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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 9, 1998
REHABCARE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-19294 51-0265872
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification
organization) Number)
7733 Forsyth Boulevard
17th Floor
St. Louis, Missouri 63105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 863-7422
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Item 2. Acquisition or Disposition of Assets
Effective September 9, 1998, RehabCare Group, Inc., a Delaware
corporation (the "Company"), acquired all of the issued and outstanding capital
stock of Therapeutic Systems, Ltd., an Illinois corporation ("TSL"), located in
Chicago, Illinois (the "Acquisition"). The Acquisition was consummated pursuant
to the terms and conditions of a Stock Purchase Agreement, dated as of August 5,
1998 (the "Agreement"), as amended by that certain Amendment No. 1 to Stock
Purchase Agreement dated September 9, 1998 ("Amendment No. 1"), by and among the
Company, TSL and Ronald C. Stauber, the holder of all of the outstanding capital
stock of TSL (the "Selling Shareholder").
In connection with the Acquisition, the Company paid to the
Selling Shareholder an aggregate of $8.3 million as consideration for the
capital stock of TSL. The purchase price consisted of $5.4 million in cash, a
subordinated promissory note in the original principal amount of $1 million and
an aggregate of 117,895 shares of common stock, $.01 par value, of the Company
("RehabCare Common Stock"), equal in value to $1.9 million. In addition, in
connection with the Acquisition, RehabCare has agreed to pay to the Selling
Shareholder as contingent consideration an amount in cash and shares of
RehabCare Common Stock equal to up to $13.7 million upon the achievement of
certain earnings targets during the three-year period following the closing date
of the Acquisition. The purchase price for the Acquisition was determined
through arms'-length negotiations among the parties. The funds utilized for the
Acquisition were obtained from borrowings under the Company's senior credit
facility with NationsBank, N.A., Mercantile Bank National Association, USTrust,
Bank of America NTSA and Credit Lyonnais New York Branch.
Originally, the consideration agreed upon by the parties to be
paid pursuant to the Acquisition consisted of $9.2 million in cash, $1.5 million
in the form of a subordinated promissory note, shares of RehabCare Common Stock
equal in value to $3.5 million and, as contingent consideration, an additional
amount in cash and RehabCare Common Stock equal to up to $7.8 million. The
original consideration was adjusted by the parties pursuant to Amendment No. 1
in light of anticipated reductions in the projected revenues of TSL as a result
of the receipt by TSL of notice of cancellation of contracts from a customer
comprising approximately 44% of TSL's 1997 revenues.
TSL provides low-cost contract therapy services to nursing
homes and school districts in the greater Chicago area. TSL's revenues were
approximately $14 million for the twelve months ended December 31, 1997.
The foregoing description is qualified in its entirety by
reference to a copy of the Agreement, Amendment No. 1 and the press release
issued by RehabCare in connection with the Acquisition, each of which is
attached as an exhibit hereto and incorporated by reference herein.
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired. Pursuant to
Item 7(a)(4) of Form 8-K, the Company will file the required financial
statements of TSL and pro forma financial information as soon as is practicable,
but not later than 60 days after the date that this report is required to be
filed.
(b) Pro forma financial information. See Item 7(a) above.
(c) Exhibits. See Exhibit Index.
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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.
Dated: September 23, 1998
REHABCARE GROUP, INC.
By: /s/ John R. Finkenkeller
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John R. Finkenkeller
Senior Vice President, Chief Financial Officer
and Secretary
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EXHIBIT INDEX
Exhibit No. Description
2.1 Stock Purchase Agreement, dated as of August 5, 1998, by and among
RehabCare Group, Inc., Therapeutic Systems, Ltd. and Ronald C. Stauber.
2.2 Amendment No. 1 to Stock Purchase Agreement, dated as of September 9, 1998,
by and among RehabCare Group, Inc., Therapeutic Systems, Ltd. and Ronald C.
Stauber.
99.1 Text of press release, dated September 8, 1998, issued by RehabCare Group,
Inc.
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered
into as of this ___ day of August, 1998, by and among REHABCARE GROUP, INC., a
Delaware corporation (the "Acquiror"), THERAPEUTIC SYSTEMS, LTD., an Illinois
corporation (the "Company"), and RONALD C. STAUBER, the holder of all of the
outstanding capital stock of the Company (the "Selling Shareholder").
RECITALS
WHEREAS, the Selling Shareholder is the owner of one hundred
percent (100%) of the issued and outstanding shares of common stock, no par
value, of the Company (the "Shares"), such Shares being the only shares of the
capital stock of the Company that are issued and outstanding; and
WHEREAS, the Company provides physical, occupational and
speech therapy staffing and management services to nursing homes, long-term care
facilities, hospitals and school districts; and
WHEREAS, the Selling Shareholder desires to sell, assign,
convey and transfer to the Acquiror, and the Acquiror desires to acquire from
the Selling Shareholder, all of the Shares; and
WHEREAS, each of the parties hereto desires to set forth
certain representations, warranties, covenants and indemnity obligations, and to
establish certain closing conditions, made to induce the other to execute and
deliver this Agreement and to consummate the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises, the
covenants and agreements herein contained, and other good and valuable
consideration, the receipt and sufficiency of which hereby are acknowledged, the
parties hereto agree as follows:
ARTICLE 1
SALE AND PURCHASE OF SHARES
1.1 Method of Effecting the Purchase and Sale of Shares;
Closing. The purchase and sale of the Shares shall be effected as follows:
(a) At the Closing (as defined in Section 1.1(b)
hereof), the Selling Shareholder shall sell to the Acquiror, and the Acquiror
shall purchase from the Selling Shareholder, the Shares, as described above,
such Shares being all of the shares of capital stock of the Company that are
issued and outstanding, in consideration of the Purchase Price (as defined in
Section 1.2 hereof).
(b) The closing (the "Closing") of the transactions
contemplated hereby shall take place at the offices of the Acquiror, 7733
Forsyth Boulevard, Suite 1700, St. Louis, Missouri 63101, commencing at 9:00
a.m. on a date (the "Closing Date") mutually agreed upon by the parties which is
not later than five (5) business days after all of the conditions set forth in
Articles 7 and 8 of this Agreement have been satisfied, or such other date or
time as may be mutually agreed upon by the parties.
1.2 Purchase Price for the Shares. The aggregate
consideration to be paid by the Acquiror to the Selling Shareholder in
connection with the sale of the Shares (the "Purchase Price") shall be the
amount of Fourteen Million Two Hundred Thousand Dollars ($14,200,000.00) (the
"Base Price"), as adjusted pursuant to Section 1.4 of this Agreement, plus: (i)
up to an additional Seven Million Eight Hundred Thousand ($7,800,000.00) of
Contingent Consideration (as defined in Section 1.5 hereof) payable pursuant to
Section 1.5 and subject to offset as set forth in Section 10.4 hereof, and (ii)
any amounts described in Section 6.4 hereof.
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1.3 Payment of Base Price. At the Closing, the Acquiror
shall pay to the Selling Shareholder the Base Price, as follows:
(a) The Acquiror shall deliver to the Selling
Shareholder an amount in cash (the "Closing Cash Payment") equal to Nine Million
Two Hundred Thousand Dollars ($9,200,000.00), such Closing Cash Payment being
subject to adjustment as set forth in Section 1.4 hereof and to be paid as
follows: (i) at least three business days prior to the Closing Date, the Selling
Shareholder shall designate an account or accounts (each, a "Designated
Account") to which the Closing Cash Payment shall be delivered; and (ii) on the
Closing Date, the Acquiror shall deliver by wire transfer the Closing Cash
Payment to the Designated Account(s);
(b) The Acquiror shall deliver to the Selling
Shareholder a subordinated promissory note of the Acquiror substantially in the
form attached hereto as Exhibit A (the "Note"), in the original principal amount
(the "Closing Principal Amount") of One Million Five Hundred Thousand Dollars
($1,500,000.00), such Closing Principal Amount being subject to adjustment as
set forth in Section 1.4 hereof and being subject to offset as set forth in
Section 10.3 hereof; and
(c) The Acquiror shall deliver to the Selling
Shareholder shares of the Acquiror's common stock, $.01 par value (the "Acquiror
Common Stock"), equal in value to Three Million Five Hundred Thousand Dollars
($3,500,000.00) (the "Closing Stock Payment"), the number of shares of such
Acquiror Common Stock to be determined by dividing the value of such Closing
Stock Payment by the average of the last transaction prices as reported by the
Nasdaq National Market and published in The Wall Street Journal (the "Average
Market Price") of Acquiror Common Stock for the twenty consecutive trading days
ending on the fourth business day prior to the Closing Date. The shares of
Acquiror Common Stock issued to the Selling Shareholder pursuant to this Section
1.3(c) shall be subject to registration rights as set forth in the Registration
Rights Agreement described in Section 9.2(f) of this Agreement. One-half of the
shares of Acquiror Common Stock deliverable as the Closing Stock Payment shall
be registered in the name of Mary Stauber and one-half in the name of the
Selling Shareholder.
1.4 Purchase Price Adjustments
(a) Subject to the adjustments set forth below in this
Section 1.4(a), the Company shall use its reasonable best efforts to have on the
Closing Date Working Capital (as defined in this Section 1.4(a)) in an amount
equal to at least Three Million Dollars ($3,000,000.00) (the "Agreed Working
Capital"). On the Closing Date, the Acquiror and the Company shall use their
respective best efforts to estimate the amount of Actual Working Capital as of
the Closing Date. In the event that such estimate of Actual Working Capital is
in excess of the Agreed Working Capital, the Selling Shareholder shall, during
the 90-day period following the Closing Date, take reasonable and appropriate
steps as shall be agreed upon by the Acquiror and the Selling Shareholder to
reduce the net accounts receivable of the Company to $4,000,000.00. For purposes
of this Section 1.4(a), Working Capital shall mean the amount by which the
aggregate book value of the Company's current assets exceeds the aggregate book
value of the Company's current liabilities, determined in accordance with United
States generally accepted accounting principles as in effect on the date of this
Agreement ("GAAP"), but specifically excluding from the Company's current assets
the uncollected amount of the accounts receivable included on Schedule 2.4(e)
hereto (the "Scheduled Receivables"), and specifically excluding from the
Company's current liabilities the amount of any indebtedness for borrowed money.
To the extent, if any, that the Actual Working Capital (as defined in Section
1.4(c) below) is less than the Agreed Working Capital, the Selling Shareholder
shall, within the later to occur of ninety calendar days after the Closing or
the final determination (as set forth in Section 1.4(c) below) of the Actual
Working Capital, deliver to the Acquiror a check in the amount required to bring
the Actual Working Capital up to the Agreed Working Capital level. To the
extent, if any, that the Actual Working Capital exceeds the Agreed Working
Capital, the Acquiror shall, within the later to occur of ninety calendar days
after the Closing or the final determination (as set forth in Section 1.4(c)
below) of
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the Actual Working Capital, deliver to the Selling Shareholder a check in an
amount equal to the Actual Working Capital less the Agreed Working Capital.
(b) On or before the Closing Date, the Company shall
eliminate all indebtedness for borrowed money (the "Indebtedness"), as further
provided in Section 4.6 of this Agreement. To the extent, if any, that the
Indebtedness has not been eliminated as of the Closing Date, the Closing Cash
Payment shall be reduced by an amount equal to the outstanding principal,
interest and any premiums or penalties on such Indebtedness. In the event that
Indebtedness is outstanding on the Closing Date, the Selling Shareholder shall
deliver to the Acquiror a pay-off letter(s) with respect to the Indebtedness,
and thereafter and the Acquiror shall become responsible for the prompt
elimination of the Indebtedness.
(c) Not more than 30 days after the Closing Date, the
Acquiror shall prepare and deliver to the Selling Shareholder a balance sheet of
the Company as of the Closing Date audited by KPMG Peat Marwick LLP (the
"Closing Balance Sheet") indicating the Working Capital of the Company as of the
Closing Date (the "Actual Working Capital"). Such Closing Balance Sheet shall be
prepared in accordance with GAAP. The Selling Shareholder and his auditors,
accountants and other authorized representatives shall have 30 days after
receipt of the Closing Balance Sheet to independently verify that the
information contained thereon is both accurate and complete and to give written
notice to the Acquiror of any discrepancies. The Acquiror shall cooperate with
the Selling Shareholder during the verification period by providing
documentation and other information which the Selling Shareholder or his
auditors, accountants and other authorized representatives may reasonably
request to assist in verifying the information contained on the Closing Balance
Sheet. The costs and expenses related to the preparation and verification of the
Closing Balance Sheet as contemplated in this Section 1.4(c) shall be borne by
the party incurring such costs or expenses.
(d) The parties shall in good faith attempt to resolve
the discrepancies, if any, in the Closing Balance Sheet. Should the parties be
unable to agree within five days after the end of the verification period, then
such dispute shall be submitted for resolution to a nationally recognized public
accounting firm (other than KPMG Peat Marwick LLP) mutually acceptable to the
parties and the determination of such firm shall be binding upon the parties.
Both parties shall cooperate in such dispute resolution procedure by providing
documentation and information which such firm may reasonably request to resolve
such dispute. The Acquiror, on the one hand, and the Selling Shareholder, on the
other, shall each pay one-half of such firm's fees and expenses in connection
with such services.
1.5 Payment and Form of Contingent Consideration
(a) In addition to the payment of the Base Price at
Closing, the Acquiror shall pay the Selling Shareholder on a contingent,
"as-earned" basis, additional amounts of consideration as set forth in Schedule
1.5 to this Agreement (collectively, such additional amounts are hereinafter
referred to as the "Contingent Consideration") upon the attainment of certain
"Target Minimum Cumulative EBIT" (as defined in Schedule 1.5) during each of the
periods from September 1, 1998 to August 31, 1999, September 1, 1999 to August
31, 2000, and September 1, 2000 to August 31, 2001 (each an "Earn-Out Period"
and, collectively, the "Earn-Out Periods"). The Contingent Consideration, as and
if earned, will be payable within the time periods and in accordance with the
procedures set forth in Section 1.5(b). Schedule 1.5 to this Agreement sets
forth the definitions of "Base EBIT," "Cumulative EBIT," "Excess EBIT
Multiplier," "Maximum Cumulative Contingent Consideration," "Maximum Cumulative
EBIT" and "Target Minimum Cumulative EBIT," which defined terms shall be
utilized in determining whether a payment of Contingent Consideration for a
given Earn-Out Period is required to be made, and, if such payment is required,
the amount of the required payment for such Earn-Out Period.
(b) In the event that Contingent Consideration, as
determined in accordance with Schedule 1.5, shall be due with respect to any
Earn-Out Period, the Acquiror shall deliver to the Selling
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Shareholder by check or, if directed by the Selling Shareholder, by wire
transfer to a Designated Account pursuant to instructions delivered by the
Selling Shareholder at least three (3) business days prior to the date of such
payment, in the amount of the Contingent Consideration applicable to such
Earn-Out Period, determined in the manner set forth in Schedule 1.5, as soon as
practicable after the completion of such Earn-Out Period (but not later than 45
days after the end of such Earn-Out Period if there is no dispute regarding the
amount of such Contingent Consideration; provided, however, that in the event of
a dispute regarding the amount of such Contingent Consideration as described in
Section 1.5(f) of this Agreement, that portion, if any, of such Contingent
Consideration which is not in dispute shall be paid to the Selling Shareholder
not later than 45 days after the end of such Earn-Out Period, and any portion of
such Contingent Consideration with respect to which a dispute existed shall be
paid within five business days after the resolution of such dispute).
Notwithstanding the immediately preceding sentence, at the Acquiror's sole
election, the Acquiror may pay up to twenty-five percent (25%) of any portion of
the Contingent Consideration payable to the Selling Shareholder with respect to
any Earn-Out Period in shares of Acquiror Common Stock, the number of shares of
such Acquiror Common Stock to be determined by dividing the value of such
Contingent Consideration by the Average Market Price of Acquiror Common Stock
for the twenty consecutive trading days ending on the fourth business day prior
to the date of such payment. Shares of Acquiror Common Stock issued pursuant to
this Section 1.5 shall be subject to registration rights as set forth in the
Registration Rights Agreement described in Section 9.2(f) of this Agreement.
(c) The Contingent Consideration for any given Earn-Out
Period shall be an amount equal to the Cumulative EBIT for such Earn-Out Period
less the Target Minimum Cumulative EBIT for such Earn-Out Period, multiplied by
the Excess EBIT Multiplier for such Earn-Out Period; provided, however, that in
no event shall the Contingent Consideration payable for any Earn-Out Period
exceed an amount equal to (i) the Maximum Cumulative Contingent Consideration
for such Earn-Out Period less (ii) the sum of all Contingent Consideration
payments for all prior Earn-Out Periods (all as shown on Schedule 1.5 to this
Agreement).
(d) The failure by the Company to achieve the Target
Minimum Cumulative EBIT for a given Earn-Out Period shall not obligate the
Selling Shareholder to refund to the Acquiror any of the Contingent
Consideration paid or distributed to the Selling Shareholder for a prior
Earn-Out Period. In addition, the failure by the Company to achieve the Target
Minimum Cumulative EBIT for a given Earn-Out Period shall not constitute a
breach of any representation, warranty or covenant of the Selling Shareholder or
the Company under this Agreement or entitle the Acquiror to any rights of
indemnification or offset pursuant to this Agreement; provided, however, that as
set forth in Section 6.3(c) hereof such failure to achieve Target Minimum
Cumulative EBIT may result in the termination of certain covenants of the
Acquiror with respect to conduct of the operations of the Company.
(e) In the event that, prior to August 31, 2001, the
employment of the Selling Shareholder under the Employment Agreement (as defined
in Section 7.6 hereof) is terminated either (i) voluntarily by the Selling
Shareholder, or (ii) by Acquiror or the Company for "cause" as defined in the
Employment Agreement, all rights of the Selling Shareholder with respect to
receipt of any portion of the Contingent Consideration payable following such
termination of employment shall be terminated, and the Acquiror shall have no
further obligation with respect to payment of such Contingent Consideration. In
all other cases in which Selling Shareholder's employment is terminated with the
Company, the right to receive the Contingent Consideration shall be continued to
the Selling Shareholder, his personal representative, estate and heirs at law.
Subject to the foregoing, the right to receive the Contingent Consideration
shall be a personal right of the Selling Shareholder and shall not be
extinguished upon the death of the Selling Shareholder; provided, however, that
such right shall not be transferable by the Selling Shareholder other than
pursuant to the Selling Shareholder's last will and testament or the laws of
descent and distribution.
(f) As soon as practicable following the end of each
Earn-Out Period, and in any event within 45 days following the end of such
Earn-Out Period, the Acquiror shall provide to the Selling
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Shareholder the Company's financial statements for such Earn-Out Period,
accompanied by the Acquiror's determination of the Contingent Consideration,
including the calculations utilized by the Acquiror in reaching such
determination. The Selling Shareholder and his auditors, accountants and other
authorized representatives shall, upon prior agreement of the Acquiror, which
agreement shall not be unreasonably withheld, be given free and full access
during the Company's normal business hours to the financial records of the
Company in order for the Selling Shareholder to have a full opportunity to make
such investigation as the Selling Shareholder may require to independently
calculate the Cumulative EBIT or the Contingent Consideration, if any, payable
for a given year. If there is a discrepancy between the parties as to the
calculation of the Cumulative EBIT or the Contingent Consideration payable by
the Acquiror, the parties shall, in good faith, attempt to resolve such
discrepancies. Should the parties be unable to agree within 30 days after
receipt by the Selling Shareholder of the Company's financial statements for
such Earn-Out Period, then such dispute shall be submitted for resolution to a
nationally recognized public accounting firm (other than KPMG Peat Marwick LLP)
mutually acceptable to the parties, for resolution, and the determination of
such firm shall be binding upon the parties. In the event that such dispute is
submitted for resolution as described in the preceding sentence, both parties
shall direct such accounting firm to resolve such dispute within 45 days after
the expiration of the 60-day period and shall promptly provide all relevant
information reasonably requested by the accounting firm to resolve such dispute.
The Acquiror, on the one hand, and the Selling Shareholder, on the other, shall
each pay one-half of such firm's fees and expenses in connection with such
services.
(g) In the event that, following a Change of Control of
Acquiror (as defined below), the ability of the Selling Shareholder to earn the
Contingent Consideration for each Earn-Out Period ending on or after such Change
of Control shall be materially and adversely affected by either (i) the breach
by Acquiror or its successor of any of the covenants set forth in Section 6.3 of
this Agreement, or (ii) the breach by Acquiror or its successor of the
Employment Agreement (as defined in Section 7.6 of this Agreement), then as soon
as practicable after the completion of any such Earn-Out Period, the Acquiror or
its successor shall, without regard to the Cumulative EBIT earned by the
Company, in such Earn-Out Period, pay to the Selling Shareholder an amount equal
to (x) the Maximum Cumulative Contingent Consideration for such Earn-Out Period
less (y) the sum of all Contingent Consideration payments for all prior Earn-Out
Periods. For purposes of this Section 1.5(g), a "Change of Control" of Acquiror
shall mean (i) the acquisition by any person of beneficial ownership of 50% or
more of the outstanding shares of Acquiror Common Stock or of the combined
voting power in the election of directors, (ii) the replacement of a majority of
the existing directors or persons nominated for election as directors by the
incumbent Board of Directors of Acquiror, (iii) approval by the stockholders of
Acquiror of a reorganization, merger or consolidation, unless following such
transaction control of the surviving company does not change through changes in
beneficial ownership of the securities or membership on the Board of Directors
of the surviving corporation, or (iv) approval by the stockholders of Acquiror
of a complete liquidation or dissolution of Acquiror or the sale of
substantially all of the assets of Acquiror.
1.6 Fractional Shares. Notwithstanding any other provision
of this Agreement, neither certificates nor scrip for fractional shares of the
Acquiror Common Stock shall be issued either in the Closing Stock Payment or in
the payment of the Contingent Consideration with shares of Acquiror Common
Stock. If the Selling Shareholder is otherwise entitled to a fraction of a share
of Acquiror Common Stock, the Selling Shareholder shall receive in lieu thereof
cash (without interest) in an amount determined by multiplying the fractional
interest to which such holder would otherwise have been entitled by the Average
Market Price of Acquiror Common Stock for the 20 consecutive trading days ending
on the fourth business day prior to the Closing Date or the date of the payment
of the Contingent Consideration, to which the fractional share relates. The
Selling Shareholder shall not be entitled to dividends, voting rights or any
other rights in respect of any fractional shares.
1.7 Closing of Stock Transfer Books. The stock transfer
books of the Company shall be closed at the end of business on the business day
immediately preceding the Closing Date. In the event
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of a transfer of ownership of the Shares which is not registered in the transfer
records prior to the closing of such record books, the payment of the Base Price
and the Contingent Consideration, if any, may be delivered to the transferee of
the Shares if the certificate or certificates evidencing such Shares is
presented to the Acquiror at the Closing accompanied by all documents required
to evidence and effect such transfer and all applicable stock transfer taxes
have been paid.
1.8 Anti-Dilution Adjustments. If, during any period used to
determine the Average Market Price of Acquiror Common Stock, the Acquiror shall
declare a stock dividend, or make a distribution in stock upon, or subdivide,
split up, reclassify or combine the Acquiror Common Stock or declare a dividend
or make a distribution on the Acquiror Common Stock in any security convertible
into Acquiror Common Stock (each, an "Extraordinary Corporate Transaction"),
appropriate and proportional adjustment or adjustments will be made to the
Average Market Price for the trading days prior to the effective date of the
Extraordinary Corporate Transaction to equitably reflect such Extraordinary
Corporate Transaction. If the Extraordinary Corporate Transaction is effected
after the period used to determine the Average Market Price of Acquiror Common
Stock but prior to the Closing Date or the payment date of the Contingent
Consideration, appropriate and proportional adjustment or adjustments will be
made to the Closing Stock Payment or Contingent Consideration payment, as the
case may be, such that such payment shall result in the issuance of that number
of shares of Acquiror Common Stock as if the Extraordinary Corporate Transaction
had a record or payment date therefor immediately after the Closing Date or the
payment date of the Contingent Consideration, as the case may be. Except as
provided above, no adjustment shall be made to the Closing Cash Payment or the
Closing Principal Amount or to any future Contingent Consideration payments as a
result of any such Extraordinary Corporate Transaction.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE SELLING SHAREHOLDER
Each of the Company and the Selling Shareholder hereby
represents and warrants to the Acquiror on the date of this Agreement, and again
on and as of the Closing Date, as follows:
2.1 Status of the Company
(a) Corporate Existence and Status. The Company is duly
incorporated, organized, entitled to conduct business and validly existing in
good standing under the laws of the State of Illinois.
(b) Charter and By-laws. Attached to this Agreement as
Exhibit B and Exhibit C, respectively, are copies of: (i) the currently
effective articles of incorporation of the Company and all amendments,
restatements, articles of merger, articles of designation respecting preferred
stock, or other filings with respect thereto, and (ii) the currently effective
By-laws of the Company. All amendments to, and articles of merger, certificates
of designation and other filings with respect to, the articles of incorporation
of the Company were made in accordance with the articles of incorporation (as in
effect before the amendment of the articles or filings with respect thereto),
and the By-laws and applicable law (including the giving of proper notice of
dissenter's and/or appraisal rights in connection with any such amendment or
other actions requiring such notice) of the Company, without violation of any
preemptive rights, and the Company has otherwise complied with its articles of
incorporation and By-laws as in effect at the applicable time.
(c) Corporate Power. The Company has the corporate
power and authority to own and lease its properties and otherwise to conduct its
business.
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(d) Capitalization; Shareholders. The authorized and
issued outstanding capital stock of the Company consists of 10,000 shares of
common stock, no par value, of which 1,000 shares are issued and outstanding.
All of the issued and outstanding Shares of the Company are owned beneficially
and of record by the Selling Shareholder. Except as set forth in Schedule
2.1(d): (i) none of the Shares are held in treasury; (ii) all of the Shares were
legally and validly issued, fully paid and nonassessable, without violation of
any preemptive or dissenters' or similar rights (and no preemptive or other
subscriptive rights have ever existed with respect to the Shares) and in full
compliance with all applicable securities laws; (iii) the Selling Shareholder is
the only record or beneficial owner of the Shares or other securities of any
kind or class of the Company; (iv) no option, warrant, subscription, put, call
or other right, commitment, undertaking or understanding to acquire, or restrict
the transfer (other than those imposed by applicable securities regulation laws)
of, any of the Shares or other securities of any kind or class of the Company or
rights, obligations or undertakings convertible into securities of any kind or
class of the Company are authorized or outstanding; (v) since December 31, 1997,
except for dividends or distributions of cash no dividends or other
distributions of any kind have been declared or paid on or in respect of the
Shares of the Company; (vi) there are no outstanding or authorized stock option,
stock appreciation, phantom stock or similar rights with respect to the Company;
(vii) there are no voting trusts, proxies or any other agreements or
understandings with respect to the voting of the capital stock of the Company;
and (viii) the Company is not subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire the Shares or other
securities of any kind or class of the Company.
(e) Qualification. Schedule 2.1(e) lists the
jurisdictions in which the Company is qualified to do business as a foreign
corporation, and nothing (including the nature of or the manner in which the
Company conducts its business, the character or location of the respective
properties which the Company owns, leases or uses or the actions or location of
the Company's respective employees or agents) either requires the Company to be
qualified in any other jurisdiction or subjects the Company to any cost,
restriction or penalty for failing to qualify (including assessment of taxes,
fees or penalties for prior periods), except where such failure to qualify has
not or will not result in any change in the assets, operations, liabilities,
earnings, relationships with existing clients, business or financial condition
of the Company which has not been or will not be, individually or in the
aggregate with other changes, materially adverse, with the exception of any
changes resulting from the impact of the recent adoption of Medicare regulations
regarding salary equivalency for physical, occupational and speech therapists or
the Balanced Budget Act of 1997 (a "Material Adverse Effect").
(f) Combinations. All mergers, consolidations,
liquidations, purchases or other transactions by which the Company acquired its
business and property were conducted in accordance with the Company's articles
of incorporation, By-laws, any other applicable agreements, instruments or
documents (in each case as amended) to which the Company is a party and
applicable law (including the giving of proper notice of dissenter's and/or
appraisal rights) without violation of any preemptive rights.
(g) Ownership Interests. The Company does not have any
subsidiaries or any equity securities of, investment in or loans or advances to
any business enterprise or person or any agreements or commitments for such
(other than trade terms extended to customers in the ordinary course of business
or employee salary advances made in the ordinary course of business), and the
Company is not subject to any arrangement that could be treated as a partnership
for federal income tax purposes.
(h) Corporate Records. The corporate record books
(including the stock records) of the Company are complete, accurate and up to
date in all material respects with all necessary signatures and set forth all
meetings and actions taken by the shareholders and directors of the Company as
required by law or the By-laws of the Company and all transactions involving the
Shares.
(i) Authorization.
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(i) Each of the Company and the Selling
Shareholder has the right, power and authority to enter into this Agreement and
each of the related agreements referred to herein to which it or he is a party,
including, without limitation, the Registration Rights Agreement (as described
in Section 9.2 of this Agreement) and the Employment Agreement (as described in
Section 7.6 of this Agreement), and to consummate the transactions contemplated
by, and otherwise to comply with and perform their respective obligations under,
this Agreement and each of the related agreements referred to herein, including,
without limitation, the Registration Rights Agreement and the Employment
Agreement;
(ii) The execution and delivery by the Company of
this Agreement and the related agreements referred to herein to which the
Company is a party, and the consummation by the Company of the transactions
contemplated by, and other compliance with and performance of its obligations
under, this Agreement and each of the related agreements referred to herein,
including, without limitation, the Employment Agreement, have been duly
authorized by all necessary corporate action on the part of the Company and its
Shareholders in compliance with governing or applicable agreements, instruments
or other documents (including its articles of incorporation and By-laws (as
amended)) and applicable law;
(iii) This Agreement and each of the related
agreements referred to herein to which the Company and the Selling Shareholder
are parties, including, without limitation, the Registration Rights Agreement
and the Employment Agreement, constitute the valid and binding agreement of each
of the Company and the Selling Shareholder, as the case may be, that is
enforceable against the Company and the Selling Shareholder, as the case may be,
in accordance with its terms; and
(iv) The Selling Shareholder has good and
marketable title to the Shares, free and clear of all liens, encumbrances,
charges or other restrictions on title, either contractual or otherwise, except
those restrictions imposed by applicable securities laws.
