Affiliate is or at
any time for
which any relevant statute of limitations remains open was
required to
contribute to any "multiemployer plan" as defined in Section
4001(a)(3) of
ERISA or has withdrawn from any such multiemployer plan where
such withdrawal
has resulted or could result in any "withdrawal liability"
(within the meaning
of Section 4201 of ERISA) that has not been fully paid.
(d) The Company, each Division Entity and each ERISA
Affiliate
have complied in all material respects with the notice and
continuation
coverage requirements of
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<PAGE>
section 4980B of the Code and the regulations thereunder,
including, without
limitation, the "M&A regulations" issued as Treasury
Regulations Section
54.4980B-9, with respect to each Benefit Plan that is, or was
during any
taxable year of the Company or any ERISA Affiliate for which the
statute of
limitations on the assessment of federal income taxes remains
open, by consent
or otherwise, a group health plan within the meaning of section
5000(b)(1) of
the Code.
(e) Except as set forth in Section 3.12(e) of the Disclosure
Letter, the consummation of the transactions contemplated by
this Agreement
shall not, either alone or in combination with another event,
(i) entitle any
current or former employee of the Company or one of the Division
Entities to
severance pay, unemployment compensation or any other payment
from Buyer, or
(ii) accelerate the time of payment or vesting, or increase the
amount of
compensation or benefits due to any such employee or former
employee. No
payment which is or may be made by, from or with respect to any
Benefit Plan,
to any employee, former employee, director or agent of the
Company or any
Division Entity or any ERISA Affiliate, either alone or in
conjunction with
any other payment, could properly be characterized as an excess
parachute
payment under section 280G of the Code.
(f) There are no Benefit Plans or any other material
pension,
welfare, bonus, stock purchase, stock ownership, stock option,
deferred
compensation, incentive, severance, termination or other
compensation plan or
arrangement, or other material employee fringe benefit plan
presently
maintained by, or contributed to by, the Company or any Division
Entity
maintained outside the jurisdiction of the United States.
3.13 Taxes. (a) Except as set forth in Section 3.13 of the
Disclosure
Letter or as would not, individually or in the aggregate,
reasonably be
expected to result in a Material Adverse Effect:
(i) All federal, state, local, and foreign Tax Returns (as
hereinafter defined) relating to the Division required to be
filed by or
on behalf of the Company, the Division Entities and each
consolidated,
combined, unitary, affiliated or aggregate group of which Seller
and the
Company or any of the Division Entities is a member (an
"Affiliated
Group") have been timely filed (taking into account
applicable
extensions), and each such Tax Return was complete and correct
in all
respects.
(ii) All Taxes (as hereinafter defined) relating to the
Division due and owing by the Company, the Division Entities or
any
Affiliated Group, have been paid, or adequate reserves therefor
have
been established.
(iii) All Tax withholding and deposit requirements relating
to the Company and the Division Entities (including any
withholding with
respect to wages or other amounts paid to employees) have been
satisfied
in full.
(b) Except as set forth in Section 3.13 of the Disclosure
Letter:
(i) There is no material deficiency, proposed adjustment, or
matter in controversy that has been asserted or assessed in
writing
relating to the Division with respect to any Taxes due and owing
by the
Company, the Division Entities or any Affiliated Group, that has
not
been paid or settled in full.
16
<PAGE>
(ii) Neither the Company nor any of the Division Entities is
a party to any agreement providing for the allocation or sharing
of, or
indemnification for, Taxes.
(iii) There are no Liens relating to Taxes upon the assets
of the Company or the Division Entities, other than Liens
relating to
Taxes not yet due and payable.
(iv) There are no outstanding agreements or waivers
extending the statutory period of limitations applicable to any
Tax
Return of the Company or any of the Division Entities.
(v) Neither the Company nor any of the Division Entities is
a party to any "listed transaction," as defined in Treasury
Regulations
Section 1.6011-4(b)(2).
(vi) The federal Consolidated Income Tax Returns of the
Affiliated Group of which Seller is the common parent have
been
examined, and such examinations have been resolved, or the
statute of
limitations has expired, for all taxable years through 1995.
