SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report: December 31, 1997
HEALTHSOUTH Corporation
-----------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 1-10315 63-0860407
------------- ----------- -------------
State or Other (Commission (I.R.S. Employer
Jurisdiction of Incorporation File Number) Identification No.)
or Organization)
One HEALTHSOUTH Parkway
Birmingham, Alabama 35243
--------------------------- ---------
(Address of Principal (Zip Code)
Executive Offices)
Registrant's Telephone Number,
Including Area Code: (205) 967-7116
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 31, 1997, HEALTHSOUTH Corporation, a Delaware corporation (the
"Company"), consummated the sale of the long-term care assets of the Company's
subsidiary Horizon/CMS Healthcare Corporation, a Delaware corporation
("Horizon/CMS"), to Integrated Health Services, Inc., a Delaware corporation
("IHS"). The assets sold included 139 long-term care facilities, 12 specialty
hospitals, 35 institutional pharmacy locations and over 1,000 rehabilitation
therapy contracts with long-term care facilities. The Company received
approximately $1,150,000,000 in cash and IHS assumed approximately $100,000,000
in debt relating to the transferred assets, for a total consideration of
$1,250,000,000. HEALTHSOUTH acquired Horizon/CMS in a merger transaction on
October 29, 1997. Charles W. Newhall III and Gorge H. Strong are directors of
both the Company and IHS. There are no other material relationships between the
Company and IHS or any of their respective affiliates, directors or officers.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) Pro forma Financial Information
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following pro forma condensed combined financial information and
explanatory notes are presented to reflect the effect for all periods presented
of the merger of a wholly-owned subsidiary of HEALTHSOUTH with Horizon/CMS in a
transaction to be accounted for as a purchase (the "Merger"), which was
consummated on October 29, 1997. In addition, the pro forma financial
information reflects the effects for all periods presented of the sale of the
long-term care assets acquired from Horizon/CMS to Integrated Health Services,
Inc. ("IHS"), which was consummated on December 31, 1997 (the "Sale").
The pro forma condensed combined balance sheet assumes that the Merger
and the Sale were each consummated on September 30, 1997, and the pro forma
condensed combined income statements assume that the Merger and the Sale were
each consummated on January 1, 1996. The assumptions are described in the
accompanying Notes to Pro Forma Condensed Combined Financial Information.
All HEALTHSOUTH shares outstanding and per share amounts have been
adjusted to reflect a two-for-one stock split effected in the form of a 100%
stock dividend paid on March 17, 1997.
The pro forma information should be read in conjunction with the
historical financial statements of HEALTHSOUTH and Horizon/CMS included in their
respective periodic reports filed with the Securities and Exchange Commission.
The HEALTHSOUTH historical amounts in the accompanying pro forma statements
include the financial position and results of operations of Health Images, Inc.,
which was acquired by HEALTHSOUTH in March 1997 in a transaction accounted for
as a pooling of interests. Certain balance sheet and income statement amounts
from the Horizon/CMS historical financial statements have been reclassified in
order to conform to the HEALTHSOUTH method of presentation. These conforming
reclassifications had no effect on the reported financial position or results of
operations of Horizon/CMS. The pro forma financial information is presented for
informational purposes only and is not necessarily indicative of the combined
financial position or results of operations that would have resulted had the
Merger and the Sale been consummated at the dates indicated, nor is such
information necessarily indicative of the combined financial position of the
Companies or their combined results of operations for future periods.
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Pro Forma Condensed Combined Balance Sheet (Unaudited)
September 30, 1997
<TABLE>
<CAPTION>
Pro Assets Pro
Pro Forma Forma Sold Forma Pro Forma
HEALTHSOUTH Horizon/CMS Adjustments Combined to IHS Adjustments Combined
----------- ----------- ----------- -------- -------- ------------ ---------
(In thousands)
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 189,408 $ 54,170 $ 0 $ 243,578 $ (10,000)$ 1,150,000 (7)$ 233,578
(1,150,000)(8)
Other marketable securities 3,639 0 0 3,639 0 0 3,639
Accounts receivable 659,415 365,652 0 1,025,067 (253,820) 0 771,247
0
Inventories, prepaid expenses
and other
current assets 224,478 70,469 (17,256)(2) 277,691 (48,810) 0 228,881
Deferred income taxes 19,514 15,036 0 34,550 0 0 34,550
---------- --------- --------- --------- ---------- -------- ----------
Total current assets 1,096,454 505,327 (17,256) 1,584,525 (312,630) 0 1,271,895
Other assets 114,517 130,229 (11,074)(1) 204,610 (30,610) 0 174,000
(29,062)(2)
0
Property, plant and equipment,
net 1,659,300 630,383 136,067 (2) 2,425,750 (434,446) 0 1,991,304
Intangible assets, net 1,379,500 347,043 280,080 (2) 2,049,201 (118,405) (106,325)(7) 1,824,471
42,578 (3)
---------- --------- --------- --------- ---------- -------- ----------
Total assets $4,249,771 $1,612,982 $401,333 $6,264,086 $(896,091) $ (106,325) $ 5,261,670
========== ========= ========= ========= ========== ======== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable $ 97,158 $ 28,082 $ 0 $ 125,240 $(32,619) $ 0 $ 92,621
Salaries and wages payable 67,774 23,579 27,100 (3) 118,453 (19,000) 0 99,453
Accrued interest payable and
other liabilities 98,155 143,285 15,478 (3) 256,918 (43,666) 350,000 (7) 563,252
0
Current portion of long-term debt 40,220 8,790 0 49,010 0 0 49,010
---------- --------- --------- --------- ---------- -------- ----------
Total current liabilities 303,307 203,736 42,578 549,621 (95,285) 350,000 804,336
Long-term debt 1,882,466 733,876 0 2,616,342 (94,400) (1,150,000)(8) 1,371,942
Deferred income taxes 43,862 0 (11,074)(1) 32,788 0 0 32,788
Other long-term liabilities 2,655 20,212 0 22,867 (11,944) 0 10,923
Deferred revenue 16 786 0 802 0 0 802
Minority interests 80,054 18,915 0 98,969 (787) 0 98,182
Stockholders' equity:
Preferred Stock, $.10 par 0 0 0 0 0 0 0
Common Stock, $.01 par 3,413 53 400 (2) 3,866 0 0 3,866
Additional paid-in capital 1,197,230 600,707 404,126 (2) 2,202,063 (642,811) 642,811 (7) 2,202,063
Retained earnings 754,754 43,402 (43,402)(2) 754,754 (50,864) 50,864 (7) 754,754
Treasury stock (323) (8,705) 8,705 (2) (323) 0 0 (323)
Receivable from Employee Stock
Ownership Plan (12,247) 0 0 (12,247) 0 0 (12,247)
Notes receivable from
stockholders (5,416) 0 0 (5,416) 0 0 (5,416)
---------- --------- -------- --------- ---------- -------- ----------
Total stockholders' equity 1,937,411 635,457 369,829 2,942,697 (693,675) 693,675 2,942,697
---------- --------- -------- --------- ---------- -------- ----------
Total liabilities and
stockholders' equity $4,249,771 $1,612,982 $401,333 $ 6,264,086 $(896,091) $(106,325) $ 5,261,670
========== ========= ======= ========= ========= ======== ==========
</TABLE>
See accompanying notes.
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Pro Forma Condensed Combined Income Statement (Unaudited)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Pro Forma Pro Forma Assets Sold
HEALTHSOUTH Horizon/CMS Adjustments Combined to IHS
----------- ----------- ----------- -------- -----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $ 2,568,155 $ 1,746,504 $ 0 $ 4,314,659 $ (1,029,563)
Operating unit expenses 1,667,248 1,439,567 0 3,106,815 (873,869)
Corporate general and administrative
expenses 79,354 94,687 0 174,041 (39,268)
Provision for doubtful accounts 58,637 27,284 0 85,921 (16,295)
Depreciation and amortization 207,132 58,311 15,134 (4) 287,564 (27,041)
6,987 (5)
Merger and acquisition related expenses 41,515 0 0 41,515 0
Loss on impairment of assets 37,390 11,000 0 48,390 0
Special charge 0 17,150 0 17,150 0
Interest expense 98,751 48,892 0 147,643 (8,968)
Interest income (6,034) (7,611) 0 (13,645) 1,027
------------ ------------ ------------ ------------ ------------
2,183,993 1,689,280 22,121 3,895,394 (964,414)
Income before income taxes, minority
interests and extraordinary item 384,162 57,224 (22,121) 419,265 (65,149)
Provision for income taxes 143,929 27,402 0 171,331 (25,694)
------------ ------------ ------------ ------------ ------------
240,233 29,822 (22,121) 247,934 (39,455)
Minority interests 50,369 7,506 0 57,875 (913)
------------ ------------ ------------ ------------ ------------
Income from continuing operations $ 189,864 $ 22,316 $ (22,121) $ 190,059 $ (38,542)
============ ============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding 336,807 52,266 (8,186) (6) 380,887 N/A
============ ============ ============ ============ ============
Income from continuing operations per
common and common equivalent share $ 0.56 $ 0.43 $ N/A $ 0.50 $ N/A
============ ============ ============ ============ ============
Income from continuing operations per
common share - assuming full
dilution $ 0.55 $ 0.43 $ N/A $ 0.49 $ N/A
============ ============ ============ ============ ============
(Table Continued)
Pro Forma Pro Forma
Adjustments Combined
----------- ---------
Revenues $ 0 $ 3,285,096
Operating unit expenses 0 2,232,946
Corporate general and administrative
expenses 0 134,773
Provision for doubtful accounts 0 69,626
Depreciation and amortization (2,658)(10) 257,864
Merger and acquisition related expenses 0 41,515
Loss on impairment of assets 0 48,390
Special charge 0 17,150
Interest expense (74,750) (9) 63,925
Interest income 0 (12,618)
------------- ------------
(77,408) 2,853,571
Income before income taxes, minority
interests and extraordinary item 77,408 431,525
Provision for income taxes 29,153 (11) 174,789
------------- ------------
48,256 256,735
Minority interests 0 56,962
------------- ------------
Income from continuing operations $ 48,256 $ 199,773
============= ============
Weighted average common and common
equivalent shares outstanding N/A 380,887
============= ============
Income from continuing operations per
common and common equivalent share $ N/A $ 0.52
============= ============
Income from continuing operations per
common share - assuming full
dilution $ N/A $ 0.52
============= ============
</TABLE>
See accompanying notes.
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Pro Forma Condensed Combined Income Statement (Unaudited)
Nine Months Ended September 30, 1997
<TABLE>
<CAPTION>
Pro Forma Pro Forma Assets Sold
HEALTHSOUTH Horizon/CMS Adjustments Combined to IHS
----------- ----------- ----------- --------- -----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $ 2,163,018 $ 1,351,125 $ 0 $ 3,514,143 $ (813,056)
Operating unit expenses 1,354,082 1,114,297 0 2,468,379 (696,332)
Corporate general and administrative
expenses 55,926 69,674 0 125,600 (27,500)
Provision for doubtful accounts 51,811 27,042 0 78,853 (18,841)
Depreciation and amortization 181,259 50,163 11,350 (4) 248,012 (21,516)
5,240 (5)
Merger and acquisition related expenses 15,875 0 0 15,875 0
Loss on impairment of assets 0 0 0 0 0
Special charge 0 86,155 0 86,155 0
Interest expense 81,180 41,893 0 123,073 (6,726)
Interest income (3,761) (5,325) 0 (9,086) 743
-------------- ----------- ------------ ----------- --------------
1,736,372 1,383,899 16,590 3,136,861 (770,172)
Income before income taxes, minority
interests and extraordinary item 426,646 (32,774) (16,590) 377,282 (42,884)
Provision for income taxes 145,347 (8,766) 0 136,581 (16,724)
-------------- ----------- ------------ ----------- --------------
281,299 (24,008) (16,590) 240,701 (26,160)
Minority interests 49,481 4,669 0 54,150 (1,075)
-------------- ----------- ------------ ----------- --------------
Income from continuing operations $ 231,818 $ (28,677) $ (16,590) $ 186,551 $ (25,085)
============== =========== ============ =========== ==============
Weighted average common and common
equivalent shares outstanding 351,740 52,640 (8,244)(6) 396,136 N/A
============== =========== ============ =========== ==============
Income from continuing operations per
common and common equivalent share $ 0.66 $ (0.54) $ N/A $ 0.47 $ N/A
============== =========== ============ =========== ==============
Income from continuing operations per
common share - assuming full
dilution $ 0.65 $ (0.54) $ N/A $ 0.47 $ N/A
============== =========== ============ =========== ==============
(Table Continued)
Pro Forma Pro Forma
Adjustments Combined
----------- ---------
Revenues $ 0 $ 2,701,087
Operating unit expenses 0 1,772,047
Corporate general and administrative
expenses 0 98,100
Provision for doubtful accounts 0 60,012
Depreciation and amortization (1,994) (10) 224,503
Merger and acquisition related expenses 0 15,875
Loss on impairment of assets 0 0
Special charge 0 86,155
Interest expense (56,063) (9) 60,285
Interest income 0 (8,343)
----------- ------------
(58,056) 2,308,633
Income before income taxes, minority
interests and extraordinary item 58,056 392,454
Provision for income taxes 21,864 (11) 141,722
----------- ------------
36,192 250,732
Minority interests 0 53,075
----------- ------------
Income from continuing operations $ 36,192 $ 197,657
=========== ===========
Weighted average common and common
equivalent shares outstanding N/A 396,136
=========== ===========
Income from continuing operations per
common and common equivalent share $ N/A $ 0.50
=========== ===========
Income from continuing operations per
common share - assuming full
dilution $ N/A $ 0.49
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On October 29, 1997 HEALTHSOUTH consummated the acquisition of
Horizon/CMS by means of a stock-for-stock merger. The transaction will be
accounted for as a purchase. Under the terms of the Plan, HEALTHSOUTH issued
0.84338 of a share of its Common Stock in exchange for each outstanding share of
Horizon/CMS Common Stock. For purposes of the accompanying pro forma financial
statements, it is assumed that HEALTHSOUTH issued approximately 45,262,000
shares of its Common Stock valued at $975,849,000, or $21.56 per share, in the
Merger. The per share value is based on the closing price per share of
HEALTHSOUTH Common Stock on February 14, 1997, the last business day preceding
public announcement of the Merger. In addition, HEALTHSOUTH assumed all
outstanding Horizon/CMS stock options, which will, in the aggregate, be
exercisable for options to acquire approximately 4,200,000 shares of HEALTHSOUTH
Common Stock. For purposes of the accompanying pro forma financial statements,
these options have an estimated total value of $29,437,000, bringing the total
equity consideration to $1,005,286,000.
On December 31, 1997, HEALTHSOUTH completed the sale of the long-term
care assets acquired from Horizon/CMS to IHS. Under the terms of the Sale,
HEALTHSOUTH sold 139 long-term care facilities, 12 specialty hospitals, 35
institutional pharmacy locations and over 1,000 rehabilitation therapy contracts
with long-term care facilities. HEALTHSOUTH received approximately
$1,150,000,000 in cash and IHS assumed approximately $100,000,000 in debt.
Horizon/CMS has historically reported on a May 31 fiscal year-end.
Horizon's results of operations have been recast to a November 30 fiscal
year-end in the accompanying pro forma condensed combined income statement for
the year ended December 31, 1996. This was accomplished by excluding the results
of operations for the six months ended November 30, 1995 from Horizon/CMS's
historical May 31, 1996 income statement and then adding to it Horizon/CMS's
results of operations for the six months ended November 30, 1996. The
accompanying pro forma condensed combined income statement for the nine months
ended September 30, 1997 is based on a combination of HEALTHSOUTH's results of
operations for the nine months ended September 30, 1997 and Horizon/CMS's
results of operations for the nine months ended August 31, 1997.
The accompanying pro forma balance sheet assumes that the Merger and
the Sale were each consummated on September 30, 1997 and includes adjustments
which give effect to events that are directly attributable to the Merger and the
Sale. The accompanying pro forma income statements assume that the Merger and
the Sale were each consummated on January 1, 1996 and include adjustments which
give effect to events that are directly attributable to the Merger and the Sale
and are expected to have a continuing impact in future periods. The historical
statements used in the accompanying pro forma income statement for the year
ended December 31, 1996 do not reflect an extraordinary loss of $27,074,000, net
of tax, recorded by Horizon/CMS during the period. Likewise, the historical
statements used in the accompanying pro forma income statement for the nine
months ended September 30, 1997 do not reflect an extraordinary gain of
$3,963,000 recorded by Horizon/CMS during the period
<PAGE>
The following pro forma adjustments are necessary to reflect the
Merger:
1. To net Horizon/CMS's noncurrent deferred income tax asset against
HEALTHSOUTH's noncurrent deferred income tax payable.
2. To allocate the purchase price as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Purchase price..................................... $ 1,005,286
==========
Historical net asset value of Horizon/CMS.......... $ 635,457
Capitalized favorable leasehold value.............. 154,543
Client and customer lists.......................... 34,091
Joint venture agreements........................... 12,136
Adjustments to net asset values:
Prepaid expenses and other current assets..... (17,256)
Other assets.................................. (29,062)
Property, plant and equipment................. (18,476)
Intangible assets............................. (3,035)
Cost in excess of net asset value.................. 236,888
---------
$ 1,005,286
==========
</TABLE>
This adjustment also reflects the issuance of approximately 45,262,000
shares of HEALTHSOUTH Common Stock, valued at $975,849,000, in exchange for all
of the outstanding shares of Horizon/CMS Common Stock and the assumption of
Horizon/CMS stock options which will, in the aggregate, be exercisable for
approximately 4,200,000 shares of HEALTHSOUTH Common Stock, valued at
$29,437,000. The fair value of these options was estimated based upon
HEALTHSOUTH's historical option valuation criteria. Because HEALTHSOUTH and
Horizon/CMS have both elected to account for stock options under APB Opinion No.
25, the fair value of the nonvested options is included as additional
consideration. In addition, this adjustment reflects the retirement of all of
Horizon/CMS's treasury stock and the write-off of its retained earnings.
For purposes of allocating the purchase price in the accompanying pro
forma financial statements, the remaining Horizon/CMS net assets acquired have
been assigned values equal to their historical book values at August 31, 1997.
In connection with the consummation of the Merger, management of HEALTHSOUTH
will, as a matter of routine, perform a comprehensive analysis to determine the
fair value of the net assets acquired and allocate the purchase price based on
the determined fair values of the assets acquired and the liabilities assumed at
the date of acquisition. Based on all of the information it has obtained and
reviewed to date regarding the value of the remaining net assets of Horizon/CMS,
management of HEALTHSOUTH is not aware of any material differences between the
historical book value and the fair value of the remaining Horizon/CMS net
assets, except for the adjustments noted above. Furthermore, at this time,
management of HEALTHSOUTH is not aware of any material pre-acquisition
contingencies that would materially affect the purchase price allocation. For
these reasons the allocation of the purchase price described above is an
estimate based on tentative and preliminary data. The final amount of the excess
purchase price and the allocation among the net assets may differ from the
amounts estimated (see also Note 3).
3. HEALTHSOUTH and Horizon/CMS have incurred certain direct,
nonrecurring costs and charges resulting from the Merger. The following is a
detail of the estimated costs related to the Merger (in thousands):
Financial advisory fees........................ $25,900
Professional fees.............................. 1,900
Severance and related benefits................. 27,100
--------
$54,900
========
<PAGE>
These costs, net of an estimated tax benefit of $12,322,000, have been
accrued and added to the purchase price in the accompanying pro forma balance
sheet. Most of these costs are only partially deductible for income tax
purposes. The income tax benefit of $12,322,000 is based on the deductible
portion of these costs, estimated at $31,595,000,000, multiplied by an effective
income tax rate of 39%.
The financial advisory fees are estimated based on the contractually
agreed upon fees with the two financial advisors, which, in the case of
HEALTHSOUTH, is determined as a percentage of the value of the securities issued
to consummate the Merger and, in the case of Horizon/CMS, is determined as a
percentage of the total transaction value, which includes the value of the
securities issued and the debt acquired as a result of the Merger.
The $27,100,000 in severance and related benefits described above
comprises $4,577,000 payable to the chief executive officer of Horizon/CMS
pursuant to an Employment and Change of Control Agreement, $14,306,000 payable
to other Horizon/CMS executive officers pursuant to other change in control
agreements and $8,217,000 in other severance and related benefits. IHS has
assumed the liability for up to $19,000,000 of such severance and related
benefits.
It is possible that, subsequent to the consummation of the Merger,
HEALTHSOUTH will incur costs to discontinue or dispose of certain activities
previously performed at HEALTHSOUTH and Horizon/CMS. Furthermore, in order to
combine the operations of the Companies, it is possible that HEALTHSOUTH will
incur integration costs, such as training Horizon/CMS personnel, relocating
certain HEALTHSOUTH and Horizon/CMS personnel, integrating and upgrading certain
Horizon/ CMS computer systems, consolidating and restructuring certain
functions, severance and other expenses relating to personnel performing
duplicative functions, and other related costs. These activities are
collectively referred to as "restructuring measures". At this time, a formal
plan of restructuring measures has not been formulated or approved by
HEALTHSOUTH management. Furthermore, other than the estimated costs noted in the
table above, it is not practicable at this time to estimate the individual
nature, timing or total cost of the various potential restructuring measures or
to assess the likelihood that particular restructuring measures will be
implemented. Therefore, no provision for the cost of restructuring measures has
been included in the accompanying pro forma condensed combined financial
information. However, if restructuring measures are approved and implemented by
HEALTHSOUTH management and, depending upon the nature of the measures to be
undertaken and the timing of management's commitment with respect to such
measures, costs resulting from such measures may be accrued as liabilities and
added to the total consideration in this purchase business combination in
accordance with generally accepted accounting principles. Alternatively,
management's decisions with respect to the nature and timing of any potential
restructuring measures may require that nonrecurring charges, potentially
significant, be recorded in HEALTHSOUTH's income statements in periods
subsequent to the Merger. These types of charges would include all costs related
to activities or employees of HEALTHSOUTH.
4. To adjust depreciation and amortization expense to reflect the
purchase price allocation of capitalized favorable leasehold value totaling
$154,543,000, client and customer lists totaling $34,091,000 and joint venture
agreements totaling $12,136,000 described in Note 2 above. These intangible
assets are being amortized over their estimated useful lives as follows:
Favorable leasehold value...................... 16 years
Client and customer lists...................... 8 years
Joint venture agreements....................... 10 years
5. To adjust depreciation and amortization expense to reflect the
allocation of the excess purchase price over the net asset value acquired
totaling $236,888,000 and $42,578,000 ($54,900,000 in costs less the estimated
$12,322,000 tax benefit) described in Notes 2 and 3 above. In accordance with
its stated policy, management of HEALTHSOUTH evaluates each acquisition
independently to determine the appropriate amortization period for the cost in
excess of net asset value of purchased facilities. Each evaluation includes an
analysis of historic and projected financial performance, evaluation of the
estimated useful lives of buildings and fixed assets acquired, the indefinite
lives of certificates of need and licenses acquired, the competition within
local markets, lease terms where
<PAGE>
applicable, and the legal terms of partnership agreements where applicable.
Based on its preliminary evaluations, management of HEALTHSOUTH has determined
that the cost in excess of net asset value related to the proposed Merger should
be amortized over a 40-year period on a straight-line basis.
Because the Merger was structured as a stock-for-stock merger, the
amortization of capitalized leasehold value, goodwill and other intangible
assets described in Notes 4 and 5 above will not be deductible for income tax
purposes. Therefore, no adjustment to the provision for income taxes is made in
the accompanying pro forma income statement.
6. To adjust pro forma share amounts based on historical share amounts,
converting each outstanding share of Horizon/CMS Common Stock into 0.84338 of a
share of HEALTHSOUTH Common Stock.
The following pro forma adjustments are necessary to reflect the Sale:
7. To reflect the net cash received against the net assets sold to IHS.
HEALTHSOUTH expects to recognize a tax liability of approximately $350,000,000
on the taxable gain resulting from the Sale. The resulting difference between
the net cash received and the net assets disposed of, net of tax, is
approximately $106,325,000. This difference is offset against goodwill (cost in
excess of net asset value) calculated in the original Horizon/CMS purchase price
allocation described in Note 2 above.
