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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): JULY 30, 1998
PMR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
000-20488 23-2491707
(Commission File No.) (IRS Employer Identification No.)
501 WASHINGTON STREET, 5TH FLOOR
SAN DIEGO, CALIFORNIA 92103
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (619) 610-4001
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ITEM 5. OTHER EVENTS.
On July 30, 1998, PMR Corporation, a Delaware corporation ("PMR")
announced that it had entered into a definitive agreement (the "Merger
Agreement") with Behavioral Healthcare Corporation, a Delaware corporation. PMR
hereby incorporates by reference the Merger Agreement and the contents of the
news release announcing the signing of the Merger Agreement filed as Exhibits
99.1 and 99.2, respectively, to this report.
2.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PMR CORPORATION
Dated: August 4, 1998 By: /s/ SUSAN D. ERSKINE
--------------------------------
Susan D. Erskine
Executive Vice President and
Secretary
3.
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INDEX TO EXHIBITS
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99.1 Agreement and Plan of Merger July 30, 1998, among PMR Corporation, BHC
Acquisition Corporation and Behavioral Healthcare Corporation.
99.2 News Release dated July 30, 1998.
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EXHIBIT 99.1
AGREEMENT AND PLAN OF MERGER
among:
PMR CORPORATION,
a Delaware corporation;
BHC ACQUISITION CORP.,
a Delaware corporation;
and
BEHAVIORAL HEALTHCARE CORPORATION,
a Delaware corporation
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Dated as of July 30, 1998
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TABLE OF CONTENTS
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SECTION 1. DESCRIPTION OF THE TRANSACTION...................................................2
1.1 Merger of Merger Sub into the Company.........................................2
1.2 Effect of the Merger..........................................................2
1.3 Closing; Effective Time.......................................................2
1.4 Certificate of Incorporation and Bylaws; Directors and Officers...............2
1.5 Conversion of Shares..........................................................3
1.6 Stock Options, Series B Preferred Stock and Warrants..........................4
1.7 Closing of the Company's Transfer Books.......................................5
1.8 Exchange of Certificates......................................................5
1.9 Dissenting Shares.............................................................6
1.10 Escrow........................................................................7
1.11 Accounting Treatment..........................................................8
1.12 Further Action................................................................8
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................................8
2.1 Due Organization, Etc.........................................................8
2.2 Governing Documents; Records..................................................8
2.3 Capitalization, Etc...........................................................9
2.4 Financial Statements.........................................................10
2.5 Absence of Changes...........................................................11
2.6 Property.....................................................................13
2.7 Receivables..................................................................16
2.8 Condition and Sufficiency of the Property....................................16
2.9 Proprietary Assets...........................................................17
2.10 Contracts....................................................................18
2.11 Liabilities..................................................................20
2.12 Compliance with Legal Requirements...........................................20
2.13 Governmental Authorizations..................................................20
2.14 Tax Matters..................................................................21
2.15 Employee and Labor Matters; Benefit Plans....................................22
2.16 Environmental Matters........................................................24
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2.17 Insurance....................................................................27
2.18 Related Party Transactions...................................................27
2.19 Legal Proceedings; Orders....................................................27
2.20 Medicare and Medicaid Participation..........................................28
2.21 Illegal Payments.............................................................29
2.22 Fraud and Abuse..............................................................29
2.23 Authority; Binding Nature of Agreement.......................................30
2.24 Non-Contravention; Consents..................................................30
2.25 Full Disclosure..............................................................31
2.26 Compliance with Application for Certificate of Need..........................31
2.27 Medical Staff Matters........................................................32
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.........................32
3.1 SEC Filings; Financial Statements............................................32
3.2 Authority; Binding Nature of Agreement.......................................33
3.3 Valid Issuance...............................................................33
3.4 Capitalization, Etc..........................................................33
3.5 Non-Contravention; Consents..................................................34
3.6 Due Organization, Etc........................................................35
3.7 Governing Documents; Records.................................................35
3.8 Absence of Changes...........................................................36
3.9 Property.....................................................................38
3.10 Receivables..................................................................40
3.11 Condition and Sufficiency of the Property....................................40
3.12 Proprietary Assets...........................................................41
3.13 Contracts....................................................................41
3.14 Liabilities..................................................................44
3.15 Compliance with Legal Requirements...........................................44
3.16 Governmental Authorizations..................................................44
3.17 Tax Matters..................................................................45
3.18 Employee and Labor Matters; Benefit Plans....................................46
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3.19 Environmental Matters........................................................48
3.20 Insurance....................................................................49
3.21 Legal Proceedings; Orders....................................................50
3.22 Full Disclosure..............................................................50
3.23 Related Party Transactions...................................................50
3.24 Medicare and Medicaid Participation..........................................51
3.25 Illegal Payments.............................................................51
3.26 Fraud and Abuse..............................................................52
SECTION 4. COVENANTS OF THE PARTIES........................................................52
4.1 Access and Investigation.....................................................52
4.2 Operation of Business........................................................53
4.3 Notification; Updates to Company Disclosure Schedule.........................57
4.4 No Negotiation...............................................................58
4.5 Filings and Consents.........................................................59
4.6 Company Stockholders' Meeting................................................60
4.7 Parent Stockholders' Meeting.................................................60
4.8 Public Announcements.........................................................61
4.9 Surveys; Title Insurance.....................................................61
4.10 Best Efforts.................................................................62
4.11 Registration Statement; Proxy Statement......................................62
4.12 Regulatory Approvals.........................................................63
4.13 Termination of Employee Plans................................................64
4.14 Repurchase Offer.............................................................64
4.15 Board Composition of Parent..................................................64
SECTION 5. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB....................64
5.1 Accuracy of Representations..................................................64
5.2 Performance of Covenants.....................................................64
5.3 Stockholder Approval.........................................................64
5.4 Consents.....................................................................64
5.5 Agreements and Documents.....................................................65
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5.6 Stock Options and Warrants...................................................65
5.7 Listing......................................................................65
5.8 No Restraints................................................................65
5.9 Effectiveness of Registration Statement......................................66
5.10 No Legal Proceedings.........................................................66
5.11 HSR Act......................................................................66
5.12 Termination of Employee Plans................................................66
5.13 Fairness Opinion.............................................................66
5.14 Financing....................................................................66
5.15 1998 Audited Financial Statements............................................66
5.16 Environmental Reports........................................................67
5.17 New Title Policies...........................................................67
5.18 Amendment of THC Agreements..................................................67
5.19 Acquisition of Stock and/or Assets of CBHS...................................67
5.20 Government Regulations.......................................................67
5.21 Review of Leases.............................................................67
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY..............................67
6.1 Accuracy of Representations..................................................67
6.2 Performance of Covenants.....................................................68
6.3 Stockholder Approval.........................................................68
6.4 Consents.....................................................................68
6.5 Agreements and Documents.....................................................68
6.6 Listing......................................................................68
6.7 No Restraints................................................................68
6.8 Effectiveness of Registration Statement......................................68
6.9 No Legal Proceedings.........................................................68
6.10 HSR Act......................................................................69
6.11 Fairness Opinion.............................................................69
6.12 Unaudited Interim Financial Statements.......................................69
6.13 Government Regulations.......................................................69
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SECTION 7. TERMINATION.....................................................................69
7.1 Termination Events...........................................................69
7.2 Termination Procedures.......................................................70
7.3 Termination Fees.............................................................70
7.4 Effect of Termination........................................................71
SECTION 8. INDEMNIFICATION, ETC............................................................71
8.1 Survival of Representations, Etc.............................................71
8.2 Indemnification by Stockholders..............................................72
8.3 Indemnification by Parent....................................................73
8.4 Further Limitations on Indemnification.......................................74
8.5 Satisfaction of Indemnification Claim by Stockholder Indemnitees.............75
8.6 No Contribution..............................................................76
8.7 Right to Assume Defense......................................................76
SECTION 9. MISCELLANEOUS PROVISIONS........................................................76
9.1 Appointment of Stockholders' Representatives.................................76
9.2 Further Assurances...........................................................77
9.3 Fees and Expenses............................................................77
9.4 Attorneys' Fees..............................................................78
9.5 Notices......................................................................78
9.6 Time of the Essence..........................................................79
9.7 Headings.....................................................................79
9.8 Counterparts.................................................................80
9.9 Governing Law................................................................80
9.10 Successors and Assigns.......................................................80
9.11 Exclusive Remedies...........................................................80
9.12 Waiver.......................................................................80
9.13 Amendments...................................................................80
9.14 Severability.................................................................80
9.15 Parties in Interest..........................................................81
9.16 Entire Agreement.............................................................81
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v.
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is made and entered into
as of July 30, 1998, by and among: PMR CORPORATION, a Delaware corporation
("Parent"); BHC ACQUISITION CORP., a Delaware corporation and a wholly owned
subsidiary of Parent ("Merger Sub"); and BEHAVIORAL HEALTHCARE CORPORATION, a
Delaware corporation (the "Company"). Certain capitalized terms used in this
Agreement are defined in Exhibit A.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger of
Merger Sub into the Company in accordance with this Agreement and the Delaware
General Corporation Law (the "Merger"). Upon consummation of the Merger, Merger
Sub will cease to exist, and the Company will become a wholly owned subsidiary
of Parent.
B. This Agreement has been approved by the respective boards of
directors of Parent, Merger Sub and the Company.
C. Concurrently with or promptly after the execution and delivery of
this Agreement and as a condition and inducement to Parent's and Merger Sub's
willingness to enter into this Agreement, the directors and executive officers
of the Company who are stockholders of the Company, and the affiliates of such
directors (collectively, the "Principal Stockholders"), are entering into a
Stockholders Agreement in the form attached hereto as Exhibit B (the
"Stockholders Agreement") pursuant to which each of the Principal Stockholders
has agreed, among other things, to vote its shares of common stock in favor of
this Agreement, the Merger and any other matter which requires its vote in
connection with the transactions contemplated by this Agreement. In connection
therewith, the Company has or will promptly after the date hereof obtain and
deliver to Parent valid consents and agreements executed by all of the Principal
Stockholders who are parties to (a) the Country Amended and Restated
Stockholders Agreement made as of the 30th day of June, 1993, as amended and
restated as of the 30th day of December, 1993, and the 31st day of May, 1995,
and/or (b) the Country Stockholders' Agreement made as of the 30th day of
November, 1996 (collectively, the "Existing Stockholders Agreements")
irrevocably consenting and agreeing to the termination of each of the Existing
Stockholders Agreements, subject only to the consummation of the Merger.
D. Concurrently with or promptly after the execution and delivery of
this Agreement and as a condition and inducement to Parent's and Merger Sub's
willingness to enter into this Agreement, certain persons identified on Exhibit
C-1 are entering into an Affiliate and Lock-Up Agreement in the form attached
hereto as Exhibit C-2 (the "Affiliate and Lock-Up Agreement").
E. Concurrently with the execution and delivery of this Agreement and as
a condition and inducement to Parent's and Merger Sub's willingness to enter
into this Agreement, Welsh, Carson, Anderson & Stowe, VI, L.P., a Delaware
corporation ("Welsh Carson") is entering into a Series B Preferred Stock
Agreement in the form attached hereto as Exhibit D (the "Series B Preferred
Stock Agreement") pursuant to which Welsh Carson has agreed, among
1.
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other things, to exchange its Series B Preferred Stock for Company Common
Stock (as defined in Section 1.5(a)) on or prior to the Effective Time.
AGREEMENT
The parties to this Agreement agree as follows:
SECTION 1. DESCRIPTION OF THE TRANSACTION.
1.1 MERGER OF MERGER SUB INTO THE COMPANY. Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3), Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. The Company will continue as the
surviving corporation in the Merger (the "Surviving Corporation").
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the Delaware General
Corporation Law.
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Cooley Godward LLP, 4365 Executive Drive, Suite 1100, San Diego, California
92121 at 10:00 a.m. on September 30, 1998, or at such other time and date as
Parent and Company may designate (which date shall, in no event, be later than
five (5) business days following the satisfaction or waiver of the conditions
set forth in Sections 5 and 6 of this Agreement) (the "Scheduled Closing Time").
(The date on which the Closing actually takes place is referred to in this
Agreement as the "Closing Date.") Contemporaneously with or as promptly as
practicable after the Closing, a properly executed agreement of merger (or
Certificate of Merger) conforming to the requirements of the Delaware General
Corporation Law shall be filed with the Secretary of State of the State of
Delaware. The Merger shall become effective at the time such agreement of merger
(or Certificate of Merger) is filed with and accepted by the Secretary of State
of the State of Delaware (the "Effective Time").
1.4 CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS.
Unless otherwise determined by Parent and the Company prior to the Effective
Time:
(a) the Certificate of Incorporation of the Surviving Corporation
shall be amended and restated as of the Effective Time to conform to Exhibit E;
(b) the Bylaws of the Surviving Corporation shall be amended and
restated as of the Effective Time to conform to the Bylaws of Merger Sub as in
effect immediately prior to the Effective Time; and
(c) the directors and officers of the Surviving Corporation
immediately after the Effective Time shall be the individuals identified on
Exhibit F.
2.
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1.5 CONVERSION OF SHARES.
(a) Subject to Sections 1.5(c), 1.8(c) and 1.9, at the Effective
Time, by virtue of the Merger and without any further action on the part of
Parent, Merger Sub, the Company or any stockholder of the Company:
(i) the shares of Common Stock of the Company, par value
$.01 per share ("Company Common Stock"), held by Vencor, Inc. a Delaware
corporation ("Vencor") (the "Vencor Shares"), shall be converted into the right
to receive $65,000,000 in cash in the aggregate;
(ii) each share of Company Common Stock (other than the
Vencor Shares) and each share of Series A Preferred Stock (collectively, the
"Converted Shares") outstanding immediately prior to the Effective Time shall be
converted into the right to receive (A) the fraction of a share of common stock,
$.01 par value per share, of Parent ("Parent Common Stock") that results from
multiplying (x) one share of Parent Common Stock by (y) the Exchange Ratio (as
defined in Section 1.5(b)(i)), (B) an amount equal to $28,500,000 divided by the
number of Outstanding Shares (as defined in Section 1.5(b)(ii)) outstanding
immediately prior to the Effective Time and (C) an amount equal to $925,000 (in
the form of promissory notes in the form attached hereto as Exhibit G (the
"Notes")) divided by the number of Outstanding Shares outstanding immediately
prior to the Effective Time (collectively, together with the Vencor Shares, the
"Merger Consideration"); and
(iii) each share of the common stock, par value $.01 per
share, of Merger Sub then outstanding shall be converted into one share of
common stock of the Surviving Corporation; and
(iv) each share of Company Common Stock then held as
treasury shares shall be cancelled.
(b) For purposes of this Agreement:
(i) The term "Exchange Ratio" shall mean a fraction (as may
be adjusted in accordance with Section 1.5(c)) equal to (A) 2,600,000 divided by
(B) the number of Outstanding Shares (as defined in Section 1.5(b)(ii))
outstanding immediately prior to the Effective Time, which shall initially equal
0.3401.
(ii) The term "Outstanding Shares" shall mean, at the
Effective Time, the total number of issued and outstanding Converted Shares.
(c) If, between the date of this Agreement and the Effective
Time, the outstanding shares of Parent Common Stock or Converted Shares are
changed into a different number or class of shares by reason of any stock, cash
or property dividend or distribution, stock split, reverse stock split,
reclassification, recapitalization, or similar transaction, then the Exchange
Ratio shall be appropriately adjusted.
(d) If any shares of Converted Shares outstanding immediately
prior to the Effective Time are unvested or are subject to a repurchase option,
risk of forfeiture or other
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condition under any applicable restricted stock purchase agreement or other
agreement with the Company, then the shares of Parent Common Stock issued in
exchange for such Converted Shares will also be unvested and subject to the same
repurchase option, risk of forfeiture or other condition, and the certificates
representing such shares of Parent Common Stock may accordingly be marked with
appropriate legends.
1.6 STOCK OPTIONS, SERIES B PREFERRED STOCK AND WARRANTS.
(a) On the Closing Date, Parent shall pay to each Person that has
accepted the Repurchase Offer (as defined in Section 4.14) the amount in
accordance with the terms thereof, with respect to such Person's stock options
that were exercisable immediately prior to the Closing Date.
(b) The Company shall cause any stock options (other than the
1993 Options, as defined below) (i) that remain unexercised as of the Closing
and (ii) are held by Persons who do not accept the Repurchase Offer, to be
terminated as of the Closing and be of no further force or effect.
(c) At the Effective Time, each stock option that is then
outstanding under the Company's 1993 Stock Plan (after giving effect to the
Repurchase Offer), whether vested or unvested (a "1993 Option"), shall be
assumed by Parent in accordance with the terms (as in effect as of the date of
this Agreement) of the Company's 1993 Stock Plan and the stock option agreement
by which such 1993 Option is evidenced. All rights with respect to Company
Common Stock under outstanding 1993 Options shall thereupon be converted into
rights with respect to Parent Common Stock. Accordingly, from and after the
Effective Time, (a) each 1993 Option assumed by Parent may be exercised solely
for shares of Parent Common Stock, (b) the number of shares of Parent Common
Stock subject to each such assumed 1993 Option shall be equal to the number of
shares of Company Common Stock that were subject to such 1993 Option immediately
prior to the Effective Time multiplied by the Exchange Ratio, rounded down to
the nearest whole number of shares of Parent Common Stock, (c) the per share
exercise price for the Parent Common Stock issuable upon exercise of each such
assumed 1993 Option shall be determined by dividing the exercise price per share
of Company Common Stock subject to such 1993 Option, as in effect immediately
prior to the Effective Time, by the Exchange Ratio, and rounding the resulting
exercise price up to the nearest whole cent, and (d) all restrictions on the
exercise of each such assumed 1993 Option shall continue in full force and
effect, and the term, exercisability, vesting schedule and other provisions of
such 1993 Option shall otherwise remain unchanged; provided, however, that each
such assumed 1993 Option shall, in accordance with its terms, be subject to
further adjustment as appropriate to reflect any stock split, reverse stock
split, stock dividend, recapitalization or other similar transaction effected by
Parent after the Effective Time. The Company and Parent shall take all action
that may be necessary (under the Company's 1993 Stock Plan and otherwise) to
effectuate the provisions of this Section 1.6(c). Following the Closing, Parent
will send to each holder of an assumed 1993 Option a written notice setting
forth (i) the number of shares of Parent Common Stock subject to such assumed
1993 Option, and (ii) the exercise price per share of Parent Common Stock
issuable upon exercise of such assumed 1993 Option.
4.
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(d) Subsequent to the Closing Date, the employees of the
Surviving Corporation shall be eligible to participate in Parent's stock option
plan.
(e) The Company hereby agrees that, prior to the Effective Time,
each share of Series B Preferred Stock shall be exchanged for one share of
Company Common Stock as provided in the Series B Preferred Stock Agreement.
(f) The Company shall cause any warrants that remain unexercised
as of the Closing to be terminated as of the Closing and be of no further force
or effect. The Company shall notify each holder of warrants that such warrants
will be terminated if not exercised prior to the Closing.
1.7 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time,
holders of certificates representing shares of the Company's capital stock that
were outstanding immediately prior to the Effective Time shall cease to have any
rights as stockholders of the Company, and the stock transfer books of the
Company shall be closed with respect to all shares of such capital stock
outstanding immediately prior to the Effective Time. No further transfer of any
such shares of the Company's capital stock shall be made on such stock transfer
books after the Effective Time. If, after the Effective Time, a valid
certificate previously representing any of such shares of the Company's capital
stock (a "Company Stock Certificate") is presented to the Surviving Corporation
or Parent, such Company Stock Certificate shall be canceled and shall be
exchanged as provided in Section 1.8.
1.8 EXCHANGE OF CERTIFICATES.
(a) At or as soon as practicable after the Effective Time,
StockTrans, Inc. (the "Exchange Agent") will send to the holders of Company
Stock Certificates (i) a letter of transmittal in customary form and containing
such provisions as Parent may reasonably specify and (ii) instructions for use
in effecting the surrender of Company Stock Certificates in exchange for the
Merger Consideration. Upon surrender of a Company Stock Certificate to the
Exchange Agent for exchange, together with a duly executed letter of transmittal
and such other documents as may be reasonably required by Parent or the Exchange
Agent, except for the Merger Consideration to be deposited in escrow pursuant to
Section 1.10, the holder of such Company Stock Certificate shall be entitled to
receive in exchange therefor the Merger Consideration that such holder has the
right to receive pursuant to the provisions of this Section 1, and the Company
Stock Certificate so surrendered shall be canceled. Until surrendered as
contemplated by this Section 1.8, each Company Stock Certificate shall be
deemed, from and after the Effective Time, to represent only the right to
receive upon such surrender the Merger Consideration as contemplated by this
Section 1. If any Company Stock Certificate shall have been lost, stolen or
destroyed, Parent may, in its discretion and as a condition precedent to the
delivery of the Merger Consideration, require the owner of such lost, stolen or
destroyed Company Stock Certificate to provide an appropriate affidavit and to
deliver a bond (in such sum as Parent may reasonably direct) as indemnity
against any claim that may be made against Parent or the Surviving
Corporation with respect to such Company Stock Certificate. As of the Effective
Time, Parent shall (i) make available to the Exchange Agent, for the benefit of
holders of Company Stock Certificates, for exchange in accordance with this
Section 1.8, certificates representing shares of Parent Common Stock issuable
pursuant to Section 1.8 in exchange for outstanding Converted
5.
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Shares, (ii) deposit with the Exchange Agent the cash of the Merger
Consideration (other than the cash to be deposited in escrow pursuant to Section
1.10), and (iii) from time-to-time deposit as necessary, cash in an amount
reasonably expected to be paid pursuant to Section 1.8(c) (such shares of Parent
Common Stock and cash, together with any dividends or distributions with respect
thereto, being hereinafter referred to as the "Exchange Fund"). The Exchange
Fund shall be distributed pursuant to an agreement by and among Parent and the
Exchange Agent and in the form attached hereto as Exhibit H (the "Exchange Agent
Agreement").
(b) No dividends or other distributions declared or made with
respect to Parent Common Stock with a record date after the Effective Time shall
be paid to the holder of any unsurrendered Company Stock Certificate with
respect to the shares of Parent Common Stock represented thereby, and no cash
payment in lieu of any fractional share shall be paid to any such holder, until
such holder surrenders such Company Stock Certificate in accordance with this
Section 1.8 (at which time such holder shall be entitled to receive all such
dividends and distributions and such cash payment).
(c) No fractional shares of Parent Common Stock shall be issued
in connection with the Merger, and no certificates for any such fractional
shares shall be issued. In lieu of such fractional shares, any holder of capital
stock of the Company who would otherwise be entitled to receive a fraction of a
share of Parent Common Stock (after aggregating all fractional shares of Parent
Common Stock issuable to such holder) shall, upon surrender of such holder's
Company Stock Certificate(s), be paid in cash the dollar amount (rounded to the
nearest whole cent), without interest, determined by multiplying such fraction
by $9.2596.
(d) Parent and the Surviving Corporation (or the Exchange Agent
on their behalf) shall be entitled to deduct and withhold from any consideration
payable or otherwise deliverable to any holder or former holder of capital stock
of the Company pursuant to this Agreement such amounts as Parent or the
Surviving Corporation reasonably determine are required to be deducted or
withheld therefrom under the Code or under any provision of state, local or
foreign tax law (or, in the alternative, Parent or the Exchange Agent, at
Parent's option, may request tax information and other documentation no
withholding is necessary). To the extent such amounts are so deducted or
withheld, such amounts shall be treated for all purposes under this Agreement as
having been paid to the Person to whom such amounts would otherwise have been
paid.
(e) Neither Parent nor the Surviving Corporation shall be liable
to any holder or former holder of capital stock of the Company for any shares of
Parent Common Stock (or dividends or distributions with respect thereto), or for
any cash amounts, delivered to any public official pursuant to any applicable
abandoned property, escheat or similar law.
1.9 DISSENTING SHARES.
(a) Notwithstanding anything to the contrary contained in this
Agreement, any shares of capital stock of the Company that, as of the Effective
Time, are or may become "dissenting shares" within the meaning of the Delaware
General Corporation Law shall not be converted into or represent the right to
receive the Merger Consideration in accordance with Section 1.5 (or cash in lieu
of fractional shares in accordance with Section 1.8(c)), and the
6.
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holder or holders of such shares shall be entitled only to such rights as may be
granted to such holder or holders in the Delaware General Corporation Law;
provided, however, that if the status of any such shares as "dissenting shares"
shall not be perfected, or if any such shares shall lose their status as
"dissenting shares," then, as of the later of the Effective Time or the time of
the failure to perfect such status or the loss of such status, such shares shall
automatically be converted into and shall represent only the right to receive
(upon the surrender of the certificate or certificates representing such shares)
the Merger Consideration in accordance with Section 1.5 (and cash in lieu of
fractional shares in accordance with Section 1.8(c)).
(b) The Company shall give Parent (i) prompt notice of any
written demand received by the Company prior to the Effective Time to require
the Company to purchase shares of capital stock of the Company pursuant to the
Delaware General Corporation Law and of any other demand, notice or instrument
delivered to the Company prior to the Effective Time pursuant to the Delaware
General Corporation Law, and (ii) the opportunity to participate in all
negotiations and proceedings with respect to any such demand, notice or
instrument. The Company shall not make any payment or settlement offer prior to
the Effective Time with respect to any such demand unless Parent shall have
consented in writing to such payment or settlement offer.
1.10 ESCROW.
(a) At the Effective Time, Parent (or the Exchange Agent, as
applicable) shall withhold (i) $4,388,507 of the cash to be delivered to Vencor
pursuant to Section 1.5(a)(i) and (ii) cash in the amount of $1,061,430, the
Notes (in the aggregate amount of $925,000) and 175,500 shares of the Merger
Consideration to be delivered to the holders of the Converted Shares pursuant to
Section 1.5 (with respect to the shares, rounded down to the nearest whole share
to be issued to such holders) (collectively, the "Escrow Amount"). The Merger
Consideration otherwise distributable as of the Effective Time to Vencor and to
each holder of the Converted Shares (collectively, the "Stockholders") pursuant
to Section 1.5 shall be proportionally reduced to reflect the deposit in escrow
of the Escrow Amount pursuant to this Section 1.10. The Escrow Amount shall be
delivered to StockTrans, Inc. (the "Escrow Agent") as collateral for the
Stockholders' reimbursement and indemnification obligations set forth in this
Section 1.10 and in Section 8.2. Except as set forth in Section 8, the Escrow
Amount shall be held in escrow by the Escrow Agent to satisfy any claims
(pursuant to the provisions set forth in Section 8) made on or before the
18-month anniversary of the Effective Time (the "Escrow Period"). The
administration by the Escrow Agent of the Escrow Amount during the Escrow Period
shall be conducted pursuant to the terms of an escrow agreement in the form
attached hereto as Exhibit I (the "Escrow Agreement") among Parent, the Escrow
Agent and the Stockholders' Representatives (as defined in Section 9.1).
(b) Notwithstanding the Stockholders' Threshold Amount, Parent
shall be entitled to and shall draw down from (in one or more draws made at any
time after incurring such costs or expenses) the Escrow Amount an amount equal
to (i) 50% of the aggregate of all payments, costs and expenses that are
incurred by Parent, the Company or the Surviving Corporation after the date of
this Agreement to retrofit and/or remove, dispose and close (in accordance with
all Environmental Laws (as defined in Section 2.16)) of all underground storage
tanks located on any Real Property, including without limitation any containment
costs and
7.
<PAGE> 14
cleanup costs associated with such retrofitting or removal and closure or
required to be made as a result of any Release (as defined in Section 2.16) of
any such underground storage tanks, minus (ii) $300,000 (the "UST Removal
Costs").
1.11 ACCOUNTING TREATMENT. For accounting purposes, the Merger is
intended to be treated as a purchase.
1.12 FURTHER ACTION. If, at any time after the Effective Time, any
further action is determined by Parent to be necessary or desirable to carry out
the purposes of this Agreement or to vest the Surviving Corporation or Parent
with full right, title and possession of and to all rights and property of
Merger Sub and the Company, the officers and directors of the Surviving
Corporation and Parent shall be fully authorized (in the name of Merger Sub, in
the name of the Company and otherwise) to take such action.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants, to and for the benefit of the Parent
Indemnitees, as follows:
2.1 DUE ORGANIZATION, ETC.
(a) The Company and each of the Company Partnerships and Company
Subsidiaries, as set forth in Part 2.1 of the Company Disclosure Schedule
(collectively with the Company, the "Acquired Companies"), that is a
corporation, partnership or limited liability company is duly organized, validly
existing and in good standing under the laws of their respective jurisdictions
of incorporation or organization. Each of the Acquired Companies has all
necessary corporate power and authority: (i) to conduct its business in the
manner in which its business is currently being conducted; (ii) to own and use
its assets in the manner in which its assets are currently owned and used; and
(iii) to perform its obligations under all Company Contracts.
(b) None of the Acquired Companies is or has been required to be
qualified, authorized, registered or licensed to do business as a foreign
corporation in any jurisdiction other than the jurisdictions identified in Part
2.1 of the Company Disclosure Schedule, except where the failure to be so
qualified, authorized, registered or licensed has not had and will not have a
Material Adverse Effect on the Company. Each of the Acquired Companies is in
good standing as a foreign corporation in each of the jurisdictions identified
in Part 2.1 of the Company Disclosure Schedule except where the failure to be in
good standing would not have a Material Adverse Effect on the Company.
(c) Except for the equity interests identified in Part 2.1 of the
Company Disclosure Schedule, none of the Acquired Companies owns, beneficially
or otherwise, any shares or other securities of, or any direct or indirect
equity interest in, any Entity. None of the Acquired Companies has agreed or is
obligated to make any future investment in or capital contribution to any Entity
not identified in Part 2.1 of the Company Disclosure Schedule.
2.2 GOVERNING DOCUMENTS; RECORDS. The Company has delivered or made
available to Parent accurate and complete copies of: (1) the Company's
Certificate of
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<PAGE> 15
Incorporation and bylaws, including all amendments thereto, and all charter
documents, certificates of limited partnership, certificates of formation,
bylaws, partnership agreements and limited liability agreements, and all
amendments thereto, relating to the other Acquired Companies; (2) the stock
records of each of the Acquired Companies; and (3) except as set forth in Part
2.2 of the Company Disclosure Schedule, the minutes and other records of the
meetings and other proceedings (including any actions taken by written consent
or otherwise without a meeting) of the stockholders of each of the Acquired
Companies, the board of directors of each of the Acquired Companies and all
committees of the board of directors of each of the Acquired Companies. There
have been no formal meetings or other proceedings of the stockholders of the
Company, the board of directors of the Company or any committee of the board of
directors of the Company that are not adequately reflected in such minutes or
other records. There has not been any violation of any of the provisions of the
Company's Certificate of Incorporation or, except as would not have a Material
Adverse Effect on the Company, the bylaws or other charter documents,
partnership agreements or limited liability agreements of any of the Acquired
Companies, and none of the Acquired Companies has taken any action that is
inconsistent in any material respect with any resolution adopted by its
stockholders, its board of directors or any committee of its board of directors.
The books of account, stock records, minute books and other records of each of
the Acquired Companies are accurate, up-to-date and complete in all material
respects.
2.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of the Company consists of: (i)
30,000,000 shares of Common Stock (with par value $.01), of which 13,560,422
shares have been issued and are outstanding as of the date of this Agreement
(not including 2,858 shares of Common Stock held in the Company's treasury);
(ii) 20,000,000 shares of Preferred Stock (with par value $.01), of which (A)
5,651,367 shares have been designated shares of Series A Preferred Stock (with
par value $.01) (the "Series A Preferred Stock"), of which 5,651,367 shares have
been issued and are outstanding as of the date of this Agreement; and (B) 50,252
shares have been designated as Series B Preferred Stock (with par value $.01)
(the "Series B Preferred Stock, or collectively with the Series A Preferred
Stock, the "Company Preferred Stock"), of which 50,252 shares have been issued
and are outstanding as of the date of this Agreement. Each outstanding share of
Series A Preferred Stock is convertible into one share of Company Common
Stock. All of the outstanding shares of Company Common Stock and Company
Preferred Stock have been duly authorized and validly issued, and are fully paid
and non-assessable. Part 2.3 of the Company Disclosure Schedule provides an
accurate and complete description of the terms of each repurchase option which
is held by the Company and to which any of such shares is subject.
(b) The Company has reserved 4,506,663 shares of Company Common
Stock for issuance under its Stock Option Plans, of which options (the "Company
Options") to purchase 2,128,937 shares are outstanding as of the date of this
Agreement, and 34,667 shares of Company Common Stock for issuance upon exercise
of certain outstanding warrants (the "Company Warrants"). Part 2.3 of the
Company Disclosure Schedule accurately sets forth, with respect to each Company
Option and Company Warrant that is outstanding as of the date of this Agreement:
(i) the name of the holder of such Company Option and Company Warrant; (ii) the
total number of shares of Company Common Stock that are subject to such Company
Option and Company Warrant; (iii) the exercise price per share of Company Common
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<PAGE> 16
Stock purchasable under such Company Option and Company Warrant; and (vi)
whether such Company Option has been designated an "incentive stock option" as
defined in Section 422 of the Code. Except as set forth in Part 2.3 of the
Company Disclosure Schedule, there is no: (i) outstanding subscription, option,
call, warrant or right (whether or not currently exercisable) to acquire any
shares of the capital stock or other securities of the Company; (ii) outstanding
security, instrument or obligation that is or may become convertible into or
exchangeable for any shares of the capital stock or other securities of the
Company; (iii) Contract under which the Company is or may become obligated to
sell or otherwise issue any shares of its capital stock or any other securities;
or (iv) to the best knowledge of the Company, condition or circumstance that
could reasonably be expected to give rise to or provide a basis for the
assertion of a claim by any Person to the effect that such Person is entitled to
acquire or receive any shares of capital stock or other securities of the
Company.
(c) All outstanding shares of Company Common Stock and Company
Preferred Stock, and all outstanding Company Options and Company Warrants, have
been issued and granted in compliance with (i) all applicable securities laws
and other applicable Legal Requirements, and (ii) all material requirements set
forth in applicable Contracts.
(d) All securities that have been reacquired by the Company were
reacquired in compliance with (i) the applicable provisions of the Delaware
General Corporation Law and all other applicable Legal Requirements, and (ii)
all material requirements set forth in applicable restricted stock purchase
agreements and other applicable Contracts.
(e) Except as set forth in Part 2.3 of the Company Disclosure
Schedule, all of the outstanding shares of capital stock of each of the Company
Subsidiaries are validly issued (in compliance with all applicable securities
laws and other Legal Requirements and applicable Company Contracts), fully paid
and nonassessable and are owned beneficially by the Company, free and clear of
any Encumbrance other than Permitted Liens (as defined in Section 2.6). The
interests of the Company in each of the Company Partnerships are owned
beneficially by the Company, free and clear of any Encumbrance other than
Permitted Liens.
2.4 FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent the following
consolidated financial statements and notes (collectively, the "Company
Financial Statements"):
(i) The audited balance sheet of the Company as of June 30,
1997 (the "Balance Sheet"), the audited balance sheets of the Company as of June
30, 1996 and 1995, and the related audited income statements, statements of
stockholders' equity and statements of cash flows of the Company for the years
then ended, together with the notes thereto and the unqualified report and
opinion of Ernst & Young LLP relating thereto; and
(ii) the unaudited balance sheet of the Company as of May
31, 1998 (the "Unaudited Interim Balance Sheet"), and the related unaudited
income statement of the Company for the eleven months then ended.
(b) The Company Financial Statements present fairly the
consolidated financial position of the Company and the other Acquired Companies
as of the respective dates
10.
<PAGE> 17
thereof and the consolidated results of operations of the Company and the other
Acquired Companies for the periods covered thereby. The Company Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods covered, except
as may be indicated in the notes to such financial statements (except that the
financial statements referred to in Section 2.4(a)(ii) do not contain footnotes
and are subject to normal and recurring year-end audit adjustments, which will
not, individually or in the aggregate, be material in magnitude).
2.5 ABSENCE OF CHANGES. Except as set forth in Part 2.5 of the
Company Disclosure Schedule, since the date of the Unaudited Interim Balance
Sheet:
(a) except as would not, individually or in the aggregate, have
a Material Adverse Effect on the Company, there has not been any material
adverse change in the business, condition, assets, liabilities, operations or
financial performance of the Acquired Companies, considered as a whole, and, to
the best knowledge of the Company, no event has occurred that will, or could
reasonably be expected to, have a Material Adverse Effect on the Company;
(b) except as would not, individually or in the aggregate, have
a Material Adverse Effect on the Company, there has not been any loss, damage or
destruction to, or any interruption in the use of, any of the Acquired
Companies' properties or assets (whether or not covered by insurance);
(c) except as required with respect to the Series A Preferred
Stock, the Company has not declared, accrued, set aside or paid any dividend or
made any other distribution in respect of any shares of capital stock, and has
not repurchased, redeemed or otherwise reacquired any shares of capital stock or
other securities;
(d) the Company has not sold, issued or authorized the issuance
of (i) any capital stock or other security (except for Company Common Stock
issued upon the exercise of outstanding Company Options and Company Warrants and
upon conversion of, or in exchange for, the Company Preferred Stock), (ii) any
option or right to acquire any capital stock or any other security (except for
Company Options and Company Warrants described in Part 2.3 of the Company
Disclosure Schedule), or (iii) any instrument convertible into or exchangeable
for any capital stock or other security;
(e) the Company has not amended or waived any of its rights under
(i) any provision of its Stock Option Plans, (ii) any provision of any agreement
evidencing any outstanding Company Option or Company Warrant, or (iii) any
restricted stock purchase agreement;
(f) there has been no amendment to the Company's Certificate of
Incorporation or bylaws, and the Company has not effected or been a party to any
Company Acquisition Transaction, recapitalization, reclassification of shares,
stock split, reverse stock split or similar transaction;
(g) none of the Acquired Companies has formed any subsidiary or
acquired any equity interest or other interest in any other Entity;
11.
<PAGE> 18
(h) none of the Acquired Companies has made any capital
expenditure which, when added to all other capital expenditures made on behalf
of the Acquired Companies since the date of the Unaudited Interim Balance Sheet,
exceeds the amounts set forth in the Company's capital expenditures budget set
forth in Part 2.5(h) of the Company Disclosure Schedule.
