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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 (Date of Earliest Event Reported): September 21, 1999
NovaCare, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 1-10875 13-3247827
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 992-7200
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Item 5. Other Events.
On September 21, 1999, the stockholders of NovaCare, Inc., a
Delaware corporation (the "Company"), at a Special Meeting of Stockholders of
the Company, gave their approval (the "Stockholder Approval") of (a) the sale
(the "NCES Sale") of the Company's interest in NovaCare Employee Services, Inc.
("NCES") and (b) the sale (the "PROH Sale") of the Company's outpatient physical
therapy and occupational health rehabilitation services business ("PROH").
Stockholder Approval of the NCES Sale was conditioned on (i) the sale price for
the Company's interest in NCES being a minimum of $2.50 per share, or an
aggregate of $48.5 million for the 19,400,000 shares (the "Covered Shares") of
common stock ("NCES Common Stock"), $.01 par value, held by NC Resources, Inc.,
the Company's wholly owned subsidiary ("NC Resources"), and (ii) the Company's
Board of Directors obtaining an opinion from a financial advisor to the effect
that the consideration to be received by the Company for the Covered Shares is
fair, from a financial point of view, to the Company. Stockholder Approval of
the PROH Sale was conditioned on (i) the total sale price for PROH being a
minimum of $200 million and (ii) the Company's Board of Directors obtaining an
opinion from a financial advisor to the effect that the consideration to be
received by the Company in the PROH Sale is fair, from a financial point of
view, to the Company.
On September 8, 1999, NCES entered into an Agreement and Plan
of Merger (the "Merger Agreement") with Plato Holdings, Inc., a Delaware
corporation ("Plato"), and New Plato Acquisition, Inc., a Delaware corporation
and wholly owned subsidiary of Plato ("Merger Sub"). Under the Merger Agreement,
Merger Sub agreed to commence a cash tender offer (the "Offer") to acquire any
and all outstanding shares of NCES Common Stock, for $2.50 per share, net to the
seller in cash (the "Offer Price"). Plato is a newly organized corporation
formed in connection with the Offer and all of the outstanding capital stock of
Plato is owned by Plato
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Holdings, LLC, a Delaware limited liability company ("Plato LLC"). Plato LLC is
a newly organized limited liability company formed in connection with the Offer.
Plato LLC's equity interests currently are owned approximately: 26.9% by
Fidelity Ventures Limited; 13.5% by Fidelity Investors II Limited Partnership;
6.75% by The P/A Fund III, L.P.; 33.37% by APA Excelsior V, L.P.; 0.28% by The
Patricof Private Investment Club II, L.P.; and 19.2% by AFLAC Incorporated.
Subsequent to Plato or Merger Sub accepting for payment and
paying for that number of shares of NCES Common Stock which, when added to any
shares of NCES Common Stock owned beneficially by Plato or Merger Sub, would
constitute a majority of the shares of NCES Common Stock outstanding on a fully
diluted basis (the "Minimum Condition"), in accordance with applicable law and
subject to the terms and conditions of the Merger Agreement, Merger Sub will
merge with and into NCES, with NCES becoming a wholly owned subsidiary of Plato
(the "Merger"). Upon the consummation of the Merger, each share of NCES Common
Stock outstanding immediately prior to the Merger (other than shares owned by
Plato or Merger Sub or shares held by stockholders who properly perfect their
dissenters' rights under the Delaware General Corporation Law) will be converted
into the right to receive the Offer Price.
Concurrently with the execution and delivery of the Merger
Agreement, Plato, Merger Sub, the Company and NC Resources entered into a
Stockholder Agreement. In that agreement, NC Resources (i) agreed to tender all
of the Covered Shares which it owns to Merger Sub and (ii) granted to Merger Sub
an irrevocable proxy to vote the Covered Shares at any meeting of the
stockholders of the Company called for the purpose of voting on the Merger and
the Merger Agreement and/or to vote against any Alternative Proposal (as defined
in the Merger
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Agreement). The Stockholder Agreement also gives Plato the right,
at its election, to purchase the Covered Shares from NC Resources at a price per
share equal to $2.50, which is the price offered to all stockholders in the
Offer.
The obligations of the Company and NC Resources described
above were contingent on the Company obtaining the Stockholder Approval which
occurred on September 21, 1999.
The Company and NC Resources have agreed not to solicit,
initiate or encourage any inquiry, proposal or offer from a third party to
acquire the assets or stock of NCES, NC Resources or any subsidiary thereof and
to refrain from participating in any discussions or negotiations regarding or
furnishing information to any third party in connection with any such inquiry,
proposal or offer.
The Offer and the Merger are subject to various other
conditions, including the Minimum Condition being satisfied, the receipt of all
necessary consents and approvals from the lenders of NCES and the Company, and
the expiration of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "H-S-R Act"), if applicable. Subject to
satisfaction of these conditions and others, and assuming NCES will be able to
effectuate a short-form merger, it is expected that the Merger will be
consummated sometime in mid to late October 1999.
For a more detailed description of the Stockholder Agreement,
reference is made to the Stockholder Agreement included as Exhibit 2(a) to this
Current Report on Form 8-K.
On October 1, 1999, the Company and NC Resources entered into
a Stock Purchase Agreement (the "Purchase Agreement") for the sale of the
Company's PROH division to Select Medical Corporation ("Select Medical"), a
privately held health care company with its
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headquarters in Mechanicsburg, Pennsylvania. Under the terms of the PROH Sale,
Select Medical will pay the Company total consideration of $200 million,
including the assumption of debt (expected to be approximately $45 million at
closing) and the payment of approximately $155 million in cash, of which $25
million (the "Escrow Amount") will be placed in escrow. The Escrow Amount will
be held in escrow for a period of up to 26 months from the date of the closing
of the PROH Sale. The Escrow Amount will be used to satisfy indemnification
claims made by Select Medical against the Company and NC Resources as a result
of any damages that are incurred by Select Medical in connection with, among
other things, breaches of any representations, warranties and covenants made by
the Company and NC Resources in the Purchase Agreement (other than damages that
arise (i) as a result of a breach of any representations or warranties made by
the Company with respect to Medicare or (ii) from any liability or claim arising
out of acts or omissions occurring prior to the date of closing with respect to
any acquisition agreement for the purchase and sale of clinics within the
business of the PROH division, in either of which cases the parties have agreed
that the Company and NC Resources will indemnify and reimburse Select Medical
for up to 75% of any damages as a result of such Medicare breach or liability or
claim, as the case may be).
The Closing of the PROH Sale is expected to occur within 30
days following expiration of the applicable waiting period under the H-S-R Act.
After the closing of the PROH Sale, the PROH business will operate under its
retained NovaCare name, as a wholly owned division of Select Medical.
For a more detailed description of the PROH Sale and the
Purchase Agreement, reference is made to the Purchase Agreement included as
Exhibit 2(b) to this Current Report on Form 8-K.
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Item 7. Financial Statements, Pro Forma
Financial Information and Exhibits.
(c) Exhibits:
The exhibits required to be filed as part of this Current Report on
Form 8-K are listed in the attached Index to Exhibits.
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SIGNATURE
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.
NOVACARE, INC.
By: /s/ Robert E. Healy, Jr.
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Name: Robert E. Healy, Jr.
Title: Senior Vice President - Finance and
Administration
Dated: October 12, 1999
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
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<S> <C> <C>
2(a) Stockholder Agreement dated as of September 8, 1999.
2(b) Stock Purchase Agreement dated as of October 1, 1999
(the exhibits and schedules to the Agreement are not
filed as part of this Current Report on Form 8-K. A
list briefly identifying the contents of the omitted
schedules appears in the Table of Contents to the
Agreement. The Registrant undertakes to furnish
supplementally a copy of any omitted exhibit or
schedule to the Commission upon request.)
99(a) Opinion of Warburg Dillon Read LLC dated as of October
1, 1999.
99(b) Press release dated September 21, 1999.
99(c) Press release dated September 9, 1999.
99(d) Press release dated October 4, 1999.
</TABLE>
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EXHIBIT 2(a)
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT, dated as of September 8, 1999 among
Plato Holdings, Inc., a Delaware corporation ("Parent"), New Plato Acquisition,
Inc., a Delaware corporation and a wholly owned subsidiary of Parent ("Sub"),
and NC Resources, Inc., a Delaware corporation ("Target Parent"), and NovaCare,
Inc., a Delaware corporation ("Ultimate Parent").
WHEREAS, Target Parent beneficially owns and is the holder of
record, as of the date hereof, of 19,400,000 shares of common stock, $.01 par
value ("Common Stock"), of NovaCare Employee Services, Inc., a Delaware
corporation (the "Company"), which shares ("the Covered Shares") represent a
majority of the issued and outstanding shares (the "Shares") of capital stock of
the Company;
WHEREAS, the Board of Directors of each of Parent, Sub and the
Company has approved, and deemed it advisable and in the best interests of its
respective stockholders to consummate the acquisition of the Company by Parent
by means of a merger (the "Merger") of Sub with and into the Company upon the
terms and subject to the conditions set forth in an Agreement and Plan of Merger
(the "Merger Agreement") dated the date hereof by and among Parent, Sub and the
Company;
WHEREAS in furtherance thereof, it is proposed that Parent and
Sub make a cash tender offer (the "Offer") to acquire any and all shares of the
issued and outstanding Common Stock of the Company for $2.50 per share, net to
the seller in cash; and
WHEREAS, as a condition and inducement to each of Parent and
Sub to enter into the Merger Agreement and to make the Offer, Parent and Sub
have requested and Target Parent and Ultimate Parent have agreed, to execute
this Agreement pursuant to which, among other things, Target Parent agrees to
tender the Covered Shares held by it in the Offer and to grant Parent a proxy
with respect of the voting of the Covered Shares or, at Parent's election, to
sell such Covered Shares to Sub.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES
OF ULTIMATE PARENT AND TARGET PARENT
Ultimate Parent and Target Parent, jointly and severally,
represent and warrant to each of Parent and Sub that:
SECTION 1.01 Organization and Valid Title. Each of Ultimate
Parent and Target Parent is validly existing and in good standing under the laws
of the jurisdiction of its organization. Target Parent is the sole, true, lawful
and direct beneficial owner and holder of
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record as of the date of this Agreement of the Covered Shares with no
restrictions on the Target Parent's voting rights or rights of disposition
pertaining thereto except for (i) a pledge (the "Pledge") of the Covered Shares
to PNC Bank, National Association ("PNC Bank"), as agent, pursuant to the Credit
Agreement dated as of May 27, 1994, as amended, between Ultimate Parent and its
subsidiaries and PNC Bank, as agent for the banks named in such Credit Agreement
(the "Credit Agreement"), (ii) the agreement made pursuant to Articles III and
IV hereof and (iii) restrictions arising under the U.S. federal securities laws
and state "blue sky" laws. Except for the Pledge, Target Parent has good and
valid title to the Covered Shares, free and clear of any and all claims, liens,
charges, encumbrances and security interests. Upon tender of the Covered Shares
pursuant to Article III or sale of the Covered Shares pursuant to Article IV,
Target Parent shall convey to Sub or Parent, as the case may be, good and valid
title to the Covered Shares, free and clear of any and all claims, liens,
charges, encumbrances and security interests. None of the Covered Shares are
subject to any voting trust or other agreement or arrangement with respect to
the voting of such Covered Shares, other than the Pledge and the agreement made
pursuant to Articles III and IV hereof. When used herein with respect to any
Covered Share, the "beneficial ownership" thereof means the power to vote or
dispose of, or direct the voting or disposition of, such Covered Share.
SECTION 1.02 Non-Contravention and Consents. Upon the receipt
of any stockholder approval of Ultimate Parent required by the General
Corporation Law of the State of Delaware (the "DGCL") approving the agreement to
tender, the grant of the irrevocable proxy and the agreement to sell the Covered
Shares to Parent contained in Article III of this Agreement (the "Required
Stockholder Approval"), each of Ultimate Parent and Target Parent has all
requisite corporate right, power and authority to execute, deliver and perform
this Agreement. The execution, delivery and performance by each of Ultimate
Parent and Target Parent of this Agreement do not and will not violate any
provision of the Certificate of Incorporation or By-Laws of either Ultimate
Parent or Target Parent or contravene or constitute a default under or give rise
to a right of termination, cancellation or acceleration of any right or
obligation of either of Ultimate Parent and Target Parent or to a loss of any
benefit of either Ultimate Parent or Target Parent under any provision of
applicable law or regulation or of any agreement, judgment, injunction, order,
decree, or other instrument binding on either Ultimate Parent or Target Parent
or result in the imposition of any lien on any asset of either Ultimate Parent
or Target Parent. Each of Ultimate Parent and Target Parent has obtained all
consents and approvals required by it in connection with the execution, delivery
and performance of this Agreement, other than the Required Stockholder Approval
and any consents or approvals required under the Credit Agreement which shall be
obtained prior to the date of the Special Meeting (as hereinafter defined).
SECTION 1.03 Binding Effect. The execution, delivery and
performance of this Agreement have been duly authorized by the Board of
Directors of Ultimate Parent and Target Parent and the stockholder of Target
Parent and no other corporate action on the part of either Ultimate Parent or
Target Parent is necessary in order to authorize the execution, delivery and
performance by Ultimate Parent and Target Parent of this Agreement other than
the Required Stockholder Approval. This Agreement has been duly executed and
delivered by Ultimate Parent and Target Parent and is the valid and binding
agreement of Ultimate Parent and Target Parent, enforceable against Ultimate
Parent and Target Parent in accordance with its
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terms, except as enforcement may be limited by bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights generally.
SECTION 1.04 Total Shares. The Covered Shares are the only
shares of Common Stock directly beneficially owned or held of record by Target
Parent and Target Parent does not own any option to purchase or rights to
subscribe for or otherwise acquire any securities of the Company or have any
other interest in or voting rights with respect to any securities of the
Company.
SECTION 1.05 Board Approvals.
(a) Ultimate Parent's Board, at a meeting duly called
and held, has (i) unanimously determined that this Agreement and the
transactions contemplated hereby are advisable and in the best interests of the
stockholders of Ultimate Parent, (ii) approved this Agreement and the
transactions contemplated hereby, and (iii) resolved to recommend that the
stockholders of Ultimate Parent approve the matters requiring the Required
Stockholder Approval, and none of the aforesaid actions by Ultimate Parent's
Board has been or will be amended, rescinded or modified.
(b) Target Parent's Board, at a meeting duly called
and held, has (i) unanimously determined that this Agreement and the
transactions contemplated hereby are advisable and in the best interests of the
stockholder of Target Parent, (ii) approved this Agreement and the transactions
contemplated hereby, and (iii) resolved to recommend that the stockholder of
Target Parent approve this Agreement and the transactions contemplated hereby
and none of the aforesaid actions by Target Parent's Board has been or will be
amended, rescinded or modified. Ultimate Parent, as the sole stockholder of
Target Parent, has, in accordance with Applicable Law (as defined in the Merger
Agreement), authorized this Agreement and the transactions contemplated hereby
and by the Merger Agreement.
SECTION 1.06 Vote Required. The affirmative vote of the
holders of a bare majority of the outstanding shares of Common Stock of Ultimate
Parent is the only vote of the holders of any class or series of Ultimate
Parent's capital stock necessary for the Required Stockholder Approval. None of
the other transactions contemplated by this Agreement requires under Applicable
Law (as defined in the Merger Agreement) or Ultimate Parent's organizational
documents, any approval of the stockholders of Ultimate Parent.
SECTION 1.07 Opinion of Financial Advisors. Ultimate Parent
Board has received the opinion of Wasserstein Perella & Co., Inc. dated
September 8, 1999, to the effect that, as of such date, and based upon the
assumptions made, matters considered, and limits of review set forth therein,
the applicable Merger Consideration (as defined in the Merger Agreement) is fair
to Ultimate Parent, from a financial point of view.
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ARTICLE II
REPRESENTATIONS AND
WARRANTIES OF PARENT AND SUB
Each of Parent and Sub represents and warrants to Ultimate
Parent and Target Parent that it has all requisite corporate power and authority
to execute and deliver this Agreement and to perform its obligations hereunder.
The execution, delivery and performance by each of Parent and Sub of this
Agreement have been duly authorized by the Board of Directors of each of Parent
and Sub and no other corporate action on the part of each of Parent and Sub is
necessary to authorize the execution, delivery or performance by Parent and Sub
of this Agreement. This Agreement has been duly executed and delivered by Parent
and Sub and is a valid and binding agreement of each of Parent and Sub,
enforceable against each of them in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, moratorium or other
similar laws relating to creditors' rights generally.
ARTICLE III
AGREEMENT TO TENDER SHARES/IRREVOCABLE PROXY/SALE OF SHARES
SECTION 3.01 Agreement to Tender/Proxy. Subject to obtaining
the Required Stockholder Approval at the Special Meeting referred to in Section
4.03, during the time the agreement to tender and the grant of the irrevocable
proxy contained in this Article III is in effect, (x) Target Parent shall, and
Ultimate Parent shall cause Target Parent to, tender the Covered Shares in the
Offer and (y) Target Parent hereby makes, constitutes and appoints Parent, and
each of Parent's officers and employees, its true and lawful attorneys, for it
and in its name, place and stead, to act as its proxy in respect of all of the
Covered Shares, which it now or hereafter may own or hold, to vote for the
transaction of any and all business that may come before any meeting of the
stockholders of the Company called for the purpose of voting on the Merger and
the Merger Agreement and/or to vote against any Alternative Proposal (as defined
in the Merger Agreement), or at any adjournment thereof, or in any consent
solicitation related to the foregoing; giving and granting to its said attorneys
full power and authority to do and perform each and every act and thing whether
necessary or desirable to be done in and about the premises, as fully as it
might or could do if personally present with full power of substitution,
appointment and revocation, hereby ratifying and confirming all that its said
attorneys shall do or cause to be done by virtue hereof.
The irrevocable proxy contained in this Article III is coupled
with an interest, namely the right of Parent or Sub to acquire all of the
Covered Shares and is given to Parent and to its officers and employees in
consideration of the agreements of Parent and Sub under the Merger Agreement,
and to induce Parent and Sub to enter into the Merger Agreement, and this
irrevocable proxy shall not be revocable or revoked by Target Parent, and shall
be binding upon it, its successors and assigns until, in accordance with Section
6.5(a), this Article III is terminated.
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SECTION 3.02 Sale of Covered Shares.
(a) At Parent's election, subject to receipt of the
Required Stockholder Approval, Parent shall purchase from Target Parent and
Target Parent shall sell to Parent the Covered Shares (the "Share Purchase
Right") at a price per share equal to $2.50 (the "Purchase Price"). From and
after receipt of the Required Stockholder Approval, Parent may elect to purchase
the Covered Shares by delivery to Target Parent of a written notice specifying
the place, date and time for the closing of such purchase (the "Share Purchase
Closing").
(b) Parent's obligation to purchase the Covered
Shares upon any exercise of the Share Purchase Right shall be subject to (i)
each of the representations and warranties of Ultimate Parent and Target Parent
contained in this Agreement was when made on the date of this Agreement true and
correct and is true and correct as of the time of the Share Purchase Closing as
though made on and as of the time of the Share Purchase Closing, (ii) Ultimate
Parent and Target Parent shall have performed or complied with all agreements
and covenants required by this Agreement to be performed or complied with by
them on or prior to the Share Purchase Closing, and (iii) the satisfaction of
the conditions set forth in Annex A to the Merger Agreement as if the Share
Purchase Right was the Offer. Upon the request of Parent, Target Parent and
Ultimate Parent shall promptly take, or cause to be taken, after the date
hereof, all action required to effect all necessary filings by Target Parent and
Ultimate Parent under the HSR Act and shall cooperate with the Parent with
respect to its filing obligations.
(c) At any Share Purchase Closing, Target Parent will
deliver to Parent a certificate as to the satisfaction of conditions (i) and
(ii) of the penultimate sentence of Section 3.02(b), and Parent will deliver to
Target Parent a certificate of an officer of Parent certifying the truth and
correctness of Parent's representations and warranties contained in this
Agreement as if made on the date of the Share Purchase Closing.
(d) At any Share Purchase Closing, (i) Parent shall
pay the aggregate Purchase Price for the Covered Shares then being purchased
from Target Parent by certified or cashier's check or wire transfer, as
determined solely by Parent, and (ii) Target Parent shall deliver, or cause to
be delivered, to Parent one or more share certificates evidencing the Covered
Shares then being sold, and Target Parent agrees that such Covered Shares shall
be transferred free and clear of all Liens (as defined in the Merger Agreement).
All such share certificates shall be duly endorsed in blank, or with appropriate
stock powers, duly executed in blank, attached thereto, in proper form for
transfer, with the signature of Target Parent thereon guaranteed, and with all
applicable taxes paid (including any tax stamps attached).
(e) If Parent shall exercise the Share Purchase Right
pursuant to this Agreement, and without additional consideration, Target Parent
shall execute and deliver such further transfers, assignments, endorsements,
consents and other instruments as Parent may reasonably request for the purpose
of effectively carrying out the transactions contemplated by this Agreement,
including the transfer of any and all of the Target Parent's Covered Shares sold
to Parent and the release of any and all Liens covering such Covered Shares.
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ARTICLE IV
COVENANTS OF ULTIMATE PARENT AND TARGET PARENT
Ultimate Parent and Target Parent hereby, jointly and
severally, covenant and agree that:
SECTION 4.01 No Proxies for or Disposition of Shares. Except
pursuant to the terms of this Agreement or the Pledge, Target Parent shall not,
and Ultimate Parent shall cause Target Parent not to, without the prior written
consent of Parent and Sub, directly or indirectly, (i) grant any proxies or
voting rights or enter into any voting trust or other agreement or arrangement
with respect to the voting of any Covered Shares, (ii) acquire, sell, assign,
transfer, encumber, pledge or otherwise dispose of, or enter into any contract,
option or other arrangement or understanding with respect to the direct or
indirect acquisition or sale, assignment, transfer, encumbrance or other
disposition of, any Shares or interest therein during the term of this
Agreement, or (iii) issue any shares of its capital stock or any securities
convertible into or exchangeable for any shares of its capital stock or enter
into any contract, arrangement or understanding with respect thereto. Ultimate
Parent shall not, without prior written consent of Parent and Sub, directly or
indirectly, (i) grant any proxies or voting rights or enter into any voting
trusts or other agreement or arrangement with respect to the voting of any
capital stock of Target Parent, or (ii) sell, assign, transfer, encumber, pledge
or otherwise dispose of, or enter into any contract, option or other arrangement
or understanding with respect to the direct or indirect sale, assignment,
transfer, encumbrance or other disposition of, any shares of capital stock of
Target Parent or interest therein during the term of this Agreement. Neither
Target Parent nor Ultimate Parent shall seek or solicit any such acquisition or
sale, assignment, transfer, encumbrance or other disposition or any such
contract, option or other arrangement or assignment or understanding and agrees
to notify Parent and Sub immediately and to provide all details requested by
Parent and Sub if either of them shall be approached or solicited, directly or
indirectly, by any person with respect to any of the foregoing.
SECTION 4.02 No Shopping. Neither Target Parent nor Ultimate
Parent shall directly or indirectly (i) solicit, initiate or encourage (and
Target Parent and Ultimate Parent shall not permit or authorize any person,
including advisors, to solicit, initiate or encourage) any inquiry, proposal or
offer from any person or group to acquire the business, property or capital
stock of the Company or Target Parent or any direct or indirect subsidiary
thereof, or any acquisition of a significant equity interest in, or a
significant portion of the assets of, the Company or Target Parent or any direct
or indirect subsidiary thereof, whether by merger, purchase of assets, tender
offer or other transaction or (ii) participate in any discussion or negotiations
regarding, or furnish to any other person any information with respect to, or
otherwise cooperate in any way with, or participate in, facilitate or encourage
any effort or attempt by any other person to do or seek any of the foregoing;
provided, however, that any director of Target Parent or Ultimate Parent who is
also a director of the Company may as a director of the Company participate in
discussions and negotiations concerning an Alternative Proposal which has been
submitted on an unsolicited basis and which otherwise meets the requirements of
the last sentence of the first paragraph of Section 5.2(a) of the Merger
Agreement. Target Parent and Ultimate Parent shall promptly advise Parent and
Sub of the terms of any communications it may receive relating to any of the
foregoing.
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SECTION 4.03 Ultimate Parent's Stockholders' Meeting.