8. To reflect the retirement of approximately $1,150,000,000 in
long-term debt from the cash proceeds of the Sale.
9. To adjust interest expense to reflect the retirement of long-term
debt described in Note 8. Interest is computed based on an assumed blended rate
of 6.5%.
10. To adjust amortization expense to reflect the purchase price
reallocation described in Note 7. The amortization period is 40 years (see Note
5).
11. To adjust income taxes at an assumed rate of 39% to reflect the
reduction in interest expense described in Note 9. There is not a tax effect for
the reduction in amortization expense described in Note 10 (see Note 5).
<PAGE>
(c) Exhibits
2(a) Purchase and Sale Agreement, dated November 1, 1997, among
HEALTHSOUTH Corporation, Horizon/CMS Healthcare Corporation and
Integrated Health Services, Inc.
2(b) Amendment to Purchase and Sale Agreement among HEALTHSOUTH
Corporation, Horizon/CMS Healthcare Corporation and Integrated
Health Services, Inc. dated December 31, 1997.
2
<PAGE>
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 hereunto duly authorized.
Date: January 15, 1998
HEALTHSOUTH CORPORATION
By /s/WILLIAM W. HORTON
-------------------------
William W. Horton
Senior Vice President
and Corporate Counsel
EXHIBIT 2(A)
PURCHASE AND SALE AGREEMENT
This PURCHASE AND SALE AGREEMENT (the "Agreement") is made and entered into
on the 3rd day of November, 1997, by and between HEALTHSOUTH CORPORATION, a
Delaware corporation ("HEALTHSOUTH"), HORIZON/CMS HEALTHCARE CORPORATION, a
Delaware corporation ("Seller"), and INTEGRATED HEALTH SERVICES, INC., a
Delaware corporation ("Buyer"), with reference to the following facts:
A. Seller is a wholly-owned subsidiary of HEALTHSOUTH.
B. Directly or through wholly-owned subsidiary corporations identified on
Schedule A-1 hereto (each, a "Subsidiary" and collectively, the "Subsidiaries"),
Seller engages in the business of delivering long-term care, diagnostic,
institutional pharmacy and contract therapy services to the public through the
facilities and businesses identified in Schedule A-2 (the "Facilities").
C. Buyer desires to purchase from Seller and the Subsidiaries, either
directly or through wholly-owned subsidiaries of the Buyer (any such subsidiary
which is purchasing any of the Transferred Assets hereunder being herein called
a "Buyer Subsidiary" and such purchasing subsidiaries being collectively called
the "Buyer Subsidiaries"), and HEALTHSOUTH desires to cause Seller and the
Subsidiaries to sell to Buyer, such Facilities together with related assets (the
"Transactions").
NOW, THEREFORE, in consideration of the foregoing recitals and the
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, do hereby agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 Certain Defined Terms. For purposes of this Agreement, the
following terms shall have the following meanings:
"Affiliate" of a specified person shall mean any corporation,
partnership, sole proprietorship or other person or entity which directly or
indirectly through one or more intermediaries controls, is controlled by or is
under common control with the person specified. The term "control" means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a person or entity.
"Cost Report" means the cost report required to be filed, as of the end
of a provider cost year or for any other required period, with cost-based Payors
with respect to cost reimbursement.
"knowledge" of a party shall mean the collective knowledge of the
persons who serve as of the date of this Agreement as the duly elected officers
of such party.
"Laws" shall mean all statutes, rules, regulations, ordinances, orders,
codes, permits, licenses and agreements with or of federal, state, local and
foreign governmental and regulatory authorities and any order, writ, injunction
or decree issued by any court, arbitrator or governmental agency or in
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connection with any judicial, administrative or other non-judicial proceeding
(including, without limitation, arbitration or reference).
"Licenses" shall mean certificates of need, accreditations,
registrations, licenses, permits and other consents or approvals of governmental
agencies or accreditation organizations.
"Payor" shall mean Medicare, Medicaid, CHAMPUS and Medically Indigent
Assistance programs, Blue Cross, Blue Shield or any other third party payor
(including an insurance company), or any health care provider (such as a health
maintenance organization, preferred provider organization, peer review
organization, or any other managed care program).
"Taxes" shall mean (i) all federal, state, county and local sales, use,
property, payroll, recordation and transfer taxes, (ii) all federal, state,
county and local taxes, levies, fees, assessments or surcharges (however
designated, including privilege taxes, room or bed taxes and user fees) which
are based on the gross receipts, net operating revenues, net income or patient
days of a Facility for a period ending on, before or including the Closing Date
(as defined in Section 2.13) or a formula taking any one of the foregoing into
account, and (iii) any interest, penalties and additions to tax attributable to
any of the foregoing, but shall not include income and other taxes described in
Sections 2.4(a) and (b).
Section 1.2 Index of Other Defined Terms. In addition to those terms
defined above, the following terms shall have the respective meanings given
thereto in the sections indicated below:
Defined Term Section
------------ -------
Adjustment Sections 2.14
Agreement Preamble
Allocation Schedule 2.7
Assigned Stock 2.1(c)
Assumed Contracts 2.3(a)
Assumed Guarantees 2.3(a)
Assumed Liabilities 2.3
Balance Sheet 3.17(b)
Buyer Preamble
Buyer's Affidavit 2.15(d)
Buyer's Subsidiaries Recitals
Charter Documents 3.4
Claim Notice 11.6
Closing 2.13
Closing Date 2.13
COBRA 2.10(d)
Code 3.11
Consents 8.4
Delivery Date 2.15(d)
EBITDA 3.17(a)
EBITDA Statements 3.17(a)
Employee Benefit Arrangements 3.19(d)
Environmental Regulations 3.16(a)
Equipment 2.1(e)
ERISA 2.10(a)
Escrow Agent 2.13(c)
Excluded Assets 2.2
Excluded Liabilities 2.4
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Execution Fee 2.6(a)
Facilities Recitals
Facility Records 5.7(a)
Final Delivery Date 2.15(e)
Final Net Book Values 2.6(d)
Financial Schedule 3.17
Hazardous Materials 3.16
Headquarters Assets 2.1(q)
Headquarters Liabilities 2.3(o)
HEALTHSOUTH Preamble
Hired Employees 2.10(c)
HSR Act 3.4
Indemnitee 11.5
Indemnitor 11.5(a)
Intercompany Transactions 2.1(g)(ii)
Inventory 2.1(f)
Leased Real Property 2.1(b)
Losses 11.3(a)
Management Agreement 2.15
Material Adverse Change 8.9
Material Adverse Effect 3.4
Measurement Date 2.8
Multiemployer Plans 2.10(a)
Other Assigned Contracts 2.1(g)
Owned Real Property 2.1(a)
Panel 2.12(b)
Patient Records 5.7(a)
Pension Plans 2.10(a)
Permitted Encumbrances 3.8
Prepayments 2.1(l)
Purchase Price 2.5
Real Property Leases 2.1(b)
Receivables 2.1(m)
Related Agreements 3.4
Retained Employees 2.10(b)
Seller Preamble
Seller's Affidavit 2.15(d)
Subsidiaries Recitals
Termination Fee 10.3
Third Party Claims 11.5(a)
Title Insurer 8.6
Title Policies 8.6
Topping Fee 10.4
Transactions Recitals
Transferred Business Names 2.1(j)
Transferred Records 5.7
Transferred Subsidiaries 2.1(a)
Venture Agreements 2.1(d)
WARN Act 2.10(e)
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ARTICLE 2
BASIC TRANSACTIONS
Section 2.1 Purchased Assets. On the terms and subject to the conditions
contained in this Agreement, including, but not limited to, the provisions of
Section 2.15, at the Closing (as defined in Section 2.13), Buyer shall purchase
from Seller and each relevant Subsidiary, and HEALTHSOUTH shall cause Seller and
each relevant Subsidiary to sell, convey, assign, transfer and deliver to Buyer,
the following assets, and only the following assets, of Seller and such
Subsidiary as of the Closing (the "Transferred Assets"), but excluding all
Excluded Assets as defined in Section 2.2, and in the case of items identified
in Section 2.1(b) -- (q), only to the extent that such sale and purchase is not
encompassed by the sale and purchase of the Assigned Stock (as defined in
Section 2.1(a):
(a) All of Seller's or the Subsidiary's right, title and interest in
and to the shares of the capital stock of the Subsidiaries shown on Schedule
2.1(a) that are owned by Seller or the Subsidiary (such shares being referred to
as the "Assigned Stock", and such Subsidiaries and the wholly owned subsidiaries
of such Subsidiaries being referred to individually as a "Transferred
Subsidiary" and collectively as the "Transferred Subsidiaries");
(b) All of Seller's or the Subsidiary's right, title and interest in
and to the real property owned in fee (the "Owned Real Property") that is
identified in Schedule 2.1(b) on which Facilities are located, together with the
Facilities, construction work-in-progress, and all other buildings and
improvements thereon, and all rights, privileges, permits and easements
appurtenant thereto, subject, however, to the mortgages and capitalized leases
identified on Schedule 2.1(b) relating to certain of the Owned Real Property;
(c) All of Seller's or the Subsidiary's right, title and interest in
and to the leasehold estates (the "Real Property Leases") in land, Facilities
and real property improvements (whether owned or leased) (the "Leased Real
Property") identified in Schedule 2.1(c), together with all construction
work-in-progress in respect of same and all rights, privileges and easements
appurtenant thereto, subject, however, to the mortgages and capitalized leases
identified on Schedule 2.1(b) relating to certain of the Leased Real Property;
(d) All of Seller's or the Subsidiary's right, title and interest in
and to the joint ventures or partnerships identified in Schedule 2.1(d) hereto
that relate to partnerships or joint ventures that own or lease Facilities or
other Transferred Assets, together with all of Seller's or the Subsidiary's
right, title and interest in and to the joint venture or partnership agreements,
also identified in such Schedule (the "Venture Agreements"), that govern such
partnerships or joint ventures;
(e) All of Seller's or the Subsidiary's right, title and interest in
and to fixed machinery and equipment, other fixtures and fittings, moveable
plant, machinery, equipment and furniture, trucks, tractors, trailers and other
vehicles, tools and other similar items of tangible personal property
(collectively "Equipment") (i) that are not consumed, disposed of or held for
sale or as inventory in the ordinary course of business, (ii) that are owned or
leased by or consigned to Seller or the Subsidiary as of the Closing, and (iii)
that are used solely with respect to the operation of Facilities;
(f) All of Seller's or the Subsidiary's right, title and interest in
and to inventories of supplies, drugs, food, janitorial and office supplies,
maintenance and shop supplies, and other similar items of tangible personal
property intended to be consumed, disposed of or sold in the ordinary course of
business (collectively, the "Inventory") that are owned by or consigned to
Seller or the Subsidiary as of the Closing and that are used by Seller or the
Subsidiary solely with respect to the operation of the Facilities;
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(g) All of Seller's or the Subsidiary's right, title and interest in
and to all contracts and agreements to which Seller or the Subsidiary is a party
at the Closing, other than the Real Property Leases and the Venture Agreements,
to the extent the same are transferable to Buyer (whether by action of the
Subsidiary or Seller or, in the case of Medicare provider agreements, the Health
Care Finance Administration), and which, or to the extent, the same relate
solely to the operations of Facilities operated by Seller or the Subsidiary (the
"Other Assigned Contracts"), including, but not limited to, the contracts
identified on Schedule 2.1(g), which contains a list of the following categories
of Other Assigned Contracts: construction contracts relating to construction
work-in-progress at the Facilities; Equipment leases (whether operating or
capitalized leases) and installment purchase contracts where the annualized
lease or installment payments exceed $100,000; contracts or arrangements binding
on a Facility which contain any covenant not to compete or otherwise
significantly restrict the nature of the business activities in which the
Facility may engage; employment contracts, if any, between Seller, the
Subsidiary or a Facility and the chief executive or chief financial officer of
such Facility; collective bargaining agreements, if any; Medicare and Medicaid
provider numbers and provider agreements with other Payors; any other contracts
relating solely to the Facilities pursuant to which Seller or the Subsidiary
paid or received over $100,000 during its last fiscal year or is due to pay or
receive over $100,000 during any subsequent fiscal year, including, but not
limited to, any employment contracts relating solely to the Facilities pursuant
to which Seller or the Subsidiary paid or received over $100,000 during its last
fiscal year or is obligated to pay over $100,000 in any subsequent fiscal year;
and any contracts which will be binding on Buyer or any Transferred Subsidiary
after the Closing pursuant to which Seller or the Subsidiary has agreed with any
third party that such third party shall be the exclusive or preferred provider
of goods or services to a Facility, pursuant to which Seller or a Subsidiary
paid over $100,000 during its last fiscalyear or is obligated to pay over
$100,000 in any subsequent fiscal year; provided that Schedule 2.1(g) need not
list an Other Assigned Contract if all material obligations of Seller or the
Subsidiary thereunder have been, or, prior to the Closing, will be completed, or
Seller or the Subsidiary is entitled, or has or by the Closing will have
exercised a right, to terminate the contract without penalty on 90 days' notice
or less. Notwithstanding the foregoing, the Other Assigned Contracts shall not
include:
(i) Except for instruments of indebtedness relating to those
mortgages and capitalized leases identified on Schedule 2.1(b), any
contract which evidences indebtedness for money borrowed or the
deferred portion of the purchase price for Owned Real Property and is
therefore an Excluded Liability under the provisions of Section
2.4(g), unless the parties mutually agree, in accordance with the
provisions of such Section 2.4(g), that such indebtedness will be
assumed by Buyer, in which case the contract or contracts evidencing
such indebtedness will be Transferred Assets; and
(ii) Any contract respecting an intercompany transaction between
Seller or the Subsidiary, on the one hand, and HEALTHSOUTH or an
Affiliate of HEALTHSOUTH, on the other, whether or not such
transaction relates to the provision of goods and services (except as
set forth in the following proviso), tax sharing arrangements, payment
arrangements, intercompany charges or balances, or the like
("Intercompany Transactions"); provided, however, that contracts
relating to the provision of goods or services (such as laboratory
services, contract therapy services or pharmacy services) by Seller to
a Subsidiary, or by a Subsidiary to a Seller, with respect to the
operations of Facilities shall not be deemed to be Intercompany
Transactions and shall be included in the Other Assigned Contracts.
(h) All of Seller's or the Subsidiary's right, title and interest in
and to the right to receive mail and other communications addressed to Seller or
the Subsidiary insofar as such mail or other communication relates to the
operation of the Facilities after the Closing;
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(i) All of Seller's or the Subsidiary's right, title and interest in
and to the business names utilized in the businesses represented by the
Transferred Assets, other than the names "Horizon/CMS" and "Continental Medical
Systems" (the "Transferred Business Names");
(j) All of Seller's or the Subsidiary's right, title and interest in
and to Licenses in favor of Seller or the Subsidiary as of the Closing that are
directly related to, necessary for, or used solely in connection with the
operation of the Facilities as presently operated by Seller or the Subsidiary,
provided that Licenses in favor of Seller or the Subsidiary shall be included in
the Transferred Assets only to the extent they are lawfully transferable, and,
to the extent a Facility is the subject of a Management Agreement by virtue of
Section 2.15(i), Seller or the Subsidiary shall remain the licensee of such
Facility under those Licenses contained on Schedule 3.19(f) to the extent
contemplated by the Management Agreement;
(k) All of Seller's or the Subsidiary's right, title and interest in
and to unexpired warranties as of the Closing that are transferable to Buyer
which Seller or the Subsidiary has received from third parties with respect to
the Transferred Assets, including, but not limited to, such warranties as are
set forth in any construction agreement, lease agreement, equipment purchase
agreement, consulting agreement or agreement for architectural and engineering
services;
(l) To the extent lawfully and contractually transferable, all of
Seller's or the Subsidiary's right, title and interest in and to advance
payments, prepayments, prepaid expenses, deposits and the like made by the
Subsidiary or Seller on its behalf in the ordinary course of business prior to
the Closing, which exist as of the Closing and with respect to which Buyer will
receive the benefit after the Closing, and other items recorded as prepaid
expenses by Seller and the Subsidiaries (collectively, "Prepayments");
(m) All of Seller's or the Subsidiary's right, title and interest as of
the Closing in and to accounts receivable recorded by Seller or the Subsidiary
as an account receivable from Payors, patients and other third parties with
respect to services provided at or by the Facilities, including, but not limited
to, amounts receivable under Cost Reports (collectively, "Receivables"), and,
subject to the provisions of Section 2.2(a) and Section 2.2(h), all other items
of working capital relating solely to the Facilities, including cash and cash
equivalents not to exceed $10,000,000, securities, other current assets, all
rights under that certain Note dated February 11, 1994, given by B&G Partners
Limited Partnership in favor of Seller in the original principal amount of
$20,000,000 and under any guaranty or other instrument related thereto (the
current outstanding balance of which is included in the Headquarters Assets)
including any cash proceeds therefrom received between the date hereof and the
Closing Date, and all claims (including claims under any insurance policies
retained by Seller or any Subsidiary), choses in action, rights of recovery,
rights of set-off, rights to refunds, and similar rights, whether or not
included in working capital, but only to the extent that such claims, choses in
action, rights of recovery, rights of set-off, rights to refunds, and similar
rights are related to the Transferred Assets (other than those described in this
subsection (m)) and the Assumed Liabilities;
(n) All of Seller's or the Subsidiary's right, title and interest in
and to the goodwill of the businesses evidenced by the Transferred Assets, and,
except for Excluded Assets, any and all other assets of Seller or the Subsidiary
utilized solely in the operations of the Facilities as conducted prior to the
Closing Date, whether or not such assets have any value for accounting purposes;
(o) Subject to applicable law and the provisions of Section 5.7, any
and all business and patient records of or related to the operation of the
Facilities which are maintained at the Facilities;
(p) All proprietary materials, documents, information, media, methods
and processes owned by Seller or a Subsidiary and used exclusively in connection
with the businesses represented by the Transferred Assets, and any and all
rights to use the same, including, but not limited to, all intangible
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assets of an intellectual property nature such as trademenarks, service marks
and trade names (whether or not registered), proprietary computer software, all
proprietary procedures and manuals, and all promotional or marketing materials,
including all marketing computer hardware and software; and
(q) All right, title and interest of Seller or any Subsidiary in those
assets identified under the third column under the heading "Albuquerque
Corporate" on the Balance Sheet, which assets relate to Seller's corporate
headquarters in Albuquerque, New Mexico (the "Headquarters Assets").
Section 2.2 Excluded Assets. The parties hereto agree that assets of Seller
and the Subsidiaries not expressly described in Section 2.1 are not intended to
be part of the Transferred Assets and are excluded from the purchase and sale
contemplated hereby. Without limiting the generality of the foregoing, such
excluded assets (the "Excluded Assets") include the following:
(a) All cash and cash equivalents of Seller and the Subsidiaries
relating to the Facilities in excess of $10,000,000;
(b) [Intentionally omitted.];
(c) The rights of Seller or any Subsidiary under any insurance policy,
if any, included in the Transferred Assets which relates to any Excluded Asset
or Excluded Liability (as defined in Section 2.4) (it being understood, however,
that Buyer shall have no obligation to take any action under any such policy to
seek any recovery except at the reasonable request, and at the sole expense, of
Seller or a Subsidiary (other than a Transferred Subsidiary) or to continue any
such policies in force);
(d) The rights of Seller or of any Subsidiary to receive mail and other
communications addressed to any of them with respect to Excluded Assets or
Excluded Liabilities;
(e) All property, plant, equipment and other assets pertaining to any
facility, business or operations of HEALTHSOUTH, Seller or any of their
respective Affiliates not included in the Facilities;
(f) Any and all rights respecting computer and data processing
hardware, software or firmware that is proprietary to HEALTHSOUTH or any
Affiliate of HEALTHSOUTH (other than a Transferred Subsidiary, and other than
Seller or a Subsidiary but only to the extent that such hardware, software or
firmware is used solely in connection with the operations of the Facilities),
and any computer and data processing hardware or firmware, whether or not
located at a Facility, that is part of a computer system the central processing
unit for which is not located at a Facility
(g) All amounts due to the Subsidiaries arising from Intercompany
Transactions;
(h) Such other assets, if any, as are specifically described in
Schedule 2.2(h) and assets which would be Transferred Assets except for the
operation of Sections 2.12, 2.15, 8.5, 8.6 or 9.5; and
(i) All capital stock of Subsidiaries that are not Transferred
Subsidiaries.
To the extent that any items which constitute Excluded Assets are Assets of a
Transferred Subsidiary, Seller shall cause such Transferred Subsidiary to convey
such items to Seller by dividend, distribution or otherwise immediately prior to
the Closing. Buyer acknowledges and agrees that Seller shall have the right to
remove, and may remove at any time prior to or within 30 days following the
Closing Date (in each case, at Seller's expense, but without charge by Buyer for
storage), from time to time any and all of the Excluded Assets from the
Facilities, provided that Seller shall do so in a manner that does not unduly or
unnecessarily disrupt Buyer's normal business activities at the Facilities.
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Section 2.3 Assumed Liabilities. Subject to the terms and conditions set
forth in this Agreement, Buyer shall assume at the Closing and pay, discharge
and perform as and when due the following obligations and liabilities, in each
case only to the extent that such assumption is not encompassed by the sale and
purchase of the Assigned Stock (as defined in Section 2.1(a)), but excluding all
Excluded Liabilities as defined in Section 2.4 (the "Assumed Liabilities"):
(a) All liabilities and obligations of Seller or the Subsidiaries which
arise under any contract, license, permit, agreement, arrangement, understanding
or undertaking included in the Transferred Assets, including the Real Property
Leases, the Venture Agreements, the Other Assigned Contracts and the Licenses,
and any obligation or liability (the "Assumed Guarantees") of HEALTHSOUTH or
Seller or any Affiliate of HEALTHSOUTH or Seller (including letters of credit
and performance bonds) which is in the nature of a guaranty of the foregoing or
of other liabilities and obligations of the Subsidiaries or of others in
connection with the operation of the Facilities (together, the "Assumed
Contracts"), including without limitation, any capitalized lease liabilities and
obligations;
(b) Without affecting the provisions of Sections 2.1(l) all liabilities
and obligations under open purchase orders that were entered into by Seller or a
Subsidiary in the ordinary course of business with respect to operation of a
Facility on or prior to the Closing Date and which provide for the delivery of
goods or services subsequent to the Closing Date;
(c) All obligations and liabilities to the Hired Employees (as defined
in Section 2.10(c)) for paid time off (including, for all purposes of this
Agreement, vacation pay) through the Closing Date in accordance with the
employment policies of Seller as they exist on the date of this Agreement;
provided that except as may be expressly set forth herein, nothing in this
Agreement shall be deemed to require Buyer to continue to follow any such
employment policies of Seller with respect to services of Hired Employees after
the Closing Date; provided, however that Buyer shall have no liability or
obligation with respect to any of Seller's employees at its Albuquerque
corporate headquarters except for liabilities with respect to Hired Employees
accruing after the Closing and liabilities pursuant to Section 2.3(n) not to
exceed $19,000,000 in the aggregate.
