<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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): June 1, 1999
NOVACARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-10875 13-3247827
(State or other jurisdiction (Commission file number) (I.R.S. Employer
or incorporation) Identification No.)
1016 W. NINTH AVENUE, KING OF PRUSSIA, PA 19406
(Address of principal executive office) (Zip code)
Registrant's telephone number: (610) 992-7200
(Former name, former address and former fiscal year,
if changed since last report.)
Page 1 of 12
Index to Exhibits on Page 11
<PAGE> 2
NOVACARE, INC. AND SUBSIDIARIES
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
As announced on May 28, 1999, effective June 1, 1999, NovaCare, Inc., a
Delaware corporation (the "Registrant"), and NC Resources, Inc., a Delaware
corporation and a wholly-owned subsidiary of the Registrant ("Resources"),
entered into a Stock Purchase Agreement (the "Agreement") to sell to Chance
Murphy, Inc., a Delaware corporation (the "Purchaser"), all of the issued and
outstanding shares of the common stock of NovaCare, Inc., a Pennsylvania
corporation and wholly-owned subsidiary of Resources ("Long-term Care
Services"), for nominal consideration (the "Transaction"). Pursuant to the
Agreement, the Registrant has provided a working capital guarantee of $30
million and the Purchaser has agreed to pay to the Registrant the amount, if
any, of working capital as of June 1, 1999 in excess of $30 million or, as
applicable, to transfer to the Registrant any remaining accounts receivable
relating to periods as of June 1, 1999 once the working capital guarantee has
been satisfied. Under the terms of the Transaction, the working capital
guarantee must be satisfied by no later than October 29, 1999. As a result of
this Transaction, the Registrant will recognize a loss of approximately $36
million in the fourth quarter of fiscal 1999.
As previously disclosed, in the third quarter of fiscal 1999, the
Registrant recorded a restructuring charge to completely exit selected Long-term
Care Services markets ("Selected Markets Exit"). As a result of this Transaction
and the Selected Markets Exit, the Registrant will have completely exited the
Long-term Care Services business. Prior to the consummation of the Transaction,
Long-term Care Services engaged in the business of delivering contract therapy
and management consulting services principally to long-term care providers.
ITEM 7(b). PRO FORMA FINANCIAL INFORMATION.
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations for the fiscal years ended June 30, 1998, 1997, and 1996 and the nine
months ended March 31, 1999 and 1998 and unaudited Pro Forma Consolidated
Balance Sheet as of March 31, 1999 are based on the historical consolidated
financial statements of the Registrant adjusted to give effect to the
disposition of the Registrant's Long-term Care Services business. The Pro Forma
Condensed Consolidated Statements of Operations have been prepared assuming the
above disposition occurred as of the beginning of the respective periods
presented and the Pro Forma Consolidated Balance Sheet has been prepared
assuming that the disposition occurred as of March 31, 1999.
The Pro Forma Financial Information does not purport to present what
the Registrant's results of operations or financial position would have been had
the disposition occurred as of the beginning of the respective periods or March
31, 1999, as the case may be, or to project the Registrant's results of
operations or financial position for any future period or date, nor does it give
effect to any matters other than those described in the notes thereto.
The Pro Forma Financial Information should be read in conjunction with
the Registrant's Consolidated Financial Statements.
2
<PAGE> 3
NOVACARE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS
ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
RESULTS FOR
THE NINE PRO FORMA
MONTHS ENDED PRO FORMA AS
MARCH 31, 1999 ADJUSTMENTS ADJUSTED
-------------- ----------- -----------
<S> <C> <C> <C>
NET REVENUES $ 1,398,830 $ 317,417(a) $ 1,081,413
COST OF SERVICES 1,183,863 257,824(a) 926,039
----------- --------- -----------
GROSS PROFIT 214,967 59,593 155,374
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 158,223 34,311(a) 109,433
14,479(b)
PROVISION FOR UNCOLLECTIBLE ACCOUNTS 23,439 5,105(a) 18,334
AMORTIZATION OF EXCESS COST OF NET ASSETS ACQUIRED 18,789 1,730(a) 17,059
PROVISION FOR RESTRUCTURE 129,747 98,647(a) 31,100
----------- --------- -----------
(LOSS) FROM CONTINUING OPERATIONS (115,231) (94,679) (20,552)
GAIN FROM ISSUANCE OF SUBSIDIARY STOCK 1,506 -- 1,506
INVESTMENT INCOME 423 94(a) 329
INTEREST EXPENSE (28,373) -- (28,373)
MINORITY INTEREST (2,355) -- (2,355)
----------- --------- -----------
(LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (144,030) (94,585) (49,445)
INCOME TAXES (19,163) (21,646)(c) 2,483
----------- --------- -----------
(LOSS) FROM CONTINUING OPERATIONS $ (124,867) $ (72,939) $ (51,928)
=========== ========= ===========
(LOSS) FROM CONTINUING OPERATIONS
PER SHARE:
BASIC $ (1.99) $ (.83)
=========== ===========
ASSUMING DILUTION $ (1.99) $ (.83)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
BASIC 62,738 62,738
=========== ===========
ASSUMING DILUTION 62,738 62,738
=========== ===========
</TABLE>
3
<PAGE> 4
NOVACARE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS
ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
RESULTS FOR
THE NINE PRO FORMA
MONTHS ENDED PRO FORMA AS
MARCH 31, 1998 ADJUSTMENTS ADJUSTED
-------------- ----------- ---------
<S> <C> <C> <C>
NET REVENUES $ 1,207,283 $480,452(a) $ 726,831
COST OF SERVICES 948,985 346,808(a) 602,177
----------- -------- ---------
GROSS PROFIT 258,298 133,644 124,654
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 147,589 42,106(a) 88,306
17,177(b)
PROVISION FOR UNCOLLECTIBLE
ACCOUNTS 15,957 2,279(a) 13,678
AMORTIZATION OF EXCESS COST
OF NET ASSETS ACQUIRED 14,495 1,729(a) 12,766
PROVISION FOR RESTRUCTURE 23,500 23,500(a) --
----------- -------- ---------
INCOME FROM CONTINUING
OPERATIONS 56,757 46,853 9,904
GAIN FROM ISSUANCE OF
SUBSIDIARY STOCK 38,128 -- 38,128
INVESTMENT INCOME 617 202(a) 415
INTEREST EXPENSE (20,117) -- (20,117)
MINORITY INTEREST (887) -- (887)
----------- -------- ---------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES 74,498 47,055 27,443
INCOME TAXES 31,057 4,808(c) 26,249
----------- -------- ---------
INCOME FROM CONTINUING
OPERATIONS $ 43,441 $ 42,247 $ 1,194
=========== ======== =========
INCOME FROM CONTINUING
OPERATIONS PER SHARE:
BASIC $ .71 $ .02
=========== =========
ASSUMING DILUTION $ .69 $ .02
=========== =========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
BASIC 61,275 61,275
=========== =========
ASSUMING DILUTION 63,226 63,226
=========== =========
</TABLE>
4
<PAGE> 5
NOVACARE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR
ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
RESULTS FOR
THE YEAR PRO FORMA
ENDED PRO FORMA AS
JUNE 30, 1998 ADJUSTMENTS ADJUSTED
------------- ----------- -----------
<S> <C> <C> <C>
NET REVENUES $ 1,671,925 $634,354(a) $ 1,037,571
COST OF SERVICES 1,317,266 459,848(a) 857,418
----------- -------- -----------
GROSS PROFIT 354,659 174,506 180,153
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 199,293 55,291(a) 120,837
23,165(b)
PROVISION FOR UNCOLLECTIBLE
ACCOUNTS 21,907 3,620(a) 18,287
AMORTIZATION OF EXCESS COST
OF NET ASSETS ACQUIRED 20,269 2,304(a) 17,965
PROVISION FOR RESTRUCTURE 23,500 23,500(a) --
----------- -------- -----------
INCOME FROM CONTINUING
OPERATIONS 89,690 66,626 23,064
GAIN FROM ISSUANCE OF
SUBSIDIARY STOCK 38,805 -- 38,805
INVESTMENT INCOME 830 236(a) 594
INTEREST EXPENSE (28,285) -- (28,285)
MINORITY INTEREST (1,494) -- (1,494)
----------- -------- -----------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES 99,546 66,862 32,684
INCOME TAXES 41,631 6,931(c) 34,700
----------- -------- -----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS $ 57,915 $ 59,931 $ (2,016)
=========== ======== ===========
INCOME (LOSS) FROM
CONTINUING OPERATIONS
PER SHARE:
BASIC $ .94 $ (.03)
=========== ===========
ASSUMING DILUTION $ .91 $ (.03)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
BASIC 61,742 61,742
=========== ===========
ASSUMING DILUTION 63,584 63,584
=========== ===========
</TABLE>
5
<PAGE> 6
NOVACARE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR
ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
RESULTS FOR
THE YEAR PRO FORMA
ENDED PRO FORMA AS
JUNE 30, 1997 ADJUSTMENTS ADJUSTED
------------- ----------- ---------
<S> <C> <C> <C>
NET REVENUES $ 1,066,451 $ 549,526(a) $ 516,925
COST OF SERVICES 806,365 401,009(a) 405,356
----------- --------- ---------
GROSS PROFIT 260,086 148,517 111,569
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 146,289 49,781(a) 76,467
20,041(b)
PROVISION FOR UNCOLLECTIBLE
ACCOUNTS 19,708 6,194(a) 13,514
AMORTIZATION OF EXCESS COST
OF NET ASSETS ACQUIRED 13,548 2,304(a) 11,244
----------- --------- ---------
INCOME FROM CONTINUING
OPERATIONS 80,541 70,197 10,344
INVESTMENT INCOME 1,740 366(a) 1,374
INTEREST EXPENSE (15,244) -- (15,244)
MINORITY INTEREST (236) -- (236)
----------- --------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES 66,801 70,563 (3,762)
INCOME TAXES 27,891 10,718(c) 17,173
----------- --------- ---------
INCOME (LOSS) FROM
CONTINUING OPERATIONS $ 38,910 $ 59,845 $ (20,935)
=========== ========= =========
INCOME (LOSS) FROM
CONTINUING OPERATIONS
PER SHARE:
BASIC $ .64 $ (.34)
=========== =========
ASSUMING DILUTION $ .62 $ (.34)
=========== =========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
BASIC 61,031 61,031
=========== =========
ASSUMING DILUTION 62,455 62,455
=========== =========
</TABLE>
6
<PAGE> 7
NOVACARE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR
ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
RESULTS FOR
THE YEAR PRO FORMA
ENDED PRO FORMA AS
JUNE 30, 1996 ADJUSTMENTS ADJUSTED
------------- ----------- ---------
<S> <C> <C> <C>
NET REVENUES $ 793,038 $ 500,385(a) $ 292,653
COST OF SERVICES 584,956 363,356(a) 221,600
--------- --------- ---------
GROSS PROFIT 208,082 137,029 71,053
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 130,980 63,070(a) 60,698
7,212(b)
PROVISION FOR UNCOLLECTIBLE
ACCOUNTS 16,359 8,262(a) 8,097
AMORTIZATION OF EXCESS COST
OF NET ASSETS ACQUIRED 9,874 2,267(a) 7,607
PROVISION FOR RESTRUCTURE 13,370 -- 13,370
--------- --------- ---------
INCOME (LOSS) FROM
CONTINUING OPERATIONS 37,499 56,218 (18,719)
INVESTMENT INCOME 4,999 150(a) 4,849
INTEREST EXPENSE (12,536) -- (12,536)
MINORITY INTEREST (96) -- (96)
--------- --------- ---------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES 29,866 56,368 (26,502)
INCOME TAXES 14,585 7,148(c) 7,437
--------- --------- ---------
INCOME (LOSS) FROM
CONTINUING OPERATIONS $ 15,281 $ 49,220 $ (33,939)
========= ========= =========
INCOME (LOSS) FROM
CONTINUING OPERATIONS
PER SHARE:
BASIC $ .24 $ (.53)
========= =========
ASSUMING DILUTION $ .24 $ (.53)
========= =========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
BASIC 63,459 63,459
========= =========
ASSUMING DILUTION 63,918 63,918
========= =========
</TABLE>
7
<PAGE> 8
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(a) To eliminate results of operations of the Long-term Care Services
business for the entire period.
(b) To eliminate support costs directly attributable to the Long-term Care
Services business that will not continue.
(c) To reflect the adjustment to income tax expense based on pro forma
income before income taxes.
8
<PAGE> 9
NOVACARE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
AS OF PRO FORMA PRO FORMA AS
MARCH 31, 1999 ADJUSTMENTS ADJUSTED
-------------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,804 $ -- $ 23,804
Accounts receivable 301,369 (93,877)(b) 207,492
Inventories 45,135 -- 45,135
Income tax receivable 27,869 (60)(b) 27,809
Deferred income taxes 14,580 -- 14,580
Other current assets 27,771 (4,121)(b) 23,650
Net assets of discontinued
operations -- 82,944(b) 82,944
----------- ----------- -----------
Total current assets 440,528 (15,114) 425,414
Property and equipment, net 64,541 (1,572)(b) 62,969
Excess cost of net assets
acquired, net 719,592 -- 719,592
Investments in joint venture 15,203 -- 15,203
Other assets, net 49,965 (17,720)(b) 32,245
----------- ----------- -----------
$ 1,289,829 $ (34,406) $ 1,255,423
=========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of
financing arrangements $ 540,696 $ 30,000(a) $ 570,696
Accounts payable and
accrued expenses 160,796 (28,653)(b) 132,143
----------- ----------- -----------
Total current
liabilities 701,492 1,347 702,839
Financing arrangements,
net of current portion 55,267 -- 55,267
Deferred income taxes 41,684 -- 41,684
Other 6,200 -- 6,200
----------- ----------- -----------
Total liabilities 804,643 1,347 805,990
----------- ----------- -----------
Minority interest 27,501 -- 27,501
Commitments and contingencies -- -- --
Shareholders' equity:
Common stock 684 -- 684
Additional paid-in capital 274,285 -- 274,285
Retained earnings 225,388 (30,000)(a) 189,635
(5,753)(b)
----------- ----------- -----------
500,357 (35,753) 464,604
Less: common stock in
treasury (42,672) -- (42,672)
----------- ----------- -----------
Total shareholders'
equity 457,685 (35,753) 421,932
----------- ----------- -----------
$ 1,289,829 $ (34,406) $ 1,255,423
=========== =========== ===========
</TABLE>
9
<PAGE> 10
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(a) Adjustment to reflect the Registrant's liability and related loss as a
result of the $30 million working capital guarantee provided to the
Purchaser.