(a) Ultimate Parent, acting through Ultimate Parent's
Board shall, in accordance with Applicable Law (as defined in the Merger
Agreement):
(i) duly call, give notice of, convene and
hold a special meeting of its stockholders (the "Special Meeting") as soon as
practicable following the date hereof for the purpose of considering and taking
action upon the matters requiring the Required Stockholder Approval;
(ii) cause a supplement to Ultimate Parent's
definitive proxy statement (the "Proxy Statement") relating to the Special
Meeting, to be mailed to its stockholders, provided that such supplement to the
Proxy Statement, insofar as it relates to the Required Stockholder Approval,
will not be mailed by Ultimate Parent without consultation with Parent and its
counsel;
(iii) include in the Proxy Statement the
recommendation of Ultimate Parent's Board that stockholders of Ultimate Parent
vote in favor of the approval and adoption of the matters requiring the Required
Stockholder Approval; and
(iv) use its best efforts to solicit from
holders of shares of Ultimate Parent's common stock, $.01 par value, proxies in
favor of the approval and adoption of the matters requiring the Required
Stockholder Approval and shall take all other action necessary or, in the
reasonable opinion of Parent, advisable to secure any vote or consent of
stockholders required by the DGCL to effect the approval and adoption of the
matters requiring the Required Stockholder Approval.
(b) Parent agrees that it will provide Ultimate
Parent with the information concerning Parent and Sub required to be included in
the Proxy Statement, and hereby agrees to indemnify Ultimate Parent and hold it
harmless from and against any material inaccuracies in such information.
(c) Ultimate Parent represents that the Proxy
Statement (or any amendment thereof or supplement thereto) at the date mailed to
Ultimate Parent's stockholders and at the time of the Special Meeting, if any,
will not contain any untrue statement of material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading, except that no representation is made by Ultimate Parent with
respect to statements made therein based on information supplied by Parent or
Sub in writing for inclusion in the Proxy Statement. Ultimate Parent agrees to
indemnify Parent and Sub and hold them harmless from and against any such
misstatements or omissions. If at any time prior to the approval and adoption
the matters requiring the Required Stockholder Approval, any event with respect
to Ultimate Parent should occur which is required to be described in a
supplement to the Proxy Statement, such event shall be so described, and such
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of Ultimate Parent. With respect to the
information relating to Ultimate Parent, the Proxy Statement will comply as to
form and substance in all material respects with the requirements of the
Exchange Act.
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(d) Ultimate Parent shall not, until after the
Special Meeting, bring before the stockholders of Ultimate Parent, any proposal
inconsistent with the matters requiring the Required Stockholder Approval;
provided, however, that it is agreed that the proposals that are currently in
the Proxy Statement of Ultimate Parent dated August 13, 1999 are not
inconsistent with the matters requiring the Required Stockholder Approval.
SECTION 4.04 Consent of Ultimate Parent's Lenders. Ultimate
Parent shall, as promptly as practicable after the date hereof, and in any event
prior to the purchase of any Shares pursuant to the Offer (as defined in the
Merger Agreement), obtain all consents and approvals from its lenders to the
transactions contemplated pursuant to this Agreement and the Merger Agreement
and deliver evidence of such consents and approvals to Parent and Sub.
SECTION 4.05 Guaranty. Ultimate Parent shall, as promptly as
practicable after the date hereof, and in any event prior to the purchase of any
Shares pursuant to the Offer (as defined in the Merger Agreement), deliver to
the Company (i) a guaranty from Ultimate Parent in form and substance reasonably
satisfactory to Parent, pursuant to which Ultimate Parent shall guaranty to
Parent the earnings before interest, taxes, depreciation and amortization
(EBITDA), projected to be received by the Company under the Subscriber Services
Agreement, dated as of July 1, 1999, by and between Ultimate Parent and the
Company, relating to Ultimate Parent's PROH Division (the "PROH Contract"),
which such EBITDA amounts are set forth in Schedule 5.12 to the Merger Agreement
and (ii) an irrevocable letter of credit or surety bond from a reputable and
financially sound financial institution or insurance company, or such other
security, in each case in form and substance reasonably satisfactory to Parent
securing the guaranty described in clause (i) or with respect to the PROH
Contract, as the case may be, and the EBITDA set forth in Schedule 5.12 of the
Merger Agreement projected to be received by the Company under the Subscriber
Services Agreement dated as of July 1, 1999 by and between Ultimate Parent and
the Company relating to Ultimate Parent's Support Services Division.
SECTION 4.06 Surety Bond. Prior to the purchase of any Shares
pursuant to the Offer, Ultimate Parent shall take all action necessary to cause
the Company to be removed as a co-indemnitor (or to have any obligation
thereunder with respect to the Company terminated) with respect to the
obligations secured by the $4,580,446 bond (Surety ID #21970-01) in favor of
Liberty Mutual Insurance Company (the "Liberty Bond").
ARTICLE V
MISCELLANEOUS
SECTION 5.01 Expenses. All costs and expenses incurred in
connection with this Agreement shall be paid by the party incurring such cost or
expense.
SECTION 5.02 Further Assurances. Target Parent and Ultimate
Parent each will execute and deliver or cause to be executed and delivered all
further documents and instruments and use its best efforts to secure such
consents and take all such further action as may be reasonably necessary under
applicable laws and regulations and which may be required under any agreements,
contracts, commitments, instruments, understandings, arrangements or
restrictions of any kind to which it is a party or by which it is governed or
bound, to perform its
<PAGE> 9
obligations under this Agreement, to obtain all necessary waivers, consents and
approvals and effect all necessary registrations and filings, responses to
requests for additional information related to such filings and submission of
information requested by governmental authorities and to rectify any event or
circumstances which could impede performance of its obligations under this
Agreement.
SECTION 5.03 Specific Performance. The parties hereto agree
that Parent and Sub would be irreparably damaged if for any reason Target Parent
failed to tender the Covered Shares in the Offer or Target Parent or Ultimate
Parent failed to perform any of their respective other obligations under this
Agreement, and that Parent and Sub would not have an adequate remedy at law for
money damages in such event. Accordingly, Parent and Sub shall be entitled to
specific performance and injunctive and other equitable relief to enforce the
performance of this Agreement by Target Parent or Ultimate Parent. This
provision is without prejudice to any other rights that Parent and Sub may have
against Target Parent and Ultimate Parent for any failure to perform its
obligations under this Agreement.
SECTION 5.04 Notices. All notices, requests, instructions and
other communications to any party hereunder shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile transmission (with a confirming copy sent by overnight courier), as
follows:
if to Parent or Sub, to:
Plato Holdings, Inc.
c/o Patricof & Co. Ventures, Inc.
455 South Gulph Road, Suite 410
King of Prussia, PA 19406
Telephone: (610) 265-0286
Telecopy: (610) 265-4959
Attention: Gregory M. Case
with copies to:
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103
Telephone: (215) 569-5544
Telecopy: (215) 569-5628
Attention: Arthur H. Miller, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
Boston, MA 02108
Telephone: (617) 573-4800
Telecopy: (617) 573-4822
Attention: Louis A. Goodman, Esq.
<PAGE> 10
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, DC 20005
Telephone: (202) 371-7000
Telecopy: (202) 393-5760
Attention: Marcia R. Nirenstein, Esq.
if to Target Parent and Ultimate Parent:
NovaCare, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Telephone: (610) 992-7200
Telecopy: (610) 992-3385
Attention: President
with a copy to:
Haythe & Curley
237 Park Avenue
20th Floor
New York, New York 10017
Telephone: (212) 880-6000
Telecopy: (212) 682-0200
Attention: Andrew J. Beck, Esq.
or to such other persons or addresses as may be designated in writing by the
party to receive such notice.
SECTION 5.05 Amendments; Termination. This Agreement may not
be modified, amended, altered or supplemented, except upon the execution and
delivery of a written agreement executed by the parties hereto. This Agreement
shall terminate if the Required Stockholder Approval shall not have been
obtained at the Special Meeting referred to in Section 4.03. In the event of the
termination of this Agreement pursuant to this Section 5.05, the relevant
provisions of this Agreement shall forthwith become void and there shall be no
liability on the part of either Parent or the Stockholder under this Agreement;
provided the foregoing shall not limit the liability of any party for breach of
this Agreement prior to such termination.
SECTION 5.06 Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided, that neither Target
Parent nor Ultimate Parent may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the prior written consent of
the other parties hereto; provided, further, that Parent may assign its rights
(but not its obligations) hereunder to any direct or indirect wholly owned
subsidiary of Parent or any entity
<PAGE> 11
owned by, or controlling, controlled by or under common control with, the same
stockholders of Parent.
SECTION 5.07 Governing Law. This Agreement shall be construed
in accordance with and governed by the law of the State of Delaware without
regard to its principles of conflict of laws.
SECTION 5.08 Counterparts; Effectiveness. This Agreement may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
PLATO HOLDINGS, INC.
By: /s/ Gregory M. Case
-----------------------
Name: Gregory M. Case
Title: President
NEW PLATO ACQUISITION, INC.
By: /s/ Gregory M. Case
-----------------------
Name: Gregory M. Case
Title: President
NC RESOURCES, INC.
By: /s/ Michael Fox
-----------------------
Name: Michael Fox
Title: President
NOVACARE, INC.
By: /s/ Timothy E. Foster
-----------------------
Name: Timothy E. Foster
Title: Chief Executive Officer
<PAGE> 1
EXHIBIT 2(b)
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), made as of
October 1, 1999, by and among NovaCare, Inc., a Delaware corporation (the
"Parent"), NC Resources, Inc., a Delaware corporation (the "Seller"), and Select
Medical Corporation, a Delaware corporation (the "Purchaser"). Capitalized terms
used herein and not defined in the specific Section in which they are used,
shall have the meanings assigned to such terms in Section XII hereof.
W I T N E S S E T H:
WHEREAS, the Seller is the holder of all of the issued and
outstanding shares of common stock, $.01 par value per share (the "Common
Stock"), of each of RehabClinics, Inc., a Delaware corporation ("RehabClinics"),
NovaCare Occupational Health Services, Inc., a Delaware corporation ("NOHS"),
Industrial Health Care Company, Inc., a Delaware corporation ("IHCC"), CMC
Center Corporation, a Delaware corporation ("CMC"), and NovaMark, Inc., a
Delaware corporation ("NM") (each of RehabClinics, NOHS, IHCC, CMC, and NM
hereinafter referred to, individually, as a "Company" and, collectively, as the
"Companies");
WHEREAS, the Parent is the holder of all of the outstanding
capital stock of the Seller; and
WHEREAS, the Purchaser desires to acquire from the Seller, and
the Seller desires to sell to the Purchaser, for the consideration hereinafter
provided, all of the outstanding shares of the Common Stock of the Companies
(collectively, the "Shares").
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants and agreements hereinafter set forth, the parties hereto,
intending to be legally bound, hereby agree as follows:
SECTION II
PURCHASE AND SALE OF THE SHARES
1.01 Purchase and Sale of the Shares. Subject to the terms and
conditions of this Agreement and on the basis of the representations,
warranties, covenants and agreements herein contained, at the Closing, the
Seller agrees to sell, assign and convey the Shares to the Purchaser, and the
Purchaser agrees to purchase, acquire and accept the Shares from the Seller.
1.02 Purchase Price. The aggregate purchase price for the
Shares shall be Two Hundred Million Dollars ($200,000,000) (the "Purchase
Price"). The Purchase Price shall be payable at Closing by: (i) the assumption
of the principal of and accrued interest outstanding on the Closing Date under
the promissory notes payable by Parent, the Companies or Subsidiaries to the
sellers of acquired businesses and/or other third parties in connection with
such acquisitions
<PAGE> 2
(collectively, the "Seller Notes") and other third party indebtedness, all as
listed on Schedule 1.02A, which principal and accrued interest as of June 30,
1999 was in the approximate amount of $46.8 million, (ii) the payment by wire
transfer of immediately available funds of Twenty Five Million Dollars
($25,000,000) to PNC Bank, NA as escrow agent (the "Escrow Agent"), which amount
the Escrow Agent shall hold in escrow pursuant to an escrow agreement
substantially in the form of Exhibit 1.02 hereto (the "Escrow Agreement"), and
(iii) the payment of the balance of the Purchase Price (being $175,000,000 less
the principal of and accrued interest as of the Closing Date under the
indebtedness identified in clause (i)) to the Seller by bank wire transfer of
immediately available funds to an account or accounts designated in writing by
the Seller at least three business days prior to Closing. The Purchase Price for
the Shares will be allocated among the Companies as set forth on Schedule 1.02B.
The parties agree that all Tax Returns or other Tax information they may file or
cause to be filed with any governmental entity shall be prepared and timely
filed consistently with such allocation.
1.03 Delivery of the Shares. At the Closing, the Seller shall
deliver the Shares to the Purchaser by delivering certificates duly endorsed in
blank representing the Shares, each certificate to be accompanied by any
requisite stock transfer tax stamps and, any other documents that are reasonably
necessary to transfer to the Purchaser good title to the Stock, free and clear
of all liens, claims, security interests, pledges, charges, equities, options,
restrictions and encumbrances of whatever nature.
1.04 Intercompany Account Obligations. As a material
inducement to the Purchaser to purchase the Shares, as of the Effective Time,
except as set forth on Schedule 1.04 hereto, all then outstanding intercompany
obligations of any Group Member to the Parent, the Seller or any of their
Affiliates (other than any Group Member) shall be cancelled or otherwise
eliminated, without cash to or payment by any Group Member and be deemed capital
contributions to such Group Member, and all then outstanding intercompany
obligations of the Parent, the Seller or any of their Affiliates (other than any
Group Member) to any Group Member shall be cancelled or otherwise eliminated,
and in all cases none of the Parent, the Seller, any of their Affiliates or any
Group Member shall have any further liability or obligation in respect of any
such intercompany obligation; provided that nothing in this Section 1.04 shall
affect any of the covenants, agreements, obligations or liabilities of the
Parent, the Seller or the Purchaser set forth in this Agreement.
1.05 Guaranties. In the event that the Seller, the Parent or
any of their Affiliates (other than any Group Member) has guaranteed (the entity
obligated under any such guaranty being hereinafter referred to as the
"Guarantor") any obligations (the "Seller Guaranteed Obligations") of any Group
Member outstanding as of the Closing Date, as more specifically described on
Schedule 1.05 hereto, to the extent reasonably requested by the Parent, the
Purchaser shall use its best efforts to obtain the release of each Guarantor
from any liability with respect to the Seller Guaranteed Obligations and, in any
event, from and after Closing such Group Member shall indemnify and hold each
Guarantor harmless from and against any such liability; provided, however, that
the Purchaser's best efforts shall not include any requirement to make any
payment or provide any collateral.
<PAGE> 3
SECTION II
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE SELLER
In connection with the purchase and sale of the Shares
hereunder, the Parent and the Seller, jointly and severally, hereby represent
and warrant to the Purchaser, as of the date hereof and as of the Closing Date,
that:
2.01 Organization and Qualification; Subsidiaries; Managed
Companies . Each of (i) the Companies, (ii) each subsidiary of any Company (each
a "Subsidiary" and, collectively, the "Subsidiaries") and (iii) each
corporation, partnership, professional corporation, limited liability company,
limited liability partnership or other entity that is managed by any Group
Member (each a "Managed Company" and collectively the "Managed Companies") is
listed on Schedule 2.01 hereto and the Seller, each Group Member and each
Managed Company is validly existing and in good standing under the laws of the
jurisdiction of its organization, and has all requisite corporate, limited
liability company or partnership (as applicable) power, authority and legal
right to own, operate and lease its assets and properties and to conduct the
businesses in which it is now engaged. The Seller, each Group Member and each
Managed Company is duly qualified to transact business as a foreign corporation,
limited liability company or partnership (as applicable) in all jurisdictions
wherein it is required to be so qualified, except where the failure to be so
qualified would not have a Material Adverse Effect. None of the Companies have
any subsidiaries other than the Subsidiaries. Other than the Subsidiaries and
other than as set forth on Schedule 2.01 hereto, none of the Companies own any
capital stock or other proprietary interest, directly or indirectly, in any
corporation, association, trust, partnership, joint venture, limited liability
company or other entity nor is any Company bound by any agreement to acquire any
such capital stock or other proprietary interest. Copies of the certificate of
incorporation and by-laws, or other organizational documents, and of the minute
book of each Company and each Subsidiary and each Managed Company have been made
available to the Purchaser on or prior to the Closing Date, which copies are
complete and correct and include all amendments, modifications or supplements
thereto. The certificate of incorporation and by-laws, or other organizational
documents of each Company and each Subsidiary and each Managed Company are in
full force and effect. Except for the Group Members, Parent and its subsidiaries
do not own any other business engaged in the business of outpatient physical
rehabilitation and occupational health.
2.02 Conflicts. Neither the execution and delivery of this
Agreement by the Parent or the Seller, nor the consummation of the transactions
contemplated hereby to be consummated by the Parent or the Seller, (a) violates
or conflicts with any provision of the certificate of incorporation or by-laws
or other organizational documents of the Parent, the Seller or any Group Member
or Managed Company or (b) constitutes a violation of or contravenes with any
Applicable Law or Environmental Laws. Except as set forth on Schedule 2.02
hereto, neither the execution and delivery of this Agreement by the Parent or
the Seller nor the consummation of the transactions contemplated hereby to be
consummated by the Parent or the Seller violates, conflicts with, requires any
consent under, results in any breach of any of the terms of, or results in the
termination of or the creation of any material Lien pursuant to the terms of any
contract or other obligation to which the Parent or the Seller is subject except
where
<PAGE> 4
such violation, conflict, breach, termination or Lien is not reasonably likely
to have a Material Adverse Effect.
2.03 Capitalization. The authorized, issued and outstanding
capital stock or other equity interests of each Company and each Subsidiary and
each Managed Company is as set forth on Schedule 2.03 hereto. All of the
outstanding shares of the Common Stock of the Companies and, except as set forth
on Schedule 2.03 hereto, all of the outstanding shares of capital stock or other
equity interests of each Subsidiary have been duly and validly authorized and
issued and are fully paid and non-assessable and are owned of record by the
Seller, a Company or a Subsidiary, as the case may be, were not issued in
violation of the terms of any contract binding upon the Seller, a Company or a
Subsidiary, as the case may be, and were issued in compliance with each
applicable certificate of incorporation, bylaws or other organizational
documents of the Seller, a Company or a Subsidiary, as the case may be, and all
applicable federal and state securities or "blue sky" laws and regulations.
Schedule 2.03 hereto sets forth the owner of record of the capital stock or
other equity interest in each Managed Company. Except as set forth on Schedule
2.03 hereto, there are no outstanding subscriptions, warrants, options, calls,
commitments, convertible or exchangeable securities, or other rights or
agreements to purchase or acquire from any Group Member, the Parent or the
Seller or any of their Affiliates shares of capital stock or other equity
interests of any Group Member or demands of any character binding on any Group
Member, Parent or any of their Affiliates relating to the capital stock of any
Company or Subsidiary. Except as set forth on Schedule 2.03 hereto, there are no
agreements concerning the issuance, voting, transfer, acquisition or disposition
of shares of capital stock or other equity interests of any Group Member to
which any Group Member, the Parent or the Seller is a party.
2.04 Financial Statements; No Undisclosed Liabilities . (a)
Attached as Schedule 2.04 are the following financial statements (collectively,
including the footnotes to such financial statements, the "Financial
Statements"):
(i) audited combined statements of the results of operations
and cash flows of the Companies and their subsidiaries for the fiscal
years ended June 30, 1999, 1998 and 1997 and combined balance sheets of
the Companies and their subsidiaries as at June 30, 1999 and 1998
together with the footnotes thereto; and
(ii) unaudited combined statement of the results of operations
of the Companies and their subsidiaries for the fiscal quarter ended
June 30, 1999.
(b) The Financial Statements set forth in subsection (a)(i)
above have been audited by PricewaterhouseCoopers, independent public
accountants. The Financial Statements (i) have been prepared from and are in
accordance with the books and records of the Companies, (ii) fairly present in
all material respects the consolidated financial condition of the Companies and
the Subsidiaries and the results of their operations and cash flows as of the
date and for the periods specified therein, and (iii) have been prepared in
accordance with GAAP. All references in this Agreement to the "Balance Sheet"
shall mean the combined balance sheet of the Companies and their subsidiaries as
at June 30, 1999 included in the Financial Statements. The Financial Statements
include the results of operations of, and assets and liabilities of, the Managed
Companies, as if they were subsidiaries of the Companies.
<PAGE> 5
(c) Attached in Schedule 2.04A is a schedule showing earnings
before interest, income taxes, depreciation and amortization ("EBITDA") and cash
disbursements of the Companies and the Subsidiaries on a quarterly basis for the
one-year period ended June 30, 1999.
(d) Except as set forth in Schedule 2.04 or Schedule 2.04A
hereto, no Group Member has any material liabilities or obligations of any
nature, whether accrued, absolute, contingent or otherwise, except for:
(i) liabilities and obligations set forth or reserved
against in the Financial Statements;
(ii) liabilities and obligations incurred in the
ordinary course of business subsequent to the date of the
Financial Statements and reflected on the Closing Balance
Sheet (as defined herein); and
(iii) liabilities and obligations described or
otherwise disclosed on, or which may arise out of or with
respect to the matters or Contracts described or otherwise
disclosed on, the Schedules to this Agreement.
(e) Except for indebtedness to be cancelled or otherwise
eliminated as set forth in Section 1.04 hereof and except for indebtedness among
Group Members, no Group Member has or has guaranteed any indebtedness for
borrowed funds.
(f) Set forth in Schedule 2.04A is the correct and complete
list of (i) the Seller Notes including the entity or individuals owed, the
acquisitions to which each of the Seller Notes relate, the dates each of the
principal payments under the Seller Notes are due, the amount due under each of
the Seller Notes and the current and long term obligations relating to each of
the Seller Notes, and (ii) all so called "earn-out" obligations of any Group
Member including the name of the acquisition giving rise to such earn-out, the
acquisition date, and the terms of the applicable earn-out provision. The
information set forth on Schedule 2.04A is true, correct and complete.
(g) Attached as Schedule 2.04(G) is a schedule showing a cash
collection analysis of the Group Members which provide physical rehabilitation
services for the fiscal year 1999 on a monthly basis.
2.05 Accounts Receivable. All accounts receivable of the Group
Members reflected on the Balance Sheet included in the Financial Statements, and
all accounts receivable which have arisen since June 30, 1999, are valid and
have arisen only from bona fide arm's-length transactions in the ordinary course
of the business of the Group Members. All of such accounts receivable have been
billed and are generally due within 30 days after such billing and, to the
Knowledge of Parent, are not subject to any counterclaims or offsets. The
accounts receivable, net of reserves, set forth on the Balance Sheet are
presented fairly on such Balance Sheet in accordance with GAAP.
<PAGE> 6
2.06 Absence of Certain Changes. Except as set forth in
Schedule 2.06, since June 30, 1999 there has not been any (a) change in the
assets, properties, net worth, results of operations, business or financial
condition of the Group which, individually or in the aggregate, has resulted in
or is reasonably likely to result in a Material Adverse Effect; (b) material
damage to or destruction or loss of the assets or properties of the Group,
whether or not insured; (c) material changes in the Group's customary methods of
operations or the manner in which their business is conducted; or (d) except in
the ordinary course of business, sale or transfer of material tangible or
intangible assets of the Group, or mortgage, pledge or imposition of any Lien on
such assets except for Permitted Liens (e) any increase in or establishment of
any bonus, insurance, severance, deferred compensation, pension, retirement,
profit sharing, stock option, stock purchase or other employee benefit plan, or
any other increase in the compensation payable or to become payable to any
officers or key employees of any Group Member or any Subsidiary; (f) any making
or authorization of any capital expenditures in excess of $100,000 individually
or $300,000 in the aggregate (other than with respect to start-ups or other
facility consolidations planned in the ordinary course of business provided that
the expenditures are consistent with the year to date capital budget); (g) any
change by any Group Member or any Subsidiary in any method of accounting or
keeping its books of account or accounting practices; or (h) any transactions
with Parent or Affiliates (other than a Group Member) except transfers of cash
in the ordinary course of business.