(j) Absence of Violations or Conflicts. Except as
disclosed in Schedule 2.1(j), the execution and delivery of this Agreement by
the Company and the Selling Shareholder and the consummation of the transactions
contemplated by, or other compliance with or performance under, this Agreement
and each of the related agreements referred to herein, including, without
limitation, the Registration Rights Agreement and the Employment Agreement, do
not and will not with the passage of time or giving of notice or both:
(i) constitute a material violation of, be in material
conflict with, constitute a default or require any payment under, permit a
termination of, require any consent under, or result in the creation or
imposition of any lien, encumbrance or other adverse claim or interest upon any
of the respective properties of any of the Company under (A) any material
contract, agreement, commitment, undertaking or understanding to which the
Company is a party or to which the Company or any of its assets or properties
are subject or bound, (B) any judgment, decree or order of any governmental
authority to which the Company or any of its properties are subject or bound,
(C) any applicable law, or (D) the Company's Articles of Incorporation and
By-laws (as amended); or
(ii) create, or cause the acceleration of the
maturity of, any material debt, obligation or liability of the Company.
(k) No Governmental Consents Required. Except for
filings with the Federal Trade Commission (the "FTC") and with the Antitrust
Division of the United States Department of Justice
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(the "DOJ") pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), and as set forth in Schedule 2.1(k), no
consent, approval, order or authorization of, or registration, declaration or
filing with, any governmental authority on the part of the Company or the
Selling Shareholder is required in connection with the execution or delivery of
this Agreement or the consummation of the transactions contemplated by, or other
compliance with or performance under, this Agreement by the Company or the
Selling Shareholder.
2.2 Financial Matters
(a) The Company Financial Statements. Copies of the
audited financial statements of the Company as of and for the fiscal year ended
December 31, 1997, the tax return filed with respect to the Company for the
fiscal year ended December 31, 1996, and the unaudited financial statements of
the Company as of and for the three months ended March 31, 1998 and March 31,
1997 (all of which, including the notes thereto, are collectively referred to in
this Agreement as the "Company Financial Statements," with the balance sheet of
the Company as of March 31, 1998 referred to separately as the "Company Balance
Sheet"), have been delivered to Acquiror and are attached hereto as Schedule
2.2(a). The Company Financial Statements are prepared in accordance with the
books and records of the Company and are complete and accurate in all material
respects, fairly present the financial condition of the Company as of their
respective dates and the results of operations of the Company for the respective
periods then ended and have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered by such statements; provided,
however, that no such representation is made with respect to the tax return
filed with respect to the Company for the fiscal year ended December 31, 1996.
Notwithstanding the foregoing, no representation or warranty is made by the
Company or the Selling Shareholder with respect to adequacy of any reserve or
allowance for doubtful accounts contained in the Company Financial Statements
with respect to the Scheduled Receivables.
(b) Absence of Undisclosed Liabilities. Except (i) as
and to the extent expressly reflected or specifically reserved against in the
Company Balance Sheet (which reserves are adequate, appropriate and reasonable
and are disclosed in Schedule 2.2(b)), (ii) as disclosed in Schedule 2.2(b) and
Schedule 2.10 and (iii) for trade payables and similar ordinary and necessary
liabilities (it being agreed without limitation that the phrase "similar
liabilities" does not include liabilities or obligations arising from the
borrowing of money or secured indebtedness, litigation or similar claims, breach
of contract or negligent or unlawful actions of the Company or its officers,
directors, agents or employees) arising in the ordinary course of business since
March 31, 1998, the Company has no other liabilities of any nature, whether
accrued, absolute, contingent, changing, known, unknown, determinable,
indeterminable, liquidated, unliquidated or otherwise and whether due or to
become due, relating to any existing or prior act, omission, condition or state
of facts, which would have a Material Adverse Effect. Notwithstanding the
foregoing, no representation or warranty is made by the Company or the Selling
Shareholder with respect to adequacy of any reserve or allowance for doubtful
accounts contained in the Company Financial Statements with respect to the
Scheduled Receivables.
(c) Capital Leases. Schedule 2.2(c) lists (and
designates) all lease agreements regarding the leasing of assets to the Company
which are (or should be) recorded on the Company Financial Statements as capital
leases.
(d) Absence of Certain Changes. Except as set forth in
Schedule 2.2(d), other than in the ordinary course of business, since March 31,
1998, there has not been any of the following events or any event which has
resulted or will result in a Material Adverse Effect:
(i) any damage, destruction or casualty loss to
the assets of the Company or other equipment used by the Company in performing
its obligations under its major contracts (whether or not owned by the Company
or covered by insurance);
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(ii) any increase in the compensation payable by
the Company to any director, officer, employee or agent of the Company (other
than routine increases made in the ordinary course of business consistent with
past practice or as permitted under Section 4.1(e) of this Agreement or any
bonus, incentive compensation, service award or other like benefit, granted,
made or accrued, contingently or otherwise, to or to the credit of any of such
director, officer, employee or agent or any employee welfare, pension,
retirement or similar payment or arrangement made or agreed to by the Company
with respect to any such director, officer, employee or agent;
(iii) any sale, assignment or transfer (including
without limitation any collateral assignment or the granting or permitting of
any lien, encumbrance or other claim) of any material asset, property or right
of the Company other than in the ordinary course of business;
(iv) any amendment, modification, waiver or
cancellation of any debt owed to, or claim of, the Company, or settlement by the
Company of any dispute involving any payment or other obligation due to or owed
by the Company, in an amount greater than $5,000, to be made or performed after
the Closing Date;
(v) any borrowing of money by the Company, or the
incurrence of any obligation or liability (whether absolute or contingent), in
an amount greater than $5,000, other than current liabilities incurred in the
ordinary course of the Company's business;
(vi) any payment of any obligation or liability
(whether absolute or contingent) in an amount greater than $5,000, other than
current liabilities incurred in the ordinary course of business;
(vii) any capital expenditure or commitment to
make a capital expenditure (exclusive of expenditures for repair or maintenance
of equipment in the ordinary course of business) in an amount greater than
$5,000;
(viii) any incurrence of any extraordinary loss or
knowing waiver of any rights of substantial value by the Company in connection
with an aspect of its business in an amount greater than $5,000, whether or not
in the ordinary course of business;
(ix) any cancellation, termination or amendment by
the Company of any contract, agreement, license or other instrument to which the
Company is a party or by which the Company is bound in an amount greater than
$5,000, except for the termination in the ordinary course of business of
employment agreements with non-key employees of the Company;
(x) any merger or consolidation of the Company
into or with any other corporation or enterprise, or any corporate action by the
Company toward or effecting such a merger or consolidation or a complete or
partial liquidation or dissolution of the Company or any material portion of its
assets (other than as contemplated by this Agreement);
(xi) any failure on the part of the Company to
operate its business in the ordinary course so as to preserve its business
organization intact, including the services of its present officers and
professional staff and the goodwill of its suppliers, customers and others
having business relations with the Company;
(xii) any redemption or repurchase, directly or
indirectly, of the Shares or other equity security of the Company, or, except
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<PAGE> 15
for cash distributions paid to Selling Shareholder that would result in
Working Capital below the Agreed Working Capital as set forth in Section 1.4(a),
any setting aside on payment of dividends or other distributions (whether in
cash or in kind), with respect to the Shares or other equity security of the
Company; or
(xiii) any agreement by or commitment of the Company to
do or permit (through any authorized representative or agent of the Company) any
of the foregoing.
2.3 Taxes
(a) Definitions. For purposes of this Agreement:
(i) the term "Code" shall mean the Internal
Revenue Code of 1986, as amended. All citations to the Code or to the
regulations promulgated thereunder shall include any amendments or any
substitute or successor provisions thereto;
(ii) the term "Acquired Assets" shall mean the
assets of the Company and the stock of the Company;
(iii) the term "Returns" shall mean, collectively,
(A) all reports, declarations, estimates, returns, information statements, and
similar documents relating to, or required to be filed in respect of, any Taxes;
and (B) any statements, returns, reports, or similar documents required to be
filed pursuant to Part III of Subchapter A of Chapter 61 of the Code or pursuant
to any similar income, excise, or other tax provision of federal, territorial,
state, local, or foreign law; and the term "Return" means any one of the
foregoing Returns;
(iv) the term "Tax Asset" shall mean any net
operating loss, net capital loss, investment Tax credit, foreign Tax credit,
charitable deduction or any other credit or Tax attribute (determined without
regard to the Tax period in which such loss, credit or other attribute arose)
which could reduce Taxes; and
(v) the term "Taxes" shall mean (A) all income,
net income, gross income, gross receipts, sales, use, ad valorem, franchise,
profits, license, lease, service, service use, withholding, employment, payroll,
excise, severance, transfer, documentary, mortgage, registration, stamp,
occupation, environmental, premium, property, windfall, profits, customs,
duties, and other taxes, fees, assessments or charges of any kind whatever,
together with any interest, penalties and other additions with respect thereto,
imposed by any federal, territorial, state, local or foreign government; and (B)
any penalties, interest, or other additions to tax for the failure to collect,
withhold, or pay over any of the foregoing, or to accurately file any Return;
and the term "Tax" shall mean any one of the foregoing Taxes. When used with
reference to specified persons (for example and without limitation, "Taxes of
the Company"), the terms "Taxes" and "Tax" shall include only amounts of, or in
respect of, Taxes for which such person is, or could become, liable in whole or
part (including, without limitation, any obligation in connection with a duty to
collect, withhold, or pay over any Tax, any obligation to contribute to the
payment of any Taxes determined on a consolidated, combined, or unitary basis,
any liability as a transferee, or any liability as a result of any express or
implied obligation to indemnify or pay the Tax obligations of another person).
(b) Returns Filed and Taxes Paid. Except as set forth
in Schedule 2.3(b), (i) the Company has duly filed or caused to be filed, on or
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<PAGE> 16
before the due date thereof (as appropriately extended) with the appropriate
taxing authorities, all Returns that it is required to file; (ii) each such
Return (including any amendment thereto) is true, correct, and complete in all
material respects; (iii) all Taxes of the Company due with respect to, or shown
to be due on, each such Return (or amendment) have been timely paid; (iv) to the
knowledge of the Selling Shareholder and the Company, there is no valid basis
for the assessment of any deficiency with regard to any such Return; and (v)
there are no extensions of time to file which are pending. There are no liens,
attachments, or similar encumbrances on any of the Acquired Assets, or any of
the assets of the Company, with respect to any Taxes, other than liens for Taxes
that are not yet due and payable.
(c) Miscellaneous. An election under Code section
1362(a) has been in effect with respect to the Company since its inception, and
such election will remain in effect with regard to the portion of the 1998
taxable year deemed to end on the Closing Date. For purposes of Subchapter S of
the Code, the Selling Shareholder constitutes the only shareholder of the
Company. The Company has collected or withheld all Taxes that it is required to
collect or withhold. The Company is not a party to or bound by any tax
indemnity, tax sharing or tax allocation agreement, or any other contractual
obligation to pay the Tax obligations of another person or to pay Tax
obligations relating to transactions of another person, except as otherwise set
forth in Schedule 2.3(c). None of the Acquired Assets (i) is property which is
required to be treated as being owned by any other person pursuant to the
so-called "safe harbor lease" provisions of former section 168(f)(8) of the
Code; (ii) directly or indirectly secures any debt the interest on which is tax
exempt under section 103(a) of the Code; (iii) is "tax-exempt use property"
within the meaning of section 168(h) of the Code, or (iv) is stock of a domestic
or foreign corporation (including any entity that properly may be treated as a
corporation for Federal income tax purposes) meeting the requirements of Code
section 1504(a)(2). The transactions contemplated by this Agreement are not
subject to the tax withholding provisions of Code section 3406, or of subchapter
A of Chapter 3 of the Code, or of any other comparable provision of law.
(d) Audit History and Other Proceedings. Except as
otherwise set forth in Schedule 2.3(d), (i) there are no pending or, to the best
knowledge of the Company and the Selling Shareholder, threatened audits,
investigations, claims, suits or other proceedings for or relating to any
material liability in respect of Taxes of the Company; (ii) since December 31,
1994 no material deficiencies for Taxes of the Company have been claimed,
proposed or assessed by any taxing or other governmental authority; (iii) there
are no matters under discussion by Company or Selling Shareholder with any
governmental authorities with respect to Taxes that could result in any
additional amount of Taxes of the Company; (iv) no extension of a statute of
limitations (whether arising by reason of a waiver, claim for refund, or
otherwise) relating to Taxes of the Company is in effect; and (v) there are no
requests for rulings or determinations in respect of Taxes of the Company
pending with any governmental authority. Since December 31, 1994, there have
been no audits of any of the Company's Federal, state or local Returns.
2.4 Real and Personal Property
(a) Real and Personal Property. For purposes of this
Agreement, "Property" or "Properties" means those real and personal properties
owned or used by the Company or any partnership, joint venture or similar entity
in which the Company has an ownership interest. Schedule 2.4(a) lists all of the
real and personal properties to which the Company holds legal or equitable title
(whether or not of record), as to which it is taking depreciation, or as to
which the Company has rights as a conditional sales vendor under a conditional
sales contract or other title retention agreement, other than inventory and
other property properly expensed for income tax purposes or properly disclosed
pursuant to Sections 2.5 and 2.6 of this Agreement. Except as set forth on
Schedule 2.4(a): (i) the Company has good and marketable title to all of the
Properties owned by it as indicated on Schedule 2.4(a); and (ii) none of the
Properties is subject to any lien, claim or other encumbrance whatsoever, except
(A) liens for taxes not yet due and payable, (B) liens shown and described in
the Company Balance Sheet, and (C) liens imposed by law and incurred in the
ordinary course of business for obligations not yet due and payable
to landlords, carriers, wharehousemen, laborers, materialmen and the like
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(collectively, the "Permitted Liens.") No part of the Properties is "tax-exempt
use property" under Section 168(h) of the Code.
(b) Leases; Subleases. For purposes of this Agreement,
"Lease" means any written or oral lease, sublease or rental agreement (and any
related contract and agreement, and all amendments, modifications and
supplements thereof and waivers and consents thereunder pursuant to which the
Company leases, subleases or rents any real or personal property, either as
lessor, lessee, landlord or tenant. Schedule 2.4(b) lists all Leases, except
those which (i) can be canceled by the Company upon 30 or fewer days' notice
without penalty or the acceleration of rentals, (ii) do not grant an option to
purchase the leased property, and (iii) involve an annual rental of $10,000 or
less. Schedule 2.4(b) describes all oral Leases required to be disclosed in
Schedule 2.4(b), and true and complete copies of all written Leases required to
be disclosed have been heretofore delivered to the Acquiror. With respect to
each of the Leases: (A) neither the Company nor, to the best of the Company's
and the Selling Shareholder's knowledge, any other party is in default in
connection with such Lease; (B) no act or event has occurred which, with notice
or lapse of time or both, would constitute a default under such Lease with
respect to the Company or, to the best of the Company's and the Selling
Shareholder's knowledge, any other party; (C) there is no basis for any claim of
default under such Lease with respect to the Company or, to the best of the
Company's and the Selling Shareholder's knowledge, any other party; (D) the
Company has not given or received any notice of cancellation or termination in
connection with such Lease; (E) such Lease is the valid and binding agreement of
the Company, and, to the best of the Company's and the Selling Shareholder's
knowledge, the other party thereto which is in full force and effect and is
enforceable in accordance with its terms, except, with respect to such other
party, to the extent that such enforceability may be limited by, or subject to:
(i) the effect of any applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws affecting the
enforcement of creditors' rights generally; (ii) the availability of the
remedies of specific performance or injunctive relief, which may be subject to
the discretion of the court before which any proceeding for such remedies may be
brought; and (iii) the exercise by any court of equitable judicial discretion
before which any proceeding may be brought; (F) such Lease will not be affected
by, or require the consent of or payment to any other party to avoid an event of
default, an event of termination or other adverse effect with respect to such by
reason of the transactions contemplated by this Agreement; and (G) such Lease is
a "true" lease for federal income tax purposes.
(c) Adequacy; Condition. Except as set forth in
Schedule 2.4(c): (i) the Properties and the properties subject to a Lease are
fit for use in the business of the Company as presently conducted; (ii) the
Properties and all of the properties subject to a Lease are each in good repair
and operating condition, normal wear and tear excepted, and structurally and
mechanically sound, as applicable; (iii) the Company is in material compliance
with all applicable building, zoning, land use or other similar statutes, laws,
ordinances, regulations, permits, health and safety codes or other requirements
in respect of any of the Properties or any of the properties subject to a Lease
(and the Company's current use of such properties does not constitute a
nonconforming use) and the Company has not received any notice alleging such a
violation; (iv) to the knowledge of the Company and the Selling Shareholder none
of the properties subject to a Lease has ever been used as a landfill or
otherwise been used for the disposal, storage or treatment of any waste, trash,
garbage, industrial by-product, chemical or hazardous substance of any nature;
(v) the Company has not caused the installation of any of such property with
asbestos insulation or any electrical equipment containing polychlorinated
biphenyls and, to the best of the Company's and the Selling Shareholder's
knowledge, none of the properties subject to a Lease contains asbestos
insulation or electrical equipment containing polychlorinated biphenyls; and
(vi) to the best of the Company's and the Selling Shareholder's knowledge, there
are no outstanding requirements or recommendations by fire underwriters or
rating boards, any insurance companies or holders of mortgages or other security
interests requiring or recommending any repairs or work to be done with
reference to any of the properties subject to a Lease.
(d) All Necessary Properties. The Properties and the
Leases (together with the intangible properties disclosed, or not required to be
disclosed, pursuant to Sections 2.5 and 2.6 of this Agreement) constitute all of
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the properties which the Company uses in connection with the operation of its
business as presently conducted and the consummation of the transactions
contemplated by this Agreement (provided that all consents relating to the
Properties and the Leases have been obtained) will not alter the rights or
impair the ability of the Company to use such properties in the conduct of its
business as it is now being conducted.
(e) Accounts Receivable. Except with respect to the
Scheduled Receivables or as set forth on Schedule 2.4(e), the accounts
receivable of the Company as reflected and on the Company Balance Sheet and the
accounts receivable reflected on the books of the Company: (i) are valid,
existing and, to the extent uncollected, fully collectible without resort to
legal proceedings or the use of collection agencies, except to the extent of the
allowance for doubtful accounts contained in the Company Balance Sheet; (ii)
represent monies due for services rendered; and (iii) to the best of the
Company's and the Selling Shareholder's knowledge, are subject to no refunds or
other adjustments or to any defenses, rights of set-off, assignments,
restrictions, security interests, encumbrances or conditions enforceable by
third parties on or affecting any thereof.
2.5 Intellectual Property; Patents; Trademarks, Trade Names.
All patents, trademarks, service marks, trade names or copyrights owned by or
used or proposed to be used by the Company and all applications or registrations
therefor ("Intellectual Property") and all material contracts, agreements,
commitments, arrangements, undertakings and understandings relating to the use
or license of technology, know-how or processes by the Company (the
"Intellectual Property Licenses") are listed in Schedule 2.5 (excluding any
computer software agreements). Except as disclosed in Schedule 2.5; (a) the
Company owns, or has the sole and exclusive right to use, all Intellectual
Property, whether under Intellectual Property Licenses or otherwise (excluding
any computer software agreements), used in or necessary for the ordinary conduct
of its business; (b) the consummation of the transactions contemplated by this
Agreement will not alter or impair any such rights; and (c) no Intellectual
Property owned, licensed or used by the Company, or Intellectual Property
License of the Company is the subject of a lawsuit or any other proceeding, nor
has any party challenged or, to the best of the Company's and the Selling
Shareholder's knowledge, threatened to challenge the Company's respective right
to use such Intellectual Property or Intellectual Property License or
application for any of the foregoing; and, to the best of the Company's and the
Selling Shareholder's knowledge, there is no basis for any such challenge.
2.6 Loans and Contracts.
(a) Indebtedness. Schedule 2.6(a) sets forth (i) a
complete and accurate list or description of all instruments or other documents
("Debt Instruments") relating to any direct or indirect indebtedness for
borrowed money of the Company, as well as indebtedness by way of capital leases,
lease-purchase arrangements, guarantees, undertakings on which others rely in
extending credit and all conditional sales contracts, chattel mortgages and
other security arrangements with respect to personal property used or owned by
the Company and (ii) a list of all loans of money to the respective officers,
employees or shareholders of the Company (specifically excluding travel and
similar advances in the ordinary course of business).
(b) Other Contracts. Schedule 2.6(b) lists each
contract, agreement, commitment, arrangement, undertaking or understanding of
the type listed below (except where the same does not call for the payment or
receipt by the Company of cash or other property or services having a value in
excess of $20,000) to which the Company is a party or bound or to which the
Company or its properties are subject, whether written or oral ("Contract," but
such list and the term "Contract" shall not include Leases, Intellectual
Property Licenses, Debt Instruments, Insurance Policies and employee-related
matters disclosed elsewhere in this Agreement):
(i) for the purchase or rental of materials,
inventory and supplies by the Company entered into in the ordinary course of
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business which are not reasonably expected to be fully performed within 45 days
of their respective dates;
(ii) for the purchase of services by the Company
entered into in the ordinary course of business which are not reasonably
expected to be fully performed within 45 days of their respective dates;
(iii) that were entered into in the ordinary
course of business and which are not reasonably expected to be fully performed
within 45 days of their respective dates;
(iv) for matters not in the ordinary course of the
Company's business;
(v) making the Company liable, by guaranty,
suretyship agreement, indemnification agreement, contribution agreement or
otherwise, upon or with respect to, or obligating the Company in any way to
provide funds in respect of, or obligating the Company to guarantee, serve as
surety for or assume, any debt, dividend or other liability or obligation of any
person, corporation, association, partnership or other entity (except
endorsements made in the ordinary course of business in connection with the
deposit of items for collection and except for immaterial obligations or
liabilities incurred in the ordinary course of business);
(vi) granting a power of attorney;
(vii) relating to participation in a cooperative,
partnership or joint venture;
(viii) imposing confidentiality requirements
(other than agreements relating to confidentiality requirements between the
Acquiror, the Acquiror and the Selling Shareholder and/or the Company or between
the Company and certain clients of the Company); and
(ix) restricting or limiting the freedom of the
Company to compete in any line of business.
Schedule 2.6(b) describes all oral Contracts required to be disclosed in
Schedule 2.6(b), and true and complete copies of all written Contracts (as
amended) required to be disclosed in Schedule 2.6(b) will be delivered to the
Acquiror not less than 10 business days after the execution hereof, except for
inactive or terminated contracts under which there are no remaining obligations
by either party.
(c) Insurance. All insurance policies of the Company
now in force (including comprehensive general liability, personal and
professional liability, comprehensive general casualty and extended coverage,
automobile, boiler and machinery, fire and lightning, marine, endowment, life,
and worker's compensation) ("Insurance Policies") are listed in Schedule 2.6(c),
together with a listing of the type of policy, the policy number, the limits of
coverage, the carrier, the annual premium and the expiration date), and true and
complete copies of such policies have been provided or made available to the
Acquiror.
(d) Status. Except as disclosed on Schedule 2.6(d): (i)
the Company has not assigned any of its rights or obligations under (and, to the
best of the Company's and the Selling Shareholder's knowledge, is not otherwise
restricted for any reason from enjoying the full benefits under) any material
Intellectual Property License, Debt Instrument, Contract or Insurance Policy;
(ii) none of the Company nor, to the best of the Company's and the Selling
Shareholder's knowledge, any other party is in default in connection with any
Intellectual Property License, Debt Instrument, Contract or Insurance Policy
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which would have a Material Adverse Effect; (iii) to the best of the Company's
and the Selling Shareholder's knowledge, no act or event has occurred which,
with notice or lapse of time or both, would constitute a default under any
Intellectual Property License, Debt Instrument, Contract or Insurance Policy
which would have a Material Adverse Effect; (iv) to the best of the Company's
and the Selling Shareholder's knowledge, there is no basis for any claim of
default under any Intellectual Property License, Debt Instrument, Contract or
Insurance Policy which would have a Material Adverse Effect; (v) there is no
outstanding notice of cancellation or termination received by the Company in
connection with any Intellectual Property License, Debt Instrument, Contract or
Insurance Policy which would have an Material Adverse Effect; (vi) each
Intellectual Property License, Debt Instrument, Contract and Insurance Policy is
the valid and binding agreement of the parties thereto which is in full force
and effect and is enforceable in accordance with its terms, except, with respect
to such other party, to the extent that such enforceability may be limited by,
or subject to: (A) the effect of any applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws
affecting the enforceability of creditors' rights generally, (B) the
availability of specific performance or injunctive relief, which may be subject
to the discretion of the court before which any proceeding for such remedies may
be brought, and (C) the exercise by any court of equitable judicial discretion
before which any proceeding may be brought; (vii) no material Intellectual
Property License, Debt Instrument, Contract or Insurance Policy will require the
consent of or payment to any other party to avoid an event of default, an event
of termination or other Material Adverse Effect with respect to such
Intellectual Property License, Debt Instrument, Contract or Insurance Policy
(assuming that any required notice of default or termination has been given and
any periods for cure have expired) by reason of the transactions contemplated by
this Agreement; and (viii) the Company has not received any communication
proposing any termination, amendment or change to any Intellectual Property
License, Debt Instrument, Contract or Insurance Policy which would result in a
Material Adverse Effect.
2.7 Officers and Directors; Employment Relationships. The
Company has delivered to the Acquiror a true and complete list of all of the
officers, senior managers and directors of the Company, specifying their office
and annual rate of compensation, and a true and complete list of the respective
employees of the Company employed as of June 30, 1998, setting forth each such
employee's compensation and date of hire. As of June 30, 1998 and except as
disclosed in Schedule 2.7, the Company has no material obligations, contingent
or otherwise with respect to employees then employed by the Company: (i) under
any employment contract, agreement, commitment, undertaking or understanding,
plan, program, policy or arrangement; (ii) under any bonus, incentive or
deferred compensation contract, agreement, commitment, undertaking or
understanding, plan, program, policy or arrangement (including one for severance
or other payments conditioned upon a change of control of the Company); (iii)
under any pension, profit-sharing, stock purchase or any other such plan,
program or arrangement; or (iv) under any arrangement that has resulted or could
result in the payment of any "excess parachute payment" as defined in Section
280G of the Code (without regard to subsection (b)(4) thereof. All clinical
personnel utilized by the Company in its operations are employees of the
Company, and since December 31, 1996, the Company has not utilized or retained
clinical personnel as independent contractors in connection with its operations.
Schedule 2.7 contains a true and complete payroll run of the Company as of June
30, 1998 which includes the requirements of the first sentence of this Section
2.7.
2.8 Employee and Fringe Benefit Plans. Except as set forth
in Schedule 2.8, the Company does not maintain, is not required to contribute to
and does not otherwise participate in (and has not since its inception
maintained, contributed to or otherwise participated in) either: (i) any
employee pension benefit plan ("Pension/Profit Sharing Plan"), any employee
welfare benefit plan ("Welfare Plan") or any multi-employer plan
("Multi-Employer Plan") (as such terms are defined in the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), including any pension,
profit sharing, retirement, thrift, stock purchase or stock option plan: or (ii)
any other compensation, welfare, fringe benefit or retirement plan, program,
policy, understanding or arrangement of any kind whatsoever, whether formal or
informal, providing for benefits for or the welfare of any or all of the current
or former respective employees or agents of the Company or their beneficiaries
or dependents. The employee benefit plans set forth on
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Schedule 2.8 comply in form and operation in all respects to the requirements of
applicable laws and regulations, including ERISA and the Code and the
nondiscrimination rules thereof.
2.9 Labor Relations. Except as described in Schedule 2.9:
(a) the Company is (and, since March 31, 1998, has been) in material compliance
with all federal, state, local and other applicable law respecting employment
and employment practices, terms and conditions of employment and wages and
hours; (b) there is (and, since March 31, 1998, has been) no unfair labor
practice, complaint, charge or other matter against or involving the Company
pending or threatened before any Governmental Authority; (c) there is no (and,
since March 31, 1998 has not been) labor strike, dispute, organizing effort,
slow down, stoppage or other labor difficulty pending, involving or, to the best
of the Company's and the Selling Shareholder's knowledge, threatened, against or
affecting the Company; (d) no representation question exists, or has existed
since March 31, 1998, with respect to the respective employees of the Company;
(e) no grievance which might have an adverse effect on the Company or on the
conduct of its business nor any arbitration proceeding arising out of or under
collective bargaining agreements is pending, and no claim therefor exists; and
(f) there is (and, since March 31, 1998, has been) no collective bargaining
agreement which is binding on the Company.
2.10 Litigation. Except as disclosed in Schedule 2.10, the
Company is not (and, since March 31, 1998, has not been), (i) engaged in, a
party to, subject to or, to the knowledge of the Company and the Selling
Shareholder, threatened with any claim, legal or equitable action, or other
proceeding (whether as plaintiff, defendant or otherwise and regardless of the
forum or the nature of the opposing party) which seeks damages, an injunction or
other relief against the Company, which action, individually or collectively
with such other actions, would have a material adverse effect on the Company
taken together in the aggregate; (ii) subject to any unasserted claim, the
assertion of which is likely and which, if asserted, will seek damages, an
injunction or other relief against the Company which claim, individually or
collectively with such other unasserted claims, if made would have a Material
Adverse Effect on the Company, taken together in the aggregate; or (iii) a party
to or subject to any judgment, order or decree against it or its assets. There
has been no reservation of rights by any insurance carrier, and, to the best of
the Company's and the Selling Shareholder's knowledge, no such reservation is
threatened, concerning the coverage of the Company with respect to any matter
required to be disclosed pursuant to this Section 2.10.
2.11 Compliance with Laws. Except as set forth in Schedule
2.11:
(a) Generally. The Company is (and during the preceding
five years has been) in material compliance with all applicable law (including
those involving antitrust, unfair competition, trade regulation, antipollution,
environmental, employment, safety, health and food and drug matters). Without
limiting the foregoing, the Company has not at any time made any illegal
payments for political contributions, any bribes or illegal kickback payments,
or any practice or procedure which results or will result in the illegal payment
by or on behalf of the Company to a person in connection with a referral to the
Company by such person.
(b) Charges or Violations. The Company is (and, during
the preceding five years, has not been) either charged with, in receipt of any
notice or warning of, or under investigation with respect to, any failure or
alleged failure to materially comply with any provision of any applicable law.
(c) Permits. Without limiting the foregoing: (i) the
Company has all material occupancy certificates and other licenses, permits and
certificates ("Permits") required in connection with its ownership, possession,
use, occupancy or operation of any of the Properties owned, leased or used by
it; (ii) all of the Permits are in full force and effect in all material
respects; (iii) the Company is (and has been) in material compliance with the
Permits; and (iv) none of the Permits will be materially affected by, or require
the consent of any party by reason of, the transactions contemplated by this
Agreement where such effect or failure to obtain such consent would materially
restrict or hamper the operation of any operating facility owned, leased or used
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by the Company or would otherwise have a Material Adverse Effect on the Company.
(d) Environmental.
