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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Date of Report (Date of earliest event reported)
July 31, 1997
RES-CARE, INC.
(Exact Name of Registrant as Specified in its Charter)
KENTUCKY
(State or Other Jurisdiction of Incorporation)
0-20372 61-0875371
(Commission File Number) (I.R.S. Employee Identification No.)
10140 LINN STATION ROAD, LOUISVILLE, KENTUCKY 40223
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(502) 394-2100
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On July 31, 1997, Res-Care, Inc. (the "Registrant") acquired all of
the outstanding stock of Communications Network Consultants, Inc. ("CNC"), a
Rhode Island corporation, from its shareholders, D. Richard Greer, Robert V.
Greer and Alicia Greer Austin. CNC provides supported living services to persons
with disabilities, including mental retardation, in North Carolina.
The purchase price was an aggregate of $28,000,000 subject to increase
for cash and accounts receivable and reduction for liabilities and subject to
reduction based on the earnings for the first three years after the acquisition
compared to benchmarks as outlined in the Stock Purchase Agreement (the "Earn
Out"). The purchase price was paid with $16,500,000 cash subject to the
adjustments for cash, accounts receivables and liabilities, a promissory note
for $2,500,000 payable in two equal annual installments, and a non-interest
bearing promissory note for $9,000,000 payable in three equal annual
installments subject to reduction for the Earn-Out. The funds for the
acquisition came from existing cash and the Registrant's revolving line of
credit facility with PNC Bank, Kentucky, Inc.; National City Bank of Kentucky;
SunTrust Bank, Nashville, N.A.; Bank One, Kentucky, NA; and Wachovia Bank, NA.
The consideration for the acquisition was determined by negotiations
between the parties based primarily on pro forma earnings, cash flow
calculations, and on the value of the geographic scope of the operations to be
acquired and CNC's established relationships with governmental agencies.
The Company has entered into Employment Agreements and Non-Competition,
Confidentiality and Non-Solicitation Agreements with each of the sellers. The
consideration for each Non-Competition, Confidentiality and Non-Solicitation
Agreement is $1,000,000.00.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Sellers.
It is impracticable to provide the required financial statements for
the acquired business at the time this report on Form 8-K is filed. Therefore,
the required financial statements will be filed as soon as practicable, but not
later than 60 days after the report on Form 8-K must be filed.
(b) Pro Forma Financial Information of Sellers.
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It is impracticable to provide the required financial information for
the acquired business at the time this report on Form 8-K is filed. Therefore,
the required financial information will be filed as soon as practicable, but not
later than 60 days after the report on Form 8-K must be filed.
(c) Exhibits required by Item 601 of Regulation S-K.
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
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Exhibit 2-1 Stock Purchase Agreement by and among Res-Care, Inc. and
Richard Greer, Robert Greer and Alicia Greer Austin dated
July 31, 1997.
Exhibit 2-2 Promissory Notes from Res-Care, Inc. to Richard Greer, Robert
Greer, and Alicia Greer Austin dated July 31, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RES-CARE, INC.
By: /s/ Ronald G. Geary
--------------------------------
Ronald G. Geary
President and Chief Executive Officer
Dated: August 14, 1997
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION OF DOCUMENT PAGE NUMBER
--- ----------------------- -----------
<S> <C> <C>
Exhibit 2-1 Stock Purchase Agreement by and among Res-Care, Inc. and
Richard Greer, Robert Greer and Alicia Greer Austin dated
July 31, 1997.
EXHIBIT 2-2 Promissory Notes from Res-Care, Inc. to Richard Greer,
Robert Greer, and Alicia Greer Austin Dated July 31, 1997
</TABLE>
4
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Exhibit 2.1
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STOCK PURCHASE AGREEMENT
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THIS STOCK PURCHASE AGREEMENT ("Agreement") dated as of July 31, 1997,
by and between (i) RES-CARE, INC., a Kentucky corporation ("Buyer"), and (ii)(A)
RICHARD GREER ("Richard"), (B) ROBERT GREER ("Robert"), and (C) ALICIA GREER
AUSTIN (individually, a "Seller" and collectively, the "Sellers").
WHEREAS, the Sellers own all of the issued and outstanding capital
stock (the "Shares") of Communications Network Consultants, Inc., a Rhode Island
corporation (the "Company").
WHEREAS, the Sellers desire to sell to Buyer, and Buyer desires to
purchase from the Sellers, all the Shares, being all the issued and outstanding
shares of capital stock of the Company, all on the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties agree as follows:
ARTICLE I
SALE AND TRANSFER OF
SHARES; CLOSING; PURCHASE PRICE
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1.1 SALE AND TRANSFER OF SHARES. Subject to the terms and conditions
set forth herein, the Sellers shall sell to Buyer, and Buyer shall purchase from
the Sellers, at the Closing (as defined in Section 1.5 hereof), the Shares.
1.2 DELIVERY OF CERTIFICATES. At the Closing, the Sellers shall deliver
to Buyer certificates in definitive form, registered in the name of the Sellers,
evidencing the Shares, duly endorsed for transfer or accompanied by stock
transfer powers duly endorsed in blank, with all requisite stock transfer taxes
paid and stamps affixed, if any.
1.3 PURCHASE PRICE; PAYMENT.
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(a) The purchase price ("Purchase Price") for the Shares shall
be equal to an aggregate of $28,000,000, subject to adjustment in
accordance with the provisions of subparagraph (b)(i) of this Section
1.3 and subject to reduction in accordance with the provisions of
subparagraph (b)(iii) of this Section 1.3 by reason of the Company's
failure to satisfy the earnings goals set forth in such subparagraph.
(b) The Purchase Price shall be paid by --
(i) Buyer's delivery to Sellers at the Closing of a wire
transfer of immediately available funds to one or more accounts
designated in writing by Sellers in the amount equal to
$16,500,000 (the "Closing Payment"). The Closing
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Payment shall be adjusted as follows as of 12:01 a.m. on the
Closing Date (as defined in Section 1.5 hereof), but after
taking into account the AAA Distributions (as defined in Section
1.3(c) hereof):
(A) increased by the book value of all cash and
accounts receivable of the Company (after giving effect to
the AAA Distributions); and
(B) decreased by the fair value of all liabilities
(other than liabilities or other payables to or shareholder
loans from the Sellers) and accrued obligations of the
Company, including (i) liabilities to any financial
institution and (ii) any accrued and unused vacation pay of
the Company's employees (whether or not earned).
As promptly as practicable, but in any event not later than sixty
(60) days after the Closing Date, the Buyer and the Company shall
cause to be prepared and delivered to the Sellers a statement (the
"Statement") of the adjustments, if any, required by subparagraph
(b)(i)(A) and (B) of this Section 1.3, which statement shall be
audited by Buyer's certified public accountants and certified by
such firm to have been prepared in accordance with generally
accepted accounting principles consistently applied and in
substantially the manner used to prepare the Company's financial
statements for the period ending December 31, 1996. Subject to the
next literary paragraph, within fifteen (15) days after delivery
to Sellers of the Statement, (x) the Sellers jointly and severally
agree to pay to Buyer the amount, if any, by which the adjustments
in subparagraph (b)(i)(B) exceed the adjustments in subparagraph
(b)(i)(A) and (y) the Buyer agrees to pay to the Sellers the
amount, if any, by which the adjustments in subparagraph (b)(i)(A)
exceed the adjustments in subparagraph (b)(i)(B) (the amounts
payable pursuant to clauses (x) and (y) are hereinafter referred
to collectively as the "Purchase Price Adjustment"). The Purchase
Price Adjustment shall be paid by wire transfer of immediately
available funds. The parties shall treat any payment made pursuant
to this subparagraph (b)(i) as an adjustment to the Purchase Price
for all purposes.
If Sellers in good faith disagree with the Statement, then
Sellers shall notify the Buyer in writing (the "Notice of
Disagreement") of such disagreement within fifteen (15) days after
delivery of the Statement to Sellers. The Notice of Disagreement
shall set forth in reasonable detail the basis for the
disagreement. Thereafter, the Buyer and the Sellers shall attempt
in good faith to resolve and finally determine the Statement. If
Buyer and Sellers are unable to resolve the disagreement within
fifteen (15) days after delivery of the Notice of Disagreement,
then Buyer and Sellers shall select a mutually acceptable,
nationally recognized independent accounting firm (such accounting
firm being hereinafter referred to as the "Independent
Accountant") to resolve the disputed items and make a written
determination with respect thereto. Such determination will be
made, and written notice thereof given to Buyer and Sellers,
within thirty (30) days after such
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selection. The determination by the Independent Accountant shall
be final, binding and conclusive upon the parties. The scope of
such firm's engagement (which shall not be an audit) shall be
limited to the resolution of the items contained in the Notice of
Disagreement and the recalculation, if any, of the Statement in
light of such resolution. The fees, costs and expenses in
connection with the preparation of the Statement shall be the sole
responsibility of the Buyer. Any fees, costs or expenses of
Sellers in connection with their review of the Statement shall be
the sole responsibility of Sellers. The fees, costs and expenses
of the Independent Accountant, if any, selected in accordance with
this paragraph will be shared equally by Buyer, on the one hand,
and Sellers, on the other hand. Within ten (10) days of delivery
of a notice of determination by the Independent Accountant as
described above, any adjustment shall be paid as provided in the
preceding literary paragraph. Any portion of the Purchase Price
Adjustment not in dispute shall be paid when due.
(ii) Buyer's delivery to Sellers at the Closing of a
promissory note payable to Sellers in the principal amount of
$2,500,000 (the "First Note"), payable in two (2) equal
installments of $1,250,000, plus interest accrued on the
outstanding principal amount of the First Note at a rate per annum
equal to seven percent (7%), on the first and second anniversaries
of the Closing Date. The First Note shall be in the form attached
hereto as Exhibit A. All amounts payable under the First Note
shall be paid by wire transfer of immediately available funds to
one or more accounts designated in a written notice delivered by
Sellers to Buyer; and
(iii) Buyer's delivery to Sellers at the Closing of a
promissory note payable to Sellers in the principal amount of
$9,000,000 (the "Second Note"), payable in three equal annual
installments of $3,000,000 (subject to reduction as provided
below) on the respective Earn-out Dates (as defined below). The
Second Note shall be in the form attached hereto as Exhibit B. All
amounts payable under the Second Note shall be paid by wire
transfer of immediately available funds to one or more accounts
designated in a written notice delivered by Sellers to Buyer.
Interest shall be payable on each principal installment of the
Second Note only in the circumstances described below in the last
literary paragraph of this subparagraph (iii). The term "Earn-out
Dates" shall collectively refer to the respective dates which are
thirty (30) days after the delivery by the firm of certified
public accountants, which are then the auditors of Buyer's
consolidated financial statements, of the separate balance sheet
and related statements of income, cash flows and stockholder's
equity for the Company (the "Company Financial Statements") for
the 12-month period (the "First Measurement Period") beginning on
the first day of the month after the Closing Date (the "1998
Earn-out Date"), the 12-month period (the "Second Measurement
Period") beginning on the day after the last day in the First
Measurement Period (the "1999 Earn-out Date") and the 12-month
period (the "Third Measurement Period") beginning on the day after
the last day in the Second Measurement Period (the "2000 Earn-out
Date"). Not later than sixty (60) days after the end of each
Measurement Period, the Buyer will
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deliver to the Sellers the Company Financial Statements and a
statement (the "Earn-out Statement") showing the amount and
calculation of the reduction, if any, contemplated by clause (A),
(B) or (C) below, as applicable. The computation of any such
reduction shall be certified by Buyer's certified public
accountants as having been prepared in accordance with clause (A),
(B) or (C) below, as applicable. The respective installments
payable under the Second Note shall be subject to reduction as
follows:
(A) The installment payable on the 1998 Earn-out
Date shall be reduced by $3,000,000 (and therefore shall be
zero) if the Company Earnings (as defined below) for the
First Measurement Period do not equal or exceed $3,552,000.
The installment payable on the 1998 Earn- out Date shall
not be reduced and shall be $3,000,000 if the Company
Earnings for the First Measurement Period equal or exceed
$4,868,000. If the Company Earnings for the First
Measurement Period are between $4,868,000 and $3,552,000,
the installment payable on the 1998 Earn-out Date shall be
equal to the product of (i) $3,000,000 and (ii) (A) the
Company Earnings for the First Measurement Period minus
$3,552,000, divided by (B) $1,316,000.
(B) The installment payable on the 1999 Earn-out
Date shall be reduced by $3,000,000 (and therefore shall be
zero) if the Company Earnings for the Second Measurement
Period do not equal or exceed $4,868,000. The installment
payable on the 1999 Earn-out Date shall not be reduced and
shall be $3,000,000 if the Company Earnings for the Second
Measurement Period equal or exceed $5,842,000. If the
Company Earnings for the Second Measurement Period are
between $5,842,000 and $4,868,000, the installment payable
on the 1999 Earn-out Date shall be equal to the product of
(i) $3,000,000 and (ii) (A) the Company Earnings for the
Second Measurement Period minus $4,868,000, divided by (B)
$974,000.
(C) The installment payable on the 2000 Earn-out
Date shall be reduced by $3,000,000 (and therefore shall be
zero) if the Company Earnings for the Third Measurement
Period do not equal or exceed $5,842,000. The installment
payable on the 2000 Earn-out Date shall not be reduced and
shall be $3,000,000 if the Company Earnings for the Third
Measurement Period equal or exceed $7,010,000. If the
Company Earnings for the Third Measurement Period are
between $7,010,000 and $5,842,000, the installment payable
on the 2000 Earn-out Date shall be equal to the product of
(i) $3,000,000 and (ii) (A) the Company Earnings for the
Third Measurement Period minus $5,842,000, divided by (B)
$1,168,000.
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"Company Earnings" means the Company's earnings, determined in
accordance with generally accepted accounting principles
consistently applied, before (x) the following expenses, to the
extent solely attributable to the consummation of the transactions
contemplated herein: any (A) interest, (B) depreciation and (C)
amortization of goodwill; (y) income taxes and (z) any corporate
or regional overhead charges from Buyer. Company Earnings shall
include the sum of the Inside New Business Earnings and the
Outside New Business Earnings (as such terms are defined below).