2.07 Taxes. Except as set forth in Schedule 2.07 hereto:
(a) The Parent has filed or caused to be filed on a
timely basis all returns, reports or other declarations relating to Taxes
required to be filed with respect to each Group Member (the "Tax Returns"), and
the Parent has timely paid or caused to be paid all Federal, state, local and
foreign taxes (including, but not limited to, income, franchise, property (real,
tangible and intangible), sales, use, unemployment, withholding, gross receipts,
business license, transfer, capital, net worth, gains, excise, social security,
workers' compensation and other taxes of any kind whatsoever and estimated
income and franchise tax payments, and penalties, interest and fines with
respect to any thereof) (collectively, "Taxes") set forth on such Tax Returns as
due and payable with respect to the periods covered by such Tax Returns and all
other taxes of any Group Members that are due and payable, whether or not
reflected on a Tax Return. Since their respective dates of acquisition, the
taxable income of each of the Group Members has been included in the
consolidated Federal income Tax Returns of the Parent to the extent required to
be included under the Code and in the consolidated, combined, unitary or
individual state income Tax Returns of the Parent or an Affiliate to the extent
required to be included under applicable state income Tax rules.
(b) With respect to any Taxes of any Group Member not
yet due and payable as of June 30, 1999, adequate reserves and accruals for such
Taxes have been made in the Financial Statements and nothing has occurred
subsequent to the date of such Financial Statements to make any of such reserves
and accruals inadequate. All Taxes of the Group Members for periods after June
30, 1999 have been paid or are adequately reserved against on the books and
records of the Companies.
(c) Neither the Seller, nor the Parent, nor any Group
Member has received written notice from any taxing authority of any material
deficiency, claim or other
<PAGE> 7
dispute relating to the payment or assessment of any Taxes for any period which
remains unsettled at the date hereof, and the Parent has no reasonable basis to
believe that any such deficiency exists materially in excess of reserves and
accruals set forth in the Financial Statements or in the books and records of
the applicable Group Member.
(d) Neither the Seller, nor the Parent, nor any Group
Member has executed any waiver of any statute of limitations on the assessment
or collection of Taxes with respect to any Group Member or executed any
agreement now in effect extending the period of time to assess or collect any
Taxes with respect to any Group Member.
(e) There are no Liens for Taxes (other than
Permitted Liens) upon or, to the Knowledge of the Parent, threatened against any
assets of the Group.
(f) None of the Seller, the Parent or any Group
Member is a party to any pending or, to the Knowledge of the Parent, threatened
examination, action, proceeding or assessment by any taxing authority, foreign
or domestic, relating to any Group Member.
(g) Except for the Tax Sharing Agreement, which shall
be cancelled as of the Closing Date without any effect whatsoever on any Group
Member for any taxable year, no Group Member is a party to any tax sharing
agreement.
(h) No election under Section 341(f) of the Code has
been or will be made to treat any Group Member as a "consenting corporation" as
defined in such Section 341(f).
(i) No Group Member is or has been a United States
real property holding corporation within the meaning of Section 897(c)(2) of the
Code.
(j) None of the Group Members has ever (i) been the
subject of a ruling with respect to Taxes that has a continuing effect or (ii)
been the subject of a closing agreement with a taxing authority with respect to
Taxes that has a continuing effect.
(k) None of the Group Members has agreed to make nor
is it required to make any adjustment under Section 481 of the Code by reason of
a change in accounting method or otherwise.
(l) The Parent has made available to Purchaser true,
correct and complete copies of the federal and state income tax returns of each
of the Group Members (prepared in the case of any consolidated or combined
returns that include any entities other than the Group Members on a pro forma
basis reflecting the operations of the Group Members) for all taxable years
beginning on or after January 1, 1995.
(m) No Group Member is party to any agreement,
arrangement or understanding that, individually or in the aggregate with any
other agreements, arrangements or understandings could result in the payment of
any amounts that would be non-deductible under Section 280G of the Code.
<PAGE> 8
(n) Following the Closing Date, the sale of any Group
Member or Managed Company or any of their assets will not result in the
Purchaser or any of its Affiliates having to take into account items of income
or gain arising from or related to intercompany transactions within the meaning
of Treas. Reg. Section 1.1502-13, that occurred with respect to such Group
Member or Managed Company or assets while owned directly or indirectly by Parent
on or prior to the Closing Date.
2.08 Real Property Owned or Leased. Set forth on Schedule 2.08
is a correct list and summary description of all real property owned
(beneficially or of record) or leased by a Group Member. The information on such
Schedule 2.08 is true, correct and complete. Except as set forth in Schedule
2.08 hereto, all such leased real property is held subject to written leases
under which the applicable Group Member has not received a written notice of any
existing defaults or events of default or events which with notice or lapse of
time or both would constitute defaults on the part of the applicable Group
Member, except for any such default which is not reasonably likely to have a
Material Adverse Effect.
2.09 Title to Assets.. Except as set forth in Schedule 2.09
hereto, each Group Member has good and, in the case of real property, marketable
valid title (fee or leasehold) to all of its properties and assets, including
the properties and assets reflected in the Balance Sheet, except those disposed
of by it since the date of the Balance Sheet, free and clear of all Liens except
for Permitted Liens and such other liens for which there is no underlying
liability or obligation (and Parent shall use its reasonable best efforts to
remove such liens prior to and following the Closing). Each Group Member leases,
owns or has the right to use all properties and assets used in the operation of
its business as currently conducted. Concurrently with the Closing, the liens
held by PNC Bank, N.A. on the assets of the Group Members shall be removed. As
of the Closing, the Parent or its Affiliates shall have contributed to the
capital of the Companies all assets formally used by Parent to provide services
to the Group Members.
2.10 Contractual and Other Obligations. Except as listed on
Schedule 2.10 , no Group Member is a party to or bound by any lease, contract or
commitment, oral or written, formal or informal, of the following types
(collectively, the "Contracts"):
a. notes, mortgages, indentures, security agreements or other
agreements and instruments relating to the borrowing of money,
the extension of credit or the granting of Liens or
encumbrances;
b. employment and consulting agreements;
c. union or other collective bargaining agreements;
d. material powers of attorney;
e. material licenses of patent, trademark and other intellectual
property rights;
f. agreements, orders or commitments for the purchase of
services, raw materials, supplies or finished products from
any one supplier for an amount in excess of $50,000;
g. agreements, orders or commitments for the rental, lease or
sale of equipment, products or services for more than $100,000
to any single purchaser or lessee;
h. contracts or options relating to the rental, sale or lease by
a Group Member of any material asset, other than in the
ordinary course of business;
<PAGE> 9
i. bonus, profit-sharing, compensation, stock option, pension,
retirement, deferred compensation, accrued vacation pay, group
insurance, welfare agreements or other plans, agreements,
trusts or arrangements for the benefit of employees;
j. agreements or commitments for capital expenditures in excess
of $100,000 for any single project, other than with respect to
start-ups or other facility consolidations planned in the
ordinary course of business and as are otherwise listed on
Schedule 2.06;
k. partnership or joint venture agreements;
l. agreements, arrangements or understandings with any Affiliate
of the Seller, the Parent or a Group Member;
m. material rental or lease agreements under which it is either
lessor or lessee;
n. material agreements, contracts or commitments for any
charitable or political contribution;
o. other agreements, contracts and commitments which are material
to the business of any Group Member or any Subsidiary or which
involve payments or receipts of more than $100,000 in any
single year, or which were entered into other than in the
ordinary course of business;
p. agreement to acquire all or substantially all the business of
another entity or person;
q. agreements containing any "earn-out" obligations; or
r. indebtedness issued or assumed in connection with any
acquisition of another business.
To the Knowledge of the Parent, neither any Group Member nor
any other party to a Contract is in default in performance of any Contract nor
done any act or failed to do any required act which would result in a default,
no written notice of such a default has been received by any Group Member,
Seller or the Parent and none of the Seller, the Parent or any Group Member has
received written notice of an event or occurrence of which with the giving of
notice or the lapse of time would constitute a default which is reasonably
likely to have a Material Adverse Effect. Except as set forth on Schedule 2.10
or Schedule 2.22 hereto, no consents are required (except for any consents as
shall have been obtained prior to the Closing Date), and no event of default
will occur, under any Contract as a result of the sale and transfer of the
Shares from the Seller to the Purchaser, and the change in control of the Group
Members as a result of the sale and transfer of the Shares from the Seller to
the Purchaser will not give any person or entity the right to negotiate, change
or void any terms of, or accelerate any amounts under, any Contract, any Seller
Notes or any non-competition agreement or clause to which any Group member is a
party.
2.11 Compensation. Set forth in Schedule 2.11 hereto is (a) a
list of all agreements, plans or arrangements by which any Group Member is bound
with regard to compensation, bonus, incentive, stock option, stock purchase,
severance pay, retention bonuses or other benefits or perquisites, other than
any agreements, plans or arrangements listed in Schedule 2.12 hereto, any oral
"at will" employment arrangements, and any payments contingent on the
consummation of the transactions contemplated by this Agreement for which Parent
(and not Purchaser) shall be obligated and (b) a list as of the date hereof of
all employees of each Group Member entitled to receive salary at an annual rate
in excess of $50,000 and their
<PAGE> 10
respective positions and annual salaries. All employees of any of the Group
Members who have contractual severance entitlements are listed on Schedule
2.11A.
2.12 Employee Benefit Plans.
Except as set forth in Schedule 2.12 hereto:
(a) No Group Member maintains or sponsors, nor is it required
to make contributions to, any pension, profit-sharing, bonus, incentive, welfare
or other employee benefit plan within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") (such
plans and related trusts, insurance and annuity contracts, funding media and
related agreements and arrangements, other than any "multiemployer plan" (within
the meaning of Section 3(37) or Section 4001(a)(3) of ERISA), being hereinafter
referred to as the "Benefit Plans" and such multiemployer plans being
hereinafter referred to as the "Multiemployer Plans");
(b) Each Benefit Plan complies in all respects with all
requirements of ERISA and the Code except where the failure to so comply would
not have a Material Adverse Effect;
(c) Each Benefit Plan that is intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service as to such qualification within the period of time
prescribed by law;
(d) No Group Member maintains, sponsors or contributes to (nor
is required to contribute to) any Multiemployer Plan;
(e) No Benefit Plan is a "defined benefit plan" (within the
meaning of Section 3(35) of ERISA); and
(f) None of the Parent, the Seller or any Group Member has
engaged in, and the Parent has no knowledge of any fiduciary or other
"disqualified person or party in interest" of any Benefit Plan of any Group
Member that has engaged in, any "prohibited transaction" (within the meaning of
Section 406 of ERISA or Section 4975(c) of the Code).
(g) No Group Member, nor any other employer (an "ERISA
Affiliate") that is, or at any relevant time was, together with any of the
Companies, treated as a "single employer" under section 414(b), 414(c) or 414(m)
of the Code, has at any time since January 1, 1993 (1) incurred any liability
which could subject any Group Member or Purchaser to material liability under
Section 4062, 4063 or 4064 of ERISA or (2) , been required to contribute to, or
incurred any withdrawal liability, within the meaning of Section 4201 of ERISA
to any multiemployer pension plan, within the meaning of Section 3(37) of ERISA
nor does any Group Member or any ERISA Affiliate have any potential withdrawal
liability arising from a transaction described in Section 4204 of ERISA.
(h) All contributions to, and payments from, the Non-PEO
Benefit Plans which have been required to be made in accordance with the Non-PEO
Benefits Plans have been timely made. All such contributions to the Non-PEO
Benefits Plans, and all payments under the Non-PEO Benefit Plans, except those
to be made from a trust qualified under section 401(a) of
<PAGE> 11
the Code, for any period ending on or before June 30, 1999 that were not yet,
but will be, required to be made are properly accrued and reflected on the
Financial Statements.
(i) Parent has satisfied its obligations under the Parent NCES
Agreement with respect to the Benefit Plans in all material respects.
(j) No payment which is or may be made by, from or with
respect to any Benefit Plan, to any employee, former employee, director or agent
of any Group Member, either alone or in conjunction with any other payment, will
or could properly be characterized as an excess parachute payment under section
280G of the Code.
(k) Each employee of each Group Member is employed in a
co-employment arrangement between that Group Member and NovaCare Employee
Services, Inc. ("NCES").
2.13 Labor Relations. Except as set forth on Schedule 2.13
hereto, no Group Member is subject to any labor strikes, stoppages or lockouts
and none of them is a party to any contract or agreement with any labor
organization or other representative of its employees.
2.14 Insurance. Set forth on Schedule 2.14 hereto is a list as
of the date hereof of all insurance policies maintained by or on behalf of each
of the Group Members, in effect for policy periods beginning on or after January
1, 1995, indicating for each policy the carrier, risks insured, the amounts of
coverage, deductible, premium rate, cash value if any, whether such policy is on
an "occurrence" or "claims made" basis and expiration date. All such policies
are in full force and effect. There is no material default with respect to any
provision contained in any such policy, nor has there been any failure to give
any notice (including notice of facts or circumstances which may give rise to a
claim under the policies, (or present any claim under any such policy in a
timely fashion or in the manner or detail required by the policy. Except as set
forth on Schedule 2.14, there are no outstanding unpaid premiums under such
policies. No notice of cancellation or non-renewal with respect to, or
disallowance of any claim under, any such policy has been received by the
Seller, any Group Member or any Subsidiary. Neither the Seller, any Group Member
nor any Subsidiary has been refused any insurance, nor has any of their coverage
been limited by any insurance carrier to which any of them has applied for
insurance or with which any of them has carried insurance during the last five
years. Except as disclosed on Schedule 2.14, no Group Member is now, or will in
the future be, obligated to pay any retrospectively rated premiums, deductible
amounts or self insured retentions in connection with any insurance policies.
2.15 Litigation. Except as set forth in Schedule 2.15 hereto,
there is no litigation, arbitration, investigation or other legal proceeding
(collectively, "Actions") pending or, to the Knowledge of the Parent, threatened
against any Group Member or any material portion of the assets or properties of
the Group, except for Actions fully covered (without deductibles or retainages)
by insurance policies maintained by or for the benefit of the Group Members.
2.16 Permits; Compliance with Environmental Law; Compliance.
(a) Permits. The permits, licenses, approvals,
franchises and authorizations (collectively, but excluding Environmental
Permits, the "Permits") issued to the
<PAGE> 12
Group Members are all the Permits required for the ownership, operation and use
by the Group Members of their properties and assets and for the conduct of the
business in which the Group Members are presently engaged, except for such
Permits which the failure to have is not reasonably likely to have a Material
Adverse Effect. All the Permits are in full force and effect, except where the
failure to be in effect would not have a Material Adverse Effect.
(b) Environmental. Except as set forth in Schedule
2.16 hereto:
(i) Each Group Member is and has been in compliance
with the provisions of all Federal, state and local
environmental laws, codes, ordinances, orders and all rules
and regulations promulgated thereunder (the "Environmental
Laws"), including with respect to the real property leased by
Group Members listed on Schedule 2.08 hereto and the
improvements thereon (all such leased real property and
improvements thereon hereinafter referred to collectively as
the "Premises"), except where the failure to be in compliance
would not have a Material Adverse Effect.
(ii) Each Group Member has obtained all required
Federal, state and local permits, licenses, certificates and
approvals (the "Environmental Permits") relating to (A) air
emissions, (B) discharges to surface water or ground water,
(C) noise emissions, (D) solid, liquid or medical waste
disposal, and (E) the use, generation, storage, transportation
or disposal of toxic or hazardous substances or wastes
(intended hereby and hereafter to include any and all such
materials listed in any Environmental Law, as hazardous or
potentially hazardous (including, without limitation, (1) any
chemical, compound, material or substance that is defined,
listed in, or otherwise classified pursuant to, any of the
Environmental Laws as a "hazardous substance", "hazardous
material", "hazardous waste", "toxic substance" or "toxic
pollutant", "contaminant", "pollutant" or "waste" and (2)
petroleum, natural gas, natural gas liquids, liquefied natural
gas, and synthetic gas) (collectively, "Hazardous
Substances")), and all such Environmental Permits are in full
force and effect, except where the failure to have obtained or
maintained any such Environmental Permit would not have a
Material Adverse Effect. Each Group Member is in, and has been
in, compliance with all such Environmental Permits, except
where the failure to be in compliance is not reasonably likely
to have a Material Adverse Effect.
(iii) No Group Member has received or has knowledge
of the existence of any notice of violations citations,
summons, orders, complaints or penalties of or relating to any
Environmental Law or Environmental Permit which have not been
cured, and to the Knowledge of the Parent, no investigation or
review is pending or threatened by any governmental or other
entity or person, relating to the use, ownership or occupancy
of any of the Premises or the conduct of the business of the
Group Members, except for any violations referred to in any
such notice which would not have a Material Adverse Effect.
(iv) No Group Member has engaged in the generation,
storage, treatment, recycling, transportation or disposal of
any Hazardous Substance,
<PAGE> 13
except in compliance with applicable Environmental Laws,
except where the failure to be in compliance would not have a
Material Adverse Effect.
(v) No Group Member has, nor, to the Knowledge of the
Parent, has any other party for which any Group Member is or
could be responsible directly or indirectly, transported or
arranged for the transportation of any Hazardous Substances,
is listed on the National Priorities List promulgated pursuant
to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), on CERCLIS (as
defined in CERCLA) or on any similar Federal, state or foreign
list of sites requiring investigation or clean-up.
(vi) No Group Member has nor, to the knowledge of the
Parent, has anyone else generated, treated, stored, recycled,
disposed of or released any Hazardous Substance on any
Premises or any property previously owned or leased by any
Group Member or at any other property which has resulted in
any condition for which any Group Member is or is reasonably
likely to be responsible, including under CERCLA or any
similar Environmental Law, except for such condition which
would not have a Material Adverse Effect.
(c) Each Group Member and each Subsidiary is, to the extent
applicable to their operations, (i) eligible to receive payment under Titles
XVIII and XIX of the Social Security Act, (ii) providers under existing provider
agreements with the Medicare program through applicable intermediaries and with
each state Medicaid program under which they are or have been providers and
(iii) in compliance with the conditions of participation in the Medicare
program, except where such inability in the case of either items (i) or (ii) or
non-compliance in the case of item (iii) is not reasonably likely to have a
Material Adverse Effect.
(d) Each Group Member and each Subsidiary has filed all
required cost reports and other required claims and governmental filings with
respect to Medicare and each state Medicaid program in which they participate,
all of which were, when filed or as they have been subsequently amended,
complete and correct, except to the extent that such failure to file or failure
to be complete and correct is not reasonably likely to have a Material Adverse
Effect. Each Group Member and each Subsidiary has made available to Purchaser
complete and correct copies of all such cost reports, claims, governmental
filings, audits and schedules prepared or issued by, or filed with, any
governmental authority or private payor with respect to the operations of each
of the Group Members and each Subsidiary with respect to the prior three years.
(e) The businesses of each Group Member and each Subsidiary
have not been and are not being conducted in violation of any law, ordinance,
regulation or court ruling of any governmental authority (including, without
limitation, laws, rules and manual provisions pertaining to reimbursement of
each Group Member and each Subsidiary for services rendered, the federal False
Claims Act (31 U.S.C. Section 3729) or any other applicable federal or state
false claim or fraud law, the federal anti-kickback statute (42 U.S.C.
Section 1320a-7b(b)), any applicable state anti-kickback law, the federal Ethics
in Patient Referrals Act (42 U.S.C. Section 1395nn, commonly known as the Stark
Act) or any applicable state self-referral law), except for
<PAGE> 14
violations which are not reasonably likely to, individually or in the aggregate,
have a Material Adverse Effect.
(f) Each of any Company, any Subsidiary and any of their
current or former shareholders, directors, officers, agents, employees and other
persons acting on behalf of them, has complied, in all material respects, with
all applicable federal, state and municipal statutes, rules, regulations and
orders and other requirements of all courts and other governmental or regulatory
authorities having jurisdiction over any Group Member, including without
limitation those relating to third party reimbursement (including, but not
limited to, Medicare, Medicaid, CHAMPUS and other federal health care programs),
fraudulent or abusive practices (including but not limited to the state health
care programs, Anti-Fraud and Abuse Amendments of the Social Security Act, as
amended, commonly known as the "Anti-Kickback Statute," and the amendments to
Section 1877 of the Social Security Act (42 U.S.C.Section 1395nn), enacted as
part of the Omnibus Budget Reconciliation Act of 1993, commonly known as "Stark
II"), environmental protection, occupational safety and health, equal employment
practices and fair trade practices, except where the failure to comply is not
likely to, individually or in the aggregate have a Material Adverse Effect.
(g) The Group Members and all professional employees or agents
of the Group Members hold and are in compliance with all permits, certificates
(including, without limitation, certificates of need), licenses, orders,
registrations, franchises, authorizations and other approvals from all federal,
state, local and foreign governmental and regulatory bodies (collectively,
"Approvals") which are required pursuant to all laws, rules and regulations to
enable the Group Members to own, operate and manage its business unless the
failure of which to possess or be in compliance with has not had and is not
reasonably likely to have a Material Adverse Effect. All such Approvals are in
full force and effect. Schedule 2.16(g) sets forth a true and correct list of
those Approvals held by the Group Members which are required to operate the
Group Members' facilities.
(h) All services provided by the Companies, the Subsidiaries
or any professional employee or agent acting on behalf of any of them or for
which the Companies and/or the Subsidiaries directly or indirectly receive
payment under Medicare, Medicaid or other federal health care programs are, to
the extent required by law, certified for participation or enrollment in all
such federal health care programs, have a current and valid provider contract
with such federal health care programs, are in compliance with the conditions of
participation or enrollment of such federal health care programs, and, to the
extent required by law, have received all approvals or qualifications necessary
for capital reimbursement, except for such certifications, contracts,
compliances, approvals and qualifications which are set forth on Schedule
2.16(h) or which, individually or in the aggregate, are not reasonably likely to
have a Material Adverse Effect.
For purposes of Sections 2.04, 2.05, 2.06, 2.07, 2.08, 2.09,
2.10, 2.11, 2.14, 2.15, 2.16(c) through 2.16(i), 2.17, 2.25, 2.26, 2.27, 2.28,
2.29, 2.30, 2.31, the terms Group Members, Companies and Subsidiaries include
the Managed Companies.
2.17 Bank Accounts. Not later than ten (10) business days
prior to the Closing Date, the Seller shall deliver to the Purchaser a list as
of a recent date of all bank and securities
<PAGE> 15
accounts and lockboxes maintained by any Group Member, a list of persons
authorized to sign on behalf of each Group Member with respect to each such
account and a list of persons with authorized access to each such lockbox.
2.18 Trademarks, Patents and Copyrights. (a) Schedule 2.18
hereto sets forth a list complete and accurate as of the date hereof of all
registrations of patents and pending applications therefor, all registrations of
trademarks, tradenames and service marks and all pending applications therefor,
all registrations of copyrights and all pending applications therefor, all
registration or reservations of domain names and all pending applications
therefor, and any other registration or applications for intellectual property,
all to the extent that the foregoing items are used in the business of any Group
Members or are owned in whole or in part by any Group Member.
(b) Schedule 2.18 also contains a complete and accurate list
of all material licenses, sublicenses, consents and other agreements (whether
written or otherwise) (i) pertaining to any patents, patent applications,
trademarks, service marks, trade names, trade dress, copyrights, trade secrets,
confidential or proprietary information, computer software programs (other than
standard, commercially available programs), or other intellectual property (the
"Intellectual Property") used by any Group Member in the conduct of its
business, and (ii) by which any Group Member licenses or otherwise authorizes a
third party to use such Intellectual Property. None of the Group Members or, to
the knowledge of any Group Member, the Parent or the Seller, any other party is
in breach of or default under any such license or other agreement and each such
license or other agreement is now and immediately following the Closing shall be
valid and in full force and effect.
(c) Except as explicitly indicated in Schedule 2.18, the
applicable Group Member owns or is licensed or otherwise has the exclusive right
to use, and has the right to bring actions for the infringement or other
violation of, all Intellectual Property necessary for the operation of the
business of the Group or any Group Member as it is currently conducted or
currently proposed to be conducted.