(i) No person or party (including, but not limited to,
any Governmental Authority) has asserted any claim or, to the best of the
Company's and the Selling Shareholder's knowledge, has any basis for any action
or proceeding against the Company relating to any Environmental Matter (as
defined below), relating to any existing or prior act, omission, condition or
state of facts. The Company has not received oral or written notice of, nor does
the Company have reason to believe there is, any existing or pending violation,
citation, claim or complaint relating to the business of the Company or any
facility now or previously owned or operated by the Company arising under the
Resource Conservation and Recovery Act, the Comprehensive Environmental Response
Compensation and Liability Act, the Superfund Amendments and Reauthorization
Act, the Toxic Substances Control Act, the Safe Drinking Water Act, the federal
Water Pollution Control Act (Clean Water Act), the Clean Air Act, the Powerplant
and Industrial Fuel Use Act of 1978, the National Environmental Policy Act
(Environmental Impact Statement) and antipollution, waste control and disposal
and environmental "cleanup" provisions of similar statutes of any Governmental
Authority, and all regulations and standards enacted pursuant thereto and all
permits and authorizations issued in connection therewith (collectively,
"Environmental Matters"). Schedule 2.11(d)(i) sets forth all Environmental
Matters and all such violations, citations, claims and complaints.
(ii) To the Company's and the Selling
Shareholder's knowledge, no underground tanks are now or have been located at
any facility now or previously owned or operated by the Company, and no toxic or
hazardous substances have been generated, transported, treated, stored, disposed
of on or from or otherwise deposited in or on or allowed to emanate from any
such facility (irrespective of whether such substances remain at the facility or
were transferred to or otherwise disposed of off-site), including the surface
waters and subsurface waters thereof, which may support a claim or cause of
action under any federal, state or local environmental statutes, ordinances,
regulations or guidelines.
2.12 Bank Accounts. Schedule 2.12 lists all bank, money
market, savings and similar accounts and safe deposit boxes of the Company,
specifying the account numbers and the authorized signatories or persons having
access to them.
2.13 Transactions with Affiliates. Except as disclosed in
Schedule 2.13, no shareholder of the Company nor any person controlled by some
combination of them, no officer or director of the Company, nor any "affiliate"
or "associate" (as such terms are defined in the rules and regulations of the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "1933 Act")) of any of the foregoing:
(a) has been a party to any lease, sublease, contract,
agreement, commitment, understanding or other arrangement of any kind
whatsoever, involving any such person and the Company;
(b) owns directly or indirectly, in whole or in part,
any property that the Company uses or otherwise has rights in respect of; or
(c) has any cause of action or other claim whatsoever
against, or owes any amount to, the Company other than (i) for compensation
(including fringe benefits) to officers and employees disclosed pursuant to
Section 2.7 and for reimbursement of ordinary and necessary expenses
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incurred in connection with employment by the Company and (ii) as otherwise
disclosed pursuant to this Agreement.
2.14 Commissions. No person, firm or corporation is entitled
to any commission or broker's or finder's fee in connection with the
transactions contemplated by this Agreement by reason of any act or omission of
the Company or the Selling Shareholder.
2.15 Generally. No representation or warranty by the Company
or the Selling Shareholder in this Agreement or in any Exhibit, Schedule or
closing certificate furnished or to be furnished to the Acquiror pursuant to
this Agreement or in connection with the transactions contemplated by this
Agreement contains or will contain any untrue statement of a material fact, or
omits or will omit to state a material fact, necessary to make the statements
herein or therein, in light of the circumstances in which they were made, not
misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror hereby represents and warrants to the Selling
Shareholder on the date of this Agreement and again on and as of the Closing
Date as follows:
3.1 Existence. Acquiror is a corporation duly incorporated,
organized, entitled to conduct business and validly existing in good standing
under the laws of the State of Delaware.
3.2 Authorization
(a) Acquiror has the right, power and authority to
enter into this Agreement and the related agreements referred to herein,
including, but not limited to, the Note, the Registration Rights Agreement and
the Employment Agreement, and to consummate the transactions contemplated by,
and otherwise to comply with and to perform under, this Agreement and the
related agreements referred to herein, including, but not limited to, the Note,
the Registration Rights Agreement and the Employment Agreement;
(b) The execution and delivery by Acquiror of this
Agreement and the related agreements referred to herein, including, but not
limited to, the Note, the Registration Rights Agreement and the Employment
Agreement, and the consummation by the Acquiror of the transactions contemplated
by, and other compliance with or performance under, them, have been duly
authorized by all necessary corporate action on the part of the Acquiror in
compliance with governing or applicable agreements, instruments or other
documents to which Acquiror is a party (including the certificate of
incorporation and By-laws (as amended)) and applicable law; and
(c) This Agreement and the related agreements referred
to herein, including, but not limited to, the Note, the Registration Rights
Agreement and the Employment Agreement, constitute the valid and binding
agreements of Acquiror that are enforceable against the Acquiror in accordance
with their terms.
3.3 Absence of Violations or Conflicts. The execution and
delivery by the Acquiror of this Agreement and the related agreements referred
to herein, including, but not limited to, the Note, the Registration Rights
Agreement and the Employment Agreement and the consummation by the Acquiror of
the transactions contemplated by, and other compliance with or performance
under, them, do not (and will not with the passage of time or the giving of
notice or both) constitute a violation of, be in conflict with, or constitute a
default under (a) any term or provision of the certificate of incorporation or
By-laws (as amended of Acquiror, (b) any contract, agreement, commitment,
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undertaking or understanding to which Acquiror is a party or by which it or any
of its properties are subject or bound, (c) any judgment, decree or order of any
governmental authority to which Acquiror or any of its properties are subject or
bound, or (d) any applicable law. As of the date hereof, the Acquiror is not,
and as of the Closing Date will not be, in default under that certain Amended
and Restated Loan Agreement between the Acquiror and its senior lenders.
3.4 No Governmental Consents Required. Except for filings
with the FTC and with the DOJ pursuant to HSR Act, no consent, approval, order
or authorization of, or registration, declaration or filing with, any
governmental authority on the part of Acquiror is required in connection with
its execution or delivery of, or its performance under, this Agreement or its
consummation of the transactions contemplated by this Agreement.
3.5 Commissions. No person, firm or corporation is entitled
to any commission or broker's or finder's fee in connection with the
transactions contemplated by this Agreement by reason of any act or omission of
the Acquiror.
3.6 Financial Statements of the Acquiror. Attached as
Schedule 3.6 are copies of: (i) the consolidated financial statements of the
Acquiror as of the last day of December 31, 1997 and 1996 and for the fiscal
year ended December 31, 1997, the ten-month period ended December 31, 1996 and
the fiscal year ended February 29, 1996, all of which have been audited by KPMG
Peat Marwick LLP; and (ii) the unaudited consolidated financial statements of
the Acquiror as of March 31, 1998 and 1997 and for the three months then ended
(all of which, including in each case the notes thereto, are collectively
referred to in this Agreement as the "the Acquiror Financial Statements"). The
Acquiror Financial Statements are prepared in accordance with the books and
records of the Acquiror, are complete and accurate in all material respects,
fairly present the financial condition of the Acquiror as of their respective
dates and the results of operations of the Acquiror for the respective periods
then ended, and have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered by such statements.
3.7 SEC Filings Complete. The Acquiror's most recent Form
10-K, all intervening Form 8-Ks and Form 10-Qs, the Acquiror's most recent
annual meeting proxy statement and most recent registration statement filed
under the 1933 Act, all as filed with the Securities and Exchange Commission
("SEC"), do not contain a misstatement of a material fact or an omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading as of the time such document was filed or (if filed under
the 1933 Act) became effective. Since the filing of the most recent Form 10-K,
no other document has been required to be filed by the Acquiror with the SEC
which has not been filed.
3.8 Litigation. Except as disclosed on Schedule 3.8 or in
the Acquiror Financial Statements, there is no litigation pending or, to the
knowledge of the Acquiror, threatened against the Acquiror which would have a
material adverse effect on its properties, assets or business or which would
prevent or hinder the consummation of the transactions contemplated by this
Agreement or its obligations thereunder.
3.9 Shares Validly Issued. All of the Shares of Acquiror
Common Stock to be issued to the Selling Shareholder pursuant to the terms of
this Agreement, when issued pursuant to the terms of this Agreement, shall be
duly and validly issued, fully paid and non-assessable, without violation of any
preemptive or dissenters' or similar rights and in full compliance with all
applicable securities laws.
3.10 Generally. No representation or warranty by the
Acquiror in the Agreement or in any Exhibit, Schedule or closing certificate
furnished or to be furnished to the Selling Shareholder pursuant to this
Agreement or in connection with the transactions contemplated by this Agreement
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact, necessarily to make the statements herein or
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therein, in light of the circumstances in which they were made, not misleading.
ARTICLE 4
COVENANTS OF THE COMPANY AND THE SELLING SHAREHOLDER
4.1 Conduct of Business by the Company. From the date hereof
to the Closing Date, except for transactions which are contemplated by this
Agreement or expressly approved in writing by the Acquiror, which the Acquiror
agrees will not be unreasonably withheld, the Company shall refrain from and the
Selling Shareholder shall use his reasonable best efforts to ensure that the
Company refrains from:
(a) subjecting any of the Company's assets and
properties, tangible or intangible, to any lien, encumbrance or other claim of
any kind, exclusive of Permitted Liens as to which there is no known default;
(b) except for sales of inventory in the ordinary
course of business, selling, assigning, transferring or otherwise disposing of
any of the Company's assets or properties;
(c) modifying, amending, altering or terminating
(whether by written or oral agreement, or any manner of action or inaction) any
of the Debt Instruments, Leases, Intellectual Property Licenses, Contracts
(excluding termination in the ordinary course of business of employment
contracts for non-key employees) or Insurance Policies;
(d) declaring, setting aside or paying any dividends or
other distributions, directly or indirectly, to the Selling Shareholder with
respect to the Shares to the extent that the declaration, setting aside or
payment of such dividends or other distributions would result in Working Capital
below the Agreed Working Capital as set forth in Section 1.4(a);
(e) increasing in any amount the benefits or
compensation of the Selling Shareholder or paying or agreeing to pay any bonus
or commission to the Selling Shareholder; and
(f) taking or permitting any other action that, if
taken or permitted immediately prior to the execution of this Agreement, would
constitute a breach of or an exception to the representations and warranties in
Section 2.2(d) hereof.
4.2 Affirmative Covenants Relating to the Company and the
Selling Shareholder. From the date hereof to the Closing Date, the Company and
the Selling Shareholder shall use its or his respective reasonable best efforts
to assure that the Company shall:
(a) maintain the Company's property and professional
insurance in amounts and with coverage at least as great as the amounts and
coverage in effect on the date of this Agreement;
(b) maintain, consistent with past practice, the
Company's properties in good repair, order and condition, reasonable wear and
tear excepted, and preserve the Company's possession and control of all of its
assets and properties;
(c) keep in the Company's employ the present officers
and key employees, including the professional staff, of the Company necessary to
preserve the goodwill of those having business relations with the Company;
(d) maintain the books, accounts and records of the
Company in a manner consistent with past practice;
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(e) allow, upon prior notice to the Company, the
Acquiror and Acquiror's employees, attorneys, auditors, accountants and other
authorized representatives, free and full access during the Company's normal
business hours to the facilities, plants, properties, books, records, documents
and correspondence of the Company, including, but not limited to, historical
financial information with respect to the Company's major contracts, in order
that the Acquiror may have full opportunity to make such investigation as the
Acquiror may desire of the business of the Company; provided, however, that such
access shall not unreasonably interfere with the operations of the Company, and
any contractual confidentiality requirements between the Acquiror and the
Company or the Selling Shareholder existing prior to this Agreement shall remain
in full force and effect, as supplemented hereby, except as otherwise required
by law (including any required disclosure of the execution of this Agreement);
(f) (A) materially comply with all applicable law
relating to the Company, or to the conduct of its respective business, and (B)
conduct such business in such a manner so that on the Closing Date the
representations and warranties contained in this Agreement shall be materially
true as though such representations and warranties were made on and as of such
date, except for changes permitted or contemplated by the terms of this
Agreement;
(g) provide the Acquiror with prompt written notice of
any material adverse change in the assets, operations, liabilities, earnings,
business or condition (financial or otherwise) of the Company;
(h) maintain in inventory quantities of goods, supplies
and materials sufficient to allow the Company to continue to operate after the
Closing Date free of any shortage of such items; and
(i) operate its business only in the ordinary course
with the objective of preserving the Company's business organizations intact,
including using its reasonable best efforts to retain the services of the
Company's present officers and the goodwill of its suppliers, customers and
others having business relations with the Company.
4.3 Consents and Closing Conditions. The Company and the
Selling Shareholder shall use its or his respective reasonable best efforts (a)
to obtain such third party and governmental consents, authorizations, approvals,
releases and terminations as may be required hereunder, including, but not
limited to, filings under the HSR Act and submissions of information requested
by the FTC or DOJ, and to take other actions as may be appropriate in order to
fulfill the closing conditions contained in Section 7.4 hereof and (b) to cause
the representations and warranties of the Company in Article 2 to be true and
correct on and as of the Closing Date.
4.4 Cooperation; Communication. Each of the Company and the
Selling Shareholder shall furnish to the Acquiror such information regarding the
Company and the Selling Shareholder as the Acquiror may reasonably request. In
addition, each of the Company and the Selling Shareholder shall promptly inform
the Acquiror of any material communication from the FTC, the DOJ or any other
governmental entity regarding any of the transactions contemplated hereby. If
the Company, the Selling Shareholder or any affiliate thereof receives a request
for additional information or documentary material from the FTC, DOJ or any
other governmental entity with respect to the transactions contemplated hereby,
then each of the Company and the Selling Shareholder shall endeavor in good
faith to make, or cause to be made, as soon as reasonably practicable and after
consultation with the Acquiror, an appropriate response in compliance with such
request.
4.5 Waiver of "Parachute" Payments. The Company and the
Selling Shareholder shall deliver to the Acquiror written waivers of each bonus,
incentive or deferred compensation contract, agreement, commitment, undertaking,
understanding, plan, program, policy or arrangement regarding senior management
of the Company for severance or other payments conditioned upon a change of
control of the Company.
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4.6 Elimination of Indebtedness. On or prior to the Closing
Date, the Company and the Selling Shareholder shall take all actions necessary
and appropriate to discharge in full the Indebtedness.
4.7 Consolidation of Administrative Functions. For a period
of one year following the Closing Date, the Selling Shareholder shall cooperate
with and assist the Acquiror in undertaking a review of (i) the various "back
office" administrative functions associated with the Company's business,
including without limitation accounting, billing and collections, payroll,
recruiting and human resources, with a view to determining the advisability of
consolidating any of such functions with those of the Acquiror, and (ii) the
current personnel employed by the Company and any increases in personnel levels
which may be necessary or advisable to position the Company for future growth
and development.
4.8 Noncompetition, Nonsolicitation and Confidentiality
(a) Noncompetition.
(i) For the period commencing on the Closing Date
and ending upon the date which is five (5) years thereafter (the "Period"), the
Selling Shareholder agrees that, in consideration of transactions contained
herein, the Selling Shareholder will not directly or indirectly participate in
the ownership, management, operation or control of, or be employed by any
business competing with the Acquiror or the Company in the physical medicine and
rehabilitation business (including acute care hospitals, acute rehabilitation
units, subacute units, long-term care facilities and outpatient therapy
programs), the temporary staffing of therapists and nurses business or in any
other business in which the Acquiror or the Company may be actively engaged on
the Closing Date within the States of Illinois, Iowa, Missouri, Kentucky,
Indiana, Wisconsin, Michigan and Ohio and, in addition, any other state for
which Selling Shareholder has operating responsibility during the term of
Selling Shareholder's employment pursuant to the Employment Agreement described
in Section 7.6 of this Agreement (the "Restricted Area").
(ii) The constraint set forth above in Section
4.8(a)(i) shall not prevent the Selling Shareholder from making passive
investments, not to exceed 5% of the total equity ownership, in any enterprise
in the physical medicine and rehabilitation business (including acute care
hospitals, acute rehabilitation units, subacute units and outpatient programs),
the temporary staffing of therapists and nurses business or in any other
business in which the Acquiror or the Company may be actively engaged on the
Closing Date.
(b) Nonsolicitation. During the Period, the Selling
Shareholder further agrees that he shall not:
(i) directly or indirectly (a) solicit for
employment or attempt to hire any individual then employed by the Acquiror or
the Company or any former employee of the Acquiror or the Company during the 180
days after such former employee of the Acquiror or the Company has voluntarily
terminated his/her employment with the Acquiror or the Company, or (b) encourage
any employee of the Acquiror or the Company to terminate his/her or his/her
employment with the Acquiror or the Company for any reason; or
(ii) directly or indirectly (a) solicit the
business of any customer or client located in the Restricted Area having a
business relationship with the Acquiror or the Company at the time of
termination of the Selling Shareholder's employment with the Acquiror or the
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Company or which is a prospect of the Acquiror or the Company and which the
Selling Shareholder is actively pursuing on behalf of the Acquiror or the
Company as such prospect is identified in writing by the Acquiror or the Company
at the time of termination of the Selling Shareholder's employment with Acquiror
or the Company (a "Prospect"), or (b) contact any such customer, client or
Prospect located in the Restricted Area for the purpose of encouraging such
customer, client or Prospect to terminate its business relationship with the
Acquiror or the Company.
(c) Confidentiality. The Selling Shareholder
acknowledges that he has had access to certain confidential trade secrets,
information, observations, records, customer lists, data, drawings, writings or
other materials owned by the Company. The Selling Shareholder agrees that during
the Period he will not directly or indirectly disclose to others or use for his
own benefit or for the benefit of others any of the foregoing information,
except in the course of his employment by the Company and for the benefit of the
Company. All records, files, writings, drawings, lists, data and similar
materials and information that the Selling Shareholder prepared, used or
otherwise come into contact with during the course of his employment by the
Company will, as between the Company and the Selling Shareholder, at all times
remain the sole property of the Company. The provisions of this Section 4.8 (c)
will not:
(i) apply to the operation of the Company or its
business to the extent that the Selling Shareholder acquires information from
parties other than the Company, the Acquiror or its subsidiaries; or
(ii) apply to any information, matter or thing
that is in the public domain or that has been disclosed to others by the
Company, the Acquiror or their respective subsidiaries, employees or agents.
(d) Enforceability. In the event that any of the
provisions of this Section 4.8 are finally determined by any court of competent
jurisdiction to be void or unenforceable with respect to any particular
geographic area or as to any particular time period or any particular
constraint, the provisions of this Section 4.8 will be deemed to be
automatically modified without any further action on the part of the Acquiror,
the Company or the Selling Shareholder so as to eliminate from this Section 4.8
the unenforceable constraint or its application in any manner in which it was
found to be unenforceable and, except as so modified, the Agreement will remain
in full force and effect.
ARTICLE 5
COVENANTS REGARDING TAX MATTERS
5.1 Returns and Payment of Taxes. The Company shall prepare
and timely file all Returns and amendments thereto required to be filed (except
for such Returns for which extensions shall be timely filed) by the Company, on
or before the Closing Date; such Returns and amendments shall be true, correct
and complete in all material respects. The Acquiror shall have a reasonable
opportunity to review all such Returns and amendments prior to the filing
thereof. The Company shall timely pay and discharge on or before the Closing
Date and before the same shall become delinquent and before penalties accrue
thereon, (i) all Taxes shown to be due from the Company on such Returns and
amendments thereto, and (ii) any other Taxes of the Company that become due
before the Closing Date.
The Selling Shareholder shall cause to be prepared the
federal and state S Corporation income Tax Returns required to be filed by the
Company for the taxable year ending on the Closing Date (individually, an "S
Corporation Return" and collectively, the "S Corporation Returns"). Each S
Corporation Return shall be prepared using accounting methods and other
practices that are consistent with those used by the Company in its prior
returns and items to be taken into account in the S Corporation Returns for the
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period ending on the Closing Date shall be determined under the
"closing-the-books" method as described in Section 1362(e)(3) of the Code, and
the regulations thereunder, and the parties agree to make an election, if
necessary, under Section 1362(e)(3) of the Code. To the extent that the S
Corporation Return for 1998 or for any pre-Closing period needs to be amended
post-Closing, the Selling Shareholder shall cause to be prepared such
amendments. All fees and expenses incurred in preparing the S Corporation
Returns and amendments shall be paid by the Selling Shareholder. The Acquiror
agrees to make available to the Selling Shareholder all books and records of the
Company needed for the preparation of the S Corporation Returns, to the extent
retained by the Company or delivered to Acquiror at Closing. After each S
Corporation Return has been prepared, the Acquiror shall have an opportunity to
review such S Corporation Return and, if such S Corporation Return is acceptable
to the Acquiror (which acceptance shall not be unreasonably withheld), the
Acquiror shall in good faith use its reasonable best efforts to cause the
appropriate officer of the Company to sign and file the applicable S Corporation
Return with the applicable taxing authority. If the Acquiror receives a Tax
refund attributable to a taxable period ending on or prior to the Closing Date
relating to an S Corporation Return, the Acquiror shall remit such Tax refund to
the Selling Shareholder. No review, approval, omission or commission of Acquiror
in connection with any S Corporation Return shall limit or in any way modify the
Selling Shareholder's indemnification obligations under Article 10.
5.2 Elections and Settlements. Without the prior written
consent of the Acquiror, the Company shall not make or change any election,
change an annual tax accounting period, adopt or change any tax accounting
method, file any amended Return, enter into any closing agreement, settle any
Tax claim or assessment, surrender any right to claim a refund of Taxes, consent
to any extension or waiver of the limitation period applicable to any Tax claim
or assessment, or take any other action or omit to take any action, if any such
election, adoption, change, amendment, agreement, settlement, surrender, consent
or other action or omission may have the effect of increasing the Tax liability
or decreasing any Tax Asset of the Company, the Acquiror or any affiliate of the
Acquiror.
5.3 Cooperation and Records Retention. The Selling
Shareholder shall make available, and shall cause his accountants and other
representatives to make available, to the Acquiror on a timely basis, the
information (including but not limited to all work papers and records relating
to the Company) that he or his accountants or other representatives have within
their control and that may be reasonably necessary in connection with the
preparation of any and all Returns required to be filed by the Acquiror or the
Company or any other examination by any taxing authority or administrative
proceeding relating to Taxes. The Selling Shareholder agrees that he will
cooperate with the Acquiror and the Company and their respective
representatives, in a prompt and timely manner, in connection with the
preparation and filing of any and all Returns required to be filed by the
Acquiror or the Company or any other examination by any taxing authority or
administrative proceeding relating to Taxes.
5.4 Post-Closing Audits and Other Proceedings. Each of the
Company, the Selling Shareholder and the Acquiror shall give prompt notice to
one another of any audit of Taxes of the Company in respect of such Taxes of the
Company for periods that end on or prior to the Closing Date. The Selling
Shareholder shall cooperate with the Acquiror and the Company in the conduct of
any audit or other proceeding which relates to any actual or potential liability
of Acquiror or the Company, and may participate at his own expense. The Selling
Shareholder shall have the right, at its own expense, to control any audit or
determination by any authority, or the resolution of any claim for refund or
amended return, and contest, resolve and defend against any assessment, notice
of deficiency, or other adjustment or proposed adjustment of Taxes for any
taxable period (or partial period) ending on or prior to the Closing Date,
provided, however, that the Selling Shareholder shall consult with the Acquiror
with respect to the resolution of any issue that would materially affect the
Acquiror for any taxable period (or partial period) ending after the Closing
Date and shall not settle any such issue or file any amended return relating to
such issue without the consent of the Acquiror, which consent shall not be
unreasonably withheld. Where consent to a settlement is withheld by the Acquiror
pursuant to the preceding sentence, the Acquiror may continue or initiate any
further proceedings at its own expense, provided that the liability of the
Selling Shareholder, after giving effect to
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this Agreement, shall not exceed the liability that would have resulted from the
settlement or amended return.
5.5 Clearance Certificates. On or prior to the Closing Date,
the Selling Shareholder shall, at his sole cost and expense, deliver to the
Acquiror and the Company clearance certificates or similar document(s) that may
be required by any state taxing authority in order to relieve the Acquiror and
the Company of any duty to withhold any portion of the consideration payable
pursuant to this Agreement.
5.6 Section 338(h)(10) Elections; Purchase Price
Allocations. The Acquiror and the Selling Shareholder shall in a timely manner
take any and all actions necessary to make an election with respect to the
Company under Code section 338(h)(10) (and the Treasury Regulations promulgated
thereunder) and any comparable provisions of state, local or foreign Tax law
(the "338(h)(10) Election"). The allocation of the "modified adjusted deemed
sale price" (within the meaning of Income Tax Regulation ss.1.338(h)(10)-1(f))
among the assets of the Company, shall be made in accordance with the fair
market values of such assets as shall be agreed to by the Acquiror and the
Selling Shareholder no later than thirty days following the Closing Date in a
manner consistent with section 338 of the Code. The Acquiror and the Selling
Shareholder acknowledge that such allocation has been arrived at by arm's length
negotiation. None of the Selling Shareholder, the Company, or the Acquiror shall
take a position in any Return or examination or other administrative or judicial
proceeding (including any ruling request) relating to any Tax that is
inconsistent with such allocation. The Acquiror shall be responsible for and
control the preparation and filing of the 338(h)(10) Election. The Selling
Shareholder shall prepare, execute and deliver to the Acquiror such documents or
forms (including Section 338 Forms, as defined below) as are required by
applicable law for an effective 338(h)(10) Election. "Section 338 Forms" shall
mean all returns, documents, statements, schedules and other forms that are
required to be submitted in connection with a 338(h)(10) Election, including,
without limitation, U. S. Treasury Department Form 8023 (together with any
schedules or attachments thereto). Any Taxes imposed on the Company or the
Selling Shareholder as a result of the deemed transfer of the assets of the
Company pursuant to the 338(h)(10) Election shall be borne solely by the Selling
Shareholder. It is understood that the Company and the Selling Shareholder is
making no representations to the Acquiror with respect to the effects of the
338(h)(10) Election for Tax purposes, and neither this Section nor any provision
of Article 10 hereof shall be construed as an undertaking by the Company or the
Selling Shareholder to indemnify the Acquiror for any failure of the Acquiror to
receive any Tax benefits which it anticipates receiving as a result of the
338(h)(10) Election. Nothing in the immediately preceding sentence, however,
shall modify or limit the obligation of the Selling Shareholder for any failure
to take the actions described in the first sentence of this Section 5.6.
ARTICLE 6
COVENANTS OF THE ACQUIROR
6.1 Confidentiality of Information. Prior to the Closing
Date (and if the Closing does not occur, indefinitely), Acquiror and its
employees, agents, auditors, attorneys and other authorized representatives
shall not, without the Selling Shareholder's prior written consent, communicate
or divulge to any person or entity or use for their benefit any information,
other than information which is otherwise available to the Acquiror or which
becomes public other than as a result of their action, concerning the Company's
financial conditions or business, or concerning any marketing information,
equipment, methods, research, clients, contracts, suppliers, customers,
contracts or other data of or related to the Company or other confidential
matters possessed, owned or used by the Company that may be communicated to,
acquired by or learned by them. All correspondence, records, files, tax returns,
financial statements and other data relating to the Company which shall come
into the possession of the Acquiror shall remain and be deemed to be the sole
property of the Company, until consummation of the transactions contemplated
hereby. If the transactions contemplated hereby are not consummated for any
reason, then the Acquiror shall return any and all of the foregoing material to
the Company, together with any and all copies thereof made. The confidentiality
provisions of this Agreement shall supplement, and not supersede, any
contractual
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confidentiality requirements between the Acquiror, the Company or the Selling
Shareholder and such existing contractual confidentiality requirements shall
remain in full force and effect, as supplemented hereby, except as otherwise
required by law (including any required disclosure of the execution of this
Agreement).
6.2 Receipt of Consents and Satisfaction of Closing
Conditions. The Acquiror shall use its best efforts (a) to obtain such consents
from third parties and to take other actions as may be required in order to
fulfill the closing condition contained in Section 7.4 hereof and (b) to cause
the representations and warranties of the Acquiror in Article 3 to be true and
correct on and as of the Closing Date.
6.3 Conduct of Operations; New Business Opportunities.
(a) From the Closing Date until August 31, 2001, the
Acquiror shall allow the Selling Shareholder to continue to conduct the
operations of the Company as such operations are currently being conducted as of
the Closing Date in all material respects, subject, however, to any effect on
such operations resulting from the consolidation of administrative functions of
the Company with those of the Acquiror or the employment of certain additional
personnel, each as agreed upon by Acquiror and the Selling Shareholder pursuant
to Section 4.7 hereof.
(b) Any new business opportunities that the Acquiror
and the Selling Shareholder each agree to have the Selling Shareholder manage
within the operations of the Company, including but not limited to acquisitions
and new lines of business (each, a "Business Opportunity"), then the Acquiror
and the Selling Shareholder shall negotiate in good faith to determine the
appropriate incentives for the Selling Shareholder, including, but not limited
to, (i) bonuses, (ii) inclusion of all or a portion of the earnings of such
acquired entity, less the costs of capital and the amortization of goodwill and
other intangible assets related to the acquisition, in the Cumulative EBIT of
the Company for the purpose of calculating the amount of Contingent
Consideration to which the Selling Shareholder is entitled with respect to the
Earn-Out Period(s) during which the Selling Shareholder manages such acquired
entity, or (iii) adjustment of the computation of Cumulative EBIT.
Notwithstanding any provision of this Section 6.3, the Acquiror shall not be
restricted in any manner in its ability to acquire or develop any new Business
Opportunity, and the approval required of the Selling Shareholder shall relate
solely to the inclusion of such Business Opportunity in Cumulative EBIT (as
defined and determined pursuant to Schedule 1.5 hereof).
(c) Notwithstanding any provision of this Section 6.3
to the contrary, in the event that the Cumulative EBIT of the Company for any
Earn-Out Period is less than ninety percent (90%) of the Target Minimum
Cumulative EBIT for such Earn-Out Period, the Acquiror may assume operational
control of the Company and operate, or direct the Company to be operated, in any
manner which the Acquiror deems to be necessary or appropriate without regard to
the covenants contained in Section 6.3(a) and (b) above.
6.4 Collection of Accounts Receivable.
(a) To the extent that the Company has not collected
the full amount of the Scheduled Receivables prior to the Closing Date,
following the Closing Date the Acquiror shall cause the Company to assign to the
Selling Shareholder all of the Company's right, title and interest with respect
to such uncollected Scheduled Receivables and shall cooperate in the Selling
Shareholder's attempts to collect thereon. Following the receipt by the Company
following the Closing Date of any remittance from or on behalf of any account
debtor in respect of the Scheduled Receivables, the Company shall promptly
forward the amount of such remittance to the Selling Shareholder as additional
consideration, less any reasonable expenses incurred by the Company in
connection with collecting such remittance.