(d) [Intentionally omitted.];
(e) Subject to the provisions of Sections 3.16 and 6.2(c), all
liabilities arising out of or in connection with the existence of Hazardous
Materials (as defined in Section 3.16) upon, about, beneath or migrating or
threatening to migrate to or from the Owned Real Properties or the Leased Real
Properties or the existence of any violation of any Environmental Regulations
(as defined in Section 3.16) pertaining to any such Owned Real Properties or
Leased Real Properties or the businesses operated therefrom;
(f) All liabilities and obligations respecting any changes or
improvements needed to the Facilities for them to be in material compliance
following the Closing with safety, building, fire, land use, access (including
without limitation the Americans With Disabilities Act) or similar Laws
respecting the physical condition of the Facilities;
(g) All liabilities and obligations respecting employee matters assumed
by Buyer pursuant to the provisions of Section 2.10(a);
(h) All liabilities, obligations and expenses of Seller and the
Subsidiaries arising from, or connected with, any determination by Medicare or
any other Payor to seek to recapture any costs reimbursed or reimbursable to
Seller or any Subsidiary with respect to the Facilities as a result of the
purchases and sales contemplated hereby (including any gain from sale
liability);
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(i) Any liability or obligation which becomes an Assumed Liability by
operation of Section 2.4(g);
(j) Any accrued or unpaid liabilities (whether or not due) of Seller or
the Subsidiaries in existence on the Closing Date which relate to the
Facilities, which were incurred in the ordinary course of the operation of the
Facilities and which represent (i) trade payables incurred to suppliers of goods
or services; (ii) water, gas, electricity and other utility charges; (iii)
license fees; (iv) rent, common area maintenance charges, operating expenses and
other charges arising under the Real Property Leases; (v) insurance premiums;
(vi) accrued salaries, benefits (including accrued vacation and sick pay) and
payroll taxes respecting Hired Employees; (vi) Taxes relating to the Facilities
or the Transferred Subsidiaries to the extent that such Taxes relate to periods
after the Closing Date; and (vii) similar liabilities incurred in the ordinary
course of the operation of the Facilities and customarily recorded as a current
liability, other than the current portion of long-term liabilities and
obligations;
(k) Any liability or obligation owed by Seller or a Subsidiary as a
result of determinations with respect to Cost Reports filed with respect to a
Facility before or after the Closing Date;
(l) Liabilities of Seller and the Subsidiaries arising from or in
connection with litigation described in Section 3.14, or from or in connection
with any other litigation, whether or not pending or threatened, to which Seller
or any Subsidiary or any Affiliate of Seller or any Subsidiary is or may become
a party with respect to causes of action against them in existence (i.e., all
elements of the claim are complete) prior to the Closing, but only to the extent
that such litigation relates to the Transferred Assets or the businesses or
operations represented thereby;
(m) Liabilities or obligations of Seller or the Subsidiaries now
existing or which may hereafter exist by reason of any alleged violation of Laws
by Seller or any of the Subsidiaries on or prior to the Closing Date, but only
to the extent that such alleged violation of Laws relates to the Transferred
Assets or the businesses or operations represented thereby;
(n) Liabilities or obligations of Seller or the Subsidiaries arising
under the employment, change-of- control, retention bonus and pay-to-stay
agreements described on Schedule 2.3(n); provided, however, that if HEALTHSOUTH
or Seller shall have paid any amounts in respect of such liabilities or
obligations prior to the Closing Date, Buyer shall reimburse HEALTHSOUTH or
Seller for the amounts so paid upon demand on or after the Closing Date; and
(o) All obligations and liabilities of Seller or any Subsidiary in
those assets identified under the third column under the heading "Albuquerque
Corporate" on the Balance Sheet, which assets relate to Seller's corporate
headquarters in Albuquerque, New Mexico (the "Headquarters Liabilities") not to
exceed, in the aggregate with liabilities under Section 2.3, $19,121,000.
Section 2.4 Excluded Liabilities. The parties hereto agree that liabilities
and obligations of Seller and the Subsidiaries not expressly described in
Section 2.3 are not intended to be part of the Assumed Liabilities, and Buyer
shall not assume or become obligated with respect to any other obligation or
liability of HEALTHSOUTH, Seller or any Subsidiary or any Affiliate of any of
them (collectively, "Excluded Liabilities"), including, but not limited to, the
liabilities and obligations described in this Section, all of which shall remain
the sole responsibility of Seller or the pertinent Subsidiary (other than a
Transferred Subsidiary) or Affiliate, as the case may be, it being understood,
however, that, as between Seller and the Subsidiaries (other than the
Transferred Subsidiaries), on the one hand, and Buyer, on the other, Buyer shall
bear the risk of and be responsible for the ongoing operations of the Facilities
after the Closing, including the continuation or performance by Buyer after the
Closing of any agreement or practice of the Subsidiaries. Without limiting the
generality of the foregoing, Buyer shall not assume and shall have no
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liability or obligation of any kind for or with respect to any of the following,
except to the extent expressly set forth in Section 2.3:
(a) Any of Seller's or any of the Subsidiaries' liabilities or
obligations (including, but not limited to, any liabilities or obligations under
any tax sharing agreements) with respect to franchise taxes and with respect to
foreign, federal, state or local taxes and other Taxes imposed upon or measured,
in whole or in part, by the net income for any period ending on or prior to the
Closing Date of Seller and/or such Subsidiaries or any member of a combined or
consolidated group of companies of which Seller and/or such Subsidiaries are, or
were at any time, a part, or with respect to interest, penalties or additions to
any of such taxes, it being understood that Buyer shall not be deemed to be
Seller's or any Subsidiary's transferee with respect to any such tax liability;
(b) Any of Seller's or any of its Subsidiaries' liabilities or
obligations with respect to the recapture of foreign, federal, state or local
tax deductions or credits taken by Seller or such Subsidiary for any period
ending on or prior to the Closing Date imposed upon, or any taxable gain
recognized by, Seller or such Subsidiary on account of the Transactions
contemplated hereby;
(c) Liabilities or obligations of Seller or its Affiliates now existing
or which may hereafter exist by reason of any alleged violation of Laws (as
defined in Section 1.1) by Seller or any of its Affiliates on or prior to the
Closing Date which does not relate to the Transferred Assets or the businesses
or operations represented thereby;
(d) Liabilities or obligations of Seller or a Subsidiary under any
Assumed Contract which would be included in the Transferred Assets but for the
provisions of Section 2.12, unless Buyer is provided with the benefits
thereunder as contemplated in such Section;
(e) Liabilities of Seller and the Subsidiaries arising from or in
connection with litigation not relating to the Transferred Assets or the
businesses or operations represented thereby;
(f) Subject to Section 2.12(b), liabilities of Seller and the
Subsidiaries incurred in connection with their obtaining any consent,
authorization or approval necessary for them to sell, convey, assign, transfer
or deliver any Transferred Asset to Buyer hereunder;
(g) Except with respect to the mortgages and capitalized leases
identified on Schedule 2.1(b) and the indebtedness evidenced thereby, all
liabilities and obligations (including interest, penalties and other amounts due
in respect thereof) with respect to which shall constitute Assumed Liabilities,
any liability of Seller or a Subsidiary representing indebtedness for money
borrowed or the deferred portion of the purchase price for any Owned Real
Property (and any refinancing thereof), including without limitation the
indebtedness identified on Schedule 2.4(g) and all interest, penalties and other
amounts due in respect thereof; provided that if, prior to Closing, the parties
mutually agree that any such indebtedness or obligation will be assumed by Buyer
and further agree upon an equitable reduction in the cash portion of the
Purchase Price (as defined in Section 2.5) to reflect Buyer's assumption of such
indebtedness or obligation, then any such indebtedness or obligation will be
deemed to constitute an Assumed Liability for all purposes of this Agreement;
and provided further that with respect to any such indebtedness or obligation
not so assumed by Buyer that constitutes a lien or encumbrance upon any
Transferred Asset, Seller agrees that substantially concurrently with or prior
to the Closing it will either pay or discharge such indebtedness or liability in
full or otherwise cause such lien or encumbrance to be removed from such
Transferred Asset, so that such Transferred Asset is sold, conveyed, assigned,
transferred and delivered to Buyer at the Closing free and clear of such lien or
encumbrance;
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(h) Such other liabilities and obligations, if any, specifically
described in Schedule 2.4(h) and liabilities which would be Assumed Liabilities
but for the provisions of Sections 2.12, 2.15, 8.5, 8.6 or 9.5;
(i) Amounts due from Seller or the Subsidiaries arising from
Intercompany Transactions;
(j) Any liabilities or obligations of HEALTHSOUTH, Seller or a
Subsidiary to employees who are not Hired Employees;
(k) Any liabilities of HEALTHSOUTH or Seller to stockholders of
HEALTHSOUTH or Seller (solely in their capacity as stockholders) as a result of
the acquisition of Seller by HEALTHSOUTH;
(l) Any liability for workers' compensation, general liability,
professional liability or automobile liability arising out of occurrences prior
to the Closing;
(m) Any liability arising out of the termination by Seller or any
Subsidiary of any of the Pension Plans;
(n) Any obligation of Seller or any Subsidiary with respect to
"earn-out" or similar contingent or deferred payments relating to the
acquisition of assets or businesses prior to the Closing Date;
(o) Any liability of Seller or any Subsidiary with respect to their
respective employees arising out of occurrences prior to the Closing, except as
otherwise expressly provided herein; and
(p) Any liabilities in connection with Seller's Albuquerque corporate
headquarters (including liabilities under Section 2.3(n)) in excess of
$19,121,000.
With respect to Transferred Subsidiaries, Seller shall assume, immediately prior
to the Closing, all liabilities of such Transferred Subsidiaries which are
Excluded Liabilities.
Section 2.5 Purchase Price. The purchase price (the "Purchase Price") in
the aggregate for all of the Transferred Assets shall be $1,250,000,000.
Section 2.6 Payment of Purchase Price. The Purchase Price for the
Transferred Assets shall be paid as follows:
(a) Execution Fee. Buyer acknowledges that Seller and the Subsidiaries
will incur substantial damage that may be impossible to quantify in the event
the Transactions are not consummated. In order to induce Seller to enter into
this Agreement and to terminate its discussions with other parties with respect
to the sale of the Transferred Assets, Buyer is, contemporaneously with the
execution of this Agreement, paying to Seller, in immediately available funds,
the sum of $50,000,000 as an earnest money deposit (the "Execution Fee") to be
applied against the Purchase Price due in the event of a Closing. In the event
that (i) this Agreement is terminated by Buyer because of HEALTHSOUTH's or
Seller's material breach of their obligations hereunder, or (ii) there is no
Closing prior to the Termination Date (as defined in Section 10.1(b)) because
(A) the express conditions in Article 8 to the obligations of Buyer are not met
or waived (except, in the case of the conditions specified in Section 8.5, if
any such action, suit or proceeding therein described shall have been commenced
or threatened by Buyer or any of its Affiliates, associates, officers,
directors, stockholders, creditors, or prospective or actual financing sources
in respect of the Transactions), or (B) the express conditions in Section 9.5 to
the obligations of HEALTHSOUTH and Seller are not met or waived and any such
action, suit or proceeding therein described shall have been commenced or
threatened by HEALTHSOUTH, Seller or any Subsidiary or any of its or their
Affiliates,
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associates, officers, directors, stockholders or creditors, then and in either
of such events, within two business days after the earlier of such termination
or the occurrence of the Termination Date, as the case may be, Seller shall
return the Execution Fee to Buyer with interest at the rate of 5% per annum, and
less any costs of Seller and the Subsidiaries to be reimbursed by Buyer pursuant
to Section 5.5, via wire transfer of immediately available funds. In all other
cases, the Execution Fee shall be retained by Seller, and such retention shall
not relieve Buyer of its obligations to reimburse any costs of Seller and the
Subsidiaries pursuant to Section 5.5. In the event of any breach of this
Agreement or other liability of Buyer to Seller, unless the Closing occurs,
retention of the Execution Fee by Seller and, as applicable, payment by Buyer to
or on behalf of HEALTHSOUTH, Seller and the Subsidiaries the amounts
reimbursable by Buyer to Seller pursuant to Section 5.5 and the Termination Fee
shall constitute the sole and exclusive remedy of HEALTHSOUTH, Seller and the
Subsidiaries against Buyer with respect to such breach or liability. In the
event of any breach of this Agreement or other liability of HEALTHSOUTH, Seller
or the Subsidiary to Buyer, unless the Closing occurs, return of the Execution
Fee to Buyer and, as applicable, payment of the Topping Fee, shall constitute
the sole and exclusive remedy of Buyer against HEALTHSOUTH, Seller and the
Subsidiaries with respect to such breach or liability.
(b) Payment of Remaining Purchase Price. At the Closing, Buyer shall
deliver to Seller an amount equal to the Purchase Price less (i) the Execution
Fee plus accrued interest thereon at 5% per annum and (ii) the principal amount
of any indebtedness, any accrued but unpaid interest thereon and the balance of
any capitalized leases assumed by Buyer pursuant to Section 2.1(b), subject to
adjustment as provided in Section 2.14.
(c) Seller as Agent of Subsidiaries. Seller shall, prior to the
Closing, cause each Subsidiary to irrevocably designate Seller as its agent to
receive on its behalf delivery of that portion of all payments made by Buyer
hereunder to which such Subsidiary may be entitled, including without limitation
that portion of the Purchase Price attributable to the Transferred Assets sold
to Buyer by it, and to acknowledge that delivery of such payments, including the
Purchase Price, to Seller in accordance with the terms of this Agreement shall
be conclusive and binding evidence against such Subsidiary that, as between
Buyer and such Subsidiary, any payments or consideration due to such Subsidiary
in respect of the Transferred Assets sold to Buyer by it, or in respect of other
payments due to it from Buyer under the terms of this Agreement, have been
delivered.
Section 2.7 Allocation of Purchase Price. Within 90 days after the Closing
Date, HEALTHSOUTH and Seller, on the one hand, and Buyer, on the other hand,
shall agree to an allocation of the Purchase Price among the Transferred Assets
and shall prepare a written schedule reflecting such allocation (the "Allocation
Schedule"). Seller and Buyer shall, and Seller shall cause the Subsidiaries to,
allocate the Purchase Price in accordance with the Allocation Schedule, to be
bound by such allocations for all purposes, to account for and report the
purchases and sales contemplated hereby for all purposes (including, without
limitation, financial, accounting, Medicare reimbursement and federal and state
tax purposes) in accordance with such allocations, and not to take any position
(whether in financial statements, Cost Reports, tax returns, Cost Report or tax
audits, or otherwise), including without limitation any claim to a step up in
the basis of such assets by Buyer or its successors and assigns for Medicare
purposes which is inconsistent with such allocations in the Allocation Schedule
without the prior written consent of the other party, except to the extent, if
any, required by applicable Law or generally accepted accounting principles.
Without limiting the generality of the foregoing, Buyer agrees to indemnify and
hold harmless Seller and the Subsidiaries, in accordance with the provisions of
Sections 11.4, 11.5 and 11.6, from and against any and all Losses arising from
or connected with any determination by Medicare or any other Payor to seek to
recapture any costs reimbursed or reimbursable to Seller or any Subsidiary as a
result of the purchases and sales contemplated hereby (including any gain from
sale liability).
Section 2.8 [Intentionally omitted.]
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Section 2.9 Remittances, Mail and Other Communications. All remittances,
mail and other communications relating to the Excluded Assets or Excluded
Liabilities received by Buyer at any time after the Closing shall be immediately
turned over by Buyer to the addressee thereof, or if the addressee is no longer
affiliated with Seller, to Seller, and pending such delivery, Buyer shall have
no interest in the same and shall hold such remittances, mail and other
communications in trust for the benefit of Seller and the Subsidiaries. All
remittances, mail and other communications relating to the Transferred Assets or
the Assumed Liabilities received by Seller or any Subsidiary at any time after
the Closing shall be immediately turned over by Seller or such Subsidiary to the
addressee thereof, or if the addressee is no longer affiliated with Buyer, to
Buyer, and pending such delivery, Seller or such Subsidiary shall have no
interest in the same and shall hold such remittances, mail and other
communications in trust for the benefit of Buyer.
Section 2.10 Employee Matters.
(a) Pension Plans. Schedule 2.10(a) lists all "employee pension benefit
plans" ("Pension Plans") within the meaning of Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and any
"multiemployer plans" within the meaning of Section 3(37) of ERISA
("Multiemployer Plans"), in which Retained Employees (as defined in Subsection
(b) below) directly employed to work at the Facilities participate. Seller
shall, or shall cause the Subsidiaries to, (i) terminate as of the Closing Date
all Pension Plans relating solely to the Transferred Subsidiaries, terminate as
of the Closing Date the active participation of all such employees in the
Pension Plans who constitute Hired Employees (as defined in Subsection (c)
below), (ii) cause the Pension Plans to make timely appropriate distributions,
to the extent required, to such employees in accordance with, and to the extent
permitted by, the terms and conditions of such Pension Plans, and (iii) in
connection with the termination of the active participation of all such
employees in such Pension Plans, comply, and cause each Pension Plan to comply,
with all applicable Laws. Prior to the Closing, Seller shall have delivered to
Buyer, for information purposes only, forms of any letters or other written
communications which Seller or the Subsidiaries shall distribute generally to
such employees notifying them of their rights in respect of their cessation of
active participation in the Pension Plans. With respect to the Multiemployer
Plans, Buyer agrees that Buyer shall contribute to such Multiemployer Plans with
respect to the operations covered thereby for substantially the same number of
contribution base units for which Seller and/or the pertinent Subsidiaries have
an obligation to contribute to such Multiemployer Plans. Buyer shall take all
action necessary to comply with Section 4204 of ERISA, including, without
limitation, posting, prior to the Closing Date, a bond or escrow for each of the
Multiemployer Plans for which a bond or escrow is required, in an amount, for
the period of time and in a form which complies with Section 4204(a)(1)(B) of
ERISA, or, prior to the Closing Date, obtaining a variance from such bonding or
escrow requirement from the applicable Plan or Plans or from the Pension Benefit
Guaranty Corporation, so that a transfer of contribution obligations to Buyer as
set forth herein does not result in a complete or partial withdrawal of Seller
or any Subsidiary from any of such Plans under ERISA, and Buyer shall furnish
Seller proof thereof. The cost of each bond or escrow required under Section
4204(a)(1)(B) of ERISA shall be paid by Buyer and Buyer shall be the sole
obligor thereunder. Buyer shall in accordance with the provisions of Sections
11.4, 11.5, and 11.6, indemnify and hold harmless HEALTHSOUTH, Seller and the
Subsidiaries (other than the Transferred Subsidiaries) for any Losses (including
any secondary liability of the Seller or any such Subsidiary as a result of
Buyer's failure to make any withdrawal liability payment when due) arising from
or in connection with the Multiemployer Plans, and any change or termination of,
or any partial or complete withdrawal from, any of such Plans, which might
accrue to HEALTHSOUTH, Seller and the Subsidiaries (other than the Transferred
Subsidiaries) from acts or omissions occurring or required on or after the
Closing Date, including but not limited to, any liability associated with any
continuation of coverage under such Plans on or after the Closing Date required
by Law or contract.
(b) Retained Employees. Except with respect to Facilities which are the
subject of a Management Agreement,
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(i) Buyer shall offer to hire at the Closing, on a probationary
basis, each of the direct employees of Seller or a Subsidiary (other
than a Transferred Subsidiary) who, as of the Closing, work at the
Facilities (including any such direct employees who are on medical
disability or leaves of absence and who worked at the Facilities
immediately prior to such disability or leave).
(ii) Buyer shall retain immediately after the Closing, in
accordance with their then-existing terms and conditions of
employment, each of the direct employees of the Transferred
Subsidiaries who, as of the Closing, work at the Facilities (including
any such direct employees who are on medical disability or leaves of
absence and who worked at the Facilities immediately prior to such
disability or leave).
(iii) All such direct employees to whom Buyer is required to make
offers of employment or to retain pursuant to clauses (i) and (ii)
above are herein referred to as the "Retained Employees."
(iv) Any such offer of employment to a Retained Employee by Buyer
shall be to perform comparable services, in such position as is
comparable to the position such Retained Employee held with Seller or
any of its subsidiaries as of the Closing, provided that Buyer may
offer compensation to such Retained Employees at levels commensurate
with compensation levels paid to other employees of Buyer holding
comparable positions, and provided further that any change in
compensation levels does not result in any constructive discharge of
any such Retained Employee, breach of any employment contract assumed
by Buyer hereunder or any other liability of Seller and the
Subsidiaries. HEALTHSOUTH, Seller or their respective Affiliates shall
have the right (but not the obligation) to employ or offer to employ
any Retained Employee who declines Buyer's offer of employment.
(c) Hiring of Retained Employees. Buyer shall hire at the Closing, on a
probationary basis, each Retained Employee referred to in clause (b)(i) above
who elects to accept employment with Buyer and shall retain each Retained
Employee referred to in clause (b)(ii) in accordance with the terms of such
clause (all of such employees who accept employment with Buyer or who remain
employed by the Transferred Subsidiaries being herein called the "Hired
Employees") and shall indemnify and hold HEALTHSOUTH, Seller and their
Affiliates harmless, in accordance with Sections 11.4, 11.5 and 11.6, from and
against any Losses arising from or relating to any subsequent termination of any
such employee by Buyer. Subject to the proviso to Section 2.3(c), Buyer agrees
to give such Hired Employees hired by it full credit for the paid time off and
sick pay earned or accrued by them during, and to which they are entitled as a
result of, their employment by Seller and/or the Subsidiaries, either by
allowing such employees such paid time off and sick pay as to which such
employees would have been entitled as of their termination date by Seller and/or
the Subsidiaries under the policies of Seller and/or the Subsidiaries (as in
effect on the date of this Agreement) if such employees had remained employees
of Seller and/or the Subsidiaries or, upon termination of employment, by making
full payment to such employees of the paid time off that such employees would
have received had they taken such paid time off, and Buyer further agrees to
reimburse Seller for any payments made by Seller and/or the Subsidiaries with
respect to such accrued or earned paid time off or sick pay.
(d) Health Benefits. Buyer shall provide the Hired Employees a program
of health care benefits which is equivalent to the program of health care
benefits currently provided by Buyer to its existing employees, provided,
however, that such health care benefits shall be immediately available to such
Hired Employees as of their respective hire dates by Buyer, and such employees
shall become as of
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their respective hire dates participants thereunder, without regard to any
applicable waiting period or any limitation with respect to preexisting
conditions; provided, however, that such covenant of Buyer shall apply only with
respect to Hired Employees who were covered by health insurance provided by
HEALTHSOUTH, Seller or a Subsidiary immediately prior to Closing. Buyer
acknowledges and agrees that Buyer is a successor employer for purposes of the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"),
that the Retained Employees hired by it will not, as a result, be deemed to have
had a termination of employment for purposes of COBRA and that any COBRA notices
or coverages required to be given or made available to any Retained Employee
hired by it shall be given or made by Buyer and not HEALTHSOUTH, Seller or the
Subsidiaries (other than, as applicable, the Transferred Subsidiaries), provided
that Buyer does not assume, and shall not be deemed to have assumed, any COBRA
obligations which Seller or any Subsidiary may have to former employees of
Seller or such Subsidiary whose employment was terminated on or prior to the
Closing Date, or to any Retained Employees who do not accept employment with
Buyer. Notwithstanding the foregoing, HEALTHSOUTH and Seller will provide the
Hired Employees with COBRA continuation coverage for 90 days after the Closing
Date at the expense (including any claims expense with respect to self-insured
claims) of Buyer.
(e) Acknowledgment of Responsibility. Buyer acknowledges and agrees
that as of the date and time the Closing is effective, Buyer is considered for
purposes of the Worker Adjustment and Retraining Notification Act (the "WARN
Act") the employer of the Retained Employees and that Buyer (and not
HEALTHSOUTH, Seller or the Subsidiaries) shall thereupon be responsible for
complying with the WARN Act with respect to the Retained Employees and that
prior to such time none of the Retained Employees shall be, nor shall they be
deemed to be, terminated. Buyer shall indemnify and hold HEALTHSOUTH, Seller and
their Affiliates harmless, in accordance with Sections 11.4, 11.5 and 11.6, from
and against all Losses (i) resulting from any compliance obligation (including,
without limitation, the obligation to give notice or pay money) HEALTHSOUTH or
Seller or its Affiliates or Buyer has under the WARN Act arising from the
termination of any Retained Employee, or (ii) resulting from any claims of the
Hired Employees (including, without limitation, claims for health care coverage
or benefits).
(f) To the extent that Buyer does not hire as of the Closing Date
Retained Employees with respect to a Facility that is the subject of a
Management Agreement, the provisions of this Section 2.10 shall apply at such
time, if any, as Buyer acquires ownership of such Facility.
Notwithstanding the foregoing, nothing in this Section 2.10 shall, or shall be
deemed to, create any rights in favor of any person not a party hereto or to
constitute an employment agreement or condition of employment for any employee
of HEALTHSOUTH or Seller or any Affiliate of HEALTHSOUTH or Seller or any
Retained Employee.
Section 2.11 [Intentionally omitted.]
Section 2.12 No Assignment If Breach; Seller's Discharge of Assumed
Liabilities.