(i) none of the Acquired Companies has (i) entered into or
permitted any of the properties or assets owned or used by it to become bound by
any Contract that is or would constitute a Material Contract (as defined in
Section 2.10(a)), or (ii) amended or prematurely terminated, or waived any
material right or remedy under, any such Material Contract;
(j) none of the Acquired Companies has (i) acquired, leased or
licensed any right, real or personal property or other asset from any other
Person having a value in excess of $250,000, (ii) sold or otherwise disposed of,
or leased or licensed, any right, real or personal property or other asset to
any other Person having a value in excess of $250,000, or (iii) waived or
relinquished any right, except for immaterial rights or other immaterial
properties or assets acquired, leased, licensed or disposed of in the ordinary
course of business and consistent with the Acquired Companies' past practices,
taken as a whole;
(k) none of the Acquired Companies has written off as
uncollectible, or established any extraordinary reserve with respect to, any
material amount of account receivables or other indebtedness;
(l) none of the Acquired Companies has made any pledge of any of
its properties or assets, except for pledges of immaterial properties or assets
made in the ordinary course of business and consistent with the Acquired
Companies' past practices, taken as a whole;
(m) none of the Acquired Companies has (i) lent money to any
Person, other than pursuant to routine travel advances made to employees in the
ordinary course of business and other than loans made in the ordinary course of
business and consistent with past practice in an amount not in excess of
$250,000 to any one Person (other than a Related Party as defined in Section
2.18), or (ii) incurred or guaranteed any indebtedness for borrowed money (other
than intercompany debt between or among the Acquired Companies);
(n) none of the Acquired Companies has (i) established or adopted
any Employee Benefit Plan, (ii) paid any bonus or made any profit-sharing or
similar payment to, or increased the amount of the wages, salary, commissions,
fringe benefits or other compensation or remuneration payable to, any of its
directors, officers or employees other than in the ordinary course of business
and consistent with past practice, (iii) hired any new employee having an annual
salary in excess of $150,000 or (iv) adopted any severance plan or arrangement
or entered into any severance agreement, or entered into any other plan,
arrangement or agreement providing for the payment of any benefit or
acceleration of any options upon a change in control or a termination of
employment;
(o) the Company has not changed any of its methods of accounting
or accounting practices in any material respect;
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(p) the Company has not made any material Tax election;
(q) none of the Acquired Companies has commenced or settled any
material Legal Proceeding;
(r) none of the Acquired Companies has entered into any material
transaction or taken any other material action outside the ordinary course of
business or inconsistent with its past practices; and
(s) none of the Acquired Companies has agreed or committed to
take any of the actions referred to in clauses "(c)" through "(r)" above.
2.6 PROPERTY.
(a) PROPERTY. Part 2.6(a) of the Company Disclosure Schedule
contains a complete and accurate list of all real property owned, leased or
occupied by each of the Acquired Companies (the "Land"). The Land, together with
all fixtures and improvements located on, and/or below the surface of the Land,
including without limitation the structures located thereon commonly known by
the property addresses indicated in Part 2.6(a) of the Company Disclosure
Schedule (the "Improvements"), together with all rights, easements,
rights-of-way and appurtenances to the Land, is referred to collectively herein
as the "Real Property." Part 2.6(a) of the Company Disclosure Schedule also
indicates which of the Real Property is leased or occupied by any of the
Acquired Companies (individually, a "Leased Property" and collectively, the
"Leased Properties"). All presently effective leases, lease amendments or
modifications, work letter agreements, improvement agreements, subleases,
assignments, licenses, concessions, guarantees and other agreements relating to
the Acquired Companies' use or occupancy of the Leased Property are collectively
referred to herein as the "Leases." True and complete copies of the Leases have
been delivered or made available to Parent. All furnishings, fixtures,
equipment, appliances, signs, personal property and other assets owned by the
Acquired Companies and located in or about the Real Property or used in
connection with the management and operation of the Real Properties are
hereinafter referred to as the "Personal Property." All management agreements,
maintenance contracts, service contracts and equipment leases pertaining to the
Real Property or the Personal Property, and all other presently effective
contracts, agreements, warranties and guaranties relating to the ownership,
leasing, advertising, promotion, design, construction, management, operation,
maintenance or repair of the Real Property are herein collectively referred to
as the "Real Property Plans and Contracts." The Real Property, the Leased
Properties, the Personal Property and the Real Property Plans and Contracts are
referred to collectively as the "Property."
(b) TITLE. The Acquired Companies own, or will at the Closing
own, fee simple title to all Real Property other than the Leased Properties (the
"Owned Properties"). The Acquired Companies have, or will at the Closing have,
good and marketable title to the Owned Properties, free and clear from all
Encumbrances other than (i) those matters listed in the policies of title
insurance provided to Parent (the "Title Policies"), (ii) liens for current real
property taxes not yet due and payable and for which adequate reserves have been
established in the Balance Sheet and the Unaudited Interim Balance Sheet in
accordance with generally accepted accounting principles, (iii) municipal and
zoning ordinances and easements for public
13.
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utilities, (iv) those matters listed in Part 2.6(b) of the Company Disclosure
Schedule, none of which materially interfere with the continued use of Owned
Property as currently utilized and (v) pledges to secure the Company's
obligations under its credit facilities with Bank of America (the "Permitted
Liens"). None of the Acquired Companies nor, to the knowledge of the Company,
any previous owner of the Owned Properties, has sold, transferred, conveyed, or
entered into any agreement regarding "air rights," "excess floor area ratio" or
other development rights or restrictions relating to any of the Owned
Properties, except as otherwise expressly set forth in the Title Policies.
Except as listed on Part 2.6(b) of the Company Disclosure Schedule, none of the
Acquired Companies has entered into any contracts for the sale of any of the
Owned Property, nor do there exist any rights of first offer or first refusal or
options to purchase all or any part of the Owned Property. The Acquired
Companies have, or will at the Closing have, good and marketable leasehold title
to the Leased Properties, free and clear from all Encumbrances, other than the
Leases and Permitted Liens. Each of the Leases is in full force and effect. None
of the Acquired Companies is in material breach or default under, nor has any
event occurred that, with the giving of notice or the passage of time or both,
would constitute a material breach or event of default by any of the Acquired
Companies, under any of the Leases and, to the knowledge of the Company, no
other party to any of the Leases is in breach or default under, nor, to the
knowledge of the Company, has any event occurred that, with the giving of notice
or the passage of time or both, would constitute a breach or event of default by
such other party under any of the Leases.
(c) POSSESSION AND USE OF REAL PROPERTIES. The Acquired Companies
have possession of the Real Properties. Except as set forth in Part 2.6(c) of
the Company Disclosure Schedule, there are no persons leasing, using or
occupying the Real Property or any part thereof (except for the easements and
rights-of-way) other than the Acquired Companies and there are no oral or
written leases, subleases, occupancies or tenancies in effect pertaining to the
Real Property other than the Leases and other than with respect to the easements
and rights-of-way. The Acquired Companies possess all certificates, permits,
licenses and approvals, not including permits necessary due to the regulated
nature of the business conducted on the Real Property, that are required by law
to own, operate, use and occupy the Real Property as it is presently owned,
operated, used and occupied, except where failure to possess any such Permit
would not have a Material Adverse Effect on the Company (the "Permits"). The
Permits are in full force and effect. The Acquired Companies have fully
performed, satisfied and discharged all of the obligations, requirements and
conditions imposed on the Real Property by the Permits, except for any failures
to be in compliance that would not have a Material Adverse Effect on the
Company.
(d) COMPLIANCE WITH LAWS. No notices of violation of Legal
Requirements (including, without limitation, planning, zoning and building laws
and ordinances) relating to the Real Property, Leased Properties or the Real
Property Plans and Contracts have been issued to any of the Acquired Companies,
or entered against or received by any of the Acquired Companies, and no such
violations exist, except for any such violations which, individually or in the
aggregate, would not have a Material Adverse Effect on the Company.
(e) ANTICIPATED CHANGES. Other than changes that would impact the
Company's industry in general, the Company has no knowledge of any plan, study
or effort of any Governmental Body or any other Person which in any way would
materially affect the use of
14.
<PAGE> 21
the Real Property, or any portion thereof, for its intended uses or any intended
public improve ments which will result in any material charge being levied
against, or any material lien assessed upon, the Real Property. The Company has
no knowledge of any existing, proposed or contemplated plan to widen, modify or
realign any street or highway contiguous to the any of the Real Properties. To
the knowledge of the Company, there is no general plan, land use or zoning
action or proceeding of any kind, or general or special assessment action or
proceeding of any kind, or condemnation action or proceeding of any kind pending
or threatened or being contemplated with respect to the Real Property or any
part thereof which could have a Material Adverse Effect on the Company. To the
knowledge of the Company, except as set forth in Part 2.6(e) of the Company
Disclosure Schedule, there is no Legal Proceeding pending to contest or appeal
the amount of real property taxes or assessments levied against the Real
Property or any part thereof or the assessed value of the Real Property or any
part thereof for real property tax purposes. Except as would not, individually
or in the aggregate, have a Material Adverse Effect on the Company, no
supplemental real property taxes have been or, to the knowledge of the Company,
will be levied against or assessed with respect to the Owned Property or any
part thereof based on any change in ownership or new construction or other event
or occurrence relating to the Owned Property before the date of this Agreement,
except any such supplemental real property taxes as have been paid in full and
discharged. The Company has no knowledge of any special assessments which will
result from work, activities or improvements done to any of the Real Properties
by any of the Acquired Companies or by any tenants or other parties, or
Encumbrances on or other matters affecting the Real Properties or any of them,
except for Permitted Liens.
(f) EMINENT DOMAIN. There is no pending proceeding in eminent
domain or otherwise, or any action to quiet title, which would decrease the
acreage of the Owned Property or, to the knowledge of the Company, any Leased
Property, or any portion thereof, nor does the Company know of the existence of
any threatened proceedings or of the existence of any facts which might give
rise to such action or proceeding.
(g) UTILITIES. Except as listed in Part 2.6(g) of the Company
Disclosure Schedule, each Real Property is connected to and served by water,
solid waste and sewage disposal, drainage, telephone, gas or electricity and
other utility equipment facilities and services required by law and which are
adequate for the present use and operation of such Real Property, or any portion
thereof ("Utilities"). Other than acts of God or war, the Company is not aware
of any facts or conditions which would result in the termination or impairment
in the furnishing of utility services to any Real Property. To the knowledge of
the Company, all Utilities with respect to any Owned Property are installed to
the boundary lines of such Owned Property and are connected with valid permits,
and the cost of installation and connection of all such utilities to such Owned
Property has been fully paid.
(h) CONDITION OF THE PROPERTY. To the knowledge of the Company,
except as set forth in 2.6(h) of the Company Disclosure Schedule, there are no
material physical or mechanical defects or deficiencies in the condition,
design, construction, fabrication, manufacture or installation of any of the
Real Properties or any part thereof or any material system, element or component
thereof, ordinary wear and tear excepted. To the knowledge of the Company, all
material systems, elements and components of each of the Real Properties
(including all machinery, fixtures and equipment, the roof, foundation and
structural elements,
15.
<PAGE> 22
and the elevator, mechanical, plumbing, electrical, utility, sprinkler and life
safety systems, apparatus and appliances located on the Real Properties) are in
good working order and repair and sound operating condition, ordinary wear and
tear excepted. The Company has not received and, to the knowledge of the
Company, none of the other Acquired Companies has received, any notice of any
kind from any insurance broker, agent or underwriter of any defects or
inadequacies in or that any noninsurable condition exists in, on or about any
Real Property or any part thereof that could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on the
Company. To the knowledge of the Company, the Real Properties are free from
infestation by termites or other pests, insects or animals. To the knowledge of
the Company, no Real Property located in the State of California has been
designated as "hazardous waste property" or "border zone property" pursuant to
California Health and Safety Code Section 25220 et seq., no proceedings for a
determination as to whether any Real Property located in the State of California
should be so designated are pending or threatened, and no portion of the Real
Property located in the State of California is located within two thousand
(2,000) feet of a significant disposal of "hazardous waste" within the meaning
of California Health and Safety Code section 25221 or any similar statute or
regulation, which could cause such Real Property to be classified as "border
zone property." To the knowledge of the Company, except as listed in Part 2.6(h)
of the Company Disclosure Schedule, there are no storage or other tanks or
containers, wells or other improvements below the surface of any Real Property.
(i) PERSONAL PROPERTY. Except as would not, individually or in
the aggregate, have a Material Adverse Effect on the Company, the Acquired
Companies have good and valid title to the Personal Property, free and clear of
all Encumbrances (except for leases and Permitted Liens). The Personal Property
is in good operating condition and repair, ordinary wear and tear excepted.
2.7 RECEIVABLES. Part 2.7 of the Company Disclosure Schedule provides
an accurate and complete breakdown and aging of all accounts receivable, notes
receivable and other receivables of the Acquired Companies, as of May 31, 1998.
Except as set forth in Part 2.7 of the Company Disclosure Schedule, all existing
accounts receivable of the Acquired Companies (including those accounts
receivable reflected on the Unaudited Interim Balance Sheet that have not yet
been collected and those accounts receivable that have arisen since May 31, 1998
and have not yet been collected) (i) represent valid obligations of customers of
the Acquired Companies arising from bona fide transactions entered into in the
ordinary course of business and (ii) are current and will be collected in full
when due, without any counterclaim or set off (net of the allowance for doubtful
accounts and any other reserves set forth in the Unaudited Interim Balance Sheet
(which allowance and reserves are reasonable and not in excess of such
allowances provided by the Company in the past)).
2.8 CONDITION AND SUFFICIENCY OF THE PROPERTY. The Property is
adequate for the uses to which it is being put and sufficient for the continued
conduct of the Acquired Companies' businesses after the Closing in substantially
the same manner as conducted prior to the Closing.
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2.9 PROPRIETARY ASSETS.
(a) Part 2.9(a)(i) of the Company Disclosure Schedule sets forth,
with respect to each material Company Proprietary Asset registered with any
Governmental Body or for which an application has been filed with any
Governmental Body, (i) a brief description of such Proprietary Asset, and (ii)
the names of the jurisdictions covered by the applicable registration or
application. Part 2.9(a)(ii) of the Company Disclosure Schedule identifies and
provides a brief description of all other material Company Proprietary Assets
owned by each Acquired Company. Part 2.9(a)(iii) of the Company Disclosure
Schedule identifies and provides a brief description of each material
Proprietary Asset licensed to each Acquired Company by any Person (except for
any Proprietary Asset that is licensed to an Acquired Company under any third
party software license generally available to the public), and identifies the
license agreement under which such Proprietary Asset is being licensed to such
Acquired Company. Except as set forth in Part 2.9(a)(iv) of the Company
Disclosure Schedule, each Acquired Company has good, valid and marketable title
to all of the Company Proprietary Assets identified in Parts 2.9(a)(i) and
2.9(a)(ii) of the Company Disclosure Schedule as owned by such Acquired Company,
free and clear of all liens and other Encumbrances (other than Permitted Liens),
and has a valid right to use all Proprietary Assets identified in Part
2.9(a)(iii) of the Company Disclosure Schedule. Except as set forth in Part
2.9(a)(v) of the Company Disclosure Schedule, none of the Acquired Companies is
obligated to make any payment to any Person for the use of any Company
Proprietary Asset. Except as set forth in Part 2.9(a)(vi) of such Company
Disclosure Schedule, none of the Acquired Companies has developed jointly with
any other Person any Company Proprietary Asset with respect to which such other
Person has any rights.
(b) The Acquired Companies have taken all commercially reasonable
measures and precautions necessary to protect and maintain the confidentiality
and secrecy of all Company Proprietary Assets (except Company Proprietary Assets
whose value would be unimpaired by public disclosure) and otherwise to maintain
and protect the value of all Company Proprietary Assets.
(c) To the knowledge of the Company, none of the Company
Proprietary Assets infringes or conflicts with any Proprietary Asset owned or
used by any other Person. To the knowledge of the Company, none of the Acquired
Companies is infringing, misappropriating or making any unlawful use of, or has
received any notice or other communication (in writing or otherwise) of any
actual, alleged, possible or potential infringement, misappropriation or
unlawful use of, any Proprietary Asset owned or used by any other Person. To the
knowledge of the Company, no other Person is infringing, misappropriating or
making any unlawful use of, and no Proprietary Asset owned or used by any other
Person infringes or conflicts with, any Company Proprietary Asset.
(d) The Company Proprietary Assets constitute all the Proprietary
Assets necessary to enable each Acquired Company to conduct its business in the
manner in which such business has been and is being conducted. Except as set
forth in Part 2.9(d) of the Company Disclosure Schedule, (i) none of the
Acquired Companies has licensed any of the Company Proprietary Assets to any
Person on an exclusive basis, and (ii) none of the Acquired
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Companies has entered into any covenant not to compete or Contract limiting its
ability to exploit fully any of its Proprietary Assets.
2.10 CONTRACTS.
(a) Part 2.10 of the Company Disclosure Schedule identifies:
(i) each Company Contract relating to the employment of, or
the performance of services by, any employee, consultant or independent
contractor that is not terminable on 60 days or less notice or involves payments
or other liabilities in excess of $150,000 per year;
(ii) each Company Contract involving the acquisition,
transfer, use, development, sharing or license of any material Proprietary
Asset;
(iii) each Company Contract imposing any restriction on any
Acquired Company's right or ability (A) to compete with any other Person or (B)
to acquire any product or other asset or any services from any other Person, to
sell any product or other asset to or perform any services for any other Person
or to transact business or deal in any other manner with any other Person;
(iv) each Company Contract involving the acquisition,
issuance or transfer of any equity securities (other than those that have been
fully performed);
(v) each Company Contract involving the creation of any
Encumbrance (other than Permitted Liens) with respect to any material property
or asset of any Acquired Company;
(vi) each Company Contract involving or incorporating any
material guaranty, any material pledge, any material performance or completion
bond, any material indemnity or any material surety arrangement;
(vii) each Company Contract creating any material
partnership or joint venture or any sharing of revenues, profits, losses, costs
or liabilities;
(viii) each Company Contract involving the purchase or sale
of any product or other asset by or to, or the performance of any services by or
for, any Related Party (as defined in Section 2.18);
(ix) each Company Contract constituting a Government
Contract or Government Bid;
(x) each Company Contract involving the purchase or sale of
any real or personal property having a value in excess of $250,000;
(xi) any other Company Contract of any Acquired Company that
was entered into outside the ordinary course of business or was inconsistent
with such
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Acquired Company's past practices, that has a term of greater than one year and
that may not be terminated within 90 days; and
(xii) any other Company Contract of any Acquired Company
that (A) has a term of more than 90 days and that may not be terminated by such
Acquired Company (without penalty) within 90 days after the delivery of a
termination notice by such Acquired Company; and (B) involves the payment or
delivery of cash or other consideration in an amount or having a value, or the
performance of services having a value, in excess of $250,000 in any one year or
$500,000 in the aggregate.
(Contracts in the respective categories described in clauses "(i)" through
"(xiv)" above are referred to in this Agreement as "Company Material
Contracts.")
(b) The Company has delivered or made available to Parent
accurate and complete copies of all written Company Material Contracts
identified in Part 2.10 of the Company Disclosure Schedule, including all
amendments thereto. Part 2.10 of the Company Disclosure Schedule provides an
accurate description of the terms of each Company Material Contract that is not
in written form. Each Company Material Contract identified in Part 2.10 of the
Company Disclosure Schedule is valid and in full force and effect, and is
enforceable by the applicable Acquired Company in accordance with its terms,
subject to (i) laws of general application relating to bankruptcy, insolvency
and the relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
(c) Except as set forth in Part 2.10 of the Company Disclosure
Schedule:
(i) none of the Acquired Companies has violated or
breached, or committed any default under, any Company Material Contract, and, to
the best of the knowledge of the Company, no other Person has violated or
breached, or committed any default under, any Company Material Contract;
(ii) to the best of the knowledge of the Company, no event
has occurred, and no circumstance or condition exists, that (with or without
notice or lapse of time) will, or could reasonably be expected to, (A) result in
a violation or breach of any of the provisions of any Company Material Contract,
(B) give any Person the right to declare a default or exercise any remedy under
any Company Material Contract, (C) give any Person the right to accelerate the
maturity or performance of any Company Material Contract, or (D) give any Person
the right to cancel, terminate or modify any Company Material Contract;
(iii) since June 30, 1996, none of the Acquired Companies
has received any notice or other communication regarding any actual or alleged
violation or breach of, or default under, any Company Material Contract that has
not been cured or is of a continuing or repetitive nature; and
(iv) none of the Acquired Companies has waived any of its
material rights under any Company Material Contract.
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(d) Except with respect to the renegotiation of any managed care
contract (other than capitated contracts) involving amounts payable of less than
15% of the per diem rate of such contract, no Person is renegotiating, or has a
right pursuant to the terms of any Company Material Contract to renegotiate, any
amount paid or payable to any Acquired Company under any Company Material
Contract or any other material term or provision of any Company Material
Contract.
(e) Part 2.10 of the Company Disclosure Schedule identifies and
provides a brief description of each proposed Company Material Contract as to
which any bid, offer, award, written proposal, term sheet or similar document
has been submitted or received by any of the Acquired Companies since the date
of the Unaudited Interim Balance Sheet.
2.11 LIABILITIES. None of the Acquired Companies has any accrued,
contingent or other liabilities of any nature, either matured or unmatured
(whether or not required to be reflected in financial statements in accordance
with generally accepted accounting principles, and whether due or to become
due), except for: (a) liabilities identified as such in the "liabilities"
column of the Unaudited Interim Balance Sheet; (b) accounts payable or accrued
salaries that have been incurred by any Acquired Company since May 31, 1998 in
the ordinary course of business and consistent with such Acquired Company's past
practices; (c) liabilities under the Company Material Contracts identified in
Part 2.10 of the Company Disclosure Schedule, to the extent the nature and
magnitude of such liabilities can be specifically ascertained by reference to
the text of such Company Material Contracts; and (d) the liabilities identified
in Part 2.11 of the Disclosure Schedule.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. Except as set forth in Part
2.12 of the Company Disclosure Schedule, each of the Acquired Companies is, and
has at all times since June 30, 1996 been, in compliance with all applicable
Legal Requirements, except where the failure to comply with such Legal
Requirements has not had and will not have a Material Adverse Effect on the
Company; provided, however, that with respect to any Acquired Company that was
acquired by the Company since June 30, 1996, with respect to the operations of
such company prior to such acquisition, such representation shall be made only
to the knowledge of the Company. Except as set forth in Part 2.12 of the Company
Disclosure Schedule, since June 30, 1996, none of the Acquired Companies has
received any notice or other communication from any Governmental Body regarding
any actual or possible violation of, or failure to comply with, any Legal
Requirement that could have a Material Adverse Effect on the Company; provided,
however, that with respect to any Acquired Company that was acquired by the
Company since June 30, 1996, with respect to the operations of such company
prior to such acquisition, such representation shall be made only to the
knowledge of the Company.
2.13 GOVERNMENTAL AUTHORIZATIONS. Part 2.13 of the Company Disclosure
Schedule identifies each Governmental Authorization held by any Acquired
Company, the absence of which would have a Material Adverse Effect on the
Company, and the Company has delivered or made available to Parent accurate and
complete copies of all Governmental Authorizations identified in Part 2.13 of
the Company Disclosure Schedule. The Governmental Authorizations identified in
Part 2.13 of the Company Disclosure Schedule are valid and in full force and
effect, and collectively constitute all Governmental Authorizations necessary to
enable each Acquired Company to conduct its business in the manner in which its
business is currently
20.
<PAGE> 27
being conducted, except as would not have a Material Adverse Effect on the
Company. Each of the Acquired Companies is, and at all times since June 30, 1996
has been, in substantial compliance with the terms and requirements of the
respective Governmental Authorizations identified in Part 2.13 of the Company
Disclosure Schedule except for any failure to comply that would not have a
Material Adverse Effect on the Company. Since June 30, 1996, none of the
Acquired Companies has received any notice or other communication from any
Governmental Body regarding (a) any actual or possible violation of or failure
to comply with any term or requirement of any Governmental Authorization, or (b)
any actual or possible revocation, withdrawal, suspension, cancellation,
termination or modification of any Governmental Authorization, except for any of
the foregoing that would not have a Material Adverse Effect on the Company.
There are no provisions in, or agreements relating to, any such Governmental
Authorizations which would preclude or limit the Acquired Companies from owning
or operating their respective healthcare facilities (the "Healthcare
Facilities") and using all of the beds of the Healthcare Facilities as they are
currently classified. The Company has delivered to Parent the most recent state
licensing reports and lists of deficiencies, if any, for each of the Healthcare
Facilities. The Acquired Companies have cured (or will cure within the time
permitted by such reports) all deficiencies, if any, noted therein, except for
those that would not, individually or in the aggregate, have a material adverse
effect on any Healthcare Facility.
2.14 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of any
Acquired Company with any Governmental Body with respect to any taxable period
ending on or before the Closing Date (the "Company Returns") (i) have been or
will be filed on or before the applicable due date (including any extensions of
such due date), and (ii) have been, or will be when filed, accurately and
completely prepared in all material respects in compliance with all applicable
Legal Requirements. All amounts shown on the Company Returns to be due on or
before the Closing Date have been or will be paid on or before the Closing Date.
The Company has delivered or made available to Parent accurate and complete
copies of all Company Returns that have been requested by Parent.
(b) The Company Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the dates
thereof in accordance with generally accepted accounting principles. The Company
will establish, in the ordinary course of business and consistent with its past
practices, reserves adequate for the payment of all Taxes through the Closing
Date, and the Company will disclose the dollar amount of such reserves to Parent
on or prior to the Closing Date.
(c) Except as set forth in Part 2.14 of the Company Disclosure
Schedule, there have been no examinations or audits of any Company Return by any
Governmental Body. The Company has delivered or made available to Parent
accurate and complete copies of all audit reports and similar documents (to
which the Company has access) relating to the Company Returns. Except as set
forth in Part 2.14 of the Company Disclosure Schedule, no extension or waiver of
the limitation period applicable to any of the Company Returns has been granted
(by any Acquired Company or any other Person), and no such extension or waiver
has been requested from any Acquired Company.
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(d) Except as set forth in Part 2.14 of the Company Disclosure
Schedule, no claim or Proceeding is pending or has been threatened against or
with respect to any Acquired Company in respect of any Tax. There are no liens
for Taxes upon any of the assets of any Acquired Company except liens for
current Taxes not yet due and payable. None of the Acquired Companies has
entered into or become bound by any agreement or consent pursuant to Section
341(f) of the Code.
(e) Except as listed in Part 2.14 or Part 2.15(f) of the Company
Disclosure Schedule, there is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of any Acquired Company that, considered individually or
considered collectively with any other such Contracts, will, or could reasonably
be expected to, give rise directly or indirectly to the payment of any amount
that would not be deductible pursuant to Section 280G or Section 162 of the
Code. None of the Acquired Companies is, or has been, a party to or bound by any
tax indemnity agreement, tax sharing agreement, tax allocation agreement or
similar Contract.
2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.15(a) of the Company Disclosure Schedule identifies
each written or unwritten salary, bonus, deferred compensation, incentive
compensation, stock purchase, stock option, severance pay, termination pay,
hospitalization, medical, life or other insurance, supplemental unemployment
benefits, profit-sharing, pension or retirement plan, program or agreement
(collectively, the "Plans") sponsored, maintained, contributed to or required to
be contributed to by any Acquired Company for the benefit of any employee of any
Acquired Company ("Employee").
(b) Except as set forth in Part 2.15(a) of the Company
Disclosure Schedule, none of the Acquired Companies maintains, sponsors or
contributes to, or has at any time in the past maintained, sponsored or
contributed to, any employee pension benefit plan (as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
whether or not excluded from coverage under specific Titles or Subtitles of
ERISA) for the benefit of Employees or former Employees (a "Pension Plan").
(c) Each of the Acquired Companies maintains, sponsors or
contributes only to those employee welfare benefit plans (as defined in Section
3(1) of ERISA, whether or not excluded from coverage under specific Titles or
Merger Subtitles of ERISA) for the benefit of Employees or former Employees
which are described in Part 2.15(c) of the Company Disclosure Schedule (the
"Welfare Plans"), none of which is a multiemployer plan (within the meaning of
Section 3(37) of ERISA).
(d) With respect to each Plan, the Company has delivered or made
available to Parent:
(i) an accurate and complete copy of such Plan (including
all amendments thereto);
(ii) an accurate and complete copy of the annual report, if
required under ERISA, with respect to such Plan for the last five years;
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(iii) an accurate and complete copy of the most recent
summary plan description, together with each Summary of Material Modifications,
if required under ERISA, with respect to such Plan, and all material employee
communications relating to such Plan;
(iv) if such Plan is funded through a trust or any third
party funding vehicle, an accurate and complete copy of the trust or other
funding agreement (including all amendments thereto) and accurate and complete
copies the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating
to such Plan, including service provider agreements, insurance contracts,
minimum premium contracts, stop-loss agreements, investment management
agreements, subscription and participation agreements and record keeping
agreements; and
(vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with respect to
such Plan (if such Plan is intended to be qualified under Section 401(a) of the
Code).
(e) None of the Acquired Companies is required to be, and, to
the best of the knowledge of the Company, has ever been required to be, treated
as a single employer with any other Person under Section 4001(b)(1) of ERISA or
Section 414(b), (c), (m) or (o) of the Code. None of the Acquired Companies has
ever been a member of an "affiliated service group" within the meaning of
Section 414(m) of the Code. None of the Acquired Companies has ever made a
complete or partial withdrawal from a multiemployer plan, as such term is
defined in Section 3(37) of ERISA, resulting in "withdrawal liability," as such
term is defined in Section 4201 of ERISA (without regard to subsequent reduction
or waiver of such liability under either Section 4207 or 4208 of ERISA).
(f) Except as listed in Part 2.15(f) of the Company Disclosure
Schedule, none of the Acquired Companies has any plan or commitment to create
any additional Welfare Plan or Pension Plan, or to modify or change any existing
Welfare Plan or Pension Plan (other than to comply with applicable law) in a
manner that would affect any Employee.
(g) Except as set forth in Part 2.15(g) of the Company
Disclosure Schedule, no Welfare Plan provides death, medical or health benefits
(whether or not insured) with respect to any current or former Employee after
any such Employee's termination of service (other than (i) benefit coverage
mandated by applicable law, including coverage provided pursuant to Section
4980B of the Code, (ii) deferred compensation benefits accrued as liabilities on
the Unaudited Interim Balance Sheet, and (iii) benefits the full cost of which
are borne by current or former Employees (or the Employees' beneficiaries)).
(h) With respect to each of the Welfare Plans constituting a
group health plan within the meaning of Section 4980B(g)(2) of the Code, the
provisions of Section 4980B of the Code ("COBRA") have been complied with in all
material respects.
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(i) Each of the Plans has been operated and administered in all
material respects in accordance with applicable Legal Requirements, including,
but not limited to, ERISA and the Code.
(j) Each of the Plans intended to be qualified under Section
401(a) of the Code has received a favorable determination from the Internal
Revenue Service, and the Company is not aware of any reason why any such
determination letter should be revoked.
(k) Except as set forth in Part 2.15(k) of the Company Disclosure
Schedule, neither the execution, delivery or performance of this Agreement, nor
the consummation of the Merger or any of the other transactions contemplated by
this Agreement, will result in any payment (including any bonus, golden
parachute or severance payment) to any current or former Employee or director of
any Acquired Company (whether or not under any Plan), materially increase the
benefits payable under any Plan, or result in any acceleration of the time of
payment or vesting of any such benefits.
(l) Except as listed in Part 2.15(l) of the Company Disclosure
Schedule, none of the Acquired Companies is a party to any collective bargaining
contract or other Contract with a labor union involving any of its Employees.
Except as listed in Part 2.15(l) of the Company Disclosure Schedule, all of the
Acquired Companies' employees are "at will" employees.
(m) Except where the failure to comply has not had and will not
have a Material Adverse Effect on the Company, each of the Acquired Companies
is, and has at all times since June 30, 1996 been, in compliance with all
applicable Legal Requirements and Contracts relating to employment, employment
practices, wages, bonuses and terms and conditions of employment, including
employee compensation matters; provided, however, that with respect to any
Acquired Company that was acquired by the Company since June 30, 1996, with
respect to the operations of such company prior to such acquisition, such
representation shall be made only to the knowledge of the Company.
2.16 ENVIRONMENTAL MATTERS.
(a) None of the Real Properties is or has ever been, nor is any
of the Acquired Companies or any other Person for whom any Acquired Company may
be liable, in violation of, and each of such Persons and the Real Properties is
in full compliance with, all Environmental Laws, except as would not, singly or
in the aggregate, have a Material Adverse Effect on the Company. During the time
in which any Real Property has been owned, operated, occupied or leased by any
Acquired Company, neither such Acquired Company nor any third party has used,
generated, manufactured, produced, stored or disposed of on, under or about the
Real Property, or transported to or from such Real Property any Hazardous
Material, except in compliance with Environmental Laws. There is no present or,
to the knowledge of the Company, threatened Release of any Hazardous Materials
in, on or under the Property. If any pesticides have been disposed of, or
placed, sprayed or deposited on any Real Property, such acts have been in full
compliance with and such pesticides are registered under the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. section 136 et seq.), as
amended, or any
24.
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successor statute, and any other applicable federal, state or local law or
regulation promulgated thereunder.
(b) Except as disclosed in Part 2.16 of the Company Disclosure
Schedule, none of the Acquired Companies has received any citation, directive,
inquiry, summons, warning, order, notice or other written communication, whether
from a governmental authority, citizens' group, employee, the current or prior
owner or operator of any Facilities or otherwise, alleging that any Acquired
Company or any other Person for whom any Acquired Company may be liable or any
Real Property is not in full compliance with any Environmental Laws or permit or
authorization required under applicable Environmental Laws, and, to the
knowledge of the Company, there are no circumstances that may prevent or
interfere with such full compliance in the future. There is no legal or
administrative proceeding or inquiry pending or, to the knowledge of the
Company, threatened by any Person or any Governmental Body (including, without
limitation, the United States Environmental Protection Agency and any other
federal or state agency with jurisdiction over the Acquired Companies and/or the
Real Property under any Environmental Laws) with respect to the presence of
Hazardous Materials on any Real Property or the migration thereof from or to
other property. Each Acquired Company has all permits, licenses and approvals
(which are included in the Permits) required by all applicable Environmental
Laws for the use and occupancy of, and all operations and activities in, the
Real Property, each Acquired Company is in full compliance with all such
permits, licenses and approvals, and all such permits, licenses and approvals
were duly issued and are in full force and effect, except for such failures to
have permits, licenses or approvals or non-compliance that would not, singly or
in the aggregate, have a Material Adverse Effect on the Company.
(c) Except as disclosed in Part 2.16 of the Company Disclosure
Schedule, there is no claim, action, cause of action, investigation or written
notice by any Person alleging potential liability (including, without
limitation, potential liability for investigatory costs, natural resources
damages, property damages, personal injuries or penalties) arising out of, based
on or resulting from (i) the presence in or release into the environment of any
Hazardous Materials at any location owned, leased or operated, now or in the
past, including, without limitation, any Real Property, by any Acquired Company
or any other Person for whom any Acquired Company may be liable, or (ii)
circumstances forming the basis of any violation or alleged violation of any
Environmental Law (collectively, "Environmental Claims") pending or threatened
against any Acquired Company or any other Person whose liability for any
Environmental Claim any Acquired Company has retained or assumed either
contractually or by operation of law.
(d) Except as disclosed in the Part 2.16 of the Company
Disclosure Schedule, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
the release, emission, discharge, presence or disposal of any Hazardous
Materials, that could reasonably be expected to form the basis of any
Environmental Claim against any Acquired Company with respect to property owned,
leased or operated by or for any Acquired Company, now or in the past,
including, without limitation, any Real Property, or with respect to any
property in, on or under which are located Hazardous Materials that were
generated by any Acquired Company or any other Person for whom any Acquired
Company may be liable, or against any Person whose liability for any
Environmental
25.
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Claim any Acquired Company has retained or assumed either contractually or by
operation of law.
(e) The following terms when used in this Agreement have the
following meanings:
"Environmental Laws" means any and all federal, state, local, provincial
or foreign laws or regulations relating to pollution or protection of human
health or safety, industrial hygiene or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata), including, without limitation, laws and regulations relating to use,
manufacture, storage, disposal, emissions, discharges, releases or threatened
releases of Hazardous Materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials.
"Hazardous Materials" means all flammable explosives, radioactive
materials, hazardous wastes, infectious wastes, chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum or
petroleum products, asbestos or asbestos-containing materials, or
polychlorinated biphenyls, corrosive, ignitable, toxic, reproductive toxins or
carcinogenic substances, materials, products, chemicals or compounds, whether
injurious by themselves or in combination with other materials. Hazardous
Materials shall include, but shall not be limited to, (a) "hazardous waste,"
"extremely hazardous waste," "restricted hazardous waste" or "acutely hazardous
waste" as defined in Chapter 6.5 of Division 20 (section 25100 et seq.) of the
California Health and Safety Code, as amended, or any successor statute, (b)
"hazardous substance" as defined in the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. section 9601 et seq.), as amended, or
any successor statute, (c) "hazardous material" as defined in the Hazardous
Materials Transportation Act (49 U.S.C. section 1801 et seq.), as amended, or
any successor statute, (d) "hazardous waste," "solid waste," "sludge," "used
oil," "recycled oil," "lubricating oil" and "re-refined oil" as defined in the
Resource Conservation and Recovery Act of 1976 (42 U.S.C. section 6901 et seq.),
as amended, or any successor statute, (e) "hazardous substance" as defined in
the Carpenter-Presley-Tanner Hazardous Substance Account Act, Chapter 6.8 of
Division 20 (section 25300 et seq.) of the California Health and Safety Code, as
amended, or any successor statute, (f) "hazardous substance" as defined in
Chapter 6.7 of Division 20 (section 25280 et seq.) of the California Health and
Safety Code, as amended, or any successor statute, (g) "hazardous material,"
"hazardous substance" or "hazardous waste" as defined in Chapter 6.95 of
Division 20 (section 25501 et seq.) of the California Health & Safety Code, as
amended, or any successor statute, (h) "hazardous substance" as defined in the
Clean Water Act (33 U.S.C. section 1251 et seq.), as amended, or any successor
statute, (i) any substances known to cause cancer or reproductive toxicity now
or in the future listed pursuant to or regulated under the Safe Drinking Water
and Toxic Enforcement Act of 1986 (California Health Safety Code section 25249.5
et seq.), as amended, or any successor statute, or (j) any substances, materials
or wastes now or in the future listed in: (1) the United States Department of
Transportation Hazardous Materials Table (49 C.F.R. section 172.101), as
amended; (2) the Environmental Protection Agency list (40 C.F.R. Part 302), as
amended; (3) the list published in Title 26 of the California Administrative
Code, as amended; or (4) any other list published by any federal or state
governmental entity now or in the future.
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"Violation" includes, but is not limited to, noncompliance with any
Governmental Authorization required under applicable Environmental Laws and
noncompliance with the terms and conditions of any such Governmental
Authorization.
"Release" means any release, spill, emission, discharge, leaking, pumping,
pouring, emitting, emptying, discharge, dispersal, injection, escaping,
leaching, dumping, disposing or migration into the indoor or outdoor environment
(including, without limitation, ambient air, surface water, groundwater and
surface or subsurface strata) or into or out of any property, including
continuing migration, of Hazardous Materials into or through soil, surface water
or groundwater.
2.17 INSURANCE. Part 2.17 of the Company Disclosure Schedule
identifies all insurance policies maintained by, at the expense of or for the
benefit of the Acquired Companies and identifies any material claims currently
outstanding thereunder, and the Company has delivered or made available to
Parent accurate and complete copies of the insurance policies identified on Part
2.17 of the Company Disclosure Schedule. Each of the insurance policies
identified in Part 2.17 of the Company Disclosure Schedule is in full force and
effect. Since June 30, 1996, none of the Acquired Companies has received any
notice or other communication regarding any actual or possible (a) cancellation
or invalidation of any insurance policy, (b) refusal of any coverage or
rejection of any covered claim under any insurance policy, or (c) material
adjustment in the amount of the premiums payable with respect to any insurance
policy.