(b) To the extent that following the Closing Date the
Acquiror exercises its right
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pursuant to Section 10.1 to indemnification with respect to any uncollected
accounts receivable, the Acquiror shall cause the Company to assign all of the
Company's right, title and interest with respect to any such uncollected
accounts receivable for which indemnification is sought to the Selling
Shareholder and shall cooperate in the Selling Shareholder's attempt to collect
thereon. In the event that the Company shall receive any remittance from or on
behalf of any account debtor in respect of such accounts receivable assigned to
the Selling Shareholder, the Company shall promptly forward the amount of such
remittance to the Selling Shareholder, less any reasonable costs of collection
incurred by the Company in connection with collecting such remittance.
6.5 Communication. The Acquiror shall promptly inform the
Company and the Selling Shareholder of any material communication from the FTC,
the DOJ or any other governmental entity regarding any of the transactions
contemplated hereby. If the Acquiror or any affiliate thereof receives a request
for additional information or documentary material from the FTC, DOJ or any
other governmental entity with respect to the transactions contemplated hereby,
then the Acquiror shall endeavor in good faith to make, or cause to be made, as
soon as reasonably practicable after consultation with the Selling Shareholder,
an appropriate response in compliance with such request.
ARTICLE 7
THE ACQUIROR'S CONDITIONS TO CLOSING
The obligations of the Acquiror to consummate the
transactions contemplated by this Agreement shall be subject to the fulfillment
to the Acquiror's reasonable satisfaction of each of the following conditions on
or prior to the Closing Date:
7.1 Continued Truth of Warranties. The representations and
warranties of each of the Company and the Selling Shareholder contained herein
shall be true in all material respects on and as of the Closing Date with the
same force and effect as though made as of such date, except for any variations
permitted by this Agreement.
7.2 Performance of Covenants. Each of the Company and the
Selling Shareholder shall have performed in all material respects all covenants
and obligations and complied in all material respects with all conditions
required by this Agreement to be performed or complied with by it on or prior to
the Closing Date.
7.3 No Material Adverse Change. There shall have been no
Material Adverse Effect since March 31, 1998.
7.4 Permits and Consents. The parties hereto shall have
secured all appropriate orders, consents, approvals and clearances, in form and
substance satisfactory to the Acquiror, by and from all third parties reasonably
requested by the Acquiror, including but not limited to governmental
authorities, whose order, consent and approval or clearance is required by
contract or applicable law for the consummation of the transactions herein
contemplated.
7.5 Closing Documents. Each of the Company and the Selling
Shareholder shall have delivered all documents required to be delivered by it or
him at the Closing, as more specifically set forth in Article 9, in each case in
form and substance satisfactory to the Acquiror.
7.6 Employment Agreement. The Selling Shareholder shall have
entered into an employment agreement with the Company, superseding any
respective current employment agreement with the Company, in substantially the
form attached hereto as Exhibit D (the "Employment Agreement").
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7.7 HSR Act. All required waiting periods applicable to this
Agreement and the transactions contemplated hereby under the HSR Act shall have
expired or been terminated.
ARTICLE 8
THE SELLING SHAREHOLDER'S CONDITIONS TO CLOSING
The obligation of the Selling Shareholder to consummate the
transactions contemplated by this Agreement shall be subject to the fulfillment
to the Selling Shareholder's reasonable satisfaction of the following conditions
on or prior to the Closing Date:
8.1 Continued Truth of Warranties. The representations and
warranties of the Acquiror herein contained shall be true in all material
respects on and as of the Closing Date with the same force and effect as though
made as of such date, except for any variations permitted by this Agreement.
8.2 Performance of Covenants. The Acquiror shall have
performed in all material respects all covenants and obligations and complied in
all material respects with all conditions required by this Agreement to be
performed or complied with by them on or prior to the Closing Date.
8.3 Permits and Consents. The parties hereto shall have
secured all appropriate orders, consents, approvals and clearances, in form and
substance reasonably satisfactory to the Company, by and from all third parties,
including but not limited to governmental authorities, whose order, consent,
approval or clearance is required by contract or applicable law for the
consummation of the transactions herein contemplated.
8.4 Closing Documents. The Acquiror shall have delivered the
Base Price and all documents required to be delivered by it at the Closing, as
more specifically set forth in Article 9, in form and substance satisfactory to
each of the Company and the Selling Shareholder.
8.5 No Material Adverse Change. There shall have been no
material adverse change to the properties, operations, liabilities, earnings,
business condition (financial or otherwise) of the Acquiror since March 31,
1998.
8.6 HSR Act. All required waiting periods applicable to this
Agreement and the transactions contemplated hereby under the HSR Act shall have
expired or been terminated.
ARTICLE 9
DOCUMENTS TO BE DELIVERED AT CLOSING
9.1 Documents to be Delivered by the Company and the Selling
Shareholder. At the Closing, the Company and the Selling Shareholder shall:
(a) Deliver to the Acquiror a certificate of incumbency
and copies of the resolutions adopted by the Board of Directors of the Company
and the Selling Shareholder, authorizing the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, duly
certified as of the Closing Date by the Secretary or an Assistant Secretary of
the Company;
(b) Deliver to the Acquiror, a certificate of the
Company and the Selling Shareholder, dated as of the Closing Date, to the effect
that the representations and warranties of the Company and the Selling
Shareholder as contained in Article 2 of this Agreement are true and correct as
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of such Closing Date, and that the covenants of the Company and the Selling
Shareholder as contained in Articles 4 and 5 of this Agreement required to be
performed or complied with on or prior to the Closing Date have been so
performed or complied with;
(c) Deliver to the Acquiror certificates of good
standing or their equivalent, dated not more than thirty days prior to the
Closing Date, attesting to the good standing of the Company as a corporation
under the laws of the State of Illinois and each other jurisdiction listed on
Schedule 2.1(e);
(d) To the extent any consents or approvals shall be
necessary to any of the transactions herein contemplated, deliver to the
Acquiror copies of all such consents or approvals;
(e) Deliver to the Acquiror (i) the Articles of
Incorporation, as amended, of the Company, certified by the Secretary of State
of the State of Illinois, as of a date not more than ten days prior to the
Closing Date, and (ii) the By-laws, as amended, of the Company, certified as of
the Closing Date by the Secretary or an Assistant Secretary of the Company;
(f) Deliver to the Acquiror an opinion of Hinshaw &
Culbertson, counsel for the Selling Shareholder and the Company, as to the
matters set forth in Exhibit E;
(g) Deliver to the Acquiror the original corporate
minute books, stock transfer books and corporate seal of the Company;
(h) Deliver to the Acquiror certificate(s) representing
the Shares with duly executed and valid stock powers attached in form for
transfer to the Acquiror and otherwise acceptable in form and substance to the
Acquiror; and
(i) Deliver to the Acquiror the resignation of Ronald
C. Stauber as a director of the Company effective as of the Closing Date.
9.2 Documents to be Delivered by the Acquiror. At the
Closing, the Acquiror shall:
(a) Deliver to the Company and the Selling Shareholder
certificates of incumbency and copies of the resolutions adopted by the Board of
Directors of the Acquiror, authorizing the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, duly
certified as of the Closing Date by the Secretary or an Assistant Secretary of
the Acquiror;
(b) Deliver to the Company and the Selling Shareholder
a certificate of the Acquiror, dated as of the Closing Date, to the effect that
the representations and warranties of the Acquiror as contained in Article 3 of
this Agreement are true and correct as of such Closing Date, and that the
covenants of the Acquiror as contained in Articles 5 and 6 of this Agreement
required to be performed or complied with on or prior to the Closing Date have
been so performed or complied with;
(c) To the extent any consents or approvals shall be
necessary to any of the transactions herein contemplated, the Acquiror shall
deliver to the Company and the Selling Shareholder upon request copies of all
such consents or approvals as obtained by the Acquiror;
(d) Deliver to the Company and the Selling Shareholder
an opinion of Thompson Coburn, counsel for the Acquiror, as to the matters set
forth in Exhibit F;
(e) Deliver to the Selling Shareholder the Base Price
as set forth in Sections 1.2 and 1.3 of this Agreement; and
(f) Execute and deliver to the Selling Shareholder a
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Registration Rights Agreement substantially in the form of Exhibit G attached
hereto and made a part hereof (the "Registration Rights Agreement").
ARTICLE 10
INDEMNIFICATION
10.1 Indemnification of the Acquiror. Subject to the
provisions of this Article 10, by execution of this Agreement, the Selling
Shareholder hereby acknowledges that, except to the extent such loss, liability
or damage is reflected in the Actual Working Capital, the Acquiror shall be
entitled to full indemnification by the Selling Shareholder of the following:
(a) any and all loss, liability or damage (including
judgments and settlement payments but excluding consequential, incidental or
punitive damages except in the case of actual fraud) (a "Loss") incurred by the
Company or the Acquiror incident to, arising in connection with or resulting
from any misrepresentation, breach, nonperformance or inaccuracy of any
representation, warranty or covenant set forth in Sections 4 and 5 by the
Selling Shareholder made or contained in this Agreement or in any Exhibit,
Schedule, certificate or other document executed and delivered to the Acquiror
by the Selling Shareholder or by or on behalf of the Company under or pursuant
to this Agreement or the transactions contemplated herein;
(b) any and all Losses relating to Environmental
Matters which arise from or relate to either the Company's operations prior to,
or the condition of facilities owned or operated by the Company as of, the
Closing Date;
(c) any and all Losses relating to Taxes and Returns of
the Selling Shareholder and the Company which arise from or relate to (i) Tax
periods ending on or prior to the Closing Date; or (ii) the 338(h)(10) Election,
in each case except to the extent that any specific amount for any such Tax was
recorded on the Company's books and reduced the Company's Working Capital for
the purposes of Section 1.4;
(d) except to the extent of payments actually received
by the Acquiror pursuant to any insurance policies under which the Company is
insured, any and all Losses, incurred by them incident to, arising in connection
with or resulting from any act or failure to act by the Selling Shareholder or
by the Company or its employees, including professional malpractice liability,
prior to the Closing Date;
(e) any and all reasonable costs and expenses and all
other Losses incurred in claiming, contesting or remedying any breach,
misrepresentation, nonperformance or inaccuracy described above, or in enforcing
their rights to indemnification hereunder, including, by way of illustration and
not limitation, all reasonable legal and accounting fees, other reasonable
professional expenses and all filing fees and reasonable collection costs
incident thereto and all such reasonable fees, costs and expenses incurred in
defending claims which, if successfully prosecuted, would have resulted in a
Loss;
(f) any and all Losses relating to Medicare, Medicaid
or any other third-party payor liability which arises or relates to the
Company's operations prior to the Closing Date; and
(g) any and all Losses relating to any breach by the
Company of its obligations or any material violation of law with respect to
current or former employees of the Company, or the Company's obligations with
respect to any of the employees of the Company under any pension, profit sharing
or retirement plan, collective bargaining agreement, consulting agreement, life
insurance or other employee welfare benefit plan or vacation policy relating to
any time prior to the Closing Date, and in particular, obligations for medical
or life insurance benefits of any former or retired employees of the Company.
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10.2 Indemnification of the Selling Shareholder. By
execution of this Agreement, Acquiror hereby acknowledges that the Selling
Shareholder shall be entitled to full indemnification by the Acquiror of the
following:
(a) any and all Losses incurred by the Selling
Shareholder incident to, arising in connection with or resulting from any
misrepresentation, breach, nonperformance or inaccuracy of any representation,
warranty or covenant covered by Sections 5 and 6 by the Acquiror made or
contained in this Agreement or in any Exhibit, Schedule, certificate or other
document executed and delivered to the Selling Shareholder by the Acquiror; and
(b) any and all Losses incurred in claiming, contesting
or remedying any breach, misrepresentation, nonperformance or inaccuracy
described above, or in enforcing its rights to indemnification hereunder,
including, by way of illustration and not limitation, all reasonable legal and
accounting fees, other reasonable professional expenses and all filing fees and
reasonable collection costs incident thereto and all such reasonable fees, costs
and expenses incurred in defending claims which, if successfully prosecuted,
would have resulted in a Loss.
10.3 Notice of and Procedures for Collecting
Indemnification.
(a) Initial Claim Notice. When either the Acquiror, on
the one hand, or the Selling Shareholder, on the other hand, becomes aware of a
situation which may result in damages for which it or they would be entitled to
be indemnified hereunder, such party (the "Indemnitee") shall submit promptly a
written notice (the "Initial Claim Notice") to the other party from which
indemnification may be forthcoming pursuant to Section 10.1 or 10.2 (the
"Indemnitor") to such effect after it first becomes aware of such matter and
shall furnish the Indemnitor with such information as it has available
demonstrating its right or possible right to receive indemnity. If the potential
claim is predicated on, or later results in, the filing by a third party of any
action at law or in equity (a "Third Party Claim"), the Indemnitee shall provide
promptly to the Indemnitor a supplemental Initial Claim Notice not later than
twenty (20) calendar days prior to the date on which a responsive pleading must
be filed, and shall also furnish a copy of such claim (if made in writing) and
of all documents received from the third party in support of such claim. In
addition, each Initial Claim Notice shall name, when known, the person or
persons making the assertions which are the basis for such claim. Failure by the
Indemnitee to deliver an Initial Claim Notice or an update thereof in a timely
manner shall not relieve the Indemnitor of any of its obligations under this
Agreement except to the extent that actual and material prejudice to the
Indemnitor.
(b) Rights of Indemnitor. If, prior to the expiration
of 30 calendar days from the mailing of an Initial Claim Notice (the "Claim
Answer Period"), the Indemnitor shall request in writing that such claim not be
paid, the same shall not be paid, and the Indemnitor shall settle, compromise or
litigate in good faith such claim, and employ attorneys of its choice to do so;
provided, however, that Indemnitee shall not be required to refrain from paying
any claim which has matured by court judgment or decree, unless appeal is taken
therefrom and proper appeal bond posted by the Indemnitor, nor shall it be
required to refrain from paying any claim where such action would result in the
foreclosure of a lien upon any of its assets or a default in a lease or other
contract except a lease or other contract which is the subject of the dispute.
The Indemnitee shall cooperate fully to make available to the Indemnitor and its
attorneys, representatives and agents, all pertinent information under its
control. The Indemnitee shall have the right to elect to settle or compromise
all other contested claims with respect to which the Indemnitor has not, within
the Claim Answer Period, acknowledged in writing (i) liability therefor, and
(ii) its election to assume full responsibility for the settlement, compromise,
litigation and payment of such claim.
(c) Final Claims Statement. At such time as damages for
which the Indemnitor is liable hereunder are incurred by Indemnitee by actual
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<PAGE> 37
payment thereof or by entry of a final judgment, the Indemnitee shall forward a
Final Claims Statement to the Indemnitor setting forth the amount of such
damages in reasonable detail on an itemized basis. The Indemnitee shall
supplement the Final Claims Statement with such supporting proof of loss (e.g.
vouchers, canceled checks, accounting summaries, judgments, settlement
agreement, etc.) as the Indemnitor may reasonably request in writing within
thirty (30) calendar days after receipt by Indemnitor of a Final Claims
Statement. All amounts reflected on Final Claims Statements shall be paid
promptly by the Indemnitor to the Indemnitee and the Indemnitee shall have the
right to immediate payment of proceeds from insurance policies paid to
Indemnitor in connection with the claim for which the indemnification right
arose. Except as provided in the Note, Employment Agreement or Resignation
Rights Agreement, the indemnification rights provided in this Article 10 shall
be the sole and exclusive remedy of the parties hereto.
(e) Impact of Insurance Proceeds. The gross amount
which an Indemnitor is liable to, for, or on behalf of the Indemnitee pursuant
to this Article 10 (the "Indemnifiable Loss") shall be reduced (including,
without limitation, retroactively) by any insurance proceeds actually recovered
by or on behalf of such Indemnitee related to the Indemnifiable Loss, and shall
be further reduced to take account of any tax benefit to the Indemnitee arising
from the Indemnifiable Loss. Each Indemnitee hereunder agrees to diligently
pursue claims for insurance covering an Indemnifiable Loss hereunder prior to
attempting to collect for such Indemnifiable Loss from an Indemnitor; provided,
however, that the foregoing shall not prevent the Indemnitee from providing the
Indemnitor with an Initial Claim Notice with respect to such Indemnifiable Loss.
If an Indemnitee shall have received or shall have had paid on its behalf an
indemnity payment in respect of an Indemnifiable Loss and shall subsequently
receive directly or indirectly insurance proceeds or tax benefits in respect of
such Indemnifiable Loss, then such Indemnitee shall pay to such Indemnitor the
amount of such insurance proceeds and tax benefits or, if less, the amount of
such indemnity payment. For purposes of this Section, tax benefits arising from
an Indemnifiable Loss shall be determined after taking into account the tax
detriment, if any, arising from the receipt of insurance proceeds or
indemnification payments by or on behalf of the Indemnitee and the tax benefit,
if any, to the Indemnitee arising from any payments to the Indemnitor.
10.4 Payment of Claims for Indemnification. Any amounts
payable to the Acquiror pursuant to the provisions of Section 10.1 shall be the
responsibility of the Selling Shareholder. Such amounts shall first be payable
by first offsetting all or a portion of the payments, if any, to be paid to the
Selling Shareholder subsequent to the Closing Date pursuant to the Note or as
Contingent Consideration. Any additional amounts shall be paid promptly upon
notice of the Acquiror to the Selling Shareholder of incurrence of such loss,
liability, cost, expense or damage and an explanation of the losses for the
Acquiror's demand for indemnification under Article 10 of this Agreement. Any
amounts payable to the Selling Shareholder pursuant to the provisions of Section
10.2 of this Agreement shall be the responsibility of the Acquiror and shall be
paid promptly upon notice of the Selling Shareholder to the Acquiror of
incurrence of such loss, liability, cost, expense or damage and an explanation
of the losses for the Selling Shareholder's demand for indemnification under
Section 10.2 of this Agreement.
10.5 Survival of Indemnification. Any other provision hereof
to the contrary notwithstanding, the parties agree that the representations and
warranties of the parties contained in this Agreement and any certificates
delivered pursuant to this Agreement shall survive for a period of thirty-six
(36) months after the Closing Date for purposes of this Article 10, regardless
of any investigation made by either party prior to the date hereof or prior to
the Closing Date. The Acquiror, on the one hand, and the Selling Shareholder, on
the other hand, shall only be entitled to indemnification under this Article 10
for breaches of representations and warranties if a written notice describing
the claim for which indemnification is sought is signed by an executive officer
of the Acquiror or by the Selling Shareholder, as the case may be, and is
submitted to the Acquiror or the Selling Shareholder, not later than thirty-six
(36) months following the Closing Date in accordance with Section 10.3 hereof.
Any claim for indemnification pursuant to this Article 10 not made prior to the
expiration of such thirty-six-month period shall be extinguished, and all
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<PAGE> 38
representations and warranties with respect to which no claim is made prior to
the expiration of such thirty-six-month period shall expire and be of no further
force and effect. Notwithstanding any provision of this Section 10.5 to the
contrary, (i) the time limitations set forth in this Section 10.5 shall not
apply to the survival of any claim by either party for actual fraud or
intentional misrepresentation and (ii) any claim for indemnification for loss
relating to (x) Taxes pursuant to Section 10.1(c), (y) Medicare, Medicaid or any
other third party payor liability pursuant to Section 10.1(f), or (z)
employee-related liabilities pursuant to Section 10.1(g) must be made on or
prior to the 30th day after expiration of the statute of limitations (including
any extensions thereto to the extent that such statute of limitations may be
tolled) applicable to the Taxes or other liabilities set forth in (y) and (z)
above which gave rise to such Loss.
10.6 Minimum and Maximum Dollar Limit on Indemnification.
The parties hereto agree that no violations or breaches under any one or more of
the representations and warranties of the Company, the Selling Shareholder and
the Acquiror set forth in this Agreement shall support a claim for Losses unless
and until such Losses attributable to all violations and breaches exceed on a
cumulative and aggregate basis the sum of Seventy-Five Thousand Dollars
($75,000); provided, however, that if such Losses exceed the sum of $75,000, the
Selling Shareholder or the Acquiror, as the case may be, shall be obligated to
indemnify the party entitled to indemnification under this Article 10 for
cumulative and aggregate Losses including such initial sum of $75,000 and
thereafter in amounts equal to or in excess of $5,000; provided further,
however, that each of the Selling Shareholder and the Acquiror shall be entitled
to indemnification hereunder only to the maximum aggregate amount of Three
Million Five Hundred Thousand Dollars ($3,500,000.00). The maximum limitations
provided for in this Section 10.6 shall not apply with respect to claims for
indemnification by the Acquiror for Losses for Taxes pursuant to Section
10.1(c), Medicare liabilities pursuant to Section 10.1(f), employee-related
liabilities pursuant to Section 10.1(g) or to any claim by either party for
actual fraud or intentional misrepresentation.
ARTICLE 11
FEDERAL AND OTHER SECURITIES LAWS
11.1 Investment Representations.
(a) This Agreement is made with the Selling Shareholder
in reliance upon the Selling Shareholder's representations to the Acquiror,
which by their execution hereof the Selling Shareholder hereby confirms, that
the Acquiror Common Stock issued as the Closing Stock Payment or as any portion
of any payment of the Contingent Consideration (all such securities are referred
to as the "Securities" for purposes of this Article 11) to be received by him
will be acquired for investment for his own account, not as a nominee or agent,
and not with a view to the sale or distribution of any part thereof, and that
they have no present intention of selling, granting participation in, or
otherwise distributing the same. By executing this Agreement, the Selling
Shareholder further represents that he does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer, or grant
participations to such person or to any third person, with respect to any of the
Securities.
(b) The Selling Shareholder understands that the
Securities are not registered under the 1933 Act, on the ground that the sale
provided for in this Agreement and the issuance of Securities hereunder should
be exempt from registration under the 1933 Act and that the Acquiror's reliance
on such exemption is predicated on the Selling Shareholder's representations set
forth herein. The Selling Shareholder realizes that the basis for the exemption
may not be present if, notwithstanding such representations, the Selling
Shareholder has in mind merely acquiring the Securities for a fixed or
determinable period in the future, or for a market rise or for sale if the
market does not rise. The Selling Shareholder confirms that he has no such
intention.
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<PAGE> 39
(c) The Selling Shareholder represents that he is an
"accredited investor" within the meaning of Rule 501 under the 1933 Act and that
he is experienced in evaluating and investing in companies such as the Acquiror,
is able to fend for himself in the transactions contemplated by this Agreement,
has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of his investment and has the ability
to bear the economic risks of his investment. The Selling Shareholder further
represents that he has had access, during the course of the transaction and
prior to his purchase of the Securities, to the information filed by the
Acquiror with the Securities and Exchange Commission and that he has had, during
the course of the transaction and prior to his execution hereof, the opportunity
to ask questions of, and to receive answers from, the Acquiror concerning the
terms and conditions of the offering of the Securities and to obtain additional
information necessary to verify the accuracy of any information furnished to him
or to which he has had access. The Selling Shareholder is aware that a
significant portion of any future revenues of the Acquiror may be adversely
affected by market and regulatory forces. The Selling Shareholder acknowledges
that he has had the opportunity to obtain additional information as desired in
order to evaluate the merits and risks inherent in purchasing and holding the
Securities.
(d) The Selling Shareholder understands that the
Securities may not be sold, transferred or otherwise disposed of without
registration under the 1933 Act or an exemption therefrom, and that in the
absence of an effective registration statement covering the Securities or an
available exemption from registration under the 1933 Act, the Securities must be
held indefinitely. In particular, the Selling Shareholder is aware that the
Securities may not be sold pursuant to Rule 144 promulgated under the 1933 Act
unless all of the conditions of that Rule are met. The Selling Shareholder
represents that, in the absence of an effective registration statement covering
the Securities, he will sell, transfer or otherwise dispose of the Securities
only in a manner consistent with their representations set forth herein and then
only in accordance with the provisions of Section 11.1(e) hereof.
(e) The Selling Shareholder agrees that in no event
will he make a transfer or disposition of any of the Securities (other than in
accordance with the terms of the Registration Rights Agreement or pursuant to an
effective registration statement under the 1933 Act), unless and until (i) the
Selling Shareholder shall have notified the Acquiror of the proposed disposition
and shall have furnished the Acquiror with a statement of the circumstances
surrounding the disposition and assurance that the proposed disposition is in
compliance with all applicable laws and (ii) if reasonably requested by the
Acquiror, at the expense of the Selling Shareholder or the transferee, he shall
have furnished to the Acquiror an opinion of counsel, reasonably satisfactory to
the Acquiror, to the effect that such transfer may be made without registration
under the 1933 Act.
(f) The Acquiror represents that the Selling
Shareholder has had, during the course of the transaction and prior to its
execution hereof, the opportunity to ask questions of, an receive answers from,
the Acquiror concerning the terms and conditions of the offering of the Shares
and to obtain additional information necessary to verify the accuracy of any
information provided to the Selling Shareholder or to which the Selling
Shareholder has had access. The Acquiror is aware that a significant portion of
any future revenues of the Company may be adversely affected by market and
regulatory forces. The Acquiror acknowledges that the Selling Shareholder has
had the opportunity to obtain additional information as desired in order to
evaluate the merits and risks inherent in purchasing and holding the Shares.
11.2 Legends; Stop Transfer.
(a) All certificates for the Securities may bear the
following or a substantially similar legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR
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<PAGE> 40
OTHERWISE ASSIGNED EXCEPT PURSUANT TO (i)
A REGISTRATION STATEMENT RELATING TO THE
SECURITIES WHICH IS EFFECTIVE UNDER THE
SECURITIES ACT OF 1933, (ii) RULE 144 UNDER
SUCH ACT, OR (iii) AN OPINION OF COUNSEL
OR OTHER EVIDENCE SATISFACTORY TO REHABCARE
GROUP, INC., THAT ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT IS
AVAILABLE.
(b) The certificates for the Securities may also bear
any legend required by any applicable state securities or other law.
(c) In addition, the Acquiror shall make a notation
regarding the restrictions on transfer of the Securities in their respective
records and the Securities shall be transferred on the books of the Acquiror
only if transferred or sold pursuant to an effective registration statement
under the 1933 Act covering such shares or pursuant to and in compliance with
the provisions of the Registration Rights Agreement and Section 11.1(e) hereof.
ARTICLE 12
MISCELLANEOUS
12.1 Notices. Any notices or other communications required
or permitted hereunder to any party hereto shall be sufficiently given if
delivered in person or sent by certified or registered mail, postage prepaid,
addressed as follows:
In the case of the Acquiror or the Company (following the
Closing Date):
RehabCare Group, Inc.
7733 Forsyth Boulevard, Suite 1700
St. Louis, Missouri 63105
Attn: Alan C. Henderson, President and Chief Executive Officer
With a copy to:
Thompson Coburn
One Mercantile Center, Suite 3400
St. Louis, Missouri 63101
Attn: Robert M. LaRose, Esq.
In the case of the Selling Shareholder or the Company (prior
to the Closing Date):
Therapeutic Systems, Ltd.
P.O. Box 970
Libertyville, IL 60048
Attn: Mr. Ronald C. Stauber, President
With a copy to each of:
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<PAGE> 41
Hinshaw & Culbertson
222 North LaSalle Street, Suite 300
Chicago, Illinois 60601
Attn: Gary E. Medler, Esq.
Mayer, Brown & Platt
190 South LaSalle Street, 31st Floor
Chicago, Illinois 60603-3441
Attn: Kerry T. Smith, Esq.
or such substituted address as any party shall have given notice to the others
in writing in the manner set forth in this Section 12.1.
12.2 Amendment. This Agreement may be amended or modified in
whole or in part only by an agreement in writing executed by all parties hereto
and making specific reference to this Agreement.
12.3 Waiver. The parties hereto may, by written agreement:
(a) extend the time for the performance of any of the obligations or other acts
of the parties hereto; (b) waive any inaccuracies in the representations
contained in this Agreement; (c) waive compliance with, or modify, any of the
covenants or conditions contained in this Agreement; and (d) waive or modify
performance of any of the obligations of any of the parties hereto; provided,
however, that no such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall operate as a waiver of,
or an estoppel with respect to, any subsequent insistence upon such strict
compliance other than with respect to the matter so waived or modified.
12.4 Termination. This Agreement may be terminated by the
parties hereto prior to Closing as follows:
(a) by mutual written consent of the Acquiror and the
Selling Shareholder;
(b) upon written notice from the Acquiror to the
Selling Shareholder if any of the conditions precedent to the Acquiror's
obligations hereunder shall have become incapable of fulfillment through no
fault of the Acquiror;
(c) upon written notice from the Selling Shareholder to
the Acquiror if any of the conditions precedent to the Selling Shareholder's
obligations hereunder shall have become incapable of fulfillment through no
fault of the Selling Shareholder;
(d) by the Acquiror, on the one hand, or the Selling
Shareholder, on the other hand, in the event of a breach by the other party to
this Agreement of any representation, warranty or agreement contained herein,
which breach is not cured within 30 days after written notice thereof is given
to the breaching party by the non-breaching party or is not waived by the
non-breaching party during such period; or
(e) at the election of the Acquiror or the Selling
Shareholder if the Closing has not occurred on or prior to October 31, 1998.
12.5 Counterparts. This Agreement may be executed in one or
more counterparts, all of which taken together shall constitute one instrument.
12.6 Binding on Successors and Assigns. This Agreement shall
be binding upon, inure to the benefit of and be enforceable by and against the
parties hereto and their respective successors and assigns in accordance with
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<PAGE> 42
the terms hereof. No party hereto may assign its interest under this Agreement
without the prior written consent of the other parties hereto.
12.7 Severability. In the event that any one or more of the
provisions contained in this Agreement or any application thereof shall be
invalid, illegal or unenforceable in any respect, the validity, legality or
enforceability of the remaining provisions of this Agreement and any other
application thereof shall not in any way be affected or impaired thereby;
provided, however, that to the extent permitted by applicable law, any invalid,
illegal, or unenforceable provision may be considered for the purpose of
determining the intent of the parties in connection with the other provisions of
this Agreement.
12.8 Headings. The headings in the sections and subsections
of this Agreement and in the Schedules are inserted for convenience only and in
no way alter, amend, modify, limit or restrict the contractual obligations of
the parties.
12.9 Expenses of Litigation. In the event of any litigation
arising from the breach of this Agreement, the Note, the Employment Agreement or
the Registration Rights Agreement, the prevailing party in such litigation shall
be entitled to recover reasonable attorneys' fees and costs, including appeals.