(d) The business operations of the Group or the Group Members
do not, to the Knowledge of the Parent, infringe, dilute, misappropriate or
otherwise violate the Intellectual Property rights of any third party, and no
claim has been made, notice given, or dispute arisen to that effect. None of the
Group Members have any pending claims that a third party has violated or
infringed any Group Member's Intellectual Property. To the Knowledge of the
Parent, the Seller and each group Member, all of the Intellectual Property and
licenses listed in Schedule 2.18 hereto are valid and in full force and effect,
and are held of record in the name of the applicable Group Member free and clear
of all Liens or other claims, and are not the subject of any cancellation or
reexamination proceeding or any other proceeding challenging their extent or
validity. Except as explicitly indicated in Schedule 2.18, a Group Member is the
applicant of record in all applications for Intellectual Property indicated in
Schedule 2.18, and no opposition, extension of time to oppose, interference,
rejection, or refusal to register has been received in connection with any such
application.
(e) To the knowledge of the Group Members, the Parent and the
Seller, none of the material trade secrets, know-how or other confidential or
proprietary information of any
<PAGE> 16
Group Member has been disclosed to any person unless such disclosure was
necessary, and was made pursuant to an appropriate confidentiality agreement,
except as otherwise noted on Schedule 2.18 hereto.
2.19 Transactions with Certain Persons. Except with respect to
insurance arrangements referred to in Schedule 2.14 hereto or Section 8.07
hereof and the Tax Sharing Agreement, and except as set forth on Schedule 2.19
hereto, no officer, director or Affiliate of the Parent, the Seller or any Group
Member and none of the Parent or any Affiliate of the Parent (other than a Group
Member) has any interest in any property or assets used by any Group Member or
any Subsidiary in its business or has, since July 1, 1999, engaged in any
transaction with any Group Member or any Subsidiary (other than employment
relationships and expense reimbursement to employees in the ordinary course of
business).
2.20 Authority. Each of the Parent and the Seller has the
corporate power and authority to execute and deliver this Agreement and to
perform its respective covenants and agreements hereunder. The execution and
delivery of this Agreement by each of the Parent and the Seller, the performance
by each of the Parent and the Seller of its covenants and agreements hereunder
and the consummation by each of the Parent and the Seller of the transactions
contemplated hereby have been duly authorized by all necessary corporate action,
including, without limitation, shareholder approval. This Agreement has been
duly executed and delivered by the Parent and the Seller and constitutes a valid
and legally binding obligation of the Parent and the Seller, enforceable against
the Parent and the Seller in accordance with its terms.
2.21 Ownership of Shares. As of the Effective Time, the Seller
will own all of the issued and outstanding shares of Common Stock of the
Companies, free and clear of any Lien, and the Seller will have the unrestricted
right and power to sell and transfer such shares of Common Stock to the
Purchaser. Upon transfer of such Shares to the Purchaser in accordance with the
terms hereof, the Purchaser will acquire good and valid title to such Shares,
free and clear of any Lien, except those Liens created by the Purchaser or its
Affiliates. As of the Closing Date, the Seller will not own any shares of
capital stock of any Company other than the shares of Common Stock of the
Companies and will not have any option or other right to acquire from any person
or obligation or commitment to sell or otherwise transfer to any person any
shares of capital stock of any Company owned by the Seller.
2.22 Consents. Except as may be required under The
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR"), and
except as set forth on Schedule 2.22 hereto, no consents, approvals or
authorizations of, or filings with, any Governmental Authority or any other
person or entity are required in connection with the execution and delivery of
this Agreement by the Parent and the Seller and the consummation of the
transactions contemplated hereby to be consummated by the Parent or the Seller,
except where the failure to obtain such consents, approvals, or authorizations,
or make such filings is not reasonably likely to have a Material Adverse Effect.
2.23 Foreign Person. Neither the Parent nor the Seller is a
foreign person within the meaning of Section 1445(f)(3) of the Code.
<PAGE> 17
2.24 Year 2000. All items, products, software, components and
systems used in the operation of the business of the Group, which incorporate
the processing of dates or date-related data (including, but not limited to,
representing, calculating, comparing and sequencing), including, but not limited
to, computer systems, infrastructure items, software applications, hardware and
related equipment and utilities, developed, in whole or part, by any Company or
Subsidiary are currently Y2K-compliant, except as set forth in Schedule 2.24 and
except for such non-compliance as is not reasonably likely to have a Material
Adverse Effect.
2.25 Medicare Participation/ Accreditation. All health care
facilities owned or operated by any Group Member or any Subsidiary (each, a
"Company Facility") which participate in the Medicare and Medicaid programs,
have a current and valid provider agreement with the Medicare and Medicaid
programs and are in substantial compliance with the conditions of participation
of such programs, except where the failure to be so certified, to have such
agreements, or to be in such compliance is not reasonably likely to have a
Material Adverse Effect. Neither any Group Member nor any Subsidiary has
received notice from any governmental agency, fiscal intermediary, carrier or
similar entity which enforces or administers the statutory or regulatory
provisions in respect to any government health care program of any pending or
threatened investigations, and to the Knowledge of the Parent, no such
investigations are pending, threatened or imminent, which are reasonably
expected to have a Material Adverse Effect. All returns, cost reports and other
filings made by any Group Member or any Subsidiary with Medicare, Medicaid or
any other governmental health care program or third party payor are complete and
accurate except where the failure to be so complete and accurate is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect. No adjustment or disallowance in any such cost reports and other
requests for payment, including adjustments or disallowances for late filings,
has been made or, to the Knowledge of the Parent, threatened by any federal or
state agency or instrumentality or other provider reimbursement entities
relating to Medicare or Medicaid or by any third party payor which individually
or in the aggregate would have a Material Adverse Effect, and, to the Knowledge
of the Parent, there is no basis for any successful claims or requests for
recovery of overpayments from any such agency, instrumentality, entity or third
party payor except for any such claims or requests which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect.
Schedule 2.25 identifies each Group Member which is a provider under Medicare or
Medicaid and its provider number and the date it became a Medicare or Medicaid
provider.
2.26 Exclusion. To the Knowledge of the Parent, neither any
Group Member nor any Subsidiary employs or contracts with any person who has
been excluded from participation in a Federal Health Care Program (as defined in
42 U.S.C. Section 1320a-7b(f)) where such action could reasonably serve as a
basis for any Group Member's or any Subsidiary's suspension or exclusion from
the Medicare or any state Medicaid program.
2.27 Federal Health Care Programs.
(a) Neither Seller, any Group Member, any affiliate nor any
person who has a direct or indirect ownership interest (as those terms are
defined in 42 C.F.R. Section 1001.1001(a)(2)) in any Group Member of 5% or more,
or who has an ownership or control interest (as defined in Section 1124(a)(3) of
the Social Security Act or any regulations promulgated thereunder) in any Group
Member, or who is an officer, director, agent or managing employee (as defined
in 42
<PAGE> 18
C.F.R. Section 1001.1001(a)(i): (a) has had a civil monetary penalty assessed
against it under Section 1128A of the Social Security Act or any regulations
promulgated thereunder; (b) has been excluded from participation under any
federal health care program; or (c) has been convicted (as that term is defined
in 42 C.F.R. Section 1001.2) of any of the categories of offenses as described
in the Social Security Act Section 1128(a) and (b)(1), (2), (3) or any
regulations promulgated thereunder.
(b) All cost reports to be filed under Medicare and Medicaid
or any other applicable governmental or private provider regulations for the
Company Facilities were filed by the required filing dates. Such cost reports
were prepared and filed in good faith in accordance with applicable, laws, rules
and regulations and each Group Member has made provision to pay any net
liability on all Notices of Program Reimbursement (or similar documents)
received from Medicare, Medicaid or other governmental or private payors for the
periods ended prior to December 31, 1998. Neither any Company nor any Subsidiary
has received notice, or has knowledge of the existence, of any pending dispute
between any Company and/or any Subsidiary and governmental authorities or the
Medicare fiscal intermediary regarding such cost reports for the remaining
unaudited cost report periods other than with respect to adjustments thereto
made in the ordinary course of business which do not involve amounts in excess
of $20,000 in the aggregate. All home office cost reports filed by the Seller
and all Group Members, if any, are true and correct in all material respects and
the costs contained in such reports are appropriately included therein and have
been properly allocated among the Seller, the Companies and the Subsidiaries and
businesses in accordance with Medicare and Medicaid rules and regulations. The
home office cost report of Seller and the Group Members, if any, covering the
period June 30, 1998 through and including Closing will only include costs that
are allowable under applicable reimbursement regulations.
2.28 No Criminal Proceedings. There are no pending actions,
charges, indictments, or investigations of any Group Member or, with respect to
their employment with any Group Member, their agents, officers or employees
which involve allegations of criminal violations by any Group Member or their
agents, officers or employees acting on behalf of any Group Member of any
federal, state, or local statute, law, or ordinance, including without
limitation, Medicare or Medicaid.
2.29 Third-Party Payment Contracts. Each Company and each
Subsidiary has a valid contract to participate as a provider of services in and
under those third-party payment programs in which it operates. To the Knowledge
of the Parent, no action is pending to suspend, limit, terminate, or revoke the
status of any Company or any Subsidiary as a provider in any such program, and
neither any Company nor any Subsidiary has been provided notice by any such
third-party payor of its intention to suspend, limit, terminate, revoke, or fail
to renew any contractual arrangement with any Company or any Subsidiary as a
participating provider of services in whole or in part.
2.30 Billing; Gratuitous Payments. Except as set forth in
Schedule 2.30, all billing by, or on behalf of, any Company or any Subsidiary to
third-party payors, including, but not limited to, Medicare, Medicaid and
private insurance companies has been true and correct in all material respects.
No Group Member has received any notice from any third-party payor,
<PAGE> 19
including but not limited to, Medicare or Medicaid, that indicates that the
Purchaser could not continue to bill in substantially the same manner as any
Company or any Subsidiary is billing on the date hereof.
2.31 Reimbursement Matters. Except as disclosed on Schedule
2.31, for the previous three years, the Seller, the Companies and the
Subsidiaries have not received any written notice of denial of payment or
overpayment of a material nature from a federal health care program or any other
third party reimbursement source (inclusive of managed care organizations) with
respect to items or services provided by any Company and/or any Subsidiary,
other than those which have been finally resolved in any settlement for an
amount less than $100,000.
2.32 Solvency. (a) The fair value of the assets of the Seller
and the Parent, at a fair valuation, exceeds their respective debts and
liabilities, subordinated, contingent or otherwise; (b) the present fair
saleable value of the property of the Seller and the Parent is greater than the
amount that will be required to pay the probable liability of their respective
debts and other liabilities, subordinated, contingent or otherwise, as such
debts and other liabilities become absolute and matured; (c) the Seller and the
Parent is able to pay their respective debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become absolute and
matured; and (d) the Seller and the Parent do not have unreasonably small
capital with which to conduct the business in which they are engaged as such
business is now conducted and is proposed to be conducted.
2.33 Opinion of Financial Advisor. Parent has received the
written opinion of Warburg Dillon Read LLC, its financial advisor, to the effect
that, as of the date of this Agreement, the Purchase Price is fair, from a
financial point of view, to the Parent and such opinion has not been withdrawn
or revoked or modified in any material respect.
2.34 Disclosure. No representation or warranty made by the
Parent or the Seller herein, nor any certificate, Schedule or exhibit prepared
and furnished by the Parent, the Seller, or any Group Member or its respective
representatives hereto, contains any untrue statement of a material fact, or
omits to state a material fact necessary to make the statements of fact
contained herein or therein not misleading in light of the circumstances under
which they were furnished.
SECTION III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
In connection with the purchase and sale of the Shares
hereunder, the Purchaser hereby represents and warrants to the Parent and the
Seller, as of the date hereof and as of the Closing Date, that:
3.01 Organization The Purchaser is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation.
<PAGE> 20
3.02 Authority. The Purchaser has the requisite corporate
power and authority to execute and deliver this Agreement and to perform the
Purchaser's covenants and agreements hereunder. The execution and delivery of
this Agreement by the Purchaser, the performance by the Purchaser of its
covenants and agreements hereunder and the consummation by the Purchaser of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action. This Agreement constitutes a valid and legally binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with its terms.
3.03 Conflicts. Neither the execution and delivery of this
Agreement by the Purchaser, nor the consummation of the transactions
contemplated hereby to be consummated by the Purchaser, (a) violates any
provision of the certificate of incorporation or by-laws of the Purchaser or (b)
constitutes a violation of any Applicable Law. Neither the execution and
delivery of this Agreement by the Purchaser nor the consummation of the
transactions contemplated hereby to be consummated by the Purchaser violates,
conflicts with, results in any breach of any of the terms of or results in the
termination of or the creation of any material Lien pursuant to the terms of any
material contract, commitment, agreement, or lease of any kind to which the
Purchaser is a party or by which the Purchaser or any of its assets are bound.
3.04 Litigation; Disputes. There are no Actions pending or, to
the Knowledge of the Purchaser, threatened, against or affecting the Purchaser
which challenge the validity of this Agreement, or which if adversely
determined, would materially adversely affect its ability to consummate the
transactions contemplated by this Agreement or to perform its covenants and
agreements under this Agreement.
3.05 Consents. Except as may be required under HSR, no
consents, approvals or authorizations of, or filings with, any Governmental
Authority or any other person or entity are required in connection with the
execution and delivery of this Agreement by the Purchaser and the consummation
of the transactions contemplated hereby to be consummated by it.
3.06 Investment Purpose. The Purchaser is purchasing the
Shares pursuant to this Agreement for investment for its own account and not
with a view to the distribution of all or any part thereof as such term is used
in Section 2(11) of the Securities Act of 1933, as amended (the "Securities
Act"). The Purchaser is a sophisticated investor and capable of evaluating the
merits and the risks of acquiring the Shares. The Purchaser acknowledges that:
the Shares are "restricted securities" (as defined under the rules and
regulations promulgated under the Securities Act); that the Shares have not been
issued or sold pursuant to any registration or similar filing, listing,
prospectus or document, or pursuant to any delivery requirements under the laws
of any Governmental Authority or the rules, regulations or guidelines of any
stock exchange or quotation system; and that it and its Affiliates and
representatives has each had access to all information which it considers
necessary or advisable to enable it to make a decision concerning the purchase
of the Shares.
3.07 Financing. The Purchaser has available all funds, or has
written binding commitments from financial institutions or other sources
(heretofore delivered to, and satisfactory to, the Seller) to obtain all funds
on or prior to the Closing Date, necessary to pay the Purchase Price as provided
herein and otherwise to consummate the transactions contemplated hereby in
accordance with the terms and conditions hereof.
<PAGE> 21
SECTION IV
THE CLOSING
4.01 Time and Place of the Closing. The closing of the
purchase and sale of the Shares as set forth herein (herein referred to as the
"Closing") shall be held at the offices of Dechert Price & Rhoads, 4000 Bell
Atlantic Tower, 1717 Arch Street, Philadelphia, Pennsylvania 19103 at 10:00
a.m., local time, on the earlier of (i) the date which is three (3) business
days after the expiration of the HSR thirty day waiting period, or (ii) the date
which is ten (10) business days after the receipt of early termination of the
HSR waiting period, or such other time, place and date as the Purchaser and the
Seller may agree (such date upon which the Closing occurs is herein referred to
as the "Closing Date").
4.02 Termination. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned:
(a) at any time before the Closing, by written
agreement of the Seller and the Purchaser;
(b) unless extended by written agreement of the
Seller and the Purchaser, at any time after January 15, 2000 (the "Termination
Date"), by either the Seller or the Purchaser in writing, if the transactions
contemplated by this Agreement have not been consummated on or before such date
and such terminating party is not then in material breach of this Agreement;
(c) at any time before the Closing, by the Purchaser
or the Seller in writing, in the event that any Governmental Authority shall
have issued an order, decree, ruling or taken any other action restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement and such order, decree, ruling or other action shall have become final
and nonappealable; and
(d) at any time before the Closing, by either the
Purchaser or the Seller in writing, without liability to the terminating party
on account of such termination, if such terminating party is not then in
material breach of this Agreement and the nonterminating party shall (i) fail to
perform in any material respect its agreements contained herein required to be
performed on or prior to the Closing Date which failure is reasonably likely to
have a Material Adverse Effect and such nonterminating party has not cured in
all material respects such breach on or prior to the date which is 30 days after
such nonterminating party has received written notice from the terminating party
of such failure to perform or such longer period in the event that such breach
cannot reasonably be expected to be cured within such 30-day period and such
nonterminating party is diligently pursuing such cure, but in no event later
than the Termination Date or (ii) breach any of its representations or
warranties contained herein which breach is reasonably likely to have a Material
Adverse Effect and such nonterminating party has not cured in all material
respects such breach on or prior to the date which is 30 days after such
nonterminating party has received written notice from the terminating party of
such breach or such longer period in the event that such breach cannot
reasonably be expected to be cured
<PAGE> 22
within such 30-day period and such nonterminating party is diligently pursuing
such cure, but in no event later than the Termination Date.
4.03 Effect on Obligations. Termination of this Agreement
pursuant to Section 4.02 shall terminate all obligations and liabilities of the
parties to each other hereunder, except for the obligations under Sections 4.04,
8.01, X, XI and XII and except for liability of any party which has willfully
breached any of the covenants or other provisions of this Agreement prior to
termination hereof, provided that in the event of a termination of this
agreement pursuant to subsection 4.02(d) above under circumstances where the
nonterminating party has breached its obligation to close the transactions
contemplated hereby (notwithstanding that the nonterminating party's conditions
to such obligation to close contained in Section V or VI, as the case may be,
have been satisfied or that the terminating party stands ready, willing and able
to satisfy such conditions but for such breach), the terminating party may
exercise all available rights and remedies at law.
4.04 Return of Documentation . Following a termination in
accordance with Section 4.02, the Purchaser shall return, and shall cause all of
its representatives and Affiliates to return, all agreements, documents,
contracts, instruments, books, records, materials and all other information of
the Group, any Group Member, the Seller, the Parent or any of their Affiliates
provided by any Group Member, the Seller, the Parent or by any representative of
any Group Member, the Parent or the Seller to the Purchaser or any
representative or Affiliate of the Purchaser in connection with the transactions
contemplated by this Agreement, and the Seller and the Parent shall return, and
shall cause all of its representatives and Affiliates to return, all agreements,
documents, contracts, instruments, books, records, materials and all other
information of the Purchaser provided by the Purchaser or any representative of
the Purchaser to the Seller or the Parent in connection with the transactions
contemplated by this Agreement.
4.05 Sole and Exclusive Remedy. Prior to the Closing, each
party hereto acknowledges and agrees that such party's sole and exclusive remedy
with respect to monetary Damages and any and all claims for any breach or
liability under this Agreement, except fraud, or otherwise relating to the
subject matter of this Agreement, except fraud, and the transactions
contemplated hereby shall be solely in accordance with, and limited by, Sections
4.02 and 4.03 hereof; provided, however, that nothing contained in this
Agreement shall in any manner limit the Purchaser's right to seek injunctive and
other equitable relief to enforce the obligations of the Seller and the Parent
under this Agreement.
SECTION V
CONDITIONS TO THE SELLER'S OBLIGATIONS TO CLOSE
The obligation of the Seller to sell the Shares and otherwise
to consummate the transactions contemplated by this Agreement at the Closing is
subject to the following conditions precedent, any or all of which may be waived
by the Seller in the Seller's sole discretion, and each of which the Purchaser
hereby agrees to use its best efforts to satisfy at or prior to the Closing:
<PAGE> 23
5.01 Certificates. The Seller shall have received:
(a) Certificates of incumbency executed by the
Secretary of the Purchaser in form and substance reasonably acceptable to the
Seller;
(b) Certificate of the Secretary of the Purchaser
certifying as to a true and correct copy of the duly adopted resolutions of the
board of directors of the Purchaser, in form and substance reasonably acceptable
to the Seller, with respect to the consummation of the transactions contemplated
by this Agreement and that such resolutions continue in full force and effect,
without amendment, as of the Closing Date; and
(c) Such other certificates, instruments and other
documents, in form and substance reasonably satisfactory to the Seller and
counsel for the Seller, as the Seller shall have reasonably requested in
connection with the transactions contemplated hereby.
5.02 Opinion of the Purchaser's Counsel . The Seller shall
have received an opinion of Dechert, Price & Rhoads, counsel for the Purchaser,
dated the Closing Date and covering the matters set forth in Sections 3.01, 3.02
and 3.03 hereof.
5.03 Representations, Warranties and Covenants. The
representations and warranties of the Purchaser contained herein shall be true
and correct in all material respects at and as of the Closing Date with the same
effect as though all such representations and warranties were made at and as of
the Closing Date, except to the extent that any of such representations and
warranties are, by their terms, made expressly as of the date of this Agreement
or another date, in which case such representations and warranties shall have
been true and correct in all material respects as of the date hereof or such
other date, as applicable, except where the failure to be true and correct
(without giving effect to any materiality qualification in any particular
representation) shall not, individually or in the aggregate, be reasonably
likely to have a Material Adverse Effect. The Purchaser shall have complied in
all material respects with all of its covenants and agreements contained herein
required to be complied with on or prior to the Closing Date, and on the Closing
Date, the Purchaser shall deliver to the Seller a certificate dated the Closing
Date to such effect.
5.04 No Litigation. No action, suit, proceeding, writ,
judgment, injunction, decree or similar order of any Governmental Authority
restraining, enjoining or otherwise preventing the consummation of any of the
transactions contemplated by this Agreement.
5.05 HSR Act Approval. All waiting periods applicable to this
Agreement and the transactions contemplated hereby under HSR shall have passed
or been terminated.
SECTION VI
CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE
The obligation of the Purchaser to purchase the Shares and
otherwise to consummate the transactions contemplated by this Agreement at the
Closing is subject to the following conditions precedent, any or all of which
may be waived by the Purchaser in its sole discretion, and each of which the
Seller and the Parent hereby agree to use their respective best efforts to
satisfy at or prior to the Closing:
<PAGE> 24
6.01 Certificates. The Purchaser shall have received:
(a) A true and correct copy of the certificate of
incorporation of each Company, certified as true and correct by the Secretary of
State or other appropriate governmental official of its jurisdiction of
organization, and a copy of the by-laws of each Company, certified as true and
correct by its Secretary;
(b) Certificate of incumbency executed by the
Secretary of the Seller in form and substance reasonably acceptable to the
Purchaser;
(c) Certificate of incumbency executed by the
Secretary of the Parent in form and substance reasonably acceptable to the
Purchaser;
(d) Certificate of the Secretary of the Seller
certifying as to a true and correct copy of the duly adopted resolutions of the
board of directors and the duly adopted resolutions of the sole stockholder of
the Seller and a certificate of the Secretary of the Parent certifying as to a
true and correct copy of the duly adopted resolutions of the board of directors
of the Parent, each in form and substance reasonably acceptable to the
Purchaser, with respect to the consummation of the transactions contemplated by
this Agreement and that such resolutions continue in full force and effect,
without amendment, as of the Closing Date; and
(e) Such other certificates, instruments and other
documents, in form and substance reasonably satisfactory to the Purchaser and
counsel for the Purchaser, as the Purchaser shall have reasonably requested in
connection with the transactions contemplated hereby.
6.02 Opinion of the Parent's Counsel. The Purchaser shall have
received an opinion of Haythe & Curley, special counsel for the Parent and the
Seller, reasonably satisfactory to the Purchaser and dated the Closing Date and
covering the matters set forth in the first two sentences of Section 2.01,
Section 2.02, the first two sentences of Section 2.03, Section 2.15, Section
2.20 and the second sentence of Section 2.21 hereof (provided that in rendering
such opinion such counsel may assume that the Purchaser does not have knowledge
of any adverse claim in respect of the Shares).
6.03 Representations, Warranties and Covenants.
(a) The representations and warranties of the Parent
and Seller contained herein (without regard to any materiality or Material
Adverse Effect qualifications contained therein) shall be true and correct at
and as of the Closing Date with the same effect as though all such
representations and warranties were made at and as of the Closing Date, except
to the extent that any of such representations and warranties are, by their
terms, made expressly as of the date of this Agreement or another date, in which
case such representations and warranties shall have been true and correct as of
the date hereof or such other date, as applicable, except where the failure to
be true and correct (without giving effect to any materially qualification in
any particular representation) shall not, individually or in the aggregate, have
or be reasonably likely to have a Material Adverse Effect.
<PAGE> 25
(b) The Parent and Seller shall have complied in all
material respects with its covenants and agreements contained herein required to
be complied with on or prior to the Closing Date.
(c) On the Closing Date, the Parent and Seller shall
deliver to the Purchaser a certificate dated as of the Closing Date to the
effects of paragraph (a) and (b) of this section.