(b) Adjustments to reflect the elimination of the Long-term Care Services
assets and liabilities classified as Net Assets of Discontinued
Operations. As a result of the Transaction and the Selected Markets
Exit, the Registrant classified all of the accounts receivable, net of
allowance, entitled to the Registrant, certain other assets retained by
the Registrant and current liabilities assumed by the Registrant as a
result of the Transaction and the Selected Markets Exit accounts
receivable, net of allowance, and liabilities as Net Assets of
Discontinued Operations. Assets and liabilities transferred as a result
of the Transaction have been eliminated and a loss of $5,753 recorded.
(c) Net Assets of Discontinued Operations consist of the following:
<TABLE>
<CAPTION>
Selected
Markets Exit Transaction Total
------------ ----------- --------
<S> <C> <C> <C>
Accounts receivable, net of
allowances $ 41,907 $ 51,970 $ 93,877
Other receivables, net of
allowances 17,258 462 17,720
Accounts payable and accrued
liabilities (17,027) (11,626) (28,653)
-------- -------- --------
Net Assets of Discontinued
Operations $ 42,138 $ 40,806 $ 82,944
======== ======== ========
</TABLE>
10
<PAGE> 11
NOVACARE, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description Page
-------------- ----------- ------
<S> <C>
2(a) Stock Purchase Agreement dated as of
June 1, 1999 by and among NovaCare, Inc.,
NC Resources, Inc. and Chance Murphy, Inc.
2(b) Amendment No. 1 to Stock Purchase Agreement
made as of June 1, 1999 by and among
NovaCare, Inc., NC Resources, Inc. and
Chance Murphy, Inc.
</TABLE>
11
<PAGE> 12
NOVACARE, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NOVACARE, INC.
--------------
(Registrant)
June 16, 1999 By/s/ Robert E. Healy, Jr.
----------------------------
Robert E. Healy, Jr.,
Senior Vice President,
Finance & Administration and
Chief Financial Officer
June 16, 1999 By/s/ Barry E. Smith
-------------------------
Barry E. Smith
Vice President,
Controller and
Chief Accounting Officer
12
<PAGE> 1
STOCK PURCHASE AGREEMENT
By and Among
NovaCare, Inc.,
NC Resources, Inc.,
and
Chance Murphy, Inc.
As of June 1, 1999
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
I. PURCHASE AND SALE OF THE SHARES..........................................................................2
1.01 Purchase and Sale of the Shares................................................................2
1.02 Purchase Price, Payment and Adjustments........................................................2
1.03 Delivery of the Shares.........................................................................4
1.04 Intercompany Account Obligations...............................................................5
1.05 Guaranties.....................................................................................5
1.06 Prohibited Liabilities.........................................................................5
II. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE SELLER..............................................6
2.01 Organization and Qualification; Subsidiaries; Managed Companies................................6
2.02 Conflicts......................................................................................7
2.03 Capitalization.................................................................................7
2.04 Financial Statements; No Undisclosed Liabilities...............................................7
2.05 Taxes..........................................................................................9
2.06 Real Property Owned or Leased.................................................................10
2.07 Title to Assets...............................................................................10
2.08 Contractual and Other Obligations.............................................................11
2.09 Compensation and Employment Agreements........................................................12
2.10 Employee Benefit Plans........................................................................12
2.11 Labor Relations...............................................................................13
2.12 Insurance.....................................................................................13
2.13 Litigation....................................................................................13
2.14 Permits; Compliance with Applicable Law.......................................................14
2.15 Bank Accounts.................................................................................15
2.16 Trademarks, Patents and Copyrights............................................................15
2.17 Transactions with Certain Persons.............................................................15
2.18 Authority.....................................................................................15
2.19 Ownership of Shares...........................................................................16
2.20 Consents......................................................................................16
2.21 Foreign Person................................................................................16
2.22 Medicare, Medicaid and Third-Party Payors.....................................................16
2.23 Year 2000.....................................................................................16
2.24 Business; Discontinued Operations.............................................................17
2.25 Questionable Payments.........................................................................17
2.26 Medicare Cost Reports.........................................................................17
2.27 Questionnaire.................................................................................17
2.28 No Untrue Statement...........................................................................17
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
III. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.........................................................17
3.01 Organization..................................................................................17
3.02 Authority.....................................................................................17
3.03 Conflicts.....................................................................................18
3.04 Litigation; Disputes..........................................................................18
3.05 Consents; Hart-Scott-Rodino Compliance........................................................18
3.06 Investment Purpose............................................................................18
IV. THE CLOSING.............................................................................................19
4.01 Time and Place of the Closing.................................................................19
V. CONDITIONS TO THE SELLER'S OBLIGATION TO CLOSE..........................................................19
5.01 Certificates..................................................................................19
5.02 Opinion of the Purchaser's Counsel............................................................19
5.03 Releases......................................................................................20
5.04 Agreements....................................................................................20
VI. CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE.......................................................20
6.01 Certificates..................................................................................20
6.02 Opinion of the Parent's Counsel...............................................................21
6.03 Resignations..................................................................................21
6.04 Transition Services Agreement.................................................................21
6.05 Consulting Agreement..........................................................................21
6.06 Employee Transition Agreement.................................................................21
6.07 Stockholders'Agreement........................................................................21
6.08 Undertaking...................................................................................21
VII. OTHER AGREEMENTS OF THE PARTIES.........................................................................21
7.01 Announcements.................................................................................21
7.02 Access to Information.........................................................................22
7.03 Tax Matters...................................................................................22
7.04 Insurance Matters.............................................................................26
7.05 Agreement by the Purchaser Regarding No Other Representations or
Warranties by the Parent or the Seller........................................................26
7.06 Tradename Usage...............................................................................27
7.07 Release of Liens..............................................................................28
7.08 Further Assurances............................................................................28
7.09 Best Efforts..................................................................................28
7.10 Restrictive Covenants.........................................................................28
7.11 Prudent Buyer Litigation......................................................................29
7.12 NovaNet Hardware..............................................................................30
7.13 Bank Documents................................................................................30
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
VIII INDEMNIFICATION.........................................................................................30
8.01 Indemnification by the Parent and the Seller..................................................30
8.02 Indemnification by the Purchaser..............................................................30
8.03 Procedure for Indemnification.................................................................31
8.04 Other Limits on Indemnification...............................................................34
8.05 Losses Net....................................................................................34
8.06 Sole and Exclusive Remedy.....................................................................35
8.07 Other Matters Relating to Indemnification.....................................................35
IX. BROKERS AND FINDERS.....................................................................................35
9.01 The Parent's and the Seller's Obligations.....................................................35
9.02 The Purchaser's Obligations...................................................................36
X. MISCELLANEOUS...........................................................................................36
10.01 Notices.......................................................................................36
10.02 Entire Agreement..............................................................................37
10.03 Assignment....................................................................................37
10.04 Further Action................................................................................37
10.05 Binding Effect................................................................................37
10.06 Expenses......................................................................................38
10.07 Arbitration...................................................................................38
10.08 Schedules and Exhibits........................................................................38
10.09 Invalidity, Etc...............................................................................38
10.10 Headings......................................................................................38
10.11 Governing Law.................................................................................38
10.12 Counterparts..................................................................................38
10.13 Construction..................................................................................38
10.14 Rights of Persons Not Parties.................................................................39
10.15 Joint and Several.............................................................................39
XI. DEFINITIONS.............................................................................................39
11.01 Certain Definitions...........................................................................39
SCHEDULES
Schedule 2.01 Subsidiaries, Capital Stock
Schedule 2.02 Group Member Conflicts
Schedule 2.03 Capitalization
Schedule 2.04(a) Financial Statements
Schedule 2.04(b) Liabilities
Schedule 2.04(d) Certain Changes
Schedule 2.05(a) Taxes
Schedule 2.06 Real Property
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
Schedule 2.07 Title; Liens
Schedule 2.08 Contracts
Schedule 2.09 Compensation
Schedule 2.10 Benefit Plans
Schedule 2.12 Insurance
Schedule 2.13 Litigation
Schedule 2.14 Permits; Environmental
Schedule 2.15 Bank Accounts
Schedule 2.16 Intellectual Property
Schedule 2.17 Transactions with Certain Persons
Schedule 2.20 Consents
Schedule 2.22 Medicaid and Medicare Filings
Schedule 2.23 Y2K Compliance
Schedule 2.24(a) Description of the Business
Schedule 2.24(b) Description of the Discontinued Operations
Schedule 7.11 Prudent Buyer Litigation
EXHIBITS
Exhibit 1.02(a) Stockholders' Agreement
Exhibit 1.06 Undertaking
Exhibit 2.27 Healthcare Questionnaire
Exhibit 5.04 Collateral Assignment of Rights
Exhibit 6.04 Transition Services Agreement
Exhibit 6.05 Consulting Agreement with Timothy E. Foster
</TABLE>
iv
<PAGE> 6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), made as of
the 1st day of June, 1999 (the "Effective Date"), by and among NovaCare, Inc., a
Delaware corporation (the "Parent"), NC Resources, Inc., a Delaware corporation
(the "Seller"), and Chance Murphy, Inc., 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 XI 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 NovaCare, Inc., a Pennsylvania corporation (the "Company");
WHEREAS, the Company, directly and through its Subsidiaries
and Managed Companies, is engaged in the business of providing rehabilitation
therapy and health consulting services on a contract basis (including, without
limitation, pursuant to the Contracts disclosed on Schedule 2.08 as relating to
direct-bill services in Arizona), to health care institutions, primarily
long-term care facilities and acute care hospitals (the "Business", which shall
not include the Discontinued Operations (as hereinafter defined));
WHEREAS, the Company has terminated, and is in the process of
terminating, certain of its contract therapy operations (the "Discontinued
Operations");
WHEREAS, the Parent is the holder of all of the outstanding
capital stock of the Seller;
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 (collectively, the
"Shares");
WHEREAS, the Company will continue all of its operations that
are not the Discontinued Operations;
WHEREAS, contemporaneously herewith, CMS Therapies, Inc., a
North Carolina corporation that is in the process of changing its name to
SuccessCare, Inc. (the "Manager") and an indirectly wholly owned subsidiary of
Integrated Health Services, Inc., a Delaware corporation ("Integrated"), is
entering into a long-term management agreement (the "Management Agreement") with
the Purchaser pursuant to which the Manager will manage the operations of the
Purchaser, including the Business;
WHEREAS, Integrated is guarantying the Manager's obligations
under the Management Agreement and the Purchaser is collaterally assigning (the
"Collateral Assignment") its rights under the Management Agreement to the
Parent;
<PAGE> 7
WHEREAS, pursuant to the Management Agreement, among other
things, the Manager is to employ all employees necessary to operate the Business
on behalf of the Company and the other Group Members;
WHEREAS, the parties desire that Integrated and/or the Manager
employ the current employees of the Business for the foregoing purposes, and for
other purposes; and
WHEREAS, the parties hereto, Integrated, the Manager and
NovaCare Employee Services, Inc., a Delaware corporation ("NCES"), are
concurrently herewith entering into an Employee Transition Agreement covering
the transition of the Subject Employees (as hereinafter defined) to the Manager
(the "Employee Transition Agreement").
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, the parties hereto,
intending to be legally bound, hereby agree as follows:
SECTION I.
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, Payment and Adjustments.
(a) Purchase Price and Payment. The Purchaser agrees to issue
one (1%) percent of its shares of Purchaser's capital stock ("Purchaser Stock")
to the Seller (the "Purchase Price") at the Closing. The Seller shall
concurrently with such issuance enter into a Stockholders' Agreement with the
Purchaser and its other stockholders in the form and substance of Exhibit
1.02(a) hereto (the "Stockholders' Agreement").
(b) Net Working Capital Adjustment. (i) The Parent shall pay
Thirty Million Dollars ($30,000,000) (the "Guaranteed Amount") to the Purchaser
on the following basis:
2
<PAGE> 8
Due Date of
Installment Amount of Installment
----------- ---------------------
June 17, 1999 $ 1,200,000
July 1, 1999 5,000,000
July 30, 1999 9,000,000
August 31, 1999 11,800,000
September 30, 1999 2,000,000
October 29, 1999 1,000,000
-----------
$30,000,000
===========
(ii) In exchange for the payment of the Guaranteed
Amount and the agreement of the Parent to make certain
payments as set forth in clause (iii) below, the Purchaser
agrees that the Seller shall be entitled to all net
collections on the Business's accounts receivable and
provision for uncollectible accounts as of the Closing Date
(the "Accounts Receivable"). All (A) Accounts Receivable and
(B) accounts receivable of the Discontinued Operations which
come into the possession of the Company shall be turned over
to the Seller on a weekly basis in the form received, with any
checks, notes and other instruments for the payment of money
duly endorsed, without recourse, in accordance with the terms
of the Transition Services Agreement. Upon payment in full of
the Guaranteed Amount, the Seller shall have the right and
option at any time, upon written notice to the Purchaser, to
require the Group Members to assign any remaining items of the
Accounts Receivable to the Seller without recourse. The
Purchaser shall not intentionally take any action which would
materially impede the Seller's collection efforts with respect
to the Accounts Receivable. All cash receipts relating to the
operations of the Company subsequent to the Closing Date shall
be and remain the property of the Company and shall not be
subject to this Agreement. To the extent cash receipts
relating to services provided by the Company after the Closing
Date are received by the Seller, the Seller will turn the same
over to the Purchaser on a weekly basis in the form received,
with any checks, notes and other instruments for the payment
of money duly endorsed, without recourse.