(a) Notwithstanding anything contained in this Agreement to the
contrary, this Agreement shall not constitute an agreement to assign any
Transferred Asset, or assume any Assumed Liability, if the attempted assignment
or assumption of the same, as a result of the absence of the consent or
authorization of a third party, would constitute a breach or default under any
lease, agreement, encumbrance or commitment or would in any way adversely affect
the rights, or increase the obligations, of Buyer, HEALTHSOUTH, Seller or any
Subsidiary with respect thereto; provided that the assignment of any contract,
including without limitation Medicare, Medicaid and similar provider agreements,
which may lawfully be made subject to customary conditions subsequent (such as
needs surveys, evaluations of Buyer or other determinations by the
counterparties to such agreements) shall be deemed not to constitute a default
under, or to in any way adversely affect the rights or increase the obligations
of Buyer with respect
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to, such lease, agreement, encumbrance or commitment, unless the counterparty
indicates prior to the Closing that such condition or conditions subsequent are
not likely to be met. If any such consent or authorization is not obtained, or
if an attempted assignment or assumption would be ineffective or would adversely
affect the rights or increase the obligations of HEALTHSOUTH, Seller, a
Subsidiary or Buyer, with respect to any such lease, agreement, encumbrance or
commitment, so that Buyer would not, in fact, receive all such rights, or assume
the obligations, of Seller or Subsidiary with respect thereto as they exist
prior to such attempted assignment or assumption, then, in accordance with the
procedures described in Section 2.14, but subject to the Management Agreement
provisions of Section 2.15, Seller and Buyer shall, and Seller shall cause each
Subsidiary to, enter into such reasonable cooperative arrangements as may be
reasonably acceptable to both Buyer and Seller (including without limitation,
sublease, agency, partial closing, management, indemnity or payment arrangements
and enforcement at the cost and for the benefit of Buyer of any and all rights
of Seller and the Subsidiaries against an involved third party) to provide for
Buyer the benefits of such Transferred Asset or to relieve Seller and the
Subsidiaries from the obligations of such Assumed Liability, and any transfer or
assignment to Buyer by Seller or a Subsidiary of any such Transferred Asset, or
any assumption by Buyer of any such Assumed Liability, which shall require such
consent or authorization of a third party that is not obtained shall be made
subject to such consent or authorization being obtained. Subject to the
provisions of Section 2.15, if the parties cannot agree on any such arrangement,
or any such arrangement would not be reasonably practicable, to provide Buyer
with materially all the benefits of such Transferred Asset or materially all the
obligations of such Assumed Liability, then such Transferred Asset or Assumed
Liability, as the case may be, shall be excluded from the Transactions and shall
be deemed to be an Excluded Asset or an Excluded Liability, as the case may be,
and Buyer and Seller shall negotiate in good faith an equitable adjustment in
the Purchase Price, or resolve any disagreement respecting such adjustment, in
accordance with the procedures of Section 2.14.
(b) Notwithstanding any other provision of this Agreement, during the
period between the date hereof and the Closing, Seller may (or, at Buyer's
request and expense, will), for the purpose of facilitating consummation of the
Transactions, cause any Subsidiary to acquire (on customary and reasonable
terms, conditions and purchase prices) a fixed asset, or any direct or indirect
interest therein, that results in the simultaneous discharge of the effective
cost of all or any part of a liability that exists as of the date hereof which,
but for such acquisition, would be an Assumed Liability; provided that in each
such case it gives prompt notice of such acquisition to Buyer. In the event of
any such acquisition, Buyer and Seller shall negotiate in good faith an
equitable adjustment to the Purchase Price, or resolve any disagreement
respecting such adjustment, in accordance with the procedures of Section 2.14.
Section 2.13 Closing. Subject to the terms and conditions hereof, the
consummation of the Transactions (the "Closing") shall occur at a mutually
agreeable time and place or places within five business days after the first
date on which all of the conditions set forth in Article 8 and Article 9 hereof
are satisfied, but in no event later than the Termination Date set forth in
Section 10.1(b). The date on which the Closing actually occurs is referred to
herein as the "Closing Date". The Closing shall be effective for all purposes as
to each Facility (and the Transferred Assets and Assumed Liabilities related
thereto) at 11:59 p.m. on the Closing Date, as determined by reference to the
local time zone in which the Facility is located. At the Closing and subject to
the terms and conditions hereof, the following will occur:
(a) Deliveries by Seller. Seller shall deliver, or cause the
Subsidiaries to deliver, to Buyer:
(i) Stock powers properly executed and acknowledged by Seller
or the relevant Subsidiary (or by Seller as its attorney-in-fact) with
respect to the Assigned Stock;
(ii) A Bill of Sale and Assignment in substantially the form
of Exhibit A executed by Seller or the relevant Subsidiary (or by Seller as
its attorney-in-fact) with respect to the
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Transferred Assets of Seller or such Subsidiary (other than shares of the
Assigned Stock) covered thereby;
(iii) Special or limited warranty deeds, properly executed
and acknowledged by Seller or the relevant Subsidiary (or by Seller as its
attorney-in-fact) with respect to the Owned Real Properties of Seller or
such Subsidiary included in the Transferred Assets;
(iv) Assignments in substantially the form of Exhibit B
executed by Seller or the relevant Subsidiary (or by Seller as its
attorney-in-fact) with respect to Real Property Leases of Seller or such
Subsidiary included in the Transferred Assets;
(v) Instruments of transfer, sufficient to transfer personal
property interests of Seller or the relevant Subsidiary that are included
in the Transferred Assets but not otherwise transferred by the Bills of
Sale and Assignment referred to in clause (ii) above, executed by Seller or
the relevant Subsidiary (or by Seller as its attorney-in-fact) in the form
customarily used in commercial transactions in the areas in which such
other personal property of Seller or such Subsidiary is located;
(vi) Such other instruments of transfer, executed by Seller
and each of the relevant Subsidiaries (or by Seller as its
attorney-in-fact) necessary to transfer to and vest in Buyer all of
Seller's and the Subsidiaries' rights, title and interest in and to the
Transferred Assets;
(vii) An Assumption Agreement, in substantially the form of
Exhibit C, in favor of Buyer with respect to all Excluded Liabilities of
the Transferred Subsidiaries; and
(viii) Possession of the Transferred Assets.
(b) Deliveries by Buyer. Buyer shall deliver to Seller:
(i) Immediately available funds, by way of wire transfer to
an account or accounts designated by Seller, in an amount determined
pursuant to Section 2.6(b), less any adjustments pursuant to Section 2.14;
and
(ii) An Assumption Agreement or Assumption Agreements, in
substantially the form of Exhibit D, in favor of Seller and each of the
Subsidiaries.
(c) Escrow. If either of the parties desires to consummate the Closing
through an escrow, an escrow shall be opened with, and the escrow agent shall
be, Fidelity National Title Company (the "Escrow Agent"), by depositing a fully
executed copy of this Agreement with Escrow Agent to serve as escrow
instructions. This Agreement shall be considered the primary escrow instructions
between the parties, but the parties shall execute such additional standard
escrow instructions as Escrow Agent shall require in order to clarify the duties
and responsibilities of Escrow Agent. In the event of any conflict between this
Agreement and such additional standard escrow instructions, this Agreement shall
prevail. If the Closing is to be consummated through the Escrow Agent, then on
or prior to the Closing Date, Buyer shall cause the funds required by Subsection
(b)(i) above to be wired to Escrow Agent, and the parties shall deliver the
instruments of sale, assignment, conveyance and assumption called for by
Subsections (a) and (b) above to the Escrow Agent, and on the Closing Date, the
Escrow Agent shall close the escrow by:
(i) Causing the deeds for the Owned Real Properties, the
assignments of the Real Property Leases, and any other documents which the
parties may mutually designate to be re-
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corded in the official records of the appropriate counties in which the
pertinent Transferred Assets are located;
(ii) Delivering to Seller by wire transfer of immediately
available funds, to an account or accounts designated by Seller, the
amounts called for by Subsection (b)(i) above; and
(iii) Delivering to Buyer or Seller, as the case may be, the
other instruments referred to in Subsections (a) and (b) above.
Section 2.14 Purchase Price Adjustment.
(a) In the event that circumstances exist that require the parties to
negotiate in good faith cooperative arrangements under Section 2.12 or potential
amendments to this Agreement pursuant to Sections 8.5 and 9.5 (dealing with
possible subsequent transfers of Transferred Assets after the Closing in the
event of certain injunctions) or potential amendments to the Management
Agreement referred to in Section 2.15, or to negotiate in good faith equitable
adjustments in the Purchase Price pursuant to the provisions of the foregoing
Sections, or the provisions of Section 8.6 (respecting the condition of title to
interests in real property) (Sections 2.12, 2.15, 8.5, 8.6 and 9.5 being
collectively referred to as the "Adjustment Sections"), then and in any of such
events, such negotiations, and the resolution of disagreements arising
therefrom, shall be conducted in accordance with the provisions of this Section
2.14. The parties shall negotiate such cooperative arrangements, potential
amendments and equitable adjustments in the Purchase Price in good faith prior
to any scheduled Closing Date (as may be extended by mutual agreement of the
parties), and, in connection with an adjustment to the Purchase Price, shall
also negotiate appropriate amendments to the Allocation Schedule arising
therefrom, provided that any adjustment in the Purchase Price shall be
consistent with the original Allocation Schedule. If the parties are unable to
agree by the day prior to such scheduled Closing Date, then such scheduled
Closing Date (and the Termination Date, if necessary) shall be extended for up
to 15 business days to provide for the opportunity to resolve such disagreement
pursuant to the provisions of this Section 2.14. On the day the Closing would
have occurred but for the absence of agreement between the parties, each party
shall designate an individual (who may not be a present or former officer,
director, partner or employee of the party or of any present or former
investment banker, accounting firm, law firm or attorney regularly used by the
party) to mediate such disagreement, and advise the other party in writing of
the identity of such individual, which advice shall be accompanied by a list of
up to ten suggested neutral individuals to serve as a third mediator. The
mediators originally designated by each party shall promptly confer about the
selection of a third mediator from such lists, and within five business days
following the originally scheduled Closing Date (or Termination Date, as the
case may be), the originally designated mediators shall agree upon and (subject
to availability) select the third mediator from the lists submitted by the
parties or otherwise, provided that if the originally designated mediators
cannot agree upon a third mediator by such date, the third mediator shall be
designated by the Alternative Dispute Resolution Service of NHLA/AAHA, Inc. The
three mediators so selected are herein referred to as the "Panel". Within two
business days following the designation of the third mediator, each party shall
submit to the Panel, in writing, its proposed cooperative arrangements,
amendments to this Agreement, amendments to the Management Agreements and/or
equitable adjustments in the Purchase Price in the absence of any such
cooperative arrangements or amendments, except that the parties need only submit
their proposed adjustments to the Purchase Price (and proposed amendments to the
Allocation Schedule) in the case of disagreements about adjustments for certain
acquisitions and modifications under Section 2.12(b), or imperfections of title
under Section 8.6). Such proposals shall be materially in accordance with the
last proposals made by such party to the other party during the course of the
aforementioned good faith negotiations between the parties. The parties shall
additionally submit such memoranda, arguments, briefs and evidence in support of
their respective positions, and in accordance with such procedures, as a
majority of the Panel may determine. Within seven business days following the
designation of the third mediator, the Panel shall, by majority vote, select the
proposed cooperative arrangements, amendments
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or adjustments of the Purchase Price, as the case may be, proposed by one of the
parties, it being agreed that the Panel may modify such proposal in any way
which is not otherwise inconsistent with the terms of this Agreement.
Thereafter, the parties shall, subject to the terms and conditions of this
Agreement, consummate the Transactions on the basis of such selected cooperative
arrangements, amendments or adjustments at a mutually agreeable time and place
or places, in accordance with the provisions of Section 2.13, which shall be no
later than the 15th business day following the originally scheduled Closing Date
or such later date as the parties may agree upon. Subject to the foregoing, the
Panel may determine the issues in dispute following such procedures, consistent
with the language of this Agreement, as it deems appropriate to the
circumstances and with reference to the amounts in issue. No particular
procedures are intended to be imposed upon the Panel, it being the desire of the
parties that any such disagreement shall be resolved as expeditiously and
inexpensively as reasonably practicable. No member of the Panel shall have any
liability to the parties in connection with service on the Panel, and the
parties shall provide such indemnities to the members of the Panel as they shall
request.
(b) Notwithstanding the foregoing, or any other provisions of this
Agreement, unless the parties otherwise agree, no adjustment to the Purchase
Price (except in connection with an adjustment made pursuant to Section 2.15)
shall be made which exceeds, individually or in the aggregate of all such
adjustments, 50% of the original Purchase Price, it being agreed that if the
conditions to consummation of the Transactions are otherwise met but for
Purchase Price adjustments contemplated by the Adjustment Sections in excess of
such percentage, then the conditions to consummation of the Transactions shall
be deemed not to have been met. In such event, Buyer shall be entitled to a
refund of the Execution Fee and accrued interest thereon and the parties shall
be deemed to have been released from their obligations under Sections 10.3 and
10.4.
Section 2.15 Management Agreements. In the event that the conditions to
consummation of the Closing have otherwise been met or waived, but:
(i) Buyer has not been issued Licenses referred to in Section
8.4(d) respecting the conduct of business from one or more Facilities,
and the absence of such Licenses would result in a Material Adverse
Effect upon the conduct of such business from any such Facility by
Buyer following the Closing; or
(ii) Seller has not received one or more Consents (as defined in
Section 8.4) necessary to effectively assign to Buyer (A) a Real
Property Lease (and/or agreements which, by the terms of the Real
Property Lease in question, are tied thereto, such as certain service
contracts, subordination or security agreements, parking leases or
equip ment leases), the lack of which assignment would have a Material
Adverse Effect on a Facility, or (B) any other Assumed Contracts
identified by Buyer in writing to Seller, and the parties have not
entered into an alternative arrangement pursuant to Section 2.12;
then and in either of such events the parties shall nevertheless consummate the
Transactions in accordance with the provisions of this Agreement, as modified by
the following provisions:
(a) At the Closing, the parties shall execute one or more management
agreements (each a "Management Agreement"), substantially in the form of Exhibit
E hereto, pursuant to which Buyer shall undertake to manage such Facilities
under Licenses held by Seller and the Subsidiaries and/or pending the receipt of
such Consents, as the case may be.
(b) The instruments of transfer and assumption set forth in Sections
2.13(a) and 2.13(b)(ii) respecting each such Real Property Lease (or related or
other agreement), and/or respecting those Transferred Assets and Assumed
Liabilities that may not be lawfully transferred or assumed until
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the requisite Licenses are obtained, as the case may be, shall be delivered
(together with a fully executed copy of this Agreement) by the parties to, or,
in the event an escrow has been established pursuant to the provisions of
Section 2.13(c), retained by, the Escrow Agent until they are to be delivered in
accordance with the terms hereof. This Agreement shall be considered the primary
escrow instructions between the parties, but the parties shall execute such
additional standard escrow instructions as Escrow Agent shall require in order
to clarify the duties and responsibilities of Escrow Agent. In the event of any
conflict between this Agreement and such additional standard escrow
instructions, this Agreement shall prevail. All other instruments of transfer
and assumption shall be delivered in accordance with Section 2.13, so that the
Buyer will become the owner of the Transferred Assets, and the obligor with
respect to Assumed Liabilities, not described in the first sentence of this
Section 2.15(b).
(c) The provisions of Sections 5.1, 5.2 and 5.3 shall remain in effect
pending the receipt of such Licenses by Buyer, and/or such Consents by the
Seller, as the case may be.
(d) With respect to each such Facility, the Escrow Agent shall deliver
the aforementioned instruments of assumption to Seller and the aforementioned
instruments of transfer to Buyer (and cause to be recorded any of such
instruments as are contemplated by Section 2.13(c)(i)) upon the date (each such
date being a "Delivery Date") that the Escrow Agent has received, if the
provisions of clause 2.15(i) apply, an affidavit of Buyer (a "Buyer's
Affidavit"), executed by a duly authorized officer of Buyer, to the effect that:
(x) Such Licenses respecting such Facility have been obtained by
Buyer; and
(y) There is not in effect a temporary restraining order or a
preliminary or permanent injunction or other order, decree or ruling
by a court of competent jurisdiction or by a governmental agency which
restrains or prohibits such deliveries, or any threat by governmental
authorities to exact any penalty or impose any economic detriment upon
Buyer if such deliveries are made that would have a Material Adverse
Effect upon Buyer, provided that the parties will use their best
efforts to litigate against the entry of, or to obtain the lifting of,
any such order or injunction or potential penalty or imposition, and
the existence of any such temporary restraining order, preliminary
injunction or potential penalty or imposition shall operate, at the
option of Seller, only to delay the delivery of such instruments and
extend the Final Delivery Date (as defined below) until the fifth day
following the lifting of any such order or injunction or threat;
and, in any event, unless such requirement is waived by Buyer, the Escrow Agent
has also received an additional affidavit (a "Seller's Affidavit") addressed to
the Escrow Agent and Buyer and executed by a duly authorized officer of Seller
to the effect that:
(i) There is not in effect a temporary restraining order or
a preliminary or permanent injunction or other order, decree or ruling
by a court of competent jurisdiction or by a governmental agency which
restrains or prohibits such deliveries, or any threat by governmental
authorities to exact any penalty or impose any economic detriment upon
Seller if such deliveries are made that would have a Material Adverse
Effect upon Seller, provided that the parties will use their best
efforts to litigate against the entry of, or to obtain the lifting of,
any such order or injunction or potential penalty or imposition, and
the existence of any such temporary restraining order, preliminary
injunction or potential penalty or imposition shall operate, at the
option of Seller, only to delay the delivery of such instruments and
extend the Final Delivery Date (as defined below) until the fifth day
following the lifting of any such order or injunction or threat;
(ii) Since the Closing Date, neither the Seller nor the
Subsidiaries have sold, conveyed, assigned, transferred or delivered
any Transferred Asset to any third party, or created any lien, charge,
claim, pledge, security interest or encumbrance respecting any
Transferred Asset
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except for Permitted Encumbrances (as defined in Section 3.8), without
the consent of, or participation in such transaction by, Buyer in its
role as manager of the Facility or Facilities in question; and
(iii) If the provisions of clause 2.15(ii) apply, the
requisite Consents necessary to assign such Real Property Lease(s) (or
related or other agreement(s)) have been obtained.
Each party covenants and agrees not to intentionally take (or omit to take) any
action if such action (or omission) would prevent it from being able to provide
its respective Affidavit.
(e) Subject to the provisions of this Subsection 2.15(e), all of the
aforementioned deliveries of instruments of transfer and assumption shall be
completed on or before June 30, 1998 (or such later date upon which the parties
may agree upon) (such date, or any date to which it may be extended pursuant to
any of the provisions of this Section 2.15, being referred to as the "Final
Delivery Date"), provided that if, in the reasonable judgment of Seller, Buyer
is diligently continuing to pursue the receipt of any such Licenses, or in the
reasonable judgment of Buyer, Seller is diligently continuing to pursue the
receipt of such Consents, as the case may be, then Seller and/or Buyer, as the
case may be, shall deposit into escrow its agreement to extend the Final
Delivery Date for an additional 90 days. On the Final Delivery Date (including
any date to which it may be extended), the Escrow Agent shall close the escrow
by delivering to Buyer all instruments of transfer, and delivering to Seller all
instruments of assumption, remaining in escrow, provided that the Escrow Agent
shall have received a Seller's Affidavit effective as of such Final Delivery
Date. In the event that a Seller's Affidavit is not provided to the Escrow Agent
effective as of such Final Delivery Date, then and in such event the Escrow
Agent shall provide notice of such fact to Buyer and Seller. In the event that
(i) a Seller's Affidavit cannot be delivered with respect to any of the
Transferred Assets and (ii) that parties are unable to agree upon appropriate
amendments to the Management Agreement to provide Buyer with the economic
benefits and risk of ownership of such Transferred Assets as contemplated by the
following sentence, the parties shall thereupon attempt to negotiate for a
period of 30 days an equitable adjustment in the Purchase Price respecting the
Transferred Assets and the Assumed Liabilities that remain in escrow. Such
appropriate amendments to the Management Agreement shall extend the term thereof
for at least 25 years (or the remaining terms of the Real Property Leases in
question, including extensions, if shorter); shall prohibit the Seller and the
Subsidiaries during such period from transferring or encumbering the Transferred
Assets not delivered to Buyer without Buyer's written consent; shall require
Seller, to the extent Buyer has not obtained the requisite Licenses respecting a
Facility, to exercise its best efforts to maintain or cause its Subsidiaries to
maintain Licenses in force as will permit the Facilities to be operated in their
current status; shall provide Buyer with the right to control any elections
relating to extensions or renewals of any Real Property Leases; and shall
otherwise provide the Buyer with substantially all of the economic benefits and
risks arising from the operation of the Facilities; provided that to the extent
any such amendments shall not be consistent with applicable law, or shall be
prohibited by the terms of any injunction or order or result in the imposition
of any material penalty upon Seller or Buyer , or not be permitted by the Real
Property Leases in question, then to such extent and in lieu of any such
amendment, the parties shall negotiate an equitable adjustment in the Purchase
Price respecting the Transferred Assets and the Assumed Liabilities that remain
in escrow. In the event the parties cannot agree within such 30-day period upon
such amendments to the Management Agreement and/or adjustments to the Purchase
Price, as the case may be, then such disagreement shall be resolved pursuant to
the provisions of Section 2.14 (without regard to the provisions of Section
2.14(b)) as though the day after the expiration of such 30-day negotiating
period was the scheduled Closing Date or Termination Date referred to therein.
Upon agreement of the parties, or resolution of any such disagreement in
accordance with the provisions of Section 2.14, as the case may be, Buyer and
Seller shall deposit into escrow executed counterparts of amendments to the
Management Agreement, if any, and Seller shall deposit into escrow, in
immediately available funds, an amount equal to the adjustment of the Purchase
Price if any (without interest), as agreed upon by the
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parties or determined under the provisions of Section 2.14, and, subject to
receipt of such deposits into escrow, the Escrow Agent shall:
(i) Deliver such funds, if any, to Buyer by wire transfer of
immediately available funds;
(ii) Deliver to Buyer all instruments of assumption remaining
in escrow and a counterpart of the amendments to the Management
Agreement, if any, executed by Seller; and
(iii) Deliver to Seller all instruments of transfer remaining
in escrow and a counterpart of the amendments to the Management
Agreements, if any, executed by Buyer.
(f) Unless amended pursuant to the above provisions, the Management
Agreement shall be terminated, in accordance with its provisions, with respect
to any Facility with respect to which instruments of transfer and assumption
have been delivered out of escrow, and the escrow shall close when all such
instruments of transfer and assumption have been delivered out of escrow.
(g) Notwithstanding the foregoing, the provisions of this Section 2.15
shall not apply (i) to circumstances described in Section 2.15(i), to the extent
that applicable laws or rules of accreditation governing healthcare facility
Licenses held by Seller or a Subsidiary would not permit the Management
Agreement arrangements contemplated hereby, or (ii) to circumstances described
in Section 2.15(ii), to the extent that the Real Property Lease or Leases in
question would not permit such Management Agreement arrangements. In either of
such events, and to such extent, the other provisions of this Agreement shall be
unaffected by this Section 2.15 and the parties shall negotiate an appropriate
adjustment to the Purchase Price as contemplated by Section 2.14.
(h) Notwithstanding this Section 2.15 and without limiting the
generality of the introductory paragraph of this Section 2.15, the provisions of
Section 2.5 through 2.11 shall be fully operative as though all Licenses and
Consents had been received as of the Closing and all Transactions scheduled to
occur at the Closing had occurred without regard to this Section 2.15, except
that Buyer shall, with respect to Receivables not assigned to it at Closing as a
result of the provisions of this Section 2.15, collect such Receivables at
managed Facilities in its capacity as manager of the Facilities in question
rather than as principal, and shall retain such collections as a management fee.
Section 2.16. Assignment of Rights and Obligations to Buyer Subsidiaries.
Notwithstanding any contrary provisions contained herein, the parties hereto
agree that, prior to the Closing Date, Buyer, in its sole discretion, may assign
any or all of its rights and obligations with respect to the Transferred Assets
and the Assumed Liabilities to one or more Buyer Subsidiaries, provided that no
such assignment shall relieve Buyer of any obligation or liability to Seller
hereunder, and provided further that the following shall apply:
(a) Buyer will provide HEALTHSOUTH and Seller with prompt written
notice of any such assignment.