2.18 RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.18 of
the Company Disclosure Schedule and except pursuant to ownership of the
Company's outstanding securities: (a) no Related Party has, and no Related Party
has at any time since June 30, 1996 had, any direct or indirect interest in any
material asset used in or otherwise relating to the business of any Acquired
Company; (b) no Related Party is, or has at any time since June 30, 1996 been,
indebted to any Acquired Company; (c) since June 30, 1996, no Related Party has
entered into, or has had any direct or indirect financial interest in, any
Company Material Contract, transaction or business dealing involving any
Acquired Company; (d) no Related Party is competing, or has at any time since
June 30, 1996 competed, directly or indirectly, with any Acquired Company; and
(e) to the knowledge of the Company, no Related Party has any claim or right
against any Acquired Company (other than rights under Company Options and rights
to receive compensation for services performed as an employee of any such
Acquired Company). (For purposes of the Section 2.18 each of the following shall
be deemed to be a "Related Party": (i) each of the Principal Stockholders; (ii)
each individual who is an executive officer or director of any Acquired Company;
(iii) each member of the immediate family of each of the individuals referred to
in clauses "(i)" and "(ii)" above; and (iv) any trust or other Entity (other
than the Acquired Companies) in which any one of the individuals referred to in
clauses "(i)", "(ii)" and "(iii)" above holds (or in which more than one of such
individuals collectively hold), beneficially or otherwise, a material voting,
proprietary or equity interest.)
2.19 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 2.19 of the Company Disclosure
Schedule, there is no pending Legal Proceeding, and (to the best of the
knowledge of the Company) no Person has threatened to commence any Legal
Proceeding: (i) that involves any
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Acquired Company or any of the properties or assets owned or used by any
Acquired Company; or (ii) that challenges, or that could reasonably be expected
to have the effect of preventing, delaying, making illegal or otherwise
interfering with, the Merger. To the best of the knowledge of the Company,
except as set forth in Part 2.19 of the Company Disclosure Schedule, no event
has occurred, and no claim, dispute or other condition or circumstance exists,
that will, or that could reasonably be expected to, give rise to or serve as a
basis for the commencement of any such Legal Proceeding.
(b) Except as set forth in Part 2.19 of the Company Disclosure
Schedule or that will not have a Material Adverse Effect on the Company, since
June 30, 1997, no Legal Proceeding has been commenced by or has been pending
against any Acquired Company.
(c) Except as set forth in Part 2.19 of the Company Disclosure
Schedule or that will not have a Material Adverse Effect on the Company, there
is no order, writ, injunction, judgment or decree to which any Acquired Company,
or any of the properties or assets owned or used by any Acquired Company, is
subject. To the best of the knowledge of the Company, no officer or other
employee of any Acquired Company is subject to any order, writ, injunction,
judgment or decree that prohibits such officer or other employee from engaging
in or continuing any conduct, activity or practice relating to the business of
any Acquired Company.
2.20 MEDICARE AND MEDICAID PARTICIPATION.
(a) The cost reports for reimbursement by Medicare, Medicaid (if
required), Blue Cross (if required), or any other cost-based third party payor
(the "Programs") have been audited (i.e., settled, with a Notice of Program
Reimbursement issued) through the period set forth in Part 2.20 of the Company
Disclosure Schedule attached hereto, and all cost reports were filed when due.
Except as set forth in Part 2.20(a) of the Company Disclosure Schedule, all cost
reports are complete and correct in all material respects. Except as set forth
in Part 2.20(a) of the Company Disclosure Schedule, (i) no Acquired Company has
received written notice of any dispute between a Healthcare Facility and Blue
Cross, a Governmental Entity or any Medicare or Medicaid fiscal intermediary
regarding cost reports (with respect to the audited cost reports, only for any
period subsequent to the period specified in Part 2.20(a) of the Company
Disclosure Schedule) other than with respect to net reimbursable adjustments
thereto made in the ordinary course of business which do not involve individual
amounts in excess of $50,000 per cost report or $750,000 in the aggregate; (ii)
there are no pending or, to the knowledge of the Company, threatened claims or
investigations by any of the Programs against any Healthcare Facility; and (iii)
each Healthcare Facility currently meets the conditions for participation in the
Programs.
(b) None of the Acquired Companies or, to the knowledge of the
Company, any other Person who has a direct or indirect ownership interest (as
those terms are defined in 42 C.F.R. Section 1001.1001(a)(2)) in any Acquired
Company, or who has an ownership or control interest in any Acquired Company, or
who is an officer, director, agent, or managing employee of any Acquired
Company, and (ii) to the knowledge of the Company, no person with any
relationship with such entity who has an indirect ownership interest in any
Acquired Company: (A) has had a civil monetary penalty assessed against it under
SSA Section 1128A; (B) has
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been excluded from participation under the Medicare programs or a State Health
Care Program; (C) has been convicted (as that term is defined in 42 C.F.R.
Section 1001.2) or any of the following categories of offenses as described in
SSA Section 1128(a) and (b)(1), (2), (3): (i) criminal offenses relating to the
delivery of any item or service under Medicare, Medicaid or any other State
Health Care Program or any Federal Health Care Program; (ii) criminal offenses
under federal or state law relating to patient neglect or abuse in connection
with the delivery of a health care item or service; (iii) criminal offenses
under federal or state law relating to fraud, theft, embezzlement, breach of
fiduciary responsibility, or other financial misconduct in connection with the
delivery of a health care item or service or with respect to any act or omission
in a program operated by or financed in whole or in part by any federal, state
or local governmental entity; (iv) federal or state laws relating to the
interference with or obstruction of any investigation into any criminal offense
described in (i) through (iii) above; or (v) criminal offense under federal or
state law relating to the unlawful manufacture, distribution, prescription or
dispensing of a controlled substance.
(c) Each Healthcare Facility is duly accredited (except as set
forth in Part 2.20(c) of the Company Disclosure Schedule) by the Joint
Commission on Accreditation of Healthcare Organizations ("JCAHO") for the
three-year period specified in Part 2.20(c) of the Company Disclosure Schedule.
The Company has delivered or made available to Parent true and complete copies
of the Healthcare Facilities' most recent JCAHO accreditation survey report and
deficiency list, if any, and the Healthcare Facilities' most recent Statement of
Deficiencies and Plan of Correction.
2.21 ILLEGAL PAYMENTS. None of the Acquired Companies has, directly or
indirectly, paid or delivered, or agreed to pay or deliver, any fee, commission
or other sum of money or item or property, however characterized, to any finder,
agent or government official, in the United States or any other country, which
is in any manner related to the business or operations of any Acquired Company,
which the Company knows or has reason to believe to have been illegal under any
applicable Legal Requirements; and none of the Acquired Companies has
participated, directly or indirectly, in any boycotts or other similar practices
affecting any of its actual or potential customers.
2.22 FRAUD AND ABUSE. To the knowledge of the Company, none of the
Acquired Companies nor any Affiliate is engaged in any activities that are
prohibited under federal Medicare and Medicaid statutes, including, without
limitation, 42 U.S.C. Sections 1320a-7 - 1320a-7b, 1395nn, and 1396b(s), the
False Claims Act or the regulations promulgated pursuant to such statutes, or
any similar federal, state or local statutes or regulations or which are
prohibited by binding rules of professional conduct or any other criminal or
civil statute invoked to penalize the submission of false claims, the making of
false statements, the failure to disclose information for which disclosure is
required, or financial relationships with physicians or others that constitute
illegal remuneration or violate the "Stark law," including, but not limited to,
the following:
(a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment;
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(b) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in determining
rights to any benefit or payment;
(c) failing to disclose knowledge by a claimant of occurrence of
any event affecting the initial or continued right to any benefit or payment on
its own behalf or on behalf of another, with intent to secure such benefit or
payment fraudulently; or
(d) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe or rebate), directly or indirectly,
overtly or covertly, in cash or in kind or offering to pay such remuneration (i)
in return for referring an individual to a person for the furnishing or
arranging for the furnishing of any item or service for which payment may be
made in whole or in part by Medicare, Medicaid or other applicable governmental
payors, or (ii) in return for purchasing, leasing or ordering or arranging for
or recommending the purchasing, leasing or order of any good, facility, service
or item for which payment may be made in whole or in part by Medicare, Medicaid
or other governmental payors.
The term "Affiliate" shall mean any corporation, partnership or organization,
whether now existing or hereafter created, which directly or indirectly
controls, is controlled by, or is under common control with, any Acquired
Company, and any director or officer of each Acquired Company or any such
Affiliate.
2.23 AUTHORITY; BINDING NATURE OF AGREEMENT. The Company has the
corporate power and authority to enter into and to perform its obligations under
this Agreement; and the execution, delivery and performance by the Company of
this Agreement have been duly authorized by all necessary corporate action on
the part of the Company and its board of directors. This Agreement constitutes
the legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to (i) laws of general application
relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of
law governing specific performance, injunctive relief and other equitable
remedies.
2.24 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.24 of
the Company Disclosure Schedule and except as contemplated by Section 4.5,
neither (1) the execution, delivery or performance of this Agreement or any of
the other agreements referred to in this Agreement, nor (2) the consummation of
the Merger or any of the other transactions contemplated by this Agreement, will
directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i)
any of the provisions of the Company's Certificate of Incorporation or bylaws,
or (ii) any resolution adopted by the Company's stockholders, the Company's
board of directors or any committee of the Company's board of directors;
(b) contravene, conflict with or result in a violation of any
Legal Requirement or any order, writ, injunction, judgment or decree to which
the Company, or any of the properties or assets owned or used by any of the
Acquired Companies, is subject;
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(c) contravene, conflict with or result in a violation of any of
the terms or requirements of any Governmental Authorization that is held by any
of the Acquired Companies or that otherwise relates to the business or to any of
the properties or assets owned or used by any of the Acquired Companies which,
in any event, would have a Material Adverse Effect on the Company or the ability
to consummate the Merger or the other transactions contemplated hereby;
(d) except as would not have a Material Adverse Effect on the
Company, contravene, conflict with or result in a violation or breach of, or
result in a default under, any provision of any Company Material Contract, or
give any Person the right to (i) declare a default or exercise any remedy under
any such Company Material Contract, (ii) accelerate the maturity or performance
of any such Company Material Contract, or (iii) cancel, terminate or modify any
such Company Material Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any property or asset owned or used by any
Acquired Company (except for minor liens that will not, in any case or in the
aggregate, materially detract from the value of the properties or assets subject
thereto or materially impair the operations of any such Acquired Company).
Except as set forth in Part 2.24 of the Company Disclosure Schedule, none of the
Acquired Companies is or will be required to make any filing with or give any
notice to, or to obtain any Consent from, any Person in connection with (x) the
execution, delivery or performance of this Agreement or any of the other
agreements referred to in this Agreement, or (y) the consummation of the Merger
or any of the other transactions contemplated by this Agreement.
2.25 FULL DISCLOSURE.
(a) This Agreement (including the Company Disclosure Schedule)
does not (i) contain any representation, warranty or information that is false
or misleading with respect to any material fact, or (ii) omit to state any
material fact or necessary in order to make the representations, warranties and
information contained and to be contained herein and therein (in the light of
the circumstances under which such representations, warranties and information
were or will be made or provided) not false or misleading.
(b) The information supplied by the Company for inclusion in the
S-4 Registration Statement (as defined in Section 4.11) will not, as of the date
of the S-4 Registration Statement or as of the date of the Company Stockholders'
Meeting (as defined in Section 4.6), (i) contain any statement that is
inaccurate or misleading with respect to any material fact, or (ii) omit to
state any material fact necessary in order to make such information (in the
light of the circumstances under which it is provided) not false or misleading.
2.26 COMPLIANCE WITH APPLICATION FOR CERTIFICATE OF NEED. Except as
set forth in Part 2.26 of the Company Disclosure Schedule, no application for
any Certificate of Need has been made by any Acquired Company which is currently
pending or open and, except as set forth in Part 2.26 of the Company Disclosure
Schedule, no such application (collectively, the "Applications") filed by any
Acquired Company has been ultimately denied by any
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Governmental Body or withdrawn by any Acquired Company. No Applications are
being prepared by or for, or on behalf of, any Acquired Company for submission
to or before any Governmental Body. Each of the Acquired Companies has properly
filed all required Applications which are complete and correct in all material
respects with respect to any and all material improvements, projects, changes in
services, zoning requirements, construction and equipment purchases, and other
changes for which approval is required under applicable law. As used herein,
"Certificate of Need" means a written statement issued by the appropriate
Governmental Body evidencing community need for a new, converted, expanded or
otherwise significantly modified healthcare facility or health service.
2.27 MEDICAL STAFF MATTERS. The Company has made available to Parent
true, correct and complete copies of the bylaws and rules and regulations of the
medical staff of each of the Healthcare Facilities. With regard to the medical
staffs of the Healthcare Facilities, except as set forth in Part 2.27 of the
Company Disclosure Schedule or as can not reasonably be expected to have a
material adverse effect on any Healthcare Facility, there are no pending or, to
the knowledge of the Company, threatened disputes with applicants, staff members
or allied health professionals, and all appeal periods in respect of any medical
staff member or applicant against whom an adverse action has been taken have
expired.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to the
Company, to and for the benefit of the Stockholder Indemnitees, as follows:
3.1 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has delivered to the Company accurate and complete
copies (excluding copies of exhibits) of each report, registration statement (on
a form other than Form S-8) and definitive proxy statement filed by Parent with
the SEC between January 1, 1997 and the date of this Agreement (the "Parent SEC
Documents"). As of the time it was filed with the SEC (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing): (i) each of the Parent SEC Documents complied in all material
respects with the applicable requirements of the Securities Act or the Exchange
Act (as the case may be); and (ii) none of the Parent SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) The consolidated financial statements (the "Parent Financial
Statements") contained in the Parent SEC Documents: (i) complied as to form in
all material respects with the published rules and regulations of the SEC
applicable thereto; (ii) were prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
covered, except as may be indicated in the notes to such financial statements
and (in the case of unaudited statements) as permitted by Form 10-Q of the SEC,
and except that unaudited financial statements may not contain footnotes and are
subject to normal and recurring year-end audit adjustments, which will not,
individually or in the aggregate, be material in magnitude; and (iii) fairly
present the consolidated financial position of Parent and its
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subsidiaries as of the respective dates thereof and the consolidated results of
operations of Parent and its subsidiaries for the periods covered thereby.
3.2 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub
have the corporate power and authority to perform their obligations under this
Agreement; and the execution, delivery and performance by Parent and Merger Sub
of this Agreement (including the contemplated issuance of Parent Common Stock in
the Merger in accordance with this Agreement) have been duly authorized by all
necessary corporate action on the part of the respective boards of directors of
Parent and Merger Sub. The board of directors of Parent has approved the Merger
and the transactions contemplated hereby on behalf of Parent as the sole
stockholder of Merger Sub and has recommended approval of the principal terms of
the Merger by the holders of Parent Common Stock and directed that such matters
be submitted for consideration of Parent's stockholders at the Parent
Stockholders' Meeting (as defined in Section 4.7). This Agreement constitutes
the legal, valid and binding obligation of Parent and Merger Sub, enforceable
against them in accordance with its terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors, and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies.
3.3 VALID ISSUANCE. Subject to Section 1.5(c), the Parent Common
Stock to be issued in the Merger will, when issued in accordance with the
provisions of this Agreement, be validly issued, fully paid and nonassessable.
3.4 CAPITALIZATION, ETC.
(a) The authorized capital stock of Parent consists of: (i)
19,000,000 shares of Common Stock (with par value $.01), of which 6,959,810
shares have been issued and are outstanding as of the date of this Agreement;
and (ii) 1,000,000 shares of Preferred Stock (with par value $.01), none of
which is outstanding as of the date of this Agreement. All of the outstanding
shares of Parent Common Stock have been duly authorized and validly issued, and
are fully paid and non-assessable.
(b) Parent has reserved (i) 2,000,000 shares of Parent Common
Stock for issuance under its 1997 Equity Incentive Plan, of which options to
purchase 879,297 shares are outstanding as of the date of this Agreement; (ii)
525,000 shares of Parent Common Stock for issuance under its 1992 Outside
Directors' Plan, of which options to purchase 291,500 shares are outstanding as
of the date of this Agreement; (iii) 270,671 shares of Parent Common Stock for
issuance under outstanding non-plan stock options; and (iv) 138,000 shares of
Parent Common Stock for issuance under outstanding warrants. Except as set forth
in this Section 3.4 and in Part 3.4 of the Parent Disclosure Schedule, there is
no: (i) outstanding subscription, option, call, warrant or right (whether or not
currently exercisable) to acquire any shares of the capital stock or other
securities of Parent; (ii) outstanding security, instrument or obligation that
is or may become convertible into or exchangeable for any shares of the capital
stock or other securities of Parent; (iii) Contract under which Parent is or may
become obligated to sell or otherwise issue any shares of its capital stock or
any other securities; or (iv) to the best of the knowledge of Parent, condition
or circumstance that could reasonably be expected to give rise to or provide a
basis for the assertion of a claim by any Person to the effect that such Person
is entitled to acquire or receive any shares of capital stock or other
securities of Parent.
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(c) All outstanding shares of Parent Common Stock, and all
outstanding options and warrants of Parent, have been issued and granted in
compliance with (i) all applicable securities laws and other applicable Legal
Requirements, and (ii) all material requirements set forth in applicable Parent
Contracts.
(d) All securities that have been reacquired by Parent were
reacquired in compliance with (i) the applicable provisions of the Delaware
General Corporation Law and all other applicable Legal Requirements, and (ii)
all material requirements set forth in applicable restricted stock purchase
agreements and other applicable Parent Contracts.
(e) All of the outstanding shares of capital stock of each of the
Parent Subsidiaries are validly issued (in compliance with all applicable
securities laws and other Legal Requirements and applicable Parent Contracts),
fully paid and nonassessable and are owned beneficially by Parent, free and
clear of any Encumbrance.
3.5 NON-CONTRAVENTION; CONSENTS. Except as contemplated by Section
4.5, neither (1) the execution, delivery or performance of this Agreement or any
of the other agreements referred to in this Agreement, nor (2) the consummation
of the Merger or any of the other transactions contemplated by this Agreement,
will directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any
of the provisions of Parent's Certificate of Incorporation or bylaws, or (ii)
any resolution adopted by Parent's stockholders, Parent's board of directors or
any committee of Parent's board of directors;
(b) contravene, conflict with or result in a violation of any
Legal Requirement or any order, writ, injunction, judgment or decree to which
Parent, or any of the assets owned or used by Parent or any of the Parent
Subsidiaries or Parent Partnerships (collectively, the "Parent Companies"), is
subject;
(c) contravene, conflict with or result in a violation of any of
the terms or requirements of any Governmental Authorization that is held by any
of the Parent Companies or that otherwise relates to the business or to any of
the assets owned or used by any of the Parent Companies which, in any event,
would have a Material Adverse Effect on Parent or the ability to consummate the
Merger or the other transactions contemplated hereby;
(d) except as would not have a Material Adverse Effect on Parent,
contravene, conflict with or result in a violation or breach of, or result in a
default under, any provision of any Parent Material Contract (as defined in
Section 3.13), or give any Person the right to (i) declare a default or exercise
any remedy under any such Parent Material Contract,
(ii) accelerate the maturity or performance of any such Parent Material
Contract, or (iii) cancel, terminate or modify any such Parent Material
Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by any of the Parent
Companies (except for minor liens that will not, in any case or in the
aggregate, materially detract from the
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value of the assets subject thereto or materially impair the operations of any
such Parent Company).
Except as set forth in Part 3.5 of the Parent Disclosure Schedule, none of the
Parent Companies is or will be required to make any filing with or give any
notice to, or to obtain any Consent from, any Person in connection with (x) the
execution, delivery or performance of this Agreement or any of the other
agreements referred to in this Agreement, or (y) the consummation of the Merger
or any of the other transactions contemplated by this Agreement.
3.6 DUE ORGANIZATION, ETC.
(a) Parent and each of the Parent Subsidiaries, as set forth in
Part 3.6 of the Parent Disclosure Schedule, are corporations duly organized,
validly existing and in good standing under the laws of their respective
jurisdictions of incorporation. Parent has all necessary corporate power and
authority: (i) to conduct its business in the manner in which its business is
currently being conducted; (ii) to own and use its assets in the manner in which
its assets are currently owned and used; and (iii) to perform its obligations
under all of its Contracts.
(b) None of the Parent Companies is or has been required to be
qualified, authorized, registered or licensed to do business as a foreign
corporation in any jurisdiction other than the jurisdictions identified in Part
3.6 of the Parent Disclosure Schedule, except where the failure to be so
qualified, authorized, registered or licensed has not had and will not have a
Material Adverse Effect on Parent. Each of the Parent Companies is in good
standing as a foreign corporation in each of the jurisdictions identified in
Part 3.6 of the Parent Disclosure Schedule except where the failure to be in
good standing would not have a Material Adverse Effect on Parent.
(c) Except for the equity interests identified in Part 3.6 of
the Parent Disclosure Schedule, none of the Parent Companies owns, beneficially
or otherwise, any shares or other securities of, or any direct or indirect
equity interest in, any Entity. None of the Parent Companies has agreed or is
obligated to make any future investment in or capital contribution to any Entity
not identified in Part 3.6 of the Parent Disclosure Schedule.
3.7 GOVERNING DOCUMENTS; RECORDS. Parent has delivered or made available
to the Company accurate and complete copies of: (1) Parent's Certificate of
Incorporation and bylaws, including all amendments thereto, and all charter
documents and bylaws, and all amendments thereto, relating to the Parent
Subsidiaries; (2) the stock records of each of the Parent Subsidiaries; and (3)
[except as set forth in Part 3.7 of the Parent Disclosure Schedule,] the minutes
and other records of the meetings and other proceedings (including any actions
taken by written consent or otherwise without a meeting) of the stockholders of
each of the Parent Companies, the board of directors of each of the Parent
Companies and all committees of the board of directors of each of the Parent
Companies. There have been no formal meetings or other proceedings of the
stockholders of Parent, the board of directors of Parent or any committee of the
board of directors of Parent that are not adequately reflected in such minutes
or other records. There has not been any violation of any of the provisions of
Parent's Certificate of Incorporation or, except as would not have a Material
Adverse Effect on Parent, the bylaws or other charter documents of any of the
Parent Companies, and none of the Parent Companies has
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taken any action that is inconsistent in any material respect with any
resolution adopted by its stockholders, its board of directors or any committee
of its board of directors. The minute books of each of the Parent Companies are
accurate, up-to-date and complete in all material respects.
3.8 ABSENCE OF CHANGES. Except as set forth in the Parent SEC
Documents or in Part 3.8 of the Parent Disclosure Schedule, since April 30,
1998:
(a) Except as would not, individually or in the aggregate, have a
Material Adverse Effect on Parent, there has not been any change in the
business, condition, assets, liabilities, operations or financial performance of
the Parent Companies and, to the best knowledge of Parent, no event has occurred
that will, or could reasonably be expected to, have a Material Adverse Effect on
Parent;
(b) except as would not, individually or in the aggregate, have a
Material Adverse Effect on Parent, there has not been any loss, damage or
destruction to, or any interruption in the use of, any of the Parent Companies'
properties or assets (whether or not covered by insurance);
(c) Parent has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock, and has not repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;
(d) Parent has not sold, issued or authorized the issuance of (i)
any capital stock or other security (except for Parent Common Stock issued upon
the exercise of outstanding options and warrants), (ii) any option or right to
acquire any capital stock or any other security (except for options described in
Section 3.4), or (iii) any instrument convertible into or exchangeable for any
capital stock or other security;
(e) Parent has not amended or waived any of its rights under (i)
any provision of its 1997 Equity Incentive Plan, (ii) any provision of any
agreement evidencing any outstanding option or warrant, or (iii) any restricted
stock purchase agreement;
(f) there has been no amendment to Parent's Certificate of
Incorporation or bylaws, and Parent has not effected or been a party to any
Parent Acquisition Transaction, recapitalization, reclassification of shares,
stock split, reverse stock split or similar transaction;
(g) none of the Parent Companies has formed any subsidiary or
acquired any equity interest or other interest in any other Entity;
(h) none of the Parent Companies has made any capital expenditure
which, when added to all other capital expenditures made on behalf of the Parent
Companies between April 30, 1998 and the date of this Agreement, exceeds
$750,000.
(i) none of the Parent Companies has (i) entered into or
permitted any of the properties or assets owned or used by it to become bound by
any Contract that is or would constitute a material Contract, or (ii) amended or
prematurely terminated, or waived any material right or remedy under, any such
material Contract;
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(j) none of the Parent Companies has (i) acquired, leased or
licensed any right, real or personal property or other asset from any other
Person having a value in excess of $250,000, (ii) sold or otherwise disposed of,
or leased or licensed, any right, real or personal property or other asset to
any other Person having a value in excess of $250,000, or (iii) waived or
relinquished any right, except for immaterial rights or other immaterial
properties or assets acquired, leased, licensed or disposed of in the ordinary
course of business and consistent with the Parent Companies' past practices,
taken as a whole;
(k) none of the Parent Companies has written off as
uncollectible, or established any extraordinary reserve with respect to, any
material amount of account receivables or other indebtedness;
(l) none of the Parent Companies has made any pledge of any of
its properties or assets, except for pledges of immaterial properties or assets
made in the ordinary course of business and consistent with the Parent
Companies' past practices, taken as a whole;
(m) none of the Parent Companies has (i) lent money to any
Person, other than pursuant to routine travel advances made to employees in the
ordinary course of business and other than loans made in the ordinary course of
business and consistent with past practice in an amount not in excess of
$250,000 to any one Person (other than a Related Party as defined in Section
2.18), or (ii) incurred or guaranteed any indebtedness for borrowed money (other
than intercompany debt between or among Parent and the Parent Subsidiaries);
(n) none of the Parent Companies has (i) established or adopted
any Employee Benefit Plan, (ii) paid any bonus or made any profit-sharing or
similar payment to, or increased the amount of the wages, salary, commissions,
fringe benefits or other compensation or remuneration payable to, any of its
directors, officers or employees other than in the ordinary course of business
and consistent with past practice, (iii) hired any new employee having an annual
salary in excess of $150,000 or (iv) adopted any severance plan or arrangement
or entered into any severance agreement, or entered into any other plan,
arrangement or agreement providing for the payment of any benefit or
acceleration of any options upon a change in control or a termination of
employment;
(o) Parent has not changed any of its methods of accounting or
accounting practices in any material respect;
(p) Parent has not made any material Tax election;
(q) none of the Parent Companies has commenced or settled any
material Legal Proceeding;
(r) none of the Parent Companies has entered into any material
transaction or taken any other material action outside the ordinary course of
business or inconsistent with its past practices; and
(s) Parent has not agreed or committed to take any of the actions
referred to in clauses "(c)" through "(r)" above.
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3.9 PROPERTY.
(a) PROPERTY. Part 3.9(a) of the Parent Disclosure Schedule
contains a complete and accurate list of all real property owned, leased or
occupied by each of the Parent Companies (the "Land"). The Land, together with
all fixtures and improvements located on, and/or below the surface of the Land,
including without limitation the structures located thereon commonly known by
the property addresses indicated in Part 3.9(a) of the Parent Disclosure
Schedule (the "Improvements"), together with all rights, easements,
rights-of-way and appurtenances to the Land, is referred to collectively herein
as the "Real Property." Part 3.9(a) of the Parent Disclosure Schedule also
indicates which of the Real Property is leased or occupied by any of the Parent
Companies (individually, a "Leased Property" and collectively, the "Leased
Properties"). All presently effective leases, lease amendments or modifications,
work letter agreements, improvement agreements, subleases, assignments,
licenses, concessions, guarantees and other agreements relating to the Parent
Companies' use or occupancy of the Leased Property are collectively referred to
herein as the "Leases." True and complete copies of the Leases have been
delivered or made available to the Company. All furnishings, fixtures,
equipment, appliances, signs, personal property and other assets owned by the
Parent Companies and located in or about the Real Property or used in connection
with the management and operation of the Real Properties are hereinafter
referred to as the "Personal Property." All management agreements, maintenance
contracts, service contracts and equipment leases pertaining to the Real
Property or the Personal Property, and all other presently effective contracts,
agreements, warranties and guaranties relating to the ownership, leasing,
advertising, promotion, design, construction, management, operation, maintenance
or repair of the Real Property are herein collectively referred to as the "Real
Property Plans and Contracts." The Real Property, the Leased Properties, the
Personal Property and the Real Property Plans and Contracts are referred to
collectively as the "Property."
(b) TITLE. The Parent Companies own no Real Property. The Parent
Companies have good and marketable leasehold title to the Leased Properties,
free and clear from all Encumbrances, other than the Leases. Each of the Leases
is in full force and effect. None of the Parent Companies is in material breach
or default under, nor has any event occurred that, with the giving of notice or
the passage of time or both, would constitute a material breach or event of
default by any of the Parent Companies, under any of the Leases and, to the
knowledge of Parent, no other party to any of the Leases is in breach or default
under, nor, to the knowledge of Parent, has any event occurred that, with the
giving of notice or the passage of time or both, would constitute a breach or
event of default by such other party under any of the Leases.
(c) POSSESSION AND USE OF REAL PROPERTIES. The Parent Companies
have possession of the Real Properties. There are no persons leasing, using or
occupying the Real Property or any part thereof (except for the easements and
rights-of-way) other than the Parent Companies and there are no oral or written
leases, subleases, occupancies or tenancies in effect pertaining to the Real
Property other than the Leases and other than with respect to the easements and
rights-of-way. The Parent Companies possess all certificates, permits, licenses
and approvals, not including permits necessary due to the regulated nature of
the business conducted on the Real Property, that are required by law to own,
operate, use and occupy the Real Property as it is presently owned, operated,
used and occupied, except where failure to
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possess any such Permit would not have a Material Adverse Effect on Parent (the
"Permits"). The Permits are in full force and effect. The Parent Companies have
fully performed, satisfied and discharged all of the obligations, requirements
and conditions imposed on the Real Property by the Permits, except for any
failures to be in compliance that would not have a Material Adverse Effect on
Parent.
(d) COMPLIANCE WITH LAWS. No notices of violation of Legal
Requirements (including, without limitation, planning, zoning and building laws
and ordinances) relating to the Real Property, Leased Properties or the Real
Property Plans and Contracts have been issued to any of the Parent Companies, or
entered against or received by any of the Parent Companies, and no such
violations exist, except for any such violations which, individually or in the
aggregate, would not have a Material Adverse Effect on Parent.
(e) ANTICIPATED CHANGES. Other than changes that would impact
Parent's industry in general, Parent has no knowledge of any plan, study or
effort of any Governmental Body or any other Person which in any way would
materially affect the use of the Real Property, or any portion thereof, for its
intended uses or any intended public improvements which will result in any
material charge being levied against, or any material lien assessed upon, the
Real Property. Parent has no knowledge of any existing, proposed or contemplated
plan to widen, modify or realign any street or highway contiguous to the any of
the Real Properties. To the knowledge of Parent, there is no general plan, land
use or zoning action or proceeding of any kind, or general or special assessment
action or proceeding of any kind, or condemnation action or proceeding of any
kind pending or threatened or being contemplated with respect to the Real
Property or any part thereof which could have a Material Adverse Effect on
Parent. To the knowledge of Parent, there is no Legal Proceeding pending to
contest or appeal the amount of real property taxes or assessments levied
against the Real Property or any part thereof or the assessed value of the Real
Property or any part thereof for real property tax purposes. Parent has no
knowledge of any special assessments which will result from work, activities or
improve ments done to any of the Real Properties by any of the Parent Companies
or by any tenants or other parties, or Encumbrances on or other matters
affecting the Real Properties or any of them.
(f) EMINENT DOMAIN. To the knowledge of Parent, there is no
pending proceeding in eminent domain or otherwise, or any action to quiet title,
which would decrease the acreage of the Leased Property, or any portion thereof,
nor does Parent know of the existence of any threatened proceedings or of the
existence of any facts which might give rise to such action or proceeding.
(g) UTILITIES. Each Real Property is connected to and served by
water, solid waste and sewage disposal, drainage, telephone, gas or electricity
and other utility equipment facilities and services required by law and which
are adequate for the present use and operation of such Real Property, or any
portion thereof. Other than acts of God or war, Parent is not aware of any facts
or conditions which would result in the termination or impairment in the
furnishing of utility services to any Real Property.
(h) CONDITION OF THE PROPERTY. To the knowledge of Parent, there
are no material physical or mechanical defects or deficiencies in the condition,
design, construction, fabrication, manufacture or installation of any of the
Real Properties or any part thereof or any
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material system, element or component thereof, ordinary wear and tear excepted.
To the knowledge of Parent, all material systems, elements and components of
each of the Real Properties (including all machinery, fixtures and equipment,
the roof, foundation and structural elements, and the elevator, mechanical,
plumbing, electrical, utility, sprinkler and life safety systems, apparatus and
appliances located on the Real Properties) are in good working order and repair
and sound operating condition, ordinary wear and tear excepted. Parent has not
received and, to the knowledge of Parent, none of the Parent Subsidiaries has
received, any notice of any kind from any insurance broker, agent or underwriter
of any defects or inadequacies in or that any noninsurable condition exists in,
on or about any Real Property or any part thereof that could reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect on
Parent. To the knowledge of Parent, the Real Properties are free from
infestation by termites or other pests, insects or animals. To the knowledge of
Parent, no Real Property located in the State of California has been designated
as "hazardous waste property" or "border zone property" pursuant to California
Health and Safety Code Section 25220 et seq., no proceedings for a determination
as to whether any Real Property located in the State of California should be so
designated are pending or threatened, and no portion of the Real Property
located in the State of California is located within two thousand (2,000) feet
of a significant disposal of "hazardous waste" within the meaning of California
Health and Safety Code section 25221 or any similar statute or regulation, which
could cause such Real Property to be classified as "border zone property." To
the knowledge of Parent, there are no storage or other tanks or containers,
wells or other improvements below the surface of any Real Property.
(i) PERSONAL PROPERTY. Except as would not, individually or in
the aggregate, have a Material Adverse Effect on Parent, the Parent Companies
have good and valid title to the Personal Property, free and clear of all
Encumbrances (except for leases). The Personal Property is in good operating
condition and repair, ordinary wear and tear excepted.
3.10 RECEIVABLES. Part 3.10 of the Parent Disclosure Schedule provides
an accurate and complete breakdown and aging of all accounts receivable, notes
receivable and other receivables of Parent, on a consolidated basis, as of April
30, 1998. Except as set forth in Part 3.10 of the Parent Disclosure Schedule,
all existing accounts receivable of the Parent Companies (including those
accounts receivable that have not yet been collected and those accounts
receivable that have arisen since April 30, 1998 and have not yet been
collected) (i) represent valid obligations of customers of the Parent Companies
arising from bona fide transactions entered into in the ordinary course of
business and (ii) are current and will be collected in full when due, without
any counterclaim or set off (net of the allowance for doubtful accounts and any
other reserves set forth in Parent's audited balance sheet (the "Parent Balance
Sheet") for the year ended April 30, 1998 (which allowance and reserves are
reasonable and not in excess of such allowances provided by Parent in the
past)).
3.11 CONDITION AND SUFFICIENCY OF THE PROPERTY. The Property is adequate
for the uses to which it is being put and sufficient for the continued conduct
of the Parent Companies' businesses after the Closing in substantially the same
manner as conducted prior to the Closing.
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3.12 PROPRIETARY ASSETS.
(a) Part 3.12(a)(i) of the Parent Disclosure Schedule sets forth,
with respect to each material Parent Proprietary Asset registered with any
Governmental Body or for which an application has been filed with any
Governmental Body, (i) a brief description of such Proprietary Asset, and (ii)
the names of the jurisdictions covered by the applicable registration or
application. Part 3.12(a)(ii) of the Parent Disclosure Schedule identifies and
provides a brief description of all other material Parent Proprietary Assets
owned by each Parent Company. Part 3.12(a)(iii) of the Parent Disclosure
Schedule identifies and provides a brief description of each material
Proprietary Asset licensed to each Parent Company by any Person (except for any
Proprietary Asset that is licensed to a Parent Company under any third party
software license generally available to the public), and identifies the license
agreement under which such Proprietary Asset is being licensed to such Parent
Company. Except as set forth in Part 3.12(a)(iv) of the Parent Disclosure
Schedule, each Parent Company has good, valid and marketable title to all of the
Parent Proprietary Assets identified in Parts 3.12(a)(i) and 3.12(a)(ii) of the
Parent Disclosure Schedule as owned by such Parent Company, free and clear of
all liens and other Encumbrances, and has a valid right to use all Proprietary
Assets identified in Part 3.12(a)(iii) of the Parent Disclosure Schedule. Except
as set forth in Part 3.12(a)(v) of the Parent Disclosure Schedule, none of the
Parent Companies is obligated to make any payment to any Person for the use of
any such Parent Proprietary Asset. Except as set forth in Part 3.12(a)(vi) of
the Parent Disclosure Schedule, none of the Parent Companies has developed
jointly with any other Person any Parent Proprietary Asset with respect to which
such other Person has any rights.
(b) The Parent Companies have taken all commercially reasonable
measures and precautions necessary to protect and maintain the confidentiality
and secrecy of all Company Proprietary Assets (except Parent Proprietary Assets
whose value would be unimpaired by public disclosure) and otherwise to maintain
and protect the value of all Parent Proprietary Assets.
(c) To the knowledge of Parent, none of the Parent Proprietary
Assets infringes or conflicts with any Proprietary Asset owned or used by any
other Person. To the knowledge of Parent, none of the Parent Companies is
infringing, misappropriating or making any unlawful use of, or has received any
notice or other communication (in writing or otherwise) of any actual, alleged,
possible or potential infringement, misappropriation or unlawful use of, any
Proprietary Asset owned or used by any other Person. To the knowledge of Parent,
no other Person is infringing, misappropriating or making any unlawful use of,
and no Proprietary Asset owned or used by any other Person infringes or
conflicts with, any Parent Proprietary Asset.
(d) The Parent Proprietary Assets constitute all the Proprietary
Assets necessary to enable each Parent Company to conduct its business in the
manner in which such business has been and is being conducted. Except as set
forth in Part 3.12(d) of the Parent Disclosure Schedule, (i) none of the Parent
Companies has licensed any of the Parent Proprietary Assets to any Person on an
exclusive basis, and (ii) none of the Parent Companies has entered into any
covenant not to compete or Contract limiting its ability to exploit fully any of
its Proprietary Assets.
3.13 CONTRACTS.
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(a) Part 3.13 of the Parent Disclosure Schedule identifies:
(i) each Parent Contract relating to the employment of, or
the performance of services by, any employee, consultant or independent
contractor that is not terminable on 60 days or less notice or involves payments
or other liabilities in excess of $150,000 per year;
(ii) each Parent Contract involving the acquisition,
transfer, use, development, sharing or license of any material Proprietary
Asset;
(iii) each Parent Contract imposing any restriction on any
Parent Company's right or ability (A) to compete with any other Person or (B) to
acquire any product or other asset or any services from any other Person, to
sell any product or other asset to or perform any services for any other Person
or to transact business or deal in any other manner with any other Person;
(iv) each Parent Contract for the management of any
freestanding or hospital-based health program including, without limitation,
partial hospitalization, community mental health or chemical dependency programs
(the "Parent Programs").
(v) each Parent Contract involving the acquisition, issuance
or transfer of any equity securities (other than those that have been fully
performed);
(vi) each Parent Contract involving the creation of any
Encumbrance with respect to any material property or asset of any Parent
Company;
(vii) each Parent Contract involving or incorporating any
material guaranty, any material pledge, any material performance or completion
bond, any material indemnity or any material surety arrangement;
(viii) each Parent Contract creating any material
partnership or joint venture or any sharing of revenues, profits, losses, costs
or liabilities;
(ix) each Parent Contract involving the purchase or sale of
any product or other asset by or to, or the performance of any services by or
for, any Related Party (as defined in Section 3.23);
(x) each Parent Contract constituting a Government Contract
or Government Bid;
(xi) each Parent Contract involving the purchase or sale of
any real or personal property having a value in excess of $250,000;
(xii) any other Parent Contract of any Parent Company that
was entered into outside the ordinary course of business or was inconsistent
with such Parent Company's past practice, that has a term of greater than one
year and that may not be terminated within 90 days; and
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(xiii) any other Parent Contract of any Parent Company that
(A) has a term of more than 90 days and that may not be terminated by such
Parent Company (without penalty) within 90 days after the delivery of a
termination notice by such Parent Company; and (B) involves the payment or
delivery of cash or other consideration in an amount or having a value in excess
of $250,000 in any one year or $500,000 in the aggregate.
