Exhibit 10.B
EXECUTION
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STOCK PURCHASE AGREEMENT
BY AND AMONG
NATIONAL MENTOR, INC.,
MAGELLAN PUBLIC NETWORK, INC.,
MAGELLAN HEALTH SERVICES, INC.
AND
NATIONAL MENTOR HOLDINGS, INC.
DATED AS OF JANUARY 18, 2001
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TABLE OF CONTENTS
PAGE
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ARTICLE I -- DEFINITIONS..........................................................................................1
Section 1.1 DEFINITIONS...................................................................1
Section 1.2 CROSS REFERENCE...............................................................8
ARTICLE II -- THE CLOSING TRANSACTIONS...........................................................................10
Section 2.1 PRE-CLOSING ESTIMATES OF CERTAIN AMOUNTS. ..................................10
Section 2.2 STOCK PURCHASE...............................................................10
Section 2.3 CLOSING TRANSACTIONS.........................................................10
Section 2.4 POST-CLOSING ADJUSTMENTS.....................................................11
ARTICLE III -- CONDITIONS TO CLOSING.............................................................................13
Section 3.1 CONDITIONS TO THE PURCHASER'S OBLIGATIONS....................................13
Section 3.2 CONDITIONS TO THE PARENT'S AND THE SELLER'S OBLIGATIONS......................16
ARTICLE IV -- COVENANTS BEFORE CLOSING...........................................................................18
Section 4.1 AFFIRMATIVE COVENANTS OF THE SELLER..........................................18
Section 4.2 NEGATIVE COVENANTS OF THE SELLER.............................................19
Section 4.3 EXCLUSIVITY..................................................................20
Section 4.4 COVENANTS OF PURCHASER.......................................................20
Section 4.5 INTERCOMPANY ACCOUNTS........................................................21
Section 4.6 FINANCIAL INFORMATION........................................................21
Section 4.7 ANTITRUST FILINGS............................................................21
ARTICLE V -- REPRESENTATIONS AND WARRANTIES OF THE SELLER ENTITIES...............................................22
Section 5.1 ORGANIZATION AND CORPORATE POWER.............................................22
Section 5.2 AUTHORIZATION OF TRANSACTIONS................................................23
Section 5.3 ABSENCE OF CONFLICTS.........................................................23
Section 5.4 CAPITALIZATION...............................................................23
Section 5.5 FINANCIAL STATEMENTS AND RELATED MATTERS.....................................24
Section 5.6 ABSENCE OF UNDISCLOSED LIABILITIES...........................................24
Section 5.7 ABSENCE OF CERTAIN DEVELOPMENTS..............................................25
Section 5.8 REAL PROPERTY................................................................26
Section 5.9 ASSETS.......................................................................27
Section 5.10 TAXES........................................................................27
Section 5.11 CONTRACTS AND COMMITMENTS....................................................29
Section 5.12 PROPRIETARY RIGHTS...........................................................31
Section 5.13 LITIGATION; PROCEEDINGS......................................................32
Section 5.14 BROKERAGE....................................................................32
Section 5.15 GOVERNMENTAL LICENSES AND PERMITS............................................32
Section 5.16 EMPLOYEES....................................................................33
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Section 5.17 EMPLOYEE BENEFIT PLANS.......................................................33
Section 5.18 INSURANCE....................................................................34
Section 5.19 OFFICERS AND DIRECTORS; BANK ACCOUNTS........................................35
Section 5.20 AFFILIATE TRANSACTIONS.......................................................35
Section 5.21 COMPLIANCE WITH LAWS.........................................................35
Section 5.22 HEALTH CARE MATTERS..........................................................35
Section 5.23 ENVIRONMENTAL MATTERS........................................................36
Section 5.24 EARNOUT OBLIGATIONS..........................................................38
Section 5.25 ABSENCE OF CERTAIN BUSINESS PRACTICES........................................38
Section 5.26 CLIENT INCIDENTS.............................................................38
Section 5.27 DISCLOSURE...................................................................38
Section 5.28 SCHEDULE UPDATES.............................................................38
ARTICLE VI -- REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...................................................39
Section 6.1 ORGANIZATION.................................................................39
Section 6.2 AUTHORIZATION OF TRANSACTIONS................................................39
Section 6.3 ABSENCE OF CONFLICTS.........................................................39
Section 6.4 LITIGATION...................................................................39
Section 6.5 FINANCING....................................................................40
Section 6.6 BROKERAGE....................................................................40
Section 6.7 SCHEDULE UPDATES.............................................................40
ARTICLE VII -- TERMINATION.......................................................................................40
Section 7.1 TERMINATION..................................................................40
Section 7.2 EFFECT OF TERMINATION........................................................41
ARTICLE VIII -- INDEMNIFICATION AND RELATED MATTERS..............................................................41
Section 8.1 SURVIVAL.....................................................................41
Section 8.2 INDEMNIFICATION..............................................................42
ARTICLE IX -- ADDITIONAL AGREEMENTS..............................................................................48
Section 9.1 PRESS RELEASES AND ANNOUNCEMENTS.............................................48
Section 9.2 FURTHER TRANSFERS............................................................49
Section 9.3 SPECIFIC PERFORMANCE.........................................................49
Section 9.4 EXPENSES.....................................................................49
Section 9.5 NONCOMPETITION, NONSOLICITATION, AND CONFIDENTIALITY.........................49
Section 9.6 TAX MATTERS..................................................................51
Section 9.7 LEGEND FOR THE RESTRICTED SECURITIES.........................................55
Section 9.8 COMPANY EMPLOYEES............................................................56
Section 9.9 SELLER NOTE MATTERS..........................................................56
Section 9.10 USE OF MAGELLAN NAME.........................................................57
Section 9.11 INSURANCE MATTERS............................................................57
ARTICLE X -- MISCELLANEOUS.......................................................................................58
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Section 10.1 AMENDMENT AND WAIVER.........................................................58
Section 10.2 NOTICES......................................................................58
Section 10.3 BINDING AGREEMENT; ASSIGNMENT................................................59
Section 10.4 SEVERABILITY.................................................................59
Section 10.5 NO STRICT CONSTRUCTION.......................................................60
Section 10.6 CAPTIONS.....................................................................60
Section 10.7 ENTIRE AGREEMENT.............................................................60
Section 10.8 COUNTERPARTS.................................................................60
Section 10.9 GOVERNING LAW................................................................60
Section 10.10 JURISDICTION AND CONSENT TO SERVICE..........................................60
Section 10.11 PARTIES IN INTEREST..........................................................60
INDEX OF EXHIBITS
Exhibit A - Form of Seller Note A
Exhibit B - Form of Opinion of Dow, Lohnes & Albertson, PLLC
Exhibit C - Modification Schedule
Exhibit D - Debt and Equity Commitment Letters
Exhibit E - Form of Opinion of Kirkland & Ellis
Exhibit F - Form of Assignment and Consent for Oracle License
Exhibit G - Schedule of Specified Items of Indebtedness
Exhibit H - Net Working Capital Amount Schedule
Exhibit I - Form of Seller Note B
INDEX OF SCHEDULES
Affiliated Transactions Schedule
Allocation Schedule
Assets Schedule
Benefit Plans Schedule
Brokerage Schedule
Conflicts Schedule
Contracts Schedule
Developments Schedule
Earnout Schedule
Employees Schedule
Environmental Schedule
Financial Statements Schedule
Health Care Matters Schedule
Insurance Schedule
Key Employee Schedule
License Schedule
Litigation Schedule
Officers, Directors, and Bank Accounts Schedule
Organization Schedule
iii
Proprietary Rights Schedule
Real Property Schedule
Required Consents Schedule
Taxes Schedule
iv
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of January 18, 2001,
is made by and among National Mentor, Inc., a Delaware corporation (the
"COMPANY"), Magellan Public Network, Inc., a Delaware corporation (the
"SELLER"), Magellan Health Services, Inc., a Delaware corporation and the
ultimate parent of the Seller (the "PARENT," and together with the Seller, the
"SELLER ENTITIES"), and National Mentor Holdings, Inc., a Delaware corporation
(the "PURCHASER"). The Company, the Seller, the Parent and the Purchaser are
referred to herein collectively as the "PARTIES" and individually as a "PARTY."
Certain capitalized terms used herein are defined in Article I below.
WHEREAS, the authorized Capital Stock of the Company consists
of 100 shares of common stock, $1.00 par value per share (the "COMMON STOCK");
WHEREAS, the Seller owns beneficially and of record 100% of
the issued and outstanding Common Stock; and
WHEREAS, the Purchaser desires to acquire from the Seller, and
Seller desires to sell to the Purchaser, all of the Common Stock owned by the
Seller (the "ACQUIRED STOCK").
NOW, THEREFORE, in consideration of the premises and of the
mutual representations, warranties, and covenants which are to be made and
performed by the respective Parties, the Parties hereby agree as follows:
ARTICLE 1 -- DEFINITIONS
SECTION 1.1 DEFINITIONS. When used in this Agreement, the
following terms have the meanings set forth below:
"ACQUIRED COMPANIES" means the Company and each of its
Subsidiaries, including, without limitation, each of the entities set forth on
the ORGANIZATION SCHEDULE.
"AFFILIATE" of any particular Person means any other Person
controlling, controlled by, or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract, or otherwise.
"AFFILIATED GROUP" means any affiliated group as defined in
Code Section 1504 that has filed a consolidated return for federal income tax
purposes (or any similar group under state, local, or foreign law).
"AGREEMENT" means this Stock Purchase Agreement, including all
Exhibits and Schedules hereto, as it may be amended from time to time in
accordance with its terms.
"APPLICABLE LAW" means any applicable decree, injunction,
judgment, law, order, ordinance, regulation, rule, statute, or writ of any
federal, state, local, or foreign governmental entity (or any agency,
department, or political subdivision of any governmental entity).
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"BOTTOM COLLAR AMOUNT" means $22.0 million.
"CAPITAL STOCK" means (i) in the case of a corporation, any
and all shares of capital stock, (ii) in the case of an association or business
entity, any and all shares, interests, participations, rights or other
equivalents (however designated) of capital stock, (iii) in the case of a
partnership or limited liability company, any and all partnership or membership
interests (whether general or limited), (iv) in any case, any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person, and
(v) in any case, any right to acquire any of the foregoing.
"CASH" means all cash, cash equivalents, and marketable
securities.
"CASH AMOUNT" means the book value of the Company's Cash as of
the close of business on the day before the Closing Date, determined on a
consolidated basis in accordance with GAAP.
"CODE" means the Internal Revenue Code of 1986, as amended,
and any reference to any particular Code section shall be interpreted to include
any revision of or successor to that section regardless of how numbered or
classified.
"CONTRACTED NONPROFIT" means Alliance Human Services, Inc., a
Massachusetts charitable corporation, Mentor, Inc., a Massachusetts corporation,
and each other nonprofit or tax exempt Person (other than any state, county or
local governmental organizations) with which any Acquired Company has entered
into a service agreement or subcontract agreement or other similar agreement.
"EARNOUT OBLIGATIONS" means the payment obligations of the
Acquired Companies to former owners of businesses which were acquired by the
Acquired Companies prior to the Closing which are in the nature of deferred
purchase prices for such businesses.
"ENVIRONMENTAL AND SAFETY REQUIREMENTS" means all federal,
state and local statutes, regulations, ordinances and similar provisions having
the force or effect of law, all judicial and administrative orders and
determinations, and all common law concerning public health and safety, worker
health and safety and pollution or protection of the environment relating to the
presence, use, production, generation, handling, transport, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or by-products, asbestos,
polychlorinated biphenyls (or PCBs), noise or radiation.
"GAAP" means generally accepted accounting principles of the
United States, consistently applied.
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"GUARANTY OBLIGATION" shall mean, as to any Person (the
"GUARANTEEING PERSON"), any obligation of (a) the guaranteeing person or (b)
another Person (including, without limitation, any bank under any letter of
credit) to induce the creation of which the guaranteeing person has issued a
reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any indebtedness, leases, dividends or
other obligations (the "PRIMARY OBLIGATIONS") of any other third Person (the
"PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including,
without limitation, any obligation of the guaranteeing person, whether or not
contingent, (i) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (ii) to advance or supply
funds (1) for the purchase or payment of any such primary obligation or (2) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, (iii) to purchase
property, securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation or (iv) otherwise to assure or hold harmless
the owner of any such primary obligation against loss in respect thereof;
PROVIDED, HOWEVER, that the term Guaranty Obligation shall not include
endorsements of instruments for deposit or collection or standard contractual
indemnities in the ordinary course of business.
"INCIDENTS" means each of the matters, incidents and
occurrences occurring on or prior to the Closing Date that are related to the
Acquired Companies (including, without limitation, to a client of or mentor
retained by the Acquired Companies or a Contracted Nonprofit) that (i) have been
or should have been reported to companies providing insurance to or for the
benefit of the Acquired Companies, (ii) have been or should have been reported
under the risk management policies of the Acquired Companies to a risk manager
(or person or committee acting as such) of the Acquired Companies or (iii) have
been recorded in the Acquired Companies' "incident database" (such database
includes over 13,000 entries as of December 31, 2000 and has incidents assigned
a risk rating of 1, 2, 3 or 4 therein) (the "RISK DATABASE") other than, in the
case of this clause (iii), any item which by its nature should not have been
recorded in the Risk Database in accordance with the Acquired Companies'
guidelines and policies governing the matters to be recorded in the Risk
Database.
"INDEBTEDNESS" means, without duplication, all liabilities and
obligations of the Acquired Companies (other than (i) items included in the Net
Working Capital Amount, (ii) items excluded from the Net Working Capital Amount
pursuant to "EXHIBIT H" attached hereto (other than item 1 on EXHIBIT H), (ii)
matters for which the Purchaser has been indemnified by the Seller Entities
pursuant to Sections 8.2(a)(iv), (vii) or (viii) or Section 9.6(c), and (iii)
the deferred portion of the change-in-control bonuses described in the BENEFIT
PLANS SCHEDULE in an amount not to exceed $805,000) including, without
duplication, in each case (but subject to the preceding parenthetical): (a) all
indebtedness for borrowed money or for the deferred purchase price of property
or services in respect of which any Acquired Company is liable, contingently or
otherwise, as obligor or in respect of which obligations any Acquired Company
assures a creditor against loss; (b) all obligations under capitalized leases in
respect of which any Acquired Company is liable as obligor or in respect of
which obligations any Acquired Company assures a creditor against loss; (c) each
of the matters set forth on "EXHIBIT G" attached hereto; and (d) all reserves
and contra accounts for any of the foregoing; and, to the extent not included in
the foregoing, all intercompany liabilities owing from any Acquired Company to
the Parent or its Affiliates (except other Acquired
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Companies). For purposes of calculating Indebtedness, all accrued interest,
prepayment penalties, premiums, fees and expenses (if any) which would be
payable if Indebtedness were paid in full at the Closing shall be treated as
Indebtedness.
"INDEBTEDNESS AMOUNT" means the book value of the Company's
Indebtedness as of the close of business on the day before the Closing Date,
determined on a consolidated basis in accordance with GAAP.
"INSIDER" means, any officer, director, executive employee,
stockholder, partner or Affiliate, as applicable, of any Acquired Company or any
spouse or descendent (whether natural or adopted) of any such individual or any
entity in which any of the foregoing Persons owns a 5% or greater direct or
indirect beneficial interest.
"KNOWLEDGE" and "AWARE" and terms of similar import mean, with
respect to a Person, the actual knowledge of such Person (and if such Person is
an entity, this means the actual knowledge of the officers, directors and
executive employees of such Person).
"LEASED REAL PROPERTY" means all land, building, fixtures or
other real property in which any Acquired Company has a leasehold, subleasehold,
license, or other real property right or interest under the Real Property
Leases.
"LEASEHOLD IMPROVEMENTS" means all buildings, fixtures and
other improvements located on each Leased Real Property which are owned by any
Acquired Company, regardless of whether such improvements are subject to
reversion to the landlord or other third party upon the expiration or
termination of the Real Property Lease for such Leased Real Property.
"LICENSES" means all permits, licenses, franchises,
certificates, approvals, and other authorizations of third parties or foreign,
federal, state, or local governments or other similar rights.
"LIENS" means any mortgage, pledge, security interest,
encumbrance, lien, or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof), any sale of receivables with recourse against the Acquired Companies,
any filing or agreement to file a financing statement as debtor under the
Uniform Commercial Code or any similar statute other than to reflect ownership
by a third party of property leased to any Acquired Company under a lease which
is not in the nature of a conditional sale or title retention agreement.
"LOSS" means, with respect to any Person, any damage,
liability, diminution in value, demand, claim, action, cause of action, cost,
damage, deficiency, Tax, penalty, fine or other loss or expense, whether or not
arising out of a third party claim, including all interest, penalties,
reasonable attorneys' fees and expenses and all amounts paid or incurred in
connection with any action, demand, proceeding, investigation or claim by any
third party (including any governmental entity or any department, agency or
political subdivision thereof) against or affecting such Person or which, if
determined adversely to such Person, would give rise to, evidence the existence
of, or relate to, any other Loss and the investigation, defense or settlement of
any of the foregoing.
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"MATERIAL ADVERSE EFFECT" means any material adverse effect on
the business, assets, condition (financial or otherwise) or operations of the
Acquired Companies, taken as a whole; provided, however, that "Material Adverse
Effect" shall be deemed to exclude (i) changes in general economic conditions
and (ii) changes generally affecting the industries in which the Acquired
Companies operate.
"NET WORKING CAPITAL AMOUNT" means the book value of (i) the
Company's current assets (other than Cash and Taxes receivable (if any)) MINUS
(ii) the book value of the Company's current liabilities (other than Taxes
payable and without duplication of liabilities included in Indebtedness); in
each case, as of the close of business on the day before the Closing Date,
determined on a consolidated basis in accordance with GAAP; provided, however,
that, without duplication, the items set forth in EXHIBIT H shall be excluded
(i.e., assigned a value of zero) for purposes of calculating the Net Working
Capital Amount.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of the
Company's businesses consistent with ordinary and past business practices
(including, without limitation, with respect to collection of accounts
receivable, purchases of supplies, repairs and maintenance, payment of accounts
payable and accrued expenses, terms of sale, levels of capital expenditures, and
operation of cash management practices generally).
"PARENT CREDIT AGREEMENT" means the Credit Agreement, dated as
of February 12, 1998, by and among Magellan Health Services, Inc., a Delaware
corporation; Charter Behavioral Health System of New Mexico, Inc., a New Mexico
corporation; Merit Behavioral Care Corporation, a Delaware corporation; The
Chase Manhattan Bank, as Administrative Agent, Collateral Agent and Issuing
Bank; First Union National Bank, as Syndication Agent and Issuing Bank; and
Credit Lyonnais, as Documentation Agent and Issuing Bank; as the same may be
amended and supplemented from time to time.
"PERMITTED LIENS" means (i) real estate taxes, assessments and
other governmental fees or other charges not yet due and payable as of the
Closing Date; (ii) mechanics and similar statutory liens arising or incurred in
the Ordinary Course of Business for amounts which are not delinquent and which
would not, individually or in the aggregate, have a Material Adverse Effect;
(iii) zoning, entitlement, building and other land use and similar laws or
regulations imposed by any governmental authority having jurisdiction over such
parcel which are not violated by the current use and operation thereof; (iv)
easements, covenants, conditions, restrictions and other similar matters of
record which do not materially impair the use or occupancy of such parcel in the
operation of the Acquired Companies' businesses; (v) statutory landlord liens;
and (vi) liens arising under the Parent Credit Agreement; provided that any such
lien arising under the Parent Credit Agreement shall be released at Closing.
"PERSON" means and includes an individual, a partnership, a
joint venture, a limited liability company, a corporation or trust, an
unincorporated organization, a group, or a government or other department or
agency thereof, or any other entity.
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"PROPRIETARY RIGHTS" means any and all of the following in any
jurisdiction throughout the world (i) patents, patent applications, patent
disclosures, as well as any reissues, continuations, continuations-in-part,
divisions, extensions or reexaminations thereof, (ii) trademarks, service marks,
trade dress, trade names, logos, and corporate names and registrations and
applications for registration thereof, together with all of the goodwill
associated therewith, (iii) Internet domain names, (iv) copyrights (registered
or unregistered) and copyrightable works and registrations and applications for
registration thereof, (v) mask works and registrations and applications for
registration thereof, (vi) computer software (including, without limitation,
source code and executable code), data, databases, and documentation thereof,
(vii) trade secrets and other confidential information (including, without
limitation, ideas, formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, if any, research and development
information, drawings, specifications, designs, plans, proposals, technical
data, financial and marketing plans, and customer and supplier lists and
information), (viii) other intellectual property rights, (ix) copies and
tangible embodiments thereof (in whatever protectable form or medium), and (x)
license agreements related thereto.