To the extent that the Company Earnings for the First Measurement
Period exceed $4,868,000, such excess shall be carried forward and
added to the Company Earnings for the Second Measurement Period.
To the extent that the Company Earnings for the Second Measurement
Period (as adjusted pursuant to the immediately preceding
sentence) exceed $5,842,000, such excess shall be carried forward
and added to the Company Earnings for the Third Measurement
Period.
The Inside New Business Earnings shall mean the excess of
(1) earnings relating to the provision of services to persons
located in North Carolina from any Inside New Business (as defined
below) entered into by the Company, whether or not carried on by
Buyer at or subsequent to the Closing Date over (2) the INB Pro
Forma Hurdle (as defined below) for such Inside New Business. For
purposes of this paragraph, the term "Inside New Business" shall
mean any business providing services to persons located in North
Carolina which is not Outside New Business (as defined below).
During any Measurement Period, neither the Company nor Buyer nor
any of Buyer's affiliates will enter into any Inside New Business
or acquire any assets relating to, or stock or other equity
interests in any entity conducting, an Inside New Business unless
Sellers and Buyer agree in writing on the terms of such entry or
acquisition, including the INB Pro Forma Hurdle applicable to such
Inside New Business. "INB Pro Forma Hurdle" means, with respect to
any Inside New Business, the anticipated first year earnings for
such Inside New Business calculated on a pro forma basis and
mutually agreed to by Buyer and Sellers, except that in the case
of any Inside New Business the entry into or acquisition of which
is not accomplished through or as a result of an acquisition of
assets, operating rights or previously existing equity interests,
the INB Pro Forma Hurdle applicable to such Inside New Business
shall be zero, and all start-up costs and start-up expenses of
such Inside New Business shall be amortized over a period equal to
the lesser of five (5) years or the duration of the principal
contract under which the services are being rendered. Except as
reflected in the INB Pro Forma Hurdle for any Inside New Business,
interest expense on indebtedness incurred in connection with
entering into or acquiring any Inside New Business shall not
reduce Company Earnings for any Measurement Period.
The Outside New Business Earnings shall mean the excess of
(1) earnings relating to the provision of services to persons
located in North Carolina from any Outside New Business over (2)
the ONB Pro Forma Hurdle (as defined below) for such Outside New
Business. The term "Outside New Business" shall be limited
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to the management and/or operation of prisons or other facilities
or programs for adjudicated youth and the management and/or
operation of job corps centers. "ONB Pro Forma Hurdle" means, with
respect to any Outside New Business, the anticipated first year
earnings for such Outside New Business, calculated on a pro forma
basis as approved by the President of Buyer or his designee, and
otherwise used by Buyer for purposes of forecasting its earnings.
Notwithstanding the foregoing, the Outside New Business Earnings
which may be added to the Company Earnings shall not exceed a
cumulative amount equal to $2,200,000 (the "Outside Earnings
Limitation").
Any amount of Outside New Business Earnings included in
Company Earnings for any Measurement Period shall reduce the
Outside Earnings Limitation for purposes of any succeeding
Measurement Period.
During any Measurement Period, the Company will not begin
operations in states other than North Carolina ("New States")
without the prior written approval of Sellers and a mutual
agreement of Buyer and Sellers on the treatment, for purposes of
determining Company Earnings during any Measurement Period, of
earnings from operations in New States. Nothing in this paragraph
shall restrict Buyer's ability or discretion to enter into
transactions or acquisitions and/or develop any business or
operations in any state other than North Carolina or to engage in
any business activity in North Carolina in any Outside New
Business, either directly by Buyer or through one or more of its
subsidiaries or affiliates (other than Company or any of its
subsidiaries).
During any Measurement Period, any borrowing by Company
from Buyer or advance to Company from Buyer shall bear interest at
the same rate of interest which is then effective for such
borrowings by Buyer under its principal credit facility.
Notwithstanding the provisions of the preceding sentence, solely
for purposes of calculating Company Earnings under this paragraph
(iii), during any Measurement Period, to the extent that the
aggregate outstanding principal balance of such borrowings or
advances does not exceed the aggregate after-tax Company Earnings
during the Measurement Periods which have been distributed to
Buyer by Company as a dividend (determined at the close of each
Measurement Period), such borrowings or advances shall not bear
interest.
For purposes of calculating the Company Earnings as set
forth above, Buyer will not charge the Company with corporate or
regional office overhead of Buyer without the mutual agreement of
Buyer and Sellers.
Notwithstanding any provision to the contrary in this
Agreement, no Seller shall have any right to withhold his or her
consent with respect to any business decision by the Company if
such Seller is not then an employee of the Company. Unless he is
no longer an employee of the Company, Richard shall be designated
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by all the Sellers as authorized to give and/or withhold consent
with respect to any such business decision.
If Sellers in good faith disagree with any Earn-out
Statement, then Sellers shall notify Buyer in writing (the "Notice
of Earn-out Disagreement") of such disagreement within ten (10)
days after delivery of the Earn-out Statement to Sellers. The
Notice of Earn-out Disagreement shall set forth in reasonable
detail the basis for the disagreement. Thereafter, Buyer and
Sellers shall attempt in good faith to resolve and finally
determine the applicable Earn-out Statement. If Buyer and Sellers
are unable to resolve the disagreement within five (5) days after
delivery of the Notice of Earn-out Disagreement, then Buyer and
Sellers shall select an Independent Accountant to resolve the
disputed items and make a written determination with respect
thereto. Such determination will be made, and written notice
thereof given to Buyer and Sellers, within thirty (30) days after
such selection. The determination by the Independent Accountant
shall be final, binding and conclusive upon Buyer and Sellers. The
scope of such firm's engagement (which shall not be an audit)
shall be limited to the resolution of the items contained in the
Notice of Earn-out Disagreement and the recalculation, if any, of
the applicable Earn-out Statement in light of such resolution. The
fees, costs and expenses of Buyer in connection with the
preparation of the Earn-out Statement shall be the sole
responsibility of Buyer. The fees, costs or expenses of Sellers in
connection with their review of any Earn-out Statement shall be
the sole responsibility of Sellers. The fees, costs and expenses
of the Independent Accountant, if any, selected in accordance with
this paragraph will be shared equally by Buyer, on the one hand,
and Sellers, on the other hand. Within ten (10) days of delivery
of a notice of determination by the Independent Accountant as
described above, the installment payable on the applicable
Earn-out Date shall be paid as provided in subparagraph
(b)(iii)(A), (B) or (C) above, as applicable. Any portion of the
installment payable on the applicable Earn-out Date not in dispute
shall be paid when due.
The unpaid outstanding balance of any installment payable
under the Second Note shall bear interest at a rate per annum
equal to seven percent (7%) from the applicable Earn-out Date to
and including the date such balance of such installment is
actually paid to Sellers. However, if (i) such installment is not
paid within sixty (60) days after the applicable Earn-out Date and
(ii) Buyer has not paid that portion of the installment payable
which is not in dispute or is not disputing the balance of such
installment in good faith, then, in lieu of the interest
contemplated by the preceding sentence, such installment shall
bear interest at a rate per annum equal to ten percent (10%) from
the applicable Earn-out Date to and including the date the balance
of such installment is actually paid to Sellers. The Independent
Accountant shall be authorized to determine whether Buyer's
dispute of any portion of any installment is not in good faith,
and such determination shall be binding on the parties hereto.
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(c) At the Closing, the Company will distribute to Sellers, pro
rata in accordance with their interests as shareholders of the Company
prior to the Closing, an amount equal to of the balance of the
accumulated adjustments account (as defined in section 1368(e) of the
Internal Revenue Code of 1986, as amended ("Code")) of the Company as of
12:01 a.m., on the Closing Date (the "AAA Distributions"). The AAA
Distributions shall be paid by wire transfer of immediately available
funds to one or more accounts designated in a written notice delivered by
Sellers to Buyer.
(d) On the first anniversary of the Closing Date, Sellers shall
pay to the Company an amount equal to the then uncollected balance of the
accounts receivable taken into account in calculating the Purchase Price
pursuant to Section 1.3(b)(i)(A) above. To the extent Sellers have so
reimbursed the Company, the Company shall assign such uncollected
accounts receivable (the "Uncollected Accounts Receivable") to Sellers
for collection. Sellers shall not take any action in connection with any
collection efforts with respect to the Uncollected Accounts Receivable
which would damage or impair the Company's goodwill or relationships with
its clients or the Agencies (as defined in Section 2.9 hereof). After the
Uncollected Accounts Receivable have been assigned to Sellers in
accordance with this paragraph (d), Buyer shall not, and shall cause the
Company not to, take any actions that would damage or impair the ability
of Sellers to collect the outstanding balance of any Uncollected Accounts
Receivable.
(e) An example of the calculation of the Purchase Price is set
forth on Exhibit C hereto, which calculation is based on the assumptions
set forth on such Exhibit C.
1.4 ADDITIONAL COVENANTS OF THE PARTIES. At the Closing, the parties
further agree that the following agreements and documents shall be executed and
delivered (as applicable) by the parties thereto and the respective parties
further covenant as follows:
(a) SELLERS' EMPLOYMENT AGREEMENTS. At the Closing, each of the
Sellers shall execute and deliver a mutually satisfactory employment
agreement with the Company providing for the continuation of their
employment with the Company for a period of three (3) years after the
Closing. The form and substance of each such employment agreement is
attached hereto as Exhibits D-1 through D-3 respectively (the "Sellers'
Employment Agreements").
(b) NONCOMPETITION AND CONFIDENTIALITY AGREEMENTS. At the Closing,
each of the Sellers and Buyer shall execute a noncompetition and
confidentiality agreement ("Noncompetition Agreement"), in the form and
containing the provisions set forth on Exhibits E-1 through E-3
respectively. In consideration for each of the Sellers' noncompetition,
nonsolicitation and confidentiality covenants in the Noncompetition
Agreements, Buyer will deliver to each of the Sellers at the Closing a
wire transfer of immediately available federal funds in the aggregate
amount of $1,000,000 to one or more accounts specified in a written
notice delivered by each such Seller to Buyer.
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(c) LEASE OF SELLER REAL PROPERTY. At the Closing, any current
leases between Sellers or their affiliates and the Company relating to
any real property presently used by the Company ("Seller Real Property")
will be amended and restated pursuant to separate lease agreements (the
"Company Leases") providing for (i) monthly rent in the same amounts
previously applicable thereto (but not in excess of a fair market rental
rate), (ii) an initial term of five (5) years, commencing on the Closing
Date, (iii) one (1) renewal option in favor of the Company having a term
of five (5) years, on the same terms and conditions as the initial term,
(iv) provisions granting to the Company the right, subject to the prior
written approval of the Sellers (which approval, (A) if requested during
any period in which any of the Sellers are President or Chief Executive
Officer of the Company, shall not be unreasonably withheld and (B) if
requested during any period during which any of the Sellers is not
President or Chief Executive Officer of the Company, may be granted or
withheld in the sole discretion of the Sellers), to sublease such Seller
Real Property and granting to the Company or its sublessees, subject to
the prior written approval of the Sellers (which approval, (A) if
requested during any period in which any of the Sellers are President or
Chief Executive Officer of the Company, shall not be unreasonably
withheld and (B) if requested during any period during which any of the
Sellers is not President or Chief Executive Officer of the Company, may
be granted or withheld in the sole discretion of the Sellers), reasonable
alternative use of such Seller Real Property, (v) an option to purchase
in favor of the Company exercisable at any time during the initial term
or any renewal term at fair market value, using the appraisal methodology
described below, and (vi) such other terms and provisions as to which the
parties mutually agree. In addition, to the extent that any of the
Company Leases was, as of May 31, 1997, a triple-net lease, such Company
Lease, as amended and restated, shall continue to be a triple-net lease.
For purposes of this paragraph, the fair market value of a parcel of
Seller Real Property for which the option is being exercised shall be
determined by mutual agreement of Buyer and Sellers, or in the absence of
such agreement, by an independent appraiser mutually acceptable to such
parties. If such parties cannot mutually agree to the selection of an
appraiser, each party shall select its own appraiser, who shall each
determine the fair market value of the parcel of Seller Real Property
being purchased and sold. If the values determined by such appraisers
shall not differ by more than five percent (5%) of the average of such
values, the fair market value of such parcel of Seller Real Property
shall be the average of the values determined by such appraisers. If such
values differ by more than five percent (5%) of the average of such
values, the appraisers shall mutually select a third independent
appraiser who shall perform a third appraisal, which appraisal shall be
binding on the parties. One-half of the expenses of any appraiser
mutually selected by the parties or mutually selected by their appraisers
shall be paid by each party. The expenses of any appraiser selected by
any party without the consent of the other party shall be borne by the
party selecting such appraiser. If requested by Sellers, the Company
shall reasonably cooperate with Sellers in closing any purchase by the
Company of any parcel of Seller Real Property as a "like-kind" exchange
within the meaning of Section 1031 of the Code (as then applicable to
such transaction). In connection therewith, Sellers shall engage a
qualified intermediary to effect such exchange and Sellers shall
reimburse the Company for any additional costs incurred by the Company
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by reason of such "like-kind" exchange. The Company Leases, as amended
and restated, will be in the form and substance attached hereto as
Exhibits F-1 through F-3.
(d) PENSION AND PROFIT SHARING PLANS. After the Closing, the Buyer
shall assume or terminate, or cause the Company to continue or terminate,
any pension and/or profit sharing plans maintained by the Company prior
to the Closing Date (the "Company Plans") at Company's sole cost. During
any Measurement Period, any termination of any of the Company Plans which
is not required by applicable law shall be subject to the consent of
Sellers. Except for their indemnification obligations under Article VI
with respect to the Company Plans, after the Closing Date, Sellers shall
have no liability whatsoever to Buyer, Company or any employee of Company
in respect of any Company Plan.