6.04 No Litigation. No action, suit, proceeding, writ,
judgment, injunction, decree or similar order of any Governmental Authority
restraining, enjoining or otherwise preventing the consummation of any of the
transactions contemplated by this Agreement, or seeking any Damages or any other
relief as a result of this Agreement or any of the transactions contemplated
hereby, shall be pending.
6.05 Approvals. All governmental filings, authorizations and
approvals (if any) that are required for the consummation of the transactions
contemplated hereby will have been duly made and obtained in form and substance
reasonably satisfactory to the Purchaser and the Purchaser's counsel, except for
any such approvals as to which the failure to obtain shall not, individually or
in the aggregate, have a Material Adverse Effect, provided that failure to
obtain such approvals or make such filings does not constitute a violation of
law.
6.06 HSR Act Approval. All waiting periods applicable to this
Agreement and the transactions contemplated hereby under HSR shall have passed
or been terminated.
6.07 Resignations. All officers and all directors of each
Group Member (except those designated by Purchaser) shall have executed and
delivered to each Group Member, as applicable, resignations effective as of the
Effective Time.
6.08 Escrow Agreement. At Closing, the Seller and the
Purchaser shall enter into the Escrow Agreement.
6.09 Third Party Consents. All consents of third parties
described on Schedule 2.02 shall have been obtained, except when such failure to
obtain any consents, individually or in the aggregate, will not be reasonably
likely to result in a Material Adverse Effect.
6.10 PNC Liens. All liens on the assets of the Group Members
held by PNC Bank, N.A., shall be removed as of the Closing Date, or Purchaser
shall have received reasonably satisfactory assurances from PNC Bank, N.A., that
all such liens shall be promptly removed following the Closing Date without any
cost or contributions from Purchaser or the Group Members.
SECTION VII
CONDUCT OF THE BUSINESS
7.01 Limitations on Conduct. The Seller and the Parent,
jointly and severally, hereby covenant and agree with the Purchaser that, except
as hereafter consented to in writing by
<PAGE> 26
the Purchaser (which consent shall not be unreasonably withheld or delayed),
from and after the date of this Agreement and until the Effective Time, the
Seller and the Parent shall cause each Group Member not to, except as set forth
on Schedule 7.01:
(a) Operation of the Business. Conduct the business of the
each Group Member other than in the ordinary course of business and consistent
with past practice.
(b) No Loans, Advances, Etc. Make or grant pay raises,
bonuses, or awards or severance to any officer, employee or director, or except
in the ordinary course of business and consistent with past practice, make or
incur any lease, loan, Lien or other obligation to or from a third party, or
make any other payments, directly or indirectly, to any officer, employee or
director of any Group Member.
(c) Capital Expenditures. Make any commitments for capital
expenditures for additions to property, plant or equipment in excess of any
Group Member's current fiscal year to date capital budget.
(d) Preservation of Organization and Business Relationships.
Fail to use its reasonable efforts to (i) preserve its present business
organization intact, (ii) keep available to the Purchaser the services of the
present officers and employees of the Group Members and (iii) preserve present
relationships with entities or persons having business dealings with it.
(e) Employee Plans. Except in the ordinary course of business,
enter into any plan, arrangement or commitment with any of its employees,
officers or consultants with regard to compensation, benefits or perquisites.
(f) Maintenance of Insurance. Fail to maintain in full force
and effect through, but not after, the Effective Time, insurance of the type and
with such coverage amounts and with insurers rated A or better by AM Best as is
maintained as of the date hereof. Seller shall promptly advise Purchaser in
writing of any change of insurer or type of coverage.
(g) Claims. Waive, cancel, sell or otherwise dispose of for
less than the face value thereof any material claim or right it has against
third parties.
(h) Sale of Assets. Sell or dispose of any asset having a book
value in excess of $50,000 other than in the ordinary course of business and
consistent with past practice.
(i) Material Transactions.
(1) amend its Articles of Incorporation or Bylaws;
(2) change its authorized or issued capital stock or
issue any rights or options to acquire shares of its capital stock or securities
convertible into or exchangeable for such Shares;
(3) enter into or renew any employment or consulting
contract or arrangement with any person which is not terminable at will, without
penalty or continuing obligation;
<PAGE> 27
(4) make, change or revoke any Tax election or make
any agreement or settlement with any taxing authority;
(5) guarantee or become a co-maker or accommodation
maker or otherwise become or remain contingently liable in connection with any
liability or obligation of any person (other than the endorsement of checks in
the ordinary course of business); or
(6) open any new clinic or purchase any clinic or
close or sell any clinic (except capital expenditures consistent with the
year-to-date capital budget);
(7) enter into or renew any real property lease,
except clinic leases not having a term of greater than five (5) years or which
provide for monthly base rent in excess of $10,000 per month;
(8) enter into any agreement which requires payments
of more than $100,000 in a single year.
(j) enter into any agreement to do any of the foregoing.
7.02 Preparation and Filing of Tax Returns. From and after the
date of this Agreement until the Effective Time, the Parent shall cause (i) all
Tax Returns of the Group Members or that include the activities of the Group
Members to be filed on a timely basis, and (ii) all Taxes of the Group Members
that are due and payable to be paid on a timely basis. Except as otherwise
expressly agreed to by the Purchaser, all such Tax Returns that reflect the
operations, activities or property of the Group Members shall be prepared in a
manner consistent with past practice and no Tax elections or accounting methods
shall be made or applied with respect to such Tax Returns other than in a manner
that is consistent with past practice. Parent shall provide Purchaser a
reasonable right to review and comment upon any such Tax Returns prior to the
filing thereof.
7.03 Access, Information and Documents. The Seller and the
Parent shall cause each Group Member to give to the Purchaser and to the
Purchaser's counsel, accountants and other representatives access during normal
business hours, on reasonable notice to all of each Group Member's properties,
books, tax returns, contracts, commitments, records, officers, personnel and
accountants and will furnish to the Purchaser all such documents and copies of
documents (certified to be true copies if requested) and all information with
respect to the affairs of any Group Member as the Purchaser may reasonably
request.
7.04 Preparation and Filing of Medicare and Medicaid Cost
Reports. From and after the date of this Agreement until the Effective Time, the
Parent shall cause all Medicare and Medicaid cost reports of the Group Members
or those that include the activities of the Group Members to be filed on a
timely basis. Except as otherwise expressly agreed to by the Purchaser, all such
Medicare and Medicaid cost reports of the Group Members shall be prepared in a
manner consistent with past practice. Parent shall make such Medicare and
Medicaid cost reports available to Seller to review at least 15 days prior to
such Medicare and Medicaid Cost reports being filed. Parent will prepare home
office cost reports for all periods through Closing in a manner consistent with
prior practice and file them in a timely manner.
<PAGE> 28
7.05 Payment of Sellers' Notes and Earn Out Amounts. Pending
Closing, Seller shall pay all amounts due under the Seller Notes and all amounts
due pursuant to the so called "earn out" obligations of any Group Member on a
timely basis, subject to available offsets, if any.
SECTION VIII
OTHER AGREEMENTS OF THE PARTIES
8.01 Announcements. The Parent and the Purchaser will consult
with each other before any issuance by them or any of their Affiliates of, and
will provide each other the opportunity to review, comment upon and concur with,
any press release or other public statements with respect to the transactions
contemplated by this Agreement, and shall not issue any such press release or
make any such public statement prior to such consultation, except as either
party may determine is required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange or quotation system. The parties agree that the initial press release
to be issued with respect to the transactions contemplated by this Agreement
shall be in the form heretofore agreed to by the parties. In addition, the
Purchaser shall comply with the Confidentiality Agreement.
8.02 Employee Matters.
(a) Except as specifically provided for herein, effective as
of the Closing Date, Parent and Seller shall have no obligation to provide
benefits to any Employee, former Employee or Beneficiary under the Parent NCES
Agreement, or otherwise, and Purchaser and the Group Members shall be
responsible for and shall promptly discharge all of Parent's liabilities under
the Parent NCES Agreement with respect to the PEO Benefit Plans. Effective as of
the Closing Date, Parent and Seller shall cease to have any liability with
respect to the Non-PEO Benefits Plans.
(b) Effective as of the Closing Date, Parent shall take, or
cause to be taken, all such action as is necessary to terminate its
co-sponsorship of the PEO Benefit Plans. Notwithstanding the preceding sentence,
Parent shall retain responsibility under those PEO Benefit Plans that are
employee welfare benefit plans (as designated on Schedule 2.12) (collectively,
the Seller's Health Plan) for all claims incurred by Employees, Former Employees
and their Beneficiaries of any Group Member prior to the Closing Date, including
claims submitted after the Closing Date, but only to the extent that the amount
of such claims exceed the amount of any corresponding accrual or reserve
reflected on the Closing Balance Sheet or which are not otherwise satisfied by
insurance coverage. A claim shall be deemed to have occurred on the date of (i)
death or dismemberment in the case of claims under life insurance or accidental
death and dismemberment insurance, (ii) the date of initial disability in the
case of disability claims, or (iii) in the case of all other claims including
medical claims, the date on which the charge or expense giving rise to such
claim is incurred. From and after the Effective Time, the Purchaser shall cause
the Group Members to pay to the Parent (to the extent accrued or otherwise
reserved for on the Closing Balance Sheet) any premium or other charges due in
respect of coverage of Employees, Former Employees or Beneficiaries under the
Seller's Health Plan through the Effective Time within 30 days after receipt of
an invoice or statement relating to the
<PAGE> 29
same. The amount of such premiums and charges shall be calculated in accordance
with the Parent's and the Group Member's prior practices regarding such premiums
and charges in accordance with Code Section 4980B. The Purchaser agrees to
notify all Employees, Former Employees and their Beneficiaries of the manner in
which pre-Effective Time Expenses under the Seller's Health Plan are to be
submitted for reimbursement and to request that all such expenses be submitted
within 60 days after the Closing Date.
(c) Effective as of the Closing Date, active participation of
the Employees in the NCES/NovaCare, Inc. 401(k) Retirement Savings Plan
("Parent's 401(k) Plan") shall cease and Purchaser shall establish a defined
contribution retirement plan qualified under Section 401(a) of the Code for the
benefit of all employees of the Group Members who continue employment with the
Purchaser or any Group Member thereafter (the "Retained Employees") (the
"Purchaser's 401(k) Plan"). Within 180 days after the Closing Date, Purchaser
shall provide Parent with an opinion letter of counsel acceptable to the Parent
that the Purchaser's 401(k) Plan satisfies the requirements for qualification
under Section 401(a) of the Code or deliver to Parent a current favorable
determination letter issued by the IRS that the Purchaser's 401(k) Plan
satisfies the requirements for qualification under Section 401(a) of the Code.
As soon as practicable after the latest of (i) the expiration of 30 days
following the filing of Forms 5310 with the IRS, if required and (ii) the
receipt by Parent of the opinion or determination letter prescribed above,
Parent shall cause the trustee of Parent's 401(k) Plan to transfer to the trust
forming a part of the Purchaser's 401(k) Plan cash and/or securities reasonably
acceptable to Purchaser (including participant notes) equal to the aggregate
account balances (including loan balances) of the Retained Employees as of such
transfer date.
(d) Purchaser agrees that each Retained Employee will be given
credit for all service with any Group Member, the Subsidiaries and any
affiliates thereof in determining such Retained Employee's eligibility to
participate and vest in any employee benefits, as well as the amount of vacation
and severance, if service is applicable under Purchaser's plans, offered by
Purchaser or any affiliate of Purchaser to the same extent as if that service
had been performed for Purchaser. In addition, Purchaser will grant credit under
its vacation, sick leave and paid time off programs for all accrued vacation,
sick leave and paid time off to which the Retained Employees are entitled under
comparable Benefit Plans maintained by Parent on the Closing Date.
(e) Set forth on Schedule 8.02(e) is a list of all former
employees currently receiving or entitled to receive continuation health
coverage pursuant to Section 4980B of the Code and Title I, Subtitle B, Part 6
of ERISA ("COBRA Coverage") from Parent or any ERISA Affiliate (other than a
Group Member). Parent will update Schedule 8.02(e) as of the Closing Date. All
individuals listed on the updated Schedule 8.02(e) and their spouses and
dependants who are "qualified beneficiaries" within the meaning of Section 4980B
(g) of the Code are hereinafter referred to as the "COBRA Participants." Subject
to Parent's reimbursement obligation as described below, effective as of the
Closing Date, Purchaser and the Group Members shall be responsible for the
provision of COBRA Coverage to the COBRA Participants. Notwithstanding the
preceding sentence, Parent shall retain responsibility to reimburse Purchaser
and the Group Members on a monthly basis to the extent that the aggregate claims
of the non-Group Member COBRA Participants pursuant to their COBRA Coverage
exceed the aggregate premiums paid
<PAGE> 30
from the Closing Date for such COBRA Coverage, but only to the extent not
otherwise satisfied by insurance coverage.
(f) No covenant or agreement by any party hereto to indemnify
any other party hereto shall release, or be deemed to release, any insurer or
indemnitor of any Damages which might be the basis for any Indemnification
Matter.
(g) Effective as of the Closing Date, active participation of
the Employees in the NovaCare Employee Stock Purchase Plan shall cease.
8.03 Labor Relations. The Purchaser hereby agrees to defend
and indemnify the Seller Indemnified Parties, and to hold each Seller
Indemnified Party harmless, from and against all Damages that are sustained or
incurred by any Seller Indemnified Parties by reason of or in connection with
any claim, proceeding or suit brought against any Seller Indemnified Parties
under the Worker Adjustment Retraining and Notification Act, or any other local,
state, Federal or foreign law, which relates to actions taken by the Purchaser
or any Group Member at any time after the Effective Time with regard to any site
of employment or one or more facilities or operating units within any site of
employment of any Group Member.
8.04 Access to Information. (a) Subject to Section 8.04(c).
For a period of six years from the Closing Date, each of the Seller, the Parent
and the Purchaser shall (and, in the case of the Purchaser, shall cause each of
the Group Members to), during normal business hours and upon reasonable notice,
make available and provide the other parties and their representatives
(including, without limitation, counsel and independent auditors) with access to
the facilities and properties of each of the Group Members and to all
information, files, documents and records (written and computer) relating to any
Group Member or any of its businesses or operations for any and all periods
prior to or including the Closing Date which another party (or any of its
Affiliates) requires with respect to any reasonable business purpose, and shall
(and, in the case of the Purchaser, shall cause each of the Group Members to)
cooperate fully with the Parent and its representatives (including, without
limitation, its counsel and independent auditors) in connection with the
foregoing, including, without limitation, by making tax, accounting and
financial personnel and other appropriate employees and officers of the Seller,
the Parent or each Group Member, as the case may be, reasonably available to the
other parties and their representatives (including, without limitation, counsel
and independent auditors), with regard to any reasonable business purpose.
(b) Without limiting the generality of Section 8.04(a) but
subject to Section 8.04(c), from and after the Closing Date, the Purchaser shall
(and shall cause each of the Group Members to) cooperate fully with, and shall
cause its officers and employees (and the officers and employees of the Group
Members) to cooperate fully with, the Parent and its representatives (including,
without limitation, its counsel and independent auditors), in connection with:
(i) the Parent's preparation of the Group Members'
(or any Group Member's) Federal, state or local income Tax
Return, report or declaration, for any Seller Tax Period, and
to that end following the Closing Date, the Parent shall
submit to the Purchaser blank Tax Return workpaper packages
reasonably necessary to enable the Parent to prepare such Tax
Returns and the Purchaser
<PAGE> 31
shall cause the Group Members to prepare for and to deliver to
the Parent, within 90 days following the later of receipt of
such workpaper packages and the Closing Date completed
workpaper packages, and shall cause the officers and employees
of the Group Members to cooperate and assist the Parent in the
Parent's review and verification of the same;
(ii) any Tax audit, examination or proposed or final
assessment or the like (including without limitation any Tax
Claim) relating to the Seller, the Parent, the Group or any
Group Member, and to any Seller Tax Period;
(iii) the preparation of any financial statements of
the Group Members (or any Group Member) for (or including) any
period (or portion thereof) ending on or before the Effective
Time, and to that end the Purchaser shall cause each Group
Member to prepare for and to deliver to the Parent any
financial information of the type historically prepared by any
Group Member for all periods (or portions thereof) ending on
or before the Effective Time and to cause the officers and
employees of any Group Member to cooperate fully and assist
the Parent in its review and verification of the same;
(iv) the Parent's preparation of any statement,
report, notice, response or other document for filing with the
Securities and Exchange Commission, any state or foreign
securities commission or authority, any other Governmental
Authority or any securities exchange or market, domestic or
foreign, including, without limitation, in connection with any
comments, requests for information, inquiries, investigations
or proceedings, formal or informal, by any of the foregoing;
(v) the investigation, prosecution or defense of or
response to any Actions, claims or inquiries commenced by any
Purchaser Indemnified Party, or by any Governmental Authority
or any other person or entity, against the Parent or the
Seller (or any other Seller Indemnified Party or any Affiliate
thereof), or by the Parent or the Seller (or any Affiliate
thereof) against the Purchaser (or any other Purchaser
Indemnified Party), including in any case relating to any
Indemnification Matter under Sections 8.03, IX or X hereof.
(c) The cooperation and assistance of the Purchaser and the
Group Members and their respective officers and employees under this Section
8.04 shall be rendered during normal business hours and in a manner which does
not disrupt the business and operations of the applicable Group Member or
interfere with the performance by employees of the Group Members of their normal
duties, and subject to the foregoing the Purchaser shall use its best efforts in
the case of the Parent's preparation of any Tax Return, report or declaration
and any financial statements, to cause such cooperation and assistance to be
rendered without adverse consequences to the Seller or the Parent during the
period that each of the Group Members has normally assisted the Seller or the
Parent in the Parent's preparation of Tax Returns, reports or declarations and
financial statements. The Parent shall reimburse the Group Members for any
out-of-pocket expenses paid by them in the cooperation and assistance by
Purchaser with the
<PAGE> 32
Parent's preparation of any such Tax Returns, reports or declarations and any
such financial statements.
(d) Purchaser and Group Member shall not in any case be
required to spend more than 300 employee hours for the assistance and
cooperation described herein; hours spent in excess of 300 shall be charged at
Purchaser's and Group Member's fully burdened cost per hour.
(e) Without limiting the generality of subsection (a) of this
Section 8.04, following the Closing, no party shall (and no party shall cause
their Affiliates to) destroy any information, files, documents or records
(written and computer) relating to any Group Member or any of its businesses or
operations on or before the Closing Date without giving at least 30 days' prior
written notice to the other parties hereto and shall (and shall cause their
Affiliates to) permit the other parties hereto to examine, duplicate (at the
expense of the other parties hereto) and/or transfer (at the expense of the
other parties hereto) to the other parties hereto or their representatives any
of such information, files, documents or records (written and computer).
8.05 Intentionally left blank.
8.06 Tax Matters. (a) The Seller, the Parent and the Purchaser
acknowledge and agree that, for Federal Income Tax purposes, the taxable year of
each Group Member will close on the Closing Date and that, for certain state and
local income Tax purposes, the taxable year of some or all of the Group Members
may also close on the Closing Date. The Parent shall be responsible for
preparing and filing any and all income Tax Returns, reports and declarations
that include the Group Members for the periods ending on or before the Closing
Date, and shall be responsible for and shall pay all income Taxes payable by the
Group Members with respect to such returns. To the extent permitted by law, the
Parent and the Purchaser agree to cause a taxable period of each Group Member to
close on the Closing Date for state and local income Tax purposes. Except to the
extent expressly permitted by the Purchaser or as specified in this Agreement,
all Tax Returns prepared by the Parent with respect to the Group Members
pursuant to this Section 8.06(a) shall be prepared in a manner consistent with
past practice and no Tax elections shall be made or Tax accounting methods shall
be applied except in a manner consistent with past practice. Parent shall
provide to Purchaser a reasonable right to review and comment upon any such Tax
Returns prior to the filing thereof.
(b) Except as provided in clause (a) of this Section 8.06, the
Purchaser agrees to cause the Group Members to file all Tax Returns, reports and
declarations required to be filed by any of them after the Closing Date and to
pay all Taxes due and payable by any of them after the Closing Date, including
any Taxes (other than income Taxes) that accrued prior to the Closing Date or
that are otherwise allocable to any Seller Tax Period that does not end on or
before the Closing Date. Without limiting the generality of Section 8.04 or this
Section 8.06, the Parent and Purchaser shall be given the opportunity to review,
comment upon and suggest changes or corrections to, any income Tax Returns,
reports and declarations prepared by the other party covered by this Section
8.06(a) and (b) which include any Seller Tax Period (and the work papers of the
Group Members and Parent and their accountants used in the preparation thereof),
in each case prior to the filing thereof (but in no event less than 30 days
prior to such filing). In the event of any dispute regarding the matters set
forth in the immediately preceding
<PAGE> 33
sentence, then PricewaterhouseCoopers (or if PricewaterhouseCoopers shall
decline to arbitrate such dispute, then another nationally recognized accounting
firm selected by the Parent) shall be requested to make a determination
resolving any such dispute; and the determination by PricewaterhouseCoopers (or
such other accounting firm) of any such dispute shall be final and binding on
the parties hereto. The fees and expenses of PricewaterhouseCoopers (or such
other accounting firm) in resolving such dispute shall be borne fifty percent
(50%) by the Parent and fifty percent (50%) by the Purchaser.
(c) Any refunds or credits of income Taxes of any Group Member
for any Seller Tax Period shall be for the account of the Parent to the extent
not reflected in the calculation of Consolidated Net Working Capital reflected
on the Closing Balance Sheet, and to the extent not attributable to the
carryback from a taxable period following the Closing Date ("Parent's Refunds").
Applications for Parent's Refunds of Taxes, and the filing of amended Tax
Returns with respect to any Seller Tax Period resulting in Parent's Refunds
shall be made and prosecuted only by the Parent or the Seller. Without limiting
the provisions of Section 8.04, the Purchaser shall provide and shall cause each
Group Member to provide to the Parent full cooperation and assistance in
connection with any application for refund or amendment made or proposed to be
made by the Parent or the Seller as shall be requested by the Parent, including
by causing each Group Member to authorize by appropriate powers of attorney such
person as the Parent shall designate to represent such Group Member with respect
to such refund claim, without charge for any cost or expense for assistance
rendered by officers and employees of the Group Members in connection therewith.
Neither the Parent nor the Seller shall seek any Tax refund, or amend any Tax
Return, which would have the effect of increasing the Taxes of any Group Member
for any taxable period (or portion thereof) beginning after the Closing Date;
however, the foregoing shall not apply to any amended Tax Return which may be
required by law following resolution of a Tax dispute. Neither the Purchaser nor
any Group Member shall amend, or take any similar action with respect to, any
Tax Return filed by the Parent, the Seller or by any Group Member with respect
to any Seller Tax Period without the prior written consent of the Parent;
provided that the foregoing shall not apply to any amended Tax Return which may
be required by law following resolution of a Tax dispute conducted in accordance
with this Agreement. The Purchaser shall or shall cause each Group Member to
forward to the Parent any Parent's Refund of income Taxes of any Group Member
within five days after such refund is received (or reimburse the Parent for any
credit within five days after the credit is allowed or applied against other Tax
liability). Notwithstanding the foregoing, the control of the prosecution of a
claim for refund of Taxes paid pursuant to a deficiency assessed subsequent to
the Closing Date as a result of an audit shall be governed by the provisions of
Section 9.03(d) hereof.
(d) The Purchaser shall not file an election (or cause a
deemed election) under Section 338(h)(10) of the Code with respect to its
acquisition of the Group Members or any Group Member hereunder. The Purchaser
shall consent to the election under Treasury Regulation Section 1.1502-20(g)(1)
to re-attribute any net operating losses and/or net capital losses of any Group
Member to the Seller or the Parent, except for an amount of such losses as is
necessary to offset the Tax liability of any Group Member arising pursuant to
Section 481 of the Code, and shall cause the Group Members to execute and file
such statements as may be necessary or appropriate to effect such election.
<PAGE> 34
(e) All Taxes with respect to the income, property or
operations of the Group Members that relate to any taxable year or period
beginning before and ending after the Closing Date shall be apportioned between
the Seller Tax Period and the period beginning the day after the Closing Date as
follows: (A) in the case of Taxes other than income and sales or use Taxes, on a
per diem basis, and (B) in the case of income Taxes (including income Taxes
based on capital or other alternative bases) and sales or use Taxes, as
determined from the books and records of the Parent and the Group Member in
question, as though the taxable year of the Group Member terminated on the
Closing Date, and based on the accounting methods, elections and conventions
used by the Parent and/or the relevant Group Member in prior years.