"REAL PROPERTY LEASES" means all leases, subleases, licenses,
concessions and other agreements (written or oral), including, without
limitation, all amendments, extensions, renewals, guaranties and other
agreements with respect thereto, together with all security deposits thereunder,
held by the Acquired Companies for the use and occupancy of any real property or
interests therein.
"RESTRICTED SECURITIES" means the Seller Notes issued to the
Seller pursuant to Section 2.2 below and any securities issued with respect to
such security by way of a refinancing, merger, consolidation, or other
reorganization. As to any particular Restricted Securities, such securities
shall cease to be Restricted Securities when they have (i) been effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them, (ii) been distributed to the public
through a broker, dealer, or market maker pursuant to Rule 144 (or any similar
provision then in force) under the Securities Act or become eligible for sale
pursuant to Rule 144(k) (or any similar provision then in force) under the
Securities Act, or (iii) been otherwise transferred and new securities not
bearing the Securities Act legend set forth in Section 9.7 have been delivered
by the Company. Whenever any particular securities of the Company cease to be
Restricted Securities, the holder thereof shall be entitled to receive from the
Company, without expense, new securities of like tenor not bearing a Securities
Act legend of the character set forth in Section 9.7.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
or any similar federal law then in force.
"SELLER ENTITIES" means the Seller and the Parent.
"SELLER NOTE B AMOUNT" means an amount equal to the LESSER OF
(A) $5 million and (B) the greater of zero and the result of the following (i)
the amount by which $79 million exceeds the Senior Debt Financing Amount on the
Closing Date MULTIPLIED BY (ii) the quotient of five divided by nine.
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"SELLER NOTES" means the Seller Note A and the Seller Note B,
if any.
"SENIOR CREDIT FACILITY" means the senior syndicated loan
facility of the Company in place at the Closing, which facility is related to
the Senior Debt Commitment Letter.
"SENIOR DEBT FINANCING AMOUNT" means an amount equal to, as of
any date of determination, the aggregate principal amount of indebtedness then
owing under the term and revolving credit facilities under the Senior Credit
Facility on such date PLUS the outstanding unused and undrawn amount that the
Company has the right to borrow on such date of determination under the Senior
Credit Facility's revolving credit facility, not including any borrowing
availability that is contingent upon further syndication of the Senior Credit
Facility or other transactions that would involve amending or supplementing the
terms and conditions (in any material respect) of or changing the lenders
participating in the Senior Credit Facility.
"SUBSIDIARY" means, with respect to any Person, any
corporation, limited liability company, partnership, association, or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers, or trustees thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of such Person or a combination thereof,
or (ii) if a limited liability company, partnership, association, or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more Subsidiaries of such Person or a combination thereof.
For purposes hereof, a Person shall be deemed to have a majority ownership
interest in a limited liability company, partnership, association, or other
business entity if such Person shall be allocated a majority of limited
liability company, partnership, association, or other business entity gains or
losses or shall be or control any managing director or general partner of such
limited liability company, partnership, association, or other business entity.
"TAX" or "TAXES" means any federal, state, county, local,
foreign, or other income, gross receipts, ad valorem, franchise, profits, sales
or use, transfer, registration, excise, utility, environmental, communications,
real or personal property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp, occupation,
alternative or add-on minimum, estimated, and other taxes of any kind
whatsoever, whether computed on a separate or consolidated, unitary or combined
basis or in any other manner, including, without limitation, deficiencies,
penalties, additions to tax, and interest attributable thereto.
"TAX RETURN" means returns, declarations, reports, claims for
refund, information returns or other documents (including any related or
supporting schedules, statements, or information) filed or required to be filed
in connection with the determination, assessment, or collection of Taxes of any
party or the administration of any laws, regulations, or administrative
requirements relating to any Taxes.
"TOP COLLAR AMOUNT" means $23.0 million.
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"TRANSACTION DOCUMENTS" means this Agreement, and all other
agreements, instruments, certificates, and other documents to be entered into or
delivered by any Party in connection with the consummation of the transactions
contemplated by this Agreement, including, without limitation, the Seller Notes.
"TREASURY REGULATIONS" means the United States Treasury
Regulations promulgated pursuant to the Code.
SECTION 1.2 CROSS REFERENCE. The following terms are defined in
the following Sections of this Agreement:
TERM SECTION
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Accounts Receivable 5.5
Acquired Stock Recitals
Acquisition Proposal 4.3
Actual Cash Amount 2.4
Actual Closing Common Value 2.4
Actual Indebtedness Amount 2.4
Actual Net Working Capital Amount 2.4
Antitrust Filings 4.7
Applicable Limitation Date 8.1
Assignment and Consent 3.1
Basket 8.2
Bonuses 5.17
Cap 8.2
CERCLA 5.23
Closing 2.3
Closing Date 2.3
Closing Review 2.4
Commitment Letters 6.5
Common Stock Recitals
Company Preface
Confidential Information 9.5
Consolidated Subsidiaries 9.6
Cost Reports 5.22
DOJ 4.7
Draft Computations 2.4
ERISA 5.17
Estimated Cash Amount 2.1
Estimated Cash Portion 2.2
Estimated Closing Common Value 2.1
Estimated Indebtedness Amount 2.1
Estimated Net Working Capital Amount 2.1
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Financial Statements 5.5
Firm 2.4
FTC 4.7
Fundamental Representations and Warranties 8.1
Government Contract 5.11
HSR Act 3.1
Indemnification Statement 9.6
Indemnified Party 8.2
Indemnified Party Controlled Proceeding 8.2
Indemnifying Party 8.2
Insurance Policies 9.11
Latest Balance Sheet 5.5
Lease Extensions 3.1
Management Agreements 3.1
Noncompete Period 9.5
Objection Notice 2.4
Oracle License 3.1
Other Contracts 5.11
Other Filings 4.7
Parent Preface
Parent Tax Group 9.6
Parties Preface
Party Preface
Plans 5.17
Pre-Closing Period 9.6
Pre-Closing Period Returns 9.6
Previous Acquisitions 5.24
Prime Rate 2.4
Purchaser Preface
Purchaser Parties 8.2
Purchase Price 2.2
Risk Database 1.2
Real Property 5.8
Schedule Update 5.28
Section 338(h)(10) Election 9.6
Seller Preface
Seller Entities Preface
Seller Note A 2.2
Seller Note B 2.2
Seller Parties 8.2
Senior Debt Commitment Letter 6.5
Straddle Period 9.6
Straddle Period Returns 9.6
Tax Claim 9.6
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Transaction Expenses 9.4
Uncovered Incident Claims 8.2
Unregistered Proprietary Rights 5.12
ARTICLE II -- THE CLOSING TRANSACTIONS
SECTION 2.1 PRE-CLOSING ESTIMATES OF CERTAIN AMOUNTS. Not later
than three days before the Closing, the Seller and the Purchaser will in good
faith jointly estimate, on a reasonable basis using the Company's then available
financial information, the Cash Amount (such estimate is referred to as the
"ESTIMATED CASH AMOUNT"), the Indebtedness Amount (such estimate is referred to
as the "ESTIMATED INDEBTEDNESS AMOUNT") and the Net Working Capital Amount (such
estimate is referred to as the "ESTIMATED NET WORKING CAPITAL AMOUNT) each as of
the close of business on the day before Closing Date; provided, however, that if
the Seller and the Purchaser cannot agree on an estimate of any of the foregoing
amounts, such estimate will be deemed to be equal to the average of the Seller's
and the Purchaser's good faith determinations thereof. The "ESTIMATED CLOSING
COMMON VALUE" means an amount equal to (A) $121.0 million, (B) plus the amount
by which the Estimated Cash Amount exceeds $8.0 million or minus the amount by
which $8.0 million exceeds the Estimated Cash Amount, (C) less the Estimated
Indebtedness Amount, and (D) plus the amount by which the Estimated Net Working
Capital Amount exceeds the Top Collar Amount or minus the amount by which the
Bottom Collar Amount exceeds the Estimated Net Working Capital Amount or zero if
the Estimated Net Working Capital Amount is between the Top Collar Amount and
the Bottom Collar Amount.
SECTION 2.2 STOCK PURCHASE. On the basis of the representations,
warranties, covenants, and agreements herein, and subject to the satisfaction or
waiver of the conditions set forth herein and the terms hereof, at the Closing,
the Purchaser shall purchase from the Seller, and the Seller shall sell and
transfer to the Purchaser, the Acquired Stock, free and clear of any Liens, for
a purchase price equal to the Estimated Closing Common Value (the "PURCHASE
PRICE") by delivery to the Seller of (A) a subordinated promissory note issued
by the Purchaser in the form of EXHIBIT A attached hereto in a principal amount
equal to $10 million (the "SELLER NOTE A"), (B) if the Seller Note B Amount is
greater than zero, a subordinated promissory note issued by the Purchaser in the
form of EXHIBIT I attached hereto in a principal amount equal to the Seller Note
B Amount (the "SELLER NOTE B") and (C) cash for the balance of the Purchase
Price by wire transfer or other delivery of immediately available funds (the
"ESTIMATED CASH PORTION").
SECTION 2.3 CLOSING TRANSACTIONS.
(a) CLOSING. The closing of the transactions contemplated
by this Agreement (the "CLOSING") shall take place at the offices of Kirkland &
Ellis, 200 East Randolph Drive, Chicago, Illinois 60601, commencing at 10:00
a.m. on the third business day following the satisfaction or waiver of all
conditions to the obligations of the Parties to consummate the transactions
contemplated hereby (other than conditions with respect to actions the
respective Parties will take at the Closing itself), or at such other place or
on such other date as may be mutually agreeable to the
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Purchaser and the Seller; provided that in any event, if the Purchaser's senior
lenders require that the Closing take place at the offices of their attorneys,
the Parties agree that the Closing shall take place at such offices. The date
and time of the Closing are herein referred to as the "CLOSING DATE."
(b) CLOSING TRANSACTIONS. At the Closing:
(i) the Seller shall deliver to the Purchaser,
free and clear of any Liens, one or more certificates representing the
Acquired Stock, duly endorsed in blank or accompanied by stock powers
or other instruments of transfer duly executed in blank, and bearing
or accompanied by all requisite stock transfer stamps;
(ii) the Purchaser shall deliver to the Seller
the Estimated Cash Portion in immediately available funds;
(iii) the Purchaser shall deliver to the Seller
the Seller Notes;
(iv) the Purchaser shall cause the Company to
repay all Indebtedness outstanding as of the close of business on the
day before the Closing Date owed to the Seller or the Parent or their
Affiliates (other than the Acquired Companies), as the case may be;
and
(v) each Party shall deliver the opinions,
certificates and other documents and instruments required to be
delivered by or on behalf of such Party under Article III.
SECTION 2.4 POST-CLOSING ADJUSTMENTS.
(a) POST-CLOSING DETERMINATION. Within 90 days after the
Closing Date, the Purchaser and its auditors will conduct a review (the "CLOSING
REVIEW") of the Cash Amount, the Indebtedness Amount and the Net Working Capital
Amount and will prepare and deliver to the Seller a computation of such amounts
(the "DRAFT COMPUTATIONS"). The Draft Computation shall be prepared from the
Company's books and records, which in return shall be prepared in accordance
with GAAP, consistently applied. The Purchaser and its auditors will make
available to the Seller and its auditors all records and work papers used in
preparing the Draft Computations. If the Seller disagrees with the computation
of the Cash Amount, the Indebtedness Amount or the Net Working Capital Amount
reflected in the Draft Computations, the Seller may, within 30 days after
receipt of the Draft Computations, deliver a notice (an "OBJECTION NOTICE") to
the Purchaser setting forth the Seller's calculation of the Cash Amount, the
Indebtedness Amount and the Net Working Capital Amount. The Purchaser and the
Seller will use reasonable best efforts to resolve any disagreements as to the
computation of the Cash Amount, the Indebtedness Amount and the Net Working
Capital Amount, but if they do not obtain a final resolution within 30 days
after the Purchaser has received the Objection Notice, the Purchaser and the
Seller will jointly retain an independent accounting firm of recognized national
standing (the "FIRM") to resolve any remaining disagreements. If the Purchaser
and the Seller are unable to agree on the choice of the Firm, then the Firm will
be a "big-five" accounting firm (or a successor) selected by lot (after
excluding one firm designated by the Purchaser and one firm designated by the
Seller). The Purchaser and the Seller will direct the Firm
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to render a determination within 30 days of its retention and the Purchaser, the
Seller, and their respective agents will cooperate with the Firm during its
engagement. The Firm will consider only those items and amounts in the Draft
Computations set forth in the Objection Notice which the Purchaser and the
Seller are unable to resolve. The Purchaser and the Seller shall each make a
submission to the Firm promptly (and in any event within 20 days after the
Firm's engagement), which submission shall contain such Party's computation of
the Cash Amount, the Indebtedness Amount and the Net Working Capital Amount and
information, arguments, and support for such Party's position. The Firm shall
review such submissions and base its determination solely on them. In resolving
any disputed item, the Firm may not assign a value to any item greater than the
greatest value for such item claimed by either party or less than the smallest
value for such item claimed by either party. The Firm's determination will be
based on the definition of the Cash Amount, the Indebtedness Amount and the Net
Working Capital Amount included herein. The determination of the Firm will be
conclusive and binding upon the Parties. The Seller and the Purchaser shall each
bear 50% of the costs and expenses of the Firm. The Cash Amount, the
Indebtedness Amount and the Net Working Capital Amount, as finally determined
pursuant to this Section 2.4(a), is referred to herein as the "ACTUAL CASH
AMOUNT," the "ACTUAL INDEBTEDNESS AMOUNT" and the "ACTUAL NET WORKING CAPITAL
AMOUNT," respectively. The "ACTUAL CLOSING COMMON VALUE" means an amount equal
to (A) $121.0 million, (B) plus the amount by which the Actual Cash Amount
exceeds $8.0 million or minus the amount by which $8.0 million exceeds the
Actual Cash Amount, (C) less the Actual Indebtedness Amount, and (D) plus the
amount by which the Actual Net Working Capital Amount exceeds the Top Collar
Amount or minus the amount by which the Bottom Collar Amount exceeds the Actual
Net Working Capital Amount or zero if the Actual Net Working Capital Amount is
between the Top Collar Amount and the Bottom Collar Amount.
(b) POST-CLOSING ADJUSTMENT.
(i) PAYMENT BY THE PURCHASER. If the Actual
Closing Common Value is greater than the Estimated Closing Common
Value, the Purchaser will, within five (5) business days after the
determination thereof, pay to the Seller an amount equal to the sum of
(A) the Actual Closing Common Value MINUS the Estimated Closing Common
Value PLUS (B) a fee on such difference from the Closing Date to the
date of payment calculated using a rate equal to the "Prime Rate" as
listed in THE WALL STREET JOURNAL (Midwest Edition) on the Closing
Date (the "PRIME RATE"). Such payment will be made by wire transfer or
delivery of other immediately available funds.
(ii) PAYMENT BY THE SELLER. If the Actual
Closing Common Value is less than the Estimated Closing Common Value,
the Seller will, within five (5) business days after the determination
thereof, pay to the Purchaser an amount equal to the sum of (A) the
Estimated Closing Common Value MINUS the Actual Closing Common Value
PLUS (B) a fee on such difference from the Closing Date to the date of
payment calculated using a rate equal to the Prime Rate. Such payment
will be made by wire transfer or delivery of other immediately
available funds.
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(iii) DISPUTE. If, pursuant to Section 2.4(a)
above, there is a dispute as to the final determination of the Actual
Cash Amount, the Actual Indebtedness Amount, or the Actual Net Working
Capital Amount, the Purchaser and the Seller shall promptly pay to the
other, as appropriate, such amounts as are not in dispute, pending
final determination of such dispute pursuant to Section 2.4(a).
Any adjustments pursuant to this Section 2.4 shall constitute adjustments to the
Purchase Price for Tax purposes.
ARTICLE III -- CONDITIONS TO CLOSING
SECTION 3.1 CONDITIONS TO THE PURCHASER'S OBLIGATIONS. The
obligation of the Purchaser to consummate the transactions contemplated by this
Agreement is subject to the satisfaction of the following conditions as of the
Closing Date:
(a) The representations and warranties set forth in
Article V hereof shall be true and correct in all material respects (except that
the representations and warranties which are qualified as to "materiality" or
"Material Adverse Effect" shall be true and correct in all respects) at and as
of the Closing Date as though then made without giving effect to any Schedule
Updates thereto, except to the extent such representations and warranties
expressly relate to an earlier date (in which case such representations and
warranties shall be true and correct in all material respects as of such earlier
date); provided that the condition set forth in this Section 3.1(a) shall be
deemed satisfied if the facts, events and circumstances underlying any
inaccuracies in any such representations and warranties as of the Closing Date
(without giving effect to any materiality or Material Adverse Effect
qualifications or any materiality or Material Adverse Effect exceptions
contained therein), individually or in the aggregate, could not have a Material
Adverse Effect.