(e) RELEASE OF CERTAIN LIABILITIES. At or prior to the Closing,
the Company shall be released from any and all liability or obligation
with respect to any Seller Real Property, including but not limited to
any liability as a co-maker or a guarantor, other than its obligations
under the Company Leases, shall be released from any such liability or
obligation on any indebtedness to any Seller or any affiliate thereof,
and shall be released from any liability or obligation (including but not
limited to any obligation as a guarantor) on any indebtedness of any
Seller or any affiliate thereof.
(f) SECTION 338(H)(10) ELECTION. At the option of Buyer, the
Company and Buyer shall make an election (the "Election") under Section
338(h)(10) of the Code. If Buyer makes the Election, each of Sellers
shall consent to the Election, in the form and manner prescribed in the
applicable Treasury Regulations. In the event the Election is made, the
Buyer shall (i) pay to each Seller an amount in cash equal to any
incremental income tax liability (including interest and penalties) of
any such Seller relating to or arising out of (A) the Election (which
shall be the excess of (I) the amount of such taxes which are payable by
such Seller taking the Election into account over (II) the amount of such
taxes which would have been payable by such Seller had the Election not
been made) and (B) the Buyer's agreement to pay any such income tax
liability of such Seller arising out of the Election, (ii) indemnify each
Seller for any and all liabilities subsequently imposed on such Seller
within the scope of clause (i) above as a result of the Internal Revenue
Service or any state tax authority challenging or examining the Election
at any date after the Election is made, and (iii) assume all obligations
for federal and state income taxes imposed on built-in gains of the
Company pursuant to Section 1374 of the Code which are attributable to
the Election. Any amount payable pursuant to clause (i) of this Section
1.4(f) shall be paid to each Seller no later than the initial due date of
such Seller's tax return on which such incremental income tax is
reflected, and any amount payable pursuant to clause (ii) of this Section
1.4(f) shall be paid to each Seller no later than the date such amount is
due to the relevant taxing authority. Any amount so paid to Sellers by
Buyer shall immediately be paid by the respective Seller to the relevant
taxing authority in satisfaction of such tax liability. Buyer shall have
the right to control the resolution of any issue between any Seller and
any taxing authority which is subject to Buyer's indemnification
obligations under this Section 1.4(f) and no Seller shall file any tax
return
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or claim for refund inconsistent therewith. The indemnification
obligations set forth in the preceding sentence shall survive the Closing
for the applicable statute of limitations.
(g) LIABILITY OF COMPANY TO SELLERS. To the extent any liabilities
of the Company to Sellers have been excluded from Section 1.3(b)(i)(B)
hereof or have not reduced the Purchase Price payable to Sellers, at the
Closing, all of such liabilities shall be deemed satisfied and released
by Sellers and Sellers shall execute such documentation which is
reasonably requested by Buyer to reflect the same.
(h) ELECTION TO BOARD OF DIRECTORS. Effective immediately after
the Closing, and for any period that such individual is employed by the
Company, each of Richard and Robert shall become members of the Board of
Directors of the Company. The parties hereto contemplate that such Board
shall have at least five (5) members and Sellers consent to any amendment
to the Articles of Incorporation or Bylaws of the Company to permit the
same.
(i) COMPANY STRUCTURE AND PROCEDURES. During the Measurement
Periods, the Company shall be operated as a separately incorporated
subsidiary of Buyer. Except as required by generally accepted accounting
principles or as required by the Agencies or any third-party payor of the
Company, Buyer will not cause the Company to alter its accounting
procedures or operations without the consent of Sellers.
1.5 CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Fennebresque,
Clark, Swindell & Hay, NationsBank Corporate Center, Suite 2900, 100 North Tryon
Street, Charlotte, North Carolina on July 31, 1997, at 9:00 a.m., prevailing
local time, or such earlier or later date as shall be reasonably necessary to
secure the consents and approvals described in Section 4.1(e) or as the Sellers
and Buyer may mutually agree (the date and time of the Closing is herein called
the "Closing Date").
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS
--------------
The Sellers represent and warrant to Buyer as follows:
2.1 ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER; SUBSIDIARIES. The
Company is a corporation duly incorporated and validly existing and in good
standing under the laws of the State of Rhode Island and is duly qualified as a
foreign corporation and is in good standing in the State of North Carolina.
Neither the assets nor properties owned nor the nature of the business conducted
by the Company makes qualification as a foreign corporation necessary in any
other state. The Company has the corporate power and authority, and the legal
right, to own and operate its properties and to carry on its business as
currently conducted. The Company does not have any subsidiaries or own any
shares of stock or any equity interest in any corporation or own any interest in
any partnership, limited liability company or other entity.
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<PAGE> 12
2.2 AUTHORIZATION OF AGREEMENTS, ETC. Subject only to the approval by the
Agencies of the transfer of the Licenses, each of the Sellers has full legal
capacity and power to execute and deliver this Agreement to which he or she is a
party and to perform his or her obligations hereunder and thereunder and to
consummate the transactions contemplated hereunder. Such execution, delivery and
performance by the Sellers as above provided in this Section 2.2, and the
consummation of the transactions contemplated under this Agreement, will not
violate (i) any provision of law, any order of any court or other agency of
government or any judgment, award or decree applicable to Sellers or the
Company, (ii) the Articles of Incorporation or Bylaws of the Company, or (iii)
any provision of any indenture, agreement or other instrument, to which either
any of the Sellers or the Company is a party, or by which any of the Sellers,
the Company, or any of his, her or its, as the case may be, properties or assets
is bound or affected, or result in a breach of or constitute (with due notice or
lapse of time or both) a default under any such indenture, agreement or other
instrument, or result in the creation or imposition of any pledge, security
interest, lien, charge or encumbrance of any nature whatsoever (each, a "Lien")
upon any of the properties or assets of any of the Sellers or the Company, or
result in any suspension, revocation, impairment, forfeiture or nonrenewal of
any License (as defined in Section 2.13 hereof).
2.3 VALIDITY. This Agreement has been duly executed and delivered by each
of the Sellers and, subject to due execution by Buyer, constitutes, and the
other agreements to be executed by the respective Seller as contemplated herein,
when executed and delivered by each of the Sellers as contemplated hereby,
subject to due execution by the other parties thereto, will constitute, the
legal, valid and binding obligations of the Sellers, enforceable against the
Sellers in accordance with their respective terms, subject to applicable
reorganization, insolvency, moratorium and other laws affecting creditors'
rights generally from time to time in effect and the effects of general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
2.4 TITLE TO SHARES. Each of the Sellers is the holder of record and
beneficial owner of the Shares as shown on Schedule 2.4 attached hereto, free
and clear of any and all Liens. The delivery by the Sellers of certificates
evidencing the Shares, duly endorsed for transfer or accompanied by stock
transfer powers duly endorsed in blank, to Buyer pursuant to Section 1.2 above,
against payment therefor pursuant to Section 1.3 above, will transfer valid
title to all of the Shares to Buyer, free and clear of any and all Liens, other
than Liens created or imposed by the actions of Buyer. There is no "adverse
claim" within the meaning of Section 8-302 of North Carolina Uniform Commercial
Code with respect to the Shares.
2.5 CAPITALIZATION. The authorized and issued and outstanding capital
stock of the Company is set forth in Schedule 2.5 attached hereto. Each of the
Shares is validly issued and outstanding, fully paid and nonassessable. The
Shares are all of the issued and outstanding capital stock of the Company and
there is no other outstanding equity interest in the Company. Except as provided
in Section 5.02 of the Company's Bylaws, none of the Shares is subject to any
right of first refusal or other similar right in favor of any person or entity.
Except for the obligations of the Sellers to Buyer under this Agreement, (i) no
subscription, warrant, option, convertible security or other right (contingent
or other) to purchase or acquire any shares of any class of capital stock of the
Company is authorized or outstanding, (ii) there is not any commitment of the
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<PAGE> 13
Company to issue any shares, warrants, options or other such rights or to
distribute to holders of any class of its capital stock any evidences of
indebtedness or assets, and (iii) the Company has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any shares of the capital
stock of the Company or any interest therein or to pay any dividend or make any
other distribution in respect thereof.
2.6 FINANCIAL STATEMENTS. The Sellers have previously delivered to Buyer
(i) the unaudited balance sheets of the Company as of December 31, 1996, and the
related unaudited statements of income, cash flows and stockholders' equity for
the year then ended (collectively, the "Historical Financial Statements"),
compiled by Huntley, Sigmon, Walton & Wilson, the Company's Certified Public
Accountants (the "Company CPAs"), and (ii) the unaudited balance sheet of the
Company as of May 31, 1997 (the "Acquisition Balance Sheet") and the related
unaudited statement of income for the year-to-date period then ending, prepared
by the Company (together with the Acquisition Balance Sheet, the "Closing
Financial Statements"). The Historical Financial Statements and the Closing
Financial Statements (x) were prepared from the books and records of the Company
and (y) present fairly in all material respects the financial position of the
Company as of the respective dates specified therein, and the income, cash flows
and stockholders' equity for the respective periods then ended, all in
conformity with generally accepted accounting principles applied on a consistent
basis (subject, in the case of the Closing Financial Statements, to normal
year-end adjustments and the absence of footnotes).
2.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
(i)(A) reflected in the Acquisition Balance Sheet or (B) incurred since December
31, 1996 in the ordinary course of business, and (ii) set forth on Schedule 2.7
hereto, the Company has no liabilities or obligations of any kind or nature for
which appropriate accruals or reserves have not been maintained as reflected in
the Closing Financial Statements (whether secured or unsecured, absolute,
accrued, contingent or otherwise and whether due or to become due, including but
not limited to any obligation to repay any amount previously received for
services rendered or any accrued and unused vacation or sick pay of the
Company's employees (whether or not earned)) for any period ending on or before
the date thereof, which liabilities or obligations would be required to be
reflected on a balance sheet of the Company prepared in accordance with
generally accepted accounting principles applied on a consistent basis. After
the Closing, neither Buyer nor the Company will have any liability, damage,
cost, expense or reduction in revenues relating to or arising out of any of the
matters disclosed on Schedule 2.7 hereto.
2.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1996, except
(i) as otherwise set forth in Schedule 2.8 hereto or (ii) as otherwise expressly
referred to in or contemplated by this Agreement, the Company has not:
(a) changed or amended its Articles of Incorporation or Bylaws;
(b) incurred any obligation or liability (fixed or contingent),
except normal trade or business obligations incurred in the ordinary
course of business, none of which individually or in the aggregate is
materially adverse to the Company;
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<PAGE> 14
(c) discharged or satisfied any lien, security interest, charge or
other encumbrance or paid any obligation or liability (fixed or
contingent), other than in the ordinary course of business;
(d) mortgaged, pledged or subjected to any lien, security
interest, charge or other encumbrance any of its assets or properties;
(e) transferred, leased or otherwise disposed of any of its assets
or properties, except for fair consideration in the ordinary course of
business or acquired any assets or properties, except in the ordinary
course of business;
(f) declared, set aside or paid any distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital
stock or redeemed or otherwise acquired any of its capital stock or
split, combined or otherwise similarly changed its capital stock or
authorized the creation or issuance of or issued or sold any capital
stock or any securities or obligations convertible into or exchangeable
therefor, or granted to any person or entity any right to acquire any
capital stock from the Company, or agreed to take any such action; (g)
made any investment of a capital nature, whether by purchase of stock or
securities, contributions to capital, property transfers or otherwise, in
any partnership, corporation or other entity, or purchased any property
or assets;
(h) canceled or compromised any debt or claim in an aggregate
amount exceeding $10,000;
(i) waived, released, transferred or granted any rights or
permitted any License to lapse;
(j) except in the ordinary course of its business, made or granted
any wage or salary increase applicable to any employee, any group or
classification of employees generally, entered into any employment
contract with, or made any loan to, or entered into any transaction of
any other nature with, any officer or employee of the Company;
(k) hired or engaged any family member or affiliate of the Sellers
as an employee or independent contractor; or
(l) suffered any casualty loss or damage (whether or not such loss
or damage shall have been covered by insurance) in an aggregate amount
exceeding $5,000, or canceled, had canceled or terminated any policy of
insurance.
2.9 GOVERNMENTAL APPROVALS. Except as provided on Schedule 2.9 attached
hereto, no order, authorization, approval or consent from, or filing with, any
federal or state governmental or public body or other authority having
jurisdiction over the Sellers or the Company or the properties or operations of
the Company (individually, an "Agency" and collectively, the
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<PAGE> 15
"Agencies") is required for the execution, delivery and performance of this
Agreement or any of the other agreements contemplated herein, is necessary in
order to ensure the legality, validity, binding effect or enforceability of this
Agreement or any of such agreements, or is necessary in order that the business
of the Company can be conducted immediately following the Closing Date
substantially in the same manner as heretofore conducted.
2.10 TITLE TO PROPERTIES, ABSENCE OF LIENS AND ENCUMBRANCES. The Company
has good and valid title to all tangible assets and properties owned by it, in
each case free and clear of all Liens, other than (i) liens for taxes not yet
due and payable, or (ii) mechanic's, materialman's, landlord's liens and
similar statutory liens arising in the ordinary course of business and which, in
the aggregate, would not have an adverse effect on the business, properties or
condition (financial or otherwise) of the Company or (iii) indebtedness not in
default for the purchase price of or lease rental payments on personal property
purchased or leased under lease arrangements incurred in the ordinary course of
business and described on Schedule 2.11 attached hereto. The Company does not
own any real property. Other than the Seller Real Property, the Company owns all
of the property and/or assets currently used and/or necessary to be used to
provide Company Services (as defined in Section 2.11(d) hereof).