(b) No such assignment shall be effected if the making of the
assignment will result in Seller's inability to obtain any Consent reasonably
needed to consummate the Transactions or to avoid any economic detriment to
HEALTHSOUTH or Seller arising from the consummation of the Transactions.
(c) Each such Buyer Subsidiary that is an assignee of Buyer shall
irrevocably appoint Buyer as its sole and exclusive representative and agent
authorized to act for and to receive notices and payments on behalf of the Buyer
Subsidiaries in all matters arising from or related to this Agreement and the
Transactions.
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(d) As a condition to HEALTHSOUTH's and Seller's agreement to such
assignments, Buyer hereby agrees that Buyer will at all times be the ultimate
parent entity of the consolidated group of companies of which Buyer is a group
member or that, in the event of any reorganization involving Buyer and its
subsidiaries, the ultimate parent entity of the consolidated group of companies
emerging from such reorganization that includes Buyer and its successors and
assigns shall, prior to any such reorganization, execute such documents as are
reasonably necessary to confirm the assumption by such ultimate parent entity of
Buyer's obligations to HEALTHSOUTH and Seller hereunder.
(e) Buyer shall remain jointly and severally liable to HEALTHSOUTH,
Seller and the Subsidiaries (other than the Transferred Subsidiaries) and to
third parties with respect to any Assumed Liabilities transferred to a Buyer
Subsidiary, and, without limiting the generality of the foregoing, hereby
absolutely and unconditionally guarantees the full, prompt and faithful
performance by each Buyer Subsidiary of all covenants and obligations to be
performed by such Buyer Subsidiary under this Agreement and any Related
Agreement which are assigned to such Buyer Subsidiary, including but not limited
to, the payment of all sums stipulated to be paid by such Buyer Subsidiary
pursuant to such assignment, it being understood that each such covenant and
obligation constitutes the direct and primary obligation of Buyer, is
independent of the covenants and obligations of the Buyer Subsidiaries and that
a separate action or actions may be brought and prosecuted against Buyer whether
action is brought against the pertinent Buyer Subsidiary or whether such Buyer
Subsidiary is joined in any such action or actions (Buyer hereby waiving any
right to require Seller or a Subsidiary to proceed against a Buyer Subsidiary).
Buyer hereby authorizes HEALTHSOUTH and Seller, without notice and without
affecting Buyer's liability hereunder, from time to time to (x) renew,
compromise, extend, accelerate, or otherwise change the terms of any obligation
of a Buyer Subsidiary hereunder with the agreement of such Buyer Subsidiary, (y)
if agreed to by the Buyer Subsidiary, take and hold security for the obligations
guaranteed, and exchange, enforce, waive and release any such security, and (z)
apply such security and direct the order or manner of sale thereof as Seller in
its discretion may determine. Buyer hereby further waives:
(i) Any right to subrogation, reimbursement, exoneration or
contribution or any other rights that would result in Buyer being
deemed a creditor of a Buyer Subsidiary under the federal Bankruptcy
Code or any other law, in each case arising from the existence or
performance of Buyer's guaranty of the obligations of a Buyer
Subsidiary hereunder;
(ii) Any defense that may arise by reason of the incapacity
or lack of authority of any Buyer Subsidiary;
(iii) Any defense based upon a statute or rule of law which
provides that the obligations of a surety must be neither larger in
amount nor in other respects more burdensome than those of the
principal; and
(iv) Any duty on the part of HEALTHSOUTH, Seller or a
Subsidiary to disclose to Buyer any facts that Seller or a Subsidiary
may now or hereafter know about a Buyer Subsidiary, since Buyer hereby
acknowledges that it is fully responsible for being and keeping
informed of the financial condition of each Buyer Subsidiary and all
circumstances bearing on the risk of non-payment of any obligations
assigned to such Buyer Subsidiary.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF HEALTHSOUTH AND SELLER
HEALTHSOUTH and Seller, jointly and severally, hereby represent and warrant
to Buyer, as of the date hereof, as follows, except as disclosed in Schedule 3:
Section 3.1 Organization and Corporate Power; Related Matters. Each of
Seller and HEALTHSOUTH is a corporation duly incorporated and validly existing
under the laws of, and is authorized to exercise its corporate powers, rights
and privileges and is in good standing in, the State of Delaware and has full
corporate power to carry on its business as presently conducted and to own or
lease and operate its properties and assets now owned or leased and operated by
it. HEALTHSOUTH owns all of the issued and outstanding shares of capital stock
of Seller. Seller is duly qualified and in good standing as a foreign
corporation in all jurisdictions in which such qualification is required by
reason of its business, properties or activities in or relating to such
jurisdictions (which, in the case of Subsidiaries existing on the date of this
Agreement, is likewise indicated on Schedule A-1), except where the failure to
be so qualified will not have a Material Adverse Effect (as defined in Section
3.4) on the Transferred Assets. The Transferred Assets (including the Assigned
Stock) constitute all of the assets of Seller and the Subsidiaries encompassing
the Facilities and the operations thereof (except for the Excluded Assets) and,
except to the extent that such businesses are Excluded Assets which will be
retained by Seller at Closing, the Facilities and their operations constitute
the only businesses represented by the Transferred Assets (including the
Assigned Stock).
Section 3.2 Subsidiaries.
(a) Each Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of its state of incorporation (which, in the
case of Subsidiaries existing on the date of this Agreement, is indicated on
Schedule A-1) and is duly qualified and in good standing as a foreign
corporation in all jurisdictions in which such qualification is required by
reason of its business, properties or activities in or relating to such
jurisdictions (which, in the case of Subsidiaries existing on the date of this
Agreement, is likewise indicated on Schedule A-1), except where the failure to
be so qualified will not have a Material Adverse Effect on the Transferred
Assets. Each Subsidiary has all requisite power and authority (corporate and
otherwise) to perform the transactions on its part contemplated by this
Agreement and all other agreements contemplated hereby.
(b) All of the outstanding capital stock of each Subsidiary has been
duly authorized and is validly issued, fully paid and nonassessable and, except
as indicated on Schedule A-1, is owned beneficially and of record by Seller or
another wholly-owned subsidiary of Seller as indicated on Schedule A-1. There
are no rights, subscriptions, warrants, options, conversion rights or agreements
of any kind outstanding to purchase or otherwise acquire any shares of capital
stock of or securities or obligations of any kind convertible into or
exchangeable for any shares of capital stock of any Subsidiary, and the Assigned
Stock constitutes all of the issued and outstanding capital stock of the
Transferred Subsidiaries.
(c) Upon consummation of the Transactions, Buyer will acquire valid
title to the Assigned Stock, free and clear of all liens, charges, pledges or
security interests (except for those created or allowed to be suffered by Buyer)
and free of any restrictions on voting and transfer except as may be disclosed
on Schedule A-1. The Assigned Stock is validly issued, fully paid and
non-assessable.
(d) The board of directors of each Subsidiary and, if required, its
stockholders, have duly and effectively authorized (i) the sale of the
Transferred Assets to be sold by such Subsidiary; and (ii) the execution,
delivery and performance of the Related Agreements (as defined in Section 3.4)
and all other agreements contemplated hereby and thereby to which such
Subsidiary is a party. No other corporate act
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or proceeding on the part of any Subsidiary, its board of directors or its
stockholders is necessary to authorize any Related Agreement or other agreement
contemplated hereby and thereby or the transactions contemplated hereby and
thereby.
Section 3.3 Authority Relative to this Agreement. The execution, delivery
and performance of this Agreement and all other agreements contemplated hereby
and the consummation of the transactions contemplated hereby and thereby have
been duly and effectively authorized by the boards of directors of each of
HEALTHSOUTH and Seller; no other corporate act or proceeding on the part of
HEALTHSOUTH, Seller, their respective boards of directors or their respective
stockholders is necessary to authorize this Agreement, any such other agreement
or the transactions contemplated hereby and thereby. This Agreement has been,
and each of the other agreements contemplated hereby will, as of the Closing,
have been, duly executed and delivered by each of HEALTHSOUTH and Seller, and
this Agreement constitutes, and each such other agreement when executed and
delivered will constitute, a valid and binding obligation of HEALTHSOUTH or
Seller, as the case may be, enforceable against them in accordance with its
terms, except that the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding may be brought.
Section 3.4 Absence of Breach. Subject to the provisions of Sections 3.5
and 3.6 below regarding private party and governmental consents, and except for
compliance with the requirements of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), and any regulatory or licensing Laws
applicable to the businesses and assets represented by the Transferred Assets,
the execution, delivery and performance by HEALTHSOUTH and Seller of this
Agreement and all other agreements contemplated hereby or executed in connection
herewith (the "Related Agreements"), and the performance by the Subsidiaries of
the transactions contemplated by this Agreement and the Related Agreements to be
performed by the Subsidiaries, do not, (a) conflict with or result in a breach
of any of the provisions of the Articles or Certificates of Incorporation or
Bylaws or similar charter documents (the "Charter Documents") of HEALTHSOUTH,
Seller or of any of the Subsidiaries, (b) contravene any Law or cause the
suspension or revocation of any License presently in effect, which affects or
binds HEALTHSOUTH, Seller or any of the Subsidiaries, or any of their material
properties, except where such contravention, suspension or revocation will not
have a Material Adverse Effect (as defined below) on any Facility and will not
affect the validity or enforceability of this Agreement and the Related
Agreements or the validity of the Transactions contemplated hereby and thereby,
or (c) conflict with or result in a breach of or default under any indenture or
loan or credit agreement or any other agreement or instrument to which
HEALTHSOUTH, Seller or any of the Subsidiaries is a party or by which it or they
or any of their properties may be affected or bound, the effect of which
conflict, breach or default would be a Material Adverse Effect on the
Transferred Assets or on the ability of HEALTHSOUTH, Seller or a Subsidiary to
consummate the Transactions. As used herein, a "Material Adverse Effect": (a)
when used with respect to the Transferred Assets, means a material adverse
effect on the Transferred Assets and on the businesses operated therefrom,
including their condition (financial or otherwise) and results of operations,
taken as a whole; (b) when used with respect to any portion of the Transferred
Assets, means a material adverse effect on such portion of the Transferred
Assets and on the businesses operated therefrom, including their condition
(financial or otherwise) and results of operations, taken as a whole; and (c)
when used with respect to an entity, such as Seller, a Subsidiary or Buyer,
means a material adverse effect on the business, condition (financial or
otherwise) and results of operations of such entity taken as a whole (including
any subsidiaries of such entity).
Section 3.5 Private Party Consents. The execution, delivery and performance
by Seller of this Agreement and the Related Agreements, and the performance by
the Subsidiaries of the transactions contemplated by this Agreement and the
Related Agreements to be performed by the Subsidiaries, do not require the
authorization, consent or approval of any non-governmental third party of such a
nature that the failure to obtain the same would have a Material Adverse Effect
on the Transferred Assets.
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Section 3.6 Governmental Consents. The execution, delivery and performance
by Seller of this Agreement and the Related Agreements, and the performance by
the Subsidiaries of the transactions contemplated by this Agreement and the
Related Agreements to be performed by the Subsidiaries, do not require the
authorization, consent, approval, certification, license or order of, or any
filing with, any court or governmental agency of such a nature that the failure
to obtain the same would have a Material Adverse Effect on the Transferred
Assets, except for compliance with the HSR Act and except for such governmental
authorizations, consents, approvals, certifications, licenses and orders that
customarily accompany the transfer of health care facilities such as the
Facilities.
Section 3.7 Brokers. No broker, finder, or investment banker other than
Smith Barney Inc. is entitled to any brokerage, finder's or other fee or
commission in connection with this Agreement or the Transactions contemplated
hereby based upon any agreements or arrangements or commitments, written or
oral, made by or on behalf of HEALTHSOUTH, Seller or any of their Affiliates.
Section 3.8 Title to Personal Property. Seller or the relevant Subsidiary,
as the case may be, has good and defensible title, or valid and effective
leasehold rights in the case of leased property, to all tangible personal
property included in the Transferred Assets to be sold, conveyed, assigned,
transferred and delivered to Buyer by Seller or such Subsidiary, free and clear
of all liens, charges, claims, pledges, security interests, equities and
encumbrances of any nature whatsoever, except for those created or allowed to be
suffered by Buyer and except for the following (individually and collectively,
the "Permitted Encumbrances"): (a) the lien of current taxes not delinquent, (b)
matters that do not have a Material Adverse Effect on the Transferred Assets,
(c) the Assumed Liabilities, (d) such consents, authorizations, approvals and
licenses referred to in Sections 3.5 and 3.6, and (e) liens, charges, claims,
pledges, security interests, equities and encumbrances which will be discharged
or released either prior to, or substantially simultaneously with, the Closing.
Section 3.9 Assumed Contracts. Except for such matters that do not have a
Material Adverse Effect on the Transferred Assets, (a) there is no liability to
any person by reason of the default by Seller or a Subsidiary under any Assumed
Contract, (b) neither Seller nor any Subsidiary has received written or other
notice that any person intends to cancel or terminate any Assumed Contract, (c)
all of the Assumed Contracts are in full force and effect, (d) subject to the
provisions of Sections 3.5 and 3.6, the consummation of the transactions
contemplated by this Agreement will not constitute and, to the best of Seller's
current actual knowledge, no event has occurred which, with or without the
passage of time or the giving of notice, would constitute a breach or default by
Seller or a Subsidiary of such Assumed Contract or would cause the acceleration
of any obligation of Seller or any Subsidiary or the creation of any lien
(except for Permitted Encumbrances) upon any Transferred Asset, (e) neither
Seller nor any Subsidiary has waived any right under any Assumed Contract, and
(f) Seller has no knowledge of any material default by any counterparty to any
such Assumed Contract.
Section 3.10 Licenses and Related Regulatory Matters. Except for matters
associated with the significant legal proceedings and investigations referred to
in Seller's Annual Report on Form 10-K for the fiscal year ended May 31, 1997,
as amended, and its Quarterly Report on Form 10-Q for the three months ended
August 31, 1997, and except for such matters which do not have a Material
Adverse Effect on the Transferred Assets, (a) the Subsidiaries possess all
Licenses necessary for their operation of the Facilities at the locations and in
the manner presently operated, (b) if required, such Facilities are accredited
by applicable accrediting agencies as necessary for their operations in the
manner presently operated, (c) such Facilities are certified for participation
in the Medicare program and have current and valid provider contracts with such
program, and (d) to the current actual knowledge of Seller, there is no matter
which would adversely affect the maintenance of any such Licenses, program
participations or accreditations other than matters that have been disclosed in
writing to Buyer.
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Section 3.11 U.S. Person. Neither Seller nor any Subsidiary is a "foreign
person" for purposes of Section 1445 of the Internal Revenue Code of 1986, as
amended (the "Code"), or any other Laws requiring withholding of amounts paid to
foreign persons.
Section 3.12 Employee Relations. With respect to the Retained Employees:
(a) Neither Seller, nor any Subsidiary nor any Facility is a party to
any agreement with any union, trade association or other similar employee
organization, no written demand has been made for recognition by a labor
organization, and to the best of Seller's current actual knowledge no union
organizing activities by or with respect to any such employees are taking place;
and
(b) There are no controversies (including, without limitation, any
unfair labor practice complaints, labor strikes, arbitrations, disputes, work
slowdowns or work stoppages) affecting a material number of such Retained
Employees pending, or to the best of Seller's current actual knowledge,
threatened.
Section 3.13 Employee Plans. None of Seller or the Subsidiaries maintains
or makes contributions to any Pension Plans as to which Buyer will assume any
liability as a result of the Transactions. With respect to those Pension Plans
maintained or contributed to by Seller or the Subsidiaries, such Pension Plans
have been operated and administered in all material respects in acordance with,
all applicable Laws. No act or failure to act by Seller or a Subsidiary has
resulted in a "prohibited transaction" (as defined in ERISA) with respect to any
Pension Plan which is not subject to a statutory or regulatory exception. No
"reportable event" (as defined in ERISA, but excluding any event for which
notice is waived under the ERISA regulations) has occurred with respect to any
Pension Plan which is subject to Title IV of ERISA. No Pension Plan has any
accumulated funding deficiency or liability to the Pension Benefit Guaranty
Corporation. With respect to each Multiemployer Plan, there has occurred no
"complete withdrawal" or "partial withdrawal," as each is defined in Sections
4203 and 4205, respectively, of ERISA, and all payments required to be made to
such Multiemployer Plans by a Subsidiary under any collective bargaining
agreement have been made.
Section 3.14 Litigation. Except for matters associated with the significant
legal proceedings and investigations referred to in Seller's Annual Report on
Form 10-K for the fiscal year ended May 31, 1997, as amended, and its Quarterly
Report on Form 10-Q for the three months ended August 31, 1997, ordinary routine
claims and litigation incidental to the businesses represented by the Facilities
(including, but not limited to, actions for negligence, professional
malpractice, workers' compensation claims, so-called "slip-and-fall" claims and
the like), and governmental inspections and reviews customarily made of
businesses such as those operated from the Facilities, there are no actions,
suits, claims or proceedings pending, or to the current actual knowledge of
Seller, threatened against or affecting the Transferred Assets or relating to
the operations of the Facilities, at law or in equity, or before or by any
federal, state, municipal or other governmental department, commission, agency
or instrumentality.
Section 3.15 Tax Returns. All tax returns, statements, reports and forms or
extensions ("Returns") with respect thereto required to be filed with any
federal, state or local taxing authority on or before the Closing Date have been
or will be timely filed by Seller and each Subsidiary and will be prepared in
accordance in all material respects with all applicable Laws. Seller and each
Subsidiary have timely paid, or have obtained extensions to pay, all amounts
shown as due by such Returns which are required to have been paid before the
date hereof and will timely pay all amounts shown as due by such Returns which
are required to be paid on or before the Closing Date. No audits of any material
Returns filed by or on behalf of the Transferred Subsidiaries is pending or, to
the knowledge of HEALTHSOUTH or Seller, threatened.
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Section 3.16 Hazardous Substances. Except for matters which would not have
a Material Adverse Effect on the Transferred Assets and matters disclosed by the
environmental surveys which have been made available to Buyer for review prior
to the execution and delivery hereof:
(a) Other than normal amounts incidental to the operation of businesses
such as the Facilities (to the extent stored, used and disposed of in
substantial compliance with all applicable Laws), there are no Hazardous
Materials (as defined below) upon, about, beneath or migrating or threatening to
migrate to or from the Owned Real Properties or the Leased Real Properties or
the existence of any violation in any material respect of any Laws relating to
industrial hygiene, Hazardous Materials and environmental protection
("Environmental Regulations"); and
(b) There is no proceeding or action pending or threatened by any
person or governmental agency regarding the environmental condition or
occupational safety of the Facilities.
"Hazardous Materials" shall mean any substance (including, without limitation,
any asbestos, formaldehyde, radioactive substance, hydrocarbons, polychlorinated
biphenyls, industrial solvents, flammables, explosives and any other hazardous
substance or toxic material) which, in any material respect, is known to cause,
as of the date of this Agreement, a health, safety or environmental hazard and
require remediation at the behest of any governmental agency.
Section 3.17 Financial Information.
(a) Attached hereto as Schedule 3.17(a) is an unaudited statement of
certain combined earnings from the operations of the Transferred Assets and
Assumed Liabilities (as they were constituted on the "as of" date of such
schedule) before interest, income taxes, depreciation and amortization
("EBITDA") for the fiscal year ended May 31, 1997 and for the fiscal quarter
ended August 31, 1997 (the "EBITDA Statements"). The EBITDA Statements present
fairly the combined EBITDA of such operations, taken as a whole, as of the dates
and for the periods shown, and were derived from and are in accordance with the
internal books and records of Seller and the Subsidiaries and the regularly
prepared unaudited internal financial statements of the Facilities, which are
prepared on a basis materially in accordance with the generally accepted
accounting principles utilized in the preparation of the published financial
statements of Seller.
(b) Attached hereto as Schedule 3.17(b) is a regularly prepared
internal unaudited combined balance sheet of the Facilities as of August 31,
1997 (the "Balance Sheet"; collectively, the Balance Sheet and the EBITDA
Statement are the "Financial Schedule"). The Balance Sheet has been prepared
from, and is in accordance with, the internal books and records of Seller and
the Subsidiaries and presents fairly the financial condition of the Facilities,
taken as a whole, as of the date shown. The Balance Sheet was prepared in
accordance with Seller's practices for the preparation of internal financial
statements, consistently applied, and is materially in accordance with the
generally accepted accounting principles utilized in the preparation of the
published financial statements of Seller.
(c) Notwithstanding the foregoing, the Financial Schedule does not (i)
reflect allocations of indirect costs and overhead (other than benefits,
insurance (including workers' compensation) and legal costs) or the
corresponding cost reimbursement impact of claiming such costs in a Facility
cost report, (ii) reflect all intercompany eliminations, adjustments and
accruals that are reflected in financial statements of Seller, (iii) contain
footnotes or other explanatory material associated with financial statements
prepared in accordance with generally accepted accounting principles, or (iv)
contain normal year-end adjustments with respect to interim periods. In
addition, the Financial Schedule is to be read in conjunction with, and is
subject to, all notes and other explanatory material set forth therein.
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(d) Nothing in Section 4.10 hereof shall be deemed to limit the
representations made in this Section 3.17.
Section 3.18 Changes Since Balance Sheet. Since the date of the Balance
Sheet and up to and including the date of this Agreement, other than as
contemplated or permitted by this Agreement, Seller and the Subsidiaries have
conducted the businesses represented by the Transferred Assets only in the
ordinary and normal course, except for matters in anticipation of the
divestiture of the Transferred Assets, and there has not been:
(a) Any entry into or termination by Seller or a Subsidiary of any
material commitment, contract, agreement or transaction (including, without
limitation, any borrowing or lending transaction or capital expenditure) related
to the Transferred Assets except for transactions in the ordinary course of
business and renegotiation of credit agreements to which Seller and certain of
its subsidiaries are parties;
(b) Any casualty, physical damage, destruction or physical loss
respecting, or change in the physical condition of, the Facilities and the
Equipment that has had a Material Adverse Effect on the Transferred Assets;
(c) Any transfer of or rights granted under any contract which would
have been an Assumed Contract on the date of the Balance Sheet;
(d) Other than in the ordinary course of business, any sale or other
disposition of any fixed asset included in the Balance Sheet having a net book
value in excess of $100,000 or any material mortgage, pledge or imposition of
any lien or other encumbrances on any such asset, or sales or dispositions of,
or the imposition of material encumbrances on, fixed assets included in such
Balance Sheet having a net book value that exceeds $5,000,000 in the aggregate,
or any sale or other disposition of Inventories included in the Balance Sheet;
(e) Any amendment (other than general amendments which the carrier
makes for a category of policy) or termination of any insurance policy or
failure to renew any insurance policy covering the Transferred Assets, except
for amendments, terminations or failures to renew that do not have a Material
Adverse Effect on the Transferred Assets;
(f) Any default or breach by Seller or a Subsidiary under any contract
that would have been an Assumed Contract on the date of the Balance Sheet which,
when viewed individually or in the aggregate of all such breaches or defaults,
has had a Material Adverse Effect on the Transferred Assets; or
(g) Any increase made in the compensation levels of any member of
senior management of any Facility, or any general increase made in the
compensation levels of the other Retained Employees, except in the ordinary
course of business.
Section 3.19 Lists of Other Data. Except for contracts and agreements
already listed in Schedule 2.1(g), Schedules 3.19(a) through (g) contain lists,
complete and correct as of the dates shown thereon, of the following:
(a) The most recent regularly generated depreciation schedules related
to tangible personal property constituting Equipment, together with copies of
such schedules;
(b) Each lease constituting an Other Assigned Contract as of such date
(whether an operating or a capital lease) under which tangible personal property
was leased, where the annualized lease payments exceed $100,000;
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(c) A brief description of insurance in force covering fixed assets
that would constitute Transferred Assets as of such date;
(d) All compensation, bonus, incentive, deferred payments, retirement,
pension, severance, profit-sharing, stock purchase and stock option plans, group
life, automobile, medical, dental, disability, welfare or other employee benefit
plans or insurance policies, and other similar arrangements (collectively,
"Employee Benefit Arrangements") generally applicable to the Retained Employees
or a substantial part thereof or generally applicable to members of senior
management of the Facilities as of such date;
(e) The aggregate accrued paid time off (including vacation time) and
earned or available sick pay for all employees at each Facility, as of the date
shown; and
(f) Material Licenses of Seller and the Subsidiaries in force, as of
the date shown, with respect to the health care facilities to be included in the
Transferred Assets.