(b) The Company, the Seller and the Parent shall have
performed and complied in all material respects with all of the covenants and
agreements required to be performed by each of them under this Agreement on or
before the Closing;
(c) The following third party consents shall have been
obtained on terms reasonably satisfactory to the Purchaser: (i) all third party
consents listed on the "REQUIRED CONSENTS SCHEDULE" attached hereto and (ii) all
third party consents that are or may be required as a result of the consummation
of the transactions contemplated hereby in order to maintain the validity and
effectiveness, on and after the Closing Date, of each of the Licenses required
to be set forth on the LICENSE SCHEDULE;
(d) Each of the leases set forth on the Real Property
Schedule for which CCS Land Trust or an Affiliate thereof is lessor shall have
had the term thereof extended to June 30, 2006, with the aggregate annual
payments thereunder for the period beginning July 1, 2003 and ending on June 30,
2006 not exceeding $750,000 per annum (the "LEASE EXTENSIONS") and with the
other terms and conditions of the Lease Extensions being consistent with the
terms of such leases prior to the
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Lease Extensions, and the Lease Extensions shall not have been amended or
modified and shall be in full force and effect as of the Closing;
(e) The Parent, the Company and Oracle Corporation shall
have entered into an assignment and consent (the "ASSIGNMENT AND CONSENT"), in
the form of EXHIBIT F hereto, with respect to that certain Software License and
Service Agreement, between the Parent and Oracle Corporation, dated February 25,
2000 (the "ORACLE LICENSE"), and the Assignment and Consent shall not have been
amended or modified or revoked and shall be in full force and effect as of the
Closing;
(f) All governmental filings, authorizations, and
approvals that are required for the consummation of the transactions
contemplated hereby shall have been duly made and obtained on terms reasonably
satisfactory to the Purchaser (without limiting the generality of the foregoing,
all applicable waiting periods (and any extensions thereof) under the
Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended (the "HSR
ACT"), shall have expired or otherwise been terminated);
(g) No action, suit, or proceeding that has, in the
reasonable opinion of the Purchaser, a reasonable likelihood of success shall be
pending or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable judgment, decree, injunction, order, or ruling
would prevent the performance of this Agreement or any of the transactions
contemplated hereby, declare unlawful the transactions contemplated by this
Agreement, cause such transactions to be rescinded, or materially and adversely
affect the right of the Purchaser to own, operate, or control any Acquired
Company, and no judgment, decree, injunction, order, or ruling shall have been
entered which has any of the foregoing effects;
(h) Since September 30, 2000, there shall have been no
Material Adverse Effect (without limiting the generality of the foregoing, since
September 30, 2000, there shall have been no modification or change (or threat
of modification or change that has a reasonable likelihood of success) of any
Medicare or Medicaid law, rule, regulation or payment policy, or any rule or
policy of any third-party payor, or any other applicable law or regulation,
which has had or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect);
(i) Except as otherwise specified in writing by the
Purchaser to the Seller prior to the Closing Date, all of the directors of each
Acquired Company shall have resigned and such resignations shall be effective as
of the Closing Date;
(j) The Purchaser shall have received an opinion, dated
the Closing Date, of Dow, Lohnes & Albertson, PLLC, counsel to the Company, the
Seller and the Parent, with respect to the matters set forth on EXHIBIT B
attached hereto, and the lenders providing debt financing in connection with the
transactions contemplated by this Agreement shall be entitled to rely thereon;
(k) On or before the Closing Date, the Seller shall have
delivered to the Purchaser all of the following:
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(i) a certificate from the Seller in a form
reasonably satisfactory to the Purchaser, dated the Closing Date,
stating that the preconditions specified in Sections 3.1(a), (b) and
(h) have been satisfied;
(ii) a copy of the resolutions of the board of
directors of the Company, the Seller and the Parent, respectively,
approving the transactions contemplated by this Agreement, certified
by the Company, the Seller and the Parent, respectively;
(iii) a copy of the certificate of incorporation
or equivalent document for each Acquired Company, certified by the
appropriate authority in the jurisdiction in which such entity was
incorporated or organized and dated as of or about the Closing Date;
(iv) a copy of the bylaws or equivalent document
for each Acquired Company, certified by such Acquired Company;
(v) certificates from appropriate authorities,
dated as of or about the Closing Date, as to the good standing and
qualification to do business of each Acquired Company in each
jurisdiction where they are so qualified;
(vi) all original stock certificates and other
instruments evidencing ownership of each of the Company's
Subsidiaries;
(vii) all minute books, stock books, ledgers and
registers, corporate seals and other corporate records relating to the
organization, ownership and maintenance of each Acquired Company;
(viii) copies of the consents, filings,
authorizations and approvals described in Sections 3.1(c) and (f) to
the extent applicable to the Company, the Seller or the Parent;
(ix) copies of the resignations described in
Section 3.1(i); and
(x) such other documents or instruments as the
Purchaser may reasonably request to effect the transactions
contemplated hereby;
(l) The Purchaser or, at the option of the Purchaser,
the Company shall have entered into new employment, equity participation and
non-competition agreements on substantially the terms and conditions set forth
in the attachments to the "KEY EMPLOYEE SCHEDULE" attached hereto with each of
the persons listed on the KEY EMPLOYEE SCHEDULE (the "MANAGEMENT AGREEMENTS"),
and each of the Management Agreements shall not have been amended or modified
and shall be in full force and effect as of the Closing;
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(m) The Acquired Companies and each Contracted Nonprofit
shall have entered into an amendment to each Service Agreement or similar
agreement between them which effectuates the terms set forth on the
"MODIFICATION SCHEDULE" attached hereto as EXHIBIT C;
(n) The Company shall have received sufficient senior
debt financing so that the Senior Debt Financing Amount on the Closing Date
equals or exceeds $70.0 million, on substantially the terms and conditions set
forth in the Senior Debt Commitment Letter attached as a part of EXHIBIT D
hereto;
(o) The Seller shall have delivered to the Purchaser the
audited consolidated balance sheets of the Company as of September 30, 1999 and
2000 and the related statements of income and cash flows (or the equivalent) for
the respective twelve-month periods then ended, prepared in accordance with
GAAP, and the consolidated financial results of the Company set forth in such
financial statements shall not differ materially from the consolidated financial
results of the Company set forth in the unaudited financial statements for the
same periods that are a part of the Financial Statements Schedule, without
regard to any Schedule Updates thereto; and
(p) All proceedings to be taken by the Company, the
Seller and the Parent in connection with the consummation of the transactions
contemplated by this Agreement and all certificates, opinions, instruments, and
other documents required to be delivered by the Company, the Seller and the
Parent to effect the transactions contemplated hereby reasonably requested by
the Purchaser shall be reasonably satisfactory in form and substance to the
Purchaser.
Any condition specified in this Section 3.1 may be waived by the Purchaser in
its sole discretion; provided that no such waiver shall be effective unless it
is set forth in a writing executed by the Purchaser.
SECTION 3.2 CONDITIONS TO THE PARENT'S AND THE SELLER'S
OBLIGATIONS. The obligation of the Seller and the Parent to consummate the
transactions contemplated by this Agreement is subject to the satisfaction of
the following conditions as of the Closing Date:
(a) The representations and warranties set forth in
Article VI hereof shall be true and correct in all material respects (except
that the representations and warranties which are qualified as to "materiality"
or "Material Adverse Effect" shall be true and correct in all respects) at and
as of the Closing Date as though then made without giving effect to any Schedule
Updates thereto, except to the extent such representations and warranties
expressly relate to an earlier date (in which case such representations and
warranties shall be true and correct in all material respects as of such earlier
date); provided that the condition set forth in this Section 3.2(a) shall be
deemed satisfied if the facts, events and circumstances underlying any
inaccuracies in any such representations and warranties as of the Closing Date
(without giving effect to any materiality or Material Adverse Effect
qualifications or any materiality or Material Adverse Effect exceptions
contained therein), individually or in the aggregate, could not have be expected
to have a material adverse effect on the ability of the Purchaser to perform
under the terms of this Agreement.
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(b) The Purchaser shall have performed and complied in
all material respects with all of the covenants and agreements required to be
performed by it under this Agreement on or before the Closing;
(c) Each third party consent listed on the REQUIRED
CONSENTS SCHEDULE that has an asterisk next to it in the left margin (if any)
shall have been obtained on terms reasonably satisfactory to the Seller and the
Parent;
(d) All governmental filings, authorizations, and
approvals that are required for the consummation of the transactions
contemplated hereby shall have been duly made and obtained on terms reasonably
satisfactory to the Seller (without limiting the generality of the foregoing,
all applicable waiting periods (and any extensions thereof) under the HSR Act
shall have expired or otherwise been terminated);
(e) No action, suit, or proceeding that has, in the
reasonable opinion of the Seller, a reasonable likelihood of success shall be
pending or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable judgment, decree, injunction, order, or ruling
would prevent the performance of this Agreement or any of the transactions
contemplated hereby, declare unlawful the transactions contemplated by this
Agreement, cause such transactions to be rescinded, or materially and adversely
affect the right of the Parent or the Seller to receive benefits to be enjoyed
by it under this Agreement, and no judgment, decree, injunction, order, or
ruling shall have been entered which has any of the foregoing effects;
(f) The Seller shall have received an opinion, dated the
Closing Date, of Kirkland & Ellis, counsel to the Purchaser, with respect to the
matters set forth on EXHIBIT E attached hereto, and the lenders providing debt
financing in connection with the transactions contemplated by this Agreement
shall be entitled to rely thereon;
(g) On or before the Closing Date, the Purchaser shall
have delivered to the Seller all of the following:
(i) a certificate from the Purchaser in a form
reasonably satisfactory to the Seller, dated the Closing Date, stating
that the preconditions specified in Sections 3.2(a) and (b) have been
satisfied;
(ii) a copy of the resolutions of the board of
directors of the Purchaser approving the transactions contemplated by
this Agreement, certified by the Purchaser;
(iii) a copy of the certificate of incorporation
for the Purchaser, certified by the Secretary of State of the State of
Delaware;
(iv) a copy of the bylaws of the Purchaser,
certified by the Purchaser;
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(v) a certificate from the Secretary of State
of the State of Delaware, dated as of or about the Closing Date, as to
the good standing of the Purchaser;
(vi) copies of the consents, filings,
authorizations and approvals described in Section 3.2(c) to the extent
applicable to the Purchaser; and
(vii) such other documents or instruments as the
Seller may reasonably request to effect the transactions contemplated
hereby; and
(h) All proceedings to be taken by the Purchaser in
connection with the consummation of the transactions contemplated by this
Agreement and all certificates, opinions, instruments, and other documents
required to be delivered by the Purchaser to effect the transactions
contemplated hereby reasonably requested by the Seller shall be reasonably
satisfactory in form and substance to the Seller.
Any condition specified in this Section 3.2 may be waived by the Seller in its
sole discretion; provided that no such waiver shall be effective unless it is
set forth in a writing executed by the Seller.
ARTICLE IV -- COVENANTS BEFORE CLOSING
SECTION 4.1 AFFIRMATIVE COVENANTS OF THE SELLER. Except as
otherwise contemplated by this Agreement, between the date hereof and the
Closing, unless the Purchaser otherwise agrees in writing, the Seller shall and
shall cause each Acquired Company to:
(a) conduct each Acquired Company's business and
operations only in the Ordinary Course of Business, including, without
limitation, paying accounts payable, collecting accounts receivable and making
capital expenditures, in each case, in the Ordinary Course of Business;
(b) keep in full force and effect each Acquired Company's
corporate existence and use its reasonable best efforts to keep in full force
and effect all material contracts, rights, franchises, and intellectual property
relating or pertaining to its business and use its reasonable best efforts to
cause its current insurance (or reinsurance) policies not to be canceled or
terminated or any of the coverage thereunder to lapse;
(c) use their reasonable best efforts to carry on the
business of each Acquired Company substantially in the same manner as presently
conducted and to keep each Acquired Company's business organization and
properties intact, including its present business operations, physical
facilities, working conditions, and employees and including each Acquired
Company's present relationships with lessors, licensors, suppliers, customers,
and others having business relations with each such Acquired Company,
respectively;
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(d) use its reasonable best efforts to maintain the Real
Property and other assets of each Acquired Company in good repair, order, and
condition (normal wear and tear excepted) consistent with current needs and
replace in accordance with prudent practices each Acquired Company's inoperable,
worn out, or obsolete assets with assets of good quality consistent with the
Ordinary Course of Business;
(e) maintain the books, accounts, and records of each
Acquired Company in accordance with GAAP, consistent with the custom and
practice as used in the preparation of the Financial Statements;
(f) as soon as available but in any event within thirty
(30) days after the end of each monthly accounting period in each fiscal year,
beginning with the monthly accounting period ending November 30, 2000, the
Seller shall use its best efforts to deliver to the Purchaser unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such monthly period and for the period from the
beginning of the fiscal year to the end of such month, and unaudited
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, and all such statements shall
be prepared in accordance with GAAP, subject to the absence of footnote
disclosures and to normal year-end adjustments, and shall be certified by the
Company's chief financial officer;
(g) generally encourage each Acquired Company's employees
to continue their employment with such Acquired Company after the Closing;
(h) promptly (once the Parent obtains knowledge thereof)
inform the Purchaser in writing of any material variances from the
representations and warranties contained in Article V or any material breach of
any covenant hereunder by the Company, the Seller or the Parent;
(i) to the extent reasonably required by the Purchaser's
lenders with respect to material Real Property Leases, use reasonable best
efforts to obtain and deliver to the Purchaser estoppel certificates and waivers
of landlord liens from the landlords, sublandlords or any other parties granting
rights to Acquired Companies under such Real Property Leases (which shall
contain such landlords', sublandlords' or other parties' consent to the
transactions contemplated herein if required under the applicable lease), in
form and substance reasonably satisfactory to the Purchaser's lenders;
(j) cooperate with the Purchaser and use reasonable best
efforts to cause the conditions to the Purchaser's obligation to close to be
satisfied (including, without limitation, the execution and delivery of all
agreements contemplated hereunder to be so executed and delivered and the making
and obtaining of all third party and governmental notices, filings,
authorizations, approvals, consents, releases, and terminations);
(k) cooperate with the Purchaser in the Purchaser's
investigation of the business and properties of the Acquired Companies, to
permit the Purchaser and its employees, agents, accounting, legal, and other
authorized representatives to (i) have full access to the premises, books,
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and records of each Acquired Company at reasonable hours, (ii) visit and inspect
any of the properties of each Acquired Company, and (iii) discuss the affairs,
finances, and accounts of each Acquired Company with the directors, officers,
partners, key employees, key customers, key sales representatives, key
suppliers, and independent accountants of such Acquired Company, respectively;
and
(l) promptly inform the Purchaser in writing of any
Acquired Company's receipt of any material inquiries, information requests,
notices of violation or complaints from any direct or indirect payor source,
either governmental or non-governmental, or any foreign, federal, state or local
governmental or regulatory authority.
SECTION 4.2 NEGATIVE COVENANTS OF THE SELLER. Except as expressly
contemplated by this Agreement, between the date hereof and the Closing, unless
the Purchaser otherwise agrees in writing, the Seller shall cause each Acquired
Company not to:
(a) make any loans or enter into any transaction with any
Insider other than transactions which may not be restricted under the Parent
Credit Agreement and other than transactions entered into in the Ordinary Course
of Business;
(b) establish, amend or contribute to any pension,
retirement, profit sharing, or stock bonus plan or multiemployer plan covering
any of the employees of any Acquired Company, except as required by law or by
the terms of any such plan or in accordance with past practice;
(c) take any action designed or intended to encourage
employees of the Acquired Companies to leave their employment or otherwise not
to continue employment with such Acquired Companies;
(d) delay normal capital expenditures;
(e) enter into any amendments, extensions, renewals or
other modifications with respect to any of the Real Property Leases other than
in the Ordinary Course of Business, or enter into any new lease, sublease,
license, concession or other agreement for the use or occupancy of real property
requiring rental and other payments in excess of $150,000 annually as averaged
over the term of such lease, sublease, license, concession or other agreement;
or
(f) enter into any agreement or binding commitment to do
any of the foregoing.
SECTION 4.3 EXCLUSIVITY. Until this Agreement is terminated by
its terms, the Seller Entities shall not, and the Seller Entities shall not
cause or permit any Affiliate, Insider or agent or any other Person acting on
their behalf to, discuss or negotiate with any other Person a possible sale
of all or part of any Acquired Company's securities or assets (except for
dispositions of assets in the Ordinary Course of Business), whether such
transaction takes the form of a sale of stock, merger, liquidation,
dissolution, reorganization, recapitalization, consolidation, sale of assets
or otherwise (an "ACQUISITION PROPOSAL"), or provide any information to any
other Person concerning any
20
Acquired Company (other than information which the Acquired Companies provide to
other Persons in the Ordinary Course of Business). The Seller Entities (a) do
not have any agreement, arrangement or understanding with respect to any
Acquisition Proposal (except this Agreement), (b) shall cease and cause to be
terminated any and all discussions with third parties regarding any Acquisition
Proposal, and (c) shall promptly notify the Purchaser if any Acquisition
Proposal, or any inquiry or contact with any person or entity with respect
thereto, is made.
SECTION 4.4 COVENANTS OF PURCHASER. Between the date hereof and
the Closing, the Purchaser shall:
(a) promptly (once it obtains knowledge thereof) inform
the Seller in writing of any material variances from the representations and
warranties contained in Article VI or any material breach of any covenant
hereunder by the Purchaser; and
(b) cooperate with the Seller and use its reasonable best
efforts to cause the conditions to the Seller's obligation to close to be
satisfied (including, without limitation, the execution and delivery of all
agreements contemplated hereunder to be so executed and delivered and the making
and obtaining of all third party and governmental filings, authorizations,
approvals, consents, releases, and terminations).
SECTION 4.5 INTERCOMPANY ACCOUNTS. Except to the extent treated
as Indebtedness for purposes of computing the Indebtedness Amount (which
treatment shall be at the Parent's option), the Parent will cause all
intercompany liabilities owing from any Acquired Company to the Parent or its
Affiliates (except other Acquired Companies) as of immediately prior to the
close of business on the day before the Closing Date to be reclassified to
capital of the Company (i.e., after the day before the Closing Date the Acquired
Companies shall not have any obligation to repay such intercompany liabilities).
The Acquired Companies will cause all intercompany liabilities owing from the
Parent or any of its Affiliates (other than the Acquired Companies) to any
Acquired Company as of the close of business on the day before the Closing Date
to be distributed to the Seller such that after the day before the Closing Date
neither the Parent nor any of its Affiliates shall have any obligation to repay
such intercompany liabilities to any Acquired Company.
SECTION 4.6 FINANCIAL INFORMATION. The Seller and the Parent
agree to provide all necessary financial data for the offering materials and the
syndication materials related thereto to be prepared by the Purchaser for the
senior debt financing to be obtained by the Company in connection with the
transactions contemplated by this Agreement and agree to permit the Purchaser's
use of the information contained in such financial data and such syndication
materials.
SECTION 4.7 ANTITRUST FILINGS.
(a) As promptly as practicable after the date of this
Agreement, each of the Purchaser and the Parent will prepare and file (i) with
the United States Federal Trade Commission (the "FTC") and the Antitrust
Division of the United States Department of Justice (the "DOJ") Notification and
Report Forms relating to the transactions contemplated herein as required by the
21
HSR Act as agreed to by the parties (the "ANTITRUST FILINGS") and (ii) any other
filings required to be filed by it under any other federal, state or foreign
laws relating to the transactions contemplated by this Agreement (the "OTHER
FILINGS").
(b) The Seller Entities and the Purchaser each shall
promptly supply the other with any information which may be required in order to
effectuate any filings pursuant to this Section 4.7. Each of the Seller Entities
and the Purchaser will notify the other promptly upon the receipt of any
comments from the FTC or DOJ or their respective staffs or any other government
officials in connection with any filing made pursuant hereto and of any request
by the FTC or DOJ or their respective staffs or any other government officials
for amendments or supplements to any Antitrust Filings or Other Filing or for
additional information and will supply the other with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the FTC, DOJ or their respective staffs or any other governmental
officials, on the other hand, with respect to any Antitrust Filing or Other
Filing. Each of the Seller Entities and the Purchaser will cause all documents
that it is responsible for filing with the FTC or DOJ or other regulatory
authorities under this Section 4.7 to comply in all material respects with all
applicable requirements of law and the rules and regulations promulgated
thereunder. Whenever any event occurs which is required to be set forth in an
amendment or supplement to any Antitrust Filing or Other Filing, as the case may
be, each party will promptly inform the other of such occurrence and cooperate
in filing with the FTC or DOJ or their respective staffs or any other government
officials such amendment or supplement.
(c) The Purchaser shall resolve any objections that may
be asserted with respect to the transactions contemplated hereby under the HSR
Act or any other antitrust or trade regulatory laws or regulations of any
administrative or other governmental body or agency.
ARTICLE V -- REPRESENTATIONS AND WARRANTIES
OF THE SELLER ENTITIES
As a material inducement to the Purchaser to enter into this
Agreement, the Parent and the Seller hereby jointly and severally represent and
warrant that:
SECTION 5.1 ORGANIZATION AND CORPORATE POWER.
(a) The "ORGANIZATION SCHEDULE" attached hereto contains
a complete and accurate list for each Acquired Company of its name, its
jurisdiction of incorporation or organization, other jurisdictions in which it
is authorized to do business, and its capitalization (including the identity of
each stockholder or equity holder and the number of shares or other equity
interests held by each). Except as set forth on the ORGANIZATION SCHEDULE, no
Acquired Company owns or holds the right to acquire any Capital Stock in any
other Person.
(b) Each Acquired Company is a corporation duly
organized, validly existing, and in good standing under the laws of its
jurisdiction of organization, with full organizational power
22
and authority to conduct its business as it is now being conducted, to own or
use the properties and assets that it purports to own or use, and to perform all
its obligations under the contracts to which it is party. Each Acquired Company
is duly qualified to do business as a foreign organization and is in good
standing under the laws of each state or other jurisdiction in which either the
ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification, except where the
failure to be so duly qualified or licensed and in good standing would not
individually or in the aggregate have a Material Adverse Effect.
(c) The Seller has delivered to the Purchaser correct and
complete copies of the certificate of incorporation and by-laws (or equivalent
governing documents) for each Acquired Company, which documents reflect all
amendments made thereto at any time before the Closing Date. Correct and
complete copies of the minute books containing the records of meetings of the
stockholders and board of directors (or equivalent parties), the stock
certificate books, and the stock record books of the Acquired Companies have
been furnished to the Purchaser. No Acquired Company is in default under or in
violation of any provision of its certificate of incorporation or by-laws (or
equivalent governing documents).
(d) Each Seller Entity is a corporation duly organized,
validly existing, and in good standing under the laws of such Seller Entity's
jurisdiction of incorporation.
SECTION 5.2 AUTHORIZATION OF TRANSACTIONS. The Company and the
Seller Entities have all requisite corporate power and authority to execute and
deliver the Transaction Documents to which they are a party and to consummate
the transactions contemplated hereby and thereby. The board of directors of each
of the Company and the Seller Entities have duly approved the Transaction
Documents to which they are a party and have duly authorized the execution and
delivery of the Transaction Documents to which they are a party and the
consummation of the transactions contemplated thereby. No other corporate
proceedings on the part of the Company or the Seller Entities are necessary to
approve and authorize the execution and delivery of the Transaction Documents to
which they are a party and the consummation of the transactions contemplated
thereby. All Transaction Documents to which the Company or any Seller Entity is
a party have been duly executed and delivered by the Company or such Seller
Entity and constitute the valid and binding agreements of the Company or such
Seller Entity, enforceable against the Company or such Seller Entity in
accordance with their terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights, and as limited by general principles
of equity that restrict the availability of equitable remedies.