(f) Following the Closing, and without regard to any of the
limitations set forth in Section IX, the Parent and the Seller shall fully
indemnify and hold harmless the Purchaser and each of the Group Members from and
against any liability for any Damages that relate to Taxes (i) of the Group
Members that are attributable to any taxable period or portion thereof that ends
on or before the Closing Date to the extent the liability therefor exceeds the
amount expressly reflected as a liability in the calculation of Consolidated Net
Working Capital reflected on the Closing Balance Sheet or (ii) of any person
other than a Group Member for which a Group Member may become liable (A) by
reason of being a member of a consolidated or combined Tax Return that includes
such other person on or before the Closing Date, (B) by reason of being a
successor to such other person by merger, liquidation or otherwise on or before
the Closing Date or (C) by reason of being a party to a Tax sharing or Tax
allocation agreement on or before the Closing Date.
(g) Except as otherwise provided in this Agreement, on or
before the Closing Date, the Parent shall cause all Tax sharing agreements or
arrangements that may exist between any Group Member and the Parent, the Seller
or their Affiliates to be terminated and all obligations thereunder to be
terminated as of the Closing Date, and none of the Group Members shall have any
liability thereunder for any and all amounts due in respect of periods up to and
including the Closing Date.
8.07 [Intentionally omitted]
8.08 Agreement by the Purchaser Regarding No Other
Representations or Warranties by the Parent or the Seller. The Purchaser agrees
that except for the representations and warranties (including the Schedules with
respect thereto) made by the Parent and the Seller and expressly set forth in
this Agreement or any certificate delivered pursuant hereto, neither the Parent
nor the Seller nor any Affiliate or representative of either has made and shall
not be construed as having made to the Purchaser or to any representative or
Affiliate thereof, and neither the Purchaser nor any Affiliate nor any
representative thereof has relied upon, any other representation or warranty of
any kind. Without limiting the generality of the foregoing, except for any
express representations and warranties made by the Parent and the Seller in this
Agreement or any certificate delivered pursuant to this Agreement, the Purchaser
agrees that neither the Parent nor the Seller nor any Affiliate or
representative of either makes or has made any representation or warranty to the
Purchaser or to any representative or Affiliate thereof with respect to:
<PAGE> 35
(i) any projections, estimates or budgets contained
in that certain Confidential Information Memorandum relating
to the Group Members or otherwise heretofore or hereafter
delivered to or made available to the Purchaser or its
counsel, accountants, advisors, lenders, representatives or
Affiliates of future revenues, expenses or expenditures,
future results of operations (or any component thereof),
future cash flows (or any component thereof) or future
financial condition (or any component thereof) of the Group or
any Group Member or the future business, operations or affairs
of the Group or any Group Member; and
(ii) any other information, statements or documents
heretofore or hereafter delivered to or made available to the
Purchaser or its counsel, accountants, advisors, lenders,
representatives or Affiliates (including, without limitation,
the Confidential Information Memorandum relating to the Group
Members) with respect to the Group or any Group Member or the
business, operations or affairs of the Group or any Group
Member.
8.09 Use of NovaCare Name. Purchaser hereby agrees that Parent
may use the name "NovaCare" and the domain name "NovaCare.com" for a period of
six (6) months after the Closing Date, provided that the Parent shall not hold
itself out to the public as being affiliated with the Purchaser. At the end of
such six month period, Parent shall promptly take such steps as are necessary to
change its name to a name not including the word "NovaCare."
8.10 Employee Obligations
(a) The Parent shall be responsible for any and all
obligations arising out of the contractual arrangement with MT Consulting,
attached hereto as Schedule 8.10 (the "Mountain Contract"). The Mountain
Contract provides, among other things, that Steve Mackell and other individuals
currently or formerly employed by MT Consulting (the "Mountain Personnel") will
be employed by one or more of the Group Members. Promptly following the
execution and delivery of this Agreement, Parent or Seller will deliver to
Purchaser a written list identifying (by name, job title and job function) each
of the Mountain Personnel who Parent or Seller has committed or intends to
employ, or actually has employed. Purchaser will notify Seller within thirty
(30) days following its receipt of such list, as to which of the Mountain
Personnel Purchaser will consent to employ or retain, as the case may be (the
"Approved Mountain Personnel"). Parent shall, in addition to its obligations
under Section 8.10(b) through (e) hereof, be responsible for any severance
obligations due to the Mountain Personnel other than the Approved Mountain
Personnel; on the other hand, Purchaser shall be responsible for any severance
obligation due to the Approved Mountain Personnel. Parent shall indemnify and
hold Purchaser harmless, as further provided in Section IX, for any and all
liabilities relating to the agreements and understandings set forth in
subsection "(a)".
(b) The parties agree that, notwithstanding anything else
herein, James W. McLane shall not become an employee of Purchaser and, if
employed by any Group Member, shall be terminated by such Group Member as of the
Closing Date. Parent shall be fully responsible for any and all payments or
other obligations due or payable to Mr. McLane at or after Closing arising from
his employment with Parent and the Group Members prior to the
<PAGE> 36
Closing Date. Parent shall indemnify and hold Purchaser harmless, as further
provided in Section IX, for any and all liabilities relating thereto.
(c) Parent shall be fully responsible for any and all
incentive payment obligations to any employees relating to the consummation of
the transactions contemplated by this Agreement. Parent shall indemnify and hold
Purchaser harmless, as further provided in Section IX, for any and all
liabilities relating thereto.
(d) Parent shall reimburse Purchaser up to $3.5 million for
severance obligations actually incurred by Purchaser with respect to those
employees listed on Schedule 2.11 (excluding James McLane) who have contractual
severance rights; provided, and only to the extent that (i) in the case of an
employee who is involuntarily terminated, such termination notice must be given
by Purchaser within 4 months after the Closing Date (and must become effective
on or before the end of the fifth month after the Closing Date), (ii) in the
case of an employee who is entitled to severance based on the exercise of a
constructive termination provision, such contractual right is based solely on
the contractual provision existing on the Closing Date; and provided, further
that, with respect to any such employee, no other contractual arrangement is
entered into by the Purchaser, a Group Member or their Affiliates. Parent shall
indemnify and hold Purchaser harmless, as further provided in Section IX, for
any and all liabilities relating thereto. Parent further covenants that, if any
potential obligations of Parent under this subsection "(d)" remain unsatisfied
as of the date Parent intends to make any distribution of assets to shareholders
or a liquidation trustee, Parent shall provide security sufficient to satisfy
any such remaining obligation, to Purchaser's reasonable satisfaction.
(e) Parent shall be fully responsible for any and all
contractual retention bonus arrangements with employees listed on Schedule 2.11;
provided, that such employee voluntarily or involuntarily terminates his or her
employment with Purchaser, a Group Member or their Affiliates, as applicable,
within one year after the Closing Date. Parent shall indemnify and hold
Purchaser harmless, as further provided in Section IX, for any and all
liabilities relating thereto.
8.11 Non-Competition; Nonsolicitation.
(a) For a period of five years from and after the Closing
Date, neither the Parent, the Seller nor any of their respective Affiliates
(other than individuals who are officers, directors and/or controlling
stockholders) (collectively, the "Restricted Parties") shall, directly or
indirectly, (i) own, manage, operate, join, control or participate in the
ownership, management, operation or control of, or provide any financing or
lease any assets to, any entity that engages in, or that the Restricted Party
knows intends to engage in, a Competing Business, or (ii) solicit, retain as a
consultant, interfere with or attempt to entice away from the Purchaser, the
Group or their respective Affiliates, any Protected Employee, or (iii) solicit,
interfere with or attempt to entice away from the Purchaser, the Group or their
respective Affiliates, any person, firm or corporation which has been or is
during the two-year period commencing on the Closing Date a customer of the
Purchaser or any Group Member. Ownership of not more than 2% of the outstanding
stock of any publicly traded company shall not be a violation of this Section
8.11 so long as the Restricted Parties do not participate in the management of
such company.
<PAGE> 37
(b) The length of time for which this covenant not to compete
shall be in force shall not include any period of violation or any other period
required for litigation during which Purchaser or any Group Member seeks to
enforce this Section 8.11. In the event that any of the covenants contained in
this Section 8.11 shall be determined by any court of competent jurisdiction to
be unenforceable by reason of its extending for too long a period of time or
over too large a geographical area or by reason of its being too extensive in
any other respect, it shall be interpreted to extend only over the longest
period of time for which it may be enforceable, and/or over the largest
geographical area as to which it may be enforceable and/or to the maximum extent
in all other respects as to which it may be enforceable, all as determined by
such court in such action.
(c) The restrictive covenants contained in this Section 8.11
are each covenants independent of any other provision of this Agreement, and the
existence of any claim which any party may allege against any other party to
this Agreement, whether based on this Agreement or otherwise, shall not prevent
the enforcement on these covenants. The Seller and the Parent acknowledge that
the Purchaser is purchasing the Companies in reliance on the goodwill of the
businesses of the Group and the covenants contained in this Section 8.11 are
essential to the protection of the Purchaser's purchase of the Companies and
that the Purchaser would not purchase the Companies but for these covenants. The
Seller and the Parent agree that a breach by any of them of this Section 8.11
shall cause irreparable harm to the Purchaser and the Group and that the
Purchaser's and the Group's remedies at law for any breach or threat of breach
of the provisions of this Section 8.11 shall be inadequate, and that the
Purchaser and the Group shall be entitled to an injunction or injunctions to
prevent breaches of this Section 8.11 and to enforce specifically the terms and
provisions hereof, in addition to any other remedy to which the Purchaser or the
Group may be entitled at law or in equity.
8.12 No Solicitation. During the period beginning on the date
hereof and ending on the earlier of the Closing Date and the date of termination
of this Agreement, the Parent and the Seller will not (and will cause their
Affiliates and representatives not to) (i) solicit, initiate or encourage the
submission of any proposal or offer from any person relating to the direct or
indirect acquisition of all or any substantial portion of the Shares or assets
of the Companies or (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other matter, any effort or any attempt by any person other
than the Purchaser to do or seek any of the foregoing.
8.13 Confidentiality. Except as required by law, after the
Closing the Parent and its Affiliates (other than individuals who are officers,
directors, or controlling stockholders) (not including the Group Members) shall
not, directly or indirectly, disclose to any person or entity or use any
information not in the public domain or generally known in the industry, in any
form, whether acquired prior to or after the Closing Date, relating to the
business and operations of the Companies or the Subsidiaries, including but not
limited to information regarding customers, vendors, suppliers, trade secrets,
training programs, manuals or materials, technical information, contracts,
systems, procedures, mailing lists, know-how, trade names, financial or other
data (including the revenues, costs or profits associated with any of the
Companies' products or services), business plans, code books, invoices and other
financial statements, computer programs, software systems, databases, industry
lists, correspondence, internal reports,
<PAGE> 38
personnel files, sales and advertising material, telephone numbers, names,
addresses or other compilations of information, written or unwritten, which is
or was used in the business of the Companies or any of the Subsidiaries.
8.14 Acquisition of Rights to Confidentiality. At the Closing,
the Parent shall assign, grant and convey to the Purchaser all its rights under
confidentiality agreements between it and persons other than the Purchaser that
were entered into in connection with or relating to a possible sale of the
Shares or any part thereof (collectively, "Other Confidentiality Letters"),
including the right to enforce all terms of the Other Confidentiality Letters.
Promptly after the date hereof, Parent shall request the return of all
confidential information provided to other persons pursuant to the Other
Confidentiality Letters. At the Closing, the Parent shall deliver to the
Purchaser copies of the Other Confidentiality Letters to the extent permitted by
the terms thereof; provided that, if any Other Confidentiality Letter shall not
be assignable, the Parent shall disclose to the Purchaser the parties to such
Other Confidentiality Letter.
8.15 Accounts Receivable. The Parent represents and warrants
that, with respect to accounts receivable reflected on the Closing Balance Sheet
which are one year or more old on the date of the Closing Balance Sheet, the
Purchaser shall collect all such accounts receivable, less reserves against such
accounts receivable reflected on the Closing Balance Sheet and less any such
accounts for which the payor is involved in litigation, (i.e., accounts which
represent amounts due from patients who have notified Parent, Seller or a Group
Member of their inability to pay such accounts pending resolution of litigation
brought by such patient to collect damages or insurance proceeds), on or before
one year after the Closing Date. During such period, the Purchaser will cause
the Group Members to follow substantially the same accounts receivable
collection practices as were used by the Group Members prior to Closing. The
Parent shall pay to Purchaser any such shortfall within thirty days of the final
determination thereof; provided, that Purchaser shall be entitled to review the
work papers upon which any such determination is based. Purchaser shall provide
to Parent, within thirty days after the completion of each three-month period
after the Closing Date, a report regarding the collection of such accounts
receivable during such quarter.
8.16 NCES Subscriber Agreement. (a) Effective as of the
Closing Date, Purchaser agrees to enter into a subscriber services agreement
(the "Purchaser NCES Agreement") with NovaCare Employee Services, Inc. ("NCES")
on substantially the same terms as the Subscriber Services Agreement (the
"Parent NCES Agreement") dated as of July 1, 1999 between Parent and NCES,
except that the Purchaser NCES Agreement shall provide that (i) Purchaser may,
at its option, terminate the Purchaser NCES Agreement at any time on or after 18
months after the Closing Date by giving NCES at least 30 days prior written
notice of such termination and (ii) Purchaser shall not be obligated for any
Minimum Fee Guarantee except the Minimum Fee Guarantee for the period covered by
the term of the Purchaser NCES Agreement. Parent shall use its best efforts to
cause NCES to enter into the Purchaser NCES Agreement with Purchaser effective
at or before Closing.
(b) In the event that despite the parties best efforts, NCES
does not enter into the Purchaser NCES Agreement at or before Closing, at the
Closing, Parent shall assign to Purchaser and, subject to subsection "(d)"
herein, Purchaser shall assume from Parent, the Parent's rights and obligations
under the Parent NCES Agreement; provided that in the event
<PAGE> 39
Purchaser breaches the Parent NCES Agreement by delivering a termination notice
to NCES as of any date on or after the 18 months after the Closing Date or by
failing or refusing to perform its obligations under the Parent NCES Agreement
accruing on or after such date, Parent and Seller shall, without regard to any
limitations or conditions on indemnification contained in Section IX, jointly
and severally indemnify and hold harmless the Purchaser Indemnified Parties from
and against all Damages arising out of such termination and breach of the Parent
NCES Agreement (it being understood that Purchaser shall remain obligated to
NCES with respect to any and all obligations and damages relating to the period
from the Closing Date through the date of such termination); the intention of
the parties being that Purchaser shall be responsible to NCES as if it had
entered into the Purchaser NCES Agreement, and Parent shall be responsible for
all other obligations to NCES.
(c) In the event that following the Closing, Purchaser and
NCES enter into the Purchaser NCES Agreement, the assignment and assumption of
the Parent NCES Agreement provided for in Section 8.16(b) shall be null and void
and of no further force or effect.
(d) Purchaser's obligations under 8.16(b) to assume the Parent
NCES Agreement shall be conditioned on Parent having complied with its
obligations under Section 5.12 of the Merger Agreement dated as of September 8,
1999 between NCES and Parent regarding the provision of a guarantee by Parent of
the Minimum Fee Guarantee to be received by NCES under the Parent NCES Agreement
and the posting of sufficient security to secure such guarantee, to Purchaser's
reasonable satisfaction.
8.17 NCES Office Support Services Agreement. At the Closing,
Parent shall assign to Purchaser and Purchaser shall assume from Parent, the
rights and obligations under the Support Services Agreement (the "NCES Office
Support Agreement"), executed August 16, 1999, between NovaCare, Inc. and
NovaCare Employee Services, Inc.
8.18 Transition Services Agreement. Parent and the Purchaser
shall exercise good faith efforts to negotiate and enter into a transition
agreement (the "Transition Agreement") with respect to the transitional
provision of office space and related services to Parent.
8.19 Transition Obligations. Following the execution of the
Agreement and up through and at the Closing, the parties shall take such steps
as are reasonable and appropriate to cause Purchaser to assume responsibility
for (or reimburse Parent for, as applicable) the following transitional
obligations of the Parent: (i) lease costs for 44,000 square feet of space
occupied by the Group Members at the corporate headquarters in King of Prussia,
Pennsylvania for which the Parent is the sublandlord, on substantially the same
terms as is currently reflected in Parent's lease agreement for such space, and
(ii) obligations under the Microsoft license agreement in an amount equal to
$997,189, and (iii) such other obligations set forth in Schedule 2.10 under the
heading "(b) MIS", provided that the Group Members obtain the benefits of the
equipment or services covered thereby. In addition, Purchaser hereby covenants
to negotiate in good faith and to use its best efforts to enter into a contract
with AT&T for the business of the Group Members for a period up through December
31, 2001.
8.20 Representations regarding Working Capital, Long-Term
Liabilities and Tax Basis
<PAGE> 40
(a) Parent represents and warrants to Purchaser that (i) the
Consolidated Net Working Capital (as defined herein) as of the Closing Date, as
determined in accordance herewith, will be at least $85.8 million; (ii) the
Long-Term Liability Amount (as defined herein) will be zero, and (iii) the Tax
Liability Amount (as defined herein) will be zero.
(b) The Purchaser shall prepare and deliver to the Parent
within one hundred twenty (120) days after the Closing a consolidated balance
sheet of the Companies and its Subsidiaries as of Closing (the "Closing Balance
Sheet") prepared in accordance with GAAP, applied on a basis consistent with the
preparation of the audited Financial Statements, and audited by
PricewaterhouseCoopers. The Purchaser shall determine the Consolidated Net
Working Capital and the Long-Term Liability Amount using the information
reflected on the Closing Balance Sheet. For illustrative purposes, the
calculation of the Consolidated Net Working Capital as of June 30, 1999 is
reflected on Schedule 8.20(b)-1. The Purchaser shall prepare and deliver to
Parent within one hundred twenty (120) days after the Closing a statement of the
Tax Liability Amount. The Closing Balance Sheet, Purchaser's determination of
Consolidated Net Working Capital, the Purchaser's determination of the Long-Term
Liability Amount and the Purchaser's determination of the Tax Liability Amount
shall be subject to review by the Parent within thirty (30) days of the date of
delivery of such information to the Parent, during which period the Parent shall
have access to the workpapers and such other documents and information relating
to the preparation of the Closing Balance Sheet, the determination of the
Consolidated Net Working Capital, the determination of the Long-Term Liability
Amount and the determination of the Tax Liability Amount as it shall request.
Parent may dispute any amounts on the Closing Balance Sheet, the Consolidated
Net Working Capital, the Long-Term Liability Amount and the Tax Liability Amount
but only on the basis that (i) the amounts in dispute were not presented in
accordance with GAAP applied on a basis consistent with the preparation of the
audited Financial Statements, (ii) the computations were in error, or (iii) in
the case of the Tax Liability Amount, the amounts in dispute were not in
accordance with the tax records of the Companies, provided that Parent notifies
Purchaser in writing within thirty (30) days of the disputed amount, specifying
the amount and basis thereof. Any such dispute which cannot be resolved after
good faith negotiations within thirty (30) days from the date Purchaser is so
notified shall at the request of either Purchaser or Parent be referred to a
nationally recognized firm of certified public accountants (the "Independent
Accountants") who has not previously rendered services to Purchaser or Parent or
an affiliate thereof chosen jointly by Parent and Purchaser (or if Parent and
Purchaser are unable to agree, by their certified public accountants), whose
determination on such matters shall be final and binding on the parties and
whose fees and expenses shall be shared equally by the parties. The Independent
Accountants shall resolve disputed items solely on the basis of whether amounts
in dispute were determined in accordance with this Agreement. For purposes of
this Agreement, the final Consolidated Net Working Capital and the Long-Term
Liability shall be as reflected on the Closing Balance Sheet as modified by
resolution of the Parent and Purchaser or by the aforesaid independent
accounting firm, or if the Parent fails to notify Purchaser in writing of any
disputed items within the prescribed thirty (30) day period, the Closing Balance
Sheet as previously delivered by Purchaser.
(c) As used herein, the "Consolidated Net Working Capital" of
the Companies and their Subsidiaries shall mean the excess of the "current
assets" of the Companies and their Subsidiaries (excluding deferred income
taxes) over the "current liabilities" (excluding
<PAGE> 41
the current portion of Seller Notes and other third-party indebtedness, deferred
income taxes, accrued contingent earnouts, accrued interest and intercompany
accounts payable and accrued liabilities, except insurance reserves and payroll
and related benefit costs) on a consolidated basis, in each case as such assets
and liabilities are properly accrued and reflected on the books and records of
the Companies and their Subsidiaries in accordance with GAAP applied on a basis
consistent with the preparation of the audited Financial Statements. For
avoidance of doubt such insurance reserves shall be reflected as a liability on
the Closing Balance Sheet. As used herein, the "Tax Basis" shall mean the
aggregate Tax basis of the assets owned by the Group Members (exclusive of Tax
basis in the stock of other Group Members). As used herein the "Tax Liability
Amount" shall mean 35% of the aggregate amount by which the Tax Basis is less
than $240 million. As used herein, the "Long-Term Liability Amount" shall mean
the amount, if any, by which the long-term liabilities (other than the long-term
portion of Seller notes and other third-party indebtedness and deferred taxes)
reflected on the Closing Balance Sheet are greater than the long-term
liabilities (other than the long-term portion of Seller notes and other
third-party indebtedness and deferred taxes) as reflected on the Balance Sheet.
(d) For purposes of this Agreement, the final Tax Liability
Amount shall be based on the Tax Liability Amount reported by Purchaser or if
disputed by Parent within such thirty (30) day period, the amount as modified by
resolution of the Parent and Purchaser or by the aforesaid Independent
Accountants. If the Consolidated Net Working Capital is so determined to be less
than $85.8 million resulting in a breach of the representation set forth in
8.20(a)(i), the amount of the shortfall shall be paid by Parent to Purchaser as
complete damages in respect of such breach. If the Long-Term Liability Amount is
so determined to be greater than zero resulting in a breach of the
representation set forth in 8.20(a)(ii), the amount of such excess shall be paid
by the Parent to the Purchaser as complete damages in respect of such breach. If
the Tax Liability Amount is so determined to be greater than zero resulting in a
breach of the representation set forth in 8.20(a)(iii), the amount of the Tax
Liability Amount, multiplied by fifty-nine percent (59%) (present value discount
factor), shall be paid by the Parent to the Purchaser as complete damages in
respect of such breach. Any amount due pursuant to this Section 8.20(d) shall be
paid by Parent to Purchaser within fifteen (15) days after (i) as to any
undisputed portion, the determination of such undisputed portion of such amount,
(ii) as to any disputed portion, the final determination of such matter in
accordance with the procedures outlined herein.
8.21 Contribution of Assets. The Parent has previously
transferred as a contribution to the capital of the Company, all assets of the
Parent used in the business of the Group.
8.22 Notice of Distributions. Parent will provide Purchaser
with thirty (30) days prior written notice before it makes any distributions to
its shareholders or a liquidating trust.
8.23 Updated Financial Information. Parent shall deliver to
Purchaser unaudited results of operations and balance sheets for the Group
Members for the monthly periods prior to the Closing Date, to the extent
prepared by the Group Members in the ordinary course of business.
<PAGE> 42
8.24 Furniture, Fixtures. The assets owned by the Companies
include the furniture, fixtures, equipment and cubicles associated solely with
the operation of the Physical Rehabilitation Occupational Health Division of the
Parent.