(c) For purposes of this Agreement, (i) "Tax" or "Taxes"
means
any and all U.S. federal, state, local and foreign taxes,
including income,
alternative or add-on minimum, gross receipts, profits, lease,
service,
service use, wage, employment, workers compensation, business
occupation,
environmental, estimated, excise, sales, use, transfer, license,
payroll,
franchise, severance, stamp, occupation, windfall profits,
withholding, social
security, unemployment, disability, ad valorem, capital stock,
paid in
capital, recording, registration, property, real property gains,
value added,
business license, custom duties and other taxes, charges, fees,
levies,
imposts, duties or assessments of any kind whatsoever, imposed
or required to
be withheld by any Tax authority, including any interest,
additions to Tax or
penalties applicable or related thereto, and (ii) "Tax Return"
means any
return, report or similar statement (including the attached
schedules)
required to be filed with respect to any Tax, including any
information
return, claim for refund, amended return or declaration of
estimated Tax.
3.14 Material Contracts and Commitments.
(a) As used herein, "Material Contracts" shall mean: (i) any
Contract that provides for payment to the Company or any
Division Entity for
the performance of services in an amount in excess of $1,000,000
annually;
(ii) any Contract requiring payments by the Company or any
Division Entity in
excess of $1,000,000 annually; (iii) any Contract which contains
restrictions
with respect to payment of dividends or any other distributions
in respect of
the capital stock or other equity interests of the Company or
any Division
Entity; (iv) any guarantee in respect of any Indebtedness or
obligation of any
Person in an amount in excess of $1,000,000 (other than in the
ordinary course
of business and other than with respect to any Indebtedness or
any
Indebtedness or obligation of the Company or any Division Entity
to another
Division Entity); (v) any Contract limiting the ability of the
Company or any
Division Entity to engage in any line of business or to compete
with any
Person; (vi) any Contract under which the
17
<PAGE>
Company or a Division Entity has borrowed or loaned money in
excess of
$250,000, or any mortgage, note, bond, indenture or other
evidence of
Indebtedness (excluding advances, deposits, trade payables in
the ordinary
course of business, and leases for telephones, copy machines,
facsimile
machines and other office equipment); (vii) any joint venture,
partnership or
other similar joint ownership agreements; (viii) Contracts with
Governmental
Entities or consent decrees of Governmental Entities to which
the Division is
bound; (ix) any employment, severance, change of control or
"golden parachute"
Contract of a Transferred Employee; (x) any Contract (A)
granting or obtaining
any right to use any Intellectual Property Rights material to
the conduct of
the Business of the Company and Division Entities (other than
Contracts
granting rights to use readily available commercial software
available to
consumers for a combined license and maintenance fee of less
than $250,000 per
year or subject to "shrink wrap" or "click through" license
agreements) or (B)
restricting the right of the Company or any Division Entity or
permitting any
third Person to use any Intellectual Property Rights material to
the conduct
of the Business of the Company and Division Entities; (xi) any
lease (or
sublease) of Leased Real Property requiring payments by the
Company or any
Division Entity in an amount in excess of $250,000 annually;
(xii) any
collective bargaining or other labor or union contracts or
agreements to which
the Division is bound; (xiii) all agreements relating to the
future
disposition or acquisition of any business enterprise or any
interest in any
business enterprise; (xiv) any medical director agreements and
all other
agreements with physicians; and (xv) agreements with any
Affiliate of Seller.
(b) (i) Each of the Material Contracts is a valid and
binding
obligation of the Company or a Division Entity, except that (A)
enforcement of
any Material Contract may be subject to any bankruptcy,
insolvency,
reorganization, moratorium, fraudulent transfer or other Laws,
now or
hereafter in effect, relating to or limiting creditors' rights
generally and
(B) the remedy of specific performance and injunctive and other
forms of
equitable relief may be subject to equitable defenses and to the
discretion of
the court before which any proceeding therefor may be brought;
(ii) there is
no pending default under or breach of any Material Contract by
the Company or
any Division Entity party thereto, and to Seller's Knowledge,
there is no
pending default under or breach of any Material Contract by any
other party
thereto, and no event has occurred that, with the lapse of time
or the giving
of notice or both, would constitute a default thereunder by the
Company or any
Division Entity party thereto, except, in any such case, any
such default,
breach or event which would not, individually or in the
aggregate, reasonably
be expected to result in a Material Adverse Effect; and (iii) no
party to any
such Material Contract has given written notice to the Company
or any Division
Entity of, or made a written claim against the Company or any
Division Entity
with respect to, any breach or default thereunder, except, in
any such case,
any such default, breach or event, which would not, individually
or in the
aggregate, reasonably be expected to result in a Material
Adverse Effect.