SECTION 5.3 ABSENCE OF CONFLICTS. Except as set forth on the
"CONFLICTS SCHEDULE" or on the REQUIRED CONSENTS SCHEDULE attached hereto, the
execution, delivery, and performance of the Transaction Documents and the
consummation of the transactions contemplated thereby by the Company and the
Seller Entities do not and shall not (a) conflict with or result in any breach
of any of the terms, conditions, or provisions of, (b) constitute a material
default under, (c) result in a material violation of, (d) give any third party
the right to modify, terminate, or accelerate any obligation under, (e) result
in the creation of any Lien upon the Capital Stock or assets of any of the
23
Acquired Companies under, or (f) require any authorization, consent, approval,
exemption, or other action by or notice or declaration to, or filing with, any
court or administrative or other governmental body or agency (except in
connection with the HSR Act) under, the provisions of the articles of
incorporation, by-laws or similar organizational document of either of the
Seller Entities or any Acquired Company or any material indenture, mortgage,
lease, loan agreement, or other material agreement or instrument to which either
of the Seller Entities, any Acquired Company or, to the knowledge of the
Company, any Contracted Nonprofit is bound or affected, or any material law,
statute, rule, or regulation to which either of the Seller Entities, any
Acquired Company or, to the knowledge of the Company, any Contracted Nonprofit
is subject (except in connection with the HSR Act) or any material judgment,
order, or decree to which either of the Seller Entities, any Acquired Company
or, to the knowledge of the Company, any Contracted Nonprofit is subject.
SECTION 5.4 CAPITALIZATION. The authorized Capital Stock of the
Company consists of 100 shares of common stock, $1.00 par value per share, of
which 100 shares are issued and outstanding, and all of which are owned by the
Seller. All of the issued and outstanding Capital Stock of the Acquired
Companies have been duly authorized, are validly issued, fully paid, and
nonassessable, and are held of record and owned beneficially by the Persons and
in the manner described on the ORGANIZATION SCHEDULE, free and clear of all
Liens, except for Liens arising under the Parent Credit Agreement which shall be
released at Closing, and are not subject to, nor were they issued in violation
of, any preemptive rights or rights of first refusal. Except as set forth on the
ORGANIZATION SCHEDULE, there are no outstanding or authorized options, warrants,
rights, contracts, calls, puts, rights to subscribe, conversion rights, or other
agreements or commitments to which any Acquired Company is a party or which are
binding upon any Acquired Company providing for the issuance, disposition, or
acquisition of any Acquired Company's Capital Stock (other than this Agreement).
Other than as set forth on the ORGANIZATION SCHEDULE, there are no outstanding
or authorized stock appreciation, phantom stock, or similar rights with respect
to any Acquired Company. There are no voting trusts, proxies, or any other
agreements or understandings with respect to the voting of the Capital Stock of
any Acquired Company. No Acquired Company is subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of any Acquired Company's Capital Stock.
SECTION 5.5 FINANCIAL STATEMENTS AND RELATED MATTERS.
(a) FINANCIAL STATEMENTS. Attached hereto as the
"FINANCIAL STATEMENTS SCHEDULE" are the following financial statements: (i) the
unaudited consolidated balance sheets of the Company as of September 30, 1999
and 2000, and the related statements of income and cash flows (or the
equivalent) for the respective twelve-month periods then ended; and (ii) the
unaudited consolidated balance sheet of the Company as of October 31, 2000 (the
"LATEST BALANCE SHEET"), and the related statements of income and cash flows (or
the equivalent) for the one-month period then ended. Each of the foregoing
financial statements (the "FINANCIAL STATEMENTS") presents fairly the Company's
consolidated financial condition and results of operations and cash flows as of
the times and for the periods referred to therein, and has been prepared in
accordance with GAAP, subject in the case of unaudited consolidated financial
statements to the absence of footnote disclosure.
24
(b) RECEIVABLES. All accounts receivable of the Acquired
Companies that are reflected on the Latest Balance Sheet or on the accounting
records of the Acquired Companies as of the Closing Date (collectively, the
"ACCOUNTS RECEIVABLE") represent or will represent valid obligations arising
from bona fide sales actually made or services actually performed in the
Ordinary Course of Business with unaffiliated third parties, and the goods and
services involved have been sold, delivered and performed to the account
obligors, and no further goods are required to be provided and no further
services are required to be rendered in order to complete the sales and fully
render the services and to entitle the Acquired Companies to collect such
accounts receivable in full. Such accounts receivable have not been assigned or
pledged to any other Person. The reserves for Accounts Receivable shown on the
Latest Balance Sheet are adequate in the Company's reasonable judgment and have
been calculated consistently in accordance with ordinary business practices. The
reserves for Accounts Receivable on the accounting records of the Acquired
Companies as of the Closing Date will be calculated consistent with ordinary and
prudent business practices.
SECTION 5.6 ABSENCE OF UNDISCLOSED LIABILITIES. To the Seller's
knowledge, no Acquired Company has any material obligations or liabilities
(whether accrued, absolute, contingent, unliquidated, or otherwise, whether due
or to become due, and regardless of when asserted) arising out of or relating to
the operation of the Acquired Companies at or before the Closing, except (i)
obligations under contracts or commitments described on the CONTRACTS SCHEDULE
attached hereto or under contracts and commitments which are not required to be
disclosed thereon, (ii) liabilities reflected on the liabilities side of the
Latest Balance Sheet, (iii) liabilities which have arisen after the date of the
Latest Balance Sheet in the Ordinary Course of Business or otherwise in
accordance with the terms and conditions of this Agreement, and (iv) liabilities
disclosed as such elsewhere in this Agreement or the Schedules hereto.
SECTION 5.7 ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth
on the attached "DEVELOPMENTS SCHEDULE" and except as expressly contemplated by
this Agreement, since September 30, 2000, the Acquired Companies, individually
or collectively, have not:
(a) suffered any change that has had or could reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
or suffered any theft, damage, destruction, or casualty loss in excess of
$100,000, to their assets, whether or not covered by insurance, or suffered any
substantial destruction of books and records;
(b) subjected any portion of their properties or assets
to any material Lien (other than Permitted Liens);
(c) except in the Ordinary Course of Business, sold,
leased, assigned, or transferred (including, without limitation, transfers to
any Seller Entity or any Insider) a portion of their tangible assets, or
canceled without fair consideration any material debts or claims owing to or
held by them;
(d) sold, assigned, licensed, or transferred (including,
without limitation, transfers to any Seller Entity or any Insider) any material
Proprietary Rights owned by, issued to, or licensed
25
to any Acquired Company other than in the Ordinary Course of Business or
disclosed any material confidential information (other than pursuant to
agreements requiring the disclosure to maintain the confidentiality of and
preserving all rights of any Acquired Company in such confidential information)
or received any material confidential information of any third party in
violation of any obligation of confidentiality;
(e) suffered any extraordinary losses or waived any
rights of material value;
(f) received any material inquiries, information
requests, notices of violation or complaints from any payor source, either
governmental or non-governmental, or any foreign, federal, state or local
governmental or regulatory authority;
(g) entered into, amended, or terminated any material
lease, contract, agreement, or commitment, or taken any other action or entered
into any other transaction other than in the Ordinary Course of Business;
(h) entered into any other material transaction, or
materially changed any business practice;
(i) paid or increased any bonuses, salaries, or other
compensation to any stockholder, director, officer, or (except in the Ordinary
Course of Business) employee or entered into any employment, severance, change
in control, or similar contract or agreement with any director, officer, or
employee;
(j) adopted, or materially increased the payments to or
benefits under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan for or with any
employees of any Acquired Company;
(k) conducted their cash management customs and practices
other than in the Ordinary Course of Business (including, without limitation,
with respect to collection of accounts receivable, purchases of supplies,
repairs and maintenance, payment of accounts payable and accrued expenses,
levels of capital expenditures and operation of cash management practices
generally);
(l) made any capital expenditures or commitments for
capital expenditures except in the Ordinary Course of Business or failed to make
capital expenditures at levels at least comparable to and not materially
different from those previously planned to be made;
(m) declared, paid, made, or otherwise effectuated any
dividends or distributions, redemptions, equity repurchases, or other
transactions involving any Acquired Company's Capital Stock or equity securities
or rights to control the same;
(n) made a material change in their accounting methods; or
26
(o) made or committed to make any payments or other
transfers in connection with, or in contemplation of, the transactions
contemplated by this Agreement or the other Transaction Documents.
SECTION 5.8 REAL PROPERTY.
(a) No Acquired Company owns any real property or is a
party to any agreement (whether oral or written) to purchase any real property.
(b) The "REAL PROPERTY SCHEDULE" attached hereto sets
forth the address of each Leased Real Property and a list of all Real Property
Leases (including, without limitation, all amendments, extensions, renewals,
guaranties and other agreements with respect thereto) in each case for each
Leased Real Property which involves annual rent of $150,000 or more. The Seller
has delivered to the Purchaser a true and complete copy of each written Real
Property Lease, and in the case of any oral Real Property Leases, a written
summary of the basic terms thereof. Except as set forth on the REAL PROPERTY
SCHEDULE, with respect to each of the Real Property Leases: (i) the Real
Property Lease is in full force and effect; (ii) except as set forth in the REAL
PROPERTY SCHEDULE, the acquisition of stock and change in control of the
Acquired Companies (as the case may be) as contemplated under this Agreement
will not result in a breach of or default under the Real Property Lease or
otherwise cause the Real Property Lease to cease to be in full force and effect
on identical terms following the Closing; (iii) no Acquired Company nor, to the
Company's knowledge, any other party to the Real Property Lease is in material
breach or default under the Real Property Lease, and to the Company's knowledge,
no event has occurred or circumstance exists which, with the delivery of notice,
passage of time or both, would constitute such a material breach or default or
permit the termination, modification or acceleration of rent under the Real
Property Lease; (iv) no party to the Real Property Lease has repudiated any term
thereof, and there are no material disputes, oral agreements or forbearance
programs in effect with respect to the Real Property Lease; and (v) no Acquired
Company has assigned, subleased, mortgaged, deeded in trust or otherwise
transferred or encumbered the Real Property Lease or any interest therein,
except for Permitted Liens.
(c) Subject to the terms of the Real Property Leases, the
Acquired Companies have good title to the Leasehold Improvements, which shall be
free and clear of all Liens as of the Closing Date, except Permitted Liens.
(d) The Leased Real Property and Leasehold Improvements
(collectively, the "REAL PROPERTY") include all of the real property used by the
Acquired Companies in the operation of their businesses.
SECTION 5.9 ASSETS.
(a) Except as set forth on the "ASSETS SCHEDULE"
attached hereto, each Acquired Company owns good and marketable title to, or a
valid leasehold interest in, or license of, or right to use free and clear of
all Liens other than Permitted Liens, all of the properties and assets (whether
real, personal, or mixed and whether tangible or intangible) which are shown on
the Latest Balance
27
Sheet, or which are acquired thereafter, or which are located on the real
property identified on the REAL PROPERTY SCHEDULE, except for personal property
and assets sold since the date of the Latest Balance Sheet in the Ordinary
Course of Business. Except as set forth on the ASSETS SCHEDULE, neither the
Seller Entities nor their Subsidiaries (other than the Acquired Companies) own
any properties or assets (whether real, personal, or mixed and whether tangible
or intangible) which are used in the business of any of the Acquired Companies.
(b) The buildings, machinery, equipment, personal
properties, vehicles, and other tangible assets of the Acquired Companies
located upon or used in connection with the Real Property are operated in
conformity in all material respects with all Applicable Laws, and are usable in
the Ordinary Course of Business. The Acquired Companies own or lease under valid
leases all buildings, machinery, equipment, and other tangible assets necessary
for the conduct of their business as currently conducted.
SECTION 5.10 TAXES.
(a) Each of the Acquired Companies has timely filed all
Tax Returns required to be filed by it, and each such Tax Return has been
prepared in compliance with all Applicable Laws and is true and correct in all
respects. All Taxes payable by the Acquired Companies (whether or not shown on
any Tax Return) have been paid, and each of the Acquired Companies has properly
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any shareholder, employee, creditor,
independent contractor, or other third party and all Forms W-2 and 1099 required
with respect thereto have been properly completed and timely filed.
(b) Except as set forth on the "TAXES SCHEDULE" attached
hereto:
(i) No action, suit, proceeding or audit or any
written notice of inquiry of any of the foregoing is pending against
or with respect to the Acquired Companies regarding Taxes, and no
action, suit, proceeding or audit has, to the Acquired Companies'
knowledge, been threatened against or with respect to the Acquired
Companies regarding Taxes;
(ii) None of the Acquired Companies is a party to
or bound by any Tax allocation or Tax sharing agreement with any
Person other than the Acquired Companies, and none of the Acquired
Companies has any contractual obligation to indemnify any other Person
with respect to Taxes;
(iii) To the Acquired Companies' knowledge, none
of the Acquired Companies (A) has been a member of an Affiliated Group
filing a consolidated federal income Tax Return (other than a group
the common parent of which was the Parent) or (B) has any liability
for the Taxes of any Person (other than any of the Acquired Companies
and the Parent Tax Group) under Treas. Reg. Section 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise;
28
(iv) Since January 27, 1995, no written claim has
ever been made by a taxing authority in a jurisdiction where any of
the Acquired Companies does not file Tax Returns that such Person is
or may be subject to taxation by such jurisdiction;
(v) Each of the Acquired Companies has provided
to the Purchaser true, correct and complete copies of all federal,
state and local income and franchise Tax Returns, examination reports,
and statements of deficiencies assessed against or agreed to by any of
the Acquired Companies for the taxable periods ending September 30,
1995, September 30, 1996, September 30, 1997, September 30, 1998 and
September 30, 1999;
(vi) The statutory period for assessment of Taxes
for taxable periods of the Acquired Companies ending on or before
January 27, 1995 has expired. With respect to taxable periods of the
Acquired Companies ending after January 27, 1995, none of the Acquired
Companies has consented to extend the time, or is the beneficiary of
any extension of time, in which any Tax may be assessed or collected
by any taxing authority;
(vii) None of the Acquired Companies will be
required to include any item of income in, or exclude any item of
deduction from, taxable income for any taxable period (or portion
thereof) ending after the Closing Date as a result of any (A) change
in method of accounting for a taxable period ending on or prior to the
Closing Date under Code Section 481(c) (or any corresponding or
similar provision of state, local or foreign income Tax law); (B)
"closing agreement" as described in Code Section 7121 (or any
corresponding or similar provision of state, local or foreign income
Tax law); (C) installment sale made prior to the Closing Date; or (D)
deferred intercompany gain described in Treasury Regulation Section
1.1502-13 or any excess loss account described in Treasury Regulation
Sections 1.1502-19 and 1.1502-32 (or any corresponding or similar
provision of federal, state, local or foreign law) arising on or
before the Closing Date;
(viii) None of the Acquired Companies has been a
United States real property holding corporation within the meaning of
Code Section 897(c)(2) during the applicable period specified in Code
Section 897(c)(1)(A)(ii);
(ix) None of the Acquired Companies has filed a
consent under Code Section 341(f) (or any similar provision of state,
local or foreign law); and
(x) None of the Acquired Companies is a party to
any agreement, contract, arrangement or plan that has resulted or
would result, separately or in the aggregate, in the payment of any
"excess parachute payment" within the meaning of Code Section 280G (or
any similar provision of state, local or foreign law).
(c) As of the Closing Date, none of the Acquired
Companies will be a party to or bound by any Tax allocation or Tax sharing
agreement with any Person other than the Acquired
29
Companies, and none of the Acquired Companies will have any contractual
obligation to indemnify any other Person with respect to Taxes.
(d) The TAXES SCHEDULE contains a list of states,
territories and jurisdictions (whether foreign or domestic) in which any of
Acquired Companies is required to file material Tax Returns relating to income
Taxes.
SECTION 5.11 CONTRACTS AND COMMITMENTS.
(a) Except as expressly contemplated by this Agreement
or as set forth on the attached "CONTRACTS SCHEDULE," no Acquired Company is a
party to or bound by any written or oral:
(i) pension, profit sharing, stock option,
employee stock purchase or other plan or arrangement providing for
deferred or other compensation to employees or any other employee
benefit plan or arrangement, or any collective bargaining agreement or
any other contract with any labor union, or severance agreements,
programs, policies or arrangements other than any such arrangements as
are set forth in either the EMPLOYEES SCHEDULE or the BENEFIT PLANS
SCHEDULE;
(ii) contract with any Affiliate or contract
with any Contracted Nonprofit;
(iii) contract for the employment of any officer,
individual employee or other Person on a full-time, part-time,
consulting or other basis providing annual compensation in excess of
$50,000, other than at-will contracts without severance obligations,
or contract relating to loans to officers, directors or Affiliates;
(iv) contract under which the Acquired Companies
have advanced or loaned any other Person amounts in the aggregate
exceeding $25,000, other than trade credit extended in the Ordinary
Course of Business;
(v) agreement or indenture relating to borrowed
money or other Indebtedness or the mortgaging, pledging or otherwise
placing a Lien on any asset or group of assets of the Acquired
Companies other than Permitted Liens;
(vi) guaranty of any obligation;
(vii) lease or agreement under which any Acquired
Company is the lessee of or holds or operates any property, real or
personal, owned by any other party, except for any lease or agreement
for real or personal property under which the aggregate annual
payments do not exceed $150,000;
(viii) lease or agreement under which any Acquired
Company is the lessor of or permits any third party to hold or operate
any property, real or personal, owned or controlled by any Acquired
Company;
30
(ix) contract or group of related contracts
(excluding purchase orders issued or received in the Ordinary Course
of Business) with the same party or group of affiliated parties the
performance of which involves consideration in excess of $1,000,000;
(x) assignment, license, indemnification, joint
ownership or other agreement with respect to the intangible property
(including, without limitation, any Proprietary Rights) of material
value of any Acquired Company or of any third party;
(xi) distribution or franchise agreement;
(xii) contract or agreement prohibiting it from
freely engaging in any business or competing anywhere in the world;
(xiii) agreement relating to the subcontracting
(other than to mentors) to another Person of any of the Acquired
Companies' obligations under any agreement listed on the CONTRACTS
SCHEDULE; or
(xiv) any other agreement which is material to its
operations and business prospects or involves a consideration in
excess of $1,000,000 annually.
(b) To the Company's knowledge, except as expressly
contemplated by this Agreement or as set forth on the CONTRACTS SCHEDULE, no
Contracted Nonprofit is a party to or bound by any written or oral contract
relating to the provision of services to state, county, local or other
governmental or quasi-governmental bodies (a "GOVERNMENT CONTRACT") for which a
Contracted Nonprofit has also contracted with an Acquired Company to provide
management or other services in support of such Government Contract. (1)
(c) All of the contracts, agreements and instruments set
forth on the CONTRACTS SCHEDULE, as well as all contracts and agreements (or
purported contracts and agreements) involving consideration in excess of
$250,000 annually (collectively, "OTHER CONTRACTS") are valid, binding and
enforceable against the Acquired Companies (or, if applicable, and to the
knowledge of the Company, a Contracted Nonprofit) and, to the knowledge of the
Company, the other parties thereto, in accordance with their respective terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights and as limited by general principles of equity that restrict
the availability of equitable remedies. Each Acquired Company (and, if
applicable, to the Company's knowledge, each Contracted Nonprofit) has performed
all material obligations required to be performed by it and is not in material
default under or in breach of nor in receipt of any claim of default or breach
under any such contract or agreement (or purported contract or agreement) or
instrument. No event has occurred which with the passage of time or the giving
of notice or both would result in a material default, breach or event of
noncompliance by any of the Acquired Companies or, to the knowledge of the
Company, any other party under any such contract or agreement (or purported
contract or agreement) or instrument. Except as set forth on the CONTRACTS
SCHEDULE, with respect to each
31
contract, agreement, or instrument set forth on the Contracts Schedule as well
as each Other Contract: (x) the acquisition of the stock and change in control
of the Acquired Companies (as the case may be) as contemplated under this
Agreement will not result in a breach of or default under any such contract,
agreement, or instrument, or otherwise cause such contract, agreement, or
instrument to cease to be legal, valid, binding, enforceable and in full force
and effect on identical terms following the Closing; (y) no Seller Entity or
Acquired Company has received written notice of the intention of any party to
such contract, agreement, or instrument to cancel, terminate or renegotiate in
any material respect any such contract, agreement or instrument; and (z) to the
knowledge of the Company, there has not been any breach or anticipated breach by
any other party to such contract, agreement or instrument.