(iii) The Parent shall be responsible and liable for
the payment of all the Business's current liabilities as of
the Closing Date (the "Current Liabilities") (comprised of
short-term indebtedness (i.e., the current portion of capital
leases), accounts payable and accrued expenses to third
parties (excluding all inter-company obligations)), provided
that the term "Current Liabilities" shall exclude paid time
off (other than flex time off) accrued through the Closing
Date (the "Employment Liabilities"), in each case calculated
in accordance with GAAP applied on a basis consistent with the
Company's pre-Closing practices and, in the case of the
Employment Liabilities, in accordance with the benefit plans
of the Business, and shall process such Current Liabilities in
accordance with the terms of the Transition Services
Agreement. In addition, the Parent shall be responsible
3
<PAGE> 9
and liable for the payment of (A) all accounts payable
relating to any period which includes both the pre-Closing and
the post-Closing operations of the Business and (B) the
payroll of the Business with respect to the post-Closing
operations of the Company through June 6, 1999 (the amounts
actually paid pursuant to clauses (A) (insofar as they relate
to the post-Closing operations of the Business) and (B) being
hereinafter collectively referred to as the "Post-Closing
Payments"), all of which shall be processed in accordance with
the terms of the Transition Services Agreement.
(iv) On each of July 1, 1999 and July 31, 1999, the
Parent shall pay to the Purchaser an amount equal to one-half
of the Employment Liabilities accrued through the Closing,
less, in the case of the payment due on July 31, 1999, the
amount of the Post-Closing Payments. In the event that the
amount of the Post-Closing Payments exceeds the amount
otherwise payable on July 31, 1999 with respect to such
Employment Liabilities, the amount of such excess shall be
applied to reduce the then remaining installments of the
Guaranteed Amount in chronological order. The Purchaser's
acceptance of the payment of any amounts with respect to the
Employment Liabilities shall not be deemed to be a waiver of
its rights to dispute the determination of the Employment
Liabilities (which dispute shall be resolved by arbitration in
accordance with Section 10.07 hereof).
(v) In the event that at any time the Parent shall
have received net collections on the Accounts Receivable
aggregating more than the sum of (A) the Current Liabilities
as of the Closing Date, (B) the Employment Liabilities accrued
through the Closing Date and (C) the amount of all payments of
the Guaranteed Amount theretofore made, the Parent shall pay
any subsequent net collections on the Accounts Receivable to
the Purchaser, on a weekly basis, as a pre-payment of the
remaining installments of the Guaranteed Amount, which shall
be applied in chronological order, until the Guaranteed Amount
is paid in full. In no event shall the Purchaser receive the
Guaranteed Amount at a less favorable rate then that set forth
in clause (i) above.
(vi) NCES will not transfer the payroll of employees
(the "Terminated Employees") whom the Purchaser terminates
prior to June 7, 1999 as notified to NCES by the Purchaser. As
the Purchaser receives severance agreements from the
Terminated Employees, it shall so notify NCES and will request
NCES to make severance payments to such Terminated Employees
on behalf of the Purchaser in accordance with such severance
agreements. NCES shall make up to $2,000,000 of such severance
payments, with the amount of such severance payments reducing
the installments of the Guaranteed Amount required pursuant to
clause (i) above in chronological order. NCES shall have no
obligation to make such severance payments in excess of
$2,000,000 unless it shall have first received payment of the
amount thereof from the Purchaser.
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.
4
<PAGE> 10
1.04 Intercompany Account Obligations. As of the Closing, all
then outstanding intercompany obligations, agreements and contracts between any
Group Member and the Parent, the Seller or any of their Affiliates (other than
any Group Member) shall be cancelled or otherwise eliminated, at no cost or
expense to the Purchaser or any Group Member, 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,
agreement or contract; provided that nothing in this Section 1.04 shall affect
any of the covenants, agreements, obligations or liabilities of the Parent, the
Seller, any Group Member or the Purchaser as set forth in this Agreement or the
agreements contemplated hereby or the Consent dated as of May 27, 1999 (the
"Consent") by and among the Parent and certain of its Subsidiaries, the Banks
(as defined in the Consent) and the Agent (as defined in the Consent) or the
agreements contemplated thereby.
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 contractual obligations that are not Prohibited Liabilities
(the "Guaranteed Obligations") of any Group Member outstanding as of the Closing
Date, the Purchaser shall use its commercially reasonable efforts to obtain the
release of each Guarantor from the Guaranteed Obligations and shall indemnify
and hold harmless each Guarantor from and against any Guaranteed Obligations.
1.06 Prohibited Liabilities. At the Closing, the Parent and
the Seller, jointly and severally, shall undertake pursuant to an agreement in
the form and substance of Exhibit 1.06 hereto (the "Undertaking") to perform on
behalf of the Group Members all "Prohibited Liabilities" when and as the same
become due in accordance with their terms. For purposes hereof, Prohibited
Liabilities shall mean any claim, lawsuit, liability, obligation or debt of any
kind or nature whatsoever (regardless of whether the same would constitute a
liability to be set forth on a balance sheet in accordance with GAAP), whether
absolute, accrued, due, direct or indirect, contingent or liquidated, matured or
unmatured, joint or several, whether or not for a sum certain, whether for the
payment of money or for the performance or observance of any obligation or
condition against any of the Group Members, Managed Companies or the Business as
of the Closing (whether or not known), other than: (a) such liabilities as shall
constitute Employment Liabilities, (b) obligations arising out of services or
products or other benefits to be provided to the Group Members after Closing
under Contracts or other contracts of any Group Member that are disclosed to the
extent required by this Agreement, and (c) liabilities to be assumed by
Integrated and/or the Manager pursuant to the Employee Transition Agreement (the
liabilities described in Sections (a), (b) and (c) are hereinafter defined as
"Permitted Liabilities"). It is expressly agreed that the Seller and the Parent
shall be responsible for all Prohibited Liabilities, including, without
limitation, (i) liabilities arising out of participation in the Medicare or
Medicaid programs, or arrangements with any other third party payor, or
arrangements with any person or entity that participates in the Medicare or
Medicaid programs or any other third party payor program, including without
limitation, with respect to any excess reimbursement, recapture, adjustment or
overpayment whatsoever, in each case, attributable to any period prior to the
Closing Date ("Reimbursement Liabilities"), (ii) malpractice claims asserted by
patients or any other tort claims asserted, claims for breach of contract, or
any claims of any kind asserted
5
<PAGE> 11
by patients, former patients, employees or any other party that are based on
acts or omissions occurring before the Closing Date, (iii) any accounts payable
or employment or other Taxes (except to the extent of the amount thereof, if
any, included in the Employment Liabilities), (iv) any liabilities of any
Discontinued Subsidiary (as hereafter defined) or relating to the Discontinued
Operations, including, without limitation, any liabilities arising out of the
termination or operation of any of the Discontinued Operations, (v) any
obligations to indemnify long-term care facilities, hospitals or any one else
with respect to any of the foregoing, (vi) any Liens, (vii) any long-term
liabilities, (viii) any Current Liabilities and (ix) any obligations or
liabilities arising out of the NovaNet computer hardware, including any licenses
relating thereto. No liabilities covered by insurance (or self-insured), no
liabilities for insurance premiums, and no federal, state, local or foreign
income Tax liabilities of any Group Member or Managed Company shall be included
in the Current Liabilities, and all of such income Tax liabilities shall be
deemed to be Prohibited Liabilities.
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 Closing Date, that:
2.01 Organization and Qualification; Subsidiaries; Managed
Companies. The Company and each of its subsidiaries is listed on Schedule 2.01
hereto (each a "Subsidiary" and collectively, the "Subsidiaries") and 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 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 or partnership
or other 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. Notwithstanding that the capital stock of NovaCare Rehab Agency of
Alabama, Inc. ("NovaCare Alabama")has been transferred to NovaCare Holdings,
Inc., for all purposes of this Agreement, NovaCare Alabama shall be deemed to be
a Subsidiary. Each Group Member and each Managed Company is duly qualified to
transact business as a foreign corporation or partnership or limited liability
company (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. The Company does not have any subsidiaries other than the
Subsidiaries. Other than the Subsidiaries and other than as set forth on
Schedule 2.01 hereto, the Company does not 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 the 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, of the 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.
6
<PAGE> 12
2.02 Conflicts. Neither the execution and delivery of this
Agreement or any of the agreements, certificates, instruments or other documents
to be executed and delivered by the Parent or the Seller as contemplated by this
Agreement (the "Parent/Seller Transaction Documents") by the Parent and the
Seller, nor the consummation of the transactions contemplated hereby or thereby
to be consummated by the Parent or the Seller, (a) violates 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 any Applicable Law. Except as set forth on Schedule 2.02 hereto,
neither the execution and delivery of this Agreement or any Parent/Seller
Transaction Document by the Parent and the Seller nor the consummation of the
transactions contemplated hereby or thereby to be consummated by the Parent or
the Seller 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 Contract or any material contract or other
obligation to which the Parent or the Seller or Group Member or Managed Company
is subject except where such violation, conflict, breach, termination or Lien
would not have a Material Adverse Effect.
2.03 Capitalization. The authorized, issued and outstanding
capital stock or other equity interests of the 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 and all of the outstanding shares of
capital stock or other equity interest of each corporate Subsidiary and each
Managed Company have been duly and validly authorized and issued and are fully
paid and non-assessable and Schedule 2.03 sets forth the owner of record of each
share of capital stock or other equity interest in each Group Member and in each
Managed Company. All shares of capital stock or other equity interests listed on
Schedule 2.03 as owned by any Group Member are owned by such Group Member free
and clear of all Liens. Except as set forth on Schedule 2.03 hereto, as of the
Closing Date, there are no outstanding subscriptions, warrants, options, calls,
commitments, convertible or exchangeable securities, or other rights (whether
contractual, pursuant to Applicable Law or otherwise) or agreements to purchase
or acquire shares of capital stock or other equity interests of any Group Member
or Managed Company to which any Group Member, the Parent, the Seller or any
Managed Company is a party or by which any of them is bound. Except as set forth
on Schedule 2.03 hereto, as of the Closing Date, 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) The
unaudited pro forma consolidated balance sheet of the Business as at March 31,
1999 and the related unaudited pro forma consolidated statement of income of the
Business for the three months then ended; and the unaudited pro forma
consolidated balance sheet of the Business as at April 30, 1999 and the related
unaudited pro forma consolidated statement of income of the Business for the one
month period then ended (collectively, the "Financial Statements") are attached
hereto as Schedule 2.04(a). The Financial Statements have been prepared in
accordance with GAAP, consistently applied, in all material respects, except
that the Financial Statements do not contain footnotes. The balance sheets
constituting a part of the Financial Statements fairly present in all material
respects the consolidated financial condition of the Business as at the date of
such balance sheets and the other related statements included in the Financial
Statements fairly present in all material respects the consolidated results of
operations and cash flows of the Business for the periods then ended. The income
statements included in the Financial Statements do not contain any items of
special or nonrecurring income or expense or any other
7
<PAGE> 13
income not earned or expense not incurred in the ordinary course of business
except as expressly specified therein, and such financial statements include all
adjustments, which consist only of normal recurring accruals, necessary for such
fair presentation. All of the Financial Statements have been prepared as if the
Discontinued Operations are not currently, and at no time in the past were, a
part of the Business, and as if any portion of the Business previously owned by
the Seller or the Parent or any of their Affiliates (other than Group Members)
is currently owned by (and at all relevant periods in the past had been owned
by) a Group Member.
(b) Except as set forth in Schedule 2.04(b) 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 adequately
reserved against in the Financial Statements;
(ii) operating trade payables and income Taxes incurred in the
ordinary course of Business, consistent with past practice, subsequent
to the date of the Financial Statements; and
(iii) liabilities and obligations described or otherwise
disclosed on the Schedules to this Agreement.
(c) Except for indebtedness for borrowed money to be cancelled
or otherwise eliminated as set forth in Section 1.04 hereof and except for
indebtedness for borrowed money among Group Members, no Group Member has any
indebtedness for borrowed money.
(d) Except as set forth on Schedule 2.04(d), since March 31,
1999, the Business has not: (i) sold, assigned, transferred or disposed of any
material portion of its assets, except in the ordinary course of business
consistent with past practice; (ii) entered into any contract, agreement,
understanding or commitment of a type required to be disclosed in accordance
with Section 2.08 below, or made or suffered any termination of any contract,
agreement, understanding or commitment of such type, or made or suffered any
modification or amendment of any contract, agreement, understanding or
commitment of such type, except for terminations, modifications and amendments
made in the ordinary course of business consistent with past practice or which
would not have a Material Adverse Effect, provided that all terminations of
Provider Contracts (as hereinafter defined) subsequent to March 31, 1999 shall,
in any case, be set forth in Schedule 2.04(d), and none of the Group Members has
received notice or has knowledge that any such contract, agreement,
understanding or commitment has been terminated or will be terminated or
modified or amended (as aforesaid); (iii) except in the ordinary course of
business, consistent with past practice, or otherwise to comply with any
applicable minimum wage law, increased the salaries or other compensation of any
of its employees, or made any increase in, or any additions to, other benefits
to which any of such employees may be entitled, which increases or additions
would have a Material Adverse Effect; (iv) failed to collect a material amount
of accounts receivable in the ordinary course of business consistent with past
practice; (v) suffered any material adverse change; (vi) entered into any
material transaction other than in the ordinary course of business consistent
with past practice; or (vii) agreed or otherwise become committed to do anything
described in any of clauses (i) through and including (vi) above.