2.11 LIST OF PROPERTIES, CONTRACTS AND OTHER DATA. Annexed hereto as
Schedule 2.11 is a list setting forth the following:
(a) a description of each lease of real or personal property to
which the Company is a party, either as lessee or lessor, including a
description of the parties to each such lease, the property to which each
such lease relates, and the rental term and monthly (or other) rents
payable under each such lease;
(b) all employment agreements, consulting agreements, independent
contractor agreements, and employee incentive plans or programs to which
the Company is a party;
(c) all contracts, including without limitation guarantees,
mortgages, indentures and loan agreements, to which the Company is a
party, or to which the Company or any of its or their respective assets
or properties is subject and which are not specifically required to be
disclosed by clauses (a) or (b) above, PROVIDED, HOWEVER, that there need
not be listed in said Schedule 2.11 pursuant to this clause (c) any
supply contracts with suppliers and other such contracts incurred in the
ordinary course of business and consistent with past practice, other than
any such contract which (i) is a contract or group of related contracts
which exceeds $5,000 in amount, (ii) contains warranties by the Company
in excess of those customary in its business or (iii) cannot be performed
by the Company in the normal course within three (3) months after the
Closing Date without breach or penalty;
(d) all agreements with third-party payors, including but not
limited to Medicaid provider agreements, and all agreements for the
provision of services under any programs for persons with mental
retardation, developmental disabilities or dual diagnosis, or any
programs for troubled or at risk youth (collectively, the "Company
Services").
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<PAGE> 16
True and complete copies of all documents and complete descriptions of all
binding oral commitments (if any) referred to in said Schedule 2.11 have been
provided or made available to Buyer. All material provisions of the contracts
referred to in such Schedule are valid and enforceable obligations of the
Company and, to the knowledge of the Company and the Sellers, of the other
parties thereto. All of the rights of the Company in such contracts and
agreements referred to in such Schedule are valid and enforceable in accordance
with the respective terms thereof for the periods stated therein. There is no
existing default, event of default or event by the Company which with notice or
lapse of time or both would constitute such a default, under any of such
contracts or agreements. The three (3) parcels of Seller Real Property currently
leased by Company from R&R Enterprises are currently leased on a triple-net
basis.
2.12 THIRD-PARTY PAYOR AND CUSTOMER CONTRACTS; OCCUPANCY STANDARD. Except
as set forth on Schedule 2.12 hereto, the Company has not lost since December
31, 1996, and the Company will not lose or, to the knowledge of Sellers, suffer
diminution in, its contractual relationship or goodwill with any of its
third-party payors or any Agency as a result of the transactions contemplated by
this Agreement. The Occupancy Standard (as defined below) is satisfied as of the
date hereof. The Occupancy Standard shall mean the requirement that there shall
be not less than 800 clients receiving services under the programs operated by
the Company for persons with mental retardation and/or developmental
disabilities and not less than 200 clients receiving services under the programs
operated by the Company for dually diagnosed at-risk youth and all such clients
are fully qualified for funding by the Agencies and the Company will continue to
receive all of the funding available for such clients after the Closing Date. A
client shall not be considered to be qualifying as a client for which the
Company is providing services under such programs if any of the Sellers or the
Company has knowledge and/or Buyer shall have received notice that such client
intends to terminate any agreement or contract for such services or any of the
Agencies intend that any such agreement or contract be terminated.
2.13 LICENSURE/CERTIFICATION. The Company has all licenses, contracts,
provider agreements, certifications, qualifications, permits, certificates of
need and other authorities from all Agencies necessary to provide and receive
reimbursement for the Company Services (individually, a "License" and
collectively, the "Licenses"), and, to the knowledge of the Sellers, each client
or individual served by the Company is currently fully qualified for funding and
the Company is receiving all of the funding available for such client. Each such
License is in full force and effect and no default, or event which with notice
or the passage of time could constitute a default, by the Company has occurred
and is continuing thereunder. The business of the Company is being conducted in
compliance with all applicable laws, ordinances, rules and regulations of all
Agencies relating to the Company's properties or applicable to its business.
Except as set forth on Schedule 2.13 hereto, there are no waivers, "grandfather"
provisions, or variances under any Licenses. The Sellers have delivered or made
available to Buyer true and correct copies of the most recent surveys or related
reports of the Agencies applicable to the Company and its operations. True and
complete copies of any and all plans of correction submitted in response to said
surveys and related reports have also been provided or made available to Buyer.
All of such surveys, related reports and plans of correction are listed on
Schedule 2.13 attached hereto. After the Closing, neither the Company nor Buyer
will have any liability, damage, cost, expense or reduction in revenues relating
to or arising out of any of the
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<PAGE> 17
matters described on Schedule 2.13, any failure to comply with any rules or
regulations of any Agency or any other claim, deficiency, cost or expense
attributable to any audit by, adjustment of reimbursement rates by or proceeding
before any Agency relating to any period prior to the Closing.
2.14 LITIGATION, ETC. Schedule 2.14 hereto sets forth a complete list and
an accurate description of all claims, actions, suits, proceedings and
investigations pending or, to the knowledge of each of the Company and the
Sellers, threatened, by or against the Company or any of its properties, assets,
rights or businesses. There is no basis for any other such claim, action, suit,
proceeding or investigation. Except as set forth on Schedule 2.14, there are no
actions, suits, proceedings or claims pending before or by any court,
arbitrator, or Agency against or affecting the Sellers or the Company that would
enjoin or prevent the consummation of the transactions contemplated by this
Agreement. After the Closing, the Company will not have any liability, damage,
cost or expense relating to or arising out of any of the matters described on
Schedule 2.14.
2.15 TAXES; TAX MATTERS. For all taxable periods commencing May 1, 1995,
through and including the date immediately prior to the Closing, Company had
properly elected and has been treated as an S corporation within the meaning of
Section 1361(a) of the Code. Such election was validly made and is effective for
all periods commencing May 1, 1995 and ending the Closing Date. During such
period, such election has been valid and effective for purposes of all states in
which the Company is taxable for income tax purposes. The Company has duly filed
or caused to be filed (or obtained valid, currently effective extensions for
filing) all federal, state, local and foreign income, franchise, excise,
payroll, sales and use, property, provider, withholding and other tax returns,
reports, estimates and information and other statements or returns (collectively
"Tax Returns") required to be filed by or on behalf of it pursuant to any
applicable federal, state, local or foreign tax laws for all years and periods
for which such Tax Returns have become due. All such Tax Returns were correct in
all respects as filed and reflect in all respects the federal, state, local and
foreign income, franchise, excise, payroll, sales and use, property, provider,
withholding and other taxes, duties, fees, imposts and governmental charges (and
charges in lieu of any thereof), together with interest, any additions to tax
and penalties (collectively "Taxes") required to be paid or collected by (or
allocable to) the Company. The Company (i) has paid or caused to be paid all
Taxes as shown on Tax Returns filed by it or on any assessment received by it
(except for those Taxes, if any, that are being contested in good faith and for
which the Company has established adequate reserves as required by generally
accepted accounting principles) and (ii) has properly and fully recorded as
accrued or deferred liabilities on the Historical Financial Statements and the
Closing Financial Statements all Taxes for any period from the date of the last
reporting period covered by such Tax Returns. The Company has not received any
written notice of any audit, or any dispute or claim being threatened by any
relevant taxing authority concerning any Tax Return or liability for Taxes. The
Company has withheld or collected from each payment to its employees (or has
otherwise paid or made provision for) the amount of all Taxes (including, but
not limited to, federal income taxes, Federal Insurance Contribution Act taxes,
state and local income and wage taxes, payroll taxes, workers' compensation and
unemployment compensation taxes) required to be withheld or collected therefrom,
and the Company has paid (or caused to be paid) the same in respect of its
employees when due. None
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of the assets of the Company is required to be treated as being owned by any
other person pursuant to the "safe harbor" leasing provisions of Section
168(f)(8) of the Internal Revenue Code of 1954 as in effect prior to the repeal
thereof.
2.16 LABOR AND EMPLOYMENT MATTERS. No collective bargaining agreement is
applicable to any employees of the Company. There are not any disputes between
the Company and any such employees that would reasonably be expected to
materially adversely affect the conduct of the Company's business or any
unresolved labor union grievances or unfair labor practice or labor arbitration
proceedings pending or, to the knowledge of the Sellers, threatened, relating to
the business of the Company. There are not any organizational efforts presently
being made or threatened involving any of such employees. The Company has fully
complied with all applicable laws relating to employment, including any
provisions thereof relating to wages, hours, collective bargaining, the payment
of social security and other payroll or similar taxes, equal employment
opportunity, employment discrimination or harassment and employment safety, and
except as set forth on Schedule 2.16 hereof, the Company has no liability for
any arrears of wages or any taxes or penalties for failure to comply with any of
the foregoing. There are no proceedings pending or, to the knowledge of the
Sellers, threatened before the National Labor Relations Board with respect to
any employees of any of the Company. There are no discrimination or harassment
charges (relating to sex, age, religion, race, national origin, ethnicity,
handicap, sexual orientation, veteran or other protected status) pending or, to
the knowledge of the Sellers, threatened before any federal or state agency or
authority against the Company. The Company has handled and disposed of all
medical wastes or biohazardous materials in compliance with all applicable
federal, state or local statutes, rules or regulations and in such a manner that
does not give rise to any claim of liability by any employee, client or
independent contractor of the Company, or any other party.
2.17 INSURANCE. All policies of fire, liability, workers' compensation,
malpractice and professional liability and other forms of insurance providing
insurance coverage to or for the Company are listed in Schedule 2.17 hereto and
(i) the Company is named insured under such policies, (ii) all premiums required
to be paid with respect thereto covering all periods up to and including the
Closing Date have been paid, (iii) there has been no lapse in insurance coverage
at any time since the Company commenced operations and (iv) no written notice of
cancellation or termination has been received with respect to any such policy.
Since the commencement of the operations of the Company, all of its insurance
policies have been issued on an "occurrence" basis. All such policies are in
full force and effect and will remain in full force and effect to and including
the Closing Date, and, will continue to be in effect immediately after the
Closing Date, without limit as to time, for occurrences prior to the Closing
Date. After the Closing Date, the Company will have no liability or obligation
for any retrospective or audit premiums for any period prior to the Closing
Date. All prepaid insurance premiums will be fully refundable on a pro rata
basis and have been accurately recorded as such on the Historical Balance Sheet
and Closing Financial Statements. Except as set forth on Schedule 2.17, since
December 31, 1996, no claims have been made on any of such policies.
2.18 USE OF REAL PROPERTY. The leased real properties required to be
listed in Schedule 2.11 hereto are used and operated by the Company in
compliance and conformity with all applica-
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<PAGE> 19
ble leases. The ownership, use and operation by the Company of its leased real
property or other assets do not violate any restrictive covenant or any
applicable zoning or building regulation, ordinance or other law, order,
regulation or requirement relating to such ownership, use or operation, which
violation, if required to be abated or corrected, would have an adverse effect
(financially or otherwise) on the operations of the Company.
2.19 CONDITION OF ASSETS. Except for incidental repairs required in the
ordinary course of business, all buildings, land improvements, tangible personal
property, fixtures and equipment comprising the assets of the Company are in a
good state of repair (ordinary wear and tear excepted) and operating condition
and are sufficient and adequate to conduct its business as presently conducted
on the date hereof (which at a minimum shall be in accordance with the
applicable rules and requirements of the Agencies).
2.20 ACCOUNTS RECEIVABLE. The accounts receivable reflected in the
Historical Financial Statements and the Closing Financial Statements, and all
accounts receivable arising after December 31, 1996, arose from bona fide
transactions in the ordinary course of business on ordinary trade terms, and
represent valid and binding obligations due to the Company. Except as set forth
on Schedule 2.20, no such account receivable nor any note receivable of the
Company has been assigned or pledged to any other person, firm or corporation.
2.21 BOOKS AND RECORDS. The corporate minute book and stock record book
of the Company (i) contain a true and complete record, in all material respects,
of all actions taken at all meetings of the stockholders and Board of Directors
of the Company, and (ii) properly and accurately record the issuance and
transfer of all shares of capital stock of the Company.
2.22 EMPLOYEE BENEFIT PLANS.
(a) Schedule 2.22 attached hereto lists each employee benefit plan
within the meaning of section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA") maintained by the Company or to which the
Company contributes or is required to contribute or in which any employee
of the Company participates (a "Plan"). Each of the Plans has been
operated and administered in all respects in accordance with applicable
laws, including but not limited to ERISA and the Code. There are no
pending or, to the knowledge of Sellers, threatened claims by or on
behalf of any of the Plans, by any employee or beneficiary covered under
such Plan or otherwise involving any such Plan or any of its fiduciaries
(other than for routine claims for benefits).
(b) Except as set forth in Schedule 2.22 hereto, (i) each Plan
subject to section 401(a) of the Code qualifies thereunder and is exempt
from taxation pursuant to section 501(a) of the Code, (ii) each trust
subject to section 501(c) of the Code qualifies for exemption from
federal income tax thereunder, and (iii) each Plan subject to sections
125 and 129 of the Code qualifies thereunder.
(c) The Company has not maintained, contributed to or been
required to contribute to, nor do any of its employees participate in, a
"multi-employer plan" (as
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defined in section 3(37) of ERISA) or a "defined benefit plan" (as
defined in section 3(35) of ERISA).
(d) Notwithstanding anything else set forth herein, neither the
Sellers nor the Company has incurred any liability as of the Closing Date
with respect to any Plan under ERISA (including, without limitation,
Title I or Title IV of ERISA), the Code or other applicable law, which is
due and payable and which has not been satisfied in full, and no event
has occurred, and there exists no condition or set of circumstances which
could result in the imposition of any liability under ERISA (including,
without limitation, Title I or Title IV of ERISA), the Code or other
applicable law with respect to any of the Plans (other than the payment
of routine claims for benefits, insurance premiums or contributions
required under the terms of the Plans).
(e) No Plan, other than a Plan which is an employee pension
benefit plan (within the meaning of section 3(2)(A) of ERISA), provides
benefits, including without limitation, death, health or medical benefits
(whether or not insured), with respect to current or former employees of
the Company beyond their retirement or other termination of service with
the Company (other than (i) coverage mandated by applicable law, (ii)
deferred compensation benefits fully accrued as liabilities on the books
of the Company or (iii) benefits the full cost of which is borne by the
current or former employee (or his beneficiary)).