(d) The Seller has provided the Purchaser with a true
and correct copy of all written contracts which are disclosed on the CONTRACTS
SCHEDULE (other than contracts for which an Acquired Company is not a party or
bound), in each case together with all amendments, waivers, or other changes
thereto (all of which are disclosed on the CONTRACTS SCHEDULE). The CONTRACTS
SCHEDULE contains an accurate and complete description of all material terms of
all oral contracts referred to therein.
SECTION 5.12 PROPRIETARY RIGHTS.
(a) The "PROPRIETARY RIGHTS SCHEDULE" attached hereto
contains a complete and accurate list of all registered Proprietary Rights owned
or used by the Acquired Companies and all applications for the registration of
other Proprietary Rights filed by the Acquired Companies. The PROPRIETARY RIGHTS
SCHEDULE also contains a complete and accurate list of all material unregistered
(i) trade names, trademarks, service marks, copyrights, proprietary information
systems and proprietary databases owned by the Acquired Companies (collectively,
the "UNREGISTERED PROPRIETARY RIGHTS"); and (ii) computer software owned and/or
used by the Acquired Companies other than commercially available "off-the-shelf"
software with a license fee of less than $50,000 in the aggregate for all copies
of a particular software application.
(b) Except as set forth on the PROPRIETARY RIGHTS
SCHEDULE, (i) each Acquired Company owns and possesses free and clear of all
Liens (except Permitted Liens), all right, title, and interest in and to, or has
the right to use pursuant to a valid and enforceable license, the Proprietary
Rights used in or necessary for the operation of such Acquired Company's
business as currently conducted; (ii) no Acquired Company has received any
notice of invalidity, infringement, or misappropriation from any third party
with respect to any Proprietary Rights of any Acquired Company or of any third
party; (iii) to the knowledge of the Company, no Acquired Company has interfered
with, infringed upon, misappropriated, or otherwise come into conflict with any
Proprietary Rights of any third parties; and (iv) to the knowledge of the
Company, no third party has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Proprietary Rights of any Acquired
Company.
SECTION 5.13 LITIGATION; PROCEEDINGS. Except as set forth on the
"LITIGATION SCHEDULE" attached hereto, there are no actions, suits, proceedings,
orders, judgments, decrees, or, to the
32
knowledge of the Company, investigations pending or threatened against any
Acquired Company (or against any of their respective officers, directors,
agents, or employees (in each case, in their capacity as such)) at law or in
equity, or before or by any federal, state, municipal, or other governmental
department, commission, board, bureau, agency, or instrumentality, domestic or
foreign. No Acquired Company is subject to any outstanding order, judgment, or
decree issued by any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or any arbitrator. The Litigation
Schedule sets forth accurately and reasonably completely the following
information with respect to each matter listed thereon: the name of and parties
to the proceeding, the date of the commencement of the proceeding, the status of
the proceeding (e.g., in settlement talks, discovery, trial, appeal, etc.), a
brief statement of the nature of the claim, the amount being claimed and/or the
nature of other relief sought, the amount of reserves taken, if any, on the
Latest Balance Sheet in respect of such proceeding. There is no claim, action,
suit, proceeding or, to the knowledge of the Seller Entities, governmental
investigation pending or threatened against the Seller Entities, by or before
any court, governmental or regulatory authority or by any third party which
challenges the validity of this Agreement or which would be reasonably likely to
adversely affect or restrict the Seller Entities' ability to consummate the
transactions contemplated hereby.
SECTION 5.14 BROKERAGE. Except as set forth on the "BROKERAGE
SCHEDULE" attached hereto, there are no claims for brokerage commissions,
finders' fees, or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of any Acquired Company or the Seller Entities.
SECTION 5.15 GOVERNMENTAL LICENSES AND PERMITS. The "LICENSE
SCHEDULE" attached hereto contains a complete listing and summary description of
all material Licenses owned or possessed by any Acquired Company or used by any
Acquired Company in the conduct of its business. Except as indicated on the
LICENSE SCHEDULE, each Acquired Company owns or possesses such right in and to
all Licenses which are necessary to conduct such Acquired Company's business as
presently conducted and shall use its reasonable efforts to maintain all such
Licenses. No loss or expiration of any License is pending or, to the Company's
knowledge, threatened or reasonably foreseeable (including, without limitation,
as a result of the transactions contemplated hereby except as noted on the
LICENSE SCHEDULE) other than expiration in accordance with the terms thereof.
The Acquired Companies have not received any notice of any alleged violation of
any License. To the knowledge of the Company, each Contracted Nonprofit has all
material Licenses required to conduct its business and operations as presently
conducted.
SECTION 5.16 EMPLOYEES. Except as set forth on the "EMPLOYEES
SCHEDULE" attached hereto: (a) to the knowledge of the Company, no key executive
employee and no group of employees, mentors or independent contractors of any
Acquired Company has given notice that they intend to terminate his, her, or
their employment or relationship with any Acquired Company; (b) each Acquired
Company has complied in all material respects with all Applicable Laws relating
to the employment of personnel and labor; (c) no Acquired Company is a party to
or bound by any collective bargaining agreement, nor has any Acquired Company
experienced any material strikes, grievances, unfair labor practices claims, or
other material employee or labor disputes in the last five years; (d) no
Acquired Company has engaged in any unfair labor practice; and (e) the Company
has
33
no knowledge of any organizational effort presently being made or threatened by
or on behalf of any labor union with respect to employees of any Acquired
Company.
SECTION 5.17 EMPLOYEE BENEFIT PLANS.
(a) Other than benefit plans for which the Acquired
Companies have been indemnified pursuant to Section 8.2(a)(vi), the "BENEFIT
PLANS SCHEDULE" attached hereto lists all bonus, deferred or incentive
compensation, profit sharing, retirement, vacation, sick leave, hospitalization
or severance plans, "employee benefit plans" (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and
material fringe benefit plans sponsored, maintained or contributed to by any
Acquired Company for the purpose of providing benefits to the employees of the
Acquired Companies or with respect to which any Acquired Company has any
liability (the "PLANS"). The BENEFIT PLANS SCHEDULE sets forth accurately a
summary description of all of the Acquired Companies' bonus plans and all
bonuses (whether performance, annual, stay, retention or otherwise) and all
deferred compensation and similar items (whether declared, undeclared or
accrued) owing to any employee of, or independent contractor to, any Acquired
Company (the "BONUSES"). The BENEFIT PLANS SCHEDULE sets forth, with respect to
each type of Bonus and with respect to each individual beneficiary thereof, the
following information: the amount accrued, the amount declared, and the obligor
thereon; provided, however, that to the extent that a bonus amount cannot be
reasonably estimated, no amount declared with respect to such bonus will be
listed on the BENEFIT PLANS SCHEDULE. None of the Plans are subject to Title IV
of ERISA nor provide for medical or life insurance benefits to retired or former
employees of any Acquired Company (other than as required under Code Section
4980B, or similar state law). Each Acquired Company is not a participating or
contributing employer in any "multiemployer plan" (as defined in Section 3(37)
of ERISA) with respect to employees of the Acquired Companies nor has any
Acquired Company have any actual or potential withdrawal liability with respect
to any multiemployer plan or any liability in connection with the termination or
reorganization of any multiemployer plan.
(b) Except as set forth in the BENEFIT PLANS SCHEDULE,
each such Plan is in all material respects in compliance, and has been
administered in all material respects in accordance, with its terms and the
applicable provisions of ERISA and the Code and all other Applicable Laws,
including, but not limited to, medical continuation under Code Section 4980B.
Except as set forth in the BENEFIT PLANS SCHEDULE, no Acquired Company has (i)
engaged in any transaction prohibited by ERISA or the Code; (ii) breached any
fiduciary duty owed by it with respect to the Plans described above; or (iii)
failed to file and distribute timely and properly all reports and information
required to be filed or distributed in accordance with ERISA or the Code.
(c) Without material exception, all contributions,
premiums or payments under or with respect to each Plan which are due on or
before the Closing Date have been paid, or to the extent such payments are not
yet due, have been accrued to the extent such accrual is required.
(d) Except as set forth in the BENEFIT PLANS SCHEDULE,
each Plan which is intended to be qualified under section 401(a) of the Code (i)
has been amended to reflect all requirements of
34
the Tax Reform Act of 1986 and all subsequent legislation which is required to
be adopted prior to the end of the applicable remedial amendment period and (ii)
has received from the Internal Revenue Service a favorable determination letter
which considers the terms of the Plan as amended for such changes in law.
(e) Except as set forth in the BENEFIT PLANS SCHEDULE
and except with respect to employer contributions obligations under the Plans,
each Acquired Company has not incurred and has no reason to expect that it will
incur, any liability to the Pension Benefit Guaranty Corporation (other than
non-delinquent premium payments) or otherwise under Title IV of ERISA (including
any withdrawal liability) or under the Code with respect to any employee pension
benefit plan that any Acquired Company or any other entity, that together with
any Acquired Company is treated as a single employer under Section 414 of the
Code, maintains or ever has maintained or to which any of them contributes, ever
has contributed, or ever has been required to contribute.
(f) Each individual who has received compensation for
the performance of services on behalf of any Acquired Company has been properly
classified as an employee or independent contractor in accordance with
Applicable Laws.
SECTION 5.18 INSURANCE. The attached "INSURANCE SCHEDULE"
contains a description of insurance coverages presently in force for the benefit
of the Acquired Companies with respect to their properties, assets and
businesses (specifying, with respect to each policy, the insurer, amount of
coverage, type of insurance, retroactive date, expiration date, risks insured
and any pending claims thereunder) and a list of all claims made under any
insurance policies and binders since January 1, 1998 (specifying the nature and
amount of the claim, current status and resolution, if any), and each such
policy will be in full force and effect as of the Closing. No Acquired Company
is in default in any material respect with respect to its obligations under any
insurance policy maintained by it, and no Acquired Company has been denied
insurance coverage. Except as set forth on the INSURANCE SCHEDULE, no Acquired
Company has any self-insurance or co-insurance programs, and the reserves set
forth on its Latest Balance Sheet are adequate to cover all anticipated
liabilities with respect to any such self-insurance or co-insurance programs.
Except as set forth on the Insurance Schedule, there are no outstanding unpaid
premiums or claims, and there are no provisions for retroactive or retrospective
premium adjustments. Except as set forth on the INSURANCE SCHEDULE, no notice of
cancellation or nonrenewal with respect to, or disallowance of any claim under,
any such policy or binder has been received by the Acquired Companies. The
INSURANCE SCHEDULE also contains a description of all outstanding bonds and
other surety arrangements issued or entered into in connection with the
businesses of the Acquired Companies.
SECTION 5.19 OFFICERS AND DIRECTORS; BANK ACCOUNTS. The
"OFFICERS, DIRECTORS, AND BANK ACCOUNTS SCHEDULE" attached hereto lists all
officers and directors of each Acquired Company, and all bank accounts, safety
deposit boxes, and lock boxes (designating each authorized signatory with
respect thereto) for each Acquired Company.
SECTION 5.20 AFFILIATE TRANSACTIONS. Except as disclosed on the
"AFFILIATED TRANSACTIONS SCHEDULE" attached hereto, no Insider is a party to any
material agreement, contract, commitment,
35
or transaction with any Acquired Company or which is pertaining to the business
of any Acquired Company or has any interest in any property, real or personal or
mixed, tangible or intangible, used in or pertaining to the business of any
Acquired Company.
SECTION 5.21 COMPLIANCE WITH LAWS. Except as set forth on the
Schedules to this Agreement, each Acquired Company and, to the Company's
knowledge, each Contracted Nonprofit, and each of their respective officers,
directors, agents (in their capacity as such), and employees have complied in
all material respects with and are in material compliance with all Applicable
Laws which are applicable to the business, business practices, or any owned or
leased properties of any Acquired Company and to which any Acquired Company or
Contracted Nonprofit may be subject, and, except as set forth on the Schedules
to this Agreement, no material claims have been filed against any Acquired
Company or, to the Company's knowledge, Contracted Nonprofit alleging a
violation of any such laws or regulations, and none of the Acquired Company, the
Seller Entities or, to the Company's knowledge, the Contracted Nonprofits has
received notice of any such violations.
SECTION 5.22 HEALTH CARE MATTERS. Except as set forth on the
"HEALTH CARE MATTERS SCHEDULE" attached hereto:
(a) No action has been taken or recommended by any
governmental or regulatory official, body or authority, either to revoke,
withdraw or suspend any License to operate the Acquired Companies or to
terminate or decertify any participation of any of the Acquired Companies in the
Medicare, Medicaid or other state or federal programs, nor is there any decision
not to renew any provider agreement related to the Acquired Companies. To the
extent applicable to their respective businesses, the Acquired Companies have
met and do meet, without material exception, the conditions for participation in
the Medicare, Medicaid and other state and federal programs, and there is no
pending or, to the Company's knowledge, threatened proceeding or investigation
under such programs involving the Acquired Companies.
(b) Each of the licensed health care providers employed
by the Acquired Companies and, to the knowledge of the Company, each of the
licensed health care providers and mentors retained by the Acquired Companies
are duly licensed to the extent required to practice their respective
professions in each of the jurisdictions in which he or she provides services.
(c) The Acquired Companies have not claimed or received
reimbursements from the Medicare, Medicaid, any state or federal program or any
other third-party payor materially in excess of the amounts permitted by law,
except as and to the extent that liability for such overpayment has already been
satisfied or for which adequate provision has been made in the financial
statements.
(d) None of the Acquired Companies nor any employee or,
to the Company's knowledge, agent of the Acquired Companies have engaged in any
activities which are prohibited under Federal Medicare and Medicaid statutes
(including without limitation 42 U.S.C. Sections 1320a-7, 1320a-7a, 1320a-7b,
1395nn and 1396b), the federal Civil False Claims Act (31 U.S.C. Section 3729 ET
SEQ.), the Federal TRICARE statute, Title IV-E of the Social Security Act
(including, without
36
limitation, 42 U.S.C. 670 ET SEQ.) or the regulations promulgated pursuant to
such statutes or related state or local statutes or regulations.
(e) All cost reports ("COST REPORTS") required to be
filed by the Acquired Companies under the Social Security Act or any other
applicable governmental laws or regulations or private provider rules have been
prepared and filed in accordance in all material respects with applicable laws,
rules and regulations. Except for disputes between any of the Acquired Companies
and the intermediary which concern the payment of an individual claim (as
opposed to such disputes concerning the right of the Acquired Companies to
receive Medicare or Medicaid reimbursement generally or to participate in the
Medicare or Medicaid programs), there is no dispute between any of the Acquired
Companies and any governmental authorities or the Medicare fiscal intermediary
regarding such cost reports other than with respect to adjustments thereto made
in the ordinary course of business which do not involve amounts in excess of
$150,000 in the aggregate. None of the Acquired Companies is subject to any
pending but unassessed Medicare or Medicaid claim payment adjustments, except to
the extent the Acquired Companies has established adequate reserves for such
adjustments.
(f) None of the Acquired Companies has any outstanding
obligation to repay any loans, grants, or loan guarantees, or to provide
uncompensated care in consideration thereof, pursuant to the Hill-Burton Act (42
U.S.C. Section 291a ET SEQ.).
(g) The Acquired Companies and their respective
stockholders, employees, agents or persons who provide professional services
under agreements with the Acquired Companies have not engaged in any
activities in connection with the business of any Acquired Company which are
prohibited under the Federal Controlled Substances Act, 21 U.S.C. Section 801
ET SEQ. or the regulations promulgated pursuant to such statute or any
related state or local statutes or regulations concerning the dispensing and
sale of controlled substances.
SECTION 5.23 ENVIRONMENTAL MATTERS. Except as set forth on the
"ENVIRONMENTAL SCHEDULE" attached hereto:
(a) Each Acquired Company has complied in all material
respects with and is currently in compliance in all material respects with all
Environmental and Safety Requirements, and neither any Acquired Company nor the
Seller Entities has received any oral or written notice, report, or information
regarding any liabilities (whether accrued, absolute, contingent, unliquidated,
or otherwise) or any corrective, investigatory, or remedial obligations arising
under Environmental and Safety Requirements which relate to any Acquired Company
or any of their respective properties or facilities.
(b) Without limiting the generality of the foregoing,
each Acquired Company has obtained and complied in all material respects with,
and is currently in compliance in all material respects with, all permits,
licenses, and other authorizations that may be required pursuant to any
Environmental and Safety Requirements for the occupancy of such Acquired
Company's respective properties or facilities or the operation of such Acquired
Company's respective businesses. A list
37
of all such permits, licenses, and other authorizations which are material to
any Acquired Company is set forth on the ENVIRONMENTAL SCHEDULE.
(c) Neither this Agreement, nor the other Transaction
Documents, nor the consummation of the transactions contemplated hereby and
thereby shall impose any obligations on any Acquired Company or otherwise for
site investigation or cleanup, or notification to or consent of any government
agencies or third parties under any Environmental and Safety Requirements
(including, without limitation, any so called "transaction-triggered" or
"responsible property transfer" laws and regulations).
(d) None of the following exists at any property or
facility owned, occupied, or operated by any Acquired Company:
asbestos-containing material in any form or condition, other than in amounts
that would not be harmful to persons and would not under law be required to be
removed.
(e) No Acquired Company has ever treated, stored,
disposed of, arranged for or permitted the disposal of, transported, handled, or
Released (as defined in CERCLA) any substance (including, without limitation,
any hazardous substance) except to the extent in compliance with Environmental
and Safety Requirements or owned, occupied, or operated any facility or
property, so as to give rise to liabilities of any Acquired Company for response
costs, natural resource damages, or attorneys' fees pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA") or any other Environmental and Safety Requirements.
(f) Without limiting the generality of the foregoing, no
facts, events, or conditions relating to the past or present properties,
facilities, or operations of any Acquired Company shall give rise to any
material corrective, investigatory, or remedial obligations pursuant to
Environmental and Safety Requirements, or give rise to any other material
liabilities (whether accrued, absolute, contingent, unliquidated, or otherwise)
pursuant to Environmental and Safety Requirements, including, without
limitation, those liabilities relating to onsite or offsite Releases or
threatened Releases of hazardous materials, substances or wastes, personal
injury, property damage, or natural resources damage.
(g) No Acquired Company has, either expressly or by
operation of law, assumed or undertaken any liability or corrective
investigatory or remedial obligation of any other Person relating to any
Environmental and Safety Requirements.
SECTION 5.24 EARNOUT OBLIGATIONS. The "EARNOUT SCHEDULE" sets
forth, accurately and completely, the following information with respect to the
businesses acquired by the Acquired Companies prior to the Closing Date (the
"PREVIOUS ACQUISITIONS"):
(a) the amount of the Earnout Obligations for each
Previous Acquisition;
38
(b) the title, parties and date of the agreement
pursuant to which the Previous Acquisition was acquired by the Acquired
Companies including any material ancillary agreements related thereto and any
amendments thereto; and
(c) the aggregate payments made by the Acquired
Companies in respect of such Earnout Obligations and the maximum remaining
liability after the date hereof (and the date(s) on which payment of such
liability would be due) with respect to such Previous Acquisition for the
deferred purchase price of stock, assets or other property acquired in such
acquisition, whether contingent or otherwise.
SECTION 5.25 ABSENCE OF CERTAIN BUSINESS PRACTICES. The Acquired
Companies have not directly or indirectly given or agreed to give any gift or
similar benefit to any customer employee or representative, government employee,
or other Person who was or is in a possible position to help or hinder the
Acquired Companies, which gift or benefit: (i) could reasonably be expected to
subject any Person to damages or penalties in a criminal proceeding, (ii) could
reasonably be expected to cause a Material Adverse Effect if not given, or (iii)
could reasonably be expected to cause a Material Adverse Effect if not
continued.
SECTION 5.26 CLIENT INCIDENTS. To the knowledge of the Company,
the Risk Database sets forth an accurate and complete list of each Incident
which has occurred since the Risk Database was implemented.
SECTION 5.27 DISCLOSURE. To the knowledge of the Seller Entities,
neither this Agreement, the other Transaction Documents, nor any of the
schedules, attachments or exhibits hereto, contain any untrue statement of a
material fact or omit a material fact necessary to make each statement contained
herein or therein, not misleading.