8
<PAGE> 14
2.05 Taxes. Except as set forth in Schedule 2.05(a) hereto:
(a) Each Group Member and each corporation,
partnership, limited liability company or other entity that was directly or
indirectly a subsidiary of the Company and that has been transferred, sold or
assigned or that has been dissolved, liquidated or otherwise disposed of during
the 180 day period ending on the date hereof so as to no longer be a subsidiary
of the Company ("Discontinued Subsidiary") has filed or caused to be filed on a
timely basis all returns, reports or other declarations relating to Taxes
required to be filed by it (the "Tax Returns"), except for any such Tax Returns
the failure to file which would not have, in the aggregate, a Material Adverse
Effect, and each of the Group Members and each Discontinued Subsidiary 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, abandoned property, capital, net worth, gains, excise, social
security and workers' compensation taxes 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 by it
with respect to the periods covered by such Tax Returns. All information
contained in such Tax Returns is true and correct in all material respects,
except where the failure to be so would not have, individually or in the
aggregate, a Material Adverse Effect, and each Tax Return has been properly and
timely completed in accordance with all Applicable Law, except to the extent
that, individually or in the aggregate, the same would not have a Material
Adverse Effect. Since their respective dates of acquisition, the taxable income
of each of the Group Members and each Discontinued Subsidiary 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 or
unitary state income Tax Returns of the Parent 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, adequate reserves and accruals in
all material respects for such Taxes have been made in the Financial Statements
with respect to any periods through the respective dates thereof or, with
respect to any periods thereafter, in the books and records of the applicable
Group Member.
(c) Neither the Seller, nor the Parent, nor any Group
Member nor any Discontinued Subsidiary has received written notice from any
taxing authority of any material deficiency, claim or other dispute relating to
the payment or assessment of any Taxes for any period which remains unsettled at
the date hereof, and to the Knowledge of the Parent no such deficiency exists
materially in excess of reserves and accruals set forth in the Financial
Statements.
(d) Neither the Seller, nor the Parent, nor any Group
Member nor any Discontinued Subsidiary has executed any waiver of any statute of
limitations on the assessment or collection of Taxes with respect to any Group
Member or any Discontinued Subsidiary or executed any agreement now in effect
extending the period of time to assess or collect any Taxes with respect to any
Group Member or any Discontinued Subsidiary.
9
<PAGE> 15
(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, other than Liens which would not have a Material Adverse
Effect.
(f) None of the Seller, the Parent, any Group Member
or any Discontinued Subsidiary is a party to any pending or, to the Knowledge of
the Parent, threatened audit, action, proceeding or assessment by any taxing
authority, foreign or domestic, relating to any Group Member or any Discontinued
Subsidiary.
(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.
2.06 Real Property Owned or Leased. A list of all real
property owned or leased by each Group Member is set forth in Schedule 2.06
hereto. Except as set forth in Schedule 2.06 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, nor has the applicable
Group Member done any act or omitted to do any required act which would result
in a default, except for any such default which would not have a Material
Adverse Effect. Furthermore, except as set forth in Schedule 2.06 hereto, no
lease agreement relating to real property to which a Group Member is a party
contains a provision requiring approval by or consent of the lessor to a change
in control or ownership of the lessee or an increase in rental, fee payable or
other modification of the terms of such agreement as a result thereof, which
provision would be applicable to the transactions contemplated by this
Agreement, any of which would have a Material Adverse Effect.
2.07 Title to Assets Except as set forth in Schedule 2.07
hereto, each Group Member has good and valid title to all of the properties and
assets purported to be owned by it, free and clear of all Liens except for
Permitted Liens. 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, in each case, free and clear of all Liens except for Permitted Liens.
Except as set forth on Schedule 2.07, the assets of the Company and its
Subsidiaries are sufficient and adequate and in satisfactory condition, quality
and quantity in all material respects to carry on the Business as presently
conducted (consistent with past practice).
2.08 Contractual and Other Obligations. Set forth in Schedule
2.08 hereto is a list as of the date hereof of all (a) contracts, agreements,
leases and guarantees to which any Group Member is a party or by which any Group
Member or any of their respective assets is bound of the following types: (i)
contract, agreement or arrangement for the acquisition or
10
<PAGE> 16
disposition of any assets, property or rights outside the ordinary course of
business or requiring the consent of any party to the transfer and assignment of
any such assets, property or rights (by purchase or sale of assets, purchase or
sale of stock, merger or otherwise), that is in whole or in part executory; (ii)
contract, agreement or commitment restricting any Group Member from, or in favor
of any Group Member and restricting any other person or entity from, conducting
business anywhere in the world for any period of time or restricting the use or
disclosure of any confidential or proprietary information or prohibiting the
solicitation of business or of employees, agents or others; (iii) partnership,
joint venture or management contract or similar arrangement, or agreement which
involves a right to share profits or future payments with respect to the
Business or any portion thereof or the business of any other person or entity;
(iv) contract, agreement or arrangement with any nursing facility or hospital or
other facility or agency or managed care organization with respect to the
provision of services to patients or residents ("Provider Contracts"); (v)
exclusive licensing, distributor, dealer, franchise, sales or manufacturer's
representative, agency or other similar contract, arrangement or commitment;
(vi) contract, agreement or arrangement granting a leasehold or other interest
in real property, including without limitation, subleases, licenses and
sublicenses; (vii) agreement, consent order, plea bargain, settlement or
stipulation or similar arrangement with any Governmental Authority or any third
party; (viii) for the employment or retention of, or collective bargaining,
severance or termination of or with, any director, officer, employee,
consultant, sales representative, or agent or group of employees, and any other
profit sharing, thrift, bonus, incentive, deferred compensation, stock option,
stock purchase, severance pay, pension, retirement, hospitalization, insurance
or similar plan, agreement or arrangement not constituting a Benefit Plan
applicable to any employee, consultant or agent of any Group Member; or (ix)
with respect to which the unperformed obligation of the applicable Group Member
is in excess of $75,000 in the aggregate (excluding contracts and agreements
referred to in Section 2.09 or 2.10 hereof) or, when aggregated with all other
undisclosed contracts, agreements, leases and guarantees, represent aggregate
unperformed obligations in excess of $200,000 and (b) uncompleted orders for the
purchase by any Group Member of materials, supplies, equipment and services for
the requirements of its business, and all work-in-progress and open customer
orders, in any case with respect to which the unperformed obligation of the
applicable Group Member is in excess of $75,000 in the aggregate; all of the
foregoing required to be listed on Schedule 2.08 hereto being hereinafter
collectively referred to as the "Contracts". No Group Member nor, to the
Knowledge of the Parent, any other party to a Contract is in default in the
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, the Seller or the Parent and none of the Seller,
the Parent or any Group Member has received written notice of an event the
occurrence of which with the giving of notice or the lapse of time would
constitute a default under any covenant or condition under any Contract, except
in each case for any default which would not have a Material Adverse Effect.
Except as set forth on Schedule 2.08 or Schedule 2.20 hereto, no consents are
required (except for any such consents as shall have been obtained prior to the
Closing Date), and no event of default which would have a Material Adverse
Effect will occur, under any Contract as a result of the sale and transfer of
the Shares from the Seller to the Purchaser or the transfer by the Parent or the
Seller or any of their Affiliates of any assets or Contracts to any Group
Member, and the change in control of the Company and 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 renegotiate, change or void any
terms of, or accelerate any amounts under, any Contract, any of
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<PAGE> 17
which would have a Material Adverse Effect. The Seller has made available to the
Purchaser true, complete and correct copies of each written Contract and a
written description of each oral Contract. Each Contract was entered into and
requires performance in the ordinary course of business and is in full force and
effect.
2.09 Compensation and Employment Agreements. Schedule 2.09
contains a true, complete and correct list of the name, position, current rate
of compensation and any paid time off, severance and any other compensation
arrangements or fringe benefits, of each current employee, sales representative,
consultant and agent of the Business that is to be offered employment by
Integrated or the Manager pursuant to the Employee Transition Agreement
("Subject Employees") (together with a description of any specific arrangements
or rights concerning such persons that are not reflected in any agreement or
document referred to in Schedule 2.08). Except as set forth in Schedule 2.09,
there are no employees of the Parent or any of its subsidiaries who have been
engaged in the Business but are not Subject Employees, whose failure to be
Subject Employees would have a Material Adverse Effect. The balance sheets
included in the Financial Statements contain an adequate reserve for paid time
off, severance and all other employee-related accruals. Each employee, agent and
consultant has all licenses necessary to carry on his or her obligations as an
employee of the Business and to the Knowledge of the Parent, each such licensee
is in compliance with all of the terms of all such licenses held by him or her,
except where the failure to have any such license or the existence of any such
non-compliance would not have a Material Adverse Effect. There is no contract,
agreement, plan or arrangement covering any employee or former employee of the
Company that individually or collectively could give rise to the payment of any
amount that would not be deductible pursuant to the terms of Section 280G of the
Code.
2.10 Employee Benefit Plans.
Except as set forth in Schedule 2.10 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;
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<PAGE> 18
(e) No Benefit Plan is a "defined benefit plan" (within the
meaning of Section 3(35) of ERISA);
(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); and
(g) Each Benefit Plan that is intended to be qualified under
Section 501(a) of the Code as an organization described in Code Section
501(c)(9) has received a favorable determination letter from the Internal
Revenue Service as to the tax-exempt status of the organization, within the
period of time prescribed by law.
2.11 Labor Relations. The Business and the Group Members are
not 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. To the Knowledge of the Parent, there are no
pending or threatened activities the purpose of which is to achieve
representation of all or some of the Subject Employees by any union or other
labor organizing group.
2.12 Insurance. Set forth on Schedule 2.12 hereto is a list as
of the date hereof of the fire, property, casualty, liability, professional
liability, directors and officers liability and other types of insurance
policies maintained by any of the Group Members (including but not limited to
any state sponsored plan or program for worker's compensation), the coverages of
such policies, the annual premium amounts, any unpaid premium amounts, the dates
of renewal and expiration, and the dates, if any, of any gaps or lapses in such
insurance coverage and of any claims made thereunder or increases in premiums
therefor during the past two years. Schedule 2.12 also sets forth all insurance
policies covering any Group Member that will not continue to remain in effect
after the Closing Date.
2.13 Litigation. Except as described in Schedule 2.13 hereto,
there is no litigation, arbitration or other legal proceeding (collectively,
"Actions") pending or, to the Knowledge of the Parent, threatened against or by
any Group Member or any involving material portion of the assets or properties
of the Group. Such list sets forth which Actions are covered by insurance
policies maintained by or for the benefit of the Group Members (including
insurance policies which are subject to applicable deductibles, liability
retentions or other reimbursement obligations).
2.14 Permits; Compliance with Applicable Law.
(a) General. Except as set forth in Schedule 2.14
hereto, each Group Member and the Business and the Discontinued Operations are,
and during the two year period ending on the date hereof, have been, in
compliance with all Applicable Law relating to the Business, such Group Member
and its employees, respective assets and properties, except where the failure to
be in compliance would not have a Material Adverse Effect.
(b) Permits. The permits, licenses, approvals, franchises
and authorizations (collectively, but excluding Environmental Permits, the
"Permits") issued to the
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<PAGE> 19
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, except for such Permits which the failure to have would not 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.
(c) Environmental. Except as set forth in Schedule 2.14
hereto:
(i) Each Group Member is in compliance with the
provisions of all Federal, state and local environmental laws,
codes and ordinances and all rules and regulations promulgated
thereunder (the "Environmental Laws"), including with respect to
the real property leased by Group Members listed on Schedule 2.06
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 or liquid 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" and (2) petroleum, natural gas, natural gas
liquids, liquefied natural gas, and synthetic gas) (collectively,
"Hazardous Substances")), except where the failure to have
obtained or maintained any such Environmental Permit would not
have a Material Adverse Effect.
(iii) To the Knowledge of the Parent, no violation of any
Environmental Law exists, and no Group Member has received any
written notice of violations of any Environmental Law which have
not been cured, relating to the use, ownership or occupancy of
any of the Premises, except for any violations 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, except in compliance with applicable
Environmental Laws, except where the failure to be in compliance
would not have a Material Adverse Effect.
(v) None of the Premises, nor, to the Knowledge of the
Parent, any real property to which any Group Member has, 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
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<PAGE> 20
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.
2.15 Bank Accounts. Schedule 2.15 hereto sets forth a list of
all bank and securities accounts and lockboxes maintained by any Group Member.
Such accounts and lockboxes are all the accounts and lockboxes used in
connection with the operations of the Business.
2.16 Trademarks, Patents and Copyrights. Schedule 2.16 hereto
sets forth a list 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 (collectively, "Intellectual
Property"), all to the extent that the foregoing items are used in the business
of the Group Members and are owned in whole or in part by any Group Member. To
the Knowledge of the Parent, all of the patents, trademarks, tradenames, service
marks, copyrights and licenses or other agreements listed in Schedule 2.16
hereto are valid and in full force and effect, except as otherwise noted on
Schedule 2.16 hereto. No Group Member is infringing upon, or otherwise
violating, the rights of any third party with respect to any Intellectual
Property or other proprietary rights and to the Knowledge of the Parent, no
third party is infringing on the rights of any Group Member.
2.17 Transactions with Certain Persons. Except with respect to
insurance arrangements set forth on Schedule 2.12 hereto or referred to in
Section 7.06 hereof and the Tax Sharing Agreement, and except as set forth on
Schedule 2.17 hereto, no executive officer, director or Affiliate of the Parent,
the Seller or any Group Member is presently (or has been during the two-year
period ending on the date hereof) a party to any agreement, arrangement,
understanding or commitment with any Group Member regarding the payment of money
or the transfer of property or performance of services by any Group Member to
such person or by such person to any Group Member or otherwise material to the
operations of the Business, other than employment agreements all of which shall
survive Closing without change, except as otherwise provided on Schedule 2.09.