(f) Except as a consequence of any termination authorized by
Section 1.4(d) hereof, the consummation of the transactions contemplated
by this Agreement will not (i) entitle any current or former employee,
officer or director of the Company to severance pay, unemployment
compensation or any other payment from the Company, or (ii) accelerate
the time of payment or vesting, or increase the amount of compensation
due any such employee, officer or director.
(g) Except as set forth in Schedule 2.22 hereto, the Sellers have
provided or made available to Buyer, its counsel or accountants true and
complete copies of the following for each Plan as applicable: (i) the
Plan; (ii) the summary plan description of the Plan; (iii) the trust
agreement, insurance policy or other instrument relating to the funding
of the Plan; (iv) the most recent Annual Report (Form 5500 series) and
accompanying schedule filed with the Internal Revenue Service or United
States Department of Labor with respect to the Plan; (v) the most recent
audited financial statement for the Plan; (vi) the most recent actuarial
report of the Plan; and (vii) the policy of fiduciary liability insurance
(and agreements related thereto) maintained in connection with the Plan.
(h) The Company has not amended or terminated any Plan after
providing Buyer with copies of the Plans referenced in Schedule 2.22
hereto.
2.23 TRANSACTIONS WITH AFFILIATES. Except as set forth on Schedule 2.23
hereto, (a) there are no contracts for the provision of goods or services
(including but not limited to
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management services) to or from (i) the Company and (ii) the Sellers or any
affiliate of the Sellers (collectively, the "Seller Group"), (b) there are no
facilities occupied in whole or in part by the Company, and no other property,
assets, franchises, licenses or rights used by any of the Company, that are
owned, leased by or to, or occupied by any member of the Seller Group, and (c)
there are no liabilities (whether for borrowings or otherwise) of the Company to
any member of the Seller Group.
2.24 ENVIRONMENTAL MATTERS.
(a) For the purposes of this Section 2.24, the following terms
shall have the following meanings:
"Environmental Law" means any applicable federal, state, or
local statute, law, ordinance, rule or regulation of the United States
and any other jurisdiction within the United States now effective and
any order, to which the Company is a party or is otherwise directly
bound of the United States or other jurisdiction within the United
States now effective relating to: (i) pollution or protection of the
environment, including natural resources; or (ii) exposure of persons,
including employees, to Hazardous Sub stances;
"Hazardous Substances" means any substance, whether liquid,
solid or gas (i) listed, identified or designated as hazardous or toxic
under any Environmental Law, (ii) which, applying criteria specified in
any Environmental Law, is hazardous or toxic, (iii) the use or disposal
of which is regulated under Environmental Law, or (iv) which is
considered a biohazard under any applicable law or regulation.
(b) No Hazardous Substances have been, or, to the knowledge of
Sellers, have been threatened to be, discharged, released or emitted
into the air, water, surface water, ground water, land surface or
subsurface strata or transported to or from the property of the Company
except in compliance with Environmental Law and except for incidental
releases of Hazardous Substances in amounts or concentrations which
would not reasonably be expected to give rise to any claims or
liabilities against the Company under Environmental Law.
(c) There is no violation of any Environmental Law with respect
to the business and properties of the Company and neither any Seller nor
the Company has received any written notification from a governmental
agency pursuant to Section 104, 106 or 107 of the Comprehensive
Environmental Response Compensation and Liability Act, as amended.
(d) There is no underground storage tank on the premises of any
real property currently or previously owned and/or occupied by the
Company and neither the Company nor any of the Seller Group has removed
or caused to be removed any such underground storage tank in any manner
other than in complete compliance with applicable Environmental Law.
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<PAGE> 22
2.25 AGENCY FILINGS. All cost reports and financial statements or
reports required to be filed by the Company under federal or state law or any
other applicable governmental or private provider regulations or contractual
requirements (the "Agency Filings") have been prepared and filed in accordance
with applicable laws, rules, regulations and requirements (and copies of such
Agency Filings have been provided to Buyer) and the Company has paid or made
provision to pay, or has adequate reserves for such reflected on the balance
sheet included in the Historical Financial Statements and the Closing Financial
Statements, all actual or potential adjustments by Medicaid or other programs
attributable to the Agency Filings which were due or which were attributable to
any period prior to the Closing. Certain provider agreements between the Company
and the respective Agency or other third-party payor which is a party thereto
require, either pursuant to the terms of such agreements or pursuant to
applicable rules or regulations, the submission by the Company of periodic
audited financial statements. The Company has not complied with such
requirements. The Company presently has no liability and after the Closing will
not have any liability or loss attributable to the failure to comply with any
such requirements, including but not limited to (a) any obligation to refund any
revenues previously paid to the Company, (b) any reduction in revenues or
reimbursement rates (either before or after the Closing), or (c) any penalty,
interest or other cost.
2.26 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Company nor any
officer or director of the Company nor, to the knowledge of any of the Sellers
or the Company, any other person or entity acting on behalf of the Company,
acting alone or together, has (i) received, directly or indirectly, any rebates,
payments, commissions, promotional allowances or any other economic benefits,
regardless of their nature or type, from or on behalf of any client,
governmental employee or other person or entity with whom the Company has done
business directly or indirectly, or (ii) directly or indirectly, given or
agreed to give any gift or similar benefit to any client, governmental employee
or other person or entity who is or may be in a position to help or hinder the
business of the Company (or assist the Company in connection with any actual or
proposed transaction) which, in the case of either clause (i) or clause (ii)
above, would reasonably be expected to subject the Company to any damage or
penalty in any civil, criminal or governmental litigation or proceeding.
2.27 FRAUD AND ABUSE. Except as disclosed in Schedule 2.14 hereto,
neither the Company nor any of its officers, directors or any of the persons who
provide professional services under agreements with the Company, has engaged in
any activities which are prohibited under federal Medicaid statutes or the
regulations promulgated pursuant to such statutes or related state or local
statutes or regulations or which are prohibited by rules of professional conduct
applicable to the Company Services.
2.28 BROKERS' OR FINDERS' FEES. Except for the obligations of Buyer to
NationsBanc Capital Markets, Inc. ("NCMI") pursuant to its letter agreement with
such entity, all negotiations relative to this Agreement and the transactions
contemplated hereby have been carried out by the Sellers directly with Buyer,
without the intervention of any person on behalf of either the Company or the
Sellers in such manner as to give rise to any valid claim by any person against
the Company or Buyer for a finder's fee, brokerage commission or similar
payment. The parties agree that any fee or other payment due to NCMI or its
affiliates in connection with this
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<PAGE> 23
Agreement or the transaction contemplated hereby shall be the sole
responsibility of Buyer. Neither any of Sellers nor the Company has any
agreement with or obligation to NCMI relating to the transactions contemplated
herein.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to the Sellers as follows:
3.1 ORGANIZATION, POWER, ETC. Buyer is a corporation duly organized and
validly existing under the laws of the Commonwealth of Kentucky. Buyer has full
corporate power and authority, and the legal right, to execute and deliver this
Agreement to which it is a party, and to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby.
3.2 AUTHORIZATION OF AGREEMENTS, ETC. The execution and delivery by
Buyer of this Agreement and other agreements to be delivered by it hereunder,
and the performance by Buyer of its respective obligations hereunder and
thereunder, have been duly authorized by all requisite corporate action and will
not violate any provision of law, any order of any court or other agency of
government, the Articles of Incorporation or Bylaws of Buyer, any judgment,
award or decree or (except for any necessary consent of PNC Bank, Kentucky, Inc.
under Buyer's credit facility, which consent shall be obtained prior to Closing)
any indenture, agreement or other instrument to which Buyer is a party, or by
which it or any of its properties or assets is bound or affected, or result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any such indenture, agreement or other instrument, or result in the
creation or imposition of any Lien upon any of the properties or assets of
Buyer.
3.3 VALIDITY. This Agreement has been duly executed and delivered by
Buyer and, subject to due execution by each of the Sellers, constitutes, and the
other agreements which are contemplated to be executed by Buyer hereunder, when
executed and delivered by Buyer as contemplated hereby, subject to due execution
by the other parties thereto, will constitute, the legal, valid and binding
obligations of Buyer, enforceable against Buyer in accordance with their
respective terms, subject to applicable reorganization, insolvency, moratorium
and other laws affecting creditors' rights generally from time to time in effect
and the effects of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
3.4 LITIGATION RELATING TO TRANSACTION. There are no actions, suits,
proceedings or claims pending before any court, arbitrator or government agency
against or affecting Buyer which might enjoin or prevent the consummation of the
transactions contemplated by this Agreement or any other agreements to be
executed hereunder to which Buyer will be a party.
3.5 INVESTMENT. Buyer is acquiring the Shares for its own account, for
investment and not with a view toward the distribution thereof within the
meaning of the Securities Act of 1933,
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<PAGE> 24
as amended (the "Securities Act"). Buyer will refrain from transferring or
otherwise disposing of any of the Shares, or any interests therein, in such
manner as to cause the Sellers to be in violation of the registration
requirements of the Securities Act or applicable state securities or "blue sky"
laws.
3.6 BROKERS' OR FINDERS' FEES. Except for the obligations of Buyer to
NCMI pursuant to its letter agreement with such entity, all negotiations
relative to this Agreement and the transactions contemplated hereby have been
carried out by Buyer directly with the Sellers, without the intervention of any
person on behalf of Buyer in such manner as to give rise to any valid claim by
any person against the Sellers for a finder's fee, brokerage commission or
similar payment. The parties agree that any fee or other payment due to NCMI or
its affiliates in connection with this Agreement or the transactions
contemplated hereby shall be the sole responsibility of Buyer.
ARTICLE IV
COVENANTS
---------
4.1 CERTAIN COVENANTS OF THE SELLERS.
(a) During the period from the date of this Agreement through
the Closing Date, the Sellers will cause the Company to conduct its
business and operations according to its ordinary course of business and
to use its best efforts (i) to preserve its relationships with its
employees and clients and with the Agencies, (ii) to maintain its
Licenses and its contracts with third party payors and clients in full
force and effect in accordance with their terms and (iii) to continue to
provide its services to such third party payors and clients. Without
limiting the generality of the foregoing, except as otherwise expressly
contemplated by this Agreement, prior to the Closing Date, without the
prior written consent of Buyer, the Sellers shall not permit the Company
to do any of the things listed in paragraphs (a) through (k) of Section
2.8 above.
(b) Between the date hereof and the Closing Date, the Sellers
shall, and shall cause the Company to, provide, upon reasonable advance
notice during normal business hours, access by representatives of Buyer
to the financial, accounting and legal records of the Company, and to
key employees of the Company designated by Buyer, and, in connection
therewith, shall permit representatives of Buyer, upon reasonable
advance notice during normal business hours, to visit the premises of
the Company. Such activities shall be performed, so far as is
reasonably possible, in such a manner as to avoid disruption of normal
operations.
(c) Between the date hereof and the Closing Date, and in
connection with the preparation of the Statement, the Sellers shall not
permit the Company, except as re quired by generally accepted accounting
principles and subject to appropriate year-end adjustments, (i) to
utilize accounting principles different from those used in the
preparation of the Historical Financial Statements and the Closing
Financial Statements, (ii) change in any manner its method of
maintaining its books of account and records from such
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<PAGE> 25
methods as reflected in the Historical Financial Statements and the
Closing Financial Statements, or (iii) accelerate booking of revenues or
the deferral of expenses.
(d) Between the date hereof and the Closing Date, neither the
Sellers nor any member of the Seller Group shall enter into any
transaction, make any agreement or commitment, or take any action, which
would result in any of the representations, warranties or covenants of
the Sellers contained in this Agreement not being true and correct in
any respect at and as of the time immediately after the occurrence of
such transaction, event or action.
(e) Between the date hereof and the Closing Date, the Sellers
shall, and shall cause the Company to, cooperate in good faith with
Buyer, including the filing and submission of all necessary and
appropriate applications and documents, in order to obtain all
applicable governmental, regulatory and third party authorizations,
consents, waivers and approvals required or necessary in order to
consummate the transactions contemplated by this Agreement.
(f) The parties contemplate that because the Company will be
included as a part of the consolidated federal income tax return filed
by Buyer for the period after the Closing, that separate federal and
state income tax or informational returns ("Closing Tax Returns") will
be required to be prepared and filed for the Company for the period
January 1, 1997 through the Closing Date. The Sellers will be
responsible for the preparation of the Closing Tax Returns, which shall
be filed on a timely basis in accordance with all applicable
requirements of the respective tax authorities. Buyer shall cooperate in
providing access to the Company's books and records to enable the
Sellers to satisfy their covenants in this paragraph (f).
(g) Sellers hereby waive their respective rights of first
refusal in Section 5.02 of the Company's Bylaws. Sellers shall cause the
Company to waive its right of first refusal in Section 5.02 of the
Company Bylaws.
4.2 CERTAIN COVENANTS OF BUYER.
(a) Between the date hereof and the Closing Date, Buyer shall
use its reasonable business efforts, in cooperation with the Sellers and
the Company, in order to obtain all governmental, regulatory and third
party authorizations, consents, waivers and approvals necessary or
desirable in order to consummate the transactions contemplated by this
Agreement.
(b) Buyer shall use its reasonable efforts to coordinate with
the Company all inquiries to and contacts with the Agencies regarding
the transactions contemplated herein.
(c) For a period of seven (7) years after the Closing, the Buyer
shall cause the Company to retain its payroll and other records which
are reasonably necessary to support
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and/or defend a Medicaid audit and shall provide the Sellers, at their
cost, copies of such records solely for such purpose upon the Sellers'
reasonable request.
4.3 BOOKS AND RECORDS. At or before the Closing, the Sellers shall
deliver to Buyer or shall cause to be delivered to the principal office or other
office of the Company, as appropriate, all books, records, files, documents,
papers, agreements, books of account and other records pertaining to the
business of the Company and used in the operation of the business of the
Company.