SECTION IX
INDEMNIFICATION
9.01 Indemnification by the Parent and the Seller. After the
Closing Date, the Parent and the Seller, jointly and severally, shall indemnify
and hold harmless the Purchaser (and its employees, officers, partners,
directors, shareholders, agents and representatives) and the Group Members
(collectively, the "Purchaser Indemnified Parties") from and against all Damages
(unless otherwise specifically limited herein) which are sustained or incurred
by any of the Purchaser Indemnified Parties, to the extent that the Damages are
sustained or incurred by reason of (a) the breach by the Parent or the Seller of
any of its covenants or agreements hereunder, (b) the breach of any of the
representations or warranties made by the Parent and the Seller in this
Agreement or any certificate delivered pursuant to this Agreement (other than
the Medicare Representations, which are addressed in subclause "(g)" herein),
(c) any liability in connection with any outstanding claim covered by liability
insurance with P.I.E. Mutual, (d) any liability in connection with the
litigation that the Parent is currently engaged in with the Pennsylvania
Insurance Guarantee Association, (e) any liability or obligation for which
Parent has assumed responsibility pursuant to Section 8.10 herein, (f) any
liability for claims of a nature typically covered under professional liability
or other liability insurance policies, (g) seventy-five percent (75%) of all
Damages arising from the breach of any Medicare Representation (including any
claims listed on Schedule 2.15 for recoupment under Medicare reimbursement law
or regulation), (h) seventy-five percent (75%) of all Damages arising from any
liability or claim, whether or not included on Schedule 2.15, known or unknown,
arising out of acts or omissions occurring prior to the Closing Date with
respect to any acquisition agreement for the purchase and sale of clinics within
the business of the Group Members, (i) any liabilities, of any nature, of
NovaMark, Inc. not otherwise created or incurred by Purchaser or by NovaMark,
Inc. after the Closing Date, (j) any liabilities for work place injuries or
workers' compensation claims, that occur prior to the Closing Date, and (k) any
liabilities arising from any claim included on Schedule 2.15 which are not
otherwise liabilities against which Group Members have indemnified Purchaser, in
whole or in part pursuant to 9.02.
9.02 Indemnification by the Group Members. After the Closing
Date, the Group Members shall indemnify and hold harmless the Parent, the Seller
and their respective employees, officers, partners, directors, shareholders,
agents and representatives (collectively, the "Seller Indemnified Parties") from
and against all Damages (unless otherwise specifically limited herein) which are
sustained or incurred by any of the Seller Indemnified Parties, to the extent
that such Damages are sustained or incurred by reason of (a) the breach by the
Purchaser of any of its covenants or agreements hereunder, (b) the breach of any
of the representations or warranties made by the Purchaser in Section III
hereof, (c) any liability of the Parent or any of its Affiliates (other than any
Group Member) arising out of those certain agreements (the "Parent Agreements")
described on Schedule 9.02 to which the Parent or any of its Affiliates (other
than
<PAGE> 43
any Group Member) is a party, to the extent the same relate to the business of
any Company (or any other Group Member; provided that the same do not constitute
a breach of any of the Parent's or the Seller's representations or warranties
herein and are not otherwise liabilities against which Parent has indemnified
Purchaser, (d) except as otherwise provided in Section 8.10, severance and other
contractual and other obligations to any of the individuals listed on Schedule
2.11 as of the Effective Time and thereafter; provided that the same do not
constitute a breach of any of the Parent's or the Seller's representations or
warranties herein and are not otherwise liabilities against which Parent has
indemnified Purchaser, (e) twenty-five percent (25%) of all Damages arising from
the breach by Parent and Seller of any Medicare Representation (including any
claims listed on Schedule 2.15 for recoupment or overpayment under Medicare
reimbursement law or regulation), (h) twenty-five percent (25%) of all Damages
arising from any liability or claim, whether or not included on Schedule 2.15,
known or unknown, arising from acts or omissions occurring prior to the Closing
Date with respect to any acquisition agreement for the purchase and sale of
clinics within the business of the Group Members, and (i) all Damages arising
from any acts or omissions occurring after the Closing Date with respect to any
acquisition agreement for the purchase and sale of clinics within the business
of the Group Members; provided that the same do not constitute a breach of any
of the Parent's or the Seller's representations or warranties herein and are not
otherwise liabilities against which Parent has indemnified Purchaser.
9.03 Procedure for Indemnification. (a) Except as provided in
clause (d) of this Section 9.03, in the event that any party hereto or other
Purchaser Indemnified Party or Seller Indemnified Party reasonably believes that
such party has a claim for Damages in respect of which indemnity may be sought
by such party pursuant this Agreement (each, an "Indemnification Matter"), the
party indemnified hereunder (the "Indemnitee") shall notify the party(s)
providing indemnification (collectively, the "Indemnitor") by sending written
notice to the Indemnitor (an "Indemnity Notice"). In the case of third party
claims, which, if successful, could result in an indemnity payment hereunder, an
Indemnity Notice shall be given within 30 days after the discovery by the
Indemnitee of the filing or assertion of any claim against the Indemnitee
stating the nature and basis of such claim; provided, however, that any delay or
failure to notify any Indemnitor of any claim shall not relieve it from any
liability except to the extent that the Indemnitor demonstrates that the defense
of such action is prejudiced by such delay or failure to notify. Any Indemnity
Notice (i) shall state (with reasonable specificity) the basis on which
indemnification is being asserted, (ii) shall set forth the amount of Damages
for which indemnification is being asserted and (iii) in the case of third party
claims, shall be accompanied by copies of all relevant pleadings, demands and
other papers served on the Indemnitee.
(b) The indemnitor shall have the right, exercisable by
written notice to the Indemnitee within 30 days of receipt of notice from the
Indemnitee of the commencement or assertion of any third party claim in respect
of which indemnity may be sought hereunder (the "Indemnity Notice Claim"), to
assume and conduct the defenses of such third party claim with counsel selected
by the Indemnitor and reasonably acceptable to the Indemnitee; provided that (i)
the defense of such third party claim by the Indemnitor will not, in the
judgment for the Indemnitee, have a material adverse effect of the Indemnitee;
and (ii) the Indemnitor has sufficient financial resources (including amounts
held in escrow pursuant to the Escrow
<PAGE> 44
Agreement), in the reasonable judgment of the Indemnitee, to satisfy the amount
of any adverse monetary judgment that is reasonably likely to result; and (iii)
the third party claim solely seeks (and continues to seek) monetary damages; and
(iv) the Indemnitor expressly agrees in writing that as between the Indemnitor
and the Indemnitee, the Indemnitor shall be solely obligated to satisfy and
discharge the third party claim (the conditions set forth in clauses (i) through
(iv) collectively referred to as the "Litigation Conditions"). If the Indemnitor
does not assume the defense of such third party claim in accordance with this
Section 9.03, the Indemnitee may continue to defend the third party claim. If
the Indemnitor has assumed the defense of a third party claim as provided in
this Section 9.03, the Indemnitor will not be liable for any legal expenses
subsequently incurred by the Indemnitee in connection with the defense thereof,
provided, however, that if (i) the Litigation Conditions cease to be met, or
(ii) the Indemnitor fails to take reasonable steps necessary to defend
diligently such third party claim, the Indemnitee may assume its own defense,
and the Indemnitor will be liable for all reasonable costs or expenses paid or
incurred in connection therewith. The Indemnitor or the Indemnitee, as the case
may be, shall have the right to participate in (but not control), at its own
expense, the defense of any third party claim which the other is defending as
provided in this Agreement. The Indemnitor, if it shall have assumed the defense
of any third party claim as provided in this Agreement, shall not, without the
prior written consent of the Idemnitee, consent to a settlement of, or the entry
of any judgment arising from, any such third party claim (i) which does not
include as a unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnitee a complete release from all liability in respect of
such third party claim, or (ii) which grants any injunctive or equitable relief,
or (iii) which may reasonably be expected to have a material adverse effect on
the affected business of the Indemnitee. The Indemnitee shall have the right to
settle any third party claim, the defense of which has not been assumed by the
Indemnitor, with the written consent of the Indemnitor, which consent shall not
be unreasonably withheld or delayed. Within 30 days after the Determination Date
with respect to a third party claim, the Indemnitor shall pay the Indemnitee the
amount of Damages sustained or incurred by the Indemnitee. Interest will accrue
on unpaid Damages at the prime rate plus two percent (2%) per annum.
(c) In the event that liability hereunder does not involve a
third party claim, the Indemnitor shall within 30 days after the date of receipt
of an Indemnity Notice respond in writing to the Indemnitee (the "Indemnity
Response") and set forth with reasonable specificity those items in the
Indemnity Notice to which the Indemnitor does not agree as well as the summary
basis upon which such disagreement is founded. Within 30 days following the
receipt of the Indemnity Response by the Indemnitee, representatives of the
Indemnitor and the Indemnitee shall meet to attempt to resolve through good
faith negotiations the applicable Indemnification Matters. The parties shall
negotiate in good faith for up to 60 days in an attempt to reach a settlement of
any disputed matter. In the event that such good faith negotiations are
unsuccessful or in the event of any other dispute under this Section IX, the
parties shall proceed in accordance with Section 11.07 of this Agreement.
(d) (i) If a claim shall be made by any taxing authority,
which, if successful, might result in an indemnity payment to any Purchaser
Indemnified Party, the Purchaser shall promptly notify the Parent in writing (a
"Tax Notice") of such claim (a "Tax Claim"). If a Tax Notice is not given to the
Parent within a reasonable period of time, or in reasonable detail to apprise
the Parent of the nature of the Tax Claim, in each case taking into
<PAGE> 45
account the facts and circumstances with respect to such Tax Claim, neither the
Parent nor the Seller shall be liable to any Purchaser Indemnified Party to the
extent that the Parent's or the Seller's position is prejudiced as a result
thereof.
(ii) With respect to any Tax Claim, the Parent and the Seller shall have the
right to control and conduct all proceedings and negotiations in connection with
such Tax Claim (including, without limitation, selection of counsel) and,
without limiting the foregoing, may in the Parent's sole discretion pursue or
forego any and all administrative appeals, proceedings, hearings and conferences
with any taxing authority with respect thereto, and may, in the Parent's sole
discretion, either pay the Tax claimed and sue for a refund where applicable law
permits such refund suits or contest the Tax Claim in any permissible manner.
The Parent shall, within 30 days of receipt of a Tax Notice with respect to a
Tax Claim (the "Tax Notice Period"), notify the Purchaser in writing of its
intention to control and conduct the proceedings and negotiations in connection
with such Tax Claim. In the event that the Parent does notify the Purchaser of
its intention to control and conduct the proceedings and negotiations in
connection with any Tax Claim as provided above, the Purchaser shall have the
right to participate fully in such proceedings and negotiations (including,
without limitation, with counsel of its choice), at its sole expense, and the
Parent and the Seller shall cooperate fully with the Purchaser in connection
with such participation. If the Parent does not deliver to the Purchaser within
the Tax Notice Period written notice that it will control and conduct the
proceedings and negotiations in connection with a Tax Claim, the Purchaser may
control, or cause the applicable Group Member to control, and conduct such
proceedings and negotiations in such manner as it may deem appropriate. In the
event that the Parent or the Seller do not exercise their right to control and
conduct the proceedings and negotiations in connection with any Tax Claim as
provided above, the Parent and the Seller shall have the right to participate
fully in such proceedings and negotiations (including, without limitation, with
counsel of their choice), at their sole expense, and the Purchaser shall, and
shall cause each Group Member to, cooperate fully with Parent and the Seller and
their accountants and other representatives in connection with such
participation, and in all cases the Purchaser shall keep the Parent fully
informed as to all matters concerning such Tax Claim and shall promptly notify
the Parent in writing of any and all significant developments relating thereto.
Without limiting Sections 8.04 and 8.06, the Purchaser and each of its
Affiliates shall (and the Purchaser shall cause the Group Members to) cooperate
fully with the Parent and the Seller in contesting any Tax Claim, which
cooperation shall include, without limitation, the retention and (upon the
Parent's request) the provision to the Parent of records and information which
are relevant to such Tax Claim, and making officers and employees available on a
timely and mutually convenient basis to provide additional information or
explanation of any material provided hereunder or to testify at proceedings
relating to such Tax Claim.
(iii) Notwithstanding anything to the contrary contained
herein, in no event shall the Purchaser or any Group Member settle or otherwise
compromise any Tax Claim without the Parent's prior written consent which may
not be withheld for any reason.
9.04 Limits on the Liability of the Parent and Seller. Subject
to the terms of Sections 4.05, 9.07 and 9.08 hereof, the aggregate liability of
the Parent and the Seller for Damages and the obligation to make other payments
to Purchaser pursuant to this Agreement shall be, limited to an aggregate amount
(the "Seller's Liability Amount") equal to Twenty Five
<PAGE> 46
Million Dollars ($25,000,000) and, subject to Section 9.08 hereof, the
Purchaser, on behalf of itself, its Affiliates and all Purchaser Indemnified
Parties, agrees not to seek any Damages or other payments in excess of the
Seller's Liability Amount or from sources other than the funds held in escrow
pursuant to the Escrow Agreement.
9.05 Other Limits on Indemnification.
(a) Subject to Section 9.08, but notwithstanding
anything else in this Section IX or Section X to the contrary and subject to the
final sentence of this Section 9.05(a), no Purchaser Indemnified Party shall be
entitled to indemnification pursuant to Section 9.01 hereof unless and until the
aggregate amount of all Damages to which the indemnity set forth in Section 9.01
relates, sustained or incurred by all Purchaser Indemnified Parties exceeds an
aggregate amount (the "Basket Amount") equal to $500,000; provided that the
Basket Amount shall be increased, dollar for dollar, by the amount by which the
Consolidated Net Working Capital as of the Closing Date (as determined pursuant
to Section 8.20) exceeds $85.8 million. Subject to Section 9.04 and Section
9.08, if such Damages exceed the Basket Amount, then the Seller's liability for
indemnification under Section 9.01 shall be limited to the amount of such
Damages sustained or incurred which exceeds the Basket Amount.
(b) The representations and warranties contained in
or made pursuant to this Agreement shall expire eighteen months from the Closing
Date, provided that the representations and warranties contained in Sections
2.07, 2.21, 2.24, 8.15 and 8.20 shall survive for the applicable statute of
limitations, and the Medicare Representations shall expire twenty-four months
from the Closing Date; provided further that if written notice is properly given
under this Section IX with respect to any alleged breach of a representation or
warranty to which such party is entitled to be indemnified hereunder prior to
the applicable expiration date, such representation or warranty with respect to
such specified matter only shall continue indefinitely until the applicable
claim is finally resolved.
9.06 Losses Net. The amount of any Damages for which
indemnification is provided under this Section IX or Section X shall be net of
Tax benefits actually received by the Indemnitee, and net of any amounts
actually recovered by the Indemnitee under insurance policies with respect to
such Damages.
9.07 Sole and Exclusive Remedy. After the Closing Date, each
party hereto acknowledges and agrees that such party's sole and exclusive remedy
with respect to monetary Damages and any and all other monetary claims or
payment obligations relating to the subject matter of this Agreement and the
transactions contemplated hereby (other than for fraud and other than disputes
arising under the second sentence of Section 8.06(b) hereof which disputes shall
be resolved as set forth in such Section) shall be in accordance with, and
limited by, the indemnification provisions set forth in this Agreement;
provided, however, that nothing contained in this Agreement shall in any manner
limit the Purchaser's right to seek injunctive and other equitable relief to
enforce the obligations of the Seller and the Parent under this Agreement.
9.08 Limitation on Indemnification. Notwithstanding anything
to the contrary in this Agreement, (i) there shall be no limitations on the
liability (or the sources of recovery) of
<PAGE> 47
the Seller and the Parent under either Section 9.04 or Section 9.05 for Damages
of the Purchaser which relate to the representations, warranties and
indemnifications set forth in Sections 2.01 ("Organization") (in so far as it
relates to the due incorporation or organization of the Group Members and the
existence of subsidiaries), 2.03 ("Capitalization"), 2.09 ("Title to Assets"),
2.20 ("Authority"), 2.21 ("Ownership of Shares"), 8.02(e) ("Employee Matters"),
8.06 ("Tax Matters"), 8.16 ("NCES Agreement"), 8.20(a)(ii) ("Long-Term Liability
Amount"), 8.20(a)(iii) ("Tax Liability Amount"), 9.01(c), (d), (e), (f), (i),
(j) and (k), or for fraud, and (ii) the limitations of Section 9.05 shall not
apply to claims of Purchaser based on a breach of the representations and
agreements of Parent set forth in Sections 8.15 ("Accounts Receivable") and
8.20(i) ("Consolidated Net Working Capital").
9.09 Limitation on Materiality. For purposes of the
indemnification provided in this Section IX, in determining whether the
representations and warranties of the Parent or the Seller have been breached or
are inaccurate or the amount of any Damages, no effect will be given to any
materiality (including Material Adverse Effect) qualifications set forth in such
representations and warranties.
SECTION X
BROKERS AND FINDERS
10.01 The Parent's and the Seller's Obligations. Neither the
Purchaser nor any Group Member shall have any obligation to pay any financial
advisory, finder's fee or other compensation to any person, firm or corporation
claiming by, through or under the Parent, the Seller or any Group Member in
connection with the sale of the Shares contemplated by this Agreement and the
transactions contemplated herein, and the Parent and the Seller, jointly and
severally, hereby agree to defend, indemnify and hold the Purchaser and each
Group Member harmless from any Damages sustained or incurred by the Purchaser or
such Group Member by reason of any such claim for any such fee or other
compensation. It is understood and agreed that the Parent shall be solely
responsible for the fees and the expenses of Wasserstein Perella & Co., Inc. and
Warburg Dillon Read LLC ("Warburg") in connection with this Agreement and the
transactions contemplated hereby.
10.02 The Purchaser's Obligations. Neither the Parent nor the
Seller shall have any obligation to pay any financial advisory, finder's fee or
other compensation to any person, firm or corporation claiming by, through or
under the Purchaser (or any Affiliate thereof) in connection with this Agreement
and the transactions contemplated herein, and the Purchaser hereby agrees to
defend, indemnify and hold the Parent and the Seller harmless from any Damages
sustained or incurred by the Seller by reason of any such claim for any such fee
or other compensation.
<PAGE> 48
SECTION XI
MISCELLANEOUS
11.01 Notices. All notices, requests or instructions hereunder
shall be in writing and delivered personally or sent by telecopy or registered
or certified mail, postage prepaid, return receipt requested, or by FedEx or
other recognized overnight courier as follows:
(a) if to the Seller or the Parent:
NovaCare, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Chief Executive Officer
Telecopy: (610) 992-0310
with a copy to:
Haythe & Curley
237 Park Avenue
New York, New York 10017
Attention: Andrew J. Beck, Esq.
Telecopy: (212) 682-0200
(b) if to the Purchaser:
Select Medical Corp.
4718 Old Gettysburg Road
Mechanicsburg, PA 17055
Attention: Michael Tarvin
General Counsel
Telecopy: (717) 972-1042
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attention: Carmen J. Romano
Telecopy: (215) 994-2222
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered, on the date of receipt, if telecopied, three business days
after the date of mailing, if mailed by registered or certified mail, return
receipt
<PAGE> 49
requested, and one business day after the date of sending, if sent by FedEx or
other recognized overnight courier.
11.02 Entire Agreement. This Agreement, the Schedules and the
Exhibits hereto contain the entire agreement among the parties hereto with
respect to the transactions contemplated hereby, and, except for that certain
Confidentiality Agreement (the "Confidentiality Agreement") between Warburg, on
behalf of the Parent, and the Purchaser, which shall remain in full force and
effect until the Closing at which time it shall terminate, supersede all prior
agreements, understandings, negotiations and discussions, whether written or
oral, of the parties, and, except as otherwise provided in Sections 6.03 and
8.05 hereof, no modification hereof shall be effective unless in writing and
signed by the party against which it is sought to be enforced.
11.03 Assignment. This Agreement shall not be assignable by
any of the parties hereto except pursuant to a writing executed by all of the
parties hereto except that the Purchaser may without the Seller's or the
Parent's consent assign its right hereunder to a wholly owned subsidiary of the
Purchaser, but no such assignment shall relieve the Purchaser of its obligations
hereunder.
11.04 Further Action. Each of the parties hereto shall use
such party's best efforts to take such actions as may be necessary or reasonably
requested by the other parties hereto to carry out and consummate the
transactions contemplated by this Agreement.
11.05 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
11.06 Expenses. Each of the parties hereto shall bear such
party's own expenses in connection with this Agreement and the transactions
contemplated hereby whether or not the Closing occurs. The Sellers shall pay
each Group Member's expenses in connection with this Agreement and the
transactions contemplated hereby whether or not the Closing occurs. In the event
that there are any direct or indirect real property transfer, personal property
transfer or other similar transfer Taxes payable in connection with the
transactions contemplated hereby, such Taxes shall be paid one-half by the
Purchaser and one-half by the Seller. The Seller and the Purchaser shall share
equally the cost of the filing fee required by the HSR Act.
11.07 Arbitration. Subject to Sections 8.06(b) and 9.03(c)
hereof, the parties agree that they shall submit any dispute arising out of or
relating to this Agreement, or any breach hereof, to arbitration in accordance
with the rules of the American Arbitration Association then in effect. The
parties further agree that judgment upon an award rendered by the arbitrator may
be entered in any court having jurisdiction thereof. The arbitration shall be
held in Philadelphia, Pennsylvania.
11.08 Schedules and Exhibits. All Schedules and Exhibits to
this Agreement are integral parts of this Agreement. Any item disclosed
hereunder on any Schedule hereto shall be deemed disclosed for purposes of the
other Schedules hereof provided that the relevance of the disclosed item to the
other Schedules is reasonably clear. Without limiting the generality of the
foregoing, the fact that any disclosure on any of the Schedules is not required
to be disclosed in
<PAGE> 50
order to render the applicable representation or warranty to which it relates
true, or that the absence of such disclosure on the Schedule would not
constitute a breach of such representation or warranty, shall not be deemed or
construed to expand the scope of any representation or warranty hereunder or to
establish a standard of disclosure in respect of any representation or warranty.
The right to indemnification, payment of Damages or other remedy based on the
Seller's and the Parent's representations, warranties, covenants, and
obligations will not be affected by any investigation conducted with respect to,
or any Knowledge of the Purchaser acquired (or capable of being acquired) at any
time, whether before or after the execution and delivery of this Agreement or
the Closing Date, with respect to the accuracy or inaccuracy of or compliance
with, any such representation, warranty, covenant, or obligation.
11.09 Invalidity, Etc.. Should any provision of this Agreement
be held by a court or arbitration panel of competent jurisdiction to be
enforceable only if modified, such holding shall not affect the validity of the
remainder of this Agreement, the balance of which shall continue to be binding
upon the parties hereto with any such modification to become a part hereof and
treated as though originally set forth in this Agreement. The parties further
agree that any such court or arbitration panel is expressly authorized to modify
any such unenforceable provision of this Agreement in lieu of severing such
unenforceable provision from this Agreement in its entirety, whether by
rewriting the offending provision, deleting any or all of the offending
provision, adding additional language to this Agreement, or by making such other
modifications as it deems warranted to carry out the intent and agreement of the
parties as embodied herein to the maximum extent permitted by law. The parties
expressly agree that this Agreement as so modified by a court or arbitration
panel shall be binding upon and enforceable against each of them. In any event,
should one or more of the provisions of this Agreement be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions hereof, and if such
provision or provisions are not modified as provided above, this Agreement shall
be construed as if such invalid, illegal or unenforceable provisions had never
been set forth herein.
11.10 Headings. The headings of this Agreement are for
convenience of reference only and are not part of the substance of this
Agreement.
11.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
without giving effect to the conflicts of laws provisions and principles thereof
that would apply the laws of any other jurisdiction.
11.12 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
11.13 Construction. The parties hereto agree that this
Agreement is the product of negotiations among sophisticated parties, each of
whom was represented by counsel, and each of whom had an opportunity to
participate in, and did participate in, the drafting of each provision hereof.
Accordingly, ambiguities in this Agreement, if any, shall not be construed
strictly or in favor of or against any party hereto but rather shall be given a
fair and reasonable construction without regard to the rule of contra
proferentem.
<PAGE> 51
11.14 Assignment of Parent Agreements. The Parent hereby
assigns to the relevant Company, and such Company hereby accepts and assumes,
all the Parent's rights and obligations pursuant to any Parent Agreement set
forth on Schedule 9.02 applicable to such Company. To the extent that any Parent
Agreement (or rights and obligations thereunder) to be assigned to any Company
hereunder requires the consent to such assignment by any third party thereto,
the Parent shall cooperate fully with such Company in attempting to procure any
such consent and in any reasonable arrangement designed to provide such Company
with the benefits under any such Parent Agreement. The failure of any Company or
the Parent to obtain any such consent shall in no way relieve such Company from
its obligation to assume such Parent Agreement (or applicable rights and
obligations thereunder) and such Company shall fully and faithfully perform,
observe and fulfill all the unfulfilled applicable obligations of the Parent
under such Parent Agreement. From and after the Closing Date, the Purchaser
shall use its best efforts to obtain promptly and deliver to the Parent, written
releases in favor of the Parent with respect to any such obligations and
liabilities under all Parent Agreements.