2.18 Authority. Each of the Parent and the Seller has the
corporate power and authority to execute and deliver this Agreement and each
Parent/Seller Transaction Document and to perform its covenants and agreements
hereunder and thereunder. The execution and delivery of this Agreement and each
Parent/Seller Transaction Document 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 thereunder and the consummation by each of the Parent and the
Seller of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action. This Agreement and each
Parent/Seller Transaction Document 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.
2.19 Ownership of Shares. The Seller owns all of the issued
and outstanding shares of Common Stock and has 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
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<PAGE> 21
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. The Seller does not own any shares of capital stock of the
Company other than the shares of Common Stock and does 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 the Company
owned by the Seller. Upon the Closing, the Company, or one of its direct or
indirect wholly owned Subsidiaries, will own all of the issued and outstanding
shares of capital stock or other equity interests of each Subsidiary (except as
set forth on Schedule 2.03), free and clear of any Lien.
2.20 Consents. Except as set forth on Schedule 2.20 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 and each Parent/Seller Transaction
Document by the Parent and the Seller and the consummation of the transactions
contemplated hereby and thereby to be consummated by the Parent or the Seller,
except where the failure to obtain such consents, approvals, or authorizations,
or make such filings, would not have a Material Adverse Effect.
2.21 Foreign Person. Neither the Parent nor the Seller is a
foreign person within the meaning of Section 1445(f)(3) of the Code.
2.22 Medicare, Medicaid and Third-Party Payors. Each Group
Member and the Business is in compliance, and has not caused any nursing
facility, hospital or other long-term care provider or other customer (each, a
"Customer") to be not in compliance, with all laws, rules and regulations of
Medicaid and Medicare and all applicable policies and procedures of third-party
payors with which any Group Member or the Business or any Customer has conducted
business and/or issued an invoice for services or products, and, except as set
forth on Schedule 2.22, has filed all returns, cost reports and other filings in
the manner prescribed, except where the failure to do so would not have,
individually or in the aggregate, a Material Adverse Effect. The Group Members
and the Business have not provided any materially inaccurate billing information
to any Customers. All returns, cost reports and other filings made by each Group
Member or by the Business to Medicare, Medicaid, any other governmental health
or welfare related entity or any third-party payor are true and complete, except
where the failure to be so would not have, individually or in the aggregate, a
Material Adverse Effect. No deficiency in any such returns, cost reports and
other filings, including deficiencies for late filings, has been asserted or, to
the best Knowledge of the Parent, threatened by any Federal or state agency or
instrumentality or other provider reimbursement entities relating to Medicare,
Medicaid or any third-party payor claims, and, to the best Knowledge of the
Parent, there is no basis for any claims or requests for reimbursement from any
such agency, instrumentality or entity except for any deficiencies which would
not have, individually or in the aggregate, a Material Adverse Effect. No Group
Member has been subject to any investigation of any type or any audit relating
to fraudulent Medicare, Medicaid or any third-party payor procedures or
practices, except for audits which would not have, individually or in the
aggregate, a Material Adverse Effect.
2.23 Year 2000. All items, products, software, components and
systems used in the operation of the business of the Company, which incorporate
the processing of dates or date-related data (including, but not limited to,
representing, calculating, comparing and sequencing),
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<PAGE> 22
including, but not limited to, computer systems, infrastructure items, software
applications, hardware and related equipment and utilities, developed, in whole
or part, by the Company and its Subsidiaries are currently Y2K-compliant, except
as set forth in Schedule 2.23 and except for such non-compliance as would not
have a Material Adverse Effect.
2.24 Business; Discontinued Operations.
(a) The only material aspects of the Business consist of
providing the types of services described on Schedule 2.24(a)
hereto to the types of customers described on Schedule 2.24(a)
hereto in the States set forth on Schedule 2.24(a) hereto.
(b) The only material aspects of the Discontinued
Operations during the 180 day period ending on the date hereof
consist of (or consisted of) providing the types of services
described on Schedule 2.24(b) hereto to the types of customers
described on Schedule 2.24(b) hereto in the States set forth on
Schedule 2.24(b) hereto.
2.25 Questionable Payments. The Business, the Group Members,
and the Discontinued Operations have not, and to the knowledge of the Parent, no
stockholder, director, officer, agent, controlling person or employee of any of
them has, made or received any illegal or unlawful payment, bribe, kickback,
political contribution or other similar questionable payment for any referrals
or otherwise in connection with the ownership or operation of the Business or
the Discontinued Operations, including, without limitation, any of the same that
would constitute a violation of the Foreign Corrupt Practices Act of 1977, as
amended.
2.26 Medicare Cost Reports. The Medicare cost reports relating
to the Business previously furnished by the Seller to the Purchaser are true,
correct and complete in all material respects.
2.27 Questionnaire. The marked-up healthcare law questionnaire
attached hereto as Exhibit 2.27 is true and correct in all material respects.
2.28 No Untrue Statement. None of the representations and
warranties of the Parent or the Seller made in or pursuant to this Agreement
contains any untrue statement of material fact or omits to state a material fact
necessary, in light of the circumstances under which it was made, in order to
make any representation not misleading in any material respect.
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 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.
3.02 Authority. The Purchaser has the requisite corporate
power and authority to execute and deliver this Agreement and to perform its
covenants and agreements hereunder.
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The execution and delivery of this Agreement or any of the agreements,
certificates, instruments or other documents to be executed and delivered by the
Purchaser as contemplated by this Agreement (the "Purchaser Transaction
Documents") by the Purchaser, the performance by the Purchaser of its covenants
and agreements hereunder and thereunder and the consummation by the Purchaser of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action. This Agreement and each Purchaser Transaction
Document 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 or any Purchaser Transaction Document by the Purchaser, nor the
consummation of the transactions contemplated hereby or thereby 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 or any
Purchaser Transaction Document by the Purchaser nor the consummation of the
transactions contemplated hereby or thereby 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 any Purchaser Transaction
Document, or which if adversely determined, would materially adversely affect
its ability to consummate the transactions contemplated by this Agreement or any
Purchaser Transaction Document, or to perform its covenants and agreements under
this Agreement or any Purchaser Transaction Document.
3.05 Consents; Hart-Scott-Rodino Compliance. 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. In furtherance of the
foregoing representation and warranty, the Purchaser represents and warrants
that the facts set forth in the letter dated April 29, 1999 from Eric D. Scher,
Esq. to B. Michael Verne, Federal Trade Investigator, with respect to the assets
and operations of the Purchaser and the relationships between the Purchaser and
Integrated (including the management agreement to be entered into between the
Purchaser and Integrated referenced in such letter) are true and correct in all
material respects and the Purchaser and Integrated did not structure the
purchase of the Shares, and the management and ownership arrangements between
them for the purpose of avoiding their filing requirements under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976.
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
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<PAGE> 24
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 information which it considers necessary or advisable to enable it
to make a decision concerning the purchase of the Shares provided, however, such
access shall in no way affect or diminish the representations, warranties and
covenants of the Parent and the Seller in this Agreement.
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 Haythe & Curley, 237 Park Avenue, New
York, New York 10017 at 6:00 p.m., local time, on May 27, 1999, however, the
transfer of the Shares and the other transactions contemplated in this Agreement
shall be deemed to have taken place at the opening of business on June 1, 1999
(the "Closing Date"), and, for all purposes, the Closing shall be effective as
of the opening of business on June 1, 1999.
SECTION V.
CONDITIONS TO THE SELLER'S OBLIGATION TO CLOSE
----------------------------------------------
The obligation of the Seller to enter into this Agreement has
been conditioned upon satisfaction of each of the following conditions:
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 Blass & Driggs, counsel for Integrated and the Purchaser,
dated the date of the Closing and covering the matters set forth in Sections
3.01, 3.02, 3.03 and 3.04 hereof.
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5.03 Releases. The Seller shall have received general releases
executed by the Group Members, the Purchaser, Integrated and the Manager, in
form and substance satisfactory to the Seller, of all officers and directors of
each Group Member who do not remain in the employ of any Group Member,
Integrated or the Manager immediately subsequent to the Closing, with respect to
acts or omissions occurring on or prior to the Closing Date.
5.04 Agreements. The Purchaser shall have executed and
delivered, or caused to be executed and delivered, to the Seller copies of the
following documents: (i) the Transition Services Agreement (the "Transition
Services Agreement") referred to in Section 6.04 hereof, (ii) the Consulting
Agreement (the "Consulting Agreement") with Timothy E. Foster referred to in
Section 6.05 hereof, and (iii) the Management Agreement. The Purchaser,
Integrated and the Manager shall have executed and delivered the Employee
Transition Agreement, and the Purchaser shall have granted a collateral
assignment of certain rights under the Management Agreement to the Seller, as
more specifically set forth in the Collateral Assignment of Rights attached
hereto as Exhibit 5.04.
SECTION VI.
CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE
-------------------------------------------------
The obligation of the Purchaser to enter into this Agreement
has been conditioned upon satisfaction of each of the following conditions:
6.01 Certificates. The Purchaser shall have received:
(a) A true and correct copy of the certificate of
incorporation of the Company and each Subsidiary, 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 applicable by-laws as certified
as true and correct by its Secretary;
(b) Certificate of incumbency executed by the Secretary
and the President of the Seller in form and substance reasonably acceptable to
the Purchaser;
(c) Certificate of incumbency executed by the Secretary
and the President or Chief Executive Officer 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 the Parent/Seller Transaction Documents 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.
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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 Purchaser's counsel and dated the date of the
Closing 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 2.13,
Section 2.18 and the second sentence of Section 2.19 hereof.
6.03 Resignations. At the request of the Purchaser, all
officers and all directors of each Group Member shall have executed and
delivered to each Group Member, as applicable, resignations effective as of the
Closing Date.
6.04 Transition Services Agreement. The Parent, the Seller and
the Purchaser shall have executed the Transition Services Agreement
substantially in the form attached hereto as Exhibit 6.04 and containing such
other terms and provisions as are mutually acceptable to the parties thereto.
6.05 Consulting Agreement. Timothy E. Foster and the Purchaser
shall have executed the Consulting Agreement substantially in the form attached
hereto as Exhibit 6.05 to provide for their agreement for Timothy E. Foster to
provide certain consulting services to the Purchaser.
6.06 Employee Transition Agreement. The Parent, the Seller and
NCES shall have executed and delivered the Employee Transition Agreement.
6.07 Stockholders' Agreement. The Seller shall have executed
and delivered the Stockholders' Agreement.
6.08 Undertaking. The Parent and the Seller shall have
executed and delivered the Undertaking.
SECTION VII.
OTHER AGREEMENTS OF THE PARTIES
-------------------------------
7.01 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, the Parent/Seller Transaction Documents and the
Purchaser Transaction Documents (collectively the "Transaction Documents") 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.
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7.02 Access to Information. (a) For a period of six (6) years
from the Closing Date, the Purchaser shall (and shall cause each of the Group
Members to), during normal business hours and upon reasonable notice, make
available and provide the Parent and its 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 the Parent (or any Affiliate of the Parent) requires with
respect to any reasonable business purpose, and shall (and 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 each Group Member available to the Parent and its representatives (including,
without limitation, counsel and independent auditors), with regard to any
reasonable business purpose; provided, however, that the Purchaser shall not be
required to make any such personnel available in excess of a reasonable period
of time unless the Seller and the Parent shall reimburse the Purchaser for the
reasonable costs of making such personnel available.
(b) Without limiting the generality of Section 7.02(a), from
and after the Closing Date, the Purchaser shall (and shall cause each of the
Group Members) to reasonably cooperate with and assist, and shall cause its
officers and employees (and the officers and employees of the Group Members)
reasonably to cooperate with and assist; provided, however, that the Purchaser
shall not be required to make any such personnel available in excess of a
reasonable period of time unless the Seller and the Parent shall reimburse the
Purchaser for the reasonable costs of making such personnel available, the
Parent and its representatives (including, without limitation, its counsel and
independent auditors), in connection with:
(i) the preparation by the Parent at its sole cost
and expense of the Group Members' (or any Group Member's)
portion of any Federal consolidated income Tax Return, report
or declaration, and of any state consolidated, combined or
unitary income Tax Return, report or declaration, for any
Seller Tax Period;
(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, at the sole cost and
expense of the Seller (except as heretofore provided with
respect to making personnel available), 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, at the
sole cost and expense of the Parent and the Seller (except as
heretofore provided with respect to making personnel
available);
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(iv) the 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;
or
(v) the investigation, prosecution or defense of or
response to any Actions, claims or inquiries commenced 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).
(c) The cooperation and assistance of the Purchaser and the
Group Members and their respective officers and employees under this Section
7.02 shall be rendered during normal business hours and in a manner which does
not materially disrupt the business and operations of the applicable Group
Member, and the Purchaser shall use its commercially reasonable efforts in the
case of the 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
preparation by the Parent of Tax Returns, reports or declarations and financial
statements; provided, however that the Purchaser shall not be required to make
any such personnel available in excess of a reasonable period of time unless the
Seller and the Parent shall reimburse the Purchaser for the reasonable costs of
making such personnel available. The Parent shall reimburse the Group Members
for any out-of-pocket expenses paid by them, including reasonable accounting and
attorney's fees and costs, in the cooperation and assistance by the Purchaser
and the Group Members with the Parent's preparation of any such Tax Returns,
reports or declarations and any such financial statements or other similar
matters.
(d) Without limiting the generality of subsection (a) of this
Section 7.02, following the Closing, the Purchaser shall use commercially
reasonable efforts to not (and shall use commercially reasonable efforts to
cause the Group Members not to) destroy any information, files, documents or
records (written and computer) relating to any Group Member or any of its
businesses or operations without giving at least 30 days' prior written notice
to the Parent and shall (and shall cause the Group Members to) permit the Parent
to examine, duplicate (at the Parent's expense) and/or transfer (at the Parent's
expense) to the Parent or its representatives any of such information, files,
documents or records (written and computer).