4.4 CONFIDENTIALITY. Prior to the consummation of the transactions
contemplated herein, all information furnished to or obtained by Buyer, its
attorneys, accountants, or other representatives as a result of its
investigation or otherwise in connection with the transactions contemplated
herein shall be treated as confidential information and, except as required by
applicable law, shall not be disclosed to any person or entity without the prior
written consent of the Sellers. In the event that the transactions contemplated
herein are not consummated or this Agreement is terminated, upon written request
by Sellers, Buyer agrees to (i) return (at Buyer's sole cost and expense) to
Sellers and the Company all written information furnished by Sellers and (ii)
not thereafter use for any purpose whatsoever such confidential information or
permit such confidential information to be made available to others except as
required by applicable law.
ARTICLE V
CONDITIONS PRECEDENT
--------------------
5.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER. The obligations of
Buyer to consummate the transactions contemplated by this Agreement is subject,
at the option of Buyer, to the satisfaction at or prior to the Closing Date of
each of the conditions set forth in this Section 5.1, any one or more of which
may be waived by Buyer.
(a) CONDITION OF ASSETS; CASUALTY. Any structural inspection or
financial analysis conducted by Buyer, in Buyer's sole discretion and at
its expense, of the real property and improvements and fixtures thereon
at which the Company conducts its business operations and of the
Company's business operations, shall be reasonably acceptable to Buyer,
shall not disclose any materially adverse environmental or unsound
structural conditions, and shall be acceptable to Buyer in its
discretion, exercisable in good faith. It is expressly understood and
agreed that in the event of any loss, damage or destruction to any of
the property or assets of the Company from fire, casualty or other
causes prior to the Closing Date, the Sellers shall notify Buyer of same
immediately in writing. Such notice shall specify with particularly the
loss, damage or destruction incurred, the cause thereof, if known or
readily ascertainable, the insurance coverage, the cost to completely
repair, replace or restore the property or assets, the estimated loss of
gross revenues resulting therefrom and the estimated duration of such
loss of gross revenues. In the event the estimated loss of gross
revenues and/or the cost to completely repair, replace and restore the
property or assets is in excess of $5,000, Buyer (i) may consummate the
Closing and accept the property or assets in its or their then
condition,
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in which event Buyer may apply all available insurance proceeds to
repair, replace or restore the property or assets involved, or (ii)
rescind this Agreement and declare it of no further force or effect in
which event there shall be no Closing and this Agreement and all the
terms and provisions hereof shall thereupon be deemed null and void. In
the event the estimated loss of gross revenues and/or the cost to
completely repair, replace and restore the property or assets is $5,000
or less, Buyer shall consummate the transactions contemplated under this
Agreement and accept the property and assets in its or their then
condition in which event Buyer may apply all available insurance
proceeds to repair, replace or restore the property or assets involved.
(b) FINANCIAL ANALYSIS. Buyer shall have conducted a review of
the business operations, books and records of the Company, which review
shall disclose that there shall have been no material adverse change in
the financial condition, assets, revenues, number of clients served, net
income or business prospects of the Company from December 31, 1996 or as
disclosed in the Historical Financial Statements, through the Closing,
and the business of the Company shall have been conducted during the
period December 31, 1996 through the Closing in the ordinary course of
business consistent with past practices.
(c) OPINION OF COUNSEL FOR SELLING SHAREHOLDERS. Buyer shall
have received the opinion of Fennebresque, Clark, Swindell & Hay,
counsel for the Sellers, addressed to Buyer and dated the Closing Date,
reasonably satisfactory in form and substance to Buyer and its counsel,
to the effect set forth in Exhibit G hereto.
(d) CONSENTS AND APPROVALS. All authorizations, consents,
waivers and approvals required in connection with the execution,
delivery and performance of this Agreement, including but not limited to
the approval of all Agencies and the lessors under any real estate lease
to which the Company is a party, shall have been duly obtained and shall
be in form and substance reasonably satisfactory to counsel for Buyer.
(e) LEGAL ACTIONS OR PROCEEDINGS. No legal action or proceeding
shall have been instituted by any party or threatened by any
governmental department, agency or authority, in either case seeking to
restrain, prohibit, invalidate or otherwise affect the consummation of
the transactions contemplated hereby or which would, if adversely
decided, adversely affect the operation by the Company of its business.
(f) ADDITIONAL AGREEMENTS. Each of the agreements which are
required to be executed and delivered by Sellers as provided in this
Agreement shall have been duly executed and delivered by all parties
thereto other than Buyer.
(g) SUPPORTING DOCUMENTS. On or prior to the Closing Date, Buyer
and its counsel shall have received copies of the following supporting
documents, all of which shall be reasonably satisfactory in form and
substance to Buyer and its counsel:
(i) (A) the Articles of Incorporation of the Company
certified as of a recent date by the Rhode Island Secretary of
State; (B) a certificate of the Rhode
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Island Secretary of State as to the due incorporation and good
standing of the Company and (C) a certificate of the North
Carolina Secretary of State as to the qualification of the
Company as a foreign corporation in good standing in such state;
(ii) a certificate of the Secretary or an Assistant
Secretary of the Company, dated the Closing Date and certifying
(A) that attached thereto is a true and complete copy of the
Bylaws of the Company as in effect on the date of such
certification; (B) that the Articles of Incorporation of the
Company have not been amended since the date of the last
amendment referred to in the certificate delivered pursuant to
clause (i)(A) above; and
(iii) such other documents and instruments as may be
reasonably required by Buyer to effectuate the transactions
contemplated herein.
(h) ADDITIONAL FINANCIAL STATEMENTS. The financial statements of
the Company for the period prior to or as of the Closing shall not have
reflected any materially adverse change in the financial condition or
results of operations of the Company, as compared to the Historical
Financial Statements and the Closing Financial Statements.
(i) OTHER EMPLOYMENT AGREEMENTS. Each of Lynne Place, Judy Hardy
and Steven Greer shall have executed and delivered an employment
agreement with the Company providing for the continuation of their
employment with the Company for a period of three (3) years after the
Closing. The form and substance of each of such employment agreements is
attached as Exhibits H-1 through H-3 (the "Other Employment
Agreements").
(j) REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations and warranties made by the Sellers in this Agreement or
in any other written statement delivered by her hereunder, or delivered
pursuant hereto shall be true and correct in all material respects at
the Closing as though made at that time or, in the case of
representations and warranties made as of a specified date earlier than
the Closing Date, on and as of such earlier date. The Sellers shall have
performed, satisfied and complied with all material covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by them at or before the Closing.
5.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE SELLERS. The
obligations of the Sellers under this Agreement are subject, at the option of
the Sellers, to the satisfaction at or prior to the Closing Date of each of the
conditions set forth in this Section 5.2, any one or more of which may be waived
by the Sellers.
(a) LEGAL ACTIONS OR PROCEEDINGS. No legal action or proceeding
shall have been instituted by any party or threatened by any
governmental department, agency or authority, in either case seeking to
restrain, prohibit, invalidate or otherwise affect the
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<PAGE> 29
consummation of the transactions contemplated hereby or which would, if
adversely decided, materially adversely affect the operation by the
Buyer of its business.
(b) ADDITIONAL AGREEMENTS. Each of the agreements which are
required to be executed by Buyer as contemplated herein shall have been
duly executed and delivered by Buyer.
(c) OPINION OF COUNSEL FOR BUYER. The Sellers shall have
received the opinion of Reed Weitkamp Schell Cox & Vice, counsel for
Buyer, addressed to the Sellers and dated the Closing Date, reasonably
satisfactory in form and substance to the Sellers and their counsel to
the effect set forth in Exhibit I hereto.
(d) SUPPORTING DOCUMENTS. On or prior to the Closing Date, the
Sellers and their counsel shall have received a Certificate of the
Secretary or an Assistant Secretary of Buyer, dated the Closing Date and
certifying (i) that attached thereto is a true and complete copy of (A)
the Articles of Incorporation of Buyer, (B) the Bylaws of Buyer, and (C)
the resolutions adopted by the Board of Directors of Buyer, authorizing
the execution, delivery and performance of this Agreement and any other
agreements to which Buyer is a party, and that all such resolutions are
still in force and effect and are all resolutions adopted in connection
with the transactions contemplated by this Agreement and (ii) as to the
incumbency and specimen signature of each officer of Buyer executing
this Agreement and any other agreement contemplated to be executed
hereunder to which it is a party, and any certificate or instrument
furnished pursuant hereto and thereto.
(e) OTHER DOCUMENTS. On or prior to the Closing Date the Sellers
and their counsel shall have received such documents and instruments as
may be reasonably requested by the Sellers and her counsel to effectuate
the transactions contemplated herein.
(f) OTHER EMPLOYMENT AGREEMENTS. Each of Lynne Place, Judy Hardy
and Steven Greer shall have executed and delivered their respective
Other Employment Agreements.
(g) REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations and warranties made by Buyer in this Agreement or in any
other written statement delivered by them hereunder, or delivered
pursuant hereto shall be true and correct in all material respects at
the Closing as though made at that time. Buyer shall have performed,
satisfied and complied with all material covenants, agreements and
conditions required by this Agreement to be performed, satisfied or
complied with by it at or before the Closing.
ARTICLE VI
INDEMNIFICATION
---------------
6.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations, warranties and covenants made by any party hereto in this
Agreement or pursuant hereto shall
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survive the Closing Date hereunder and shall terminate on the day which shall be
three (3) years after the Closing Date, except for the representations and
warranties of the Sellers as set forth in Sections 2.12, 2.13, 2.15, 2.22, 2.24,
2.25, 2.26 and 2.27, which shall survive until the expiration of the applicable
statutes of limitations.
6.2 INDEMNITY.
(a) Subject to the other terms and conditions of this Article
VI, the Sellers jointly and severally agree to and will indemnify,
defend and hold each of the Company and Buyer harmless from and against
all demands, claims, actions or causes of action, assessments, losses,
damages, liabilities, costs and expenses, including without limitation
interest, penalties and reasonable attorneys' fees and expenses
(hereinafter collectively called "Buyer Damages"), asserted against,
resulting to, imposed upon or incurred by the Company or Buyer, by
reason of, resulting from or arising out of (i) a breach of any
representation, warranty, covenant or agreement of the Sellers contained
in or made pursuant to this Agreement, or any facts or circumstances
constituting such a breach, or (ii) for any financial overpayment by any
third party payor, including, but not limited to, disallowed costs
and/or excessive rates of reimbursement under the Medicaid or other
programs resulting from or arising out of services provided by the
Company on or before the Closing Date.
(b) Subject to the terms and conditions of this Article VI,
Buyer agrees to and will indemnify, defend and hold each of the Sellers
harmless from and against all demands, claims, actions or causes of
action, assessments, losses, damages, liabilities, costs and expenses,
including without limitation interest, penalties and reasonable
attorneys' fees and expenses (hereinafter collectively called "Seller
Damages"), asserted against, resulting to, imposed upon or incurred by
any of Sellers by reason of or resulting from or arising out of a breach
of any representation, warranty, covenant or agreement of Buyer
contained in or made pursuant to this Agreement, or any facts or
circumstances constituting such a breach.
6.3 CONDITIONS OF INDEMNIFICATION. For purposes of Article VI, the party
requesting indemnification under this Article VI is sometimes referred to as the
"party to be indemnified" and the party from whom indemnification is sought
under this Article VI is sometimes referred to as the "indemnifying party." The
respective obligations and liabilities of the Sellers, on the one hand, and
Buyer, on the other hand, to the other under Section 6.2 hereof with respect to
claims resulting from the assertion of liability by third parties shall be
subject to the following terms and conditions:
(a) within ten (10) days after receipt of notice of commencement
of any action or the assertion of any claim by a third party for which
indemnification is available under this Article VI, the party to be
indemnified shall give the indemnifying party written notice thereof
together with a copy of such claim, process or other legal pleading
(provided that failure so to notify the indemnifying party of the
assertion of a claim within such period shall not affect its indemnity
obligation hereunder except as and to the extent that such
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<PAGE> 31
failure shall adversely affect the defense of such claim), and the
indemnifying party shall have the right to undertake the defense thereof
by representatives of its own choosing and, except as provided in
paragraph (d) of this Section 6.3, the indemnifying party will have full
control of such defense and proceedings, including any settlement
thereof;
(b) in the event that the indemnifying party, by the 30th day
after receipt of notice of any such claim (or, if earlier, by the tenth
day preceding the day on which an answer or other pleading must be
served in order to prevent judgment by default in favor of the person
asserting such claim), does not elect to defend against such claim, the
party to be indemnified will (upon further notice to the indemnifying
party) have the right to undertake the defense, compromise or settlement
of such claim on behalf of and for the account and risk of the
indemnifying party, subject to the right of the indemnifying party to
assume the defense of such claim at any time prior to settlement,
compromise or final determination thereof;
(c) the fees and expenses of any separate counsel retained by
the party to be indemnified shall be at the sole expense of the party to
be indemnified, unless the indemnifying party and the party to be
indemnified shall have mutually agreed to the retention of such separate
counsel by the party to be indemnified. If requested by the indemnifying
party, the party to be indemnified agrees to cooperate with the
indemnifying party and its counsel in contesting any claim or demand
which the indemnifying party defends;
(d) anything in this Section 6.3 to the contrary
notwithstanding, if there is a reasonable probability that a claim for
which indemnification is sought under this Article VI may materially and
adversely affect the party to be indemnified, other than as a result of
money damages or other money payments, such claim shall not be settled
or compromised without the prior written consent of both the
indemnifying party and the party to be indemnified, in each case such
consent not to be unreasonably withheld; and
(e) in connection with any such indemnification, the party to be
indemnified will cooperate in all reasonable requests of the
indemnifying party.
6.4 RIGHT OF SETOFF. In addition to any other remedies hereunder, Buyer
shall be entitled to set off against the outstanding principal and/or interest
payable under the First Note an amount equal to any indemnification liability of
Sellers (subject to the limitations below). Buyer shall give the Sellers thirty
(30) days' prior written notice before making any set off permitted under the
preceding sentence. Such notice shall describe in reasonable detail the alleged
breach and the amount of the proposed set off. Sellers shall have the right
during such 30-day period to cure the breach contained in Buyer's notice to
Sellers. If such breach is not cured within such 30-day period, Buyer may make
the set off contemplated in this Section 6.4.