3.20 Compliance with Laws in General. Except for matters disclosed pursuant
to or described in Sections 3.10, 3.14 and 3.16, Seller and the Subsidiaries
have not received any notices of violations of any Laws with respect to the
businesses represented by the Transferred Assets, which violations, if
established, would have a Material Adverse Effect on the Transferred Assets.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to HEALTHSOUTH and Seller, as of the
date hereof, as follows:
Section 4.1 Organization and Corporate Power. Buyer is a corporation duly
incorporated and validly existing under the laws of, and is authorized to
exercise its corporate powers, rights and privileges and is in good standing in,
the State of Delaware and has full corporate power to carry on its business as
presently conducted and to own or lease and operate its properties and assets
now owned or leased and operated by it.
Section 4.2 Authority Relative to this Agreement. The execution, delivery
and performance of this Agreement and the Related Agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
and effectively authorized by the board of directors of Buyer; no other
corporate act or proceeding on the part of Buyer, its board of directors or its
stockholders is necessary to authorize this Agreement, any such Related
Agreement or the transactions contemplated hereby and thereby. This Agreement
has been, and each of the Related Agreements contemplated hereby will, as of the
Closing, have been, duly executed and delivered by Buyer and this Agreement
constitutes, and each such Related Agreement when executed and delivered will
constitute, a valid and binding obligation of Buyer, enforceable against Buyer
in accordance with its terms, except that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding may be
brought.
Section 4.3 Absence of Breach. Subject to the provisions of Sections 4.4
and 4.5 below regarding private party and governmental consents, and except for
compliance with the requirements of the HSR Act and any regulatory or licensing
Laws applicable to the businesses and assets represented by the Transferred
Assets, the execution, delivery and performance by Buyer of this Agreement and
the Related
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Agreements do not, (a) conflict with or result in a breach of any of the
provisions of Charter Documents of Buyer, (b) contravene any Law or cause the
suspension or revocation of any License presently in effect, which affects or
binds Buyer or any of its material properties, except where such contravention,
suspension or revocation will not affect the validity or enforceability of this
Agreement and the Related Agreements or the validity of the Transactions
contemplated hereby and thereby, or (c) conflict with or result in a breach of
or default under any indenture or loan or credit agreement or any other
agreement or instrument to which Buyer is a party or by which it or any of its
properties may be affected or bound, the effect of which conflict, breach or
default would be a Material Adverse Effect on Buyer or on its ability to
consummate the Transactions.
Section 4.4 Private Party Consents. The execution, delivery and performance
by Buyer of this Agreement and the Related Agreements do not require the
authorization, consent or approval of any non-governmental third party, other
than the consent of the required lenders under Buyer's principal credit
agreement.
Section 4.5 Governmental Consents. The execution, delivery and performance
by Buyer of this Agreement and the Related Agreements do not require the
authorization, consent, approval, certification, license or order of, or any
filing with, any court or governmental agency, except for compliance with the
HSR Act and except for such governmental authorizations, consents, approvals,
certifications, licenses and orders that customarily accompany the transfer of
health care facilities such as the Facilities.
Section 4.6 Brokers. Other than Donaldson Lufkin & Jenrette Securities
Corporation ("DLJ"), no broker, finder, or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with this Agreement
or the transactions contemplated hereby based upon any agreements or
arrangements or commitments, written or oral, made by or on behalf of Buyer or
any of its Affiliates. Buyer shall be solely responsible for the payment of any
such fee or commission to DLJ.
Section 4.7 Qualified for Licenses. To the current actual knowledge of
Buyer, Buyer is qualified to obtain any Licenses and program participations
necessary for the operation by Buyer of the Transferred Assets in substantially
the same manner as the Transferred Assets are presently operated by Seller and
the Subsidiaries.
Section 4.8 Financial Ability to Perform. Buyer has liquid capital or
committed sources therefor sufficient to permit it to perform timely its
obligations hereunder, including, but not limited to, the payment of the
Tentative Purchase Price to Seller at the Closing and the other payments to
Seller required hereunder.
Section 4.9 [Intentionally omitted.]
Section 4.10 "AS IS" Purchase. Except as set forth in Sections 3.16 and
6.2.(c), Buyer acknowledges and agrees (and upon which Seller and its
Subsidiaries shall have materially relied in selling the Transferred Assets to
Buyer at the Purchase Price and on the other terms and conditions herein set
forth) that Seller makes no representation or warranty, either express or
implied, with respect to the physical condition of the Transferred Assets, their
fitness or suitability for any particular purpose, or their compliance with
applicable local building codes, safety, fire, land use or access laws
(including, without limitation, the Americans With Disabilities Act), or any
similar Law. In this respect, Buyer confirms that it is relying upon its
investigation of the Transferred Assets to purchase the same on an "AS IS" basis
and in "WITH ALL FAULTS" condition. Without limiting the generality of the
foregoing, Buyer hereby acknowledges that, except as otherwise specifically
provided in this Agreement, neither Seller, nor any of its officers, employees
or agents, has made any warranty regarding the physical condition of the
Transferred Assets, including, but not limited to, any warranty of habitability
or warranty of merchantability or warranty of suitability for a particular
purpose, and Buyer hereby expressly disclaims the implied
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warranty of habitability, the implied warranty of merchantability, the implied
warranty of fitness for a particular purpose, and all expressed or implied
warranties relating to the quality of or otherwise relating to the physical
condition of the Transferred Assets.
Section 4.11 No Assurance. Buyer acknowledges and agrees that the rates or
bases used in calculating payments or reimbursements to it by any Payor
(including but not limited to Medicare) may differ from the rates and bases used
in calculating such payments or reimbursements to Seller and the Subsidiaries.
Buyer further acknowledges and agrees that the Financial Schedule has been
prepared based upon the records and historical methodology of Seller as
described in Section 3.17, and that HEALTHSOUTH has not independently verified
the information contained therein; provided, however, that the foregoing clause
shall not impair Buyer's right to the satisfaction of the condition set forth in
Section 8.2.
ARTICLE 5
COVENANTS OF EACH PARTY
Section 5.1 Efforts to Consummate Transactions. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use its
reasonable commercial efforts to take, or to cause to be taken, all reasonable
actions and to do, or to cause to be done, all reasonable things necessary,
proper or advisable under applicable Laws to consummate and make effective, as
soon as reasonably practicable, the Transactions contemplated hereby, including
the satisfaction of all conditions thereto set forth herein. Such actions shall
include, without limitation, exerting their reasonable efforts to obtain the
consents, authorizations and approvals of all private parties and governmental
authorities whose consent is reasonably necessary to effectuate the Transactions
contemplated hereby, and effecting all other necessary registrations and
filings, including but not limited to filings under Laws relating to the
transfer or obtaining of necessary Licenses, under the HSR Act and all other
necessary filings with governmental authorities. The foregoing notwithstanding,
it shall be the responsibility of Buyer to use its reasonable commercial efforts
and to act diligently and at its expense to obtain any authorizations, approvals
and consents in connection with acquiring Licenses and program participations
that will permit it to operate the Facilities after the Closing, provided that
Buyer will seek to obtain Licenses and program participations subject to the
existing conditions under which the Subsidiaries operate the Facilities and will
not seek to change the same until the Transferred Assets and Assumed Liabilities
respecting the Facilities in question have been transferred to and assumed by
Buyer. Subject to Sections 2.6(a) and 5.5, neither party shall have any
liability to the other if, after using its reasonable commercial efforts (and,
in the case of Buyer's efforts to obtain requisite Licenses, acting diligently),
it is unable to obtain any consents, authorizations or approvals necessary for
such party to consummate the Transactions. As used herein, the terms "reasonable
commercial efforts" or "reasonable efforts" do not include the provision of any
consideration to any third party or the suffering of any economic detriment to a
party's ongoing operations for the procurement of any such consent,
authorization or approval except for the costs of gathering and supplying data
or other information or making any filings, fees and expenses of counsel and
consultants and for customary fees and charges of governmental authorities and
accreditation organizations.
Section 5.2 Cooperation. Prior to and after the Closing, upon prior
reasonable written request, each party agrees to cooperate with the other in
every reasonable commercial way to consummate the Transactions. Notwithstanding
the foregoing, all analyses, appearances, presentations, memoranda, briefs,
arguments, opinions and proposals made or submitted by or on behalf of either
party hereto in connection with proceedings under or relating to the HSR Act or
any other federal or state antitrust or fair trade law, or made or submitted by
or on behalf of Buyer in connection with proceedings to obtain the Licenses and
program participations referred to in Section 5.1 hereof, shall be subject to
the joint approval or disapproval and the joint control of Buyer and Seller,
acting with the advice of their respective counsel,
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it being the intent of the foregoing that the parties hereto will consult and
cooperate with one another, and consider in good faith the views of one another,
in connection with any such analysis, presentation, memorandum, brief, argument,
appearance, opinion or proposal; provided that nothing herein shall prevent
either party hereto or any of their Affiliates or their authorized
representatives from (a) making or submitting any such analysis, appearance,
presentation, memorandum, brief, argument, opinion or proposal in response to a
subpoena or other legal process or as otherwise required by Law, or (b)
submitting factual information to the United States Department of Justice, the
Federal Trade Commission, any other governmental agency or any court or
administrative law judge in response to a request therefor or as otherwise
required by Law.
Section 5.3 Further Assistance. From time to time, at the request of either
party, whether on or after the Closing, without further consideration, either
party, at its expense and within a reasonable amount of time after request
hereunder is made, shall execute and deliver such further instruments of
assignment, transfer and assumption and take such other action as may be
reasonably required to more effectively assign and transfer the Transferred
Assets to, and vest the Assumed Liabilities in, Buyer, deliver or make the
payment of the Purchase Price to Seller or any amounts due from one party to the
other pursuant to the terms of this Agreement or confirm Seller's ownership of
the Excluded Assets and obligations with respect to the Excluded Liabilities.
Section 5.4 Cooperation Respecting Proceedings. After the Closing, upon
prior reasonable written request, each party shall cooperate with the other, at
the requesting party's expense (but including only out-of-pocket expenses to
third parties and not the costs incurred by any party for the wages or other
benefits paid to its officers, directors or employees), in furnishing
information, testimony and other assistance in connection with any inquiries,
actions, tax or cost report audits, proceedings, arrangements or disputes
involving either of the parties hereto (other than in connection with disputes
between the parties hereto) and based upon contracts, arrangements or acts of
Seller or any of the Subsidiaries which were in effect or occurred on or prior
to the Closing and which relate to the Transferred Assets, including, without
limitation, arranging discussions with (and the calling as witness of) officers,
directors, employees, agents, and representatives of Buyer.
Section 5.5 Expenses. Whether or not the Transactions contemplated hereby
are consummated, except as otherwise provided in this Agreement, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
Notwithstanding the foregoing:
(a) Costs associated with preliminary title reports and title policies
shall be borne by Seller up to the costs that would have been incurred had the
title policies been standard coverage policies of title insurance, and the
remaining costs, if any, including all costs of any surveys in connection
therewith, shall be borne by Buyer;
(b) All escrow charges, and charges of any neutral independent public
accountant or mediator, and related costs, shall be borne one-half by Buyer and
one-half by Seller (it being agreed that each party shall bear the costs of its
own independent public accountant or designated mediator);
(c) All recording costs and charges respecting real property will be
allocated between Buyer and Seller in accordance with the customs of the
counties in which the pertinent real property is located;
(d) All transfer taxes respecting real property will be borne by Buyer;
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(e) All fees and charges of governmental authorities and accreditation
agencies in connection with the transfer, issuance or authorization of any
License, accreditation or program participation shall be borne by Buyer;
(f) All fees or costs associated with the issuance of any bond or the
establishment of any escrow required by Section 2.10(a) shall be borne by Buyer;
(g) All fees, charges or costs, including auditing fees and expenses,
incurred as a result of Buyer's compliance with the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder, shall be borne by
Buyer; and
(h) Costs not to exceed $6,000,000 incurred by HEALTHSOUTH, Seller and
the Subsidiaries in connection with investment banking and financial advisory
services relating to the Transactions rendered by Smith Barney Inc. shall be
borne by Buyer.
All such charges and expenses shall be promptly settled between the parties at
the Closing or upon termination or expiration of further proceedings under this
Agreement, or with respect to such charges and expenses not determined as of
such time, as soon thereafter as is reasonably practicable.
Section 5.6 Announcements; Confidentiality. Prior to the Closing Date, no
press or other public announcement, or public statement or comment in response
to any inquiry, relating to the transactions contemplated by this Agreement
shall be issued or made by Buyer or Seller or any Subsidiary without the joint
approval of Buyer and Seller; provided that a press release or other public
announcement, statement or comment made without such joint approval shall not be
in violation of this Section if it is made in order to comply with applicable
securities Laws or stock exchange policies and in the reasonable judgment of the
party making such release or announcement, based upon advice of independent
counsel, prior review and joint approval, despite reasonable efforts to obtain
the same, would prevent dissemination of such release or announcement in a
timely enough fashion to comply with such Laws or policies, provided that in all
instances prompt notice from one party to the other shall be given with respect
to any such release, announcement, statement or comment. Subject to the
foregoing, the parties hereto recognize and agree that all information,
instruments, documents and details concerning the businesses of Buyer, Seller
and the Subsidiaries are strictly confidential, and Seller and Buyer expressly
covenant and agree with each other that, prior to and after the Closing, they
will not, nor will they allow any of their respective officers, directors,
employees, representatives or agents (including professional advisors) to
disclose or publicly comment upon any matters relating to the business of the
other or relating to this Agreement, including, without limitation, the terms,
timing or progress of the transactions contemplated hereby, or its negotiation,
terms, provisions or conditions, including Purchase Price, except for disclosure
to their respective professional advisors (who shall agree not to disclose the
same) which is reasonably necessary to effectuate the Transactions contemplated
hereby and in a manner consistent with the provisions of this Agreement.
Notwithstanding anything contained in this Agreement to the contrary, except in
connection with filings to obtain Licenses necessary for consummation of the
Transactions (but subject to Section 5.2) and except as may be required by any
Laws (based on advice of independent counsel), Buyer shall not (nor shall Buyer
allow any of its officers, directors, employees, representatives or agents to),
without the prior written consent of Seller (in Seller's sole and absolute
discretion), disclose to or otherwise discuss with any person, regulatory board,
fiscal intermediary or other entity Buyer's proposed purchase of the Transferred
Assets, Seller's proposed sale of the Transferred Assets, the contents of this
Agreement or the negotiation of this Agreement. Each party shall keep all
information obtained from the other either before or after the date of this
Agreement confidential, and neither party shall reveal such information to, nor
produce copies of any written information for, any person outside its management
group or its lenders, attorneys, accountants, investment bankers and other
professional advisors without the prior written consent of the other party,
unless such party is compelled to disclose such information by judicial or
administrative process or by any other requirements of Law. If the Transactions
contemplated by this Agreement should
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fail to close for any reason, each party shall return to the other as soon as
practicable all originals and copies of written information provided to such
party by or on behalf of the other party and none of such information shall be
used by either party, or their employees, agents or representatives in the
business operations of any person. Notwithstanding the foregoing, each party's
obligations under this Section shall not apply to any information or document
which is or becomes available to the public other than as a result of a
disclosure by the other party in violation of this Agreement or other obligation
of confidentiality under which such information may be held or becomes available
to the party on a non-confidential basis from a source other than the other
party or its officers, directors, employees, representatives or agents. The
parties' obligations under this Section shall survive the termination of this
Agreement. Nothing in this Section shall, or is intended to, impair or modify
any of the rights or obligations of Buyer or its Affiliates under that certain
confidentiality agreement dated ______________, 1997, all of which remain in
effect until termination of such letter agreement in accordance with its terms.
Notwithstanding the foregoing, however, Buyer may provide information concerning
the Transferred Assets constituting Seller's institutional pharmacy business to
potential purchasers thereof so long as Buyer obtains a confidentiality
agreement (which shall name HEALTHSOUTH and Seller as third party beneficiaries)
containing substantially the same terms as the confidentiality agreement between
HEALTHSOUTH and Buyer.
Section 5.7 Access to Certain Records. Buyer shall provide HEALTHSOUTH,
Seller and the Subsidiaries with access upon reasonable notice to any or all
portion of the medical, clinical and other records directly or indirectly
associated with the admission, care and treatment of patients on or prior to the
closing date (the "Patient Records") and all financial and other records of the
Facilities for the period ending on or prior to the Closing Date (the Patient
Records and such other records are collectively referred to as the "Facility
Records") for such proper purposes as HEALTHSOUTH, Seller or the Subsidiaries
may require. HEALTHSOUTH, Seller and the Subsidiaries shall utilize such access
to Facility Records in accordance with all applicable provisions of law,
including, but not limited to, provisions relating to confidentiality of Patient
Records. HEALTHSOUTH shall provide Buyer with access upon reasonable notice to
such records of Seller and the Subsidiaries which are not transferred to Buyer
hereunder for such proper purposes as Buyer may require.
Section 5.8 Tax Election. Buyer is eligible to make, and Buyer and Seller
will jointly make, a timely election under Section 338(h)(10) of the Internal
Revenue Code of 1986, as amended with respect to the shares of capital stock of
National Institutional Pharmacy Services, Inc. included in the Assigned Stock.
At the Closing, Buyer and Seller will jointly execute a Form 8023 reflecting
such election, and therafter Seller will timely file such form with the Internal
Revenue Service and will provide proof of such filing to Buyer.
ARTICLE 6
ADDITIONAL COVENANTS OF SELLER AND HEALTHSOUTH
Seller and HEALTHSOUTH hereby additionally covenant, promise and agree as
follows:
Section 6.1 Conduct Pending Closing. Prior to consummation of the
Transactions contemplated hereby or the termination or expiration of this
Agreement pursuant to its terms, unless Buyer shall otherwise consent in
writing, which consent shall not be unreasonably withheld or delayed, and except
for actions taken pursuant to Assumed Contracts, or which arise from or are
related to the anticipated transfer of the Transferred Assets, or as otherwise
contemplated by this Agreement, HEALTHSOUTH and Seller shall, and Seller shall
cause the Subsidiaries to:
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(a) Conduct the business represented by, and otherwise deal with, the
Transferred Assets only in the usual and ordinary course, materially consistent
with practices followed prior to the execution of this Agreement;
(b) Use reasonable efforts to keep intact the Transferred Assets and
the business they represent and to preserve relationships beneficial to such
business that doctors, patients, Payors, suppliers and others have with the
Facilities;
(c) Except as required by their terms, not amend, terminate, renew,
fail to renew or renegotiate any material contract, except in the ordinary
course of business and consistent with practices of the recent past, or default
(or take or omit to take any action that, with or without the giving of notice
or passage of time, would constitute a default) in any of its obligations under
any such contracts, that would be an Assumed Contract as of the date hereof;
(d) Not sell, lease, mortgage, encumber, or otherwise dispose of or
grant any interest in, or permit or suffer to exist any lien or encumbrance upon
or the disposition of, any Facility, Inventory, or items of Equipment having an
undepreciated book value in excess of $50,000, including without limitation any
of its leasehold interests therein, whether by the taking of action or the
failure to take action, except for (i) sales of Inventory in the ordinary
course, (ii) liens constituting Permitted Encumbrances, or (iii) sales or
dispositions of Equipment in the ordinary course of business that are consistent
with practices of the recent past;
(e) Maintain in force and effect the insurance policies identified in
Section 3.19(c);
(f) Not enter into any contract that will constitute an Assumed
Contract as of the Closing except in the ordinary course of business and
consistent with practices of the recent past; or
(g) Not grant any general or uniform increase in the rates of pay or
benefits to Retained Employees (or a class thereof) or any increase in salary or
benefits of any senior management personnel of any Facility, except for
compensation previously agreed to prior to the date hereof or normal year-end
merit increases consistent with HEALTHSOUTH's general practices;
provided that nothing in this Section shall (i) obligate Seller or any
Subsidiary to make expenditures other than in the ordinary course of business
and consistent with practices of the recent past or to otherwise suffer any
economic detriment, (ii) preclude Seller from paying, prepaying or otherwise
satisfying any liability which, if outstanding as of the Closing Date, would be
an Assumed Liability or an Excluded Liability, or (iii) preclude Seller from
incurring any liabilities or obligations to any third party in connection with
obtaining such party's consent to any transaction contemplated by this Agreement
or the Related Agreements provided such liabilities and obligations under this
clause (iii) shall be Excluded Liabilities pursuant to Section 2.4(h) hereof.
Section 6.2 Access and Information. Subject to the restrictions set forth
in Section 5.6 respecting confidentiality and provided that Buyer has complied
with each and every provision thereof, Seller shall, and shall cause the
Subsidiaries to, afford Buyer, and the counsel, accountants and other
representatives of Buyer, reasonable access, throughout the period from the date
hereof to the Closing, to the Transferred Assets and the employees, personnel
and medical staff associated therewith and all the properties, books, contracts,
commitments, cost reports and records respecting the Transferred Assets
(regardless of where such information may be located). Such access shall be
afforded after no less than 24 hours' prior written notice, during normal
business hours whenever reasonably possible and only in such manner so as not to
disturb patient care or to interfere with the normal operations of the
Facilities; provided, however, that, notwithstanding the foregoing and subject
to the provisions concerning nondisclosure set forth in Section 5.6, without
first obtaining the written consent of the Executive Vice President, Chief
Financial Officer
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and Treasurer of HEALTHSOUTH or the Senior Vice President and Corporate Counsel
of HEALTHSOUTH, which consent shall not be unreasonably withheld, neither Buyer
nor its counsel, accountants and other representatives shall tour or visit the
Facilities or contact any of the employees, personnel or medical staff thereof;
and provided further that until the first to occur of November 3, 1998 or the
Closing, under no circumstances shall Buyer solicit the employment of any
employees of Seller or its Subsidiaries, except as Hired Employees pursuant to
the terms hereof or except as may be permitted with the prior written consent of
a responsible officer of Seller. Seller's covenants under this Section are made
with the understanding that Buyer shall use all such information in compliance
with all Laws. Buyer shall not have access to patient or employee records or any
other records the disclosure of which would be prohibited by any Law,
accreditation standards, or rule or agreement (express or implied) of
confidentiality, except that Buyer may be granted access to such records to the
extent they are appropriately redacted and in conformity with such other
reasonable procedures as may be required to conform to any such requirements of
Law, accreditation standards or rule or agreement of confidentiality.
Section 6.3 Updating. HEALTHSOUTH and Seller shall notify Buyer of any
changes or additions to any of Seller's Schedules to this Agreement by the
delivery of updates thereof, if any, not later than two business days prior to
the Closing. Subject to the provisions of Sections 4.9 and 4.10, no such updates
made pursuant to this Section shall be deemed to cure any breach of any
representation or warranty made in this Agreement, unless Buyer specifically
agrees thereto in writing, nor shall any such notification be considered to
constitute or give rise to a waiver by Buyer of any condition set forth in this
Agreement. In addition, HEALTHSOUTH and Seller shall provide Buyer with monthly
updated financial information in substantially the form heretofore provided by
HEALTHSOUTH to Buyer within 25 days after the close of each month prior to the
Closing Date.
Section 6.4 No Solicitation. HEALTHSOUTH will not, and shall cause the
Seller and the Subsidiaries not to, and will use its best efforts to cause its
and their officers, employees, agents and representatives (including any
investment banker), in their capacity as such, not to, directly or indirectly,
solicit, encourage or initiate any discussions with, or, subject to fiduciary
duties to stockholders, negotiate or otherwise deal with, or provide any
information to, any corporation, partnership, person or other entity or group,
other than Buyer and its officers, employees and agents, concerning any sale of
or similar transactions involving the Transferred Assets or the stock of the
Subsidiaries. None of the foregoing shall prohibit the provision of information
to others in a manner in keeping with the ordinary conduct of HEALTHSOUTH's,
Seller's or the Subsidiaries' businesses.