(Contracts in the respective categories described in clauses "(i)" through
"(xiii)" above are referred to in this Agreement as "Parent Material
Contracts.")
(b) Parent has delivered or made available to the Company
accurate and complete copies of all written Parent Material Contracts identified
in Part 3.13 of the Parent Disclosure Schedule, including all amendments
thereto. Part 3.13 of the Parent Disclosure Schedule provides an accurate
description of the terms of each Parent Material Contract that is not in written
form. Each Parent Material Contract identified in Part 3.13 of the Parent
Disclosure Schedule is valid and in full force and effect, and is enforceable by
the applicable Parent Company in accordance with its terms, subject to (i) laws
of general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
(c) except as set forth in Part 3.13 of the Parent Disclosure
Schedule:
(i) none of the Parent Companies has violated or breached,
or committed any default under, any Parent Material Contract, and, to the best
of the knowledge of Parent, no other Person has violated or breached, or
committed any default under, any Parent Material Contract;
(ii) to the best of the knowledge of Parent, no event has
occurred, and no circumstance or condition exists, that (with or without notice
or lapse of time) will, or could reasonably be expected to, (A) result in a
violation or breach of any of the provisions of any Parent Material Contract,
(B) give any Person the right to declare a default or exercise any remedy under
any Parent Material Contract, (C) give any Person the right to accelerate the
maturity or performance of any Parent Material Contract, or (D) give any Person
the right to cancel, terminate or modify any Parent Material Contract;
(iii) since June 30, 1996, none of the Parent Companies has
received any notice or other communication regarding any actual or alleged
violation or breach of, or default under, any Parent Material Contract that has
not been cured or is of a continuing or repetitive nature; and
(iv) none of the Parent Companies has waived any of its
material rights under any Parent Material Contract.
(d) Except with respect to the renegotiation of any managed care
contract (other than capitated contracts) involving amounts payable of less than
15% of the per diem rate of such contracts, no Person is renegotiating, or has a
right pursuant to the terms of any Parent Material Contract to renegotiate, any
amount paid or payable to any Parent Company under any Parent Material Contract
or any other material term or provision of any Parent Material Contract.
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(e) The Contracts identified in Part 3.13 of the Parent
Disclosure Schedule collectively constitute all of the material Contracts being
used by the Parent Companies to conduct their businesses in the manner in which
their businesses are currently being conducted.
(f) Part 3.13 of the Parent Disclosure Schedule identifies and
provides a brief description of each proposed Parent Material Contract as to
which any bid, offer, award, written proposal, term sheet or similar document
has been submitted or received by any of the Parent Companies since the date of
the Parent Balance Sheet.
3.14 LIABILITIES. None of the Parent Companies has accrued, contingent
or other liabilities of any nature, either matured or unmatured (whether or not
required to be reflected in financial statements in accordance with generally
accepted accounting principles, and whether due or to become due), except for:
(a) liabilities identified as such in the "liabilities" column of the Parent
Balance Sheet; (b) accounts payable or accrued salaries that have been incurred
by any Parent Company since April 30, 1998 in the ordinary course of business
and consistent with past practice; (c) liabilities under the Parent Material
Contracts identified in Part 3.13 of the Parent Disclosure Schedule, to the
extent the nature and magnitude of such liabilities can be specifically
ascertained by reference to the text of such Parent Material Contracts; and (d)
the liabilities identified in Part 3.14 of the Parent Disclosure Schedule.
3.15 COMPLIANCE WITH LEGAL REQUIREMENTS. Except as set forth in the
Parent SEC Documents, each of the Parent Companies is, and has at all times
since June 30, 1996 been, in compliance with all applicable Legal Requirements,
except where the failure to comply with such Legal Requirements has not had and
will not have a Material Adverse Effect on Parent. Except as set forth in Part
3.15 of the Parent Disclosure Schedule, since June 30, 1996, none of the Parent
Companies has received any notice or other communication from any Governmental
Body regarding any actual or possible violation of, or failure to comply with,
any Legal Requirement that could have a Material Adverse Effect on Parent.
3.16 GOVERNMENTAL AUTHORIZATIONS. For purposes of this Section 3.16
and Section 3.24 hereof, any representation with respect to any Parent Company
or Parent Program should only be deemed to be made by Parent with respect to the
activities of such Parent Company (or failures to act) in connection with such
Parent Company or Parent Program and not with respect to activities or failures
to act of any other Person, unless any Parent Company has actual knowledge of
any such activities or failure to act by a Parent Program. To the knowledge of
Parent, the Parent Companies and the Parent Programs have complied in all
material respects and are owned and operated in compliance in all material
respects with all applicable laws and regulations including, without limitation
regulations, guidelines and rules relating to Medicare, Medicaid, Tenncare, Blue
Cross, CHAMPUS and MediCal; and are certified for participation in the Medicare,
Medicaid, CHAMPUS, TennCare, and MediCal programs; and possess all licenses,
permits, certificates of need, registrations, contracts, requirements,
accreditations, certificates, authorizations, rights and approvals necessary to
own, operate or conduct the business in the manner presently conducted except
for any of the foregoing the failure of which to have would not have a Material
Adverse Effect on Parent (the "Regulatory Approvals"). To the knowledge of
Parent, each Regulatory Approval, whether issued in the name of a Parent Company
or maintained by any Parent Company for another pursuant to the terms of a
Parent
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Material Contract, has been lawfully and validly issued, is in full force and
effect, and no proceeding is pending or proposed to cancel, withdraw, revoke,
suspend, modify or limit any such Regulatory Approval. To the knowledge of
Parent, except as set forth in the Parent SEC Documents, none of the Parent
Companies nor any Parent Program has any knowledge of or has received either
orally or in writing any communication from any Governmental Body regarding any
actual or possible limitation, revocation, withdrawal, suspension, cancellation,
termination or modification of any Regulatory Approval applicable to any Parent
Company or Parent Program. There are no provisions or agreements which would
preclude or limit in any material respect any Parent Company from operating the
Parent Programs in a manner consistent with how such Parent Programs have been
operated prior to the date hereof. To the knowledge of Parent, any Parent
Company or Parent Program receiving funds from a federal, state or local
government are in compliance with the requirements of the governmental program,
except as set forth in the Parent SEC Documents and except for any failure to be
in compliance that would not have a Material Adverse Effect on Parent. To the
knowledge of Parent, except as disclosed in the Parent SEC Documents or Part
3.16 of the Parent Disclosure Schedule, no Parent Program is under investigation
with respect to, charged with violating or been given notice of any violation
of, any applicable law, statute, order, rule, regulation, policy, guideline, or
judgment entered, by any federal, state, local or foreign Governmental
Authority.
3.17 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of any
Parent Company with any Governmental Body with respect to any taxable period
ending on or before the Closing Date (the "Parent Returns") (i) have been or
will be filed on or before the applicable due date (including any extensions of
such due date), and (ii) have been, or will be when filed, accurately and
completely prepared in all material respects in compliance with all applicable
Legal Requirements. All amounts shown on the Parent Returns to be due on or
before the Closing Date have been or will be paid on or before the Closing Date.
Parent has delivered or made available to the Company accurate and complete
copies of all Parent Returns that have been requested by the Company.
(b) The Parent Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the dates
thereof in accordance with generally accepted accounting principles. Parent will
establish, in the ordinary course of business and consistent with its past
practice, reserves adequate for the payment of all Taxes through the Closing
Date, and Parent will disclose the dollar amount of such reserves to the Company
on or prior to the Closing Date.
(c) Except as set forth in Part 3.17 of the Parent Disclosure
Schedule, there have been no examinations or audits of any Parent Return by any
Governmental Body. Parent has delivered or made available to the Company
accurate and complete copies of all audit reports and similar documents (to
which Parent has access) relating to the Parent Returns. Except as set forth in
Part 3.17 of the Parent Disclosure Schedule, no extension or waiver of the
limitation period applicable to any of the Parent Returns has been granted (by
any Parent Company or any other Person), and no such extension or waiver has
been requested from any Parent Company.
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(d) No claim or Proceeding is pending or has been threatened
against or with respect to any Parent Company in respect of any Tax. There are
no liens for Taxes upon any of the assets of any Parent Company except liens for
current Taxes not yet due and payable. None of the Parent Companies has entered
into or become bound by any agreement or consent pursuant to Section 341(f) of
the Code.
(e) Except as listed in Part 3.17 of the Parent Disclosure
Schedule, there is no agreement, plan, arrangement or other Contract covering
any employee or independent contractor or former employee or independent
contractor of Parent that, considered individually or considered collectively
with any other such Contracts, will, or could reasonably be expected to, give
rise directly or indirectly to the payment of any amount that would not be
deductible pursuant to Section 280G or Section 162 of the Code. None of the
Parent Companies is, or has been, a party to or bound by any tax indemnity
agreement, tax sharing agreement, tax allocation agreement or similar Contract.
3.18 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 3.18(a) of the Parent Disclosure Schedule identifies
each written or unwritten salary, bonus, deferred compensation, incentive
compensation, stock purchase, stock option, severance pay, termination pay,
hospitalization, medical, life or other insurance, supplemental unemployment
benefits, profit-sharing, pension or retirement plan, program or agreement
(collectively, the "Plans") sponsored, maintained, contributed to or required to
be contributed to by any Parent Company for the benefit of any employee of any
Parent Company ("Employee").
(b) None of the Parent Companies maintains, sponsors or
contributes to, nor has at any time in the past maintained, sponsored or
contributed to, any employee pension benefit plan (as defined in Section 3(2) of
ERISA, whether or not excluded from coverage under specific Titles or Subtitles
of ERISA) for the benefit of Employees or former Employees (a "Pension Plan").
(c) Each of the Parent Companies maintains, sponsors or
contributes only to those employee welfare benefit plans (as defined in Section
3(1) of ERISA, whether or not excluded from coverage under specific Titles or
Merger Subtitles of ERISA) for the benefit of Employees or former Employees
which are described in Part 3.18(c) of the Parent Disclosure Schedule (the
"Welfare Plans"), none of which is a multiemployer plan (within the meaning of
Section 3(37) of ERISA).
(d) With respect to each Plan, Parent has delivered or made
available to the Company:
(i) an accurate and complete copy of such Plan (including
all amendments thereto);
(ii) an accurate and complete copy of the annual report, if
required under ERISA, with respect to such Plan for the last five years;
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(iii) an accurate and complete copy of the most recent
summary plan description, together with each Summary of Material Modifications,
if required under ERISA, with respect to such Plan, and all material employee
communications relating to such Plan;
(iv) if such Plan is funded through a trust or any third
party funding vehicle, an accurate and complete copy of the trust or other
funding agreement (including all amendments thereto) and accurate and complete
copies the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating
to such Plan, including service provider agreements, insurance contracts,
minimum premium contracts, stop-loss agreements, investment management
agreements, subscription and participation agreements and record keeping
agreements; and
(vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with respect to
such Plan (if such Plan is intended to be qualified under Section 401(a) of the
Code).
(e) None of the Parent Companies is required to be, and, to the
best of the knowledge of Parent, has never been required to be, treated as a
single employer with any other Person under Section 4001(b)(1) of ERISA or
Section 414(b), (c), (m) or (o) of the Code. Parent has never been a member of
an "affiliated service group" within the meaning of Section 414(m) of the Code.
None of the Parent Companies has ever made a complete or partial withdrawal from
a multiemployer plan, as such term is defined in Section 3(37) of ERISA,
resulting in "withdrawal liability," as such term is defined in Section 4201 of
ERISA (without regard to subsequent reduction or waiver of such liability under
either Section 4207 or 4208 of ERISA).
(f) None of the Parent Companies has any plan or commitment to
create any additional Welfare Plan or Pension Plan, or to modify or change any
existing Welfare Plan or Pension Plan (other than to comply with applicable law)
in a manner that would affect any Employee.
(g) No Welfare Plan provides death, medical or health benefits
(whether or not insured) with respect to any current or former Employee after
any such Employee's termination of service (other than (i) benefit coverage
mandated by applicable law, including coverage provided pursuant to Section
4980B of the Code, (ii) deferred compensation benefits accrued as liabilities on
the Parent Balance Sheet, and (iii) benefits the full cost of which are borne by
current or former Employees (or the Employees' beneficiaries)).
(h) With respect to each of the Welfare Plans constituting a
group health plan within the meaning of Section 4980B(g)(2) of the Code, the
provisions of Section 4980B of the Code ("COBRA") have been complied with in all
material respects.
(i) Each of the Plans has been operated and administered in all
material respects in accordance with applicable Legal Requirements, including,
but not limited to, ERISA and the Code.
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(j) Each of the Plans intended to be qualified under Section
401(a) of the Code has received a favorable determination from the Internal
Revenue Service, and Parent is not aware of any reason why any such
determination letter should be revoked.
(k) Neither the execution, delivery or performance of this
Agreement, nor the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will result in any payment (including any bonus,
golden parachute or severance payment) to any current or former Employee or
director of any Parent Company (whether or not under any Plan), materially
increase the benefits payable under any Plan, or result in any acceleration of
the time of payment or vesting of any such benefits.
(l) None of the Parent Companies is a party to any collective
bargaining contract or other Contract with a labor union involving any of its
Employees. All of the Parent Companies' employees are "at will" employees.
(m) Except where the failure to comply has not had and will not
have a Material Adverse Effect on Parent, each of the Parent Companies is, and
has at all times since June 30, 1996 been, in compliance in all material
respects with all applicable Legal Requirements and Contracts relating to
employment, employment practices, wages, bonuses and terms and conditions of
employment, including employee compensation matters.
3.19 ENVIRONMENTAL MATTERS.
(a) None of the Real Properties is or has ever been, nor is
Parent or any of the Parent Subsidiaries or any other Person for whom Parent may
be liable, in violation of, and each of such Persons and the Real Properties is
in full compliance with, all Environmental Laws, except as would not, singly or
in the aggregate, have a Material Adverse Effect on Parent. During the time in
which any Real Property has been owned, operated, occupied or leased by any
Parent Company, neither such Parent Company nor any third party has used,
generated, manufactured, produced, stored or disposed of on, under or about the
Real Property, or transported to or from such Real Property any Hazardous
Material, except in compliance with Environmental Laws. There is no present or,
to the knowledge of the Parent, threatened Release of any Hazardous Materials
in, on or under the Property. If any pesticides have been disposed of, or
placed, sprayed or deposited on any Real Property, such acts have been in full
compliance with and such pesticides are registered under the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. section 136 et seq.), as
amended, or any successor statute, and any other applicable federal, state or
local law or regulation promulgated thereunder.
(b) Neither Parent nor any of the Parent Subsidiaries has
received any citation, directive, inquiry, summons, warning, order, notice or
other written communication, whether from a governmental authority, citizens'
group, employee, the current or prior owner or operator of any Facilities or
otherwise, alleging that any Parent Company or any other Person for whom any
Parent Company may be liable or any Real Property is not in full compliance with
any Environmental Laws or permit or authorization required under applicable
Environmental Laws, and, to the knowledge of Parent, there are no circumstances
that may prevent or interfere with such full compliance in the future. There is
no legal or administrative proceeding or inquiry pending or, to the knowledge of
Parent, threatened by any Person or any Governmental Body
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(including, without limitation, the United States Environmental Protection
Agency and any other federal or state agency with jurisdiction over the Parent
Companies any/or the Real Property under any Environmental Laws) with respect to
the presence of Hazardous Materials on any Real Property or the migration
thereof from or to other property. Parent and each Parent Subsidiary has all
permits, licenses and approvals (which are included in the Permits) required by
all applicable Environmental Laws for the use and occupancy of, and all
operations and activities in, the Real Property, Parent and each Parent
Subsidiary is in full compliance with all such permits, licenses and approvals,
and all such permits, licenses and approvals were duly issued and are in full
force and effect, except for such failures to have permits, licenses or
approvals or non-compliance that would not, singly or in the aggregate, have a
Material Adverse Effect on Parent.
(c) There is no claim, action, cause of action, investigation or
written notice by any Person alleging potential liability (including, without
limitation, potential liability for investigatory costs, natural resources
damages, property damages, personal injuries or penalties) arising out of, based
on or resulting from (i) the presence in or release into the environment of any
Hazardous Materials at any location owned, leased or operated, now or in the
past, including, without limitation, any Real Property, by any Parent Company or
any other Person for whom any Parent Company may be liable, or (ii)
circumstances forming the basis of any violation or alleged violation of any
Environmental Law (collectively, "Environmental Claims") pending or threatened
against any Parent Company or any other Person whose liability for any
Environmental Claim any Parent Company has retained or assumed either
contractually or by operation of law.
(d) There are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
the release, emission, discharge, presence or disposal of any Hazardous
Materials, that could reasonably be expected to form the basis of any
Environmental Claim against Parent or any Parent Subsidiary with respect to
property owned, leased or operated by or for Parent or any Parent Subsidiary,
now or in the past, including, without limitation, any Real Property or with
respect to any property in, on or under which are located Hazardous Materials
that were generated by any Parent Company or any other Person for whom any
Parent Company may be liable, or against any Person whose liability for any
Environmental Claim any Parent Company has retained or assumed either
contractually or by operation of law.
3.20 INSURANCE. Part 3.20 of the Parent Disclosure Schedule identifies
all insurance policies maintained by, at the expense of or for the benefit of
Parent and the Parent Subsidiaries and identifies any material claims currently
outstanding thereunder, and Parent has delivered or made available to the
Company accurate and complete copies of the insurance policies identified on
Part 3.20 of the Parent Disclosure Schedule. Each of the insurance policies
identified in Part 3.20 of the Parent Disclosure Schedule is in full force and
effect. Since June 30, 1996, none of the Parent Companies has received any
notice or other communication regarding any actual or possible (a) cancellation
or invalidation of any insurance policy, (b) refusal of any coverage or
rejection of any covered claim under any insurance policy, or (c) material
adjustment in the amount of the premiums payable with respect to any insurance
policy.
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3.21 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 3.21 of the Parent Disclosure
Schedule, or the Parent SEC Documents, there is no pending Legal Proceeding, and
(to the best of the knowledge of Parent) no Person has threatened to commence
any Legal Proceeding: (i) that involves any Parent Company or any of the
properties or assets owned or used by any Parent Company; or (ii) that
challenges, or that could reasonably be expected to have the effect of
preventing, delaying, making illegal or otherwise interfering with, the Merger.
To the best of the knowledge of Parent, no event has occurred, and no claim,
dispute or other condition or circumstance exists, that will, or that could
reasonably be expected to, give rise to or serve as a basis for the commencement
of any such Legal Proceeding.
(b) Except as set forth in Part 3.21 of the Parent Disclosure
Schedule or the Parent SEC Documents or that will not have a Material Adverse
Effect on Parent, since June 30, 1996, no Legal Proceeding has been commenced by
or has been pending against any Parent Company.
(c) Except as will not have a Material Adverse Effect on Parent,
there is no order, writ, injunction, judgment or decree to which any Parent
Company, or any of the properties or assets owned or used by any Parent Company,
is subject. To the best of the knowledge of Parent, no officer or other employee
of any Parent Company is subject to any order, writ, injunction, judgment or
decree that prohibits such officer or other employee from engaging in or
continuing any conduct, activity or practice relating to the business of any
Parent Company.
3.22 FULL DISCLOSURE.
(a) This Agreement (including the Parent Disclosure Schedule)
does not (i) contain any representation, warranty or information that is false
or misleading with respect to any material fact, or (ii) omit to state any
material fact or necessary in order to make the representations, warranties and
information contained and to be contained herein and therein (in the light of
the circumstances under which such representations, warranties and information
were or will be made or provided) not false or misleading.
(b) The information supplied by Parent for inclusion in the S-4
Registration Statement (as defined in Section 4.11) will not, as of the date of
the S-4 Registration Statement or as of the date of the Parent Stockholders'
Meeting (as defined in Section 4.7), (i) contain any statement that is
inaccurate or misleading with respect to any material fact, or (ii) omit to
state any material fact necessary in order to make such information (in the
light of the circumstances under which it is provided) not false or misleading.
3.23 RELATED PARTY TRANSACTIONS. Except as set forth in the Parent SEC
Documents and except pursuant to ownership of Parent's outstanding securities:
(a) no Related Party has, and no Related Party has at any time since June 30,
1996 had, any direct or indirect interest in any material asset used in or
otherwise relating to the business of any Parent Company; (b) no Related Party
is, or has at any time since June 30, 1996 been, indebted to any Parent Company;
(c) since June 30, 1996, no Related Party has entered into, or has had any
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direct or indirect financial interest in, any Parent Material Contract,
transaction or business dealing involving any Parent Company; (d) no Related
Party is competing, or has at any time since June 30, 1996 competed, directly or
indirectly, with any Parent Company; and (e) to the knowledge of Parent, no
Related Party has any claim or right against any Parent Company (other than
rights under stock options and rights to receive compensation for services
performed as an employee of any such Parent Company). (For purposes of the
Section 3.23 each of the following shall be deemed to be a "Related Party": (i)
each individual who is an executive officer or director of any Parent Company;
(iii) each member of the immediate family of each of the individuals referred to
in clause "(i)" above; and (iii) any trust or other Entity (other than the
Parent Companies) in which any one of the individuals referred to in clauses
"(i)" and "(ii)" above holds (or in which more than one of such individuals
collectively hold), beneficially or otherwise, a material voting, proprietary or
equity interest.)
3.24 MEDICARE AND MEDICAID PARTICIPATION.
(a) (i) There are no pending or, to the knowledge of Parent,
threatened claims or investigations by Medicare, Medicaid, Blue Cross or any
other cost-based third party payor (the "Programs") against any Parent Company
or Parent Program; and (ii) each Parent Company and Parent Program currently
meets the conditions for participation in the Programs.
(b) None of the Parent Companies or, to the knowledge of Parent,
any other Person who has a direct or indirect ownership interest (as those terms
are defined in 42 C.F.R. Section 1001.1001(a)(2)) in any Parent Company or
Parent Program or who has an ownership or control interest in any Parent
Company, or who is an officer, director, agent, or managing employee of any
Parent Company or Parent Program and (ii) to the knowledge of Parent, no person
with any relationship with such entity who has an indirect ownership interest in
any Parent Company or Parent Program: (A) has had a civil monetary penalty
assessed against it under SSA Section 1128A; (B) has been excluded from
participation under the Medicare programs or a State Health Care Program; (C)
has been convicted (as that term is defined in 42 C.F.R. Section 1001.2) or any
of the following categories of offenses as described in SSA Section 1128(a) and
(b)(1), (2), (3): (i) criminal offenses relating to the delivery of any item or
service under Medicare, Medicaid or any other State Health Care Program or any
Federal Health Care Program; (ii) criminal offenses under federal or state law
relating to patient neglect or abuse in connection with the delivery of a health
care item or service; (iii) criminal offenses under federal or state law
relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or
other financial misconduct in connection with the delivery of a health care item
or service or with respect to any act or omission in a program operated by or
financed in whole or in part by any federal, state or local governmental entity;
(iv) federal or state laws relating to the interference with or obstruction of
any investigation into any criminal offense described in (i) through (iii)
above; or (v) criminal offense under federal or state law relating to the
unlawful manufacture, distribution, prescription or dispensing of a controlled
substance.
3.25 ILLEGAL PAYMENTS. None of the Parent Companies has, directly or
indirectly, paid or delivered, or agreed to pay or deliver, any fee, commission
or other sum of money or item or property, however characterized, to any finder,
agent or government official, in the United States or any other country, which
is in any manner related to the business or operations of any Parent Company,
which Parent knows or has reason to believe to have been
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illegal under any applicable Legal Requirements; and none of the Parent
Companies has participated, directly or indirectly, in any boycotts or other
similar practices affecting any of its actual or potential customers.
3.26 FRAUD AND ABUSE. To the knowledge of Parent, none of the Parent
Companies nor any Affiliate is engaged in any activities that are prohibited
under federal Medicare and Medicaid statutes, including, without limitation, 42
U.S.C. Sections 1320a-7 - 1320a-7b, 1395nn, and 1396b(s), the False Claims Act
or the regulations promulgated pursuant to such statutes, or any similar
federal, state or local statutes or regulations or which are prohibited by
binding rules of professional conduct or any other criminal or civil statute
invoked to penalize the submission of false claims, the making of false
statements, the failure to disclose information for which disclosure is
required, or financial relationships with physicians or others that constitute
illegal remuneration or violate the "Stark law," including, but not limited to,
the following:
(a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment;
(b) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in determining
rights to any benefit or payment;
(c) failing to disclose knowledge by a claimant of occurrence of
any event affecting the initial or continued right to any benefit or payment on
its own behalf or on behalf of another, with intent to secure such benefit or
payment fraudulently; or
(d) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe or rebate), directly or indirectly,
overtly or covertly, in cash or in kind or offering to pay such remuneration (i)
in return for referring an individual to a person for the furnishing or
arranging for the furnishing of any item or service for which payment may be
made in whole or in part by Medicare, Medicaid or other applicable governmental
payors, or (ii) in return for purchasing, leasing or ordering or arranging for
or recommending the purchasing, leasing or order of any good, facility, service
or item for which payment may be made in whole or in part by Medicare, Medicaid
or other governmental payors.
The term "Affiliate" shall mean any corporation, partnership or organization,
whether now existing or hereafter created, which directly or indirectly
controls, is controlled by, or is under common control with, any Parent Company,
and any director or officer of each Parent Company or any such Affiliate.
SECTION 4. COVENANTS OF THE PARTIES
4.1 ACCESS AND INVESTIGATION.
(a) During the period from the date of this Agreement through the
Effective Time (the "Pre-Closing Period"), the Company shall, and shall cause
its Representatives to: (i) provide Parent and Parent's Representatives with
reasonable access to the Acquired Companies' Representatives, personnel,
properties and assets and to all existing books,
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records, Tax Returns, work papers and other documents and information relating
to the Acquired Companies; and (ii) provide Parent and Parent's Representatives
with copies of such existing books, records, Tax Returns, work papers and other
documents and information relating to the Acquired Companies, and with such
additional financial, operating and other data and information regarding the
Acquired Companies, as Parent may reasonably request.
(b) During the Pre-Closing Period, Parent shall, and shall cause
its Representatives to: (i) provide the Company and the Company's
Representatives with reasonable access to the Parent Companies' Representatives,
personnel, properties and assets and to all existing books, records, Tax
Returns, work papers and other documents and information relating to Parent; and
(ii) provide the Company and the Company's representatives with copies of such
existing books, records, Tax Returns, work papers and other documents and
information relating to the Parent Companies, and with such additional
financial, operating and other data and information regarding the Parent
Companies, as the Company may reasonably request.
4.2 OPERATION OF BUSINESS.
(a) During the Pre-Closing Period, except pursuant to prior
written consent of Parent, the Company shall, and shall cause each of the other
Acquired Companies to:
(i) conduct its business and operations in the ordinary
course and in substantially the same manner as such business and operations have
been conducted prior to the date of this Agreement;
(ii) use reasonable efforts (which shall not include or
require the expenditure of any funds, except consistent with the ordinary course
of business) to preserve intact its current business organization, keep
available the services of its current officers and employees and maintain its
relations and goodwill with all suppliers, customers, landlords, creditors,
employees and other Persons having business relationships with it;
(iii) pay the premiums required by, and use its best efforts
to keep in full force, all insurance policies identified in Part 2.17 of the
Company Disclosure Schedule;
(iv) except as required by any agreement or designations (as
set forth in Part 2.5 of the Company Disclosure Schedule), not declare, accrue,
set aside or pay any dividend or make any other distribution in respect of any
shares of capital stock, and shall not repurchase, redeem or otherwise reacquire
any shares of capital stock or other securities;
(v) not sell, issue or authorize the issuance of (1) any
capital stock or other security, (2) any option or right to acquire any capital
stock or other security, or (3) any instrument convertible into or exchangeable
for any capital stock or other security (except that the Company shall be
permitted (x) to grant stock options to employees in accordance with its past
practices and, (y) to issue Company Common Stock to employees upon the exercise
of outstanding stock options, warrants and shares of preferred stock);
(vi) except as contemplated herein, not amend or waive any
of its rights under, or permit the acceleration of vesting under, (1) any
provision of the Company's
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stock option plans, (2) any provision of any agreement evidencing any
outstanding stock option or warrant, or (3) any provision of any restricted
stock purchase agreement;
(vii) except as contemplated herein, not amend or permit the
adoption of any amendment to the Company's Certificate of Incorporation or
bylaws, or, except as set forth in Part 4.2(a)(vii) of the Company Disclosure
Schedule, not effect or permit Company to become a party to any
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction;
(viii) except as set forth in Part 4.2(a)(viii) of the
Company Disclosure Schedule, not form any subsidiary or acquire any equity
interest or other interest in any other Entity;
(ix) not make any capital expenditure, except for capital
expenditures that, when added to all other capital expenditures made on behalf
of the Acquired Companies during the Pre-Closing Period, do not exceed the
amounts set forth on Part 2.5 of the Company Disclosure Schedule;
(x) except for Company Material Contracts described in
clauses (iii), (vi), (ix), (xi) or (xii) of Section 2.10(a) that are entered
into, amended, terminated or waived in the ordinary course of business
consistent with past practice, not (1) enter into, or permit any of the
properties or assets owned or used by it to become bound by, any Company
Material Contract, or (2) amend or prematurely terminate, or waive any material
right or remedy under, any such Company Material Contract;
(xi) not (1) acquire, lease or license any right, personal
or real property or other asset from any other Person or, (2) sell or otherwise
dispose of, or lease or license, or waive or relinquish any right with respect
to, any right, personal or real property or other asset to any other Person
(other than the sale or other disposition of certain subsidiaries of the Company
listed in Part 4.2(a)(xi) of the Company Disclosure Schedule), in each case,
except for any such actions (x) pursuant to Contracts that can be performed
wholly or terminated (without penalty) within one year by the Acquired Companies
and (y) which do not exceed $250,000 in value or liability (in any one
transaction or series of related transactions);
(xii) not lend money to any Person, except for any loan not
exceeding $250,000 for any one-year period to any Person who is not a Related
Person (as defined in Section 2.18) in the ordinary course of business
consistent with past practice;
(xiii) not incur or guarantee any indebtedness for borrowed
money in excess of $250,000 (except that the Acquired Companies may (1) make
routine borrowings in the ordinary course of business under their existing lines
of credit with Bank of America and (2) incur intercompany indebtedness in the
ordinary course of business consistent with past practice);
(xiv) except as set forth in Part 4.2(a)(xiv) of the Company
Disclosure Schedule, not (i) establish, adopt or amend any Employee Benefit Plan
except as contemplated herein, (ii) except in the ordinary course of business
consistent with past practice, pay any bonus or make any profit-sharing payment,
cash incentive payment or similar payment
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to, or increase the amount of the wages, salary, commissions, fringe benefits or
other compensation or remuneration payable to, any of its directors, officers or
employees, (iii) hire any new employee whose aggregate annual compensation is
expected to exceed $150,000 or (iv) adopt any severance plan or arrangement or
enter into any severance agreement, or enter into any other plan, arrangement or
agreement providing for the payment of any benefit or acceleration of any
options upon a change in control or a termination of employment;
(xv) not change any of its methods of accounting or
accounting practices in any material respect;
(xvi) except as set forth in Part 2.9(a)(vi) of the Company
Disclosure Schedule, not make any Tax election;
(xvii) not commence or settle any material Legal Proceeding;
provided, however, that consent by Parent with respect to the commencement of
any Legal Proceeding shall not be unreasonably withheld or delayed;
(xviii) not agree or commit to take any of the actions
described in clauses "(iv)" through "(xvii)" above.
(b) During the Pre-Closing Period, except pursuant to prior
written consent of the Company, each of the Parent Companies shall:
(i) conduct its business and operations in the ordinary
course and in substantially the same manner as such business and operations have
been conducted prior to the date of this Agreement;
(ii) use reasonable efforts (which shall not include or
require the expenditure of any funds, except consistent with the ordinary course
of business) to preserve intact its current business organization, keep
available the services of its current officers and employees and maintain its
relations and goodwill with all suppliers, customers, landlords, creditors,
employees and other Persons having business relationships with it;
(iii) pay the premiums required by, and use its best efforts
to keep in full force, all insurance policies identified in Part 3.20 of the
Parent Disclosure Schedule;
(iv) except as required by any agreement or designations (as
set forth in Part 4.2(b)(iv) of the Parent Disclosure Schedule), not declare,
accrue, set aside or pay any dividend or make any other distribution in respect
of any shares of capital stock, and shall not repurchase, redeem or otherwise
reacquire any shares of capital stock or other securities;
(v) not sell, issue or authorize the issuance of (1) any
capital stock or other security, (2) any option or right to acquire any capital
stock or other security, or (3) any instrument convertible into or exchangeable
for any capital stock or other security (except that Parent shall be permitted
(x) to grant stock options to employees in accordance with its past practices
and, (y) to issue Parent Common Stock to employees upon the exercise of
outstanding stock options, warrants and shares of preferred stock);
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(vi) except as contemplated herein, not amend or waive any
of its rights under, or permit the acceleration of vesting under, (1) any
provision of Parent's stock option plans, (2) any provision of any agreement
evidencing any outstanding stock option or warrant, or (3) any provision of any
restricted stock purchase agreement;
(vii) except as contemplated herein, not amend or permit the
adoption of any amendment to Parent's Certificate of Incorporation or bylaws,
or, except as set forth in Part 4.2(b)(vii) of the Parent Disclosure Schedule,
not effect or permit Parent to become a party to any recapitalization,
reclassification of shares, stock split, reverse stock split or similar
transaction;
(viii) except as set forth in Part 4.2(b)(viii) of the
Parent Disclosure Schedule, not form any subsidiary or acquire any equity
interest or other interest in any other Entity;
(ix) not make any capital expenditure, except for capital
expenditures that do not exceed $250,000 per month in the aggregate;
(x) except for Parent Material Contracts described in
clauses (iii), (vi), (ix), (xi) or (xii) of Section 3.13(a) that are entered
into, amended, terminated or waived in the ordinary course of business
consistent with past practice, not (1) enter into, or permit any of the
properties or assets owned or used by it to become bound by, any Parent Material
Contract, or (2) amend or prematurely terminate, or waive any material right or
remedy under, any such Parent Material Contract;
(xi) not (1) acquire, lease or license any right, personal
or real property or other asset from any other Person or, (2) sell or otherwise
dispose of, or lease or license, or waive or relinquish any right with respect
to, any right, personal or real property or other asset to any other Person, in
each case, except for any such actions (x) pursuant to Contracts that can be
performed wholly or terminated (without penalty) within one year by Parent and
(y) which do not exceed $250,000 in value or liability (in any one transaction
or series of related transactions);
(xii) not lend money to any Person, except for any loan not
exceeding $250,000 for any one-year period to any Person who is not a Related
Person (as defined in Section 3.23) in the ordinary course of business
consistent with past practice;
(xiii) not incur or guarantee any indebtedness for borrowed
money in excess of $250,000 (except that the Parent Companies may (1) make
routine borrowings in the ordinary course of business under their existing lines
of credit with Sanwa Bank and (2) incur intercompany indebtedness in the
ordinary course of business consistent with past practice);
(xiv) except as set forth in Part 4.2(b)(xiv) of the Parent
Disclosure Schedule, not (i) establish, adopt or amend any Employee Benefit Plan
except as contemplated herein, (ii) except in the ordinary course of business
consistent with past practice, pay any bonus or make any profit-sharing payment,
cash incentive payment or similar payment to, or increase the amount of the
wages, salary, commissions, fringe benefits or other
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compensation or remuneration payable to, any of its directors, officers or
employees, (iii) hire any new employee whose aggregate annual compensation is
expected to exceed $150,000 or (iv) except as contemplated herein, adopt any
severance plan or arrangement or enter into any severance agreement, or enter
into any other plan, arrangement or agreement providing for the payment of any
benefit or acceleration of any options upon a change in control or a termination
of employment;
(xv) not change any of its methods of accounting or
accounting practices in any material respect;
(xvi) not make any Tax election;
(xvii) not commence or settle any material Legal Proceeding;
provided, however, that consent by the Company with respect to the commencement
of any Legal Proceeding shall not be unreasonably withheld or delayed;
(xviii) not agree or commit to take any of the actions
described in clauses "(iv)" through "(xvii)" above.
4.3 NOTIFICATION; UPDATES TO COMPANY DISCLOSURE SCHEDULE.
(a) During the Pre-Closing Period, the Company shall promptly
notify Parent in writing of:
(i) the discovery by the Company of any event, condition,
fact or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes a material inaccuracy in or material
breach of any representation or warranty made by the Company in this Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute a material inaccuracy in or material breach of any representation or
warranty made by the Company in this Agreement if (A) such representation or
warranty had been made as of the time of the occurrence, existence or discovery
of such event, condition, fact or circumstance, or (B) such event, condition,
fact or circumstance had occurred, arisen or existed on or prior to the date of
this Agreement; and
(iii) any breach of any covenant or obligation of the
Company.
(b) If any event, condition, fact or circumstance that is
required to be disclosed pursuant to Section 4.3(a) requires any change in the
Company Disclosure Schedule, or if any such event, condition, fact or
circumstance would require such a change assuming the Company Disclosure
Schedule were dated as of the date of the occurrence, existence or discovery of
such event, condition, fact or circumstance, then the Company shall promptly
deliver to Parent an update to the Company Disclosure Schedule specifying such
change. No such update shall be deemed to supplement or amend the Company
Disclosure Schedule for the purpose of determining whether any of the conditions
set forth in Section 5 has been satisfied.
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(c) During the Pre-Closing Period, Parent shall promptly notify
the Company in writing of:
(i) the discovery by Parent of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this Agreement
and that caused or constitutes a material inaccuracy in or material breach of
any representation or warranty made by Parent in this Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute a material inaccuracy in or material breach of any representation or
warranty made by Parent in this Agreement if (A) such representation or warranty
had been made as of the time of the occurrence, existence or discovery of such
event, condition, fact or circumstance, or (B) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of this
Agreement; and
(iii) any breach of any covenant or obligation of Parent.
(d) If any event, condition, fact or circumstance that is
required to be disclosed pursuant to Section 4.3(c) requires any change in the
Parent Disclosure Schedule, or if any such event, condition, fact or
circumstance would require such a change assuming the Parent Disclosure Schedule
were dated as of the date of the occurrence, existence or discovery of such
event, condition, fact or circumstance, then Parent shall promptly deliver to
the Company an update to the Parent Disclosure Schedule specifying such change.
No such update shall be deemed to supplement or amend the Parent Disclosure
Schedule for the purpose of determining whether any of the conditions set forth
in Section 6 has been satisfied.
4.4 NO NEGOTIATION.
(a) During the Pre-Closing Period, the Company shall not, and
shall cause its Representatives not to, directly or indirectly: (i) solicit or
encourage the initiation or submission of any expression of interest, inquiry,
proposal or offer from any Person (other than Parent) relating to a possible
Company Acquisition Transaction; (ii) participate in any discussions or
negotiations or enter into any agreement with, or provide any non-public
information to or cooperate in any other way with, any Person (other than
Parent) relating to or in connection with a possible Company Acquisition
Transaction; or (iii) consider, entertain or accept any proposal or offer from
any Person (other than Parent) relating to a possible Company Acquisition
Transaction.