6.5 LIMITATION OF INDEMNIFICATION OBLIGATIONS OF SELLERS.
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<PAGE> 32
(a) Notwithstanding anything to the contrary herein (other than
paragraph (b) of this Section 6.5), Sellers shall not be liable for and
shall not indemnify Buyer or Company from any breach of any covenant,
representation or warranty of Sellers in this Agreement (individually, a
"Seller Breach" and collectively, the "Seller Breaches") unless and
until the aggregate Buyer Damages attributable to Seller Breaches exceed
$200,000 (the "Indemnification Threshold"). Sellers shall then be liable
for and shall indemnify Buyer and Company to the extent the Buyer
Damages attributable to Seller Breaches exceed $100,000 (the "Basket
Amount") (which shall mean that once the Indemnification Threshold is
reached, Sellers shall be liable and indemnify Buyer and the Company for
Buyer Damages between the Basket Amount and the Indemnification
Threshold). Notwithstanding the foregoing, the aggregate Buyer Damages
indemnified by Sellers under this Agreement shall not exceed, in the
aggregate, $4,000,000 (the "Indemnification Cap"), which amount shall
not be reduced by the Basket Amount. Any Buyer Damages attributable to
any matter described on Schedule 2.7 hereto shall not be taken into
account for purposes of this paragraph (a) in determining whether any of
the Basket Amount, Indemnification Threshold or Indemnification Cap are
satisfied.
(b) Any limitation on the indemnification obligations of Sellers
provided in this Agreement, including but not limited to paragraph (a)
of this Section 6.5, shall not be applicable to any Buyer Damages
attributable to any matter described on Schedule 2.7 hereto. Sellers'
liability for any such matter shall be unlimited and shall not be
subject to the satisfaction of any threshold.
ARTICLE VII
TERMINATION AND ABANDONMENT
---------------------------
7.1 TERMINATION. This Agreement may be terminated at any time prior to
the closing on the Closing Date:
(a) by the mutual consent of the Sellers, on the one hand, and
Buyer, on the other hand; or
(b) by Buyer, on the one hand, or the Sellers, on the other
hand, if the Closing shall not have occurred on or before August 31,
1997 or such later date as may be agreed upon by the parties hereto;
PROVIDED, HOWEVER, that the right to terminate this Agreement under this
clause (b) shall not be available to any party (a "Defaulting Party")
whose failure to fulfill any obligation under this Agreement has been
the cause of, or resulted in the failure of the Closing to occur on or
before such date.
If the Closing shall not have occurred, or this Agreement shall not have
been terminated in accordance with this Section 7.1, by September 30, 1997, this
Agreement shall automatically terminate on said date; PROVIDED, HOWEVER, that
such termination shall not affect the liability hereunder of any Defaulting
Party.
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<PAGE> 33
7.2 PROCEDURE AND EFFECT OF TERMINATION. In the event of termination of
this Agreement and abandonment of the transactions contemplated hereby by any or
all of the parties pursuant to Section 7.1 above, written notice thereof shall
forthwith be given to the other parties to this Agreement (other than in the
event of an automatic termination as provided in such Section) and this
Agreement shall terminate and the transactions contemplated hereby shall be
abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as provided in this Agreement:
(a) the parties hereto will promptly redeliver all documents,
work papers and other material of any other party relating to the
transactions contemplated hereby (including, without limitation, copies
thereof in the possession of the parties' respective counsel and
accountants) whether obtained before or after the execution hereof, to
the party furnishing the same; and
(b) no party shall have any liability or further obligation to
any other party to this Agreement pursuant to this Agreement except as
provided in Section 7.1 above and except for the representations and
covenants set forth in Sections 2.28, 3.6, 4.4, 8.1 and 8.2 hereof,
which shall survive such termination.
ARTICLE VIII
MISCELLANEOUS
-------------
8.1 EXPENSES, ETC.
(a) In connection with the transactions described herein,
Sellers shall pay (i) any fees or costs due to Sellers' or the Company's
lenders, if any, in order to secure any necessary consents or releases
and (ii) their own attorneys' or other professionals' fees, including in
connection with the preparation, execution and delivery of this
Agreement. None of such fees or expenses shall be paid or borne by the
Company.
(b) In connection with the transactions described herein, Buyer
shall pay: (i) any licensure or other fees due from the Company or Buyer
under applicable law to the Agencies in connection with the consummation
of the transactions contemplated herein, (ii) the costs of any due
diligence Buyer desires to conduct, and (iii) its own attorneys' or
other professionals' fees, including in connection with the preparation,
execution and delivery of this Agreement.
8.2 PUBLICITY. The Sellers acknowledges that the transactions
contemplated herein may be material, non-public information and, accordingly, no
public announcement or disclosure of this Agreement or the transactions
contemplated hereby shall be made without the prior written consent of Buyer.
Each party shall furnish to the other a draft of any press release or
announcement related to this transaction prior to its release. Nothing contained
herein shall prevent any party from at any time furnishing any information
required by any governmental authority or by law or shall prevent the Buyer from
disclosing the terms of the transaction to
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<PAGE> 34
regulatory authorities, securities analysts or as required in any filings
required by the securities laws or regulations.
8.3 EXECUTION IN COUNTERPARTS. For the convenience of the parties, this
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
8.4 NOTICES. All notices which are required or may be given pursuant to
the terms of this Agreement shall be in writing and shall be sufficient in all
respects if (i) delivered personally, (ii) mailed by registered or certified
mail, return receipt requested and postage prepaid, (iii) sent via a nationally
recognized overnight courier service or (iv) sent via facsimile confirmed in
writing to the recipient, in each case as follows:
<TABLE>
<CAPTION>
<S> <C>
IF TO THE SELLERS: Richard Greer
839 Wilkesboro Boulevard
Lenior, North Carolina 28645
Telephone: (704) 754-0000
Facsimile: (704) 754-3537
WITH COPIES TO: Bernard B. Clark, Esq.
Fennebresque, Clark, Swindell & Hay
NationsBank Corporate Center, Suite 2900
100 North Tryon Street
Charlotte, North Carolina 28202-4011
Telephone: (704) 347-3800
Facsimile: (704) 347-3838
IF TO BUYER: Paul G. Dunn
Executive Vice President-Development
Res-Care, Inc.
10140 Linn Station Road
Louisville, Kentucky 40223
Telephone: (502) 394-2311
Facsimile: (502) 394-2206
WITH COPIES TO: Gary R. Weitkamp, Esq.
Reed Weitkamp Schell Cox & Vice
2400 Citizens Plaza
Louisville, Kentucky 40202
Telephone: (502) 589-1000
Facsimile: (502) 562-2200
</TABLE>
or such other address or addresses as the Sellers, on the one hand, or Buyer, on
the other hand, shall have designated by notice in writing to the other.
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<PAGE> 35
8.5 WAIVERS. Either the Sellers, on the one hand, or Buyer, on the other
hand, may, by written notice to the other, (i) extend the time for the
performance of any of the obligations or other actions of the other under this
Agreement, (ii) waive any inaccuracies in the representations or warranties of
the other contained in this Agreement or in any document delivered pursuant to
this Agreement, (iii) waive compliance with any of the conditions or covenants
of the other contained in this Agreement, or (iv) waive performance of any of
the obligations of the other under this Agreement. Except as provided in the
preceding sentence or as otherwise expressly provided elsewhere in this
Agreement, no action taken pursuant to this Agreement, including without
limitation any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach.
8.6 AMENDMENTS, SUPPLEMENTS, ETC. This Agreement may be amended,
supplemented or modified only by a written instrument signed by all parties
hereto.
8.7 ENTIRE AGREEMENT. This Agreement, its Exhibits and Schedules and the
documents executed on the Closing Date in connection herewith, constitute the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral and written,
between the parties hereto with respect to the subject matter hereof, including
but not limited to the letter of intent executed by Buyer, the Company and the
Sellers dated July 9, 1997.
8.8 APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Kentucky, exclusive of the
conflicts of laws provisions thereof.
8.9 BINDING EFFECT; BENEFITS. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs, executors,
successors and permitted assigns. Notwithstanding anything contained in this
Agreement to the contrary, nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective heirs, executors, successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
8.10 ASSIGNABILITY. Except for an assignment by Buyer to a wholly-owned
subsidiary thereof, pursuant to which assignment such wholly-owned subsidiary
agrees in writing to be bound by all of the terms, conditions and provisions
contained herein, neither this Agreement nor any of the parties' rights
hereunder shall be assignable by any party hereto without the prior written
consent of the other parties hereto, and any attempt to do so without such
consent will be null and void. No such assignment by Buyer under this Section
shall relieve Buyer of its obligations under this Agreement or any of the
instruments, documents or other agreements contemplated hereby.
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<PAGE> 36
8.11 ARBITRATION. The parties hereto agree that the sole and exclusive
method for resolving any disputes or disagreements relating to this Agreement,
including their indemnification obligations under this Agreement and the amount
of and basis for any set off contemplated by Section 6.4 hereof, by arbitration
in accordance with the rules of the American Arbitration Association ("AAA").
The determination of the arbitrator(s) shall be final and binding on the
parties, be entitled to be enforced to the fullest extent permitted by law and
be entered in any court of competent jurisdiction. Unless the parties mutually
agree, any such arbitration shall not be required to be conducted by the AAA.
Each party shall pay any costs (including legal fees and expenses) incurred by
such party in connection with such arbitration and the Sellers, on the one hand,
and the Buyer, on the other hand, will each be responsible for fifty percent
(50%) of the costs of any arbitrator(s) appointed in connection with such
arbitration. Notwithstanding the foregoing, the party that does not prevail in
any arbitration proceeding relating to the amount of or basis for any set off
contemplated by Section 6.4 hereof shall bear its own costs and the costs
(including legal fees and expenses) of the prevailing party and of any
arbitrator(s) in connection with such arbitration.
8.12 FURTHER ASSURANCES; POST-CLOSING COOPERATION.
(a) Subject to the terms and conditions of this Agreement, at
any time or from time to time after the Closing, each of the parties
hereto shall execute and deliver such other documents and instruments,
provide such materials and information and take such other actions as
may reasonably be necessary, proper or advisable, to the extent
permitted by law, to fulfill its obligations under this Agreement.
(b) Following the Closing, each party will afford the other
party, its counsel and its accountants, during normal business hours,
reasonable access to the books, records and other data relating to the
business or condition (financial or otherwise) of the Company in its
possession with respect to periods prior to the Closing and the right to
make copies and extracts therefrom, to the extent that such access may
be reasonably required by the requesting party in connection with (i)
the preparation of the Closing Tax Returns or any tax returns of any of
the Sellers, (ii) the determination and enforcement of rights and
obligations under this Agreement, (iii) compliance with the requirements
of any governmental or regulatory authority, (iv) the determination or
enforcement of the rights and obligations of any party to be indemnified
or (v) in connection with any actual or threatened action or proceeding.
Further, each party agrees for a period extending six (6) years after
the Closing Date not to destroy or otherwise dispose of any such books,
records and other data unless such party shall first offer in writing to
surrender such books, records and other data to the other party and such
other party shall not agree in writing to take possession thereof during
the ten (10) day period after such offer is made.
(c) If, in order properly to prepare the Closing Tax Returns or
any tax returns of any of the Sellers, other documents or reports
required to be filed with governmental or regulatory authorities or its
financial statements or to fulfill its obligations hereunder, it is
necessary that a party be furnished with additional information,
documents or records relating to the business or condition (financial or
otherwise) of the Company not referred
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<PAGE> 37
to in paragraph (b) above, and such information, documents or records
are in the possession or control of the other party, such other party
agrees to use its commercially reasonable efforts to furnish or make
available such information, documents or records (or copies thereof) at
the recipient's request, cost and expense. Any information obtained by
Sellers in accordance with this paragraph shall be held confidential by
Sellers in accordance with their obligations under the Noncompetition
Agreements.
(d) Notwithstanding anything to the contrary contained in this
Section, if the parties are in an adversarial relationship in
arbitration, the furnishing of information, documents or records in
accordance with any provision of this Section shall be subject to
applicable rules relating to discovery.
8.13 NO THIRD-PARTY BENEFICIARY. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights upon any other person or entity
other than any person or entity entitled to indemnity under Article VI.
8.14 HEADINGS. The headings used in this Agreement have been inserted
for convenience of reference only and do not define or limit the provisions
hereof.
8.15 INVALID PROVISIONS. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under any present or future law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties hereto as of the day and year first above written.
RES-CARE, INC.
By: _________________________________________
Paul G. Dunn
Executive Vice President-Development
_____________________________________________
Richard Greer
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<PAGE> 38
_____________________________________________
Robert Greer
_____________________________________________
Alicia Greer Austin
-38-
<PAGE> 39
LIST OF EXHIBITS AND SCHEDULES
------------------------------
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
A Form of Promissory Note
B Form of Second Note
C Example of calculation of purchase price
D1-D3 Employment Agreements
E1-E3 Noncompetition and Confidentiality Agreements
F1-F3 Company Leases
G Opinion of counsel for Selling Shareholders
H1-H3 Other Employment Agreements
I Opinion of counsel for Buyer
SCHEDULES
- ---------
2.4 Holders of common capital stock
2.5 Authorized, issued and outstanding stock
2.7 Exceptions to no liabilities for which accruals or reserves
have not been maintained
2.8 Exceptions to no changes
2.9 Exceptions to no approvals required from governmental agencies
or authorities
2.11 Leases, employment agreements, provider and third-party payor
agreements
2.12 Exceptions to no loss of relationships with third-party payors
or Agencies
2.13 Exceptions to no waivers, grandfather provisions or variances
under Licenses
2.14 List and description of claims, lawsuits, etc.
2.16 Exceptions to no liabilities for arrears of wages or taxes or
penalties
2.17 List of all company insurance policies
2.20 Exceptions to no accounts receivable assigned or pledged
2.22 List of employee benefit plans
2.23 Exceptions to no contracts between Company and Sellers or
affiliates
</TABLE>
<PAGE> 1
Exhibit 2.2
-----------
TERM PROMISSORY NOTE
--------------------
$9,000,000.00 Louisville, Kentucky
July 31, 1997
FOR VALUE RECEIVED, RES-CARE, INC., a Kentucky corporation with its
principal office and place of business at 10140 Linn Station Road, Louisville,
Kentucky 40223 (the "Maker"), promises and agrees to pay to D. RICHARD GREER,
ROBERT V. GREER AND ALICIA GREER AUSTIN of Lenoir, North Carolina (collectively,
"Payees"), the aggregate principal sum of NINE MILLION DOLLARS ($9,000,000.00),
subject to reduction as provided below, without interest (except as provided in
Section 4 below), in legal tender of the United States of America.