7.03 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
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 of the foregoing 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 Taxes payable
by the Group Members with respect to such returns, the determination of which
taxes shall be solely within the Parent's control; provided, however, that all
such returns shall be prepared, and all Taxes shall be calculated,
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<PAGE> 29
lawfully and in a manner consistent with past practice and the Seller shall not
make any Tax elections or change any Tax accounting methods (to the extent such
changes would be binding on the Purchaser) without the express written consent
of the Purchaser. Without limiting the generality of Section 7.04 hereof, the
Purchaser shall fully cooperate with and assist the Parent (including, without
limitation, allowing access by the Parent and its representatives (including its
counsel and independent auditors) to the books and records (written and
computer) of the Group Members and allowing the Parent at its sole cost to make
copies thereof) in connection with the preparation by the Parent of any income
Tax Returns, reports and declarations required to be prepared by the Parent or
the Seller hereunder; and except as provided in Section 7.02(c), neither the
Parent nor the Seller shall be charged with any cost or expense for the
assistance rendered by the Purchaser or any of the Group Members in connection
therewith.
(b) The Parent shall be given the opportunity to review,
comment upon and suggest changes or corrections to, any Tax Returns, reports and
declarations which include any Seller Tax Period (and the work papers of the
Group Members and their accountants used in the preparation thereof), in each
case a reasonable period prior to the filing thereof. In the event of any
dispute regarding the matters set forth in the immediately preceding sentence,
then a mutually satisfactory independent nationally recognized accounting firm
shall be requested to make a determination resolving any such dispute; and the
determination by such accounting firm of any such dispute shall be final and
binding on the parties hereto. The fees and expenses of such accounting firm in
resolving such dispute shall be borne by the non-prevailing party.
(c) Any refunds or credits of Taxes of any Group Member for
any Seller Tax Period shall be for the account of the Parent. Applications for
refunds of Taxes, and the filing of amended Tax Returns with respect to any
Seller Tax Period shall be made and prosecuted only by the Parent or the Seller.
Without limiting the provisions of Section 7.02, the Purchaser shall, at the
sole cost and expense of the Parent and the Seller (including, without
limitation, reimbursement of reasonable costs and expenses of the personnel of
the Purchaser), 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 reasonably requested by the Parent, including by causing each Group
Member to authorize by appropriate powers of attorney (subject to
indemnification with respect thereto on terms and conditions reasonably
satisfactory to the Purchaser) such person as the Parent shall designate to
represent such Group Member with respect to such refund claim. 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 (or reducing the deductions or Tax
credits available to such Group Members) 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; which
approval shall not unreasonably be withheld, delayed or conditioned. The
Purchaser shall or shall cause each Group Member to forward to the Parent any
refund of Taxes of any Group Member allocable to any Seller Tax Period promptly
after such refund is received (or reimburse the Parent for any credit within
five days after the credit is allowed or finally applied against other Tax
liability). Notwithstanding the foregoing, the control of the prosecution of a
claim for refund of Taxes paid
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pursuant to a deficiency assessed subsequent to the Closing Date as a result of
an audit shall be governed by the provisions of Section 8.03(d) hereof.
Notwithstanding anything contained herein to the contrary, nothing herein shall
preclude the Purchaser from carrying back losses to pre-Closing Tax periods to
the extent that such action does not reduce any attributes or Tax benefits of
the Seller.
(d) The Purchaser and the Parent shall jointly make a deemed
asset sale election described under Section 338(h)(10) of the Code and shall
make all corresponding or similar elections under applicable state or local law
with respect to the Company and all Group Members in connection with the
qualified stock purchase of the Company by the Purchaser (collectively
"Elections"). The Purchaser and the Parent shall file all such Elections on a
timely basis and comply with all rules and regulations applicable to such
Elections. The Purchaser and the Parent shall cooperate with each other to take
all actions necessary and appropriate (including filing such forms, returns,
elections, schedules and documents on a joint or separate basis as may be
required) to effect and preserve timely Elections in accordance with applicable
Treasury Regulations under Section 338 of the Code and comparable state or local
laws. For the purpose of making the Code Section 338(h)(10) election, the Parent
shall compute and allocate the "modified aggregate deemed sales price" among the
assets of the Company and all Group Members in accordance with the provisions of
Section 338 and the Treasury Regulations thereunder (the "Allocation"). The
Parent shall be responsible for preparing and filing the Elections. The Parent
shall submit the forms and information schedules, necessary to make the Section
338(h)(10) election, to the Purchaser no later than 30 days prior to the due
date for such Election. The Purchaser shall sign such Section 338(h)(10)
election and return it to the Parent within 10 days after receiving it. The
Parent shall calculate gain or loss, if any, resulting from the Elections and
the Purchaser shall calculate tax basis in the Company's and Group Members'
assets in a manner consistent with the Allocation and neither party nor the
Company shall take any position inconsistent with the Allocation in any Tax
Return, schedule, estimate or otherwise; provided however, that the Parent shall
be entitled to subtract its selling costs from the "modified aggregate deemed
sales price" for purposes of calculating gain or loss and the Purchaser shall be
entitled to add its acquisition costs to the "adjusted grossed-up basis" of the
assets of the Company for purposes of determining the basis of the Company's and
Group Members' assets. The Purchaser shall not intentionally take any action,
and shall cause the Group Members not to take any action, outside the ordinary
course of the Group Members' business, which would increase the amounts included
in the gross income of the Parent under Section 551 or Section 951 of the Code
for any Seller Tax Period. 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, and shall cause the Group Members to execute and file such statements as
may be necessary or appropriate to effect such election.
(e) Except as required by law, without the Parent's prior
written consent, neither the Purchaser nor any Group Member shall take any
position on any Tax Return, report or other declaration for any taxable period
which might result in any:
(1) increase in Tax (over accruals therefor on the
books and records of the Group Members as of the Effective
Time) for any Seller Tax Period in:
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<PAGE> 31
(A) the liability of the Parent, the Seller or any
Group Member in respect of the consolidated Federal income Tax
liabilities, or any state consolidated, combined or unitary
income Tax liabilities, of the Parent's or the Seller's tax
group, as applicable, for periods while any Group Member was
part thereof; or
(B) the liability of the Parent, the Seller or any
Group Member in respect of any separate state, local or
foreign Tax of any Group Member; or
(2) reduction in any Tax attributes to which the
Parent, the Seller or any Group Member may be entitled with
respect to any Seller Tax Period.
(f) All Taxes with respect to the income, property, abandoned
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.
7.04 Insurance Matters. The Parent shall purchase and pay all
premiums with respect to a tail professional liability insurance policy
providing the greatest coverage and the longest term available.
7.05 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 Parent/Seller Transaction Document, 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 representation or warranty of any
kind. Without limiting the generality of the foregoing, except to the extent of
any representations and warranties expressly made by the Parent and the Seller
in this Agreement or any Parent/Seller Transaction Document, 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 any
other information, statements or documents heretofore delivered to or made
available to the Purchaser or its counsel, accountants, advisors, lenders,
representatives or Affiliates with respect to the Group or any Group Member or
the business, operations or affairs of the Group or any Group Member.
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7.06 Tradename Usage.
(a) The Purchaser shall take all steps necessary or
appropriate to cause the Company and each other Group Member, as applicable, to
change its name at or as soon as practicable after the Closing Date to another
corporate name not containing the name "NovaCare" or any variation thereof and
to cease conduct of business from and after the Closing Date under any assumed
or trade name containing the name "NovaCare" or any variation thereof.
Notwithstanding the foregoing, the Purchaser, the Company and the Group Members
may continue to utilize all boxes, labels, products and other assets bearing the
"NovaCare" name (the "Supplies") until depleted. The Purchaser agrees to use its
best efforts to utilize the Supplies as expeditiously as possible and will
indemnify the Parent from any and all liabilities arising out of such use except
to the extent that such liability arises from a product liability claim which
would constitute a breach of a representation or warranty of the Parent or the
Seller hereunder. Also notwithstanding anything to the contrary contained above,
the Group Members shall be entitled to continue to maintain and use the name
"NovaCare" or variations thereof for a reasonable period of time after the
Closing to the extent necessary to comply with any licensing requirements
relating to changes of names of licensees; provided, however, the Purchaser
shall indemnify and hold each Seller Indemnified Party harmless with respect to
such use.
(b) The parties understand and agree that the Company owns
certain specialized exercise equipment that is used as part of a wellness and
therapy program operated by the Company in certain Customer facilities under the
name of "Vigor". The Purchaser understands that the Company owns the equipment
only, and, except as set forth below, the Company does not own, and the
Purchaser is not acquiring, any license or other right to use the "Vigor" trade
name or service mark, or the proprietary clinical protocols and procedures (the
"Vigor" Protocols") developed by the Parent for the purposes of operating the
"Vigor" program. The parties understand that the Parent, the Seller or an
Affiliate thereof shall retain the unlimited right to continue to use the
"Vigor" trademark and service mark, as well as the Vigor Protocols, in other
aspects of their operations after the Closing Date. Notwithstanding the
foregoing, however, the Parent and the Seller hereby grant to the Purchaser a
license to use the "Vigor" trade name and service mark, as well as the Vigor
Protocols, for the limited purpose of continuing the operation of the "Vigor"
program in Customer facilities in which such program is being operated by the
Company as of the Closing Date. Such limited license is not transferable and the
Purchaser is expressly prohibited from using the "Vigor" trade name or service
mark in any other facility served by the Company or any Affiliate thereof. Such
limited license shall expire with respect to any particular Customer facility
immediately upon expiration or termination of the Provider Contract between the
Company and such Customer that is in effect on the Closing Date or in the event
the "Vigor" program is terminated in such facility. Such limited license is
contingent upon maintenance and operation by the Purchaser and the Company of
the "Vigor" program in a manner that is consistent with the quality and
substance of the standards and practices used by the Company prior to the
Closing Date. The Parent or the Seller may revoke the limited license contained
herein in the event it determines and notifies the Purchaser that, in its sole
and reasonable discretion, the Company or the Purchaser has failed to operate
the "Vigor" program in such a manner and the deficiency complained of continues
to exist for more than twenty (20) days after receipt of notice from the Parent
or the Seller.
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7.07 Release of Liens. From and after the Closing Date, the
Parent and the Seller agree to do all acts necessary to continue to extinguish
and pay-off all Liens (other than Permitted Liens) against all assets of the
Company and all assets of each Group Member which existed as of the Closing
Date, and the Parent and the Seller agree to indemnify the Purchaser from any
liability or Damages arising out of such Liens.
7.08 Further Assurances. Upon the request of a party or
parties hereto at any time after the Closing Date, the other party or parties
will forthwith execute and deliver such further instruments of assignment,
transfer, conveyance, endorsement, direction or authorization and other
documents as the requesting party or parties or its or their counsel may request
in order to perfect title of the Purchaser and its successors and assigns to the
Shares or any of the assets used or held for use in connection with the Business
or otherwise to effectuate the purposes of this Agreement.
7.09 Best Efforts. Upon the terms and subject to the
conditions of this Agreement, each of the parties hereto will use its best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper or advisable consistent with applicable law
to consummate and make effective in the most expeditious manner practicable the
transactions contemplated hereby.
7.10 Restrictive Covenants. (a) Certain confidential and
proprietary information is included within the assets of the Business ("Trade
Secrets"), including, without limitation, with respect to some or all of the
following categories of information: (i) financial information, including but
not limited to information relating to earnings, assets, debts, prices, pricing
structure, reimbursement matters, volume of purchases or sales or other
financial data; (ii) supply and service information, including but not limited
to information relating to goods and services, suppliers' names or addresses,
terms of supply or service contracts or of particular transactions, or related
information about potential suppliers to the extent that such information is not
generally known to the public, and to the extent that the combination of
suppliers or use of a particular supplier, though generally known or available,
may yield advantages to the Business, details of which are not generally known;
(iii) marketing information, including but not limited to information relating
to details about ongoing or proposed marketing programs or agreements by or on
behalf of the Business, sales forecasts, advertising formats and methods or
results of marketing efforts or information about impending transactions; (iv)
personnel information, including but not limited to information relating to
employees' personal or medical histories, compensation or other terms of
employment, actual or proposed promotions, hirings, resignations, disciplinary
actions, terminations or reasons therefor, training methods, performance, or
other employee information; (v) customer and patient information, including but
not limited to information relating to names, addresses or backgrounds of past,
existing or prospective clients, customers, payors, referral sources, and
patients, records of agreements and prices, proposals or agreements between any
of them and the Business, status of accounts or credit, patients' medical
histories or related information as well as customer lists; and (vi) inventions
and technological information, including but not limited to information related
to proprietary technology, trade secrets, research and development data,
processes, formulae, data and know-how improvements, inventions, techniques and
information that has been created, discovered or developed, or has otherwise
become known to the Business, and/or in which property rights have been assigned
or otherwise conveyed to the Business, which information has commercial value in
the Business. The Seller and the Parent shall hold all Trade Secrets in
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confidence and will not discuss, communicate or transmit to others, or make any
unauthorized copy of or use any of the Trade Secrets; and at the expense of the
Purchaser will take all reasonable actions that the Purchaser deems reasonably
necessary or appropriate, to prevent unauthorized use or disclosure of or to
protect the Business' interest in the Trade Secrets. The foregoing does not
apply to information that by means other than deliberate or inadvertent
disclosure by the Seller or the Parent, or any of their respective Affiliates,
becomes known to the public; or disclosure compelled by judicial or
administrative proceedings after they diligently try to avoid each disclosure
and afford the Purchaser the opportunity to obtain assurance that compelled
disclosures will receive confidential treatment; or the disclosure of financial
information compelled by law. Notwithstanding anything to the contrary contained
herein, actions taken in furtherance of the Parent's contemplated sale of the
NovaNet system shall not be deemed a breach of this Agreement.