This Section 4.4(a) does not prohibit the Company from furnishing information
regarding the Company or entering into discussions or negotiations, or any
agreement, with any Person in response to an unsolicited bona fide written
proposal or offer relating to a possible Company Acquisition Transaction
submitted by such Person if the Board of Directors of the Company concludes in
good faith, based upon the advice of legal counsel, that such action is required
in order for the Board of Directors of the Company to comply with its fiduciary
obligations to the Company's stockholders under applicable law.
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The parties acknowledge that any breach of the foregoing provisions by any
officer, director or agent (including any employee acting as agent) of any of
the Acquired Companies (including any breach by a Principal Stockholder) shall
be deemed a breach by the Company.
The Company shall, and shall cause its Representatives to, immediately
discontinue any ongoing discussions or negotiations (other than with Parent)
relating to a possible Company Acquisition Transaction. The Company shall
promptly notify Parent orally and in writing of any expression of interest,
inquiry, proposal, offer or request for information relating to a possible
Company Acquisition Transaction that is received by the Company, any of the
Principal Stockholders or any of their respective Representatives during the
Pre-Closing Period.
(b) During the Pre-Closing Period, Parent shall not, and shall
cause its Representatives not to, directly or indirectly: (i) solicit or
encourage the initiation or submission of any expression of interest, inquiry,
proposal or offer from any Person (other than the Company) relating to a
possible Parent Acquisition Transaction; (ii) participate in any discussions or
negotiations or enter into any agreement with, or provide any non-public
information to or cooperate in any other way with, any Person (other than the
Company) relating to or in connection with a possible Parent Acquisition
Transaction; or (iii) consider, entertain or accept any proposal or offer from
any Person (other than the Company) relating to a possible Parent Acquisition
Transaction.
This Section 4.4(b) does not prohibit Parent from furnishing information
regarding Parent or entering into discussions or negotiations, or any agreement,
with any Person in response to an unsolicited bona fide written proposal or
offer relating to a possible Parent Acquisition Transaction submitted by such
Person if the Board of Directors of Parent concludes in good faith, based upon
the advice of legal counsel, that such action is required in order for the Board
of Directors of Parent to comply with its fiduciary obligations to Parent's
stockholders under applicable law.
The parties acknowledge that any breach of the foregoing provisions by any
officer, director or agent (including any employee of Parent acting as agent) of
Parent shall be deemed a breach by Parent.
Parent shall, and shall cause its Representatives to, immediately discontinue
any ongoing discussions or negotiations (other than with the Company) relating
to a possible Parent Acquisition Transaction. Parent shall promptly notify the
Company orally and in writing of any expression of interest, inquiry, proposal,
offer or request for information relating to a possible Parent Acquisition
Transaction that is received by Parent or any of its Representatives during the
Pre-Closing Period.
4.5 FILINGS AND CONSENTS. As promptly as practicable after the
execution of this Agreement, each party to this Agreement (a) shall make all
filings (if any) and give all notices (if any) required to be made and given by
such party in connection with the Merger and the other transactions contemplated
by this Agreement, including any filings required under the Securities Act, the
HSR Act and applicable state licensure laws, and (b) shall use all commercially
reasonable efforts to obtain all Consents (if any) required to be obtained
(pursuant to any applicable Legal Requirement or Contract, or otherwise) by such
party in connection with
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the Merger and the other transactions contemplated by this Agreement. The
Company and Parent shall promptly deliver to the other a copy of each such
filing made, each such notice given and each such Consent obtained during the
Pre-Closing Period.
4.6 COMPANY STOCKHOLDERS' MEETING.
(a) The Company shall take all action necessary under all
applicable Legal Requirements to call, give notice of, convene and duly hold a
meeting of the holders of Company Common Stock (the "Company Stockholders'
Meeting") to consider and vote upon this Agreement and the Merger. The Company
Stockholders' Meeting will be held as promptly as practicable and in any event
within 45 days after the S-4 Registration Statement (as defined in Section 4.11)
is declared effective under the Securities Act and Parent delivers to the
Company the number of Proxy Statements reasonably requested by the Company
(which 45-day period shall be extended on a day-for-day basis if and for so long
as any stop order or other similar action is in place, pending or threatened by
the SEC).
(b) The board of directors of the Company (by at least a majority
vote) shall recommend that the Company's stockholders vote in favor of and adopt
and approve this Agreement and approve the Merger at the Company Stockholders'
Meeting; the Joint Proxy Statement shall include a statement to the effect that
the board of directors of the Company has recommended that the Company's
stockholders vote in favor of and adopt and approve this Agreement and approve
the Merger at the Company Stockholders' Meeting; and, subject to Section 4.6(c)
below, neither the board of directors of the Company nor any committee thereof
shall withdraw, amend or modify, or propose or resolve to withdraw, amend or
modify, in a manner adverse to Parent, the recommendation of the board of
directors of the Company that the Company's stockholders vote in favor of the
adoption and approval this Agreement and the approval of the Merger.
(c) Notwithstanding the foregoing, nothing in this Section 4.6
shall prevent the Board of Directors of the Company from withdrawing, amending
or modifying its recommendation in favor of the Merger and approval and adoption
of this Agreement (and the Joint Proxy Statement may reflect such withdrawal,
amendment or modification) to the extent that the Board of Directors of the
Company shall conclude in good faith, based upon the advice of legal counsel,
that such withdrawal, amendment or modification is required in order for the
Board of Directors of the Company to act in a manner that is consistent with its
fiduciary obligations under applicable law.
4.7 PARENT STOCKHOLDERS' MEETING.
(a) Parent shall take all action necessary under all applicable
Legal Requirements to call, give notice of, convene and duly hold a meeting of
the holders of outstanding Parent Common Stock to consider and vote upon the
Merger (the "Parent Stockholders' Meeting"). The Parent Stockholders' Meeting
will be held as promptly as practicable and in any event within 45 days after
the S-4 Registration Statement is declared effective under the Securities Act
(which 45-day period shall be extended on a day-for-day basis if and for so long
as any stop order or other similar action is in place, pending or threatened by
the SEC).
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(b) The board of directors of Parent (by at least a majority
vote) shall recommend that Parent's stockholders vote in favor of the approval
of the Merger; the Joint Proxy Statement shall include a statement to the effect
that the board of directors of Parent has recommended that Parent's stockholders
vote in favor of the approval of the principal terms of the Merger; and, subject
to Section 4.7(c) below, neither the board of directors of Parent nor any
committee thereof shall withdraw, amend or modify, or propose or resolve to
withdraw, amend or modify, in a manner adverse to the Company, the
recommendation of the board of directors of Parent that Parent's stockholders
vote in favor of the approval of the principal terms of the Merger.
(c) Notwithstanding the foregoing, nothing in this Section 4.7
shall prevent the Board of Directors of Parent from withdrawing, amending or
modifying its recommendation in favor of the Merger and approval and adoption of
this Agreement (and the Joint Proxy Statement may reflect such withdrawal,
amendment or modification) to the extent that the Board of Directors of Parent
shall conclude in good faith, based upon the advice of legal counsel, that such
withdrawal, amendment or modification is required in order for the Board of
Directors of Parent to act in a manner that is consistent with its fiduciary
obligations under applicable law.
4.8 PUBLIC ANNOUNCEMENTS. During the Pre-Closing Period, neither the
Company nor Parent shall (and the Company and Parent shall not permit any of
their respective Representatives to) issue any press release or make any public
statement regarding this Agreement or the Merger, or regarding any of the other
transactions contemplated by this Agreement, without the other party's prior
written consent; provided, however, that either party may make a public
statement or issue a press release in the event that such disclosure is required
by applicable law, based upon the written advice of outside legal counsel, in
which case the other party shall be consulted regarding the disclosure to be
made and shall be entitled to make or issue the same or similar disclosure or
release.
4.9 SURVEYS; TITLE INSURANCE.
(a) The Company shall use its best efforts to assist Parent in
obtaining a land survey for each parcel of Real Property owned by the Acquired
Companies as requested by Parent, which surveys shall be certified to Parent and
the Company (and any other party reasonably requested by Parent) and shall name
Parent and the Company (and such other parties as reasonably requested) as the
parties for whose benefit it is prepared. Parent shall pay for the costs of such
surveys.
(b) The Company shall cause to be prepared and delivered to
Parent within thirty (30) days after the date of this Agreement a current,
effective commitment for title insurance (or at Parent's election for
endorsement of existing title insurance policies) for each parcel of Real
Property owned by the Acquired Companies (the "Title Commitments") issued by a
title company or companies (the "Title Company") reasonably satisfactory to
Parent, with the Surviving Corporation as the proposed insured, and accompanied
by true, complete, and legible copies of all documents referred to in the Title
Commitments.
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(c) Parent shall be entitled to object to any title matters
(other than title matters which (1) are listed in clauses (ii) through (iv) of
the definition of Permitted Liens and (2) do not materially interfere with the
continued use of Owned Property as currently utilized) shown in the Title
Commitments, in its reasonable discretion, by a written notice of objections
delivered to the Company. The Company shall cooperate with Parent in curing any
objections Parent may have to title to the Real Property or obtaining
affirmative title insurance protection for such exceptions satisfactory to
Parent in Parent's reasonable discretion.
(d) The Title Company shall deliver to Parent at Closing a
commitment to issue an ALTA Owner's Policy (Revised 10-17-70 and 10-17-84) (or
other form if required by state law) of title insurance, with extended coverage
(i.e., with ALTA General Exceptions 1 through 5 deleted, or with corresponding
deletions if the Property is located in a non-ALTA state), issued by the Title
Company as of the Closing Date containing the Endorsements, insuring the
Acquired Companies as owner of good, marketable (to the extent available in the
particular jurisdiction) and indefeasible fee simple title to the Real Property
owned by any Acquired Company, and subject only to the Title Exceptions (the
"New Title Policies"). "Title Exceptions" shall mean, except as do not
materially interfere with the continued use of Owned Property as currently
utilized, (A) exceptions to title to the Real Property owned by any Acquired
Company set forth on the Title Commitments and approved by Parent and (B)
clauses (ii), (iii), (iv) and (v) of the definition of Permitted Liens.
"Endorsements" shall mean, to the extent such endorsements are available under
the laws of the state in which Real Property is located: (1) owner's
comprehensive; (2) access; (3) survey (accuracy of survey); (4) location (survey
legal matches title legal); (5) separate tax lot; (6) legal lot; (7) zoning 3.1,
with parking and loading docks; and (8) such other endorsements as Parent may
reasonably require. The Company shall execute at Closing an ALTA Statement
(Owner's Affidavit) and any other documents, undertakings or agreements
reasonably required by the Title Company to issue the New Title Policies in
accordance with the provisions of this Agreement.
4.10 BEST EFFORTS. Each of the parties to this Agreement shall use its
reasonable efforts to take all action and to do all things necessary, proper or
advisable to consummate the Merger and the transactions contemplated by this
Agreement as promptly as possible (including, without limitation, using its
reasonable efforts to cause the conditions set forth in Sections 5 and 6 for
which they are responsible to be satisfied as soon as reasonably practicable and
to prepare, execute and deliver such further instruments and take or cause to be
taken such other and further action as any other party hereto shall reasonably
request).
4.11 REGISTRATION STATEMENT; PROXY STATEMENT.
(a) As promptly as practicable after the date of this Agreement,
Parent shall prepare (and the Company shall assist Parent in such preparation)
and cause to be filed with the SEC a registration statement on Form S-4 covering
the Parent Common Stock to be issued to the Company stockholders in the Merger
(the "S-4 Registration Statement"), in which the Joint Proxy Statement will be
included as a prospectus, and any other documents required by the Securities Act
or the Exchange Act in connection with the Merger. Parent shall use all
reasonable efforts to cause the S-4 Registration Statement (including the Joint
Proxy Statement) to comply with the rules and regulations promulgated by the
SEC, and each of Parent and the Company shall use all reasonable efforts to
respond promptly to any comments of the SEC or its
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staff, and Parent shall use all reasonable efforts, and the Company shall
cooperate with Parent, to have the S-4 Registration Statement declared effective
under the Securities Act as promptly as practicable after it is filed with the
SEC. Parent will use all reasonable efforts to cause the Joint Proxy Statement
to be mailed to Parent's stockholders, and the Company will use all reasonable
efforts to cause the Joint Proxy Statement to be mailed to the Company's
stockholders, as promptly as practicable after the S-4 Registration Statement is
declared effective under the Securities Act. The Company shall promptly furnish
to Parent all information concerning the Acquired Companies and the Company's
stockholders that is required or reasonably requested by Parent in connection
with any action contemplated by this Section 4.11. If any event relating to the
Acquired Companies or if the Company becomes aware of any information that
should be set forth in an amendment or supplement to the S-4 Registration
Statement or the Joint Proxy Statement, then the Company shall promptly inform
Parent thereof and shall cooperate with Parent in filing such amendment or
supplement with the SEC and, if appropriate, in mailing such amendment or
supplement to the stockholders of the Company.
(b) Prior to the Effective Time, Parent shall use reasonable
efforts to obtain all regulatory approvals needed to ensure that the Parent
Common Stock to be issued in the Merger will be registered or qualified under
the securities law of every jurisdiction of the United States in which any
registered holder of Company Common Stock has an address of record on the record
date for determining the stockholders entitled to notice of and to vote at the
Company Stockholders' Meeting.
(c) Parent shall promptly prepare and submit to the Nasdaq
National Market a listing application covering the shares of Parent Common Stock
issuable in the Merger, and shall use its reasonable efforts to obtain, prior to
the Effective Time, approval for the listing of such Parent Common Stock,
subject to official notice of issuance.
4.12 REGULATORY APPROVALS. The Company and Parent shall, promptly
after the date of this Agreement, prepare and file the notifications, if any,
required under the HSR Act in connection with the Merger. The Company and Parent
shall respond as promptly as practicable to (i) any inquiries or requests
received from the Federal Trade Commission or the Department of Justice for
additional information or documentation and (ii) any inquiries or requests
received from any state attorney general or other Governmental Body in
connection with antitrust or related matters. Each of the Company and Parent
shall (1) give the other party prompt notice of the commencement of any Legal
Proceeding by or before any Governmental Body with respect to the Merger or any
of the other transactions contemplated by this Agreement, (2) keep the other
party informed as to the status of any Legal Proceeding, and (3) promptly inform
the other party of any communication to or from the Federal Trade Commission,
the Department of Justice or any other Governmental Body regarding the Merger.
The Company and Parent will consult and cooperate with one another, and will
consider in good faith the views of one another, in connection with any
analysis, appearance, presentation, memorandum, brief, argument, opinion or
proposal made or submitted in connection with any Legal Proceeding under or
relating to the HSR Act or any other federal or state antitrust or fair trade
law. In addition, except as may be prohibited by any Governmental Body or by any
Legal Requirement, in connection with any Legal Proceeding under or relating to
the HSR Act or any other federal or state antitrust or fair trade law or any
other similar Legal Proceeding, each of the Company and Parent agrees to permit
authorized Representatives of the other party to be present
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at each meeting or conference relating to any such Legal Proceeding and to have
access to and be consulted in connection with any document, opinion or proposal
made or submitted to any Governmental Body in connection with any such Legal
Proceeding.
4.13 TERMINATION OF EMPLOYEE PLANS. At the Closing, the Company shall
terminate its 1993 Stock Option Plan and its 1996 Stock Option Plan
(collectively, the "Option Plans") and shall ensure that no employee or former
employee of the Company has any rights under any of the Option Plans and that
any liabilities of the Company under the Option Plans (including any such
liabilities relating to services performed prior to the Closing) are fully
extinguished at no cost to the Company.
4.14 REPURCHASE OFFER. Promptly after the execution of this Agreement,
the Company shall offer to repurchase, as of the Closing Date, all outstanding
stock options of the Company for an aggregate purchase price of $1,135,546 (the
"Repurchase Offer"). The offering documents to be sent to such option holders
shall be in form and substance reasonably acceptable to Parent.
4.15 BOARD COMPOSITION OF PARENT. Parent shall use all reasonable
efforts, subject to the fiduciary duties of Parent's directors, to ensure that,
as soon as practicable following the Effective Time, the board of directors of
Parent shall appoint Stack as a director of Parent pending Parent's 1998 Annual
Meeting of Stockholders and shall nominate Stack to be elected as a director of
Parent in the Proxy Statement for such Annual Meeting.
SECTION 5. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB.
The obligations of Parent and Merger Sub to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions:
5.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by the Company in this Agreement shall have been accurate in all
material respects as of the date of this Agreement, and shall be accurate in all
material respects on the Closing Date as if made on the Closing Date (without
giving effect to any update to the Company Disclosure Schedule not consented to
in writing by Parent).
5.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations
that the Company is required to comply with or to perform at or prior to the
Closing shall have been complied with and performed in all material respects.
5.3 STOCKHOLDER APPROVAL. The principal terms of the Merger shall
have been duly approved by the affirmative vote of at least (a) a majority of
the Company Common Stock entitled to vote with respect thereto, (b) a majority
of the Series A Preferred Stock entitled to vote with respect thereto and (c) a
majority of the Parent Common Stock entitled to vote with respect thereto.
5.4 CONSENTS. All Consents required to be obtained in connection with
the Merger and the other transactions contemplated by this Agreement (including
the Consents
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identified in Part 2.24 of the Company Disclosure Schedule and in Part 3.5 of
the Parent Disclosure Schedule) shall have been obtained and shall be in full
force and effect.
5.5 AGREEMENTS AND DOCUMENTS. Parent shall have received the
following agreements and documents, each of which shall be in full force and
effect:
(a) the Affiliate and Lock-Up Agreements executed by the Persons
identified on Exhibit C-1;
(b) the Company shall have obtained and delivered to Parent prior
to August 29, 1998 valid consents and agreements executed by all of the Persons
who are parties to the Existing Stockholders Agreements irrevocably consenting
and agreeing to the termination of each of the Existing Stockholders Agreements,
subject only to the consummation of the Merger;
(c) the Stockholder Agreements shall have been executed by each
Principal Stockholder and shall be enforceable against each Principal
Stockholder;
(d) the Series B Preferred Stock Agreement shall have been
executed by Welsh Carson shall have performed and complied with all obligations
under the Series B Preferred Stock Agreement required to be performed or
complied by it at or prior to the Effective Time;
(e) the Escrow Agreement shall have been executed by the Escrow
Agent and the Stockholders' Representatives;
(f) a legal opinion of Waller Lansden Dortch & Davis, A
Professional Limited Liability Company, dated as of the Closing Date, in form
and substance reasonably acceptable to Parent and its counsel;
(g) written resignations of all directors and officers of the
Company (other than Stack), effective as of the Effective Time; and
(h) customary closing certificates.
5.6 STOCK OPTIONS AND WARRANTS. Each and every unexpired and
unexercised stock option (not included in the Repurchase Offer) (other than the
1993 Options) and warrant of the Company outstanding immediately prior to the
Closing shall have been exercised by the holder thereof or shall have been
terminated and canceled effective upon the Effective Time.
5.7 LISTING. The shares of Parent Common Stock to be issued in the
Merger shall have been approved for listing (subject to notice of issuance) on
the Nasdaq Stock National Market.
5.8 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or reasonably
deemed applicable to the Merger that (i) makes
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consummation of the Merger illegal or (ii) as a whole, is reasonably expected to
have a material adverse effect on the business, condition, assets, liabilities,
operations or financial performance of Parent or the Surviving Corporation
following the consummation of the Merger.
5.9 EFFECTIVENESS OF REGISTRATION STATEMENT. The S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued or threatened by the
SEC with respect to the S-4 Registration Statement.
5.10 NO LEGAL PROCEEDINGS. No Person shall have commenced or
threatened to commence any Legal Proceeding (i) challenging or seeking the
recovery of damages in connection with the Merger or (ii) seeking to prohibit or
limit the exercise by Parent of any right pertaining to its ownership of stock
of the Surviving Corporation, in each case which is reasonably expected to have
a material adverse effect on the business, condition, assets, liabilities,
operations or financial performance of Parent or the Surviving Corporation
following the consummation of the Merger.
5.11 HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
5.12 TERMINATION OF EMPLOYEE PLANS. The Company shall have provided
Parent with evidence, reasonably satisfactory to Parent, as to the termination
of the benefit plans referred to in Section 4.13.
5.13 FAIRNESS OPINION. The board of directors of Parent shall have
received the written opinion of SunTrust Equitable Securities, financial advisor
to Parent, in customary form and to the effect that the consideration to be
received by the stockholders of the Company is fair to the stockholders of
Parent from a financial point of view.
5.14 FINANCING. Parent shall have received bank financing of at least
$175,000,000, on terms reasonably acceptable to Parent.
5.15 1998 AUDITED FINANCIAL STATEMENTS.
(a) Parent shall have received from the Company the audited
balance sheet of the Company as of June 30, 1998 and the related audited income
statement, statement of stockholders' equity and statement of cash flows of the
Company for the fiscal year ended June 30, 1998, together with the notes thereto
and the unqualified report and opinion of Ernst & Young LLP relating thereto
(collectively, the "1998 Financial Statements").
(b) Except as set forth in Part 2.5 of the Company Disclosure
Schedule (without giving effect to any update to the Company Disclosure Schedule
not consented to in writing by Parent), the 1998 Financial Statements shall not
reflect, when compared to the unaudited Company Financial Statements for the May
31, 1998 period ended May 31, 1998 to Parent on or prior to the date hereof, any
material adverse change, in the business, condition, assets, liabilities,
operations or financial performance of the Acquired Companies, considered as a
whole.
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5.16 ENVIRONMENTAL REPORTS. Parent shall have received from the
Company (at the sole cost of Parent) Phase I reports and any additional
environmental reports reasonably requested by Parent with respect to (i) each of
the Owned Properties listed on Exhibit J hereto and (ii) each stand-alone
building leased by the Acquired Companies.
5.17 NEW TITLE POLICIES. (i) Parent shall have received the New Title
Policies with respect to the Real Property owned by the Acquired Companies
complying with the requirements of Section 4.9 and (ii) Parent shall have also
received results of Uniform Commercial Code, judgment and tax lien searches
(dated within thirty (30) days of the Closing Date from the state and county in
which each Acquired Company's principal place of business is located and each
other state and county in which any of the Property is located), in each case
delivered by Company at Parent's expense, evidencing that no Encumbrances or
judgments of record exist against such Acquired Company, other than Permitted
Liens.
5.18 AMENDMENT OF THC AGREEMENTS. Section 9.6 of the Asset Purchase
Agreement, dated as of October 22, 1996, and Section 9.6 of the Merger
Agreement, dated October 22, 1996, between the Company and Transitional
Hospitals Corporation ("THC"), shall have been amended to the reasonable
satisfaction of Parent.
5.19 ACQUISITION OF STOCK AND/OR ASSETS OF CBHS. The Company shall
have completed the acquisition of the stock and/or assets of CBHS, an affiliate
of Vencor; provided, however, that Parent shall have the option, at its sole
discretion after the completion of reasonable due diligence, to direct the
Company not to complete such acquisition (in which case this condition shall be
deemed waived by Parent).
5.20 GOVERNMENT REGULATIONS. There shall not have been a material
adverse change in governmental laws or regulations, or interpretations thereof,
relating to the healthcare industry from that in effect as of the date hereof.
5.21 REVIEW OF LEASES. Parent shall have had the opportunity to review
the leases identified in Part 2.6(c) of the Company Disclosure Schedule and
shall have determined, in its sole reasonable discretion, that the provisions of
such leases would not result in a Material Adverse Effect on the Company;
provided, however, that this condition shall be deemed waived by Parent unless
on or prior to August 6, 1998, Parent terminates this Agreement due to the
failure of this condition to be satisfied.
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
6.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by Parent and Merger Sub in this Agreement shall have been
accurate in all material respects as of the date of this Agreement, and shall be
accurate in all material respects on the Closing Date as if made on the Closing
Date (without giving effect to any update to the Parent Disclosure Schedule not
conformed to in writing by the Company).
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6.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations
that Parent and Merger Sub are required to comply with or to perform at or prior
to the Closing shall have been complied with and performed in all material
respects.
6.3 STOCKHOLDER APPROVAL. The principal terms of the Merger shall
have been duly approved by the affirmative vote of at least (a) a majority of
the Company Common Stock entitled to vote with respect thereto and (b) a
majority of the Parent Common Stock entitled to vote with respect thereto.
6.4 CONSENTS. All Consents required to be obtained in connection with
the Merger and the other transactions contemplated by this Agreement (including
the Consents identified in Part 2.24 of the Company Disclosure Schedule and in
Part 3.5 of the Parent Disclosure Schedule) shall have been obtained and shall
be in full force and effect.
6.5 AGREEMENTS AND DOCUMENTS. The Company shall have received the
following documents:
(a) a legal opinion of Cooley Godward LLP, dated as of the
Closing Date in form and substance reasonably acceptable to the Company and its
counsel;
(b) the Escrow Agreement shall have been executed by the Escrow
Agent and Parent;
(c) the Exchange Agent Agreement shall have been executed by the
Exchange Agent and Parent and shall be in full force and effect; and
(d) customary closing documents.
6.6 LISTING. The shares of Parent Common Stock to be issued in the
Merger shall have been approved for listing (subject to notice of issuance) on
the Nasdaq National Market.
6.7 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that (i) makes consummation of the Merger illegal or
(ii) as a whole, is reasonably expected to have a material adverse effect on the
business, condition, assets, liabilities, operations or financial performance of
Parent or the Surviving Corporation following the consummation of the Merger.
6.8 EFFECTIVENESS OF REGISTRATION STATEMENT. The S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the SEC with respect
to the S-4 Registration Statement.
6.9 NO LEGAL PROCEEDINGS. No Person shall have commenced or
threatened to commence any Legal Proceeding (i) challenging or seeking the
recovery of damages in connection with the Merger or (ii) seeking to prohibit or
limit the exercise by Parent of any right pertaining to its ownership of stock
of the Surviving Corporation, in each case which is
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reasonably expected to have a material adverse effect on the business,
condition, assets, liabilities, operations or financial performance of Parent or
the Surviving Corporation following the consummation of the Merger.
6.10 HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
6.11 FAIRNESS OPINION. The board of directors of Parent shall have
received the written opinion of SunTrust Equitable Securities, financial advisor
to Parent, in customary form and to the effect that the consideration to be
received by the stockholders of the Company is fair to the stockholders of
Parent from a financial point of view.
6.12 UNAUDITED INTERIM FINANCIAL STATEMENTS.
(a) The Company shall have received from Parent the unaudited
balance sheet of Parent as of July 31, 1998 and the related unaudited income
statement of the Company for the quarter ended July 31, 1998, together with the
notes thereto (collectively, the "Unaudited Interim Financial Statements").
(b) Except as set forth in the Parent SEC Documents and in Part
3.8 of the Parent Disclosure Schedule (without giving effect to any update to
the Parent Disclosure Schedule not consented to in writing by the Company), the
Unaudited Interim Financial Statements shall not reflect, when compared to the
audited financial statements of Parent for the year ended April 30, 1998
delivered to the Company on or prior to the date hereof, any material adverse
change, in the business, condition, assets, liabilities, operations or financial
performance of the Parent Companies, considered as a whole.
6.13 GOVERNMENT REGULATIONS. There shall not have been a material
adverse change in governmental laws or regulations, or interpretations thereof,
relating to the healthcare industry from that in effect as of the date hereof.
SECTION 7. TERMINATION
7.1 TERMINATION EVENTS. This Agreement may be terminated prior to the
Closing:
(a) by Parent if Parent reasonably determines that the timely
satisfaction of any condition set forth in Section 5 (other than Section 5.5(b))
has become impossible (other than as a result of any failure on the part of
Parent or Merger Sub to comply with or perform any covenant or obligation of
Parent or Merger Sub set forth in this Agreement);
(b) by the Company if the Company reasonably determines that the
timely satisfaction of any condition set forth in Section 6 has become
impossible (other than as a result of any failure on the part of the Company or
any of the Principal Stockholders to comply with or perform any covenant or
obligation set forth in this Agreement or in the Stockholders Agreements,
respectively);
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(c) by Parent if the Closing has not taken place on or before
January 31, 1999 (other than as a result of any failure on the part of Parent or
Merger Sub to comply with or perform any covenant or obligation of Parent or
Merger Sub set forth in this Agreement);
(d) by the Company if the Closing has not taken place on or
before January 31, 1999 (other than as a result of the failure on the part of
the Company or any of the Principal Stockholders to comply with or perform any
covenant or obligation set forth in this Agreement or in the Stockholders
Agreements, respectively);
(e) by the mutual consent of Parent and the Company;
(f) by Parent (at any time prior to stockholder approval of this
Agreement, the Merger and the transactions contemplated hereby) if, pursuant to
and in compliance with Section 4.4(b), Parent and its Board of Directors
conclude in good faith that Parent must accept an unsolicited bona fide written
proposed Parent Acquisition Transaction which could reasonably be expected to
result in a transaction that is more favorable to Parent's stockholders than the
Merger (any such more favorable proposed Parent Acquisition Transaction being
referred to in this Agreement as a "Superior Proposal"); provided, however, that
if this Agreement is terminated pursuant to this Section 7.1(f), Parent shall
pay to the Company a nonrefundable fee of $7.5 million in cash (and no
additional fee will be required under Section 7.3) upon Parent's (or its Board
of Directors') election to accept such Superior Proposal. In reaching such
conclusion, the Board of Directors shall consult with outside legal counsel (and
other advisors as appropriate);
(g) by Parent as provided in Section 7.3;
(h) by the Company as provided in Section 7.3; or
(i) by Parent after August 29, 1998 if the condition set forth in
Section 5.5(b) has not been satisfied.
7.2 TERMINATION PROCEDURES. If Parent wishes to terminate this
Agreement pursuant to Section 7.1(a), Section 7.1(c), Section 7.1(f), Section
7.1(g) or Section 7.1(i), Parent shall deliver to the Company a written notice
stating that Parent is terminating this Agreement and setting forth a brief
description of the basis on which Parent is terminating this Agreement. If the
Company wishes to terminate this Agreement pursuant to Section 7.1(b), Section
7.1(d) or Section 7.1(h), the Company shall deliver to Parent a written notice
stating that the Company is terminating this Agreement and setting forth a brief
description of the basis on which the Company is terminating this Agreement.
7.3 TERMINATION FEES.
(a) Parent may terminate this Agreement immediately (unless
already terminated as provided in clause (iv) below) and the Company shall pay
to Parent a nonrefundable termination fee of $7.5 million in cash payable upon
termination of this Agreement, if (i) at any time prior to the Closing Date, the
Company accepts a third party proposal or offer relating to a possible Company
Acquisition Transaction; (ii) the Company fails
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to complete the Company Stockholders' Meeting as required herein; (iii) the
Company's board of directors withdraws, amends or modifies, in a manner adverse
to Parent, its recommendation that the Company's stockholders vote in favor of
the adoption and approval of this Agreement and the approval of the Merger; or
(iv) the Company terminates this Agreement other than pursuant to Section 7.1;
provided, however, that no termination fee shall be payable in the event that
Parent terminates this Agreement pursuant to Section 5.21.
(b) The Company may terminate this Agreement immediately (unless
already terminated as provided in clause (iv) below) and Parent shall pay to the
Company a nonrefundable termination fee of $7.5 million in cash payable upon
termination of this Agreement, if (i) at any time prior to the Closing Date,
Parent accepts a third party proposal or offer relating to a possible Parent
Acquisition Transaction; (ii) Parent fails to complete the Parent Stockholders'
Meeting as required herein; (iii) Parent's board of directors withdraws, amends
or modifies, in a manner adverse to the Company, its recommendation that the
Parent's stockholders vote in favor of the adoption and approval of this
Agreement and the approval of the Merger; or (iv) Parent terminates this
Agreement other than pursuant to Section 7.1.
7.4 EFFECT OF TERMINATION. If this Agreement is terminated pursuant
to Section 7.1, all further obligations of the parties under this Agreement
shall terminate; provided, however, that: (a) neither the Company nor Parent
shall be relieved of any obligation or liability arising from any prior breach
by such party of any provision of this Agreement or any obligation to pay a
termination fee as set forth in Section 7.3; (b) the parties shall, in all
events, remain bound by and continue to be subject to the provisions set forth
in Section 9; and (c) the parties shall, in all events, remain bound by and
continue to be subject to Section 4.8.
SECTION 8. INDEMNIFICATION, ETC.
8.1 SURVIVAL OF REPRESENTATIONS, ETC.
(a) The representations and warranties made (i) by the Company
(including the representations and warranties set forth in Section 2 and the
representations and warranties set forth in any certificate delivered at Closing
by an officer of the Company) and (ii) by Parent and Merger Sub (including the
representations and warranties set forth in Section 3 and the representations
and warranties set forth in any certificate delivered at Closing by an officer
of Parent or Merger Sub) shall survive the Closing and shall expire on the
18-month anniversary of the Closing Date (the "Expiration Date").
(b) The representations, warranties, covenants and obligations of
Parent, Merger Sub and the Company, and the rights and remedies that may be
exercised by such parties, shall not be limited or otherwise affected by or as a
result of any information furnished to, or any investigation made by or
knowledge of, any of the such parties or any of their Representatives.
(c) For purposes of this Agreement, (i) each statement or other
item of information set forth in the Company Disclosure Schedule or in any
update to the Company Disclosure Schedule shall be deemed to be a part of the
representations and warranties made by the Company in this Agreement and (ii)
each statement or other item of information set forth in
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the Parent Disclosure Schedule or in any update to the Parent Disclosure
Schedule shall be deemed to be a part of the representations and warranties made
by Parent and Merger Sub in this Agreement.
8.2 INDEMNIFICATION BY STOCKHOLDERS.
(a) From and after the Effective Time (but subject to Section
8.1(a), this Section 8.2, Section 8.4 and Section 9.11), the Stockholders,
jointly and severally, shall hold harmless and indemnify each of the Parent
Indemnitees from and against, and shall compensate and reimburse each of the
Parent Indemnitees for, any Damages which are directly or indirectly suffered or
incurred by any of the Parent Indemnitees or to which any of the Parent
Indemnitees become subject (regardless of whether or not such Damages relate to
any third-party claim) and which arise from or as a result of, or are directly
or indirectly connected with: (i) any inaccuracy in or breach of any
representation or warranty set forth in Section 2 or in any certificate
delivered at Closing by an officer of the Company (without giving effect to any
"Material Adverse Effect" or other materiality qualification or any similar
qualification contained or incorporated directly or indirectly in such
representation or warranty, but giving effect to the Company Disclosure Schedule
and any update thereto delivered by the Company to Parent prior to the Closing);
(ii) any breach of any covenant or obligation of the Company (including the
covenants set forth in Section 4); (iii) any activities of any Acquired Company
of the type described in Section 2.22 engaged in by such Acquired Company prior
to the Closing Date or; (iv) any Legal Proceeding relating to any inaccuracy or
breach of the type referred to in clause "(i)," "(ii)" or "(iii)" above
(including any Legal Proceeding commenced by any Parent Indemnitee for the
purpose of enforcing any of its rights under this Section 8 or the Escrow
Agreement). Notwithstanding the foregoing, the Parent Indemnitees' sole recourse
for any Damages with respect to which indemnification is sought under this
Section 8 (other than Damages determined by a court of competent jurisdiction in
a proceeding from which no further appeal is permitted to be taken to have been
primarily caused by fraud or intentional misrepresentation) shall be to the
Escrow Amount. In no event shall a Stockholder's liability for any Damages with
respect to which indemnification is sought be in excess of such Stockholder's
pro rata amount of the Escrow Amount and no Stockholder shall have any personal
liability for any Damages except with respect to Damages determined by a court
of competent jurisdiction in a proceeding from which no further appeal is
permitted to be taken to have been primarily caused by fraud or intentional
misrepresentation or intentional breach by the Company.
(b) The Company acknowledges and agrees that, if the Surviving
Corporation suffers, incurs or otherwise becomes subject to any Damages as a
result of or in connection with any inaccuracy in or breach of any
representation, warranty, covenant or obligation identified in clause (i), (ii)
or (iii) of Section 8.2(a), then (without limiting any of the rights of the
Surviving Corporation as an Indemnitee) Parent shall also be deemed, by virtue
of its ownership of the stock of the Surviving Corporation, to have incurred
Damages as a result of and in connection with such inaccuracy or breach.
(c) In the event of the assertion or commencement by any Person
of any claim or Legal Proceeding (whether against the Surviving Corporation,
against Parent or against any other Parent Indemnitee) with respect to which the
Stockholders may become obligated to hold harmless, indemnify, compensate or
reimburse any Parent Indemnitee pursuant
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to this Section 8.2, Parent shall have the right, at its election, subject to
the Escrow Agreement, to proceed with the defense of such claim or Legal
Proceeding on its own. If Parent so proceeds with the defense of any such claim
or Legal Proceeding:
(i) all reasonable expenses relating to the defense of such
claim or Legal Proceeding shall be borne and paid exclusively by the
Stockholders solely from the Escrow Amount; provided, however, that Parent shall
reimburse the Stockholders (or the Escrow Agent, as appropriate) for such
expenses if it is ultimately determined by a court of competent jurisdiction, in
a final, non-appealable order, that the Parent Indemnitees were not entitled to
be indemnified against such claim or Legal Proceeding;
(ii) each Stockholder shall make available to Parent any
documents and materials in his possession or control that may be necessary to
the defense of such claim or Legal Proceeding; and
(iii) Parent shall have the right to settle, adjust or
compromise such claim or Legal Proceeding with the consent of the Stockholders'
Representatives; provided, however, that such consent shall not be unreasonably
withheld.
Parent shall give the Stockholders' Representatives prompt notice of the
commencement of any such Legal Proceeding against Parent or the Surviving
Corporation; provided, however, that any failure on the part of Parent to so
notify the Stockholders' Representatives shall not limit any of the obligations
of the Stockholders under this Section 8 (except to the extent such failure
materially prejudices the defense of such Legal Proceeding).
8.3 INDEMNIFICATION BY PARENT. From and after the Effective Time (but
subject to Section 8.1(a), this Section 8.3, Section 8.4 and Section 9.11),
Parent shall hold harmless and indemnify each of the Stockholder Indemnitees
from and against, and shall compensate and reimburse each of the Stockholder
Indemnitees for, any Damages which are directly or indirectly suffered or
incurred by any of the Stockholder Indemnitees or to which any of the
Stockholder Indemnitees may otherwise become subject (regardless of whether or
not such Damages relate to any third-party claim), and which arise from or as a
result of, or are directly or indirectly connected with: (i) any inaccuracy in
or breach of any representation or warranty set forth in Section 3 or in any
certificate delivered at Closing by an officer of Parent or Merger Sub (without
giving effect to any "Material Adverse Effect" or other materiality
qualification or any similar qualification contained or incorporated directly or
indirectly in such representation or warranty, but giving effect to the Parent
Disclosure Schedule and any update thereto delivered by Parent to the Company
prior to the Closing); (ii) any breach of any covenant or obligation of Parent
or Merger Sub (including the covenants set forth in Section 4); (iii) any
activities of any Parent Company of the type described in Section 3.26 engaged
in by such Parent Company prior to the Closing Date; or (iv) any Legal
Proceeding relating to any inaccuracy or breach of the type referred to in
clause "(i)," "(ii)" or "(iii)" above (including any Legal Proceeding commenced
by any Stockholder Indemnitee for the purpose of enforcing any of its rights
under this Section 8. For purposes of measuring the Damages suffered or incurred
by the Stockholder Indemnitees pursuant to this Section 8.3, the Stockholders'
percentage ownership in Parent Common Stock as of the Effective Time shall be
multiplied by the actual damages to Parent relating to clauses (i), (ii) and
(iii) above. Notwithstanding the foregoing, the maximum aggregate liability of
Parent
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pursuant to this Section 8 (other than Damages determined by a court of
competent jurisdiction in a proceeding from which no further appeal is permitted
to be taken to have been primarily caused by fraud or intentional
misrepresentation) shall not exceed $1,630,000.