1. PURPOSE OF NOTE. This Note is being delivered by Maker in
connection with its purchase from Payees of all of the issued and outstanding
capital stock of Communications Network Consultants, Inc., a Rhode Island
corporation (the "Company"), pursuant to the Stock Purchase Agreement dated July
31, 1997, among Maker and the Payees (the "Agreement"). All capitalized terms
not otherwise defined herein shall have the meanings given to them in the
Agreement.
2. PAYMENT OF PRINCIPAL; EARN-OUT CALCULATION. The principal of this
Note shall be payable to Payees in three consecutive annual installments of
$3,000,000 (subject to reduction as provided below) on the 1998 Earn-out Date,
the 1999 Earn-out Date and the 2000 Earn-out Date. The respective installments
payable under this Note shall be subject to reduction as follows:
(a) The installment payable on the 1998 Earn-out Date shall be
reduced by $3,000,000 (and therefore shall be zero) if the Company
Earnings for the First Measurement Period do not equal or exceed
$3,552,000. The installment payable on the 1998 Earn-out Date shall not
be reduced and shall be $3,000,000 if the Company Earnings for the
First Measurement Period equal or exceed $4,868,000. If the Company
Earnings for the First Measurement Period are between $4,868,000 and
$3,552,000, the installment payable on the 1998 Earn-out Date shall be
equal to the product of (i) $3,000,000 and (ii) (A) the Company
Earnings for the First Measurement Period minus $3,552,000, divided by
(B) $1,316,000.
(b) The installment payable on the 1999 Earn-out Date shall be
reduced by $3,000,000 (and therefore shall be zero) if the Company
Earnings for the Second Measurement Period do not equal or exceed
$4,868,000. The installment payable on the 1999 Earn- out Date shall
not be reduced and shall be $3,000,000 if the Company Earnings for the
Second Measurement Period equal or exceed $5,842,000. If the Company
Earnings for the Second Measurement Period are between $5,842,000 and
$4,868,000, the installment payable on the 1999 Earn-out Date shall be
equal to the product of (i) $3,000,000 and (ii) (A) the Company
Earnings for the Second Measurement Period minus $4,868,000, divided by
(B) $974,000.
<PAGE> 2
(c) The installment payable on the 2000 Earn-out Date shall be
reduced by $3,000,000 (and therefore shall be zero) if the Company
Earnings for the Third Measurement Period do not equal or exceed
$5,842,000. The installment payable on the 2000 Earn-out Date shall not
be reduced and shall be $3,000,000 if the Company Earnings for the
Third Measurement Period equal or exceed $7,010,000. If the Company
Earnings for the Third Measurement Period are between $7,010,000 and
$5,842,000, the installment payable on the 2000 Earn-out Date shall be
equal to the product of (i) $3,000,000 and (ii) (A) the Company
Earnings for the Third Measurement Period minus $5,842,000, divided by
(B) $1,168,000.
All of the provisions of the Agreement relating to the calculation and payment
of the installments of this Note, including but not limited to the procedures
for the resolution of any disagreement regarding the calculation of Company
Earnings or any reduction in any installment hereunder, are incorporated herein
by this reference.
3. PROPORTIONATE INTERESTS OF PAYEES; PLACE OF PAYMENTS. All payments
hereunder shall be allocated and apportioned to the Payees as follows:
<TABLE>
<CAPTION>
<S> <C>
D. Richard Greer 70%
Robert V. Greer 25%
Alicia Greer Austin 5%
</TABLE>
All amounts payable under this Note shall be paid by wire transfer of
immediately available funds to one or more accounts designated in a written
notice delivered by Payees to Maker.
4. INTEREST. Except as provided in this Section 4, this Note and the
amounts due hereunder shall not bear interest. The unpaid outstanding balance of
any installment payable under this Note shall bear interest at a rate per annum
equal to seven percent (7%) from the applicable Earn-out Date to and including
the date such balance of such installment is actually paid to Payees. However,
if (i) such installment is not paid within sixty (60) days after the applicable
Earn-out Date, and (ii) Maker has not paid that portion of the installment
payable which is not in dispute or is not disputing the balance of such
installment in good faith, then, in lieu of the interest contemplated by the
preceding sentence, such installment shall bear interest at a rate per annum
equal to ten percent (10%) from the applicable Earn-out Date to and including
the date the balance of such installment is actually paid to Payees.
5. PROVISIONS RELATING TO VESTING OR FORFEITURE OF INSTALLMENTS.
Contemporaneously herewith, each of the Payees and the Company have executed
employment agreements (collectively, the "Employment Agreements") providing,
INTER ALIA, for the employment by the Company of the Payees for a period of
three (3) years from the date hereof.
(a) TERMINATION BY COMPANY WITHOUT CAUSE OR BY A PAYEE FOR
GOOD REASON. If the employment of any of the Payees is terminated (i)
by the Company without Cause (as defined in Section 5(c) of the
Employment Agreements) or (ii) by the respective Payee for Good Reason
(as defined in Section 5(e) of the Employment Agreement applicable to
such Payee), the installment payable under this Note for the
Measurement Period in which such termination occurs, and the remaining
amount of any installment
-2-
<PAGE> 3
under this Note for each subsequent Measurement Period after such
termination occurs, shall, unless they have been previously forfeited,
be paid to the Payees determined without regard to whether the
threshold amounts or performance levels are reached in the Measurement
Period during which termination occurs and later Measurement Periods,
as and when such installments would otherwise be due hereunder. None of
the Payees may be terminated without Cause without Maker's consent and
no termination by any Payee shall be considered to be for "Good Reason"
unless Maker consents in writing to the action which is the basis for
such termination.
(b) TERMINATION OF D. RICHARD GREER OTHER THAN FOR GOOD
REASON. If D. Richard Greer terminates his employment with the Company
other than for Good Reason, all installments payable to Payees under
this Note for all Measurement Periods commencing with the Measurement
Period in which such termination occurs shall be forfeited by Payees.
(c) TERMINATION OF ROBERT V. GREER OTHER THAN FOR GOOD REASON.
If Robert V. Greer ("Robert") terminates his employment with the
Company other than for Good Reason, the proportionate amounts of all
installments hereunder which are otherwise payable to Robert under this
Note for all Measurement Periods commencing with the Measurement Period
in which such termination occurs shall be forfeited by Robert. No
amount so forfeited by Robert shall be payable to any other Payee.
6. NO WAIVER; TIME OF THE ESSENCE. The failure of Payees to exercise
any of their rights and remedies shall not constitute a waiver of the right to
exercise them at that or any other time. Time shall be of the essence in the
payment of all sums due under this Note and the performance of Maker's other
obligations.
7. EXPENSES. If this Note is placed in the hands of any attorney for
collection or is collected through any court including any bankruptcy court,
Maker promises and agrees to pay to Payees their reasonable attorneys' fees,
court costs and all other expenses incurred in collecting or attempting to
collect or securing or attempting to secure this Note as provided by the laws of
the Commonwealth of Kentucky.
8. WAIVERS. The Maker waives (a) presentment, demand, notice of
dishonor, protest, notice of protest and non-payment and (b) all exemptions to
which Maker may now or hereafter be entitled under the laws of the Commonwealth
of Kentucky or of the United States and agrees that Payees shall have the right
to grant Maker any extension of time for payment of this Note or any other
indulgence or forbearance whatsoever without in any way affecting the liability
of Maker under this Note and without waiving any rights Payees may have under
this Note or by virtue of the laws of the Commonwealth of Kentucky or of the
United States.
9. PREPAYMENTS. This Note may be prepaid in whole or in part at any
time without premium or penalty.
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<PAGE> 4
10. GOVERNING LAW. This Note has been delivered in and shall be
governed by and construed in accordance with the laws of the Commonwealth of
Kentucky.
IN WITNESS WHEREOF, Maker has caused this Note to be duly executed and
delivered by an authorized officer thereof as of the day, month and year first
above written.
RES-CARE, INC.
By: ____________________________________________
Paul G. Dunn
Executive Vice President of Development
Attest:
By: /s/ Gary R. Weltkamp
------------------------
Name: GARY R. WELTKAMP
---------------------------
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<PAGE> 5
TERM PROMISSORY NOTE
--------------------
$2,500,000.00 Louisville, Kentucky
July 31, 1997
FOR VALUE RECEIVED, RES-CARE, INC., a Kentucky corporation with its
principal office and place of business at 10140 Linn Station Road, Louisville,
Kentucky 40223 (the "Maker"), promises and agrees to pay to D. RICHARD GREER,
ROBERT V. GREER AND ALICIA GREER AUSTIN of Lenoir, North Carolina (collectively,
"Payees"), the aggregate principal sum of TWO MILLION FIVE HUNDRED THOUSAND
DOLLARS ($2,500,000.00), together with interest upon such aggregate principal
balance at the rate provided below, in legal tender of the United States of
America.
1. INTEREST RATE. The principal balance of this Note as the same shall
exist from time to time shall bear interest at a rate per annum equal to seven
percent (7%). All interest under this Note shall be computed on the basis of the
actual number of days elapsed over an assumed year of 365 days.
2. PAYMENT OF PRINCIPAL AND INTEREST; MANNER OF PAYMENTS. All accrued
interest on this Note shall be paid to Payees annually in arrears on each
anniversary of the date hereof, so long as this Note or any part hereof remains
unpaid, and shall also be paid to Payees in full on the Maturity Date (as
defined below). The outstanding principal balance of this Note shall be paid in
two (2) consecutive annual installments, the first of which shall be payable on
the first anniversary of the date hereof and shall be equal to One Million Two
Hundred Fifty Thousand Dollars ($1,250,000.00), and a final installment payable
on the second anniversary of the date hereof equal to the remaining principal
balance hereof, which date shall be considered the maturity date of this Note
(the "Maturity Date"). All amounts payable under this Note shall be paid by wire
transfer of immediately available funds to one or more accounts designated in a
written notice delivered by Payees to Maker.
3. PURPOSE OF NOTE; SETOFF PURSUANT TO THE AGREEMENT. This Note is being
delivered by Maker in connection with its purchase from Payees of all of the
issued and outstanding capital stock of Communications Network Consultants,
Inc., a Rhode Island corporation (the "Company"), pursuant to the Stock Purchase
Agreement dated July 31, 1997, among Maker and the Payees (the "Agreement").
Maker may set off against principal and interest payments payable by it
hereunder all amounts for which Maker or the Company shall be entitled to
indemnification by Payees under, and in accordance with the provisions of,
Article VI of the Agreement.
4. DEFAULT. The occurrence of any one or more of the following events
shall be an "Event of Default":
(a) if the Maker shall fail to pay any installment of principal or
interest due under this Note within ten (10) days after the due date
thereof; provided, however, the failure to pay any installment of principal
or interest by reason of the exercise of Maker's
<PAGE> 6
right of setoff in accordance with Section 6.4 of the Agreement shall not
be considered an Event of Default;
(b) the making of an assignment for the benefit of creditors by
Maker; the voluntary appointment (at the request of any such party or with
the consent of any such party) of a receiver, custodian, liquidator or
trustee in bankruptcy of the property of Maker; the filing by Maker of a
petition in bankruptcy or adjudication of Maker as a bankrupt or insolvent;
or the filing by Maker of any petition or answer seeking or acquiescing in
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future federal, state or
other law or regulation relating to bankruptcy, insolvency or other relief
for debtors; and
(c) the filing against Maker of a petition seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future federal, state or
other law or regulation relating to bankruptcy, insolvency or other similar
relief for debtors, or the involuntary appointment of a receiver,
custodian, liquidator or trustee in bankruptcy of the property of Maker,
and such petition or appointment is not vacated or discharged within ninety
(90) days after the filing or making thereof.
5. NO WAIVER; REMEDIES. The failure of Payees to exercise any of their
rights and remedies shall not constitute a waiver of the right to exercise them
at that or any other time. Time shall be of the essence in the payment of all
sums due under this Note.
6. EXPENSES. If after the occurrence of an Event of Default this Note is
placed in the hands of any attorney for collection or is collected through any
court including any bankruptcy court, Maker promises and agrees to pay to Payees
their reasonable attorneys' fees, court costs and all other expenses incurred in
collecting or attempting to collect or securing or attempting to secure this
Note as provided by the laws of the Commonwealth of Kentucky.
7. WAIVERS. The Maker waives (a) presentment, demand, notice of dishonor,
protest, notice of protest and non-payment and (b) all exemptions to which Maker
may now or hereafter be entitled under the laws of the Commonwealth of Kentucky
or of the United States and agrees that Payees shall have the right to grant
Maker any extension of time for payment of this Note or any other indulgence or
forbearance whatsoever without in any way affecting the liability of Maker under
this Note and without waiving any rights Payees may have under this Note or by
virtue of the laws of the Commonwealth of Kentucky or of the United States.
8. PREPAYMENTS. This Note may be prepaid in whole or in part at any time
without premium or penalty. On the date of such prepayment, the Maker shall pay
all accrued interest on the Note to such date.
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<PAGE> 7
9. GOVERNING LAW. This Note has been delivered in and shall be governed
by and construed in accordance with the laws of the Commonwealth of Kentucky.
IN WITNESS WHEREOF, Maker has caused this Note to be duly executed and
delivered by an authorized officer thereof as of the day, month and year first
above written.
RES-CARE, INC.
By:_________________________________________
Paul G. Dunn
Executive Vice President of Development
Attest:
By: /s/ Gary R. Weitkamp
-----------------------------
Name: GARY R. WEITKAMP
---------------------------------
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