3.15 Compliance with Laws; Permits.
(a) Except as set forth in Section 3.15(a) of the Disclosure
Letter, each of the Company and the Division Entities is in
compliance in all
material respects with all applicable Laws with respect to the
Division except
where such non-compliance would not, individually or in the
aggregate,
reasonably be expected to result in a Material Adverse Effect;
provided,
however, that the provisions of this Section 3.15(a) shall not
apply to: (i)
ERISA and other Laws applicable to the Benefit Plans, which are
addressed in
Section 3.12 hereof; (ii) Laws
18
<PAGE>
regarding the payment of Taxes, which are addressed in Section
3.13 hereof;
(iii) Laws regarding employment and employment practices, which
are addressed
in Section 3.16 hereof; (iv) Environmental Laws (as hereinafter
defined),
which are addressed in Section 3.17 hereof, and (v) Laws
regarding healthcare
regulatory matters, which are addressed in Section 3.18
hereof.
(b) Except as set forth in Section 3.15(b) of the Disclosure
Letter and as would not, individually or in the aggregate,
reasonably be
expected to result in a Material Adverse Effect: (i) each
Facility possesses
all permits, certificates, licenses, approvals, governmental
franchises and
other authorizations ("Permits") presently required or necessary
to own or
lease, as the case may be, and to operate its respective
properties and to
carry on its respective businesses as presently conducted; (ii)
each Facility
has fulfilled and performed all of its obligations with respect
to such
Permits and no event has occurred which allows, or after notice
or lapse of
time would allow, revocation or the termination thereof or
results in any
other impairment of the rights of the holder of any such
Permits; and (iii)
none of the Facilities has received any written notice of the
institution of
any proceeding to revoke any such Permits.
3.16 Labor Matters. With respect to the Division: (a) each of
the
Company and the Division Entities is in compliance in all
material respects
with all applicable Laws regarding employment and employment
practices; (b)
there are no material unfair labor practice charges or
complaints against the
Company or any of the Division Entities brought before the
National Labor
Relations Board nor is there any material grievance or any
material
arbitration proceeding arising out of or under collective
bargaining
agreements with respect to the Business of the Company or the
Division
Entities nor, to the Knowledge of Seller, is any such charge,
complaint,
grievance or proceeding threatened; (c) since January 1, 2005,
there has not
been any labor strike or material work stoppage pending or, to
the Knowledge
of Seller, threatened against the Company or the Division
Entities; and (d)
there is no material charge or complaint pending or, to the
Knowledge of
Seller, threatened against the Company or any of the Division
Entities before
the Equal Employment Opportunity Commission or any similar
state, local or
foreign agency responsible for the prevention of unlawful
employment
practices. Since January 1, 2005, to the Knowledge of Seller,
neither the
Company nor any Division Entity has received written notice of
the intent of
any federal, state, local or foreign Governmental Entity
responsible for the
enforcement of employment Laws to conduct an investigation of or
relating to
the Company, or the Division Entities, and no such investigation
is in
progress.
3.17 Environmental. (a) The Company, the Division Entities and
the
Facilities are and, since January 1, 2005, have been in
compliance in all
material respects with all Environmental Laws and environmental
Permits and
have not received any material written claim, notice, request
for information,
penalty assessment or demand, and no Litigation is pending or,
to the
Knowledge of Seller, threatened in writing, regarding any
material violation
of or material liability under any Environmental Law or
environmental Permit,
which is pending and unresolved; (b) there have been no material
Releases of
any Hazardous Substances which have required or would reasonably
be expected
to require reporting, investigation, remediation or other
response action or
the payment of material costs with respect thereto by the
Company or any of
the Division Entities or with respect to the Facilities; and (c)
Seller has
provided copies or otherwise reasonably made available for
review by Buyer,
copies of all material environmental reports, studies,
assessments or audits
in Seller's, the Company's or any Division Entities' possession
or control.