(b) Non-Solicitation and Non-Pirating. Each of the Seller and
the Parent hereby agrees that, until the first anniversary of the Closing, it
will not, directly or indirectly, for itself or on behalf of any other person,
firm, entity or other enterprise: (i) solicit or in any way divert or take away
any person or entity that, prior to the Closing Date, was a patient, client,
customer, payor, referral source, facility or patient of the Business; for the
purpose of providing services of the same nature as the Business; or (ii) entice
away or in any other manner persuade any Subject Employee to alter, modify or
terminate his or her relationship with Integrated, the Manager, the Purchaser or
any of their respective Affiliates, or, in the case of therapists or senior
management personnel who are Subject Employees employed by Manager and whose
employment Manager has not terminated, hire such Subject Employee.
(c) Necessary Restrictions. Each of the Seller and the Parent
acknowledges that the restrictions contained in this Agreement are reasonable
and necessary to protect the legitimate business interests of the Purchaser and
that any violation thereof by any of them would result in irreparable harm to
the Purchaser, and that damages in the event of such breach of this Agreement
will be difficult, if not impossible, to ascertain. Accordingly, each of the
Seller and the Parent agree that upon the violation of any of the restrictions
contained in this Agreement, the Purchaser shall be entitled to obtain from any
court of competent jurisdiction a preliminary and permanent injunction as well
as any other relief provided at law, equity, under this Agreement or otherwise,
without the necessity of posting any bond or other security whatsoever. In the
event any of the foregoing restrictions are adjudged unreasonable in any
proceeding, then the parties agree that the period of time or the scope of such
restrictions (or both) shall be adjusted to such a manner or for such a time (or
both) as is adjudged to be reasonable.
(d) Remedies For Breach. Each of the Seller and the Parent
acknowledges that the covenants contained in this Section 7.10 are independent
covenants and that any failure by the Purchaser to perform its obligations under
this Agreement or any other agreement shall not be a defense to enforcement of
the covenants contained in this Agreement, including but not limited to a
temporary or permanent injunction.
7.11 Prudent Buyer Litigation. The Purchaser acknowledges that
prior to the Closing, the Company has assigned to an Affiliate of the Parent its
rights to recover from any present or former Customer of the Company any
receivables that may result from the successful pursuit of litigation against
the federal Medicare program pertaining to Medicare disallowances
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<PAGE> 35
of such Customer's costs of services provided by the Company prior to the
Closing. A complete list of such potential receivables is set forth in Schedule
7.11 attached hereto. The Purchaser agrees that the Parent or an Affiliate of
the Parent shall have full right to conduct and control such litigation and
agrees to cooperate fully with the Parent in connection therewith; provided,
however, that the Parent agrees to indemnify and hold harmless the Purchaser and
each Group Member from any cost, expense or liability with respect to such
litigation, including the reasonable attorneys' fees of any Group Member.
7.12 NovaNet Hardware. Promptly following the Closing, the
Purchaser will transfer and deliver to the Parent (at the Parent's expense) all
leased computer hardware of the Group Members relating to the NovaNet system.
The Company shall cause all NovaNet software to be deleted from all computers
retained by the Business.
7.13 Bank Documents. The Guaranty Agreement (as described in
the Consent) and the initial schedule of Designated Accounts Receivable (as
defined in the Consent) required to be delivered pursuant to the Consent shall
be reasonably satisfactory to the Purchaser.
SECTION VIII.
INDEMNIFICATION
---------------
8.01 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
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 or in any Parent/Seller Transaction Document, including, without
limitation, any covenant to pay Current Liabilities, (b) the breach of any of
the representations or warranties made by the Parent and the Seller in this
Agreement or any Parent/Seller Transaction Document, (c) any Prohibited
Liability, including, without limitation, (i) (as a result of Treasury
Regulation Section 1.1502-6(a) or otherwise) for Taxes of the Parent or the
Seller or any other corporation which is or has been affiliated with the Parent
or the Seller (other than any of the Group Members), (ii) any disallowances of
costs on applicable cost reports and/or payment denials with respect to
Medicare, Medicaid or any other payors with respect to periods ending prior to
the Closing Date, (iii) any liability arising out of the Discontinued Operations
or (iv) any liability arising out of the litigation required to be set forth on
Schedule 2.13 or the liabilities required to be set forth on Schedule 2.04(b) or
(d) any liability arising out of the Guaranty Agreement.
8.02 Indemnification by the Purchaser. After the Closing Date,
the Purchaser 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 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 or in any Purchaser Transaction Document, (b) the breach of
any of the representations or warranties made
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by the Purchaser in this Agreement or any Purchaser Transaction Document, (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") to
which the Parent or any of its Affiliates (other than any Group Member) is a
party to the extent such agreements relate to the business of the Company (or
any other Group Member), (d) the operations of the business of the Company or
any Group Member on or subsequent to the Closing Date, or (e) arising out of the
breach by Integrated or the Manager of any of their respective obligations,
representations or warranties under the Employee Transition Agreement, the
Collateral Assignment or any other agreement, instrument, certificate or
document to be executed or delivered by either or both of them to the Parent or
the Seller as contemplated by the Employee Transition Agreement.
8.03 Procedure for Indemnification. (a) Except as provided in
clause (d) of this Section 8.03, 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 to this Section VIII or Section IX or otherwise under
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 and (ii) 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) Except as provided in clause (d) of this Section 8.03, in
the case of third party claims, the Indemnitee shall give the Indemnitor the
right (i) to control and conduct any proceedings or negotiations in connection
therewith and necessary or appropriate to defend the Indemnitee (provided such
are pursued in a professional manner), (ii) to take all other reasonable steps
or proceedings to settle or defend any such claims, provided that the Indemnitor
shall not settle any such claim without the prior written consent of the
Indemnitee, which consent will not be unreasonably withheld or delayed, unless,
in the case that the Parent or the Seller is the Indemnitor, such settlement
only involves the payment of money (all of which shall be payable by the Parent
or the Seller at the time the settlement is entered into), in which event the
Parent and the Seller shall have the right to settle any such claim without the
consent of the Indemnitee (but with prior notice to the Indemnitee), and (iii)
to employ counsel selected by the Indemnitor, after reasonable consultation with
the Indemnitee, to contest any such claim or liability in the name of the
Indemnitee or otherwise. Notwithstanding the Indemnitor's election to appoint
counsel to represent the Indemnitee in an action, the Indemnitee shall have the
right to employ separate counsel and the Indemnitor shall bear the reasonable
fees, costs and expenses of such separate counsel, if the Indemnitee determines,
based upon the written advice of counsel, that a conflict or potential conflict
of interest exists between the Indemnitor and the Indemnitee in such action. The
Indemnitor shall, within 30 days of receipt of an Indemnity Notice in respect of
such claim (the "Indemnity Notice Period"), notify the Indemnitee in writing of
its intention to assume
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the defense of such claim. In the event that the Indemnitor does assume the
defense as provided above, the Indemnitee shall have the right to participate
fully in such defense (including, without limitation, with counsel of their
choice), at its sole expense, and the Indemnitor shall cooperate fully with the
Indemnitee in connection with such participation. If the Indemnitor does not
deliver to the Indemnitee within the Indemnity Notice Period written notice that
the Indemnitor will assume the defense of any such claim or litigation resulting
therefrom, the Indemnitee may, at the Indemnitor's sole cost and expense, defend
against any such claim or litigation in such manner as it may deem appropriate
and the Indemnitee may settle such claim or litigation, provided that the
Indemnitee shall not settle any such claim without the prior written consent of
the Indemnitor, which consent will not be unreasonably withheld or delayed or
conditioned. In the event that the Indemnitor does not assume the defense as
provided above, the Indemnitor shall have the right to participate fully in such
defense (including, without limitation, with counsel of its choice), at its sole
expense, and the Indemnitee shall cooperate fully with the Indemnitor in
connection with such participation, and in all cases the Indemnitee shall keep
the Indemnitor fully informed as to all matters concerning such third party
claim and shall promptly notify the Indemnitor in writing of any and all
significant developments relating thereto. Within 15 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 or,
if earlier, on the date when such payment shall become due.
(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 20 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 30 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 VIII, the
parties shall proceed in accordance with Section 10.07 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"); provided, however, that any delay
or failure to notify the Parent thereof shall not relieve the Parent of any
obligation to indemnify any Purchaser Indemnified Party except to the extent
that the Parent demonstrates that the defense of such Tax Claim is prejudiced by
such delay or failure to notify.
(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), but subject to the approval of the Purchaser, which
approval shall not unreasonably be withheld, delayed or conditioned. 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
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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,
at the sole cost and expense of the Parent and the Seller, 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 the Parent and the Seller and their
accountants and other representatives in connection with such participation, and
in all cases the Purchaser shall use commercially reasonable efforts to keep the
Parent fully informed as to all material matters concerning such Tax Claim and
shall use commercially reasonable efforts to promptly notify the Parent in
writing of any and all significant developments relating thereto. Without
limiting Sections 7.02 and 7.03, 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; provided, however, that the Purchaser shall not be required to make any
such personnel available in excess of a reasonable period of time unless the
Seller and the Parent shall reimburse the Purchaser for the reasonable costs of
making such personnel available.
(iii) Notwithstanding anything to the contrary contained
herein, in no event shall the Purchaser or any Group
Member settle any Tax Claim without the Parent's prior written consent which
shall not be unreasonably withheld. The Parent agrees to either give its consent
or the reasonable basis for withholding its consent within fifteen (15) days of
the receipt of any notice by the Parent from the Purchaser, the Company or any
Group Member and failure to timely respond to any such request for consent shall
be deemed to be conclusive evidence that such consent has been given.
(e) In the event that any Customer offsets the amount of any
disallowances of costs on applicable cost reports and/or payment denials with
respect to Medicare, Medicaid or any other payors with respect to the operations
of the Business during any periods ended prior to the Closing Date, including,
without limitation, any "prudent buyer" claims, against amounts due from such
Customer with respect to the operations of the Business subsequent to the
Closing Date, the Parent shall promptly pay to the Company the amount of such
offsets upon notice from the Company. If the Parent fails to pay the full amount
of such offsets within 45 days after receipt of such notice, the unpaid amounts
shall bear interest until paid at a rate equal to the "prime" or "base lending"
rate from time to time announced by Citibank, N.A.
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8.04 Other Limits on Indemnification.
(a) Notwithstanding anything in this Section VIII or
Section IX to the contrary and subject to the final sentence of this Section
8.04(a), no Purchaser Indemnified Party shall be entitled to indemnification
pursuant to Section 8.01(b) hereof unless and until the aggregate amount of all
Damages to which the Purchaser Indemnified Parties are entitled to indemnity
under Section 8.01(b) exceeds an aggregate amount (the "Basket Amount") equal to
$500,000. If such Damages exceed the Basket Amount, then the Seller's liability
for indemnification under Section 8.01(b) shall be limited to the amount of such
Damages sustained or incurred which exceeds the Basket Amount. Notwithstanding
anything contained herein to the contrary, there shall be no limitation on the
liability of the Seller and the Parent under this Section 8.04 for Damages of
the Purchaser which relate to Section 8.01(a) [Covenants], Section 8.01(c)
[Prohibited Liabilities] or Section 8.01(b) (insofar as it relates to breaches
of Sections 2.03 or 2.19).
(b) Notwithstanding anything in this Section VIII or
Section IX to the contrary and subject to the final sentence of this Section
8.04(b), no Seller Indemnified Party shall be entitled to indemnification
pursuant to Section 8.02 hereof unless and until the aggregate amount of all
Damages to which the Seller Indemnified Parties are entitled to indemnity under
Section 8.02 exceeds the Basket Amount. If such Damages exceed the Basket
Amount, then the Purchaser's liability for indemnification under Section 8.02
shall be limited to the amount of such Damages sustained or incurred which
exceeds the Basket Amount. Notwithstanding anything contained herein to the
contrary, there shall be no limitation on the liability of the Purchaser under
this Section 8.04 for Damages of the Seller which relate to clause (a) of
Section 8.02 [Covenants], clause (c) of Section 8.02 [Post-Closing Matters],
clause (d) of Section 8.02 [Post-Closing Operations], clause (e) of Section 8.02
[Breaches of Certain Agreements] or clause (b) of Section 8.02 (insofar as it
relates to breaches of Section 3.06 or the last sentence of Section 3.05).
(c) The representations and warranties contained in or
made pursuant to this Agreement shall expire 15 months from the Closing Date;
provided that the representations and warranties contained in Sections 2.05,
2.22 and 2.25 shall survive for the applicable statute of limitations, the
representations and warranties contained in Sections 2.03 and 2.19 (relating to
the capitalization of the Group Members) shall have no expiration date, and the
representations and warranties contained in Sections 2.18 and 3.02 insofar as
they relate to the legality, validity, binding effect and enforceability of this
Agreement and the Transaction Documents shall have no expiration date and
provided further that if written notice is properly given under this Section
VIII 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.
8.05 Losses Net. The amount of any Damages for which
indemnification is provided under this Section VIII or Section IX shall be net
of any amounts that actually reduce income Taxes that otherwise would have been
paid by the Indemnitee or result in income Tax refunds that are actually
received by the Indemnitee as a result of the matter for which indemnity is
sought (after taking into consideration the Taxes payable on any amount payable
to the Indemnitee by the Indemnitor in respect of such indemnity claim) (the
Indemnitee shall promptly after the receipt of any such refund pay the amount
thereof to the Indemnitor) and net of any amounts actually recovered by the
Indemnitee under insurance policies with respect to such Damages.
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8.06 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 Damages and any and all other claims relating to the subject
matter of this Agreement and the transactions contemplated hereby (other than
disputes arising under the second sentence of Section 7.03(b) hereof which
disputes shall be resolved as set forth in such Section and other than remedies
relating to breaches of covenants, which remedies may include injunctive or
other similar relief) shall be in accordance with, and limited by, the
indemnification provisions set forth in this Section VIII and Section IX.