12.10 Due Diligence. The Selling Shareholder disclaims any
representations or warranties to the Acquiror except as specifically set forth
in this Agreement. In particular, the Selling Shareholder disclaims any
representation or warranty with respect to any information concerning the
Company not expressly represented and warranted in this Agreement, including,
without limitation, projections or forecasts. The Acquiror is relying solely
upon its own due diligence review for all information concerning the Company
which is not expressly represented or warranted in this Agreement. With respect
to any such projection or forecast discussed or delivered by or on behalf of the
Selling Shareholder to the Acquiror, the Acquiror acknowledges that (a) there
are uncertainties inherent in such projections and forecasts and (b) the
Acquiror is familiar with such uncertainties and takes full responsibility for
making its own evaluation of the adequacy and accuracy of all such projections
and forecasts; provided, however, that the Selling Shareholder in no way limits
the representations, warranties, covenants or other agreements expressly made by
the Selling Shareholder hereunder. The Acquiror shall have no claim against the
Selling Shareholder, and the Selling Shareholder shall have no liability to the
Acquiror, with respect to any such disclaimed information, including, without
limitation, forecasts.
12.11 Press Releases. Except as may be required by law or as
provided in this Section 12.11, none of the Acquiror, the Company or the Selling
Shareholder shall engage in, encourage, or support any publicity or disclosure
of any kind or form in connection with this Agreement or the transactions
contemplated hereby unless each of the Acquiror, the Company and the Selling
Shareholder mutually agree in advance on the form, timing and contents of any
such publicity, announcement or disclosure, whether to the financial community,
government agencies or the public generally. Notwithstanding the foregoing,
nothing in this Section 12.11 shall prohibit the Acquiror or the Company from
disclosing the transactions contemplated pursuant to this Agreement to their
respective Acquiror or affiliate companies, whether direct or indirect.
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12.12 List of Exhibits and Schedules. As mentioned in this
Agreement, there are attached hereto or delivered herewith the following
Exhibits and Schedules:
EXHIBITS
Section
Exhibit Document Reference
A Subordinated Promissory Note 1.3(b)
B Articles of Incorporation 2.1(b)
C By-laws 2.1(b)
D Employment Agreement 7.7
E Opinion of Hinshaw & Culbertson 9.1(f)
F Opinion of Thompson Coburn 9.2(d)
G Registration Rights Agreement 9.2(f)
SCHEDULES
Schedule
No. Schedule Caption
- -------- ----------------
1.5 Contingent Consideration
2.1(d) Capitalization and Shareholders
2.1(e) Foreign Qualifications
2.1(j) Violations or Conflicts
2.1(k) Government Consents
2.2(a) Company Financial Statements
2.2(b) Undisclosed Liabilities
2.2(c) Capital Leases
2.2(d) Certain Changes
2.3(b) Returns Filed and Taxes Paid Exceptions
2.3(c) Miscellaneous Tax Matters
2.3(d) Audit History and Other Proceedings
2.4(a) Properties and Title Exceptions
2.4(b) Leases
2.4(c) Condition of Assets
2.4(e) Accounts Receivable
2.5 Intellectual Property
2.6(a) Debt Instruments
2.6(b) Contracts
2.6(c) Insurance
2.6(d) Assignments and Defaults
2.7 Employment Relationships
2.8 Employee and Fringe Benefit Plans
2.9 Labor Relations
2.10 Litigation
2.11 Compliance With Laws
2.11(d)(i) Environmental Matters
2.12 Bank Accounts
2.13 Transactions with Affiliates
3.6 Acquiror Financial Statements
3.8 Litigation
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<PAGE> 44
Each of the foregoing Exhibits and Schedules is incorporated herein by this
reference and expressly made a part hereof. Any fact or item which is clearly
disclosed on any of the Schedules to this Agreement in such a way as to make its
relevance to a representation or representations made in this Agreement or to
the information called for by another Schedule or other Schedules to this
Agreement readily apparent shall be deemed to be an exception to such
representation or representations to be disclosed on such other Schedule or
Schedules, as the case may be, notwithstanding the omission of a reference or
cross reference thereto.
12.13 Expenses. Except to the extent otherwise provided in
this Agreement, each of the parties hereto shall bear its own fees, costs and
expenses incurred in connection with the negotiation and performance of this
Agreement and the transactions herein contemplated, including, but not limited
to, any fees, costs and expenses of legal counsel, investment bankers, brokers
and accountants (collectively, the "Transaction Expenses"); it being understood
that the Selling Shareholder shall pay all Transaction Expenses of the Company
and the Selling Shareholder. To the extent that following the Closing Date the
Company pays or becomes liable with respect to any Transaction Expenses of the
Company or the Selling Shareholder not otherwise reserved in the Closing Balance
Sheet, the Purchase Price shall be reduced dollar-for-dollar. Notwithstanding
the foregoing, on the Closing Date the Acquiror shall reimburse the Selling
Shareholder for one-half of the accounting fees and expenses incurred by the
Company with regard to the audit of the Company's financial statements for the
year ended December 31, 1997.
12.14 Entire Agreement. All prior negotiations and
agreements among the parties hereto are superseded by this Agreement, and there
are no representations, warranties, understandings or agreements other than
those expressly set forth herein or in an Exhibit or Schedule delivered pursuant
hereto, except as modified in writing concurrently herewith or subsequent
hereto.
12.15 Governing Law. This Agreement shall be governed by and
construed and interpreted according to the laws of the State of Missouri,
determined without reference to conflicts of law principles.
[the remainder of this page is left intentionally blank]
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<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized representatives on the day and
year first above written.
The Acquiror:
REHABCARE GROUP, INC.
By _______________________________________
Gregory J. Eisenhauer, CFA
Senior Vice President, Acquisitions
The Company:
THERAPEUTIC SYSTEMS, LTD.
By ______________________________________
Ronald C. Stauber, President
The Selling Shareholder:
------------------------------------------
Ronald C. Stauber
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SCHEDULE 1.5
CONTINGENT CONSIDERATION DEFINITIONS AND CALCULATIONS
Definitions
"Cumulative EBIT" for a given Earn-Out Period shall mean an
amount equal to the sum of:
(a) the aggregate net income of the Company during such
Earn-Out Period, determined in accordance with GAAP consistently applied, but
specifically (i) including, as if they were earnings, the amount of earnings of
any entity acquired by the Acquiror as shall have been agreed upon by the
Acquiror and the Selling Shareholder pursuant to Section 6.3 hereof, (ii)
excluding, in the event that the Acquiror and the Company consolidate certain of
administrative functions in an effort to realize savings to the Acquiror on a
consolidated basis, any amounts of administrative overhead costs allocated by
the Acquiror to the Company that are in excess of the costs which the Company
would have incurred had the consolidated administrative functions remained
distinct; plus
(b) the aggregate net interest expense (as reduced by
any interest income), amortization of goodwill associated with the acquisition
of the Company by the Acquiror, and the combined aggregate tax expense of the
Company for such Earn-Out Period; plus
(c) for each Earn-Out Period beginning after August 31,
1999, the Cumulative EBIT of the Company for the preceding Earn-Out Period.
"Excess EBIT Multiplier" shall mean the factor for a given
Earn-Out Period as set forth in the Excess EBIT Multiplier column of the table
in this Schedule 1.5 by which the excess of Cumulative EBIT over the Target
Minimum Cumulative EBIT, each determined for such Earn-Out Period, shall be
multiplied to determine the Contingent Consideration to be paid to the Selling
Shareholder for such Earn-Out Period.
"Maximum Cumulative Contingent Consideration" shall mean the
maximum amount of aggregate Contingent Consideration that is payable through a
given Earn-Out Period as set forth in the Maximum Cumulative Contingent
Consideration table in this Schedule 1.5 below.
"Maximum Cumulative EBIT" shall mean the amount of
Cumulative EBIT that the Company may have through a given Earn-Out Period beyond
which any additional amounts of Cumulative EBIT will not require a payment of
any additional amounts of Contingent Consideration.
"Target Minimum Cumulative EBIT" shall mean the minimum
amount of Cumulative EBIT that the Company must have through a given Earn-Out
Period to require a payment of Contingent Consideration for such Earn-Out
Period.
<PAGE> 47
Calculations
Subsequent to the consummation of the stock acquisition
contemplated in the Agreement, the Earn-Out Period used to measure Cumulative
EBIT (and to which the Excess EBIT Multiplier, Target Minimum Cumulative EBIT,
Maximum Cumulative EBIT and Maximum Cumulative Contingent Consideration set
forth on the table below relate) will end on the 31st day of August in the year
indicated on the table below. The Contingent Consideration payable to the
Selling Shareholder for a given Earn-Out Period will be determined pursuant to
the formula set forth in Section 1.5(c) of the attached Agreement.
Maximum
Earn-Out Period Target Minimum Maximum Excess Cumulative
Ending August 31, Cumulative EBIT Cumulative EBIT Contingent
EBIT Multiplier Consideration
1999 $3,837,838 $4,112,838 8.00 $2,200,000
2000 $8,443,244 $9,278,026 5.75 $4,800,000
2001 $13,969,730 $15,529,730 5.00 $7,800,000
- ------------------ ---------------- ------------ ----------- -------------
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Schedule 2.4(e)
SCHEDULED ACCOUNTS RECEIVABLE
Open Balance
Account Name Due Date as of June 25, 1998
------------ -------- -------------------
California Gardens 10/10/95 $8,037.00
Chevy Chase Nursing 7/31/95 $153,919.19
Halsted Nursing Center 3/11/96 $10,902.00
4/9/96 33,473.85
5/10/96 33,212.46
6/9/96 44,562.08
7/10/96 49,047.60
8/9/96 45,603.20
8/9/96 48,908.27
10/10/96 44,886.00
-----------
$310,595.46
Harmony Nursing & Rehab Center 6/9/96 $34,906.67
Libertyville Manor 7/9/97 $71,093.95
8/7/97 85,828.52
9/7/97 83,757.31
10/8/97 72,223.27
9/9/96 800.00
7/9/97 3,933.00
8/7/97 1,081.00
9/7/97 3,542.00
10/8/97 6,854.00
-----------
$329,113.05
St. Agnes Health Center 6/7/97 $15,614.60
Wood Glen Nursing & Rehab Center 8/7/97 $13,234.21
9/8/97 17,576.02
10/7/97 17,370.50
----------
$48,180.73
TOTAL $900,366.70
-----------
-----------
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Exhibit A
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, RULE 144
UNDER SUCH ACT, OR EVIDENCE SATISFACTORY TO REHABCARE GROUP, INC. THAT ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.
SUBORDINATED PROMISSORY NOTE
$1,500,000.00 August __, 1998
St. Louis, Missouri
FOR VALUE RECEIVED, the undersigned, REHABCARE GROUP, INC.,
a Delaware corporation (hereinafter "Maker"), promises to pay to the order of
RONALD C. STAUBER (hereinafter "Holder"), at such place as Holder may from time
to time designate in writing, the principal sum of One Million Five Hundred
Thousand and 00/100 Dollars ($1,500,000.00). Interest shall accrue on the unpaid
principal balance from the date hereof at the lower of the maximum rate
permitted by law or eight percent (8%) per annum. Upon the expiration of three
business days following notice by Holder to Maker of any failure by Maker to
make any payment of principal or interest is due under this Note, the entire
outstanding principal balance of this Note shall bear interest, until such past
due payment is paid, at the rate of fifteen percent (15%) per annum.
Interest payable under this Note shall be payable quarterly
commencing December 1, 1998 through the term of the Note. Principal payable
under this Note shall be payable August __, 2002.
In the event any payment falls due on a Saturday, Sunday or
legal holiday, the payment shall instead be due on the next business day with
the same effect as if such payment had been paid on the due date thereof.
Interest shall be calculated on the basis of the actual days elapsed and a year
of 365 or 366 days, as applicable.
Should default be made in payment of any installment of
principal or interest when due, the whole sum of unpaid principal and interest
shall immediately become due and payable at the option of Holder upon the
expiration of ten (10) days following written demand for payment to Maker or any
third party, as appropriate, unless default is cured within such ten (10) day
period.
Maker waives presentment, protest and notice of dishonor or
nonpayment.
Maker shall pay to Holder reasonable attorneys' fees and all
costs and other expenses reasonably incurred by Holder in enforcing payment and
in connection with collection of any amount due under this Note; provided,
however, that Holder must first provide Maker written notice that it will take
action to enforce payment.
This Note is given pursuant to the terms of the Stock
Purchase Agreement, dated as of August __, 1998, between Maker, Holder and
Therapeutic Systems, Ltd. (the "Stock Purchase Agreement"). The principal sum of
this Note is subject to reduction upon the terms and in the manner set forth in
Article 10 of the Stock Purchase Agreement, in which case, this Note shall be
deemed to evidence a promise to pay such reduced principal amount. If such a
reduction in the principal amount is effected, this Note shall be marked to show
the reduced principal amount or shall be exchanged for a new Subordinated
<PAGE> 50
Promissory Note reflecting the reduced principal amount, but being otherwise in
form and substance substantially identical to this Note. In no event shall
Holder be required to reimburse Maker for interest paid to Holder prior to a
reduction in the principal amount of the Note.
Maker may, at its option, at any time on or after August __,
1998, redeem this Note at 100% of the then outstanding principal amount of the
Note, plus accrued interest to the Redemption Date (as defined below).
Notice of redemption at the option of Maker will be mailed
at least 30 days but not more than 60 days before the Redemption Date to Holder
of this Note to be redeemed at his registered address as set forth in the note
register maintained by Maker with respect to this Note. On and after the date
set forth in the notice as the date upon which Maker will redeem this Note
called for redemption (the "Redemption Date") interest shall cease to accrue on
this Note provided that there is no default in the payment of the redemption
price by Maker on the Redemption Date.
For the purposes of this Note, the following terms shall
have the respective meanings ascribed to them:
"Indebtedness" of Maker as of any determination date shall
mean:
(i) any debt of Maker (A) for borrowed money, (B)
evidenced by a note, debenture or similar instrument (including a purchase money
obligation) given in connection with the acquisition of any property or assets
(other than inventory, goods, materials and services or similar property
acquired in the ordinary course of business), including securities, (C)
representing payment obligations of Maker arising out of interest swap
arrangements of Maker relating to debt referenced in clause (A) or (B) above or
reimbursement obligations with respect to letters of credit, or (D) for the
payment of money relating to the lease of any property which lease is
capitalized on the balance sheet of Maker (consolidated if Maker shall have any
subsidiary) in accordance with generally accepted accounting principles,
consistently applied; and
(ii) any debt of others described in the preceding
clause (i) which Maker has guaranteed or for which it is otherwise liable or for
which assets of Maker serve as collateral (in which case the amount of such debt
shall be equal to the fair market value of such collateral as determined in good
faith by the Board of Directors of Maker).
"Senior Debt" of Maker as of the date of any determination
thereof shall mean all Indebtedness of Maker which is not expressed to be
subordinated or junior to any other Indebtedness of Maker, including without
limitation all present and future obligations and Indebtedness of Maker to
NationsBank, N.A., Mercantile Bank National Association and USTrust, whether or
not contingent, consisting of principal, interest, fees, charges and other
obligations and sums.
This Note is subordinate and junior in right of payment and
performance, to the extent and in the manner hereinafter set forth, to the
Senior Debt of Maker. The Senior Debt shall continue to be Senior Debt and
entitled to the benefits of these subordination provisions irrespective of any
amendment, modification or waiver of any term of the Senior Debt (including but
not limited to modifications to interest rates and payment terms) or extension,
renewal or refinancing of the Senior Debt, or the creation of any new Senior
Debt, whether or not presently contemplated by Maker. If any Senior Lender (as
hereinafter defined) gives Maker and Holder a written notice (a "Default
Notice") which (i) states that one or more Events of Default (as hereinafter
defined) has occurred and is continuing, and (ii)instructs Maker to cease making
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payments and Holder to cease accepting and receiving payments, of amounts due
under this Note, then, unless and until such Event of Default shall have been
cured or waived or shall have ceased to exist, Maker will not make and Holder
will not ask for, demand, sue for, take or receive from Maker, any direct or
indirect payment (in cash, property or otherwise) on account of the principal
of, or premium, if any, or interest on this Note, during any period after
written notice of such default shall have been given to Maker by a holder of any
Senior Debt. In the event of: (i) any insolvency, bankruptcy, receivership,
liquidation, reorganization, readjustment, composition or other similar
proceeding relating to Maker, or to its property, (ii) any proceedings for the
liquidation, dissolution or other winding-up of Maker, voluntary or involuntary,
whether or not involving insolvency or bankruptcy proceedings, (iii) any
assignment by Maker for the benefit of its creditors, or (iv) any other
marshalling of the assets of Maker, all Senior Debt (including any interest
thereon accruing after the commencement of any such proceedings and any
additional interest that would have accrued thereon but for the commencement of
such proceedings) shall first be paid in full before any payment or
distribution, whether in cash or other property, shall be made to Holder on
account of this Note. Notwithstanding any provision contained in this Note, so
long as a Senior Lender has not sent Maker and Holder a Default Notice, Maker
shall pay to Holder and Holder may receive, accept and apply, the regularly
scheduled interest and principal payments provided for herein on this Note as
and when the same become due. For purposes hereof, the term "Event of Default"
shall mean any Event of Default, as defined in any loan document, lease, note,
guaranty or any other agreement, instrument or document under which the same is
now or hereafter outstanding (each hereinafter referred to as a "Senior Loan
Document," which term shall include any modifications, amendments, extensions,
renewals or replacements thereof), such that the holders thereof accelerate the
maturity thereof. The term "Senior Lender" shall mean and include each obligee
or other holder of any of the obligations included in the meaning of "Senior
Debt," including but not limited to NationsBank, N.A. Mercantile Bank National
Association and USTrust and their respective successors and assigns. If any
payment or distribution, whether in cash, securities or other property, shall be
received by Holder in contravention of any of the terms hereof and before all
the Senior Debt shall have been paid in full, and a Default Notice shall have
preceded such payment or distribution, such payment or distribution shall be
received in trust for the benefit of, and shall be paid over or delivered and
transferred to, the holders of the Senior Debt for application to the payment of
all Senior Debt remaining unpaid, to the extent necessary to pay all such Senior
Debt in full and, thereupon, such payment shall not be deemed to have been
received by Holder as a payment or payments under this Note. In the event of the
failure of Holder to endorse or assign any such payment or distribution, the
holder o the Senior Debt is hereby irrevocably authorized to endorse or assign
the same. No present or future holder of the Senior Debt shall be prejudiced in
the right to enforce subordination of this Note by any act or failure to act on
the part of Maker.
The foregoing provisions as to subordination are solely for
the purpose of defining the relative rights of the holders of the Senior Debt,
on the one hand, and Holder, on the other hand. Nothing contained herein shall
impair, as between Maker and Holder, the obligation of Maker, which is
unconditional and absolute, to pay to Holder the principal hereof and interest
hereon as and when the same shall become due and payable in accordance with the
terms hereof, or prevent Holder from exercising all rights, powers and remedies
otherwise permitted by applicable law or hereunder upon a default hereunder, all
subject to the rights of the holders of the Senior Debt to receive cash or other
property otherwise payable or deliverable to Holder. Holder will take such
action (including, without limitation, consent to the filing of a financing
statement with respect thereto) as may, in the opinion of any holder of Senior
Debt at the time outstanding, be necessary or appropriate to assure the
effectiveness of the subordination effected by these provisions.
Subject to the foregoing provisions as to subordination, the
Maker agrees that, in any stock purchase, merger, consolidation, asset
acquisition or other business combination consummated by the Maker after the
date hereof in which the Maker is the surviving or acquiring entity, any
indebtedness issued by the Maker to any shareholders or owners of such acquired
company or entity, or to such acquired company or entity itself, shall not be
senior by its terms to the principal and interest payments under this Note.
Notwithstanding anything herein to the contrary, Holder may
accelerate this Note and commence enforcement actions with respect thereto, or
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<PAGE> 52
otherwise receive and accept payments under this Note, if a Default Notice has
been given to Maker or Holder by a Senior Lender and (i) within 180 days from
the date of such Default Notice, the Event or Events of Default described
therein are not waived by the Senior Lender, eliminated as a result of an
amendment or modification of the Senior Loan Documents or cured, or (ii) the
Senior Lender accelerates its Senior Debt and commences enforcement actions with
respect thereto or the collateral therefor. In the event that the Senior Lender
has sent Maker and Holder a Default Notice, Holder shall have no right to
accelerate, enforce any claim with respect to this Note, or otherwise take any
action against Maker or Maker's property without the prior written consent of
Senior Lenders, until such time as the Senior Debt has been paid in full and
Senior Lenders have no obligation to make further advances to Maker.
Maker hereby covenants and agrees to send to Holder,
immediately upon receipt by Maker, any notice of acceleration or commencement of
enforcement actions received by Maker from the Senior Lender.
Each Default Notice shall be deemed to have been given by a
Senior Lender to Maker or Holder when delivered in person to such party at
Holder's address listed in the Stock Purchase Agreement or when deposited in the
United States mail, first class postage prepaid, or, in the case of telegraphic
notice or overnight courier services, one business day after delivered to the
telegraphic company or overnight courier service with payment provided for, or
in the case of telex or telecopy notice, when sent, verification received, in
each case addressed to Maker and Holder at their respective addresses listed in
the Stock Purchase Agreement or at such other address as either party may
designate by notice to the other in accordance with this paragraph.
This Note and each of the terms hereof shall be binding upon
Maker's successors and assigns. No failure on the part of Holder hereunder to
exercise, and no delay in exercising any right, power or remedy hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or remedy hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, power or remedy hereunder preclude
any other or further exercise of any other right, power or remedy.
Holder may not assign this Note without the prior written
consent of Maker, except that Holder may collaterally assign Holder's interests
in this Note without such written consent. Any prohibited assignment will be
null and void.
This Note may not be changed, modified or terminated orally,
but may be changed, modified or terminated only by an agreement in writing
signed by Holder hereof and only with the prior written consent of the holders
of Senior Debt or others who are committed to make future advances to Maker that
would constitute Senior Debt if and when the same are made.
Principal and interest payable hereunder shall be paid in
lawful money of the United States. The terms and provisions hereof shall be
governed by the laws of the State of Delaware.
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<PAGE> 53
Executed as an instrument under seal as of the date first above written.
MAKER:
REHABCARE GROUP, INC.
Witnessed:
- ------------------------------- By: _______________________________________
John R. Finkenkeller, Assistant Alan C. Henderson, President and Chief
Secretary Executive Officer
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<PAGE> 54
Exhibit B
[Articles of Incorporation]
<PAGE> 55
Exhibit C
[By-Laws]
<PAGE> 56
Exhibit D
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made, entered
into and effective as of August __, 1998, by and among REHABCARE GROUP, INC., a
Delaware corporation ("RehabCare"), THERAPEUTIC SYSTEMS, LTD., an Illinois
corporation and wholly owned subsidiary of RehabCare ("TSI," and, together with
RehabCare, the "Employer"), and RONALD C. STAUBER ("Executive").
WHEREAS, Employer and Executive desire to set forth the
terms and conditions upon which Executive is to be employed by Employer;
NOW, THEREFORE, in consideration of the foregoing premises
and the mutual covenants of the parties contained herein, the parties agree as
follows:
1. TERM. The term of employment of Executive under this
Agreement shall continue in full force and effect for a period which shall
commence as of August __, 1998, and shall continue through August __, 2001,
unless sooner terminated as may be provided in this Agreement. This Agreement
will automatically renew for annual one (1) year periods after the initial term,
unless either party gives to the other written notice by May __, 2001, or May
___ of each succeeding year, of such party's intent not to renew this Agreement.
2. EMPLOYMENT; LOCATION.
a. Conditions of Employment. Executive shall serve as
President of TSI, and shall devote his working time and effort to the business
and affairs of Employer as shall be reasonably necessary to faithfully discharge
the duties and responsibilities of his office; provided, however, that Executive
shall devote substantially all of his working time and effort to the business
and affairs of Employer. Executive shall have such authority as is customarily
extended to other senior officers consistent with Employer's policy and
practices and shall be subject to the control of, and shall perform such duties
as are specified in instructions or directions as may be reasonably specified
from time to time by, RehabCare's President and Chief Executive Officer or by
<PAGE> 57
such other executive officer of RehabCare or any of its affiliate companies as
may be designated by RehabCare's President and Chief Executive Officer from time
to time; provided that the Executive shall not, without his consent, be assigned
tasks that would be inconsistent with those of the President of TSI. Executive
shall have such authority, power, responsibilities and duties as are inherent to
his positions (and the undertakings applicable to his positions) and necessary
to carry out his responsibilities and the duties requires of him hereunder.
b. Location of Employment. During the term of this
Agreement, unless otherwise approved in advance by Executive, Executive shall
primarily perform his duties and responsibilities hereunder at the principal
offices of TSI, which shall be located not more than fifteen (15) miles from the
location of the principal offices of TSI as of the date of this Agreement.
3. COMPENSATION. As compensation for the services to be
performed by Executive, Employer shall pay Executive an annual base salary of
One Hundred Twenty Thousand Dollars ($120,000.00) per year for each year of his
employment hereunder, payable in equal installments at the end of such regular
payroll accounting periods as are established by RehabCare for a preponderance
of RehabCare employees, but in no event to exceed one (1) month intervals, or in
such other installments upon which the parties hereto shall mutually agree, and
reduced on a pro-rata basis by any fraction of a year or month during which he
is not so employed. All payments shall be subject to the withholding by Employer
of such amounts in respect of federal, state, local or other taxes as may be
required by applicable laws or regulations. During the term of this Agreement,
Executive shall be eligible to receive merit increases, an annual bonus and
other compensation under the Company's plans and arrangements for peer
executives of Employer.
4. BENEFITS
a. Health, Disability and Other Benefits. During the
term of this Agreement, Executive shall be entitled to participate in or receive
benefits under Employer's health insurance plans or arrangements comparable to
peer executives of Employer as in effect on the date hereof for such a period of
time as such plans and arrangements shall remain in effect. In addition,
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Executive shall be entitled to receive:
i. Life insurance coverage comparable to peer
executives of Employer in accordance with the terms of Employer's group plan(s).
ii. Benefits under any pension plan, health and
accident plan or arrangement, disability or other benefit plan and other
programs made available now or in the future by Employer to peer executives of
Employer, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and arrangements. Nothing paid to Executive
under any such plan or arrangement presently in effect or made available in the
future shall be deemed to be in lieu of any compensation payable to Executive
hereunder, except disability insurance payments received by Executive.
b. Vacation and Holidays. During the term of this
Agreement, Executive shall be entitled to the Company's paid days off benefit
policy that blends time off from work for all reasons (i.e., vacation, holiday,
illness, bereavement, etc.) into one benefit. Executive shall be entitled to 30
paid days off per year pursuant to such policy, which shall begin to accrue on
the date hereof. Executive shall additionally be entitled to any accrued but
unused vacation from his employment with TSI prior to the date hereof. In
addition to such benefit, Executive may request unpaid leaves for family,
medical or personal reasons.
c. Disability Payments. Should Executive become
disabled during the term of this Agreement, Employer shall continue to pay
Executive his base salary specified in Paragraph 3 and benefits referenced in
this Paragraph 4 for a period of one hundred eighty (180) consecutive calendar
days during such disability, offset by any payments to which Executive may be
entitled under any disability plan of Employer. "Disability" shall mean any
physical or mental illness or incapacity, other than death, which renders
Executive substantially unable to perform the duties required of him under this
Agreement. The existence of any disability shall be determined by a licensed
physician practicing in the State of Illinois who shall be mutually acceptable
to the parties.
5. INDEMNIFICATION; DIRECTORS' AND OFFICERS' LIABILITY
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INSURANCE. Executive shall be entitled to all rights to indemnification from
RehabCare, whether by statute, charter documents, insurance policy or agreement,
generally available to the other directors and executive officers of RehabCare
or its subsidiaries throughout the term of this Agreement. Employer currently
carries directors' and officers' liability insurance coverage in the amount and
covering the acts and omissions as set forth in the policy previously delivered
to Executive.
6. EXPENSES. So long as Executive shall be employed
hereunder, Executive shall be entitled to receive reimbursement from TSI of all
reasonable travel, entertainment and other business expenses (in accordance with
the policies and procedures from time to time adopted by the Board of Directors
of RehabCare) in performing the services contemplated hereunder. Executive shall
receive prompt reimbursement for said expenses, but not later than sixty (60)
days of Executive's written request or report.
7. CONFIDENTIAL INFORMATION. Executive acknowledges that
while employed by Employer hereunder, he will have access to confidential trade
secrets, information, observations, records, customer lists, data, drawings,
writings or other materials owned by Employer. Executive agrees that during the
term of his employment hereunder, and for a period of two (2) years from the
termination or expiration of Executive's employment hereunder he will not
directly or indirectly disclose to others or use for his own benefit or for the
benefit of others any of the foregoing information, except in the course of his
employment hereunder and for the benefit of Employer. All records, files,
writings, drawings, lists, data and similar materials and information that
Executive will prepare, use or otherwise come into contact with during the
course of his employment by Employer will, as between Employer and Executive, at
all times remain the sole property of Employer. The provisions of this Paragraph
will not:
a. Apply to the operation of Employer or its business
to the extent that Executive acquires information from parties other than
Employer or its subsidiaries; or
b. Apply to any information, matter or thing that is in
the public domain or that has been disclosed to others by Employer or its
subsidiaries, employees or agents.
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8. COVENANT NOT TO COMPETE.
a. Non-Competition Covenant. For the period from the
date of this Agreement to the date which is two (2) years from the termination
or expiration of Executive's employment hereunder, Executive agrees that, in
consideration of Ten Dollars ($10.00) and the salary and other compensation and
benefits being provided to Executive by Employer pursuant to this Agreement,
Executive will not directly or indirectly participate in the ownership,
management, operation or control of, or be employed by any business competing
with Employer in the physical medicine and rehabilitation business (including
acute care hospitals, acute rehabilitation units, subacute units, long-term care
facilities and outpatient therapy programs), the temporary staffing of
therapists and nurses business or in any other business in which Employer may be
actively engaged at the date Executive terminates his employment with Employer
or at any time within the twelve (12) months prior to such termination date
within the Restricted Area, as defined below. For purposes of this Agreement,
the term "Restricted Area" shall mean the States of Illinois, Iowa, Missouri,
Kentucky, Indiana, Wisconsin, Michigan and Ohio, and, in addition, any other
State for which the Executive has operating responsibility during the term of
Executive's employment hereunder.