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<PAGE>
3.18 Health Care Regulatory Matters.
(a) Compliance with Health Care Law/Fraud and Abuse. Except
as
set forth in Section 3.18(a) of the Disclosure Letter, Seller,
the Company and
each Division Entity are, and, to the Knowledge of Seller, at
all times for
the two years immediately preceding the date of this Agreement
have been, in
compliance with all applicable federal, state and municipal
statutes,
regulations, rules and orders and other requirements of any
Governmental
Entity to which it is subject with respect to health care laws
and health care
regulatory and fraud and abuse matters, including, without
limitation, those
relating to third-party reimbursement (including, but not
limited to,
Medicare, Medicaid, CHAMPUS, TRICARE and other federal health
care programs
(collectively "Federal Health Care Programs")), the federal
health care
program anti-kickback law, 42 U.S.C. ss. 1320a-7b (commonly
referred to as
"Anti-Kickback Law"), the federal physician self-referral law,
42 U.S.C. ss.
1395nn (commonly referred to as the "Stark Law"), the federal
False Claims
Act, 31 U.S.C. ss. 3729 et seq., the Health Insurance
Portability and
Accountability Act of 1996, Pub. Law. 104-99 (commonly referred
to as
"HIPAA"), and applicable sections of the Social Security Act,
except for any
such non-compliance which would not, individually or in the
aggregate,
reasonably be expected to result in a Material Adverse
Effect.
(b) No Medicare and Medicaid Exclusion. Except as set forth
in
Section 3.18(b) of the Disclosure Letter, since January 1, 2005,
(i) neither
the Company nor any Division Entity has (A) had a civil monetary
penalty
assessed against it under Section 1128A of the Social Security
Act or any
regulations promulgated thereunder; (B) been convicted of,
charged with,
indicted or investigated for a Medicare, Medicaid or other
Federal Health Care
Program (as defined in 42 U.S.C. ss. 1320a-7b(f)) related
offense, or
convicted of, charged with, indicted or investigated for a
violation of
federal or state law relating to fraud, theft, embezzlement,
breach of
fiduciary responsibility, financial misconduct, obstruction of
an
investigation or controlled substances, (C) been excluded or
suspended from
participation in Medicare, Medicaid or any other Federal Health
Care Program,
or have been disbarred, suspended or are otherwise ineligible to
participate
in federal programs, or (D) committed any offense which may
reasonably serve
as the basis for any such exclusion, suspension, disbarment or
other
ineligibility, and (ii) Seller has not arranged or contracted
with any
individual or entity that is suspended, excluded or disbarred
from
participation in, or otherwise ineligible to participate in, a
Federal Health
Care Program, except, in each case, for any such non-compliance
which would
not, individually or in the aggregate, reasonably be expected to
result in a
Material Adverse Effect.
(c) Participation. The Company and each Division Entity are,
to
the extent applicable to their operations, (i) eligible to
receive payment
under Titles XVIII and XIX of the Social Security Act, (ii)
providers under
existing provider agreements with the Medicare program through
applicable
intermediaries and with each state Medicaid program under which
they have been
providers at any time since January 1, 2005 and (iii) except as
set forth on
Section 3.18(c) of the Disclosure Letter, in compliance with,
and at all times
since January 1, 2005 have been in material compliance with, all
applicable
laws, regulations and policies of the Medicare, Medicaid and
CHAMPUS/TRICARE
programs, except where such inability in the case of either item
(i) or (ii)
or non-compliance in item (iii) could not reasonably be expected
to have a
Material Adverse Effect. The Company is a party to a corporate
integrity
agreement (a
20
<PAGE>
"CIA"), as set forth in Section 3.18(c) of the Disclosure
Letter, a true and
correct copy of which has been provided to Buyer. The Company is
in full
compliance with all terms and conditions required of the Company
under such
CIA.