Section 6.5 Name Changes. To the extent that the corporate names of any of
the Subsidiaries incorporate or are substantially similar to the Transferred
Business Names, Seller agrees to cause the Subsidiaries promptly after the
Closing to take all action necessary to change such names so as not to
incorporate or be substantially similar to the Transferred Business Names.
Section 6.6 Use of Controlled Substance Licenses. To the extent permitted
by Law, Buyer shall have the right, either as purchaser or as manager under a
Management Agreement, for a period not to exceed the later of (a) 120 days
following the Closing and (b) the termination of the applicable Management
Agreement, to operate under the Licenses of Seller or the Subsidiaries relating
to controlled substances and the operation of pharmacies, until Buyer is able to
obtain such Licenses for itself. Seller shall execute and deliver, and cause the
pertinent Subsidiaries to execute and deliver to Buyer any powers of attorney
and other instruments which Buyer or the appropriate governmental agency may
reasonably require in connection with Buyer's use of such Licenses. Buyer
acknowledges that it shall apply for all such Licenses as soon as reasonably
possible and diligently pursue such applications in accordance with Section 5.1.
Section 6.7 Letters of Intent. Promptly after execution and delivery of
this Agreement, Seller shall provide Buyer with copies of all letters of intent
or similar non-binding expressions of intent or
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understanding with respect to the acquisition or divestiture of any Facility,
and, to the extent such letters of intent are terminable, will give any required
notice of termination if directed in writing by Buyer to do so.
ARTICLE 7
ADDITIONAL COVENANTS OF BUYER
Section 7.1 Waiver of Bulk Sales Law Compliance. Subject to the
indemnification provisions of Section 11.3(a)(iii) hereof, Buyer hereby waives
compliance by Seller and the Subsidiaries with the requirements, if any, of
Article 6 of the Uniform Commercial Code as in force in any state in which
Transferred Assets are located and all other similar laws applicable to bulk
sales and transfers.
Section 7.2 Resale Certificate. Buyer agrees to furnish to Seller and the
Subsidiaries any resale certificate or certificates or other similar documents
reasonably requested by Seller to comply with pertinent sales and use tax laws.
Section 7.3 Release of Assumed Guarantees. Buyer shall use its best efforts
to obtain the release of HEALTHSOUTH, Seller and the Subsidiaries (other than
the Transferred Subsidiaries, from the Assumed Guarantees and any other Assumed
Liabilities for which HEALTHSOUTH, Seller or any Subsidiary (other than a
Transferred Subsidiary) remains contingently liable after the Closing; provided,
however, that "best efforts" shall not be deemed to require Buyer to pay more
than $500,000 in the aggregate as consideration for the granting of the release
of HEALTHSOUTH, Seller and the Subsidiaries (other than the Transferred
Subsidiaries) from such liabilities (exclusive of any amounts paid to satisfy
the underlying obligations).
Section 7.4 Tax Matters. Buyer acknowledges that either as manager or
assignee of the Assigned Stock, Buyer shall be responsible for the preparation
of tax returns for the Transferred Subsidiaries. It is further acknowledged by
Buyer that, subject to the provisions of Section 2.4(a) regarding income taxes,
Taxes (including, without limitation, the Florida indigent care tax) imposed
upon the right or privilege to do business from the Facilities after the Closing
shall be Buyer's responsibility even if measured by gross receipts, net
operating revenues or patient days for a period ending on, before or including
the Closing Date.
Section 7.5 Letters of Credit. Subject to the terms and conditions hereof,
at the Closing, Buyer shall cause letters of credit and indemnity or performance
bonds to be provided to substitute for those letters of credit and bonds listed
in Schedule 7.5, so that at and as of the Closing Seller and its Affiliates
shall have no further obligation to provide such designated letters of credit or
bonds.
ARTICLE 8
BUYER'S CONDITIONS TO CLOSING
The obligations of Buyer to consummate the Transactions at the Closing
shall be subject to the fulfillment at or prior to the Closing of the following
conditions, unless Buyer waives such fulfillment:
Section 8.1 Performance of Agreement. HEALTHSOUTH and Seller shall have
performed in all material respects its agreements and obligations contained in
this Agreement required to be performed on or prior to the Closing.
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Section 8.2 Accuracy of Representations and Warranties. Subject to Sections
4.9 and 4.10, the representations and warranties of Seller set forth in Article
3 of this Agreement shall be true in all respects as of the date of this
Agreement (unless the matters that caused the inaccuracy or inaccuracies which
would otherwise result in a failure of this condition have been cured by the
Closing) and as of the Closing (as updated by the revising of Schedules
contemplated by Section 6.3, to the extent that Buyer shall have accepted such
updates in writing) as if made as of such time, except where such inaccuracy or
inaccuracies would not individually or in the aggregate result in a Material
Adverse Effect on the Transferred Assets; provided, however that any
representation or warranty that is qualified by reference to a "Material Adverse
Effect" shall be true and correct as of the Closing in all respects.
Section 8.3 Officer's Certificate. Buyer shall have received from
HEALTHSOUTH and Seller an officer's certificate, executed on HEALTHSOUTH's and
Seller's behalf by each of their respective chief executive officer, president,
chief financial officer or treasurer (in his or her capacity as such) dated the
Closing Date and stating that to the actual knowledge of such individual, after
inquiry of the other officers identified in this Section 8.3, the conditions in
Sections 8.1 and 8.2 above have been met.
Section 8.4 Consents. The waiting period under the HSR Act shall have
expired or been terminated, and, subject to the provisions of Sections 2.12,
2.14 and 2.15, all approvals, consents, authorizations and waivers from
governmental and accreditation agencies and from other third parties required to
consummate the Transactions shall have been obtained, except for such approvals,
consents, authorizations and waivers, the failure to obtain which will not
result in a Material Adverse Effect on the Transferred Assets. The foregoing
notwithstanding, the obtaining of any of the following approvals, consents,
authorizations and waivers (collectively, "Consents") shall not constitute a
condition to Buyer's consummation of the Transactions:
(a) Any Consent, if the result of the failure to obtain same is either
a Purchase Price adjustment or the parties' entry into a cooperative arrangement
pursuant to the provisions of Sections 2.12(a) or 2.14 or a Management Agreement
pursuant to Section 2.15; and
(b) Any Consent to the sale and assignment of a Transferred Asset, such
as a Medicare or Medicaid provider agreement, or the assumption of an Assumed
Liability, if such sale, assignment or assumption may lawfully be made subject
to a customary condition subsequent that a Consent be obtained from a third
party based upon determinations of such third party, including without
limitation needs surveys or evaluations of Buyer, to be completed after the
Closing, unless such third party indicates prior to the Closing that any such
Consent is not likely to be given.
Section 8.5 Absence of Injunctions. There shall not be in effect a
temporary restraining order or a preliminary or permanent injunction or other
order, decree or ruling by a court of competent jurisdiction or by a
governmental agency which restrains or prohibits Buyer's acquisition or
operation of the Transferred Assets, or any threat by governmental authorities
to exact any penalty or impose any economic deteriment upon Buyer or the
Transferred Assets following the Closing, provided that the parties will use
their reasonable efforts to litigate against the entry of, or to obtain the
lifting of, any such order or injunction, and the existence of any such
temporary restraining order or preliminary injunction shall operate, at the
option of the parties, only to delay the Closing (and extend the Termination
Date) until the 30th day following the lifting of any such order or injunction,
except that such delay may not extend the original Termination Date for more
than nine months. Notwithstanding the foregoing, in the event that any such
order or injunction affects only a portion of the Transferred Assets, then the
parties (x) shall negotiate an equitable adjustment in the Purchase Price so as
to consummate the Transactions with respect to Transferred Assets and Assumed
Liabilities relating to Facilities that are not affected by such order or
injunction, and (y) shall either agree upon appropriate amendments to this
Agreement to effect further transfers of the remaining Transferred Assets and
assumptions of the remaining Assumed Liabilities when and if they are no longer
subject to such order or injunction or, if no such amendments
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are agreed upon, such remaining Transferred Assets and Assumed Liabilities shall
be deemed to be Excluded Assets and Excluded Liabilities for all purposes of
this Agreement; provided that if the parties are unable to agree upon an
equitable adjustment of the Purchase Price, or appropriate amendments to effect
further transfers, prior to any scheduled Closing Date, then such disagreement
shall be resolved pursuant to the provisions of Section 2.14.
Section 8.6 Title to Real Property. Title to Transferred Assets consisting
of interests in real property shall have been evidenced by the willingness of
Fidelity National Title Insurance Company (or an Affiliate thereof) (the "Title
Insurer") to issue ALTA (or the local equivalents thereof) owner's extended
coverage policies of title insurance (latest Form B) (the "Title Policies") in
amounts equal to the respective portions of the Purchase Price allocated to such
interests, showing title to such interests in such real property vested in Buyer
subject to transfer of such interests to Buyer, subject only to the following
conditions of title:
(a) A lien or liens to secure payment of real estate taxes, not
delinquent;
(b) Exceptions, disclosed by current standard ALTA Preliminary Title
Reports, delivered to Buyer within 15 days after the date hereof and approved by
Buyer within 15 days after the date of delivery (as indicated by Buyer's
signature of approval appended thereto) together with copies of all documents
underlying the exceptions contained therein; and
(c) Other possible minor matters that in the aggregate are not
substantial in amount and do not materially detract from or interfere with the
present or intended use of such real property.
The willingness of the Title Insurer to issue the Title Policies shall be
evidenced either by the issuance thereof or the written commitments or binders
of the Title Insurer to issue such Title Policies within a reasonable time after
the Closing Date, subject to actual transfer of the real property in question.
If the Title Insurer is unwilling to issue any such Title Policy, it shall be
required to provide Buyer and Seller, in writing, notice setting forth the
reason(s) for such unwillingness on or before the Closing Date. Seller shall
have the right to seek to cure any defect which is the reason for such
unwillingness, and, if such notice by the Title Insurer is given less than ten
business days prior to the then scheduled Closing Date, then the Closing Date
(and, to the extent necessary, the Termination Date) shall be extended for a
period of up to ten business days to provide to Seller such opportunity to cure.
In the event that, despite Seller's efforts to cure, the Title Insurer remains
unwilling to issue any such Title Policy on the Closing Date (as may be extended
as provided herein), then, at the election of Buyer, and without affecting the
other conditions of the parties to consummation of the Transactions, such real
property interests not covered by such a Title Policy shall not be included in
the Transferred Assets and shall be deemed to be Excluded Assets, and
liabilities associated therewith that would otherwise be Assumed Liabilities
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shall be deemed to be Excluded Liabilities; and Buyer and Seller shall negotiate
in good faith prior to the Closing an equitable adjustment in the Purchase
Price. If the parties cannot agree upon such equitable adjustment, then the
disagreement shall be resolved in accordance with Section 2.14. Notwithstanding
the foregoing, Buyer may accept such title to any such interests as the
pertinent Subsidiary may be able to convey, and such title insurance with
respect to the same as the Title Insurer is willing to issue, in which case such
interests shall be conveyed as part of the Transferred Assets without reduction
of the Purchase Price or any credit or allowance against the same and without
any other liability on the part of Seller or the Subsidiaries.
Section 8.7 Receipt of Other Documents. Buyer shall have received the
following:
(a) Certified copies of the resolutions of HEALTHSOUTH's, Seller's and
each Subsidiary's board of directors respecting this Agreement, the Related
Agreements and the Transactions, together with certified copies of any
stockholder resolutions which are necessary to approve the execution and
delivery of this Agreement and any Related Agreements and/or the performance of
the obligations of HEALTHSOUTH, Seller and the Subsidiaries hereunder and
thereunder;
(b) Certified copies of HEALTHSOUTH's, Seller's and each Subsidiary's
Charter Documents, together with a certificate of the corporate secretary or an
assistant secretary of each that none of such documents have been amended;
(c) One or more certificates as to the incumbency of each officer of
Seller or of any Subsidiary who has signed the Agreement, any Related Agreement
or any certificate, document or instrument delivered pursuant to the Agreement
or any Related Agreement;
(d) Good standing certificates for HEALTHSOUTH, Seller and each of the
Subsidiaries from the Secretaries of State of their respective states of
incorporation dated as of a date not earlier than 30 business days prior to the
Closing Date;
(e) Copies of all third party and governmental consents, permits and
authorizations that HEALTHSOUTH, Seller or any Subsidiary has received in
connection with the Agreement, the Related Agreements and the Transactions; and
(f) Certificates of non-foreign status in the form required by Section
1445 of the Code duly executed by Seller and the Subsidiaries.
Section 8.8 Lenders' Consent. Buyer shall have received the consent of the
required lenders under its principal credit agreement to the Transactions.
Section 8.9 Absence of Material Adverse Changes. There shall not have
occurred or been discoverd any change (a "Material Adverse Change") in the
business, operations, financial condition or prospects of the businesses
represented by the Transferred Assets the effect of which has been to cause a
Material Adverse Effect on the Transferred Assets, taken as a whole, and
HEALTHSOUTH and Seller shall have furnished Buyer with the certificate of an
executive officer of each to such effect; provided, however, that no Material
Adverse Change shall be deemed to have occurred as a result of matters arising
or resulting from (i) matters generally affecting businesses of the type
represented by the Transferred Assets which are not peculiar to Seller or the
Subsidiaries, (ii) changes in generally accepted accounting principles, (iii)
public announcement of the Transactions and compliance with the provisions of
this Agreement, or (iv) acts taken or omitted by HEALTHSOUTH, Seller or a
Subsidiary at the written direction or with the express written consent of
Buyer.
ARTICLE 9
HEALTHSOUTH'S AND SELLER'S CONDITIONS TO CLOSING
The obligations of HEALTHSOUTH and Seller to consummate the Transactions at
the Closing shall be subject to the fulfillment at or prior to the Closing of
the following conditions, unless HEALTHSOUTH and Seller waive such fulfillment:
Section 9.1 Performance of Agreement. Buyer shall have performed in all
material respects its agreements and obligations contained in this Agreement
required to be performed on or prior to the Closing.
Section 9.2 Accuracy of Representations and Warranties. The representations
and warranties of Buyer set forth in Article 4 of this Agreement shall be true
in all material respects as of the date of this
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Agreement (unless the inaccuracy or inaccuracies which would otherwise result in
a failure of this condition have been cured by the Closing) and as of the
Closing as if made as of such time.
Section 9.3 Officer's Certificate. Seller shall have received from Buyer an
officers' certificate, executed on Buyer's behalf by its chief executive
officer, president, chief financial officer or treasurer (in his or her capacity
as such) dated the Closing Date and stating that to the actual knowledge of such
individual after inquiry of the other officers identified in this Section 9.3,
the conditions in Sections 9.1 and 9.2 above have been met.
Section 9.4 Consents. The waiting period under the HSR Act shall have
expired or been terminated, and, subject to the provisions of Sections 2.12,
2.14 and 2.15, all approvals, consents, authorizations and waivers from
governmental and accreditation agencies and from other third parties required
for Seller to consummate the Transactions shall have been obtained, except for
such approvals, consents, authorizations and waivers the failure to obtain which
will not, individually or in the aggregate, result in a Material Adverse Effect
on Seller following the Closing. The foregoing notwithstanding, the obtaining of
any of the following Consents shall not constitute a condition to Seller's
consummation of the Transactions:
(a) Any Consent, if the result of the failure to obtain same is either
a Purchase Price adjustment or the parties' entry into a cooperative arrangement
pursuant to the provisions of Sections 2.12(a) or 2.14 or a Management Agreement
pursuant to Section 2.15;
(b) Any Consent to the sale and assignment of a Transferred Asset, such
as a Medicare or Medicaid provider agreement, or the assumption of an Assumed
Liability, if such sale, assignment or assumption may lawfully be made subject
to a customary condition subsequent that a Consent be obtained from a third
party based upon determinations of such third party, including without
limitation needs surveys or evaluations of Buyer, to be completed after the
Closing, whether or not such third party indicates prior to the Closing that any
such Consent is likely or not likely to be given.
Section 9.5 Absence of Injunctions. There shall not be in effect a
temporary restraining order or a preliminary or permanent injunction or other
order, decree or ruling by a court of competent jurisdiction or by a
governmental agency which restrains or prohibits Seller's consummation of the
Transactions, or any threat by governmental authorities to exact any penalty or
impose any economic detriment upon HEALTHSOUTH or Seller if it consummates the
Transactions that would have a Material Adverse Effect upon HEALTHSOUTH or
Seller following the Closing, provided that the parties will use their
reasonable efforts to litigate against the entry of, or to obtain the lifting
of, any such order, injunction or potential penalty or imposition, and the
existence of any such temporary restraining order, preliminary injunction or
potential penalty or imposition shall operate, at the option of Buyer,
HEALTHSOUTH and Seller, only to delay the Closing (and extend the Termination
Date) until the thirtieth day following the lifting of any such order or
injunction or threat, except that such delay may not extend the original
Termination Date for more than nine months. Notwithstanding the foregoing, in
the event that any such order or injunction affects only a portion of the
Transferred Assets, then, at the election of Buyer, HEALTHSOUTH and Seller, the
parties (x) shall negotiate an equitable adjustment in the Purchase Price so as
to consummate the Transactions with respect to Transferred Assets and Assumed
Liabilities relating to Facilities that are not affected by such order or
injunction, and (y) shall either agree upon appropriate amendments to this
Agreement to effect further transfers of the remaining Transferred Assets and
assumptions of the remaining Assumed Liabilities when and if they are no longer
subject to such order or injunction or, if no such amendments are agreed upon,
such remaining Transferred Assets and Assumed Liabilities shall be deemed to be
Excluded Assets and Excluded Liabilities for all purposes of this Agreement;
provided that if the parties are unable to agree upon an equitable adjustment of
the Purchase Price, or appropriate amendments to effect further transfers, prior
to any scheduled Closing Date, then such disagreements shall be resolved
pursuant to the provisions of Section 2.14.
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Section 9.6 Receipt of Other Documents. HEALTHSOUTH and Seller shall have
received the following:
(a) Certified copies of the resolutions of Buyer's and each Buyer
Subsidiary's board of directors respecting this Agreement, the Related
Agreements and the Transactions;
(b) Certified copies of Buyer's and each Buyer Subsidiary's Charter
Documents, together with a certificate of Buyer's and each Buyer Subsidiary's
corporate secretary that none of such documents have been amended;
(c) One or more certificates as to the incumbency of each officer of
Buyer who has signed the Agreement, any Related Agreement, or any certificate,
document or instrument delivered pursuant to the Agreement or any Related
Agreement;
(d) Good standing certificates for Buyer and for each Buyer Subsidiary
from the Secretaries of State of their respective states of incorporation dated
as of a date not earlier than 30 business days prior to the Closing Date;
(e) Copies of all third party and governmental consents, permits and
authorizations that Buyer has received in connection with the Agreement, the
Related Agreements and the Transactions; and
(f) A certificate of Buyer executed on its behalf by an Executive Vice
President of Buyer stating that to the best of their knowledge and belief,
specifying in reasonable detail their basis for same, after giving effect to the
Transactions, neither Buyer nor any of its Subsidiaries is insolvent or will be
rendered insolvent by obligations incurred in connection therewith, or will be
left with unreasonably small capital with which to engage in their businesses,
or will have incurred obligations beyond their respective abilities to perform
the same as and when due.
ARTICLE 10
TERMINATION
Section 10.1 Termination. This Agreement and the transactions contemplated
hereby may be terminated at any time prior to the Closing:
(a) By mutual consent of HEALTHSOUTH and Buyer; or
(b) By either Buyer or HEALTHSOUTH upon written notice to the other
party, if (i) the Closing shall not have occurred by the later of March 31,
1998, the fifth business day following the expiration of the HSR waiting
period, or such later date as may be provided for in this Agreement or
agreed upon by the parties (the "Termination Date"); or (ii)(A) in the case
of termination by HEALTHSOUTH, the conditions set forth in Article 9 cannot
reasonably be met by the Termination Date, and (B) in the case of
termination by Buyer, the conditions set forth in Article 8 cannot
reasonably be met by the Termination Date, unless in either of the cases
described in clauses (A) or (B), the failure of the condition is the result
of the material breach of this Agreement by the party seeking to terminate.
Each party's right of termination hereunder is in addition to any other rights
it may have hereunder or otherwise.
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Section 10.2 Effect of Termination. In the event of termination of this
Agreement as provided above, there shall be no liability on the part of a party
to another under and by reason of this Agreement or the transactions
contemplated hereby except as set forth in Sections 2.6(a), 5.5, 5.6, 10.3 and
10.4 and Articles 11 and 12 and except for fraudulent acts by a party, the
remedies for which shall not be limited by the provisions of this Agreement. The
foregoing provisions shall not, however, limit or restrict the availability of
specific performance or other injunctive or equitable relief to the extent that
specific performance or such other relief would otherwise be available to a
party hereunder.
Section 10.3 Wrongful Termination by Buyer. If Buyer purports to terminate
this Agreement otherwise than pursuant to Section 10.1, or if Buyer shall
otherwise fail to consummate the Transactions by the Termination Date for any
reason other than a material breach by HEALTHSOUTH, Seller or the Subsidiaries
of their obligations hereunder or a failure of the condition set forth in
Section 8.8 to be satisfied, then in such event Buyer shall pay to Seller, upon
demand, a termination fee (the "Termination Fee") in the amount of $50,000,000
in immediately available funds. Buyer acknowledges and agrees that such
Termination Fee represents the parties' best estimate of the out-of-pocket costs
incurred by HEALTHSOUTH, Seller and the Subsidiaries and the value of management
time, overhead, opportunity costs and other unallocated costs of HEALTHSOUTH,
Seller and the Subsidiaries incurred by or on behalf of HEALTHSOUTH, Seller and
the Subsidiaries in connection with this Agreement. Buyer further acknowledges
that the provisions for the payment of the Termination Fee contained in this
Section 10.3 are an integral part of the Transactions and that, without these
provisions, HEALTHSOUTH and Seller would not have entered into this Agreement.
Accordingly, if the Termination Fee shall become due and payable and Buyer shall
fail to pay such amount when due, and, in order to obtain such payment, suit is
commenced which results in a judgment against Buyer therefor, Buyer shall pay
all reasonable costs and expenses (including reasonable attorneys' fees incurred
by HEALTHSOUTH and Seller) in connection with such suit, together with interest
computed on the amounts determined to be due pursuant to this Section (computed
from the date upon which such amounts were due and payable pursuant to this
Section) and such costs (computed from the date incurred) at the prime rate of
interest announced from time to time by NationsBank, N.A. (South).
Section 10.4 Wrongful Termination by Seller. If HEALTHSOUTH and Seller
purport to terminate this Agreement otherwise than pursuant to Section 10.1, or
if HEALTHSOUTH and Seller shall otherwise fail to consummate the Transactions by
the Termination Date for any reason other than a material breach by Buyer of its
obligations hereunder or a failure by Buyer to obtain the consent described in
Section 8.8, then in such event HEALTHSOUTH and Seller shall pay to Buyer, upon
demand, a fee (the "Topping Fee") in the amount of $50,000,000 in immediately
available funds. HEALTHSOUTH and Seller acknowledge and agree that such Topping
Fee represents the parties' best estimate of the out-of-pocket costs incurred by
Buyer and the value of management time, overhead, opportunity costs and other
unallocated costs of Buyer incurred by or on behalf of Buyer in connection with
this Agreement. HEALTHSOUTH and Seller further acknowledge that the provisions
for the payment of the Topping Fee contained in this Section 10.4 are an
integral part of the Transactions and that, without these provisions, Buyer
would not have entered into this Agreement. Accordingly, if the Topping Fee
shall become due and payable and HEALTHSOUTH and Seller shall fail to pay such
amount when due, and, in order to obtain such payment, suit is commenced which
results in a judgment against HEALTHSOUTH and Seller therefor, HEALTHSOUTH and
Seller shall pay all reasonable costs and expenses (including reasonable
attorneys' fees incurred by Buyer) in connection with such suit, together with
interest computed on the amounts determined to be due pursuant to this Section
(computed from the date upon which such amounts were due and payable pursuant to
this Section) and such costs (computed from the date incurred) at the prime rate
of interest announced from time to time by NationsBank, N.A. (South). If the
Topping Fee becomes due and payable, HEALTHSOUTH and Seller will also return the
Execution Fee with interest as provided in Section 2.6(a).