SECTION 5.28 SCHEDULE UPDATES. In the event that the Seller
becomes aware that the information contained in the representations and
warranties set forth in this Article V or in the schedules hereto is no longer
true and correct, it shall promptly notify the Purchaser in writing (each, a
"SCHEDULE UPDATE"). Each Schedule Update delivered to the Purchaser shall be
deemed to modify the representations and warranties herein for purposes of any
claims for indemnification pursuant to SECTION 8.2(a)(i) below, as long as such
Schedule Update discloses facts, events or circumstances which occurred after
the date hereof. No Schedule Update shall be deemed to modify the
representations and warranties herein for purposes of determining whether or not
the conditions to Closing set forth in Article III above have been satisfied.
ARTICLE VI -- REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
As a material inducement to the Seller Entities to enter into
this Agreement, the Purchaser hereby represents and warrants to the Seller that:
39
SECTION 6.1 ORGANIZATION. The Purchaser is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware.
SECTION 6.2 AUTHORIZATION OF TRANSACTIONS. The Purchaser has all
requisite organizational power and authority to execute and deliver the
Transaction Documents to which it is a party and to consummate the transactions
contemplated hereby and thereby. The board of directors of the Purchaser has
duly approved the Transaction Documents to which it is a party and has duly
authorized the execution and delivery of the Transaction Documents to which it
is a party and the consummation of the transactions contemplated thereby. No
other corporate proceedings on the part of the Purchaser are necessary to
approve and authorize the execution and delivery of the Transaction Documents to
which it is a party and the consummation of the transactions contemplated
thereby. All Transaction Documents to which the Purchaser is a party have been
duly executed and delivered by the Purchaser and constitute the valid and
binding agreements of the Purchaser, enforceable against the Purchaser in
accordance with their terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights; and as limited by general principles
of equity that restrict the availability of equitable remedies.
SECTION 6.3 ABSENCE OF CONFLICTS. The execution, delivery, and
performance of the Transaction Documents and the consummation of the
transactions contemplated thereby by the Purchaser do not and shall not (a)
conflict with or result in any breach of any of the terms, conditions, or
provisions of, (b) constitute a material default under, (c) result in a material
violation of, (d) give any third party the right to modify, terminate, or
accelerate any obligation under, or (e) require any authorization, consent,
approval, exemption, or other action by or notice or declaration to, or filing
with, any court or administrative or other governmental body or agency (except
in connection with the HSR Act), under the provisions of the charter or bylaws
of the Purchaser or any material indenture, mortgage, lease, loan agreement, or
other material agreement or instrument to which the Purchaser is bound or
affected, or any material law, statute, rule, or regulation to which the
Purchaser is subject (except in connection with the HSR Act) or any material
judgment, order, or decree to which the Purchaser is subject.
SECTION 6.4 LITIGATION. There is no claim, action, suit,
proceeding or governmental investigation pending or, to the knowledge of the
Purchaser, threatened against the Purchaser, by or before any court,
governmental or regulatory authority or by any third party which challenges the
validity of this Agreement or which would be reasonably likely to adversely
affect or restrict the Purchaser's ability to consummate the transactions
contemplated hereby.
SECTION 6.5 FINANCING. Attached hereto as EXHIBIT D is a true
and correct copy of (i) the senior debt financing commitment letter (the "SENIOR
DEBT COMMITMENT LETTER") issued to the Purchaser by Fleet National Bank on or
about the date of this Agreement and (ii) the commitment letter issued to the
Purchaser by Madison Dearborn Capital Partners III, L.P. on or about the date of
this Agreement, in each case, in order to consummate the transactions
contemplated hereby, and to fund the working capital requirements of the Company
after the Closing ((i) and (ii) collectively, the
40
"COMMITMENT LETTERS"). Each of the Commitment Letters is in full force and
effect, and the Purchaser has not violated or breached any of the terms and
conditions of the Commitment Letters.
SECTION 6.6 BROKERAGE. There are no claims for brokerage
commissions, finders' fees, or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of the Purchaser.
SECTION 6.7 SCHEDULE UPDATES. In the event that the Purchaser
becomes aware that the information contained in the representations and
warranties set forth in this Article VI is no longer true and correct, it shall
promptly notify the Seller in writing.
SECTION 6.8 PURCHASE FOR INVESTMENT. The Purchaser is purchasing
the Acquired Stock for investment for its own account and not with a view to, or
for sale in connection with, any distribution thereof. The Purchaser is an
"accredited investor" for purposes of applicable U.S. federal and state
securities laws and regulations.
ARTICLE VII -- TERMINATION
SECTION 7.1 TERMINATION. This Agreement may be terminated at any
time before the Closing:
(a) by mutual written consent of the Parent and the
Purchaser;
(b) by the Seller or the Purchaser if there has been a
material misrepresentation or breach on the part of the other Party of the
representations, warranties, or covenants set forth in this Agreement or if
events have occurred which have made it impossible to satisfy a condition
precedent to the terminating Party's obligations to consummate the transactions
contemplated hereby unless, in either case, such terminating Party's willful or
knowing breach of this Agreement has caused the condition to be unsatisfied; or
(c) by the Parent or the Purchaser if the Closing has not
occurred on or before April 15, 2001; provided, however, that neither the Parent
nor the Purchaser shall be entitled to terminate this Agreement pursuant to this
Section 7.1(c) if such Party's willful or knowing breach of this Agreement has
prevented the consummation of the transactions contemplated hereby at or before
such time; PROVIDED, FURTHER, that (i) the Purchaser may extend the above date
until May 15, 2001 if necessary to satisfy the conditions referred to in
Sections 3.1(c) or Section 3.1(f) if all other conditions are satisfied (or
would be capable of being satisfied if the conditions in Section 3.1(c) or
3.1(f) were satisfied) and (ii) the Seller may extend the above date until May
15, 2001, if necessary, to satisfy the conditions referred to in Sections 3.2(c)
or Section 3.2(d) if all other conditions are satisfied (or would be capable of
being satisfied if the conditions in Section 3.2(c) or 3.2(d) were satisfied).
41
SECTION 7.2 EFFECT OF TERMINATION. In the event of termination
of this Agreement by either the Parent or the Purchaser as provided in Section
7.1, this Agreement shall forthwith become void and there shall be no liability
on the part of any Party to any other Party under this Agreement, except that
the provisions of this Section 7.2, Sections 9.1 and 9.4 and Article X shall
continue in full force and effect and except that nothing herein shall relieve
any Party from liability for any breach of this Agreement before such
termination.
ARTICLE VIII -- INDEMNIFICATION AND RELATED MATTERS
SECTION 8.1 SURVIVAL. All representations, warranties, covenants,
and agreements set forth in this Agreement or in any writing or certificate
delivered in connection with this Agreement shall survive the Closing Date and
the consummation of the transactions contemplated hereby and shall not be
affected by any examination made for or on behalf of any Party, the knowledge of
any of such Party's officers, directors, stockholders, employees, or agents, or
the acceptance of any certificate or opinion. Notwithstanding the foregoing, no
Party shall be entitled to recover for any Loss pursuant to Section 8.2(a)(i),
Section 8.2(a)(ii) (but only to the extent such Loss relates to the breach of a
covenant that by its terms does not continue after the Closing Date), Section
8.2(a)(iii) (but only to the extent such Loss relates to the breach of a
covenant that by its terms does not continue after the Closing Date), Section
8.2(c)(i) or Section 8.2(c)(ii) (but only to the extent such Loss relates to the
breach of a covenant that by its terms does not continue after the Closing Date)
unless written notice of a claim thereof is delivered to the other Party no
later than the Applicable Limitation Date. For purposes of this Agreement, the
term "APPLICABLE LIMITATION DATE" shall mean the date which is 24 months after
the Closing Date; provided that the Applicable Limitation Date with respect to
the following Losses shall be as follows: (i) with respect to any Loss arising
from or related to a breach of the representations and warranties of the Seller
set forth in Section 5.10 (Taxes), or Section 5.22 (Health Care Matters), the
Applicable Limitation Date shall be the date on which the statute of limitations
applicable to the statute, regulation or other authority which gave rise to such
Loss expires, and (ii) with respect to any Loss arising from or related to a
breach of the representations and warranties of the Seller set forth in Section
5.1 (Organization and Corporate Power), Section 5.2 (Authorization of
Transactions), Section 5.4 (Capitalization), Section 5.9(a) (Title to Assets) or
Section 5.14 (Brokerage) and with respect to any Loss arising from or related to
a breach of the representations and warranties of the Purchaser set forth in
Section 6.1 (Organization), Section 6.2 (Authorization of Transactions), or
Section 6.6 (Brokerage), there shall be no Applicable Limitation Date (i.e.,
such representations and warranties shall survive indefinitely). The
representations and warranties described in clause (ii) of the preceding
sentence are referred to as the "FUNDAMENTAL REPRESENTATIONS AND WARRANTIES."
SECTION 8.2 INDEMNIFICATION.
(a) INDEMNIFICATION BY THE SELLER AND THE PARENT. The
Seller and the Parent shall jointly and severally indemnify the Purchaser and
the Acquired Companies, and each of the Purchaser's and the Acquired Companies'
respective officers, directors, stockholders, employees, agents,
representatives, affiliates, successors, and assigns (collectively, the
"PURCHASER PARTIES") and hold each of them harmless from and against and pay on
behalf of or reimburse such Purchaser
42
Parties in respect of any Loss which any such Purchaser Party may suffer,
sustain, or become subject to, as a result of or relating to:
(i) the breach of any representation or warranty
made by the Company, the Seller or the Parent contained in this
Agreement or in any certificate delivered by the Company, the Seller
or the Parent with respect thereto in connection with the Closing (in
each case, determined without regard to any qualifications therein
referencing the terms "materiality," "Material Adverse Effect," or
other terms of similar import or effect);
(ii) the breach of any covenant or agreement
made by the Company contained in this Agreement to be performed by the
Company prior to or at the Closing;
(iii) the breach of any covenant or agreement
made by the Seller or the Parent contained in this Agreement;
(iv) each of the matters set forth on the
LITIGATION SCHEDULE, including, without limitation, any Schedule
Updates thereto;
(v) all Earnout Obligations including, without
limitation, all payments required to be made with respect thereto
other than amounts included in the Actual Indebtedness Amount or the
Actual Net Working Capital Amount;
(vi) any benefit plan sponsored, maintained or
contributed to by any entity other than an Acquired Company, where
such entity, together with an Acquired Company, is treated as a single
employer under Section 414 of the Code;
(vii) any improper exclusion of employees from
participation under the Magellan Health Services, Inc. Cash
Accumulation Plan for Mentor Employees including, without limitation,
costs of any correction made by the Acquired Companies under the
Internal Revenue Service Employee Plans Compliance Resolution System;
(viii) any Guaranty Obligation of any Acquired
Company (other than Guaranty Obligations in respect of Indebtedness of
other Acquired Companies) including any Guaranty Obligation required
to be listed on the CONTRACTS SCHEDULE but only if such Guaranty
Obligation was in effect on or before the Closing Date;
(ix) telephone services provided by AT&T or an
Affiliate thereof to the Acquired Companies prior to January 1, 2000
other than amounts included in the Actual Indebtedness Amount or the
Actual Net Working Capital Amount;
(x) cost reports or other similar reports filed
by an Acquired Company with the State of Maryland or an agency or
instrumentality thereof prior to the Closing Date, including, without
limitation, Losses that are from decreases in payment or reimbursement
43
rates or amounts for periods after the Closing Date directly as a
result of such cost reports or other similar reports;
(xi) any failure by an Acquired Company to file
a Form 5500 annual report, including, without limitation, costs
relating to the preparation and filing of any delinquent Form 5500
annual report and taxes and penalties assessed by the Internal Revenue
Service or Department of Labor; or
(xii) each Incident occurring on or prior to the
Closing Date.
The Seller and the Parent hereby acknowledge that they and their Affiliates will
have no claims or rights to contribution or indemnity from the Acquired
Companies or their officers and directors with respect to any amounts paid by
any of them pursuant to this Section 8.2(a); provided, however, that this
acknowledgment shall not affect the Seller's or the Parent's rights under
Section 8.2(b)(vi).
(b) LIMITATIONS ON INDEMNIFICATION BY THE SELLER AND THE
PARENT. The indemnification provided for in Section 8.2(a) above is subject to
the following limitations:
(i) The Seller and the Parent will be liable to
the Purchaser Parties with respect to claims referred to in Section
8.2(a)(i), Section 8.2(a)(ii) (but only to the extent the related Loss
relates to the breach of a covenant that by its terms does not
continue after the Closing Date) and Section 8.2(a)(iii) (but only to
the extent the related Loss relates to the breach of a covenant that
by its terms does not continue after the Closing Date) only if a
Purchaser Party gives a Seller Entity written notice thereof no later
than the Applicable Limitation Date; provided that so long as the
Purchaser delivers written notice of a good faith claim to a Seller
Entity no later than the Applicable Limitation Date, the Seller
Entities shall be required to indemnify the Purchaser Parties for all
Losses (subject to the other limitations contained herein) which the
Purchaser Parties may incur in respect of the matters which are the
subject of such claim, regardless of when incurred.
(ii) The aggregate amount of all payments made
by the Seller and the Parent in satisfaction of claims for
indemnification pursuant to Section 8.2(a)(i), Section 8.2(a)(ii) (but
only to the extent the related Loss relates to the breach of a
covenant that by its terms does not continue after the Closing Date)
and Section 8.2(a)(iii) (but only to the extent the related Loss
relates to the breach of a covenant that by its terms does not
continue after the Closing Date) shall not exceed $18,000,000 (the
"CAP"); provided, however, that the Cap shall not apply with respect
to any Losses resulting from or relating to breaches of any
Fundamental Representations and Warranties and such Losses shall not
count towards satisfaction of the Cap; provided further, however, that
the liability of the Seller Entities pursuant to Section 8.2 for all
Losses, including those relating to breaches of Fundamental
Representations and Warranties, shall not exceed, in the aggregate the
sum of the Purchase Price and the portion of the Actual Indebtedness
Amount that was owed to the Seller or the Parent or their respective
Affiliates as of the close of business on the day before the Closing
Date. No party shall be liable to indemnify any other party for any
consequential or punitive
44
damages, other than those owing to third parties, if any. The
aggregate amount of all payments made by the Seller and the Parent in
satisfaction of claims for indemnification pursuant to Section
8.2(a)(x) shall not exceed $636,000.
(iii) The Seller and the Parent shall not be
liable to indemnify any Purchaser Parties pursuant to Section
8.2(a)(i), Section 8.2(a)(ii) (but only to the extent the related Loss
relates to the breach of a covenant that by its terms does not
continue after the Closing Date) and Section 8.2(a)(iii) (but only to
the extent the related Loss relates to the breach of a covenant that
by its terms does not continue after the Closing Date) unless and
until the Purchaser Parties have collectively suffered Losses by such
breaches or pursuant to such Section in excess of a $1,500,000
aggregate basket ("BASKET") (at which point, subject to the other
limitations herein, the Seller and the Parent will be liable to the
Purchaser Parties for all Losses in excess of such Basket); provided,
however, that the Basket shall not apply with respect to any Losses
resulting from or relating to breaches of any Fundamental
Representations and Warranties and such Losses shall not count towards
satisfaction of the Basket.
(iv) The Seller Entities' indemnification
obligations under Section 8.2(a)(xii) shall be reduced as follows. To
the extent the Seller Entities are not entitled to reimbursement
pursuant to insurance policies (or loss portfolio transfer agreements,
indemnification agreements or the like) in respect of Losses for which
the Purchaser Parties would otherwise be entitled to indemnification
from the Seller Entities under Section 8.2(a)(xii) but for the
application of this clause (iv) (the "UNCOVERED INCIDENT CLAIMS"),
then for the first $1.0 million of Uncovered Incident Claims, the
Seller Entities and the Purchaser shall share responsibility, on an
80% and 20% pro rata basis respectively, for the Losses in respect of
such claims, after which point the Seller Entities shall be liable for
100% of all further Uncovered Incident Claims. Nothing in this clause
(iv) shall be deemed to limit or modify the parties' rights and
obligations under Section 9.11.
(v) If the Seller's or the Parent's
indemnification obligation under this Section 8.2 arises in respect of
any indemnifiable event (A) which a Purchaser Party receives
indemnification from the Seller or the Parent and (B) which results in
any Tax benefit to such Purchaser Party for any taxable period (or
portion thereof) beginning and ending after the Closing Date which
would not, but for such indemnifiable event, be available, such
Purchaser Party shall pay, or shall cause to be paid, to the Seller or
the Parent an amount equal to the actual Tax saving produced by such
Tax benefit reduced by the amount of any Tax detriment to such
Purchaser Party as a result of the receipt of such indemnification.
Tax benefits and detriments shall be taken into account as and when
actually realized. The amount of any such Tax saving for any taxable
period shall be the amount of the reduction in Taxes payable to a Tax
authority by such Purchaser Party with respect to such Tax period (net
of any Tax detriment resulting from the receipt of the indemnity
payment) as compared to the Taxes that would have been payable to a
Tax authority by such Purchaser Party with respect to such Tax period
in the absence of such Tax benefit. The Purchaser Party realizing such
tax benefits shall notify the Seller or the Parent upon realizing such
tax benefits.
45
(vi) Any payment made by the Seller or the
Parent to a Purchaser Party pursuant to this Section 8.2 in respect of
any indemnifiable event shall be net of any insurance proceeds
realized by and paid to such Purchaser Party in respect of such claim.
Such Purchaser Party shall use its reasonable efforts to make
insurance claims relating to any indemnifiable event for which it is
seeking indemnification pursuant to this Section 8.2; provided that
such Purchaser Party shall not be obligated to make such an insurance
claim if the cost of pursuing such an insurance claim together with
any corresponding increase in insurance premiums or other chargebacks
to such Purchaser Party, as the case may be, would exceed the value of
the claim for which such Purchaser Party is seeking indemnification.
(vii) The indemnification rights provided
hereunder shall be the exclusive remedy of the Purchaser Parties with
respect to any dispute arising out of or related to this Agreement,
except for the right to seek specific performance of any of the
agreements contained herein.
Notwithstanding any implication to the contrary contained in this Agreement, the
limits on indemnification set forth in this Agreement shall not apply to claims
in the case of fraud by either of the Seller Entities.
(c) INDEMNIFICATION BY THE PURCHASER. The Purchaser
shall indemnify the Seller Entities and hold the Seller Entities and the Seller
Entities' respective officers, directors, stockholders, employees, agents,
representatives, affiliates, successors, and assigns (collectively, the "SELLER
PARTIES") harmless from and against and pay on behalf of or reimburse such
Seller Parties in respect of any Loss which such Seller Party may suffer,
sustain, or become subject to, as a result of or relating to:
(i) the breach of any representation or
warranty made by the Purchaser contained in this Agreement or in any
certificate delivered by the Purchaser with respect thereto in
connection with the Closing (in each case, determined without regard
to any qualifications therein referencing the terms "materiality,"
"Material Adverse Effect," or other terms of similar import or
effect); or
(ii) the breach of any covenant or agreement
made by the Purchaser contained in this Agreement.