(d) Medicare, Medicaid and Third-Party Payor Participation/
Accreditation/Contracts. Except as set forth in Section 3.18(d)
of the
Disclosure Letter, all health care facilities owned or operated
by the Company
or any Division Entity and all services provided by the Company,
each Division
Entity or any professional employee or agent acting on behalf of
any of them
or for which the Company and/or each Division Entity directly or
indirectly
receives payment under Medicare, Medicaid or other Federal
Health Care
Programs are, to the extent required by law, certified for
participation or
enrollment in all such Federal Health Care Programs, have a
current and valid
provider contract with such Federal Health Care Programs, are in
compliance
with the conditions of participation or enrollment of such
Federal Health Care
Programs except, in each case, for any such non-compliance which
would not,
individually or in the aggregate, reasonably be expected to
result in a
Material Adverse Effect. Set forth in Section 3.18(d) of the
Disclosure Letter
are all of the Company's and each Division Entity's Federal
Health Care
Program and third-party payor provider numbers and which
outpatient clinics
are billing for services rendered utilizing each provider
number. Except as
set forth in Section 3.18(d) of the Disclosure Letter, neither
the Company nor
any Division Entity has received notice from any governmental
agency, fiscal
intermediary, carrier or similar entity which enforces or
administers the
statutory or regulatory provisions with respect to any Federal
Health Care
Program, or from any third-party payor, of any pending or
threatened
investigations, and to the Knowledge of Seller and each Division
Entity, no
such investigations are pending, threatened or imminent, which
could
reasonably be expected to have a Material Adverse Effect. Except
as set forth
in Section 3.18(d) of the Disclosure Letter, to the Knowledge of
Seller, no
action is pending to suspend, limit, terminate, or revoke the
status of the
Company or any Division Entity as a provider in any such
program, and neither
the Company nor any Division Entity has been provided notice by
any such
third-party payor of its intention to suspend, limit, terminate,
revoke, or
fail to renew any contractual arrangement with the Company or
any Division
Entity as a participating provider of services in whole or in
part. All
returns, cost reports and other filings made by the Company or
any Division
Entity with Medicare, Medicaid or any other governmental health
care program
or third-party payor are complete and accurate except where the
failure to be
so complete and accurate could not reasonably be expected to
have,
individually or in the aggregate, a Material Adverse Effect.
Except as set
forth in Section 3.18(d) of the Disclosure Letter and in
connection with the
CIA referenced in Section 3.18(c) hereof, no adjustment or
disallowance in any
such cost reports and other requests for payment, including
adjustments or
disallowances for late filings, has been made or, to the
Knowledge of Seller,
threatened by any federal or state agency or instrumentality or
other provider
reimbursement entities relating to Medicare or Medicaid or by
any third-party
payor which, individually or in the aggregate, could reasonably
be expected to
have a Material Adverse Effect, and, to the Knowledge of Seller,
there is no
basis for any successful claims or requests for recovery of
overpayments from
any such agency, instrumentality, entity or third-party payor
except for any
such claims or requests which could not reasonably be expected
to have,
individually or in the aggregate, a Material Adverse Effect. All
payments
required in connection with the CIA referenced in Section
3.18(c) hereof have
been made and no further payments or financial obligations in
connection
therewith are due and owing or required thereunder.
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<PAGE>
(e) Reimbursement and Billing. Except as set forth in
Section
3.18(e) of the Disclosure Letter, since January 1, 2005, (a) the
Company and
each Division Entity has not received any written notice of
denial of payment
or overpayment of a material nature from a Federal Health Care
Program or any
other third-party reimbursement source (inclusive of managed
care
organizations) with respect to items or services provided by the
Company
and/or any Division Entity, other than those which have been
finally resolved
in any settlement for an amount less than $100,000, (b) to the
Knowledge of
Seller, there is no basis for the assertion after the Closing of
any such
denial or overpayment claim, and (c) neither the Company nor any
Division
Entity has received written notice from a Federal Health Care
Program or any
other third-party reimbursement source (inclusive of managed
care
organizations) of any pending or threatened claims,
proceedings,
investigations or surveys specifically with respect to, or
arising out of,
items or services provided by the Company or any Division
Entity, and to the
Knowledge of Seller, no such investigation or survey is pending,
threatened or
imminent which, individually or in the aggregate, would have a
Material
Adverse Effect. All billing by, or on behalf of, the Company or
any Division
Entity to third-party payors, including, but not limited to,
Federal Health
Care Programs and insurance companies has been true and correct
in all
material respects except where the failure to be so complete and
accurate
could not reasonably be expected to have, individually or in the
aggregate, a
Material Adverse Effect. Except as set forth in Section 3.18(e)
of the
Disclosure Letter, neither the Company nor any Division Entity
has received
any notice from any third-party payor, including, but not
limited to, Federal
Health Care Programs, that indicates that Buyer could not
continue to bill in
substantially the same manner and structure as the Company or
any Division
Entity is billing on the date hereof, which change in billing
could reasonably
be expected to have a Material Adverse Effect.