The above constraint will not prevent Executive from
making passive investments, not to exceed 5% of the total equity ownership, in
any enterprise in the physical medicine and rehabilitation business (including
acute care hospitals, acute rehabilitation units, subacute units and outpatient
programs), the temporary staffing of therapists and nurses business or in any
other business in which Employer may be actively engaged at the date Executive
terminates employment with Employer or at any time within the twelve (12) months
prior to such termination date.
b. Other Covenants. For the period from the date of
this Agreement to the date two (2) years from the termination or expiration of
Executive's employment hereunder, Executive further agrees that he shall not:
i. directly or indirectly (a) solicit for
employment or attempt to hire any individual then employed by Employer or any
former employee of Employer during the 180 days after such former employee of
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Employer has voluntarily terminated his employment with Employer, or (b)
encourage any employee of Employer to terminate his or her employment with
Employer for any reason; or
ii. directly or indirectly (a) solicit the
business of any customer or client located in the Restricted Area having a
business relationship with Employer at the time of termination or which is a
prospect of Employer and which Executive is actively pursuing on behalf of
Employer as such prospect is identified in writing by Employer at the time of
termination (a "Prospect"), or (b) contact any such customer, client or Prospect
located in the Restricted Area for the purpose of encouraging such customer,
client or Prospect to terminate its business relationship with Employer.
c. Enforceability. In the event that any of the
provisions of this Paragraph 8 are finally determined by any court of competent
jurisdiction to be void or unenforceable with respect to any particular
geographic area or as to any particular time period or any particular
constraint, this Agreement will be deemed to be automatically modified without
any further action on the part of Employer or Executive so as to eliminate from
this section the unenforceable constraint or its application in any manner in
which it was found to be unenforceable and, except as so modified, the Agreement
will remain in full force and effect.
d. Exceptions. Notwithstanding the foregoing,
Paragraphs 8.a. and 8.b. shall be of no force or effect in the event of a
termination of Executive's employment by Employer pursuant to Paragraph 9.c or
by the Executive pursuant to Section 9.d; provided, however, that any and all
other noncompetition or nonsolicitation covenants of Executive contained in
Section 4.8 of the Purchase Agreement shall not be affected by any termination
of Executive's employment pursuant to Paragraph 9.c.
9. TERMINATION.
a. Death. Executive's employment hereunder shall
terminate immediately upon the death of Executive and Employer shall pay to
Executive's estate any earned but unpaid salary and benefits, and any other sums
due Executive from Employer pursuant to that certain Stock Purchase Agreement
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dated August __, 1998 by and among RehabCare, TSI and Executive (the "Purchase
Agreement") as of the date of Executive's death.
b. For Cause. Employer may terminate Executive's
employment hereunder at any time, effective immediately upon written notice, for
cause. For the purposes of this Agreement, "cause" shall mean:
i. The willful and continued failure by Executive
to substantially perform Executive's duties hereunder, other than any such
failure resulting from Executive's disability (as defined in Paragraph 4.c
above); provided, however, that Employer shall have given Executive at least 30
days prior written notice of such failure and an opportunity to remedy such
failure.
ii. The willful engagement by Executive in conduct
which is demonstrably and materially injurious to Employer, monetarily or
otherwise.
iii. The failure of TSI to attain at least 90% of
the Target EBIT (as defined and determined pursuant to Schedule A to this
Agreement) as of the end of any Applicable Period (as defined in Schedule A).
iv. Executive's conviction of, or plea of nolo
contendere to a felony. If there shall be any dispute between Employer and
Executive with regard to the termination of Executive's employment by Employer
for cause under Paragraph 9.b.i, ii, or iii hereof, Executives shall be entitled
to a hearing before a committee consisting of the non-employee members of
RehabCare's Board of Directors within ten (10) days of such termination. Unless
and until there is a determination by such committee that such termination was
for cause under Paragraph 9.i, ii or iii hereof, Employer shall pay all amounts,
and provide all benefits to, Executive and/or Executive's family or other
beneficiaries, as the case may be, as Employer would be required to pay or
provide under the terms of this Agreement if no termination had occurred.
Nothing in this Section 9.b shall preclude Executive from exercising any
available remedies, either at law or in equity.
c. Disability. In the event that Executive shall be
unable to perform the services contemplated hereunder by reason of a disability
(as defined in Paragraph 4.c. above), such inability or failure to so perform
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such duties shall not be grounds for terminating the employment of Executive by
Employer, and Executive shall be compensated during such period of disability
under the provisions of Paragraph 4.c. above; provided, however, that Employer
may terminate Executive's employment hereunder should the period of such
incapacity exceed six (6) consecutive months. Any such termination shall not be
considered termination for "cause," compensation rights in the event of such
termination shall be limited to claims under any disability plans maintained by
Employer or Executive.
d. Termination by Executive. The Executive may
terminate his employment hereunder if the Employer fails to pay, within 15 days
after a written demand made by the Executive, any amounts due and payable under
(i) this Agreement, (ii) that certain Registration Rights Agreement of even date
herewith between RehabCare and Executive, (iii) that certain Subordinated
Promissory Note of even date herewith delivered to Executive pursuant to the
Purchase Agreement, or (iv) the Purchase Agreement with respect to the payment
by RehabCare to Executive of Contingent Consideration (as defined in the
Purchase Agreement).
10. GENERAL PROVISIONS.
a. Any notice, request, demand or other communication
required or permitted hereunder shall be deemed to be properly given when
personally served in writing or when deposited in the United States mail,
postage prepaid, addressed to Employer or Executive at their respective last
known address. Either party may change its address by written notice given in
accordance with this subparagraph 10(a).
b. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective executors, administrators,
successors, and assigns; provided, however, that, except for assignment by
Employer to one or more of its subsidiaries, the parties hereto may not assign
any or all of their respective rights hereunder without the prior written
consent of the other.
c. This Agreement shall be governed by and construed in
all respects in accordance with the laws of the State of Missouri.
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d. Except as provided in Section 10(h) below, in the
event of any litigation arising from the breach of this Agreement, the
prevailing party in such litigation shall be entitled to recover reasonable
attorney's fees and costs, including appeals.
e. Captions and Paragraph headings used herein are for
convenience only and are not a part of the Agreement and shall not be used in
construing it. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
f. Except as specifically provided in Section 8.c
hereof, should any provision of this Agreement for any reason be declared
invalid, void or unenforceable by a court of competent jurisdiction, the
validity and binding effect of any remaining portions shall not be affected, and
the remaining portions of the Agreement shall remain in full force and effect as
if this Agreement had been executed with said provision eliminated.
g. This Agreement contains the entire agreement of the
parties with respect to the subject matter hereof, and supersedes any and all
other employment agreements, either oral or in writing. Executive hereby
acknowledges that any prior agreement between Executive and TSI with respect to
employment of Executive is canceled and of no further effect and that no moneys
are due to Executive with respect to his employment by TSI prior to the term
hereof. Each party to this Agreement acknowledges that no representations,
inducements, promises or agreements, oral or otherwise, have been made by any
party, or anyone acting on behalf of any party, which are not embodied herein or
therein, and that no other employment agreement, statement or promise not
contained herein or therein shall be relied upon or be valid or binding. This
Agreement may not be modified or amended by oral agreements, but only by an
agreement in writing signed by Employer on the one hand, and by Executive on the
other hand.
h. Any dispute arising hereunder, except under
Paragraphs 7, 8, 9 and 10, shall be settled by arbitration in St. Louis,
Missouri or Chicago, Illinois before a single arbitrator pursuant to the
rules of the American Arbitration Association (the "AAA"). Arbitration may be
9
<PAGE> 65
commenced at any time by any party hereto giving written notice to each other
party to a dispute that such dispute has been referred to arbitration under this
Paragraph 10(h), and the arbitrator shall be selected by the joint agreement of
Employer and Executive, but if they do not so agree within twenty (20) calendar
days after the date of the notice referred to above, the selection shall be made
pursuant to the rules from the panels of arbitrators maintained by the AAA. Any
award rendered by the arbitrator shall be conclusive and binding upon the
parties hereto; provided, however, that any such award shall be accompanied by a
written opinion of the arbitrator giving the reasons for the award. This
provision for arbitration shall be specifically enforceable by the parties, and
the decision of the arbitrator in accordance herewith shall be final and binding
and there shall be no right of appeal therefrom. Each party shall pay its own
expenses of arbitration and the expenses of the arbitrator shall be paid
one-half by Employer and one-half by Executive; provided, however, that if in
the opinion of the arbitrator any claim for indemnification or any defense or
objection thereto was unreasonable, the arbitrator may assess, as part of his or
her award, all or any part of the expenses of the arbitrator against the party
raising such unreasonable claim, defense or objections.
10
<PAGE> 66
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH
MAY BE ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first above written.
EMPLOYER:
REHABCARE GROUP, INC.
By:________________________________________________
Alan C. Henderson, President and Chief Executive
Officer
THERAPEUTIC SYSTEMS, LTD.
By:________________________________________________
Alan C. Henderson, Chairman of the Board
EXECUTIVE:
___________________________________________________
Ronald C. Stauber
11
<PAGE> 67
SCHEDULE A
Applicable Period Target EBIT
September 1, 1998 to August 31, 1999 $3,454,054
September 1, 1999 to August 31, 2000 $4,144,865
September 1, 2000 to August 31, 2001 $4,973,837
For purposes of the foregoing, "Target EBIT" for a given
Applicable Period shall mean an amount equal to the sum of:
(a) the aggregate net income of TSI during such
Applicable Period, determined in accordance with GAAP consistently applied, but
specifically (i) including, as if they were earnings, the amount of earnings of
any entity acquired by RehabCare as shall have been agreed upon by RehabCare and
the Selling Shareholder pursuant to Section 6.3 of the Purchase Agreement, (ii)
excluding, in the event that RehabCare and TSI consolidate certain of
administrative functions in an effort to realize savings to RehabCare on a
consolidated basis, any amounts of administrative overhead costs allocated by
RehabCare to TSI that are in excess of the costs which TSI would have incurred
had the consolidated administrative functions remained distinct; plus
(b) the aggregate net interest expense (as reduced by
any interest income), amortization of goodwill associated with the acquisition
of TSI by RehabCare, and the combined aggregate tax expense of TSI for such
Applicable Period.
<PAGE> 68
Exhibit E
[Opinion of Hinshaw & Culbertson]
August __, 1998
RehabCare Group, Inc.
7733 Forsyth Boulevard, Suite 1700
St. Louis, Missouri 63105
Ladies and Gentlemen:
We have acted as special counsel to Therapeutic Systems, Ltd.,
an Illinois corporation (the "Company"), and the holder of all of the common
stock of the Company (the "Selling Shareholder") in connection with the purchase
by RehabCare Group, Inc., a Delaware corporation (the "Acquiror"), of all of the
common stock of the Company from the Selling Shareholder (the "Shares") pursuant
to the Stock Purchase Agreement, dated as of August __, 1998 (the "Agreement"),
by and among the Acquiror, the Company and the Selling Shareholder. Capitalized
terms used herein without definition have the respective meanings ascribed
thereto in the Agreement. We are rendering this opinion to you pursuant to
Section 9.1(f) of the Agreement.
In rendering the opinions set forth herein, we have examined
copies of such corporate records of the Company as the Selling Shareholder has
provided to us, such laws and the originals or copies of such other records,
agreements, instruments, certificates and documents as we have deemed necessary
as a basis for the opinions hereinafter expressed.
In addition, we have not represented the Company in connection
with any required filings with the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and our
opinion is expressly limited hereby.
We have assumed the genuineness of all signatures; the
authenticity of all documents submitted to us as originals; the conformity to
the originals of all documents submitted to us as certified, photostatic or
conformed copies; the authenticity of the originals of all such latter
documents; and the correctness of certificates submitted to us by officers and
representatives of the Company and the Selling Shareholder. In addition, with
respect to the opinions as to the due execution and binding nature of the
Agreement, we have assumed the due execution and delivery of the Agreement by
all parties thereto other than the Company and the Selling Shareholder. Since
July 16, 1998, we have not participated in the negotiation of the Agreement on
behalf of the Company or the Selling Shareholder.
In rendering our opinion, we have relied upon certificates of
corporate officers of the Company and the Selling Shareholder as to certain
factual matters material to such opinion, and upon certificates of public
officials, all of which certificates have been furnished or made available to
you. Whenever our opinion herein with respect to the existence or absence of
facts is indicated to be based on our knowledge or awareness, the best of our
knowledge or the best of our knowledge after due inquiry, it is limited to the
actual present knowledge of the attorneys of our firm who have devoted
substantive attention to legal matters referred to us by the Company and the
Selling Shareholder.
Based upon and subject to the foregoing, we are of the opinion
that:
(a) The Company is a corporation duly incorporated, organized,
entitled to conduct business and validly existing in good standing under the
laws of the State of Illinois. The Company is qualified to do business as a
foreign corporation in such other jurisdictions where the conduct of its
businesses or the character or location of properties which it owns, leases or
<PAGE> 69
uses or the actions or location of its employees or agents either requires such
Company to be qualified as a foreign corporation in such jurisdiction or
subjects the Company to any cost, restriction or penalty for failing to qualify
(including assessment of taxes, fees or penalties for prior periods); except
where such failure to qualify has not or will not result in any change in the
assets, operations, liabilities, earnings, relationships with existing clients,
business or financial condition of the Company which has not been or will not
be, individually or in the aggregate with other changes, materially adverse,
with the exception of any changes resulting from the impact of the recent
adoption of Medicare regulations regarding salary equivalency for physical,
occupational and speech therapists or the Balanced Budget Act of 1997.
(b) The Company has all requisite corporate power and
authority to own and lease its properties and otherwise to conduct its business.
(c) The authorized and issued capital stock of the Company
consist of 10,000 shares of Common Stock, no par value, of which 1,000 shares
are issued and outstanding as of the date hereof. None of the Shares of the
Company are held in treasury and all of the Shares of the Company are legally
and validly issued, fully paid and nonassessable, without violation of any
preemptive or dissenters' or similar rights (and no preemptive or other
subscriptive rights have ever existed with respect to the Shares) and in full
compliance with all applicable securities laws. The Selling Shareholder is the
only record owner or beneficial of the Shares or other securities of any kind or
class of the Company and, other than as contemplated in the Agreement, no
option, warrant, subscription, put, call or other right, commitment, undertaking
or understanding to acquire or restrict the transfer (other than those imposed
by applicable securities regulation laws) of, any of the Shares or other
securities of any kind or class of any of the Company or rights, obligations or
undertakings convertible into securities of any kind or class of the Company are
authorized or outstanding.
(d) The Company does not have any subsidiaries or, to the best
of our knowledge after due inquiry, any equity securities of, investment in or
loans or advances to any business enterprise or person or any agreements or
commitments for such (other than trade terms extended to customers in the
ordinary course of business) and is not subject to any arrangement that could be
treated as a partnership for federal income tax purposes.
(e) Each of the Company and the Selling Shareholder has the
right, power and authority to enter into the Agreement and the related
agreements referred to therein to which they are a party, including, without
limitation, the Registration Rights Agreement and the Employment Agreement, and
to consummate the transactions contemplated by and otherwise to comply with and
perform their respective obligations thereunder.
(f) The execution and delivery by the Company of the Agreement
and the related agreements referred to therein to which the Company is a party,
and the consummation by the Company of the transactions contemplated thereby,
and compliance with and performance of their respective obligations thereunder,
have been duly authorized by all necessary corporate action on the part of the
Company in compliance with governing or applicable agreements, instruments or
other documents to which the Company is a party (including its Articles of
Incorporation and Bylaws, as amended) and applicable law.
(g) The Agreement and the related agreements referred to
therein to which the Company and the Selling Shareholder is a party, including,
without limitation, the Registration Rights Agreement and the Employment
Agreement, constitute the valid and binding agreement of the Company and the
Selling Shareholder, as the case may be, that are enforceable against each of
the Company and Selling Shareholder, as the case may be, in accordance with
their respective terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium, reorganization, fraudulent conveyance or
similar laws affecting the rights of creditors generally, or the exercise of
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<PAGE> 70
judicial discretion in accordance with general principles applicable to
equitable or similar remedies.
(h) The Selling Shareholder has good and marketable title to
the Shares, free and clear of all liens, encumbrances, charges or other
restrictions on title, either contractual or otherwise, except those
restrictions imposed by applicable securities laws.
(i) Except as shall have been obtained prior to the date
hereof and except for any required filings with the Federal Trade Commission and
with the Antitrust Division of the United States Department of Justice pursuant
to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, no
consent, approval, order or authorization of, or registration, declaration or
filing with, any governmental authority on the part of the Company or the
Selling Shareholders is required in connection with the execution or delivery of
the Agreement or the consummation of the transactions contemplated thereby, or
other compliance therewith or performance thereunder, by the Company or the
Selling Shareholder.
(j) To our knowledge, the Company is not (and, since March 31,
1998, has not been): (i) engaged in, a party to, subject to or threatened with
any claim, legal or equitable action or other proceeding (whether as plaintiff,
defendant or otherwise and regardless of the forum or the nature of the opposing
party) which seeks damages, an injunction or other relief against the Company,
which action, individually or collectively with such other actions, would have a
material adverse effect on the Company; (ii) subject to any unasserted claim,
the assertion of which is likely and which, if asserted, will seek damages, an
injunction or other relief against the Company which claim, individually or
collectively with such other unasserted claims known to us, if made, would have
a material adverse effect on the Company; or (iii) subject to any judgment,
order or decree against it or its assets.
(k) The Company is, and since its incorporation has been, an S
corporation for purposes of federal income taxation under the Internal Revenue
Code of 1986, as amended.
(l) To the best of our knowledge after due inquiry, the
execution and delivery by the Company and the Selling Shareholder of the
Agreement and the related agreements referred to therein to which they are a
party (including, without limitation, the Registration Rights Agreement and the
Employment Agreement) and the consummation of the transactions contemplated
thereby, or other compliance therewith or performance thereunder, do not and
will not with the passage of time or the giving of notice or both (i) constitute
a violation of, be in conflict with, constitute a default or require any payment
under, permit a termination of, require any consent under, or result in the
creation or imposition of any lien, encumbrance or other adverse claim or
interest upon any properties of the Company under (A) any contract, agreement,
commitment, undertaking or understanding to which the Company is a party or to
which it or any of its assets or properties are subject or bound, (B) any
judgment, decree or order of any governmental authority to which the Company or
any of its properties are subject or bound (C) any applicable law, or (D) any
governing or applicable agreements, instruments or other documents to which the
Company is a party (including its Articles of Incorporation and Bylaws, as
amended); or (ii) create or cause the acceleration of the maturity of any debt,
obligation or liability of the Company.
The opinions expressed herein by the undersigned are expressly
limited to the law of the State of Illinois, and the United States of America.
We assume no responsibility as to the applicability or the effect of the laws of
any other domestic or foreign jurisdiction on the subject transactions.
This opinion is being rendered solely for the benefit of the
addressee hereof and is not to be used or relied upon by any other person
without our prior written consent. We expressly disavow any obligation to update
this letter in the future.
Very truly yours,
3
<PAGE> 71
Exhibit F
[Opinion of Thompson Coburn]
August __, 1998
Ronald C. Stauber
14044 W. Petronella, Unit 5
Libertyville, Illinois 60048
Gentlemen:
We have acted as counsel to RehabCare Group, Inc., a
Delaware corporation (the "Acquiror"), in connection with the purchase of all of
the outstanding shares of common stock (the "Shares") of Therapeutic Systems,
Inc., an Illinois corporation (the "Company"), from the holder of all of the
common stock of the Company (the "Selling Shareholder") pursuant to the Stock
Purchase Agreement, dated as of August __, 1998 (the "Agreement"), by and among
the Acquiror, the Company, and the Selling Shareholder. Capitalized terms used
herein without definition have the respective meanings ascribed thereto in the
Agreement. We are rendering this opinion to you pursuant to Section 9.2(d) of
the Agreement.
In rendering the opinions set forth herein, we have examined
originals or copies of such corporate records of the Acquiror, such laws and the
originals or copies of such other records, agreements, instruments, certificates
and documents as we have deemed necessary as a basis for the opinions
hereinafter expressed. We have assumed the genuineness of all signatures; the
authenticity of all documents submitted to us as originals; the conformity to
the originals of all documents submitted to us as certified, photostatic or
conformed copies; the authenticity of the originals of all such latter
documents; and the correctness of certificates submitted to us by officers and
representatives of the Acquiror. In addition, with respect to the opinions as to
the due execution and binding nature of the Agreement, we have assumed the due
execution and delivery of the Agreement by all parties thereto other than the
Acquiror. In rendering our opinion, we have relied upon certificates of
corporate officers of the Acquiror as to certain factual matters material to
such opinion, and upon certificates of public officials, all of which
certificates have been furnished or made available to you. Whenever our opinion
herein with respect to the existence or absence of facts is indicated to be
based on our knowledge or awareness, the best of our knowledge or the best of
our knowledge after due inquiry, it is limited to the actual present knowledge
of the attorneys of our firm who have devoted substantive attention to legal
matters referred to us by the Acquiror.
Based upon and subject to the foregoing, we are of the
opinion that:
(a) The Acquiror is a corporation duly incorporated,
organized, entitled to conduct business and validly existing in good standing
under the laws of the State of Delaware.
(b) The Acquiror has the right, power and authority to
enter into the Agreement and the related agreements referred to therein to which
it is a party, including, without limitation, the Note, the Registration Rights
Agreement and the Employment Agreement, and to consummate the transactions
contemplated by, and otherwise to comply with and perform its obligations
thereunder.
(c) The execution and delivery by the Acquiror of the
Agreement and the related agreements referred to therein, including, but not
limited to, the Note, the Registration Rights Agreement and the Employment
Agreement, and the consummation by the Acquiror of the transactions contemplated
thereby, and compliance with and performance of its obligations thereunder, have
been duly authorized by all necessary corporate action on the part of the
Acquiror in compliance with governing or applicable agreements, instruments or
<PAGE> 72
other documents to which the Acquiror is a party (including its Certificate of
Incorporation and Bylaws, as amended) and applicable law.
(d) The Agreement and the related agreements referred
to therein to which the Acquiror is a party, including, but not limited to, the
Note, the Registration Rights Agreement and the Employment Agreement, constitute
valid and binding agreements of the Acquiror that are enforceable against the
Acquiror in accordance with their respective terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, moratorium, reorganization,
fraudulent conveyance or similar laws affecting the rights of creditors
generally, or the exercise of judicial discretion in accordance with general
principles applicable to equitable or similar remedies.
(e) To the best of our knowledge after due inquiry, the
execution and delivery by the Acquiror of the Agreement and the related
agreements referred to therein, including, without limitation, the Note, the
Registration Rights Agreement and the Employment Agreement, and the consummation
by the Acquiror of the transactions contemplated thereby, and other compliance
therewith or performance thereunder, do not and will not with the passage of
time or the giving of notice or both (i) constitute a violation of, be in
conflict with, constitute a default or require any payment under, permit a
termination of, require any consent under, or result in the creation or
imposition of any lien, encumbrance or other adverse claim or interest upon any
properties of the Acquiror under (A) any contract, agreement, commitment,
undertaking or understanding to which the Acquiror is a party or to which it or
any of its assets or properties are subject or bound, (B) any judgment, decree
or order of any governmental authority to which the Acquiror or any of its
properties are subject or bound (C) any applicable law, or (D) any governing or
applicable agreements, instruments or other documents to which the Acquiror is a
party (including its Articles of Incorporation and Bylaws, as amended); or (ii)
create or cause the acceleration of the maturity of any debt, obligation or
liability of the Acquiror.
(f) Except as shall have been obtained prior to the
date hereof, no consent, approval, order or authorization of, or registration,
declaration or filing with, any governmental authority on the part of the
Acquiror is required in connection with the execution or delivery of the
Agreement or the consummation of the transactions contemplated thereby or other
compliance therewith or performance thereunder, by the Acquiror.
(g) Except as set forth in the Agreement or in the
Acquiror Financial Statements, there is no litigation pending, or to the best of
our knowledge, threatened against the Acquiror which would have a material
adverse effect on the Acquiror's properties, assets or business or which would
prevent or hinder the consummation of the transactions contemplated by the
Agreement or the Acquiror's obligations thereunder.
(h) When issued pursuant to the terms of the Agreement,
all of the shares of Acquiror Common Stock issued to the Selling Shareholder as
contemplated by the Agreement will be duly and validly issued, fully paid and
non-assessable, without violation of any preemptive or dissenters' or similar
rights and in full compliance with all applicable securities laws.
The opinions expressed herein by the undersigned are
expressly limited to the laws of the States of Missouri and Illinois, the
corporate laws of the State of Delaware and the United States of America. We
assume no responsibility as to the applicability or the effect of the laws of
any other domestic or foreign jurisdiction on the subject transactions.
This opinion is being rendered solely for the benefit of the
addressee hereof and is not to be used or relied upon by any other person
without our prior written consent. We expressly disavow any obligation to update
this letter in the future.
Very truly yours,
2
<PAGE> 73
Exhibit G
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is
made and entered into as of August __, 1998, by and among REHABCARE GROUP, INC.,
a Delaware corporation ("RehabCare"), and RONALD C. STAUBER (the "Holder").
RECITALS:
WHEREAS, pursuant to that certain Stock Purchase Agreement
(the "Stock Purchase Agreement"), dated as of August __, 1998, by and among
RehabCare, Therapeutic Systems, Ltd., an Illinois corporation (the "Company"),
and Holder, the Holder received shares of RehabCare's Common Stock (as defined
below); and
WHEREAS, in order to satisfy a closing condition contained
in, and to induce the Company and the Holder to consummate the transactions
contemplated by, the Stock Purchase Agreement, RehabCare has agreed to provide
the Holder the registration rights set forth in this Agreement.
NOW, THEREFORE, in consideration of these premises, the
covenants and agreements contained herein and in the Stock Purchase Agreement,
and other good and valuable consideration, the receipt and sufficiency of which
hereby are acknowledged, the parties hereto agree as follows:
1. Definitions
As used in this Agreement, the following capitalized terms
shall have the following meanings:
Common Stock: The shares of the common stock, par value $.01
per share, of RehabCare.
Exchange Act: The Securities Exchange Act of 1934, as
amended from time to time.
Person: An individual, partnership, corporation, joint
venture, association, joint-stock company, trust or unincorporated organization,
or a government or agency or political subdivision thereof, and shall include
any "person" as defined in Rule 144(a)(2) of the Securities Act.
Prospectus: The Prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A), as amended or supplemented
by any prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Securities covered by such Registration Statement and
all other amendments and supplements to the Prospectus, including post-effective
amendments and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
Registrable Securities: The shares of Common Stock (i)
issued to Holder pursuant to the Stock Purchase Agreement, including shares of
Common Stock issued as Contingent Consideration (as defined therein) from time
to time, and (ii) issued to Holder in exchange or substitution for or in payment
of dividends on, or pursuant to a split or combination of, any shares of Common
Stock referred to in the foregoing clause (i).
Registration Statement: Any registration statement of
RehabCare which has been declared effective by the SEC and covers any of the
Registrable Securities pursuant to the provisions of this Agreement, including
the Prospectus, amendments and supplements to such Registration Statement,
<PAGE> 74
post-effective amendments, all exhibits and all material incorporated by
reference or deemed to be incorporated by reference in such Registration
Statement.
Securities Act: The Securities Act of 1933, as amended from
time to time, and the rules and regulations promulgated by the SEC thereunder.
SEC: The Securities and Exchange Commission.
Underwritten Public Offering: A "firm commitment" or "best
efforts" offering (as those terms are generally used in the securities industry)
in which the Registrable Securities of RehabCare are sold by or through an
underwriter to the public.
2. Provisions Generally Applicable.
(a) Holder of Registrable Securities. Holder is deemed
to be a holder of Registrable Securities during the period commencing on the
date of each issuance of such Registrable Securities and ending on the first
anniversary date of such issuance.
(b) Restriction on Transfer. Each certificate
representing any Registrable Securities shall be imprinted with a legend
substantially in the following form and a similar legend with respect to
applicable state securities law, if required:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT PURSUANT TO (i)
A REGISTRATION STATEMENT RELATING TO THE SECURITIES WHICH IS EFFECTIVE
UNDER THE SECURITIES ACT OF 1933, (ii) RULE 144 UNDER SUCH ACT, OR
(iii) AN OPINION OF COUNSEL OR OTHER EVIDENCE SATISFACTORY TO REHABCARE
GROUP, INC., THAT ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT IS AVAILABLE.
Prior to any proposed transfer of any of such Registrable Securities (other than
under circumstances described in Section 3 hereof), and so long as such
securities bear a restrictive legend similar to that required under this
paragraph (b), Holder shall deliver to RehabCare (except in transactions
demonstrated to RehabCare's reasonable satisfaction to be in compliance with
Rule 144, or any substantially similar successor rule of the SEC) either (i) a
written opinion of legal counsel reasonably satisfactory to RehabCare to the
effect that the proposed transfer of such securities may be effected without
registration or qualification under the Securities Act and any applicable state
securities laws, or (ii) a "no action" letter from the SEC (and any necessary
state securities administrators) reasonably satisfactory to RehabCare to the
effect that the distribution of such securities without registration will not
result in a recommendation by the staff of the SEC (or such administrators) that
action be taken with respect thereto, whereupon Holder shall be entitled to
transfer such securities in accordance with the terms of such opinion or "no
action" letter.
(c) The provisions of this Section 2 shall cease to
apply to Holder on the date on which the shares of Common Stock held by Holder
may lawfully be sold without compliance with Rule 144. Upon RehabCare's receipt
of an opinion of counsel addressed to RehabCare to the effect that the
restrictive legend set forth in Section 2(b) may be removed from the
certificate(s) evidencing the Registrable Securities, which opinion is
reasonably acceptable to RehabCare, RehabCare shall, upon surrender of the
original certificate evidencing such shares of Common Stock, issue and deliver
or cause to be delivered to Holder one or more certificates for such Common
Stock not containing the legend set forth in Section 2(b).
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3. RehabCare Registration.
(a) If at any time or from time to time RehabCare
proposes to register any of its Common Stock under the Securities Act in
connection with the public offering of such securities solely for cash, either
for its own account for the account of any selling shareholders, on a form that
would also permit the registration of the Registrable Securities, RehabCare
shall, each such time, promptly give Holder as of the notification date written
notice of such proposed registration. Upon the written request of Holder given
within twenty (20) days after mailing of any such notice by RehabCare, RehabCare
shall use its best efforts to register, pursuant to an effective Registration
Statement under the Securities Act, all of the Registrable Securities, if any,
that Holder shall have requested to be registered.
(b) If the registration of which RehabCare gives notice
is for an Underwritten Public Offering, then RehabCare shall so advise Holder as
a part of such written notification required by Section 3(a). In such event, the
right of Holder to registration pursuant to this Section 3 shall be conditioned
upon Holder's agreeing to participate in such underwriting and the inclusion of
Holder's Registrable Securities in the underwriting to the extent provided
herein. Holder shall (together with RehabCare) enter into an underwriting
agreement in customary form with the underwriter or underwriters selected for
such underwriting by RehabCare.