(d) LIMITATIONS ON INDEMNIFICATION BY THE PURCHASER. The
indemnification provided for in SECTION 8.2(c) above is subject to the
following limitations:
(i) The Purchaser will be liable to the Seller
Parties with respect to claims referred to in SECTION 8.2(c)(i) and
SECTION 8.2(c)(ii) (but only to the extent the related Loss relates to
the breach of a covenant that by its terms does not continue after the
Closing Date) only if the Seller gives the Purchaser written notice
thereof within the Applicable Limitation Date; provided that so long
as the Seller delivers written notice of a good faith claim to the
47
Purchaser no later than the Applicable Limitation Date, the Purchaser
shall be required to indemnify the Seller Parties for all Losses
(subject to the other limitations contained herein) which the Seller
Parties may incur in respect of the matters which are the subject of
such claim, regardless of when incurred;
(ii) If the Purchaser's indemnification
obligation under this SECTION 8.2 arises in respect of any
indemnifiable event (A) for which a Seller Party receives
indemnification from the Purchaser and (B) which results in any Tax
benefit to such Seller Party for any taxable period (or portion
thereof) beginning and ending after the Closing Date which would not,
but for such indemnifiable event, be available, such Seller Party
shall pay, or shall cause to be paid, to the Purchaser an amount equal
to the actual Tax saving produced by such Tax benefit reduced by the
amount of any Tax detriment to such Seller Party as a result of the
receipt of such indemnification. Tax benefits and detriments shall be
taken into account as and when actually realized. The amount of any
such Tax saving for any taxable period shall be the amount of the
reduction in Taxes payable to a Tax authority by such Seller Party
with respect to such Tax period (net of any Tax detriment resulting
from the receipt of the indemnity payment) as compared to the Taxes
that would have been payable to a Tax authority by such Seller Party
with respect to such Tax period in the absence of such Tax benefit and
the Seller Party realizing such Tax benefits shall notify the
Purchaser upon realizing such Tax benefits;
(iii) Any payment made by the Purchaser to a
Seller Party pursuant to this SECTION 8.2 in respect of any
indemnifiable event shall be net of any insurance proceeds realized by
and paid to such Seller Party in respect of such claim. Such Seller
Party shall use its reasonable efforts to make insurance claims
relating to any indemnifiable event for which it is seeking
indemnification pursuant to this SECTION 8.2; provided that such
Seller Party shall not be obligated to make such an insurance claim if
such Seller Party in its reasonable judgment believes the cost of
pursuing such an insurance claim together with any corresponding
increase in insurance premiums or other chargebacks to such Seller
Party, as the case may be, would exceed the value of the claim for
which such Seller Party is seeking indemnification; and
(iv) The indemnification rights provided
hereunder shall be the exclusive remedy of the Seller Parties with
respect to any dispute arising out of or related to this Agreement,
except for the right to seek specific performance of any of the
agreements contained herein.
Notwithstanding any implication to the contrary contained in this Agreement, the
limits on indemnification set forth in this Agreement shall not apply to claims
in the case of fraud by the Purchaser.
In the event a Purchaser Party has a claim for indemnification pursuant to
Section 8.2(a) for which (A)(i) the Parent agrees in writing that the Purchaser
Party is entitled to indemnification or (ii) a final non-appealable order of a
court of competent jurisdiction is rendered in favor of the Purchaser Party
48
and (B) the Parent has failed to satisfy such claim in full within ten business
days of notice of the issuance of such final, non-appealable court order or the
date of the written agreement with respect thereto, then the Purchaser may, at
its option, cause the Parent and Seller to satisfy such indemnification
obligation by notifying the Seller that the Purchaser is reducing the amount
owing, without duplication, under either or both Seller Notes; provided,
however, that the Purchaser shall not reduce the amount owing under any Seller
Note at any time when such Seller Note is owned and held by a Person other than
the Seller Entities and their Affiliates; provided, however, that the Seller
shall (and shall cause its Affiliates to) give to the Purchaser not less than 30
days prior written notice before transferring any Seller Note to a Person other
than the Seller Entities and their Affiliates. This shall affect the timing and
amount of payments required under each Seller Note in the same manner as if the
Purchaser has made a permitted prepayment thereunder.
(e) PROCEDURES. If a party hereto seeks indemnification
under this Article VIII, such party (the "INDEMNIFIED PARTY") shall promptly
give written notice to the other party (the "INDEMNIFYING PARTY") after
receiving written notice of any action, lawsuit, proceeding, investigation, or
other claim against it (if by a third party) or discovering the liability,
obligation, or facts giving rise to such claim for indemnification, describing
the claim, the amount thereof (if known and quantifiable), and the basis
thereof; provided that the failure to so notify the Indemnifying Party shall not
relieve the Indemnifying Party of its obligations hereunder except to the extent
such failure shall have prejudiced the Indemnifying Party. In that regard, if
any action, lawsuit, proceeding, investigation, or other claim shall be brought
or asserted by any third party which, if adversely determined, would entitle the
Indemnified Party to indemnity pursuant to this Article VIII, the Indemnified
Party shall promptly notify the Indemnifying Party of the same in writing,
specifying in detail the basis of such claim and the facts pertaining thereto
and the Indemnifying Party shall be entitled to participate in the defense of
such action, lawsuit, proceeding, investigation, or other claim giving rise to
the Indemnified Party's claim for indemnification at the Indemnifying Party's
expense and option and (subject to the limitations set forth below) shall be
entitled to control and appoint lead counsel of such defense (including the
defense of a particular claim in a proceeding involving multi-party claims) with
reputable counsel reasonably acceptable to the Indemnified Party; provided that,
as a condition precedent to the Indemnifying Party's right to assume control of
such defense, it must first agree in writing to be fully responsible for all
Losses relating to such claims and to provide full indemnification to the
Indemnified Party for all Losses relating to such claim; and provided further
that the Indemnifying Party shall not have the right to assume control of such
defense (but shall have the right to participate) and shall pay the reasonable
fees and expenses of counsel reasonably acceptable to the Seller retained by the
Indemnified Party, if the claim which the Indemnifying Party seeks to assume
control (each, an "INDEMNIFIED PARTY CONTROLLED PROCEEDING") (i) involves or
relates to abuse, neglect, mistreatment or other misconduct relating to a client
managed or served, directly or indirectly, by any Acquired Company, (ii)
involves a claim to which the Indemnified Party reasonably believes could be
detrimental to or injure the Indemnified Party's reputation, customer or
supplier relations or future business prospects, (iii) seeks non-monetary relief
(except where non-monetary relief is merely incidental to a primary claim or
claims for monetary damages), (iv) involves criminal allegations, (v) is one in
which the Indemnifying Party is also a party and joint representation would be
inappropriate or there may be legal defenses available to the Indemnified Party
which are different from or additional to those available to the Indemnifying
Party, or (vi)
48
involves a claim which, upon petition by the Indemnified Party, the appropriate
court rules that the Indemnifying Party failed or is failing to vigorously
prosecute or defend. With respect to actions, lawsuits, proceedings and
investigations or other claims asserted by a third party which are outstanding
as of the Closing Date, if the Seller Entities are currently defending such
action, lawsuit, proceeding, investigation or other claim, the Seller Entities
shall have the right to control such defense subject to the right of the
Purchaser Parties to divest the Seller Entities of such right if such action,
lawsuit, proceeding, investigation or other claim would be an Indemnified Party
Controlled Proceeding hereunder. Similarly, notwithstanding anything herein to
the contrary, the Seller Entities shall have the right to control the
disposition of the matter referred to in Section 8.2(a)(vii). Notwithstanding
anything herein to the contrary, the Purchaser shall have the right to control
the disposition of the matter referred to in Section 8.2(a)(x); provided,
however, that the Purchaser shall use its reasonable efforts to mitigate the
amount of any Losses suffered by the Purchaser Parties in connection with such
matter.
If the Indemnifying Party is permitted to assume and control
the defense and elects to do so, the Indemnified Party shall have the right to
employ counsel separate from counsel employed by the Indemnifying Party in any
such action and to participate in the defense thereof, but the fees and expenses
of such counsel employed by the Indemnified Party shall be at the expense of the
Indemnified Party unless the employment thereof has been specifically authorized
by the Indemnifying Party in writing.
If the Indemnifying Party shall control the defense of any
such claim, the Indemnifying Party shall obtain the prior written consent of the
Indemnified Party (which shall not be unreasonably withheld) before entering
into any settlement of a claim or ceasing to defend such claim, if pursuant to
or as a result of such settlement or cessation, injunction, or other equitable
relief will be imposed against the Indemnified Party or if such settlement does
not expressly unconditionally release the Indemnified Party from all liabilities
and obligations with respect to such claim.
(f) TAX TREATMENT. Amounts paid to or on behalf of a
Seller Entity or the Purchaser as indemnification shall be treated as
adjustments to the Purchase Price for Tax purposes.
ARTICLE IX -- ADDITIONAL AGREEMENTS
SECTION 9.1 PRESS RELEASES AND ANNOUNCEMENTS. Before the Closing
Date, no press releases related to this Agreement and the transactions
contemplated herein, or other announcements to the employees, customers, or
suppliers of any Acquired Company shall be issued by any Party without the
mutual approval of all Parties, except for any public disclosure which any Party
in good faith believes is required by law or regulation (in which case the
disclosure shall be prepared jointly by the Seller and the Purchaser). After the
Closing Date, no press releases related to this Agreement and the transactions
contemplated herein, or other announcements to the employees, customers, or
suppliers of any Acquired Company shall be issued by the Parent, the Seller or
their respective Affiliates without the prior approval of the Purchaser, except
for any public disclosure which the
49
Seller in good faith believes is required by law or regulation (in which case
the disclosure shall be prepared jointly by the Seller and the Purchaser).
SECTION 9.2 FURTHER TRANSFERS. Each Party shall execute and
deliver such further instruments of conveyance and transfer and take such
additional action as any other Party may reasonably request to effect,
consummate, confirm, or evidence the consummation of the transactions
contemplated hereby.
SECTION 9.3 SPECIFIC PERFORMANCE. The Seller Entities
acknowledge that the Acquired Companies' businesses are unique and recognize and
affirm that in the event of a breach of this Agreement by the Seller Entities,
money damages may be inadequate and the Purchaser may have no adequate remedy at
law. Accordingly, the Seller Entities agree that the Purchaser shall have the
right, in addition to any other rights and remedies existing in its favor, to
enforce its rights and the Seller Entities' obligations hereunder not only by an
action or actions for damages but also by an action or actions for specific
performance, injunctive, and/or other equitable relief, in each case without the
requirement of posting a bond or proving actual damages.
SECTION 9.4 EXPENSES. The Parties shall pay all of their own
fees, costs, and expenses (including, without limitation, fees, costs and
expenses of legal counsel, accountants, investment bankers, brokers, or other
representatives and consultants and appraisal fees, costs, and expenses)
incurred in connection with the negotiation of this Agreement and the other
agreements contemplated hereby, the performance of its obligations hereunder and
thereunder, and the consummation of the transactions contemplated hereby and
thereby (collectively, the "TRANSACTION EXPENSES"); it being understood that if
the transactions contemplated hereby are consummated, the Company shall
reimburse the Purchaser and its investors for all of their Transaction Expenses;
it being further understood that no such Transaction Expenses of the Purchaser
shall be recorded on the books of the Company prior to the Closing or taken into
account in the Cash Amount or the Net Working Capital Amount. At the request of
the Seller, the Transaction Expenses for which the Seller is liable pursuant to
this SECTION 9.4 may be deducted from the Purchase Price and paid directly to
the Seller's legal counsel, investment bankers and other agents and
representatives. To the extent that any Acquired Company pays or becomes liable
with respect to any Transaction Expenses of the Seller Entities or any Acquired
Company, the Purchase Price shall be reduced dollar-for-dollar.
SECTION 9.5 NONCOMPETITION, NONSOLICITATION, AND CONFIDENTIALITY.
From and after the Closing:
(a) NONCOMPETITION. In consideration of the mutual
covenants provided for herein to the Seller Entities at the Closing, during the
period beginning on the Closing Date and ending on the third anniversary of the
Closing Date (the "NONCOMPETE PERIOD"), the Seller Entities shall not, and the
Seller Entities shall cause their Affiliates to not, engage (whether as an
owner, operator, manager, employee, officer, director, consultant, advisor,
representative, or otherwise) directly or indirectly in any Acquired Company's
business as presently conducted which is the business that provides home or
community based services to (i) at-risk children and youth who are behaviorally
50
and/or medically involved, (ii) individuals with mental retardation and/or
development disabilities, (iii) individuals with acquired brain injury or (iv)
the elderly, in each case, anywhere within the United States; provided, that
engaging in the existing business of the Seller Entities and their other
Affiliates (including, without limitation, participation in joint ventures) as
currently conducted on the date hereof shall not be deemed a violation of the
foregoing; provided further that ownership of less than 5% of the outstanding
stock of any publicly traded corporation shall not be deemed to be engaging
solely by reason thereof in any of its businesses. The Parties hereto agree that
the covenant set forth in this SECTION 9.5 is reasonable with respect to its
duration, geographical area, and scope. If the final judgment of a court of
competent jurisdiction declares that any term or provision of this SECTION 9.5
is invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
(b) NONSOLICITATION. The Seller Entities agree that,
during the Noncompete Period, they will not (and will cause their Affiliates to
not) directly or indirectly contact, approach, or solicit (other than a
generally public solicitation such as a newspaper advertisement) for the purpose
of offering employment to or hiring (whether as an employee, consultant, agent,
independent contractor, or otherwise) any Person employed by, or under contract
with, any Acquired Company, the Purchaser or any of their Affiliates, at any
time before the Closing Date or during the Noncompete Period, without the prior
written consent of the Purchaser.
(c) CONFIDENTIALITY. The Seller Entities shall treat and
hold as confidential any information concerning the business and affairs of the
Acquired Companies (including, without limitation, all Proprietary Rights) that
is not already generally available to the public (the "CONFIDENTIAL
INFORMATION"), refrain from using or disclosing any of the Confidential
Information (i) except in connection with this Agreement or (ii) unless and only
to the extent that such disclosure (after making reasonable efforts to avoid
such disclosure and after advising and consulting with the Purchaser about
possibly making, and the proposed contents of, such disclosure) is, in the
opinion of the Seller Entities' legal counsel, required by applicable law, and
at any time upon the reasonable request of the Purchaser deliver promptly to the
Purchaser or destroy, at the request and option of the Purchaser, all tangible
embodiments (and all copies) of the Confidential Information which are in its
possession or under its control other than any information the Seller Entities
are required by law or regulation to maintain. In the event that either of the
Seller Entities is requested or required (by oral question or request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process) to disclose any Confidential
Information, it shall notify the Purchaser promptly of the request or
requirement so that the Purchaser may seek an appropriate protective order or
waive compliance with the provisions of this SECTION 9.5(c).
(d) TRADE NAMES. The Seller Entities shall not use or
permit any of their Affiliates to use the "National Mentor," "Mentor Network,"
or "Mentor" name (or any other
51
trademarks, service marks, trade dress, trade names, logos or names used by any
Acquired Company) or any names or symbols likely to be confusingly similar
thereto in any manner anywhere in the world after Closing.
(e) REMEDY FOR BREACH. Each Seller Entity acknowledges
and agrees that in the event of a breach of any of the provisions of this
SECTION 9.5, monetary damages shall not constitute a sufficient remedy.
Consequently, in the event of any such breach, the Company, the Purchaser,
and/or their respective successors or assigns may, in addition to other rights
and remedies existing in their favor, apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the provisions hereof,
in each case without the requirement of posting a bond or proving actual
damages.
SECTION 9.6 TAX MATTERS.
(a) CERTAIN DEFINITIONS. As used in this Agreement:
"PARENT TAX GROUP" means the Affiliated Group of
which the Parent is the common parent.
"PRE-CLOSING PERIOD" means any taxable period
beginning before and ending on or before the Closing Date.
"STRADDLE PERIOD" means any taxable period beginning
before and ending after the Closing Date.
(b) RETURN FILING, REFUNDS, CREDITS AND TRANSFER TAXES.
(i) (A) The Seller Entities shall prepare, or
cause to be prepared, all Tax Returns of or including each of the
Acquired Companies for all Pre-Closing Periods (the "PRE-CLOSING
PERIOD RETURNS"). The Seller Entities shall pay, or cause to be paid,
all Taxes with respect to Pre-Closing Period Returns. The Seller
Entities shall timely file, or cause to be timely filed, all such
Pre-Closing Period Returns of or including the Acquired Companies that
are due on or before the Closing Date (giving effect to any extensions
thereto), and shall pay, or cause to be paid, all Taxes with respect
to all such Pre-Closing Period Returns.
(B) The Seller Entities shall prepare and
provide the Purchaser with Pre-Closing Period Returns, other than
Pre-Closing Period Returns that are described in Section 9.6(b)(ii),
that are due after the Closing Date (giving effect to any extensions
thereto) at least ten (10) business days prior to the due date
thereof. In connection with the Seller Entities preparation of such
Pre-Closing Period Returns, at the request of the Parent, the
Consolidated Subsidiaries (as defined below) will timely furnish Tax
information to the Parent for inclusion in such Tax Returns in
accordance with the Consolidated Subsidiaries' past custom and
practice. The Purchaser shall have the right to review and comment on
such
52
Tax Returns (including any amended returns) prior to filing, and the
parties shall resolve in good faith, and make any appropriate changes
to such Tax Returns with respect to, any issues arising as a result of
such review and comment process. Promptly upon the finalization of
such Tax Returns and in any case prior to the time such Tax Return is
required to be filed, the Seller shall deliver to the Purchaser (i) an
original of such Tax Return and (ii) a check payable to the
appropriate taxing authority in the amount of any Taxes shown as due
thereon. If the Seller timely delivers such Tax Return and check
payable to the appropriate tax authority as provided in the previous
sentence, the Purchaser shall cause such Pre-Closing Period Returns to
be executed by the appropriate officer and shall file such Returns,
together with the appropriate payment, on a timely basis.
(ii) The Parent will include the income of each
of the Acquired Companies which is a member of the Parent Tax Group
(the "CONSOLIDATED SUBSIDIARIES") (including any deferred income
triggered into income by Treasury Regulation Section 1.1502-13 and
Treasury Regulation Section 1.1502-14 and any excess loss accounts
taken into income under Treasury Regulation Section 1.1502-19 or any
similar provisions of state, local or foreign law) on the Parent
consolidated federal income Tax Returns and any consolidated,
combined, or unitary (or similar) state, local or foreign income Tax
Returns for all periods through the Closing Date in accordance with
the Parent's and Consolidated Subsidiaries' past custom and practice
and pay any income Taxes attributable to such income. At the request
of the Parent, the Consolidated Subsidiaries will timely furnish Tax
information to the Parent for inclusion in such Tax Returns in
accordance with the Consolidated Subsidiaries' past custom and
practice. The Parent will provide to Purchaser with copies of such Tax
Returns at least ten (10) business days prior to the due date thereof
(giving effect to any extensions thereto) and will allow the Purchaser
an opportunity to review and comment upon such Tax Returns (including
any amended returns) to the extent that they relate to the
Consolidated Subsidiaries, and the parties shall resolve in good faith
any issues arising as a result of such review. The income of the
Consolidated Subsidiaries will be apportioned to the period up to and
including the Closing Date and the period after the Closing Date by
closing the books of the Consolidated Subsidiaries as of the end of
the Closing Date.
(iii) The Purchaser shall prepare, or cause to be
prepared, and shall file, or cause to be filed, on a timely basis all
Tax Returns of or including each Acquired Company for the Straddle
Period (the "STRADDLE PERIOD RETURNS"). The Purchaser shall pay, or
cause to be paid, all Taxes shown to be due on such Tax Returns.
(iv) Any Tax refunds that are received by the
Purchaser (or to the extent such refund is payable but not paid due to
such refund being offset against other Taxes of the Purchaser, any
amounts credited against Taxes of the Purchaser with respect to such
refunds) arising from taxable periods of the Acquired Companies ending
on or before the Closing Date shall be for the account of the Seller,
and the Purchaser shall pay over to the Seller any such refund (or
credit against, as the case may be) within 15 days after receipt
thereof.
53
(v) The Purchaser shall provide the Parent with
copies of any Straddle Period Returns at least ten (10) business days
prior to the due date thereof (giving effect to any extensions
thereto), accompanied by a statement calculating in reasonable detail
the Parent's indemnification obligation pursuant to SECTION 9.6(c)
hereof (the "INDEMNIFICATION STATEMENT"). The Parent shall have the
right to review such Straddle Period Returns and Indemnification
Statement prior to the filing of such Straddle Period Returns. If the
Parent disputes any amounts shown due on such Tax Returns or the
amount calculated in the Indemnification Statement, the Parent and the
Purchaser shall consult and resolve in good faith any issues arising
as a result of the review of such Straddle Period Return and
Indemnification Statement. If the Parent agrees to the Indemnification
Statement amount, the Parent shall pay to the Purchaser an amount
equal to the Taxes shown on the Indemnification Statement not later
than three days before the due date (including any extensions thereof)
for payment of Taxes with respect to such Straddle Period Return. If
the Parties are unable to resolve any dispute within five (5) business
days after the Parent's receipt of such Straddle Period Return and
Indemnification Statement, the Purchaser and the Parent will jointly
retain the Firm as selected pursuant to Section 2.4(a) to resolve any
such disputes and the Firm shall resolve any such issues in dispute as
promptly as practicable. If the Firm is unable to make a determination
with respect to any disputed issue prior to the due date (including
any extensions) for the filing of the Straddle Period Return in
question, (A) the Purchaser shall file, or shall cause to be filed,
such Straddle Period Return without such determination having been
made and (B) the Parent shall pay to the Purchaser, not later than
three days before the due date (including any extensions thereof) for
the payment of Taxes with respect to such Straddle Period Return, an
amount determined by the Parent as the proper amount chargeable to the
Parent pursuant to this SECTION 9.6. Upon delivery to the Parent and
the Purchaser by the Firm of its determination, appropriate
adjustments shall be made to the amount paid by the Parent in
accordance with the immediately preceding sentence in order to reflect
the decision of the Firm. The determination by the Firm shall be
final, conclusive and binding on the parties.