SECTION XII
DEFINITIONS
12.01 Certain Definitions. The following terms when used
herein shall have the meanings assigned to them below (certain other terms are
defined elsewhere herein):
"Actions" shall have the meaning set forth in Section 2.15
hereof.
"Affiliate" means a person or entity who directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, another person.
"Applicable Law" shall mean the collective reference to any
law, rule, regulation, ordinance, writ, judgment, injunction, decree,
determination, award or other order of any Governmental Authority, in each case
excluding any and all Environmental Laws.
"Beneficiary" shall mean the person(s) or entity(ies)
designated by an Employee or Former Employee, by operation of law or otherwise,
as the party entitled to compensation, benefits, damages, insurance coverage,
payments, indemnification or any other goods or services as a result of any
liability or claim under any applicable welfare or benefit plan or program.
"Benefit Plan" shall have the meaning set forth in Section
2.12 hereof.
"Best Efforts" or "best efforts" shall mean diligently,
promptly and in good faith taking all actions which are reasonable, necessary
and appropriate to accomplish the objective requiring the use of best efforts,
but shall not include any obligation (a) to make any payment, incur any costs,
commit available resources, or forego the receipt of any payment, which in any
case is material in amount in light of the required objective, (b) to initiate
any lawsuit or other proceeding to achieve the required objective, or (c) to
take any action which is unlawful.
<PAGE> 52
"Closing" and "Closing Date" shall have the meanings set forth
in Section 4.01 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Common Stock" shall have the meaning set forth in the
recitals hereof.
"Competing Business" shall mean any business or other
enterprise which engages in the business in which any Group Member currently
engages.
"Confidentiality Agreement" shall have the meaning set forth
in Section 11.02 hereof.
"Contracts" shall have the meaning set forth in Section 2.10
hereof.
"Control" (including the terms "controlling", "controlled by"
and "under common control with") means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
the person, whether through stock ownership, voting rights, governing boards or
otherwise.
"Damages" shall mean any and all losses, claims, demands,
damages, liabilities, obligations, costs and expenses, including without
limitation, reasonable fees and disbursements of counsel (however sustained or
incurred, including, without limitation, in any action or proceeding involving
any third party or involving any other party to this Agreement) sustained or
incurred by the Purchaser Indemnified Parties (or any of them) or the Seller
Indemnified Parties (or any of them), as the case may be, and other reasonable
out-of-pocket costs and expenses incurred in connection with investigating or
defending any action, suit or proceeding, commenced or threatened, but excluding
punitive damages (other than punitive damages payable to third parties).
"Determination" shall mean (a) the final non-appealable
judgment by a court of competent jurisdiction or arbitrator with respect to any
claim covered by Section IX hereof or (b) a compromise and settlement agreement
executed and delivered by both the Indemnitor and the Indemnitee with respect to
any claim covered by Section IX.
"Determination Date" shall mean the date the Determination is
final, legally binding, and non-appealable.
"Effective Time" shall mean at the close of business Eastern
Standard Time on the Closing Date.
"Employees" shall mean (i) all individuals with whom a Group
Member maintains, on the Closing Date, an employer-employee relationship,
including any individuals on lay-off, disability or leave of absence, whether
paid or unpaid, and (ii) individuals whose primary role and responsibilities
relate to the businesses conducted by the Group.
"Environmental Laws" shall have the meaning set forth in
Section 2.16(b) hereof.
<PAGE> 53
"Environmental Permits" shall have the meaning set forth in
Section 2.16(b) hereof.
"ERISA" shall have the meaning set forth in Section 2.12(a)
hereof.
"Financial Statements" shall have the meaning set forth in
Section 2.04 hereof.
"Former Employees" shall mean all individuals as to whom an
employer-employee relationship with any Group Member existed prior to the
Closing Date, but does not exist on the Closing Date, who remain entitled to
benefits under any applicable welfare or benefit plan or program.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"Governmental Authority" shall mean the collective reference
to any court, tribunal, government, or governmental agency, authority or
instrumentality, domestic or foreign.
"Group" shall mean the Companies and their respective
subsidiaries, taken as a whole.
"Group Member" shall mean, individually, each of the Companies
and each of its subsidiaries.
"Indemnification Matter" shall have the meaning set forth in
Section 9.03 hereof.
"Knowledge of the Parent" shall mean, with respect to a
particular fact or other matter, that (i) an individual who is a director or
officer of the Parent, the Seller, any Company or any Group Member is actually
aware of such fact or other matter or (ii) a reasonably prudent individual in
the satisfaction of his or her duties as a director or officer of the Parent,
the Seller, any Company or any Group Member would be reasonably expected to
discover or otherwise become aware of such fact or other matter in the course of
conducting a reasonable investigation.
"Knowledge of the Purchaser" shall mean, with respect to a
particular fact or other matter, that (i) an individual who is a director or
officer of the Purchaser is actually aware of such fact or other matter or (ii)
a reasonably prudent individual in the satisfaction of his or her duties as a
director or officer of the Purchaser would be reasonably expected to discover or
otherwise become aware of such fact or other matter in the course of conducting
a reasonable investigation.
"Lien" shall mean any mortgage, pledge, encumbrance, charge or
other security interest of any kind or nature whatsoever.
"Managed Company" shall have the meaning set forth in Section
2.01 hereof.
"Material Adverse Effect" shall mean any circumstance or event
which, individually or in the aggregate with any other circumstance or event, is
or is reasonably likely to be material and adverse to the assets, properties,
businesses, results of operations or financial
<PAGE> 54
condition of the Group, taken as a whole, and in any case after application of
the proceeds of any insurance or indemnity under any contract or agreement to
which any Group Member, the Parent, the Seller or the Purchaser (or any
Affiliate thereof) is a party; provided that the term "Material Adverse Effect"
as used herein shall not include any effect attributable to changes in the
economy (of the United States or any other country) generally, changes in the
industries in which any Group Member engages, or seasonality of the businesses
of any Group Member or any changes in reimbursement regulation, legislation or
regulatory interpretation. For the purposes of this Agreement, the determination
of whether a breach of a representation and warranty or covenant of this
Agreement shall be deemed to give rise to a Material Adverse Effect shall be
determined on a cumulative basis by adding the effect of the breach of any such
representation and warranty or covenant (determined without regard to any
materiality or Material Adverse Effect qualifiers) to the effect of all other
breaches of representations and warranties and covenants of this Agreement
(determined without regard to any materiality or Material Adverse Effect
qualifiers) for each of the applicable period or periods to which each such
representation, warranties or covenants relate, in all cases before applying the
materiality standard set forth in the preceding sentence, and then determining
whether, for any of the applicable periods, such aggregate sum or effect meets
or exceeds the materiality standard set forth in the preceding sentence. For
purposes of this definition of Material Adverse Effect, the effect of any matter
as to any past period shall be determined based on its actual effect, and its
effect as to any future period shall be determined based on the effect that such
matter is reasonably likely to have.
"Medicare Representations" shall mean those representations
and warranties set forth in Sections 2.16 (c) through (i), 2.25, 2.27, 2.30 and
2.31 herein.
"Non-PEO Benefit Plans" shall mean the Benefit Plans not
maintained pursuant to the Parent NCES Agreement.
"PEO Benefit Plans" shall mean the Benefit Plans maintained
pursuant to the Parent NCES Agreement.
"Permits" shall have the meaning set forth in Section 2.16(a)
hereof.
"Permitted Liens" shall mean:
(a) Liens for Taxes which are not yet due or which
are being contested in good faith by appropriate proceedings, provided that
adequate reserves with respect to contested Taxes are maintained on the books of
any Group Member;
(b) pledges or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment insurance and
other social security legislation;
(c) easements, rights-of-way, restrictions and other
similar encumbrances previously incurred in the ordinary course of business
which, in respect of properties or assets of the Group, are not material, and
which, in the case of such encumbrances on the assets or properties of any Group
Member, do not materially detract from the value of any
45
<PAGE> 55
such properties or assets and do not materially interfere with any present use
of such properties or assets;
(d) carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like Liens arising in the ordinary course of
business which are not overdue for a period of more than 90 days or which are
being contested in good faith by appropriate proceedings;
(e) deposits to secure the performance of bids,
contracts (other than for borrowed money), leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(f) statutory and contractual Liens on the property
of any Group Member in favor of landlords securing leases; and
(g) Liens in existence on the Closing Date listed on
Schedule 2.09 hereto.
"Pre-Closing Covenants" shall have the meaning set forth in
Section 9.05(c) hereof.
"Protected Employee" shall mean any current or former
executive or professional employee of the Group Members or the Purchaser during
the period in which the covenant set forth in Section 8.11 hereof are in effect,
but excluding any persons who have not been employed by any Group Member or the
Purchaser during the two-year period preceding the date on which a determination
is made regarding whether a person is a Protected Employee.
"Purchaser Indemnified Parties" shall have the meaning set
forth in Section 9.01 hereof.
"Retro-Premium Insurance Amounts" shall mean any liability or
other obligation paid by the Parent or the Seller (or any Affiliate of the
Parent or the Seller) (whether by reimbursement to any claims security or escrow
funds, any additional premiums on retrospective adjustment or otherwise) under
any policies of insurance maintained by the Parent or the Seller (or any
Affiliate of the Parent or the Seller) for the benefit of any Group Member
attributable to events or occurrences on or prior to the Closing Date.
"Schedules" shall mean the Schedules attached hereto and made
a part of this Agreement.
"Seller Indemnified Parties" shall have the meaning set forth
in Section 9.02 hereof.
"Seller's Health Plan" shall have the meaning set forth in
Section 8.07 hereof.
"Seller Tax Periods" shall mean and include any and all
periods ending on or before the Closing Date, and in addition, the portion of
any taxable period that includes, but does not end on or before, the Closing
Date that consists of a partial period deemed to end on the
46
<PAGE> 56
Closing Date; provided that in the case of any Seller Tax Period that does not
end on or before the Closing Date, for purposes hereof the books and records of
the relevant Group Member(s) shall be deemed to have been closed at and as of
the Closing Date.
"Shares" shall have the meaning set forth in the recitals
hereof.
"Subsidiary" and "Subsidiaries" shall have the meanings set
forth in Section 2.01 hereof.
"Taxes" shall have the meaning set forth in Section 2.07
hereof.
"Tax Claim" shall have the meaning set forth in Section
9.03(d) hereof.
"Tax Returns" shall have the meaning set forth in Section 2.07
hereof.
"Tax Sharing Agreement" shall mean the practice employed by
the Parent in causing the Seller and each of the Group Members to pay to the
Parent or to the Seller the separate company liability of each Group Member in
respect of the consolidated Federal income Tax and state income Tax liabilities
of the Parent's or the Seller's tax group, as applicable.
"Y2K-compliant" shall mean able to provide specific dates and
calculate spans of dates, and to record, store, process and provide true and
accurate dates and calculations for dates and spans of dates within and between
the twentieth and twenty-first centuries prior to, including and following
January 1, 2000, including by: (i) correctly processing day and date
calculations; (ii) recognizing January 1, 2001 as a valid date; (iii)
recognizing the year 2000 as a leap year having 366 days, and correctly
processing February 29, 2000 as a valid leap year date; (iv) employing only
four-digit year representations in software, components and systems owned or
operated in connection with any Company or Subsidiary; and (v) incorporating
interface programs sufficient to translate accurately to four-digit format
(without any burden of interpretation) any two-digit year representations
included in software, components or systems, including but not limited to
external databases, data warehouses, software systems and user interfaces that
send data to or receive data from software, components or systems used in the
Group's business.
* * *
<PAGE> 57
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the date first above written.
SELLER:
NC RESOURCES, INC.
By: /s/ Michael K. Fox
-------------------------------
Name: Michael K. Fox
Title: President
PARENT:
NOVACARE, INC.
By: /s/ Timothy E. Foster
-------------------------------
Name: Timothy E. Foster
Title: Chief Executive Officer
PURCHASER:
SELECT MEDICAL CORPORATION
By: /s/ M.F. Jackson
-------------------------------
Name: M.F. Jackson
Title: Chief Financial Officer and
Senior Vice President
<PAGE> 1
EXHIBIT 99(a)
October 1, 1999
The Board of Directors
NovaCare, Inc.
1016 West 9th Avenue
King of Prussia, Pennsylvania 19406
Dear Members of the Board:
We understand that NovaCare, Inc. ("NovaCare") is considering a
transaction whereby NovaCare will sell to Select Medical Corporation ("Select
Medical") its outpatient physical therapy and occupational health
rehabilitation services business (the "Business" and, such sale, the
"Transactional"). Pursuant to the terms of the Stock Purchase Agreement,
dated as of October 1, 1999 (the "Purchase Agreement"), by and among
NovaCare, NC Resources, Inc., a wholly owned subsidiary of NovaCare ("NCR"),
and Select Medical, NCR will sell to Select Medical all of the outstanding
shares of the common stock, par value $0.01 per share, of each of
Rehabclinics, Inc., NovaCare Outpatient Rehabilitation East, Inc., NovaCare
Outpatient Rehabilitation West, Inc., NovaCare Occupational Health Services,
Inc., Industrial Health Care Company, Inc. and CMC Center Corporation for
total consideration consisting of (i) the assumption of the principal of and
accrued interest outstanding on the closing date of the Transaction under
promissory notes payable by NovaCare and NCR and its subsidiaries to the
sellers of acquired businesses and/or third parties in connection with such
acquisitions and other third party indebtedness more fully specified in the
Purchase Agreement in the approximate aggregate amount, as of June 30, 1999,
of $46.9 million, and (ii) the payment of $153.2 million in cash
(collectively, the "Consideration"), subject to adjustment as specified in
the Purchase Agreement. Representatives of NovaCare have informed us that, in
connection with the Transaction, Select Medical also will assume certain
earn-out obligations of NovaCare and NCR and its subsidiaries in the
aggregate amount, as of September 30, 1999, of $23.6 million and that
approximately $25.0 million of the Consideration will be held in escrow to
satisfy if, and to the extent required, certain indemnification obligations
of NovaCare and NCR as set forth in the Purchase Agreement. The terms and
conditions of the Transaction are more fully set forth in the Purchase
Agreement.
You have requested our opinion as to the fairness to NovaCare
from a financial point of view of the Consideration to be received by
NovaCare in the Transaction.
Warburg Dillon Read LLC ("WDR") has acted as financial advisor to
Novacare in connection with the Transaction and will receive a fee upon the
consummation thereof. In the past, WDR and its predecessors have provided
investment banking services to NovaCare unrelated to the proposed Transaction
and have received customary compensation for the rendering of such services.
In the ordinary course of business, WDR, its successors and affiliates
<PAGE> 2
may trade securities of NovaCare for their own accounts and, accordingly, may at
any time hold a long or short position in such securities.
Our opinion does not address NovaCare's underlying business
decision to effect the Transaction. At your direction, we have not been asked
to, nor do we, offer any opinion as to the material terms of the Purchase
Agreement and the obligations thereunder, or the form of the Transaction. In
rendering this opinion, we have assumed, with your consent, that each of
NovaCare, NCR and Select Medical will comply with all material terms of the
Purchase Agreement, as applicable, and that the Transaction will be validly
consummated in accordance with its terms.
In arriving at our opinion, we have, among other things: (i)
reviewed certain publicly available business and historical financial
information relating to the Business; (ii) reviewed certain internal
financial information and other data relating to the Business and its
financial prospects, including estimates and financial forecasts prepared by
management of NovaCare that were provided to us by NovaCare and not publicly
available; (iii) conducted discussions with members of the senior management
of NovaCare; (iv) reviewed publicly available financial and stock market data
with respect to certain other companies in lines of business we believe to be
generally comparable to those of the Business; (v) compared the financial
terms of the Transaction with the publicly available financial terms of
certain other transactions which we believe to be generally relevant; (vi)
reviewed the Purchase Agreement; and (vii) conducted such other financial
studies, analyses and investigations and considered such other information as
we deemed necessary or appropriate. In connection with our engagement, we
were requested to contact, and we held discussions with, third parties to
solicit indications of interest in the possible acquisition of the Business.
In connection with our review, with your consent, we have not
assumed any responsibility for independent verification for any of the
information reviewed by us for the purpose of this opinion and have, with
your consent, relied on its being complete and accurate in all material
respects. In addition, at your direction, we have not made or received any
independent evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) of the Business, nor have we been furnished with
any such evaluation or appraisal. With respect to the financial information
and other data relating to the Business referred to above, we have assumed,
at your direction, that they have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of NovaCare as to the future performance of the Business. At your
direction, we also have assumed that the Escrowed Amount will be paid in full
to NovaCare and NCR at the end of the applicable indemnity period. Our
opinion is necessarily based on economic, monetary, market and other
conditions as in effect on, and the information made available to us, as of
the date of this letter.
Our advisory services and the opinion expressed herein are
provided for the information of the Board of Directors of NovaCare in its
evaluation of the proposed Transaction and may not be relied upon by any
third party or used for any other purpose. Our opinion may not be published
or otherwise referred to, nor shall any public reference to WDR be made,
without our prior written consent.
<PAGE> 3
Based upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Consideration to be received by NovaCare in the
Transaction is fair, from a financial point of view, to NovaCare.
Very truly yours,
WARBURG DILLON READ LLC
/s/ William C. McGahan /s/ Roderick J. O'Neil
- ---------------------- ----------------------
William C. McGahan Roderick J. O'Neil
Managing Director Director
<PAGE> 1
EXHIBIT 99(b)
NOVACARE STOCKHOLDERS APPROVE ALL THREE PROPOSALS AT SPECIAL MEETING
September 21, 1999 03:45 PM Eastern Time
KING OF PRUSSIA, Pa., Sept. 21 /PRNewswire/ -- NovaCare, Inc. NOV , a leading
national provider of physical rehabilitation and occupational health services
and employee services, held a Special Meeting of Stockholders today and
announced that stockholders approved the three proposals recommended by the
Board of Directors in the company's proxy statement dated August 13, 1999.
Stockholders approved (1) the sale of the company's outpatient physical therapy
and occupational health services (PROH) business, (2) the sale of the company's
interest in NovaCare Employee Services, Inc. NCES and (3) the adoption of a Plan
of Restructuring.
NovaCare, Inc. is the nation's second largest provider of outpatient physical
rehabilitation and occupational health services. Its subsidiary, NovaCare
Employee Services Inc., is a leading national professional employer
organization, administering the full array of human resource functions,
including the management of health care benefits and workers' compensation, for
small and medium-sized businesses.
SOURCE NovaCare, Inc.
<PAGE> 1
EXHIBIT 99(c)
NOVACARE ANNOUNCES TENDER OF ITS INTEREST IN NOVACARE EMPLOYEE SERVICES, INC.
September 9, 1999 10:31 AM Eastern Time
KING OF PRUSSIA, Pa., Sept. 9 /PRNewswire/ -- NovaCare, Inc. NOV , a leading
national provider of physical rehabilitation and occupational health services
and employee services, announced today a definitive agreement, subject to
certain conditions, to tender its approximately 64% ownership interest in the
outstanding stock of NovaCare Employee Services, Inc. NCES at the price of $2.50
per share. The agreement was reached in conjunction with a definitive agreement
by NovaCare Employee Services to sell the company to an investment group
comprising Patricof & Co. Ventures, Inc., Fidelity Ventures Limited and AFLAC
Incorporated (the Investors).
Under the terms of the agreement by NovaCare Employee Services, a new private
company established by the Investors will acquire all the stock of NovaCare
Employee Services at a price of $2.50 per share of common stock. The Investors
will effect the purchase through a cash tender offer to NovaCare Employee
Services stockholders and a subsequent merger of NovaCare Employee Services into
a new private company managed by the Investors. The tender offer will commence
on or about September 15, 1999.
The tender offer is subject to the approval of the NovaCare, Inc. stockholders
and the satisfaction of customary closing conditions. The tender offer is
expected to close during October 1999.
Wasserstein, Perella & Company, Inc. and Warburg Dillon Read acted as NovaCare's
advisors on the transaction. CIBC World Markets was engaged by NovaCare Employee
Services to render a fairness opinion on the transaction.
NovaCare, Inc. is the nation's second largest provider of outpatient physical
rehabilitation and occupational health services. Its subsidiary, NovaCare
Employee Services, Inc., is a leading national professional employer
organization, administering the full array of human resources functions,
including the management of health care benefits and workers' compensation, for
small- and medium-sized businesses.
Cautionary Statement
Except for historical information, matters discussed are forward-looking
statements that are based on management's estimates, assumptions and
projections. Important factors that could cause results to differ materially
from those expected by management include reimbursement system changes, the
productivity of clinicians, pricing of payer contracts, management retention and
development, management's success in developing and introducing new products and
lines of business, the ability of the company, its customers and suppliers to
complete assessment, testing and remediation of Year 2000 issues, the ability of
the company to improve its cash flow from operations, the ability to complete
the sale of the physical rehabilitation and occupational health business,
adverse Internal Revenue Service rulings with respect to the employer status of
employee services businesses
<PAGE> 2
and the company's ability to implement the employee services business model.
SOURCE NovaCare, Inc.
<PAGE> 1
EXHIBIT 99(d)
NOVACARE ANNOUNCES SALE OF PHYSICAL REHABILITATION AND OCCUPATIONAL HEALTH
BUSINESS
October 4, 1999 02:45 PM Eastern Time
KING OF PRUSSIA, Pa., Oct. 4 /PRNewswire/ -- NovaCare, Inc. NOV announced today
that it has reached a definitive agreement to sell its outpatient physical
rehabilitation and occupational health (PROH) business to Select Medical
Corporation, a privately held health care company with its headquarters in
Mechanicsburg, Pa. Under the terms of the agreement, Select Medical will pay
NovaCare total consideration of $200 million, including the assumption of debt
(expected to be approximately $45 million at closing) and approximately $155
million in cash, of which $25 million will be placed in escrow in conjunction
with certain representations to Select Medical.
Select Medical is a private company that primarily operates long-term acute care
hospitals and outpatient medical rehabilitation clinics. After completion of the
transaction, Select Medical will have annualized net revenues exceeding $800
million with more than 40 long-term acute care hospitals and more than 700
outpatient medical rehabilitation clinics within the U.S. and Canada. Select
Medical was founded in 1997 by Rocco and Robert Ortenzio, who have extensive
experience as leading executives within the medical rehabilitation services
industry, including Continental Medical Systems, which they founded in 1985.
Select Medical has financial backing from several of the nation's leading
private equity investment firms, including Welsh, Carson, Anderson & Stowe; GTCR
Golder Rauner LLC; and Thoma Cressey Equity Partners.
NovaCare's PROH business will operate as NovaCare, a division of Select Medical.
Division headquarters for this business will remain in King of Prussia, Pa.
"With this transaction, our employees will be joining a company with a
successful track record and a strong commitment to the rehabilitation industry,"
said Timothy E. Foster, chief executive officer. "In addition, Select has the
resources to take advantage of the growth opportunities in the attractive
outpatient services sector. The new owners will retain the nationally recognized
NovaCare brand and community relationships."
NovaCare shareholders previously approved the sale of PROH in a Special Meeting
of Stockholders on September 21, 1999. The transaction is expected to close
within 30 days following review under the Hart-Scott-Rodino Act. The transaction
is not subject to financing contingencies.
"The purchase price is at the minimum of our expected range as estimated in our
August proxy statement to shareholders and reflects current weakness in the debt
markets for health care transactions and declining values in the rehabilitation
sector," said Foster.
<PAGE> 2
Warburg Dillon Read and Wasserstein Perella & Company acted as NovaCare's
advisors on the transaction.
Cautionary Statement
Except for historical information, matters discussed are forward-looking
statements that are based on management's estimates, assumptions and
projections. Important factors that could cause results to differ materially
from those expected by management include reimbursement system changes, the
productivity of clinicians, pricing of payer contracts, management retention and
development, management's success in developing and introducing new products and
lines of business, the ability of the company, its customers and suppliers to
complete assessment, testing and remediation of Year 2000 issues, the ability of
the company to improve its cash flow from operations, the ability to complete
the sale of the physical rehabilitation and occupational health business and
adverse Internal Revenue Service rulings with respect to the employer status of
employee services businesses.
SOURCE NovaCare, Inc.