3.19 Assets of the Division. Except for Staying Clinics and
the
services to be provided under the Transition Agreement, as of
the Closing, the
assets of the Division Entities will constitute all of the
assets necessary to
operate the Business in the manner presently conducted and as
reflected in the
Interim Pro Forma Income Statements, except for assets disposed
of by the
Division in the ordinary course of Business. At Closing, the
Company and the
Division Entities will be the only Affiliates of Seller that are
engaged in
the operation of the Division. Except as set forth in Section
3.19 of the
Disclosure Letter, none of the Excluded Assets (other than
Staying Clinics)
are primarily used in or necessary for the operation of the
Business in the
manner presently conducted or as reflected in the Interim Pro
Forma Income
Statements. Except for Staying Clinics and as set forth in
Section 3.19 of the
Disclosure Letter, after giving effect to the Restructuring
Transactions,
Seller will not, directly or indirectly, own any assets that are
primarily
used in or, except as reflected in the Transition Agreement, are
necessary for
the operation of the Business in the manner presently conducted
or as
reflected in the Interim Pro Forma Income Statements. The
Interim Pro Forma
Income Statements do not reflect the operations of any Staying
Clinics, except
for Staying Clinics closed after September 30, 2006, as set
forth in Section
3.19 of the Disclosure Letter.
3.20 Brokers. Except for Goldman, Sachs & Co., no broker,
finder or
financial advisor or other Person is entitled to any brokerage
fees,
commissions, finders' fees or financial advisory fees in
connection with the
transactions contemplated hereby or by the Ancillary Agreements
by reason of
any action taken by Seller, the Company or any Division Entity.
Such fees and
expenses of Goldman, Sachs & Co. shall be borne by
Seller.
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3.21 NO OTHER REPRESENTATIONS. EXCEPT FOR THE REPRESENTATIONS
AND
WARRANTIES EXPRESSLY SET FORTH IN THIS AGREEMENT OR IN ANY
DOCUMENT DELIVERED
PURSUANT TO THIS AGREEMENT, SELLER HAS NOT MADE AND DOES NOT
HEREBY MAKE ANY
EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES, STATUTORY OR
OTHERWISE, OF
ANY NATURE, INCLUDING WITH RESPECT TO ANY EXPRESS OR IMPLIED
REPRESENTATION OR
WARRANTY AS TO THE MERCHANTABILITY, QUALITY, QUANTITY,
SUITABILITY OR FITNESS
FOR ANY PARTICULAR PURPOSE OF THE ASSETS AND PROPERTIES OF, OR
THE RESULTS TO
BE OBTAINED BY, THE DIVISION. EXCEPT FOR THE REPRESENTATIONS AND
WARRANTIES
EXPRESSLY SET FORTH IN THIS AGREEMENT OR IN ANY DOCUMENT
DELIVERED PURSUANT TO
THIS AGREEMENT, ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
STATUTORY, COMMON
LAW OR OTHERWISE, OF ANY NATURE, INCLUDING WITH RESPECT TO
THE
MERCHANTABILITY, QUALITY, QUANTITY, SUITABILITY OR FITNESS FOR
ANY PARTICULAR
PURPOSE OF THE ASSETS AND PROPERTIES OF, OR THE RESULTS TO BE
OBTAINED BY, THE
COMPANY OR THE DIVISION ENTITIES, ARE HEREBY DISCLAIMED BY
SELLER.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to Seller as follows:
4.1 Organization; Authority. Buyer is a corporation duly
organized,
validly existing and in good standing under the laws of the
State of Delaware.
Buyer has all requisite corporate power and authority to enter
into this
Agreement and the Transition Agreement, to perform its
obligations hereunder
and thereunder and to consummate the transactions contemplated
hereby and
thereby. The execution, delivery and performance by Buyer of
this Agreement,
and the consummation of the transactions contemplated hereby and
thereby, have
been duly authorized by all necessary corporate action on the
part of Buyer.
This Agreement has been (and the Transition Agreement, upon
execution and
delivery, will be) duly executed and delivered by Buyer and
constitutes (and
the Transition Agreement, upon execution and delivery, will
constitute) a
valid and binding obligation of Buyer, enforceable against Buyer
in accordance
with its and their respective terms, except that (i) such
enforcement may be
subject to any bankruptcy, insolvency, reorganization,
moratorium, fraudulent
transfer or other laws, now or hereafter in effect, relating to
or limiting
creditors' rights generally and (ii) the remedy of specific
performance and
injunctive and other forms of equitable relief may be subject to
equitable
defenses and to the discretion of the court before which any
proceeding
therefor may be brought.