(vi) If a notice of deficiency, proposed
adjustment, assessment, audit, examination or other administrative or
court proceeding, suit, dispute or other claim (a "TAX CLAIM") shall
be delivered, sent, commenced, or initiated to or against Purchaser or
any of the Acquired Companies by any Taxing authority with respect to
Taxes that results in or may result in a loss for which
indemnification may be claimed from the Seller Entities under this
Agreement, Purchaser shall promptly (but in any event within 15 days
after receipt of such Tax Claim) notify Parent of such Tax Claim.
Parent shall have the sole right to represent the Acquired Companies'
interests and to employ counsel of its choice at its expense with
respect to any such Tax Claim; PROVIDED THAT in the case of any Tax
Claim relating to any Tax for any Straddle Period Return which each of
Purchaser and Parent may be liable, Purchaser and Parent shall each be
entitled to participate at their own expense in such Tax Claim to the
extent it relates to a Tax for which such party bears liability
pursuant to this Section 9.6. No party may settle or otherwise dispose
of any Tax Claim for which another party may have a liability under
Section 9.6 without the prior written consent of such other party,
which consent may not be unreasonably withheld.
54
(vii) The Parent will not elect to retain any net
operating loss carryovers or capital loss carryovers of the
Consolidated Subsidiaries under Treasury Regulation Section
1.1502-20(g). The Purchaser shall not carryback any post-acquisition
Tax attribute of any of the Consolidated Subsidiaries into any of the
Parent's consolidated, combined, or unitary (or similar) Tax Return.
(viii) The Seller Entities and the Purchaser shall
reasonably cooperate, and shall cause their respective Affiliates,
officers, employees, agents, auditors and representatives reasonably
to cooperate, in preparing and filing all Tax Returns (including
amended returns and claims for refund), including maintaining and
making available to each other employees and all records necessary in
connection with Taxes and in resolving all disputes and audits with
respect to all taxable periods relating to Taxes.
(ix) Notwithstanding any other provisions of
this Agreement to the contrary, all sales, use, transfer, gains,
stamp, duties, recording and similar Taxes incurred in connection with
the transactions contemplated by this Agreement shall be paid equally
by the Seller and the Purchaser. The Seller shall file or cause to be
filed all necessary Tax Returns and other documentation with respect
to such Taxes and the Seller and the Purchaser shall share equally the
expense of such filings. If required by applicable law, the Purchaser
will join in the execution of any such Tax Returns or such other
documentation.
(x) All Tax allocation, Tax sharing or similar
agreements to which any of the Acquired Companies are bound shall be
terminated as of the time of the Closing and, after such time, neither
of the Purchaser nor any of Acquired Companies shall be bound thereby
or have any liability thereunder.
(c) TAX INDEMNIFICATION.
(i) From and after the Closing Date, the Seller
Entities shall protect, defend, indemnify and hold harmless the
Purchaser, the Acquired Companies and their Affiliates from any and
all Taxes imposed on the Purchaser or any of the Acquired Companies
and any Loss resulting from (A) for all taxable periods (or portions
thereof) beginning before and ending on or prior to the Closing Date,
including, without limitation, any Taxes imposed as a result of the
Section 338(h)(10) Election, (B) the several liability of any of the
Acquired Companies pursuant to Treas. Reg. Section 1.1502-6 or any
analogous state, local or foreign law or regulation or by reason of
its having been a member of any consolidated, combined or unitary
group on or prior to the Closing Date, (C) its ceasing to be a member
of the Parent Tax Group, (D) the breach of any of the Parent Tax
Group's covenants set forth in this Section 9.6, (E) breaches of
representations and warranties in Section 5.10, or (F) any Tax
allocation or Tax sharing or similar agreement, as a transferee or
successor, by contract or otherwise. The indemnification under this
Section 9.6(c) and the indemnification for Taxes set forth elsewhere
in Section 9.6 hereof shall not be subject to the indemnification
Basket and Cap forth in Section 8.2(b).
55
(ii) For purposes of SECTION 9.6(c)(i), in the
case of any Taxes that are imposed on a periodic basis and are payable
for a Straddle Period, the portion of such Tax which relates to the
portion of such Tax period beginning before and ending on the Closing
Date shall (A) in the case of any Taxes other than Taxes based upon or
related to income or receipts, be deemed to be the amount of such Tax
for the entire Tax period multiplied by a fraction, the numerator of
which is the number of days in the Tax period ending on the Closing
Date and the denominator of which is the number of days in the entire
Tax period and (B) in the case of any Tax based upon or related to
income or receipts, be deemed equal to the amount which would be
payable if the relevant Tax period ended on the Closing Date.
(d) SECTION 338(h)(10) ELECTION. The Parent, at the
request of the Purchaser, will join with the Purchaser in making a timely
election under Code Section 338(h)(10) (and any corresponding elections under
state, local, or foreign tax law) (collectively, the "SECTION 338(h)(10)
ELECTION") with respect to the purchase and sale or deemed purchase and sale of
the stock of any or all of the Acquired Companies hereunder. The Parent will pay
any Tax attributable to the making of the Section 338(h)(10) Election and will
indemnify the Purchaser and the Acquired Companies against any Losses arising
out of any failure to pay such Tax. The Purchaser shall prepare Internal Revenue
Service Form 8023 with respect to the Acquired Companies and such other forms
and schedules as are necessary or required to the make the Section 338(h)(10)
Election, and, subject to the Parent's approval, which shall not be unreasonably
withheld, the Parent and the Purchaser shall execute such Form 8023 and such
other forms and schedules, and shall take all such other acts as are necessary
to make or perfect such Section 338(h)(10) Election.
(e) ALLOCATION OF PURCHASE PRICE. The Parties agree that
the purchase price for and the liabilities of the Consolidated Subsidiaries
(plus other relevant items) will be allocated to the assets of the Consolidated
Subsidiaries for all Tax purposes in accordance with Section 338 of the Code and
the regulations thereunder and the procedures set forth on the "ALLOCATION
SCHEDULE" attached hereto. The Purchaser, the Consolidated Subsidiaries, the
Parent and their Affiliates shall file all Tax Returns (including, but not
limited to Internal Revenue Service Form 8594 and any other corresponding state
and local forms) required by applicable law in connection with such allocation.
SECTION 9.7 LEGEND FOR THE RESTRICTED SECURITIES.
(a) Restricted Securities are transferable only pursuant
to (i) public offerings registered under the Securities Act, (ii) Rule 144 or
Rule 144A of the Securities and Exchange Commission (or any similar rule or
rules then in force) if such rule is available and (iii) subject to the
conditions specified in Section 9.7(b) below, any other legally available means
of transfer.
(b) In connection with the transfer of any Restricted
Securities (other than a transfer described in clauses (i) or (ii) of Section
9.7(a) above), the holder thereof shall deliver written notice to the Purchaser
describing in reasonable detail the transfer or proposed transfer, together with
an opinion of counsel which (to the reasonable satisfaction of the Purchaser) is
knowledgeable in securities law matters to the effect that such transfer of
Restricted Securities may be
56
effected without registration of such Restricted Securities under the Securities
Act. In addition, if the holder of the Restricted Securities delivers to the
Purchaser an opinion of counsel that no subsequent transfer of such Restricted
Securities shall require registration under the Securities Act, the Purchaser
shall promptly upon such contemplated transfer deliver new certificates for such
Restricted Securities which do not bear the Securities Act legend set forth in
Section 9.7(d). If the Purchaser is not required to deliver new certificates for
such Restricted Securities not bearing such legend, the holder thereof shall not
transfer the same until the prospective transferee has confirmed to the
Purchaser in writing its agreement to be bound by the conditions contained in
this Section 9.7(b) and Section 9.7(d) below.
(c) If any Restricted Securities become eligible for
sale pursuant to Rule 144(k), the Purchaser shall, upon the request of the
holder of such Restricted Securities, remove the legend set forth in
Section 9.7(d) below from the certificates for such Restricted Securities.
(d) Each certificate or instrument representing
Restricted Securities shall be imprinted with a legend in substantially the
following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE
SECURITIES LAWS. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE CONDITIONS RELATING TO SECURITIES LAWS
SPECIFIED IN THE STOCK PURCHASE AGREEMENT, DATED AS OF JANUARY 18,
2001, AS AMENDED AND MODIFIED FROM TIME TO TIME, BY AND AMONG THE
ISSUER AND CERTAIN INVESTORS, AND THE ISSUER RESERVES THE RIGHT TO
REFUSE THE TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF SUCH CONDITIONS
SHALL BE FURNISHED BY THE ISSUER TO THE HOLDER HEREOF UPON WRITTEN
REQUEST AND WITHOUT CHARGE."
Notwithstanding any of the foregoing in this Section 9.7, the Purchaser
acknowledges and agrees that the Restricted Securities owned by the Seller
Entities will be pledged as collateral under the Parent Credit Agreement or any
replacements or refinancings thereof and that no further action, permission or
opinions are required to be given by the Seller Entities to the Purchaser to
pledge the Restricted Securities under the Parent Credit Agreement or any
replacements or refinancings thereof.
SECTION 9.8 COMPANY EMPLOYEES. As of the Closing Date, the
Company shall continue to maintain the Company's group health plan for the
benefit of its employees. Employees of the Company who participate in such plan
will continue to be eligible to participate in such plan and all payments made
by such employees toward deductible, out-of-pocket and co-payment obligation
limits under such plan for the plan year which includes the Closing Date will
continue to be recognized under such plan. The Company will also recognize past
service with the Company for eligibility and vesting purposes under the
Company's benefit plans.
57
SECTION 9.9 SELLER NOTE MATTERS. If (i) the Seller Note B Amount
is greater than zero and (ii) the Senior Credit Facility is further syndicated
during the twelve month period following the Closing Date such that the Senior
Debt Financing Amount after such further syndication exceeds the Senior Debt
Financing Amount on the Closing Date, then the Company shall make a prepayment
on the Seller Note B (such prepayment to be applied first in payment of accrued
and unpaid interest and second in repayment of outstanding principal) in an
amount equal to the lesser of (A) the outstanding principal balance and accrued
and unpaid interest on the Seller Note B and (B) the product of (i) the Senior
Debt Financing Amount after such further syndication MINUS the Senior Debt
Financing Amount on the Closing Date and (ii) the quotient of five divided by
nine; provided, however, that the Company shall not be obligated to make such
prepayment at any time when the Company is in default under the Senior Credit
Facility or any replacement thereof. Any repayment of a Seller Note required to
be made by the Company pursuant to this Section 9.9 shall be made within three
business days of the time when the Company has increased the Senior Credit
Facility as contemplated above in an amount to make such payment.
Notwithstanding any rights the Seller (or other holders of the Seller Notes) may
have to receive payments in priority over the Purchaser's other subordinated
lenders and investors, the Seller hereby agrees that the Company may grant to
its other investors and subordinated lenders the right to be paid the portion of
any increase in the Senior Debt Financing Amount referred to above that is not
required to be paid to the holder of the Seller Note B pursuant to this SECTION
9.9; provided, however, that the Seller (or other holders of the Seller Note B)
shall be paid pursuant to this Section on a pari passu basis with such other
investors and subordinated lenders.
SECTION 9.10 USE OF MAGELLAN NAME. The Purchaser agrees and
acknowledges that the Acquired Companies have no rights to use the "Magellan"
name. From and after the Closing, the Purchaser shall not use or permit any of
the Acquired Companies to use in any manner whatsoever the "Magellan" name (or
any variation thereof) and shall promptly remove all trade dress, physical
characteristics, color combinations and other indications of operation under the
Magellan name, including, without limitation, signage, from any premises from or
at which the businesses of the Acquired Companies are operated.
SECTION 9.11 INSURANCE MATTERS. The Seller Entities covenant and
agree as follows:
(a) the Seller Entities will continue to maintain the
insurance policies that are required to be set forth on the INSURANCE SCHEDULE
(the "INSURANCE POLICIES") (or if such policies are terminated, substantially
equivalent policies) for the benefit of the Acquired Companies, with respect to
occurrences prior to the Closing Date, regardless of whether claims are brought
prior to or after the Closing Date;
(b) except to the extent after the Closing that the
Acquired Companies do not comply with the terms of the Insurance Policies which
are applicable to them, the Acquired Companies will continue to enjoy
substantially the same rights and benefits under the Insurance Policies after
the Closing, with respect to occurrences prior to the Closing, regardless of
whether claims are brought prior to or after the Closing;
58
(c) except to the extent after the Closing that the
Acquired Companies do not comply with the terms of the Insurance Policies which
are applicable to them, the Acquired Companies will have the right to tender all
claims for all occurrences that occur prior to the Closing Date to the Insurance
Policies regardless of when the claim is brought;
(d) the Seller Entities will use their reasonable best
efforts to assist the Acquired Companies in tendering claims to the applicable
insurers under the Insurance Policies and to provide the Acquired Companies with
proceeds in a timely fashion of all claims made by or with respect to the
Acquired Companies under the Insurance Policies;
(e) the Acquired Companies will use their reasonable
best efforts to assist the Seller Entities in tendering claims to the applicable
insurers under the Insurance Policies;
(f) the Seller Entities will be responsible for
satisfying any deductibles, retentions and other retained amounts on insurance
coverage with respect to all claims made under the Insurance Policies; and
(g) the Parent shall purchase, at its own cost and
expense, prior to the Closing Date, for the benefit of the Acquired Companies,
an insurance policy (or an extension of an existing policy) that has the effect
of making the general and professional liability insurance of the Acquired
Companies an occurrence based policy for all dates prior to the Closing Date
(e.g., the Parent shall purchase a "tail" to the claims made based professional
liability policy that began in June 2000) and the Acquired Companies shall have
the right to make claims under such newly purchased insurance policy as provided
in this Section 9.11 as if such insurance policy were an Insurance Policy for
purposes of this Section 9.11.
ARTICLE X -- MISCELLANEOUS
SECTION 10.1 AMENDMENT AND WAIVER. This Agreement may be amended
and any provision of this Agreement may be waived, provided that any such
amendment or waiver shall be binding upon a Party only if such amendment or
waiver is set forth in a writing executed by the Purchaser and the Seller. No
course of dealing between or among any Persons having any interest in this
Agreement shall be deemed effective to modify, amend, or discharge any part of
this Agreement or any rights or obligations of any Party under or by reason of
this Agreement.
SECTION 10.2 NOTICES. All notices, demands, and other
communications given or delivered under this Agreement shall be in writing and
shall be deemed to have been given, (i) when received if given in person, (ii)
on the date of electronic confirmation of receipt if sent by telex, facsimile or
other wire transmission, (iii) three days after being deposited in the U.S.
mail, certified or registered mail, postage prepaid, or (iv) one day after being
deposited with a reputable overnight courier. Notices, demands, and
communications to the Parties shall, unless another address is specified in
writing, be sent to the address or telecopy number indicated below:
59
NOTICES TO THE PARENT OR THE SELLER
OR, BEFORE THE CLOSING, NOTICES TO THE COMPANY: WITH A COPY TO
- ---------------------------------------------- --------------
c/o Magellan Health Services, Inc. Dow, Lohnes & Albertson, PLLC
6950 Columbia Gateway Drive One Ravinia Drive
Suite 400 Suite 1600
Columbia, M.D. 21046 Atlanta, GA 30346
Attention: Mark S. Demilio Attention: John W. McNamara, Esq.
Fax No. (410) 953-5200 Fax No. (770) 901-8874
NOTICES TO THE PURCHASER
OR, AFTER THE CLOSING, NOTICES TO THE COMPANY: WITH A COPY TO:
- --------------------------------------------- --------------
c/o Madison Dearborn Partners Kirkland & Ellis
Three First National Plaza, Suite 3800 200 East Randolph
Chicago, Illinois 60602 Chicago, Illinois 60601
Attention: Timothy Sullivan Attention: Sanford E. Perl, Esq.
Fax No. (312) 895-1001 Fax No. (312) 861-2200
SECTION 10.3 BINDING AGREEMENT; ASSIGNMENT. This Agreement and
all of the provisions hereof shall be binding upon and inure to the benefit of
the Parties and their respective successors and permitted assigns; provided that
neither this Agreement nor any of the rights, interests, or obligations
hereunder may be assigned by any Party without the prior written consent of the
other Parties; provided that
(a) the Purchaser may assign, in whole or in part, its
rights and obligations pursuant to this Agreement to one or more of its
Affiliates; provided that the Purchaser will nonetheless remain liable for all
of its obligations hereunder;
(b) the Purchaser and the Company may each assign its
rights under this Agreement for collateral security purposes to any lender
providing financing to the Purchaser, the Company, or any of their Affiliates
and any such lender may exercise all of the rights and remedies of the Purchaser
and the Company hereunder; and
(c) the Purchaser and the Company may assign its rights
under this Agreement, in whole or in part, to any subsequent purchaser of the
Purchaser or any Acquired Company or any material portion of its assets (whether
such sale is structured as a sale of stock, a sales of assets, a merger, or
otherwise); provided that the Purchaser and the Company will nonetheless remain
liable for all of its obligations hereunder.
SECTION 10.4 SEVERABILITY. Except as otherwise provided in
SECTION 9.5(a), whenever possible, each provision of this Agreement shall be
interpreted in such a manner as to be effective and valid under Applicable Law,
but if any provision of this Agreement is held to be prohibited by or invalid
under Applicable Law, such provision shall be ineffective only to the extent of
such
60
prohibition or invalidity, without invalidating the remainder of such provisions
or the remaining provisions of this Agreement.
SECTION 10.5 NO STRICT CONSTRUCTION. The language used in this
Agreement shall be deemed to be the language chosen by the Parties to express
their mutual intent, and no rule of strict construction shall be applied against
any Person. The Parties hereto have participated jointly in the negotiation and
drafting of this Agreement. In the event of an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties hereto, and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement.
SECTION 10.6 CAPTIONS. The captions used in this Agreement are
for convenience of reference only and do not constitute a part of this Agreement
and shall not be deemed to limit, characterize, or in any way affect any
provision of this Agreement, and all provisions of this Agreement shall be
enforced and construed as if no caption had been used in this Agreement.
SECTION 10.7 ENTIRE AGREEMENT. This Agreement and the documents
referred to herein contain the entire agreement between the Parties and
supersede any prior understandings, agreements, or representations by or between
the Parties, written or oral, which may have related to the subject matter
hereof in any way.
SECTION 10.8 COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original but all of
which taken together shall constitute one and the same instrument.
SECTION 10.9 GOVERNING LAW. All questions concerning the
construction, validity, and interpretation of this Agreement shall be governed
by and construed in accordance with the domestic laws of the State of Illinois,
without giving effect to any choice of law or conflict of law provision (whether
of the State of Illinois or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the Illinois.
SECTION 10.10 JURISDICTION AND CONSENT TO SERVICE. Without
limiting the jurisdiction or venue of any other court, each of Parties (a)
agrees that any suit, action or proceeding arising out of or relating to this
Agreement may be brought solely in the state or federal courts of Illinois; (b)
consents to the exclusive jurisdiction of each such court in any suit, action or
proceeding relating to or arising out of this Agreement; (c) waives any
objection which it may have to the laying of venue in any such suit, action or
proceeding in any such court; and (d) agrees that service of any court paper may
be made in such manner as may be provided under applicable laws or court rules
governing service of process.
SECTION 10.11 PARTIES IN INTEREST. Nothing in this Agreement,
express or implied, is intended to confer on any Person, other than the Parties
and their respective successors and assigns, any rights or remedies under or by
virtue of this Agreement.
* * * * *
61
IN WITNESS WHEREOF, the Parties have executed this Stock
Purchase Agreement as of the date first written above.
NATIONAL MENTOR, INC.
By: /s/ Greg Torres
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Its: President
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MAGELLAN HEALTH SERVICES, INC.
By: /s/ Mark S. Demilio
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Its: EVP, Finance & Legal
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MAGELLAN PUBLIC NETWORK, INC.
By: /s/ Mark S. Demilio
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Its: VP & Asst. Secretary
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NATIONAL MENTOR HOLDINGS, INC.
By: /s/ Timothy Sullivan
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Its: President
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