8.07 Other Matters Relating to Indemnification.
(a) The parties acknowledge that many of the
representations and warranties made pursuant to this Agreement and the
Transaction Documents are qualified by terms or phrases such as "material",
"Material Adverse Effect", or similar words or concepts. The purpose of such
qualifiers is that the parties understand that the party making such
representations and warranties is aware that if such representation or warranty
was not so qualified, such party making the representation and warranty would
likely breach such representation and warranty in some immaterial respect; and
accordingly, such party does not desire intentionally or knowingly to breach a
representation or warranty. However, notwithstanding the foregoing, the parties
agree that as a matter of allocation of risk, for purposes of determining
whether or not a representation or warranty has been breached for purposes of
seeking indemnification with respect thereto, the party benefiting from any so
qualified representation or warranty shall be deemed to have relied on the truth
and accuracy of such representation and warranty without the "materiality"
qualifier and shall be entitled to indemnification with respect to any breach of
such representation and warranty as if such "materiality" qualifier had not been
made.
(b) Nothing contained in this Section VIII shall prevent
either party from assuming control of the defense and/or settling any claim
against it for which indemnification is not sought or available under this
Agreement.
SECTION IX.
BROKERS AND FINDERS
-------------------
9.01 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
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that the Parent shall be solely responsible for the fees and the expenses of
Warburg Dillon Read LLC in connection with this Agreement and the transactions
contemplated hereby.
9.02 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 Integrated or the Purchaser (or any Affiliate thereof) in connection with
this Agreement and the transactions contemplated herein, and Integrated and the
Purchaser, jointly and severally, hereby agree to defend, indemnify and hold the
Parent and the Seller harmless from any Damages sustained or incurred by the
Parent or the Seller by reason of any such claim for any such fee or other
compensation.
SECTION X.
MISCELLANEOUS
-------------
10.01 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, UPS
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
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(b) if to the Purchaser:
Chance Murphy, Inc.
2120 Carroll Mill Road
Phoenix, Maryland 21131
Attention: Taylor Pickett, Co-President
Telecopy: (410) 472-4948
with copies to:
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Chief Financial Officer
Telecopy: (410) 654-8314
Blass & Driggs
461 Fifth Avenue
New York, New York 10017
Attention: Andrew S. Bogen, Esq.
Telecopy: (212) 447-5428
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 requested, and one business day after the date of sending, if sent by
FedEx or other recognized overnight courier.
10.02 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 supersede all prior
agreements, understandings, negotiations and discussions, whether written or
oral, of the parties, and no modification hereof shall be effective unless in
writing and signed by the party against which it is sought to be enforced.
10.03 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.
10.04 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.
10.05 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns and upon any person or entity to whom any party hereto
transfers substantially all of its assets.
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10.06 Expenses. Each of the parties hereto shall bear such
party's own expenses in connection with this Agreement and the transactions
contemplated hereby.
10.07 Arbitration. Subject to Sections 7.03(b) and 8.03(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 New York, New York. Notwithstanding the foregoing, the Purchaser shall
be entitled to seek injunctive or similar relief from any court of competent
jurisdiction with respect to any breach by the Parent or the Seller of any of
the restrictive covenants contained in Section 7.10 hereof without first
submitting such claim to arbitration.
10.08 Schedules and Exhibits. All Schedules and Exhibits to
this Agreement are integral parts of this Agreement.
10.09 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.
10.10 Headings. The headings of this Agreement are for
convenience of reference only and are not part of the substance of this
Agreement.
10.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to the conflicts of laws provisions and principles thereof that would
apply the laws of any other jurisdiction.
10.12 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.
10.13 Construction. The parties hereto agree that this
Agreement is the product of negotiations among sophisticated parties, each
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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.
10.14 Rights of Persons Not Parties. Except as expressly
provided with respect to indemnification rights, nothing contained in this
Agreement shall be deemed to create rights in persons not parties hereto, other
than the successors and proper assigns of the parties hereto.
10.15 Joint and Several. The Seller and the Parent shall be
jointly and severally liable for all representations, warranties and covenants
made by either of them pursuant to this Agreement. After the Closing, the Seller
and the Parent shall not have any right of contribution or indemnity from any
Group Member and no right of subrogation to proceed against any Group Member
with respect to any of the foregoing or otherwise.
SECTION XI.
DEFINITIONS
-----------
11.01 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 2.13
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
2.10 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.
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"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.
"Contracts" shall have the meaning set forth in Section 2.08
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.
"Customer" shall have the meaning set forth in Section 2.22
hereof.
"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 or claimed against 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 or consequential losses or damages.
"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 VIII 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 VIII.
"Determination Date" shall mean the date the Determination is
final, legally binding, and non-appealable.
"Employees" shall mean 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.
"Environmental Laws" shall have the meaning set forth in
Section 2.14(c) hereof.
"Environmental Permits" shall have the meaning set forth in
Section 2.14(c) hereof.
"ERISA" shall have the meaning set forth in Section 2.10(a)
hereof.
"Financial Statements" shall have the meaning set forth in
Section 2.04 hereof.
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"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.
"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 Company and its Subsidiaries, taken as
a whole.
"Group Member" shall mean, individually, the Company and each
of its Subsidiaries.
"Indemnification Matter" shall have the meaning set forth in
Section 8.03 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
executive officer of the Parent, the Seller, the 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 executive
officer of the Parent, the Seller, the 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
executive 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 executive 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 lien, mortgage, pledge, encumbrance,
charge or other security interest or restriction on transfer of any kind or
nature whatsoever.
"Managed Company" shall have the meaning set forth in Section
2.01 hereof.
"Material Adverse Effect" shall mean a material adverse effect
on the assets, properties, businesses, results of operations or financial
condition of the Group, taken as a whole.
"Permits" shall have the meaning set forth in Section 2.14(b)
hereof.
"Permitted Liens" shall mean:
(a) Liens for Taxes not yet due or which are being
contested in good faith by appropriate proceedings, provided that adequate
reserves with respect to contested Taxes are set forth in the Financial
Statements with respect to periods through the respective dates thereof
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or, with respect to any periods thereafter, maintained on the books of any Group
Member, and in any case are included in the determination of Current
Liabilities;
(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 such properties or
assets or materially interfere with any present or currently proposed 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 2.07 hereto.
"Purchaser Indemnified Parties" shall have the meaning set
forth in Section 8.01 hereof.
"Prohibited Liabilities" has the meaning set forth in Section
1.06 hereof.
"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 8.02 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 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.
"Subject Employees" shall have the meaning set forth in
Section 2.09 hereof.
42
<PAGE> 48
"Subsidiary" and "Subsidiaries" shall have the meanings set
forth in Section 2.01 hereof.
"Taxes" shall have the meaning set forth in Section 2.05
hereof.
"Tax Claim" shall have the meaning set forth in Section 8.03
hereof.
"Tax Returns" shall have the meaning set forth in Section 2.05
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 September 9, 1999 and January 1, 2001 as valid
dates; (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 the Company and its Subsidiaries; 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 Business.
* * *
43
<PAGE> 49
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:
--------------------------------
Name: Robert C. Campbell
Title: Vice President
PARENT:
NOVACARE, INC.
By:
--------------------------------
Name: Timothy E. Foster
Title: Chief Executive Officer
PURCHASER:
CHANCE MURPHY, INC.
By
--------------------------------
Name: Taylor Pickett
Title: Co-President
<PAGE> 50
AMENDMENT NO. 1 TO
STOCK PURCHASE AGREEMENT
AMENDMENT NO. 1 made as of June 1, 1999 ("Amendment No. 1"),
by and among NovaCare, Inc., a Delaware corporation ("Parent"), NC Resources,
Inc., a Delaware corporation (the "Seller"), and Chance Murphy, Inc., a Delaware
corporation (the "Purchaser"), to the Stock Purchase Agreement, dated as of June
1, 1999, by and among the Parent, the Seller and the Purchaser (the "Stock
Purchase Agreement").
W I T N E S S E T H:
WHEREAS, the parties hereto have entered into the Stock
Purchase Agreement pursuant to which, among other things, the Seller sold to the
Purchaser, and the Purchaser acquired from the Seller, all of the issued and
outstanding shares of common stock, $.01 par value per share, of NovaCare, Inc.,
a Pennsylvania corporation (the "Company"); and
WHEREAS, the parties hereto desire to amend the Stock Purchase
Agreement as hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Defined Terms. All capitalized terms used but not otherwise
defined herein shall have the respective meanings ascribed thereto in the Stock
Purchase Agreement.
2. Amendment to Stock Purchase Agreement. A new Section 7.14
is hereby added to the Stock Purchase Agreement as follows:
7.14 Agreements Regarding Accounts Receivable.
(a) The Purchaser (as applicable, on behalf of itself and the
Eastern Subsidiaries (as defined in the Consent)) hereby agrees, in
each case subject to Section 2(b) of the Consent and to paragraph (d)
of Exhibit 1 of the Consent, as follows:
(i) the Purchaser acknowledges and agrees to the existence and
continuation of the first priority perfected security interest of the
Agent for the benefit of the Banks in the Designated Accounts
Receivable (as defined in the Consent) and proceeds thereof;
(ii) the Purchaser and each of the Eastern Subsidiaries agrees
that the Designated Accounts Receivable following the Closing shall be
collected by
<PAGE> 51
2
Parent or its designated subsidiary as agent of the Company and as
agent of each other Eastern Subsidiary which is the owner or payee of a
Designated Account Receivable (all subject to the continuing first
priority perfected Liens on the Designated Accounts Receivable of the
Agent for the benefit of the Banks), with the proceeds thereof being
deposited and disbursed in accordance with the terms of Exhibit 1 of
the Consent, with the terms of such Exhibit 1 being hereby expressly
acknowledged and agreed to by Purchaser and each Eastern Subsidiary,
subject to their rights under Section 2(b) of the Consent;
(iii) the Purchaser and each Eastern Subsidiary agrees that,
except as permitted by the Consent, there will be no other Liens on the
Designated Accounts Receivable, that the Purchaser shall not and shall
not permit any Eastern Subsidiary to directly or indirectly voluntarily
compromise any Designated Account Receivable, and that the Purchaser
shall not and shall not permit any Eastern Subsidiary to transfer,
sell, assign, or dispose of any of the Designated Accounts Receivable
to any person other than Parent or a subsidiary of Parent;
(iv) the Purchaser and each Eastern Subsidiary agrees that to
the extent that the Purchaser or any Eastern Subsidiary receives any
payments or other consideration from any account debtor of any
Designated Accounts Receivable, such payments or other consideration
shall be automatically assumed to be applied and shall be applied to
satisfy any outstanding account receivable of such account debtor
constituting a Designated Account Receivable (even in the event that
such account debtor has an outstanding account payable to the Purchaser
or any Eastern Subsidiary, unless an account debtor in good faith
specifies that a payment is in respect of a particular account
receivable because it has a bona-fide dispute with the payment of the
Designated Account Receivable, in which event, with the prior written
consent of the Agent, amounts paid by an account debtor disputing a
Designated Account Receivable may be retained by the applicable Eastern
Subsidiary or if not consented to by the Agent, then amounts paid by an
account debtor disputing a Designated Account Receivable shall be
deposited into an escrow account, subject to terms and conditions,
including the release of such account, to be reasonably satisfactory to
the Agent);
(v) the Purchaser agrees that until such time as Parent has
paid to Purchaser the final installment of the Guaranteed Amount and
the Purchaser has caused the applicable Eastern Subsidiaries to have
transferred good and marketable title (free and clear of any Liens,
other than as permitted by the Consent) to Parent or its designated
subsidiary of all outstanding Designated Accounts Receivable, the
Purchaser shall not sell, transfer, assign or otherwise dispose of the
Company or any of the Eastern Subsidiaries which is the owner or the
payee of any of the Designated Accounts Receivable; and
(vi) the Purchaser agrees to automatically, without demand or
other action and without asserting any right of setoff, to cause each
applicable Eastern Subsidiary to transfer good and marketable title
(free and clear of any Liens,
<PAGE> 52
3
other than as permitted by the Consent) to the outstanding Designated
Accounts Receivable to Parent or a designated subsidiary of Parent on
the date that the Purchaser receives from Parent the final installment
of the Guaranteed Amount, whether or not the Purchaser or any Eastern
Subsidiary has any pending, foreseen or unforeseen claims for
indemnification or any other claim of any nature against Parent or any
subsidiary of Parent.
(b) Parent and the Seller hereby agree that their recourse
under this Section 7.14 shall be limited solely to the amount of the
outstanding Designated Accounts Receivable and proceeds thereof and
shall be subordinate in all respects to the rights therein of the Agent
and the Banks.
3. Miscellaneous.
(a) The parties hereto further agree that all notices,
requests or instructions under this Amendment No. 1 or any other
agreement made between the parties hereto in connection with the Stock
Purchase Agreement shall be in writing and delivered in accordance with
Section 10.01 of the Stock Purchase Agreement.
(b) Except as specifically amended herein, the Stock Purchase
Agreement shall remain in full force and effect in accordance with its
terms. In the event of irreconcilable inconsistencies between the terms
of this Amendment No. 1 and the terms of the Stock Purchase Agreement,
the terms of this Amendment No. 1 shall control.
(c) This Amendment No. 1 shall be binding upon the parties
hereto and their respective successors and assigns.
(d) This Amendment No. 1 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.
* * *
<PAGE> 53
4
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 1 to be duly executed on the date first above written.
NC RESOURCES, INC.
By:
--------------------------------
Name: Robert C. Campbell
Title: Vice President
NOVACARE, INC.
By:
--------------------------------
Name: Timothy E. Foster
Title: Chief Executive Officer
CHANCE MURPHY, INC.
By
--------------------------------
Name: Taylor Pickett
Title: Co-President