4. Underwriting Requirements. In connection with any Underwritten
Public Offering involving exercise of the registration rights contained in
Section 3, RehabCare shall (together with Holder) enter into an underwriting
agreement in customary form with the representative of the underwriter or
underwriters of regional or national recognized standing, selected for such
underwriting by RehabCare. If the representative advises Holder in writing that
the representative in its sole discretion deems it advisable to limit the number
of shares to be underwritten, then, the number of shares of Registrable
Securities that may be included in the underwriting shall be reduced
accordingly. If any Holder disapproves of the terms of any such underwritten
offering, Holder may withdraw therefrom upon written notice to RehabCare and the
representative of the underwriters. If the representative has not limited the
number of Registrable Securities to be underwritten, then RehabCare and Holder
may include securities for their own account in such registration if the
representative so agrees and if the number of Registrable Securities that would
otherwise have been included in such registration and underwriting will not
thereby be limited for any reason, including but not limited to the price for
which the Registrable Securities will be sold. To the extent that the
representative wishes to limit the number of shares to be included in the
registration on behalf of RehabCare and Holder, the shares of Common Stock to be
registered held by Holder shall be excluded from such offering pro rata on the
basis of shares of Registrable Securities that were included by Holder in the
offering prior to excluding any shares held by RehabCare.
5. Obligations of RehabCare. Whenever required under Section
3 to use its best efforts to register any Registrable Securities, RehabCare
shall, as expeditiously as practicable:
(a) prepare and file with the SEC a Registration
Statement with respect to such Registrable Securities and use its best efforts
to cause such Registration Statement to become and remain effective; provided,
however, that RehabCare shall in no event be obligated to use its best efforts
cause any such registration to remain effective for more than one hundred twenty
(120) days or such lesser time as may be required to permit the orderly sale of
Holder's Registrable Securities, except as otherwise required by law.
(b) prepare and file with the SEC amendments and
supplements to such Registration Statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement.
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(c) furnish to Holder such numbers of copies of a
Prospectus, including a preliminary Prospectus, in conformity with the
requirements of the Securities Act and such other documents as Holder may
reasonably request in order to facilitate the disposition of Registrable
Securities.
(d) use its best efforts to register and qualify the
securities covered by such Registration Statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably appropriate for the
distribution of the securities covered by the Registration Statement, provided
that RehabCare shall not be required in connection therewith or as a condition
thereof to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions, and further provided that (anything
in this Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the Registrable Securities shall be
qualified shall require that expenses incurred in connection with the
qualification of the Registrable Securities in that jurisdiction be borne by
selling stockholders, then such expenses shall be payable by each Holder, to the
extent required by such jurisdiction.
(e) make available to Holder, Holder's counsel and
advisors and any underwriters such information and records as Holder may
reasonably request to accomplish such negotiation and sale.
(f) notify Holder at any time a Prospectus covered by a
Registration Statement is required to be delivered under the Securities Act
includes a written misstatement of a material fact or omits to state a material
fact necessary to make the statement not misleading.
6. Furnish Information. It shall be a condition precedent to the
obligations of RehabCare to take any action pursuant to this Agreement that
Holder shall furnish to RehabCare such information regarding them as may be
reasonably requested, the Registrable Securities held by Holder, and the
intended method of disposition of such securities as RehabCare shall reasonably
request and as shall be required in connection with the action to be taken by
RehabCare.
7. Expenses of Piggyback Registration. All expenses incurred in
connection with a Registration Statement pursuant to Section 3 (excluding
underwriters' discounts and commissions), including without limitation all
registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for RehabCare and the reasonable fees and disbursements
of one counsel for the Holder shall be borne by RehabCare.
8. Delay of Registration. Holder shall not have any right to
take any action to restrain, enjoin or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Agreement.
9. Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, RehabCare will
indemnify and hold harmless Holder, any underwriter (as defined in the
Securities Act) for its, and each Person, if any, who controls Holder or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which they may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
on any untrue or alleged untrue statement of any material fact contained in such
Registration Statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein not
misleading or arise out of any violation by RehabCare of any rule or regulation
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promulgated under the Securities Act applicable to RehabCare and relating to
action or inaction required of RehabCare in connection with any such
registration; and will reimburse Holder, underwriter or controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided however, that the indemnity agreement contained in this Section 9(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of
RehabCare (which consent shall not be unreasonably withheld) nor shall RehabCare
be liable to the Holders or any underwriter or controlling person for any such
loss, claim, damage, liability or action to the extent that it arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made by Holder, underwriter or controlling person in connection
with such Registration Statement, preliminary prospectus, final prospectus, or
amendments or supplements thereto, in reliance upon and in conformity with
written information furnished expressly for inclusion in such registration by
Holder or any underwriter or controlling person.
(b) To the extent permitted by law, if Holder requests
or joins in a Registration Statement, Holder will indemnify and hold harmless
RehabCare, each of its directors, each of its officers who have signed the
Registration Statement, each person, if any, who controls RehabCare within the
meaning of the Securities Act and each agent and any underwriter for RehabCare
(within the meaning of the Securities Act) against any losses, claims, damages
or liabilities to which RehabCare or any such director, officer, controlling
person, agent or underwriter may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in such Registration Statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in such
Registration Statement, preliminary or final prospectus, or amendments or
supplements thereon, in reliance upon and in conformity with written information
furnished by Holder expressly for inclusion in such Registration Statement; and
Holder will reimburse any legal or other expenses reasonably incurred by
RehabCare or any such director, officer, controlling person, agent or
underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this Section 9(b) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is effected
without the consent of such Holder (which consent shall not be unreasonably
withheld).
(c) Promptly after receipt by an indemnified party
under this Section 9 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party under this paragraph, notify the indemnifying party in
writing of the commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume the
defense thereof with counsel mutually satisfactory to the parties. The failure
to notify an indemnifying party promptly of the commencement of any such action,
if prejudicial to his ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
paragraph, but the omission so to notify the indemnifying party will not relieve
him of any liability that he may have to any indemnified party otherwise than
under this paragraph.
(d) The indemnity provided for herein shall be
continuing and shall survive any registration and sale of Registrable Securities
or termination of this Agreement.
(e) If the indemnification provided for in this Section
9 is for any reason, other than pursuant to the terms thereof, judicially
determined (by the entry of a final judgment or decree by a court of competent
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jurisdiction and the expiration of time to appeal or the denial of the last
right to appeal) to be unavailable to an indemnified party under subsections (a)
or (b) above in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying party
shall, in lieu of indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) on the basis of relevant
equitable considerations such as the relative fault of the Company and Holder in
connection with the facts which resulted in such losses, liabilities, claims,
damages and expenses. The relative fault, in the case of an untrue statement,
alleged untrue statement, omission or alleged omission shall be determined by,
among other things, whether such statement, alleged statement, omission or
alleged omission relates to information supplied by the Company or Holder, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement, alleged statement, omission or alleged
omission. RehabCare and Holder agree that it would not be just and equitable if
contributions pursuant to this subsection (e) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this subsection (e). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
10. Reports Under Securities Exchange Act of 1934. With a view
to making available to the Holder the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit Holder to sell securities of RehabCare to the public without
registration, RehabCare agrees to use its best efforts to:
(a) make and keep public information available, as
those terms are understood and defined in Rule 144 of the Securities Act, at all
times during the period ending on the [second] anniversary of the date of this
Agreement;
(b) file with the SEC in a timely manner all reports
and other documents required of RehabCare under the Securities Act and the
Exchange Act; and
(c) furnish to Holder, so long as Holder owns any of
the Registrable Securities forthwith upon request a written statement by
RehabCare that it has complied with the reporting requirements of Rule 144, and
of the Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of RehabCare and such other reports and documents so filed by
RehabCare as may be reasonably requested in availing Holder of any rule or
regulation of the SEC permitting the selling of any such securities without
registration.
11. Lockup Agreement. In consideration for RehabCare's grant of
the registration rights in this Agreement, Holder agrees in connection with any
registration of RehabCare's securities which is an Underwritten Public Offering
that, upon the request of RehabCare or the underwriters managing any
underwritten offering of RehabCare's securities, Holder shall not sell, make any
short sale of, loan, grant any option for the purchase of or otherwise dispose
of any Registrable Securities (other than those included in the registration)
without the prior written consent of RehabCare or such underwriters, as the case
may be, for such period of time, not to exceed 180 days or such lesser period as
the underwriters may request, from the effective date of such registration as
RehabCare or the underwriters may specify for affiliates of RehabCare. The
obligations of Holder pursuant to this Section 11 shall expire upon the
termination of Holder's rights under Section 3(a) of this Agreement.
12. Transfer of Registration Rights. The registration rights set
forth in this Agreement are not transferable by Holder except to an affiliate
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(as defined in Rule 144(a)(1) under the Securities Act) of Holder.
13. Miscellaneous
(a) Amendment. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, except by written amendment of this Agreement executed by
RehabCare and Holder.
(b) Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, air courier, telex or telecopier:
(i) if to the Holder, Ronald Stauber, 14044 W.
Petronella, Unit 5, Libertyville, Illinois 60048; and
(ii) if to RehabCare, RehabCare Group, Inc., 7733
Forsyth Boulevard, Suite 1700, St. Louis, Missouri 63105, Attn: President and
Chief Executive Officer.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; two business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; and when receipt acknowledged, if telecopied.
(c) Successor and Assigns. This Agreement shall inure
to the benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent holders of registration rights as permitted by Section 13
of this Agreement.
(d) Counterparts. This Agreement may be executed in two
or more counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same Agreement.
(e) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(f) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Missouri.
(g) Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in any circumstance,
is held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(h) Entire Agreement. This Agreement is intended by the
parties who sign this Agreement as a final expression of their Agreement and is
intended to be a complete and exclusive statement of the Agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, warranties or undertakings, either
written or oral, other than those set forth or referred to herein with respect
to the registration rights granted by RehabCare with respect to the securities
issued pursuant to the Stock Purchase Agreement.
14. Termination of Agreement. This Agreement and the obligations
of RehabCare under Section 3 hereof shall terminate on the later of (i) the
one-year anniversary date of the
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consummation of the transactions contemplated by the Stock Purchase Agreement or
(ii) one year following the issuance of any Registrable Securities by RehabCare
to Holder.
IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
REHABCARE GROUP, INC.
By_____________________________________________
Alan C. Henderson
President and Chief Executive Officer
HOLDER:
-----------------------------------------------
Ronald C. Stauber
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AMENDMENT NO. 1
TO
STOCK PURCHASE AGREEMENT
This AMENDMENT NO. 1 (this "Amendment No. 1") is entered
into this 9th day of September, 1998 by and among REHABCARE GROUP, INC., a
Delaware corporation (the "Acquiror"), THERAPEUTIC SYSTEMS, LTD., an Illinois
corporation (the "Company"), and RONALD C. STAUBER, the holder of all of the
outstanding stock of the Company (the "Selling Shareholder").
RECITALS:
WHEREAS, on August 5, 1998, each of the Acquiror, the
Company and the Selling Shareholder executed and delivered a Stock Purchase
Agreement (the "Stock Purchase Agreement"), pursuant to which the Acquiror would
acquire from the Selling Shareholder all of the outstanding capital stock of the
Company; and
WHEREAS, by letter dated August 13, 1998, the Company
delivered notice to the Acquiror that Alden Management Services, Inc. was
terminating each of its contracts with the Company described on Schedule 2.6(b)
to the Stock Purchase Agreement and any agreements relating to the Alden Old
Town West facility of Alden Management Services, Inc. and its affiliates
(collectively, the "Alden Contracts") on the dates set forth in the notice; and
WHEREAS, in connection with the termination of the Alden
Contracts, the Acquiror, the Company and the Selling Shareholder now desire to
modify and amend the Stock Purchase Agreement as set forth herein.
NOW, THEREFORE, in consideration of the Stock Purchase
Agreement and the mutual covenants and agreements herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto covenant and agree as follows:
1. Unless otherwise defined herein, all capitalized terms
used herein shall have the meanings ascribed thereto in the Stock Purchase
Agreement.
2. Each of the parties hereto acknowledges and agrees that
the termination of the Alden Contracts shall not constitute a basis for a breach
of any representation, warranty, covenant or condition to closing contained in
the Stock Purchase Agreement.
3. Section 1.2 of the Stock Purchase Agreement shall be
deleted in its entirety and replaced with the following:
1.2 Purchase Price for the Shares. The aggregate
consideration to be paid by the Acquiror to the Selling Shareholder in
connection with the sale of the Shares (the "Purchase Price") shall be
the amount of Eight Million Three Hundred Thousand Dollars
($8,300,000.00) (the "Base Price"), as adjusted pursuant to Section
1.4 of this Agreement, plus: (i) up to an additional Thirteen Million
Seven Hundred Thousand ($13,700,000.00) of Contingent Consideration
(as defined in Section 1.5 hereof) payable pursuant to Section 1.5 and
subject to offset as set forth in Section 10.4 hereof, and (ii) any
amounts described in Section 6.4 hereof.
4. Section 1.3 of the Stock Purchase Agreement shall be
deleted in its entirety and replaced with the following:
<PAGE> 82
1.3 Payment of Base Price. At the Closing, the Acquiror
shall pay to the Selling Shareholder the Base Price, as follows:
(a) The Acquiror shall deliver to the Selling
Shareholder an amount in cash (the "Closing Cash Payment") equal to
Five Million Four Hundred Thousand Dollars ($5,400,000.00), such
Closing Cash Payment being subject to adjustment as set forth in
Section 1.4 hereof and to be paid as follows: (i) at least three
business days prior to the Closing Date, the Selling Shareholder shall
designate an account or accounts (each, a "Designated Account") to
which the Closing Cash Payment shall be delivered; and (ii) on the
Closing Date, the Acquiror shall deliver by wire transfer the Closing
Cash Payment to the Designated Account(s);
(b) The Acquiror shall deliver to the Selling
Shareholder a subordinated promissory note of the Acquiror
substantially in the form attached hereto as Exhibit A (the "Note"),
in the original principal amount (the "Closing Principal Amount") of
One Million Dollars ($1,000,000.00), such Closing Principal Amount
being subject to adjustment as set forth in Section 1.4 hereof and
being subject to offset as set forth in Section 10.3 hereof; and
(c) The Acquiror shall deliver to the Selling
Shareholder shares of the Acquiror's common stock, $.01 par value (the
"Acquiror Common Stock"), equal in value to One Million Nine Hundred
Thousand Dollars ($1,900,000.00) (the "Closing Stock Payment"), the
number of shares of such Acquiror Common Stock to be determined by
dividing the value of such Closing Stock Payment by the average of the
last transaction prices as reported by the Nasdaq National Market and
published in The Wall Street Journal (the "Average Market Price") of
Acquiror Common Stock for the twenty consecutive trading days ending
on the fourth business day prior to the Closing Date. The shares of
Acquiror Common Stock issued to the Selling Shareholder pursuant to
this Section 1.3(c) shall be subject to registration rights as set
forth in the Registration Rights Agreement described in Section 9.2(f)
of this Agreement. One-half of the shares of Acquiror Common Stock
deliverable as the Closing Stock Payment shall be registered in the
name of Mary Stauber and one-half in the name of the Selling
Shareholder.
5. Section 1.4(a) of the Stock Purchase Agreement is hereby
deleted in its entirety and replaced with the following:
1.4 Purchase Price Adjustments
(a) Subject to the adjustments set forth below in
this Section 1.4(a), the Company shall use its reasonable best efforts
to have on the Closing Date Working Capital (as defined in this
Section 1.4(a)) in an amount equal to at least One Million Three
Hundred Thousand Dollars ($1,300,000.00) (the "Agreed Working
Capital"). On the Closing Date, the Acquiror and the Company shall use
their respective best efforts to estimate the amount of Actual Working
Capital as of the Closing Date. In the event that such estimate
of Actual Working Capital is in excess of the Agreed Working
Capital, the Selling Shareholder shall, during the 120-calendar-day
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period following the Closing Date, take reasonable and appropriate
steps as shall be agreed upon by the Acquiror and the Selling
Shareholder to reduce the net accounts receivable of the
Company to One Million Seven Hundred Thousand Dollars ($1,700,000.00).
Notwithstanding the foregoing, the Selling Shareholder shall be
entitled to use any and all means which the Selling Shareholder shall
determine necessary and appropriate to collect any unpaid accounts
receivable due as of the Closing Date from Alden Management Services,
Inc., its affiliates and associated facilities, including the use of
collection agencies and/or initiating litigation proceedings. For
purposes of this Section 1.4(a), Working Capital shall mean the amount
by which the aggregate book value of the Company's current assets
exceeds the aggregate book value of the Company's current liabilities,
determined in accordance with United States generally accepted
accounting principles as in effect on the date of this Agreement
("GAAP"), but specifically excluding from the Company's current assets
the uncollected amount of the accounts receivable included on Schedule
2.4(e) hereto (the "Scheduled Receivables"), and specifically
excluding from the Company's current liabilities the amount of any
indebtedness for borrowed money. To the extent, if any, that the
Actual Working Capital (as defined in Section 1.4(c) below) is less
than the Agreed Working Capital, the Selling Shareholder shall, within
the later to occur of 120 calendar days after the Closing or the final
determination (as set forth in Section 1.4(c) below) of the Actual
Working Capital, deliver to the Acquiror a check in the amount
required to bring the Actual Working Capital up to the Agreed Working
Capital level. To the extent, if any, that the Actual Working Capital
exceeds the Agreed Working Capital, the Acquiror shall, within the
later to occur of 120 calendar days after the Closing or the final
determination (as set forth in Section 1.4(c) below) of the Actual
Working Capital, deliver to the Selling Shareholder a check in an
amount equal to the Actual Working Capital less the Agreed Working
Capital.
6. Section 1.5(a) of the Stock Purchase Agreement is hereby
deleted in its entirety and replaced with the following:
(a) In addition to the payment of the Base Price at
Closing, the Acquiror shall pay the Selling Shareholder on a
contingent, "as-earned" basis, additional amounts of consideration as
set forth in Schedule 1.5 to this Agreement (collectively, such
additional amounts are hereinafter referred to as the "Contingent
Consideration") upon the attainment of certain "Target Minimum
Cumulative EBIT" (as defined in Schedule 1.5) during each of the
periods from September 9, 1998 to September 8, 1999, September 9, 1999
to September 8, 2000, and September 9, 2000 to September 8, 2001 (each
an "Earn-Out Period" and, collectively, the "Earn-Out Periods"). The
Contingent Consideration, as and if earned, will be payable within the
time periods and in accordance with the procedures set forth in
Section 1.5(b). Schedule 1.5 to this Agreement sets forth the
definitions of "Base EBIT," "Cumulative EBIT," "Excess EBIT
Multiplier," "Maximum Cumulative Contingent Consideration," "Maximum
Cumulative EBIT" and "Target Minimum Cumulative EBIT," which defined
terms shall be utilized in determining whether a payment of Contingent
Consideration for a given Earn-Out Period is required to be made, and,
if such payment is required, the amount of the required payment for
such Earn-Out Period.
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7. Section 1.5(e) of the Stock Purchase Agreement is hereby
deleted in its entirety and replaced with the following:
(b) In the event that, prior to September 8, 2001,
the employment of the Selling Shareholder under the Employment
Agreement (as defined in Section 7.6 hereof) is terminated either (i)
voluntarily by the Selling Shareholder, or (ii) by Acquiror or the
Company for "cause" as defined in the Employment Agreement, all rights
of the Selling Shareholder with respect to receipt of any portion of
the Contingent Consideration payable following such termination of
employment shall be terminated, and the Acquiror shall have no further
obligation with respect to payment of such Contingent Consideration.
In all other cases in which Selling Shareholder's employment is
terminated with the Company, the right to receive the Contingent
Consideration shall be continued to the Selling Shareholder, his
personal representative, estate and heirs at law. Subject to the
foregoing, the right to receive the Contingent Consideration shall be
a personal right of the Selling Shareholder and shall not be
extinguished upon the death of the Selling Shareholder; provided,
however, that such right shall not be transferable by the Selling
Shareholder other than pursuant to the Selling Shareholder's last will
and testament or the laws of descent and distribution.
8. Section 6.3(a) of the Stock Purchase Agreement is hereby
deleted in its entirety and replaced with the following:
(a) From the Closing Date until September 8, 2001,
the Acquiror shall allow the Selling Shareholder to continue to
conduct the operations of the Company as such operations are currently
being conducted as of the Closing Date in all material respects,
subject, however, to any effect on such operations resulting from the
consolidation of administrative functions of the Company with those of
the Acquiror or the employment of certain additional personnel, each
as agreed upon by Acquiror and the Selling Shareholder pursuant to
Section 4.7 hereof.
9. Section 6.4(b) of the Stock Purchase Agreement is hereby
deleted in its entirety and replaced with the following:
(b) To the extent that following the Closing Date
the Acquiror exercises its right pursuant to Section 10.1 to
indemnification with respect to any uncollected accounts receivable,
the Acquiror shall cause the Company to assign all of the Company's
right, title and interest with respect to any such uncollected
accounts receivable for which indemnification is sought to the Selling
Shareholder and shall cooperate in the Selling Shareholder's attempt
to collect thereon. Following such assignment, the Selling Shareholder
shall be entitled to use any and all means which the Selling
Shareholder shall determine necessary to collect such unpaid accounts
receivable or the Scheduled Receivables, including the use of
collection agencies and/or initiating litigation proceedings. In the
event that the Company shall receive any remittance from or on behalf
of any account debtor in respect of such accounts receivable assigned
to the Selling Shareholder, the Company shall promptly forward
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<PAGE> 85
the amount of such remittance to the Selling Shareholder, less any
reasonable costs of collection incurred by the Company in connection
with collecting such remittance.
10. Section 10.1(a) of the Stock Purchase Agreement is
hereby deleted in its entirety and replaced with the following:
(a) any and all loss, liability or damage
(including judgments and settlement payments but excluding
consequential, incidental or punitive damages except in the case of
actual fraud) (a "Loss") incurred by the Company or the Acquiror
incident to, arising in connection with or resulting from any
misrepresentation, breach, nonperformance or inaccuracy of any
representation, warranty or covenant set forth in Sections 4 and 5 by
the Selling Shareholder made or contained in this Agreement or in any
Exhibit, Schedule, certificate or other document executed and
delivered to the Acquiror by the Selling Shareholder or by or on
behalf of the Company under or pursuant to this Agreement or the
transactions contemplated herein; provided, however, that any Loss for
which the Acquiror shall be entitled to indemnification by the Selling
Shareholder with respect to a breach of Section 2.2(a) or 2.4(e) with
regard to any uncollected accounts receivable shall not include any
service or interest charge which the Company would otherwise have been
entitled to collect pursuant to the client service contract to which
such uncollected account receivable relates.
11. Section 10.6 of the Stock Purchase Agreement is hereby
deleted in its entirety and replaced with the following:
10.6 Minimum and Maximum Dollar Limit on
Indemnification. The parties hereto agree that no violations or
breaches under any one or more of the representations and warranties
of the Company, the Selling Shareholder and the Acquiror set forth in
this Agreement shall support a claim for Losses unless and until such
Losses attributable to all violations and breaches exceed on a
cumulative and aggregate basis the sum of Seventy-Five Thousand
Dollars ($75,000); provided, however, that if such Losses exceed the
sum of $75,000, the Selling Shareholder or the Acquiror, as the case
may be, shall be obligated to indemnify the party entitled to
indemnification under this Article 10 for cumulative and aggregate
Losses including such initial sum of $75,000 and thereafter in amounts
equal to or in excess of $5,000; provided further, however, that each
of the Selling Shareholder and the Acquiror shall be entitled to
indemnification hereunder only to the maximum aggregate amount of One
Million Nine Hundred Thousand Dollars ($1,900,000.00). The maximum
limitations provided for in this Section 10.6 shall not apply with
respect to claims for indemnification by the Acquiror for Losses for
Taxes pursuant to Section 10.1(c), Medicare liabilities pursuant to
Section 10.1(f), employee-related liabilities pursuant to Section
10.1(g) or any amounts of accounts receivable outstanding on the
Closing Date from any contracts between the Company and any of the
Alden facilities described on Schedule 2.6(b) to this Agreement, or to
any claim by either party for actual fraud or intentional
misrepresentation.
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12. The form of Promissory Note attached to the Stock
Purchase Agreement as Exhibit A is hereby deleted in its entirety and restated
and replaced with the form of Promissory Note attached as Appendix A hereto and
such restated form of Promissory Note shall be deemed to constitute Exhibit A to
the Stock Purchase Agreement for all purposes set forth in the Stock Purchase
Agreement.
13. The form of Employment Agreement attached as Exhibit D
to the Stock Purchase Agreement is hereby deleted in its entirety and restated
and replaced with the form of Employment Agreement attached as Appendix B hereto
and such restated form of Employment Agreement shall be deemed to constitute
Exhibit D to the Stock Purchase Agreement for all purposes set forth in the
Stock Purchase Agreement.
14. Schedule 1.5 to the Stock Purchase Agreement is hereby
deleted in its entirety and replaced with the restated Schedule 1.5 attached as
Appendix C hereto and such restated Schedule 1.5 shall be deemed to constitute
Schedule 1.5 to the Stock Purchase Agreement for all purposes set forth in the
Stock Purchase Agreement.
15. Except as specifically provided herein, the Stock
Purchase Agreement shall remain in full force and effect and is expressly
ratified hereby.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized representatives on the day and
year first above written.
The Acquiror:
REHABCARE GROUP, INC.
By _________________________________________
Alan C. Henderson, President and Chief
Executive Officer
THERAPEUTIC SYSTEMS, LTD.
By _________________________________________
Ronald C. Stauber, President
The Selling Shareholder:
--------------------------------------------
Ronald C. Stauber
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Appendix A
Exhibit A
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, RULE 144
UNDER SUCH ACT, OR EVIDENCE SATISFACTORY TO REHABCARE GROUP, INC. THAT ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.
SUBORDINATED PROMISSORY NOTE
$1,000,000.00 September 9, 1998
St. Louis, Missouri
FOR VALUE RECEIVED, the undersigned, REHABCARE GROUP, INC.,
a Delaware corporation (hereinafter "Maker"), promises to pay to the order of
RONALD C. STAUBER (hereinafter "Holder"), at such place as Holder may from time
to time designate in writing, the principal sum of One Million and 00/100
Dollars ($1,000,000.00). Interest shall accrue on the unpaid principal balance
from the date hereof at the lower of the maximum rate permitted by law or eight
percent (8%) per annum. Upon the expiration of three business days following
notice by Holder to Maker of any failure by Maker to make any payment of
principal or interest is due under this Note, the entire outstanding principal
balance of this Note shall bear interest, until such past due payment is paid,
at the rate of fifteen percent (15%) per annum.
Interest payable under this Note shall be payable quarterly
commencing December 1, 1998 through the term of the Note. Principal payable
under this Note shall be payable September 9, 2002.
In the event any payment falls due on a Saturday, Sunday or
legal holiday, the payment shall instead be due on the next business day with
the same effect as if such payment had been paid on the due date thereof.
Interest shall be calculated on the basis of the actual days elapsed and a year
of 365 or 366 days, as applicable.
Should default be made in payment of any installment of
principal or interest when due, the whole sum of unpaid principal and interest
shall immediately become due and payable at the option of Holder upon the
expiration of ten (10) days following written demand for payment to Maker or any
third party, as appropriate, unless default is cured within such ten (10) day
period.
Maker waives presentment, protest and notice of dishonor or
nonpayment.
Maker shall pay to Holder reasonable attorneys' fees and all
costs and other expenses reasonably incurred by Holder in enforcing payment and
in connection with collection of any amount due under this Note; provided,
however, that Holder must first provide Maker written notice that it will take
action to enforce payment.
This Note is given pursuant to the terms of the Stock
Purchase Agreement, dated as of August 5, 1998 and that certain Amendment No. 1
to Stock Purchase Agreement, dated as of September 9, 1998, between Maker,
Holder and Therapeutic Systems, Ltd. (the "Stock Purchase
<PAGE> 88
Agreement"). The principal sum of this Note is subject to reduction upon the
terms and in the manner set forth in Article 10 of the Stock Purchase Agreement,
in which case, this Note shall be deemed to evidence a promise to pay such
reduced principal amount. If such a reduction in the principal amount is
effected, this Note shall be marked to show the reduced principal amount or
shall be exchanged for a new Subordinated Promissory Note reflecting the reduced
principal amount, but being otherwise in form and substance substantially
identical to this Note. In no event shall Holder be required to reimburse Maker
for interest paid to Holder prior to a reduction in the principal amount of the
Note.
Maker may, at its option, at any time on or after September
9, 1998, redeem this Note at 100% of the then outstanding principal amount of
the Note, plus accrued interest to the Redemption Date (as defined below).
Notice of redemption at the option of Maker will be mailed
at least 30 days but not more than 60 days before the Redemption Date to Holder
of this Note to be redeemed at his registered address as set forth in the note
register maintained by Maker with respect to this Note. On and after the date
set forth in the notice as the date upon which Maker will redeem this Note
called for redemption (the "Redemption Date") interest shall cease to accrue on
this Note provided that there is no default in the payment of the redemption
price by Maker on the Redemption Date.
For the purposes of this Note, the following terms shall
have the respective meanings ascribed to them:
"Indebtedness" of Maker as of any determination date
shall mean:
(i) any debt of Maker (A) for borrowed money, (B)
evidenced by a note, debenture or similar instrument (including a
purchase money obligation) given in connection with the acquisition of
any property or assets (other than inventory, goods, materials and
services or similar property acquired in the ordinary course of
business), including securities, (C) representing payment obligations
of Maker arising out of interest swap arrangements of Maker relating
to debt referenced in clause (A) or (B) above or reimbursement
obligations with respect to letters of credit, or (D) for the payment
of money relating to the lease of any property which lease is
capitalized on the balance sheet of Maker (consolidated if Maker shall
have any subsidiary) in accordance with generally accepted accounting
principles, consistently applied; and
(ii) any debt of others described in the preceding
clause (i) which Maker has guaranteed or for which it is otherwise
liable or for which assets of Maker serve as collateral (in which case
the amount of such debt shall be equal to the fair market value of
such collateral as determined in good faith by the Board of Directors
of Maker).
"Senior Debt" of Maker as of the date of any determination
thereof shall mean all Indebtedness of Maker which is not expressed to be
subordinated or junior to any other Indebtedness of Maker, including without
limitation all present and future obligations and Indebtedness of Maker to
NationsBank, N.A., Mercantile Bank National Association, USTrust, Bank of
America NTSA and Credit Lyonnais New York Branch, whether or not contingent,
consisting of principal, interest, fees, charges and other obligations and sums.