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ARTICLE 11
SURVIVAL AND REMEDIES; INDEMNIFICATION
Section 11.1 Survival. None of the representations and warranties of Buyer,
HEALTHSOUTH and Seller set forth in this Agreement, or in any writing required
to be delivered in connection with this Agreement, shall survive the Closing and
the consummation of the Transactions. The covenants and agreements of Buyer,
HEALTHSOUTH and Seller set forth in this Agreement, or in any writing required
to be delivered in connection with this Agreement, shall survive the Closing and
the consummation of the Transactions only to the extent expressly specified in
this Agreement.
Section 11.2 Exclusive Remedy. Absent fraud, if the Closing occurs, the
sole exclusive remedy for damages of a party hereto for any breach of the
covenants and agreements of the other party contained in this Agreement and the
Related Agreements shall be the remedies contained in this Article 11.
Section 11.3 Indemnity by HEALTHSOUTH and Seller.
(a) HEALTHSOUTH and Seller, jointly and severally, shall indemnify
Buyer and hold Buyer harmless from and against any and all loss, liability,
damage and expense, including reasonable attorneys' fees and costs of
investigation, litigation, settlement and judgment (collectively "Losses"),
which Buyer may sustain or suffer or to which Buyer may become subject as a
result of:
(i) The nonperformance or breach of any covenant or agreement
made or undertaken by Seller in this Agreement or in a Related
Agreement;
(ii) The existence of, or the failure of Seller or any
Subsidiary to discharge or perform as and when due, any liability
relating to the Excluded Assets; and
(iii) The existence of, or the failure of Seller or any
Subsidiary to pay, discharge or perform as and when due, any of the
Excluded Liabilities (including, without limitation, any Losses as a
result of or in connection with the failure of Seller and the
Subsidiaries to comply with any Bulk Sales Laws referred to in Section
7.1).
(b) The indemnification obligations of Seller provided above shall, in
addition to the qualifications and conditions set forth in Sections 11.5 and
11.6, be subject to the following qualifications: Buyer shall not be entitled to
indemnity under Subsections (a)(i)-(iii) above except for out-of-pocket Losses
actually suffered or sustained by Buyer or to which Buyer may become subject as
a result of circumstances described in such Subsections (a)(i)-(iii), and such
indemnity shall not include Losses in the nature of consequential damages, lost
profits, diminution in value, damage to reputation or the like.
Section 11.4 Indemnity by Buyer.
(a) Buyer shall indemnify HEALTHSOUTH, Seller and the Subsidiaries and
hold HEALTHSOUTH, Seller and the Subsidiaries harmless from and against any and
all Losses which they may sustain or suffer or to which they may become subject
as a result of:
(i) The nonperformance or breach of any covenant or agreement
made or undertaken by Buyer in this Agreement or in a Related
Agreement, including the indemnity obligations of Buyer in Sections 2.7
and 2.10;
(ii) The existence of, or the failure of Buyer to pay,
discharge or perform as and when due, any of the Assumed Liabilities;
and
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(iii) The ongoing operations of Buyer, the Transferred Assets
and the Facilities after the Closing Date; provided, however, that
HEALTHSOUTH, Seller and the Subsdiaries shall not be entitled to
indemnification under this Section 11.4(a)(iii) with respect to
liabilities to third parties arising out of matters that constitute
breaches of representations or warranties made by HEALTHSOUTH or Seller
herein.
(b) The indemnification obligations of Buyer provided above shall, in
addition to the qualifications and conditions set forth in Sections 11.5 and
11.6, be subject to the following qualifications: If the Closing occurs, Seller
and the Subsidiaries shall not be entitled to indemnity under Subsections
(a)(i)-(iii) above except for out-of-pocket Losses actually suffered or
sustained by them or to which they may become subject as a result of
circumstances described in such Subsections (a)(i)-(iii), and such indemnity
shall not include Losses in the nature of consequential damages, lost profits,
diminution in value, damage to reputation or the like.
Section 11.5 Further Qualifications Respecting Indemnification. The right
of a party (an "Indemnitee") to indemnity hereunder shall be subject to the
following additional qualifications:
(a) The Indemnitee shall promptly upon its discovery of facts or
circumstances giving rise to a claim for indemnification, including receipt by
it of notice of any demand, assertion, claim, action or proceeding, judicial,
governmental or otherwise, by any third party (such third party actions being
collectively referred to herein as "Third Party Claims"), give notice thereof to
the indemnifying party (the "Indemnitor"), such notice in any event to be given
within 60 days from the date the Indemnitee obtains actual knowledge of the
basis or alleged basis for the right of indemnity or such shorter period as may
be necessary to avoid material prejudice to the Indemnitor; provided, however,
that the failure to give such notice shall not limit the Indemnitee's right to
indemnification except to the extent that such failure to timely give notice
results in damages or irremediable prejudice to the Indemnitor; and
(b) In computing Losses, such amounts shall be computed net of any
related recoveries to which the Indemnitee is entitled under insurance policies
or other related payments received or receivable from third parties and net of
any tax benefits actually received by the Indemnitee or for which it is
eligible, taking into account the income tax treatment of the receipt of
indemnification.
Section 11.6 Procedures Respecting Third Party Claims. In providing notice
to the Indemnitor of any Third Party Claim (the "Claim Notice"), the Indemnitee
shall provide the Indemnitor with a copy of such Third Party Claim or other
documents received and shall otherwise make available to the Indemnitor all
relevant information material to the defense of such claim and within the
Indemnitee's possession. The Indemnitor shall have the right, by notice given to
the Indemnitee within 15 days after the date of the Claim Notice, to assume and
control the defense of the Third Party Claim that is the subject of such Claim
Notice, including the employment of counsel selected by the Indemnitor after
consultation with the Indemnitee, and the Indemnitor shall pay all expenses of,
and the Indemnitee shall cooperate fully with the Indemnitor in connection with,
the conduct of such defense. The Indemnitee shall have the right to employ
separate counsel in any such proceeding and to participate in (but not control)
the defense of such Third Party Claim, but the fees and expenses of such counsel
shall be borne by the Indemnitee unless the Indemnitor shall agree otherwise. If
the Indemnitor shall have failed to assume the defense of any Third Party Claim
in accordance with the provisions of this Section, then the Indemnitee shall
have the absolute right to control the defense of such Third Party Claim, and,
if and when it is finally determined that the Indemnitee is entitled to
indemnification from the Indemnitor hereunder, the fees and expenses of
Indemnitee's counsel shall be borne by the Indemnitor, provided that the
Indemnitor shall be entitled, at its expense, to participate in (but not
control) such defense. The Indemnitor shall have the right to settle or
compromise any such Third Party Claim for which it is providing indemnity so
long as such settlement does not impose any obligations on the Indemnitee
(except with respect to providing releases of the third party). The Indemnitor
shall not be liable for any
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settlement effected by the Indemnitee without the Indemnitor's consent. The
Indemnitor may assume and control, or bear the costs, of any such defense
subject to its reservation of a right to contest the Indemnitee's right to
indemnification hereunder, provided that it gives the Indemnitee notice of such
reservation within 15 days of the date of the Claim Notice.
ARTICLE 12
GENERAL PROVISIONS
Section 12.1 Notices. All notices, requests, demands, waivers, consents and
other communications hereunder shall be in writing, shall be delivered either in
person, by telegraphic, facsimile or other electronic means, by overnight air
courier or by mail, and shall be deemed to have been duly given and to have
become effective (a) upon receipt if delivered in person or by telegraphic,
facsimile or other electronic means calculated to arrive on any business day
prior to 6:00 p.m. local time at the address of the addressee, or on the next
succeeding business day if delivered on a non-business day or after 6:00 p.m.
local time, (b) one business day after having been delivered to an air courier
for overnight delivery or (c) five business days after having been deposited in
the mails as certified or registered mail, return receipt requested, all fees
prepaid, directed to the parties or their permitted assignees at the following
addresses (or at such other address as shall be given in writing by a party
hereto):
If to HEALTHSOUTH or Seller, addressed to:
HEALTHSOUTH Corporation
One HealthSouth Parkway
Birmingham, Alabama 35243
Attention: Michael D. Martin
Facsimile: (205) 969-4712
with a copy to:
William W. Horton, Esq.
HEALTHSOUTH Corporation
One HealthSouth Parkway
Birmingham, Alabama 35243
Facsimile: (205) 969-4730
If to Buyer, addressed to:
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Taylor Pickett (Facsimile:_______)
Marshall Elkins (Facsimile:_______)
Beth Kelly (Facimile: (410)902-2110
with a copy to:
Michael S. Blass, Esq.
Blass & Driggs
461 Fifth Avenue
New York, New York 10017
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<PAGE>
Facsimile: (212) 447-5428
Section 12.2 Successors and Assigns. The rights under this Agreement shall
not be assignable or transferable nor the duties delegable by either HEALTHSOUTH
and Seller, on the one hand, or Buyer, on the other hand, without the prior
written consent of the other, except as provided in Section 2.16; and nothing
contained in this Agreement, express or implied, is intended to confer upon any
person or entity, other than the parties hereto and their permitted
successors-in-interest and permitted assignees, any rights or remedies under or
by reason of this Agreement unless so stated to the contrary.
Section 12.3 Counterparts. 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.
Section 12.4 Captions and Paragraph Headings. Captions and paragraph
headings used herein are for convenience only and are not a part of this
Agreement and shall not be used in construing it.
Section 12.5 Entirety of Agreement; Amendments. This Agreement (including
the Schedules and Exhibits hereto), the Related Agreements and the other
documents and instruments specifically provided for in this Agreement contain
the entire understanding between the parties concerning the subject matter of
this Agreement and such other documents and instruments and, except as expressly
provided for herein, supersede all prior understandings and agreements, whether
oral or written, between them with respect to the subject matter hereof and
thereof. There are no representations, warranties, agreements, arrangements or
understandings, oral or written, between the parties hereto relating to the
subject matter of this Agreement and such other documents and instruments which
are not fully expressed herein or therein. This Agreement may be amended or
modified only by an agreement in writing signed by each of the parties hereto.
All Exhibits and Schedules attached to or delivered in connection with this
Agreement are integral parts of this Agreement as if fully set forth herein, and
all statements appearing therein relating to representations and warranties
shall be deemed disclosed for all purposes and not only in connection with the
specific provision in which they are explicitly referenced.
Section 12.6 Construction. This Agreement and any documents or instruments
delivered pursuant hereto shall be construed without regard to the identity of
the person who drafted the various provisions of the same. Each and every
provision of this Agreement and such other documents and instruments shall be
construed as though the parties participated equally in the drafting of the
same. Consequently, the parties acknowledge and agree that any rule of
construction that a document is to be construed against the drafting party shall
not be applicable either to this Agreement or such other documents and
instruments.
Section 12.7 Waiver. The failure of a party to insist, in any one or more
instances, on performance of any of the terms, covenants and conditions of this
Agreement shall not be construed as a waiver or relinquishment of any rights
granted hereunder or of the future performance of any such term, covenant or
condition, but the obligations of the parties with respect thereto shall
continue in full force and effect. No waiver of any provision or condition of
this Agreement by a party shall be valid unless in writing signed by such party
or operational by the terms of this Agreement. A waiver by one party of the
performance of any covenant, condition, representation or warranty of the other
party shall not invalidate this Agreement, nor shall such waiver be construed as
a waiver of any other covenant, condition, representation or warranty. A waiver
by any party of the time for performing any act shall not constitute a waiver of
the time for performing any other act or the time for performing an identical
act required to be performed at a later time.
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Section 12.8 Governing Law. This Agreement shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of Delaware, without regard to the principles of conflicts of law thereof,
provided that the validity, interpretation and effect of any instruments by
which real property is conveyed at the Closing shall be governed by the laws of
the state in which such real property is located.
Section 12.9 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be valid, binding and
enforceable under applicable law, but if any provision of this Agreement is held
to be invalid, void (or voidable) or unenforceable under applicable law, such
provision shall be ineffective only to the extent held to be invalid, void (or
voidable) or unenforceable, without affecting the remainder of such provision or
the remaining provisions of this Agreement.
Section 12.10 Consents Not Unreasonably Withheld. Wherever the consent or
approval of any party is required under this Agreement, such consent or approval
shall not be unreasonably withheld, unless such consent or approval is to be
given by such party at the sole or absolute discretion of such party or is
otherwise similarly qualified.
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
date first above written.
HEALTHSOUTH CORPORATION
By /s/MICHAEL D. MARTIN
------------------------------
Michael D. Martin
Executive Vice President,
Chief Financial Officer
and Treasurer
HORIZON/CMS HEALTHCARE
CORPORATION
By /s/SCOT SAUDER
------------------------------
Scot Sauder
Vice President
INTEGRATED HEALTH SERVICES, INC.
By Taylor Pickett
------------------------------
Its Executive Vice President
--------------------------
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EXHIBIT 2(B)
AMENDMENT TO PURCHASE AND SALE AGREEMENT
THIS AMENDMENT (the "Amendment"), dated as of December 31, 1997, to that
certain Purchase and Sale Agreement, made and entered into on the 3rd day of
November, 1997 (the "Agreement"), by and between HEALTHSOUTH CORPORATION, a
Delaware corporation ("HEALTHSOUTH"), HORIZON/CMS HEALTHCARE CORPORATION, a
Delaware corporation ("Seller"), and INTEGRATED HEALTH SERVICES, INC., a
Delaware corporation ("Buyer"), with reference to the following facts:
A. The parties desire to amend the Agreement to the extent set forth in
this Amendment and to enter into certain agreements ancillary to the Agreement
in connection with such amendments.
NOW, THEREFORE, in consideration of the foregoing recitals and the
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intend to be legally bound, do hereby agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Amendment, all capitalized terms used in this
Amendment that are not defined in this Amendment shall have the meanings
assigned to them in the Agreement.
ARTICLE 2
MATTERS RELATING TO SCHEDULES TO AGREEMENT
Section 2.1 Amendment of Certain Schedules. The Schedules to the Agreement
are hereby amended as follows:
(a) Schedule A-2 is amended to:
(i) delete the asterisks shown next to Facilities 216, 304, 188,
306 and 168 and to add Facility 218 (Medical Specialty Overhead),
reflecting that Buyer has agreed to accept such facilities as
Transferred Assets and to assume the related Assumed Liabilities;
and
(ii) delete all references to Facilities 51, 60, 292 and 273,
reflecting that Seller has agreed to retain all assets and
liabilities relating thereto as Excluded Assets and Excluded
Liabilities.
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(b) Schedule 2.1(a) is amended to add to the list of Assigned Stock
and Transferred Subsidiaries Midwest Regional Rehabilitation Center, Inc., a
Subsidiary of Seller which shall be a Transferred Subsidiary.
(c) The first sentence of Schedule 2.1(b) is amended to read as
follows: "Horizon/CMS Healthcare Corporation or a Subsidiary or a wholly owned
partnership owns in fee simple the real property on which all facilities
identified on the attached "Chart of Owned Facilities" are located.
(d) Schedule 2.1(c) is amended to:
(i) delete the asterisks with respect to Leases 100, 101, 102,
103, 105, 106, 203, 204, 205, 501, 502, 503, 504, 506, 127, 188
and 169, reflecting that Buyer has agreed to accept such leases
as Transferred Assets and to assume the related Assumed
Liabilities;
(ii) add references to leases relating to Advanced Clinical
Technology, Inc.'s locations in Plantation, Florida and Niles,
Ohio, reflecting that Buyer has agreed to accept such leases as
Transferred Assets and to assume the related Assumed Liabilities;
and
(iii) delete all references to leases 65, 115, 130, 157, 187,
235, 202 and 206, reflecting that Seller has agreed to retain all
assets and liabilities relating thereto as Excluded Assets and
Excluded Liabilities.
(e) Schedule 2.1(d) is hereby amended to delete the references to
interests in InHouse Rehab Associates and RehabWorks of Utah, L.L.C., which
shall be Excluded Assets and Excluded Liabilities.
(f) Schedule 7.5 is amended to delete therefrom all items except
letters of credit numbers L150065, L150066, L150067 and L906140, which shall be
the only letters of credit and bonds required to be provided by Buyer to
substitute for letters of credit and bonds heretofore maintained by Seller and
its Affiliates.
Section 2.2 Deliveries at Closing. At the Closing, the parties shall
execute and deliver such instruments of conveyance, transfer and assumption,
consistent with the terms of the Agreement, as are necessary to effect the
foregoing amendments to the Schedules.
ARTICLE 3
OTHER AGREEMENTS OF THE PARTIES
Section 3.1 Assumption of ACT 401(k) Plan. Prior to the Closing, Seller
shall assume the 401(k) plan maintained by Advanced Clinical Technology, Inc.
("ACT") and, from and after the Closing, shall be solely responsible for the
administration and termination of such plan and for the satisfaction of all
obligations and liabilities of any kind whatsoever with respect to such plan or
the operation, assumption or termination thereof, including, but not limited to,
obligations and liabilities to plan participants and
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<PAGE>
obligations and liabilities resulting from any adverse determination by any
governmental entity with respect to such plan, all of which obligations and
liabilities shall be deemed to be Excluded Liabilities and subject to the
indemnification provisions of Sections 11.3, 11.5 and 11.6 of the Agreement.
Section3.2 Ortenzio Litigation. HEALTHSOUTH, Seller and Buyer agree that
all rights and liabilities of Seller or any Affiliate of Seller, whether or not
such Affiliate is a Transferred Subsidiary, with respect to litigation brought
by Seller or any Affiliate of Seller against Rocco Ortenzio, Robert Ortenzio and
their Affiliates (collectively, the "Ortenzios"), or by the Ortenzios against
Seller or any Affiliate of Seller, shall constitute Excluded Assets and Excluded
Liabilities, and Buyer and its Affiliates shall have no rights or obligations
with respect to any amounts receivable or payable with respect to the
prosecution and defense of such litigation or any judgments, awards, amounts
paid in settlement or other costs or proceeds of such litigation. Any
liabilities which may be asserted against Buyer or its Affiliates (including,
after the Closing, any Transferred Subsidiaries) with respect to such litigation
shall be subject to the indemnification provisions of Sections 11.3, 11.5 and
11.6 of the Agreement. Buyer acknowledges that neither HEALTHSOUTH nor Seller
has made any representation to Buyer concerning the value of such litigation.
Buyer shall cause the Transferred Subsidiaries to cooperate as reasonably
requested by HEALTHSOUTH or Seller, at the expense of HEALTHSOUTH or Seller,
with respect to such litigation.
Section 3.3 Other Agreements to be Executed and Delivered. At the Closing,
HEALTHSOUTH and Buyer shall execute and deliver a Service Agreement and a
Transition Services Agreement, satisfactory to HEALTHSOUTH and Buyer in form and
substance, with respect to the provision of certain leased employees to Buyer or
its Affiliates and with respect to certain information systems transition
matters, respectively.
Section 3.4 Bank Accounts and Cash Reconciliation. On the Closing Date,
Seller and its Affiliates shall assign to Buyer or designated Buyer Subsidiaries
all rights of Seller and its Affiliates in depository accounts relating to the
Transferred Assets and disbursing accounts relating to the Transferred
Subsidiaries, subject, however, to the following provisions:
(a) On the Closing Date, HEALTHSOUTH shall withdraw all collected
funds from the depository accounts and all funds in excess of outstanding checks
from the transferred disbursing accounts.
(b) On January 6, 1998, HEALTHSOUTH shall wire to accounts designated
by Buyer an amount equal to $10,000,000 less (i) the uncollected balances in the
depository accounts at the Closing Date (ii) amounts deposited into the
depository accounts on December 31, 1997 and (iii) cash and cash equivalents
otherwise inaccessible on December 31, 1997, which shall satisfy HEALTHSOUTH's
obligation to transfer cash and cash equivalents in the amount of $10,000,000
pursuant to Section 2.1(m) of the Agreement.
(c) In the event that (i) HEALTHSOUTH and Seller remove funds from the
transferred disbursing accounts so that funds in such accounts are insufficient
to cover checks outstanding at December 31, 1997, or (ii) after the payment
described in paragraph (b) above, the cash and cash equivalents deemed to have
been transferred to Buyer as of December 31, 1997 exceed $10,000,000, the
parties shall pay to each other on demand such amounts as are necessary to
reconcile such discrepancies.
Section 3.5 Amounts Expended to Obtain Consents and Releases. HEALTHSOUTH
shall, by check on the Closing Date, pay to Buyer the sum of $11,000,000 in
respect of liabilities incurred by Buyer in connection with obtaining all third
party consents and releases of HEALTHSOUTH and Seller obtained through the
Closing Date, including, but not limited to, liabilities in favor of Health and
Retirement Properties Trust, Connecticut Subacute Corporation II. With respect
to amounts expended as consideration for all third party consents and releases
after the Closing Date, HEALTHSOUTH and Seller
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shall reimburse Buyer for 50% of such amounts in excess of $500,000. Buyer
represents that it has agreed to accept the terms required for consent by LTC
Properties, Inc. specified in Buyer's agreement of even date herewith with LTC
Properties, Inc. (provided that guaranties for the Citation properties shall not
exceed 20% of the underlying mortgage amount) and the terms for consent required
by Zev Karkomi/Karell Capital Ventures, Inc. in Karell's letters dated December
20 and December 30, 1997.
Section 3.6 Certain Employees. The parties agree that those employees of
Seller identified on Schedule 3.6 attached hereto shall not be Retained
Employees or Hired Employees, and HEALTHSOUTH and Seller shall retain all rights
and obligations with respect to such employees other than those assumed by Buyer
pursuant to Section 2.3(n) of the Agreement.
Section 3.7 Amendment of Section 2.3(n). Section 2.3(n) of the Agreement is
hereby amended to be and read in its entirety as follows:
(n) Liabilities or obligations of Seller or the Subsidiaries
arising under the employment, change-of-control, retention bonus and
pay-to-stay agreements described on Schedule 2.3(n); provided, however,
that if HEALTHSOUTH or Seller shall have paid any amounts in respect of
such liabilities or obligations prior to the Closing Date, or shall pay
any amounts in respect of such liabilities or obligations after the
Closing Date, Buyer shall reimburse HEALTHSOUTH or Seller for the
amounts so paid upon demand on or after the Closing Date (but in no
event earlier than the date on which such amounts are paid, if paid
after the Closing Date);
Section 3.8 B&G Note. With respect to the Note from B&G Partners Limited
Partnership described in Section 2.1(g) of the Agreement, HEALTHSOUTH shall
indemnify Buyer against any failure of Buyer to receive payment of principal
valued at at least $5,000,000 by paying to Buyer, upon demand, the shortfall
between $5,000,000 and the value of the consideration received as payment of
principal; provided, however, that HEALTHSOUTH shall not be responsible for any
shortfall resulting from the surrender of securities issued by Buyer as payment
of principal on such note.
Section 3.9 Certain Development Projects. The parties agree that all right,
title and interest of Seller or any Affiliate in and to the facilities under
development in Reno, Las Vegas and Carson City, Nevada, and all liabilities and
obligations with respect thereto, are Transferred Assets and Assumed
Liabilities.
ARTICLE 4
MISCELLANEOUS
Section 4.1 Affirmation of Agreement. The parties hereby affirm to one
another their respective obligations pursuant to the Agreement and affirm the
Agreement, amended as set forth above. The parties hereby represent and warrant
to one another that none of them is in default in the performance of any of its
obligations to the other as of the date of this Amendment.
Section 4.2 Representations and Warranties. The parties represent and
warrant to one another that this Amendment has been duly authorized by all
corporate action required to be taken on each of their parts, that it has been
duly executed and delivered, that it constitutes the legal, valid and binding
obligations of each of them, except as enforcement may be subject to bankruptcy,
moratorium and similar laws and except as the availability of equitable remedies
may be subject to customary limitations.
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Section 4.3 Further Assurances. Each party hereby agrees to perform any
further acts and to execute and deliver any documents which may be reasonably
necessary to carry out the provisions of this Amendment.
IN WITNESS WHEREOF, the parties have duly executed this Amendment on the
date first above written.
HEALTHSOUTH CORPORATION
By /s/WILLIAM W. HORTON
Its Senior Vice President
HORIZON/CMS HEALTHCARE CORPORATION
By /s/WILLIAM W. HORTON
Its Vice President
INTEGRATED HEALTH SERVICES, INC.
By /s/TAYLOR PICKETT
Its Executive Vice President
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