The Stockholders' Representatives shall give Parent prompt notice of the
commencement of any such Legal Proceeding against the Stockholders; provided,
however, that any failure on the part of the Stockholders' Representatives to so
notify Parent shall not limit any of the obligations of Parent under this
Section 8 (except to the extent such failure materially prejudices the defense
of such Legal Proceeding).
8.4 FURTHER LIMITATIONS ON INDEMNIFICATION. Notwithstanding the
foregoing, the right to indemnification under this Section 8 shall be subject to
the following:
(a) The Stockholders shall have no liability under Section 8.2
except to the extent that the Damages exceed $2,000,000 in the aggregate (the
"Stockholders' Threshold Amount"), in which event the Stockholders shall be
liable for $1,000,000 of such Threshold Amount and for all Damages in excess of
the Threshold Amount, pursuant to the provisions of this Section 8; provided,
however, in no event shall the Stockholders be liable for Damages, in the
aggregate, in excess of $8,000,000.
(b) Parent shall have no liability under Section 8.3 except to
the extent that the Damages exceed $407,500 in the aggregate (the "Parent
Threshold Amount"), in which event Parent shall be liable for $203,750 of such
Parent Threshold Amount and for all Damages in excess of the Parent Threshold
Amount, pursuant to the provisions of this Section 8; provided, however, in no
event shall Parent be liable for Damages, in the aggregate, in excess of
$1,630,000.
(c) No indemnification shall be payable pursuant to Sections 8.2
or 8.3, as the case may be, after the Expiration Date, except for claims for
Damages made prior to the Expiration Date but not then resolved.
(d) All indemnification claims made under Section 8.2 shall be
satisfied solely from the Escrow Amount.
(e) The limitations of Sections 8.4(a), 8.4(b), 8.4(c) and 8.4(d)
shall not apply to any claim for Damages that are determined by a court of
competent jurisdiction in a proceeding from which no further appeal is permitted
to be taken to have been primarily caused by fraud or intentional
misrepresentation or intentional breach of any party.
(f) In determining the amount of any indemnity under Section 8.2
or 8.3, the Damages shall be reduced (including, without limitation,
retroactively) by any insurance proceeds, tax benefit or other similar recovery
or offset (collectively, a "Third Party Recovery") realized, directly or
indirectly, by the Indemnitee actually recovered by or on behalf of such
Indemnitee in reduction of the loss giving rise to the claim for Damages. In
connection with the foregoing sentence, the Indemnitee shall, or shall cause its
Representatives to, pursue any such Third Party Recovery to the extent the
Indemnitee determines, in its reasonable business judgement, that the prospects
of recovery justify the expenses of pursuing such Third Party Recovery.
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(g) Neither Parent nor the Stockholders (as a group) (as
applicable, the "Indemnifying Party") shall have liability under Section 8.2 or
Section 8.3, as applicable, for Damages directly relating to changes in
governmental laws or regulations, or interpretations thereof, relating to the
healthcare industry from that in effect as of the Closing Date.
8.5 SATISFACTION OF INDEMNIFICATION CLAIM BY STOCKHOLDER INDEMNITEES.
(a) In the event Parent shall have any liability (for
indemnification or otherwise) to any Stockholder Indemnitee under this Section
8, Parent shall, at Parent's option, satisfy such liability either (i) in cash,
(ii) by delivering to such Stockholder Indemnitee the number of shares of Parent
Common Stock determined by dividing (a) the aggregate dollar amount of such
liability by (b) $9.2596 (as adjusted as appropriate to reflect any stock split,
reverse stock split, stock dividend, recapitalization or other similar
transaction effected by Parent between the Effective Time and the date such
liability is satisfied) or (iii) any combination thereof.
(b) If a Stockholder has incurred or suffered Damages for which
it is entitled to indemnification under this Section 8, such Stockholder, shall,
on or prior to the Expiration Date, give written notice of such claim (a "Claim
Notice") to Parent. Each Claim Notice shall state the amount of claimed Damages
(the "Claimed Amount") and the basis for such claim. No Stockholder shall make
any claim for Damages after the Expiration Date.
(c) Within thirty (30) days of receipt of a Claim Notice, Parent
shall provide to the Stockholder a written response (the "Response Notice") in
which Parent shall (i) agree that the full Claimed Amount is valid, (ii) agree
that part, but not all, of the Claimed Amount (the "Agreed Amount") is valid, or
(iii) contest that any or all of the Claimed Amount is valid. Parent may contest
a Claimed Amount only based upon a good faith belief that all or such portion of
the Claimed Amount does not constitute Damages for which a Stockholder
Indemnitee at issue is entitled to indemnification under this Section 8. If no
Response Notice is delivered by Parent within such thirty (30) day period,
Parent shall be deemed to have agreed that the Claimed Amount is valid and that
the Stockholder Indemnitee at issue is entitled to indemnification under this
Section 8.
(d) If Parent in the Response Notice agrees or, by failing to
provide a Response Notice, is deemed to have agreed that the Claimed Amount is
valid, Parent shall promptly following the required delivery date for the
Response Notice deliver to the Stockholders who have incurred such Damages, in
cash and/or shares of Parent Common Stock, the amount sufficient to satisfy the
Claimed Amount, as determined pursuant to Section 8.5(a).
(e) If Parent in the Response Notice agrees that part, but not
all, of the Claimed Amount is valid, Parent shall promptly following the
required delivery date for the Response Notice deliver to the Stockholders who
have incurred such Damages, in cash and/or shares of Parent Common Stock, the
amount necessary to satisfy the Agreed Amount, as determined pursuant to Section
8.5(a).
(f) If Parent in the Response Notice contests the release of
all or a part of the Claimed Amount (the "Contested Amount"), Parent shall not
be required to deliver any
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Contested Amount to the Stockholders until (i) such time as the Stockholders
shall agree in writing as to the amount to be delivered to the Stockholders, if
any, or (ii) receipt by Parent of a final, nonappealable copy of a court order
setting forth instructions to Parent as to the amount to be delivered to the
Stockholders, if any.
8.6 NO CONTRIBUTION. Each Stockholder waives, and acknowledges and
agrees that he shall not have and shall not exercise or assert (or attempt to
exercise or assert), any right of contribution, right of indemnity or other
right or remedy against the Surviving Corporation in connection with any
indemnification obligation or any other liability to which he may become subject
under or in connection with this Agreement.
8.7 RIGHT TO ASSUME DEFENSE. Subject to the provisions hereinafter
stated, in case any action pursuant to Section 8.2 or 8.3 shall be brought
against an Indemnitee and the Indemnifying Party shall have been notified
thereof, such Indemnifying Party shall be entitled to participate therein, and,
to the extent it shall wish, to assume the defense thereof, with counsel
reasonably satisfactory to such Indemnitee. After notice from the Indemnifying
Party to such Indemnitee of its election to assume the defense thereof, such
Indemnifying Party shall not be liable to such Indemnitee for any legal expenses
subsequently incurred by such Indemnitee in connection with the defense thereof;
provided, however, that if there exists or shall exist a conflict of interest
that would make it inappropriate under applicable standards of professional
conduct, in the written opinion of counsel to the Indemnitee, for the same
counsel to represent both the Indemnitee and such Indemnifying Party, the
Indemnitee shall be entitled to retain its own counsel at the expense of such
Indemnifying Party; provided, however, that no Indemnifying Party shall be
responsible for the fees and expenses of more than one separate counsel for all
Indemnitees.
SECTION 9. MISCELLANEOUS PROVISIONS.
9.1 APPOINTMENT OF STOCKHOLDERS' REPRESENTATIVES.
(a) Vencor, Welsh Carson and Stack shall, by virtue of the
Merger, be irrevocably appointed representatives of the Stockholders and
authorized and empowered to act for and on behalf of any or all of the
Stockholders in connection with the indemnification provisions of Section 8 and
the Escrow Agreement as they relate to the Stockholders generally, and such
other matters as are reasonably necessary for the consummation of the
transactions contemplated hereby including, without limitation, to act as the
representatives of the Stockholders to resolve, dispose of or otherwise handle
all claims arising out of or related to this Agreement in accordance with the
terms hereof, to compromise on their behalf with Parent any claims asserted
thereunder and to authorize payments to be made with respect thereto and to take
such further actions as are authorized in this Agreement or the Escrow Agreement
(the above named representatives, as well as any subsequent representatives of
the Stockholders elected by vote of holders owning a majority of the Converted
Shares outstanding immediately prior to the Effective Time being referred to
herein as the "Stockholders' Representatives"). The Stockholders further
irrevocably appoint Stack as the principal representative (the "Principal
Representative") with full power and authority to act on behalf of the
Stockholders' Representatives with respect to any action to be taken or omitted
to be taken by the Stockholders' Representatives under or in connection with
this Agreement and the Escrow
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Agreement. Notwithstanding any statement contained in this Agreement or the
Escrow Agreement to the contrary, Parent and the Escrow Agent may rely
conclusively, and shall be protected in so acting, upon any written order,
notice, demand, certificate, statement, document or instruction (not only as to
its due execution and the validity and effectiveness of its provisions, but also
as to the truth and acceptability of any information therein contained) executed
and delivered by the Principal Representative (but not any of the other
Stockholders' Representatives) whether delivered in original form, by facsimile
or otherwise. The Stockholders' Representatives shall not be liable to any
Stockholder with respect to any action taken or omitted to be taken by any of
the Stockholders' Representatives acting in his capacity as Stockholders'
Representative under or in connection with this Agreement or the Escrow
Agreement, unless such action or omission results from or arises out of fraud,
recklessness, willful misconduct, criminal action or bad faith on the part of
the Stockholders' Representative. Parent and Merger Sub shall be entitled to
rely on such appointments and treat the Stockholders' Representatives as the
duly appointed representatives of each Stockholder. Each Stockholder who votes
in favor of the Merger and the transactions contemplated by this Agreement, by
such vote, without any further action, and each Stockholder who receives Merger
Consideration in connection with the Merger, by acceptance thereof and without
any further action, confirms such appointment and authority of the Stockholders'
Representatives and the Principal Representative and acknowledges and agrees
that such appointment is irrevocable and coupled with an interest.
(b) Each Stockholders' Representative shall be solely responsible
for all fees, costs and expenses incurred by it in connection with serving as a
representative of the Stockholders hereunder; provided, however, the
Stockholders' Representatives shall be entitled to reimbursement for all such
fees, costs and expenses out of the funds, if any, otherwise distributable to
the Stockholders upon the final release to the Stockholders of funds held
pursuant to the Escrow Agreement.
9.2 FURTHER ASSURANCES. Each party hereto shall execute and cause to
be delivered to each other party hereto such instruments and other documents,
and shall take such other actions, as such other party may reasonably request
(prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the transactions contemplated by this Agreement.
9.3 FEES AND EXPENSES.
(a) Each party to this Agreement shall bear and pay all
fees, costs and expenses (including legal fees and accounting fees) that have
been incurred or that are incurred by such party in connection with the
transactions contemplated by this Agreement, including all fees, costs and
expenses incurred by such party in connection with or by virtue of (a) the
investigation and review conducted by Parent and its Representatives with
respect to the business of the Acquired Companies (and the furnishing of
information to Parent and its Representatives in connection with such
investigation and review), (b) the negotiation, preparation and review of this
Agreement (including the Company Disclosure Schedule and the Parent Disclosure
Schedule) and all agreements, certificates, opinions and other instruments and
documents delivered or to be delivered in connection with the transactions
contemplated by this Agreement, (c) the preparation and submission of any filing
or notice required to be made or given in connection with any of the
transactions contemplated by this Agreement, and the obtaining of any Consent
required to be obtained in connection with any of such transactions, and (d) the
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consummation of the Merger; provided, however, that, in the event that this
Agreement is terminated for any reason other than (x) because of the failure of
the stockholders of Parent to approve the Merger and this Agreement at the
Parent's Stockholders' Meeting or (y) one for which Parent becomes obligated to
pay a termination fee to the Company pursuant to Section 7.3, Parent and the
Company shall share equally all fees and expenses, other than attorneys' fees,
incurred in connection with (i) the printing and filing of the S-4 Registration
Statement and the Joint Proxy Statement and any amendments or supplements
thereto and (ii) the filing of the premerger notification and report forms, if
necessary, relating to the Merger under the HSR Act; provided, further that the
liability of the Acquired Companies pursuant to the preceding provision shall
not exceed $125,000 in the aggregate;
(b) In the event that this Agreement is terminated pursuant to
Section 7.1(i), the Company promptly shall reimburse Parent for Parent's fees,
costs and expenses (not to exceed $2,000,000) incurred in connection with the
transactions contemplated by this Agreement, including, without limitation, the
fees, costs and expenses of the type described in Section 9.3(a) (not giving
effect to the limitations set forth in the last proviso of Section 9.3(a); and
(c) In the event that this Agreement is terminated because of the
failure of the stockholders of Parent to approve the Merger and this Agreement
at the Parent's Stockholders' Meeting, Parent promptly shall reimburse the
Company for the Company's fees, costs and expenses (not to exceed $500,000)
incurred in connection with the transaction contemplated by this Agreement,
including, without limitation, the fees, costs and expenses of the type
described in Section 9.3(a).
9.4 ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
9.5 NOTICES. Any notice or other communication required or permitted
to be delivered to any party under this Agreement shall be in writing and shall
be deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
78.
<PAGE> 85
if to Parent:
PMR Corporation
Attn: Allen Tepper
501 Washington Street, 5th Floor
San Diego, CA 92103
Telephone: (619) 610-4001
Facsimile: (619) 610-4184
with a copy to:
Jeremy D. Glaser, Esq.
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121
Telephone: (619) 550-6000
Facsimile: (619) 453-3555
if to the Company or to the Stockholders' Representatives:
Edward A. Stack
Attn: Chief Executive Officer
102 Woodmont Boulevard, Suite 800
Nashville, TN 37205
Telephone: (615) 269-3492
Facsimile: (615) 269-9814
with a copy to:
William F. Carpenter III, Esq.
Waller Lansden Dortch & Davis, PLLC
Nashville City Center
511 Union Street, Suite 2100
Post Office Box 198966
Nashville, Tennessee 37219-8966
Telephone:(615) 244-6380
Facsimile:(615) 244-6804
9.6 TIME OF THE ESSENCE. Time is of the essence of this Agreement.
9.7 HEADINGS. The underlined headings contained in this Agreement are
for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
79.
<PAGE> 86
9.8 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
9.9 GOVERNING LAW. This Agreement shall be construed in accordance
with, and governed in all respects by, the internal laws of the State of
Delaware (without giving effect to principles of conflicts of laws).
9.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon: the
Company and its successors and assigns (if any); Parent and its successors and
assigns (if any); and Merger Sub and its successors and assigns (if any).
9.11 EXCLUSIVE REMEDIES. Parent, Merger Sub and the Company hereby
expressly agree that the remedies provided in Section 7.3 of this Agreement
constitute liquidated damages and do not constitute a penalty. Parent, Merger
Sub and the Company hereby expressly agree that (i) such liquidated damages
shall be the sole and exclusive remedy for any claim arising out of the
termination of this Agreement and (ii) the remedies provided in Section 1.10 and
Section 8 of this Agreement and in the Escrow Agreement shall be the sole and
exclusive remedies for any other claim arising out of or relating to the
negotiation, execution, delivery or performance of this Agreement or the Merger.
Notwithstanding the foregoing, nothing in this Section 9.11 shall relieve any
party to this Agreement of liability for fraud or a willful and intentional
breach of any provision of this Agreement.
9.12 WAIVER.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising
out of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
9.13 AMENDMENTS. This Agreement may not be amended, modified, altered
or supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
9.14 SEVERABILITY. In the event that any provision of this Agreement,
or the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
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9.15 PARTIES IN INTEREST. Except for the provisions of Sections 1.5,
1.6 and 8, none of the provisions of this Agreement is intended to provide any
rights or remedies to any Person other than the parties hereto and their
respective successors and assigns (if any).
9.16 ENTIRE AGREEMENT. This Agreement and the other agreements
referred to herein set forth the entire understanding of the parties hereto
relating to the subject matter hereof and thereof and supersede all prior
agreements and understandings among or between any of the parties relating to
the subject matter hereof and thereof; provided, however, that the Mutual Non-
Disclosure Agreement executed on behalf of Parent on and the Company on May 7,
1998 shall not be superseded by this Agreement and shall remain in effect in
accordance with its terms until the earlier of (a) the Effective Time, or (b)
the date on which such Mutual Non-Disclosure Agreement is terminated in
accordance with its terms.
9.17 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of this
Agreement and Exhibits to this Agreement.
81.
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The parties hereto have caused this Agreement to be executed and
delivered as of July 30, 1998.
PMR CORPORATION
a Delaware corporation
By: /s/ ALLEN TEPPER
---------------------------------
BHC ACQUISITION CORP.,
a Delaware corporation
By: /s/ ALLEN TEPPER
---------------------------------
BEHAVIORAL HEALTHCARE CORPORATION,
a Delaware corporation
By: /s/ EDWARD A. STACK
---------------------------------
82.
<PAGE> 89
EXHIBITS
<TABLE>
<S> <C>
Exhibit A - Certain definitions
Exhibit B - Form of Stockholders Agreement
Exhibit C-1 - Persons to execute Affiliate and Lock-Up Agreements
Exhibit C-2 - Form of Affiliate and Lock-Up Agreement
Exhibit D - Series B Preferred Stock Agreement
Exhibit E - Certificate of Incorporation of Surviving Corporation
Exhibit F - Directors and Officers of Surviving Corporation
Exhibit G - Form of Promissory Note
Exhibit H - Exchange Agent Agreement
Exhibit I - Escrow Agreement
Exhibit J - Properties Subject to Environmental Reports
</TABLE>
i.
<PAGE> 90
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger to
which this Exhibit A is attached (including the Company Disclosure Schedule and
the Parent Disclosure Schedule), as it may be amended from time to time.
COMPANY ACQUISITION TRANSACTION. "Company Acquisition Transaction" shall
mean any transaction involving: (i) the sale, license, disposition or
acquisition of all or a material portion of the business or assets of the
Company or any subsidiary of the Company (except for subsidiaries which have
been identified by the Company for sale or disposition as discussed with Parent
on June 11, 1998 and as included in the Company's Board of Directors package in
connection with its meeting held on April 29, 1998 (collectively, the "Excluded
Subsidiaries")); (ii) the issuance, grant, disposition or acquisition of (A) any
capital stock or other equity security of the Company or any subsidiary of the
Company other than the Excluded Subsidiaries, (B) any option, call, warrant or
right (whether or not immediately exercisable) to acquire any capital stock or
other equity security of the Company or any subsidiary of the Company other than
the Excluded Subsidiaries, or (C) any security, instrument or obligation that is
or may become convertible into or exchangeable for any capital stock or other
equity security of the Company or any subsidiary of the Company other than the
Excluded Subsidiaries; or (iii) any merger, consolidation, business combination,
share exchange, reorganization or similar transaction involving the Company or
any subsidiary of the Company other than the Excluded Subsidiaries; provided,
however, that (1) the grant of stock options by the Company to its employees in
the ordinary course of business will not be deemed to be a "Company Acquisition
Transaction," (2) the issuance of stock by the Company to its employees upon the
exercise of outstanding stock options and (3) the restructuring of the Company
and its subsidiaries in order to take advantage of tax savings available under
Indiana and Tennessee law will not be deemed to be a "Company Acquisition
Transaction;" provided, however, that, with respect to clause (3) above, such
restructuring shall not be deemed a "Company Acquisition Transaction" only in
the event that no reduction in ownership by the Company of such subsidiaries
occurs as a result of such restructuring.
COMPANY CONTRACT. "Company Contract" shall mean any Contract: (a) to
which any of the Acquired Companies is a party; (b) by which any of the Acquired
Companies or any of their properties or assets is bound or under which any of
the Acquired Companies has any obligation; or (c) under which any of the
Acquired Companies has any right or interest.
COMPANY DISCLOSURE SCHEDULE. "Company Disclosure Schedule" shall mean
the schedule (dated as of the date of the Agreement) delivered to Parent on
behalf of the Company.
COMPANY PARTNERSHIPS. "Company Partnerships" shall mean all of the
partnerships, joint ventures and limited liability companies, other than the
Company Subsidiaries, in which the Company is a direct or indirect participant
or member as of the Effective Time.
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COMPANY PROPRIETARY ASSET. "Company Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to any of the Acquired Companies or
otherwise used by any of the Acquired Companies.
COMPANY SUBSIDIARIES. "Company Subsidiaries" shall mean all of the
corporate entities with respect to which the Company has the direct or indirect
right to vote shares representing fifty percent (50%) or more of the votes
eligible to be cast in the election of directors of each such entity.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan or legally binding commitment or undertaking of
any nature.
DAMAGES. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including reasonable attorneys' fees), charge, cost
(including costs of investigation) or expense of any nature.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, deed of trust, license, equity, conditional sales contract,
lease, assessment, covenant, condition or restriction, right-of-way,
reservation, security interest, encumbrance, claim, infringement, interference,
option, right of first refusal, preemptive right, community property interest,
any other matter affecting title or restriction of any nature (including any
restriction on the voting of any security, any restriction on the transfer of
any security or other property or asset, any restriction on the receipt of any
income derived from any property or asset, any restriction on the use of any
property or asset and any restriction on the possession, exercise or transfer of
any other attribute of ownership of any property or asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
FACILITIES. "Facilities" shall mean any real property, leaseholds, or
other interests currently or formerly owned or operated by any of the Acquired
Companies or any of the Parent Companies, as applicable, and any buildings,
plants, structures, or equipment (including motor vehicles, tank cars, and
rolling stock) currently or formerly owned or operated by any of the Acquired
Companies or any of the Parent Companies, as applicable.
GOVERNMENT BID. "Government Bid" shall mean any quotation, bid or
proposal submitted to any Governmental Body or any proposed prime contractor or
higher-tier subcontractor of any Governmental Body.
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GOVERNMENT CONTRACT. "Government Contract" shall mean any prime
contract, subcontract, letter contract, purchase order or delivery order
executed or submitted to or on behalf of any Governmental Body or any prime
contractor or higher-tier subcontractor, or under which any Governmental Body or
any such prime contractor or subcontractor otherwise has or may acquire any
right or interest.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation,
state, commonwealth, province, territory, county, municipality, district or
other jurisdiction of any nature; (b) federal, state, local, municipal, foreign
or other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
HSR ACT. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
INDEMNITEES. "Indemnitees" shall mean, collectively, the Stockholder
Indemnitees and the Parent Indemnitees.
JOINT PROXY STATEMENT. "Joint Proxy Statement" shall mean the joint
proxy statement/prospectus to be sent to the Company's and Parent's stockholders
in connection with the Company and Parent Stockholders' Meetings.
KNOWLEDGE OF THE COMPANY. "Knowledge of the Company" shall mean the
actual knowledge and current awareness, or knowledge which a reasonable person
would have acquired following a reasonable investigation, of the executive
officers and directors of the Company, together with that of the chief executive
officer of each Acquired Company.
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
MATERIAL ADVERSE EFFECT. A violation or other matter will be deemed to
have a "Material Adverse Effect" on the Company if such violation or other
matter would have a
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<PAGE> 93
material adverse effect on the business, condition, assets, liabilities,
operations or financial performance of the Acquired Companies, considered as a
whole. A violation or other matter will be deemed to have a "Material Adverse
Effect" on Parent if such violation or other matter would have a material
adverse effect on the business, condition, assets, liabilities, operations or
financial performance of Parent and the Parent Subsidiaries, considered as a
whole.
NASDAQ NATIONAL MARKET. "Nasdaq National Market" shall mean the Nasdaq
Stock Market's National Market.
PARENT ACQUISITION TRANSACTION. "Parent Acquisition Transaction" shall
mean any transaction involving: (i) the sale, license, disposition or
acquisition of all or a material portion of the business or assets of Parent or
any Parent Subsidiary; (ii) the issuance, grant, disposition or acquisition of
(A) any capital stock or other equity security of Parent or any Parent
Subsidiary, (B) any option, call, warrant or right (whether or not immediately
exercisable) to acquire any capital stock or other equity security of Parent or
any Parent Subsidiary, or (C) any security, instrument or obligation that is or
may become convertible into or exchangeable for any capital stock or other
equity security of Parent or any Parent Subsidiary; or (iii) any merger,
consolidation, business combination, share exchange, reorganization or similar
transaction involving Parent or any Parent Subsidiary; provided, however, that
(1) the grant of stock options by Parent to its employees in the ordinary course
of business will not be deemed to be a "Parent Acquisition Transaction" and (2)
the issuance of stock by Parent to its employees upon the exercise of
outstanding stock options will not be deemed to be a "Parent Acquisition
Transaction."
PARENT CONTRACT. "Parent Contract" shall mean any Contract: (a) to which
any of the Parent Companies is a party; (b) by which any of the Parent Companies
or any of their properties or assets is bound or under which any of the Parent
Companies has, or may become subject to, any obligation; or (c) under which any
of the Parent Companies has or may acquire any right or interest.
PARENT DISCLOSURE SCHEDULE. "Parent Disclosure Schedule" shall mean the
schedule (dated as of the date of the Agreement) delivered to the Company on
behalf of Parent.
PARENT INDEMNITEES. "Parent Indemnitees" shall mean the following
Persons: (a) Parent; (b) Parent's current and future affiliates (including the
Surviving Corporation); (c) the respective Representatives of the Persons
referred to in clauses "(a)" and "(b)" above; and (d) the respective successors
and assigns of the Persons referred to in clauses "(a)", "(b)" and "(c)" above.
PARENT PARTNERSHIPS. "Parent Partnerships" shall mean all of the
Partnerships, joint ventures and limited liability companies, other than the
Parent Subsidiaries, in which the Parent is a direct or indirect participant or
member as of the Effective Time.
PARENT PROPRIETARY ASSET. "Parent Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to Parent or any Parent Subsidiary or
otherwise used by Parent or any Parent Subsidiary.
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PARENT SUBSIDIARIES. "Parent Subsidiaries" shall mean all of the
corporate entities with respect to which Parent has the direct or indirect right
to vote shares representing fifty percent (50%) or more of the votes eligible to
be cast in the election of directors of each such entity.
PERSON. "Person" shall mean any individual, Entity or Governmental Body.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any: (a) patent,
patent application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, invention, design, blueprint, engineering drawing,
proprietary product, technology, proprietary right or other intellectual
property right or intangible asset; or (b) right to use or exploit any of the
foregoing.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
S-4 REGISTRATION STATEMENT. "S-4 Registration Statement" shall have the
meaning set forth in Section 4.11.
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933,
as amended.
STOCKHOLDER INDEMNITEES. "Stockholder Indemnitees" shall mean the
following Persons: (a) the Stockholders other than Vencor; (b) the Stockholders'
other than Vencor's current and future affiliates; (c) the respective
Representatives of the Persons referred to in clauses "(a)" and "(b)" above; and
(d) the respective successors and assigns of the Persons referred to in clauses
"(a)", "(b)" and "(c)" above.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.
TAX RETURN. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
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EXHIBIT B
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (the "Stockholder Agreement") is entered into
as of July 30, 1998 by and between PMR CORPORATION, a Delaware corporation
("Parent"), and Name ("Principal Stockholder").
RECITALS
A. Parent, BHC ACQUISITION CORP. ("Merger Sub"), a Delaware corporation
and a wholly owned subsidiary of Parent, and BEHAVIORAL HEALTHCARE CORPORATION,
a Delaware corporation (the "Company"), intend to enter into an Agreement and
Plan of Merger of even date herewith (as amended from time to time, the "Merger
Agreement"; capitalized terms used but not otherwise defined in this Stockholder
Agreement have the meanings assigned to such terms in the Merger Agreement),
which provides (subject to the conditions set forth therein) for the merger of
Merger Sub with and into the Company (the "Merger").
B. As of the date hereof, Principal Stockholder owns in aggregate the
number of shares of Company Common Stock set forth below Principal Stockholder's
name on the signature page hereof (such Common Stock of each Principal
Stockholder, referred to as the "Existing Shares" of such Principal Stockholder,
and together with any shares of capital stock of the Company acquired by such
Principal Stockholder after the date hereof and prior to the termination hereof
(whether upon exercise of options or otherwise), hereinafter collectively
referred to as the "Subject Shares") of such Principal Stockholder); and
C. The Company has agreed to obtain and deliver to Parent prior to
August 29, 1998, valid consents and agreements executed by all of the persons
(other than the Principal Stockholders) who are parties to (a) the Country
Amended and Restated Stockholders Agreement made as of the 30th day of June,
1993, as amended and restated as of the 30th day of December, 1993, and the 31st
day of May, 1995, and/or (b) the Country Stockholders' Agreement made as of the
30th day of November, 1996 (collectively, the "Existing Stockholders
Agreements") irrevocably consenting and agreeing to the termination of each of
the Existing Stockholders Agreements as of the date hereof subject only to the
consummation of the Merger.
D. As a condition to the willingness of Parent to enter into the Merger
Agreement, Parent has required that Principal Stockholder agree, and in order to
induce Parent to enter into the Merger Agreement Principal Stockholder has
agreed, to enter into this Stockholder Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, and intending to be
legally bound hereby, it is agreed as follows:
1.
<PAGE> 96
1. NO TRANSFER OF SUBJECT SHARES
1.1 NO DISPOSITION OR ENCUMBRANCE OF SUBJECT SHARES.
(a) Principal Stockholder hereby covenants and agrees that, prior
to the Expiration Date (as defined below), Principal Stockholder will not,
directly or indirectly, (i) offer, sell, offer to sell, contract to sell,
pledge, grant any option to purchase or otherwise dispose of or transfer (or
announce any offer, sale, offer of sale, contract of sale or grant of any option
to purchase or other disposition or transfer of) any Subject Shares to any
Person, (ii) create or permit to exist any additional Encumbrance with respect
to any of the Subject Shares and will release any such Encumbrances prior to the
Effective Date, (iii) reduce his beneficial ownership of, interest in or risk
relating to any of the Subject Shares or (iv) commit or agree to do any of the
foregoing.
(b) As used in this Stockholder Agreement, the term "Expiration
Date" shall mean the earlier of the date upon which the Merger Agreement is
terminated in accordance with its terms or the Effective Time of the Merger.
1.2 NO TRANSFER OF VOTING RIGHTS. Principal Stockholder covenants and
agrees that, prior to the Expiration Date, Principal Stockholder will not
deposit any of the Subject Shares into a voting trust or grant any proxy (except
as provided herein) or enter into any other voting agreement, or any other
agreement or arrangement with respect to the voting of any of the Subject Shares
other than the Existing Stockholders Agreement.
2. VOTING OF SUBJECT SHARES
2.1 VOTING. Principal Stockholder hereby agrees that, prior to the
Expiration Date, at any meeting of the stockholders of the Company, however
called, and in any written action by consent of stockholders of the Company,
unless otherwise directed in writing by Parent, Principal Stockholder shall vote
the Subject Shares:
(i) in favor of the Merger, the execution and delivery by
the Company of the Merger Agreement and the adoption and approval of the terms
thereof and in favor of each of the other actions contemplated by the Merger
Agreement and any action required in furtherance hereof or thereof;
(ii) against any action or agreement that would result in a
breach of any representation, warranty, covenant or obligation of the Company in
the Merger Agreement; and
(iii) against the following actions (other than the Merger and
the transactions contemplated by the Merger Agreement): (i) any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving the Company or any subsidiary of the Company (other than
the Excluded Subsidiaries (as such term is defined in the Merger Agreement));
(ii) any sale, lease or transfer of a material amount of assets of the Company
or any subsidiary of the Company (other than the Excluded Subsidiaries); (iii)
any reorganization, recapitalization, dissolution or liquidation of the Company
or any subsidiary of the Company (other than the Excluded Subsidiaries); (iv)
any change in a majority
2.
<PAGE> 97
of the board of directors of the Company; (v) any amendment to the Company's
certificate of incorporation; (vi) any change in the capitalization of the
Company or the Company's corporate structure; or (vii) any other action which is
intended, or could reasonably be expected to, impede, interfere with, delay,
postpone, discourage or adversely affect the contemplated economic benefits to
Parent of the Merger or any of the other transactions contemplated by the Merger
Agreement or this Stockholder Agreement. Prior to the Expiration Date, Principal
Stockholder shall not enter into any agreement or understanding with any Person
to vote or give instructions in any manner inconsistent with the preceding
sentence.
2.2 PROXY; FURTHER ASSURANCES.
(a) Contemporaneously with the execution of this Stockholder
Agreement, Principal Stockholder shall deliver to Parent a proxy in the form
attached hereto as Exhibit A, which shall be irrevocable to the fullest extent
permitted by law prior to the Expiration Date, with respect to the Subject
Shares (the "Proxy").
3. WAIVER OF APPRAISAL RIGHTS
Principal Stockholder hereby waives any rights of appraisal and any
dissenters' rights that Principal Stockholder may have in connection with the
Merger.
4. NO SOLICITATION
Principal Stockholder covenants and agrees that, during the period
commencing on the date of this Stockholder Agreement and ending on the
Expiration Date, Principal Stockholder shall not, directly or indirectly, or
authorize or permit any representative of Principal Stockholder, directly or
indirectly, to: (i) solicit or encourage the initiation or submission of any
expression of interest, inquiry, proposal or offer from any Person (other than
Parent) relating to a possible Company Acquisition Transaction, (ii) participate
in any discussions or negotiations or enter into any agreement with, or provide
any non-public information to or cooperate in any other way with, any Person
(other than Parent) relating to or in connection with a possible Acquisition
Transaction; or (iii) consider, entertain or accept any proposal or offer from
any Person (other than Parent) relating to a possible Company Acquisition
Transaction. Principal Stockholder acknowledges that a breach of the foregoing
provision may cause the Company to breach its obligations set forth in Section
4.4 of the Merger Agreement. Principal Stockholder shall immediately cease and
cause to be terminated any existing discussions with any Person that relate to a
possible Company Acquisition Transaction.
5. REPRESENTATIONS AND WARRANTIES OF PRINCIPAL STOCKHOLDER
Principal Stockholder hereby represents and warrants to Parent as follows:
5.1 DUE AUTHORIZATION, ETC. Principal Stockholder has all requisite
individual, corporate, partnership or limited liability company, as applicable,
power and capacity to execute and deliver this Stockholder Agreement and the
Proxy and to perform his obligations hereunder and thereunder. Subject to the
termination of the Existing Stockholder Agreements, this
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Stockholder Agreement has been duly executed and delivered by Principal
Stockholder and constitutes a legal, valid and binding obligation of Principal
Stockholder, enforceable against Stockholder in accordance with its terms,
subject to (i) laws of general application relating to bankruptcy, insolvency
and the relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
5.2 NO CONFLICTS, REQUIRED FILINGS AND CONSENTS.
(a) Subject to the termination of the Existing Stockholder
Agreements, the execution and delivery of this Stockholder Agreement and the
Proxy by Principal Stockholder do not, and the performance of this Stockholder
Agreement by Principal Stockholder, and the actions taken pursuant to the terms
of the Proxy, will not: (i) conflict with or violate any order, decree or
judgment applicable to Principal Stockholder or by which he or any of his
properties is bound or affected; or (ii) result in any breach of or constitute a
default (with notice or lapse of time, or both) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of an Encumbrance on the Subject Shares pursuant to, any Contract
to which Principal Stockholder is a party or by which Principal Stockholder or
any of his properties is bound or affected.
(b) Subject to the termination of the Existing Stockholder
Agreements, the execution and delivery of this Stockholder Agreement and the
Proxy by Principal Stockholder do not, and the performance of this Stockholder
Agreement by Stockholder and the voting of the Subject Shares pursuant to the
Proxy will not, require any Consent of any Person.
5.3 TITLE TO SUBJECT SHARES. Principal Stockholder beneficially owns the
Subject Shares and rights to acquire shares of capital stock of the Company (if
any) set forth under Principal Stockholder's name on the signature page hereof
and does not directly or indirectly own, either beneficially or of record, any
shares of capital stock of the Company, or rights to acquire any shares of
capital stock of the Company, other than the Subject Shares set forth below
Principal Stockholder's name on the signature page hereof.
5.4 ACCURACY OF REPRESENTATIONS. The representations and warranties
contained in this Stockholder Agreement are accurate in all material respects as
of the date of this Stockholder Agreement, will be accurate in all material
respects at all times through the Expiration Date and will be accurate in all
material respects as of the date of the consummation of the Merger as if made on
that date.
5.5 TERMINATION OF EXISTING STOCKHOLDERS AGREEMENTS. Principal
Stockholder hereby irrevocably consents and agrees to execute the Agreement to
Terminate relating to the Existing Stockholders Agreements and waives any rights
to assert that this Stockholders Agreement is unenforceable or invalid on
account of any agreement previously entered into, by Principal Stockholder,
including, without limitation, the Existing Stockholders Agreements.
6. COVENANTS OF PRINCIPAL STOCKHOLDER
6.1 FURTHER ASSURANCES. From time to time and without additional
consideration, Principal Stockholder will execute and deliver, or cause to be
executed and delivered, such additional or further arrangements, proxies,
consents and other instruments as Parent may
4.
<PAGE> 99
reasonably request for the purpose of effectively carrying out and furthering
the intent of this Stockholder Agreement.
7. MISCELLANEOUS
7.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties and agreements made by Principal Stockholder and
Parent in this Stockholder Agreement shall promptly terminate upon the
Expiration Date.
7.2 INDEMNIFICATION. Without in any way limiting any of the rights or
remedies otherwise available to Parent, Principal Stockholder shall hold
harmless and indemnify Parent from and against any Damages (regardless of
whether or not such Damages relate to a third party claim) which are directly or
indirectly suffered or incurred at any time by Parent, or to which Parent
otherwise becomes subject and that arise from any breach of any representation,
warranty, covenant or obligation of Principal Stockholder contained herein.
7.3 EXPENSES. All costs and expenses incurred in connection with the
transactions contemplated by this Stockholder Agreement shall be paid by the
party incurring such costs and expenses.
7.4 NOTICES. Any notice or other communication required or permitted to
be delivered to either party under this Stockholder Agreement shall be in
writing and shall be deemed properly delivered, given and received when
delivered (by hand, by registered mail, by courier or express delivery service
or by facsimile) to the address or facsimile telephone number set forth beneath
the name of such party below (or to such other address or facsimile telephone
number as such party shall have specified in a written notice given to the other
party hereto):
if to Parent:
PMR Corporation
501 Washington Street, 5th Floor
San Diego, CA 92103
Telephone: (619) 610-4001
Facsimile: (619) 610-4184
Attn: Chief Executive Officer
with a copy to:
Cooley Godward LLP
4365 Executive Drive
Suite 1100
San Diego, CA 92121-2128
Attention: Jeremy D. Glaser, Esq.
Telephone: (619) 550-6000
Facsimile: (619) 453-3555
5.