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This Note is subordinate and junior in right of payment and
performance, to the extent and in the manner hereinafter set forth, to the
Senior Debt of Maker. The Senior Debt shall continue to be Senior Debt and
entitled to the benefits of these subordination provisions irrespective of any
amendment, modification or waiver of any term of the Senior Debt (including but
not limited to modifications to interest rates and payment terms) or extension,
renewal or refinancing of the Senior Debt, or the creation of any new Senior
Debt, whether or not presently contemplated by Maker. If any Senior Lender (as
hereinafter defined) gives Maker and Holder a written notice (a "Default
Notice") which (i) states that one or more Events of Default (as hereinafter
defined) has occurred and is continuing, and (ii) instructs Maker to cease
making payments and Holder to cease accepting and receiving payments, of amounts
due under this Note, then, unless and until such Event of Default shall have
been cured or waived or shall have ceased to exist, Maker will not make and
Holder will not ask for, demand, sue for, take or receive from Maker, any direct
or indirect payment (in cash, property or otherwise) on account of the principal
of, or premium, if any, or interest on this Note, during any period after
written notice of such default shall have been given to Maker by a holder of any
Senior Debt. In the event of: (i) any insolvency, bankruptcy, receivership,
liquidation, reorganization, readjustment, composition or other similar
proceeding relating to Maker, or to its property, (ii) any proceedings for the
liquidation, dissolution or other winding-up of Maker, voluntary or involuntary,
whether or not involving insolvency or bankruptcy proceedings, (iii) any
assignment by Maker for the benefit of its creditors, or (iv) any other
marshalling of the assets of Maker, all Senior Debt (including any interest
thereon accruing after the commencement of any such proceedings and any
additional interest that would have accrued thereon but for the commencement of
such proceedings) shall first be paid in full before any payment or
distribution, whether in cash or other property, shall be made to Holder on
account of this Note. Notwithstanding any provision contained in this Note, so
long as a Senior Lender has not sent Maker and Holder a Default Notice, Maker
shall pay to Holder and Holder may receive, accept and apply, the regularly
scheduled interest and principal payments provided for herein on this Note as
and when the same become due. For purposes hereof, the term "Event of Default"
shall mean any Event of Default, as defined in any loan document, lease, note,
guaranty or any other agreement, instrument or document under which the same is
now or hereafter outstanding (each hereinafter referred to as a "Senior Loan
Document," which term shall include any modifications, amendments, extensions,
renewals or replacements thereof), such that the holders thereof accelerate the
maturity thereof. The term "Senior Lender" shall mean and include each obligee
or other holder of any of the obligations included in the meaning of "Senior
Debt," including but not limited to NationsBank, N.A. Mercantile Bank National
Association, USTrust, Bank of America NTSA and Credit Lyonnais New York Branch,
and their respective successors and assigns. If any payment or distribution,
whether in cash, securities or other property, shall be received by Holder in
contravention of any of the terms hereof and before all the Senior Debt shall
have been paid in full, and a Default Notice shall have preceded such payment or
distribution, such payment or distribution shall be received in trust for the
benefit of, and shall be paid over or delivered and transferred to, the holders
of the Senior Debt for application to the payment of all Senior Debt remaining
unpaid, to the extent necessary to pay all such Senior Debt in full and,
thereupon, such payment shall not be deemed to have been received by Holder as a
payment or payments under this Note. In the event of the failure of Holder to
endorse or assign any such payment or distribution, the holder of the Senior
Debt is hereby irrevocably authorized to endorse or assign the same. No present
or future holder of the Senior Debt shall be prejudiced in the right to enforce
subordination of this Note by any act or failure to act on the part of Maker.
The foregoing provisions as to subordination are solely for
the purpose of defining the relative rights of the holders of the Senior Debt,
on the one hand, and Holder, on the other hand. Nothing contained herein shall
impair, as between Maker and Holder, the obligation of Maker, which is
unconditional and absolute, to pay to Holder the principal hereof and interest
hereon as and when the same shall become due and payable in accordance with the
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terms hereof, or prevent Holder from exercising all rights, powers and remedies
otherwise permitted by applicable law or hereunder upon a default hereunder, all
subject to the rights of the holders of the Senior Debt to receive cash or other
property otherwise payable or deliverable to Holder. Holder will take such
action (including, without limitation, consent to the filing of a financing
statement with respect thereto) as may, in the opinion of any holder of Senior
Debt at the time outstanding, be necessary or appropriate to assure the
effectiveness of the subordination effected by these provisions.
Subject to the foregoing provisions as to subordination, the
Maker agrees that, in any stock purchase, merger, consolidation, asset
acquisition or other business combination consummated by the Maker after the
date hereof in which the Maker is the surviving or acquiring entity, any
indebtedness issued by the Maker to any shareholders or owners of such acquired
company or entity, or to such acquired company or entity itself, shall not be
senior by its terms to the principal and interest payments under this Note.
Notwithstanding anything herein to the contrary, Holder may
accelerate this Note and commence enforcement actions with respect thereto, or
otherwise receive and accept payments under this Note, if a Default Notice has
been given to Maker or Holder by a Senior Lender and (i) within 180 days from
the date of such Default Notice, the Event or Events of Default described
therein are not waived by the Senior Lender, eliminated as a result of an
amendment or modification of the Senior Loan Documents or cured, or (ii) the
Senior Lender accelerates its Senior Debt and commences enforcement actions with
respect thereto or the collateral therefor. In the event that the Senior Lender
has sent Maker and Holder a Default Notice, Holder shall have no right to
accelerate, enforce any claim with respect to this Note, or otherwise take any
action against Maker or Maker's property without the prior written consent of
Senior Lenders, until such time as the Senior Debt has been paid in full and
Senior Lenders have no obligation to make further advances to Maker.
Maker hereby covenants and agrees to send to Holder,
immediately upon receipt by Maker, any notice of acceleration or commencement of
enforcement actions received by Maker from the Senior Lender.
Each Default Notice shall be deemed to have been given by a
Senior Lender to Maker or Holder when delivered in person to such party at
Holder's address listed in the Stock Purchase Agreement or when deposited in the
United States mail, first class postage prepaid, or, in the case of telegraphic
notice or overnight courier services, one business day after delivered to the
telegraphic company or overnight courier service with payment provided for, or
in the case of telex or telecopy notice, when sent, verification received, in
each case addressed to Maker and Holder at their respective addresses listed in
the Stock Purchase Agreement or at such other address as either party may
designate by notice to the other in accordance with this paragraph.
This Note and each of the terms hereof shall be binding upon
Maker's successors and assigns. No failure on the part of Holder hereunder to
exercise, and no delay in exercising any right, power or remedy hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or remedy hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, power or remedy hereunder preclude
any other or further exercise of any other right, power or remedy.
Holder may not assign this Note without the prior written
consent of Maker, except that Holder may collaterally assign Holder's interests
in this Note without such written consent. Any prohibited assignment will be
null and void.
This Note may not be changed, modified or terminated orally,
but may be changed, modified or terminated only by an agreement in writing
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signed by Holder hereof and only with the prior written consent of the holders
of Senior Debt or others who are committed to make future advances to Maker that
would constitute Senior Debt if and when the same are made.
Principal and interest payable hereunder shall be paid in
lawful money of the United States. The terms and provisions hereof shall be
governed by the laws of the State of Delaware.
Executed as an instrument under seal as of the date first
above written.
MAKER:
REHABCARE GROUP, INC.
Witnessed:
_______________________________ By:_______________________________________
John R. Finkenkeller, Secretary Alan C. Henderson, President and Chief
Executive Officer
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Appendix B
Exhibit D
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made, entered
into and effective as of September 9, 1998, by and among REHABCARE GROUP, INC.,
a Delaware corporation ("RehabCare"), THERAPEUTIC SYSTEMS, LTD., an Illinois
corporation and wholly owned subsidiary of RehabCare ("TSI," and, together with
RehabCare, the "Employer"), and RONALD C. STAUBER ("Executive").
WHEREAS, Employer and Executive desire to set forth the
terms and conditions upon which Executive is to be employed by Employer;
NOW, THEREFORE, in consideration of the foregoing premises
and the mutual covenants of the parties contained herein, the parties agree as
follows:
1. TERM. The term of employment of Executive under this
Agreement shall continue in full force and effect for a period which shall
commence as of September 9, 1998, and shall continue through September 8, 2001,
unless sooner terminated as may be provided in this Agreement. This Agreement
will automatically renew for annual one (1) year periods after the initial term,
unless either party gives to the other written notice by June 1, 2001, or June 1
of each succeeding year, of such party's intent not to renew this Agreement.
2. EMPLOYMENT; LOCATION.
a. Conditions of Employment. Executive shall serve as
President of TSI, and shall devote his working time and effort to the business
and affairs of Employer as shall be reasonably necessary to faithfully discharge
the duties and responsibilities of his office; provided, however, that Executive
shall devote substantially all of his working time and effort to the business
and affairs of Employer. Executive shall have such authority as is customarily
extended to other senior officers consistent with Employer's policy and
practices and shall be subject to the control of, and shall perform such duties
as are specified in instructions or directions as may be reasonably specified
<PAGE> 93
from time to time by, RehabCare's President and Chief Executive Officer or by
such other executive officer of RehabCare or any of its affiliate companies as
may be designated by RehabCare's President and Chief Executive Officer from time
to time; provided that the Executive shall not, without his consent, be assigned
tasks that would be inconsistent with those of the President of TSI. Executive
shall have such authority, power, responsibilities and duties as are inherent to
his positions (and the undertakings applicable to his positions) and necessary
to carry out his responsibilities and the duties requires of him hereunder.
b. Location of Employment. During the term of this
Agreement, unless otherwise approved in advance by Executive, Executive shall
primarily perform his duties and responsibilities hereunder at the principal
offices of TSI, which shall be located not more than fifteen (15) miles from the
location of the principal offices of TSI as of the date of this Agreement.
3. COMPENSATION. As compensation for the services to be
performed by Executive, Employer shall pay Executive an annual base salary of
One Hundred Twenty Thousand Dollars ($120,000.00) per year for each year of his
employment hereunder, payable in equal installments at the end of such regular
payroll accounting periods as are established by RehabCare for a preponderance
of RehabCare employees, but in no event to exceed one (1) month intervals, or in
such other installments upon which the parties hereto shall mutually agree, and
reduced on a pro-rata basis by any fraction of a year or month during which he
is not so employed. All payments shall be subject to the withholding by Employer
of such amounts in respect of federal, state, local or other taxes as may be
required by applicable laws or regulations. During the term of this Agreement,
Executive shall be eligible to receive merit increases, an annual bonus and
other compensation under the Company's plans and arrangements for peer
executives of Employer.
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4. BENEFITS
a. Health, Disability and Other Benefits. During the
term of this Agreement, Executive shall be entitled to participate in or receive
benefits under Employer's health insurance plans or arrangements comparable to
peer executives of Employer as in effect on the date hereof for such a period of
time as such plans and arrangements shall remain in effect. In addition,
Executive shall be entitled to receive:
i. Life insurance coverage comparable to peer
executives of Employer in accordance with the terms of Employer's group plan(s).
ii. Benefits under any pension plan, health and
accident plan or arrangement, disability or other benefit plan and other
programs made available now or in the future by Employer to peer executives of
Employer, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and arrangements. Nothing paid to Executive
under any such plan or arrangement presently in effect or made available in the
future shall be deemed to be in lieu of any compensation payable to Executive
hereunder, except disability insurance payments received by Executive.
b. Vacation and Holidays. During the term of this
Agreement, Executive shall be entitled to the Company's paid days off benefit
policy that blends time off from work for all reasons (i.e., vacation, holiday,
illness, bereavement, etc.) into one benefit. Executive shall be entitled to 30
paid days off per year pursuant to such policy, which shall begin to accrue on
the date hereof. Executive shall additionally be entitled to any accrued but
unused vacation from his employment with TSI prior to the date hereof. In
addition to such benefit, Executive may request unpaid leaves for family,
medical or personal reasons.
c. Disability Payments. Should Executive become
disabled during the term of this Agreement, Employer shall continue to pay
Executive his base salary specified in Paragraph 3 and benefits referenced in
this Paragraph 4 for a period of one hundred eighty (180) consecutive calendar
days during such disability, offset by any payments to which Executive may
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be entitled under any disability plan of Employer. "Disability" shall mean any
physical or mental illness or incapacity, other than death, which renders
Executive substantially unable to perform the duties required of him under this
Agreement. The existence of any disability shall be determined by a licensed
physician practicing in the State of Illinois who shall be mutually acceptable
to the parties.
5. INDEMNIFICATION; DIRECTORS' AND OFFICERS' LIABILITY
INSURANCE. Executive shall be entitled to all rights to indemnification from
RehabCare, whether by statute, charter documents, insurance policy or agreement,
generally available to the other directors and executive officers of RehabCare
or its subsidiaries throughout the term of this Agreement. Employer currently
carries directors' and officers' liability insurance coverage in the amount and
covering the acts and omissions as set forth in the policy previously delivered
to Executive.
6. EXPENSES. So long as Executive shall be employed
hereunder, Executive shall be entitled to receive reimbursement from TSI of all
reasonable travel, entertainment and other business expenses (in accordance with
the policies and procedures from time to time adopted by the Board of Directors
of RehabCare) in performing the services contemplated hereunder. Executive shall
receive prompt reimbursement for said expenses, but not later than sixty (60)
days of Executive's written request or report.
7. CONFIDENTIAL INFORMATION. Executive acknowledges that
while employed by Employer hereunder, he will have access to confidential trade
secrets, information, observations, records, customer lists, data, drawings,
writings or other materials owned by Employer. Executive agrees that during the
term of his employment hereunder, and for a period of two (2) years from the
termination or expiration of Executive's employment hereunder he will not
directly or indirectly disclose to others or use for his own benefit or for the
benefit of others any of the foregoing information, except in the course of
his employment hereunder and for the benefit of Employer. All records,
files, writings, drawings, lists, data and similar materials and information
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that Executive will prepare, use or otherwise come into contact with during the
course of his employment by Employer will, as between Employer and Executive, at
all times remain the sole property of Employer. The provisions of this Paragraph
will not:
a. Apply to the operation of Employer or its business
to the extent that Executive acquires information from parties other than
Employer or its subsidiaries; or
b. Apply to any information, matter or thing that is in
the public domain or that has been disclosed to others by Employer or its
subsidiaries, employees or agents.
8. COVENANT NOT TO COMPETE.
a. Non-Competition Covenant. For the period from the
date of this Agreement to the date which is two (2) years from the termination
or expiration of Executive's employment hereunder, Executive agrees that, in
consideration of Ten Dollars ($10.00) and the salary and other compensation and
benefits being provided to Executive by Employer pursuant to this Agreement,
Executive will not directly or indirectly participate in the ownership,
management, operation or control of, or be employed by any business competing
with Employer in the physical medicine and rehabilitation business (including
acute care hospitals, acute rehabilitation units, subacute units, long-term care
facilities and outpatient therapy programs), the temporary staffing of
therapists and nurses business or in any other business in which Employer may be
actively engaged at the date Executive terminates his employment with Employer
or at any time within the twelve (12) months prior to such termination date
within the Restricted Area, as defined below. For purposes of this Agreement,
the term "Restricted Area" shall mean the States of Illinois, Iowa, Missouri,
Kentucky, Indiana, Wisconsin, Michigan and Ohio, and, in addition, any other
State for which the Executive has operating responsibility during the term of
Executive's employment hereunder.
The above constraint will not prevent Executive from making
passive investments, not to exceed 5% of the total equity ownership, in any
enterprise in the physical medicine and rehabilitation business (including acute
care hospitals, acute rehabilitation units, subacute units and
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outpatient programs), the temporary staffing of therapists and nurses business
or in any other business in which Employer may be actively engaged at the date
Executive terminates employment with Employer or at any time within the twelve
(12) months prior to such termination date.
b. Other Covenants. For the period from the date of
this Agreement to the date two (2) years from the termination or expiration of
Executive's employment hereunder, Executive further agrees that he shall not:
i. directly or indirectly (a) solicit for
employment or attempt to hire any individual then employed by Employer or any
former employee of Employer during the 180 days after such former employee of
Employer has voluntarily terminated his employment with Employer, or (b)
encourage any employee of Employer to terminate his or her employment with
Employer for any reason; or
ii. directly or indirectly (a) solicit the
business of any customer or client located in the Restricted Area having a
business relationship with Employer at the time of termination or which is a
prospect of Employer and which Executive is actively pursuing on behalf of
Employer as such prospect is identified in writing by Employer at the time of
termination (a "Prospect"), or (b) contact any such customer, client or Prospect
located in the Restricted Area for the purpose of encouraging such customer,
client or Prospect to terminate its business relationship with Employer.
c. Enforceability. In the event that any of the
provisions of this Paragraph 8 are finally determined by any court of competent
jurisdiction to be void or unenforceable with respect to any particular
geographic area or as to any particular time period or any particular
constraint, this Agreement will be deemed to be automatically modified without
any further action on the part of Employer or Executive so as to eliminate from
this section the unenforceable constraint or its application in any manner in
which it was found to be unenforceable and, except as so modified, the Agreement
will remain in full force and effect.
d. Exceptions. Notwithstanding the foregoing,
Paragraphs 8.a. and 8.b. shall be of no force or effect in the event of a
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termination of Executive's employment by Employer pursuant to Paragraph 9.c or
by the Executive pursuant to Section 9.d; provided, however, that any and all
other noncompetition or nonsolicitation covenants of Executive contained in
Section 4.8 of the Purchase Agreement shall not be affected by any termination
of Executive's employment pursuant to Paragraph 9.c.
9. TERMINATION.
a. Death. Executive's employment hereunder shall
terminate immediately upon the death of Executive and Employer shall pay to
Executive's estate any earned but unpaid salary and benefits, and any other sums
due Executive from Employer pursuant to that certain Stock Purchase Agreement
dated August 5, 1998 by and among RehabCare, TSI and Executive, as amended by
that certain Amendment No. 1 to Stock Purchase Agreement dated September 9, 1998
(collectively, the "Purchase Agreement") as of the date of Executive's death.
b. For Cause. Employer may terminate Executive's
employment hereunder at any time, effective immediately upon written notice, for
cause. For the purposes of this Agreement, "cause" shall mean:
i. The willful and continued failure by Executive
to substantially perform Executive's duties hereunder, other than any such
failure resulting from Executive's disability (as defined in Paragraph 4.c
above); provided, however, that Employer shall have given Executive at least 30
days prior written notice of such failure and an opportunity to remedy such
failure.
ii. The willful engagement by Executive in conduct
which is demonstrably and materially injurious to Employer, monetarily or
otherwise.
iii. The failure of TSI to attain at least 90% of
the Target EBIT (as defined and determined pursuant to Schedule A to this
Agreement) as of the end of any Applicable Period (as defined in Schedule A).
iv. Executive's conviction of, or plea of nolo
contendere to a felony.
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If there shall be any dispute between Employer and Executive
with regard to the termination of Executive's employment by Employer for cause
under Paragraph 9.b.i, ii, or iii hereof, Executives shall be entitled to a
hearing before a committee consisting of the non-employee members of RehabCare's
Board of Directors within ten (10) days of such termination. Unless and until
there is a determination by such committee that such termination was for cause
under Paragraph 9.i, ii or iii hereof, Employer shall pay all amounts, and
provide all benefits to, Executive and/or Executive's family or other
beneficiaries, as the case may be, as Employer would be required to pay or
provide under the terms of this Agreement if no termination had occurred.
Nothing in this Section 9.b shall preclude Executive from exercising any
available remedies, either at law or in equity.
c. Disability. In the event that Executive shall be
unable to perform the services contemplated hereunder by reason of a disability
(as defined in Paragraph 4.c. above), such inability or failure to so perform
such duties shall not be grounds for terminating the employment of Executive by
Employer, and Executive shall be compensated during such period of disability
under the provisions of Paragraph 4.c. above; provided, however, that Employer
may terminate Executive's employment hereunder should the period of such
incapacity exceed six (6) consecutive months. Any such termination shall not be
considered termination for "cause," compensation rights in the event of such
termination shall be limited to claims under any disability plans maintained by
Employer or Executive.
d. Termination by Executive. The Executive may
terminate his employment hereunder if the Employer fails to pay, within 15 days
after a written demand made by the Executive, any amounts due and payable under
(i) this Agreement, (ii) that certain Registration Rights Agreement of even date
herewith between RehabCare and Executive, (iii) that certain Subordinated
Promissory Note of even date herewith delivered to Executive pursuant to the
Purchase Agreement, or (iv) the Purchase Agreement with respect to the payment
by RehabCare
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to Executive of Contingent Consideration (as defined in the Purchase Agreement).
10. GENERAL PROVISIONS.
a. Any notice, request, demand or other communication
required or permitted hereunder shall be deemed to be properly given when
personally served in writing or when deposited in the United States mail,
postage prepaid, addressed to Employer or Executive at their respective last
known address. Either party may change its address by written notice given in
accordance with this subparagraph 10(a).
b. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective executors, administrators,
successors, and assigns; provided, however, that, except for assignment by
Employer to one or more of its subsidiaries, the parties hereto may not assign
any or all of their respective rights hereunder without the prior written
consent of the other.
c. This Agreement shall be governed by and construed in
all respects in accordance with the laws of the State of Missouri.
d. Except as provided in Section 10(h) below, in the
event of any litigation arising from the breach of this Agreement, the
prevailing party in such litigation shall be entitled to recover reasonable
attorney's fees and costs, including appeals.
e. Captions and Paragraph headings used herein are for
convenience only and are not a part of the Agreement and shall not be used in
construing it. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
f. Except as specifically provided in Section 8.c
hereof, should any provision of this Agreement for any reason be declared
invalid, void or unenforceable by a court of competent jurisdiction, the
validity and binding effect of any remaining portions shall not be affected, and
the remaining portions of the Agreement shall remain in full force and effect as
if this Agreement had been executed with said provision eliminated.
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g. This Agreement contains the entire agreement of the
parties with respect to the subject matter hereof, and supersedes any and all
other employment agreements, either oral or in writing. Executive hereby
acknowledges that any prior agreement between Executive and TSI with respect to
employment of Executive is canceled and of no further effect and that no moneys
are due to Executive with respect to his employment by TSI prior to the term
hereof. Each party to this Agreement acknowledges that no representations,
inducements, promises or agreements, oral or otherwise, have been made by any
party, or anyone acting on behalf of any party, which are not embodied herein or
therein, and that no other employment agreement, statement or promise not
contained herein or therein shall be relied upon or be valid or binding. This
Agreement may not be modified or amended by oral agreements, but only by an
agreement in writing signed by Employer on the one hand, and by Executive on the
other hand.
h. Any dispute arising hereunder, except under
Paragraphs 7, 8, 9 and 10, shall be settled by arbitration in St. Louis,
Missouri or Chicago, Illinois before a single arbitrator pursuant to the rules
of the American Arbitration Association (the "AAA"). Arbitration may be
commenced at any time by any party hereto giving written notice to each other
party to a dispute that such dispute has been referred to arbitration under this
Paragraph 10(h), and the arbitrator shall be selected by the joint agreement of
Employer and Executive, but if they do not so agree within twenty (20) calendar
days after the date of the notice referred to above, the selection shall be made
pursuant to the rules from the panels of arbitrators maintained by the AAA. Any
award rendered by the arbitrator shall be conclusive and binding upon the
parties hereto; provided, however, that any such award shall be accompanied by a
written opinion of the arbitrator giving the reasons for the award. This
provision for arbitration shall be specifically enforceable by the parties, and
the decision of the arbitrator in accordance herewith shall be final and binding
and there shall be no right of appeal therefrom. Each party shall pay its own
expenses of arbitration and the expenses of the arbitrator shall be paid
one-half by Employer and one-half by Executive; provided, however, that if in
the opinion of the arbitrator any claim for indemnification or any defense or
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<PAGE> 102
objection thereto was unreasonable, the arbitrator may assess, as part of his or
her award, all or any part of the expenses of the arbitrator against the party
raising such unreasonable claim, defense or objections. In no event shall the
collection of any accounts receivable permitted under the Purchase Agreement be
deemed a breach of this Agreement.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH
MAY BE ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first above written.
EMPLOYER:
REHABCARE GROUP, INC.
By:______________________________________
Alan C. Henderson, President and Chief
Executive Officer
THERAPEUTIC SYSTEMS, LTD.
By:________________________________________
Alan C. Henderson, Chairman of the Board
EXECUTIVE:
-------------------------------------------
Ronald C. Stauber
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<PAGE> 103
SCHEDULE A
Applicable Period Target EBIT
September 9, 1998 to September 8, 1999 $2,250,375
September 9, 1999 to September 8, 2000 $2,700,450
September 9, 2000 to September 8, 2001 $3,240,540
For purposes of the foregoing, "Target EBIT" for a given
Applicable Period shall mean an amount equal to the sum of:
(a) the aggregate net income of TSI during such
Applicable Period, determined in accordance with GAAP consistently applied, but
specifically (i) including, as if they were earnings, the amount of earnings of
any entity acquired by RehabCare as shall have been agreed upon by RehabCare and
the Selling Shareholder pursuant to Section 6.3 of the Purchase Agreement, (ii)
excluding, in the event that RehabCare and TSI consolidate certain of
administrative functions in an effort to realize savings to RehabCare on a
consolidated basis, any amounts of administrative overhead costs allocated by
RehabCare to TSI that are in excess of the costs which TSI would have incurred
had the consolidated administrative functions remained distinct; plus
(b) the aggregate net interest expense (as reduced by
any interest income), amortization of goodwill associated with the acquisition
of TSI by RehabCare, and the combined aggregate tax expense of TSI for such
Applicable Period.
<PAGE> 104
Appendix C
SCHEDULE 1.5
CONTINGENT CONSIDERATION DEFINITIONS AND CALCULATIONS
Definitions
"Cumulative EBIT" for a given Earn-Out Period shall mean an
amount equal to the sum of:
(a) the aggregate net income of the Company during such
Earn-Out Period, determined in accordance with GAAP consistently applied, but
specifically (i) including, as if they were earnings, the amount of earnings of
any entity acquired by the Acquiror as shall have been agreed upon by the
Acquiror and the Selling Shareholder pursuant to Section 6.3 hereof, (ii)
excluding, in the event that the Acquiror and the Company consolidate certain of
administrative functions in an effort to realize savings to the Acquiror on a
consolidated basis, any amounts of administrative overhead costs allocated by
the Acquiror to the Company that are in excess of the costs which the Company
would have incurred had the consolidated administrative functions remained
distinct; plus
(b) the aggregate net interest expense (as reduced by
any interest income), amortization of goodwill associated with the acquisition
of the Company by the Acquiror, and the combined aggregate tax expense of the
Company for such Earn-Out Period; plus
(c) for each Earn-Out Period beginning after September
8, 1999, the Cumulative EBIT of the Company for the preceding Earn-Out Period.
"Excess EBIT Multiplier" shall mean the factor for a given
Earn-Out Period as set forth in the Excess EBIT Multiplier column of the table
in this Schedule 1.5 by which the excess of Cumulative EBIT over the Target
Minimum Cumulative EBIT, each determined for such Earn-Out Period, shall be
multiplied to determine the Contingent Consideration to be paid to the Selling
Shareholder for such Earn-Out Period.
"Maximum Cumulative Contingent Consideration" shall mean the
maximum amount of aggregate Contingent Consideration that is payable through a
given Earn-Out Period as set forth in the Maximum Cumulative Contingent
Consideration table in this Schedule 1.5 below.
"Maximum Cumulative EBIT" shall mean the amount of
Cumulative EBIT that the Company may have through a given Earn-Out Period beyond
which any additional amounts of Cumulative EBIT will not require a payment of
any additional amounts of Contingent Consideration.
"Target Minimum Cumulative EBIT" shall mean the minimum
amount of Cumulative EBIT that the Company must have through a given Earn-Out
Period to require a payment of Contingent Consideration for such Earn-Out
Period.
<PAGE> 105
Calculations
Subsequent to the consummation of the stock acquisition
contemplated in the Agreement, the Earn-Out Period used to measure Cumulative
EBIT (and to which the Excess EBIT Multiplier, Target Minimum Cumulative EBIT,
Maximum Cumulative EBIT and Maximum Cumulative Contingent Consideration set
forth on the table below relate) will end on the 8th day of September in the
year indicated on the table below. The Contingent Consideration payable to the
Selling Shareholder for a given Earn-Out Period will be determined pursuant to
the formula set forth in Section 1.5(c) of the attached Agreement.
Maximum
Earn-Out Period Target Minimum Maximum Excess Cumulative
Ending Cumulative Cumulative EBIT Contingent
September 8, EBIT EBIT Multiplier Consideration
1999 $2,250,375 $3,451,577 3.33 $4,000,000
2000 $4,950,826 $8,146,315 2.66 $8,500,000
2001 $8,191,366 $14,147,888 2.30 $13,700,000
- -------------- -------------- ----------- ---------- ------------
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<PAGE> 106
FOR IMMEDIATE RELEASE EXHIBIT 99.1
WEDNESDAY, SEPTEMBER 9, 1998
REHABCARE GROUP COMPLETES ACQUISITION
OF THERAPEUTIC SYSTEMS, LTD.
ST. LOUIS, MO, September 9, 1998--RehabCare Group, Inc.
(Nasdaq:RHBC) today announced the closing of its acquisition of all the
outstanding shares of Therapeutic Systems, Ltd. Therapeutic Systems, Ltd. is a
provider of contract therapy services to nursing homes and school districts in
the greater Chicago area.
Alan C. Henderson, Chief Executive Officer of RehabCare, said:
"Therapeutic Systems affords us the opportunity to accelerate the growth of our
contract therapy division by adding a very high-quality group of clients to our
existing base. With the addition of Therapeutic Systems, RehabCare's contract
therapy business has a revenue run rate of approximately $20 million."
Ronald C. Stauber, President of Therapeutic Systems, remarked:
"Our management team is excited about the opportunities that will be offered to
our clients and professional staff through our combination with RehabCare. We
expect this will result in enhanced client services in many areas, but
particularly in the management and information systems, which will allow for the
effective implementation and management of PPS reimbursement. Further, there is
an opportunity for our clients to strengthen their relationships with referral
sources due to RehabCare's extensive hospital client base."
Gregory F. Bellomy, who recently joined RehabCare as President of
the contract therapy division, commented: "In today's low-cost, quality-focused
environment, the Therapeutic Systems acquisition assures a return on investment
in systems that are only feasible to develop on a larger scale. We look forward
to welcoming Therapeutic Systems' staff and clients into the RehabCare Group
family."
Mr. Stauber will remain President of Therapeutic Systems and
report to Mr. Bellomy.
RehabCare Group, Inc., headquartered in St. Louis, is a leading
provider of acute rehabilitation, subacute, outpatient, temporary and permanent
therapist and nurse staffing services on a contract basis in conjunction with
over 750 hospitals, nursing homes and contract therapy companies in all 50 of
the United States.
Except for historical information contained herein, the
statements in this release are forward-looking statements that are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements involve known and unknown risks and
uncertainties, which may cause the Company's actual results in future periods to
differ materially from forecasted results.
NOTE: More information on RehabCare can be found on the World Wide Web at
http://www.rehabcare.com.
CONTACT: RehabCare Group, Inc.
Alan C. Henderson,
Chief Executive Officer
John R. Finkenkeller,
Senior Vice President and
Chief Financial Officer
Betty Cammarata, Manager-Investor Relations
(314) 863-7422
or
Morgen-Walke Associates:
June Filingeri/Jennifer Angell
Press: Darren Brandt
(212) 850-5600
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