4.2 No Violation; Consents and Approvals. The execution and
delivery
by Buyer of this Agreement and the Transition Agreement do not,
and the
performance by Buyer of its obligations hereunder and thereunder
and
compliance with the terms hereof and thereof will not, (a)
conflict with the
certificate of incorporation or by-laws of Buyer, or (b) subject
to the
receipt of the Consents and the making of the Filings referred
to in this
Section 4.2, result in any violation of or default under, or
give rise to a
right of termination or cancellation, or result in the creation
of any Lien
upon any of the properties or assets of Buyer under, (i) any Law
applicable to
Buyer or (ii) any material note, bond, mortgage, indenture,
license,
agreement, lease or other
23
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instrument or obligation to which Buyer is a party or by which
Buyer or its
assets may be bound, other than any such items as to which
requisite waivers
or Consents have been obtained or which would not, individually
or in the
aggregate, reasonably be expected to impair Buyer's ability to
consummate the
transactions contemplated by this Agreement or the Ancillary
Agreements.
Except as set forth in Section 4.2 of the Disclosure Letter, no
Consent of, or
Filing with, any Governmental Entity, or any third Person, is
required to be
obtained or made by or with respect to Buyer or its Affiliates
in connection
with the execution and delivery of this Agreement or the
Ancillary Agreements,
or the consummation by Buyer of the transactions contemplated
hereby and
thereby, other than: (A) compliance with and Filings under the
HSR Act; and
(B) compliance with and Filings under the Exchange Act, except
for any such
Consents which would not, individually or in the aggregate,
reasonably be
expected to impair the ability of Buyer to consummate the
transactions
contemplated by this Agreement and the Ancillary Agreements.
4.3 Litigation. (a) There is no Litigation pending or, to
the
knowledge of Buyer, threatened, by or before any Governmental
Entity, or by or
on behalf of any third party, which, if adversely determined,
would reasonably
be expected to impair the ability of Buyer to consummate the
transactions
contemplated by this Agreement and the Ancillary Agreements, and
(b) there are
no outstanding judgments, decrees or orders of any court or
Governmental
Entity affecting Buyer or its assets, which would reasonably be
expected to
impair the ability of Buyer to consummate the transactions
contemplated by
this Agreement and the Ancillary Agreements.
4.4 Financing. Buyer has, and shall have at the Effective
Time,
access to sufficient funds to perform its obligations under this
Agreement and
to consummate the transactions contemplated hereby.
4.5 Acquisition of the Shares for Investment; Securities Act.
Buyer
is acquiring the Shares for investment purposes only and not
with any present
intention of distributing or selling the Shares in violation of
federal, state
or other United States securities laws. Buyer agrees that it
will not sell,
transfer, offer for sale, pledge, hypothecate or otherwise
dispose of the
Shares in violation of any federal, state or other United States
securities
laws.
4.6 Vote/Approval Required. No vote or consent of the holders of
any
class or series of capital stock of Buyer is necessary to
approve this
Agreement or the Transition Agreement or the transactions
contemplated hereby
or thereby. The vote or consent of Buyer is the only vote or
consent necessary
to approve this Agreement or the Transition Agreement or the
transactions
contemplated hereby or thereby.
4.7 Solvency. Buyer is not entering into the transactions
contemplated by this Agreement with the actual intent to hinder,
delay or
defraud either present or future creditors. Assuming that the
representations
and warranties of Seller contained in this Agreement (without
giving effect to
any materiality, Material Adverse Effect or Knowledge qualifiers
set forth
therein) are true and correct in all material respects, at and
immediately
after the Closing, and after giving effect to this Agreement and
the other
transactions contemplated hereby, the Company and the Division
Entities: (i)
will be solvent (in that both the fair value of their respective
assets will
not be less than the sum of their respective debts and that the
present fair
saleable value of their respective assets will not be less than
the amount
required to pay their
24
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respective probable liabilities on their respective debts as
they become
absolute and matured); (ii) will have adequate capital and
liquidity with
which to engage in their respective businesses; and (iii) will
not have
incurred and do not plan to incur debts beyond their respective
abilities to
pay as they become absolute and matured.
4.8 Investigation by Buyer. Buyer has conduc
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