<PAGE> 100
if to Principal Stockholders:
at the address set forth below the Principal
Stockholders' signature on the signature page hereto
with a copy to:
Edward A. Stack
Behavioral Healthcare Corporation
102 Woodmont Boulevard, Suite 800
Nashville, TN 37205
Telephone: (615) 269-3492
Facsimile: (615) 269-9814
with a copy to:
Waller Lansden Dortch & Davis, PLLC
Nashville City Center
511 Union Street, Suite 2100
Post Office Box 198966
Nashville, Tennessee 37219-8966
Telephone:(615) 244-6380
Facsimile:(615) 244-6804
7.5 SEVERABILITY. Any term or provision of this Stockholder Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Stockholder Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Stockholder Agreement
in any other jurisdiction. If any provision of this Stockholder Agreement is so
broad as to be unenforceable, the provision shall be interpreted to be only so
broad as is enforceable.
7.6 ENTIRE AGREEMENT. This Stockholder Agreement and any documents
delivered by the parties in connection herewith, including the Proxy, constitute
the entire agreement between the parties with respect to the subject matter
hereof and thereof and supersede all prior agreements and understandings between
the parties with respect thereto. No addition to or modification of any
provision of this Stockholder Agreement shall be binding upon either party
hereto unless made in writing and signed by both parties hereto.
7.7 ASSIGNMENT, BINDING EFFECT. Neither this Stockholder Agreement nor
any portion hereof shall be assignable (whether by operation of law or otherwise
and including, for this purpose, a change in control as an assignment). Subject
to the preceding sentence, this Stockholder Agreement shall be binding upon and
shall inure to the benefit of (i) Principal Stockholder and his heirs,
successors and assigns and (ii) Parent and its successors and assigns.
Notwithstanding anything contained in this Stockholder Agreement to the
contrary, nothing in this Stockholder Agreement, expressed or implied, is
intended to confer on any Person other than
6.
<PAGE> 101
the parties hereto or their respective heirs, successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Stockholder
Agreement.
7.8 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Stockholder
Agreement or the Proxy was not performed in accordance with its specific terms
or was otherwise breached. It is accordingly agreed that Parent shall be
entitled to seek an injunction or injunctions to prevent breaches of this
Stockholder Agreement and the Proxy and to enforce specifically the terms and
provisions hereof and thereof, this being in addition to any other remedy to
which Parent is entitled at law or in equity.
7.9 OTHER AGREEMENTS. Nothing in this Stockholder Agreement shall limit
any of the rights or remedies of Parent or any of the obligations of Principal
Stockholder under any agreement between Parent and Principal Stockholder.
7.10 GOVERNING LAW. This Stockholder Agreement shall be governed in all
respects by the laws of the State of Delaware, as applied to contracts entered
into and to be performed entirely within the State of Delaware.
7.11 COUNTERPARTS. This Stockholder Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument.
7.12 CONSTRUCTION.
(a) Headings of the Sections of this Stockholder Agreement are for
the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
(b) For purposes of this Stockholder Agreement, whenever the
context requires: the singular number shall include the plural, and vice versa;
the masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include masculine and feminine genders.
(c) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Stockholder Agreement.
(d) As used in this Stockholder Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(e) Except as otherwise indicated, all references in this
Stockholder Agreement to "Sections" and "Exhibits" are intended to refer to
Sections of this Stockholder Agreement and Exhibits to this Stockholder
Agreement.
7.
<PAGE> 102
IN WITNESS WHEREOF, Parent and Principal Stockholder have caused this
Stockholder Agreement to be executed as of the date first written above.
PMR CORPORATION
By:
--------------------------------------
Name:
Title:
PRINCIPAL STOCKHOLDER:
-----------------------------------------
Name
address
fax
Number of Shares of Company Common Stock
owned as of the date of this Stockholder
Agreement:
-----------------------------------------
Description (including number of
underlying shares) of rights to acquire
shares of capital stock of the Company:
-----------------------------------------
-----------------------------------------
-----------------------------------------
8.
<PAGE> 103
EXHIBIT A
FORM OF IRREVOCABLE PROXY
IRREVOCABLE PROXY
The undersigned Principal Stockholder ("Principal Stockholder") of
Behavioral Healthcare Corporation, a Delaware corporation (the "Company"),
hereby irrevocably (to the fullest extent permitted by law) appoints and
constitutes PMR Corporation, a Delaware corporation ("Parent"), the
attorney-in-fact and proxy of the undersigned, with full power of substitution,
with respect to (i) the shares of capital stock of the Company beneficially
owned by the undersigned as of the date of this proxy, which shares are
specified on the final page of this proxy and (ii) any and all other shares of
capital stock of the Company which the undersigned may acquire after the date
hereof. (The shares of the capital stock of the Company referred to in clauses
(i) and (ii) of the immediately preceding sentence are collectively referred to
as the "Shares.") Upon the execution hereof, all prior proxies given by the
undersigned with respect to any of the Shares are hereby revoked, and no
subsequent proxies will be given with respect to any of the Shares.
This proxy is irrevocable, is coupled with an interest and is granted in
connection with the Stockholder Agreement, dated as of the date hereof, between
Parent and the undersigned (the "Stockholder Agreement"), and is granted in
consideration of Parent entering into the Agreement and Plan of Merger, dated as
of the date hereof, among Parent, BHC Acquisition Corp., a Delaware corporation
and wholly owned subsidiary of Parent, and the Company (the "Merger Agreement").
Capitalized terms used but not otherwise defined in this proxy have the meanings
ascribed to such terms in the Merger Agreement.
The attorney and proxy named above will be empowered, and may exercise
this proxy, to vote the Shares, at any time until the earlier to occur of the
termination of the Merger Agreement in accordance with its terms or the
Effective Time (the "Expiration Date"), at any meeting of the stockholders of
the Company, however called, or in any written action by consent of the
stockholders of the Company:
(i) in favor of the Merger, the execution and delivery by
the Company of the Merger Agreement and the adoption and approval of the terms
thereof and in favor of each of the other actions contemplated by the Merger
Agreement and any action required in furtherance hereof or thereof;
(ii) against any action or agreement that would result in a
breach of any representation, warranty, covenant or obligation of the Company in
the Merger Agreement; and
(iii) against the following actions (other than the Merger and
the transactions contemplated by the Merger Agreement): (i) any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving the Company or any subsidiary of the Company (other than
the Excluded Subsidiaries); (ii) any sale, lease or transfer of a material
amount of assets of the Company or any subsidiary of the Company (other than the
Excluded Subsidiaries); (iii) any reorganization, recapitalization,
A-1
<PAGE> 104
dissolution or liquidation of the Company or any subsidiary of the Company
(other than the Excluded Subsidiaries); (iv) any change in a majority of the
board of directors of the Company; (v) any amendment to the Company's
certificate of incorporation; (vi) any change in the capitalization of the
Company or the Company's corporate structure; or (vii) any other action which is
intended, or could reasonably be expected to, impede, interfere with, delay,
postpone, discourage or adversely affect the contemplated economic benefits to
Parent of the Merger or any of the other transactions contemplated by the Merger
Agreement or this Stockholder Agreement.
The undersigned Principal Stockholder may vote the Shares on all other
matters.
This proxy shall be binding upon the heirs, successors and assigns of the
undersigned (including any transferee of any of the Shares).
Any obligation of the undersigned hereunder shall be binding upon the
heirs, successors and assigns of the undersigned (including any transferee of
any of the Shares).
This proxy shall terminate upon the Expiration Date.
Dated: ______ __, 1998
PRINCIPAL STOCKHOLDER
-----------------------------------------
Name
Number of Shares of Company Common Stock:
-----------------------------------------
A-2
<PAGE> 105
EXHIBIT C-1
PERSONS TO ENTER INTO AFFILIATE
AND LOCK-UP AGREEMENTS
Vencor, Inc.
Welsh, Carson, Anderson & Stowe, IV, LP
NationsBanc Capital Corporation
RFE Investment Partners
Charles and Patricia Elcan
Edward Stack
Calver Fund
William R. Frist
Thomas Frist III
Drake & Company
Stack Family Limited
WCAS Healthcare Partners
Sally J. Stack, Trustee
Russell I. Carson
Jack R. Anderson
Helen Cummings
Patrick Welsh
Bruce Anderson
Richard Stowe
Andrew Paul
Winfield Dunn
Robert Minicucci
Thomas McInerney
James Hoover
De Charter Trust Co., Trustee
Laura VanBuren
Anthony deNicola
<PAGE> 106
EXHIBIT C-2
AFFILIATE AND LOCK-UP AGREEMENT
This Affiliate and Lock-Up Agreement (this "Agreement") is entered into as
of July __, 1998, by and between PMR CORPORATION, a Delaware corporation
("Parent"), and the undersigned affiliate ("Affiliate") of BEHAVIORAL HEALTH
CORPORATION, a Delaware corporation (the "Company").
RECITALS
A. Pursuant to that certain Agreement and Plan of Merger (the "Merger
Agreement"), dated as of July __, 1998, by and among Parent, BHC ACQUISITION
CORP. ("Merger Sub"), a Delaware corporation and wholly owned subsidiary of
Parent and, the Company, Merger Sub will merge with and into the Company (the
"Merger").
B. As a result of the Merger, the stockholders of the Company are
entitled to receive shares (the "Shares") of Parent Common Stock (other than the
shares of Parent Common Stock to be deposited in an escrow (the "Escrow Shares")
pursuant to Section 1.10 of the Merger Agreement). Affiliate understands that
he, she or it may be deemed an "affiliate" of the Company as such term is used
in paragraphs (c) and (d) of Rule 145 ("Rule 145") under the Securities Act of
1933, as amended (the "Act"), and as such Affiliate may only transfer, sell or
dispose of Shares in accordance with this Agreement and Rule 145.
C. Affiliate understands that the representations, warranties and
covenants set forth herein will be relied upon by Parent, Merger Sub and the
Company, and their respective counsel.
AGREEMENT
NOW, THEREFORE, the parties hereby agree as follows:
1. Capitalized terms used in this Agreement and not otherwise defined
shall have the meanings given them in the Merger Agreement.
2. Affiliate represents, warrants, understands and agrees that:
(a) Affiliate has full power and capacity to execute and deliver
this Agreement and to make the representations, warranties and agreements herein
and to perform Affiliate's obligations hereunder;
(b) Affiliate has carefully read this Agreement and has discussed
the terms hereof with counsel, to the extent Affiliate felt necessary, the
requirements, limitations and restrictions on Affiliate's ability to sell,
transfer or otherwise dispose of the Shares and the Escrow Shares Affiliate may
receive pursuant to the Merger and fully understands the requirements,
limitations and restrictions this Agreement places upon Affiliate's ability to
transfer, sell or otherwise dispose of such Shares and Escrow Shares;
<PAGE> 107
(c) If Affiliate has executed any other agreement in connection
herewith, Affiliate understands and agrees to abide by all restrictions
contained therein;
(d) Affiliate will not sell, pledge, transfer or otherwise dispose
of any of the Shares or Escrow Shares held by Affiliate unless at such time (A)
(i) such transfer shall be in conformity with the provisions of Rule 145, (ii)
Affiliate shall have furnished to Parent an opinion of counsel reasonably
satisfactory to Parent, to the effect that no registration under the Act would
be required in connection with the proposed offer, sale, pledge, transfer or
other disposition or (iii) a registration statement under the Act covering the
proposed offer, sale, pledge, or other disposition shall be effective under the
Act and (B) such transfer is in accordance with paragraph 3 below; and
(e) Affiliate is the beneficial owner of the Company Common Stock,
Company Preferred Stock, Company Options and/or Company Warrants set forth on
the signature page hereto.
3. Affiliate agrees that:
(a) As an inducement to and in consideration of Parent's agreement
to enter into the Merger Agreement and proceed with the Merger, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Affiliate hereby agrees, except as permitted in this paragraph 3,
not to, directly or indirectly, offer to sell, contract to sell, transfer,
assign, cause to be redeemed or otherwise sell or dispose of any of the Shares
(except to or for the benefit of any family member or entity controlled by
Affiliate, as long as such family member or entity agrees in writing to remain
subject to this Agreement) (collectively, a "Disposition") received by Affiliate
in the Merger for a one-year period commencing on the Closing Date and ending on
the first anniversary thereof (the "Lock-up Period"). Affiliate hereby agrees
and consents to the entry of stop transfer instructions with Parent's transfer
agent against the transfer of the Shares except in compliance with this
Agreement.
(b) None of the restrictions on Disposition contained herein shall
apply to a bona fide gift or gifts, or to transfers to family members of
Affiliate, provided the donee, donees or transferees thereof agree to be bound
by the restrictions on Disposition contained in this Agreement. Affiliate will
not be subject to the restrictions on Disposition contained herein following the
termination of the Lock-up Period.
4. Affiliate understands and agrees that Parent is under no obligation
to register the sale, transfer or other disposition of the Shares or Escrow
Shares or to take any other action necessary in order to make compliance with an
exemption from registration available.
5. Each party hereto acknowledges that (i) it will be impossible to
measure in money the damage to Parent if Affiliate fails to comply with any of
the obligations imposed by this Agreement, (ii) every such obligation is
material and (iii) in the event of any such failure, Parent will not have an
adequate remedy at law or damages and, accordingly, each party hereto agrees
that injunctive relief or other equitable remedy, in addition to remedies at law
or damages, is an appropriate remedy for any such failure.
2.
<PAGE> 108
6. This Agreement is made under, and shall be construed and enforced in
accordance with, the laws of the State of Delaware applicable to agreements made
and to be performed solely therein, without giving effect to principles of
conflicts of law.
7. This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior agreements
and understandings between the parties with respect thereto. No addition to or
modification of any provision of this Agreement shall be binding upon either
party hereto unless made in writing and signed by both parties hereto. The
parties hereto waive their right to a trial by jury in any action at law or suit
in equity based upon, or arising out of, this Agreement or the subject matter
hereof.
8. This Agreement shall be binding upon, enforceable by and inure to
the benefit of the parties named herein and their respective successors; this
Agreement may not be assigned by any party without the prior written consent of
Parent. Any attempted assignment not in compliance with this paragraph shall be
void and have no effect. Notwithstanding anything contained in this Agreement to
the contrary, nothing in this Agreement, expressed or implied, is intended to
confer on any Person other than the parties hereto or their respective heirs,
successors and assigns, any rights, remedies, obligations or liabilities under
or by reason of this Agreement.
9. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together shall
constitute one and the same agreement.
10. Parent agrees to file on a timely basis the reports required to be
filed by it under the Securities Act of 1933, as amended (the "Securities Act")
and the Securities Exchange Act of 1934, as amended, and the rules and
regulations adopted by the Securities and Exchange Commission thereunder and to
make publicly available other information so long as necessary to permit sales
pursuant to Rule 144 under the Securities Act.
[THIS SPACE INTENTIONALLY LEFT BLANK]
3.
<PAGE> 109
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
PMR CORPORATION
By:_________________________________________
____________________________________________
Print Name and Title
Address:____________________________________
____________________________________
AFFILIATE
____________________________________________
____________________________________________
Print Name, and Title (if applicable)
Address:____________________________________
____________________________________________
Shares of Company Common
Stock Beneficially Owned: __________________
Shares of Company Preferred
Stock Beneficially Owned: __________________
Shares of Company Common
Stock Subject to Company Options: __________
Shares of Company Common
Stock Subject to Company
Warrants: __________
<PAGE> 110
EXHIBIT D
SERIES B PREFERRED STOCK AGREEMENT
This SERIES B PREFERRED STOCK AGREEMENT ("Agreement") is entered into as
of __________, 1998 by and BEHAVIORAL HEALTHCARE CORPORATION (the "Company") and
WCAS HEALTHCARE PARTNERS, L.P., ("WCAS");
WHEREAS, PMR Corporation ("PMR"), BHC Acquisition Sub ("Acquisition Sub")
and the Company have entered into an Agreement and Plan of Merger dated as of
July ____, 1998 (the "Merger Agreement"), pursuant to which, and subject to the
terms and conditions set forth therein, Acquisition Sub will merge with and into
the Company, the separate corporate existence of Acquisition Sub shall thereupon
cease and the Company shall continue in its corporate existence under the laws
of the State of Delaware;
WHEREAS, the Company and WCAS have agreed to exchange the Series B
Preferred Stock for Common Stock as provided herein in order to satisfy a
condition of the Merger Agreement;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
All capitalized terms used but not defined herein shall have the meanings
set forth in the Merger Agreement. WCAS acknowledges receipt and review of a
copy of the Merger Agreement.
SECTION 2. EXCHANGE OF SERIES B PREFERRED STOCK
Immediately prior to the Closing (and provided the Closing occurs), WCAS
shall exchange the 50,252 shares of Series B Preferred Stock owned by it for
50,252 shares of Common Stock to be issued by the Company, and the Company shall
issue 50,252 shares of Common Stock to WCAS in exchange for 50,252 shares of
Series B Preferred Stock to be transferred to the Company by WCAS. The Company
shall issue and deliver to WCAS a stock certificate representing 50,252 shares
of Common Stock registered in the name of WCAS upon receipt of the stock
certificate or certificates representing the 50,252 shares of Series B Preferred
Stock duly endorsed (or accompanied by duly executed stock transfer powers) by
WCAS, for transfer to the Company.
SECTION 3. REPRESENTATIONS AND WARRANTIES
WCAS hereby represents and warrants to the Company as follows:
3.1 ORGANIZATION; INDIVIDUAL CAPACITY; ENFORCEABILITY. WCAS is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, with full
1.
<PAGE> 111
power and authority to enter into this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
partnership action, and no other proceedings on the part of WCAS are necessary
to authorize this Agreement or to consummate the transactions contemplated
herein. This Agreement is, and the other documents and instruments required
hereby will be, when executed and delivered by the parties hereto, the valid and
binding obligations of WCAS, enforceable against WCAS in accordance with their
respective terms except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors rights generally
and as may be limited by the application of principles of equity.
3.2 TITLE TO AND OWNERSHIP OF SERIES B PREFERRED STOCK. As of the date
of this Agreement and as of the time of transfer to the Company pursuant to
Section 2 hereof, WCAS owns and will own beneficially and of record good, valid
and marketable title to 50,252 shares of Series B Preferred Stock, free and
clear of any and all encumbrances.
SECTION 4. ENTIRE AGREEMENT; COUNTERPARTS; DESCRIPTIVE HEADINGS
(a) This Agreement constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties hereto with respect to the subject matter hereof.
(b) This Agreement may be executed in counterparts, each of which
when so executed and delivered shall be an original, but all of such
counterparts shall together constitute one and the same instrument.
(c) The descriptive headings herein are inserted for convenience
only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
SECTION 5. ASSIGNMENT
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by WCAS, in whole or in part (whether by operation
of law or otherwise), without the prior written consent of the Company, and any
attempt to make any such assignment without such consent shall be null and void.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of and be enforceable by the parties and their respective successors
and assigns.
SECTION 6. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF
LAWS THEREOF.
SECTION 7. SPECIFIC PERFORMANCE
The parties hereto agree that if any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached, irreparable
2.
<PAGE> 112
damage would occur, no adequate remedy at law would exist and damages would be
difficult to determine, and that the parties shall be entitled to specific
performance of the terms hereof, in addition to any other remedy at law or
equity.
SECTION 8. PARTIES IN INTEREST
This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other person or persons any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 9. AMENDMENT; WAIVERS
(a) This Agreement shall not be amended, altered or modified
except by an instrument in writing duly executed by each of the parties hereto.
(b) No delay or failure on the part of any party hereto in
exercising any right, power or privilege under this Agreement shall impair any
such right, power or privilege or be construed as a waiver of any default or any
acquiescence thereto. No single or partial exercise of any such right, power or
privilege shall preclude the further exercise of such right, power or privilege,
or the exercise of any other right, power or privilege. No waiver shall be valid
against any party hereto, unless made in writing and signed by the party against
whom enforcement of such waiver is sought, and then only to the extent expressly
specified therein.
SECTION 10. CONFLICT OF TERMS
In the event any provision of this Agreement is directly in conflict with,
or inconsistent with, any provision of the Merger Agreement, the provision of
the Merger Agreement shall control.
SECTION 11. TERMINATION
This Agreement hereunder shall terminate on the earlier to occur of (a)
the date on which the Merger is consummated or (b) the date on which the Merger
Agreement is terminated in accordance with its terms.
3.
<PAGE> 113
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Series B Preferred Stock Agreement, or have caused this Series B Preferred
Stock Agreement to be duly executed and delivered in their names and on their
behalf as of the date first written above.
BEHAVIORAL HEALTHCARE CORPORATION
By: _____________________________
Name:
Title:
WCAS HEALTHCARE PARTNERS, L.P.,
By: _____________________________
Name:
Title:
4.
<PAGE> 114
EXHIBIT E
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BEHAVIORAL HEALTHCARE CORPORATION
BEHAVIORAL HEALTHCARE CORPORATION, a corporation organized and existing
under the laws of the state of Delaware, hereby certifies as follows:
ONE: The name of the corporation is Behavioral Healthcare Corporation (the
"Corporation").
TWO: The date of the filing of the Corporation's original Certificate of
Incorporation with the Secretary of State of Delaware was December 28, 1993
under the name Behavioral Healthcare Corporation.
THREE: The Certificate of Incorporation of this Corporation is hereby
amended and restated to read as follows:
I.
The name of this corporation is Behavioral Healthcare Corporation
II.
The address of the registered office of the corporation in the State of
Delaware is 9 East Loockerman, Dover, Delaware, 19901, County of Kent, and the
name of the registered agent of the corporation in the State of Delaware at such
address is National Registered Agents, Inc.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
1.
<PAGE> 115
IV.
This corporation is authorized to issue only one class of stock, to be
designated Common Stock. The total number of shares of Common Stock presently
authorized is One Hundred (100), each having a par value of one-tenth of one
cent ($0.001).
V.
The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by the Board
of Directors in the manner provided in the Bylaws.
VI.
A. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective
and shall not affect the rights under this Article VI in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute and all rights conferred upon the stockholders
herein are granted subject to this reservation.
2.
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* * *
FOUR: This Amended and Restated Certificate of Incorporation has been duly
adopted by the Board of Directors of this Corporation.
FIVE: This Amended and Restated Certificate of Incorporation has been duly
adopted in accordance with the provisions of Sections 228, 242, and 245 of the
Delaware General Corporation Law by the board of directors and the stockholders
of the Corporation. The total number of outstanding shares of Common Stock
approved this Amended and Restated Certificate of Incorporation by written
consent in accordance with Section 228 of the Delaware General Corporation Law
and written notice of such was given by the Corporation in accordance with
Section 228.
IN WITNESS WHEREOF, said Behavioral Healthcare Corporation has caused this
Certificate to be signed by its President, Edward A. Stack, and attested to by
its Secretary, Michael E. Davis, this __ of ________ 1998.
---------------------------
Edward A. Stack
President
- -----------------------------
Michael E. Davis
Secretary
3.
<PAGE> 117
EXHIBIT F
DIRECTORS AND OFFICERS
OF SURVIVING CORPORATION
Directors
- ---------
Allen Tepper
Mark Clein
Edward A. Stack
Officers
- --------
Allen Tepper - President and Secretary
Edward A. Stack - Chief Operating Officer and Treasurer
<PAGE> 118
EXHIBIT G
THIS UNSECURED SUBORDINATED PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NO SALE OR DISPOSITION MAY BE
EFFECTED EXCEPT IN COMPLIANCE WITH RULE 144 UNDER SAID ACT OR AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR HOLDER,
SATISFACTORY TO BORROWER, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT
OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.
UNSECURED SUBORDINATED PROMISSORY NOTE
$925,000 __________, 1998
San Diego, California
FOR VALUE RECEIVED, PMR Corporation, a Delaware corporation ("Borrower"),
hereby promises to pay to the order of the persons listed on the Schedule of
Holders attached hereto as Exhibit A (the "Holders"), in lawful money of the
United States of America and in immediately available funds, the aggregate
principal sum set forth on Exhibit A with respect to each Holder aggregating a
total of Nine Hundred Twenty-five Thousand dollars ($925,000) (the "Note")
together with accrued and unpaid interest thereon, payable on the date and in
the manner set forth below.
This Note is executed and delivered in connection with that certain
Agreement and Plan of Merger dated July 29, 1998, by and between Borrower,
Behavioral Healthcare Corporation, a Delaware corporation, and BHC Acquisition
Corp., a Delaware corporation and wholly owned subsidiary of Borrower (as the
same may from time to time be amended, modified or supplemented, the "Merger
Agreement").
1. REPAYMENT. Subject to Section 6 hereof, the outstanding principal
amount of the Note and all accrued and unpaid interest thereon shall be due and
payable in full on _____________, 2001 ("Maturity Date"), except that Borrower
may delay and/or reduce the payment of principal and interest in an amount equal
to any actual Damages (as defined in the Merger Agreement) or a good faith
estimate of Damages reasonably expected to be incurred for any indemnification
claim made pursuant to Section 8 of the Merger Agreement until such
indemnification claim is resolved in accordance with the Merger Agreement.
2. INTEREST RATE. Borrower further promises to pay interest on the
outstanding principal amount hereof from the date hereof until payment in full,
which interest shall be payable at the rate of seven percent (7%) per annum,
simple interest. Interest shall be calculated on the basis of a 365-day year for
the actual number of days elapsed. Borrower shall not be required to make any
interest payments prior to the Maturity Date.
1.
<PAGE> 119
3. PLACE OF PAYMENT. All amounts payable hereunder shall be payable by
delivery of a check to the Holders' respective addresses listed on the Schedule
of Holders attached hereto as Exhibit A.
4. APPLICATION OF PAYMENTS. Payments on this Note shall be applied
first to accrued interest, and thereafter to the outstanding principal balance
hereof.
5. OFFSET. Borrower and any Parent Indemnitees (as defined in the
Merger Agreement) shall be entitled to offset Damages first against accrued
interest and, if the Damages exceed the amount of accrued interest, then against
the outstanding principal balance hereof.
6. SUBORDINATION.
(a) SENIOR DEBT. For purposes of this Note, "Senior Debt" shall
mean all presently existing and hereafter arising indebtedness and other
obligations for borrowed money of any kind or nature of Borrower, and all
renewals, extensions and refundings thereof.
(b) AGREEMENT TO SUBORDINATE. The Borrower and Holder agree that
the indebtedness evidenced by this Note is subordinated in right of payment to
the extent and in the manner provided in this Section 6 to the prior payment in
full of all Senior Debt, and that the subordination is for the benefit of the
holders of the Senior Debt.
(c) LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any distribution to
creditors of the Borrower in a liquidation or dissolution of Borrower or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to Borrower or its property:
(i) the holders of the Senior Debt shall be entitled to
receive payment in full in cash of the principal of and interest (including
interest accruing after the commencement of any such proceeding) to the date of
payment on the Senior Debt before the Holder shall be entitled to receive any
payment of principal of or interest on this Note; and
(ii) until the Senior Debt is paid in full in cash, any
distribution to which the Holder would be entitled but for this Section 6 shall
be made to the holders of the Senior Debt, except that the Holder may receive
securities that are subordinated to the Senior Debt to at least the same extent
as this Note.
(d) DEFAULT ON SENIOR DEBT.
(i) Upon the maturity of the Senior Debt by lapse of time,
acceleration or otherwise, all such Senior Debt shall first be paid in full, or
such payment duly provided for in cash or in a manner satisfactory to the
holders of the Senior Debt, before any payment is made by the Borrower or any
person acting on behalf of the Borrower on account of the principal of or
interest on this Note.
(ii) The Borrower may not pay the principal of or interest on
this Note and may not acquire this Note for cash or property (other than capital
stock of the Borrower or other securities of the Borrower that are subordinated
to the Senior Debt to at least the same
2.
<PAGE> 120
extent as this Note) if: (A) a default on the Senior Debt occurs and is
continuing that permits the holders of such Senior Debt to accelerate its
maturity, and (B) the default is the subject of judicial proceedings or the
Borrower receives a notice of the default.
(iii) The Borrower may resume payments on this Note and may
acquire them when: (A) the default is cured or waived, or (B) 180 days pass
after the notice is given if the default is not the subject of judicial
proceedings.
(e) SUBROGATION. After all Senior Debt is paid in full and until
this Note is paid in full, the Holder shall be subrogated to the rights of the
holders of the Senior Debt to receive distributions applicable to Senior Debt to
the extent that distributions otherwise payable to the Holder have been applied
to the payment of the Senior Debt. A distribution made under this Section to the
holders of the Senior Debt which otherwise would have been made to the Holder is
not, as between the Borrower and the Holder, a payment by the Borrower on Senior
Debt.
(f) RELATIVE RIGHTS. This Section defines the relative rights of
the Holder and the holders of the Senior Debt. Nothing in this Note shall:
(i) impair, as between the Borrower and the Holder, the
obligation of the Borrower, which is absolute and unconditional, to pay
principal of and interest on the Note in accordance with its terms; and
(ii) affect the relative rights of the Holder and creditors
of the Borrower other than the holders of the Senior Debt.
(g) SUBORDINATION MAY NOT BE IMPAIRED BY BORROWER. No right of the
holders of the Senior Debt to enforce the subordination of the indebtedness
evidenced by this Note shall be impaired by any act or failure to act by the
Borrower or by its failure to comply with this Note.
7. PREPAYMENT. Borrower may prepay this Note at any time either in
whole or in part without penalty.
8. WAIVER; PAYMENT OF FEES AND EXPENSES. Borrower waives presentment
and demand for payment, notice of dishonor, protest and notice of protest of
this Note, and shall pay all costs of collection when incurred, including,
without limitation, reasonable attorneys' fees, costs and other expenses.
9. AMENDMENTS. This Note may not be amended, altered, changed or
otherwise modified except by a written instrument signed by Holders, or the
Stockholders' Representatives (as defined in the Merger Agreement) on behalf of
Holders, and Borrower.
10. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of Delaware, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
3.
<PAGE> 121
11. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to
the benefit of and be binding on any successor to Borrower. This Note is not a
negotiable instrument and Holders shall not be entitled to assign the Note
without the prior written consent of Borrower and the agreement by the assignee
to become a substitute obligor under the stockholder indemnification provisions
of the Merger Agreement.
BORROWER: PMR CORPORATION
By:______________________________________
Allen Tepper, Chief Executive Officer
4.
<PAGE> 122
EXHIBIT H
EXCHANGE AGENT AGREEMENT
BETWEEN
STOCKTRANS, INC.
AND
PMR CORPORATION
THIS EXCHANGE AGENT AGREEMENT (the "Agreement") is entered into as of
________, 1998 between PMR CORPORATION, a Delaware corporation ("Parent"), and
STOCKTRANS, INC. ("Agent"). Capitalized terms used but not defined herein shall
have the meanings set forth in the Merger Agreement defined below.
WHEREAS, Parent is a party to that certain Agreement and Plan of Merger,
dated as of July __, 1998, (the "Merger Agreement"), a copy of which is attached
hereto as Exhibit A among Parent, BHC ACQUISITION CORP., a Delaware corporation
and a wholly-owned subsidiary of Parent ("Merger Sub"), and BEHAVIORAL
HEALTHCARE CORPORATION, a Delaware corporation (the "Company"); and
WHEREAS, in accordance with Section 1.8 of the Merger Agreement, Parent
desires to appoint Agent to act as exchange agent, and Agent desires to accept
such appointment, on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. CONVERSION OF SHARES. Agent understands that, and will perform services
hereunder based upon, the following:
1.1 At the Effective Time, by virtue of the Merger and without any
action on the part of Parent, Merger Sub, the Company or any stockholder of the
Company, and except as provided in Section 1.5(a) of the Merger Agreement, (i)
the shares of Common Stock, $0.01 par value per share of the Company (the
"Company Common Stock") held by Vencor, Inc. ("Vencor") immediately prior to the
Effective Time (the "Vencor Shares") shall be converted into the right to
receive an aggregate of $65,000,000 in cash (the "Vencor Payment") and (ii) the
shares of Company Common Stock (other than the Vencor Shares) and shares of
Series A Preferred Stock of the Company (together with the Company Common Stock,
the "Converted Shares") issued and outstanding immediately prior to the
Effective Time, shall be converted into the right to receive (subject to the
provisions of Section 1.2 below) (a) an aggregate of $28,500,000 in cash
(together with the Vencor Payment, the "Cash Payment"), (b) promissory notes in
the aggregate principal amount of $925,000 (the "Note Payment") and (c) an
aggregate of 2,600,000 shares of Common Stock, $0.01 par value per share, of
Parent (the "Parent Common Stock" and collectively with the Cash Payment and the
Note Payment, the "Merger Consideration"), in each case upon surrender of
certificates representing such Converted Shares ("Certificates") (or in the case
of a lost, stolen or destroyed Certificate, upon delivery of an
1.
<PAGE> 123
affidavit (and bond, if required by Parent)) in the manner provided in Section
1.8 of the Merger Agreement and Section 2.7 hereof.
1.2 No fractional shares of Parent Common Stock shall be issued in
connection with the Merger and no certificate for any such fractional share
shall be issued. In lieu thereof, any holder of Converted Shares who would
otherwise be entitled to a fraction of a share of Parent Common Stock (after
aggregating all fractional shares of Parent Common Stock that such holder is
entitled to receive) shall, upon surrender of such holder's Certificate, be paid
in cash the dollar amount (rounded to the nearest whole cent), without interest,
determined by multiplying such fraction by $9.2596.
1.3 As soon as practicable following the Effective Time: (a) Parent
will inform Agent of the Effective Time and will provide Agent with instructions
with respect to any legends that must be placed on certificates representing
shares of Parent Common Stock to be issued in connection with the Merger, and
(b) the Company will provide Agent with a Schedule of Disbursement (the
"Schedule of Disbursement") setting forth a list of the holders of Converted
Shares immediately prior to the Effective Time and the Merger Consideration to
which each such holder is entitled pursuant to the Merger Agreement, including
the amount to be held by the Agent and the amount to be held by the Escrow Agent
(as described below).
1.4 Agent shall have no duty to inquire into the terms of the Merger
Agreement or any other agreement. Agent's rights and duties shall be as
specifically set forth herein.
1.5 At the Effective Time, Parent shall deliver to the Escrow Agent
$5,449,937 of the Cash Payment (the "Escrow Payment") and the Note Payment
pursuant to the Escrow Agreement attached hereto as Exhibit B (the "Escrow
Agreement").
1.6 At the Effective Time, Parent will deposit or cause to be
deposited with Agent in an account for the benefit of holders of Converted
Shares immediately available funds equal to the sum of (collectively, the
"Payment Fund"): (a) $88,050,063 of the Cash Payment; and (b) cash in the
aggregate amount needed to make payments in lieu of fractional shares of Parent
Common Stock based on the Schedule of Disbursement and any applicable tax
withholding. Agent will draw upon such funds as required from time to time in
order to make payment for the Converted Shares and any applicable tax
withholding payments. Agent shall pay interest to Parent on the average daily
balance of the Payment Fund at a floating rate equal to the rate of interest
publicly announced by Bank of America N.T.&S.A. from time to time as its prime,
base or reference rate, per annum of the average daily balance of the Payment
Fund. Agent shall return to Parent any amounts remaining in the Payment Fund on
that date which is six (6) months after the Effective Date; thereafter, in the
event that additional Converted Shares are surrendered to Agent for exchange,
Agent shall notify Parent of the number of such Converted Shares surrendered for
exchange and Parent shall promptly deposit or cause to be deposited with Agent
immediately available funds sufficient to pay for such surrendered Converted
Shares and any payments in lieu of fractional shares with respect thereto.
1.7 As of the Effective Time, Agent and the Escrow Agent shall become
the sole recordkeeping agents for the Converted Shares, in accordance with their
standard practices.
2.
<PAGE> 124
Upon the exchange of Converted Shares, certificates representing such Converted
Shares shall be physically canceled by Agent and posted to the records
maintained by Agent.
2. SERVICES. In addition to any other services described in this Agreement,
Agent shall perform the following services:
2.1 Agent shall mail, first class mail, postage prepaid at Parent's
expense, as soon as practicable after the Effective Time, to each holder of
record of Converted Shares: (a) a Letter of Transmittal (which shall be in the
form attached hereto as Exhibit C, which form has been provided to Agent by
Parent); and (b) instructions (which have been provided to Agent by Parent and
are included as part of Exhibit C) for use in effecting the surrender of the
Certificates representing such shares in exchange for the Merger Consideration.
2.2 Agent shall receive Certificates, Letters of Transmittal and any
other accompanying documents and shall examine each Letter of Transmittal, each
related Certificate and each other accompanying document to ascertain (a)
whether such Letter of Transmittal and other document has been completed and
executed in accordance with the instructions set forth therein, (b) whether such
Certificate is in proper form for exchange, and (c) whether there are any
discrepancies between the number of shares of Converted Shares that any Letter
of Transmittal may indicate are owned by a surrendering stockholder and the
number of Converted Shares that the Schedule of Disbursement indicates are owned
by such stockholder immediately prior to the Effective Time. In each instance in
which any discrepancy referred to in clause "(c)" of the preceding sentence
exists or in which a Letter of Transmittal, Certificate or any accompanying
document has been improperly completed or executed, or for any other reason is
not in proper form or where any other irregularity in connection with the
exchange appears to Agent to exist, Agent shall notify the presenter of such
Letter of Transmittal, Certificate or other document, and shall follow, where
possible, Agent's regular procedures to attempt to cause such discrepancy or
irregularity to be corrected. If the discrepancy or irregularity is not
corrected within 30 days, Agent shall consult with Parent for instructions as to
the number of Converted Shares, if any, Agent is authorized to accept for
exchange. In the absence of such instructions, Agent is not authorized to accept
any such shares for exchange.
2.3 Agent shall stamp each Letter of Transmittal received by it as to
the date and the time of receipt thereof and Agent shall preserve each such
Letter of Transmittal for a period of time at least equal to the period of time
Agent preserves other records pertaining to the transfer of securities. Agent
shall dispose of unused Letters of Transmittal and other surplus materials by
returning them to Parent.
2.4 Upon surrender to Agent of a Certificate in proper form for
exchange, together with a properly executed Letter of Transmittal, Agent, in its
capacity as transfer agent for Parent, as promptly as possible, shall prepare
certificates for shares of Parent Common Stock in the denominations listed on
the Schedule of Disbursement. Agent shall deliver certificates representing an
aggregate of up to 175,500 shares of the Parent Common Stock to the Escrow Agent
(the "Escrow Shares") to be held together with the Escrow Payment and the Note
Payment pursuant to the Escrow Agreement. The Agent shall deliver to the persons
indicated in the Letter of Transmittal, certificates representing the Parent
Common Stock (other than the Escrow Shares), the Cash Payment (other than the
Escrow Payment) and the entire payment in lieu of
3.
<PAGE> 125
fractional shares to which such persons are entitled (including such payment
with respect to the Escrow Shares).
2.5 If Agent shall receive a Letter of Transmittal with a completed
instruction block indicating that the certificate for shares of Parent Common
Stock is to be issued in a name other than that of the registered holder of the
related Certificate, Agent shall act in accordance with the instructions
indicated therein only if: (a) the Letter of Transmittal or the Certificate has
been properly assigned by the holder of record; (b) the signature or signatures
on such assignment correspond exactly with the name or names which appear on the
face of such Certificate; (c) the signature or signatures on such assignment are
properly guaranteed; and (d) the person requesting such exchange shall have paid
to Parent or Agent any transfer or other taxes required by reason of the
issuance of a certificate for shares of Parent Common Stock in any name other
than that of the registered holder of the Certificate surrendered.
2.6 All certificates representing Parent Common Stock issued in
exchange for Converted Shares may be issued without restrictive legend(s);
provided, however, Parent Common Stock issued to each of the persons listed on
Exhibit D attached hereto shall contain the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE HELD BY A PERSON WHO MAY
BE DEEMED TO BE AN AFFILIATE OF THE ISSUER FOR PURPOSES OF RULE 144 OR RULE
145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED."
If any certificates are to be issued with any additional restrictive legend(s),
Parent shall provide the appropriate legend(s) and a list identifying the
stockholders and certificate numbers of Converted Shares.
2.7 If any holder of shares of Converted Shares as of the Effective
Time reports to Agent that such holder's failure to surrender a Certificate
representing any such shares is due to the theft, loss or destruction of such
holder's Certificate, Agent shall require such stockholder to furnish an
affidavit of such theft, loss or destruction and a bond of indemnity (unless
Parent advises Agent that a bond of indemnity is not required), both in form and
substance satisfactory to Agent. Upon receipt of such affidavit and, if
necessary, bond of indemnity, and compliance with any other applicable
requirements, Agent shall effect the issuance of the Merger Consideration to the
former stockholder as though such stockholder had surrendered a Certificate
representing shares of Converted Shares.
2.8 On or before January 31st of the year following the year of the
payment, Agent shall prepare and mail to each stockholder, other than
stockholders who demonstrate their status as nonresident aliens in accordance
with United States Treasury Regulations ("Foreign Stockholders"), a Form 1099-B
reporting the amount of such cash, in accordance with Treasury Regulations.
Agent shall prepare and file copies of such Forms 1099-B by magnetic tape with
the Internal Revenue Service (the "IRS") on or before February 28th of the year
following the year of the payment, in accordance with Treasury Regulations. On
or before January 31st of the year following the year of the payment, Agent
shall prepare and mail to each stockholder who received any dividends held
pending exchange of the Converted Shares, other than stockholders
4.
<PAGE> 126
who demonstrate their status as Foreign Stockholders, a Form 1099-DIV reporting
the amount of such cash, in accordance with Treasury Regulations. Agent shall
also prepare and file copies of such Forms 1099-DIV by magnetic tape with the
IRS on or before February 28th of the year following the year of the payment, in
accordance with Treasury Regulations. Should any issue arise regarding Federal
income tax reporting or withholding, Agent shall take such action as instructed
by Parent in writing.
2.9 Agent shall take such action as may from time to time be requested
by Parent or its counsel (and such other action as Agent may reasonably deem
appropriate) to furnish copies of the Letter of Transmittal or such other forms
as may be approved from time to time by Parent, to all persons requesting such
documents, and to accept and comply with telephone requests for information
relating to the exchange of Certificates in connection with the Merger.
2.10 Agent shall advise Parent by cable, telex, facsimile transmission
or telephone, and, if by telephone, promptly thereafter confirm in writing to
Parent, weekly (and daily during the three weeks immediately following the
Effective Time) during the term of this Agreement, as to the number of shares of
Converted Shares and the identity by Certificate number of Certificates which
have been surrendered, and as to the aggregate amount of Merger Consideration
(specifically setting forth the number of shares of Parent Common Stock which
have been issued in exchange therefor, including the number of shares delivered
to the Escrow Agent in connection therewith), delivered pursuant to the Merger,
and the items received by Agent in connection therewith, separately reporting
and giving cumulative totals as to items properly received and items improperly
received. Agent shall prepare a final list of each person who surrendered one or
more Certificates (or one or more affidavits of the type referred to in Section
2.7), the aggregate number of Converted Shares surrendered by each such person
and the aggregate amount of Merger Consideration (specifically setting forth the
number of shares of Parent Common Stock issued to each such person), and deliver
said list to Parent within 30 days after the termination of this Agreement. In
addition, Agent shall provide Parent with such other reports as Parent may
reasonably request.
3. LIMITATIONS ON AGENT'S DUTIES.
As exchange agent hereunder, Agent: (a) shall have no duties or
obligations other than those specifically set forth herein or as may be agreed
to in writing by Agent and Parent and no implied duties or obligations shall be
read into this Agreement against Agent; (b) shall be regarded as making no
representations and having no responsibilities as to the validity, sufficiency,
value or genuineness of any Certificate or of any Converted Shares represented
thereby and surrendered to Agent hereunder or of any shares of Parent Common
Stock issued in exchange therefor, and shall not be required to make any
representation as to the validity of the Merger Agreement; provided that, in no
way will Agent's general duty to act in good faith be discharged by the
foregoing; and (c) shall not be obligated to take any legal action hereunder
which might in the judgment of Agent involve any expense or liability, unless
Agent shall have been furnished with reasonable indemnity therefor.
5.
<PAGE> 127
4. DIVIDENDS.
Parent shall deposit with Agent cash in sufficient amount to account
for any dividends or other distributions with respect to shares of Parent Common
Stock that become payable after the Effective Time. However, no dividends or
other distributions with respect to shares of Parent Common Stock which become
payable after the Effective Time shall be paid by Agent to any holder of a
Certificate (with respect to the number of shares of Parent Common Stock to be
issued to such holder upon surrender of such Certificate) until such holder
shall have surrendered such Certificate for exchange as herein provided,
whereupon such dividends and other distributions shall be delivered (without
interest or earnings) to such holder. Promptly after the termination of Agent's
appointment, Agent shall deliver to Parent (without interest or earnings
thereon), all such dividends and other distributions held by Agent for holders
of Certificates who by that date have not surrendered such Certificates for
exchange as provided herein.
5. RELIANCE ON COMMUNICATION.
As exchange agent hereunder, Agent may rely on and shall be protected
in acting in reliance upon any agreement, stock certificate, opinion, notice,
letter, telegram, or other instrument, which Agent shall reasonably and in good
faith believe to be genuine and to have been signed by a proper person or
entity. Agent may rely on and shall be protected in acting in reliance upon the
written or oral instructions (confirmed in writing) of Allen Tepper or Mark
Clein, each an officer of Parent; provided, however, that failure to confirm
said instructions in writing shall not affect the validity of said instructions.
6. RIGHT TO CONSULT COUNSEL.
Agent may consult legal counsel of its own selection, including
counsel for Parent and attorneys in Agent's employ, with respect to any
questions relating to its duties and responsibilities hereunder. Agent shall not
be liable for any action taken or omitted by it in good faith in reliance upon
the written opinion of counsel.
7. INDEMNIFICATION AND DEFENSE OF CLAIMS.
7.1 Parent shall indemnify and hold Agent harmless in its capacity as
exchange agent hereunder against any loss, liability, cost or expense, including
reasonable attorneys' fees, arising out of or in connection with: (a) the
performance by Agent of its duties hereunder; or (b) the reliance by Agent upon
the information relating to the Converted Shares furnished to Agent by Parent or
by the Company's transfer agent; provided, however, that: (i) in any case in
which there is a discrepancy between such information and the information
contained in a Certificate or Certificates surrendered to Agent by a former
stockholder of the Company for exchange under the terms hereof, Agent shall have
a duty to inquire as to the reason for such discrepancy, and if Agent is unable
to resolve said discrepancy within 30 days, Agent shall act with respect to said
discrepancy only as directed by Parent; and (ii) Parent shall not be liable for
indemnification or otherwise for any loss, liability, cost or expense to the
extent arising out of Agent's gross negligence or willful misconduct. In no case
shall Parent be liable under this indemnity with respect to any claim against
Agent unless Parent shall be notified in writing by
6.
<PAGE> 128
Agent of the assertion of such claim promptly after Agent shall have received
notice of any such assertion unless such delay did not prejudice Parent's rights
with respect to such claim. Parent shall be entitled to participate at its own
expense in the defense of any such claim, and, if Parent so elects, Parent shall
assume the defense of any proceeding brought with respect to any such claim. In
the event that Parent shall assume the defense of any such proceeding, Parent
shall not be liable for the fees and expenses of any additional counsel
thereafter retained by Agent unless counsel to Agent reasonably determines that
representation of Agent by counsel to, or counsel selected by, Parent would give
rise to a conflict of interest, in which case Agent shall be entitled to retain
a single firm as counsel and Parent shall be liable for the reasonable fees and
expenses of such counsel. The indemnification provided for hereunder shall
survive the termination of this Agreement.
8. ATTORNEY'S FEES. In connection with any action at law or suit in equity
arising under this Agreement, the prevailing party shall be entitled to receive
a reasonable sum for its attorneys' fees and all other reasonable costs and
expenses incurred in such action or suit.
9. FEES AND EXPENSES.
For Agent's services hereunder, Parent shall pay Agent the fees set
forth in Exhibit E attached hereto. Parent shall also reimburse Agent for its
reasonable out-of-pocket expenses in connection with its services hereunder,
including, but not limited to, postage, insurance, telephone charges and
reasonable counsel fees which may be incurred in such connection.
10. NOTICES.
All notices and other communications pursuant to this Agreement shall
be in writing and shall be deemed given if delivered personally, telecopied,
sent by nationally-recognized, overnight courier or mailed by registered or
certified mail (return receipt requested), postage prepaid, to the parties at
the following addresses (or at such other address for a party as shall be
specified by like notice):
If to Agent: StockTrans, Inc.
7 E. Lancaster Avenue
Ardmore, PA 19003
Telephone: (610) 649-6300
Facsimile: (610) 649-7302
Attention: Jonathan Miller
If to Parent: PMR Corporation
501 Washington Street, 5th Floor
San Diego, CA 92103
Telephone: (619) 610-4001
Facsimile: (619) 610-4184
Attention: Chief Executive Officer
All such notices and other communications shall be deemed to have been received:
(a) in the case of personal delivery, on the date of such delivery; (b) in the
case of a telecopy, when the
7.
<PAGE> 129
party receiving such telecopy shall have confirmed receipt of the communication;
(c) in the case of delivery by nationally-recognized, overnight courier, on the
business day following dispatch; and (d) in the case of mailing, on the fifth
business day following such mailing.
11. ENTIRE AGREEMENT; COUNTERPARTS; APPLICABLE LAW.
This Agreement constitutes the entire agreement and supersede all
prior agreements and understandings, both written and oral, between any of the
parties with respect to the subject matter hereof. This Agreement may be
executed in several counterparts, each of which shall be deemed an original and
all of which shall constitute one and the same instrument, and shall be governed
in all respects by the laws of the State of Delaware as applied to contracts
entered into and to be performed entirely within Delaware.
12. MODIFICATION.
This Agreement shall not be, and shall not be deemed or construed to
be modified or amended, in whole or in part, except by a written instrument
signed by a duly authorized representative of each party to this Agreement.
13. ASSIGNABILITY.
This Agreement shall be binding upon, and shall be enforceable by and
inure solely to the benefit of, the parties hereto and their respective
successors and assigns.
14. SEVERABILITY.
In case any provision of this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
15. TERMINATION.
At any time following the one year anniversary of the Effective Time,
Parent may terminate this Agreement at any time by so notifying Agent in
writing. Agent may terminate this Agreement upon 30 days' prior written notice
to Parent. This Agreement shall terminate thirteen months after the Effective
Time unless extended by agreement of both parties hereto. Section 7 of this
Agreement shall survive any termination of this Agreement. Upon any termination
of this Agreement, Agent shall promptly deliver to Parent any certificate, funds
or other property then held by Agent pursuant to this Agreement. After such
time, any party entitled to such certificates, funds or property shall look
solely to Parent and not to Agent with respect thereto.
8.
<PAGE> 130
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the date first above written.
STOCKTRANS, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
PMR CORPORATION
By:_______________________________
Name:_____________________________
Title:____________________________
9.
<PAGE> 131
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
<PAGE> 132
EXHIBIT B
ESCROW AGREEMENT
<PAGE> 133
EXHIBIT C
LETTER OF TRANSMITTAL
<PAGE> 134
EXHIBIT D
AFFILIATE LEGEND
<PAGE> 135
EXHIBIT E
EXCHANGE AGENT FEES
<PAGE> 136
EXHIBIT I
ESCROW AGREEMENT
THIS ESCROW AGREEMENT dated as of ______ __, 1998 (the "Agreement") is made
and entered into by and among PMR CORPORATION, a Delaware corporation
("Parent"), STOCKTRANS, INC. (the "Escrow Agent") and VENCOR, INC. ("Vencor"),
WELSH, CARSON, ANDERSON & STOWE, VI, L.P. ("Welsh, Carson") and EDWARD A. STACK
("Stack"), as Representatives (the "Stockholders' Representatives") of the
common stockholders and Series A Preferred stockholders (collectively, the
"Stockholders") of BEHAVIORAL HEALTHCARE CORPORATION, a Delaware corporation
(the "Company").
RECITALS
WHEREAS, the Company, Parent and BHC ACQUISITION CORP., a Delaware
corporation and wholly owned subsidiary of Parent ("Merger Sub") are parties to
that certain Agreement and Plan of Merger dated July __, 1998 (the "Merger
Agreement"), whereby Merger Sub will be merged with and into the Company (the
"Merger") and the Company will be the surviving corporation and become a wholly
owned subsidiary of Parent;
WHEREAS, pursuant to the Merger Agreement, an aggregate of 2,600,000 shares
(the "Merger Shares") of Common Stock of Parent are to be issued, an aggregate
of $93,500,000 (the "Cash Consideration") is to be paid, and promissory notes in
the aggregate principal amount of $925,000 (the "Note Consideration") are to be
issued, in the Merger to the Stockholders;
WHEREAS, the Merger Agreement provides that 175,500 of the Merger Shares to
be issued to the Stockholders in the Merger (the "Escrow Shares"), $5,449,937 of
the Cash Consideration to be paid to the Stockholders in the Merger (the "Escrow
Fund") and a promissory note representing the Note Consideration (the "Escrow
Note") be placed in an escrow account as collateral to secure certain
indemnification obligations of the Stockholders under the Merger Agreement on
the terms and conditions set forth herein; and
WHEREAS, the parties hereto desire to establish the terms and conditions
pursuant to which such escrow account will be established and maintained.
AGREEMENT
NOW, THEREFORE, the parties hereby agree as follows:
1. DEFINED TERMS. Capitalized terms used in this Agreement and not
otherwise defined shall have the meanings given them in the Merger Agreement.
<PAGE> 137
2. ESCROW AND INDEMNIFICATION.
(a) ESCROW ACCOUNT. On the Closing Date, Parent shall or shall cause
its transfer agent to deposit with the Escrow Agent the Escrow Shares, the
Escrow Fund and the Escrow Note, such deposit to constitute an escrow account to
be designated as "Pacific Corporation Escrow Agreement" or an account having
such other similar designation (the "Escrow Account"). The Escrow Shares
allocable to the Stockholders shall be delivered by Parent or the Exchange Agent
(as defined in the Merger Agreement) defined to the Escrow Agent in the form of
duly authorized stock certificates issued in the respective names of each
Stockholder thereof together with endorsed stock powers. The Escrow Agent agrees
to accept delivery of the Escrow Shares and to hold such in the Escrow Account
subject to the terms and conditions of this Agreement.
(b) INVESTMENTS. The Escrow Agent shall invest the cash held in the
Escrow Fund in an interest-bearing account, or money market instruments or other
investments in accordance with instructions from Parent and Stockholders'
Representatives. Any interest payable on the funds held in the Escrow Fund
("Interest") shall be distributed to the Stockholders immediately prior to any
distribution to the Stockholders and in any event at least once during each
calendar year commencing on or about January 1, 1999.
(c) The Stockholders shall not have any right to distributions of the
Escrow Fund or the Escrow Note until the termination of the Escrow Agreement
pursuant to its terms.
(d) STOCKHOLDER INDEMNIFICATION. The Escrow Shares, Escrow Fund and
Escrow Note shall be available to satisfy the reimbursement and indemnity
obligations of the Stockholders to the Parent Indemnitees contained in Section
1.10 and Section 8.2 of the Merger Agreement, subject to the limitations, and in
the manner provided, in the Merger Agreement and this Agreement.
(e) LIMITATION ON LIABILITY. The obligations of the Stockholders under
this Agreement are subject to the limitations set forth in Section 8 of the
Merger Agreement.
(f) DIVIDENDS, VOTING AND RIGHTS OF OWNERSHIP. Any cash dividends paid
in respect of the Escrow Shares shall be distributed currently by Parent (or
Parent's transfer agent) to the Stockholders and will not be available to
satisfy the indemnification obligations of the Stockholders. The Stockholders
will have the right to vote the Escrow Shares so long as such Escrow Shares are
held in escrow and Parent will take all reasonable steps necessary to allow the
exercise of such rights. While the Escrow Shares remain in the Escrow Agent's
possession pursuant to this Agreement, the Stockholders will retain and will be
able to exercise all incidents of ownership of such shares that are not
inconsistent with the terms of this Agreement.
(g) NO TRANSFER BY STOCKHOLDERS. The interests of the Stockholders in
the Escrow Account shall not be assignable or transferable, other than by
operation of law. Notice of any such assignment or transfer by operation of law
shall be given to the Escrow Agent and Parent, and no such assignment or
transfer shall be valid until such notice is given.
2.
<PAGE> 138
(h) ESCROW AGENT'S POWER TO TRANSFER. The Escrow Agent is hereby
granted the power to effect any transfer of the Escrow Shares, the Escrow Fund
and the Escrow Note permitted by this Agreement and the Merger Agreement. Parent
shall cooperate with the Escrow Agent in promptly issuing (or causing Parent's
transfer agent to issue) stock certificates or promissory notes to effect such
transfer.
3. CLAIMS FOR DAMAGES.
(a) DELIVERY OF CLAIM NOTICE. If any Parent Indemnitee is entitled to
reimbursement under Section 1.10 of the Merger Agreement or has incurred or
suffered Damages for which it is entitled to indemnification under Section 8.2
of the Merger Agreement, Parent shall, on or prior to the 18-month anniversary
of the Closing Date (the "Expiration Date"), give written notice of such claim
(a "Claim Notice") to the Stockholders' Representatives, with a copy being
provided to the Escrow Agent. Each Claim Notice shall state the amount of
claimed UST Removal Costs or Damages (the "Claimed Amount") and the basis for
such claim. No Parent Indemnitee shall make, and shall not be entitled to make,
any claim for UST Removal Costs or Damages after the Expiration Date.
(b) RESPONSE NOTICE; UNCONTESTED CLAIMS. Within thirty (30) days of
receipt of a Claim Notice, the Stockholders' Representatives shall provide to
Parent, with a copy being provided to the Escrow Agent, a written response (the
"Response Notice") in which the Stockholders' Representatives shall (i) agree
that the full Claimed Amount is valid, (ii) agree that part, but not all, of the
Claimed Amount (the "Agreed Amount") is valid, or (iii) contest that any or all
of the Claimed Amount is valid. The Stockholders' Representatives may contest
all or a portion of a Claimed Amount only based upon a good faith belief that
all or such portion of the Claimed Amount does not constitute UST Removal Costs
for which a Parent Indemnitee is entitled to reimbursement under Section 1.10 of
the Merger Agreement or Damages entitled to indemnification under Section 8.2 of
the Merger Agreement. If no Response Notice is delivered by the Stockholders'
Representatives within such thirty (30) day period, the Stockholders'
Representatives shall be deemed to have agreed that the Claimed Amount is valid
and that the Parent Indemnitee at issue is entitled to such reimbursement and/or
indemnification.
(c) UNCONTESTED CLAIMS. If the Stockholders' Representatives in the
Response Notice agree or, by failing to provide a Response Notice, are deemed to
have agreed that the Claimed Amount is valid, the Escrow Agent shall in a timely
manner following the required delivery date for the Response Notice (i) first,
reduce the amount of the Escrow Note in accordance with Section 4 hereof in an
amount equal to the Claimed Amount, and provide Parent with a schedule
indicating the amount by which the Escrow Note has been reduced; and (ii) if the
full principal amount of the Escrow Note has been reduced, disburse to Parent
from the Escrow Account, in accordance with Section 4 hereof, cash plus that
number of Escrow Shares which Value (as defined in Section 4(b)), together with
such cash and the Escrow Note, the Claimed Amount. The reduction of the Escrow
Note, the amount of cash and the number of Escrow Shares equal to the Claimed
Amount shall be calculated and agreed upon by the Stockholders' Representatives
and Parent and certified in writing by such persons to the Escrow Agent. The
Escrow Agent shall have no duty to verify or determine the amount by which the
Escrow Note
3.
<PAGE> 139
shall be reduced or the amount of cash or number of Escrow Shares necessary to
satisfy the Claimed Amount.
(d) CONTESTED CLAIMS.
(i) If the Stockholders' Representatives in the Response Notice agree
that part, but not all, of the Claimed Amount is valid (the "Agreed Amount"),
the Escrow Agent shall in a timely manner following the required delivery date
for the Response Notice (i) first, reduce the amount of the Escrow Note in
accordance with Section 4 hereof in an amount equal to the Agreed Amount, and
provide Parent with a schedule indicating the amount by which the Escrow Note
has been reduced; and (ii) if the full principal amount of the Escrow Note has
been reduced, disburse to Parent from the Escrow Account, in accordance with
Section 4 hereof, cash plus that number of Escrow Shares which Value, together
with such cash and the Escrow Note, is necessary to satisfy the Agreed Amount.
The reduction of the Escrow Note, the amount of cash and the number of Escrow
Shares necessary to satisfy the Agreed Amount shall be calculated and agreed
upon by the Stockholders' Representatives and Parent and certified in writing by
such persons to the Escrow Agent. The Escrow Agent shall have no duty to verify
or determine the amount by which the Escrow Note is reduced or the amount of
cash or number of Escrow Shares necessary to satisfy the Agreed Amount.
(ii) If the Stockholders' Representatives in the Response Notice
contest the release of all or a part of the Claimed Amount (the "Contested
Amount"), the Escrow Agent shall continue to hold in the Escrow Account, the
Escrow Note and the cash plus that number of Escrow Shares necessary to satisfy
the Contested Amount, notwithstanding the occurrence of the Expiration Date,
until (i) delivery of a copy of a settlement agreement executed by the
Stockholders' Representatives and Parent setting forth instructions to the
Escrow Agent as to disbursement of the Escrow Account, if any, or (ii) delivery
of a copy of a final, nonappealable court order setting forth instructions to
the Escrow Agent as to disbursement of the Escrow Account, if any. The reduction
of the Escrow Note, the amount of cash and the number of Escrow Shares necessary
to satisfy the Contested Amount shall be calculated and agreed upon by the
Stockholders' Representatives and Parent and certified in writing by such
persons to the Escrow Agent. The Escrow Agent shall have no duty to verify or
determine the amount by which the Escrow Note is reduced or the amount of cash
or number of Escrow Shares necessary to satisfy the Contested Amount.
4. DISBURSEMENTS IN RESPECT OF CLAIMS.
(a) Whenever the Escrow Agent becomes obligated to make a disbursement
to a Parent Indemnitee pursuant to Section 3, the Escrow Agent shall make such
disbursement from the Escrow Account as promptly as practicable and in
accordance with Parent's written instructions. Whenever a disbursement or
reservation is to be made from the Escrow Account pursuant to Section 3, such
disbursements or reservations shall be made, first, from the Escrow Note by
applying the Claimed Amount against any accrued and unpaid interest under the
Escrow Note, thereafter against the principal balance of the Note and, if the
Claimed Amount has not been satisfied, then from the Escrow Fund and from the
Escrow Shares (in the same proportion
4.
<PAGE> 140
as the Escrow Fund and the Escrow Shares were originally placed in the Escrow
Account) such that the sum of reduction of the Escrow Note and all such cash
plus the aggregate Value of such Escrow Shares is equal to the amount to be
disbursed from or reserved against the Escrow Account. Nothing herein shall
require the payment of claims in excess of the limitations set forth in Section
8 of the Merger Agreement.
(b) "Value," when used with respect to an Escrow Share, shall be
$9.2596 per share.
5. RELEASE OF ESCROW SHARES AND ESCROW FUND. Within five (5) business days
after the Expiration Date, the Escrow Agent shall notify Parent and
Stockholders' Representative as to the remaining principal and interest of the
Escrow Note. Parent shall immediately thereafter issue and deliver to the Escrow
Agent individual promissory notes (the "Notes") in accordance with the
Stockholders' pro rata interest in the Escrow Note. Within fifteen (15) business
days after the Expiration Date, the Escrow Agent shall distribute to the
Stockholders the Notes, and on a pro rata basis, all of the Escrow Shares and
the Escrow Fund (together with interest accrued thereon) then being held by the
Escrow Agent. The Escrow Agent shall deliver the Escrow Note to Parent for
cancellation. Notwithstanding the foregoing, any Contested Amount being held by
the Escrow Agent on the Expiration Date shall be held and disbursed only in
accordance with Section 3(d)(ii) of this Agreement.
6. FEES AND EXPENSES. Upon execution of this Agreement and initial deposit
of the Escrow Shares, Escrow Fund and Escrow Note with the Escrow Agent, an
acceptance fee of $_____ will be payable to the Escrow Agent by Parent. This
acceptance fee will cover the Escrow Period. In the event the Escrow Agent is
required to administer the Escrow Account after the Escrow Period, an
administrative fee will be payable to the Escrow Agent by Parent in accordance
with the Escrow Agent's fee schedules in effect from time to time. The Escrow
Agent will also be entitled to reimbursement on demand from Parent for
extraordinary expenses incurred in performance of its duties hereunder
including, without limitation, payment of any reasonable legal fees and expenses
incurred by the Escrow Agent in connection with the resolution of any claim by
any party hereunder. Parent shall pay the reasonable fees and expenses of the
Escrow Agent for the services to be rendered by the Escrow Agent hereunder
including reasonable legal fees incurred in connection with the preparation of
this Agreement.
7. LIMITATION OF ESCROW AGENT'S LIABILITY.
(a) Neither Escrow Agent nor any of its directors, officers or
employees shall incur any liability with respect to any action taken or suffered
by it in reliance upon any notice, direction, instruction, consent, statement or
other documents believed by it to be genuine and duly authorized, nor for other
action or inaction except its own willful misconduct or gross negligence. The
Escrow Agent shall have no duty to inquire into or investigate the validity,
accuracy or content of any document delivered to it nor shall the Escrow Agent
be responsible for the validity or sufficiency of this Agreement. In all
questions arising under this Agreement, the Escrow Agent may rely on the advice
of counsel, including in-house counsel, and for anything done, omitted or
suffered in good faith by the Escrow Agent based on such advice the
5.
<PAGE> 141
Escrow Agent shall not be liable to anyone. The Escrow Agent shall not be
responsible for any of the agreements referred to herein, including the Merger
Agreement, but shall be obligated only for the performance of such duties as are
specifically set forth in this Agreement.
(b) In the event conflicting demands are made or conflicting notices
are served upon the Escrow Agent with respect to the Escrow Note, the Escrow
Fund or the Escrow Shares, the Escrow Agent will have the absolute right, at the
Escrow Agent's election, to do either or both of the following: (i) resign so a
successor can be appointed pursuant to Section 10 hereof or (ii) file a suit in
interpleader and obtain an order from a court of competent jurisdiction
requiring the parties to interplead and litigate in such court their several
claims and rights among themselves. In the event such interpleader suit is
brought, the Escrow Agent will thereby be fully released and discharged from all
further obligations imposed upon it under this Agreement, and Parent will pay
the Escrow Agent all costs, expenses and reasonable attorneys' fees expended or
incurred by the Escrow Agent pursuant to the exercise of the Escrow Agent's
rights under this Section 7(b) (such costs, fees and expenses will be treated as
extraordinary fees and expenses for the purposes of Section 6 hereof).
(c) Parent hereby agrees to indemnify the Escrow Agent for, and hold
it harmless against, any loss, damage, liability or expense incurred without
gross negligence or willful misconduct on the part of Escrow Agent, arising out
of or in connection with its carrying out of its duties hereunder including, but
not limited to reasonable legal fees and other costs and expenses of defending
or preparing to defend against any claim or liability in the premises. In no
event shall the Escrow Agent be liable for indirect, punitive, special or
consequential damages.
(d) Parent and Stockholders, jointly and severally, agree to assume
any and all obligations imposed now or hereafter by any applicable tax law with
respect to the release of any Escrow Shares, the Escrow Note and the Escrow Fund
under this Agreement, and to indemnify and hold the Escrow Agent harmless from
and against any taxes, additions for late payment, interest, penalties and other
expenses, that may be assessed against the Escrow Agent in any such release or
other activities under this Agreement. Parent and Stockholders undertake to
instruct the Escrow Agent in writing with respect to the Escrow Agent's
responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting in connection
with its acting as Escrow Agent under this Agreement. Parent and Stockholders,
jointly and severally, agree to indemnify and hold the Escrow Agent harmless
from any liability on account of taxes, assessments or other governmental
charges, including without limitation the withholding or deduction or the
failure to withhold or deduct the same, and any liability for failure to obtain
proper certifications or to properly report to governmental authorities, to
which the Escrow Agent may be or become subject in connection with or which
arises out of this Agreement, including costs and expenses (including reasonable
legal fees and expenses), interest and penalties.
8. TERMINATION. This Agreement shall terminate upon the later of the
Expiration Date or the release by the Escrow Agent of all of the Escrow Shares
and the Escrow Fund and the cancellation or release of the Escrow Note in
accordance with this Agreement. The provisions of Section 7 shall survive
termination of this Agreement.
6.
<PAGE> 142
9. NOTICES. Any notice or other communication required or permitted to be
delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
if to Parent:
PMR Corporation
Attn: Chief Executive Officer
501 Washington Street, 5th Floor
San Diego, CA 92103
Telephone: (619) 610-4001
Facsimile: (619) 610-4184
with a copy to:
Jeremy D. Glaser, Esq.
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121
Telephone: (619) 550-6000
Facsimile: (619) 453-3555
if to the Stockholders: Edward A. Stack
102 Woodmont Boulevard, Suite 800
Nashville, TN 37205
Telephone: (615) 269-3492
Facsimile: (615) 269-9814
with a copy to: Waller Lansden Dortch & Davis, PLLC
Nashville City Center
511 Union Street, Suite 2100
Post Office Box 198966
Nashville, Tennessee 37219-8966
Telephone:(615) 244-6380
Facsimile:(615) 244-6804
if to the Escrow Agent: StockTrans, Inc.
7 E. Lancaster Avenue
Ardmore, PA 19003
Telephone: (610) 649-6300
7.
<PAGE> 143
Facsimile: (610) 649-7302
10. SUCCESSOR ESCROW AGENT. In the event the Escrow Agent becomes
unavailable or unwilling to continue in its capacity herewith, the Escrow Agent
may resign and be discharged from its duties or obligations hereunder by giving
resignation to the parties to this Agreement, specifying not less than 30 days'
prior written notice of the date when such resignation shall take effect. Parent
may appoint a successor Escrow Agent without the consent of the Stockholders'
Representatives so long as such successor is a bank with assets of at least $500
million, and may appoint any other successor Escrow Agent with the consent of
the Stockholders' Representatives, which shall not be unreasonably withheld. If,
within such notice period, Parent provides to the Escrow Agent written
instructions with respect to the appointment of a successor Escrow Agent and
directions for the transfer of the Escrow Shares, Escrow Note and Escrow Fund
then held by the Escrow Agent to such successor, the Escrow Agent shall act in
accordance with such instructions and promptly transfer the Escrow Shares,
Escrow Note and Escrow Fund to such designated successor. If, however, Parent
shall fail to name such a successor escrow agent within twenty (20) days after
the notice of resignation from the Escrow Agent, the Escrow Agent may apply to a
court of competent jurisdiction for appointment of a successor escrow agent.
11. STOCKHOLDERS' REPRESENTATIVES.
(a) For purposes of this Agreement, the Stockholders hereby consent to
the appointment of Vencor, Welsh, Carson and Stack as the Stockholders'
Representatives and each or any one of them as attorneys-in-fact for and on
behalf of the each Stockholder, and the taking by the Stockholders'
Representatives of any and all actions and the making of any decisions required
or permitted to be taken by them under this Agreement, including without
limitation, the exercise of the power to (i) authorize the reduction of the
Escrow Note; (ii) authorize delivery to Parent of the Escrow Shares and the
Escrow Fund, or any portion thereof, in satisfaction of Claims, (iii) agree to
negotiate, enter into settlements and compromises with respect to such Claims,
(iv) resolve any Claims, and (v) take all actions necessary in the judgment of
the Stockholders' Representatives for the accomplishment of the foregoing and
all of the other terms, conditions and limitations contained in this Agreement.
The Stockholders further consent to the appointment of Edward A. Stack as the
principal representative (the "Principal Representative") with full power and
authority to act on behalf of the Stockholders' Representatives with respect to
any action to be taken or omitted to be taken by the Stockholders'
Representatives under or in connection with this Agreement.
(b) Notwithstanding any statement contained in this Agreement or the
Escrow Agreement to the contrary, Parent and the Escrow Agent may rely
conclusively, and shall be protected in so acting, upon any written order,
notice, demand, certificate, statement, document or instruction (not only as to
its due execution and the validity and effectiveness of its provisions, but also
as to the truth and acceptability of any information therein contained) executed
and delivered by the Principal Representative (but not any of
8.
<PAGE> 144
the other Stockholders' Representatives) whether delivered in original form, by
facsimile or otherwise.
12. GENERAL.
(a) GOVERNING LAW; FORUM. This Agreement shall be construed in
accordance with, and governed in all respects by, the internal laws of the State
of Delaware, without regard to conflict-of-law principles and shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
(b) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be decreed an original, but all of which
together shall constitute one and the same instrument.
(c) ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement of the parties with respect to the subject matter of
this Agreement and supersedes all prior agreements or understandings, written or
oral, between the parties with respect to the subject matter hereof.
(d) WAIVERS. No waiver by any party hereto of any condition or of any
breach of any provision of this Agreement shall be effective unless in writing.
No waiver by any party of any such condition or breach, in any one instance,
shall be deemed to be a further or continuing waiver of any such condition or
breach or a waiver of any other condition or breach of any other provision
contained herein.
(e) AMENDMENT. This Agreement may be amended only with the written
consent of Parent, the Escrow Agent and the Principal Representative (or their
duly designated successors).
(f) CERTIFICATION OF TAX IDENTIFICATION NUMBER. The parties hereto
agree to provide the Escrow Agent with a certified tax identification number by
signing and returning a Form W-9 (or Form W-8, in the case of non-U.S. persons)
to the Escrow Agent within 30 days from the date hereof. The parties hereto
understand that, in the event their tax identification numbers are not certified
to the Escrow Agent, the Internal Revenue Code, as amended from time to time,
may require withholding of a portion of any income earned on the investment of
the Escrow Shares.
(g) DISPUTE RESOLUTION. It is understood and agreed that should any
dispute arise with respect to the delivery, ownership, right of possession,
and/or disposition of the Escrow Note, Escrow Shares and the Escrow Fund, or
should any claim be made upon the Escrow Account by a third party, the Escrow
Agent upon receipt of written notice of such dispute or claim by the parties
hereto or by a third party, is authorized and directed to retain in its
possession without liability to anyone, all or any of said Escrow Note, Escrow
Shares and Escrow Fund until such dispute shall have been settled either by the
mutual written agreement of the parties involved or by a final order, decree or
judgment of a Court in the United States of
9.
<PAGE> 145
America, the time for perfection of an appeal of such order, decree or judgment
having expired. The Escrow Agent may, but shall be under no duty whatsoever to,
institute or defend any legal proceedings which relates to the Escrow Account.
(h) FORCE MAJEURE. The Escrow Agent shall not be responsible for
delays or failures in performance resulting from acts beyond its control. Such
acts shall include but not be limited to acts of God, strikes, lockouts, riots,
acts of war, epidemics, governmental regulations superimposed after the fact,
fire, communication line failures, computer viruses, power failures, earthquakes
or other disasters.
(i) BINDING EFFECT. This Agreement shall be binding upon the
respective parties hereto and their heirs, executors, successors and assigns.
(j) REPRODUCTION OF DOCUMENTS. This Agreement and all documents
relating thereto, including, without limitation, (a) consents, waivers and
modifications which may hereafter be executed, and (b) certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, optical disk, micro-card, miniature
photographic or other similar process. The parties agree that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
10.
<PAGE> 146
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
PMR CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
STOCKTRANS, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
STOCKHOLDERS' REPRESENTATIVES:
____________________________________
Edward A. Stack
____________________________________
Vencor, Inc.
____________________________________
Welsh, Carson, Anderson & Stowe,
VI, L.P.
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EXHIBIT J
OWNED PROPERTIES REQUIRING
ENVIRONMENTAL REPORTS
Pioneer Trail RTC
San Luis Rey Hospital
Valle Vista Hospital
West Hills Hospital
Windsor Hospital
<PAGE> 1
EXHIBIT 99.2
PMR ANNOUNCES EXECUTION OF DEFINITIVE MERGER AGREEMENT WITH
BEHAVIORAL HEALTHCARE CORPORATION
SAN DIEGO, CA -- PMR CORPORATION (NASDAQ NMS - "PMRP"), a leading provider of
disease management services for the Seriously Mentally Ill, announced today that
PMR has entered into a definitive merger agreement with Behavioral Healthcare
Corporation ("BHC") for approximately $209 million in total consideration. The
consideration includes $94.4 million in cash and cash equivalents, 2.6 million
shares of PMR's Common Stock and the assumption of net debt of approximately $90
million. The transaction will be treated as a purchase for accounting purposes.
Consummation of the transaction is subject to various conditions, including
expiration of the Hart-Scott-Rodino waiting period and approval of the
stockholders of PMR and BHC.
BHC, located in Nashville Tennessee, is a national leader in the provision of a
broad range of acute psychiatric care and behavioral health services. BHC owns
and operates 43 hospitals in 18 states and Puerto Rico, serving more than 60,000
patients and generated more than $300 million in annual revenue in the fiscal
year ended June 30, 1998.
PMR is a national leader in the management of outpatient based disease
management services for individuals with a serious mental illness. PMR operates
57 programs in 23 states serving more than 11,000 patients and generated
approximately $67 million in annual revenue in the fiscal year ended April 30,
1998.
"The combination of PMR and BHC will set the platform for the evolution of a
disease focused organization that specializes in creating complete continuums of
coordinated health care services for individuals that have disorders of the
brain in key markets throughout the country," said Allen Tepper, CEO. "Upon
completion of the transaction, the Company, with operations in 32 states and
revenues approaching $400 million, will offer patients and physicians a complete
array of medical services, pharmacy services and community based case
management, crisis, and residential support services. BHC brings an outstanding
portfolio of leading acute psychiatric facilities, as well as, a top flight
management team, that has generated outstanding results in a challenging
environment."
PMR expects to complete this transaction by November 1998. Upon completion of
the transaction, PMR plans to change its corporate name to Bragen Health
Solutions, Inc. Bragen is the Germanic derivation for "the brain" and symbolizes
the Company's objective of expanding its focus to the treatment and management
of all disorders of the brain.
"We are excited to be part of the creation of Bragen Health Solutions," said Ed
Stack, CEO of BHC. "BHC and PMR share a commitment to providing quality patient
care in a highly ethical manner. Bragen Health Solutions will continue the
strong, shared tradition of both companies; meeting the needs of the mentally
ill. This combination will allow us to integrate the full
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continuum of patient services available to any person with a mental illness in
the communities we serve."
The Company plans a conference call for tomorrow, Friday, July 31, 1998, at 9:00
am EST to discuss this event and other issues of interest. Participants please
call 1-800-344-6783, and ask for the "PMR update call".
PMR is a leader in the development and management of programs and services for
individuals with a serious mental illness.
This press release contains forward looking statements that involve risks and
uncertainties, including the risk that PMR will not successfully complete its
transaction with BHC. Forward looking statements reflect PMR's current views
with respect to future events. Actual results may vary materially and adversely
from those anticipated, believed, estimated, or otherwise indicated. Reference
is made to the cautionary statements contained in PMR's annual report on form
10K on file with the Securities and Exchange Commission.
CONTACT:
PMR Corporation: 619-610-4001
Mark Clein, Executive V.P./CFO
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